What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-11-08 compared with 2024-08-08 · 139 added, 130 removed, 236 unchanged (53% of the section changed)

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◦ Sustain growth or profitability, particularly in light of an uncertain U.S.

or worldwide economy, including the possibility of an economic downturn or recession, continuing inflation, supply chain disruptions, and other factors and their related impacts on customer acquisition and retention rates, customer usage levels, and credit and debit card payment declines;

◦ Maintain and increase our customer base and average revenue per user;

or worldwide economy, including the possibility of an economic downturn or recession, global conflicts, continuing inflation, elevated interest rates, supply chain disruptions, and other factors and their related impacts on customer acquisition and retention rates, customer usage levels, and credit and debit card payment declines;

◦ Maintain and increase our customer base and average revenue per customer;

◦ 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;

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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 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.

Our Digital Media business is driven primarily by advertising and performance marketing 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 and licensing revenues with relatively stable and predictable margins from quarter to quarter.

In addition to growing our business organically, on a regular basis we acquire businesses to grow our customer bases, expand and diversify our service offerings, enhance our technologies, acquire skilled personnel, and enter into new markets.

We continue to pursue additional acquisitions, which may include companies operating under business models that differ from those we operate under today.

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

Such acquisitions could impact our consolidated results.

Revenue Overview

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

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

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

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

2024 2023 2024 2023

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

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 June 30, 2024 and 2023:

Three months ended June 30,

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

Three months ended September 30,

Net advertising and performance marketing revenue retention (1)

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The average quarterly 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 June 30, 2024 and 2023:

Three months ended June 30,

Three months ended September 30,

2024 2023 (7)

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(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.

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

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

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(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.

(6) 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.

(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 June 30, 2023

Three months ended September 30, 2023

Customers (in thousands) 69

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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 six months ended June 30, 2024, there were no significant changes in our critical accounting policies and estimates.

During the nine months ended September 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.

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.

During the three and nine months ended September 30, 2024, the Company reassessed the fair value of certain reporting units within the Digital Media and Cybersecurity and Martech reportable segments as a result of a sustained decline in the Company’s stock price, and forecasted reductions in revenue or earnings before interest, taxes, depreciation, and amortization (“EBITDA”) in certain of its reporting units.

Based on the quantitative fair value test of two reporting units within the Digital Media reportable segment, the carrying value of the reporting units exceeded their fair value, and the Company recorded an impairment of approximately $85.3 million during the three and nine months ended September 30, 2024.

During the three and nine months ended September 30, 2023, the Company reassessed the fair value of certain reporting units within the Digital Media reportable segment as a result of forecasted reduction in revenue and EBITDA in the reporting unit, as well as an increase in interest rates and market volatility that could affect the Company’s assumptions on its discount rates.

Based on the quantitative fair value test, the carrying value of one reporting unit exceeded its fair value, and the Company recorded an impairment of approximately $56.9 million during the three and nine months ended September 30, 2023.

During each period, the fair value of the relevant reporting unit was determined using an equal weighting of an income approach that was based on the discounted estimated future cash flows of the reporting unit and a market approach that uses the guideline public company approach.

We believe the combination of these approaches provides an appropriate valuation because it incorporates the expected cash generation of the reporting unit in addition to how a third-party market participant would value the reporting unit based on public and private market information.

As each business is assumed to continue in perpetuity, the discounted future cash flows include a terminal value.

Determining fair value using a discounted estimated future cash flow analysis requires the exercise of significant judgment with respect to several items, including the amount and timing of expected future cash flows and appropriate discount rates.

The expected cash flows used in the discounted cash flow analyses were based on the most recent forecast for the reporting unit.

For years beyond the forecast period, the estimates were based, in part, on forecasted growth rates.

The discount rate the Company used represents the estimated weighted average cost of capital, which reflects the overall level of inherent risk involved in its reporting unit operations and the rate of return a market participant would expect to earn.

Determining fair value using a market approach considers multiples of financial metrics based on trading multiples of a selected peer group of companies.

From the comparable companies, a representative market multiple is determined, which is applied to financial metrics to estimate the fair value of the reporting unit.

Following the impairments at two reporting units during the three and nine months ended September 30, 2024, there was no excess of fair value over the carrying value at those reporting units.

