ZIFF DAVIS, INC. 10-K

Item 8. Financial Statements and Supplementary Data REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors Ziff Davis, Inc.: Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Ziff Davis, Inc. and subsidiaries (the Company) as of December 31, 2024 and 2023, the related consolidated statements of operations, comprehensive income, cash flows, and stockholders’ equity for each of the years in the two-year period ended December 31, 2024, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2024, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 25, 2025 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Sufficiency of audit evidence over revenue As discussed in Notes 3 and 17 to the consolidated financial statements, the Company had $1,402 million in revenues for the year ended December 31, 2024. There are multiple discrete revenue streams that involve several information technology (IT) applications responsible for the initiation, processing, and recording of revenue transactions. We identified the evaluation of the sufficiency of audit evidence over revenue as a critical audit matter. Evaluating the sufficiency of audit evidence over revenue required subjective auditor judgment to determine the nature and extent of procedures to be performed due to the number of revenue streams, related revenue recognition processes, number of IT applications involved, and the need to involve IT professionals to assist with the performance of certain procedures. The following are the primary procedures we performed to address this critical audit matter. We applied auditor judgment to determine the nature and extent of procedures to be performed over revenue, including the determination of the revenue streams over which those procedures were performed. For the revenue streams where procedures were performed, we evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s revenue processes. We involved IT professionals with specialized skills and knowledge, who assisted in the identification and testing of certain IT -61- systems and related controls that are used by the Company in its revenue recognition processes. For certain revenue streams, we assessed the recorded revenue by selecting a sample of transactions and comparing the amounts recognized for consistency with underlying documentation, including agreements with customers and third-party data. For other revenue streams, we performed a software-assisted data analysis to test relationships among certain revenue transactions. For a sample of transactions, we compared the amounts recognized by the Company with underlying documentation, including contracts with customers and cash receipts. We evaluated the sufficiency of audit evidence obtained over revenue by assessing the results of procedures performed, including the appropriateness of the nature and extent of such evidence. Evaluation of Goodwill impairment As discussed in Notes 2 and 8 to the consolidated financial statements, the Company performs goodwill impairment testing on an annual basis or more frequently if indicators of impairment exist. The Company estimates the fair value of a reporting unit using a weighting of fair values derived from income and market approaches. If the carrying value of a reporting unit exceeds the reporting unit’s fair value, an impairment loss is recognized for the difference. As a result of its impairment testing, the Company recorded a goodwill impairment charge for two reporting units within the Technology and Shopping reportable segment, totaling $ 85.3 million for the year ended December 31, 2024. We identified the evaluation of the fair value used in the goodwill impairment assessment for two reporting units within the Technology and Shopping reportable segment as a critical audit matter. Subjective auditor judgment was required to evaluate the forecasted revenue growth rate and discount rate used in the income approach for each of the reporting units. Changes to these assumptions could have had a significant impact on the fair value of the two reporting units within the Technology and Shopping reportable segment. Additionally, specialized skills and knowledge were required in the evaluation of the discount rates. The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company's goodwill impairment process, including the controls related to the Company’s determination of the forecasted revenue growth rate and discount rate for each reporting unit. We evaluated the forecasted revenue growth rate for each reporting unit by comparing it to the respective reporting unit’s historical revenues, internal communications to management, and other industry market data. We involved valuation professionals with specialized skills and knowledge who, for each reporting unit, assisted in evaluating: • the revenue growth rate by comparing it to the growth rates of comparable companies as well as economic and industry data • the discount rate by comparing it to a discount rate range that was independently developed using publicly available market data for comparable entities and recent acquisitions. s/ KPMG LLP We have served as the Company's auditor since 2023. New York, New York February 25, 2025 -62- REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Shareholders and Board of Directors Ziff Davis, Inc. New York, New York Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows of Ziff Davis, Inc. (the “Company”) for the year ended December 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the results of operations and cash flows of the Company for the year ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion. /s/ BDO USA, P.C. We served as the Company's auditor from 2014 through 2023. Los Angeles, California March 1, 2023, except for Note 17 which is as of February 25, 2025 -63- ZIFF DAVIS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share amounts) December 31, 2024 2023 ASSETS Cash and cash equivalents $ 505,880 $ 737,612 Short-term investments — 27,109 Accounts receivable, net of allowances of $ 8,148 and $ 6,871 , respectively 660,223 337,703 Prepaid expenses and other current assets 105,966 88,570 Total current assets 1,272,069 1,190,994 Long-term investments 158,187 140,906 Property and equipment, net 197,216 188,169 Trade names and trademarks, net 153,019 155,784 Customer relationships, net 215,328 137,250 Other purchased intangibles, net 57,402 32,372 Goodwill 1,580,258 1,546,065 Deferred income taxes 7,487 8,731 Other assets 63,368 70,751 TOTAL ASSETS $ 3,704,334 $ 3,471,022 LIABILITIES AND STOCKHOLDERS’ EQUITY Accounts payable and accrued expenses $ 670,769 $ 216,936 Income taxes payable, current 19,715 14,458 Deferred revenue, current 199,664 184,549 Other current liabilities 9,499 15,890 Total current liabilities 899,647 431,833 Long-term debt 864,282 1,001,312 Deferred revenue, noncurrent 5,504 8,169 Income taxes payable, noncurrent — 8,486 Liability for uncertain tax positions 30,296 36,055 Deferred income taxes 46,018 45,503 Other noncurrent liabilities 47,705 46,666 TOTAL LIABILITIES 1,893,452 1,578,024 Commitments and contingencies (Note 11 ) Preferred stock, $ 0.01 par value. Authorized 1,000,000.00 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 42,848,339 and 46,078,464 shares at December 31, 2024 and 2023, respectively 428 461 Additional paid-in capital 491,891 472,201 Retained earnings 1,401,034 1,491,956 Accumulated other comprehensive loss ( 82,471 ) ( 71,620 ) TOTAL STOCKHOLDERS’ EQUITY 1,810,882 1,892,998 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 3,704,334 $ 3,471,022 See Notes to Consolidated Financial Statements -64- ZIFF DAVIS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except share and per share data) Years ended December 31, 2024 2023 2022 Total revenues $ 1,401,688 $ 1,364,028 $ 1,390,997 Operating costs and expenses: Direct costs 200,323 185,650 184,546 Sales and marketing 519,694 487,365 490,777 Research, development, and engineering 67,373 68,860 74,093 General, administrative, and other related costs 203,461 195,726 181,871 Depreciation and amortization 211,916 236,966 233,400 Goodwill impairment 85,273 56,850 27,369 Total operating costs and expenses 1,288,040 1,231,417 1,192,056 Income from operations 113,648 132,611 198,941 Interest expense, net ( 13,988 ) ( 20,031 ) ( 33,842 ) Gain on debt extinguishment, net — — 11,505 Loss on sale of businesses ( 3,780 ) — — Loss on investments, net ( 7,654 ) ( 28,138 ) ( 53,888 ) Other income (loss), net 4,968 ( 9,468 ) 8,437 Income from continuing operations before income tax expense and income (loss) from equity method investment 93,194 74,974 131,153 Income tax expense ( 41,370 ) ( 24,142 ) ( 57,957 ) Income (loss) from equity method investment, net of tax 11,223 ( 9,329 ) ( 7,730 ) Net income from continuing operations 63,047 41,503 65,466 Loss from discontinued operations, net of tax — — ( 1,709 ) Net income $ 63,047 $ 41,503 $ 63,757 Net income per common share from continuing operations: Basic $ 1.42 $ 0.89 $ 1.39 Diluted $ 1.42 $ 0.89 $ 1.39 Net loss per common share from discontinued operations: Basic $ — $ — $ ( 0.04 ) Diluted $ — $ — $ ( 0.04 ) Net income per common share: Basic $ 1.42 $ 0.89 $ 1.36 Diluted $ 1.42 $ 0.89 $ 1.36 Weighted average shares outstanding: Basic 44,457,071 46,400,941 46,954,558 Diluted 44,519,693 46,464,261 47,025,849 See Notes to Consolidated Financial Statements -65- ZIFF DAVIS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands) Years ended December 31, 2024 2023 2022 Net income $ 63,047 $ 41,503 $ 63,757 Other comprehensive income (loss), net of tax: Foreign currency translation adjustment ( 12,426 ) 13,657 ( 32,479 ) Consensus separation adjustment — — 4,056 Change in fair value on available-for-sale investments, net of tax expense of $ 514 , $ 16 and $ 0 for the years ended December 31, 2024, 2023 and 2023, respectively 1,575 96 272 Other comprehensive (loss) income, net of tax ( 10,851 ) 13,753 ( 28,151 ) Comprehensive income $ 52,196 $ 55,256 $ 35,606 See Notes to Consolidated Financial Statements -66- ZIFF DAVIS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Years ended December 31, 2024 2023 2022 Cash flows from operating activities: Net income $ 63,047 $ 41,503 $ 63,757 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 211,916 236,966 233,400 Non-cash operating lease costs 10,923 11,141 13,412 Share-based compensation 40,915 31,920 26,601 Provision for credit losses (benefit) on accounts receivable 2,898 2,809 ( 255 ) Deferred income taxes, net ( 18,822 ) ( 30,017 ) ( 12,991 ) Gain on extinguishment of debt, net — — ( 11,505 ) Loss on sale of businesses 3,780 — — Goodwill impairment 85,273 56,850 27,369 Changes in fair value of contingent consideration — ( 200 ) ( 2,575 ) (Income) loss from equity method investments ( 11,223 ) 9,329 7,730 Loss on investment, net 7,654 28,138 53,888 Other 3,601 5,159 3,637 Decrease (increase) in: Accounts receivable ( 153,121 ) ( 35,371 ) 14,948 Prepaid expenses and other current assets ( 17,153 ) ( 8,700 ) 9,665 Other assets 11,367 ( 5,574 ) ( 16,240 ) Increase (decrease) in: Accounts payable 171,280 9,419 ( 20,246 ) Deferred revenue 5,043 ( 6,802 ) ( 20,962 ) Accrued liabilities and other current liabilities ( 27,063 ) ( 26,608 ) ( 33,189 ) Net cash provided by operating activities 390,315 319,962 336,444 Cash flows from investing activities: Purchases of property and equipment ( 106,635 ) ( 108,729 ) ( 106,154 ) Acquisition of businesses, net of cash received ( 217,570 ) ( 9,492 ) ( 104,094 ) Purchase of equity investments — ( 11,858 ) — Proceeds from sale of equity investments 19,455 3,174 4,527 Investment in available-for-sale securities — — ( 15,000 ) Proceeds from sale of businesses, net of cash divested 7,860 — — Other ( 565 ) ( 503 ) ( 50 ) Net cash used in investing activities ( 297,455 ) ( 127,408 ) ( 220,771 ) Cash flows from financing activities: Payment of debt ( 134,989 ) — ( 166,904 ) Proceeds from term loan — — 112,286 Debt extinguishment costs ( 277 ) — ( 756 ) Repurchase of common stock ( 185,181 ) ( 108,527 ) ( 78,291 ) Issuance of common stock under employee stock purchase plan 8,371 8,727 9,431 Proceeds from exercise of stock options — — 148 Deferred payments for acquisitions ( 7,842 ) ( 15,241 ) ( 16,116 ) Other ( 1,076 ) 250 ( 630 ) Net cash used in financing activities ( 320,994 ) ( 114,791 ) ( 140,832 ) Effect of exchange rate changes on cash and cash equivalents ( 3,598 ) 7,056 ( 16,890 ) Net change in cash and cash equivalents ( 231,732 ) 84,819 ( 42,049 ) Cash and cash equivalents at beginning of year 737,612 652,793 694,842 Cash and cash equivalents at end of year 505,880 737,612 652,793 See Notes to Consolidated Financial Statements -67- ZIFF DAVIS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (in thousands, except share amounts) Common stock Additional Retained Accumulated other Total Stockholders’ Shares Amount paid-in capital earnings comprehensive loss Equity Balance, January 1, 2022 47,440,137 $ 474 $ 509,122 $ 1,515,358 $ ( 57,222 ) $ 1,967,732 Reclassification of the equity component of 1.75 % Convertible Notes to liability upon adoption of ASU 2020-06 — — ( 88,137 ) 23,436 — ( 64,701 ) Net income — — — 63,757 — 63,757 Other comprehensive loss, net of tax benefit of zero — — ( 206 ) 206 ( 32,207 ) ( 32,207 ) Exercise of stock options 5,439 — 148 — — 148 Issuance of restricted stock, net 493,300 5 ( 6 ) — — ( 1 ) Issuance of shares under employee stock purchase plan 139,992 1 9,430 — — 9,431 Repurchase and retirement of common stock ( 809,422 ) ( 7 ) ( 17,277 ) ( 61,007 ) — ( 78,291 ) Share-based compensation — — 26,601 — — 26,601 Other, net — — 6 ( 3,920 ) 4,056 142 Balance, December 31, 2022 47,269,446 $ 473 $ 439,681 $ 1,537,830 $ ( 85,373 ) $ 1,892,611 Net income — — — 41,503 — 41,503 Other comprehensive income, net of tax expense of $ 16 — — — — 13,753 13,753 Issuance of restricted stock, net 47,274 — ( 6,220 ) 1,573 — ( 4,647 ) Issuance of shares under employee stock purchase plan 161,488 2 8,725 — — 8,727 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 — — 31,920 — — 31,920 Other, net — — 63 565 — 628 Balance, December 31, 2023 46,078,464 $ 461 $ 472,201 $ 1,491,956 $ ( 71,620 ) $ 1,892,998 Net income — — — 63,047 — 63,047 Other comprehensive loss, net of tax benefit of $ 514 — — — — ( 10,851 ) ( 10,851 ) Issuance of restricted stock, net 95,169 — ( 7,632 ) 2,484 — ( 5,148 ) Issuance of shares under employee stock purchase plan 174,706 2 8,369 — — 8,371 Repurchase and retirement of common stock ( 3,500,000 ) ( 35 ) ( 24,973 ) ( 156,822 ) — ( 181,830 ) Share-based compensation — — 40,915 — — 40,915 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 — — 10 369 — 379 Balance, December 31, 2024 42,848,339 $ 428 $ 491,891 $ 1,401,034 $ ( 82,471 ) $ 1,810,882 See Notes to Consolidated Financial Statements -68- ZIFF DAVIS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. The Company Ziff Davis, Inc., together with its subsidiaries (“Ziff Davis”, “the Company”, “our”, “us”, or “we”), is a vertically focused digital media and internet company whose portfolio includes leading brands in technology, shopping, gaming and entertainment, health and wellness, connectivity, cybersecurity, and martech. Our business specializes in the technology, shopping, gaming and entertainment, healthcare, and connectivity markets, offering content, tools, and services to consumers and businesses and provides internet-delivered cloud-based services to consumers and businesses including cybersecurity, privacy, and marketing technology. 