Q4 2021 Ziff Davis Inc Earnings Call
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Good day, ladies and gentlemen, and welcome to <unk> Ziff Davis Q4, and year end 2021 earnings call.
My name is Paul and I will be the operator assisting you today at this time all participants are in a listen only mode.
A question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
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.
Ladies and gentlemen.
And welcome to the Ziff Davis Investor Conference call for Q4 and fiscal year 2021.
The operator mentioned I'm, Bret Richter, Chief Financial Officer of Ziff Davis, I am joined by our Chief Executive Officer Vivek Shah of.
A presentation is available for today's call.
A copy of this presentation is available at our website.
You launch the webcast, there's 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 Dot Ziff Davis Dot com and.
In addition, you'll be able to access the webcast from this site.
After completing the formal presentation, we will be conducting a Q&A. The operator will instruct you at that time regarding the procedures for asking questions.
<unk> you can email questions to Investor Ziff Davis Dot com.
Before we begin our prepared remarks.
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 could 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've 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've included as part of our slideshow for the webcast.
Refer you to discussions in those documents regarding safe Harbor language as well as forward looking statements. In addition, please note that the fourth quarter and full year 2000, 22021 results are preliminary unaudited and subject to adjustments.
In particular due to the complexity of the October seven 2021 spinoff of consensus and the related transactions, including the debt for debt exchange. The presentation of the transaction's impact on the company's financial statements, including the presentation of continuing and discontinued operations and the size of the gain associated with the retention.
19, 9% stake in consensus.
Being finalized any change to the impact of the realized gain on investments of $290 million associated with the retention of 19, 9% stake in consensus would be material to our GAAP net income from continuing operations as a result of the foregoing certain information provided you ran is subject to change.
Let me turn the call over to Vivek Ray's remarks.
Thank you Brett.
To say, it's great to have you on our team.
Good morning, everyone.
We're very pleased to have capped off an exceptional 2021 with a strong fourth quarter.
While the successful spinoff of consensus justifiably garnered a lot of attention in 2021.
Ziff Davis delivered exceptional pro forma results at the same time.
Revenues of nearly $1 4 billion up over 26% year over year, and adjusted EBITDA of $485 million up over 28% year over year. We also exited the year with the strongest balance sheet and deepest financial resources, we've ever had.
We posted over 10% revenue growth in Q4.
With advertising revenues up 7% and subscription revenues up 15%.
As I described on our last call, we expected to see a deceleration in growth in Q4 with retail me not lapping itself as well as a tough comp with strong online shopping season, and the introduction of the ninth generation of gaming consoles during 2000 Twenty's Q4.
On the advertising front, our growth was driven primarily by our health and wellness properties, where we continued to see strong demand from pharma marketers looking to reach patients and physicians within relevant content.
In January everyday Health announced the addition of Cleveland clinic to which trusted care access portfolio.
And a multiyear partnership everyday health will exclusively represent AD inventory on Cleveland Clinic <unk>.
And bring first to market solutions to our advertising partners.
We're proud to have been entrusted to further the Cleveland Clinic's mission and support their best in class medical content.
Our pregnancy and parenting business led by Babycenter has been increasingly active in supporting clinical trial recruiting and pregnancy exposure registries, including key Covid related studies.
Our shopping properties were slightly up in the quarter, even with Retailmenot lapping itself beginning in November and the tough overall shopping comp.
Advertising and gaming and entertainment was also slightly up a year. After the new gaming consoles were released and our <unk> advertising continued its momentum from Q3 with strong AD revenue growth.
We continue to believe that our advertising franchise has some meaningful advantages.
First.
We match advertising, so relevant content not debate real data.
In other words, our ads are placed based on the content you're consuming not based on third party data.
We operate in high value verticals Tech gaming helps and shopping where there are endemic advertisers who value audiences exhibiting purchase intent.
Third our advertising solutions attract large blue chip marketers, who tend to spend more consistently over time and small marketers and finally, our advertising solutions are performance driven providing measurable results for clients.
On the subscription front, we saw some very nice growth out of our connectivity businesses with continued strength from our <unk> and <unk>.
Offerings.
We also saw a nice boost to subscription revenue from the timing benefit of Amas acquisition, which closed in June of 2021.
This is an acquisition that we remain very excited about as evidenced by the renaming of our marketing technology business to the mosque group.
This group now consists of an integrated portfolio of marketing technology offerings that includes SCO.
E Mail marketing and second line voice services.
Cyber security business was flat in the quarter.
We continue to explore growth opportunities for the business.
Our guidance for 2022 projects overall revenue growth of approximately 10% at the midpoint.
Ill point out that we have not incorporated any future acquisitions into our guidance.
Therefore, we are only providing an outlook for the businesses that we currently own.
We will update guidance as appropriate if acquisitions materially affect our range.
We're projecting our advertising revenues to grow high single digits in 2022.
We expect stronger growth in the second half than first.
