BUZZFEED, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (FORM 10-Q)
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements of BuzzFeed and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the sections titled "Risk Factors" and "Cautionary Note Regarding Forward-Looking Statements" included elsewhere in this Quarterly Report on Form 10-Q and in our other SEC filings. Additionally, our historical results are not necessarily indicative of the results that may be expected
for any period in the future. Company Overview BuzzFeed is a premier digital media company for the most diverse, most online, and most socially connected generations the world has ever seen. Across food, news, pop culture, and commerce, our brands drive conversation and inspire what audiences watch, read, buy, and obsess over next. With a portfolio of iconic, globally-loved brands that includes BuzzFeed, Tasty, BuzzFeed News, HuffPost, and Complex Networks, we are the number one destination for Gen Z and Millennials amongst our competitive set, in terms of time spent, according to Comscore. BuzzFeed's mission is to spread truth, joy and creativity. We are committed to making the Internet better: providing trusted, quality, brand-safe entertainment and news; making content on the Internet more inclusive, empathetic and creative; and inspiring our audience to live better lives. BuzzFeed curates the Internet, and acts as an "inspiration engine," driving both online and real-world action and transactions. Our strong audience signal and powerful content flywheel enables us to create category-leading brands and a deep, two-way connection with our audiences, as well as high-quality content at massive scale and low cost. Working across platforms allows us to adapt content from one platform and innovate around new formats to drive engagement on other platforms. This means we can reach our audiences wherever they are - across our owned and operated properties and the major social platforms, including Facebook, Twitter, Instagram, Snapchat, YouTube and TikTok. In 2021, our audiences consumed nearly 800 million hours of content and drove approximately $600 million in attributable transactions. Our strength has always been to adapt our business model to the evolution of the digital landscape. Founded by Jonah Peretti in 2006, BuzzFeed started as a lab in New York City's Chinatown, experimenting with how the Internet could change how content is consumed, distributed, interacted with, and shared. This pioneering work was followed by a period of significant growth, during which BuzzFeed became a household name. Over the last few years, we have prioritized investments to focus on revenue diversification and profitability. Our data-driven approach to content creation and our cross-platform distribution network have enabled us to monetize our content by delivering a comprehensive suite of digital advertising products and services and introducing new, complementary revenue streams.
Huffington Post’s acquisition and Verizon Investments
On February 16, 2021, we completed the acquisition of TheHuffingtonPost.com,
Inc. ("HuffPost") (excluding HuffPost's business in Brazil and India) (the
"HuffPost Acquisition"), a publisher of online news and media content, from
entities controlled by Verizon Communications Inc. ("Verizon"). We issued
6,478,032 shares of non-voting BuzzFeed Class C common stock to an entity
controlled by Verizon, of which 2,639,322 were in exchange for the acquisition
of HuffPost and 3,838,710 were in exchange for a concurrent $35.0 million cash
investment in BuzzFeed by an affiliate of Verizon, which was accounted for as a
separate transaction. The share amounts presented in the preceding sentence give
effect to the Reverse Recapitalization.
business combination
On December 3, 2021 (the "Closing Date"), we consummated the previously
announced business combinations in connection with (i) that certain Agreement
and Plan of Merger, dated June 24, 2021 (as amended, the "Merger Agreement"), by
and among 890 5th Avenue Partners, Inc. ("890"), certain wholly-owned
subsidiaries of 890, and BuzzFeed, Inc., a Delaware corporation (" Legacy
BuzzFeed"); and (ii) the Membership Interest Purchase Agreement, dated as of
March 27, 2021 (as amended, the "C Acquisition Purchase Agreement"), by and
among Legacy BuzzFeed, CM Partners, LLC, Complex Media, Inc., Verizon CMP
Holdings LLC and HDS II, Inc., pursuant to which we acquired 100% of the
membership interests of CM Partners, LLC. CM Partners, LLC, together with
31
Table of contents
Complex Media, Inc., is referred to herein as "Complex Networks." The
transactions contemplated by the Merger Agreement, including the acquisition of
Complex Networks, are hereinafter referred to as the "Business Combination." In
connection with the consummation of the Business Combination, 890 was renamed
"BuzzFeed, Inc."
Additionally, pursuant to subscription agreements entered into in connection
with the Merger Agreement, we issued, and certain investors purchased, $150.0
million aggregate principal amount of unsecured convertible notes due 2026
concurrently with the closing of the Business Combination (the "Notes"). Refer
to Note 9 to the unaudited condensed consolidated financial statements in Item 1
of this Form 10-Q for additional details.
Additionally, the Business Combination satisfied a liquidity condition for 2.7
million RSUs and we recognized approximately $16.0 million of incremental
stock-based compensation expense as a cumulative catch-up adjustment based on
the number of RSUs outstanding and the requisite service completed at December
3, 2021 ("Liquidity 2 RSUs"). There were a further 2.4 million restricted stock
units with a liquidity condition that the Business Combination did not satisfy
("Liquidity 1 RSUs"). However, on May 12, 2022, the board of directors waived
the liquidity condition associated with the Liquidity 1 RSUs, permitting the
RSUs to vest (based on service). We recognized approximately $8.2 million of
stock-based compensation expense associated with the Liquidity 1 RSUs in the
second quarter of 2022.
