AREN - AMEX

Good day, ladies and gentlemen, thank you for standing by. Welcome to The Arena Group Second Quarter 2022 earnings call. At this time all participants are in a listen-only mode. After management’s prepared remarks, there will be a question and answer session. I would now like to turn the call over to Jeff Stanlis. Jeff, please go ahead.

Thank you. Hosting the call today are Ross Levinsohn, Chairman and Chief Executive Officer and Doug Smith, Chief Financial Officer. Before we begin, I would 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. 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 introduction, expansion plans, and the adequacy of the Company’s funding. Other statements contained in this presentation that are not historical facts are also forward-looking. 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 beliefs, assumptions made by 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 be proved to be incorrect. As a result, the Company’s actual results can be expected to be different from its expectations and those difference may be material. Accordingly, investors should use cautious in relying on Forward-Looking Statements, which are based only on known results and trends at that 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 would now like to turn the call over to Ross. Ross, the call is yours.

Thank you, Jeff. Thanks, everybody, for joining. This marks two years since I was asked to lead the Arena Group as its CEO. We think of ourselves a bit as a startup. We architected a plan to be focused on growth. We set out to transform the Company so that it was clear who we were, what we were doing and with the goal of building a sustainable, profitable business driven and measured by data. Over the first two years of our journey, the results have been terrific. Revenues have grown nearly 2.5 times from 95 million to 234 million based on the four quarters ended June 30, 2022 versus the same period 2020. Gross profit has expanded by 14 times in the same period from seven million to 99 million. We continue to move towards profitability. In the four quarters ending June 2020, we had an adjusted EBITDA loss of $18 million versus a loss of just 1.9 million during the last four quarters. And this quarter, we generated 5.8 million of positive net cash from operations, an improvement of 14.3 million from the same period last year, when we used 8.4 million in net cash from operations and our audience numbers have grown exponentially. With page use topping 1.5 billion this quarter, which is up over 82% versus the same period last year. We are investing in our Company because we are a growth Company. We up listed in February of this year to the NYSE American and we were added to the Russell 2000 this June. We completed the purchase of Athlon Media Group including Parade this quarter adding a new lifestyle vertical to our company and we have a robust pipeline of potential new acquisitions. We are committed to growing and improving our metrics sequentially each quarter. We have built a world class management team, and have recruited an amazing array of talent across our Company, building for growth and building for the future. That startup mentality is one that we focus on, and one that helps drive growth. As we stated last quarter, we have substantially completed all major investments to support growth of a much bigger company, all operating on a single technical platform, and single infrastructure supporting hundreds of brands. These investments, our strategy and our execution has helped fortify us, as others have experienced a slowdown related to compression in the ad market, and supply chain issues. We are not experiencing those same challenges and advertising and are accelerating across all major KPIs. And the early signs in Q3 is that that momentum is continuing. However, we are not without challenges. On the print side of our business surcharges on ink and paper fuel and distribution have impacted our margin slightly. And we have made several strategic decisions related to a few of our brands that have been both near-term positive and negative across the Board. On the plus side we have invested in our HubPages properties and have seen dramatic increases in audience and revenue. At SI Swimsuit, we pivoted the entirety of the brand and execution and this combined with the bankruptcy of a major sponsor has impacted profitability for the brand and for our company in the quarter. But we believe in where we are headed and the upside for the future more on that later. Two years-ago, we pivoted our business strategy to focus on a powerful set of technology tools and services establish a vertical content focus, anchored by premier brands. We launched our proprietary playbook that has driven incredible traffic and revenue results across all our brands and committed to making the necessary investments in core elements of our business to enable long-term growth, stability and profitability. We have built a strong foundation at the arena group over the past two years that has scaled and expanded without significant investments in our day-to-day operations. And that couldn’t be more timely. As has been widely reported, this has been a difficult quarter for our industry. And we are seeing many of our competitors take a defensive position in fear of looming recession and advertising pullback. Thanks to our strong foundation, our business model and our audience growth. We have largely navigated the challenges we have continued to grow, we have expanded our audience. Advertising partnerships have grown significantly, with direct sales accounts up nearly 50% from the same period one year-ago, and second quarter display CPMs are up 41% versus the same period last year excluding Parade. Our editorial teams continue to produce award winning content. Our partners and contributors continue to deliver timely and highly relevant content that drives consumers to our sites. In short, we have a lot of good news to share with you this quarter. Let me kick things off by highlighting a few key results. Second quarter total revenue grew by 87% to 65.1 million versus 34.7 million in the previous year. Overall second quarter digital revenues grew by 75% to 35.1 million and that now accounts for 54% of total revenues, while our digital ad revenue was up 114% to 24.7 million. Other revenues was 4.9 million in the second quarter, up 463% from the previous year reflecting the launch of the SI Swimsuit edition in Q2 this year, versus Q3 of 2021, as well as significant growth in our syndication and licensing. Second quarter gross profit improved by 94% to 18.3 million, compared to 9.4 million in the second quarter