First half for two reasons.
Q1, and Q2 of 2021, where strong growth quarters for us, making the comps more challenging.
Second as I discussed in our last call. We are cautious about the impact to supply chain disruptions on our advertising clients.
We are seeing campaigns being delayed budgets being curtailed some of our marketers, especially in tech and retail are having production and fulfillment challenges.
These delays are sector specific because in the case of pharma, which is our single largest ad category.
We're seeing no supply chain challenges whatsoever.
We are protecting our subscription business to grow in the low teens with strong growth in our connectivity and martech groups offset by some weakness in our cyber security.
We see continued demand for our expanded set of offerings and connectivity from speed test ACA, how to down detector to our most recent addition group metrics.
We believe we are now the most complete source of broadband analytics in the market.
We also project our Mas group to have a very strong growth year, the combination of organic and acquired revenue growth.
With respect to our other revenues, which are still very small at about 3% of revenues. We are seeing strong growth of over 50% with our humble games publishing business continuing to drive this growth.
With our newest indie hit unpacking.
Already selling over 300000 units.
Its release in December 2021.
We continue to look for ways to scale, our indie publishing operation.
We are projecting adjusted EBITDA margins of 36%, which is about 100 basis points better than 2021.
That translates into about 13% adjusted EBITDA growth at the midpoint.
As you know the company's stated goal is to double earnings every four to five years, which implies a 15% to 20% earnings CAGR.
Since 2012, we've done better than that by doubling earnings three times.
But this is not a linear in depth.
There is an understandable lumpiness that comes with the capital allocation and programmatic acquisition strategy.
We invest our shareholders' capital responsibly, and where we believe we can generate outstanding returns.
If and when we consummate transactions in 2022.
And it should only enhance our growth rates.
Let me provide you with an update on our ESG efforts.
We're getting ready to publish our inaugural ESG report for 2021 in the next few weeks.
The report will include findings from the Companys first greenhouse gas inventory.
Which calculates our carbon emissions.
In 19, 2020 and 2021.
In doing so we've laid the groundwork to set a science based target.
The report also reflects the company's efforts to align with G Akamai SaaS and.
In Tc FTE reporting standards.
In addition to our environmental efforts. We're also heavily focused in our efforts.
The report highlights key data points around our workforce representation.
Higher and inclusivity and promotions among others.
It also details the policies programs and practices, which address the material topics most important to our company and its stakeholders.
And this well I'd just like to mention that Ziff Davis recently received a perfect score on the human rights campaign's 2022, corporate equality index.
Earning the designation as a best place to work for LGBTQ plus our quality.
In sum, we've made great strides in the company's ESG journey and look forward to publishing our upcoming report.
Lastly, in the spirit of Black history month.
Like to mention a few exciting initiatives.
In 2020 humble bundle launched its black game developer fund committing a $1 billion annually towards this unique program.
Which provides black game developers, the assistance and resources to create and publish games.
Since its inception, the black game developer fund assigned and provided support to over 20 qualifying developers.
We've also continued our focus on health and our quality and everyday health with our Black helped facts resource Center.
We have launched a new six part series on health change makers celebrating those who have made a positive impact on the health and wellbeing of their communities and beyond.
These are just a couple of examples of how Ziff Davis leverages each platforms to support communities of color.
Now, let me pass the call back to Brad. Thank you Vivek, let's discuss our financial results.
Our earnings release reflects both our GAAP and non-GAAP financial results for Q4, 2021, and the full year 2021.
Our earnings release also reflects pro forma adjustments for the impact of various asset dispositions.
Explanations for and reconciliations of these adjustments are provided in our earnings release.
As you may recall from our previous earnings calls, we sold our Australian and New Zealand voice assets in August 2020.
And our UK voice assets in February 2021.
In September 2021, we completed the sale of our <unk> backup business as a result, while certain of these divestitures impact Q4 2020 noted these divestitures impact our Q4 2021 results.
On October seven 2021, we completed the spinoff of consensus.
To recognize my colleagues at Ziff Davis and many of the companies former team members that joined consensus for executing such an important transaction for our company and its shareholders.
Our GAAP income statement and balance sheet reflect the financial activity related to consensus through October seven 2021 in discontinued operations.
We will focus our discussion today and my commentary will primarily relate to our pro forma non-GAAP financial results from continuing operations, which exclude the contributions from the consensus business for the periods up through the date of the spin and exclude the contributions from our divested businesses the periods.
They were owned by Sip Davis now, let's review the summary of the quarterly financial results on slide four.
We reported pro forma revenue from continuing operations of $408 6 million for the quarter as compared with $370 1 million for the prior year period, reflecting growth of 10, 4%.
Pro forma adjusted EBITDA from continuing operations was $161 6 million.
For Q4, 2021, as compared with $151 3 million for the prior year period, reflecting growth of six 8%.
Our adjusted EBITDA margin for the quarter was 39, 5% lets turn to EPS.
