Ziff Davis, Inc. (ZD) Q2 2022 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to Ziff Davis Second Quarter 2022 Earnings Call. My name is Paul, and I will be the operator assisting you today. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] On this call will be 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 Q2 2022. As the operator mentioned, I am Bret Richter, Chief Financial Officer of Ziff Davis; and I'm joined by our Chief Executive Officer, Vivek Shah. A presentation is available for today's call. A copy of this presentation is available on our Web 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. If you have not received a copy of the press release, you may access it through our corporate Web site at www.ziffdavis.com. In addition, you'll be able to access the webcast from this site. After completing the formal presentation, we'll be conducting a Q&A. The operator will instruct you at that time 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 would 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 risk factors that we have included as part of the slide show for this webcast. We refer you to discussions in those documents regarding safe harbor language as well as forward-looking statements. Now, let me turn the call over to Vivek for his remarks.

Thank you, Bret, and good morning, everyone. We continue to skillfully navigate the difficult and challenging operating environment with the strategy of producing near-term earnings growth, while positioning the company for an eventful macroeconomic recovery. We grew pro forma adjusted EBITDA in Q2 by 5%, a repeat of last quarter's performance, which is particularly noteworthy given the strength of last year's second quarter. Remember, Ziff Davis grew its revenues in Q2 2021 by 42%, making it one of the biggest growth quarters in our company's history. We also posted 12% adjusted non-GAAP pro forma EPS growth in Q2 2022, which was clearly ahead of our expectations. Our company has always been bottom-line-oriented, but it's at times like these that we are particularly adept at margin management. In fact, while our revised guidance lowers the midpoint of estimated revenues for the year, we're maintaining the midpoint of our adjusted EPS estimate of $6.67. Advertising revenues declined 5% in Q2, which is consistent with the 4% decline we saw in Q1. As we said last quarter, we expected to see a continuation of the pressures in the ad market, while also lapping last year's very strong revenues. While we increased the number of advertisers year-over-year by over 100, we saw about $10,000 less in spend per advertiser reflecting, in part, a consistent reduction in budgets for many of our advertising clients. But I've also learned, in my nearly 30 years in the media business, that budgets can be restored as quickly as they are reduced. And the key to managing in this environment is to strengthen your ad products and capabilities. And that's precisely what we're doing by developing new branded content offerings, live commerce video solutions, and custom short-form videos on social platforms, to just name a few. It's also important to view our ad business by category as we're seeing different dynamics in different sectors. Our gaming businesses grew ad revenues low double digits, which continued the momentum we experienced in the first quarter, when IGN posted its best ad revenue quarter in its history. RetailMeNot was flat in the second quarter, which we take as a very positive sign given that it's being compared to a quarter last year and we're still benefiting from a strong online retail environment. Our health businesses grew ad revenues by mid-single digits in the quarter, with the direct-to-provider part of our pharma business growing double digits as our flagship MedPage property continues to shine, while our direct-to-consumer pharma and pregnancy businesses experienced a single-digit decline with some DTC pharma campaign delays and pandemic-related supply chain challenges, notably baby formula. The main drag on our ad revenue growth comes from the tech category, which saw a double-digit decrease. The tech category sits at the nexus of the issues roiling the global economy, including supply chain disruption, inflation, rising interest rates, geopolitical uncertainty, and the strengthening dollar. It's therefore not surprising that as our technology clients experience challenges, they will pare back their advertising expenditures, but we've used this as a cyclical dynamic, not a secular challenge, and continue to realize the benefits of having category diversification in our advertising business, subscription revenues by 11% in the second quarter. Our connectivity businesses, led by Ookla, and our Martech businesses, led by Moz, continue to perform well, with strong double-digit growth supported by organic growth and the benefit of acquisitions. Our Ekahau unit just launched its new Sidekick 2, a product for the next tri-band generation of Wi-Fi. We believe this will be a nice catalyst for growth in the second-half of the year. Also, our Speedtest app has now been installed on over 600 million unique devices worldwide, an astonishing statistic. After two years as a virtual event, MozCon returned to being in-person, in Seattle, in July. MozCon is a premiere search engine optimization conference convening SEO experts, data scientists, content publishers, and digital marketers from across the globe. Our Cybersecurity business continued its overhaul of its sales and marketing, including new leadership, and pivoted to a channel-first model as we look to set a foundation for future growth. It was a mid single-digit decliner on an FX-adjusted basis in the quarter. Our organic revenues declined by 5% in the second quarter, and by 3% when adjusting for FX. We had an unusually difficult comp as our organic growth in the second quarter of 2021 was 20%, and total revenue growth was 42%. I'll also add that excluding our tech ad business and FX, we were effectively flat organically, which we view as a sign of resilience in a difficult market. Notwithstanding the organic revenue decline, we were still able to grow adjusted EBITDA by 5%, and expand our adjusted EBITDA margins by 100 basis points to 35%. Most notably, our adjusted non-GAAP pro forma EPS grew by over 12% as compared with Q2 last year. With the prospects of a second-half economic recovery quickly diminishing, we have revised our guidance for the full-year. At this point, we feel we have to assume that the second-half of the year will look much like Q2, with the higher end of our revised guidance contemplating a stronger Q4 given the more favorable comp that it represents. Remember, last year's Q4 was our lowest growth quarter. Given our expense management, our new midpoint assumes about 6% adjusted EBITDA growth, and over 9% adjusted EPS growth. As I said at the outset, our midpoint adjusted non-GAAP EPS guidance matches that of our original guidance. All things considered, if we exit the year with that kind of bottom line growth then I think we'll be very satisfied with the manner in which we've dealt with a series of challenging headwinds. Longer-term, we feel very confident in the quality of our portfolio and the opportunities in both the advertising and subscription parts of our business. While we are currently facing advertising headwinds, pandemic-related supply chain disruptions will ease at some point. We feel that we operate in some of the most attractive advertising verticals, count some of the best companies as longtime advertisers on our properties, and offer ad and performance marketing solutions that provide clear ROI. On the subscription side, we believe that SMBs are underserved in the cybersecurity market and are also being priced out of paid media. We also believe that our broadband analytics and data are unmatched at a time when our digital world demands more connectivity and bandwidth. [These needs] [Ph] continue to inform our strategy and expansion plan. And while we are being careful about our spending, we will continue fund innovation and development. With $850 million of cash and investments on our balance sheet and a gross leverage ratio of 2.3 times, we continue to have a great deal of capacity to deploy capital for acquisitions. In June, we closed the acquisition of Lose It! a weight loss and nutrition management app and food log-in database that is a top five Apple iOS app in health and fitness. It also represents our ongoing effort at building consumer, subscription, and ecommerce revenues alongside DailyOM and BabyCenter courses in our health & wellness vertical. Also, a couple of weeks ago, Ookla acquired CellRebel, a nice tuck-in that brings new datasets and data visualization capabilities to our already robust lineup of network measurement offerings. We are being very selective right now on our M&A activities believing that the best opportunities may well be in front of us. We believe we will be rewarded for our patience and discipline. Our pipeline consists of acquisitions that would fit into our existing platforms and those that would create a new one for us. We have increased our hurdle rates internally given the current market environment. And while I know there is a lot of talk about when sellers will perpetuate, we're having a number of productive conservations right now and remain optimistic about the opportunities to put our shareholders' capital to work. Let me provide you with a brief update on our ESG efforts. In March, shortly after we released Ziff Davis' inaugural ESG report, we committed to setting emissions reduction target with a science based targets initiative known as SPTI. SPTI is considered the gold standard of emission reduction targets and is the first step in setting a long-term net zero goal. We are in the process of working on our strategy and targets, and plan to submit them to SPTI for validation in the coming months. We also continue to leverage our platforms to address social issues and inequities. Let me provide just one example. In 2020, our gaming business Humble Bundle launched their Black Game Developer Fund which invest million dollars annually in black inde game makers providing them funding and ongoing guidance around the development and marketing of their games. To date, more than 30 diverse game developers have been signed to the fund. Moreover, one of the first games to receive funding will be published by Humble games in early 2023. This success story truly embodies our approach to stakeholder capitalism and our focus on profits and purpose. 