Ziff Davis, Inc.

ZD

US48123V1026

Internet Services

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04-23	Ziff Davis, Inc. Appoints Kate Gutman as Executive Vice President, General Manager, of Its Technology Media Businesses	CI
03-05	UBS Adjusts Ziff Davis Price Target to $76 From $77, Maintains Neutral Rating	MT

ZIFF DAVIS, INC. Management's Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Information (form 10-Q)

November 09, 2021 at 08:47 pm

In addition to historical information, we have also made forward-looking
statements in this report. These statements are based on our estimates and
assumptions and are subject to risks and uncertainties. Forward-looking
statements include the information concerning our possible or assumed future
results of operations. Forward-looking statements also include those preceded or
followed by the words "anticipates," "believes," "estimates," "hopes" or similar
expressions. For those statements, we claim the protection of the safe harbor
for forward-looking statements contained in the Private Securities Litigation
Reform Act of 1995. Our actual results may differ materially from those
anticipated in these forward-looking statements as a result of many factors,
including but not limited to those discussed below, the risk factors discussed
in Part II, Item 1A - "Risk Factors" of this Quarterly Report on Form 10-Q (if
any) and in Part I, Item 1A - "Risk Factors" in our Annual Report on Form 10-K
for the year ended December 31, 2020 (together, the "Risk Factors"), and the
factors discussed in the section in this Quarterly Report on Form 10-Q entitled
"Quantitative and Qualitative Disclosures About Market Risk." Readers are
cautioned not to place undue reliance on these forward-looking statements, which
reflect management's opinions only as of the date hereof. We undertake no
obligation to revise or publicly release the results of any revision to these
forward-looking statements. Readers should carefully review the Risk Factors and
the risk factors set forth in other documents we file from time to time with the
SEC.

Some factors that could cause actual results to differ materially from those
anticipated in these forward-looking statements include, but are not limited to,
our ability and intention to:

•Sustain growth or profitability, particularly in light of an uncertain U.S. or
worldwide economy and the related impact on customer acquisition and retention
rates, customer usage levels, and credit and debit card payment declines;
•Maintain and increase our customer base and average revenue per user;
•Generate sufficient cash flow to make interest and debt payments, reinvest in
our business, and pursue desired activities and businesses plans while
satisfying restrictive covenants relating to debt obligations;
•Acquire businesses on acceptable terms and successfully integrate and realize
anticipated synergies from such acquisitions;
•Continue to expand our businesses and operations internationally in the wake of
numerous risks, including adverse currency fluctuations, difficulty in staffing
and managing international operations, higher operating costs as a percentage
of revenues, or the implementation of adverse regulations;
•Maintain our financial position, operating results and cash flows in the event
that we incur new or unanticipated costs or tax liabilities, including those
relating to federal and state income tax and indirect taxes, such as sales,
value-added and telecommunication taxes;
•Accurately estimate the assumptions underlying our effective worldwide tax
rate;
•Maintain favorable relationships with critical third-party vendors whose
financial condition will not negatively impact the services they provide;
•Create compelling digital media content causing increased traffic and
advertising levels; additional advertisers or an increase in advertising spend;
and effectively target digital media advertisements to desired audiences;
•Manage certain risks inherent to our business, such as costs associated with
fraudulent activity, system failure or security breach; effectively maintaining
and managing our billing systems; time and resources required to manage our
legal proceedings; liability for legal and other claims; or adhering to our
internal controls and procedures;
•Compete with other similar providers with regard to price, service, and
functionality;
•Cost-effectively procure, retain and deploy large quantities of telephone
numbers in desired locations in the United States and abroad;
•Achieve business and financial objectives in light of burdensome domestic and
international telecommunications, internet or other regulations, including
regulations related to data privacy, access, security, retention, and sharing;
•Successfully manage our growth, including but not limited to our operational
and personnel-related resources, and integration of newly acquired businesses;
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•Successfully adapt to technological changes and diversify services and related
revenues at acceptable levels of financial return;
•Successfully develop and protect our intellectual property, both domestically
and internationally, including our brands, patents, trademarks and domain names,
and avoid infringing upon the proprietary rights of others;
•Recruit and retain key personnel; and
•Realize the expected benefits of the cloud fax spin-off transaction or the sale
of the B2B Backup business.
In addition, other factors that could cause actual results to differ materially
from those anticipated in these forward-looking statements or materially impact
our financial results include the risks associated with new accounting
pronouncements, as well as those associated with natural disasters, public
health crises, pandemics including the COVID-19 outbreak and other catastrophic
events outside of our control, including as to COVID-19 the scope and duration
of the pandemic, actions taken by governmental authorities in response to the
pandemic, and the direct and indirect impact of the pandemic on our customers,
third parties and us.

Overview

As of September 30, 2021, Ziff Davis, Inc., together with its subsidiaries
("Ziff Davis", "our", "us" or "we"), was a leading provider of internet
information and services. The Digital Media business specialized in the
technology, shopping, gaming, and healthcare markets, offering content, tools
and services to consumers and businesses. The Cloud Services business provided
cloud-based subscription services to consumers and businesses including cloud
fax, cybersecurity, privacy and marketing technology.
In February 2021, we sold certain Voice assets in the United Kingdom and in
September 2021, we sold our B2B Backup business. On October 7, 2021 subsequent
to the end of the third quarter of 2021, the spin-off of the cloud fax business
into an independent public company (Consensus) was completed. We believe the
spin-off will enable the independent companies to create value with distinct
management teams, capital structures and strategic focus.
Our Digital Media business generates revenues from advertising and sponsorships,
subscription and usage fees, performance marketing and licensing fees. Our Cloud
Services business generates revenues primarily from customer subscription and
usage fees.

In addition to growing our business organically, on a regular basis we acquire
businesses to grow our customer bases, expand and diversify our service
offerings, enhance our technologies, acquire skilled personnel and enter into
new markets.

Our consolidated revenues are currently generated from three basic business
models, each with different financial profiles and variability. Our Digital
Media business is driven primarily by advertising revenues, has relatively
higher sales and marketing expense and has seasonal strength in the fourth
quarter. Our Cloud Services business is driven primarily by subscription
revenues that are relatively higher margin, stable and predictable from quarter
to quarter with some minor seasonal weakness in the fourth quarter. We continue
to pursue additional acquisitions, which may include companies operating under
business models that differ from those we operate under today. Such acquisitions
could impact our consolidated profit margins and the variability of our
revenues.

Ziff Davis, Inc. (formerly J2 Global, Inc.) was incorporated in 2014 as a
Delaware corporation through the creation of a holding company structure, and
our Cloud Services business, operated by our wholly owned subsidiary, J2 Cloud
Services, LLC (formerly J2 Cloud Services, Inc.), and its subsidiaries, was
founded in 1995.

Digital Media Performance Metrics



We use certain metrics to generally assess the operational and financial
performance of our Digital Media business. The number of visits is an important
metric because it is an indicator of consumers' level of engagement with our
mobile applications, websites and other services. We believe highly engaged
consumers are more likely to participate in advertising programs and other
activities that derive our multiple revenue streams.

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We define a visit as a group of interactions by users with our mobile and
desktop applications and websites. A single visit can contain multiple page
views and actions, and a single user can open multiple visits across domains,
web browsers, desktop or mobile devices. We measure visits with Google Analytics
and through partner platform measures. Page views are measured each time a page
on our websites is loaded in a browser.

The following table sets forth certain key operating metrics for our Digital
Media business for the three and nine months ended September 30, 2021 and 2020
(in millions):
                        Three Months Ended                Nine Months Ended
                          September 30,                     September 30,
                                        2021        2020 (1)            2021 (1)        2020 (1)
Visits                                2,047         2,197                6,454          6,701
Page views                            7,006         7,167               22,038         21,887

Sources: Google Analytics and Partner Platforms and test results in connection with Ookla



(1) To more accurately reflect customer activity at Ookla, we have shifted to
using tests as the basis instead of Google Analytics, resulting in pro-forma
adjustments to data in 2020 and Q1 2021.

Cloud Services Performance Metrics



We use certain metrics to generally assess the operational and financial
performance of our Cloud Services business; these metrics also serve as a
baseline for (a) internal trends and (b) benchmarking against competitors. The
average monthly revenue per customer can be used as an analytical tool in
determining the marginal economics of customer acquisition, which is
particularly useful as we continue to focus on growing our higher-margin
businesses. We also use this metric, in conjunction with the cancel rate, to
help provide a directional indicator of Cloud Services revenue and calculate the
lifetime value of customers within each of our business units.

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The following table sets forth certain key operating metrics for our Cloud Services business as of and for the three and nine months ended September 30, 2021 and 2020 (in thousands, except for percentages):


                                                  Three Months Ended                     Nine Months Ended
                                                     September 30,                         September 30,
                                                2021               2020               2021               2020
Subscriber revenues:
Fixed (1)                                   $ 152,359          $ 144,525          $ 444,397          $ 426,766
Variable (1)                                   29,639             25,708             84,079             80,255
Total subscriber revenues                   $ 181,998          $ 170,233          $ 528,476          $ 507,021
Other license revenues                             92                 15                275                 69
Total revenues                              $ 182,090          $ 170,248          $ 528,751          $ 507,090

Percentage of total subscriber revenues:
Fixed                                            83.7  %            84.9  %            84.1  %            84.2  %
Variable                                         16.3  %            15.1  %            15.9  %            15.8  %

Total revenues:
Number-based                                $  98,652          $  98,000          $ 293,167          $ 289,502
Non-number-based                               83,438             72,248            235,584            217,588
Total revenues                              $ 182,090          $ 170,248          $ 528,751          $ 507,090

Average monthly revenue per Cloud Business
Customer (ARPU) (2)(3)                      $   15.53          $   13.98
Cancel Rate (4)                                   2.1  %             2.1  %

(1)The first quarter 2020 disclosure of $144.8 million in fixed subscriber revenue included $3.3 million of revenue which was subsequently determined to be variable subscriber revenue. As a result, the fixed and variable subscriber revenue have been corrected in the table above.



(2)Quarterly ARPU is calculated using our standard convention of applying the
average of the quarter's beginning and ending base to the total revenue for the
quarter. We believe ARPU provides investors an understanding of the average
monthly revenues we recognize associated with each Cloud Services customer. As
ARPU varies based on fixed subscription fee and variable usage components, we
believe it can serve as a measure by which investors can evaluate trends in the
types of services, levels of services and the usage levels of those services
across our Cloud Services customer base.

(3)Cloud Services customers are defined as paying direct inward dialing numbers for fax and voice services, and direct and resellers' accounts for other services.



(4)Cancel Rate is defined as cancels of small and medium business and individual
Cloud Services customers with greater than four months of continuous service
(continuous service includes Cloud Services customers administratively canceled
and reactivated within the same calendar month), and enterprise Cloud Services
customers beginning with their first day of service. Calculated monthly and
expressed as an average over the three months of the quarter.

Critical Accounting Policies and Estimates



In the ordinary course of business, we have made a number of estimates and
assumptions relating to the reporting of results of operations and financial
condition in the preparation of our financial statements. Actual results could
differ significantly from those estimates under different assumptions and
conditions. Our critical accounting policies are described in our 2020 Annual
Report on Form 10-K filed with the SEC on March 1, 2021. During the three months
ended September 30, 2021, there were no significant changes in our critical
accounting policies and estimates.

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Results of Operations for the Three and Nine Months Ended September 30, 2021

Digital Media



We expect the revenue for the remainder of fiscal year 2021 to be higher
compared to the prior-year comparable period due to the acquisition of
RetailMeNot and organic growth, subject to the continued risk of the COVID-19
pandemic. We expect the Digital Media business to improve as we integrate our
recent acquisitions and over the longer term as advertising transactions
continue to shift from offline to online, but these initiatives will be offset
by the impact of COVID-19 in the near term. The main focus of our advertising
programs is to provide relevant and useful advertising to visitors to our
websites and those included within our advertising networks, reflecting our
commitment to constantly improve their overall web experience. As a result, we
expect to continue to take steps to improve the relevance of the ads displayed
on our websites and those included within our advertising networks.

The operating margin we realize on revenues generated from ads placed on our
websites is significantly higher than the operating margin we realize from
revenues generated from those placed on third-party websites. Growth in
advertising revenues from our websites has generally exceeded that from
third-party websites. This trend has had a positive impact on our operating
margins, and we expect that this will continue for the foreseeable future.
However, the trend in advertising spend is shifting to mobile devices and other
newer advertising formats which generally experience lower margins than those
from desktop computers and tablets. We expect this trend to continue to put
pressure on our margins.

We expect acquisitions to remain an important component of our strategy and use
of capital in this business; however, we cannot predict whether our current pace
of acquisitions will remain the same within this business, especially in light
of the current macroeconomic conditions. In a given period, we may close greater
or fewer acquisitions than in prior periods or acquisitions of greater or lesser
significance than in prior periods. Moreover, future acquisitions of businesses
within this space but with different business models may impact Digital Media's
overall profit margins.

Cloud Services

Excluding the impact of the spin-off of our cloud fax business, the sale of our
backup business and assuming a stable or improving economic environment, and,
subject to our risk factors, we expect 2021 revenue to be higher compared to the
prior year. The main strategic focus of our Cloud Services offerings is to
reduce or eliminate costs, increase sales and enhance productivity, mobility,
business continuity and security of our customers as the technologies and
devices they use evolve over time. As a result, we expect to continue to take
steps to enhance our existing offerings and offer new services to continue to
satisfy the evolving needs of our customers.

On October 7, 2021, the Company completed the spin-off of its cloud fax business
into an independent publicly traded company. This cloud fax business represented
approximately 50% of our total Cloud revenues and approximately 31% of our total
Cloud operating costs for the nine months ended September 30, 2021. As a result,
we anticipate a reduction in our operating margins as the cloud fax business
will not recur going forward.

We expect acquisitions to remain an important component of our strategy and use
of capital in this business; however, we cannot predict whether our current pace
of acquisitions will remain the same within this business, especially in light
of the current macroeconomic conditions. In a given period, we may close greater
or fewer acquisitions than in prior periods or acquisitions of greater or lesser
significance than in prior periods. Moreover, future acquisitions of businesses
within this space but with different business models may impact Cloud Services'
overall profit margins.

Consolidated

Excluding the impact of the spin-off of our fax business and based on the trends
discussed above with respect to our Cloud Services and Digital Media businesses,
we anticipate our consolidated revenue for fiscal year 2021 to be higher
compared to the prior-year comparable period.

We expect operating profit as a percentage of revenues to generally decrease in
the future primarily due to the fact that revenue with respect to our Digital
Media business (i) is increasing as a percentage of our revenue on a
consolidated basis and has historically operated at a lower operating margin;
and (ii) the completion of the spin-off of our cloud fax business which
historically operated at a higher operating margin than our remaining
businesses.

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Revenues