Ziff Davis, Inc. Q3 FY2021 Earnings Call

Good day, ladies and gentlemen. And welcome to Ziff Davis Third Quarter 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. The question-and-answer session will follow the formal presentation. On this call will be Vivek Shah, CEO of Ziff Davis; Steve Dunn, Chief Accounting Officer; and Alan Steier, Vice President of Corporate Finance at Ziff Davis. I will now turn the call over to Steve Dunn, Chief Accounting Officer at Ziff Davis. Thank you. You may begin.

Thank you. Good morning, ladies and gentlemen. And welcome to the Ziff Davis Investor Conference Call for Q3, 2021. As the operator mentioned, I am Steve Dunn, Chief Accounting Officer of Ziff Davis. And I am joined by our CEO, Vivek Shah; and our VP of Corporate Finance, Alan Steier. A presentation is available for today's call. A copy of this presentation is available at our website. When you launch the webcast, there is 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.ziffdavis.com. In addition, you'll be able to access the webcast from this site. After completing the formal presentation, we’ll be conducting a Q&A. The operator will instruct you at that time regarding the procedures for asking questions. In addition, you may email questions to investor@ziffdavis.com. Before we begin our prepared remarks, allow 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 would 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 have 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 have included as part of the slide show for the webcast. We refer you to discussions in those documents regarding safe harbor language as well as forward-looking statements. Now let me turn the call over to Vivek for his remarks.