of 2021. Our adjusted EBITDA loss was 4.9 million, as compared to a loss of 7.2 million in the second quarter of 2021 representing a loss reduction of nearly 2.3 million or 32%. And the company generated 5.8 million in net cash from operating activities, a $14.3 million improvement from the second quarter of last year. We have continued to see strong growth across all of our business lines. And we are optimistic about what’s to come in the second half of the year. In our last earnings call in May, I discussed the many investments that we have made in our platform and businesses, and that we reached the tipping point where we were seeing those investments pay off. That has continued to be the case in the second quarter. Our second quarter overall audience growth has been tremendous. Monthly average pageviews were up at 82% across our Company as compared to the prior year quarter. Our total pageviews for the quarter reached more than 1.5 billion according to Google Analytics a direct result of our playbook continuing to work, even as the macroeconomic environment remains uncertain. Moreover, our second quarter digital ad revenue more than doubled compared to the prior year. Unlike many of our competitors, we are seeing no signs of an advertising pullback. In fact, our CPMs and RPMs have remained stable, and our pipeline is the strongest in our history. Second quarter display CPMs grew 41% versus the same period last year excluding Parade and second quarter digital advertising rose 114% versus the same period last year. In Q2 we closed more direct advertising and sponsorship deals than any previous quarter and we expect that total number of high value deals to be more than double last year. With several major sporting events in Q2, such as the Masters the NBA and NHL playoffs, and the NFL Draft, we had a very strong quarter in our sports vertical. Average monthly pageviews for our sports vertical were up 174% in Q2 versus the prior year, of which roughly half was due to the Spun, which was acquired in June 2021. In the year since we acquired the Spun their average monthly pageviews more than doubled from 47 million to 114 million, a testament to their hard work and the success of our playbook. Our FanNation business was another key growth driver for this quarter, with Q2 monthly average pageview growth of 91% year-over-year according to Google Analytics. We signed 27 new FanNation partner sites during the quarter and added three additional publishing partners to our Sports Illustrated Media Group, rapidly expanding our content base at little to no upfront cost. The Sports Illustrated brand has continued its transformational growth this quarter as well. Earlier today the Alliance for Audited Media released its magazine 360 report, a measure of total magazine brand audience, audiences across print web, mobile, web and video. Sports Illustrated was ranked as the number four fastest growing magazine brand, not just in sports, but all brands, measured as a comparison of the first half of 2022 audience compared to last year. SI’s high quality sports journalism continues to resonate with readers on social media as well, as it has maintained its position atop all sports publishers for share of voice for Linked Stories on Facebook according to CrabTangle. The SI editorial team won several associated press, sports editors awards, including , and first place in the breaking news category. Just last month, the Football Writers Association of America presented its annual Edward Aschoff Rising Star award to our very own Richard Johnson. Our editorial team continues to build upon Sports Illustrated’s legacy of bringing powerful sports storytelling to life. Sports betting also continues to be a major area of focus for our business. SI Sportsbook, our sports betting platform running partnership with 888 Holdings and ABG, launched in its second state Virginia at the end of May with plans to launch a third state by the end of the year. Our betting editorial coverage has driven a massive spike in traffic with second quarter betting related monthly average pageviews, up 93% when compared to the prior year quarter according to Google Analytics. Our finance vertical has continued the strong momentum that we saw in Q1 with Q2 monthly average pageviews of 29 million per month according to Google Analytics, representing a 157% increase versus the prior year period and a 21% percent increase quarter-over-quarter. As a reminder, Jim Cramer departed TheStreet in October 2021. TheStreet’s online audience generated nine million monthly pageviews then according to Google Analytics. We are continuing to add diverse voices to TheStreet’s editorial coverage, covering a wide range of topic. And we are seeing continued success from the application of our breaking news content playbook, particularly as the markets become more uncertain. Our content is especially resonating on social media, where our second quarter Facebook engagement has grown 205% as compared to the prior quarter according to ListenFirst. Our lifestyle vertical has grown financially this quarter, thanks in large part to our acquisition of AMG/Parade, which closed on April one. We moved Parade.com onto our platform in July and have been very successful in expanding our audience and revenue post migration. One of the key growth initiatives in our lifestyle vertical is applying our playbook, our breaking and trending news content strategy, which has seen success in Sports and Finance. We launched Parade.com on our platform last month and we are already seeing very strong results. Additionally, as I shared last quarter, we have been deploying components of our playbook on several of our HubPages sites, most notably our pets brand PetHelpful. We saw encouraging early success in Q1 and have seen that carryover into Q2 and beyond. HubPages’ monthly average pageviews in Q2 were 89 million a 71% increase over the prior quarter according to Google Analytics. The PetHelpful especially has seen remarkable growth with monthly average pages of 42 million dollars for the quarter, an increase of over 600% year-over-year. We have continued to rollout the playbook to several smaller HubPages sites including Dent Garden, Deliciously, Exemplar and We Have Kids and we have continued to see traffic increase almost immediately upon launch, demonstrating yet again that our playbook and model works and is reliable across almost any topic or website. Audience development has played a big role in our traffic growth this quarter across all verticals. Social video views in the first half of the year have increased 61% as compared to the first half 2021 according to ListenFirst, as we continue to focus on