What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-09 compared with 2023-08-04 · 111 added, 98 removed, 216 unchanged (49% of the section changed)

19 unchanged sentences

◦ Maintain favorable relationships with critical third-party vendors whose financial condition will not negatively impact the services they provide;

◦ Create compelling digital media content causing increased traffic and advertising levels and additional advertisers or an increase in advertising spend, and effectively target digital media advertisements to desired audiences;

◦ Create compelling digital media content facilitating increased traffic and advertising levels and additional advertisers or an increase in advertising spend, and effectively target digital media advertisements to desired audiences;

◦ Manage certain risks inherent to our business, such as costs associated with fraudulent activity, system failure or security breach;

24 unchanged sentences

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

Three months ended June 30, Six months ended June 30,

Three months ended

September 30,

Nine months ended

September 30,

2023 2022 2023 2022

14 unchanged sentences

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

The following table sets forth certain key operating metrics for our Digital Media advertising business for the three months ended June 30, 2023 and 2022:

Three months ended June 30,

The following table sets forth certain key operating metrics for our Digital Media advertising business for the three months ended September 30, 2023 and 2022:

Three months ended September 30,

Net advertising revenue retention (1)

89.8 % 99.6 %

Advertisers (2)

5 unchanged sentences

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

The following table sets forth certain key operating metrics for our Digital Media and Cybersecurity and Martech subscription and licensing businesses for the three months ended June 30, 2023 and 2022:

Three months ended June 30,

Three months ended September 30,

2023 2022 (4)

13 unchanged sentences

The following table summarizes the adjustments made to previously reported amounts.

Three months ended

June 30, 2022

Three months ended September 30, 2022

Subscribers (in thousands) 96

5 unchanged sentences

Our critical accounting policies are described in our 2022 Annual Report on Form 10-K filed with the SEC on March 1, 2023.

During the three and six months ended June 30, 2023, there were no significant changes in our critical accounting policies and estimates.

During the three and nine months ended September 30, 2023, there were no significant changes in our critical accounting policies and estimates.

See Note 1 - Basis of Presentation and Overview to the Notes to Condensed Consolidated Financial Statements included in Part I Item 1 of this Quarterly Report on Form 10-Q for additional description of significant accounting policies of the Company.

Results of Operations for the Three and Six Months Ended June 30, 2023

See Note 6 - Goodwill and Intangible Assets to the Notes to Condensed Consolidated Financial Statements included in Part I Item 1 of this Quarterly Report on Form 10-Q for discussion of an impairment of goodwill of approximately $56.9 million during the three and nine months ended September 30, 2023.

Following the impairment during the three and nine months ended September 30, 2023, the reporting unit had goodwill of approximately $ 79.2 million and there is no excess of reporting unit fair value over the carrying amount, so any further decrease in estimated fair value would result in an additional impairment charge to goodwill.

Changes in market conditions, and key assumptions made in future quantitative assessments, including expected cash flows, competitive factors and discount rates, could negatively impact the results of future impairment testing and could result in the recognition of an impairment charge.

Results of Operations for the Three and Nine Months Ended September 30, 2023

Digital Media

6 unchanged sentences

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

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

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

however, for a number of reasons, including current macroeconomic conditions, in a given period, we may close greater or fewer acquisitions than in prior periods or acquisitions of greater or lesser significance than in prior periods.

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

3 unchanged sentences

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

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

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

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

(in thousands, except percentages) Three months ended June 30, Percentage Change Six months ended June 30, Percentage Change

(in thousands, except percentages) Three months ended September 30, Percentage Change Nine months ended September 30, Percentage Change

2023 2022 2023 2022

3 unchanged sentences

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

Our revenues decreased during the three months ended June 30, 2023 compared to the 2022 period primarily due to a $14.0 million decline in advertising revenue in our Digital Media business and a $5.7 million subscription revenue decline in our Cybersecurity and Martech business, partially offset by a $9.5 million increase in subscription revenue in the Digital Media business.

Our revenues decreased during the six months ended June 30, 2023 compared to the 2022 period primarily due to a $27.9 million decline in advertising revenue in our Digital Media business and a $13.0 million decline in subscription revenue in our Cybersecurity and Martech business, partially offset by an increase of $23.4 million in subscription revenue in the Digital Media business.

Included in revenue during the three and six months ended June 30, 2023 was $9.1 million and $21.1 million, respectively, of incremental revenue contributed by businesses acquired during 2022.

Our revenues decreased during the three months ended September 30, 2023 compared to the 2022 period primarily due to a $3.8 million decline in advertising revenue in our Digital Media business and a $5.1 million subscription revenue decline in our Cybersecurity and Martech business, partially offset by a $7.1 million increase in subscription revenue in the Digital Media business.

Our revenues decreased during the nine months ended September 30, 2023 compared to the 2022 period primarily due to a $31.7 million decline in advertising revenue in our Digital Media business and a $18.3 million decline in subscription revenue in our Cybersecurity and Martech business, partially offset by an increase of $30.5 million in subscription revenue in the Digital Media business.

Included in revenue during the three and nine months ended September 30, 2023 was $0.2 million and $21.3 million, respectively, of incremental revenue contributed by businesses acquired during 2022.

Cost of Revenues

(in thousands, except percentages) Three months ended June 30, Percentage Change Six months ended June 30, Percentage Change

(in thousands, except percentages) Three months ended September 30, Percentage Change Nine months ended September 30, Percentage Change

2023 2022 2023 2022

Cost of Revenue

$ 55,526 $ 52,603 5.6% $ 148,677 $ 144,707 2.7%

As a percent of revenue 16.3 % 15.4 % 15.3 % 14.6 %

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

The increase in cost of revenues for the three and six months ended June 30, 2023 compared to the 2022 period was primarily driven by higher advertising-related inventory costs in our Digital Media business, partially offset by lower content fulfillment and similar costs.

The increase in cost of revenues for the three and nine months ended September 30, 2023 compared to the respective 2022 periods was primarily due to higher web hosting and royalty fees, partially offset by lower campaign fulfillment and similar costs.

Sales and Marketing

(in thousands, except percentages) Three months ended June 30, Percentage Change Six months ended June 30, Percentage Change

(in thousands, except percentages) Three months ended September 30, Percentage Change Nine months ended September 30, Percentage Change

2023 2022 2023 2022

1 unchanged sentence

As a percent of revenue 36.7 % 34.9 % 37.0 % 36.3 %

Our sales and marketing costs consist primarily of internet-based advertising, sales and marketing, personnel costs, and other business development-related expenses.

Sales and marketing costs consist primarily of internet-based advertising, sales and marketing, personnel costs, and other business development-related expenses.

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.

The decrease in sales and marketing costs during the three months ended June 30, 2023, compared to the 2022 period was primarily due to a decrease in personnel-related expenses, lower expenses for outside services related to software development and lower revenue share costs.

The decrease in sales and marketing expenses during the six months ended June 30, 2023, compared to the 2022 period was primarily due to a decrease in personnel-related expenses and lower software-related costs.

The increase in sales and marketing costs during the three months ended September 30, 2023, compared to the 2022 period was primarily due to an increase in personnel-related expenses and higher revenue share costs.

The decrease in sales and marketing expenses during the nine months ended September 30, 2023, compared to the 2022 period was primarily due to lower expenses for outside services related to software development and lower user acquisition expenses, partially offset by higher consulting and professional fees.

Research, Development, and Engineering

(in thousands, except percentages) Three months ended June 30, Percentage Change Six months ended June 30, Percentage Change

(in thousands, except percentages) Three months ended September 30, Percentage Change Nine months ended September 30, Percentage Change

2023 2022 2023 2022

1 unchanged sentence

As a percent of revenue 5.2 % 5.2 % 5.5 % 5.6 %

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

The decrease in research, development, and engineering costs for the three months ended June 30, 2023, compared to the 2022 period was primarily due to lower engineering costs as more costs were capitalized in 2023 than in 2022.

The decrease in research, development, and engineering costs for the six months ended June 30, 2023, compared to the 2022 period was primarily due to lower personnel-related expenses and lower engineering costs as more costs were capitalized in 2023 than in 2022.

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

The decrease in research, development, and engineering costs for the three months ended September 30, 2023, compared to the 2022 period was primarily due to lower engineering costs as more costs were capitalized in 2023 than in 2022, partially offset by higher personnel-related costs.

