ZIFF DAVIS, INC. 10-Q

Item 3. Quantitative and Qualitative Disclosures About Market Risk The following discussion of the market risks we face contains forward-looking statements. Forward-looking statements are subject to risks and uncertainties. Actual results could differ materially from those discussed in forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s opinions only as of the date hereof. Ziff Davis undertakes no obligation to revise or publicly release the results of any revision to these forward-looking statements. Readers should carefully review the risk factors described in this document and in the other documents incorporated by reference herein, including our Annual Report on Form 10-K for the year ended December 31, 2022 as well as in other documents we file from time to time with the SEC, including the Quarterly Reports on Form 10-Q and any Current Reports on Form 8-K filed or to be filed by us in 2023. Interest Rate Risk Our exposure to market risk for changes in interest rates relates primarily to our investment portfolio and borrowings under our Credit Facility that bear variable market interest rates. The primary objectives of our investment activities are to preserve our principal while at the same time maximizing yields without significantly increasing risk. To achieve these objectives, we maintain our portfolio of cash equivalents and investments in a mix of instruments that meet high credit quality standards, as specified in our investment policy or otherwise approved by the Board of Directors. Our cash and cash equivalents are not subject to significant interest rate risk due to the short maturities of these instruments. As of September 30, 2023, the carrying value of our cash and cash equivalents approximated fair value. Our return on these investments is subject to interest rate fluctuations. As of September 30, 2023 and December 31, 2022, we had $660.6 million and $652.8 million, respectively, of cash and cash equivalent investments primarily in funds that invest in U.S. treasuries, money market funds, as well as, demand deposit accounts with maturities of 90 days or less. We do not have interest rate risk on our outstanding long-term debt as these arrangements have fixed interest rates. We cannot ensure that future interest rate movements will not have a material adverse effect on our future business, prospects, financial condition, operating results, and cash flows. To date, we have not entered into interest rate hedging transactions to control or minimize certain of these risks. Market Risk Our investment in Consensus common stock, which has a carrying value of approximately $26.0 million as of September 30, 2023, is based upon the quoted market price of Consensus common stock. Our results of operations and financial condition have been and may be materially impacted by increases or decreases in the price of Consensus common stock, which is traded on the Nasdaq Global Select Market. (Losses) gains on the investment in Consensus common stock were as follows (in thousands): Three months ended September 30, Nine months ended September 30, 2023 2022 2023 2022 Realized (losses) gains on securities sold during the period $ — $ 471 $ 357 $ (47,772) Unrealized (loss) gain recognized during the period on equity securities held at the reporting date $ (6,019) $ 4,201 $ (29,560) $ (14,165) The carrying value of the investment in Consensus common stock as of September 30, 2023 was $26.0 million, or approximately 0.8% of the Company’s consolidated total assets. A $2.00 increase or decrease in the share price of Consensus common stock would result in an unrealized gain or loss, respectively, of approximately $2.1 million. -43- Foreign Currency Risk We conduct business in certain foreign markets, primarily in Canada, the United Kingdom, Australia, the European Union, Japan, New Zealand, and Norway. Our principal exposure to foreign currency risk relates to investment and inter-company debt in foreign subsidiaries that transact business in functional currencies other than the U.S. Dollar, primarily the Canadian Dollar, British Pound Sterling, the Australian Dollar, Euro, Japanese Yen, the New Zealand Dollar, and the Norwegian Kroner. If we are unable to settle our inter-company debts in a timely manner, we remain exposed to foreign currency fluctuations. As we expand our international presence, we become further exposed to foreign currency risk by entering new markets with additional foreign currencies. The economic impact of currency exchange rate movements is often linked to variability in real growth, inflation, interest rates, governmental actions, and other factors. These changes, if material, could cause us to adjust our financing and operating strategies. As currency exchange rates change, translation of the income statements of the international businesses into U.S. Dollars affects year-over-year comparability of operating results. Historically, we have not hedged translation risks because cash flows from international operations were generally reinvested locally; however, we may do so in the future. Our objective in managing foreign exchange risk is to minimize the potential exposure to changes that exchange rates might have on earnings, cash flows, and financial position. During the three months ended September 30, 2023 and 2022, foreign exchange gains amounted to $1.1 million and $3.4 million, respectively. During the nine months ended September 30, 2023 and 2022, foreign exchange (losses) gains amounted to $(0.8) million and $12.3 million, respectively. Cumulative translation adjustments, net of tax, included in other comprehensive loss for the three months ended September 30, 2023 and 2022 were $6.8 million and $24.8 million, respectively, and for the nine months ended September 30, 2023 and 2022, were $0.7 million and $55.3 million, respectively. We currently do not have derivative financial instruments for hedging, speculative, or trading purposes and, therefore, are not subject to such hedging risk. However, we may in the future engage in hedging transactions to manage our exposure to fluctuations in foreign currency exchange rates.