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Item 2. Management’s Discussion and Analysis

2024-05-09 compared with 2023-11-09 · 154 added, 187 removed, 140 unchanged (71% of the section changed)

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Forward-Looking Information

In addition to historical information, we have also made forward-looking statements in this report.

In addition to historical information, certain statements included in this Quarterly Report on Form 10-Q may be forward-looking statements, including statements regarding the intent, belief or current expectations of the Company.

These statements may include those concerning our possible or assumed future results of operations, business, strategy and current and future acquisitions, as well as the assumptions on which such statements are based.

These statements are based on our estimates and assumptions and are subject to risks and uncertainties.

Forward-looking statements include the information concerning our possible or assumed future results of operations.

Forward-looking statements also include those preceded or followed by the words “anticipates,” “believes,” “estimates,” “hopes” or similar expressions.

Forward-looking statements generally are identified by use of the words “anticipates,” “believes,” “estimates,” “hopes,” “may,” “will,” “seeks,” “protects,” “potential,” “predicts,” “expects,” “plans,” “intends,” “would,” “could,” “should,” or similar expressions, although not all forward-looking statements contain these identifying words.

For those statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including but not limited to those discussed below, the risk factors discussed in Part II, Item 1A - “Risk Factors” of this Quarterly Report on Form 10-Q (if any) and in Part I, Item 1A - “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022 (together, the “Risk Factors”), and the factors discussed in the section in this Quarterly Report on Form 10-Q entitled “Quantitative and Qualitative Disclosures About Market Risk.” Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s opinions only as of the date hereof.

We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements.

Readers should carefully review the Risk Factors and the risk factors set forth in other documents we file from time to time with the SEC.

Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including but not limited to those discussed below, the risk factors discussed in Part II, Item 1A - “Risk Factors” of this Quarterly Report on Form 10-Q (if any) and in Part I, Item 1A - “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023 (together, the “Risk Factors”), the factors discussed in Part I, Item 3 in this Quarterly Report on Form 10-Q entitled “Quantitative and Qualitative Disclosures About Market Risk” and any risks and uncertainties identified in our other filings with the SEC, as such risks, uncertainties and other important factors may be updated from time to time in our subsequent reports.

Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s opinions and speak only as of the date they are made.

We undertake no obligation to revise, update or publicly release the results of any revision to these forward-looking statements to reflect changed assumptions, new information or the occurrence of unanticipated events, unless required by law.

Some factors that could cause actual results to differ materially from those anticipated in these forward-looking statements include, but are not limited to, our ability and intention to:

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◦ Generate sufficient cash flow to make interest and debt payments, reinvest in our business, and pursue desired activities and businesses plans while satisfying restrictive covenants relating to debt obligations;

◦ Acquire businesses on acceptable terms and successfully integrate and realize anticipated synergies from such acquisitions;

◦ Acquire businesses on acceptable terms, execute on our investment strategies, successfully manage our growth, and integrate and realize anticipated synergies from such acquisitions;

◦ Continue to expand our businesses and operations internationally in the wake of numerous risks, including adverse currency fluctuations, difficulty in staffing and managing international operations, higher operating costs as a percentage of revenues, or the implementation of adverse regulations;

◦ Maintain our financial position, operating results and cash flows in the event that we incur new or unanticipated costs or tax liabilities, including those relating to federal and state income tax and indirect taxes, such as sales, value-added, and telecommunication taxes;

◦ Manage certain risks related to the unauthorized use of our content and the infringement of our intellectual property rights by developers and users of generative artificial intelligence (“AI”);

◦ Prevent system failures, security breaches, and other technological issues;

◦ Accurately estimate the assumptions underlying our effective worldwide tax rate;

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

◦ Maintain favorable relationships with critical third-party vendors that are financially stable;

◦ 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;

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effectively maintaining and managing our billing systems;

time and resources required to manage our legal proceedings;

the time and resources required to

manage our legal proceedings;

liability for legal and other claims;

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

◦ Successfully manage our growth, including but not limited to our operational and personnel-related resources, and integration of newly acquired businesses;

◦ Successfully adapt to technological changes and diversify services and related revenues at acceptable levels of financial return;

◦ Successfully develop and protect our intellectual property, both domestically and internationally, including our brands, patents, trademarks and domain names, and avoid infringing upon the proprietary rights of others;

◦ Successfully develop and protect our intellectual property, both domestically and internationally, including our brands, content, copyrights, patents, trademarks, and domain names from infringement by third parties, and avoid infringing upon the proprietary rights of others;

◦ Manage certain risks associated with environmental, social, and governmental matters, including related reporting obligations, that could adversely affect our reputation and performance;

◦ Recruit and retain key personnel.