But first I should highlight that our GAAP net income and EPS for Q4, 2021 reflect a sizeable gain associated with our retained stake in consensus as we have discussed on prior calls we are pursuing alternatives that would allow us to achieve a tax free disposition of our stake in consensus.
And as a result, our financial statements do not reflect taxes on this GAAP gain resulting in a significant after tax contribution from this gain to GAAP net income and EPS for the quarter. This.
This gain is not reflected in our adjusted non-GAAP earnings per diluted share.
As for our adjusted non-GAAP earnings per diluted share for the fourth quarter, we reported $2 17.
This figure reflects a 5% increase as compared with our Q4 2020 pro forma results.
Please note that our Q4 2021 EPS reflects the dilutive effect of the retirement of our 3.25% convertible notes earlier this year.
Offset in part by certain recent share repurchases, which I will discuss shortly.
Turning to slide five for.
For our fiscal year, we delivered very strong pro forma growth in revenue adjusted EBITDA and adjusted non-GAAP earnings per diluted share from continuing operations 2021 total pro forma revenue grew 26, 8% to $1 $3 $83 billion.
Pro forma adjusted EBITDA grew 28, 3% to $484 6 million.
And we had adjusted EBITDA margins of 35%.
Pro forma adjusted non-GAAP earnings per diluted share grew 31, 4% to $6.
<unk>.
On slide six and seven we have provided performance summaries for our two primary types of revenue.
Advertising and subscriptions.
In addition to the quarterly and annual revenues. We have also started disclosing new metrics related to these revenue streams on a quarterly basis for 2021.
As you can see on slide six Q4 pro forma advertising revenue grew 7% as compared with the prior period.
Our annual advertising revenue grew 34%.
Net advertising revenue retention is an annual trailing 12 month's statistics that we update quarterly.
Net advertising revenue retention.
Compares advertising revenue generated by a defined group of advertisers and one trailing 12 month period to advertising revenue generated by these advertisers in the prior comparable period.
Our goal is to have retention in excess of 100%, which we had in all four quarters in 2021 with Q4 coming in at a very strong rate of 112%.
In the fourth quarter Ziff Davis had more than 2000 advertisers with the quarter, we spend of at least $2500 each.
<unk> revenue per advertiser was at its highest level this year at more than $131000.
Slide seven depicts our subscription revenue performance Q4 pro forma subscription revenue grew at 15% the same level of subscription revenue growth that we achieved for the year.
Scriber were down slightly as compared to the years prior quarters, primarily due to modest decreases in cyber security and humble bundle.
Average monthly revenue per subscriber reached its highest level. This year at nearly $20 per subscriber with an increase of higher revenue value Mas and connectivity customers and our churn rate remained at 3%.
Slide eight provides quarterly and year over year pro forma revenue growth rates delineated by organic and acquired revenue growth.
Revenues from businesses owned for at least a full 12 months are included in our organic revenue. While the acquired revenues are from those businesses. We've owned for less than 12 months for the full year 2021, we achieved a 10% organic revenue growth rate this rate slowed in the fourth quarter as expected because of Retailmenot.
Included in November and December of both periods and the relative strength of IGN advertising during last year's Q4.
You exclude the impact of Retailmenot and IGN, the quarter's organic growth was about 5% before turning to guidance I'd like to spend a moment on slide nine which depicts a number of elements of our balance sheet.
Our balance sheet is extremely strong.
And as discussed on prior calls was enhanced through certain transactions related to the spinoff of consensus we have significant cash liquidity with $695 million of cash and cash equivalents as of year end more than $350 million of short and long term investments and significant lever.
Capacity, both on a gross and net leverage basis.
We continue to be committed to keeping gross leverage at three times adjusted EBITDA or below.
And we are currently well within this metric with year end 2021 gross leverage of two five times adjusted EBITDA.
As of 2021 year end, our net leverage was one times.
And only <unk> three times. If you include the value of our short and long term investments.
We will continue to be thoughtful and opportunistic as we allocate our investable resources to pursue enhanced shareholder value.
During the fourth quarter, we did just that we repurchased $25 $4 million of our four and five 8% notes and repurchased $47 $7 million of our common shares.
These repurchase activities continued in the first quarter, when we repurchased an additional $54 $6 million of these notes and $58 $7 million of our shares.
We repurchased 1 million shares at an average price of $106 43.
As part of our opportunistic share buyback program in which we repurchase shares when the return profile. We believe is highly compelling.
As you may recall from our prior calls in order for the cash distributions that we received from consensus to be tax free to Ziff Davis. These proceeds must be used within one year of the spin for a specific set of allowed disbursements.
Repurchases qualified we also deployed approximately $30 million in cash for a number of Q4 and prior period acquisitions again, all consistent with our balanced approach to capital allocation.
