What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-05-10 compared with 2021-11-09 · 182 added, 279 removed, 124 unchanged (79% of the section changed)

11 unchanged sentences

◦ Sustain growth or profitability, particularly in light of an uncertain U.S.

or worldwide economy and the related impact on customer acquisition and retention rates, customer usage levels, and credit and debit card payment declines;

or worldwide economy, including inflation, supply chain and other factors and their related impacts on customer acquisition and retention rates, customer usage levels, and credit and debit card payment declines;

◦ Maintain and increase our customer base and average revenue per user;

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◦ Compete with other similar providers with regard to price, service, and functionality;

◦ Cost-effectively procure, retain and deploy large quantities of telephone numbers in desired locations in the United States and abroad;

◦ Achieve business and financial objectives in light of burdensome domestic and international telecommunications, internet or other regulations, including regulations related to data privacy, access, security, retention, and sharing;

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In addition, other factors that could cause actual results to differ materially from those anticipated in these forward-looking statements or materially impact our financial results include the risks associated with new accounting pronouncements, as well as those associated with natural disasters, public health crises, pandemics including the COVID-19 outbreak and other catastrophic events outside of our control, including as to COVID-19 the scope and duration of the pandemic, actions taken by governmental authorities in response to the pandemic, and the direct and indirect impact of the pandemic on our customers, third parties and us.

As of September 30, 2021, Ziff Davis, Inc., together with its subsidiaries (“Ziff Davis”, “our”, “us” or “we”), was a leading provider of internet information and services.

The Digital Media business specialized in the technology, shopping, gaming, and healthcare markets, offering content, tools and services to consumers and businesses.

The Cloud Services business provided cloud-based subscription services to consumers and businesses including cloud fax, cybersecurity, privacy and marketing technology.

Ziff Davis, Inc.

(formerly J2 Global, Inc.) was incorporated in 2014 as a Delaware corporation through the creation of a holding company structure.

Our Cybersecurity and Martech businesses are operated by our wholly owned subsidiary, J2 Global Ventures, LLC.

Prior to the spin-off of Consensus Cloud Solutions, Inc.

(“Consensus”), our Cybersecurity and Martech businesses were operated by our former wholly owned subsidiary J2 Cloud Services, LLC (formerly J2 Cloud Services, Inc.), which was founded in 1995, and subsidiaries of J2 Cloud Services, LLC.

Ziff Davis, Inc., together with its subsidiaries (“Ziff Davis”, “the Company”, “our”, “us” or “we”), is a vertically focused digital media and internet company.

Our Digital Media business specializes in the technology, shopping, gaming, and healthcare markets, offering content, tools and services to consumers and businesses.

Our Cybersecurity and Martech business provides cloud-based subscription services to consumers and businesses including cybersecurity, privacy and marketing technology.

In February 2021, we sold certain Voice assets in the United Kingdom and in September 2021, we sold our B2B Backup business.

On October 7, 2021 subsequent to the end of the third quarter of 2021, the spin-off of the cloud fax business into an independent public company (Consensus) was completed.

We believe the spin-off will enable the independent companies to create value with distinct management teams, capital structures and strategic focus.

In October 2021 we completed the separation of our cloud fax business (the “Separation”) into an independent publicly traded company, Consensus.

The accounting requirements for reporting the Separation of Consensus as a discontinued operation were met when the Separation was completed on October 7, 2021.

Accordingly, the accompanying condensed consolidated financial statements for all periods presented reflect the results of the Consensus business as a discontinued operation.

Ziff Davis retained a 19.9 % interest in Consensus following the Separation (the “Retained Consensus Shares”).

Ziff Davis did not retain a controlling interest in Consensus and therefore, the fair value of the Retained Consensus Shares and subsequent fair value changes are included in our assets and results from continuing operations.

Our Digital Media business generates revenues from advertising and sponsorships, subscription and usage fees, performance marketing and licensing fees.

Our Cloud Services business generates revenues primarily from customer subscription and usage fees.

Our Cybersecurity and Martech business generates revenues primarily from recurring fixed and variable usage-based subscription and licensing fees.

In addition to growing our business organically, on a regular basis we acquire businesses to grow our customer bases, expand and diversify our service offerings, enhance our technologies, acquire skilled personnel and enter into new markets.

Our consolidated revenues are currently generated from three basic business models, each with different financial profiles and variability.

Our consolidated revenues are currently generated from two basic business models, each with different financial profiles and variability.

Our Digital Media business is driven primarily by advertising revenues, has relatively higher sales and marketing expense and has seasonal strength in the fourth quarter.

Our Cloud Services business is driven primarily by subscription revenues that are relatively higher margin, stable and predictable from quarter to quarter with some minor seasonal weakness in the fourth quarter.

Our Cybersecurity and Martech business is driven primarily by subscription revenues with relatively stable and predictable margins from quarter to quarter.

We continue to pursue additional acquisitions, which may include companies operating under business models that differ from those we operate under today.

Such acquisitions could impact our consolidated profit margins and the variability of our revenues.

Ziff Davis, Inc.

(formerly J2 Global, Inc.) was incorporated in 2014 as a Delaware corporation through the creation of a holding company structure, and our Cloud Services business, operated by our wholly owned subsidiary, J2 Cloud Services, LLC (formerly J2 Cloud Services, Inc.), and its subsidiaries, was founded in 1995.

Digital Media Performance Metrics

We use certain metrics to generally assess the operational and financial performance of our Digital Media business.

The number of visits is an important metric because it is an indicator of consumers’ level of engagement with our mobile applications, websites and other services.

We believe highly engaged consumers are more likely to participate in advertising programs and other activities that derive our multiple revenue streams.

We define a visit as a group of interactions by users with our mobile and desktop applications and websites.

A single visit can contain multiple page views and actions, and a single user can open multiple visits across domains, web browsers, desktop or mobile devices.

We measure visits with Google Analytics and through partner platform measures.

Page views are measured each time a page on our websites is loaded in a browser.

The following table sets forth certain key operating metrics for our Digital Media business for the three and nine months ended September 30, 2021 and 2020 (in millions):

Three Months Ended

September 30, Nine Months Ended

September 30,

Performance Metrics

Revenues from external customers classified by revenue source are as follows (in thousands):

Three Months Ended March 31,

Digital Media

Advertising (1)

$ 170,067 $ 177,288

Visits 2,047 2,197 6,454 6,701

Page views 7,006 7,167 22,038 21,887

Google Analytics and Partner Platforms and test results in connection with Ookla

(1) To more accurately reflect customer activity at Ookla, we have shifted to using tests as the basis instead of Google Analytics, resulting in pro-forma adjustments to data in 2020 and Q1 2021.

Cloud Services Performance Metrics

We use certain metrics to generally assess the operational and financial performance of our Cloud Services business;

these metrics also serve as a baseline for (a) internal trends and (b) benchmarking against competitors.

The average monthly revenue per customer can be used as an analytical tool in determining the marginal economics of customer acquisition, which is particularly useful as we continue to focus on growing our higher-margin businesses.

We also use this metric, in conjunction with the cancel rate, to help provide a directional indicator of Cloud Services revenue and calculate the lifetime value of customers within each of our business units.

The following table sets forth certain key operating metrics for our Cloud Services business as of and for the three and nine months ended September 30, 2021 and 2020 (in thousands, except for percentages):

Three Months Ended

September 30, Nine Months Ended

September 30,

Subscription (1)

55,576 45,625

Subscriber revenues:

Total Digital Media revenues $ 234,827 $ 226,874

Cybersecurity and Martech

Subscription $ 80,494 $ 84,901

Total Cybersecurity and Martech revenues $ 80,494 $ 84,901

Corporate $ — $ —

Elimination of inter-segment revenues ( 253 ) ( 118 )

Total Revenues $ 315,068 $ 311,657

(1) During the three months ended March 31, 2021, the Company reclassified approximately $ 3.2 million of revenue from ‘Subscription’ to ‘Advertising’ and reclassified approximately $ 2.1 million of revenue from ‘Subscription’ to ‘Other’ to conform with current period presentation.

These reclassifications were made in order to separate games publishing revenue from traditional advertising revenue and to move job posting related revenue from subscriptions to advertising.

We use certain metrics to generally assess the operational and financial performance of our businesses.

We have changed these metrics during the first quarter of 2022, and the following descriptions align with the metrics management now uses to monitor the performance of its various advertising and subscription-based businesses.

For our advertising businesses, net advertising revenue retention is an indicator of our ability to retain the spend of our existing advertisers year over year, which we view as a reflection of the effectiveness of our advertising platform.

Similarly, we monitor the number of our advertisers and the revenue per advertiser (as defined) as these metrics provide further details related to our reported revenue and contribute to certain of our business planning decisions.

For our subscription and licensing businesses, the number of subscribers that we serve is an indicator of our customer retention and growth.

The average monthly revenue per subscriber and the churn rate also contribute to insights that contribute to certain of our business planning decisions.

The following table sets forth certain key operating metrics for our Digital Media advertising business for the three months ended March 31, 2022 and 2021:

Three Months Ended March 31,

Net advertising revenue retention (1)

Advertisers (2)

Quarterly revenue per advertiser (3)

$87,214 $103,981

(1) Net advertising revenue retention equals (i) the trailing twelve month revenue recognized related to prior year advertisers in the current year period (excluding revenue from acquisitions during the stub period) divided by (ii) the trailing twelve month revenue recognized related to prior year advertisers in the prior year period (excluding revenue from acquisitions during the stub period).

This excludes advertisers that generated less than $10,000 of revenue on a trailing twelve month basis.

Due to the aggregation of certain reporting systems related to the integration of acquisitions, retention data for the first quarter of 2021 reflects certain estimates.

(2) Excludes advertisers that spent less than $2,500 in the quarter.

(3) Represents total gross quarterly advertising revenues divided by advertisers as defined in footnote (2).

The following table sets forth certain key operating metrics for our Digital Media and Cybersecurity and Martech subscription and licensing businesses for the three months ended March 31, 2022 and 2021:

Three Months Ended March 31,

2022 2021 (excluding disposed assets) (1)

2021 (including disposed assets) (1)

Subscribers (in thousands) (2)

2,131 2,332 2,361

Total subscriber revenues $ 181,998 $ 170,233 $ 528,476 $ 507,021

Other license revenues 92 15 275 69

Total revenues $ 182,090 $ 170,248 $ 528,751 $ 507,090

Percentage of total subscriber revenues:

Fixed 83.7 % 84.9 % 84.1 % 84.2 %

Variable 16.3 % 15.1 % 15.9 % 15.8 %

Total revenues:

Number-based $ 98,652 $ 98,000 $ 293,167 $ 289,502

Non-number-based 83,438 72,248 235,584 217,588

Total revenues $ 182,090 $ 170,248 $ 528,751 $ 507,090

Average monthly revenue per Cloud Business Customer (ARPU) (2)(3)

Average monthly revenue per subscriber (3)

$21.28 $16.85 $18.28

Cancel Rate (4)

(1) The first quarter 2020 disclosure of $144.8 million in fixed subscriber revenue included $3.3 million of revenue which was subsequently determined to be variable subscriber revenue.

As a result, the fixed and variable subscriber revenue have been corrected in the table above.

(2) Quarterly ARPU is calculated using our standard convention of applying the average of the quarter’s beginning and ending base to the total revenue for the quarter.

We believe ARPU provides investors an understanding of the average monthly revenues we recognize associated with each Cloud Services customer.

As ARPU varies based on fixed subscription fee and variable usage components, we believe it can serve as a measure by which investors can evaluate trends in the types of services, levels of services and the usage levels of those services across our Cloud Services customer base.

(3) Cloud Services customers are defined as paying direct inward dialing numbers for fax and voice services, and direct and resellers’ accounts for other services.

(4) Cancel Rate is defined as cancels of small and medium business and individual Cloud Services customers with greater than four months of continuous service (continuous service includes Cloud Services customers administratively canceled and reactivated within the same calendar month), and enterprise Cloud Services customers beginning with their first day of service.

Calculated monthly and expressed as an average over the three months of the quarter.

Churn rate (4)

3.2% 2.8% 2.6%

(1) The metrics in the table above are shown exclusive and inclusive of the B2B Back-up business that was sold during the third quarter of 2021.

The metric of average monthly revenue per subscriber excluding disposed assets for the three months ended March 31, 2021 is considered a non-GAAP measure.

The Company believes this provides useful information to allow for comparability of these metrics without disposed assets in both periods.

The presentation of this financial information is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with U.S.

(2) Represents the quarterly average of the end of month subscriber counts for both the Digital Media and Cybersecurity and Martech businesses.

Cybersecurity and Martech subscribers are defined as a direct customer, including customers who have paused but not cancelled their subscription.

If the company provides services through a reseller or a partner and the Company does not have visibility into the number of underlying subscribers, the reseller or partner is counted as one subscriber.

(3) Represents quarterly subscription revenues divided by customers in the table above.

(4) Churn rate is calculated as (i) the average revenue per subscription in the prior month multiplied by the number of cancellations in the current month, calculated at each business and aggregated;

divided by (ii) subscription revenue in the current month, calculated at each business and aggregated.

For Ookla, this is calculated by taking the sum of the monthly revenue from the specific cancelled agreements.

Critical Accounting Policies and Estimates

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Our critical accounting policies are described in our 2021 Annual Report on Form 10-K filed with the SEC on March 15, 2022.

During the three months ended September 30, 2021, there were no significant changes in our critical accounting policies and estimates.

Results of Operations for the Three and Nine Months Ended September 30, 2021

During the three months ended March 31, 2022, there were no significant changes in our critical accounting policies and estimates.

Results of Operations for the Three Months Ended March 31, 2022

Digital Media

We expect the revenue for the remainder of fiscal year 2021 to be higher compared to the prior-year comparable period due to the acquisition of RetailMeNot and organic growth, subject to the continued risk of the COVID-19 pandemic.

We expect the Digital Media business to improve as we integrate our recent acquisitions and over the longer term as advertising transactions continue to shift from offline to online, but these initiatives will be offset by the impact of COVID-19 in the near term.

The main focus of our advertising programs is to provide relevant and useful advertising to visitors to our websites and those included within our advertising networks, reflecting our commitment to constantly improve their overall web experience.

As a result, we expect to continue to take steps to improve the relevance of the ads displayed on our websites and those included within our advertising networks.

We expect revenue for fiscal year 2022 to be higher compared to the prior year driven by prior year acquisitions and organic growth.

We expect the Digital Media business to improve as we integrate our recent acquisitions and over the longer term as advertising transactions continue to shift from offline to online, and we continue to expand our advertising platforms.

The main focus of our platform monetization programs is to provide relevant and useful advertising to visitors to our websites, provide meaningful content that informs and shapes purchase intent, and leverage our brand and editorial assets into subscription platforms.

As a result, we expect to continue to take steps to improve the relevance of the ads displayed on our websites and those included within our advertising networks, and improve the effectiveness of our content in driving purchase decisions and subscriptions.

The operating margin we realize on revenues generated from ads placed on our websites is significantly higher than the operating margin we realize from revenues generated from those placed on third-party websites.

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This trend has had a positive impact on our operating margins, and we expect that this will continue for the foreseeable future.

However, the trend in advertising spend is shifting to mobile devices and other newer advertising formats which generally experience lower margins than those from desktop computers and tablets.

We expect this trend to continue to put pressure on our margins.

We expect acquisitions to remain an important component of our strategy and use of capital in this business;

however, we cannot predict whether our current pace of acquisitions will remain the same within this business, especially in light of the current macroeconomic conditions.

In a given period, we may close greater or fewer acquisitions than in prior periods or acquisitions of greater or lesser significance than in prior periods.

Moreover, future acquisitions of businesses within this space but with different business models may impact Digital Media’s overall profit margins.

Cloud Services

Excluding the impact of the spin-off of our cloud fax business, the sale of our backup business and assuming a stable or improving economic environment, and, subject to our risk factors, we expect 2021 revenue to be higher compared to the prior year.

The main strategic focus of our Cloud Services offerings is to reduce or eliminate costs, increase sales and enhance productivity, mobility, business continuity and security of our customers as the technologies and devices they use evolve over time.

In a given period, we may close greater or fewer acquisitions than in prior periods or

acquisitions of greater or lesser significance than in prior periods.

Moreover, future acquisitions of businesses within this space, but with different business models, may impact Digital Media’s overall operating profit margins.

Cybersecurity and Martech

We expect 2022 revenue to be higher compared to the prior year driven by prior year acquisitions and organic growth in certain of our businesses.

The main focus of our Cybersecurity and Martech service offerings is to reduce or eliminate costs, increase sales and enhance productivity, mobility, business continuity and security of our customers as the technologies and devices they use evolve over time.

As a result, we expect to continue to take steps to enhance our existing offerings and offer new services to continue to satisfy the evolving needs of our customers.

On October 7, 2021, the Company completed the spin-off of its cloud fax business into an independent publicly traded company.

This cloud fax business represented approximately 50% of our total Cloud revenues and approximately 31% of our total Cloud operating costs for the nine months ended September 30, 2021.

As a result, we anticipate a reduction in our operating margins as the cloud fax business will not recur going forward.

We expect acquisitions to remain an important component of our strategy and use of capital in this business;

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In a given period, we may close greater or fewer acquisitions than in prior periods or acquisitions of greater or lesser significance than in prior periods.

Moreover, future acquisitions of businesses within this space but with different business models may impact Cloud Services’ overall profit margins.

Excluding the impact of the spin-off of our fax business and based on the trends discussed above with respect to our Cloud Services and Digital Media businesses, we anticipate our consolidated revenue for fiscal year 2021 to be higher compared to the prior-year comparable period.

We expect operating profit as a percentage of revenues to generally decrease in the future primarily due to the fact that revenue with respect to our Digital Media business (i) is increasing as a percentage of our revenue on a consolidated basis and has historically operated at a lower operating margin;

and (ii) the completion of the spin-off of our cloud fax business which historically operated at a higher operating margin than our remaining businesses.

Moreover, future acquisitions of businesses within this space but with different business models, may impact Cybersecurity and Martech’ overall operating profit margins.

Based on the trends discussed above with respect to our Digital Media and Cybersecurity and Martech businesses, we anticipate our consolidated revenue for fiscal year 2022 to be higher compared to the prior year.

We expect operating profit as a percentage of revenues to be generally consistent with 2021’s operating profit margins.

(in thousands, except percentages)

Three Months Ended

September 30, Percentage Change Nine Months Ended

September 30, Percentage Change

2021 2020 2021 2020

Three Months Ended March 31, Percentage Change

Revenues $ 315,068 $ 311,657 1%

Our revenues consist of revenues from our Digital Media and Cloud Services businesses.

Digital Media revenues primarily consist of advertising revenues, subscriptions earned through the granting of access to, or delivery of, certain data products or services to customers, fees paid for generating business leads, and licensing and sale of editorial content and trademarks.

Cloud Services revenues primarily consist of revenues from “fixed” customer subscription revenues and “variable” revenues generated from actual usage of our services.

Our revenues in 2021 have increased over the comparable three and nine month periods of 2020 primarily due to a combination of acquisitions and organic growth;

partially offset by declines in certain areas of both the Digital Media and Cloud Services businesses.

Our revenues consist of revenues from our Digital Media and Cybersecurity and Martech businesses.

Digital Media revenues primarily consist of advertising revenues and subscriptions earned through the granting of access to, or delivery of, certain data products or services to customers, fees paid for generating business leads, and licensing and sale of editorial content and trademarks.

Cybersecurity and Martech revenues primarily consist of revenues from “fixed” customer subscription revenues and “variable” revenues generated from actual usage of our services.

Our revenues increased primarily due to contributions from recently acquired businesses and organic growth in certain parts of both the Digital Media and Cybersecurity and Martech businesses, offset in part by declines in other parts of both the Digital Media and Cybersecurity and Martech businesses, as well as the absence of revenues in the first quarter of 2022 associated with recently divested businesses.

Revenue in the first quarter of 2022 included approximately $24.8 million of revenue related to businesses acquired in 2021 and in the first quarter of 2022.

Revenue in the first quarter of 2021 included approximately $12.6 million of revenue from the divested B2B Back-up business and Voice assets.

Cost of Revenues

(in thousands, except percentages)

Three Months Ended

September 30, Percentage Change Nine Months Ended

September 30, Percentage Change

2021 2020 2021 2020

Three Months Ended March 31, Percentage Change

Cost of revenue $ 46,100 $ 43,852 5%

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Cost of revenues is primarily comprised of costs associated with content fees, editorial and production costs and hosting costs.

The increase in cost of revenues for the three months ended September 30, 2021 was primarily due to higher content fees, campaign fulfillment and other editorial and production costs and increased hosting and other computer related costs.

The increase in cost of revenues for the nine months ended September 30, 2021 was primarily due to higher content fees, editorial and production costs, hosting and computer related costs and increased depreciation.

The increase in cost of revenues for the three months ended March 31, 2022 was primarily due to higher database hosting services, network and customer service costs, field operations costs and higher media inventory and operations costs, including content fees, editorial and production costs, partially offset by lower cost of revenues due to the sale of the B2B Back-up business.

Operating Expenses

Sales and Marketing.

(in thousands, except percentages)

Three Months Ended

September 30, Percentage Change Nine Months Ended

September 30, Percentage Change

2021 2020 2021 2020

(in thousands, except percentages) Three Months Ended March 31, Percentage Change

Sales and Marketing $ 117,762 $ 107,951 9%

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Our internet-based advertising relationships consist primarily of fixed cost and performance-based (cost-per-impression, cost-per-click and cost-per-acquisition) advertising relationships with an array of online service providers.

Advertising cost for the three months ended September 30, 2021 was $72.8 million (primarily consists of $44.3 million of third-party advertising costs and $22.1 million of personnel costs) compared to the third quarter of 2020 of $35.4 million (primarily consists of $19.8 million of third-party advertising costs and $12.8 million of personnel costs.

Advertising cost for the nine months ended September 30, 2021 was $205.2 million (primarily consists of $119.7 million of third-party advertising costs and $67.5 million of personnel costs) compared to 2020 of $108.0 million (primarily consists of $57.8 million of third-party advertising costs and $39.4 million of personnel costs).

The increase in sales and marketing

expenses for the three and nine months ended September 30, 2021 versus the prior comparable period was primarily due to increased creative services, sales, advertising operations, advertising and product development costs associated with the acquisition of businesses acquired in and subsequent to the third quarter 2020 within the Digital Media and Cloud Services businesses.

Advertising costs for the three months ended March 31, 2022 was $60.0 million (primarily consisting of $27.2 million of third-party advertising costs and $22.7 million of personnel costs) compared to $52.7 million (primarily consisting of $26.6 million of third-party advertising costs and $22.0 million of personnel costs) in the prior year period.

The increase in sales and marketing expenses from the first quarter of 2021 to the first quarter of 2022 was primarily due to increased advertising costs related to outside sales commissions, professional and consulting services and software licenses.

Research, Development and Engineering.

(in thousands, except percentages)

Three Months Ended

September 30, Percentage Change Nine Months Ended

September 30, Percentage Change

2021 2020 2021 2020

(in thousands, except percentages) Three Months Ended March 31, Percentage Change

Research, Development and Engineering $ 18,427 $ 19,675 (6)%

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Our research, development and engineering costs consist primarily of personnel-related expenses.

The increase in research, development and engineering costs for the three and nine months ended September 30, 2021 versus the prior comparable period was primarily due to an increase in costs associated with businesses acquired in and subsequent to the third quarter 2020.

The decrease in research, development and engineering costs for the three months ended March 31, 2022 compared to the prior year period was primarily due to a decrease in engineering costs of approximately $1.8 million, primarily associated with increased capitalized payroll costs and lower software purchases and licenses.

General and Administrative.

(in thousands, except percentages)

Three Months Ended

September 30, Percentage Change Nine Months Ended

September 30, Percentage Change

2021 2020 2021 2020

(in thousands, except percentages) Three Months Ended March 31, Percentage Change

General and Administrative $ 102,217 $ 113,298 (10)%

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Our general and administrative costs consist primarily of personnel-related expenses, depreciation and amortization, changes in the fair value associated with contingent consideration, share-based compensation expense, bad debt expense, professional fees, severance and insurance costs.

The increase in general and administrative expense for the three and nine months ended September 30, 2021 versus the prior comparable period was primarily due to increased amortization of intangible assets, salary and related costs and professional fees.

Goodwill impairment on business .

Our goodwill impairment on business is generated from the impairment of the B2B Backup business in the second quarter of 2021.

Goodwill impairment on business was $32.6 million for the nine months ended September 30, 2021.

See Note 6 - Dispositions from the footnotes to our Condensed Consolidated Financial Statements for additional information.

The decrease in general and administrative expense from the first quarter of 2021 to the first quarter of 2022 was primarily due to a decrease in legal and finance costs, the absence of general and administrative costs related to the B2B Backup business, and lower depreciation and amortization expense.

Share-Based Compensation

The following table represents share-based compensation expense included in cost of revenues and operating expenses in the accompanying Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2021 and 2020 (in thousands):

Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

The following table represents share-based compensation expense included in cost of revenues and operating expenses in the accompanying Condensed Consolidated Statements of Operations for the three months ended March 31, 2022 and 2021 (in thousands):

Three Months Ended March 31,

Cost of revenues $ 84 $ 83

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Our interest expense, net is generated primarily from interest expense due to outstanding debt, partially offset by interest income earned on cash, cash equivalents and investments.

Interest expense, net was $19.9 million and $22.7 million for the three months ended September 30, 2021 and 2020, respectively, and $62.8 million and $65.9 million for the nine months ended September 30, 2021 and 2020, respectively.

Interest expense, net was lower due to the redemption of our 3.25% Convertible Notes on August 2, 2021.

Loss (gain) on sale of businesses.

Loss on sale of businesses was $24.6 million during the three months ended September 30, 2021 and a gain of $17.1 million for the three months ended September 30, 2020.

Loss on sale of businesses was $21.8 million during the nine months ended September 30, 2021 and a gain of $17.1 million for the nine months ended September 30, 2020.

Our loss on the sale of business during the third quarter of 2021 was related to the sale of our B2B Back-up business.

The loss on the sale of businesses during the nine months ended September 30, 2021 was due to the loss on the sale of the B2B Back-up business, partially offset by a gain on the sale of certain Voice assets in the United Kingdom in the first quarter of 2021 with a subsequent adjustment in the second quarter of 2021.

See Note 6 - Dispositions from the footnotes to our Condensed Consolidated Financial Statements for additional information.

Loss on investments, net.

Our loss on investments, net is generated from gains or losses from investments in equity and debt securities.

Our loss on investments, net was zero and $0.2 million for the three months ended September 30, 2021 and 2020 and $16.7 million and $21.0 million for the nine months ended September 30, 2021 and 2020, respectively.

Our loss on investments, net for the three months ended September 30, 2021 versus the prior comparable period was consistent.

Our loss on investments, net decreased for the nine months ended September 30, 2021 versus the prior comparable period due to lower net losses realized on certain investments as a result of an impairment recognized in the current period and changes in the investee’s capital structure and overall market volatility recognized in the prior comparable period.

Other income (expense), net.

Our other income (expense), net is generated primarily from miscellaneous items and gain or losses on currency exchange.

Other income (expense), net was $1.7 million and $14.2 million for the three months ended September 30, 2021 and 2020, respectively and $1.4 million and $16.4 million for the nine months ended September 30, 2021 and 2020, respectively.

