What changed in this filing

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Item 7. Management’s Discussion and Analysis

2026-03-05 compared with 2025-03-11 · 109 added, 80 removed, 358 unchanged (35% of the section changed)

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This section of this Annual Report generally discusses 2025 and 2024 items and year-to-year comparisons between 2025 and 2024.

Discussions of 2022 items and year-to-year comparisons between 2023 and 2022 that are not included in this Annual Report can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Form S-1/A (File No.

333-279863) which was declared effective by the SEC on June 26, 2024.

Discussions of 2024 items and year-to-year comparisons between 2024 and 2023 that are not included in this Annual Report can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Form 10-K which was filed with the SEC on March 11, 2025.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes included in this Annual Report on Form 10-K.

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We also break out MAU by geographic region to help us understand the global engagement.

Starting January 1, 2025, NAVER adjusted their methodology for measuring MAU in Korea.

Korea is the only region where NAVER serves as a source of our MAU data.

NAVER adjusted their methodology for identifying and counting web users for all of NAVER’s services.

This change only affected MAU in Korea.

All the other regions are continuing to report their metrics in the same way as previous quarters.

A table reconciling previously reported MAU in Korea for fiscal quarters in 2024 to MAU in Korea using the new methodology was provided in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2025, filed with the SEC on May 14, 2025.

Accordingly, MAU in Korea presented in this Annual Report reflects the new methodology for all periods shown to ensure comparability.

As of the year ended December 31, 2025, our global MAU was approximately 157 million.

The global MAU decreased by approximately 1.5% compared to December 31, 2023, primarily due to decreases in ROW MAU driven by a government ban on Wattpad in one country, and slight decreases in Korea MAU.

The global MAU decreased by approximately 7.1% compared to December 31, 2024, primarily due to decreases in Korea MAU.

These decreases were offset by continued growth in Japan.

By geographic regions, Korea, Japan, and Rest of World contributed 15.3%, 14.7%, and 70.0% of global MAU, respectively.

We estimate that global MAU benefited from a roughly 2.7% increase in Wattpad activity resulting from automated web traffic in certain non-core markets.

While we saw a small increase starting late in the third quarter of 2025, the web traffic peaked in the fourth quarter of 2025.

We expect to see reduced impact in the first quarter of 2026.

For risks related to user metrics, see “Risk Factors—Risks Related to Our Business, Industry and Operations—Our user metrics and other estimates are subject to inherent challenges in measurement, and real or perceived inaccuracies in those metrics could adversely affect our business and reputation.”

• In Korea, our MAU was approximately 24 million as of the year ended December 31, 2025, compared to MAU of 27 million as of the year ended December 31, 2024.

Our user base in Korea is highly engaged, and our cohorts have demonstrated deeper engagement and levels of consumption over time.

Our decrease in

MAU for the year ended December 31, 2024, was driven largely by short-term engagement impacts from political turbulence in Korea.

• In Japan, our MAU have reached 21.9 million as of the year ended December 31, 2024, compared to MAU of 21.2 million as of the year ended December 31, 2023, largely attributable to growth of LINE Manga and local Japanese title launches.

Our decrease in MAU for the year ended December 31, 2025, was driven largely by the impact of political turbulence in Korea during the fourth quarter of 2024, which did not fully recover during the year ended December 31, 2025.

• In Japan, our MAU reached 23 million as of the year ended December 31, 2025, compared to MAU of 22 million as of the year ended December 31, 2024, largely attributable to growth in eBookJapan and increased investments in marketing.

In addition, we continued to optimize and improve our existing AI-based personalized content recommendation capabilities.

We expect to complete our infrastructure investments by the end of the first quarter of 2026, and redeploy engineering resources to support improvements across our personalized recommendation tools.

• In Rest of World, our MAU was approximately 110 million as of the year ended December 31, 2025, which declined from 120 million as of December 31, 2024.

The decline was primarily attributable to decline in web users.

We do not monetize web users in North America, which is why we are focused on converting users to the app.

The MAU for the Rest of World is a relatively larger portion compared to Korea and Japan as it includes Wattpad, which has a large global user base.

Roughly two-thirds of the decline was isolated to one country where the government banned a number of global content sites, including Wattpad.

The decrease was primarily attributable to government bans on Wattpad in certain countries, as well as the impact of a Wattpad security upgrade which unintentionally affected search engine indexing, causing a dip in search traffic.

The search engine indexing issue, as described above, was fully resolved as of the year ended December 31, 2025;

however, we expect to see a period of time for search traffic to fully stabilize and return to historical levels.

Trends in Monthly Paying Users (MPU)

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Paying ratio varies due to the user’s ability and propensity to pay across different regions and different product offerings.

• In Korea, our MPU have decreased to around 3.7 million with a paying ratio of 15.4%, compared to MPU of 4.1 million and a paying ratio of 16.3% as of the year ended December 31, 2023.

• In Japan, our MPU have reached 2.2 million with a paying ratio of 10.2%, compared to MPU of 2.0 million and a paying ratio of 9.2% as of the year ended December 31, 2023.

• In Rest of World, our MPU is 1.7 million with a paying ratio of 1.4%, which has remained similar to the year ended December 31, 2023, reflecting our current strategic plans and marketing discipline to focus on select markets for long-term value creation.

Our paying ratio is relatively lower as compared to Korea or Japan due to the inclusion of Wattpad.

• In Korea, our MPU decreased to around 3.6 million with a paying ratio of 14.8%, compared to MPU of 3.7 million and a paying ratio of 13.9% as of the year ended December 31, 2024.

• In Japan, our MPU was 2.2 million with a paying ratio of 9.7%, compared to MPU of 2.2 million and a paying ratio of 10.2% as of the year ended December 31, 2024.

• In Rest of World, our MPU was 1.7 million with a paying ratio of 1.5%, which has remained similar to the year ended December 31, 2024, reflecting our current strategic plans and marketing discipline to focus on select markets for long-term value creation.

The paying ratio for the Rest of World is relatively lower as compared to Korea or Japan due to the inclusion of Wattpad.

Wattpad has a different monetization model that primarily focuses on advertising and the business is in its early stage of monetizing its content.

We plan to continue to leverage our successful pattern of engagement to drive monetization, especially as we have seen our highly engaged users in North America reading a similar number of episodes to users in other mature markets.

Trends in Paid Content Average Revenue per Paying User (ARPPU)

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For the year ended December 31, 2025, our ARPPU has increased to $12.1, or 3.5% growth compared to December 31, 2024.

The growth in ARPPU was driven primarily by our strategic effort to shift users from web to the app by continuing to improve our recommendation models.

The growth in ARPPU was driven primarily by our strategic effort to shift users from web to the app, as app users are more engaged and present better monetization opportunities.

We continue to focus on driving users to the app, as well as converting them to paying users, by advancing our personalization tools.

• In Korea, our ARPPU for the year ended December 31, 2025, has decreased to $7.8, or 0.8% decrease compared to the year ended December 31, 2024.

• In Japan, our ARPPU for the year ended December 31, 2024 has decreased to $22.1, or 1.7% decrease compared to the year ended December 31, 2023, but still remained relatively comparable.

• In Japan, our ARPPU for the year ended December 31, 2025, has increased to $23.2, or 4.7% increase compared to the year ended December 31, 2024.

• In Rest of World, our ARPPU for the year ended December 31, 2025, has increased to $6.6, or 0.4% growth compared to the year ended December 31, 2024, primarily driven by reader habituation in paying to view content.

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General and Administrative Expenses

General and administrative expenses consist of all our operating costs, excluding cost of revenue and marketing, and include costs related to operating and maintaining our platform, general corporate function costs, stock-based compensation expense (benefit) and depreciation and amortization of non-operating assets.

expense (benefit) and depreciation and amortization of non-operating assets.

See Note 11 .

Stock-Based Compensation in the accompanying notes to our audited consolidated financial statements included in this Annual Report for more information.

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Goodwill, net and Intangible Assets, net , in the accompanying notes to our audited consolidated financial statements included in this Annual Report for more information.

Income (Loss) on Equity Method Investment, Net

Income (loss) on equity method investment, net, includes recognized income (loss) associated with our investments accounted for using the equity method.

Gain (Loss) on Equity Method Investment, Net

Gain (loss) on equity method investment, net, includes recognized gain (loss) associated with our investments accounted for using the equity method.

See Note 18 .

Equity Method Investments in the accompanying notes to our audited consolidated financial statements included in this Annual Report for more information.

Other Income (Loss), Net

Other income, net, primarily consists of gains or losses on valuation of debt and equity securities, net, income or loss on foreign currency, net, retirement benefit, net, and other non-operating income or loss, net.

Other income (loss), net, primarily consists of gains or losses on valuation of debt and equity securities, net, income or loss on foreign currency, net, retirement benefit, net, and other non-operating income or loss, net.

Income Tax Expense

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Accordingly, our effective tax rate will vary depending on the relative proportion of foreign to domestic income, use of tax credits, changes in the valuation of our deferred tax assets and liabilities, and changes in tax laws.

See Note 12 .

Income Taxes in the accompanying notes to our audited consolidated financial statements included in this Annual Report for more information.

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General and administrative expenses (259,543) (331,984) (21.8 %)

Operating income (loss) (100,699) (36,358) 177.0 %

Operating loss

(63,511) (100,699) (36.9) %

Interest income 19,170 15,820 21.2 %

Interest expense (56) (45) 24.4 %

Impairment losses on goodwill (69,743) (63,412) 10.0 %

Loss on equity method investments, net (1,123) (12,339) (90.9 %)

Impairment losses on goodwill and other intangible assets

(336,486) (69,743) 382.5 %

Gain (loss) on equity method investments, net

1,282 (1,123) (214.2 %)

Other income (loss), net (9,808) 6,482 (251.3) %

Income (loss) before income tax (149,308) (132,753) 12.5 %

Income tax expense (3,604) (12,006) (70.0 %)

Net income (loss) (152,912) (144,759) 5.6 %

Loss before income tax

(389,409) (149,308) 160.8 %

Income tax benefit (expense)

16,022 (3,604) (544.6 %)

(373,387) (152,912) 144.2 %

Net income (loss) attributable to non-controlling interests and redeemable non-controlling interests (27,460) (9,007) 204.9 %

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IP Adaptations 130,952 99,365 31.8 %

Revenue increased by $65.7 million, or 5.1%, for the year ended December 31, 2024, as compared to the year ended December 31, 2023, primarily related to strong growth in Paid Content and Advertising, partially offset by our exposure to weaker foreign currencies.

The increases of $20.6 million, or 14.2%, in advertising revenue, was largely driven by double-digit growth in Japan and ROW.

Such increases were largely offset by the Company's exposure to weaker foreign currencies including the KRW and JPY.

Revenue increased by $34.2 million, or 2.5%, for the year ended December 31, 2025, as compared to the year ended December 31, 2024, primarily related to strong growth in IP Adaptations.

The decrease of $1.8 million, or 1.1%, in advertising revenue was driven by declines in Korea and Rest of World, largely offset by double-digit growth in Japan.

Cost of Revenue

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Our cost of revenue increased by $51.1 million, or 5.1%, for the year ended December 31, 2025, as compared to the year ended December 31, 2024.

Such increase was primarily due to stock based compensation expense of $12.2 million for the year ended December 31, 2024, compared to $1.2 million for the year ended December 31, 2023, and overall increases in commissions and fees paid to creators, associated with higher revenues.

The increase was primarily driven by higher sales commissions and content fees paid to creators, which were commensurate with the growth in revenue.

In addition, we have invested in labor to further improve our platform and drive growth.

Year Ended December 31,

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Marketing $ (126,149) $ (107,783) 17.0 %

Marketing expenses decreased by $13.3 million, or 11.0%, for the year ended December 31, 2024, as compared to the year ended December 31, 2023.

The decreases were a result of increased efficiencies with our marketing, as we reported higher revenue on similar levels of marketing spend from last year on a global basis.

Marketing expenses increased by $18.4 million, or 17.0%, for the year ended December 31, 2025, as compared to the year ended December 31, 2024.

The increase was a result of our continued investment in marketing to drive growth in converting users to paid users.

General and Administrative Expenses

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General and administrative expenses $ (259,543) $ (331,984) (21.8 %)

General and administrative expenses increased by $121.2 million, or 57.5%, for the year ended December 31, 2024, as compared to the year ended December 31, 2023, primarily driven by stock-based compensation expense of $75.2 million, compared to $6.7 million for the year ended December 31, 2023, a one-time bonus of $30.0 million granted to the CEO for a successful IPO, and increased costs associated with being a public company.

The increase in stock-based compensation expense for the year ended December 31, 2024, was largely attributable to the consummation of the IPO, at which performance obligation for vesting had been achieved.

General and administrative expenses decreased by $72.4 million, or 21.8%, for the year ended December 31, 2025, as compared to the year ended December 31, 2024.

The decrease was primarily driven by lower stock-based compensation expense of $30.9 million, compared to $75.2 million for the year ended December 31, 2024.

In addition, the decrease was due to the base effect of a one-time bonus of $30.0 million granted to the CEO for a successful IPO and other non-recurring costs associated with our initial public offering incurred in 2024.

11 Stock-Based Compensation for more information about our stock-based compensation expense).

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Interest expense $ (56) $ (45) 24.4 %

Interest expense decreased by approximately $0.03 million, or 43.0%, for the year ended December 31, 2024, as compared to the year ended December 31, 2023, primarily due to lower balances on our short-term borrowings during the year, and zero balances at December 31, 2024.

Impairment Losses on Goodwill

Interest expense was immaterial for the years ended December 31, 2025, and December 31, 2024.

Impairment Losses on Goodwill and Other Intangible Assets, Net

Year Ended December 31,

(in thousands of USD) 2025 2024 % Change

Impairment losses on goodwill $ (69,743) $ (63,412) 10.0 %

Impairment losses on goodwill increased by $6.3 million, or 10.0%, for the year ended December 31, 2024, as compared to the year ended December 31, 2023, which was primarily due to higher impairment losses related to our webnovel businesses.

Impairment losses on goodwill and other intangible assets, net

$ (336,486) $ (69,743) 382.5 %

Impairment losses on goodwill and other intangible assets, net increased by $266.7 million, or 382.5%, for the year ended December 31, 2025, as compared to the year ended December 31, 2024.

The increase was primarily driven by downward revisions in projected cash flows and long-term operating results due to operational challenges and strategic shifts at Wattpad and WWS, slower-than-expected IP synergies at Munpia, which caused the carrying values of these units to exceed their fair values.

For the years ended December 31, 2025, and December 31, 2024, we elected to bypass a qualitative assessment and performed a quantitative assessment to fulfill our annual goodwill impairment testing requirements under U.S.

Goodwill, net and Intangible Assets, net and Critical Accounting Policies and Estimates - Goodwill and Intangible Assets for further details on our impairment losses on goodwill.

Loss on Equity Method Investment, Net

Gain (Loss) on Equity Method Investment, Net

Year Ended December 31,

(in thousands of USD) 2025 2024 %

Loss on equity method investments, net $ (1,123) $ (12,339) (90.9) %

Loss on equity method investment, net, decreased by $11.2 million, or 90.9%, for the year ended December 31, 2024, compared to the year ended December 31, 2023.

This decrease was primarily due to recognized losses of $11.0 million associated with our investments in AtoZ Corporation during the year ended December 31, 2023, which we account for using the equity method.

Gain (loss) on equity method investments, net

$ 1,282 $ (1,123) 214.2 %

Gain (loss) on equity method investment, net, increased by $2.4 million, or 214.2%, for the year ended December 31, 2025, compared to the year ended December 31, 2024.

This increase resulted from better performance of certain of the companies equity method investments during the year ended December 31, 2025, as compared to the prior year.

See Note 18 .

Equity Method Investments for more information.

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Other income (loss), net $ (9,808) $ 6,482 (251.3) %

Other income (loss), net, increased by $30.1 million, or 127.5%, for the year ended December 31, 2024, compared to the year ended December 31, 2023.

This increase was primarily due to losses during the year ended December 31, 2023, related to valuation of financial assets measured at fair value of approximately $7.8 million, $6.8 million, and $5.3 million

related to NAVER Z Co., Ltd, Contents First, Inc., and Clova Games, Inc., respectively, that did not occur during the year ended December 31, 2024, and positive fluctuations in foreign currency exchange rates of approximately $5.4 million during the year ended December 31, 2024, when compared to the year ended December 31, 2023.