Going forward, we will continue to consider repurchase activities that we believe are accretive to shareholder value, while seeking investment opportunities that we believe are particularly attractive opportunities for us to grow our business and generate attractive returns.
I'd like to provide a few additional details related to our guidance, which is described on slides 11, and 12 overall, our Q4 2021 preliminary unaudited results were consistent with or better than the midpoint of the guidance that we updated last quarter.
With regards to our 2022 guidance the mid points of our revenue adjusted EBITDA and adjusted non-GAAP income per diluted share guidance implied growth rates of approximately 10%, 13% and 9% as compared with the 2021 preliminary unaudited pro forma results from continuing.
Patients that we presented today.
We believe that these expectations are strong, particularly in consideration of the current business environment.
With regards to certain details underlying this guidance in 2022, we expect advertising revenue growth in the high single digits subscription revenue growth in the low teens and other revenue growth of nearly 50%.
Given the seasonality of our digital media properties, we anticipate that roughly 20% and 30% of our revenues will be in the first quarter and fourth quarter respectively.
The company expects to have an adjusted EBITDA margin of approximately 36% for the year post the spinoff of consensus which had a higher concentration of international revenue as compared with Ziff Davis, we expect our non-GAAP tax rate to increase many factors go into our projected tax rate, but we currently expect an annual rate of between 20.
Three 5% to 25%.
Note these rates often fluctuate quarterly <unk>.
Additional details related to our share based comp and anticipated share count are outlined on the sides as well.
Following our business outlook slides, our supplemental materials, including reconciliation statements for the various non-GAAP measures to the nearest GAAP equivalent.
This section includes a GAAP reconciliation on page 15 that reflects free cash flow from continuing operations and discontinued operations for 2021 or $402 5 million.
This figure reflects contributions from the disposed assets and consensus through their disposal dates for the distribution date, respectively.
Forward on an annual basis, we expect free cash flow to approximate adjusted EBITDA less capital expenditures interest and taxes the impact of working capital and any sources and uses that are excluded from our non-GAAP financials note.
Given the timing of interest tax payments and changes in working capital quarterly cash flows can fluctuate meaningfully it's been a milestone quarter for the company.
And we are excited to pursue additional opportunities in 2022.
With that I would now ask the operator to rejoin us to instruct you on how to queue for questions.
Thank you.
We will now be conducting a question and answer session in the interest of time, we ask that you. Please limit yourself to one question. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in question Q.
You May press Star two if you would like to remove yourself from the queue for.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment. Please while we begin.
And the first question is coming from Shyam Patil from Susquehanna International Group.
Your line is life.
Hey, guys. Congrats on the on the fourth quarter and the outlook I just had a couple of quick questions.
First question can.
Can you talk a little bit about the supply chain issues. You commented on I mean, certainly does seem to be impacting a lot of companies in the sector. Maybe if you could talk about which businesses, which verticals and then just your level of confidence.
These.
These are less of an issue in the second half and then <unk>.
Second on the on the M&A environment.
Just curious.
Take on.
Whether or not the changes in the public markets and valuations that we've seen over the past few months is that something that.
<unk> helps you guys be more aggressive in terms of doing M&A or is that something that could potentially lead to a slowing I mean suddenly guys are that you guys have been quite aggressive since you've been CEO , but just kind of curious of your take there.
Yeah, great. Thank you and good morning, John So on your first question with respect to supply chain challenges their manifesto would manifest primarily.
In our retail and tech categories and the way that would work is that look and we saw that at the beginning of the pandemic, where there were supply issues at a number of retailers and the retailers came to US and said look it's not useful for you to generate demand for products that we can't fulfill.
And so while we're not quite at that level of challenge. We are seeing signs of it it is built into our expectations into our guidance.
Really for the first to second quarter, but we're pretty optimistic based on the discussions that we're having.
With our marketing clients and our advertising partners that this will alleviate over time I think also the tech hardware category, which is not insignificant for us given that tech is a is an important category, though it is more software than hardware I will point out, but you do have chip shortages and chip shortages also.
The lack of availability so to answer your question I think we have appropriately.
<unk> built in any potential challenges around supply chain into our guidance and remain pretty confident that over the course of the year those will work themselves out now.
Now on your second question with respect to the M&A environment I do think you're right that generally speaking there is more sobriety.
In the marketplace around valuations, which obviously always.
Plays to our advantage as an active buyer of businesses and obviously right now we're.
<unk> is well capitalized and positioned as we've ever been to.
To execute against transaction. So that combination is frankly very exciting for us and now with the team very focused on the acquisition program and system after a year.
Not only did we have the spinoff of consensus we had a number of other dispositions. It was a very very active.
<unk> year, it wasn't an active acquisition year.
Which everyone has seen and I think that energy that that we were allocating to the various activities to spinoff and to do that.
Will show up in.
Our M&A activity and I think it is a more benign environment for us. So that's what I would say and I would also say and just to remind everyone that.
