Good day and welcome to the Arena Group First Quarter 2023 Earnings Conference 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 Rob Fink. Please go ahead.

Thank you operator and thank you everyone for joining us today. Those on the call are Ross Levinsohn, Chairman, Chief Executive Officer; Doug Smith, Chief Financial Officer; and Andrew Kraft, Chief Operating Officer. Before we begin, I'd like to note 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 introductions, and expansion plans, and the adequacy of the company's funding. The company cautions investors that any forward-looking statements presented in this presentation or that the company may orally or in writing from time to time are based on beliefs, assumptions made by and information currently available to the company. Thus, such statements are based on assumptions and the actual outcome will be affected by known and unknown risks, trends, uncertainties, and other factors that are beyond the company's control or ability for debt. Although the company believes that its assumptions are reasonable, 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 its 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. The company disclaims any intention or obligation except as required by law to update or revise any financial projections or forward-looking statements whether because of new information, future events, or otherwise. In addition, the company will reference non-GAAP financial measures adjusted EBITDA. Information regarding reconciliation of this non-GAAP measure to the closest GAAP measure can be found in the press release that was issued this afternoon on our website investors.arenagroup.net. So, that said, I'd like to turn the call over to Ross. Ross, the call is yours.

Thanks Rob and thanks to everyone for joining us here today. I have always believed that the real value of a differentiated and durable business strategy is not how it performs in strong markets when a rising tide lifts all boats, but how it performs when the market is challenging and in particular, how it is performing versus others in its sector. During the first quarter, the Arena Group continued its growth trajectory and outpaced peers in the competitive digital publishing space. Overall, we focused our efforts in three core areas. First, on driving revenue growth. Second, on focusing on operational efficiencies while expanding our brand portfolio and our margins. And third, investing in new growth areas, in particular e-commerce, with creators, and AI. The results reflect our dedication and focus and I'm extremely proud of the team members who continue to over-deliver day in and day out, even as the industry evolves at a rapid pace. Overall, we continued our revenue growth. We drove digital ad revenue growth. We held our expenses steady. We added cash to the balance sheet. We used significantly less cash from operations versus Q1 of last year. We added in transition significant brands to our platform including Men's Journal, Men's Fitness, Powder, Surf, and Bike. We expanded our e-commerce efforts and dramatically grew our licensing and content syndication partnerships to more than 200 outlets. We signed two deals in the AI space and started integrating these transformative technologies into our workflow. The immediate impact we are seeing is significant. More on that later, but since I first got involved in the Internet in 1994, AI is the most important and impactful opportunity I've seen. We have fully embraced the potential and I couldn't be more excited about what is to come. Similarly, we've been integrating machine learning expertise into our experiences in Q1. We have recognized a significant positive financial impact to our content operations across our video experiences. This is certain to grow and will have a real positive impact on our earnings this year. And finally, over the past two years, we have invested significantly and embraced social platforms and the creator and influencer space just as we've become home to hundreds of independent publishers who utilize our platform distribution and monetization operations. Today, we are a platform for creators. Over the past six months more than 50 such creators have begun creating and distributing content with us in the sports finance food and entertainment categories, and we are in discussions with dozens more. In fact, just this past weekend we partnered with creators in the Formula One space to cover the races and events surrounding the F1 Miami experience and the results were exceptional. Unique content across all platforms, sponsorship dollars, and other ad opportunities, and a new audience experiencing our storied brands. This focus and ability to execute in rapid fashion has helped us to outperform our peers across important KPIs, including CPMs during the quarter. We expanded gross margins and exceeded expectations from the analyst community, even during what was a challenging quarter for our sector. The power and durability of our iconic brands and the strong foundation that we have built over the past two years have withstood the impact of many macroeconomic headwinds. The performance is testament to our talented team, our differentiated strategy, and in particular our brand equity. Our business is strong and we are seeing growth in several areas, which I'll elaborate on shortly. We believe we are well-positioned for continued expansion and the macroeconomic headwinds will in fact create opportunities for us, allowing us to capture market share from distressed competitors. In short, the performance of our company during this quarter was encouraging, validating our strategy and giving us increased confidence in continued success. I'd like to highlight a few key results upfront. Our total first quarter revenue increased by 7% to $51.4 million as compared to $48.2 million in the prior year quarter. Q1 is typically our softest quarter and despite a volatile macroeconomic environment, we still delivered growth year over year. Our operating expenses remained flat, increasing by just 2% to $35.9 million as compared to $35.2 million in the prior year quarter. Even as we added headcount from our newly acquired businesses including Men's Journal, Men's Fitness, Surfer, and Powder, which we acquired in December of 2022, and Fexy Studios, which we acquired in January of 2023 and Parade Athlon Media Group, which we acquired in April 2022. The slight increase contrasted with higher revenue growth is a reflection of the operational discipline we exercised with regard to our cost base. Our adjusted EBITDA was a negative $4.5 million as compared to negative $1.1 million in the prior year quarter. This is partially due to the acquisitions we made in December and January of Men's Journal and Fexy, respectively, which had little revenue contribution initially, but included all expenses in the quarter. Additionally, we made some reductions in our cost base that will be reflected over the balance of this year, but are not reflected in the first quarter. On the advertising side, our RPMs have grown by 10% year over year, while others across the industry are reporting declining RPMs. According to stack benchmarking, a market norm reporting service provided by Operative, our programmatic CPMs grew consistently through the quarter and outpaced industry benchmarks by 30% to 40%, reflecting the strength of our brands and our advertising partnerships. Broadly speaking, sports traffic was stable, but was impacted this quarter by the absence of the Winter Olympics versus the first quarter of last year and a somewhat lackluster March Madness tournament that featured fewer well-known powerhouses as compared to previous years. Despite these facts, Sports Illustrated's monthly average page views were flat compared to the first quarter of last year. Consumers and advertisers continue to seek out SI's industry-leading sports journalism, with consistent top-tier major sports league coverage and an expanded and reimagined SI golf experience, benefiting from the acquisition of the Morning Read last year. According to the Alliance for Audited Media of the top US magazine brands, Sports Illustrated had the second highest monthly average total brand audience in Q1 2023. Our work continues to resonate not only with consumers and advertisers, but within the industry as the Associated Press Sports Editor Awards recognized four of our writers as finalists this year. Our Sports Illustrated swimsuit franchise, which continues to break boundaries and act as a catalyst for change within the industry, has seen tremendous growth this quarter as we've implemented our operational and content playbook for the first time across the brand. Swim has already nearly surpassed its full year 2022 page views at the end of Q1, and we are looking forward to the launch of our annual SI swimsuit edition next week on May 18. Our lifestyle content base grew substantially in the quarter due to the integration of Men's Journal and the Adventure Network, which has gone smoothly. These well-known and respected titles maintained strong brand equity in the market and we are staffing up these businesses to execute our playbook and bring them back into mainstream relevance, just as we did with Sports Illustrated, The Street, and Parade. While these brands had little revenue contribution in Q1, having just moved to our technical platform in March, we anticipate strong growth over the course of this year. Pray.com, which we acquired in April of 2022, has continued to grow, with nearly 30% monthly average page view growth since its acquisition according to Google Analytics, and an 89% increase in year-over-year first quarter social engagements across all platforms according to ListenFirst. Our finance vertical, anchored by The Street, saw dramatic growth through our publisher and platform partnerships reaching 106 million total page views on Apple News during the quarter, the largest number in our history, offsetting a slight 6% year-over-year decline in monthly average page views on the website according to Google Analytics. The Street continued to focus on expanding its social presence, launching its first annual finfluencers to watch franchise which reached nearly 7 million followers on Instagram. A majority of these influencers and creators have agreed to participate in sponsored channels hosted by The Street. The Street has also greatly expanded its video content with its news desk and studio on the floor of the New York Stock Exchange, driving a 61% growth in social video views compared to this quarter last year. We continue to be vigilant and disciplined with our cost base. And while we have undertaken some cost-cutting exercises across our business this quarter, this has allowed us to invest in high-growth areas like e-commerce on a cost-neutral basis. Our e-commerce business has more than quadrupled year-over-year and we expect continued growth throughout 2023. I'm extremely proud of what our team has accomplished this quarter. Before we talk about our outlook for the remainder of the year, I'd like to let Doug Smith, our Chief Financial Officer, take you through the numbers. Doug?

Thank you Ross. Let me turn to the results. The first quarter revenue was approximately $51.4 million, up 7% from $48.2 million for the first quarter of last year. This reflected strong growth in our digital advertising and in licensing and syndication business. Total digital revenue of $32.6 million, representing nearly two-thirds of our total revenue, grew by 3% versus the first quarter of last year. Digital advertising within digital revenue increased 9% from $21.6 million in the prior quarter to $23.5 million in this quarter. This growth was due to stable year-over-year traffic and a 10% increase in revenue per page view, as Ross referenced before. Digital subscription revenue was $3.9 million, down $2.6 million as compared to the $6.5 million in the prior year quarter, as we focus more resources and attention on the free ad-supported content. Licensing and syndication revenue increased by $1.5 million, or 49% to $4.6 million, as compared to the prior year quarter. We expect continued robust growth in this area, as we have grown with existing partners and continue to expand to new ones as well. Total print revenue also increased to $18.7 million from $16.7 million in the prior year quarter. This reflects improvements in the results of both Sports Illustrated magazine and the addition of the Athlon outdoor properties which were acquired as part of the Parade Media acquisition in April 2022. Gross profit increased by 8% to $21.3 million, representing a 42% gross margin, as compared to a gross profit of $19.7 million and a gross margin of 41% in the prior year quarter. Contributing to this improvement was a decrease in publisher partner revenue share expense of $0.8 million, or 16%, despite a 9% increase in digital advertising revenue. Print production costs also increased by $1 million, which is consistent with the increase in print revenue that I previously mentioned. The total operating expenses increased by only $0.7 million, or 2% to $35.9 million, as compared with $35.2 million in the prior year quarter. This increase was primarily driven by the addition of expenses associated with the acquisition of Men's Journal in December of 2022 and Fexy Studios in January of 2023. Selling and marketing costs increased by $0.8 million, or 4%, primarily due to an increase in payroll in sales and marketing teams. General and administrative expenses decreased by $0.5 million, or 3%, primarily due to the decrease in stock-based compensation. Other expenses increased by $1.8 million to $4.8 million for the quarter, driven by a $1.4 million increase in our interest expense related to the increase in debt outstanding. As a result, the net loss was $19.4 million, as compared to $18.4 million in the prior year quarter. 2023 first quarter adjusted EBITDA was a $4.5 million loss in the quarter, as compared to a $1.1 million loss in the same quarter last year. On the balance sheet looking at liquidity we ended the quarter with $16 million in cash and cash equivalents, as compared to $13.9 million at the end of December of 2022. In the quarter, the net cash used in operating activity was only $1.7 million, an improvement of $11.6 million over the prior year period. We had $9.6 million borrowed under our 40 million working capital line of credit, which was down from $14 million at year-end 2022. And factored into this in March, we also raised $11.5 million in gross proceeds through a registered direct equity offering to existing shareholders, which reflects their continued confidence in our business. On the term debt and bridge notes, those come due at the end of the year and are therefore shown as current debt principal of $102.7 million on our balance sheet. And we've had ongoing discussions regarding refinancing the ascension options and expect to make an announcement in the near future about this. We maintained our full year 2023 guidance for between $255 million and $270 million in total revenue and between $30 million and $35 million in adjusted EBITDA.

Thank you, Doug. As Ross mentioned, we have been extremely diligent in our operations and in managing expenses. We have been able to maintain growth despite headwinds, in large part thanks to our unique business model. Our Tempest system, a proven content management and monetization platform, not only powers our core owned and operated domains, but is also used to power the businesses of hundreds of creators that build around our core anchor brands. Adjusted Uber has provided a lifeline for riders and drivers worldwide using technology to connect and monetize transportation. Our platform connects content creators and consumers, becoming an essential tool for hundreds of journalists and content creators to reach millions of consumers. We provide our Tempest platform and tools to business owners, creators in our case, connecting these business owners with visitors, readers, and viewers. By allowing these creators, be they web publishers or social influencers to build within our verticals, they can benefit not only from our platform, but also from the brand halo and legitimacy of our premium brands. Brands such as Sports Illustrated, The Street, Parade, and Men's Journal. All of these increase our content and viewership with no upfront cost to Arena, just as we provide the tools at no cost to the creator. Instead, we share revenue, therefore fully aligned in the goal of creating great content and growing revenue together. Fundamentally, much of our revenue, be it ad revenue, e-commerce revenue, syndication revenue, or subscription revenue, grows as our footprint grows. Most publishers need to invest in new content for months or years before it shows a return. We sign on these creators with zero upfront cost to us, growing our audience and therefore our revenue far more rapidly than a more traditional investment methodology. And in this way, even during periods where CPMs or revenues per page are down, we are adding new pages fast enough to continue to grow. We are working to apply this model to all our arenas in the coming year. As we expand, however, we are always looking for new ways to innovate and improve both our core-owned operations and those of our partners. As a result, we have begun the rapid exploration and deployment of AI technology within our Tempest platform. Contrary to media hype, we in no way see AI as a replacement for our talented writers and journalists. Rather, we see it as a tool to empower them. Human-created content has the depth, breadth, and impact that AI content cannot duplicate. That said, AI is an incredible tool for productivity and ideation beyond the scope of content created by our journalists or other partners. We have launched an internal AI initiative designed to rapidly innovate with dedicated engineers and business leaders, partnering along three simultaneous tracks. The first of these tracks focuses on productivity tools for us to build into the Tempest platform. These tools help the journalists at our core brands, as well as creator partners, to be more effective and include story starters, title recommenders, and editing tools. The second track focuses on insight. AI is especially good at analyzing large sets of data, such as social media and trending news feeds, making recommendations on topics that will be of particular interest to our readers and viewers. The third track focuses on content, although not the sort of content that our writers, video producers, social influencers, and the like create. Rather, it focuses on content that is unique to AI, such as custom chatbots or AI-powered games and content. To the Arena Group, AI is far more than a buzzword. The key is delivery. With our cross-functional AI steering committee, dedicated engineers, and partnerships with leading AI firms such as Jasper and Nota to accelerate our initial efforts, we expect to have a lot to talk about in earnings calls to come. And with that, I'd like to turn the call back to Ross for closing comments.

Thanks Andrew. Our strong foundation has allowed us to weather the changes in our industry this quarter. While the media landscape continues to evolve rapidly, I remain extremely bullish about our business. High-quality content generated by iconic brands continues to perform well even during challenging periods. We have already seen acceleration in traffic and revenues in Q2 and we continue to pursue opportunities to expand our capabilities and diversify our revenues while remaining cost neutral. As we continue to optimize our business, as Doug mentioned, we have also been extremely focused on our debt structure. We have a number of options that we are currently considering involving both our existing lender as well as new lenders. And we have been working diligently towards a final solution that will be best for the company and our shareholders. Looking ahead, I am particularly excited about our expansion into video with our acquisition of Fexy Studios. Fexy, whose television series Roadfood was just nominated for a Daytime Emmy, has a history of producing high-quality video content over the past decade and we look forward to combining that expertise with our digital platform distribution and our iconic brands. We are also leaning heavily into our social presence to expand our creator network using our brand equity, scale, and platform to empower creators and influencers in the same way that we are currently empowering our fan nation entrepreneurs. We believe that expanding our content model in this way is one of the greatest growth levers as a business. And finally, as Andrew discussed, we're excited to continue to explore and expand the use of AI in our business to empower our creators and journalists to be more impactful and efficient. As I said, due to the strength of our platform efficiency and enduring brand equity, we believe that we will grow our business faster than many of our peers and continue on our mission to revolutionize the digital media space. And with that, I'd love to answer any questions you have.

The floor is now open for questions. Your first question is coming from Mark Argento with Lake Street. Please post your question. Your line is live.

Hey Ross, Doug, and Andrew. Appreciate you taking my questions. Just wanted to drill down a little bit. Ross should mentioned, you expect Men's Journal to start contributing kind of as the year goes on. Any big plans for those properties? Are you lighting them all up? How do you phase them in? Any kind of color there would be helpful.

Yes, we have successfully transitioned several publications including Men's Journal, Surfer, Powder, Bike, and Skateboarding onto the platform. We aimed to have them all operational by the end of March, which allows us to utilize our established strategies. We have been bringing in contributors, journalists, video specialists, engineers, designers, and more to enhance these sites as we have previously done. Currently, we are making significant progress with Men's Journal and Powder. As we enter the surf season, we've discovered some exciting opportunities there as well. However, Men's Journal, being the cornerstone of our lifestyle vertical, is where we are seeing the most immediate growth. This is expected since it is our largest brand. The enthusiast categories within our adventure network are particularly promising, especially in e-commerce. You can anticipate a solid investment and positive outcomes in that area, particularly for our adventure brands and more broadly with Men's Journal in the lifestyle segment.

Well, yeah. Dovetails nicely in terms of e-commerce. I know you've been talking a little bit more about e-commerce. But can you just walk us through what is the e-commerce into the Arena Group and what's the opportunity there?

Yeah. As I mentioned earlier, we've seen our revenue from that area quadruple this quarter, again, still nascent and small as a whole, but certainly one of the fastest growing pieces of our business. And we are experimenting. We have deals. We have affiliate deals. We have our own staff doing content to commerce content on our platforms. We are reviewing products. We are partnering with other third-party partners who are providing us with both content and affiliate revenue. We work with the biggest platforms out there to drive that. So we've taken a kind of hybrid approach. Some of it we do on our own and some of it we're trying to learn with third-party partners who are experts at different areas and it's obviously very broad. I will say in something like skiing, we're even exploring what we can do in the print realm on a gear review basis as we head into next ski season. So we're trying to use all platforms and work with best-of-breed partners as well as stand up our own content to commerce business internally.

That's helpful. And then Doug, just one for you. In terms of your expectations around gross margins throughout the year, do you anticipate a cadence higher on a sequential basis, or what should we expect to think about there?

Yeah, we've always seen the gross margins improve through the year. Seasonally Q1 is our lowest quarter overall. And historically we've seen gross margins climb and would expect our highest gross margin in the fourth quarter of the year. So we'll be approaching 50% margins in Q4. So that's not the average for the whole year.

Great. I'll hop back in the queue. Thanks guys.

Thanks Mark.

Your next question is coming from Griffin Boss with B. Riley. Please pose your question. Your line is live.

Hi. Thanks for taking my questions. So first for me, you mentioned the ongoing discussions to extend or amend the term debt and bridge notes. Are we correct then in assuming that means you are not contemplating addressing that debt through additional equity raises? And then separately what do you view as a sustainable leverage ratio going forward?

I think I'll start and then Doug can add his perspective. We are exploring all options. Since before the last earnings call, we have been in discussions with various potential providers regarding pure debt options. Additionally, although it's somewhat outside your main focus, we've been engaging with our existing partner, B. Riley, to determine how we can manage that debt. B. Riley is also our largest equity holder, so we maintain a close and ongoing relationship with them. Our priority is to make the best decisions for the business. Given that our stock is trading around $4 today, we must be cautious and strategic about how we utilize equity for debt repayment. However, we believe there are viable solutions available to us across various avenues, including pure debt lenders and strategic partnerships. We've been diligently working on this since our last call, which was a major focus then, and it remains a priority as we move toward a final solution.

Yeah, and I can add to that from a leverage perspective, anticipating as we've given guidance of $30 million to $35 million in total EBITDA, that would still put us at over three times leverage on the existing debt. So we would anticipate that would be the top end, and potentially we would look to have that leverage come down a little.

Got it. Okay. Thanks for that color. Yeah, I really appreciate it. And then you also talked about obviously, the distress landscape we're seeing in digital media right now, potentially bringing up some attractive or interesting opportunities. Can you just give a little bit more color on your outlook for future M&A? And do you expect to pursue any interesting opportunities this year, or is that more going to be a longer-term strategy for you?

Yeah, we're always looking at things. I think we were pretty clear on the last call that we had our head down, trying to integrate the assets we acquired in December and January of this year with Fexy Studios. So we're through some of that integration. Obviously, they are all on our platform at this point. And we're operating those. So I would say the landscape is pretty wide open. I'd say that the number of calls that come in have picked up pretty substantially as well. There are a lot of people struggling out there, and that's a real opportunity for us. That said, I want to make sure we're delivering on the business that we have and also, if we're going to do a deal again, it's going to be a very accretive deal for the company. So we're always looking. We're active in the space, and there's a lot of real opportunity. But we're going to be focused on things that would be instantly accretive to the business.

Great. Understood. And then last one for me just jumping back to Men's Journal and those other associated assets fully integrated at the end of March. Does that mean we're fully past all integration costs, or should we expect any other potential one-time operating expenses related to getting those assets where you need them to be to start running the growth playbook?

Yeah. So two parts to it. One is what is the technical requirement to move it over, and we're mostly past that. I mean, pretty much all the way past that. We are staffing those businesses up with content contributors, and that is a – it's an ongoing cost. But it's fully baked into our budgets and our expectations for the year. So we don't expect anything other than what we have budgeted for the year, and I'd say we're on our way to the final stages of that as well. In some cases, some are further along than others. But we've already made real investments in Q1 into those businesses.

Okay. Excellent. Thanks for the time.

Thank you.

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.

Yeah, thanks all. I want to appreciate you all joining us today and look forward to speaking again with our Q2 results.

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