So any further decrease in estimated fair value of these two reporting units will result in an additional impairment charge to goodwill.

Further, as of September 30, 2024, there was one additional reporting unit within the Digital Media reportable segment that may be at risk of impairment.

In total, goodwill for these three reporting units was $498.4 million as of September 30, 2024.

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

Results of Operations for the Three and Nine Months Ended September 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, data, content, and editorial assets into subscription platforms.

We expect our Digital Media business to improve as we integrate our recent acquisitions and grow over the longer term as advertising and performance marketing transactions continue to shift from offline to online, and we continue to expand our related platforms.

The main focus of our platform monetization programs is to provide relevant and useful advertising and performance marketing to visitors to our websites, provide meaningful content that informs and shapes purchase intent, and leverage our brand, data, content, 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.

The operating margin we realize on revenues generated from ads placed on our websites is significantly higher than the operating margin we realize from revenues generated from those placed on third-party websites.

Growth in advertising revenues from our websites has generally exceeded that from third-party websites.

Growth in advertising and performance marketing revenues from our websites has generally exceeded that from third-party websites.

This trend has generally had a positive impact on our operating margins.

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

(in thousands, except percentages)

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

2024 2023 2024 2023

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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 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.

Digital Media revenues primarily consist of advertising and performance marketing revenues and subscription and licensing revenues.

Advertising and performance marketing revenues are earned from the delivery of advertising services on websites that are owned and operated by us or on those websites that are part of Digital Media’s advertising network, from fees paid for generating business leads, and other related products and services.

Subscription and licensing revenues are primarily earned through the granting of access to, or delivery of, certain data products or services to customers 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

Our revenues increased during the three months ended September 30, 2024 compared to the prior period primarily due to a $10.6 million increase in advertising and performance marketing revenue and $5.6 million increase in subscription and licensing revenue in our Digital Media business, partially offset by $3.0 million decrease in subscription and licensing revenue in our Cybersecurity and Martech business.

Our revenues increased during the nine months ended September 30, 2024 compared to the prior period primarily due to a $14.5 million increase in subscription and licensing revenue and a $5.9 million increase in advertising and performance marketing revenue in our Digital Media business, partially offset by a $4.8 million decrease in subscription and licensing revenue in our Cybersecurity and Martech business.

Included in revenue during the three and nine months ended September 30, 2024 was $20.7 million and $40.0 million, respectively, of incremental revenue contributed by businesses acquired in 2024.

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

2024 2023 2024 2023

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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.

The decrease in direct costs for the three months ended September 30, 2024 compared to the prior period was primarily due to a $2.0 million decrease in web hosting fees.

The increase in direct costs for the nine months ended September 30, 2024 compared to the prior period was primarily due to a $3.8 million increase in processing fees and a $2.4 million increase in database hosting fees, partially offset by a $2.3 million decrease in depreciation and amortization.

Sales and Marketing

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

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

2024 2023 2024 2023

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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 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.

Our internet-based advertising relationships consist primarily of fixed cost and performance-based (e.g.

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 September 30, 2024, compared to the prior period was primarily due to a $5.2 million increase in personnel-related expenses, partially offset by a $2.8 million decrease in advertising expenses.

The increase in sales and marketing expenses during the nine months ended September 30, 2024 compared to the prior period was primarily due to a $10.0 million increase in personnel-related expenses and $4.3 million increase in expenses for software purchases, partially offset by a $7.3 million decrease in advertising expenses.

Research, Development, and Engineering

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

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

2024 2023 2024 2023

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

The decrease in research, development, and engineering costs for the three months ended June 30, 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.

The decrease in research, development, and engineering costs for the three months ended September 30, 2024, compared to the prior period was primarily due to a $2.8 million decrease in personnel-related costs as a result of an increase in capitalized costs related to the nature of the projects during the third quarter of 2024 compared to 2023.

The decrease in research, development, and engineering costs for the nine months ended September 30, 2024 compared to the prior period was primarily due to a $3.6 million decrease in personnel-related costs as a result of an increase in capitalized costs related to the nature of the projects during the nine months ended September 30, 2024 compared to 2023.

General, Administrative, and Other Related Costs

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

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

2024 2023 2024 2023

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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 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.