Thank you, Steve, and good morning, everyone. I'm pleased to welcome you to our first earnings call since the successful completion of our spin-off of Consensus and the renaming of our company to Ziff Davis, which reflects our position as a leading, vertically focused digital media and Internet company. The team at Consensus is off to a tremendous start, and we wish them continued success. While Steve will provide an overview of our financial results, including and excluding Consensus, I'm going to focus my comments on the pro forma results that exclude Consensus and divestitures and include the B2B backup business that we sold in September. On that basis, we grew revenues by over 35% and adjusted EBITDA by over 23%, continuing the string of outstanding quarters. We're also reaffirming the guidance we provided about 2 months ago at the Ziff Davis Analyst Day. I also want to recommend for those who have not yet done so, to watch the Analyst Day presentation videos, which are posted on ziffdavis.com. They're very helpful in understanding the company, our strategy and priorities. Advertising revenues in the quarter grew by over 44%. We saw strong growth in every one of our verticals, which stands in contrast with some of our digital media peers. Health advertising grew by over 18% as we continue to see traditional pharma advertising dollars flowing into digital platforms. As we've noted in the past, we have significant reach with respect to both patients and providers, which makes us strategically valuable to pharma and other health and wellness marketers. Gaming and entertainment advertising continued its strong growth and momentum as part of the new console cycle. Meanwhile, the retail segment grew over 100%, aided mostly by the contribution of RetailMeNot, which we had not yet acquired at this time last year. Over the past couple of weeks, there's been a lot of discussion about the impact of iOS 14 and low opt-in rates for IDFA. As I've said in the past, we generate most of our ad revenue from contextually targeted placements as well as leveraging our first-party data. A vast majority of our advertising is browser-based, not mobile app-based, which provides another layer of protection from iOS changes. Therefore, we believe that the headwinds associated with iOS 14 and the broader movement to limit ad tracking and targeting based on behaviors do not apply to us. I can confidently say that an attractive aspect of our advertising franchise is that we have endemic advertisers who value the editorial environments and qualified clicks and leads we're able to deliver. Nonetheless, in the short term, we'll closely watch for any shifts in advertiser confidence, but we feel that we're in a very strong position over the long term with ad products and solutions that don't rely on ad tracking. We also closely monitor any cascading effects from supply chain disruptions. We certainly saw in Q2, 2020 how limited product supply led marketers to ask us to reduce the demand we were generating for them. I know many of our retail partners are looking to stimulate online purchasing much earlier this year to give themselves more time to meet demand. We responded by organizing our programming and efforts to start earlier, too. Obviously, we will be closely watching for any headwinds associated with supply chain challenges. Subscription revenues in the quarter were up over 18% compared to Q3, 2020. Our connectivity subscription businesses, which include Ookla and Ekahau, grew by 34% in the quarter as demand for broadband network intelligence and WiFi planning and deployment continues to strengthen. We also acquired a small strategic asset in the quarter called Solutelia, which we believe extends Ookla's depth of network measurement capabilities while also broadening our competencies in network building and site assessment. The cybersecurity and martech businesses grew nearly 20% in the quarter, driven by the acquisition of Moz, which is proving to be a strong addition to our martech portfolio. At the beginning of 2021, we began investing to establish sustained organic growth in these businesses, which have historically maintained conservative levels of sales and marketing. The competition for subscribers is fierce, and it will take time to scale customer acquisition programs that fit our profitability goals and to see the impact of our investments on recurring revenue. We're committed to finding a path to balance total growth while still delivering market-leading margins as we believe cybersecurity and martech represent two of the most valuable segments in the market today. Our adjusted EBITDA grew by over 23% with margins close to 34%, down about 300 basis points versus last year. A good chunk of the increased expenses comes from subscriber acquisition expenses in cybersecurity and martech, with the balance coming from lower margins at newly acquired businesses and the return of expenses that were light during quarantine. We should see margins improve to roughly 40% in Q4 and bring full-year margins to over 35%, which is our target for the company moving forward. As I indicated earlier, we are reaffirming our full-year guidance, which I should remind you contemplates an expected deceleration in revenue growth to about 10% in Q4 for three reasons: Number one, the year-over-year benefit from the RetailMeNot acquisition is mostly gone, given the acquisition took place in November 2020. Number two, there's a difficult year-over-year Q4 comparison; last year's holiday season disproportionately favored online sales, and many advertising programs paused in Q2 at the outset of the pandemic, coming back in Q4. And three, we saw a one-time benefit from the introduction of the new gaming consoles. At the midpoint of our range, our full-year guidance represents revenue and adjusted EBITDA growth of roughly 26%. A key contributor to our growth has been, and will continue to be, our acquisition system. With our focus on executing the spin, we've been somewhat quiet on the buy side for the last year. On a pro forma basis, we have $726 million in cash, $368 million of investments, and gross debt of $1.217 billion, representing a gross debt-to-EBITDA ratio of 2.5% at the midpoint of our 2021 guidance. In other words, we're well-capitalized and have a very healthy balance sheet. We will continue to be patient and disciplined in our deployment of our capital and believe there are a number of attractive digital media and Internet assets for us to consider. Just a quick update on our CFO search: Because of the great finance team we have, including Steve and Alan, who are with me today, I've had the opportunity to be deliberate and thorough in the search. We're seeing some fantastic candidates, and I believe it's realistic to expect a new CFO in place by our next earnings call. In the meantime, we shouldn't miss a beat as we have a deep and talented operational finance team in place. Before I hand the call back to Steve, let me provide you with an update on our ESG efforts. We are in the midst of our first greenhouse gas audit, where we're calculating our carbon emissions for 2019-2020 and 2021. We expect to complete the audit by early January and plan to communicate our findings in our 2021 ESG report, which will be published in Q1. As you may know, measuring GHG emissions is the key element for sustainability reporting, and this audit will enable us to set science-based targets and net-zero goals for the company next year. In addition to our environmental efforts, we're also heavily focused on the “S” or social in ESG, especially as it pertains to DEI. Since our last earnings call, we released our 2021 diversity report which highlights key data around our workforce representation, hiring, and inclusivity in senior leadership and management, promotions, and employee resource groups, among other topics. The diversity report is both comprehensive and informative and can be found on ziffdavis.com. I'm very pleased with the ESG strides we've made this year, and I'm confident that we'll continue to build upon our efforts and the foundation that we've created. With that, let me hand the call back to Steve.

