BuzzFeed(BZFD) - 2021 Q4 - Annual Report

Part I Business BuzzFeed is a digital media company targeting Gen Z and Millennial audiences through a portfolio of brands, generating revenue via advertising, content, and commerce - BuzzFeed's business model is centered on three revenue streams: Advertising (display, programmatic, video), Content (branded, syndicated, studio), and Commerce (affiliate marketplace, IP licensing)[41][42][43] - The company's portfolio includes iconic brands like BuzzFeed, Tasty, BuzzFeed News, HuffPost (acquired Feb 2021), and Complex Networks (acquired Dec 2021)[16][28][29] - In 2021, BuzzFeed's audience consumed nearly 800 million hours of content, which drove approximately $600 million in attributable e-commerce transactions[17] - As of December 31, 2021, the company had 1,522 employees, with approximately 10% unionized; 38.7% of the U.S. workforce are BIPOC employees, and 58.8% of the global population identifies as female[60][67] - The company holds significant intellectual property, including 205 registered trademarks in the U.S. and 527 in foreign jurisdictions as of December 31, 2021[73] Risk Factors The company faces significant risks from its dependence on third-party platforms, a history of operating losses, and a multi-class stock structure concentrating voting power - A significant portion of traffic comes from third-party platforms (e.g., Facebook, Google, YouTube); changes in their algorithms or policies could adversely affect business[93][109] - The company has a history of significant operating losses and may not be able to sustain recent revenue levels or achieve consistent profitability[98][135] - Legacy BuzzFeed identified material weaknesses in its internal control over financial reporting related to the financial close process, lack of experienced staff, and IT general controls, which are under remediation[101][185] - The multi-class stock structure concentrates over 65% of voting power with CEO Jonah Peretti, limiting other stockholders' influence on major corporate decisions[107][253] - The company's warrants are accounted for as liabilities, and changes in their fair value could materially affect financial results[100][178] Unresolved Staff Comments The company reports that it has no unresolved staff comments from the SEC - None[288] Properties The company leases office space globally, with its New York City headquarters lease expiring in 2026, and is currently re-evaluating its real estate needs - The main corporate headquarters is a 113,000 sq. ft. facility in New York City, with a lease expiring in 2026[289] - The company is re-evaluating its office space requirements due to a flexible work model and the Complex Networks acquisition, with potential plans to sublease some properties[290] Legal Proceedings The company is involved in various legal proceedings which are not expected to have a material adverse effect on its financial position - The company is party to various lawsuits and claims in the ordinary course of business but does not expect them to have a material adverse effect on its financial position[291] Mine Safety Disclosures This item is not applicable to the company's business - Not applicable[292] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's stock trades on Nasdaq, it does not plan to pay dividends, and it recently issued $150 million in convertible notes - Class A Common Stock and public warrants trade on Nasdaq under symbols 'BZFD' and 'BZFDW'[294] - The company has never declared or paid cash dividends and does not plan to in the foreseeable future[295] - On December 3, 2021, the company issued $150 million in aggregate principal amount of unsecured convertible notes due in 2026, bearing interest at 8.50% per annum[301] [Reserved] This item is reserved Management's Discussion and Analysis of Financial Condition and Results of Operations Revenue grew 24% to $397.6 million in 2021, driven by acquisitions and advertising, resulting in net income of $25.9 million despite challenges in commerce revenue Financial Highlights (in thousands) | Metric | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Total Revenue | $397,564 | $321,324 | $317,923 | | Net Income (Loss) | $25,876 | $11,156 | $(36,919) | | Adjusted EBITDA | $41,516 | $30,813 | $(8,361) | - The company completed its business combination with 890 5th Avenue Partners, Inc. and the acquisition of Complex Networks on December 3, 2021[317] - The acquisition of HuffPost was completed on February 16, 2021, for which BuzzFeed issued 2.6 million shares of Class C common stock; a subsequent restructuring resulted in approximately $3.6 million in severance costs[314][315] - The COVID-19 pandemic initially boosted commerce revenue in 2020, but this growth decelerated in 2021 as consumer behavior shifted and retailers faced supply chain issues[323] Results of Operations Total 2021 revenue rose 24% to $397.6 million, driven by advertising growth from acquisitions, though higher operating expenses led to an operating loss Revenue by Type (in thousands) | Revenue Type | 2021 | 2020 | % Change (YoY) | | :--- | :--- | :--- | :--- | | Advertising | $205,794 | $149,704 | 37% | | Content | $130,200 | $119,846 | 9% | | Commerce and other | $61,570 | $51,774 | 19% | | Total Revenue | $397,564 | $321,324 | 24% | - Advertising revenue growth in 2021 was driven by a 54% increase on owned and operated properties, with the HuffPost and Complex Networks acquisitions contributing $24.7 million and $4.1 million, respectively[346] - Cost of revenue increased by 48% in 2021, primarily due to a $30.0 million increase in compensation costs related to acquisitions and stock-based compensation[352] - General and administrative expenses increased by 36% in 2021, driven by a $19.8 million increase in compensation costs and $14.3 million in non-recurring expenses associated with the Business Combination[359] Non-GAAP Financial Measures Adjusted EBITDA, a key non-GAAP metric, increased to $41.5 million in 2021 from $30.8 million in 2020 Reconciliation of Net Income (Loss) to Adjusted EBITDA (in thousands) | Reconciliation Item | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Net income (loss) | $25,876 | $11,156 | $(36,919) | | Income tax (benefit) provision | $(26,404) | $941 | $(358) | | Interest expense/income, net | $2,885 | $923 | $(1,393) | | Depreciation and amortization | $22,860 | $17,486 | $19,450 | | Stock-based compensation | $23,565 | $1,189 | $2,813 | | Change in fair value of warrant liabilities | $(4,740) | — | — | | Change in fair value of derivative liability | $(26,745) | — | — | | Restructuring | $3,645 | — | $9,644 | | Transaction costs | $15,295 | — | — | | Adjusted EBITDA | $41,516 | $30,813 | $(8,361) | Liquidity and Capital Resources The company maintains liquidity through cash from operations, a revolving credit facility, and proceeds from a $150 million convertible note issuance Cash Flow Summary (in thousands) | Cash Flow Activity | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $797 | $27,553 | $(20,243) | | Net cash (used in) provided by investing activities | $(208,028) | $(14,803) | $16,363 | | Net cash provided by financing activities | $181,823 | $19,455 | $195 | - The company has a $50.0 million revolving credit facility, of which $28.5 million was drawn and $5.4 million remained available as of Dec 31, 2021[393][396] - In connection with the Business Combination, the company issued $150.0 million of unsecured convertible notes due 2026 with an 8.50% interest rate[397] Critical Accounting Policies and Estimates Critical accounting policies involve significant judgment, particularly in revenue recognition, business combinations, income taxes, and goodwill impairment testing - Key critical accounting policies include Revenue Recognition, Business Combinations, Income Taxes, Stock-Based Compensation, Common Stock Valuations (pre-IPO), and Goodwill impairment[414] - For programmatic advertising revenue from third-party intermediaries, where the end-customer price is unknown, revenue is recognized as the net amount remitted to the company[418] - Goodwill is tested for impairment annually on October 1; the 2021 qualitative assessment concluded that impairment was not more likely than not[431][432] Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks including foreign currency exchange fluctuations, variable interest rates on its debt, and equity investment risk - The company is exposed to foreign currency exchange risk, as it generates revenue and incurs costs in currencies like the British Pound, Japanese Yen, and Canadian Dollar[443] - Interest rate risk exists due to the variable interest component on the Revolving Credit Facility[444] Financial Statements and Supplementary Data This section presents the audited consolidated financial statements and related notes for the fiscal year ended December 31, 2021 Consolidated Balance Sheet Data (in thousands) | Account | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Total Assets | $637,214 | $279,192 | | Total Current Assets | $251,659 | $208,521 | | Goodwill | $194,881 | $0 | | Total Liabilities | $262,333 | $97,310 | | Total Current Liabilities | $94,146 | $57,228 | | Debt | $141,878 | $20,396 | | Total Stockholders' Equity (Deficit) | $372,587 | $(313,803) | Consolidated Statement of Operations Data (in thousands) | Account | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Revenue | $397,564 | $321,324 | $317,923 | | Total costs and expenses | $422,718 | $309,186 | $358,191 | | (Loss) income from operations | $(25,154) | $12,138 | $(40,268) | | Net income (loss) | $25,876 | $11,156 | $(36,919) | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reports no disagreements with its accountants on any matter of accounting principles or practices - None[667] Controls and Procedures Management concluded disclosure controls were not effective as of year-end 2021 due to identified material weaknesses in internal control over financial reporting - Disclosure controls and procedures were deemed not effective as of December 31, 2021[672] - Material weaknesses were identified in internal controls related to: (a) formalized controls and segregation of duties in financial close, (b) lack of staff with public company/technical accounting experience, and (c) IT general controls[669] - Management excluded a report on internal control over financial reporting for 2021, as permitted by SEC guidance, due to the recent timing of the Business Combination[676] Other Information The company reports no other information for this item - None[679] Disclosure Regarding Foreign Jurisdictions that Prevent Inspection This item is not applicable to the company - Not applicable[680] Part III Directors, Executive Officers and Corporate Governance Required information regarding directors, officers, and governance is incorporated by reference from the company's 2022 proxy statement - Information is incorporated by reference from the proxy statement for the 2022 Annual Meeting of Stockholders[682] Executive Compensation Required information regarding executive compensation is incorporated by reference from the company's 2022 proxy statement - Information is incorporated by reference from the proxy statement for the 2022 Annual Meeting of Stockholders[683] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Required information regarding security ownership is incorporated by reference from the company's 2022 proxy statement - Information is incorporated by reference from the proxy statement for the 2022 Annual Meeting of Stockholders[687] Certain Relationships and Related Transactions and Director Independence Required information regarding related party transactions and director independence is incorporated by reference from the company's 2022 proxy statement - Information is incorporated by reference from the proxy statement for the 2022 Annual Meeting of Stockholders[688] Principal Accounting Fees and Services Required information regarding principal accountant fees and services is incorporated by reference from the company's 2022 proxy statement - Information is incorporated by reference from the proxy statement for the 2022 Annual Meeting of Stockholders[689] Part IV Exhibits and Financial Statement Schedules This section lists the exhibits filed as part of the report, including key agreements and incentive plans - The consolidated financial statements are included in Part II, Item 8[692] - A list of all exhibits filed with the report is provided, including merger agreements, debt agreements, and equity plans[691] Form 10-K Summary This item is not applicable - Not applicable[700]