Other income (loss), net, decreased by $16.3 million, or 251.3%, for the year ended December 31, 2025, compared to the year ended December 31, 2024.

This decrease was primarily due to losses during the year ended December 31, 2025, related to valuation of financial assets measured at fair value of approximately $7.7 million and $0.8 million related to Contents First Inc.

and Bifrost Co., Ltd respectively.

The decrease was further impacted by net retirement benefit losses of approximately $0.6 million during the year ended December 31, 2025.

Income Tax Expense

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(in thousands of USD) 2025 2024 % Change

Income tax expense $ (3,604) $ (12,006) (70.0) %

Income tax expense decreased by $8.4 million, or 70.0%, for the year ended December 31, 2024, compared to the year ended December 31, 2023.

This decrease was primarily driven by a release of a valuation allowance upon completion of the LDF-eBIJ Merger.

Income tax benefit (expense)

$ 16,022 $ (3,604) (544.6) %

Income tax benefit (expense) increased by $19.6 million, or 544.6%, for the year ended December 31, 2025, compared to the year ended December 31, 2024.

This increase was primarily attributable to a decrease in current income tax expense as certain of the Company’s subsidiaries shifted to a net operating loss position.

The Company also realized deferred tax benefits, primarily driven by changes in the valuation allowance, resulting from the utilization of foreign tax credits and net operating losses..

Non-GAAP Financial Measures

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Starting with the third quarter of 2024, our calculation of EBITDA has been revised to adjust for interest income in addition to interest expense.

In prior periods, we only adjusted for interest expense because interest income amounts were insignificant.

Prior comparable periods have now been recast to conform to the current presentation.

Likewise, EBITDA margin is calculated by adjusting for interest income in addition to interest expense and prior comparable periods have been recast to conform to the current presentation.

We define Adjusted EBITDA as EBITDA with further adjustments to eliminate the effects of loss on equity method investments, effect of applying the valuation method of fair value through profit or loss (“FVPL”), impairment of goodwill, non-cash stock-based compensation and certain other non-recurring costs.

Prior comparable period has been recast to conform to the current presentation.

Likewise, EBITDA margin is calculated by adjusting for interest income in addition to interest expense and prior comparable period has been recast to conform to the current presentation.

We define Adjusted EBITDA as EBITDA

with further adjustments to eliminate the effects of loss on equity method investments, effect of applying the valuation method of fair value through profit or loss (“FVPL”), impairment of goodwill, non-cash stock-based compensation and certain other non-recurring costs.

We believe that EBITDA and Adjusted EBITDA provide useful information to investors regarding our performance, as it removes the impact of certain items that are not representative of our ongoing business, such as certain non-cash charges and variable charges.

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Net Loss $ (373,387) $ (152,912) $ (144,759)

Plus (minus):

Interest income (19,170) (15,820) (3,009)

Interest expense 56 45 79

Income tax expense 3,604 12,006 14,369

Income tax (benefit) expense (16,022) 3,604 12,006

Depreciation and amortization 35,431 40,074 38,359

$ (373,092) $ (125,009) $ (97,324)

Impairment losses on goodwill (1)

Impairment losses on goodwill and other intangible assets (1)

336,486 69,743 63,412

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41,907 82,321 3,220

Loss on fair value instruments, net (3)

Loss (gain) on fair value instruments, net (3)

8,604 (2,263) 22,677

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6,816 42,050 4,330

Loss on equity method investments, net (5)

Loss (gain) on equity method investments, net (5)

(1,282) 1,123 12,339

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______________

(1) Represents impairment losses on goodwill for Wattpad Corp., Wattpad WEBTOON Studios Corp, Munpia Inc.

and Jakga Company Inc.

(2) Represents non-cash stock-based compensation expense related to WEBTOON’s equity incentive plan and stock-based compensation plans of NAVER Corp., Munpia Inc.

and LOCUS Inc.

(3) Represents unrealized net loss of financial assets measured at FVPL, which include the Company’s equity investments in entities including NAVER Z Co., Ltd., Contents First Inc.

and Clova Games Inc.

(4) Represents non-recurring expenses that we do not consider representative of the operating performance of the business.

Other costs are comprised of the following expenses associated with (i) financial advisory fees (ii) consulting fees and (iii) severance fees and (iv) office relocation fee.

(1) Represents impairment losses on goodwill for Wattpad Corp., Wattpad WEBTOON Studios Corp, Munpia Inc., Purple Duck and Jakga Company Inc.

The amounts also include a $1.0 million impairment of the definite lived intangible assets for Bootcamp Limited Partnership for the year ended December 31, 2025.

(2) Represents non-cash stock-based compensation expense related to WEBTOON’s equity incentive plan and stock-based compensation plans of NAVER and Munpia, including amounts which are cash settled.

See Note 11 .

Stock-Based Compensation in the accompanying notes to our audited Consolidated Financial Statements in this Annual Report for further details on the amounts included within.

(3) Represents unrealized net loss (gain) of financial assets measured at FVPL, which include the Company’s equity investments.

(4) Represents expenses that we do not consider representative of the operating performance of the business.

For the year ended December 31, 2025, these amounts include legal fees and advisory fees.

For the year ended December 31, 2024, these amounts were comprised of a $30.0 million one-time CEO bonus and legal and advisory fees related to the IPO.

(5) Represents our proportionate share of recognized losses associated with our investments accounted for using the equity method.

Equity Method Investments in the accompanying notes to our audited Consolidated Financial Statements included in this Annual Report.

Use of Constant Currency

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We calculate revenue growth (as a percentage) on a constant currency basis by determining the increase in current period revenue over prior period revenue, where current period foreign currency revenue is translated using prior period average currency exchange rates.

In addition to adjustments for foreign currency exchange fluctuations, we have also adjusted revenue to exclude the impact of deconsolidation of Jakga and LOCUS and its subsidiaries, and the transfer of SERIES ON, one of our offerings, from NAVER WEBTOON to NAVER to improve comparability between the two periods.

In addition to adjustments for foreign currency exchange fluctuations, we have also adjusted revenue to exclude the impact of deconsolidation of Jakga to improve comparability between the two periods.

We calculate revenue (including growth rates) on a constant currency basis in each of our revenue streams - Paid Content, Advertising and IP Adaptations - using the same method as laid out herein.

Disposition and Business Combination in the accompanying notes to our audited consolidated financial statements included in this Annual Report for more information.

Disposition and Business Combinations in the accompanying notes to our audited consolidated financial statements included in this Annual Report for more information.

We provide ARPPU, including period-over-period growth rates, on a constant currency basis for our Paid Content revenue streams as average Paid Content revenue on a constant currency basis in a given month divided by the number of MPU for such month, averaged over each month in the given period.

As discussed above, we calculate revenue on a constant currency basis in a given period by applying the average currency exchange rates in the comparable period of the prior year to the local currency revenue in the current period and excluding deconsolidated and transferred operations.

As discussed above, we calculate revenue on a

constant currency basis in a given period by applying the average currency exchange rates in the comparable period of the prior year to the local currency revenue in the current period and excluding deconsolidated and transferred operations.

We calculate ARPPU growth rates (as a percentage) on a constant currency basis as the increase in current period ARPPU over prior period ARPPU, with current period foreign currency ARPPU translated using prior period average currency exchange rates and excluding deconsolidated and transferred operations.

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Korea ARPPU 7.77 7.84 (0.9%) 7.84 7.93 (1.1%)

Effect of deconsolidated and transferred operations - (0.12) (100.0%) (0.10) (0.18) (44.4%)

Effect of deconsolidated and transferred operations - - N/A - (0.12) (100.0%)

Effects of foreign currency rate fluctuations 0.44 - N/A 0.45 - N/A

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Rest of World ARPPU 6.60 6.57 0.5% 6.57 5.40 21.7%

Effect of deconsolidated and transferred operations - - N/A - - N/A

Effects of foreign currency rate fluctuations - - N/A - - N/A

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(in thousands of USD) 2025 2024

Net cash provided by (used in) operating activities $ 17,883 $ 14,804

Net cash provided by operating activities

$ 11,216 $ 17,883

Net cash used in investing activities (7,498) (17,276)

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For the year ended December 31, 2025, net cash provided by operating activities was $11.2 million, which primarily consisted of a net loss of $373.4 million, adjusted for certain non-cash items of $410.6 million.

