The Arena Group Holdings, Inc.

Good day, ladies and gentlemen, and welcome to the Arena Group first quarter 2022 earnings call. At this time, all participants have been placed on listen-only mode, and the floor will be open for questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Rob Fink of FNK IR. Sir, the floor is yours.

Thanks, Operator, and thank you all. Hosting the call today are Ross Levinson, Chairman and Chief Executive Officer of Doug Smith, Chief Financial Officer, and Andrew Kraft, Chief Operating Officer. Before we begin, I'd like to note that some of the comments made during this presentation may include forward-looking statements. All statements other than statements of historical fact are statements that could be deemed forward-looking. Forward-looking statements relate to future events or future performance and include, without limitation, statements concerning the company's business strategy, future revenues, market growth, capital requirements, product introduction, expansion plans, and the adequacy of the company's funding. Other statements contained in this presentation that are not historical facts are also forward-looking. The company cautions investors that any forward-looking statements presented in this presentation or that the company may make orally or in writing from time to time are based on beliefs, assumptions made by information currently available to the company. Such statements are based on assumptions, and the actual outcome will be affected by known and unknown risks, trends, uncertainties, and factors that are beyond the company's control or ability to predict. Although the company believes that its assumptions are reasonable, these assumptions are not guarantees of future performance, and some will inevitably be proved to be incorrect. As a result, the company's actual results can be expected to be different from its expectations, and those differences may be material. Accordingly, investors should use cautious and relying on forward-looking statements, which are based only on known results and trends at the time they are made, to anticipate future results or trends. Certain risks are discussed in the company's filings with the SEC. With that, I'd now like to turn the call over to Ross. Ross, the call is yours.

