What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-08 compared with 2024-05-09 · 167 added, 95 removed, 199 unchanged (57% of the section changed)

43 unchanged sentences

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

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

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

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

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

Three months ended March 31,

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

2024 2023 2024 2023

Digital Media

11 unchanged sentences

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

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.

For our advertising and performance marketing businesses, net advertising and performance marketing 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 and performance marketing 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,

The following table sets forth certain key operating metrics for our Digital Media advertising and performance marketing business for the three months ended June 30, 2024 and 2023:

Three months ended June 30,

Net advertising and performance marketing revenue retention (1)

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(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.

The following table sets forth certain key operating metrics for our Digital Media and Cybersecurity and Martech subscription and licensing businesses for the three months ended March 31, 2024 and 2023:

Three months ended March 31,

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

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

Three months ended June 30,

2024 2023 (7)

Digital Media

Customers (in thousands) (1)(6)

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Churn rate (4)(5)(6)

(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.

Cybersecurity and Martech

Customers (in thousands) (1)(2)

Average quarterly revenue per customer (3)

$54.25 $51.43

Churn rate (4)

Consolidated Total

Customers (in thousands) (1)(2)(6)

Average quarterly revenue per customer (3)(6)

$41.74 $43.75

Churn rate (4)(5)(6)

(1) Represents the quarterly average of the end of month customer counts.

(2) Resellers within Cybersecurity and Martech segment are counted as one customer when there is not visibility into the number of underlying customers served by the reseller.

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

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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) 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.

(5) Within the Digital Media segment, the churn rate calculation for Ookla includes the sum of the monthly revenue from the specific cancelled agreements in the numerator.

(6) The metric includes the sale of perpetual software licenses, revenue for which is recorded at a point-in time rather than over-time.

(7) Certain prior period key performance metrics in the consolidated 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 March 31, 2023

Three months ended June 30, 2023

Customers (in thousands) 56

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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.

During the six months ended June 30, 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

Following an impairment in 2023 to a reporting unit within the Digital Media reportable segment, there was no excess of reporting unit fair value over the carrying amount.

As such, since this last impairment test, 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.

As of June 30, 2024, this reporting unit had goodwill of approximately $ 79.2 million.

Further, as of June 30, 2024, there was one other reporting unit within the Digital Media reportable segment that had goodwill of approximately $ 98.1 million that may be at risk of impairment.

As of June 30, 2024, there were no other reporting units that have material goodwill at risk of impairment as of the most recent test date.

Results of Operations for the Three and Six Months Ended June 30, 2024

Digital Media

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.

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

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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

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

2024 2023 2024 2023

Revenues $ 320,800 $ 326,016 (1.6)% $ 635,285 $ 633,158 0.3%

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

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 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

Digital Media revenues primarily consist of advertising and performance marketing revenues and subscription and licensing revenues 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 and licensing revenues and “variable” revenues generated from actual usage of our services.

Our revenues decreased during the three months ended June 30, 2024 compared to the prior period primarily due to a $4.7 million decrease in advertising and performance marketing revenue in our Digital Media business and a $4.1 million decrease in subscription and licensing revenue in our Cybersecurity and Martech business, partially offset by a $4.6 million increase in subscription and licensing revenue in our Digital Media business.

Our revenues increased during the six months ended June 30, 2024 compared to the prior period primarily due to a $8.9 million increase in subscription and licensing revenue in our Digital Media business, partially offset by a $4.6 million decrease in advertising and performance marketing revenue in our Digital Media business and a $1.6 million decrease in subscription and licensing revenue in our Cybersecurity and Martech business.

Included in revenue during the three and six months ended June 30, 2024 was $1.5 million and $20.0 million of incremental revenue contributed by businesses acquired in 2023 and 2024.

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

2024 2023 2024 2023

As a percent of revenue 15.0 % 14.9 %

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.

$ 52,590 $ 47,421 10.9% $ 99,657 $ 93,151 7.0%

As a percent of revenues

16.4 % 14.5 % 15.7 % 14.7 %

Direct costs represent the Company’s costs of revenue and primarily include costs associated with compensation for personnel directly involved in revenue generation, content fees, production costs, royalty fees, hosting and licensing costs, processing fees, and depreciation and amortization expense.