The way in which we source and generate opportunities across every single business unit inside of every division and at the corporate level and so that combination in that approach to sourcing generally yields.
A pretty a pretty robust pipeline of opportunities for us to consider.
Great. Thank you.
Thank you.
Next question is coming from Cory Carpenter from J P Morgan career.
Corey Your line is live.
Great. Thank you.
I'll answer as well.
Thank you rewind a few companies.
Need some margin expansion. This year. So just hoping you could talk about the drivers here, how you were able to alleviate some of the cost pressures on the companies are seeing.
And then secondly on M&A, hoping you could talk a bit about the acquisition and the diary that you launched a few weeks ago. Thank you.
Thanks, Corey look I think that and I'm happy you point. This out we have always been careful spenders.
Ziff Davis and really thoughtful about how we spend shareholders money and so we have been very focused on operating expenses and ensuring that we're seeing the appropriate returns from everything that we put forward in every dollar that we spend and I think that the.
The process around the consensus has been also gave US an opportunity to really review everything and so it's not one thing I think it's the continued mindset and ensuring that we stay at or above our target margins, which are in the mid <unk> and I'm glad that we've gotten we've arrived there sooner.
Sooner and this is in an environment, where a lot of expenses are returning to the P&L into the business whether those are travel expenses et cetera, I'll also point out that our business model generally, particularly around the advertising model a lot of the advertising revenues have high operating leverage to the degree to which.
We can outperform in advertising.
The flow through to EBIT can be quite attractive and can be quite accretive than to the overall margin profile of the company.
On your second question around Emma's, we're really excited for the brand as you may know, our parenting and pregnancy business has been predominantly in the U S Navy center and what to expect.
Our very strong and very popular U S base.
Regnant fee.
Applications and brands, obviously babies are born all over the world and so we've had a real desire to start to expand our footprint and take our business model our proven business model in the category two territories outside of the United States. The UK happens to be our second biggest.
Territory, but much smaller.
Particularly for bit for Babycenter, and so the opportunity for us to expand in a market that would be a natural market for us to expand in.
With a brand that is of the caliber of the brands that we own in its market.
And where we believe we've got a monetization formula and a business model that will help to unlock revenues makes it. It makes it an exciting deal. It is small it is not it is a smaller deal, but I think it is representative of a little of our ambition in this category.
Thank you.
Thank you.
Thank you.
And the next question is coming from Dan Ives from Wedbush.
Your line is live.
Yeah. Thanks, So just on M&A can you just talk about from a size of deals like is there an appetite.
To do some larger deals here given the position you're in whether it's maybe another pillar I mean, how should we think about that versus the year.
Yes, Dan.
It's a good question.
As I've said in the past I guess I'll reiterate here is there is a sweet spot of deals for this company over the last.
Decade that has worked really really well sort of lower mid market type acquisitions, and I think we're going to continue to state. There I don't think are I don't think the fact that we have more capacity means larger deals I think it just may mean more of the kind of deals that we've done which.
We feel comfortable with given that we have so many different business units that are competing for capital and have the wherewithal to create value from acquisitions I just think it mitigates our risk it spreads our bats, and I think it feeds.
More parts of the company in a really healthy and productive way.
Having said all of that.
We are always open to a larger deal our level of confidence must be extremely high and as you know and think of those as more platform type deals.
We haven't done many in the history of the company I'd say the first platform deal with the acquisition of Ziff Davis itself in 2012, followed by the acquisition of the everyday health business in 2016, and then four years after that so it seems to happen on every <unk>.
Our year cadence.
There was the retail me non acquisition, but in no case did we expand in excess of.
What would have been.
$500 million or 10% far less than 10% of the enterprise value of the company.
<unk> had a.
Sort of.
A threshold that we would we would never entertain anything that was in excess of 20% of the enterprise value of the company, but again, we haven't come close to that level of transactions. So I wouldn't I wouldn't conclude that given the healthy balance sheet, where we are our big game hunting.
I think our hunting is the same hunting it's Ben.
We think we can we have the capacity to transact on more opportunities.
Great. Thanks.
Thank you.
Thank you and the next question is coming from James Breen from William Blair James Your line is less.
Thanks for taking the question.
Just one again on the M&A side around the gaming industry, obviously, we've seen some large M&A deals happening.
Around gaming just any thoughts there whether there is opportunity for M&A potentially to sell some of that and then secondly on <unk>.
<unk> rolling out.
The government broadband build out.
Any.
Additional inquiries, you're seeing around that for businesses to get more insight into what's happening in the broadband markets. Thanks.
Hey, Jim Great question. So obviously the gaming industry, there's been a number of.
Pretty high profile and significant transactions in the industry, which we watch with.
With great attention and we think it could yield actually more revenue and more marketing dollars unlocked. Some of these larger more consolidated players tried to start to deliver on the promise of these combination so there could be some positive tailwind.
Around our assets with respect to what's going on I also think it shows up in our other revenues, which are still small, but our efforts in the humble games publishing area also I think is beneficial as I think a lot of these larger platform companies want to continue to build their library.
And we will seek in the publishers like us and our titles to add to their libraries. So we've become a little bit of an arms dealer to some of these platforms, which was something we were anticipating so that also aligned I think with what we're seeing in the in the marketplace and then remember because we're largely.
No.
James Media, Yes, digital storefront as well I do think that we can still transact in the space without being concerned about asset values.
Making it hard for us to acquire in that space. So I'm not I'm not concerned about that on the aspect.
You know, Ken we unlocked value I would say this about all of our businesses and I think demonstrated by what we experienced last year with consensus if.
If we see an opportunity.
To unlock meaningful and sustained shareholder value through.
Through a separation, whether it's a sale or a spin or carve out IPO or whatever.
We're going to continue to really ensure that if those are available to us we will take advantage of those and so I think we have our eyes open across our portfolio for opportunities like that that's not a new statement. That's something we've always said, but I think given that we've acted in a meaningful way with the consensus spin.
And the confidence that we frankly garner from that experience, we feel that there may well be opportunities like that.
As we think about the company's portfolio.
So look I think that there is.
A lot to like now you asked about connectivity and <unk>. It is worth pointing out that the connectivity set of businesses the uccle Echo how.
Group of assets, our fastest growing assets. However, you look at them organically total growth.
Et cetera, we executed.
Really important transactions for Egypt clean.
In route metrics, so for those who follow broadband analytics and testing.
There has been a.
Long held sort of bifurcation in the market there are those who who believe in crowd source testing and analytics. That's what we have historically done where individuals test their speeds and the aggregated analytics help inform network owners and operators as to the quality.
Their networks is benchmarked against their competition.
But there's also something called drive testing.
Which is to actually equipped vehicles with devices and software to measure how those devices are performing in motion.
Driving along a highway.
And that would drive test.
We've never had drive testing data or capabilities within this group.
So the opportunity now to bring drive testing and root metrics.
Certainly the market leader and drive testing has been for a while and I'm sure you've seen all the ads where people are.
Promoting their route metrics scores, having that combination puts us now.
<unk> in terms of an analytics point of view, we no longer are engaging in the debate of which is better we have all of them and so we have any and all of us into.
The network performance, which we think is going to be very powerful and I think <unk> just built into that right. These are network. How are they doing are they are they meeting the need.
That's just going to open up even more opportunity for us.
Great. Thanks.
Thank you and once again, ladies and gentlemen, you can enter the Q&A queue at any time by pressing star one on your telephone keypad Thats star one to enter the Q&A queue.
And the next question is coming from Rishi Galeria from RBC Ritchie Your line is nice.
Wonderful thanks, guys. Thanks, so much for taking my question.
I have two here one for Bob one for Vic.
I wanted to maybe unpack the organic number a little bit.
Obviously, the 2% a little bit.
So from what we saw in Q3 and Q2.
Wanted to understand maybe the drivers of that number one we obviously don't have the compares from 2020 and I imagine the comparison in Q2, and Q3 will probably substantially easier than they were in Q4. So if we think about that maybe how much of that is attributable to the tough comps how much to the retail me not.
Kind of the drag on organic growth that brings as well as maybe the tougher e-commerce season.
And that's what we're.
Can you can you remind us what sort of impact you saw specifically from IBM, especially in light of what we've seen for some of the larger internet platforms from IBM and why you feel you are maybe a little bit more insulated from that impact and then others in the space. Thanks.
Great. Thanks, Retiary take the question on organic growth first I think first and foremost.
Well certainly we're here and focused on the quarter, particularly our first quarter after the consensus span and emerging as sort of our new platform for growth.
I think there should be as much focus on the full year organic growth is the fourth quarter and we will talk about the fourth quarter in a second.
We did 10% organic growth for the full year and that is a significant contributor to the overall value creation of our company and the path that we're on and we talk about our growth ambitions and we talk about.
Being a total growth company, we generally think about getting about half of that growth from organic and half through M&A and of course M&A.
Feeds into all of the questions that have been asked on this call and the timing and the nature or whatnot, but on a full year basis, our organic growth was strong with regards to a fourth quarter yes.
Maybe a lower rate there are a handful of factors one of those factors as well.
The retail me not acquisition and that eats into the equation.
Had very tough comps from last year overall last fourth quarter was extremely strong for the industry and the company.
<unk>.
Okay.
IGN dragged us down a little bit for the quarter as well, but overall bookings at the last 12 months and the growth that we put up I really believe that.
And then just.
On the question around <unk> and the overall AD environment, what I would say is that I do believe that the pendulum is swinging in our direction.
In that.
Content oriented and contextually driven advertising solutions.
Are humming into favor where as I described advertising is placed against that specific content adjacent to specific content versus based on interest and data collection and since IVF Bay.
