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Ziff Davis, Inc.
−Removed: (formerly J2 Global, Inc.) was incorporated in 2014 as a Delaware corporation through the creation of a holding company structure, and our Cybersecurity and Martech business, operated by our wholly owned subsidiary, J2 Cloud Services, LLC (formerly J2 Cloud Services, Inc.), and its subsidiaries, was founded in 1995.
−Removed: Ziff Davis, Inc., together with its subsidiaries (“Ziff Davis”, “the Company”, “our”, “us” or “we”), is a leading provider of internet services.
−Removed: Our Digital Media business specializes in the technology, shopping, gaming, and healthcare markets, offering content, tools and services to consumers and businesses.
+Added: was incorporated in 2014 as a Delaware corporation through the creation of a holding company structure.
+Added: Ziff Davis, Inc., together with its subsidiaries (“Ziff Davis”, “the Company”, “our”, “us” or “we”), is a vertically focused digital media and internet company whose portfolio includes brands in technology, shopping, gaming and entertainment, connectivity, health, cybersecurity, and martech.
+Added: Our Digital Media business specializes in the technology, shopping, gaming and entertainment, 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.
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(“Consensus”).
+Added: In connection with the Separation, we changed our name to Ziff Davis, Inc.
+Added: from J2 Global, Inc.
+Added: (for certain events prior to October 7, 2021, the Company may be referred to as J2 Global).
The Separation was achieved through the Company’s distribution of 80.1% of the shares of Consensus common stock to holders of J2 Global common stock as of the close of business on October 1, 2021, the record date for the distribution.
−Removed: The J2 Global stockholders of record received one share of Consensus common stock for every three shares of J2 Global’s common stock and we retained a 19.9% interest in Consensus following the Separation (the “Retained Consensus Shares”).
+Added: The J2 Global stockholders of record received one share of Consensus common stock for every three shares of J2 Global’s common stock and we retained a 19.9% interest in Consensus following the Separation (“Investment in Consensus”).
Before the Separation, we reported our results as Digital Media and Cloud Services.
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Accordingly, the accompanying consolidated financial statements for all periods presented reflect the results of the Consensus business as a discontinued operation.
−Removed: 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.
−Removed: Our Digital Media business generates revenues from advertising and sponsorships, subscription and usage fees, performance marketing and licensing fees.
−Removed: Our Cybersecurity and Martech business generates revenues primarily from customer subscription and usage fees.
−Removed: 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.
+Added: Ziff Davis did not retain a controlling interest in Consensus.
+Added: On June 10, 2022, the Company entered into a Fifth Amendment to its Credit Agreement and on September 15, 2022, the Company entered into a Sixth Amendment to its Credit Agreement, each with MUFG Union Bank, N.A., as administrative agent and collateral agent and the lenders party thereto, to effectuate two debt-for equity exchanges of portions of the Investment in Consensus.
+Added: The Fifth Amendment to the Credit Agreement provided for the issuance of a senior secured term loan under the Credit Agreement, in an aggregate principal amount of $90.0 million (the “Term Loan Facility”) and the Sixth Amendment to the Credit Agreement provided for the issuance of a senior secured term loan under the Credit Agreement, in an aggregate principal amount of $22.3 million (the “Term Loan Two Facility”).
+Added: Both amendments provided for certain other changes to the Credit Agreement.
+Added: Refer to Note 10 - Debt in Part II Item 8 of this Annual Report on Form 10-K for additional information.
+Added: During June 2022, the Company borrowed approximately $90.0 million under the Term Loan Facility and completed a non-cash exchange of 2.3 million shares of the Investment in Consensus to settle its obligation of $90.0 million outstanding aggregate principal amount of the Term Loan Facility plus related interest.
+Added: During September 2022, the Company borrowed approximately $22.3 million under the Term Loan Two Facility and completed a non-cash exchange of 0.5 million shares of the Investment in Consensus to settle its obligation of $22.3 million outstanding aggregate principal amount of the Term Loan Two Facility plus related interest.
+Added: As of December 31, 2022, the Company holds approximately 1.1 million shares of the common stock of Consensus.
+Added: The Investment in Consensus represents an investment in equity securities for which the Company elected the fair value option and subsequent fair value changes in the Consensus shares are included in our assets and results from continuing operations.
Our consolidated revenues are currently generated primarily from two basic business models, each with different financial profiles and variability.
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Our Cybersecurity and Martech business is driven primarily by subscription revenues with relatively stable and predictable margins from quarter to quarter.
−Removed: We continue to pursue additional acquisitions, which may include companies operating under business models that differ from those we operate under today.
+Added: 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.
+Added: We continue to pursue additional
+Added: 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.
−Removed: In March 2020, the World Health Organization declared the COVID-19 outbreak as a pandemic, and we anticipate our customers and our operations in all locations will be affected as the virus continues to proliferate and as a result of the governmental responses to the pandemic and its impact on global, regional and local economies, including supply chains.
−Removed: The impact of the COVID-19 pandemic has had a negative effect on the global economy, disrupting the financial markets and creating increasing volatility and overall uncertainty.
−Removed: Given this disruption, volatility and uncertainty, our results may be adversely affected due to various factors affecting our performance.
−Removed: The Company has adjusted certain aspects of our operations to protect our employees and customers while still seeking to meet customers’ needs for our vital digital media services and cybersecurity and Martech services.
−Removed: Management is actively monitoring the global situation and will take further action to alter our operations as may be required by federal, foreign, state and local authorities or that we determine are otherwise necessary or appropriate under the circumstances.
−Removed: The full extent, duration and overall impact of the COVID-19 pandemic is currently unknown and depends on future developments that are uncertain and unpredictable.
−Removed: Therefore, we are continuing to assess the impact to our results of operations, financial position and liquidity based on our current assessment of the situation which could change based on the spread of the pandemic and additional government action which could limit economic activity or cause for a slower reopening of the economy.
−Removed: Digital Media Performance Metrics
−Removed: We use certain metrics to generally assess the operational and financial performance of our Digital Media business.
−Removed: The number of visits is an indicator of consumers’ level of engagement with our mobile applications, websites and other services.
−Removed: We believe highly engaged consumers are more likely to participate in advertising programs and other activities that drive our multiple revenue streams.
−Removed: We define a visit as a group of interactions by users with our mobile and desktop applications and websites.
−Removed: 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.
−Removed: We measure visits with Google Analytics and through partner platform measures.
−Removed: Page views are measured each time a page on our websites is loaded in a browser.
−Removed: The following table sets forth certain operating metrics for our Digital Media business for the years ended December 31, 2021, 2020 and 2019 (in millions):
−Removed: Years ended December 31,
−Removed: Visits 8,548 9,091 7,542
−Removed: Page views 29,592 30,546 28,171
−Removed: Google Analytics and Partner Platforms and test results in connection with Ookla.
−Removed: (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 2019, 2020 and Q1 2021.
−Removed: Cybersecurity and Martech Performance Metrics
−Removed: We use certain metrics to generally assess the operational and financial performance of our Cybersecurity and Martech business;
−Removed: these metrics also serve as a baseline for (a) internal trends and (b) benchmarking against competitors.
−Removed: 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.
−Removed: We also use this metric, in conjunction with the cancel rate, to help provide a directional indicator of Cybersecurity and Martech revenue and calculate the lifetime value of customers within each of our business units.
−Removed: The following table sets forth certain key operating metrics for our Cybersecurity and Martech business for the years ended December 31, 2021, 2020 and 2019 (in thousands, except for percentages):
−Removed: Years ended December 31,
+Added: Performance Metrics
+Added: Revenues from customers classified by revenue source are as follows (in thousands):
+Added: Year ended December 31,
2022 2021 2020
−Removed: Subscriber revenues:
−Removed: Fixed $ 332,018 $ 324,379 $ 310,687
−Removed: Variable 16,228 23,318 29,558
−Removed: Total revenues $ 348,246 $ 347,697 $ 340,245
−Removed: Percentage of total subscriber revenues:
−Removed: Fixed 95.3 % 93.3 % 91.3 %
−Removed: Variable 4.7 % 6.7 % 8.7 %
−Removed: Total revenues:
−Removed: Number-based $ 39,278 $ 56,135 $ 66,744
−Removed: Non-number-based 308,968 291,562 273,501
+Added: Digital Media
+Added: Advertising $ 788,135 $ 838,075 $ 627,198
+Added: Subscription 244,694 197,354 166,219
+Added: Other 46,343 33,871 17,943
+Added: Total Digital Media revenues $ 1,079,172 $ 1,069,300 $ 811,360
+Added: Cybersecurity and Martech
+Added: Subscription $ 312,626 $ 348,611 $ 347,697
+Added: Total Cybersecurity and Martech revenues $ 312,626 $ 348,611 $ 347,697
+Added: Corporate $ — $ — $ 1
+Added: Elimination of inter-segment revenues (801) (1,189) (229)
Total Revenues $ 1,390,997 $ 1,416,722 $ 1,158,829
−Removed: Average monthly revenue per Cybersecurity and Martech Business Customer (ARPU) (1)(2)
+Added: We use certain metrics to generally assess the operational and financial performance of our businesses.
+Added: We have changed these metrics effective January 1, 2022, and the following descriptions align with the metrics management now uses to monitor the performance of its various advertising and subscription-based businesses.
+Added: 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.
+Added: Similarly, we monitor the number of our advertisers and the revenue per advertiser, as defined below, as these metrics provide further details related to our reported revenue and contribute to certain of our business planning decisions.
+Added: For our subscription and licensing businesses, the number of subscribers that we serve is an indicator of our customer retention and growth.
+Added: The average monthly revenue per subscriber and the churn rate also contribute to insights that contribute to certain of our business planning decisions.
+Added: The following table sets forth certain operating metrics for our Digital Media advertising business for the three months ended December 31, 2022 and 2021 (in millions):
+Added: Three months ended December 31,
+Added: Net advertising revenue retention (1)
92.0 % 111.9 %
−Removed: Cancel rate (3)
+Added: Advertisers (2)
+Added: Quarterly revenue per advertiser (3)
$ 118,370 $ 119,932
−Removed: (1) 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.
−Removed: We believe ARPU provides investors an understanding of the average monthly revenues we recognize associated with each Cybersecurity and Martech customer.
−Removed: 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 Cybersecurity and Martech customer base.
−Removed: (2) Cybersecurity and Martech customers are defined as paying direct inward dialing numbers for voice services, and direct partner and resellers’ accounts for other services.
−Removed: (3) Cancel Rate is defined as cancels of small and medium businesses and individual Cybersecurity and Martech customers with greater than four months of continuous service (continuous service includes Cybersecurity and Martech customers administratively canceled and reactivated within the same calendar month), and enterprise Cybersecurity and Martech Services customers beginning with their first day of service.
−Removed: Calculated monthly and expressed as an average over the three months of the quarter.
+Added: (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).
+Added: This excludes advertisers that generated less than $10,000 of revenue in the measurement period.
+Added: (2) Excludes advertisers that spent less than $2,500 in the quarter within certain divisions.
+Added: (3) Represents total gross quarterly advertising revenues divided by advertisers as defined in footnote (2).
+Added: 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 December 31, 2022 and 2021:
+Added: Three months ended December 31,
+Added: Subscribers (in thousands) (1)
+Added: Average quarterly revenue per subscriber (2)
+Added: $ 46.33 $ 60.89
+Added: Churn rate (3)
+Added: 3.81 % 2.97 %
+Added: (1) Represents the quarterly average of the end of month subscriber counts for both the Digital Media and Cybersecurity and Martech businesses.
+Added: Cybersecurity and Martech subscribers are defined as a direct customer, including customers who have paused but not cancelled their subscription.
+Added: 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.
+Added: (2) Represents quarterly subscription revenues divided by customers in the table above.
+Added: (3) 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;
+Added: divided by (ii) subscription revenue in the current month, calculated at each business and aggregated.
+Added: For Ookla, the churn rate calculation included in consolidated churn rate calculation includes the sum of the monthly revenue from the specific cancelled agreements in the numerator,
Critical Accounting Policies and Estimates
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generally accepted accounting principles (“GAAP”) and our discussion and analysis of our financial condition and operating results require us to make judgments, assumptions and estimates that affect the amounts reported in our consolidated financial statements and accompanying notes.
−Removed: See Note 2, “Basis of Presentation and Summary of Significant Accounting Policies” of the notes to consolidated financial statements in Part II, Item 8 of this Form 10-K which describes the significant accounting policies and methods used in the preparation of our consolidated financial statements.
+Added: See Note 2 - Basis of Presentation and Summary of Significant Accounting Policies of the notes to consolidated financial statements in Part II Item 8 of this Annual Report on Form 10-K that describes the significant accounting policies and methods used in the preparation of our consolidated financial statements.
We base our estimates on historical experience and on various other assumptions we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities.
Actual results may differ significantly from those estimates under different assumptions and conditions and may be material.
−Removed: We believe that our most critical accounting policies are those related to revenue recognition, valuation and impairment of investments, our assessment of ownership interests as variable interest entities and the related determination of consolidation, share-based compensation expense, fair value of assets acquired and liabilities assumed in connection with business combinations, long-lived and intangible asset impairment, contingent consideration, income taxes and contingencies and allowance for doubtful accounts.
−Removed: We consider these policies critical because they are those that are most important to the portrayal of our financial condition and results and require management’s most difficult, subjective and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.
−Removed: Senior management has reviewed these critical accounting policies and related disclosures with the Audit Committee of the Company’s Board of Directors.
+Added: The accounting policies described below are those we consider to be the most critical to an understanding of our financial condition and results of operations and that require the most complex and subjective management judgment.
Revenue Recognition
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Digital Media revenues are earned primarily from the delivery of advertising services and from subscriptions to services and information.
−Removed: Revenue is earned from the delivery of advertising services on the Company’s owned and operated websites and on those websites that are part of Digital Media’s advertising network.
−Removed: Depending on the individual contracts with the customer, revenue for these services are recognized over the contract period when any of the following performance obligations are satisfied:
−Removed: (i) when an advertisement is placed for viewing;
−Removed: (ii) when a qualified sales lead is delivered;
−Removed: (iii) when a visitor “clicks through” on an advertisement;
+Added: Revenue is earned from the delivery of advertising services on websites that are owned and operated by us and on those websites that are part of Digital Media’s advertising network.
+Added: Depending on the individual contracts with the customer, revenue for these services is recognized over the contract period when any of the following performance obligations are satisfied:
+Added: (i) when an advertisement is placed for viewing, (ii) when a qualified sales lead is delivered, (iii) when a visitor “clicks through” on an advertisement;
or (iv) when commissions are earned upon the sale of an advertised product.
−Removed: Revenue from subscriptions is earned through the granting of access to, or delivery of, certain data products or services to customers.
+Added: Revenue from subscriptions is earned through the granting of access to, or delivery of, data products or services to customers.
Subscriptions cover video games and related content, health information, data and other copyrighted material.
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Subscription revenues are recognized over time.
−Removed: The Company also generates Digital Media revenues through the license of certain assets to clients.
−Removed: Assets are licensed for clients’ use in their own promotional materials or otherwise.
−Removed: Such assets may include logos, editorial reviews, or other copyrighted material.
+Added: We also generate Digital Media subscription revenues through the license of certain assets to clients.
+Added: Assets are licensed for clients’ use in their own promotional materials or otherwise and may include logos, editorial reviews, or other copyrighted material.
Revenues under such license agreements are recognized over the contract term for use of the asset.
−Removed: Technology assets are also licensed to clients.
−Removed: These assets are recognized over the term of the access period.
+Added: On instances when technology assets are licensed to our clients, revenues from the license of these assets are recognized over the term of the access period.
The Digital Media business also generates revenue from other sources which include marketing and production services.
Such other revenues are generally recognized over the period in which the products or services are delivered.
−Removed: The Company also generates Digital Media revenues from transactions involving the sale of perpetual software licenses, related software support and maintenance, hardware used in conjunction with its software, and other related services.
−Removed: Revenue is recognized for these software transactions with multiple performance obligations after (i) the Company has had an approved contract and is committed to perform the respective obligations and (ii) the Company can identify and quantify each obligation and its respective selling price.
−Removed: Once the respective performance obligations have been identified and quantified, revenue is recognized when the obligations are met, either over time or at a point in time depending on the nature of the obligation.
+Added: We also generate Digital Media revenues from transactions involving the sale of perpetual software licenses, related software support and maintenance, hardware used in conjunction with its software, and other related services.
+Added: recognized for these software transactions with multiple performance obligations after (i) the contract has been approved and we are committed to perform the respective obligations and (ii) we can identify and quantify each obligation and its respective selling price.
+Added: Once the respective performance obligations have been identified and quantified, revenue will be recognized when the obligations are met, either over time or at a point in time depending on the nature of the obligation.
Revenues from software license performance obligations are generally recognized upfront at the point in time that the software is made available to the customer to download and use.
Revenues for related software support and maintenance performance obligations are related to technical support provided to customers as needed and unspecified software product upgrades, maintenance releases and patches during the term of the support period when they are available.
−Removed: The Company is obligated to make the support services available continuously throughout the contract period.
+Added: We are obligated to make the support services available continuously throughout the contract period.
Therefore, revenues for support contracts are generally recognized ratably over the contractual period the support services are provided.
−Removed: Hardware products and related software performance obligations, such as an operating system or firmware, are highly interdependent and interrelated and are accounted for as a bundled performance obligation.
+Added: Hardware product and related software performance obligations, such as an operating system or firmware, are highly interdependent and interrelated and are accounted for as a bundled performance obligation.
The revenues for this bundled performance obligation are generally recognized at the point in time that the hardware and software products are delivered and ownership is transferred to the customer.
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Cybersecurity and Martech
−Removed: The Company’s Cybersecurity and Martech revenues substantially consist of recurring subscription and usage-based fees, the majority of which are paid in advance by credit card.
−Removed: The Company defers the portions of monthly, quarterly, semi-annually and annually recurring subscription and usage-based fees collected in advance of the satisfaction of performance obligations and recognizes them in the period earned.
−Removed: Along with our numerous proprietary Cybersecurity and Martech solutions, the Company also generates revenues by reselling various third-party solutions, primarily through our email security business.
−Removed: These third-party solutions, along with our proprietary products, allow the Company to offer customers a variety of solutions to better meet the customer’s needs.
+Added: The Company’s Cybersecurity and Martech revenues substantially consist of subscription fees and usage-based fees, a significant portion of which are paid in advance.
+Added: The Company defers the portions of monthly, quarterly, semi-annual, and annual fees collected in advance of the satisfaction of performance obligations and recognizes them in the period earned.
+Added: Along with its numerous proprietary Cybersecurity and Martech solutions, the Company also generates subscription revenues by reselling various third-party solutions, primarily through its email security line of business.
+Added: These third-party solutions, along with the Company’s proprietary products, allow it to offer customers a variety of solutions to better meet the customer’s needs.
The Company records revenue on a gross basis with respect to reseller revenue because the Company has control of the specified good or service prior to transferring control to the customer.
−Removed: Valuation and Impairment of Investments
−Removed: We account for our investments in debt securities in accordance with Financial Accounting Standards Board (“FASB”) ASC Topic No.
−Removed: 320, Investments - Debt Securities (“ASC 320”).
−Removed: Our debt investments are typically comprised of corporate debt securities, which we classify as available-for-sale.
−Removed: Available-for-sale securities are carried at fair value with unrealized gains and losses included in other comprehensive income.
−Removed: All debt securities are accounted for on a specific identification basis.
−Removed: The Company’s available-for-sale debt securities are carried at an estimated fair value with any unrealized gains or losses, net of taxes, included in accumulated other comprehensive loss in stockholders’ equity.
−Removed: Available-for-sale debt securities with an amortized cost basis in excess of estimated fair value are assessed to determine what amount of that difference, if any, is caused by expected credit losses.
−Removed: Expected credit losses on available-for-sale debt securities are recognized in loss on investments, net on our Consolidated Statements of Operations, and any remaining unrealized losses, net of taxes, are included in accumulated comprehensive loss in stockholders’ equity.
−Removed: We account for our investments in equity securities in accordance with ASC Topic No.
−Removed: 321, Investments - Equity Securities (“ASC 321”) which requires the accounting for equity investments (other than those accounted for using the equity method of accounting) be measured at fair value for equity securities with readily determinable fair values.
−Removed: The Retained Consensus Shares are accounted for at fair value under the fair value option and the related fair value gains and losses are recognized in earnings.
−Removed: For equity securities without a readily determinable fair value that are not accounted for by the equity method, we measure the equity security using cost, less impairment, if any, and plus or minus observable price changes arising from orderly transactions in the same or similar investment from the same issuer.
−Removed: Any unrealized gains or losses will be reported in current earnings (see Note 5 - Investments of the Notes to Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K, which is incorporated herein by reference).
−Removed: We assess whether an other-than-temporary impairment loss on an investment has occurred due to declines in fair value or other market conditions (see Note 5 - Investments of the Notes to Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K, which is incorporated herein by reference).
−Removed: Variable Interest Entities (“VIE”)
−Removed: A VIE requires consolidation by the entity’s primary beneficiary.
−Removed: The Company evaluates its investments in entities in which it is involved to determine if the entity is a VIE and if so, whether it holds a variable interest and is the primary beneficiary.
−Removed: The Company has determined that it holds a variable interest in its investment as a limited partner in the OCV Fund I, LP (“OCV Fund”, “OCV” or the “Fund”).
