Q3 2024 Ziff Davis Inc Earnings Call
Good day, ladies and gentlemen, and welcome to the Ziff Davis third quarter 2024 earnings Conference call.
Tom: My name is Tom and I will be the operator, assisting you today.
Tom: At this time all participants are in a listen only mode.
Tom: Question and answer session will follow the formal presentation.
Tom: If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
Tom: On this call will be Vivek Shah CEO of Ziff Davis, and Bret Richter, Chief Financial Officer of Ziff Davis.
Speaker Change: I will now turn the call over to Bret Richter, Chief Financial Officer of Ziff Davis.
Bret Richter: You may begin.
Bret Richter: Thank you good morning, everyone and welcome to the Ziff Davis Investor Conference call for Q3 2024.
Bret Richter: 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. If you have not received a copy of the press release, you may access it through our corporate website at www.
Bret Richter: Dodge Ziff Davis Dot com.
Bret Richter: In addition, you'll be able to access the webcast from this site.
Bret Richter: After completing the formal presentation, we'll be conducting a Q&A.
Bret Richter: The operator will instruct you at that time regarding the procedures for asking questions. In addition, you can email questions to investor at Ziff Davis Dot com.
Before we begin our prepared remarks allow me to read the safe Harbor language.
Bret Richter: As you know this call and 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.
Bret Richter: Some of those risks and uncertainties include but are not limited to the risk factors that we have disclosed in our SEC filings, including our 10-K filings recent 10-Q filings various proxy statements and 8-K filings as well as additional risk factors that we've included as part of the slideshow for the webcast.
We refer you to discussions in those documents regarding safe Harbor language as well as forward looking statements.
Bret Richter: In addition, following our business outlook slides or our supplemental materials, including reconciliation statements for non-GAAP measures to their nearest GAAP equivalent.
Vivek Shah: Now, let me turn the call over to Vivek for his remarks.
Vivek Shah: Thank you Brett and good morning, everyone.
Vivek Shah: We're very pleased with our third quarter results with total revenue growth of three 7%.
Vivek Shah: And adjusted EBITDA growth of nine 6%.
Vivek Shah: It was certainly our best quarter of the year and we're confident that we are now solidly in growth territory with improvements in the businesses. We currently own.
Vivek Shah: And the opportunity for us to leverage our balance sheet and cash flows to acquire businesses that we'd like to own.
Vivek Shah: The digital media segment grew nearly 6% in revenue and over 14% and adjusted EBITDA in Q3.
Vivek Shah: That's the best adjusted EBITDA growth for the segment since Q3 of 2021.
Vivek Shah: All of our digital media verticals grew in the quarter, which is itself a milestone with a mixture of organic and inorganic growth drivers.
Vivek Shah: Our tech properties had a strong quarter with double digit growth in our consumer Tech brands plus the benefit of acquiring CNET late in the quarter, partly offset by declines in b to B.
Vivek Shah: The gaming vertical grew double digits with steady growth from our existing properties plus the inclusion of gaming network, which was acquired in May.
Vivek Shah: Our shopping properties grew mid single digits with continued benefit from the acquisition of our gift cards business.
Vivek Shah: Connectivity was up mid single digits, and health and wellness was slightly positive with strong consumer revenues offsetting ongoing pressure on the provider side.
Vivek Shah: Overall, we feel we've turned the corner in our digital media businesses with advertising revenues up five 8% and subscription and licensing revenues up seven 8% in the quarter.
Vivek Shah: The cyber security and Martech segment's revenues declined by a little over 4%.
Vivek Shah: But we've been very focused on preserving adjusted EBITDA, which was flat in the quarter.
Vivek Shah: We took our revenue hit in our Mas SCO business.
Vivek Shah: Due to the Moscone conference moving out of the quarter, but also due to a softening in new customer acquisition.
Our email marketing business continues to perform very well growing double digits in the quarter.
Vivek Shah: We continue to believe that as paid media costs rise marketing channels like E mail grow in importance and value.
Vivek Shah: We've extended our capabilities to offer SMS marketing, which has become a fast growing feature.
Speaker Change: While cyber security revenues did increase sequentially from Q2, they are still down year over year.
Speaker Change: I believe we're a few quarters away from being in positive growth territory based on product advancements signed partnerships and bookings momentum.
Speaker Change: Our revenue initiatives have taken longer than we hoped but I continue to believe that owning cyber security assets that can grow and have mid thirty's EBITDA margins will prove to be valuable for the company.
I'm also happy to report.
Speaker Change: And then in the third quarter, we successfully closed our acquisition of CNET, which I previewed last quarter.
Speaker Change: This again is a quintessential Ziff Davis acquisition.
Speaker Change: We love to acquire great.
Speaker Change: Wearable brands at reasonable prices.
Speaker Change: The addition of CNET to our existing portfolio of technology brands sets us up to be a standard bearer for technology publishing for many years to come.
CNET was not our only M&A activity in Q3.
Speaker Change: Our Martech group completed a small identity resolution tuck in.
Speaker Change: And we actively engaged in dozens of other acquisition dialogues across all other areas of our portfolio.
Speaker Change: The market for deal activity appears to be relatively strong and we expect that our patients over the last few years will be increasingly rewarded with transactions at reasonable prices in the quarters to come.