Was really designed with the changes with respect to IBM.
To somewhat.
Disable interest based advertising targeting that obviously has had a negative impact on the platforms that rely on it that's not us and so from our point of view.
The challenges relating to either a third party cookie deprecation in the overall market view of swinging back to being an environment that they value premium environment, where the content and the fact that you're consuming the content indicate something about your purchase intent.
That is what we do and so I do believe that.
We're going to find ourselves in a favorite position I'll make one other point.
On this which is.
Some of them.
All of the larger platforms have a full range of customers from large enterprise buyers of advertising down to the smallest businesses.
And if you parse some of their challenges it's been more on the long tail.
Advertising business is really ahead of the tail type business.
Over 2000 enterprise level buyers of advertising, which demonstrate far more retention and recurrence of revenue I mean, one thing I would say.
For those who.
What's the company inside the company the net AD revenue retention statistics are remarkable.
They are enviable no matter what industry you look like they are SaaS like revenue retention really sticky.
Really retentive and that is I think the characteristic of.
The customer base that we have so.
There's a lot of new information.
In today's report and presentation that has a lot to get through I know, but we felt that it was important in this or.
Really our first opportunity to really talk about Ziff Davis going forward and how to think about the company. So I would encourage everyone to spend some time.
With the data that's in there.
Wonderful. Thank you so much.
Thank you and the next question is coming from Charlie Ehrlich from Baird Charley Your line is live.
Great Hey, thanks for taking the question.
I just wanted to dig into the strong expected subscription growth in 2022, it's great to see that.
Just love to get a little bit more detail on what's driving that what are the key pieces there.
Yes, any color on that would be great. Thanks.
Yeah no. Thank you so it's a combination of.
Real strength in the broadband business, so remember the subscription businesses roughly.
Roughly 60%.
Cyber security and Martech subscription offerings and then the balance.
Is the connectivity subscriptions in gaming subscription so in that mix.
Trends of the connectivity offerings is the primary organic driver of growth.
Add to that expected organic growth within the Martech offering and that group is now call. The Mas group plus the acquisition timing benefit of moth itself remember Mas was a mid year 2021 acquisition and so there is a timing benefit going into 2022.
It is offset slightly by.
A cyber security suite that we are still scratching at looking for growth opportunities. It's a great business unit to a $1 million of revenue in cyber security mid <unk> EBITDA margin, but as I've talked about in the past I wouldn't mind trading a little bit of that margin to accelerate the topline growth.
The value of a more organically, though profitable and highly profitable.
Cyber security business the value of that could be quite substantial given just with the cyber security market looks like today, but the mix of those things we're excited for that level.
Growth and we see opportunities.
Also within the humble business that could be.
In addition to what we've modeled so it's it is a good part and a good story as we look into as we look into this year.
Great. Thanks, and if I can just squeeze one more in for Brett.
You guys have talked about a 60% EBITDA free cash flow conversion rate in the past.
Is that how we should be thinking about 2022 as well from a free cash flow standpoint, because I think that might imply that free cash flow might be down year over year. If that's the conversion rates, so any infill and that would be awesome. Thanks.
Yeah, Thanks, Charlie Yes, free cash flow and free cash flow conversion continue to be a tremendous focus for the company, obviously post the spin of consensus.
To some degree different margin dynamics than the overall company gross margins are going to change I think first and foremost thinker.
Thinking about free cash flow.
This is really well.
In any given quarter, you have sort of ups and downs there could be working capital factors timing of certain payments our balance sheet, our interest expense and whatnot are generally.
We.
Think about it in sort of a very holistic way adjusted EBITDA less our capex interest taxes working capital will work itself out sometimes there's other sources and uses that are typically outflows of the company that we were non-GAAP and all of that plays out, but we will continue to target the company towards about a 60% converge.
Right, but free cash flow and we think that is healthy overall for a business like ours producing significant amounts of after tax what we leverage liquidity for us to pursue capital allocation alternatives and booking depending on the metric you're using there is a tremendous amount of ins and outs with the <unk>.
Between dispositions spinoff.
The change in the balance sheet, not sure exactly which metrics you're looking at but we anticipate producing meaningful free cash flow to continue to fuel our strategy.
And the only thing I'll point out is remember what youre looking at in the document the historic free cash flows include the fax business.
Consolidated alright.
And continuing up so that that would obviously.
Indicate that the free cash flow and the continuing ops would be different.
Yes, thanks, guys.
Thank you and the next question is coming from Jon <unk> from CJS Securities. John Your line is live.
Hey, good morning, gentlemen, thanks for taking my question My first one is for Vivek.
Do you expect to continue to see that pendulum swing towards you into that spending this year or do you expect maybe some of the bigger players to call some of that back.
Hey, Jonathan adapt their business models to the new privacy and regulatory pressures that are out there with us not do that Im wondering if theres any possibility that the other thing thats nice could do that as well.
I mean look there's always that possibility and you can't underestimate.
