Q1 2022 Ziff Davis Inc Earnings Call
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Good day, ladies and gentlemen, and welcome to Ziff Davis first quarter 2022 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.
A question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
On this call will be Vivek Shah CEO of Ziff Davis, and Bret Richter, Chief Financial Officer of Ziff Davis.
I will now turn the call over to Bret Richter, Chief Financial Officer of Ziff Davis.
You may begin.
Thank you good morning, everyone and welcome to the Ziff Davis Investor Conference call for Q1 2022.
As the operator mentioned I'm, Bret Richter, Chief Financial Officer of Ziff Davis.
Im joined by our Chief Executive Officer <unk> Shah.
A presentation is available for today's call.
A copy of this presentation is available at our website. When you launch the website. 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 Dot Ziff Davis Dot 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 questions. In addition, you can email questions to Investor <unk> Ziff Davis Dot com before we begin our prepared remarks allow me to read the safe Harbor language.
As you know this call and 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've included as part of the slideshow for this webcast we will.
For 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 Brett and good morning, everyone.
Without question, the macroeconomic environment has become challenging and uncertain with negative GDP growth high inflation rising interest rates.
Continued supply chain problems geopolitical conflict.
Labor shortages.
Notwithstanding these challenges Ziff Davis delivered a very strong set of first quarter results with revenues and pro forma adjusted EBITDA, both up by over 5% year over year.
And as I pointed out in our last call. This quarter was going to represent a hard comp for us given the relative strength of Q1 2021.
And the lapping of our retail me not acquisition.
Overall, we're very pleased with our first quarter and to be in a position to reaffirm our guidance for the year.
Our advertising revenues declined 4% in the first quarter.
As we described in our last two calls we have been concerned about the impact of supply chain disruptions on our advertising clients.
We saw campaigns continuing to be delayed and budgets being curtailed as some of our marketers continue to have production and fulfillment challenges.
<unk>.
We also saw fewer clicks from our properties to ecommerce sites, which is an important part of our performance marketing revenues. We also had the added challenge of retail me not lapping itself in the quarter, which a year ago was being managed for lowered lowered revenues, but higher EBITDA.
As we said on our last call we were expecting many of these headwinds and therefore not at all surprised.
At the same time, we experienced significant growth in the gaming and entertainment and health verticals.
In fact, IGN had its largest AD revenue quarter in its history.
Category diversification proves to be important as we look to weather the present macroeconomic challenges.
Our subscription revenues grew over 15% in the first quarter.
We saw double digit growth in several of our subscription businesses, including our connectivity businesses hoopla and alcohol.
And the benefit of several acquisitions, including root metrics and Mas SCO.
The integration of those businesses has gone very well and both are on or ahead of plan or.
Our cyber security business was a low single digit decliner with continued challenges in direct customer acquisition and some FX headwinds.
We have a new chief revenue officer at the Viper Group, who brings extensive experience in selling through the channel and managed service providers, which are key to the smbs we serve.
In Martech, we did experience reduced email activity within our customer base in the first quarter. We're also seeing some recovery and overall, we're pleased with the trajectory of the Mas group.
Our organic revenues for the quarter declined 3%.
But when excluding retail me not which was early in its planned revenue reduction in Q1, 2021 and FX headwinds.
We were closer to being flat inorganic revenues, which is a good outcome considering the macroeconomic challenges in the quarter in fact organic growth was a positive 4% when excluding our tech and shopping businesses, meaning.
<unk> gaming and entertainment connectivity, Martech and cyber security posted 4% organic growth I'm also very pleased with our margins in Q1, which held at 32%, which means our acquired revenues were margin accretive which is often difficult to accomplish in the first year of an acquisition, we will continue to be.
Very judicious about expenditures given the uncertain operating environment, but we'll also continue to invest in organic growth opportunities. In fact, a number of our verticals saw some strong organic growth rates in Q1, and we want to be sure to continue to support those businesses. We are in one of the best if not the best <unk>.
Liquidity positions we've ever been in.
With nearly $1 billion of cash and investments, we have the ability to deploy capital for growth.
Whether within our existing portfolio.
Or to acquire new businesses speaking of M&A in Q1, we acquired a U K based portfolio of pregnancy, and parenting brands, including Emma's diary the acquisition solidifies our category leadership position in the U K, where our three primary brands Babycenter, what to expect and Emma's diary have a combined.
On duplicated reach a $2 7 million monthly users and rank in the number one position among the competitive set this transaction.
The other two in the quarter. It was a relatively small tuck in but we continue to have very active discussions with larger acquisition targets companywide. We believe we are entering into a favorable environment as a buyer.
And believe our discipline and patience will be handsomely rewarded.
We continue to look for assets within our existing verticals.
Tak connectivity shopping gaming Entertainment health cyber security and Martech.
As well as other verticals that share the high value intent driven nature of the ones we're in.
Today's if Davis is essentially a portfolio of assets that were acquired in the last decade, which was arguably one of the most robust sellers markets in recent memory. Nevertheless, our total acquisition spend over estimated adjusted EBITDA has just ticked over five times, we believe with terrific acquirers.
And then a more benign market for buyers will only enhance our returns and shareholder value now, let me turn to our outlook for the rest of the year. We anticipate that Q2 growth rates will be somewhat similar to Q1 as many of the same headwinds we experienced in Q1 are carrying over into Q2.
However, we believe the second half of the year will show improvements first we should have more favorable year over year comps for Retailmenot second we expect to have new product launches that we believe up a lot of promise.
Third we're getting signals of increased AD spend from major clients, including in the pharma category, where we anticipate a favorable drug pipeline.
Including important new drug launches and a streamlined post COVID-19 F D a approval process.
Fourth if macroeconomic conditions don't stabilize or even worsen then we'd have to reassess our views of the second half.
At the same time, we have line of sight into acquisitions that could close during the balance of the year, which would leave us well positioned to add incremental revenue and adjusted EBITDA.
We are excited for our new strategic partnership or entering into with group Black which is a company attempting to transform the face of media ownership.
An investment group Black is home to one of the largest collectives or black owned media and diverse content creators group Black and Ziff Davis will collaborate to create amplify and monetize content.
Cross Ziff Davis as portfolio of media brands.
The partnership will also fund and provide new exposure for group Blacks collective are black owned content creators by providing them a voice on ziff Davis' editorial platforms.
With Ziff Davis, providing AD inventory to grow black and in an effort to support the deployment of advertising investments from group Black's brand and advertising partners. We also made a $15 million investment in group Black, which we think will generate great returns, while also providing financial and strategic.
<unk> support to black owned media.
Let me provide you with an update on our ESG efforts.
In early March we released Ziff Davis' inaugural ESG report.
The report was well received by our stakeholders, including employees customers and shareholders. We were pleased to hold our second annual ESG non deal Roadshow in late March where we presented highlights from the report and fielded questions about our ESG efforts.
Thank you to those of you who took part.
The report highlighted the findings from our first greenhouse gas inventory and.
And we have now officially committed to setting and emissions reduction target with.
With the science based targets initiative known as SP T I S.
S. P. T. I is the gold standard of emission reduction targets.
And is the first step in setting a long term.
Carbon neutral goal.
In recent months. We've also continued to respond proactively to some of the most pressing social issues and humanitarian crises where collectively facing.
Ziff Davis joined HR CS business statement on N T. L. G B TQ state legislation as well as the Texas competes in Florida competes business coalitions in the early days of Russia's invasion of Ukraine, we.
We helped evacuate our Ukraine based consultants to Poland, and our humble bundle community subsequently raised $20 million for several Ukraine based charities needs say I'm incredibly proud of the work Zippered Ziff Davis has done and continues to do to respond to the enormous ins.
<unk> mental social and societal challenge is upon us.
I want to conclude by thanking Richard Rustler, who recently announced his retirement from our board for his incredible service to our company over the past two decades, Richard was an early investor when the company was private.
He was our CEO for a period of time and most recently our chair his wisdom intuition and leadership are extraordinary and has been a valuable mentor to me and a steadfast advocate for our shareholders. Fortunately, we have a wonderful successor, and Sarah Fay Who's been our lead director to chair.
Fair of our compensation Committee and a director since 2018, Sarah possesses fantastic judgment and our commitment to our company and its stakeholders is unmatched. She was a pioneering executive in the advertising industry, having served as the CEO of Aegis Media North America and president of.
Carry U S and Isobar U S. Currently she's a managing director at venture capital firm Klas wing ventures with that let me hand, the call back to Brett. Thank.
Thank you Vivek, let's discuss our financial results.
Our earnings release reflects both our GAAP and non-GAAP financial results for Q1 2022.
Our earnings release also reflects pro forma adjustments for the impact of various asset dispositions explanations for and reconciliations of these adjustments are provided in the release as you may recall from our previous earnings calls our UK voice assets. We sold in February 2021, and we completed the sale of our <unk>.
To be backup business in September 2021, the results related to these divestitures are reflected in our Q1 2021 financials through their respective date of sale, but these divestitures do not impact the presentation of our Q1 2022 results on October seven 2020.
One we completed the spinoff of consensus.
Our Q1 2021 GAAP income statement reflects the financial activity related to consensus through October 7th 2021 in discontinued operations, we will focus our discussion today and my commentary will primarily relate to our pro forma non-GAAP financial results from continuing operations.
Which exclude the contributions from the consensus business for the periods up through the date of the spin and exclude the contributions from our divested businesses for the period that they were owned by Ziff Davis now, let's review the summary of our quarterly financial results on slide four we reported pro forma revenue from continuing operations of three.
<unk> hundred $15 $1 million for the first quarter as compared with $299 1 million for the prior year period, reflecting growth of five 3%.
Pro forma adjusted EBITDA from continuing operations was $100.8 million for Q1, 2022, as compared with $95 $9 million for the prior year period, reflecting growth of five 1% our adjusted EBITDA margin for the quarter was 32% we reported first quarter pro forma adjusted <unk>.
non-GAAP earnings per diluted share of $1 23 sets. This figure reflects a three 4% increase as compared with our Q1 2021 pro forma non-GAAP results.
On slides five and six we have provided performance summaries through our two primary sources of revenue advertising and subscription.
As you can see on slide five and as discussed earlier by Vivek Q1 pro forma advertising revenue declined by 4% as compared with the prior period.
However, advertising revenue has grown 21% during the last 12 months, our net advertising revenue retention and annual trailing 12 months statistic that we update quarterly was $106, 6% above our 100% metric goal <unk>.
Net advertising revenue retention compares advertising revenue generated by a defined group of advertisers in one trailing 12 month period to advertising revenue generated by these advertisers in the prior comparable period as defined in the slide in the first quarter Ziff Davis had 1950 advertisers with <unk>.
Average quarterly revenue per advertiser in excess of $87000 in Q1, we reported a year over year increase in our number of advertisers as well as a year over year decline in revenue per advertiser.
This primarily reflects two factors the number of advertisers in our health and wellness business grew by more than 30% year over year, primarily due to the impact of M&A, including the acquisition of lifecycle marketing in Q1 2022.
These acquired businesses added advertisers to our base, but are generally characterized by lower quarterly revenue per advertiser than certain of our other businesses.
As noted earlier, we also experienced pullbacks and delays from a number of large advertisers both of our health and wellness business, but also in technology shopping and entertainment. These actions resulted in lower spend by certain of our larger advertising partners slide six depicts our subscription revenue performance Q1 2002.
22 pro forma subscription revenue grew over 15% versus last year.
Subscription revenues have grown 17% during the last 12 months the.
The table on the bottom of slide six includes subscription metrics for the last five quarters sequentially.
Sequentially, our average monthly revenue per subscriber increased by nearly $1 to $21.28 driven by an increase in subscription revenues within our higher arps offerings, including within connectivity, which had roughly 13% sequential subscription growth.
And a slight decline in subscribers, primarily within our VPN solutions. Our overall churn rate increased 25 basis points from Q4, 2021% to 3.22%. Please note that we redefined certain elements of these metrics during the first quarter of 2022. Additionally, the company saw its Q1 two.
And 'twenty two other revenues grew by more than 100% year over year to more than $9 million slide seven provides quarterly pro forma revenue growth rates delineated by organic and total revenue growth revenues from businesses owned for at least a full 12 months are included in organic revenue while acquired revenues relate to businesses that we've owned.
For less than 12 months for.
For the last 12 months, we achieved a 7% organic revenue growth rate as discussed earlier for the company as a whole organic revenue growth was negative 3% for the first quarter of 2022.
Vivek highlighted a number of factors that contributed to this organic revenue decline, including the acquisition of retail me not and to a lesser extent foreign exchange rates turning to our balance sheet. Please refer to slide eight our.
Our balance sheet continues to be extremely strong we have significant cash liquidity with $629 million of cash and cash equivalents as of quarter end more than $350 million of short and long term investments and significant leverage capacity, both on a gross and net leverage basis.
We continue to be committed to keeping gross leverage at or below three times adjusted EBITDA and we are currently well within this metric with our Q1 2022 gross leverage of two three times trailing 12 months adjusted EBITDA.
At quarter end, our net leverage was one times and only 0.3 times. If you include the value of our financial investments.
We are operating in a challenging macroeconomic environment and we will continue to prioritize the health of our balance sheet. However, we believe that we have the flexibility to continue to pursue various capital allocation alternatives in an effort to enhance shareholder value, particularly M&A alternatives.
As announced on our fourth quarter and full year 2021 call. During the early part of the first quarter of 2022, we repurchased $54 $6 million of our four point, 65% senior notes and $58 $7 million of our common shares during the first quarter. We also deployed approximately.
$30 8 million in cash related to current and prior period acquisitions. We believe all of these activities are consistent with our thoughtful balanced approach to capital allocation. If you refer to slide 10 as Vic noted we are reaffirming the 2022 guidance range that we presented in February .
As you may recall, the mid points of our revenue adjusted EBITDA and adjusted non-GAAP income per diluted share guidance implied growth rates of approximately 10%, 13% and 9% respectively as compared with the 2021 pro forma results from continuing operations that we presented in February .
Following our business outlook slides are a supplemental materials, including reconciliation statements for the various non-GAAP measures to the nearest GAAP equivalent. This section includes a GAAP reconciliation on slide 13 that reflects free cash flow from continuing operations and discontinued operations for Q1 2021.
Of $152 $5 million. Please note that this figure reflects contributions from both the recently disposed to be to be backup in UK voice assets through their disposal dates as well as consensus.
Please also note that the cash and cash equivalents associated with discontinued operations as of the end of Q1 2021 as presented in our 10-Q as supplemental information related to our Q1 2021 [noise] condensed consolidated statement of cash flows include certain pooled cash from certain of our retained cloud businesses.
As during Q1 2021 certain of their cash was reflected in bank accounts that were ultimately assigned to consensus.
Q1, 2022 free cash flow was $86 million, while our first quarter 2022 cash flow does not reflect impacts of the operations of consensus where the recently divested assets. It does reflect the seasonally high impact of working capital activity.
As I noted on our last call the timing of working capital is subject to quarterly fluctuations, but most working capital elements to resolve within any 12 month period. This is why we believe the cash flow is largely an annual financial measure and not one that we managed to during the short term as I noted on the prior call on an annual basis, we expect.
Free cash flow to approximate adjusted EBITDA less capital expenditures interest and taxes, the impact of working capital and any sources and uses that are excluded from our non-GAAP financials and again, given the timing of interest tax payments and changes in working capital quarterly cash flows can fluctuate meaningfully.
Overall, we are pleased with our Q1 2022 performance having achieved growth in a number of our key financial metrics in a challenging environment. We are looking forward to the balance of 2022 with that I will now ask the operator to rejoin us to instruct you on how to queue for questions.
Thank you we will now be conducting a question and answer session in the interest of time, we ask that you. Please limit yourself to one question.
You would like to ask a question. Please press star one on your telephone keypad.
Confirmation tone will indicate your line is in the question queue you.
You May press Star two if you would like to remove yourself from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, while we begin.
And the first question is coming from.
Cory Carpenter from J P. Morgan.
Corey Your line is live.
Thanks for the question Zack one for you and maybe one for Brett.
Vivek you mentioned new product launches in the second half of the year, just hoping you could expand a bit on some of your plans there on the product side and then maybe for Brett last quarter, you guided to add growth in the high single digits. This year and subscription growth in the low teens any update or a change to your thinking just on the mix based on what you saw in the first quarter.
Thank you.
Hi, good morning, Corey with.
With respect to second half product opportunities and Rollouts.
Our <unk> business, which is in our connectivity business unit is going to rollout a second version of a product called <unk>, which we're very excited for them and see a great deal of potential and we actually have a exciting partnership with the Cleveland clinic within the everyday health group, which will ramp up in the second.
Half and we believe.
Will represent some some incremental inventory our babycenter.
In our parenting and pregnancy unit has developed a set of.
Courses, which we are going direct to consumer.
That we think have some great potential so really at every one of our businesses. There are a set of opportunities and products that we're rolling out that we had invested in developing really last year and we think do have potential for us in the second half.
Hey, Cory Thanks with regards to that guidance at this point in time and it's earlier in the year, we're not going to revise that I think it's important to sort of widen the lens. We're a business that serves multiple communities with multiple products and services on a global basis, where.
Subject to broad consumer trends as well as some meaningful decisions by discrete enterprises that we work with particularly in the advertising community on a quarterly basis.
Throughout the year those trends could impact our performance, but importantly in reaffirming our expectations for the full year.
I think we're off to a good start and.
We look forward to the balance of 2022.
Okay, great. Thank you both.
Thank you.
Thank you and the next question is coming from Rishi <unk> from RBC.
Your line is flat.
Wonderful Thanks, guys for taking my question I just wanted to go one drilling into.
BELBUCA growth retention and net retention rate.
So look it looks like net retention, it's about a 100% target, but it did the advertising net retention ticked down I think meaningfully from Q4 to Q1 and I know, it's a trailing 12 month rate.
And so maybe there's some comps, but maybe any color on why that ticked down there as well as the increase in churn rate.
Yes, maybe I'll start with the first one reaching good morning look I think that if you look at what took place in Q1. The advertising revenues did decline and that decline came primarily from some of our larger clients pulling back and so that would obviously then show up in the net revenue retention.
I said, we are seeing some interesting signs from some of those same clients in terms of their expectations.
For the second half I think what really did happen in the first quarter as supply chain and the other challenges that I delineated did curtail their spending not just with US I mean, I think you're seeing this across the entire into.
The entire ecosystem I think look the other thing I would also say is that the advertising business is lumpy. It always has been and I think it always will be an end clients can move it move in and out week to week and quarter to quarter. So we like to look at these things in a little bit of a longer term basis, but really I think.
It's just more a function of some of the headwinds we experienced in the advertising market in Q1 with regards to the churn rate.
It's partly arithmetic in that it's a hey, this is revenue churn versus customer churn and since it reflects sort of a broad look over the business as opposed to sort of a key performance indicator that we manage across a set of businesses that have common characteristics, we're mixing large enterprise customers.
Against small customers we saw.
Loss of revenue, we had a couple of spots in our connectivity business, which are large contracts, but interestingly that was one of our best performing businesses for the quarter and adding new revenue. So it's a little bit of a mix issue and it just comes out in the math and I believe we'll continue to look at these metrics and refine them and make sure that they are.
The right indications for the business overall, which again is a complex mix of different businesses.
Got it that's really helpful. Thank you guys.
Thank you.
Thank you and the next question is coming from Shyam Patil from Sig Xiaomi Your line is live.
Hey, guys congrats on that.
Results.
Considering the environment.
I had a couple of questions.
You've kind of talked about in your prepared remarks about the M&A environment being favorable and then.
You kind of reiterated that in your in your remarks as well can you guys just elaborate on that does.
Does this mean that you are.
You are seeing more opportunities you are seeing.
Potential to close even with the volatility in asset prices.
Then second question Brett.
I know you don't guide by quarter, but I was just wondering if theres any color you could provide us on how to think about the revenue and EBITDA distribution between the third and fourth quarters. Thank you.
Alright, Thanks for the question, Sean So so with respect to M&A I take one step back and just reflect on what we accomplished last year, which I think is exciting when we think about our go forward acquisition program. So through a variety of actions, including the spinoff of <unk>.
Sensus and the disposition of other assets back up some voice assets et cetera.
We now have today are seven discrete platforms with the company platforms for acquisitions, we have our tech platform are shopping connectivity gaming health cyber security and Martech.
Each of those has a robust pipeline of opportunities and they are competing as you know for the company's capital. So we've got seven.
Really strong platforms on which to transact and and and acquire within those entities the.
The same time at corporate we're always looking for the eighth platform. So would that create is a fair amount.
Deal sourcing and activity.
What we're seeing on.
On the seller side of the market is something I haven't seen in the 10 years that we've been doing this which is sobriety and you're certainly seeing it in the public market. The traps is absolutely seeing it in the private markets, we're seeing that.
So from our point of view the combination of how we're structured today.
The.
You used amongst the in the marketplace amongst sellers and then add to that we've never had a balance sheet like this we've never been in a liquidity position like this so from my point of view. This is a very exciting time for the company.
And what you should interpret I think is that we are going to be very acquisitive. We think that this window will stay open for some time, we will continue to be highly highly disciplined as we always have been but if we've been able to construct over the last 10 years a company is that our side.
Deploying $2 $8 billion in capital doing at our midpoint $540 $50 million.
EBITDA.
Start to get very excited about what we can do in a different environment and how we can generate even better returns for shareholders.
And with regards to the second question first thanks for recognizing we don't provide quarterly guidance, but maybe I can connect a couple of dots for you. So.
We of course have our Q1 results. We've already commented that we expect similarities in the second quarter and on our fourth quarter conference call. When we presented our guidance for 2002, we highlighted that we thought the revenue through distribution over the year would be lower in the first quarter on the order of 20% we were in and around that.
And higher in the fourth quarter on the order of 30%, which is our seasonally busiest strongest quarter with regards to revenue, particularly advertising revenue. So if you kind of connect those dots you might be able to get a distribution over the course of the year. We're obviously expecting second half strength and that is there's a lot of dependencies.
They are including the macroeconomic environment, which is get through the year.
Less than friendly, but we feel good about the numbers and we will continue.
<unk> towards those goals.
Thank you guys.
Okay.
Thank you.
Once again, ladies and gentlemen, if you wish to enter the Q&A queue. You can do so by pressing star one on your telephone keypad Thats Star one to ask a question. The next question is coming from Charlie Ehrlich from Baird Charley Your line is live.
Hey, guys. Thanks for taking the question.
I wanted to ask again about M&A and so that it sounds like it's a very exciting period for you guys could you just comment maybe on the size of the deals that are in the pipeline.
Maybe what we can expect from a frequency standpoint, any more color on that would be great. Just in terms of the size and frequency in the pipeline.
Maybe are you guys shifting more to larger deals or more smaller deals any color on that would be great.
Yes, Thanks, Charlie for the question I would say that our approach is unchanged right and we've talked about in the past.
We generally because most of the activity is taking place at the various platforms the various business units and verticals.
By definition the size of those deals are kind of small to mid size and because they're such internal demand and we want to spread our capital we tend to favor those size deals as I've also said, though in the past we have been open to larger deals the everyday health deal. The retail me not deal those were deals in the <unk>.
$400 million territory, which in which is how I would define large for our company. We are certainly not averse to those deals either and we have the capacity to transact at that level any larger than that that would be unusual for us. We haven't done. It I think it's too much of a concentrated risks, but if the if.
The investment profile and returns by that compelling, we certainly don't shut off from that as well. So we do take a look at quite a bit but I think our our wheelhouse.
Isn't that.
$75 $250 million.
A value type proposition and we certainly are still open to deals that are smaller than that so I think.
Our preference has been will continue to be to spread the capital in terms of frequency and velocity, we try not I try not to ever answer that question because I don't want that to be what is the goal for anyone inside this company to me, we're trying to deploy capital over long periods of time in the most thoughtful and <unk>.
Sensible manner, I don't want to start to set targets on dips.
Deploying excess capital by Y time, it's not who we are it's not what we do it's not what we've done over the past decades, I wouldn't want it part from that and as I've said I believe this.
Shifting in the environment is not is not going to be the small window I think we're going to see this for a while and so I think we I think we can continue to be patient and not be concerned that all of a sudden assets will.
The valuations will rise unduly in a short period of time I don't anticipate that happening.
Okay. That's really helpful. And then you also mentioned in the advertising business you guys saw fewer clicks on your sites.
I'm wondering if you can just expand a little bit on that and maybe the potential causes of that and your confidence in that turning around in the second half. Thanks.
And that really relates to where we saw issues and pressures. So in the advertising business just as that as a reminder, the health.
And gaming and entertainment advertising businesses and categories, where growers for us and did very nicely in Q1.
This tech and shopping where we saw declines those declines were primarily in our performance marketing and specifically within affiliate Commerce and as a reminder, affiliate commerce is when we generate clicks from our properties to an E Commerce site.
If the customer transaction, we get a commission on the value of that transaction that is the affiliate commerce business that is an important part of our performance marketing business and an important part of the tech and shopping vertical. So when we say commerce flips are down it's the same as saying that e-commerce sale.
<unk> that we get compensated on were down which is I think probably seen in many places very tough comp 2021, Q1 E Commerce was bananas and so looking at that.
Against this year's top as people have returned to in person shop is a very tough comp for us in particular remember we're lapping retail me not which is the single largest source.
The affiliate Commerce and Commerce clip, so that probably gives you some texture, it's all sort of saying the same thing all where we've had our issues.
So hopefully that's helpful.
Yes, very helpful. Thanks for that.
Thank you.
Thank you and the next question is coming from James Breen from William Blair James Your line is less.
Thanks, Thanks for taking the question.
So I guess just the.
Talk more about that a little bit.
Obviously, some weakness from supply chain issues at advertisers right. They don't want to advertise for product. They don't have I guess.
And then obviously then.
What's going on in the economy.
What point for you is there like a tipping point, where the economic pressures on the business.
More drive more than the supply chain issues and you really have to shift to more of an M&A focus to pick up assets that are cheap at the time.
And we don't see it seemed like the supply chain stuff is more.
Potentially could snapback sort of as a pandemic improves or post pandemic, but.
The economic stuff.
The business a little bit longer.
Yes, Jim I mean look at it as hard as you know that.
Forecast the macroeconomic.
Dynamics at play and we can control what we control what I will say to you is though that Europe .
Youre right like our business model is such that if the factors that create pressure.
Near term pressure on our revenues exist on the flip it creates a very benign environment for us as a buyer.
And so that is a hedge and that is an opportunity for us and that we view. These as temporary these are not existential. These are not systemic these are moments in time interruptions and disruptions generally that impact nearly everyone.
An impact up in these very specific ways, but we're confident that theyre not permanent.
And that at the same time, we could acquire an asset at a price that is the price that won't change and if that price is attractive that is exciting. So so for us it's I.
Can't say we are in a.
Can't lose situation, but it does feel like we've got.
An interesting dynamic here, but at the same time, we believe that some of the pressures in Q1 are unique to us and the retail me not piece by the second half the comps get better and easier for us and that shouldn't be lost in this equation and as I've said the investments we've made.
Up until this point in product I think will help us in the second half as well now obviously, if the economy <unk>.
Stabilizes further worsens, that's a different dynamic but right now we are seeing signs of some improvement.
That we think will show up mostly in the second half.
Great. Thanks.
Thank you.
Thank you and the next question is coming from Jon <unk> from CJS Securities John Your line of sight.
This is stefanos crist, calling in for John Thanks for taking my questions.
Can you just can you just give us your thoughts on your preference for M&A versus share repurchases today.
Look I think.
<unk> described and as we've said in the past as capital Allocators, we are always weighing the various options for our capital, which generally for us our acquisitions as you said share repurchases we've done some debt.
Debt repurchases and then obviously capital expenditure.
And look I think that when when we see.
The market value in the company and the way. It is today, we are at a historically low multiple I think we have a what I view as a very strong Q1 print I feel like 5% top bottom line in this environment really organic essentially getting close to flat.
If you take if you exclude retail me not in some FX headwind I think a very good outcome strong margins and so when we see the market presenting investment opportunities in our own stock we have been opportunistic historically at the same time, when we see the market presenting.
<unk> acquisition opportunities.
We like to deploy capital that way the good news right now is there's a fair amount of capital for us.
You really think through the capital allocation mix.
And that's not that's no different than at any other time. This has been the way we've been operating now for the last handful of years really since that come in as CEO .
Thank you so much.
Thank you.
Thank you and there are no other questions in queue. At this time I would now like to hand, the call back to Bret Richter for any closing remarks.
Thank you very much Paul.
We appreciate you all joining us today for our Q1 2022 earnings call.
We issued a press release earlier this month regarding the Investor conferences, we plan to participate in during the month of May and later this month, we will announce conferences, we plan to participate in during the month of June we hope to see some of you at those events and again. Thank you for your interest and your participation have a great day.
Thank you ladies and gentlemen, this does conclude today's conference you may disconnect. Your lines at this time and have a wonderful day. Thank you for your participation.
Yes.
Goodbye.