Thanks, Vivek. I'll be walking you through our consolidated non-GAAP results for Q3, 2021. As you recall from our previous earnings calls, we sold our ANZ Voice assets in August 2020 and our UK Voice assets in February 2021. In September 2021, we completed the sale of our B2B backup assets. As a result, we will present our full non-GAAP results, which include these operations for the periods owned, and when we refer to our pro forma results, it will exclude the contribution from these divested assets. Separately, we will also address Ziff Davis performance, excluding the Consensus business and the divested Voice and backup assets. Now let's review the summary quarterly financial results on Slide 4. Let's begin with our revenues inclusive of the Consensus business. It was a record third fiscal quarter of revenues for the company. We reported revenue of $443 million in the quarter and $434.7 million of revenue, excluding the divested Voice and backup assets, representing approximately 24.5% and 27.7% growth, respectively, from Q3, 2020. Adjusted EBITDA was also a record for our third fiscal quarter with $175.1 million as reported and $170.8 million, excluding the divested Voice and backup assets, resulting in year-over-year growth of 13.6% and 16%, respectively. Finally, growth in our earnings per share: In the third quarter, we had $2.34 of reported non-GAAP adjusted EPS and $2.27 of EPS, excluding the divested Voice and backup assets, a growth of 15.8% and 16.4%, respectively, from Q3, 2020. Turning to Slide 5. In Q3, we had strong free cash flow generating $110.5 million, which represents a nearly 18% increase over the $93.7 million generated in Q3 of 2020. Over the last 12 months, we have generated in excess of $446 million in free cash flow. All of the figures on this slide are inclusive of Consensus and the divested assets. Now let's turn to the two businesses, Cloud Services and Digital Media for Q3 as outlined on Slide 6. The Cloud Services business, inclusive of Consensus, grew 7% on a reported non-GAAP basis to $182.1 million and 12.3% to $172.5 million, excluding the divested Voice and backup assets. Adjusted EBITDA was $83.7 million as reported and $79.5 million, excluding the divested Voice and backup assets, generating growth rates of minus 4.7% and minus 1.7%, respectively. As Vivek mentioned, the slight decline relates to marketing investments and acquisitions with margins that are not yet optimized. The Digital Media business revenue grew 40.4% to $262.2 million and experienced double-digit revenue growth exclusive of RetailMeNot, which was acquired in Q4 of 2020. The segment side total adjusted EBITDA increased 37.5% to $103.1 million. On Slide 7, we show the third-quarter results for Ziff Davis excluding Consensus and the divested Voice and backup assets. Our organic revenue growth was 12%, and our total growth was 35%. On the $346 million of total Q3 revenues, we had $117 million of EBITDA representing growth of 23%. On Slide 8, we have provided quarterly Ziff Davis financials, excluding Consensus and the divested Voice and backup assets. We've also provided a disaggregation of revenue by our 3 types: advertising, subscription, and other. 57% of our Q3 revenues came from advertising, and 30% were derived from subscription and licensing revenue. The remaining 4% is in other. Moving to Slide 9. We wanted to provide an overview of our cash, investment, and debt positions, particularly as the Consensus spin occurred in early October after our fiscal quarter end had already ended. For the avoidance of doubt, this table only accounts for known adjustments and does not include any impact from cash inflows or outflows since the end of Q3. Vivek noted earlier in our pro forma cash of $726 million and gross debt of $1.217 billion. Let me walk you through the numbers. We ended Q3 with $546 million of cash; $111 million of long-term investments which were OCV and Welltok; and $1.785 billion of gross debt. Please note those figures are principal debt. The spin-off distributed $771 million of proceeds. We tendered for $83 million of principal of our high-yield notes and repaid our bridge loan of $485 million. The debt premium for those transactions was $22 million. This results in a pro forma increase in our cash of $180 million. In addition, the CCSI stake on the day of the spin was worth approximately $257 million. Total pro forma cash and investments are $1.094 billion, and gross debt is $1.217 billion. Finally, before going to our question-and-answer session, I would like to turn your attention to our business outlook on Slide 11. We are reaffirming the full-year 2021 Ziff Davis RemainCo pro forma guidance given at our Analyst Day on September 9 and have also provided fourth-quarter guidance of revenues between $400 million and $414 million. EBITDA between $154 million and $162 million, and non-GAAP adjusted EPS between $2 and $2.14 per share. We are estimating an effective tax rate between 24% and 25% for Ziff Davis in Q4 and going forward, barring any legislative changes. This is higher than historic rates due to the business now having a higher proportion of its income in the United States. We're also assuming a share count of approximately 48.6 million. Following our business outlook slide, our various metrics and reconciliation statements for the various non-GAAP measures to their nearest GAAP equivalent. I would now ask the operator to rejoin us to instruct you on how to queue for questions. Thank you.

Thank you. We will now begin the question-and-answer session. The first question is from Cory Carpenter at JPMorgan. Cory, your line is active.

Good morning. Thanks for the question. Apologies. I'm losing my voice. Vivek, on the ad environment, not a lot of calls in the last few weeks. And you sounded quite positive, certainly more so than the message we've heard from some other companies. So just hoping you could talk more broadly. It sounds like you're not really seeing any impact; you're certainly not seeing any impact from iOS, but also not from the macro and supply chain. Is that right? And then maybe if you could just speak to kind of what your expectations are for the fourth quarter, especially given your e-commerce and vertical exposure. Thank you.