The increase in general, administrative, and other related costs for the three months ended September 30, 2024 compared to the prior period was primarily due to a $3.7 million increase in personnel-related expenses and a $2.1 million increase in legal-related fees, partially offset by a $4.1 million decrease in depreciation and amortization expense.

The decrease in general, administrative, and other related costs for the nine months ended September 30, 2024 compared to the prior period was primarily due to a $13.1 million decrease in depreciation and amortization expense and a $6.1 million decrease in expense from changes in estimated amounts of deferred acquisition payments related to previously acquired businesses, partially offset by a $9.0 million increase in personnel-related expenses and a $5.0 million increase in third-party debt modification costs, acquisition-related fees, and other legal-related fees.

Goodwill Impairment on Business

Goodwill impairment on business was $85.3 million for the three and nine months ended September 30, 2024, respectively, and $56.9 million for the three and nine months ended September 30, 2023, 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 Assets in Part I Item 1 of this Quarterly Report on Form 10-Q for further details.

Share-Based Compensation Expense

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,

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

2024 2023 2024 2023

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Non-Operating Income and Expenses

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

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

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

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

2024 2023 2024 2023

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Loss on sale of businesses — — 0.0% (3,780) — 100%

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

Loss on investments, net — (6,019) (100.0) % (7,654) (29,203) (73.8) %

Other (loss) income, net (2,633) (3,571) (26.3) % 2,530 (5,982) NM

Total non-operating expense

$ (6,657) $ (12,407) (46.3) % $ (16,501) $ (52,965) (68.8) %

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 $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.

Interest expense, net increased during the three months ended September 30, 2024 compared to the prior period primarily due to lower interest income on investments due to a decline in cash equivalents.

Interest expense, net decreased during the nine months ended September 30, 2024 compared to the prior period primarily due to the absence from 2024 results of a non-recurring $7.7 million of interest expense related to the 1.75% Convertible Notes at a rate of 0.50% per annum.

Loss on sale of business .

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.

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.

Loss on sale of business during the nine months ended September 30, 2024 represents the loss on disposal of an international business at Digital Media within the shopping vertical.

Loss on investments, net.

Loss on investments, net is generated from realized and unrealized gains or losses from investments in equity and debt securities.

Loss on investments, net recorded during the periods included the change in the fair value of our investment in Consensus common stock prior to the disposition of the investment and the results of the disposition of Consensus common stock, which occurred during the second quarter of 2024.

Other (loss) income, net.

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

The change was primarily attributable to a reversal of a reserve established in connection with deferred consideration from a buyer of a previously disposed business during the nine months ended September 30, 2024 and 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.

The tax bases of our assets and liabilities reflect our best estimate of the tax benefits and costs we expect to realize.

The tax bases of our assets and liabilities reflect our best estimates of the tax benefits and costs we expect to realize.

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 $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.

Provision for income taxes amounted to income tax expense of $(12.5) million and $(5.3) million for the three months ended September 30, 2024 and 2023, respectively, and $(27.8) million and $(11.2) million for the nine months ended September 30, 2024 and 2023, respectively.

Our effective tax rate was (34.9)% and (20.7)% for the three months ended September 30, 2024 and 2023, respectively, and 149.0% and (1,040.8)% for the nine months ended September 30, 2024 and 2023, respectively.

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

a larger goodwill impairment recognized for book purposes during 2024 as compared to 2023.

For both years, since the impairment related to excess financial statement goodwill with no tax basis, no corresponding tax benefits were recognized;

an increase to tax expense in 2024 due to a discrete tax benefit of $1.8 million recognized during 2023 related to adjusting certain tax attributes with no similar event during 2024;

an increase to tax expense in the third quarter of 2024 due to the absence of a $1.5 million discrete tax benefit recognized in the third quarter of 2023 related to the recognition of unrealized losses related to our investment in Consensus common stock, which was disposed of during the second quarter of 2024.

The change in our effective income tax rate for the nine months ended September 30, 2024 compared to the prior period was primarily attributable to the following:

a larger goodwill impairment recognized for book purposes during 2024 as compared to 2023.

For both years, since the impairment related to excess financial statement goodwill with no tax basis, no corresponding tax benefits were recognized;

an increase in our effective income tax rate due to 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;

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.

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 nine months ended September 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

Income (loss) from equity method investment, net.

(Loss) income from equity method investment, net of income taxes.

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.