The decrease in research, development, and engineering costs for the nine months ended September 30, 2023, compared to the 2022 period was primarily due to lower engineering costs as more costs were capitalized in 2023 than in 2022, and lower expenses for outside services related to software development, partially offset by higher consulting and professional fees.

General and Administrative

(in thousands, except percentages) Three months ended June 30, Percentage Change Six months ended June 30, Percentage Change

(in thousands, except percentages) Three months ended September 30, Percentage Change Nine months ended September 30, Percentage Change

2023 2022 2023 2022

2 unchanged sentences

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

The decrease in general and administrative expense for the three months ended June 30, 2023, compared to the 2022 period was primarily due to lower depreciation and amortization expense, partially offset by an increase in personnel-related expenses.

The decrease in general and administrative expense for the six months ended June 30, 2023 compared to the 2022 period was primarily due to lower depreciation and amortization expense and non-income tax expense, partially offset by an increase in personnel-related expenses.

The increase in general and administrative expense for the three and nine months ended September 30, 2023 compared to the respective 2022 periods was primarily due to higher depreciation and amortization expense and higher personnel-related costs.

Goodwill Impairment on Business

Goodwill impairment on business was $56.9 million for the three and nine months ended September 30, 2023, respectively, and $27.4 million for the three and nine months ended September 30, 2022, respectively.

The goodwill impairment during all periods was related to reporting units within the Digital Media reportable segment.

Refer to Note 6 - Goodwill and Intangible Asset s for further details.

Share-Based Compensation Expense

The following table presents the effects of share-based compensation expense in the Condensed Consolidated Statements of Operations during the periods presented (in thousands):

Three months ended June 30, Six months ended June 30,

Three months ended September 30, Nine months ended September 30,

2023 2022 2023 2022

5 unchanged sentences

Non-Operating Income and Expenses

The following table represents the components of non-operating income and expenses for the three and six months ended June 30, 2023 and 2022 (in thousands):

Three months ended June 30, Percentage Change Six months ended June 30, Percentage Change

The following table represents the components of non-operating income and expenses for the three and nine months ended September 30, 2023 and 2022 (in thousands):

Three months ended September 30, Percentage Change Nine months ended September 30, Percentage Change

2023 2022 2023 2022

1 unchanged sentence

Gain on debt extinguishment, net — 10,112 (100.0) % — 11,505 (100.0) %

Unrealized loss on short-term investments held at the reporting date, net (3,196) (27,317) (88.3) % (23,541) (18,366) 28.2 %

(Loss) gain on investments, net — (48,243) 100.0 % 357 (48,243) 100.7 %

Unrealized (loss) gain on short-term investments held at the reporting date, net

(6,019) 4,201 (243.3) % (29,560) (14,165) 108.7 %

Gain (loss) on investments, net

— 471 100.0 % 357 (47,772) 100.7 %

Other (loss) income, net (3,571) 4,218 (184.7) % (5,982) 12,962 (146.2) %

Total non-operating expense $ (15,182) $ (76,171) (80.1) % $ (40,558) $ (76,331) (46.9) %

Total non-operating (expense) income

$ (12,407) $ 10,442 (218.8) % $ (52,965) $ (65,889) (19.6) %

Interest expense, net.

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

Interest expense, net was $10.5 million and $9.6 million for the three months ended June 30, 2023 and 2022, respectively, and $15.0 million and $19.9 million for the six months ended June 30, 2023 and 2022, respectively.

Interest expense, net increased during the three months ended June 30, 2023, compared to the 2022 period primarily due to an additional non-recurring $7.4 million of interest expense on the 1.75% Convertible Notes at a rate of 0.50% per annum, that accumulated through June 30, 2023.

The increase was partially offset by higher interest income as a result of higher interest rates and a higher amount of cash and cash equivalents during the second quarter of 2023 compared to the second quarter of 2022, and approximately $1.2 million less interest expense from the 4.625% Senior Notes related to a lower principal balance over the period as a portion of the notes was repurchased.

Interest expense, net decreased during the six months ended June 30, 2023 compared to the 2022 period primarily due to higher interest income as a result of higher interest rates and a higher amount of cash and cash equivalents during the period and approximately $2.9 million less interest expense from the 4.625% Senior Notes related to a lower principal balance over the period as the notes were repurchased, partially offset by the additional non-recurring $7.4 million of interest expense on the 1.75% Convertible Notes at a rate of 0.50% per annum discussed above.