◦ Recruit and retain key personnel and maintain the beneficial aspects of our corporate culture globally;

◦ Meet our publicly announced guidance or other expectations about our business and future operating results;

◦ Avoid disruptions to our operations, financial position, and reputation as a result of the collapse of certain banks and potentially other financial institutions.

In addition, other factors that could cause actual results to differ materially from those anticipated in these forward-looking statements or materially impact our financial results include the risks associated with new accounting pronouncements, as well as those associated with natural disasters, public health crises, pandemics, and other catastrophic events outside of our control.

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was incorporated in 2014 as a Delaware corporation through the creation of a holding company structure.

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.

Our Digital Media business specializes in the technology, shopping, gaming and entertainment, connectivity 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.

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

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

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

Performance Metrics

Revenue Overview

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

Three months ended

September 30,

Nine months ended

September 30,

2023 2022 2023 2022

Three months ended March 31,

Digital Media

Advertising $ 183,008 $ 186,921 $ 514,173 $ 546,186

Subscription 71,858 64,780 209,167 179,257

Advertising and performance marketing $ 156,096 $ 156,082

Subscription and licensing

73,467 69,148

Other 9,489 8,981

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Cybersecurity and Martech

Subscription $ 73,051 $ 78,192 $ 219,263 $ 237,596

Subscription and licensing $ 75,452 $ 73,016

Total Cybersecurity and Martech revenues $ 75,452 $ 73,016

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Total Revenues $ 314,485 $ 307,142

Performance Metrics

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

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

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

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

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

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

Three months ended September 30,

Net advertising revenue retention (1)

Advertisers (2)

Quarterly revenue per advertiser (3)

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

Similarly, we monitor the number of our customers and the revenue per customer, as defined below, as these metrics provide further details related to our reported revenue and contribute to certain of our business planning decisions.

The following table sets forth certain key operating metrics for our Digital Media advertising and performance marketing business for the three months ended March 31, 2024 and 2023:

Three months ended March 31,

Net advertising and performance marketing revenue retention (1)

Customers (2)

Quarterly revenue per customer (3)

$95,695 $89,857

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

This excludes advertisers that generated less than $10,000 of revenue in the measurement period.

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

(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 September 30, 2023 and 2022:

Three months ended September 30,

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

This excludes customers that generated less than $10,000 of revenue in the measurement period.

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

(3) Represents total gross quarterly advertising and performance marketing revenues divided by customers as defined in footnote (2).

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

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

Three months ended March 31,

2024 2023 (4)

Subscribers (in thousands) (1)

Average quarterly revenue per subscriber (2)

Customers (in thousands) (1)

Average quarterly revenue per customer (2)

$44.55 $44.78

Churn rate (3)

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

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

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

(2) Represents quarterly subscription revenues divided by subscribers in the table above.

(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;

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

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

Resellers without visibility into the number of underlying customers served by the reseller are counted as one customer.

(2) Represents quarterly gross subscription and licensing revenues divided by customers as defined in footnote (1).

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

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

For Ookla, the churn rate calculation included in the consolidated churn rate calculation includes the sum of the monthly revenue from the specific cancelled agreements in the numerator.

(4) Key operating metrics in prior periods in the table above have been adjusted for our Cybersecurity and Martech business as a result of gaining greater transparency on a reseller relationship enabling us to identify the underlying subscribers.

Further, additional adjustments have been made to subscribers in the Cybersecurity and Martech business to further conform to the Company’s subscriber definition.

(4) Certain prior period key performance metrics in the table above have been adjusted for our Cybersecurity and Martech segment as a result of gaining greater transparency into a reseller relationship enabling us to identify the underlying customers and for our Digital Media segment to remove certain subscribers who have paused their subscription for more than one month and to include certain subscribers that are within the estimated active usage period of a lifetime subscription.

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

Three months ended September 30, 2022

Subscribers (in thousands) 96

Average quarterly revenue per subscriber $ (1.42)

Three months ended March 31, 2023

Customers (in thousands)

Average quarterly revenue per customer

Churn rate 0.02 %

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Actual results could differ significantly from those estimates under different assumptions and conditions.

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 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.

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

Our critical accounting policies are described in our 2023 Annual Report on Form 10-K filed with the SEC on February 26, 2024.

During the three months ended March 31, 2024, there were no significant changes in our critical accounting policies and estimates.

See Note 1 — Basis of Presentation and Overview in Item 1 of Part I of this Quarterly Report on Form 10-Q for additional description of significant accounting policies of the Company.

Results of Operations for the Three Months Ended March 31, 2024

Digital Media

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.

We expect our 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.

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

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.

however, for a number of reasons, including 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 with different business models, may impact Digital Media’s overall operating profit margins.

Cybersecurity and Martech

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

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

2023 2022 2023 2022

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

(in thousands, except percentages) Three months ended March 31, Percentage Change

Revenues $ 314,485 $ 307,142 2.4%

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

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.

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

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

Our revenues 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 September 30, Percentage Change Nine months ended September 30, Percentage Change

2023 2022 2023 2022

Cost of Revenue

Our revenues increased during the three months ended March 31, 2024 compared to the prior period primarily due to a $4.3 million increase in subscription and licensing revenue in our Digital Media business and a $2.5 million increase in subscription and licensing revenue in our Cybersecurity and Martech business.

Included in revenue during the three months ended March 31, 2024 was $7.8 million of incremental revenue contributed by businesses acquired in 2023 and 2024.

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.

(in thousands, except percentages) Three months ended March 31, Percentage Change

$ 47,067 $ 45,730 2.9%

As a percent of revenue 15.0 % 14.9 %

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 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.

Direct costs primarily consist of costs associated with content fees, production costs, royalty fees, and hosting costs.

The increase in direct costs for the three months ended March 31, 2024 compared to the prior period was primarily due to a $2.7 million increase in web and database hosting fees and a $1.1 million increase in merchant fees, partially offset by a $1.4 million decrease in depreciation and amortization costs and a $0.9 million decrease in advertising inventory costs.

Sales and Marketing

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

2023 2022 2023 2022

(in thousands, except percentages) Three months ended March 31, Percentage Change

Sales and marketing

$ 117,000 $ 115,920 0.9%

As a percent of revenue 37.2 % 37.7 %

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

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.

The increase in sales and marketing expenses during the three months ended March 31, 2024, compared to the prior period was primarily due to $2.1 million higher personnel-related expenses and $1.4 million higher expenses for software purchases, partially offset by $2.7 million lower marketing expenses.

Research, Development, and Engineering

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

2023 2022 2023 2022

(in thousands, except percentages) Three months ended March 31, Percentage Change

Research, development, and engineering

$ 17,774 $ 17,914 (0.8)%

As a percent of revenue 5.7 % 5.8 %

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

The decrease in research, development, and engineering costs for the three months ended March 31, 2024, compared to the prior period was primarily due to lower personnel related costs due primarily to an increase in capitalized costs related to the nature of the projects in 2024 compared to 2023, partially offset by an increase in related consulting and professional fees.

General, Administrative, and Other Related Costs

(in thousands, except percentages) Three months ended March 31, Percentage Change

General, administrative, and other related costs

$ 96,783 $ 101,263 (4.4)%

General and Administrative $ 99,269 $ 95,658 3.8% $ 302,481 $ 299,842 0.9%

As a percent of revenue 30.8% 33.0%

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

The increase in general and administrative expense for the three and nine months ended September 30, 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.

Our general, administrative, and other related 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, administrative, and other related costs for the three months ended March 31, 2024 compared to the prior period was primarily due to a $4.6 million decrease in depreciation and amortization expense.

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 September 30, Nine months ended September 30,

2023 2022 2023 2022

Cost of revenues $ 76 $ 63 $ 246 $ 289

Three months ended March 31,

Direct costs $ 61 $ 76

Sales and marketing 758 924

Research, development, and engineering 1,090 783

General and administrative 5,535 4,984 19,281 16,022

General, administrative, and other related costs

Total share-based compensation expense $ 8,872 $ 8,402

Non-Operating Income and Expenses

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

The following table represents the components of non-operating income and expenses for the three months ended March 31, 2024 and 2023 (in thousands):

Three months ended March 31, Percentage Change

Interest expense, net $ (1,769) $ (4,480) (60.5) %

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

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

Loss on sale of businesses (3,780) — (100%)

Unrealized loss on short-term investments held at the reporting date, net (10,705) (20,345) (47.4) %

Gain on investments, net

— 357 100.0 %

Gain (loss) on investments, net

Other loss, net

(104) (908) (88.5) %

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

Total non-operating (expense) income

Total non-operating expense

$ (16,358) $ (25,376) (35.5) %

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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 $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 $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”).

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, 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.

Interest expense, net was $1.8 million and $4.5 million for the three months ended March 31, 2024 and 2023, respectively.

Interest expense, net decreased

during the three months ended March 31, 2024, compared to the prior period primarily due to higher interest income as a result of higher interest rates.

Loss on sale of business .

Loss on sale of business during the three months ended March 31, 2024 represents the loss on disposal of an international asset at Digital Media within the shopping vertical.

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 $10.7 million and $20.3 million during the three months ended March 31, 2024 and 2023, respectively.

The unrealized loss recorded during the periods presented represents the change in fair value of our investment in Consensus common stock.

Gain on investments, net.

Gain on investments, net is generated from gains from investments in equity and debt securities.

Gain on investments, net was zero and $0.4 million during the three months ended March 31, 2024 and 2023, respectively.

Gain on investments, net recorded during the first quarter of 2023 was related to the disposition of Consensus common stock.

Other loss, net.

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

Other loss, net was $0.1 million and $0.9 million during the three months ended March 31, 2024 and 2023, respectively.

The decrease during the three months ended March 31, 2024 compared to the prior period was primarily attributable 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.

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

Provision for income taxes amounted to 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

an increase in our effective income tax rate during 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.

Provision for income taxes amounted to income tax expense of $8.2 million and income tax benefit of $0.6 million for the three months ended March 31, 2024 and 2023, respectively.

Our effective tax rate was 42.2% and (65.6)% for the three months ended March 31, 2024 and 2023, respectively.

The increase in our effective income tax rate for the three months ended March 31, 2024 compared to the prior period was primarily attributable to the following:

an increase in our effective income tax rate during 2024 due to the recognition of a valuation allowance against a portion of our U.S.

capital loss carryforwards, which resulted in a discrete tax charge of $3.2 million;

an increase in our effective income tax rate due to a decrease in the amount of unrealized losses recognized on our investment in Consensus common stock, which resulted in a lower tax benefit during the three months ended March 31, 2024;

an increase in our effective income tax rate during 2024 due to a $1.0 million tax benefit recognized in 2023 related to the release of reserves for uncertain tax positions with no similar event during the three months ended March 31, 2024.

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

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Equity Method Investment

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.

Loss from equity method investment, net.

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

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

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.

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.

Loss from equity method investment was $0.6 million and $9.2 million, net of tax benefit, for the three months ended March 31, 2024 and 2023, respectively.

The decrease in loss from equity method investment, net during the three months ended March 31, 2024 compared to the prior period was primarily due to a smaller decline in the value of the underlying investments.

Digital Media and Cybersecurity and Martech Results

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

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

Three months ended March 31,

$ 239,033 $ 234,126

External revenue $ 267,934 $ 263,684 $ 754,880 $ 756,722

Inter-business revenue 19 85

Total revenue 267,951 263,896 755,032 757,423

239,052 234,211

Operating costs and expenses 207,447 205,742

Operating (loss) income

Operating income

$ 31,605 $ 28,469

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.

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.

Digital Media’s net sales of $239.0 million for the three months ended March 31, 2024 increased $4.9 million, or 2.1%, compared to the prior period primarily due to $7.8 million of incremental revenue contributed by businesses acquired in 2023 and 2024, partially offset by an organic decline in other businesses.

Digital Media’s operating costs and expenses of $207.4 million for the three months ended March 31, 2024 increased $1.7 million, or 0.8%, compared to the prior period primarily due to higher direct costs and sales and marketing expenses, partially offset by lower general, administrative, and related costs.

As a result of these factors, Digital Media’s operating income of $31.6 million for the three months ended March 31, 2024 increased $3.1 million, or 11.0%, compared to the prior period.

Cybersecurity and Martech

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

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

Three months ended March 31,

$ 75,452 $ 73,016

External revenue $ 73,051 $ 78,190 $ 219,263 $ 237,576

Inter-business revenue — —

Total revenue 73,051 78,192 219,263 237,596

75,452 78,192

Operating costs and expenses 56,043 61,413

Operating income $ 19,409 $ 16,779

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%.

Cybersecurity and Martech’s net sales of $75.5 million for the three months ended March 31, 2024 increased $2.4 million, or 3.3%, compared to the prior period primarily due to the realization of functional intellectual property revenue in certain businesses during the period.

Cybersecurity and Martech’s operating costs and expenses of $56.0 million for the three months ended March 31, 2024 decreased $5.4 million, or 8.7% compared to the prior period primarily due to lower general, administrative, and related costs and direct costs.

As a result of these factors, Cybersecurity and Martech’s operating income of $19.4 million for the three months ended March 31, 2024 increased $2.6 million, or 15.7%.

Liquidity and Capital Resources

Our primary sources of liquidity and capital resources are cash flows from operations and debt financing.

We continue to invest in the development and expansion of our operations using available cash flows from operations.

Ongoing investments include, but are not limited to, improvements in our offerings, investments in new products and services, acquisitions, and continued investments in sales and marketing.

We also use cash flows from operations to service our debt obligations and the repurchase of our shares.

Cash, Cash Equivalents, and Investments

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

September 30, 2023 December 31, 2022

March 31, 2024 December 31, 2023

Cash and cash equivalents $ 734,779 $ 737,612

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Long-term investments 139,964 140,906

Cash, cash equivalents and investments

$ 891,147 $ 905,627

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

September 30, 2023 December 31, 2022

March 31, 2024 December 31, 2023

Cash, cash equivalents and investments held in domestic jurisdiction $ 712,072 $ 742,010

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Cash, cash equivalents and investments $ 891,147 $ 905,627

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 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.

For information on short-term and long-term investments of the Company, refer to Note 4 — Investments in Part I Item 1 of this Quarterly Report on Form 10-Q for further details.

As of March 31, 2024 and December 31, 2023, there were no amounts drawn under the Credit Agreement.

Material Cash Requirements

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.

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

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

These long-term contractual obligations extend through 2031.

As of March 31, 2024, we and our subsidiaries had outstanding $1.0 billion in aggregate principal amount of indebtedness.

As of March 31, 2024, our total future minimum lease payments are $27.9 million of which approximately $12.8 million future minimum lease payments are due in the succeeding twelve months.

As of March 31, 2024, our liability for uncertain tax positions was $36.6 million.

In the ordinary course of business, the Company enters into commitments including those related to cloud computing, information technology, security, and information and document management.

The Company also has revenue sharing arrangements with annual minimum guarantees based upon third-party website advertising metrics and other contractual provisions.

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 share repurchases, if any, for at least the next 12 months.

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

Nine months ended September 30, Change

Three months ended March 31, Change

Net cash provided by operating activities $ 75,558 $ 115,307 $ (39,749)

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Operating Activities

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 $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.

Our net cash provided by operating activities 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 $39.7 million decrease in net cash provided by operating activities during the three months ended March 31, 2024 compared to the prior period was primarily related to increased payments to our vendors during the current period, partially offset by an increase in collections from our customers.

The decrease in net cash provided by operating activities includes the activities of TDS Gift Cards (“TDS”) from the date of the acquisition.

TDS negatively impacted the Company’s net cash provided by operating activities by $39.1 million.

Investing Activities

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.

The $32.7 million increase in net cash used in investing activities during the three months ended March 31, 2024 compared to the prior period was primarily related to higher cash used on business acquisitions during the three months ended March 31, 2024 compared to the 2023 period, partially offset by proceeds received on the sale of an international asset at Digital Media within the shopping vertical and lower expenditures on property and equipment.

Financing Activities

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.

The $3.2 million decrease in net cash used in financing activities during the three months ended March 31, 2024 compared to the prior period was primarily related to lower payments made in connection with previously acquired businesses.

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 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 September 30, 2023

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

(1) Includes the impact of excise taxes.

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.

During the three months ended March 31, 2024, no shares were repurchased under the 2020 Program.

As a result of the repurchases, to date, the number of shares of the Company’s common stock available for purchase under the 2020 Program as of March 31, 2024 was 4,741,308 shares.

Refer to Note 10 — Stockholders’ Equity in Item 1 of Part I of this Quarterly Report on Form 10-Q for further details.

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