creating engaging content that appeals to new younger consumers on Instagram and Tiktok. Through our audience development editorial teams, we have also seen a vast improvement in Google based traffic with second quarter sports and finance clicks up 94% year-over-year. SI continues to have the number one share of voice for link posts across major sports publishers as I said earlier on Facebook. In addition to advertising, we continue to diversify our monetization. Second quarter other revenues including licensing and syndication has increased by four million, versus the prior year period now representing 7% of our total revenue compared to 2% in the prior year period. This was due in part to the inclusion of SI Swimsuit in the second quarter of the year, versus the third quarter last year. It also reflects significant growth in our ongoing licensing, syndication and e-commerce. Revenue and e-commerce, we recently signed a partnership with pillar for media a leading e-commerce company to create new e-commerce content and drive affiliate revenue. In Q2, our e-commerce business drove 2.8 million in top line affiliate sales across our platform. We expect e-commerce to become a more and more meaningful piece of our business throughout this year and next. We are not without challenges and let me address a few. While our results continue to demonstrate strong year-over-year operating growth, our profit lines were slightly behind expectations. As I mentioned a few minutes ago, global economic challenges have contributed to surcharges from vendors across our print business where transportation, fuel, paper and ink charges grew substantially impacting our print business profitability, particularly for our recently acquired for a Parade Magazine. I would note that the integration of Parade.com onto our technology platform, and the execution of our proprietary playbook has gone exceptionally well. And we are already seeing higher traffic levels and greater efficiency. One of our key initiatives over the balance of the year is right sizing our print businesses at Parade just as we did with Sports Illustrated over the first two-years of operations, which may include things like frequency changes and other adjustments to better align this business with our digital focus and the economic realities of today. While our primary focus is on digital properties, we continue to view print as strategically important, and a valuable business, especially the way we have proven this at SI and with some adjustments we see the strategic value to our business and for consumers. We also made major changes at our SI Swimsuit franchise this year, which directly impacted our quarter negatively by roughly $4 million. For more than 60-years Sports Illustrated Swim has defined beauty and created an indelible imprint as a standalone brand within the SI ecosystem. Last year Swim leadership and I agreed that it was time to move swim forward towards a more sustainable future. One which didn’t solely center on beauty and one magazine launch per year, but created a 365-day experience in the community in the female lifestyle realm. This pivot included no longer delivering the magazine as part of the SI print subscription, only making it available at newsstands or purchasing purchased online. launching the Pay With Change initiative, which mandated that sponsors and advertisers supported female empowerment and investing in the development of content for digital channels year round, as well as launching the Swimfluence Network, which serves as a community based incubator for future talent, brand deals and initiatives. Swim will focus on advertising programs from companies with demonstrated programs to advance gender equality and drive progress for women empowerment. This was a conscious effort for the long-term. While executing this shift our largest partner TRX went bankrupt, immediately reducing our revenue for the quarter by $2 million. This coupled with our strategic change has created a $4 million shortfall for the quarter of note last year Swim occurred in Q3. There is good news however, the support for this initiative has added more than 25 new brands that showcased powerful female empowerment initiatives during both May’s launch and immediately into July’s dynamic three day experience at Miami Swim Week. Four million more unique users year-over-year. More than 200 pieces of influencer and creator content which will run over the next several months and a record setting number of press impressions. The launch of this year’s issued 14 million users during the three months post launch, compared to four million users during the three months post launch last year, an increase of over 10 million users year-over-year according to Google Analytics. So while we saw significant pressure in Q2, we believe Swim will now contribute to our earnings year round. Already we are seeing increased audience sponsorship interest, commerce and brand extensions and new revenue potential. The strategy we architected over the past two-years has transformed our business. Specifically, our business model centers around a powerful and efficient single technology infrastructure, and centralized services, essentially a SaaS model that can support hundreds of businesses without significant cost growth, once scale is reached. We have reached that tipping point. Our playbook a dynamic production, distribution and analytical strategy has transformed each of our brands and is our blueprint for growth. Our content model is highly efficient, with an anchor brand for each vertical and a partner model that delivers substantial content, audience and revenue growth with no upfront costs. And our monetization engine utilizes technology, audience scale and premium brands to advertise in a seamless, simple way for them to reach more than 500 million average monthly users across all our properties and all our platforms. Our audience, brands and content scale are enabling new business lines to launch and grow including licensing and syndication and commerce initiatives that are beginning to deliver powerful growth and results. Our revenue streams are stable and diversified and as I stated, We have built a strong foundation and as a result, do not anticipate needing to add to our cost base to continue to grow. Over half of our incremental digital revenue continues to fall to the bottom line, driving profitability as our audience and traffic continue to expand and finally in June, the Arena Group was added to the Russell 2000 index. I would like to talk more about our outlook for the remainder of the year. But first, I would like to let Doug Smith, our CFO, take you through the numbers. Doug.