Interest expense, net was $2.8 million and $8.6 million for the three months ended September 30, 2023 and 2022, respectively, and $17.8 million and $28.4 million for the nine months ended September 30, 2023 and 2022, respectively.

Interest expense, net decreased during the three months ended September 30, 2023, compared to the 2022 period primarily due to higher interest income as a result of higher interest rates during the third quarter of 2023 compared to the prior year period and approximately $0.5 million less interest expense from the 4.625% Senior Notes related to a lower principal balance over the period as a portion of the notes was repurchased.

Interest expense, net decreased during the nine months ended September 30, 2023 compared to the 2022 period primarily due to higher interest income as a result of higher interest rates and approximately $3.4 million less interest expense from the 4.625% Senior Notes related to a lower principal balance over the period as a portion of the notes was repurchased, partially offset by the additional non-recurring $7.7 million of interest expense on the 1.75% Convertible Notes at a rate of 0.50% per annum.

See Note 7 – Debt in Item 1 of Part I of this Quarterly Report on Form 10-Q, which is incorporated by reference into this Item 1of Part II.

Gain on debt extinguishment, net.

Gain on debt extinguishment, net was zero and $2.6 million during the three months ended June 30, 2023 and 2022, respectively, and zero and $1.4 million during the six months ended June 30, 2023 and 2022, respectively.

The gain on debt extinguishment during the three and six months ended June 30, 2022 related to the repurchases of the 4.625% Senior Notes.

Unrealized loss on short-term investments held at the reporting date, net.

Unrealized loss on short-term investment held at the reporting date, net was $3.2 million and $27.3 million during the three months ended June 30, 2023 and 2022, respectively.

Unrealized loss on short-term investment held at the reporting date, net was $23.5 million and $18.4 million during the six months ended June 30, 2023 and 2022, respectively.

The unrealized loss recorded in all periods represents the change in fair value of our investment in Consensus Cloud Solutions, Inc.

Gain on debt extinguishment, net, was zero and $10.1 million during the three months ended September 30, 2023 and 2022, respectively, and zero and $11.5 million during the nine months ended September 30, 2023 and 2022, respectively.

The gain on debt extinguishment during the three and nine months ended September 30, 2022 related primarily to the repurchases of the 4.625% Senior Notes.

Unrealized (loss) gain on short-term investments held at the reporting date, net.

Unrealized loss on short-term investment held at the reporting date, net was $6.0 million during the three months ended September 30, 2023, compared to unrealized gain of $4.2 million during the three months ended September 30, 2022.

Unrealized loss on short-term investment held at the reporting date, net was $29.6 million and $14.2 million during the nine months ended September 30, 2023 and 2022, respectively.

The unrealized (loss) gain recorded in all periods represents the change in fair value of our investment in Consensus Cloud Solutions, Inc.

(“Consensus”).

(Loss) gain on investments, net.

(Loss) gain on investments, net is generated from losses and gains from investments in equity and debt securities.

Loss on investments, net was zero and $48.2 million for the three months ended June 30, 2023 and 2022, respectively.

Gain on investments, net was $0.4 million for the six months ended June 30, 2023 and loss in investment, net was $48.2 million for the six months ended June 30, 2022.

Our (loss) gain on investments, net during all periods was related to the disposition of Consensus common stock.

Gain (loss) on investments, net.

Gain (loss) on investments, net is generated from gains and losses gains from investments in equity and debt securities.

Gain on investments, net was zero and $0.5 million for the three months ended September 30, 2023 and 2022, respectively.

Gain on investments, net was $0.4 million for the nine months ended September 30, 2023 and loss in investment, net was $47.8 million for the nine months ended September 30, 2022.

Our gain (loss) on investments, net during all periods was related to the disposition of Consensus common stock.

Other (loss) income, net.

Other (loss) income, net is generated primarily from miscellaneous items and gains or losses on foreign currency.

Other (loss) income, net was $(1.5) million and $6.3 million for the three months ended June 30, 2023 and 2022, respectively, and $(2.4) million and $8.7 million for six months ended June 30, 2023 and 2022, respectively.