−Removed: In determining whether the Company is deemed to be the primary beneficiary of the VIE, both of the following characteristics must be present:
−Removed: a) the Company has the power to direct the activities of the VIE that most significantly impacts the VIEs economic performance (the power criterion);
−Removed: b) the Company has the obligation to absorb losses of the VIE, or the right to receive benefits of the VIE, that could potentially be significant to the VIE (the economic criterion).
−Removed: The Company has concluded that, as a limited partner, although the obligations to absorb losses or the right to benefit from the gains is not insignificant, the Company does not have “power” over OCV because it does not have the ability to direct the significant decisions which impact the economics of OCV.
−Removed: The Company believes that the OCV general partner, as a single decision maker, holds the ability to make the decisions about the activities that most significantly impact the OCV Fund’s economic performance.
−Removed: As a result, the Company has concluded that it will not consolidate OCV, as it is not the primary beneficiary of the OCV Fund, and will account for this investment under the equity-method of accounting.
−Removed: (See Note 5, “Investments”, of the Notes to Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K, which is incorporated herein by reference).
−Removed: OCV qualifies as an investment company under ASC 946 - Financial Services, Investment Companies (“ASC 946”).
−Removed: Under ASC Topic 323, Investments - Equity Method and Joint Ventures, an investor that holds investments that qualify for specialized industry accounting for investment companies in accordance with ASC 946 should record its share of the earnings or losses, realized or unrealized, as reported by its equity method investees in the Consolidated Statements of Operations.
−Removed: The Company recognizes its equity in the net earnings or losses relating to the investment in OCV on a one-quarter lag due to the timing and availability of financial information from OCV.
−Removed: 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.
−Removed: Share-Based Compensation Expense
−Removed: The Company accounts for share-based awards to employees and non-employees in accordance with the provisions of FASB ASC Topic No.
−Removed: 718, Compensation - Stock Compensation (“ASC 718”).
−Removed: Accordingly, the Company measures share-based compensation expense at the grant date, based on the fair value of the award, and recognizes the expense over the employee’s requisite service period using the straight-line method.
−Removed: The measurement of share-based compensation expense is based on several criteria including, but not limited to, the valuation model used and associated input factors, such as expected term of the award, stock price volatility, risk free interest rate, dividend rate and award cancellation rate.
−Removed: These inputs are subjective and are determined using management’s judgment.
−Removed: If differences arise between the assumptions used in determining share-based compensation expense and the actual factors, which become known over time, the Company may change the input factors used in determining future share-based compensation expense.
−Removed: Any such changes could materially impact the Company’s results of operations in the period in which the changes are made and in periods thereafter.
−Removed: The Company estimates the expected term based upon the historical exercise behavior of its employees.
−Removed: Impairment or Disposal of Long-lived and Intangible Assets
−Removed: The Company accounts for long-lived assets, which include property and equipment, operating lease right-of-use assets and identifiable intangible assets with finite useful lives (subject to amortization), in accordance with the provisions of FASB ASC Topic No.
−Removed: 360, Property, Plant, and Equipment (“ASC 360”), which requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
+Added: Impairment or Disposal of Long-lived Assets
+Added: The Company accounts for long-lived assets, which include property and equipment, operating lease right-of-use assets and identifiable intangible assets with finite useful lives (subject to amortization), in accordance with the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 360, Property, Plant, and Equipment (“ASC 360”), which requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Recoverability is measured by comparing the carrying amount of an asset to the expected undiscounted future net cash flows generated by the asset.
1 unchanged sentence
The Company assesses the impairment of identifiable definite-lived intangibles and long-lived assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable.
−Removed: Factors the Company considers important which could individually or in combination trigger an impairment review include the following:
+Added: Factors it considers important which could individually or in combination trigger an impairment include the following:
• Significant underperformance relative to expected historical or projected future operating results;
−Removed: • Significant changes in the manner of our use of the acquired assets or the strategy for our overall business;
+Added: • Significant changes in the manner of our use of the acquired assets or the strategy for the Company’s overall business;
• Significant negative industry or economic trends;
−Removed: • Significant decline in our stock price for a sustained period;
−Removed: • Our market capitalization relative to net book value.
−Removed: If the Company determined that the carrying value of definite-lived intangibles and long-lived assets may not be recoverable based upon the existence of one or more of the above indicators of impairment, the Company would record an impairment equal to the excess of the carrying amount of the asset over its estimated fair value.
+Added: • Significant decline in the Company’s stock price for a sustained period;
+Added: • The Company’s market capitalization relative to net book value.
+Added: If the Company determined that the carrying value of definite-lived intangibles and long-lived assets may not be recoverable based upon the existence of one or more indicators of impairment, it would record an impairment equal to the excess of the carrying amount of the asset over its estimated fair value.
The Company assessed whether events or changes in circumstances have occurred that potentially indicate the carrying amount of definite-lived intangibles and long-lived assets may not be recoverable.
−Removed: For the years ended December 31, 2021 and 2020, the Company recorded an impairment of certain operating right-of-use assets and associated property and equipment (see Note 11 - Leases of the Notes to Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K, which is incorporated herein by reference).
+Added: During the years ended December 31, 2022 and 2021, the Company did not have any events or circumstances indicating impairment of long-lived assets, other than the recording of an impairment of certain operating right-of-use assets and associated property and equipment.
+Added: Refer to Note 11 - Leases to the Notes to Consolidated Financial Statements included in Part II Item 8 of this Annual Report on Form 10-K.
No impairment was recorded for the year ended 2020.
−Removed: The Company classifies its long-lived assets to be sold as held for sale in the period (i) it has approved and committed to a plan to sell the asset, (ii) the asset is available for immediate sale in its present condition, (iii) an active program to locate a buyer and other actions required to sell the asset have been initiated, (iv) the sale of the asset is probable, (v) the asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value, and (vi) it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.
+Added: The Company classifies its long-lived assets to be sold as held for sale in the period (i) it has approved and committed to a plan to sell the asset, (ii) the asset is available for immediate sale in its present condition, (iii) an active program to locate a buyer and other actions required to sell the asset have been initiated, (iv) the sale of the asset is probable and the transfer is expected to qualify for recognition as a sale within one year, (v) the asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value, and (vi) it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.
The Company initially measures a long-lived asset that is classified as held for sale at the lower of its carrying value or fair value less any costs to sell.
5 unchanged sentences
The Company applies the acquisition method of accounting for business combinations in accordance with GAAP and uses estimates and judgments to allocate the purchase price paid for acquisitions to the fair value of the assets, including identifiable intangible assets and liabilities acquired.
−Removed: Such estimates may be based on significant unobservable inputs and assumptions such as, but not limited to, revenue growth rates, gross margins, customer attrition rates, royalty rates, discount rates and terminal growth rate assumptions.
+Added: Such estimates may be based on significant unobservable inputs and assumptions such as, but not limited to, future revenue growth rates, gross and operating margins, customer attrition rates, royalty rates, discount rates and terminal growth rate assumptions.
The Company uses established valuation techniques and may engage reputable valuation specialists to assist with the valuations.
5 unchanged sentences
Identifiable intangible assets are comprised of purchased customer relationships, trademarks and trade names, developed technologies and other intangible assets.
−Removed: Intangible assets subject to amortization are amortized over the period of estimated economic benefit ranging from 1 to 20 years and are included in general and administrative expenses on the Consolidated Statements of Operations.
−Removed: The Company evaluates its goodwill and indefinite-lived intangible assets for impairment pursuant to FASB ASC Topic No.
−Removed: 350, Intangibles - Goodwill and Other (“ASC 350”), which provides that goodwill and other intangible assets with indefinite lives are not amortized but tested annually for impairment or more frequently if the Company believes indicators of impairment exist.
+Added: Intangible assets subject to amortization are amortized over the period of estimated economic benefit ranging from one to twenty years and are included in general and administrative expenses on the Consolidated Statements of Operations.
+Added: The Company evaluates its goodwill and indefinite-lived intangible assets for impairment pursuant to FASB ASC Topic 350, Intangibles - Goodwill and Other (“ASC 350”), which provides that goodwill and other intangible assets with indefinite lives are not amortized but tested annually for impairment or more frequently if the Company believes indicators of impairment exist.
In connection with the annual impairment test for goodwill, the Company has the option to perform a qualitative assessment in determining whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount.
−Removed: If the Company determines that it is more likely than not that the fair value of the reporting unit is less than its carrying amount, then it performs the impairment test upon goodwill.
+Added: If the Company determines that it was more likely than not that the fair value of the reporting unit is less than its carrying amount, it then performs an impairment test of goodwill.
The impairment test involves comparing the fair values of the applicable reporting units with their aggregate carrying values, including goodwill.
−Removed: The Company generally determines the fair value of its reporting units using the income approach methodology of valuation.
+Added: The Company generally determines the fair value of its reporting units using a mix of an income approach and a market approach.
If the carrying value of a reporting unit exceeds the reporting unit’s fair value, an impairment loss is recognized for the difference.
−Removed: In the second quarter of 2021, the Company recorded an impairment to goodwill associated with the plan to sell the Company’s B2B Backup business.
−Removed: This sale closed during the third quarter of 2021 (see Note 6 - Discontinued Operations and Dispositions of the Notes to Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K, which is incorporated herein by reference).
−Removed: In the first quarter of 2021, the Company changed the annual goodwill impairment assessment date for the Cybersecurity and Martech business from September 30 to October 1.
−Removed: Also, in 2020, the Company changed the annual goodwill impairment assessment date for the Digital Media business from December 31 to October 1.
−Removed: The Company determined this date is preferable, and concluded this was not a material change in accounting principle.
−Removed: Contingent Consideration
−Removed: Certain of the Company’s acquisition agreements include contingent earn-out arrangements, which are generally based on the achievement of future income thresholds or other metrics.
−Removed: The contingent earn-out arrangements are based upon the Company’s valuations of the acquired companies and reduce the risk of overpaying for acquisitions if the projected financial results are not achieved.
−Removed: The fair values of these earn-out arrangements are included as part of the purchase price of the acquired companies on their respective acquisition dates.
−Removed: For each transaction, the Company estimates the fair value of contingent earn-out payments as part of the initial purchase price and records the estimated fair value of contingent consideration as a liability on the Consolidated Balance Sheets.
−Removed: The Company considers several factors when determining that contingent earn-out liabilities are part of the purchase price, including the following:
−Removed: (1) the valuation of our acquisitions is not supported solely by the initial consideration paid, and the contingent earn-out formula is a critical and material component of the valuation approach to determining the purchase price;
−Removed: and (2) the former shareholders of acquired companies that remain as key employees receive compensation other than contingent earn-out payments at a reasonable level compared with the compensation of the Company’s other key employees.
−Removed: The contingent earn-out payments are not affected by employment termination.
−Removed: The Company measures the contingent earn-out liabilities in connection with acquisitions at fair value on a recurring basis using significant unobservable inputs classified within Level 3 of the fair value hierarchy (see Note 7 - Fair Value Measurements of the Notes to Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K, which is incorporated herein by reference).
−Removed: The Company may use various valuation techniques depending on the terms and conditions of the contingent consideration including a Monte-Carlo simulation.
