Q2 2024 Ziff Davis Inc Earnings Call

August 8, 2024

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Speaker Change: We appreciate your time and patience. Please stay on the line and we'll be back in just a moment.

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Paul: Good day ladies and gentlemen and welcome to the Ziff Davis second quarter 2024 earnings conference call. My name is Paul and I will be the operator assisting you today.

Operator: At this time, all participants are in a listen-only mode. 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. Thank you. You may begin.

Operator: Next 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. Thank you. You may begin.

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.

Speaker Change: On this call will be Vivek Shah, CEO of Ziff Davis, and Bret Richter, Chief Financial Officer of Ziff Davis.

Paul: I will now turn the call over to Bret Richter, Chief Financial Officer of Ziff Davis. Thank you. You may begin.

Bret Richter: Thank you. Good morning, everyone.

Bret Richter: Thank you. Good morning, everyone. And welcome to the Ziff Davis Investor Conference Call for Q2 2024.

Bret Richter: And welcome to the Ziff Davis Investor Conference Call for Q2 2024. As the operator mentioned, I am Bret Richter, Chief Financial Officer of Ziff Davis, and I am joined by our Chief Executive Officer, Vivek Shah.

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

Speaker Change: and i am joined by our chief executive officer for vexshop

Bret Richter: A 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 in the viewer on the right-hand side, which will allow you to expand the slide.

Speaker Change: A 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.

Bret Richter: If you have not received a copy of the press release, you may access it at www.thevenusproject.com, through our corporate website at www.ziffdavis.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@ziffdavis.com.

Speaker Change: If you have not received a copy of the press release, you may access it.

Speaker Change: through our corporate website at www.zipdavis.com. In addition, you'll be able to access the webcast from this site.

Speaker Change: after completing the formal presentation will be conducting a qa the operator will instruct you at that time regarding the procedures for asking questions

Operator: The operator will instruct you at that time regarding the procedures for asking questions. In addition, you can email questions to investor@ziffdavis.com.

Speaker Change: In addition, you can email questions to investor at ziffdavis.com.

Bret Richter: 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 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 have included as part of the slideshow for the web.

Speaker Change: before we begin our prepared remarks allow me to read the safe harbor language

Speaker Change: as you know this call in the 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

Speaker Change: Some of those risks and uncertainties include, but are not limited to...

Speaker Change: the risk factors that we have disclosed in our sec filings

Speaker Change: including our 10-K filings, recent 10-Q filings, various proxy statements and 8-K filings, as well as additional risk factors that we have included as part of the slideshow for the webcast.

Bret Richter: We refer you to discussions in those documents regarding safe harbor language, as well as forward-looking statements. In addition, following our Business Outlook slides are our supplemental materials, including reconciliation statements for non-GAAP measures to their nearest GAP equivalent. Now, let me turn the call over to Vivek for his remarks.

Speaker Change: We refer you to discussions in those documents regarding safe harbor language as well as forward-looking statements.

Speaker Change: In addition, following our business outlook slides are our supplemental materials, including reconciliation statements for non-GAAP measures to their nearest GAAP equivalent. Now let me turn the call over to Vivek for his remarks.

Vivek Shah: Thank you, Bret, and good morning, everyone. Our second quarter financial results were below our expectations. June revenues in particular were soft, down 3%, dragging the quarter's total revenues down 1.6% year over year. While we're disappointed to have taken a step back after a solid Q1 in which we grew revenues by 2.4%, we're focused on driving improved financial performance and are highly confident that we will post growth in the second half of 2024. Our digital media segment was flat in the second quarter.

Vivek Shah: thank you brought and good morning everyone

Vivek Shah: Our second quarter financial results were below our expectations.

Vivek Shah: june revenues in particular weresoft down three percent dragging the quarter's total revenues down one point six percent year-over-year

Bret Richter: While we're disappointed to have taken a step back after a solid Q1 in which we grew revenues by 2.4%, we're focused on driving improved financial performance and are highly confident that we will post growth in the second half of 2024. Our digital media segment was flat in the second quarter.

Speaker Change: While we're disappointed to have taken a step back after a solid Q1 in which we grew revenues by 2.4%, we're focused on driving improved financial performance and are highly confident that we will post growth in the second half of 2024.

Bret Richter: The most substantial change versus the first quarter had to do with tech media revenues swinging back to negative. Absent such timing impacts, the Q2 decline in cybersecurity and Martech was in line with what we experienced in Q4 2023. We have systematically and programmatically deployed our capital to compound our bottom line and adjusted EPS. An interesting aspect of our pending deal with CNET is that it returns ZDNet back to Ziff Davis. And the last reason why we like deals like these is that we believe that we're uniquely positioned to unlock value. We're excited to welcome our colleagues from CNET to the Ziff Davis family soon.

Vivek Shah: The most substantial change versus the first quarter had to do with tech media revenues swinging back to negative. As you know, tech advertising has been challenged for the better part of the past two years, and while we saw growth in Q1, it didn't sustain in Q2. It is worth noting that all the decline was on the B2B side of the business, with the consumer side showing modest growth. The most substantial sequential change in the quarter came in our cybersecurity and Martech segment, which swung from last quarter's 3.3% growth to this quarter's 5.8% decline. We did note that Q1 featured some timing benefits which are negatively impacting the remainder of the year.

Vivek Shah: Our digital media segment was flat in the second quarter. The most substantial change versus the first quarter had to do with tech media revenues swinging back to negative.

Vivek Shah: as you know tech advertising has been challenged for the better part of the past two years and while we saw growth in q one it didn't sustain in q two

Speaker Change: It is worth noting that all the decline was on the B2B side of the business with the consumer side showing modest growth.

Speaker Change: The most substantial sequential change in the quarter came in our Cybersecurity and Martech segment, which swung from last quarter's 3.3% growth to this quarter's 5.8% decline.

Speaker Change: We did note that Q1 featured some timing benefits, which are negatively impacting the remainder of the year.

Vivek Shah: Absent such timing impacts, the Q2 decline in cybersecurity and Martech was in line with what we experienced in Q4 2023, while we continue to see positive trends, particularly in our email business. However, our progress in other businesses has been slower than anticipated. We've reduced our full-year expectation for this segment from flat to low single-digit revenue demand.

Vivek Shah: Absent such timing impacts, the Q2 decline in cybersecurity and martech was in line with what we experienced in Q4 2023.

Vivek Shah: while we continue to see positive trends particularly in our e-mail business our progress in other businesses has been slower than anticipated

Vivek Shah: we've reduced our full year expectation for this segment from flat to low single-digit revenue decline

Vivek Shah: Notwithstanding Q2's weakness, we are reaffirming guidance based on digital media segment growth, with the expectation of accelerating growth at gaming, connectivity, and health and wellness. In addition, between accretive acquisitions and share buybacks, we expect adjusted EPS to be closer to the high end of our guidance. That would represent high single-digit adjusted EPS growth year over year and put us back on the path to strong bottom-line growth

Vivek Shah: Notwithstanding Q2's weakness, we are reaffirming guidance based on digital media segment growth with the expectation of accelerating growth at gaming, connectivity, and health and wellness.

Vivek Shah: In addition, between accretive acquisitions and share buybacks, we expect adjusted EPS to be closer to the high end of our guidance range.

Vivek Shah: That would represent high single-digit adjusted EPS growth year over year and put us back on the path to strong bottom-line growth.

Vivek Shah: From the time I arrived at this company in 2012, we have been savvy and judicious capital allocators. We have systematically and programmatically deployed our capital to compound our bottom line and adjusted EPS. And in my first nine years, we deployed an average of over $300 million per year on acquisitions. At the same time, patience and discipline have always been hallmarks of our approach.

Speaker Change: from the time i arrived at this company in two thousand andtwelve we have been sav and judicious capital allocators

Vivek Shah: We have systematically and programmatically deployed our capital to compound our bottom line and adjusted EPS.

Vivek Shah: And in my first nine years, we deployed an average of over $300 million per year on acquisitions.

Vivek Shah: At the same time, patience and discipline have always been hallmarks of our approach.

Vivek Shah: And over the past few years, we've been relatively less active. In 2021, we were focused on the spinoff of our consensus business, which we believed represented terrific shareholder value creation but limited our acquisition program. Then the M&A market started to rapidly cool, so we deployed even less capital for M&A in 2022 and nearly nothing in 2023. We did not force ourselves to transact.

Vivek Shah: And over the past few years, we've been relatively less active.

Vivek Shah: In 2021, we were focused on the spinoff of our consensus business, which we believed represented terrific shareholder value creation, but limited our acquisition program.

Vivek Shah: Then the M&A market started to rapidly cool, so we deployed even less capital for M&A in 2022 and nearly nothing in 2023.

Vivek Shah: Instead, we comfortably accumulate a dry powder to put ourselves in a position to act decisively when the time is right. We believe that the time is now, with the assets that best fit our portfolio becoming available at prices that align with our discipline, and we're taking action. The recent acquisition of GamerNet and the news earlier this week that we've signed an agreement to acquire CNET pending customary closing conditions represent, in my opinion, clear examples of how we use M&A to strategically enhance existing platforms and compound growth. Both of these acquisitions represent our favorite kind of deal. First, they include powerful, established brands. Gamer Network was founded 25 years ago, while CNET was founded 30 years ago.

Vivek Shah: We did not force ourselves to transact. Instead, we comfortably accumulated dry powder to put ourselves in a position to act decisively when the time is right.

Vivek Shah: We believe that time is now.

Vivek Shah: where the assets that best fit with our portfolio are becoming available at prices that align with our discipline.

Vivek Shah: and we're taking action.

Vivek Shah: the recent acquisition of gam amer network

Vivek Shah: And the news earlier this week that we've signed an agreement to acquire CNET pending customary closing conditions represent, in my opinion, clear examples of how we use M&A to strategically enhance existing platforms and compound growth.

Vivek Shah: Both of these acquisitions represent our favorite kind of deal.

Vivek Shah: First, they include powerful, established brands.

Vivek Shah: Gamer Network was founded 25 years ago, while CNET was founded 30 years ago.

Vivek Shah: I love brands that have proven to endure and strengthen while technology evolves and competitors come and go; we derive great confidence from brands with a demonstrated ability to adapt to platform shifts. Second, both of these acquisitions further our leadership position in their respective categories. I am particularly excited by the powerhouse lineup of CNET, Mashable, PCMag, Lifehacker, Spiceworks, and ZDNet, which should be a tech marketer's dream. I know the tech ad category has been a source of challenge for us, but I view that as cyclical, and I'm beyond excited at the prospect of having this group of assets to capitalize on the recovery.

Vivek Shah: I love brands that have proven to endure and strengthen while technology evolves and competitors come and go.

Vivek Shah: We derive great confidence from brands with a demonstrated ability to adapt to platform shifts.

Vivek Shah: Second, both of these acquisitions further our leadership position in their respective categories.

Speaker Change: i am particularly excited by the powerhouse lineup of scnet mhaable pcmag life actor spiceworks and zd net which should be a tech marketers' dream

Vivek Shah: i know the tech ad category has been a source of challenge for us but i've view those as cyclical and i' m beyond excited that the prospect of having this group of assets to capitalize on the recovery

Vivek Shah: An interesting aspect of our pending deal with CNET is that it returns ZDNet back to Ziff Davis. ZDNet was founded 31 years ago by Ziff Davis and then sold to CNET in 2000, so this would be a homecoming of sorts for the property.

Vivek Shah: An interesting aspect of our pending deal with CNET is that it returns ZDNet back to Ziff Davis.

Speaker Change: as ednet was found ed thirty-one years ago by ifth davis and then sold to see that in two thousand so this would be a homecoming of sorts for the property

Vivek Shah: And the last reason why we like deals like these is that we believe that we're uniquely positioned to unlock value. We have the platforms, people, and know-how to grow traffic, monetization, and free cash flow. We're excited to welcome our colleagues from CNET to the Ziff Davis family soon. While M&A remains our priority when it comes to capital allocation, we believe that at our current price per share, Ziff Davis is one of the most attractive buying opportunities in the market.

Vivek Shah: And the last reason why we like deals like these is that we believe that we're uniquely positioned to unlock value.

Speaker Change: we have the platforms people and know how to grow traffic monetization and free cash flow

Speaker Change: We're excited to welcome our colleagues from CNET to the Ziff Davis family soon.

Speaker Change: While M&A remains our priority when it comes to capital allocation, we believe that at our current price per share, Ziff Davis is one of the most attractive buying opportunities in the market.

Vivek Shah: As a result, we deployed $84 million to buy back 1.5 million shares in Q2, increased our board-authorized buyback program, allowing us to repurchase more than 8 million additional shares, and expect to be active buyers of our shares in Q3.

Speaker Change: As a result, we deployed $84 million to buy back 1.5 million shares in Q2, increased our board-authorized buyback program, allowing us to repurchase more than 8 million additional shares and expect to be active buyers of our shares in Q3.

Vivek Shah: We continue to incorporate AI into a number of our products and offers. For example, a beta version of the Down Detector Situation Report is now powered by Gen-AI, delivering concise and prioritized insights into service availability, incidents, and outages. More specifically, it provides clear text analysis on overall outage impact assessment, user, and geographical impact. This new service has been shortlisted for the most innovative test and measurement product by Light Reading. IGN has now released its well-received chatbot and the IGN mobile app, introducing game help on the mobile platform. The chatbot on the IGN app leverages our own VectorStore database. LUCID's LLM-powered voice food logging has now been fully rolled out to its users.

Speaker Change: we continue to incorporate ai into a number of our products and offerings

Bret Richter: A beta version of the Down Detector Situation Report is now powered by Gen-AI, delivering concise and prioritized insights into service availability, incidents, and outages. I know there continues to be investor interest in the impacts of AI on search. It fell to 8%, meaning 92% of the time the search engine results page did not include an AI overview for the queries that matter to us most. I believe the more interesting aspect of AI's impact on search is whether or not new AI-based search competitors can challenge Google's dominance.

Speaker Change: A beta version of the Down Detector Situation Report is now powered by Gen AI, delivering concise and prioritized insights into service availability, incidents, and outages.

Speaker Change: More specifically, it provides a clear text analysis on overall outage impact assessment, user and geographical impact.

Speaker Change: This new service has been shortlisted for the most innovative test and measurement product by Light Reading.

Speaker Change: ign has now releasedit's well received chappot

Speaker Change: and the IGN mobile app, introducing game help on the mobile platform.

Speaker Change: Chatbot on the IGN app leverages our own VectorStore database.

Lusit: Lusit's LLM-powered voice food logging has now been fully rolled out to its users.

Vivek Shah: Greatly simplifying daily food consumption in, These are just a few of the examples of the AI enablement work being done at the company. I know there continues to be investor interest in the impacts of AI on search. Google rolled out AI overviews on May 14th, 2024. Prior to that, it was referred to as the Search Generative Experience, SGE, which was only available in Google Labs.

Lusit: Greatly simplifying daily food consumption inputs.

Speaker Change: these are just a few of the examples of the ai enabablement work being done at the company

Speaker Change: i know there continues to be investor interest in the impacts of ai on search

Lusit: google rolled out ai overviews on may fourteenth two thousand and twenty-four

Lusit: prior to that it was referred to as a search generative experience te which was only available in google labs

Vivek Shah: Now that the AI overview experience is in full circulation, we wanted to revisit the analysis we did in Q3 of 2023 relating to the frequency of AI overviews being presented to users. We analyzed thousands of queries across our key domains that generate the lion's share of our organic search referrals and the percentage of times that an AI overview appears. It fell to 8%, meaning 92% of the time, the search engine results page did not include an AI overview for the queries that matter to us most.

Speaker Change: Now that the AI overview experience is in full circulation, we wanted to revisit the analysis we did in Q3 of 2023 relating to the frequency of AI overviews being presented to users.

Lusit: We analyzed thousands of queries across our key domains to generate the lion's share of our organic search referrals and the percentage of times that an AI overview appeared.

Lusit: It fell to 8%, meaning 92% of the time the search engine results page did not include an AI overview for the queries that matter to us most.

Vivek Shah: Analysis by other industry experts indicates a similar percentage of overall searches resulting in AI overviews. At this point, we don't see it as a significant change to the search experience, and it's also important to remember that we hypothesized, and Google recently confirmed, that links and AI overviews get a higher click-through rate than traditional web listing links. I believe the more interesting aspect of AI's impact on search is whether new AI-based search competitors can challenge Google's dominance.

Speaker Change: Analysis by other industry experts indicate a similar percentage of overall searches resulting in AI overviews.

Lusit: At this point, we don't see it as a significant change to the search experience. It's also important to remember that we hypothesize

Lusit: and google recently confirmed that links and ai overview get a higher click through than traditional web listing links

Lusit: I believe the more interesting aspect of AI's impact on search.

Lusit: is whether new AI based search competitors can challenge Google's dominance.

Vivek Shah: Google owns 90% of the search market, and over 60% of referrals to the open web derive from Google searches. With the logic perplexed and the beta launch of SearchGPT, we have search engines that employ AI to generate results. The thousands of engineers once required to operate a search engine may be obviated with AI.

Speaker Change: google owned ninety percent of the search market

Lusit: and over 60% of referrals to the open web derive from Google searches.

Speaker Change: With the launch of Perplexity and the beta launch of SearchGPT, we have search engines that employ AI to generate results.

Bret Richter: The thousands of engineers once required to operate a search engine may be obviated with AI. In addition, distribution deals like the ones Google has in place with browsers may become available given the recent court ruling, aiding in the building of market share. Competition is a good thing. We have done a sustainability survey. These actions are an essential element of our Scope 3 Emissions Reduction Strategy, and we are grateful to be able to work alongside and partner with many of our suppliers to lead.

Speaker Change: The thousands of engineers once required to operate a search engine may be obviated with AI.

Vivek Shah: In addition, distribution deals like the ones Google has in place with browsers may become available given the recent court ruling aiding in the building of market share. Competition is a good thing. Let me provide you with an update on our ESG efforts. We continue to actively work with our largest suppliers to ensure we are on track to meet our 2030 science-based emissions reduction target. We have done a sustainability survey. Hosted an Educational Climate Webinar, shared our ESG report, and now require all new and existing suppliers to complete a detailed ESG questionnaire upon signing or renewal of a contract.

Speaker Change: In addition, distribution deals like the ones Google has in place with browsers may become available given the recent court ruling aiding in the building of market share.

Speaker Change: Competition is a good thing.

Speaker Change: Let me provide you with an update on our ESG efforts.

Speaker Change: We continue to actively work with our largest suppliers to ensure we are on track to meet our 2030 science-based emissions reduction targets.

Speaker Change: We have done a sustainability survey.

Speaker Change: posted educational climate webinar shared our esg report and now require all new and existing suppliers to complete a detailed eg questionnaire upon signing or renewal of a contract

Vivek Shah: These actions are an essential element of our Scope 3 Emissions Reduction Strategy, and we are grateful to be able to work alongside and partner with many of our suppliers to lead Unknown Speaker Decarbonization efforts across our industry. In addition, we've been working this summer on disclosing our ESG efforts in both the S&P Corporate Sustainability Assessment, which we are participating in for the first time, and the CDP Climate Questionnaire, which marks our second year of participation.

Speaker Change: These actions are an essential element of our Scope 3 Emissions Reduction Strategy, and we are grateful to be able to work alongside and partner with many of our suppliers to lead

Bret Richter: In addition, we've been working this summer on disclosing our ESG efforts in both the S&P Corporate Sustainability Assessment, which we are participating in for the first time, and the CDP climate questionnaire, which marks our second year of participation.

Speaker Change: decarbonization efforts across our industry.

Speaker Change: in addition we've been working this summer on disclosing our esg efforts to both the smp corporate sustainability assessment

Speaker Change: which we are participating in for the first time and the CDP climate questionnaire which marks our second year of participation.

Vivek Shah: These assessments are another crucial part of our overall ESG strategy because they hold us accountable to our science-based targets and provide us a vehicle to further communicate our actions and leadership to investors, suppliers, customers, and employees. Our efforts have not gone unnoticed, and we were pleased that, in July, MSCI reiterated our AA rating, which is considered a leader. Just this week, we were also excited to receive the Sustainability Leadership Award from the Business Intelligence Group. Needless to say, I'm incredibly proud of the important work we are doing on this front. With that, let me hand the call back to Bret. Thank you, Vivek.

Speaker Change: These assessments are another crucial part of our overall ESG strategy because they hold us accountable to our science-based targets and provide us a vehicle to further communicate our actions and leadership to investors, suppliers, customers, and employees.

Speaker Change: Our efforts have not gone unnoticed, and we were pleased that in July , MSCI reiterated our AA rating, which is considered a leader.

Speaker Change: just this week we were also excited to receive the sustainability leadership award from the business intelligence group

Speaker Change: Needless to say, I'm incredibly proud of the important work we are doing on this front.

Bret Richter: Thank you, Vivek. Let's discuss our financial results. Our earnings release reflects both our GAAP and adjusted non-GAAP financial results for Q2 2024. My commentary will primarily relate to our Q2 2024 adjusted financial results and the comparison to prior periods.

Bret Richter: with that let me hand the call back to bret thank you vc let's discuss our financial results

Bret Richter: Our earnings release reflects both our GAAP and adjusted non-GAAP financial results for Q2 2024.

Bret Richter: my commentary will primarily relate to work q two two thousand and twenty-four adjusted financial results and the comparison to prior periods

Bret Richter: Please see slide four for the summary of our financial results. Q2 2024 revenues were $320.8 million as compared with revenues of $326 million for the prior year period, reflecting a 1.6% decline. Q2 2024 adjusted EBITDA was $96.3 million, as compared with $106.7 million for the prior year period, reflecting a decline of 9.8%. Our adjusted EBITDA margin for the quarter was 30%.

Speaker Change: Please see slide 4 for the summary of our financial results.

Bret Richter: Q2 2024 revenues were $320.8 million, as compared with revenues of $326 million for the prior year period, reflecting a 1.6% decline. We reported second quarter adjusted diluted EPS of $1.18 as compared with $1.27 in Q2 of 2023. When our outlook for the Q2 performance of a number of our businesses changed late in the quarter, we immediately enacted initiatives to reduce our spending and enhance our margins.

Speaker Change: Q2 2024 revenues were $320.8 million, as compared with revenues of $326 million for the prior year period, reflecting a 1.6% decline.

Speaker Change: Q2 2024 adjusted EBITDA was $96.3 million, as compared with $106.7 million for the prior year period, reflecting a decline of 9.8%. Our adjusted EBITDA margin for the quarter was 30%.

Bret Richter: We reported second quarter adjusted diluted EPS of $1.18 as compared with $1.27 in Q2 of 2023. During our first quarter earnings call, we expressed an expectation that second quarter revenue growth would be similar to Q1 2024. However, when our outlook for the Q2 performance of a number of our businesses changed late in the quarter, we immediately enacted initiatives to reduce our spending and enhance our margins.

Speaker Change: We reported second quarter adjusted diluted EPS of $1.18 as compared with $1.27 in Q2 of 2023.

Speaker Change: During our first quarter earnings call we expressed an expectation that second quarter revenue growth would be similar to Q1 2024.

Speaker Change: When our outlook for the Q2 performance of a number of our businesses changed late in the quarter, we immediately enacted initiatives to reduce our spending and enhance our margins.

Bret Richter: While those actions did not significantly impact our second quarter results, we expect to realize their full benefit in the second half of 2024. Slides 5 and 6 reflect performance summaries for our two primary sources of revenue, advertising and performance marketing, and subscription and licensing. Q2 2024 Advertising and Performance Marketing Revenue declined 2.7% as compared with the prior year period, while trailing 12-month Advertising and Performance Marketing Revenue declined by 2.3%. This was caused in part by growth in our gaming and entertainment.

Bret Richter: While those actions did not significantly impact our second quarter results, we expect to realize their full benefit in the second half of 2024. Overall, through the first six months of 2024, as compared with 2023, revenues were slightly up, adjusted EBITDA declined by 2%, and adjusted diluted EPS grew by 3.4%. Slides 5 and 6 reflect performance summaries for our two primary sources of revenue, advertising and performance marketing, and subscription and licensing. Slide 5 reflects the company's advertising and performance marketing revenue results.

Speaker Change: while therethose actions they' not significantly impact our second quarter results we expect to realize their full benefit in the second half of two thousand and twenty-four

Speaker Change: Overall, through the first six months of 2024, as compared with 2023, revenues were slightly up, adjusted EBITDA declined by 2% and adjusted diluted EPS grew by 3.4%.

Speaker Change: Slides 5 and 6 reflect performance summaries for our two primary sources of revenue, advertising and performance marketing, and subscription and licensing.

Speaker Change: Slide 5 reflects the company's advertising and performance marketing revenue results.

Bret Richter: Q2 2024 Advertising and Performance Marketing revenue declined 2.7% as compared with the prior year period, while trailing 12-month Advertising and Performance Marketing revenue declined by 2.3%. The second quarter decline primarily reflects the continued impact of the factors within our digital media segment related to our health and shopping businesses that we discussed on the Q1 2024 call, as well as lower than expected demand for our B2B lead generation services within our technology platform, impacting a number of anticipated second quarter campaigns.

Speaker Change: Q2 2024 Advertising and Performance Marketing Revenue declined 2.7% as compared with the prior year period, while trailing 12-month Advertising and Performance Marketing Revenue declined by 2.3%.

Speaker Change: the second quarter decline primarily reflects the continued impact of the factors within our digital media segment related to our health and shopping businesses that we discussed on the q one two thousand and twenty four call as well as lower than expected demand for our b to b lead generation services within our technology business

Bret Richter: This was in part due to growth in our gaming and entertainment business. Our Net Advertising and Performance Marketing Revenue Retention, an annual trailing 12-month statistic, was 90.5% for Q2 2024. In the second quarter, Ziff Davis had close to 1,700 advertisers with an average quarterly revenue per advertiser of more than $100,000.

Speaker Change: impacting a number of anticipated second quarter campaigns.

Speaker Change: This was all set in part by growth in our gaming and entertainment business.

Speaker Change: Our Net Advertising and Performance Marketing Revenue Retention, an annual trailing 12-month statistic, was 90.5% for Q2 2024.

Speaker Change: In the second quarter, Ziff Davis had close to 1,700 advertisers, with an average quarterly revenue per advertiser of more than $100,000.

Bret Richter: This reflects fewer customers at a higher average revenue per customer as compared with the prior year period. Slide six depicts our subscription and licensing revenue. Q2 2024 Subscription and Licensing Revenue grew 0.3% as compared with the prior year period. Subscription and licensing revenue grew 2.6% during the last 12 months.

Speaker Change: This reflects fewer customers at a higher average revenue per customer as compared with the prior year period.

Speaker Change: Slide 6 depicts our subscription and licensing revenue.

Speaker Change: Q2 2024 Subscription and Licensing Revenue grew 0.3% as compared with the prior year period. Subscription and Licensing Revenue grew 2.6% during the last 12 months.

Bret Richter: Although customers grew both year-over-year and sequentially, an average quarterly revenue per customer of $41.74 declined in both instances, in part reflecting an increase in B2C subscribers. Revenue churn increased sequentially but reflected a similar level to the prior year quarter. The table on the bottom of slide six includes subscription and licensing metrics for the last eight quarters. Q2 2024 other revenues declined by approximately $900,000 year over year, primarily reflecting a decline in the contribution from our Humble Games publishing business.

Speaker Change: customers grew of year-over-year and sequentially an average quarterly revenue for customer of forty-one dollars in seventy-four cents declined in both instances in part reflecting an increase in b two c subscribers

Speaker Change: revenue turnurn increase sequentially but reflected a similar level to the prior year quarter

Bret Richter: The table on the bottom of slide six includes subscription and licensing metrics for the last eight quarters. Slide 7 provides quarterly organic and total revenue growth rates for the last eight quarters. As of the end of Q2 2024, we had $687 million of cash and cash equivalents and $153 million of long-term investments. Our revolver now has $350 million of credit availability, and the maturity date of the revolver has been extended to June 2027, consistent with our plan to divest these shares prior to the fifth anniversary of the spinoff transaction.

Speaker Change: The table on the bottom of slide six includes subscription and licensing metrics for the last eight quarters.

Speaker Change: Q2 2024 other revenues declined by approximately $900,000 year over year, primarily reflecting a decline in the contribution from our Humble Games publishing business.

Bret Richter: Slide 7 provides quarterly organic and total revenue growth rates for the last 8 quarters. The company includes revenue from an acquired business within the definition of organic revenue for the first month in which the company can compare that full month in the current year against the corresponding full month under its ownership in the prior year. Similarly, the company excludes revenue from divested assets beginning with the quarter of the disposal of the asset, as well as from the prior year's comparable period. As depicted on the slide, second quarter 2024 organic revenue declined five percent.

Speaker Change: Slide seven provides quarterly organic and total revenue growth rates for the last eight quarters. The company includes revenue from an acquired business within the definition of organic revenue for the first month in which the company can compare that full month in the current year against the corresponding full month under its ownership in the prior year.

Speaker Change: similarly the company excludes revenue from divested assets beginning with the quarter of the disposal of the asset as well as from the prior year's comparable period

Speaker Change: as depicted on the slide second quarter two thousand and twenty-four organic revenue declined five percent we expect this metric to improve in the second half of two thousand and twenty-four

Bret Richter: We expect this metric to improve in the second half of 2021. Please refer to slide 8 as we discuss our balance sheet. As of the end of Q2 2024, we had $687 million of cash and cash equivalents and $153 million of long-term investment. We also have significant leverage capacity on both a gross and net leverage basis. During the quarter, we announced the expansion of the availability under our evolving credit facility.

Speaker Change: Please refer to slide 8 as we discuss our balance sheet.

Speaker Change: As of the end of Q2 2024, we had $687 million of cash and cash equivalents and $153 million of long-term investments.

Speaker Change: We also have significant leverage capacity on both a gross and net leverage basis.

Speaker Change: During the quarter we announced the expansion of the availability under our evolving credit facility.

Bret Richter: Our revolver now has $350 million of credit availability, and the maturity date of the revolver has been extended to June of 2027. To further enhance our liquidity, during the second quarter, we sold our remaining stake in ConsenSys Cloud Solution, consistent with our plan to divest these shares prior to the fifth anniversary of the spin-off trend. Prior to this transaction, we had just over 1 million CCSI shares. As indicated during our first quarter call, during the second quarter, we resumed repurchases of our common stock.

Speaker Change: Our revolver now has $350 million of credit availability and the maturity date of the revolver has been extended to June of 2027.

Speaker Change: to furtherenhance our liquidity during the second quarter we sold our remaining stake and consensus cloud solutions

Speaker Change: consistent with our plan to divest these shares prior to the 5th anniversary of the spinoff transaction.

Speaker Change: Prior to this transaction, we had just over 1 million CCSI shares.

Bret Richter: As indicated during our first quarter call, during the second quarter, we resumed repurchases of our common stock. At the end of the second quarter, we had approximately 3.2 million shares remaining under our stock repurchase authorization, which was due to expire in August of 2025. However, as Vivek mentioned, our board has acted to increase our current stock repurchase authorization by 5 million shares to approximately 8.2 million shares available for repurchase and extend the expiration date of this authorization to August 2029.

Bret Richter: During the second quarter, we repurchased 1.5 million shares of our common stock for a cost of approximately $84 million. At the end of the second quarter, we had approximately 3.2 million shares remaining under our stock repurchase authorization, which was due to expire in August of 2025. However, as Vivek mentioned, our board has acted to increase our current stock repurchase authorization by 5 million shares to approximately 8.2 million shares available for repurchase and extend the expiration date of this authorization to August 2029.

Speaker Change: As indicated during our first quarter call, during the second quarter we resumed repurchases of our common stock.

Speaker Change: During the second quarter, we repurchased 1.5 million shares of our common stock for a cost of approximately $84 million.

Speaker Change: At the end of the second quarter, we had approximately 3.2 million shares remaining under our stock repurchase authorization, which was due to expire in August of 2025.

Speaker Change: However,

Speaker Change: As Vivek mentioned, our board has acted to increase our current stock repurchase authorization by 5 million shares to approximately 8.2 million shares available for repurchase and extend the expiration date of this authorization to August 2029.

Bret Richter: Net of all this activity, as of the end of the second quarter, gross leverage was 2.1 times trailing 12 months adjusted EBITDA, and our net leverage was 0.7 times and 0.4 times, including the value of our financial investment.

Vivek Shah: Net of all this activity, as of the end of the second quarter, gross leverage was 2.1 times trailing 12 months adjusted EBITDA and our net leverage was .7 times and .4 times including the value of our financial investments.

Unknown Attendee: Thanks for holding. We appreciate your time and patience.

Unknown Attendee: Please stay on the line and we'll be back in just a moment. Thanks for holding.

Bret Richter: In July, we issued $263.1 million of new 3.625% convertible notes to 2028 and paid an aggregate of approximately $135 million in cash in exchange for $400.9 million of our 1.75% convertible notes to 2026. As a result of this transaction, we've reduced the gross amount of our outstanding debt by $138 million, and extended the maturity of $263 million of our debt. And with the attractive conversion premium we were able to obtain, we reduced the total number of shares underlying our outstanding convertible debt by more than 1.1 million shares.

Bret Richter: In July, we issued $263.1 million of new 3.625% convertible notes to 2028 and paid an aggregate of approximately $135 million in cash in exchange for $400.9 million of our 1.75% convertible notes to 2026. We have been actively deploying capital throughout 2024 to support our goal of long-term shareholder value creation. We have also significantly expanded our revolver capacity and extended the maturity of both our revolvers and the majority of our outstanding convertible security.

Vivek Shah: In July , we issued $263.1 million of new 3.625% convertible notes due 2028 and paid an aggregate of approximately $135 million in cash in exchange for $400.9 million of our 1.75% convertible notes due 2026.

Vivek Shah: As a result of this transaction, we reduced the gross amount of our outstanding debt by $138 million, extended the maturity of $263 million of our debt,

Unknown Attendee: Good day, ladies and gentlemen and welcome to the Ziff Davis second quarter, 2024 Earnings Conference Call.

Vivek Shah: And with the attractive conversion premium we were able to obtain, we reduced the total number of shares underlying our outstanding convertible debt by more than 1.1 million shares.

Paul: My name is Paul and I will be the operator assisting you today. At this time, all participants are in a listening mode. A question and answer session will follow the former presentation.

Bret Richter: Pro forma for this transaction, as of June 30, 2024, our total debt outstanding was $872 million, and our gross leverage ratio was less than two times. We have been actively deploying capital throughout 2024 to support our goal of long-term shareholder value creation. Are Investments in closed and pending M&A activity higher than they have been in several years? We have repurchased 1.5 million shares of our stock and paid down a significant portion of our 1.75% convertible notes.

Vivek Shah: proforma for this transaction as of june thirty two thousand and twenty-four our total debt outstanding was eight hundred and seventy- two million dollars and our gross leverage ratio was less than two times

Unknown Attendee: If anyone should require operator assistance during the conference, please press star zero on your telephone keypad.

Unknown Attendee: On this call will be Vivek Shah, CEO of Ziff Davis, and Bret Richter, Chief Financial Officer of Ziff Davis.

Speaker Change: We have been actively deploying capital throughout 2024 to support our goal of long-term shareholder value creation.

Bret Richter: I will now turn the call over to Bret Richter, Chief Financial Officer of Ziff Davis. Thank you.

Speaker Change: Are investments in closed and pending M&A activity?

Speaker Change: is higher than it has been in several years.

Bret Richter: You may begin. Thank you. Good morning everyone and welcome to the Ziff Davis Investor Conference Call for Q2 2024. As the operator mentioned, I am Bret Richter, Chief Financial Officer of Ziff Davis and I am joined by our Chief Executive Officer, Vivek Shah. A 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.

Speaker Change: We have repurchased 1.5 million shares of our stock and paid down a significant portion of our 1.75% convertible notes.

Bret Richter: Reducing our gross debt and creating incremental borrowing capacity. We have also significantly expanded our revolver capacity and extended the maturity of both our revolver and the majority of our outstanding convertible security. We have done this sufficiently, maintaining and achieving attractive terms.

Vivek Shah: Reducing our gross debt and creating incremental borrowing capacity.

Vivek Shah: We have also significantly expanded our revolver capacity and extended the maturity of both our revolver and the majority of our outstanding convertible securities. We have done this sufficiently, maintaining and achieving attractive terms.

Bret Richter: We also monetized the balance of our CCSI stake, turning an equity investment into additional liquid investable resources. Our strong balance sheet continues to be the foundation of our capital allocation strategy, and these steps make our balance sheet stronger. Going forward, we plan to continue to favor our pursuit of accretive M&A transactions, such as CNET, while seizing the opportunity to repurchase our shares at what we strongly believe are attractive valuation levels, as indicated by the implied current price to adjusted EPS ratio that does not appear to take into account the growth in adjusted EPS reflected in our guidance. We intend to continue to repurchase our common stock in the third quarter. Turning to slide 10.

Vivek Shah: We also monetize the balance of our CCSI stake, turning an equity investment into additional liquid investable resources.

Bret Richter: If you have not received the copy of the press release, you may access it to our corporate website at www.ziffdavis.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 at ziffdavis.com.

Bret Richter: Our strong balance sheet continues to be the foundation of our capital allocation strategy, and these steps make our balance sheet stronger. While second-quarter revenue performance has not met our expectations, as we noted, our year-to-date revenue is up slightly as compared with the 2023 comparable period, the expected impact of our recent cost initiatives, and the pending acquisition of CNET support our reaffirmation of the guidance range that we set in February of this year.

Speaker Change: Our strong balance sheet continues to be the foundation of our capital allocation strategy and these steps make our balance sheet stronger.

Speaker Change: going forward we plan to continue to favor our pursuit of accretive a transactions such as seen net while seizing the opportunity to repurchase our shares at what we strongly believe our attractive valuation levels

Speaker Change: as indicated by the implied current price to adjusted eps ratio that does not appear to take into account the growth in adjusted eps reflected in our guidance

Bret Richter: Before we begin our prepared remarks, allow me to read the safe harbor language. As you know, this call in the 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 10K filings, recent 10Q filings, various proxy statements and 8K filings, as well as additional risk factors that we have included as part of the slideshow for the webcast.

Speaker Change: We intend to continue to repurchase our common stock in the third quarter.

Bret Richter: We are reaffirming the fiscal year 2024 guidance range that we presented in February 2024. While second quarter revenue performance has not met our expectations, as we noted, our year-to-date revenue is up slightly as compared with the 2023 comparable period. This fact, combined with our current expectations for the balance of 2024.

Speaker Change: Turning to slide 10, we are reaffirming the fiscal year 2024 guidance range that we presented in February 2024.

Speaker Change: while second quarter revenue performance has not met our expectations as we noted our year-to-date revenue is up slightly as compared with the two thousand and twenty-three comparable period

Bret Richter: Guest. We refer you to discussions in those documents regarding safe harbor language as well as forward-looking statements. In addition, following our business outlook slides are our supplemental materials, including reconciliation statements for non-gap measures to their nearest gap equivalent.

Speaker Change: This fact, combined with our current expectations for the balance of 2024.

Bret Richter: The expected impact of our recent cost initiatives and the pending acquisition of CNET supports our reaffirmation of the guidance range that we set in February of this year. Within this guidance, we expect our fiscal year 2024 adjusted EBITDA performance and adjusted diluted EPS performance, which is bolstered by our recent and planned stock repurchases, to fall within the higher level of the range than our revenue, including the anticipated impact of the CNET transaction and our other M&A transactions.

Speaker Change: The expected impact of our recent cost initiatives and the pending acquisition of CNET supports our reaffirmation of the guidance range that we set in February of this year.

Bret Richter: Within this guidance, we expect our fiscal year 2024 adjusted EBITDA performance and adjusted diluted EPS performance, which is bolstered by our recent and planned stock repurchases, to fall within the higher level of the range than our revenue. And while we are not providing specific quarterly performance expectations for the balance of 2024, we remind you that the company typically shows strong Q4 seasonality for its advertising and performance marketing businesses and that our original guidance was for Q4 to represent approximately 30% of our fiscal year 2024 revenue.

Speaker Change: within this guidance we expect our fiscal year two thousand and twenty-four adjusted ebitda performance and adjusted diluted epss performance which is bolstered by a recent and planned stock repurchases to fall within the higher level of the range than our revenue

Vivek Shah: Now let me turn the call over to Vivek for his remarks. Thank you, Bret, and good morning everyone. Our second quarter financial results were below our expectations. June revenues in particular were soft, down 3%, dragging the quarter's total revenues down 1.6% year over year. While we're disappointed to have taken a step back after a solid Q1 in which we grew revenues by 2.4%, we're focused on driving improved financial performance and are highly confident that we will post growth in the second half of 2024.

Speaker Change: including the anticipated impact of the senior transaction in our other mna transactions we currently expect resultsto improve in the second half of two thousand and twenty-four particularly in the fourth quarter

Bret Richter: We currently expect results to improve in the second half of 2024, particularly in the fourth quarter. And while we are not providing specific quarterly performance expectations for the balance of 2024, we remind you that the company typically shows strong Q4 seasonality for its advertising and performance marketing businesses and that our original guidance was for Q4 to represent approximately 30% of our fiscal year 2024 revenue. We expect the acquisition of CNET to support, if not improve, this percentage.

Speaker Change: And while we are not providing specific quarterly performance expectations for the balance of 2024, we remind you that the company typically shows strong Q4 seasonality for its advertising and performance marketing businesses, and that our original guidance was for Q4 to represent approximately 30% of our fiscal year 2024 revenues.

Vivek Shah: Our digital media segment was flat in the second quarter. The most substantial change versus the first quarter had to do with tech media revenue swinging back to negative. As you know, tech advertising has been challenged for the better part of the past 2 years, and while we saw growth in Q1, it didn't sustain Q2. It is worth noting that all the decline was on the B2B side of the business with the consumer side showing modest growth.

Speaker Change: we expect the acquisition of scnet to support if not improve this percentage

Bret Richter: We also expect our recent cost initiatives to positively impact margins in the second half of 2020. Slide 16 includes a reconciliation of free cash. We took several important steps to enhance our liquidity and strengthen our balance sheet during the second quarter, while we allocated a significant portion of our investable resources to stock repurchases. Our pending acquisition of CNET reflects an improved deal-making environment, and we believe that we will see more opportunities to allocate capital to M&A in the near future.

Bret Richter: We also expect our recent cost initiatives to positively impact margins in the second half of 2020. Slide 16 includes a reconciliation of free cash. Year-to-date free cash flow was $72.5 million. However, this figure includes a negative free cash flow of $40.5 million associated with TDS. As an issuer of gift cards, TDS maintains a large working capital position and experiences seasonality. And while the first half of 2024 reflects significant working capital usage at TDS, we expect TDS to be a contributor to free cash flow on an annual basis. Excluding the impact of TDS, year-to-date free cash flow was $113 million.

Vivek Shah: The most substantial sequential change in the quarter came in our cybersecurity and martec segment, which swung from last quarter's 3.3% growth to this quarter's 5.8% decline. We did note that Q1 featured some timing benefits, which are negatively impacting the remainder of the year. Apps in such timing impacts, the Q2 decline in cybersecurity and martec, was in line with what we experienced in Q4 2023. While we continue to see positive trends, particularly in our email business, our progress in other businesses has been slower than anticipated.

Speaker Change: As an issuer of gift cards Tds maintains a large working capital position and experiences seasonality and while the first half of 2024 reflects significant working capital usage at Tds, We expect Tds to be a contributor to free cash flow on an annual basis.

Speaker Change: Excluding the impact of T. D S year to date free cash flow was $113 million.

Bret Richter: Overall, while our second-quarter results were below our expectations, we remain optimistic about our outlook for the balance of 2024. We took several important steps to enhance our liquidity and strengthen our balance sheet during the second quarter, while we allocated a significant portion of our investable resources to stock repurchases. Our pending acquisition of CNET reflects an improved deal-making environment, and we believe that we will see more opportunities to allocate capital to M&A in the near future.

Speaker Change: Overall, while our second quarter results were below our expectations, we remain optimistic for our outlook for the balance of 2024.

Vivek Shah: We've reduced our full-year expectation for this segment from flat to low single-digit revenue decline. Notwithstanding Q2's weakness, we are reaffirming guidance based on digital media segment growth, with the expectation of accelerating growth at gaming, connectivity, and health and wellness. In addition, between accretive acquisitions and share buybacks, we expect adjusted EPS to be closer to the high end of our guidance range. That would represent high single-digit adjusted EPS growth year over year, and put us back on the path to strong bottom line growth.

Speaker Change: We took several important steps to enhance our liquidity and strengthen our balance sheet during the second quarter, while we allocated a significant portion of our investable resources to stock repurchases.

Speaker Change: Our pending acquisition of CNET reflects an improved dealmaking environment, and we believe that we will see more opportunities to allocate capital to M&A in the near future.

Bret Richter: Despite some unexpected challenges in Q2, we believe we can deliver revenue and earnings growth and enhance shareholder value during the second half of 2020. With that, I would 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. If you would like to ask a question, please press star 1 on your telephone keypad.

Speaker Change: Despite some unexpected challenges in Q2, we believe we can deliver revenue and earnings growth and enhance shareholder value during the second half of 2024.

Speaker Change: With that I would now ask the operator to rejoin us to instruct you on how to queue for questions.

Operator: 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.

Speaker Change: 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. 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 May Press Star two if you would like to remove yourself from the.

Operator: If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 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 key.

Speaker Change: Q.

Speaker Change: 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.

Operator: One moment, please, while we begin. And the first question today is coming from Shyam Patil from SIG. Shyam, your line is live. Thank you. Thank you, guys.

Operator: And the first question today is coming from Shyam Patil from SIG. Shyam, your line is live. Thank you. Hey, good morning, guys. Congratulations on the exam.

Speaker Change: And the first question today is coming from Shan Patil from Sig Xiaomi Your line is live.

Vivek Shah: In 2021, we were focused on the spin-off of our consensus business, which we believed represented terrific shareholder value creation, but limited our acquisition program. Ram. Then the M&A market started to rapidly cool, so we deployed even less capital for M&A in 2022 and nearly nothing in 2023. We did not force ourselves to transact. Instead, we comfortably accumulated drive powder to put ourselves in a position to act decisively when the time is right.

Shan Patil: Thank you Hey, good morning, guys congrats on the deal.

Speaker Change: That's been on the list for a long time.

Speaker Change: It sounds like it could be.

Speaker Change: Just at the beginning of the company.

Speaker Change: More aggressive with M&A.

Speaker Change: Wondering if you could share any further color on how youre thinking about.

Speaker Change: Your M&A strategy and if there any particular areas, where you see the most opportunity in the near term.

Vivek Shah: Yeah, no, listen, great question. And let me start by just saying the second thing we're seeing, and this has been widely, I think reported, is that there's a good degree of LP pressure on private equity firms to return capital.

Vivek Shah: Yeah, no, listen, great question. And let me start by just giving you some perspective on color on what we're seeing in the M&A market. So I think the first thing is, as more time elapses between sort of the height of market valuations, I think time softens expectations. And so we're certainly seeing That it's been a few years since 2021, and a lot of the digital media advertising and software-based businesses are at their feet.

Speaker Change: Yeah, now listen Great question, and let me start by just.

Speaker Change: Giving some perspective on color on what we're seeing in the M&A market. So I think the first thing is.

Vivek Shah: We believe that time is now, where the assets that best fit with our portfolio are becoming available at prices that align with our discipline and we are taking action. The recent acquisition of Gamer Network and the news earlier this week that we've signed an agreement to acquire a CNET pending customary closing conditions represent in my opinion clear examples of how we use M&A to strategically enhance existing platforms and compound growth. Both of these acquisitions represent our favorite kind deal.

Speaker Change: As more time elapses between sort of the height of market valuations I think time softens expectations and so we're certainly seeing that.

Vivek Shah: First, they include powerful, established brands. Gamer Network was founded 25 years ago while CNET was founded 30 years ago. I love brands that have proven to endure and strengthen while technology evolves and competitors come and go. We derive great confidence from brands with a demonstrated ability to adapt to platform shifts. Second, both of these acquisitions further our leadership position in their respective categories. I am particularly excited by the powerhouse lineup of CNET, Mashable, PC Mag, Lifehacker, Spiceworks and ZDNet, which should be a tech marketer's dream.

Speaker Change: So it's been a few years right since 2021, and a lot of the digital media advertising and software based businesses were at their peak.

Vivek Shah: The second thing we're seeing, and this has been widely reported, is that there is a good degree of LP pressure on private equity firms to return capital. And I think as that return of capital pressure mounts, I think we're going to start to see, and we are seeing, really interesting opportunities that emerge from that. I think also in situations, and this might fit in the subset in terms of private equity portfolio holdings, you have some businesses that are highly leveraged.

Speaker Change: The second thing, we're seeing and this has been widely I think reported is there's a good degree of LP pressure on private equity firms to return capital and I think as that if that return of capital pressure Mt. I think we're going to start to see.

Speaker Change: We are seeing.

Speaker Change: Really interesting opportunities that emerge from that I think also situations and this might fit in the subset in terms of private equity portfolio holding you have some businesses that are highly leveraged and in this interest rate environment as terms.

Vivek Shah: And in this interest rate environment, as terms come to bear, I think that could be a catalyst for some activity. And then I think there's just a lot of market angst over AI and what AI means for content and advertising businesses, angst around the duopoly, and what that means. We have a very clear view of content and advertising and believe that premium leadership brands do exceedingly well.

Speaker Change: Come to bear I think that can be a catalyst for some activity.

Speaker Change: And then I think business I know, there's just a lot of market angst over AI and what does it mean for content and advertising business is angst around the duopoly and what does that mean, we have a very clear view on content and advertising and believe that premium leadership.

Vivek Shah: I know the tech ad category has been a source of challenge for us, but I view those as cyclical and I'm beyond excited at the prospect of having this group of assets to capitalize on the recovery. An interesting aspect of our pending deal with CNET is that it returns ZDNet back to ZF Davis. ZDNet was founded 31 years ago by ZF Davis and then sold to CNET in 2000, so this would be a homecoming of sorts for the property.

Speaker Change: Brands do exceedingly well and so I think we're going to lean into.

Vivek Shah: And so I think we're going to lean into some of those concerns. And so, from an M&A point of view, we want assets that strengthen our leadership position in our core verticals, technology, gaming, and entertainment, retail, health, and wellness. These are categories we want to go deeper into, and then look for adjacent subscription services businesses that are like our Ookla business, like our cybersecurity and Martech businesses. So across the board, new verticals are always on the table, and there are high-value verticals that we're always keeping an eye on.

Speaker Change: Enter into some of those concerns and so look I think from an M&A point of view, we want assets that strengthen our leadership position in our core verticals technology gaming Entertainment retail health and wellness. These are categories. We want to go deeper into and then look also looking for.

Vivek Shah: And the last reason why we like deals like these is that we believe that we're uniquely positioned on lock of value. We have the platforms, people and know how to grow traffic, monetization and free cash flow. We're excited to welcome our colleagues from CNET to the ZF Davis family soon. While M&A remains our priority when it comes to capital allocation, we believe that at our current price per share, ZF Davis is one of the most attractive buying opportunities in the market.

Speaker Change: Jason subscription services businesses.

Speaker Change: That like Gartner business like our cyber security and Martech businesses, so across the board new verticals are always on the table.

Speaker Change: There are high value vertical that we're always keeping an eye on it. So I think you've interpreted it correctly, which is we do actually feel very optimistic about where the M&A market is and look I do think that.

Vivek Shah: So I think you've interpreted it correctly, which is that we do actually feel very optimistic about where the M&A market is. And look, I do think that, you know, with Gamer Network and with CNET, I kind of view those as bellwethers. These are the type of deals we love to do, as I said, and these are the type of deals that we believe are now starting to come our way.

Speaker Change: With game or network, and we've seen that I kind of view those as as bellwether. These are the types of deals we love to do as I said and these are the types of deals that we believe are now starting to come our way.

Vivek Shah: As a result, we deployed $84 million to buy back one and a half million shares in Q2, increased our board authorized buyback program, allowing us to repurchase more than 8 million additional shares and expect to be active buyers of our shares in Q3. We continue to incorporate AI into a number of our products and offerings. A beta version of the Down Detector situation report is now powered by Gen AI, delivering concise and prioritized insights into service availability, incidents and outage.

Speaker Change: Great. Thank you guys.

Speaker Change: Thank you.

Operator: Thank you. The next question is coming from Cory Carpenter from J.P. Morgan. Cory, your line is live.

Operator: Thank you. The next question is coming from Cory Carpenter from JP Morgan. Cory, your line is live.

Speaker Change: Thank you. The next question is coming from Cory Carpenter from J P. Morgan Cory airline as life.

Cory Carpenter: Good morning, Zach one for you and one for Brett.

Vivek Shah: Good morning, Vivek. One for you and one for Bret. For you, Vivek, you mentioned expectations for gaming, connectivity, health, and wellness to reaccelerate in the second half. Could you just expand on what gives you confidence in this and maybe more broadly what you're seeing in the advertising market, where trends have been more mixed this season?

Speaker Change: Vivek, you mentioned expectations for gaming connectivity health wellness to Reaccelerate. Your second half could you just expand on what gives you confidence in this and maybe more broadly what you're seeing in the advertising market returns and added more makes this earning season.

Vivek Shah: More specifically, it provides a clear text analysis on overall outage impact assessment, user and geographical impact. This new service has been shortlisted for the most innovative test and measurement product by light reading. IGN has now released its well-received chat bot on the IGN mobile app, introducing game help on the mobile platform. Chat bot on the IGN app leverages our own vector store database. Lose its LLM-powered voice food logging has now been fully rolled out to its users, greatly simplifying daily food consumption inputs.

Vivek Shah: And Bret, for you, you mentioned. Oh, sorry, I'll let you answer that, then I'll ask Brett to follow up. Thanks, Cory.

Speaker Change: Brett.

Brett: You mentioned.

Speaker Change: Oh, sorry, I'll, let you answer that and I'll ask Brett to follow.

Vivek Shah: So look, I think maybe zoom out for a moment. When we look at the first half of this year, slightly up in revenues, up in EPS around three, three and a half percent. So not exactly where we would like to be at this point. As we said, June was a bit of a kick in the teeth, but all things considered, reasonably okay.

Vivek Shah: Thanks, Cory. Sorry.

Brett: Thanks, Corey Alright, so look I think maybe zoom out for a moment.

Brett: When we look at the first half of this year slightly up in revenues up and EPS around 335%, so not exactly where we would like to be at this point as we said June was a bit of a kick in the teeth, but all things considered reasonably okay. As we look at second half.

Vivek Shah: As we look at the second half, the benefits are modest organic improvements. So we're not calling for meaningful big bets here, and they're coming in areas that have always been traditional good sources of growth for us, gaming, health, and wellness, and connectivity. Cost control, so expanding margins. Bret mentioned this in his part of the opening remarks, which is, we did institute a number of measures to help from the margin point of view that will show up in the second half.

Speaker Change: The benefits are modest organic improvement so we're not calling for meaningful big bets here and theyre coming in areas that have always been traditional good sources of growth rock gaming health and wellness and connectivity cost controls so expanding margin Brent mentioned this in his part of the opening.

Vivek Shah: These are just a few of the examples of the AI enablement work being done at the company. I know there continues to be investor interest in the impacts of AI on search. Google rolled out AI overviews on May 14th, 2024. Prior to that, it was referred to as the Search Generative Experience, SGE, which was only available in Google Labs. Now that the AI overview experience is in full circulation, we wanted to revisit the analysis we did in Q3 of 2023 relating to the frequency of AI overviews being presented to users.

Brent: Remarks, which is.

Brent: We did institute a number of measures to help from the margin point of view that will show up in the second half and then the contribution from M&A as material to what we're looking to do in the second half and going forward and then in the end the thing that Shouldnt get lost I guess is that.

Vivek Shah: And then the contribution from M&A is material to what we're looking to do in the second half and going forward. And then, in the end, the thing that shouldn't get lost, I guess, is that, you know, we think we're going to be towards the high end of the adjusted EPS guide. And I think that's very important.

Speaker Change: So we think we're going to be towards the high end of the adjusted EPS Guide and I think thats very important those who have followed the company for a long time know that we very much view ourselves as EPS compounded.

Vivek Shah: Those who have followed the company for a long time know that we very much view ourselves as EPS compounders. You know, in terms of the advertising market, I'll say a few things because, you know, I usually say it's, well, it's not one market. It's broken into categories and customer types and ad product types.

Vivek Shah: We analyzed thousands of queries across our key domains that generate the lion's share of our organic search referrals and the percentage of times that an AI overview appeared. It felt 8%, meaning 92% of the time, the search engine results page did not include an AI overview for the queries that matter to us most. Analysis by other industry experts indicate a similar percentage of overall searches resulting in AI overviews. At this point, we don't see it as a significant change to the search experience.

Speaker Change: In terms of the advertising market I'll say, a few things because you know I, usually say, it's well, it's not one marketed broken into categories and customer types and add product types.

Vivek Shah: You know, for us, tech continues to be a challenge on the B2B side. By the way, I think that's for everyone in B2B tech advertising. It's a reflection of how those companies right now are performing. But again, I believe that's cyclical, and that will turn. It's taking longer than I would have hoped, but we believe it's there.

Speaker Change: <unk> continues to be a challenge on the beta be side by the way I think thats for everyone and B to B pack advertising, it's a reflection of how those companies right now are performing but again I believe that cyclical and that will turn its taking longer than I would have hoped but we believe it their consumer tech has done reasonably well health and wellness continues.

Speaker Change: To do well, we have had one major pharma advertiser pods campaigns across the board, we're seeing that loosen up and getting Unpoliced, we think into the second into the second half. So again very good they're in gaming and entertainment Interestingly the gaming industry has been in some turmoil, but our advertising business hasnt reflected that so we've.

Vivek Shah: It's also important to remember that we hypothesize that Google recently confirmed that links and AI overviews get a higher click-through than traditional web listing links. I believe the more interesting aspect of AI's impact on search is whether new AI-based search competitors can challenge Google's dominance. Google owns 90% of the search market and over 60% of referrals to the open web derived from Google searches. With the launch of perplexity and the beta launch of search GPT, we have search engines that employ AI to generate results.

Vivek Shah: Consumer tech has done reasonably well. Health and wellness continues to do well. We've had one major pharma advertiser pause campaigns across the board. We're seeing that loosen up and getting unpaused, we think, into the second half. So again, very good there in gaming and entertainment.

Vivek Shah: Interestingly, the gaming industry has been in some turmoil, but our advertising business hasn't reflected that. So we've been able to sort of, you know, I think perform a little bit differently than how the gaming publishing industry has been performing. So that's been a net positive. And then in retail, actually retail strong, we've just had our commission issue, which we talked about in the last call, and a distribution issue, which we talked about in the last call.

Speaker Change: Been able to sort of.

Speaker Change: I think performed a little bit differently than how the gaming publishing industry.

Speaker Change: Has been performing so that's been a net positive and then in retail actually retail strong. We just had our commission issue, which we talked about in the last call and a distribution issue, which we talked about in last call. So look again I think that when I look at it all relatively healthy and in the and the other thing to recognize.

Vivek Shah: So look again. I think that, you know, when I look at it all relatively healthy and in the end, the other thing to recognize is that it's worth zooming out with our ad business for 24 months. Our business has held up probably better than most 24 months ago, and so maybe our comps going forward don't seem as percentage-wise dramatic as maybe some others, but it's probably helpful to look at it over a longer period of time.

Vivek Shah: The thousands of engineers, once required to operate a search engine, may be obviated with AI. In addition, distribution deals like the ones Google has in place with browsers may become available given the recent court ruling, aiding in the building of market share. Competition is a good thing.

Speaker Change: It's worth zooming out with our AD business 24 months.

Vivek Shah: Our business has held up probably better than most 24 months ago. And so maybe our comps going forward don't seem as percentage-wise dramatic as maybe some others, but it's probably helpful to look at it over a longer period of time.

Speaker Change: Our business has held up probably better than most.

Speaker Change: 24 months ago, and so maybe our comps going forward don't seem as percentage wise dramatic as maybe some others, but it's probably helpful to look at it over a longer period of time.

Vivek Shah: Let me provide you with an update on our ESG efforts. We continue to actively work with our largest suppliers to ensure we aren't track to meet our 2030 science-based emissions reduction targets. We have done a sustainability survey, hosted educational climate webinars, shared our ESG report and now require all new and existing suppliers to complete a detailed ESG questionnaire upon signing or renewal of a contract. These actions are an essential element of our scope three emissions reduction strategy and we are grateful to be able to work alongside and partner with many of our suppliers to lead the carbonization efforts across our industry.

Cory Carpenter: And just to follow up, in June, Curious, what happened or what do you think happened that kind of caused the pullback across a couple of verticals at the same time, more macro-related, more specific to your businesses? Just more color there would be helpful. Thank you.

Vivek Shah: And just to follow up, in June, I'm curious what happened or, you know, what do you think happened that kind of caused the pullback across a couple of verticals at the same time, more macro-related, more specific to your businesses?

Speaker Change: Thank you and just a follow up.

Speaker Change: In June curious what happened or what do you think happened that kind of Cogs.

Speaker Change: Pullback across a couple of verticals at the same time that more macro related more specific to your business.

Speaker Change: There would be helpful. Thank you.

Vivek Shah: Yeah, Cory, I wouldn't put it on the macro scale. I think one of the things that we are characterized as a business is that we have sort of a high customer concentration. If you think about the ad business, we've got roughly 1,700 customers, and if you take out some of the B2C stuff in our subscription business, again, we have large customer accounts where sales can amount to hundreds of thousands of dollars. It doesn't take a tremendous amount of movement on the part of a customer to either cancel a campaign or move a campaign from Q2 to Q3.

Vivek Shah: Yeah. Cory. I wouldn't put it on the macro.

Vivek Shah: Just more color there would be helpful. Thank you. Yeah, Cory, I would

Speaker Change: Yes.

Speaker Change: Put it on the macro I think one of the things that we are characterized as a business is is we have sort of high customer concentration. If you think about the AD business we've got.

Speaker Change: Roughly 2700 customers and if you take out some of the Bdcs stuff in a subscription business again, we have a large customer accounts from sales can amount to hundreds of thousands of dollars. It doesn't take a tremendous amount.

Vivek Shah: In addition, we've been working this summer on disclosing our ESG efforts to both the S&P Corporate Sustainability Assessment which we are participating in for the first time and the CDP Climate Questionnaire which marks our second year of participation. These assessments are another crucial part of our overall ESG strategy because they hold us accountable to our science-based targets and provide us a vehicle to further communicate our actions and leadership to investors, suppliers, customers and employees.

Bret Richter: I think one of the things that we are characterized as a business is that we have sort of high customer concentration. If you think about the ad business, we've got roughly 1,700 customers, and if you take out some of the B2C stuff in our subscription business, again, we have large customer accounts where sales can amount to hundreds of thousands of dollars. It doesn't take a tremendous amount of movement on the part of a customer to either cancel a campaign or move a campaign from Q2 to Q3. We also have different types of revenue. Even on the subscription licensing side, we've got revenue that is sort of recognized over a contract life and certain licensing revenue that is recognized on a one-time basis.

Speaker Change: The amount of movement on part of a customer to either cancel a campaign or move a campaign from from Q2 to Q3. We also have different types of revenue even on the subscription licensing side. We've got revenue that is sort of recognized over contract life and certain licensing revenue.

Vivek Shah: We also have different types of revenue. Even on the subscription licensing side, we've got revenue that is sort of recognized over a contract life and certain licensing revenue that's recognized on a one-time basis. Depending on the timing of certain of those contracts and even winning or losing a contract, it can impact a quarter. And again,

Speaker Change: <unk> recognized on a onetime basis, depending on the timing of certain of those contracts and even winning or losing a contract it can impact a quarter and again.

Vivek Shah: Our efforts have not gone unnoticed and we were pleased that in July, MSCI, we reiterated our AA rating which is considered a leader. Just this week, we were also excited to receive the Sustainability Leadership Award from the Business Intelligence Group. Needless to say, I'm incredibly proud of the important work we are doing on this front.

Bret Richter: Depending on the timing of certain of those contracts and even winning or losing a contract, it can impact a quarter. When we spoke in May, we had an outlook on the balance of Q2. By the end of Q2, we had a different perspective, and we took action across the business to balance our investment against our expected incoming revenue. These will impact, as Vivek said, and I said in my prepared remarks, more in the back half of the year than in the front part of the year. But again, I think part of this is just large customers and the timing of successes in the market.

Speaker Change: When we spoke in May we had a perspective on the balance of Q2 by the end of Q2, we had a different perspective, we took action across the business to balance our investment against our expected incoming revenue those will impact as Vivek said and I said in my prepared remarks more of the back half of the year than the front part of the year, but again I think part of this is just large customers.

Vivek Shah: And the timing of.

Bret Richter: With that, let me hand the call back to Brett. Thank you Vivek.

Vivek Shah: Our successes in the marketplace.

Bret Richter: Let's discuss our financial results. Our earnings release reflects both our gap and adjusted non-gap financial results for Q2-2024. My commentary will primarily relate to our Q2-2024 adjusted financial results and the comparison to prior periods.

Operator: Thank you. The next question is coming from Ross Sandler from Barclays. Ross, your line is live.

Speaker Change: Thank you. The next question is coming from Ross Sandler from Barclays. Ross Your line is live.

Vivek Shah: Hey guys, just two questions. First on CNET, as somebody that actually covered that company when it was public back in the day, great to hear we'll be talking about it going forward. So maybe just some high-level thoughts on accretion and how this might help the overall advertising go to market within that tech vertical, the consumer tech vertical. And then the second question, your long-term free cash flow conversion of mid to high 50s, is that still the right way to think about it given the TDS and these other new companies coming into the fold? How should we think about that metric going forward? Thanks a lot, guys.

Ross Sandler: Hey, guys just two questions.

Ross Sandler: First on CNET as somebody that actually cover that company. When it was public back in the day, great to hear we'll be talking about it go forward. So maybe just some high level thoughts on accretion and how this might help the overall advertising go to market within that tech vertical consumer Tech vertical and then the second question.

Bret Richter: Please see slide 4 for the summary of our financial results. Q2-2024 revenues were $320.8 million as compared with revenues of $326 million for the prior year period reflecting a 1.6% decline. Q2-2024 adjusted EBITDA was $96.3 million as compared with $106.7 million for the prior year period reflecting a decline of 9.8%. Our adjusted EBITDA margin for the quarter was 30%. We reported second quarter adjusted deluded EPS of $1.18 as compared with $1.27 in Q2 of 2023.

Speaker Change: Your long term free cash flow conversion of mid to high <unk> is that still the right way to think about it given the Tds and these other new companies coming into the fold how should we think about that metric go forward. Thanks, a lot guys.

Vivek Shah: Thanks, Ross, and I'm glad you're revealing that we're probably around similar ages. I remember seeing that as a public company, too. Let me say a few things about it, and I have to be somewhat careful. Obviously, we're signed, but we're not closed. We've got to go through the HSR process.

Speaker Change: Thanks, Ross and I'm glad you're revealing that we're probably around similar ages I remember seeing that as a public company too.

Speaker Change: Let me say a few things about it in the app to be somewhat careful obviously were signed we're not closed.

Speaker Change: We've got to go through the HSR process, but at a high level I'll say a few things one is highly strategic.

Vivek Shah: But at a high level, I'll say a few things. One, it's highly strategic. The tech vertical has always been an important vertical for the company, and CNET has been, as you know, for decades, a market leader. And we have an immense amount of respect for the brand, its heritage, its team, what it represents to its audience, what it represents to the tech community at large. It's, to me, it reminds me of what IGN was for us when we acquired IGN within the gaming space.

Bret Richter: During our first quarter earnings call, we expressed an expectation that second quarter revenue growth would be similar to Q1-2024. When our outlook for the Q2 performance of a number of our businesses changed late in the quarter, we immediately enacted initiatives to reduce our spending and enhance our margins. While those actions did not significantly impact our second quarter results, we expect to realize their full benefit in the second half of 2024. Overall, through the first six months of 2024, as compared with 2023, revenues were slightly up, adjusted EBITDA declined by 2% and adjusted deluded EPS grew by 3.4%.

Speaker Change: The tech vertical has always been an important vertical for the company and seen that has been as you know the decades, a market leader and we have an immense amount of respect for the brand at heritage each team and what it represents to its audience what it <unk>.

Speaker Change: Represents to the tech community at large.

Speaker Change: To me it reminds me of what IGN was for US when we acquired IGN within the gaming space I think CNET occupies a very very similar kind of state.

Vivek Shah: I think CNET occupies a very, very similar kind of space. And then what I'll talk more broadly about, I guess, is how I see the ad market today and how it's evolving. For sure, marketers spend a significant amount of their budget, the digital ad budgets I'm talking about now, on search, social, and programmatic. Those are three big areas. But I believe in every vertical, you have a few players that are the at-scale premium players that are in a position to do attractive, direct ad deals, and premium deals.

Vivek Shah: And then what I'll talk more broadly about, I guess, is how I see the ad market today and how it's evolving. For sure, marketers spend a significant amount of their budget, the digital ad budgets I'm talking about now, on search, social, and programmatic. Those are three big areas.

Speaker Change: And then when I will talk more broadly about I guess.

Speaker Change: Is how I see the AD market today, and how it's evolving.

Bret Richter: Sides 5 and 6 reflect performance summaries for our two primary sources of revenue, advertising and performance marketing and subscription and licensing. Sides 5 reflects the company's advertising and performance marketing revenue results. Q22024 advertising and performance marketing revenue declined 2.7% as compared with the prior year period, while trailing 12-month advertising and performance marketing revenue declined by 2.3%.

Speaker Change: Sure.

Speaker Change: Marketers spend a significant amount of their budget digital AD budgets I'm talking about now on search and social and programmatic those are three big areas, but I believe in every vertical you have.

Vivek Shah: But I believe in every vertical, you have a few players that are the at-scale premium players that are in a position to do attractive, direct ad deals, and premium deals. And that's how we're trying to be positioned and viewed in every one of the verticals we're in. And I believe that CNET puts us in a very, very great position within the tech vertical, whether it's you're looking to reach IT decision makers, you're looking to reach tech enthusiasts, early adopters, customers of consumer electronics, potential customers, whoever it is.

Speaker Change: A few players that are the at scale premium players that are in a position to do.

Bret Richter: The second quarter decline primarily reflects the continued impact of the factors within our digital media segment related to our health and shopping businesses that we discussed on the Q12024 call, as well as lower than expected demand for our B2B lead generation services within our technology business, impacting a number of anticipated second quarter campaigns. This was often in part by growth in our gaming and entertainment business. Our net advertising and performance marketing revenue retention, an annual trailing 12-month statistic was 90.5% for Q22024.

Speaker Change: Do attractive direct AD deals premium deals and that's how we're trying to be positioned and viewed in every one of the verticals. We're in and I believe that CNET puts us in a very very great position within the tech vertical whether it's you're looking to reach.

Vivek Shah: And that's how we're trying to be positioned and viewed in every one of the verticals we're in. And I believe that CNET puts us in a very, very great position within the tech vertical, whether it's you're looking to reach IT decision makers, you're looking to reach tech enthusiasts, early adopters, customers of consumer electronics, potential customers, whoever it is. I think that whole space, I think we're going to occupy a really great one.

Speaker Change: It decision makers Youre looking to reach tech enthusiasts early adopters customers of consumer electronics potential customers. Whoever it is I think that whole space I think we're going to occupy a really great. One so we're very excited for it.

Vivek Shah: I think that whole space, I think we're going to occupy a really great one. So we're very excited about it. It is a brand that we have thought about for many years, frankly, and the fact that we've signed this agreement is, I think, super compelling. I'll let Brett talk about the free cash flow conversion question. Yeah, Ross, first and foremost, I think, yes.

Vivek Shah: So we're very excited about it. It is a brand that we have thought about for many years, frankly, and the fact that we've signed this agreement is, I think, super compelling. I'll let Brett talk about the free cash flow conversion question. Yeah, Ross, first and foremost, I think, yes.

Bret Richter: In the second quarter, Sif Davis had close to 1,700 advertisers with an average quarterly revenue per advertiser of more than $100,000. This reflects fewer customers at a higher average revenue per customer as compared with the prior year period.

Speaker Change: It is it is a brand that we have thought about for many years frankly, and the fact that.

Speaker Change: <unk>.

Speaker Change: You know that we've signed this agreement I think is super compelling I'll, let Brett talk to the free cash flow conversion question, Yes, Ross first and foremost I think yes that is sort of our long term target and but maybe unpack it a little bit first and foremost obviously depends on performance and what I mean by that.

Bret Richter: Slide 6 depicts our subscription and licensing revenue. Q22024 subscription and licensing revenue grew 0.3% as compared with the prior year period, subscription and licensing revenue grew 2.6% during the last 12 months. Customers grew both year-over-year and sequentially, an average quarterly revenue per customer of $41.74 declined in both instances, in part reflecting an increase in B2C subscribers.

Bret Richter: Yeah, Ross. First and foremost, I think, yes, that is sort of our long-term target, but maybe unpack it a little bit. First and foremost, obviously, it depends on performance. And what I mean by that is, when you think about our free cash flow, a number of the elements are relatively fixed. And if you start with EBITDA, and we're subtracting our CapEx, you know, usually our CapEx program over a 12-month period is essentially fixed as we develop and invest in our products and businesses.

Brett: Is when you think about our free cash flow a number of the elements are relatively fixed and if you start with EBITDA.

Speaker Change: Subtracting our capex, usually our Capex program over a 12 month period is.

Brett: Essentially VIX as we develop and invest in our products and businesses and to the extent that our EBITDA is not at the high end of our range Youre going to see a high flow through every $5 of EBITDA is sort of a point of free cash flow conversion, we talked about in 2023 coming out of some dynamics in the business, we had a buildup of working cap.

Bret Richter: Revenue churn increased sequentially but reflected a similar level to the prior year quarter. The table on the bottom of slide 6 includes subscription and licensing metrics for the last eight quarters. Q22024 other revenues declined by approximately $900,000 a year over year, primarily reflecting a decline in the contribution from our humble games publishing business. Slide 7 provides quarterly, organic and total revenue growth rates for the last eight quarters. The company includes revenue from an acquired business within the definition of organic revenue for the first month in which the company can compare that full month in the current year against the corresponding full month under its ownership in the prior year.

Bret Richter: And to the extent that our EBITDA is not at the high end of our range, you're going to see a high flow through. Every $5 of EBITDA is sort of a point of free cash flow conversion. We talked about in 2023, coming out of some dynamics in the business, we had a buildup of working capital. I think we've stabilized that situation, but we're still clawing back some of the buildup on the balance sheet, and it has had the expected impact on the business.

Speaker Change: I think we've stabilized that situation, but we're still pulling back some of the buildup on the balance sheet and then GDS.

Bret Richter: have had the expected impact on the business. The dynamics of TDS is that it's a highly seasonal business with a concentration in the fourth quarter. It builds up a significant amount of cash at the end of the year, and it runs out in the first quarter. We happen to do a first-quarter acquisition, and in that acquisition, we experienced the negative outflow of some of the cash it had built up in the fourth quarter running out towards its customers.

Bret Richter: The dynamics of TDS is that it's a highly seasonal business with a concentration in the fourth quarter. It builds up a significant amount of cash at the end of the year, and it runs out in the first quarter. We happen to do a first quarter acquisition, and in that acquisition, we experienced the negative outflow of some of the cash it had built up in the fourth quarter running out towards its customers. A relatively small nominal impact in the second quarter.

Speaker Change: Had the expected impact on the business the dynamics of GDS is it's a highly seasonal business with the concentration in the fourth quarter that builds up a significant amount of cash at the end of the year and it runs out in the first quarter, we happened to do our first quarter acquisition and that acquisition, we experienced a negative outflow of some of the cash it at.

Bret Richter: Similarly, the company excludes revenue from the vested assets beginning with the quarter of the disposal of the asset as well as from the prior year's comparable period. As depicted on the slide, second quarter, 2024, organic revenue declined 5%.

Speaker Change: <unk> built up in the fourth quarter running out towards its customers very relatively small nominal impact in the second quarter and as we get into the back half of the year, we would anticipate that being a contributor but again I think that conversion rate.

Bret Richter: Relatively small nominal impact in the second quarter. And as we get into the back half of the year, we'd anticipate that being a contributor. But again, I think that conversion rate is our target for the business. We also have on a go forward basis.

Bret Richter: And as we get into the back half of the year, we'd anticipate that being a contributor. But again, I think that conversion rate is our target for the business. We also have, on a go forward basis, a smaller expected investment in Humble Games, that should positively impact it. So yeah, our plan is to get back to those levels.

Speaker Change: As our target for the business. We also have on a go forward basis smaller expected investment and humble games that should positively impacted so yes. Our plan is to get back to those levels.

Bret Richter: We expect this metric to improve in the second half of 2024.

Bret Richter: Please refer to slide 8 as we discuss our balance sheet. As at the end of Q22024, we had 687 million of cash and cash equivalents and 153 million dollars of long-term investments. We also have significant leverage capacity on both the gross and net leverage During the quarter we announced the expansion of the availability under our revolving credit facility. Our revolver now has $350 million of credit availability and the maturity date of the revolver has been extended to June of 2027.

Speaker Change: Thank you.

Operator: Thank you. The next question is coming from Jian Li from Evercore ISI. Your line is live.

Operator: Thank you. The next question is coming from Jane Lee from Evercore ISI. Your line is live.

Speaker Change: Thank you. The next question is coming from James Lee from Evercore ISI. Your line is life.

Vivek Shah: Great. Thanks for taking the time to answer the question. I have a couple of AI-related questions. So first, definitely appreciate the color around just the Google, you know, AI overviews share of search in general. But like for the Ziff Davis publisher asset specifically, are you seeing any discernible impacts at all to your traffic to your publisher side by, you know, driven by the adoption of the AI overview? And also, you mentioned some kind of interesting gen AI tools across several of your assets.

James Lee: Great. Thanks for taking the question I have a couple.

James Lee: Related questions. So first definitely I appreciate the color around just the art Google.

Speaker Change: Ill reviews share of search in general.

Speaker Change: For the.

Speaker Change: Ziff Davis publish our assets specifically are you seen any discernible impacts at all.

Speaker Change: To your traffic to your publisher sites by.

Bret Richter: To further enhance all liquidity during the second quarter we sold our remaining stake in consensus cloud solutions consistent with our plan to divest these shares prior to the fifth anniversary of the spin-off transaction. Prior to this transaction we had just over 1 million CCSI shares. As indicated during our first quarter call during the second quarter we resumed repurchases of our common stock. During the second quarter we repurchased 1.5 million shares of our common stock for a cost of approximately $84 million. At the end of the second quarter we had approximately 3.2 million shares remaining under our stock repurchase authorization which was due to expire in August of 2025.

Speaker Change: Driven by the adoption of AI overview and also a second you mentioned some kind of interesting John AI.

Vivek Shah: What are you seeing in terms of user engagement on the side? Is it driving more impressions? You can kind of talk about how this can be monetized and where we should see this on the P&L impact. Thanks. Yeah, no, no. So great question on the first piece.

Speaker Change: Towards across several of our assets what are you seeing in terms of user engagement Lama side is it driving more impressions and you can kind of talk about the.

Speaker Change: How these can be monetize and where we should see that on the P&L impact thanks for time.

Vivek Shah: Yeah, no, no, so great question. On the first piece, with respect to organic search, no, we're not seeing any impacts from AI overviews, only because, as I say, the rate at which overviews are presenting themselves is quite low against the queries that matter to us. But as I also said, I think more broadly, across all queries, it's quite low, and it continues to decline. And I think Google is looking for which of the queries where AI overviews will be additive to the search experience.

Vivek Shah: Yeah, no, no, so great question. On the first piece with respect to organic search, no, we're not seeing any impacts from AI overviews, only because, as I say, the rate at which overviews are presenting themselves is quite low against the queries that matter to us. But as I also said, I think more broadly across all queries, it's quite low, and it continues to reduce, and I think Google is looking for which of the queries where AI overviews will be additive to the search experience.

Speaker Change: No. It's a great question on the first piece with respect to organic search no. We're not seeing any impact from AI overviews, only because as I say the the rate at which overviews are presenting themselves is quite low against the query that matter to us, but as I also said I think more broadly across all queries, it's quite low in it.

Speaker Change: Continues to reduce and I think Google is looking for which of the queries, where AI overviews will be additive to the search experience, but what I'll also say is that in other analyses. We've done is actually when AI overviews present themselves.

Bret Richter: However, as Vivek mentioned our board has acted to increase our current stock repurchase authorization by 5 million shares to approximately 8.2 million shares available for repurchase and extend the expiration date of this authorization to August 2029. Netable this activity as at the end of the second quarter gross leverage was 2.1 times trailing 12 months adjusted EBITDA and our net leverage was 0.7 times and 0.4 times including the value of our financial investments.

Vivek Shah: But what I'll also say is that in other analyses we've done, when AI overviews present themselves, it's actually a positive for organic search because it's actually elevating your links to your site above everything else. So the way AI overviews are presenting right now is that they're at the top of the SERP. So in some ways, it's interesting, right, which is that it's not happening that frequently. But when it happens, it's actually been viewed as a net positive if you're in the overview. And I think, you know, I can imagine a world where we go from SEO to, you know, SAIO, something that, you know, AI overview or SAIO. So, look, I think that.

Vivek Shah: But what I'll also say is that in other analyses we've done, when AI overviews present themselves, it's actually a positive for organic search because it's actually elevating your links to your site above everything else. So the way AI overviews are presenting right now is that they're at the top of the search. So in some ways, it's interesting, right, which is that it's not happening that frequently, but when it happens, it's actually been viewed as a net positive if you're looking at it from the overall perspective.

Speaker Change: It's actually a positive to organic search because it actually elevating your links to your site above everything else the way iron overviews of presenting right now as they are at the top.

Speaker Change: The served so in some ways, it's interesting right, which is it's not happening that frequently but when it happens it's actually been viewed as a net positive if youre in the overview and I think I can imagine a world where we go from <unk> to <unk>.

Vivek Shah: And I think, you know, I can imagine a world where we go from SEO to, you know, SAIO, something that, you know, AI overview or S-A-O-O. Google as a search engine starts to see competition from other emerging search engines. Way too early to say. What I will say is that those search engines are very much focused on how to create a search engine result page that delivers publisher traffic because I think they see an opportunity for a SERP that may have more publisher content than maybe ad content, for instance.

Bret Richter: In July we issued 263.1 million dollars of new 3.625 percent convertible notes to 2028 and paid an aggregate of approximately 135 million dollars in cash in exchange for 400.9 million dollars of our 1.75 percent convertible notes to 2026. As a result of this transaction we reduced the gross amount of our outstanding debt by 138 million dollars, extended the maturity of 263 million dollars of our debt and with the attractive conversion premium we were able to obtain we reduced the total number of shares underlying our outstanding convertible debt by more than 1.1 million shares.

Speaker Change: S AI Oh something that.

Vivek Shah: AI overview or at a O.

Speaker Change: Yes.

Speaker Change: So look I think that.

Vivek Shah: In the end, it's not really a factor right now. I think the other part of this, which I also spoke about, is the degree to which Google as a search engine starts to see any competition from other emerging search engines. Way too early to say.

Speaker Change: And it's not really a factor right now I think the other part of this which I also spoke to is the degree to which Google as a search engine starts to see any competition from other emerging search engines way too early to say what I will say is.

