Ziff Davis (ZD) — Q2 2026 Earnings Call

Thank you. Good morning, everyone, and welcome to the Ziff Davis investor conference call for the second quarter of fiscal year 2026. A presentation is available for today's call. The presentation and our earnings release are available on our website, www.ziffdavis.com. After completing the presentation, we will be conducting a Q&A.

[Safe harbor language: forward-looking statements involve risks and uncertainties detailed in the company's SEC filings; non-GAAP reconciliations are in the supplemental materials.] 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 14.5x 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 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 Maxroll up 11% year-over-year. 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 continued to expand, holding successful events in both the U.S. and the U.K.

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 with the addition of the American Thoracic Society and the American Academy of Family Physicians.

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! app. 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.

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.

In MarTech, smtp.com, our API-based email delivery solution, has consistently delivered double-digit growth. 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.

Last quarter, I described how AI has moved to the center of our product development process. 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.

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.

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. With that, let me hand the call back to Bret.

Thank you, Vivek. Let's discuss our financial results. My commentary will primarily relate to our Q2 2026 adjusted financial results for continuing operations, which exclude the Connectivity division.

Q2 2026 revenues were $286.7 million, 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 in the prior year period. Our adjusted EBITDA margin for the quarter was 26.8%, down less than half a percentage point year-over-year.

These results, particularly the adjusted EBITDA margins, are an improvement from the Q2 2026 expectations we provided last quarter. Q2 2026 adjusted diluted EPS was $1.03, an increase of 13.2%, due primarily to the significant share count reduction from our stock buyback activity during the past year.

Advertising and performance marketing revenues declined 6%; subscription and licensing revenues were essentially flat. Other revenues more than doubled, increasing by approximately $3.7 million, due in large part to the contribution of Semantic Labs.

Tech & Shopping adjusted EBITDA margins improved despite a modest drop in revenues, reflecting cost savings measures implemented in the second half of 2025. Gaming and Entertainment margins were lower despite a 1% increase in revenues, due in part to higher marketing and content costs associated with the record quarter at Humble Bundle. Health and Wellness margins were lower, primarily reflecting the flow-through impact of the revenue decline. Cybersecurity and MarTech margins were up slightly.

As of the end of Q2 2026, we had $1.6 billion of cash and cash equivalents and $100 million of long-term investments. Gross leverage was 2.4x trailing 12 months adjusted EBITDA, and our cash and cash equivalents exceeded our outstanding debt balances by $734 million.

We expect to pay approximately $200 million to satisfy our tax obligations related to the Connectivity transaction. We continue to explore ways to positively impact our aggregate cash tax obligations, including through the potential use of investment tax credits. We currently expect to satisfy the vast majority of our cash tax payments by the end of the first quarter of 2027. $149 million of our convertible debt comes due on November 1st, 2026. We plan to satisfy this maturity with cash. Our next significant outstanding debt maturity is in 2028. We have no plans to redeem any of our debt prior to its maturity at this time.

Slide 11 shows the historical change in our share count since the end of 2022 through earlier this week. Our dedication of investable capital to our stock repurchase program has been significant. During the second quarter of 2026, we ramped up activity, buying back 2.6 million shares under a 10b5-1 plan and deploying $121.5 million. Since July 1st, 2026, we have repurchased 700,000 additional shares in the open market. Cumulatively, since the beginning of 2024, we have repurchased almost 13 million shares. The total amount currently available under our board's authorization is approximately seven million shares.

We completed two small acquisitions during Q2 2026. Year-to-date, we have deployed a total of $9.2 million to support our M&A activities. We plan to be a disciplined acquirer going forward as opportunities arise.

Going forward, excluding the tax payments related to the Connectivity sale, we expect our non-GAAP tax rate to remain in the 24%-25% range on an annual basis. Free cash flow in the second quarter of 2026 was $54 million, up 100% from Q2 2025.