2. Basis of Presentation and Summary of Significant Accounting Policies Principles of Consolidation The accompanying consolidated financial statements include the accounts of Ziff Davis and its direct and indirect wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. Use of Estimates The preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, including judgments about investment classifications and the reported amounts of net revenue and expenses during the reporting period. The Company believes that its most significant estimates are those related to revenue recognition, valuation and impairment of investments, its assessment of ownership interests as variable interest entities and the related determination of consolidation, share-based compensation expense, fair value of assets acquired and liabilities assumed in connection with business combinations, long-lived and intangible asset impairment, contingent consideration, income taxes and contingencies, and allowance for credit losses. On an ongoing basis, management evaluates its estimates based on historical experience and on various other factors that the Company believes to be reasonable under the circumstances. Actual results could materially differ from those estimates. Consensus, Inc. Spin-Off and Discontinued Operations On September 21, 2021, the Company announced that its Board of Directors approved its previously announced separation of the cloud fax business (the “Separation”) into an independent publicly traded company, Consensus Cloud Solutions, Inc. (“Consensus”). During the year ended December 31, 2022, the Company recorded $ 1.7 million in income tax expense within ‘(Loss) income from discontinued operations, net of income taxes’ within the Consolidated Statement of Operations related to the finalization of state tax returns related to the Separation. Reclassifications Certain prior year reported amounts have been reclassified to conform to the 2024 presentation. For the year ended December 31, 2022, the Company reclassified depreciation and amortization of $ 11.0 million and $ 222.4 million from ‘Direct costs’ and ‘General, administrative, and other related costs’, respectively, to ‘Depreciation and amortization’ to conform with current period presentation. For the year ended December 31, 2023, the Company reclassified depreciation and amortization of $ 11.6 million and $ 225.3 million from ‘Direct costs’ and ‘General, administrative, and other related costs’, respectively, to ‘Depreciation and amortization’ to conform with current period presentation. Segment Reporting ASC Topic 280, Segment Reporting (“ASC 280”), establishes standards for the way that public business enterprises report information about operating segments in their annual consolidated financial statements and requires that those enterprises report selected information about operating segments in interim financial reports. ASC 280 also establishes standards for related disclosures about products and services, geographic areas and major customers. The Company’s business segments are based on the organization structure used by the chief operating decision maker for making operating and investment decisions and for assessing performance. Following changes to our internal reporting structure, the Company concluded that it has five operating segments which are now presented as the following five reportable segments: 1) Technology & Shopping, 2) Gaming & Entertainment, 3) Health & Wellness, 4) Connectivity, and 5) Cybersecurity & Martech. Prior period segment information is presented on a comparable basis to conform to this new segment presentation with no effect on previously reported consolidated results. Refer to Note 17 — Segment Information for additional detail. -69- ZIFF DAVIS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED Cash and Cash Equivalents The Company considers the balance of its investment in funds that substantially hold securities that mature within three months or less from the date the Company purchases these securities to be cash equivalents. The carrying amount of cash and cash equivalents either approximates fair value due to the short-term maturity of these instruments or are at fair value. Accounts Receivable, net Accounts receivable, net consisted of the following (in thousands): December 31, 2024 2023 Settlement receivables, net $ 296,553 $ — Trade receivables, net 363,670 337,703 Accounts receivable, net $ 660,223 $ 337,703 Settlement receivables, net represent amounts due from third parties that are collected by the Company and passed through to our customers, net of a fee earned by the Company, related to services provided in the facilitation of gift card processing and program management. Settlement receivables, net is associated with our TDS Gift Cards (“TDS”) business, which was acquired in 2024. Refer to Note 4 — Business Acquisitions for details. Allowances for Credit Losses The Company maintains an allowance for credit losses on accounts receivable, which is recorded as a reduction to accounts receivable. Changes in the allowance are classified as ‘General, administrative, and other related costs’ in the Consolidated Statements of Operations. The Company assesses collectability by reviewing accounts receivable on a collective basis where similar characteristics exist and on an individual basis when it identifies specific customers with known disputes or collectability issues. In determining the amount of the allowance for credit losses, the Company considers historical collectability based on past due status. It also considers customer-specific information, current market conditions and reasonable and supportable forecasts of future economic conditions to inform adjustments to historical loss data. On an ongoing basis, management evaluates the adequacy of these reserves. The rollforward of allowance for credit losses on Accounts receivable, net is as follows (in thousands): Years ended December 31, 2024 2023 2022 Beginning balance $ 6,871 $ 6,868 $ 9,811 Increases (decreases) to bad debt expense 2,898 2,809 ( 255 ) Write-offs, net of recoveries ( 1,621 ) ( 2,806 ) ( 2,688 ) Ending balance $ 8,148 $ 6,871 $ 6,868 Investments The Company accounts for its investments in debt securities in accordance with ASC Topic 320, Investments — Debt Securities (“ASC 320”). The Company’s available-for-sale debt securities are carried at an estimated fair value with any unrealized gains or losses, net of taxes, included in accumulated other comprehensive loss on our Consolidated Balance Sheets. All debt securities are accounted for on a specific identification basis. Available-for-sale debt securities with an amortized cost basis in excess of estimated fair value are assessed to determine what amount of that difference, if any, is caused by expected credit losses. Expected credit losses on available-for-sale debt securities are recognized in loss on investments, net on our Consolidated Statements of Operations, and any remaining unrealized losses, net of taxes, are included in accumulated comprehensive loss on our Consolidated Balance Sheets. The Company accounts for its investments in equity securities in accordance with ASC Topic 321, Investments — Equity Securities (“ASC 321”) which requires the accounting for equity investments, other than those accounted for under the equity method of accounting, generally be measured at fair value for equity securities with readily determinable fair values. Equity securities without a readily determinable fair value, which are not accounted for under the equity method of accounting, are measured at their cost, less impairment, if any, and adjusted for observable price changes arising from orderly transactions in the same or similar investment from the same issuer. Any unrealized gains or losses will be reported within earnings on our Consolidated Statements of Operations. -70- ZIFF DAVIS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED The Company assesses whether an other-than-temporary impairment loss on an investment has occurred due to declines in fair value or other market conditions. Refer to Note 5 — Investments for additional information. The Company accounted for its investment in Consensus common stock as an investment in an equity securities, at fair value under the fair value option, and the related fair value gains and losses were recognized in earnings. The fair value of Consensus common stock was readily available as Consensus is a publicly traded company. Concentration of Credit Risk The Company primarily invests its cash, cash equivalents, and marketable securities with major financial institutions primarily within the United States, Canada, United Kingdom, Australia, the European Union, Japan, Denmark, Sweden, and Norway. These investments are made in accordance with the Company’s investment policy with the principal objectives being preservation of capital, fulfillment of liquidity needs, and above market returns commensurate with preservation of capital. The Company’s investment policy also requires that investments in marketable securities be in only highly rated instruments, with limitations on investing in securities of any single issuer. However, these investments are not insured against the possibility of a total or near complete loss of earnings or principal and are inherently subject to the credit risk related to the continued credit worthiness of the underlying issuer and general credit market risks. As of December 31, 2024, the Company’s cash and cash equivalents that were maintained in demand deposit accounts in qualifying financial institutions are insured up to the limit determined by the applicable governmental agency. Variable Interest Entities (“VIE”s) A VIE requires consolidation by the entity’s primary beneficiary. The Company evaluates its investments in entities in which it is involved to determine if the entity is a VIE and if so, whether it holds a variable interest and is the primary beneficiary. The Company has determined that it holds a variable interest in its investment as a limited partner in the OCV Fund I, LP (“OCV Fund”, “OCV” or the “Fund”), as well as in another independent corporation. The Company has concluded that it will not consolidate these VIEs, as it is not the primary beneficiary. OCV qualifies as an investment company under ASC Topic 946, Financial Services, Investment Companies (“ASC 946”). Under ASC Topic 323, Investments — Equity Method and Joint Ventures , an investor that holds investments that qualify for specialized industry accounting for investment companies in accordance with ASC 946 should record its share of the earnings or losses, realized or unrealized, as reported by its equity method investees in the Consolidated Statements of Operations. Fair Value Measurements The Company complies with the provisions of FASB ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”), in measuring fair value and in disclosing fair value measurements. ASC 820 provides a framework for measuring fair value and expands the disclosures required for fair value measurements of financial and non-financial assets and liabilities. The carrying values of cash and cash equivalents, accounts receivable, interest receivable, accounts payable, accrued expenses, interest payable, customer deposits, and long-term debt are reflected in the financial statements at cost. With the exception of certain investments and long-term debt, cost approximates fair value due to the short-term nature of such instruments. The fair value of the Company’s outstanding debt was determined using the quoted market prices of debt instruments with similar terms and maturities when available. As of the same dates, the carrying value of other noncurrent liabilities approximated fair value as the related interest rates approximate rates currently available to the Company. Property and Equipment Property and equipment are stated at cost. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets and is recorded in ‘Depreciation and amortization’ on the Consolidated Statements of Operations based on the function the underlying asset supports. The estimated useful lives of property and equipment range from one to ten years . Fixtures, which are comprised primarily of leasehold improvements are amortized on a straight-line basis over their estimated useful lives or for leasehold improvements, the related lease term, if less. The Company has capitalized certain internal-use software and website development costs which are included in property and equipment and depreciated using a straight-line method over the estimated useful life which is typically three years . -71- ZIFF DAVIS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED Leases The Company determines if an arrangement is a lease at inception. Operating lease right-of-use assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. As most of the Company’s leases do not provide an implicit rate, the Company uses the incremental borrowing rate based on the information available at commencement date of the lease in determining the present value of future payments. The operating lease right-of-use asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred. The lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. Leases with an initial term of twelve months or less are not recorded on the balance sheet and the Company recognizes lease expense for these leases on a straight-line basis over the lease term. There are lease agreements with lease and non-lease components, which are generally accounted for as a single lease component. Impairment or Disposal of Long-Lived Assets The Company accounts for long-lived assets, which include property and equipment, operating lease right-of-use assets, and identifiable intangible assets with finite useful lives (subject to amortization), in accordance with the provisions of ASC Topic 360, Property, Plant, and Equipment (“ASC 360”), which requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability is measured by comparing the carrying amount of an asset to the expected undiscounted future net cash flows generated by the asset. If it is determined that the asset may not be recoverable, and if the carrying amount of an asset exceeds its estimated fair value, an impairment charge is recognized to the extent of the difference. The Company assesses the impairment of identifiable definite-lived intangibles and long-lived assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. If the Company determined that the carrying value of definite-lived intangibles and long-lived assets may not be recoverable based upon the existence of one or more indicators of impairment, it would record an impairment equal to the excess of the carrying amount of the asset over its estimated fair value. Business Combinations and Valuation of Goodwill and Intangible Assets The Company applies the acquisition method of accounting for business combinations in accordance with GAAP and uses estimates and judgments to allocate the purchase price paid for acquisitions to the fair value of the assets, including identifiable intangible assets and liabilities acquired. Such estimates may be based on significant unobservable inputs and assumptions such as, but not limited to, future revenue growth rates, gross and operating margins, customer attrition rates, royalty rates, discount rates, and terminal growth rate assumptions. The Company uses established valuation techniques and may engage reputable valuation specialists to assist with the valuations. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. Fair values are subject to refinement for up to one year after the closing date of an acquisition as information relative to closing date fair values becomes available. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings. Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in a business combination. The Company tests goodwill for impairment annually on October 1st at the reporting unit level, or more frequently if indicators of impairment exist, or if a decision is made to dispose of a business. The Company evaluates its goodwill and indefinite-lived intangible assets for impairment pursuant to ASC Topic 350, Intangibles — Goodwill and Other (“ASC 350”), which provides that goodwill and other intangible assets with indefinite lives are not amortized but tested annually for impairment or more frequently if the Company believes indicators of impairment exist. In connection with the annual impairment test for goodwill, the Company has the option to perform a qualitative assessment in determining whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the Company determines that it was more likely than not that the fair value of the reporting unit is less than its carrying amount, it then performs an impairment test of goodwill. The impairment test involves comparing the fair values of the applicable reporting units with their aggregate carrying values, including goodwill. The Company generally determines the fair value of its reporting units using a mix of an income approach and a market approach. If the carrying value of a reporting unit exceeds the reporting unit’s fair value, an impairment loss is recognized for the difference. During the years ended December 31, 2024, 2023, and 2022, the Company recorded goodwill impairments of $ 85.3 million, $ 56.9 million, and $ 27.4 million, respectively. Refer to Note 8 — Goodwill and Intangible Assets for additional details. The Company did not have intangible assets with indefinite lives during years ended December 31, 2024, 2023, and 2022. -72- ZIFF DAVIS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED Intangible assets resulting from the acquisitions of entities accounted for using the acquisition method of accounting are recorded at the estimated fair value of the assets acquired. Identifiable intangible assets are comprised of purchased customer relationships, trademarks, trade names, and other intangible assets, including developed technologies. The fair values of these identified intangible assets are based upon expected future cash flows or income, which take into consideration certain assumptions such as customer turnover, trade names, and patent lives. These determinations are primarily based upon the Company’s historical experience and expected benefit of each intangible asset. If it is determined that such assumptions are not accurate, then the resulting change will impact the fair value of the intangible asset. Trade names and trademarks are generally amortized on a straight-line basis with an estimated useful life ranging from two to twenty years. The Company amortizes customer relationship assets in a pattern that best reflects the pace at which the asset’s benefits are consumed with useful lives ranging from three to sixteen years. This pattern results in more amortization expense being recognized earlier in the useful life. Other intangible assets subject to amortization are amortized over the period of estimated economic benefit ranging from one to ten years. Amortization expense of definite-lived intangibles assets is included in depreciation and amortization on the Consolidated Statements of Operations. Accounts Payable and Accrued Expenses Accounts payable and accrued expenses consisted of the following (in thousands): December 31, 2024 2023 Accounts payable $ 164,352 $ 123,256 Settlement payables, net 408,747 — Accrued employee related costs 55,800 50,068 Other accrued liabilities 41,870 43,612 Total Accounts payable and accrued expenses $ 670,769 $ 216,936 Settlement payables, net represent amounts owed to our customers related to services provided in the facilitation of gift card processing and program management whereby, as part of our services we collect from third-parties and pass through payment to our customers, net of a fee earned by the Company. Settlement payables, net is associated with our TDS business, which was acquired in 2024. Refer to Note 4 — Business Acquisitions for details. Contingent Consideration Certain of the Company’s acquisition agreements include contingent earn-out arrangements, which are generally based on the achievement of future income thresholds or other metrics. The contingent earn-out arrangements are based upon the Company’s valuations of the acquired companies and reduce the risk of overpaying for acquisitions if the