Ziff Davis Reports Record Third Quarter 2021 Results & Reaffirms Full Year 2021 Guidance

Ziff Davis, Inc. (formerly known as J2 Global, Inc.) (NASDAQ: ZD) today reported financial results for the third quarter ended September 30, 2021. On October 7, 2021, the Consensus business was spun-off as a separate public company (NASDAQ: CCSI). These third quarter results include Consensus, except where otherwise noted.

“There’s great enthusiasm and excitement at Ziff Davis as we embark on our new chapter,” said Vivek Shah, CEO of Ziff Davis. “Our portfolio of digital media and internet brands are very well-positioned to thrive in some of the highest-value verticals in the marketplace.”

THIRD QUARTER 2021 RESULTS

Q3 2021 quarterly revenues increased 24.5% to a Q3 record of $444.3 million as compared to $357.0 million for Q3 2020. On a pro-forma(6) basis, Q3 2021 quarterly revenues increased 27.7% to $434.7 million as compared to $340.3 million for Q3 2020.

Net cash provided by operating activities increased to $140.2 million as compared to $114.4 million for Q3 2020. Q3 2021 free cash flow(2) increased 17.9% to $110.5 million as compared to $93.7 million for Q3 2020.

GAAP earnings per diluted share(3) decreased to $0.88 in Q3 2021 compared to $1.31 for Q3 2020. Earnings decrease was primarily due a loss on the sale of the B2B Backup business unit of $19.2 million, net of tax.

Adjusted non-GAAP earnings per diluted share(3)(4) for the quarter increased 15.8% to $2.34 as compared to $2.02 for Q3 2020. On a pro-forma(6) basis, Adjusted non-GAAP earnings per diluted share(3)(4) for the quarter increased 16.4% to $2.27 as compared to $1.95 for Q3 2020.

GAAP net income decreased to $42.6 million as compared to $60.9 million for Q3 2020 primarily due to a loss on the sale of the B2B back-up business unit of $19.2 million, net of tax.

Adjusted non-GAAP net income increased by 17.4% to $110.2 million as compared to $93.9 million for Q3 2020. On a pro-forma(6) basis, Adjusted non-GAAP net income increased by 18.7% to $107.1 million as compared to $90.2 million for Q3 2020.

Adjusted EBITDA(5) for the quarter increased 13.6% to $175.1 million compared to $154.1 million for Q3 2020. On a pro-forma(6) basis, Adjusted EBITDA(5) for the quarter increased 16.0% to $170.8 million compared to $147.2 million for Q3 2020.

The company ended the quarter with approximately $657.2 million in cash, cash equivalents, and investments after deploying approximately $23.4 million during the quarter for current and prior year acquisitions.

Key unaudited financial results for Q3 2021 versus Q3 2020 are set forth in the following table (in millions, except per share amounts). Reconciliations of Adjusted non-GAAP earnings per diluted share, Adjusted EBITDA and free cash flow to their nearest comparable GAAP financial measures are attached to this Press Release.

The following table reflects Actual and Pro-Forma Results for the third quarter of 2021 (in millions). Pro-Forma Results below exclude Voice assets in Australia, New Zealand, and the United Kingdom that were sold in 2020 and 2021, respectively, and the Company’s B2B Backup business that was sold during the third quarter of 2021.

Pro-Forma Results(6)

Q3 2021

Q3 2020

% Change

Q3 2021

Q3 2020

% Change

Revenues

Cloud Services

$182.1

$170.2

7.0%

$172.5

$153.6

12.3%

Digital Media

$262.2

$186.7

40.4%

$262.2

$186.7

40.4%

Total Revenue: (1)

$444.3

$357.0

24.5%

$434.7

$340.3

27.7%

Operating Income

$96.1

$77.4

24.2%

Net Cash Provided by Operating Activities

$140.2

$114.4

22.6%

Free Cash Flow (2)

$110.5

$93.7

17.9%

GAAP Earnings per Diluted Share (3)

$0.88

$1.31

(32.8)%

Adjusted Non-GAAP Earnings per Diluted Share (3) (4)

$2.34

$2.02

15.8%

$2.27

$1.95

16.4%

GAAP Net Income

$42.6

$60.9

(30.0)%

Adjusted Non-GAAP Net Income

$110.2

$93.9

17.4%

$107.1

$90.2

18.7%

Adjusted EBITDA (5)

$175.1

$154.1

13.6%

$170.8

$147.2

16.0%

Adjusted EBITDA Margin (5)

39.4%

43.2%

(3.8)%

39.3%

43.3%

(4.0)%

The following table reflects Actual and Pro-Forma Results for the nine months ended September 30, 2021 (in millions). Pro-Forma Results below exclude Voice assets in Australia, New Zealand, and the United Kingdom that were sold in 2020 and 2021, respectively, and the Company’s B2B Backup business that was sold during the third quarter of 2021.

YTD

YTD Pro-Forma Results(6)

Q3 2021

Q3 2020

% Change

Q3 2021

Q3 2020

% Change

Revenues

Cloud Services

$528.8

$507.1

4.3%

$495.3

$452.8

9.4%

Digital Media

$742.7

$513.3

44.7%

$742.7

$513.3

44.7%

Total Revenue: (1)

$1,271.5

$1,020.4

24.6%

$1,238.0

$966.1

28.51%

Operating Income

$236.3

$205.7

14.9%

Net Cash Provided by Operating Activities

$430.3

$356.0

20.9%

Free Cash Flow (2)

$343.4

$304.8

12.7%

GAAP Earnings per Diluted Share (3)

$2.86

$1.93

48.2%

Adjusted Non-GAAP Earnings per Diluted Share (3) (4)

$6.92

$5.13

34.9%

$6.68

$4.87

37.2%

GAAP Net Income

$136.2

$92.6

47.1%

Adjusted Non-GAAP Net Income

$315.2

$242.0

30.2%

$304.4

$229.8

32.5%

Adjusted EBITDA (5)

$503.4

$403.8

24.7%

$489.5

$383.0

27.8%

Adjusted EBITDA Margin (5)

39.6%

—%

39.5%

39.6%

(0.1)%

ZIFF DAVIS RESULTS AND BUSINESS OUTLOOK

The following table reflects Ziff Davis revenue, Adjusted EBITDA and Adjusted EBITDA margin, which excludes Consensus and the B2B Backup business and Voice assets (in millions).