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 non-GAAP financial results for Q2 2022. Our earnings release also reflects pro forma adjustments for the impact of various 2021 asset dispositions. Explanations for and reconciliations of these adjustments are provided in the release. As you may recall from our previous earnings calls, our U.K. Voice assets were sold in February 2021. And we completed the sale of our B2B backup business in September 2021. The results related to these divestitures are reflected in our year-to-date 2021 financials through their respective date of sale. And the results of our B2B backup business are reflected in our Q2 2021 results through its dataset. However, these divestitures do not impact the presentation of our Q2 or year-to-date 2022 results. On October 7, 2021, we completed the spin-off of Consensus. Our year-to-date and Q2 2021 GAAP income statement reflects the financial activity related to Consensus in discontinued operations. We will focus our discussion today and my commentary will primarily relate to our Q2 pro forma non-GAAP financial results from continuing operations, which exclude the contributions from the Consensus business and exclude the contributions from our domestic businesses for the portion of the Q2 2021 period that they were owned by Ziff Davis. Now let's review the summary of our quarterly financial results on slide four. We reported pro forma revenue from continuing operations of $337.4 million for the second quarter as compared with $330 million for the prior-year period, reflecting growth of 2.2%. The strength of the U.S. dollar and the decline in the value of certain foreign currencies negatively impacted this growth rate. And if the comparable 2021 currency values would apply to our 2022 Q2 results, revenue growth would have been approximately 3.8%. Pro forma adjusted EBITDA from continuing operations was $118 million for Q2 2022 as compared with $112.1 million for the prior-year period, reflecting growth of 5.3%. Our adjusted EBITDA margin for the quarter was 35%. We reported second quarter pro forma adjusted non-GAAP earnings per diluted share of $1.58. This figure reflects a 12.1% increase as compared with our Q2 2021 pro forma non-GAAP results. On slides five and six, we have provided performance summaries for our two primary sources revenue, advertising and subscription. As you can see on slide five, and as discussed earlier by Vivek, Q2 pro forma advertising revenue declined by 5% as compared with the prior-period, however advertising revenue has grown 8% during the last 12 months, and again, this was impacted by negative trends in the foreign currency markets. Our net advertising revenue retention and annual trailing 12 months statistic that we update quarterly was approximately 100%. Net advertising revenue retention compares advertising revenue generated by a defined group of advertisers in one trailing 12 months period to advertising revenue generated by these advertisers in the prior comparable period. As defined in this slide in the second quarter, Ziff Davis had just over 2,000 advertisers with the average quarterly revenue per subscriber of nearly $94,000. In Q2 2022, we again reported a year-over-year increase in our number of advertisers as well as a year-over-year decline in revenue per advertiser, we experienced pullbacks and delays from a number of our large advertisers, while recent acquisitions advertisers generally had a lower spend per advertiser. Slide six depicts our subscription revenue performance. Q2 2022 pro forma subscription revenue grew 11% as compared with last year and was again negatively impacted by FX. Subscription revenues have grown 15% during the last 12 months. The table on the bottom of slide six includes subscription metrics for the last six quarters. Please note that we continue to evolve these metrics and have provided details for average quarterly revenue per subscriber, and removed our prior monthly average revenue per subscriber metric. We believe this presentation compares more clearly with our quarterly subscription revenue results. And sequentially, our average monthly revenue per subscriber decreased by $6.21, to $57.64. The primary driver of this decline was the inclusion of one month of our recent acquisition Lose It! which is characterized by a significant number of monthly subscribers at a significantly lower average revenue than the average of our other subscription businesses. Our overall churn rate decreased 30 basis points from Q1 2022 to 2.92% with sequential improvements at both the TSE and Cyber and Martech divisions. Additionally, the company's Q2 2022 other revenues grew 45% year-over-year to $10.6 million driven by our Humble Bundle publishing business. Slide seven provides quarterly pro forma revenue growth rates delineated by organic and total revenue growth. Revenues from businesses owned for at least a full 12 months are included in organic revenue, while acquired revenues relate to businesses we've owned for less than 12 months. For the last 12 months, total revenue growth was 12% again, in part reflecting FX headwinds, and while second quarter organic growth reflects a 5% decline or minus 3% adjusted for FX, this is compared with our 2021 second quarter during which organic growth was 20%. Turning to our balance sheet, please refer to slide eight. Our balance sheet continues to be extremely strong. As of the end of Q2 2022, we had $648 million of cash and cash equivalents and more than $200 million of short and long-term investments. We also have significant leverage capacity, both on a gross and net leverage basis. We continue to be committed to keeping gross leverage at or below three times adjusted EBITDA and we are currently well within this metric with Q2 2022 gross leverage of 2.3 times trailing 12 months adjusted EBITDA. At quarter end, our net leverage was 0.9 times and only 0.5 times if you include the value of our financial investments. During Q2 2022, we completed a complex transaction to further de leverage our balance sheet by monetizing $2.3 million of our Consensus cloud solution shares. As we have discussed on prior calls to the extent completed prior to the first anniversary of the spin-off, we had the opportunity to monetize these shares on a tax free basis. However, this can only be achieved through very specific transaction steps, and the tax free monetization would require us to exchange the shares for certain outstanding Ziff Davis securities. Our ability to consider different transaction structures was further limited by our status as an affiliate of Consensus, which was primarily related to our 19.9% ownership stake. In light of these considerations, during the second quarter, we completed a successful debt for equity exchange transaction, resulting in Ziff Davis realizing approximately $90 million of value in respect of 2.3 million of our Consensus shares. In Q2 2022, we began to apply the value of these Consensus shares towards the repurchase of our 4.625% senior notes, a step that qualified as a key element of the tax free monetization. As of the end of the second quarter, we deployed $18.2 million of this value to retire $21.5 million of principal value of our senior notes. Through the beginning of August, we applied an additional $71.5 million of this value towards these repurchases, retiring an additional $80 million of the senior notes. We believe the repurchases of these notes at a discount to par reflects an accretive transaction for the company, reducing our gross leverage and future cash interest expense while providing us with additional financial flexibility. We are operating in a challenging macro economic environment, and we will continue to prioritize the health of our balance sheet. However, we believe we have the flexibility to continue to pursue various capital allocation alternatives in an effort to enhance shareholder value. To this end, during Q2 2022, we deployed nearly $13 million of cash to repurchase approximately 182,000 shares of our common stock at an average price of less than $70. As a result of these various transactions thus far in 2022, we have deployed capital to repurchase approximately $156 million par value of our 4.625% senior notes and more than $71 million of our common shares. Turning to guidance, as Vivek noted, we are revising the 2022 guidance range that we presented in February. And if you refer to slide 10, the details of this revised range are presented. Our revised guidance primarily reflects our recognition that macro economic pressures will more than likely persist through the balance of 2022. The new big point of our guidance reflects reductions of approximately 6% in revenue and adjusted non-GAAP EBITDA. However, this midpoint also reflects our expectation of maintaining the midpoint of our original adjusted non-GAAP EPS guidance despite our lower adjusted non-GAAP EBITDA expectation. This is attributable to a number of factors including higher year-to-date other income, lower year-to-date capital expenditures, lower interest expense, reflecting our year-to-date bond repurchases, a lower effective tax rate and a lower fully diluted share count and initially anticipated. We believe that this expectation of strong year-over-year earnings growth is notable given all the factors we have discussed today. Following our business outlook slides are our supplemental materials including reconciliation statements for the various non-GAAP measures to their nearest GAAP equivalent. This section includes GAAP reconciliation on slide 13 that reflects free cash flow from continuing operations. Our Q2 2002 year-to-date free cash flow was $138.6 million. This slide also reflects the company's free cash flow from continuing and discontinued operations for the six months ending June 30, 2021. Please note that this figure reflects contributions from both the recently dispose B2B backup and U.K. Voice assets through their disposal dates and as well as Consensus and as a result is not comparable to our current continuing operations. Overall, we are pleased with our Q2 2022 performance having achieved growth in a number of key financial metrics in a challenging environment. And while we anticipate that the business environment is likely to remain challenging, we are looking forward to the balance of 2022. With that, I would now ask the operator to join us and instruct you on how to queue for questions.

Thank you. We will now be conducting a question-and-answer session. In the interest of time, we ask that you please limit yourself to one question. [Operator Instructions] And the first question is coming from Shyam Patil from Susquehanna. Shyam, your line is live.

Hey, guys, thank you. I had a couple of questions. Vivek, in your prepared remarks, you talked about strengthening ad products, and you gave a few areas where you guys are doing that. I was wondering if you could just talk about that a bit more, maybe some specifics around exactly what you guys are doing in those areas. And then on M&A, I know it's always hard to time deals, and you guys always have a very robust pipeline, but I'm just curious, do you think that you'll be able to deploy more capital, say, over the next 12 months than we you would have otherwise been able to do in a better macro, just curious on kind of the -- just how you see kind of the ability to close deals with asset price volatility? Thank you.

Hey, well, good morning, Shyam, and thanks for the question. So, I'll start with your first one around the advertising business. And what I just want to reiterate is we have some really strong green shoots coming out of a number of our categories. The gaming business continues to be strong, the health business continues to be strong, we're excited to see RetailMeNot reach a point of stability. And then, look, I think a lot of our challenges have been in a particular vertical, the technology vertical, which are all really cyclical challenges. From a product point of view, it's interesting too is that if you unpack our advertising business, the display business continues to grow, it's actually the performance marketing business which is heavy in the tech sector that has seen some of those declines. And yet, a lot of the product developments that we talked about are actually performance marketing businesses and performance marketing solutions because, fundamentally, long-term, outside of the noise of the current marketplace, return on ad spend, return on investment is key. It's key, I think, to the advertising business generally, but certainly to our franchise. So, we are leaning into more performance marketing solutions, looking for ways to leverage video within performance marketing, which has historically been more of a tech-linked-based business. And so, we're excited for all of that. And as I've said, it's in moments like these where you really want to double down on capabilities. With respect to your question on M&A, look what I'll start with is that, year-to-date, we've deployed capital actually equal to what we did last year, so it isn't as if we've been inactive and as I said -- spoke in my prepared remarks, we are excited for what Lose It! and CellRebel represent strategically to the businesses that they are now part of. What I will also say, and just to remind folks on the call is that we really have seven platforms for acquisitions, our technology platform, shopping, connectivity, gaming, health, Cybersecurity, and Martech. And I can tell you that all seven of our platforms are very active and are well-positioned, and have clear lists of targets that they are going after. I will also say that, at the corporate level, we're always looking for the next platform. So, the combination of activity across the company is very strong. And we're as well-capitalized as we've ever been, and at this feeling of -- for the last 10 years, we feel like we've been chasing the market. And for the first time, we feel like the market is beginning to come to us. Now, it's always hard to predict, it's always hard to time when this is going -- when we're going to start to deploy capital. But I can tell you that the activity level is strong and the tone is changing, and things are coming our way, and we're excited for that. And this has been -- we built this company over the last 10 years, in a market that was not benign for buyers. And we do believe that rotation is taking place right now. So, we're excited for the position we're in. We're excited to continue to drive earnings growth, build our balance sheet, and put that balance sheet to work.

Thank you.

Thank you. And the next question is coming from Rishi Jaluria from RBC. Rishi, your line is live.

Wonderful, thanks, guys, for taking my questions. Just wanted to maybe ask about Moz and drill a little bit more into that; Vivek, we were just at MozCon a couple weeks ago, and I think the big thing that surprised me is just the size of some of the customers there, I mean there were some really big customers that were using Moz and seem to really love the product. Can you maybe talk a little bit about how to Moz business, specifically, is doing, and how we should be thinking about that business going forward, especially just given how competitive this market is? And then, maybe just for Bret, in terms of the macro assumptions in guidance, are you assuming things kind of stay the same as they are right now, are you assuming that there's further macro deterioration? I mean, we just saw the inflation print this morning, obviously not very pretty, so it seems to think that macro might get worse from here. Maybe if you could just help put a little bit of a finer point on the assumptions that would be helpful? Thank you, guys.

Rishi, thank you for the questions, and thank you for attending MozCon. And it's often great to see these things in person to get a real sense of the power of the brands we operate and the community's embrace of those brands. And I think that's what you saw in Seattle. It's interesting with Moz, when we acquired Moz we knew we had a company in a very important space, search engine optimization that had a really storied position but, as a business, wasn't really delivering any profitability. And as we often do in situations like that, our immediate focus was how do we extract margin, how do we extract earnings from the business. And that was job one, which has been accomplished and done. And the trick with doing that is, obviously, not damaging the brand itself, and not damaging what makes it attractive to the marketplace. And that was done as well. And you saw that live and in person, the Moz brand is as strong as it's ever been. We think the SEO space has room for multiple players, there are multiple good solutions in this space, including Moz. We continue to believe that it will continue to grow and is growing for us organically, with margin expansion, and will grow across enterprise, for sure, which we have our stat product, but we do have a fair amount of SMB customer base as well that you may not see at the MozCon. MozCon typically attracts larger companies, but we have a fairly robust small and medium enterprise portion of the business. So, we like where we are in SEO. And I'd be remiss to not also add email, because I think email and SEO or both earned media. And I think the distinction between earned and paid media is simply this, particularly for SMB, is they're getting priced out of paid search, they're getting priced out of social; those platforms are becoming harder and harder for them to extract ROI. But email, building a list, getting into the inbox, SEO, building natural search ranking is a far more efficient, possibly controllably way for SMBs to drive customer acquisition. So, I think the combination of those businesses which form most of the Moz group we're excited for. And we think, particularly in a market like this where there may be a lot of focus on expenditure, particularly on the marketing side, efficient marketing technology software may be the choice for customers.

Great, thank you, Rishi. I guess the way I'd characterize how we think about it is with a number of points. First of all, when we spoke in May, we highlighted the fact that we saw a lot of pressure in the first quarter. And even at that time, we anticipated seeing some of that pressure in the second quarter. But the back-half of our year was a little bit more optimistic, looking toward stabilization, if not some improvement. I think the most significant factor in us revising our guidance is that we are not expecting stabilization in the second-half. And while our guidance reflects a range which, by its very nature, provides some room for certain factors being variable, we're also not projecting a significant further downturn from here. That said, Q3, Q4 is a relatively short period, it's about six months. In putting this together, we have note -- 90 more days of performance data, we've had significantly more customer dialogues, we've observed behavioral changes from certain of our customers and seeing some delays and pullbacks. We've gotten some positive indications for late in the year. Of course, tying that to our first-half dialogues, where we had some positive indications and those indications changed have to be a consideration. But in revising this guidance we created a range that we think we're -- can perform within and we're comfortable with the guidance we put forward.

All right, that's really helpful. Thank you, guys.

Thanks, Rishi.

Thank you. And the next question is coming from Will Power from Baird. Will, your line is live.

Okay, great. Yes, no, a couple of questions. First one probably for Vivek, I mean it's great to get some of the breakdown within advertising, and nice to see some of it strengthen in healthcare, and gaming, in particular. I'd love to get your perspective on visibility into the second-half of the year for those particular verticals. I know, normally, you have good lead times within pharma, but those areas where you think you continue to grow, maybe even double digits in the second-half. So, just any more color or confidence on what you're going to see there would be great.

But, look, I think it's always hard to say, category-by-category there are a lot of different dynamics. What I will say is this, so, one is, the comps start to get easier. I think we can't say it enough, I mean last year's Q2 was incredibly strong, 42% overall revenue growth, 20% organic revenue growth. And so, in some ways, if you take a two-year view it starts to make a little bit more sense. In the second-half, really in Q4, remember the organic growth in Q4 of last year was 2%. So, we do think we'll have a favorable comp. And we do think that if the retail environments improved we can see some upside there. We do think some of the supply chain challenges, particularly in the hardware, consumer electronics, and device world, where we're seeing a lot of pressure in our tech business, I think some of that will start to alleviate. And then I also think some of the issues around baby formula and some of the issues around DTC pharma delays. On the gaming front, I'd have to look at the schedule of game releases; it's actually quite dependent on that. And I think my recollection on that is it'll be more Q4 than Q3 from a gaming release cycle, it's very sensitive to gaming and theatrical movie releases. So, I don't want to -- I hesitate to give you a very specific answer on the gaming piece between Q3 and Q4. So, look, I think that this is all a function of what our clients are going to do in the near-term. If they continue to feel like they need to cut costs, be short-term-focused, drive their earnings; there's nothing we can do, right. And I think that is a reality of that situation. At the same time, we're preparing the company as if that will continue and still be able to generate earnings and cash flow, build our balance sheet, and then be opportunistic on M&A, because if it's happening to us on the cyclical basis it's happening to others, others may not have the ability to weather this in the way that we obviously do.

Okay, got it, that's helpful. And then maybe just the second question, as you look at the subscription business, I mean it sounds like you continue to see strength in Ookla, you talked about Moz, a few other areas. But I'd just be curious what you're seeing from a macro perspective across your subscription portfolio. Are there any particular areas that are being more impacted there negatively? And then as you look at the -- kind of the ARPU decline in subscription, I may have missed this in the prepared remarks, was there a mix shift there, is anything particular you'd point to on that ARPU change there?

I'll let Bret take ARPU in a second, but to answer your question on the macroeconomic pressures or dynamics on the subscription business. We're not seeing that as much to be honest with you. So, as I've said, we've had a number of our subscription businesses to continue to perform well. And I would say that the business where we are not seeing growth, which is in our Cybersecurity suite of subscription offerings, I view those as micro issues. And I believe that we are on a path to addressing those issues, which I've talked about in the past, which are sales and marketing issues and shifting to a channel-first approach. And then some issues on the consumer VPN piece of this and some of the competitive realities, but a lot of those again I think is how we can execute, how we can run these businesses for both growth and profitability, shift to a more balanced approach. Historically, it's been profit, profit, profit, and not a lot of focus on growth. They are very stick by the way, particularly on the B2B cybersecurity part of the business. We don't really lose customers, but we are not wining customers. And we need to orient ourselves to doing exactly that. So, I would not characterize at this moment the subscription business feeling the macroeconomic pressures that the advertising businesses are. I wouldn't characterize that; doesn't mean it can't happen, but I think right now we are seeing the issues there as more micro on the ARPU.

Yes, and - well, on ARPU we did make a comment in our prepared remarks, but I definitely think it's worth repeating. So, I appreciate the question. In both our advertising and our subscription metrics, these metrics are an attempt to reflect the business in three kinds of keys ways; the customers we serve, the revenue the produce, and the retention rates that we can track. That's a positive. What's challenging in reporting these metrics quarter-to-quarter is that a business that's focused on and partly driven by M&A in its DNA, using our capital to grow the business through M&A in addition to organically, these metrics are often at risk of an impact. Earlier this year, we did an acquisition in our health & wellness business lifecycle marketing which was characterized by a higher number of advertisers per advertising dollar at a lower spend per advertiser and that impacted those metrics on our last call. This quarter we closed an acquisition also in health & wellness for a company called Lose It! which is characterized by a high number of customers at a single digit average revenue per month. So, again, you see a quarter by quarter change in this trend that's more impacted by M&A than by almost any other activity in the business. There are certain other activities in the business which certain of our sectors contributing more contributing less in any given quarter in these metrics and we did highlight some of that in our prepared remarks, but I would just caution if not ask to focus quarter to quarter that these metrics can be impacted by our M&A activity.

Yes, that's helpful. Thank you.

Thank you. The next question is coming from Joe Goodwin from JMP Securities. Joe, your line is live.

Right. Thank you for taking my questions. Vivek, just on -- just kind of to double up on the cybersecurity business, obviously you guys are making changes over the past two - three quarters or so, but just curious are you seeing green shoots from these efforts, any positives or things to highlight there?

Yes, no, we definitely are. Look, I think that the first thing I'll say is that we are releasing an EDR which endpoint detection and response solution to our customers. And so, EDR is really widely adopted at the enterprise level large companies, but not really at SMB level. And we think this will allow us to win some business and drive some share of wallet. So, we are -- the product is in beta I believe in October. And we will full launch in January of 2023. So, we are excited for that. We have -- the advanced email security product is really competitive. And so, we think it's great protection against phishing, malware, and other threats. And we've added some features, with calculation, advanced analytics that we needed to get done. Inspired eLearning, which is the security awareness training piece of the business, is now -- I think by the end of the year, we are going to be in 17 languages to help us with our multinational customers and expansion outside of the United States. So, there is a lot going on the product side that we are excited about. And then as I said, we do have a complete overhaul of the sales and marketing organization. It is in the process of taking place. We have a great leader in place right now and focusing on selling through the channel which is really where we see the biggest opportunity. So, with our new chief revenue officer and the hires that he has made, we feel very, very good about the channel first strategy that we are putting in place. So, there are ranges, but this takes time, right? Subscription business is built over time. And so, I think we are optimistic going into next year where that can go. It's an app business, it's a business at scale with great profitability, but we really need to get this on to the growth trajectory, because I think it will have a very different valuation profile when we do.

Got it, okay. Thank you for that. And then, Vivek, where are you spending the majority of your time today in the business? Are you evaluating M&A or what would you say -- where are you most focused?

Look, I'm focused on all of it, right. So, there's obviously managing the existing business and generating the kind of earnings growth that that we experienced in this quarter, and the kind of earnings and growth that we are guiding to for the year, 9% EPS growth doesn't just happen in an environment like this with the pressures we have. So, I think there's a fair amount of time managing these businesses working with our leadership teams in the business units to make sure that they can both perform from a bottom line point of view, but really set themselves up nicely for an eventual recovery. That is a critical part of my time and I think the organization's time. At the same time, and we view this as part of what we do is the acquisition program and being involved as I always am, and always has been around all the activity that's going on. So, that's not new, and certainly gleaning into that. And then, the last piece, I would just say is that continuing to look for talent to bring into the organization, not everyone is as well positioned as we are. This is an opportunity for us to bring talent into our company. And we've done it in a few places. We're going to continue to do it. We have a great new Head of our shopping business. As I said, we have a great new Chief Revenue Officer within the Viper Cybersecurity group. So, we're going to continue to look for great leadership.

Great. Thank you.

Thank you.

Thank you. The next question is coming from Jon Tanwanteng from CJS Securities. Jon, your line is live.

Hey, good morning. This is Stefanos Crist calling in for Jon, thanks for taking our questions. Just a quick one, can you just give us the underlying share count assumptions in your guidance and if that includes share repurchases?

Sure. On a go-forward basis, through the back end of the year, share repurchases is absolutely a potential allocation of capital, but we don't project share repurchases into the figures that we're using for our guidance. We repurchase shares through the second quarter, we talked about that our scripting and gave the numbers, we have capital to allocate towards that. The other thing I would just point to is that if you're doing math, relating the balance of this year to 2021, there was activity in the third quarter of 2021, when we retired our 3.25% convert. So, just make sure we pay attention to that bridge between that share count and the current share count, but looking at fully diluted shares as they stand today would be at least our baseline assumption through the back half of the year pending further allocation of capital towards that pool.

Perfect. Thanks so much.

Thank you. [Operator Instructions] And the next question is coming from [Shane O'Brien] [sic] from William Blair. Shane, your line is live.

Thanks. Not quite the name, but close enough. Can you guys talk about the cash flow dynamics here, obviously, year-to-date were down almost $100 million year-over-year. How do you think about that the back half of the year and sort of what are the biggest factors there? Thanks.

Okay, that's a great question. And thank you for giving us the opportunity to highlight this because it's important. Our 2021 cash flow statement does not reflect the split between continuing and discontinued operations and does not reflect the pro forma effect of the absence of the business that we disposed of in 2021. So, in looking at that comparison, we're comparing effectively two different businesses. We do provide some incremental disclosures on 2021, but that is not a continuing Op, so that cash flow includes Consensus's cash flow. We've actually had strong cash flow year-to-date on a conversion basis. We've tried to highlight on these calls that we look at cash flow over the longer-term, at least a 12-month period. In any given 90 day period, there're impacts of specific elements but more importantly, the timing of working capital. We're not a company that looks to make sure that payments and receipts are balanced on the last day of the quarter, if checks go out or in between the 31st and the first of the next month, it'll impact our quarterly cash flow. So, I think it's important to take a 12 month view, but not compare to the 2021 results, which reflect businesses we no longer own.

Great. So, at the current run rate you are around 280, that seemed like a fair assessment for cash flow, EBITDA somewhere high 200s?

Now, again, we don't guide to a specific cash flow metric, and cash flow is timing sensitive, we were essentially targeting this company to reach on the order of a 60% conversion rate to EBITDA, but likely a little bit below that at this time. And cash flow tends to be weighted to the first quarter is very big, given the fact that there's seasonality in our fourth quarter cash flow. So, the fact that there's I'm sorry, there's seasonality in our fourth quarter revenue, which is collected in the first quarter with regards to cash flow. So, multiplying that number by two would not necessarily factor in the seasonal dynamics of this aspect of our business.

Perfect, thanks.

And just the last comment, when we think about conversion rate, we think about conversion rate, sort of our adjusted EBITDA to the extent our non-GAAP items to the extent that were unusual items, to the extent that were M&A items, cash flow would need to be adjusted for that.

Great, thanks.

Thank you. And there are no other questions in the queue at this time. I would now like to hand the call back to Bret Richter for any closing remarks.

Great, thank you very much, Paul. We appreciate you all joining us today for our Q2 2002 earnings call. We also appreciate this a pretty busy day in the earnings market. So, thank you for your attention. We plan to issue a press release next week regarding investment conferences. We plan to participate in during the month of September. And as always, we hope to see some of you there. Thank you, and have a great rest of the day.

Thank you, ladies and gentlemen. This does conclude today's conference. You may disconnect your lines at this time and have a wonderful day. Thank you for your participation.