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.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200810005597/en/
Rebecca Wright J2 Global, Inc. 800-577-1790 press@J2.com
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