Thank you, Ross. Let me turn to the results. In the second quarter, revenue was approximately 65.1 million, up 87% compared to 34.7 million for the second quarter of last year. Breaking down that revenue, total digital revenue of 35.1 million, represented 54% of the total revenue and grew 75% versus the second quarter of last year. Digital advertising revenue of 24.7 million increased 114% versus the second quarter last year, driven by increased traffic across all of our business lines as well as a 41% expansion in our display CPMs. 84% of that digital advertising growth is organic, driven by significantly higher traffic across all of our properties and the growth in the CPMs was attributable both to an improvement in our core CPMs and a greater percentage of higher price digital direct ad impressions. Digital subscription revenue was 5.5 million, down 29% as compared to 7.7 million dollars in the prior year quarter. Other revenue increased by 463% to 4.9 million during the second quarter of 2022, primarily related to the launch of the Sports Illustrated Swim Magazine, which this year occurred in the second quarter versus the launch last year in the third quarter. Additionally, licensing revenue in the rest of the Sports Illustrated Media business saw a significant growth in the quarter. Print revenue increased 105% to 30 million from 14.7 million dollars in the prior year. The $15.3 million increase was primarily in Print advertising, which was up $11.7 million and was due to the addition of the Athlon Media Group, Parade properties. Gross profit increased 94% to 18.3 million compared to gross profit of 9.4 million in the prior year quarter. Cost of revenue increased 85% versus the prior year quarter due to the acquisition of the Athlon Media Group Parade properties and costs related to the SI Swim magazine, which we indicated, occurred in Q2 this year versus Q3 of last year. In addition, we are adding costs related to the full year effect of investments we made in audience development and analytics personnel in the second half of the year, these folks have been key to driving the traffic and digital advertising growth we have been talking about. Total operating expenses was 39.7 million in the second quarter of 2022 versus 32.7 million in the prior year quarter. The increase was primarily driven by the addition of the Athlon Media Group properties. As a result, net loss was 22.2 million as compared to 20.7 million in the prior year quarter. The second quarter of 2022 included 14.9 million of non-cash charges as compared to 11.1 million non-cash charges in the second quarter of the prior year. Adjusted EBITDA in the second quarter of 2022 increased 32% percent to a negative 4.9 million, as compared to negative 7.2 million for the second quarter of 2021, representing a $2.3 million improvement. Looking at liquidity, we ended the quarter at 14.8 million in cash and cash equivalents compared to 22.5 million at March 31, 2022 and 9.3 million at the end of 2021. In the quarter, net cash generated from operating activities was a positive 5.8 million and was offset by 9.9 million of net acquisition payments 1.5 million of capital expenditures and a $1.5 million pay down of our line of credit. With that, I will turn it back to Ross for closing comments.