The Company recognizes its equity in the net earnings or losses relating to the investment in the OCV Fund on a one-quarter lag due to the timing and availability of financial information from the OCV Fund.

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 $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.

Loss from equity method investment was $0.1 million, net of income tax, for the three months ended September 30, 2024 compared to income from equity method investment of $0.1 million, net of income tax, for the three months ended September 30, 2023.

Income from equity method investment was $8.1 million, net of income tax, for the nine months ended September 30, 2024 compared to loss from equity method investments of $9.7 million, net of income tax, for the nine months ended September 30, 2023.

The decrease in income from equity method investment, net during the three months ended September 30, 2024 compared to the prior period was primarily due to a decline in the value of the underlying investment.

The decrease in loss from equity method investment, net during the nine months ended September 30, 2024 compared to the prior period was primarily due to an increase in the value of the underlying investment between the periods.

Digital Media and Cybersecurity and Martech Results

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

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

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

2024 2023 2024 2023

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Operating costs and expenses 308,309 280,856 732,554 702,752

Operating income

Operating (loss) income

$ (24,742) $ (12,905) $ 41,882 $ 52,280

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.

Digital Media’s revenues of $283.6 million for the three months ended September 30, 2024 increased $15.6 million, or 5.8%, compared to the prior period primarily due to a $10.6 million increase in advertising and performance marketing revenue and a $5.6 million increase in subscription and licensing revenue, partially offset by a $0.6 million decline in other revenue.

The increase in advertising and performance marketing revenue was due primarily to higher revenue of $6.6 million within the Company’s technology business and $4.3 million within the Company’s gaming and entertainment business, both due primarily to acquisitions during 2024.

The increase in subscription and licensing revenue was due primarily to higher revenue of $3.2 million within the connectivity business and $2.2 million within the Company’s health and wellness business.

Digital Media’s revenues of $774.4 million for the nine months ended September 30, 2024 increased $19.5 million, or 2.6%, compared to the prior period primarily due to a $14.5 million increase in subscription and licensing revenue and a $6.0 million increase in advertising and performance marketing revenue, partially offset by a $1.0 million decline in other revenue.

The increase in subscription and licensing revenue was due primarily to higher revenue of $7.3 million within the Company’s connectivity business and $6.3 million within the health and wellness business.

The increase in advertising and performance marketing revenue was due primarily to higher revenue of $7.7 million within the Company’s gaming and entertainment businesses and $6.1 million within the technology business, both due primarily to acquisitions during 2024, partially offset by lower advertising and performance marketing revenue of $7.2 million within the Company’s health and wellness businesses.

Digital Media’s operating costs and expenses of $308.3 million for the three months ended September 30, 2024 increased $27.5 million, or 9.8%, compared to the prior period due to higher goodwill impairment of $28.4 million in the third quarter of 2024 compared to the third quarter of 2023.

Digital Media’s operating costs and expenses of $732.6 million for the nine months ended September 30, 2024 increased $29.8 million, or 4.2%, compared to the prior period primarily due to higher goodwill impairment of $28.4 million in the nine months of 2024 compared to the nine months of 2023 and higher sales and marketing expenses, partially offset by lower research, development, and engineering costs.

As a result of these factors, Digital Media’s operating loss of $24.7 million for the three months ended September 30, 2024 increased $11.8 million, or 91.7%, compared to the prior period.

Digital Media’s operating income of $41.9 million for the nine months ended September 30, 2024 decreased $10.4 million, or 19.9%, compared to the prior period.

Cybersecurity and Martech

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

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

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

2024 2023 2024 2023

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Operating income $ 14,881 $ 12,510 $ 45,837 $ 37,630

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%.

Cybersecurity and Martech’s revenues of $70.0 million for the three months ended September 30, 2024 decreased $3.0 million, or 4.1%, compared to the prior period.

The decrease of $3.0 million was primarily driven by lower revenue of approximately $1.9 million within the Company’s cybersecurity business from the Company’s consumer privacy services.

Cybersecurity and Martech’s revenues of $214.5 million for the nine months ended September 30, 2024 decreased $4.8 million, or 2.2%, compared to the prior period.

The decrease of $4.8 million was driven by lower revenue of approximately $3.1 million within the Company’s cybersecurity business from the Company’s consumer privacy services.

