USA TODAY Co (TDAY) Q3 2026 Earnings Call Transcript

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DATE

Thursday, Nov. 5, 2026

CALL PARTICIPANTS

• Head of Investor Relations - Matt Esposito
• Chairman and Chief Executive Officer - Mike Reed
• Chief Financial Officer - Trisha Gosser
• President of USA TODAY Media - Kristin Roberts

TAKEAWAYS

• Total Revenues -- $519.2 million, representing a 7.4% decrease or 5.8% on a same-store basis.
• Digital-only Subscription Revenues -- $46 million, increasing 5.3% year over year for the third consecutive quarter of growth.
• Digital-only ARPU -- $10.82, representing a record high and 23% year-over-year increase.
• Indirect Digital Advertising Revenue -- $100 million on an annualized basis, reflecting a 32% year-over-year decline due to changes in consumer search behavior.
• Adjusted EBITDA -- $36.6 million, down 36% due to lower revenue and elevated costs for raw materials, healthcare, and distribution.
• Digital Other Revenues -- $21.3 million, growing 24.8% year over year driven by AI partnerships and content licensing.
• Core Platform Revenues -- $105.4 million for the LocaliQ segment.
• Core Platform ARPU -- $2,996, a record high representing 6% growth year over year.
• Total Digital Revenues -- $249.3 million, representing 48% of total revenues.
• Annualized Cost Reductions -- $100 million, implemented at the end of the third quarter to establish a lower structural cost base.
• Net Loss -- $4.6 million, an improvement of $34.6 million over the prior-year period.
• Free Cash Flow -- $4.3 million, which remained relatively unchanged from the prior year.
• Total Debt Principal -- $952.9 million, following a $17.7 million debt paydown during the quarter.
• Stock Repurchase Authorization -- $96.9 million available, with management planning opportunistic repurchases in the fourth quarter.
• Incremental Debt Financing -- $50 million, secured via an amendment with Apollo Global Management specifically to fund share repurchases.
• Calculated Litigation Damages -- $901 million, representing the public damages calculation through 2024 in the antitrust case against Google.
• Monthly Unique Visitors -- 161 million, increasing sequentially from 158 million in the second quarter.
• Full Year Revenue Guidance -- a decline in the mid-single digits on a same-store basis, revised from a previous low single-digit decline.
• Digital Revenue Mix Target -- 50% or more of total revenues, now expected in 2027 instead of 2026.
• Cash Provided by Operating Activities -- $16.7 million, representing 9.9% growth year over year.
• Core Platform Customer Count -- 11,700 average customers, a 13% decrease versus the prior year.
• Direct Sold Digital Advertising -- growing year over year in the third quarter, with management expecting accelerated growth in the fourth quarter.

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RISKS

• Trisha Gosser stated that Adjusted EBITDA was down due to lower revenue and "elevated costs for raw materials, healthcare, and distribution," citing specific inflationary pressures on operating results.
• Mike Reed stated, "The changes in search and indirect revenue have cost us some time," acknowledging that the path to same-store total revenue growth has been delayed by several quarters.

SUMMARY

USA TODAY Co., Inc. (NYSE:TDAY) reported results for the third quarter of 2026, detailing a strategy to mitigate search-driven revenue pressure through structural cost reductions and the growth of high-value digital segments. Management reported that a $100 million annualized cost reduction program was implemented in late September and is expected to contribute to Adjusted EBITDA growth in the fourth quarter. The company stated that while shifts in consumer search behavior impacted indirect advertising, premium categories such as digital-only subscriptions and direct-sold advertising remained growth drivers. Additionally, management confirmed an April 5, 2027, trial date for its antitrust litigation against Google, with calculated damages through 2024 totaling $901 million.

• CEO Reed noted that the company has approximately $97 million available for stock repurchases and stated, "we intend to be opportunistic in repurchasing shares in the fourth quarter."
• President Roberts stated that automated affiliate offer integration increased affiliate clicks by 38% network-wide, noting that "there is a significant amount of untapped value in the journalism we already produce."
• Management indicated that its engagement with Palantir has moved past the initial phase, with the first products now live and beginning to scale.
• The company stated it expects to announce at least one, and potentially two, additional AI licensing agreements before the end of the fourth quarter.
• Roberts noted that digital-only ARPU reached a record high of $10.82, stating, "we've prioritized subscriber quality over raw volume, and as a result, we have a much healthier base."

INDUSTRY GLOSSARY

• ARPU: Average Revenue Per User, a metric used to measure the revenue generated per subscriber or customer.
• CPM: Cost Per Mille, the cost an advertiser pays for every 1,000 advertisement impressions.
• DMS: Digital Marketing Solutions, a segment providing digital marketing products and services to businesses.
• LocaliQ: The company's digital marketing solutions brand supporting small and medium-sized businesses.
• Newsquest: The company's wholly owned subsidiary operating media properties in the United Kingdom.
• Programmatic Advertising: The automated buying and selling of online advertising space.
• Same-store Revenues: A non-GAAP measure of revenue excluding acquisitions, divestitures, and currency impacts.
• Treble Damages: A legal term in antitrust law where the court triples the amount of actual damages awarded to the plaintiff.

Full Conference Call Transcript

Operator: Greetings, and welcome to USA TODAY Co.'s third quarter 2026 earnings call. At this time, all participants are placed on a listen-only mode, and a question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note, this conference is being recorded. I will now turn the conference over to your host, Matt Esposito, Head of Investor Relations with USA TODAY Co. Sir, the floor is yours.

Matt Esposito: Thank you. Good morning, everyone, and thank you for joining our call today to discuss USA TODAY Co.'s third quarter 2026 financial results. Presenting on today's call will be Mike Reed, Chairman and Chief Executive Officer, Trisha Gosser, Chief Financial Officer, and Kristin Roberts, President of USA TODAY Media. If you navigate to our website, you will find that we have posted an earnings supplement in addition to our earlier press release. We will be referencing it today on the call, as it provides you with additional detail on this quarter's performance. Before we begin, please let me remind you that this call is being recorded.

In addition, certain statements made during this call are or may be deemed to be forward-looking statements as defined under the U.S. federal securities laws, including those with respect to future results and events, and are based upon current expectations. These statements involve risks and uncertainties that may cause actual results and events to differ materially from those discussed today. We encourage you to read the cautionary statement regarding forward-looking statements in the earnings supplement, as well as the risk factors described in our filings made with the Securities and Exchange Commission. Except as required by law, we undertake no obligation to publicly update or correct any of the forward-looking statements made during this call.

Please keep in mind all comparisons are on a year-over-year basis unless otherwise noted. In addition, we will be discussing non-GAAP financial information during the call, including same-store revenues, free cash flow, total adjusted EBITDA, total adjusted EBITDA margin, segment adjusted EBITDA, segment adjusted EBITDA margin, and adjusted net income attributable to USA TODAY Co. You can find reconciliations of our non-GAAP measures to the most comparable U.S. GAAP measures in the earnings supplement. Lastly, I'd like to remind you that nothing on this call constitutes an offer to sell or a solicitation of offer to purchase any USA TODAY Co. securities.

The webcast and audiocast are copyrighted material of USA TODAY Co. and may not be duplicated, reproduced, or rebroadcasted without our prior written consent. With that, I would like to turn the call over to Mike Reed, Chairman and CEO of USA TODAY Co.

Mike Reed: Thank you, Matt. Good morning, and thanks to all of you for joining our third quarter earnings call. In the third quarter, we saw encouraging underlying signals in the categories that we believe are most important to our future, even as we navigated the impacts of the changes in consumer search, along with some inflationary pressures. When you look at the Q3 numbers, there are really two stories in our results, and it is important to understand both. The first is the industry-wide change in search behavior, which has had an outsized impact in the near term on a relatively small part of our business.

The second is the continued momentum in the digital revenue categories that are central to our strategy and where we see the greatest opportunity to drive long-term growth. Today, I will walk you through both, along with the decisive steps we've already taken to strengthen the business, including the implementation of a $100 million cost reduction program at the end of Q3, and why we believe we are well-positioned to deliver a strong fourth quarter. Let me start with the first story. Changes in consumer search patterns have been a headwind, not just for our business, but for many media organizations, and more recently, technology platforms.

Over the past couple of quarters, these changes have had an outsized impact on one specific part of our digital advertising business, indirect advertising, which includes programmatic advertising and sponsored content recommendations. In the third quarter, we stabilized our audience, and through this, we're continuing to grow our direct sold digital advertising revenues. This reinforces an important point despite the changes in search. We're still delivering an audience that is highly valuable to advertisers, with meaningful opportunities to further grow our premium advertising business. That said, these changes have pushed out our path to same-store total revenue growth by a few quarters.

Now, I want to put that in context, because it's important to understand just how much of our business touches search. Our digital advertising revenue is made up of two primary categories: advertising sold directly by our sales teams, which, as I mentioned earlier, is growing, and indirect advertising. It's this indirect revenue, which represents about $100 million of revenue on an annualized basis, or less than 5% of our total business, that has seen the most impact, declining 32% year-over-year in the third quarter. However, this part of the business has historically carried some of our lowest value advertising inventory, generating significantly lower CPMs than our premium direct sold advertising.

While the pressure is real right now, it is concentrated in a relatively small, lower value part of our business, and we do not view it as a permanent headwind. We also don't expect this revenue stream to go away entirely, but as we continue to shift towards premium sales and premium experiences, and we improve the customer experiences across our products, it naturally becomes a less significant part of our revenue portfolio. As we move through the next few quarters, we'll begin to lap some of the more notable impacts, which will help our year-over-year comparisons. This is the first story. We felt the impact, but it is limited, and it does not change where we are headed.

That brings me to the second story, the one that really defines our future and the one we are most excited about, and it starts with our audience. In Q3, we continued to serve one of the largest digital audiences in the media industry. Importantly, we are starting to see signs of stabilization, with sequential growth over Q2 in both unique visitors and page views, as well as stronger engagement across newsletters, social, and video. That scale is a real advantage because it allows us to grow the digital revenue categories most important to our long-term growth, even as the search environment continues to change. We saw that play out in Q3 as those categories continued to improve for us.

Let me walk through a few of those categories with you. Starting with digital advertising, our direct sold year-over-year revenue trends have seen solid momentum in 2026, highlighted by growth in Q3. Importantly, we expect stronger growth in Q4. Moving forward, we see several opportunities to accelerate this growth, including growing our base of high-value known users, expanding our video offerings on and off platform to capture a larger share of growing video advertising budgets, and scaling our AI-discoverable branded content, which is a product we began rolling out in September. Next is our digital-only subscription business and digital other business, which we believe are two important engines for sustainable growth, and they continued to perform well in the quarter.

Specifically, digital-only subscription revenues posted its third consecutive quarter of year-over-year growth, and also grew sequentially, while digital-only ARPU reached a new high. Digital other also grew year-over-year in the quarter, and we expect sequential growth in this revenue category in Q4 as we sign additional AI licensing agreements and grow our commerce business. Third, our DMS revenue trends improved sequentially year-over-year in the quarter. Lastly, our engagement with Palantir continues to make solid progress, with our first products now live and beginning to scale. Taken together, total digital revenue represented 48% of total revenues in Q3, up from 47% in Q2. We also saw a sequential improvement in same-store total revenue trends in the quarter.

To support our long-term growth objectives, at the end of Q3, we implemented a new $100 million annualized cost reduction program. These targeted actions were put in place in late September, fully implemented by early October, and are already positively impacting our run rate in the fourth quarter. With these cost actions and the green shoots we are seeing across our digital portfolio, we believe we are well-positioned to deliver significant sequential growth in Adjusted EBITDA and free cash flow, along with substantial margin expansion in Q4. Because these cost reductions are largely permanent, we expect the benefits to extend well into 2027. Beyond the operating results, our antitrust case against Google continues to advance.

As you may have seen, Google's motion for summary judgment was recently denied, allowing our claims to move forward to a jury trial. You may have also seen that our trial date has been scheduled five months from today, on April 5, 2027. The ruling also made public our damages calculation, which totaled $901 million through 2024. We expect to update that figure ahead of trial for additional damages incurred through the trial date. Importantly, that figure does not include the potential for treble damages. The trial date is approaching quickly. We feel good about where the case stands, and we look forward to our trial in April.

Stepping back, when I look across the business, I am encouraged by the underlying signals in the categories that are most important to our future. Our audience is stabilizing, engagement is getting stronger, and our cost base is lower. Despite the headwinds from search, the revenue categories most important to our future and to our same-store total revenue growth are growing. Put all this together, and we see a clear path in 2027 to same-store total revenue growth, along with Adjusted EBITDA and free cash flow growth. The changes in search and indirect revenue have cost us some time, but have not altered our strategy, and they have not changed our confidence in where we are headed.

Finally, we believe our current share price does not reflect the underlying value of our business or the opportunities ahead of us. With that in mind, we have approximately $97 million available under our authorized stock repurchase plan, and we intend to be opportunistic in repurchasing shares in the fourth quarter. With that, I will turn the call over to Kristin to discuss how we are putting our audience intelligence to work across the business, the early results, and what we are working on next. Kristin?

Kristin Roberts: Thank you, Mike. Last quarter, we talked about how every visit, every story read, every video watched, and every sign-up creates a signal. When we connect those signals, we can make smarter decisions about the content we create, how readers discover it, and how we monetize it. In Q3, we started putting that intelligence to work. Let me start with our newsrooms, because that is where every audience relationship begins. Both domestically and internationally, we are developing AI-powered tools that help our journalists identify story opportunities faster and with greater predictability, allowing us to produce more relevant and meaningful content for our readers. To be clear, this does not replace experience and judgment of our journalists. It amplifies it.

By pairing that judgment with predictive analytics based on what worked in the past, we can drive deeper engagement and stronger monetization across our platform. We also are putting that same intelligence to work in how readers discover our content, starting with newsletters. In select local markets, we have begun introducing more personalized newsletter content using available reader and behavioral signals to create a more directly relevant offering for each reader. The early results are encouraging, with personalized newsletter pilots outperforming our non-personalized standard. Readers are seeing stories that are more engaging to them and aligned to their specific interests. The impact is significant both for the reader, who experiences far greater relevance in our product, and for us.

A newsletter sign-up creates a direct relationship. It builds habit and brings readers back, and it begins the journey from anonymous to known users, which, as Mike mentioned, are higher-value users. Our next step is to expand personalized recommendations across USA TODAY and our sports-related newsletters. We are seeing that same intelligence payoff in commerce. Last quarter, I described how much of our affiliate business depended on manual work to connect relevant offers with our stories, and in Q3, we automated that process. When an eligible story is published, a relevant affiliate offer is identified and added automatically. We've now rolled this out across our local sports content, USA TODAY Sports, our SportsWire sites, and most recently, entertainment.

Across the network-wide rollout, affiliate clicks have increased 38%, which reinforces an important point. There is a significant amount of untapped value in the journalism we already produce, and we now have the tools to capture it at scale. Our next step involves working with our commerce team to integrate a much broader range of affiliate opportunities, moving beyond general offers to more specific product-level recommendations. Over time, we expect that to translate into more relevant shopping experiences for readers and more revenue from the content we create every day. Which brings me to digital-only subscriptions. The same intelligence that connects readers with the right content and products also can change how we acquire, engage, and retain subscribers.

Moving forward, we're focused on three moments that matter. The first is the paywall. Not every reader wants the same thing. Some want an ongoing relationship with us. Others just want access to a single story. Our pay-per-article offering meets those readers on their terms and opens up a new revenue opportunity from audiences who are not ready for a full subscription. We've tested pay-per-article in the past, but we kept those tests small because we found it could cannibalize subscriptions.

What's changed is that the audience intelligence we have today is much stronger, and as a result, we are confident we can scale it with precision to a broader audience in a way that allows us to both build a robust pay-per-article offering and a strong digital subscription business. The second moment is the action, or what we call the next best action. Rather than showing every reader the same offer or opportunity, we'll use what we know about their interests and behavior to personalize the timing, the messaging, the placement, and the offer itself. In other words, delivering the right engagement opportunity to the right reader at the right time. The third is retention.

From a subscriber's first week, there are moments where a more personalized experience can make a meaningful difference. Getting those moments right can improve retention, increase lifetime value, and build a more durable subscription business. On that note, I'm encouraged by the continued year-over-year growth in digital-only subscription revenues and the new highs achieved in digital-only ARPU. Over the past year, we've prioritized subscriber quality over raw volume, and as a result, we have a much healthier base. Now we can begin driving volume again from a much stronger position at the right price point, where incremental subscriber growth can translate more directly into revenue growth.

This is an important distinction from the past, when volume was often driven by lower-priced subscriptions. As we head into 2027, our focus will be on growing that base by giving readers more reasons to come back every day. Overall, we are confident in the direction we are heading and believe we have the foundation in place for our next phase of digital growth. Our focus now is on scaling what is working across our network and translating that progress into stronger financial performance over time. Back to you, Mike.

Mike Reed: Thanks, Kristin. It is important to see how we are turning our audience data into actionable intelligence, and more importantly, putting that intelligence to work across our business. As we have outlined this morning, we are growing the parts of the business that matter most to our future. Premium advertising is growing, our digital-only subscription business is growing, and our digital other revenue is growing. That tells us we already have the scale we need to drive long-term revenue growth. Search referral traffic has historically been one of our lower value audience sources.

So while the changes are creating some near-term pressure, the bigger picture is that the areas we have been focused on continue to move in the right direction. With that, I will turn the call over to Trisha to walk through our third quarter financial results. Trisha?

Trisha Gosser: Thank you, Mike. Good morning, everyone. Please keep in mind that all comparisons are on a year-over-year basis unless otherwise noted. In the third quarter, total revenues were $519.2 million, a decrease of 7.4% or 5.8% on a same-store basis, which represents an improvement of 30 basis points over Q2's same-store trends. The pressure remained concentrated in digital advertising, where the continued shift in consumer behavior away from traditional search has had an outsized impact on indirect digital advertising revenues, with programmatic advertising most affected. Importantly, this pressure is not broad-based, and we saw improvement across several key areas of the business during the quarter.

Direct sold advertising, our digital advertising revenue outside of programmatic and sponsored link recommendations grew in Q3. This is our premium and classified revenue, and we believe our focus on known users, video-forward experiences, and AI discoverability allows us to grow our direct revenue more substantially in future quarters. In addition, our digital marketing services revenue trends improved sequentially. Digital-only subscription and digital other revenue continued to grow year over year, and both print advertising and print circulation trends improved compared to the second quarter. In the third quarter, operating costs and SG&A expenses decreased approximately 4%, reflecting our continued focus on disciplined cost management.

As Mike mentioned, toward the end of the quarter, we implemented a $100 million annualized cost reduction program, which included workforce reductions. The third quarter reflected only a partial month of savings from these actions, and we therefore expect a more substantial impact in Q4. We also continue to evaluate and lower our cost structure with opportunities to transition to lower-cost vendors and software in certain areas, which we believe will generate additional savings in 2027. Adjusted EBITDA totaled $36.6 million in the third quarter, down $20.6 million or 36% year over year. The decline was driven by lower revenue, most notably the digital advertising pressure I just described, along with elevated costs for raw materials, healthcare, and distribution.

In Q3, we reported a net loss of $4.6 million, representing a year-over-year improvement of $34.6 million. Adjusted net income attributable to USA TODAY Co. was $1.4 million, an increase of $32.4 million year over year. Total digital revenues in the third quarter were $249.3 million, a decrease of 5.1% or 4.2% on a same-store basis, and represented 48% of total revenues. Digital advertising revenues decreased 13.9%, reflecting lower page views tied to the changes in consumer search, the continued impact of the loss of a programmatic advertising partner in the second quarter, and lower revenue from the third-party vendors as a result of Google's spam policy, which continue to pressure indirect revenue.

Within digital, the underlying growth engines continued to perform. Digital-only subscription revenues totaled $46 million, increasing 5.3% year over year, representing its third consecutive quarter of year-over-year growth. Digital-only ARPU also reached a record high of $10.82 in the third quarter, increasing 23% year over year. Our digital other revenues, which include revenues from our AI partnerships, content licensing agreements, and syndication, grew 24.8% year over year to $21.3 million, and we expect sequential growth in this category in Q4 as we further expand this revenue stream and our suite of licensing agreements. Turning to the USA TODAY Media segment-adjusted EBITDA totaled $23.8 million, representing a margin of 6.3%.

Third-quarter revenue trends were primarily affected by the performance in digital advertising. Turning to the Newsquest segment, revenue trends improved to slight growth over Q2, while segment-adjusted EBITDA totaled $13.8 million, reflecting a margin of 23.3%. Looking at our LocaliQ segment, for Q3, core platform revenue totaled $105.4 million. Segment-adjusted EBITDA totaled $7.3 million, and we ended the quarter with approximately 11,700 core platform average customer count, while core platform ARPU increased approximately 6% to a record quarterly high of approximately $3,000. Let's now turn to the balance sheet. At the end of the third quarter, our cash balance was $68.2 million, and net debt was $884.7 million.

In Q3, free cash flow totaled $4.3 million, relatively unchanged in raw dollars from Q3 of last year, while cash provided by operating activities grew year over year by 9.9% to $16.7 million. We ended Q3 with $952.9 million of total debt, reflecting $17.7 million of total debt paydown in the quarter. While debt paydown remains our primary focus of capital allocation, we continue to have authorization under our stock repurchase program and expect to make open market purchases in the fourth quarter, including through the use of incremental term loans.

In early November, we amended our existing 2029 Term Loan Facility to provide access to up to $50 million of incremental debt financing from funds managed by affiliates of Apollo Global Management. This financing is available during the fourth quarter of 2026 and is specifically designated for share repurchases within the quarter. We intend to utilize these funds to repurchase shares of our common stock before year-end. We have also obtained the necessary lender consents to move forward with these repurchases. We are also updating our full-year guidance to reflect the impact of search-driven audience declines and continued pressure on programmatic advertising revenue, both of which we believe stabilized in the third quarter.

We now expect same-store revenue to decline in the mid-single digits compared to our previous expectation of a low single-digit decline, with digital revenue reaching 50% of total revenues in 2027 rather than 2026. We expect a significant sequential improvement in Adjusted EBITDA and free cash flow in the fourth quarter, although both are now expected to decline for the full year compared to 2025. While these pressures have delayed our return to overall revenue growth, we believe we are building a foundation for improved performance.

We believe that stabilizing our audience, better connecting our audience data and signals to revenue opportunities, and realizing the benefits of our cost reduction initiatives position us to deliver stronger results in the fourth quarter and to build on that progress in 2027. I will now hand it back to the operator for questions, and then we'll go back to Mike for some closing thoughts.

Operator: Thank you. Ladies and gentlemen, at this time, we'll be conducting our question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you wish to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Thank you. Our first question is coming from Giuliano Bologna with Compass Point. Your line is live.

Giuliano Bologna: Good morning. Thanks for taking my questions. As a first question, you mentioned consumer behavior changing around search, which has been seen throughout the industry. How should we think about that trend going forward, and how should we think about that trend in terms of the financial impact on the business?

Mike Reed: Yeah. Hey, Giuliano. Thanks. The changes in search behavior definitely have had an outsized impact on our financial statements for the last couple quarters, and you are seeing that really on a broader basis across the media industry, but also now into the tech industry. However, what I mentioned on the call that I really think is worth emphasizing here is that we see that impact really through one specific revenue line, and that is our indirect revenue category, which is programmatic advertising primarily. That advertising category for us is about $100 million. We do not believe that category is going to zero, so our exposure is somewhat less than that.

I think there is important context around this particular search issue right now that is worth talking about. One is, we are seeing lower search traffic. We saw that in Q2. We saw it again in Q3. That is lower search traffic versus the prior year. I think it is important to note we did not see any sequential declines from Q2 to Q3. That is an important factor. I think it is also important from a context perspective to talk about the fact that these are our anonymous users. It is our lowest value user on the platform with the lowest CPMs attached to any advertising that we sell.

With our long-term strategy that we have been talking about for the last couple years, these anonymous users with low-value CPMs really start to go away and become much less of a factor in our overall revenue picture on a go-forward basis. There is definitely a pull forward here. It is happening a little faster than we would have liked, but over the long term, our strategy moved us away from these users as we grow our known users and engage more with our known users. That is where the on-platform and off-platform high-value CPMs come from.

I also mentioned on the call our digital ad premium advertising that our sales reps sell is a $200 million growth category that returned to growth in the third quarter, and we see accelerated growth in the fourth quarter. That is the category in our digital advertising space that we are really most focused on. It is painful right now, but our exposure is limited. It is a $100 million revenue category. It is not going to zero, so our exposure is less than that. As we grow our premium digital advertising, we become less dependent on this programmatic channel.

Finally, we did take $100 million of costs out at the very end of Q3 to help us mitigate the near-term financial impact of the changes of search. I mentioned on the phone, on the earnings call, it is not a permanent headwind for us, but it has definitely been a challenge just in the last couple quarters.

Giuliano Bologna: That's helpful. Maybe as a second related question, you mentioned direct sold advertising returning to year-over-year growth, and that you expect that to accelerate going forward. Can you expand on that, points you mentioned around that, on the call, and why you think direct sold advertising will accelerate?

Mike Reed: Yeah, I think, thanks for that question. It's because it is really important to talk about. It is a $200 million revenue category. It is the category where we monetize our engaged and known users, and we're starting to develop that engagement off-platform on our social channels as well. I talked about three underlying principles on the earnings call that will drive that growth for us going forward. First is that deepening engagement with consumers. We're doing things on platform to really convert users to known users, to engage more with those known users on our platform. That's the work we're doing with Palantir, to put the signals from our users, to turn those signals into actionable intelligence.

Then the work we're doing with newsletters and our social strategy, all of those things, and improving the experience on platform for our consumers. All of those things will deepen our engagement with consumers. It will grow our known users. We saw pretty significant known user growth in the third quarter, which was nice to see, so we know this stuff is working. All of that will lead to better CPMs, more advertisers on our platform, and we're already seeing that with the growth we saw in Q3, and our pipeline for growth in Q4, which gives us the confidence to say that growth will accelerate in the fourth quarter. Second is our focus on video advertising.

It's definitely one of the fastest-growing digital revenue categories in the ecosystem, and it's a category that's ripe for growth for us, both on and off platform again, on our platform and on the social platforms where we have quite large audiences. We're using AI to help us expand our video capabilities, and it really starts with making all of our content available in video format as well as text. We know consumers increasingly want to consume content in video form. Making our content available in video form is a top priority for us. Then it also is creating more premium video advertising inventory for which to monetize, and video advertising comes with much higher CPMs.

So, the overall video opportunity for us in creating content, leveraging AI to help us do that better and quicker, and creating more premium space will allow us to grow the video advertising category significantly. As I said, that's the fastest-growing digital advertising category in the ecosystem, and a very small category for us today. So, we see a lot of upside there. Third is a new product area for us, and it is AI-driven discovery, is what I will call it. We are finding that brands want advertising content on trusted platforms like ours that is also AI discoverable. We are perfectly suited to take advantage of this new developing revenue category and to grow it.

We are creating new engagement opportunities for our advertisers on our own platform as well through our AI answer engine with deeper dives. As this marketplace continues to grow because there is so much crap and untrusted content out there on the AI platforms, it is a real opportunity for us to partner with brands to create trusted messaging and to make that discoverable on AI platforms. We are pretty excited about the potential growth for that. As we continue to improve the customer experience on platform, grow our known users, grow our engagement, we see significant opportunity to grow our premium digital advertising.

Importantly, all of that makes us less dependent on programmatic and that less valuable consumer that used to come to us through search.

Giuliano Bologna: That is very helpful. Maybe switching topics a little bit. On the conference call, you mentioned the $100 million cost reduction plan that is now fully in place. Are there more cost reduction programs or opportunities that you can see in 2027 and beyond, or is this really the big final kind of cost reduction plan?

Trisha Gosser: Hey, good morning, Giuliano. This is Trisha, and I will take that. You heard that we put in $100 million annualized cost reduction program in the third quarter. That was put in place in late September. We had it fully implemented by early October. What you are seeing is a pretty limited impact in the third quarter, but we are absolutely already seeing that scale and having a really positive impact on our fourth quarter run rate. With these actions, our intent was to be targeted. We did need to lower our cost structure, but also really protect the areas that are the most important to our long-term strategy.

We were able in these cost reductions to do things like leveraging automation, outsourcing, using technology to make the more significant structural changes in our cost base. And that still allowed us to keep our resources aligned with the part of the business where we think we're going to see the strongest returns. Those are going to carry into 2027, so we're going to see a large piece of this cost reduction program benefiting well into 2027. It's part of the reason we feel really comfortable that we're going to get to Adjusted EBITDA and free cash flow growth next year, and in the fourth quarter as well.

To the second part of your question, or the main part of your question, whether there's more to come in 2027, we absolutely believe we continue to have opportunities to improve our cost structure over time. I think I mentioned this on the call, but we've already identified opportunities where we can lower our vendor spend through things like consolidating systems or our technology platforms next year. We'll continue to optimize our outsourcing agreements. We'll continue to optimize and streamline our print operations as that business evolves, continuing to automate across the business. So there really are areas where we see some really meaningful opportunities to continue to simplify our operations like we did in the third quarter.

So you'll see the flow-through of the 2026 actions, but we think we have the ability to carry some of that into 2027 as well.

Giuliano Bologna: That's helpful. Switching over to the share repurchase program. Can you elaborate on why you've decided to start a share repurchase program? When I think about that program, are there any timing limitations around how fast you can deploy the share repurchase program?

Mike Reed: Yeah. The answer on why, Giuliano, is pretty simple. We think that where our shares are trading today, the company is significantly undervalued. We see what's going on in the business. We see all the opportunities ahead. We talked about a lot of them on the call today, and we think that the market is not valuing the equity correctly, and so it's an opportunity for us to purchase shares at a significant discount to where the company should be trading. We've also done, I think, a really terrific job over the last five, six years on improving the balance sheet.

We've taken our first lien leverage from $1.8 billion in 2020 down to about $700 million, on a net basis, down closer to $600 million. We have delevered really significantly, and it puts us in the position to have a little more flexibility with capital allocation to take advantage of a mispriced equity like this. We feel good about our move to allocate a little bit of capital to the share repurchase plan. As far as how quickly or when we can do that, share repurchase plan is already authorized and in place. We have about $97 million available on it.

I think trading windows open a couple days after earnings release, so we can be in the market most of the fourth quarter with share repurchase.

Giuliano Bologna: That is helpful. As a final one, it seems like there has been a lot that has happened in the last three months related to the Google Ad Tech litigation. Can you update us on this and your expectations around timing and also around anything that is topical around this?

Mike Reed: Yeah, sure. There has been a lot of movement since our Q2 earnings call. We talked on the Q2 earnings call about two significant items ahead of us, one being the judge ruling on Google's summary judgment filing, and number two was getting a trial date set. Both of those have occurred since our last earnings call, which is great progress. At the end of September, the judge ruled against most all of Google's summary judgment, which was favorable to us, and it was great to see. A few days after that, the judge actually set the trial date for April 5th.

We were glad to see that it is a speedy trial in that we are only five months away from that right now. The judge also, in his summary judgment ruling, made public the damages. It is the first time the damages have been public. They were $901 million, and that was the damages that were part of our filing as of 2024. Those damages will roll forward to the trial date and be higher than the $901 million. I think it is also important to note that because it is an antitrust case, the damages are subject to treble damages as well. That is three times damages.

We are pretty excited, and we remain really firm and confident on our case, and we are really pleased to have the next phase of this underway, which is getting to trial, just five months from today, as I mentioned on the earnings call. A lot of great progress over the last few months.

Giuliano Bologna: That is very helpful. I appreciate the time, and I will jump back in with you.

Mike Reed: Thanks, Giuliano.

Operator: Thank you. Our next question is coming from Matt Condon with Citizens Bank. Your line is live.

Matt Condon: Thank you for taking my questions. My first one is just on digital subscriptions. It seems things are continuing to go well there. Just wanted an update. What is going well, and what are the opportunities ahead?

Kristin Roberts: Mike, I'll take this one if you don't mind.

