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Section 1: 8-K (8-K)

Document
false0001084048 0001084048 2020-02-10 2020-02-10


 
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) February 10, 2020

J2 Global, Inc.
(Exact name of registrant as specified in its charter)

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

700 S. Flower Street, 15th Floor
Los Angeles, California 90017
(Address of principal executive offices)

(323) 860-9200
Registrant's telephone number, including area code

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):

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

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

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. o
 





Item 2.02. Results of Operations and Financial Condition

On February 10, 2020, J2 Global, Inc. (the “Company”) issued a press release (the “Press Release”) announcing its financial results for the fourth quarter and year ended December 31, 2019, and financial guidance for fiscal year 2020.

The Company also announced that it has extended its five million share repurchase program set to expire February 20, 2020 by an additional year. Approximately 1.1 million shares remain available for purchase under the program.

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

Item 7.01.  Regulation FD Disclosure
 
On February 11, 2020, at 8:30 a.m. Eastern Time, the Company will host its fourth quarter and year-end 2019 earnings conference call and Webcast. Via the Webcast, the Company will present portions of its February 2020 Investor Presentation, which contains a summary of the Company’s financial results for the fiscal quarter and fiscal year ended December 31, 2019, financial estimates for fiscal year 2020, 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.
 
NOTE: The information in this Item 7.01 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.

Item 9.01. Financial Statements and Exhibits

(d) Exhibits

Exhibit
Number
   
 
Description
99.1
 
99.2
 
104
 
Cover Page Interactive Data File (embedded within the Inline XBRL document)

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 February 10, 2020. 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.
 
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:
February 10, 2020
By:
/s/ Jeremy Rossen
 
 
 
Jeremy Rossen
Executive Vice President, General Counsel



(Back To Top)

Section 2: EX-99.1 (PRESS RELEASE DATED FEBRUARY 10, 2020)

Exhibit
J2 Global Reports Fourth Quarter and Year End 2019 Results and Provides 2020 Outlook

Achieves Record Revenues
Provides Fiscal 2020 Financial Estimates

LOS ANGELES -- J2 Global, Inc. (NASDAQ: JCOM) today reported financial results for the fourth quarter and year ended December 31, 2019, and provided fiscal 2020 financial estimates.

“We had a tremendous finish to a very strong year and have more than doubled our revenues from five years ago,” said Vivek Shah, CEO of J2 Global. “We’re excited to carry that momentum into 2020 with a strong portfolio, balance sheet and leadership team.”

FOURTH QUARTER 2019 HIGHLIGHTS

Q4 2019 quarterly revenues increased 17.2% to a Q4 record of $405.6 million compared to $346.1 million for Q4 2018.  

Net cash provided by operating activities decreased 3.7% to $103.2 million compared to $107.2 million for Q4 2018. Q4 2019 free cash flow(2) decreased 14.3% to $82.1 million compared to $95.8 million for Q4 2018. The decrease over the prior comparable period is primarily due to a greater percentage of revenues and EBITDA coming from the Digital Media business which has a longer collection cycle resulting in less cash inflows associated with accounts receivable of approximately $14.7 million and additional payments and timing differences associated with certain other working capital within the Digital Media business of approximately $9.5 million in comparison to Q4 2018.

GAAP earnings per diluted share(3) increased 137.9% to $2.45 in Q4 2019 compared to $1.03 for Q4 2018 and GAAP net income increased 143.1% to $123.0 million in Q4 2019 compared to $50.6 million for Q4 2018 primarily due to the recognition of a $53.7 million tax benefit as the result of an intra-entity transfer as part of the reorganization of our international operating structure.

Adjusted non-GAAP earnings per diluted share(3)(4) for the quarter increased 12.8% to $2.38 compared to $2.11 for Q4 2018.

Quarterly Adjusted EBITDA(5) increased 14.3% to $176.3 million in the quarter compared to $154.3 million for Q4 2018.

J2 ended the quarter with approximately $675.7 million in cash and investments which included $537.1 million of net proceeds from the issuance of 1.75% Convertible Senior Notes.

Key financial results for Q4 2019 versus Q4 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.
 
Q4 2019
Q4 2018
% Change
Revenues
 
 
 
  Cloud Services
$169.3 million
$148.1 million
14.3%
  Digital Media
$236.3 million
$198.0 million
19.3%
Total Revenue: (1)
$405.6 million
$346.1 million
17.2%
Operating Income
$110.2 million
$86.7 million
27.1%
Net Cash Provided by Operating Activities
$103.2 million
$107.2 million
(3.7)%
Free Cash Flow (2)
$82.1 million
$95.8 million
(14.3)%
GAAP Earnings per Diluted Share (3)
$2.45
$1.03
137.9%
Adjusted Non-GAAP Earnings per Diluted Share (3) (4)
$2.38
$2.11
12.8%
GAAP Net Income
$123.0 million
$50.6 million
143.1%
Adjusted Non-GAAP Net Income
$115.5 million
$103.7 million
11.4%
Adjusted EBITDA (5)
$176.3 million
$154.3 million
14.3%
Adjusted EBITDA Margin (5)
43.5%
44.6%
(2.5)%




FULL YEAR 2019 HIGHLIGHTS

2019 revenues increased 13.6% to a record of $1,372.0 million in 2019 compared to $1,207.3 million for 2018.  

Net cash provided by operating activities increased 2.8% to $412.5 million in 2019 compared to $401.3 million for 2018. 2019 free cash flow(2) increased 1.6% to $350.4 million compared to $344.9 million for 2018.

GAAP earnings per diluted share(6) increased 69.5% to $4.39 in 2019 compared to $2.59 for 2018 and GAAP net income increased by 70.0% to $218.8 million in 2019 compared to $128.7 million for 2018 primarily due to the recognition of a $53.7 million tax benefit as the result of an intra-entity transfer as part of the reorganization of our international operating structure.

Adjusted non-GAAP earnings per diluted share(6)(7) for the year increased 11.5% to $7.08 compared to $6.35 for 2018.

Annual Adjusted EBITDA(5) increased 12.4% to $550.2 million in 2019 compared to $489.5 million for 2018.

J2 ended the year with approximately $675.7 million in cash and investments which included $537.1 million of net proceeds from the issuance of 1.75% Convertible Senior Notes and is after deploying approximately $478 million during the year for acquisitions, first and second quarter dividends, and approximately $16 million in respect of its share repurchase program.

Key financial results for 2019 versus 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.
 
2019
2018
% Change
Revenues
 
 
 
  Cloud Services
$661.8 million
$598.0 million
10.7%
  Digital Media
$710.2 million
$609.3 million
16.6%
Total Revenue: (1)
$1,372.0 million
$1,207.3 million
13.6%
Operating Income
$277.1 million
$244.3 million
13.4%
Net Cash Provided by Operating Activities
$412.5 million
$401.3 million
2.8%
Free Cash Flow (2)
$350.4 million
$344.9 million
1.6%
GAAP Earnings per Diluted Share (6)
$4.39
$2.59
69.5%
Adjusted Non-GAAP Earnings per Diluted Share (6) (7)
$7.08
$6.35
11.5%
GAAP Net Income
$218.8 million
$128.7 million
70.0%
Adjusted Non-GAAP Net Income
$344.4 million
$312.3 million
10.3%
Adjusted EBITDA (5)
$550.2 million
$489.5 million
12.4%
Adjusted EBITDA Margin (5)
40.1%
40.5%
(1.0)%

BUSINESS OUTLOOK

For fiscal 2020, the Company estimates that it will achieve: revenues between $1.465 billion and $1.505 billion, Adjusted EBITDA between $575 million and $595 million and Adjusted non-GAAP earnings per diluted share of between $7.36 and $7.66.

Adjusted non-GAAP earnings per diluted share for 2020 excludes share-based compensation of between $19 million and $23 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 2020 (exclusive of the release of reserves for uncertain tax positions) will be between 21% and 23%.

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.







Notes:

(1)
 
The revenues associated with each of the businesses may not foot precisely since each is presented independently.
(2)
 
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.
(3)
 
The estimated GAAP effective tax rates were approximately -43.2% for Q4 2019 and 29.5% for Q4 2018. The estimated Adjusted non-GAAP effective tax rates were approximately 21.3% for Q4 2019 and 21.3% for Q4 2018.
(4)
 
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 December 31, 2019 and 2018 totaled ($0.07) and $1.08 per diluted share, respectively.
(5)
 
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.
(6)
 
The estimated GAAP effective tax rates were approximately -9.7% for 2019 and 25.2% for 2018. The estimated Adjusted non-GAAP effective tax rates were approximately 21.3% for 2019 and 21.0% for 2018.
(7)
 
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 twelve months ended December 31, 2019 and 2018 totaled $2.69 and $3.76 per diluted share, respectively.
 





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, Spiceworks, Everyday Health, BabyCenter and What To Expect in its Digital Media business and eFax, eVoice, iContact, Campaigner, Vipre, IPVanish and KeepItSafe in its Cloud Services business. J2 reaches in excess 180 million people per month across its brands. As of December 31, 2019, J2 had achieved 24 consecutive fiscal years of revenue growth. For more information about J2, please visit www.J2global.com.

Contact:

Rebecca Wright
J2 Global, Inc.
800-577-1790
[email protected]
 
“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 2020 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 2020 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)

 
December 31,
2019
 
December 31,
2018
ASSETS
 
 
 
Cash and cash equivalents
$
575,615

 
$
209,474

Accounts receivable, net of allowances of $12,701 and $10,422, respectively
261,928

 
221,615

Prepaid expenses and other current assets
49,347

 
29,242

Total current assets
886,890

 
460,331

Long-term investments
100,079

 
83,828

Property and equipment, net
127,817

 
98,813

Operating lease right-of-use assets
125,822

 

Goodwill
1,633,033

 
1,380,376

Other purchased intangibles, net
556,553

 
526,468

Deferred income taxes, noncurrent
59,976

 

Other assets
15,676

 
11,014

TOTAL ASSETS
$
3,505,846

 
$
2,560,830

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 

Accounts payable and accrued expenses
$
238,059

 
$
166,521

Income taxes payable, current
17,758

 
12,915

Deferred revenue, current
162,855

 
127,568

Operating lease liabilities, current
26,927

 

Other current liabilities
1,973

 
318

Total current liabilities
447,572

 
307,322

Long-term debt
1,448,461

 
1,013,129

Deferred revenue, noncurrent
12,744

 
13,200

Operating lease liabilities, noncurrent
104,070

 

Income taxes payable, noncurrent
11,675

 
11,675

Liability for uncertain tax positions
52,451

 
59,644

Deferred income taxes, noncurrent
107,453

 
69,048

Other long-term liabilities
10,228

 
51,068

TOTAL LIABILITIES
2,194,654

 
1,525,086

Commitments and contingencies

 

Preferred stock

 

Common stock
476

 
481

Additional paid-in capital
465,652

 
354,210

Treasury stock

 
(42,543
)
Retained earnings
891,526

 
769,575

Accumulated other comprehensive loss
(46,462
)
 
(45,979
)
TOTAL STOCKHOLDERS’ EQUITY
1,311,192

 
1,035,744

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
3,505,846

 
$
2,560,830






J2 GLOBAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED, IN THOUSANDS)

 
Three Months Ended December 31,
 
Twelve Months Ended December 31,
 
2019
 
2018
 
2019
 
2018
Total revenues
$
405,588

 
$
346,059

 
$
1,372,054

 
$
1,207,295

 
 
 
 
 
 
 
 
Cost of revenues (1)
64,328

 
55,962

 
237,323

 
201,074

Gross profit
341,260

 
290,097

 
1,134,731

 
1,006,221

 
 
 
 
 
 
 
 
Operating expenses:
 
 
 

 
 
 
 

Sales and marketing (1)
105,371

 
88,113

 
379,183

 
338,304

Research, development and engineering (1)
15,704

 
12,958

 
54,396

 
48,370

General and administrative (1)
109,940

 
102,342

 
424,072

 
375,267

Total operating expenses
231,015

 
203,413

 
857,651

 
761,941

Income from operations
110,245

 
86,684

 
277,080

 
244,280

Interest expense, net
18,921

 
15,559

 
69,546

 
61,987

Other expense (income), net
5,234

 
(1,443
)
 
7,936

 
4,706

Income before income taxes and net loss in earnings of equity method investment
86,090

 
72,568

 
199,598

 
177,587

Income tax (benefit) expense
(37,227
)
 
21,395

 
(19,376
)
 
44,760

Net loss in earnings of equity method investment
294

 
559

 
168

 
4,140

Net income
$
123,023

 
$
50,614

 
$
218,806

 
$
128,687

 
 
 
 
 
 
 
 
Basic net income per common share:
 
 
 

 
 

 
 

Net income attributable to J2 Global, Inc. common shareholders
$
2.54

 
$
1.04

 
$
4.52

 
$
2.64

 
 
 
 
 
 
 
 
Diluted net income per common share:
 
 
 
 
 
 
 
Net income attributable to J2 Global, Inc. common shareholders
$
2.45

 
$
1.03

 
$
4.39

 
$
2.59

 
 
 
 

 
 

 
 

Basic weighted average shares outstanding
47,626,833

 
47,967,014

 
47,647,397

 
47,950,746

Diluted weighted average shares outstanding
49,425,395

 
48,505,023

 
49,025,684

 
48,927,791

 
 
 
 
 
 
 
 
(1) Includes share-based compensation expense as follows:
 
 
 
 
 
 
 
Cost of revenues
$
135

 
$
132

 
$
525

 
$
510

Sales and marketing
335

 
418

 
1,547

 
1,798

Research, development and engineering
385

 
366

 
1,477

 
1,553

General and administrative
4,673

 
5,784

 
20,373

 
24,232

Total
$
5,528

 
$
6,700

 
$
23,922

 
$
28,093









J2 GLOBAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
 
Twelve Months Ended December 31,
 
2019
 
2018
Cash flows from operating activities:
 
 
 
Net income
$
218,806

 
$
128,687

Adjustments to reconcile net earnings to net cash provided by operating activities:
 
 
 
Depreciation and amortization
232,032

 
187,174

Amortization of financing costs and discounts
14,038

 
11,385

Amortization of operating lease assets
21,419

 

Share-based compensation
23,922

 
28,093

Provision for doubtful accounts
13,134

 
17,338

Deferred income taxes, net
(63,444
)
 
25,050

Changes in fair value of contingent consideration
6,318

 
18,944

Loss on equity method investments
139

 
10,506

Impairment loss on equity securities
4,164

 

Decrease (increase) in:
 
 
 
Accounts receivable
(30,680
)
 
4,034

Prepaid expenses and other current assets
(8,685
)
 
2,211

Other assets
(4,083
)
 
2,391

Increase (decrease) in:
 
 
 
Accounts payable and accrued expenses
(770
)
 
(35,220
)
Income taxes payable
(1,738
)
 
(29,042
)
Deferred revenue
6,844

 
11,991

Operating lease liabilities
(20,240
)
 

Liability for uncertain tax positions
(453
)
 
7,694

Other long-term liabilities
1,816

 
10,089

Net cash provided by operating activities
412,539

 
401,325

Cash flows from investing activities:
 
 
 

Distribution from equity method investment
10,288

 

Purchases of equity method investment
(29,584
)
 
(36,635
)
Purchases of available-for-sale investments

 
(500
)
Purchases of property and equipment
(70,588
)
 
(56,379
)
Acquisition of businesses, net of cash received
(415,343
)
 
(312,430
)
Purchases of intangible assets
(46
)
 
(669
)
Net cash used in investing activities
(505,273
)
 
(406,613
)
Cash flows from financing activities:
 

 
 

Issuance of long-term debt
550,000

 

Debt issuance cost
(12,862
)
 

Payment of debt
(5,100
)
 
(2,204
)
Proceeds from line of credit
185,000

 

Repayment of line of credit
(185,000
)
 

Repurchase of common stock
(20,803
)
 
(47,102
)
Issuance of common stock under employee stock purchase plan
4,512

 
2,084

Exercise of stock options
5,274

 
1,540

Dividends paid
(43,533
)
 
(81,679
)
Deferred payments for acquisitions
(18,876
)
 
(3,558
)
Other
(1,917
)
 
(443
)
Net cash provided by (used in) financing activities
456,695

 
(131,362
)
Effect of exchange rate changes on cash and cash equivalents
2,180

 
(4,821
)
Net change in cash and cash equivalents
366,141

 
(141,471
)
Cash and cash equivalents at beginning of year
209,474

 
350,945

Cash and cash equivalents at end of year
$
575,615

 
$
209,474






J2 GLOBAL, INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP TO ADJUSTED NON-GAAP FINANCIAL MEASURES
THREE AND TWELVE MONTHS ENDED DECEMBER 31, 2019 AND 2018
(UNAUDITED, IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

Non-GAAP net income is GAAP net income with the following modifications: (1) elimination of share-based compensation; (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; (7) elimination of certain restructuring costs; (8) elimination of tax expense/benefit from intra-entity transfers; and (9) elimination of dilutive effect of the convertible debt.
 
Three Months Ended December 31,
 
2019
Per Diluted Share *
 
2018
Per Diluted Share *
Net income
$
123,023

$
2.45

 
$
50,614

$
1.03

Plus:
 
 
 
 
 
Share based compensation (1)
7,843

0.16

 
5,806

0.12

Acquisition related integration costs (2)
(824
)
(0.02
)
 
6,396

0.13

Interest costs (3)
5,198

0.11

 
1,915

0.04

Amortization (4)
30,399

0.64

 
38,113

0.79

Investments (5)
3,567

0.08

 
671

0.01

Tax benefit from prior years (6)
(10
)

 
(2
)

Restructuring costs (7)


 
161


Intra-entity transfers (8)
(53,690
)
(1.13
)
 


Convertible debt dilution (9)

0.07

 

0.02

Adjusted non-GAAP net income
$
115,506

$
2.38

 
$
103,674

$
2.11



 
Twelve Months Ended December 31,
 
2019
Per Diluted Share *
 
2018
Per Diluted Share *
Net income
$
218,806

$
4.39

 
$
128,687

$
2.59

Plus:
 
 
 
 
 
Share based compensation (1)
21,701

0.46

 
21,062

0.44

Acquisition related integration costs (2)
13,152

0.28

 
25,535

0.53

Interest costs (3)
10,367

0.22

 
6,079

0.13

Amortization (4)
130,547

2.74

 
123,789

2.57

Investments (5)
3,441

0.07

 
6,636

0.14

Tax expense from prior years (6)
62


 
335

0.01

Restructuring costs (7)


 
161


Intra-entity transfers (8)
(53,690
)
(1.13
)
 


Convertible debt dilution (9)

0.12

 

0.05

Adjusted non-GAAP net income
$
344,386

$
7.08

 
$
312,284

$
6.35


* 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 DECEMBER 31, 2019 AND 2018
(UNAUDITED, IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

Non-GAAP net income is GAAP net income with the following modifications: (1) elimination of share-based compensation; (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; (7) elimination of certain restructuring costs; (8) elimination of tax expense/benefit from intra-entity transfers; and (9) elimination of dilutive effect of the convertible debt.
 
Three Months Ended December 31,
 
2019
 
2018
Cost of revenues
$
64,328

 
$
55,962

Plus:
 
 
 
Share based compensation (1)
(135
)
 
(132
)
Acquisition related integration costs (2)
(43
)
 
50

Amortization (4)
(450
)
 
(544
)
Adjusted non-GAAP cost of revenues
$
63,700

 
$
55,336

Sales and marketing
$
105,371

 
$
88,113

Plus:
 
 
 
Share based compensation (1)
(335
)
 
(418
)
Acquisition related integration costs (2)
274

 
53

Restructuring costs (7)

 
(184
)
Adjusted non-GAAP sales and marketing
$
105,310

 
$
87,564

Research, development and engineering
$
15,704

 
$
12,958

Plus:
 
 
 
Share based compensation (1)
(385
)
 
(366
)
Acquisition related integration costs (2)
48

 
(38
)
Adjusted non-GAAP research, development and engineering
$
15,367

 
$
12,554

General and administrative
$
109,940

 
$
102,342

Plus:
 
 
 
Share based compensation (1)
(4,673
)
 
(5,784
)
Acquisition related integration costs (2)
801

 
(6,448
)
Amortization (4)
(48,333
)
 
(43,186
)
Adjusted non-GAAP general and administrative
$
57,735

 
$
46,924

Interest expense, net
$
18,921

 
$
15,559

Plus:
 
 
 
Acquisition related integration costs (2)

 
(15
)
Interest costs (3)
(3,293
)
 
(2,211
)
Adjusted non-GAAP interest expense, net
$
15,628

 
$
13,333

Other expense (income), net
$
5,234

 
$
(1,443
)
Plus:
 
 
 
Investments (5)
(4,164
)
 

Adjusted non-GAAP other expense (income), net
$
1,070

 
$
(1,443
)
 
 
 
 
 
 
 
 
 
 
 
 




 
 
 
 
Continued from previous page
 
 
 
 
 
 
 
Income Tax Provision
$
(37,227
)
 
$
21,395

Plus:
 
 
 
Share based compensation (1)
(2,315
)
 
894

Acquisition related integration costs (2)
(256
)
 
2

Interest costs (3)
(1,905
)
 
296

Amortization (4)
18,384

 
5,617

Investments (5)
891

 
(112
)
Tax expense from prior years (6)
10

 
2

Restructuring costs (7)

 
23

Intra-entity transfers (8)
53,690

 

Adjusted non-GAAP income tax provision
$
31,272

 
$
28,117

Net loss in earnings of equity method investment
$
294

 
$
559

Plus:
 
 
 
Investments (5)
(294
)
 
(559
)
Adjusted non-GAAP net loss in earnings of equity method investment
$

 
$

 
 
 
 
Total adjustments
$
7,517

 
$
(53,060
)
 
 
 
 
GAAP earnings per diluted share
$
2.45

 
$
1.03

Adjustments *
$
(0.07
)
 
$
1.08

Adjusted non-GAAP earnings per diluted share
$
2.38

 
$
2.11

* 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.





J2 GLOBAL, INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP TO ADJUSTED NON-GAAP FINANCIAL MEASURES
TWELVE MONTHS ENDED DECEMBER 31, 2019 AND 2018
(UNAUDITED, IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

Non-GAAP net income is GAAP net income with the following modifications: (1) elimination of share-based compensation; (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; (7) elimination of certain restructuring costs; (8) elimination of tax expense/benefit from intra-entity transfers; and (9) elimination of dilutive effect of the convertible debt.
 
Twelve Months Ended December 31,
 
2019
 
2018
Cost of revenues
$
237,323

 
$
201,074

Plus:
 
 
 
Share based compensation (1)
(525
)
 
(510
)
Acquisition related integration costs (2)
(368
)
 
(296
)
Amortization (4)
(1,893
)
 
(2,230
)
Adjusted non-GAAP cost of revenues
$
234,537

 
$
198,038

Sales and marketing
$
379,183

 
$
338,304

Plus:
 
 
 
Share based compensation (1)
(1,547
)
 
(1,798
)
Acquisition related integration costs (2)
(2,870
)
 
(1,872
)
Restructuring costs (7)

 
(184
)
Adjusted non-GAAP sales and marketing
$
374,766

 
$
334,450

Research, development and engineering
$
54,396

 
$
48,370

Plus:
 
 
 
Share based compensation (1)
(1,477
)
 
(1,553
)
Acquisition related integration costs (2)
(2,039
)
 
(324
)
Adjusted non-GAAP research, development and engineering
$
50,880

 
$
46,493

General and administrative
$
424,072

 
$
375,267

Plus:
 
 
 
Share based compensation (1)
(20,373
)
 
(24,232
)
Acquisition related integration costs (2)
(11,745
)
 
(26,909
)
Amortization (4)
(180,603
)
 
(145,849
)
Tax expense from prior years (6)
(104
)
 
(378
)
Adjusted non-GAAP general and administrative
$
211,247

 
$
177,899

Interest expense, net
$
69,546

 
$
61,987

Plus:
 
 
 
Acquisition related integration costs (2)
27

 
(83
)
Interest costs (3)
(10,121
)
 
(8,655
)
Tax expense from prior years (6)

 
(57
)
Adjusted non-GAAP interest expense, net
$
59,452

 
$
53,192

Other expense, net
$
7,936

 
$
4,706

Plus:
 
 
 
Investments (5)
(4,164
)
 
(2,900
)
Adjusted non-GAAP other expense, net
$
3,772

 
$
1,806

 
 
 
 
 
 
 
 




Continued from previous page
 
 
 
 
 
 
 
Income tax provision
$
(19,376
)
 
$
44,760

Plus:
 
 
 
Share based compensation (1)
2,221

 
7,031

Acquisition related integration costs (2)
3,843

 
3,949

Interest costs (3)
(246
)
 
2,576

Amortization (4)
51,949

 
24,290

Investments (5)
891

 
404

Tax expense from prior years (6)
42

 
100

Restructuring costs (7)

 
23

Intra-entity transfers (8)
53,690

 

Adjusted non-GAAP income tax provision
$
93,014

 
$
83,133

Net loss in earnings of equity method investment
$
168

 
$
4,140

Plus:
 
 
 
Investments (5)
(168
)
 
(4,140
)
Adjusted non-GAAP net loss in earnings of equity method investment
$

 
$

 
 
 
 
Total adjustments
$
(125,580
)
 
$
(183,597
)
 
 
 
 
GAAP earnings per diluted share
$
4.39

 
$
2.59

Adjustments *
$
2.69

 
$
3.76

Adjusted non-GAAP earnings per diluted share
$
7.08

 
$
6.35

* 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, retention bonuses, severance, lease terminations, 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 and in November 2019, the Company issued $550.0 million aggregate principal amount of 1.75% 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 features, reflected as a debt discount, is amortized to interest expense over time. Accordingly, the Company recognizes imputed interest expense on its 3.25% and 1.75% convertible senior notes of approximately 5.8% and 5.5%, respectively, in its income statement. The Company excludes the difference between the imputed interest expense and the coupon interest expense of 3.25% and 1.75%, respectively, 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) Restructuring Costs. The Company excludes certain restructuring costs. The Company believes that the Non-GAAP financial measures excluding this item to provide meaningful supplemental information regarding operational performance. In addition, excluding this item from the Non-GAAP measures facilitates comparisons to historical operating results.

(8) Tax Expense/Benefit from Intra-Entity Transfers. The Company excludes certain income tax-related effects as a result of intra-entity transfers to the extent the related tax asset or liability in the financial statement is not recovered or settled, respectively during the year. During December 2019, the Company entered into an intra-entity asset transfer that resulted in the recording of a tax benefit and related tax asset representing tax deductible amounts to be realized in future years. The Company believes that the Non-GAAP financial measures excluding the cumulative future unrealized benefit of the assets transferred and including the




tax benefit in the year of realization provides meaningful supplemental information regarding operational performance. In addition, excluding this item from the Non-GAAP measures facilitates comparisons to historical operating results.

(9) 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 (Income), 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 AND TWELVE MONTHS ENDED DECEMBER 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 December 31,
 
Twelve Months Ended December 31,
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
Net income
$
123,023

 
$
50,614

 
$
218,806

 
$
128,687

Plus:
 
 
 
 
 
 
 
Interest expense, net
18,921

 
15,559

 
69,546

 
61,987

Other expense (income), net
5,234

 
(1,443
)
 
7,936

 
4,706

Income tax expense
(37,227
)
 
21,395

 
(19,376
)
 
44,760

Depreciation and amortization
61,623

 
54,324

 
232,032

 
187,174

Reconciliation of GAAP to Adjusted non-GAAP financial measures:
 
 
 
 


 
 
Share-based compensation
5,528

 
6,700

 
23,922

 
28,093

Acquisition-related integration costs
(1,080
)
 
6,383

 
17,022

 
29,401

Investments
294

 
559

 
168

 
4,140

Additional indirect tax expense from prior years

 

 
104

 
378

Restructuring costs

 
184

 

 
184

 
 
 
 
 
 
 
 
Adjusted EBITDA
$
176,316

 
$
154,275

 
$
550,160

 
$
489,510


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; (4) additional indirect tax expense from prior years; and (5) certain restructuring costs. 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

 
$
95,357

 
$
97,096

 
$
103,232

 
$
412,539

Less: Purchases of property and equipment
(12,531
)
 
(18,260
)
 
(18,692
)
 
(21,105
)
 
(70,588
)
Add: Contingent consideration*

 
8,698

 
(240
)
 

 
8,458

Free cash flows
$
104,323

 
$
85,795

 
$
78,164

 
$
82,127

 
$
350,409

 
 
 
 
 
 
 
 
 
 
* Free Cash Flows of $85.8 million for Q2 2019 and $78.2 million for Q3 2019 is before the effect of payments associated with certain contingent consideration associated with recent acquisitions.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 DECEMBER 31, 2019
(UNAUDITED, IN THOUSANDS)
    
 
Cloud
 
Digital
 
 
 
 
 
Services
 
Media
 
Corporate
 
Total
Revenues
 
 
 
 
 
 


GAAP revenues
$
169,296

 
$
236,290

 
$
2

 
$
405,588

 
 
 
 
 
 
 
 
Gross profit
 
 
 
 
 
 
 
GAAP gross profit
$
132,345

 
$
208,913

 
$
2

 
$
341,260

Non-GAAP adjustments:
 
 
 
 
 
 
 
Share-based compensation
133

 
2

 

 
135

Acquisition related integration costs
43

 

 

 
43

Amortization
450

 

 

 
450

Adjusted non-GAAP gross profit
$
132,971

 
$
208,915

 
$
2

 
$
341,888

 
 
 
 
 
 
 
 
Operating profit
 
 
 
 
 
 
 
GAAP operating profit
$
56,165

 
$
60,427

 
$
(6,347
)
 
$
110,245

Non-GAAP adjustments:
 
 
 
 
 
 
 
Share-based compensation
1,211

 
1,146

 
3,171

 
5,528

Acquisition related integration costs
783

 
(1,863
)
 

 
(1,080
)
Amortization
19,531

 
28,663

 
589

 
48,783

Adjusted non-GAAP operating profit
$
77,690

 
$
88,373

 
$
(2,587
)
 
$
163,476

 
 
 
 
 
 
 

Depreciation
2,995

 
9,845

 

 
12,840

Adjusted EBITDA
$
80,685

 
$
98,218

 
$
(2,587
)
 
$
176,316

 
 
 

 

 

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 $2.5 million and $2.8 million, respectively.

The effects noted above reduce Adjusted EBITDA for Cloud Services and Digital Media by $2.5 million and $2.8 million respectively.





J2 GLOBAL, INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP TO ADJUSTED NON-GAAP FINANCIAL MEASURES
THREE MONTHS ENDED DECEMBER 31, 2018
(UNAUDITED, IN THOUSANDS)
    
 
Cloud
 
Digital
 
 
 
 
 
Services
 
Media
 
Corporate
 
Total
Revenues
 
 
 
 
 
 
 
GAAP revenues
$
148,099

 
$
197,958

 
$
2

 
$
346,059

 
 
 
 
 
 
 
 
Gross profit
 
 
 
 
 
 
 
GAAP gross profit
$
119,394

 
$
170,701

 
$
2

 
$
290,097

Non-GAAP adjustments:
 
 
 
 
 
 
 
Share-based compensation
130

 
2

 

 
132

Acquisition Related Integration Costs
(50
)
 

 

 
(50
)
Amortization
544

 

 

 
544

Adjusted non-GAAP gross profit
$
120,018

 
$
170,703

 
$
2

 
$
290,723

 
 
 
 
 
 
 
 
Operating profit
 
 
 
 
 
 
 
GAAP operating profit
$
57,968

 
$
34,612

 
$
(5,896
)
 
$
86,684

Non-GAAP adjustments:
 
 
 
 
 
 
 
Share-based compensation
1,748

 
1,074

 
3,878

 
6,700

Acquisition related integration costs
(447
)
 
6,830

 

 
6,383

Amortization
13,821

 
29,195

 
714

 
43,730

Restructuring costs

 
184

 

 
184

Adjusted Non-GAAP operating profit
$
73,090

 
$
71,895

 
$
(1,304
)
 
$
143,681

 
 
 
 
 
 
 
 
Depreciation
2,697

 
7,897

 

 
10,594

Adjusted EBITDA
$
75,787

 
$
79,792

 
$
(1,304
)
 
$
154,275

 
 
 
 
 
 
 
 
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 $1.7 million and $1.8 million, respectively.

The effects noted above reduce Adjusted EBITDA for Cloud Services and Digital Media by $1.7 million and $1.8 million respectively.





J2 GLOBAL, INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP TO ADJUSTED NON-GAAP FINANCIAL MEASURES
TWELVE MONTHS ENDED DECEMBER 31, 2019
(UNAUDITED, IN THOUSANDS)
    
 
Cloud
 
Digital
 
 
 
 
 
Services
 
Media
 
Corporate
 
Total
Revenues
 
 
 
 
 
 
 
GAAP revenues
$
661,835

 
$
710,211

 
$
8

 
$
1,372,054

 
 
 
 
 
 
 
 
Gross profit
 
 
 
 
 
 
 
GAAP gross profit
$
517,565

 
$
617,158

 
$
8

 
$
1,134,731

Non-GAAP adjustments:
 
 
 
 
 
 
 
Share-based compensation
516

 
9

 

 
525

Acquisition related integration costs
153

 
215

 

 
368

Amortization
1,893

 

 

 
1,893

Adjusted non-GAAP gross profit
$
520,127

 
$
617,382

 
$
8

 
$
1,137,517

 
 
 
 
 
 
 
 
Operating profit
 
 
 
 
 
 
 
GAAP operating profit
$
238,104

 
$
66,324

 
$
(27,348
)
 
$
277,080

Non-GAAP adjustments:
 
 
 
 
 
 
 
Share-based compensation
3,796

 
5,016

 
15,110

 
23,922

Acquisition related integration costs
1,917

 
15,105

 

 
17,022

Amortization
69,386

 
110,623

 
2,487

 
182,496

Additional tax expense from prior years
104

 

 

 
104

Adjusted non-GAAP operating profit
$
313,307

 
$
197,068

 
$
(9,751
)
 
$
500,624

 
 
 
 
 
 
 
 
Depreciation
11,585

 
37,951

 

 
49,536

Adjusted EBITDA
$
324,892

 
$
235,019

 
$
(9,751
)
 
$
550,160

 
 
 
 
 
 
 
 
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 $9.7 million and $10.6 million, respectively.

The effects noted above reduce Adjusted EBITDA for Cloud Services and Digital Media by $9.7 million and $10.6 million, respectively.





J2 GLOBAL, INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP TO ADJUSTED NON-GAAP FINANCIAL MEASURES
TWELVE MONTHS ENDED DECEMBER 31, 2018
(UNAUDITED, IN THOUSANDS)
    
 
Cloud
 
Digital
 
 
 
 
 
Services
 
Media
 
Corporate
 
Total
Revenues
 
 
 
 
 
 
 
GAAP revenues
$
597,975

 
$
609,314

 
$
6

 
$
1,207,295

 
 
 
 
 
 
 
 
Gross profit
 
 
 
 
 
 
 
GAAP gross profit
$
475,821

 
$
530,395

 
$
5

 
$
1,006,221

Non-GAAP adjustments:
 
 
 
 
 
 
 
Share-based compensation
506

 
4

 

 
510

Acquisition related integration costs
216

 
80

 

 
296

Amortization
2,230

 

 

 
2,230

Adjusted non-GAAP gross profit
$
478,773

 
$
530,479

 
$
5

 
$
1,009,257

 
 
 
 
 
 
 
 
Operating profit
 
 
 
 
 
 
 
GAAP operating profit
$
230,180

 
$
41,375

 
$
(27,275
)
 
$
244,280

Non-GAAP adjustments:
 
 
 
 
 
 
 
Share-based compensation
7,075

 
5,037

 
15,981

 
28,093

Acquisition related integration costs
1,777

 
27,624

 

 
29,401

Amortization
50,738

 
93,764

 
3,577

 
148,079

Additional tax expense from prior years
378

 

 

 
378

Restructuring costs

 
184

 

 
184

Adjusted non-GAAP operating profit
$
290,148

 
$
167,984

 
$
(7,717
)
 
$
450,415

 
 
 
 
 
 
 
 
Depreciation
10,016

 
29,079

 

 
39,095

Adjusted EBITDA
$
300,164

 
$
197,063

 
$
(7,717
)
 
$
489,510

 
 
 
 
 
 
 
 
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 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 $6.1 million and $5.9 million, respectively.

The effects noted above reduce Adjusted EBITDA for Cloud Services and Digital Media by $6.1 million and $5.9 million, respectively.



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Section 3: EX-99.2 (FEBRUARY 2020 INVESTOR PRESENTATION)

earningscallq42019final
FOURTH QUARTER AND FULL YEAR 2019 RESULTS FEBRUARY 11, 2020


 
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 2020 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 February 11, 2020 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 February 11, 2020 and any redistribution or rebroadcast of this presentation after that date is not intended and will not be construed as updating or confirming such information. 2


 
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 • 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 • Reduced use of fax services due to increased use of email, scanning or continued adoption of digital signatures or otherwise • 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


 
Q4 2019 Consolidated Financial Snapshot Revenue Adjusted Gross Profit (1) (2) (in millions) (in millions) 17.2% 17.6% $405.6 $341.9 Q2 2018 $233,192,653 $346.1 $290.7 Q2 2018 $102,668,939 Q4 2018 Q4 2019 Q4 2018 Q4 2019 Q2 2018 $1.22 Adjusted EBITDA (1)(2) Adjusted EPS (1)( 2) (in millions) 14.3% 12.8% $176.3 $2.38 $2.11 $154.3 Q4 2018 Q4 2019 Q4 2018 Q4 2019 (1) See slides 16, 19, 20 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 for Q4 2019 4 (2) Figures are adjusted non-GAAP


 
FY 2019 Consolidated Financial Snapshot Revenue (1)(2) Adjusted Gross Profit FY 2017 (in millions) (in millions) 1,117,837,852 13.6% 12.7% $1,372.0 $1,137.5 FY 2017 $1,207.3 $1,009.3 $949,136,299 FY 2017 $462,951,882 FY 2018 FY 2019 FY 2018 FY 2019 FY 2017 $5.64 Adjusted EBITDA (1)(2) Adjusted EPS (1)(2) (in millions) 11.5% 12.4% $7.08 $550.2 $6.35 $489.5 FY 2018 FY 2019 FY 2018 FY 2019 (1) See slides 16, 21, 22 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 for FY 2019 5 (2) Figures are adjusted non-GAAP


 
Adjusted EBITDA and Free Cash Flow(1) Adjusted EBITDA Adjusted EBITDA (2) Q4Y/Y '18 FCF vs Q4 '19 (2) 2013 220,446,000 (in millions) (in millions) $550.2 14.3% $489.5 $463.0 $396.1 $176.3 $333.3 $262.6 $154.3 $220.4 Free Cash Flow 2013 $150,393,000 2013 2014 2015 2016 2017 2018 2019 Q4 2018 Q4 2019 Q1 2018 $90,745,490 Free Cash Flow (2) Q4 '18 vs Q4 '19 (2) (3) (in millions) (in millions) (14.3)% $350.4 FCF not done yet $344.9 $267.9 $264.8 $223.2 $95.8 $171.5 $82.1 $150.4 2013 2014 2015 2016 2017 2018 2019 Q4 2018 Q4 2019 (1) See slides 17 and 18 for a GAAP reconciliation of Adjusted EBITDA and Free Cash Flow (2) Figures are adjusted non-GAAP (3) Net cash provided by operating activities decreased 3.7% to $103.2 million compared to $107.2 million for Q4 2018. Q4 2019 free cash flow(2) decreased 14.3% to $82.1 million compared to $95.8 million for Q4 2018. The decrease in free cash flow over the prior comparable period is primarily due to a greater percentage of revenues and EBITDA coming from the Digital Media business which has a longer collection cycle resulting in less cash inflows associated with accounts receivable of approximately $14.7 million; additional payments and timing differences associated with certain other working capital within the Digital Media 6 business of approximately $9.5 million in comparison to Q4 2018


 
Q4 2019 Financial Snapshot By Business ```CLOUD SERVICES DIGITAL MEDIA Revenue Revenue (in millions) (in millions) 14.3% $169.3 19.3% $236.3 $148.1 $198.0 Q4 2018 Q4 2019 Q4 2018 Q4 2019 Adjusted EBITDA (1)(2) Adjusted EBITDA (1)(2) (in millions) (in millions) 6.5% $80.7 23.1% $98.2 $75.8 $79.8 Q4 2018 Q4 2019 Q4 2018 Q4 2019 (1) See slides 19 and 20 for a GAAP reconciliation of adjusted EBITDA for the Company as a whole and by Business for Q4 2019 (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 $1.7MM and $2.5MM in Q4 2018 and Q4 2019, respectively, and Digital Media Adjusted EBITDA was reduced by $1.8MM and 7 $2.8MM in Q4 2018 and Q4 2019, respectively. No allocations occurred prior to 2018


 
FY 2019 Financial Snapshot By Business ```CLOUD SERVICES DIGITAL MEDIA Revenue Revenue (in millions) (in millions) 10.7% $661.8 16.6% $710.2 $598.0 $609.3 FY 2018 FY 2019 FY 2018 FY 2019 Adjusted EBITDA (1)(2) Adjusted EBITDA (1)(2) (in millions) (in millions) 8.2% $324.9 19.3% $235.0 $300.2 $197.1 FY 2018 FY 2019 FY 2018 FY 2019 (1) See slides 21 and 22 for a GAAP reconciliation of adjusted EBITDA for the Company as a whole and by Business for FY 2019 (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 $6.1MM and $9.7MM in FY 2018 and FY 2019, respectively, and Digital Media Adjusted EBITDA was reduced by $5.9MM and 8 $10.6MM in FY 2018 and FY 2019, respectively. No allocations occurred prior to 2018


 
2020 FINANCIAL GUIDANCE


 
2020 Outlook (Forward-Looking Statements) Cloud Services • Revenue growth expected to be ~5% • Adjusted EBITDA(1)(2) margin in line with prior year’s levels of ~50% • Additional depreciation due to capital expenditures throughout the Cloud businesses, as well as the full-year impact of M&A completed in 2019 Digital Media • Revenue growth expected to be in excess of 10% • Adjusted EBITDA(1)(2) margin expected to be ~34% • Distribution of Revenues in 2020 • Q1 expected to represent ~20% of total annual Revenue, similar to prior years • Q4 expected to represent ~30% of total annual Revenue, similar to prior years Corporate • Tax rate expected to be between 21% - 23% • Excludes Share-Based Compensation of between $19.0 - $23.0MM • Effective Share Count used for EPS calculation is estimated to be 48.7MM, with no assumed dilution from the convertible notes • $3.0MM increase in corporate expenses due to the company-wide shift of our financial systems to Oracle Fusion and expansion of our cybersecurity initiatives 10 (1) Figures are adjusted non-GAAP. (2) See slides 16-22 for a GAAP reconciliation of adjusted earnings per diluted share, free cash flow, and adjusted EBITDA; these EBITDA margins are before corporate allocations


 
2020 Guidance (Forward-Looking Statements) Our annual guidance of Revenues, Adjusted EBITDA and Adjusted non-GAAP EPS Revenues $1,465MM - $1,505MM Adjusted $575MM - $595MM EBITDA(1)(2) Adjusted non- GAAP EPS(1)(2) $7.36 - $7.66 (1) Figures are adjusted non-GAAP 11 (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 J2 Consolidated 2017 2018 2019 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Revenue by Business Cloud Services Revenues $141,544 $144,709 $145,787 $146,916 $149,485 $150,297 $150,094 $148,099 $152,245 $169,132 $171,163 $169,296 Digital Media Revenues $113,125 $128,465 $127,829 $169,464 $131,137 $137,591 $142,628 $197,958 $147,647 $153,298 $172,975 $236,290 Corporate $0 $0 $0 $0 $1 $1 $2 $2 $1 $2 $3 $2 Total Revenues $254,669 $273,174 $273,616 $316,380 $280,623 $287,889 $292,724 $346,059 $299,893 $322,432 $344,141 $405,588 |---(in '000s)---| Diluted EPS GAAP $0.52 $0.63 $0.66 $1.02 $0.38 $0.57 $0.61 $1.03 $0.66 $0.66 $0.62 $2.45 Adjusted non-GAAP (1) $1.19 $1.33 $1.34 $1.79 $1.22 $1.50 $1.53 $2.11 $1.40 $1.60 $1.70 $2.38 Cash & Investment $187.5 $330.8 $402.5 $408.7 $396.7 $428.0 $386.0 $293.3 $320.3 $259.5 $189.0 $675.7 Free Cash Flow (2) (4) $61.5 $71.1 $56.8 $75.3 $90.7 $87.0 $71.5 $95.8 $104.3 $85.8 $78.2 $82.1 Adjusted EBITDA (3) (4) $99.5 $110.2 $111.3 $141.9 $102.7 $113.5 $119.1 $154.3 $113.9 $125.2 $134.8 $176.3 |--(millions)--| (1) See slide 16 for a reconciliation of adjusted non-GAAP earnings and EPS to GAAP Net Income and diluted GAAP EPS (2) See slide 17 for a definition of Free Cash Flow and reconciliation to Net Cash Provided by Operating Activities (3) See slide 18 for a definition of adjusted EBITDA and reconciliation to Net Income 13 (4) Figures are adjusted non-GAAP


 
Cloud Services & Digital Media Metrics Cloud Services Metrics 2017 2018 2019 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Revenue by Type Fixed Subscriber Revenues $115,726 $117,556 $118,755 $119,232 $120,840 $123,648 $123,111 $121,350 $124,309 $140,352 $141,832 $143,246 Variable Subscriber Revenues $24,606 $25,863 $25,808 $26,651 $28,482 $26,479 $26,781 $26,591 $27,481 $28,557 $29,139 $25,899 Subscriber Revenues $140,332 $143,419 $144,563 $145,882 $149,322 $150,127 $149,892 $147,940 $151,790 $168,909 $170,971 $169,145 Other Licenses Revenue (1) $1,212 $1,291 $1,223 $1,034 $163 $170 $202 $158 $455 $223 $192 $151 Total Cloud Services Revenues $141,544 $144,709 $145,787 $146,916 $149,485 $150,297 $150,094 $148,099 $152,245 $169,132 $171,163 $169,296 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 $97,379 $97,219 $96,668 Non-DID Based Revenues $48,106 $49,220 $49,084 $47,617 $50,793 $51,809 $51,197 $51,096 $55,177 $71,753 $73,944 $72,628 Total Cloud Services Revenues $141,544 $144,709 $145,787 $146,916 $149,485 $150,297 $150,094 $148,099 $152,245 $169,132 $171,163 $169,296 (2) 3,116 3,141 3,175 3,176 3,185 3,197 3,204 3,165 3,148 4,015 4,039 4,036 Cloud Services Customers |----------------------(in '000s)----------------------| Average Monthly Revenue/Customer (3) $15.03 $15.28 $15.26 $15.31 $15.65 $15.68 $15.61 $15.49 $16.03 $14.01 $14.15 $13.96 Cancel Rate (4) 2.3% 2.1% 2.2% 2.0% 2.2% 2.0% 2.2% 2.1% 2.2% 2.5% 2.4% 2.4% 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 1,618,612 1,856,953 2,259,469 Views 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 6,492,120 7,008,292 8,704,905 (in '000s)(in (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; Q2 2019 assumes NetProtect acquisition closed on March 31, instead of April 2, 2019 (4) User cancel rate, also called user churn, is defined as cancellation of service by Cloud Business customers with greater than four 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 14 (5) Digital Media Traffic figures based on Google Analytics & Partner Platforms


 
Return on Invested Capital (ROIC) Calculation Cumulative Cumulative Invested ROIC FCF (3) / Cumulative Adjusted Spend / Free Cash ROIC FCF (3) / IEC (4) & Net (3) Equity Capital (4) (1) (2)(3) (3) FCF since (4) (5) (IEC & Net Spend EBITDA Adjusted Flow (FCF) (4) IEC Debt 2008 (IEC) (5) EBITDA (3) Debt ) (in Millions) 2010 $441.8 $133.9 3.3x $108.8 $300.2 $298.9 36.4% $298.9 36.4% 2011 $456.9 $177.7 2.6x $157.5 $457.7 $314.8 50.0% $314.8 50.0% 2012 $666.6 $194.3 3.4x $166.0 $623.7 $391.3 42.4% $417.8 39.7% 2013 $825.8 $220.4 3.7x $150.4 $774.1 $446.6 33.7% $484.4 31.0% 2014 $1,104.7 $262.6 4.2x $171.5 $945.6 $513.1 33.4% $672.7 25.5% 2015 $1,440.6 $333.3 4.3x $223.2 $1,168.8 $580.9 38.4% $926.5 24.1% 2016 $2,071.2 $396.1 5.2x $267.9 $1,436.7 $659.8 40.6% $1,137.6 23.5% 2017 $2,179.2 $463.0 4.7x $264.8 $1,701.5 $718.2 36.9% $1,419.8 18.7% 2018 $2,552.3 $489.5 5.2x $344.9 $2,046.4 $722.8 47.7% $1,526.5 22.6% 2019 $2,986.5 $550.2 5.4x $350.4 $2,396.8 $802.4 43.7% $1,675.3 20.9% (1) Cumulative spend based on PPE, purchase of acquisitions (net of proceeds from sale of businesses), purchase of intangibles and deferred payments for acquisitions from Statement of Cash Flow (2) 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 EBITDA amounts are not meant as a substitute for GAAP, but are solely for informational purposes. See slide 18 for GAAP reconciliation to adjusted EBITDA (3) Figures are adjusted non-GAAP (4) Investment Equity Capital defined as Initial Equity plus GAAP Net Income less Dividends less Buybacks 15 (5) Net Debt defined as Total Debt less Cash


 
Q4 and FY 2019 Reconciliation of GAAP to Adjusted Non-GAAP Earnings & EPS (1) 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; and (6) elimination of additional tax or indirect tax related expense/benefit from prior years; (7) elimination of certain restructuring costs; and (8) elimination of tax expense/benefit from intra-entity transfers. 16


 
GAAP Reconciliation - Free Cash Flow(1) (2) Figures in Thousands 2013 2014 2015 2016 2017 2018 2019 Q4 2018 (3) Q4 2019 (3) Net cash provided by operating activities $ 193,324 $ 177,231 $ 229,061 $ 282,387 $ 264,420 $ 401,325 $ 412,539 $ 107,209 $ 103,232 Less: Purchases of property and equipment (18,626) (11,221) (17,297) (24,746) (39,595) $ (56,379) (70,588) (11,451) (21,105) 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 - 8,458 - - Free cash flows (2) $ 150,393 $ 171,522 $ 223,167 $ 267,912 $ 264,775 $ 344,946 $ 350,409 $ 95,758 $ 82,127 * Free cash flows of $132.6 million in 2017, and $164.0 million in 2019 are 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 (2) Figures are adjusted non-GAAP (3) Net cash provided by operating activities decreased 3.7% to $103.2 million compared to $107.2 million for Q4 2018. Q4 2019 free cash flow(2) decreased 14.3% to $82.1 million compared to $95.8 million for Q4 2018. The decrease in free cash flow over the prior comparable period is primarily due to a greater percentage of revenues and EBITDA coming from the Digital Media business which has a longer collection cycle resulting in less cash inflows associated with accounts receivable of approximately $14.7 million; additional payments and timing differences associated with certain other working capital within the Digital Media business of approximately $9.5 million in comparison to Q4 2018 17


 
GAAP Reconciliation - Adjusted EBITDA(1) (2) (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 EBITDA amounts are not meant as a substitute for GAAP, but are solely for informational purposes (2) Figures are adjusted non-GAAP 18


 
(1) Q4 2019 Reconciliation of GAAP to Adjusted EBITDA 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 $2.5 million and $2.8 million, respectively. The effects noted above reduce Adjusted EBITDA for Cloud Services and Digital Media by $2.5 million and $2.8 million respectively. (1) Figures are adjusted non-GAAP 19


 
(1) Q4 2018 Reconciliation of GAAP to Adjusted EBITDA 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 $1.7 million and $1.8 million, respectively. The effects noted above reduce Adjusted EBITDA for Cloud Services and Digital Media by $1.7 million and $1.8 million respectively. (1) Figures are adjusted non-GAAP 20


 
(1) FY 2019 Reconciliation of GAAP to Adjusted EBITDA 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 $9.7 million and $10.6 million, respectively. The effects noted above reduce Adjusted EBITDA for Cloud Services and Digital Media by $9.7 million and $10.6 million, respectively (1) Figures are adjusted non-GAAP 21


 
(1) FY 2018 Reconciliation of GAAP to Adjusted EBITDA 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 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 $6.1 million and $5.9 million, respectively. The effects noted above reduce Adjusted EBITDA for Cloud Services and Digital Media by $6.1 million and $5.9 million, respectively (1) Figures are adjusted non-GAAP 22


 


 
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