Ziff Davis, Inc. ($ZD)

All right. Good morning. Thanks, everyone, for joining. We're excited to have Ziff Davis for our first fireside at the TMC Conference. Vivek, and Brett, thank you for joining us.

It's great to be here.

All right. So just to level set for everyone in the room and on the phone. Vivek, could you start with a quick history of how if Davis has evolved over the years and then an overview of where the portfolio stands today?

Yes, sure. So Ziff Davis is actually celebrating its 100th anniversary next year. So the company has a long and storied history. I'd say that the current chapter really started in 2010, and when I, along with a private equity firm here in Boston called -- great Hill Partners, acquired what was essentially a company that had just come out of bankruptcy. It was Ziff Davis, -- the only asset that existed inside of the company at the time was PC Mag. We acquired the business for a little over $20 million in a 2-year hold period, we really transformed the business, did a couple of tuck-in acquisitions and sold the business for almost 4x our invested capital 2 years later to j2 Global. And so j2 Global, which as you know, is the predecessor to this company, essentially financed us really for the next decade to continue doing what we have done, which is to identify businesses where we thought we could transform them and unlock an immense amount of value. And so in that decade, we probably consummated over 70 transactions and really built up the business to the point where in 2021, we saw an opportunity to spin off the original J2 business into a public company, which is now called consensus, CCSI. And that was a $2 billion spin-off. Over the last few years, the market has been tough toward the business and the multiple attached to our ratings has compressed significantly. So a lot of our capital allocation over the past few years has been in share buybacks. We've bought in about 25% of the company in that period of time. And then more recently, a couple of months ago, we announced the sale of one of our segments, which I know we'll about our connectivity business to Accenture for $1.2 billion. So on a go-forward basis, the 4 remaining reportable segments, I'll talk about each of them very briefly, a very much to acquisition themes that have influenced and guided each of those segments. So we start with the tuck-in Shopping segment. That consists of CNET and PC Mag, the original acquisition, Mashable retail me not and just a whole host of properties that are really trying to help inform purchase decisions, very intent-driven participating essentially in e-commerce. That's what we look to do. The thesis there is really e-commerce enablement. Then we have our health and wellness segment goes to market as the Everyday Health Group. Inside of that, Everyday Health, and we have MedPage and we have lose it, and we have the skim in a series of properties that are around the digitization of health care the digitization of pharma commercialization, sort of the consumerization of health care. And so that's the Everyday Health group. And then we have our Gaming and Entertainment segment. which is IGN, Humble Bundle and gamer network and very much around the belief that video gaming is the fastest-growing and, I think, most durable form of entertainment and organizing ourselves around that market. And then finally, our cybersecurity and Martech segment, where we have a few theses at play, 1 is a consumer privacy thesis and that builds around our VPN businesses. A second is just around SMB security and providing SMBs, the kind of security that the enterprise gets from a cyber point of view. And then the last is around marketing technology and the recognition that paid marketing has gotten really expensive, very hard for a lot of SMBs to really participate. And so how do we help them with earned media, email, SEO, ways in which they can get their marketing cost effectively. So that is the company today. And as you know, it evolves and it will evolve more, I guess, as we look at monetization of assets along with our continued M&A.

Well, on the Evolution topic, you are in the middle of a strategic review. That might not be the exact words that you guys use, but something along those lines. Maybe talk about the rationale for doing that and then where you're at in that process?

I mean the rationale is pretty simple. The per share price of the company has been under an immense amount of pressure. The public markets haven't been valuing the portfolio in the way we would to see. And so we have identified opportunities to engage in dialogue around unlocking some of that value. So that's what brought it on. What actually precipitated it was when we moved to 5 segments from our segment reporting. We used to have to -- we moved to 5, that provided more visibility into the company. Really, the design there was so that public market would have a better appreciation of what's inside the portfolio and the relative growth rates and margin profile, et cetera, and what happened instead was we just got a lot of inbound calls. And so we organized around that. We've been very transparent about being open minded. And so what I would say is process may be the wrong word because as I said, Cory in our last call, I kind of view monetization, active monetization as part of the toolkit now, right? We've historically been a buy improve and hold company. And I think what we're adding to there now is the monetization piece, which is not always the sale. It can be a spin-off as we did with consensus. It can be an investment. There are different alternatives there, but to be open-minded about -- and so what I would say is that you could argue it's sort of a new feature. It's part of how we'll be thinking from here on out.

So the connectivity sale was a big unlock for you. The question we get from investors is what could come next. Is there another connectivity like business hidden in the portfolio that investors are missing. What can you tell us in terms of what all is on the table as you continue the strategic review process? And kind of what have your key learnings been thus far?

It makes me small when you say hidden, it was right there as a segment. But no, so let me tell you a little bit about the connectivity story because I think it's emblematic of a lot of what's inside of the portfolio and where I see the opportunity. So start with we acquired Ookla in 2014. That was the platform acquisition and we offer and enter into markets with a platform with a view towards organic and inorganic growth, right? So what can we do with the platform, what can we do and stack on top of the platform. We acquired 9 other 8 or 9 other business after the Ookla business, we all invested in acquisition capital, roughly $370 million. In the period of time in which we owned these businesses, we generated $685 million of adjusted EBITDA. So paid back the price of the acquisitions and then some and then sold the business for $1.2 billion. It was not our best growing business last year, by the way. Our health business was, in fact, relatively flat EBITDA. So what I would say is I don't think there's actually anything unique about that business in the context of our portfolio, which means I think all the businesses are fantastic business. And because I've had that like, "Oh, well, maybe that's just -- that's the one, and I don't see it like that at all. " And so I can't tell you what's next. And what I will also say is that it doesn't necessarily need to be a segment deal. So if you look inside of each of our segments, you will see there's a portfolio of assets in there. And so expressions of interest can and have been around very specific assets. And so I would say, if you looked at it from an asset point of view, the portfolio has well north of 20 assets in it.

Okay. That's helpful. And how do you think about balancing just the benefits of scale, especially on your advertising business versus the benefits of simplifying and kind of unlocking value in the portfolio?

That's a good question. So what I would say is, I think scale does matter within the verticals. So take our tech media business, the CNET group. Having scale where CNET as the leader within tech media matters or IGN and IGN Entertainment and being the leader in gaming media and Everyday Health being the leader in health media. That does matter. Whether it matters that between verticals, we have scale, I'm not so sure it does for us. We don't really operate a corporate sales function and so I'll just take a step back. Corporate is very small inside of Ziff Davis always has been and out of design. So the corporate center, we try to keep as small as I joke with there's about 100 or some odd people in corporate, it might be 98 too many, excluding the 2 of us, but we try to keep it really, really small because we want the resources within the portfolio business and we want those businesses to be able to run their businesses. We're the central bank. We're making the capital allocated. They own their P&L. They don't own their balance sheets. They don't own their cash. And so what I would say is that because of that mindset, we actually have never operationalized a corporate sales function where we go to market as Ziff Davis. Ziff Davis is not something people buy, the ad market doesn't buy they're buying entertainment in and we're very vertically and endemic driven. It makes sense, right? We're not doing kind of broad-based CPG marketing, for instance. That's not our formula.

Okay. I think I've helped you enough on the strategic review question. So

No, I can talk about it.

Let's go to AI. Can I have a 2-parter. How are you guys using it internally? And how do you see it creating value as of Davis.

So I think there's 2 places. There's customer-facing product innovation and then there is either cost savings or it's the combination of cost savings and acceleration of releases -- so on the consumer-facing side, continuous exploration and deployment of ways to make the existing products better. I've talked about a number of them. My favorite one is lucid it. which is based here in Boston and Los -- it is a calorie tracking application, very popular. And for the longest time, the way you logged meals is you type in what you you and now you're basically taking photos and we're using AI to essentially unpack what you eaten -- it just makes logging easier. And the easier you make something like that, the better retention we get, the better usage we get. So that's an example from a consumer-facing point of view. Where I'm most excited, though, is when we look at product and engineering inside of our company, it's not an insubstantial portion of our resources and our headcount and where we're focused, I think we're going to see radical improvements in at least the velocity of releases, things that -- and we're seeing it now, things that were slated to be released in the fourth quarter of this year are getting released like now. And so the speed is incredible because we're essentially using coding agents to do not coding. And we're harnessing around it with humans. But in the end, I think it's the one area where I absolutely believe this works, right? Everyone is looking for the separation of the -- from hype to reality. This is real. So I think the coding piece of this is important, given we're digital products, given that underlying all these digital products is code that is tight as we evolve from human types to to robots typing and humans essentially governing, directing. I think it now becomes a function of our imagination of what can these products be and what can they do. And so a lot of what we're focused on right now company is really the art of the kind of what's your imagination tell you, what do you want each 1 of these products to do. So I'm very excited about that piece of it. And I think it's -- we're very margin focused in cash flow because of our acquisition-based program. So yes, I'd like to see it turn into free cash flow improvement, but I'd also like to see it turn into revenue acceleration that I think will get us also some multiple expansion in any scenario, whether it's inside the company as it is now or as we have these discussions around asset monetization, either way. So finding the balance between driving enterprise value while driving free cash flow.

So kind of -- we talked about the disconnect and the portfolio value and the share price and that being a motivating factor for the review that you've been doing. My question is, maybe broaden this out beyond data, right? The market is clearly pricing in fairly bleak outlook for online publishing digital media, we ever want to call it, in general. What do you think investors are missing? And kind of what's your outlook for the industry? I'll start and then I'll RingleBrett. -- there. But look, it's interesting. So we announced the sale of the connectivity business for $1.2 billion stock responded but only responded literally equal to the cash proceeds the transaction, meaning that the remaining close to $400 million of EBITDA might have actually compressed compressed a little compressed it multiple, which is disappointing. Because it's -- that shouldn't be the conclusion that anyone draws. And so we're going to continue to focus on the opportunities that presents. And that includes buybacks, and we've been very consistent about that, but also asset monetization. Now why is that happening? Look, I think that there can be a lot of reasons. There is very much this AI overhang that seems to attach itself to all of the portfolio -- the as certainly search challenges when you think about CNA and retail me not in baby center. Those are probably 3 at the top of the list where Yes, the change in the Google search engine result page and the potential loss of queries within Google to other platforms has resulted in less traffic. That's a factual statement. Now we feel we have answers to that, and we can talk about that, but we feel we have answers to that with respect to those businesses. But as I said, there's over 20 different businesses, many of them, this has no connection to. So I think we're in this -- you take the worst -- you take the worst fear attached to where it's maybe presents itself most and you attach it to the entire portfolio, and that's kind of where we get. Brett.

Cory, it's always difficult to sit in a seat like this and speak for the market as a whole or at least our sector of the market. Obviously, we're first principle stinkers and the stock price reflects the last trade. So that's just the reality. A lot of factors go into that. But when we think about the business sort of very broadly, we think about the cash flow we produce, the growth that we can generate and the risk associated with the portfolio and that results in a multiple. And as an active purchaser of our stock, I think we've spoken that we think that valuation is below the company's intrinsic value, tying our conversation together, we've taken proactive steps to realize certain of that value with at least 1 transaction we've talked about, the continued pursuit of potential other transactions. But what we have been able to do, at least in the last couple of years, particularly where this pressure has manifest is be pretty resilient. And I think what has resulted in low single-digit top line pressure from an organic perspective has been sort of buttressed by maintaining margins by producing significant amounts of cash flow by deploying a modest amount of our investable capital into M&A to continue to diversify is. Not 100% of our revenue falls into the traditional online advertising bucket. In fact, in Q1 alone, not quite a bit nearly 40% of our revenue is non-advertising within our advertising revenue, we have certain businesses that are advertising revenue that are not traditional web advertising like our TDS gift card business. There's a lot of diversity and a lot of resiliency in our portfolio that is in these parts of the businesses under our 4 reportable segments. And it's incumbent upon us to continue to navigate the space to continue to produce cash, allocate that cash as smartly as we can. And at least in the last handful years, we've taken the view that purchasing our stock is the right allocation.

