Market Overview

j2 Global Reports Second Quarter 2018 Results

Share:

Achieves Record Second Quarter Revenues (up 5.4% to $287.9 million
vs. Q2 2017)

Announces Twenty-Eighth Consecutive Quarterly Dividend Increase

Raises Full Year 2018 Adjusted non-GAAP Earnings Per Diluted Share

j2 Global, Inc. (NASDAQ:JCOM) today reported financial results for the
second quarter ended June 30, 2018 and announced that its Board of
Directors has declared an increased quarterly cash dividend of $0.4250
per share.

"We enjoyed another record quarter, with particularly strong EPS and
free cash flow, and continue our focus on our subscription and
performance-marketing businesses," said Vivek Shah, CEO of j2 Global.
"We are also excited to have welcomed two new executives to j2, John
Nebergall, General Manager of our Cloud Fax unit and Tim Smith, General
Manager of our Backup unit. The leadership team at the company has never
been stronger."

SECOND QUARTER 2018 RESULTS

Q2 2018 quarterly revenues increased 5.4% to a second quarter record of
$287.9 million compared to $273.2 million for Q2 2017.

Net cash provided by operating activities increased to $102.4 million
compared to $60.5 million for Q2 2017. Q2 2018 free cash flow
(1)
 increased 22.4% to $87.0 million compared to $71.1 million for
Q2 2017. The increase in free cash flow (1) is primarily due
to reduced cash outflow associated with accounts payable and accrued
expenses due to the timing of payments, lower income tax payments and an
increase in net income after taking into consideration certain non-cash
transactions in comparison to Q2 2017.

GAAP earnings per diluted share (2) decreased 9.5% to $0.57
in Q2 2018 compared to $0.63 for Q2 2017. The decrease over the prior
comparable period is primarily attributed to (1) fair value adjustments
associated with investments and contingent consideration; and (2) an
increase in interest expense associated with the issuance of the $650
million 6.0% Senior Notes due in 2025.

Adjusted non-GAAP earnings per diluted share (2)(3) for the
quarter increased 12.8% to $1.50 compared to $1.33 for Q2 2017.

GAAP net income decreased by 9.2% to $28.5 million compared to $31.4
million for Q2 2017. The decrease over the prior comparable period is
primarily attributed to (1) fair value adjustments associated with
investments and contingent consideration; and (2) an increase in
interest expense associated with the issuance of the $650 million 6.0%
Senior Notes due in 2025.

Quarterly Adjusted EBITDA (4) increased 3.0% to $113.5
million compared to $110.2 million for Q2 2017. The impact of a change
in accounting principle associated with revenue recognition (ASC 606)
was a decrease of approximately $2.8 million for both the quarterly
revenues and quarterly Adjusted EBITDA for Q2 2018. Without this impact,
Q2 2018 revenues would have been $290.7 million and Adjusted EBITDA
would have been $116.3 million.

j2 ended the quarter with approximately $428 million in cash and
investments after deploying approximately $44 million during the quarter
for acquisitions and j2's regular quarterly dividend.

Key financial results for Q2 2018 versus Q2 2017 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 2018   Q2 2017   % Change
Revenues            
Cloud Services   $150.3 million   $144.7 million   3.9%
Digital Media   $137.6 million   $128.5 million   7.1%
Total Revenue:   $287.9 million   $273.2 million   5.4%
Operating Income   $54.4 million   $58.6 million   (7.2)%
Net Cash Provided by Operating Activities   $102.4 million   $60.5 million   69.3%
Free Cash Flow (1)   $87.0 million   $71.1 million   22.4%
GAAP Earnings per Diluted Share (2)   $0.57   $0.63   (9.5)%
Adjusted Non-GAAP Earnings per Diluted Share (2) (3)   $1.50   $1.33   12.8%
GAAP Net Income   $28.5 million   $31.4 million   (9.2)%
Adjusted Non-GAAP Net Income   $73.7 million   $64.8 million   13.7%
Adjusted EBITDA (4)   $113.5 million   $110.2 million   3.0%
Adjusted EBITDA Margin (4)   39.4%   40.3%   (0.9)%

BUSINESS OUTLOOK

For fiscal 2018, the Company reaffirms its estimates that it will
achieve revenues between $1.20 billion and $1.25 billion and Adjusted
EBITDA between $480 million and $505 million. Due to the continued
review of the income tax benefits related to the 2017 Tax Act, the
Company is increasing its estimates of Adjusted non-GAAP earnings per
diluted share to between $6.16 and $6.46 from between $5.95 and $6.25.