QTD

YTD

Q3 2021

Q3 2020

% Change

Q3 2021

Q3 2020

% Change

Revenue

$345.6

$256.3

34.8%

$974.6

$720.5

35.3%

Adjusted EBITDA

$117.2

$95.1

23.2%

$329.6

$233.5

41.2%

Adjusted EBITDA Margin

33.9%

37.1%

(3.2)%

33.8%

32.4%

1.4%

The Company reaffirms its guidance that was presented at its investor day on September 9, 2021 and provides Q4 2021 guidance below which reflects its pro forma position following the separation of Consensus (in millions, except per share amounts):

Revenue

Adjusted EBITDA

Adjusted EPS

FY 2021 Range of Estimates (A)

$1,375 - $1,389

$484 - $492

Q4 2021 Range of Estimates (A)

$400 - $414

$154 - $162

$2.00 - $2.14

(A) Balances are in millions and represent pro forma 2021 results as if the spin-off of Consensus and the sales of the B2B Backup business and UK Voice assets had occurred on January 1, 2021.

The Company has not reconciled the non-GAAP Business Outlook for 2021 Adjusted EBITDA, Q4 2021 Adjusted EBITDA or Q4 2021 Adjusted non-GAAP EPS to the most directly comparable GAAP measure because this cannot be done without unreasonable effort due to the variability with respect to forecasted revenues and costs primarily related to acquisitions and taxation, which are potential adjustments to future earnings. We expect the variability of forecasted revenues and costs to have a potentially unpredictable and significant impact on our future GAAP financial results.

Notes:

(1)

The revenues associated with each of the businesses may not foot precisely since each is presented independently.

(2)

Free cash flow is defined as net cash provided by operating activities, less purchases of property and equipment, plus contingent consideration. Free cash flow amounts are not meant as a substitute for GAAP, but are solely for informational purposes.

(3)

The estimated GAAP effective tax rates were approximately 23.0% for Q3 2021 and 28.3% for Q3 2020. The estimated Adjusted non-GAAP effective tax rates were approximately 16.6% for Q3 2021 and 21.8% for Q3 2020.

(4)

Adjusted non-GAAP earnings per diluted share excludes certain non-GAAP items, as defined in the Reconciliation of GAAP to Adjusted non-GAAP Financial Measures, for the three months ended September 30, 2021 and 2020 totaled $1.46 and $0.71 per diluted share, respectively.

(5)

Adjusted EBITDA is defined as earnings before interest; gain on sale of businesses; goodwill impairment of business; loss on investments, net; other income (expense), net; income tax expense; income (loss) from equity method investment, net; depreciation and amortization; and the items used to reconcile EPS to Adjusted non-GAAP EPS, as defined in the Reconciliation of GAAP to Adjusted non-GAAP Financial Measures. Adjusted EBITDA amounts are not meant as a substitute for GAAP, but are solely for informational purposes.

(6)

Pro-forma figures are provided taking into consideration the sale of certain Voice assets in Australia, New Zealand, and the United Kingdom as well as the sale of the Company’s B2B Backup business as if they had occurred January 1, 2020.

About Ziff Davis (formerly J2 Global)

Ziff Davis, Inc. (NASDAQ: ZD) is a vertically focused digital media and internet company whose portfolio includes leading brands in technology, entertainment, shopping, health, cybersecurity, and martech. For more information, visit www.ziffdavis.com.

“Safe Harbor” Statement Under the Private Securities Litigation Reform Act of 1995: Certain statements in this Press Release are “forward-looking statements” within the meaning of The Private Securities Litigation Reform Act of 1995, including those contained in Vivek Shah’s quote and the “Business Outlook” portion regarding the Company’s expected fiscal 2021 financial performance. These forward-looking statements are based on management’s current expectations or beliefs and are subject to numerous assumptions, risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. These factors and uncertainties include, among other items: the Company’s ability to grow non-fax revenues, profitability and cash flows; the Company’s ability to identify, close and successfully transition acquisitions; subscriber growth and retention; variability of the Company’s revenue based on changing conditions in particular industries and the economy generally; protection of the Company’s proprietary technology or infringement by the Company of intellectual property of others; the risk of adverse changes in the U.S. or international regulatory environments, including but not limited to the imposition or increase of taxes or regulatory-related fees; and the numerous other factors set forth in Ziff Davis’s (formerly J2 Global, Inc.) filings with the Securities and Exchange Commission (“SEC”). For a more detailed description of the risk factors and uncertainties affecting Ziff Davis, refer to the 2020 Annual Report on Form 10-K filed by Ziff Davis on March 1, 2021, and the other reports filed by Ziff Davis from time-to-time with the SEC, each of which is available at www.sec.gov. The forward-looking statements provided in this press release, including those contained in Vivek Shah’s quote and in the “Business Outlook” portion regarding the Company’s expected fiscal 2021 financial performance are based on limited information available to the Company at this time, which is subject to change. Although management’s expectations may change after the date of this press release, the Company undertakes no obligation to revise or update these statements.

About Non-GAAP Financial Measures

To supplement our consolidated financial statements, which are prepared and presented in accordance with GAAP, we use the following Adjusted non-GAAP financial measures: Adjusted non-GAAP net income, Adjusted non-GAAP earnings per diluted share, Adjusted EBITDA and free cash flow. The presentation of this financial information is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP.

We use these Adjusted non-GAAP financial measures for financial and operational decision-making and as a means to evaluate period-to-period comparisons. Our management believes that these Adjusted non-GAAP financial measures provide meaningful supplemental information regarding our performance and liquidity by excluding certain expenses and expenditures that may not be indicative of our recurring core business operating results. We believe that both management and investors benefit from referring to these Adjusted non-GAAP financial measures in assessing our performance and when planning, forecasting, and analyzing future periods. These Adjusted non-GAAP financial measures also facilitate management’s internal comparisons to our historical performance and liquidity. We believe these Adjusted non-GAAP financial measures are useful to investors both because (1) they allow for greater transparency with respect to key metrics used by management in its financial and operational decision-making and (2) they are used by our institutional investors and the analyst community to help them analyze the health of our business.

For more information on these Adjusted non-GAAP financial measures, please see the appropriate GAAP to Adjusted non-GAAP reconciliation tables included within the attached Exhibit to this release.

ZIFF DAVIS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED, IN THOUSANDS)

September 30, 2021

December 31, 2020

ASSETS

Cash and cash equivalents

546,467

242,652

Short-term investments

—

663

Accounts receivable, net of allowances of $14,417 and $16,018, respectively

268,349

325,619

Prepaid expenses and other current assets

73,457

53,909

Total current assets

888,273

622,843

Long-term investments

110,718

97,495

Property and equipment, net

183,179

156,577

Operating lease right-of-use assets

88,331

105,845

Goodwill

1,861,332

1,867,430

Other purchased intangibles, net

641,162

741,569

Deferred income taxes, noncurrent

37,761

56,545

Other assets

19,901

17,027

TOTAL ASSETS

3,830,657

3,665,331

LIABILITIES AND STOCKHOLDERS’ EQUITY

Accounts payable and accrued expenses

228,977

230,651

Income taxes payable, current

1,793

31,753

Deferred revenue, current

197,901

190,644

Operating lease liabilities, current

31,636

32,211

Current portion of long-term debt

568,054

396,801

Other current liabilities

497

Total current liabilities

1,028,397

882,557

Long-term debt

1,110,699

1,182,220

Deferred revenue, noncurrent

15,189

14,440

Operating lease liabilities, noncurrent

84,519

99,177

Income taxes payable, noncurrent

11,675

Liability for uncertain tax positions

54,178

57,081

Deferred income taxes, noncurrent

112,482

162,700

Other long-term liabilities

44,259

44,463

TOTAL LIABILITIES

2,461,398

2,454,313

Commitments and contingencies

—

Preferred stock

—

Common stock

478

443

Additional paid-in capital

508,493

456,274

Retained earnings

931,477

809,107

Accumulated other comprehensive loss

(71,189

)

(54,806

)

TOTAL STOCKHOLDERS’ EQUITY

1,369,259

1,211,018

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

3,830,657

3,665,331

ZIFF DAVIS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED, IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)

Three Months Ended September 30,

Nine Months Ended September 30,

2021

2020

2021

2020

Total revenues

444,252

356,976

1,271,480

1,020,353

Cost of revenues (1)

64,302

55,822

185,462

171,755

Gross profit

379,950

301,154

1,086,018

848,598

Operating expenses:

Sales and marketing (1)

139,693

95,074

394,981

287,317

Research, development and engineering (1)

21,639

14,261

62,634

43,273

General and administrative (1)

122,477

114,381

359,498

312,283

Goodwill impairment on business

—

32,629

—

Total operating expenses

283,809

223,716

849,742

642,873

Income from operations

96,141

77,438

236,276

205,725

Interest expense, net

(19,862

)

(22,712

)

(62,832

)

(65,879

)

(Loss) gain on sale of businesses

(24,600

)

17,122

(21,798

)

17,122

Loss on investments, net

—

(156

)

(16,677

)

(20,991

)

Other income, net

1,660

14,230

1,367

16,413

Income before income taxes and (loss) income from equity method investment, net

53,339

85,922

136,336

152,390

Income tax expense

8,847

24,330

16,723

49,011

(Loss) income from equity method investment, net

(1,923

)

(709

)

16,596

(10,799

)

Net income

42,569

60,883

136,209

92,580

Basic net income per common share:

Net income attributable to common shareholders

0.91

1.31

3.01

1.96

Diluted net income per common share:

Net income attributable to common shareholders

0.88

1.31

2.86

1.93

Basic weighted average shares outstanding

46,738,073

46,279,515

45,258,819

46,914,750

Diluted weighted average shares outstanding

48,582,585

46,309,072

47,565,062

47,620,308

(1) Includes share-based compensation expense as follows:

Cost of revenues

108

136

357

413

Sales and marketing

427

321

1,160

1,135

Research, development and engineering

613

425

1,690

1,340

General and administrative

5,607

4,918

15,912

15,755

Total

6,755

5,800

19,119

18,643

ZIFF DAVIS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED, IN THOUSANDS)

Nine Months Ended September 30,

Cash flows from operating activities:

2021

2020

Net income

136,209

92,580

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

196,443

163,680

Amortization of financing costs and discounts

21,295

21,393

Non-cash operating lease costs

8,366

15,686

Share-based compensation

19,119

18,643

Provision for doubtful accounts

7,934

9,508

Deferred income taxes, net

2,537

7,815

(Loss) gain on sale of businesses

21,798

(17,122

)

Lease asset impairments

9,410

9,786

Goodwill impairment on business

32,629

—

Changes in fair value of contingent consideration

(567

)

(243

)

Foreign currency remeasurement gain

181

(15,919

)

(Income) loss from equity method investments

(16,596

)

10,799

Loss on equity and debt investments

16,677

20,826

Decrease (increase) in:

Accounts receivable

49,888

57,560

Prepaid expenses and other current assets

(10,610

)