Other income (expense), net changed for the three and nine months ended September 30, 2021 versus the prior comparable periods primarily due to changes in gain or losses on currency exchange.

Interest expense, net was $11.5 million and $21.5 million for the three months ended March 31, 2022 and 2021, respectively.

Interest expense, net decreased during the three months ended March 31, 2022 primarily due to approximately $6.2 million less interest expense due to the redemption of our 3.25% Convertible Notes in August 2021 and the adoption of ASU 2020-06 during the first quarter of 2022, which resulted in approximately $3.8 million less interest expense due to our no longer amortizing a debt discount on the 1.75% Convertible Notes.

Unrealized gain on short-term investment.

Unrealized gain on short-term investment was $9.0 million and zero during the three months ended March 31, 2022 and 2021, respectively.

The increase in the first quarter of 2022 was due to the unrealized gain on our investment in Consensus recorded during the first quarter of 2022.

Other income, net.

Our other income, net is generated primarily from miscellaneous items and gain or losses on currency exchange.

Other income, net was $2.4 million and $0.2 million for the three months ended March 31, 2022 and 2021, respectively.

Other income, net changed for the three months ended March 31, 2022 compared to the prior year period due to certain miscellaneous items and changes in gain or losses on currency exchange.

Our effective tax rate is based on pre-tax income, statutory tax rates, tax regulations (including those related to transfer pricing) and different tax rates in the various jurisdictions in which we operate.

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When necessary, we establish valuation allowances to reduce our deferred tax assets to an amount that will more likely than not be realized.

Provision for income taxes amounted to $8.8 million and $24.3 million for the three months ended September 30, 2021 and 2020, respectively, and $16.7 million and $49.0 million for the nine months ended September 30, 2021 and 2020, respectively.

Our effective tax rate was 16.6% and 28.3% for the three months ended September 30, 2021 and 2020, respectively, and 12.3% and 32.2% for the nine months ended September 30, 2021 and 2020, respectively.

The decrease in our effective income tax rate for the three months ended September 30, 2021 was primarily attributable to the following:

a decrease in tax expense during 2021 due to recognizing a current tax benefit related to the sale of the business-to-business backup business units;

a decrease in tax expense due to increased tax benefits related to tax deductions for the vesting of restricted stock units and exercises of stock options;

partially offset by

an increase in our effective income tax rate during 2021 for U.S.

state and local taxes due to a greater portion of our income being subject to tax in the U.S.

The decrease in our effective income tax rate for the nine months ended September 30, 2021 was primarily attributable to the following:

a decrease in tax expense during 2021 due to recognizing a tax benefit related to the disposition of certain business units;

a decrease in tax expense due to discrete tax benefits related to a reduction in our net reserve for uncertain tax positions with no similar events for the nine months ended September 30, 2020;

Provision for income taxes amounted to $5.1 million and $(6.9) million for the three months ended March 31, 2022 and 2021, respectively.

Our effective tax rate was 16.7% and (90.3)% for the three months ended March 31, 2022 and 2021, respectively.

The increase in our effective income tax rate for the three months ended March 31, 2022 was primarily attributable to the following:

a tax benefit recognized during the three months ended March 31, 2021 due to the release of a valuation allowance on deferred tax assets related to the impairment of certain U.S.

investments with no similar event in 2022;

an increase in our effective income tax rate during 2022 due to a decrease in the portion of our income being taxed in foreign jurisdictions and subject to lower tax rates than in the U.S.;

partially offset by

an increase in our effective income tax rate during 2021 for U.S.

state and local taxes due to a greater portion of our income being subject to tax in the U.S.

a decrease in tax expense during 2022 due to an increase in our U.S.

deduction for foreign derived intangible income (“FDII”);

a decrease in our effective income tax rate during 2022 due to a gain recorded for book purposes for the mark-to-market adjustment of our remaining Consensus shares held as of March 31, 2022 that resulted in no tax expense since the Company has the ability to dispose of the investment tax-free under certain guidelines.

Significant judgment is required in determining our provision for income taxes and in evaluating our tax positions on a worldwide basis.

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Income (loss) from equity method investment, net.

Income (loss) from equity method investment, net is generated from our investment in the OCV Fund for which we receive annual audited financial statements.

The investment in the OCV Fund is presented net of tax and on a one-quarter lag due to the timing and availability of financial information from OCV.

Income (loss) from equity method investment, net is generated from our investment in the OCV Fund I, LP (the “Fund”) for which we receive annual audited financial statements.

The investment in the Fund, including management fees, is presented net of tax and on a one-quarter lag due to the timing and availability of financial information from the Fund.

If the Company becomes aware of a significant decline in value that is other-than-temporary, the loss will be recorded in the period in which the Company identifies the decline.

The income (loss) from equity method investment, net was $(1.9) million and $(0.7) million net of tax benefit (expense) for the three months ended September 30, 2021 and 2020, respectively, and $16.6 million and $(10.8) million, for the nine months ended September 30, 2021 and 2020, respectively.

The nine months ended September 30, 2021 gain was primarily a result of a gain on the underlying investments.

During the three months ended September 30, 2021 and 2020, the Company recognized management fees of $0.8 million and $0.8 million, net of tax benefit, respectively, and for the nine months ended September 30, 2021 and 2020, the Company recognized management fees of $2.3 million and $2.3 million, net of tax benefit, respectively.

Digital Media and Cloud Services Results

Our businesses are based on the organization structure used by management for making operating and investment decisions and for assessing performance and have been aggregated into two businesses:

(i) Digital Media;

and (ii) Cloud Services.

We evaluate the performance of our businesses based on revenues, including both external and interbusiness net sales, and operating income.

We account for interbusiness sales and transfers based primarily on standard costs with reasonable mark-ups established between the businesses.

The (loss) income from equity method investment, net was $(0.8) million and $24.3 million net of tax benefit (expense) for the three months ended March 31, 2022 and 2021, respectively.

The decrease in income from equity method investment, net during the three months ended March 31, 2022 was primarily due to lower gains on the underlying investments.

During the three months ended March 31, 2022 and 2021, the Company recognized expense for management fees of $0.8 million and $0.8 million, net of tax benefit, respectively.

Digital Media and Cybersecurity and Martech Results

Our businesses are based on the organization structure used by management for making operating and investment decisions and for assessing performance and have been aggregated into two reportable segments:

(i) Digital Media and (ii) Cybersecurity and Martech.

We evaluate the performance of our segments based on revenues, including both external and inter-business net sales, and operating income.

We account for inter-business sales and transfers based primarily on standard costs with reasonable mark-ups established between the businesses.

Identifiable assets by business are those assets used in the respective business’ operations.

Corporate assets consist of cash and cash equivalents, deferred income taxes and certain other assets.

All significant interbusiness amounts are eliminated to arrive at our consolidated financial results.

All significant inter-business amounts are eliminated to arrive at our consolidated financial results.

Digital Media

The following results are presented for the three and nine months ended September 30, 2021 and 2020 (in thousands):

Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

External net sales $ 262,162 $ 186,728 $ 742,729 $ 513,262

The financial results are presented as follows (in thousands):

Three Months Ended March 31,

Gross sales $ 234,827 $ 226,874

Inter-business net sales (132) (68)

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Operating income $ 32,120 $ 30,653

Digital Media’s net sales of $262.4 million for the three months ended September 30, 2021 increased $75.6 million, or 40.5%, from the prior comparable period primarily due to business acquisitions.

Digital Media’s net sales of $743.3 million for the nine months ended September 30, 2021 increased $229.8 million, or 44.8%, from the prior comparable period primarily due to business acquisitions.

Digital Media’s gross profit of $238.7 million for the three months ended September 30, 2021 increased $69.3 million, or 40.9%, from the prior comparable period primarily due to business acquisitions.

Digital Media’s gross profit of $673.4 million for the nine months ended September 30, 2021 increased $215.4 million, or 47.0%, from the prior comparable period primarily due to business acquisitions.

Digital Media’s operating expenses of $189.0 million for the three months ended September 30, 2021 increased $45.6 million from the prior comparable period.

Digital Media’s operating expenses of $549.0 million for the nine months ended September 30, 2021 increased $138.9 million from the prior comparable period.

The increase in the three and nine months ended September 30, 2021 is primarily due to additional expense associated with businesses acquired in and subsequent to the prior comparable period including (a) additional salary and related costs including severance;

(b) creative and selling costs;

and (c) increased amortization of intangible assets.

As a result of these factors, Digital Media’s operating income of $49.7 million for the three months ended September 30, 2021 increased $23.6 million, or 90.6%, from the prior comparable period.

Digital Media’s operating income of $124.4 million for the nine months ended September 30, 2021 increased $76.6 million, or 160.1%, from the prior comparable period.

Cloud Services

The following results are presented for the three and nine months ended September 30, 2021 and 2020 (in thousands):

Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

External net sales $ 182,090 $ 170,248 $ 528,751 $ 507,090

Digital Media’s net sales of $234.7 million for the three months ended March 31, 2022 increased $7.9 million, or 3.5%, compared to the prior year period primarily due to business acquisitions and organic growth related to certain of our businesses.

Digital Media’s gross profit of $209.7 million for the three months ended March 31, 2022 increased $3.6 million, or 1.8%, compared to the prior year period primarily due to the increase in revenue.

Digital Media’s operating expenses of $177.6 million for the three months ended March 31, 2022 increased $2.2 million, or 1.2%, compared to the prior year period.

The increase in the three months ended March 31, 2022 is primarily due to additional expense associated with businesses acquired in and subsequent to the prior comparable period including (a) additional salary and related costs, including severance and (b) creative and selling costs.

As a result of these factors, Digital Media’s operating income of $32.1 million for the three months ended March 31, 2022 increased $1.5 million, or 4.8%, compared to the prior year period.

Cybersecurity and Martech

The financial results are presented as follows (in thousands):

Three Months Ended March 31,

Gross sales $ 80,494 $ 84,901

Inter-business net sales (121) (50)

4 unchanged sentences

Operating income $ 12,328 $ 11,865

Cloud Services’ net sales of $182.2 million for the three months ended September 30, 2021 increased $11.9 million, or 7.0%, from the prior comparable period primarily due to business acquisitions acquired, partially offset by businesses sold subsequent to the third quarter 2020.

Cloud Services’ net sales of $529.0 million for the nine months ended September 30, 2021

increased $21.9 million, or 4.3%, from the prior comparable period primarily due to business acquisitions acquired, partially offset by businesses sold subsequent to the third quarter 2020.

Cloud Services’ gross profit of $141.4 million for the three months ended September 30, 2021 increased $9.6 million, or 7.3%, from the prior comparable period primarily due to business acquisitions;

partially offset by businesses sold subsequent to the third quarter 2020.

Cloud Services’ gross profit of $412.9 million for the nine months ended September 30, 2021 increased $22.0 million, or 5.6%, from the prior comparable period primarily due to business acquisitions;

partially offset by businesses sold subsequent to the third quarter 2020.

Cloud Services’ operating expenses of $79.6 million for the three months ended September 30, 2021 increased $13.5 million from the prior comparable period primarily due to expense associated with businesses acquired in and subsequent to the third quarter 2020 and increased marketing and advertising costs;

partially offset by businesses sold subsequent to the prior comparable period.

Cloud Services’ operating expenses of $257.2 million for the nine months ended September 30, 2021 increased $49.8 million from the prior comparable period primarily due to expense associated with businesses acquired in and subsequent to the third quarter 2020, increased marketing and advertising costs and the recognition of a goodwill impairment on business;

partially offset by businesses sold subsequent to the prior comparable period.

As a result of these factors, Cloud Services’ operating income of $61.8 million for the three months ended September 30, 2021 decreased $(4.0) million, or (6.0)%, from the prior comparable period.

Cloud Services’ operating income of $155.7 million for the nine months ended September 30, 2021 decreased $(27.8) million, or (15.1)%, from the prior comparable period.

Cybersecurity and Martech net sales of $80.4 million for the three months ended March 31, 2022 decreased $4.5 million, or 5.3%, compared to the prior year period primarily due to the sale of the B2B Back-up business during the third quarter of 2021, partially offset by business acquisitions.

Cybersecurity and Martech gross profit of $59.4 million for the three months ended March 31, 2022 decreased $2.5 million, or 4.1%, compared to the prior year period primarily due to the sale of the B2B Back-up business during the third quarter of 2021, partially offset by business acquisitions.

Cybersecurity and Martech operating expenses of $47.1 million for the three months ended March 31, 2022 decreased $3.0 million, or 5.9%, compared to the prior year period primarily due to the sale of the B2B Back-up business during the third quarter of 2021.

As a result of these factors, Cybersecurity and Martech operating income of $12.3 million for the three months ended March 31, 2022 increased $0.5 million, or 3.9%, from the prior comparable period.

Liquidity and Capital Resources

Cash and Cash Equivalents and Investments

At September 30, 2021, we had cash, cash equivalents and investments of $657.2 million compared to $340.8 million at December 31, 2020.

The increase in cash and investments resulted primarily from cash provided from operations and proceeds from the Bridge Loan Facility (defined below);

partially offset by the repayment of debt and cash used in business acquisitions, purchases of property and equipment (including capitalized labor), repurchase of common stock and investments.

At September 30, 2021, cash and investments consisted of cash and cash equivalents of $546.5 million, short-term investments of zero and long-term investments of $110.7 million.

Our investments consist of equity and debt securities.

For financial statement presentation, we classify our debt securities primarily as short- and long-term based upon their maturity dates.

Short-term investments mature within one year of the date of the financial statements and long-term investments mature one year or more from the date of the financial statements.

As of September 30, 2021, cash and investments held within domestic and foreign jurisdictions were $491.0 million and $166.2 million, respectively.

On April 7, 2021, the Company entered into a Credit Agreement (the “Credit Agreement”) with certain lenders from time to time party thereto (collectively, the “Lenders”) and MUFG Union Bank, N.A., as administrative agent, collateral agent and sole lead arranger for the Lenders (the “Agent”).

Pursuant to the Credit Agreement, the Lenders have provided the Company with a revolving credit facility of $100 million (the “Credit Facility”).

Subject to customary conditions, the Company may, from time to time, request increases in the commitments under the Credit Agreement in an aggregate amount up to $250 million, for a total aggregate commitment of up to $350 million.

The proceeds of the Credit Facility are intended to be used for working capital and general corporate purposes of the Company and its subsidiaries, including to finance certain permitted acquisitions and capital expenditures in accordance with the terms of the Credit Agreement.

The final maturity of the Credit Facility will occur on April 7, 2026.

On June 2, 2021, June 21, 2021, August 20, 2021 and September 16, 2021, we entered into First, Second, Third and Fourth Amendments (together the “Amendments”) to Credit Agreement.

The Amendments (i) provided for the issuance of a senior secured term loan under the Credit Agreement, in an aggregate principal amount of $485.0 million (the “Bridge Loan Facility”), (ii) permitted the spin-off of our cloud fax business into a new publicly traded company, and (iii) provided for certain other changes to the Credit Agreement.

On October 7, 2021, in exchange for the equity interest in Consensus, Consensus paid Ziff Davis approximately $269.6 million of cash and issued $500.0 million of senior notes due 2028 to Ziff Davis and Ziff Davis exchanged such notes with the lenders under the Credit Agreement and Credit Agreement Amendments by and among the subsidiaries of Ziff Davis party thereto as guarantors, Citicorp North America Inc.

and MUFG Union Bank, N.A.

and MUFG Union Bank, N.A., as administrative agent for the lenders, in exchange for extinguishment of a similar amount indebtedness under the Bridge Loan Facility.

Such lenders or their affiliates agreed to resell the 2028 notes to qualified institutional buyers in the United States pursuant to Rule 144A.

On September 25, 2017, the Board of Directors of the Company authorized the Company’s entry into a commitment to invest $200 million in an investment fund (the “Fund”) over several years at a fairly ratable rate.

The manager, OCV Management, LLC (“OCV”), and general partner of the Fund are entities with respect to which Richard S.

Ressler, Chairman of the Board of Directors (the “Board”) of the Company, is indirectly the majority equity holder.

As a limited partner in the Fund, the Company will pay an annual management fee to the manager equal to 2.0% (reduced by 10% each year beginning with the sixth year) of capital commitments.

In addition, subject to the terms and conditions of the Fund’s limited partnership agreement, once the Company has received distributions equal to its invested capital, the Fund’s general partner will be entitled to a carried interest equal to 20%.

As of March 31, 2022, we had cash, cash equivalents and investments of $988.7 million compared to $1,046.6 million at December 31, 2021.

At March 31, 2022, cash and investments consisted of cash and cash equivalents of $629.0 million, short-term investments in equity securities of $238.2 million and long-term investments of $121.6 million.

As of March 31, 2022, cash and investments held within domestic and foreign jurisdictions were $847.1 million and $141.6 million, respectively.

On September 25, 2017, the Company entered into a commitment to invest $200 million (approximately 76.6% of equity) in the “Fund”.

The manager, OCV Management, LLC , and general partner of the Fund are entities with respect to which Richard S.

Ressler, former Chairman of the Board of Directors (the “Board”) of the Company, is indirectly the majority equity holder and a related party.

Ressler’s tenure with the Board of Directors of the Company ended as of May 10, 2022.

As a limited partner in the Fund, prior to the settlement of certain litigation generally related to the Company’s investment in the Fund, in January 2022, the Company paid an annual management fee to the manager equal to 2.0% of capital commitments.

In addition, subject to the terms and conditions of the Fund’s limited partnership agreement, once the Company has received distributions equal to its invested capital, the Fund’s general partner would be entitled to a carried interest equal to 20%.

The Fund has a six year investment period, subject to certain exceptions.

The commitment was approved by the Audit Committee of the Board in accordance with the Company’s related-party transaction approval policy.

In the first nine months of 2021, the Company received capital call notices from the management of OCV Management, LLC for $21.2 million, inclusive of certain management fees.

Of the outstanding balance, $21.2 million has been paid for the nine months ended September 30, 2021.

At the time of the settlement of the litigation, the Company had invested approximately $128.8 million in the Fund.

In connection with the settlement of the litigation, among other terms, no further capital calls will be made in connection with our investment in the Fund, nor will any management fees be paid by the Company to the manager.

For more information related to the litigation, see Note 9 – Commitments and Contingencies in Item 1 of Part I of this Quarterly Report on Form 10-Q, which is incorporated by reference into this Part I Item 2 for additional information.

As of March 31, 2022 and December 31, 2021, there were no amounts drawn under the Credit Agreement.

During the three months ended March 31, 2022, the Company repurchased approximately $54.6 million in aggregate principal amount of the 4.625% Senior Notes for an aggregate purchase price of approximately $55.4 million.

Material Cash Requirements

Our long-term contractual obligations generally include our debt and related interest payments, noncancellable operating leases, holdback amounts in connection with certain business acquisitions, commitments related to the transition tax on unrepatriated foreign earnings, incurred but not paid amounts of self-insurance as well as other commitments.

As of March 31, 2022, we and our subsidiaries had outstanding $1.1 billion in aggregate principal amount of indebtedness, of which none is due in the succeeding twelve months.

As of March 31, 2022, our total minimum lease payments are $81.0 million, of which approximately $26.7 million are due in the succeeding twelve months.

As of March 31, 2022, our liability for uncertain tax positions was $42.9 million.

There were no material changes to our cash requirements during the three months ended March 31, 2022.

We currently anticipate that our existing cash and cash equivalents and cash generated from operations will be sufficient to meet our anticipated needs for working capital, capital expenditures and stock repurchases, if any, for at least the next 12 months.

Our Condensed Consolidated Statements of Cash Flows for three months ended March 31, 2021 include the activity from the cloud fax business, which was separated from the Company on October 7, 2021.

Refer to Note 5 – Discontinued Operations in Item 1 of Part I of this Quarterly Report on Form 10-Q, which is incorporated by reference into this Part I Item 2 for additional information.

Our primary sources of liquidity are cash flows generated from operations, together with cash and cash equivalents.

Net cash provided by operating activities was $430.3 million and $356.0 million for the nine months ended September 30, 2021 and 2020, respectively.

Net cash provided by operating activities was $116.5 million and $178.7 million for the three months ended March 31, 2022 and 2021, respectively.

Our operating cash flows resulted primarily from cash received from our customers offset by cash payments we made to third parties for their services, employee compensation and interest payments associated with our debt.

The increase in our net cash provided by operating activities in 2021 compared to 2020 was attributable to additional income after considering noncash items, less cash outflow associated with accounts payable and accrued expenses and increased cash inflow associated with deferred revenue;

partially offset by higher income tax payments, cash outflow associated with long-term liabilities and higher accounts receivable and prepaid expenses.

Our cash and cash equivalents were $546.5 million and $242.7 million at September 30, 2021 and December 31, 2020, respectively.

Net cash used in investing activities was $159.6 million and $107.3 million for the nine months ended September 30, 2021 and 2020, respectively.

For the nine months ended September 30, 2021 and 2020, net cash used in investing activities was primarily due to business acquisitions and capital expenditures associated with the purchase of property and equipment (including capitalized labor) and the purchase of investments;

partially offset by proceeds from the sale of businesses and distributions from an equity method investment.

The increase in our net cash used in investing activities in 2021 compared to 2020 was primarily due to additional cash used for business acquisitions.

Net cash provided by (used in) financing activities was $39.8 million and $(256.9) million for the nine months ended September 30, 2021 and 2020, respectively.

For the nine months ended September 30, 2021, net cash provided by financing activities was primarily due to the proceeds from the Bridge Loan Facility, issuance of common stock under the employee stock purchase plan and the exercise of options, partially offset by the repayment of debt, repurchase of common stock and business acquisitions.

The change in net cash provided by financing activities in 2021 compared to 2020 was primarily attributable to proceeds from a bridge loan in 2021.

The decrease in our net cash provided by operating activities during the three months ended March 31, 2022 compared to 2021 period is attributable to lower earnings before non-cash adjustments, primarily as a result of the Separation, the timing and amount of collections from our customers and a decrease in deferred revenue, partially offset by income on our investment in the Fund in 2021.

Our cash and cash equivalents were $629.0 million and $694.8 million at March 31, 2022 and December 31, 2021, respectively.

Net cash used in investing activities was $58.6 million and $29.0 million for the three months ended March 31, 2022 and 2021, respectively.

The increase in our net cash used in investing activities during the three months ended March 31, 2022 compared to 2021 period is primarily related to our 2022 business acquisitions and higher capital expenditures associated with

the purchase of property and equipment, including capitalized labor, partially offset by the purchase of equity method investment in 2021.

Net cash used in financing activities was $120.7 million and $20.1 million for the three months ended March 31, 2022 and 2021, respectively.

The increase in the net cash used in financing activities during the three months ended March 31, 2022 compared to 2021 period is primarily related to share repurchases and repurchases of our 4.625% Senior Notes in 2022.

Stock Repurchase Program

In February 2012, the Company’s Board of Directors approved a program authorizing the repurchase of up to five million shares of our common stock through February 20, 2013 (the “2012 Program”) which was subsequently extended through February 20, 2021.

In November 2018 and May 2019, the Company entered into Rule 10b5-1 trading plans with a broker to facilitate the repurchase program.

600,000 shares were repurchased under the share repurchase program in 2018 at an aggregate cost of $42.5 million and were subsequently retired in March 2019.

During the year ended December 31, 2019, the Company repurchased 197,870 shares at an aggregate cost of $16.0 million which were subsequently retired in the same year.

During the year ended December 31, 2020, the Company repurchased 1,140,819 shares under this program at an aggregate cost of $87.5 million, which were subsequently retired in the same year.

As of December 31, 2020, all the available shares were repurchased under the 2012 Program at an aggregate cost of $204.6 million (including an immaterial amount of commission fees).

On August 6, 2020, the Company’s Board of Directors approved a program authorizing the repurchase of up to 10 million shares of our common stock through August 6, 2025 (the “2020 Program”) in addition to the five million shares repurchased under the 2012 Program.

During the three month period ended September 30, 2021, we repurchased no shares under this program.

Cumulatively at September 30, 2021, 2,490,599 shares were repurchased at an aggregate cost of $177.8 million (including an immaterial amount of commission fees) under the 2020 Program, which were subsequently retired.

Contractual Obligations and Commitments

The following table summarizes our contractual obligations and commitments as of September 30, 2021

Payments Due in

(in thousands)

Contractual Obligations 2021 2022 2023 2024 2025 Thereafter Total

Long-term debt - principal (a) $ — $ — $ — $ — $ — $ 1,300,000 $ 1,300,000

Long-term debt - interest (b) 24,559 44,313 44,313 44,313 44,313 183,061 384,872

Bridge loan (c) 485,000 — — — — — 485,000

Operating leases (d) 8,507 31,926 26,494 18,839 10,497 35,250 131,513

Telecom services and co-location facilities (f) 2,539 1,712 456 42 — — 4,749

Holdback payments (g) 3,693 16,944 950 — — — 21,587

Transition tax (h) — — — 3,189 8,486 — 11,675

Self-Insurance (i) 8,861 13,532 3,001 — — — 25,394

Other (j) 381 598 — — — — 979

Total $ 533,540 $ 109,025 $ 75,214 $ 66,383 $ 63,296 $ 1,518,311 $ 2,365,769

(a) These amounts represent principal on long-term debt.

(b) These amounts represent interest on long-term debt.

(d) These amounts represent undiscounted future minimum rental commitments under noncancellable operating leases.

(e) These amounts represent undiscounted future minimum rental commitments under noncancellable finance leases.

(f) These amounts represent service commitments to various telecommunication providers.

(g) These amounts represent the holdback amounts in connection with certain business acquisitions.

(h) These amounts represent commitments related to the transition tax on unrepatriated foreign earnings reduced by the 2017 overpayment of US Federal Income Tax.

(i) These amounts represent health and dental insurance plans in connection to self-insurance.

(j) These amounts represent certain consulting and Board of Directors fee arrangements, software license and implementation commitments and others.

As of September 30, 2021, our liability for uncertain tax positions was $54.2 million.

The future payments related to uncertain tax positions have not been presented in the table above due to the uncertainty of the amounts and timing of cash settlement with such authorities.

We have not presented contingent consideration associated with acquisitions (other than contingent consideration which we have deemed as certain in terms of amount and timing) in the table above due to the uncertainty of the amounts and the timing of cash settlements.

We have also not presented our remaining commitment to OCV Management, LLC of approximately $72.5 million due to the uncertainty of timing of funding requests.

Off-Balance Sheet Arrangements

We are not party to any material off-balance sheet arrangements.

On August 6, 2020, our Board of Directors approved a program authorizing the repurchase of up to ten million shares of our common stock through August 6, 2025 (the “2020 Program”).

In connection with the authorization, the Company entered into certain Rule 10b5-1 trading plans with a broker-dealer to facilitate the repurchase program.

A summary of share repurchases under the 2020 Program during the three months ended March 31, 2022 is as follows (in millions, except share and per share amounts):

Total number of shares repurchased Aggregate purchase price Average price paid per share Shares remaining under repurchase authorization as of March 31, 2022

554,289 $ 58.7 $ 105.87 6,509,401

Cumulatively at March 31, 2022, 3,490,599 shares were repurchased at an aggregate cost of $284.2 million (including an immaterial amount of commission fees) under the 2020 Program.

These shares were subsequently retired.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis