The Arena Group Holdings, Inc.

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Arena Group second quarter 2022 earnings call. At this time, all participants are on a listen-only mode. After management's prepared remarks, there will be a question and answer session. I would now like to turn the call over to Jeff Stanliss. Jeff, please go ahead.

Thank you. Hosting the call today are Ross Levinson, Chairman and Chief Executive Officer, and Doug Smith, Chief Financial 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 statements. 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 introductions, and 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 statements. 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 the beliefs of, assumptions made, and 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. However, these assumptions are not guarantees of future performance, and some will inevitably prove to be incorrect. As a result, the company's actual future results can be expected to differ from its expectations, and those differences may be material. Accordingly, investors should use caution in relying on forward-looking statements, which are based only on known results and trends at this time that they are made, to anticipate future results or trends. Certain risks are discussed in the company's filings with the SEC. And with that, I'd like to turn the call over to Ross Levinson. Ross, the call is yours.

Thank you, Jeff. Thanks, everybody, for joining. This marks two years since I was asked to lead the Arena Group as its CEO. We think of ourselves a bit as a startup. We architected a plan to be focused on growth. We set out to transform the company so that it was clear who we were, what we were doing, and with a goal of building a sustainable, profitable business driven and measured by data. Over the first two years of our journey, the results have been terrific. Revenues have grown nearly 2.5 times from $95 million to $234 million based on the four quarters ended June 30, 2022, versus the same period, 2020. Gross profit has expanded by 14 times in the same period, from 7 million to 99 million. We continue to move towards profitability. In the four quarters ending June 2020, we had an adjusted EBITDA loss of $18 million versus a loss of just 1.9 million during the last four quarters. And this quarter, we generated $5.8 million of positive net cash from operations, an improvement of 14.3 million from the same period last year, when we used 8.4 million in net cash from operations. And our audience numbers have grown exponentially, with page use topping 1.5 billion this quarter, which is up over 82% versus the same period last year. We are investing in our company because we are a growth company. We uplisted in February of this year to the NYSE American, and we were added to the Russell 2000 this June. We completed the purchase of Affon Media Group, including Parade, this quarter, adding a new lifestyle vertical to our company, and we have a robust pipeline of potential new acquisitions. We are committed to growing and improving our metrics sequentially each quarter. We have built a world-class management team and have recruited an amazing array of talent across our company, building for growth and building for the future. That startup mentality is one that we focus on and one that helps drive growth. As we stated last quarter, we have substantially completed all major investments to support growth of a much bigger company, all operating on a single technical platform and single infrastructure supporting hundreds of brands. These investments, our strategy, and our execution has helped fortify us as others have experienced the slowdown related to compression in the ad market and supply chain issues. We are not experiencing those same challenges in advertising. and are accelerating across all major KPIs, and the early signs in Q3 is that that momentum is continuing. However, we are not without challenges. On the print side of our business, surcharges on ink and paper, fuel, and distribution have impacted our margins slightly, and we have made several strategic decisions related to a few of our brands that have been both near-term positive and negative across the board. On the plus side, we have invested in our HubPages properties and have seen dramatic increases in audience and revenue. At SI Swimsuit, we pivoted the entirety of the brand and execution, and this, combined with the bankruptcy of a major sponsor, has impacted profitability for the brand and for our company in the quarter, but we believe in where we are headed and the upside for the future. More on that later. Two years ago, we pivoted our business strategy to focus on a powerful set of technology tools and services, establish a vertical content focus anchored by premier brands. We launched our proprietary playbook that has driven incredible traffic and revenue results across all our brands and committed to making the necessary investments in core elements of our business to enable long-term growth, stability, and profitability. We have built a strong foundation at the Arena Group over the past two years that has scaled and expanded without significant investments in our day-to-day operations, and that couldn't be more timely. As has been widely reported, this has been a difficult quarter for our industry, and we're seeing many of our competitors take a defensive position in fear of looming recession and advertising pullback. Thanks to our strong foundation, our business model and our audience growth, we have largely navigated the challenges. We have continued to grow. We have expanded our audience. Advertising partnerships have grown significantly, with direct sales accounts up nearly 50% from the same period one year ago, and second quarter display CPMs are up 41% versus the same period last year, excluding Parade. Our editorial teams continue to produce award-winning content. Our partners and contributors continue to deliver timely and highly relevant content that drives consumers to our sites. In short, we have a lot of good news to share with you this quarter. Let me kick things off by highlighting a few key results. Second quarter total revenue grew by 87% to 65.1 million versus 34.7 million in the previous year. Overall, second quarter digital revenues grew by 75% to 35.1 million, and that now accounts for 54% of total revenues, while our digital ad revenue was up 114% to 24.7 million. Other revenues was 4.9 million in the second quarter, up 463% from the previous year, reflecting the launch of the SI Swimsuit Edition in Q2 this year, versus Q3 of 2021, as well as significant growth in our syndication and licensing. Second quarter gross profit improved by 94% to 18.3 million compared to 9.4 million in the second quarter of 2021. Our adjusted EBITDA loss was 4.9 million as compared to a loss of 7.2 million in the second quarter of 2021. representing a loss reduction of nearly 2.3 million or 32%, and the company generated 5.8 million in net cash from operating activities, a $14.3 million improvement from the second quarter of last year. We have continued to see strong growth across all of our business lines, and we are optimistic about what's to come in the second half of the year. In our last earnings call in May, I discussed the many investments that we've made in our platform and businesses and that we reached the tipping point where we were seeing those investments pay off. That has continued to be the case in the second quarter. Our second quarter overall audience growth has been tremendous. Monthly average page views were up 82% across our company as compared to the prior year quarter. Our total page views for the quarter reached more than 1.5 billion, according to Google Analytics, a direct result of our playbook continuing to work even as the macroeconomic environment remains uncertain. Moreover, our second quarter digital ad revenue more than doubled compared to the prior year. Unlike many of our competitors, we are seeing no signs of an advertising pullback. In fact, our CPMs and RPMs have remained stable, and our pipeline is the strongest in our history. Second quarter display CPMs grew 41% versus the same period last year, excluding parade. And second quarter digital advertising rose 114% versus the same period last year. In Q2, we closed more direct advertising and sponsorship deals than any previous quarter, and we expect that total number of high-value deals to be more than double last year. With several major sporting events in Q2, such as the Masters, the NBA and NHL playoffs, and the NFL Draft, we had a very strong quarter in our sports vertical. Average monthly page views for our sports vertical were up 174% in Q2 versus the prior year, of which roughly half was due to the spun, which was acquired in June 2021. In the year since we acquired the Spun, their average monthly page views more than doubled from 47 million to 114 million, a testament to their hard work and the success of our playbook. Our FanNation business was another key growth driver for this quarter, with Q2 monthly average page view growth of 91% year over year, according to Google Analytics. We signed 27 new FanNation partner sites, during the quarter and added three additional publishing partners to our Sports Illustrated media group, rapidly expanding our content base at little to no upfront cost. The Sports Illustrated brand has continued its transformational growth this quarter as well. Earlier today, the Alliance for Audited Media released its Magazine 360 report, a measure of total magazine brand audience audiences across print, web, mobile, web, and video. Sports Illustrated was ranked as the number four fastest growing magazine brand, not just in sports, but all brands, measured as a comparison of the first half of 2022 audience compared to last year. SI's high quality sports journalism continues to resonate with readers on social media as well, as it has maintained its position atop all sports publishers, for Share a Voice for Link Stories on Facebook, according to CrowdTangle. The SI editorial team won several Associated Press Sports Editors Awards, including Beat Writer of the Year and first place in the Breaking News category. Just last month, the Football Writers Association of America presented its annual Edward Ashoff Rising Star Award to our very own Richard Johnson. Our editorial team continues to build upon Sports Illustrated's legacy of bringing powerful sports storytelling to life. Sports betting also continues to be a major area of focus for our business. SI Sportsbook, our sports betting platform run in partnership with 888 Holdings and ABG, launched in its second state, Virginia, at the end of May with plans to launch a third state by the end of the year. Our betting editorial coverage has driven a massive spike in traffic with second quarter betting related monthly average page views up 93% in compared to the prior year quarter according to Google Analytics. Our finance vertical has continued the strong momentum that we saw in Q1 with Q2 monthly average page views of 29 million per month according to Google Analytics representing a 157% increase versus the prior year period, and a 21% increase quarter over quarter. As a reminder, Jim Cramer departed the street in October 21. The street's online audience generated 9 million monthly page views then, according to Google Analytics. We are continuing to add diverse voices to the street's editorial coverage, covering a wide range of topics, and we are seeing continued success from the application of our breaking news content playbook, particularly as the markets become more uncertain. Our content is especially resonating on social media, where our second quarter Facebook engagement has grown 205% as compared to the prior quarter according to Listen First. Our lifestyle vertical has grown exponentially this quarter, thanks in large part to our acquisition of AMG Parade, which closed on April 1st. We moved Parade.com onto our platform in July and have been very successful in expanding our audience and revenue post-migration. One of the key growth initiatives in our lifestyle vertical is applying our playbook, our breaking and trending news content strategy, which has seen success in sports and finance. We launched Parade.com on our platform last month, and we're already seeing very strong results. Additionally, as I shared last quarter, we have been deploying components of our playbook on several of our HubPages sites, most notably our pets brand, Pet Helpful. We saw encouraging early success in Q1 and have seen that carry over into Q2 and beyond. HubPages monthly average page views in Q2 were 89 million, a 71% increase over the prior quarter according to Google Analytics. The Pet Helpful especially has seen remarkable growth with monthly average page views of 42 million for the quarter, an increase of over 600% year over year. We have continued to roll out the playbook to several smaller HubPages sites, including Den Garden, Delishably, Exemplar, and We Have Kids, and we've continued to see traffic increase almost immediately upon launch. demonstrating yet again that our playbook and model works and is reliable across almost any topic or website. Audience development has played a big role in our traffic growth this quarter across all verticals. Social video views in the first half of the year have increased 61% as compared to the first half 2021, according to Listen First. As we continue to focus on creating engaging content, that appeals to new, younger consumers on Instagram and TikTok. Through our audience development editorial teams, we've also seen a vast improvement in Google-based traffic, with second quarter sports and finance clicks up 94% year over year. SI continues to have the number one share of voice for link posts across major sports publishers, as I said earlier, on Facebook. In addition to advertising, we continue to diversify our monetization, Second quarter other revenues including licensing and syndication has increased by 4 million versus the prior year period now representing 7% of our total revenue compared to 2% in the prior year period. This was due in part to the inclusion of SI Swimsuit in the second quarter of the year versus the third quarter last year. It also reflects significant growth in our ongoing licensing syndication in e-commerce, with Pillar 4 Media, a leading e-commerce company to create new e-commerce content and drive affiliate revenue. In Q2, our e-commerce business drove 2.8 million in top-line affiliate sales across our platform. We expect e-commerce to become a more and more meaningful piece of our business throughout this year and next. We are not without challenges, and let me address a few. We are not without challenges. While our results continue to demonstrate strong year-over-year operating growth, our profit lines were slightly behind expectations. As I mentioned a few minutes ago, global economic challenges have contributed to surcharges from vendors across our print business, where transportation, fuel, paper and ink charges grew substantially, impacting our print business profitability, particularly for our recently acquired Parade magazine. I'd note that the integration of Parade.com onto our technology platform and the execution of our proprietary playbook has gone exceptionally well. And we are already seeing higher traffic levels and greater efficiency. One of our key initiatives over the balance of the year is right-sizing our print businesses at Parade, just as we did with Sports Illustrated over the first two years of operations. which may include things like frequency changes and other adjustments to better align this business with our digital focus and the economic realities of today. While our primary focus is on digital properties, we continue to view print as strategically important and a valuable business, especially the way we have proven this at SI. And with some adjustments, we see the strategic value to our business and for consumers. We also made major changes at our SI Swimsuit franchise this year, which directly impacted our quarter negatively by roughly $4 million. For more than 60 years, Sports Illustrated Swim has defined beauty and created an indelible imprint as a standalone brand within the SI ecosystem. Last year, Swim leadership and I agreed it was time to move Swim forward towards a more sustainable future. one which didn't solely center on beauty and one magazine launch per year, but created a 365-day experience in the community, in the female lifestyle realm. This pivot included no longer delivering the magazine as part of the SI print subscription, only making it available at newsstands or purchased online. Launching the Pay With Change initiative, which mandated that sponsors and advertisers supported female empowerment and investing in the development of content for digital channels year-round, as well as launching the Swimfluence network, which serves as a community-based incubator for future talent, brand deals, and initiatives. Swim will focus on advertising programs from companies with demonstrated programs to advance gender equality and drive progress for women empowerment. This was a conscious effort for the long term. While executing this shift, our largest partner, TRX, went bankrupt, immediately reducing our revenue for the quarter by $2 million. This coupled with our strategic change has created a $4 million shortfall for the quarter. Of note, last year, SWMM occurred in Q3. There is good news, however. The support for this initiative has added more than 25 new brands that showcased powerful female empowerment initiatives during both May's launch and immediately into July's dynamic three-day experience at Miami Swim Week. Four million more unique users year over year, more than 200 pieces of influencer and creator content, which will run over the next several months, and a record-setting number of press impressions. The launch of this year's issue drew 14 million users during the three months post-launch, compared to four million users during the three months post-launch last year. an increase of over 10 million users year-over-year, according to Google Analytics. So while we saw significant pressure in Q2, we believe SWIM will now contribute to our earnings year-round. Already, we are seeing increased audience, sponsorship interest, commerce and brand extensions, and new revenue potential. The strategy we architected over the past two years has transformed our business, specifically Our business model centers around a powerful and efficient single technology infrastructure and centralized services, essentially a SaaS model that can support hundreds of businesses without significant cost growth once scale is reached. We have reached that tipping point. Our playbook, a dynamic production, distribution, and analytical strategy has transformed each of our brands and is our blueprint for growth. Our content model is highly efficient with an anchor brand for each vertical and a partner model that delivers substantial content, audience, and revenue growth with no upfront costs. And our monetization engine utilizes technology, audience scale, and premium brands to advertise in a seamless, simple way for them to reach more than 500 million average monthly users across all our properties and all our platforms. Our audience, brands, and content scale are enabling new business lines to launch and grow, including licensing, syndication, and commerce initiatives that are beginning to deliver powerful growth and results. Our revenue streams are stable and diversified, and as I stated, we have built a strong foundation, and as a result, do not anticipate needing to add to our cost base to continue to grow. Over half of our incremental digital revenue continues to fall to the bottom line, driving profitability as our audience and traffic continue to expand. And finally, in June, the Arena Group was added to the Russell 2000 Index. I'd like to talk more about our outlook for the remainder of the year, but first, I'd like to let Doug Smith, our CFO, take you through the numbers. Doug.

Thank you, Russ. Let me turn to the results. In the second quarter, Revenue was approximately $65.1 million, up 87% compared to $34.7 million for the second quarter of last year. Breaking down that revenue, total digital revenue of $35.1 million represented 54% of the total revenue and grew 75% versus the second quarter of last year. Digital advertising revenue of 24.7 million increased 114% versus the second quarter last year, driven by increased traffic across all of our business lines, as well as a 41% expansion in our display CPMs. 84% of that digital advertising growth was organic, driven by significantly higher traffic across all of our properties, And the growth in the CPMs was attributable both to an improvement in our core CPMs and a greater percentage of higher price digital direct ad impressions. Digital subscription revenue was $5.5 million, down 29% as compared to $7.7 million in the prior year quarter. Other revenue increased by 463% to $4.9 million during the second quarter of 2022, primarily related to the launch of the Sports Illustrated swim magazine, which this year occurred in the second quarter versus the launch last year in the third quarter. Additionally, licensing revenue in the rest of the Sports Illustrated media business saw significant growth in the quarter. Print revenue increased 105% to $30 million from $14.7 million in the prior year, The $15.3 million increase was primarily in print advertising, which was up $11.7 million, and was due to the addition of the Athlon Media Group Parade properties. Gross profit increased 94% to $18.3 million compared to gross profit of $9.4 million in the prior year quarter. Cost of revenue increased 85% versus the prior year quarter due to the acquisition of the Athlon Media Group Parade properties and costs related to the SI Swim magazine, which we, as we indicated, occurred in Q2 this year versus Q3 of last year. In addition, there are added costs related to the full year effect of investments we made in audience development and analytics personnel in the second half of the year these folks have been key to driving the traffic and digital advertising growth we've been talking about. Total operating expenses were $39.7 million in the second quarter of 2022 versus $32.7 in the prior year quarter. The increase is primarily driven by the addition of the Athlon Media Group properties. As a result, net loss was $22.2 million as compared to $20.7 million in the prior year quarter. The second quarter of 2022 included $14.9 million of non-cash charges as compared to $11.1 million in non-cash charges in the second quarter of the prior year. Adjusted EBITDA in the second quarter of 2022 increased 32% to a negative $4.9 million as compared to a negative $7.2 million for the second quarter of 2021, representing a $2.3 million improvement. Looking at liquidity, we ended the quarter at 14.8 million in cash and cash equivalents, compared to 22.5 million at March 31, 2022, and 9.3 million at the end of 2021. In the quarter, net cash generated from operating activities was a positive $5.8 million and was offset by $9.9 million of net acquisition payments, $1.5 million of capital expenditures, and a $1.5 million pay down of our line of credit. With that, I'll turn it back to Ross for closing comments.

thanks doug uh it's been a robust q2 and first half of 2022 for the arena group all key kpis have grown revenue is outpacing our expectations each key business unit has shown double digit revenue and audience growth year over year and the early signs in q3 are very positive our strategy developed over the past two years is working our playbook has now been implemented across all of our brands and is driving significant audience and revenue growth. Our two acquisitions are performing well. We have a robust pipeline of new deals and our company has generated positive net cash for the quarter from operations. We are confident that the application of our playbook to Parade will drive transformational growth in that brand as it has in Sports Illustrated and the street. Our e-commerce business continues to pick up steam with strong results during Prime Day in July. We continue to seek acquisition opportunities that are accretive to our vertical model, and we are maintaining a very robust M&A pipeline. Over the past two years, our primary goal was to build a profitable company with a scalable, replicable model on a strong foundation. We have completed the investments needed to support that goal. The most exciting part for us is the future. We've worked through some very difficult business challenges over the past two years and recorded tremendous revenue growth, massive audience expansion, stabilized our balance sheet, begun to generate cash each month and quarter, and built a highly skilled, cohesive team to run a business that can grow exponentially. We're off and running in Q3 with the start of football, back to school, And back to work just around the corner. We couldn't be more excited about where we stand to capitalize on the opportunities in front of us. And with that, I would love to answer any questions you have. So back to you, operator.

Certainly. 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 a speakerphone to provide optimum sound quality. Please hold just a moment while we poll for questions. Your first question is coming from Mark Argento with Lake Street. Please pose your question. Your line is live.

Hey, Ross. Hey, Doug. Nice quarter. Nice revenue growth and KPI growth. Just a couple quick questions. Ross, can you give us a little better understanding of where all this page growth and activity, viewership growth is coming from? I know you've broken out a little bit by by property, but maybe talk about how new viewers are finding some of your properties.

You bet. Thanks, Mark. So we talked a lot last quarter about many of the investments that we were making in things like audience development and analytics and our content teams, particularly in breaking and trending news. We've been applying that across the board. So when you look at some of the details of our KPIs in terms of growth, things like having the number one share of voice on Facebook drives real traffic to us. Optimizing search engine optimization drives real traffic to us. Creating more relevant and timely content creates real traffic to us. Understanding the types of stories that consumers are looking for in what I'd call non-game stories really helps us. So the money we spent over the past two years not only making our platform better, meaning let's make the pages work faster, let's optimize the ad impressions that we have, let's make sure that the content is produced quickly when it needs to be, and make sure the content is great. We continue to win awards. All of those things really contribute to the growth of our business across the board. And when we break out our sports vertical, our finance vertical, now lifestyle, the work we're doing at HubPages, each one of them is growing double digits. And so it's a testament to what I'd say is our playbook, which is all those things, including investing significantly in what we call our audience development team, which is just had a tremendous run for the last, we really just have had it for the last year. So those things combined with great content, which is really at the core of what we do with the brands that we have, I think all of that matters and it all contributes. And again, we've made a conscious effort, Mark, to invest. You know, we've been around for a bunch of years, but But it's two years since we really reset the company. And I really do make it important that we think like a startup. I know we have to hit earnings and I know we have to hit our numbers. It starts with growth and we've got to have that growth and it seems to be working pretty well across the board.

Good color. Appreciate it. Doug, one quick one. Gross margins. Obviously, when you have, you know, lump print in there, it gets a little muddied, especially with some of the, you know, the recent cost trends. Can you kind of maybe give us a little bit of visibility into how digital gross margins are trending? I'm assuming they're in pretty good shape of incremental, you know, 50 cents of the dollars flowing to the bottom line.

Yeah, we continue to see the incremental gross margins on digital revenue exceeding 50%. You know, and as Ross talked about, as we talked about, the challenge we faced with SWIM was really a big component of the lower margin that we saw in the quarter. And, you know, SWIM This year happened almost all in one quarter, so we do have revenue continuing from it, but most of its margin impact was in this quarter.

Hey, Mark. As I mentioned, if you really look at the quarter, the impact to SWMM and some of the print surcharges accounts for most of the pressure. Everything else is growing really nicely. And now SWIM, which really was a once-a-year thing, moving to a 12-month-a-year property, we're already seeing the impact in July and a little bit in August. So we're optimistic there. And I think when you look across the industry, we've all been following earnings. A lot of pressure at some of the social companies. A lot of pressure at some of the media companies. I was just noticing BuzzFeed's numbers were well below ours. So we are not seeing that compression, and I think that's in large part because we're growing so rapidly. So the sales team is doing an amazing job. We're adding new revenue streams in licensing and syndication and commerce. That's meaningful for us. You know, closing more ad deals, direct ad deals, which have higher CPMs has driven to, you know, a 41% growth in CPMs. So all of those things heading into the two biggest quarters of our year with football really kicking off now, we're pretty excited about what the back half looks like.

Thanks, guys. Appreciate the extra color. Good luck. Thanks.

Your next question is coming from Daniel Wolf at 180 Degree Capital Corporation. Please pose your question. Your line is live.

Hi, Ross and Doug. Great quarter. Thanks for the update. I noticed that the acquisition of Axios by Cox, I was wondering if you would be able to sort of comment on how you think of that as a potential comp for Arena Group, given the multiple was five times revenue. You know, just be interested and know how you think about it.

Obviously, we love that comp. Congrats to Jim Vande Hei and Mike Allen and the rest of the team there. I've been a huge fan of Axios. And I think what it speaks to is quality content, great user engagement. Under a startup brand, the folks who ran that business are long-time veterans. They've had amazing careers, and they really went out and built something very quickly, really over the last five and six years. And they got to about $100 million of revenue. I think the reports I saw said they weren't making any money this year. But to get a five times comp on revenue, I think speaks to audience engagement. It speaks to growth. It speaks to great content. So we love those comps as our business. And obviously, we're a tad bigger and growing pretty fast. So I was thrilled to see that. This morning I saw that another sports content company, private, called Overtime just raised a big round at about a half a billion dollar valuation. We like those comps. We'd like obviously people to value us similarly with the growth that we're having. So it's just proof is in the pudding as a public company. And my feeling is as long as we keep growing and improving on the bottom line, the rest of the stuff will take care of itself.

Sounds good. Thank you very much, and keep it up. Thanks, Daniel.

Once again, if there are any remaining questions or comments, please press star 1 on your phone at this time. Please hold a moment while we pull for any additional questions. Your next question is coming from Dan Day with B. Reilly Securities. Please pose your question. Your line is live.

Yeah, afternoon. Let's talk to you, Ross and Doug. So we talked in the past about a potential content syndication strategy between Sports Illustrated and maybe some of the newspapers that you partner with on the parade side. Just any updates in that regard?

Yeah, sure. We do have that syndication business going. We've seen fairly substantial uptake with partners. I think we're up to about two dozen now, two dozen different partners ranging from newspapers to big online distributors like MSN. We're also seeing some very positive growth within Apple News, more and more so. I think that is all tied to having brands that people know, care about, resonate with them. As part of the parade acquisition, Parade distributes its property to about 900 plus newspapers. The relationships that exist between the Parade team and those newspapers is really substantial. Obviously, Parade's 80 years old. It's been in business with those partners for a long time. So we are in active discussions with about half a dozen newspaper companies. on how we can work more closely with them. Again, I think having, I'll call them Switzerland brands like The Street and Sports Illustrated and Parade, we're not tied to television networks or competitors. I think bodes well for us to be able to distribute that content and ultimately lower the cost of producing that content by distributing it more places and generating money from it. So as I think I said and Doug said, Licensing and syndication and e-commerce are becoming certainly a meaningful part to our business, our top line. The margin on syndication is exceedingly high. You produce it once, distribute it many times. And so we're very, very optimistic that the combination of all those things is going to lead to a much more meaningful business as we move forward. But it's already grown from roughly 2% of our revenue to 7% in a year. So we're excited about where that takes us.

Great. Thanks for that. And then I appreciate the commentary you provided around, you know, the cost in the quarter with the size swim and some of the print issues. I mean, I look at like the first quarter gross margin is a little over 40%. Like, can you just kind of frame up how we should be thinking about gross margins trending over time as some of those costs subside? Like, do we get back to where you were pre-parade acquisition or is that, you know, you're probably just a lower margin business with parade in the fold or just kind of help us frame up how that should trend over time?

Thanks. Sure.

Doug, you want to take it or you want me to? Yeah.

I think... You know, we, you know, as Ross indicated, we're looking at ways of adjusting frequency and their distribution on the print side of the business. So we will, you know, the parade business was a lower margin business than where we had been. But we do feel that as we go into the latter half of the year, we'll start to see that move back toward where we've typically been in the past in the low 40 range, increasing into the high 40s in the fourth quarter due to seasonality. So we should see that improve. And as I said in response to Mark's question, a lot of the softness in the margin in this quarter was related to the swim launch in the quarter, and it, of course, does not repeat for the rest of the year.

Got it. And then last one for me, just if you could provide any updates on the M&A environment, just anything you're seeing out there, how aggressively you're kind of engaged in talks and any potential new areas that look attractive for verticals would be great. Yeah.

Yeah, it's, it's, it's certainly, um, picked up a bunch, you know, there's, there's a lot of companies that, um, we, last year, I think we talked to about 60 different companies. We, we did, we ended up doing, uh, the deal with the spun and ultimately parade AMG parade this year, but we were in full swing last year. I'd say our pipeline is, is very, very strong. There's, there's clearly a lot of distress out in the marketplace. Um, that's good for us. You know, our, our playbook, uh, In many ways, it doesn't matter to us whether the company is doing well or not. In fact, if it's not, it's somewhat helpful for us to get a better price. But there are some good brands that we like out there. There are some capabilities that we think would be additive to our playbook and to our platform. So we're engaged in both of those types of discussions, new verticals that could spin up under a household brand name and also some capabilities that we think will add you know, additional revenue and capabilities to our business. So we're deep into it on a couple. And, you know, certainly by next earnings call, I hope we have some good news to talk about.

Awesome. Well, sounds good, guys. Appreciate the call, Aaron. I'll turn it over. Yep. Thanks, Dan.

There appear to be no further questions in queue at this time. I would now like to turn the floor back over to Ross Levinson for any closing remarks.

Well, thank you all. I appreciate you joining us for our earnings for Q2. We couldn't be more excited as we're into Q3, and that means football and back to work for us, which is the most fun time of year, and we're excited to greet you all again during our Q3 call later this year. So thank you all, and have a great rest of the summer.

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