The change was primarily attributable to changes in gains or losses on currency.

Other loss, net was $3.6 million during the three months ended September 30, 2023, compared to other income, net of $4.2 million for the three months ended September 30, 2022.

Other loss, net was $6.0 million during the nine months ended September 30, 2023, compared to other income, net of $13.0 million for nine months ended September 30, 2023 and 2022.

The decrease in all periods was primarily attributable to a reserve established on a receivable from a buyer of a previously disposed business and to changes in gains or losses on foreign currency.

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

1 unchanged sentence

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

Provision for income taxes amounted to income tax expense of $6.5 million and $10.1 million for the three months ended June 30, 2023 and 2022, respectively, and $5.8 million and $15.1 million for the six months ended June 30, 2023 and 2022, respectively.

Our effective tax rate was 27.2% and (33.2)% for the three months ended June 30, 2023, respectively, and 23.7% and 12,760.8% for the six months ended June 30, 2023 and 2022, respectively.

The increase in our effective income tax rate for the three months ended June 30, 2023 compared to the 2022 period was primarily attributable to the following:

an increase in our effective income tax rate during the three months ended June 30, 2023 due to the larger unrealized loss on our investment in Consensus common stock during the three months ended June 30, 2022 that was not subject to tax since the Company had the ability at the time to dispose of the investment in a tax-free manner based on guidance and requirements set out by the Internal Revenue Service;

an increase in our effective income tax rate during the three months ended June 30, 2023 due to a decrease in the portion of our income being taxed in foreign jurisdictions and subject to lower tax rates than in the U.S.

The decrease in our effective income tax rate for the six months ended June 30, 2023 compared to the 2022 period was primarily attributable to the following:

a decrease in our effective income tax rate during 2023 due to the unrealized loss on our investment in Consensus common stock that resulted in a discrete tax benefit of approximately $5.8 million;

a decrease in our effective income tax rate during 2023 due to the release of reserves for uncertain tax positions with no similar event during the six months ended June 30, 2022;

Provision for income taxes amounted to income tax expense of $5.3 million and $18.1 million for the three months ended September 30, 2023 and 2022, respectively, and $11.2 million and $33.2 million for the nine months ended September 30, 2023 and 2022, respectively.

Our effective tax rate was (20.7)% and 45.9% for the three months ended September 30, 2023 and 2022, respectively, and (1,040.8)% and 83.9% for the nine months ended September 30, 2023 and 2022, respectively.

The Company’s effective tax rate for the three and nine months ended September 30, 2023 was disproportionately impacted by the goodwill impairment of $56.9 million.

No corresponding tax benefit was recorded on the impairment charge since it entirely related to excess financial statement goodwill with no tax basis.

During the three and nine months ended September 30, 2022, the Company’s effective tax rate was impacted due to the Company recording a deferred tax liability and corresponding tax expense of $11.3 million related to its investment in Consensus since the Company did not dispose of the shares within the one-year anniversary of the Separation.

The increase to tax expense was partially offset by a tax benefit of $6.7 million for recording a deferred tax asset on the impairment of goodwill recorded during the three and nine months ended September 30, 2022.

The decrease in our effective income tax rate for the three and nine months ended September 30, 2023 compared to the 2022 periods was primarily attributable to the following:

a decrease in our effective income tax rate during 2023 due to the goodwill impairment recognized for book purposes with no corresponding tax benefit recognized;

a decrease in our effective income tax rate due to tax expense of $11.3 million recognized during the three and nine months ended September 30, 2022 for recording a deferred tax liability related to our investment in Consensus common stock with no similar item occurring during the 2023 periods;

partially offset by

4 unchanged sentences

Equity Method Investment

Loss from equity method investment, net.

Income (loss) from equity method investment, net.

Loss or gain from equity method investment is generated from our investment in the OCV Fund for which we receive annual audited financial statements.

1 unchanged sentence

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.

Loss from equity method investment, net was $0.6 million and $6.1 million, net of tax benefit for the three months ended June 30, 2023 and 2022, respectively, and $9.8 million and $6.9 million, net of tax benefit for the six months ended June 30, 2023 and 2022, respectively.

