Favorable Advertising Mix Drives Digital
Advertising Revenue Increases of 127%
The Arena Group Holdings, Inc. (NYSE American: AREN) (the
“Company” or “The Arena Group”), a tech-powered media company with
40 owned and operated properties and more than 200 brands including
Sports Illustrated, TheStreet, Inc. (“TheStreet”), Parade Media
(“Parade”), and HubPages, Inc. (“HubPages”) operating on a single
technology platform, today announced financial results for the
first quarter of 2022. The results do not include any contribution
from AMG/Parade, which was acquired subsequent to the first
quarter.
First Quarter of 2022 Financial and Operational
Highlights
- First quarter of 2022 gross profit percentage improved to 41%
from 16% in the prior year period.
- Total revenue increased by 44% to $48.2 million from $33.6
million in the prior year period.
- Digital advertising revenue more than doubled in the first
quarter of 2022 to $21.6 million from $9.5 million in the prior
year period.
- Net loss improved to $18.4 million in the first quarter of 2022
compared to a net loss of $25.5 million in the first quarter of
2021.
- Adjusted EBITDA* improved to a negative $1.1 million for the
first quarter of 2022, as compared to a loss of $8.7 million for
the first quarter of 2021, and reflects adjustments for noncash
charges representing 81% of first quarter net losses.
*This press release includes reference to non-GAAP financial
measures. Please see the heading “Use of Non-GAAP Financial
Measures” below for a more complete explanation.
Management Commentary
Chairman and Chief Executive Officer of The Arena Group Ross
Levinsohn said, “In the first quarter, we drove substantial revenue
growth and more than tripled our gross profit, all while
maintaining a one percent increase in cost of revenue which enabled
us to meaningfully narrow net losses. This validates both our
strategy and platform advantages. We are growing our audience at a
rapid pace, and with it our revenue, and increasingly selling
direct digital advertising, our highest value ad units, across our
entire portfolio. Our “Playbook” is built around premium,
proprietary content and enhanced by audience development
initiatives across search, social and distribution. The audience
and data capabilities makes us more attractive to brands, creating
direct advertising opportunities that accelerate growth and expand
margins. The results are clear: for the second quarter in a row,
our revenue grew 44% compared to the prior year periods.”
Levinsohn added, “For every incremental dollar of digital
revenue we generate, more than 50% contributes to our gross profit.
As a result, our net loss and Adjusted EBITDA both improved
significantly in what is typically the weakest quarter of the year.
The acquisition of AMG/Parade will jumpstart our Lifestyle vertical
this month, and we expect this to contribute to our growth
beginning in the second quarter. Our platform is built to scale, as
we can support significantly higher revenues, greater traffic, and
more platform-wide direct sales, without increasing our operating
expenses. The result will be a steadily improving
profitability.”
Recent Business Highlights
- The Arena Group completed its acquisition of AMG/Parade, a
premium multimedia company with brands including Parade Media,
Relish, and Spry Living, enabling the creation of the Company’s new
Lifestyle vertical and expansion of The Arena Group’s Sports
vertical. The acquisition brings the Company’s total monthly
average pageviews in the first quarter of 2022 to 565 million on a
pro-forma basis, according to Google Analytics. The Arena Group
acquired 100% of the issued and outstanding equity interests of
AMG/Parade for a purchase price of $16.3 million, net of cash
acquired, including the issuance of shares of common stock of the
Company, subject to a customary working capital adjustment. As a
part of the acquisition, the Company received net proceeds of $2.2
million from the sale of an investment acquired.
- The Arena Group uplisted its common stock to the NYSE American
under the symbol “AREN.” In connection with the uplisting, the
Company completed a firm commitment underwritten public offering of
4,181,603 shares of its common stock, which included the partial
exercise of the underwriter’s overallotment, at a public offering
price of $8.25 per share. This resulted in net proceeds to The
Arena Group of $30.5 million, after deducting underwriting
discounts and commissions and other offering expenses.
- In the first quarter of 2022, total monthly average pageviews
for the Company, according to Google Analytics, was 519 million, an
increase of 67% as compared to the prior year quarter. The increase
in monthly average pageviews directly benefited the Company’s
advertising impressions and along with improvement in
revenue-per-pageview contributed to the Company’s growth in total
revenue.
Financial Results for the Three Months Ended March 31, 2022
Compared to the Three Months Ended March 31, 2021
Revenue was $48.2 million for the first quarter of fiscal 2022,
an increase of 44%, compared to $33.6 million in the first quarter
of fiscal 2021. The increase was primarily due to an 82% increase
in total digital revenue to $31.6 million in the first quarter of
2022, which included a $12.1 million, or 127%, increase in digital
advertising revenue. Digital advertising growth was driven by
higher traffic across our owned and operated properties and
FanNation in the first quarter of fiscal 2022 as compared to the
prior year period, and an increase in yield-per-pageview. Total
print revenue increased 3% to $16.7 million in the first quarter of
fiscal 2022 from $16.2 million in the first quarter of fiscal 2021,
driven by growth in print subscriptions and newsstand, partially
offset by lower print advertising revenue.
Gross profit more than tripled to $19.7 million in the first
quarter of 2022, representing a 41% gross profit percentage
compared to a gross profit of $5.4 million, representing a 16%
gross profit in the first quarter of 2021. Cost of revenue remained
relatively flat increasing by only 1%, continuing to reflect the
growing strength of our digital advertising business.
Total operating expenses were $35.2 million in the first quarter
of 2022 compared to $27.1 million in the first quarter of 2021. The
increase was primarily driven by an increase of $5.2 million
related to payroll, along with related benefits and stock-based
compensation and an increase of $1.9 million in circulation
expenses which reflected the residual impact of the campaign to
increase Sports Illustrated subscriptions in the fourth quarter of
2020. Included within operating expenses is $5.2 million of
stock-based compensation which is a noncash item and represented an
increase of $1.6 million in the first quarter of 2022 as compared
to the prior year period.
Net loss improved to $18.4 million for the first quarter of 2022
as compared to $25.5 million in the prior year period. The first
quarter of 2022 included $15.0 million of noncash charges compared
to $12.8 million of noncash charges in the first quarter of the
prior year.
Adjusted EBITDA* for the first quarter of fiscal 2022, which is
typically the weakest quarter of the year, was negative $1.1
million, compared to a loss of $8.7 million for the first quarter
of fiscal 2021, representing a $7.6 million improvement.
*Adjusted EBITDA is a non-GAAP financial measure. A disclaimer
and reconciliation are provided below.
Balance Sheet and Liquidity as of March 31, 2022
Cash and cash equivalents were $22.5 million at March 31, 2022,
compared to $9.3 million at December 31, 2021, which included the
receipt of $30.5 million in net proceeds from a firm commitment
underwritten offering of the Company’s common stock completed
during the first quarter of 2022. Subsequent to the end of the
quarter, The Arena Group paid $10 million, net of cash acquired,
for the acquisition of AMG/Parade at closing.
Conference Call
Ross Levinsohn, The Arena Group’s Chief Executive Officer and
Doug Smith, Chief Financial Officer, will host a conference call
and live webcast to review the quarterly results and provide a
corporate update today, May 4, 2022 at 4:30 p.m. ET. To access the
call, please dial 888-506-0062 (toll free) or 973-528-0011 and if
requested, reference conference ID 388900. The conference call will
also be webcast live on the Investor Relations section of The Arena
Group’s website at
https://investors.thearenagroup.net/news-and-events/events.
Following the conclusion of the live call, a replay of the
webcast will be available on the Investor Relations section of the
Company’s website for at least 90 days. A telephonic replay of the
conference call will also be available from 7 p.m. ET on May 4,
2022 until 11:59 p.m. ET on May 18, 2022 by dialing 877-481-4010
(United States) or 919-882-2331 (international) and using the
passcode 45346.
About The Arena Group
The Arena Group creates robust digital destinations that delight
consumers with powerful journalism and news about the things they
love – their favorite sports teams, advice on investing, the inside
scoop on personal finance, and the latest on lifestyle essentials.
With powerful technology, editorial expertise, data management, and
marketing savvy, the transformative company enables brands like
Sports Illustrated, TheStreet and Parade to deliver highly relevant
content and experiences that consumers love. To learn more, visit
www.thearenagroup.net.
Use of Non-GAAP Financial
Measures
We report our financial results in accordance with generally
accepted accounting principles in the United States of America
(“GAAP”); however, management believes that certain non-GAAP
financial measures provide users of our financial information with
useful supplemental information that enables a better comparison of
our performance across periods. This press release includes
references to Adjusted EBITDA, which is a non-GAAP financial
measure. We believe Adjusted EBITDA provides visibility to the
underlying continuing operating performance by excluding the impact
of certain items that are noncash in nature or not related to our
core business operations. We calculate Adjusted EBITDA as net loss,
adjusted for (i) interest expense (ii) income taxes, (iii)
depreciation and amortization, (iv) stock-based compensation, (v)
change in derivative valuations, (vi) liquidated damages, (vii)
loss on disposition of assets, (viii) loss on impairment of lease,
(ix) loss on lease termination, (x) gain upon debt extinguishment,
(xi) professional and vendor fees, and (xii) employee restructuring
payments.
Our non-GAAP Adjusted EBITDA may not be comparable to a
similarly titled measure used by other companies, has limitations
as an analytical tool, and should not be considered in isolation,
or as a substitute for analysis of our operating results as
reported under GAAP. Additionally, we do not consider our non-GAAP
Adjusted EBITDA as superior to, or a substitute for, the equivalent
measures calculated and presented in accordance with GAAP.
Forward Looking Statements
This press release includes statements that constitute
forward-looking statements. Forward-looking statements may be
identified by the use of words such as “forecast,” “guidance,”
“plan,” “estimate,” “will,” “would,” “project,” “maintain,”
“intend,” “expect,” “anticipate,” “prospect,” “strategy,” “future,”
“likely,” “may,” “should,” “believe,” “continue,” “opportunity,”
“potential,” and other similar expressions that predict or indicate
future events or trends or that are not statements of historical
matters. These forward-looking statements are based on information
available at the time the statements are made and/or management’s
good faith belief as of that time with respect to future events,
and are subject to risks and uncertainties that could cause actual
results to differ materially from those expressed in or suggested
by the forward-looking statements. Factors that could cause or
contribute to such differences include, but are not limited to, the
duration and scope of the COVID-19 pandemic and impact on the
demand for the Company products; the ability of the Company to
expand its verticals; the Company’s ability to grow its
subscribers; the Company’s ability to grow its advertising revenue;
general economic uncertainty in key global markets and a worsening
of global economic conditions or low levels of economic growth; the
effects of steps that the Company could take to reduce operating
costs; the inability of the Company to sustain profitable sales
growth; circumstances or developments that may make the Company
unable to implement or realize the anticipated benefits, or that
may increase the costs, of its current and planned business
initiatives; and those factors detailed by The Arena Group
Holdings, Inc. in its public filings with the Securities and
Exchange Commission, including its Annual Report on Form 10-K and
Quarterly Reports on Form 10-Q. Should one or more of these risks,
uncertainties, or facts materialize, or should underlying
assumptions prove incorrect, actual results may vary materially
from those indicated or anticipated by the forward-looking
statements contained herein. Accordingly, you are cautioned not to
place undue reliance on these forward-looking statements, which
speak only as of the date they are made. Forward-looking statements
should not be read as a guarantee of future performance or results
and will not necessarily be accurate indications of the times at,
or by, which such performance or results will be achieved. Except
as required under the federal securities laws and the rules and
regulations of the Securities and Exchange Commission, we do not
have any intention or obligation to update publicly any
forward-looking statements, whether as a result of new information,
future events, or otherwise.
THE ARENA GROUP HOLDINGS, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE
SHEETS
March 31, 2022
(unaudited)
December 31, 2021
($ in thousands, except share
data)
Assets
Current assets:
Cash and cash equivalents
$
22,480
$
9,349
Restricted cash
502
502
Accounts receivable, net
19,998
21,660
Subscription acquisition costs, current
portion
24,940
30,162
Royalty fees
7,500
11,250
Prepayments and other current assets
4,972
4,748
Total current assets
80,392
77,671
Property and equipment, net
593
636
Operating lease right-of-use assets
493
528
Platform development, net
10,013
9,299
Subscription acquisition costs, net of
current portion
7,307
8,235
Acquired and other intangible assets,
net
52,255
57,356
Other long-term assets
587
639
Goodwill
19,619
19,619
Total assets
$
171,259
$
173,983
Liabilities, mezzanine equity and
stockholders’ deficiency
Current liabilities:
Accounts payable
$
7,070
$
11,982
Accrued expenses and other
17,425
24,011
Line of credit
9,291
11,988
Unearned revenue
48,519
54,030
Subscription refund liability
2,534
3,087
Operating lease liability
387
374
Liquidated damages payable
5,369
5,197
Current portion of long-term debt
5,847
5,744
Total current liabilities
96,442
116,413
Unearned revenue, net of current
portion
12,362
15,277
Operating lease liability, net of current
portion
683
785
Liquidating damages payable, net of
current portion
-
7,008
Other long-term liabilities
7,527
7,556
Deferred tax liabilities
376
362
Long-term debt
64,929
64,373
Total liabilities
182,319
211,774
Commitments and contingencies
Mezzanine equity:
Series G redeemable and convertible
preferred stock, $0.01 par value, $1,000 per share liquidation
value and 1,800 shares designated; aggregate liquidation value:
$168; Series G shares issued and outstanding: 168; common shares
issuable upon conversion: 8,582 at March 31, 2022 and December 31,
2021
168
168
Series H convertible preferred stock,
$0.01 par value, $1,000 per share liquidation value and 23,000
shares designated; aggregate liquidation value: $14,556 and
$15,066; Series H shares issued and outstanding: 14,556 and 15,066;
common shares issuable upon conversion: 2,004,971 and 2,075,200 at
March 31, 2022 and December 31, 2021, respectively
13,207
13,718
Total mezzanine equity
13,375
13,886
Stockholders’ deficiency:
Common stock, $0.01 par value, authorized
1,000,000,000 shares; issued and outstanding: 17,502,102 and
12,632,947 shares at March 31, 2022 and December 31, 2021,
respectively
175
126
Common stock to be issued
-
-
Additional paid-in capital
246,052
200,410
Accumulated deficit
(270,662
)
(252,213
)
Total stockholders’ deficiency
(24,435
)
(51,677
)
Total liabilities, mezzanine equity and
stockholders’ deficiency
$
171,259
$
173,983
THE ARENA GROUP HOLDINGS, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended March
31,
2022
2021
($ in thousands, except per share
data)
Revenue
$
48,243
$
33,615
Cost of revenue (includes amortization of
developed technology and platform development for 2022 and 2021 of
$2,311 and $2,167, respectively)
28,497
28,208
Gross profit
19,746
5,407
Operating expenses
Selling and marketing
17,216
17,529
General and administrative
13,514
5,638
Depreciation and amortization
4,202
3,963
Loss on impairment of assets
257
-
Total operating expenses
35,189
27,130
Loss from operations
(15,443
)
(21,723
)
Other expenses
Change in valuation of warrant derivative
liabilities
-
(665
)
Interest expense
(2,820
)
(2,820
)
Liquidated damages
(172
)
(255
)
Total other expenses
(2,992
)
(3,740
)
Loss before income taxes
(18,435
)
(25,463
)
Income taxes
(14
)
-
Net loss
$
(18,449
)
$
(25,463
)
Basic and diluted net loss per common
share
$
(1.20
)
$
(2.44
)
Weighted average number of common shares
outstanding – basic and diluted
15,381,306
10,456,052
THE ARENA GROUP HOLDINGS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
CASH FLOWS
(unaudited)
Three Months Ended March
31,
2022
2021
($ in thousands)
Cash flows from operating
activities
Net loss
$
(18,449
)
$
(25,463
)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation of property and equipment
114
110
Amortization of platform development and
intangible assets
6,399
6,020
Amortization of debt discounts
660
694
Loss on impairment of assets
257
-
Change in valuation of warrant derivative
liabilities
-
665
Accrued interest
-
1,866
Liquidated damages
172
255
Stock-based compensation
7,367
5,099
Deferred income taxes
14
-
Other
183
(509
)
Change in operating assets and
liabilities:
Accounts receivable
1,594
2,917
Subscription acquisition costs
6,150
(8,349
)
Royalty fees
3,750
3,750
Prepayments and other current assets
(224
)
(1,630
)
Other long-term assets
52
(238
)
Accounts payable
(4,912
)
1,920
Accrued expenses and other
(7,444
)
1,821
Unearned revenue
(8,358
)
9,039
Subscription refund liability
(553
)
737
Operating lease liabilities
(54
)
(215
)
Other long-term liabilities
(29
)
-
Net cash used in operating activities
(13,311
)
(1,511
)
Cash flows from investing
activities
Purchases of property and equipment
(71
)
(98
)
Capitalized platform development
(1,582
)
(868
)
Net cash used in investing activities
(1,653
)
(966
)
Cash flows from financing
activities
Repayments under line of credit, net of
borrowings
(2,697
)
(1,752
)
Proceeds from public offering of common
stock, net of offering costs
32,058
-
Payment of tax withholdings of common
stock withheld
(556
)
-
Payment of restricted stock
liabilities
(710
)
(280
)
Net cash provided by (used for) financing
activities
28,095
(2,032
)
Net increase (decrease) in cash, cash
equivalents, and restricted cash
13,131
(4,509
)
Cash, cash equivalents, and restricted
cash – beginning of period
9,851
9,535
Cash, cash equivalents, and restricted
cash – end of period
$
22,982
$
5,026
Cash, cash equivalents, and restricted
cash
Cash and cash equivalents
$
22,480
$
4,525
Restricted cash
502
501
Total cash, cash equivalents, and
restricted cash
$
22,982
$
5,026
Supplemental disclosure of cash flow
information
Cash paid for interest
$
2,160
$
260
Cash paid for income taxes
-
-
Noncash investing and financing
activities
Reclassification of stock-based
compensation to platform development
$
687
$
309
Offering costs included in accrued
expenses and other
1,568
-
Issuance of common stock in connection
with settlement of liquidated damages
7,008
-
Issuance of common stock upon conversion
of series H preferred stock
511
-
THE ARENA GROUP HOLDINGS, INC.
AND SUBSIDIARIES
NET LOSS TO ADJUSTED EBITDA
RECONCILIATION
(unaudited)
The following table presents a
reconciliation of Adjusted EBITDA to net loss, which is the most
directly comparable GAAP measure, for the periods indicated:
Three Months Ended March
31,
2022
2021
Net loss
$
(18,449
)
$
(25,463
)
Add:
Interest expense (1)
2,820
2,820
Income taxes
14
-
Depreciation and amortization (2)
6,513
6,130
Stock-based compensation (3)
7,367
5,099
Change in derivative valuations
-
665
Liquidated damages (4)
172
255
Loss on impairment of assets (5)
257
-
Professional and vendor fees (6)
-
1,719
Employee restructuring payments (7)
174
61
Adjusted EBITDA
$
(1,132
)
$
(8,714
)
(1)
Represents interest expense of $2,820 and
$2,820, for the three months ended March 31, 2022 and 2021,
respectively. Interest expense is related to our capital structure.
Interest expense varies over time due to a variety of financing
transactions. Interest expense includes $660 and $694 for
amortization of debt discounts for the three months ended March 31,
2022 and 2021, respectively, which are a noncash item and presented
in our condensed consolidated statements of cash flows. Investors
should note that interest expense will recur in future periods.
(2)
Represents depreciation and amortization
related to our developed technology and Platform included within
cost of revenues of $2,311 and $2,167 and depreciation and
amortization included within operating expenses of $4,202 and
$3,963 for the three months ended March 31, 2022 and 2021,
respectively. We believe (i) the amount of depreciation and
amortization expense in any specific period may not directly
correlate to the underlying performance of our business operations
and (ii) such expenses can vary significantly between periods as a
result of new acquisitions and full amortization of previously
acquired tangible and intangible assets. Investors should note that
the use of tangible and intangible assets contributed to revenue in
the periods presented and will contribute to future revenue
generation and should also note that such expense will recur in
future periods.
(3)
Represents noncash costs arising from the
grant of stock-based awards to employees, consultants and
directors. We believe that excluding the effect of stock-based
compensation from Adjusted EBITDA assists management and investors
in making period-to-period comparisons in our operating performance
because (i) the amount of such expenses in any specific period may
not directly correlate to the underlying performance of our
business operations, and (ii) such expenses can vary significantly
between periods as a result of the timing of grants of new
stock-based awards, including grants in connection with
acquisitions. Additionally, we believe that excluding stock-based
compensation from Adjusted EBITDA assists management and investors
in making meaningful comparisons between our operating performance
and the operating performance of other companies that may use
different forms of employee compensation or different valuation
methodologies for their stock-based compensation. Investors should
note that stock-based compensation is a key incentive offered to
employees whose efforts contributed to the operating results in the
periods presented and are expected to contribute to operating
results in future periods. Investors should also note that such
expenses will recur in the future.
(4)
Represents damages (or interest expense
related to accrued liquidated damages) we owe to certain of our
investors in private placements offerings conducted in fiscal years
2018 through 2020, pursuant to which we agreed to certain covenants
in the respective securities purchase agreements and registration
rights agreements, including the filing of resale registration
statements and becoming current in our reporting obligations, which
we were not able to timely meet.
(5)
Represents our impairment of certain
assets that no longer are useful.
(6)
Represents professional and vendor fees
recorded in connection with services provided by consultants,
accountants, lawyers, and other vendors related to the preparation
of periodic reports in order for us to become current in our
reporting obligations (“Delinquent Reporting Obligations
Services”). With respect to the Delinquent Reporting Obligations
Services, we incurred professional and vendor fees in the first
quarter of 2021 related to the preparation of our annual reports
for fiscal years 2018 and 2019 (which contained the financial
information for the quarterly periods during fiscal 2019), and our
quarterly reports for fiscal 2020. The amount of fees incurred in
connection with the Delinquent Reporting Obligations Services is
adjusted based on our best estimate of the amount we expect we
would ordinarily incur to meet our reporting obligations pursuant
to the Exchange Act.
(7)
Represents severance payments to our
former Chief Executive Officer for the three months ended March 31,
2022 and 2021.
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Investor Relations Contact
Rob Fink FNK IR Aren@fnkir.com 646.809.4048
Media Contacts:
Rachael Fink Manager, Public Relations
Rachael.Fink@thearenagroup.net
Andrew Rhodes DKC arena@dkcnews.com
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