Prepared remarks
Good day, ladies and gentlemen, and welcome to the Ziff Davis Second Quarter 2026 Earnings Conference Call. My name is Tom, and I will be the operator assisting you today. The operator provided instructions for participants on how to ask questions. On this call will be Vivek Shah, Chief Executive Officer 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 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 may 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 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 14.5x 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 $149 million of our convertible debt, which matures at the beginning of November of 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, but 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. Now 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 approximately $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 the recent Semrush AI Visibility Index report as being among the most cited information sources across major language models, which has marketers seeking to be attached to our trusted, high-quality and high-authority editorial brands. Gaming & Entertainment revenues grew by almost 1% compared with the second quarter of 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 health 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 continued to expand, holding successful events in both the U.S. and the U.K. in the second quarter. Health & 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. However, 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 partnership at Health eCareers, our leading health care 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. In addition, 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 have seen 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 health care provider. In Cybersecurity & 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 e-mail 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. In addition, 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've 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 released 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 in the last earnings call: lower cost per feature delivered and the capacity to support a broader roadmap without proportionately scaling our 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 4 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. The 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. 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% as compared with $0.91 in the prior year period due primarily to the significant share count reduction from our stock buyback activity during the past year. Slide 5 reflects performance summaries for our two primary sources of revenue, Advertising and Performance Marketing and Subscription and Licensing. Q2 2026 Advertising and Performance Marketing revenues declined 6% as compared with the prior year period, while Subscription and Licensing revenues were essentially flat. Other revenues more than doubled, increasing by approximately $3.7 million year-over-year in Q2 2026 due in large part to the contribution of Semantic Labs in our Martech Group. Slides 6 through 9 reflect the Q2 financial results of each of our four reportable segments. Tech & Shopping adjusted EBITDA margins improved despite a modest drop in revenues, reflecting lower expenses due in part to the impact of cost savings measures implemented in the second half of 2025. Our Gaming & Entertainment adjusted EBITDA margins were lower year-over-year despite a 1% increase in revenues due in part to higher aggregate marketing and content costs associated with the record quarter at Humble Bundle. Health & Wellness adjusted EBITDA margins were lower, primarily reflecting the flow-through impact of the year-over-year decline in revenues. And in our Cybersecurity & Martech segment, adjusted EBITDA margins were up slightly from the prior year period. Please refer to Slide 10 as we review our balance sheet. As of the end of Q2 2026, we had $1.6 billion of cash and cash equivalents and $100 million of long-term investments. As of June 30, 2026, gross leverage was 2.4x trailing 12 months adjusted EBITDA, and our cash and cash equivalents exceeded our outstanding debt balances by $734 million. As Vivek noted earlier, we expect to pay approximately $200 million to satisfy our domestic and international tax obligations related to the Connectivity transaction. We have taken certain steps to execute the transaction tax efficiently, and 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. In addition, $149 million of our convertible debt comes due on November 1, 2026. We plan to satisfy this maturity with cash. Our next significant outstanding debt maturity is in 2028, and 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 and we thought a graphic description of this activity during the last few years might be helpful to our stakeholders. During the second quarter of 2026, we ramped up activity in our stock buyback program, buying back 2.6 million shares under a 10b5-1 plan. We deployed $121.5 million related to share repurchases in the quarter. Since July 1, 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 for repurchase under our Board's current buyback authorization is approximately seven million shares. We completed two small acquisitions during Q2 2026, and year-to-date, we have deployed a total of $9.2 million to support our M&A activities. As Vivek noted, we plan to be a disciplined acquirer going forward as opportunities arise to add businesses at attractive prices which 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. We plan to continue our disciplined capital allocation program, taking advantage of the strength of our balance sheet, and continuing to repurchase our stock at attractive levels while pursuing M&A opportunities that offer a risk-weighted opportunity to generate shareholder value. Now I'd like to offer some insight related to our current financial performance expectations for the second half of 2026. We expect our Q3 2026 results from continuing operations to broadly reflect our performance in Q2 2026. Revenues in Q3 are expected to increase sequentially but decline low- to mid-single digits year-over-year, while our adjusted EBITDA margin percentage is expected to show modest improvement as compared with this quarter's margin. Q4 2026 is expected to show improvement as compared with Q3 with a lower rate of revenue decline and adjusted EBITDA margin slightly down year-over-year. We expect adjusted diluted EPS to continue to reflect the benefit of the year-over-year reduction in shares outstanding due to our active buyback program. Going forward, excluding the tax payments related to the Connectivity sale, we expect our non-GAAP tax rate to remain in the 24% to 25% range on an annual basis. Turning now to our supplemental information. Slide 14 provides a summary of our adjusted results from continuing operations for each quarter of 2025 as well as the first two quarters of 2026. Slides 15 through 18 show reconciliation statements for the various non-GAAP measures to the nearest GAAP equivalents. Slide 19 includes a reconciliation of free cash flow from continuing and discontinued operations. 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 of our continuing operations adjusted EBITDA. Overall, we are very pleased with what we were able to accomplish in the first half of 2026. As we move forward, 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
Thank you. The operator provided instructions for participants on how to queue for the question-and-answer session. Our first question this morning is coming from Robert Coolbrith from Evercore.
I just wanted to ask a little bit more on HCP. If you could talk about the demand environment that you're seeing for HCP advertising and then I think you had said that the bookings actually firmed up a little bit ex in Q1, but I wanted to ask about that. And then maybe you could talk a little bit about any efforts underway or opportunities to maybe leverage AI to broaden your surface area with providers. And then secondly, on Gaming & Entertainment, I understand what you're saying about the slate right now, but it seems as though there maybe could be some at least small catalysts in the back half around the slate. Just wanted to ask if you maybe talk a little bit about your expectations there or maybe historical experience with respect to blockbuster launches like we can expect in the back half?
Thanks, Robert, and all good questions. Let me start with your first, which was HCP advertising, which mainly shows up within our MedPage business. The good news is that MedPage grew sequentially over the first quarter, and as I said, we expect that sequential improvement to continue through the balance of 2026. The structural challenge is also real. 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, and so that's probably where we're mostly focused. In the end we produce content that is valuable and can feed a lot of these engines, but 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 on the consumer side, the patient side. The consumer side, the DTC advertising, is performing quite well. We're seeing it both in the advertising business as well as the subscription business, which is Lose It!, where the rapid growth of GLP-1s is only helping those businesses. I also mentioned on this call, and I think on prior calls, the hospital media network that we have assembled. We continue to expand that. We think that is a strategic asset. With respect to your second question around the game environment and the slate, gaming is very much a hits-driven business. A lot of the gaming slate gets anchored around major releases. GTA 6 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, so we do think that will help get us some recovery on the IGN side. As you know, in the gaming business, we also have our Humble Bundle business, and that's done very, very well. We have some new leadership there that has done a great job in enhancing the content that we package and sell through bundles and through our subscription product called Choice. There they were really the first of our businesses where we fully took an AI-assisted coding approach to a platform redevelopment process that, as it reaches its conclusion shortly, puts us in a position of rolling out features at a much faster pace. We're excited about the revenue potential that comes from unlocking much faster feature rollout on a platform like Humble and then across the rest of the company. Rob, did I answer all of your questions or did I miss one?
No, you got everything.
Your next question is coming from Rishi Jaluria from RBC.
Great to see the Connectivity divestment online and now some greater optionality. Maybe two questions from me. First, with Vivek, I recognize capital options are still very much on the table. I maybe want to understand what is the kind of potential pipeline out there? And maybe more broadly speaking, strategically, should we be thinking about additional acquisitions? Assuming it's going to come at a reasonable price and you're going to be disciplined on valuation, should we assume this is more of a way to diversify the set so it's less susceptible to traffic-driven bear cases? Or is there an opportunity to lean even further into digital media because these cases are creating dislocations in assets that maybe were not attractive a year ago and may be starting to look more attractive now? And then just turning to the Cybersecurity & Martech business, it seems like there are green shoots there. Wanted to understand within Martech, do you see kind of a longer-term data opportunity? I'm trying to draw parallels with other data-owned assets and the value of data. I'm not talking about selling the Martech business, but at least finding new ways of monetizing the data asset that you have within the Martech group. I'd love to hear your thoughts on all of the above. Thanks so much.
Thank you, Rishi. Great questions. Let me start on our thinking around acquisitions and M&A dynamics. We have a lot of cash on the balance sheet, roughly $1.7 billion, and strong cash flow generation from the portfolio of assets we continue to own. The history of the company is that we were built through acquisitions. We were a serial and programmatic acquirer, and that is our DNA. We will continue to look for attractive opportunities in the small- to mid-market, which is where we generally fit. We typically look for businesses in the range of $5 million to $50 million of EBITDA. We look for great brands. We think brands matter, particularly in an AI era, and trusted brands in particular. We look for opportunities to create value. We do believe that market fear in digital businesses broadly presents us a unique opportunity to be an active buyer as long as the valuations are compelling. At the same time, all these acquisitions have to compete with our own stock, and we've obviously tilted our buying toward our stock over a number of quarters now. So it's all on the table; we're not dogmatic. We're practical and pragmatic, and we'll evaluate opportunities case by case. I would counsel patience. We have to be thoughtful and disciplined. Bret, anything you want to add before I go on to Cyber & Martech?
Yes. Not so much to add as to emphasize that the focus is on shareholder value creation per share. The decisions we make will be driven by facts and circumstances. You can look at our business over the last five-plus years and see that a large part of our strategy was diversifying revenue into subscription and licensing revenue to the point where it was almost 50% of our total revenue. But when presented with the opportunity to monetize Connectivity, which was a subscription and licensing business, at the value we were able to capture, that opportunity overcame the strategy of further diversifying into subscription and 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 & Martech, there are a lot of branded businesses in that segment. I would highlight IPVanish as a business where we saw potential for improved customer acquisition, better retention, and white-label B2B2C distribution, and we've executed on those opportunities. The business returned to growth and is now one of our stronger businesses. SMTP, which I mentioned in prepared remarks, is a good infrastructural play within the email ecosystem that is growing nicely, and we see potential there. On the data question, I'll be careful: on the cybersecurity side, as a VPN provider, there is no data collection and there are no logs, which is important to us. On the Martech side, yes, we have interesting data assets in the email space and in SEO, and we are looking for ways to unlock that value. We also have interesting data within our media businesses. Extracting multiple rents from our assets — including leveraging data for licensing and product improvement — is very much part of our strategy.
Your next question is coming from Ronald Josey from Citi.
Vivek, I wanted to ask a little bit more about your comments related to Tech & Shopping regarding headwinds and traditional search traffic and just seeing if there are alternatives that become more clear as the industry understands what's going on from a traffic perspective. Talk to us about the plans overall as we look to continue to shore up or grow Tech & Shopping. And then I also wanted to hear a little bit more about the progress you're making in growing off-platform channels. We talked about alternatives such as social as an example to manage perhaps the offset in search, but any insights there would be very helpful. Thank you.
Thanks, Ron. We continue to see declines in search referral traffic; this is an industry-wide experience. We're seeing an increase in the rate of AI answer overlays within the Google search experience on queries that are relevant to our properties. The last time I provided a statistic, about 36% of our queries presented AI overlays; that's now closer to 50%, which is in line with overall prevalence of AI overlays within search. This is clearly a trend. But we continue to make progress in other sources of traffic and engagement: social platforms, native apps, email, video on domain, distributed OTT and YouTube. We are quite good as an email publisher in getting into the inbox. When we made certain acquisitions, it was recognizing that inbox placement and having permission to be in the inbox may be one of the last places where you really can't get disintermediated. All of those channels are growing and are why the ad revenue decline is not equal to the web traffic decline; these offsets help. We also have a lot of non-traffic businesses inside the company, which help balance the portfolio. We've had success in citations and answer share when it comes to AI overlays, particularly with Google, which remains the dominant platform. That has caught marketers' attention, and third-party tools that report on AI visibility — including Semrush and Moz — have highlighted our brands. This is still early days, but our leadership brands in high-value vertical categories stand a good chance of being successful in whatever evolves next because they will be attached to the next generation of platforms.
That's super interesting. And just talk to us a little bit more in this new world of AI overlays and language models, how important it is to build up the brand and what the team is doing to continue to grow the brand so that as IGN is a top-cited source, more advertisers are going to IGN directly given the traffic coming from AI overlays. Thank you.
You nailed it. What's happening now is that in marketer assessments of media partners, citation and answer share have become part of that conversation. We do very well with that within Google, which is by far the largest platform. Marketers are noticing, and third parties that report on AI visibility have highlighted our brands. Translating that into value for us is the key, but it is happening. How we translate our strong position into strong media partnerships is underway and is an active part of our commercial efforts.
Your next question is coming from Shyam Patil from Susquehanna.
Great, thanks. This is Daneal on for Sean. Thanks so much for taking our question. I was just curious if you have any thoughts about Bending Spoons. They're also an acquirer of digital assets, and they've generally had a positive reception in the market since their IPO. What's your view there? And then also curious on AI content licensing and how should we think about that and what type of assets in the portfolio you would view as most attractive to potentially monetize from that perspective? Thank you.
Bending Spoons is a useful data point. We know them and got to know them some years ago. They do a great job: acquiring, improving and operating durable digital brands. There are similarities to our model, though differences in size and focus mean we don't necessarily run into each other in the M&A market. Their market reception reinforces our view that trusted brands like CNET, PCMag, IGN, Everyday Health and BabyCenter carry much more value than our current multiple reflects. For us, the answer has been to be an aggressive buyer of our own stock rather than wait for the market to re-rate us. On AI licensing, we reiterate that we are not inclined to sign RAG-focused agreements that compromise our right to fair compensation for foundational training. That is an important position for us. We want to establish the right financial precedent rather than chase quick dollars. The litigation that we have with OpenAI is proceeding, and 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 for others. We prefer to be patient rather than lock in small, early deals that underprice the value of our content.
This does conclude today's question-and-answer session. I would now like to pass the floor back to Bret Richter for closing remarks.
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 and to connecting in the interim period.
Thank you. This does conclude today's conference call. You may disconnect at this time, and have a wonderful day. Thank you once again for your participation.