The decrease in loss from equity method investment, net during the three months ended June 30, 2023 compared to the respective 2022 period was primarily due to less of a decline in the value of the underlying investments.

The increase in loss from equity method investment, net during the six months ended June 30, 2023 compared to the respective 2022 period was primarily due to a decrease in the value of the underlying investments.

Income from equity method investment was $0.1 million, net of tax expense, for the three months ended September 30, 2023 compared to loss from equity method investment of $3.2 million, net of tax benefit, for the three months ended September 30, 2022.

Loss from equity method investment was $9.7 million and $10.1 million, net of tax benefit for the nine months ended September 30, 2023 and 2022, respectively.

The decrease in loss from equity method investment, net during the three and nine months ended September 30, 2023 compared to the respective 2022 periods was primarily due to a smaller decline in the value of the underlying investments.

Digital Media and Cybersecurity and Martech Results

8 unchanged sentences

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

Three months ended June 30, Six months ended June 30,

Three months ended September 30, Nine months ended September 30,

2023 2022 2023 2022

3 unchanged sentences

Operating costs and expenses 280,856 236,579 702,752 653,363

Operating income $ 36,716 $ 44,623 $ 65,185 $ 76,743

Digital Media’s net revenue of $252.8 million for the three months ended June 30, 2023 decreased $5.5 million, or 2.1%, compared to the 2022 period primarily due to an organic revenue decline in certain businesses, offset by $9.1 million of incremental revenue during the three months ended June 30, 2023 contributed by businesses acquired in 2022.

Digital Media’s net sales of $486.9 million for the six months ended June 30, 2023 decreased $6.1 million, or 1.2%, compared to the 2022 period primarily due to an organic decline in certain businesses, offset by $21.1 million of incremental revenue during the six months ended June 30, 2023, contributed by business acquired in 2022.

Operating (loss) income

$ (12,905) $ 27,317 $ 52,280 $ 104,060

Digital Media’s net revenue of $267.9 million for the three months ended September 30, 2023 increased $4.3 million, or 1.6%, compared to the 2022 period primarily due to an increase in organic revenue in certain businesses, as well as $0.2 million of incremental revenue during the three months ended September 30, 2023 contributed by businesses acquired in 2022.

Digital Media’s net revenue of $754.9 million for the nine months ended September 30, 2023 decreased $1.8 million, or 0.2%, compared to the 2022 period primarily due to an organic decline in certain businesses, offset by $21.3 million of incremental revenue during the nine months ended September 30, 2023, contributed by business acquired in 2022.

The Company considers revenue from an acquired business to become organic revenue in the first month in which the Company can compare that full month in the current year against the corresponding full month under its ownership in the prior year.

Digital Media’s operating costs and expenses of $216.2 million for the three months ended June 30, 2023 increased $2.1 million, or 1.0%, compared to the 2022 period primarily due to higher advertising costs.

Digital Media’s operating costs and expenses of $421.9 million for the six months ended June 30, 2023 increased $5.1 million, or 1.2%, compared to the 2022 period primarily due to higher advertising costs and personnel-related expenses.

As a result of these factors, Digital Media’s operating income of $36.7 million for the three months ended June 30, 2023 decreased $7.9 million, or 17.7%, compared to the 2022 period.

Digital Media’s operating income of $65.2 million for the six months ended June 30, 2023 decreased $11.6 million, or (15.1)%, compared to the 2022 period.

Digital Media’s operating costs and expenses of $280.9 million for the three months ended September 30, 2023 increased $44.3 million, or 18.7%, compared to the 2022 period primarily due to a $56.9 million goodwill impairment recognized during the three months ended September 30, 2023 compared to $27.4 million recognized during the three months ended September 30, 2022, and higher sales and marketing expenses.

Digital Media’s operating costs and expenses of $702.8 million for the nine months ended September 30, 2023 increased $49.4 million, or 7.6%, compared to the 2022 period primarily due to an increase of $29.5 million in goodwill impairment recognized during the nine months ended September 30, 2023 compared to the 2022 period and higher general and administrative expenses and sales and marketing expenses.

As a result of these factors, Digital Media’s operating loss of $12.9 million for the three months ended September 30, 2023 increased by $40.2 million, or 147.2%, compared to the operating income in the 2022 period.