projected financial results are not achieved. The fair values of these earn-out arrangements are included as part of the purchase price of the acquired companies on their respective acquisition dates. For each transaction, the Company estimates the fair value of contingent earn-out payments as part of the initial purchase price and records the estimated fair value of contingent consideration as a liability on the Consolidated Balance Sheets. The Company reviews and re-assesses the estimated fair value of contingent consideration on a quarterly basis, and the updated fair value could be materially different from the initial estimates or prior amounts. Changes in the estimated fair value of its contingent earn-out liabilities and adjustments to the estimated fair value related to changes in all other unobservable inputs are reported in general, administrative, and other related costs on our Consolidated Statements of Operations. Debt Issuance Costs and Debt Discount The Company capitalizes costs incurred with borrowing and issuance of debt securities and records debt issuance costs and discounts as a reduction to the debt amount. These costs and discounts are amortized and included in interest expense over the life of the borrowing using the effective interest method. -73- ZIFF DAVIS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED In August 2020, the FASB issued ASU 2020-06. The provisions of this update simplifies the accounting for convertible instruments by removing certain separation models in ASC 470-20, Debt — Debt with Conversion and Other Options , for convertible instruments. The convertible debt instruments are accounted for as a single liability at the amortized cost if separation is no longer required unless (1) a convertible instrument contains features that require bifurcation as a derivative under ASC Topic 815, Derivatives and Hedging , or (2) a convertible debt instrument was issued at a substantial premium. Similarly, the debt discount, which is equal to the carrying value of the embedded conversion feature upon issuance, is no longer amortized into income as interest expense over the life of the instrument. Additionally, ASU 2020-06 requires the use of the if-converted method to calculate the impact of convertible instruments on diluted earnings per share, which includes the effect of share settlement for instruments that may be settled in cash or shares, except for certain liability-classified share-based payment awards . On January 1, 2022, the Company adopted ASU 2020-06 using the modified retrospective method. The cumulative effect of the changes made on the Consolidated Balance Sheet upon this adoption increased the carrying amount of the 1.75 % Convertible Notes (as defined in Note 9 — Debt below) by approximately $ 85.9 million, increased retained earnings by approximately $ 23.4 million, reduced deferred tax liabilities by approximately $ 21.2 million and reduced additional paid-in capital by approximately $ 88.1 million. Revenue Recognition The Company recognizes revenue when the Company satisfies its obligation by transferring control of the goods or services to its customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. Refer to Note 3 — Revenues for additional details. Share-Based Compensation The Company accounts for share-based awards to employees and non-employees in accordance with the provisions of ASC Topic 718, Compensation — Stock Compensation (“ASC 718”), which requires compensation cost, measured at the grant date fair value, to be recognized over the employee’s requisite service period using the straight-line method. The measurement of share-based compensation expense is based on several criteria, including but not limited to the valuation model used and associated input factors, such as expected term of the award, stock price volatility, risk free interest rate, dividend rate, and award cancellation rate. Certain of these inputs are subjective and are determined using management’s judgment. If differences arise between the assumptions used in determining share-based compensation expense and the actual factors, which become known over time, the Company may change the input factors used in determining future share-based compensation expense. Any such changes could materially impact the Company’s results of operations in the period in which the changes are made and in periods thereafter. The amount of share-based compensation expense recognized in the Consolidated Statements of Operations is net of estimated forfeitures. The forfeiture rate is estimated at the grant date based on historical experience and revised, if necessary, in subsequent periods if actual forfeitures differ from the estimated rate. The expense ultimately recorded is for the awards that vest. 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, and processing fees. Direct costs exclude depreciation and amortization expenses for all periods presented. For the years ended December 31, 2024, 2023, and 2022, direct costs were $ 200.3 million, $ 185.7 million, and $ 184.5 million, respectively. Research, Development, and Engineering Research, development, and engineering costs are costs associated with software design and development and primarily consist of compensation for personnel. Costs incurred during the preliminary project stage are expensed as incurred. Costs for software development incurred during the application development stage are capitalized and amortized over their estimated useful lives. We do not capitalize any costs once the software is ready for its intended use. For the years ended December 31, 2024, 2023, and 2022, research, development, and engineering expenditures were $ 67.4 million, $ 68.9 million, and $ 74.1 million, respectively. Advertising Costs The Company incurs external advertising costs to promote its brands. These costs primarily consist of expenses related to digital advertising on websites and apps of third parties, creative services, trade shows and similar events, marketing expenses, and marketing intelligence expenses. Advertising costs are expensed as incurred. For the years ended December 31, 2024, 2023, and 2022 external advertising costs were $ 114.8 million, $ 120.8 million, and $ 128.8 million, respectively. -74- ZIFF DAVIS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED Foreign Currency Most of the Company’s foreign subsidiaries use the local currency of their respective countries as their functional currency. Assets and liabilities are translated at exchange rates prevailing at the balance sheet dates. Revenues and expenses are translated into U.S. Dollars at average exchange rates for the period. Gains and losses resulting from translation are recorded as a component of accumulated other comprehensive income (loss). Net translation income (loss) was $ 12.4 million, $ 13.7 million, and $( 32.5 ) million for the years ended December 31, 2024, 2023, and 2022, respectively. Realized gains and losses from foreign currency transactions are recognized within ‘Other income (loss), net’ on our Consolidated Statements of Operations. Foreign exchange (losses) gains amounted to $( 1.0 ) million, $( 3.9 ) million, and $ 8.2 million for the years ended December 31, 2024, 2023 and 2022, respectively. Income Taxes The Company’s income is subject to taxation in both the U.S. and numerous foreign jurisdictions. Significant judgment is required in evaluating the Company’s tax positions and determining its provision for income taxes. During the ordinary course of business, there are many transactions and calculations for which the ultimate tax determination is uncertain. The Company establishes reserves for tax-related uncertainties based on estimates of whether, and the extent to which, additional taxes will be due. These reserves for tax contingencies are established when the Company believes that certain positions might be challenged despite the Company’s belief that its tax return positions are fully supportable. The Company adjusts these reserves in light of changing facts and circumstances, such as the outcome of a tax audit or lapse of a statute of limitations. The provision for income taxes includes the impact of reserve provisions and changes to reserves that are considered appropriate. The Company accounts for income taxes in accordance with ASC Topic 740, Income Taxes (“ASC 740”), which requires deferred tax assets and liabilities to be recognized using enacted tax rates for the effect of temporary differences between the book and tax basis of recorded assets and liabilities. ASC 740 also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some or all of the net deferred tax assets will not be realized. Valuation allowances are reviewed quarterly based upon the facts and circumstances known at the time. In assessing valuation allowances, the Company reviews historical and future expected operating results and other factors, including its recent cumulative earnings experience, expectations of future taxable income by taxing jurisdiction and the carryforward periods available for tax reporting purposes, to determine whether it is more likely than not that deferred tax assets are realizable. ASC 740 provides guidance on the minimum threshold that an uncertain income tax benefit is required to meet before it can be recognized in the financial statements and applies to all income tax positions taken by a company. ASC 740 contains a two-step approach to recognizing and measuring uncertain income tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement. If it is not more likely than not that the benefit will be sustained on its technical merits, no benefit will be recorded. Uncertain income tax positions that relate only to timing of when an item is included on a tax return are considered to have met the recognition threshold. The Company recognizes accrued interest and penalties related to uncertain income tax positions in income tax expense on its Consolidated Statements of Operations. Earnings Per Common Share (“EPS”) EPS is calculated pursuant to the two-class method as defined in ASC Topic 260, Earnings per Share (“ASC 260”), which specifies that all outstanding unvested share-based payment awards that contain rights to non-forfeitable dividends or dividend equivalents are considered participating securities and should be included in the computation of EPS pursuant to the two-class method. Basic EPS is calculated by dividing net distributed and undistributed earnings allocated to common shareholders, excluding participating securities, by the weighted-average number of common shares outstanding. The Company’s participating securities consist of its unvested share-based payment awards that contain rights to non-forfeitable dividends or dividend equivalents. The Company applies the if-converted method for the diluted net income per share calculation of convertible debt instruments. -75- ZIFF DAVIS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED Share Repurchases The Company accounts for share repurchases on a trade date basis by allocating cost in excess of par value between retained earnings and additional paid-in capital. The repurchased shares are constructively retired and returned to an authorized but unissued status. In August 2022, the U.S. government enacted the Inflation Reduction Act of 2022, which imposed a 1.0% excise tax on share repurchases made after December 31, 2022. As a result, the Company accrued excise tax in connection with the share repurchases it completed during years ended December 31, 2024 and December 31, 2023. Recent Accounting Pronouncements Recently issued applicable accounting pronouncements adopted In March 2020, the FASB issued 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 cost 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 ASC Topic 848 from December 31, 2022 to December 31, 2024. We adopted this update during the fourth quarter of 2024. The adoption of this update did not have a material impact 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. In addition, the guidance 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 the guidance is to enable investors to better understand an entity’s overall performance and assess potential future cash flows. The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, on a retrospective basis. Early adoption is permitted. We adopted this update for the annual period ended December 31, 2024 and the amendments have been applied retrospectively to all prior periods presented in the consolidated financial statements by expanding certain disclosures, including the disclosure of significant expenses included in our segment measure of profitability. Recently issued applicable accounting pronouncements not yet adopted 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 the purpose of issuing securities 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 do not anticipate that adoption of this update will have a material impact on our consolidated financial statements and related disclosures. 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 of equal to or greater than 5% of the amount computed by multiplying pretax income by statutory income tax rate. The amendments also require 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 5% of total income taxes paid. The amendments eliminate some of the previously required disclosures for all entities relating to estimates of the change in unrecognized tax benefits reasonably possible within twelve months. The amendments in this update are effective on a prospective basis for annual periods beginning after December 15, 2024. Early adoption is permitted. This update will result in the required additional disclosures being included in our consolidated financial statements, once adopted. -76- ZIFF DAVIS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expenses Disaggregation Disclosure (Subtopic 220-40) , which requires disaggregated disclosure of income statement expenses for public business entities. The amendments in this update do not change the expense captions an entity presents on the face of the income statement; rather, they require disaggregation of certain expense captions into specified categories, including but not limited to purchases of inventory, employee compensation, depreciation, amortization, and selling expenses. This update is effective for annual reporting periods beginning after December 15, 2025, and for interim periods within fiscal years beginning after December 15, 2027. This update will result in the required additional disclosures being included in our consolidated financial statements, once adopted. 3. Revenues The following describes the nature of the Company’s primary types of revenue. Advertising and Performance Marketing Advertising and performance marketing revenues are earned primarily from the delivery of advertising services and from marketing, performance marketing, and production services. Revenues from the delivery of advertising services are earned on websites and applications that are owned and operated by the Company and on those websites and applications that are part of the Company’s advertising network. Revenues are primarily earned by generating traffic to the Company’s websites, apps, and third-party platforms on which brands of the Company have a presence and monetizing this traffic. The value provided to the customer is primarily derived from the provision of traffic the Company generates from its specific content within each vertical, as well as data obtained by the website or app traffic. Such revenues are generally recognized over the period in which the products or services are delivered. 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 vast majority of the Company’s advertising and performance marketing revenue is recognized on a gross basis as the Company primarily acts as a “principal” as defined under ASC Topic 606, Revenue from Contracts with Customer (“ASC 606”). Revenues recognized on a gross basis are 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; and (ii) through the Company’s lead-generation business. 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 client gift card programs where we collect the total value of the gift card on our customers’ behalf. Subscription and Licensing Revenues from subscriptions are earned through (i) the granting of access to, or delivery of, data products or services to customers; (ii) usage-based fees, and (iii) reselling various third-party solutions, primarily through the Company’s email security line of business. 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. Third-party solutions, along with the Company’s proprietary products, allow the Company to offer customers a variety of solutions to better meet the customer’s needs. 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. In instances where usage-based fees are charged, 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. Licensing revenues are earned 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. 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 the Company’s clients, revenues from the license of these assets are recognized at a point in time. Licensing revenues also include revenues from transactions involving the sale of perpetual software licenses, related software support, and maintenance. 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. -77- ZIFF DAVIS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED • 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 they are available during the term of the support period. 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 vast majority of the subscription and licensing revenue is recognized on a gross basis as the Company primarily acts as a “principal” as defined under ASC 606. The Company records revenue on a gross basis with respect to revenue generated from the resale of various third-party solutions, primarily through its email security line of business, because the Company has control of the specified good or service prior to transferring control to the customer. 