Speaker Change: I'm often asked what metrics matter most to the company.
Speaker Change: We view adjusted EPS and free cash flow is the metrics that best capture the full breadth of our business and capital allocation activities.
Speaker Change: Adjusted EPS reflects our ability to generate incremental intrinsic value per share by growing adjusted diluted earnings per share.
Speaker Change: It is important to us to not only focus on whole company measures such as revenue and adjusted EBITDA, but on this critical measure of per share value as well.
Speaker Change: To that end, we allocated nearly $100 million to the repurchase of another 2 million common shares in Q3.
Speaker Change: Year to date, we've repurchased three 5 million shares of Ziff Davis common stock.
Speaker Change: Free cash flow is the fuel of our capital allocation strategy and our M&A strategy in particular.
Speaker Change: While our businesses may be at various stages of performance or development at any given time, we're always focused on their ability to generate cash.
Speaker Change: This free cash flow is critical to our maintenance of our healthy balance sheet, which as Bret will discuss further supports all of our capital allocation alternatives.
Speaker Change: And to that end, we're pleased to see that our free cash flow over adjusted EBITDA yield is moving toward our target levels.
Speaker Change: This past quarter, we launched several notable AI driven products across our key verticals.
Speaker Change: Starting with ACA, how we introduced <unk>, how AI pro online on Wi Fi day.
Speaker Change: This product was designed to enhance echo how AI pro by integrating advanced AI modeling with our proprietary measurement data eliminating the need for manual wall drawings.
Speaker Change: User should now be able to design optimize and visualized networks directly in their web browsers significantly improving both speed and accuracy and Wi Fi network planning.
Speaker Change: And cyber security, we launched Viper AI adviser and AI powered tool now embedded directly into the incident response workflow of our endpoint detection and response solution.
Speaker Change: Viper AI advisor was designed to enable users to ask security related questions in natural language and receive actionable insights.
Speaker Change: This advancement should simplify threat analysis, and response, making security management more intuitive and efficient.
In health and wellness health E careers rolled out the AI job fit analyzer, which should help healthcare job seekers assessed their compatibility with specific roles.
Speaker Change: This tool provides objective feedback to improve job matching.
Speaker Change: Dreamliner, the search process and tailoring it to meet our users' needs.
Speaker Change: As much as our products continually evolve with AI. We also closely monitor the evolution of Google's search product with AI overviews.
Speaker Change: As of Q3, we continue to see less than 10% of our top queries include Nai overview.
Speaker Change: As Google reiterated on their last earnings call AI or reviews are increasing overall search usage as people ask more complex questions and different types of questions supporting our hypothesis that AI enabled search encourages more search.
Speaker Change: Google's market share of search is not materially shifted in any way, but we continue to keep close watch on competing engines in the marketplace.
In the evolving search landscape.
Speaker Change: High quality authoritative content is more essential than ever.
是越來越重要的
Speaker Change: It ensures accuracy in AI driven search results and serves as a critical foundation for training AI models.
Speaker Change: Prioritizing it between five and nearly 100 times more than general web content collected through common kroll.
Speaker Change: This is all to say that we continue to firmly believe in the value of our intellectual property to AI models.
Speaker Change: Let me conclude with an update on our ESG efforts.
Speaker Change: In August we received our score from the S&P corporate sustainability assessment widely known as the CSA, which is an annual evaluation of company's sustainability practices.
Speaker Change: We moved up 15 points, which now places us in the 95th percentile of companies in our industry.
Speaker Change: Also in August we participated for the first time in the E Covatta assessment, which rates accompanies material sustainability impact based on thorough documentation analysis.
Speaker Change: We received a silver medal, which places us among the top 15% of all companies assessed by Gavotte us in the past 12 months.
Speaker Change: And last month, we submitted the CDP climate questionnaire, which marks our second year of participation.
Speaker Change: Participating in and scoring well on these assessments provides us the opportunity to further communicate our actions and leadership to investors suppliers customers and employees.
Speaker Change: And speaking of our employees next week, we will host our fourth annual companywide purpose summit and opportunity for all of our employees to come together and be inspired by leaders and colleagues throughout the organization, who are making an impact do their work and driving positive change.
Speaker Change: With that let me hand, the call back to Bret.
Bret Richter: Thank you Vivek, let's discuss our financial results.
Bret Richter: Our earnings release reflects both our GAAP and adjusted financial results for Q3 2024.
Speaker Change: We will focus our discussion today and my commentary will primarily relate to our Q3 2024 adjusted financial results and their comparisons to prior periods.
Speaker Change: Slide four reflects the summary of our third quarter financial results.
Speaker Change: We reported revenue of $353.6 million for the third quarter of 2024.
Speaker Change: This compares with revenue of $341 million for the 2023 comparable period, reflecting an increase of three 7%.
Speaker Change: Q3, 2024, adjusted EBITDA of $124 $7 million increased nine 6% as compared with $113 7 million for the prior year period.
Speaker Change: Our adjusted EBITDA margin for the quarter was 35, 3%, a 200 basis point improvement as compared with Q3 2023.
Speaker Change: Q3, adjusted diluted EPS was $1.64, reflecting a nine 3% increase as compared with Q3 2023.