−Removed: This simulation uses probability distribution for each significant input to produce hundreds or thousands of possible outcomes and the results are analyzed to determine probabilities of different outcomes occurring.
−Removed: Significant increases or decreases to these inputs in isolation would result in a significantly higher or lower liability with a higher liability capped by the contractual maximum of the contingent earn-out obligation.
−Removed: Ultimately, the liability will be equivalent to the amount paid, and the difference between the fair value estimate and the amount paid will be recorded in earnings.
−Removed: The amount paid that is less than or equal to the liability on the acquisition date is reflected as cash used in financing activities in its Consolidated Statements of Cash Flows.
−Removed: Any amount paid in excess of the liability on the acquisition date is reflected as cash used in operating activities.
−Removed: The Company reviews and re-assesses the estimated fair value of contingent consideration on a quarterly basis, and the updated fair value could be materially different from the initial estimates or prior quarterly amounts.
−Removed: Changes in the estimated fair value of its contingent earn-out liabilities are reported in general and administrative expenses on the Consolidated Statements of Operations.
−Removed: We account for income taxes in accordance with FASB ASC Topic No.
−Removed: 740, Income Taxes (“ASC 740”), which requires that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between the book and tax basis of recorded assets and liabilities.
−Removed: ASC 740 also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some or all of the net deferred tax assets will not be realized.
−Removed: Our valuation allowance is reviewed quarterly based upon the facts and circumstances known at the time.
−Removed: In assessing this valuation allowance, we review historical and future expected operating results and other factors to determine whether it is more likely than not that deferred tax assets are realizable.
−Removed: We are subject to income taxes in the U.S.
−Removed: (federal and state) and numerous foreign jurisdictions.
−Removed: Tax laws, regulations, and administrative practices in various jurisdictions may be subject to significant change, with or without notice, due to economic, political, and other conditions, and significant judgment is required in evaluating and estimating our provision and accruals for these taxes.
−Removed: There are many transactions that occur during the ordinary course of business for which the ultimate tax determination is uncertain.
−Removed: Our effective tax rates could be affected by numerous factors, such as intercompany transactions, the relative amount of our foreign earnings, including earnings being lower than anticipated in jurisdictions where we have lower statutory rates and higher than anticipated in jurisdictions where we have higher statutory rates, the applicability of special tax regimes, losses incurred in jurisdictions for which we are not able to realize the related tax benefit, changes in foreign currency exchange rates, entry into new businesses and geographies, changes to our existing businesses and operations, acquisitions (including integrations) and investments and how they are financed, changes in our stock price, changes in our deferred tax assets and liabilities and their valuation, and changes in the relevant tax, accounting, and other laws, regulations, administrative practices, principles, and interpretations.
−Removed: In addition, a number of countries are actively pursuing changes to their tax laws applicable to corporate multinationals.
−Removed: Finally, foreign governments may enact tax laws in response to the 2017 Tax Act that could result in further changes to global taxation and materially affect our financial position and results of operations.
−Removed: Income Tax Contingencies
−Removed: We calculate current and deferred tax provisions based on estimates and assumptions that could differ from the actual results reflected in income tax returns filed during the following year.
−Removed: Adjustments based on filed returns are recorded when identified in the subsequent year.
−Removed: ASC 740 provides guidance on the minimum threshold that an uncertain income tax position is required to meet before it can be recognized in the financial statements and applies to all tax positions taken by a company.
−Removed: ASC 740 contains a two-step approach to recognizing and measuring uncertain income tax positions.
−Removed: The first step is to evaluate the income tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any.
−Removed: The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement.
−Removed: If it is not more likely than not that the benefit will be sustained on its technical merits, no benefit will be recorded.
−Removed: Uncertain income tax positions that relate only to timing of when an item is included on a tax return are considered to have met the recognition threshold.
−Removed: We recognize accrued interest and penalties related to uncertain income tax positions in income tax expense on our consolidated statement of income.
−Removed: On a quarterly basis, we evaluate uncertain income tax positions and establish or release reserves as appropriate under GAAP.
−Removed: As a multinational corporation, we are subject to taxation in many jurisdictions, and the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in various taxing jurisdictions.
−Removed: Our estimate of the potential outcome of any uncertain tax issue is subject to management’s assessment of relevant risks, facts and circumstances existing at that time.
−Removed: Therefore, the actual liability for U.S.
−Removed: or foreign taxes may be materially different from our estimates, which could result in the need to record additional tax liabilities or potentially to reverse previously recorded tax liabilities.
−Removed: In addition, we may be subject to examination of our tax returns by the U.S.
−Removed: Internal Revenue Service (“IRS”) and other domestic and foreign tax authorities.
−Removed: Non-Income Tax Contingencies
−Removed: The Company does not collect and remit sales and use, telecommunication, or similar taxes and fees in certain jurisdictions where the Company believes that such taxes are not applicable or legally required.
−Removed: Several states and other taxing jurisdictions have presented or threatened the Company with assessments, alleging that the Company is required to collect and remit such taxes there.
−Removed: The Company is currently under audit or is subject to audit for indirect taxes in various states, municipalities and foreign jurisdictions.
−Removed: The Company has a $24.0 million reserve established for these matters.
−Removed: It is reasonably possible that additional liabilities could be incurred resulting in additional expense, which could have a material impact to our financial results.
−Removed: Allowances for Doubtful Accounts
−Removed: The Company maintains an allowance for credit losses for accounts receivable, which is recorded as an offset to accounts receivable and changes in such are classified as general and administrative expenses in the Consolidated Statements of Operations.
−Removed: The Company assesses collectability by reviewing accounts receivable on a collective basis where similar characteristics exist and on an individual basis when the Company identifies specific customers with known disputes or collectability issues.
−Removed: In determining the amount of the allowance for credit losses, the Company considers historical collectability based on past due status.
−Removed: The Company also considers customer-specific information, current market conditions and reasonable and supportable forecasts of future economic conditions to inform adjustments to historical loss data.
−Removed: On an ongoing basis, management evaluates the adequacy of these reserves.
+Added: During the years ended December 31, 2022 and 2021, the Company recorded a goodwill impairment of $27.4 million and $32.6 million, respectively.
+Added: No goodwill impairment was recognized during the year ended December 31, 2020.
+Added: Refer to Note 9 - Goodwill and Intangible Assets to the Notes to Consolidated Financial Statements included in Part II Item 8 of this Annual Report on Form 10-K.
Recent Accounting Pronouncements
−Removed: See Note 2, “Basis of Presentation and Summary of Significant Accounting Policies”, to our accompanying consolidated financial statements for a description of recent accounting pronouncements and the Company’s expectations of the impact on its consolidated financial position and results of operations.
+Added: See Note 2 - Basis of Presentation and Summary of Significant Accounting Policies to the Notes to Consolidated Financial Statements included in Part II Item 8 of this Annual Report on Form 10-K for a description of recent accounting pronouncements and the Company’s expectations of the impact on its consolidated financial position and results of operations.
Results of Operations for the Years Ended December 31, 2022 and 2021
+Added: See Part II, Item 7.
+Added: Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with SEC on March 15, 2022, for a discussion of our consolidated and segment results of operations for 2021 compared to 2020.
Digital Media
−Removed: We expect revenue for fiscal year 2022 to be higher compared to the prior-year driven by prior year acquisitions and continued organic growth.
−Removed: 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 shopping and subscription platforms.
+Added: 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.
2 unchanged sentences
Growth in advertising revenues from our websites has generally exceeded that from third-party websites.
−Removed: This trend has had a positive impact on our operating margins, and we expect that this will continue for the foreseeable future.
+Added: This trend has generally had a positive impact on our operating margins.
We expect acquisitions to remain an important component of our strategy and use of capital in this business;
3 unchanged sentences
Cybersecurity and Martech
−Removed: We expect 2022 revenue to be higher compared to the prior-year driven by prior year acquisitions and contributions from organic growth.
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.
3 unchanged sentences
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.
−Removed: Moreover, future acquisitions of businesses within this space but with different business models, may impact Cybersecurity and Martech’ overall operating profit margins.
−Removed: 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 comparable period.
−Removed: We expect operating profit as a percentage of revenues to be generally consistent with 2021’s operating profit margins.
−Removed: We expect acquisitions to remain an important component of our strategy and use of capital in this business;
−Removed: 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.
−Removed: 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.
−Removed: Moreover, future acquisitions of businesses within this space, but with different business models may impact consolidated overall operating profit margins.
+Added: Moreover, future acquisitions of businesses within this space but with different business models, may impact Cybersecurity and Martech’s overall operating profit margins.
+Added: Results of Operations
The following table sets forth, for the years ended December 31, 2022 and 2021, information derived from our Statements of Operations as a percentage of revenues.
−Removed: This information should be read in conjunction with the accompanying financial statements and the Notes to Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.
−Removed: Years ended December 31,
−Removed: 2021 2020 2019
+Added: Year ended December 31,
Revenues 100% 100%
+Added: Operating costs and expenses:
Cost of revenues 14 13
−Removed: Gross profit 87 85 82
−Removed: Operating expenses:
Sales and marketing 35 35
5 unchanged sentences
Interest expense, net (2) (5)
−Removed: Loss on debt extinguishment, net — — —
−Removed: (Loss) gain on sale of businesses (2) 1 —
+Added: Gain (loss) on debt extinguishment, net 1 —
+Added: Loss on sale of businesses — (2)
+Added: Unrealized (loss) gain on short-term investments held at the reporting date, net (1) 21
Loss on investments, net (3) (1)
−Removed: Unrealized gain on short-term investment 21 — —
−Removed: Other (income) expense, net — — —
−Removed: Income from continuing operations before income taxes and income from equity method investment, net 25 6 6
−Removed: Income tax (benefit) expense (1) 3 1
−Removed: Income (loss) from equity method investment, net 3 (1) —
+Added: Other income, net 1 —
+Added: Income from continuing operations before income tax (expense) benefit and changes from equity method investment 10 25
+Added: Income tax (expense) benefit (4) 1
+Added: (Loss) income from equity method investment, net (1) 3
Net income from continuing operations 5 29
1 unchanged sentence
Net income 5% 35%
−Removed: (in thousands, except percentages) 2021 2020 2019 Percentage Change 2021 versus 2020 Percentage Change 2020 versus 2019
+Added: Year ended December 31, Percent change
+Added: (in thousands, except percentages) 2022 2021 2022 v.
Revenues $ 1,390,997 $ 1,416,722 (2)%
Our revenues consist of revenues from our Digital Media business and Cybersecurity and Martech business.
−Removed: 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.
+Added: 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.
−Removed: Our revenues have increased over the past three years primarily due to a combination of acquisitions and organic growth;
−Removed: partially offset by declines in certain areas of both the Digital Media and Cybersecurity and Martech businesses, including those related to the divestitures of the B2B Back-up business and Voice assets.
−Removed: Our 2021 revenue includes approximately $189 million of revenue related to recently acquired businesses.
+Added: Our revenues decreased for the year ended December 31, 2022 compared to the prior period primarily due to the absence in 2022 of approximately $33.5 million of revenue from 2021 related to the divested B2B Backup business and Voice assets and declines in certain parts of the Digital Media and Cybersecurity and Martech businesses.
+Added: These declines were partially offset by $50.4 million of revenue contributed by businesses acquired in 2021, net of their contribution in 2021, $33.1 million of revenue contributed by businesses acquired in 2022 and organic growth within certain other parts of the Digital Media and Cybersecurity and Martech businesses.
+Added: Revenue from an acquired business becomes organic revenue in the first month in which the Company can compare a full month in the current year against a full month under its ownership in a prior year.
Cost of Revenues
−Removed: (in thousands, except percentages) 2021 2020 2019 Percentage Change 2021 versus 2020 Percentage Change 2020 versus 2019
+Added: Year ended December 31, Percent change
+Added: (in thousands, except percentages) 2022 2021 2022 v.
Cost of revenue $ 195,554 $ 188,053 4.0%
1 unchanged sentence
Cost of revenues is primarily comprised of costs associated with content fees, editorial and production costs, and hosting costs.
−Removed: The increase in cost of revenues for the year ended December 31, 2021 was primarily due to approximately $8.6 million of higher media inventory and operations costs, including content fees, editorial and production costs, as well as approximately $4.2 million of higher hosting and computer related costs and increased depreciation, partially offset by lower cost of revenues from divestitures of the B2B Back-up business and Voice assets.
−Removed: The decrease in cost of revenues for the year ended December 31, 2020 compared to the year ended December 31, 2019, was primarily due to lower content fees, campaign fulfillment cost, other editorial and production costs;
−Removed: partially offset by an increase in depreciation and amortization.
+Added: The increase in cost of revenues for the year ended December 31, 2022 compared to the prior period was primarily due to a $12.2 million increase associated with newly acquired businesses and advertising inventory costs in other Digital Media businesses, a $6.7 million increase in field operations, and a $3.6 million increase in costs associated with outside services, partially offset by approximately $12.8 million less in cost of revenues related to the sale of the B2B Backup business.
Operating Expenses
Sales and Marketing
−Removed: (in thousands, except percentages) 2021 2020 2019 Percentage Change 2021 versus 2020 Percentage Change 2020 versus 2019
+Added: Year ended December 31, Percent change
+Added: (in thousands, except percentages) 2022 2021 2022 v.
Sales and Marketing $ 490,777 $ 493,049 (0.5)%
2 unchanged sentences
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.
−Removed: Advertising cost for the years ended December 31, 2021, 2020 and 2019 was $243.7 million (primarily consisting of $137.8 million of third-party advertising costs and $82.5 million of personnel costs), $159.8 million (primarily consisting of $91.4 million of third-party advertising costs and $55.1 million of personnel costs) and $115.7 million (primarily consisting of $76.8 million of third-party advertising costs and $35.6 million of personnel costs), respectively.
−Removed: The increase in sales and marketing expenses from 2020 to 2021 was primarily due to increased creative services, sales, advertising operations, advertising and product development costs associated primarily with the acquisition of businesses acquired in and subsequent to fiscal 2020 within the Digital Media and Cybersecurity and Martech businesses.
−Removed: The increase in sales and marketing expenses from 2019 to 2020 was primarily due to increased personnel costs and advertising associated with the businesses acquired in and subsequent to fiscal 2019.
+Added: The decrease in sales and marketing expenses for the year ended December 31, 2022 compared to the prior period was primarily due to approximately $4.9 million lower sales and marketing expense from the absence of those costs related to the B2B Backup business.
Research, Development and Engineering
−Removed: (in thousands, except percentages) 2021 2020 2019 Percentage Change 2021 versus 2020 Percentage Change 2020 versus 2019
+Added: Year ended December 31, Percent change
+Added: (in thousands, except percentages) 2022 2021 2022 v.
Research, Development and Engineering $ 74,093 $ 78,874 (6.1)%
1 unchanged sentence
Our research, development and engineering costs consist primarily of personnel-related expenses.
−Removed: The increase in research, development and engineering costs from 2020 to 2021 was primarily due to an increase in engineering costs of approximately $19.2 million, primarily associated with businesses acquired within the Digital Media business.
−Removed: The increase in research, development and engineering costs from 2019 to 2020 was primarily due to an increase in costs associated with businesses acquired within the Digital Media business.
+Added: The decrease in research, development and engineering costs for the year ended December 31, 2022 compared to the prior period was primarily due to a decrease in engineering costs as more costs were capitalized in 2022 than in 2021, and the absence of engineering costs related to the B2B Backup business.
General and Administrative
−Removed: (in thousands, except percentages) 2021 2020 2019 Percentage Change 2021 versus 2020 Percentage Change 2020 versus 2019
+Added: Year ended December 31, Percent change
+Added: (in thousands, except percentages) 2022 2021 2022 v.
General and Administrative $ 404,263 $ 456,777 (11.5)%
1 unchanged sentence
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.
−Removed: The increase in general and administrative expense from 2020 to 2021 was primarily due to an increase of approximately $32.0 million in depreciation and amortization, related primarily to amortization of intangibles acquired through acquisitions.
−Removed: The increase in general and administrative expense from 2019 to 2020 was primarily due to the recognition of lease asset impairments and additional depreciation due to leasehold impairments, legal settlements and increased professional fees;
−Removed: partially offset by decreased amortization of intangible assets.
+Added: The decrease in general and administrative expense for the year ended December 31, 2022 compared to the prior period was primarily due to $15.6 million lower depreciation and amortization expense related to intangibles becoming fully amortized, $12.6 million of lower office rent expense, $8.6 million of lower legal and consulting fees, $6.2 million of lower personnel related expenses, the absence of $3.6 million of general, and administrative costs related to the B2B Backup business sold in September 2021, and $3.4 million of lower bad debt expenses.
Goodwill impairment on business
−Removed: Our goodwill impairment was generated from the impairment of the B2B Backup business in the second quarter of 2021.
−Removed: Goodwill impairment was $32.6 million for the year ended December 31, 2021.
−Removed: See Note 6 - Discontinued Operations and Dispositions of the Notes to Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K, which is incorporated herein by reference.
+Added: Our goodwill impairment during the years ended December 31, 2022 and 2021 was $27.4 million and $32.6 million, respectively.
+Added: Our goodwill impairment in 2022 was generated from the impairment in the Digital Media reportable segment.
+Added: Our goodwill impairment in 2021 was generated from the impairment in the Cybersecurity and Martech reportable segment.
+Added: Refer to Note 9 - Goodwill and Intangible Assets to the Notes to Consolidated Financial Statements included in Part II Item 8 of this Annual Report on Form 10-K for further details.
Share-Based Compensation
−Removed: The following table represents share-based compensation expense included in cost of revenues and operating expenses in the accompanying Consolidated Statements of Operations for the years ended December 31, 2021, 2020 and 2019 (in thousands):
−Removed: Years ended December 31,
−Removed: 2021 2020 2019
+Added: The following table represents share-based compensation expense included in operating costs and expenses in the accompanying Consolidated Statements of Operations for the years ended December 31, 2022 and 2021 (in thousands):
+Added: Year ended December 31,
Cost of revenues $ 341 $ 306
−Removed: Operating expenses:
Sales and marketing 3,083 1,288
3 unchanged sentences
Non-Operating Income and Expenses
+Added: The following table represents the components of non-operating income and expenses for the years ended December 31, 2022 and 2021 (in thousands):
+Added: Year ended December 31, Percent change
+Added: 2022 2021 2022 v.
Interest expense, net $ (33,842) $ (72,023) (53.0) %
+Added: Gain (loss) on debt extinguishment, net 11,505 (5,274) (318.1) %
+Added: Loss on sale of businesses — (21,798) (100.0) %
+Added: Unrealized (loss) gain on short-term investments held at the reporting date, net (7,145) 298,490 (102.4) %
+Added: Loss on investments, net (46,743) (16,677) 180.3 %
+Added: Other income, net 8,437 1,293 552.5 %
+Added: Total non-operating (expense) income $ (67,788) $ 184,011 (136.8) %
+Added: Interest expense, net .
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.
−Removed: Interest expense, net was $72.0 million, $56.2 million, and $26.9 million for the years ended December 31, 2021, 2020 and 2019, respectively.
−Removed: The increase from 2020 to 2021 was primarily due to interest expense from the Company’s 4.625% Senior Notes issued in the fourth quarter of 2020.
−Removed: The increase from 2019 to 2020 was primarily due to increased interest expense associated with the issuance of our 1.75% Convertible Senior Notes in the fourth quarter 2019;
−Removed: and the payment of certain prepayment penalties and write off of issuance costs in connection with the refinancing of our 6.0% Senior Notes and associated issuance of our 4.625% Senior Notes in the fourth quarter 2020.
−Removed: Loss on debt extinguishment, net.
−Removed: Loss on debt extinguishment, net increased from $0 during 2020 to $5.3 million during 2021 due to a loss on debt extinguishment related to the tender of the 4.625% Senior Notes during the fourth quarter of 2021, partially offset by a gain on extinguishment of the 3.25% Convertible Notes during 2021.
−Removed: (Loss) gain on sale of businesses.
−Removed: Loss on sale of businesses was $21.8 million, a gain of $17.1 million, and zero for the years ended December 31, 2021, 2020 and 2019, respectively.
−Removed: The loss on the sale of businesses during 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.
−Removed: The gain on sale of businesses during fiscal 2020 was generated primarily from the sale of certain Voice assets in Australia and New Zealand.
−Removed: See Note 6 - Discontinued Operations and Dispositions of the Notes to Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K, which is incorporated herein by reference.
+Added: Interest expense, net was $33.8 million and $72.0 million for the years ended December 31, 2022 and 2021, respectively.
+Added: Interest expense, net decreased in 2022 compared to 2021 primarily due to approximately $11.5 million less interest expense due to the redemption of our 3.25% Convertible Notes in August 2021, approximately $15.7 million less interest expense from the adoption of ASU 2020-06 during 2022, and approximately $9.5 million less interest expense from the 4.625% Senior Notes related to a lower principal balance over the period due to the repurchase of a portion of the outstanding 4.625% Senior Notes throughout 2022.
+Added: Gain (loss) on debt extinguishment, net.
+Added: Gain on debt extinguishment, net of $11.5 million in 2022 related primarily to the repurchases of 4.625% Senior Notes.
+Added: Loss on debt extinguishment, net of $5.3 million in 2021 related primarily to the tender of the 4.625% Senior Notes during the fourth quarter of 2021, partially offset by a gain on extinguishment of the 3.25% Convertible Notes during 2021.
+Added: Loss on sale of businesses.
+Added: Loss on sale of businesses was $21.8 million in 2021.
+Added: The loss on the sale of businesses during 2021 was due to the loss on the sale of the B2B Backup 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.
+Added: The Company did not sell any businesses in 2022.
+Added: See Note 6 - Discontinued Operations and Dispositions to the Notes to Consolidated Financial Statements included in Part II Item 8 of this Annual Report on Form 10-K for further details.
+Added: Unrealized (loss) gain on short-term investments held at the reporting date, net.
+Added: Unrealized loss on short-term investment held at the reporting date was $7.1 million in 2022 and unrealized gain on short-term investment held at the reporting date was $298.5 million in 2021.
+Added: The unrealized (loss) gain recorded in 2022 and 2021 primarily represents the effect of our Investment in Consensus.
Loss on investments, net.
−Removed: Our loss on investments, net is generated from gains or losses from investments in equity and debt securities.
−Removed: Our loss on investments, net was $16.7 million, $21.0 million, and $4.2 million for the years ended December 31, 2021, 2020 and 2019, respectively.
−Removed: The net loss on investments decreased during fiscal year 2021 compared to 2020 due to lower net losses realized on certain investments, partially offset by an impairment recognized in the current period.
−Removed: Our net loss on investments, net increased during fiscal year 2020 versus the prior comparable period due to net losses realized on certain investments as the result of the recapitalization of the investee and overall market volatility.
−Removed: Unrealized gain on short-term investment.
−Removed: Unrealized gain on short-term investment was $298.5 million, zero and zero during the years ended December 31, 2021, 2020 and 2019, respectively.
−Removed: The increase in 2021 was due to the unrealized gain on our investment in Consensus during the fourth quarter of 2021.
−Removed: Other income (expense), net .
−Removed: Our other income (expense), net is generated primarily from miscellaneous items and gain or losses on currency exchange.
−Removed: Other income (expense), net was $1.3 million, $0.1 million, and $(2.3) million for the years ended December 31, 2021, 2020 and 2019, respectively.
+Added: Loss on investments, net is generated from gains or losses from investments in equity securities.
+Added: Loss on investments, net was $46.7 million and $16.7 million for the years ended December 31, 2022 and 2021, respectively.
+Added: Loss on investment, net increased in 2022 compared to 2021 primarily due to the net realized loss on the disposition of 2.9 million shares from our Investment in Consensus during 2022 resulting from the decrease in the quoted share price of Consensus during 2022.
+Added: Other income, net .
+Added: Other income, net is generated primarily from miscellaneous items and gain or losses on currency exchange.
+Added: Other income, net was $8.4 million and $1.3 million in 2022 and 2021, respectively.
The change was attributable to changes in gain or losses on currency exchange.
2 unchanged sentences
When necessary, we establish valuation allowances to reduce our deferred tax assets to an amount that will more likely than not be realized.
−Removed: As of December 31, 2021, we had federal net operating loss carryforwards (“NOLs”) of $37.2 million after considering substantial restrictions on the utilization of these NOLs due to “ownership changes”, as defined in the Internal Revenue Code of 1986, as amended.
−Removed: We estimate that all of the above mentioned federal NOLs will be available for use before their expiration.
−Removed: Approximately $36.7 million of the NOLs expire through the year 2037 and $0.5 million of the NOLs carry forward indefinitely depending on the year the loss was incurred.
−Removed: As of December 31, 2021 and 2020, the Company has interest expense limitation carryovers of $23.3 million and $0, respectively, which last indefinitely.
−Removed: The Company also has federal capital loss limitation carryforwards as of December 31, 2021 and 2020 of $28.7 million and $0, respectively that begin to expire in 2031.
−Removed: In addition, as of December 31, 2021 and 2020, we had available state research and development tax credit carryforwards of $5.1 million and $9.1 million, respectively, which last indefinitely.
−Removed: The Company has no foreign tax credit carryforwards as of December 31, 2021 and 2020.
−Removed: Income tax expense amounted to ($14.2) million, $38.3 million and $13.8 million for the years ended December 31, 2021, 2020 and 2019, respectively.
+Added: As of December 31, 2022, the Company had federal net operating loss carryforwards (“NOLs”) of $22.8 million, after considering substantial restrictions on the utilization of these NOLs due to “ownership changes”, as defined in the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”).
+Added: The Company estimates that all of the above-mentioned federal NOLs will be available for use before their expiration.
+Added: $20.7 million of the NOLs expire through the year 2037 and $2.1 million of the NOLs carry forward indefinitely depending on the year the loss was incurred.
+Added: As of December 31, 2022 and 2021, the Company had interest expense limitation carryovers of $6.4 million and $23.3 million, respectively, which last indefinitely.
+Added: The Company also had federal capital loss limitation carryforwards as of December 31, 2022 and 2021 of $24.1 million and $28.7 million, respectively, that begin to expire in 2031.
+Added: In addition, as of December 31, 2022 and 2021, the Company had available state research and development tax credit carryforwards of $3.5 million and $5.1 million, respectively, which last indefinitely.
+Added: The Company had no foreign tax credit carryforwards as of December 31, 2022 and 2021.
+Added: Income tax expense was $58.0 million in 2022 compared to income tax benefit of $14.2 million in 2021.
Our effective tax rates for 2022 and 2021 were 44.2% and (4.0)%, respectively.
−Removed: The decrease in our annual effective income tax rate in 2021 from 2020 was primarily attributable to the following:
−Removed: A large gain recorded for book purposes for the mark-to-market adjustment of our remaining Consensus shares held as of December 31, 2021 that resulted in no tax expense since the Company has the ability to dispose of the investment tax-free under certain guidelines, and
−Removed: a decrease in our tax expense due to a net reduction in our reserves for uncertain tax positions primarily due to the lapse of the statute of limitations in certain jurisdictions, and
−Removed: a decrease in tax expense during 2021 due to the release of valuation allowances on deferred tax assets related to capital loss carryovers in certain jurisdictions.
The increase in our annual effective income tax rate in 2022 from 2021 was primarily attributable to the following:
−Removed: An increase in tax expense during 2020 due to recording valuation allowances on deferred tax assets related to capital loss carryovers, and
−Removed: a decrease in the benefit for the portion of our income being taxed in foreign jurisdictions and subject to lower tax rates than in the U.S.
−Removed: (relative to income from U.S.
−Removed: domestic operations), and
−Removed: an increase in tax expense for the portion of our income being taxed in U.S.
−Removed: state and local jurisdictions as a result of an increase in our U.S.
−Removed: domestic operations.
+Added: an increase in our effective income tax rate during 2022 due to recognizing a deferred tax liability related to the Investment in Consensus resulting in a tax expense of $13.4 million;
+Added: an increase in our tax expense due to a lower net reduction in our reserves in 2022 as compared to 2021 for uncertain tax positions, primarily due to the lapse of the statute of limitations in certain jurisdictions;
+Added: an increase in our effective income tax rate during 2022 for U.S.
+Added: state and local taxes due to a greater portion of our income being subject to tax in the U.S.;
+Added: partially offset by
+Added: a decrease in our effective income tax rate during 2022 due to recognizing a tax benefit for a deferred tax asset related to goodwill impairment.
In order to provide additional understanding in connection with our foreign taxes, the following represents the statutory and effective tax rate by significant foreign country:
8 unchanged sentences
Significant judgment is required in determining our provision for income taxes and in evaluating our tax positions on a worldwide basis.
−Removed: We believe our tax positions, including intercompany transfer pricing policies, are consistent with the tax laws in the jurisdictions in which we conduct our business.
+Added: We believe our tax positions, including intercompany transfer pricing policies, are consistent with the tax laws
+Added: in the jurisdictions in which we conduct our business.
Certain of these tax positions have in the past been, and are currently being, challenged, and this may have a significant impact on our effective tax rate if our tax reserves are insufficient.
Equity Method Investment
−Removed: Income (loss) from equity method investment, net.
−Removed: Income (loss) from equity method investment, net is generated from our investment in the OCV Fund for which we receive annual audited financial statements.
+Added: (Loss) income from equity method investment, net.
+Added: (Loss) income 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 OCV Fund is presented net of tax and on a one-quarter lag due to the timing and availability of financial information from OCV.
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.
−Removed: The Income (loss) from equity method investment, net was $35.8 million, $(11.3) million and $(0.2) million, net of tax (benefit) expense for the years ended December 31, 2021, 2020 and 2019, respectively.
−Removed: The gain during 2021 was primarily a result of a gain on the underlying investments.
−Removed: The fiscal 2020 loss was primarily a result of the impairment of two of the OCV Fund’s investments as a result of the impact of COVID-19 in the amount of $7.0 million, net of tax benefit.
−Removed: In addition, the Company recognized an investment loss in fiscal 2020 in the amount of $4.3 million, net of tax benefit.
−Removed: During the years ended December 31, 2021, 2020 and 2019 the Company recognized management fees of $3.0 million, $3.0 million and $3.0 million, net of tax benefit, respectively.
+Added: (Loss) income from equity method investment, net was $(7.7) million and $35.8 million, net of tax benefit (expense) for the years ended December 31, 2022 and 2021, respectively.
+Added: The decrease in Loss from equity method investment, net in 2022 was primarily due to the decrease in value of the underlying investment.
+Added: Income from equity method investment, net during 2021 was primarily a result of a gain on the underlying investments.
+Added: During the years ended December 31, 2022 and 2021, the Company recognized management fee expenses of $1.5 million and $3.0 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:
−Removed: (i) Digital Media;
−Removed: and (ii) Cybersecurity and Martech.
+Added: (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.
5 unchanged sentences
The financial results are presented for the following fiscal years (in thousands):
−Removed: 2021 2020 2019
−Removed: Gross sales $ 1,069,300 $ 811,360 $ 710,511
−Removed: Inter-business net sales (824) (229) (300)
−Removed: Net sales 1,068,476 811,131 710,211
−Removed: Cost of revenues 93,930 77,244 92,753
−Removed: Gross profit 974,546 733,887 617,458
−Removed: Operating expenses 757,053 594,807 540,193
+Added: Year ended December 31,
+Added: External sales $ 1,078,391 $ 1,068,476
+Added: Inter-business sales 781 824
+Added: Total sales 1,079,172 1,069,300
+Added: Operating costs and expenses 880,240 851,807
Operating income $ 198,932 $ 217,493
−Removed: Digital Media’s net sales of $1,068.5 million in 2021 increased $257.3 million, or 31.7%, and net sales of $811.1 million in 2020 increased $100.9 million, or 14.2%, from the prior comparable period primarily due to business acquisitions and organic growth.
−Removed: Digital Media’s gross profit of $974.5 million in 2021 increased $240.7 million and gross profit of $733.9 million in 2020 increased $116.4 million from the prior comparable periods primarily due to business acquisitions and organic growth.
−Removed: Digital Media’s operating expenses of $757.1 million in 2021 increased $162.2 million from the prior comparable period 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;
−Removed: (b) creative and selling costs;
−Removed: and (c) increased amortization of intangible assets.
−Removed: Operating expenses of $594.8 million in 2020 increased $54.6 million from the prior comparable period primarily due to additional expense associated with businesses acquired in and subsequent to 2019 comprised primarily of salary and related costs including severance and an increase in marketing costs.
−Removed: As a result of these factors, Digital Media’s operating income of $217.5 million in 2021 increased $78.4 million, or 56.4%, from 2020, and operating income of $139.1 million in 2020 increased $61.8 million, or 80.0%, from 2019.
+Added: Digital Media’s net sales of $1.1 billion in 2022 increased $9.9 million, or 0.9% compared to the prior comparable period primarily due to $33.1 million from businesses acquired in 2022 and $31.1 million from businesses acquired in 2021, net of their contribution in 2021, partially offset by organic decline in certain other businesses.
+Added: Digital Media’s operating costs and expenses of $880.2 million in 2022 increased $28.4 million from the prior comparable period primarily due to a goodwill impairment of $27.4 million recorded in 2022.
+Added: As a result of these factors, Digital Media’s operating income of $198.9 million in 2022 decreased $18.6 million, or 8.5%, from 2021.
Cybersecurity and Martech
The financial results are presented for the following fiscal years (in thousands):
+Added: Year ended December 31,
+Added: External sales $ 312,606 $ 348,246
+Added: Inter-business sales 20 365
+Added: Total sales 312,626 348,611
+Added: Operating costs and expenses (1)
262,426 338,464
−Removed: Gross sales $ 348,611 $ 347,697 $ 340,245
−Removed: Inter-business net sales (365) — —
−Removed: Net sales 348,246 347,697 340,245
−Removed: Cost of revenues 93,204 100,882 94,279
−Removed: Gross profit 255,042 246,815 245,966
−Removed: Operating expenses 225,740 193,883 187,283
Operating income (1)
−Removed: Cybersecurity and Martech net sales of $348.6 million in 2021 increased $0.5 million, or 0.2%, and net sales of $347.7 million in 2020 increased $7.5 million, or 2.2%, from the prior comparable period primarily due to business acquisitions acquired, partially offset by businesses sold subsequent to the third quarter 2020.
−Removed: Cybersecurity and Martech gross profit of $255.0 million in 2021 increased $8.2 million from 2020 primarily due to business acquisitions;
−Removed: partially offset by businesses sold subsequent to the third quarter 2020.
−Removed: The gross profit of $246.8 million in 2020 increased $0.8 million from 2019 primarily due to an increase in net sales from acquisitions between the periods.
−Removed: The gross profit as a percentage of revenues for 2020 and 2019 was consistent with the previous comparable period.
−Removed: Cybersecurity and Martech operating expenses of $225.7 million in 2021 increased $31.9 million from 2020 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;
−Removed: partially offset by businesses sold subsequent to the prior comparable period.
−Removed: Cybersecurity and Martech operating expenses of $193.9 million in 2020 increased $6.6 million from 2019 was consistent with the previous comparable period.
−Removed: As a result of these factors, Cybersecurity and Martech operating income of $29.3 million in 2021 decreased $(23.6) million, or (44.6)%, from 2020, and operating earnings of $52.9 million in 2020 decreased $(5.8) million, or (9.8)%, from 2019.
+Added: $ 50,200 $ 10,147
+Added: (1) For the year ended December 31, 2021, approximately $19.2 million of general and administrative costs were reflected as Corporate operating costs and expenses in the Company’s December 31, 2021 Form 10-K, however, should have been reflected as an operating cost for the Cybersecurity and Martech reportable segment.
+Added: The Company reclassified these costs in the table above as an operating cost for the Cybersecurity and Martech reportable segment, as well as the resulting impact in operating income for Cybersecurity and Martech.
+Added: Cybersecurity and Martech’s net sales of $312.6 million in 2022 decreased $35.6 million, or 10.2%, from the prior comparable period primarily due to the absence of approximately $33.5 million of revenue from the B2B Backup business, which was sold during the third quarter of 2021, and organic decline in certain other businesses during 2022, partially offset by $19.3 million of revenue from the business acquired in 2021, net of its contribution in 2021.
+Added: Cybersecurity and Martech operating costs and expenses of $262.4 million in 2022 decreased $76.0 million from the prior comparable period primarily due to a $32.6 million goodwill impairment in 2021 that did not recur, the absence of $22.1 million of costs from the B2B Backup business that was sold during the third quarter of 2021, lower sales and marketing expense, lower general and administrative expenses, and lower depreciation and amortization expense.
+Added: As a result of these factors, Cybersecurity and Martech operating income of $50.2 million in 2022 increased $40.1 million, or 394.7%, from 2021.
Liquidity and Capital Resources
Cash and Cash Equivalents and Investments
−Removed: At December 31, 2021, we had cash, cash equivalents, and investments of $1.0 billion compared to $274.6 million at December 31, 2020.
−Removed: The increase in cash, cash equivalents, and investments resulted primarily from proceeds associated with the Separation of Consensus (the $259.1 million cash distribution and the $229.2 million short-term investment in Consensus), cash provided by operations and proceeds from the sale of other businesses, partially offset by cash used for business acquisitions, repurchase of common stock, purchases of property and equipment and investments.
−Removed: At December 31, 2021, cash, cash equivalents, and investments consisted of cash and cash equivalents of $694.8 million, short-term investments of $229.2 million, and long-term investments of $122.6 million.
−Removed: Our investments consist of equity securities as of December 31, 2021.
+Added: As of December 31, 2022, we had cash, cash equivalents, and investments of $839.1 million compared to $1.0 billion as of December 31, 2021.
+Added: As of December 31, 2022, cash, cash equivalents, and investments consisted of (in millions):
+Added: Cash and cash equivalents $ 652.8 $ 694.8
+Added: Short-term investments 58.4 229.2
+Added: Long-term investments 127.9 122.6
+Added: Cash, cash equivalents and investments $ 839.1 $ 1,046.6
+Added: Our investments consist of equity and debt securities as of December 31, 2022 and equity securities as of December 31, 2021.
For financial statement presentation, we classify our debt securities primarily as short- and long-term based upon their maturity dates.
−Removed: As of December 31, 2021 cash, cash equivalents, and investments held within domestic and foreign jurisdictions were $884.9 million and $161.7 million, respectively.
−Removed: As of December 31, 2020, cash, cash equivalents, and investments held within domestic and foreign jurisdictions were $216.8 million and $57.8 million, respectively.
−Removed: On September 25, 2017, the Board of Directors (the “Board”) 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.
−Removed: The manager, OCV Management, LLC (“OCV”), and general partner of the Fund are entities with respect to which Richard S.
−Removed: Ressler, Chairman of the Board of Directors of the Company, is indirectly the majority equity holder.
−Removed: 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% (reduced by 10% each year beginning with the sixth year) of capital commitments.
−Removed: 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%.
−Removed: The Fund has a six year investment period, subject to certain exceptions.
−Removed: The commitment was approved by the Audit Committee of the Board in accordance with the Company’s related-party transaction approval policy.
−Removed: In connection with the settlement of the litigation, among other terms, no further capital calls will be made in connection with the Company’s investment in the Fund, nor will any management fees be paid by the Company to the manager.
−Removed: For more information related to the litigation, see Note 12 – Commitments and Contingencies to Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K, which is incorporated herein by reference.
−Removed: During 2021, the Company received capital call notices from the management of OCV Management, LLC for $22.2 million, inclusive of certain management fees, of which $22.2 million has been paid for the year ended December 31, 2021.
−Removed: During 2020, the Company received capital call notices from the management of OCV Management, LLC for $32.9 million inclusive of certain management fees, of which $31.9 million had been paid for the year ended December 31, 2020.
−Removed: The Company received a distribution from OCV of $15.3 million during year ended December 31, 2021.
+Added: As of December 31, 2022 and 2021 cash, cash equivalents, and investments held within domestic and foreign jurisdictions were as follows (in millions):
+Added: Cash, cash equivalents and investments held in domestic jurisdictions $ 671.6 $ 884.9
+Added: Cash, cash equivalents and investments held in foreign jurisdictions 167.5 161.7
+Added: Cash, cash equivalents and investments $ 839.1 $ 1,046.6
+Added: For information on short-term and long-term investments of the Company, refer to Note 5 - Investments to the Notes to Consolidated Financial Statements included in Part II Item 8 of this Annual Report on Form 10-K.
On January 7, 2019, 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 sole lead arranger and as administrative agent for the Lenders (the “Agent”).
8 unchanged sentences
The final maturity of the Credit Facility will occur on April 7, 2026.
−Removed: On June 2, 2021, June 21, 2021, August 20, 2021 and September 16, 2021, the Company entered into First, Second, Third and Fourth Amendments (together the “Amendments”) to the Credit Agreement.
+Added: On June 2, 2021, June 21, 2021, August 20, 2021.
+Added: and September 16, 2021, the Company entered into First, Second, Third and Fourth Amendments (together the “Amendments”) to the 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 the Company’s cloud fax business into a new publicly traded company, and (iii) provided for certain other changes to the Credit Agreement.
In connection with the spin-off of Consensus, the Company drew the full amount of the Bridge Loan Facility and used the proceeds of the Bridge Loan Facility to redeem the 3.25% Convertible Notes.
−Removed: During the year ended December 31, 2021, the Company satisfied its conversion obligation by paying the principal of $402.4 million in cash and issued 3,050,850 shares of the Company’s common stock.
+Added: During the year ended December 31, 2021, the Company satisfied its conversion obligation related to the 3.25% Convertible Notes by paying the principal of $402.4 million in cash and issued 3,050,850 shares of the Company’s common stock.
On October 7, 2021, as part of the Separation, Consensus issued $500.0 million of senior notes due 2028 to Ziff Davis, which Ziff Davis then 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.
4 unchanged sentences
The tender offer expired on October 22, 2021.
+Added: On June 10, 2022, the Company entered into a Fifth Amendment to the Credit Agreement, which provided for the Term Loan Facility, in an aggregate principal amount of $90.0 million, which had a maturity date that was 60 days following the date of funding of the Term Loan Facility.
+Added: On September 15, 2022, the Company entered into a Sixth Amendment to its existing Credit Agreement, which provided for the Term Loan Two Facility in an aggregate principal amount of approximately $22.3 million.
+Added: During the year ended December 31, 2022, the Company completed a non-cash exchange of 2.8 million shares of its common stock of Consensus with the lenders under the Fifth and the Sixth Amendments to settle the Company’s obligations of $112.3 million outstanding aggregate principal amount of the Term Loan Facility and Term Loan Two Facility plus related interest.
As of December 31, 2022 there were no amounts drawn under the Credit Agreement.
−Removed: 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 expenditure, and stock repurchases, if any, for at least the next 12 months from the issuance of this Annual Report.
−Removed: The following information regarding the Consolidated Statements of Cash Flows combine continuing and discontinued operations.
+Added: During the year ended December 31, 2022, the Company repurchased approximately $181.2 million in aggregate principal amount of the 4.625% Senior Notes for an aggregate purchase price of approximately $167.7 million.
+Added: Material Cash Requirements
+Added: Ziff Davis’ long-term contractual obligations generally include its long-term debt, interest on long-term debt, lease payments on its property and equipment, holdback payments in connection with certain business acquisitions, and other obligations.
+Added: These long-term contractual obligations extend through 2031.
+Added: Refer to Note 4 - Business Acquisitions , Note 10 - Debt and Note 11 - Leases to the Notes to the Consolidated Financial Statements included in Part II Item 8 of this Annual Report on Form 10-K, for further details on holdback payments, long-term debt, and operating leases.
+Added: As of December 31, 2022, we and our subsidiaries had outstanding $1.0 billion in aggregate principal amount of indebtedness.
+Added: As of December 31, 2022, our total minimum lease payments are $59.3 million, of which approximately $23.0 million are due in the succeeding twelve months.
+Added: As of December 31, 2022, our liability for uncertain tax positions was $40.4 million.
+Added: 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.
+Added: The following information regarding the Consolidated Statements of Cash Flows combine continuing and discontinued operations for the years ended December 31, 2022 and 2021.
+Added: The Consolidated Statements of Cash Flows for the year ended December 31, 2021 includes the activity from the cloud fax business through the date of Separation on October 7, 2021.
+Added: Refer to Note 6 - Discontinued Operations and Dispositions to the Notes to the Consolidated Financial Statements included in Part II Item 8 of this Annual Report on Form 10-K, for additional information.
Our primary sources of liquidity are cash flows generated from operations, together with cash and cash equivalents.
−Removed: Net cash provided by operating activities was $516.5 million, $480.1 million and $412.5 million for the years ended December 31, 2021, 2020 and 2019, respectively.
−Removed: 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.
−Removed: The increase in our net cash provided by operating activities in 2021 compared to 2020 was primarily attributable to an increase in accounts payable, deferred revenue.
−Removed: The increase in our net cash provided by operating activities in 2020 compared to 2019 was primarily attributable to a decrease in prepaid expenses and other current assets, increased income tax liabilities and uncertain tax positions.
−Removed: Our prepaid tax payments were $0.8 million and $3.0 million at December 31, 2021 and 2020, respectively.
−Removed: Net cash provided by (used in) investing activities was $59.1 million, $(586.2) million and $(505.3) million for the years ended December 31, 2021, 2020 and 2019, respectively.
−Removed: Net cash provided by investing activities in 2021 was primarily attributable to the proceeds from the divestiture of discontinued operations related to the Separation of Consensus, proceeds from the sale of certain businesses and lower cash used in business acquisitions, partially offset by higher capital expenditures associated with the purchase of property and equipment.
−Removed: Net cash used in investing activities in 2020 was primarily attributable to business acquisitions, capital expenditures associated with the purchase of property and equipment and the purchase of equity method investments;
−Removed: partially offset by the proceeds from the sale of businesses.
−Removed: Net cash used in investing activities in 2019 was primarily attributable to business acquisitions, capital expenditures associated with the purchase of property and equipment and purchases of equity method investments;
−Removed: partially offset by the distribution from an equity method investment.
−Removed: Net cash (used in) provided by financing activities was $(113.1) million, $(234.6) million and $456.7 million for the years ended December 31, 2021, 2020 and 2019, respectively.
−Removed: The decline in net cash used in financing activities in 2021 was primarily attributable to the repurchase of stock and deferred payments on business acquisitions, partially offset by proceeds from our stock purchase plan and exercise of stock options.
−Removed: Net cash used in financing activities in 2020 was primarily attributable to the repayment of debt, repurchase of stock and business acquisitions;
−Removed: partially offset by net proceeds from the issuance of our 4.625% Senior Notes and exercise of stock options.
−Removed: Net cash provided by financing activities in 2019 was primarily attributable to net proceeds from the issuance of 1.75% Convertible Notes, proceeds from the line of credit and exercise of stock options;
−Removed: partially offset by payment of the line of credit, dividends paid, repurchase of stock, business acquisitions and repayment of note payable.
−Removed: The Company’s Board of Directors approved two quarterly cash dividends during the year ended December 31, 2019, totaling $0.90 per share of common stock.
−Removed: Future dividends are subject to Board approval.
−Removed: However, based on the significant number of current investment opportunities within the Company’s portfolio of businesses and the historic returns from prior investments, the Board of Directors suspended dividend payments for the foreseeable future after the June 4, 2019 payment.
+Added: The following table provides a summary of cash flows from operating, investing and financing activities (in millions):
+Added: Year ended December 31, Change
+Added: 2022 2021 2022 v.
+Added: Net cash provided by operating activities $ 336.4 $ 516.5 $ (180.1)
+Added: Net cash (used in) provided by investing activities $ (220.8) $ 59.1 $ (279.9)
+Added: Net cash used in financing activities $ (140.8) $ (113.1) $ (27.7)
+Added: Operating Activities
+Added: 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, interest payments associated with our debt, and taxes.
+Added: The $180.1 million decrease in net cash provided by operating activities in 2022 compared to 2021 was primarily related to lower earnings before non-cash adjustments, primarily as a result of the Separation and other divested businesses that occurred in 2021, timing of payments to our vendors, decrease in operating lease liabilities, and net decrease in collections from our customers due to timing year over year.
+Added: Investing Activities
+Added: The $279.9 million decrease in net cash provided by investing activities in 2022 compared to 2021 was primarily related to the absence of proceeds of $259.1 million from the Separation and the absence of $48.9 million from the sale of businesses that occurred in 2021 that did not recur, partially offset by lower cash used for acquisition of businesses and purchases of property, plant and equipment.
+Added: Financing Activities
+Added: The $27.7 million increase in net cash used in financing activities in 2022 compared to 2021 was primarily related to lower proceeds from debt borrowings, net of repayments.
Stock Repurchase Program
−Removed: 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.
−Removed: The Company acquired and subsequently retired 2,126,080 shares during the year ended December 31, 2012.
−Removed: In July 2016, the Company acquired and subsequently retired 935,231 shares of its common stock in connection with the acquisition of Integrated Global Concepts, Inc.
−Removed: As a result of the purchase of its common stock, the Company’s Board of Directors approved a reduction in the number of shares available for purchase under the 2012 Program by the same amount.
−Removed: In November 2018 and May 2019, the Company entered into Rule 10b5-1 trading plans with a broker to facilitate the repurchase program.
−Removed: 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.
+Added: Effective February 15, 2012, the Company’s Board 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.
+Added: Prior to 2020, the Company repurchased 3,859,181 shares under the 2012 Program at an aggregate cost of $117.1 million.
+Added: The repurchased shares were subsequently retired.
+Added: There were 1,140,819 shares available under the 2012 program as of January 1, 2020.
During the year ended December 31, 2020, the Company repurchased 1,140,819 shares at an aggregate cost of $87.5 million which were subsequently retired in the same year.
−Removed: During the year ended December 31, 2020, the Company repurchased 1,140,819 shares under the 2012 Program at an aggregate cost of $87.5 million, which were subsequently retired in the same year.
−Removed: As of December 31, 2020, all of the available shares were repurchased under the 2012 Program at an aggregate cost of $204.6 million (including an immaterial amount of commission fees).
−Removed: On August 6, 2020, the Company’s 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 addition to the five million shares repurchased under the 2012 Program.
−Removed: During the year ended December 31, 2021 and December 31, 2020, the Company entered into a Rule 10b5-1 trading plan and repurchased 445,711 and 2,490,599 shares, respectively, at an aggregate cost of $47.7 million and $177.8 million, respectively, (including an immaterial amount of commission fees) under the 2020 Program, which were subsequently retired (see Note 14 - Stockholders’ Equity of Notes to Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K, which is incorporated herein by reference).
−Removed: As a result of the Company’s share repurchase programs, the number of shares available for purchase as of December 31, 2021 is 7,063,690 shares of the Company common stock.
−Removed: Contractual Obligations and Commitments
−Removed: The following table summarizes our contractual obligations and commitments as of December 31, 2021:
−Removed: Payment Due by Period (in thousands)
−Removed: Contractual Obligations 1 Year 2-3 Years 4-5 Years More than 5 Years Total
−Removed: Debt - principal (a) $ 54,609 $ — $ — $ 1,136,667 $ 1,191,276
−Removed: Debt - interest (b) 39,284 78,568 78,568 118,636 315,056
−Removed: Operating leases (c) 28,163 38,307 14,074 5,405 85,949
−Removed: Telecom services and co-location facilities (d) 760 865 36 — 1,661
−Removed: Holdback payments (e) 1,896 21,438 — — 23,334
−Removed: Transition tax (f) — — 11,675 — 11,675
−Removed: Self-Insurance (g) 17,193 — — — 17,193
−Removed: Other (h) — 1,410 — — 1,410
−Removed: Total $ 141,905 $ 140,588 $ 104,353 $ 1,260,708 $ 1,647,554
−Removed: (a) These amounts represent principal on debt.
−Removed: (b) These amounts represent interest on debt.
−Removed: (c) These amounts represent undiscounted future minimum rental commitments under noncancellable operating leases.
−Removed: (d) These amounts represent service commitments to various telecommunication providers.
−Removed: (e) These amounts represent the holdback amounts in connection with certain business acquisitions.
−Removed: (f) These amounts represent commitments related to the transition tax on unrepatriated foreign earnings reduced by the 2017 overpayment of US Federal Income Tax.
−Removed: (g) These amounts represent medical premiums and claims incurred but not paid on self-insurance.
−Removed: (h) These amounts represent certain consulting and Board of Directors fee arrangements and software license and implementation commitments.
−Removed: As of December 31, 2021, our liability for uncertain tax positions was $42.5 million.
−Removed: 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 potential cash settlements with such authorities.
−Removed: 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.
+Added: As of December 31, 2020, the Company had repurchased all of the available shares under the 2012 Program at an aggregated cost of $204.6 million (including an immaterial amount of commission fees).
+Added: On August 6, 2020, the Board approved a program authorizing the repurchase of up to ten 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.
+Added: In connection with the authorization, the Company entered into certain Rule 10b5-1 trading plans with a broker-dealer to facilitate the repurchase program.
+Added: During the years ended December 31, 2022, December 31, 2021, and December 31, 2020, the Company repurchased 736,536, 445,711 and 2,490,599 shares, respectively, at an aggregate cost of $71.3 million, $47.7 million and $177.8 million, respectively, (including an immaterial amount of commission fees) under the 2020 Program, which were subsequently retired.
+Added: Refer to Note 14 - Stockholders’ Equity to the Notes to Consolidated Financial Statements included in Part II Item 8 of this Annual Report on Form 10-K for further details.
+Added: As a result of the Company’s share repurchases, the number of shares of the Company’s common stock available for purchase as of December 31, 2022 is 6,327,154 shares.
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.