Thanks, Doug. It has been a robust Q2 and first half of 2022 for the Arena Group all key KPIs have grown. Revenue is outpacing our expectations. Each key business unit has shown double-digit revenue and audience growth year-over-year, and the early signs in Q3 are very positive. Our strategy developed over the past two-years is working. Our playbook has now been implemented across all of our brands and is driving significant audience and revenue growth. Our two acquisitions are performing well. We have a robust pipeline of new deals, and our company has generated positive net cash for the quarter from operations. We are confident that the application of our playbook to Parade will drive transformational growth in that brand, as it has in Sports Illustrated industry. Our e-commerce business continues to pick up steam with strong results during Prime Day in July. We continue to seek acquisition opportunities that are accretive to our vertical model. And we are maintaining a very robust M&A pipeline. Over the past two-years, our primary goal was to build a profitable company with a scalable, replicable model on a strong foundation. We have completed the investments needed to support that goal. The most important most exciting part for us is the future, we have worked through some very difficult business challenges over the past two years, and record a tremendous revenue growth, massive audience expansion, stabilized our balance sheet, begun to generate cash each month and quarter and built a highly skilled cohesive team to run a business that can grow exponentially. We are off and running in Q3 with the start of football, back to school and back to work just around the corner. We couldn’t be more excited about where we stand to capitalize on the opportunities in front of us. And with that, I would love to answer any questions you have. So back to you operator.