Digital Media’s operating income of $52.3 million for the nine months ended September 30, 2023 decreased $51.8 million, or 49.8%, compared to the 2022 period.

Cybersecurity and Martech

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

Three months ended June 30, Six months ended June 30,

Three months ended September 30, Nine months ended September 30,

2023 2022 2023 2022

4 unchanged sentences

Operating income $ 12,510 $ 13,830 $ 37,630 $ 38,735

Cybersecurity and Martech’s net revenue of $73.2 million for the three months ended June 30, 2023 decreased $5.8 million, or 7.4%, compared to the 2022 period primarily due to the organic decline in certain businesses during the period.

Cybersecurity and Martech’s net sales of $146.2 million for the six months ended six months ended June 30, 2023 decreased $13.2 million, or (8.3)%, compared to the 2022 period primarily due to the organic decline in certain businesses during the period.

Cybersecurity and Martech’s operating costs and expenses of $59.7 million for the three months ended June 30, 2023 decreased $6.7 million, or 10.0%, compared to the 2022 period primarily due to lower sales and marketing expenses and lower general and administrative expenses, including lower depreciation and amortization expense.

Cybersecurity and Martech’s operating costs and expenses of $121.1 million for the six months ended June 30, 2023 decreased $13.4 million, or (10.0)% compared to the 2022 period primarily due to lower sales and marketing expenses and lower general and administrative expenses, including lower depreciation and amortization expense.

As a result of these factors, Cybersecurity and Martech’s operating income of $13.5 million for the three months ended June 30, 2023 increased $0.9 million, or 7.5%, from the 2022 period.

Cybersecurity and Martech’s operating income of $25.1 million for the six months ended June 30, 2023 increased $0.2 million, or 0.9%.

Cybersecurity and Martech’s net revenue of $73.1 million for the three months ended September 30, 2023 decreased $5.1 million, or 6.6%, compared to the 2022 period primarily due to the organic decline in certain businesses during the period.

Cybersecurity and Martech’s net revenue of $219.3 million for the nine months ended September 30, 2023 decreased $18.3 million, or 7.7%, compared to the 2022 period primarily due to the organic decline in certain businesses during the period.

Cybersecurity and Martech’s operating costs and expenses of $60.5 million for the three months ended September 30, 2023 decreased $3.8 million, or 5.9%, compared to the 2022 period primarily due to lower sales and marketing expenses and lower general and administrative expenses.

Cybersecurity and Martech’s operating costs and expenses of $181.6 million for the nine months ended September 30, 2023 decreased $17.2 million, or 8.7% compared to the 2022 period primarily due to lower sales and marketing expenses and lower general and administrative expenses.

As a result of these factors, Cybersecurity and Martech’s operating income of $12.5 million for the three months ended September 30, 2023 decreased $1.3 million, or 9.5%, from the 2022 period.

Cybersecurity and Martech’s operating income of $37.6 million for the nine months ended September 30, 2023 decreased $1.1 million, or 2.9%.

Liquidity and Capital Resources

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Cash, cash equivalents, and investments consisted of (in thousands):

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Cash and cash equivalents $ 660,624 $ 652,793

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Cash, cash equivalents, and investments held within domestic and foreign jurisdictions were as follows (in thousands):

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Cash, cash equivalents, and investments held in domestic jurisdiction $ 674,815 $ 671,587

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For information on short-term and long-term investments of the Company, refer to Note 4 - Investments to the Notes to Condensed Consolidated Financial Statements included in Part I Item 1 of this Quarterly Report on Form 10-Q.

As of June 30, 2023 and December 31, 2022, there were no amounts drawn under the Credit Agreement.

During the six months ended June 30, 2022, the Company repurchased approximately $76.1 million in aggregate principal amount of the 4.625% Senior Notes for an aggregate purchase price of approximately $73.6 million.

No repurchases of 4.625% Senior Notes were effectuated during the six months ended June 30, 2023.

As of September 30, 2023 and December 31, 2022, there were no amounts drawn under the Credit Agreement.

During the nine months ended September 30, 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.

No repurchases of 4.625% Senior Notes were effectuated during the nine months ended September 30, 2023.

Material Cash Requirements

Ziff Davis’ long-term contractual obligations generally include its long-term debt, interest on long-term debt, lease payments on its property and equipment and holdback amounts in connection with certain business acquisitions.

