j2 Global Reports Second Quarter 2018 Results

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

LOS ANGELES--()--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

Contacts

j2 Global, Inc.
Scott Turicchi
800-577-1790
press@j2.com

Contacts

j2 Global, Inc.
Scott Turicchi
800-577-1790
press@j2.com