Speaker Change: During our Q2 2024 earnings call, we said that we expected our financial results to improve in the second half of the year with Q3 2024 revenue growing nearly 4% adjusted EBITDA growing almost 10% and adjusted diluted EPS growing more than 9%. We believe that this quarter's results reflect a significant.
Speaker Change: Year over year improvement. In addition, our year to date results for revenue adjusted EBITDA and adjusted diluted EPS all reflect year over year growth.
Speaker Change: Let's discuss certain details relating to these results.
Speaker Change: Slides five and six with what performance summaries were our two primary sources of revenue advertising in performance marketing and subscription and licensing.
Slide five reflects the company's advertising in performance marketing revenue performance.
Speaker Change: Advertising in performance marketing revenue increased five 8% in Q3 2024 as compared with the prior year period.
Speaker Change: This represents a significant improvement as compared with our first half 2024, a decline of one 4% as compared with the first half of 2023.
Speaker Change: Advertising in performance marketing revenues in consumer Tech and gaming were significant contributors to the year over year growth.
Speaker Change: This growth was offset in part by the impact of the factors relating to our health and shopping businesses that we discussed on our Q1 2024 earnings call and by a year over year decline in our <unk> technology business.
Speaker Change: Trailing 12 month advertising in performance marketing revenue was nearly flat compared with the prior year, reflecting less than a half of a percent decline.
Speaker Change: Our net advertising in performance marketing revenue retention was nearly 92% up approximately 300 basis points as compared with the prior year period.
Speaker Change: As defined in the slide during the third quarter Ziff Davis served more than 1700, 30 advertisers and performance marketers with an average quarterly revenue per customer of nearly $112000.
Speaker Change: These metrics reflect a slightly more consolidated set of advertisers as compared with the prior year period with a higher average revenue contribution per customer.
Speaker Change: Slide six depicts our subscription and licensing revenue performance.
Speaker Change: Ascription and licensing revenue grew one 8% in Q3 2024 as compared with the prior year period and two 7% during the last 12 months.
Speaker Change: The table on the bottom of slide six includes subscription and licensing metrics for the last eight quarters.
Speaker Change: We had nearly $3 5 million subscription and licensing customers in Q3, 2024, reflecting a sequential increase.
Speaker Change: There were sequential gains with him lose it and humble bundle offset in part by a reduction in cyber security customers.
Speaker Change: Our Q3 2020 for average quarterly revenue per customer was $42.21 a modest sequential increase churn also declined sequentially from 3.61% to $2 eight 5%.
Speaker Change: The Companys Q3, 2024, other revenues declined by approximately $600000 year over year, primarily reflecting lower revenue from Echo house side kicks sales and daily AUM offset in part by higher revenue from humble bundle game publishing.
Speaker Change: Slide seven provides quarterly organic and total revenue growth rates for the last eight quarters.
Speaker Change: Revenue from businesses owned for at least a full 12 months is included in organic revenue while acquired revenue relates to businesses, we've owned for less than 12 months.
Speaker Change: Third quarter 2020 for organic revenue declined less than 2%, reflecting a three percentage point improvement as compared with Q2 2024.
Speaker Change: This is consistent with the statement that we made on our Q2 2024 earnings call. When we noted that we expected this metric to improve in the second half of the year.
Speaker Change: Turning to our balance sheet, please refer to slide eight.
Speaker Change: Q3, 2024 was a very active quarter for our capital deployment activities.
Speaker Change: And as we approach the end of 2024 of our balance sheet remains strong and continues to represent the foundation of our capital allocation strategy.
Speaker Change: As of the end of Q3, 2024, we had $386 million of cash and cash equivalents and $153 million of long term investments.
Speaker Change: We also have significant leverage capacity, both on a gross and net leverage basis, and our $350 million revolving credit facility remains undrawn.
Speaker Change: During the quarter, we deployed $155 million of cash for acquisitions.
Speaker Change: As we discussed on our Q2 2024 earnings call in July 2024, we completed an exchange offer for $409 million of our 175% convertible notes due 2026 and.
Speaker Change: In exchange for these notes, we issued $263 1 million of new 365% convertible notes due 2028 and paid approximately $135 million in cash.
Speaker Change: As a result of this transaction, we reduced our gross amount of our outstanding debt by $138 million and extended the maturity of $263 million of our debt principal outstanding.
Speaker Change: We also reduced the number of shares underlying our outstanding convertible debt by more than $1 1 million shares.
As we also discussed in our Q2 2024 earnings call in August of this year, our board increased our stock repurchase authorization by 5 million shares and extended the expiration date of our stock repurchase authorization to August of 2029.
Speaker Change: Taking advantage of this action by the board during the third quarter, we accelerated our share repurchase activity repurchasing 2 million shares of our common stock for approximately $96 million.
Speaker Change: This increased our year to date stock repurchases to $3 5 million shares or approximately seven 6% of our shares outstanding as of February 2024.
Speaker Change: We have more than $6 2 million remaining shares authorized under our stock repurchase program and we will continue to be opportunistic with regard to future stock repurchases.
Speaker Change: Our third quarter net leverage ratios reflect all of this Q3 activity.
Speaker Change: As of the end of 2024 third quarter gross leverage was one eight times trailing 12 months adjusted EBITDA and our net leverage was one times and seven times, including the value of our financial investments.
Speaker Change: We plan to continue to leverage the strength of our balance sheet to support our pursuit of enhancing shareholder value.
Speaker Change: Our capital allocation approach is dynamic and we plan to utilize all of our capital allocation alternatives as opportunities arise and in particular to support our active M&A program.
Speaker Change: Turning to slide 10.
Speaker Change: We are reaffirming the fiscal year 2024 guidance range that we originally presented in February 2024.
Speaker Change: Q3, 2024 reflects strong financial performance for our collective businesses and we look forward to continuing the momentum in the fourth quarter for which we expect high single digit growth in revenue and adjusted EBITDA and double digit adjusted EPS growth.
Speaker Change: Most importantly.
Speaker Change: We're excited at the prospect of a solid growth year, especially with very strong adjusted EPS growth.
Speaker Change: Following our business outlook slides or certain supplemental materials, including reconciliation statements for the various non-GAAP measures to their nearest GAAP equivalent.
Speaker Change: This section includes a reconciliation on slide 16 that reflects free cash flow year.
Speaker Change: Year to date 2020 for free cash flow was approximately $153 million. This includes more than $80 million of Q3 2020 for free cash flow, a 76% increase as compared with Q3 2023.
Speaker Change: These figures reflect the positive contribution in Q3 2024 of approximately $7 $5 million from our recently acquired Tds business.
Speaker Change: Overall, we are very pleased with our Q3 2024 results.
This quarter reflects many of the elements that define our value creation strategy.
Speaker Change: First and foremost the quarter represents growth in all of our key financial metrics and significant growth in adjusted EBITDA adjusted diluted EPS and free cash flow.
Speaker Change: In addition, the quarter represents a period during which we were able to execute upon several of the key pillars of our capital allocation strategy.
Speaker Change: We acquired CNET, we retired $135 million of our outstanding debt, we reduce the potentially dilutive shares underlying our convertible debt by more than $1 1 million shares and we repurchased 2 million shares of our outstanding common stock.
Speaker Change: We have been patient and disciplined with our capital deployment as we have navigated challenges during the last several years.
Speaker Change: But as we have consistently communicated when we have the opportunity to act, we will act decisively.
Speaker Change: We are now focused on the balance of 2024 as we begin to plan for 2025.
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 and.
Speaker Change: In the interest of time, we ask that you. Please limit yourself to one question.
Speaker Change: If you would like to ask a question. Please press star one on your telephone keypad.
Speaker Change: A confirmation tone will indicate your line is in the question queue.
Speaker Change: You May press Star two if you would like to remove yourself from the queue.
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.
Speaker Change: And your first question. This morning is coming from Yigal <unk> from Citigroup.
Speaker Change: Your line is live please go ahead.
Speaker Change: Hey, good morning, guys.
Speaker Change: The outperformance in the turn here.
Speaker Change: Just on <unk>.
We're still kind of expecting a nice step up into <unk> I know, we've got a full quarter to see that and that helps.
Speaker Change: Just help us frame what else kind.
Speaker Change: It kind of drives that.
Speaker Change: Step up in particular are we expecting to get back to organic growth in <unk> and then a follow up.
Speaker Change: Thank you for the question I'll take that.
Speaker Change: Greg.
Speaker Change: <unk> really reflects all the underlying trends in the business I think first and foremost when you think about the fourth quarter for our company remember the seasonality in our advertising business, but it's really just to focus on continued execution across the board and not only driving revenue, but maintaining and adjusting our call.
Speaker Change: Cost base dynamically to adjust to the wins in the business note appropriately we will get a full quarter of CNET.
Speaker Change: We have the seasonality in our various shopping businesses.
Speaker Change: And we're certain of our businesses have shown strength throughout the year, where we anticipate certain of those trends continuing with regards to organic growth no comment on specific metrics beyond what we already said for this quarter, but importantly, our Q3 organic growth rate was a significant improvement.
Speaker Change: It is to what we.
Speaker Change: Reported in Q3, when we discussed certain specific dynamics for the quarter.
Speaker Change: Yes, the only other thing I would add which might be helpful is when we look at Q3 organic.
Speaker Change: What we really have is two factors that that weighed on the overall rate one is <unk> and the other is the cyber and Martech business and on me to be one thing I'll share is that we are.
Speaker Change: In the process.
Speaker Change: Reducing the number of AD products offered.
Speaker Change: By that unit and so we want to simplify the business and by simplifying the business walking away from revenue. We think we can improve margins and so there's a sort of what those who have followed the company for a while what we often do with acquisitions, which is shrink to grow defined the profitable core of the business, we're doing that with the <unk>.
Speaker Change: <unk> business and so by simplifying it.
Speaker Change: We're going to help improve margins in 2025 that obviously contributes however to a negative organic.
Speaker Change: Growth element, and then cyber and Mark that I discussed a little bit in the prepared remarks, we are having some challenges there but outside of that absent those two where we're in good territory and we think thats going to continue into Q4.
Speaker Change: Okay, Great that's really helpful.
Speaker Change: I guess, maybe one on.
Speaker Change: Jen AI and <unk>.
Speaker Change: Got to give.
Speaker Change: A bunch of commentary here maybe.
Speaker Change: Hand on it and put some of these things together so.
Speaker Change: 20% of your search queries are seeing.
Speaker Change: <unk> results in search and do you have in the past you said that.
Speaker Change: Jenny I search has been additive to your traffic I'm not sure. If that's evolved at all if thats still the case.
Speaker Change: And then when you talk about the value that you bring is.
Speaker Change: High quality publisher so.
Speaker Change: How does all of that kind of fit with neuro philosophy, and your approach and what youre doing around <unk>.
Speaker Change: Can you just expand on that a little bit more yes.
Speaker Change: Yes, no we happy to and let me just correct. One thing so the percentage of queries that are valuable to us and drive the vast majority of our traffic is up 10%.
Speaker Change: Overview.
Speaker Change: Presentation, right, so not not 'twenty, but 10.
Speaker Change: That's slightly up I think from last quarter was eight but still obviously a relatively small portion of the overall search pie. So that's the first thing I'll just point out that Gen. AI in the context of our AI overviews and Google in the context of our query is still relatively small with.
Speaker Change: Respect however to that universe, and it's still hard to entirely tease out click through rates on on AI overview clearings versus non but if you were to listen to Google's commentary. Their view is that it actually leads to more search activity and more site search activity, presumably leads to more click through.
Speaker Change: I will also say that there is an ongoing.
Speaker Change: Industry view of how to be sourced and cited within Gen. AI because that is amongst likely the most valuable real estate, you can get and Thats where.
Speaker Change: Just like in search I, just think high domain quality brands that we have essentially most of our properties have a domain authority in excess of 90 on a scale of 100, which is excellent I think those properties will continue to do well all to say that look I think that.
Speaker Change: <unk>.
Speaker Change: The market is very attuned to this.
Speaker Change: Killer set.
Speaker Change: Let's just call it algorithm changes, but we've been watching algorithm changes for a few decades now I kind of use this consistent with those in the past. So we're very focused on continuing to run.
Well in search get traffic out of search, but also remember we do a fair amount of direct traffic, we do a fair amount of social traffic, we do a fair amount of App traffic, we have a significant E mail database and reach of audience do email I know, we spent a lot of time thinking about and talking about search.
Speaker Change: But we're pretty diversified.
Speaker Change: Organization when it comes to traffic and ways in which we can reach and monetize audience.
Speaker Change: Thanks, I appreciate that.
Speaker Change: Thank you. Your next question is coming from Ross Sandler from Barclays. Ross. Your line is live. Please go ahead.
Great. Thanks, guys.
Speaker Change: Just maybe to start the <unk> revenue trajectory implies another nice acceleration at least at the high end.
Speaker Change: For the advertising business.
Which will have a full quarter of seeing that as you mentioned, so I guess as we look out to 2025.
How should we think about factors that would cause.
Speaker Change: That growth rate to either sustain itself go higher or lower.
Tom.
Speaker Change: Based on where we're at just in the advertising business.
Speaker Change: And then more broadly.
Speaker Change: CNET, helping.
Speaker Change: <unk>.
Speaker Change: The nature of conversations that Youre, having with your larger advertiser accounts, given the scale of it kind of adds to.
Speaker Change: The overall portfolio.
Speaker Change: And then I've got one follow up after thanks guys.
Speaker Change: Yeah, no. Thanks for the questions Rob So let me start with your last one because it is part of the investment thesis, we're bringing CNET with us eating at PC Mag Mashable life Aker Spice works into a singular organization, which has gone which has been rebranded CNET group and we will go to <unk>.
Speaker Change: Market has seen that group I do think puts us in a very different competitive position.
Look the reality of the AD marketplace has been a lot of dollars that moved to search and social and into CTV and just the programmatic, but there is a real appetite amongst advertisers to do larger scale thoughtful integrated multiplatform programs.
Speaker Change: But you need scale players with a lot of versatility and capability to do that we believe in that group is absolutely that and is uniquely that within tech and so will be.
Speaker Change: Using CES in January to really bring this to bear we have a new head of Chief revenue officer head of sales.
That has just been announced within the scene that group. So we're super optimistic about what that means at a time when we are seeing green shoots when at least consumer tech so consumer tax.
Speaker Change: For the properties, excluding CNET have done very well this year and that I think is underlying strength.
Speaker Change: Consumer electronics, and PC and in mobile and those category is also a fair amount.
Speaker Change: Advertiser interest in affiliating with AI and affiliate and positioning companies Tech vendors positioning themselves as AI Ford companies and so that that becomes also.
Speaker Change: Yes.
Tailwind I think for for the business.
Speaker Change: With respect to 2025, obviously, it's early for us.
Speaker Change: As I say anything substantial about next year.
Speaker Change: That's probably that's obviously in the next call.
Speaker Change: What I will say is that again most of the things are up and the things that are headwinds I think we understand and we're managing so let's just take cyber and Martech, it's an organic growth headwind for sure. It's a total growth headwind.
Speaker Change: For sure, but it's not an EBITDA headwind right. So we've been managing that cost base really really well, so where we have and I mentioned, what we're doing with b to b, that's all to say that.