Restructuring
On March 22, 2022, in connection with the acquisition of Complex Networks, we approved certain organizational changes to align sales and marketing and general and administrative functions as well as changes in content to better serve audience demands. Additionally, on March 22, 2022, as part of a strategic repositioning of BuzzFeed News, the Company shared with NewsGuild, the representative of the BuzzFeed News bargaining unit, a voluntary buyout proposal covering certain desks. That proposal was then negotiated as part of collective bargaining between the BuzzFeed News Union and us. On May 6, 2022 the BuzzFeed News Union ratified its collective bargaining agreement with us. Also on May 6, 2022, we presented BuzzFeed News employees, including members of the BuzzFeed News bargaining unit, with the final negotiated voluntary buyout proposal. Employees had 45 days from May 6, 2022 to indicate whether they would accept our voluntary buyout proposal. We incurred approximately nil and $5.3 million of restructuring costs for the three and nine months ended September 30, 2022, respectively, comprised mainly of severance and related benefit costs. For the nine months ended September 30, 2022, approximately $4.4 million were included in cost of revenue, excluding depreciation and amortization, $0.3 million were included in sales and marketing, $0.5 million were included in general and administrative, and $0.1 million were included in research and development. On March 9, 2021, we announced a restructuring of HuffPost, including employee terminations, in order to efficiently integrate the HuffPost Acquisition and establish an efficient cost structure. We incurred approximately $3.6 million in severance costs related to the restructuring, of which $3.2 million were included in cost of revenue, excluding depreciation and amortization, $0.3 million were included in sales and marketing, and $0.1 million were included in research and development.
Impact of the COVID-19 Pandemic
In March 2020, the World Health Organization declared the viral strain of
COVID-19 a global pandemic and recommended containment and mitigation measures
worldwide. The spread of COVID-19 and the resulting economic contraction has
resulted in increased business uncertainty and significantly impacted our
business and results of operations.
We believe that the COVID-19 pandemic drove a shift in commerce from offline to
online, including an increase in online shopping, which we believe contributed
to the rapid growth we experienced in our commerce revenue for fiscal 2020.
However, the growth of our commerce revenue decelerated during 2021 and
continued to decelerate in 2022 as shelter-in-place orders were lifted,
consumers returned to shopping in stores, and retailers struggled with supply
chain disruptions and labor shortages.
The continued duration and severity of the COVID-19 pandemic and evolving
strains of COVID-19 is uncertain, rapidly changing, and difficult to predict.
The degree to which COVID-19-related disruptions impact our future results will
depend on future developments, which are outside of our control, including, but
not limited to, the duration of the pandemic, its severity, the success of
actions taken to contain or prevent the virus or treat its impact, and how
quickly and to what extent normal economic and operating conditions can resume.
Our growth rate may continue to be impacted by additional macroeconomic factors
beyond our control, such as inflation and its effect on interest rates, retail
businesses reopening, increased consumer spending on travel and other
discretionary items, and the absence of new U.S. and other government economic
stimulus programs, among other things.
32
Table of contents
Effects of Inflation and Current Economic Conditions
In general, we believe that our results of operations are not dependent on moderate changes in the inflation rate. However, in response to the concerns over inflation risk in the broader U.S. economy, the U.S. Federal Reserve began to raise interest rates in March 2022 for the first time in more than three years and signaled that additional rate increases would continue throughout the year. It is possible that significant increases in interest rates may ultimately result in an economic recession, which could have a material adverse impact on our business. Adverse economic conditions resulting from inflationary pressures, U.S. Federal Reserve actions, geopolitical issues or otherwise are difficult to predict. Please see Part II, Item 1A "Risk Factors" elsewhere in this Form
10-Q for additional details. Executive Overview
The table below sets forth our operating highlights (in thousands) for the periods presented:
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
GAAP
Total revenue $ 103,733 $ 90,096 $ 302,051 $ 251,848
Loss from operations $ (18,085) $ (881) $ (78,271) $ (17,817)
Net loss $ (26,993) $ (3,582) $ (95,140) $ (15,696)
Non-GAAP
Adjusted EBITDA(1) $ (2,396) $ 5,992 $ (17,067) $ 7,307
Non-Financial
Time Spent(2) 150,679 220,908 488,958 602,249
-% on owned and operated properties 50 %
31 % 44 % 34 % -% on third-party platforms 50 % 69 % 56 % 66 %
See “Reconciliation of Net Income (Loss) to Adjusted EBITDA” for (1) Reconciliation of Adjusted EBITDA to the Most Directly Comparable Financial Statements
Measured in accordance with generally accepted accounting principles
U.S. (“GAAP”).
We define Time Spent as the user’s
(i) we own and operate us Attribution, (ii) Our Content apple news,
(iii) Our content on YouTube usas reported by Comscore, and (iv)
Our content on Facebook, reported by Facebook.Time spent does not reflect
Time spent on our content across all platforms, including some of which we are on
generate a portion of our advertising revenue, excluding those spent on
Our content on platforms that do not feature advertising
contribute significantly to our advertising revenue, including Tik Tok,
Instagram, live chat and Twitter.There are inherent challenges in measuring
the actual total number of hours spent on our content across all platforms;
However, we believe the data reported by Comscore and Facebook represent
Industry standard estimates of time actually spent on our biggest things
A distribution platform with our most significant monetization opportunities.
We use Time Spent to measure audience engagement.trend
In Time Spent, by affecting
The number of ads we are able to display, the volume of purchases made through our (2) affiliate links, and the overall value of the products we offer our customers.
However, an increase or decrease in Time Spent may not directly correspond to
Our income increases or decreases.For example, the quantity
Programmatic impressions provided by third-party platforms may be
Ad revenue optimization strategies for these platforms, as
As a result, an increase or decrease in time spent is not necessarily correlated
with a corresponding increase or decrease in the amount of programmatic advertising
impressions, but time spent can be our key metric
Programmatic advertising revenue when third-party platform optimization
Revenue is higher than programmatic impressions.Our definition of time spent is not
Based on any standardized industry approach, not necessarily defined
by and by
other companies.Time spent in the last three and nine months September 30,
32% and 19% declines in 2022, driven by timing declines
What users spend on Facebook is partially offset by the C acquisition.exclude
The impact of C acquisitions, the time spent falling in line with the broader
Industry Trends.
Components of Operating Results
Income: The majority of our income comes from the following types of arrangements:
Advertising: includes display, programmatic, and video
Owned and operated websites and applications and social media platforms.This
? The majority of our advertising revenue is monetized on a per-impression basis;
however, we also generate revenue from advertising products that are not
monetized on a per-impression basis (for example, page takeovers that
33
Table of Contents
Billed daily).Advertising revenue is recognized on
The time period for delivering metrics based on relevant impressions or non-impressions.
Programmatic impressions on third-party platforms, including Facebook and
YouTube, controlled by each platform, and each
Ad revenue optimization strategies for these platforms are
The number of programmatic impressions served by these platforms.These
Optimization strategies change from time to time, and the
The number of programmatic impressions served.Additionally, there is a component
Our advertising revenue comes from sources that are not available to us
impression data.A small percentage of our advertising revenue comes from
Platforms are excluded from our “Time Spent” measurement.
Content: includes revenue generated from the creation of content, including
? Promotional content, client commercials and feature films.Content revenue is
recognized when the content, or the related action (click or view), is delivered.
Commercial and Other: Includes Affiliate Marketplace Revenue and Licensing
intellectual property.We participate in multiple market arrangements
third parties, whereby we provide affiliate links that redirect viewers to
Purchase products and/or services from third parties.be a participant
?Products and/or services are purchased and we receive a commission on that sale
from a third party.Affiliate marketplace revenue is recognized when:
Make successful sales and earn commissions.Additionally, we generate
Other income from producing live and virtual events, such as
ComplexCon and ComplexLand.We recognize revenue associated with such events
The time period during which the incident occurred, and the time at which the service was provided.
Cost of revenue: Consists primarily of compensation-related expenses and costs incurred for the creation of editorial, promotional, and news content across all platforms, as well as amounts due to third-party websites and platforms to fulfill customers' advertising campaigns. Web hosting and advertising serving platform costs are also included in cost of revenue. Sales and marketing: Consists primarily of compensation-related expenses for sales employees. In addition, sales and marketing expenses include advertising costs and market research. General and administrative: Consists of compensation-related expenses for corporate employees. Also, it consists of expenses for facilities, professional services fees, insurance costs, and other general overhead costs. We expect our general and administrative expenses to increase in absolute dollars due to the growth of our business and related infrastructure as well as legal, accounting, director and officer insurance premiums, investor relations and other costs associated with operating as a public company. Research and development: Consists primarily of compensation-related expenses incurred for the development of, enhancements to, and maintenance of our website, technology platforms, data collection and infrastructure. Research and development expenses that do not meet the criteria for capitalization are expensed as incurred.
Depreciation and Amortization: Represents the depreciation of property and equipment and the amortization of intangible assets and capitalized software costs.
Impairment Charge: Represents an impairment charge on certain long-lived assets. Please refer to Note 21 to the unaudited condensed consolidated financial statements.
Other expense, net: Consists of foreign exchange gains and losses, gains and losses on investments, gains and losses on dispositions of subsidiaries, gains and losses on disposition of assets, and other miscellaneous income and expenses.
Interest expense, net: includes interest expense on our borrowings, less interest income on highly liquid short-term investments.
Change in fair value of warrant liabilities: Reflects the changes in warrant
liabilities which is primarily based on the market price of our Public Warrants
listed on Nasdaq under the symbol "BZFDW."
Change in fair value of derivative liability: In December 2021, we issued $150.0
million aggregate principal amount of unsecured convertible notes due 2026 that
contain redemption features which we determined were embedded derivatives to be
recognized as liabilities and measured at fair value. At the end of each
reporting period, changes in the estimated fair value during the period are
recorded as a change in the fair value of derivative liability.
34
Table of contents
Income Tax Provision (Benefits): Represents income-based federal, state and local taxes in multiple domestic and international jurisdictions.
Operation result:
Comparison of results up to three months and nine months September 30, 2022 and 2021
The table below sets forth our condensed consolidated statements of operating data for each period we offer (in thousands):
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Revenue $ 103,733 $ 90,096 $ 302,051 $ 251,848
Costs and expenses
Cost of revenue, excluding depreciation and
amortization 60,989 48,837 183,336 135,903
Sales and marketing 16,317 11,218 52,808 34,170
General and administrative 27,254 19,829 92,381 65,274
Research and development 5,900 5,686 23,345 19,285
Depreciation and amortization 9,198 5,407 26,292 15,033
Impairment expense 2,160 2,160
Total costs and expenses 121,818
90,977 380,322 269,665 Loss from operations (18,085) (881) (78,271) (17,817) Other expense, net (2,752) (2,567) (5,330) (1,752) Interest expense, net (5,171) (487) (14,992) (1,138)
Change in fair value of warrant liabilities (395) - 2,964 - Change in fair value of derivative liability 300 - 3,525 - Loss before income taxes (26,103) (3,935) (92,104) (20,707) Income tax provision (benefit) 890 (353) 3,036 (5,011) Net loss (26,993) (3,582) (95,140) (15,696) Net income attributable to the redeemable noncontrolling interest - 67 164 212 Net (loss) income attributable to noncontrolling interests (137) 137 211 (173)
Net loss attributable to BuzzFeed Company $ (26,856) $
(3,786) $ (95,515) $ (15,735)
Costs and expenses included in stock-based compensation expense are included in the condensed consolidated statements of operations as follows (in thousands):
Three Months Ended September 30,
end of nine months September 30,
2022 2021 2022 2021
Cost of revenue, excluding
depreciation and amortization $ 460 $ 388 $ 3,615 $ 543
Sales and marketing 550 37 2,663 98
General and administrative 2,448 59 8,828 160
Research and development 177 19 3,753 49
Total $ 3,635 $ 503 $ 18,859 $ 850
35
Table of Contents
The table below sets forth our condensed consolidated operating figures for each period as a percentage of revenue(1):
Three Months Ended September 30,
end of nine months September 30,
2022 2021 2022 2021 Revenue 100 % 100 % 100 % 100 % Costs and expenses Cost of revenue, excluding depreciation and amortization 59 % 54 % 61 % 54 % Sales and marketing 16 % 12 % 17 % 14 % General and administrative 26 % 22 % 31 % 26 % Research and development 6 % 6 % 8 % 8 % Depreciation and amortization 9 % 6 % 9 % 6 % Impairment expense 2 % - % 1 % - % Total costs and expenses 117 % 101 % 126 % 107 % Loss from operations (17) % (1) % (26) % (7) % Other expense, net (3) % (3) % (2) % (1) % Interest expense, net (5) % (1) % (5) % - Change in fair value of warrant liabilities - % - 1 % - Change in fair value of derivative liability - % - 1 % - Loss before income taxes (25) % (4) % (30) % (8) %
Income tax provision (benefit) 1 % - 1 % (2) % Net loss (26) % (4) % (31) % (6) % Net income attributable to the redeemable noncontrolling interest - % - - % - Net (loss) income attributable to noncontrolling interests - % - - % - Net loss attributable to BuzzFeed, Inc. (26) % (4) % (31) % (6) %
(1) Percentages are rounded for presentation purposes and may differ from unrounded results.
Revenue
Gross income is as follows (in thousands):
Three Months Ended September 30,
end of nine months September 30,
2022 2021 % Change 2022 2021 % Change Advertising $ 50,404 $ 50,240 0 % $ 152,296 $ 136,693 11 % Content 38,416 26,483 45 % 110,979 70,261 58 % Commerce and other 14,913 13,373 12 % 38,776 44,894 (14) % Total revenue $ 103,733 $ 90,096 15 % $ 302,051 $ 251,848 20 %
Advertising revenue increased by $0.2 million, or 0%, for the three months ended
September 30, 2022, driven by a $2.3 million, or 6%, increase in advertising on
our owned and operated properties, partially offset by a $2.1 million, or 17%,
decrease in advertising on third-party platforms. The increase in advertising
revenue on our owned and operated properties reflects the acquisition of Complex
Networks, which contributed $6.3 million of advertising revenue. Excluding
Complex Networks, advertising revenue decreased by $4.0 million, or 11%, driven
by a 5% decline in the number of programmatic impressions delivered and a 12%
decline in overall pricing. Advertising revenue from third-party platforms
reflects a contribution from Complex Networks of $1.9 million. Excluding the
impact of Complex Networks, advertising revenue decreased by $4.0 million, or
32%, largely due to the decrease in Time Spent on distributed networks,
reflecting a 42% decrease in the number of programmatic impressions delivered,
partially offset by a 15% increase in overall pricing.
36
Table of contents
Advertising revenue increased by $15.6 million, or 11%, for the nine months
ended September 30, 2022, driven by an $19.1 million, or 19%, increase in
advertising on our owned and operated properties, partially offset by a $3.5
million, or 10%, decrease in advertising on third-party platforms. The increase
in advertising on our owned and operated properties reflects the acquisition of
Complex Networks, which contributed $21.8 million of advertising revenue.
Excluding Complex Networks, advertising revenue decreased by $2.7 million, or
3%, driven by a 5% increase in the number of programmatic impressions delivered,
partially offset by a 9% decline in overall pricing. The decrease in advertising
on third-party platforms reflects a contribution from Complex Networks of $7.2
million. Excluding the impact of Complex Networks, advertising revenues
decreased by $10.8 million, or 32%, largely due to the decrease in Time Spent on
distributed networks, reflecting a 39% decline in the number of programmatic
impressions delivered, partially offset by a 14% increase in overall pricing.
Content revenue increased by $11.9 million, or 45%, for the three months ended
September 30, 2022, largely driven by the acquisition of Complex Networks which
contributed $13.6 million of content revenue. Excluding the impact of Complex
Networks, content revenue decreased $1.7 million reflecting changes in consumer
spending due to the broader macroeconomic impact on certain client verticals,
particularly those in the consumer-packaged goods, retail, and technology and
telecommunications industries.
Content revenue increased by $40.7 million, or 58%, for the nine months ended
September 30, 2022, largely driven by the acquisition of Complex Networks, which
contributed $38.6 million of content revenue. Excluding the impact of Complex
Networks, content revenue increased $2.1 million driven by growth in content
revenue from feature films.
Commerce and other revenue increased by $1.5 million, or 12%, for the three
months ended September 30, 2022, reflecting Amazon Prime Day which took place in
the third quarter of 2022 (Amazon Prime Day took place in the second quarter of
2021). The impact of Amazon Prime Day was partially offset by a decline in the
number of purchases generated by Facebook-referred traffic as well as heightened
activity in the third quarter of 2021 related to the impact of COVID-19 which
accelerated our commerce and other revenue.
Commerce and other revenue decreased $6.1 million, or 14%, for the nine months
ended September 30, 2022, primarily reflecting a decline in the number of
purchases generated by Facebook-referred traffic as well as a comparison against
heightened purchasing activity in the nine months ended September 30, 2021
related to the impact of COVID-19. The declines were partially offset by the
acquisition of Complex Networks and the introduction of an event.
Cost of revenue:
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 % Change 2022 2021 % Change
Cost of revenue $ 60,989 $ 48,837 25 % $ 183,336 $ 135,903 35 %
As a percentage of revenue 59 % 54 % 61 % 54 %
Cost of revenue increased by $12.2 million, or 25%, for the three months ended
September 30, 2022 driven by $8.8 million of increased costs related to Complex
Networks ($6.0 million of which was compensation expense), $5.6 million increase
in other costs of sales associated with our growth in revenue, partially offset
by a $1.7 million decline in compensation expenses resulting from our previous
restructuring actions.
Cost of revenue increased by $47.4 million, or 35%, for the nine months ended
September 30, 2022 driven by $26.7 million of increased costs related to Complex
Networks ($18.8 million of which was compensation expense), a $13.9 million
increase in variable cost of revenue associated with our growth in revenue, $2.4
million in increased stock-based compensation expense primarily due to Liquidity
1 and Liquidity 2 RSUs and the remaining primarily relates to awards granted to
key individuals, and $2.4 million of increased consulting expenses.
Sales and Marketing:
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 % Change 2022 2021 % Change
Sales and marketing $ 16,317 $ 11,218
45% $52,808 $34,170 55 % as a percentage of revenue
16 % 12 % 17 % 14 %
37
Table of Contents
Sales and marketing expenses increased by $5.1 million, or 45%, for the three
months ended September 30, 2022 driven by a $3.9 million increase in
compensation expenses associated with Complex Networks and a $0.5 million
increase in stock-based compensation expense primarily related to Liquidity 2
RSUs as well as awards granted to key individuals.
Sales and marketing expenses increased by $18.6 million, or 55%, for the nine
months ended September 30, 2022 driven by a $13.5 million increase in
compensation costs ($12.9 million associated with Complex Networks), $2.6
million of increased stock-based compensation expense primarily attributable to
Liquidity 1 and Liquidity 2 RSUs and the remaining relates to awards granted to
key individuals, and $1.0 million increase in consulting and marketing expenses.
General and administrative:
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 % Change 2022 2021 % Change
General and administrative $ 27,254 $ 19,829 37 % $ 92,381 $ 65,274 42 %
As a percentage of revenue 26 % 22 % 31 % 26 %
General and administrative expenses increased by $7.4 million, or 37%, for the three months ended September 30, 2022 driven by a $2.4 million increase in stock-based compensation expense primarily associated with Liquidity 2 RSUs and awards granted to certain key individuals, increased rent of $1.5 million associated with the acquisition of Complex Networks, increased insurance costs of $1.4 million related to being a public company, and increased professional fees of $1.1 million. We expect our rent expense to decrease due to the sublease of our former headquarters. The sublease commenced on August 26, 2022. General and administrative expenses increased by $27.1 million, or 42%, for the nine months ended September 30, 2022 driven by a $8.7 million increase in stock-based compensation expense associated with Liquidity 1 and liquidity 2 RSUs as well as grants awarded to certain key individuals, increased insurance costs of $5.0 million related to being a public company, increased rent of $4.5 million associated with our acquisition of Complex Networks, $3.4 million of increased compensation expenses associated with Complex Networks, and a $2.6 million increase in transaction-related costs (such as professional fees), certain litigation costs and public company readiness costs.
Research and Development:
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 % Change 2022 2021 % Change
Research and development $ 5,900 $ 5,686
4% $23,345 $19,285 21 % % of revenue
6 % 6 % 8 % 8 %
up to three months September 30, 2022R&D costs are largely related to $200,000or 4%, a year-on-year increase.
Increased R&D expenses $4.1 millionor 21%, as of nine months September 30, 2022 driven by $3.7 million Increased stock compensation charges are primarily related to Liquidity 1 and Liquidity 2 RSUs.
Depreciation and Amortization:
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 % Change 2022 2021 % Change
Depreciation and amortization $ 9,198 $ 5,407 70 % $ 26,292 $ 15,033 75 %
As a percentage of revenue 9 % 6 % 9 % 6 %
Depreciation and amortization increased by $3.8 million, or 70%, and $11.3
million, or 75%, for the three and nine months ended September 30, 2022,
respectively, as a result of $3.8 million and $11.4 million of amortization of
intangible assets primarily associated with the acquisition of Complex Networks
for the three and nine months ended September 30, 2022, respectively.
38
Table of Contents
Impairment expense:
For the three months ended September 30, 2022, we recorded a non-cash impairment
charge of $2.2 million as a result of the sublease of our former corporate
headquarters. Of the non-cash impairment charge, $1.4 million was allocated to
right-of-use-assets and the remaining $0.8 million was allocated to leasehold
improvements. Refer to Note 21 to the unaudited condensed financial statements.
Other expense, net:
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 % Change 2022 2021 % Change
Other (expense) income, net $ (2,752) $ (2,567) 7 % $ (5,330) $ (1,752) NM As a percentage of revenue (3) % (3) % (2) % (1) % NM - not meaningful Other expense, net increased by $0.2 million, or 7% for the three months ended September 30, 2022, driven by a $1.6 million increase in net foreign exchange losses (primarily unrealized) due to the continued decline in the Japanese Yen and British Pound. This was partially offset by a $0.5 million gain on sale of assets, a $0.6 million decrease in loss on disposition of a subsidiary, and a $0.2 million decrease in loss on disposition of assets. Other expense, net increased by $3.6 million for the nine months ended September 30, 2022 due to a $5.4 million increase in net foreign exchange losses (primarily unrealized) due to the continued decline in the Japanese Yen and British Pound. This was partially offset by a $1.3 million increase in unrealized gains on the remeasurement of our investment in a private company for the nine months ended September 30, 2022.
Interest expense, net:
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 % Change 2022 2021 % Change
Interest expense, net $ (5,171) $ (487) NM $ (14,992) $ (1,138) NM As a percentage of revenue (5) % (1) % (5) % - % NM - not meaningful
Interest expense, net increase $4.7 million and $13.9 million Ended three months and nine months September 30, 2022mainly due to the increase in interest expenses related to notes.
Changes in fair value of warrant liabilities:
We recorded a loss of $0.4 million and a gain of $3.0 million for the three and nine months ended September 30, 2022, respectively, on the change in fair value of warrant liabilities.
Changes in fair value of derivative liabilities:
For the three and nine months ended September 30, 2022, we recorded a gain of $0.3 million and $3.5 million, respectively, due to a change in the estimated fair value of the derivative liability.
Provision for Income Taxes (Benefits):
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 % Change 2022 2021 % Change
Income tax provision (benefit) $ 890 $ (353) NM $ 3,036 $ (5,011) NM
As a percentage of revenue 1 % - % 1 % (2) %
39
Table of Contents
NM - not meaningful
For the three and nine months ended September 30, 2022, we recorded an income
tax provision of $0.9 and $3.0 million, respectively, related to federal, state,
and foreign taxes. Our effective tax rate differed from the U.S. federal
statutory income tax rate of 21% primarily due to limited tax benefits provided
for against our current year pre-tax operating loss as we maintain a full
valuation allowance against our U.S. deferred tax assets that are not realizable
on a more-likely-than-not basis. Additionally, the Company recorded a $0.9
million discrete tax expense during the quarter, primarily related to changes to
the Company's valuation allowance related to Complex's measurement period
adjustments as a result of the finalization of Complex pre-acquisition tax
filings.
For the three months ended September 30, 2021, we recorded an income tax benefit
of $0.4 million, related to federal, state and foreign taxes. Our effective tax
rate differed from the U.S. federal statutory income tax rate of 21% primarily
due to limited tax benefits provided for against our current year pre-tax
operating loss as we maintain a full valuation allowance against our U.S.
deferred tax assets that are not realizable on a more-likely-than-not basis.
For the nine months ended September 30, 2021, we recorded an income tax benefit
of $5.0 million, including a $4.3 million discrete tax benefit related to the
release of a portion of our previously established valuation allowance to offset
deferred tax liabilities arising from the HuffPost Acquisition.
As of September 30, 2022, we continued to maintain a valuation allowance against
our U.S. and certain foreign deferred tax assets as we could not conclude that
such assets will be realized on a more-likely-than-not basis. Any decline in the
valuation allowance could have a favorable impact on our income tax provision
and net income in the period in which such determination is made.
Non-GAAP Financial Measures
Consolidated Adjusted EBITDA
Adjusted EBITDA is a non-GAAP financial measure and represents a key metric used by management and our board of directors to measure the operational strength and performance of our business, to establish budgets, and to develop operational goals for managing our business. We define Adjusted EBITDA as net loss, excluding the impact of net (loss) income attributable to noncontrolling interests, income tax provision (benefit), interest expense, interest income, other expense, net, depreciation and amortization, stock-based compensation, change in fair value of warrant liabilities, change in fair value of derivative liability, restructuring costs, impairment expense, transaction-related costs, certain litigation costs, public company readiness costs, and other non-cash and non-recurring items that management believes are not indicative of ongoing operations. We believe Adjusted EBITDA is relevant and useful information for investors because it allows investors to view performance in a manner similar to the method used by our management. However, there are limitations to the use of Adjusted EBITDA and our definition of Adjusted EBITDA may not be comparable to similarly titled measures of other companies. Other companies, including companies in our industry, may calculate non-GAAP financial measures differently than we do, limiting the usefulness of those measures for comparative purposes. Adjusted EBITDA should not be considered a substitute for loss from operations, net loss, or net loss attributable to BuzzFeed, Inc. that we have reported
in
accordance with GAAP.
40
Table of Contents
Reconciliation from Net Loss to Adjusted EBITDA
The following table reconciles consolidated net loss to Adjusted EBITDA for the
periods presented:
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Net loss $ (26,993) $
(3,582) $ (95,140) $ (15,696)
Provision for Income Taxes (Benefits)
890 (353) 3,036 (5,011) Interest expense 5,316 592 15,325 1,370 Interest income (145) (105) (333) (232) Other expense, net 2,752 2,567 5,330 1,752
Depreciation and amortization 9,198 5,407 26,292 15,033 Stock-based compensation 3,635 503 18,859 850 Change in fair value of warrant liabilities 395 - (2,964) - Change in fair value of derivative liability (300)
- (3,525) - Restructuring(1) - - 5,319 3,645 Impairment expense(2) 2,160 2,160
Transaction-related costs(3) - 963 5,132 5,596 Litigation costs(4) 696 - 1,920 - Public company readiness costs(5) -
- 1,522 - Adjusted EBITDA $ (2,396) $ 5,992 $ (17,067) $ 7,307 (1)For the nine months ended September 30, 2022, represents costs associated with certain organizational changes to align sales and marketing and general and administrative functions as well as changes in content to better service audience demands, and costs incurred as part of a strategic repositioning of BuzzFeed News. For the nine months ended September 30, 2021, reflects costs associated with involuntary terminations of employees across various roles and levels as part of the integration of the HuffPost Acquisition. (2)Reflects a non-cash impairment expense recorded during the three months ended September 30, 2022 associated with certain long-lived assets of our former corporate headquarters which was fully subleased in the third quarter of 2022. Refer to Note 21 to the unaudited condensed consolidated financial statements. (3)Reflects transaction-related costs and other items which are either not representative of our underlying operations or are incremental costs that result from an actual or contemplated transaction and include professional fees, integration expenses, and certain costs related to integrating and converging IT systems. (4)Reflects costs related to litigation that are outside the ordinary course of our business. We believe it is useful to exclude such charges because we do not consider such amounts to be part of the ongoing operations of our business and because of the singular nature of the claims underlying the matter.
(5) Reflects one-time initial setup costs associated with the establishment of our public company structure and processes.
Liquidity and Capital Resources
Our principal sources of liquidity are our cash and cash equivalents and
borrowings under our Revolving Credit Facility (as defined below), as well as
cash generated from operations. Our cash and cash equivalents consist of demand
deposits with financial institutions and investments in money market funds and
totaled $59.1 million and $79.7 million at September 30, 2022 and December 31,
2021, respectively.
We believe that our operating cash flows, together with cash and cash
equivalents on hand and amounts available for borrowing under our Revolving
Credit Facility, will be sufficient to meet our working capital and capital
expenditure requirements for at least the next 12 months. To the extent existing
cash, operating cash flows, and amounts available for borrowing are insufficient
to fund future activities, we may need to raise additional funds. In the future,
we may attempt to raise additional capital through the sale of equity securities
or through equity-linked or debt financing arrangements. If we raise additional
funds by issuing equity or equity-linked securities, the ownership of our
existing stockholders will be diluted. If we raise additional financing by the
incurrence of additional indebtedness, we may be subject to increased fixed
payment obligations and could also be subject to additional restrictive
covenants, such as limitations on our ability to incur additional debt, and
other operating restrictions that could adversely impact our ability to
41
Table of contents
conduct our business. In addition, increased inflation has had, and may continue to have, an effect on interest rates. Increased interest rates may adversely affect the rate we are required to pay under our Revolving Credit Facility and our ability to obtain, or the terms under which we can obtain, any potential additional funding. Any future indebtedness we incur may result in terms that could be unfavorable to equity investors. There can be no assurances that we will be able to raise additional capital. The inability to raise capital could adversely affect our ability to achieve our business objectives.
revolving credit
We have a $50.0 million revolving credit facility ("Revolving Credit Facility"),
maturing in December 2023. Borrowings under the Revolving Credit Facility are
generally limited to 95% of qualifying investment grade accounts receivable and
90% of qualifying non-investment grade accounts receivable, subject to
adjustment at the discretion of the lenders. Borrowings under the Revolving
Credit Facility bear interest at LIBOR, subject to a floor rate of 0.75%, plus a
margin of 3.75% to 4.25%, depending on the level of our utilization of the
Revolving Credit Facility. The Revolving Credit Facility is subject to a monthly
minimum utilization of $15.0 million and also includes an unused commitment fee
of 0.375%. The Revolving Credit Facility was amended and restated in connection
with the closing of the Business Combination, namely to, among other things, add
the Company and certain other entities as guarantors.
The Revolving Credit Facility includes covenants that, among other things,
require us to maintain at least $25.0 million of unrestricted cash at all times
and limit our ability to incur additional indebtedness, grant liens, pay
dividends, hold unpermitted investments, repurchase or redeem equity interests
or make material changes to the business. We were in compliance with the
financial covenant as of September 30, 2022.
The revolving credit facility is secured by senior security interests in cash, accounts receivable, books and records and underlying assets of the Company and other borrowers and guarantors.
as September 30, 2022we have outstanding borrowings under the revolving credit facility $33.5 millionoutstanding letters of credit $15.5 millionand the remaining borrowing capacity $ 1,000,000.
convertible note
In connection with the Business Combination, we completed the issuance of $150.0 million of unsecured convertible notes due 2026 (the "Notes"). The Notes bear interest at a rate of 8.50% per annum, payable semi-annually. The Notes are convertible into approximately 12,000,000 shares of our Class A common stock at an initial conversion price of $12.50 and mature on December 3, 2026. We may, at our election, force conversion of the Notes after the third anniversary of the issuance of the Notes, subject to a holder's prior right to convert and certain other conditions, if the volume-weighted average trading price of our Class A common stock is greater than or equal to 130% of the conversion price for more than 20 trading days during a period of 30 consecutive trading days. In the event that a holder of the Notes elects to convert its Notes after the one year anniversary, and prior to the three-year anniversary, of the issuance of the Notes, we will be obligated to pay an amount equal to: (i) from the one year anniversary of the issuance of the Notes to the two year anniversary of the issuance of the Notes, an amount equal to 18 month's interest declining ratably on a monthly basis to 12 month's interest on the aggregate principal amount of the Notes so converted and (ii) from the two year anniversary of the issuance of the Notes to the three year anniversary of the issuance of the Notes, an amount equal to 12 month's interest declining ratably on a monthly basis to zero month's interest, in each case, on the aggregate principal amount of the Notes so converted (the "Interest Make-Whole Payment"). The Interest Make-Whole Payment will be payable in cash. Without limiting a holder's right to convert the Notes at its option, interest will cease to accrue on the Notes during any period in which the Company would otherwise be entitled to force conversion of the Notes, but is not permitted to do so solely due to the failure of a trading volume condition specified in the indenture governing the Notes. Each holder of a Note will have the right to cause us to repurchase for cash all or a portion of the Notes held by such holder (i) at any time after the third anniversary of the closing date, at a price equal to par plus accrued and unpaid interest; or (ii) at any time upon the occurrence of a fundamental change (as defined in the indenture governing the Notes), at a price equal to 101% of par plus accrued and unpaid interest.
The covenants governing the Notes include restrictive covenants that, among other things, limit our ability to incur additional obligations or liens, make restricted payments or investments, dispose of material assets, transfer intellectual property or enter into transactions with affiliates.
42
Table of contents
Cash flows provided by (used in) operating, investing and financing activities for the periods presented are as follows:
Nine Months
Finish September 30,
2022 2021
Net cash provided by operating activities (used in)$ (7,897) $10,898
Net cash used in investing activities
(13,774) (4,900) Net cash provided by financing activities 3,105 34,277 Operating Activities For the nine months ended September 30, 2022, net cash used in operating activities was $7.9 million compared to net cash provided by operating activities of $10.9 million for the nine months ended September 30, 2021. The change was primarily driven by a $26.9 million increase in net loss, adjusted for non-cash items, a $17.7 million decrease in lease liabilities, and a $10.5 million decrease in the change in accrued compensation, partially offset by an $18.5 million increase in the change in accounts receivable, a $10.6 million increase in the change in prepaid and other assets, a $4.2 million increase in the change in deferred revenue, and a $2.3 million increase in the change in accounts payable. Investing Activities For the nine months ended September 30, 2022, cash used in investing activities was $13.8 million, which consists of $9.7 million of expenditures on internal-use software and $4.5 million of capital expenditures, partially offset by a $0.5 million gain on the sale of an asset. For the nine months ended September 30, 2021, cash used in investing activities was $4.9 million, which consists of $7.6 million of expenditures on internal-use software and $1.8 million of capital expenditures, which was largely offset by $5.2 million of net cash acquired as part of the HuffPost Acquisition.
financing activities
For the nine months ended September 30, 2022, cash provided by financing activities was $3.1 million, principally consisting of $5.0 million in borrowings from our revolving credit facility and $0.4 million of proceeds from the exercise of stock options, partially offset by the payment of $1.7 million for withholding taxes on the vesting of certain RSUs and $0.6 million of deferred reverse recapitalization costs.
up to nine months September 30, 2021The cash provided by the financing activities was $34.3 millionmainly include $35 million Proceeds from issuance of common stock by affiliates of Verizon related to our equity investment, partially offset by repayment of borrowings under the revolving credit facility.
contractual obligations
Our key commitments include office space obligations under non-cancellable operating leases with maturities through 2029, and repayment of borrowings under our revolving credit and notes.
In September 2018, concurrent with an investment in a private company, we agreed to guarantee the lease of the investee's premises in New York. In October 2020, the investee renewed its lease agreement, and our prior guarantee was replaced with a new guarantee of up to $5.4 million. The amount of the guarantee is reduced as the investee makes payments under the lease. As of September 30, 2022, the maximum amount under the guarantee was $1.5 million, and no liability was recognized with respect to the guarantee.
Please refer to Notes 9, 15 and 16 to the unaudited condensed consolidated financial statements included elsewhere on Form 10-Q in this quarterly report.
Key Accounting Policies and Estimates
We prepare our condensed consolidated financial statements and related notes in
accordance with GAAP. In doing so, we have to make estimates and assumptions
that affect our reported amounts of assets, liabilities, revenues, expenses, and
related disclosure. We evaluate our estimates and assumptions on an ongoing
basis. Our estimates are based on historical experience and other assumptions
43
Table of Contents
We think it’s reasonable in the circumstances. Should these estimates differ materially from actual results, our financial condition or results of operations could be affected.
We consider an accounting judgment, estimate or assumption to be critical when (1) the estimate or judgment is complex in nature or requires a high degree of judgment and (2) the use of different judgments, estimates or assumptions could have a material impact on our condensed consolidated financial statements. Please refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 for a more complete discussion of our critical accounting policies and estimates.
bona fide
Goodwill is tested annually for impairment as of October 1 or more frequently if events or changes in circumstances indicate an impairment may exist (a "triggering event"). As of September 30, 2022, the Company had $194.1 million of goodwill recorded on its condensed consolidated balance sheet. During the second quarter of 2022, management identified a sustained decline in share price that pushed our market capitalization below the carrying value of our stockholders' equity. The Company concluded the sustained decline in share price was a triggering event and proceeded with a quantitative impairment assessment. Our quantitative impairment assessment utilized an equal weighting of the income and market approaches. The results of our quantitative impairment test indicated that no impairment existed as the estimated fair value of the Company's single reporting unit exceeded its carrying value by approximately 6%. The determination of fair value under the discounted cash flow method relied on internal projections developed using a number of estimates and assumptions that are inherently subject to significant uncertainties. These estimates and assumptions include, but are not limited to, a discount rate, annual revenue growth, and a terminal growth rate for cash flows. The key assumption in the market approach include determining a control premium, which was estimated using historical transactions over 16 years. Changes in these estimates or assumptions could materially affect the determination of fair value and the associated goodwill impairment assessment. Potential events and circumstances that could have an adverse impact on our estimates and assumptions include, but are not limited to, declining revenue, inability to improve profitability, continued increases in costs, and rising interest rates and other macroeconomic factors.
We concluded that there were no new impairment triggering events as at the end of the three months September 30, 2022. Therefore, we conclude that as of September 30, 2022.
We will continue to monitor and evaluate the carrying value of the reporting unit, and should facts and circumstances change, a non-cash impairment charge could be recorded in the future. Refer to Note 3 within our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information.
Except for the foregoing, there have been no material changes to our critical accounting policies and estimates from those described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
Accounting announcements recently adopted and issued
Please see Note 2 to the unaudited condensed consolidated financial statements included elsewhere on Form 10-Q in this quarterly report.
Emerging Growth Company Accounting Election
Section 102 of the JOBS Act provides that an emerging growth company can take
advantage of the extended transition period provided in Section 7(a)(2)(B) of
the Securities Act for complying with new or revised accounting standards. We
are an emerging growth company and have elected to take advantage of the
extended transition period. As a result, the condensed consolidated financial
statements of BuzzFeed, Inc. may not be comparable to companies that comply with
new or revised accounting standards as of public company effective dates.
In addition, we intend to rely on the other exemptions and reduced reporting
requirements provided by the JOBS Act. Subject to certain conditions set forth
in the JOBS Act, if, as an emerging growth company, we intend to rely on such
exemptions, we are not required to, among other things: (i) provide an auditor's
attestation report on our system of internal control over financial reporting
pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002; (ii) provide all
of the compensation disclosure that may be required of
44
Table of contents
non-emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act; (iii) comply with the requirement of the Public Company Accounting Oversight Board regarding the communication of critical audit matters in the auditor's report on the financial statements; and (iv) disclose certain executive compensation-related items such as the correlation between executive compensation and performance and comparisons of the Chief Executive Officer's compensation to median employee compensation. We will remain an emerging growth company under the JOBS Act until the earliest of (i) the last day of our first fiscal year following the fifth anniversary of 890's initial public offering, (ii) the last date of our fiscal year in which we have total annual gross revenue of at least $1.235 billion, (iii) the date on which we are deemed to be a "large accelerated filer" under the rules of the SEC with at least $700.0 million of outstanding securities held by non-affiliates, or (iv) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the previous three years.
© Edgar Online, source glimpse