Sure, thanks. Good morning, Cory. From an advertising standpoint, we had a fantastic Q3. Our business principles—being vertically driven, performance-driven, and contextually driven—have really worked to our advantage. As you know, the advertising landscape has been affected by the ongoing and systematic disabling of interest-based ad targeting. Over the last decade, advertising shifted from targeting very specific audiences in specific moments to separating impressions and data, using information gathered from various online activities to apply to inventory. Regulators and large platforms are implementing changes that complicate this process, but that’s not our focus. As I mentioned in my prepared remarks, we've been aware of this reality for a long time, and we believe that the value of contextual advertising will eventually be recognized as interest-based advertising faces challenges. However, I'm cautious because when the ad ecosystem faces significant headwinds, we need to be careful not to be dragged down. Currently, we're not experiencing any downturn, but we are monitoring the situation closely. Regarding the supply chain, as I previously noted, we saw how it impacted advertising back in Q2 of 2020 when many of our retail partners, which are a major ad segment for us, indicated they couldn’t supply product and didn't want to purchase our demand. If a similar situation arises, it would definitely have a short-term effect, but it’s too early to determine if that will happen this holiday season. Many marketers are currently prepared and eager to encourage holiday shopping. Today is cash back day at RetailMeNot, and I encourage everyone looking for savings to sign up. We’re starting our initiatives a bit earlier this year, anticipating potential inventory issues as we approach the holidays.

Okay. Thank you, very helpful.

Thank you. And the next question is coming from Shyam Patil from SIG. Shyam, your line is live.

Thanks. Congrats on the quarter and the successful spin. I had a couple of quick ones. Vivek, can you talk a little bit about, now with the spin, how you're thinking about new vertical expansion versus kind of building out existing verticals? Just what the priority would be or urgency or likelihood would be of new vertical expansion? And then on IDFA, you guys have a pretty strong gaming franchise. Do you think that you could potentially benefit from IDFA since gaming advertisers now have fewer alternatives than before in terms of where they can acquire customers? Thank you.

Thank you, Shyam. I'll address the first question. Regarding vertical expansion, we are consistently exploring opportunities to add to our verticals. Considering the sectors we are involved in—tech, shopping, entertainment, health, cybersecurity, and martech—these are substantial areas with significant total addressable markets and promising growth potential. We still have considerable room to enhance our presence in these sectors. If you were to ask me about my preference, I tend to favor deeper expansion within our current verticals. We have established platforms, successful businesses, and strong teams, which enables us to pursue various acquisition types, especially tuck-in acquisitions that tend to be highly beneficial. Therefore, I would express a slight preference for focusing on our existing verticals. Nonetheless, we remain open-minded. Currently, our pipeline appears strong. Our balanced approach has garnered considerable attention, leading to many opportunities that may not have arisen in the past, although we typically had a good number. We are witnessing considerable inbound interest. If an opportunity presents itself in a new vertical that offers similar digital transformation potential and aligns with our preferred ad and subscription-based models, and if it allows us to create unique value through our platform, we would definitely explore that path. Regarding the IDFA question, I believe it extends beyond just IDFA to encompass the deprecation of third-party cookies. This falls under the broader trend of moving away from third-party data tracking for advertising targeting. I see this as a long-term evolution that should ultimately benefit us, as we focus on building our own user relationships. The timeline for this shift is unclear, but the industry is continuously adapting. While current methods for creating advertising profiles may face challenges, I anticipate there will be new solutions emerging. Ultimately, platforms with genuine registered users—those who willingly provide their information for relevant advertising—will gain an advantage. Thus, if a platform can maintain a true direct relationship with its users, it will likely be beneficial.

Great. Thank you, Vivek.

Thank you.

Thank you. And the next question is coming from Rishi Jaluria. Rishi, your line is live.

Thank you for answering my questions. It's encouraging to see the continued organic strength in the business. I would like to hear more about the cloud businesses. Vivek, could you share some insights on their performance and the outlook moving forward? I'm especially interested in the martech space and what you are observing on the VPN side. Thank you.

Good morning, Rishi. Thank you. Let me explain what our division, previously known as Cloud Services, has evolved into today. It now includes our cybersecurity efforts under the VIPRE brand and our marketing technology initiatives through the Moz brand. I mention these brands because they are both highly regarded. VIPRE is recognized as a strong and reputable cybersecurity brand. Within the VIPRE group, we have several component brands, including IPVanish, which operates in the VPN sector. The Moz group consists not only of Moz, a leader in SEO analytics and software, but also includes iContact, Campaign, and our email marketing services. We are currently pleased with our portfolio, the brands, and the capabilities within each group. As you know, especially in cybersecurity, we have divested from the B2B backup business to refine our portfolio into segments with the most potential for future success. I see these businesses as still in transition. Traditionally, they were managed primarily for profitability with insufficient emphasis on organic growth, and there hasn’t been enough investment in sales, marketing, and product development to achieve the organic growth seen in other competitive players. However, those competitors don’t usually have the same level of profitability as us. We have addressed this strategic question, which is reflected in our financials and explains the differences in margins. We have been investing for the past several quarters and will continue to seek opportunities to allocate funds effectively to foster organic growth. It’s early in the journey, and as you know, building subscription revenues takes time. Nonetheless, we are committed because both verticals are experiencing significant demand. We possess strong assets and advantageous scale, along with good margins. What we currently lack is a robust organic growth narrative, as our growth has largely stemmed from mergers and acquisitions. This is what we aim to change, similar to other areas within our company. We are prepared to invest because we believe that when we successfully balance these elements, the valuation of these businesses will be substantial. Observing trends in cybersecurity and martech, we see revenue multiples that are comparable to our EBITDA multiples, indicating a potential for our involvement in those areas. We are very focused on this. It reminds me of our observations in 2018 regarding the Consensus business, where we recognized the significant growth opportunities and made the necessary investments to realize them. As a result, Consensus is now a successful public company. There are many lessons from that experience that we intend to apply to both the cybersecurity and martech sectors.

Wonderful. Thank you.

Thank you. The next question is coming from James Fish from Piper Sandler. James, your line is live.

Hey, guys. This is Quinton on for Jim. Thanks for taking our question. First, a really strong quarter of monetization and take rates in the Digital Media business. How much of this is RetailMeNot driven versus core driven? And then maybe more housekeeping. Any idea of the breakdown of advertising versus subscription and the performance versus display in the quarter? Thank you.

Thanks. I'll address the first part of the question, and then Alan can tackle the second part. Regarding the advertising outperformance, the contribution from RetailMeNot in the third quarter significantly impacted our results compared to last year's performance, where it was not included. Even when you account for that, the growth was around 20%, and Alan can confirm this regarding our existing assets. The growth rates were impressive. It's worth noting that last year's third quarter was quite strong, so we initially had concerns about the comparison. With the various advertising challenges we've discussed, we were unsure about the potential impact. However, we are very pleased with the outcome. Additionally, the verticals we operate in are performing well. I want to highlight our health and wellness assets like Everyday Health Group, BabyCenter, What to Expect, and MedPage, which have shown exceptional results. I'm proud of our team for their continued success. Now, Alan, over to you for the splits.

Yeah. And RetailMeNot was — when you exclude RetailMeNot, we still grew in excess of 18%. So roughly around the 20% that you quoted to that. In terms of the split between display performance and subscription for Digital Media, it was roughly 41%, 34%, and 20%, respectively.

Super helpful. Thank you.

Thank you. The next question is coming from James Breen from William Blair. James, your line is live.

Thanks for taking questions. Just a couple. When you look at the pro forma numbers you gave for the standalone at Ziff Davis now and you look at sort of year-over-year growth. And then growth in EBITDA versus growth in revenue, it seems that EBITDA was sort of outpacing revenue growth through the first couple of quarters of this year and then sort of reverse this quarter and will reverse next quarter based on the guidance. Can you talk about sort of what's happening there and what's causing that? And then just strategically, looking at the balance sheet and what you're going to have for cash pro forma and debt, what are the thoughts on bringing gross debt down, holding cash for M&A. And any sort of color you can give us around a projected $1.3 billion plus revenue line, what the free cash flow dynamics will look like for the pro forma business? Thanks.

