Good day, and thank you for standing by, and welcome to BuzzFeed, Inc. Second Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Amita Tomkoria, Senior Vice President of Investor Relations. Please go ahead.

Hi, everyone. Welcome to BuzzFeed, Inc.’s second quarter 2024 earnings conference call. I'm Amita Tomkoria, Senior Vice President of Investor Relations. 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, our Q1 2024 quarterly report on Form 10-Q, and our Q2 2024 quarterly report on Form 10-Q to be filed with the SEC. 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. Before I get into the specifics about the quarter, I want to provide a bit of context. As I mentioned on our past calls, we take a long-term approach to managing our business. This is why we've kept our world-class tech team and product teams intact, despite a tough market where many of our competitors shed those costs to provide short-term savings. We have a strong conviction that continuously experimenting and innovating with technology sets us up to thrive in the next era of the internet. We've always lived at the intersection of content and technology, and we're increasingly leaning into new technologies for beginning to transform the media industry. I'm pleased to share that we are beginning to see the fruits of our experimentation and innovation. In particular, Generative AI, interactive content formats, enhanced personalization are starting to drive improvements in key metrics across our business. These improvements include more audience loyalty, more user logins, higher conversion on our commerce content, better targeting and growth in our advertising inventory, revenue growth in our most scalable lines of business, and improved profitability. By leaning into new technologies, we have also accelerated the pace of new product development, made our content creators more efficient and creative, and invited our audience to participate directly in AI-assisted content creation. We've already done much of the hard work that will enable us to do more of the fun consumer-facing work moving forward. Since the start of the year, we've built foundational capacities with the help of AI that now power internal content development tools like our AI copilots as well, as consumer-facing experiences like our AI-assisted content generators. By leveraging a range of embedding techniques to represent our content, in conjunction…

Thank you, Jonah. As Jonah just touched on, we closed the second quarter with great momentum. Before I discuss our Q2 financial performance in more detail, I'll recap some highlights from across the business. In terms of audience time spent, we were the only digital media company in our competitive set to grow time spent quarter-over-quarter, up 5% versus Q1, according to Comscore. And importantly, we grew time spent among our core demographic, Millennials and Gen Z by 11% versus Q1. We delivered overall Q2 revenues in line with our May outlook, with year-over-year growth in two of our largest and highest margin revenue lines of business, programmatic advertising and affiliate commerce. We've exceeded our May outlook for adjusted EBITDA, generating $2.7 million in Q2 profits, a $5 million improvement year-over-year. This momentum has continued into Q3 with our biggest Prime Day ever, generating double-digit year-over-year growth in both audience traffic and commerce revenue and outpacing Amazon's overall Prime Day growth. As we work to return the overall business to growth, we are introducing more transparency in our revenue performance. In this quarter's investor letter, available on our investor relations website, you will find details on the year-over-year revenue performance of our areas of focus, programmatic advertising and affiliate commerce. With that, let me share some more on our second quarter financial results. As a reminder, all financials and comparables presented here are on a continuing operations basis, which excludes Complex. Overall revenues for Q2 2024 declined 24% year-over-year to $46.9 million, in line with our May outlook. Performance by revenue line was as follows. Advertising revenues declined 19% year-over-year to $23.8 million, driven by ongoing pressure on our direct sales channel and a shift in our strategy to prioritize our most scalable high margin revenue lines. This offset growth…

Great. Thanks, Matt. Hi, everyone. We've gathered a bunch of questions that have come in over the course of the call and in advance. So we'll get right into it. Jonah, starting with you, on the topic of AI and some of the upcoming launches that you mentioned. Can you share a bit more about how AI is helping move some of these content launches forward? And if there's a way to quantify the cost benefit of rolling out content that utilizes some of the new AI capabilities that you talked about?

Yeah. So, I'll start just by saying that there's a fair amount of upfront work that we've done really over the last 1.5 years, to build a platform to enable us to accelerate our work in AI and to be able to launch more products and more content. So if you take an example like the Bridgerton dress generator or the Celeb Shrek post, it really represents a very different way of thinking about and making content. Someone on our team will instead of making a single post or article will create a generator. And then our audience will come and use that generator to create hundreds of pieces of content or thousands of pieces of content. And so you basically shift from a model where your team and your editors and your writers are making one piece of content that is consumed to them making a machine that generates lots of content with the audience and allows the audience to participate in that content creation. I mean, that's just one example of the ways that it increases the content output and the audience and the interactivity. We're also driving more personalization on our site. We're building tools to streamline our business operations. We're using AI to detect trends and surface ideas that then our writers can turn into stories and post. So there's a huge wide range of things that we're able to do. But all of it is really enabled by the fact that we have spent the time investing in building a platform. And so now instead of it taking many weeks to launch a new interactive format, we can launch things as quickly and easily as other forms of content in the past, but the content is more personalized, more interactive and is more generative of additional content. And I think it really starts to feel like a collaboration between our team, our audience and the AI, and it's something that is pointing to a lot of really exciting opportunities for the future.

Thank you. And then just as the election approaches, maybe just to quickly touch on Jonah, and maybe also for you, Matt, what are the expectations for the impact on both traffic and advertising revenue for the business?

