Ziff Davis, Inc.

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Good day, ladies and gentlemen, and welcome to the Ziff Davis third quarter 2024 earnings conference call. My name is Tom and I will be the operator assisting you today. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. On this call will be Vivek Shah, CEO of Zip Davis, and Brett Richter, Chief Financial Officer of Zip Davis. I will now turn the call over to Brett Richter, Chief Financial Officer of Zip Davis. Thank you. You may begin.

Thank you. Good morning, everyone, and welcome to the Zip Davis Investor Conference call for Q3 2024. As the operator mentioned, I am Brett Richter, Chief Financial Officer of Zip 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. In addition, you'll be able to access the webcast from this site. After completing the formal presentation, we'll be conducting a Q&A. The operator will instruct you at that time regarding the procedures for asking questions. In addition, you can email questions to investor at zipdavis.com. Before we begin our prepared remarks, allow me to read the Safe Harbor language. As you know, this call and the webcast will include forward-looking statements. Such statements may involve risks and uncertainties that would cause actual results to differ materially from the anticipated results. Some of those risks and uncertainties include, but are not limited to, the risk factors that we have disclosed in our SEC filings, including our 10-K filings, recent 10-Q filings, various proxy statements and 8-K filings, as well as additional risk factors that we have included as part of the slideshow for the webcast. We refer you to discussions in those documents regarding safe harbor language as well as forward-looking statements. In addition, following our business outlook slides are our supplemental materials. including reconciliation statements for non-GAAP measures to their nearest GAAP equivalent. Now, let me turn the call over to Vivek for his remarks.