<unk>.
The empires that exist in our world and their ability to try to manage through the challenges, but I look I think that.
Even prior to the IVF changes, we had a lot of strength and momentum because I think.
Our performance driven solutions in the verticals we're in.
Relying.
On a disabling of interest based advertising they compete well side by side. So I would say that even if there is that.
<unk>.
Response from the large platforms around some of their challenges I don't think that changes our view of our growth potential and where we're looking to go and so no I'm not concerned about that I think more.
If the pendulum does swing our way, it's just more upside for us, but I don't view it as.
A threat because we've operated for a long time in an environment, where we've had to sit side by side with very large hegemonic level.
Players within the advertising ecosystem.
Got it that's good color.
Brad just a question on the guidance can you talk about the EPS growth rate this year versus the EBITDA growth rate.
The discrepancy normally expected EPS growth rate to be higher than EBITDA.
Yes, I think there's a couple of factors there again, we have to be very careful about our comparable periods and what we're looking at given the changing dynamics of the company keep in mind that.
In the second half of this year.
Converted.
And a quarter percent converts which increases our share count.
Forward.
It only blends in the current period started.
<unk> stock.
The fourth quarter and in the first that really doesn't factor.
Into the fourth quarter. So again the measure that you are looking at our tax rate pro forma for the consensus spin.
Going to go up the consensus business had a much higher.
Concentration of international revenues and in venues of lower taxes and in some cases different tax dynamics in credits. So as we said in our guidance, we're going to see a little bit of a higher tax rate, but generally.
The topline growth.
Feed the earnings machine and on a per share basis, it's that really may be dilution in tax dynamic two biggest contributors.
Okay, great. Thank you and if I could sneak one more in there do.
Do you have a pipeline today to drive that earnings growth, you're expecting to achieve over the next several years or is that something that you're still going to need to find that the targets are.
Just help us understand what you have in the pipeline against that goal of earnings growth.
Listen.
Step back our stated goal is to double earnings every four to five years. That's what we are looking to do and we've done that three times in the last decade. So we're ahead of plan and that combination is it's a combination of growing.
Earnings from the portfolio, we own and adding to our portfolio. So remember this guidance, which from an earnings point of view, 13% at the midpoint essentially gets US there is no M&A from this point forward baked into the year and as you can see on the schedule.
In the slides, we add a fair amount of acquired revenue each year. So I would say that I think I would look at it as the fact that we're growing this much without a lot of M&A activity in 2021 and without building in any into 2022 guidance.
This I think in a very enviable position for this year longer term I would simply say that given the balance sheet, we have and given the 10 year track record of putting our balance sheet to work I remain confident in our ability to double earnings every four to five years.
Great. Thank you.
Thank you.
Thank you and the next question is coming from Joe Goodwin from JMP Securities. Joe Your line is nice.
Great. Thank you and good morning.
Can you just share.
What the assumptions are for organic growth within the guidance for 2022.
It's about half of the revenue.
Okay. So consistent with Okay, and then I guess could you.
Can you describe maybe just what are some of the headwinds that you're seeing on the cyber security business today are the weaknesses that you're seeing kind of what's going on there and then yes.
Yes.
Youre looking at some of the different strategies, but I guess what are some of the strategies that you're exploring.
Yes, the biggest issue. We've got there is how do you compete for customer acquisition in a very frothy environment, where.
Competitors have allowable higher than ours, because they're willing to not generate profit and so.
And we've run into this before and I think we just have to be clever in property and the way in which we market, but customer acquisition LTV equation is very hard right now in the cyber security space, but to be clear we have a very good franchise. It's just not a high growth franchise and not a contributor to the overall organic growth of the company right if youre not.
On an organic grower you our definition only not contributing to the organic growth and it is George.
Revenue business. So we would like to return to growth I think if I were to look in the portfolio the area, where we're seeing kind of the most challenges specifically in the VPN space.
Very competitive space.
And they are we've got competitors who are prioritizing.
Topline growth over profitability.
I think non sustainable way that I think will as I've seen in many other markets will at some point work itself out, but that's the environment. We're in but it is a customer acquisition. It's certainly things we need to do on the product side that we're working on that as a matter of time ways in which we can improve our offerings and the user experience, but those are all in the pie.
And I feel I feel confident about that it really comes down to how do we how do we get the CAC LTV equation right for the businesses.
Thank you.
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 first and foremost I just want to say we appreciate you all joining us today joining me for my first call with the company I've already had the opportunity to meet many of you and I look forward to.
Lending time with each of you in the near future its really and truly a really exciting time for Ziff Davis and a privilege for me to be part of the team will be issuing a press release later this month with with regards to which investor conferences will be out in the near future. We hope to see some of you there and again, thank you and have a great day.
Thank you ladies and gentlemen, this does conclude today's conference you may disconnect. Your lines at this time and have a wonderful day. Thank you for your participation.