Ziff Davis, Inc. Common Stock 2026 Q2 Earnings Call

Thank you. Good morning, everyone, and welcome to the Ziff Davis investor conference call for the second quarter of fiscal year 2026. As the operator mentioned, I am Bret Richter, Chief Financial Officer of Ziff Davis, and I am joined by our Chief Executive Officer, Vivek Shah. A presentation is available for today's call. The presentation and our earnings release are available on our website, www.ziffdavis.com. You can access the webcast from this site. 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. After completing the presentation, we will be conducting a Q&A. The operator will provide instructions regarding the procedures for asking questions. In addition, you can email questions to investor@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 could 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 risks and uncertainties that we have included as part of the slideshow for the webcast. We refer you to discussions in those documents regarding safe harbor language and 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, Bret, and good morning, everyone. During the second quarter, we completed the sale of our connectivity business to Accenture for $1.2 billion. This is a transformative transaction and a concrete illustration of the quality of our underlying businesses. As a reminder, the acquisition price reflected a 14.5 times multiple of the connectivity business's trailing 12 months of adjusted EBITDA less CapEx. This transaction also highlights our willingness to monetize assets as a key tool in addressing the gap we see between our share price and the value of the businesses in our portfolio. Since our last earnings call, we repurchased approximately 2.8 million shares under a 10b5-1 program. Thus far in 2026, we have deployed more than $200 million to buy back 4.5 million shares, reducing the number of shares outstanding by nearly 11% over the course of just seven months.

Going forward, a portion of our cash will be allocated to settling our tax obligations related to the transaction, with payments estimated to be approximately $200 million. We also plan to repay our $149 million of our convertible debt, which matures in the beginning of November 2026. Even after those payments, we expect to be in a very strong cash position. We believe that making open market purchases enables us to return capital to shareholders in a methodical and cost-effective manner. This approach also reduces the risk of short-term price distortions, which can result from buybacks executed through a tender process. Overall, we are pleased with the market's response to our efforts to unlock additional value. Ziff Davis stock is up approximately 45% year-to-date and approximately 65% over the past year.

There is more work to do. We will avail ourselves of all capital allocation choices, continue to explore monetization opportunities, and remain a very disciplined buyer of attractively valued assets. We will remain deliberate, strategic, and patient. I'd like to share some observations about our second quarter performance. With the sale of Connectivity, we now have four reportable segments. Our second quarter consolidated revenue across those four segments declined 2.7% versus last year, consistent with the expectations we set last quarter. We had modest growth in Gaming & Entertainment and Cybersecurity & Martech, offset by lower revenues in Tech & Shopping and in Health & Wellness. Adjusted EBITDA declined 3.7% year-over-year, while adjusted EPS grew 13% as we continue to reduce our share count. We had a strong cash-generating quarter with $54 million of free cash flow.

Tech & Shopping's second quarter revenues declined 5% year-over-year. A significant improvement from the 13% drop in the first quarter and the 18% drop in Q4, while adjusted EBITDA rose more than 8%. While headwinds persist in traditional search traffic, we continue to make progress in growing our Tech & Shopping audiences through off-platform channels such as Instagram, Facebook, TikTok, and YouTube, as well as CTV and events. We have also started to generate meaningful affiliate commissions earned directly through our social channels, and we see opportunities to grow this revenue stream in the coming quarters. In addition to our internet properties, social channels, and newsletters, our deep brand credibility is a valuable asset in the evolving AI content universe.

Both CNET and PCMag were highlighted in a recent Semrush AI Visibility Index report as being among the most cited information sources across major LLMs, which has marketers seeking to be attached to our trusted, high-quality, and high-authority editorial brands. Gaming & Entertainment revenues grew by almost 1% as compared with the second quarter 2025, driven by another record quarter at Humble Bundle, offsetting ad revenue declines at IGN, which we believe is primarily attributable to the current state of the video game market and the current slate of titles, rather than underlying traffic trends. Adjusted EBITDA fell slightly. IGN's game help tools continue to grow in popularity, with MapGenie traffic up 30% and IGN's destination for action RPG players, Maxroll, up 11% in traffic year-over-year.

On the events front, IGN Live celebrated its third year with more than 10,000 attendees in Los Angeles, while the show's content reached an audience of almost 300 million across 35 platforms in over 100 countries. IGN's Women in Gaming platform, focused on supporting female-led success in the games industry, continue to expand, holding successful events in both the U.S. and the U.K. in the second quarter. Health and wellness second quarter revenues were down nearly 5%, and adjusted EBITDA was down nearly 10% year-over-year, due primarily to lower HCP advertising revenue at MedPage Today, offset in part by strength in consumer DTC advertising revenues. HCP advertising revenue at MedPage Today was down year-over-year as some large pharma clients have reduced their spend levels and have shifted spending to lower-cost platforms. We grew sequentially over Q1 and expect sequential growth to continue through the balance of 2026.

MedPage is actively expanding its distribution, including a newsletter product integrated within electronic health record systems at the point of care. We also strengthened our association partnerships at Health eCareers, our leading career healthcare platform, with the addition of the American Thoracic Society and the American Academy of Family Physicians to our exclusive association job board partnerships. Our consumer DTC advertising and subscription businesses continue to benefit from the rapid growth in GLP-1 prescriptions and related promotional spend. GLP-1 support was introduced on both iOS and Android versions of our Lose It! weight loss and nutrition app to help GLP-1 users maintain a healthy diet as their food intake volume declines. We are seeing continued momentum in our hospital media network, where we serve as the exclusive digital advertising partner for highly trusted medical institutions.

We recently expanded the network with the addition of the University of Pittsburgh Medical Center, a world-renowned healthcare provider. Cybersecurity and MarTech, second quarter revenues and adjusted EBITDA both grew nearly 1% year-over-year, led by strong performance in our consumer cybersecurity business. IPVanish, our flagship consumer security offering, grew year-over-year for the fifth straight quarter, driven by continued growth in our white label partnerships, as well as strong growth in Q2 customer additions. MarTech, smtp.com, our API-based email delivery solution, has consistently delivered double-digit growth by providing exceptional inbox delivery for high-volume senders across a variety of use cases and applications. We're very pleased with the first-year performance of Semantic Labs, our performance-based customer acquisition business, which has grown steadily since we purchased the business in Q3 of 2025. Turning to developments in our firm-wide AI initiatives.

Last quarter, I described how AI has moved to the center of our product development process and how we'd begun deploying that approach across key engineering teams. I want to update you on progress. In a single quarter, the share of the code we released that is AI-authored has roughly doubled, and the majority of new or updated code we release is now written by AI. This shift has taken hold broadly across our teams. We're currently on track to have nearly all of our code authored by AI before the end of 2026, with our product workforce increasingly focused on architecture and innovation rather than writing code line by line. We are already seeing the results. We shipped 24% more code in the second quarter than we did in the first quarter on lower engineering headcount, with initial metrics suggesting delivery quality is holding steady.

That is operating leverage in the form we described on the last earnings call. Lower cost per feature delivered and the capacity to support a broader roadmap without proportionally scaling or resourcing. We expect this approach to improve our operational efficiency in the coming quarters. Looking ahead, Ziff Davis is in an extremely strong financial position, with a substantial net cash balance, strong free cash flow generation, and four profitable business segments with numerous trusted category-leading brands. With the Connectivity sale and the stepped-up capital returns this year, we believe we have delivered on our promise to unlock additional shareholder value and believe we can continue to deliver even more value in the years ahead. With that, let me hand the call back to Bret.

Thank you, Vivek. Let's discuss our financial results. Our earnings release reflects both our GAAP and adjusted financial results for Q2 2026. My commentary will primarily relate to our Q2 2026 adjusted financial results for continuing operations and their comparisons to the relevant prior period. Our results from continuing operations exclude the partial quarter results of the Connectivity division, which are reflected in our results from discontinued operations. Please see Slide Four for the summary of our Q2 2026 financial results. Q2 2026 revenues were $286.7 million. This reflects a decline of 2.7% as compared with revenues of $294.8 million for Q2 2025. Q2 2026 adjusted EBITDA was $76.8 million, as compared with $79.8 million for the prior year period. Our adjusted EBITDA margin for the quarter was 26.8%, down less than half a percentage point as compared with an adjusted EBITDA margin of 27.1% in Q2 2025.