UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the quarterly period ended September 30, 20212022
OR
☐    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the transition period from __________ to __________

Commission File Number: 0-25965
zd-20220930_g1.jpg
ZIFF DAVIS, INC.
(Exact name of registrant as specified in its charter)
Delaware47-1053457
(State or other jurisdiction(I.R.S. Employer
of incorporation or organization)Identification No.)
114 5th Avenue
New York, New York 10011 (212) 503-3500
(Address and telephone number of principal executive offices)
(212) 503-3500
(Registrant’s telephone number, including area code)
J2 Global, Inc., 700 S. Flower Street, 15th Floor, Los Angeles, California 90017
(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.01 par valueZDNasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes ý    No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes ý    No  o   
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerýAccelerated fileroNon-Accelerated fileroSmaller reporting company☐
Emerging growth company☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes ☐        No ý

AsThere were 47,191,564 shares outstanding of the Registrant’s common stock as of November 5, 2021, the registrant had 48,220,791 shares of common stock outstanding.4, 2022.



ZIFF DAVIS, INC. AND SUBSIDIARIES 
FOR THE QUARTERLY REPORT
QUARTER ENDED SEPTEMBER 30, 20212022

INDEX 
   PAGE
 
    
  
  
3
  
4
  
5
6
87
9
  
1011
    
 
4847
    
 
6260
    
 
6462
    
   
 
    
 
6563
    
 
6563
    
 
6563
    
 
6663
    
 
6663
    
 
6664
    
 
Item 6.  
6764
    
  
6865
    

-2-


PART I.  FINANCIAL INFORMATION
Item 1.Financial Statements
ZIFF DAVIS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands except share and per share data)
September 30, 2021December 31, 2020September 30, 2022December 31, 2021
ASSETSASSETSASSETS
Cash and cash equivalentsCash and cash equivalents$546,467 $242,652 Cash and cash equivalents$621,917 $694,842 
Short-term investmentsShort-term investments— 663 Short-term investments54,897 229,200 
Accounts receivable, net of allowances of $14,417 and $16,018, respectively268,349 325,619 
Accounts receivable, net of allowances of $6,425 and $9,811, respectively (includes $1,216 and $9,272 due from related party, respectively)Accounts receivable, net of allowances of $6,425 and $9,811, respectively (includes $1,216 and $9,272 due from related party, respectively)232,297 316,342 
Prepaid expenses and other current assetsPrepaid expenses and other current assets73,457 53,909 Prepaid expenses and other current assets66,193 60,290 
Total current assetsTotal current assets888,273 622,843 Total current assets975,304 1,300,674 
Long-term investmentsLong-term investments110,718 97,495 Long-term investments124,228 122,593 
Property and equipment, netProperty and equipment, net183,179 156,577 Property and equipment, net171,181 161,209 
Operating lease right-of-use assetsOperating lease right-of-use assets88,331 105,845 Operating lease right-of-use assets44,257 55,617 
Trade names, netTrade names, net178,322 187,902 Trade names, net142,044 147,761 
Customer relationships, netCustomer relationships, net301,897 377,194 Customer relationships, net227,126 275,451 
GoodwillGoodwill1,861,332 1,867,430 Goodwill1,579,957 1,531,455 
Other purchased intangibles, netOther purchased intangibles, net160,943 176,473 Other purchased intangibles, net129,282 149,513 
Deferred income taxes, noncurrentDeferred income taxes, noncurrent37,761 56,545 Deferred income taxes, noncurrent7,636 5,917 
Other assetsOther assets19,901 17,027 Other assets32,053 20,090 
TOTAL ASSETSTOTAL ASSETS$3,830,657 $3,665,331 TOTAL ASSETS$3,433,068 $3,770,280 
LIABILITIES AND STOCKHOLDERS’ EQUITYLIABILITIES AND STOCKHOLDERS’ EQUITYLIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable and accrued expensesAccounts payable and accrued expenses$228,977 $230,651 Accounts payable and accrued expenses$212,926 $229,772 
Income taxes payable, current1,793 31,753 
Deferred revenue, currentDeferred revenue, current197,901 190,644 Deferred revenue, current180,136 185,571 
Operating lease liabilities, currentOperating lease liabilities, current31,636 32,211 Operating lease liabilities, current23,171 27,156 
Current portion of long-term debtCurrent portion of long-term debt568,054 396,801 Current portion of long-term debt— 54,609 
Other current liabilitiesOther current liabilities36 497 Other current liabilities222 130 
Total current liabilitiesTotal current liabilities1,028,397 882,557 Total current liabilities416,455 497,238 
Long-term debtLong-term debt1,110,699 1,182,220 Long-term debt998,499 1,036,018 
Deferred revenue, noncurrentDeferred revenue, noncurrent15,189 14,440 Deferred revenue, noncurrent8,742 14,839 
Operating lease liabilities, noncurrentOperating lease liabilities, noncurrent84,519 99,177 Operating lease liabilities, noncurrent38,334 53,708 
Income taxes payable, noncurrentIncome taxes payable, noncurrent11,675 11,675 Income taxes payable, noncurrent11,675 11,675 
Liability for uncertain tax positionsLiability for uncertain tax positions54,178 57,081 Liability for uncertain tax positions45,439 42,546 
Deferred income taxes, noncurrent112,482 162,700 
Deferred income taxesDeferred income taxes83,038 108,982 
Other long-term liabilitiesOther long-term liabilities44,259 44,463 Other long-term liabilities37,241 37,542 
TOTAL LIABILITIESTOTAL LIABILITIES2,461,398 2,454,313 TOTAL LIABILITIES1,639,423 1,802,548 
Commitments and contingencies— — 
Commitments and contingencies (Note 9)Commitments and contingencies (Note 9)
Preferred stock, $0.01 par value. Authorized 1,000,000 and none issuedPreferred stock, $0.01 par value. Authorized 1,000,000 and none issued— — Preferred stock, $0.01 par value. Authorized 1,000,000 and none issued— — 
Preferred stock - Series A, $0.01 par value. Authorized 6,000; total issued and outstanding zeroPreferred stock - Series A, $0.01 par value. Authorized 6,000; total issued and outstanding zero— — 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 zeroPreferred stock - Series B, $0.01 par value. Authorized 20,000; 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 47,825,827 and 44,346,630 shares at September 30, 2021 and December 31, 2020, respectively.478 443 
Common stock, $0.01 par value. Authorized 95,000,000; total issued and outstanding 47,189,907 and 47,440,137 shares at September 30, 2022 and December 31, 2021, respectively.Common stock, $0.01 par value. Authorized 95,000,000; total issued and outstanding 47,189,907 and 47,440,137 shares at September 30, 2022 and December 31, 2021, respectively.472 474 
Additional paid-in capitalAdditional paid-in capital508,493 456,274 Additional paid-in capital432,272 509,122 
Retained earningsRetained earnings931,477 809,107 Retained earnings1,469,519 1,515,358 
Accumulated other comprehensive lossAccumulated other comprehensive loss(71,189)(54,806)Accumulated other comprehensive loss(108,618)(57,222)
TOTAL STOCKHOLDERS’ EQUITYTOTAL STOCKHOLDERS’ EQUITY1,369,259 1,211,018 TOTAL STOCKHOLDERS’ EQUITY1,793,645 1,967,732 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITYTOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY$3,830,657 $3,665,331 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY$3,433,068 $3,770,280 

See Notes to Condensed Consolidated Financial Statements (Unaudited)
-3-


ZIFF DAVIS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands except share and per share data)
Three Months Ended
September 30,		Nine Months Ended
September 30,
2021202020212020
Total revenues$444,252 $356,976 $1,271,480 $1,020,353 
Cost of revenues (1)
64,302 55,822 185,462 171,755 
Gross profit379,950 301,154 1,086,018 848,598 
Operating expenses:  
Sales and marketing (1)
139,693 95,074 394,981 287,317 
Research, development and engineering (1)
21,639 14,261 62,634 43,273 
General and administrative (1)
122,477 114,381 359,498 312,283 
Goodwill impairment on business— — 32,629 — 
Total operating expenses283,809 223,716 849,742 642,873 
Income from operations96,141 77,438 236,276 205,725 
Interest expense, net(19,862)(22,712)(62,832)(65,879)
(Loss) gain on sale of businesses(24,600)17,122 (21,798)17,122 
Loss on investments, net— (156)(16,677)(20,991)
Other income, net1,660 14,230 1,367 16,413 
Income before income taxes and (loss) income from equity method investment, net53,339 85,922 136,336 152,390 
Income tax expense8,847 24,330 16,723 49,011 
(Loss) income from equity method investment, net(1,923)(709)16,596 (10,799)
Net income$42,569 $60,883 $136,209 $92,580 
Net income per common share:   
Basic$0.91 $1.31 $3.01 $1.96 
Diluted$0.88 $1.31 $2.86 $1.93 
Weighted average shares outstanding:   
Basic46,738,073 46,279,515 45,258,819 46,914,750 
Diluted48,582,585 46,309,072 47,565,062 47,620,308 
(1) Includes share-based compensation expense as follows:
Cost of revenues$108 $136 $357 $413 
Sales and marketing427 321 1,160 1,135 
Research, development and engineering613 425 1,690 1,340 
General and administrative5,607 4,918 15,912 15,755 
Total$6,755 $5,800 $19,119 $18,643 
-4-


Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Total revenues$341,873 $355,144 $994,297 $1,008,094 
Cost of revenues (1)
52,603 49,698 144,707 142,335 
Gross profit289,270 305,446 849,590 865,759 
Operating expenses: 
Sales and marketing (1)
119,474 126,577 361,013 354,949 
Research, development and engineering (1)
17,735 19,619 55,883 56,999 
General and administrative (1)
95,658 114,240 299,842 339,236 
Goodwill impairment on business27,369 — 27,369 32,629 
Total operating expenses260,236 260,436 744,107 783,813 
Income from operations29,034 45,010 105,483 81,946 
Interest expense, net(8,560)(14,490)(28,419)(56,980)
Gain on debt extinguishment, net10,112 — 11,505 — 
Loss on sale of businesses, net— (24,600)— (21,798)
Unrealized gain (loss) on short-term investments held at the reporting date, net4,201 — (14,165)— 
Gain (loss) on investments, net471 — (47,772)(16,677)
Other income (loss), net4,218 107 12,962 (466)
Income (loss) from continuing operations before income taxes and (loss) income from equity method investment, net39,476 6,027 39,594 (13,975)
Income tax (expense) benefit(18,100)2,665 (33,231)19,883 
(Loss) income from equity method investment, net(3,191)(1,923)(10,077)16,596 
Net income (loss) from continuing operations18,185 6,769 (3,714)22,504 
Income from discontinued operations, net of income taxes— 35,800 — 113,705 
Net income (loss)$18,185 $42,569 $(3,714)$136,209 
Net income (loss) per common share from continuing operations: 
Basic$0.39 $0.14 $(0.08)$0.50 
Diluted$0.39 $0.14 $(0.08)$0.47 
Net income per common share from discontinued operations:
Basic$— $0.77 $— $2.51 
Diluted$— $0.74 $— $2.39 
Net income (loss) per common share:
Basic$0.39 $0.91 $(0.08)$3.01 
Diluted$0.39 $0.88 $(0.08)$2.86 
Weighted average shares outstanding: 
Basic46,871,897 46,738,073 46,967,671 45,258,819 
Diluted46,871,897 48,582,585 46,967,671 47,565,062 
(1) Includes share-based compensation expense as follows:
Cost of revenues$63 $70 $289 $220 
Sales and marketing772 335 2,447 879 
Research, development and engineering567 514 2,048 1,390 
General and administrative4,984 5,484 16,022 15,513 
Total$6,386 $6,403 $20,806 $18,002 
 
See Notes to Condensed Consolidated Financial Statements (Unaudited)
-4--5-


ZIFF DAVIS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (LOSS)
(Unaudited, in thousands)
Three Months Ended
September 30,		Nine Months Ended
September 30,
2021202020212020
Net income$42,569 $60,883 $136,209 $92,580 
Other comprehensive loss, net of tax:
Foreign currency translation adjustment(11,101)(3,202)(16,269)(12,085)
Change in fair value on available-for-sale investments, net of tax expense of $37 for the three and nine months ended September 30, 2021, respectively, and $141 and $314 for the three and nine months ended September 30, 2020, respectively.(114)8 (114)553 
Other comprehensive loss, net of tax(11,215)(3,194)(16,383)(11,532)
Comprehensive income$31,354 $57,689 $119,826 $81,048 
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Net income (loss)$18,185 $42,569 $(3,714)$136,209 
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustment(24,753)(11,101)(55,283)(16,269)
Consensus separation adjustment— — 4,056 — 
Change in fair value on available-for-sale investments, net of tax expense of $— and $— for the three and nine months ended September 30, 2022, respectively, and $37 for the three and nine months ended September 30, 2021, respectively.(169)(114)(169)(114)
Other comprehensive loss, net of tax(24,922)(11,215)(51,396)(16,383)
Comprehensive (loss) income$(6,737)$31,354 $(55,110)$119,826 

See Notes to Condensed Consolidated Financial Statements (Unaudited)

-5--6-


ZIFF DAVIS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Nine Months Ended
September 30,		 Nine Months Ended September 30,
Cash flows from operating activities:Cash flows from operating activities:20212020Cash flows from operating activities:20222021
Net income$136,209 $92,580 
Adjustments to reconcile net income to net cash provided by operating activities: 
Net (loss) incomeNet (loss) income$(3,714)$136,209 
Adjustments to reconcile net (loss) income to net cash provided by operating activities:Adjustments to reconcile net (loss) income to net cash provided by operating activities: 
Depreciation and amortizationDepreciation and amortization196,443 163,680 Depreciation and amortization174,880 196,443 
Amortization of financing costs and discountsAmortization of financing costs and discounts21,295 21,393 Amortization of financing costs and discounts2,051 21,295 
Non-cash operating lease costsNon-cash operating lease costs8,366 15,686 Non-cash operating lease costs9,043 8,366 
Share-based compensationShare-based compensation19,119 18,643 Share-based compensation20,806 19,119 
Provision for doubtful accounts7,934 9,508 
Provision for credit losses on accounts receivableProvision for credit losses on accounts receivable(1,142)7,934 
Deferred income taxes, netDeferred income taxes, net2,537 7,815 Deferred income taxes, net(13,552)2,537 
Gain on extinguishment of debt, netGain on extinguishment of debt, net(11,505)— 
Loss (gain) on sale of businesses21,798 (17,122)
Lease asset impairments9,410 9,786 
Gain on sale of businessesGain on sale of businesses— 21,798 
Goodwill impairment on businessGoodwill impairment on business32,629 — Goodwill impairment on business27,369 32,629 
Changes in fair value of contingent considerationChanges in fair value of contingent consideration(567)(243)Changes in fair value of contingent consideration(2,305)(567)
Foreign currency remeasurement gain181 (15,919)
(Income) loss from equity method investments(16,596)10,799 
Loss on equity and debt investments16,677 20,826 
Loss (income) from equity method investmentsLoss (income) from equity method investments10,077 (16,596)
Unrealized gain (loss) on short-term investments held at the reporting dateUnrealized gain (loss) on short-term investments held at the reporting date14,165 — 
Loss on investments, netLoss on investments, net47,772 16,677 
OtherOther2699,591 
Decrease (increase) in:Decrease (increase) in: Decrease (increase) in: 
Accounts receivable49,888 57,560 
Accounts receivable (includes $9,425 and $0 with related parties)Accounts receivable (includes $9,425 and $0 with related parties)85,121 49,888 
Prepaid expenses and other current assetsPrepaid expenses and other current assets(10,610)(3,279)Prepaid expenses and other current assets3,177 (10,610)
Operating lease right-of-use assetsOperating lease right-of-use assets3,851 2,833 
Other assetsOther assets(2,378)543 Other assets(12,518)(2,378)
Increase (decrease) in:Increase (decrease) in: Increase (decrease) in: 
Accounts payable and accrued expensesAccounts payable and accrued expenses(1,409)(26,430)Accounts payable and accrued expenses(24,974)(1,409)
Income taxes payableIncome taxes payable(37,863)(496)Income taxes payable13,529 (37,863)
Deferred revenueDeferred revenue4,774 (10,494)Deferred revenue(25,400)4,774 
Operating lease liabilitiesOperating lease liabilities(19,346)(12,857)Operating lease liabilities(23,027)(22,179)
Liability for uncertain tax positionsLiability for uncertain tax positions(2,903)7,746 Liability for uncertain tax positions2,893 (2,903)
Other long-term liabilitiesOther long-term liabilities(5,336)6,284 Other long-term liabilities(3,647)(5,336)
Net cash provided by operating activitiesNet cash provided by operating activities430,252 356,009 Net cash provided by operating activities293,219 430,252 
Cash flows from investing activities:Cash flows from investing activities: Cash flows from investing activities: 
Proceeds on sale of available-for-sale investments663 — 
Proceeds from sale of available-for-sale investmentsProceeds from sale of available-for-sale investments— 663 
Investment in available-for-sale securitiesInvestment in available-for-sale securities(15,000)— 
Distribution from equity method investmentDistribution from equity method investment15,327 — Distribution from equity method investment— 15,327 
Purchases of equity method investmentPurchases of equity method investment(22,249)(29,979)Purchases of equity method investment— (22,249)
Purchases of equity investmentsPurchases of equity investments(999)(843)Purchases of equity investments— (999)
Purchases of property and equipmentPurchases of property and equipment(80,767)(87,495)
Purchases of property and equipment(87,495)(71,266)
Proceeds from sale of assets— 507 
Acquisition of businesses, net of cash receivedAcquisition of businesses, net of cash received(112,444)(27,156)Acquisition of businesses, net of cash received(104,094)(112,444)
Proceeds from sale of businesses, net of cash divestedProceeds from sale of businesses, net of cash divested48,876 24,353 Proceeds from sale of businesses, net of cash divested— 48,876 
Purchases of intangible assetsPurchases of intangible assets(1,255)(2,902)Purchases of intangible assets— (1,255)
Net cash used in investing activitiesNet cash used in investing activities(159,576)(107,286)Net cash used in investing activities(199,861)(159,576)
Cash flows from financing activities:Cash flows from financing activities: Cash flows from financing activities: 
Payment of debtPayment of debt(402,414)— Payment of debt(166,904)(402,414)
Payment of note payable— (400)
Proceeds from term loanProceeds from term loan112,286 — 
Debt extinguishment costsDebt extinguishment costs(756)— 
Proceeds from bridge loanProceeds from bridge loan485,000 — Proceeds from bridge loan— 485,000 
Repurchase of common stock(29,855)(238,905)
Issuance of common stock under employee stock purchase plan4,232 3,303 
Exercise of stock options2,880 952 
Deferred payments for acquisitions(13,387)(20,427)
-6--7-


Repurchase of common stockRepurchase of common stock(76,545)(29,855)
Issuance of common stock under employee stock purchase planIssuance of common stock under employee stock purchase plan5,235 4,232 
Exercise of stock optionsExercise of stock options148 2,880 
Deferred payments for acquisitionsDeferred payments for acquisitions(14,734)(13,387)
OtherOther(6,619)(1,377)Other(559)(6,619)
Net cash provided by (used in) financing activities39,837 (256,854)
Net cash (used in) provided by financing activitiesNet cash (used in) provided by financing activities(141,829)39,837 
Effect of exchange rate changes on cash and cash equivalentsEffect of exchange rate changes on cash and cash equivalents(6,698)446 Effect of exchange rate changes on cash and cash equivalents(24,454)(6,698)
Net change in cash and cash equivalentsNet change in cash and cash equivalents303,815 (7,685)Net change in cash and cash equivalents(72,925)303,815 
Cash and cash equivalents at beginning of periodCash and cash equivalents at beginning of period242,652 575,615 Cash and cash equivalents at beginning of period694,842 242,652 
Cash and cash equivalents at beginning of period associated with discontinued operationsCash and cash equivalents at beginning of period associated with discontinued operations— 66,210 
Cash and cash equivalents at beginning of period associated with continuing operationsCash and cash equivalents at beginning of period associated with continuing operations694,842 176,442 
Cash and cash equivalents at end of periodCash and cash equivalents at end of period$546,467 $567,930 Cash and cash equivalents at end of period621,917 546,467 
Cash and cash equivalents at end of period associated with discontinued operationsCash and cash equivalents at end of period associated with discontinued operations— 31,210 
Cash and cash equivalents at end of period associated with continuing operationsCash and cash equivalents at end of period associated with continuing operations$621,917 $515,257 

See Notes to Condensed Consolidated Financial Statements (Unaudited)
-7--8-


ZIFF DAVIS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Three and Nine Months Ended September 30, 20202021 and 20212022
(unaudited,Unaudited, in thousands, except share amounts)
Accumulated
Common stockAdditional
paid-in		Retainedother comprehensiveTotal
Stockholders’
SharesAmountcapitalearningslossEquity
Balance, July 1, 202046,892,691 $469 $467,267 $850,232 $(54,800)$1,263,168 
Net income (loss)— — — 60,883 — 60,883 
Other comprehensive income, net of tax expense of $141— — — — (3,194)(3,194)
Vested restricted stock19,893 — — — — — 
Repurchase and retirement of common stock(2,145,243)(21)(21,442)(128,973)— (150,436)
Share based compensation— — 5,800 — — 5,800 
Other, net— — 116 — — 116 
Balance, September 30, 202044,767,341 $448 $451,741 $782,142 $(57,994)$1,176,337 
Accumulated
Common stockAdditional
paid-in		Retainedother comprehensiveTotal
Stockholders’
SharesAmountcapitalearningslossEquity
Balance, July 1, 202144,708,235 $447 $461,422 $892,605 $(59,974)$1,294,500 
Net income— — — 42,569 — 42,569 
Other comprehensive income, net of tax expense of $37— — — — (11,215)(11,215)
Exercise of stock options23,250 — 1,549 — — 1,549 
Redemption of 3.25% Convertible Note including tax impact3,031,817 31 44,192 — — 44,223 
Vested restricted stock112,166 1 (1)— — — 
Repurchase and retirement of common stock(49,641)(1)(3,035)(3,885)— (6,921)
Share based compensation— — 6,755 — — 6,755 
Other, net— — (2,389)188 — (2,201)
Balance, September 30, 202147,825,827 $478 $508,493 $931,477 $(71,189)$1,369,259 
Three Months Ended September 30, 2021
Accumulated
Common stockAdditional
paid-in		Retainedother comprehensiveTotal
Stockholders’
SharesAmountcapitalearningslossEquity
Balance, July 1, 202144,708,235 $447 $461,422 $892,605 $(59,974)$1,294,500 
Net income— — — 42,569 — 42,569 
Other comprehensive loss, net of tax expense of $37— — — — (11,215)(11,215)
Exercise of stock options23,250 — 1,549 — — 1,549 
Redemption of 3.25% Convertible Note including tax impact3,031,817 31 44,192 — — 44,223 
Vested restricted stock112,166 1 (1)— — — 
Repurchase and retirement of common stock(49,641)(1)(3,035)(3,885)— (6,921)
Share-based compensation— — 6,755 — — 6,755 
Other, net— — (2,389)188 — (2,201)
Balance, September 30, 202147,825,827 $478 $508,493 $931,477 $(71,189)$1,369,259 
Three Months Ended September 30, 2022
Accumulated
Common stockAdditional
paid-in		Retainedother comprehensiveTotal
Stockholders’
SharesAmountcapitalearningslossEquity
Balance, July 1, 202247,191,337 $472 $426,104 $1,451,316 $(83,696)$1,794,196 
Net income— — — 18,185 — 18,185 
Other comprehensive loss, net of tax expense of zero— — — — (24,922)(24,922)
Issuance of restricted stock, net1,171 — — — — — 
Repurchase and retirement of common stock(2,601)— (218)18 — (200)
Share-based compensation— — 6,386 — — 6,386 
Balance, September 30, 202247,189,907 $472 $432,272 $1,469,519 $(108,618)$1,793,645 

-8--9-


AccumulatedNine months ended September 30, 2021
Common stockAdditional
paid-in		Retainedother comprehensiveTotal
Stockholders’		Accumulated
SharesAmountcapitalearningslossEquityCommon stockAdditional
paid-in		Retainedother comprehensiveTotal
Stockholders’
Balance, January 1, 202047,654,929 $476 $465,652 $891,526 $(46,462)$1,311,192 
SharesAmountcapitalearningslossEquity
Balance, January 1, 2021Balance, January 1, 202144,346,630 $443 $456,274 $809,107 $(54,806)$1,211,018 
Net incomeNet income— — — 92,580 — 92,580 Net income— — — 136,209 — 136,209 
Other comprehensive income, net of tax expense of $314— — — — (11,532)(11,532)
Other comprehensive loss, net of tax expense of $37Other comprehensive loss, net of tax expense of $37— — — — (16,383)(16,383)
Exercise of stock optionsExercise of stock options41,530 — 1,583 (631)— 952 Exercise of stock options68,601 1 2,879 — — 2,880 
Issuance of shares under employee stock purchase planIssuance of shares under employee stock purchase plan53,694 — 3,303 — — 3,303 Issuance of shares under employee stock purchase plan58,145 1 4,231 — — 4,232 
Redemption of 3.25% Convertible Note including tax impactRedemption of 3.25% Convertible Note including tax impact3,050,850 31 44,191 — — 44,222 
Vested restricted stockVested restricted stock267,894 3 (3)— — — Vested restricted stock546,684 5 (5)— — — 
Redemption of 3.25% Convertible Note including tax impact— — (12)— — (12)
Repurchase and retirement of common stockRepurchase and retirement of common stock(3,250,706)(31)(37,541)(201,333)— (238,905)Repurchase and retirement of common stock(245,083)(3)(15,825)(14,027)— (29,855)
Share based compensation— — 18,643 — — 18,643 
Share-based compensationShare-based compensation— — 19,119 — — 19,119 
Other, netOther, net— $— $116 $— $— $116 Other, net— — (2,371)188 — (2,183)
Balance, September 30, 202044,767,341 $448 $451,741 $782,142 $(57,994)$1,176,337 
Balance, September 30, 2021Balance, September 30, 202147,825,827 $478 $508,493 $931,477 $(71,189)$1,369,259 

Accumulated
Common stockAdditional
paid-in		Retainedother comprehensiveTotal
Stockholders’
SharesAmountcapitalearningslossEquity
Balance, January 1, 202144,346,630 $443 $456,274 $809,107 $(54,806)$1,211,018 
Net income— — — 136,209 — 136,209 
Other comprehensive income, net of tax expense of $37— — — — (16,383)(16,383)
Exercise of stock options68,601 1 2,879 — — 2,880 
Issuance of shares under employee stock purchase plan58,145 1 4,231 — — 4,232 
Redemption of 3.25% Convertible Note including tax impact3,050,850 31 44,191 — — 44,222 
Vested restricted stock546,684 5 (5)— — — 
Repurchase and retirement of common stock(245,083)(3)(15,825)(14,027)— (29,855)
Share based compensation— — 19,119 — — 19,119 
Other, net— — (2,371)188 — (2,183)
Balance, September 30, 202147,825,827 $478 $508,493 $931,477 $(71,189)$1,369,259 
Nine Months Ended September 30, 2022
Accumulated
Common stockAdditional
paid-in		Retainedother comprehensiveTotal
Stockholders’
SharesAmountcapitalearningslossEquity
Balance, January 1, 202247,440,137 $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 loss— — — (3,714)— (3,714)
Other comprehensive loss, net of tax expense of zero— — — — (51,396)(51,396)
Exercise of stock options5,439 — 148 — — 148 
Issuance of shares under employee stock purchase plan76,741 1 5,234 — — 5,235 
Issuance of restricted stock, net456,963 4 (4)— — — 
Repurchase and retirement of common stock(789,373)(7)(14,881)(61,657)— (76,545)
Share-based compensation— — 20,806 — — 20,806 
Other, net— — (16)(3,904)— (3,920)
Balance, September 30, 202247,189,907 $472 $432,272 $1,469,519 $(108,618)$1,793,645 

See Notes to Condensed Consolidated Financial Statements (Unaudited)
-9--10-


ZIFF DAVIS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2021
(UNAUDITED)
1.Basis of Presentation and Overview

DescriptionThe accompanying Condensed Consolidated Financial Statements of Business
As of September 30, 2021, J2 Global,Ziff Davis, Inc., together with and its subsidiaries (“J2 Global”Ziff Davis”, the “Company”, “our”, “us”, or “we”), waswhether directly or indirectly wholly-owned, were prepared in accordance with U.S. generally accepted accounting principles ("GAAP"), and all adjustments considered necessary for a fair presentation have been included. All intercompany accounts and transactions have been eliminated in consolidation.
The accompanying interim Condensed Consolidated Financial Statements have been prepared in accordance with instructions for Form 10-Q and Article 10 of Regulation S-X issued by the Securities and Exchange Commission (“SEC”). The preparation of these Condensed Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the Condensed Consolidated Financial Statements, as well as the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. All normal recurring adjustments necessary for a fair presentation of these interim Condensed Consolidated Financial Statements were made.
This Quarterly Report on Form 10-Q should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the Securities and Exchange Commission ("SEC") on March 15, 2022 and other filings with the SEC.
The results of operations for this interim period are not necessarily indicative of the operating results for the full year or for any future period.
Description of Business
Ziff Davis, Inc. is a vertically focused digital media and internet company whose portfolio includes leading provider of internet informationbrands in technology, entertainment, shopping, health, cybersecurity, and services. Themartech. Our Digital Media business specializedspecializes in the technology, shopping, gaming, and healthcare markets, offering content, tools and services to consumers and businesses. The Cloud ServicesOur Cybersecurity and Martech business providedprovides cloud-based subscription services to consumers and businesses including cloud fax, cybersecurity, privacy and marketing technology.
On October 7, 2021, in connection with the spin-off of its cloud fax business described further below, the Company changed its name from J2 Global, Inc. to Ziff Davis, Inc. (“Ziff Davis”). Additionally, starting October 8, 2021, the Company’s common stock began trading under the stock symbol “ZD.”
The accompanying interim Condensed Consolidated Financial Statements include the accounts of the Company and its direct and indirect wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.Discontinued Operations

The accompanying interim Condensed Consolidated Financial Statements are unaudited and have been prepared in accordance with instructions for Form 10-Q and Article 10 of Regulation S-X issued by the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and note disclosures required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements although the Company believes that the disclosures made are adequate to make that information not misleading. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been reflected in these interim financial statements. It is suggested that these financial statements be read in conjunction with the audited financial statements and the related notes thereto for the year ended December 31, 2020, included in our Annual Report (Form 10-K) filed with the SEC on March 1, 2021. Accordingly, significant accounting policies and other disclosures normally provided have been omitted since such items are disclosed therein.
The results of operations for this interim period are not necessarily indicative of the operating results for the full year or for any future period.

Consensus, Inc. Spin-Off

On September 21,October 7, 2021, the Company announced that its Board of Directors approved its previously announcedcompleted the separation of theits cloud fax business (the “Separation”) into an independent publicly traded company, Consensus Cloud Solutions, Inc. (“Consensus”). On October 7, 2021 (the “Distribution Date”), the Separation was completed and the Company transferred J2 Cloud Services, LLC to Consensus, Inc. who in turn transferred non-fax assets and liabilities back to Ziff Davis such that Consensus was left with the cloud fax business. The Separation was achieved through the Company’s distribution of 80.1% of the shares of Consensus common stock to holders of J2 Global common stock as of the close of business on October 1, 2021, the record date for the distribution. The Company’s stockholders of record received one share of Consensus common stock for every three shares of J2 Global’s common stock. On October 8, 2021, Consensus began trading on Nasdaq under the stock symbol “CCSI”. Ziff Davis, Inc. (formerly, formerly J2 Global, Inc.), retained a 19.9% interest in Consensus following the Separation.Separation (the “Investment in Consensus”). The accounting requirements for reporting the Company’s cloud fax business as a discontinued operation were met when the Separation was completed. Accordingly, the Condensed Consolidated Financial Statements reflect the results of the cloud fax business as a discontinued operation for all periods presented.Ziff Davis did not retain a controlling interest in Consensus.

UseOn June 9, 2022, the Company entered into an agreement with certain selling shareholders of EstimatesConsensus who executed an underwritten public offering pursuant to a registration statement filed by Consensus with the SEC for 2,000,000 shares of its common stock (including a 30-day option for the underwriters to purchase from the selling shareholders an additional 300,000 shares at the public offering price less the underwriting discount). On June 10, 2022, the Company entered into a Fifth Amendment to its existing Credit Agreement, providing for the issuance of a senior secured term loan under the Credit Agreement (the “Term Loan Facility”), in an aggregate principal amount of approximately $90.0 million. During June 2022, the Company subsequently completed a non-cash exchange of the 2,300,000 shares of its common stock of Consensus with the selling shareholders to settle the Company’s obligations of $90.0 million outstanding aggregate principal amount of the Term Loan Facility plus related interest and the corresponding underwriting fees.
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ZIFF DAVIS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

The preparationOn September 14, 2022, the Company entered into an agreement with certain selling shareholders of consolidated financial statementsConsensus who executed an underwritten public offering pursuant to a registration statement filed by Consensus with the SEC for 500,000 shares of its common stock. On September 15, 2022, the Company entered into a Sixth Amendment to its existing Credit Agreement, providing for the issuance of a senior secured term loan under the Credit Agreement (the “Term Loan Two Facility”, together with the Term Loan Facility, collectively, “Term Loan Facilities”), in accordance with GAAP requires management to make estimates and assumptions that affectan aggregate principal amount of approximately $22.3 million. During September 2022, the reported amounts of assets and liabilities at the dateCompany subsequently completed a non-cash exchange of the financial statements, including judgments about investment classifications500,000 shares of its common stock of Consensus with the selling shareholders to settle the Company’s obligations of $22.3 million outstanding aggregate principal amount of the Term Loan Two Facility plus related interest and the reported amountscorresponding underwriting fees. Refer to Note 8 - Debt for further discussion.

As of net revenue and expenses duringSeptember 30, 2022, the reporting period.Company continues to hold approximately 1.2 million shares of common stock of Consensus (the “Retained Consensus Shares”). The Investment in Consensus represents the investment in equity securities for which 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 andelected the related determination of consolidation, share-based compensation expense, fair value of assets acquiredoption and liabilities assumed in connection with business combinations, long-lived and intangible asset impairment, contingent consideration, income taxes and contingencies
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and allowances for doubtful accounts. 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 due to risks and uncertainties, including uncertaintysubsequent fair value changes in the current economic environment dueConsensus shares are included in the assets of and results from continuing operations. Refer to the novel coronavirus pandemic (“COVID-19”).Note 4 - Investments and Note 5 - Discontinued Operations for additional information.

Allowances for Doubtful Accounts

Credit Losses
The Company maintains an allowance for credit losses foron accounts receivable, which is recorded as an offset to accounts receivable and changes in such are classified as general and administrative expenses in the Condensed 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.

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 (seeservices. Refer to Note 32 - Revenues).Revenues for additional details.

Principal vs. Agent

The Company determines whether revenue should be reported on a gross or net basis by assessing whether the Company is acting as the principal or an agent in the transaction. If the Company is acting as the principal in a transaction, the Company reports revenue on a gross basis. If the Company is acting as an agent in a transaction, the Company reports revenue on a net basis. In determining whether the Company acts as the principal or an agent, the Company follows the accounting guidance under Topic 606 for principal-agent considerations and assesses: (i) if another party is involved in providing goods or services to the customer, and (ii) whether the Company controls the specified goods or services prior to transferring control to the customer.customer and (iii) whether the Company has discretion on pricing.

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.

Investments

The Company accountsWe account for itsour investments in debt securities in accordance with ASC Topic No. 320, Investments - Debt Securities (“ASC 320”). DebtOur debt investments are typically comprised of corporate debt securities, which it classifiesare classified as available-for-sale. Available-for-sale securities are carried at fair value with unrealized gains and losses included in other comprehensive income. All debt securities are accounted for on a specific identification basis.

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ZIFF DAVIS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
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 in stockholders’ equity.on our Condensed Consolidated Balance Sheets. 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 Condensed Consolidated Statements of Operations, and any remaining unrealized losses, net of taxes, are included in accumulated comprehensive loss in stockholders’ equity.on our Condensed Consolidated Balance Sheets.

The Company accountsWe account for its investments in equity securities in accordance with ASC Topic No. 321, Investments - Equity Securities (“ASC 321”), which requires the accounting for equity investments, (otherother than those accounted for usingunder the equity method of accounting)accounting, generally be measured at fair value for equity securities with readily determinable fair values. For equityEquity securities without a readily determinable fair value, thatwhich are not accounted for byunder the equity method the Company measures the equity security usingof accounting, are measured at their cost, less impairment, if any, and plus or minusadjusted for observable price changes arising from
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orderly transactions in the same or similar investment from the same issuer. Any unrealized gains or losses will be reported in currentwithin earnings (see Note 5 - Investments).on the Condensed Consolidated Statements of Operations.

The Company assessesWe assess whether an other-than-temporary impairment loss on an investment has occurred due to declines in fair value or other market conditions (seeconditions. Refer to Note 54 - Investments).Investments for additional information.

The Retained Consensus Shares are equity securities accounted for at fair value under the fair value option, and the related fair value gains and losses are recognized in earnings. As the initial carrying value of the Retained Consensus Shares was negative immediately following the Separation, the Company elected the fair value option under ASC 825-10-25 to support the initial recognition of the Retained Consensus Shares at fair value and the negative book value was recorded as a gain at the date of Separation. The fair value of Consensus common stock is readily available as Consensus is a publicly traded company.

Variable Interest Entities (“VIE”VIEs”)

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”) and in Group Black, Inc. (“Group Black”). In determining whether the Company is deemed to be the primary beneficiary of the VIE, both of the following characteristics must be present:

a) the Company has the power to direct the activities of the VIE that most significantly impacts the VIEs economic performance (the power criterion); and

b) the Company has the obligation to absorb losses of the VIE, or the right to receive benefits of the VIE, that could potentially be significant to the VIE (the economic criterion).

The Company has concluded that, as a limited partner, although the obligationobligations to absorb losses or the right to benefit from the gains is not insignificant, the Company does not have “power” over OCV because it does not have the ability to direct the significant decisions which impact the economics of OCV. The Company believes that the OCV general partner, as a single decision maker, holds the ability to make the decisions about the activities that most significantly impact the OCV Fund’s economic performance. As a result, the Company has concluded that it will not consolidate OCV, as it is not the primary beneficiary of the OCV Fund, and will account for this investment under the equity-method of accounting. Seeaccounting (see Note 5, “Investments”4 - Investments).

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 Condensed Consolidated Statements of Operations.

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.

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ZIFF DAVIS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Ziff Davis has variable interests in Group Black. Group Black is a limited partnership and is managed by its Board of Directors. As of September 30, 2022, the Company does not have voting rights in the investee and lacks the power and the ability to control or direct the significant economic operations of the investee. Ziff Davis is not a primary beneficiary and does not consolidate the entity under either the VIE model or the voting interest (“VOE”) model. Refer to Note 4 - Investments for additional detail.

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 FASB ASC Topic No.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. Factors it considers important which could individually or in combination trigger an impairment include the following:

•Significant underperformance relative to expected historical or projected future operating results;

•Significant changes in the manner of our use of the acquired assets or the strategy for the Company’s overall business;

•Significant negative industry or economic trends;

•Significant decline in the Company’s stock price for a sustained period; and

•The Company’s market capitalization relative to net book value.

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.

The Company assessed whether events or changes in circumstances have occurred that potentially indicate the carrying amount of long-liveddefinite-lived assets may not be recoverable. During the three andnine months ended September 30, 2022, the Company did not have any events or circumstances indicating impairment of long-lived assets, other than the recording of an impairment of certain operating lease right-of-use assets in the amount of $0.4 million. During the nine months ended September 30, 2021, the Company recorded an impairmentimpairments of $9.4 million on its operating lease right of use assets primarily related to exiting certain operating right-of-use assets (see Note 10 - Leases). In the third quarter of 2020,lease space as the Company recordedregularly evaluates its office space requirements in light of more of its workforce working from home as part of a permanent “remote” or “partial remote” work model. The impairment is presented in general and administrative expense on the Condensed Consolidated Statement of certain operating right-of-use assets and associated property and equipment. (see Note 10 - Leases).Operations.

The Company classifies its long-lived assets to be sold as held for sale in the period (i) it has approved and committed to a plan to sell the asset, (ii) the asset is available for immediate sale in its present condition, (iii) an active program to locate a buyer and other actions required to sell the asset have been initiated, (iv) the sale of the asset is probable and the transfer is expected to qualify for recognition as a sale within one year, (v) the asset is being
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actively marketed for sale at a price that is reasonable in relation to its current fair value, and (vi) it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. The Company initially measures a long-lived asset that is classified as held for sale at the lower of its carrying value or fair value less any costs to sell. Any loss resulting from this measurement is recognized in the period in which the held for sale criteria are met. Conversely, gains are not recognized on the sale of a long-lived asset until the date of sale. Upon designation as an asset held for sale, the Company stops recording depreciation expense on the asset. The Company assesses the fair value of a long-lived asset less any costs to sell at each reporting period and until the asset is no longer classified as held for sale.

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ZIFF DAVIS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
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. 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 and trade names, developed technologies and other intangible assets. Intangible assets subject to amortization are amortized over the period of estimated economic benefit ranging from 1one to 20twenty years and are included in general and administrative expenses on the Condensed Consolidated Statements of Operations. The Company evaluates its goodwill and indefinite-lived intangible assets for impairment pursuant to FASB ASC Topic No. 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 iswas more likely than not that the fair value of the reporting unit is less than its carrying amount, it then it performs thean impairment test uponof 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 thea mix of an income approach methodology of valuation.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. In the second quarter of 2021, theThe Company recorded an impairment to goodwill associated with the plan to sell the Company’s B2B Backup business. This sale closed during the third quarter of 2021 (see Note 6 – Dispositions). No impairment was recorded in the third quarter of 2020. In the first quarter of 2021, the Company changed the annuala goodwill impairment assessment dateof $27.4 million and zero for the Cloud Services business fromthree months ended September 30, 2022 and 2021, respectively, and $27.4 million and $32.6 million for the nine months ended September 30, 2022 and 2021, respectively. Refer to October 1, as it determined this date is preferable,Note 7 - Goodwill and concluded this was not a material change in accounting principal.Intangible Assets for further 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 Condensed Consolidated Balance Sheets. The Company considers several factors when determining that contingent earn-out liabilities are part of the purchase price, including the following: (1) the valuation of our acquisitions is not supported solely by the initial consideration paid, and the contingent earn-out formula is a critical and material component of the valuation approach to determining the purchase price; and (2) the former shareholders of acquired companies that remain as key employees receive
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compensation other than contingent earn-out payments at a reasonable level compared with the compensation of the Company’s other key employees. The contingent earn-out payments are not affected by employment termination.
-15-

ZIFF DAVIS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

The Company measures theits contingent earn-out liabilities in connection with acquisitions at fair value on a recurring basis using significant unobservable inputs classified within Level 3 of the fair value hierarchy (see Note 76 - Fair Value Measurements)Measurements). The Company may use various valuation techniques depending on the terms and conditions of the contingent consideration including a Monte-Carlo simulation. This simulation uses a probability distribution for each significant input to produce hundreds or thousands of possible outcomes and the results are analyzed to determine probabilities of different outcomes occurring. Significant increases or decreases to these inputs in isolation would result in a significantly higher or lower liability with a higher liability capped by the contractual maximum of the contingent earn-out obligation. Ultimately, the liability will be equivalent to the amount paid, and the difference between the fair value estimate and the amount paid will be recorded in earnings. The amount paid that is less than or equal to the liability on the acquisition date is reflected as cash used in financing activities in itsour Condensed Consolidated Statements of Cash Flows. Any amount paid in excess of the liability on the acquisition date is reflected as cash used in operating activities.

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 quarterly 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 and administrative expenses on the Condensed Consolidated Statements of Operations.

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 FASB ASC Topic No. 740, Income Taxes (“(“ASC 740”), which requires that deferred tax assets and liabilities 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. The valuation allowance is reviewed quarterly based upon the facts and circumstances known at the time. In assessing this valuation allowance, 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 recognizedrecognizes accrued interest and penalties related to uncertain income tax positions in income tax expense on its Condensed Consolidated Statements of Operations.

In addition, on March 27, 2020,On August 16, 2022, the “Coronavirus Aid, ReliefInflation Reduction Act of 2022 (“IRA”) was signed into law. The IRA included many climate and Economic Security (CARES) Act” was enacted into lawenergy provisions and provides for changes to various tax laws that impact businesses. The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods,introduced a 15 percent corporate alternative minimum tax credit refunds, modifications to the net interest deduction limitations, increased
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limitations(“CAMT”) for taxpayers whose average annual adjusted financial statement income exceeds a certain threshold. The IRA also enacted a one percent excise tax on qualified charitable contributionsstock repurchases made by publicly traded U.S. corporations. The CAMT and technical corrections toexcise tax depreciation methodson stock repurchases are effective for qualified improvement property.

The CARES Act also appropriated funds for the Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) loans that are forgivable in certain situations to promote continued employment, as well as Economic Injury Disaster Loans to provide liquidity to small businesses harmed by COVID-19. The Company did not seek to borrow any funds under the program. However, as a result of an acquisition that closed during the quarter endedtax years beginning after December 31, 2020, the Company assumed outstanding PPP loans that had started the process of being forgiven prior to the closing of the acquisition. During the second quarter of 2021, the Company received approval from the SBA to forgive the entire amount of the outstanding PPP Loan. The amount forgiven did not have a significant impact to the Company’s financial statements.

2022. The Company does not believe these provisions have a significant impactthat it will be subject to our current and deferred income tax balances. The Company will benefit from the technical correctionCAMT as it is expected to tax depreciation related to qualified improvement property and has elected to defer income tax payments and employer side social security payments where eligible.be under the threshold of the average annual adjusted financial statement income.


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ZIFF DAVIS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Share-Based Compensation

The Company accountsWe account for share-based awards to employees and non-employees in accordance with the provisions of FASB ASC Topic No. 718, Compensation - Stock Compensation (“ASC 718”). Accordingly, the Company measures share-based , which requirescompensation expensecost, measured at the grant date based on the fair value, of the award, and recognizes the expenseto 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. 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 Companywe 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 Company estimatesWe estimate the expectedvesting term based upon the historical exercise behavior of itsour employees.

Earnings Per Common Share (“EPS”)

On January 1, 2022, the Company adopted Accounting Standards Update (“ASU”) 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”) using the modified retrospective method. Following this adoption, the Company applies the if-converted method for the diluted net income per share calculation of convertible debt instruments. Prior to the adoption, the Company used the treasury stock method when calculating the potential dilutive effect of convertible debt instruments.

Recent Accounting Pronouncements

Recently issued applicable accounting pronouncements not yet adopted

In March 2020, the Financial Accounting Standards Board (“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 are available for all entities through December 31, 2022, with early adoption permitted. We are currently evaluating the effect the adoption of this update will have on our condensed consolidated financial statements and related disclosures.
Recently adopted accounting pronouncements

In August 2020, the FASB issued ASU 2020-06 Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40). 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 will be 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. Among other potential impacts, this change is expected to reduce reported noncash interest expense, increase reported net income, and result in a reclassification of certain conversion feature balance sheet amounts from stockholders’ equity to liabilities. Similarly, the debt discount, that is equal to the carrying value of the embedded conversion feature upon issuance, will no longer be amortized into income as interest expense over the life of the instrument. Additionally, ASU No. 2020-06 requires the use of the if-converted method to calculate the impact of convertible instruments on diluted earnings per share and include 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 Condensed Consolidated Balance Sheet upon this adoption increased the carrying amount of the 1.75% Convertible Notes (as defined in Note 8 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.

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ZIFF DAVIS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
In October 2021, the FASB issued Accounting Standards Update (“ASU 2021-08”), Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This update requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606. This update is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2022, with early adoption permitted, including in interim periods. The Company early adopted ASU 2021-08 during the second quarter of 2022. An entity that early adopts in an interim period should apply the amendments (1) retrospectively to all business combinations for which the acquisition date occurs on or after the beginning of the fiscal year that includes the interim period of early application and (2) prospectively to all business combinations that occur on or after the date of initial application. Therefore, the adoption of ASU 2021-08 was applied retrospectively to January 1, 2022. The adoption of ASU 2021-08 did not have a material impact on our condensed consolidated financial statements and related disclosures.

Reclassifications

Certain prior year reported amounts have been reclassified to conform to the 20212022 presentation.

2.    Recent Accounting Pronouncements
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in this ASU simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The Company adopted this ASU in the first quarter of 2021 and has identified no material effect on its financial statements or disclosures.

In January 2020, the FASB issued ASU No. 2020-01, Investments - Equity Securities (Topic 321), Investment - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topic 321, Topic 323, and Topic 815. The amendments in this ASU clarify certain interactions between the guidance to account for certain equity securities under Topic 321, the guidance to account for investments under the equity method of accounting in Topic 323, and the accounting for certain forward contracts and purchased options under Topic 815. This ASU identifies two main areas for improvement: (1) accounting for certain equity securities upon the application or discontinuation of the equity method of accounting and (2) scope considerations for forward contracts and purchased options on certain securities. The amendment states, as it is related to the first area of improvement, that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method. The amendment also states, as it is relates to forward contracts and purchased options on certain securities, an entity should consider certain criteria to determine the accounting for those forward contracts and purchased options. The Company adopted this ASU in the first quarter of 2021 and has identified no effect on its financial statements or disclosures.

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In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments in this ASU provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this ASU apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. LIBOR is expected to phased out by 2021. The amendments in this ASU are effective as of March 12, 2020 through December 31, 2022. The Company is currently evaluating the effect of this ASU on its financial statements and related disclosures.

In August 2020, the FASB issued ASU No. 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The amendments in this ASU reduce the number of accounting models for convertible debt instruments and convertible preferred stock in order to simplify the accounting for convertible instruments and reduce complexity. In addition, it amends the guidance for scope exception surrounding derivatives for contracts in an entity’s own equity. In each case, the related guidance surrounding EPS has also been amended. The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021. The Company is currently evaluating the effect of this ASU on its financial statements and related disclosures.

In October 2020, the FASB issued ASU No. 2020-10, Codification Improvements. The amendments in this ASU improve the consistency of the codification and reorganize the guidance into appropriate sections providing less opportunities for disclosures to be missed. The amendments in this update do not change GAAP and are not expected to result in a significant change in practice. The amendments in this ASU are effective for fiscal years beginning after December 15, 2020. The Company adopted this ASU in the first quarter of 2021 and has identified no effect on its financial statements or disclosures.

3.Revenues

Digital Media

Digital Media revenues are earned primarily from the delivery of advertising services and from subscriptions to services and information.

Revenue is earned from the delivery of advertising services on the Company’swebsites that are owned and operated websitesby us and on those websites that are part of Digital Media’s advertising network. Depending on the individual contracts with the customer, revenue for these services areis recognized over the contract period when any of the following performance obligations are satisfied: (i) when an advertisement is placed for viewing, (ii) when a qualified sales lead is delivered, (iii) when a visitor “clicks through” on an advertisement or (iv) when commissions are earned upon the sale of an advertised product.

Revenue from subscriptions is earned through the granting of access to, or delivery of, data products or services to customers. Subscriptions cover video games and related content, health information, data and other copyrighted material. Revenues under such agreements are recognized over the contract term for use of the service. Revenues are also earned from listing fees, subscriptions to online publications, and from other sources. Subscription revenues are recognized over time.

The Company generatesWe also generate Digital Media subscription revenues through the license of certain assets to clients. Assets are licensed for clients’ use in their own promotional materials or otherwise. Such assetsotherwise and may include logos, editorial reviews, or other copyrighted material. Revenues under such license agreements are recognized over the contract term for use of the asset. TechnologyIn instances when technology assets are also licensed to clients. Theseour clients, revenues from the license of these assets are recognized over the term of the access period.

The Digital Media business also generates revenue from other sources which include marketing and production services. Such other revenues are generally recognized over the period in which the products or services are delivered.

The CompanyWe also generatesgenerate Digital Media revenues from transactions involving the sale of perpetual software licenses, related software support and maintenance, hardware used in conjunction with its software, and other related services. Revenue is recognized for these software transactions with multiple performance obligations after (i) the Companycontract has had anbeen approved contract and iswe are committed to perform the respective obligations and (ii) the Companywe can identify and quantify each obligation and its respective selling price. Once the respective performance obligations have been identified and quantified, revenue will be recognized when the obligations are met, either over time or at a point in time depending on the nature of the obligation.

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Revenues from software license performance obligations are generally recognized upfront at the point in time that the software is made available to the customer to download and use. Revenues for related software support and maintenance performance obligations are related to technical support provided to customers as needed and unspecified software product upgrades, maintenance releases and patches during the term of the support period when they are available. The Company isWe are obligated to make the support services available continuously throughout the contract period. Therefore, revenues for support contracts are generally recognized ratably over the contractual period the support services are provided. Hardware product and related software performance obligations, such as an operating system or firmware, are highly interdependent and interrelated and are accounted for as a bundled performance obligation. The revenues for this bundled performance obligation are generally
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ZIFF DAVIS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
recognized at the point in time that the hardware and software products are delivered and ownership is transferred to the customer. Other service revenues are generally recognized over time as the services are performed.

The Company records revenue on a gross basis with respect to revenue generated (i) by the Company serving online display and video advertising across its owned and operated web properties, on third-party sites or on unaffiliated advertising networks,networks; (ii) through the Company’s lead-generation businessbusiness; and (iii) through the Company’s subscriptions. 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 sites.

Cloud ServicesCybersecurity and Martech

The Company’s Cloud ServicesCybersecurity and Martech revenues substantially consist of monthly recurring subscription revenues which include subscription, usage-based and usage-basedlicensing fees, a significant portion of which are primarily paid in advance by credit card.advance. The Company defers the portions of monthly, quarterly, semi-annuallysemi-annual and annually recurring subscription and usage-basedannual fees collected in advance of the satisfaction of performance obligations and recognizes them in the period earned.

Along with ourits numerous proprietary Cloud ServicesCybersecurity and Martech solutions, the Company also generates subscription revenues by reselling various third-party solutions, primarily through ourits email security and online backup linesline of business. These third-party solutions, along with ourthe Company’s proprietary products, allow the Companyit to offer customers a variety of solutions to better meet theirthe customer’s needs. The Company records revenue on a gross basis with respect to reseller revenue because the Company has control of the specified good or service prior to transferring control to the customer.

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Revenues from external customers classified by revenue source are as follows (in thousands):
Three Months Ended
September 30,		Nine Months Ended
September 30,
Digital Media2021202020212020
Advertising (a)$198,794 $138,441 $574,465 $380,188 
Subscription and licensing (a)52,010 44,423 145,935 121,028 
Other (a)11,625 3,920 22,880 12,246 
Total Digital Media revenues$262,429 $186,784 $743,280 $513,462 
Cloud Services
Subscription and licensing$182,087 $170,233 $528,699 $507,021 
Other92 15 267 69 
Total Cloud Services revenues$182,179 $170,248 $528,966 $507,090 
Corporate$— $— $— $1 
Elimination of inter-segment revenues(356)(56)(766)(200)
Total Revenues$444,252 $356,976 $1,271,480 $1,020,353 
Timing of revenue recognition
Point in time$13,606 $8,396 $30,669 $19,366 
Over time430,646 348,580 1,240,811 1,000,987 
Total$444,252 $356,976 $1,271,480 $1,020,353 
. See Note 14 -
Segment Information for additional information.
(a) The Company reclassified approximately $3.2 million and $8.8 million of revenue during the three and nine months ended September 30, 2020, respectively, from ‘Subscription and licensing’ to ‘Advertising’ and reclassified approximately $1.7 million and $6.7 million during the three and nine months ended September 30, 2020, respectively, from “Subscription and licensing’ to ‘Other’ to conform with current period presentation. These reclassifications were made in order to separate games publishing revenue from traditional advertising revenue.
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Digital Media
Advertising$186,921 $198,794 $546,186 $574,465 
Subscription64,780 52,010 179,257 145,935 
Other12,195 11,625 31,980 22,880 
Total Digital Media revenues$263,896 $262,429 $757,423 $743,280 
Cybersecurity and Martech
Subscription$78,192 $93,071 $237,596 $265,580 
Total Cybersecurity and Martech revenues$78,192 $93,071 $237,596 $265,580 
Elimination of inter-segment revenues(215)(356)(722)(766)
Total Revenues$341,873 $355,144 $994,297 $1,008,094 
Timing of revenue recognition
Point in time$14,417 $13,607 $32,602 $30,669 
Over time327,456 341,537 961,695 977,425 
Total$341,873 $355,144 $994,297 $1,008,094 

The Company has recorded $31.8$32.2 million and $29.0$27.7 million of revenue for the three months ended September 30, 20212022 and 2020,2021, respectively, and $161.2$154.9 million and $142.5$140.4 million of revenue for the nine months ended September 30, 20212022 and 2020,2021, respectively, which was previously included in the deferred revenue balance as of the beginning of each respective year.

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ZIFF DAVIS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
As of September 30, 2022 and December 31, 2021, the Company acquired $7.2$21.3 million inand $9.5 million respectively, of deferred revenue in connection with the Company’s business acquisitions, (see Note 4 - Business Acquisitions) which are subject to purchase accounting adjustments.adjustments, as appropriate. Refer to Note 3 - Business Acquisitions for details.

Performance Obligations

We are often a party to multiple concurrent contracts with the same customer, or a party related to that customer. These situations require judgment to determine if those arrangements should be accounted for as a single contract. Consideration of both the form and the substance of the arrangement is required. The Company’s contracts with customers may include multiple performance obligations. For such arrangements, revenuesobligations, including complex contracts when advertising and licensing services are sold together.

We determine the transaction price based on the amount to which we expect to be entitled in exchange for services provided. We include any fixed consideration within our contracts as part of the total transaction price. Our contracts occasionally contain some component of variable consideration, which is often immaterial and estimated. We do not include taxes assessed by a governmental authority that are (i) both imposed on and concurrent with a specific revenue-producing transaction and (ii) collected by us from the customer. The transaction price is allocated to each performance obligation based on its relative standalone selling price.price, which is determined at contract inception. In these instances, the Company determines its standalone selling prices based on the prices at which the Company separately sells each service.

The Company satisfies its performance obligations within the Digital Media business upon delivery of services to its customers. In addition, the Company provides content to its advertising partners which the Company sells to its partners’ customer base and receives a revenue share based on the terms of the agreement.

The Company satisfies its performance obligations within the Cloud ServicesCybersecurity and Martech business upon delivery of services to its customers. Payment terms vary by type and location of our customers and the services offered. The termtime between invoicing and when payment is due is not significant. Due to the nature of the services provided, there are no obligations for returns.

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Significant Judgments

In determiningDetermining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. Judgment is also required to determine the standalone selling price for each distinct performance obligation.

Performance Obligations Satisfied Over Time

The Company’sOur Digital Media business consists primarily of performance obligations that are satisfied over time. This was determined based on a review of the contracts and the nature of the services offered, where the customer simultaneously receives and consumes the benefit of the services provided. Satisfaction of these performance obligations is evidenced in the following ways:

Advertising

•Website reporting by the Company, the customer, or a third-party contains the delivery evidence needed to satisfy the performance obligations within the advertising contract
•Successfully delivered leads are evidenced by either delivery reports from the Company’s internal lead management systems or through e-mail communication and/or other evidence of delivery showing acceptance of leads by the customer
•Commission is evidenced by direct site reporting from the affiliate or via direct confirmation from the customer

Subscription and Licensing

•Evidence of delivery is contained in the Company’s systems or from correspondence with the customer which tracks when a customer accepts delivery of any assets, digital keys or download links

The Company has concluded revenue
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ZIFF DAVIS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Revenue is recognized based on delivery of services over the contract period for advertising and on a straight-line basis over the contract period for subscriptions. The Company believesWe believe that the methods described are a faithful depiction of the transfer of goods and services.

The Company’s Cloud ServicesOur Cybersecurity and Martech business consists primarily of performance obligations that are satisfied over time. This has been determined based on the fact that the nature of services offered are subscription based and include fax, voice, backup, security, CPP, and email marketing products where the customer simultaneously receives and consumes the benefit of the services provided regardless of whether the customer uses the services or not. Depending on the individual contracts with the customer, revenue for these services are recognized over the contract period when any of the following materially distinct performance obligations are satisfied:

•Faxing capabilities are provided
•Voice, email marketing and search engine optimization as services are provided
•Email marketing services are provideddelivered
•Consumer privacy services and data backup capabilities are provided
•Security solutions, including email and endpoint are provided
•Online data backupFaxing capabilities are provided (included in discontinued operations through October 7, 2021)

The Company has concluded that the best measure of progress toward the complete satisfaction of the performance obligation over time is a time-based measure. The Company recognizes revenue on a straight-line basis throughout the subscription period, or as usage occurs, and believes that the method used is a faithful depiction of the transfer of goods and services.

Performance Obligations Satisfied at a Point in Time

The Company’s Digital Media business has technology subscriptions that have standalone functionality. As a result, they are considered to be functional intellectual property where the performance obligations are satisfied at a point in time. This is evidenced once a digital key is delivered to the customer. Once the key is delivered to the customer, the customer has full control of the technology and the Company has no further performance obligations. The Company has concluded that revenue is recognized once the digital key is delivered. The Company believes that this method is a faithful depiction of the transfer of goods and services.
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Practical Expedients

Existence of a Significant Financing Component in a ContractTransaction Price Allocation to Future Performance Obligations

As a practical expedient,of September 30, 2022, the Company hasaggregate amount of transaction price that is allocated to our performance obligations was approximately $24.0 million and is expected to be recognized as follows: 20% by December 31, 2022, 78% by December 31, 2023 and the rest thereafter. The amount disclosed does not assessed whetherinclude revenues related to performance obligations that are part of a contract has a significant financing component because the Company expects at contract inception 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. 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 Company. The Company typically charges a single upfront amount for the 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 we operate which allows customers to easily move from one provider to another. This additional risk may make it uneconomical to provide the service.

Costs to Fulfill 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 expenses over the period of benefit.

Revenues Invoiced

The Company has applied the practical expedient for certain revenue streams to exclude the value of remaining performance obligations for (i) contracts with an original expected termduration of one year12 months or less or (ii) contracts for whichportions of the Company recognizes revenue in proportioncontract that remain subject to the amount it has the right to invoice for services performed.cancellations.