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 those relating to 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. 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 majority of the Company’s other revenue is recognized on a gross basis as the Company primarily acts as a “principal” as defined under ASC 606. The Company records revenue on a net basis with respect to games sold on third-party platforms. -78- ZIFF DAVIS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED Disaggregated Revenues Revenues from external customers classified by revenue source are as follows (in thousands). Year ended December 31, Technology & Shopping 2024 (1) 2023 (1) 2022 (1) Advertising and performance marketing $ 345,655 $ 310,733 $ 354,545 Subscription and licensing 7,158 8,256 10,052 Other 9,069 11,568 20,332 Total Technology & Shopping revenues $ 361,882 $ 330,557 $ 384,929 Gaming & Entertainment Advertising and performance marketing $ 120,788 $ 114,074 $ 112,305 Subscription and licensing 59,468 54,747 54,020 Other 20 — — Total Gaming & Entertainment revenues $ 180,276 $ 168,821 $ 166,325 Health & Wellness Advertising and performance marketing $ 299,474 $ 309,182 $ 304,379 Subscription and licensing 49,538 41,185 21,244 Other 13,396 11,556 10,260 Total Health & Wellness revenues $ 362,408 $ 361,923 $ 335,883 Connectivity Advertising and performance marketing $ 11,926 $ 13,112 $ 16,353 Subscription and licensing 185,994 179,286 159,150 Other 15,700 19,120 15,751 Total Connectivity revenues $ 213,620 $ 211,518 $ 191,254 Cybersecurity & Martech Subscription and licensing $ 283,502 $ 291,209 $ 312,606 Other — — — Total Cybersecurity & Martech revenues $ 283,502 $ 291,209 $ 312,606 Corporate $ — $ — $ — Total Revenues $ 1,401,688 $ 1,364,028 $ 1,390,997 (1) Amounts presented are net of inter-segment revenues. The Company recorded $ 181.7 million and $ 160.1 million of revenue for the years ended December 31, 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 an evaluation to determine if those arrangements should be accounted for as a single contract. 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 variable consideration, such as commissions that are -79- ZIFF DAVIS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED recognized in the period of the commissionable event. Payment terms vary by type and location of customers and the services offered. The time between invoicing and when payment is due is generally not significant. Due to the nature of the services provided, there are no obligations for returns. Advertising and performance marketing revenues consist primarily of performance obligations that are satisfied over time, where the customer simultaneously receives and consumes the benefit of the services provided. In certain instances, the Company provides content to its advertising partners and receives a revenue share based on the terms of the agreement. Revenue is recognized based on delivery of services over the contract period for advertising. The Company believes that the methods described are a faithful depiction of the transfer of goods and services. Depending on individual contracts with customers, revenues from advertising and performance marketing revenues are recognized over time as distinct performance obligations are satisfied, including when: • Online display and video advertising in form of impressions, video views and other means is placed for viewing on the Company’s owned-and-operated properties and on third-party sites. • Commissions are earned upon the sale of an advertised product. • Qualified sales leads are delivered. • Visitor “clicks through” an advertisement. Subscription and licensing revenues are earned from (i) subscription services with performance obligations that are satisfied over time; and (ii) licensing arrangements that have standalone functionality with performance obligations satisfied at a point in time, where the customer simultaneously receives and consumes the benefit of the services provided regardless of whether the customer uses the services. The Company believes that the methods described are a faithful depiction of the transfer of goods and services. Depending on the individual contracts with the customer, revenues for subscription and licensing services are recognized over the contract period as distinct performance obligations are satisfied, including when: • 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. • Access is granted to data products and services. • Continuing access to the content on our websites and apps is provided. The Company has concluded the best measure of progress toward the complete satisfaction of the performance obligation delivered over the time 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. Other revenues consist primarily of performance obligations that are satisfied at a point in time at which control for goods and services is transferred to a customer. The Company believes that the methods described are a faithful depiction of the transfer of goods and services. Transaction Price Allocation to Future Performance Obligations As of December 31, 2024, the aggregate amount of transaction price that is allocated to future performance obligations was approximately $ 71.9 million and is expected to be recognized as follows: 66 % by December 31, 2025 and 34 % 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 transaction price is a variable consideration that corresponds directly with the Company’s performance. Sales Taxes The Company has made an accounting policy election to exclude from the measurement of the transaction price all taxes assessed by a governmental authority that are (i) both imposed on and concurrent with a specific revenue-producing transaction and (ii) collected by the Company from a customer. -80- ZIFF DAVIS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED Costs to Obtain a Contract The Company’s revenues are primarily generated from customer contracts that are for one year or less. Costs primarily consist of incentive compensation paid based on the achievements of sales targets in a given period for related revenue streams and are recognized in the month when the revenue is earned. Incentive compensation is paid on the issuance or renewal of the customer contract. As a practical expedient, for amortization periods which are determined to be one year or less, the Company expenses any incremental costs of obtaining the contract with a customer when incurred. For those customers with amortization periods determined to be greater than one year, the Company capitalizes and amortizes the expenses over the period of benefit. In addition, the Company partners with various affiliates in order to generate a portion of its revenue for certain lines of business. The commissions earned by the Company’s affiliates are incentive based and are paid on the acquisition of new customers in a given period. For those customers with amortization periods determined to be greater than one year, the Company capitalizes and amortizes the incentive over the period of benefit. As of December 31, 2024 and 2023, the Company capitalized approximately $ 14.2 million and $ 14.9 million, respectively, related to these costs and they are included in ‘Prepaid expenses and other current assets’ and ‘Other assets’ in the Consolidated Balance Sheets. During the years ended December 31, 2024, 2023, and 2022, the Company recognized expense of $ 14.6 million, $ 12.9 million, and $ 15.4 million respectively, related to the amortization of capitalized costs to obtain a contract with a customer. Practical Expedients Existence of a Significant Financing Component in a Contract If at contract inception, the Company expects that the period between payment by the customer and the transfer of promised goods or services by the Company to the customer will be one year or less, the Company does not assess whether a contract has a significant financing component. In addition, the Company has determined that the payment terms that the Company provides to its customers are structured primarily for reasons other than the provision of finance to the customer. The Company typically charges a single upfront amount for services because other payment terms would affect the nature of the risk assumed by the Company to provide service given the costs of the customer acquisition and the highly competitive and commoditized nature of the business it operates, which allows customers to easily move from one provider to another. This additional risk may make it uneconomical to provide the service. 4. Business Acquisitions The Company uses acquisitions as a strategy to grow its customer base by increasing its presence in new and existing markets, expand and diversify its service offerings, enhance its technology, and acquire skilled personnel. 2024 Acquisitions The Company completed the following acquisitions during the year ended December 31, 2024, paying the purchase price in cash in each transaction: (a) a purchase of 100 % of the equity interest in TDS, acquired on February 5, 2024, a digital gifting and branded payments platform, which is reported within our Technology & Shopping 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 Technology & Shopping segment; and (c) two other immaterial acquisitions. 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 market’s 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 $ 365.0 million, or $ 219.0 million, net of cash acquired. -81- ZIFF DAVIS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED The following table summarizes the allocation of the purchase consideration for the acquisition of TDS and CNET as of December 31, 2024 (in thousands): Valuation Assets and Liabilities TDS CNET Cash $ 142,957 $ — Accounts receivable and other current assets (1) 171,290 16,351 Intangible assets 108,340 101,000 Goodwill (1) 81,248 36,607 Deferred tax asset, noncurrent (2) — 11,412 Other assets 203 655 Accounts payable and other current liabilities ( 290,161 ) ( 3,819 ) Deferred tax liability, noncurrent ( 25,442 ) — Deferred revenue, noncurrent — ( 7,958 ) Other noncurrent liabilities ( 847 ) — Total $ 187,588 $ 154,248 (1) The fair value of the assets acquired includes accounts receivable of $ 170.7 million (including Settlement receivables, net of $ 166.8 million) for TDS and $ 15.6 million related to CNET, of which none is expected to be uncollectible. $ 4.5 million of the goodwill recognized is expected to be deductible for income tax purposes. (2) Deferred tax asset balance for CNET is presented within ‘Deferred income taxes’ in the ‘Liabilities and Stockholders’ Equity’ section on the Consolidated Balance Sheets. The amounts assigned to intangible assets by type for all acquisitions during the year ended December 31, 2024 are summarized in the table below (in thousands): Gross Carrying Value Weighted Average Estimated Life Customer relationships $ 146,215 10 years Trade names and trademarks 27,895 9 years Other purchased intangibles 43,793 5 years Total gross carrying value $ 217,903 The initial accounting for the 2024 acquisitions, excluding TDS, is incomplete due to the timing of available information and is subject to change. As of December 31, 2024, the Company has recorded provisional amounts for certain intangible assets (including customer relationships, trade names, and other purchased intangibles), preliminary acquisition date working capital, and related tax items. The accompanying Consolidated Statements of Operations reflects the results of operations of the 2024 acquisitions since the date of each respective acquisition. For the year ended December 31, 2024, the Company recorded $ 83.2 million of incremental revenue from the businesses acquired during 2024. Net income from continuing operations contributed by these acquisitions was not separately identifiable due to the Company’s integration activities and is impracticable to provide. 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. -82- ZIFF DAVIS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED Years ended December 31, (in thousands, except per share data) 2024 2023 (unaudited) Revenues $ 1,470,182 $ 1,521,064 Net income $ 49,433 $ 22,206 Income per common share from continuing operations - Basic $ 1.11 $ 0.48 Income per common share from continuing operations - Diluted $ 1.11 $ 0.48 2023 Acquisitions The Company completed two immaterial acquisitions during the year ended December 31, 2023, paying the purchase price in cash in each transaction. The accompanying Consolidated Statements of Operations reflect the results of operations of the 2023 acquisitions since the date of each respective acquisition. Goodwill recognized associated with these acquisitions during the year ended December 31, 2023 was $ 6.5 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 the acquisitions during the year ended December 31, 2023. During the year ended December 31, 2023, the Company recorded adjustments to the initial working capital and to the purchase accounting of certain prior period acquisitions due to the finalization of prior period acquisitions in the Health business which resulted in a net decrease in goodwill of $ 0.1 million. 2022 Acquisitions The Company completed the following acquisitions during the year ended December 31, 2022, paying the purchase price in cash in each transaction: (a) a purchase of 100 % of equity interests of Lifecycle Marketing Group Limited, acquired on January 21, 2022, a portfolio of pregnancy and parenting brands, including Emma’s Diary and Health Professional Academy, reported within the Health & Wellness segment; (b) a purchase of 100 % of equity interests of FitNow, Inc., acquired on June 2, 2022, a provider of weight loss products and support, reported within the Health & Wellness segment; and (c) four other immaterial acquisitions. The accompanying Consolidated Statements of Operations reflect the results of operations of the 2022 acquisitions since the date of each respective acquisition. For the year ended December 31, 2022, these acquisitions contributed $ 33.0 million to the Company’s revenues. Net income from continuing operations contributed by these acquisitions was not separately identifiable due to the Company’s integration activities and is impracticable to provide. Total consideration for all businesses acquired in 2022 was $ 151.4 million, or $ 121.7 million, net of cash acquired. -83- ZIFF DAVIS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED The following table summarizes the allocation of the purchase consideration for all 2022 acquisitions as of December 31, 2022 (in thousands): Assets and Liabilities Valuation Accounts receivable $ 7,433 Prepaid expenses and other current assets 4,915 Property and equipment 369 Operating lease right-of-use assets, noncurrent 545 Trade names 12,839 Customer relationships 20,040 Goodwill (1) 95,737 Other intangibles 18,166 Other noncurrent assets 11 Accounts payable and accrued expenses ( 6,221 ) Deferred revenue ( 21,474 ) Deferred tax liability ( 10,140 ) Other noncurrent liabilities ( 516 ) Total $ 121,704 (1) Goodwill recognized associated with these acquisitions during the year ended December 31, 2022 is $ 95.7 million, of which $ 1.2 million is expected to be deductible for income tax purposes. The fair value of the assets acquired includes accounts receivable of $ 7.4 million, all of which was expected to be collectible. The Company did not acquire any other classes of receivables as a result of its acquisitions. Unaudited Pro Forma Financial Information for All 2022 Acquisitions The following unaudited pro forma 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, 2021. 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. The supplemental information on an unaudited pro forma financial basis presents the combined results of the Company and its 2022 acquisitions as if each acquisition had occurred on January 1, 2021 (in thousands, except per share amounts): Year ended December 31, 2022 (unaudited) Revenues $ 1,407,300 Net income from continuing operations $ 64,877 Income per common share from continuing operations - Basic $ 1.38 Income per common share from continuing operations - Diluted $ 1.38 Deferred Acquisition Payments As of December 31, 2024, future payments associated with contractual obligations for holdback payments in connection with all business acquisitions are as follows (in thousands): Fiscal Year: 2025 $ 1,305 2026 363 $ 1,668 -84- ZIFF DAVIS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED 5. Investments Investments consist of equity and debt securities. Investment in equity securities Following the Separation, the Company retained an interest in Consensus common stock. As of December 31, 2024 and December 31, 2023, the Company held approximately zero and 1.0 million shares, respectively, of the common stock of Consensus. During the year ended December 31, 2022, the Company completed the non-cash tax-free debt-for-equity exchanges of 2,800,000 shares of its common stock of Consensus for the extinguishment of $ 112.3 million of principal of the Company’s Term Loan Facilities (as defined in Note 9 — Debt ), and related interest. During the year ended December 31, 2023, the Company sold 52,393 shares of common stock of Consensus in the open market. As of December 31, 2023, the carrying value of the investment in Consensus was $ 27.1 million, which was included in ‘Short-term investments’ on the 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 are recognized in earnings. During the second quarter of 2024, the Company sold its remaining 1,034,295 shares of Consensus in the open market. For the years ended December 31, 2024, 2023, and 2022, losses of $ 7.7 million, $ 28.1 million, and $ 53.9 million, respectively, were recorded in the Consolidated Statements of Operations. On July 31, 2023, the Company entered into an agreement to purchase $ 25.0 million of equity in Xyla, Inc. 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 December 31, 2024, the investment in Xyla has a carrying value of $ 25.3 million, including transaction costs, and is included in ‘Long-term investments’ in the 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 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. As of December 31, 2024, both the carrying value and the maximum exposure of the Company’s investment in corporate debt securities was approximately $ 17.8 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 December 31, 2024 and 2023 was approximately $ 2.8 million and $ 0.7 million, respectively. There were no investments in an unrealized loss position as of December 31, 2024 or December 31, 2023. During the years ended December 31, 2024, 2023, and 2022, the Company did no t 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 the OCV Fund. The Company recognizes its equity in the net earnings or losses relating to the investment in OCV on a one-quarter lag due to the timing and availability of financial information from OCV. If the Company becomes aware of a significant decline in value that is other-than-temporary, the loss will be recorded in the period in which the Company identifies the decline. During the years ended December 31, 2024, 2023, and 2022, the Company recognized income (loss) from equity method investment, net of $ 11.2 million, $( 9.3 ) million, and $( 7.7 ) million, net of tax expense (benefit), respectively. The gains and losses in the years presented were primarily the result of gains and losses in the underlying investments. As of December 31, 2024, both the carrying value and the maximum exposure of the Company’s equity method investment was approximately $ 115.0 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 within ‘Long-term investments’ in the Consolidated Balance Sheets. -85- ZIFF DAVIS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED 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 further 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. 6. 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 a Level 1 input. On May 22, 2024, the Company sold its remaining investments in Consensus common stock (see Note 5 — Investments ). 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 December 31, 2024 and 2023, the fair value was determined based upon various probability-weighted scenarios which included discount rate assumptions between 9 % and 10 %, depending on the probability scenario. In addition, the determination of fair value included a conversion timeframe of approximately six months to two years , depending on the probability scenario, as of December 31, 2024, and approximately one to three years, depending on the probability scenario, 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 December 31, 2024 and 2023, the contingent consideration was determined using a 100% probability of payout at the maximum amount, without any other estimates applied. -86- ZIFF DAVIS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED 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): December 31, 2024 Level 1 Level 2 Level 3 Fair Value Carrying Value Assets: Cash equivalents: Money market and other funds $ 85,833 $ — $ — $ 85,833 $ 85,833 Long-term investments: Investment in corporate debt securities — — 17,788 17,788 17,788 Total assets measured at fair value $ 85,833 $ — $ 17,788 $ 103,621 $ 103,621 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 year ended December 31, 2024 and 2023, there were no transfers that occurred between levels. -87- ZIFF DAVIS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED The following table presents a reconciliation of the Company’s Level 3 financial assets related to our contingent consideration arrangements and investment in corporate debt securities that are measured at fair value on a recurring basis (in thousands): Years ended December 31, 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) — 2,089 ( 200 ) 113 Payments — — ( 355 ) — Balance as of December 31 $ 2,834 $ 17,788 $ 2,834 $ 15,699 (1) The fair value adjustments to the contingent consideration arrangements in the table above were recorded within ‘General, administrative, and other related costs’ on the Consolidated Statements of Operations during the years ended December 31, 2024 and 2023. The fair value adjustments to the corporate debt securities in the table above were recorded within ‘Change in fair value on available-for-sale investments, net’ on the Consolidated Statements of Comprehensive Income during the years ended December 31, 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 8 — Goodwill and Intangible Assets for further information on a goodwill impairment charges recorded in the years ended December 31, 2024, 2023, and 2022. 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 9 — 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: December 31, 2024 2023 Carrying Value Fair Value Carrying Value Fair Value 4.625 % Senior Notes $ 457,211 $ 420,935 $ 456,796 $ 405,408 1.75 % Convertible Notes (1) $ 148,186 $ 139,976 $ 544,516 $ 519,492 3.625 % Convertible Notes (1) $ 258,885 $ 259,200 $ — $ — (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 9 — Debt, and paid an aggregate of approximately $ 135.0 million in cash. Refer to Note 9 — Debt for additional information. -88- ZIFF DAVIS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED 7. Property and Equipment Property and equipment, stated at cost, consists of the following (in thousands): December 31, 2024 2023 Computer hardware, software, and related equipment $ 546,777 $ 502,564 Furniture and equipment 4,820 2,836 Leasehold improvements 7,328 9,784 558,925 515,184 Less: Accumulated depreciation and amortization ( 361,710 ) ( 327,015 ) Total property and equipment, net $ 197,216 $ 188,169 Depreciation expense included in ‘Depreciation and amortization’ on our Consolidated Statements of Operations was $ 94.4 million, $ 92.1 million, and $ 76.7 million for the years ended December 31, 2024, 2023, and 2022, respectively. 8. Goodwill and Intangible Assets Goodwill The changes in carrying amounts of goodwill for the years ended December 31, 2024 and 2023 are as follows (in thousands): Technology & Shopping Gaming & Entertainment Health & Wellness Connectivity Cybersecurity & Martech Consolidated Balance as of January 1, 2023 $ 346,684 $ 61,644 $ 399,982 $ 257,679 $ 525,485 $ 1,591,474 Goodwill acquired (Note 4 ) 3,849 — 2,602 — — 6,451 Goodwill impairment ( 56,850 ) — — — — ( 56,850 ) Purchase accounting adjustments (1) 215 ( 219 ) ( 72 ) 4 — ( 72 ) Foreign exchange translation ( 246 ) 60 745 803 3,700 5,062 Balance as of December 31, 2023 $ 293,652 $ 61,485 $ 403,257 $ 258,486 $ 529,185 $ 1,546,065 Goodwill acquired (Note 4 ) 117,855 6,811 — — 4,532 129,190 Goodwill removed due to sale of business (2) ( 3,983 ) — — — — ( 3,983 ) Goodwill impairment ( 85,273 ) — — — — ( 85,273 ) Foreign exchange translation ( 194 ) 5 ( 201 ) ( 1,544 ) ( 3,815 ) ( 5,741 ) Balance as of December 31, 2024 $ 322,057 $ 68,301 $ 403,056 $ 256,942 $ 529,902 $ 1,580,258 (1) Purchase accounting adjustments relate to measurement period adjustments to goodwill in connection with prior business acquisitions (see Note 4 — Business Acquisitions ). (2) During the year ended December 31, 2024, in a cash transaction, the Company sold an international business at Technology & Shopping, which resulted in $ 4.0 million of goodwill being removed in connection with this sale. During the year ended December 31, 2024, the Company reassessed the fair value of certain reporting units within the Technology & Shopping, Health & Wellness, and Cybersecurity & Martech reportable segments as a result of a sustained decline in the Company’s stock price, and forecasted reduction in revenue and 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 Technology & Shopping 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 year ended December 31, 2024. -89- ZIFF DAVIS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED During the year ended December 31, 2023, the Company reassessed the fair value of certain reporting units within the Technology & Shopping 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 the reporting unit exceeded its fair value, and the Company recorded an impairment of approximately $ 56.9 million during the year ended December 31, 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. Goodwill as of December 31, 2024 and 2023 reflects accumulated impairment losses of $ 169.5 million and $ 84.2 million, respectively, in the Technology & Shopping reportable segment. Intangible Assets Subject to Amortization As of December 31, 2024, intangible assets subject to amortization relate primarily to the following (in thousands): Historical Cost Accumulated Amortization Net Trade names and trademarks $ 375,449 $ 222,430 $ 153,019 Customer relationships 836,254 620,926 215,328 Other purchased intangibles 421,128 363,726 57,402 Total $ 1,632,831 $ 1,207,082 $ 425,749 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 Expected amortization expenses for intangible assets subject to amortization at December 31, 2024 are as follows (in thousands): Fiscal Year: 2025 $ 114,658 2026 96,383 2027 73,690 2028 49,319 2029 32,343 Thereafter 59,356 Total expected amortization expense $ 425,749 -90- ZIFF DAVIS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED Amortization expense included in ‘Depreciation and amortization’ on our Consolidated Statements of Operations was approximately $ 117.5 million, $ 144.9 million, and $ 156.7 million for the years ended December 31, 2024, 2023 and 2022, respectively. 9. Debt Long-term debt consists of the following (in thousands): December 31, 2024 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 ( 5,676 ) ( 2,463 ) Deferred issuance costs (1) ( 2,336 ) ( 6,263 ) Total long-term debt $ 864,282 $ 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 December 31, 2024 and December 31, 2023, respectively, $ 0.9 million and $ 5.5 million of carrying amount of deferred issuance costs on the 1.75 % Convertible Notes as of December 31, 2024 and December 31, 2023, respectively, and $ 0.7 million of carrying amount of deferred issuance costs on the 3.625 % Convertible Notes as of December 31, 2024. At December 31, 2024, future principal and interest payments for debt are as follows (in thousands): Principal Interest 2025 $ — $ 33,425 2026 149,109 33,426 2027 — 30,816 2028 263,147 26,047 2029 — 21,277 Thereafter 460,038 21,276 Total $ 872,294 $ 166,267 Interest expense was $ 35.3 million, $ 41.6 million, and $ 37.1 million for the years ended December 31, 2024, 2023, and 2022, respectively. 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 after deducting 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. -91- ZIFF DAVIS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED 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. Before October 15, 2023, and following certain equity offerings, the Company also may redeem up to 40 % of the 4.625 % Senior Notes at a price equal to 104.625 % of the principal amount, plus accrued and unpaid interest, if any, up to, but excluding the redemption date. The Company may make such redemption only if, after such redemption, at least 50 % of the aggregate principal amount of the 4.625 % Senior Notes remains outstanding. 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 December 31, 2024. Prior to 2022, the Company repurchased $ 83.3 million in aggregate principal of its 4.625 % Senior Notes. Repurchases of 4.625 % Senior Notes on the open market (excluding those from a tender offer) during the periods presented were as follows (in thousands): Year ended December 31, 2022 Principal repurchased $ 181,238 Aggregate purchase price $ 167,661 (Gain) loss on repurchase (1) $ ( 12,060 ) (1) Presented within ‘Gain (loss) on debt extinguishment, net’ on the Consolidated Statements of Operations. Cumulatively as of December 31, 2024, the Company repurchased approximately $ 290.0 million in aggregate principal of its 4.625 % Senior Notes. The following table provides additional information on the 4.625 % Senior Notes (in thousands): December 31, 2024 2023 Principal amount of 4.625 % Senior Notes $ 460,038 $ 460,038 Less: Unamortized discount ( 2,148 ) ( 2,463 ) Less: Deferred issuance costs ( 679 ) ( 779 ) Net carrying amount of 4.625 % Senior Notes $ 457,211 $ 456,796 The following table provides the components of interest expense related to 4.625 % Senior Notes (in thousands): Years ended December 31, 2024 2023 2022 Coupon interest expense $ 21,269 $ 21,159 $ 24,500 Amortization of discount and debt issuance costs 415 396 442 Total interest expense related to 4.625 % Senior Notes $ 21,684 $ 21,555 $ 24,942 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 -92- ZIFF DAVIS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED 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 December 31, 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 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 year ended December 31, 2023, the Company recorded $ 7.7 million of interest expense related to the 1.75 % Convertible Notes for such additional interest. The Company paid $ 7.0 million of this interest obligation to the trustee under the indenture for the 1.75 % Convertible Notes in August 2023 and the remaining $ 0.7 million in November 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 1.75 % 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 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. 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 December 31, 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 Consolidated Balance Sheets. Prior to the Separation, the conversion rate on the 1.75 % Convertible Notes was 7.9864 shares of the Company’s common stock for each $1,000 principal amount of 1.75 % Convertible Notes, which represented a conversion price of approximately $ 125.21 per share of the Company’s common stock. The Separation constituted an event under the 1.75 % Convertible Notes that required an adjustment and the conversion rate increased to 9.3783 shares of the Company’s common stock for each $1,000 principal amount of 1.75 % Convertible Notes which represents a conversion price of approximately $ 106.63 per share of the Company’s common stock. As of December 31, 2024 and December 31, 2023, this rate equated to 1,398,391 shares and 5,158,071 shares, respectively. 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 and unpaid interest. In addition, upon the occurrence of a “Make-Whole Fundamental Change” (as defined in the 1.75 % Convertible Note Indenture), in certain circumstances, 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. 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. -93- ZIFF DAVIS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED The following table provides additional information related to the 1.75 % Convertible Notes (in thousands): December 31, 2024 2023 Principal amount of 1.75 % Convertible Notes $ 149,109 $ 550,000 Less: Deferred issuance costs ( 923 ) ( 5,484 ) Net carrying amount of 1.75 % Convertible Notes $ 148,186 $ 544,516 The following table provides the components of interest expense related to the 1.75 % Convertible Notes (in thousands): Years ended December 31, 2024 2023 2022 Coupon interest expense $ 6,429 $ 17,369 $ 9,776 Amortization of debt issuance costs 1,251 1,863 1,858 Total interest expense related to 1.75 % Convertible Notes $ 7,680 $ 19,232 $ 11,634 Accounting for the 1.75 % Convertible Notes On January 1, 2022, the Company adopted ASU 2020-06 using the modified retrospective method. As a result of this adoption, the Company de-recognized the remaining unamortized debt discount of $ 87.3 million on the 1.75 % Convertible Notes and, therefore, no longer recognizes any amortization of debt discounts as interest expense. In connection with the issuance of the 1.75 % Convertible Notes, the Company incurred $ 12.9 million of deferred issuance costs, which primarily consisted of the underwriters’ discount, legal and other professional service fees. Of the total deferred issuance costs incurred, $ 10.1 million was attributable to the liability component and is being amortized to interest expense through the maturity date at an effective interest rate of 5.5 % . The remaining $ 2.8 million of the deferred issuance costs were netted with the equity component in additional paid-in capital at the issuance date. Upon adoption of ASU 2020-06, the Company reclassified the $ 2.8 million from additional paid-in-capital to long-term liability and recorded a cumulative adjustment to retained earnings for amortization from the issuance date through January 1, 2022. 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 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 to interest expense through the maturity date at an effective interest rate of 4.2 %. 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. -94- ZIFF DAVIS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED 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 5 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 December 31, 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 Consolidated Balance Sheets. As of December 31, 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. The following table provides additional information related to the 3.625 % Convertible Notes (in thousands): December 31, 2024 Principal amount of 3.625 % Convertible Notes $ 263,147 Less: Unamortized discount ( 3,528 ) Less: Deferred issuance costs ( 734 ) Net carrying amount of 3.625 % Convertible Notes $ 258,885 The following table provides the components of interest expense related to the 3.625 % Convertible Notes (in thousands): Year ended December 31, 2024 Coupon interest expense $ 4,372 Amortization of discount and debt issuance costs 571 Total interest expense related to 3.625 % Convertible Notes $ 4,943 -95- ZIFF DAVIS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED Credit Agreement On April 7, 2021, the Company entered into a $ 100.0 million Credit Agreement (the “Credit Agreement”). Subject to certain conditions and approvals, the Company had the right, from time to time, to request increases in the commitments under the Credit Agreement in an aggregate amount up to $ 250.0 million, for a total aggregate commitment of up to $ 350.0 million. 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 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 ranges from 0.50 % to 1.25 % and the applicable margin relating to any Term SOFR loan ranges from 1.50 % to 2.25 %, in each case, depending on the total leverage ratio of the Company. 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. 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 December 31, 2024. As of each December 31, 2024 and December 31, 2023, net availability under the Credit Agreement was $ 348.9 million and $ 100.0 million, respectively, net of letters of credit. On June 10, 2022 (the “Term Loan Funding Date”), the Company entered into a Fifth Amendment to its Credit Agreement with MUFG Union Bank, N.A, as administrative agent and collateral agent and the lenders party thereto to effectuate a debt-for-equity exchange. The Fifth Amendment to the Credit Agreement provided for the Term Loan Facility in an aggregate principal amount of $ 90.0 million and certain other changes to the Credit Agreement. The Term Loan Facility had a maturity date that was 60 days after the Term Loan Funding Date. The Term Loan Facility bore interest at 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 LIBOR plus 1 %, provided that the base rate for any term loan made under the Credit Agreement shall be greater of clause (x) and (y) above in each case. During June 2022, the Company borrowed approximately $ 90.0 million under the Term Loan Facility and completed the non-cash debt-for-equity exchange of 2,300,000 shares of its common stock of Consensus to settle its obligation of $ 90.0 million outstanding aggregate principal amount of the Term Loan Facility plus an immaterial amount of interest. On September 15, 2022 (the “Term Loan Two Funding Date”), the Company entered into a Sixth Amendment to its Credit Agreement with MUFG Union Bank, N.A, as administrative agent and collateral agent and the lenders party thereto to effectuate a debt-for-equity exchange. The Sixth Amendment to the Credit Agreement provided for the Term Loan Two Facility in an aggregate principal amount of approximately $ 22.3 million and certain other changes to the Credit Agreement. The Term Loan Two Facility had a maturity date that was 60 days after the Term Loan Two Funding Date. The Term Loan Two Facility bore interest at a base rate equal to the greater of (x) the Federal Funds Effective Rate, as defined in the Credit Agreement, in -96- ZIFF DAVIS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED 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 LIBOR plus 1 %, provided that the base rate for any term loan made under the Credit Agreement shall be greater of clause (x) and (y) above in each case. During September 2022, the Company borrowed approximately $ 22.3 million under the Term Loan Two Facility and completed the non-cash debt-for-equity exchange of 500,000 shares of its common stock of Consensus to settle its obligation of $ 22.3 million outstanding aggregate principal amount of the Term Loan Two Facility plus an immaterial amount of interest. As of December 31, 2022, the Company recorded a loss on extinguishment of debt of approximately $ 0.6 million, related to the debt-for-equity exchanges, which is presented within ‘Gain (loss) on debt extinguishment, net’ on our Consolidated Statements of Operations. 10. Leases The Company leases certain facilities and equipment under non-cancelable operating leases which expire at various dates through 2031. Office and equipment leases are typically for terms of three to five years and generally provide renewal options for terms up to an additional five years . Some of the Company’s leases include options to terminate within one year. During the year ended December 31, 2024, 2023, and 2022, the Company recorded impairments of $ 0.9 million, $ 2.2 million, and $ 1.0 million, respectively on its operating lease right of use assets within various reportable segments primarily related to exiting certain lease space as the Company regularly evaluates its office space requirements in light of more of its workforce working from home as part of a “remote” or “partial remote” work model. The impairments were determined by comparing the fair value of the impacted right-of-use asset to the carrying value of the asset as of the impairment measurement date, as required under ASC Topic 360, Property, Plant, and Equipment . The fair value of the right-of-use asset was based on the estimated sublease income for the affected facilities taking into consideration the time it will take to obtain a sublease tenant, the applicable discount rate and the sublease rate which represent Level 3 unobservable inputs. The impairments are presented in ‘General, administrative, and other related costs’ on the Consolidated Statements of Operations. In certain agreements in which the Company leases office space where the Company is the tenant, it subleases the site to various other companies through a sublease agreement. Operating right-of-use assets are included in ‘Other assets’ on the Consolidated Balance Sheets. Operating lease liabilities are included in ‘Other current liabilities’ and ‘Other noncurrent liabilities’, respectively, on the Consolidated Balance Sheets as follows (in thousands): December 31, 2024 2023 Operating lease right-of-use assets $ 26,249 $ 24,564 Operating lease liabilities, current $ 8,666 $ 15,801 Operating lease liabilities, noncurrent 21,797 16,626 Total operating lease liabilities $ 30,463 $ 32,427 -97- ZIFF DAVIS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED The components of lease expense are as follows (in thousands): December 31, 2024 2023 Operating lease cost $ 10,760 $ 15,065 Short-term lease cost (1) 519 1,070 Total lease cost $ 11,279 $ 16,135 (1) The Company made an election to account for a short-term lease payments on a straight-line basis over the term of the lease. Other supplemental operating lease information consists of the following: December 31, 2024 2023 Operating leases: Weighted average remaining lease term 3.9 years 3.0 years Weighted average discount rate 4.28 % 3.27 % As of December 31, 2024, maturities of operating lease liabilities were as follows (in thousands): 2025 $ 9,371 2026 7,716 2027 5,419 2028 3,708 2029 3,796 Thereafter 3,995 Total lease payments $ 34,005 Less: Imputed interest 3,542 Present value of operating lease liabilities $ 30,463 Sublease Total sublease income for the years ended December 31, 2024, 2023, and 2022 was $ 5.3 million, $ 6.0 million, and $ 6.8 million, respectively. Total estimated aggregate sublease income to be received in the future is $ 3.6 million. 11. 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 overall 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 be incurred, GAAP requires us to disclose an estimate of the reasonably possible loss or -98- ZIFF DAVIS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED 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 $ 25.2 million and $ 28.1 million as of December 31, 2024 and December 31, 2023, respectively, which are included in ‘Accounts payable and accrued expenses’ and ‘Other noncurrent liabilities’ on the Consolidated Balance Sheet. It is reasonably possible that additional liabilities could be incurred resulting in additional expense, which could have a material impact to our financial results, however, as of December 31, 2024, any potential range of loss was not estimable. -99- ZIFF DAVIS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED 12. Income Taxes The continuing operations income tax (expense) benefit consisted of the following (in thousands): Years ended December 31, 2024 2023 2022 Current: Federal $ ( 33,333 ) $ ( 29,040 ) $ ( 42,698 ) State ( 8,625 ) ( 8,179 ) ( 12,184 ) Foreign ( 18,234 ) ( 16,940 ) ( 16,066 ) Total current ( 60,192 ) ( 54,159 ) ( 70,948 ) Deferred: Federal 14,684 20,817 12,667 State 2,144 7,177 ( 1,577 ) Foreign 1,994 2,023 1,901 Total deferred 18,822 30,017 12,991 Income tax expense from continuing operations $ ( 41,370 ) $ ( 24,142 ) $ ( 57,957 ) A reconciliation of the statutory federal income tax rate with the Company’s continuing operations effective income tax rate is as follows: Years ended December 31, 2024 2023 2022 Statutory tax rate 21.0 % 21.0 % 21.0 % State income taxes, net 5.9 6.5 5.0 Foreign rate differential 4.3 3.1 1.0 Foreign income inclusion 3.1 6.0 5.4 Foreign tax credit ( 3.1 ) ( 4.7 ) ( 5.1 ) Reserve for uncertain tax positions ( 6.1 ) ( 5.9 ) ( 3.2 ) Valuation allowance 6.3 — — Impact on deferred taxes of enacted tax law and rate changes — 0.6 1.4 Tax credits and incentives ( 6.5 ) ( 8.4 ) ( 5.0 ) Impairment of goodwill 19.2 16.0 — Mark-to market on investment in Consensus — — 22.1 Return to provision adjustments ( 2.3 ) ( 5.1 ) 1.1 Executive compensation 3.2 2.4 1.5 Other ( 0.6 ) 0.7 ( 1.0 ) Effective tax rates 44.4 % 32.2 % 44.2 % The effective tax rate for continuing operation for the year ended December 31, 2024 differs from the federal statutory rate primarily due to the expense recognized for book purposes on the goodwill impairment related to two of the Company’s reporting units that resulted in no corresponding tax benefit and a tax expense recognized due to recording a valuation allowance related to the Company’s U.S. capital loss carryforwards. The detrimental impact to our effective tax rate was partially offset by a tax benefit recognized as a result of a decrease in the reserve for uncertain tax positions that was primarily due to the lapse of the statute of limitations. The effective tax rate for continuing operations for the year ended December 31, 2023 differs from the federal statutory rate primarily due to the expense recognized for book purposes on the goodwill impairment related to one of the Company’s reporting units that resulted in no corresponding tax benefit and had a detrimental impact to the effective tax rate. The detrimental impact to our effective tax rate was partially offset by a tax benefit recognized as a result of a decrease in the reserve for uncertain tax positions that was primarily due to the lapse of the statute of limitations. -100- ZIFF DAVIS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED The effective tax rate for continuing operations for the year ended December 31, 2022 differs from the federal statutory rate primarily due to a book-tax difference related to the loss recognized for accounting purposes related to the Company’s shares held in Consensus stock. The Company recognized a deferred tax liability resulting in tax expense of $ 13.4 million on the outside basis difference between the book basis exceeding the tax basis of the Investment in Consensus on October 7, 2022 due to future disposals of the shares being subject to tax based on guidance and requirements set out by the Internal Revenue Service. The effective tax rate also differs from the federal statutory tax rate due to income earned in the United States also being subject to income taxes in various state jurisdictions with statutory tax rates that can range from 2.5 percent to 11.5 percent. This increase in the effective income tax rate is offset by a decrease in the net reserve for uncertain tax positions during 2022 and a tax benefit claimed in the United States related to a deduction for foreign-derived intangible income. The decrease in the reserve for uncertain tax positions is primarily due to the lapse of the statute of limitations for U.S. tax reserves. The Organization for Economic Co-operation and Development (“OECD”) established a Pillar Two Framework that was supported by over 130 countries worldwide. On December 15, 2022, the European Union (“EU”) Member States adopted the EU’s Pillar Two Directive, which generally provides for a minimum effective tax rate of 15% with effective dates of January 1, 2025 for certain provisions of the directive. A significant number of other countries are also implementing similar legislation. The Company has analyzed the impact of the Pillar Two framework’s corporate minimum income tax rate of 15% and does not expect that it will have a material effect on the Company’s liability for corporate taxes and the Company’s consolidated effective tax rate. Deferred tax assets and liabilities result from differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. Temporary differences and carryforwards which give rise to deferred tax assets and liabilities from continuing operations are as follows (in thousands): Years ended December 31, 2024 2023 Deferred tax assets: Net operating loss and other carryforwards $ 14,923 $ 15,762 Tax credit carryforwards 3,727 4,743 Accrued expenses 12,019 14,629 Allowance for bad debt 2,514 2,003 Share-based compensation expense 8,634 6,097 Operating lease liabilities 5,717 6,320 Basis difference in fixed assets 39,242 22,191 Deferred revenue 3,413 2,420 Convertible debt 2,952 — State taxes 2,526 1,974 Other 1,675 2,468 97,342 78,607 Less: valuation allowance ( 7,669 ) ( 1,720 ) Total deferred tax assets $ 89,673 $ 76,887 Deferred tax liabilities: Operating lease right-of-use assets ( 5,040 ) ( 4,618 ) Basis difference in intangible assets ( 103,676 ) ( 86,712 ) Unrealized gains on investments ( 13,364 ) ( 13,512 ) Prepaid insurance ( 2,111 ) ( 2,835 ) Other ( 4,014 ) ( 5,982 ) Total deferred tax liabilities ( 128,205 ) ( 113,659 ) Net deferred tax liabilities $ ( 38,532 ) $ ( 36,772 ) -101- ZIFF DAVIS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED The Company had approximately $ 89.7 million and $ 76.9 million in deferred tax assets, net of valuation allowances as of December 31, 2024 and 2023, respectively, related primarily to capital loss carryforwards, net operating loss carryforwards, capitalized research and development expenses, fixed asset basis, and accrued expenses being treated differently between its financial statements and its tax returns. Based on the weight of available evidence, the Company assesses whether it is more likely than not that some portion or all of a deferred tax asset will not be realized. If necessary, the Company records a valuation allowance sufficient to reduce the deferred tax asset to the amount that is more likely than not to be realized. The deferred tax assets should be realized through future operating results and the reversal of temporary differences. The Company had a valuation allowance on deferred tax assets from continuing operations of $ 7.7 million and $ 1.7 million as of December 31, 2024 and 2023, respectively. The rollforward of the valuation allowance on the deferred tax assets from continuing operations is as follows (in thousands): Years ended December 31, 2024 2023 2022 Beginning balance $ 1,720 $ 1,699 $ 1,812 Charges to costs and expenses 5,949 21 — Write-offs and recoveries — — ( 113 ) Ending balance $ 7,669 $ 1,720 $ 1,699 As of December 31, 2024, the Company had federal net operating loss carryforwards (“NOLs”) of $ 3.2 million, after considering substantial restrictions on the utilization of these NOLs due to “ownership changes”, as defined in the Internal Revenue Code of 1986, as amended. The Company estimates that all of the above-mentioned federal NOLs will be available for use before their expiration. Approximately $ 3.2 million of the NOLs expire through 2031 depending on the year the loss was incurred. As of December 31, 2024, the Company’s deferred tax assets included federal capital loss limitation carryforwards of $ 23.4 million that begin to expire in 2026 through 2029. During 2024, the Company recognized a valuation allowance on the entire federal capital loss limitation carryforward. In addition, as of December 31, 2024, the Company had available state research and development tax credit carryforwards of $ 4.1 million, which last indefinitely. The Company had no foreign tax credit carryforwards as of December 31, 2024. The Company has not provided for deferred taxes on approximately $ 178.5 million of undistributed earnings from foreign subsidiaries as of December 31, 2024 or with respect to items such as foreign withholding taxes, state income tax or foreign exchange gain or loss that would be due when cash is actually repatriated to the U.S. because those foreign earnings are considered permanently reinvested in the business or may be remitted substantially free of any additional taxes. In addition, because of the various avenues in which to repatriate the earnings, it is not practicable to determine the amount of the unrecognized deferred tax liability related to the undistributed earnings if eventually remitted. Certain taxes are prepaid during the year and, where appropriate, included within ‘Prepaid expenses and other current assets’ on the Consolidated Balance Sheets. The Company’s prepaid taxes were $ 6.4 million and $ 4.7 million at December 31, 2024 and 2023, respectively. Income from continuing operations before income taxes included income from domestic operations of $ 25.1 million, $ 25.8 million, and $ 71.8 million for the years ended December 31, 2024, 2023, and 2022, respectively, and income from foreign operations of $ 68.1 million, $ 49.2 million, and $ 59.4 million for the years ended December 31, 2024, 2023, and 2022, respectively. Uncertain Income Tax Positions Tax positions are evaluated in a two-step process. The Company first determines whether it is more likely than not that a tax position will be sustained upon examination. If a tax position meets the more-likely-than-not recognition threshold, it is then measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. The Company classifies gross interest and penalties and unrecognized tax benefits that are not expected to result in payment or receipt of cash within one year as non-current liabilities in the Consolidated Balance Sheets. As of December 31, 2024, the total amount of unrecognized tax benefits for continuing operations was $ 22.6 million, of which $ 21.2 million, if recognized, would affect the Company’s effective tax rate. As of December 31, 2023, the total amount of unrecognized tax benefits for continuing operations was $ 29.2 million, of which $ 27.4 million, if recognized, would -102- ZIFF DAVIS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED affect the Company’s effective tax rate. As of December 31, 2022, the total amount of unrecognized tax benefits for continuing operations was $ 34.2 million, of which $ 32.7 million, if recognized, would affect the Company’s effective tax rate. The aggregate changes in the balance of unrecognized tax benefits, which excludes interest and penalties, for the years ended December 31, 2024, 2023, and 2022, is as follows (in thousands): Years ended December 31, 2024 2023 2022 Beginning balance $ 29,158 $ 34,208 $ 39,527 Increases related to tax positions during a prior year 275 218 — Decreases related to tax positions taken during a prior year ( 540 ) ( 1,023 ) ( 2,816 ) Increases related to tax positions taken in the current year 635 744 819 Decreases related to expiration of statute of limitations ( 6,911 ) ( 4,989 ) ( 3,322 ) Ending balance $ 22,617 $ 29,158 $ 34,208 The Company includes interest and penalties related to unrecognized tax benefits within ‘Income tax expense’ on the Consolidated Statements of Operations. As of December 31, 2024, 2023, and 2022, the total amount of interest and penalties accrued was $ 7.4 million, $ 7.1 million, and $ 6.3 million, respectively, which is classified as a liability for uncertain tax positions on the Consolidated Balance Sheets. In connection with the liability for unrecognized tax benefits, the Company recognized interest and penalty expense during the years ended December 31, 2024, 2023, and 2022 of $ 0.3 million, $ 0.7 million, and $ 0.7 million, respectively. Uncertain income tax positions are reasonably possible to significantly change during the next 12 months as a result of completion of income tax audits and expiration of statutes of limitations. At this point it is not possible to provide an estimate of the amount, if any, of significant changes in reserves for uncertain income tax positions as a result of the completion of income tax audits that are reasonably possible to occur in the next 12 months. In addition, the Company cannot currently estimate the amount of, if any, uncertain income tax positions which will be released in the next 12 months as a result of expiration of statutes of limitations due to ongoing audits. As a result of ongoing federal, state and foreign income tax audits (discussed below), it is reasonably possible that the Company’s entire reserve for uncertain income tax positions for the periods under audit will be released. It is also reasonably possible that the Company’s reserves will be inadequate to cover the entire amount of any such income tax liability. We conduct business on a global basis and as a result, one or more of our subsidiaries file income tax returns in the U.S. federal and in multiple state, local, and foreign tax jurisdictions. Our U.S. federal income tax returns for years 2012 through 2016 are under various stages of audit by the IRS. We are also under audit for various U.S. state and local tax purposes. With limited exception, our significant foreign tax jurisdictions are no longer subject to an income tax audit by the various tax authorities for tax years prior to 2021. It is reasonably possible that these audits may conclude in the next twelve months and that the uncertain tax positions the Company has recorded in relation to these tax years may change compared to the liabilities recorded for these periods. If the recorded uncertain tax positions were inadequate to cover the associated tax liabilities, the Company would be required to record additional tax expense in the relevant period, which could be material. If the recorded uncertain tax positions were adequate to cover the associated tax liabilities, the Company would be required to record any excess as reduction in tax expense in the relevant period, which could be material. However, it is not currently possible to estimate the amount, if any, of such change. -103- ZIFF DAVIS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED 13. Stockholders’ Equity On August 6, 2020, the Company’s Board of Directors 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 years ended December 31, 2024, 2023, and 2022, the Company repurchased 3,500,000 , 1,585,846 , and 736,536 shares, respectively, under the 2020 Program, at an aggregate cost of $ 181.8 million, $ 104.9 million, and $ 71.3 million, respectively (including excise tax). Cumulatively as of December 31, 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 December 31, 2024 was 6,241,308 shares. Periodically, participants in the Company’s stock 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. During the years ended December 31, 2024, 2023 and 2022, the Company purchased and retired 80,241 , 69,622 , and 72,886 shares at an aggregate cost of approximately $ 4.1 million, $ 4.6 million, and $ 7.0 million, respectively, from plan participants for this purpose. 14. 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 December 31, 2024, 435,135 shares underlying options and 1,173,213 shares of restricted stock units were outstanding under the Plans. As of December 31, 2024, there were 3,617,530 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 the effects of share-based compensation expense in the Consolidated Statements of Operations during the periods presented (in thousands): Year ended December 31, 2024 2023 2022 Direct costs $ 248 $ 262 $ 341 Sales and marketing 3,756 2,686 3,083 Research, development, and engineering 3,665 3,245 2,503 General, administrative, and other related costs 33,246 25,727 20,674 Total share-based compensation expense $ 40,915 $ 31,920 $ 26,601 -104- ZIFF DAVIS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED Stock Options As of December 31, 2024, 2023, and 2022, options to purchase 326,351 , 271,959 , and 217,567 shares of common stock were exercisable under and outside of the Plans, at weighted average exercise prices of $ 68.97 , $ 68.97 , $ 68.97 , respectively. Stock options generally expire after 10 years and vest over a 5 to 8 year period. All stock option grants are approved by “outside directors” within the meaning of Internal Revenue Code Section 162(m). Stock option activity for the years ended December 31, 2024, 2023, and 2022 is summarized as follows: Number of Shares Weighted-Average Exercise Price Weighted-Average Remaining Contractual Life (In Years) Aggregate Intrinsic Value Options outstanding at January 1, 2022 440,574 $ 68.45 Granted — $ — Exercised ( 5,439 ) $ 27.15 Canceled — $ — Options outstanding at December 31, 2022 435,135 $ 68.97 Granted — $ — Exercised — $ — Canceled — $ — Options outstanding at December 31, 2023 435,135 $ 68.97 Granted — $ — Exercised — $ — Canceled — $ — Options outstanding at December 31, 2024 435,135 $ 68.97 3.0 $ 0 Exercisable at December 31, 2024 326,351 $ 68.97 3.0 $ 0 Vested and expected to vest at December 31, 2024 102,128 $ 68.97 3.0 $ 0 There were no stock option exercises in 2024 and 2023. The total intrinsic values of options exercised during the year ended December 31, 2022 was $ 0.4 million. The total fair value of options vested during the years ended December 31, 2024, 2023, and 2022 was $ 1.0 million, $ 1.0 million, and $ 1.1 million, respectively. Cash received from options exercised under all share-based payment arrangements for the year ended December 31, 2022 was $ 0.1 million. The actual tax benefit realized for the tax deductions from option exercises under the share-based payment arrangements totaled $ 0.3 million for the year ended December 31, 2022. As of December 31, 2024, there was $ 1.0 million of total unrecognized compensation expense related to nonvested share-based compensation options granted under the Plans. That expense is expected to be recognized ratably over a weighted average period of 1.1 years (i.e., the remaining requisite service period). 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 or four years for senior staff (excluding market-based awards discussed below), and three to eight years for the Chief Executive Officer. The Company granted 413,053 , 305,549 , and 154,022 shares of restricted stock units (excluding awards with market conditions below) during the years ended December 31, 2024, 2023, and 2022, respectively. -105- ZIFF DAVIS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED 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 specific 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 years ended December 31, 2023 and 2022 the Company awarded 167,606 and 100,193 , respectively, PSUs at stock price targets ranging from $ 83.61 to $ 103.76 per share. During the year ended December 31, 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 the 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. Share-based compensation expense related to an award with a market condition will be 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 values of PSUs granted during the years ended December 31, 2024, 2023, and 2022 were $ 87.17 , $ 70.06 , and $ 87.11 , respectively. The assumptions used in determining the weighted-average fair values of PSUs granted during the periods presented are as follows: December 31, 2024 2023 2022 Underlying stock price at valuation date $ 66.88 $ 77.80 $ 99.32 Expected volatility 32.9 % 32.0 % 36.7 % Risk-free interest rate 4.3 % 4.1 % 1.8 % Restricted stock award (“RSA”) and PSA activity for the years ended December 31, 2024, 2023 and 2022 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, 2022 220,782 $ 72.07 163,181 $ 36.27 Granted — — — — Vested ( 67,762 ) 74.13 — — Canceled ( 4,920 ) 77.92 — — Nonvested at December 31, 2022 148,100 $ 70.93 163,181 $ 36.27 Granted — — — — Vested ( 52,060 ) 72.29 — — Canceled ( 322 ) 77.75 — — Nonvested at December 31, 2023 95,718 $ 70.17 163,181 $ 36.27 Granted — — — — Vested ( 40,735 ) 71.73 — — Canceled ( 154 ) 77.75 — — Nonvested at December 31, 2024 54,829 $ 68.97 163,181 $ 36.27 -106- ZIFF DAVIS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED Restricted stock unit activity for the years ended December 31, 2024, 2023 and 2022 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, 2022 299,023 $ 107.52 60,891 $ 86.78 Granted 154,022 94.47 100,193 87.11 Vested ( 84,259 ) 108.04 ( 30,435 ) 91.23 Canceled ( 24,831 ) 94.02 ( 10,250 ) 89.73 Outstanding at December 31, 2022 343,955 $ 102.53 120,399 $ 87.04 Granted 305,549 76.80 167,606 70.06 Vested ( 111,185 ) 101.41 — — Canceled ( 31,894 ) 83.82 ( 17,233 ) 77.98 Outstanding at December 31, 2023 506,425 $ 88.36 270,772 $ 77.09 Granted 413,053 64.60 308,970 87.17 Vested ( 175,564 ) 90.68 — — Canceled ( 91,687 ) 74.44 ( 58,756 ) 79.88 Outstanding at December 31, 2024 652,227 74.59 520,986 82.73 Vested and expected to vest at December 31, 2024 610,299 $ 74.53 499,185 $ 82.54 (1) Represents the number of shares at 100% achievement. Aggregate intrinsic value of shares outstanding as of December 31, 2024 was $ 35.4 million and $ 28.3 million for RSUs and PSUs, respectively. Aggregate intrinsic value for shares vested and expected to vest was $ 33.2 million and $ 27.1 million for RSUs and PSUs, respectively. As of December 31, 2024, the Company had unrecognized share-based compensation cost of approximately $ 50.8 million associated with these restricted stock awards and restricted stock units. This cost is expected to be recognized over a weighted-average period of 1.1 years for restricted stock awards and 2.0 years for restricted stock units. The total fair value of restricted stock and restricted stock units vested during the years ended December 31, 2024, 2023, and 2022 was $ 15.9 million, $ 11.3 million, and $ 12.4 million, respectively. The actual tax benefit realized for the tax deductions from the vesting of restricted stock and restricted stock units totaled $ 2.3 million, $ 1.9 million, and $ 2.8 million, respectively, for the years ended December 31, 2024, 2023, and 2022. Employee Stock Purchase Plan The Purchase Plan provides for the issuance of a maximum of two million shares of the Company’s common stock. Under the Purchase Plan, eligible employees can have up to 15 % of their earnings withheld, up to certain maximums, to be used to purchase shares of the Company’s common stock at certain plan-defined dates. The price of the Company’s common stock purchased under the Purchase Plan for the six-month offering periods is equal to 85 % of the lesser of the fair market value of a share of the common stock of the Company on the beginning or the end of the offering period. Employees are immediately vested in the shares purchased at the purchase date. During 2024, 2023, and 2022, 174,706 , 74,390 , and 139,992 shares were purchased under the Purchase Plan, respectively, at a price ranging from $ 46.84 to $ 48.88 per share during 2024. Cash received upon the issuance of the Company’s common stock under the Purchase Plan was $ 8.4 million, $ 8.7 million, and $ 9.4 million for the years ended December 31, 2024, 2023, and 2022, respectively. As of December 31, 2024, 819,505 shares were available under the Purchase Plan for future issuance. -107- ZIFF DAVIS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED The Company determined that a plan provision exists which allows for the more favorable of two exercise prices, commonly referred to as a “look-back” feature. The purchase price discount and the look-back feature cause the Purchase Plan to be compensatory and the Company to recognize compensation expense. The compensation cost is recognized on a straight-line basis over the requisite service period, or the six-month offering period. The Company used the Black-Scholes option pricing model to calculate the estimated fair value of the purchase right issued under the Purchase Plan. The expected volatility is based on historical volatility of the Company’s common stock. The risk-free interest rate is based on U.S. Treasury zero-coupon issues with a term equal to the expected term of the option assumed at the date of grant. The Company uses an annualized dividend yield based upon the per share dividends declared by its Board of Directors. Estimated forfeiture rates were 12.1 %, 12.5 %, and 11.8 % as of December 31, 2024, 2023, and 2022, respectively. The share-based compensation expense related to the Purchase Plan has been estimated utilizing the following weighted average assumptions: December 31, 2024 2023 2022 Risk-free interest rate 5.3 % 3.4 % 1.2 % Expected term (in years) 0.5 0.5 0.5 Expected volatility 31.4 % 38.3 % 40.7 % 15. Defined Contribution 401(k) Savings Plan The Company has several 401(k) Savings Plans that qualify under Section 401(k) of the Internal Revenue Code. Eligible employees may contribute a portion of their salary through payroll deductions, subject to certain limitations. The Company may make annual contributions at its sole discretion to these plans. For the years ended December 31, 2024, 2023, and 2022, the Company made contributions of $ 4.9 million, $ 5.2 million, and $ 5.1 million, respectively, to these 401(k) Savings Plans. -108- ZIFF DAVIS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED 16. Earnings Per Share The components of basic and diluted earnings per share from continuing operations are as follows (in thousands, except share and per share data): Years ended December 31, 2024 2023 2022 Numerator for basic and diluted net income per common share: Net income from continuing operations $ 63,047 $ 41,503 $ 65,466 Less: Net income available to participating securities (1) — ( 2 ) ( 20 ) Plus: Convertible Notes interest expense (after-tax) — — — Net income available to the Company’s common shareholders from continuing operations $ 63,047 $ 41,501 $ 65,446 Denominator: Basic weighted-average outstanding shares of common stock 44,457,071 46,400,941 46,954,558 Diluted effect of: Equity incentive plans 62,622 63,320 71,291 Convertible debt — — — Diluted weighted-average outstanding shares of common stock 44,519,693 46,464,261 47,025,849 Net income per share from continuing operations: Basic $ 1.42 $ 0.89 $ 1.39 Diluted $ 1.42 $ 0.89 $ 1.39 Weighted-average shares excluded from diluted weighted-average shares outstanding: Anti-dilutive stock options and restricted stock 1,069,443 629,807 — Anti-dilutive convertible debt 4,892,773 5,158,071 5,158,071 (1) Represents unvested share-based payment awards that contain certain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid). 17. Segment Information The Company’s businesses are based on the organizational structure used by the Chief Executive Officer of the Company, who acts as the chief operating decision maker (“CODM”). Following changes to our internal reporting structure, the Company concluded that it has five operating segments which are now presented as the following five reportable segments: 1) Technology & Shopping, 2) Gaming & Entertainment, 3) Health & Wellness, 4) Connectivity, and 5) Cybersecurity & Martech. The Technology & Shopping reportable segment primarily generates revenues from advertising on publishing platforms and commerce sites and through publishing of specialized technology-based content and provision of authoritative content relating to products, services, shopping and savings. The Gaming & Entertainment reportable segment generates revenue by providing authoritative content relating to video games and entertainment and includes a video game and entertainment website focusing on games (including game help), films, anime, television, comics, technology, and other media. It also generates revenues through subscriptions to and storefront sales of video games, ebooks, and software, as well as through related advertising. The Health & Wellness reportable segment generates revenues from a collection of interactive tools and mobile applications that are designed to enable consumers to manage a broad array of health and wellness needs on a daily basis, including medical conditions, pregnancy, diet, and fitness, and from a collection of educational and professional development services, news, and information for healthcare professionals. The Connectivity reportable segment includes several data and services businesses that sit at the center of the broadband economy and are sources of information on internet connectivity and network performance and primarily generates revenues through the granting of access to, or delivery of, data products or services to customers and the sale of perpetual software licenses, related software support, and maintenance. The Cybersecurity & Martech reportable segment generates revenues from cloud-based Software-as-a-Service offerings for various communication, messaging, security, privacy, customer marketing, and other needs of end-users. -109- ZIFF DAVIS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED The accounting policies of the reportable segments are the same as those described in Note 2 — Basis of Presentation and Summary of Significant Accounting Policies . The Company evaluates performance of all of its reportable segments based on its ‘Income from operations’ and the CODM uses ‘Income from operations’ to assess performance, make operating decisions, and allocate resources, including employees, property, and financial or capital resources, for each reportable segment. On a monthly basis, the CODM considers forecast-to-actual variances when making decisions about allocating capital and personnel-related resources to each reportable segment. Segment results presented below are exclusive of inter-segment revenues and inter-segment expenses, which are immaterial. The CODM does not use Balance Sheet information in connection with operating and investment decisions and as such that information is not presented. The CODM does use capital expenditures by reportable segment in connection with operating and investment decisions. Information on reportable segments revenues is as follows (in thousands): Years Ended December 31, 2024 2023 2022 Revenue by reportable segment: Technology & Shopping $ 361,882 $ 330,557 $ 384,929 Gaming & Entertainment 180,276 168,821 166,325 Health & Wellness 362,408 361,923 335,883 Connectivity 213,620 211,518 191,254 Cybersecurity & Martech 283,502 291,209 312,606 Total segment revenues 1,401,688 1,364,028 1,390,997 Corporate — — — Total revenues $ 1,401,688 $ 1,364,028 $ 1,390,997 The descriptions of significant reportable segment expenses shown in the following tables are as follows: • Salaries, benefits, and other employee expenses include employee compensation expenses for salaries, bonuses, benefits, payroll taxes, commissions, share-based compensation, severance costs, other related employee costs. • Cloud computing, software, and other related expenses include costs associated with cloud computing, software purchases, web hosting, database hosting, and other computer related costs. • Advertising and related marketing expenses include advertising relationships with an array of online service providers, marketing expenses, and other audience extension costs. • Partner payments include expense associated with revenue sharing arrangements, content fees, and royalties. • Professional and other-third party services include expenses for outside providers including freelancers, consultants, legal costs, and other professional services. -110- ZIFF DAVIS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED Significant reportable segment expenses are set forth in the tables below (in thousands): Year ended December 31, 2024 Technology & Shopping Gaming & Entertainment Health & Wellness Connectivity Cybersecurity & Martech Total operating costs and expenses Salaries, benefits, and other employee expenses $ 139,293 $ 45,294 $ 115,509 $ 53,172 $ 77,518 $ 430,786 Cloud computing, software, and other related expenses 28,086 5,630 13,903 14,849 40,009 102,477 Advertising and marketing related expenses 51,418 12,226 39,199 2,898 21,799 127,540 Partner payments 7,063 27,262 38,736 932 21,063 95,056 Professional and other third-party services 20,455 5,908 8,730 14,356 17,228 66,677 Goodwill impairment 85,273 — — — — 85,273 Depreciation and amortization 83,424 10,733 52,766 31,882 33,025 211,830 Other 17,942 (1) 19,222 (2) 26,358 (3) 16,157 (4) 17,899 (5) 97,578 Total segment operating costs and expenses 432,954 126,275 295,201 134,246 228,541 1,217,217 Corporate (6) 70,823 Total operating costs and expenses $ 1,288,040 -111- ZIFF DAVIS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED Year ended December 31, 2023 Technology & Shopping Gaming & Entertainment Health & Wellness Connectivity Cybersecurity & Martech Total operating costs and expenses Salaries, benefits, and other employee expenses $ 121,721 $ 43,224 $ 109,401 $ 55,492 $ 75,340 $ 405,178 Cloud computing, software, and other related expenses 23,580 3,974 11,599 9,865 37,402 86,420 Advertising and marketing related expenses 55,185 9,468 42,477 3,296 24,189 134,615 Partner payments 7,721 26,637 33,842 730 19,120 88,050 Professional and other third-party services 15,025 3,629 10,604 13,199 18,211 60,668 Goodwill impairment 56,850 — — — — 56,850 Depreciation and amortization 83,271 10,368 59,870 31,793 52,618 237,920 Other 17,702 (1) 14,222 (2) 30,555 (3) 26,552 (4) 21,119 (5) 110,150 Total segment operating costs and expenses 381,055 111,522 298,348 140,927 247,999 1,179,851 Corporate (6) 51,566 Total operating costs and expenses $ 1,231,417 -112- ZIFF DAVIS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED Year ended December 31, 2022 Technology & Shopping Gaming & Entertainment Health & Wellness Connectivity Cybersecurity & Martech Total operating costs and expenses Salaries, benefits, and other employee expenses $ 131,808 $ 43,386 $ 99,808 $ 44,908 $ 77,909 $ 397,819 Cloud computing, software, and other related expenses 25,517 3,426 10,172 9,509 34,985 83,609 Advertising and marketing related expenses 61,380 10,626 39,366 2,790 27,187 141,349 Partner payments 9,572 29,965 32,175 — 23,207 94,919 Professional and other third-party services 11,953 1,964 9,990 10,575 22,404 56,886 Goodwill impairment 27,369 — — — — 27,369 Depreciation and amortization 93,187 10,045 55,981 25,445 48,714 233,372 Other 20,578 (1) 13,488 (2) 22,176 (3) 19,665 (4) 27,238 (5) 103,145 Total segment operating costs and expenses 381,364 112,900 269,668 112,892 261,644 1,138,468 Corporate (6) 53,588 Total operating costs and expenses $ 1,192,056 (1) Other Technology & Shopping operating costs and expenses consist primarily of credit card processing fees, campaign fulfillment costs, travel and entertainment costs, office expenses, bad debt expense, and certain allocated overhead expenses. (2) Other Gaming & Entertainment operating costs and expenses consist primarily of credit card processing fees, inventory-related costs, campaign fulfillment costs, travel and entertainment costs, office expenses, bad debt expense, and certain allocated overhead expenses. (3) Other Health & Wellness operating costs and expenses consist primarily of app-store fees, credit card processing fees, campaign fulfillment costs, travel and entertainment costs, office expenses, bad debt expense, and certain allocated overhead expenses. (4) Other Connectivity operating costs and expenses consist primarily of inventory-related costs, credit card processing fees, inventory related costs, campaign fulfillment costs, travel and entertainment costs, office expenses, bad debt expense, and certain allocated overhead expenses. (5) Other Cybersecurity & Martech operating costs and expenses consist primarily of credit card processing fees, telecommunication backbone costs, travel and entertainment costs, office expenses, bad debt expense, and certain allocated overhead expenses. (6) Corporate includes costs associated with general, administrative, and other expenses (including some depreciation and amortization) that are managed on a global basis and that are not directly attributed to any particular segment. -113- ZIFF DAVIS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED Information on (loss) income from operations is set forth in the table below (in thousands). Years ended December 31, 2024 2023 2022 (Loss) income from operations by reportable segment: Technology & Shopping $ ( 71,072 ) $ ( 50,498 ) $ 3,565 Gaming & Entertainment 54,001 57,299 53,425 Health & Wellness 67,207 63,575 66,215 Connectivity 79,374 70,591 78,362 Cybersecurity & Martech 54,961 43,210 50,962 Total segment income from operations 184,471 184,177 252,529 Corporate (1) ( 70,823 ) ( 51,566 ) ( 53,588 ) Income from operations $ 113,648 $ 132,611 $ 198,941 (1) Corporate includes costs associated with general, administrative, and other expenses that are managed on a global basis and that are not directly attributable to any particular segment. Information on capital expenditures is set forth in the table below (in thousands). Years ended December 31, 2024 2023 2022 Capital expenditures: Technology & Shopping $ 13,609 $ 17,778 $ 25,088 Gaming & Entertainment 5,298 5,891 6,008 Health & Wellness 36,553 35,070 31,559 Connectivity 24,742 25,182 22,394 Cybersecurity & Martech 25,062 24,712 21,094 Total from reportable segments 105,264 108,633 106,143 Corporate 1,371 96 11 Total capital expenditures $ 106,635 $ 108,729 $ 106,154 The Company maintains operations in the U.S., Canada, Ireland, the United Kingdom, India, and other countries. Geographic information about the U.S. and all other countries for the reporting periods is presented below. Such information attributes revenues based on jurisdictions where revenues are reported (in thousands). Years ended December 31, 2024 2023 2022 Revenues: United States $ 1,165,571 $ 1,137,857 $ 1,181,936 All other countries 236,117 226,171 209,061 Total $ 1,401,688 $ 1,364,028 $ 1,390,997 Long-lived assets, excluding goodwill and other intangible assets are as follows (in thousands): December 31, 2024 2023 Long-lived assets: United States $ 178,732 $ 161,913 All other countries 44,733 50,820 Total $ 223,465 $ 212,733 -114- ZIFF DAVIS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED 18. Supplemental Cash Flow Information Non-cash investing and financing activities were as follows (in thousands): Years ended December 31, 2024 2023 2022 Non-cash investing activity: Property and equipment, accrued but unpaid $ — $ 55 $ 150 Right-of-use assets acquired in exchange for operating lease obligations $ 13,372 $ 1,597 $ 4,130 Purchase of equity investments with common stock $ — $ 13,500 $ — Disposition of Consensus common stock (1) $ — $ — $ 112,286 Non-cash financing activity: Debt principal settled in exchange for Consensus common stock (1) $ — $ — $ 112,286 Increase in fair value of conversion feature on 3.625 % Convertible Notes $ 4,001 $ — $ — Excise tax on share repurchases $ 1,099 $ — $ — (1) During the year ended December 31, 2022, the Company disposed $ 160.1 million of its investment in Consensus in exchange for $ 112.3 million of debt and recorded $ 47.8 million of loss on investment, net. Supplemental data (in thousands): Years ended December 31, 2024 2023 2022 Interest paid $ 28,856 $ 38,653 $ 36,168 Income taxes paid, net of refunds $ 68,731 $ 64,594 $ 59,543 Operating cash outflows related to lease liabilities were as follows (in thousands): Years ended December 31, 2024 2023 2022 Operating cash outflows related to lease liabilities $ 17,167 $ 23,230 $ 26,921 19. Accumulated Other Comprehensive Income The following table summarizes the changes in accumulated balances of other comprehensive loss (income), net of tax, for the years ended December 31, 2024, 2023, and 2022 (in thousands): Unrealized Gains (Losses) on Investments Foreign Currency Translation Total Balance as of January 1, 2022 $ 169 $ ( 57,391 ) ( 57,222 ) Other comprehensive income (loss) before reclassifications 272 ( 32,479 ) ( 32,207 ) Consensus separation — 4,056 4,056 Balance as of December 31, 2022 $ 441 $ ( 85,814 ) $ ( 85,373 ) Other comprehensive income before reclassifications 96 13,657 13,753 Balance as of December 31, 2023 $ 537 $ ( 72,157 ) $ ( 71,620 ) Other comprehensive income (loss) before reclassifications 1,575 ( 12,426 ) ( 10,851 ) Balance as of December 31, 2024 $ 2,112 $ ( 84,583 ) $ ( 82,471 ) There were no reclassifications out of accumulated other comprehensive loss for the years ended December 31, 2024, 2023, and 2022. -115- ZIFF DAVIS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED 20. Related Party Transactions Consensus Following the Separation (see Note 2 — Basis of Presentation and Summary of Significant Accounting Policies) , the Company retained an approximate 19.9 % interest in Consensus common stock. Throughout the year ended December 31, 2022, the Company disposed of a significant portion of its investment in Consensus common stock resulting in Consensus no longer being a related party after September 30, 2022. Related party transactions with Consensus through September 30, 2022 are discussed in Note 5 — Investments. In connection with the Separation, Ziff Davis and Consensus entered into several agreements that govern the relationship of the parties following the Separation, including a separation and distribution agreement, a transition services agreement, a tax matters agreement, an employee matters agreement, an intellectual property license agreement, and a stockholder and registration rights agreement. The transition services agreement governs services including certain information technology services, finance and accounting services, and human resource and employee benefit services. The agreed-upon charges for such services were generally intended to allow the providing company to recover all costs and expenses of providing such services, and nearly all such services were terminated without extension twelve months after the Separation. During the year ended December 31, 2022, the Company recorded an offset to expense of approximately $ 1.2 million from Consensus related to the transition services agreement within ‘General, administrative, and other related costs’ within the Consolidated Statements of Operations. Further, the Company assigned its lease of office space in Los Angeles, California to Consensus. Ziff Davis remained the lessee under this lease and its obligations remained in place through October 7, 2022, after which time Consensus took over the lease in full. During the year ended December 31, 2022, the Company recorded an offset to lease expense of approximately $ 1.5 million related to this lease. However, Consensus paid the landlord directly and not Ziff Davis. OCV OCV is considered a related party because it is an investment that is accounted for by the equity method. On September 25, 2017, the Company entered into a commitment to invest $ 200.0 million (approximately 76.6 % of equity) in the OCV Fund. The primary purpose of the OCV Fund is to provide a limited number of select investors with the opportunity to realize long-term appreciation from public and private companies, with a particular focus on the technology and life science industries. The general activities of the OCV Fund is to buy, sell, hold, and otherwise invest in securities of every kind and nature and rights and options with respect thereto, including, without limitation, stock, notes, bonds, debentures, and evidence of indebtedness; to exercise all rights, powers, privileges, and other incidents of ownership or possession with respect to securities held or owned by the OCV Fund; to enter into, make and perform all contracts and other undertakings; and to engage in all activities and transactions as may be necessary, advisable, or desirable to carry out the foregoing. The manager, OCV Management, LLC, and general partner of the OCV Fund are entities with respect to which Richard S. Ressler, former Chairman of the Board of the Company, is indirectly the majority equity holder. Mr. Ressler’s tenure with the Board ended as of May 10, 2022. As a limited partner in the OCV Fund, prior to the settlement of certain litigation generally related to the Company’s investment in the OCV Fund in January 2022, the Company paid an annual management fee to the manager equal to 2.0 % of capital commitments. In addition, subject to the terms and conditions of the Fund’s limited partnership agreement, once the Company has received distributions equal to its invested capital, the OCV Fund’s general partner would be entitled to a carried interest equal to 20 %. The OCV Fund has a six year investment period, during which any incremental investments can be made, subject to certain exceptions. The commitment was approved by the Audit Committee of the Board in accordance with the Company’s related-party transaction approval policy. At the time of the settlement of the litigation (see Note 11 — Commitments and Contingencies ), the Company had invested approximately $ 128.8 million in the OCV Fund. In connection with the settlement of the litigation, among other terms, no further capital calls will be made in connection with the Company’s investment in the OCV Fund, nor will any further management fees be paid by the Company to the manager. During the year ended December 31, 2022, the Company recognized expense for management fees of $ 1.5 million, net of tax benefit. -116- Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure None.