People Incorporated (PPLI) Earnings Call Transcript & Summary

All right. We can get started here. So great. Let's get started. My name is Ron Josey. I lead Internet coverage here at Citi, and I'm excited to have with us Tim Quinn. Tim is the CFO of People, formerly known as IAC, as everybody knows, with you today. And obviously, with us here today, there's a lot going on at people, as we all know, from portfolio simplification, transformation of operating assets and businesses, investments, the opportunities around AI and licensing, the list goes on and on. So Tim, thanks for joining us.

I've got some questions. Maybe I'll kick off with like 1 or 2 icebreakers here. You wake up in the morning, what's your favorite -- what's your daily driver for your list of all the publishing assets that you have to get the news flow or the insights that keep you going?

I usually start with people, people the magazine still just because it's easy and it's digestible. And then I love food and wine.

Food and wine, yes.

I go to sort of I get the magazine, I consume it online, I consume it socially. And I've started to actually pay a little bit of attention and follow in style, too. So we'll talk about that today.

I was going to ask where do you get the news? Do you go -- you've said magazine clearly and online. Do you go anywhere else I mean I started the people app. People today.

Yes, that's why it's most accessible. It's on my phone. It's on my kind of my new desktop. There's no desktop really anymore. And then it's Instagram I'd say a lot of Instagram.

Well, thanks for that. Appreciate it. It's always good to understand how we use the product, right? That's key. So let's say, you've been in the role, the CFO role for a little over a month now, but you've been with Meredith ISC for more than a decade, 12-plus years. Is that right? Yes. So over the last 6 months, I just wanted to get your thoughts as PeopleLink has evolved into what it is now. Would love to hear your thoughts on just this evolution of the business, the simplification journey, things along those lines? What are you focused on? What's people focused on now?

Right. So the business is people. PPLI is the ticker. It is the former IAC. So that's what most people still know it by, and we almost use it interchangeably still, hopefully, not forever. The reason we changed the name was part of the simplification strategy that you just talked about. What we set out to do more than a year ago in partnership with Chris, the former CFO and the team and Mark Schneider, who's here, is really start to like simplify the story so investors could get their head and hands around sort of what the future of the business is. The core assets that we hold are people the Media business, which we're going to talk a lot about today and MGM, a 26%, 27% stake in MGM. We made an offer to acquire 100% of MGM in June. That work is still ongoing. There's not going to be a ton we can talk about that here today. But putting that aside, what PPLI is today are those 2 core assets as well as holdings in Vivian, a nurse marketplace, nursing marketplace, the Daily Beast, Toro, which is a ridesharing application and a handful of other assets. Importantly, what we've tried to do and really embarked on doing is really simplifying the holdco structure. Presumably, part of the holdco structure is what has caused sort of the valuation disconnect in the marketplace. And so we've consolidated the corporate overhead structure of IAC and the people operating business and on a pro forma basis, will reduce corporate overhead to about $45 million by Q1 next year. So significant simplification, selling down of assets, reducing corporate overhead and focusing on our core businesses, which again, our People and Media business and MGM.

Got it. That's a lot going on. You've got MGM. So -- and I know we're not going to get too much in here, but would love to hear just the latest on the proposal. I think Barry talked during earnings, just maybe the benefits of increasing the ownership or at least owning the asset. But any insights on time lines from here? I thought there was a few mentions on -- during earnings. We're now a few weeks post that.

Yes. I mean it's been about a month since earnings. We continue to work through it. We can't really talk a lot about it today. We really are in a sort of a no discussion zone on it other than to say we made this offer on June 1. We think the business is undervalued, MGM. We have high confidence in the management team in any and all cases, whether we continue in the current state or own a majority of the business, the management team would continue to operate that business as it does today. We think there's a lot of value to unlock there, and we're excited to either maintain our current position or ideally extend our position to kind of a majority ownership stake. But that's about all we can say today.

Okay. And sticking with the simplification sort of focus here, let's get that out of the way before we talk about the operating assets and what's even more exciting. Just I'd love your thoughts on how do you balance investing in the people, the buybacks, potentially more acquisitions or selling noncore assets and, of course, potential M&A. Just how do you balance the mandate here or at least the focus?

Yes. I mean the thing I want to highlight for folks and investors in particular, is the strength of the balance sheet as we sit here today. So -- and that will address some of your other questions. We have about $1.3 billion of cash combined between the holding company and the operating company. We sold a venture stake late Q2 into early Q3. That deal has closed. So that helped too. We have about $1.4 billion of debt. So we're on the verge of or soon we'll be sort of net debt neutral. We have -- so we have borrowing capacity. We have revolvers. And most importantly, we're generating cash. We're generating cash at the operating company level. Over the last 12 months, we generated $175 million of free cash flow. after debt and taxes. And we're selling noncore assets. We're not done doing that either. So again, while we like the businesses, we think there are better homes for Vivien and the Daily Beast. We are excited about and hope to see an IPO of Toro in the not-too-distant future. And the collection of all those assets would add hundreds of millions of dollars of incremental cash to the business. In addition, we have some litigation pending against Google around their ad tech monopoly. We think that can generate, we've said, 9 figures of cash. So you take sort of a business that is net neutral today with a lot of borrowing capacity, you add all those sort of sources of cash as well as most importantly, the ongoing operating business and you have something that's very healthy that the market is valuing today at 0. right? And so that's the core investment thesis. What we will do about it is continue to simplify, continue to reduce the corporate overhead wherever we can, sell noncore assets, buy back stock when we can, both in PPLI and if this transaction weren't to go through potentially continue to increase our stake in MGM, reduce our debt levels and potentially and hopefully do some M&A at the operating company level. So it really is a strong story, a strong cash flow story, a strong balance sheet story, gives us a lot of optionality, and we're excited about where we can take it. But most importantly, it's about executing on the core business.

So that's a good segue for the core business here. As we get through simplification, a lot of work to do, understood. But what's fascinating is people is in the middle of a digital transformation. We all see the changes going on from a search perspective, from a sessions perspective as well. And of course, SEO and AI. But just talk to us a little bit more about the approaches in the business to acquire traffic to offset some of these challenges from an SEO and AI perspective should we expect sessions to sort of level out here?

Yes. So to set the table for folks, we -- over the last 20 years, we've had -- we've got 20 quality brands, 10 really strong brands, I would say. Primarily, the business was built off of the dot-com, the traditional digital business. That paradigm has changed about 3 years ago, 3.5, 4 years ago when AI was introduced. I think we were early to see those changes coming. We were pretty forthright about it with investors and internally with our management team that we had to recreate this business and really kind of rethink how we are going to make the business evolve and make our brands evolve. And the way to do that is to put the brands first. We talk about it internally, and I think it's a nice framing for people externally. There was the magazine era of 25-plus years ago. There was a digital era of the last 20 years, and it's going to be the brand era is what we're embarking on now. Brand era really means putting our brands back where they belong in the forefront of the consciousness of our consumers and building businesses and revenue products and revenue models off of those brands. So we've been able to do that while withstanding the changes that AI has brought to the search ecosystem. That means over the last 2 to 3 years, our traffic to our dot-coms from search have gone from, call it, 65% of our traffic source to about 21% this last year. That's a precipitous decline in traffic. Over that same period of time, we've been able to grow revenue for 11 consecutive quarters and improve margins for most of those quarters. So we really feel like we're on to something. We're going to talk, I know a little bit today about where we go from here and where we're investing and how we're doing that. But that's sort of the core of the vision, and we're excited about where we sit today.

I like how you mentioned magazine era, the digital era, the brand era. And one of the things that I think is fascinating from a people perspective is the newer traffic sources. And you mentioned as we started out the conversation, magazine, online, the app, -- and of course, we have social media. Just talk to us when we are into -- we are now in the brand era, how do you build these brands? And maybe strategically, the importance of having a brand now more than ever, particularly as we're in an answer engine world.

Yes. The brands are the equity of this business, right? You can't create brands out of whole cloth sitting here today, it would be -- it's extremely expensive and highly risky. But yes, we have these brands that, in many cases, have lived in some cases, for over 100 years, in most cases, over 50 years. So we're talking about people, food and wine, Travel and Leisure, Southern Living, all recipes and many others. So -- that's our core. That's our foundation on which we build. We've started to reframe the discussion for investors to say we have session-based revenue streams and non-session-based revenue streams. Our session-based revenue streams are the, again, the dot-com era. That's about 56% of our business, and we've been able to roughly hold the line, give or take, on the session-based revenue streams. The brand-led era really resides in the non-session-based revenue streams. So non-sessions in this context means everything from Apple News to licensing deals to TikTok and Instagram, sort of the breadth of places where consumers either read or interact with our brands. That 44% of our revenue that comes from non-session-based sources grew 19% in the first half of the year. And so the future is the non-session-based part of the business. Each one of those brands has its own unique strategies, products and business models. So it makes it a little bit more complex, but there's a lot of commonality between what each of the brands are trying to do. And that is really going to be the future, and we'll talk a little bit more about sort of what some of those specific models are here as we go.

I mean I sort of want to dig into this now in terms of the non-session-based Apple News, licensing, TikTok, Instagram, you mentioned it, wherever people are. How do you -- every brand manages differently. But would it be fair to say because everybody, it seems, is on social media, there are travel and leisure fictionatos. There are also people fictionatos. There are also in style across all. So my question is, how do you leverage this? And how do you build it up across all these brands so you know maybe the secret sauce of one can maybe go to the next one?

Yes. That's a good question. So again, the brands -- today, we're making more content than we ever have at a lower per unit cost than we ever have, and that we're doing that using AI and tools and automation. Again, still 100% human created, right? We are then taking that content and we are customizing it or making it specifically for each -- each platform on which we distribute it. So content that goes to Apple News is separate, although it may have some commonality with the content that lives on YouTube or content that lives on TikTok or Instagram. So you take Travel + Leisure, you mentioned as an example, again, making more content. That content is one of our best-performing brands across Apple News and distributed platforms. It has new YouTube series. It has a vibrant substack community, right? And so each one of those business or distribution approaches kind of puts that brand front and center in front of consumers and kind of perpetuates and continues to elevate that brand. What we have, which I think is unique is our sales force, right? What our sales force allows us to do, our advertising and sponsorship sales force allows us to do is now take those audiences, package them up and sell them to advertisers. In the dot-com era, again, we own the ad ecosystem. We own the plat. We own where those ads were resided. We own the ad technology. In the distributed network, we don't. And so what we've gotten really good at is taking advertisers who want to reach the travel and leisure audience and package an event with a social amplification with some -- potentially some magazine or some dot-com media, put that into a package that's highly performant for those advertisers. And that's what has allowed us to really accelerate this non-session-based revenue stream. Without the sales team, it would be virtually impossible to do.

And that was the revenue side that you said before, revenue growing non-session. Revenue...

Revenue -- yes, revenue, nonsession-based revenue, 44% of revenue growing 20%. A significant portion of that, again, it's a combination of licensing and ad sales as ad sales in, I would call it, not necessarily nontraditional but new ways.

And I'm going to get to licensing and ad sales and the newer, call it, monetization efforts. But as we think about these newer -- as we're in the brand era and as you mentioned earlier, with Google accounting for 21% of, I think, people's traffic down from 65%. Talk to us about the debate internally of working with Google or blocking Google, if that's a fit. And when do you think we get to this sort of natural stabilization, understanding there's AI mode, AI summaries, AI over -- you know what.

Yes. So the Google relationship is complicated, is complex. Historically, people know this, but I'll frame it this way. Google crawl the Internet put results on a search page, blue links on a search page, built a giant ad business off of that model. And then the secrocity was would refer traffic back to people like us or anybody else who provided content on the Internet. In the AI world, they don't do that any longer, right? And so they now take that content, crawl the content for AI purposes and then keep the user on the AI experience. There is -- despite what others talk about or Google might say, there's virtually no traffic that comes from an AI experience back to the publisher or to any content creator. And so it puts us in this difficult position. It puts us -- it gives us the opportunity to create more durable models, which we just talked about, but it also puts us in a position where Google is now taking this content for free and using it to enrich its own business. So that gets to this question of, okay, where does it end? We don't know where traffic goes from here. I expect it will continue to decline. Our business models, our internal financial models are underwritten off of that expectation. So there's that. We have some brands that are completely out the other side of it, meaning they are already -- they've lost 80% of their traffic. They're some of the most cited brands on AI overviews and yet they still get meaningful traffic from search. So we don't think it goes to 0. We think it's asymptotic to something. Call it, a year out, we would think we would get somewhere near there if the product experiences sort of persist as they do today. So that's where we think it goes. The challenge then is what do we do about Google and its crawling of our content for AI overviews for their AI overviews, the Gemini product. And that's an ongoing debate that we're having internally. We think that it is unfair that Google continues to crawl our content without compensation back to us. Others pay us. OpenAI pays us, Meta pays us. So we have foundational model providers who recognize the bargain, yet Google does not. What makes Google unique is they formally did, right? And so that puts us in this interesting challenge, and we can go deeper into that if you want, but that's the debate that we're having now internally.

So maybe let's take that. I don't want to get into the debate too much on Google, but you do have the licensing deals that you mentioned with OpenAI and Meta, is that the framework that you're using for others? And help us understand what is that framework.

The framework we're using is content is a critical raw material to AI full stop, as critical as electricity or compute or the models themselves. AI can't live without content. Yet for some reason, there's a position amongst some that they do not have to pay for that content or there should be no commercial relationship for the crawling of that content. We think that, that is wrong. We have good and valuable partners who are paying us, as I mentioned, Open AI and Meta and others. And that's sort of the foundational model peer set. We think the foundational model guys can pay folks for the crawling of their content and the learning that they're doing on that content. And then we see a second side of the marketplace evolving and developing that we're excited about, which is much more of a pay-per-use model, kind of a tolling model. It could be a CPM model, but something that says when you crawl our content and show our content in an AI overview or some sort of AI answer, then we and others who were the raw materials for that answer should be compensated for that answer. There's a positive and I think growing movement to recognize that. It was precipitated by about a year ago, we and others started blocking crawlers and AI companies started to recognize that when content providers block them, especially at some scale, there's deterioration in the performance of the products. And so that's where we think it's going. Naturally, as a CFO, I am impatient. I want it to happen faster. And the market Yes, exactly. And so that's where we think it's going. So we think it's sort of bifurcated 2 parts, foundational model guys can pay a license to kind of consume your content, train your content, build their giant businesses of your content and then pay-as-you-go for rice-cleared models, not dissimilar to maybe how the music and record industry evolved.