Speaker Change: Long term I'm, just very bullish on the bottom line of what this company is and that has always been how we've been focused which is how do we become.
Speaker Change: A compound or a net income EPS free cash flow compound or youre seeing I think a lot of that in this quarter and I think that's kind of the game plan going into next year.
Speaker Change: Well I had another question right, yes, yes. The second one was kind of related to what you just said there.
Speaker Change: And then Brett you can hop in on this one but.
Speaker Change: The EBITDA to free cash flow conversion.
Speaker Change: It was above 60% in the quarter, because you guys mentioned.
Speaker Change: And then we are above that.
Speaker Change: Hum.
Speaker Change: Term target. Thank you said mid to high Fifty's conversion. So were there any factors that caused that to tick up and how should we think about converting EBITDA to free cash flow kind of a steady state go forward.
Speaker Change: Sure. Thanks, Ross I'll take that so again, when we look at our business and we look at EBITDA conversion, we obviously run our expectations within the range and starting first and foremost where we ultimately perform in that range impacts of the conversion rate because the.
Speaker Change: Extra dollar of EBITDA doesn't necessarily come with.
More capex or more.
Speaker Change: Leverage interest expense of course, there was a tax impact. So again, when we think about free cash flow you talk about within the range. We also when we say we're targeting kind of a mid <unk> type of conversion rate that excludes kind of unique aspects of any quarter.
Could be some financing fees, which we had in Q.
Speaker Change: We couldnt some M&A music, we have transactions.
Speaker Change: We also look.
Speaker Change: Ultimately for every one of our businesses to contribute to free cash flow, which is critical and then when we looked at this quarter I think a lot of things happened one remember the seasonality of our debt payments, we pay our interest expense, although Walmart recently exchange convert in June or in Q2, we have timing of tax payments.
Speaker Change: We have timing of working capital, particularly as it relates to Tds DDS was a <unk>.
Speaker Change: Negative contributor in Q1, and continuing a positive contributor.
Speaker Change: Well look the performance in Q4, so I think pointing at all that to say, we can't look at free cash flow in any given quarter.
Speaker Change: As an indicator of the next quarter, but what we did see this quarter is a significant improvement in working capital, which is something that's been a headwind for this business.
Speaker Change: For the last several quarters and we've highlighted and.
Speaker Change: And overall very significant contribution to cash you need to see any of our key financial metrics go up year over year 75 plus percent.
Speaker Change: Obviously points to progress, but also of course points to something.
Speaker Change: Maybe atypical in the quarter win this case it was that.
That working capital recapture so again continuing to target towards the mid fifteens, excluding specific kind of one time items I will lower depending on our performance within the range in any given quarter not necessarily an indicator, but this quarter was very strong and we're not going up.
Speaker Change: Backup.
Speaker Change: Alright.
Speaker Change: Thank you.
Speaker Change: Your next question is coming from Cory Carpenter from Jpmorgan Cory Your line is live. Please go ahead.
Speaker Change: Good morning, and thank you.
Speaker Change: Wanted to ask about the study you referenced earlier and released a few days ago on the use of publisher data to train AI models. Just could you talk about your key learnings after going through this exercise.
It informs your approach to potential licensing deals.
Speaker Change: And then I have a follow up for Brett. Thanks.
Speaker Change: Yeah. Thanks for the question Corey.
Speaker Change: <unk>.
Speaker Change: So look I think that one thing to recognize within the AI and large language model landscape.
Speaker Change: Is that there hasn't actually been a deal cut or announced that we're aware of.
Speaker Change: Were any of the companies who own these foundational models have actually paid a license for training.
Speaker Change: Many of these deals are essentially licenses for maybe go forward content for for what they call Rag or may include.
Speaker Change: <unk> on liability with respect to training and I think it's it's it's a fundamental.
Speaker Change: Disagreement that exists between companies like ours.
Speaker Change: And the owners and operators of Ela lens, which is.
Speaker Change: Their view that training is fair use in our view that it is not required license.
Speaker Change: So then within that what we wanted to do is really understand.
Speaker Change: How much of our content and other premium publisher content.
Speaker Change: How important that content is to the process of LLM training and the headline is it's very important.
Speaker Change: And so what you may hear in the marketplace is that look it's.
It's adapt quantum of data no particular data provider or particular publisher or content or copyright owner is material and it's essentially the entirety of the internet.
While they start getting the entirety of the Internet. There is a portion of the Internet a very small portion that has a disproportionate impact in the training and the wake with which they trained these models and so the papers worth reading.
Speaker Change: Access did little piece on it it's starting to get some real attention which is.
Speaker Change: These large language models have learned and continue to learn from the best.
And I think there are all sorts of implications we believe in that.
And our continued view that there needs to be.
Speaker Change: Licensing for training not just licensing for retrieval augment the generation, but not just rack, but but for training. So I think it's important. It is fact based it is not just about the data. It is about a number of premium publishers and I think it's worth reading and worth understand.
Speaker Change: Thanks.
Speaker Change: Thank you and then just on capital allocation the repurchase commentary changed a bit this quarter last quarter. You said, we expect to be active buyers, which you were this quarter I think you said you're going to be opportunistic around share repurchases.
Speaker Change: Maybe we are reading into it too much but just maybe your latest thoughts on capital allocation and are you signaling, perhaps a greater focus on M&A and away from repurchases. Thank you.
Speaker Change: Thanks, Corey Nothing's changed in our messaging with regards to our overall approach to capital allocation I think when we spoke in August I think it was important given the.
Speaker Change: Trading in the stock.
Speaker Change: Time that we record that we can allocate capital, which should support than we did.
Speaker Change: I think over time, our sort of approach to capital allocation.
Speaker Change: Then as I think that Thats, what I said it is consistent but we've spent a fair bit of capital. This year I highlighted debt repayment share repurchases significant M&A relative to recent history.
Speaker Change: In an hour.
Speaker Change: Our prepared remarks, and we always maintain the optionality with <unk> ability to be dynamic and putting more capital towards each of those pillars. So whether you want to read into.
Speaker Change: The immediate or short term.
Speaker Change: Message that we're continuing to continuing the tilt towards M&A.
Speaker Change: But overall long term.
Speaker Change: No change whatsoever.
Speaker Change: Thank you.
Speaker Change: Thank you. Your next question is coming from Rishi <unk> from RBC Ritchie. Your line is live. Please go ahead.
Speaker Change: Alright wonderful thanks, I'll keep it to one question I wanted to drill into maybe some of the softness that we've seen at the mass group you've talked about.
Speaker Change: Maybe soft new customer acquisition can you maybe dive a little bit deeper into exactly what has happened what sort of steps you're taking to mitigate that and continue to have these conversations around gen. AI. One of the places that I think a lot of investors have said maybe at risk has been in <unk> and maybe even more tech more broadly.
<unk>.
Speaker Change: Why why is this maybe not a function of just AI study to displace some of that tech.
Speaker Change: Yes, great questions ratio, so I'd say a couple of things so part part of the softness obviously as I pointed out had a little bit to do with the <unk> con the timing of <unk>. So that is something just to keep in mind.
Speaker Change: Look I think that.
Speaker Change: Part of this may be the Mas pro customer is more SMB in orientation and not enterprise.
Speaker Change: So that might have a little bit to do with the state of maybe SMB and sort of where theyre looking to prioritize I think all of the confusion around search and just the press around search and whats happening may have a adding chilling effect.
Speaker Change: On customer acquisition, so in that sense, you may well be right that the.
Speaker Change: So the prevalence of the dialogue around AI has some people thing. This is confusing it was confusing before it's even more confusing I'm not sure I want to invest.
Speaker Change: And our platform right now, but I will also say.
Speaker Change: We need to improve the product and so we are focused on delivering UX improvements the product is not as user friendly as it needs to be given our customer base. So I will say that and that is something that the team has been really focused on over the past six months, which we think will translate into more.
Speaker Change: Or at least trial and then ultimately.
Speaker Change: Customer attention, we also need to lean more into paid marketing to drive subscriptions mods.
Speaker Change: Ironically as always relied on SCO to sell its SCO service and the reality is we compete with entities who do.
Speaker Change: On a paid marketing and we just need to invest in paid marketing I think to show up in the places that customers are showing up right now to do research around around SCO, but look it is an area, where we're going to have to do something.
Speaker Change: We think there is a.
Speaker Change: Great deal of potential, but we certainly haven't realized it.
Speaker Change: Did that we did the the early work around margin expansion and that has worked and now the question becomes how do we get some growth out of this business because we do expect growth out of it not just for it to be.
Speaker Change: Steady state or even declining asset.
Speaker Change: All right really helpful. Thank you.
Speaker Change: Thank you.
Speaker Change: Your next question is coming from Sean Patel from <unk>.
Speaker Change: Sean Your line is live please go ahead.
Speaker Change: Good morning. This is Aaron on for Sean. Thank you for taking our question.
Speaker Change: Maybe starting off does that in your prepared remarks, you touched on the market for deal activity and it sounds like things are picking up a little bit can you go a layer deeper there and unpack a bit more what youre seeing on that front and youre seven major vertical categories are there any areas, where the M&A environment looks.
Speaker Change: Particularly attractive right now and then we've got a follow up as well.
Speaker Change: Yes, no great question. So look I'll tell you this that I believe that the environment is.
Speaker Change: Is or is close to being normalized meaning.
Meaning it feels just like it did pre COVID-19 and that I think is really important and what do I mean, it's not the volume of dialogue, we had that throughout the.
Speaker Change: The nature of the dialogue and particularly the nature around pricing terms and motivation for transactions and we saw that by the way with the scene that transaction, we had a long history with that asset I won't go into all those details, but but the dynamics that I'm describing right now certainly went into play with respect to that acquisition.
Speaker Change: Youre right, we have a diverse set of platforms for M&A that is one of our advantages. We're not just looking in one part of the market. We're looking at a number of different sectors and verticals and categories and some of them to quickly go through them for us.
Speaker Change: Say tech and shopping has been our most active.
Speaker Change: Area, obviously with gift card acquisition, and we've seen that and I think offers.
Speaker Change: To offer some of the best opportunities I think these are spaces that had been challenged and often when their talents. That's when that's when we can get.
Speaker Change: We can get some really good price value gain.
