Q2 2022 Ziff Davis Inc Earnings Call

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Good day, ladies and gentlemen, and welcome to <unk> Ziff Davis second quarter 2022 earnings call. My name is Paul and I will be the operator assisting you today at.

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.

Richter, Chief Financial Officer of Ziff Davis.

I'll turn the call over to Bret Richter, Chief Financial Officer I was just Davis. Thank you you may.

I'll begin.

Thank you.

Morning, everyone and welcome to the Ziff Davis Investor Conference call for Q2 2022 as.

As the operator mentioned I'm, Bret Richter, Chief Financial Officer of Ziff Davis.

Im joined by our Chief Executive Officer, <unk> Shah our presentation is available for today's call. A copy of this presentation is available on our website. When you launch the webcast. There is a button on the viewer on the right hand side, which will allow you to expand the slides.

If you have not received a copy of the press release, you may access it through our corporate website at Www 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.

We're asking questions. In addition, you can email questions to Investor Ziff Davis Dot com.

Before we begin our prepared remarks allow me to read the safe Harbor language.

As you know this call and the webcast will include forward looking statements such statements may involve risks and uncertainties that could 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.

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 the webcast. We refer you to discussions in those documents regarding safe Harbor language as well as forward looking statements.

Now, let me turn the call over to Vivek for his remarks, Thank you Bret and good morning, everyone.

We continue to skillfully navigate a difficult and challenging operating environment.

With the strategy of producing near term earnings growth, while positioning the company for an eventual macroeconomic recovery.

We grew pro forma adjusted EBITDA in Q2 by 5% a repeat of last quarter's performance, which is particularly noteworthy given the strength of last year's second quarter.

Remember Ziff Davis grew its revenues in Q2, 2021 by 42%, making one of the biggest growth quarters in our company's history.

We also posted 12% adjusted non-GAAP pro forma EPS growth in Q2, 2022, which was clearly ahead of our expectations.

Our company has always been bottom line oriented, but it's at times like these that we are particularly adept at margin management.

In fact, while our revised guidance lowers the midpoint of estimated revenues for the year, we're maintaining the midpoint of our adjusted EPS estimate of $6 67 <unk>.

Advertising revenues declined 5% in Q2, which is consistent with the 4% decline we saw in Q1.

As we said last quarter, we expected to see a continuation of the pressures in the AD market. While also lapping last year's very strong revenues.

While we increase the number of advertisers year over year by over 100, we saw about $10000 less in spend per advertiser, reflecting in park.

<unk> reduction in budgets from many of our advertising clients.

I've also learned in my nearly 30 years in the media business that budgets can be restored as quickly as they are reduced and the key to managing in this environment is to strengthen your ad products and capabilities.

And that's precisely what we're doing by developing new branded content offerings lie.

Commerce video solutions and custom short form videos on social platforms to just name a few.

It's also important to view our AD business by category as we're seeing different dynamics in different sectors.

Our gaming businesses grew AD revenues low double digits, which continued the momentum we experienced in the first quarter.

When IGN posted its best AD revenue quarter in its history.

Retail me not was flat in the second quarter, which we take as a very positive side, given that it's being compared to a quarter last year.

Still benefiting from a strong online retail environment.

Our health businesses grew AD revenues by mid single digits in the quarter with the direct to provider part of our pharma business growing double digits as our flagship Med page property continues to shine, while our direct to consumer pharma and pregnancy businesses experienced a single digit decline with some DTC farmer.

Campaign delays and pandemic related supply chain challenges, notably baby Formula.

The main drag on our AD revenue growth comes from the Tech category, which saw a double digit decrease.

Tech category sits at the Nexus of the issues roiling, the global economy, including supply chain disruption inflation rising interest rates geopolitical uncertainty and the strengthening dollar is therefore, not surprising that as our technology clients experienced challenges they will pare back their advertising expenditures.

But we view this as a cyclical dynamic not a secular challenge and continue to realize the benefits of having category diversification in our advertising business.

Subscription revenues grew by 11% in the second quarter.

Our connectivity businesses led by Uccle, and our Martech businesses led by Mas continue to perform well with strong double digit growth supported by organic growth and the benefit of acquisitions.

Echo how unit just launched its new sidekick too.

Our product for the next Tri band generation of Wi Fi. We believe this will be a nice catalyst for growth in the second half of the year.