Certainly. [Operator Instructions] Your first question is coming from Mark Argento with Lake Street. Please pose your question, your line is live.

Hey Rob, hey Doug, nice quarter, nice revenue growth and KPI growth. Just a couple of quick questions. Ross, can you give us a little better understanding where all this page growth and activity viewership growth coming from? I know you broke it out a little bit by property, but and maybe talk about how new viewers are finding some of your properties?

You bet. Thanks Mark. So we talked a lot last quarter about many of the investments that we were making in things like audience development and analytics and our content teams, particularly in breaking and trending news. We have been applying that across the board. So when you look at some of the details of our KPIs in terms of growth, things like having the number one share of voice on Facebook drives real traffic to us. Optimizing search engine optimization drives real traffic to us. Creating more relevant and timely content creates real traffic to us. Understanding the types of stories that consumers are looking for, in what I would call nongame stories, really helps us. So the money we spent over the past two years, not only making our platform better, meaning let’s make the pages work faster, let’s optimize the ad impressions that we have. Let’s make sure that the content is produced quickly when it needs to be and make sure the content is great. We continue to win awards, all of those things really contribute to the growth of our business across the board. And when we break out, our sports, vertical or finance vertical, now lifestyle, the work we are doing at hub pages, each one of them is growing double-digits. And so it is a testament to what I would say is our playbook, which is all those things, including investing significantly in what we call our audience development team, which has just had a tremendous run for the last, we really just have had it for the last year. So those things combined with great content, which is really at the core of what we deal with the brands that we have, I think all of that matters and it all contributes. And again, we have made a conscious effort mark, to invest. We have been around for a bunch of years, but it is two years since we really reset the company. And I really do make it important that we think like a startup. I know we have to hit earnings. And I know we have to hit our numbers. It starts with growth. And we have got to have that growth and it seems to be working pretty well across the board.

Good color, I appreciate it. One quick one gross margins. Obviously when you love print in there, it gets a little muddied. Especially with some of the recent cost trends, kind of maybe give us a little bit of visibility into how digital gross margins are trending, I’m assuming they are in pretty good shape if incremental $0.50 of the dollar is full on the bottom line?

Yes, we continue to see the incremental gross margins, digital revenue exceeding 50%. And as Ross talked about, as we talked about, the challenges faced with Swim was really a big component of the lower margin that we saw in the quarter. And Swim, this year happened almost all in one quarter. So, we do have revenue continuing from it, but most of its margin impact was in this quarter.

Hey Mark and as I mentioned on - if you really look at the quarter, the impact to swim and some of the print surcharges, accounts for most of the pressure. Everything else is growing really nicely and now swim which really was a once a year thing, moving to a 12-months a year, property we are already seeing the impact in July and a little bit in August. So we are optimistic there. I think when you look across the industry, we have all been following earnings. A lot of pressure at some of the social companies, a lot of pressure at some of the media companies, I was just noticing buzz feeds, numbers were well below ours. So we are not seeing that compression and I think that is, in large part because we are growing so rapidly. So the sales team is doing an amazing job. We are adding new revenue streams in licensing and syndication and commerce that’s meaningful for us. Closing more ad deals, direct ad deals, which have higher CPMs has driven to 41% growth in CPMs. So all of those things heading into the two biggest quarters of our year, with football, really kicking off now, we are pretty excited about what the back half looks like.

Thanks guys. I appreciate the extra color. Good luck.

Thanks.

Your next question is coming from Daniel Wolfe at 180 Degree Capital Corporation. Please pose your question, you line is live.

Hi Ross and a great quarter. Thanks for the update. I noticed that the acquisition of actress Axio Spike Hawks, I was wondering if you’d be able to sort of comment on how you think of that as potential comp for arena group, given the multiple was five times revenue. You know, just interested know how you think about it.

Obviously, we love that comp. Congrats to Jim Vandehei and Mike Allen and the rest of the team, there have been a huge fan of Axio. And I think what it speaks to is quality content, great user engagement under a startup brand. I mean, the folks who ran that business are our longtime veterans, they have had amazing careers. And they really went out and build something very quickly, really over the last five and six years. And they got to about 100 million in revenue. I think the reports I saw said they weren’t making any money this year but to get a five times comp on revenue, I think speaks to audience engagement, it speaks to growth, it speaks to great content. So we will take all - we love those comps as our business and they obviously were a tad bigger and growing pretty fast. So I was thrilled to see that this morning, I saw that another sports content company, private, called Overtime just raised a big round at about $0.5 billion valuation. We like those comps. We would like obviously people to value us similarly with the growth that we are having. So it is just proof is in the pudding as a public company and my feeling is as long as we keep growing and improving on the bottom line. The rest of this stuff will take care of itself.

Sounds good. Thank you very much and keep it up.

Thanks Daniel.

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

Yes, good afternoon. Nice taking to you Ross and Doug. So we talked in the past about a potential content syndication strategy between Sports Illustrated and maybe some of the newspapers that you partner with on the Parade side. Just any updates in that regard?

Yes, sure. We do have that syndication business going. We have seen fairly substantial uptake with partners. I think we are up to about two dozen now, two dozen different partners ranging from newspapers to big online distributors like MSN. We are also seeing some very positive growth within Apple news more and more. So I think that that is all tied to having brands that people no care about resonate with them. As part of the Parade acquisition, Parade distributes its property to about 900 plus newspapers. The relationships that exist between the Parade team and those newspapers is really substantial. Obviously, Parade is 80-years old, it has been in business with those partners for a long time. So we are in active discussions with about half a dozen newspaper companies on how we can work more closely with them. Again, I think having I will call them Switzerland, brands like TheStreet and Sports Illustrated in Parade, we are not tied to television networks or competitors, I think bodes well for us to be able to distribute that content and ultimately lower the cost of producing that content by distributing it more places, and generating money from it. So as I think I said, and Doug said, licensing and syndication and e-commerce are becoming certainly a meaningful part to our business, our top-line. The margin on syndication is exceedingly high, you produce it once, distribute it many times. And so we are very, very optimistic that the combination of all those things is going to lead to a much more meaningful business as we move forward. But it’s already grown from roughly 2% of our revenue to 7% in a year. So we are excited about where that takes us.

Great, thanks for that. And then I appreciate the commentary you provided around the cost of the quarter with this SI Swim and some of the current issues. I mean, I look at the first quarter gross margins a little over 40%. Can you just kind of frame up how we should be thinking about gross margins trending over time, as some of those costs subside? Like do we get back to where you were pretty Parade acquisition or you are probably just a lower margin business with Parade in the fold, or just kind of help us frame up has had that same trend over time?

Doug, do you want to take it?

Yes. I think, we, as Ross indicated, we are looking at ways of adjusting the frequency and their distribution on the print side of the business. So we will - the Parade business was a lower margin business than where we had been. But we do feel that as we go into the latter half of the year, we will start to see that move back toward where we have typically been in the past 40 range increasing into the high-40s in the fourth quarter due to seasonality. So we should see that improve. And as I said, in response to Mark’s question, a lot of the softness in the margin in this quarter was related to the swim. Launch in the quarter, and that was, does not repeat for the rest of the year.

Got it and then last one for me, just if you could provide any updates on the M&A environment, just anything you are seeing out there, how aggressively are kind of engaged in talks and any potential new areas that look attractive for verticals would be great.

Yes. It is certainly picked up a bunch. There is a lot of companies that we last year, I think we talked to about 60 different companies we did. We ended up doing the deal with the Spun and ultimately Parade, AMG Parade this year, but we were in full swing last year. I would say our pipeline is very, very strong, there is clearly a lot of distress out in the marketplace. That is good for us, our playbook. In many ways, it doesn’t matter to us whether the company is doing well or not, in fact, if it is not, it is somewhat helpful for us to get a better price. But there are some good brands that we like out there, there are some capabilities that we think would be additive to our playbook and to our platform. So we are engaged in both of those types of discussions. New verticals that could spin up under a household brand name, and also some capabilities that we think will add additional revenue and capabilities to our business. So we are deep into it on a couple and certainly by next earnings call. I hope we have some good news to talk about.

Awesome. well it sounds good guys. I appreciate the color and I will turn it over.

Yes, thanks Dan.

There appear to be no further questions in queue at this time. I would now like to turn the floor back over to Ross Levinsohn for any closing remarks.

Well, thank you all. I appreciate you joining us for our earnings for Q2. We couldn’t be more excited as we are into Q3 and that means football and back to work for us, which is the most fun time of year and we are excited to greet you all again during our Q3 call later this year. So thank you all and have a great rest of the summer.