ZoomInfo Technologies Inc

Previous wording

We are focused on continuing to grow the number of customers that use our platform in the United States and around the world. While we added new customers over the last 24 months that contributed incremental revenues for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023, our total revenues decreased period over period primarily as a result of the change in accounting estimate during the current period. Refer to the “Factors Affecting the Comparability of Our Results of Operations” section further below. Our operating results and growth prospects will depend in part on our ability to continue to attract new customers. Additionally, acquiring new customers strengthens the power of our contributory networks. We plan to continue to invest in our efficient go-to-market effort to acquire new customers.

Current wording

We are focused on continuing to grow the number of customers using our platform in the United States and around the world, and efficiently transacting with those customers. Acquiring new customers while optimizing the profile of those customers and the go-to-market channels we use to attract these customers will play a part in determining our operating results and growth prospects in the future. Acquiring new customers also strengthens the power of our contributory networks. We plan to continue to invest in our efficient go-to-market effort to expand our customer base.

Previous wording

We believe that expanding the value that we provide to our customers and the corresponding revenue generated as a result is an important measure of the health of our business. We monitor net revenue retention to measure that growth. Net revenue retention is a metric that we calculate based on customers of ZoomInfo at the beginning of the twelve-month period, and is calculated as: (a) the total annual contract value ("ACV") for those customers at the end of the twelve-month period, divided by (b) the total ACV for those customers at the beginning of the twelve-month period. Our net revenue retention rate was 85% as of June 30, 2024. In the near term, we expect our net retention rate to be impacted by macroeconomic conditions. See section "Recent Developments - Impact of Macroeconomic Conditions." We also measure our success in expanding relationships with existing customers by the number of customers that contract for more than $100,000 in ACV. As of June 30, 2024, we had 1,797 customers with over $100,000 in ACV.

Current wording

We believe that expanding the value that we provide to our customers and the corresponding revenue generated as a result is an important measure of the health of our business. We monitor net revenue retention to measure that growth. Net revenue retention is a metric that we calculate based on customers of ZoomInfo at the beginning of the twelve-month period, and is calculated as: (a) the total annual contract value ("ACV") for those customers at the end of the twelve-month period, divided by (b) the total ACV for those customers at the beginning of the twelve-month period. Our net revenue retention rate was 85% as of September 30, 2024. In the near term, we expect our net retention rate to be impacted by macroeconomic conditions. See section "Recent Developments - Impact of Macroeconomic Conditions." Over the long term, we expect our net revenue retention rate to be influenced by our ability to move upmarket, as larger customers have historically exhibited higher net revenue retention. We also measure our success in expanding relationships with existing customers by the number of customers that contract for more than $100,000 in ACV. As of September 30, 2024, we had 1,809 customers with over $100,000 in ACV.

Previous wording

As a result, we recorded an incremental charge during the three and six months ended June 30, 2024 impacting our reported Revenue and General and administrative expenses. The charge represents a revision to our reserves for uncollectible accounts receivable, made up primarily of historical transactions with our SMB customers from 2023. Refer to the Change in Accounting Estimate section in Note 1 - Business, Basis of Presentation, and Summary of Significant Accounting Policies of our consolidated financial statements included in Part I, Item 1 of this Form 10-Q.

Current wording

As a result, we recorded an incremental charge during the second quarter of 2024 impacting our reported Revenue and General and administrative expenses. The charge represents a revision to our reserves for uncollectible accounts receivable, made up primarily of historical transactions with our SMB customers from 2023.

Previous wording

General and administrative. General and administrative expenses primarily consist of employee-related costs such as salaries, bonuses, equity-based compensation, and other employee related benefits for our executive, finance, legal, human resources, IT, and business operations and administrative teams, as well as overhead costs. Additionally, we incur expenses related to bad debt and collections, as well as for professional fees including legal services, accounting, banking, and other consulting services. General and administrative expenses also include impairment charges associated with our leasing activity. Refer to Note 11 - Leases for further information. We also incur charges associated with litigation settlements, such as the Class Action settlement previously disclosed, which are presented within General and administrative on the Consolidated Statements of Operations.

