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Section 1: 8-K (8-K)

Document


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
     
FORM 8-K
CURRENT REPORT
 

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported)   May 3, 2019
 
  
j2 Global, Inc.
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)
 
0-25965
(Commission
File Number)
 
47-1053457
(IRS Employer
Identification No.)

6922 Hollywood Blvd.
Suite 500
Los Angeles, California 90028
(Address of principal executive offices)

(323) 860-9200
(Registrant’s telephone number, including area code)
 
(Former name or former address, if changed since last report)
      
      
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
o
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

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. ☐





Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $0.01 par value
JCOM
NASDAQ Global Select Market
 






Item 2.02. Results of Operations and Financial Condition

On May 7, 2019, j2 Global, Inc. (the “Company”) issued a press release (the “Press Release”) announcing its financial results for the first quarter of fiscal 2019, updated financial guidance for fiscal year 2019, and approved a suspension of its dividend following the June 4, 2019 dividend payment described below.

The Company also announced that it has declared a quarterly cash dividend of $0.4550 per common share. The dividend will be paid on June 4, 2019 to all shareholders of record as of the close of business on May 20, 2019.

A copy of the Press Release is furnished as Exhibit 99.1 to this Form 8-K.

Item 5.07. Submission of Matters to a Vote of Security Holders.

(a) On May 3, 2019, the Company held its 2019 Annual Meeting of Stockholders (the “Annual Meeting”) in Los Angeles, California.

(b) Below are the voting results for the matters submitted to the Company’s stockholders for a vote at the Annual Meeting:

(1)
The election of the following eight director nominees to serve for the ensuing year and until their successors are elected and qualified. All nominees were elected as directors with the following vote:

Nominee
For
Against
Abstain
Broker Non-Votes
Douglas Y. Bech
41,302,873
1,792,694
50,367
1,820,112
Robert J. Cresci
40,937,246
2,158,139
50,549
1,820,112
Sarah Fay
42,145,702
950,135
50,097
1,820,112
W. Brian Kretzmer
42,486,923
608,160
50,851
1,820,112
Jonathan F. Miller
42,503,938
591,150
50,846
1,820,112
Richard S. Ressler
40,807,621
2,287,637
50,676
1,820,112
Stephen Ross
42,175,109
920,447
50,378
1,820,112
Vivek Shah
42,734,129
361,316
50,489
1,820,112

(2)
A proposal to ratify the appointment of BDO USA, LLP to serve as the Company’s independent auditors for fiscal 2019. This proposal was approved with the following vote:

For
44,871,391
Against
45,617
Abstain
49,038
Broker Non-Votes
0

(3)
A proposal to approve, in an advisory vote, the compensation of the named executive officers.  This proposal was approved with the following vote:

For
22,857,802
Against
19,824,317
Abstain
463,815
Broker Non-Votes
1,820,112

Item 7.01. Regulation FD Disclosure

On May 8, 2019, at 8:30 a.m. Eastern Time, the Company will host its first quarter 2019 earnings conference call and Webcast. Via the Webcast, the Company will present portions of its May 2019 Investor Presentation, which contains a summary of the Company’s financial results for the fiscal quarter ended March 31, 2019, an adjustment to its financial guidance for fiscal year 2019, and certain other financial and operating information regarding the Company. A copy of this presentation is furnished as Exhibit 99.2 to this Form 8-K.






Item 9.01. Financial Statements and Exhibits*
 
(d) Exhibits

Exhibit
Number
   
 
Description
 
 
 
99.1
 
Press Release dated May 7, 2019.
99.2
 
May 2019 Investor Presentation.

* The information in Item 2.02, Item 7.01 and Item 9.01 of this Current Report on Form 8-K, including the exhibits, is being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933, as amended (the “Securities Act”) or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.


This Current Report on Form 8-K contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Such forward-looking statements are subject to numerous assumptions, risks and uncertainties that could cause actual results to differ materially from those described in such statements. Such forward-looking statements are based on management’s expectations or beliefs as of May 8, 2019. Factors that might cause such differences include, but are not limited to, a variety of economic, competitive, and regulatory factors, many of which are beyond the Company’s control and are described in the Company’s Annual Report on Form 10-K filed by the Company on March 1, 2019 with the Securities and Exchange Commission (the “SEC”) and the other reports the Company files from time to time with the SEC. The Company undertakes no obligation to revise or publicly release any updates to such statements based on future information or actual results. 

INDEX TO EXHIBITS

Exhibit
Number
   
 
Description
 
 
 
 
 

SIGNATURES

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 hereunto duly authorized.
   
    
j2 Global, Inc.
(Registrant)
 
   
 
 
Date:   May 8, 2019
By:
/s/ Jeremy Rossen
 
 
Jeremy Rossen
Vice President and General Counsel


 




(Back To Top)

Section 2: EX-99.1 (EXHIBIT 99.1)

Exhibit
j2 Global Reports First Quarter 2019 Results

Achieves Record First Quarter Revenues & Raises Full Year 2019 Estimates
Announces Adjustment to Dividend Policy to Accelerate Growth

LOS ANGELES -- j2 Global, Inc. (NASDAQ: JCOM) today reported financial results for the first quarter ended March 31, 2019; increased its revenue, Adjusted EBITDA and Adjusted Non-GAAP earnings per diluted share estimates for the year. j2 also announced that its Board of Directors has approved a dividend to be paid on June 4, 2019, and, based on the Board’s view of the strength and prospects of investment opportunities across the Company, has decided to suspend dividend payments following the June 4, 2019 dividend to retain and redirect that cash flow to enhance the growth of our various businesses.

“Our portfolio of businesses - and the leadership managing it - has never been stronger or deeper,” said Vivek Shah, CEO of j2 Global. “It’s reflected in our first quarter results, our improved outlook for the remainder of the year and the breadth of promising investment opportunities in front of us. It’s why we are confident that by suspending our dividend, we can prudently direct the increasing cash flow to opportunities within our businesses to create greater shareholder returns over the near, medium and long term.”

FIRST QUARTER 2019 RESULTS

Q1 2019 quarterly revenues increased 6.9% to a first quarter record of $299.9 million compared to $280.6 million for Q1 2018.  

Net cash provided by operating activities increased to $116.9 million compared to $103.9 million for Q1 2018Q1 2019 free cash flow(1) increased 15.0% to $104.3 million compared to $90.7 million for Q1 2018.

GAAP earnings per diluted share(2) increased 73.7% to $0.66 in Q1 2019 compared to $0.38 for Q1 2018

Adjusted non-GAAP earnings per diluted share(2)(3) for the quarter increased 14.8% to $1.40 compared to $1.22 for Q1 2018.

GAAP net income increased by 71.4% to $32.4 million compared to $18.9 million for Q1 2018.

Quarterly Adjusted EBITDA(4) increased 10.9% to $113.9 million compared to $102.7 million for Q1 2018.

j2 ended the quarter with approximately $320 million in cash and investments after deploying approximately $82 million during the quarter for acquisitions and j2’s regular quarterly dividend.

Key financial results for Q1 2019 versus Q1 2018 are set forth in the following table (in millions, except per share amounts). Reconciliations of Adjusted non-GAAP earnings per diluted share, Adjusted EBITDA and free cash flow to their nearest comparable GAAP financial measures are attached to this Press Release.
 