As of June 30, 2023, we and our subsidiaries had outstanding $1.0 billion in aggregate principal amount of indebtedness.

As of June 30, 2023, our total future minimum lease payments are $49.6 million, of which approximately $21.9 million are due in the succeeding twelve months.

There were no material changes to our cash requirements during the three months ended June 30, 2023.

Ziff Davis’ long-term contractual obligations generally include its long-term debt, interest on long-term debt, cloud computing commitments, lease payments on its property and equipment, and holdback amounts in connection with certain business acquisitions.

As of September 30, 2023, we and our subsidiaries had outstanding $1.0 billion in aggregate principal amount of indebtedness.

As of September 30, 2023, our cloud computing commitments are approximately $54.3 million, and our total future minimum lease payments are $41.1 million, of which approximately $20.0 million future minimum lease payments are due in the succeeding twelve months.

There were no material changes to our cash requirements during the three months ended September 30, 2023.

We currently anticipate that our existing cash and cash equivalents, cash generated from operations, and availability under our revolving credit facility, 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.

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The following table provides a summary of cash flows from operating, investing, and financing activities (in thousands):

Six months ended June 30, Change

Nine months ended September 30, Change

Net cash provided by operating activities $ 227,843 $ 293,219 $ (65,376)

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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.

The $37.4 million decrease in net cash provided by operating activities during the six months ended June 30, 2023 compared to the 2022 period was primarily related to a net decrease in collections from our customers due to timing and increase in prepaid expenses, partially offset by the effect of timing of payments to our vendors.

The $65.4 million decrease in net cash provided by operating activities during the nine months ended September 30, 2023 compared to the 2022 period was primarily related to a net decrease in collections from our customers due to timing, lower earnings before non-cash adjustments, and an increase in prepaid expenses, partially offset by the timing of income tax payments during the current period.

Investing Activities

The $96.0 million decrease in net cash used in investing activities during the six months ended June 30, 2023 compared to the 2022 period was primarily related to lower cash used on business acquisitions during the six months ended June 30, 2023 compared to the 2022 period and our investment in available-for-sale securities during the six months ended June 30, 2022, which did not recur in 2023 period.

The $95.1 million decrease in net cash used in investing activities during the nine months ended September 30, 2023 compared to the 2022 period was primarily related to lower cash used on business acquisitions during the nine months ended September 30, 2023 compared to the 2022 period and our investment in available-for-sale securities during the nine months ended September 30, 2022, which did not recur in 2023 period, partially offset by current period investment in equity securities without readily determinable fair value.

Financing Activities

The $2.9 million increase in net cash used in financing activities during the six months ended June 30, 2023 compared to the 2022 period was primarily related to the absence of term loan proceeds during the 2023 period, partially offset by 1) the absence of repurchases of our 4.625% Senior Notes, which occurred during the six months ended June 30, 2022, and 2) lower cash used on share repurchases during the 2023 period compared to the 2022 period.

The $25.0 million decrease in net cash used in financing activities during the nine months ended September 30, 2023 compared to the 2022 period was primarily related to the absence of repurchases of our 4.625% Senior Notes, which occurred during the nine months ended September 30, 2022;

partially offset by 1) higher cash used on share repurchases during the 2023 period compared to the 2022 period, and 2) the absence of term loan proceeds during the 2023 period.

Stock Repurchase Program

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

A summary of share repurchases under the 2020 Program during the six months ended June 30, 2023 is as follows (in thousands, except share amounts):

A summary of share repurchases under the 2020 Program during the nine months ended September 30, 2023 is as follows (in thousands, except share amounts):

Total number of shares repurchased Aggregate purchase price (1)

Shares remaining under repurchase authorization as of June 30, 2023

Shares remaining under repurchase authorization as of September 30, 2023

1,585,846 $104,919 4,741,308

(1) Includes the impact of excise taxes.

Cumulatively at June 30, 2023, 4,653,264 shares were repurchased, under the 2020 Program, at an aggregate cost of $360.8 million (including excise tax).

Cumulatively at September 30, 2023, 5,258,692 shares were repurchased, under the 2020 Program, at an aggregate cost of $401.8 million (including excise tax).

These shares were subsequently retired.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis