ZIFF DAVIS, INC. 10-Q

Item 1. Financial Statements ZIFF DAVIS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited, in thousands except share and per share data) September 30, 2024 December 31, 2023 ASSETS Cash and cash equivalents $ 386,122 $ 737,612 Short-term investments — 27,109 Accounts receivable, net of allowances of $ 7,352 and $ 6,871 , respectively 470,550 337,703 Prepaid expenses and other current assets 94,345 88,570 Total current assets 951,017 1,190,994 Long-term investments 152,817 140,906 Property and equipment, net of accumulated depreciation of $ 348,322 and $ 327,015 , respectively 197,482 188,169 Intangible assets, net 470,774 325,406 Goodwill 1,572,854 1,546,065 Deferred income taxes 8,622 8,731 Other assets 65,879 70,751 TOTAL ASSETS $ 3,419,445 $ 3,471,022 LIABILITIES AND STOCKHOLDERS’ EQUITY Accounts payable $ 371,498 $ 123,256 Accrued employee related costs 33,829 50,068 Other accrued liabilities 36,557 43,612 Income taxes payable, current 10,470 14,458 Deferred revenue, current 204,029 184,549 Other current liabilities 11,011 15,890 Total current liabilities 667,394 431,833 Long-term debt 863,741 1,001,312 Deferred income taxes 53,577 45,503 Income taxes payable, noncurrent — 8,486 Deferred revenue, noncurrent 7,513 8,169 Other long-term liabilities 74,908 82,721 TOTAL LIABILITIES 1,667,133 1,578,024 Commitments and contingencies (Note 8 ) Preferred stock, $ 0.01 par value. Authorized 1,000,000 and none issued — — Preferred stock - Series A, $ 0.01 par value. Authorized 6,000 ; total issued and outstanding zero — — Preferred stock - Series B, $ 0.01 par value. Authorized 20,000 ; total issued and outstanding zero — — Common stock, $ 0.01 par value. Authorized 95,000,000 ; total issued and outstanding 42,740,848 and 46,078,464 shares at September 30, 2024 and December 31, 2023, respectively 427 461 Additional paid-in capital 480,271 472,201 Retained earnings 1,335,083 1,491,956 Accumulated other comprehensive loss ( 63,469 ) ( 71,620 ) TOTAL STOCKHOLDERS’ EQUITY 1,752,312 1,892,998 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 3,419,445 $ 3,471,022 See Notes to Condensed Consolidated Financial Statements (Unaudited) -3- ZIFF DAVIS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited, in thousands except share and per share data) Three months ended September 30, Nine months ended September 30, 2024 2023 2024 2023 Total revenues $ 353,580 $ 340,985 $ 988,865 $ 974,143 Operating costs and expenses: Direct costs 53,243 55,526 152,900 148,677 Sales and marketing 127,418 125,062 369,184 360,916 Research, development, and engineering 15,255 17,597 49,824 53,328 General, administrative, and other related costs 101,695 99,269 296,558 302,481 Goodwill impairment on business 85,273 56,850 85,273 56,850 Total operating costs and expenses 382,884 354,304 953,739 922,252 (Loss) income from operations ( 29,304 ) ( 13,319 ) 35,126 51,891 Interest expense, net ( 4,024 ) ( 2,817 ) ( 7,597 ) ( 17,780 ) Loss on sale of businesses — — ( 3,780 ) — Loss on investments, net — ( 6,019 ) ( 7,654 ) ( 29,203 ) Other (loss) income, net ( 2,633 ) ( 3,571 ) 2,530 ( 5,982 ) (Loss) income before income tax expense and (loss) income from equity method investment ( 35,961 ) ( 25,726 ) 18,625 ( 1,074 ) Income tax expense ( 12,539 ) ( 5,335 ) ( 27,760 ) ( 11,180 ) (Loss) income from equity method investment, net of tax ( 77 ) 90 8,095 ( 9,665 ) Net loss $ ( 48,577 ) $ ( 30,971 ) $ ( 1,040 ) $ ( 21,919 ) Net loss per common share: Basic $ ( 1.11 ) $ ( 0.67 ) $ ( 0.02 ) $ ( 0.47 ) Diluted $ ( 1.11 ) $ ( 0.67 ) $ ( 0.02 ) $ ( 0.47 ) Weighted average shares outstanding: Basic 43,924,158 46,062,097 45,088,272 46,612,660 Diluted 43,924,158 46,062,097 45,088,272 46,612,660 See Notes to Condensed Consolidated Financial Statements (Unaudited) -4- ZIFF DAVIS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (Unaudited, in thousands) Three months ended September 30, Nine months ended September 30, 2024 2023 2024 2023 Net loss $ ( 48,577 ) $ ( 30,971 ) $ ( 1,040 ) $ ( 21,919 ) Other comprehensive income (loss), net of tax: Foreign currency translation adjustment 14,514 ( 6,841 ) 7,521 ( 660 ) Change in fair value on available-for-sale investments, net of tax expense of $ 118 and $ 93 for the three months ended September 30, 2024 and 2023, respectively, and tax expense of $ 200 and tax benefit of $ 37 for the nine months ended September 30, 2024 and 2023, respectively 352 309 630 ( 80 ) Other comprehensive income (loss), net of tax 14,866 ( 6,532 ) 8,151 ( 740 ) Comprehensive (loss) income $ ( 33,711 ) $ ( 37,503 ) $ 7,111 $ ( 22,659 ) See Notes to Condensed Consolidated Financial Statements (Unaudited) -5- ZIFF DAVIS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited, in thousands) Nine months ended September 30, Cash flows from operating activities: 2024 2023 Net loss $ ( 1,040 ) $ ( 21,919 ) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 151,945 167,333 Non-cash operating lease costs 8,392 7,248 Share-based compensation 30,633 24,393 Provision for credit losses on accounts receivable 2,289 2,296 Deferred income taxes ( 14,575 ) ( 25,658 ) Loss on sale of businesses 3,780 — Goodwill impairment on business 85,273 56,850 (Income) loss from equity method investments, net ( 8,095 ) 9,665 Loss on investments, net 7,654 29,203 Other 2,390 5,113 Decrease (increase) in: Accounts receivable 46,576 11,043 Prepaid expenses and other current assets ( 8,152 ) ( 10,059 ) Other assets ( 2,794 ) ( 7,961 ) Increase (decrease) in: Accounts payable ( 66,313 ) 1,955 Deferred revenue 9,269 ( 6,820 ) Accrued liabilities and other current liabilities ( 15,150 ) ( 14,839 ) Net cash provided by operating activities 232,082 227,843 Cash flows from investing activities: Purchases of property and equipment ( 79,476 ) ( 82,476 ) Acquisition of businesses, net of cash received ( 211,526 ) ( 9,492 ) Purchases of equity method investment — ( 11,790 ) Proceeds from sale of equity investments 19,455 3,174 Proceeds from sale of businesses, net of cash divested 7,860 — Other ( 884 ) ( 4,154 ) Net cash used in investing activities ( 264,571 ) ( 104,738 ) Cash flows from financing activities: Payment of debt ( 134,989 ) — Repurchase of common stock ( 183,981 ) ( 107,341 ) Issuance of common stock under employee stock purchase plan 4,525 4,725 Deferred payments for acquisitions ( 7,442 ) ( 14,141 ) Other ( 1,209 ) ( 53 ) Net cash used in financing activities ( 323,096 ) ( 116,810 ) Effect of exchange rate changes on cash and cash equivalents 4,095 1,536 Net change in cash and cash equivalents ( 351,490 ) 7,831 Cash and cash equivalents at beginning of period 737,612 652,793 Cash and cash equivalents at end of period $ 386,122 $ 660,624 See Notes to Condensed Consolidated Financial Statements (Unaudited) -6- ZIFF DAVIS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited, in thousands, except share amounts) Three months ended September 30, 2024 Common stock Additional paid-in Retained Accumulated other Total Stockholders’ Shares Amount capital earnings comprehensive loss Equity Balance, July 1, 2024 44,740,322 $ 447 $ 476,232 $ 1,471,543 $ ( 78,335 ) $ 1,869,887 Net loss — — — ( 48,577 ) — ( 48,577 ) Other comprehensive income, net of tax expense of $( 118 ) — — — — 14,866 14,866 Issuance of restricted stock, net 526 — ( 198 ) 88 — ( 110 ) Issuance of shares under employee stock purchase plan — — — — — — Repurchase and retirement of common stock ( 2,000,000 ) ( 20 ) ( 9,250 ) ( 87,650 ) — ( 96,920 ) Share-based compensation — — 10,161 — — 10,161 Increase in fair value of conversion feature on 3.625 % Convertible Notes, net of tax effect of $ 1,000 — — 3,001 — — 3,001 Other, net — — 325 ( 321 ) — 4 Balance, September 30, 2024 42,740,848 $ 427 $ 480,271 $ 1,335,083 $ ( 63,469 ) $ 1,752,312 Three months ended September 30, 2023 Common stock Additional paid-in Retained Accumulated other Total Stockholders’ Shares Amount capital earnings comprehensive loss Equity Balance, July 1, 2023 46,402,143 $ 464 $ 448,920 $ 1,492,879 $ ( 79,581 ) $ 1,862,682 Net loss — — — ( 30,971 ) — ( 30,971 ) Other comprehensive loss, inclusive of tax expense of $( 93 ) — — — — ( 6,532 ) ( 6,532 ) Issuance of restricted stock, net 2,041 — ( 265 ) 35 — ( 230 ) Issuance of common stock, net 186,102 2 13,420 — — 13,422 Repurchase and retirement of common stock ( 605,428 ) ( 6 ) ( 6,035 ) ( 34,978 ) — ( 41,019 ) Share-based compensation — — 6,774 — — 6,774 Other, net — — ( 2 ) 14 — 12 Balance, September 30, 2023 45,984,858 $ 460 $ 462,812 $ 1,426,979 $ ( 86,113 ) $ 1,804,138 -7- ZIFF DAVIS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited, in thousands, except share amounts) Nine months ended September 30, 2024 Common stock Additional paid-in Retained Accumulated other Total Stockholders’ Shares Amount capital earnings comprehensive loss Equity Balance, January 1, 2024 46,078,464 $ 461 $ 472,201 $ 1,491,956 $ ( 71,620 ) $ 1,892,998 Net loss — — — ( 1,040 ) — ( 1,040 ) Other comprehensive income, net of tax expense of $( 200 ) — — — — 8,151 8,151 Issuance of restricted stock, net 69,795 — ( 5,450 ) 1,502 — ( 3,948 ) Issuance of shares under employee stock purchase plan 92,589 1 4,524 — — 4,525 Repurchase and retirement of common stock ( 3,500,000 ) ( 35 ) ( 24,973 ) ( 156,822 ) — ( 181,830 ) Share-based compensation — — 30,633 — — 30,633 Increase in fair value of conversion feature on 3.625 % Convertible Notes, net of tax effect of $ 1,000 — — 3,001 — — 3,001 Other, net — — 335 ( 513 ) — ( 178 ) Balance, September 30, 2024 42,740,848 $ 427 $ 480,271 $ 1,335,083 $ ( 63,469 ) $ 1,752,312 Nine months ended September 30, 2023 Common stock Additional paid-in Retained Accumulated other Total Stockholders’ Shares Amount capital earnings comprehensive loss Equity Balance, January 1, 2023 47,269,446 $ 473 $ 439,681 $ 1,537,830 $ ( 85,373 ) $ 1,892,611 Net loss — — — ( 21,919 ) — ( 21,919 ) Other comprehensive loss, inclusive of tax benefit of $ 37 — — — — ( 740 ) ( 740 ) Issuance of restricted stock, net 28,058 — ( 4,031 ) 569 — ( 3,462 ) Issuance of shares under employee stock purchase plan 87,098 1 4,724 — — 4,725 Issuance of common stock, net 186,102 2 13,420 — — 13,422 Repurchase and retirement of common stock ( 1,585,846 ) ( 16 ) ( 15,388 ) ( 89,515 ) — ( 104,919 ) Share-based compensation — — 24,393 — — 24,393 Other, net — — 13 14 — 27 Balance, September 30, 2023 45,984,858 $ 460 $ 462,812 $ 1,426,979 $ ( 86,113 ) $ 1,804,138 See Notes to Condensed Consolidated Financial Statements (Unaudited) -8- ZIFF DAVIS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. Basis of Presentation and Overview The accompanying Condensed Consolidated Financial Statements of Ziff Davis, Inc. and its direct and indirect wholly-owned subsidiaries (“Ziff Davis”, the “Company”, “our”, “us”, or “we”), were prepared in accordance with U.S. generally accepted accounting principles ("GAAP"), and all adjustments considered necessary for a fair presentation have been included. All intercompany accounts and transactions have been eliminated in consolidation. The accompanying interim Condensed Consolidated Financial Statements have been prepared in accordance with instructions for Form 10-Q and Article 10 of Regulation S-X issued by the Securities and Exchange Commission (“SEC”). The preparation of these Condensed Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the Condensed Consolidated Financial Statements, as well as the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. All normal recurring adjustments necessary for a fair presentation of these interim Condensed Consolidated Financial Statements were made. This Quarterly Report on Form 10-Q should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on February 26, 2024 and other filings with the SEC. The results of operations for this interim period are not necessarily indicative of the operating results that may be expected for the full year or for any future period. Description of Business Ziff Davis is a vertically focused digital media and internet company whose portfolio includes brands in technology, shopping, gaming and entertainment, connectivity, health and wellness, cybersecurity, and martech. Our Digital Media business specializes in the technology, shopping, gaming and entertainment, connectivity, and healthcare markets, offering content, tools, and services to consumers and businesses. Our Cybersecurity and Martech business provides cloud-based subscription and license services to consumers and businesses including cybersecurity, privacy, and marketing technology. Significant Accounting Policies The significant accounting policies followed by the Company are set forth in Note 1 to the Company's consolidated financial statements included in its Form 10-K for the year ended December 31, 2023. Direct costs - 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. For the three and nine months ended September 30, 2024, there have been no new or material changes to the significant accounting policies discussed in the Company’s Form 10-K for the fiscal year ended December 31, 2023. Recent Accounting Pronouncements Recently issued applicable accounting pronouncements not yet adopted In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting . This update provides for optional financial reporting alternatives to reduce costs and complexities associated with accounting for contracts, hedging relationships, and other transactions affected by reference rate reform. This update applies only to contracts, hedging relationships, and other transactions that reference London Interbank Offer Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform. The accommodations were available for all entities through December 31, 2022, with early adoption permitted. This update was later amended by ASU 2022-06. In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848 . This update defers the expiration date of Accounting Standards Codification (“ASC”) Topic 848 from December 31, 2022 to December 31, 2024. We do not anticipate that adoption of this standard will have a material impact on our consolidated financial statements and related disclosures. In October 2023, the FASB issued ASU 2023-06, Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative . The amendments in this update modify the disclosure or presentation requirements of a variety of Topics in the Codification. Certain of the amendments represent clarifications to or technical corrections of the current requirements. For entities subject to the SEC's existing disclosure requirements and entities required to file/furnish financial statements with or to the SEC in preparation for the sale of or for purposes of issuing securities -9- ZIFF DAVIS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued that are not subject to contractual restrictions on transfer, the effective date for which each amendment will be the date on the SEC's removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited. For all other entities, amendments will be effective two years later. We are currently evaluating the impact the adoption of this update will have on our consolidated financial statements and related disclosures. In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures , which provides for enhanced disclosures about significant segment expenses. This update enhances interim disclosure requirements, clarifies circumstances in which an entity can disclose multiple segment measures of profit or loss, provides new segment disclosure requirements for entities with a single reportable segment, and contains other disclosure requirements. The purpose of this update is to enable investors to better understand an entity’s overall performance and assess potential future cash flows. The update is required to be applied retrospectively to prior periods presented, based on the significant segment expense categories identified and disclosed in the period of adoption. The amendments in this update are required to be adopted for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. This update will likely result in us including the additional required disclosures when adopted. We are currently evaluating the impact of adoption of this update will have on our consolidated financial statements and related disclosures and expect to adopt them for the year ended December 31, 2024. In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures . The amendments in the update require public business entities on an annual basis to disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold. This update also requires that entities disclose on an annual basis information about the amount of income taxes paid disaggregated by federal, state, and foreign taxes and the amount of income taxes paid disaggregated by individual jurisdictions in which income taxes paid is equal to or greater than a quantitative threshold. The amendments in this update are required to be adopted for fiscal years beginning after December 15, 2024. Early adoption is permitted. We are currently evaluating the effect the adoption of this update will have on our consolidated financial statements and related disclosures. 2. Revenues Digital Media Digital Media revenues are earned primarily from the delivery of advertising and performance marketing services, licensing, and subscriptions to services and information. Advertising and Performance Marketing Revenues from the delivery of advertising services are earned on websites that are owned and operated by us and on those websites that are part of Digital Media’s advertising network. Depending on the individual contracts with the customer, revenue for these services is recognized over the contract period when any of the following performance obligations are satisfied: (i) when an advertisement is placed for viewing, (ii) when a qualified sales lead is delivered, (iii) when a visitor “clicks through” on an advertisement, or (iv) when commissions are earned upon the sale of an advertised product. The Digital Media business also generates revenues from marketing, performance marketing, production services, and the management of client gift card programs. Such revenues are generally recognized over the period in which the products or services are delivered. Subscription and Licensing Revenues from subscriptions are earned through the granting of access to, or delivery of, data products or services to customers. Subscriptions cover video games and related content, health information, data, and other copyrighted material. Revenues are also earned from listing fees, subscriptions to online publications, and from other sources. Subscription revenues are primarily recognized over the contract term. Revenues related to the provision of access to historical data for certain services are recorded at the time of delivery. The Digital Media business also generates revenues through the license of certain assets to clients. Assets are licensed for clients’ use in their own promotional materials or otherwise and may include logos, editorial reviews, or other copyrighted material that represent symbolic intellectual property, as defined in ASC 606, Revenue from Contracts with Customers . Revenues under such license agreements are generally recognized over the contract term. In instances when technology assets in the form of functional intellectual property are licensed to our clients, revenues from the license of these assets are recognized at a point in time. -10- ZIFF DAVIS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued Digital Media subscription and licensing revenues also include revenues from transactions involving the sale of perpetual software licenses, related software support, and maintenance. Revenue is recognized for software transactions with multiple performance obligations after (i) the contract has been approved and we are committed to perform the respective obligations and (ii) we can identify and quantify each obligation and its respective selling price. Once the respective performance obligations have been identified and quantified, revenue will be recognized when the obligations are met, either over time or at a point in time, depending on the nature of the obligation. Revenues from software license performance obligations are generally recognized upfront at the point in time that the software is made available to the customer for download and use. Revenues from related software support and maintenance are generally recognized ratably over the contractual period, because technical support, unspecified software product upgrades, maintenance releases, and patches are provided to customers on an as needed basis, and are available during the term of the support period. We are obligated to make the support services available continuously throughout the contract period. Other Other revenues primarily include those from the sale of hardware used in conjunction with software described above, online course revenue, and game publishing revenue. Hardware product and related software performance obligations, such as an operating system or firmware, are highly interdependent and interrelated and are accounted for as a bundled performance obligation. The revenues for this bundled performance obligation are generally recognized at the point in time that the hardware and software products are delivered and ownership is transferred to the customer. Cybersecurity and Martech The Company’s Cybersecurity and Martech revenues consist of subscription and licensing revenues which primarily include subscription and usage-based fees, a significant portion of which are paid in advance. The Company defers the portions of monthly, quarterly, semi-annual, and annual fees collected in advance of the satisfaction of performance obligations and recognizes them in the period earned. Along with its numerous proprietary Cybersecurity and Martech solutions, the Company also generates subscription revenues by reselling various third-party solutions, primarily through its email security line of business. These third-party solutions, along with the Company’s proprietary products, allow it to offer customers a variety of solutions to better meet the customer’s needs. Principal vs. Agent The Company determines whether revenue should be reported on a gross or net basis by assessing whether the Company is acting as the principal or an agent in the transaction, respectively. The Company records revenue on a gross basis with respect to revenue generated (i) by the Company serving online display and video advertising across its owned and operated web properties, on third-party sites, or on unaffiliated advertising networks; (ii) through the Company’s lead-generation business; and (iii) through the Company’s subscriptions, including the resale of various third-party solutions, primarily through its email security line of business. The Company records revenue on a gross basis with respect to reseller revenue because the Company has control of the specified good or service prior to transferring control to the customer. The Company records revenue on a net basis with respect to revenue paid to the Company by certain third-party advertising networks who serve online display and video advertising across the Company’s owned-and-operated web properties and certain third-party platforms, primarily related to the transfer of functional intellectual property. The Company records revenue on a net basis with respect to revenue earned from servicing the client gift card programs. -11- ZIFF DAVIS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued Disaggregated Revenues 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 Digital Media Advertising and performance marketing $ 193,626 $ 183,008 $ 520,063 $ 514,173 Subscription and licensing 77,450 71,858 223,681 209,167 Other 12,491 13,085 30,692 31,692 Total Digital Media revenues $ 283,567 $ 267,951 $ 774,436 $ 755,032 Cybersecurity and Martech Subscription and licensing $ 70,039 $ 73,051 $ 214,475 $ 219,263 Total Cybersecurity and Martech revenues $ 70,039 $ 73,051 $ 214,475 $ 219,263 Elimination of inter-segment revenues ( 26 ) ( 17 ) ( 46 ) ( 152 ) Total Revenues $ 353,580 $ 340,985 $ 988,865 $ 974,143 The Company recorded $ 33.9 million and $ 27.8 million of revenue for the three months ended September 30, 2024 and 2023, respectively, and $ 166.3 million and $ 140.9 million of revenue for the nine months ended September 30, 2024 and 2023, respectively, which was previously included in the deferred revenue balance as of the beginning of each respective year. Performance Obligations The Company may be a party to multiple concurrent contracts with the same customers, or a party or parties related to those customers. Some of these situations may require judgment to determine if those arrangements should be accounted for as a single contract. Consideration of both the form and the substance of the arrangement is required. The Company’s contracts with customers may include multiple performance obligations, including contracts when advertising and licensing services are sold together. The Company determines the transaction price based on the amount to which the Company expects to be entitled in exchange for services provided. The Company includes any fixed consideration within its contracts as part of the total transaction price. The Company’s contracts occasionally contain some component of variable consideration, such as commissions that are recognized in the period of the commissionable event. The Company does not include in the transaction price taxes assessed by a governmental authority that are (i) both imposed on and concurrent with a specific revenue-producing transaction and (ii) collected by us from the customer. Due to the nature of the services provided, there are no obligations for returns. The Company satisfies its performance obligations upon delivery of services to its customers. Within the Digital Media business, the Company provides content to its advertising partners which the Company sells to its partners’ customer base and receives a revenue share based on the terms of the agreement. Payment terms vary by type and location of our customers and the services offered. The time between invoicing and when payment is due is generally not significant. Our Digital Media business consists primarily of performance obligations that are satisfied over time. This was determined based on a review of the contracts and the nature of the services offered, where the customer simultaneously receives and consumes the benefit of the services provided. Revenue is recognized based on delivery of services over the contract period for advertising and on a straight-line basis or units of output basis over the contract period for subscriptions. The Company believes that the methods described are a faithful depiction of the transfer of goods and services. The Digital Media business also has licensing arrangements that have standalone functionality. As a result, the performance obligations are satisfied at a point in time. -12- ZIFF DAVIS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued Our Cybersecurity and Martech business consists primarily of performance obligations that are satisfied over time. This has been determined based on the fact that the nature of services offered are subscription-based where the customer simultaneously receives and consumes the benefit of the services provided regardless of whether the customer uses the services. Depending on the individual contracts with the customer, revenue for these services is recognized over the contract period when any of the following materially distinct performance obligations are satisfied: • Voice, email marketing, and search engine optimization as services are delivered. • Consumer privacy services and data backup capabilities are provided. • Security solutions, including email and endpoint are provided. The Company has concluded the best measure of progress toward the complete satisfaction of the performance obligation is a time-based measure. The Company recognizes revenue on a straight-line basis throughout the subscription period, or as usage occurs, or when functional intellectual property is delivered for services outside of the subscription, and believes that the method used is a faithful depiction of the transfer of goods and services. Transaction Price Allocation to Future Performance Obligations As of September 30, 2024, the aggregate amount of transaction price that is allocated to future performance obligations was approximately $ 80.3 million and is expected to be recognized as follows: 23 % by December 31, 2024, 54 % by December 31, 2025, and 23 % thereafter. The amount disclosed does not include revenues related to performance obligations that are part of contracts with original expected durations of twelve months or less or portions of the contracts that remain subject to cancellations. Further, the disclosure does not include contracts for which the Company recognizes revenue in proportion to the amount it has the right to invoice for services performed. 3. Business Acquisitions The Company uses acquisitions as a strategy to grow its customer base by increasing its presence in new and existing markets, expanding and diversifying its service offerings, enhancing its technology, and acquiring skilled personnel. For the three and nine months ended September 30, 2024, the Company recorded $ 20.7 million and $ 40.0 million, respectively, of incremental revenue from the businesses acquired during the nine months ended September 30, 2024. Net income contributed by these acquisitions was not separately identifiable due to the Company’s integration activities and is impracticable to provide. 2024 Acquisitions The Company completed the following acquisitions during the nine months ended September 30, 2024, paying the purchase price in cash in each transaction: (a) a purchase of 100 % of the equity interest in TDS Gift Cards (“TDS”), acquired on February 5, 2024, a digital gifting and branded payments platform, which is reported within our Digital Media segment; (b) a purchase of 100 % of the equity interest in CNET Media, Inc. and certain related entities (“CNET”), acquired on September 12, 2024, a digital media publication platform, which is reported within our Digital Media segment; and (c) one other immaterial Digital Media acquisition. The acquisition of TDS is expected to expand our ability to offer innovative shopping solutions to our merchant partners and broaden our capabilities to help facilitate commerce between consumers and some of the most highly visible brands. The acquisition of CNET is expected to allow us to reach a wider audience that is attractive to advertisers in the technology space. Total consideration for all businesses acquired in 2024 was $ 358.2 million, or $ 212.3 million, net of cash acquired. -13- ZIFF DAVIS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued The following table summarizes the allocation of the preliminary purchase consideration for the acquisition of TDS and CNET as of September 30, 2024 (in thousands): Valuation Assets and Liabilities TDS (1) CNET Cash $ 142,957 $ — Accounts receivable and other current assets (2) 171,290 21,930 Intangible assets 108,924 111,650 Goodwill (2) 80,835 24,930 Deferred tax asset, noncurrent (3) — 7,355 Other assets 289 655 Accounts payable and other current liabilities ( 290,266 ) ( 3,841 ) Deferred tax liability, noncurrent ( 25,580 ) — Deferred revenue, noncurrent — ( 7,958 ) Other noncurrent liabilities ( 861 ) — Total $ 187,588 $ 154,721 (1) During the three months ended September 30, 2024, we recorded a measurement period adjustment increasing goodwill by $ 0.3 million with a corresponding adjustment to current assets. (2) The fair value of the assets acquired includes accounts receivable of $ 170.7 million for TDS and $ 21.2 million related to CNET, of which none is expected to be uncollectible. None of the goodwill recognized is expected to be deductible for income tax purposes. (3) Deferred tax asset balance for CNET is presented within ‘Deferred income taxes’ on the Condensed Consolidated Balance Sheets. The preliminary amounts assigned to intangible assets by type for all acquisitions during the nine months ended September 30, 2024 are summarized in the table below (in thousands): Gross Carrying Value Weighted Average Estimated Life Customer relationships $ 152,595 10 years Trade names and trademarks 27,027 9 years Other purchased intangibles 46,703 5 years Total gross carrying value $ 226,325 The initial accounting for the 2024 acquisitions is incomplete due to the timing of available information and is subject to change. The Company has recorded provisional amounts for certain intangible assets as of September 30, 2024. The accompanying Condensed Consolidated Statements of Operations reflects the results of operations of the 2024 acquisitions since the date of each respective acquisition. Unaudited Pro Forma Financial Information for the 2024 Acquisitions The following unaudited pro forma information reflects the combined results from these acquisitions had they occurred on January 1, 2023. This information is not necessarily indicative of the Company’s consolidated results of operations in future periods or the results that actually would have been realized had the Company and the acquired businesses been combined companies during the periods presented. These pro forma results are estimates and exclude any savings or synergies that would have resulted from these business acquisitions had they occurred on January 1, 2023. This unaudited pro forma supplemental information includes incremental intangible asset amortization and other charges as a result of the acquisitions, net of the related tax effects. -14- ZIFF DAVIS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued Three months ended September 30, Nine months ended September 30, (in thousands, except per share data) 2024 2023 2024 2023 (unaudited) (unaudited) (unaudited) (unaudited) Revenues $ 370,719 $ 378,343 $ 1,050,666 $ 1,075,400 Net loss $ ( 51,585 ) $ ( 34,772 ) $ ( 15,451 ) $ ( 46,950 ) Loss per common share - Basic $ ( 1.17 ) $ ( 0.75 ) $ ( 0.34 ) $ ( 1.01 ) Loss per common share - Diluted $ ( 1.17 ) $ ( 0.75 ) $ ( 0.34 ) $ ( 1.01 ) 2023 Acquisitions The Company completed two immaterial Digital Media acquisitions during the nine months ended September 30, 2023, paying the purchase price in cash in each transaction. The accompanying Condensed Consolidated Statements of Operations reflects the results of operations of the 2023 acquisitions since the date of each respective acquisition. Goodwill recognized associated with these acquisitions during the nine months ended September 30, 2023 was $ 6.3 million, all of which is expected to be deductible for income tax purposes. Approximately $ 7.2 million of definite-lived intangibles were recorded in connection with these acquisitions during the nine months ended September 30, 2023. 4. Investments Investments consist of equity and debt securities. Investment in equity securities On October 7, 2021, we completed the separation of our cloud fax business (the “Separation”) into an independent publicly traded company. Following the Separation, the Company retained shares of publicly traded common stock of Consensus Cloud Solutions, Inc. (“Consensus”). During the three and nine months ended September 30, 2023, the Company sold zero and 52,393 shares, respectively, of common stock of Consensus in the open market. As of December 31, 2023, the Company held approximately 1.0 million shares of the common stock of Consensus with the carrying value of $ 27.1 million, which was included in ‘Short-term investments’ in the Condensed Consolidated Balance Sheets. The Company accounted for its investment in Consensus at fair value under the fair value option, and the related fair value gains and losses were recognized in earnings. During the second quarter of 2024, the Company sold its remaining 1,034,295 shares of Consensus common stock in the open market. For the three months ended September 30, 2024 and 2023, losses of zero and $ 6.0 million, respectively, were recorded in the Condensed Consolidated Statement of Operations. For the nine months ended September 30, 2024 and 2023, losses of $ 7.7 million and $ 29.2 million, respectively, were recorded in the Condensed Consolidated Statement of Operations. On July 31, 2023, the Company entered into an agreement to purchase $ 25.0 million of equity in Xyla, Inc. (“Xyla”) for a minority ownership stake. This minority investment was made in the form of cash and shares of the Company’s common stock. The Company accounts for its investment in Xyla as an equity investment without a readily determinable fair value measured under the measurement alternative in accordance with ASC Topic 321, Investments — Equity Securities . As of each September 30, 2024 and December 31, 2023, the carrying value of the investment in Xyla was $ 25.3 million, including transaction costs, and is included in ‘Long-term investments’ in the Condensed Consolidated Balance Sheets. Investment in corporate debt security On April 12, 2022, the Company entered into an agreement with an entity to acquire 4 % convertible notes with an aggregate value of $ 15.0 million. On May 19, 2023, the Company entered into the Note Amendment Agreement (the “Amendment”) with respect to the same entity. The Amendment increased the interest rate on the convertible notes to 6 %, extended the maturity date, and subordinated all existing and future obligations, liabilities, and indebtedness of the entity to the entity’s senior creditor, as defined in the Amendment. This investment is included in ‘Long-term investments’ in the Condensed Consolidated Balance Sheets and is classified as available-for-sale. The investment was initially measured at its transaction price and subsequently remeasured at fair value, with unrealized gains and losses reported as a component of other comprehensive income. -15- ZIFF DAVIS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued As of September 30, 2024, both the carrying value and the maximum exposure of the Company’s investment in corporate debt securities was approximately $ 16.5 million, with a contractual maturity date that was more than one year but less than five years . As of December 31, 2023, both the carrying value and the maximum exposure of the Company’s investment in corporate debt securities was approximately $ 15.7 million, with a contractual maturity date that was more than one year but less than five years . Cumulative gross unrealized gains on investment in corporate debt securities as of September 30, 2024 and December 31, 2023 were approximately $ 1.5 million and $ 0.7 million, respectively. There were no investments in an unrealized loss position as of September 30, 2024 and December 31, 2023. During the three and nine months ended September 30, 2024 and 2023, the Company did not recognize any other-than-temporary impairment losses on its debt securities. Equity method investment On September 25, 2017, the Company entered into a commitment to invest in OCV Fund I, LP (the “OCV Fund”). 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. During the three months ended September 30, 2024 and 2023, the Company recognized (loss) income from the equity method investment of $( 0.1 ) million and $ 0.1 million, net of tax benefit (expense), respectively. During the nine months ended September 30, 2024 and 2023, the Company recognized income (loss) from the equity method investment of $ 8.1 million and $( 9.7 ) million, net of tax (expense) benefit, respectively. The income (loss) in the periods presented were primarily the result of gains or losses in the underlying investments. As of September 30, 2024, both the carrying value and the maximum exposure of the Company’s equity method investment was approximately $ 110.9 million. As of December 31, 2023, both the carrying value and the maximum exposure of the Company’s equity method investment was approximately $ 99.9 million. These equity securities are included in ‘Long-term investments’ in the Condensed Consolidated Balance Sheets. As a limited partner, the Company’s maximum exposure to loss is limited to its proportional ownership in the partnership. In addition, the Company is not required to contribute any future capital. Finally, there are no call or put options, or other types of arrangements, which limit the Company’s ability to participate in losses and returns of the OCV Fund. 5. Fair Value Measurements The Company complies with the provisions of ASC 820, which defines fair value, provides a framework for measuring fair value and expands the disclosures required for fair value measurements of financial and non-financial assets and liabilities. ASC 820 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or a liability. As a basis for considering such assumptions, ASC 820 establishes a three-tier value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value. § Level 1 – Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets. § Level 2 – Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. § Level 3 – Unobservable inputs which are supported by little or no market activity. The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Recurring Fair Value Measurements The Company’s money market funds are classified within Level 1. The Company values these Level 1 investments using quoted market prices. The fair value of the Company’s investment in Consensus common stock was determined using quoted market prices, which is a Level 1 input. On May 22, 2024, the Company sold its remaining investment in Consensus common stock (see Note 4 - Investments ). -16- ZIFF DAVIS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued The Company has investment in a corporate debt security that does not have a readily determinable fair value because the acquired securities are privately held, not traded on any public exchanges and not an investment in a mutual fund or similar investment. The investment in corporate debt securities is classified as available-for-sale and is initially measured at its transaction price. The fair value of the corporate debt securities is determined primarily based on estimates and assumptions, including Level 3 inputs. As of September 30, 2024 and December 31, 2023, the fair value was determined based upon various probability-weighted scenarios which included discount rate assumptions between 13 % and 15 %, depending on the probability scenario. In addition, the determination of fair value included a conversion timeframe of approximately one to two years , depending on the probability scenario, as of September 30, 2024 and as of December 31, 2023. The Company classifies its contingent consideration liability in connection with acquisitions within Level 3 because factors used to develop the estimated fair value are unobservable inputs, such as volatility and market risks, and are not supported by market activity. The valuation approaches used to value Level 3 investments considers unobservable inputs in the market such as time to liquidity, volatility, dividend yield, and breakpoints. Significant increases or decreases in any of the inputs in isolation could result in a significantly lower or higher fair value measurement. As of September 30, 2024 and December 31, 2023, the contingent consideration was determined using a 100% probability of payout at the maximum amount, without any other estimates applied. The following tables present the fair values of the Company’s financial assets or liabilities that are measured at fair value on a recurring basis (in thousands): September 30, 2024 Level 1 Level 2 Level 3 Fair Value Carrying Value Assets: Cash equivalents: Money market and other funds $ 49,568 $ — $ — $ 49,568 $ 49,568 Long-term investments: Investment in corporate debt securities — — 16,529 16,529 16,529 Total assets measured at fair value $ 49,568 $ — $ 16,529 $ 66,097 $ 66,097 Liabilities: Contingent consideration $ — $ — $ 2,834 $ 2,834 $ 2,834 Total liabilities measured at fair value $ — $ — $ 2,834 $ 2,834 $ 2,834 December 31, 2023 Level 1 Level 2 Level 3 Fair Value Carrying Value Assets: Cash equivalents: Money market and other funds $ 340,928 $ — $ — $ 340,928 $ 340,928 Short-term investments: Consensus common stock 27,109 — — 27,109 27,109 Long-term investments: Investment in corporate debt securities — — 15,699 15,699 15,699 Total assets measured at fair value $ 368,037 $ — $ 15,699 $ 383,736 $ 383,736 Liabilities: Contingent consideration $ — $ — $ 2,834 $ 2,834 $ 2,834 Total liabilities measured at fair value $ — $ — $ 2,834 $ 2,834 $ 2,834 At the end of each reporting period, management reviews the inputs to the fair value measurements of financial and non-financial assets and liabilities to determine when transfers between levels are deemed to have occurred. For the three and nine months ended September 30, 2024 and 2023, there were no transfers that occurred between levels. -17- ZIFF DAVIS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued The following table presents a reconciliation of the Company’s Level 3 financial assets and liabilities related to our contingent consideration arrangements and investment in corporate debt securities that are measured at fair value on a recurring basis (in thousands): Nine months ended September 30, 2024 2023 Contingent Consideration Arrangements Corporate Debt Securities Contingent Consideration Arrangements Corporate Debt Securities Balance as of January 1 $ 2,834 $ 15,699 $ 555 $ 15,586 Fair value at date of acquisition — — 2,834 — Fair value adjustments (1) — 830 — ( 117 ) Balance as of September 30 $ 2,834 $ 16,529 $ 3,389 $ 15,469 (1) The fair value adjustments to the corporate debt securities in the table above were recorded in ‘Change in fair value on available-for-sale investments, net’ in the Condensed Consolidated Statements of Comprehensive (Loss) Income during the three and nine months ended September 30, 2024 and 2023. Nonrecurring Fair Value Measurements The Company’s non-financial assets, such as goodwill, intangible assets, right-of-use assets, and property, plant and equipment, are adjusted to fair value only when an impairment is recognized. The Company’s financial assets, comprised of equity securities without readily determinable fair value, are adjusted to fair value when observable price changes are identified or due to impairment. Such fair value measurements are based predominately on Level 3 inputs. See Note 7 - Goodwill and Intangible Assets for further information on goodwill impairment charges recorded during the three and nine months ended September 30, 2024 and 2023. Other Fair Value Disclosures The fair value of the Company’s 4.625 % Senior Notes, 3.625 % Convertible Notes, and 1.75 % Convertible Notes (as defined in Note 7 — Debt ) was determined using quoted market prices or dealer quotes for instruments with similar maturities and other terms and credit ratings, which are Level 1 inputs. If such information is not available for the 1.75 % Convertible Notes and 3.625 % Convertible Notes, the fair value is determined using cash flow models of the scheduled payments discounted at market interest rates for comparable debt without the conversion feature. The following table presents the carrying value and the fair value of financial instruments measured at fair value only for disclosure purposes (in thousands): September 30, 2024 December 31, 2023 Carrying Value Fair Value Carrying Value Fair Value 4.625 % Senior Notes $ 457,106 $ 432,785 $ 456,796 $ 405,408 1.75 % Convertible Notes (1) $ 148,062 $ 138,850 $ 544,516 $ 519,492 3.625 % Convertible Notes (2) $ 258,573 $ 251,484 $ — $ — (1) On July 16, 2024, the Company exchanged approximately $ 400.9 million in aggregate principal amount of the Company’s 1.75 % Convertible Notes as part of the Exchange Transaction. The Company issued $ 263.1 million in aggregate principal amount of new 3.625 % Convertible Notes, as defined in Note 7 — Debt, and paid an aggregate of approximately $ 135.0 million in cash. Refer to Note 7 — Debt for additional information. -18- ZIFF DAVIS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued 6. Goodwill and Intangible Assets Goodwill The changes in carrying amounts of goodwill for the nine months ended September 30, 2024 are as follows (in thousands): Digital Media Cybersecurity and Martech Consolidated Balance as of January 1, 2024 $ 1,016,880 $ 529,185 $ 1,546,065 Goodwill acquired (1) 112,534 — 112,534 Goodwill removed due to sale of businesses (2) ( 3,983 ) — ( 3,983 ) Goodwill impairment ( 85,273 ) — ( 85,273 ) Foreign exchange translation 1,180 2,331 3,511 Balance as of September 30, 2024 $ 1,041,338 $ 531,516 $ 1,572,854 (1) Goodwill recognized in connection with the acquisitions during the nine months ended September 30, 2024 (see Note 3 — Business Acquisitions ), which is not expected to be deductible for income tax purposes . (2) During the nine months ended September 30, 2024, in a cash transaction, the Company sold an international business at Digital Media within its shopping vertical, which resulted in $ 4.0 million of goodwill being removed in connection with this sale. Goodwill as of September 30, 2024 and December 31, 2023 reflects accumulated impairment losses of $ 169.5 million and $ 84.2 million, respectively, in the Digital Media reportable segment. 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. 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. -19- ZIFF DAVIS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued Intangible Assets Subject to Amortization As of September 30, 2024, intangible assets subject to amortization relate primarily to the following (in thousands): Historical Cost Accumulated Amortization Net Trade names and trademarks $ 375,332 $ 214,695 $ 160,637 Customer relationships 847,121 603,979 243,142 Other purchased intangibles 427,589 360,594 66,995 Total $ 1,650,042 $ 1,179,268 $ 470,774 As of December 31, 2023, intangible assets subject to amortization relate primarily to the following (in thousands): Historical Cost Accumulated Amortization Net Trade names and trademarks $ 347,895 $ 192,111 $ 155,784 Customer relationships 692,634 555,384 137,250 Other purchased intangibles 379,703 347,331 32,372 Total $ 1,420,232 $ 1,094,826 $ 325,406 Amortization expense, included in ‘General, administrative, and other related costs’ in our Condensed Consolidated Statements of Operations, was approximately $ 28.5 million and $ 33.0 million for the three months ended September 30, 2024 and 2023, respectively, and $ 82.5 million and $ 100.0 million for the nine months ended September 30, 2024 and 2023, respectively. 7. Debt Long-term debt consists of the following (in thousands): September 30, 2024 December 31, 2023 4.625 % Senior Notes $ 460,038 $ 460,038 1.75 % Convertible Notes 149,109 550,000 3.625 % Convertible Notes 263,147 — Total Notes 872,294 1,010,038 Credit Agreement — — Less: Unamortized discount ( 6,015 ) ( 2,463 ) Deferred issuance costs (1) ( 2,538 ) ( 6,263 ) Total long-term debt $ 863,741 $ 1,001,312 (1) Includes $ 0.7 million and $ 0.8 million of carrying amount of deferred issuance costs on the 4.625 % Senior Notes as of September 30, 2024 and December 31, 2023, respectively, $ 1.0 million and $ 5.5 million of carrying amount of deferred issuance costs on the 1.75 % Convertible Notes as of September 30, 2024 and December 31, 2023, respectively, and $ 0.8 million of carrying amount of deferred issuance costs on the 3.625 % Convertible Notes as of September 30, 2024. -20- ZIFF DAVIS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued As of September 30, 2024, $ 149.1 million of principal of 1.75 % Convertible Notes will mature in 2026, $ 263.1 million of principal of 3.625 % Convertible Notes will mature in 2028, and $ 460.0 million of principal of 4.625 % Senior Notes will mature in 2030. 4.625 % Senior Notes On October 7, 2020, the Company completed the issuance and sale of $ 750.0 million aggregate principal amount of its 4.625 % senior notes due 2030 (the “ 4.625 % Senior Notes”) in a private placement offering exempt from the registration requirements of the Securities Act of 1933, as amended. The Company received proceeds of $ 742.7 million, net of the initial purchasers’ discounts, commissions and offering expenses. The net proceeds were used to redeem all of its then outstanding 6.0 % Senior Notes due in 2025 and, the remaining net proceeds were available for general corporate purposes which may include acquisitions and the repurchase or redemption of other outstanding indebtedness. These senior notes bear interest at a rate of 4.625 % per annum, payable semi-annually in arrears on April 15 and October 15 of each year, commencing on April 15, 2021. The 4.625 % Senior Notes mature on October 15, 2030, and are senior unsecured obligations of the Company which are guaranteed, jointly and severally, on an unsecured basis by certain of the Company’s existing and future domestic direct and indirect wholly-owned subsidiaries (collectively, the “Guarantors”). If the Company or any of its restricted subsidiaries acquires or creates a domestic restricted subsidiary, other than an Insignificant Subsidiary (as defined in the indenture pursuant to which the 4.625 % Senior Notes were issued (the “Indenture”)), after the issue date, or any Insignificant Subsidiary ceases to fit within the definition of Insignificant Subsidiary, such restricted subsidiary is required to unconditionally guarantee, jointly and severally, on an unsecured basis, the Company’s obligations under the 4.625 % Senior Notes. The Company may redeem some or all of the 4.625 % Senior Notes at any time on or after October 15, 2025 at specified redemption prices plus accrued and unpaid interest, if any, up to, but excluding the redemption date. In addition, at any time prior to October 15, 2025, the Company may redeem some or all of the 4.625 % Senior Notes at a price equal to 100 % of the principal amount, plus accrued and unpaid interest, if any, to the redemption date, plus an applicable “make-whole” premium. The discount and deferred issuance costs are being amortized, at an effective interest rate of 4.7 %, to interest expense through the maturity date. The Indenture contains covenants that restrict the Company’s ability to (i) pay dividends or make distributions on the Company’s common stock or repurchase the Company’s capital stock; (ii) make certain restricted payments; (iii) create liens or enter into sale and leaseback transactions; (iv) enter into transactions with affiliates; (v) merge or consolidate with another company; and (vi) transfer and sell assets. These covenants contain certain exceptions. Restricted payments are applicable only if the Company and subsidiaries designated as restricted subsidiaries have a net leverage ratio of greater than 3.5 to 1.0. In addition, if such net leverage ratio is in excess of 3.5 to 1.0, the restriction on restricted payments is subject to various exceptions, including the total aggregate amount not exceeding the greater of (A) $ 250 million and (B) 50.0 % of EBITDA for the most recently ended four fiscal quarter period ended immediately prior to such date for which internal financial statements are available. The Company is in compliance with its debt covenants for the 4.625 % Senior Notes as of September 30, 2024. Cumulatively as of September 30, 2024, the Company has repurchased approximately $ 290 million in aggregate principal of its 4.625 % Senior Notes. There were no repurchases of 4.625 % Senior Notes during the three and nine months ended September 30, 2024 and September 30, 2023. 1.75 % Convertible Notes On November 15, 2019, the Company issued $ 550.0 million aggregate principal amount of 1.75 % convertible senior notes due November 1, 2026 (the “ 1.75 % Convertible Notes”). The Company received proceeds of $ 537.1 million in cash, net of purchasers’ discounts and commissions and other debt issuance costs. A portion of the net proceeds were used to pay off all amounts outstanding under the then-existing credit facility. The 1.75 % Convertible Notes bear interest at a rate of 1.75 % per annum, payable semiannually in arrears on May 1 and November 1 of each year, beginning on May 1, 2020. The 1.75 % Convertible Notes will mature on November 1, 2026, unless earlier converted or repurchased. On July 16, 2024, the Company exchanged approximately $ 400.9 million in aggregate principal amount of its 1.75 % Convertible Notes as part of the Exchange Transaction, as defined below. As of September 30, 2024, the remaining principal amount of the 1.75 % Convertible Notes was $ 149.1 million. The Company also paid outstanding and accrued interest of $ 1.5 million on the exchanged 1.75 % Convertible Notes during the three months ended September 30, 2024. Under certain conditions set forth in the indenture, the 1.75 % Convertible Notes bear additional interest of 0.50 % per annum payable semiannually in arrears on May 1 and November 1 of each year, beginning on May 1, 2021. During the three and nine months ended September 30, 2023, the Company recorded $ 0.3 million and $ 7.7 million of interest expense related to the 1.75 % Convertible Notes for such additional interest. In August 2023, $ 7.0 million of this interest obligation was paid by the Company to the trustee under the indenture for the 1.75 % Convertible Notes, which was paid to holders of record in August -21- ZIFF DAVIS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued 2023. The Company paid its remaining obligation of approximately $ 0.7 million as of November 1, 2023. As of August 1, 2023, the Company has complied with the conditions set forth in the indenture. As such, the cumulative $ 7.7 million interest expense was non-recurring. Holders may surrender their 1.75 % Convertible Notes for conversion at any time prior to the close of business on the business day immediately preceding July 1, 2026 only under the following circumstances: (i) during any calendar quarter commencing after the calendar quarter ending on March 31, 2020 (and only during such calendar quarter), if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding the calendar quarter is greater than 130 % of the applicable conversion price of the 1.75 % Convertible Notes on each such applicable trading day; (ii) during the five business day period following any 10 consecutive trading day period in which the trading price per $1,000 principal amount of 1.75 % Convertible Notes for each trading day of the measurement period was less than 98 % of the product of the last reported sale price of the Company’s common stock and the applicable conversion rate on each such trading day; or (iii) upon the occurrence of specified corporate events. On or after July 1, 2026, and prior to the close of business on the business day immediately preceding the maturity date, holders may convert all or any portion of their notes at any time, regardless of the foregoing circumstances. The Company will settle conversions of the 1.75 % Convertible Notes by paying or delivering, as the case may be, cash, shares of the Company’s common stock or a combination thereof at the Company’s election. The Company currently intends to satisfy its conversion obligation by paying and delivering a combination of cash and shares of the Company’s common stock. Holders of the notes will have the right to require the Company to repurchase for cash all or any portion of their notes upon the occurrence of certain corporate events, subject to certain conditions. As of September 30, 2024 and December 31, 2023, the market trigger conditions did not meet the conversion requirements of the 1.75 % Convertible Notes and, accordingly, the 1.75 % Convertible Notes are classified as long-term debt on our Condensed Consolidated Balance Sheets. As of September 30, 2024, the conversion rate is 9.3783 shares of the Company’s common stock for each $1,000 principal amount of 1.75 % Convertible Notes (or 1,398,391 shares), which represents a conversion price of approximately $ 106.63 per share of the Company’s common stock. The conversion rate is subject to adjustment for certain events as set forth in the indenture governing the 1.75 % Convertible Notes, but will not be adjusted for accrued interest. In addition, upon the occurrence of a “Make-Whole Fundamental Change” (as defined in the 1.75 % Convertible Note indenture), the Company will increase the conversion rate for a holder that elects to convert its 1.75 % Convertible Notes in connection with such a corporate event in certain circumstances. The Company may not redeem the 1.75 % Convertible Notes prior to November 1, 2026, and no sinking fund is provided for the 1.75 % Convertible Notes. The 1.75 % Convertible Notes are the Company’s general senior unsecured obligations and rank: (i) senior in right of payment to any of the Company’s indebtedness that is expressly subordinated in right of payment to the 1.75 % Convertible Notes; (ii) equal in right of payment to the Company’s existing and future indebtedness that is not so subordinated; (iii) effectively junior to any of the Company’s secured indebtedness to the extent of the value of the assets securing such indebtedness; and (iv) structurally junior to all existing and future indebtedness and other liabilities incurred by the Company’s subsidiaries. The following table provides the components of interest expense related to the 1.75 % Convertible Notes (in thousands): Three months ended September 30, Nine months ended September 30, 2024 2023 2024 2023 Contractual interest expense $ 964 $ 2,746 $ 5,777 $ 14,963 Amortization of discount and deferred issuance costs 185 466 1,128 1,395 Total interest expense related to 1.75 % Convertible Notes $ 1,149 $ 3,212 $ 6,905 $ 16,358 -22- ZIFF DAVIS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued 3.625 % Convertible Notes 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 Exchange Transaction was accounted for as a debt modification, and accordingly, no gain or loss was recognized. In connection with the Exchange Transaction, the Company recognized an increase in the fair value of the conversion feature of the 3.625 % Convertible Notes compared to the fair value of the conversion feature of the 1.75 % Convertible Notes of $ 4.0 million, partially offset by an increase to deferred tax liabilities of $ 1.0 million, which is included in ‘Additional paid-in capital’ on the Condensed Consolidated Balance Sheets, and a corresponding reduction to the carrying value of the 3.625 % Convertible Notes. The discount and deferred issuance costs are being amortized, at an effective interest rate of 4.2 %, to interest expense through the maturity date. 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. Holders may surrender their 3.625 % Convertible Notes for conversion at any time prior to the close of business on the business day immediately preceding December 1, 2027 only under the following circumstances: (i) during any calendar quarter commencing after the calendar quarter ending on September 30, 2024 (and only during such calendar quarter), if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130 % of the applicable conversion price of the 3.625 % Convertible Notes on each such applicable trading day; (ii) during the five business day period following any 10 consecutive trading day period in which the trading price per $1,000 principal amount of 3.625 % Convertible Notes for each trading day of the measurement period was less than 98 % of the product of the last reported sale price of the Company’s common stock and the applicable conversion rate on each such trading day; or (iii) upon the occurrence of specified corporate events. On or after December 1, 2027, and prior to the close of business on the business day immediately preceding the maturity date, holders may convert all or any portion of their notes at any time, regardless of the foregoing circumstances, at an initial conversion rate of 10 shares of the Company’s common stock per $1,000 principal amount of 3.625 % Convertible Notes. The Company will settle conversions of the 3.625 % Convertible Notes by paying or delivering, as the case may be, cash, shares of the Company’s common stock or a combination thereof at the Company’s election. Holders of the notes will have the right to require the Company to repurchase for cash all or any portion of their notes upon the occurrence of certain corporate events, subject to certain conditions. As of September 30, 2024, the market trigger conditions did not meet the conversion requirements of the 3.625 % Convertible Notes and, accordingly, the 3.625 % Convertible Notes are classified as long-term debt on our Condensed Consolidated Balance Sheets. As of September 30, 2024, the conversion rate of the 3.625 % Convertible Notes is 10 shares per $1,000 principal amount of the 3.625 % Convertible Notes (or 2,631,470 shares), which represents an initial conversion price of $ 100 per share. The conversion rate is subject to adjustment upon the occurrence of certain specified events as set forth in the indenture governing the 3.625 % Convertible Notes, but will not be adjusted for accrued and unpaid interest. In addition, upon the occurrence of a “Make-Whole Fundamental Change”, as defined in the 3.625 % Convertible Note Indenture, the Company will in certain circumstances increase the conversion rate for a holder that elects to convert its 3.625 % Convertible Notes in connection with such a corporate event. The Company may not redeem the 3.625 % Convertible Notes prior to the maturity date, and no sinking fund is provided for the 3.625 % Convertible Notes. The 3.625 % Convertible Notes are the Company’s general senior unsecured obligations and rank: (i) senior in right of payment to any of the Company’s indebtedness that is expressly subordinated in right of payment to the 3.625 % Convertible Notes; (ii) equal in right of payment to the Company’s existing and future indebtedness that is not so subordinated; (iii) effectively junior to any of the Company’s secured indebtedness to the extent of the value of the assets securing such indebtedness; and (iv) structurally junior to all existing and future indebtedness and other liabilities incurred by the Company’s subsidiaries. -23- ZIFF DAVIS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued The following table provides the components of interest expense related to the 3.625 % Convertible Notes (in thousands): Three months ended September 30, 2024 Coupon interest expense $ 1,987 Amortization of discount and debt issuance costs 258 Total interest expense related to 3.625 % Convertible Notes $ 2,245 Credit Agreement On April 7, 2021, the Company entered into a $ 100.0 million credit agreement (as amended, 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, (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. At the Company’s option, amounts borrowed under the Credit Agreement will bear interest at either (i) a base rate equal to the greater of (x) the Federal Funds Effective Rate (as defined in the Credit Agreement) in effect on such day plus 0.5 % per annum, (y) the rate of interest per annum most recently announced by the Agent (as defined in the Credit Agreement) as its U.S. Dollar “Reference Rate”, and (z) one month Term SOFR (as defined in the Credit Agreement) plus a credit spread adjustment plus 1.00 % or (ii) a rate per annum equal to Term SOFR plus a credit spread adjustment, in each case, plus an applicable margin. The applicable margin relating to any base rate loan will range from 0.50 % to 1.25 % and the applicable margin relating to any Term SOFR loan will range from 1.50 % to 2.25 %, in each case, depending on the total leverage ratio of the Company, plus a credit spread adjustment equal to 0.10 %. The Company is permitted to make voluntary prepayments of the Credit Facility at any time without payment of a premium or penalty. The Credit Agreement is secured by an associated collateral agreement that provides for a lien on the majority of the Company’s assets and the assets of the guarantors, in each case, subject to customary exceptions. As of September 30, 2024, there were no amounts outstanding under the Credit Agreement. As of each September 30, 2024 and December 31, 2023, net availability under the Credit Agreement was $ 350.0 million. The Credit Agreement contains financial maintenance covenants, including (i) a maximum total leverage ratio as of the last date of any fiscal quarter not to exceed 4.00 :1.00 for the Company and its restricted subsidiaries and (ii) a minimum interest coverage ratio as of the last date of any fiscal quarter not less than 3.00 :1.00 for the Company and its restricted subsidiaries. The Credit Agreement also contains restrictive covenants that limit, among other things, the Company’s and its restricted subsidiaries’ ability to incur additional indebtedness, create, incur or assume liens, consolidate, merge, liquidate or dissolve, pay dividends or make other distributions or other restricted payments, make or hold certain investments, enter into certain transactions with affiliates, sell assets other than on terms specified by the Credit Agreement, amend the terms of certain other indebtedness and organizational documents, and change their lines of business and fiscal years, in each case, subject to customary exceptions. The Credit Agreement also sets forth customary events of default, including, among other things, the failure to make timely payments under the credit facility, the failure to satisfy certain covenants, cross-default and cross-acceleration to other material debt for borrowed money, the occurrence of a change of control, and specified events of bankruptcy and insolvency. The Company is in compliance with its debt covenants for the Credit Agreement as of September 30, 2024. -24- ZIFF DAVIS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued 8. Commitments and Contingencies Commitments In the ordinary course of business, the Company enters into commitments including those related to cloud computing, information technology, security, and information and document management. The Company also has revenue sharing arrangements with annual minimum guarantees based upon third-party website advertising metrics and other contractual provisions. Litigation From time to time, the Company and its affiliates are involved in litigation and other legal disputes or regulatory inquiries that arise in the ordinary course of business. Any claims or regulatory actions against the Company and its affiliates, whether meritorious or not, could be time consuming and costly, and could divert significant operational resources. The outcomes of such matters are subject to inherent uncertainties, carrying the potential for unfavorable rulings that could include monetary damages and injunctive relief. The Company does not believe, based on current knowledge, that any such legal proceedings or claims, including those set forth below, after giving effect to existing accrued liabilities, are likely to have a material adverse effect on the Company’s consolidated financial position, results of operations, or cash flows. However, depending on the amount and timing, an unfavorable resolution of some or all of these matters could have a material effect on the Company’s consolidated financial position, results of operations, or cash flows in a particular period. Although the Company cannot predict the outcome of legal or other proceedings with certainty, where there is at least a reasonable possibility that a loss may have been incurred, GAAP requires us to disclose an estimate of the reasonably possible loss or range of loss or make a statement that such an estimate cannot be made. The Company follows a thorough process in which it seeks to estimate the reasonably possible loss or range of loss, and only if it is unable to make such an estimate does it conclude and disclose that an estimate cannot be made. Accordingly, unless otherwise indicated below in our discussion of litigation, a reasonably possible loss or range of loss associated with any individual legal proceeding cannot be estimated. On July 8, 2020, Jeffrey Garcia filed a putative class action lawsuit against the Company in the Central District of California (20-cv-06096), alleging violations of federal securities laws. The court appointed a lead plaintiff. The Company moved to dismiss the consolidated class action complaint. The court granted the motion to dismiss and the plaintiff filed an amended complaint. The Company moved to dismiss the amended complaint. On August 8, 2022, the court granted the Company’s motion to dismiss the amended complaint without leave to amend. The lead plaintiff appealed the dismissal. On April 19, 2024, the Ninth Circuit Court of Appeals affirmed the dismissal. On December 11, 2020, Danning Huang filed a lawsuit in the District of Delaware (20-cv-01687-LPS) asserting derivative claims against directors of the Company and other third parties. The lawsuit alleges violations of Section 14(a), Section 10(b), Section 20(a) and Rule 10b-5 of the Securities Exchange Act of 1934, as well as breach of fiduciary duty, unjust enrichment and abuse of control. On March 24, 2021, Fritz Ringling filed a lawsuit in the District of Delaware (21-cv-00421-UNA) asserting substantially similar derivative claims, and on April 8, 2021, the district court consolidated the two actions under the caption In re J2 Global Stockholder Derivative Litigation. No.: 20-cv-01687-LPS. On June 4, 2024, the plaintiffs in the consolidated case dismissed their claims without prejudice. The Company has not accrued for any material loss contingencies relating to these legal proceedings because materially unfavorable outcomes are not considered probable by management. It is the Company’s policy to expense as incurred legal fees related to various litigations. Non-Income Related Taxes The Company does not collect and remit sales and use, telecommunication, or similar taxes and fees in certain jurisdictions where the Company believes such taxes are not applicable or legally required. Several states and other taxing jurisdictions have presented or threatened the Company with assessments, alleging that the Company is required to collect and remit such taxes there. The Company is currently under audit or is subject to audit for indirect taxes in various states, municipalities, and foreign jurisdictions. The Company recognizes a liability for these matters when it is probable that an obligation exists and the amount can be reasonably estimated based on all relevant information that is available at each reporting period. The Company established reserves for these matters of $ 26.9 million and $ 28.1 million as of September 30, 2024 and December 31, 2023, respectively, which are included in ‘Accounts payable’ and ‘Other long-term liabilities’ on the Condensed Consolidated Balance Sheet. It is reasonably possible that additional liabilities could be incurred resulting in additional expense, -25- ZIFF DAVIS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued which could have a material impact to our financial results, however, as of September 30, 2024 any potential range of loss is not estimable. 9. Income Taxes The Company’s tax provision for interim periods is determined using an estimate of the Company’s annual effective tax rate adjusted for discrete interim period tax impacts. Each quarter the Company updates its estimated annual effective tax rate and, if the estimate changes, makes a cumulative adjustment. The Company’s 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 Company’s effective tax rate for the three and nine months ended September 30, 2024 was disproportionately impacted by the goodwill impairment of $ 85.3 million related to the reassessment of the fair value of certain reporting units within the Digital Media reportable segment, for which no corresponding tax benefit was recorded since it entirely related to the excess financial statement goodwill with no tax basis. Additionally, during the nine months ended September 30, 2024, the Company recognized a net valuation allowance against a portion of its U. S. capital loss carryforwards, which resulted in a discrete tax charge of $ 2.5 million. The Company’s effective tax rate for the three and nine months ended September 30, 2023 was disproportionately impacted by the goodwill impairment of $ 56.9 million related to the reassessment of the fair value of one of the reporting units within the Digital Media reportable segment, for which no corresponding tax benefit was recorded since it entirely related to excess financial statement goodwill with no tax basis. As of September 30, 2024 and December 31, 2023, the Company had $ 37.0 million and $ 36.1 million, respectively, in liabilities for uncertain income tax positions included in ‘Other long-term liabilities’ on the Condensed Consolidated Balance Sheets. Accrued interest and penalties related to unrecognized tax benefits associated with uncertain tax positions are recognized in income tax expense in our Condensed Consolidated Statements of Operations. As of September 30, 2024 and December 31, 2023, the Company’s prepaid taxes were $ 1.3 million and $ 4.7 million, respectively, and are included in ‘Prepaid expenses and other current assets’ in our Condensed Consolidated Balance Sheets. 10. Stockholders’ Equity On August 6, 2020, the Company’s Board of Directors (the “Board”) approved a program authorizing the repurchase of up to ten million shares of the Company’s common stock through August 6, 2025 (the “2020 Program”). The Company entered into certain Rule 10b5-1 trading plans to execute repurchases under 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 authorized for repurchase under the 2020 Program increased to up to 15 million shares of the Company’s common stock. During the three and nine months ended September 30, 2024, the Company repurchased 2,000,000 and 3,500,000 shares, respectively under the 2020 Program at an aggregate cost of approximately $ 96.9 million and $ 181.8 million, respectively, including excise tax. During the three and nine months ended September 30, 2023, the Company repurchased 605,428 and 1,585,846 shares, respectively under the 2020 Program at an aggregate cost of approximately $ 41.0 million and $ 104.9 million, respectively, including excise tax. Cumulatively as of September 30, 2024, 8,758,692 shares were repurchased under the 2020 Program, at an aggregate cost of $ 583.6 million, including excise tax. As a result of the repurchases, the number of shares of the Company’s common stock available for purchase as of September 30, 2024 was 6,241,308 shares. Periodically, participants in the Company’s share-based compensation plans surrender to the Company shares of stock to pay the exercise price or to satisfy tax withholding obligations arising upon the exercise of stock options or the vesting of restricted stock and restricted stock units. During the three months ended September 30, 2024 and 2023, the Company purchased and retired 2,464 and 9,479 shares, respectively, at an aggregate cost of approximately $ 0.1 million and $ 0.2 million, respectively, from plan participants for this purpose. During the nine months ended September 30, 2024 and 2023, the Company purchased and retired 62,054 and 51,354 shares, respectively, at an aggregate cost of approximately $ 4.1 million and $ 3.5 million, respectively, from plan participants for this purpose. -26- ZIFF DAVIS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued 11. Share-Based Compensation The Company’s share-based compensation plans include the Ziff Davis, Inc. 2024 Equity Incentive Plan (the “2024 Plan”), the 2015 Stock Option Plan (the “2015 Plan”), and 2001 Employee Stock Purchase Plan (the “Purchase Plan”). Each plan is described below. On May 7, 2024, the 2024 Plan was approved by the stockholders of the Company and replaced the 2015 Stock Option Plan. The 2024 Plan permits the Company to issue shares of common stock to or for the benefit of employees, consultants, and non-employee directors of the Company and its subsidiaries as part of their compensation. The 2024 Plan provides for the grant of stock options, restricted stock, stock appreciation rights, restricted stock units, performance-based awards, and other incentive awards. Shares authorized but unissued under the 2015 Plan that were not subject to outstanding awards under the 2015 Plan as of May 7, 2024 were canceled. The total number of shares of the Company’s common stock that may be issued under the 2024 Plan shall not exceed 3,500,000 shares, plus any Returned Shares, as defined in the 2024 Plan, under the 2015 Plan and any shares under the 2024 Plan that are subsequently forfeited, canceled, reacquired by the Company, satisfied or are otherwise terminated (other than by exercise) or used to pay tax withholding obligations with respect to outstanding awards issued under the 2024 Plan. The 2024 Plan will expire on March 21, 2034, unless earlier terminated by the Board. Awards outstanding under the 2015 Plan were not impacted by the approval of the 2024 Plan. Collectively, the 2015 Plan and 2024 Plan are referred to herein as “Plans.” As of September 30, 2024, 435,135 shares underlying options and 694,769 shares of restricted stock units were outstanding under the Plans. As of September 30, 2024, there were 3,582,306 additional shares underlying options, shares of restricted stock and other share-based awards available for grant under the 2024 Plan. Share-Based Compensation Expense The following table presents share-based compensation expense recorded in the Condensed Consolidated Statements of Operations during the periods presented (in thousands): Three months ended September 30, Nine months ended September 30, 2024 2023 2024 2023 Direct costs $ 68 $ 76 $ 191 $ 246 Sales and marketing 1,014 323 2,865 2,285 Research, development, and engineering 769 840 2,930 2,581 General, administrative, and other related costs 8,310 5,535 24,647 19,281 Total share-based compensation expense $ 10,161 $ 6,774 $ 30,633 $ 24,393 Restricted Stock and Restricted Stock Units The Company has awarded restricted stock and restricted stock units to its Board and senior staff pursuant to the Plans. Compensation expense resulting from restricted stock and restricted unit grants is measured at fair value on the date of grant and is recognized as share-based compensation expense over the applicable vesting period. Vesting periods are approximately one year for awards to members of the Company’s Board, generally three to four years for senior staff (excluding market-based awards discussed below) and three to eight years for the Chief Executive Officer. The Company granted 394,994 and 296,705 shares of restricted stock units (excluding awards with market conditions below) (“RSUs”) during the nine months ended September 30, 2024 and 2023, respectively. The Company has awarded certain key employees market-based restricted stock (“PSAs”) and market-based restricted stock units (“PSUs”) pursuant to the Plans. Market-based awards granted prior to 2024 have vesting conditions that are based on specified stock price targets of the Company’s common stock. Market conditions were factored into the grant date fair value using a Monte Carlo valuation model, which utilized multiple input variables to determine the probability of the Company achieving the specified stock price targets with a 20 -day and 30 -day look back (trading days). During the nine months ended September 30, 2023, the Company awarded 167,606 PSUs at stock price targets ranging from $ 83.61 to $ 103.76 per share. During the nine months ended September 30, 2024, the Company awarded 308,970 equity classified PSUs that vest in shares of the Company’s stock ranging from 0 % to 200 % of the award based on the Company’s attainment of a relative Total Shareholder Return (“TSR”) target compared to the TSR of all listed companies in a market index over the respective one, two, and three-year performance periods. Market conditions were factored into the grant date fair value using a Monte Carlo valuation model, which utilized multiple input variables to determine the probability of the Company and all listed companies in a market index achieving the relative TSR targets. -27- ZIFF DAVIS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued Share-based compensation expense related to an award with a market condition is recognized over the requisite service period using the graded-vesting method regardless of whether the market condition is satisfied, provided that the requisite service period has been completed. The per share weighted average grant-date fair value for the PSUs granted during the nine months ended September 30, 2024 and 2023 were $ 87.17 and $ 70.07 , respectively. The assumptions used in determining the weighted-average fair values of PSUs granted during the periods presented are as follows: Nine months ended September 30, 2024 2023 Underlying stock price at valuation date $ 66.88 $ 77.80 Expected volatility 32.9 % 32.0 % Risk-free interest rate 4.3 % 4.1 % Restricted stock award (“RSA”) and PSA activity for the nine months ended September 30, 2024 is set forth below: RSAs PSAs Number of Shares Weighted Average Grant Date Fair Value Number of Shares Weighted Average Grant Date Fair Value Nonvested at January 1, 2024 95,718 $ 70.17 163,181 $ 36.27 Granted — $ — — $ — Vested ( 41,170 ) 71.73 — — Forfeited ( 154 ) 77.75 — — Nonvested at September 30, 2024 54,394 $ 68.97 163,181 $ 36.27 Restricted stock unit activity for the nine months ended September 30, 2024 is set forth below: RSUs PSUs Number of Shares Weighted Average Grant Date Fair Value Number of Shares (1) Weighted Average Grant Date Fair Value Outstanding at January 1, 2024 506,425 $ 88.36 270,772 $ 77.09 Granted 394,994 65.24 308,970 87.17 Vested ( 132,003 ) 83.91 — — Forfeited ( 74,647 ) 75.63 ( 47,015 ) 79.49 Outstanding at September 30, 2024 694,769 $ 77.40 532,727 $ 82.71 (1) Represents the number of shares at 100% achievement. As of September 30, 2024, the Company had unrecognized share-based compensation cost of approximately $ 61.4 million associated with these restricted stock awards and restricted stock units. This cost is expected to be recognized over a weighted-average period of 1.3 years for RSAs and PSAs and 2.2 years for RSUs and PSUs. -28- ZIFF DAVIS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued 12. Earnings Per Share The components of basic and diluted earnings (loss) per share are as follows (in thousands, except share and per share data): Three months ended September 30, 2024 2023 Basic Diluted Basic Diluted Numerator for basic and diluted net loss per common share: Net loss $ ( 48,577 ) $ ( 48,577 ) $ ( 30,971 ) $ ( 30,971 ) Plus: Convertible Notes interest expense (after-tax) — — — — Net income available to the Company’s common shareholders $ ( 48,577 ) $ ( 48,577 ) $ ( 30,971 ) $ ( 30,971 ) Denominator: Basic weighted-average outstanding shares of common stock 43,924,158 43,924,158 46,062,097 46,062,097 Dilutive effect of: Equity incentive plans — — — — Convertible debt — — — — Diluted weighted-average outstanding shares of common stock 43,924,158 43,924,158 46,062,097 46,062,097 Net loss per share $ ( 1.11 ) $ ( 1.11 ) $ ( 0.67 ) $ ( 0.67 ) Nine months ended September 30, 2024 2023 Basic Diluted Basic Diluted Numerator for basic and diluted net loss per common share: Net loss $ ( 1,040 ) $ ( 1,040 ) $ ( 21,919 ) $ ( 21,919 ) Plus: Convertible Notes interest expense (after-tax) — — — — Net income available to the Company’s common shareholders $ ( 1,040 ) $ ( 1,040 ) $ ( 21,919 ) $ ( 21,919 ) Denominator: Basic weighted-average outstanding shares of common stock 45,088,272 45,088,272 46,612,660 46,612,660 Dilutive effect of: Equity incentive plans — — — — Convertible debt — — — — Diluted weighted-average outstanding shares of common stock 45,088,272 45,088,272 46,612,660 46,612,660 Net loss per share $ ( 0.02 ) $ ( 0.02 ) $ ( 0.47 ) $ ( 0.47 ) For the three and nine months ended September 30, 2024 and 2023, there were 1,879,840 and 1,512,611 shares, respectively, of stock options and restricted stock excluded from the calculation of diluted shares as they were anti-dilutive due to the net loss during the 2024 and 2023 periods. For the three months ended September 30, 2024 and 2023, 4,213,808 and 5,158,071 shares, respectively, related to convertible debt were excluded from diluted shares because they were anti-dilutive under the if-converted method for the diluted net income per share calculation of the convertible debt instrument. For the nine months ended September 30, 2024 and 2023, 5,406,679 and 5,158,071 shares, respectively, related to convertible debt were excluded from diluted shares because they were anti-dilutive under the if-converted method for the diluted net income per share calculation of convertible debt instruments. -29- ZIFF DAVIS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued 13. Segment Information The Company’s businesses are based on the organizational structure used by the chief operating decision maker (“CODM”). The Company aggregates its operating segments into two reportable segments: Digital Media and Cybersecurity and Martech. The accounting policies of the businesses are the same as those described in the Company’s Annual Report on Form 10-K filed with the SEC on February 26, 2024. The Company evaluates performance based on revenue and profit or loss from operations. Information on reportable segments and reconciliation to income from operations is as follows (in thousands): Three months ended September 30, Nine months ended September 30, 2024 2023 2024 2023 Revenue by reportable segment: Digital Media $ 283,567 $ 267,951 $ 774,436 $ 755,032 Cybersecurity and Martech 70,039 73,051 214,475 219,263 Elimination of inter-segment revenues (1) ( 26 ) ( 17 ) ( 46 ) ( 152 ) Total segment revenues 353,580 340,985 988,865 974,143 Corporate — — — — Total revenues $ 353,580 $ 340,985 $ 988,865 $ 974,143 Operating costs and expenses by reportable segment (2) : Digital Media 308,309 280,856 732,554 702,752 Cybersecurity and Martech 55,158 60,541 168,638 181,633 Elimination of inter-segment operating expenses ( 26 ) ( 17 ) ( 46 ) ( 152 ) Total segment operating expenses 363,441 341,380 901,146 884,233 Corporate (3) 19,443 12,924 52,593 38,019 Total operating costs and expenses 382,884 354,304 953,739 922,252 Operating income (loss) by reportable segment: Digital Media operating (loss) income ( 24,742 ) ( 12,905 ) 41,882 52,280 Cybersecurity and Martech operating income 14,881 12,510 45,837 37,630 Total segment operating (loss) income ( 9,861 ) ( 395 ) 87,719 89,910 Corporate (3) ( 19,443 ) ( 12,924 ) ( 52,593 ) ( 38,019 ) (Loss) income from operations $ ( 29,304 ) $ ( 13,319 ) $ 35,126 $ 51,891 (1) Inter-segment revenues relate primarily to the Digital Media reportable segment. (2) Operating expenses for each segment include direct costs and other operating expenses that are directly attributable to the segment, such as employee compensation expense, sales and marketing expenses, engineering and network operations expense, depreciation and amortization, and other administrative expenses. For the three and nine months ended September 30, 2024 and 2023, the Company had an impairment to goodwill within operating costs and expenses for Digital Media. (3) Corporate includes costs associated with general, administrative, and other related costs that are managed on a global basis and that are not directly attributable to any particular segment. -30- ZIFF DAVIS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued 14. Supplemental Cash Flow Information Non-cash investing and financing activities were as follows (in thousands): Nine months ended September 30, 2024 2023 Non-cash investing activity: Property and equipment, accrued but unpaid $ — $ 373 Right-of-use assets acquired in exchange for operating lease obligations $ 1,035 $ 1,282 Purchase of equity investments with common stock $ — $ 13,500 Non-cash financing activity: Increase in fair value of conversion feature on 3.625 % Convertible Notes $ 4,001 $ — Excise tax on share repurchases $ 1,797 $ 1,038 Supplemental data (in thousands): Nine months ended September 30, 2024 2023 Interest paid $ 16,912 $ 22,395 Income taxes paid, net of refunds $ 49,660 $ 47,001 15. Accumulated Other Comprehensive Loss The following table summarizes the changes in accumulated other comprehensive (loss) income, net of tax, for the three months ended September 30, 2024 (in thousands): Unrealized Gains on Investments Foreign Currency Translation Total Balance as of July 1, 2024 $ 815 $ ( 79,150 ) $ ( 78,335 ) Other comprehensive income (loss), net of tax 352 14,514 14,866 Balance as of September 30, 2024 $ 1,167 $ ( 64,636 ) $ ( 63,469 ) The following table summarizes the changes in accumulated other comprehensive loss (income), net of tax, for the nine months ended September 30, 2024 (in thousands): Unrealized Gains on Investments Foreign Currency Translation Total Balance as of January 1, 2024 $ 537 $ ( 72,157 ) $ ( 71,620 ) Other comprehensive income (loss), net of tax 630 7,521 8,151 Balance as of September 30, 2024 $ 1,167 $ ( 64,636 ) $ ( 63,469 ) There were no reclassifications out of accumulated other comprehensive loss for the three and nine months ended September 30, 2024 and 2023, respectively. -31-