4.3.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.

2022 Acquisitions

The Company completed the following acquisitions during the first nine months ended September 30, 2022, paying the purchase price in cash in each transaction: (a) a share purchase of fiscalLifecycle Marketing Group Limited, acquired on January 21, 2022, a United Kingdom-based portfolio of pregnancy and parenting brands, including Emma’s Diary and Health Professional Academy, reported within our Digital Media segment; (b) a share purchase of FitNow, Inc, acquired on June 2, 2022, a Massachusetts-based provider of weight loss products and support, reported within our Digital Media segment; and (c) four immaterial Digital Media acquisitions.

The Condensed Consolidated Statement of Operations since the date of each acquisition and the Condensed Consolidated Balance Sheets as of September 30, 2022, reflect the results of operations of all 2022 acquisitions. For the nine months ended September 30, 2022, these acquisitions contributed $19.6 million to the Company’s revenues. Net income contributed by these acquisitions was not separately identifiable due to the Company’s integration activities and is impracticable to provide. Total consideration for these transactions was $121.7 million net of cash acquired and assumed liabilities and is subject to certain post-closing adjustments which may increase or decrease the final consideration paid.
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ZIFF DAVIS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

The following table summarizes the preliminary allocation of the purchase consideration for all 2022 acquisitions as of September 30, 2022 (in thousands):

Assets and LiabilitiesValuation
Accounts receivable$7,433 
Prepaid expenses and other current assets4,915 
Property and equipment369 
Operating lease right-of-use assets, noncurrent546 
Trade names12,838 
Customer relationship20,540 
Goodwill93,827 
Other intangibles18,165 
Other long-term assets11 
Accounts payable and accrued expenses(4,656)
Deferred revenue(21,332)
Deferred tax liability(10,436)
Other long-term liabilities(516)
 Total$121,704 

The initial accounting for all of the 2022 acquisitions is incomplete due to timing of available information and is subject to change. The Company has recorded provisional amounts which may be based upon past acquisitions with similar attributes for certain intangible assets (including trade names, software and customer relationships), preliminary acquisition date working capital and related tax items.

The fair value of the assets acquired includes accounts receivable of $7.4 million, of which none is expected to be uncollectible. The Company did not acquire any other classes of receivables as a result of its acquisitions.

Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired and represents intangible assets that do not qualify for separate recognition. Goodwill recognized associated with these acquisitions during the nine months ended September 30, 2022 was $93.8 million, of which $1.2 million is expected to be deductible for income tax purposes.

During the nine months ended September 30, 2022, the purchase price accounting has been finalized for the following 2021 acquisitions: DailyOM, SEOmoz, Solutelia, LLC, Arthur L. Davis Publishing and two other immaterial Digital Media acquired businesses. During the nine months ended September 30, 2022, the Company also recorded adjustments to the initial working capital and to the purchase accounting of certain other prior period acquisitions due to the finalization of prior period acquisitions in the Digital Media business. These measurement period adjustments resulted in a net increase in goodwill of $4.9 million, which included a $3.2 million increase in connection with the unfavorable contract liability for an acquired contract. The unfavorable contract liability is expected to be accreted over 4 years. In addition, 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 Cybersecurity and Martech businesses which resulted in a net decrease in goodwill of $0.1 million. Such adjustments had an immaterial impact on the amortization expense within the Condensed Consolidated Statement of Operations for the nine months ended September 30, 2022. Refer to Note 7 - Goodwill and Intangible Assets for additional information.

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.
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ZIFF DAVIS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

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):
 Three Months Ended September 30,Nine Months Ended September 30,
 2022202120222021
 (unaudited)(unaudited)(unaudited)(unaudited)
Revenues$342,173 $366,258 $1,010,600 $1,041,436 
Net income (loss) from continuing operations$18,120 $4,925 $(3,801)$23,369 
Income (loss) per common share from continuing operations - Basic$0.39 $0.11 $(0.08)$0.52 
Income (loss) per common share from continuing operations - Diluted$0.39 $0.10 $(0.08)$0.49 

2021 Acquisitions

The Company completed the following acquisitions during the nine months ended September 30, 2021, paying the purchase price in cash in each transaction: (a) an asset purchase of DailyOM, acquired on April 30, 2021, a California-based-based provider of health and wellness digital media, content and learning business; (b) a share purchase of SEOmoz, acquired on June 4, 2021, a Seattle-based provider of search engine optimization (“SEO”) solutions; (c) an asset purchase of Solutelia, LLC, acquired on July 15, 2021, a Colorado-based on-demand wireless telecommunications network monitoring and analysis, testing and optimization software business and related wireless telecommunications engineering services business; (d) a stock purchase of Arthur L. Davis Publishing, acquired on September 23, 2021, an Iowa-based digital nursing publication; and (e) three immaterial Digital Media acquisitions.

The Condensed Consolidated Statement of Operations since the date of each acquisition and balance sheet as of September 30, 2021, reflect the results of operations of all 2021 acquisitions. For the nine months ended September 30, 2021, these acquisitions contributed $21.3 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 these transactions was $135.1$134.3 million, net of cash acquired and assumed liabilities and is subject to certain post-closing adjustments which may increase or decrease the final consideration paid.liabilities.

-20--23-


ZIFF DAVIS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
The following table summarizes the allocation of the purchase consideration for all 2021 acquisitions as of September 30, 2021, including individually material acquisitions noted separately (in thousands):
Assets and LiabilitiesValuation
Accounts receivable$5,1674,577 
Prepaid expenses and other current assets1,6392,585 
Property and equipment1,838 
Operating lease right-of-use assets, noncurrent5,888 
Trade names11,84311,118 
Customer relationship11,52113,396 
Goodwill85,552 84,019
Other intangibles35,28534,378 
Other long-term assets62 
Deferred tax asset230 
Accounts payable and accrued expenses(2,800)231 
Accounts payables and accrued expenses(2,891)
Deferred revenue(7,192)(7,806)
Operating lease liabilities, current(7,191)
Other current liabilities(14)
Deferred tax liability(4,936)(4,122)
Other long-term liabilities(1,726)
Total$135,104134,342 

During the nine months ended September 30, 2021, the purchase price accounting has been finalized for EDC Systems Inc (operating under the name “SRFax”), Inspired eLearning and other immaterial Digital Media and Cloud Services businesses. The initial accounting for the 2021 acquisitions are incomplete and subject to change. The Company has recorded provisional amounts which may be based upon past acquisitions with similar attributes for certain intangible assets (including trade names, software and customer relationships), preliminary acquisition date working capital and related tax items.

During the nine months ended September 30, 2021, the Company recorded adjustments to the initial working capital and to the purchase accounting due to the finalization of prior period acquisitions in the Digital Media business, which resulted in a net decrease in goodwill of $1.5 million. In addition, the Company recorded adjustments to the initial working capital and to the purchase accounting due to the finalization of prior period acquisitions in the Voice, Backup, Security and CPP businesses which resulted in a net increase in goodwill of $0.5 million. (see Note 8 - Goodwill and Intangible Assets). Such adjustments had an immaterial impact on the amortization expense within the Condensed Consolidated Statement of Operations for the nine months ended September 30, 2021.

Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired and represents intangible assets that do not qualify for separate recognition. Goodwill recognized associated with these acquisitions during the nine months ended September 30, 2021 is $85.6 million, of which $44.1 million is expected to be deductible for income tax purposes.

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Unaudited Pro Forma Financial Information for All 2021 Acquisitions

The following unaudited pro forma supplemental information is based on estimates and assumptions that the Company believes to be reasonable. However, this information is not necessarily indicative of the Company’s consolidated results of income 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, 2020. 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 acquisitions during the three months and nine months ended September 30, 2021 acquisitions as if each acquisition had occurred on January 1, 2020 (in thousands, except per share amounts):
 Nine Months Ended
September 30,
 2021 2020
 (unaudited)(unaudited)
Revenues$1,313,417  $1,084,967 
Net income$143,420  $95,036 
EPS - Basic$3.17  $2.02 
EPS - Diluted$3.01  $1.99 
 Three Months Ended September 30, 2021Nine months ended September 30, 2021
 (unaudited)(unaudited)
Revenues$374,202 $1,045,184 
Net income from continuing operations$6,886 $25,490 
Income per common share from continuing operations - Basic$0.15 $0.56 
Income per common share from continuing operations - Diluted$0.14 $0.54 

SEOmoz Acquisition
5.
On June 4, 2021, the Company acquired all the outstanding issued capital of SEOmoz at a purchase consideration of $67.0 million, net of cash acquired and assumed liabilities. SEOmoz is a provider of search engine optimization (“SEO”) solutions. The Consolidated Statement of Operations since the date of acquisition and balance sheet as of December 31, 2021, reflect the results of operations of SEOmoz. For the nine months ended September 30, 2021, SEOmoz contributed $14.4 million to the Company’s revenues. Net income from continuing operations contributed by SEOmoz since the acquisition date was not separately identifiable due to the Company’s integration activities and is impracticable to provide.

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ZIFF DAVIS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
The following table summarizes the allocation of the purchase consideration for the SEOmoz acquisition (in thousands):
Assets and LiabilitiesValuation
Accounts receivable$3,278 
Prepaid expenses and other current assets2,512 
Property and equipment1,838 
Operating lease right of use asset5,888 
Trade names7,200 
Customer relationships5,000 
Goodwill41,192 
Other intangibles21,607 
Other long-term assets62
Accounts payables and accrued expenses(2,421)
Other current liabilities(14)
Deferred revenue(7,048)
Operating lease liabilities, current(7,191)
Deferred tax liability(4,122)
Other long-term liabilities(785)
           Total$66,996 

The fair value of the assets acquired includes accounts receivable of $3.3 million. The gross amount due under contracts is $3.6 million, of which $0.3 million is expected to be uncollectible. The Company did not acquire any other classes of receivables as a result of its acquisitions.

Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired and represents intangible assets that do not qualify for separate recognition. Goodwill recognized in connection with this acquisition during the year ended December 31, 2021 is $41.2 million of which zero is expected to be deductible for income tax purposes.

Unaudited Pro Forma Financial Information for SEOmoz Acquisition

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 business been combined companies during the periods presented. These pro forma results are estimates and exclude any savings or synergies that would have resulted from this business acquisition had it occurred on January 1, 2020. This unaudited pro forma supplemental information includes incremental intangible asset amortization and other charges as a result of the SEOmoz acquisition, net of the related tax effects.

The supplemental information on an unaudited pro forma financial basis presents the combined results of the Company and SEOmoz as if the acquisition had occurred on January 1, 2020 (in thousands, except per share amounts):

 Three Months Ended September 30, 2021Nine months ended September 30, 2021
 (unaudited)(unaudited)
Revenues$367,414 $1,028,545 
Net income from continuing operations$6,610 $24,030 
Income per common share from continuing operations - Basic$0.14 $0.53 
Income per common share from continuing operations - Diluted$0.14 $0.51 

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ZIFF DAVIS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
4.Investments

Investments consist of equity and debt securities. There were no investments in an unrealized loss position as of September 30, 2022 and December 31, 2021.

The Company determined theInvestment in equity securities
Investment in Consensus
Investment in equity securities that were received as partconsists of publicly traded common stock of Consensus. During the three and nine months ended September 30, 2022, the Company completed the non-cash debt-for-equity exchanges of 500,000 shares and 2,800,000 shares, respectively, of its Investment in Consensus for the extinguishment of $22.3 million and $112.3 million, respectively, of principal of the consideration forCompany’s Term Loan Facilities, and related interest.
Gains (losses) on equity securities recognized in ‘Unrealized gain (loss) on short-term investments held at the sale of Tea Leaves Health, LLC (“Tea Leaves”) in fiscal year 2017 are without a readily determinable fair value because these securities are privately held, not traded on any public exchanges and not an investment in a mutual fund or similar investment. As a result, management has elected to alternatively measure this investment at cost, less impairment, adjusted for subsequent observable price changes to estimate fair value. The Company will make a “reasonable effort” to identify any observable price changes for identical or similar investments with the issuer that are known are can be reasonably known. Any changes in the carrying valuereporting date’ consisted of the equity securities will be reported in current earnings as (gain) loss on investments, net. In addition, the Company determined that the shares of redeemable preferred stock that were also received as part of the consideration for the sale of Tea Leaves are corporate debt securities and are classified as available-for-sale securities. These debt securities were subsequently exchanged in a non-cash transaction in the first quarter of 2020.following (in thousands):
Three Months Ended September 30, 2022Nine Months Ended September 30, 2022
Net gains (losses) during the period$4,672 $(61,937)
Less: gains (losses) on securities sold during the period471 (47,772)
Unrealized gains (losses) recognized during the period on equity securities held at the reporting date$4,201 $(14,165)

Furthermore,As of September 30, 2022, the COVID-19 pandemic has had an adverse impact on the global financial markets. A prolonged adverse impactCompany holds approximately 1.2 million shares of the COVID-19 pandemic could result in a decline in the equity and debt securities estimated fair value and, thus, a resulting charge to earnings in a future period.common stock of Consensus.

The following table summarizes the gross unrealized gains and losses and estimated fair values for the Company’s securities without a readily determinable fair value (in thousands):
CostImpairmentAdjustmentsReported Amount
September 30, 2021
Equity securities$31,777 $(16,677)$(479)$14,621 
Total$31,777 $(16,677)$(479)$14,621 
December 31, 2020
Equity securities$50,384 $(19,605)$(479)$30,300 
Total$50,384 $(19,605)$(479)$30,300 

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Other investment
During the second quarter of 2021, the Company recorded a $16.7 million impairment loss on investmentscertain equity securities related to a decline in value due to a pending sales transaction of an investee. The Company iswas not expected to recover the recorded cost of these securities and hasthus reduced such amount to what the Company expectsexpected to receive as a result of the sale. The Company subsequently sold these equity securities during fiscal year 2021.

During the first nine months of 2020, the Company recorded a loss on investments of $21.0 million, which consists primarily of the following:Investment in corporate debt securities

1.On April 12, 2022, the Company entered into an impairment lossagreement with an entity to acquire 4% convertible notes with an aggregate value of $19.6$15.0 million, duewhich upon conversion would represent an equity interest equal to changes inat least 3%, on a fully converted basis, of the investee’s capital structure and overall market volatility;entity that issued the notes.

2.a loss on exchange of redeemable preferred stock,This investment is included in the amount of $4.4 million, that that was previously‘Long-term investments, net’ in our Condensed Consolidated Balance Sheets and is classified as available-for-sale and 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.
The table below summarizes the carrying value and the maximum exposure of Company’s investment in corporate debt securities for a new seriesas of preferred stock classified as equity securities; partially offset bySeptember 30, 2022 (in thousands):
September 30, 2022
Carrying valueMaximum exposure
Investment in corporate debt securities$15,000 $15,000 
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3.a recognized gain
ZIFF DAVIS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
The Company’s maximum exposure to loss is limited to its proportional ownership in the investee. In addition, the Company is not required to contribute capital in an aggregate amount in excess of $3.2 million due to the Company’s purchase of preferred stock for $0.8 million.

Impairment losses, including gains and losses, are recorded in loss on investments, net on the Condensed Consolidated Statements of Operations.

At September 30, 2021, cumulative impairment losses on these securities were $40.5 million.its capital commitment.

The following table summarizes the gross unrealized gains and losses and fair values for investments classified as available-for-sale, investments (in thousands):
Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Fair
Value
September 30, 2021    
Corporate debt securities$— $— $— $— 
Total$— $— $— $— 
December 31, 2020    
Corporate debt securities$511 $152 $— $663 
Total$511 $152 $— $663 

The Company’s available-for-sale debt securities are carried at fair value, with the unrealized gains and losses reported as a component of other comprehensive income.income (in thousands):
Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Fair
Value
September 30, 2022   
Investment in corporate debt securities$15,000 $— $— $15,000 
Total$15,000 $— $— $15,000 

The following table summarizes the Company’s corporate debt securities designated as available-for-sale, classified by the contractual maturity date of the security (in thousands):
September 30, 20212022December 31, 20202021
Due within 1 year$— $663— 
Due within more than 1 year but less than 5 years—15,000 — 
Due within more than 5 years but less than 10 years— — 
Due 10 years or after— — 
Total$—15,000 $663— 

Recognition and Measurement of Credit Loss of Debt Securities

The Company adopted ASU 2016-13, Financial Instrument-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments in the first quarter of 2020. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss model which requires the use of forward-looking information to calculate credit loss estimates. This ASU also eliminates the concept of other-than-temporary impairment and requires credit losses related to available-for-sale debt securities to be recorded though an allowance for credit losses rather than a reduction in amortized cost basis of the securities. These changes will result in earlier recognition of credit losses, if any.

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The Company’s available-for-sale debt securities are carried at estimated fair value with any unrealized gains and losses, net of taxes, included in accumulated other comprehensive loss in stockholders’ equity. 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 other (income) expense, net on our Condensed Consolidated Statements of Operations, and any remaining unrealized losses, net of taxes, are included in accumulated other comprehensive loss in stockholders’ equity.

There were no investments in an unrealized loss position as of December 31, 2020.

As of December 31, 2020, the Company did not recognize any credit losses related to debt securities.Equity method investment

On September 25, 2017, the Company entered into a commitment to invest $200 million (approximately 76.6% of equity) in the OCV Fund.an investment fund (the “Fund”). The primary purpose of the 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 Fund are entities with respect to which Richard S. Ressler, former Chairman of the Board of Directors (the “Board”) of the Company, is indirectly the majority equity holder and a related party.holder. Mr. Ressler’s tenure with the Board ended as of May 10, 2022. As a limited partner in the Fund, prior to the settlement of certain litigation generally related to the Company’s investment in the Fund in January 2022, the Company will paypaid an annual management fee to the manager equal to 2.0% (reduced by 10% each year beginning with the sixth year) 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 Fund’s general partner would be entitled to a carried interest equal to 20%. The Fund has a six year investment period, 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 9 –
Commitments and Contingencies
), the Company had invested approximately $128.8 million in the Fund. In connection with the firstsettlement of the litigation, among other terms, no further capital calls will be made in connection with the Company’s investment in the Fund, nor will any management fees be paid by the Company to the manager.As such, during the nine months ended September 30, 2022, the Company received no capital call notices from the manager of the Fund. During the nine months ended September 30, 2021, the Company received capital call notices from the managementmanager of OCV Management, LLCthe Fund for $21.2 million, inclusive of certain management fees, of whichfees. Approximately $21.2 million has beenwas paid for capital call notices during the nine months ended September 30, 2021. In the first nine months of 2020, the Company received capital call notices from the management of OCV Management, LLC for $31.0 million, inclusive of certain management fees, of which $30.0 million had been paid forDuring both the nine months ended September 30, 2020.

During the three2022 and nine months ended September 30, 2021, the Company received no distributions from OCV of $15.3 million and $15.3 million, respectively.OCV.

The Company recognizes its equity in the net earnings or losses relating to the investment in OCV on a one-quarter lag (including management fees) 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 three months ended September 30, 20212022 and 2020,2021, the Company recognized an
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ZIFF DAVIS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
investment loss of $(1.9)$3.2 million and $(0.7)$1.9 million, net of tax benefit, respectively, and duringrespectively. During the nine months ended September 30, 20212022 and 2020,2021, the Company recognized an investment (loss) gain (loss) of $16.6$(10.1) million and $(10.8)$16.6 million, net of tax (benefit) expense,benefit (expense), respectively. The fiscal 2021 gain wasgains and losses were primarily the result of gains and losses in the underlying investments. The fiscal 2020 loss was primarily a result of the impairment of 2 of its investments as a result of COVID-19 in the amount of $7.0 million, net of tax benefit. In addition, The Company recognized an investment loss in the amount of $3.8 million, net of tax benefit. The loss is presented in the Company’s Condensed Consolidated Statement of Operations as income (loss) from equity method investment, net.

During the three months ended September 30, 2021 and 2020,2022, the Company recognized no expense for management fees, and during three months ended September 30, 2021, the Company recognized expense for management fees of $0.8 million, and $0.8 million, net of tax benefit, respectively, and forbenefit. During the nine months ended September 30, 20212022 and 2020,2021, the Company recognized expense for management fees of $2.3$1.5 million and $2.3 million, net of tax benefit, respectively.

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The following table discloses the carrying amount for the Company’s equity method investment (in thousands):
September 30, 2021December 31, 2020
Equity method investment$96,097 $67,195 
Maximum exposure to loss$96,097 $67,195 
. These equity securities are included within ‘Long-term investments’ in the Condensed Consolidated Balance Sheets.
September 30, 2022December 31, 2021
Equity securities$109,228 $122,593 
Maximum exposure to loss$109,228 $122,593 

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 capital in an aggregate amount in excess of its capital commitment and any expected losses will not be in excess of the Capital Account. 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 Fund.

6.5.Discontinued Operations and Dispositions

Consensus Spin-off

As further described in Note 1 - Basis of Presentation and Overview, on October 7, 2021, the Separation of the cloud fax business was completed. The accounting requirements for reporting the Company’s cloud fax business as a discontinued operation were met when the Separation was completed as the Separation constituted a strategic shift that would have a major effect on the Company’s operations and financial results.Accordingly, the Condensed Consolidated Financial Statements reflect the results of the cloud fax business as a discontinued operation for the three and nine months ended September 30, 2021. The Condensed Consolidated Statements of Operations report discontinued operations separate from continuing operations. The Condensed Consolidated Statements of Comprehensive (Loss) Income, Condensed Consolidated Statements of Cash Flows (including Note 15 - Supplemental Cash Flow Information), and Condensed Consolidated Statements of Stockholders’ Equity combine continuing and discontinued operations.

The key components of cash flows from discontinued operations were as follows (in thousands):
Nine Months Ended September 30, 2021
Capital expenditures$15,252 
Depreciation and amortization$8,941 
Deferred taxes$5,306 
In connection with the Separation, Ziff Davis and Consensus entered into several agreements that govern the relationship of the parties following the Separation, which are further discussed in Note 17 - Related Party Transactions. Further, certain of the Company’s management and members of its board of directors resigned from the Company as of the date of distribution and joined Consensus. In addition, one of the Company’s members of senior management as of September 30, 2022 has served on the board of directors of Consensus since the date of distribution.

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ZIFF DAVIS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
The key components of income from discontinued operations were as follows (in thousands):
Three Months Ended September 30, 2021Nine Months Ended September 30, 2021
Revenues$89,107 $263,386 
Cost of revenues(14,605)(43,129)
Sales and marketing(13,116)(40,032)
Research, development and engineering(2,019)(5,635)
General and administrative(8,237)(20,262)
Interest expense and other(3,818)(4,017)
Income before income taxes47,312 150,311 
Income tax expense(11,512)(36,606)
Income from discontinued operations, net of income taxes$35,800 $113,705 

B2B Back-up and Voice Asset Sales

The Company completed the following dispositions that did not meet the criteria for discontinued operations.

During the first quarter of 2021, the Company committed to a plan to sell certain Voice assets in the United Kingdom as they were determined to be non-core assets. Such assets were recorded within the Voice, Backup, Security,Cybersecurity and CPPMartech reportable segment. On February 9, 2021, in a cash transaction, the Company sold the Voice assets. As of September 30, 2021, theThe total gain recognized on the sale of these Voice assets was $2.8 million which was recorded in (loss) gainloss on sale of businesses on the Condensed Consolidated Statement of Operations.Operations in the nine months ended September 30, 2021.

During the first quarter of 2021, the Company committed to a plan to sell its B2B Backup business as it was determined to be a non-core business. The B2B Backup business met the held for sale criteria, and accordingly, the assets and liabilities were presented as held for sale on the Condensed Consolidated Statement of OperationsBalance Sheets at March 31, 2021 and June 30, 2021. The business is recorded within the Voice, Backup, Security,Cybersecurity and CPPMartech reportable segment. During the second quarter of 2021, the Company received an offer to purchase the B2B Backup business and management determined that the fair value of the business less cost to sell was lower than its carrying amount. As a result, the Company recorded an impairment to goodwill of $32.6 million during the second quarter of 2021, which was recorded in impairment of business on the Condensed Consolidated Statement of Operations (see Note 87 - Goodwill and Intangible Assets)Assets). On September 17, 2021, in a cash transaction, the Company sold the B2B Backup business. As of September 30, 2021, theThe total loss recognized on the sale of the B2B Backup business was $24.6 million which was recorded in loss on sale of businessbusinesses on the Condensed Consolidated Statement of Operations.Operations in the three and nine months ended September 30, 2021.

7.6.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: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.
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ZIFF DAVIS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

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 long-term debt is determined using recent quoted market prices or dealer quotes for each of the Company’s instruments, which are Level 1 inputs. The fair value of the Company’s debt instruments atwas approximately $0.9 billion and $1.3 billion, as of September 30, 20212022 and December 31, 2020 was $2.0 billion and $2.0 billion,2021, respectively (see Note 98 - Debt)Debt).

-25-The Retained Consensus Shares are equity securities for which the Company elected the fair value option, and the fair value of the Retained Consensus Shares and subsequent fair value changes are included in our assets of and results from continuing operations, respectively. As of September 30, 2022 and December 31, 2021, the Company’s investment in Consensus common stock was remeasured at fair value based on Consensus’ closing stock price with a balance of $54.9 million and $229.2 million included on the Condensed Consolidated Balance Sheets, respectively. Unrealized gain (loss) of $4.2 million and $(14.2) million were recorded on the Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2022, respectively. The fair value of the investment in Consensus is determined using quoted market prices, which is a Level 1 input.

CertainThe fair value of our 4.625% Senior Notes (as defined in Note 8 - 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. The fair value of the Company’sCredit Facility (as defined in Note 8 - Debt) approximated its carrying amount due to its variable interest rate, which approximated a market interest rate, and was considered a Level 2 input.

The investment in corporate debt securities is measured at fair value on our Condensed Consolidated Balance Sheets. Unrealized gains and losses are reported in other comprehensive income until realized. Corporate debt securities do not have a readily determinable fair value because 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 withinas available-for-sale and is initially measured at its transaction price. The fair value of the corporate debt securities is determined primarily based in significant estimates and assumptions, including Level 2. The Company values these Level 2 investments based on model-driven valuations using significant inputs derived from or corroborated by observable market data.3 inputs. As of September 30, 2022, the fair value of our investment in corporate debt securities approximates its carrying value due to close proximity of the date of the investment to the reporting date. Refer to Note 4 - Investments for additional information.

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. For similar reasons, certain of the Company’s available-for-sale debt securities are classified within Level 3. The valuation approaches used to value the Level 3 investments considerconsiders unobservable inputs in the market such as time to liquidity, volatility, dividend yield, and breakpoints. Significant increases or decreases in either of the inputs in isolation would result in a significantly lower or higher fair value measurement.
The following table presents the fair values, valuation techniques, unobservable inputs, and ranges of the Company’s financial liabilities categorized within Level 3. The weighted averages below are a product of the unobservable input and fair value of the contingent consideration arrangement as of September 30, 2021.
-30-

Valuation TechniqueUnobservable InputRangeWeighted Average
Contingent ConsiderationOption-Based ModelRisk free rate1.9% - 2.2%2.0 %
Debt spread0.0% - 74.7%13.6 %
Probabilities100.0%100.0 %
Present value factor2.2% - 26.9%15.4 %
Discount rate27.3% - 38.0%32.3 %
-26-
ZIFF DAVIS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

The following tables present the fair values of the Company’s financial assets or liabilities (in thousands):
September 30, 2022Level 1Level 2Level 3Fair ValueCarrying Value
Assets:
Cash equivalents:
   Money market and other funds$170,574 $— $— $170,574 $170,574 
Investment in corporate debt securities— — 15,000 15,000 15,000 
Investment in Consensus54,897 — — 54,897 54,897 
Total assets measured at fair value$225,471 $— $15,000 $240,471 $240,471 
Liabilities:
Contingent consideration$— $— $1,106 $1,106 $1,106 
Debt891,852 — — 891,852 998,499 
Total liabilities measured at fair value$891,852 $— $1,106 $892,958 $999,605 
December 31, 2021Level 1Level 2Level 3Fair ValueCarrying Value
Assets:
Cash equivalents:
   Money market and other funds$144,255 $— $— $144,255 $144,255 
Investment in Consensus229,200 — — 229,200 229,200 
Total assets measured at fair value$373,455 $— $— $373,455 $373,455 
Liabilities:
Contingent consideration$— $— $5,775 $5,775 $5,775 
Debt1,345,311 — — 1,345,311 1,090,627 
Total liabilities measured at fair value$1,345,311 $— $5,775 $1,351,086 $1,096,402 

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 nine months ended September 30, 2022 and 2021, there were no transfers that occurred between levels.
-31-

ZIFF DAVIS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

The following table presents a reconciliation of the Company’s Level 3 financial assets related to our investment in corporate debt securities that are measured at fair value on a recurring basis (in thousands):
September 30, 2021Level 1Level 2Level 3Fair ValueCarrying Value
Assets:
Cash equivalents:
   Money market and other funds$10,391 $— $— $10,391 $10,391 
Corporate debt securities— — — — — 
Total assets measured at fair value$10,391 $— $— $10,391 $10,391 
Liabilities:
Contingent consideration$— $— $9,296 $9,296 $9,296 
Debt1,975,779 — — 1,975,779 1,678,753 
Total liabilities measured at fair value$1,975,779 $— $9,296 $1,985,075 $1,688,049 
December 31, 2020Level 1Level 2Level 3Fair ValueCarrying Value
Assets:
Cash equivalents:
   Money market and other funds$10,413 $— $— $10,413 $10,413 
Corporate debt securities— 663 — 663 663 
Total assets measured at fair value$10,413 $663 $— $11,076 $11,076 
Liabilities:
Contingent consideration$— $— $9,094 $9,094 $9,094 
Debt1,960,527 — — 1,960,527 1,579,021 
Total liabilities measured at fair value$1,960,527 $— $9,094 $1,969,621 $1,588,115 
Level 3Affected line item in the Statement of Operations
Balance as of January 1, 2022$— 
Investment in corporate debt securities15,000 Not applicable
Balance as of September 30, 2022$15,000 

The following table presents a reconciliation of the Company’s Level 3 financial liabilities related to contingent consideration that are measured at fair value on a recurring basis (in thousands):
Level 3Affected line item in the Statement of Operations
Balance as of January 1, 20212022$9,0945,775 
Contingent consideration6,600555 
Total fair value adjustments reported in earnings(567)(2,305)General and administrative
Contingent consideration payments(5,831)(2,919)Not applicable
Balance as of September 30, 20212022$9,2961,106 

In connection with the Company’s other acquisition activity, contingent consideration of up to$14.9 $1.1 million may be payable upon achieving certain future earnings before interest, taxes, depreciation and amortization (EBITDA), revenue, and/or unique visitor thresholds and had a combined fair value of $9.31.1 million and $9.1$5.8 million at September 30, 20212022 and December 31, 2020,2021, respectively. Due to the achievement of certain thresholds, $2.9 million and $5.8 million was paid in the first nine months of 2021.

Duringduring the nine months ended September 30, 2022 and 2021, the Company recorded a decrease in the fair value of the contingent consideration of $0.6 million and reported such decrease in general and administrative expenses.respectively.

-27-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. See Note 7 - Goodwill and Intangible Assets for further information. Such fair value measurements are based predominately on Level 3 inputs. See Note 7 - Goodwill and Intangible Assets for further information.