Thank you, Brett, and good morning, everyone. We're very pleased with our third quarter results, with total revenue growth of 3.7% and adjusted EBITDA growth of 9.6%. 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 and the opportunity for us to leverage our balance sheet and cash flows to acquire businesses that we'd like to own. The digital media segment grew nearly 6% in revenue and over 14% in adjusted EBITDA in Q3. That's the best adjusted EBITDA growth for the segment since Q3 of 2021. All of our digital media verticals grew in the quarter, which is itself a milestone, with a mixture of organic and inorganic growth drivers. 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 B2B. The gaming vertical grew double digits, with steady growth from our existing properties, plus the inclusion of Gamer Network, which was acquired in May. Our shopping properties grew mid-single digits, with continued benefit from the acquisition of our gift cards business. Connectivity was up mid-single digits, and health and wellness was slightly positive, with strong consumer revenues offsetting ongoing pressure on the provider side. Overall, we feel we've turned the corner in our digital media businesses, with advertising revenues up 5.8% and subscription and licensing revenues up 7.8% in the quarter. The cybersecurity and MarTech segments revenues declined by a little over 4%, but we've been very focused on preserving adjusted EBITDA, which was flat in the quarter. We took a revenue hit in our Moz SEO business, partially due to the MozCon 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. We continue to believe that as paid media costs rise, marketing channels like email grow in importance and value. We've extended our capabilities to offer SMS marketing, which has become a fast-growing feature. While cybersecurity revenues did increase sequentially from Q2, they are still down year over year. I believe we're a few quarters away from being in positive growth territory based on product advancements, signed partnerships, and bookings momentum. Our revenue initiatives have taken longer than we hoped, but I continue to believe that owning cybersecurity assets that can grow and have mid-30s EBITDA margins will prove to be valuable for the company. I'm also happy to report that in the third quarter we successfully closed our acquisition of CNET, which I previewed last quarter. This again is a quintessential Ziff Davis acquisition. We love to acquire great durable brands at reasonable prices. 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. Our MarTech group completed a small identity resolution tuck-in, and we actively engaged in dozens of other acquisition dialogues across all other areas of our portfolio. 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. I'm often asked what metrics matter most to the company. We view adjusted EPS and free cash flow as the metrics that best capture the full breadth of our business and capital allocation activities. Adjusted EPS reflects our ability to generate incremental intrinsic value per share by growing adjusted diluted earnings per share. 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. To that end, we allocated nearly $100 million to the repurchase of another 2 million common shares in Q3. Year to date, we've repurchased 3.5 million shares of Ziff Davis common stock. Free cash flow is the fuel of our capital allocation strategy and our M&A strategy in particular. 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. This free cash flow is critical to our maintenance of our healthy balance sheet, which as Brett will discuss further, supports all of our capital allocation alternatives. And to that end, we're pleased to see that our free cash flow over adjusted EBITDA yield is moving toward our target levels. This past quarter, we launched several notable AI-driven products across our key verticals. Starting with Ekahau, we introduced Ekahau AI Pro Online on Wi-Fi Day. This product was designed to enhance Ekahau AI Pro by integrating advanced AI modeling with our proprietary measurement data, eliminating the need for manual wall drawing. Users should now be able to design, optimize, and visualize networks directly in their web browsers, significantly improving both speed and accuracy in Wi-Fi network planning. In cybersecurity, we launched Viper AI Advisor, an AI-powered tool now embedded directly into the incident response workflow of our endpoint detection and response solution. Viper AI Advisor was designed to enable users to ask security-related questions in natural language and receive actionable insights. This advancement should simplify threat analysis and response, making security management more intuitive and efficient. In health and wellness, Health eCareers rolled out the AI JobFit Analyzer, which should help healthcare job seekers assess their compatibility with specific roles. This tool provides objective feedback to improve job matching, streamlining the search process and tailoring it to meet our users' needs. As much as our products continually evolve with AI, we also closely monitor the evolution of Google's search product with AI overviews. As of Q3, we continue to see less than 10% of our top queries include an AI overview. As Google reiterated on their last earnings call, AI overviews 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. Google's market share of search has not materially shifted in any way. but we continue to keep close watch on competing engines in the marketplace. In the evolving search landscape, high-quality authoritative content is more essential than ever. It ensures accuracy in AI-driven search results and serves as a critical foundation for training AI models. Sif Davis recently published a research paper revealing that popular curated datasets used in major, large-language models significantly favor premium publisher content, prioritizing it between 5 and nearly 100 times more than general web content collected through common crawl. This is all to say that we continue to firmly believe in the value of our intellectual property to AI models. Let me conclude with an update in our ESG efforts. 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 sustainability practices. We moved up 15 points, which now places us in the 95th percentile of companies in our industry. Also in August, we participated for the first time in the EcoVadis assessment, which rates a company's material sustainability impact based on thorough documentation analysis. We received a silver medal, which places us among the top 15% of all companies assessed by EcoVadis in the past 12 months. And last month, we submitted the CDP climate questionnaire, which marks our second year of participation. 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. And speaking of our employees, next week we will host our fourth annual Company-Wide Purpose Summit, an 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. With that, let me hand the call back to Brett.

Thank you, Vivek. Let's discuss our financial results. Our earnings release reflects both our GAAP and adjusted financial results for Q3 2024. 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. Slide four reflects the summary of our third quarter financial results. We reported revenue of $353.6 million for the third quarter of 2024. This compares with revenue of $341 million for the 2023 comparable period, reflecting an increase of 3.7%. Q3 2024 adjusted EBITDA of $124.7 million increased 9.6% as compared with $113.7 million for the prior year period. Our adjusted EBITDA margin for the quarter was 35.3%, a 200 basis point improvement as compared with Q3 2023. Q3 adjusted diluted EPS was $1.64, reflecting a 9.3% increase as compared with Q3 2023. 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 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. Let's discuss certain details relating to these results. Slides 5 and 6 reflect performance summaries for our two primary sources of revenue, advertising and performance marketing, and subscription and licensing. Slide 5 reflects the company's advertising and performance marketing revenue performance. Advertising and performance marketing revenue increased 5.8% in Q3 2024 as compared with the prior year period. This represents a significant improvement as compared with the first half 2024 decline of 1.4% as compared with the first half of 2023. Advertising and performance marketing revenues in consumer tech and gaming were significant contributors to the year-over-year growth. 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 B2B technology business. Trailing 12-month advertising and performance marketing revenue was nearly flat compared with the prior year, reflecting less than a half of a percent decline. Our net advertising and performance marketing revenue retention was nearly 92%, up approximately 300 basis points as compared with the prior year period. As defined in the slide, during the third quarter, Zip Davis served more than 1,730 advertisers and performance marketers with an average quarterly revenue per customer of nearly $112,000. 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. Slide six depicts our subscription and licensing revenue performance. Subscription and licensing revenue grew 1.8% in Q3 2024 as compared with the prior year period, and 2.7% during the last 12 months. The table on the bottom of slide six includes subscription and licensing metrics for the last eight quarters. We had nearly 3.5 million subscription and licensing customers in Q3 2024, reflecting a sequential increase. There were sequential gains within Lose It and Humble Bundle, offset in part by a reduction in cybersecurity customers. Our Q3 2024 average quarterly revenue per customer was $42.21, a modest sequential increase. Turn also declined sequentially from 3.61% to 2.85%. The company's Q3 2024 other revenues declined by approximately $600,000 year over year, primarily reflecting lower revenue from Ekahaus sidekick sales and daily OM offset in part by higher revenue from humble bundle game publishing. Slide seven provides quarterly organic and total revenue growth rates for the last eight quarters. 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. Third quarter 2024 organic revenue declined less than 2%, reflecting a 3 percentage point improvement as compared with Q2 2024. 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. Turning to our balance sheet, please refer to slide 8. Q3 2024 was a very active quarter for our capital deployment activities, and as we approach the end of 2024, our balance sheet remains strong and continues to represent the foundation of our capital allocation strategy. As of the end of Q3 2024, we had $386 million of cash and cash equivalents and $153 million of long-term investments. We also have significant leverage capacity, both on a gross and net leverage basis, and our $350 million revolving credit facility remains undrawn. During the quarter, we deployed $155 million of cash for acquisitions. As we discussed on our Q2 2024 earnings call, In July 2024, we completed an exchange offer for $400.9 million of our 1.75% convertible notes due 2026. In exchange for these notes, we issued $263.1 million of new 3.65% convertible notes due 2028 and paid approximately $135 million in cash. 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. 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. 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 dollars. This increased our year-to-date stock repurchases to 3.5 million shares, or approximately 7.6% of our shares outstanding as of February, 2024. 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. Our third quarter net leverage ratios reflect all of this Q3 activity. As of the end of 2024, third quarter, gross leverage was 1.8 times trailing 12 months adjusted EBITDA and our net leverage was 1 times and 0.7 times including the value of our financial investments. We plan to continue to leverage the strength of our balance sheet to support our pursuit of enhancing shareholder value. 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. Turning to slide 10, we are reaffirming the fiscal year 2024 guidance range that we originally presented in February 2024. 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. Most importantly, we're excited at the prospect of a solid growth year, especially with very strong adjusted EPS growth. Following our business outlook slides are certain supplemental materials, including reconciliation statements for the various non-GAAP measures to their nearest GAAP equivalent. This section includes a reconciliation on slide 16 that reflects free cash flow. Year-to-date 2024 free cash flow was approximately $153 million. This includes more than $80 million of Q3 2024 free cash flow, a 76% increase as compared with Q3 2023. These figures reflect a positive contribution in Q3 2024 of approximately $7.5 million from our recently acquired TDS business. Overall, we are very pleased with our Q3 2024 results. This quarter reflects many of the elements that define our value creation strategy. 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. 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. We acquired CNET. We retired $135 million of our outstanding debt. We reduced 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. We have been patient and disciplined with our capital deployment as we have navigated challenges during the last several years. But as we have consistently communicated, when we have the opportunity to act, we will act decisively. 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. In the interest of time, we ask that you please limit yourself to one question. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we begin. And your first question this morning is coming from Yagal Arunian from Citigroup. Yagal, your line is live. Please go ahead.