Thank you for the question, Jim. I will discuss margins and the balance sheet, and then Steve can provide insights on free cash flow. Regarding margins for RemainCo, we are ahead year-to-date. There has been some fluctuation between Q1, Q2, and Q3, primarily due to returning expenses that were lower during peak quarantine, along with our investments in cybersecurity and martech related to sales and marketing. Additionally, acquisitions like Moz have contributed revenue but not yet EBITDA, which we are optimizing, as usual, for EBITDA contribution. Overall, there is nothing surprising, and it aligns with our expectations. Last year's margin was somewhat artificially high due to reduced spending. Long-term, we see margins stabilizing around 35% to 36%, which is consistent historically. In contrast, the HoldCo margins were around 40%, skewed by the Consensus business. This represents a healthy margin level relative to our growth expectations. As for the balance sheet and debt, we are currently comfortable with our position and the cash available for acquisitions. We anticipate strong demand for that capital, mainly through our acquisition program. Importantly, we are significantly below our policy of maintaining a ceiling of three times gross debt over EBITDA, and we will remain under that as we grow. I want to address the retained stake in Consensus, which Steve mentioned was valued at $257 million. While we have not made any decisions yet, it’s essential to note that to maintain a tax-free status, we need to execute a debt-for-equity or equity-for-equity exchange within a year. We can hold the stake for up to five years, but after that, we would incur taxes on it. Now, Steve, could you provide some insights on free cash flows and the tax rate?

Thank you, Vivek, and thank you for the question, James. Looking ahead, you can expect Ziff Davis to maintain a 60% EBITDA conversion rate on our revenue, slightly down from the mid-60s due to our investments in the business and increased CapEx. We anticipate a 40% EBITDA conversion on our revenue and approximately 60% conversion of EBITDA to free cash flow moving forward. As I mentioned, we will be investing in the businesses to drive organic growth, which involves some additional CapEx. These are the projected figures we are working towards in the future.

Just one housekeeping. On the guidance for the fourth quarter for revenue, is there any fax revenue in that guidance?

No. The one week of Consensus is excluded from the business outlook.

And just to touch on the tax rate. Sorry, James. We're looking at 24% to 25% as our effective tax rate slightly up from where we've been in the past with the spin-off. It's increasing our domestically-sourced income and a higher tax bracket.

Okay. And then just one last question regarding the subscription-based revenue that you mentioned. When considering growth in this area, is there a possibility for that growth to come from existing customers, or is it solely dependent on new sign-ups?

I mean it's a combination really. I think it depends on the service. In some instances, it's going to be a bigger share of wallet where the subscription service is more of a SMB-type service, but then also penetration of more customers. In some cases, it could be price. We actually have been experimenting in cybersecurity of taking up price. It's cost us a little bit on cancel, but it seems to be driving better unit economics. So I think the answer is it depends because there are a number of different subscription businesses in there dissimilarly situated at times. But I think in all cases, I think we can get more subs, in some cases, higher price points, and then in some cases, higher share of wallet.

Great. Thanks.

Thank you.

Thank you. And the next question is coming from Will Power from Baird.

Hey. This is Charlie on the call for Will. Thanks for taking our question. Just wanted to ask about the Q4 guidance, specifically the revenue. Is there anything to call out on sort of subscription versus advertising split maybe? And then going forward into 2022, how should we kind of think about the organic growth profiles of both the subscription segment and the advertising segment?

It's a great question. Moving forward, we are considering the right segments for Ziff Davis and how to disaggregate revenue, likely focusing on advertising, subscription, and others. However, it's challenging to quantify these in terms of a bottom line. These categories are important for modeling and understanding the company, and we're working on that. Regarding the Q4 guidance, despite our strong performance in Q3, we are not increasing our guidance due to various dynamics in the ad market and potential negative impacts from supply chain issues. Therefore, we believe maintaining our current guidance is appropriate. Historically, Q4 advertising revenue tends to be substantial, as shown in our past financials. As for next year, it's too early for a detailed answer since we are still assessing our budget and organic growth alongside our acquisition strategy. It's important to note that our definition of organic growth is quite conservative; we exclude the revenue from acquired assets during their first full year, which complicates comparisons, especially within the first 13 to 14 months. We're implementing significant restructuring that may impact organic growth rates. Usually, we exclude new assets in our modeling to focus on the organic growth of long-held assets. Looking ahead, I expect the company to achieve mid-to-high teens growth overall, with half of that from organic sources at a 35% margin, as outlined in our long-range plans. There will be years where we exceed that expectation, like this year, and other years where we may fall short, and that's to be expected.