Mike Reed: Yeah, absolutely.

Kristin Roberts: My name is Kristin. Thanks. What's going well there is an ARPU story for 2026. We believe we can return to subscriber growth while maintaining the progress that we've made in ARPU. We've been really deliberate. As you know, we've talked about it for a few quarters now. We've been very deliberate in prioritizing subscriber quality and prioritizing long-term value over simply growing volume, and we moved away from all of those heavily discounted promotional offers, and we focused on building what we see as a healthier and far more valuable subscriber base. That strategy is delivering results. You could see it in Q3.

The digital-only subscription revenue grew 5.3% year over year, and that was our third consecutive quarter of growth. ARPU increased 23%. We hit a record $10.82. We think that puts us in a much stronger position to start growing subscriber volumes again without really relying on deep discounting strategies of the past. I also think it's important to add here that's where our work with Palantir is becoming particularly important. It's about personalization and relevance. We're developing more personalized acquisition and engagement capabilities. Those are the things that are allowing us to better understand individual readers, to understand their consumption intent, and that in turn allows us to deliver the right offer at the right time.

It includes more dynamic subscription offers, pay-per-article options, personalized content experiences. All of it is designed to improve conversion and protect the value of the existing subscriber base. The other thing I would throw in is around retention. Our confidence comes from our ability to build stronger relationships with our subscribers through more relevance, more relevant content, increased engagement, better personalization. We are also developing capabilities to identify subscribers who might be at risk of canceling so that we can engage them with more targeted retention offers. I think those tools can help improve retention and increase lifetime subscriber value over time.

When I am thinking about 2027, our focus for 2027 is on combining the ARPU improvements that we have already achieved with a return to subscriber volume growth. We really do not expect that transition to happen overnight, but we believe we now have a much stronger foundation to drive sustainable growth in both subscribers and in revenue.

Matt Condon: Great. Then maybe a follow-up just on AI licensing. Just across the industry, it seems like there has been a little bit of a slowdown in just the pace of new agreements being announced. Just what are you seeing in the pipeline, and what should we expect here in Q4 and then heading into 2027?

Mike Reed: Yeah. Hey, Matt. It is Mike. Fair observation. We have seen the same. There has been a little bit of a slowdown in the number of deals being signed across media businesses and AI platforms this year, really. We actually still believe we will announce at least one, possibly two, this year before the end of the fourth quarter, so stay tuned on that. We do have a pipeline, and we do have some negotiations going on, and so we are fairly confident that we will have at least one, maybe two, announced this year.

But if I take a step back and look at the general landscape for AI licensing deals, we still believe long-term that this is a significant revenue category, but we do think it is the long game that we have to play to get there, continuing to block content, block the scrapers. I think we continue to see signs every day that there is real value in the content we create. I think just yesterday, there is news in the marketplace that Anthropic signed its first AI licensing deal with the Associated Press to have real-time election update content on its platform.

I think that is significant because it really speaks to the value of real-time news and information, how important it is to the AI platforms, and that is at the heart of what we do, right? We are the largest producer of content in the U.S. So, I think that the opportunity will unfold, but I do think there is a bit of a long game here. Anthropic did, and its Form S-1 is now public, and they did say in their Form S-1, no surprise to anybody, that they claim fair use for use of copyright-protected content. However, that could change based on the marketplace, based on legal rulings, et cetera.

We believe in copyright protection and believe in the long run, AI licensing will prevail, and we believe the value of the content really speaks for itself, and that ultimately is what will allow us to prevail with a robust AI licensing revenue opportunity.

Matt Condon: Great. That is very helpful. Then just a final one here. Obviously, with the announcement of the share repurchase program and leverage coming in here over the last several years, I would love just to get an update on what are your capital allocation priorities here as we look out over the next several years? Thank you so much.

Mike Reed: Yeah. I would say three things, Matt. One, reducing debt and reducing leverage remains a top priority, a number one priority for capital allocation when I look out over the next two or three years. Investment in the business to accelerate growth in all the areas that we talked about today is a second priority for capital allocation. Then, with reduced leverage where we have it today, we do have the opportunity to be opportunistic in repurchase shares when the market dictates, like we are in right now, where the equity is mispriced. So, those are our priorities for capital allocation. Again, summarized, reduction of debt, investment in the business, and opportunistic share repurchases.

Operator: Thank you. Our next question is coming from Barton Crockett with Rosenblatt Securities. Your line is live.

Barton Crockett: Okay. Thanks for taking the question. I just wanted to dive a little bit deeper into the search environment that you are describing and try to understand what changed specifically in the third quarter versus the second quarter, because I am hearing mixed statements from you that things didn't change, but they did. I am just wondering if you can be a little bit more specific. Was there actually something different in the third quarter than you were seeing in the second quarter?

Mike Reed: No, nothing different. We started to see the declines in the second quarter, and they continued into the third quarter from a year-over-year perspective, which, Barton, I think I said on the call, from a year-over-year perspective, we saw declines in both Q2 and Q3. What I said was encouraging is we didn't see further erosion in the audience from Q2 to Q3.

We saw a stabilization at the levels we are at now, which I think is important and speaks to our underlying strategy of engaging with the users that are on our platform, engaging with users through our newsletter and social strategies, in that we continue to have very significant scale post what's happened with search, and that we didn't see further erosion from Q2 to Q3. That might be the confusion. Q2 and Q3 both saw similar year-over-year declines, but we didn't see any further erosion or degradation in audience. Importantly, or encouragingly, that audience remains significant in scale. We had 158 million uniques on our platform in Q2. We had 161 million uniques on our platform in Q3.

One other thing that maybe you are thinking about in the revenue environment that happened is, in Q2, and I will use the layman's term, but as you know, the back button hijacking that Google started to consider spam, that happened towards late Q2. So it had a much less impact on Q2. We had the full impact of that in Q3. Our exposure there going forward is a couple more quarters, but it's relatively small.

Barton Crockett: Okay. But, one thing that did-

Mike Reed: Overall, yeah, there's no change.

Barton Crockett: Okay. But one thing that did change is your guidance. How is it that this is the quarter when you're changing the guidance versus the trends being apparent last quarter? Just a little bit of discussion of the process there would be helpful.

Mike Reed: Yeah. Go ahead, Trisha.

Trisha Gosser: Yeah. Barton, there's a couple of things that we adjusted our guidance around. The first is that even though our audience and our page views really did stabilize Q2 to Q3, we did see a little bit further of an erosion in that programmatic and sponsored links revenue year-over-year. I think that took a little bit of time to catch up. We had expectations that our direct sold revenue would improve in the third quarter. It did, but not at enough of a pace to outpace that indirect revenue decline in the third quarter.

The other thing I would say is that we're still confident that we will have new AI licensing deals to sign and announce here in the fourth quarter. We did have some expectation that we would see a benefit of that earlier in Q3 and earlier in Q4. Really, that's just a shift of timing to later in the year, and I'd say those are the two biggest impacts that caused us to adjust our guidance here in the third quarter.

Barton Crockett: Okay. All right. Then one other thing, we're talking a lot about referral from search, but another issue that propped up yesterday with Taboola is the circumstance that people are spending less time on some web pages, generating fewer ad impressions. Is that something that you're seeing as well? If you could discuss that, I'd be interested.

Trisha Gosser: Yeah, we're not seeing that. We're not seeing a decline in the amount of time people are spending on our platform. We are not seeing a decline in the impressions per page that we are delivering. So we haven't experienced that yet, but did see that commentary yesterday. But we are, as Mike Reed has mentioned today, we're holding our audience both just in raw dollars and in their attention quarter-over-quarter.

Barton Crockett: Okay. All right. That's very helpful. Thank you.

Operator: Thank you. As we have no further questions in queue at this time, I would like to turn the call back over to Mr. Reed for any closing remarks.

Mike Reed: Yeah, thank you. Let me close with some observations or highlights that I think are important for investors. Our last two quarters have definitely been disrupted by consumer search. We talked a lot about that today, and the changes in some of the inflationary pressure, too. That is the bad news. However, we are fairly confident the worst is behind us, and the good news is these near-term disruptions have not changed our long-term growth strategy. With the disruption to search, we have still returned our premium direct digital advertising revenue to growth year-over-year in the third quarter, as you heard today. We have continued to grow our digital subscription revenues along with our digital commerce and our licensing revenues.

In addition, our audience remains very large, and as you heard today, our audience did not decline further from Q2 to Q3, and our engagement with that audience has held firm in the third quarter compared to the second quarter. We are pleased with that. We believe this will continue to lead to growth in our key long-term digital growth strategies, which we did see in the third quarter. We saw growth, as you heard, in our digital subscription business, our digital other business, and our digital premium advertising business.

We also took $100 million of costs out of our infrastructure in late Q3, so we will really see the benefit of that in Q4 and through the first three quarters of next year. As you heard today, we are not done. We are going to continue to find more ways to lower our cost base as we head into 2027, which gives us a lot of confidence in our ability to grow EBITDA and free cash flow in 2027. As you heard today, the pressure on revenue we have seen is, in the near term, is very specific, primarily search-related changes impacting indirect revenue.

Just want to highlight one more time, this revenue stream is now about $100 million annualized. It is a small percentage of our overall business, so our exposure here is not limitless. We do not believe this category is going to zero. Our cost actions will help mitigate near-term pressure on this indirect revenue category. Our investments in growth, such as the work we are doing with Palantir that you heard about today, are expected to improve engagement with our audience and accelerate revenue growth in our most important digital categories in Q4 and in 2027. 2027 will be a year with Adjusted EBITDA and free cash flow growth, driven by improving revenue trends and our significant cost reductions.

While the search disruption has pushed out our inflection point a couple quarters, our confidence in our strategy leading to same-store revenue growth in the future has not changed. Finally, we are also pleased with the judge's summary judgment ruling in the Ad Tech litigation, and that the ruling also disclosed our damages. The market now has that. We are really happy that the trial date has been set for April 5, so that is right around the corner for us. Finally, as I mentioned on the call and in Q&A, we believe our current share price does not reflect the underlying value of the business or the opportunities that are ahead for us.

With that in mind, we have $97 million available under our authorized share repurchase plan, and we intend to be opportunistic here in the fourth quarter repurchasing shares. As I mentioned earlier, we have received a commitment from our great partner and friend in Apollo for a $50 million incremental financing, specifically for share repurchases in the fourth quarter. So, while we remain focused on reducing leverage, this additional flexibility allows us to take advantage of what we believe is a meaningful gap between our current share price and the underlying value of the business.

We look forward to getting back together at the end of the fourth quarter to update you on progress across all of these initiatives, and we will be excited to give you that update. Thanks, everybody, for your time and your support, and we look forward to talking to you again after the new year.

Operator: Thank you. Ladies and gentlemen, this does conclude today's conference, and you may disconnect your lines at this time. We thank you for your participation.

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