Adjusted non-GAAP earnings per diluted share for 2018 excludes
share-based compensation of a revised lower $26 million to $29 million
from $31 million and $34 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 2018
(exclusive of the release of reserves for uncertain tax positions) is
revised lower to between 20% and 22% from between 23% and 25%.

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

DIVIDEND

j2's Board of Directors approved a quarterly cash dividend of $0.4250
per common share, a $0.01, or 2.4% increase versus last quarter's
dividend. This is j2's twenty-eighth consecutive quarterly dividend
increase since its first quarterly dividend in September 2011. The
dividend will be paid on September 4, 2018 to all shareholders of record
as of the close of business on August 20, 2018. Future dividends will be
subject to Board approval.

Notes:

(1)   Free cash flow is defined as net cash provided by operating
activities, less purchases of property, plant and equipment, plus
contingent consideration. Free cash flow amounts are not meant as a
substitute for GAAP, but are solely for informational purposes.
 
(2) The estimated GAAP effective tax rates were approximately 18.3% for
Q2 2018 and 22.8% for Q2 2017. The estimated Adjusted non-GAAP
effective tax rates were approximately 18.5% for Q2 2018 and 28.5%
for Q2 2017.
 
(3) Adjusted non-GAAP earnings per diluted share excludes certain
non-GAAP items, as defined in the Reconciliation of GAAP to Adjusted
non-GAAP Financial Measures, for the three months ended June 30,
2018 and 2017 totaled $0.93 and $0.70 per diluted share,
respectively.
 
(4) Adjusted EBITDA is defined as earnings before interest and other
expense, net; income tax expense; depreciation and amortization; and
the items used to reconcile EPS to Adjusted non-GAAP EPS, as defined
in the Reconciliation of GAAP to Adjusted non-GAAP Financial
Measures. Adjusted EBITDA amounts are not meant as a substitute for
GAAP, but are solely for informational purposes.
 

About j2 Global

j2 Global, Inc. (NASDAQ:JCOM) is a leading internet information and
services company consisting of a portfolio of brands including IGN,
Mashable, Humble Bundle, Speedtest, PCMag, Offers.com, Everyday Health
and What To Expect in its Digital Media segment and eFax, eVoice,
Campaigner, Vipre, KeepItSafe and Livedrive in its Cloud Services
segment. j2 reaches over 180 million people per month across its brands.
As of December 31, 2017, j2 had achieved 22 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 2018 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 2017 Annual Report on Form 10-K filed
by j2 Global on March 1, 2018, 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 2018 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,
2018

 

December 31,
2017

ASSETS
Cash and cash equivalents $ 357,365 $ 350,945
Restricted cash 402
Accounts receivable, net of allowances of $10,699 and $8,701,
respectively
179,716 234,195
Prepaid expenses and other current assets   36,006     35,287  
Total current assets 573,489 620,427
Long-term investments 70,215 57,722
Property and equipment, net 91,081 79,773
Goodwill 1,260,814 1,196,611
Other purchased intangibles, net 473,815 485,751
Other assets   11,245     12,809  
TOTAL ASSETS $ 2,480,659   $ 2,453,093  
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses $ 143,246 $ 169,837
Income taxes payable, current 3,807
Deferred revenue, current 116,580 95,255
Other current liabilities   289     10  
Total current liabilities 263,922 265,102
Long-term debt 1,007,694 1,001,944
Deferred revenue, non-current 6,986 47
Income taxes payable, non-current 39,974 43,781
Liability for uncertain tax positions 54,496 52,216
Deferred income taxes 32,845 38,264
Other long-term liabilities   44,133     31,434  
TOTAL LIABILITIES   1,450,050     1,432,788  
 
Commitments and contingencies
Preferred stock
Common stock 480 479
Additional paid-in capital 338,409 325,854
Retained earnings 730,725 723,062
Accumulated other comprehensive loss   (39,005 )   (29,090 )
TOTAL STOCKHOLDERS' EQUITY   1,030,609     1,020,305  
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,480,659   $ 2,453,093  
 
 
j2 GLOBAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED, IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
 
  Three Months Ended   Six Months Ended
June 30, June 30,
2018   2017 2018   2017
Total revenues $ 287,889 $ 273,174 $ 568,512 $ 527,843
 
Cost of revenues (1)   47,749   43,159   95,894   83,969
Gross profit   240,140   230,015   472,618   443,874
 
Operating expenses:
Sales and marketing (1) 83,171 80,862 169,482 158,339
Research, development and engineering (1) 11,252 11,555 23,462 23,307
General and administrative (1)   91,334   79,038   179,133   155,693
Total operating expenses   185,757   171,455   372,077   337,339
Income from operations 54,383 58,560 100,541 106,535
Interest expense, net 15,502 13,670 31,254 26,079
Other expense, net   394   4,227   4,912   4,551
Income before income taxes and net loss in earnings of equity method
investment
38,487 40,663 64,375 75,905
Income tax expense 7,037 9,287 14,055 18,709
Net loss in earnings of equity method investment   2,971     2,971  
Net income $ 28,479 $ 31,376 $ 47,349 $ 57,196
 
Basic net income per common share:
Net income attributable to j2 Global, Inc. common shareholders $ 0.59 $ 0.65 $ 0.98 $ 1.19
 
Diluted net income per common share:
Net income attributable to j2 Global, Inc. common shareholders $ 0.57 $ 0.63 $ 0.95 $ 1.16
 
Basic weighted average shares outstanding 47,951,326 47,547,118 47,912,383 47,505,406
Diluted weighted average shares outstanding 49,218,521 48,948,315 48,962,835 48,857,405
 
(1) Includes share-based compensation expense as follows:
Cost of revenues $ 129 $ 121 $ 250 $ 238
Sales and marketing 467 521 832 899
Research, development and engineering 355 281 788 518
General and administrative   6,116   4,639   11,617   7,522
Total $ 7,067 $ 5,562 $ 13,487 $ 9,177
 
 
j2 GLOBAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
 
  Six Months Ended
June 30,
2018   2017
Cash flows from operating activities:
Net income $ 47,349 $ 57,196
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization 86,475 79,225
Amortization of financing costs and discounts 5,749 6,307
Share-based compensation 13,487 9,177
Provision for doubtful accounts 8,729 5,623
Deferred income taxes, net 453 (3,679 )
Changes in fair value of contingent consideration 9,900 (600 )
Loss on equity securities 7,614
Decrease (increase) in:
Accounts receivable 50,306 11,195
Prepaid expenses and other current assets 649 2,527
Other assets 2,252 (105 )
Increase (decrease) in:
Accounts payable and accrued expenses (30,296 ) (54,447 )
Income taxes payable (2,436 ) (4,464 )
Deferred revenue 4,637 1,817
Liability for uncertain tax positions 2,440 (4 )
Other long-term liabilities   (1,015 )   1,887  
Net cash provided by operating activities   206,293     111,655  
Cash flows from investing activities:
Purchases of equity method investment (21,684 )
Purchases of available-for-sale investments (500 ) (5 )
Purchases of property and equipment (28,558 ) (18,945 )
Acquisition of businesses, net of cash received (103,202 ) (36,430 )
Purchases of intangible assets   (183 )   (768 )
Net cash used in investing activities   (154,127 )   (56,148 )
Cash flows from financing activities:
Issuance of long-term debt, net 636,178
Proceeds from line of credit, net 44,981
Repayment of line of credit (225,000 )
Repurchase and retirement of common stock (3,356 ) (6,738 )
Issuance of stock, net of costs 1,475 1,184
Dividends paid (39,897 ) (35,707 )
Deferred payments for acquisitions (1,308 ) (3,339 )
Other   (138 )   (36 )
Net cash (used in) provided by financing activities   (43,224 )   411,523  
Effect of exchange rate changes on cash, cash equivalents and
restricted cash
  (2,120 )   5,576  
Net change in cash, cash equivalents and restricted cash 6,822 472,606
Net change in cash balance included in assets held for sale (813 )
Cash, cash equivalents and restricted cash at beginning of period   350,945     123,950  
Cash, cash equivalents and restricted cash at end of period $ 357,767   $ 595,743  
 
 

j2 GLOBAL, INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP
TO ADJUSTED NON-GAAP FINANCIAL MEASURES

THREE AND SIX MONTHS
ENDED JUNE 30, 2018 AND 2017

(UNAUDITED, IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)

Non-GAAP net income is GAAP net income with the following modifications:
(1) elimination of share-based compensation and the associated payroll
tax expense; (2) elimination of certain acquisition-related integration
costs; (3) elimination of interest costs in excess of the coupon rate
associated with the convertible notes; (4) elimination of amortization
of patents and intangible assets that we acquired; (5) elimination
change in value on investment; (6) elimination of additional tax or
indirect tax related expense from prior years; and (7) elimination of
dilutive effect of the convertible debt.

 
Three Months Ended June 30,
 

Per Diluted

    Per Diluted
2018   Share (*) 2017   Share (*)
Net income $ 28,479 $ 0.57 $ 31,376 $ 0.63
Plus:

Share based compensation (1)

4,351 0.09 3,329 0.07

Acquisition related integration costs (2)

7,301 0.15 4,966 0.10

Interest costs (3)

991 0.02 2,030 0.04

Amortization (4)

29,302 0.61 21,031 0.44

Investments (5)

3,257 0.07

Tax expense from prior years (6)

2,058 0.04

Convertible debt dilution (7)

  0.01   0.02
Adjusted non-GAAP net income $ 73,681 $ 1.50 $ 64,790 $ 1.33

* 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,
  Per Diluted     Per Diluted
2018   Share (*) 2017   Share (*)
Net income $ 47,349 $ 0.95 $ 57,196 $ 1.16
Plus:

Share based compensation (1)

9,287 0.19 5,753 0.12

Acquisition related integration costs (2)

13,179 0.27 10,891 0.23

Interest costs (3)

2,603 0.05 3,295 0.07

Amortization (4)

55,671 1.16 43,365 0.91

Investments (5)

5,376 0.11

Tax expense from prior years (6)

2,058 0.04
Convertible debt dilution (7)   0.02   0.03
Adjusted non-GAAP net income $ 133,465 $ 2.71 $ 122,558 $ 2.52

* 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, 2018 AND 2017

(UNAUDITED, IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)

Non-GAAP net income is GAAP net income with the following modifications:
(1) elimination of share-based compensation and the associated payroll
tax expense; (2) elimination of certain acquisition-related integration
costs; (3) elimination of interest costs in excess of the coupon rate
associated with the convertible notes; (4) elimination of amortization
of patents and intangible assets that we acquired; (5) elimination
change in value on investment; (6) elimination of additional tax or
indirect tax related expense from prior years; and (7) elimination of
dilutive effect of the convertible debt.

 
 

Three Months Ended
June 30,

2018   2017
Cost of revenues $47,749 $43,159
Plus:

Share based compensation (1)

(129) (121)
Acquisition related integration costs (2) (43)

Amortization (4)

(546) (639)
Adjusted non-GAAP cost of revenues $47,031 $42,399
 
Sales and marketing $83,171 $80,862
Plus:

Share based compensation (1)

(467) (521)

Acquisition related integration costs (2)

(484) (1,033)
Adjusted non-GAAP sales and marketing $82,220 $79,308
 
Research, development and engineering $11,252 $11,555
Plus:

Share based compensation (1)

(355) (281)

Acquisition related integration costs (2)

(178) (248)
Adjusted non-GAAP research, development and engineering $10,719 $11,026
 
General and administrative $91,334 $79,038
Plus:

Share based compensation (1)

(6,116) (4,639)

Acquisition related integration costs (2)

(7,487) (1,884)

Amortization (4)

(33,717) (32,077)

Tax expense from prior years (6)

(3,007)
Adjusted non-GAAP general and administrative $44,014 $37,431
 
Interest expense, net $15,502 $13,670
Plus:

Acquisition related integration costs (2)

(23)

Interest costs (3)

(2,148) (2,859)
Adjusted non-GAAP interest expense, net $13,331 $10,811
 
Other expense, net $394 $4,227
Plus:
Acquisition related integration costs (2) (2,635)
Investments (5) (199)
Adjusted non-GAAP other expense, net $195 $1,592
 
Income tax provision $7,037 $9,287
Plus:

Share based compensation (1)

2,716 2,233

Acquisition related integration costs (2)

914 834
Interest costs (3) 1,157 829

Amortization (4)

4,961 11,685
Investments (5) (87)
Tax expense from prior years (6) 949
Adjusted non-GAAP income tax provision $16,698 $25,817
 
Net loss in earnings of equity method investment $2,971 $—
Plus:
Investments (5) (2,971)
Adjusted non-GAAP net loss in earnings of equity method investment $— $—
 
Total adjustments $(45,202) $(33,414)
 
GAAP earnings per diluted share $0.57 $0.63
Adjustments * $0.93 $0.70
Adjusted non-GAAP earnings per diluted share $1.50 $1.33

* 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, 2018 AND 2017

(UNAUDITED, IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)

Non-GAAP net income is GAAP net income with the following modifications:
(1) elimination of share-based compensation and the associated payroll
tax expense; (2) elimination of certain acquisition-related integration
costs; (3) elimination of interest costs in excess of the coupon rate
associated with the convertible notes; (4) elimination of amortization
of patents and intangible assets that we acquired; (5) elimination
change in value on investment; (6) elimination of additional tax or
indirect tax related expense from prior years; and (7) elimination of
dilutive effect of the convertible debt.

 

Six Months Ended
June 30,

2018   2017
Cost of revenues $ 95,894 $ 83,969
Plus:
Share based compensation (1) (250 ) (238 )
Acquisition related integration costs (2) (43 ) (195 )
Amortization (4)   (1,140 )   (1,758 )
Adjusted non-GAAP cost of revenues $ 94,461   $ 81,778  
 
Sales and marketing $ 169,482 $ 158,339
Plus:
Share based compensation (1) (832 ) (899 )
Acquisition related integration costs (2)   (924 )   (2,471 )
Adjusted non-GAAP sales and marketing $ 167,726   $ 154,969  
 
Research, development and engineering $ 23,462 $ 23,307
Plus:
Share based compensation (1) (788 ) (518 )
Acquisition related integration costs (2)   (275 )   (825 )
Adjusted non-GAAP research, development and engineering $ 22,399   $ 21,964  
 
General and administrative $ 179,133 $ 155,693
Plus:
Share based compensation (1) (11,617 ) (7,522 )
Acquisition related integration costs (2) (14,423 ) (8,287 )
Amortization (4) (66,867 ) (62,934 )

Tax expense from prior years (6)

      (3,007 )
Adjusted non-GAAP general and administrative $ 86,226   $ 73,943  
 
Interest expense, net $ 31,254 $ 26,079
Plus:
Acquisition related integration costs (2) (45 )
Interest costs (3)   (4,265 )   (4,889 )
Adjusted non-GAAP interest expense, net $ 26,944   $ 21,190  
 
Other expense, net $ 4,912 $ 4,551
Plus:
Acquisition related integration costs (2) (2,635 )
Investments (5)   (2,900 )    
Adjusted non-GAAP other expense, net $ 2,012   $ 1,916  
 
Income tax provision $ 14,055 $ 18,709
Plus:
Share based compensation (1) 4,200 3,424
Acquisition related integration costs (2) 2,531 3,522
Interest costs (3) 1,662 1,594
Amortization (4) 12,336 21,327
Investments (5) 495
Tax expense from prior years (6)       949  
Adjusted non-GAAP income tax provision $ 35,279   $ 49,525  
 
Net loss in earnings of equity method investment $ 2,971 $
Plus:
Investments (5)   (2,971 )    
Adjusted non-GAAP net loss in earnings of equity method investment $   $  
 
Total adjustments $ (86,116 ) $ (65,362 )
 
GAAP earnings per diluted share $ 0.95 $ 1.16
Adjustments * $ 1.76 $ 1.36
Adjusted non-GAAP earnings per diluted share $ 2.71 $ 2.52

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

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

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

Non-GAAP Financial Measures

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

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

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

(3) Interest Costs. In June 2014, the Company issued $402.5
million aggregate principal amount of 3.25% convertible senior notes. In
accordance with GAAP, the Company separately accounts for the value of
the liability and equity features of its outstanding convertible senior
notes in a manner that reflects the Company's non-convertible debt
borrowing rate. The value of the conversion feature, reflected as a debt
discount, is amortized to interest expense over time. Accordingly, the
Company recognizes imputed interest expense on its convertible senior
notes of approximately 5.8% in its income statement. The Company
excludes the difference between the imputed interest expense and the
coupon interest expense of 3.25% because it is non-cash in nature and
because the Company believes that the Non-GAAP financial measures
excluding this item provide meaningful supplemental information
regarding core operational performance. In addition, the Company has
excluded 3 days of overlapping interest expense in connection with the
8.0% senior unsecured notes and deferred issuance costs associated with
the repayment of the line of credit. The Company has determined
excluding these items from the Non-GAAP measures facilitates comparisons
to historical operating results and comparisons to peers, many of which
similarly exclude this item.

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

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

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

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

The Company presents Adjusted non-GAAP cost of revenues, Adjusted
non-GAAP research, development and engineering, Adjusted non-GAAP sales
and marketing, Adjusted non-GAAP general and administrative, Adjusted
non-GAAP interest expense, Adjusted non-GAAP other income, Adjusted
non-GAAP income tax provision and Adjusted non-GAAP net income because
the Company believes that these provide useful information about our
operating results and enhance the overall understanding of past
financial performance and future prospects.

j2 GLOBAL, INC. AND SUBSIDIARIES
NET INCOME TO ADJUSTED
EBITDA RECONCILIATION

THREE AND SIX MONTHS ENDED JUNE 30,
2018 AND 2017

(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,
2018   2017 2018   2017
Net income $ 28,479 $ 31,376 $ 47,349 $ 57,196
Plus:
Interest expense, net 15,502 13,670 31,254 26,079
Other expense, net 394 1,592 4,912 1,916
Income tax expense 7,037 9,287 14,055 18,709
Depreciation and amortization 43,857 39,902 86,475 79,225
Reconciliation of GAAP to Adjusted non-GAAP financial measures:
Share-based compensation and the associated payroll tax expense 7,067 5,562 13,487 9,177
Acquisition-related integration costs 8,192 5,800 15,665 14,413
Investments 2,971 2,971
Additional indirect tax expense from prior years 3,007 3,007
       
Adjusted EBITDA $ 113,499 $ 110,196 $ 216,168 $ 209,722
 

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

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

 
j2 GLOBAL, INC. AND SUBSIDIARIES
NON-GAAP FINANCIAL MEASURES
(UNAUDITED, IN THOUSANDS)
 
  Q1   Q2   Q3   Q4   YTD

2018

Net cash provided by operating activities $ 103,910 $ 102,383 $ $ $ 206,293
Less: Purchases of property and equipment   (13,165 )   (15,393 )           (28,558 )
Free cash flows $ 90,745   $ 86,990   $   $   $ 177,735  
 
 
 
Q1 Q2 Q3 Q4 YTD

2017

Net cash provided by operating activities $ 51,191 $ 60,464 $ 67,341 $ 85,424 $ 264,420
Less: Purchases of property and equipment (9,660 ) (9,285 ) (10,538 ) (10,112 ) (39,595 )
Add: Contingent consideration*   20,000     19,950             39,950  
Free cash flows $ 61,531   $ 71,129   $ 56,803   $ 75,312   $ 264,775  

* Free cash flows of $61.5 million for Q1 2017 and $71.1 million for Q2
2017 is before the effect of payments associated with certain contingent
consideration associated with recent acquisitions.

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, 2018
(UNAUDITED, IN THOUSANDS)
 
  Cloud   Digital    
Services Media Corporate Total
Revenues
GAAP revenues $ 150,297 $ 137,591 $ 1 $ 287,889
 
Gross profit
GAAP gross profit $ 119,617 $ 120,522 $ 1 $ 240,140
Non-GAAP adjustments:
Share-based compensation 128 1 129
Acquisition related integration costs 43 43
Amortization   546         546
Adjusted non-GAAP gross profit $ 120,291 $ 120,566 $ 1 $ 240,858
 
Operating profit
GAAP operating profit $ 58,182 $ 3,213 $ (7,012 ) $ 54,383
Non-GAAP adjustments:
Share-based compensation 1,780 1,196 4,091 7,067
Acquisition related integration costs 840 7,352 8,192
Amortization   12,363   20,911   989     34,263
Adjusted non-GAAP operating profit $ 73,165 $ 32,672 $ (1,932 ) $ 103,905
 
Depreciation   2,449   7,145       9,594
Adjusted EBITDA $ 75,614 $ 39,817 $ (1,932 ) $ 113,499

NOTE 1: Table above excludes certain intercompany allocations

NOTE 2: The table above is impacted by several effects including
(a) the Company determined certain patent assets and related income and
expenses associated with Advanced Messaging Technologies, Inc. were
reclassified from the Cloud Services segment to Corporate which resulted
in an increase in non-GAAP operating profit by an immaterial amount to
the Cloud Service segment with a corresponding decrease to the Corporate
entity; and (b) certain expenses associated with Corporate were
allocated to the Cloud Services and Digital Media segment 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
segment in the amount of $1.2 million and $1.2 million, respectively.

The effects noted above reduce Adjusted EBITDA for the Cloud Services
and Digital Media segment by $1.2 million and $1.2 million, respectively.

 
j2 GLOBAL, INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP TO ADJUSTED NON-GAAP FINANCIAL MEASURES
THREE MONTHS ENDED JUNE 30, 2017
(UNAUDITED, IN THOUSANDS)
 
  Cloud   Digital    
Services Media Corporate Total
Revenues
GAAP revenues $ 144,709 $ 128,465 $ $ 273,174
 
Gross profit
GAAP gross profit $ 114,774 $ 115,241 $ $ 230,015
Non-GAAP adjustments:
Share-based compensation 121 121
Amortization   639         639
Adjusted non-GAAP gross profit $ 115,534 $ 115,241 $ $ 230,775
 
Operating profit
GAAP operating profit $ 58,109 $ 10,129 $ (9,678 ) $ 58,560
Non-GAAP adjustments:
Share-based compensation 1,515 1,091 2,956 5,562
Acquisition related integration costs 150 3,015 3,165
Amortization 14,876 17,840 32,716
Additional indirect tax expense from prior years       3,007     3,007
Adjusted non-GAAP operating profit $ 74,650 $ 32,075 $ (3,715 ) $ 103,010
 
Depreciation   2,312   4,874       7,186
Adjusted EBITDA $ 76,962 $ 36,949 $ (3,715 ) $ 110,196

NOTE: Table above excludes certain intercompany allocations

View Comments and Join the Discussion!