And just if I can ask one more on maybe just M&A, kind of the philosophy around it, is there any change relative to JCOM before the spin, maybe like two years ago? Is there any change in terms of the frequency you guys plan on making acquisitions? The size? And since this past year due to the spin, you haven't been as active as in the past, is it possible there's maybe some catch-up M&A in the following year? Or how should we think about that?

Yes, that's a great question. You're absolutely correct. While we were trying to remain active in the M&A market during the spin-off, it was all hands on deck around the clock. It's probably not mentioned enough, but we completed this spin in roughly five months from the announcement, which is likely a record. This achievement reflects the hard work, focus, and dedication of our team. I believe it did limit some of our M&A activities. However, we will continue to be careful and disciplined, ensuring that we approach potential opportunities thoughtfully. Despite the company splitting, our M&A strategy remains unchanged. It's important to remember that for the past decade, 95% of our M&A activity has been focused on the RemainCo, and that will not alter.

Thanks very much.

And the next question is coming from John Tanwanteng from CJS Securities. John, your line is live.

Hi. Good morning, everyone. Thanks for taking my question. Congrats on the Consensus spin-out, a great quarter, and it really must feel good to be vindicated on putting your eggs into the contextual basket as these things play out in the ad industry. So good work there. A lot of my questions have been answered already. I was wondering, though, if within the martech business, does any of that actually rely on these tracking and cookies and things that aren't so popular these days? Or is it a completely different business than that? I'm wondering how you generate leads and extend your reach on those platforms?

In some ways, it should benefit us. The two main functions of the martech business are helping health companies rank organically in search engines and providing email marketing services. As businesses look for ways to drive traffic and acquire customers, they will likely focus more on SEO than before, especially if they're facing challenges with social media targeting and cost per acquisition. This shift can be advantageous for us from an SEO perspective. Additionally, our email marketing services enable businesses to build lists, create and send emails, optimize delivery and open rates, and track and enhance performance. Many companies will continue to invest in these areas. It raises an interesting question about whether we will see a shift from paid media, which is interest-based, to earned media, which we focus on by optimizing SEO and email platforms. We're aiming to help businesses generate earned media without relying on ad purchases, so this could actually serve as a tailwind for us.

Got you. That's helpful. And has there been any incidents or an anecdote of actual explicit benefits to you guys as a customer comes to you and said, Hey, we're not getting the results we want in paid media, and we want to come to you either contest do the martech and increase our budgets there just to get what we're looking for?

The honest answer is I don't know if that discussion has happened. It's unclear if they would articulate it that way. I think it manifests as, hey, I've got more budget, what can we do? They may indeed have more budget because of that situation. Often, buyers keep the details of their situations private, since every ad contract involves negotiation. However, I suspect some of that has definitely occurred. The key for us is whether we can deliver. We need to be able to take the additional money and provide unit economics that align with what we've delivered before. More importantly, it needs to be at least as good, if not better, than what they're currently using.

Got it. And one last question from me. I was wondering if you could share your thoughts on the risks of potentially having a short inventory later this year due to supply chain inflationary issues. What impact do you anticipate this might have internally, particularly concerning labor inflation as you move through the year and into 2022? How might this affect your costs in the long run?

Now it's a great question. And obviously, this is tied to the job market, and the competition for talent is frankly unlike anything I've ever seen. Given that many companies, certainly in our industry are work-from-anywhere, people have a lot more options in terms of where they can go. I think we've done a very good job from a retention point of view. And we've been very focused on the employee experience, the onboarding experience; we've created all sorts of virtual programming to keep employees engaged, and really our focus on profits and purpose, our focus on ESG, on social value creation for our workforce is a huge retention vehicle. I think we've done well with all of that. Are we going to pay more for talent? Probably. I think that is happening. I think you're seeing some inflation in terms of wages; we've seen it in some places. But look, I think it's manageable, and I think it's probably an offset possibly to other expenses that may come out of our equation. We're thinking through what our real estate footprint ultimately needs to be and what that looks like, and there may be some savings there that can essentially get redeployed into people's salaries.

That's helpful. Thank you.

Thank you.

Thank you. There are no other questions in queue at this time. I would now like to hand the call back to Vivek Shah for any closing remarks.

Great. Thank you very much, Paul. So listen, we appreciate you all joining us today for our Q3 earnings call. I'll be participating in an investor conference in the coming weeks. So hope to see some of you there, and have a great day. Thank you.

Thank you, ladies and gentlemen. This does conclude today's conference. You may disconnect at this time and have a wonderful day. Thank you for your participation.