The increase in direct costs for the three months ended June 30, 2024 compared to the prior period was primarily due to a $2.4 million increase in web and database hosting fees and a $1.7 million increase in processing fees.

The increase in direct costs for the six months ended June 30, 2024 compared to the prior period was primarily due to a $5.0 million increase in web and database hosting fees, a $2.8 million increase in processing fees, and a $1.2 million increase in campaign fulfillment fees, partially offset by $1.8 million decrease in depreciation and amortization expense.

Sales and Marketing

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

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

2024 2023 2024 2023

Sales and marketing

$ 124,766 $ 119,934 4.0% $ 241,766 $ 235,854 2.5%

As a percent of revenue 37.2 % 37.7 %

As a percent of revenues

38.9 % 36.8 % 38.1 % 37.3 %

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 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.

The increase in sales and marketing expenses during the three months ended June 30, 2024, compared to the prior period was primarily due to a $2.7 million increase in personnel-related expenses and a $1.5 million increase in expenses for software purchases.

The increase in sales and marketing expenses during the six months ended June 30, 2024 compared to the prior period was primarily due to a $4.9 million increase in personnel-related expenses and a $2.9 million increase in expenses for software purchases, partially offset by a $2.1 million decrease in advertising and marketing expenses.

Research, Development, and Engineering

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

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

2024 2023 2024 2023

Research, development, and engineering

$ 16,795 $ 17,817 (5.7)% $ 34,569 $ 35,731 (3.3)%

As a percent of revenue 5.7 % 5.8 %

As a percent of revenues

5.2 % 5.5 % 5.4 % 5.6 %

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

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.

The decrease in research, development, and engineering costs for the three months ended June 30, 2024, compared to the prior period was primarily due to a $1.1 million decrease in personnel-related costs as a result of an increase in capitalized costs related to the nature of the projects during the second quarter of 2024 compared to 2023.

The decrease in research, development, and engineering costs for the six months ended June 30, 2024 compared to the prior period was primarily due to a $0.8 million decrease in personnel-related expenses.

General, Administrative, and Other Related Costs

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

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

2024 2023 2024 2023

General, administrative, and other related costs

$ 98,080 $ 101,949 (3.8)% $ 194,863 $ 203,212 (4.1)%

As a percent of revenue 30.8% 33.0%

As a percent of revenues

30.6 % 31.3 % 30.7 % 32.1 %

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.

The decrease in general, administrative, and other related costs for the three months ended June 30, 2024 compared to the prior period was primarily due to a $6.1 million decrease in expense from changes in estimated amounts of deferred acquisition payments related to previously acquired businesses, and a $4.5 million decrease in depreciation and amortization expense, partially offset by a $3.8 million increase in personnel-related expenses.

The decrease in general, administrative, and other related costs for the six months ended June 30, 2024 compared to the prior period was primarily due to a $9.0 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 March 31,

The following table presents 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,

2024 2023 2024 2023

Direct costs $ 62 $ 94 $ 123 $ 170

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General, administrative, and other related costs

9,374 7,127 16,337 13,746

Total share-based compensation expense $ 11,600 $ 9,217 $ 20,472 $ 17,619

Non-Operating Income and Expenses

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

The following table represents the components of non-operating income and expenses for the three and six months ended June 30, 2024 and 2023 (in thousands):

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

2024 2023 2024 2023

Interest expense, net $ (1,804) $ (10,483) 82.8 % $ (3,573) $ (14,963) 76.1 %

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Unrealized loss on short-term investments held at the reporting date, net — (3,196) 100.0 % (10,705) (23,541) 54.5 %

Gain on investments, net

— 357 100.0 %

Other loss, net

(104) (908) (88.5) %

Total non-operating expense

Gain on investments

3,051 — 100.0 % 3,051 357 754.6 %

Other income (loss), net 5,267 (1,503) NM 5,163 (2,411) NM

Total non-operating income (expense)

$ 6,514 $ (15,182) NM $ (9,844) $ (40,558) 75.7 %

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 $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.

