Good day ladies and gentlemen. And welcome to Ziff Davis Third Quarter 2021 Earnings Call. My name is Paul, and I will be the operator assisting you today. At this time, all participants are in a listen-only mode. The question-and-answer session will follow the formal presentation. [Operator Instructions].On this call will be Vivek Shah, CEO of Ziff Davis; Steve Dunn, Chief Accounting Officer; and Alan Steier, Vice President of Corporate Finance at Ziff Davis. I will now turn the call over to Steve Dunn, Chief Accounting Officer at Ziff Davis. Thank you. You may begin.

Thank you. Good morning, ladies and gentlemen. And welcome to the Ziff Davis Investor Conference Call for Q3, 2021. As the operator mentioned, I am Steve Dunn, Chief Accounting Officer of Ziff Davis. And I am joined by our CEO, Vivek Shah; and our VP of Corporate Finance, Alan Steier. A presentation is available for today's call. A copy of this presentation is available at our website. When you launch the webcast, there is a button on the viewer on the right-hand side, which will allow you to expand the slides. If you have not received a copy of the press release, you may access it through our corporate website at www.ziffdavis.com. In addition, you'll be able to access the webcast from this site. After completing the formal presentation, we’ll be conducting a Q&A. The operator will instruct you at that time, regarding the procedures for asking question. In addition you mail questions to investor@ziffdavis.com. Before we begin our prepared remarks, allow me to read the safe harbor language. As you know, this call and the webcast will include forward-looking statements. Such statements may involve risks and uncertainties that would cause actual results to differ materially from the anticipated results. Some of those risks and uncertainties include, but are not limited to, the risk factors that we have disclosed in our SEC filings, including our 10-K filings, recent 10-Q filings, various proxy statements and 8-K filings as well as additional risk factors that we have included as part of the slide show for the webcast. We refer you to discussions in those documents regarding safe harbor language as well as forward-looking statements. Now let me turn the call over to Vivek for his remarks.

Thank you, Steve, and good morning, everyone. I'm pleased to welcome you to our first earnings call since the successful completion of our spin-off of Consensus and the renaming of our company to Ziff Davis, which reflects our position as a leading, vertically focused digital media and Internet company. The team at Consensus are off to a tremendous start, and we wish them continued success. While Steve will provide an overview of our financial results, including and excluding Consensus, I'm going to focus my comments on the pro forma results that exclude Consensus and divestitures and including the B2B backup business that we sold in September. On that basis we grew revenues by over 35% and adjusted EBITDA by over 23%, continuing the string of outstanding quarters. We're also reaffirming the guidance we provided about 2 months ago at the Ziff Davis Analyst Day. I also want to recommend for those who have not yet done so, to watch the Analyst Day presentation videos, which are posted on ziffdavis.com. They're very helpful in understanding the company, our strategy and priorities. Advertising revenues in the quarter grew by over 44%. We saw strong growth in every one of our verticals, which stands in contrast with some of our digital media peers. Health advertising grew by over 18% and as we continue to see traditional pharma advertising dollars flowing into digital platforms. As we've noted in the past, we have significant reach with respect to both patients and providers which makes us strategically valuable to pharma and other health and wellness marketers. Gaming and entertainment advertising continued its strong growth and momentum as part of the new console cycle. While streaming platforms continue to invest for subscriber growth and theatrical starts its slow rebound. In our tech vertical, we saw 49% growth…

Thanks, Vivek. I'll be walking you through our consolidated non-GAAP results for Q3, 2021. As you recall from our previous earnings calls, we sold our ANZ Voice assets in August 2020 and our UK Voice assets in February 2021. In September 2021, we completed the sale of our B2B backup assets. As a result, we will present our full non-GAAP results, which include these operations for the periods owned and when we refer to our pro forma results, it will exclude the contribution from these divested assets. Separately, we will also address Ziff Davis performance, excluding the Consensus business and the divested Voice of backup assets. Now let's review the summary quarterly financial results on Slide 4. Let's begin with our revenues inclusive of the Consensus business. It was a record third fiscal quarter of revenues for the company. We reported revenue of $443 million in the quarter and $434.7 million of revenue excluding the divested Voice and backup assets representing approximately 24.5% and 27.7% growth respectively from Q3, 2020. Adjusted EBITDA was also a record for our third fiscal quarter with $175.1 million as reported and $170.8 million, excluding the divested Voice and backup assets resulting in year-over-year growth of 13.6% and 16%, respectively. Finally, growth in our earnings per share. In the third quarter, we had $2.34 of reported non-GAAP adjusted EPS and $2.27 of EPS, excluding the divested Voice and backup assets a growth of 15.8% and 16.4%, respectively, from Q3, 2020. Turning to Slide 5. In Q3, we had strong free cash flow generating $110.5 million which represents a nearly 18% increase over the $93.7 million generated in Q3 of 2020. Over the last 12 months we have generated in excess of $446 million in free cash flow. All of the figures on this slide are…

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] And the first question is coming from Cory Carpenter from JPMorgan. Cory, your line is live.

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

Sure thanks. Good morning, Cory. So look, I think that from an advertising point of view, we had a really fantastic Q3. I would say that -- so the principles of our business being vertically driven, being performance-driven and being contextually driven really has been a clear advantage for us. A lot of what's happening, as you know, in the ad environment has to do with sort of the ongoing and systematic disabling of the interest-based ad targeting framework and construct. And what I mean by that is over the last decade, advertising went from something that was targeted to a very specific audience in a very specific contextual moment to sort of a separation of the impression and data. And using data harvested in other activities. Other things you did, other ways in which you created sort of a digital footprint and applying that to inventory. And what you're seeing being done from a regulatory point of view, but more from a self-regulatory point of view where you have platforms, large platforms as well as browser companies that are doing various things that are making that more challenging. That's not our business. And as I said in the prepared remarks, we've been organized around this reality for a really long time, understanding that ultimately, the contextual advertising would -- the value of it and the marketplace embrace of it would swing back as the interest-based advertising gets undermined. Now having said all of that, the thing that I'm absolutely careful about is that when you have these kinds of headwinds in large parts of the ad ecosystem, we want to watch to make sure we don't somehow fall into a receding tide of any form. We're not seeing it. But it is obviously something we're watching. On the supply…

Okay. Thank you, very helpful.

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

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

Thanks, Shyam. So I'll take the first question. In terms of vertical expansion, Look, we always are looking at adding to our lineup of verticals. But when you consider the verticals we're in, tech, shopping, entertainment, health, cybersecurity and martech. These are some pretty big verticals with big TAMs, lots of great growth characteristics and we're still -- we've got a lot of room to grow in penetrating those. So if you would ask me if I had a preference or if I had a bias, I probably have a bias to deeper expansion in the existing verticals. We've got platforms, successful businesses, great teams in place and it allows for all sorts of sized acquisitions, including tuck-in acquisitions, which often are the most accretive acquisitions that we can do. So I would say that there is a slight bias towards deepening the existing verticals. Having said that, look, we're always open-minded. And I will say that the pipeline right now is pretty strong. Our balance sheet reload has received a fair amount of attention. And so we're seeing a lot of things that maybe in the past. We might not have seen though, we generally saw quite a bit. So there's a lot of inbound coming in. And certainly, if it represents a new vertical with the same kind of digital transformation opportunities, we like the same kind of ad and subscription-based models that we like and the same sort of opportunity to uniquely create value, right, and leveraging our platform, which is key to our M&A strategy and certainly, we would go that way. In terms of the question -- and I'll take it even more broadly because there's IDFA, which has been here and now, there's the deprecation of the third-party cookie. I would put that all under the larger umbrella of trying to really end third-party data tracking and utilization for the targeting of advertising. I think that's a long-term trend. And I do think that it will then ultimately, in the long term, favor those who do the inverse of that, and that would be us. When that happens? I don't know. And I will also say that the industry is innovative. So while the mechanisms that may be used today to establish profiles that are used for targeting maybe challenged. The industry always comes up with new ways. So I suspect that a lot of the folks who are on the interest-based advertising side are not going to lay down and just not respond to it. So I suspect you'll see some sort of response. I think in the end, I think what's going to really matter are platforms that have real registered users. Users who have volunteered information, have provided that information that can be used to create the most relevant advertising messaging. So I think you're going to see -- if a platform can have a true direct relationship with their user base, I think that will be to some advantage.

Great. Thank you, Vivek.

Thank you.

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

Wonderful. Thanks very much for taking my questions. And nice to see a continued strength in the business organically. I wanted to get a sense with -- maybe if you could talk a little bit more about the cloud businesses. And Vivek, give us a little bit more color on how they're kind of doing and what the outlook for those going forward is? I'm particularly interested in the martech space as well as what you're seeing on the VPN side of the equation? Thanks.

Yeah. Good morning, Rishi. Thank you. So look, I think that -- let me describe what the division formerly known as Cloud Services is today. It is our cybersecurity which goes to market at the VIPRE group. And our martech group, which goes to market as the Moz group. And I mentioned those brands because they're really great brands. VIPRE represents a very strong cybersecurity and well-respected cybersecurity brand. Underneath the VIPRE group are component brands, including IPVanish, which is the VPN business. And then the Moz group -- and Moz is a reasonably recent acquisition consists of not just Moz, which is the leader in SEO analytics and software, but also iContact and campaign and our e-mail marketing services. So both groups right now, we feel very good about the portfolio and the brands and the capabilities inside of each group. And as you know particularly on the cybersecurity side with the disposition of the B2B backup business that was part of making sure that the go-forward portfolio were the businesses that we felt had the most amount of potential and promise and could work together. I would characterize these businesses as still going through a transition. They historically were managed not unlike a lot of the other cloud services businesses entirely for profitability and very little focus on organic growth and certainly not enough investment in sales, marketing and product to generate the kind of organic growth that others in the market are seeing. Now those others in the market don't support the same profitability. And so we have a strategic question that we have answered for ourselves that show up in our financials, which explains the margin differences. But we are investing, and have been for the last several quarters and will continue to identify ways to…

Wonderful. Thank you.

Thank you.

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

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

Yeah. Sure thanks. So what I'll do is just because I want to get my colleagues in here, I'll take the first part of the question. And Alan, maybe you can take the second part of the question. So with respect to the advertising outperformance, obviously the contribution of RetailMeNot in the third quarter as compared to last year's third quarter was meaningful as it wasn't in last year's third quarter. But even adjusting for that, I believe the growth was close to 20%. Alan can correct me if I'm wrong in just -- in terms of the existing assets. So the growth rates were great. Now I'm also going to point out that Q3 for us last year was really good. So we kind of got into the quarter a little concerned about the comp. And we're happy -- and then obviously, with all the ad environmental issues that we've talked about, we had some concerns at least going in of what this might mean and what would happen. So we're super pleased with where we came out. And again, I just do think that the verticals are very strong that we're operating in. And I should point out because it is such an important driver, and it's just been a consistent performer. Our health and wellness assets, Everyday Health Group, BabyCenter, What to Expect, MedPage, they've all done so exceedingly well. And I'm just really proud of those colleagues because they just keep putting up points. But Alan, on the splits.

Yeah. And RetailMeNot was -- when you exclude RetailMeNot, we still grew in excess of 18%. So roughly around the 20% that you quoted to that. In terms of the split between display performance and subscription for Digital Media was roughly 41%, 34% and 20%, respectively. And then Steve mentioned in his prepared remarks, but when you do the breakdown between advertising, subscription and licenses and other it was roughly 57%, 39%, which came from subscriptions and then 4%, which is categorized as other.

Super helpful. Thank you.

Thank you.

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

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

So thanks for the question, Jim. So I'll do margins and balance sheet. And maybe, Steve you can talk to the free cash flow, we'll get you in here too. So with respect to margins, on a year-to-date basis for the RemainCo, which is what I think you're asking about, we are ahead from a margin point of view. So there's been a little bit of choppiness between Q1-Q2-Q3. Part of it has to do with return of some expenses that were light during peak quarantine. Much of it has to do with investments we're making that I referenced in cybersecurity and martech around sales and marketing. And then some of it has to do with acquisitions like Moz that have come in with revenue contribution but not EBITDA contribution yet, that we're optimizing as we often do for EBITDA contribution. So I would say that nothing really surprising here and, obviously, it was built into our own expectations. And again, last year's I think margin was a little bit artificially high because of spend levels being off. And so I think long-term, I think the way to think about margin is in that 35% to 36%. That seems to be the comfortable margin for the RemainCo and by the way, historically consistent. So when you thought about the HoldCo where margins were roughly 40%, that was the -- it was biased up by the Consensus business. So not a change I think still a very healthy margin level against balanced against our own growth expectations. On your question around sort of balance sheet and debt. Look, I think that right now, we feel very comfortable with where we sit. We feel comfortable with the cash that sits on the balance sheet and leveraging that cash and deploying that cash…

Yeah, absolutely. Thanks, Vivek, and thanks for the question, James. I think what you'll see with Ziff Davis going forward. If you look at our revenue, we are as Vivek previously mentioned, we are looking to continue towards 60% EBITDA conversion rate on our revenue, down a little bit from the mid-60s because of investments in the business and higher CapEx. And then -- sorry, 40% EBITDA conversion on our revenue. And then from that, I believe we're going to be at about 60% conversion of EBITDA to free cash flow going forward. Like I mentioned, we will have some investment in the businesses. We're driving that organic growth and adding a little CapEx to achieve that. But I think those are kind of the numbers directionally we're headed for in the future.

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

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

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

Okay. And then just one last one, just around the subscription-based revenue that you guys broke out. When you think about growth there, how -- is there a way for that growth to come from existing customers? Or is it all new sign-ups?

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

Great. Thanks.

Thank you.