The non-cash items primarily consisted of stock-based compensation of $87.4 million, impairment losses of $69.7 million, and depreciation and amortization of approximately $40.1 million, which was offset by a decrease of $24.5 million in deferred tax expenses.

The net cash outflow from changes in our operating assets and liabilities was primarily due to unfavorable foreign currency translation adjustments.

The non-cash items primarily consisted of impairment losses of $336.5 million, stock-based compensation of $41.9 million, and depreciation and amortization of approximately $35.4 million, which was offset by a decrease of $29.0 million in a deferred tax benefit.

The net cash outflow from changes in our operating assets and liabilities was primarily due to cash outflows related to income taxes payable, operating lease liabilities, and other liabilities, partly offset by cash inflows from an increase in accrued expenses and accounts payable.

Investing Activities

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Financing Activities

For the year ended December 31, 2024, net cash provided by financing activities was $353.9 million, consisting primarily of $293.0 million in proceeds from the IPO, net of underwriting discounts and commissions, and $50.0 million in proceeds from issuance of common stock related to private placement, and $26.8 million in proceeds, net of underwriting discounts and commissions, from the exercise of the over-allotment option by the underwriters in connection with the IPO, which was offset by payments of IPO costs of $11.2 million

For the year ended December 31, 2025, net cash provided by financing activities was $1.5 million, consisting primarily of $1.3 million in proceeds from the exercise of stock options.

Critical Accounting Policies and Estimates

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Any significant changes in these underlying assumptions may significantly affect our impairment conclusions and net book value of our corresponding assets in our consolidated financial statements.

During the fourth quarter of December 31, 2024, there was a material change in the cash flow assumptions that led to the impairment of goodwill arising from a delay in realizing synergies and returns from investments in content creation and IP Adaptations, the postponement of releases for major works, the ongoing Wattpad ban in a certain country, and the delay in web-novel video production at the Munpia, Wattpad, and Wattpad WEBTOON Studios Corp.

(“Wattpad WEBTOON Studios”) reporting units, respectively, as of October 1, 2024.

As of the October 1, 2024, annual impairment testing date, four reporting units had goodwill – Munpia, Wattpad WEBTOON Studios, Wattpad, and LDF (in each case, including its subsidiaries, if any).

On October 1, 2024, we performed a quantitative annual impairment test for all reporting units, which resulted in $46.7 million, $20.3 million and $2.7 million impairment of goodwill at Wattpad, Munpia, and Wattpad WEBTOON Studios reporting units, respectively.

The remaining goodwill at the Wattpad, Munpia, LDF and Wattpad WEBTOON Studios reporting units following impairment were $437.2 million, $154.2 million, $71 million and $2.9 million, respectively.

During the fourth quarter of the year ended December 31, 2025, there was a material change in the cash flow assumptions that led to the impairment of goodwill for the Wattpad, Munpia, Wattpad WEBTOON Studios Corp.

(“Wattpad WEBTOON Studios”), and Purple Duck reporting units as of October 1, 2025.

These impairments were primarily driven by a sustained decrease in traffic at Wattpad resulting from prolonged service bans in certain countries combined with technical issues affecting search engine functionality, lower-than-expected realization of synergies from IP expansion at Munpia, a shift in business strategy from content production to providing scripts at Wattpad WEBTOON Studios, and lower-than-expected operating profits and cash flows at Purple Duck.

As of the October 1, 2025, annual impairment testing date, five reporting units had goodwill – Wattpad, Munpia, Wattpad WEBTOON Studios, Purple Duck and LDF.

On October 1, 2025, we performed a quantitative annual impairment test for all reporting units, which resulted in $257.2 million, $74.0 million, $2.9 million, and $1.4 million impairment of goodwill at Wattpad, Munpia, Wattpad WEBTOON Studios, and Purple Duck reporting units, respectively.

The remaining goodwill at the Wattpad, Munpia, Wattpad WEBTOON Studios, Purple Duck, and LDF reporting units following impairment were $179.9 million, $85.6 million, $0.0 million, $0.01 million and $71.3 million, respectively.

No goodwill impairment was recorded for the LDF reporting unit given as its fair value substantially exceeded its respective carrying value.

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What changed 10-K

Item 7. Management’s Discussion and Analysis