Hey, good morning, guys. Nice to see the outperformance and the turn here. Maybe just on 4Q, you know, we're still kind of expecting a nice step up into 4Q. I know we've got the full quarter of CNET, and that helps. Just help us frame what else kind of drives that step up. And in particular, are we expecting to get back to organic growth in 4Q and then not have follow up?

Thanks for the question. I'll take that. I think 4Q 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 a focus on continued execution across the board and not only driving revenue, but maintaining and adjusting our cost base dynamically to adjust to the winds of the business. You note, appropriately, we'll get a full quarter of SkiNet. We have the seasonality in our various shopping businesses. And where certain of our businesses have shown straight throughout the year, we anticipate certain of those trends continuing. With regards to organic growth, no comment on a specific metric beyond what we already said.

know for this quarter but importantly our q3 organic growth rate was a significant improvement relative to what we reported in q3 where we discussed you know certain specific dynamics for this quarter yeah the only other thing i would add which might be helpful is when we look at q3 organic um what we really have is two factors that that weighed on the overall rate one is b2b and the other is the cyber and MarTech business. And on B2B, one thing I'll share is that we are in the process of reducing the number of ad products offered by that unit. And so we wanna 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 to find the profitable core of the business. We're doing that with the B2B business. And so by simplifying it, we think we're going to help improve margins in 2025. That obviously contributes, however, to a negative organic growth element. And then cyber and mark tech, I discussed a little bit in the prepared remarks. You know, we are having some challenges there. But outside of that, you know, absent those two, we're in good territory. And we think that's going to continue into Q4.

Okay, great. That's really helpful. And I guess maybe one on Gen AI and you'd like to give a bunch of commentary here, maybe expand on it and put some of these things together. So 20% of your search queries are seeing Gen AI results in search. In the past, you've said that Gen AI search has been additive to your traffic. I'm not sure if that's evolved at all, if that's still the case. You know, and then you talk about the value that you bring as a high-quality publisher. So how does all that kind of fit with your philosophy and your approach and what you're doing around Gen AI? Maybe just to expand on that a little bit more. Thanks.

Yeah, no, we're 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, it's a 10% AI overview presentation rate. So not 20, but 10. 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 or AI overviews in Google in the context of our queries is still relatively small. With respect, however, to that universe, and it's still hard to entirely tease out click-through rates on AI overview queries versus none, but if you were to listen to Google's commentary, their view is that it actually leads to more search activity and more search activity presumably leads to more click-through. I will also say that there is an ongoing 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 that's where just like in search i just think high domain quality brands that you know we have essentially most of our our uh 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 you know You know, the market is very attuned to this particular set of what let's just call them algorithm changes. But, you know, we've been watching algorithm changes for a few decades now. I kind of view this consistent with those in the past. So we're very focused on continuing to, you know, rank 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 media. Patrick Corbett- traffic, we do a fair amount of APP traffic, we have a significant email database and reach of audience through email, I know we spent a lot of time thinking about and talking about search but we're pretty diversified. Patrick Corbett- organization when it comes to traffic and ways in which we can reach and monetize audience.

Thanks appreciate that.

Thank you. Your next question is coming from Ross Sandler from Barclays. Ross, your line is live. Please go ahead.

Great. Thanks, guys. Just maybe to start, the 4Q revenue trajectory implies another nice acceleration, at least at the high end, for the advertising business. which will have a full quarter of CNET, as you mentioned. So I guess as we look out to 2025, how should we think about factors that would cause that growth rate to either sustain itself, go higher or lower based on where we're at just in the advertising business? And then more broadly, is CNET helping change the nature of conversations that you're having with your

larger advertiser accounts given the scale that it kind of adds to the overall portfolio and then i've got one follow-up after thanks guys yeah no thanks for the questions ross so let me start with your last one because it is part of the investment thesis where bringing cnet with zdnet pc mag mashable lifehacker spiceworks into a singular organization which has been rebranded CNET Group and will go to market as CNET Group, I do think puts us in a very different competitive position. Look, the reality of the ad marketplace has been that a lot of dollars have moved to search and to social and into CTV and just to programmatic. But there is a real appetite amongst advertisers to do larger scale, thoughtful, integrated multi-platform programs, but you need scale players with a lot of versatility and capability to do that. We believe CNET Group is absolutely that and is uniquely that within tech. And so we'll be, you know, 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 CNET group. So we're super optimistic about what that means at a time when we are seeing green shoots within at least consumer tech. So consumer tech for the properties excluding CNET have done very well this year. And that I think is underlying strength in consumer electronics and PC and mobile and those categories. There's also a fair amount of advertiser interest in affiliating with AI and positioning companies, tech vendors positioning themselves as AI forward companies. And so that becomes also a nice tailwind, I think, for the business. With respect to 2025, obviously it's early for us to say anything substantial about next year. That's obviously in the next call. But 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 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 B2B, that's all to say that I, you know, 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 uh you know a compounder a net income eps free cash flow compounder you're seeing i think a lot of that in this quarter and i think that's kind of the game plan going into next year well i had another question right yeah yeah the second one was kind of related to what you just said at the end there

And Brett, you can hop in on this one, but the EBITDA to free cash flow conversion was above 60% in the quarter, as you guys mentioned, and we're above the kind of medium term target of, I think you said like mid to high 50s 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 steady state go forward?

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 a range. And starting first and foremost, where we ultimately perform in that range impacts the conversion rate because the extra dollar of EBITDA doesn't necessarily come with more FX or more leverage interest expense of course there is a tax impact so again when we think about free cash flow we think about within a range we also when we say we're targeting kind of a mid-50s type of conversion rate that excludes kind of unique aspects of any quarter um could be some financing fees which we had into uh three it could be some m a fees if we have transactions we also uh look 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 other than on our recently exchange convert. in Q4 and Q2. We have timing of tax payments. We have timing of working capital, particularly as it relates to PDS. PDS was a negative contributor in Q1 and Q2 and a positive contributor in Q3. We looked at performance in Q4. So I think I'm pointing at all that to say we can't look at free cash flow in any given quarter as an indicator of the next quarter. what we did see this quarter is a significant improvement in working capital which is something that's been a headwind for this business for the last several quarters and we've highlighted and um you know an overall very significant contribution to cash i mean to see any of our key financial metrics go up year over year on 75 plus percent um you know obviously points to progress but also of course points to something um you know maybe atypical in the quarter where in this case it was that we did that for that working capital recapture so again continue to target towards the mid 50s excluding specific kind of one-time items higher or lower depending on our performance within the range and any given quarter not necessarily an indicator that this quarter was very strong and we're not going to back up from that thanks thank you

Your next question is coming from Corey Carpenter from JPMorgan. Corey, your line is live. Please go ahead.

Good morning, and thank you. Vivek, I 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 and how it informs your approach to potential AI licensing deals? And then I have a follow-up from Brett. Thanks.

Yeah, thanks for the question, Corey. So look, I think that one thing to recognize within the AI and large language model landscape is that there hasn't actually been a deal cut or announced that we're aware of where any of the companies who own these foundational models have actually paid a license for training. Many of these deals are essentially licenses for maybe go forward content for for what they call RAG or may include releases on liability with respect to training. And I think it's a fundamental disagreement that exists between companies like ours and the owners and operators of LLMs, which is their view that training is fair use and our view that it is not and requires license. So then within that, what we wanted to do is really understand how much of our content and other premium publisher content, how important that content is to the process of LLM training. And the headline is, it's very important. And so what you may hear in the marketplace is that look, it's a vast 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. And while they've sucked in 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 weight with which they trained these models. And so the paper is worth reading. Axios did a little piece on it. It's starting to get some real attention, which is 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 licensing for training, not just licensing for retrieval augmented generation, but not just RAC, but for training. So I think it's important. It is fact-based. It is not just about Zip Davis. It is about a number of premium publishers. And I think it's worth reading and worth understanding.

