Achieves Record Second Quarter Revenues

Announces Share Repurchase Program of up to 10 Million Shares

J2 Global, Inc. (NASDAQ: JCOM) today reported financial results for the second quarter ended June 30, 2020.

“J2’s outstanding results in an exceptionally challenging environment demonstrate the strength and quality of our business and the dedication of our employees,” said Vivek Shah, CEO of J2 Global. “Our adaptability and focus led to record-breaking revenues, Adjusted EBITDA, and free cash flow for the quarter.”

SECOND QUARTER 2020 RESULTS

Q2 2020 quarterly revenues increased 2.7% to a second quarter record of $331.0 million compared to $322.4 million for Q2 2019.

Net cash provided by operating activities increased to $139.6 million compared to $95.4 million for Q2 2019. Q2 2020 free cash flow(2) increased 35.1% to $115.9 million compared to $85.8 million for Q2 2019.

GAAP earnings per diluted share(3) increased 21.1% to $0.80 in Q2 2020 compared to $0.66 for Q2 2019.

Adjusted non-GAAP earnings per diluted share(3)(4) for the quarter increased 7.0% to $1.71 as compared to $1.60 for Q2 2019.

GAAP net income increased by 16.9% to $38.1 million as compared to $32.6 million for Q2 2019.

Quarterly Adjusted EBITDA(5) increased 6.1% to $132.9 million compared to $125.2 million for Q2 2019.

J2 ended the quarter with approximately $711 million in cash, cash equivalents, and investments after deploying approximately $1 million during the quarter in connection with contingent consideration payments for acquisitions from previous years. In addition, J2 deployed approximately $24 million in respect of its share repurchase program during the quarter.

Key financial results for Q2 2020 versus Q2 2019 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.

 

Q2 2020

Q2 2019

% Change

Revenues

 

 

 

Cloud Services

$167.1 million

$169.1 million

(1.2)%

Digital Media

$163.9 million

$153.3 million

6.9%

Total Revenue: (1)

$331.0 million

$322.4 million

2.7%

Operating Income

$73.0 million

$56.6 million

29.0%

Net Cash Provided by Operating Activities

$139.6 million

$95.4 million

46.4%

Free Cash Flow (2)

$115.9 million

$85.8 million

35.1%

GAAP Earnings per Diluted Share (3)

$0.80

$0.66

21.1%

Adjusted Non-GAAP Earnings per Diluted Share (3) (4)

$1.71

$1.60

7.0%

GAAP Net Income

$38.1 million

$32.6 million

16.9%

Adjusted Non-GAAP Net Income

$80.6 million

$77.7 million

3.7%

Adjusted EBITDA (5)

$132.9 million

$125.2 million

6.1%

Adjusted EBITDA Margin (5)

40.1%

38.8%

3.4%

BUSINESS OUTLOOK

The Company has reinstated full-year guidance and now estimates that for fiscal year 2020 it will achieve revenues between $1.380 billion and $1.400 billion; Adjusted EBITDA between $556 million and $570 million; and Adjusted non-GAAP earnings per diluted share of between $7.17 and $7.41.

Adjusted non-GAAP earnings per diluted share for 2020 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 2020 (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 any related tax rate information 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.

SHARE REPURCHASE PROGRAM

J2 Global’s Board of Directors has approved a share repurchase program. Under the new program, the Company may purchase in the public market or in off-market transactions up to 10 million shares through August 6, 2025. The timing and amounts of any purchases will be determined by the Company from time to time, depending on market conditions and other factors it deems relevant.

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 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 26.7% for Q2 2020 and 28.1% for Q2 2019. The estimated Adjusted non-GAAP effective tax rates were approximately 21.8% for Q2 2020 and 21.0% for Q2 2019.

(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 June 30, 2020 and 2019 totaled $0.91 and $0.94 per diluted share, respectively.

(5)

 

Adjusted EBITDA is defined as earnings before interest; loss on investments, net; other (income) expense, net; income tax expense; net loss (income) in earnings of equity method investments; 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, 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 of 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.

“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 2019 Annual Report on Form 10-K filed by J2 Global on March 2, 2020, 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)

 

June 30, 2020

 

December 31, 2019

ASSETS

 

 

 

Cash and cash equivalents

$

616,820

 

 

$

575,615

 

Accounts receivable, net of allowances of $11,834 and $12,701, respectively

188,383

 

 

261,928

 

Prepaid expenses and other current assets

45,767

 

 

49,347

 

Current assets held for sale

2,175

 

 

 

Total current assets

853,145

 

 

886,890

 

Long-term investments

94,042

 

 

100,079

 

Property and equipment, net

144,494

 

 

127,817

 

Operating lease right-of-use assets

110,031

 

 

125,822

 

Goodwill

1,637,287

 

 

1,633,033

 

Other purchased intangibles, net

490,435

 

 

556,553

 

Deferred income taxes, noncurrent

56,947

 

 

59,976

 

Other assets

16,199

 

 

15,676

 

Noncurrent assets held for sale

16,865

 

 

 

TOTAL ASSETS

$

3,419,445

 

 

$

3,505,846

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

Accounts payable and accrued expenses

$

166,289

 

 

$

238,059

 

Income taxes payable, current

24,402

 

 

17,758

 

Deferred revenue, current

159,907

 

 

162,855

 

Operating lease liabilities, current

26,602

 

 

26,927

 

Current portion of long-term debt

391,092

 

 

385,532

 

Other current liabilities

1,501

 

 

1,973

 

Current liabilities held for sale

2,388

 

 

 

Total current liabilities

772,181

 

 

833,104

 

Long-term debt

1,071,364

 

 

1,062,929

 

Deferred revenue, noncurrent

11,501

 

 

12,744

 

Operating lease liabilities, noncurrent

91,279

 

 

104,070

 

Income taxes payable, noncurrent

11,675

 

 

11,675

 

Liability for uncertain tax positions

57,565

 

 

52,451

 

Deferred income taxes, noncurrent

111,746

 

 

107,453

 

Other long-term liabilities

28,810

 

 

10,228

 

Noncurrent liabilities held for sale

156

 

 

 

TOTAL LIABILITIES

2,156,277

 

 

2,194,654

 

Commitments and contingencies

 

 

 

Preferred stock

 

 

 

Common stock

469

 

 

476

 

Additional paid-in capital

467,267

 

 

465,652

 

Retained earnings

850,232

 

 

891,526

 

Accumulated other comprehensive loss

(54,800)

 

 

(46,462)

 

TOTAL STOCKHOLDERS’ EQUITY

1,263,168

 

 

1,311,192

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

$

3,419,445

 

 

$

3,505,846

 

J2 GLOBAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED, IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

2020

 

2019

 

2020

 

2019

Total revenues

$

330,984

 

 

$

322,432

 

 

$

663,377

 

 

$

622,325

 

 

 

 

 

 

 

 

 

Cost of revenues (1)

56,802

 

 

60,266

 

 

115,933

 

 

111,279

 

Gross profit

274,182

 

 

262,166

 

 

547,444

 

 

511,046

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

Sales and marketing (1)

92,805

 

 

88,446

 

 

192,243

 

 

175,326

 

Research, development and engineering (1)

13,606

 

 

11,938

 

 

29,012

 

 

24,922

 

General and administrative (1)

94,731

 

 

105,168

 

 

197,902

 

 

203,322

 

Total operating expenses

201,142

 

 

205,552

 

 

419,157

 

 

403,570

 

Income from operations

73,040

 

 

56,614

 

 

128,287

 

 

107,476

 

Interest expense, net

22,196

 

 

17,335

 

 

43,167

 

 

33,354

 

Loss on investments, net

3

 

 

24

 

 

20,835

 

 

38

 

Other (income) expense, net

(9,059)

 

 

(401)

 

 

(2,183)

 

 

1,800

 

Income before income taxes and net loss (income) in earnings of equity method investment

59,900

 

 

39,656

 

 

66,468

 

 

72,284

 

Income tax expense

15,978

 

 

11,148

 

 

24,681

 

 

10,853

 

Net loss (income) in earnings of equity method investment

5,821

 

 

(4,081)

 

 

10,090

 

 

(3,607)

 

Net income

$

38,101

 

 

$

32,589

 

 

$

31,697

 

 

$

65,038

 

 

 

 

 

 

 

 

 

Basic net income per common share:

 

 

 

 

 

 

 

Net income attributable to J2 Global, Inc. common shareholders

$

0.81

 

 

$

0.67

 

 

$

0.67

 

 

$

1.35

 

 

 

 

 

 

 

 

 

Diluted net income per common share:

 

 

 

 

 

 

 

Net income attributable to J2 Global, Inc. common shareholders

$

0.80

 

 

$

0.66

 

 

$

0.65

 

 

$

1.32

 

 

 

 

 

 

 

 

 

Basic weighted average shares outstanding

46,850,944

 

 

47,727,786

 

 

47,235,859

 

 

47,644,729

 

Diluted weighted average shares outstanding

47,437,555

 

 

49,102,879

 

 

48,279,417

 

 

48,806,492

 

 

 

 

 

 

 

 

 

(1) Includes share-based compensation expense as follows:

 

 

 

 

 

 

 

Cost of revenues

$

143

 

 

$

131

 

 

$

277

 

 

$

263

 

Sales and marketing

416

 

 

389

 

 

814

 

 

793

 

Research, development and engineering

484

 

 

361

 

 

915

 

 

719

 

General and administrative

5,487

 

 

5,981

 

 

10,837

 

 

10,173

 

Total

$

6,530

 

 

$

6,862

 

 

$

12,843

 

 

$

11,948

 

J2 GLOBAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED, IN THOUSANDS)

 

Six Months Ended June 30,

Cash flows from operating activities:

2020

 

2019

Net income

$

31,697

 

 

$

65,038

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

Depreciation and amortization

104,068

 

 

106,212

 

Amortization of financing costs and discounts

14,102

 

 

5,995

 

Non-cash operating lease costs

11,453

 

 

9,038

 

Share-based compensation

12,843

 

 

11,948

 

Provision for doubtful accounts

6,793

 

 

5,686

 

Deferred income taxes, net

2,752

 

 

3,908

 

Changes in fair value of contingent consideration

(232)

 

 

8,475

 

Foreign currency remeasurement gain

(704)

 

 

 

Loss (income) on equity method investments

10,090

 

 

(4,765)

 

Loss on equity and debt investments

20,826

 

 

 

Decrease (increase) in:

 

 

 

Accounts receivable

63,675

 

 

42,930

 

Prepaid expenses and other current assets

(4,185)

 

 

(3,277)

 

Other assets

(300)

 

 

(1,233)

 

Increase (decrease) in:

 

 

 

Accounts payable and accrued expenses

(34,682)

 

 

(12,452)

 

Income taxes payable

7,376

 

 

(3,810)

 

Deferred revenue

(2,698)

 

 

(3,292)

 

Operating lease liabilities

(8,780)

 

 

(8,833)

 

Liability for uncertain tax positions

5,114

 

 

(10,811)

 

Other long-term liabilities

2,419

 

 

1,454

 

Net cash provided by operating activities

241,627

 

 

212,211

 

Cash flows from investing activities:

 

 

 

Purchases of equity method investment

(26,523)

 

 

(14,668)

 

Purchases of equity investments

(843)

 

 

 

Purchases of property and equipment

(50,537)

 

 

(30,791)

 

Acquisition of businesses, net of cash received

(19,349)

 

 

(266,000)

 

Proceeds from sale of assets

407

 

 

 

Purchases of intangible assets

(23)

 

 

 

Net cash used in investing activities

(96,868)

 

 

(311,459)

 

Cash flows from financing activities:

 

 

 

Proceeds from line of credit

 

 

100,000

 

Repurchase of common stock

(88,469)

 

 

(3,807)

 

Issuance of common stock under employee stock purchase plan

3,303

 

 

1,995

 

Exercise of stock options

952

 

 

5,274

 

Dividends paid

 

 

(43,965)

 

Deferred payments for acquisitions

(16,296)

 

 

(14,269)

 

Other

(1,032)

 

 

(429)

 

Net cash (used in) provided by financing activities

(101,542)

 

 

44,799

 

Effect of exchange rate changes on cash and cash equivalents

(2,012)

 

 

451

 

Net change in cash and cash equivalents

41,205

 

 

(53,998)

 

Cash and cash equivalents at beginning of period

575,615

 

 

209,474

 

Cash and cash equivalents at end of period

$

616,820

 

 

$

155,476

 

 

J2 GLOBAL, INC. AND SUBSIDIARIES RECONCILIATION OF GAAP TO ADJUSTED NON-GAAP FINANCIAL MEASURES THREE AND SIX MONTHS ENDED JUNE 30, 2020 AND 2019 (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; (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 gain on sale of assets; (8) elimination of intra-entity transfers; (9) elimination of lease asset impairments and other charges; and (10) elimination of dilutive effect of the convertible debt.

 

Three Months Ended June 30,

 

2020

Per Diluted Share *

 

2019

Per Diluted Share *

Net income

$

38,101

 

$

0.80

 

 

$

32,589

 

$

0.66

 

Plus:

 

 

 

 

 

Share based compensation (1)

4,990

 

0.11

 

 

6,266

 

0.13

 

Acquisition related integration costs (2)

498

 

0.01

 

 

3,245

 

0.07

 

Interest costs (3)

4,831

 

0.10

 

 

2,438

 

0.05

 

Amortization (4)

25,225

 

0.54

 

 

35,938

 

0.75

 

Investments (5)

9,714

 

0.21

 

 

(4,081)

 

(0.08)

 

Tax expense from prior years (6)

1,977

 

0.04

 

 

1,335

 

0.03

 

Sale of assets (7)

(137)

 

 

 

 

 

Intra-entity transfers (8)

(6,432)

 

(0.14)

 

 

 

 

Lease asset impairments and other charges (9)

1,826

 

0.04

 

 

 

 

Convertible debt dilution (10)

 

0.01

 

 

 

0.02

 

Adjusted non-GAAP net income

$

80,593

 

$

1.71

 

 

$

77,730

 

$

1.60

 

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

 

Six Months Ended June 30,

 

2020

Per Diluted Share *

 

2019

Per Diluted Share *

Net income

$

31,697

 

$

0.65

 

 

$

65,038

 

$

1.32

 

Plus:

 

 

 

 

 

Share based compensation (1)

9,798

 

0.21

 

 

9,553

 

0.20

 

Acquisition related integration costs (2)

1,593

 

0.03

 

 

7,620

 

0.16

 

Interest costs (3)

9,146

 

0.19

 

 

3,735

 

0.08

 

Amortization (4)

57,083

 

1.21

 

 

61,441

 

1.29

 

Investments (5)

34,808

 

0.73

 

 

(3,607)

 

(0.07)

 

Tax expense from prior years (6)

2,365

 

0.05

 

 

2,345

 

0.05

 

Sale of assets (7)

(334)

 

(0.01)

 

 

 

 

Intra-entity transfers (8)

131

 

 

 

 

 

Lease asset impairments and other charges (9)

1,826

 

0.04

 

 

 

 

Convertible debt dilution (10)

 

0.01

 

 

 

0.03

 

Adjusted non-GAAP net income

$

148,113

 

$

3.11

 

 

$

146,125

 

$

3.00

 

* 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 JUNE 30, 2020 AND 2019 (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; (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 gain on sale of assets; (8) elimination of intra-entity transfers; (9) elimination of lease asset impairments and other charges; and (10) elimination of dilutive effect of the convertible debt.

 

Three Months Ended June 30,

 

2020

 

2019

Cost of revenues

$

56,802

 

 

$

60,266

 

Plus:

 

 

 

Share based compensation (1)

(143)

 

 

(131)

 

Acquisition related integration costs (2)

(55)

 

 

(55)

 

Amortization (4)

(448)

 

 

(461)

 

Adjusted non-GAAP cost of revenues

$

56,156

 

 

$

59,619

 

 

 

 

 

Sales and marketing

$

92,805

 

 

$

88,446

 

Plus:

 

 

 

Share based compensation (1)

(416)

 

 

(389)

 

Acquisition related integration costs (2)

(167)

 

 

154

 

Adjusted non-GAAP sales and marketing

$

92,222

 

 

$

88,211

 

 

 

 

 

Research, development and engineering

$

13,606

 

 

$

11,938

 

Plus:

 

 

 

Share based compensation (1)

(484)

 

 

(361)

 

Acquisition related integration costs (2)

26

 

 

 

Adjusted non-GAAP research, development and engineering

$

13,148

 

 

$

11,577

 

 

 

 

 

General and administrative

$

94,731

 

 

$

105,168

 

Plus:

 

 

 

Share based compensation (1)

(5,487)

 

 

(5,981)

 

Acquisition related integration costs (2)

(605)

 

 

(4,794)

 

Amortization (4)

(35,439)

 

 

(44,493)

 

Lease asset impairments and other charges (9)

(2,406)

 

 

 

Adjusted non-GAAP general and administrative

$

50,794

 

 

$

49,900

 

 

 

 

 

Interest expense, net

$

22,196

 

 

$

17,335

 

Plus:

 

 

 

Interest costs (3)

(6,018)

 

 

(2,276)

 

Adjusted non-GAAP interest expense, net

$

16,178

 

 

$

15,059

 

 

 

 

 

Loss on investments, net

$

3

 

 

$

24

 

Adjusted non-GAAP loss on investments, net

$

3

 

 

$

24

 

 

 

 

 

Other income, net

$

(9,059)

 

 

$

(401)

 

Plus:

 

 

 

Sale of assets (7)

181

 

 

 

Intra-entity transfers (8)

8,267

 

 

 

Adjusted non-GAAP other income, net

$

(611)

 

 

$

(401)

 

 

 

 

 

Continued from previous page

 

 

 

 

 

 

 

 

 

 

 

Income tax provision

$

15,978

 

 

$

11,148

 

Plus:

 

 

 

Share based compensation (1)

1,540

 

 

596

 

Acquisition related integration costs (2)

303

 

 

1,450

 

Interest costs (3)

1,187

 

 

(162)

 

Amortization (4)

10,662

 

 

9,016

 

Investments (5)

(3,893)

 

 

 

Tax benefit from prior years (6)

(1,977)

 

 

(1,335)

 

Sale of assets (7)

(44)

 

 

 

Intra-entity transfers (8)

(1,835)

 

 

 

Lease asset impairments and other charges (9)

580

 

 

 

Adjusted non-GAAP income tax provision

$

22,501

 

 

$

20,713

 

 

 

 

 

Net loss (income) in earnings of equity method investment

$

5,821

 

 

$

(4,081)

 

Plus:

 

 

 

Investments (5)

(5,821)

 

 

4,081

 

Adjusted non-GAAP net loss (income) in earnings of equity method investment

$

 

 

$

 

 

 

 

 

Total adjustments

$

(42,492)

 

 

$

(45,141)

 

 

 

 

 

GAAP earnings per diluted share

$

0.80

 

 

$

0.66

 

Adjustments *

$

0.91

 

 

$

0.94

 

Adjusted non-GAAP earnings per diluted share

$

1.71

 

 

$

1.60

 

* 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 SIX MONTHS ENDED JUNE 30, 2020 AND 2019 (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; (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 gain on sale of assets; (8) elimination of intra-entity transfers; (9) elimination of lease asset impairments and other charges; and (10) elimination of dilutive effect of the convertible debt.

 

Six Months Ended June 30,

 

2020

 

2019

Cost of revenues

$

115,933

 

 

$

111,279

 

Plus:

 

 

 

Share based compensation (1)

(277)

 

 

(263)

 

Acquisition related integration costs (2)

(110)

 

 

(55)

 

Amortization (4)

(898)

 

 

(983)

 

Adjusted non-GAAP cost of revenues

$

114,648

 

 

$

109,978

 

 

 

 

 

Sales and marketing

$

192,243

 

 

$

175,326

 

Plus:

 

 

 

Share based compensation (1)

(814)

 

 

(793)

 

Acquisition related integration costs (2)

(681)

 

 

276

 

Adjusted non-GAAP sales and marketing

$

190,748

 

 

$

174,809

 

 

 

 

 

Research, development and engineering

$

29,012

 

 

$

24,922

 

Plus:

 

 

 

Share based compensation (1)

(915)

 

 

(719)

 

Acquisition related integration costs (2)

26

 

 

 

Adjusted non-GAAP research, development and engineering

$

28,123

 

 

$

24,203

 

 

 

 

 

General and administrative

$

197,902

 

 

$

203,322

 

Plus:

 

 

 

Share based compensation (1)

(10,837)

 

 

(10,173)

 

Acquisition related integration costs (2)

(1,334)

 

 

(10,280)

 

Amortization (4)

(74,152)

 

 

(81,813)

 

Tax expense from prior years (6)

 

 

(3,373)

 

Lease asset impairments and other charges (9)

(2,406)

 

 

 

Adjusted non-GAAP general and administrative

$

109,173

 

 

$

97,683

 

 

 

 

 

Interest expense, net

$

43,167

 

 

$

33,354

 

Plus:

 

 

 

Acquisition related integration costs (2)

 

 

27

 

Interest costs (3)

(11,952)

 

 

(4,519)

 

Adjusted non-GAAP interest expense, net

$

31,215

 

 

$

28,862

 

 

 

 

 

Loss on investments, net

$

20,835

 

 

$

38

 

Plus:

 

 

 

Investments (5)

(20,825)

 

 

 

Adjusted non-GAAP loss on investments, net

$

10

 

 

$

38

 

 

 

 

 

Other (income) expense, net

$

(2,183)

 

 

$

1,800

 

Plus:

 

 

 

Sale of assets (7)

438

 

 

 

Intra-entity transfers (8)

1,565

 

 

 

Adjusted non-GAAP other (income) expense, net

$

(180)

 

 

$

1,800

 

 

 

 

 

Income tax provision

$

24,681

 

 

$

10,853

 

Plus:

 

 

 

Share based compensation (1)

3,045

 

 

2,395

 

Acquisition related integration costs (2)

506

 

 

2,412

 

Interest costs (3)

2,806

 

 

784

 

Amortization (4)

17,967

 

 

21,355

 

Investments (5)

(3,893)

 

 

 

Tax (benefit) expense from prior years (6)

(2,365)

 

 

1,028

 

Sale of assets (7)

(104)

 

 

 

Intra-entity transfers (8)

(1,696)

 

 

 

Lease asset impairments and other charges (9)

580

 

 

 

Adjusted non-GAAP income tax provision

$

41,527

 

 

$

38,827

 

 

 

 

 

Net loss (income) in earnings of equity method investment

$

10,090

 

 

$

(3,607)

 

Plus:

 

 

 

Investments (5)

(10,090)

 

 

3,607

 

Adjusted non-GAAP net loss (income) in earnings of equity method investment

$

 

 

$

 

 

 

 

 

Total adjustments

$

(116,416)

 

 

$

(81,087)

 

 

 

 

 

GAAP earnings per diluted share

$

0.65

 

 

$

1.32

 

Adjustments *

$

2.46

 

 

$

1.69

 

Adjusted non-GAAP earnings per diluted share

$

3.11

 

 

$

3.00

 

* 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 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 feature, 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 statement of operations. 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 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 reversals of income tax reserves accounted for through ASC 740-10. The Company believes that the Non-GAAP financial measures excluding these items provide meaningful supplemental information regarding operational performance. In addition, excluding these items from the Non-GAAP measures facilitates comparisons to historical operating results.

(7) Gain on Sale of Assets. The Company excludes the gain on sale of certain of its assets. 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.

(8) Intra-Entity Transfers. The Company excludes certain effects 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 which is expected to be recovered over a period of up to 20 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) Lease Asset Impairments and Other Charges. The Company excludes lease asset impairments and other charges as they are 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.

(10) 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 Loss on Investments, Adjusted non-GAAP Other (Income) Expense, Adjusted non-GAAP Income Tax Provision, Adjusted non-GAAP Net Loss (Income) in Earnings of Equity Method Investment 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 SIX MONTHS ENDED JUNE 30, 2020 AND 2019

(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 June 30,

 

Six Months Ended June 30,

 

2020

 

2019

 

2020

 

2019

Net income

$

38,101

 

 

$

32,589

 

 

$

31,697

 

 

$

65,038

 

Plus:

 

 

 

 

 

 

 

Interest expense, net

22,196

 

 

17,335

 

 

43,167

 

 

33,354

 

Loss on investments, net

3

 

 

24

 

 

20,835

 

 

38

 

Other (income) expense, net

(9,059)

 

 

(401)

 

 

(2,183)

 

 

1,800

 

Income tax expense

15,978

 

 

11,148

 

 

24,681

 

 

10,853

 

Net loss (income) in earnings of equity method investment

5,821

 

 

(4,081)

 

 

10,090

 

 

(3,607)

 

Depreciation and amortization

50,088

 

 

57,003

 

 

104,068

 

 

106,212

 

Reconciliation of GAAP to Adjusted non-GAAP financial measures:

 

 

 

 

 

 

 

Share-based compensation

6,530

 

 

6,862

 

 

12,843

 

 

11,948

 

Acquisition-related integration costs

801

 

 

4,695

 

 

2,099

 

 

10,059

 

Additional indirect tax expense from prior years

 

 

 

 

 

 

3,373

 

Lease asset impairments and other charges

2,406

 

 

 

 

2,406

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA

$

132,865

 

 

$

125,174

 

 

$

249,703

 

 

$

239,068

 

Adjusted EBITDA as calculated above represents earnings before interest, loss on investments, net, other (income) expense, net, income tax expense, net loss (income) in earnings of equity method investments, 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) additional indirect tax expense from prior years, and (4) lease asset impairments and other charges. 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

2020

 

 

 

 

 

 

 

 

 

Net cash provided by operating activities

$

102,036

 

 

$

139,591

 

 

$

 

 

$

 

 

$

241,627

 

Less: Purchases of property and equipment

(26,885)

 

 

(23,652)

 

 

 

 

 

 

(50,537)

 

Add: Contingent consideration*

20,054

 

 

 

 

 

 

 

 

20,054

 

Free cash flows

$

95,205

 

 

$

115,939

 

 

$

 

 

$

 

 

$

211,144

 

 

 

 

 

 

 

 

 

 

 

* Free Cash Flows of $95.2 million for Q1 2020 is before the effect of payments associated with certain contingent consideration associated with recent acquisitions.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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.

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 JUNE 30, 2020

(UNAUDITED, IN THOUSANDS)

 

Cloud

 

Digital

 

 

 

 

 

Services

 

Media

 

Corporate

 

Total

Revenues

 

 

 

 

 

 

 

GAAP revenues

$

167,058

 

 

$

163,926

 

 

$

 

 

$

330,984

 

 

 

 

 

 

 

 

 

Gross profit

 

 

 

 

 

 

 

GAAP gross profit

$

127,631

 

 

$

146,588

 

 

$

(37)

 

 

$

274,182

 

Non-GAAP adjustments:

 

 

 

 

 

 

 

Share-based compensation

140

 

 

3

 

 

 

 

143

 

Acquisition related integration costs

55

 

 

 

 

 

 

55

 

Amortization

448

 

 

 

 

 

 

448

 

Adjusted non-GAAP gross profit

$

128,274

 

 

$

146,591

 

 

$

(37)

 

 

$

274,828

 

 

 

 

 

 

 

 

 

Operating profit

 

 

 

 

 

 

 

GAAP operating profit

$

62,038

 

 

$

16,759

 

 

$

(5,757)

 

 

$

73,040

 

Non-GAAP adjustments:

 

 

 

 

 

 

 

Share-based compensation

1,628

 

 

1,544

 

 

3,358

 

 

6,530

 

Acquisition related integration costs

37

 

 

764

 

 

 

 

801

 

Amortization

13,088

 

 

22,268

 

 

531

 

 

35,887

 

Lease asset impairments and other charges

 

 

2,406

 

 

 

 

2,406

 

Adjusted non-GAAP operating profit

$

76,791

 

 

$

43,741

 

 

$

(1,868)

 

 

$

118,664

 

 

 

 

 

 

 

 

 

Depreciation

3,904

 

 

10,297

 

 

 

 

14,201

 

Adjusted EBITDA

$

80,695

 

 

$

54,038

 

 

$

(1,868)

 

 

$

132,865

 

 

 

 

 

 

 

 

 

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 $2.8 million and $3.1 million, respectively.

 

The effects noted above reduce Adjusted EBITDA for Cloud Services and Digital Media by $2.8 million and $3.1 million, respectively.

J2 GLOBAL, INC. AND SUBSIDIARIES

RECONCILIATION OF GAAP TO ADJUSTED NON-GAAP FINANCIAL MEASURES

THREE MONTHS ENDED JUNE 30, 2019

(UNAUDITED, IN THOUSANDS)

 

Cloud

 

Digital

 

 

 

 

 

Services

 

Media

 

Corporate

 

Total

Revenues

 

 

 

 

 

 

 

GAAP revenues

$

169,132

 

 

$

153,298

 

 

$

2

 

 

$

322,432

 

 

 

 

 

 

 

 

 

Gross profit

 

 

 

 

 

 

 

GAAP gross profit

$

132,534

 

 

$

129,630

 

 

$

2

 

 

$

262,166

 

Non-GAAP adjustments:

 

 

 

 

 

 

 

Share-based compensation

128

 

 

3

 

 

 

 

131

 

Acquisition related integration costs

55

 

 

 

 

 

 

55

 

Amortization

461

 

 

 

 

 

 

461

 

Adjusted non-GAAP gross profit

$

133,178

 

 

$

129,633

 

 

$

2

 

 

$

262,813

 

 

 

 

 

 

 

 

 

Operating profit

 

 

 

 

 

 

 

GAAP operating profit

$

62,408

 

 

$

1,471

 

 

$

(7,265)

 

 

$

56,614

 

Non-GAAP adjustments:

 

 

 

 

 

 

 

Share-based compensation

1,367

 

 

1,388

 

 

4,107

 

 

6,862

 

Acquisition related integration costs

894

 

 

3,801

 

 

 

 

4,695

 

Amortization

17,702

 

 

26,638

 

 

614

 

 

44,954

 

Adjusted non-GAAP operating profit

$

82,371

 

 

$

33,298

 

 

$

(2,544)

 

 

$

113,125

 

 

 

 

 

 

 

 

 

Depreciation

2,789

 

 

9,260

 

 

 

 

12,049

 

Adjusted EBITDA

$

85,160

 

 

$

42,558

 

 

$

(2,544)

 

 

$

125,174

 

 

 

 

 

 

 

 

 

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 $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.

 

Rebecca Wright J2 Global, Inc. 800-577-1790 press@J2.com

j2 Global (NASDAQ:JCOM)
Historical Stock Chart
From Feb 2024 to Mar 2024 Click Here for more j2 Global Charts.
j2 Global (NASDAQ:JCOM)
Historical Stock Chart
From Mar 2023 to Mar 2024 Click Here for more j2 Global Charts.