Speaker Change: <unk> looks promising obviously, we did gave a network there are a lot of game or network type deals within gaming. It is a very fragmented space and I think we have an opportunity.
Speaker Change: To consolidate a very fragmented space.
I think connectivity and health and wellness or do they have not done much in recent memory and I think they are both as.
Speaker Change: As businesses and as divisions.
Speaker Change: Really focused on transactions and joining the party.
Speaker Change: And then I think cyber and Martech is back on board, we did a small tuck in just a few weeks ago. This is the first transaction while for cyber and Martech I think within it we like E Mail a lot we like the email marketing space always have.
Speaker Change: Made a comment in the prepared remarks about I think the value of E mail in a world where paid marketing is getting more and more expensive and so to me. It is.
Speaker Change: And by the way E Mail is identity. There are a lot of things we like about email. So that's how I would characterize it again I think the opportunities a lot of places we're well positioned.
Speaker Change: Gross debt over TTM EBITDA of about one eight great free cash flow cash on the balance sheet, we feel that we feel good.
Speaker Change: Great. Thank you and just quickly given your shopping businesses I figured I'd ask if you have any early thoughts on how the holiday season could look this year either from a retail advertiser or a consumer perspective. Thank you.
Speaker Change: It's early it's early to say you don't know until Youre in at all.
Speaker Change: Obviously, there's been market dialogue about the number of days in the shopping periods something to watch, but the general view is well that just means you'll you'll get you'll get more spread over fewer days I will also say that the holiday shopping window keeps expanding.
Speaker Change: We just had.
Speaker Change: Retail me not national.
Speaker Change: Cashback day and that was great for us so so things already starting but.
Speaker Change: Know until you're in it to be perfectly honest.
Speaker Change: But we're hopeful that it's going to be a solid it's going to be a solid season.
Speaker Change: Great. Thanks again.
Speaker Change: Thank you.
Speaker Change: Thank you. Your next question is coming from Robert Coolberg from Evercore ISI. Robert Your line is live. Please go ahead.
Speaker Change: Great. Thanks for taking my question just wondering if it'd be a few.
Speaker Change: Can you give us any update on your use of Gen II internally.
Speaker Change: Particularly.
Speaker Change: Maybe early on in some of the recent acquisition activity.
Any any thoughts on your ability to leverage that and extend that thanks.
Speaker Change: Yeah and again.
Speaker Change: I might have said this the last time around it I'll repeat it we don't view Gen. AI is being entirely helpful in content creation.
We just believe that that human created produced content and journalism.
Is vital to our value proposition to the reputation of our brands and to the success of those brands and I think the demand.
Speaker Change: For things that are quite obviously done by humans and machines is quite high right and I think you are all we all as consumers are trying to figure out like what Wei who wrote this and so again.
Don't put any emphasis there are there things that can help in.
Speaker Change: Research absolutely are there things that can help maybe in helping kind of structure and outline, but thats not to me that's not a real change in our process, where I am bullish very bullish about AI AI for coding.
Speaker Change: And so using AI to generate code, which I would say.
Speaker Change: Across all of the activity in the company.
Speaker Change: Quantum of lines of code were written by AI, you still need humans involved you can't just tap AI write the code and you step away, but for cogeneration in what is code coded language, but it's different language. It's binary it works or it doesn't it doesn't require tone. It doesn't require speaking to sources doesn't require some of that judgment that goes into.
Speaker Change: Through content and into journalism. So a lot of focus on leveraging <unk> AI for code and code. Writing then the last thing is and I mentioned some of this on the call and I try to do this in each call is just how do we incorporate AI into the products right. How does AI helped our products become better like the one I like to I didn't use it in.
Speaker Change: This call, but the one I like to always think about is how AI is being used within our loose it app and how thats made food logging so much easier for our customers, which makes them happier with the subscription offering in the product and they're going to use it more so we're always looking for gen AI to improve the prop.
Speaker Change: And user experience Gen AI to help with coding.
Speaker Change: In development, but not NII for content.
Speaker Change: Great. Thank you Ann.
Speaker Change: One other sort of common thread through earnings I think so far it's been sort of some weakness in.
Speaker Change: CAGR is like food and beverage any of that come through in your in your health business or.
Speaker Change: Just just curious about that thank you.
Yes, it's a good question no we haven't seen that largely because that's not a big part of the.
Speaker Change: At Formula within health and wellness, what I would just say is that.
Speaker Change: It's been quite robust on the.
On the direct to consumer side of advertising, we've had some headwinds on the provider side largely owing to a very large.
Speaker Change: Pharma cutting back across the board within its provider marketing.
Speaker Change: But.
Speaker Change: Nothing on the food and beverage side.
Speaker Change: Okay, great. Thank you.
Speaker Change: Thank you.
Speaker Change: This does conclude our question and answer session. At this time I'd like to hand, the floor back to Bret Richter for closing remarks.
Thank you very much Tom and as always we appreciate everybody joining us today to discuss our Q3 2024 results.
Speaker Change: We posted some information with regards to our upcoming conference participation.
Speaker Change: This year, we hope to see some of you there again, thanks for joining and good day.
Speaker Change: Thank you. This does conclude today's conference call. You may disconnect. Your phone lines at this time and have a wonderful day. Thank you once again for your participation.