Good afternoon, ladies and gentlemen, and thank you for joining us today. Welcome to The Arena Group's Third Quarter 2025 Earnings Conference Call. I would now like to turn the conference over to Morgan Fitzgerald, Investor Relations and Social Media. Ms. Fitzgerald, you may begin your conference.

Thank you. Hosting the call today are Paul Edmondson, Chief Executive Officer; and Geoffrey Wait, Principal 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 facts 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 company's funding. The company cautions investors that any forward-looking statements made in this presentation or that the company may make orally or in writing from time to time are based on the beliefs of, assumptions made by and information currently available to the company. Such statements are based on assumptions, and the actual outcomes will be affected by known and unknown risks, trends, uncertainties and factors that are beyond the company's control or ability to predict. 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, reference will be made to the non-GAAP financial measure, 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 Investor Relations website at investors.thearenagroup.net. With that, I'd like to turn the call over to CEO, Paul Edmondson. Paul, the call is yours.

Thank you, Morgan, and thank you, everyone, for joining us here today. Q3 was another profitable quarter for The Arena Group, one that we believe highlights the strength of our model, the discipline of our operations and the resilience of our business amid ongoing industry-wide traffic headwinds. As a result, we delivered margins that surpassed industry averages. However, before we dive deeper, I want to acknowledge that this is The Arena Group's first earnings call in nearly 2 years. We've heard from shareholders that they value this form of communication, and we've listened. Going forward, we intend to continue these calls and combine them with additional channels, including video, social and other platforms to share our story with even a broader investor base. The Arena Group has undergone quite the transformation in a relatively short period of time, transforming our operations, strengthening leadership, stabilizing our balance sheet and sharpening our strategic focus. We're confident and eager to engage directly with the investment community to communicate our progress with transparency and consistency. With that, I'd like to turn the call over to our Principal Financial Officer, Geoff Wait, to discuss our financial results.

Thank you, Paul. Good afternoon, everyone. In the third quarter, we delivered profitable results with strong margins. Our third quarter revenue was $29.8 million compared to $33.6 million last year. The third quarter 2024 results include a $3 million onetime increase to net income from a licensing agreement. Our net income this quarter rose to $6.9 million, up from $4.0 million a year ago, and adjusted EBITDA increased to $11.9 million compared to $11.2 million last year. Therefore, we maintained a healthy efficiency, holding gross margins above 50%, even with traffic volatility. We believe this reflects the scalability and resilience of our entrepreneurial publishing model and variable cost structure. Profitability expanded meaningfully again this quarter. Net margin improved to 23.2% and EBITDA margin improved to 39.9% compared to 11.9% and 33.3% in the same quarter last year. This demonstrates the continued diversification of our revenue streams into higher-margin opportunities. Importantly, our profitability metrics this quarter outpaced sector norms with net margin and EBITDA margin both higher than industry averages. From a shareholder value perspective, our trailing 12-month income from continuing operations of $30.5 million, divided by 47.6 million shares outstanding as of September 30, equates to earnings per share of $0.64. This represents a price-to-earnings ratio of over 7.0x based on the share price of $4.87 as of NYSE American market close on November 10. Overall, these results highlight the flexibility of our cost base and our ability to consistently deliver profit and cash flow even in a challenging digital media environment. These consistent profits have led to strong cash generation and continued improvements to our balance sheet. We generated $12.1 million of cash from operations during the third quarter. And after fully repaying our revolving credit facility, we have now reduced our leverage by more than $10 million in total debt year-to-date and amassed a cash balance of $12.5 million, strengthening our liquidity position. With trailing 12-month EBITDA above $50 million, net debt below $100 million and leverage under 2x, our balance sheet is solid and our capital structure is flexible. We remain focused on further optimization and are actively pursuing the refinance of our outstanding debt. Now, back to Paul for an update on our operations.