8.7.Goodwill and Intangible Assets

Goodwill

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 and is assigned to the reporting unit that is expected to benefit from the synergies of the combination. Goodwill is tested 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’s Digital Media reportable segment is comprised of seven reporting units and the Cybersecurity and Martech reportable segment is comprised of two reporting units.

The changes in carrying amounts of goodwill for the nine months ended September 30, 2022 are as follows (in thousands):
Digital MediaCybersecurity and MartechConsolidated
Balance as of January 1, 2022$996,659 $534,796 $1,531,455 
Goodwill acquired (Note 3)93,827 — 93,827 
Goodwill impairment(27,369)— (27,369)
Purchase accounting adjustments (Note 3)4,943 (137)4,806 
Foreign exchange translation(5,952)(16,810)(22,762)
Balance as of September 30, 2022$1,062,108 $517,849 $1,579,957 

-32-

ZIFF DAVIS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
During the three months ended September 30, 2022, the Company reassessed the fair value of a reporting unit within the Digital Media reportable segment as a result of a forecasted reduction in revenue and EBITDA in that reporting unit, as well as an increase in interest rates and market volatility that would affect the Company’s assumptions on its discount rate. Based on the quantitative fair value test, the carrying value of the reporting unit exceeded its fair value at September 30, 2022, and the Company recorded an impairment of approximately $27.4 million during the three months ended September 30, 2022. The fair value of the 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 accurate 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. As the business is assumed to continue in perpetuity, the discounted future cash flows include a terminal value. Determining fair value using a discounted estimated future cash flow analysis requires the exercise of significant judgment with respect to several items, including the amount and timing of expected future cash flows and appropriate discount rates. The expected cash flows used in the discounted cash flow analyses were based on the most recent forecast for the reporting unit. For years beyond the forecast period, the estimates were based, in part, on forecasted growth rates. The discount rate the Company used represents the estimated weighted average cost of capital, which reflects the overall level of inherent risk involved in its reporting unit operations and the rate of return a market participant would expect to earn. Determining fair value using a market approach considers multiples of financial metrics based on trading multiples of a selected peer group of companies. From the comparable companies, a representative market multiple is determined, which is applied to financial metrics to estimate the fair value of the reporting unit. Following the impairment, this reporting unit had goodwill of approximately $86.9 million and the carrying value approximated its fair value.

During the three months ended September 30, 2022, the Company realigned two reporting units within the Digital Media reportable segment. The Company re-allocated goodwill between the two identified reporting units based upon the relative fair value of the respective reporting units. Immediately before and immediately following this change in reporting units, the Company performed a quantitative fair value assessment using the income approach and market approach noted above, and each of these reporting units exceeded their respective carrying values and, therefore, there was no impairment to goodwill.

During the nine months ended September 30, 2021, the Company recorded an impairment of approximately $32.6 million related to the Company’s B2B Backup business (included in the Cybersecurity and Martech reportable segment). In 2021, the Company received an offer to purchase the B2B Backup business and management determined that the fair value of that business less cost to sell was lower than its carrying amount. The fair value of the business was determined based upon the offer price. The fair value of the remaining reporting unit was determined using an equal weighting of an income approach and a market approach, and was in excess of the remaining carrying value of the reporting unit.

Goodwill as of September 30, 2022 and December 31, 2021 reflects accumulated impairment losses of $27.4 million and zero, respectively, in the Digital Media reportable segment and reflects accumulated impairment losses of $32.6 million and $32.6 million, respectively, in the Cybersecurity and Martech reportable segment.

-33-

ZIFF DAVIS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Intangible Assets Subject to Amortization

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 and trade names, developed technologies and other intangible assets. 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. Identifiable intangible assets are amortized over the period of estimated economic benefit, which ranges from one to 20twenty years.

The changes in carrying amounts of goodwill for the nine months ended September 30, 2021 are as follows (in thousands):
Fax and MartechVoice, Backup, Security and CPPTotal Cloud ServicesDigital MediaConsolidated
Balance as of January 1, 2021$425,471 $499,025 $924,496 $942,934 $1,867,430 
Goodwill acquired (Note 4)41,152 — 41,152 44,400 85,552 
Goodwill removed due to sale of businesses (1)
— (50,276)(50,276)— (50,276)
Goodwill impairment (2)
— (32,629)(32,629)— (32,629)
Purchase accounting adjustments (3)
— 505 505 (1,468)(963)
Foreign exchange translation(3,462)(3,890)(7,352)(430)(7,782)
Balance as of September 30, 2021$463,161 $412,735 $875,896 $985,436 $1,861,332 

(1) On February 9, 2021, in a cash transaction, the Company sold certain of its Voice assets in the United Kingdom which resulted in $1.3 million of goodwill being removed in connection with this sale and on September 17, 2021, the Company sold certain of its B2B Backup assets which resulted in $49.0 million of goodwill being removed in connection with the sale (see Note 6 - Dispositions).

(2) During the nine months ended September 30, 2021, the Company had an impairment to goodwill of $32.6 million in connection with certain B2B Backup assets.

(3) Purchase accounting adjustments relate to measurement period adjustments to goodwill in connection with prior business acquisitions (see Note 4 - Business Acquisitions).
-28-


Intangible Assets with Indefinite Lives:

Intangible assets are summarized as of September 30, 2021 and December 31, 2020 as follows (in thousands):
September 30,
2021		December 31,
2020
Trade names$27,412 $27,460 
Other4,317 4,329 
Total$31,729 $31,789 

Intangible Assets Subject to Amortization:

As of September 30, 2021,2022, intangible assets subject to amortization relate primarily to the following (in thousands):
Weighted-Average
  Amortization
Period		Historical
Cost		Accumulated
Amortization		NetWeighted-Average
  Amortization
Period		Historical
Cost		Accumulated
Amortization		Net
Trade namesTrade names9.7 years$258,382 $107,472 $150,910 Trade names10.0 years$261,070 $119,026 $142,044 
Patent and patent licenses5.4 years67,962 67,250 712 
Customer relationships (1)
Customer relationships (1)
8.6 years764,852 462,955 301,897 
Customer relationships (1)
7.9 years683,503 456,377 227,126 
Other purchased intangiblesOther purchased intangibles4.2 years468,934 313,020 155,914 Other purchased intangibles8.6 years480,986 351,704 129,282 
TotalTotal$1,560,130 $950,697 $609,433 Total$1,425,559 $927,107 $498,452 

(1) Historically, theThe Company has amortized itsamortizes customer relationship assets in a pattern that best reflects the pace at which the asset’s benefits are consumed. This pattern results in a substantial majority of the amortization expense being recognized in the first 4 to 5 years, despite the overall life of the asset.

As of December 31, 2020,2021, intangible assets subject to amortization relate primarily to the following (in thousands):
Weighted-Average
  Amortization
Period
Historical
Cost		Accumulated
Amortization		Net
Weighted-Average
  Amortization
Period
Historical
Cost		Accumulated
Amortization		Net
Trade namesTrade names10.0 years$260,715 $100,273 $160,442 Trade names9.7 years$250,418 $102,657 $147,761 
Patent and patent licenses5.5 years67,980 66,964 1,016 
Customer relationships (1)
Customer relationships (1)
8.0 years848,875 471,681 377,194 
Customer relationships (1)
8.1 years673,847 398,396 275,451 
Other purchased intangiblesOther purchased intangibles4.3 years436,352 265,224 171,128 Other purchased intangibles9.3 years467,028 317,515 149,513 
TotalTotal$1,613,922 $904,142 $709,780 Total$1,391,293 $818,568 $572,725 

(1) Historically, theThe Company has amortized itsamortizes customer relationship assets in a pattern that best reflects the pace at which the asset’s benefits are consumed. This pattern results in a substantial majority of the amortization expense being recognized in the first 4 to 5 years, despite the overall life of the asset.

Amortization expense, included in generalGeneral and administrative expense on our Condensed Consolidated Statements of Operations, approximated $47.8$36.3 million and $41.2$46.6 million for the three months ended September 30, 20212022 and 2020,2021, respectively, and $144.3$119.3 million and $115.6$140.7 million for the nine months ended September 30, 2022 and 2021, and 2020, respectively. Amortization expense is estimated to approximate $43.8 million, $143.5 million, $123.2 million, $80.2 million and $75.1 million for the remaining three months of fiscal year 2021 through fiscal year 2025, respectively, and $143.6 million thereafter through the duration of the amortization period.



-29-

9.8.    Debt

The Company’s debt as of September 30, 20212022 and December 31, 20202021 consists of the following (in thousands):
September 30, 2021December 31, 2020September 30, 2022December 31, 2021
4.625% Senior Notes4.625% Senior Notes$750,000 $750,000 4.625% Senior Notes$460,038 $641,276 
Convertible Notes:
3.25% Convertible Notes— 402,414 
1.75% Convertible Notes1.75% Convertible Notes550,000 550,000 1.75% Convertible Notes550,000 550,000 
Total NotesTotal Notes1,300,000 1,702,414 Total Notes1,010,038 1,191,276 
Paycheck Protection Program Loan— 910 
Bridge Loan485,000 — 
Less: Unamortized discountLess: Unamortized discount(96,429)(112,798)Less: Unamortized discount(2,837)(91,593)
Deferred issuance costsDeferred issuance costs(9,818)(11,505)Deferred issuance costs(8,702)(9,056)
Total debtTotal debt1,678,753 1,579,021 Total debt998,499 1,090,627 
Less: current portionLess: current portion(568,054)(396,801)Less: current portion— (54,609)
Total long-term debt, less current portionTotal long-term debt, less current portion$1,110,699 $1,182,220 Total long-term debt, less current portion$998,499 $1,036,018 

-34-

ZIFF DAVIS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
4.625% Senior Notes

On October 7, 2020, the Company completed the issuance and sale of $750$750.0 million aggregate principal amount of its 4.625% senior notes due 2030 (the“4.625%(the “4.625% Senior Notes”) in a private placement offering exempt from the registration requirements of the Securities Act of 1933. 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 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.

The 4.625% Senior NotesThese senior notes bear interest at a rate of 4.625% per annum, payable semi-annually in arrears on April 15 and October 15 of each year, commencing on April 15, 2021. The 4.625% Senior Notes mature on October 15, 2030, and are senior unsecured obligations of the Company which are guaranteed, jointly and severally, on an unsecured basis by certain of the Company’s existing and future domestic direct and indirect wholly-owned subsidiaries (collectively, the “Guarantors”). If the Company or any of its restricted subsidiaries acquires or creates a domestic restricted subsidiary, other than an Insignificant Subsidiary (as defined in the indenture pursuant to which the 4.625% Senior Notes were issued (the “Indenture”)), after the issue date, or any Insignificant Subsidiary ceases to fit within the definition of Insignificant Subsidiary, such restricted subsidiary is required to unconditionally guarantee, jointly and severally, on an unsecured basis, the Company’s obligations under the 4.625% Senior Notes.

The Company may redeem some or all of the 4.625% Senior Notes at any time on or after October 15, 2025 at specified redemption prices plus accrued and unpaid interest, if any, up to, but excluding the redemption date. 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 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 4four fiscal quarter period ended immediately prior to such date for which internal financial statements are available. The Company is in compliance with its debt covenants for the 4.625% Senior Notes as of September 30, 2021.
-30-

2022.

OnDuring the three and nine months ended September 24, 2021,30, 2022, the Company announced the commencement of a cash tender offer for up to a maximumrepurchased approximately $105.1 million and $181.2 million, respectively, in aggregate principal amount of $90.0 million of its 4.625% Senior Notes. Accordingly, as of September 30, 2021, the Company has classified $83.3 million of its 4.625% Senior Notes as short-term on its Condensed Consolidated Balance Sheet as of September 30, 2021.The remainder of the 4.625% Senior Notes are presented as long-termfor an aggregate purchase price of approximately $94.1 million and $167.7 million, respectively. For the three and nine months ended September 30, 2022, the Company recognized a gain of approximately $10.2 million and $12.1 million, respectively, associated with the repurchase of the 4.625% Senior Notes, which is recorded within ‘Gain on debt net of deferred issuance costs,extinguishment, net’ on theour Condensed Consolidated Balance Sheet asStatements of September 30, 2021.Operations.

As of September 30, 20212022 and December 31, 2020,2021, the estimated fair value of the 4.625% Senior Notes was approximately $797.9$378.3 million and $796.9$659.9 million, and was based on recent quoted market prices or dealer quotes for the 4.625% Senior Notes which are Level 1 inputs (seeinputs. Refer to Note 76 - Fair Value Measurements).

Measurements.
3.25% Convertible Notes

On June 10, 2014, the Company issued $402.5 million aggregate principal amount of 3.25% convertible senior notes due June 15, 2029 (the “3.25% Convertible Notes”). The 3.25% Convertible Notes bore interest at a rate of 3.25% per annum, payable semiannually in arrears on June 15 and December 15 of each year. Beginning with the six-month interest period commencing on June 15, 2021, the Company had to pay contingent interest on the 3.25% Convertible Notes during any six-month interest period if the trading price per $1,000 principal amount of the 3.25% Convertible Notes for each of the five trading days immediately preceding the first day of such interest period equaled or exceeded $1,300. Any contingent interest payable on the 3.25% Convertible Notes would have been in addition to the regular interest payable on the 3.25% Convertible Notes.

In connection with the spin-off of Consensus, the Company called its 3.25% Convertible Notes for redemption and on August 2, 2021, the Company redeemed in full all of its outstanding 3.25% Convertible Notes. During the three and nine months ended September 30, 2021, the Company satisfied its conversion obligation by paying the principal of $399.6 million and $402.4 million, respectively, in cash and issued 3,031,817 and 3,050,850 shares of the Company’s common stock. respectively (see Note 13 - Stockholders’ Equity).

The 3.25% Convertible Notes were carried at face value less any unamortized debt discount and debt issuance costs. The fair value of the 3.25% Convertible Notes at each balance sheet date was determined based on recent quoted market prices or dealer quotes for the 3.25% Convertible Notes, which are Level 1 inputs (see Note 7 - Fair Value Measurements). If such information was not available, the fair value was determined using cash-flow models of the scheduled payments discounted at market interest rates for comparable debt without the conversion feature. As of September 30, 2021 and December 31, 2020, the estimated fair value of the 3.25% Convertible Notes was approximately zero and $593.1 million, respectively.

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”). theThe Company received proceeds of $537.1 million in cash, net of purchasers’ discounts and commissions and other debt issuance costs. A portion of the net proceeds were used to pay off all amounts outstanding under the then-existing Credit Facility. The 1.75% Convertible Notes bear interest at a rate of 1.75% per annum, payable semiannually in arrears on May 1 and November 1 of each year, beginning on May 1, 2020. The 1.75% Convertible Notes will mature on November 1, 2026, unless earlier converted or repurchased.
-35-

ZIFF DAVIS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

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 5five business day period following any 10 consecutive trading day period in which the trading price per $1,000 principal amount of 1.75% Convertible Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock and the applicable conversion rate on each such trading day; or (iii) upon the occurrence of specified corporate events. On or after July 1, 2026, and prior to the close of business on the business day immediately preceding the maturity date, holders may convert all or any portion of their notes at any time, regardless of the foregoing circumstances. The Company will settle conversions of the 1.75% Convertible Notes by paying or delivering, as the case may be, cash, shares of the Company’sCompany common stock or a combination thereof at the Company’s election. The Company currently intends to satisfy its conversion obligation by paying and delivering a combination of cash
-31-

and shares of the Company’s common stock. Holders of the notes will have the right to require the Company to repurchase for cash all or any portion of their notes upon the occurrence of certain corporate events, subject to certain conditions. DuringAs of September 30, 2022 and December 31, 2021, the third quarter of 2021 and the fourth quarter of 2020, the last reported sale price of the Company’s common stockmarket trigger conditions did not meet the conversion price threshold requirements of the 1.75% Convertible Notes. Therefore, the net carrying amount ofNotes and, accordingly, the 1.75% Convertible Notes isare classified as long-term debt on theour Condensed Consolidated Balance Sheets.

As of September 30, 2021,2022, the conversion rate is 7.98649.3783 shares of the Company’s common stock for each $1,000 principal amount of 1.75% Convertible Notes, which represents ana conversion price of approximately $125.21$106.63 per share of the Company’s common stock. The conversion rate is subject to adjustment for certain events as set forth in the indenture governing the 1.75% Convertible Notes, but will not be adjusted for accrued interest. In addition, upon the occurrence of a “Make-Whole Fundamental Change” (as defined in the 1.75% Convertible Note Indenture), the Company will increase the conversion rate for a holder that elects to convert its 1.75% Convertible Notes in connection with such a corporate event in certain circumstances.

The Company may not redeem the 1.75% Convertible Notes prior to November 1, 2026, and no sinking fund is provided for the 1.75% Convertible Notes.

The 1.75% Convertible Notes are the Company’s general senior unsecured obligations and rank: (i) senior in right of payment to any of the Company’s indebtedness that is expressly subordinated in right of payment to the 1.75% Convertible Notes; (ii) equal in right of payment to the Company’s existing and future indebtedness that is not so subordinated, including its existing 3.25% Convertible Notes due 2029;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, including the then-existing 6.0% Senior Notes due 2025.subsidiaries.

Accounting for the 1.75% Convertible Notes

In accordance with ASC 470-20, On January 1, 2022 the Company adopted ASU 2020-06Debt with Conversion and Other Options, convertible debt that can be settled for cash is required to be separated intousing the liability and equity component at issuance, with each component assignedmodified retrospective method. As a value. The value assigned toresult of this adoption, the liability component isCompany de-recognized the effective fair value, as of the issuance date, of similar debt without the conversion feature. The difference between the cash proceeds and estimated fair value of the liability component, representing the value of the conversion premium assigned to the equity component, is recorded as aremaining unamortized debt discount on the issuance date. This debt discount is amortized to interest expense using the effective interest method over the period from the issuance date through the maturity date of November 1, 2026.

The Company estimated the borrowing rates of similar debt without the conversion feature at origination to be 5.5% for$87.3 million on the 1.75% Convertible Notes and determined thetherefore no longer recognizes any amortization of debt discount to be $118.9 million. As a result, a conversion premium after tax of $88.1 million (net of $2.8 million of the deferred issuance costs) are recorded in additional paid-in capital. The aggregate debt discount is amortizeddiscounts as interest expense over the period from the issuance date through the maturity dateexpense. Refer to Note 1 - Basis of November 1, 2026, which management believes is the expected life of the 1.75% Convertible Notes using an interest rate of 5.5%Presentation and Overview. As of September 30, 2021, the remaining period over which the unamortized debt discount will be amortized is 5.1 years.

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 of such deferred issuance costs were attributable to the liability component and are recorded within other assets and arewere being amortized to interest expense through the maturity date. 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 the long-term liability and recorded a cumulative adjustment to retained earnings for amortization from the issuance date through January 1, 2022 and will record amortization expense for these debt issuance costs through the maturity date. As of September 30, 2021,2022, the total unamortized deferred issuance costs were $8.0$7.8 million.

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ZIFF DAVIS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
The 1.75% Convertible Notes are carried at face value less any unamortized debt discount (prior to adoption of ASU 2020-06) and issuance costs. The fair value of the 1.75% Convertible Notes at each balance sheet date is determined based on recent quoted market prices or dealer quotes for the 1.75% Convertible Notes, which are Level 1 inputs (see Note 76 - Fair Value Measurements)Measurements). If such information is not available, the fair value is determined using cash-flowcash flow models of the scheduled payments discounted at market interest rates for comparable debt without the conversion feature. As of September 30, 20212022 and December 31, 2020,2021, the estimated fair value of the 1.75% Convertible Notes was approximately $692.9$513.6 million and $569.7$685.4 million, respectively.

-32-3.25% Convertible Notes

On June 10, 2014, the Company issued $402.5 million aggregate principal amount of 3.25% convertible senior notes due June 15, 2029 (the “3.25% Convertible Notes”). The 3.25% Convertible Notes bore interest at a rate of 3.25% per annum, payable semiannually in arrears on June 15 and December 15 of each year. Beginning with the six-month interest period commencing on June 15, 2021, the Company had to pay contingent interest on the 3.25% Convertible Notes during any six-month interest period if the trading price per $1,000 principal amount of the 3.25% Convertible Notes for each of the five trading days immediately preceding the first day of such interest period equaled or exceeded $1,300. Any contingent interest payable on the 3.25% Convertible Notes would have been in addition to the regular interest payable on the 3.25% Convertible Notes.

In connection with the Separation, the Company redeemed in full all of its outstanding 3.25% Convertible Notes. During the three and nine months ended September 30, 2021, the Company satisfied its conversion obligation by paying the principal of $399.6 million and $402.4 million, respectively, in cash and the Company issued 3,031,817 and 3,050,850 shares of the Company’s common stock during the three and nine months ended September 30, 2021, respectively (see Note 11 - Stockholders’ Equity).

Credit Facility and Bridge Loan

On April 7, 2021, the Company entered into a $100.0 million Credit Agreement (the “Credit Agreement”). Subject to customary conditions, the Company may, from time to time, 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. The final maturity of the Credit Facility will occur on April 7, 2026.

At the Company’s option, amounts borrowed under the Credit Agreement will bear interest at either (i) a base rate equal to the greater of (x) the Federal Funds Effective Rate (as defined in the Credit Agreement) in effect on such day plus 0.5% per annum, (y) the rate of interest per annum most recently announced by the Agent (as defined in the Credit Agreement) as its U.S. Dollar “Reference Rate” and (z) one month LIBOR plus 1.00% or (ii) a rate per annum equal to LIBOR divided by 1.00 minus the LIBOR Reserve Requirements (as defined in the Credit Agreement), in each case, plus an applicable margin. The applicable margin relating to any base rate loan will range from 0.50% to 1.25% and the applicable margin relating to any LIBOR loan will range 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. As of September 30, 2022 and December 31, 2021, there were no amounts outstanding under the Credit Agreement.

Debt-for-Equity Exchange

On June 2, 2021, June 21, 2021, August 20, 2021 and September 16, 2021,10, 2022 (the “Term Loan Funding Date”), the Company entered into First, Second, Thirda Fifth Amendment to its Credit Agreement with MUFG Union Bank, N.A, as administrative agent and Fourth Amendments (togethercollateral agent and the “Amendments”)lenders party thereto to effectuate the debt-for-equity exchange. The Fifth Amendment to the Credit Agreement. The Amendments (i)Agreement provided for the issuance of a senior secured term loan under the Credit Agreement,Term Loan Facility in an aggregate principal amount of $485.0$90.0 million (the “Bridge Loan Facility”), (ii) permitted the spin-off of the Company’s cloud fax business into a new publicly traded company, and (iii) provided for certain other changes to the Credit Agreement.

The BridgeTerm 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, equal to (i) initially upon funding(y) the rate of interest per annum most recently announced by the loan, either aAgent, 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 plus 2.00%, or a LIBOR rate plus 3.00%, (ii) from six months afterfor any term loan made under the funding dateCredit Agreement shall be greater of clause (x) and (y) above in each case. During June 2022, the BridgeCompany borrowed approximately $90.0 million under the Term Loan Facility until twelve months afterand completed the funding datenon-cash debt-for-equity exchange of the Bridge Loan Facility, either a base rate plus 2.50%, or a LIBOR rate plus 3.50%, and (iii) from twelve months after the funding date2,300,000 shares of the Bridge Loan Facility until repaymentits common stock of the Bridge Loan Facility, either a base rate plus 3.00% or a LIBOR rate plus 4.00%. The Bridge Loan Facility wasConsensus to mature on the date that is 364 days after the funding datesettle its obligation of the Bridge Loan Facility, with 2 automatic extensions, each for an additional three months, if SEC approval of the spin-off transaction was still outstanding. As of September 30, 2021, the Company had drawn on the full amount of the Bridge Loan Facility with $485.0$90.0 million outstanding. The proceeds of the Bridge Loan Facility were used to redeem the Company’s 3.25% Convertible Notes. As of September 30, 2021, the estimated fair value of the Bridge Loan Facility was $485.0 million. Refer to Note 18 - Subsequent Events for information on the extinguishment of the Bridge Loan subsequent to September 30, 2021 in connection with the spin-off of the cloud fax business.

The Company was required to pay a funding fee of 0.50% of theoutstanding aggregate principal amount of Bridgethe Term Loan Facility made onplus an immaterial amount of interest.

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ZIFF DAVIS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
On September 15, 2022 (the “Term Loan Two Funding Date”), the funding date thereof,Company entered into a Sixth Amendment to its Credit Agreement with MUFG Union Bank, N.A, as well as a duration fee of 0.25% ofadministrative agent and collateral agent and the lenders party thereto to effectuate the debt-for-equity exchange. The Sixth Amendment to the Credit Agreement provided for the Term Loan Two Facility in an aggregate principal amount of outstanding Bridge Loansapproximately $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 effect on such day plus 0.5% per annum, (y) the sixthrate 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 anniversaryLIBOR 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 fundingCompany borrowed approximately $22.3 million under the Term Loan Two Facility and completed the non-cash debt-for-equity exchange of the Bridge Loans, and a fee500,000 shares of 0.50%its common stock of theConsensus to settle its obligation of $22.3 million outstanding aggregate principal amount of outstanding Bridge Loans on eachthe Term Loan Two Facility plus an immaterial amount of the nine-month, twelve-month and fifteen-month anniversaries of the funding of the Bridge Loans.interest.

Paycheck Protection Program Loan

Through the acquisition of certain businesses in 2020, the Company acquired $0.9 million of outstanding debt originating from the Paycheck Protection Program. During the second quarter of 2021, the Company received approval from the SBA to forgive the entire amount of the outstanding PPP loans, which was subsequently forgiven in full.

10.Leases

The Company leases certain facilitiesthree and equipment under non-cancelable operating and finance 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.

For the first nine months of 2021, the Company recorded impairments of $9.4 million on its operating lease right of use assets primarily related to exiting certain lease space as the Company regularly evaluates its office space requirements in light more of its workforce working from home as part of a permanent “remote” or “partial remote” work model. During the third quarter of 2020, the Company had also decided to exit and seek subleases for certain leased facilities in the Digital Media reportable segment primarily also due to work from home models. The Company recorded a non-cash impairment charge of $9.8 million related to operating lease right-of-use assets for the affected facilities and an impairment charge of $3.6 million for associated property and equipment. 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 and administrative expenses on the Condensed 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.
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Finance leases are not material to the Company’s Condensed Consolidated Financial Statements and are therefore not included in the disclosures below.

The components of lease expense were as follows (in thousands):
Three Months Ended
September 30,		Nine Months Ended
September 30,
2021202020212020
Operating lease cost$6,173 $16,888 $23,976 $33,106 
Short-term lease cost712 264 2,653 1,357 
Total lease cost$6,885 $17,152 $26,629 $34,463 

Supplemental balance sheet information related to leases was as follows (in thousands):
September 30, 2021December 31, 2020
Operating leases
Operating lease right-of-use assets$88,331 $105,845 
Total operating lease right-of-use assets$88,331 $105,845 
Operating lease liabilities, current$31,636 $32,211 
Operating lease liabilities, noncurrent84,519 99,177 
Total operating lease liabilities$116,155 $131,388 

Supplemental cash flow information related to leases was as follows (in thousands):
Nine Months Ended
September 30,
20212020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases$21,869 $21,764 
Right-of-use assets obtained in exchange for lease obligations:
Operating leases$9,274 $7,968 

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Other supplemental operating lease information consists of the following:
September 30, 2021December 31, 2020
Operating leases:
Weighted average remaining lease term5.1 years5.2 years
Weighted average discount rate3.83 %3.93 %

Maturities of operating lease liabilities as of September 30, 2021 were as follows (in thousands):
 Operating Leases
Fiscal Year:
2021 (remainder)$8,507 
202231,926 
202326,494 
202418,840 
202510,496 
Thereafter35,250 
Total lease payments$131,513 
Less: Imputed interest15,358 
Present value of operating lease liabilities$116,155 

Total sublease income for the three months ended September 30, 2021 and 2020 was $0.5 million and $0.4 million, respectively, and was $1.4 million and $2.2 million for the nine months ended September 30, 2021 and 2020, respectively. Total estimated aggregate sublease income to be received in the future is $5.2 million.

For the first nine months of 2020,2022, the Company recorded $2.1a loss on extinguishment of debt of approximately $0.1 million associated with its sublease tenants in default as a result ofand $0.6 million, respectively, related to the economic effects of COVID-19. The impairmentdebt-for-equity exchanges, which is presented in general and administrative expensewithin ‘Gain on thedebt extinguishment, net’ on our Condensed Consolidated StatementStatements of Operations.

Significant Judgments

Discount Rate

The majority of the Company’s leases are discounted using the Company’s incremental borrowing rate as the rate implicit in the lease is not readily determinable. Rates are obtained from various large banks to determine the appropriate incremental borrowing rate each quarter for collateralized loans with a maturity similar to the lease term.

Options

The lease term is generally the minimum noncancelable period of the lease. The Company does not include option periods unless the Company determined it is reasonably certain of exercising the option at inception or when a triggering event occurs.

Practical Expedients

As a practical expedient, the Company has not separated lease components from nonlease components for its real property operating leases. Certain of the Company’s leases contain nonlease components such as maintenance and certain utility costs.

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In addition, the Company elected and applied the available transition practical expedients upon adoption. By electing these practical expedients, the Company did:

•not reassess whether expired or existing contracts contain leases under the new definition of a lease;
•not reassess lease classification for expired or existing leases; and
•not reassess whether previously capitalized initial direct costs would qualify for capitalization under Topic 842.

11.9.    Commitments and Contingencies

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.

On January 21, 2016, Davis Neurology, P.A. filed a putative class action lawsuit against two Company affiliates in the Circuit Court for the County of Pope, State of Arkansas (58-cv-2016-40), alleging violations of the TCPA. The case was removed to the U.S. District Court for the Eastern District of Arkansas (No. 4:16-cv-00682). On March 20, 2017, the District Court granted a motion for judgment on the pleadings filed by the Company affiliates and dismissed all claims against the Company affiliates. On July 23, 2018, the Eighth Circuit Court of Appeals vacated the judgment and remanded to district court with instructions to return the case to state court. On January 29, 2019, after further appeals were exhausted, the case was remanded to the Arkansas state court. On April 1, 2019, the state court granted a motion for class certification filed by the plaintiff in 2016. Because the prior removal to federal court had deprived the state court of jurisdiction, the Company affiliates had not yet filed an opposition brief to the 2016 motion when the state court granted the motion. The Company affiliates appealed the order. On July 15, 2019, the Company affiliates removed the case to federal court pursuant to the Class Action Fairness Act of 2005. On November 26, 2019 the court denied the Plaintiff’s motion to remand. On December 20, 2019, the court granted the Plaintiff’s motion for leave to amend its complaint. On May 21, 2020, the court denied the Company affiliates’ motion to dismiss. On February 18, 2021, the parties filed a motion for preliminary approval of the class settlement, certification of a settlement class and for permission to disseminate notice, which was granted on May 11, 2021. On September 3, 2021, the court granted final approval of the class settlement.

On July 8, 2020, Jeffrey Garcia filed a putative class action lawsuit against the Company in the Central District of California (20-cv-06906), alleging violations of federal securities laws. The Company has moved to dismiss the consolidated class action complaint. The court granted the motion to dismiss and the plaintiff has filed an amended complaint. The Company has 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 plaintiff has filed the notice of appeal.

On September 24, 2020, International Union of Operating Engineers of Eastern Pennsylvania and Delaware filed an action lawsuit in the Delaware Court of Chancery (C.A. No. 2020-0819-VCL) asserting derivative claims for breach of fiduciary duty and related theories against directors of the Company and other third parties relating generally the investment by the Company in OCV Fund I, L.P. (the “Chancery Court Derivative Action”). On November 17, 2020, the court entered an order allowing Orlando Police Pension Fund to intervene as a plaintiff in the case. The parties have reached an agreement to settle the lawsuit, which requires court approval. On July 29, 2021, the parties filed a stipulation of settlement that provides the terms of the settlement and begins the settlement approval process with the Court. On January 20, 2022 the Court approved the settlement. Among other terms of the settlement, no further capital calls will be made in connection with the Company’s investment in OCV Fund I, L.P.

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. As part of the settlement of the Chancery Court Derivative Action described above, the Company and its directors and officers intend to defend against the remaining claims.

-36--38-


ZIFF DAVIS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
The Company does not believe, based on current knowledge, that the foregoing legal proceedings or claims, after giving effect to existing accrued liabilities, are likely to have a material adverse effect on the Company’s consolidated financial position, results of operations, or cash flows. However, depending on the amount and timing, an unfavorable resolution of some or all of these matters could have a material effect on the Company’s consolidated financial position, results of operations, or cash flows in a particular period.
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 has a $24.4$24.3 million reserve established for these matters. It is reasonably possible that additional liabilities could be incurred resulting in additional expense, which could have a material impact to our financial results.

12.10.    Income Taxes

The Company’s tax provision for interim periods is determined using an estimate of the Company’s annual effective tax rate adjusted for discrete interim period tax impacts. Each quarter the Company updates its estimated annual effective tax rate and, if the estimate changes, makes a cumulative adjustment. The Company’s effective tax rate was 16.6%45.9% and 28.3%(44.2)% for the three months ended September 30, 20212022 and 2020,2021, respectively and 12.3%83.9% and 32.2%142.3% for the nine months ended September 30, 20212022 and 2020,2021, respectively. The Company’s decreased rate duringeffective tax rates for the three and nine months ended September 30, 2022 have been disproportionately impacted due to the size of the discrete book loss related to the Disposed Consensus Shares and Retained Consensus Shares. The net loss recorded for book purposes for the Disposed Consensus Shares, excluding transaction costs resulted in no tax benefit because the loss was not subject to tax since the Company disposed of the investment in a tax-free manner based on guidance and requirements set out by the Internal Revenue Service, within the one-year anniversary of the Separation. During the three months ended September 30, 2022, the Company recognized a tax charge of $11.3 million related to its Retained Consensus Shares due to recording a deferred tax liability as of September 30, 2022 as the Company did not dispose of the Retained Consensus Shares within the one-year anniversary of the Separation. This increase to tax expense was partially offset by a tax benefit of $6.7 million for recording a deferred tax asset on the impairment of goodwill recorded during the three months ended September 30, 2022.

During the three months and nine months ended September 30, 2021, isthe Company recognized a tax benefit primarily due to the recognition of a tax benefit from the disposition and impairment of the backupB2B Back-up business, to business unit and a reduction in ourthe net reserve for uncertain tax positions with no similar eventsand for the period ending September 30, 2020. During the nine months ended September 30, 2020 the Company recognized an increase in tax expense related to establishingrelease of a valuation allowance on deferred tax assets related to the impairment of certain investments with no similar events for the period ending September 30, 2021.U.S. investments. During the three and nine months ended September 30, 2021, in connection with the redemption of the 3.25% Convertible Notes, the Company recorded a reduction in its deferred tax liabilities and an increase in additional paid-in capital of approximately $44.2 million. As the redemption of the 3.25% Convertible Notes were settled in cash and equity for an amount in excess of the Company’s tax basis in the 3.25% Convertible Notes, the deferred tax liability was reversed with an adjustment to additional-paid-in capital. Prior to the redemption, the Company had a deferred tax liability on the 3.25% Convertible Notes for cumulative book-tax temporary differences related to interest expense that resulted in the tax basis exceeding the financial statement carrying amount of the 3.25% Convertible Notes.

Income (loss) from continuing operations before income taxes included incomea loss from domestic operations of $29.2approximately $0.3 million and $32.2$(63.1) million for the nine months ended September 30, 20212022 and 2020,2021, respectively, and income from foreign operations of $107.1$39.3 million and $120.2$49.1 million for the nine months ended September 30, 20212022 and 2020,2021, respectively.

As of September 30, 20212022 and December 31, 2020,2021, the Company had $54.2$45.4 million and $57.1$42.5 million, respectively, in liabilities for uncertain income tax positions.positions from continuing operations. Accrued interest and penalties related to unrecognized tax benefits are recognized in income tax expense on the Company’s consolidated statementCondensed Consolidated Statement of operations.Operations.
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Cash paid for income taxes net of refunds received was $51.8 million and $33.5 million for the nine months ended September 30, 2021 and 2020, respectively.
ZIFF DAVIS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Certain taxes are prepaid during the year and, where appropriate, included within prepaid‘Prepaid expenses and other current assetsassets’ on the Condensed Consolidated Balance Sheet. The Company’s prepaid taxes were $12.6 millionzero and $3.0$0.8 million at September 30, 20212022 and December 31, 2020,2021, respectively.

-37-

Income Tax Audits:

The Company is in various stages of audit by the U.S. Internal Revenue Service (“IRS”) for its 2012 through 2016 tax years. On February 24, 2021, the Company received a Notice of Deficiency for tax years 2012 through 2014 which disallowed certain deductions for domestic production. The Company disagrees with the Notice and filed a petition to appealwith the United States Tax Court on May 24, 2021. As of September 30, 2021,2022, the audits are ongoing.

The Company is under income tax audit by the California Franchise Tax Board (the “FTB”(“FTB”) for its tax years 2012, 2013, 2015, and 2013.2016. The FTB, however, has suspendedagreed to suspend its audit for 2012 and 2013 pending the outcome of the IRS audit for such tax years. In August 2018, the FTB notified the Company that it will commence an audit of tax years 2015 and 2016. As of September 30, 2021,2022, the audits are ongoing.

In June 2019, the New York State Department of Taxation and Finance (“NYS”) notified the Company that it will commence an audit for tax year 2015. In April 2020, the NYS notified the Company that it will also commence an audit for tax years 2016 and 2017. As of September 30, 2021,2022, the audits are ongoing.

The Company conducts business on a global basis and as a result, one or more of its subsidiaries files income tax returns in the U.S. federal and in multiple state, local, and foreign tax jurisdictions. The Company’s U.S. federal income tax returns for years 2012 through 2016 are under various stages of audit by the IRS, as noted above. The Company is also under audit for various U.S. state and local tax purposes as noted above for its significant jurisdictions. With limited exception, the Company’s significant foreign tax jurisdictions are no longer subject to an income tax audit by the various tax authorities for tax years prior to 2014.

It is reasonably possible that these audits may conclude in the next 12twelve 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 are 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 are adequate to cover the associated tax liabilities, the Company would be required to record any excess as a 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.

13.11.    Stockholders’ Equity

Common Stock Repurchase Program

In February 2012, the Company’s Board of Directors approved a program authorizing the repurchase of up to 5000000 shares of the Company’s common stock through February 20, 2013 (the “2012 Program”) which was subsequently extended through February 20, 2021.

In November 2018 and May 2019, the Company entered into Rule 10b5-1 trading plans with a broker to facilitate the repurchase program. 600,000 shares were repurchased under the share repurchase program in 2018 at an aggregate cost of $42.5 million and were subsequently retired in March 2019. During the year ended December 31, 2019, the Company repurchased 197,870 shares at an aggregate cost of $16.0 million which were subsequently retired in the same year. During the year ended December 31, 2020, the Company repurchased 1,140,819 shares under this program at an aggregate cost of $87.5 million, which were subsequently retired in the same year. As of December 31, 2020, all the available shares were repurchased under the 2012 Program at an aggregate cost of $204.6 million (including an immaterial amount of commission fees).

On August 6, 2020, the Company’s Board of Directors approved a program authorizing the repurchase of up to 10000000ten million shares of our common stock through August 6, 2025 (the “2020 Program”) in addition to the 5000000 shares repurchased under the 2012 Program.. The Company entered into acertain Rule 10b5-1 trading plan andplans during the nine month periodyears ended December 31, 2021 and 2020 to execute repurchases under the 2020 Program. During the three months ended September 30, 2021,2022, the Company repurchased nozero shares under this program. Cumulatively atthe 2020 Program. During the nine months ended September 30, 2021, 2,490,5992022, the Company repurchased 736,536 shares were repurchased at an aggregate cost of $177.8approximately $71.3 million (including an immaterial amount of commission fees) under the 2020 Program, whichProgram. These shares were subsequently retired.

In connection with the Consensus spin-off, the Company called its 3.25% Convertible Notes for redemption and during the three and nine months ended Cumulatively as of September 30, 2021,2022, 3,672,846 shares were repurchased at an aggregate cost of $296.9 million (including an immaterial amount of commission fees) under the Company issued 3,031,817 and 3,050,8502020 Program. These shares were subsequently retired. As a result of the repurchases, the number of shares available for purchase as of September 30, 2022 is 6,327,154 shares of the Company’s common stock, respectively, in connection with that redemption (see Note 9 - Debt).stock.

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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 three month periodmonths ended September 30, 2022 and 2021, the Company purchased and retired 2,601 and 49,641 shares at an aggregate cost of approximately $0.2 million and $6.9 million, respectively, from plan participants for this purpose. During the nine months ended September 30, 2022 and 2021, the Company purchased and retired 52,837 and 245,083 shares at an aggregate cost of approximately $5.2 million and $29.9 million, respectively, from plan participants for this purpose.

In connection with the Separation, the Company called its 3.25% Convertible Notes for redemption and during the three and nine months ended September 30, 2021, the Company purchased 49,641issued 3,031,817 and 3,050,850 shares from plan participants for this purpose.of the Company’s common stock, respectively, in connection with that redemption (see Note 8 - Debt).

Dividends
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No dividends were declared in during fiscal year 2021 and 2020. Future dividends are subject to Board approval.
ZIFF DAVIS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
12.    Stock Based on the significant number of current investment opportunities within the Company’s portfolio of businesses and the historic returns from prior investments, the Board of Directors suspended dividend payments for the foreseeable future.

14.Stock Options and Employee Stock Purchase PlanCompensation

The Company’s share-based compensation plans include the 2007 Stock Plan (the “2007 Plan”), 2015 Stock Option Plan (the “2015 Plan”) and 2001 Employee Stock Purchase Plan (the “Purchase Plan”). Each plan is described below.

The 2007 Plan provides for the granting of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units and other share-based awards. 4,500,000 shares of the Company’s common stock are authorized to be used for 2007 Plan purposes. Options under the 2007 Plan may be granted at exercise prices determined by the Board of Directors, provided that the exercise prices shall not be less than the fair market value of the Company’s common stock on the date of grant for incentive stock options and not less than 85% of the fair market value of the Company’s common stock on the date of grant for non-statutory stock options. As of September 30, 2021, 7,0002022, zero shares underlying options and zero shares of restricted stock units were outstanding under the 2007 Plan. The 2007 Plan terminated on February 14, 2017.

The 2015 Plan provides for the granting of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance share units and other share-based awards. 4,200,000 shares of the Company’s common stock are authorized to be used for 2015 Plan purposes. Options under the 2015 Plan may be granted at exercise prices determined by the Board of Directors, provided that the exercise prices shall not be less than the higher of the par value or 100% of the fair market value of the Company’s common stock subject to the option on the date the option is granted. As of September 30, 2021, 400,0002022, 435,135 shares underlying options and 246,018526,656 shares of restricted stock units were outstanding under the 2015 Plan.

All stock option grants are approved by “outside directors” within the meaning of Internal Revenue Code Section 162(m).
Restricted Stock Options
The following table represents stock option activity for the nine months ended September 30, 2021:
Number of SharesWeighted-
Average
Exercise
Price		Weighted-Average
Remaining
Contractual
Term (in years)		Aggregate
Intrinsic
Value
Outstanding at January 1, 2021475,601 $69.61 
Granted— — 
Exercised(68,601)42.08 
Canceled— — 
Outstanding at September 30, 2021407,000 $74.25 6.2$25,385,630 
Exercisable at September 30, 2021157,000 $73.00 6.0$9,988,130 
Vested and expected to vest at September 30, 2021346,640 $74.11 6.1$21,668,058 

The total intrinsic values of options exercised during the nine months ended September 30, 2021 and 2020 were $5.6 million and $3.0 million, respectively.

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The Company recognized $0.2 million and $0.2 million of compensation expense related to stock options for the three months ended September 30, 2021 and 2020, respectively, and $0.6 million and $0.7 million for the nine months ended September 30, 2021 and 2020, respectively. As of September 30, 2021 and December 31, 2020, unrecognized stock compensation related to non-vested stock options granted under each of the share-based compensation plans approximated $5.1 million and $5.8 million, respectively. Unrecognized stock compensation expense related to non-vested stock options granted under these plans is expected to be recognized ratably over a weighted-average period of 4.3 (i.e., the remaining requisite service period).

Fair Value Disclosure
The Company uses the Black-Scholes option pricing model to calculate the fair value of each option grant. The expected volatility is based on historical volatility of the Company’s common stock. The Company estimates the expected term based upon the historical exercise behavior of its employees. 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 12.4% and 11.8% as of September 30, 2021 and 2020, respectively.

 Restricted Stock and Restricted Stock Units
The Company has awarded restricted stock and restricted stock units to its Board of Directors and senior staff pursuant to certain share-based compensation 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 of Directors, four or five years for senior staff (excluding market-based awards discussed below) and four to eight years for the Chief Executive Officer.

Restricted Stock The Company granted 152,982 and Restricted Stock Units91,163 shares of restricted stock and restricted units (excluding awards with Market Conditionsmarket conditions below) during the nine months ended September 30, 2022 and 2021, respectively.

The Company has awarded certain key employees market-based restricted stock and restricted stock unitsawards pursuant to the 2015 Plan. The market-based sharesawards have vesting conditions that are based on specified stock price targets of the Company’s common stock. Market conditions were factored into the grant date fair value using a Monte Carlo valuation model, which utilized multiple input variables to determine the probability of the Company achieving the specified stock price targets withfor 20-days within a 20-day and 30-day lookback (trading days). Stock-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. During the nine months ended September 30, 20212022 and 2020,2021, the Company awarded 100,193 and 73,094 and 82,112 market-based shares,restricted stock awards, respectively. The per share weighted average grant-date fair values of the market-based sharesrestricted stock awards granted during the nine months ended September 30, 2022 and 2021 were $87.11 and 2020 were $94.40, and $70.99, respectively.

The weighted-average fair values of market-based sharesrestricted stock awards granted have been estimated utilizing the following assumptions:
September 30, 2021September 30, 2020September 30, 2022September 30, 2021
Underlying stock price at valuation dateUnderlying stock price at valuation date$113.27 $91.17 Underlying stock price at valuation date$99.32 $113.27 
Expected volatilityExpected volatility30.3 %27.0 %Expected volatility36.7 %30.3 %
Risk-free interest rateRisk-free interest rate1.3 %0.7 %Risk-free interest rate1.8 %1.3 %
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ZIFF DAVIS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Restricted stock award activity for the nine months ended September 30, 20212022 is set forth below:
SharesWeighted-Average
Grant-Date
Fair Value		SharesWeighted-Average
Grant-Date
Fair Value
Nonvested at January 1, 2021820,566 $62.66 
Nonvested at January 1, 2022Nonvested at January 1, 2022383,963 $62.65 
GrantedGranted— — Granted— — 
VestedVested(421,923)62.47 Vested(65,831)$80.89 
CanceledCanceled(3,277)82.96 Canceled(1,605)$93.75 
Nonvested at September 30, 2021395,366 $61.62 
Nonvested at September 30, 2022Nonvested at September 30, 2022316,527 $60.11 
  
Restricted stock unit award activity for the nine months ended September 30, 20212022 is set forth below:
Number of
Shares		Weighted-Average
Remaining
Contractual
Term (in years)		Aggregate
Intrinsic
Value		Number of
Shares		Weighted-Average
Remaining
Contractual
Term (in years)		Aggregate
Intrinsic
Value
Outstanding at January 1, 2021209,784 
Outstanding at January 1, 2022Outstanding at January 1, 2022360,743 
GrantedGranted164,257 Granted253,175 
VestedVested(124,761)Vested(74,604)
CanceledCanceled(3,262)Canceled(12,658)
Outstanding at September 30, 2021246,018 3.2$33,610,979 
Vested and expected to vest at September 30, 2021170,143 2.5$23,244,890 
Outstanding at September 30, 2022Outstanding at September 30, 2022526,656 2.6$36,065,403 
Vested and expected to vest at September 30, 2022Vested and expected to vest at September 30, 2022385,498 2.2$26,398,925 

The Company recognized $5.7 million and $5.1 million of compensation expense related to restricted stock, restricted stock units and market-based awards for the three months ended September 30, 2021 and 2020, respectively, and $16.4 million and $16.4 million for the nine months ended September 30, 2021 and 2020, respectively. As of September 30, 20212022 and December 31, 2020,2021, the Company had unrecognized share-based compensation cost of approximately $37.3$48.2 million and $38.6$44.3 million, respectively, associated with these awards.restricted stock awards and restricted stock units. This cost is expected to be recognized over a weighted-average period of 3.63.0 for restricted stock awards and 4.13.7 for restricted stock units.

Employee Stock Purchase Plan

The Purchase Plan provides for the issuance of a maximum of 2000000two 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 offering periods is equal to 85% of the lesser of the fair market value of a share of common stock of the Company on the beginning or the end of the offering period.

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. The Company used the Black-Scholes option pricing model to calculate the estimated fair value of the purchase right issued under the ESPP. 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 11.15% and 16.50%11.15% as of September 30, 2022 and 2021, and 2020, respectively. The increase in forfeiture rate comes as a result of the Purchase Plan being offered to all employees regardless of employment location.

For the nine months ended September 30, 2022 and 2021, 76,741 and 2020, 58,145 and 53,694 shares were purchased under the Purchase Plan, respectively. Cash received upon the issuance of the Company’s common stock under the Purchase Plan was $4.2$5.2 million and $3.3$4.2 million for the nine months ended September 30, 20212022 and 2020,2021, respectively. As of September 30, 2021, 1,346,7942022, 1,218,950 shares were available under the Purchase Plan for future issuance.

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ZIFF DAVIS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
The Company recognized $0.8 million and $0.5 million of compensation expense related to the Purchase Plan for the three months ended September 30, 2021 and 2020, respectively, and $2.1 million and $1.5 million for the nine months ended September 30, 2021 and 2020, respectively.

The compensation expense related to the Purchase Plan has been estimated utilizing the following assumptions:
September 30, 2021September 30, 2020September 30, 2022September 30, 2021
Risk-free interest rateRisk-free interest rate0.06%0.13%Risk-free interest rate1.54 %0.06 %
Expected term (in years)Expected term (in years)0.50.5Expected term (in years)0.50.5
Dividend yieldDividend yield0.00%0.00%Dividend yield0.00 %0.00 %
Expected volatilityExpected volatility35.62%23.95%Expected volatility41.6 %35.62 %
Weighted average volatilityWeighted average volatility35.62%23.95%Weighted average volatility41.6 %35.62 %

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15.
ZIFF DAVIS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
13.    Earnings Per Share
 
The components of basic and diluted earnings per share are as follows (in thousands, except share and per share data):
Three Months Ended
September 30,		Nine Months Ended
September 30,
2021202020212020
Numerator for basic and diluted net income per common share:
Net income$42,569 $60,883 $136,209 $92,580 
Net income available to participating securities (a)
(28)(89)(143)(477)
Net income available to the Company’s common shareholders$42,541 $60,794 $136,066 $92,103 
Denominator:
Weighted-average outstanding shares of common stock46,738,073 46,279,515 45,258,819 46,914,750 
Dilutive effect of:
Equity incentive plans
332,532 29,557 272,178 23,211 
Convertible debt (b)
1,511,980 — 2,034,065 682,347 
Common stock and common stock equivalents48,582,585 46,309,072 47,565,062 47,620,308 
Net income per share:
Basic$0.91 $1.31 $3.01 $1.96 
Diluted$0.88 $1.31 $2.86 $1.93 
Three Months Ended September 30,
20222021
BasicDilutedBasicDiluted
Numerator for basic and diluted net income per common share:
Net income from continuing operations$18,185 $18,185 $6,769 $6,769 
Net income available to participating securities (1)
(4)(4)(4)(4)
1.75% Convertible Notes interest expense (after-tax) (2)
— — — — 
Net income available to the Company’s common shareholders from continuing operations$18,181 $18,181 $6,765 $6,765 
Denominator:
Weighted-average outstanding shares of common stock46,871,897 46,871,897 46,738,073 46,738,073 
Dilutive effect of:
Equity incentive plans
— — — 332,532 
Convertible debt (2)
— — — 1,511,980 
Common stock and common stock equivalents46,871,897 46,871,897 46,738,073 48,582,585 
Net income per share from continuing operations:$0.39 $0.39 $0.14 $0.14 

Nine Months Ended September 30,
20222021
BasicDilutedBasicDiluted
Numerator for basic and diluted net income per common share:
Net (loss) income from continuing operations$(3,714)$(3,714)$22,504 $22,504 
Net income available to participating securities (1)
— — (24)(24)
1.75% Convertible Notes interest expense (after-tax) (2)
— — — — 
Net (loss) income available to the Company’s common shareholders from continuing operations$(3,714)$(3,714)$22,480 $22,480 
Denominator:
Weighted-average outstanding shares of common stock46,967,671 46,967,671 45,258,819 45,258,819 
Dilutive effect of:
Equity incentive plans
— — — 272,178 
Convertible debt (2)
— — — 2,034,065 
Common stock and common stock equivalents46,967,671 46,967,671 45,258,819 47,565,062 
Net (loss) income per share from continuing operations:$(0.08)$(0.08)$0.50 $0.47 
(a)(1)Represents unvested share-based payment awards that contain certain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid).

(b)(2)RepresentsUnder the incremental shares issuable upon conversionmodified retrospective method of adoption of ASU 2020-06, the 3.25% Convertible Notes due June 15, 2029 (subsequently redeemed in full)dilutive impact of convertible debt was calculated using the if-converted method for the three and 1.75% Convertible Notes due November 1, 2026 by applyingnine months ended September 30, 2022. The dilutive impact of convertible debt was calculated using the treasury stock method whenfor the average stock price exceeds the conversion price of the Convertible Notesthree and nine months ended September 30, 2021 (see Note 98 - Debt)Debt).

For the three months ended September 30, 20212022 and 2020,2021, there were 1,278,330 and zero, respectively, stock options and 423,000 options outstanding, respectively, and forrestricted stock excluded from the calculation as they were anti-dilutive. For the nine months ended September 30, 20212022 and 2020,2021, there were 1,278,330 and zero, respectively, stock options outstanding, respectively, which wereand restricted stock excluded from the computation of diluted earnings per share becausecalculation as they were anti-dilutive. For the exercise pricesthree months ended September 30, 2022 and 2021, there were greater than5,158,071 and zero shares, respectively, related to convertible debt excluded from the average market price ofcalculation as they were anti-dilutive. For the common stock.nine months ended
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ZIFF DAVIS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
September 30, 2022 and 2021, there were 5,158,071 and zero shares, respectively, related to convertible debt excluded from the calculation as they were anti-dilutive.

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16.14.    Segment Information

The Company’s businesses are based on the organizational structure used by the chief operating decision maker (“CODM”) for making. The Company aggregates its operating and investment decisions and for assessing performance. The CODM views the Company as 2 businesses:segments into two reportable segments: Digital Media and Cloud Services. However,in accordance with the aggregation criteria within ASC Topic 280, the Company’s operating segments have been aggregated into 3 reportable segments: (i) Digital Media; (ii) Voice, Backup, Security,Cybersecurity and Consumer Privacy and Protection; and (iii) Fax and Martech.

The Company’s Digital Media business is driven primarily by advertising and subscription revenues, has relatively higher sales and marketing expense and has seasonal strength in the fourth quarter. The Company’s Cloud Services business is driven primarily by subscription revenues that are relatively higher margin, stable and predictable from quarter to quarter with minor seasonal weakness in the fourth quarter.
The accounting policies of the businesses are the same as those described in the Company’s Annual Report on Form 10-K filed with the SEC on March 1, 2021.15, 2022. The Company evaluates performance based on revenue, gross margin and profit or loss from operations before income taxes, not including nonrecurring gains and losses and foreign exchange gains and losses.

Information on reportable segments and reconciliation to consolidated income from operations is as follows (in thousands):
Three Months Ended
September 30,		Nine Months Ended
September 30,
2021202020212020
Revenue by reportable segment:
Digital Media$262,429 $186,784 $743,280 $513,462 
Cloud Services
Fax and Martech114,648 98,044 320,829 286,687 
Voice, Backup, Security, and CPP67,531 72,204 208,137 220,403 
Cloud Services Total182,179 170,248 528,966 507,090 
Elimination of inter-segment revenues(356)(56)(766)(200)
Total segment revenues444,252 356,976 1,271,480 1,020,352 
Corporate (1)
— — — 1 
Total revenues$444,252 $356,976 $1,271,480 $1,020,353 
Gross profit by reportable segment:
Digital Media$238,650 $169,394 $673,409 $457,963 
Cloud Services
Fax and Martech91,993 81,435 261,742 238,149 
Voice, Backup, Security, and CPP49,395 50,392 151,155 152,733 
Cloud Services Total141,388 131,827 412,897 390,882 
Elimination of inter-segment gross profit(88)(56)(214)(200)
Total segment gross profit379,950 301,165 1,086,092 848,645 
Corporate (1)
— (11)(74)(47)
Total gross profit$379,950 $301,154 $1,086,018 $848,598 
Direct costs by reportable segment (2):
Digital Media (3)
$188,950 $143,312 $548,960 $410,109 
Cloud Services
Fax and Martech (3)
42,057 28,614 107,109 89,121 
Voice, Backup, Security, and CPP (3)
37,524 37,456 150,102 118,291 
Cloud Services Total79,581 66,070 257,211 207,412 
Elimination of inter-segment direct costs(88)(56)(214)(200)
Total segment direct costs268,443 209,326 805,957 617,321 
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Revenue by reportable segment:
Digital Media$263,896 $262,429 $757,423 $743,280 
Cybersecurity and Martech78,192 93,071 237,596 265,580 
Elimination of inter-segment revenues(215)(356)(722)(766)
Total segment revenues341,873 355,144 994,297 1,008,094 
Corporate(1)
— — — — 
Total revenues$341,873 $355,144 $994,297 $1,008,094 
Gross profit by reportable segment:
Digital Media$232,887 $238,650 $676,040 $673,409 
Cybersecurity and Martech56,595 66,884 174,251 192,638 
Elimination of inter-segment gross profit(212)(88)(701)(214)
Total segment gross profit289,270 305,446 849,590 865,833 
Corporate(1)
— — — (74)
Total gross profit289,270 305,446 849,590 865,759 
Operating expenses by reportable segment(2):
Digital Media205,570 188,950 571,980 548,960 
Cybersecurity and Martech42,765 56,208 135,516 191,282 
Elimination of inter-segment operating expenses(212)(88)(701)(214)
Total segment operating expenses248,123 245,070 706,795 740,028 
Corporate(1)
12,113 15,366 37,312 43,785 
Total operating expenses260,236 260,436 744,107 783,813 
Operating income by reportable segment:
Digital Media27,317 49,700 104,060 124,449 
Cybersecurity and Martech13,830 10,676 38,735 1,356 
Total segment operating income41,147 60,376 142,795 125,805 
Corporate(1)
(12,113)(15,366)(37,312)(43,859)
Income from operations$29,034 $45,010 $105,483 $81,946 
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(1)
Corporate (1)
15,366 14,390 43,785 25,552 
Total direct costs (2)
$283,809 $223,716 $849,742 $642,873 
Operating income by reportable segment:
Digital Media$49,700 $26,082 $124,449 $47,854 
Cloud Services
Fax and Martech49,936 52,821 154,633 149,028 
Voice, Backup, Security, and CPP11,871 12,936 1,053 34,442 
Cloud Services Total61,807 65,757 155,686 183,470 
Total segment operating income111,507 91,839 280,135 231,324 
Corporate (1)
(15,366)(14,401)(43,859)(25,599)
Total income from operations$96,141 $77,438 $236,276 $205,725 
(1) Corporate includes costs associated with general and administrative and other expenses that are managed on a global basis and that are not directly attributable to any particular segment.
(2) Direct costs for each segment include other operating expenses that are directly attributable to the segment, such as employee compensation expense, local sales and marketing expenses, engineering and network operations expense, depreciation and amortization and other administrative expenses.
(3) Beginning in the third quarter of 2020, certain expenses associated with Corporate that were previously allocated to the Cloud Services business and the Digital Media business for shared costs incurred by Corporate were no longer allocated. Table above has been recast to remove the impact of certain expenses associated with Corporate that were previously allocated to the Cloud Services and Digital Media businesses.
Corporate includes costs associated with general and administrative and other expenses that are managed on a global basis and that are not directly attributable to any particular segment.

-44--45-

ZIFF DAVIS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
(2)Operating expenses for each segment include other operating expenses that are directly attributable to the segment, such as employee compensation expense, local sales and marketing expenses, engineering and network operations expense, depreciation and amortization and other administrative expenses. For the nine months ended September 30, 2021, goodwill impairment related to our B2B Backup business is also included within operating expenses for Cybersecurity and Martech. For the three and nine months ended September 30, 2022, the Company had an impairment to goodwill within operating expenses for Digital Media.

The CODM does not use Balance Sheet and Cash Flow information in connection with operating and investment decisions other than as presented for Digital Media and Cloud Services.Cybersecurity and Martech. Accordingly, the following segment information is presented for Digital Media and Cloud Services.Cybersecurity and Martech.
September 30, 2021December 31, 2020September 30, 2022December 31, 2021
Assets:Assets:Assets:
Digital MediaDigital Media$1,978,252 $2,088,397 Digital Media$2,014,843 $2,043,204 
Cloud Services
1,567,119 1,473,398 
Total assets from Digital Media and Cloud Services3,545,371 3,561,795 
Cybersecurity and MartechCybersecurity and Martech970,482 1,088,741 
Total assets from reportable segmentsTotal assets from reportable segments2,985,325 3,131,945 
CorporateCorporate285,286 103,536 Corporate447,743 638,335 
Total assetsTotal assets$3,830,657 $3,665,331 Total assets$3,433,068 $3,770,280 
Nine Months Ended
September 30,
20212020
Capital expenditures:
Digital Media$51,995 $43,593 
Cloud Services35,500 27,673 
Total capital expenditures from Digital Media and Cloud Services87,495 71,266 
Corporate— — 
Total capital expenditures$87,495 $71,266 

Three Months Ended
September 30,		Nine Months Ended
September 30,
2021202020212020
Depreciation and amortization:
Digital Media$50,056 $36,651 $147,482 $101,771 
Cloud Services16,082 20,524 48,744 58,355 
Total depreciation and amortization from Digital Media and Cloud Services66,138 57,175 196,226 160,126 
Corporate79 2,437 217 3,554 
Total depreciation and amortization$66,217 $59,612 $196,443 $163,680 
Nine Months Ended September 30,
20222021
Capital expenditures
Digital Media$69,451 $51,995 
Cybersecurity and Martech11,312 20,248 
Total from reportable segments80,763 72,243 
Corporate4 — 
Capital expenditures of discontinued operations— 15,252 
Total capital expenditures$80,767 $87,495 

Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Depreciation and amortization:
Digital Media$44,631 $50,056 $138,297 $147,482 
Cybersecurity and Martech11,445 12,742 36,566 39,803 
Total from reportable segments56,076 62,798 174,863 187,285 
Corporate(139)79 17 217 
Depreciation and amortization of discontinued operations— 3,340 — 8,941 
Total depreciation and amortization$55,937 $66,217 $174,880 $196,443 
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ZIFF DAVIS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

The Company maintains operations in the U.S., Canada, Ireland, Japanthe 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).

Three Months Ended
September 30,		Nine Months Ended
September 30,		Three Months Ended September 30,Nine Months Ended September 30,
20212020202120202022202120222021
Revenues:Revenues:Revenues:
United StatesUnited States$366,778 $296,054 $1,018,277 $827,520 United States$291,164 $297,123 $841,396 $837,656 
CanadaCanada19,574 17,728 59,957 51,298 Canada8,629 8,284 24,780 24,596 
IrelandIreland13,980 14,947 59,227 40,520 Ireland8,075 8,603 24,619 27,657 
All other countriesAll other countries43,920 28,247 134,019 101,015 All other countries34,005 41,134 103,502 118,185 
$444,252 $356,976 $1,271,480 $1,020,353 
TotalTotal$341,873 $355,144 $994,297 $1,008,094 
September 30,
2021		December 31, 2020
Long-lived assets:
United States$834,129 $918,125 
All other countries
46,815 54,073 
Total$880,944 $972,198 

September 30, 2022December 31, 2021
Long-lived assets:
United States$644,327 $726,128 
All other countries
69,563 63,423 
Total$713,890 $789,551 

15. Supplemental Cash Flow Information

Non-cash investing and financing activities were as follows (in thousands):
Nine Months Ended September 30,
2022
2021(1)
Non-cash investing activity:
Property and equipment, accrued but unpaid$184 $219 
Right-of-use assets acquired in exchange for operating lease obligations$4,130 $9,274 
Disposition of Investment in Consensus(2)
$112,286 $— 
Non-cash financing activity:
Debt principal settled in exchange for Investment in Consensus(2)
$112,286 $— 
(1)Combines continuing and discontinued operations.
(2)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):
Nine Months Ended September 30,
20222021
Interest paid$20,718 $29,467 
Income taxes paid, net of refunds$31,632 $49,859 



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17.
ZIFF DAVIS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
16.    Accumulated Other Comprehensive IncomeLoss

The following table summarizes the changes in accumulated balances of other comprehensive income (loss),loss, net of tax, for the three months ended September 30, 20212022 (in thousands):
Unrealized Gains (Losses) on InvestmentsForeign Currency TranslationTotal
Beginning balance$283 $(60,257)$(59,974)
     Other comprehensive income(114)(11,101)(11,215)
Net current period other comprehensive income(114)(11,101)(11,215)
Ending balance$169 $(71,358)$(71,189)
Unrealized Gains (Losses) on InvestmentsForeign Currency TranslationTotal
Balance as of July 1, 2022$169 $(83,865)$(83,696)
Other comprehensive loss(169)(24,753)(24,922)
Balance as of September 30, 2022$— $(108,618)$(108,618)

The following table summarizes the changes in accumulated balances of other comprehensive income (loss),loss, net of tax, for the nine months ended September 30, 20212022 (in thousands):
Unrealized Gains (Losses) on InvestmentsForeign Currency TranslationTotal
Beginning balance$283 $(55,089)$(54,806)
     Other comprehensive loss(114)(16,269)(16,383)
Net current period other comprehensive loss(114)(16,269)(16,383)
Ending balance$169 $(71,358)$(71,189)
Unrealized Gains (Losses) on InvestmentsForeign Currency TranslationTotal
Balance as of January 1, 2022$169 $(57,391)$(57,222)
Other comprehensive loss(169)(51,227)(51,396)
Balance as of September 30, 2022$— $(108,618)$(108,618)

There were no reclassifications out of accumulated other comprehensive loss for the three and nine months ended September 30, 2021.
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18.Subsequent Events

Consensus, Inc. Spin-Off

On October 7, 2021,2022. During the Separation of Consensus into an independent publicly traded company was completedthree and nine months ended September 30, 2022, accumulated other comprehensive loss and other comprehensive loss were adjusted by approximately zero and $4.1 million, respectively, related to the Company transferred J2 Cloud Service, LLC to Consensus, Inc. who in turn transferred non-fax assets and liabilities back to Ziff Davis such that Consensus was left with the cloud fax business. The Separation was achieved through the Company’s distribution of 80.1% of the shares of Consensus common stock to holders of J2 Global common stock as of the close of business on October 1, 2021, the record datesubsequent accounting for the distribution. The Company’s stockholders of record received one share of Consensus common stock for every three shares of J2 Global’s common stock. On October 8, 2021, Consensus began trading on Nasdaq under the stock symbol “CCSI”. Ziff Davis, Inc. (“Ziff Davis”) (formerly J2 Global, Inc.) retained a 19.9% interest in Consensus following the Separation.

On October 7, 2021, in exchange for the equity interest in Consensus, Consensus paid Ziff Davis approximately $269.6 million of cash and issued $500.0 million of senior notes due 2028 to Ziff Davis and Ziff Davis exchanged such notes with the lenders under the Credit Agreement and Credit Agreement Amendments by and among the subsidiaries of Ziff Davis party thereto as guarantors, Citicorp North America Inc. and MUFG Union Bank, N.A. and MUFG Union Bank, N.A., as administrative agent for the lenders, in exchange for extinguishment of the $485.0 million of indebtedness outstanding under the Bridge Loan Facility (Refer to Note 9 - Debt). Such lenders or their affiliates agreed to resell the 2028 notes to qualified institutional buyers in the United States pursuant to Rule 144A.
17.    Related Party Transactions

On October 8, 2021, Ziff Davis announced that it had accepted tender offers to purchase $83.3 million in aggregate principal of its 4.625% Senior Notes for an aggregate purchase price of $90.0 million. The tender offer expired on October 22, 2021.Consensus

Corporate Name Change

On October 7, 2021,In preparation for and in connection withexecuting the spin-off of its cloud fax business discussed above,Separation, the Company changed its name from J2 Global, Inc.incurred transaction-related costs, some of which were or the Company expects to Ziff Davis, Inc. Starting October 8, 2021, the Company’s common stock began trading under the stock symbol “ZD.”

Leadership Changes

be, reimbursed by Consensus. These transaction costs primarily related to professional fees associated with preparation of regulatory filings and transaction execution and separation activities within finance, tax and legal functions. In connection with the Separation, each of Doug Bech, Stephen RossZiff Davis and Pamela Sutton-Wallace resigned as membersConsensus entered into several agreements that govern the relationship of the Company’s boardparties 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 are generally intended to allow the providing company to recover all costs and expenses of directors, effectiveproviding such services, and nearly all such services were terminated without extension twelve months after the Separation. Amounts due from Consensus as of immediately priorSeptember 30, 2022 and December 31, 2021 were approximately $1.2 million and $9.3 million, respectively, related to reimbursement of certain other costs pursuant to the Separation,transition services agreement, certain transaction related costs and other costs, and are included in ‘Accounts receivable’ within the Condensed Consolidated Balance Sheets. During the three and nine months ended September 30, 2022, the Company recorded an offset to serve as directorsexpense of approximately zero and $1.2 million, respectively, from Consensus related to certain items above within ‘General and administrative expenses’ within the Condensed Consolidated Statements of Operations. During the three and nine months ended September 30, 2022, Consensus paid the Company approximately $7.2 million and $18.7 million, respectively, related to reimbursement of items described above.

Further, the Company assigned its lease of office space in Los Angeles, California to Consensus. Additionally, Scott Turicchi resigned as PresidentAs of September 30, 2022, Ziff Davis remained the lessee under this lease and Chief Financial Officer, effectiveits obligations remained in place through October 7, 2022, after which time Consensus would take over the lease in full. During the three and nine months ended September 30, 2022, the Company recorded an offset to lease expense of approximately $0.5 million and $1.5 million, respectively, related to this lease, however, Consensus paid the landlord directly (other than an immaterial amount of sublease payments from Ziff Davis to Consensus).
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ZIFF DAVIS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

OCV

On September 25, 2017, the Company entered into a commitment to invest in the Fund. The manager, OCV Management, LLC, and general partner of the Fund are entities with respect to which Richard S. Ressler, former Chairman of the Board, is indirectly the majority equity holder. Mr. Ressler’s tenure with the Board ended as of immediately priorMay 10, 2022. During the three and nine months ended September 30, 2022 and 2021, the Company recognized expense for management fees of zero and $0.8 million, net of tax benefit, respectively, and $1.5 million and $2.3 million, net of tax benefit, respectively. During the nine months ended September 30, 2021, the Company received capital call notices from the management of OCV Management, LLC for $21.2 million, inclusive of certain management fees. Approximately $21.2 million was paid for capital call notices during the nine months ended September 30, 2021. In addition, subject to the effectivenessterms and conditions of the Separation. Mr. Turicchi serves as Chief Executive OfficerFund’s limited partnership agreement, once the Company has received distributions equal to its invested capital, the Fund’s general partner will be entitled to a carried interest equal to 20%. The Fund has a six year investment period, subject to certain exceptions. The commitment was approved by the Audit Committee of Consensus. On October 7, 2021, Steve Dunn was appointed the interim principal financial officerBoard in accordance with the Company’s related-party transaction approval policy. In connection with the settlement of Ziff Davis while Ziff Davis is engagingcertain litigation generally related to the Company’s investment in a search process for a new chief financial officer.
the Fund (see Note 9 -
Commitments and Contingencies), among other terms, no further capital calls were made during the nine months ended September 30, 2022 or will be made in the future in connection with the Company’s investment in the Fund, nor will any future management fees be paid by the Company to the manager.

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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Information

In addition to historical information, we have also made forward-looking statements in this report. These statements are based on our estimates and assumptions and are subject to risks and uncertainties. Forward-looking statements include the information concerning our possible or assumed future results of operations. Forward-looking statements also include those preceded or followed by the words “anticipates,” “believes,” “estimates,” “hopes” or similar expressions. For those statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including but not limited to those discussed below, the risk factors discussed in Part II, Item 1A - “Risk Factors” of this Quarterly Report on Form 10-Q (if any) and in Part I, Item 1A - “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 20202021 (together, the “Risk Factors”), and the factors discussed in the section in this Quarterly Report on Form 10-Q entitled “Quantitative and Qualitative Disclosures About Market Risk.” Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s opinions only as of the date hereof. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements. Readers should carefully review the Risk Factors and the risk factors set forth in other documents we file from time to time with the SEC.
 
Some factors that could cause actual results to differ materially from those anticipated in these forward-looking statements include, but are not limited to, our ability and intention to:

◦Sustain growth or profitability, particularly in light of an uncertain U.S. or worldwide economy, including inflation, supply chain and theother factors and their related impactimpacts on customer acquisition and retention rates, customer usage levels, and credit and debit card payment declines;
◦Maintain and increase our customer base and average revenue per user;
◦Generate sufficient cash flow to make interest and debt payments, reinvest in our business, and pursue desired activities and businesses plans while satisfying restrictive covenants relating to debt obligations;
◦Acquire businesses on acceptable terms and successfully integrate and realize anticipated synergies from such acquisitions;
◦Continue to expand our businesses and operations internationally in the wake of numerous risks, including adverse currency fluctuations, difficulty in staffing and managing international operations, higher operating costs as a percentage of revenues, or the implementation of adverse regulations;
◦Maintain our financial position, operating results and cash flows in the event that we incur new or unanticipated costs or tax liabilities, including those relating to federal and state income tax and indirect taxes, such as sales, value-added and telecommunication taxes;
◦Accurately estimate the assumptions underlying our effective worldwide tax rate;
◦Maintain favorable relationships with critical third-party vendors whose financial condition will not negatively impact the services they provide;
◦Create compelling digital media content causing increased traffic and advertising levels; additional advertisers or an increase in advertising spend; and effectively target digital media advertisements to desired audiences;
◦Manage certain risks inherent to our business, such as costs associated with fraudulent activity, system failure or security breach; effectively maintaining and managing our billing systems; time and resources required to manage our legal proceedings; liability for legal and other claims; or adhering to our internal controls and procedures;
◦Compete with other similar providers with regard to price, service, and functionality;
◦Cost-effectively procure, retain and deploy large quantities of telephone numbers in desired locations in the United States and abroad;
◦Achieve business and financial objectives in light of burdensome domestic and international telecommunications, internet or other regulations, including regulations related to data privacy, access, security, retention, and sharing;
◦Successfully manage our growth, including but not limited to our operational and personnel-related resources, and integration of newly acquired businesses;
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◦Successfully adapt to technological changes and diversify services and related revenues at acceptable levels of financial return;
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◦Successfully develop and protect our intellectual property, both domestically and internationally, including our brands, patents, trademarks and domain names, and avoid infringing upon the proprietary rights of others;
◦Recruit and retain key personnel; and
◦Realize the expected benefits of the cloud fax spin-off transaction or the sale of the B2B Backup business.
In addition, other factors that could cause actual results to differ materially from those anticipated in these forward-looking statements or materially impact our financial results include the risks associated with new accounting pronouncements, as well as those associated with natural disasters, public health crises, pandemics including the COVID-19 outbreak and other catastrophic events outside of our control, including as to COVID-19 the scope and duration of the pandemic, actions taken by governmental authorities in response to the pandemic, and the direct and indirect impact of the pandemic on our customers, third parties and us.

Overview

AsZiff Davis, Inc. (formerly J2 Global, Inc.) was incorporated in 2014 as a Delaware corporation through the creation of September 30, 2021, a holding company structure. Our Cybersecurity and Martech businesses are operated by our wholly owned subsidiary, J2 Global Ventures, LLC. Prior to the spin-off of Consensus Cloud Solutions, Inc. (“Consensus”), our Cybersecurity and Martech businesses were operated by our former wholly owned subsidiary J2 Cloud Services, LLC (formerly J2 Cloud Services, Inc.), which was founded in 1995, and subsidiaries of J2 Cloud Services, LLC.
Ziff Davis, Inc., together with its subsidiaries (“Ziff Davis”, “the Company”, “our”, “us” or “we”), wasis a leading provider ofvertically focused digital media and internet information and services. Thecompany. Our Digital Media business specializedspecializes in the technology, shopping, gaming, and healthcare markets, offering content, tools and services to consumers and businesses. The Cloud ServicesOur Cybersecurity and Martech business providedprovides cloud-based subscription services to consumers and businesses including cloud fax, cybersecurity, privacy and marketing technology.

In February 2021, we sold certain Voice assets in the United Kingdom and in September 2021, we sold our B2B Backup business. OnIn October 7, 2021 subsequent towe completed the endseparation of the third quarter of 2021, the spin-off of theour cloud fax business (the “Separation”) into an independent publicpublicly traded company, (Consensus)Consensus.

The accounting requirements for reporting the Separation of Consensus as a discontinued operation were met when the Separation was completed. We believecompleted on October 7, 2021. Accordingly, the spin-off will enableaccompanying Condensed Consolidated Financial Statements for all periods presented reflect the independent companiesresults of the Consensus business as a discontinued operation. Ziff Davis retained a 19.9% interest in Consensus following the Separation (the “Investment in Consensus”). Ziff Davis did not retain a controlling interest in Consensus. On June 10, 2022, the Company entered into a Fifth Amendment to createits Credit Agreement and on September 15, 2022, the Company entered into a Sixth Amendment to its Credit Agreement, each with MUFG Union Bank, N.A., as administrative agent and collateral agent and the lenders party thereto to effectuate two debt-for equity exchanges of the portion of the Investment in Consensus. The Fifth Amendment to the Credit Agreement provided for the issuance of a senior secured term loan under the Credit Agreement, in an aggregate principal amount of $90.0 million (the “Term Loan Facility”) and the Sixth Amendment to the Credit Agreement provided for the issuance of a senior secured term loan under the Credit Agreement, in an aggregate principal amount of $22.3 million (the “Term Loan Two Facility”). Both amendments provided for certain other changes to the Credit Agreement. Refer to Note 8 - Debt in Item 1 of Part I of this Quarterly Report on Form 10-Q, which is incorporated by reference into this Part I Item 2 for additional information. During June 2022, the Company borrowed approximately $90.0 million under the Term Loan Facility and completed a non-cash exchange of 2.3 million shares of the Investment in Consensus to settle its obligation of $90.0 million outstanding aggregate principal amount of the Term Loan Facility plus related interest. During September 2022, the Company borrowed approximately $22.3 million under the Term Loan Two Facility and completed a non-cash exchange of 0.5 million shares of the Investment in Consensus to settle its obligation of $22.3 million outstanding aggregate principal amount of the Term Loan Two Facility plus related interest. As of September 30, 2022, the Company holds approximately 1.2 million shares of the common stock of Consensus. The Investment in Consensus represents an investment into equity securities for which the Company elected the fair value with distinct management teams, capital structuresoption and strategic focus.subsequent fair value changes in the Consensus shares are included in the assets of and results from continuing operations.

Our Digital Media business generates revenues from advertising and sponsorships, subscription and usage fees, performance marketing and licensing fees. Our Cloud ServicesCybersecurity and Martech business generates revenues primarily from customerrecurring fixed and variable usage-based subscription and usagelicensing fees.

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

Our consolidated revenues are currently generated from threetwo basic business models, each with different financial profiles and variability. Our Digital Media business is driven primarily by advertising revenues, has relatively higher sales and marketing expense and has seasonal strength in the fourth quarter. Our Cloud ServicesCybersecurity and Martech business is driven primarily by subscription revenues that arewith relatively higher margin, stable and predictable margins from quarter to quarter with some minor seasonal weakness in the fourth quarter. We continue to pursue additional acquisitions, which may include companies operating under business models that differ from those we operate under today. Such acquisitions could impact our consolidated profit margins and the variability of our revenues.

Ziff Davis, Inc. (formerly J2 Global, Inc.) was incorporated in 2014 as a Delaware corporation through the creation of a holding company structure, and our Cloud Services business, operated by our wholly owned subsidiary, J2 Cloud Services, LLC (formerly J2 Cloud Services, Inc.), and its subsidiaries, was founded in 1995.Performance Metrics

Digital Media Performance MetricsRevenues from external customers classified by revenue source are as follows (in thousands):

Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Digital Media
Advertising(1)
$186,921 $198,794 $546,186 $574,465 
Subscription(1)
64,780 52,010 179,257 145,935 
Other(1)
12,195 11,625 31,980 22,880 
Total Digital Media revenues$263,896 $262,429 $757,423 $743,280 
Cybersecurity and Martech
Subscription$78,192 $93,071 $237,596 $265,580 
Total Cybersecurity and Martech revenues$78,192 $93,071 $237,596 $265,580 
Elimination of inter-segment revenues(215)(356)(722)(766)
Total Revenues$341,873 $355,144 $994,297 $1,008,094 

We use certain metrics to generally assess the operational and financial performance of our Digital Media business. The numberbusinesses. We have changed these metrics effective January 1, 2022, and the following descriptions align with the metrics management now uses to monitor the performance of visits is an important metric because itits various advertising and subscription-based businesses. For our advertising businesses, net advertising revenue retention is an indicator of consumers’ levelour ability to retain the spend of engagement with our mobile applications, websitesexisting advertisers year over year, which we view as a reflection of the effectiveness of our advertising platform. Similarly, we monitor the number of our advertisers and other services. We believe highly engaged consumers are more likelythe revenue per advertiser (as defined) as these metrics provide further details related to participate in advertising programsour reported revenue and other activitiescontribute to certain of our business planning decisions.

For our subscription and licensing businesses, the number of subscribers that derivewe serve is an indicator of our multiplecustomer retention and growth. The average monthly revenue streams.per subscriber and the churn rate also contribute to insights that contribute to certain of our business planning decisions.

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We define a visit as a group of interactions by users with our mobile and desktop applications and websites. A single visit can contain multiple page views and actions, and a single user can open multiple visits across domains, web browsers, desktop or mobile devices. We measure visits with Google Analytics and through partner platform measures. Page views are measured each time a page on our websites is loaded in a browser.

The following table sets forth certain key operating metrics for our Digital Media business for the three and nine months ended September 30, 2021 and 2020 (in millions):
Three Months Ended
September 30,		Nine Months Ended
September 30,
2021
2020 (1)
2021 (1)
2020 (1)
Visits2,047 2,197 6,454 6,701 
Page views7,006 7,167 22,038 21,887 
Sources: Google Analytics and Partner Platforms and test results in connection with Ookla

(1) To more accurately reflect customer activity at Ookla, we have shifted to using tests as the basis instead of Google Analytics, resulting in pro-forma adjustments to data in 2020 and Q1 2021.

Cloud Services Performance Metrics

We use certain metrics to generally assess the operational and financial performance of our Cloud Services business; these metrics also serve as a baseline for (a) internal trends and (b) benchmarking against competitors. The average monthly revenue per customer can be used as an analytical tool in determining the marginal economics of customer acquisition, which is particularly useful as we continue to focus on growing our higher-margin businesses. We also use this metric, in conjunction with the cancel rate, to help provide a directional indicator of Cloud Services revenue and calculate the lifetime value of customers within each of our business units.

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The following table sets forth certain key operating metrics for our Cloud ServicesDigital Media advertising business for the three months ended September 30, 2022 and 2021:
Three Months Ended September 30,
20222021
Net advertising revenue retention (1)
94.1 %114.1 %
Advertisers (2)
$1,953 1,908 
Quarterly revenue per advertiser (3)
$95,710 $104,189 
(1) Net advertising revenue retention equals (i) the trailing twelve month revenue recognized related to prior year advertisers in the current year period (excluding revenue from acquisitions during the stub period) divided by (ii) the trailing twelve month revenue recognized related to prior year advertisers in the prior year period (excluding revenue from acquisitions during the stub period). This excludes advertisers that generated less than $10,000 of revenue in the measurement period.
(2) Excludes advertisers that spent less than $2,500 in the quarter within certain divisions.
(3) Represents total gross quarterly advertising revenues divided by advertisers as defined in footnote (2).

The following table sets forth certain key operating metrics for our Digital Media and Cybersecurity and Martech subscription and licensing businesses for the three months ended September 30, 2022 and 2021:
Three Months Ended September 30,
2022
2021 (excluding disposed assets)(1)
2021 (including disposed assets) (1)
Subscribers (in thousands) (2)
3,0502,2902,318
Average quarterly revenue per subscriber (3)
$46.87$59.08$62.51
Churn rate (4)
3.55%2.99%2.86%
(1) The metrics in the table above are shown exclusive and inclusive of andthe B2B Backup business that was sold during the third quarter of 2021. The metric of average monthly revenue per subscriber excluding disposed assets for the three and nine months ended September 30, 2021 and 2020 (in thousands, exceptis considered a non-GAAP measure. The Company believes this provides useful information to allow for percentages):
Three Months Ended
September 30,		Nine Months Ended
September 30,
2021202020212020
Subscriber revenues:
Fixed (1)
$152,359 $144,525 $444,397 $426,766 
Variable (1)
29,639 25,708 84,079 80,255 
Total subscriber revenues$181,998 $170,233 $528,476 $507,021 
Other license revenues92 15 275 69 
Total revenues$182,090 $170,248 $528,751 $507,090 
Percentage of total subscriber revenues:
Fixed83.7 %84.9 %84.1 %84.2 %
Variable16.3 %15.1 %15.9 %15.8 %
Total revenues:
Number-based$98,652 $98,000 $293,167 $289,502 
Non-number-based83,438 72,248 235,584 217,588 
Total revenues$182,090 $170,248 $528,751 $507,090 
Average monthly revenue per Cloud Business Customer (ARPU) (2)(3)
$15.53 $13.98 
Cancel Rate (4)
2.1 %2.1 %

(1)comparability of these metrics without disposed assets in both periods. The first quarter 2020 disclosurepresentation of $144.8 million in fixed subscriber revenue included $3.3 million of revenue which was subsequently determinedthis financial information is not intended to be variableconsidered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with U.S. GAAP.
(2) Represents the quarterly average of the end of month subscriber revenue. Ascounts for both the Digital Media and Cybersecurity and Martech businesses. Cybersecurity and Martech subscribers are defined as a result,direct customer, including customers who have paused but not cancelled their subscription. If the fixedcompany provides services through a reseller or a partner and variable subscriber revenuethe Company does not have been correctedvisibility into the number of underlying subscribers, the reseller or partner is counted as one subscriber.
(3) Represents quarterly subscription revenues divided by customers in the table above.

(2)Quarterly ARPU(4) Churn rate is calculated using our standard convention of applyingas (i) the average revenue per subscription in the prior month multiplied by the number of cancellations in the current month, calculated at each business and aggregated; divided by (ii) subscription revenue in the current month, calculated at each business and aggregated. For Ookla, this is calculated by taking the sum of the quarter’s beginning and ending base tomonthly revenue from the total revenue for the quarter. We believe ARPU provides investors an understanding of the average monthly revenues we recognize associated with each Cloud Services customer. As ARPU varies based on fixed subscription fee and variable usage components, we believe it can serve as a measure by which investors can evaluate trends in the types of services, levels of services and the usage levels of those services across our Cloud Services customer base.

(3)Cloud Services customers are defined as paying direct inward dialing numbers for fax and voice services, and direct and resellers’ accounts for other services.

(4)Cancel Rate is defined as cancels of small and medium business and individual Cloud Services customers with greater than four months of continuous service (continuous service includes Cloud Services customers administratively canceled and reactivated within the same calendar month), and enterprise Cloud Services customers beginning with their first day of service. Calculated monthly and expressed as an average over the three months of the quarter.specific cancelled agreements.

Critical Accounting Policies and Estimates

In the ordinary course of business, we have made a number of estimates and assumptions relating to the reporting of results of operations and financial condition in the preparation of our financial statements. Actual results could differ significantly from those estimates under different assumptions and conditions. Our critical accounting policies are described in our 20202021 Annual Report on Form 10-K filed with the SEC on March 1, 2021.15, 2022. During the three and nine months ended September 30, 2021,2022, there were no significant changes in our critical accounting policies and estimates. See Note 1 to the Condensed Consolidated Financial Statements for additional description of significant accounting policies of the Company.


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Results of Operations for the Three and Nine Months Ended September 30, 20212022

Digital Media

We expect the revenue for the remainder of fiscal year 20212022 to be higher compared to the prior-year comparable period due to the acquisition of RetailMeNotprior year driven by acquisitions and organic growth subject to the continued riskin certain of the COVID-19 pandemic.our businesses. We expect the Digital Media business to improve as we integrate our recent acquisitions and over the longer term as advertising transactions continue to shift from offline to online, but these initiatives will be offset by the impact of COVID-19 in the near term.and we continue to expand our advertising platforms. The main focus of our advertisingplatform monetization programs is to provide relevant and useful advertising to visitors to our websites, provide meaningful content that informs and those included withinshapes purchase intent, and leverage our advertising networks, reflecting our commitment to constantly improve their overall web experience.brand and editorial assets into subscription platforms. As a result, we expect to continue to take steps to improve the relevance of the ads displayed on our websites and those included within our advertising networks.networks, and improve the effectiveness of our content in driving purchase decisions and subscriptions.

The operating margin we realize on revenues generated from ads placed on our websites is significantly higher than the operating margin we realize from revenues generated from those placed on third-party websites. Growth in advertising revenues from our websites has generally exceeded that from third-party websites. This trend has had a positive impact on our operating margins, and we expect that this will continue for the foreseeable future. However, the trend in advertising spend is shifting to mobile devices and other newer advertising formats which generally experience lower margins than those from desktop computers and tablets. We expect this trend to continue to put pressure on our margins.

We expect acquisitions to remain an important component of our strategy and use of capital in this business; however, we cannot predict whether our current pace of acquisitions will remain the same within this business, especially in light of the current macroeconomic conditions. In a given period, we may close greater or fewer acquisitions than in prior periods or acquisitions of greater or lesser significance than in prior periods. Moreover, future acquisitions of businesses within this space, but with different business models, may impact Digital Media’s overall operating profit margins.

Cloud ServicesCybersecurity and Martech

Excluding the impact of the spin-off of our cloud fax business, the sale of our backup business and assuming a stable or improving economic environment, and, subject to our risk factors, weWe expect 20212022 revenue to be higherlower compared to the prior year.year driven by the divestitures of our B2B Backup business and Voice assets, partially offset by revenue from acquisitions and organic growth in certain of our businesses. The main strategic focus of our Cloud ServicesCybersecurity and Martech service offerings is to reduce or eliminate costs, increase sales and enhance productivity, mobility, business continuity and security of our customers as the technologies and devices they use evolve over time. As a result, we expect to continue to take steps to enhance our existing offerings and offer new services to continue to satisfy the evolving needs of our customers.

On October 7, 2021, the Company completed the spin-off of its cloud fax business into an independent publicly traded company. This cloud fax business represented approximately 50% of our total Cloud revenues and approximately 31% of our total Cloud operating costs for the nine months ended September 30, 2021. As a result, we anticipate a reduction in our operating margins as the cloud fax business will not recur going forward.

We expect acquisitions to remain an important component of our strategy and use of capital in this business; however, we cannot predict whether our current pace of acquisitions will remain the same within this business, especially in light of the current macroeconomic conditions. In a given period, we may close greater or fewer acquisitions than in prior periods or acquisitions of greater or lesser significance than in prior periods. Moreover, future acquisitions of businesses within this space but with different business models, may impact Cloud Services’Cybersecurity and Martech’ overall operating profit margins.

Consolidated

Excluding the impact of the spin-off of our fax business and basedBased on the trends discussed above with respect to our Cloud ServicesDigital Media and Digital MediaCybersecurity and Martech businesses, we anticipate our consolidated revenue for fiscal year 20212022 to be higher compared toslightly below the prior-year comparable period.

prior year. We expect operating profit as a percentage of revenues to be generally decrease in the future primarily due to the fact that revenueconsistent with respect to our Digital Media business (i) is increasing as a percentage of our revenue on a consolidated basis and has historically operated at a lower2021’s operating margin; and (ii) the completion of the spin-off of our cloud fax business which historically operated at a higher operating margin than our remaining businesses.profit margins.

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Revenues

(in thousands, except percentages)
Three Months Ended
September 30,		Percentage ChangeNine Months Ended
September 30,		Percentage Change
2021202020212020
Revenues$444,252$356,97624%$1,271,480$1,020,35325%
 (in thousands, except percentages)Three Months Ended September 30,Percentage ChangeNine Months Ended September 30,Percentage Change
2022202120222021
Revenues$341,873 $355,144 (4)%$994,297 $1,008,094 (1)%

Our revenues consist of revenues from our Digital Media and Cloud ServicesCybersecurity and Martech businesses. Digital Media revenues primarily consist of advertising revenues and subscriptions earned through the granting of access to, or delivery of, certain data products or services to customers, fees paid for generating business leads, and licensing and sale of editorial content
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and trademarks. Cloud ServicesCybersecurity and Martech revenues primarily consist of revenues from “fixed” customer subscription revenues and “variable” revenues generated from actual usage of our services.

Our revenues in 2021 have increased overdecreased during the comparable three and nine month periods of 2020months ended September 30, 2022 primarily due to a combination of acquisitions and organic growth; partially offset by declines in certain areasparts of both the Digital Media and Cloud ServicesCybersecurity and Martech businesses and the absence of revenues associated with recently divested businesses, partially offset by contributions from recently acquired businesses and organic growth in certain parts of both the Digital Media and Cybersecurity and Martech businesses. Revenue in the third quarter of 2021 and the first nine months of 2021 included approximately $9.6 million and $33.5 million, respectively, of revenue from the divested B2B Backup business and Voice assets. Revenue in the third quarter of 2022 and the first nine months of 2022 included approximately $19.1 million and $70.1 million, respectively, of revenue related to businesses acquired during the twelve months prior to the beginning of the respective period.

Cost of Revenues

(in thousands, except percentages)
Three Months Ended
September 30,		Percentage ChangeNine Months Ended
September 30,		Percentage Change
(in thousands, except percentages)(in thousands, except percentages)Three Months Ended September 30,Percentage ChangeNine Months Ended September 30,Percentage Change
20212020202120202022202120222021
Cost of revenueCost of revenue$64,302$55,82215%$185,462$171,7558%Cost of revenue$52,603 $49,698 6%$144,707 $142,335 2%
As a percent of revenueAs a percent of revenue14%16%15%17%As a percent of revenue15 %14 %15 %14 %

Cost of revenues is primarily comprised of costs associated with content fees, editorial and production costs and hosting costs. The increase in cost of revenues for the three months ended September 30, 20212022 was primarily due to higher cost of revenues associated with newly acquired businesses, outside conference expense, field operations and media inventory and operations costs, including content fees, campaign fulfillment and other editorial and production costs, and increased hosting and other computerpartially offset by approximately $3.4 million less in cost of revenues related costs.to the sale of the B2B Backup business. The increase in cost of revenues for the nine months ended September 30, 20212022 was primarily due to higher content fees, editorial and productioncost of revenues associated with newly acquired businesses, field operations costs, hosting and computer relatedoutside conference expense, customer service costs and increased depreciation.

database hosting services, partially offset by approximately $12.8 million less in cost of revenues related to the sale of the B2B Backup business.

Operating Expenses

Sales and Marketing.

(in thousands, except percentages)
Three Months Ended
September 30,		Percentage ChangeNine Months Ended
September 30,		Percentage Change
(in thousands, except percentages)(in thousands, except percentages)Three Months Ended September 30,Percentage ChangeNine Months Ended September 30,Percentage Change
20212020202120202022202120222021
Sales and MarketingSales and Marketing$139,693$95,07447%$394,981$287,31737%Sales and Marketing$119,474 $126,577 (6)%$361,013 $354,949 2%
As a percent of revenueAs a percent of revenue31%27%31%28%As a percent of revenue35 %36 %36 %35 %
 
Our sales and marketing costs consist primarily of internet-based advertising, sales and marketing, personnel costs and other business development-related expenses. Our internet-based advertising relationships consist primarily of fixed cost and performance-based (cost-per-impression, cost-per-click and cost-per-acquisition) advertising relationships with an array of online service providers. Advertising cost forThe decrease in sales and marketing expenses during the three months ended September 30, 20212022 from the comparable period was $72.8 million (primarily consists of $44.3 million ofprimarily from lower selling and marketing expense within the Digital Media reportable segment due to lower third-party advertising expense, lower marketing expense within the Cybersecurity and Martech reportable segment and approximately $1.4 million lower sales and marketing expense from the absence of those costs and $22.1 million of personnel costs) comparedrelated to the third quarter of 2020 of $35.4 million (primarily consists of $19.8 million of third-party advertising costsB2B Backup business. The increase in sales and $12.8 million of personnel costs. Advertising cost formarketing expenses during the nine months ended September 30, 20212022 from the comparable period was $205.2 million (primarily consists of $119.7 million of third-party advertising costs and $67.5 million of personnel costs) compared to 2020 of $108.0 million (primarily consists of $57.8 million of third-party advertising costs and $39.4 million of personnel costs). The increase inprimarily from higher sales and marketing expense from acquired businesses over the period and higher sales and marketing expenses in other parts of the Digital Media reportable segment, partially offset by $4.9 million lower sales and marketing expense from the absence of those costs related to the B2B Backup business.

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expenses for the three and nine months ended September 30, 2021 versus the prior comparable period was primarily due to increased creative services, sales, advertising operations, advertising and product development costs associated with the acquisition of businesses acquired in and subsequent to the third quarter 2020 within the Digital Media and Cloud Services businesses.

Research, Development and Engineering.

(in thousands, except percentages)
Three Months Ended
September 30,		Percentage ChangeNine Months Ended
September 30,		Percentage Change
(in thousands, except percentages)(in thousands, except percentages)Three Months Ended September 30,Percentage ChangeNine Months Ended September 30,Percentage Change
20212020202120202022202120222021
Research, Development and EngineeringResearch, Development and Engineering$21,639$14,26152%$62,634$43,27345%Research, Development and Engineering$17,735 $19,619 (10)%$55,883 $56,999 (2)%
As a percent of revenueAs a percent of revenue5%4%5%4%As a percent of revenue5 %6 %6 %6 %

Our research, development and engineering costs consist primarily of personnel-related expenses. The increasedecrease in research, development and engineering costs for the three months ended September 30, 2022 compared to the prior year period was primarily due to a decrease in engineering costs driven in part by lower bonus expense, partially offset by an increase in business intelligence costs. The decrease in research, development and engineering costs for the nine months ended September 30, 2021 versus2022 compared to the prior comparableyear period was primarily due to a decrease in engineering costs driven in part by lower bonus expense and the absence of engineering costs related to the B2B Backup business, partially offset by an increase in costs associated with businesses acquired inbusiness intelligence and subsequent to the third quarter 2020.systems costs.

General and Administrative.

(in thousands, except percentages)
Three Months Ended
September 30,		Percentage ChangeNine Months Ended
September 30,		Percentage Change
(in thousands, except percentages)(in thousands, except percentages)Three Months Ended September 30,Percentage ChangeNine Months Ended September 30,Percentage Change
20212020202120202022202120222021
General and AdministrativeGeneral and Administrative$122,477$114,3817%$359,498$312,28315%General and Administrative$95,658 $114,240 (16)%$299,842 $339,236 (12)%
As a percent of revenueAs a percent of revenue28%32%28%31%As a percent of revenue28 %32 %30 %34 %

Our general and administrative costs consist primarily of personnel-related expenses, depreciation and amortization, changes in the fair value associated with contingent consideration, share-based compensation expense, bad debt expense, professional fees, severance and insurance costs. The increasedecrease in general and administrative expense from the third quarter of 2021 to the third quarter of 2022 was primarily due to lower depreciation and amortization expense and a decrease in general management and finance costs, and the absence of general and administrative costs related to the B2B Backup business. The decrease in general and administrative expense from the first nine months of 2021 to the first nine months of 2022 was primarily due to lower depreciation and amortization expense, a decrease in general management, legal and finance costs, and the absence of general and administrative costs related to the B2B Backup business.

Goodwill impairment on business. Goodwill impairment was $27.4 million and zero for the three months ended September 30, 2022 and 2021, respectively, and $27.4 million and $32.6 million for the nine months ended September 30, 2022 and 2021, respectively. The goodwill impairment during the three and nine months ended September 30, 2021 versus2022 was related to a reporting unit within the prior comparable period was primarily due to increased amortization of intangible assets, salaryDigital Media reportable segment and related costs and professional fees.

Goodwill impairment on business. Ourthe goodwill impairment on business isduring the nine months ended September 30, 2021 was generated from the impairment of the B2B Backup business in the second quarter of 2021. Refer to Note 7 - Goodwill impairment on business was $32.6 millionand Intangible Assets for the nine months ended September 30, 2021. See Note 6 - Dispositions from the footnotes to our Condensed Consolidated Financial Statements for additional information.further details.

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Share-Based Compensation

The following table represents share-based compensation expense included in cost of revenues and operating expenses in the accompanying Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 20212022 and 20202021 (in thousands): 
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Three Months Ended
September 30,		Nine Months Ended
September 30,		Three Months Ended September 30,Nine Months Ended September 30,
20212020202120202022202120222021
Cost of revenuesCost of revenues$108 $136 $357 $413 Cost of revenues$63 $70 $289 $220 
Operating expenses:Operating expenses:Operating expenses:
Sales and marketingSales and marketing427 321 1,160 1,135 Sales and marketing772 335 2,447 879 
Research, development and engineeringResearch, development and engineering613 425 1,690 1,340 Research, development and engineering567 514 2,048 1,390 
General and administrativeGeneral and administrative5,607 4,918 15,912 15,755 General and administrative4,984 5,484 16,022 15,513 
TotalTotal$6,755 $5,800 $19,119 $18,643 Total$6,386 $6,403 $20,806 $18,002 

Non-Operating Income and Expenses

Interest expense, net. Our interest expense, net is generated primarily from interest expense due toon outstanding debt, partially offset by interest income earned on cash, cash equivalents and investments. Interest expense, net was $19.9$8.6 million and $22.7$14.5 million for the three months ended September 30, 20212022 and 2020,2021, respectively, and $62.8$28.4 million and $65.9$57.0 million for the nine months ended September 30, 20212022 and 2020,2021, respectively. Interest expense, net wasdecreased during the three months ended September 30, 2022 primarily due to approximately $4.0 million less interest expense from the adoption of ASU 2020-06 during 2022, whereby we no longer amortize a debt discount on the 1.75% Convertible Notes, and approximately $2.9 million less interest expense from the 4.625% Senior Notes related to a lower principal balance over the period as the notes were repurchased. Interest expense, net decreased during the nine months ended September 30, 2022 primarily due to approximately $11.5 million less interest expense due to the redemption of our 3.25% Convertible Notes onin August 2, 2021.2021, approximately $11.7 million less interest expense from the adoption of ASU 2020-06 during 2022 and approximately $6.8 million less interest expense from the 4.625% Senior Notes related to a lower principal balance over the period as the notes were repurchased.

Loss (gain)Gain on sale of businesses.debt extinguishment, net. LossGain on sale of businessesdebt extinguishment, net was $24.6$10.1 million and zero during the three months ended September 30, 2022 and 2021, respectively, and a gain$11.5 million and zero during the nine months ended September 30, 2022 and 2021, respectively. The gains on debt extinguishment during the three and nine months ended September 30, 2022 related primarily to the repurchases of $17.1the 4.625% Senior Notes.

Loss on sale of businesses, net. Loss on sale of businesses, net was zero and $24.6 million for the three months ended September 30, 2020.2022 and 2021, respectively. Loss on sale of businesses, net was $21.8 million during the nine months ended September 30, 2021zero and a gain of $17.1$21.8 million for the nine months ended September 30, 2020. Our2022 and 2021, respectively. The loss on the sale of business during the third quarter of 2021 was related to the sale of our B2B Back-up business. The loss on the sale of businesses during the nine months ended September 30, 2021 was due to the loss on the sale of the B2B Back-up business, partially offset by a gain on the sale of certain Voice assets in the United Kingdom in the first quarter of 2021 with a subsequent adjustment in the second quarter of 2021. See Note 6 - Dispositions from the footnotes to our Condensed Consolidated Financial Statements for additional information.

LossUnrealized gain (loss) on short-term investment. Our unrealized gain on short-term investment was $4.2 million and zero during the three months ended September 30, 2022 and 2021, respectively, and our unrealized loss on short-term investment was $14.2 million and zero during the nine months ended September 30, 2022 and 2021, respectively. The unrealized gain (loss) recorded during the three and nine months ended September 30, 2022 was due to the unrealized gain (loss) on our Investment in Consensus.

Gain (loss) on investments, net. Our lossgain (loss) on investments, net is generated from gains or losses from investments in equity and debt securities. Our lossgain (loss) on investments, net was zero$0.5 million and $0.2 millionzero for the three months ended September 30, 2022 and 2021, respectively, and 2020 and $16.7$(47.8) million and $21.0$(16.7) million for the nine months ended September 30, 20212022 and 2020,2021, respectively. Our lossgain on investments, net increased for the three months ended September 30, 20212022 versus the prior comparable period was consistent. Ourrelated to the realized gain on the sale of 500,000 shares from our investment in Consensus during the third quarter of 2022. The increase in the realized loss on investments, net decreased for the nine months ended September 30, 20212022 versus the prior comparable period related to the net realized loss on the sale of 2.8 million shares from our investment in Consensus during the first nine months of 2022 resulting from the decrease in the quoted share price of Consensus over the time period. The loss on investment during the nine months ended September 30, 2021 was due to lower net losses realizedan impairment on certain investments as a result of an impairment recognized in the current period and changes in the investee’s capital structure and overall market volatility recognized in the prior comparable period.investments.
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Other income (expense)(loss), net. Our other income (expense)(loss), net is generated primarily from miscellaneous items and gain or losses on foreign currency exchange. Other income (expense)(loss), net was $1.7$4.2 million and $14.2$0.1 million for the three months ended September 30, 20212022 and 2020,2021, respectively, and $1.4$13.0 million and $16.4$(0.5) million for the nine months ended September 30, 20212022 and 2020,2021, respectively. Other income (expense)(loss), net changedincreased for the three and nine months ended September 30, 2021 versus2022 compared to the prior comparableyear periods due primarily due to changes in gain or lossesgains on foreign currency exchange.

Income Taxes

Our effective tax rate is based on pre-tax income, statutory tax rates, tax regulations (including those related to transfer pricing) and different tax rates in the various jurisdictions in which we operate. The tax bases of our assets and liabilities reflect our best estimate of the tax benefits and costs we expect to realize. When necessary, we establish valuation allowances to reduce our deferred tax assets to an amount that will more likely than not be realized. 

Provision for income taxes amounted to $8.8income tax (expense) benefit of $(18.1) million and $24.3$2.7 million for the three months ended September 30, 20212022 and 2020,2021, respectively, and $16.7$(33.2) million and $49.0$19.9 million for the nine months ended September 30, 20212022 and 2020,2021, respectively. Our effective tax rate was 16.6%45.9% and 28.3%(44.2)% for the three months ended September 30, 20212022 and 2020,2021, respectively, and 12.3%83.9% and 32.2%142.3% for the nine months ended September 30, 2022 and 2021, respectively. Our effective tax rate for the three and 2020, respectively.nine months ended September 30, 2022 has been disproportionately impacted due to the size of the discrete book loss related to the Disposed Consensus Shares and the Retained Consensus Shares. The net loss recorded for book purposes for the Disposed Consensus Shares, excluding transaction costs, resulted in no tax benefit because the loss was not subject to tax since the Company disposed of the investment in a tax-free manner based on guidance and requirements set out by the Internal Revenue Service, within the one-year anniversary of the Separation. In addition, the Company recognized a tax charge of $11.3 million related to its Retained Consensus Shares due to recording a deferred tax liability as of September 30, 2022 as the Company did not dispose of the Retained Consensus Shares within the one-year anniversary of the Separation. This increase to tax expense was partially offset by a tax benefit of $6.7 million for recording a deferred tax asset on the impairment of goodwill recorded during the three months ended September 30, 2022.

The decreaseincrease in our effective income tax rate for the three months ended September 30, 2022 as compared to the three months ended September 30, 2021 was primarily attributable to the following:
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1.a decrease in tax expense during 2021 due to recognizing a current tax benefit related to the sale of the business-to-business backup business units; and

2.a decrease in tax expense due to increased tax benefits related to tax deductions for the vesting of restricted stock units and exercises of stock options; partially offset by

3.an increase in our effective income tax rate during 20212022 due to recognizing a deferred tax liability related to the Retained Consensus Shares resulting in a tax expense of $11.3 million; and

2.an increase in our effective income tax rate during 2022 for U.S. state and local taxes due to a greater portion of our income being subject to tax in the U.S.; partially offset by

3.a decrease in our effective income tax rate during 2022 due to recognizing a tax benefit for a deferred tax asset related to goodwill impairment.

The decrease in our effective income tax rate for the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021 was primarily attributable to the following:

1.a decreasedisproportionate effective tax rate reported in tax expense during 2021 due to recognizing a tax benefit relatedan overall net loss reported in income from continuing operations before income taxes primarily due to the disposition and impairment of certainthe B2B Backup business units;and other U.S. investments with corresponding tax benefits recognized; and

2.a decrease in tax expense due to discrete tax benefitsbenefit recognized in 2021 related to a reduction in our net reserve for uncertain tax positions recognized in 2021 with no similar events for the nine months ended September 30, 2020;2022; partially offset by

3.an increase in our effective income tax rate during 2021 for U.S. state and local taxes2022 due to recognizing a greater portiondeferred tax liability related to the Retained Consensus Shares resulting in a tax expense of our income being subject to tax in the U.S.$11.3 million.

Significant judgment is required in determining our provision for income taxes and in evaluating our tax positions on a worldwide basis. We believe our tax positions, including intercompany transfer pricing policies, are consistent with the tax laws in the jurisdictions in which we conduct our business. Certain of these tax positions have in the past been, and are currently being, challenged, and this may have a significant impact on our effective tax rate if our tax reserves are insufficient.

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Equity Method Investment

Income (loss)(Loss) income from equity method investment, net. Income (loss)(Loss) income from equity method investment, net is generated from our investment in the OCV Fund I, LP (the “Fund”) for which we receive annual audited financial statements. The investment in the OCV Fund, including management fees, is presented net of tax and on a one-quarter lag due to the timing and availability of financial information from OCV.the Fund. If the Company becomes aware of a significant decline in value that is other-than-temporary, the loss will be recorded in the period in which the Company identifies the decline.

The (loss) income (loss) from equity method investment, net was $(1.9)$(3.2) million and $(0.7)$(1.9) million net of tax benefit (expense) for the three months ended September 30, 20212022 and 2020,2021, respectively, and $16.6$(10.1) million and $(10.8)$16.6 million, for the nine months ended September 30, 20212022 and 2020,2021, respectively. The decrease in income from equity method investment, net during the three and nine months ended September 30, 2021 gain2022 was primarily due to a resultdecrease in the value of a gain on the underlying investments. During the three months ended September 30, 2021 and 2020,2022. the Company recognized no expense for management fees, and during the three months ended September 30, 2021, the Company recognized expense for management fees of $0.8 million, and $0.8 million, net of tax benefit, respectively, and forbenefit. During the nine months ended September 30, 20212022 and 2020,2021, the Company recognized expense for management fees of $2.3$1.5 million and $2.3 million, net of tax benefit, respectively.

Digital Media and Cloud ServicesCybersecurity and Martech Results

Our businesses are based on the organization structure used by management for making operating and investment decisions and for assessing performance and have been aggregated into two businesses:reportable segments: (i) Digital Media;Media and (ii) Cloud Services.Cybersecurity and Martech.

We evaluate the performance of our businessesreportable segments based on revenues, including both external and interbusinessinter-business net sales, and operating income. We account for interbusinessinter-business sales and transfers based primarily on standard costs with reasonable mark-ups established between the businesses. Identifiable assets by business are those assets used in the respective business’ operations. Corporate assets consist of cash and cash equivalents, deferred income taxes and certain other assets. All significant interbusinessinter-business amounts are eliminated to arrive at our consolidated financial results.

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Digital Media

The followingfinancial results are presented for the three and nine months ended September 30, 2021 and 2020as follows (in thousands):
Three Months Ended
September 30,		Nine Months Ended
September 30,		Three Months Ended September 30,Nine Months Ended September 30,
20212020202120202022202120222021
External net sales$262,162 $186,728 $742,729 $513,262 
Inter-business net sales267 56 551 200 
Net sales262,429 186,784 743,280 513,462 
External salesExternal sales$263,684 $262,162 $756,722 $742,729 
Inter-business salesInter-business sales212 267 701 551 
Total salesTotal sales263,896 262,429 757,423 743,280 
Cost of revenuesCost of revenues23,779 17,390 69,871 55,499 Cost of revenues30,797 23,779 80,682 69,871 
Gross profitGross profit238,650 169,394 673,409 457,963 Gross profit232,887 238,650 676,040 673,409 
Operating expensesOperating expenses188,950 143,312 548,960 410,109 Operating expenses205,570 188,950 571,980 548,960 
Operating incomeOperating income$49,700 $26,082 $124,449 $47,854 Operating income$27,317 $49,700 $104,060 $124,449 

Digital Media’s net sales of $262.4$263.9 million for the three months ended September 30, 20212022 increased $75.6$1.5 million, or 40.5%0.6%, fromcompared to the prior comparableyear period primarily due to business acquisitions.acquisitions and organic growth in certain of its businesses. Digital Media’s net sales of $743.3$757.4 million for the nine months ended September 30, 20212022 increased $229.8$14.1 million, or 44.8%1.9%, fromcompared to the prior comparableyear period primarily due to business acquisitions.acquisitions and organic growth in certain of its businesses.

Digital Media’s gross profit of $238.7$232.9 million for the three months ended September 30, 2021 increased $69.32022 decreased $5.8 million, or 40.9%2.4%, fromcompared to the prior comparableyear period primarily due to business acquisitions.costs associated with newly acquired businesses. Digital Media’s gross profit of $673.4$676.0 million for the nine months ended September 30, 20212022 increased $215.4$2.6 million, or 47.0%0.4%, fromcompared to the prior comparableyear period primarily due to business acquisitions. the increase in revenue.

Digital Media’s operating expenses of $189.0$205.6 million for the three months ended September 30, 20212022 increased $45.6$16.6 million, fromor 8.8%, compared to the prior comparableyear period. Digital Media’s operating expenses of $549.0$572.0 million for the nine months
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ended September 30, 20212022 increased $138.9$23.0 million, fromor 4.2%, compared to the prior comparableyear period. The increase in the three and nine months ended September 30, 20212022 is primarily due to additional expense associated with businesses acquired in and subsequent to the prior comparable period including (a) additional salary and related costs including severance; (b) creative and selling costs; and (c) increased amortizationimpairment of intangible assets.goodwill.

As a result of these factors, Digital Media’s operating income of $49.7$27.3 million for the three months ended September 30, 2021 increased $23.62022 decreased $22.4 million, or 90.6%45.0%, fromcompared to the prior comparableyear period. Digital Media’s operating income of $124.4$104.1 million for the nine months ended September 30, 2021 increased $76.62022 decreased $20.4 million, or 160.1%16.4%, fromcompared to the prior comparableyear period.

Cloud ServicesCybersecurity and Martech

The followingfinancial results are presented for the three and nine months ended September 30, 2021 and 2020as follows (in thousands):
Three Months Ended
September 30,		Nine Months Ended
September 30,		Three Months Ended September 30,Nine Months Ended September 30,
20212020202120202022202120222021
External net sales$182,090 $170,248 $528,751 $507,090 
Inter-business net sales89 — 215 — 
Net sales182,179 170,248 528,966 507,090 
External salesExternal sales$78,190 $92,982 $237,576 $265,365 
Inter-business salesInter-business sales2 89 20 215 
Total salesTotal sales78,192 93,071 237,596 265,580 
Cost of revenuesCost of revenues40,791 38,421 116,069 116,208 Cost of revenues21,595 26,187 63,325 72,942 
Gross profitGross profit141,388 131,827 412,897 390,882 Gross profit56,595 66,884 174,251 192,638 
Operating expensesOperating expenses79,581 66,070 257,211 207,412 Operating expenses42,765 56,208 135,516 191,282 
Operating incomeOperating income$61,807 $65,757 $155,686 $183,470 Operating income$13,830 $10,676 $38,735 $1,356 

Cloud Services’Cybersecurity and Martech net sales of $182.2$78.2 million for the three months ended September 30, 2021 increased $11.92022 decreased $14.9 million, or 7.0%16.0%, fromcompared to the prior comparableyear period primarily due to the absence of approximately $9.6 million of revenue from the B2B Backup business acquisitions acquired, partially offset by businessesthat was sold subsequent toduring the third quarter 2020. Cloud Services’of 2021, offset in part by organic growth in certain of its businesses. Cybersecurity and Martech net sales of $529.0$237.6 million for the nine months ended September 30, 2021
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increased $21.92022 decreased $28.0 million, or 4.3%10.5%, fromcompared to the prior comparableyear period primarily due to the absence of approximately $33.5 million of revenue from the B2B Backup business acquisitions acquired,that was sold during the third quarter of 2021, partially offset by businesses sold subsequent to the third quarter 2020.revenue from business acquisitions.

Cloud Services’Cybersecurity and Martech gross profit of $141.4$56.6 million for the three months ended September 30, 2021 increased $9.62022 decreased $10.3 million, or 7.3%15.4%, fromcompared to the prior comparableyear period primarily due to the sale of the B2B Backup business acquisitions;during the third quarter of 2021, partially offset by businesses sold subsequent to the third quarter 2020. Cloud Services’organic growth from certain of its businesses. Cybersecurity and Martech gross profit of $412.9$174.3 million for the nine months ended September 30, 2021 increased $22.02022 decreased $18.4 million, or 5.6%9.5%, fromcompared to the prior comparableyear period primarily due to the sale of the B2B Backup business acquisitions;during the third quarter of 2021, partially offset by businesses sold subsequent to the third quarter 2020.business acquisitions.

Cloud Services’Cybersecurity and Martech operating expenses of $79.6$42.8 million for the three months ended September 30, 2021 increased $13.52022 decreased $13.4 million, fromor 23.9%, compared to the prior comparableyear period primarily due to expense associated with businesses acquired in and subsequent tothe sale of the B2B Backup business during the third quarter 2020of 2021. Cybersecurity and increased marketing and advertising costs; partially offset by businesses sold subsequent to the prior comparable period. Cloud Services’Martech operating expenses of $257.2$135.5 million for the nine months ended September 30, 2021 increased $49.82022 decreased $55.8 million, fromor 29.2%, compared to the prior comparableyear period primarily due to expense associated with businesses acquired in and subsequent tothe sale of the B2B Backup business during the third quarter 2020, increased marketingof 2021 and advertising costs and the recognition of arelated goodwill impairment on business; partially offset by businesses sold subsequent to the prior comparable period.recorded.

As a result of these factors, Cloud Services’Cybersecurity and Martech operating income of $61.8$13.8 million for the three months ended September 30, 2021 decreased $(4.0)2022 increased $3.2 million, or (6.0)%29.5%, from the prior comparable period. Cloud Services’Cybersecurity and Martech operating income of $155.7$38.7 million for the nine months ended September 30, 2021 decreased $(27.8)2022 increased $37.4 million, or (15.1)%2756.6%, from the prior comparable period.

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Liquidity and Capital Resources

Cash and Cash Equivalents and Investments

AtAs of September 30, 2021,2022, we had cash, cash equivalents and investments of $657.2$801.0 million compared to $340.8$1,046.6 million at December 31, 2020. The increase in cash and investments resulted primarily from cash provided from operations and proceeds from the Bridge Loan Facility (defined below); partially offset by the repayment of debt and cash used in business acquisitions, purchases of property and equipment (including capitalized labor), repurchase of common stock and investments.2021. At September 30, 2021,2022, cash, cash equivalents and investments consisted of cash and cash equivalents of $546.5$621.9 million, short-term investments in equity securities of zero$54.9 million and long-term investments of $110.7$124.2 million. Our investments consist of equity and debt securities. For financial statement presentation, we classify our debt securities primarily as short- and long-term based upon their maturity dates. Short-term investments mature within one year of the date of the financial statements and long-term investments mature one year or more from the date of the financial statements. As of September 30, 2021,2022, cash, cash equivalents and investments held within domestic and foreign jurisdictions were $491.0$682.6 million and $166.2$118.5 million, respectively.

On April 7, 2021, the Company entered into a Credit Agreement (the “Credit Agreement”) with certain lenders from time to time party thereto (collectively, the “Lenders”) and MUFG Union Bank, N.A., as administrative agent, collateral agent and sole lead arranger for the Lenders (the “Agent”). Pursuant to the Credit Agreement, the Lenders have provided the Company with a revolving credit facility of $100 million (the “Credit Facility”). Subject to customary conditions, the Company may, from time to time, request increases in the commitments under the Credit Agreement in an aggregate amount up to $250 million, for a total aggregate commitment of up to $350 million. The proceeds of the Credit Facility are intended to be used for working capital and general corporate purposes of the Company and its subsidiaries, including to finance certain permitted acquisitions and capital expenditures in accordance with the terms of the Credit Agreement. The final maturity of the Credit Facility will occur on April 7, 2026.

On June 2, 2021, June 21, 2021, August 20, 2021 and September 16, 2021, we entered into First, Second, Third and Fourth Amendments (together the “Amendments”) to Credit Agreement. The Amendments (i) provided for the issuance of a senior secured term loan under the Credit Agreement, in an aggregate principal amount of $485.0 million (the “Bridge Loan Facility”), (ii) permitted the spin-off of our cloud fax business into a new publicly traded company, and (iii) provided for certain other changes to the Credit Agreement.
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On October 7, 2021, in exchange for the equity interest in Consensus, Consensus paid Ziff Davis approximately $269.6 million of cash and issued $500.0 million of senior notes due 2028 to Ziff Davis and Ziff Davis exchanged such notes with the lenders under the Credit Agreement and Credit Agreement Amendments by and among the subsidiaries of Ziff Davis party thereto as guarantors, Citicorp North America Inc. and MUFG Union Bank, N.A. and MUFG Union Bank, N.A., as administrative agent for the lenders, in exchange for extinguishment of a similar amount indebtedness under the Bridge Loan Facility. Such lenders or their affiliates agreed to resell the 2028 notes to qualified institutional buyers in the United States pursuant to Rule 144A.

On September 25, 2017, the Board of Directors of the Company authorized the Company’s entryentered into a commitment to invest $200 million (approximately 76.6% of equity) in an investment fund (thethe “Fund”) over several years at a fairly ratable rate.. The manager, OCV Management, LLC, (“OCV”), and general partner of the Fund are entities with respect to which Richard S. Ressler, former Chairman of the Board of Directors (the “Board”) of the Company, is indirectly the majority equity holder. Mr. Ressler’s tenure with the Board of Directors of the Company ended as of May 10, 2022. As a limited partner in the Fund, prior to the settlement of certain litigation generally related to the Company’s investment in the Fund, in January 2022, the Company will paypaid an annual management fee to the manager equal to 2.0% (reduced by 10% each year beginning with the sixth year) 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 Fund’s general partner willwould be entitled to a carried interest equal to 20%. The Fund has a six year investment period, 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, the Company had invested approximately $128.8 million in the Fund. In connection with the settlement of the litigation, among other terms, no further capital calls will be made in connection with our investment in the Fund, nor will any management fees be paid by the Company to the manager.For more information related to the litigation, see Note 9 – Commitments and Contingencies in Item 1 of Part I of this Quarterly Report on Form 10-Q, which is incorporated by reference into this Part I Item 2 for additional information.

InFinancings

On June 10, 2022, we entered into a Fifth Amendment to our Credit Agreement, which provided for the first nine monthsTerm Loan Facility, in an aggregate principal amount of 2021,$90.0 million, which had a maturity date that was 60 days following the date of funding of the Term Loan Facility. On September 15, 2022, the Company received capital call notices fromentered into a Sixth Amendment to its existing Credit Agreement, which provided for the managementTerm Loan Two Facility (together with the Term Loan Facility, collectively, “Term Loan Facilities”). During June 2022, the Company subsequently completed a non-cash exchange of OCV Management, LLC for $21.2the 2.3 million inclusiveshares of its common stock of Consensus with certain managementselling shareholders of Consensus to settle the Company’s obligations of $90.0 million outstanding aggregate principal amount of the Term Loan Facility plus related interest and the corresponding underwriting fees. OfDuring September 2022, the Company subsequently completed a non-cash exchange of the 0.5 million shares of its common stock of Consensus with certain selling shareholders of Consensus to settle the Company’s obligations of $22.3 million outstanding balance, $21.2 million has been paid foraggregate principal amount of the Term Loan Two Facility plus related interest and the corresponding underwriting fees.

As of September 30, 2022 and December 31, 2021, there were no amounts drawn under the Credit Agreement.

During the nine months ended September 30, 2021.2022, the Company repurchased approximately $181.2 million in aggregate principal amount of the 4.625% Senior Notes for an aggregate purchase price of approximately $167.7 million.

Material Cash Requirements

Our long-term contractual obligations generally include our debt and related interest payments, noncancellable operating leases, holdback amounts in connection with certain business acquisitions, commitments related to the transition tax on unrepatriated foreign earnings, incurred but not paid amounts of self-insurance as well as other commitments. As of September 30, 2022, we and our subsidiaries had outstanding $1.0 billion in aggregate principal amount of indebtedness, of which we repurchased $105.1 million during the three months ended September 30, 2022. As of September 30, 2022, our total minimum lease payments are $64.9 million, of which approximately $23.9 million are due in the succeeding twelve months. As of September 30, 2022, our liability for uncertain tax positions was $45.4 million. There were no material changes to our cash requirements during the three months ended September 30, 2022.

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We currently anticipate that our existing cash and cash equivalents and cash generated from operations will be sufficient to meet our anticipated needs for working capital, capital expenditures and stock repurchases, if any, for at least the next 12 months.

Cash Flows

Our Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 include the activity from the cloud fax business, which was separated from the Company on October 7, 2021. Refer to Note 5 – Discontinued Operations in Item 1 of Part I of this Quarterly Report on Form 10-Q, which is incorporated by reference into this Part I Item 2 for additional information. Our primary sources of liquidity are cash flows generated from operations, together with cash and cash equivalents.

Net cash provided by operating activities was $430.3$293.2 million and $356.0$430.3 million for the nine months ended September 30, 20212022 and 2020,2021, respectively. Our operating cash flows resulted primarily from cash received from our customers offset by cash payments we made to third parties for their services, employee compensation and interest payments associated with our debt. The increasedecrease in our net cash provided by operating activities in 2021during the nine months ended September 30, 2022 compared to 2020 was2021 period is attributable to additional income after considering noncash items, less cash outflow associated with accounts payable and accrued expenses and increased cash inflow associated with deferred revenue;lower earnings before non-cash adjustments, primarily as a result of the Separation, partially offset by higheran increase in income tax payments, cash outflow associated with long-term liabilitiespayable and higher accounts receivable and prepaid expenses.our gains on equity investments in 2022. Our cash and cash equivalents were $546.5$621.9 million and $242.7$694.8 million at September 30, 20212022 and December 31, 2020,2021, respectively.

Net cash used in investing activities was $159.6$199.9 million and $107.3$159.6 million for the nine months ended September 30, 2022 and 2021, and 2020, respectively. For the nine months ended September 30, 2021 and 2020, net cash used in investing activities was primarily due to business acquisitions and capital expenditures associated with the purchase of property and equipment (including capitalized labor) and the purchase of investments; partially offset by proceeds from the sale of businesses and distributions from an equity method investment. The increase in our net cash used in investing activities in 2021during the nine months ended September 30, 2022 compared to 20202021 period was primarily duerelated to additionalthe absence of proceeds from the sale of businesses during 2021 of approximately $48.9 million and higher purchases of investments, net of proceeds, partially offset by lower cash used for the acquisition of business acquisitions.and purchases of property, plant and equipment.

Net cash provided by (used in)used in financing activities was $39.8$141.8 million and $(256.9)net cash provided by financing activities was $39.8 million for the nine months ended September 30, 2022 and 2021, and 2020, respectively. ForThe increase in the net cash used in financing activities during the nine months ended September 30, 2022 compared to 2021 net cash provided by financing activitiesperiod was primarily duerelated to thelower proceeds from the Bridge Loan Facility, issuancedebt borrowings, net of common stock under the employee stock purchase planrepayments and the exercisean increase of options, partially offset by the repayment of debt, repurchase of common stock and business acquisitions. The change in net cash provided by financing activities in 2021 compared to 2020 was primarily attributable to proceeds from a bridge loan in 2021.share repurchases.

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Stock Repurchase Program

In February 2012, the Company’sOn August 6, 2020, our Board of Directors approved a program authorizing the repurchase of up to five million shares of our common stock through February 20, 2013 (the “2012 Program”) which was subsequently extended through February 20, 2021.

In November 2018 and May 2019, the Company entered into Rule 10b5-1 trading plans with a broker to facilitate the repurchase program. 600,000 shares were repurchased under the share repurchase program in 2018 at an aggregate cost of $42.5 million and were subsequently retired in March 2019.

During the year ended December 31, 2019, the Company repurchased 197,870 shares at an aggregate cost of $16.0 million which were subsequently retired in the same year.

During the year ended December 31, 2020, the Company repurchased 1,140,819 shares under this program at an aggregate cost of $87.5 million, which were subsequently retired in the same year. As of December 31, 2020, all the available shares were repurchased under the 2012 Program at an aggregate cost of $204.6 million (including an immaterial amount of commission fees).

On August 6, 2020, the Company’s Board of Directors approved a program authorizing the repurchase of up to 10ten million shares of our common stock through August 6, 2025 (the “2020 Program”) in addition. In connection with the authorization, the Company entered into certain Rule 10b5-1 trading plans with a broker-dealer to facilitate the five million shares repurchased under the 2012 Program. repurchase program.

During the three month periodmonths ended September 30, 2021, we2022, the Company repurchased nozero shares under this program. the 2020 Program. The number of shares available for purchase as of September 30, 2022 is 6,327,154 shares of the Company’s common stock.

Cumulatively at September 30, 2021, 2,490,5992022, 3,672,846 shares were repurchased at an aggregate cost of $177.8$296.9 million (including an immaterial amount of commission fees) under the 2020 Program, whichProgram. These shares were subsequently retired.

Contractual Obligations and Commitments
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The following table summarizes our contractual obligations and commitments as of September 30, 2021
Payments Due in
(in thousands)
Contractual Obligations20212022202320242025ThereafterTotal
Long-term debt - principal (a)$— $— $— $— $— $1,300,000 $1,300,000 
Long-term debt - interest (b)24,559 44,313 44,313 44,313 44,313 183,061 384,872 
Bridge loan (c)485,000 — — — — — 485,000 
Operating leases (d)8,507 31,926 26,494 18,839 10,497 35,250 131,513 
Telecom services and co-location facilities (f)2,539 1,712 456 42 — — 4,749 
Holdback payments (g)3,693 16,944 950 — — — 21,587 
Transition tax (h)— — — 3,189 8,486 — 11,675 
Self-Insurance (i)8,861 13,532 3,001 — — — 25,394 
Other (j)381 598 — — — — 979 
Total $533,540 $109,025 $75,214 $66,383 $63,296 $1,518,311 $2,365,769 
(a)These amounts represent principal on long-term debt.
(b)These amounts represent interest on long-term debt.
(c)These amounts represent principal on short-term debt.
(d)These amounts represent undiscounted future minimum rental commitments under noncancellable operating leases.
(e)These amounts represent undiscounted future minimum rental commitments under noncancellable finance leases.
(f)These amounts represent service commitments to various telecommunication providers.
(g)These amounts represent the holdback amounts in connection with certain business acquisitions.
(h)These amounts represent commitments related to the transition tax on unrepatriated foreign earnings reduced by the 2017 overpayment of US Federal Income Tax.
(i)These amounts represent health and dental insurance plans in connection to self-insurance.
(j)These amounts represent certain consulting and Board of Directors fee arrangements, software license and implementation commitments and others.

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As of September 30, 2021, our liability for uncertain tax positions was $54.2 million. The future payments related to uncertain tax positions have not been presented in the table above due to the uncertainty of the amounts and timing of cash settlement with such authorities.

We have not presented contingent consideration associated with acquisitions (other than contingent consideration which we have deemed as certain in terms of amount and timing) in the table above due to the uncertainty of the amounts and the timing of cash settlements. We have also not presented our remaining commitment to OCV Management, LLC of approximately $72.5 million due to the uncertainty of timing of funding requests.

Off-Balance Sheet Arrangements

We are not party to any material off-balance sheet arrangements.

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Item 3.Quantitative and Qualitative Disclosures About Market Risk

The following discussion of the market risks we face contains forward-looking statements. Forward-looking statements are subject to risks and uncertainties. Actual results could differ materially from those discussed in forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s opinions only as of the date hereof. Ziff Davis undertakes no obligation to revise or publicly release the results of any revision to these forward-looking statements. Readers should carefully review the risk factors described in this document and in the other documents incorporated by reference herein, including our Annual Report on Form 10-K for the year ended December 31, 20202021 as well as in other documents we file from time to time with the SEC, including the Quarterly Reports on Form 10-Q and any Current Reports on Form 8-K filed or to be filed by us in 2021.2022.

Interest Rate Risk

Our exposure to market risk for changes in interest rates relates primarily to our investment portfolio and borrowings under our Credit Facility that bear variable market interest rates. The primary objectives of our investment activities are to preserve our principal while at the same time maximizing yields without significantly increasing risk. To achieve these objectives, we maintain our portfolio of cash equivalents and investments in a mix of instruments that meet high credit quality standards, as specified in our investment policy or otherwise approved by the Board of Directors. Our cash and cash equivalents are not subject to significant interest rate risk due to the short maturities of these instruments. As of September 30, 2021,2022, the carrying value of our cash and cash equivalents approximated fair value. Our return on these investments is subject to interest rate fluctuations.

As of September 30, 2021, we had investments in debt securities with effective maturities greater than one year of approximately zero. As of September 30, 20212022 and December 31, 2020,2021, we had cash and cash equivalent investments primarily in money market fundsdemand deposit accounts with maturities of 90 days or less of $546.5$621.9 million and $242.7$694.8 million, respectively. 

On April 7, 2021, the Company entered into a Credit Agreement (“Credit Agreement”) with certain lenders from time to time party thereto (collectively, the “Lenders”) and MUFG Union Bank, N.A.,We do not have interest rate risk on our outstanding long-term debt as administrative agent, collateral agent and sole lead arranger for the Lenders (the “Agent”). Pursuant to the Credit Agreement, the Lenders provided the Company with a revolving credit facility of $100 million (the “Credit Facility”). Subject to customary conditions, the Company may, from time to time, request increases in the commitments under the Credit Agreement in an aggregate amount up to $250 million, for a total aggregate commitment of up to $350 million. The proceeds of the Credit Facility are intended to be used for working capital and general corporate purposes of the Company and its subsidiaries, including to finance certain permitted acquisitions and capital expenditures in accordance with the terms of the Credit Agreement.

At the Company’s option, amounts borrowed under the Credit Agreement will bearthese arrangements have fixed interest at either (i) a base rate equal to the greatest of (x) the Federal Funds Effective Rate (as defined in the Credit Agreement) in effect on such day plus ½ of 1% per annum, (y) the rate of interest per annum most recently announced by the Agent as its U.S. Dollar “Reference Rate” and (z) one month LIBOR plus 1.00% or (ii) a rate per annum equal to LIBOR divided by 1.00 minus the LIBOR Reserve Requirements (as defined in the Credit Agreement), in each case, plus an applicable margin. The applicable margin relating to any base rate loan will range from 0.50% to 1.25% and the applicable margin relating to any LIBOR loan will range from 1.50% to 2.25%, in each case, depending on the total leverage ratio of the Company. The final maturity of the Credit Facility will occur on April 7, 2026. The Company is permitted to make voluntary prepayments of the Credit Facility at any time without payment of a premium or penalty.

On June 2, 2021, June 21, 2021, August 20, 2021 and September 16, 2021, the Company entered into First, Second, Third and Fourth Amendments (together the “Amendments”) to the Credit Agreement. The Amendments (i) provided for the issuance of a senior secured term loan under the Credit Agreement, in an aggregate principal amount of $485.0 million (the “Bridge Loan Facility”), (ii) permitted the spin-off of the Company’s cloud fax business into a new publicly traded company, and (iii) provided for certain other changes to the Credit Agreement. As of September 30, 2021, the Company had drawn on the full amount of the Bridge Loan Facility with $485.0 million outstanding (later extinguished as described below). The proceeds of the Bridge Loan Facility were used to redeem the Company’s 3.25% Convertible Notes.

The loans under the Bridge Loan Facility (the “Bridge Loans”) bore interest at a rate per annum equal to (i) initially upon funding of the Bridge Loans, either a base rate plus 2.00%, or a LIBOR rate plus 3.00%, (ii) from six months after the funding date of the Bridge Loans until twelve months after the funding date of the Bridge Loans, either a base rate plus 2.50%, or a LIBOR rate plus 3.50%, and (iii) from twelve months after the funding date of the Bridge Loans until repayment of the
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Bridge Loans, either a base rate plus 3.00% or a LIBOR rate plus 4.00%. The Bridge Loan Facility were to mature on the date that is 364 days after the funding date of the Bridge Loans, with two automatic extensions, each for an additional three months, if the spin-off transaction has not been declared effective.

On October 7, 2021, in exchange for the equity interest in Consensus, Consensus paid Ziff Davis approximately $269.6 million of cash and issued $500.0 million of senior notes due 2028 to Ziff Davis and Ziff Davis exchanged such notes with the lenders under the Credit Agreement and Credit Agreement Amendments by and among the subsidiaries of Ziff Davis party thereto as guarantors, Citicorp North America Inc. and MUFG Union Bank, N.A. and MUFG Union Bank, N.A., as administrative agent for the lenders, in exchange for extinguishment of a similar amount indebtedness under the Bridge Loan Facility. Such lenders or their affiliates agreed to resell the 2028 notes to qualified institutional buyers in the United States pursuant to Rule 144A.rates.

We cannot ensure that future interest rate movements will not have a material adverse effect on our future business, prospects, financial condition, operating results and cash flows. To date, we have not entered into interest rate hedging transactions to control or minimize certain of these risks.

Market Risk

In connection with the Separation, we retained an interest in Consensus, which was valued at approximately $54.9 million as of September 30, 2022, based upon the quoted market price of Consensus common stock. Our results of operations and financial condition have been and may be materially impacted by increases or decreases in the price of Consensus common stock, which is traded on the Nasdaq Global Select Market. The Company recorded a realized gain of approximately $0.5 million and an unrealized gain of approximately $4.2 million on its investment in Consensus during the three months ended September 30, 2022. The Company recorded a realized loss of approximately $47.8 million and an unrealized loss of approximately $14.2 million on its investment in Consensus during the nine months ended September 30, 2022. The carrying value of our investment in Consensus at September 30, 2022 was $54.9 million, or approximately 1.6% of the Company’s consolidated total assets. A $2.00 increase or decrease in the share price of Consensus common stock would result in an unrealized gain or loss, respectively, of approximately $2.3 million.

Foreign Currency Risk

We conduct business in certain foreign markets, primarily in Canada, the United Kingdom, Australia, and the European Union. Our principal exposure to foreign currency risk relates to investment and inter-company debt in foreign subsidiaries that transact business in functional currencies other than the U.S. Dollar, primarily the Canadian Dollar, the British Pound Sterling, Australian Dollar, the Canadian Dollar, the Euro, the Hong Kong Dollar, the Japanese Yen, the New Zealand Dollar, and the Norwegian Kroner and the British Pound Sterling.Kroner. If we are unable to settle our short-term inter-company debts in a timely manner, we remain exposed to foreign currency fluctuations.
    
As we expand our international presence, we become further exposed to foreign currency risk by entering new markets with additional foreign currencies. The economic impact of currency exchange rate movements is often linked to variability in real growth, inflation, interest rates, governmental actions and other factors. These changes, if material, could cause us to adjust our financing and operating strategies.

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As currency exchange rates change, translation of the income statements of the international businesses into U.S. Dollars affects year-over-year comparability of operating results, the impact of which is immaterial to the comparisons set forth in this Quarterly Report on Form 10-Q.

Historically, we have not hedged translation risks because cash flows from international operations were generally reinvested locally; however, we may do so in the future. Our objective in managing foreign exchange risk is to minimize the potential exposure to changes that exchange rates might have on earnings, cash flows and financial position.

Foreign exchange gain (losses) forDuring the three months ended September 30, 2022 and 2021, and 2020 were $1.9foreign exchange gains amounted to $3.4 million and $13.9$0.2 million, respectively, and forrespectively. During the nine months ended September 30, 2022 and 2021, and 2020 were $1.6foreign exchange gains (losses) amounted to $12.3 million and $15.0 million,($0.6 million), respectively. The decrease in gains to our earnings in the three months ended September 30, 2021 were attributable to lower inter-company balances between periods in foreign subsidiaries that were in functional currencies other than the U.S. Dollar and exchange rate fluctuations.

Cumulative translation adjustments, net of tax, included in other comprehensive income for the three months ended September 30, 2022 and 2021 and 2020 were $11.1$24.8 million and $3.2$11.1 million, respectively, and for the nine months ended September 30, 2022 and 2021 were $55.3 million and 2020 were $16.3 million, and $12.1 million, respectively.respectively

We currently do not have derivative financial instruments for hedging, speculative or trading purposes and therefore are not subject to such hedging risk. However, we may in the future engage in hedging transactions to manage our exposure to fluctuations in foreign currency exchange rates.

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Item 4.Controls and Procedures

(a)Evaluation of Disclosure Controls and Procedures
 
The Company maintains disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information required to be disclosed in the Company’s reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the principal executive officer and the principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.    

As of September 30, 2022, under the end of the period covered by this report, the Company’s management,supervision and with the participation of Vivek Shah, our principal executive officer,Chief Executive Officer (“CEO”) and Steve P. Dunn, our interim principal financial officer,Chief Financial Officer (“CFO”), management carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon that evaluation, Mr. Shahour CEO and Mr. DunnCFO concluded that theseour disclosure controls and procedures were not effective as of the end of the period covered inby this Quarterly Report on Form 10-Q.10-Q due to a material weakness in internal control over financial reporting identified in our 2021 Form 10-K for the year ended December 31, 2021, as described below.

During the year ended December 31, 2021, we determined that we did not design and maintain effective controls over the accounting for certain elements related to the Consensus Cloud Solutions, Inc. (“Consensus”) spin-off resulting in a material weakness. This material weakness is described in more detail in our Annual Report on Form 10-K for the year ended December 31, 2021.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis. As a result of the material weakness in internal control over financial reporting described above, management concluded that the Company’s internal control over financial reporting was not effective as of December 31, 2021.

Notwithstanding the conclusion that our disclosure controls and procedures were not effective as of the end of the period covered by this report, we believe that our condensed consolidated financial statements and other information contained in this quarterly report present fairly, in all material respects, our business, financial condition and results of operations for the interim periods presented.

Remediation Efforts and Status of the Material Weakness

(b)To remediate the material weakness, our management is in the process of enhancing and revising the design of existing controls and procedures over our accounting for significant unusual transactions. ChangesThese controls relate to the research, analysis and documentation supporting our management’s evaluations, judgments, and conclusions that are required in Internal Controlsorder to account for significant unusual transactions. We will enhance our approach to and the execution of the research, analysis, and documentation related to these matters. Our process of consulting third party experts will also be enhanced and we will continue to include outreach to and coordination with experts with the relevant knowledge and experience to assist our management with the evaluation of our accounting for significant unusual transactions.

ThereWe believe that these actions will remediate the material weakness. The material weakness will not be considered remediated, however, until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. We expect that the remediation of this material weakness will be completed no later than December 31, 2022.

Management’s Report on Internal Control over Financial Reporting

Other than in respect of the remediation activities undertaken in connection with the material weakness described above, there have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) which occurred during the third quarter ended September 30, 20212022 covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II.   OTHER INFORMATION

Item 1.Legal Proceedings

See Note 11 – Commitments and Contingenciesdiscussion of the Notes to Financial Statements (Part I, Item 1) for information regarding certain legal proceedings in Note 9 – Commitments and Contingencies in Item 1 of Part I of this Quarterly Report on Form 10-Q, which we are involved.is incorporated by reference into this Item 1 of Part II.
 
Item 1A. Risk Factors

In addition to the other information set forthThere has not been material change in this report, before deciding to invest in the Company or to maintain or increase your investment, you should carefully consider theour risk factors discussed in Part I, Item 1A “Risk Factors” insince filing of our Annual Report on Form 10-K for the year ended December 31, 2020 and in Part II, Item 1A “Risk Factors” in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2021 (the “10-K/10-Q Risk Factors”) as well as in other documents we file from time to time with the SEC, including the Quarterly Reports on Form 10-Q and any Current Reports on Form 8-K filed or to be filed by us in 2021. If any of these risks occur, our business, prospects, financial condition, operating results and cash flows could be materially adversely affected. The 10-K/10-Q Risk Factors are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations. There have been no material changes from the 10-K/10-Q Risk Factors.

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
 
(a)Unregistered Sales of Equity Securities

 None.
 
(b)Issuer Purchases of Equity Securities
 
Effective February 15, 2012, the Company’sOn August 6, 2020, our Board of Directors approved a program authorizing the repurchase of up to five million shares of our common stock through February 20, 2013 (the “2012 Program”) which was subsequently extended through February 20, 2021.

In November 2018 and May 2019, the Company entered into Rule 10b5-1 trading plans with a broker to facilitate the repurchase program. 600,000 shares were repurchased under the share repurchase program in 2018 at an aggregate cost of $42.5 million and were subsequently retired in March 2019. During the year ended December 31, 2019, the Company repurchased 197,870 shares at an aggregate cost of $16.0 million which were subsequently retired in the same year. During the year ended December 31, 2020, the Company repurchased 1,140,819 shares under this program at an aggregate cost of $87.5 million, which were subsequently retired in the same year. As of December 31, 2020, all the available shares were repurchased under the 2012 Program at an aggregate cost of $204.6 million (including an immaterial amount of commission fees).

On August 6, 2020, the Company’s Board of Directors approved a program authorizing the repurchase of up to 10ten million shares of our common stock through August 6, 2025 (the “2020 Program”) in addition. In connection with the authorization, the Company entered into certain Rule 10b5-1 trading plans with a broker-dealer to facilitate the five millionrepurchase program. During the three months September 30, 2022, zero shares were repurchased under the 20122020 Program. During the nine month period ended

Cumulatively, as of September 30, 2021, the Company repurchased no shares under this program. Cumulatively at September 30, 2021, 2,490,5992022, 3,672,846 shares were repurchased at an aggregate cost of $177.8$296.9 million (including an immaterial amount of commission fees) under the 2020 Program, whichProgram. These shares were subsequently retired. See Note 13, “Stockholders’ Equity”11 - Stockholders’ Equity in Item 1 of the Notes to the Condensed Consolidated Financial Statements.

Part I of this Quarterly Report on Form 10-Q, which is incorporated by reference into this Item 1of Part II.

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The following table details the repurchases that were made under and outside the 2020 Program during the three months ended September 30, 2021:2022:
Period
Total Number of
Shares
Purchased (1)
Average Price
Paid Per Share		Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Program		Maximum
Number of
Shares That
May Yet Be
Purchased
Under the
Plans or
Program
July 1, 2021 - July 31, 202145,243 $139.97 — 7,509,401 
August 1, 2021 - August 31, 20212,140 $141.13 — 7,509,401 
September 1, 2021 - September 30, 20212,258 $136.32 — 7,509,401 
Total49,641 — 7,509,401 
Period
Total Number of Shares
Purchased (1)
Average Price
Paid Per Share		Total Number of
Shares Purchased as Part of Publicly
Announced Plans or Program
Maximum Number of Shares That May Yet Be
Purchased Under the Plans or Program(2)
July 1, 2022 - July 31, 2022— $— — 6,327,154 
August 1, 2022 - August 31, 2022865 $82.47 — 6,327,154 
September 1, 2022 - September 30, 20221,736 $75.10 — 6,327,154 
Total2,601 — 6,327,154 
(1)Includes shares surrendered to the Company to pay the exercise price and/or to satisfy tax withholding obligations in connection with employee stock options and/or the vesting of restricted stock issued to employees.
(2)As of the last day of the applicable month.

Item 3.Defaults Upon Senior Securities

None.

Item 4.Mine Safety Disclosures

Not Applicable.

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Item 5.Other Information

None.


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Item 6.Exhibits
2.1Exhibit No.
Separation and Distribution Agreement, dated as of October 7, 2021, by and between Ziff Davis, Inc. and Consensus Cloud Solutions, Inc. (1)Description
3.1
3.2
3.3
3.4
10.1
10.2
Transition ServicesSeparation and Release of Claims Agreement dated as of October 7, 2021, bybetween Steve Dunn and between Ziff Davis, Inc. and Consensus Cloud Solutions, Inc. (1)*
10.3
Tax MattersSixth Amendment to Credit Agreement, dated as of October 7, 2021, by and betweenSeptember 15, 2022, among Ziff Davis, Inc., the Guarantors, the lenders party to Amendment constituting Required Lenders and Consensus Cloud Solutions, Inc. (1)
10.4all of the Term Loan Two Lenders and MUFG UNION BANK, N. A., as administrative agent for the Lenders.
Employee Matters Agreement, dated as of October 7, 2021, by and between Ziff Davis, Inc. and Consensus Cloud Solutions, Inc. (1)
10.5
Intellectual Property License Agreement, dated as of October 7, 2021, by and between Ziff Davis, Inc. and Consensus Cloud Solutions, Inc. (1)
10.6
Stockholder and Registration Rights Agreement, dated as of October 7, 2021, by and between Ziff Davis, Inc. and Consensus Cloud Solutions, Inc. (1)
31.1
Rule 13a-14(a) Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.2002
31.2
Rule 13a-14(a) Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.2002
32.1
Section 1350 Certification of Principal Executive Officer of Periodic Financial Reports pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.2002, 18 U.S.C. Section 1350
32.2
Section 1350 Certification of Principal Financial Officer of Periodic Financial Reports pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.2002, 18 U.S.C. Section 1350
101101.INSThe following financial information from Ziff Davis, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, formatted inInline XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020, (ii) Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2021 and 2020, (iii) Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2021 and 2020, (iv) Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 and 2020, (v) Condensed Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2021 and 2020, and (vi) the Notes to Condensed Consolidated Financial Statements.Instance Document**
101.SCHInline XBRL Taxonomy Extension Schema Document
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document
101.LABInline XBRL Taxonomy Extension Label Linkbase Document
104Cover Page Interactive Data File - the cover page from Ziff Davis, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021 is formatted(formatted as Inline XBRL and contained in Inline XBRLExhibit 101)

*    A management or compensatory plan or arrangement required to be filed as an exhibit to this report pursuant to Item 601(b)(10)(ii) of Regulation S-K.
**    This instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.
(1)     Incorporated by reference to Ziff Davis’ Current Report on Form 8-K filed with the Commission on June 10, 2014.
(2)     Incorporated by reference to Ziff Davis’ Current Report on Form 8-K filed with the Commission on November 1, 2019.
(3)     Incorporated by reference to Ziff Davis’ Current Report on Form 8-K filed with the Commission on October 8, 2021.
(2)    Incorporated by reference to Ziff Davis’ Current Report on Form 8-K filed with the Commission on June 10, 2014.
(3)    Incorporated by reference to Ziff Davis’ Current Report on Form 8-K filed with the Commission on November 1, 2019.
(4)     Incorporated by reference to Ziff Davis’ CurrentQuarterly Report on Form 8-K10-Q filed with the Commission on September 22,November 9, 2021.



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SIGNATURESIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
Ziff Davis, Inc.ZIFF DAVIS, INC.
(registrant)
Date:November 9, 20212022By:/s/ VIVEK SHAH
Vivek Shah
Chief Executive Officer and a Director
(Principal Executive Officer)
 
Date:November 9, 20212022By:/s/ STEVE P. DUNNBRET RICHTER 
Steve P. DunnBret Richter
Chief Financial Officer
(Principal Financial Officer)
Date:November 9, 2022By:/s/ LAYTH TAKI
Layth Taki
Chief Accounting Officer
(Interim Principal Financial Officer andAccounting Officer)
Principal Accounting Officer)

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INDEX TO EXHIBITS

Exhibit NumberDescription
2.1
Separation and Distribution Agreement, dated as of October 7, 2021, by and between Ziff Davis, Inc. and Consensus Cloud Solutions, Inc. (1)
3.1
Amended and Restated Certificate of Incorporation of J2 Global, Inc., dated as of June 10, 2014 (2)
3.2
Amendment to Amended and Restated Certificate of Incorporation of J2 Global, Inc. dated as of September 5, 2019 (3)
3.3
Certificate of Amendment to Amended and Restated Certificate of Incorporation of Ziff Davis, Inc. dated as of October 7, 2021 (1)
3.4
Fifth Amended and Restated Bylaws of Ziff Davis, Inc.
10.1
Second, Third and Fourth Amendments to Credit Agreement by and among J2 Global, Inc., the subsidiaries of J2 Global, Inc. party thereto as guarantors, Citicorp North America Inc. and MUFG Union Bank, N.A., as lenders, and MUFG Union Bank, N.A., as administrative agent for the lenders. (4)
10.2
Transition Services Agreement, dated as of October 7, 2021, by and between Ziff Davis, Inc. and Consensus Cloud Solutions, Inc. (1)
10.3
Tax Matters Agreement, dated as of October 7, 2021, by and between Ziff Davis, Inc. and Consensus Cloud Solutions, Inc. (1)
10.4
Employee Matters Agreement, dated as of October 7, 2021, by and between Ziff Davis, Inc. and Consensus Cloud Solutions, Inc. (1)
10.5
Intellectual Property License Agreement, dated as of October 7, 2021, by and between Ziff Davis, Inc. and Consensus Cloud Solutions, Inc. (1)
10.6
Stockholder and Registration Rights Agreement, dated as of October 7, 2021, by and between Ziff Davis, Inc. and Consensus Cloud Solutions, Inc. (1)
31.1
Rule 13a-14(a) Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
Rule 13a-14(a) Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
Section 1350 Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2
Section 1350 Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101The following financial information from Ziff Davis, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020, (ii) Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2021 and 2020, (iii) Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2021 and 2020, (iv) Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 and 2020, (v) Condensed Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2021 and 2020, and (vi) the Notes to Condensed Consolidated Financial Statements.
104Cover Page Interactive Data File - the cover page from Ziff Davis, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021 is formatted in Inline XBRL

(1)    Incorporated by reference to Ziff Davis’ Current Report on Form 8-K filed with the Commission on October 8, 2021.
(2)    Incorporated by reference to Ziff Davis’ Current Report on Form 8-K filed with the Commission on June 10, 2014.
(3)    Incorporated by reference to Ziff Davis’ Current Report on Form 8-K filed with the Commission on November 1, 2019.
(4)    Incorporated by reference to Ziff Davis’ Current Report on Form 8-K filed with the Commission on September 22, 2021.
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