Thank you for standing by and welcome to BuzzFeed, Inc.'s Fourth Quarter 2023 Earnings Conference Call. At this time, all participants are on a listen-only mode. I would now like to hand the call over to SVP, Investor Relations, Amita Tomkoria. Please, go ahead.

Thank you. Hi, everyone, welcome to BuzzFeed, Inc.'s Fourth Quarter 2023 Earnings Conference Call. I'm Amita Tomkoria, Senior Vice President of Investor Relations. And joining me today are CEO, Jonah Peretti; and CFO, Matt Omer. Before we get started, I would like to take this opportunity to remind you that our remarks today will include forward-looking statements. Actual results may differ materially from those contemplated by these forward-looking statements. Factors that could cause these results to differ materially are set forth in today's press release, our 2023 annual report on Form 10-K to be filed with the SEC and our 2023 quarterly reports on Form 10-Q. Any forward-looking statements that we make on this call are based on assumptions as of today and we undertake no obligation to update these statements as a result of new information or future events. During this call, we present both GAAP and non-GAAP financial measures, including adjusted EBITDA and adjusted EBITDA margin. The use of non-GAAP financial measures allows us to measure the operational strength and performance of our business, to establish budgets and to develop operational goals for managing our business. We believe adjusted EBITDA and adjusted EBITDA margin are relevant and useful information for investors because they allow investors to view performance in a manner similar to the method used by our management. A reconciliation of these GAAP to non-GAAP measures is included in today's earnings press release. Please refer to our Investor Relations website to find today's press release along with our investor letter. And now I'll pass the call over to Jonah.

Thank you, Amita. Good afternoon, everyone, and thank you for joining us today. At BuzzFeed, the way we pursue our mission to spread truth, joy and creativity on the Internet is as important as the mission itself. We've never been a conventional media company focused on just content output. We've always been as obsessed with the medium as we are with the message. By embracing new technologies, pioneering new formats and innovating to create new ways to bring our content to life, we have built some of the most iconic brands on the Internet. Our early teams are responsible for much of the foundational work establishing social media. It is now commonplace, but when we started, it wasn't the norm for our content to be share -- for content to be shareable, relatable, identity firming and purpose-built to connect people into fandoms and affinity groups based on shared passion. And over the past 15 years, we've been part of this medium emerging, maturing, coming ubiquitous and inspiring media outlets as diverse as the New York Times and Mr. Beast. By empowering these same core tenets of identity, fandom and shareability, I believe we have a tremendous opportunity in front of us to build the defining media company for the AI era. To capitalize on this opportunity, we have aggressively refocused our business around our iconic brands, BuzzFeed, HuffPost, Tasty, First We Feast and Hot Ones, which combined continued to lead the industry in Q4 in terms of time spent according to Comscore. Our owned and operated websites and apps, where we have more control over monetization, our most scalable, highest-margin, tech-led revenue streams, programmatic advertising and affiliate commerce. With this as a backdrop, I would like to share some important and exciting updates on our business. We continue to operate…

Thank you, Jonah. I want to echo Jonah's remarks regarding the strength of our go-forward business. With the sale of Complex behind us and our restructuring program nearly fully executed, we believe we are a stronger, more stable and more profitable business. We now have less exposure to declining lower-margin branded video revenues. We have meaningfully reduced our go-forward head count and cash cost structure. And as a result of paying down a significant portion of our debt, we have also reduced our go-forward cash interest obligations. And while we still have work to do to address the traffic and revenue headwinds facing our business and digital publishers at large, I believe we are significantly better positioned than our peers to navigate the way forward sustainably and profitably. Moving on to our fourth quarter results. As a reminder, all financials and comparables presented here are on a continuing operations basis, which excludes Complex. Overall revenues for Q4 2023 declined 26% year-over-year to $75.7 million, in line with the revised outlook we provided last month. Performance by revenue line was as follows. Advertising revenues declined 25% year-over-year to $31.9 million, predominantly driven by lower year-over-year direct sold revenues. Our direct sales channel has been more acutely impacted by current trends in the advertising market. Bundling our brands into a single portfolio proved challenging during a time in which many of our clients face uncertainty with respect to their own budgets and spending. Now by contrast, trends in our programmatic advertising, which makes up the significant majority of our advertising revenues, saw a more moderate decline of 11% year-over-year in Q4. This was entirely driven by declines on third-party platforms, which offset growth in programmatic revenues on our owned and operated properties. The advertising revenues are driven in large part by audience…

Great. Thanks, Matt. We have received a bunch of questions ahead of the call and during the call, which I've gathered here. So we'll go ahead and get right into it. Jonah, the first question is for you, around the impact of AI. Can you talk a little bit more about like how we might and when we might see some of this impact showing up in the numbers?

Yes. Thanks for the question. So the first impact of AI will be on our core business, which is programmatic and affiliate revenue lines, in particular. What's so exciting about our programmatic and affiliate businesses is they're both highly scalable, tech-enabled revenue lines that are high margin, and you can get a lot of leverage for applying additional technology to those business lines. If you look at the recent developments in AI, particularly with LLMs, it's now possible to have a machine read all of our content and understand it, and that's a huge difference. And the ability to actually understand our content means that opportunities for contextual advertising for programmatic are greatly enhanced. It wouldn't have been possible until very recently to have someone who can like have a person read all of our articles and pick the perfect ads to contextually align with that article. But with AI actually able to understand the content of articles that kind of alignment and contextual alignment of advertising is possible. The same with shopping, the ability of -- if everyone had their own personal shopper who knows all the things that you've bought previously, knows the things you're browsing and interested in maybe buying and can make personalized recommendations to you. That's something that we feel will be able to drive additional transactions in the future. So those are the two big areas where we're seeing AI apply to our existing business. But I think there are going to be new businesses -- new business lines that haven't been invented yet, as AI starts to power a new medium. And I think we have a great opportunity at BuzzFeed to help invent that new medium where content is -- will be possible that just wasn't possible before. And so to look…

Great. Thank you. Matt, the next question is for you, on the topic of profitability. So you mentioned in your remarks, BuzzFeed becoming a more profitable business on the other side of the Complex transaction and just how should we think about that relative to your Q1 guidance, which is forecasting adjusted EBITDA losses? Can you just kind of step us through that?

Yes. I mean, so you can see the immediate profitability impact by just looking at our full year 2023 results. So gross margin for continuing operations was 44% as compared to 40% for the consolidated business when you include Complex. So a difference of 400 basis points. And in terms of Q1 guidance, at the midpoint, adjusted EBITDA is expected to be $7 million better year-over-year. This is despite lower year-over-year revenues, which reflects the cumulative impact of last year's cost saving initiatives, but only a partial impact of our most recent restructuring. Again, as a reminder, that recent restructuring is expected to drop approximately $23 million in annualized compensation cost savings, and we expect the program to be fully executed by the end of April. And so looking ahead, we expect that our Q2 operating expenses will be much more representative of our ongoing cost structure.

Got it. Jonah, maybe back to you. In terms of branded video, so you talked about moving away from branded video as source of revenue. Does that mean -- like what does that mean? Does that mean you'll no longer offer these types of products to clients or can you just elaborate on that shift a bit more?

Yes. I think the biggest challenge is with branded video, and I would say the way we had previously operated with video, was that the one-off video that is posted on a social platform or a video platform like YouTube is not a very scalable, durable form of video production, where every single video needs to succeed on its own. And on the branded side, it's a lot of work to come up with some unique idea for every single branded integration that doesn't necessarily have a natural home or reason for someone to watch it. So I don't think it's great from a margin standpoint, from a time standpoint or great for clients. Really, we have put a lot of thought into this and to be smarter about how we make video, and so certainly, one form of making video is partnerships that we've done with streamers to make feature films and video that costs millions of dollars to make, but is really differentiated because it's unique IP. I think when we look at something like Hot Ones, it's also very strong IP that we can extend into a whole bunch of different business lines, from selling hot sauce, to sponsorships to product integration, but none of them are one-off videos. It's a familiar format that repeats, that audiences love and are expecting and that has natural ways to integrate brands. So I think that is a great area to focus on, where you have strong IP and repeat viewership like that. For Tasty, it's really about creators and the Tasty brand plus creators is just incredibly powerful, and we've seen food creators to be so excited to engage with us and partner with brands as well. So we're focused on really looking at how do we make video…

Maybe continuing on from that, you made several references to both your programmatic advertising business and then your affiliate commerce business and sort of refocusing around those two revenue streams. Can you discuss some of the specific opportunities that you see in each of those areas? And maybe on a related note, also how you guys are thinking about Google's rollout of cookie deprecation and where and how that might impact you or maybe how you guys are sort of getting in front of that?

Yes. I mean, as I said earlier, I love our affiliates and programmatic businesses because they are very scalable, high-margin businesses that allow us to get leverage from tech investment. And I think with AI being able to read and understand content, that's just going to add to those businesses. At a very abstract level, affiliate generates revenue from driving transactions, which means people taking action. And our audience is very active, and we are able to inspire a lot of action from our audience to transact. And so if you look just taking the programmatic -- or taking the affiliate business first, we drive more than $0.5 billion in transactions on behalf of our retail partners. And that results in about $50 million in commerce revenues for us. So you can see it's driving significant GMV for our partners. It's also a great business for us. And it is something that will benefit and does benefit from our tech investments. Some of those things might be a little more nuts and bolts like being able to really do a great job featuring the products and the prices and great post formats and collections and gift guides and things like that, our editorial and tech work. And some of it is deeper machine learning, recommendations and now with Gen AI, the ability to remix content and feature a bonus product for someone, that might be a personalized selection for them, and other things that we're just starting to imagine and that could extend far beyond that. So we really like to be in businesses that are -- that benefit from our tech investment and also benefit from new technology trends like Gen AI, that will allow those businesses to get even more leverage six months from now, a year from…

Thank you. So maybe to switch gears a little bit, Matt, we've seen some of the press reports around a potential licensing deal for BuzzFeed in the UK. Could you just discuss the nature of that deal and what we should know about it? Is it material? Just sort of recap that for us?