So maybe to tie it all together on the capital allocation side, and I do want to come to the kind of trends in the core business. So you've talked a little bit about how the capital allocation is changing. Maybe just level set for everyone. What is the strategy today on a go-forward basis. And I think it's a particularly important question. You're getting close to $1 billion from the connectivity sale any day now. So what do you plan to do with that?

When you use the term on a go-forward basis that makes the question even harder than it sounds because it presumes a set of facts and factors in the future, which will be exactly like the ones we have I don't want to go down the spiral of the macro in that the uncertainty that we have in the Middle East and even domestically with pressure on oil inflation and whatnot. We've been largely resilient to those factors, which has been a great business. And I wouldn't speak to those factors as the pressures that we've experienced recently, but the world can change. So because of that, what do we do? We think about capital allocation is dynamic. We think about pillars. There's essentially 4 things that we can do with our investable resources. We can continue to strengthen our balance sheet, whether it be repay debt or accumulate cash, a strong balance sheet, which we believe ours is, is to bedrock foundation of any capital allocation strategy. And after that, there's only 3 more things that we can do. We can continue to invest in our businesses, whether it be increased OpEx, increased CapEx. That's an ongoing decision. We think about it every day. We're in constant dialogue with our about what their needs are. Yes, there's pressure from the center at times to see what we can trim back our investments, particularly with the tools that are emerging from AI, which may impact as Vivek spoke about, our ability to more rapidly deliver product through software development at a more efficient investment ratio. We -- but our businesses get our capital essentially first because if we believe there's opportunity for them to strengthen their businesses through spending operationally or investing through capital, and there is strong evidence that on a risk-reward basis, that can produce return, they get that money, which leaves us to either investing externally, which the company has a rich history of doing, and Vivek spoke about that, but we've paired that the last couple of years, only investing under $70 million in M&A in 2025. And this year, we've announced one small deal, we will continue to be active in this marketplace to the extent that we believe that we create value for our shareholders through external investment. But then you get to essentially broadly defined return of capital and to our shareholders. And we've done that through our share buyback program. But again, we almost -- we view that as an investment decision. We're buying a fractional interest in an entity that looks exactly like Ziff Davis because it is dated. And as we move forward, we'll balance those 4 pillars. We have -- we'll consider our various rights and obligations the flexibilities that we have and what the -- at that moment in time, what we believe the proper allocation of capital is. And again, I'd love to put a stake ground to tell you this is exactly what we do. But for instance, in 6 months, but I need to know what the stock price is going to be in 6 months, and I don't know what that is.

I should have mentioned at the beginning, if anyone has a question in the room, raise your hand, and I think you can submit it online as well. I'll keep going for now, though. Okay. So moving to the current state of the business. So the Vivek, you went through the 4 remaining 20 assets, but bucketed into 4 segments. I won't ask you to give us the trends across all 20 assets but maybe some high-level puts and takes that are impacting growth and what you're seeing across the portfolio.

And the nature of your question, I think, underlies something that's important too, right? Like I think that -- on the one hand, you may say, wow, this is -- it's complex. On the other hand, I'd say we're a diversified portfolio. And as ostensibly an asset management business, that's good thing, right? And so I think that, that's something to just underscore. I would say I've heard people say, well, you're like a publicly traded private equity firm and I think historically, I said, well, we're holding forever. And so that way, we distinguish ourselves. But as we get into active monetization, maybe that parallel or that comparison becomes more appropriate and in that way, I would say, again, if you look at the core of what we do, which is how we source deals, how we evaluate transactions, strike those transactions, what we do to unlock value. I put our track record up against really anybody and Ookla is just 1 example. I mean those are extraordinary return profiles. So I think it's important to raise that piece. And I think in some ways, I think it's incumbent upon us to provide more insight into that. I think the Ookla transaction provided a great deal of it and we provided a lot of information around that transaction. To your question around what's going on then within the portfolio of the assets that we own today, I would say on the tech and shopping side, that's been our most challenged area. That's where the changes in Google and the Google algorithm have affected us the most. What I will say is that I think that alternative sources of engagement, social video app, browser extension with respect to retail [indiscernible]. There are a whole host of ways in which we are a partner traffic ways in which we're able to start to mitigate that. Some of that comes at a different margin profile. So there's a little bit of a margin shift that goes on there. But for the most part, look, I think that we're navigating it, but it is real pressure, and I don't see that pressure abating. But I also -- I'm not in the category of Google goes to 0. I don't believe that. I understand that's the top. But in the end, and we've also quantified for the market if Google is really worth inside of a larger company. I would say gaming and entertainment, very strong, always been a good steady Eddie player. The humble part of that, which is more of the commerce part is really doing well and it has nothing to do with search and advertising and things like that. Really unique proposition where we bring a lot of value to consumers through bundles of games, we bring value to the games publishers as we align with charities and allow them to pursue their purpose-driven agenda. So it's just it's a great business. I think a lot of good things there. Health and wellness has been consistently a great performer for us. We had a little challenge in the direct-to-provider side. where we're doing marketing against health care professionals versus patients. We see things improving there, but we had a couple of hiccups there. And then on the search side, I would say baby center is at it, but again, has had seen some challenges there, but I view that as a very different business in the way we're sort of evolving that business. And then Cyber and Martech is doing well, like that used to be the area we were really focused on turning around -- they've done a very good job in lots of parts of that business. And I think software right now is under some pressure, but I look at these as great subscription businesses. And Brett made the point. I think the balance between advertising and subscription has always been important for us inside of the portfolio. I've been in the advertising business a long time, and so I've seen how it can fluctuate. And so having the -- I think the stability of the subscription businesses are good. So look, I think the other thing is when we think about performance, I encourage investors to look at the segment level performance closely and historically, there's a lot there, right? And so I think averages can be deceiving sometimes, right? And if you sit there and you say, okay, I get maybe these assets sit at this value in some of the parts but these should be at a reasonable value. And I think if investors have done that, they would have easily seen what the hidden asset of connectivity really was worth.

And then Brett, maybe just kind of tie that to the financials. So you've talked and expect to be clear, you're not giving formal guidance at the moment. But I think you've kind of alluded to an expectation for revenue growth to improve in the back half of the year and margins too as well. kind of what's giving you the confidence in that? And why are then expected to improve through the year?

Yes. It's -- I'm not sure I used the word trends as much as I used the word just bearing elements. I think when you're running a business that has the diversity of revenue streams that has -- there are many, many puts and takes that go into that equation. When we look at the comparison of Q1 '26 over Q1 '25, we expected some top line we expected some margin pressure. We actually delivered slightly better than our expectations, but there was that pressure. We look at Q2, and it's similar. And as we get into the back half of the year and we look at what Q3 '26 might look like on -- and again, this is all on recently reported continuing operations basis where we're expressing for the period of time that we continue to own connectivity outside of our continuing operations reporting and when we look at those 4 reportable segments plus corporate and the other elements have it rolled up together, we think Q3 offers us an opportunity to start to improve performance relative to Q3 2025. It goes to the heart of business-by-business description where each of those businesses serving their individual marketplaces has different risks and opportunities has different year-over-year comparisons as different insight into what might be in front of them. Part of it is based on what we expect to see as a business, at least in our advertising business, largely depends on direct advertising and our relationships with agencies, with brands and not riding the ups and downs largely of the programmatic marketplace we get some visibility into the expected spending of our largest clients. That visibility often manifests exactly as we anticipated. It sometimes manifests differently, acceleration into a quarter, deceleration past the quarter a buy that you didn't expect to see a buy that gets either postponed or canceled. But when we look at the back half of the year, we expect overall to be better laying on top of that, the trends that we see in our subscription businesses and some of the unique aspects of the year-over-year comparisons, which benefit the second half of the year to a degree where they put pressure on us in the first half of the year.

Any questions in the audience? All right. I'll keep rolling. Okay. So Vivek, you alluded to some of the off platform, I don't think you use those words, but off-platform initiatives you're doing in the business. Could you elaborate on kind of what exactly -- what some of your initiatives are and how that's kind of offsetting some of that search.

Yes. So when we mean off-platform, we're essentially talking about engagement with our content is outside of our website or our app. And so that will be Instagram, Facebook, TikTok, YouTube, Snapchat, all of those platforms, we're seeing far more engagement on those platforms today than we do see on our own. So distributed content and monetizing that content by integrating advertising into those platforms. That has been very successful for us. As I said, that comes with a tax, there's a platform tax in some form or fashion, so recognize that. But it's still growth, and it's sources of growth, and we continue to see opportunities to grow. There's also partners and this is one we haven't talked a lot about, but it is a great example is within our health business, we've built what is essentially a hospital media network. You've heard a retail ad network. This is a hospital an -- so we have exclusive relationships with the Mayo Clinic and Cleveland Clinic, the 1 and 2 providers of information on the web from health care, from hospitals, from institutions and where the monetization partners. So we run the advertising programs there. And that's a growing expanding opportunity for us. As in the same way that retail we're looking for high-margin incremental dollars, for their P&Ls and for their income statements, you can imagine the same is in health care, right? And a lot of hospitals are actually under a fair amount of P&L pressure right now. So we see that as an opportunity. So finding partners where we can bring our monetization and infrastructure to bear is also really, really important. So that combination of things and then there are things like e-mail, you'd be surprised like we own a business called the skin. It's entirely an e-mail -- and it does really, really, really well for us. MedPage today is largely an e-mail business as a doctor news service, but a lot of it comes through an e-mail get every day, you click through, yes, it comes to the website, but your real first engagement is with e-mail. We're very bullish on that. So there are a variety of ways in which we're looking at how do we leverage trust brand, content outside of the searched indexed that's what's changing, right? The navigation that started maybe in search isn't starting there. I say to people all the time, look at your own screen time. Look at the percentage of time you're spending in various applications. browser application is one, but then the messaging application and various social applications and you start to see that your own behavior has evolved. And so that evolution we've got to evolve with I will say that the key with all of this is that I think great brands can evolve. People forget PC Magazine was a printed magazine in 1981. It probably makes more today than it at any point in its history. So like that's what great brands can do.

Okay. Last question, maybe I'll let both of you answer it, if you want. Just bigger picture question. As you look to the year ahead, we're sitting here, hopefully, this time next year, kind of what are the 1 or 2 things you're most excited about that you think no one is really talking about today but could be transformative to the business.

I will start and then -- look, I think that in 1 to 2 years, I think people will start to appreciate what's inside of the because either that's happened or we continue to do things that make people realize that they've underestimated the value. And then the second thing is what shouldn't be lost here is it's not only about selling. It's about the skill that this company really does have and has shown over the last 15-plus years is its ability to identify acquire and improve businesses is real. That is a real skill set that sits inside of this company, and I hope you recognize that.

Yes. I think we spoke about a lot of it today, Cory the one thing I might just add that maybe we didn't touch upon is, I think having these 4 diversified businesses creates an opportunity within our company to really knowledge to see how things are working or not working within one business, may be applicable to what's happening in our other businesses. And we've seen in the last 12 months with the development of AI-driven customer information platforms. We see it along lines of what Vivek speaking of is that a business like IGN that has largely migrated its business off the traditional display on the web into the partnership platforms working on social is an avenue available for other businesses, that there are opportunities with advertisers within Business One should be opportunities with business too. And there's a lot in front of us.

Great. We'll leave it there. Thank you.

Thanks, Cory. Appreciate it.