j2 Global(ZD) - 2024 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Total revenue for Q3 2024 was $353.6 million, reflecting a 3.7% increase from$ 341 million in Q3 2023 [17] - Adjusted EBITDA for Q3 2024 was $124.7 million, a 9.6% increase compared to$ 113.7 million in the prior year [17] - Adjusted EBITDA margin improved by 200 basis points to 35.3% in Q3 2024 [18] - Adjusted diluted EPS was $1.64, representing a 9.3% increase year-over-year [18] Business Line Data and Key Metrics Changes - Digital media segment revenue grew nearly 6% and adjusted EBITDA increased over 14% in Q3 2024, marking the best adjusted EBITDA growth since Q3 2021 [6][7] - Tech properties experienced double-digit growth in consumer tech brands, while B2B showed declines [8] - Gaming vertical grew double digits, aided by the acquisition of Gamer Network [8] - Advertising and performance marketing revenue increased by 5.8% in Q3 2024, recovering from a 1.4% decline in the first half of 2024 [19] - Subscription and licensing revenue grew 1.8% in Q3 2024, with nearly 3.5 million customers [21] Market Data and Key Metrics Changes - Advertising revenues were up 5.8%, while subscription and licensing revenues increased by 7.8% in Q3 2024 [9] - Cybersecurity and Martech segments saw a revenue decline of over 4%, but adjusted EBITDA remained flat [9] - The company reported a net advertising and performance marketing revenue retention rate of nearly 92%, up approximately 300 basis points year-over-year [20] Company Strategy and Development Direction - The company aims to leverage its balance sheet and cash flows for acquisitions, having successfully closed the acquisition of CNET [10] - The focus is on adjusted EPS and free cash flow as key metrics for capital allocation [11] - The company is actively engaging in M&A dialogues across various sectors, with a strong market for deal activity anticipated [10][59] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the growth trajectory, expecting high single-digit growth in revenue and adjusted EBITDA for Q4 2024 [26] - The company is optimistic about the advertising business, particularly with the integration of CNET [40] - Management acknowledged challenges in the B2B and cybersecurity sectors but remains focused on improving margins and overall profitability [34][42] Other Important Information - The company reported a year-to-date free cash flow of approximately$ 153 million, including over $80 million from Q3 2024, a 76% increase compared to Q3 2023 [27] - The company received a silver medal from EcoVadis, placing it among the top 15% of assessed companies [16] Q&A Session Summary Question: Expectations for Q4 and organic growth - Management indicated that Q4 will reflect underlying trends and seasonality in advertising, with expectations for improved organic growth [31][32] Question: Impact of Gen AI on search queries - Management clarified that 10% of queries include AI overviews, which is a small portion but may lead to increased search activity [36] Question: Factors affecting advertising growth in 2025 - Management noted that while there are headwinds in cybersecurity and martech, they remain bullish on the bottom line and overall growth [41][42] Question: EBITDA to free cash flow conversion - Management explained that the conversion rate can fluctuate based on various factors, including working capital improvements [44][45] Question: Insights from AI licensing study - Management emphasized the importance of premium publisher content in training AI models and the need for licensing agreements [50] Question: M&A environment and attractive sectors - Management described the M&A environment as normalizing, with tech and shopping sectors being particularly active [58][59]