Yes, yes, sure. The deal hasn't closed yet. So we'll, of course, share more as soon as we're able to do so. But briefly, we're in the final stages of an agreement with the independent to license our BuzzFeed UK, Tasty UK, Seasoned and HuffPost UK brands. This is very similar to the strategic partnership we announced last June between our Australia business and Val Morgan Digital, so which employees that support revenue generation in the UK would move over to the independent and BuzzFeed would continue to own the IP, but we essentially earn a share of the go-forward revenues. So under the proposed license, the independent would put its resources behind our brands, across editorial and sales and offer a wider mix of products and media bundling. In terms of materiality, again, it hasn't closed yet, so we'll share more as soon as we can on the expected impact to our business.

Got it. And then, Jonah, back to you just on the topic of TikTok, obviously, with a potential TikTok ban looming? Like what does that mean for BuzzFeed? And maybe more broadly, just with your renewed focus on the owned and operated platforms, like how do you view the role of the social platforms in BuzzFeed's future?

Yes. So TikTok is obviously, massive in terms of time spent. They don't send much traffic out to other properties. We don't get much audience from TikTok, occasionally, some like LinkedIn Bio type stuff, but not much. And they have been among the worst in terms of monetization. So we've achieved tremendous scale on TikTok, but we've had to build our own monetization by doing branded content and other types of monetization that doesn't depend on platform revenue from TikTok. So I would say our preference would be or our -- when I look at the market, if TikTok is banned, probably that will benefit Facebook, Instagram, Snap, other platforms. And the time spent on TikTok would start to move to a lot of these other platforms. And some of those other platforms are better monetized and could actually be a benefit to us. And then if TikTok isn't banned, I think, and continues, I think we -- our hope is that they will begin to continue the maturation of their ad products and partnership ability, so that they will get closer to parity with other social platforms in terms of revenue for partners. So either of those outcomes are okay. I would say the current state of affairs is not the best where there's just this ongoing and fierce battle between these social platforms. And as a result, they've kind of stopped focusing as much on how to be good partners to the larger ecosystem. So that's the main thing. And I guess in terms of the role of platforms, to me, it feels very much in the interest of any platform that achieves enough strength and that has the security that they're in a strong position for them to partner with as many different types of content creators…

Great. Thank you so much. We've got a time for a couple more questions here. Matt, just pivoting to the debt piece of it and the balance sheet, you talked about the sort of use of proceeds following Complex. How should we think about plans to address what's still a significant amount of debt remaining on the company's balance sheet?

Yes. Like you said, I already touched on earlier. The sale of Complex really enables us to meaningfully reduce our outstanding debt and interest obligations. So again, we eliminated our revolving credit facility, that was about $35 million and also paid down approximately 20% of the convertible note. So roughly $31 million of the $150 million that was outstanding. As it relates to the balance of the convertible note, the unsecured lenders do have an option to call the debt in December this year. However, we expect that we'll be able to work with them in advance of the date of the call option. In fact, when you look at the proceeds, they agreed to a $31 million or roughly $31 million paydown so that we could direct more of the proceeds from the Complex transaction towards the underlying business to fund the restructuring and optimize working capital. That said, as part of the agreement, they do have claim to 95% of proceeds from any future asset sales, so if such asset sales occur, which obviously would further reduce the debt load. But more broadly they discuss the changes we have made to prioritize our high-margin programmatic and affiliate businesses and significantly reduce the cash cost structure have positioned us to better -- to build a much stronger balance sheet in 2024 and take meaningful steps to becoming cash positive.

And then Jonah, just a final question for you in terms of the executive team. Over the past few months, there have been some departures including your President, and do you have plans to rehire or kind of how are you thinking about the executive team?

Yes. Thanks for the question. So I'm confident in our go-forward leadership team, and I'm also really thrilled to share that we are elevating Ken Blom, a leader with tremendous knowledge, experience and perspective to the role of Chief Business Officer across all our brands, and he joins our new CFO, Matt Omer and Jess Probus, our new publisher for BuzzFeed, Inc. So we got a great team and we are all very leaned in for this next stage of building the company.

Fantastic. Thank you, Jonah. Thank you, Matt. Thank you so much. Thanks, everyone, for joining us. That wraps our Q&A session for today. I will hand the call back over to our operator so we can wrap up.

Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect. End of Q&A: