AREN - AMEX

Good afternoon, ladies and gentlemen, and welcome to The Arena Group Third Quarter 2021 Earnings Conference and Webcast. At this time, all participants are on a listen-only mode and the floor will be open for your questions and comments following the presentation. It is now my pleasure to turn the floor over to your host, Jeff Stanlis with FNK IR. Sir, the floor is yours.

Thank you. Hosting the call today are Ross Levinsohn, Chairman and Chief Executive Officer; and Doug Smith, Chief Financial Officer. Before we begin, I’d like to note that some of the comments made during this presentation may include forward-looking statements. All statements other than statements of historical fact are statements that could be deemed forward-looking statements. Forward-looking statements relate to future events or future performance and include without limitation statements concerning the company’s business strategy, future revenues, market growth, capital requirements, product introductions, and expansion plans, and the adequacy of the customer companies funding. Other statements contained in this presentation that are not historical facts are also forward-looking statements. The company cautions investors that any forward-looking statements presented in this presentation or that the company may make orally or in writing from time to time are based on the beliefs of and assumptions made by and the information currently available to the company. Such statements are based on assumptions and the actual outcome will be affected by known and unknown risks, trends, uncertainties, and factors that are beyond the company’s control or ability to predict. Although, the company believes that its assumptions are reasonable. However, these assumptions are not guarantees of future performance, and some will inevitably prove to be incorrect. As a result, the company’s actual future results can be expected to differ from expectations and those differences may be material. Accordingly, investors should use caution in relying on forward-looking statements, which are based only on known results and trends at the time they are made to anticipate future results or trends. Certain risks are discussed in the company’s filings with the SEC. With that, I’d like to turn the call over to Ross Levinsohn. Ross, congratulations on a great quarter.

Thank you, Jeff. When I was asked to lead this business in September of last year, the executive team, and I set out to transform this company to make it a highly efficient, data-driven, technology powered media company that could scale operations, grow audiences, expand margins, and most importantly, drive sustainable and profitable growth. We have accomplished our initial goals, exceeding our budget, raising forecasts and dramatically expanding our audiences. Some quick highlights before Doug Smith, our CFO takes you through all the numbers. Revenue for the quarter was $59.6 million that’s an 86% increase from Q3 of 2020. The first nine months of the year, revenue grew to $127.9 million that’s up 50% year-over-year. And this number represents as much revenue as we generated in all of 2020 with Q4 historically our most lucrative quarters still to come. Digital advertising revenue grew by 130% year-over-year for the quarter and gross profit for the first nine months of the year was $44 million, up from $9.3 million last year and increase of 373% and distribution revenue or syndication has more than doubled year-over-year. On the audience side, our monthly average unique users in the third quarter of 2021 was $120 million. Average monthly user sessions increased 41% year-over-year and monthly average page views increased 21%. Our monthly average video plays were up 18% and our total social video views for the quarter has grown to over $170 million. And in June, we completed the accretive and strategic acquisition of the sports news company The Spun. Today, The Arena Group is a compelling, rapidly growing tech powered media company, well-positioned as a transformative operator at the center of the media ecosystem. The progress we have made in the last year is evident in the business, financial and operational metrics we delivered in the third quarter and over the first nine months of 2021. We have driven significant traffic and revenue growth. We launched new strategic partnerships and successfully integrated our acquisition of The Spun. Our margins have expanded and in the third quarter, we were cash flow positive for the first time in our history, validating our strategy and model and demonstrating our ability to grow profitably. On the operational front, our finance and legal teams have done the heavy lifting over the past year to position our company to uplist to a National Stock Exchange by getting our filings current with the SEC. For the first time in our history, we are now a current filer. We’ve begun the process of uplisting to a National Exchange. And while we do not control the timing or outcome of this process, we plan to move as quickly as possible. Our progress has been significant, but we’re just getting started. With this proven model and tremendous momentum heading into 2022, we will further expand our footprint and business operations into new verticals to go along with our sports and finance businesses. We plan to launch new areas of growth including the unveiling of our commerce initiatives and we are in development with plans to enter both the NFT and Metaverse market spaces in the near future. With our premium brands, award winning journalism, dynamic content and broad distribution reaching more than 120 million consumers across multiple platforms every month, we are well-positioned to grow in Q4 in 2022 and beyond. Nine months ago, after extensively analyzing our market opportunities, we shifted our focus from working broadly across many categories to a vertical model building deeply around premier brands in passionate categories like sports and finance. This focus has helped us grow our owned and/or operated businesses, including Sports Illustrated, TheStreet and more than 175 other partners, including History channel and biography. The power of our company lies not only in the premium brands and award winning content we produce, but also in our technology, which enables us to effectively and efficiently manage and operate hundreds of web and mobile brands optimize billions of advertising impressions, increasing yield and profitability, while managing consumer marketing efforts across digital and print subscribers. We now have a scalable platform that works. This platform enables us to add new features and grow businesses organically. For example, during the third quarter, we quickly expanded the sports property The Spun, which we acquired in June. We launched a brand new sports betting operation the SI sports book with our partners ABG and 888. We expanded our licensing and syndication efforts to more than half a dozen new partners. And we grew our podcasting business through a strategic partnership with iHeartMedia, the nation’s leading provider of audio content. Our sports vertical the SI media group is a perfect model for incremental verticals. There’s no doubt that sports has passionate audiences touching all demographics in every region of the world. Advertisers are eager to sell to these audiences all sorts of products and services. I’ve often heard it said that Sports Illustrated is the most trusted brand in sports. Since 1954, it has been synonymous with high quality journalism, unique insights and dynamic experiences. It has employed and continues to employ some of the most respected journalists and photojournalists in the business. We take seriously the responsibility of managing SI and preserving its legacy. Over the past two years, we have helped transform the brand to a digital leader while maintaining a large and profitable print subscription business with well over a million subscribers. Our sports vertical, the Sports Illustrated media group is now the fastest growing sports property in the United States according to Comscore. In September, they reported 53 million monthly users that’s a 166% increase year-over-year. And just about an hour ago, Comscore released the October 21 numbers and the SI media group grew again to over 56 million users. In fact, that means that July, August, September, and October were the four biggest months in terms of unique users since The Arena Group took over operations of si.com in October of 2019. And we are seeing that growth trend continue at an accelerated pace. In June, we acquired The Spun and since integrating this unique sports property into our company, The Spun has seen its monthly audience increased by over 50% to more than 30 million users. Monthly page views have doubled to over a 100 million page views. Monthly revenue tripled to more than $2 million per month while expenses remained relatively flat. As a reminder, we paid a net $7.4 million in cash as part of the purchase price for The Spun. And we expect to recover this cash outlay from The Spun’s operations before the end of this year. Sports Illustrated has grown its staff of high quality journalists and storytellers delivering some of the most unique and compelling stories in sports. Over the last quarter, we have expanded our offerings into new arenas. In September, we launched our gambling efforts in partnership with ABG and 888 the leader in sports betting, the sports SI Sportsbook launched in one state, Colorado in conjunction with the start of the NFL season with plans to expand to more markets by the end of the next year. Consumers can experience dynamic high quality insights from our team of writers, analysts and personalities and residents of Colorado can bet on sports via the sisportsbook.com. Also during the quarter, we signed a podcasting partnership with iHeartMedia, the leading audio company in America, which will feature the initial launch of four programs across their platform. We also rapidly expanded our social team and I’ve seen tremendous growth across Facebook, Instagram, Twitter, Tik Tok, and Snap with more than 127 million video views in sports alone, and more than 170 million views overall. We also launched our first two originals on Snap featuring the SI brand. We also have expanded our team site network Fan Nation, adding 35 new sites this year. Fan Nation reached 20.5 million unique users in September and that’s up 62% year-over-year. We launched three new newsletters, one for the MLB playoffs, one for fantasy and sports betting, and one name the SI guide. All have seen consistent growth in terms of subscribers. Our sports media group platform partnerships also have grown adding five new brands and expanding revenue and audience figures significantly. The progress in our sports vertical proves that our model works for all of our sports properties average monthly unique users in the quarter were up 134% year-over-year. Sessions were up 177%. Page views were up 82% and video plays were up 87%. Clearly, our model has been validated by the strong and continuously improving KPIs over the past year. We are following the same game plan for our business vertical and we plan to enter additional verticals with a goal of having five by the end of next year to further scale on our platform. We were making some exciting strategic changes in our business, vertical TheStreet. Jim Cramer has moved on from the business as of the start of Q4. We are grateful and proud of the many contributions he made to this company. And over the two years since acquiring the business, we have been able to expand our subscriber base by more than 35%. We do not plan on having only one person replaced Jim. We have already evolved the Action Alerts Plus offering, which Jim led and continue to see success with existing and new subscribers. His departure opens the door to a significant opportunity for us to diversify our offerings with several well-known personalities in different areas of expertise. It is important to note that we have diversified our revenue and subscriptions only represented about 12.9% of our revenue in the third quarter, compared to 26.4% of our revenue in the third quarter of last year. The modern media landscape is changing rapidly. It is increasingly difficult for small niche publishers to survive and diversified platforms are increasingly controlling the ecosystem. Simultaneously, the industry is rapidly consolidating with large powerhouses positioned to compete with traditional media companies. We have built the Arena Group as a technology powered media company, leveraging premium brands in key categories and a technologically advanced singular publishing, data and monetization platform that provide scale and efficiency to all of our web assets. This structure enables us to eliminate duplicative costs, both administrative and technical and maximize revenue with a highly efficient platform and a proven track record of successful integrations of multiple businesses and partners, we are well-positioned to grow and expand our business in the months and years ahead. This growth will include new verticals, new strategic partnerships and new revenue potential, all leveraging a single infrastructure, which we believe will expand our margins. Our strategy is based on specific verticals with key attributes anchored by premium brands, such as Sports Illustrated in The Street. The attributes we look for in verticals are, first, a distinctive brand we can own or operate that has unique premium content. Second, there were passionate and growing audiences for that content. In addition, we look for each vertical to have four out of five key and core diversified revenue streams, including: first, advertising driven by endemic brands, seeking to market to passionate audiences; Second, subscription products for consumers; third, e-commerce opportunities; fourth, licensing partnerships that can expand distribution; and fifth events either live or virtual. We don’t need to find all of these, though a distinctive brand and a healthy audience are obviously important. We see significant potential to expand into categories such as autos, tech, food, lifestyle, and health. In summary, we’ve come a long way in a short period of time, but we have more work to do. We’ve proven our model works. We are seeing tremendous growth in traffic, revenue and audience engagement. Our margins are expanding and we generated positive cash flow in the third quarter for the first time in our history. We are clearly on the right path and I am excited for the future with near-term catalysts to bolster our growth and long-term opportunities to scale our business. I’ll now turn the call over to Doug Smith to review the financials for the third quarter and the first nine months of the year.

Thank you, Ross. Let me turn for the results. Third quarter revenue was approximately $59.5 million, up 86% compared to $32.9 million for the third quarter last year. Breaking down our revenue advertising comprised about $21.7 million or 36.4% of total revenue. Our advertising revenue increased by approximately $12 million or 130% as a result of a doubling of advertising sponsorship of the Sports Illustrated Swim business, approximately $5.5 million from the addition of The Spun, which as Ross mentioned, we acquired during the second quarter of 2021, an increase in both revenue per page view and impressions in the Sports Illustrated media business. Magazine circulation revenue increased 102% to $26 million for the third quarter of 2021, reflecting a drive to increase subscribers that we did in the fourth quarter of 2020 and the diminishing effects of acquisition accounting adjustments on the subscribers that existed when we took over the operations of SI Media Group in October of 2019. Other revenue increased 216% to $4.2 million during the third quarter of 2021, driven by the doubling of sponsorship ads revenue related to the SI Swim. Digital subscription revenue was $7.7 million in the third quarter of 2021, down 9% as compared to $8.5 million for the third quarter of 2020. Digital subscription revenue represented about 12.9% of our total revenue in the third quarter of 2021 that compared to 26.4% during the same period last year. For the three months ended September 30, 2021 and 2020, the company recognized cost of revenue of $32.2 million and $24.7 million respectively. The increase in cost of revenue of about $7.5 million is primarily related to first content printing distribution and fulfillment costs increasing by approximately $3.4 million, reflecting the increase in production costs related to the SI Swim issue and sponsorships. Payroll and related expenses mostly stock-based compensation increased by an additional $2.6 million. And other costs of revenue, mostly related to the SI Swim events amounted to approximately $1.3 million. Our gross profit percentage, it’s important to point out, in the third quarter doubled to 46% as compared to 23% gross profit percentage in the third quarter of last year. Total operating expenses were $49.7 million in the third quarter of 2021 compared to $21.2 million in the third quarter of 2020. The increase was due to a $7.3 million non-cash charge related to the exiting the company’s lease in the New York City office, additionally, a $4.2 million increase in stock-based compensation expense also non-cash, and a $9.4 million increase in circulation expenses related to this substantial increase in magazine circulation revenue I mentioned previously. As a result, loss from operations was $23.4 million third quarter of 2021 as compared to $13.8 million in the prior year period. Our net reported loss for the three months ended September 30, 2021 was a trough approximately $24.7 million compared to another loss of $21.3 million in the same quarter last year. The basic diluted net loss per common share for the third quarter was – a loss of $0.10 per share as compared to a loss of $0.55 per share in the third quarter of last year. For the nine month period ended September 30, 2021, we had revenue of $127.9 million as compared to revenue of approximately $86.4 million for the nine months ended September 30, 2020. In fact, our revenue through the first nine months of 2021 was approximately the same as the revenue generated in all – our year-to-date gross profit percentage was 49% compared to 32% for the same period last year. For the nine months, our total net loss was approximately $70.8 million in 2021 or $0.29 per share as compared to $67.2 million or $1.72 per share for the nine months ended last year. Looking at liquidity, we ended the quarter with $8.2 million in cash in our balance sheet as compared to $6.7 million at the end of June 30, 2021 and $9.5 million at the end of December of 2020. At September 30, 2021, we had $6.7 million outstanding under our $15 million line of credit for working capital leaving an available balance of $8.3 million as compared to $4.9 million outstanding at June 30 of 2021 and $7.2 million outstanding at year end 2020. For the nine months ended September 30, 2021, we used net cash from operations of $8.3 million. This was an improvement of $12 million from the net use of $20.3 million for the nine months ended in 2020. And the third quarter of 2021, we generated a positive net cash flow from operations of $1.7 million as compared to a negative cash use from operations of $2.9 million in the third quarter of last year, a $4.6 million improvement. With that, I’ll turn it back to Ross for closing comments.

Thank you, Doug. Well, we’ve come a long way, The Arena Group now has a proven viable business model aligned with current and future media trends. Our sports oriented vertical is growing rapidly and our overall business is producing positive cash flow. We’re a far stronger company today than we were just one year ago today. Q4 is shaping up to be our most profitable in the history of our company. Our audience has expanded exponentially in the quarter already as has revenue. Over the coming months, we’ll be launching several key initiatives that will expand our footprint, diversify our products and opportunity for growth, including commerce, NFTs and the development of an immersive experience in the Metaverse. I want to take this moment to thank all of our employees for working so hard over the past year. I also would like to thank our investors for sticking with us and continuing to invest in our company and for our board for their continued support. With that, I’ll turn it back to the operator for any questions.

Ladies and gentlemen, the floor is now open for questions. [Operator Instructions] Your first question is coming from Mark Argento with Lake Street. Your line is live.

Hey, Ross and Doug, congrats on finally get everything up to date. And let’s say you got the business moving in the right direction. So congratulations on that. A couple of quick questions, just in particular talking about you had mentioned already Ross to Q4, we’re shaping up to be a strong quarter, both looks like on revenue and profitability. Any kind of guideposts that you can give us there in terms of how you think about the quarter.

Yes. Well, thanks, Mark. And thanks for supporting and following these years. We’ve had just a gangbuster quarter thus far. We have seen continued growth in our users. We’ve been able to strike a couple of very interesting and highly visible advertising deals and continue to push our subscription business, both digital and print. Without providing very clear guidance, we’re excited about the first six weeks, 5.5 weeks of the quarter, October as Comscore indicated grew again. And I can tell you in the first 14 or so days of the month, we’ve seen our audience expand even further particularly in sports. So I’m optimistic about the rest of the year, obviously, we’ve got a few weeks left in the calendar year and I’ve got – we’ve all got the team focused on running through the finish line. So we’re very optimistic. And mostly Mark, we spent a lot of the past year, ensuring that to use a sports analogy, you’ve got to have a in football, you got to have a great offensive and defensive line in order to make your quarterback and running back and receivers successful. And it was really important for us to get our platform really solid and working, get our – the opportunity for us to expand yield in the advertising business and obviously drive subscriptions with our marketing efforts. So I feel like we’ve gotten our company in a really good place. We’re operating from a position of strength right now and we’re seeing the fruits of that work payoff.

Great. In particular, when you’re – when you guys were looking at this magazine circulation number, it looked like it almost doubled sequentially. Was that specific to the SI Swim or what was driving kind of magazine circulation, like I said, almost doubled, they’re actually doubled on a sequential basis.

Yes. I’ll let Doug hit that. It’s a bit of an accounting question. So Doug, why don’t you grab that?

Yes. So Mark, we did see a nice boost from Swim, but really the newsstand circulation amounts are not really that significant relative to the total subscription base. And what’s driving, this is in the original acquisition, we – acquisition accounting requires us to take a pretty steep discount on the deferred revenue. The subscribers that poured over from the acquired business and as those subscribers diminish as a percentage of our total subscriber base. And they’re replaced by subscribers at pool growth revenue amounts. The revenue amount is naturally increased during the year. So that was a big impact on the total revenue. In addition, as I mentioned in the fourth quarter of last year, we made a strategic shift to drive up the subscriber base to help support our advertising revenue. And so that is flowing through 2021 as well. So it’s a small overall increase in terms of overall performance and a larger amount that is accounting related.

Got it. All right. And then for us just you mentioned looking at a couple other verticals and also some bigger picture stuff, including commerce NFTs and Metaverse. Can you give us a little bit of a flavor and how you’d think about any of those verticals and how you might interim.

Yes. So we’ve spent the better part of the last six months looking at all three commerce NFTs and the Metaverse, having distinctive brands and great IP and assets is the key to all of them. Obviously a growing audience will help in terms of distribution to our own audiences versus having to go out and look for them. We’ve found a couple of great partners that we’re looking at creating strategic relationships with. I expect probably commerce to launch first. In the NFT space, there’s a lot of work and thinking being done there. We’ve been looking at that both in sports, which is owned and controlled by our partners at ABG and trying to work with them. And also on the Metaverse side, creating immersive experiences around sports or financial markets or history, things like that, we think owed very well for us in the future. They’re all nascent businesses, obviously, although some companies have already seen tremendous growth from them. And then on the betting side, our partners at 888 and ABG have real plans to expand and we’ve been building the base of the audience of people who are looking for great content. And clearly, the back end that 888 has through years of work. And they’re very, very big in Europe is tremendous for us and Colorado has already been a great place to launch. So we’ve been doing a lot of work on this, as you may see in the months and years ahead, we take our time with things. This is – we’re very methodical about how we approach new businesses and new markets and we try to vet them out pretty, pretty fully. So we made one acquisition this year in The Spun. We took a lot of time looking for the right one, and we’ve been incredibly pleased with the success that we’ve had there.

Last one for me. Doug, any update in terms of timing on moving to a national exchange. Is there anything that you need to do yet to qualify or is it just more of a waiting game at this point?

No, it’s – there’s nothing that we need to do to qualify. We just need to work through the process and so we’re looking forward to getting this done as quickly as possible as Ross indicated, and hopefully, we’ll wrap this up early in Q1.

Great. Congratulations guys. Thanks.

[Operator Instructions] Your next question is coming from Dan Day with B. Riley. Your line is live.

Yes. Hi afternoon guys. Appreciate taking my questions. Congrats on this is a clearly a really good quarter. So first one for me, I look at The Spun acquisition that you did, it looks super accretive. Can you just talk about from a high level, how you kind of weigh doing an acquisition like that versus just partnering with the content providers and sort of bringing them onto the HubPages platform under sort of that anchor brand? Is it really just a matter of the purchase price being attractive in offers? They’re kind of something more strategic in the way you think about it, like, something that fits well with the anchor brand or something along those lines?

Yes. I think we’ve looked at a lot of businesses over the last year. First and foremost, in looking at The Spun, we were most impressed with their team. Matt Lombardi, who is – was the CEO of the company and his very small team were producing just incredible content and work. And we thought the value of this company was as much in the talent as it was in the property itself. And that’s born out over the first couple of months. Secondly, our Fan Nation business, which is what we like to refer to as entrepreneurial publishers. We have over a 100 of those in sports today. So we are doing both. We’re not just obviously looking at things to buy, but we’re looking at partners we can bring onto our infrastructure, our platform, our technology, our monetization stack that can help third-party businesses. So we’re taking a parallel strategy in that regard. Third, we take the responsibility of the Sports Illustrated brand and what it has stood for all these years really seriously, and not every sports property can be or should be integrated underneath that brand. So we’re offering that solution as part of our platform group, our technology platform group. It doesn’t have to integrate with Sports Illustrated. In this case, we saw a combination of things in The Spun. We saw a business that was performing very well, a great management team. We thought it was a business that when it came on to our platform and our monetization stack. We could grow that business and obviously through the results, you can see revenue has tripled in that time period. But the flip side is we’re looking in our existing brands the same way and one thing to call out in the quarter is SI Swim, which MJ Day, who’s our Editor-In-Chief and Hillary Drezner, who leads our business there really took an aggressive play at SI Swim and pivoted that business to more of a female lifestyle business. We saw revenue double, and we saw impressions go from about $3 billion or $4 billion last year to over $20 billion this year, maybe it’s $5 billion to $20 billion. So not only does the technology and the infrastructure that we’ve set up work for brands on the outside, but it’s also been something our strategy and our methodology has worked for brands internally. So my hats off to the team internally, and obviously The Spun has performed incredibly well as have most of our partners across the more than 175 that we have – that we don’t own, that we help manage and support. So the overarching strategy seems to be working.

Yes. Awesome. Thank you, Ross. And then on the advertising segment, two part question there. So first, can you kind of provide the splits between how much of that advertising is from sort of the magazine circulation versus digital advertising? And then second on the digital advertising, just any commentary on the split between programmatic versus direct sold anything you’ve done to kind of change that mix or any specific target between the two that you’re looking for?

Sure. I’ll take some of it. And Doug, if you want to weigh in. Programmatic is a larger segment than direct sold, print advertising, what we haven’t broken out the number is a smaller piece. The most exciting piece of what we’ve seen over the last nine months of this year has been the increase in yield that we’re seeing from programmatic. We do a fair bit of technological work. We do a fair bit of work on finding the right partners in the Daisy Chain for programmatic. We’ve done I think a really reasonable and strong job in going out and finding programmatic guaranteed partners. So that all of that has been growing for us. The other thing again that we didn’t call out or mention was we signed since we took over the business. We signed the biggest direct ad deal in Q3 that we’ve done since we’ve owned the business. And we’re excited to launch that it’s a multi-year deal many millions of dollars. So our direct team is also going out and signing really strong integrated programs, some cutting across magazine, digital and events. In particular, the swim team did some of that as well. So we are seeing sort of growth across the most importantly, the digital segments, the programmatic segments, and of course, in yield. And Doug, you can feel free to pile on with anything else you’d like to add.

Yes. I think print is just directionally its single-digit percentage of our total revenue – print ad revenue is not a significant portion.

Great. And then last one for me, you’ve obviously got a really strong kind of legacy magazine subscriber base, and you launched sort of the digital Sports Illustrated subscriptions this year. And anything you’re doing in particular to sort of get the people who are sort of magazine only right now into the digital side. And maybe they’re a bit stickier on that side. Just curious anything those efforts and if they’ve yielded any success so far.

Yes, sure. There – we do offer bundles. If you’re a print subscriber we do offer bundles and vice versa. So if you’re a digital subscriber, we’ll also offer you the ability to buy print. Obviously the future of our business is in digital, but the power and the strength of print, it never goes unnoticed. And I’ll give you one anecdote. We – this summer, we put a group called Fa

Awesome. Ross, Doug, thanks for taking my questions. Best of luck. I’ll turn it over.

Thank you.

We have no further questions from the lines at this time. I would now like to turn the floor back to Ross Levinsohn for closing remarks.

Okay. I want to thank everybody for joining us for our first earnings call. And we couldn’t be more excited about where this company is headed and thank you all for joining and wishing you all a very happy holiday season.