Thank you, Rob. As some of you know, we pre-released some numbers last week to highlight the continued rapid growth and expansion of our business. Today, we'll be sharing a more in-depth look at our financial and operational performance. This was an excellent quarter for the Arena Group. As we highlighted during our Q4 and full-year results at the end of 2021, we were starting to see the benefits of significant investments we made in our technology, our platform, our social media and audience development initiatives, our business intelligence efforts, and our people last year. Our first quarter performance again validated those investments as we saw strong growth in revenue and audience as well as a substantial gain in gross profit despite Q1 typically being our slowest quarter. To highlight a few key results, first quarter total revenue grew to 48.2 million versus 33.6 million in the previous year, a 44% increase. Importantly, First quarter digital revenue grew by 82% to 31.6 million and now accounts for more than 65% of total revenues. First quarter gross profit more than tripled to 19.7 million or 41% gross profit percentage compared to 5.4 million or 16% gross profit percentage in the first quarter of 2021. This was our second consecutive quarter with gross margins exceeding 40%, and we continue to believe that will expand. Q1 cost of revenue increased by only 1%, reflecting the high gross profit from our growing digital revenues. I will note that Q1 is generally the softest quarter in our business, so to deliver these improvements is significant, and we are seeing that momentum accelerate in Q2 through 34 days of the quarter. We are well on our way to profitability. In the quarter, our adjusted EBITDA loss was 1.1 million as compared to a loss of 8.7 million in the first quarter of 2021, representing an improvement of 7.6 million. That number includes some one-time costs associated with our up list in Q1 to the NYSE American in February. To put it bluntly, we are growing revenue and audience rapidly, keeping our costs to generate that revenue tight, and investing in profitable opportunities. We have momentum. Our first quarter results demonstrate that we have reached a key inflection point. Thanks in part to the investments we made in the business in 2021, we expect our revenue expansion this year to continue without significant incremental costs. We have completed major investments in our platform and it is working. Our Q1 gross profit more than tripled and digital revenue grew by more than 82% versus the prior year. And digital revenue now makes up 65% of our overall revenue versus 52% last year. More than half of each incremental dollar in digital revenue is now falling to our gross profit line. And that pushes us on a path towards profitability as we continue to rapidly expand our revenue. During our last earnings call in March, we talked about our proprietary playbook, which overlays our content strategy, audience development efforts, and social media initiatives, driving traffic across our key properties, as well as to our publishing partners. The playbook creates increasing momentum. We have a flywheel, and through effective optimization, we are driving additional positive gains in traffic which beget more ad dollars and more data on consumers, which allows us to circulate traffic further and optimize those audiences. We have executed the playbook in our sports and finance verticals in late 2021 with very positive initial results. And in the first quarter, we continue to see it bear fruit in audience and revenue growth. Our sports vertical anchored by Sports Illustrated saw Q1 monthly average page views grow by 248% as compared to the first quarter of 2021, according to Google Analytics, thanks to our great journalism and storytelling from our talented array of writers. The expansion of our social media efforts across TikTok, Facebook, Instagram, and Snap yielded 265% growth in Q1 social page views compared to the prior period according to Google Analytics. SI continued to have the number one share of voice on Facebook link posts amongst all major sports brands for the second consecutive quarter according to CrowdTangle. This robust traffic growth was a key driver for the digital revenue expansion we saw in Q1. We also signed 14 new FanNation sites and added another publishing partner to our SI media group during the quarter, continuing to expand our content and audience base with little to no upfront investment. We also launched our new commerce initiatives during the first quarter, SI Shop and SI Showcase, two new marketplaces for goods, services, and content recommendations. We believe our commerce and marketplace initiatives will make significant incremental contributions to our business this year and next to further diversify our revenue base. Turning to our finance vertical, Q1 saw a rapid expansion of our audience at the street. Last October when Jim Cramer departed, the street's online audience was 9.1 million monthly page views according to Google Analytics. In Q1, thanks to a new team of editorial leadership, the application of our playbook, and an expansion of our content offerings, the street recorded 24.3 million monthly average page views according to Google Analytics. And in April, that momentum continued. That represents 166% growth in only eight months and at a lower cost base than the street previously had. The increased traffic contributed significant ad revenue growth and expanded the potential for new subscribers. In Q1, we launched our first new paid product in nearly four years with the launch of the Street Smarts, and we expect to see continued growth in our subscriber base in the coming months. In Q1, we also began to execute the playbook in our Pets brand, Pet Helpful. And in less than three months, we've seen our audience engagement expand significantly. Pet helpful monthly average page views in Q1 was 13.6 million as compared to 6.7 million in the prior quarter, a 101% increase year over year. We have plans to execute the playbook in additional HubPages sites throughout the next quarter. Our playbook is tried and true. Not only does it work with well-known media brands like Sports Illustrated and digitally native startups like The Street, but on much smaller, less recognizable brands as well. These results continue to demonstrate just how scalable our model is. And we operate on a single digital infrastructure that scales without additional costs, similar to SaaS companies. On April 1, we closed our acquisition of AMG Parade. which will jumpstart our lifestyle vertical anchored by Parade and feature popular brands like Spry Living and Relish with 46 million monthly average page views in Q1 on the digital side according to Google Analytics and 233 million monthly print gross impressions on the print side according to MRI Simons, as well as relationships with more than 1,200 local newspaper partners across the country. We are well on our way to moving the brands onto our platform, integrating our advertising technology, expanding distribution through our ecosystem, and applying our playbook. And we are optimistic that we will see strong audience growth in a short period. The combination of all this momentum in Q1 led to a $7.6 million improvement in adjusted EBITDA to negative 1.1 million. This was despite some significant expenses related to our uplisting to the NYSC American, which will not be ongoing. It is important to note that of our net loss of $18.4 million, $15 million, or 81%, was non-cash expenses. Today we are a vibrant publisher of 40 owned and operated brands and a partner to more than 200 others. Our award-winning journalism supports partner-generated content, creating additional advertising and inventory, and attracting more and more viewers. But the key is our scalability. With a single robust technology platform, we have the capability to grow significantly on our existing platform at little to no incremental cost. We don't need to materially add to our headcount. We don't need additional technology investments. We are primed to grow and grow profitably. In fact, our infrastructure is positioned to ingest new partners and new brands, and we are targeting to deliver revenue at gross margins north of 50% going forward. As I said at the beginning of this call, this is a great start to 2022, and it's only the beginning. I want to talk more about what we share, but first I'd like to let Doug Smith, our CFO, take you through the numbers. Doug?

Thank you, Ross. Let me turn to the results. In the first quarter, revenue was approximately $48.2 million, up 44% compared to $33.6 million for the first quarter of last year. Breaking that revenue down, total digital revenue of $31.6 million represented 65% of our total revenue, and it grew 82% versus the first quarter of last year. Jim Harris- Digital advertising revenue 21.6 million increased 127% versus the first quarter of last year, which was driven by higher traffic across our own and operated properties and foundation as well as an increase in yield for page. Jim Harris- Digital subscription revenue was 6.5 million for the first quarter of 2022 down 9% as compared to the 7.1 million for the first quarter of 2021 Other revenue, which is primarily licensing and e-commerce revenue, increased by 364% to $3.5 million during the first quarter of 2022 due to additional revenue for certain licensing agreements related to SI Swim and other Sports Illustrated media businesses. Print revenue increased 3% to $16.7 million for the first quarter of 2022. driven by growth in print subscriptions and newsstands, but partially offset by lower print advertising revenue. Gross profit percentage for the quarter was 41% as compared to 16% in the first quarter of last year. Q1 cost of revenue increased by only 1% despite the 44% growth in revenue. This reflected the high gross profit from our growing digital revenues and a substantial reduction in the rev share at the street. This drove a more than tripling of gross profit, increasing 14.3 million from 5.4 million in the first quarter of 2021 to 19.7 million in the first quarter of this year. Total operating expenses were 35.2 million in the first quarter of 2022 compared to 27 million in the first quarter of 2021. The increase was primarily driven by an increase of 5.2 million related to payroll, along with related benefits and stock-based compensation, and an increase of 1.9 million in circulation expenses, which reflected the residual impact of a campaign to increase Sports Illustrated subscribers in the fourth quarter of 2020. As a result, net loss improved to 18.4 million for the first quarter of 2022 as compared to 25.5 in the prior year period. The first quarter of 2022 included 15 million of non-cash charges, which represented 81% of our total net loss as compared to 12.8 million non-cash charges in the first quarter of the prior year. Adjusted EBITDA for the first quarter of fiscal 2022 which is typically our weakest quarter of the year, was a negative $1.1 million as compared to a loss of $8.7 million for the first quarter of 2021, representing a $7.6 million improvement in adjusted EBITDA. As Ross mentioned, the first quarter of 2022 also included significant professional fees and expenses related to the uplist, which we do not expect to be ongoing. Looking at the balance sheet, And looking at liquidity, we ended the quarter at $22.5 million in cash equivalents, which compared to $9.3 million at December 31, 2021. This $22 million balance included receipt of the $30.5 million in net proceeds from our offering of common stock completed during the first quarter of 2022. Subsequent to the end of the first quarter, We paid $10 million net of cash acquired for the acquisition of AMG Parade at closing. With that, I'll turn it back to Ross for closing comments.

Ross? Thanks, Doug. 2022 is off to a robust start.

Rapid growth in our finance vertical, continued expansion in our sports vertical, our uplist to the NYSE American, closing and beginning to integrate AMG Parade, and so much more. All the groundwork we laid in late 2020 and throughout 2021 is paying off. Our first quarter gross profit more than tripled year over year, and we are now dropping more than 50% of every incremental digital dollar to the gross profit line. We are well positioned for profitable growth. Q2 is already off to a terrific start thanks to big sporting events like the Masters, the start of baseball, the NBA and NHL playoffs, And of course, the NFL draft, go Giants. The spun, which we acquired last June, continues to drive significant audience and revenue numbers far above our expectations. The volatility in the stock market and the need for sound investment advice has propelled the street to record audience and add revenue numbers. And later this month, we will unveil the 2022 edition of SI Swimsuit, which this year has taken a powerful position and mandate called Pay with Change, a new gender equity initiative that will turn the SI Swimsuit franchise into a platform for change for women globally. Lastly, while our organic growth continues, our M&A pipeline is extremely active, and you should expect further inorganic growth from us now that our platform and technology has been built out. Again, I have to emphasize that any expansion will not come with any significant CapEx or people cost, thanks to the work we've done over the last 18 months. This means margin expansion and profitability for our business. And with that, I'm happy to answer any questions any of you have.

Thank you. Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments, please press star 1 on your phone at this time. We ask that while posing your question, you please pick up your handset if listening on speakerphone to provide optimum sound quality. Once again, please press star 1 if you have questions at this time. Please hold while we poll for questions. And your first question is coming from Dan Day from B. Reilly Securities. Dan, your line is live.

Hey, afternoon, guys. Appreciate you taking my questions. First one, just on the other revenue line, you talked about some interesting initiatives at Sports Illustrated on e-commerce. Correct me if I'm wrong, but I think AMG Parade comes with a little bit of e-commerce affiliate revenue. So just how should we be thinking about modeling that line moving forward? $3.5 million in the quarter. Is that expected to grow significantly from there?

Yeah, I think obviously we're not forecasting numbers, but with AMG Parade in initiating our lifestyle vertical that comes with I'd say significant commerce initiatives that we're looking for. On the SI side, we have the benefit of working with the owner of the brand, ABG, who is one of the biggest licensing and commerce companies in the country. really in the world at this point, and have been working closely with them to showcase and distribute all kinds of e-commerce efforts. And we're also launching two-sided marketplaces, both around branded content, content recommendations, and other commerce initiatives. So we expect commerce to be really a growing line for us this year and in the years to come. And we're also starting to see some uptick in licensing and syndication which has multiple positive effects for us aside from getting our content out beyond our four walls and exhibiting that content on other sites. It also lowers the overall cost of our content because we're able to monetize it significantly throughout the internet. We think licensing and syndication is an area of growth for us. We also believe commerce is. We didn't touch significantly at all on our gambling initiatives with 888 and the SI Sportsbook, but we expect that to grow also this year and beyond with some new states coming online.

Awesome. Thank you. And then if I could turn to the street for a minute. You started to touch on this in the prepared remarks, just maybe a little more detail on, you know, subscriber recovery following the churn in fourth quarter. And then, you know, obviously you've done an incredible job driving traffic and ad revenue. Just curious what that asset is balanced between subscription revenue versus advertising at this point and how that was, how that's different from maybe it was a year ago.