(3,279

)

Other assets

(2,378

)

543

Increase (decrease) in:

Accounts payable and accrued expenses

(1,409

)

(26,430

)

Income taxes payable

(37,863

)

(496

)

Deferred revenue

4,774

(10,494

)

Operating lease liabilities

(19,346

)

(12,857

)

Liability for uncertain tax positions

(2,903

)

7,746

Other long-term liabilities

(5,336

)

6,284

Net cash provided by operating activities

430,252

356,009

Cash flows from investing activities:

Proceeds on sale of available-for-sale investments

663

—

Distribution from equity method investment

15,327

—

Purchases of equity method investment

(22,249

)

(29,979

)

Purchases of equity investments

(999

)

(843

)

Purchases of property and equipment

(87,495

)

(71,266

)

Acquisition of businesses, net of cash received

(112,444

)

(27,156

)

Proceeds from sale of businesses, net of cash divested

48,876

24,353

Proceeds from sale of assets

—

507

Purchases of intangible assets

(1,255

)

(2,902

)

Net cash used in investing activities

(159,576

)

(107,286

)

Cash flows from financing activities:

Payment of debt

(402,414

)

—

Payment of note payable

—

(400

)

Proceeds from bridge loan

485,000

—

Repurchase of common stock

(29,855

)

(238,905

)

Issuance of common stock under employee stock purchase plan

4,232

3,303

Exercise of stock options

2,880

952

Deferred payments for acquisitions

(13,387

)

(20,427

)

Other

(6,619

)

(1,377

)

Net cash provided by (used in) financing activities

39,837

(256,854

)

Effect of exchange rate changes on cash and cash equivalents

(6,698

)

446

Net change in cash and cash equivalents

303,815

(7,685

)

Cash and cash equivalents at beginning of period

242,652

575,615

Cash and cash equivalents at end of period

546,467

567,930

ZIFF DAVIS, INC. AND SUBSIDIARIES

RECONCILIATION OF GAAP TO ADJUSTED NON-GAAP FINANCIAL MEASURES

THREE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Adjusted non-GAAP net income is GAAP net income with the following modifications: (1) elimination of share-based compensation; (2) elimination of certain acquisition related integration costs; (3) elimination of interest costs in excess of the coupon rate associated with outstanding debt; (4) elimination of amortization of patents and intangible assets that we acquired; (5) elimination of change in value on investment; (6) elimination of additional tax expense/benefit from prior years; (7) elimination of gain/loss on sale of assets; (8) elimination of intra-entity transfers; (9) elimination of lease asset impairments and other charges; (10) elimination of disposal related costs; (11) elimination of goodwill impairment on business and (12) elimination of dilutive effect of the convertible debt.

Three Months Ended September 30,

2021

Per Diluted Share *

2020

Per Diluted Share *

Net income

42,569

0.88

60,883

1.31

Plus:

Share based compensation (1)

4,043

0.09

4,552

0.10

Acquisition related integration costs (2)

2,908

0.06

1,177

0.03

Interest costs (3)

2,774

0.06

4,784

0.10

Amortization (4)

35,327

0.75

32,314

0.70

Investments (5)

1,947

0.04

687

0.01

Tax expense from prior years (6)

—

2,551

0.06

Sale of assets (7)

19,249

0.41

(9,936)

(0.21

)

Intra-entity transfers (8)

—

(13,447)

(0.29

)

Lease asset impairments and other charges (9)

1,271

0.03

7,566

0.16

Leasehold improvement impairments (10)

—

2,777

0.06

Disposal related costs (10)

133

—

Convertible debt dilution (12)

—

0.03

—

Adjusted non-GAAP net income

110,221

2.34

93,908

2.02

* The reconciliation of net income per share from GAAP to Adjusted non-GAAP may not foot since each is calculated independently.

ZIFF DAVIS, INC. AND SUBSIDIARIES

RECONCILIATION OF GAAP TO ADJUSTED NON-GAAP FINANCIAL MEASURES

NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Nine Months Ended September 30,

2021

Per Diluted Share *

2020

Per Diluted Share *

Net income

136,209

2.86

92,580

1.93

Plus:

Share based compensation (1)

10,668

0.23

14,350

0.31

Acquisition related integration costs (2)

5,904

0.13

2,771

0.06

Interest costs (3)

12,460

0.27

13,929

0.30

Amortization (4)

105,827

2.32

89,398

1.91

Investments (5)

(5,008

)

(0.11

)

35,495

0.75

Tax expense from prior years (6)

—

4,916

0.11

Sale of assets (7)

16,551

0.37

(10,271

)

(0.22

)

Intra-entity transfers (8)

—

(13,316

)

(0.29

)

Lease asset impairments and other charges (9)

7,816

0.17

9,391

0.20

Leasehold improvement impairments (10)

—

2,777

0.06

Disposal related costs (10)

178

—

Goodwill impairment on business (11)

24,635

0.54

—

Convertible debt dilution (12)

—

0.12

—

0.03

Adjusted non-GAAP net income

315,240

6.92

242,020

5.13

* The reconciliation of net income per share from GAAP to Adjusted non-GAAP may not foot since each is calculated independently.

ZIFF DAVIS, INC. AND SUBSIDIARIES

RECONCILIATION OF GAAP TO ADJUSTED NON-GAAP FINANCIAL MEASURES

THREE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Three Months Ended September 30,

2021

2020

Cost of revenues

64,302

55,822

Plus:

Share based compensation (1)

(108

)

(136

)

Acquisition related integration costs (2)

(209

)

(60

)

Amortization (4)

(356

)

(908

)

Adjusted non-GAAP cost of revenues

63,629

54,718

Sales and marketing

139,693

95,074

Plus:

Share based compensation (1)

(427

)

(321

)

Acquisition related integration costs (2)

(882

)

Adjusted non-GAAP sales and marketing

138,384

94,748

Research, development and engineering

21,639

14,261

Plus:

Share based compensation (1)

(613

)

(425

)

Acquisition related integration costs (2)

(597

)

Adjusted non-GAAP research, development and engineering

20,429

13,831

General and administrative

122,477

114,381

Plus:

Share based compensation (1)

(5,607

)

(4,918

)

Acquisition related integration costs (2)

(2,265

)

(1,428

)

Amortization (4)

(48,093

)

(39,995

)

Lease asset impairments and other charges (9)

(1,685

)

(9,786

)

Leasehold improvement impairments (10)

—

(3,605

)

Disposal related costs (10)

(344

)

—

Adjusted non-GAAP general and administrative

64,483

54,649

Interest expense, net

(19,862

)

(22,712

)

Plus:

Interest costs (3)

4,007

6,140

Adjusted non-GAAP interest expense, net

(15,855

)

(16,572

)

(Loss) gain on sale of businesses

(24,600

)

17,122

Plus:

Sale of assets (7)

24,600

(17,122

)

Adjusted non-GAAP gain on sale of businesses

—

Loss on investments, net

—

(156

)

Plus:

Sale of assets (7)

—

165

Adjusted non-GAAP loss on investments, net

—

Other income (expense), net

1,660

14,230

Plus:

Sale of assets (7)

—

(211

)

Intra-entity transfers (8)

—

(16,421

)

Adjusted non-GAAP other income (expense), net

1,660

(2,402

)

Income tax provision

8,847

24,330

Plus:

Share based compensation (1)

2,712

1,248

Acquisition related integration costs (2)

1,045

321

Interest costs (3)

1,233

1,356

Amortization (4)

13,122

8,589

Investments (5)

(24

)

Tax benefit from prior years (6)

—

(2,551

)

Sale of assets (7)

5,351

(7,232

)

Intra-entity transfers (8)

—

(2,974

)

Lease asset impairments and other charges (9)

—

2,220

Leasehold improvement impairments (10)

414

828

Disposal related costs (10)

211

—

Adjusted non-GAAP income tax provision

32,911

26,157

Loss from equity method investment, net

(1,923

)

(709

)

Plus:

Investments (5)

1,923

709

Adjusted non-GAAP income (loss) from equity method investment, net

—

Total adjustments

(67,652

)

(33,025

)

GAAP earnings per diluted share

0.88

1.31

Adjustments *

1.46

0.71

Adjusted non-GAAP earnings per diluted share

2.34

2.02

* The reconciliation of net income per share from GAAP to Adjusted non-GAAP may not foot since each is calculated independently

The Company discloses Adjusted non-GAAP Earnings Per Share (“EPS”) as a supplemental Non-GAAP financial performance measure, as it believes it is a useful metric by which to compare the performance of its business from period to period. The Company also understands that this Adjusted non-GAAP measure is broadly used by analysts, rating agencies and investors in assessing the Company’s performance. Accordingly, the Company believes that the presentation of this Adjusted non-GAAP financial measure provides useful information to investors.

Adjusted non-GAAP EPS is not in accordance with, or an alternative to, net income per share and may be different from Non-GAAP measures with similar or even identical names used by other companies. In addition, this Adjusted non-GAAP measure is not based on any comprehensive set of accounting rules or principles. This Adjusted non-GAAP measure has limitations in that it does not reflect all of the amounts associated with the Company’s results of operations determined in accordance with GAAP.

ZIFF DAVIS, INC. AND SUBSIDIARIES

RECONCILIATION OF GAAP TO ADJUSTED NON-GAAP FINANCIAL MEASURES

NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Nine Months Ended September 30,

2021

2020

Cost of revenues

185,462

171,755

Plus:

Share based compensation (1)

(357

)

(413

)

Acquisition related integration costs (2)

(286

)

(170

)

Amortization (4)

(1,301

)

(1,806

)

Adjusted non-GAAP cost of revenues

183,518

169,366

Sales and marketing

394,981

287,317

Plus:

Share based compensation (1)

(1,160

)

(1,135

)

Acquisition related integration costs (2)

(1,696

)

(686

)

Adjusted non-GAAP sales and marketing

392,125

285,496

Research, development and engineering

62,634

43,273

Plus:

Share based compensation (1)

(1,690

)

(1,340

)

Acquisition related integration costs (2)

(1,127

)

Adjusted non-GAAP research, development and engineering

59,817

41,954

General and administrative

359,498

312,283

Plus:

Share based compensation (1)

(15,912

)

(15,755

)

Acquisition related integration costs (2)

(5,050

)

(2,762

)

Amortization (4)

(144,403

)

(114,147

)

Sale of assets (7)

490

Lease asset impairments and other charges (9)

(10,336

)

(12,191

)

Leasehold improvement impairments (10)

—

(3,605

)

Disposal related costs (10)

(472

)

—

Adjusted non-GAAP general and administrative

183,815

163,823

Interest expense, net

(62,832

)

(65,879

)

Plus:

Interest costs (3)

16,503

18,092

Tax expense from prior years (6)

—

Adjusted non-GAAP interest expense, net

(46,329

)

(47,787

)

(Loss) gain on sale of businesses

(21,798

)

17,122

Plus:

Sale of assets (7)

22,288

(17,122

)

Adjusted non-GAAP gain on sale of businesses

490

—

Goodwill impairment on business

(32,629

)

—

Plus:

Goodwill impairment on business (11)

32,629

—

Adjusted non-GAAP goodwill impairment on business

—

Loss on investments, net

(16,677

)

(20,991

)

Plus:

Investments (5)

16,677

20,825

Sale of assets (7)

—

165

Adjusted non-GAAP loss on investments, net

—

)

Other income (expense), net

1,367

16,413

Plus:

Sale of assets (7)

200

(650

)

Intra-entity transfers (8)

—

(17,986

)

Adjusted non-GAAP other income (expense), net

1,567

(2,223

)

Income tax provision

16,723

49,011

Plus:

Share based compensation (1)

8,451

4,293

Acquisition related integration costs (2)

2,255

826

Interest costs (3)

4,043

4,163

Amortization (4)

39,877

26,555

Investments (5)

5,089

(3,871

)

Tax (benefit) expense from prior years (6)

—

(4,916

)

Sale of assets (7)

5,447

(7,336

)

Intra-entity transfers (8)

—

(4,670

)

Lease asset impairments and other charges (9)

2,520

2,800

Leasehold improvement impairments (10)

—

828

Disposal related costs (10)

294

—

Goodwill impairment on business (11)

7,994

—

Adjusted non-GAAP income tax provision

92,693

67,683

Income (loss) from equity method investment, net

16,596

(10,799

)

Plus:

Investments (5)

(16,596

)

10,799

Adjusted non-GAAP income (loss) from equity method investment, net

—

Total adjustments

(179,031

)

(149,440

)

GAAP earnings per diluted share

2.86

1.93

Adjustments *

4.06

3.20

Adjusted non-GAAP earnings per diluted share

6.92

5.13

* The reconciliation of net income per share from GAAP to Adjusted non-GAAP may not foot since each is calculated independently.

Non-GAAP Financial Measures

To supplement its condensed consolidated financial statements, which are prepared and presented in accordance with US GAAP, the Company uses the following Non-GAAP financial measures: Adjusted EBITDA, Adjusted non-GAAP Net Income, and Adjusted non-GAAP Diluted EPS (collectively the “Non-GAAP financial measures”). The presentation of this financial information is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with U.S. GAAP. The Company uses these Non-GAAP financial measures for financial and operational decision making and as a means to evaluate period-to-period comparisons. The Company believes that they provide useful information about core operating results, enhance the overall understanding of past financial performance and future prospects, and allow for greater transparency with respect to key metrics used by management in its financial and operational decision making.

(1) Share Based Compensation. The Company excludes stock-based compensation because it is non-cash in nature and because the Company believes that the Non-GAAP financial measures excluding this item provide meaningful supplemental information regarding operational performance. The Company further believes this measure is useful to investors in that it allows for greater transparency to certain line items in its financial statements. In addition, excluding this item from the Non-GAAP measures facilitates comparisons to historical operating results and comparisons to peers, many of which similarly exclude this item.

(2) Acquisition Related Integration Costs. The Company excludes certain acquisition and related integration costs such as adjustments to contingent consideration, severance, lease terminations, retention bonuses and other acquisition-specific items. The Company believes that the Non-GAAP financial measures excluding this item provide meaningful supplemental information regarding operational performance. In addition, excluding this item from the Non-GAAP measures facilitates comparisons to historical operating results and comparisons to peers, many of which similarly exclude this item.

(3) Interest Costs. In June 2014, the Company issued $402.5 million aggregate principal amount of 3.25% convertible senior notes and in November 2019, the Company issued $550.0 million aggregate principal amount of 1.75% convertible senior notes. In accordance with GAAP, the Company separately accounts for the value of the liability and equity features of its outstanding convertible senior notes in a manner that reflects the Company’s non-convertible debt borrowing rate. The value of the conversion feature, reflected as a debt discount, is amortized to interest expense over time. Accordingly, the Company recognizes imputed interest expense on its 3.25% and 1.75% convertible senior notes of approximately 5.8% and 5.5%, respectively, in its statement of operations. The Company excludes the difference between the imputed interest expense and the coupon interest expense of 3.25% and 1.75%, respectively, because it is non-cash in nature and because the Company believes that the Non-GAAP financial measures excluding this item provide meaningful supplemental information regarding core operational performance. In addition, the Company has excluded the difference between the imputed and coupon interest expense associated with the 4.625% Senior Notes. The Company has determined excluding these items from the Non-GAAP measures facilitates comparisons to historical operating results and comparisons to peers, many of which similarly exclude this item.

(4) Amortization. The Company excludes amortization of patents and acquired intangible assets because it is non-cash in nature and because the Company believes that the Non-GAAP financial measures excluding this item provide meaningful supplemental information regarding operational performance. In addition, excluding this item from the Non-GAAP measures facilitates comparisons to historical operating results and comparisons to peers, many of which similarly exclude this item.

(5) Change in Value on Investments. The Company excludes the change in value on its investments. The Company believes that the Non-GAAP financial measures excluding this item provide meaningful supplemental information regarding operational performance. In addition, excluding this item from the Non-GAAP measures facilitates comparisons to historical operating results.

(6) Tax Expense/Benefit from Prior Years. The Company excludes certain income tax-related items in respect of income tax audit settlements and their related reversals of income tax reserves accounted for through ASC 740-10. The Company believes that the Non-GAAP financial measures excluding these items provide meaningful supplemental information regarding operational performance. In addition, excluding these items from the Non-GAAP measures facilitates comparisons to historical operating results.

(7) Gain (Loss) on Sale of Assets. The Company excludes the gain (loss) on sale of certain of its assets. The Company believes that the Non-GAAP financial measures excluding this item provide meaningful supplemental information regarding operational performance. In addition, excluding this item from the Non-GAAP measures facilitates comparisons to historical operating results.

(8) Intra-Entity Transfers. The Company excludes certain effects of intra-entity transfers to the extent the related tax asset or liability in the financial statement is not recovered or settled, respectively during the year. During December 2019, the Company entered into an intra-entity asset transfer that resulted in the recording of a tax benefit and related tax asset representing tax deductible amounts to be realized in future years which is expected to be recovered over a period of up to 20 years and related foreign currency fluctuations. The Company believes that the Non-GAAP financial measures excluding the cumulative future unrealized benefit of the assets transferred and including the tax benefit in the year of realization provides meaningful supplemental information regarding operational performance. In addition, excluding this item from the Non-GAAP measures facilitates comparisons to historical operating results.

(9) Lease Asset Impairments and Other Charges. The Company excludes lease asset impairments and other charges as they are non-cash in nature and because the Company believes that the Non-GAAP financial measures excluding this item provide meaningful supplemental information regarding operational performance. In addition, excluding this item from the Non-GAAP measures facilitates comparisons to historical operating results.

(10) Disposal related Costs. The Company excludes expenses associated with the disposal of certain businesses. The Company believes that the Non-GAAP financial measures excluding this item provide meaningful supplemental information regarding operational performance. In addition, excluding this item from the Non-GAAP measures facilitates comparisons to historical operating results.

(11) Goodwill Impairment on Business. The Company excludes the goodwill impairment on business because it is non-cash in nature and the Company believes that the Non-GAAP financial measures excluding this item provide meaningful supplemental information regarding operational performance. In addition, excluding this item from the Non-GAAP measures facilitates comparisons to historical operating results.

(12) Convertible Debt Dilution. The Company excludes convertible debt dilution from diluted EPS. The Company believes that the Non-GAAP financial measures excluding this item provide meaningful supplemental information regarding operational performance. In addition, excluding this item from the Non-GAAP measures facilitates comparisons to historical operating results.

The Company presents Adjusted non-GAAP Cost of Revenues, Adjusted non-GAAP Research, Development and Engineering, Adjusted non-GAAP Sales and Marketing, Adjusted non-GAAP General and Administrative, Adjusted non-GAAP Interest Expense, Adjusted Gain on Sale of Businesses, Adjusted non-GAAP Loss on Investments, Adjusted non-GAAP Other (Income) Expense, Adjusted non-GAAP Income Tax Provision, Adjusted non-GAAP (Income) Loss from Equity Method Investment, Net and Adjusted non-GAAP Net Income because the Company believes that these provide useful information about our operating results and enhance the overall understanding of past financial performance and future prospects.

Pro-Forma Financial Results

Key pro-forma financial results for the three and nine months ended September 30, 2021 and 2020, are set forth in the following table (in millions, except per share amounts). The financial results below reflect the Company’s results, on a pro-forma basis, taking into consideration the sale of certain Voice assets in Australia, New Zealand, and the United Kingdom as well as the sale of the Company’s B2B Backup business as if they had occurred January 1, 2020.

Three Months Ended

Nine Months Ended

Q3 2021

Q3 2020

Q3 2021

Q3 2020

Total Revenues

$444.3 million

$357.0 million

$1,271.5 million

$1,020.4 million

Pro-Forma Revenue Adjustments

$(9.6) million

$(16.7) million

$(33.5) million

$(54.3) million

Pro-Forma Total Revenue: (1)

$434.7 million

$340.3 million

$1,238.0 million

$966.1 million

Adjusted Non-GAAP Earnings per Diluted Share (1)

$2.34

$2.02

$6.92

$5.13

Pro-Forma Earnings per Diluted Share Adjustments

$(0.07)

$(0.24)

$(0.26)

Adjusted Pro Forma Earnings per Diluted Share (1)

$2.27

$1.95

$6.68

$4.87

GAAP Net Income

$42.6 million

$60.9 million

$136.2 million

$92.6 million

Pro-Forma Net Income Adjustments

$64.5 million

$29.3 million

$168.2 million

$137.2 million

Adjusted Pro-Forma Net Income

$107.1 million

$90.2million

$304.4 million

$229.8 million

Adjusted EBITDA (1)

$175.1 million

$154.1 million

$503.4 million

$403.8 million

Pro-Forma EBITDA Adjustments

$(4.3) million

$(6.9) million

$(13.9) million

$(20.8) million

Adjusted Pro-Forma EBITDA (1)

$170.8 million

$147.2 million

$489.5 million

$383.0 million

Adjusted EBITDA Margin (1)

39.4%

43.2%

39.6%

Pro-Forma EBITDA Margin Adjustments

(0.1)%

0.1%

(0.1)%

0.1%

Adjusted Pro-Forma EBITDA Margin (1)

39.3%

43.3%

39.5%

39.6%

(1) Refer to the notes earlier in this Release.

ZIFF DAVIS, INC. AND SUBSIDIARIES

NET INCOME TO ADJUSTED EBITDA RECONCILIATION

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

(UNAUDITED, IN THOUSANDS)

The following table sets forth a reconciliation of net income, the most directly comparable GAAP financial measure, to Adjusted EBITDA.

Three Months Ended September 30,

Nine Months Ended September 30,

2021

2020

2021

2020

Net income

42,569

60,883

136,209

92,580

Plus:

Interest expense, net

19,862

22,712

62,832

65,879

Loss (gain) on sale of businesses

24,600

(17,122

)

21,798

(17,122

)

Loss on investments, net

—

156

16,677

20,991

Other (income) expense, net

(1,660

)

(14,230

)

(1,367

)

(16,413

)

Income tax expense

8,847

24,330

16,723

49,011

(Income) loss from equity method investment, net

1,923

709

(16,596

)

10,799

Depreciation and amortization

66,217

59,612

196,443

163,680

Reconciliation of GAAP to Adjusted non-GAAP financial measures:

Share-based compensation

6,755

5,800

19,119

18,643

Acquisition-related integration costs

3,953

1,498

8,159

3,597

Lease asset impairments and other charges

1,685

9,786

10,336

12,191

Disposal related costs

345

—

472

—

Goodwill impairment on business

—

32,629

—

Adjusted EBITDA

175,096

154,134

503,434

403,836

Adjusted EBITDA as calculated above represents earnings before interest, gain on sale of businesses, goodwill impairment of business, loss on investments, net, other (income) expense, net, income tax expense, (income) loss from equity method investments, net, depreciation and amortization and the items used to reconcile GAAP to Adjusted non-GAAP financial measures, including (1) share-based compensation, (2) certain acquisition-related integration costs, and (3) lease asset impairments and other charges. We disclose Adjusted EBITDA as a supplemental Non-GAAP financial performance measure as we believe it is a useful metric by which to compare the performance of our business from period to period. We understand that measures similar to Adjusted EBITDA are broadly used by analysts, rating agencies and investors in assessing our performance. Accordingly, we believe that the presentation of Adjusted EBITDA provides useful information to investors.

Adjusted EBITDA is not in accordance with, or an alternative to, net income, and may be different from Non-GAAP measures used by other companies. In addition, Adjusted EBITDA is not based on any comprehensive set of accounting rules or principles. This Adjusted non-GAAP measure has limitations in that it does not reflect all of the amounts associated with the Company’s results of operations determined in accordance with GAAP.

ZIFF DAVIS, INC. AND SUBSIDIARIES

NON-GAAP FINANCIAL MEASURES

(UNAUDITED, IN THOUSANDS)

YTD

2021

Net cash provided by operating activities

178,724

111,298

140,230

—

430,252

Less: Purchases of property and equipment

(26,269

)

(31,497

)

(29,729

)

—

(87,495

)

Add: Contingent consideration*

—

685

—

685

Free cash flows

152,455

80,486

110,501

—

343,442

YTD

2020

Net cash provided by operating activities

102,036

139,591

114,382

124,070

480,079

Less: Purchases of property and equipment

(26,885

)

(23,652

)

(20,729

)

(21,286

)

(92,552

)

Add: Contingent consideration*

20,054

—

20,202

Free cash flows

95,205

115,939

93,702

102,883

407,729

* Free Cash Flows of $80.5 million for Q2 2021, $95.2 million for Q1 2020, $93.7 million for Q3 2020 and $102.9 million for Q4 2020 is before the effect of payments associated with certain contingent consideration associated with recent acquisitions.

The Company discloses free cash flows as supplemental Non-GAAP financial performance measure, as it believes it is a useful metric by which to compare the performance of its business from period to period. The Company also understands that this Non-GAAP measure is broadly used by analysts, rating agencies and investors in assessing the Company’s performance. Accordingly, the Company believes that the presentation of this Non-GAAP financial measure provides useful information to investors.

Free cash flows is not in accordance with, or an alternative to, Cash Flows from Operating Activities, and may be different from Non-GAAP measures with similar or even identical names used by other companies. In addition, the Non-GAAP measure is not based on any comprehensive set of accounting rules or principles. This Non-GAAP measure has limitations in that it does not reflect all of the amounts associated with the Company’s results of operations determined in accordance with GAAP.

ZIFF DAVIS, INC. AND SUBSIDIARIES

RECONCILIATION OF GAAP TO ADJUSTED NON-GAAP FINANCIAL MEASURES

THREE MONTHS ENDED SEPTEMBER 30, 2021

(UNAUDITED, IN THOUSANDS)

Cloud

Digital

Services

Media

Corporate

Total

Revenues

GAAP revenues

182,090

262,162

—

444,252

Gross profit

GAAP gross profit

141,388

238,562

—

379,950

Non-GAAP adjustments:

Share-based compensation

104

—

108

Acquisition related integration costs

188

—

209

Amortization

356

—

356

Adjusted non-GAAP gross profit

142,036

238,587

—

380,623

Operating profit

GAAP operating profit (loss)

61,685

49,822

(15,366

)

96,141

Non-GAAP adjustments:

Share-based compensation

1,451

2,125

3,179

6,755

Acquisition related integration costs

3,511

416

3,953

Amortization

11,040

37,333

48,450

Lease asset impairments and other charges

1,033

652

—

1,685

Disposal related costs

—

345

345

Adjusted non-GAAP operating profit (loss)

78,720

90,348

(11,739

)

157,329

Depreciation

4,996

12,771

—

17,767

Adjusted EBITDA

83,716

103,119

(11,739

)

175,096

NOTE 1: Table above excludes certain intercompany allocations

ZIFF DAVIS, INC. AND SUBSIDIARIES

RECONCILIATION OF GAAP TO ADJUSTED NON-GAAP FINANCIAL MEASURES

THREE MONTHS ENDED SEPTEMBER 30, 2020

(UNAUDITED, IN THOUSANDS)

Cloud

Digital

Services

Media

Corporate

Total

Revenues

GAAP revenues

170,248

186,728

—

356,976

Gross profit

GAAP gross profit

131,827

169,338

(11

)

301,154

Non-GAAP adjustments:

Share-based compensation

133

—

136

Acquisition related integration costs

—

Amortization

908

—

908

Adjusted non-GAAP gross profit

132,928

169,341

(11

)

302,258

Operating profit

GAAP operating profit (loss)

65,813

26,027

(14,402

)

77,438

Non-GAAP adjustments:

Share-based compensation

1,388

1,356

3,056

5,800

Acquisition related integration costs

123

1,220

155

1,498

Amortization

16,114

22,352

2,437

40,903

Lease asset impairments and other charges

—

9,786

—

9,786

Adjusted non-GAAP operating profit (loss)

83,438

60,741

(8,754

)

135,425

Depreciation

4,410

14,299

—

18,709

Adjusted EBITDA

87,848

75,040

(8,754

)

154,134

NOTE 1: Table above excludes certain intercompany allocations

NOTE 2: Table above has been recast to remove the impact of certain expenses associated with the Corporate entity that were previously allocated to the Cloud Services and Digital Media businesses.

View source version on businesswire.com: https://www.businesswire.com/news/home/20211103006321/en/

Rebecca Wright Ziff Davis, Inc. 800-577-1790 investor@ziffdavis.com

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