I mean, just to quickly start with traffic, I think we're already seeing tremendous interest in the election on both BuzzFeed and HuffPost. BuzzFeed is more of an entertainment property, but there's so many memes and stories and entertainment related to the way that the election is driving culture. And HuffPost is really the best place to go and find out what's going on in this election, especially as social media platforms have gotten more fragmented and there's more misinformation spreading across social platforms. The front page of HuffPost is a great place for an audience to know what's going on, what are the latest developments, what's real, what's not. And we see a lot of strength in HuffPost with the election. I think in terms of ad spend, we usually see that ad spend come later in the cycle as campaigns spend really rapidly in the run-up to the election to drive turnout, registration and other things.

Yeah. I’ll just echo that. We really expect the direct sold revenues to come in Q4 as opposed to Q3.

So, Matt, that's a good segue maybe into the Q3 guide. The Q3 guidance that you shared shows a pretty significant step-up in revenue versus Q2. Can you share a bit about what's driving that lift?

Yeah, sure. I mean, we expect the positive trends to continue in both programmatic and affiliate, as we double down on owned and operated properties. As you heard from Jonah, the new content launches plus the revamped home page are certainly driving deeper audience engagement, which is translating into improvements in programmatic revenue. And we just had our best Prime Day ever as I touched on. So double-digit top-line growth, it drives significant momentum for every -- of approaching the kind of began Q3. We're also seeing the stabilization in direct sold, particularly in direct sold content in Q3, and expect a significant improvement in the year-over-year trend in Q3 versus what we saw in Q2. So that's part of the step up. And then following the cash saving action that we touched on last quarter, more of our costs are just fixed in nature. And so as we see the seasonal lift in our revenue and some of the stabilization, we're going to see improvements to our operating leverage, and that's certainly amplified, particularly when we see two of our highest margin lines of business return to growth. And as a reminder, we showed $5 million of improvement in adjusted EBITDA in Q2, and based on the midpoint of guidance, we expect an $8 million improvement into Q3. So we're extremely excited that we have some momentum and we're going to continue to focus as a management team, keep our head down, and continue to focus on execution.

And maybe then just to jump over to the balance sheet. You guys obviously still have a fair amount of debt outstanding. Can you share your latest thinking around that? And particularly, how you guys are thinking about the impending option that becomes available to the lenders in December, I believe?

Yeah. I guess just coming off the last question. And what we're really focused on is executing on the strategy that Jonah and I have laid out in previous earnings call and in this one, and we're starting to see some material improvements to our fundamentals in the financials. And we have -- we believe we have a pretty collaborative relationship with our noteholders as demonstrated by -- they gave us consent when we provided the complex transaction. As we previously discussed in our 10-Q, the company is -- we're always evaluating strategic changes to our operations or capital structures, including divestitures, of which the proceeds will be used to pay down debt. We all consider restructuring or refinancing of existing debt and the discontinuing -- discontinuance, I should say, of any unprofitable lines of business to ensure the long-term health of the business. It's also worth noting that the larger public float, we have been able to increase the size of our ATM program to $150 million. So we have that as well at our disposal for additional liquidity should the market circumstances support it. But overall, again, we're focused on keeping our head to the ground and operating and executing on the plans laid out earlier this year, and we'll continue to move forward.

Okay. That's very helpful. So, maybe, Jonah, turning back to you, I'd be remiss not to ask about some of the headlines around new activist shareholders entering the stock. And I'm curious if there's anything that you can share with us in terms of whether BuzzFeed's engaged with them up to this point or really any light that you can shed on that would be great.

Sure. So, obviously, BuzzFeed is a very well-known brand that means a lot to many people. And I agree that there's a lot of future potential for BuzzFeed and we're working really hard to unlock that potential. In terms of activists, I'm always very open to hearing from our shareholders to hearing new ideas to hearing ways that we might be able to unlock even more value in the future. And I think there are a lot of tremendous possibilities ahead of us, and we're working very hard on our long-term strategy to unlock as much value as possible. but engaging with voices and shareholders and beyond shareholders, getting ideas for how to do the best we possibly can at creating the designing media company for the AI age over the next few years is something that we're very excited about.

Thank you. We've got a couple of minutes left. So, Matt, I'd like to close out with you just on the topic of cash. If I look from Q1 to Q2, it looks like the company burned about $16 million in cash quarter-to-quarter. Is that indicative of your expected cash burn rate going forward?

Thanks, Amita. The Q2 cash burn is absolutely not indicative of the go-forward expected run rate. We had a few expenditures in Q2 that are not expected to repeat in Q3, the most material of which were the severance and onetime compensation charges related to expenses from the Complex transaction and the cost savings actions we announced in February. Secondly, as we previously had noted, we used some proceeds in the Complex sale towards optimizing our working capital. And lastly, we had a biannual interest payment that was due in June. None of those are going to be repeated in Q3. And so if we remove those expenditures, the cash burn would have been dramatically reduced. And so with the large onetime charges behind us, we do expect much more stability in our cash balance going forward. I'm pretty excited about where we're at as a business.

Thank you. Thanks, Matt. And thanks, Jonah. That concludes our Q&A session for today. So I'll hand it back to the operator to close out our call.

This concludes today's conference call. Thank you for participating. You may now disconnect.