Thank you. And then just on capital allocation, the repurchase commentary changed a bit, I think, this quarter. Last quarter, you said we expect to be active buyers, which we were. This quarter, I think you said you're going to be optimistic around share repurchases. Maybe we're 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. James Heitinger, Thanks, Corey. Nothing has 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 James Heitinger, the training of the stock, you know, at the time that we were clear that we would allocate capital to show support, we did. I think over time, our sort of approach to capital allocation Again, I think the best way to set it is consistent. We've spent a fair bit of capital this year. I highlighted debt repayment, share repurchases, significant M&A relative to recent history in our prepared remarks. And we always maintain the optionality or the flexibility to be dynamic and putting more capital towards any or each of those pillars. So whether you want to read into an immediate or short-term message that we're continuing the tilt towards M&A, but overall, long-term, no change whatsoever. Thank you.

Thank you. Your next question is coming from Rishi Jaluria from RBC. Rishi, your line is live. Please go ahead.

All right. Wonderful. Thanks. I'll keep it to one question. I want to drill into maybe some of the softness that we've seen at the Moz group. You talked about 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, you know, as we continue to have these conversations around GemAI, one of the places that I think a lot of investors have said may be at risk has been in, you know, SEO and maybe even MarTech more broadly. So why is this maybe not a function of just AI starting to display some of that tech? Thanks.

Yeah, great questions, Rishi. So I'd say a couple of things. So part of the softness, obviously, as I pointed out, had a little bit to do with the MozCon, the timing of MozCon. So that is something just to keep in mind. Look, I think that... Part of this may be the Moz pro customer is more SMB in orientation and not enterprise. And so that might have a little bit to do with the state of maybe SMB and sort of where they're looking to prioritize. I think all of the confusion around search and just the press around search and what's happening may have had a chilling effect on customer acquisition. So in that sense, you may well be right that the prevalence or the dialogue around AI has some people saying, this is confusing. It was confusing before. It's even more confusing. I'm not sure I want to invest in a platform right now. But I will also say that 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'll 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 at least trial and then ultimately customer attention. We also need to lean more into paid marketing to drive subscriptions. Moz, ironically, has always relied on SEO to sell its SEO service. And the reality is we compete with entities who do a ton of 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 SEO. But look, it is an area where we're going to have to do something. We think there's a great deal of potential, but we certainly haven't realized it. We did 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, you know, for it to be, you know, a steady state or even declining asset.

All right. Really helpful. Thank you.

Thank you. Thank you. Your next question is coming from Shyam Patel from SIG. Shyam, your line is live. Please go ahead.

Good morning. This is Aaron. I'm for Shyam. Thank you for taking our question. Maybe starting off, Vivek, 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 just a layer deeper there and unpack a bit more what you're seeing on that front? And of your seven major vertical categories, are there any areas where the M&A environment looks particularly attractive right now? And then we've got a follow-up as well.

Yeah, no, great question. So look, I'll tell you this, that I believe that the environment is or is close to being normalized, meaning it feels just like it did pre-COVID. And that, I think, is really important. And what do I mean? It's not the volume of dialogue. We've had that throughout. It's the nature of the dialogue and particularly the nature around price and terms and motivation for transactions. And we saw that, by the way, with the CNET transaction. We had a long history with that asset. I won't go into all those details. But the dynamics that I'm describing right now certainly went into play with respect to that acquisition. You're 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 in a number of different sectors and verticals and categories. And so if I'm to quickly go through them for us, I'd say tech and shopping has been our most active area, obviously, with gift card acquisition and with CNET. And I think Offers continues to offer some of the best opportunities. I think these are spaces that have been challenged. And often when they're challenged, that's when that's when we can get, you know, we can get some really good price value. You know, gaming looks promising. Obviously, we did gamer network. There are a lot of gamer network type deals within gaming. It is a very fragmented space. And I think we have an opportunity to consolidate a very fragmented space. I think connectivity and health and wellness are due. They have not done much in recent memory. And I think they're both, you know, as businesses and as divisions really focused on transactions and joining the party. 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 in a while for Cyber and MarTech. I think within it, we like email a lot. We like the email marketing space, always have. I made a comment in the prepared remarks about, I think, the value of email in a world where paid marketing is getting more and more expensive. And so to me, it is, and by the way, email is identity. There are a lot of things we like about email. So that's how I would characterize it. Again, I think opportunities in a lot of places were well-positioned. You know, gross debt over TTM EBITDA of about 1.8. Great free cash flow, cash on the balance sheet. We feel good.

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.

You know, it's early. It's early to say. You don't know until you're in it. Obviously, there's been market dialogue about the number of days in the shopping period, something to watch. But the general view is, well, that just means you'll get more spread over fewer days. I will also say that the holiday shopping window keeps expanding. You know, we just had RetailMeNot National and that was great for us. So things are already starting, but you don't know until you're in it, to be perfectly honest. But we're hopeful that it's going to be a solid season.

Great. Thanks again, Vivek.

Thank you. Thank you. Your next question is coming from Robert Culberth from Evercore ISI. Robert, your line is live. Please go ahead.

Great. Thanks for taking our question. Wondering if you may give us any update on your use of GenAI internally, particularly maybe early on in some of the recent acquisition activity. Any thoughts on your ability to leverage that and extend that? Thanks.

Yeah, and again, I might have said this the last time around. I'll repeat it. We don't view GenAI as being entirely helpful in content creation. um we just believe that that human created produced content and journalism um is vital to our value proposition to the reputation of our brands and to the success of those brands and i think the demand for things that are quite obviously done by humans and not machines is quite high right and i think you're all we all as consumers are trying to figure out like well wait who wrote this and so again i i we don't put any emphasis there are there things that can help in You know, research, absolutely. Are there things that can help maybe in, you know, helping kind of structure an outline? But that's not, to me, that's not a real change in our process. Where I am bullish, very bullish about AI is AI for coding. And so using AI to generate code, which I would say, you know, across all of the activity in the company, quantum of lines of code were written by AI. you still need humans involved. You can't just have AI write the code and you step away. But for code generation, and what is code? Code is 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. It doesn't require some of that judgment that goes into content and into journalism. So a lot of focus on leveraging gen 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 help our products become better? Like the one I liked, I didn't use it in this call, but the one I like to always think about is how AI is being used within our Lucid app and how that's made food blogging so much easier for our customers, which makes them happier with the subscription offering and the product, and they're going to use it more. So we're always looking for Gen AI to improve the product and user experience, Gen AI to help with coding and development, but not Gen AI for content.

Great, thank you. And one other sort of common thread through earnings I think so far has been sort of some weakness in maybe some categories like food and beverage. Any of that come through in your health business or just curious about that? Thank you.

Yeah, it's a good question. No, we haven't seen that largely because that's not a big part of the ad formula within health and wellness. What I would just say is that, you know, 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 pharma cutting back across the board within its provider marketing. But, you know, nothing on the food and beverage side.

Okay, great. Thank you.

Thank you. This does conclude our question and answer session. At this time, I'd like to hand the floor back to Brett Richter for closing remarks.

Thank you very much, Tom. And as always, we appreciate everybody joining us today to discuss our Q3 2024 results. We've posted some information with regards to our upcoming conference participation late this year, and we hope to see some of you there. Again, thanks for joining. Have a good day.

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.