Prepared remarks
Good day, ladies and gentlemen, and welcome to the Ziff Davis First Quarter 2026 Earnings Conference Call. My name is Tom, and I will be the operator assisting you today. On this call are Vivek Shah, CEO of Ziff Davis, and Bret Richter, Chief Financial Officer of Ziff Davis. I will now turn the call over to Bret Richter, Chief Financial Officer of Ziff Davis. Thank you. You may begin.
Thank you. Good morning, everyone, and welcome to the Ziff Davis Investor Conference Call for the First 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. This presentation and our earnings release are available on our website, www.ziffdavis.com. You can also 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'll be conducting a Q&A. The operator will provide instructions regarding the procedures for asking questions. In addition, you can e-mail 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 slide show 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 their nearest GAAP equivalent. Now let me turn the call over to Vivek for his remarks.
Thank you, Bret, and good morning, everyone. Before I discuss our first quarter results, I want to share some high-level thoughts about the company and our vision. Ziff Davis' edge has always consisted of identifying, acquiring and improving businesses. From our first acquisition of PCMag in 2010, for a little more than $20 million, we have been a patient and disciplined buyer of digital media and Internet companies. We've always been focused on business transformation, free cash flow generation and cash-on-cash returns. That model compounded value for a decade, and our shareholders were nicely rewarded. But in recent years, we believe the public market has increasingly denied Ziff Davis reasonable credit for the intrinsic value of the businesses that it owns. Our response, however, is not to abandon the acquisition program that has defined Ziff Davis, but to expand our capital allocation to embrace significant repurchases of our stock while also pursuing monetization opportunities for our businesses where we see an opportunity to unlock value through a transaction.
In simple terms, we see this as a pivot from our buy-and-hold past to a future in which active monetization represents a key tool in our pursuit of shareholder value creation. We're pleased with the market response to the announced sale of the Connectivity business, which we expect to close in the coming months. However, we believe that the current trading value of our stock implies that the market continues to assign a very low multiple to the adjusted EBITDA of the rest of our portfolio of businesses. In other words, despite the market's positive reaction to the announcement of the sale of the Connectivity business, our current stock price implies that we're only getting credit to the expected cash proceeds of the connectivity sale while little additional value is being ascribed to the rest of our assets. As a result, we will continue to engage in the pursuit of transactions that offer the opportunity to highlight the value of the businesses in our portfolio.
We recognize that we own some businesses facing headwinds and that require turnarounds. However, we believe that we also have businesses worth well in excess of what our current stock price implies. The market appears to be penalizing the better-performing businesses in our portfolio for sharing an ownership structure with those that are under pressure. We believe we can unlock value through active monetization while working to turn around those businesses facing headwinds. At the same time, we can use our balance sheet to continue to return meaningful capital to shareholders while investing in acquisitions that offer the opportunity for attractive future returns for the company. Just last week, we bought a few excellent brands, including Popular Science, Dwell, Domino and the Business of Home for an adjusted EBITDA multiple that is accretive to our own. I'll quote Ben Graham. The intelligent investor is a realist who sells to optimists and buys from pessimists.
Now let me shift to our first quarter results. Please note that the Connectivity segment is not included in the continuing operations results, which Bret and I are discussing today. Our revenue for the first quarter fell almost 2% versus last year with a decline of approximately 13% in Tech & Shopping, offset by nearly 3% growth in the rest of the company. I'll share some observations about each of our 4 continuing reportable segments. Starting with Tech & Shopping, lower revenue came as a result of continued and expected traffic pressures across the segment, impacting affiliate commerce and programmatic display advertising. These declines were partially offset by growth in off-platform monetization, licensing and sponsored content. Building upon off-platform success within the tech portfolio, our shopping group has driven its off-platform growth with social video views growing more than 75% year-over-year across Instagram, YouTube and TikTok.
We're encouraged that the sequential decline in revenues for the Tech & Shopping segment improved, and we expect each successive quarter in 2026 to be better on a year-over-year basis as compared with the prior quarter. Gaming & Entertainment had a strong quarter, with revenues up over 7%, driven by a record quarter at Humble Bundle and significant growth in both subscription and performance marketing revenues. Map Genie, IGN's map tools destination for gamers, increased views by 24% in Q1. While AI search summaries can impact traditional web article performance, Map Genie's interactive approach offers a unique on-site experience that draws repeat visits. IGN has kicked off a year-long program to mark its 30th anniversary. As part of that, we released the key Audience Insights report, Generations in Play, offering a detailed picture of the evolving consumption habits of today's gaming and entertainment audience.
The findings are already at work inside IMAGINE, our proprietary audience intelligence platform, where they inform how we identify, model and activate audiences at scale for our advertising partners. While Health & Wellness revenues were up only slightly year-over-year in Q1, it's worth unpacking. We had strong consumer pharma ad revenues in Q1 driven by higher GLP-1 ads and continued positive market reception to our AI-powered data activation tool, HALO. Its audience insights are used to inform campaign design, target audiences and improve performance. We are also seeing momentum in our hospital media network, where we serve as the exclusive digital advertising partner for highly trusted medical institutions. We just secured a long-term extension of our relationship with the Cleveland Clinic, which now has the highest traffic of any digital consumer health brand. Our AI-powered weight and nutrition management app, Lose It!, continued to thrive, posting record Q1 revenues.
Our PRIME continuing medical education business also had record Q1 revenues as it expanded into a broader set of therapeutic areas. HCP advertising on MedPage Today, however, fell in Q1 due to bookings delays across certain key pharma clients. MedPage Today bookings for the balance of the year are improving. Pregnancy and parenting revenue also fell due to year-over-year declines in traffic-related programmatic and affiliate commerce revenues. Cybersecurity & Martech revenues grew nearly 4% year-over-year in Q1, driven by strong performance in the cybersecurity business. In Q1, we significantly enhanced the digital security of IPVanish with the release of Threat Protection Pro, which was designed to provide always-on malware protection, whether or not a user has the VPN connected. With this milestone, IPVanish now delivers a full range of privacy, data protection and malware detection to consumers.
VIPRE Security launched a native product integration with Docebo, a leading enterprise learning management system. PhishProof by VIPRE and Docebo delivers targeted security training when employees fail a simulated phishing attack, enabling organizations to implement real-time behavior-based risk reduction. I want to touch briefly on how we're using AI to transform the way we build products. The traditional software development life cycle was designed around long running, human-driven processes with significant time spent on planning, coordination and process overhead rather than the work itself. The first wave of AI tools largely got bolted on to that same process as assistants. Advances in the technology now put AI at the center of the development process, drafting requirements, proposing architecture and generating code and tests. As AI handles the routine work, our teams come together in collaborative spaces for real-time problem solving, creative thinking and rapid decision-making.
This shift from isolated work to high-energy teamwork accelerates both innovation and delivery with cycles that took weeks now compressed into days. We're deploying this approach across key product and engineering teams. Over time, we expect this to become a meaningful structural source of operating leverage, providing faster time to market, lower cost per feature delivered and the ability to support a broader product road map without proportionately scaling engineering headcount. Looking ahead, Ziff Davis is in a strong financial position with a robust portfolio of durable, trusted brands across multiple high-value market segments with significant revenue, adjusted EBITDA and free cash flow, a strong balance sheet and significant investable cash resources, both current and the portion that is pending the sale of the Connectivity business. 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 Q1 2026. My commentary will primarily relate to our Q1 2026 adjusted financial results for continuing operations, excluding the Connectivity division and their comparisons to the relevant prior period. Please see Slide 4 for the summary of our Q1 2026 financial results. Q1 2026 revenues were $267.6 million. This reflects a decline of 1.9% as compared with revenues of $272.8 million for Q1 2025. Q1 2026 adjusted EBITDA was $63.4 million as compared with $71.4 million for the prior year period. Our adjusted EBITDA margin for the quarter was 23.7%, down 2.5 percentage points as compared with adjusted EBITDA margin of 26.2% in Q1 2025. Q1 2026 adjusted diluted EPS was $0.73 as compared to $0.77 in the prior year period. These results are largely consistent with the Q1 2026 expectations we provided last quarter.
When we forecasted overall revenues flat to slightly down year-over-year and a decline of approximately 3 percentage points in our adjusted EBITDA margins, with our adjusted diluted EPS benefiting from a year-over-year drop in our shares outstanding due to our active buyback program. Slide 5 reflects performance summaries for our 2 primary sources of revenue, advertising and performance marketing and subscription and licensing. Q1 2026 advertising and performance marketing revenue declined 5.1% as compared with the prior period, while subscription and licensing revenues increased by 1.9%. Other revenues increased by approximately $1.8 million year-over-year in Q1 2026. Slide 6 through 9 reflect the Q1 financial results of each of our 4 continuing reportable segments. Tech & Shopping margins declined due to lower revenue, particularly reflecting a reduction in high-margin affiliate marketing traffic.
Gaming & Entertainment margins were slightly lower year-over-year due in part to a larger revenue contribution from the e-commerce business at IGN Store. Health & Wellness margins were lower despite a modest revenue increase. Margins reflect a revenue mix shift due in part to some of the booking delays that Vivek noted earlier as well as a higher revenue contribution in the quarter from the Consumer division. In our Cybersecurity & Martech segment, margins were down year-over-year due in part to revenue mix shifts among the Martech offerings. Please refer to Slide 10 as we review our balance sheet. As of the end of Q1 2026, we had $520 million of cash and cash equivalents and $100 million of long-term investments. However, please note that these figures exclude approximately $26 million of cash and cash equivalents associated with our connectivity business. We continue to have significant leverage capacity on both a gross and net leverage basis.
We have not included our Q1 leverage ratios on this slide due to the exclusion of our Connectivity business from adjusted EBITDA from continuing operations, and the fact that the receipt of the cash proceeds associated with the transaction is still pending. However, our balance sheet remains strong, and we intend to provide updated leverage ratio information on a trailing 12-month adjusted EBITDA basis, assuming that Connectivity sale is finalized, and we received the proceeds from the sale. We continue to dedicate significant investable capital to our stock buyback program. During the first quarter, we bought back approximately 1.2 million shares under a 10b5-1 plan. We deployed $51.6 million related to share repurchases in the quarter, including $6.7 million related to stock-based compensation net share settlements. Since April 1, 2026, we have also repurchased approximately 560,000 additional shares in the open market.
Cumulatively, since the start of our current buyback program in mid-2020, we have repurchased more than 15 million shares. The total amount currently available for repurchase under our Board's current buyback authorization is approximately 9.7 million shares, and we plan to continue to be an active repurchaser of our stock. However, as a reminder, given our ongoing review of potential value-creating opportunities, there may be periods of time when we are not able to repurchase shares under this authorization. We did not complete any acquisitions during Q1 2026. In Q2, so far, we have completed one acquisition, which Vivek mentioned in his remarks, and we plan to be a disciplined acquirer in 2026 as opportunities arise to add businesses at attractive prices and offer the potential for strong cash-on-cash returns. Looking ahead to the rest of 2026, our primary financial objectives remain unchanged.
Driving profitable growth, generating robust free cash flow and highlighting the intrinsic value of our businesses to our shareholders. As we noted in our earnings release, we are not providing annual guidance for fiscal 2026 as our exploration of value-creating opportunities is an ongoing process. However, I would like to offer some insight related to certain of our expectations for the balance of 2026. We expect our Q2 2026 results from continuing operations to largely reflect our performance in Q1 2026. Revenues in Q2 are expected to be down at a slightly higher year-over-year rate than in Q1 and Q2 2026 adjusted EBITDA margins are expected to reflect a similar year-over-year decline in Q2 as compared to Q1 2026. Some of this impact to adjusted diluted EPS will again be offset by a year-over-year reduction in our shares outstanding due to our active buyback program. Our goal is to return to total year-over-year growth in revenues from continuing operations for the second half of 2026, with the fourth quarter being stronger than the third.
This would reflect an improvement in the rate of decline of tech and shopping with modest overall growth from the combined contribution of gaming and entertainment, health and wellness and cyber and martech. This should result in an improvement in adjusted EBITDA margins from continuing operations, allowing our consolidated margin to approach the levels we saw in the second half of 2025. Margins continue to be a focus of our company. In 2025, our connectivity business was our business with the highest adjusted EBITDA margin percentage, and we are very conscious of the impact that the sale will have on the company's adjusted EBITDA margin from continuing operations. As we continue to pursue valuation enhancement opportunities, we will simultaneously seek to identify opportunities to improve our post-transaction margins through the implementation of new approaches, practices and, in particular, the use of AI.
Turning now to our supplemental information. Slide 13 provides a summary of our adjusted results from continuing operations for each quarter of 2025 as well as the first quarter of 2026. Please note that these figures include approximately $2.8 million of certain overhead expenses in the full year 2025 in our corporate segment, which were previously reported in the Connectivity reportable segment. For a period of time after the closing, a portion of these expenses are expected to be offset by payments received for certain transition services that we expect to provide to Accenture. Slides 14 through 17 show reconciliation statements for the various non-GAAP measures to the nearest GAAP equivalents. Slide 18 includes a reconciliation of free cash flow on a combined basis, including the free cash flow associated with the connectivity business. Q1 2026 reflects negative free cash flow of $3.2 million as compared to negative free cash flow of $5 million in the first quarter of 2025.
As a reminder, our TDS gift card business is a significant user of working capital in the first quarter of each year. Overall, during the last 12 months, our free cash flow was nearly $290 million, and our free cash flow conversion from adjusted EBITDA, including Connectivity, was nearly 60%. Please note that in 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 Connectivity. However, excluding certain discrete items, such as this going forward, we expect continued strong free cash flow conversion of our continuing operations adjusted EBITDA. Overall, we are very pleased with what we were able to accomplish in the first quarter of 2026, and we are encouraged by the revenue growth exhibited by a number of our businesses. As we move forward in 2026, we remain focused on executing our plans to continue to deliver shareholder value in the coming quarters. And with that, I will now ask the operator to rejoin us to instruct you on how to queue for questions.
Questions and answers
And the first question this morning is coming from Cory Carpenter from JPMorgan. ued strong free cash flow conversion of our continuing operations adjusted EBITDA. Overall, we are very pleased with what we were able to accomplish in the first quarter of 2026, and we are encouraged by the revenue growth exhibited by a number of our businesses. As we move forward in 2026, we remain focused on executing our plans to continue to deliver shareholder value in the coming quarters. And with that, I will now ask the operator to rejoin us to instruct you on how to queue for questions.
I have two questions. First, you mentioned the off-platform strategy you are implementing. Could you talk about how large it is and how far along you are in that strategy for some of your digital properties, and what initiatives you are most excited about? Second, Vivek, thanks for your update on capital allocation. Should we view this as a permanent shift in strategy, or is it a temporary measure while you refine the portfolio and unlock value from existing assets?
Great questions, Cory. I'll start on the traffic side. We've had a lot of success in generating monetization out of our footprint on social media — Instagram, TikTok, Snapchat and Facebook — where many of our brands have significant follower counts, and we're able to leverage those follower accounts into ad programs and ad revenue. Video is also important to several of our brands, particularly IGN. If you look at IGN's YouTube subscriber base, it's significant, and that's a key part of our off-platform activity. We also have partnerships, for example within the Health business I mentioned Cleveland Clinic and the Mayo Clinic, and we're working on additional medical partners where we are their exclusive advertising monetization partner. Other channels include e-mail, apps and CTV. It's a diversified set of off-platform distribution. That can replace the organic web traffic that's under pressure.
Two things to point out: certain traffic, particularly affiliate commerce-oriented traffic when someone is seeking a buying guide or product review, is harder to replace. The unit economics there are compelling. Also, platforms sometimes come with a rev share or a sort of platform tax, and that affects our dynamics as we evolve. On your second question, yes, we view asset monetization as an ongoing tool in our toolkit. As long as the public market value of our EBITDA remains low — and it does — we'll continue to pursue asset monetization. If we see recovery in the public market value of our businesses, we might hold longer. In short, we view the portfolio as dynamic and optimized for shareholder value.
Your next question is coming from Robert Coolbrith from Evercore.
I just wanted to ask a little bit on the MedPage bookings. Any more color there? I think generally speaking, throughout the quarter, we've heard about a lot of strength in HCP spend, particularly in rare disease, but just generally. And any competition from any emerging players? Or is that really being sort of managed separately as part of a search budget? Or is that sort of bleed over? And then, Bret, as you look at the strategic review process for other parts of the business, do you think that there is the ability to sort of neatly carve out whole segments? Or is there, in your view, less likely sort of probability of finding a single last dollar buyer for sort of whole segments? Yes, I'll just leave it there.
I'll start on MedPage. We had a tough Q1 for MedPage; it's a combination of timing and some specific advertisers who weren't booking in Q1. We are seeing improvement going into Q2 and the balance of the year, so hopefully this is largely timing. At the same time, there are more market entrants in the HCP part of the pharma ecosystem, adding inventory to what has been a fairly tight market. So it's a mixed picture: strong consumer-side performance and more challenges on the direct-to-provider side. The continuing medical education business, PRIME, which operates differently from conventional HCP advertising, continues to do well. Also, on the parenting and pregnancy piece, traffic challenges, particularly in affiliate commerce on BabyCenter and What to Expect, are impacting revenue when users search for and purchase products. Those search challenges are present there as well. Overall, I view these as hopefully temporary glitches in an otherwise strong health segment.
Thanks, Vivek. And thanks, Robert. I would approach this by saying our goal is to pursue per-share value enhancement. We leave the aperture open for all sorts of pursuits, possibilities, transactions and transaction structures. Through the sale of Connectivity, that was a reportable segment and one of our divisions. We won't limit ourselves to that type of transaction nor exclude another transaction like that. The facts and circumstances will present themselves. Sometimes it's a reaction to inbound offers; sometimes it's an effort to stimulate inbound interest. The governor is our perception of the implied value of the business based on how our stock is trading versus what private market value might be, and whether there's an opportunity to realize that gap efficiently.
Your next question is coming from Ron Josey from Citi.
I wanted to drill down a little bit more on the operations of the business. I was interested in your comments that a little more than 75% growth in social views for shopping and how you view — and so I wanted to understand how do you view social's way to manage traffic longer term and other sources of distribution longer term as we have these traffic headwinds to search? And then as it relates to AI, your commentary on where we stand and how product development should improve. Talk to us about how this improvement is manifesting or how you can see this build into more products that can lead to even greater actual return and greater growth.
Great questions. On off-platform distribution, consumer engagement has shifted substantially off our owned websites and apps to platforms. We get far more consumer engagement in places we don't own, and consumer behavior shows a large share of time spent on these platforms versus browsers. We're following consumers into those channels. Early on it was difficult to monetize social, but that has been largely solved; platforms now allow publishers to extract revenue and often share in that. The ecosystem has come together well and aligns with our business as search faces challenges. Regarding AI, we're already seeing it show up in product features across properties such as Lose It! and VIPRE, and in HALO, CLARA and IMAGINE — AI-based ad targeting and insights engines. From a product and engineering velocity perspective, tasks that used to take quarters are now measured in weeks. That velocity will unlock revenue. In businesses where the product pipeline is shallow, AI delivers cost savings. Where the pipeline is deep, AI accelerates delivery. Either way, we expect value creation. The nuance is that AI has moved from a copilot to the central driver of the development process, which accelerates delivery and innovation, and I'm very excited about the potential.
Your next question is coming from Ross Sandler from Barclays.
Vivek, it's sort of related to what you just answered on that last question, but it sounds like just from 90 days ago, and certainly from last year, we've had a bit of a tone change around internal use of AI to not only kind of push content, but also to manage cost across the organization. So could you just talk about how the thinking might have changed on that? And then related to the off-platform growing and some of the legacy affiliate high-margin declining, how does that combined with managing cost vis-a-vis AI impact your view of operating margins or EBITDA margins across the businesses over the next couple of years? Thoughts on that would be great.
I don't think our view of AI's potential has changed; the toolkit has simply improved significantly and quickly. Models today are far more powerful and capable. We've invested in an AI-forward mindset across the company and trained our teams accordingly. Successful uses of AI in parts of the portfolio generate internal demand to replicate those successes elsewhere, so we're seeing positive internal reinforcement. We're hiring with an AI-native mindset, which matters. On margins, this is the central challenge: Connectivity was our highest-margin business, and its sale will affect consolidated adjusted EBITDA margins. We're focused on improving margins in the remaining businesses, even as some high-margin revenues are replaced by lower-margin but still attractive revenue streams. Free cash flow orientation is core to how we operate: it drives acquisitions, buybacks and reinvestment. We're a margin-first company and will continue to focus on improving margins while navigating these revenue mix dynamics.
Your next question is coming from Shyam Patil from Susquehanna.
This is Daneal on for Shyam. I was just wondering if you could elaborate a bit on the acquisitions of Popular Science, Dwell, Domino and Business of Home. Just what was the rationale behind these deals? And how do you see Ziff Davis adding value to these businesses in the coming years?
We're big believers in the value of brands. It's difficult in today's market to build brands, so established brands are attractive. Popular Science, founded 150 years ago, is an iconic science media brand and is a natural tuck-in for our tech group alongside CNET. Dwell and Domino are strong home and lifestyle brands, and Business of Home is highly respected in the trade. Dwell and Domino in particular have strong social footprints, and we see opportunities to unlock social value embedded in these brands. We'll also pursue product development opportunities in those spaces. From an acquisition price perspective these were attractive, and the current market provides opportunities for disciplined buyers. These businesses face headwinds similar to others, but we believe we can transform them and realize significant value over time. I'm excited for us to own and develop these assets.
There are no further questions in queue at this time. I would now like to hand the call back to Bret Richter for any closing remarks.
Thanks, Tom, and thank you all for joining us today on our Q1 2026 earnings call. As always, we value your time and investment in our company, and we look forward to continuing to engage with you in the coming months.
Thank you. This does conclude today's conference call. You may disconnect your lines at this time, and have a wonderful day. Thank you once again for your participation.