Ziff Davis, Inc 10-Q for FY2022 Q1

Ziff Davis, Inc. (ZD)

10-Q 2022-05-10 For: 2022-03-31

Added on April 09, 2026

About this 10-Q

Ziff Davis, Inc filed this 10-Q on May 10, 2022, covering the quarter ended March 31, 2022 (FY2022 Q1).

Headline figures

Quarter ended March 31, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $315.07M; up 1.1% from $311.66M a year earlier
Net income: $24.54M; down 68.5% from net income of $77.92M a year earlier
Diluted EPS: $0.51; down 69.5% from $1.67 a year earlier

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(1) Includes share-based compensation expense as follows:
Cost of revenues	$	84	$	83
Sales and marketing	569		266
Research, development and engineering	629		418
General and administrative	5,435		4,963
Total	$	—	$	—


Delaware			47-1053457
(State or other jurisdiction			(I.R.S. Employer
of incorporation or organization)			Identification No.)


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value	ZD	Nasdaq Stock Market LLC


			PAGE

PART I.	FINANCIAL INFORMATION

	Item 1.	Financial Statements
		Condensed Consolidated Balance Sheets (Unaudited)	3
		Condensed Consolidated Statements of Operations (U naudited)	4
		Condensed Consolidated Statements of Comprehensive Income (Loss) (U naudited)	5
		Condensed Consolidated Statements of Cash Flows (U naudited)	6
		Condensed Consolidated Statements of Stockholders’ Equity (U naudited)	8
		Notes to Condensed Consolidated Financial Statements (U naudited)	9

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	38

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	49

	Item 4.	Controls and Procedures	51


PART II.	OTHER INFORMATION

	Item 1.	Legal Proceedings	52

	Item 1A.	Risk Factors	52

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	52

	Item 3.	Defaults Upon Senior Securities	53

	Item 4.	Mine Safety Disclosures	53

	Item 5.	Other Information	53

	Item 6.	Exhibits	54

		Signature	55


	March 31, 2022		December 31, 2021
ASSETS
Cash and cash equivalents	$	629,030	$	694,842

Short-term investments	238,151		229,200
Accounts receivable, net of allowances of $8,262 and $9,811, respectively (includes $14,550 and $9,272 due from related party, respectively)	263,659		316,342
Prepaid expenses and other current assets	62,089		60,290

Total current assets	1,192,929		1,300,674
Long-term investments	121,552		122,593
Property and equipment, net	160,399		161,209
Operating lease right-of-use assets	53,585		55,617
Trade names, net	144,084		147,761
Customer relationships, net	260,577		275,451
Goodwill	1,557,078		1,531,455
Other purchased intangibles, net	139,985		149,513
Deferred income taxes, noncurrent	6,143		5,917
Other assets	26,839		20,090
TOTAL ASSETS	$	3,663,171	$	3,770,280
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable and accrued expenses	$	213,001	$	226,621
Income taxes payable, current	2,025		3,151
Deferred revenue, current	190,418		185,571


Operating lease liabilities, current	26,459		27,156


Current portion of long-term debt	—		54,609
Other current liabilities	288		130
Total current liabilities	432,191		497,238
Long-term debt	1,122,945		1,036,018
Deferred revenue, noncurrent	13,655		14,839

Operating lease liabilities, noncurrent	49,719		53,708
Income taxes payable, noncurrent	11,675		11,675
Liability for uncertain tax positions	42,949		42,546
Deferred income taxes, noncurrent	91,211		108,982
Other long-term liabilities	33,332		37,542
TOTAL LIABILITIES	1,797,677		1,802,548
Commitments and contingencies (Note 9)	—		—
Preferred stock, $0.01 par value. Authorized 1,000,000 and none issued	—		—
Preferred stock - Series A, $0.01 par value. Authorized 6,000; total issued and outstanding zero	—		—
Preferred stock - Series B, $0.01 par value. Authorized 20,000; total issued and outstanding zero	—		—
Common stock, $0.01 par value. Authorized 95,000,000; total issued and outstanding 46,952,300 and 47,440,137 shares at March 31, 2022 and December 31, 2021, respectively.	470		474
Additional paid-in capital	415,653		509,122