Q1 2019
Q1 2018
% Change
Revenues
 
 
 
Cloud Services
$152.2 million
$149.5 million
1.8%
Digital Media
$147.6 million
$131.1 million
12.6%
Total Revenue:
$299.9 million
$280.6 million
6.9%
Operating Income
$50.9 million
$46.2 million
10.2%
Net Cash Provided by Operating Activities
$116.9 million
$103.9 million
12.5%
Free Cash Flow (1)
$104.3 million
$90.7 million
15.0%
GAAP Earnings per Diluted Share (2)
$0.66
$0.38
73.7%
Adjusted Non-GAAP Earnings per Diluted Share (2) (3)
$1.40
$1.22
14.8%
GAAP Net Income
$32.4 million
$18.9 million
71.4%
Adjusted Non-GAAP Net Income
$68.4 million
$59.8 million
14.4%
Adjusted EBITDA (4)
$113.9 million
$102.7 million
10.9%
Adjusted EBITDA Margin (4)
38.0%
36.6%
1.4%






BUSINESS OUTLOOK

For fiscal 2019, the Company is increasing its estimates that it will achieve revenues between $1.33 billion and $1.37 billion from between $1.29 billion and $1.33 billion, Adjusted EBITDA between $540 million and $556 million from between $520 million and $540 million, and Adjusted non-GAAP earnings per diluted share of between $6.95 and $7.15 from between $6.65 and $6.95.

Adjusted non-GAAP earnings per diluted share for 2019 excludes share-based compensation of between $23 million and $27 million, amortization of acquired intangibles and the impact of any currently unanticipated items, in each case net of tax.

It is anticipated that the non-GAAP effective tax rate for 2019 (exclusive of the release of reserves for uncertain tax positions) will be between 20.5% and 22.5%.

The Company has not reconciled the Adjusted non-GAAP earnings per diluted share and tax rate guidance included in this release to the most directly comparable GAAP measure because this cannot be done without unreasonable effort due to the variability with respect to costs related to acquisitions and taxation, which are potential adjustments to future earnings. We expect the variability of these items to have a potentially unpredictable and significant impact on our future GAAP financial results.

DIVIDEND

j2’s Board of Directors approved a quarterly cash dividend of $0.4550 per common share, a $0.01, or 2.2% increase versus last quarter’s dividend, to be paid on June 4, 2019 to all shareholders of record as of the close of business on May 20, 2019. Based on the significant number of current investment opportunities within j2’s portfolio of businesses and the historic returns from prior investments, the Board has decided to suspend dividend payments for the foreseeable future after the June 4, 2019 payment to retain and redirect that cash flow to enhance the growth of our various businesses.

Notes:
(1)
 
Free cash flow is defined as net cash provided by operating activities, less purchases of property, plant and equipment, plus contingent consideration. Free cash flow amounts are not meant as a substitute for GAAP, but are solely for informational purposes.
(2)
 
The estimated GAAP effective tax rates were approximately (0.9)% for Q1 2019 and 27.1% for Q1 2018. The estimated Adjusted non-GAAP effective tax rates were approximately 20.9% for Q1 2019 and 23.7% for Q1 2018.
(3)
 
Adjusted non-GAAP earnings per diluted share excludes certain non-GAAP items, as defined in the Reconciliation of GAAP to Adjusted non-GAAP Financial Measures, for the three months ended March 31, 2019 and 2018 totaled $0.74 and $0.84 per diluted share, respectively.
(4)
 
Adjusted EBITDA is defined as earnings before interest and other expense, net; income tax expense; depreciation and amortization; and the items used to reconcile EPS to Adjusted non-GAAP EPS, as defined in the Reconciliation of GAAP to Adjusted non-GAAP Financial Measures. Adjusted EBITDA amounts are not meant as a substitute for GAAP, but are solely for informational purposes.





About j2 Global

j2 Global, Inc. (NASDAQ: JCOM) is a leading internet information and services company consisting of a portfolio of brands including IGN, Mashable, Humble Bundle, Speedtest, PCMag, Offers.com, Everyday Health and What To Expect in its Digital Media business and eFax, eVoice, Campaigner, Vipre, KeepItSafe and Livedrive in its Cloud Services business. j2 reaches over 180 million people per month across its brands. As of December 31, 2018, j2 had achieved 23 consecutive fiscal years of revenue growth. For more information about j2, please visit www.j2global.com.
Contact:
Scott Turicchi
j2 Global, Inc.
800-577-1790
press@j2.com
 
“Safe Harbor” Statement Under the Private Securities Litigation Reform Act of 1995: Certain statements in this Press Release are “forward-looking statements” within the meaning of The Private Securities Litigation Reform Act of 1995, including those contained in Vivek Shah’s quote and the “Business Outlook” portion regarding the Company’s expected fiscal 2019 financial performance. These forward-looking statements are based on management’s current expectations or beliefs and are subject to numerous assumptions, risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. These factors and uncertainties include, among other items: the Company’s ability to grow non-fax revenues, profitability and cash flows; the Company’s ability to identify, close and successfully transition acquisitions; subscriber growth and retention; variability of the Company’s revenue based on changing conditions in particular industries and the economy generally; protection of the Company’s proprietary technology or infringement by the Company of intellectual property of others; the risk of adverse changes in the U.S. or international regulatory environments, including but not limited to the imposition or increase of taxes or regulatory-related fees; and the numerous other factors set forth in j2 Global’s filings with the Securities and Exchange Commission (“SEC”). For a more detailed description of the risk factors and uncertainties affecting j2 Global, refer to the 2018 Annual Report on Form 10-K filed by j2 Global on March 1, 2019, and the other reports filed by j2 Global from time-to-time with the SEC, each of which is available at www.sec.gov. The forward-looking statements provided in this press release, including those contained in Vivek Shah’s quote and in the “Business Outlook” portion regarding the Company’s expected fiscal 2019 financial performance are based on limited information available to the Company at this time, which is subject to change. Although management’s expectations may change after the date of this press release, the Company undertakes no obligation to revise or update these statements.

About Non-GAAP Financial Measures

To supplement our consolidated financial statements, which are prepared and presented in accordance with GAAP, we use the following Adjusted non-GAAP financial measures: Adjusted non-GAAP net income, Adjusted non-GAAP earnings per diluted share, Adjusted EBITDA and free cash flow. The presentation of this financial information is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP.

We use these Adjusted non-GAAP financial measures for financial and operational decision-making and as a means to evaluate period-to-period comparisons. Our management believes that these Adjusted non-GAAP financial measures provide meaningful supplemental information regarding our performance and liquidity by excluding certain expenses and expenditures that may not be indicative of our recurring core business operating results. We believe that both management and investors benefit from referring to these Adjusted non-GAAP financial measures in assessing our performance and when planning, forecasting, and analyzing future periods. These Adjusted non-GAAP financial measures also facilitate management’s internal comparisons to our historical performance and liquidity. We believe these Adjusted non-GAAP financial measures are useful to investors both because (1) they allow for greater transparency with respect to key metrics used by management in its financial and operational decision-making and (2) they are used by our institutional investors and the analyst community to help them analyze the health of our business.

For more information on these Adjusted non-GAAP financial measures, please see the appropriate GAAP to Adjusted non-GAAP reconciliation tables included within the attached Exhibit to this release. 




j2 GLOBAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED, IN THOUSANDS)
 
March 31, 2019
 
December 31, 2018
ASSETS
 
 
 
Cash and cash equivalents
$
226,612

 
$
209,474

Accounts receivable, net of allowances of $11,152 and $10,422, respectively
176,741

 
221,615

Prepaid expenses and other current assets
32,208

 
29,242

Total current assets
435,561

 
460,331

Long-term investments
93,731

 
83,828

Property and equipment, net
104,635

 
98,813

Operating lease right-of-use assets
69,289

 

Goodwill
1,415,635

 
1,380,376

Other purchased intangibles, net
513,454

 
526,468

Other assets
10,608

 
11,014

TOTAL ASSETS
$
2,642,913

 
$
2,560,830

 
 
 
 
 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 

Accounts payable and accrued expenses
$
186,964

 
$
166,521

Income taxes payable, current
10,641

 
12,915

Deferred revenue, current
129,964

 
127,568

Operating lease liabilities, current
5,378

 

Other current liabilities
2,013

 
318

Total current liabilities
334,960

 
307,322

Long-term debt
1,015,967

 
1,013,129

Deferred revenue, noncurrent
11,839

 
13,200

Operating lease liabilities, noncurrent
68,189

 

Income taxes payable, noncurrent
11,675

 
11,675

Liability for uncertain tax positions
54,096

 
59,644

Deferred income taxes, noncurrent
68,103

 
69,048

Other long-term liabilities
21,430

 
51,068

TOTAL LIABILITIES
1,586,259

 
1,525,086

Commitments and contingencies

 

Preferred stock

 

Common stock
477

 
481

Additional paid-in capital
358,932

 
354,210

Treasury stock

 
(42,543
)
Retained earnings
742,173

 
769,575

Accumulated other comprehensive loss
(44,928
)
 
(45,979
)
TOTAL STOCKHOLDERS’ EQUITY
1,056,654

 
1,035,744

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
2,642,913

 
$
2,560,830





j2 GLOBAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED, IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
 
Three Months Ended
March 31,
 
2019
 
2018
Total revenues
$
299,893

 
$
280,623

 
 
 
 
Cost of revenues (1)
51,013

 
48,145

Gross profit
248,880

 
232,478

 
 
 
 
Operating expenses:
 
 
 

Sales and marketing (1)
86,880

 
86,311

Research, development and engineering (1)
12,984

 
12,210

General and administrative (1)
98,154

 
87,799

Total operating expenses
198,018

 
186,320

Income from operations
50,862

 
46,158

Interest expense, net
16,019

 
15,751

Other expense, net
2,215

 
4,519

Income before income taxes and net loss in earnings of equity method investment
32,628

 
25,888

Income tax (benefit) expense
(295
)
 
7,017

Net loss in earnings of equity method investment
474

 

Net income
$
32,449

 
$
18,871

 
 
 
 
Basic net income per common share:
 
 
 

Net income attributable to j2 Global, Inc. common shareholders
$
0.67

 
$
0.39

 
 
 
 
Diluted net income per common share:
 
 
 
Net income attributable to j2 Global, Inc. common shareholders
$
0.66

 
$
0.38

 
 
 
 

Basic weighted average shares outstanding
47,560,749

 
47,873,007

Diluted weighted average shares outstanding
48,509,181

 
48,706,717

 
 
 
 
(1) Includes share-based compensation expense as follows:
 
 
 
Cost of revenues
$
132

 
$
121

Sales and marketing
404

 
365

Research, development and engineering
358

 
432

General and administrative
4,192

 
5,502

Total
$
5,086

 
$
6,420







j2 GLOBAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
                                                              
Three Months Ended
March 31,
 
2019
 
2018
Cash flows from operating activities:
 
 
 
Net income
$
32,449

 
$
18,871

Adjustments to reconcile net earnings to net cash provided by operating activities:
 
 
 
Depreciation and amortization
49,209

 
42,618

Amortization of financing costs and discounts
2,965

 
2,852

Amortization of operating lease assets
4,796

 

Share-based compensation
5,086

 
6,420

Provision for doubtful accounts
2,888

 
4,134

Deferred income taxes, net
548

 
354

Changes in fair value of contingent consideration
5,003

 
4,100

Loss on equity investments
628

 
3,678

Decrease (increase) in:
 
 
 

Accounts receivable
41,926

 
59,647

Prepaid expenses and other current assets
(2,143
)
 
2,574

Other assets
(144
)
 
2,132

Increase (decrease) in:
 
 
 

Accounts payable and accrued expenses
(11,550
)
 
(45,144
)
Income taxes payable
(2,333
)
 
(1,721
)
Deferred revenue
(2,352
)
 
3,210

Operating lease liabilities
(518
)
 

Liability for uncertain tax positions
(5,464
)
 
933

Other long-term liabilities
(4,140
)
 
(748
)
Net cash provided by operating activities
116,854

 
103,910

Cash flows from investing activities:
 
 
 

Purchases of equity method investment
(9,794
)
 
(13,403
)
Purchases of property and equipment
(12,531
)
 
(13,165
)
Acquisition of businesses, net of cash received
(59,339
)
 
(80,223
)
Purchases of intangible assets

 
(175
)
Net cash used in investing activities
(81,664
)
 
(106,966
)
Cash flows from financing activities:
 
 
 

Repurchase of common stock
(1,177
)
 
(611
)
Issuance of stock, net of costs
5,259

 
658

Dividends paid
(21,483
)
 
(19,884
)
Deferred payments for acquisitions
(1,395
)
 
(189
)
Other
(480
)
 
(54
)
Net cash used in financing activities
(19,276
)
 
(20,080
)
Effect of exchange rate changes on cash and cash equivalents
1,224

 
3,960

Net change in cash and cash equivalents
17,138

 
(19,176
)
Cash and cash equivalents at beginning of period
209,474

 
350,945

Cash and cash equivalents at end of period
$
226,612

 
$
331,769





j2 GLOBAL, INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP TO ADJUSTED NON-GAAP FINANCIAL MEASURES
THREE MONTHS ENDED MARCH 31, 2019 AND 2018
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Non-GAAP net income is GAAP net income with the following modifications: (1) elimination of share-based compensation and the associated payroll tax expense; (2) elimination of certain acquisition related integration costs; (3) elimination of interest costs in excess of the coupon rate associated with the convertible notes; (4) elimination of amortization of patents and intangible assets that we acquired; (5) elimination of change in value on investment; (6) elimination of additional tax expense/benefit from prior years; and (7) elimination of dilutive effect of the convertible debt.
 
Three Months Ended March 31,
 
2019
Per Diluted Share *
 
2018
Per Diluted Share *
Net income
$
32,449

$
0.66

 
$
18,871

$
0.38

Plus:
 
 
 
 
 
Share based compensation (1)
3,287

0.07

 
4,935

0.10

Acquisition related integration costs (2)
4,377

0.09

 
5,878

0.12

Interest costs (3)
1,296

0.03

 
1,610

0.03

Amortization (4)
25,504

0.54

 
26,370

0.55

Investments (5)
474


 
2,120

0.04

Tax expense from prior years (6)
1,009

0.02

 


Convertible debt dilution (7)

0.01

 

0.01

Adjusted non-GAAP net income
$
68,396

$
1.40

 
$
59,784

$
1.22

* The reconciliation of net income per share from GAAP to Adjusted non-GAAP may not foot since each is calculated independently.




j2 GLOBAL, INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP TO ADJUSTED NON-GAAP FINANCIAL MEASURES
THREE MONTHS ENDED MARCH 31, 2019 AND 2018
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Non-GAAP net income is GAAP net income with the following modifications: (1) elimination of share-based compensation and the associated payroll tax expense; (2) elimination of certain acquisition related integration costs; (3) elimination of interest costs in excess of the coupon rate associated with the convertible notes; (4) elimination of amortization of patents and intangible assets that we acquired; (5) elimination of change in value on investment; (6) elimination of additional tax expense/benefit from prior years; and (7) elimination of dilutive effect of the convertible debt.
 