Also our speed test App has now been installed on over 600 million unique devices worldwide and astonishing statistic. After two years as a virtual event Moscone returned to being in person in Seattle in July Moscow as a premier search engine optimization conference convening S. C O <unk>.

Experts data scientists.

<unk> publishers and digital marketers from across the globe, our cyber security business continues its overhaul of its sales and marketing, including new leadership and pivoted to a channel first model as we look to set a foundation for future growth.

It was a mid single digit decliner on an FX adjusted basis in the quarter, our organic revenues declined by 5% in the second quarter and by 3% when adjusting for FX, we had an unusually difficult comp as our organic growth in the second quarter of 2021 was 20% and total revenue.

Growth was 42%.

I'll also add that excluding our tech AD business and FX, we were effectively flat organically, which we view as a sign of resilience in a difficult market.

Notwithstanding the organic revenue decline, we were still able to grow adjusted EBITDA by 5% and expand our adjusted EBITDA margins by 100 basis points to 35%, most notably our adjusted non-GAAP pro forma EPS grew by over 12% as compared with Q2 last year with.

With the prospects of a second half economic recovery quickly diminishing we have revised our guidance for the full year.

At this point, we feel we have to assume that the second half of the year will look much like Q2.

With the higher end of our revised guidance contemplating a stronger Q4, given the more favorable comp that it represents remembers last year's Q4 was our lowest growth quarter.

Given our expense management, our new midpoint assumes about 6% adjusted EBITDA growth and over 9% adjusted EPS growth as I said at the outset, our Mount our midpoint adjusted non-GAAP EPS guidance matches that of our original guidance all things considered if we exit the year with the kind of bottomed.

Line growth with that kind of bottom line growth and I think we'll be very satisfied with the manner in which we've dealt with a series of challenging headwinds longer term, we feel very confident in the quality of our portfolio and the opportunities in both the advertising and subscription parts of our business.

While we are currently facing advertising headwinds pandemic related supply chain disruptions will ease at some point, we feel that we operate in some of the most attractive advertising verticals.

Some of the best companies as longtime advertisers on our properties.

And offer add in performance marketing solutions that provide clear ROI on the subscription side, we believe that smbs are underserved in the cyber security market.

Theyre also being priced out of paid media. We also believe that our broadband analytics and data are unmatched at a time when our digital world demands more connectivity and bandwidth.

Themes continue to inform our strategy and expansion plans.

And while we're being careful about our spending we will continue to fund innovation and.

And development with $850 million of cash and investments on our balance sheet.

And our gross leverage ratio of two three times, we continue to have a great deal of capacity to deploy capital for acquisitions in June we closed the acquisition of lucid a weight loss and nutrition management App and food logging database that is a top five apple iOS, app and health and fitness.

It also represents our ongoing effort at building consumer.

Subscription and E Commerce revenues alongside daily AUM and Babycenter courses in our health and wellness vertical also a couple of weeks ago Uccle acquired cell rebel are nice tuck ins that brings new datasets and data visualization capabilities to our already robust lineup of network measurement offerings, we're being.

Very selective right now in our M&A activities, believing that the best opportunities may well be in front of us.

We believe we will be rewarded for our patience and discipline.

Our pipeline consists of acquisitions that would fit into our existing platforms and those that would create a new one for us.

We've increased our hurdle rates internally given the current market environment.

And while I know, there's a lot of talk about when sellers will capitulate, we're having a number of productive conversations right now and remain optimistic about the opportunities to put our shareholders' capital to work let.

Let me provide you with a brief update on our ESG efforts.

In March shortly after we released Ziff Davis is an augury ESG report, we committed to setting emissions reduction targets with the science based targets initiative known as SP T I S.

SPT is considered the gold standard of emission reduction targets and is the first step in setting a long term net zero goal. We are in the process of working on our strategy and targets and plan to submit them to SB Ti for validation in the coming months. We also continue to leverage our platform.

Arms to address social issues and in equities, Let me provide just one example in 2020, our gaming business humble bundle launch their black game developer fund, which invests in million dollars annually and black indie game makers, providing them funding and ongoing guidance around the development and marketing of their games.

To date more than 30 diverse game developers have been signed to the fund. Moreover, one of the first games to receive funding will be published by humble games. In early 2023. This success story truly embodies our approach to stakeholder capitalism, and our focus on profits and purpose with that.

Let me hand, the call back to Brett. Thank you Vivek, let's discuss our financial results. Our earnings release reflects both our GAAP and non-GAAP financial results for Q2 2022.

Our earnings release also reflects pro forma adjustments for the impact of various 2021 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 Boyce assets were sold in February 2021, and we.

<unk> the sale of our <unk> backup business in September 2021, the results related to these divestitures are reflected in our year to date 2021 financials through their respective date of sale and the results of our B to B backup business are reflected in our Q2 2021 results through its state of sale.

However, these divestitures do not impact the presentation of our Q2 or year to date 2022 results.

On October seven 2021, we completed the spinoff of consensus our year to date in Q2 2021, GAAP income statement reflects the financial activity related to consensus in discontinued operations, we will focus our discussion today and my commentary will primarily relate toward Q.

Two pro forma non-GAAP financial results from continuing operations, which exclude the contributions from the consensus business and exclude the contributions from our divested businesses for the portion of the Q2 2021 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 337 4 million for the second quarter as compared with $330 million for the prior year period, reflecting growth of 2.2% the strength of the U S dollar and the decline.

And the value of certain foreign currencies negatively impacted this growth rate and if the comparable 2021 currency values were applied to our 2022 Q2 results revenue growth would have been approximately three 8% pro forma adjusted EBITDA from continuing operations was $118 million for Q2 2002.

Two as compared with $112 $1 million for the prior year period, reflecting growth of five 3% our adjusted EBITDA margin for the quarter was 35% we reported second quarter pro forma adjusted non-GAAP earnings per diluted share of $1.58. This figure rift.

Flexi 12, 1% increase as compared with our Q2 2021 pro forma non-GAAP results on slides five and six we have provided performance summaries for our two primary sources of revenue advertising and subscription as you can see on slide five and as discussed earlier by Vivek.

Q2 pro forma advertising revenue declined by 5% as compared with the prior period. However, advertising revenue has grown 8% during the last 12 months and again this was impacted by negative trends in the foreign currency markets, our net advertising revenue retention and annual trailing 12 months statistic.

That we update quarterly was approximately 100% net advertising revenue retention compares advertising revenue generated by a defined group of advertisers in one trailing 12 months period to advertising revenue generated by these advertisers in the prior comparable period as defined in the slide in the second quarter Ziff Davis.

Just over 2000 advertisers with the average quarterly revenue per subscriber of nearly $94000.

In Q2, 2022, we again reported a year over year increase in our number of advertisers as well as a year over year decline in revenue per advertiser, we experienced pullbacks and delays from a number of our large advertisers while our recent acquisitions advertisers generally we had a lower spend per advertiser slide six did.

Our subscription revenue performance Q2, 2022 pro forma subscription revenue grew 11% as compared with last year and was again negatively impacted by FX subscription revenues have grown 15% during the last 12 months.

The table on the bottom of slide six includes subscription metrics for the last six quarters. Please note that we continue to evolve these metrics and have provided details for average quarterly revenue per subscriber and removed our prior monthly average revenue per subscriber metric. We believe this presentation compares more clearly with our quarterly subscription revenue results.

Sequentially, our average monthly revenue per subscriber decreased by $6.21 to $57.64.

The primary driver of this decline was the inclusion of one month of our recent acquisition lose it which is characterized by a significant number of monthly subscribers at a significantly lower average revenue than the average of our other subscription businesses.

Our overall churn rate decreased 30 basis points from Q1, 2022 to $2, 92% with sequential improvements at both the TASC and <unk> cyber and Martech divisions. Additionally, the company's Q2 2002 other revenues grew 45% year over year to $10 6 million.

Driven by our humble bundle publishing business slide seven provides quarterly pro forma revenue growth rates, the winning aided 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, we've owned for less than 12.

<unk>.

For the last 12 months total revenue growth was 12% again in part, reflecting FX headwinds and while second quarter organic growth reflects a 5% decline were minus 3% adjusted for FX. This is compared with our 2021 second quarter during which organic growth was 20% turning to our balance sheet.

Please refer to slide eight.

Our balance sheet continues to be extremely strong as of the end of Q2 2022, we have $648 million of cash and cash equivalents and more than $200 million of short and long term investments. We also have 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 Q2 2022 gross leverage of two three times trailing 12 months adjusted EBITDA at.

At quarter end, our net leverage was <unk> nine times and only 0.5 times. If you include the value of our financial investments. During Q2 2022, we completed a complex transaction to further deleverage our balance sheet by monetizing two 3 million of our consensus cloud solution shares as we have disk.

Just on prior calls to the extent completed prior to the first anniversary of the spinoff we had the opportunity to monetize these shares on a tax free basis. However, this can only be achieved through very specific transaction steps and the tax free monetization would require us to exchange their shares for certain outstanding Ziff Davis Securities.

Our ability to consider different transaction structures was further limited by our status as an affiliate of consensus which was primarily related to a 19, 9% ownership stake in light of these considerations during the second quarter, we completed a successful debt for equity exchange transaction, resulting in Ziff Davis realizing approximately.

Between $90 million of value in respect of $2.3 million of our consensus shares.

In Q2, 2022, we began to apply the value of these consensus shares towards the repurchase of our 4.625% senior notes a step that qualified as a key element of the tax free monetization.

As of the end of the second quarter, we deployed $18 $2 million of this value to retire $21.5 million of principal value of our senior notes through the beginning of August we applied an additional $71.5 million of this value towards these repurchases retiring an additional $80 million of the senior notes.

We believe the repurchases of these notes at a discount to par.

Reflects an accretive transaction for the company, reducing our gross leverage and future cash interest expense, while providing us with additional financial flexibility. We are operating in a challenging macroeconomic environment and we will continue to prioritize the health of our balance sheet. However, we believe we have the flexibility to continue to pursue various.

Capital allocation alternatives in an effort to enhance shareholder value to this end. During Q2 2022, we deployed nearly $13 million of cash to repurchase approximately 182000 shares of our common stock at an average price of less than $70.

As a result of these various transactions thus far in 2022, we have deployed capital to repurchase approximately $156 million par value of our 4.625% senior notes and more than $71 million of our common shares turning to guidance as Vivek noted we are revising the two.

'twenty two guidance range that we presented in February and if you refer to slide 10, the details of this revised range.

Presented.

Our revised guidance, primarily reflects a recognition that macroeconomic pressures will more than likely persist through the balance of 2022.

The new bid point of our guidance reflects reductions of approximately 6% and revenue and adjusted non-GAAP . EBITDA. However, this midpoint also reflects our expectation of maintaining the midpoint of our original adjusted non-GAAP EPS guidance, Despite our lower adjusted non-GAAP EBITDA expectation. This is.

<unk> to a number of factors, including higher year to date other income lower year to date capital expenditures lower interest expense, reflecting our year to date bump repurchases, a lower effective tax rate and a lower fully diluted share count than initially anticipated.

We believe that this expectation of strong year over year earnings growth is notable given all the factors. We have discussed today following our business outlook slides, our supplemental materials, including reconciliation statements for the various non-GAAP measures to their nearest GAAP equivalent.

This section includes a GAAP reconciliation on slide 13 that reflects free cash flow from continuing operations. Our Q2 2002 year to date free cash flow was $138 $6 million.

This slide also reflects the company's free cash flow from continuing and discontinued operations for the six months ending June 30th 2021. Please note that this figure reflects contributions from both the recently disposed b to b backup and UK voice assets through their disposal dates as well as <unk>.

Census, and as a result is not comparable to our current continuing operations. Overall, we are pleased with our Q2 2022 performance having achieved growth in a number of key financial metrics in a challenging environment and while we anticipate that the business environment is likely to remain challenging we are looking forward to.

The balance of 2022 with that I would now ask the operator to join us and instruct you on how to queue for questions.

Thank you we will now be conducting a question and answer session and the interests of time, we ask that you. Please limit yourself to one question. If you would like to ask a question. Please press star one on your telephone keypad, a 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, please while we begin.

And the first question is coming from Shyam Patil from Susquehanna.

[noise] Xiaomi your line of sight.

Hey, guys. Thank you.

I had a couple of questions.

In your prepared remarks, you talked about.

Maintaining AD products can you you gave a few areas.

Where you guys are doing that I was wondering if you could just talk about that a bit more maybe maybe some specifics around exactly what you guys are doing in those areas and then on M&A.

I know, it's always hard to time.

Deals and you guys always have a very robust pipeline.

But I'm just curious do you think that.

Youll be able to deploy more capital sale.

Say over the next 12 months than you would have otherwise been able to do in a better macro.

Just kind of curious on kind of the how you see kind of the ability to close deals.

Asset volatility as the price volatility thank you.

Hey, good morning, gentlemen, thanks for the question. So I'll start with your first one around the advertising business and what I just want to reiterate is.

We have some really strong green shoots coming out of a number of our categories. The gaming business continues to be strong. The health business continues to be strong. We're excited to see retail may not reach a point of stability.

And then look I think a lot of our challenges have been in a in a particular vertical the technology vertical which are all really cyclical challenges from a product point of view, what's interesting too is that if you unpack our advertising business. The display business continues to grow its actually the performance marketing business, which is heavy in the tech sector.

That has seen some of those declines and yet a lot of product development that we talked about are actually performance marketing businesses and performance marketing solutions because fundamentally.

Long term outside of the noise of the current marketplace return on AD spend return on investment is key it's key I think to the advertising business generally, but certainly to our franchise. So we are leaning into more performance marketing solutions looking for ways to leverage video within performance marketing, which has historically been more.

Text link based business and so we're excited for all of that and as I've said, it's in moments like these where you really want to double down on capability.

With respect to your question on M&A look what I'll start with is that.

Year to date, we've deployed capital actually equal to what we did last year. So it isn't as if we've been inactive and I as I spoke in my prepared remarks, we are very excited for what leaves it in sell rebel represents strategically to the businesses that they are now part of <unk>.

What I will also say and just to remind folks on the call is that we really have seven platforms for acquisitions, our technology platform shopping connectivity gaming held cyber security and Martech and I can tell you that all seven of our platform are very active and are well.

Position that have clear list of targets that they are going after I will also say that at the corporate level. We're always looking for the next platform.

Combination of activity across the company is very strong.

As well capitalized as we've ever been and it this feeling of so.

For the last 10 years, we feel like we've been chasing the market and for the first time, we feel like the market is beginning to come to US now it's always hard to predict it's always hard to time. When this is going when we're going to start to deploy capital, but I can tell you that the activity level is strong and the tone is.

Changing and things are coming our way and we're excited for that.

This is Ben we built this company over the last 10 years in a market that was not benign for buyers and we do believe that rotation is taking place right. Now. So we're excited for the position. We're in we're excited to continue to drive earnings growth build our balance sheet and put that balance sheet to work.

Thank you.

Thank you and the next question is coming from Rishi Galeria from RBC ratio line of Flash.

Wonderful thanks, guys for taking my questions.

Wanted to maybe ask about Mars and drill a little bit more into that Vivek. We're just add mask on a couple of weeks ago and I think the big thing that surprised me is just the size of some of the customers. There I mean, there were some some really big customers that were using maas and seem to really love. The product can you maybe talk a little bit about how the mass business.

Specifically.

He is doing and how we should be thinking about that business going forward, especially just given how competitive the market is and then maybe just for Brad.

In terms of the macro assumptions in guidance are you assuming things kind of stay the same as they are right. Now are you assuming that there is further macro deterioration I mean, we just saw the inflation print. This morning, obviously not very pretty so it seems to think that that macro might get worse from here. Maybe if you could just help put a little bit of a finer point.

On the assumption that would be helpful. Thank you guys.

I appreciate thank you for the questions and thank you for attending <unk> Con and it's often great to see these things in person to get a real sense of the power of the brands. We operate in the communities embrace of those brands and I think Thats. What you saw in Seattle, It's interesting with <unk> when we acquired <unk>, we knew we had.

A company in a very important space search engine optimization that had a really story position, but as a business wasn't really delivering any profitability and as we often do in situations like that our immediate focus was how do we <unk>.

Strack margin, how do we extract earnings from the business and that was job, one which had been accomplished and done and the trick with doing that is obviously not damaging the brand itself and not damaging what makes it attractive to the marketplace and that was done as well and you saw that live and in person. The <unk> brand is as strong as it's ever been.

We think the SCO space has room for multiple players there are multiple good solutions in this space, including Mod. We continue to believe that it will continue to grow and is growing for us organically with margin expansion and we will grow across enterprise for sure, which we have our stat product, but we do have a fair amount.

Out of SMB.

<unk> customer base as well that you may not see a demand on the MOFCOM typically attract fewer larger companies, but we have a fairly robust small medium enterprise portion of the business. So we like where we are in SCO and I'd be remiss to not also add E mail, because I think E mail and etsy.

<unk> are both earned media and I think the distinction between earned and paid media is simply this particularly for SMB is they're getting priced out of paid search they're getting priced out of social those platforms are becoming harder and harder for them to extract ROI, but E Mail building list getting into.

The inbox.

Building natural search ranking is a far more efficient, possibly controllable way for Smbs to drive customer acquisition. So I think the combination of those businesses, which form most of the Mas grew.

We're excited for and we think particularly in a market like this where there may be a lot of focus on expenditure, particularly on the marketing side.

Mark marketing technology software may be the choice for four customers.

Okay, great. Thank you Rishi I guess the way I would characterize how we think.

About it is with the number of points first of all.

When we spoke in May we highlighted the fact that we saw a lot of pressure in the first quarter and even at that time, we anticipated seeing some of that pressure in the second quarter, but the back half of our year was a little bit more optimistic looking towards stabilization if not some improvement I think the most significant factor in us.

We're revising our guidance is that we are not expecting stabilization in the second half and while our guidance reflects a range, which by its very nature provide some.

Room for certain factors being variable we're also not.

Projecting a significant further downturn from here.

That said.

Q3, Q4 is a relatively short period, it's about six months.

Putting this together we have not 90 more days of performance data, we've had significantly more customer dialogues, we've observed behavioral changes from certain of our customers and seen some delays in pullbacks, we've gotten some positive indications for late in the year of course.

Net to our first half dialogues, where we have some positive indications in those indications changed have to be a consideration but.

And we in.

Revising this guidance, we created a range that we think we can perform within and we're comfortable with the guidance we put forward.

Alright, Thats really helpful. Thank you guys.

Thanks Rajiv.

Thank you and the next question is coming from will power from Baird. Your line is live.

Okay great.

Couple of questions first one probably for perfect great to get some of the breakdown within advertising and nice to see some real strength in healthcare and gaming in particular I'd love to get your perspective on.

Visibility into the second half of the year for those particular verticals I don't really have good lead times within pharma, but those areas where do.

Do you think you continue to grow maybe even double digits.

In the second half so just any more color.

Color confidence on what Youre going to see there it would be great.

But look I think it's always hard to say.

Category by category, there are a lot of different dynamics, what I will say is that so one is the comps start to get easier I think we can't say it enough I mean last year's Q2.

Incredibly strong, 42% overall revenue growth, 20% organic revenue growth and so in some ways. If you take a two year view it starts to make a little bit more sense in the second half really in Q4 remember the organic growth in Q4 of <unk>.

Last year was 2%. So we do think we will have a favorable comp and we do think that if the retail environment has improved we can see some upside there. We do think some of the supply chain challenges, particularly in the hardware consumer electronics and device World, where we're seeing a lot of pressure in our tech business.

Some of that will start to alleviate and then I also think some of the issues around baby formula and some of the issues around DTC pharma delays on the gaming front I'd have to look at the schedule.

Of game releases, it actually quite dependent on that and I think my recollection on that is it will be more Q4 than Q3 from a gaming release cycle, it's very sensitive to gaming and theatrical release movie releases. So I don't want to I hesitate to give you a very specific answer on the gaming piece between Q3.

In Q4, so look I think that.

This is this is all a function of what our clients are going to do in the near term if they continue to feel like they need to cut costs.

Short term focus drive their earnings there's nothing we can do right and I think that is a reality.

That situation at the same time, we are preparing the company as if that will continue and still be able to generate earnings and cash flow build our balance sheet and then be opportunistic on M&A, because if it's happening to us on the cyclical basis, what's happening to others, others may not have the ability to weather this and the way that we.

<unk>.

Okay. That's helpful. And then maybe just the second question.

As you look at the subscription business and it sounds like you're continuing to see strength of Nucor's, you've talked about Mars.

Two other areas, but I'd just be curious what you're seeing from a macro perspective across our subscription portfolio are there any particular areas that are being more impacted negatively.

Negatively.

And then as you look at the kind of the ARPA decline and subscription I may have missed this in the prepared remarks was that or was there a mix shift there.

I think particularly you could point to on that that <unk> change there.

I'll, let I'll, let Brent take RPM in a second but just answer to your question on the macro.

Economic pressure.

Pressures or dynamics on the subscription business, we're not seeing that as much to be honest with you. So as I've said, we've had a number of our subscription business is to continue to perform well and I would say that the business, where we are not seeing growth, which is in our cyber security suite of subscription offerings I view those as micro issues.

And I believe that we are on a path to addressing those issues, which I've talked about in the past, but your sales and marketing issues and shifting to a channel first approach and then some issues on the consumer VPN piece of this and some of the competitive realities, but a lot of those again I think is how we can execute how we can run these businesses for both growth and profitability.

<unk> shipped to a more balanced approach historically its been profit profit profit and not a lot of focus on growth, they're very sticky by the way, particularly on the <unk> cyber security part of the business you don't really lose customers, but we're not winning customers and we need to orient ourselves to doing exactly that so I would not characterize this.

Moment.

The subscription businesses.

Feeling the macro economic pressures that the advertising business is our I wouldn't characterize that doesn't mean it can't happen, but I think right now we're seeing the issues. There is more micro on the ARPA, yes, Ed well at our Booth, we did make the comment in our prepared remarks, but I definitely think it's worth repeating so I appreciate that.

Question in both our advertising and our subscription metrics.

These metrics are an attempt to reflect the business in three key ways. The customers, we serve that revenue they produce and the retention rates that we can track that as a positive what's challenging in reporting these metrics quarter to quarter is that buy a business that is focused on and partly driven by.

M&A in its DNA using our capital to grow the business through M&A. In addition to organically. These metrics are all.

<unk> been at risk of an impact in our earlier this year, we did an acquisition in our health and wellness business.

Lifecycle marketing, which was characterized by a higher number of advertisers for advertising dollar at a lower spend per advertiser and that impacted those metrics on our last call. This quarter. We closed an acquisition also in health and wellness through a company called lucid, which is characterized by a high number of customer.

At a single digit average revenue per month, so again, you see a quarter by quarter change in this trend.

It's more impacted by M&A, then by almost any other activity in the business. There are certain other activities of the business with certain of our sectors contributing more contributing less in any given quarter in these metrics and we did highlight some of that in our prepared remarks, but I would just.

Caution if not asked to focus quarter to quarter that these metrics can be impacted by our M&A activity.

Yeah. That's helpful. Thank you.

Thank you. The next question is coming from Joe Goodwin from JMP Securities. Joe Your line is live.

Great. Thank you for taking my questions.

So just on just to kind of double up on the cyber security business. Obviously, you guys have made some changes over the past.

Two three quarters or so.

But just curious what are you seeing green shoots from these efforts any positives or things to highlight there.

Yes, no. We definitely are look I think that.

The first thing I'll say is that we are releasing an edr endpoint detection and response.

Solution to our customers and so edr is really widely adopted at the enterprise level large companies, but not <unk>.

Really at the SMB level, and we think this will allow us to win some business and drive some share of wallet. So.

We are the product is in beta I believe in October .

We'll have full launch in in January of 2023, So we're excited for that.

We had the advanced E Mail security product is really competitive and so we think its great protection against phishing malware and other threats.

And we've added some features link isolation and advanced analytics that we needed.

To get done inspired a learning which is the security awareness training.

Peace of that business is now I think by the end of the year, we're going to be in 17 languages to help us with our multinational customers and that expansion outside of the United States. So there's a lot going on on the product side that we're excited about and then as I said, we do as a company.

Overhaul of the sales and marketing organization is in the process of taking place we have a great leader in place right now and focusing on selling through the channel, which is really where we see.

The biggest opportunity so with our new Chief revenue officer, and the hires that he has made we feel very very good about the channel first strategy that we're putting in place. So there are green shoots, but you know these take time right.

Friction business is built over time, and so I think we will.

Optimistic going into next year, where that can go it's in App business, It's a business at scale with great profitability, but we really need to get this onto the growth trajectory because I think it will have a very different valuation profile when we do.

Got it okay. Thank you for that and then Vivek.

Are you spending the majority of your time today and the business are you evaluating M&A or what would you say where you're going.

This focus.

So look I'm focused on all of it right. So.

Theres, obviously, managing the existing business and generating the kind of earnings growth that we experienced.

In this.

<unk> and the kind of earnings growth that we are guiding to for the year, 9% EPS growth doesn't just happen in an environment like this with the pressures. We have so I think there is a fair amount of time managing these businesses working with our leadership teams and the business units to make sure that they can both perform from a bottom line point of view, but really set them.

<unk> is up nicely for an eventual recovery that is a critical part of my time and I think the organization is time at the same time and we view this as part of what we do is the acquisition program and being involved as I always am and always had been around all of the activity that's going on so that's not.

New and certainly.

Leaning into that and then the last piece I would just say is that continuing to look for talent to bring into the organization not everyone is as well positioned as we are this is an opportunity for us to bring talent into our company and we've done it in a few places we're going to continue to do it we have a great new head of our shopping business.

As I said, we have a great new chief revenue officer within the Viper side.

For security groups. So we're going to continue to look for great leadership.

Great. Thank you.

Thank you.

Thank you. The next question is coming from John Tunlan Tang from CJS Securities. John Your line is flat.

Hey, Good morning. This is stefanos crist, calling in for John Thanks for taking our questions.

Just a quick one can you just give us the underlying share count assumptions in your guidance and if that includes share repurchases.

Sure.

Yes.

On a go forward basis through the back end of the year share repurchases is absolutely a potential allocation of capital, but we don't project share repurchases into the figures that we're using for our guidance we repurchase shares.

Through the second quarter, we talked about that our scripting and gave the numbers we have capital to allocate towards that the other thing I would just point to is that if you're doing math relating the balance of this year to 2021, there was activity in the third quarter of 2021, where we retired our.

3.25% convert so just make sure we pay attention to that bridge between that share count and the current share count, but looking at fully diluted shares as they stand today would be at least our baseline assumption through the back half of the year pending further allocation of capital towards that.

Perfect. Thanks, so much.

Thank you and once again, ladies and gentlemen, just to remind you you can enter the Q&A queue by pressing star one on your telephone keypad.

The next question is coming from Shane O'brien from William Blair Shane Your line is live.

Not quite the name, but close enough.

Can you guys just talk about the cash flow dynamics here, obviously year to date, we're down.

Almost $100 million year over year, how do you think about that in the back half of the year and sort of what are the biggest factors there. Thanks.

Hey, that's a great question and thank you for giving us the opportunity to highlight this because it's important our 2021 cash flow statement does not reflect the split between continuing and discontinued operations and does not reflect the pro forma effect of the absence of <unk>.

The business that we disposed of in 2021, so in looking at that comparison, we're comparing affectively two different businesses. We do provide some incremental disclosures on 2021, but that is not a continuing up so that cash flow includes consensus is cash flow, we've actually had strong.

Cash flow year to date on a conversion basis, we've tried to highlight.

On these calls that we looked at cash flow over the longer term at least a 12 month period in any given 90 day period, there's impacts of specific elements, but more importantly, the timing of working capital we're not a company that looks to make sure that payments and receipts of balanced on the last day of the quarter checks go out or.

Between the 31 in the first of the next month it'll impact our quarterly cash flow. So I think it's important to take a 12 month view, but not compare to the 2021 results, which reflect businesses, we no longer own.

Great. So at the current run rate year round $2 80.

That seemed like a fair assessment for where cash flow will be at the year somewhere in the high two hundreds.

Again, we don't guide to a specific cash flow metric and cash and cash flow timing sensitive.

Essentially targeting this company to reach on the order of a 60% conversion rate to EBITDA, but likely a little bit below that at this time.

And cash flow tends to be weighted to the first quarter is very big given the fact that there is seasonality in our fourth quarter cash flow. So the fact that there is I am sorry, there is seasonality in our fourth quarter revenue, which was collected in the first quarter with regards to cash flow. So multiply that number by two would not necessarily factor in the seasonal dynamics of.

This aspect of our business.

Perfect. Thanks.

And just the last comment when we think about conversion rate, we think about conversion rate sort of our adjusted EBITDA to the extent there are non-GAAP items to the extent there were unusual items to the extent there M&A items cash flow, we need to be adjusted for that.

Great. Thanks.

Okay.

Thank you and there were no other questions in the queue. At this time I would now like to hand, the call back to Bret Richter for any closing remarks.

Great. Thank you very much Paul we appreciate you all joining us today for our Q2 2002 earnings call. We also appreciate that this is a pretty busy day in the earnings market. So thank you for your attention we plan to issue a press release next week regarding Investor conferences, we plan to participate in during the month of September and as always we hope to see some of you there.

Thank you and have a great rest of the 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 part VI.