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

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

Yeah. It's a really -- it's a good question. And I want to point out that from a go-forward basis, we are actually thinking through what are the right segments for Ziff Davis, what are the right disaggregation of revenue probably advertising, subscription and other won't be segments because you can't get down to a bottom line on those. But I think they are the most relevant ways to model and think about the company. So we're trying to work through that a little bit. But in terms of the Q4 guide we obviously had a beat in Q3 and are not taking up our guidance. And that reflects a lot of the dynamics that are going on in the ad market and any potential harmful effects around supply chain disruptions principally. So I think we are appropriately keeping that guidance in place. And so, I think those are some of the factors that we think about. We're not -- we don't really -- obviously, we don't typically quarterly guidance the last quarter and we certainly don't guide by revenue type. But I will say that the fourth quarter as I think you know and you can see this in our historical financials, Slide 8 of the presentation you see the Q4 advertising number typically is a very large number. So historically in Q4 in 2021 will really be about the advertising business more than anything else. And then with respect to next year, it's probably premature for me to give you an answer on that. We're working through our budget processes, looking through understanding where organic growth sits, where the acquisition pipeline sits. And I just want to point out too, is that ultimately again, our definition of organic growth is an interesting one and that it's a very conservative one and that we exclude the asset for the first full year. And then we included and the challenge with that is in the 13 to 14 months when you are comparing to the first or second month. And we are doing a fair amount of restructuring and shrink to grow, that has a fairly dilutive effect on organic growth rates. So that's something to keep in mind as we think about that. So what we typically do is we'll exclude, in our own modeling those assets because we know what that path is and then the organic growth on the assets that we've owned for a while. So working through that process, I think long-term as I've said. I expect the company to grow mid-to-high teens total. Half of that organic at a 35% margin, that is our target. That is what our long-range plans call for. And so there'll be -- there are going to be years where I suspect we do better as we are this year. And they're going to be years where we come a little bit under that. And I think that's fine.

And just if I can just ask one more on maybe just M&A, kind of the philosophy around it, is there any change relative to JCOM before the spin, maybe like 2 years ago. Is there any change in terms of the frequency you guys plan on making acquisitions? The size? And since this past year due to the spin, you haven't been as active as in the past, is it possible there's maybe some catch-up M&A in the following year? Or how should we think about that?

Yes, it's a great question. And you're absolutely right. As much as we were attempting to stay very active in the M&A market during the Consensus spin. I got to tell you that this was all hands on deck, 7 days a week, 24 hours a day. This -- it's probably not set enough, but we executed this spin really within 5 months from the announcement, which is probably some kind of record somewhere. And that is a function of the hard work of our team and the focus and dedication. And I do think that it took away from some of the activity on the M&A side. I do think, though, that we are going to be careful and disciplined as we always are. And not be too -- feeling like we've starved ourselves and we're at the buffet. We don't want to overeat. We're going to be disciplined and thoughtful about it. As for the M&A mindset strategy approach, nothing's changed. And you have to remember that while the company has separated, the M&A system for the last decade has been 95% the RemainCo. So that won't change.

Thanks very much.

Thank you.

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

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

It's actually -- in some ways, it should be a beneficiary. Because the 2 principal things that the martech business does are: one, health companies rank in search engines organically. So again, as you are looking for ways to generate traffic for yourself, ways to generate customers, you're going to focus on SEO more than you might have in the past. Because if you can't get it out of the social platforms because the targeting is perfect and the CPA, the cost per acquisitions are great, you're going SEO. So I think that helps us from an SEO point of view. And then the other part of what we do within martech is e-mail marketing, help you build a list, help you generate and compose e-mails to send to that list, optimize delivery and open rate track, performance and optimize performance, you're going to do that too. So in many ways, I actually think it's a great question and it's something we've talked about internally, which is will we start to see that paid media, which is interest-based move to earned media, which is really what we're trying to do when we're trying to get you SEO'd and get your e-mail platforms going, we're trying to help you generate earned media. Outside of paying us for the platform, there really isn't a specific expense. You're not buying ad inventory. So hopefully, it's actually -- it's a tailwind for us.

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

The honest answer is I don't know if that discussion has happened. Because I don't know if they would necessarily say it that way. I think it just shows up in, hey, I've got more budget, what can we do? It may well be they have more budget because of that dynamic. Often, the buyers are -- keep close to the vest the dynamics that are going on because remember, every ad contract is a negotiation. But I suspect some of that has absolutely happened. Now the key for us is can we deliver, right? We have to be in a -- we have the ability to take the incremental money and deliver unit economics that are consistent with what we've delivered them. And more importantly, as good if not better than what they may be switching from.

Got it. And one last one from me. I was wondering -- you provided some good color on the risks of, I guess, inventory being short later this year just because of supply chain inflationary issues. I was wondering if you have a view of how it might impact you internally, just labor inflation as you go through the year being able to retain people and as we get into '22? How that adds up with cost at maybe coming back into the forever travels like that.

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

That’s helpful. Thank you.

Thank you.

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

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

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