Vivek Shah: What I will say is that those search engines are very much focused on how to create a search engine result page that delivers publisher traffic because I think they see an opportunity for a SERP that may have more publisher content than maybe ad content, for instance. So that'll be interesting to watch. But again, you know, Google's in such a great position in search. It'll take a while, I think, for anyone to really eat into that market share.

Speaker Change: That those search engines are.

Vivek Shah: Are very much focused on how to create a search engine results page that delivers publisher traffic because I think they view an opportunity for a sharp that may have more publisher content than maybe add content for instance, so that'll be interesting to watch, but again google's in such a.

Bret Richter: Proforma for this transaction as of June 30, 2024 our total debt outstanding was 872 million dollars and our gross leverage ratio was less than 2 times. We have been actively deploying capital throughout 2024 to support our goal of long-term shareholder value creation. Our investments in closed and pending M&A activity is higher than it has been in several years. We have repurchased 1.5 million shares of our stock and paid down a significant portion of our 1.75 percent convertible notes reducing our gross debt and creating incremental borrowing capacity.

Vivek Shah: So that'll be interesting to watch. But again, you know, Google's in such a great position in search. It'll take a while, I think, for anyone to really eat into that market share. On the second question relating to when we incorporate AI into our products, what is the expected or hoped-for benefit?

Speaker Change: Great position in search it.

Speaker Change: It'll take a while I think for anyone to really eat into that market share.

Vivek Shah: On the second question relating to, "You know, when we incorporate AI into our products, what is the expected or hoped-for benefit?" And I think right now, much of it is actually around our subscription offerings and making our subscription offerings easier to use, making them more productive, that should result in improved retention. So when we talk about losing weight and shifting to voice logging, one of the big sort of adherence issues in an app like Loozit is actually entering your food consumption.

Speaker Change: The second question relating to <unk>.

Speaker Change: When we incorporate AI into our products what is the expected or hoped for benefit.

Speaker Change: And I think right now much of it is actually around.

Speaker Change: Our subscription offering and making our subscription offering easier to use making them.

Bret Richter: We have also significantly expanded our revolver capacity and extended the maturity of both our revolver and the majority of our outstanding convertible securities. We have done this sufficiently maintaining and achieving attractive terms. We also monetize the balance of our CCSI stake, turning an equity investment into additional liquid-investable resources.

Vivek Shah: More.

Speaker Change: Did that should result in improved retention. So when we talk about lose it and shifting to voice logging one of the big sort of adherence issues in an app like lose it is surely entering in your food consumption.

Vivek Shah: Well, the degree to which we can make that easier, we believe helps drive retention, and retention helps drive revenue. Similarly, some of the changes within some of the things we've done that I talked about with respect to Down Detector, which is a subscription service. Again, so I think we look for retention. On the media side, I guess you're right. It would be session time, maybe more ad load, and ad impressions if people were engaging, for instance, with IGN content in a more meaningful way. But that's in the very early days.

Bret Richter: Our strong balance sheet continues to be the foundation of our capital allocation strategy, and these steps make our balance sheet stronger. Going forward, we plan to continue to favor our pursuit of accrued M&A transactions, such as CNET, while seizing the opportunity to repurchase our shares at what we strongly believe are attractive valuation levels, as indicated by the implied current price to adjusted EPS ratio, that does not appear to take into account the growth in adjusted EPS reflected in our guidance. We intend to continue to repurchase our common stock in the third quarter.

Speaker Change: The degree to which we can make that easier. We believe helps drive retention retention helps drive revenue. Similarly, some of the changes within some of the things we've done that I talked about with respect the <unk> detector, which is a subscription service again. So I think we look for retention on the media side I guess you.

Speaker Change: It would be.

Speaker Change: Session time, maybe more AD load and AD impressions that people are engaging for instance.

Speaker Change: With IGN content.

Speaker Change: More meaningful way, but that's very early days and I don't I don't want to lead anyone with the impression that.

Vivek Shah: I don't want to give anyone the impression that AI tooling of content experiences is going to lead to some dramatic change in the ad inventories of the business. I think they're all experimental. They're all, I think, trying to contribute to a better user experience, but I don't want to necessarily overstate that. I actually think AI incorporated into software is more compelling.

Bret Richter: Turning to slide 10, we are reaffirming the fiscal year 2024 guidance range that we presented in February 2024. While second quarter revenue performance has not met our expectations, as we noted, our year-to-date revenue is up slightly as compared with the 2023 comparable period. This fact, combined with our current expectations for the balance of 2024, the expected impact of our recent cost initiatives and the pending acquisition of CNET supports our reaffirmation of the guidance range that we set in February of this year.

Vivek Shah: Tooling.

Speaker Change: <unk> experience is going to lead to some romantic change in the AD inventories out of the business I think they are.

Vivek Shah: I think they're all experimental they're all I think trying to contribute to a better user experience, but I don't want to necessarily overstate that I actually think AI incorporated into software is more compelling.

Speaker Change: Great. Thanks for color.

Operator: Thank you. The next question will be from Ygal Arounian from SISI. Ygal, your line is live.

Operator: Thank you. The next question will be from Ygal Arounian from CZ. Ygal, your line is live.

Yigal <unk>: Thank you. The next question will be from Yigal <unk> from Citi. Your line is live.

Bret Richter: Within this guidance, we expect our fiscal year 2024 adjusted EBITDA performance and adjusted deluded EPS performance, which is bolstered by our recent and planned stock repurchases to fall within the higher level of the range than our revenue. Including the anticipated impact of the CNET transaction and our other M&A transactions, we currently expect results to improve in the second half of 2024, particularly in the fourth quarter. And while we are not providing specific quarterly performance expectations for the balance of 2024, we remind you that the company typically shows strong Q4 seasonality for its advertising and performance marketing businesses, and that our original guidance was for Q4 to represent approximately 30% of our fiscal year 2024 revenues. We expect the acquisition of CNET to support if not improve this percentage. We also expect our recent cost initiatives to positively impact margins in the second half of 2024.

Vivek Shah: Hey morning guys, maybe just first going back to the guidance and the trajectory from where we are to maintaining the guidance for the full year. Can you help break down what the expectations are from M&A within that number and kind of like the mix between that and organic revenue as we kind of work through the back half of the year? I don't know if you could size DINA in particular, but maybe more broadly, if not, that's okay.

Ygal Arounian: Hey, good morning, guys. Maybe just first going back to the guidance and the trajectory from where we are to maintaining the guidance for the full year. Can you help break down what the expectations are from M&A within that number and kind of like the mix between that and organic revenue as we kind of work through the back half of the year? I don't know if you could size D-Net in particular, but maybe more broadly, if not, that's okay.

Speaker Change: Hey, good morning, guys.

Speaker Change: Maybe just first going back to the guidance and the trajectory from where we are.

Ygal Arounian: The maintaining the guidance for the full year.

Ygal Arounian: Can you help break down what.

Ygal Arounian: What the expectations are from M&A within that number and kind of like the mix between that and organic revenue as we kind of work through the back half of the year I don't know if you could size.

Ygal Arounian: But just maybe more broadly if not that specific.

Vivek Shah: Yeah, I don't think we're going to break it down in that specificity. What I will say is, I think it's three things.

Speaker Change: Yes, I don't think were going to break it down and that specificity. What I will say is I think it's three things that it is improving organic.

Vivek Shah: It's improving organic It is improving margins against cost control. So that more affects, you know, obviously adjusted EBITDA and EPS, and then the contribution of M&A. And I think it's probably instructive to just, you know, for those who have followed the company for a long time, it's always been the combination of those three things in our formula. Look, organic is not where we'd like it to be.

Speaker Change: It is.

Vivek Shah: It is improving margins against cost control. So that more affects, you know, obviously adjusted EBITDA and EPS and then the contribution of M&A. And I think it's probably instructive to just, you know, for those who have followed the company for a long time, it's always been the combination of those three things in our formula. Look, organic is not where we'd like it to be. So let me be clear about one thing

Speaker Change: Improving margins against the cost controls so that more effect, obviously adjusted EBITDA and EPS and then the contribution of M&A and I think it's probably instructed to just.

Vivek Shah: For those who followed the company for a long time, it's always been the combination of those three things in our Formula look organic is not where we'd like it. So let me be clear about that we can't continue to be in a place where we're where organic is a source of decline, but it's a modest source of <expletive>.

Bret Richter: Side 16 includes a reconciliation of free cash flow. Year-to-day free cash flow was $72.5 million. However, this figure includes negative free cash flow of $40.5 million associated with TDS.

Vivek Shah: So let me be clear: we can't continue to be in a place where, you know, where organic is a source of decline. But it's a modest source of decline. And it is, we believe, certainly over the last 12 months, a reducing headwind. And we believe that's going to continue. In the end, the company has always been a serial acquirer and a net income adjusted EPS compounder to highly accretive M&A deployment, generation of free cash flow, deployment of free cash flow, leveraging the balance sheet, and being very smart about our capital structure.

Bret Richter: As an issue with gift cards, TDS maintains a large working capital position and experiences seasonality. And while the first half of 2024 reflects significant working capital usage at TDS, we expect TDS to be a contributor to free cash flow on an annual basis. Excluding the impact of TDS, year-to-day free cash flow was $113 million.

Vivek Shah: Client and it is we believe certainly over the last 12 months. It is a reducing headwinds and we believe that's going to continue in the end. The company has always been a serial acquirer and a net income adjusted EPS compound or two highly accretive M&A deployment generate.

Vivek Shah: A free cash flow deployment of free cash flow leveraging balance sheet being very smart about our capital structure I think the thing that.

Bret Richter: Overall, while our second quarter results were below our expectations, we remain optimistic for our outlook for the balance of 2024. We took several important steps to enhance our liquidity and strengthen our balance sheet. During the second quarter, while we allocated a significant portion of our investable resources to stock repurchase. Cases. Our pending acquisition of CNAP reflects an improved deal-making environment and we believe that we will see more opportunities to allocate capital to M&A in the near future. Despite some unexpected challenges in Q2, we believe we can deliver revenue, earnings growth, and enhance shareholder value during the second half of 2024.

Vivek Shah: I think the thing that we're hoping to convey today is that the second part of what has been the Ziff Davis equation is, I think, firmly back. That part has been absent, frankly, for the last few years for the reasons I've described at the beginning of the call. We're signaling now, we believe, a real change there. So acquisitions are important. They're important to the second half guide. Make no mistake about that. And they're important for 2025 and beyond.

Vivek Shah: We're hoping to convey today is that that second part of what has been the Ziff Davis equation is I think firmly back that part has been absent frankly for the last few years for the reasons I described at the beginning of the call.

Vivek Shah: Signaling now we believe a real change there. So acquisitions are important they are important to the second half guide make no mistake about that and they are important to 2025 and beyond.

Bret Richter: And maybe the only thing I'd add is, you know, with regard to the timing for the balance of the year, Q4 is a seasonally large and strong quarter for the company overall based on the dynamics of the business, and M&A is a meaningful portion of our guide. And as we said, you know, we factored in both existing and pending impacts, including our expectation of the closing of CNET. So given where we sit here in the beginning of August, there's an expectation that that has an impact on Q3, but probably a small impact on Q3 with a full impact on Q4.

Vivek Shah: And maybe the only thing I'd add.

Speaker Change: I would add is with regards to the timing for the balance of the year Q4 is the seasonally large and strong quarter for the company overall based on the dynamics of the business and M&A is a meaningful portion of our guide and as we said, we factored in both existing and pending impacts including our expectation.

Unknown Attendee: With that, I would now ask the operator to rejoin us to instruct you on how to queue for questions. Thank you.

Unknown Attendee: 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. 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 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.

Vivek Shah: As of the closing of CNET, So given where we sit here in the beginning of August there's an expectation that that has an impact on Q3, but probably a small impact on Q3 with a full impact on Q4.

Vivek Shah: Okay, I found it helpful. And then, Vivek, I guess, going back to AI and more on the licensing front, you guys have been more patient. Is that the stance you continue to take here? Maybe any updates on how you're thinking about licensing opportunities and your approach with LLM?

Speaker Change: Okay got it helpful.

Vivek Shah: And then Vivek I guess going back to.

Sham Patil: And the first question today is coming from Sham Patil from Sake. Sham, your line is live. Thank you. Thank you, morning, guys. Congrats on the CNAP deal, and that's been on the list for a long time. Vivek, it sounds like this could be just the beginning of the company becoming more aggressive with M&A. Just wondering if you could share any further color on how you're thinking about your M&A strategy, and if there are any particular areas where you see the most opportunity in your term? Yeah, I know. Listen, great question.

Vivek Shah: For AI and more on the licensing front you guys have been more patient.

Vivek Shah: Does that is that the stats you continue to take here, maybe any update as to how youre thinking about licensing opportunities in your approach with.

Speaker Change: Thanks, Yeah, I mean look obviously, we have nothing to report we continue to be in dialogue.

Vivek Shah: Yeah, I mean, look, obviously, we have nothing to report; we continue to be in dialogue. I think what's possibly becoming clear in the market is that these deals aren't that big. They're not large needle movers.

Vivek Shah: Yeah, I mean, look, obviously.

Speaker Change: I think with.

Vivek Shah: Possibly becoming clearer in the market these deals aren't that big.

Vivek Shah: And I think what they relate to are fairly large questions around copyright and what is allowed and what is fair use and what isn't. And I think we would rather be in a situation where there is a recognition that the original training was not a fair use situation, and there needs to be compensation for it before we get into sort of the rag-style deals that seem to be in the marketplace.

Speaker Change: Not large needle movers and I think what they relate to a fairly large questions around copyright and what is allowed and what is fair use and what is it and I think we would rather either be in a situation where there is a recognition that the original training.

Vivek Shah: And I think what they relate to are fairly large questions around copyright and what is allowed, and what is fair use, and what isn't. And I think we would rather be in a situation where there's a recognition that the original training was not a fair use situation and there needs to be compensation for it before we get into sort of the rag-style deals that seem to be in the marketplace.

Vivek Shah: Let me start by just giving some perspective on color on what we're seeing in the M&A market. I think the first thing is, as more time elapses between the height of market valuations, I think time softens expectations. And so we're certainly seeing that. So it's been a few years, right, since 2021, and a lot of the digital media advertising and software based businesses were at their feet. The second thing we're seeing, and this has been widely, I think, reported, is as a good degree of LP pressure on private equity firms to return capital.

Vivek Shah: Was a was a was not a fair use situation and it needs to be compensation for it before we get into sort of the rack style deal that seem to be in the marketplace. So I guess, what I'd say is I'm in the category of companies on certainly not alone that I think feel that.

Vivek Shah: So I guess what I'd say is, I'm in the category of companies, and I'm certainly not alone, that think that, you know, this near-term money is not that appealing in size and duration against what I think we recognize has been, you know, a high concentration of training and ongoing training coming from, you know, a fairly small subset of meaningfully sized publishers. So all to say that, in the end, you know, we're not feeling that compelled right now to do deals that we think might be very short term.

Vivek Shah: So I guess what I'd say is I belong to the category of companies, and I'm certainly not alone, that think, feel that, you know, this near-term money is not that appealing in size and duration against what I think we recognize has been a high concentration of the training and ongoing training coming from

Vivek Shah: This near term.

Vivek Shah: This near term money is not that appealing it is not that appealing and size and duration against what I think we recognize has been.

Vivek Shah: And I think, is that return of capital pressure mount? I think we're going to start to see, and we are seeing, really interesting opportunities that emerge from that. I think also situations, and this might fit in the subset in terms of private equity portfolio holdings, you have some businesses that are highly leveraged. And in this interest rate environment, as terms come to bear, I think that can be a catalyst for some activity.

Speaker Change: Uh huh.

Vivek Shah: High concentration of the training and ongoing training coming from me.

Vivek Shah: A fairly small subset of meaningfully sized publishers. So all to say that in the end, we're not feeling that compelled.

Vivek Shah: Right now.

Vivek Shah: Deals that we think might be very short term I think we'd rather see how this plays out a little bit more and at the same time, we are actually optimistic that some of the movement around trying to build search engine that become meaningful sources of referral traffic that is interesting to me so to the degree to which that can come to.

Vivek Shah: I think we'd rather see how this plays out a little bit more. And at the same time, we're actually optimistic about some of the movement around trying to build search engines that become meaningful sources of referral traffic. That is interesting to me. But to the degree to which that can come to fruition meaningfully, I think that would be very productive. And, obviously, there are major things happening relating to search deals.

Vivek Shah: And then I think there's a lot of market angst over AI and what does AI mean for content and advertising businesses, angst around the duopoly, and what does that mean? We have a very clear view on content and advertising and believe that premium leadership brands do exceedingly well. And so I think we're going to lean into some of those concerns. And so look, I think from an M&A point of view, we want assets that strengthen our leadership position in our core verticals, technology, gaming entertainment, retail, health and wellness, these are categories we want to go deeper into.

Vivek Shah: Fruition in any way meaningfully.

Vivek Shah: I think that would be very productive and then obviously there are major things happening.

Vivek Shah: And yeah, sorry, search distribution deals. And what does that mean in that mix? So this will be an interesting space, I think, to watch. I think being I think just being a little patient and waiting is probably a good thing for us.

Vivek Shah: Relating to search deals and yes, alright search distribution deals and what does that mean in that mix. So this will be an interesting space I think the watch I think being.

Vivek Shah: I think just being a little patient and waiting is probably a good thing for us.

Operator: Thanks so much. Thank you.

Speaker Change: Got it thanks, so much.

Operator: The next question is coming from Rishi Jaluria from RBC. Rishi, your line is live. Hey guys, this is Chris Fountain on for Rishi Jaluria. Thanks for taking my call.

Operator: Thank you. The next question is coming from Rishi Jaluria from RBC. Rishi, your line is live. Hey guys, this is Chris Fountain.

Operator: Thanks so much. Thank you. The next question is coming from Rishi Jaluria from RBC. Rishi, your line is live.

Vivek Shah: Thank you. The next question is coming from Rishi <unk> from RBC Ritchie Your line is live.

Unknown Attendee: Hey guys, this is Chris Stam.

Operator: Hey, guys. This is Chris on for Richard you, Larry Thanks for taking my question.

Vivek Shah: And then look, also looking for adjacent subscription services, businesses that like our local business, like our cybersecurity and more tech businesses. So across the board, new verticals are always on the table. And there are high-value verticals that we're always keeping an eye on. So I think you've interpreted it correctly, which is we do actually feel very optimistic about where the M&A market is. And look, I do think that You know, with Gamer Network and with CNAT, I kind of view those as Bellweather. These are the type of deals we love to do, as I said, and these are the type of deals that we believe are now starting to come our way. Thank you guys. Thank you.

Chris Stam: Wanted to go back to profitability can you talk a bit more about the actions that you took in Q2 to rightsize the expense base to match the growth headwinds and just to confirm are these actions what is giving you confidence in reaching the higher end of the EPS range.

Bret Richter: Yeah, so again, thanks for the question, Chris. I think it's just constantly calibrating our investments in the business against our expectation of top-line performance. And, you know, whether that's continued, accelerated hiring to build capacity in the business in anticipation of more activity, or you go to the other end, which is, you know, keeping open positions open longer or potentially eliminating open positions in areas where we see more pressure in the near term with an expectation of rebuilding into the future.

Speaker Change: Yes, so again.

Chris Stam: Thanks for the question, Chris I think it's just constantly calibrating our investments in the business against our expectation of top line performance.

Speaker Change: And whether that.

Unknown Attendee: Continued accelerated.

Speaker Change: <unk> to build capacity in the business in anticipation of more activity or you go into the other end, which is keep it open positions open longer or potentially eliminating open positions in areas, where we see more.

Chris Stam: Pressure in the near term with an expectation of rebuilding into the future I think on the EPS side Thats a combination of things.

Bret Richter: I think on the EPS side, that's a combination of things, and it's a combination of, again, the anticipated, we obviously have to close the acquisition, the impact of our pending M&A and our existing M&A, but it's also the impact of the share buybacks. I think this was a very important period of time for the company from a balance sheet perspective. If you look back over the last 24-plus months, we've accumulated a lot of cash, and we really put a lot of that cash to work in the second quarter and into the third quarter.

Vivek Shah: For you, Vivek, you mentioned expectations for gaming, connectivity, health wellness to re-accelerate in a second half. Could you just expand on what gives you confidence in this and maybe more broadly what you're seeing in the advertising market returns? It had been more mixed with the serving season.

Speaker Change: It's a combination of Av.

Speaker Change: Again, the anticipated, we obviously have to close the acquisition the impact of our pending M&A in our existing M&A, but it's also the impact of the share buybacks. I think this was a very important period of time for the company from a balance sheet perspective, if you look back over the last 24 plus months, we've accumulated a lot of cash.

Unknown Attendee: And Bret, for you, you mentioned, oh, sorry, I'll change the life and I'll ask Bret to follow up. Thanks for it. Sorry.

Vivek Shah: So look, I think maybe zoom out for a moment. But when we look at the first half of this year, slightly up in revenues, up in EPS around three, three and a half percent. So not exactly where we would like to be at this point, as we said, June was a bit of a kick in the teeth, but all things considered reasonably okay. As we look at second half, the benefits are modest organic improvements.

Chris Stam: Cash and we really put a lot of that cash to work in the second quarter and into the third quarter not only do we buy back a million shares and commit to a meaningful acquisition, but we also took steps to.

Bret Richter: Not only did we buy back a million and a half shares and commit to a meaningful acquisition, but we also took steps to... extend the maturity of and on attractive terms for more than half of our convertible outstanding. We paid down $135 million of our convertible. We're really pleased with that transaction and where it puts us in terms of staggered maturity and our cost of debt, with the coupon on that less than 4%.

Bret Richter: extend the maturity and on attractive terms for more than half of our convertible outstanding, we pay down $135 million of our convertible. We're really pleased with that transaction and where it puts us in terms of staggered maturity and our cost of debt with the coupon on that less than 4%. And we also took steps to expand our available capacity through our revolver. So that gives us the ability, on a going forward basis, to not only continue to commit to our M&A program, but at these levels, our expectation in the quarter is to be active in our stock.

Speaker Change: Extend the maturity and on attractive terms for more than half of our convertible outstanding we paid down.

Vivek Shah: So we're not calling for meaningful big bets here. And they're coming in areas that have always been traditional good sources of growth for our gaming health and wellness and connectivity cost control. So expanding margins, Bret mentioned this in his part of the opening remarks, which is, you know, we did institute a number of measures to help from the margin point of view that will show up in the second half. And then the contribution from M&A is material to what we're looking to do in the second half and going forward.

Bret Richter: <unk> hundred $35 million of arc of our convertible we're really pleased with that transaction and where it puts us in terms of staggered maturity and our cost of debt with a coupon on that less than 4%.

Bret Richter: And we also took steps to expand our available capacity through our revolver. So that gives us the ability on a go-forward basis to not only continue to commit to our M&A program, but at these levels, our expectation in the quarter is to be active in our stock. Our board took steps to support our stock buyback program by increasing the availability under our program by 5 million shares. So when you look at EPS, it's the multiple steps of the expected performance of our existing businesses in the back half of the year, the impact of pending M&A, and the cost actions we took in a quarter where our revenue expectations fell short of where we thought they'd be. And then our commitment to allocating our capital to the buyback program and all that working together allows us to make the statement we made today.

Bret Richter: And we also took steps to expand our available capacity to our revolver. So that gives us the ability on a go forward basis to not only continue to commit to our M&A program, but at these levels our expectation in the quarter is to be active in our stock our board took steps to support our stock buyback program.

Operator: Thank you. And the next question will be from John Tanwanteng from CJS Securities. John, your line is live.

Bret Richter: Our board took steps to support our stock buyback program by increasing the availability under our program by 5 million shares. So when you look at EPS, it's the multiple steps of the expected performance of our existing businesses in the back half of the year, the impact of pending M&A, and the cost actions we took in a quarter where our revenue expectations fell short of where we thought they'd be. And then our commitment to allocating our capital to the buyback program and all that working together allows us to make the statement we made today.

Vivek Shah: And then in the end, the thing that shouldn't get lost I guess is that, you know, we think we're going to be towards the high end of the adjusted EPS guide. And I think that's very important. Those who have followed the company for a long time know that we very much view ourselves as EPS compounders.

Bret Richter: Increasing the availability under our program by 5 million shares. So when you look at EPS. It's it's the multiple steps of the expected performance of our existing businesses in the back half of the year the impact of pending M&A. The cost actions, we took in a quarter, where our revenue expectations fell short.

Vivek Shah: You know, in terms of the advertising market, I'll say a few things because you know, I usually say it's well, it's not one market it's broken into categories and customer types and ad product types. You know, for us tech continues to be a challenge on the B to B side. By the way, I think that's for everyone in B to B tech advertising. It's a reflection of how those companies right now are performing.

Bret Richter: Where we thought they'd be and then our commitment to allocating our capital to the buyback program and all of that working together allows us to make the statement we made today.

Brett: Got it thanks Brett.

Vivek Shah: But again, I believe that cyclical and that will turn it's taken longer than I would have hoped, but we believe it's there consumer tech has done reasonably well. Health and wellness continues to do well. We've had one major pharma advertiser pause campaigns across the board. We're seeing that loosen up and getting unpaused. We think into the second into the second half. So again, very good there gaming entertainment. Interestingly, the gaming industry has been in some turmoil, but our advertising business hasn't reflected that.

Operator: Thank you. And the next question will be from John Tanwanteng from CJS Securities. John, your line is live.

Speaker Change: Thank you and the next question will be from Jon <unk> from CJS Securities John Your line of life.

Jonathan Tanwanteng: Hi, good morning. Thank you for taking my questions. I was wondering if you could talk very high level about the revenue and margin profiles and their trajectories as seen over the last several years, you know, compared to similar properties you have at Ziff and maybe how you expect to change them and drive value there, assuming an acquisition.

Operator: Hi, good morning. Thank you for taking my questions. I was wondering if you could talk very briefly about the revenue and margin profiles and their trajectories that we've seen over the last several years, you know, compared to similar properties you have at Ziff, and maybe how you expect to change them and drive value there, assuming acquisitions.

John Tanwanteng: Hi, Good morning. Thank you for taking my questions. I was wondering if you could talk very high level about the revenue and margin profile and their trajectory as seen over the last several years compared to similar properties you have and maybe how you expect to change them and drive value there assuming the acquisition closes.

Vivek Shah: Again, I don't want to I don't, we're not breaking out CNET, but two, we're still in this period where it's not closed, it's signed. But let me just say that, you know, again, broadly, that CNET is a leader in this market has been and continues to be. It has a balance of direct advertising revenue and affiliate commerce. Just like us, it is not programmatic heavy; just like us, it has more direct ad deals, sponsorship deals, video advertising, plus affiliate commerce, which is, you know, driving traffic to merchants and getting paid a commission if a consumer buys.

Speaker Change: Hey, again.

Speaker Change: We're not breaking out CNET, but two we are still in this period, where it's not closed or signed but let me just say that.

Vivek Shah: So we've been able to sort of, you know, I think perform a little bit differently than how the gaming publishing industry has been performing. So that's been a positive. And then in retail, actually retail strong, we've just had, you know, our commission issue, which we talked about in the last call and a distribution issue, which we talked about in the last call.

Vivek Shah: Again broadly that CNET is a leader in this market has been and continues to be it as a balance.

Vivek Shah: Direct advertising revenue and affiliate Commerce, just like US it is not programmatic heavy just like us more direct AD deals sponsorship deals video advertising plus affiliate Commerce, which is.

Vivek Shah: So look, again, I think that, you know, when I look at it all relatively healthy and in the end, the other thing to recognize is it's worth zooming out with our ad business 24 months. R. Businesses held up probably better than most, 24 months ago, and so maybe our comps going forward don't seem as percentage-wise dramatic as maybe some others, but it's probably helpful to look at it over a long period of time. Thank you.

Vivek Shah: Driving traffic to merchants and getting paid a commission if a consumer buys so model is very consistent with how we go to market and how we monetize at PC Mag and Mashable <unk> net add.

Vivek Shah: So, model wise, very consistent with how we go to market and how we monetize at PCMag and Mashable. ZDNet has more of a B2B kind of focus or history in Providence, which kind of maps well to what Spiceworks does.

Vivek Shah: More of a b to b kind of focus or history in Providence, which kind of match well to what would a spice where it does so I think very consistent.

Bret Richter: And just to follow up, in June, here's what happened or what do you think happened that kind of caused the pull back across a couple of verticals at the same time, the more macro-related, more specific to your businesses, just more color there would be helpful. Thank you. Yeah, Cory, I wouldn't put it on the macro. I think one of the things that we're characterized as a business is we have sort of high customer concentration if you think about the ad business.

Vivek Shah: So I think very consistent. Profile-wise, very consistent. Business model-wise, very consistent. Sort of cost structure, editorial, ad sales, you know, product, and engineering, very much the kind of business that, you know, we understand and very much the kind of business we operate today.

Vivek Shah: So I think very consistent. Profile-wise, very consistent. Business model-wise, very consistent. Sort of cost structure, editorial, ad sales, product, and engineering, very much the kind of business that we understand and very much the kind of business we operate today.

Vivek Shah: Profile is very consistent business model wise, I think very consistent sort of cost structure editorial ad sales.

Vivek Shah: Product and engineering very much the kind of business that we understand it very much the kind of business we operate today.

Vivek Shah: Okay, fair enough. And you alluded to this earlier, but it seems like there's, it sounds like there are a lot more properties similar to this behind CNET just given the timing and private equity and all the things that you mentioned. Can you just kind of size for us how many of these things you're seeing compared to maybe three or six months ago and, you know, scope for us how aggressive you think you can be over the next year or so? Yeah, well, you know, it's an interesting question.

Vivek Shah: Okay, fair enough. And you alluded to this earlier, but it seems like there's, it sounds like there's a lot more properties similar to this behind CNET, just given the timing and private equity and all the things that you mentioned. Can you just kind of size for us how many of these things you're seeing compared to maybe three or six months ago and, you know, give us a sense of how aggressive you think you can be over the next year or so? Yeah, well, you know, it's an interesting question.

Speaker Change: Okay fair enough.

Vivek Shah: Alluded to this earlier, but.

Bret Richter: We've got roughly 1700 customers, and if you take out some of the B2C stuff in our subscription business, again, we have large customer accounts where sales can amount to hundreds of thousands of dollars. It doesn't take a tremendous amount of movement on a part of a customer to either cancel a campaign or move a campaign from Q2 to Q3. We also have different types of revenue. Even on the subscription licensing side, we've got revenue that is sort of recognized over contract life and certain licensing revenue that's recognized on a one-time basis.

Vivek Shah: It seems like there is it sounds like there is a lot more properties.

Vivek Shah: This behind the scene that just given the timing of private equity and in all of the things that you mentioned can you just kind of size for us how many of these things you're seeing compared to maybe three or six months ago and scope for us.

Vivek Shah: Aggressive you think you can be over the next year or so.

Vivek Shah: Yeah, well, you know, it's an interesting question. It's less about, are we seeing more? I think we've always been seeing a lot. It's just now that the nature of the discussions is evolving, have moved, and shifted to where we believe these are actionable. I think that's the key point. The key point is that the bid-ask spread has narrowed, and it's come closer to where we were. And so I think that's a key thing to understand.

Speaker Change: Yes, it's an interesting question. It's less about are we seeing more I think we've always been seeing a lot. It's now the nature of the discussions are.

Speaker Change: Had evolved AD moved and shifted to where we believe these are actionable I think thats. The key point I think the key point is that the bid ask spread has narrowed and it come closer to where we were and so I think that's a key thing to understand these ideals, we're very excited.

Bret Richter: Depending on the timing of certain of those contracts and even winning or losing a contract, it can impact a quarter. And again, when we spoke in Maine, we had a perspective on the balance of Q2. By the end of Q2, we had a different perspective. We took action across the business to balance our investment against our expected incoming revenue. Those will impact as Vivek said, and I sent him our prepared marks more the back half of the year than the front part of the year. But again, I think part of this is just large customers and the timing of successes in the marketplace. Thank you.

Vivek Shah: These are deals we are very excited to do at these particular valuations. And so, to me, I believe it's a valuation statement more than a sort of sourcing and volume of deal statement because the sourcing has always been there, right? It's not like we were not having conversations. It just felt like, wow, there's a football field between where we are and they are, and that's going to be hard and not a productive dialogue.

Speaker Change: Cited to do at these particular valuation and so to me I believe it's evaluation statement more than sort of sourcing and volume of deal statement because of the sourcing has always been there right. Its not like we were not.

Vivek Shah: Not having conversations it just felt like Wow, there's a football field between where we are and they are and thats going to be hard and not a productive dialogue. So we think it's going to be productive. We think we're going to be in a position.

Ross Sandler: The next question is coming from Ross Sandler from Barclays. Ross, your line is live. Hey, guys. Just two questions. First on CNET as somebody that actually covered that company when it was public back in the day. Great to hear. We'll be talking about it. Go forward.

Vivek Shah: So we think it's going to be productive. We think we're going to be in a position, listen, historically, just maybe as a way to frame this, we often talked about being able to recycle 100% of our free cash flow into M&A and to manage borrowings at gross debt over EBITDA of three times with all of that capital being available for acquisitions with a hurdle of a 20% cash on cash return on those deals.

Vivek Shah: Historically, just maybe as a way to frame. This we often talked about.

Speaker Change: Being able to recycle 100% of our free cash flow into M&A and to manage borrowings at gross debt over EBITDA of three times with all of that capital being available for acquisition with a hurdle of a 20% cash on cash return on those deals.

