Ziff Davis, Inc.

Good day, ladies and gentlemen, and welcome to the Ziff Davis first quarter 2025 earnings conference call. My name is Paul, 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 Ziff Davis, and Brett Richter, Chief Financial Officer of Ziff 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 Q1 2025. 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.zipdavis.com. In addition, you'll be able to access the webcast from this site. After completing the formal presentation, we'll be conducting a Q&A. The operator will instruct you at that time regarding the procedures for asking questions. In addition, you can email questions to investor at ZiffDavis.com. 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 the nearest GAAP equivalent. Now let me turn the call over to Vivek for his remarks.

Thank you, Brett, and good morning, everyone. We're pleased with our first quarter results with revenues and adjusted EBITDA both ahead of our internal estimates. We also believe that Q2 will show accelerating growth, and we are reaffirming our full year guidance, which is a reminder reflects revenue growth of 5% and adjusted EBITDA growth of 6% at the midpoint. We continue to be an active buyer of our shares and we're settling into a nice M&A cadence with two acquisitions in Q1, one in early Q2, and another signed last week. Four of our five reportable segments grew in revenues in Q1. Taken together, These four segments, which historically were combined into the digital media segment, grew over 9%. The fifth segment, cybersecurity and MarTech, declined nearly 11%. However, much of that decline relates to certain timing benefits that occurred in the first quarter of 2024. I'd like to share some thoughts about each of our five segments. Starting with tech and shopping, Revenues grew nearly 18% through the combination of organic growth and M&A, and adjusted EBITDA grew nearly 44%. Our bottom line growth reflects the margin expansion we had planned for CNET, as well as the shift in our strategy for B2B. We've simplified our B2B product offerings and reduced expenses in a shrink to grow approach that's working. CES was a great success this past January, where we unveiled our new tech media portfolio branding, CNET Group, to clients and agencies at the event. We also partnered with the CTA, the organizers of CES, to launch the official Best of CES Awards, reinforcing our category leadership. Gaming and entertainment revenues grew by nearly 4%, with 7% growth in ad revenue while subscription revenues were slightly down. Our humble platform had a weaker lineup of game offerings during the quarter. We're focused on improving our merchandising assortment and securing better IP for future bundles. And we're cautiously optimistic that the June launch of Nintendo Switch 2 will represent a nice tailwind for the video game ad market. Adjusted EBITDA for gaming and entertainment declined in the quarter based on revenue mix and expense timing, which we believe will reverse itself in Q2. Health and wellness grew revenues over 7%, and adjusted EBITDA grew by over 12%. Prior to last year, the health and wellness business was one of our most consistent growers. We view last year as an aberration, and this quarter's growth as well as a healthy pharma ad upfront, as indications of a promising return to high single-digit growth for the segment. It's also worth noting that the subscription business is now 15% of the segment's revenues, which has been a diversification priority for all of our digital media businesses. Connectivity's revenues grew by 5% with the core part of the business, subscription and licensing, growing by 7%. In particular, we saw strong growth from both speed test and down detector. And with the market adoption and deployment of Wi-Fi 7 in 2025, we believe we will experience increased demand for Echo Health. Connectivity has historically been our fastest growing segment, and we're pleased to see it poised for a re-acceleration in growth in 2025. The margins of this business are industry-leading and continue to impress at over 50%, and we believe this will once again be a rule of 60-plus data services and software business. Finally, as I mentioned, the one segment that did decline in the quarter was cybersecurity and martech, which fell nearly 11% in revenues, partly due to the timing of certain revenues recognized in the prior year's first quarter. Given some of the sequential revenue trends and a small acquisition in early Q2, we still expect to see this segment grow in the second half of the year. We're particularly encouraged by progress in our VPN business, where we believe we've stabilized our revenue and we're now on a trajectory to grow organically. Our advertising markets, tech and shopping, health and wellness, gaming and entertainment, We're strong in Q1 and hold promise for the year. Obviously, there's a meaningful amount of uncertainty in the world right now, but we remain cautiously optimistic. Our subscription and licensing businesses are stable and growing nicely in some parts. As we always do, we're tightly managing our operating costs and capital expenses. Taken together, we feel confident in our ability to exceed our adjusted EBITDA growth rate year over year. On capital allocation, we continue to seek opportunities to further accelerate our EPS growth through share repurchases and acquisitions. On the former, we have bought 4.25 million shares of our stock over the last four quarters, representing roughly 10% of our total shares outstanding. In 2021, the company generated $485 million of adjusted EBITDA, and the stock hit a high of almost $130. This year, the midpoint of our guidance has us generating $523 million of adjusted EBITDA, and the stock is currently in the 30s with almost 12% fewer shares outstanding. While the market processes this, we will continue to lean into this dislocation. At the same time, this environment is producing compelling acquisition opportunities for us, and we're working to ensure that we are positioned to transact. Last year, we acquired four businesses, and so far this year, we've acquired three, have a contract signed on a fourth, and have an active pipeline of opportunities across all five of our segments. Looking ahead, our focus remains on identifying the most compelling assets within our verticals. Situations in which we believe we can uniquely generate value, leveraging our platforms, technology, teams, and know-how. We prize diversification, and you see that in our multiple revenue models of advertising, performance marketing, subscriptions, and licensing. In our multiple end markets of consumers, small and medium businesses, and enterprises. And of course, in our multiple digital categories. It's why we seek to pursue businesses with powerful and established brands that have the proven capacity to adapt. We believe we own the top tier brands in many of our categories, brands that have endured for decades. Moreover, we expect to see the compounding effects of serial acquisition and share buybacks restore value in the company and for our shareholders. Our decision to file a lawsuit against OpenAI stems from a fundamental conviction to protect the core principles underpinning quality journalism and the significant investments required to produce it. We are committed to advocating for the establishment of a more balanced and fair digital ecosystem, which includes supporting the responsible growth of AI technology. This ecosystem must ensure the long-term sustainability of value for all stakeholders, including the consumers who rely on credible information, the publishers who invest in its creation, and the advertisers who support its dissemination. This is a principled effort to defend the integrity and value of journalism and our copyrights. We are resourced and positioned to challenge the unauthorized use of our content by companies like OpenAI. We believe that this lawsuit is a crucial step towards fostering a digital environment where intellectual property rights are respected and the contributions of journalists and publishers are fairly recognized and compensated. We encourage everyone to read our complaint. It's full of compelling and important insights. With that, I'll hand the call back to Brett.