Three Months Ended March 31,
 
2019
 
2018
Cost of revenues
$
51,013

 
$
48,145

Plus:
 
 
 
Share based compensation (1)
(132
)
 
(121
)
Amortization (4)
(523
)
 
(594
)
Adjusted non-GAAP cost of revenues
$
50,358

 
$
47,430

 
 
 
 
Sales and marketing
$
86,880

 
$
86,311

Plus:
 
 
 
Share based compensation (1)
(404
)
 
(365
)
Acquisition related integration costs (2)
122

 
(440
)
Adjusted non-GAAP sales and marketing
$
86,598

 
$
85,506

 
 
 
 
Research, development and engineering
$
12,984

 
$
12,210

Plus:
 
 
 
Share based compensation (1)
(358
)
 
(432
)
Acquisition related integration costs (2)

 
(97
)
Adjusted non-GAAP research, development and engineering
$
12,626

 
$
11,681

 
 
 
 
General and administrative
$
98,154

 
$
87,799

Plus:
 
 
 
Share based compensation (1)
(4,192
)
 
(5,502
)
Acquisition related integration costs (2)
(5,487
)
 
(6,936
)
Amortization (4)
(37,320
)
 
(33,151
)
Tax expense from prior years (6)
(3,373
)
 

Adjusted non-GAAP general and administrative
$
47,782

 
$
42,210

 
 
 
 
Interest expense, net
$
16,019

 
$
15,751

Plus:
 
 
 
Acquisition related integration costs (2)
27

 
(23
)
Interest costs (3)
(2,242
)
 
(2,116
)
Adjusted non-GAAP interest expense, net
$
13,804

 
$
13,612

 
 
 
 
Other expense, net
$
2,215

 
$
4,519

Plus:
 
 
 
Investments (5)

 
(2,702
)
Adjusted non-GAAP other expense, net
$
2,215

 
$
1,817

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




Continued from previous page
 
 
 
 
 
 
 
Income tax provision
$
(295
)
 
$
7,017

Plus:
 
 
 
Share based compensation (1)
1,799

 
1,485

Acquisition related integration costs (2)
961

 
1,618

Interest costs (3)
946

 
506

Amortization (4)
12,339

 
7,375

Investments (5)

 
582

Tax expense from prior years (6)
2,364

 

Adjusted non-GAAP income tax provision
$
18,114

 
$
18,583

 
 
 
 
Net loss in earnings of equity method investment
$
474

 
$

Plus:
 
 
 
Investments (5)
(474
)
 

Adjusted non-GAAP net loss in earnings of equity method investment
$

 
$

 
 
 
 
Total adjustments
$
(35,947
)
 
$
(40,913
)
 
 
 
 
GAAP earnings per diluted share
$
0.66

 
$
0.38

Adjustments *
$
0.74

 
$
0.84

Adjusted non-GAAP earnings per diluted share
$
1.40

 
$
1.22

* The reconciliation of net income per share from GAAP to Adjusted non-GAAP may not foot since each is calculated independently.

The Company discloses Adjusted non-GAAP Earnings Per Share (“EPS”) as a supplemental Non-GAAP financial performance measure, as it believes it is a useful metric by which to compare the performance of its business from period to period. The Company also understands that this Adjusted non-GAAP measure is broadly used by analysts, rating agencies and investors in assessing the Company’s performance. Accordingly, the Company believes that the presentation of this Adjusted non-GAAP financial measure provides useful information to investors.

Adjusted non-GAAP EPS is not in accordance with, or an alternative to, net income per share and may be different from Non-GAAP measures with similar or even identical names used by other companies. In addition, this Adjusted non-GAAP measure is not based on any comprehensive set of accounting rules or principles. This Adjusted non-GAAP measure has limitations in that it does not reflect all of the amounts associated with the Company’s results of operations determined in accordance with GAAP.





Non-GAAP Financial Measures

To supplement its condensed consolidated financial statements, which are prepared and presented in accordance with US GAAP, the Company uses the following Non-GAAP financial measures: Adjusted EBITDA, Adjusted non-GAAP Net Income, and Adjusted non-GAAP Diluted EPS (collectively the “Non-GAAP financial measures”). The presentation of this financial information is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with U.S. GAAP. The Company uses these Non-GAAP financial measures for financial and operational decision making and as a means to evaluate period-to-period comparisons. The Company believes that they provide useful information about core operating results, enhance the overall understanding of past financial performance and future prospects, and allow for greater transparency with respect to key metrics used by management in its financial and operational decision making.

(1) Share Based Compensation. The Company excludes stock-based compensation because it is non-cash in nature and because the Company believes that the Non-GAAP financial measures excluding this item provide meaningful supplemental information regarding operational performance. The Company further believes this measure is useful to investors in that it allows for greater transparency to certain line items in its financial statements. In addition, excluding this item from the Non-GAAP measures facilitates comparisons to historical operating results and comparisons to peers, many of which similarly exclude this item.

(2) Acquisition Related Integration Costs. The Company excludes certain acquisition and related integration costs such as adjustments to contingent consideration, severance, lease terminations, retention bonuses and other acquisition-specific items. The Company believes that the Non-GAAP financial measures excluding this item provide meaningful supplemental information regarding operational performance. In addition, excluding this item from the Non-GAAP measures facilitates comparisons to historical operating results and comparisons to peers, many of which similarly exclude this item.

(3) Interest Costs. In June 2014, the Company issued $402.5 million aggregate principal amount of 3.25% convertible senior notes.  In accordance with GAAP, the Company separately accounts for the value of the liability and equity features of its outstanding convertible senior notes in a manner that reflects the Company’s non-convertible debt borrowing rate. The value of the conversion feature, reflected as a debt discount, is amortized to interest expense over time. Accordingly, the Company recognizes imputed interest expense on its convertible senior notes of approximately 5.8% in its income statement. The Company excludes the difference between the imputed interest expense and the coupon interest expense of 3.25% because it is non-cash in nature and because the Company believes that the Non-GAAP financial measures excluding this item provide meaningful supplemental information regarding core operational performance. The Company has determined excluding these items from the Non-GAAP measures facilitates comparisons to historical operating results and comparisons to peers, many of which similarly exclude this item.

(4) Amortization. The Company excludes amortization of patents and acquired intangible assets because it is non-cash in nature and because the Company believes that the Non-GAAP financial measures excluding this item provide meaningful supplemental information regarding operational performance. In addition, excluding this item from the Non-GAAP measures facilitates comparisons to historical operating results and comparisons to peers, many of which similarly exclude this item.

(5) Change in Value on Investments. The Company excludes the change in value on its equity investments. The Company believes that the Non-GAAP financial measures excluding this item provide meaningful supplemental information regarding operational performance. In addition, excluding this item from the Non-GAAP measures facilitates comparisons to historical operating results.

(6) Tax Expense/Benefit from Prior Years. The Company excludes certain income tax-related items in respect of income tax audit settlements and their related FIN 48 accrual reversals. The Company believes that the Non-GAAP financial measures excluding this item provide meaningful supplemental information regarding operational performance. In addition, excluding this item from the Non-GAAP measures facilitates comparisons to historical operating results.

(7) Convertible Debt Dilution. The Company excludes convertible debt dilution from diluted EPS. The Company believes that the Non-GAAP financial measures excluding this item provide meaningful supplemental information regarding operational performance. In addition, excluding this item from the Non-GAAP measures facilitates comparisons to historical operating results.

The Company presents Adjusted non-GAAP Cost of Revenues, Adjusted non-GAAP Research, Development and Engineering, Adjusted non-GAAP Sales and Marketing, Adjusted non-GAAP General and Administrative, Adjusted non-GAAP Interest Expense, Adjusted non-GAAP Other Expense, Adjusted non-GAAP Income Tax Provision and Adjusted non-GAAP Net Income because the Company believes that these provide useful information about our operating results and enhance the overall understanding of past financial performance and future prospects.





j2 GLOBAL, INC. AND SUBSIDIARIES
NET INCOME TO ADJUSTED EBITDA RECONCILIATION
THREE MONTHS ENDED MARCH 31, 2019 AND 2018
(UNAUDITED, IN THOUSANDS)

The following table sets forth a reconciliation of Adjusted EBITDA to net income, the most directly comparable GAAP financial measure.
 
Three Months Ended March 31,
 
2019
 
2018
Net income
$
32,449

 
$
18,871

Plus:
 
 
 
Interest expense, net
16,019

 
15,751

Other expense, net
2,215

 
4,519

Income tax (benefit) expense
(295
)
 
7,017

Depreciation and amortization
49,209

 
42,618

Reconciliation of GAAP to Adjusted non-GAAP financial measures:
 
 
 
Share-based compensation and the associated payroll tax expense
5,086

 
6,420

Acquisition-related integration costs
5,365

 
7,473

Investments
474

 

Additional indirect tax expense from prior years
3,373

 

 
 
 
 
Adjusted EBITDA
$
113,895

 
$
102,669


Adjusted EBITDA as calculated above represents earnings before interest and other expense, net, income tax expense, depreciation and amortization and the items used to reconcile GAAP to Adjusted non-GAAP financial measures, including (1) share-based compensation, (2) certain acquisition-related integration costs (3) change in value on investments and (4) additional indirect tax expense from prior years. We disclose Adjusted EBITDA as a supplemental Non-GAAP financial performance measure as we believe it is a useful metric by which to compare the performance of our business from period to period. We understand that measures similar to Adjusted EBITDA are broadly used by analysts, rating agencies and investors in assessing our performance. Accordingly, we believe that the presentation of Adjusted EBITDA provides useful information to investors.

Adjusted EBITDA is not in accordance with, or an alternative to, net income, and may be different from Non-GAAP measures used by other companies. In addition, Adjusted EBITDA is not based on any comprehensive set of accounting rules or principles. This Adjusted non-GAAP measure has limitations in that it does not reflect all of the amounts associated with the Company’s results of operations determined in accordance with GAAP.





j2 GLOBAL, INC. AND SUBSIDIARIES
NON-GAAP FINANCIAL MEASURES
(UNAUDITED, IN THOUSANDS)
 
Q1
 
Q2
 
Q3
 
Q4
 
YTD
2019
 
 
 
 
 
 
 
 
 
Net cash provided by operating activities
$
116,854

 
$

 
$

 
$

 
$
116,854

Less: Purchases of property and equipment
(12,531
)
 

 

 

 
(12,531
)
Free cash flows
$
104,323

 
$

 
$

 
$

 
$
104,323

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Q1
 
Q2
 
Q3
 
Q4
 
YTD
2018
 
 
 
 
 
 
 
 
 
Net cash provided by operating activities
$
103,910

 
$
102,383

 
$
87,823

 
$
107,209

 
$
401,325

Less: Purchases of property and equipment
(13,165
)
 
(15,393
)
 
(16,370
)
 
(11,451
)
 
(56,379
)
Free cash flows
$
90,745


$
86,990


$
71,453

 
$
95,758

 
$
344,946

 
 
 
 
 
 
 
 
 
 

The Company discloses free cash flows as supplemental Non-GAAP financial performance measure, as it believes it is a useful metric by which to compare the performance of its business from period to period. The Company also understands that this Non-GAAP measure is broadly used by analysts, rating agencies and investors in assessing the Company’s performance. Accordingly, the Company believes that the presentation of this Non-GAAP financial measure provides useful information to investors.

Free cash flows is not in accordance with, or an alternative to, Cash Flows from Operating Activities, and may be different from Non-GAAP measures with similar or even identical names used by other companies. In addition, the Non-GAAP measure is not based on any comprehensive set of accounting rules or principles. This Non-GAAP measure has limitations in that it does not reflect all of the amounts associated with the Company’s results of operations determined in accordance with GAAP.





j2 GLOBAL, INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP TO ADJUSTED NON-GAAP FINANCIAL MEASURES
THREE MONTHS ENDED MARCH 31, 2019
(UNAUDITED, IN THOUSANDS)
    
 
Cloud
 
Digital
 
 
 
 
 
Services
 
Media
 
Corporate
 
Total
Revenues
 
 
 
 
 
 


GAAP revenues
$
152,245

 
$
147,647

 
$
1

 
$
299,893

 
 
 
 
 
 
 
 
Gross profit
 
 
 
 
 
 
 
GAAP gross profit
$
119,762

 
$
129,117

 
$
1

 
$
248,880

Non-GAAP adjustments:
 
 
 
 
 
 
 
Share-based compensation
130

 
2

 

 
132

Amortization
523

 

 

 
523

Adjusted non-GAAP gross profit
$
120,415

 
$
129,119

 
$
1

 
$
249,535

 
 
 
 
 
 
 
 
Operating profit
 
 
 
 
 
 
 
GAAP operating profit
$
58,569

 
$
(1,050
)
 
$
(6,657
)
 
$
50,862

Non-GAAP adjustments:
 
 
 
 
 
 
 
Share-based compensation
(143
)
 
1,271

 
3,958

 
5,086

Acquisition related integration costs

 
5,365

 

 
5,365

Amortization
10,581

 
26,581

 
681

 
37,843

Additional indirect tax expense from prior years
3,373

 

 

 
3,373

Adjusted non-GAAP operating profit
$
72,380

 
$
32,167

 
$
(2,018
)
 
$
102,529

 
 
 
 
 
 
 

Depreciation
2,768

 
8,598

 

 
11,366

Adjusted EBITDA
$
75,148

 
$
40,765

 
$
(2,018
)
 
$
113,895

 
 
 

 

 

NOTE 1: Table above excludes certain intercompany allocations
NOTE 2: The table above is impacted by certain expenses associated with the Corporate entity that were allocated to the Cloud Services business and the Digital Media business as these costs are shared costs incurred by the Corporate entity. As a result, expenses were allocated from Corporate to Cloud Services and Digital Media in the amount of $2.3 million and $2.5 million, respectively.

The effect noted above reduces Adjusted EBITDA for Cloud Services and Digital Media by $2.3 million and $2.5 million, respectively.




j2 GLOBAL, INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP TO ADJUSTED NON-GAAP FINANCIAL MEASURES
THREE MONTHS ENDED MARCH 31, 2018
(UNAUDITED, IN THOUSANDS)
    
 
Cloud
 
Digital
 
 
 
 
 
Services
 
Media
 
Corporate
 
Total
Revenues
 
 
 
 
 
 
 
GAAP revenues
$
149,485

 
$
131,137

 
$
1

 
$
280,623

 
 
 
 
 
 
 
 
Gross profit
 
 
 
 
 
 
 
GAAP gross profit
$
118,484

 
$
113,993

 
$
1

 
$
232,478

Non-GAAP adjustments:
 
 
 
 
 
 
 
Share-based compensation
121

 

 

 
121

Amortization
594

 

 

 
594

Adjusted non-GAAP gross profit
$
119,199

 
$
113,993

 
$
1

 
$
233,193

 
 
 
 
 
 
 
 
Operating profit
 
 
 
 
 
 
 
GAAP operating profit
$
56,915

 
$
(3,445
)
 
$
(7,312
)
 
$
46,158

Non-GAAP adjustments:
 
 
 
 
 
 
 
Share-based compensation
1,985

 
749

 
3,686

 
6,420

Acquisition related integration costs
532

 
6,941

 

 
7,473

Amortization
11,919

 
20,701

 
1,125

 
33,745

Adjusted non-GAAP operating profit
$
71,351

 
$
24,946

 
$
(2,501
)
 
$
93,796

 
 
 
 
 
 
 
 
Depreciation
2,459

 
6,414

 

 
8,873

Adjusted EBITDA
$
73,810

 
$
31,360

 
$
(2,501
)
 
$
102,669

 
 
 
 
 
 
 
 
NOTE 1: Table above excludes certain intercompany allocations
NOTE 2: The table above is impacted by certain expenses associated with the Corporate entity that were allocated to the Cloud Services business and the Digital Media business as these costs are shared costs incurred by the Corporate entity. As a result, expenses were allocated from Corporate to Cloud Services and Digital Media in the amount of $1.6 million and $1.3 million, respectively.

The effect noted above reduces Adjusted EBITDA for Cloud Services and Digital Media by $1.6 million and $1.3 million, respectively.


(Back To Top)

Section 3: EX-99.2 (EXHIBIT 99.2)

earningscalldeckq12019
F I R S T Q U A R T E R 2 0 1 9 R E S U L T S M A Y 8 , 2 0 1 9


 
Safe Harbor for Forward-Looking Statements Certain statements in this presentation are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, particularly those regarding our 2019 Financial Guidance. Such forward-looking statements are subject to numerous assumptions, risks and uncertainties that could cause actual results to differ materially from those described in those statements. Readers should carefully review the Risk Factors slide of this presentation. These forward-looking statements are based on management’s expectations or beliefs as of May 8, 2019 as well as those set forth in our Annual Report on Form 10-K filed by us on March 1, 2019 with the Securities and Exchange Commission (“SEC”) and the other reports we file from time to time with the SEC. We undertake no obligation to revise or publicly release any updates to such statements based on future information or actual results. Such forward-looking statements address the following subjects, among others: • Future operating results • Ability to acquire businesses on acceptable terms and integrate and recognize synergies from acquired businesses • Deployment of cash and investment balances to grow the company • Subscriber growth, retention, usage levels and average revenue per account • Cloud service and digital media growth and continued demand for fax services • International growth • New products, services, features and technologies • Corporate spending including stock repurchases • Intellectual property and related licensing revenues • Liquidity and ability to repay or refinance indebtedness • Systems capacity, coverage, reliability and security • Regulatory developments and taxes All information in this presentation speaks as of May 8, 2019 and any redistribution or rebroadcast of this presentation after that date 2 is not intended and will not be construed as updating or confirming such information.


 
Risk Factors The following factors, among others, could cause our business, prospects, financial condition, operating results and cash flows to be materially adversely affected: • Inability to sustain growth or profitability, and any related impact of U.S. or worldwide economic issues on customer acquisition, retention and usage levels, advertising spend and credit and debit card payment declines • Inability to acquire businesses on acceptable terms or successfully integrate and realize anticipated synergies • Reduced use of fax services due to increased use of email, scanning or widespread adoption of digital signatures or otherwise • Failure to offer compelling digital media content causing reduced traffic and advertising levels; loss of advertisers or reduction in advertising spend; increased prevalence or effectiveness of advertising blocking technologies; inability to monetize handheld devices and handheld traffic supplanting monetized traffic; and changes by our vendors or partners that impact our traffic or publisher audience acquisition and/or monetization • New or unanticipated costs and/or fees or tax liabilities, including those relating to federal and state income tax and indirect taxes, such as sales, value-added and telecommunications taxes • Inability to manage certain risks inherent to our business, such as fraudulent activity, system failure or a security breach; inability to manage reputational risks associated with our businesses • Competition from others with regard to price, service, content and functionality • Inadequate intellectual property (IP) protection, expiration, invalidity or loss of key patents, violations of 3rd party IP rights or inability or significant delay in monetizing IP • Inability to continue to expand our business and operations internationally • Inability to maintain required services on acceptable terms with financially stable telecom, co-location and other critical vendors; and inability to obtain telephone numbers in sufficient quantities on acceptable terms and in desired locations • Level of debt limiting availability of cash flow to reinvest in the business; inability to repay or refinance debt when due; and restrictive covenants relating to debt imposing operating and financial restrictions on business activities or plans • Inability to maintain and increase our customer base or average revenue per user • Inability to achieve business or financial results in light of burdensome telecommunications, internet, advertising, health care, consumer, privacy or other regulations, or being subject to existing regulations • Inability to adapt to technological change and diversify services and related revenues at acceptable levels of financial return • Loss of services of executive officers and other key employees • Other factors set forth in our Annual Report on Form 10-K filed by us on March 1, 2019 with the SEC and the other reports we file from time to time with the SEC 3


 
Q1 Consolidated Financial Snapshot(1) (1) See slides 12 and 14-16 for a GAAP reconciliation of adjusted non-GAAP gross profit, adjusted EBITDA and adjusted earnings per diluted share for the Company as a whole and by business 4 (2) Figures are adjusted non-GAAP


 
Adjusted EBITDA and Free Cash Flow(1) Adjusted EBITDA (2) Adjusted EBITDA (2) Q1Y/Y '18 FCF vs Q1 '19 2013 (in millions) (in millions) 220,446,000 Q1 2018 $500.7 102,668,939 $489.5 10.9% $113.9 $463.0 $396.1 $102.7 $333.3 $262.6 $220.4 Free Cash Flow 2013 $150,393,000 2013 2014 2015 2016 2017 2018 LTM Q1 2018 Q1 2019 Q1 2018 $90,700,000 Free Cash Flow (2) Q1 '18 vs Q1 '19 (2) (in millions) (in millions) 15.0% $358.6 $104.3 $344.9 $267.9 $264.8 $90.7 $223.2 $171.5 $150.4 2013 2014 2015 2016 2017 2018 LTM Q1 2018 Q1 2019 5 (1) See slides 13-16 for a GAAP reconciliation of Adjusted EBITDA and Free Cash Flow (2) Figures are adjusted non-GAAP


 
Q1 2019 Financial Snapshot By Business (1) ```CLOUD SERVICES DIGITAL MEDIA Revenue Revenue (in millions) (in millions) 1.8% $149.5 $152.2 12.6% $147.6 $131.1 Q1 2018 Q1 2019 Q1 2018 Q1 2019 Adjusted EBITDA (2) Adjusted EBITDA (2) (in millions) (in millions) 1.8% 30.0% $40.8 $73.8 $75.1 $31.4 Q1 2018 Q1 2019 Q1 2018 Q1 2019 (1) See slides 14-16 for a GAAP reconciliation of adjusted EBITDA for the Company as a whole and by business (2) Figures are adjusted non-GAAP; Certain shared corporate expenses at j2 Global, Inc. were allocated to Cloud Services and Digital Media resulting in reductions to Adjusted EBITDA as follows: Cloud Services Adjusted EBITDA was reduced by $1.6MM and $2.3MM in Q1 2018 and Q1 2019, respectively, and Digital Media Adjusted EBITDA was reduced by $1.3MM and 6 $2.5MM in Q1 2018 and Q1 2019, respectively. No allocations occurred prior to 2018


 
2019 FINANCIAL GUIDANCE


 
2019 Guidance Increase (Forward-Looking Statements) ORIGINAL GUIDANCE REVISED GUIDANCE Revenues $1,290MM - $1,330MM $1,330MM - $1,370MM Adjusted $540MM - $556MM EBITDA(1)(2) $520MM - $540MM Adjusted Non-GAAP $6.65 - $6.95 $6.95 - $7.15 EPS(1)(2) (1) Figures are adjusted non-GAAP 8 (2) Adjusted earnings per diluted share excludes share-based compensation, amortization of acquired intangibles and the impact of any currently anticipated items, in each case net of tax


 
SUPPLEMENTAL INFORMATION


 
Consolidated Metrics 2017 j2 Consolidated 2018 2019 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Revenue by Business Cloud Services Revenues $141,544 $144,709 $145,787 $146,916 $149,485 $150,297 $150,094 $148,099 $152,245 Digital Media Revenues $113,125 $128,465 $127,829 $169,464 $131,137 $137,591 $142,628 $197,958 $147,647 Corporate $0 $0 $0 $0 $1 $1 $2 $2 $1 Total Revenues I--(in'000s)--I $254,669 $273,174 $273,616 $316,380 $280,623 $287,889 $292,724 $346,059 $299,893 Diluted EPS GAAP $0.52 $0.63 $0.66 $1.02 $0.38 $0.57 $0.61 $1.03 $0.66 Adjusted non-GAAP (1) $1.19 $1.33 $1.34 $1.79 $1.22 $1.50 $1.53 $2.11 $1.40 Cash & Investment $187.5 $330.8 $402.5 $408.7 $396.7 $428.0 $386.0 $293.3 $320.3 Free Cash Flow (2) (4) $61.5 $71.1 $56.8 $75.3 $90.7 $87.0 $71.5 $95.8 $104.3 (3) (4) Adjusted EBITDA I--(millions)--I $99.5 $110.2 $111.3 $141.9 $102.7 $113.5 $119.1 $154.3 $113.9 (1) See slide 12 for a reconciliation of non-GAAP earnings and EPS to GAAP Net Income and diluted GAAP EPS (2) See slide 13 for a definition of Free Cash Flow and reconciliation to Net Cash Provided by Operating Activities 10 (3) See slides 14-16 for a definition of adjusted EBITDA and reconciliation to Net Income (4) Figures are adjusted non-GAAP


 
Cloud Services & Digital Media Metrics 2017 2018 2019 Cloud Services Metrics Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Revenue by Type Fixed Subscriber Revenues $115,726 $117,556 $118,755 $119,232 $120,840 $123,648 $123,111 $121,350 $124,309 Variable Subscriber Revenues $24,606 $25,863 $25,808 $26,651 $28,482 $26,479 $26,781 $26,591 $27,480 Subscriber Revenues $140,332 $143,419 $144,563 $145,882 $149,322 $150,127 $149,892 $147,940 $151,790 Other Licenses Revenues (1) $1,212 $1,291 $1,223 $1,034 $163 $170 $202 $158 $455 Total Cloud Services Revenues $141,544 $144,709 $145,787 $146,916 $149,485 $150,297 $150,094 $148,099 $152,245 Revenue - DID vs. Non-DID DID Based Revenues $93,438 $95,490 $96,702 $99,299 $98,692 $98,488 $98,897 $97,003 $97,068 Non-DID Based Revenues $48,106 $49,220 $49,084 $47,617 $50,793 $51,809 $51,197 $51,096 $55,177 Total Cloud Services Revenues $141,544 $144,709 $145,787 $146,916 $149,485 $150,297 $150,094 $148,099 $152,245 (2) Cloud Services Customers ------------------I '000s) (in I------------------ 3,116 3,141 3,175 3,176 3,185 3,197 3,204 3,165 3,148 Average Monthly Revenue/Customer (3) $15.03 $15.28 $15.26 $15.31 $15.65 $15.68 $15.61 $15.49 $16.03 Cancel Rate (4) 2.3% 2.1% 2.2% 2.0% 2.2% 2.0% 2.2% 2.1% 2.2% Digital Media Metrics(5) Visits 1,401,666 1,352,200 1,394,177 1,572,398 1,957,985 1,952,270 1,949,167 1,846,496 1,806,992 Views '000s) (in 5,386,097 6,054,062 5,872,437 6,418,612 8,159,496 7,528,471 7,980,168 8,058,385 7,086,701 (1) Cloud Services revenue includes IP Licensing revenue (2) Cloud Services Customers are defined as paying DIDs for Fax & Voice services and direct and resellers’ accounts for other services (3) Quarterly Average Revenue per Customer is calculated using our standard convention of applying the average of the quarter’s beginning and ending customer base to the total revenue of the quarter (4) User cancel rate, also called user churn, is defined as cancellation of service by Cloud Business customers with greater than 4 months of continuous service (continuous service includes Cloud Business customers that are administratively cancelled and reactivated within the same calendar month). User cancel rate is calculated monthly and expressed here as an average over the three months of the quarter 11 (5) Digital Media Traffic figures based on Google Analytics & Partner Platforms


 
Q1 2019 Reconciliation of GAAP to Adjusted Non-GAAP Earnings & EPS (1) Figures in Thousands Three Months Ended March 31, 2018 2019 Cost of revenues $ 48,145 $ 51,013 Plus: Share based compensation (1) (121) (132) Amortization (4) (594) (523) Adjusted non-GAAP cost of revenues $ 47,430 $ 50,358 Sales and marketing $ 86,311 $ 86,880 Plus: Share based compensation (1) (365) (404) Acquisition related integration costs (2) (440) 122 Adjusted non-GAAP sales and marketing $ 85,506 $ 86,598 Research, development and engineering $ 12,210 $ 12,984 Plus: Share based compensation (1) (432) (358) Acquisition related integration costs (2) (97) - Adjusted non-GAAP research, development and engineering $ 11,681 $ 12,626 General and administrative $ 87,799 $ 98,154 Plus: Share based compensation (1) (5,502) (4,192) Acquisition related integration costs (2) (6,936) (5,487) Amortization (4) (33,151) (37,320) Tax expense from prior years (6) - (3,373) Adjusted non-GAAP general and administrative $ 42,210 $ 47,782 Interest expense, net $ 15,751 $ 16,019 Plus: Acquisition related integration costs (2) (23) 27 Interest costs (3) (2,116) (2,242) Adjusted non-GAAP interest expense, net $ 13,612 $ 13,804 Other expense, net $ 4,519 $ 2,215 Plus: Investments (5) (2,702) - Adjusted non-GAAP other expense, net $ 1,817 $ 2,215 Non-GAAP net income is GAAP net income with the following Income tax provision $ 7,017 $ (295) Plus: modifications: (1) elimination of share-based compensation and the Share based compensation (1) 1,485 1,799 associated payroll tax expense; (2) elimination of certain acquisition- Acquisition related integration costs (2) 1,618 961 related integration costs; (3) elimination of interest costs in excess of the (3) Interest costs 506 946 coupon rate associated with the convertible notes; (4) elimination of (4) 7,375 12,339 Amortization amortization of patents and intangible assets that we acquired; (5) Investments (5) 582 - Tax expense from prior years (6) - 2,364 elimination of change in value on investment; and (6) elimination of Adjusted non-GAAP income tax provision $ 18,583 $ 18,114 additional tax or indirect tax related expense/benefit from prior years Net loss in earnings of equity method investment $ - $ 474 Plus: Investments (5) - (474) Adjusted non-GAAP net loss in earnings of equity method investment $ - $ - Total adjustments $ (40,913) $ (35,947) GAAP earnings per diluted share $0.38 $0.66 (1) Figures are adjusted non-GAAP Adjustments * $0.84 $0.74 12 Adjusted non-GAAP earnings per diluted share $1.22 $1.40 * The reconciliation of net income per share from GAAP to Adjusted non-GAAP may not foot since each is calculated independently.


 
GAAP Reconciliation - Free Cash Flow(1) (2) Figures in Thousands 2013 2014 2015 2016 2017 2018 LTM Q1 2018 Q1 2019 Net cash provided by operating activities $ 193,324 $ 177,231 $ 229,061 $ 282,387 $ 264,420 $ 401,325 $ 414,269 $ 103,910 $ 116,854 Less: Purchases of property and equipment (18,626) (11,221) (17,297) (24,746) (39,595) $ (56,379) (55,746) (13,165) (12,531) Less: Patent Settlement (27,000) - - - - - - - - Add: Excess tax benefit from share-based compensation 2,695 5,512 4,486 2,271 - - - - - Add: IRS Settlement - - 6,917 - - - - - - Add: Contingent consideration - - - 8,000 39,950 - - - - Free cash flows (2) $ 150,393 $ 171,522 $ 223,167 $ 267,912 $ 264,775 $ 344,946 $ 358,523 $ 90,745 $ 104,323 * Free cash flows of $61.5 million for Q1 2017 and $71.1 million for Q2 2017 is before the effect of payments associated with certain contingent consideration associated with recent acquisitions. (1) Free Cash Flow is defined as net cash provided by operating activities, less purchases of property, plant and equipment, less patent settlement, plus excess tax benefits (deficits) from share based compensation, plus IRS settlement, plus contingent consideration. Free Cash Flow amounts are not meant as a substitute for GAAP, but are solely for informational purposes 13 (2) Figures are adjusted non-GAAP


 
GAAP Reconciliation - Adjusted EBITDA(1) (2) j2 Consolidated 2013 2014 2015 2016 2017 2018 LTM Q1 2018 Q1 2019 Revenue $ 520.8 $ 599.0 $ 720.8 $ 874.3 $ 1,117.8 $ 1,207.3 $ 1,226.6 $ 280.6 $ 299.9 GAAP Net Income $ 107.5 $ 125.3 $ 133.6 $ 152.4 $ 139.4 $ 128.7 $ 142.3 $ 18.9 $ 32.4 Plus: Income tax expense 35.2 29.8 23.3 59.0 60.5 44.8 37.4 7.0 (0.3) Interest expense and other expense, net 32.7 31.0 42.5 31.1 45.7 66.7 64.6 20.3 18.2 Depreciation and amortization 39.7 63.0 93.2 122.1 162.0 187.2 193.8 42.6 49.2 Share-based compensation and the associated payroll tax expense 9.6 8.9 11.8 13.7 22.7 28.1 26.8 6.4 5.1 Acquisition-related integration costs 8.2 2.4 25.4 18.8 27.5 29.4 27.3 7.5 5.4 Fees associated w ith prior year audit - 1.4 (0.2) - - - - - - Investments - - - - - 4.1 4.6 - 0.5 Additional indirect tax expense (benefit) from prior years - 0.7 3.7 (1.0) 5.0 0.4 3.8 - 3.4 Restructuring costs - - - - - 0.2 0.2 - - - Adjusted EBITDA (2) $ 220.4 $ 262.6 $ 333.3 $ 396.1 $ 463.0 $ 489.5 $ 500.7 $ 102.7 $ 113.9 (1) Adjusted EBITDA is defined as net income plus interest and other expense, net; income tax expense; depreciation and amortization and the items used to reconcile GAAP to Adjusted Non-GAAP EPS. Adjusted 14 EBITDA amounts are not meant as a substitute for GAAP, but are solely for informational purposes (2) Figures are adjusted non-GAAP


 
(1) Q1 2019 Reconciliation of GAAP to Adjusted EBITDA Figures in Thousands Cloud Services Digital Media Corporate Total Revenues GAAP revenues $ 152,245 $ 147,647 $ 1 $ 299,893 Gross profit GAAP gross profit $ 119,762 $ 129,117 $ 1 $ 248,880 Non-GAAP adjustments: Share-based compensation 130 2 - 132 Amortization 523 - - 523 Adjusted non-GAAP gross profit $ 120,415 $ 129,119 $ 1 $ 249,535 Operating profit GAAP operating profit $ 58,569 $ (1,050) $ (6,657) $ 50,862 Non-GAAP adjustments: Share-based compensation (143) 1,271 3,958 5,086 Acquisition related integration costs - 5,365 - 5,365 Amortization 10,581 26,581 681 37,843 Additional indirect tax expense from prior years 3,373 - - 3,373 Adjusted non-GAAP operating profit $ 72,380 $ 32,167 $ (2,018) $ 102,529 Depreciation 2,768 8,598 - 11,366 Adjusted EBITDA (1) $ 75,148 $ 40,765 $ (2,018) $ 113,895 NOTE 1: Table above excludes certain intercompany allocations NOTE 2: The table above is impacted by certain expenses associated w ith the Corporate entity w ere allocated to the Cloud Services business and Digital Media business as these costs are shared costs incurred by the Corporate entity. As a result, expenses w ere allocated from Corporate to Cloud Services and Digital Media in the amount of $2.3 million and $2.5 million, respectively. The effects noted above reduce Adjusted EBITDA for Cloud Services and Digital Media by $2.3 million and $2.5 million, respectively. (1) Figures are adjusted non-GAAP 15


 
(1) Q1 2018 Reconciliation of GAAP to Adjusted EBITDA Figures in Thousands Cloud Services Digital Media Corporate Total Revenues GAAP revenues $ 149,485 $ 131,137 $ 1 $ 280,623 Gross profit GAAP gross profit $ 118,484 $ 113,993 $ 1 $ 232,478 Non-GAAP adjustments: Share-based compensation 121 - - 121 Amortization 594 - - 594 Adjusted non-GAAP gross profit $ 119,199 $ 113,993 $ 1 $ 233,193 Operating profit GAAP operating profit $ 56,915 $ (3,445) $ (7,312) $ 46,158 Non-GAAP adjustments: Share-based compensation 1,985 749 3,686 6,420 Acquisition related integration costs 532 6,941 - 7,473 Amortization 11,919 20,701 1,125 33,745 Adjusted non-GAAP operating profit $ 71,351 $ 24,946 $ (2,501) $ 93,796 Depreciation 2,459 6,414 - 8,873 Adjusted EBITDA (1) $ 73,810 $ 31,360 $ (2,501) $ 102,669 NOTE 1: Table above excludes certain intercompany allocations NOTE 2: The table above is impacted by certain expenses associated with the Corporate entity were allocated to the Cloud Services business and Digital Media business as these costs are shared costs incurred by the Corporate entity. As a result, expenses were allocated from Corporate to Cloud Services and Digital Media in the amount of $1.6 million and $1.3 million, respectively. The effects noted above reduce Adjusted EBITDA for Cloud Services and Digital Media by $1.6 million and $1.3 million, respectively. (1) Figures are adjusted non-GAAP 16


 


 
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