Ross Sandler: So maybe just some high-level thoughts on accretion and how this might help the overall advertising go to market within that tech vertical consumer tech vertical. And then the second question, your long-term free cash flow conversion of mid to high fifties. Is that still the right way to think about it, given the TDS and these other new companies coming into the fold? What should we think about that metric? Go forward. Thanks a lot, guys. Thanks, Ross. And I'm glad you're revealing that we're probably around similar ages. I remember seeing that as a public company too.

Vivek Shah: Another way we often look at it is within an incubation period of, let's call it 18 months, the next 12 months' effective purchase price over EBITDA after this incubation period, this is an important statement, is roughly six times. And that's what we work towards. That's never changed, right? And so to us now, there are more opportunities that fit within that model and within that framework.

Speaker Change: Another way, we often look at it is within a incubation period of lets call. It 18 months that the next 12 months effective purchase price over EBITDA. After this incubation period. This is an important statement.

Speaker Change: Roughly six times and Thats, what we work towards that's never changed right and so to US now there are more opportunities that fit within that model and within that framework.

Vivek Shah: Let me say a few things about it and I have to be somewhat careful. Obviously we're signed. We're not closed. We've got to go through the HR process. But at a high level, I'll say a few things. One, it's highly strategic. The tech vertical has always been an important vertical for the company and CNET has been, as you know, the decades a market leader. And we have an immense amount of respect for the brand.

Vivek Shah: Perfect. Thank you.

Bret Richter: Thank you. There were no other questions in the queue at this time. I would now like to hand the call back to Bret Richter for closing remarks.

Vivek Shah: Thank you there are no other questions in the queue at this time I would now like to hand, the call back to Bret Richter for closing remarks.

Bret Richter: Thank you, Paul, and thank you everyone for joining our call today. We appreciate the interest and the support. We hope to see some of you at our upcoming conferences, which we'll post in due course. Have a great day.

Unknown Attendee: Thank you, Paul, and thank you everyone for joining our call today. We appreciate the interest and the support. We hope to see some of you at our upcoming conferences, which we'll post in due course. Have a great day.

Speaker Change: Thank you Paul and thank you everyone for joining our call today.

Unknown Attendee: We appreciate the interest and the support we hope to see some of you at our upcoming conferences, which will post in due course have a great day.

Vivek Shah: It's heritage. It's team. And what it represents to its audience. What it represents to the tech community at large. To me, it reminds me of what IGN was for us when we acquired IGN within the gaming space. The big CNET occupies a very, very similar kind of space, and then when I'll talk more broadly about, I guess, is how I see the ad market today and how it's evolving. For sure, marketers spend a significant amount of their budgets, digital ad budgets I'm talking about now, on search and social and programmatic.

Operator: Thank you. This does conclude today's conference. You may disconnect your lines at this time and have a wonderful day. Thank you for your participation.

Operator: Thank you. This does conclude today's conference. You may disconnect your lines at this time.

Speaker Change: Thank you. This does conclude today's conference you may disconnect. Your lines at this time and have a wonderful day. Thank you for your participation.

Vivek Shah: Those are three big areas, but I believe in every vertical you have a few players that are the at scale premium players that are in a position to do attractive, direct ad deals, premium deals, and that's how we're trying to be positioned and viewed in every one of the verticals we're in. And I believe that CNET puts us in a very, very great position within the tech vertical, whether it's you're looking to reach IT decision makers, you're looking to reach tech enthusiasts, early adopters, customers of consumer electronics, potential customers, whoever it is, I think that's whole space.

Vivek Shah: I think we're going to occupy a really great one. So we're very excited for it. It is a brand that we have thought about for many years, frankly, and the fact that we've signed this agreement, I think, is super compelling.

Bret Richter: I'll let Brent talk to the free cash flow conversion question. Yeah, Rose, first and foremost, I think yes, that is sort of our long-term target, but maybe unpack it a little bit. First and foremost, obviously depends on performance. And what I mean by that is when you think about our free cash flow, a number of the elements are relatively fixed. And if you start with EBITDA and we're subtracting our CAPEX, usually our CAPEX program over a 12-month period is essentially fixed as we develop and invest in our products and businesses.

Bret Richter: And to the extent that our EBITDA is not at the high end of our range, you're going to see a high flow through every $5 of EBITDA is sort of a point of free cash flow conversion. We talked about in 2023 coming out of some dynamics in the business, we had a build-up of working capital. I think we've stabilized that situation, but we're still calling back some of the build-up on the balance sheet.

Bret Richter: And then TDS has had the expected impact on the business. The dynamics of TDS is it's a highly seasonal business with the concentration in the fourth quarter. It builds up a significant amount of cash at the end of the year and it runs out on the first quarter. We happen to do a first quarter acquisition. And that acquisition we experienced the negative outflow of some of the cash it had built up in the fourth quarter, running out towards its customers.

Bret Richter: Very relatively small nominal impact in the second quarter. And as we get into the back half of the year, we anticipate that being a contributor. But again, I think that conversion rate is our target for the business. We also have on a go-forward basis, smaller expected investment in humble games that should positively impact it. So, yeah, our plan is to get back to those levels. Thank you.

Jane Lee: The next question is coming from Jane Lee from Evercore ISI. Your line is live. Great. Thanks for taking the question. I have a couple, I related questions. So first, definitely, I appreciate the color around just the Google AI overviews share of search in general. But like for the Ziv Davis publisher assets specifically, are you seeing any discernible impacts at all to your traffic to your publisher side by driven by the adoption of AI overview?

Jane Lee: And also seeing in terms of user engagement on the side is it driving more impressions. You can kind of talk about the how these can be monetized and where we should see this on the P&L impact. Thanks a ton.

Vivek Shah: Yeah, no, no, it's a great question on the first piece with respect to organic search. No, we're not seeing any impacts from AI overviews only because as I say, the rate at which overviews are presenting themselves is quite low against the queries that matter to us. But as I also said, they think more broadly across all queries, it's quite low and it continues to reduce. And I think Google is looking for which of the queries where AI overviews will be added to the search experience.

Vivek Shah: But what I'll also say is that in other analyses we've done is actually when AI overviews present themselves, it's actually a positive to organic search because it's actually elevating your links to your site above everything else. So the way AI overviews are presenting right now is there at the top of the SERP. So in some ways, it's interesting, right, which is it's not happening that frequently, but when it happens, it's actually been viewed as a net positive if you're in the overview.

Vivek Shah: And I think, you know, I can imagine a world where we go from SVO to, you know, S-A-I-O, something that, you know, AI overview or S-A-O-O. So look, I think that in the end, it's not really a factor right now.

Vivek Shah: I think the other part of this, which I also spoke to, is the degree to which Google, as a search engine, starts to see any competition from other emerging search engines way too early to say. What I will say is that those search engines are very much focused on how to create a search engine result page that delivers publisher traffic because they think they view an opportunity for a SERP that may have more publisher content than maybe ad content, for instance. So that'll be interesting to watch, but again, you know, Google's in such a great position in search, it'll take a while, I think, for anyone to really into that market share.

Vivek Shah: On the second question relating to, you know, when we incorporate AI into our products, what is the expected or hoped for benefit? and I think right now, much of it is actually around our subscription offerings and making our subscription offerings easier to use, making them more productive that should result in improved retention. So when we talk about losing and shifting to voice logging, one of the big sort of adherence issues in an app like lose it is actually entering in your food consumption, well, the greed of which we can make that easier, we believe helps drive retention, retention helps drive revenue.

Vivek Shah: Similarly, some of the changes within some of the things we've done that I talked about with respect to the down detector, which is a subscription service, again. So I think we look for retention. On the media side, I guess you're right, it would be session time, maybe more ad load and ad impressions if people are engaging, for instance, with IGN content in a more meaningful way. But that's very early days and I don't want to lead anyone with the impression that AI tooling of content experiences is going to lead to some dramatic change in the ad inventories of the business. I think they are all experimental, they're all, I think trying to contribute to a better user experience but I don't want to necessarily overstate that.

Vivek Shah: I actually think AI incorporated into software is more compelling.

Unknown Attendee: Great, thanks for having me.

Igal Arounian: Thank you. The next question will be from Igal Arunian from CZ. Igal, your line is live. Hey, good morning guys. Maybe just first go back to the guidance and the trajectory from our regard to maintaining the guidance for the full year. Can you help break down what the expectations are from M&A? Within that number and the mix between that and organic revenue as we work through the back half of the year.

Igal Arounian: I don't know if you could size the particular but just maybe more broadly if not that specific. I don't think we're going to break it down in that specificity. What I will say is I think it's three things. It is improving organic. It is improving margins against the cost control so that more affects, you know, obviously the adjustity but NEPS and then the contribution of M&A and I think it's probably instructed to just, you know, for those who follow the company for a long time, it's always been the combination of those three things in our formula.

Igal Arounian: Look, organic is not where we'd like it, so let me be clear about that. We can't continue to be in a place where, you know, where organic is a source of decline. But it's a modest source of decline and it is, we believe, certainly over the last 12 months, it is a reducing headwind and we believe that's going to continue. In the end, the company has always been a serial acquireer and a net income, a adjusted EPS compounder to highly accretive M&A deployment, generation of free cash flow, deployment of free cash flow, leveraging balance sheet, being very smart about our capital structure.

Igal Arounian: I think the thing that... We're hoping to convey today is that that second part of what has been the Ziff Davis equation is I think firmly back. That part has been absent, frankly, for the last few years for the reasons I've described at the beginning of the call. We're signaling now we believe a real change there. So acquisitions are important. They're important to the second half guide, make no mistake about that.

Igal Arounian: And they're important to 2025 and beyond. And maybe the only thing I'd add is, with regards to the timing for the balance of the year, Q4 is a seasonally large and strong quarter for the company overall based on the dynamics of the business. And M&A is meaningful portion of our guide. And as we said, we factored in both existing and pending impacts, including our expectation of the closing of CNET. So given where we sit here in the beginning of August, there's. Here an expectation that that has an impact on Q3, but probably a small impact on Q3 with a full impact on Q4.

Vivek Shah: Okay, got it helpful. And then the fact I guess going back to AI and more on the licensing front, you guys have been more patient. Is that the stance you continue to take here? Maybe any updates to how you're thinking about licensing opportunities in your approach with with the LOMs. Thanks. Yeah, I mean, look, obviously we have nothing to report. We continue to be in dialogue. I think what's, you know, possibly becoming clear in the market.

Vivek Shah: These people are that big. They're not large needle movers. And I think what they relate to are fairly large questions around copyright. And what is allowed and what is fair use and what isn't. And I think we would rather either be in a situation with as a recognition that the original training was a, was a, was not a fair use situation. And they need to be compensation for before we get into sort of the rack style deals that seem to be in the marketplace.

Vivek Shah: So I guess what I'd say is I'm in the category of companies that I'm certainly not alone that I think feel that, you know, this near term. This near term money is not that appealing. It's not that appealing in size and duration against what I think we recognize has been, you know, a high concentration of the training and ongoing training coming from. You know, a fairly small subset of meaningfully sized publisher.

Vivek Shah: So all to say that in the end, you know, we're not feeling that compelled right now to do deals that we think might be very short term. I think we'd rather see how this plays out a little bit more. And at the same time, we're actually optimistic that some of the movement around trying to build search engines that become meaningful sources of referral traffic. That is interesting to me. So to degree to which that can come to fruition in any way, meaningfully, I think that would be very productive.

Vivek Shah: And then obviously there are major things happening relating to search deals. And yes, all right, search distribution deals. And what does that mean in that mix? So this will be an interesting space. I think to watch. I think being, I think just being a little patient and waiting is probably a good thing for us.

Unknown Attendee: Thanks so much.

Unknown Attendee: Thank you.

Rishi Jaluria: The next question is coming from Rishi Jaluria from RBC. Rishi Irleina's lives.

Bret Richter: Hey guys, this is Chris Fountain on for Rishi Jaluria. Thanks for taking my question. I wanted to go back to profitability. Can you talk a bit more about the actions that you took in Q2 to write size, the expense base to match the growth headwinds, and just to confirm are these actions what is giving you confidence in reaching the higher end of the EPS range? Yeah, so again, thanks for the question Chris.

Bret Richter: I think it's just constantly calibrating our investments in the business against our expectation of top line performance. And whether that's continued, accelerated, hiring to build capacity in the business and anticipation of more activity, or you go to the other end which is keep an open position, open longer, or potentially eliminating open positions in areas where we see more pressure in the near term with an expectation of rebuilding into the future. I think on the EPS side, that's a combination of things.

Bret Richter: And it's a combination of, again, the anticipated we obviously have to close the acquisition impact of our pending M&A and our existing M&A, but it's also the impact of the share of buybacks. I think this was a very important period of time for the company from a balance sheet perspective. If you look back over the last 24 plus months, we've accumulated a lot of cash. And we really put a lot of that cash to work in the second quarter and into the third quarter.

Bret Richter: Not only do we buy back a million and a half shares and commit to a meaningful acquisition, but we also took steps to extend the maturity and on attractive terms for more than half of our convertible outstanding. We pay down $135 million of our convertible. We're really pleased with that transaction and where it puts us in terms of stagger maturity and our cost of debt with the coupon on that less than 4%.

Bret Richter: And we also took steps to expand our available capacity through our revolver. So that gives us the ability on a go-forward basis to not only continue to commit to our M&A program, but at these levels, our expectation in the quarter is to be active in our stock. Our board took steps to support our stock buyback program by increasing the availability under our program by 5 million shares. So when you look at EPS, it's the multiple steps of the expected performance of our existing businesses in the back half of the year, the impact of pending M&A, the cost actions we took in a quarter where our revenue expectations fell short of where we thought they'd be, and then our commitment to allocating our capital to the buyback program and all that working together allows us to make the statement we made today.

Bret Richter: Thanks, Brett.

John Tanwanteng: Thank you, and the next question will be from John Tanwanteng from CGS Securities. Hi, good morning. Thank you for taking my questions.

Vivek Shah: I was wondering if you could talk very high level about the revenue and margin profile and their trajectories of CNET or less several years. You know, compared to similar properties, you have it Ziff, and maybe how you expect to change them and drive value there on the assuming acquisition closes. Again, I don't want to we're not breaking out CNET, but two were still in this period where it's not closed and signed.

Vivek Shah: But let me just say that, you know, again, broadly that CNET is a leader in this market has been and continues to be it has a balance of direct advertising revenue and affiliate commerce just like us. It is not programmatic heavy, just like us more direct ad deals, sponsorship deals, video advertising plus affiliate commerce, which is, you know, driving traffic to merchants and getting paid a commission if a consumer buys. So model wise, very consistent with how we go to market and how we monetize at PC mag and mashable.

Vivek Shah: ZDNet has more of a B2B kind of focus or history and provenance which kind of maps well to what what what a spice works does. So I think very consistent profile wise, very consistent business model wise, I think very consistent sort of cost structure editorial ad sales product and engineering very much the kind of business that, you know, we understand very much the kind of business we operate today. Okay, fair enough.

Vivek Shah: And you alluded to this earlier, but it seems like there's it sounds like there's a lot more properties similar to this behind CNET, just given the timing and private equity and all things that you mentioned. Can you just kind of size for us how many of these things you're seeing compared to maybe three or six months ago and and you know scope for us how aggressive you think you can be over the next year or so.

Vivek Shah: Yeah, well, you know, it's an interesting question. It's less about are we seeing more I think we've always been seeing a lot. It's now the nature of the discussions are have evolved, have moved and shifted to where we believe these are actionable. I think that's the key point. I think the key point is that the bit asked spread has narrowed and it's come closer to where we were. And so I think that's a key thing to understand these are deals.

Vivek Shah: We are very excited to do at these particular valuations. And so to me, I believe it's a valuation statement more than sort of sourcing and volume of deal statement because the source is always been there, right? It's not like we were, you know, not having conversations that just felt like, wow, there's a football field between where we are and they are and that's going to be hard and not a productive dialogue.

Vivek Shah: So we think it's going to be productive. We think we're going to be in a position. Listen, historically, just maybe as a way to frame this, we often talked about being able to recycle 100% of our free cash flow into M&A and to manage borrowings at gross debt over EBITDA of three times with all of that capital being available for acquisitions with a hurdle of a 20% cash on cash return. So let's turn on those deals.

Vivek Shah: Another way we often look at it is within a incubation period of let's call it 18 months, that the next 12 months effective purchase price over EBITDA after this incubation period, this is an important statement, is roughly six times. And that's what we work towards. That's never changed, right? And so to us now, there are more opportunities that fit within that model and within that frame. Thank you.

Unknown Attendee: There were no other questions.

Bret Richter: In the queue at this time, I would now like to hand the call back to Bret Richter for closing remarks. Thank you Paul and thank you everyone for joining our call today. We appreciate the interest and the support we hope to see some of you at our upcoming conferences which will post in due course.

Unknown Attendee: Have a great day. Thank you.

Unknown Attendee: This does conclude today's conference. You may disconnect your lines at this time and have a wonderful day.

Thank you for your participation.

Q2 2024 Ziff Davis Inc Earnings Call

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