Current wording

General and administrative. General and administrative expenses primarily consist of employee-related costs such as salaries, bonuses, equity-based compensation, and other employee related benefits for our executive, finance, legal, human resources, IT, and business operations and administrative teams, as well as overhead costs. Additionally, we incur expenses related to bad debt and collections, as well as for professional fees including legal services, accounting, banking, and other consulting services. General and administrative expenses also include restructuring and transaction-related expenses, such as impairment charges associated with our leasing activity. Refer to Note 11 - Leases for further information. We also incur charges associated with litigation settlements, such as the Class Action settlement previously disclosed, which are presented within General and administrative on the Consolidated Statements of Operations.

Previous wording

We anticipate that interest expense could be impacted by changes in variable interest rates or the issuance of additional debt.

Current wording

We anticipate that interest expense could be impacted by changes in variable interest rates, the issuance of additional debt, or changes in our interest rate hedging strategies, such as entering into new hedging arrangements or the expiration of existing interest rate swaps.

Previous wording

Changes to existing tax law including changes to the corporate income tax rates and the Company’s state tax footprint could lead to substantial revaluations of the TRA liability recorded through Other income, net. Additionally, the magnitude of Other income, net may increase as we expand operations internationally and add complexity to our operations. Refer to the Provision (benefit) for income taxes section below for further information.

Current wording

Changes to existing tax law including changes to the corporate income tax rates and the Company’s state tax footprint could lead to substantial revaluations of the TRA liability recorded through Other income, net. Additionally, the magnitude of Other income, net may increase as we expand operations internationally and add complexity to our operations. Refer to the Provision for income taxes section below for further information.

Previous wording

The value of our deferred tax assets are regularly remeasured to consider the impact of statutory changes and other guidance, as well as changes in our state income apportionment factors. Given the amount of our deferred tax assets, minor changes can materially affect our Provision (benefit) for income taxes. A significant portion of our deferred tax assets are associated with our TRA, and upon a remeasurement of our deferred tax assets, the TRA liability is typically concurrently remeasured with a partially offsetting impact within Other income, net on the Consolidated Statements of Operations.

Current wording

The value of our deferred tax assets are regularly remeasured to consider the impact of statutory changes and other guidance, as well as changes in our state income apportionment factors. Given the amount of our deferred tax assets, minor changes can materially affect our Provision for income taxes. A significant portion of our deferred tax assets are associated with our TRA, and upon a remeasurement of our deferred tax assets, the TRA liability is typically concurrently remeasured with a partially offsetting impact within Other income, net on the Consolidated Statements of Operations.

Previous wording

We have regularly taken tax positions, including with respect to our various corporate events and restructurings in the ordinary course of determining our Provision (benefit) for income taxes. We recognize the tax benefit of an uncertain tax position only if it is more likely than not the position is sustainable upon examination by the taxing authority based on the technical merits. We regularly review our tax positions with consideration of a number of factors, including changes in facts or circumstances, changes in tax law or guidance, correspondence with tax authorities during the course of audits and effective settlement of audit issues. Changes in the recognition or measurement of uncertain tax positions could result in material increases or decreases in our Provision (benefit) for income taxes in the period in which we make the change, which could have a material impact on our effective tax rate and operating results.

Current wording

We have regularly taken tax positions, including with respect to our various corporate events and restructurings in the ordinary course of determining our Provision for income taxes. We recognize the tax benefit of an uncertain tax position only if it is more likely than not the position is sustainable upon examination by the taxing authority based on the technical merits. We regularly review our tax positions with consideration of a number of factors, including changes in facts or circumstances, changes in tax law or guidance, correspondence with tax authorities during the course of audits and effective settlement of audit issues. Changes in the recognition or measurement of uncertain tax positions could result in material increases or decreases in our Provision for income taxes in the period in which we make the change, which could have a material impact on our effective tax rate and operating results.

Previous wording

The following table presents our results of operations for the three and six months ended June 30, 2024 and 2023:

Current wording

The following table presents our results of operations for the three and nine months ended September 30, 2024 and 2023:

Previous wording

Cost of Service. Cost of service was $89.3 million for the six months ended June 30, 2024, an increase of $0.2 million, or less than 1%, as compared to $89.1 million for the six months ended June 30, 2023. Excluding equity-based compensation expenses, cost of service was $84.1 million for six months ended June 30, 2024, an increase of $2.5 million, or 3%, as compared to $81.6 million for six months ended June 30, 2023, primarily due to increased amortization expense on internally developed capitalized software and hosting expenses.

Current wording

Cost of service. Cost of service was $47.3 million for the three months ended September 30, 2024, an increase of $2.5 million, or 6%, as compared to $44.8 million for the three months ended September 30, 2023. Excluding equity-based compensation expense, cost of service was $44.6 million for three months ended September 30, 2024, an increase of $4.1 million, or 10%, as compared to $40.5 million for three months ended September 30, 2023, primarily due to charges incurred related to lease restructuring activities, amortization expense on internally developed capitalized software, and hosting fees.

Previous wording

Gross profit. Gross profit for three months ended June 30, 2024 was $245.6 million and represented a gross margin of 84%. Gross profit for three months ended June 30, 2023 was $265.0 million and represented a gross margin of 86%. The decrease in gross profit in the three months ended June 30, 2024 relative to the three months ended June 30, 2023 was $19.4 million, or 7%, primarily due to lower revenues, as described above, and increased amortization expense on internally developed capitalized software.

Current wording

Gross profit. Gross profit for three months ended September 30, 2024 was $256.3 million and represented a gross margin of 84%. Gross profit for three months ended September 30, 2023 was $269.0 million and represented a gross margin of 86%. The decrease in gross profit in the three months ended September 30, 2024 relative to the three months ended September 30, 2023 was $12.7 million, or 5%, primarily due to lower revenues, as described above, increased lease restructuring activities and increased amortization expense on internally developed capitalized software.

Previous wording

•Sales and marketing for the six months ended June 30, 2024 was $200.1 million, representing a decrease of $7.6 million, or 4%, as compared to $207.7 million for the six months ended June 30, 2023. Sales and marketing, excluding equity-based compensation, for the six months ended June 30, 2024 was $174.3 million, representing an increase of $3.7 million, or 2%, as compared to $170.6 million for the six months ended June 30, 2023, primarily due to additional marketing, employee-related benefits, facilities expenses and lease abandonment charges, partially offset by lower amortization of commissions.

Current wording

•Sales and marketing for the three months ended September 30, 2024 was $99.1 million, representing a decrease of $3.3 million, or 3%, as compared to $102.4 million for the three months ended September 30, 2023. Sales and marketing, excluding equity-based compensation expense, for the three months ended September 30, 2024 was $86.8 million, representing an increase of $1.9 million, or 2%, as compared to $84.9 million for the three months ended September 30, 2023, primarily due to charges incurred related to lease restructuring activities, partially offset by decreased compensation costs.

Previous wording

•General and administrative for the three months ended June 30, 2024 was $111.3 million representing an increase of $69.2 million, or 164%, as compared to $42.1 million for the three months ended June 30, 2023. General and administrative, excluding equity-based compensation, for the three months ended June 30, 2024 was $101.8 million, representing an increase of $69.6 million, or 216%, as compared to $32.2 million for the three months ended June 30, 2023, primarily due to charges incurred related to lease impairment and abandonment charges, as well as incremental bad debt expense resulting from the change in accounting estimate.

Current wording

•General and administrative for the three months ended September 30, 2024 was $60.6 million representing an increase of $10.1 million, or 20%, as compared to $50.5 million for the three months ended September 30, 2023. General and administrative, excluding equity-based compensation expense, for the three months ended September 30, 2024 was $49.5 million, representing an increase of $8.4 million, or 20%, as compared to $41.1 million for the three months ended September 30, 2023, primarily due to charges incurred related to lease impairment and lease restructuring activities, as well as increased compensation costs.

Previous wording

Equity-based compensation expense. Equity-based compensation expense was $36.4 million for the three months ended June 30, 2024, a decrease of $9.9 million, or 21%, as compared to $46.3 million for the three months ended June 30, 2023, due to lower grant date fair values of grants being amortized in the current period compared to those that were amortized in the prior year, capitalization of equity-based compensation, and terminations.

Current wording

Equity-based compensation expense. Equity-based compensation expense was $36.6 million for the three months ended September 30, 2024, a decrease of $6.3 million, or 15%, as compared to $42.9 million for the three months ended September 30, 2023, due to lower weighted average grant date fair values of grants being amortized in the current period compared to those that were amortized in the prior year and higher capitalization of equity-based compensation, partially offset by decreased termination expense reversals.

Previous wording

Income (loss) from operations. Loss from operations was $20.0 million for the three months ended June 30, 2024, a decrease of $79.6 million, or 134%, as compared to income from operations of $59.6 million for the three months ended June 30, 2023. The decrease is primarily due to charges incurred related to lease impairment and abandonment charges and the change in accounting estimate of collectibility of accounts receivable. Operating loss margin was 7% for three months ended June 30, 2024 as compared to operating income margin of 19% for the three months ended June 30, 2023.

Current wording

Income from operations. Income from operations was $43.5 million for the three months ended September 30, 2024, a decrease of $19.6 million, or 31%, as compared to income from operations of $63.1 million for the three months ended September 30, 2023. The decrease is primarily due to charges incurred related to lease impairment and lease restructuring activities and the lower revenue as described above. Operating income margin was 14% for three months ended September 30, 2024 as compared to operating income margin of 20% for the three months ended September 30, 2023.

Previous wording

Other income, net. Other income, net was $5.9 million for the three months ended June 30, 2024, which primarily consists of $3.6 million of investment income, as compared to other income of $7.1 million for the three months ended June 30, 2023, which consists of $6.5 million of investment income.

Current wording

Other income, net. Other income, net was $1.0 million for the three months ended September 30, 2024, which primarily consists of $2.2 million of investment income partially offset by $0.7 million of TRA remeasurement loss, as compared to other income of $8.0 million for the three months ended September 30, 2023, which primarily consists of $6.7 million of investment income.

Previous wording

Interest expense, net. Interest expense, net was $9.8 million for the three months ended June 30, 2024, a decrease of $2.2 million, or 18%, as compared to $12.0 million for the three months ended June 30, 2023, primarily due to both lower interest rates and higher interest income.

Current wording

Interest expense, net. Interest expense, net was $9.6 million for the three months ended September 30, 2024, a decrease of $2.3 million, or 19%, as compared to $11.9 million for the three months ended September 30, 2023, primarily due to both lower interest rates and higher interest income.

Previous wording

Provision (benefit) for income taxes. The Company is subject to income taxes in the United States and various foreign jurisdictions. Benefit for income taxes for the three months ended June 30, 2024 was $0.2 million, representing an effective tax rate of 0.7%, as compared to provision for income taxes of $16.6 million, representing an effective tax rate of 30.3%, for the three months ended June 30, 2023. The income tax benefit for the three months ended June 30, 2024 was primarily due to a loss before taxes. The annual effective tax rate differed from the U.S. federal statutory rate due to non-deductible equity compensation costs, U.S. state taxes including the remeasurement of deferred tax assets for the effect of state law changes, foreign taxes, and tax costs accrued for future repatriations of foreign earnings, partially offset by research and development credits. Refer to Note 14 - Income Taxes of our unaudited consolidated financial statements included in Part I, Item 1 of this Form 10-Q for additional information related to the components of our income tax provision.

Current wording

Provision for income taxes. The Company is subject to income taxes in the United States and various foreign jurisdictions. Provision for income taxes for the three months ended September 30, 2024 was $11.1 million, representing an effective tax rate of 31.7%, as compared to provision for income taxes of $29.0 million, representing an effective tax rate of 49.0%, for the three months ended September 30, 2023. The effective tax rate differed from the U.S. federal statutory rate of 21.0% due to non-deductible equity compensation costs, U.S. state taxes, foreign taxes, partially offset by research and development credits. Refer to Note 14 - Income Taxes of our unaudited consolidated financial statements included in Part I, Item 1 of this Form 10-Q for additional information related to the components of our income tax provision.

Previous wording

Net income (loss). Net loss was $24.4 million for three months ended June 30, 2024, a decrease of $62.5 million or 164%, as compared to net income of $38.1 million for the three months ended June 30, 2023. The decrease was primarily due to costs incurred related to lease impairment and abandonment charges and the change in accounting estimate of collectibility of accounts receivable, partially offset by lower income tax expense.

Current wording

Net income. Net income was $23.8 million for three months ended September 30, 2024, a decrease of $6.4 million or 21%, as compared to net income of $30.2 million for the three months ended September 30, 2023. The decrease was primarily due to costs incurred related to lease impairment charges and lease restructuring activities and the lower revenue as described above, partially offset by lower income tax expense.

Previous wording

Cost of Service. Cost of service was $45.9 million for the three months ended June 30, 2024, an increase of $2.3 million, or 5%, as compared to $43.6 million for the three months ended June 30, 2023. Excluding equity-based compensation expenses, cost of service was $43.2 million for three months ended June 30, 2024, an increase of $3.0 million, or 7%, as compared to $40.2 million for three months ended June 30, 2023, primarily due to increased amortization expense on internally developed capitalized software, hosting fees, and facilities expense.

Current wording

Cost of service. Cost of service was $136.6 million for the nine months ended September 30, 2024, an increase of $2.7 million, or 2%, as compared to $133.9 million for the nine months ended September 30, 2023. Excluding equity-based compensation expense, cost of service was $128.7 million for nine months ended September 30, 2024, an increase of $6.6 million, or 5%, as compared to $122.1 million for nine months ended September 30, 2023, primarily due to charges incurred related to lease restructuring activities, amortization expense on internally developed capitalized software, and hosting fees.

Previous wording

Gross profit. Gross profit for the six months ended June 30, 2024 was $512.3 million and represented a gross margin of 85%. Gross profit for six months ended June 30, 2023 was $520.2 million and represented a gross margin of 85%. The decrease in gross profit in the six months ended June 30, 2024 relative to the six months ended June 30, 2023 was $7.9 million, or 2%, primarily due to lower revenues, as described above, and increased amortization expense on internally developed capitalized software.

Current wording

Gross profit. Gross profit for the nine months ended September 30, 2024 was $768.6 million and represented a gross margin of 85%. Gross profit for nine months ended September 30, 2023 was $789.2 million and represented a gross margin of 85%. The decrease in gross profit in the nine months ended September 30, 2024 relative to the nine months ended September 30, 2023 was $20.6 million, or 3%, primarily due to lower revenues, as described above, and increased amortization expense on internally developed capitalized software, charges incurred related to lease restructuring activities, and hosting fees.

Previous wording

•Sales and marketing for the three months ended June 30, 2024 was $100.5 million, representing a decrease of $4.0 million, or 4%, as compared to $104.5 million for the three months ended June 30, 2023. Sales and marketing, excluding equity-based compensation, for the three months ended June 30, 2024 was $86.5 million, relatively flat as compared to $86.9 million for the three months ended June 30, 2023.

Current wording

•Sales and marketing for the nine months ended September 30, 2024 was $299.2 million, representing a decrease of $10.9 million, or 4%, as compared to $310.1 million for the nine months ended September 30, 2023. Sales and marketing, excluding equity-based compensation expense, for the nine months ended September 30, 2024 was $261.1 million, representing an increase of $5.6 million, or 2%, as compared to $255.5 million for the nine months ended September 30, 2023, primarily due to charges incurred related to lease restructuring activities, and increased expenses relating to marketing, facilities, and employee-related benefits, offset by decreased compensation costs.

Previous wording

•Research and development for the three months ended June 30, 2024 was $48.3 million representing a decrease of $5.0 million, or 9%, as compared to $53.3 million for the three months ended June 30, 2023. Research and development, excluding equity-based compensation, for the three months ended June 30, 2024 was $38.1 million, relatively flat as compared to $37.9 million for the three months ended June 30, 2023.

Current wording

•Research and development for the nine months ended September 30, 2024 was $139.7 million representing a decrease of $3.5 million, or 2%, as compared to $143.2 million for the nine months ended September 30, 2023. Research and development, excluding equity-based compensation expense, for the nine months ended September 30, 2024 was $110.2 million, an increase of $1.0 million, or 1%, compared to $109.2 million for the nine months ended September 30, 2023.

Previous wording

•General and administrative for the six months ended June 30, 2024 was $186.4 million representing an increase of $106.5 million, or 133%, as compared to $79.9 million for the six months ended June 30, 2023. General and administrative, excluding equity-based compensation, for the six months ended June 30, 2024 was $168.8 million, representing an increase of $106.0 million, or 169%, as compared to $62.8 million for the six months ended June 30, 2023, primarily due to charges incurred related to the Class Actions (See Note 9 - Commitments and Contingencies for further information) and lease impairment and abandonment charges, as well as incremental bad debt expense resulting from the change in accounting estimate.

Current wording

•General and administrative for the nine months ended September 30, 2024 was $247.0 million representing an increase of $116.6 million, or 89%, as compared to $130.4 million for the nine months ended September 30, 2023. General and administrative, excluding equity-based compensation expense, for the nine months ended September 30, 2024 was $218.3 million, representing an increase of $114.4 million, or 110%, as compared to $103.9 million for the nine months ended September 30, 2023, primarily due to lease impairment and abandonment charges, lease restructuring activities, charges incurred related to the Class Actions (See Note 9 - Commitments and Contingencies for further information), and incremental bad debt expense resulting from the change in accounting estimate.

Previous wording

•Amortization of other acquired intangibles was $10.8 million, representing a decrease of $0.3 million, or 3%, for the six months ended June 30, 2024 as compared to $11.1 million for the six months ended June 30, 2023.

Current wording

•Amortization of other acquired intangibles was $16.2 million, representing a decrease of $0.3 million, or 2%, for the nine months ended September 30, 2024 as compared to $16.5 million for the nine months ended September 30, 2023.

Previous wording

Equity-based compensation expense. Equity-based compensation expense was $67.6 million for the six months ended June 30, 2024, a decrease of $16.4 million, or 20%, as compared to $84.0 million for the six months ended June 30, 2023, due to lower grant date fair values of grants being amortized in the current period compared to those that were amortized in the prior year, capitalization of equity-based compensation, and terminations.

Current wording

Equity-based compensation expense. Equity-based compensation expense was $104.2 million for the nine months ended September 30, 2024, a decrease of $22.7 million, or 18%, as compared to $126.9 million for the nine months ended September 30, 2023, due to lower weighted average grant date fair values of grants being amortized in the current period compared to those that were amortized in the prior year and higher capitalization of equity-based compensation, partially offset by decreased termination expense reversals.

Previous wording

Income (loss) from operations. Income from operations was $23.0 million for the six months ended June 30, 2024, a decrease of $102.9 million, or 82%, as compared to $125.9 million for the six months ended June 30, 2023. The decrease was primarily due to costs incurred related to the Class Actions, lease impairment and abandonment charges, and the change in accounting estimate of collectibility of accounts receivable. Operating income margin was 4% for the six months ended June 30, 2024 as compared to 21% for the six months ended June 30, 2023.

Current wording

Income from operations. Income from operations was $66.5 million for the nine months ended September 30, 2024, a decrease of $122.5 million, or 65%, as compared to $189.0 million for the nine months ended September 30, 2023. The decrease was primarily due to lease impairment and abandonment charges, lease restructuring activities, and costs incurred related to the Class Actions, as well as the change in accounting estimate of collectibility of accounts receivable. Operating income margin was 7% for the nine months ended September 30, 2024 as compared to 20% for the nine months ended September 30, 2023.

Previous wording

Other income, net. Other income was $2.5 million for the six months ended June 30, 2024, which primarily consists of $7.3 million of investment income, offset by $9.2 million of TRA remeasurement loss, as compared to other income of $21.1 million for the six months ended June 30, 2023, which primarily consists of $11.2 million of TRA remeasurement gain, and $10.5 million of investment income.

Current wording

Other income, net. Other income was $3.5 million for the nine months ended September 30, 2024, which primarily consists of $9.5 million of investment income and $1.4 million of foreign currency gain, mostly offset by $9.9 million of TRA remeasurement loss, as compared to other income of $29.1 million for the nine months ended September 30, 2023, which primarily consists of $13.8 million of TRA remeasurement gain and $17.2 million of investment income.

Previous wording

Interest expense, net Interest expense, net was $19.9 million for the six months ended June 30, 2024, a decrease of $2.0 million, or 9%, as compared to $21.9 million for the six months ended June 30, 2023, primarily due to the lower interest rates.

Current wording

Interest expense, net Interest expense, net was $29.5 million for the nine months ended September 30, 2024, a decrease of $4.3 million, or 13%, as compared to $33.8 million for the nine months ended September 30, 2023, primarily due to both lower interest rates and higher interest income.

Previous wording

Provision (benefit) for income taxes. The Company is subject to income taxes in the United States and various foreign jurisdictions. Provision for income taxes for the six months ended June 30, 2024 was $14.2 million, representing an effective tax rate of 288.9%, as compared to provision for income taxes of $40.3 million, representing an effective tax rate of 32.8%, for the six months ended June 30, 2023. The decrease in income tax expense was primarily due to a reduction in income before taxes. The annual effective tax rate differed from the U.S. federal statutory rate due to non-deductible equity compensation costs, U.S. state taxes including the remeasurement of deferred tax assets for the effect of state law changes, foreign taxes, and tax costs accrued for future repatriations of foreign earnings, partially offset by research and development credits. Refer to Note 14 - Income Taxes of our unaudited consolidated financial statements included in Part I, Item 1 of this Form 10-Q for additional information related to the components of our income tax provision.

Current wording

Provision for income taxes. The Company is subject to income taxes in the United States and various foreign jurisdictions. Provision for income taxes for the nine months ended September 30, 2024 was $25.3 million, representing an effective tax rate of 63.4%, as compared to provision for income taxes of $69.3 million, representing an effective tax rate of 38.1%, for the nine months ended September 30, 2023. The decrease in income tax expense was primarily due to a reduction in income before taxes. The effective tax rate differed from the U.S. federal statutory rate of 21.0% due to non-deductible equity compensation costs, U.S. state taxes foreign taxes, partially offset by research and development credits. Refer to Note 14 - Income Taxes of our unaudited consolidated financial statements included in Part I, Item 1 of this Form 10-Q for additional information related to the components of our income tax provision.

Previous wording

The following table presents a reconciliation of Income (loss) from operations to Adjusted Operating Income for the periods presented:

Current wording

The following table presents a reconciliation of Income from operations to Adjusted Operating Income for the periods presented:

Previous wording

(3)Represents charges associated with certain legal settlements. For thesix months ended June 30, 2024, these charges are related to costs incurred due to the Class Actions. See Note 9 - Commitments and Contingencies for further information.

Current wording

(3)Represents charges associated with certain legal settlements. For the nine months ended September 30, 2024, these charges are related to costs incurred due to the Class Actions. See Note 9 - Commitments and Contingencies for further information.

Previous wording

Adjusted Operating Income for the six months ended June 30, 2024 was $200.9 million and represented an Adjusted Operating Income Margin of 33%. Adjusted Operating Income for the six months ended June 30, 2023 was $245.9 million and represented an Adjusted Operating Income Margin of 40%. The decrease of $45.0 million, or 18%, in Adjusted Operating Income was primarily due to the change in accounting estimate of collectibility of accounts receivable resulting in both reduced revenues as well as incremental bad debt expense.

Current wording

Adjusted Operating Income for the three months ended September 30, 2024 was $111.7 million and represented an Adjusted Operating Income Margin of 37%. Adjusted Operating Income for the three months ended September 30, 2023 was $126.2 million and represented an Adjusted Operating Income Margin of 40%. The decrease of $14.5 million, or 11%, in Adjusted Operating Income was primarily due to the lower revenues in the current period as described above.

Previous wording

Adjusted Operating Income for the three months ended June 30, 2024 was $81.6 million and represented an Adjusted Operating Income Margin of 28%. Adjusted Operating Income for the three months ended June 30, 2023 was $125.6 million and represented an Adjusted Operating Income Margin of 41%. The decrease of $44.0 million, or 35%, in Adjusted Operating Income was primarily due to the change in accounting estimate of collectibility of accounts receivable resulting in both reduced revenues as well as incremental bad debt expense.

Current wording

Adjusted Operating Income for the nine months ended September 30, 2024 was $312.6 million and represented an Adjusted Operating Income Margin of 35%. Adjusted Operating Income for the nine months ended September 30, 2023 was $372.1 million and represented an Adjusted Operating Income Margin of 40%. The decrease of $59.5 million, or 16%, in Adjusted Operating Income was primarily due to the change in accounting estimate of collectibility of accounts receivable resulting in both reduced revenues as well as incremental bad debt expense.

Previous wording

(4)Represents tax expense associated with GAAP Net income (loss) excluded from Adjusted Net Income (Non-GAAP). This includes the tax effects associated with equity compensation, remeasurement of deferred tax assets for the effect of state law changes, and TRA liability remeasurement.

Current wording

(4)Represents tax expense associated with GAAP Net income excluded from Adjusted Net Income (Non-GAAP). This includes the tax effects associated with equity compensation, remeasurement of deferred tax assets for the effect of state law changes, and TRA liability remeasurement.

Previous wording

(1)Primarily represents revaluations on TRA liability and investment income.

Current wording

(2)Primarily represents revaluations on TRA liability and investment income.

Previous wording

(3)Represents costs directly associated with acquisition or disposal activities, including employee severance and termination benefits, contract termination fees and penalties, and other exit or disposal costs. For three and six months ended June 30, 2024, this expense is primarily related to lease impairment and abandonment charges. For the three and six months ended June 30, 2023, this expense is primarily related to costs associated with a June 2023 reduction in force.

Current wording

(4)Represents costs directly associated with acquisition or disposal activities, including employee severance and termination benefits, contract termination fees and penalties, and other exit or disposal costs. For three and nine months ended September 30, 2024, this expense is primarily related to lease impairment and abandonment charges as well as lease restructuring activities. For the three and nine months ended September 30, 2023, this expense is primarily related to costs associated with a June 2023 reduction in force, and impairment charges related to the Ra’anana office and other offices.

Previous wording

As of June 30, 2024, we had $385.9 million of cash and cash equivalents, $13.4 million of short-term investments, and $250.0 million available under our first lien revolving credit facility. We have financed our operations primarily through cash generated from operations and financed various acquisitions through cash generated from operations supplemented with debt offerings.

Current wording

As of September 30, 2024, we had $147.7 million of cash and cash equivalents and $250.0 million available under our first lien revolving credit facility. We have financed our operations primarily through cash generated from operations and financed various acquisitions through cash generated from operations supplemented with debt offerings.

Previous wording

We generally invoice our subscription customers annually, semi-annually, or quarterly in advance of our subscription services. Therefore, a substantial source of our cash is from such prepayments, which are included on our Consolidated Balance Sheets as unearned revenue. Unearned revenue consists of billed fees for our subscriptions, prior to satisfying the criteria for revenue recognition, which are subsequently recognized as revenue in accordance with our revenue recognition policy. As of June 30, 2024, we had unearned revenue of $440.4 million, of which $438.9 million was recorded as a current liability and is expected to be recorded as revenue in the next 12 months, provided all other revenue recognition criteria have been met.

Current wording

We generally invoice our subscription customers annually, semi-annually, or quarterly in advance of our subscription services. Therefore, a substantial source of our cash is from such prepayments, which are included on our Consolidated Balance Sheets as unearned revenue. Unearned revenue consists of billed fees for our subscriptions, prior to satisfying the criteria for revenue recognition, which are subsequently recognized as revenue in accordance with our revenue recognition policy. As of September 30, 2024, we had unearned revenue of $419.2 million, of which $417.0 million was recorded as a current liability and is expected to be recorded as revenue in the next 12 months, provided all other revenue recognition criteria have been met.

Previous wording

Net cash provided by operating activities was $242.2 million for the six months ended June 30, 2024 as a result of net loss of $9.3 million, adjusted by non-cash charges of $242.6 million and the net change in our operating and liabilities of $8.9 million. The non-cash charges are primarily comprised of equity-based compensation of $67.6 million, asset impairments and lease abandonment charges of $48.7 million, depreciation and amortization of $40.9 million, amortization of deferred commission costs of $33.6 million, provision for bad debt expense of $32.5 million, TRA remeasurement of $9.2 million, and a decrease in deferred tax assets net of deferred tax liabilities of $8.3 million. The net change in operating assets and liabilities was primarily the result of a decrease in accounts receivable of $49.6 million and an increase in accrued expenses and other liabilities of $18.3 million, partially offset by an increase in deferred costs and other assets of $35.5 million and a decrease in accounts payable of $15.1 million.

Current wording

Net cash provided by operating activities was $260.4 million for the nine months ended September 30, 2024 as a result of net income of $14.5 million, adjusted by non-cash charges of $335.5 million and the net change in our operating and liabilities of $89.6 million. The non-cash charges are primarily comprised of equity-based compensation of $104.2 million, depreciation and amortization of $63.3 million, asset impairments and lease abandonment charges of $57.4 million, amortization of deferred commission costs of $49.5 million, provision for bad debt expense of $39.3 million, a decrease in deferred tax assets net of deferred tax liabilities of $11.0 million, and TRA remeasurement of $9.9 million. The net change in operating assets and liabilities was primarily the result of a decrease in accrued expenses and other liabilities of $64.7 million, an increase in deferred costs and other assets of $30.4 million, a decrease in unearned revenue of $22.6 million, an increase in prepaid and other current expenses of $21.1 million, and a decrease in accounts payable of $17.6 million, partially offset by a decrease in accounts receivable of $69.7 million.