Thanks, Geoff. In the third quarter, like many digital publishers, we faced significant headwinds and traffic volatility from algorithmic changes in the industry. These updates impacted organic traffic in many categories, most notably lifestyle and sports. However, we moved quickly to address them, executing a structured plan to optimize content signals, site experience and technical SEO. I'm pleased to share that recent data shows stabilization of traffic across our verticals and significant recovery for our e-commerce-related content. Our entrepreneurial publisher, or EP, model creates flexible cost bases that enable strong performance across a range of traffic scenarios. And we believe the steps we've taken will strengthen our long-term audience quality and reach, which is important for the success of our EPs. Parade, Athlon Sports, TheStreet and Men's Journal continue to represent popular brands in our portfolio that produce sought-after content and continue to reach over 100 million users per month in the aggregate. In short, we believe our diversified model and variable cost structure allowed us to translate adaptability into strong financial performance, maintaining solid profitability and cash generation throughout the quarter. Regarding our portfolio expansion, we continue to execute on our disciplined M&A strategy, acquiring the digital assets and IP of 2 properties, ShopHQ and Lindy's Sports. We spent a total of $2 million on these transactions funded with cash. These expand our e-commerce and sports portfolios, deepen our brand ecosystem and add new monetization opportunities. ShopHQ was recently relaunched, is generating revenue, and we expect to be accretive for profit in 2026. Lindy's will launch later this month, and we also expect it to generate profits in 2026. We remain focused on targeting at least one high-value profit-driving acquisition per quarter, deals that enhance our IP, strengthen our brands and align with our scalable operating model. Lastly, on strategy. Our EP model continues to thrive, drive efficient content creation, expanding our reach and allowing us to scale without the heavy fixed cost typical of traditional media. We will look to expand this model into video and social commerce opportunities. We're also accelerating our evolution towards data, AI and e-commerce, leveraging our IP and portfolio of brands to build higher-margin scalable revenue streams. Today, we're registering more than 40,000 new users each day. And in Q4, we'll launch a proof of concept that connects user behavior and data across ads, newsletters and articles to the most valuable user activity. This initiative, powered by Encore, which is our new centralized intelligence system that unifies our proprietary data with advanced LLM technology, represents a significant opportunity to link audience intent directly to commerce outcomes, as well as curate our audience for advertisers and establish deeper, more direct relationships with our users. Ultimately, it allows us to turn engagement into measurable recurring value for both our partners and our business. We're excited about the path ahead and look forward to sharing our progress. In summary, the third quarter reflected the continued execution of our transformational strategy. We delivered solid financial results with consistent profitability in a dynamic environment, strengthened our balance sheet and continued our transformation into a data and brand-driven company. Most importantly, we believe that we've proven that our model is durable, adaptable and built for sustainable growth. We're proud of the progress we've made, and we're energized by the opportunity ahead. Now, I'll turn the call back to the operator for Q&A.

Our first question comes from Mark Argento with Lake Street Capital Markets.

Congratulations on your first call, it's exciting. I have a couple of quick questions. Specifically, I know that Google switching the algorithms caused a lot of volatility, but it seems like you managed that well. You mentioned a more stable environment as we enter Q4. Are we starting from a lower base? Or should we expect to see some trend returning to where things were before all the changes? Can you explain what those changes were and how you successfully navigated through them?

Thank you for the question, Mark, and for joining us today. This is an important topic for our business moving forward. For any experienced digital publisher, encountering algorithmic updates is common, and our approach to addressing them is key. When we face these challenges, we focus on both our content signals and technical SEO. Regarding your question about Q4, we anticipate growth in our e-commerce content, particularly in areas where we cover deals; this is performing well and we expect it to be stronger in Q4 than it was in the same quarter in 2024. For our news-related content, we are currently at a lower level than our peak in Q2, but we have seen stabilization. We have implemented various tests and technological improvements to adapt, and we are observing some positive outcomes. Overall, I believe we are seeing stabilization from the lowest points, and I am optimistic about achieving further improvements.

How do you think you have performed in terms of market share across various categories? What impact do you believe this has had on the overall industry? Despite some fluctuations in your revenue, have you managed to come out ahead? How do you assess your position compared to your competitors?

It's a really good question. It's hard to know exactly where every competitor is and how they've reacted to it. I think when we go out and talk to and see what's happening in the industry, I think we've weathered it better than most, I think, when we're still generating cash, which is really important and key to our business. I like the improvements that we've made. I like the way the team has tackled it. I like how we've really engaged and unified in the company to whenever you see these kind of headwinds and made some really good results. So I feel good about our team and the progress we've made in adapting to the environment. I think when you look about the industry as a whole and the broader thing, every company has a different dynamic and how they handle and tackle these things. So it's hard to say.

That's helpful. Regarding margins, it's impressive and highlights your variable cost model. To clarify, your input costs are closely tied to revenue from content generation. With overall top-line revenues decreasing, your content costs can adjust in real-time rather than relying on a more traditional fixed overhead. Is that accurate? Also, can your content engine withstand this volatility?

Mark, this is Geoff. Thank you for that question. I think that we do have a cost structure that allows us to perform at a variety of traffic levels. And you can actually see that if you look past into the past few quarters and how consistently we've generated gross margins above 50%. I think that this is an element that differentiates our business from a lot of others that are out there in the industry in that we have tied our largest cost element, which is cost of content directly to revenues, and that has enabled us to continue to drive profit and cash in a challenging environment.

I have one more question about the balance sheet. Clearly, you've been generating cash and reducing debt. I know you've discussed refinancing. Where do you stand in that process? Is it still a possibility for 2025, or should we be looking at next year instead?

So our plan as it relates to the refinance is, we want to approach this from a position of strength. We view this as an opportunity for the business, not as a necessity. And therefore, we want to make sure we secure the most favorable terms possible as we execute a refinance process. It remains a priority, and we're actively evaluating several options that will deliver the greatest value to our shareholders. Over the last few months, we've had quite a bit of interest from the banking community and have engaged in active discussions with traditional banks. These banks by nature are conservative, and some feedback we've received is that 4 consecutive quarters of profitability is good, and they want to see that, but they could use a few more quarters, and they have interest but maybe need a few more quarters of results before they can close on a big deal like this. We continue to actively pursue this, and we have the flexibility to consider multiple structures and options. In addition to traditional banks, we believe there are other markets that would have offerings that would still be at more favorable terms than what we have currently that we can move forward with. But as I mentioned, our priority is really to identify the option that adds the most value for our shareholders. We intend to proceed deliberately, focused on long-term value creation rather than short-term expediency.

That's a thorough answer, Geoff. I appreciate that. Congrats, guys, on dealing with the volatility, and welcome. It's exciting that you're starting to do these calls.

First, I want to echo what Mark said. This conference call is refreshing, and we missed hearing from Arena quarterly. Thank you for making this part of your regular earnings events. It's great. Congratulations on everything you've achieved in the last year. Attaining EBITDA and after-tax profitability in this environment demonstrates the strength of your model and sets you apart from others, many of whom faced significant challenges this quarter. I actually learned more about the robustness of your business this quarter than I did in the last two or three, as this was unexpected. Kudos to that. My real question is about the ShopHQ acquisition. I would like to discuss that further. It seems to be an entirely asset-light model with a significant opportunity based on traffic that you can drive without the costs of holding inventory. While you're not getting wholesale, you are capturing part of the sale. If executed correctly, the upside appears substantial. Can you elaborate on how you plan to manage that business, what it encompasses, and how it will fit into the overall model?

Thank you for your kind words about the environment and how the team has managed it. We really appreciate it. Regarding ShopHQ, we saw great value in acquiring its assets, which included a vast number of email addresses and valuable data. We have relaunched the business primarily as a drop shipping model without holding inventory. Currently, we're boosting sales using our newsletter list while expanding our product range. We're integrating our Encore project with AI technology and our data operations. We're generating around 40,000 email addresses daily and see potential for growth in that area, creating first-party user data profiles with both intent and transactional data. Our focus now is on a proof of concept that connects our audience with transactions, enabling us to sell through both our successful affiliate model and the ShopHQ platform directly. It's interesting to note that ShopHQ has an older audience accustomed to making purchases via video. We plan to experiment with various video content on social media platforms like YouTube and Facebook to drive transactions. This unique capability of connecting product introductions through video is a significant asset for us. Social selling is also a promising opportunity, which we believe will generate cash flow for us by 2026 while serving as an important data asset.

Are you taking a commission off the overall sale? What are the expenses involved in running this business?

That's a great question. So one of the most important things whenever we do an acquisition is to make sure that it fits with our DNA of running a really asset-light scalable model. And ShopHQ also fits that really beautifully. So the arrangements we have with our drop shipping partners offer us a share of the gross revenue. So we receive a share at protected margins. And we do have some personnel that came with it, a small number, less than 10, and they do things like procurement that we didn't have within the existing company, capabilities we didn't have. And then, the rest of the costs are largely variable. We will be doing marketing activities to make sure we have the right audience flow into the platform and make sure that we're selling the product that we want to sell. But we can grow this in a very real way without additional capital investment.

And you start with what margin do I want to make on this business, is that correct?

Correct. So this will likely have a margin similar to our news and media businesses, but slightly lower than our publishing and performance marketing revenues.

It should be significantly higher revenues, indicating that there will be revenue growth, right?

That's correct.

Our next question comes from the line of John Fichthorn with Dialectic Capital.

I want to congratulate everyone on their resilience during this challenging environment. To begin, I have some questions about the balance sheet. You mentioned the debt and refinancing. How will that affect your share repurchase announcement? It seems you didn't proceed with it last quarter, so will you need to wait until the refinancing is complete before starting that? I will have some follow-up questions after that.

John, this is Geoff. Thanks for joining the call and for your support here. As it relates to the stock repurchase program, we continue to focus on deploying capital where we think it can generate the best return for the company. In the last several months, we announced several acquisitions, which do create a little bit of nonpublic information, which can make it challenging for us to trade in the stock. In addition, we also fully repaid our revolving credit facility, and we thought that was the best use of capital for us during the third quarter. We do believe that our stock continues to be undervalued, and we continue to monitor our stock performance and our capital availability and intend to make repurchases when we have capacity and when we believe our equity is undervalued. So we haven't made any purchases yet, but I think that is something you may see in the future.

So what's the hurdle rate look like for you guys in M&A? You've said 1 a quarter. But you must be looking for something specifically in terms of leverage to your existing business or accretive to earnings. Can you give us an idea of what you're looking at for?

Absolutely. As I mentioned, we want things that really fit in with the operating model that we have, and we're focused on a few things. Number one, we believe that this is a great time to be a buyer of digital media assets, and we intend to be active in that market, as well as others. We look for extreme values that can offer profit accretion and payback within 12 months and have great ROI. So you'll continue to see us active in the M&A space and doing some different things going forward as we continue to expand and grow the business.

Super. So you mentioned on the call that effectively, the core business has stabilized post kind of algorithmic earthquake. And you've added a couple of M&A deals. And e-commerce seems to be stable and looking up. So it sounds like sequential growth on the top line and obviously, therefore, on the bottom line would be something to expect. Am I doing my math right based on what you said?

Yes. So I think that's a fair expectation. I do want to touch a little bit. We won't be giving any specific financial guidance. We may provide at times directional guidance going forward. But I do think that, that aligns with our view of the business right now.

To be clear, that is directional guidance. So up next quarter is a fair assumption?

Yes.

I'm glad I could help you get to an answer on that. As you evaluate your business, you have the rollout of entrepreneurial publishing across various content areas and a growing commerce segment, along with potential M&A opportunities. If I were to separate those, should I consider the main growth driver to be the expansion of entrepreneurial publishing in those newly entered areas, or is the key growth driver more likely to be converting your existing traffic into e-commerce buyers in the near and medium term?

Thank you for your question, John. Regarding growth opportunities, I believe we've been somewhat unique in our audience approach. We've discussed this already, and I see potential here. I appreciate the changes we've implemented and, while it’s challenging to analyze algorithmic changes, I feel we are in a strong position. There are also interesting aspects of our business related to audience growth. We're establishing ourselves on social platforms by creating content that resonates with users. Additionally, there are various developments in distribution as we explore multi-platform dynamics for our business. The most exciting opportunity right now is the influx of new users we register daily, which significantly impacts our business. We're seeing around 40,000 new emails each day, creating a substantial pipeline of users and data. The ability to connect these elements, make informed decisions about content delivery, e-commerce opportunities, and audience curation is crucial. We recently shared a press release about our initiative with Index Exchange, highlighting our growth potential. We continue to explore mergers and acquisitions where audience opportunities align with our interests, and we're pleased with our recent acquisition of Lindy's, which complements our existing relationship with Athlon Sports in their annual preseason business. We're managing these digital components in a lean manner, and I believe there are numerous avenues for growth ahead.

Last question is how would you measure success as you build this bridge from commerce buyers to content consumers and attempt to monetize them with AI? I'm curious how you define success internally. What does success look like? Is it a percentage of people that you convert from one to the other? How do you think about it?

It's essentially a math problem for me. I focus on two main aspects. One of the simplest metrics is Customer Acquisition Cost, which looks at how much we can spend to acquire a customer and the opportunities available. In e-commerce, this is a particularly interesting metric because it allows us to leverage our reach and media properties into commerce opportunities. Regarding AI and large language model technology, we've seen remarkable advancements. Our first-party data is growing rapidly, and we have several partners. We are exploring different ways to combine these elements to identify audience segments, allowing us to engage in direct product transactions and affiliate offers. We are also curating our audience for programmatic buyers. It's essential to connect the consumer journey effectively and to be able to transact, which leads to multiple desirable outcomes. We are monitoring these outcomes and establishing metrics for them. I want to emphasize one critical point related to our business and culture: everything we do needs to generate cash and profit. Currently, we are focused on achieving these goals within our means without incurring additional debt, which has instilled a sense of discipline in our company. It shapes our opportunities and drives us toward actionable and realistic results. We are aiming for quicker returns, and I hope this information is helpful.

Awesome. Love it. Once again, great job weathering a difficult environment.

And we have a question from the line of Jon Old with Long Meadow Investors.

I agree with the previous comments. I'd like to get an update on TravelHost's performance. Also, regarding mergers and acquisitions, if we assume we could complete one deal per quarter for $1 million, what would the average deal look like in three years? I understand you've mentioned that the return on investment allows for capital recovery within a year. What can we expect in terms of performance after three or even five years at maturity? Of course, I recognize that each deal will vary.

Jon, this is Paul. Thanks for joining today and for the question. I’d like to discuss TravelHost. It was a business that experienced significant decline, but we acquired its assets at a favorable value. We have since relaunched it on our platform and integrated its content with our syndication partners. Currently, it is nearing breakeven in a short period of time. We believe there is substantial upside potential for this brand moving forward. It is performing close to our expectations, and we are aiming for it to transition from breakeven to profitability by 2026. On the acquisition side, we are focusing on opportunities that do not necessitate additional debt and offer significant upside. For example, Athlon was included in our purchase of Parade. While it might not have had significant value initially, it currently generates millions in annual revenue and is profitable for us. We intend to seek similar value and utilize our expertise to maximize returns on our investments. Looking ahead three to five years, as our company expands and our cash flow improves, we will continue exploring these opportunities. Geoff touched on capital allocation earlier, which involves decisions about debt repayment, acquisitions, or stock buybacks. We remain committed to fostering a culture that prioritizes great value for our shareholders and all participants in the Arena Group. Our goal is to maintain this disciplined approach moving forward. While three to five years is a long horizon, we aspire to uphold this culture and be a discerning buyer.

Okay. And just a quick follow-up. How many deals are you evaluating at any given time regarding your M&A strategy? What is the total addressable market? Are there years of opportunities ahead of you? Obviously, some deals are turned down, but you have a wide range of options that you're constantly considering.

Yes, that's a great follow-up question. There is a significant amount of opportunity available in the marketplace right now. We have an efficient process to evaluate these opportunities. As Geoff mentioned earlier, we assess prospects quickly and focus on whether we can recover our capital within 12 months. We aim to make these decisions rapidly. To quantify it, I would say we evaluate a handful of new opportunities each week. Some of these involve multiple properties, while others may involve a company looking to sell one or two assets. We are observing a variety of opportunities, from traditional digital media businesses to other product companies that bridge the digital and retail sectors. Overall, the pipeline of opportunities is robust.

And that does conclude our Q&A session. I will turn it back to Paul Edmondson for final comments.

Thank you, everybody, for joining our Q3 call. We really appreciate the time everybody invested here to learn a bit more about the Arena business. We'll be back for Q4. And thanks again, everybody, for joining today. We appreciate it.

And thank you for participating in today's conference. You may now disconnect.