Cybersecurity and Martech’s operating costs and expenses of $55.2 million for the three months ended September 30, 2024 decreased $5.4 million, or 8.9%, compared to the prior period primarily due to lower general, administrative, and related costs and lower direct costs.

Cybersecurity and Martech’s operating costs and expenses of $168.6 million for the nine months ended September 30, 2024 decreased $13.0 million, or 7.2%, compared to the prior period primarily due to lower general, administrative, and related costs and lower direct costs.

As a result of these factors, Cybersecurity and Martech’s operating income of $14.9 million for the three months ended September 30, 2024 increased $2.4 million, or 19.0%.

Cybersecurity and Martech’s operating income of $45.8 million for the nine months ended September 30, 2024 increased $8.2 million, or 21.8%.

Liquidity and Capital Resources

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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.

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

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

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

June 30, 2024 December 31, 2023

September 30, 2024 December 31, 2023

Cash and cash equivalents $ 386,122 $ 737,612

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

June 30, 2024 December 31, 2023

September 30, 2024 December 31, 2023

Cash, cash equivalents, and investments held in domestic jurisdiction $ 455,415 $ 742,010

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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.

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, (ii) an extension of the scheduled maturity date from April 7, 2026 to the earlier of (x) June 18, 2027 or (y) under certain limited circumstances, August 2, 2026, (iii) a “credit spread adjustment” for SOFR-based borrowings of 0.10% across all interest periods, (iv) the inclusion of limited conditionality borrowing mechanics with respect to certain borrowings and (v) certain other related amendments.

As of September 30, 2024 and December 31, 2023, there were no amounts outstanding 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 Company also paid outstanding and accrued interest of $1.5 million 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.

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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.

See Note 7 – Debt in Part I Item 1 of this Quarterly Report on Form 10-Q for further details.

Material Cash Requirements

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 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.

As of September 30, 2024, we had outstanding $863.7 million in aggregate principal amount of indebtedness.

As of September 30, 2024, our total future minimum lease payments were $24.4 million of which approximately $11.2 million future minimum lease payments are due in the succeeding twelve months.

As of September 30, 2024, our liability for uncertain tax positions was $37.0 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):

Six months ended June 30, Change

Nine months ended September 30, Change

Net cash provided by operating activities $ 232,082 $ 227,843 $ 4,239

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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 $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.

TDS negatively impacted the Company’s net cash provided by operating activities by $40.5 million.

The $4.2 million increase in net cash provided by operating activities during the nine months ended September 30, 2024 compared to the prior period was primarily related to the timing of collections from our customers and timing of payments to our vendors during the current period, partially offset by a reduction in prepaid expenses during the current period.

The increase in net cash provided by operating activities includes the activities of TDS Gift Cards (“TDS”) from the date of the acquisition, which negatively impacted the Company’s net cash provided by operating activities by $33.0 million.

Investing Activities

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.

The $159.8 million increase in net cash used in investing activities during the nine months ended September 30, 2024 compared to the prior period was primarily related to higher cash used on business acquisitions during the nine months ended September 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 $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.

The $206.3 million increase in net cash used in financing activities during the nine months ended September 30, 2024 compared to the prior period was primarily related to cash used to settle a portion of the outstanding principal amount of the Company’s 1.75% Convertible Notes and increased share repurchases.

Stock Repurchase 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”).

On August 2, 2024 the Board authorized (i) an increase in its 2020 Program pursuant to which the Company may purchase up to an additional five million shares of the Company’s common stock (the “Additional Authorization”) and (ii) an extension of the expiration date of the share repurchase program from August 6, 2025 to August 2, 2029.

As a result of the Additional Authorization, the aggregate number of shares of the Company’s common stock under the 2020 Program increased from up to ten million shares to up to 15 million shares of the Company’s common stock.

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

A summary of share repurchases under the 2020 Program during the six months ended June 30, 2024 is as follows (in thousands, except share amounts):

A summary of share repurchases under the 2020 Program during the nine months ended September 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

Shares remaining under repurchase authorization as of September 30, 2024

3,500,000 $181,833 6,241,308

(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).

Cumulatively as of September 30, 2024, 8,758,692 shares have been repurchased under the 2020 Program, at an aggregate cost of $583.6 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.

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What changed 10-Q

Item 2. Management’s Discussion and Analysis