Interest expense, net was $1.8 million and $10.5 million for the three months ended June 30, 2024 and 2023, respectively, and $3.6 million and $15.0 million for the six months ended June 30, 2024 and 2023, respectively.

Interest expense, net decreased during the three and six months ended June 30, 2024, compared to the prior periods primarily due to 1) the absence from 2024 results of 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, and 2) 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.

Loss on sale of business during the six months ended June 30, 2024 represents the loss on disposal of an international business 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.

During the three months ended June 30, 2024, the Company sold its remaining investment in Consensus common stock.

Unrealized loss on short-term investment held at the reporting date, net was zero and $3.2 million during the three months ended June 30, 2024 and 2023, respectively.

Unrealized loss on short-term investment held at the reporting date, net was $10.7 million and $23.5 million during the six months ended June 30, 2024 and 2023, respectively.

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

Gain on investments.

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

Gain on investments was $3.1 million and zero during the three months ended June 30, 2024 and 2023, respectively.

Gain on investments was $3.1 million and $0.4 million during the six months ended June 30, 2024 and 2023, respectively.

Gain on investments recorded during the periods presented related to the disposition of Consensus common stock.

Other income (loss), net.

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

Other income (loss), net was $5.3 million and $(1.5) million during the three months ended June 30, 2024 and 2023, respectively, and $5.2 million and $(2.4) million for the six months ended June 30, 2024 and 2023, respectively.

The change was primarily attributable to a reversal of 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.

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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 $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.

Provision for income taxes amounted to income tax expense of $7.0 million and $6.5 million for the three months ended June 30, 2024 and 2023, respectively, and $15.2 million and $5.8 million for the six months ended June 30, 2024 and 2023, respectively.

Our effective tax rate was 19.9% and 27.2% for the three months ended June 30, 2024 and 2023, respectively, and 27.9% and 23.7% for the six months ended June 30, 2024 and 2023, respectively.

The decrease in our effective income tax rate for the three months ended June 30, 2024 compared to the prior period was primarily attributable to the following:

a partial release of the valuation allowance against a portion of our U.

capital loss carryforwards as a result of the sale of our investment in the Consensus common stock, which resulted in a discrete tax benefit of approximately $0.8 million;

a recognition of foreign exchange tax losses on dividends received from the Company’s foreign subsidiaries, which resulted in a discrete tax benefit of $0.4 million.

The increase in our effective income tax rate for the six months ended June 30, 2024 compared to the prior period was primarily attributable to the following:

a recognition of a valuation allowance against a portion of our U.S.

capital loss carryforwards, which resulted in a discrete tax charge of $2.5 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.

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 six months ended June 30, 2024;

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 six months ended June 30, 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

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.

Income (loss) from equity method investment, net.

Income or loss from equity method investment is primarily 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.

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.

Income from equity method investment was $8.8 million, net of income tax, for the three months ended June 30, 2024 compared to loss from equity method investment of $0.6 million, net of income taxes, for the three months ended June 30, 2023.

Income from equity method investment was $8.2 million, net of income taxes, for the six months ended June 30, 2024 compared to loss from equity method investments of $9.8 million, net of income taxes, for the six months ended June 30, 2023, respectively.

The increase in loss from equity method investment, net during the three months ended June 30, 2024 compared to the prior period was primarily due to a greater decline in the value of the underlying investments.

The decrease in loss from equity method investment, net during the six months ended June 30, 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 March 31,

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

2024 2023 2024 2023

Inter-business revenue 19 85

$ 251,816 $ 252,820 $ 490,849 $ 486,946

Inter-business revenues

251,817 252,870 490,869 487,081

Operating costs and expenses 216,798 216,154 424,245 421,896

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$ 35,019 $ 36,716 $ 66,624 $ 65,185

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.

Digital Media’s revenues of $251.8 million for the three months ended June 30, 2024 decreased $1.0 million, or 0.4%, compared to the prior period primarily due to a $4.7 million decline in advertising and performance marketing revenue and a $0.9 million decline in other revenue, partially offset by a $4.6 million increase in subscription and licensing revenue.

The decrease in advertising and performance marketing revenue was due primarily to lower revenue of $6.5 million within the Company’s health and wellness and technology businesses, partially offset by an increase in revenue in the gaming and entertainment business.

The increase in subscription and licensing revenue was due primarily to higher revenue of $4.2 million within the Company’s health and wellness and connectivity businesses.

Digital Media’s revenues of $490.8 million for the six months ended June 30, 2024 increased $3.9 million, or 0.8%, compared to the prior period primarily due to a $8.9 million increase in subscription and licensing revenue, partially offset by a $4.6 million decline in advertising and performance marketing revenue.

The increase in subscription and licensing revenue was due primarily to higher revenue of $8.1 million within the Company’s health and wellness and connectivity businesses.

The decrease in advertising and performance marketing revenue was due primarily to lower revenue of $5.2 million within the Company’s health and wellness businesses.

Digital Media’s operating costs and expenses of $216.8 million for the three months ended June 30, 2024 increased $0.6 million, or 0.3%, 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.

Digital Media’s operating costs and expenses of $424.2 million for the six months ended June 30, 2024 increased $2.3 million, or 0.6%, compared to the prior period primarily due to higher general, administrative, and related costs, offset by lower direct costs and sales and marketing expenses.

As a result of these factors, Digital Media’s operating income of $35.0 million for the three months ended June 30, 2024 decreased $1.7 million, or 4.6%, compared to the prior period.

Digital Media’s operating income of $66.6 million for the six months ended June 30, 2024 increased $1.4 million, or 2.2%, compared to the prior period.

Cybersecurity and Martech

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

Three months ended March 31,

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

2024 2023 2024 2023

Inter-business revenue — —

$ 68,984 $ 73,196 $ 144,436 $ 146,212

Inter-business revenues

68,984 73,196 144,436 146,212

Operating costs and expenses 57,437 59,679 113,480 121,092

Operating income $ 11,547 $ 13,517 $ 30,956 $ 25,120

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%.

Cybersecurity and Martech’s revenues of $69.0 million for the three months ended June 30, 2024 decreased $4.2 million, or 5.8%, compared to the prior period.

The decrease of $4.2 million was driven by lower revenue of approximately $3.7 million within the Company’s cybersecurity business due primarily to lower revenue from the Company’s consumer privacy services during the three months ended June 30, 2024, as compared to the prior period.

Cybersecurity and Martech’s revenues of $144.4 million for the six months ended June 30, 2024 decreased $1.8 million, or 1.2%, compared to the prior period.

The decrease of $1.8 million was driven by lower revenue of approximately $1.1 million within the Company’s cybersecurity business and $0.7 million within the Company’s martech business during the six months ended June 30, 2024, as compared to the prior period.

Cybersecurity and Martech’s operating costs and expenses of $57.4 million for the three months ended June 30, 2024 decreased $2.2 million, or 3.8% compared to the prior period primarily due to lower general, administrative, and related costs, partially offset by higher sales and marketing expenses.

Cybersecurity and Martech’s operating costs and expenses of $113.5 million for the six months ended June 30, 2024 decreased $7.6 million, or 6.3%, 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 $11.5 million for the three months ended June 30, 2024 decreased $2.0 million, or 14.6%.

Cybersecurity and Martech’s operating income of $31.0 million for the six months ended June 30, 2024 increased $5.8 million, or 23.2%.

Liquidity and Capital Resources

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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.

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

Cash, Cash Equivalents, and Investments

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

March 31, 2024 December 31, 2023

June 30, 2024 December 31, 2023

Cash and cash equivalents $ 687,234 $ 737,612

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Cash, cash equivalents and investments $ 839,655 $ 905,627

$ 891,147 $ 905,627

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

March 31, 2024 December 31, 2023

June 30, 2024 December 31, 2023

Cash, cash equivalents and investments held in domestic jurisdiction $ 703,867 $ 742,010

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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.

On June 18, 2024, the Company entered into a New Lender Joinder Agreement and Eighth Amendment (the “Joinder and Amendment”) to the Credit Agreement.

The Joinder and Amendment provides for, among other things, (i) an increase in the Aggregate Revolving Loan Commitment by an aggregate principal amount of $250.0 million for a total of $350.0 million credit agreement, (ii) an extension of the scheduled maturity date from April 7, 2026 to the earlier of (x) June 18, 2027 and (y) under certain limited circumstances, August 2, 2026, (iii) a “credit spread adjustment” for SOFR-based borrowings of 0.10% across all interest period tenors, (iv) the inclusion of limited conditionality borrowing mechanics with respect to certain borrowings and (v) certain other related amendments.

As of June 30, 2024 and December 31, 2023, there were no amounts drawn under the Credit Agreement.

On July 16, 2024, the Company issued $263.1 million in aggregate principal amount of new 3.625% Convertible Notes due 2028 (the “3.625% Convertible Notes”) and paid an aggregate of approximately $135.0 million in cash in exchange for approximately $400.9 million in aggregate principal amount of the Company’s 1.75% Convertible Notes (collectively, the “Exchange Transaction”) pursuant to separate, privately negotiated exchange agreements with certain holders of the 1.75% Convertible Notes.

The Company also paid outstanding and accrued interest on the exchanged 1.75% Convertible Notes.

The 3.625% Convertible Notes bear interest at a rate of 3.625% per annum on the principal amount thereof, payable semi-annually in arrears on September 1 and March 1 of each year, beginning on March 1, 2025, to the noteholders of record of the 3.625% Convertible Notes as of the close of business on the immediately preceding August 15 and February 15, respectively.

The 3.625% Convertible Notes will mature on March 1, 2028, unless earlier converted or repurchased.

The 3.625% Convertible Notes can be settled in cash, the Company’s common stock, or a combination of cash and the Company’s common stock, at $0.01 par value per share, at the Company’s election.

See Note 16 – Subsequent Events in Part I Item 1 of this Quarterly Report on Form 10-Q.

Material Cash Requirements

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.

Ziff Davis’ long-term contractual obligations generally include its long-term debt as described in Note 7 – Debt in Part I Item 1 of this Quarterly Report on Form 10-Q, 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.

As of June 30, 2024, we and our subsidiaries had outstanding $1.0 billion in aggregate principal amount of indebtedness.

As of June 30, 2024, our total future minimum lease payments are $25.8 million of which approximately $12.0 million future minimum lease payments are due in the succeeding twelve months.

As of June 30, 2024, our liability for uncertain tax positions was $37.1 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.

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

Three months ended March 31, Change

Six months ended June 30, Change

Net cash provided by operating activities $ 126,122 $ 155,035 $ (28,913)

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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 $28.9 million decrease in net cash provided by operating activities during the six months ended June 30, 2024 compared to the prior period was primarily related to the timing of collections from our customers and increased payments to our vendors during the current period, partially offset by a reduction in prepaid expenses during the current period.

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

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Investing Activities

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.

The $17.8 million increase in net cash used in investing activities during the six months ended June 30, 2024 compared to the prior period was primarily related to higher cash used on business acquisitions during the six months ended June 30, 2024 compared to the 2023 period, partially offset by proceeds received on the sale of our investment in Consensus common stock and proceeds received related to the sale of disposed businesses.

Financing Activities

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.

The $27.1 million increase in net cash used in financing activities during the six months ended June 30, 2024 compared to the prior period was primarily related to increased share repurchases.

Stock Repurchase Program

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

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

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

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.

A summary of share repurchases under the 2020 Program during the six months ended June 30, 2024 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, 2024

1,500,000 $84,910 3,241,308

(1) Includes the impact of excise taxes.

Cumulatively as of June 30, 2024, 6,758,692 shares have been repurchased under the 2020 Program, at an aggregate cost of $486.7 million (including excise tax).

These shares were subsequently retired.

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

On August 2, 2024, the Board authorized an increase in the 2020 Program for an additional 5 million shares of the Company’s common stock and an extension of the expiration date of the 2020 Program from August 6, 2025 to August 2, 2029.

As a result, the aggregate number of shares of the Company’s common stock under the 2020 Program increased from up to 10 million shares to up to 15 million shares of the Company’s common stock, with 8,241,308 shares remaining under the 2020 Program as of August 2, 2024.

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