Retained earnings	1,508,802		1,515,358
Accumulated other comprehensive loss	(59,431)		(57,222)
TOTAL STOCKHOLDERS’ EQUITY	1,865,494		1,967,732
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	3,663,171	$	3,770,280


	Three Months Ended March 31,
	2022		2021
Total revenues	$	315,068	$	311,657

Cost of revenues (1)	46,100		43,852
Gross profit	268,968		267,805
Operating expenses:
Sales and marketing (1)	117,762		107,951
Research, development and engineering (1)	18,427		19,675
General and administrative (1)	102,217		113,298

Total operating expenses	238,406		240,924
Income from operations	30,562		26,881
Interest expense, net	(11,510)		(21,477)
Gain on sale of businesses	—		1,979

Unrealized gain on short-term investments	8,951		—
Other income, net	2,399		243
Income from continuing operations before income taxes and (loss) income from equity method investment, net	30,402		7,626
Income tax expense (benefit)	5,080		(6,884)
(Loss) income from equity method investment, net	(785)		24,270
Net income from continuing operations	24,537		38,780
Income from discontinued operations, net of income taxes	—		39,142
Net income	$	24,537	$	77,922

Net income per common share from continuing operations:
Basic	$	0.52	$	0.87
Diluted	$	0.51	$	0.83
Net income per common share from discontinued operations:
Basic			$	0.88
Diluted			$	0.84
Net income per common share:
Basic	$	0.52	$	1.75
Diluted	$	0.51	$	1.67
Weighted average shares outstanding:
Basic	47,054,411		44,399,149
Diluted	52,405,317		46,731,872

(1) Includes share-based compensation expense as follows:
Cost of revenues	$	84	$	83
Sales and marketing	569		266
Research, development and engineering	629		418
General and administrative	5,435		4,963
Total	$	6,717	$	5,730


	Three Months Ended March 31,
Cash flows from operating activities:	2022		2021
Net income	$	24,537	$	77,922
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	59,071		65,492

Amortization of financing costs and discounts	613		7,296
Non-cash operating lease costs	2,392		3,320
Share-based compensation	6,717		6,113
Provision for credit losses on accounts receivable	(1,032)		2,485
Deferred income taxes, net	(3,745)		(5,380)
Loss on extinguishment of debt	1,220		—

Gain on sale of businesses	—		(1,979)
Lease asset impairments and other charges	—		1,086

Changes in fair value of contingent consideration	112		510
Foreign currency remeasurement gain	143		655
Loss (income) from equity method investments	785		(24,270)
Unrealized gain on short-term investments	(8,951)		—
Decrease (increase) in:
Accounts receivable (includes $5,278 and $0 with related parties)	57,483		68,564
Prepaid expenses and other current assets	10,638		(2,481)
Operating lease right-of-use assets	1,938		1,438
Other assets	(7,541)		1,193
Increase (decrease) in:
Accounts payable and accrued expenses	(25,694)		(22,078)
Income taxes payable	3,193		2,471
Deferred revenue	3,061		7,867
Operating lease liabilities	(6,924)		(7,389)
Liability for uncertain tax positions	403		1,304
Other long-term liabilities	(1,908)		(5,415)


Net cash provided by operating activities	116,511		178,724
Cash flows from investing activities:


Purchases of equity method investment	—		(8,064)
Purchases of equity investments	—		(999)


Purchases of property and equipment	(30,502)		(26,269)
Proceeds from sale of assets	—		5,999
Acquisition of businesses, net of cash received	(28,136)		385

Purchases of intangible assets	—		(8)


Net cash used in investing activities	(58,638)		(28,956)
Cash flows from financing activities:

Payment of debt	(54,609)		—



Debt extinguishment costs	(756)		—

Repurchase of common stock	(62,810)		(12,179)

Exercise of stock options	148		444

Deferred payments for acquisitions	(2,676)		(7,853)
Other	(5)		(551)


Net cash used in financing activities	(120,708)		(20,139)
Effect of exchange rate changes on cash and cash equivalents	(2,977)		(310)
Net change in cash and cash equivalents	(65,812)		129,319


Cash and cash equivalents at beginning of period	694,842		242,652
Cash and cash equivalents at beginning of period associated with discontinued operations	—		66,210
Cash and cash equivalents at beginning of period associated with continuing operations	694,842		176,442
Cash and cash equivalents at end of period	629,030		371,971
Cash and cash equivalents at end of period associated with discontinued operations	—		149,675
Cash and cash equivalents at end of period associated with continuing operations	$	629,030	$	222,296


	Three months ended March 31, 2021
										Accumulated
	Common stock			Additional paid-in	Retained		other comprehensive			Total Stockholders’
	Shares	Amount			capital			earnings		loss		Equity
Balance, January 1, 2021	44,346,630	$	443		$	456,274		$	809,107	$	(54,806)	$	1,211,018
Net income	—	—			—			77,922		—		77,922
Other comprehensive loss, net of tax expense of $141	—	—			—			—		(8,424)		(8,424)
Exercise of stock options	15,117	—			444			—		—		444


Vested restricted stock	235,939	2			(2)			—		—		—
Repurchase and retirement of common stock	(108,287)	—			(7,221)			(4,958)		—		(12,179)
Share based compensation	—	—			6,113			—		—		6,113
Other, net	—	—			17			—		—		17
Balance, March 31, 2021	44,489,399	$	445		$	455,625		$	882,071	$	(63,230)	$	1,274,911


	Three months ended March 31, 2022
										Accumulated
	Common stock			Additional paid-in	Retained		other comprehensive			Total Stockholders’
	Shares	Amount			capital			earnings		loss		Equity
Balance, January 1, 2022	47,440,137	$	474		$	509,122		$	1,515,358	$	(57,222)	$	1,967,732
Reclassification of the equity component of 1.75% Convertible Notes to liability upon adoption of ASU 2020-06	—	—			(88,137)			23,436		—		(64,701)
Net income	—	—			—			24,537		—		24,537
Other comprehensive loss, net of tax expense of $0	—	—			—			—		(6,265)		(6,265)
Exercise of stock options	5,439	—			148			—		—		148


Vested restricted stock	101,385	1			(1)			—		—		—
Repurchase and retirement of common stock	(594,661)	(5)			(12,180)			(50,625)		—		(62,810)
Share based compensation	—	—			6,717			—		—		6,717
Consensus separation adjustment	—	—			—			(3,915)		4,056		141
Other, net	—	—			(16)			11		—		(5)
Balance, March 31, 2022	46,952,300	$	470		$	415,653		$	1,508,802	$	(59,431)	$	1,865,494


	2022 Acquisitions
Accounts receivable	$	4,615
Prepaid expenses and other current assets		231
Property and equipment		307

Trade names		2,302
Customer relationship		9,216
Goodwill		24,156

Other intangibles		3,439
Other long-term assets		11

Accounts payable and accrued expenses		(2,551)

Deferred revenue		(1,697)






Deferred tax liability		(3,390)


Total	$	36,639


	Initial Book Value		Cumulative Gross Unrealized Gains		Cumulative Gross Unrealized Losses		Fair Value
March 31, 2022
Investment in Consensus (equity securities)	$	(69,290)	$	307,441	$	—	$	238,151
Total	$	(69,290)	$	307,441	$	—	$	238,151

December 31, 2021
Investment in Consensus (equity securities)	$	(69,290)	$	298,490	$	—	$	229,200
Total	$	(69,290)	$	298,490	$	—	$	229,200


	March 31, 2022		December 31, 2021
Equity securities	$	121,552	$	122,593
Maximum exposure to loss	$	121,552	$	122,593


	Three Months Ended March 31, 2021

Capital expenditures		$	4,766
Depreciation and amortization		$	2,822

Deferred taxes		$	2,722


	Three Months Ended March 31, 2021
Revenues	$	86,528
Cost of revenues	(13,970)
Sales and marketing	(13,235)
Research, development and engineering	(1,676)
General and administrative	(6,048)
Interest expense and other	151
Income before income taxes	51,750
Income tax expense	12,608
Income from discontinued operations, net of income taxes	$	39,142


	Three Months Ended March 31,
	2022		2021
Digital Media
Advertising(1)	$	170,067	$	177,288
Subscription(1)	55,576		45,625
Other(1)	9,184		3,961
Total Digital Media revenues	$	234,827	$	226,874

Cybersecurity and Martech
Subscription	$	80,494	$	84,901
Other	—		—
Total Cybersecurity and Martech revenues	$	80,494	$	84,901

Corporate	$	—	$	—
Elimination of inter-segment revenues	(253)		(118)
Total Revenues	$	315,068	$	311,657

Timing of revenue recognition
Point in time	$	8,983	$	5,965
Over time	306,085		305,692
Total	$	315,068	$	311,657


			§			Level 1 – Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

			§			Level 2 – Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

			§			Level 3 – Unobservable inputs which are supported by little or no market activity.


	Valuation Technique	Unobservable Input	Range	Weighted Average
Contingent Consideration	Option-Based Model	Risk free rate	1.9% - 2.2%	2.0	%
		Debt spread	0.0% - 74.7%	13.6	%
		Probabilities	10.0% - 100.0%	78.0	%
		Present value factor	2.2% - 26.9%	18.1	%
		Discount rate	27.3% - 38.0%	31.1	%


	Digital Media		Cybersecurity and Martech		Consolidated
Balance as of January 1, 2022	$	996,659	$	534,796	$	1,531,455
Goodwill acquired (Note 3)	24,156		—		24,156


Purchase accounting adjustments(1)	2,139		2,034		4,173

Foreign exchange translation	(731)		(1,975)		(2,706)
Balance as of March 31, 2022	$	1,022,223	$	534,855	$	1,557,078


March 31, 2022	Level 1		Level 2		Level 3		Fair Value		Carrying Value
Assets:
Cash equivalents:
Money market and other funds	$	38,483	$	—	$	—	$	38,483	$	38,483









Investment in Consensus	238,151		—		—		238,151		238,151
Total assets measured at fair value	$	276,634	$	—	$	—	$	276,634	$	276,634

Liabilities:
Contingent consideration	$	—	$	—	$	10,087	$	10,087	$	10,087
Debt	1,186,652		—		—		1,186,652		1,122,945
Total liabilities measured at fair value	$	1,186,652	$	—	$	10,087	$	1,196,739	$	1,133,032

December 31, 2021	Level 1		Level 2		Level 3		Fair Value		Carrying Value
Assets:
Cash equivalents:
Money market and other funds	$	144,255	$	—	$	—	$	144,255	$	144,255








Investment in Consensus	229,200		—		—		229,200		229,200
Total assets measured at fair value	$	373,455	$	—	$	—	$	373,455	$	373,455

Liabilities:
Contingent consideration	$	—	$	—	$	5,775	$	5,775	$	5,775
Debt	1,345,311		—		—		1,345,311		1,090,627
Total liabilities measured at fair value	$	1,345,311	$	—	$	5,775	$	1,351,086	$	1,096,402


	Level 3		Affected line item in the Statement of Operations
Balance as of January 1, 2022	$	5,775
Contingent consideration	4,200
Total fair value adjustments reported in earnings	112		General and administrative
Contingent consideration payments	—		Not applicable
Balance as of March 31, 2022	$	10,087


	Weighted-Average Amortization Period	Historical Cost		Accumulated Amortization		Net
Trade names	10.0 years	$	252,358	$	108,274	$	144,084
Customer relationships (1)	8.1 years	681,981		421,404		260,577
Other purchased intangibles	9.1 years	469,058		329,073		139,985
Total		$	1,403,397	$	858,751	$	544,646


	March 31, 2022		December 31, 2021
4.625% Senior Notes	$	586,667	$	641,276


1.75% Convertible Notes	550,000		550,000
Total Notes	1,136,667		1,191,276



Less: Unamortized discount	(3,809)		(91,593)
Deferred issuance costs	(9,913)		(9,056)
Total debt	1,122,945		1,090,627
Less: current portion	—		(54,609)
Total long-term debt, less current portion	$	1,122,945	$	1,036,018


	March 31, 2022			March 31, 2021
Underlying stock price at valuation date	$	99.32		$	113.27
Expected volatility	36.7		%	30.3		%
Risk-free interest rate	1.8		%	1.3		%


	Shares	Weighted-Average Grant-Date Fair Value
Nonvested at January 1, 2022	383,963	$	41.45
Granted	—	—
Vested	(38,875)	77.75
Canceled	(777)	88.54
Nonvested at March 31, 2022	344,311	$	38.38


	Number of Shares	Weighted-Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
Outstanding at January 1, 2022	360,743
Granted	212,517
Vested	(62,509)
Canceled	(7,557)
Outstanding at a March 31, 2022	503,194	3.1	$	48,776,539
Vested and expected to vest at March 31, 2022	503,194	3.1	$	48,699,115


	March 31, 2022		December 31, 2021
Long-lived assets:
United States	$	680,593	$	726,128
All other countries	78,037		63,423
Total	$	758,630	$	789,551


	Unrealized Gains (Losses) on Investments		Foreign Currency Translation		Total
Beginning balance	$	169	$	(57,391)	$	(57,222)
Other comprehensive loss before reclassification	—		(6,265)		(6,265)
Consensus separation adjustment	—		4,056		4,056
Net current period other comprehensive loss	—		(2,209)		(2,209)
Balance as of March 31, 2022	$	169	$	(59,600)	$	(59,431)


	Three Months Ended March 31,
	2022	2021 (excluding disposed assets)(1)	2021 (including disposed assets) (1)
Subscribers (in thousands) (2)	2,131	2,332	2,361
Average monthly revenue per subscriber (3)	$21.28	$16.85	$18.28
Churn rate (4)	3.2%	2.8%	2.6%


(in thousands, except percentages)	Three Months Ended March 31,				Percentage Change
	2022		2021
Revenues	$	315,068	$	311,657	1%


Total number of shares repurchased	Aggregate purchase price		Average price paid per share		Shares remaining under repurchase authorization as of March 31, 2022
554,289	$	58.7	$	105.87	6,509,401


Period	Total Number of Shares Purchased (1)	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Program	Maximum Number of Shares That May Yet Be Purchased Under the Plans or Program
January 1, 2022 - January 31, 2022	566,803	$	105.83	554,289	6,509,401
February 1, 2022 - February 28, 2022	327	$	101.41	—	6,509,401
March 1, 2022 - March 31, 2022	27,531	$	98.24	—	6,509,401
Total	594,661			554,289	6,509,401


Exhibit No.						Description
3.1						Amended and Restated Certificate of Incorporation of J2 Global, Inc., dated as of June 10, 2014 (1 )
3.2						Amendment to the Amended and Restated Certificate of Incorporation of J2 Global, Inc., dated as of September 5, 2019 (2 )
3.3						Certificate of Amendment to Amended and Restated Certificate of Incorporation of Ziff Davis, Inc. dated as of October 7, 2021 (3 )
3.4						Fifth Amended and Restated By-Laws (4 )
10.1						Termination Agreement, dated April 25, 2022, by and between Ziff Davis, Inc. and Orchard Capital Corporation (5)
31.1						Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2						Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1						Certification of Principal Executive Officer of Periodic Financial Reports pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350
32.2						Certification of Principal Financial Officer of Periodic Financial Reports pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350
101.INS						Inline XBRL Instance Document*
101.SCH						Inline XBRL Taxonomy Extension Schema Document
101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF						Inline XBRL Taxonomy Extension Definition Linkbase Document
101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase Document
101.LAB						Inline XBRL Taxonomy Extension Label Linkbase Document
104						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)


		/s/ VIVEK SHAH
		Vivek Shah
Dated:	May 10, 2022	Chief Executive Officer and a Director (Principal Executive Officer)


		/s/ BRET RICHTER
		Bret Richter
Dated:	May 10, 2022	Chief Financial Officer (Principal Financial Officer)