Please note that in the second half of 2026, we expect our conversion rate of adjusted EBITDA to free cash flow to be negatively impacted by certain professional fees and taxes associated with the sale of the Connectivity business. However, excluding these and similar discrete items, going forward, we expect continued strong free cash flow conversion. With that, I will now ask the operator to rejoin us for questions.

Thanks, Rob. Let me start with HCP advertising, which mainly shows up within our MedPage business. The good news is that MedPage grew sequentially over the first quarter, and we expect that sequential improvement to continue through the balance of 2026.

The structural challenge is also real, right? We have some large pharma clients who have reduced their overall spend levels with us and have shifted towards some lower cost platforms. Many of those are actually AI-based platforms. As we have more entrants in the marketplace adding inventory to what has historically been a fairly tight HCP ad market, that's put pressure on us.

What we're doing is looking to expand our distribution. We mentioned the EHR opportunity — that's probably where we're mostly focused. I think in the end, we produce content that is valuable and can feed a lot of these engines. I don't think we have the ambition, necessarily, to be an AI medical chatbot.

One of the advantages we have within our health business is that we're both on the HCP side as well as the consumer side. The consumer side, the DTC advertising, is performing quite well — both in advertising and in the subscription business, which is Lose It!, where the rapid growth of GLP-1s is only helping those businesses. And the hospital media network we have assembled — we continue to expand that. We think that is a strategic asset.

With respect to the game environment and the slate: yes, my own experience is that gaming is very much a hits-driven business. A lot of the gaming slate gets anchored around major releases. GTA VI has been delayed a few times. It is slated to launch in November of this year. We think that unlocks a fair amount of activity. Blockbuster games like that, major AAA franchises, can be helpful. We do think that will help sort of get us some recovery on the IGN side.

In the gaming business we also have our Humble Bundle business, which has done very well. We have some new leadership there, and they've done a great job enhancing the content we package and sell through bundles and our subscription product, Choice. It's there, frankly, where they were really the first of our businesses where we took fully an agentic coding approach to essentially a platform redevelopment process — as it reaches its conclusion shortly, it puts us in a position of rolling out features at a much faster pace, on Humble and then across the rest of the company.

Thank you, Rishi. On acquisitions and M&A dynamics: you're right, we have a lot of cash on the balance sheet — $1.7 billion — and strong cash flow generation. You know the history of the company. We are a serial and programmatic acquirer, and that is our DNA. We're going to continue to look for attractive opportunities in the small to mid-market: think businesses between $5 million and $50 million of EBITDA. We look for great brands. We think brands matter, particularly in an AI era, and trusted brands in particular.

We do believe that the market fear in digital businesses broadly — it's gone beyond even what you would think of as media or advertising-based businesses — presents us a unique opportunity to be an active buyer as long as the valuations are compelling.

At the same time, we recognize that all these acquisitions have to compete with our own stock. We've obviously tilted our buying towards our stock over a number of quarters now. It's all on the table. We're not dogmatic; we're practical, pragmatic, case-by-case. The thing that I would just counsel is patience. The company has always been about patience and discipline, and I don't see why we would abandon that mindset at this point.

Not so much to add as to emphasize that the focus is on shareholder value creation and per share price. The decisions we make will be driven by facts and circumstances. Part of your question was about diversifying revenue — we had diversified deeply into subscription and licensing, to almost 50% of total revenue. Presented with the opportunity to monetize Connectivity, which was purely a subscription and licensing business, the value we were able to capture on a cash basis overcame that strategy of diversifying more into subscription licensing revenue. The numbers, the perception of risk-weighted returns, and the facts and circumstances as they develop will influence our decision-making.

On Cyber and Martech — there are a lot of brands and businesses in there. I'll highlight IPVanish: a few years ago this was the business where we talked about potential for growth on better customer acquisition, better retention, and a B2B2C white-label platform. We've done those three things, and the business has returned to growth and is now one of our better businesses. There's an example of something where we were able to find this asset and get it to a good growth position. I'd also highlight SMTP — a really good infrastructural play within the email ecosystem that is growing nicely.

On the data question, I'll be careful. I certainly don't see it on the cybersecurity side — as a VPN provider there is no data collection and no log; that's important to us. On the Martech side, yes — we've got some interesting data assets in the email space, in the SEO space, and we're looking for ways to unlock that. I also believe we have interesting data within our media businesses as well. We talk about multiple rent extraction out of our assets — that's certainly a rent: leveraging data for licensing, data to improve product, et cetera.

Thanks, Ron. We continue to see declines in search referral traffic. We're certainly not alone — this is an industry-wide experience. We're seeing an increase in the rate of AIOs within the Google Search experience on the queries that are relevant to our properties. I think the last time I provided a statistic, it was around 36% of our queries presented AIOs. That's at 50%, and that's kind of in line with overall prevalence of AIOs within Search. This is clearly going in that direction.

But we continue to make progress in other sources of traffic and engagement: social platforms, our native apps, and email — we are quite good as an email publisher at getting into the inbox. When we acquired theSkimm, it was very much recognizing that inbox placement, having permission to be in the inbox, may be one of the last places where you really can't get disintermediated. Video — on-domain, distributed, OTT, YouTube — all of those are growing, and that's why the ad revenue decline is not equal to the web traffic decline. It is those offsets.

I'll also point out we have a lot of non-traffic businesses inside the company — we've always been thoughtful about a balance between businesses that extract rents from traffic versus those that extract transaction, subscription, or licensing revenues.

We've had success in citations and answer share when it comes to Google AIOs — it's worth pointing out that Google is by far the largest AI answer platform because of the AIO experience. That's not going unnoticed. I mentioned Semrush; I should have mentioned IGN was also on their list of top-cited sources. That has sparked a lot of interest from marketers in aligning with our brands, at a time when everyone's trying to distance themselves from AI slop. It is a period of transition, but it isn't new — it's been going on for quite some time, and I think we've managed well. These brands, because they are leadership brands in high-value vertical categories, stand a great chance of being successful in whatever comes next.

You just nailed it. What's happening now is that in marketer assessment of media partners, citation and answer share has become part of that conversation. We do very, very well with that within Google, which is really the dominant platform — well over 70% of the market — and you also have Gemini coming on.

Translating that into value for us is the key. It has certainly caught the attention of others — there are a bunch of companies, including Semrush, including our own Moz, that report on AI visibility. GEO has become kind of the new SEO. It's early days. How do you translate our strong position into strong media partnerships? That's absolutely happening right now.

Bending Spoons — a useful data point. We know them; we got to know them some years ago. They do a great job. They have a very similar model to ours: acquiring, improving, and operating durable digital brands. There are differences, maybe in terms of the size of what we're looking at, so I don't think we necessarily run into each other in the M&A market.

The market has assigned them a double-digit multiple, and it just reinforces our own view that trusted brands like CNET and PCMag and IGN and Everyday Health and BabyCenter... carry much more value than our current multiple reflects. For us, the answer to that is to be an aggressive buyer of our own stock, not necessarily just wait for the market to rerate us.

In terms of AI licensing — I'll reiterate what I said last quarter: we're just not inclined to sign a RAG-focused agreement that compromises our right to fair compensation for foundational training. This is the important position we have taken. We want to establish the right financial precedent more than anything else, rather than booking a quick dollar. The litigation that we have with OpenAI is proceeding. We continue to believe that as greater clarity on the underlying legal questions comes to bear, it will lead to a rational licensing market for us and, frankly, for everyone. I'd rather be patient than early and lock in a little bit of cash.

Thank you, Tom, and thank you everyone for joining us this morning. We continue to appreciate your investment of your time, energy, and resources into our company. We look forward to our next update with you in the third quarter.