Sure, I'll let Doug obviously jump in as well. And he highlighted some of the both improvements at the street from an audience and advertising perspective. And also, we were down 9% quarter over quarter, I'm sorry, year over year in Q1. But that is fairly de minimis, frankly, compared to what I think some of the folks were forecasting for our company. We've launched a new product in the street smarts. We're sort of leaning in on the digital subscriber side once again and finding our footing. And with such a big audience coming in now, both on the unique user side and the page view side, we're seeing more and more people that we can market those products to. So I think we've seen sort of the bottom in this business from the subscriber side with Jim Cramer leaving, and we're starting to see improvements certainly in our audience, our advertising monetization. That said, subscription revenue is still significantly higher than ad revenue at the street, but the street ad revenue is growing pretty substantially, and Doug, you can chime in if you'd like.

Sorry, I was on mute there. Historically,

um this the street had sort of mid-teens percentage of its revenues in advertising uh we saw that number actually decline a bit in 2020 and the beginning of 2021 is as we saw a very dramatic ramp up in the subscriber base um and you know as we discussed we've seen some softening in the subscription level But now we're seeing a huge growth in the advertising side. So we're anticipating advertising to exceed historical levels into the 20s and perhaps beyond that. Not because we expect advertising subscriptions to climb any further, but just because we are experiencing such strong growth in the advertising side.

Awesome. Well, I appreciate you guys taking my questions. I will turn it over and continue the best of luck. Thanks so much.

Thank you. And once again, ladies and gentlemen, you can still enter Q&A queue by pressing star one on your phone if you have a question. The next question is coming from Mark Argento from Lake Street. Mark, your line is live.

Hey, Ross. Hey, Doug. Congrats on a really strong quarter. Just wanted to drill down a little bit on the significant uptick in page views. I think you mentioned, I believe it was up 67%. I want to just talk a little bit, as you continue to grow in terms of viewership, the opportunity to do more direct advertising deals versus traditional programmatic. Maybe talk a little bit about where you are right now, where you could see that going.

Yeah, one of the benefits, thanks Mark, one of the benefits of having premium brands is that advertisers trust them and they're safe and they're known quantities. And when we were fortunate enough to take over the Sports Illustrated franchise, it certainly had a brand halo in terms of trust and respect but it didn't have the audience that some of the competitors have had. And as we've highlighted in the past, we've been able to grow our audience very, very significant. So now when you match trusted brands, a brand like Sports Illustrated or The Street, and now Parade with technology, with know-how, with great journalism, with distribution and marketing, with a focus on social platforms and a focus on search, we're creating this flywheel of sorts for audiences to continue to grow. And the content we're doing is bespoke, it's unique, it's in real time. And so obviously, the more audience we have, the more page views we have, the more impressions we have. And as we see throughout every year, CPMs and RPMs tend to go up throughout the year, Q1 being the softest quarter, Q4 being the strongest. So that gives us really strong hope for this year with our continued growth. And your point is important because direct advertising deals with big Fortune 500 companies always come with higher CPMs. and in some cases sponsorship deals which are less based on actual clicks or CPMs and more based on brand halo and brand expansion. So we're seeing more and more deals. In the beginning of this year, we've I think two and a half X'd the number of direct deals we had a year ago with advertisers. So that's a really good place for us to be, and that continues to expand during this quarter. I mentioned Swim earlier. We've managed to sign some very, very high-profile Fortune 500 and very exciting new brands for the Swimsuit Edition this year. We're seeing it in our sports category. We're seeing it in finance. Parade comes to us with a much greater percentage of direct advertising than programmatic, which is unusual, obviously, in today's day and age. So we're excited about bringing them onto the platform, expanding their audience, and having already a bucket of very strong direct advertising. So the more we can grow and the better position we have in the marketplace, I think the more direct deals we're going to have, which obviously contributes more to our EBITDA and bottom line. That's super helpful.

Just one quick housekeeping. Doug, you had mentioned there was some one-time listing costs and other stuff in the quarter. I don't know if you quantified that or not, but you got a ballpark number on that?

Yeah, I mean, if If that had been excluded, we would have had a positive EBITDA for the quarter.

Okay. That's great. And then just lastly on the cash, so I think you said you had, what was it, $22 million, and then you had paid out the $10 million for AMC Parade, or was it the $30 million you paid out $10?

We had $22 million of cash at the end of the quarter at March 31st. And then the payment for AMG Parade was the next day, April 1.

Got it. All right. Awesome. All right, guys. Appreciate it. Nice work. Keep it up. Thanks, Mark.

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

Yeah, thank you all. We appreciate you dialing in and listening and following us. We're super excited for this year. The momentum we have has really been strong really since middle of last year and is accelerating. So we're well on our way to a path to profitability and excited to visit with you again at the end of next quarter.

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