LOS ANGELES--(BUSINESS WIRE)--j2 Global, Inc. (NASDAQGS: JCOM) today reported financial results for the third quarter ended September 30, 2016 and announced that its Board of Directors has declared an increased quarterly cash dividend of $0.3550 per share.
THIRD QUARTER 2016 RESULTS
Q3 2016 quarterly revenues increased 17.6% to a Q3 record of $210.1 million compared to $178.7 million for Q3 2015.
Net cash provided by operating activities increased by 18.6% to $60.5 million compared to $51.0 million for Q3 2015. Q3 2016 free cash flow(1) increased by 7.3% to $53.2 million compared to $49.6 million for Q3 2015 which included an adjustment to free cash flow of $1.2 million associated with taxes for prior periods under audit. Exclusive of the impact of the adjustment in Q3 2015, free cash flow increased by 9.9% compared to $48.4 million for Q3 2015.
GAAP earnings per diluted share(2) increased 22.1% to $0.94 in Q3 2016 compared to $0.77 for Q3 2015. Adjusted non-GAAP earnings per diluted share(2)(3) for the quarter increased 20.2% to $1.25 compared to $1.04 for Q3 2015.
GAAP net income increased by 21.9% to $45.6 million compared to $37.4 million for Q3 2015.
Quarterly Adjusted EBITDA(4) increased 13.2% to $95.4 million compared to $84.3 million for Q3 2015.
j2 ended the quarter with approximately $378.9 million in cash and investments after deploying approximately $85.0 million during the quarter with respect to the repurchase of approximately 935,000 shares of j2 common stock, four acquisitions and j2’s regular quarterly dividend.
Key financial results for Q3 2016 versus Q3 2015 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.
| Q3 2016 | Q3 2015 | % Change | ||||
| Revenues | ||||||
| Cloud Services | $142.2 million | $125.3 million | 13.5% | |||
| Digital Media | $66.8 million | $52.3 million | 27.7% | |||
| IP Licensing | $1.1 million | $1.1 million | —% | |||
| Total Revenue: | $210.1 million | $178.7 million | 17.6% | |||
| Operating Income | $62.1 million | $55.7 million | 11.5% | |||
| Net Cash Provided by Operating Activities | $60.5 million | $51.0 million | 18.6% | |||
| Free Cash Flow (1) | $53.2 million | $49.6 million | 7.3% | |||
| GAAP Earnings per Diluted Share (2) | $0.94 | $0.77 | 22.1% | |||
| Adjusted Non-GAAP Earnings per Diluted Share (2) (3) | $1.25 | $1.04 | 20.2% | |||
| GAAP Net Income | $45.6 million | $37.4 million | 21.9% | |||
| Non-GAAP Net Income | $60.7 million | $50.7 million | 19.7% | |||
| Adjusted EBITDA (4) | $95.4 million | $84.3 million | 13.2% | |||
| Adjusted EBITDA Margin (4) | 45.4% | 47.2% | (1.8)% | |||
"Our third quarter results highlight the positive combination of healthy revenue growth and efficient expense management" said Hemi Zucker, CEO of j2 Global. "Our efforts yielded an impressive 20% year-over-year Adjusted non-GAAP Diluted EPS increase and 18% year-over-year revenue growth. With the excellent results for the first nine months of the year, I am pleased to announce that our results are trending toward the higher end of our Adjusted non-GAAP earnings per diluted share guidance for the year.
BUSINESS OUTLOOK
For fiscal 2016, the Company estimates that it will achieve revenues between $830 and $860 million and Adjusted non-GAAP earnings per diluted share of between $4.70 and $5.00.
Adjusted non-GAAP earnings per diluted share for 2016 excludes share-based compensation of between $12 and $14 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 2016 (exclusive of the release of reserves for uncertain tax positions) will be at the lower end of the range between 29% and 31%.
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 has approved a quarterly cash dividend of $0.3550 per common share, a $0.01, or 2.9% increase versus last quarter's dividend. This is j2's twenty-first consecutive quarterly dividend increase since its first quarterly dividend in September 2011. The dividend will be paid on December 5, 2016 to all shareholders of record as of the close of business on November 18, 2016. 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 excess tax benefit from share-based compensation. 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 25.8% for Q3 2016 and 15.8% for Q3 2015. The estimated Adjusted non-GAAP effective tax rates were approximately 27.7% for Q3 2016 and 28.7% for Q3 2015. | ||
| (3) | For Q3 2016, Adjusted non-GAAP earnings per diluted share excludes share-based compensation, certain acquisition-related integration costs, interest costs in excess of the coupon rate associated with convertible notes, amortization of acquired intangibles, additional tax expense (benefit) from prior years and sale of investments, in each case net of tax, totaling $0.32 per diluted share. For Q3 2015, Adjusted non-GAAP earnings per diluted share excludes share-based compensation, certain acquisition-related integration costs, interest costs in excess of the coupon rate associated with convertible notes, amortization of acquired intangibles and additional tax expense (benefit) from prior years, in each case net of tax, totaling $0.28 per diluted share. | ||
| (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 referred to in Note (3) above. 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) provides Internet services through two divisions: Business Cloud Services and Digital Media. The Business Cloud Services Division offers Internet fax, virtual phone, hosted email, email marketing, online backup, unified communications and CRM solutions. It markets its services principally under the brand names eFax ®, eVoice ®, FuseMail ®, Campaigner ®, KeepItSafe ®, Livedrive®, Onebox ®, and LiveVault®, and operates a messaging network spanning 50 countries on six continents. The Digital Media Division offers technology, gaming and lifestyle content through its digital properties, which include IGN, PCMag, AskMen, Speedtest, Offers, ExtremeTech, Geek, Toolbox, Techbargains, emedia, and Salesify and others. As of December 31, 2015, j2 had achieved 20 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, particularly those contained in Hemi Zucker's quote and the "Business Outlook" portion regarding the Company's expected fiscal 2016 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 2015 Annual Report on Form 10-K filed by j2 Global on February 29, 2016, 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 and particularly those contained in Hemi Zucker's quote and the "Business Outlook" portion regarding the Company's expected fiscal 2016 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 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. | ||||||||
| CONDENSED CONSOLIDATED BALANCE SHEETS | ||||||||
| (UNAUDITED, IN THOUSANDS) | ||||||||
|
September 30, |
December 31, 2015 |
|||||||
| ASSETS | ||||||||
| Cash and cash equivalents | $ | 285,563 | $ | 255,530 | ||||
| Short-term investments | 39,908 | 79,655 | ||||||
| Accounts receivable, net of allowances of $6,643 and $4,261, respectively | 114,581 | 114,680 | ||||||
| Prepaid expenses and other current assets | 26,567 | 25,722 | ||||||
| Deferred income taxes, current | — | 7,218 | ||||||
| Total current assets | 466,619 | 482,805 | ||||||
| Long-term investments | 53,421 | 78,563 | ||||||
| Property and equipment, net | 61,437 | 57,442 | ||||||
| Goodwill | 853,791 | 807,661 | ||||||
| Other purchased intangibles, net | 325,654 | 352,641 | ||||||
| Deferred income taxes, non-current | 4,454 | — | ||||||
| Other assets | 3,769 | 4,607 | ||||||
| TOTAL ASSETS | $ | 1,769,145 | $ | 1,783,719 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Accounts payable and accrued expenses | $ | 101,830 | $ | 114,384 | ||||
| Income taxes payable | 2,207 | 5,589 | ||||||
| Deferred revenue, current | 76,259 | 76,104 | ||||||
| Capital lease, current | 191 | 214 | ||||||
| Deferred income taxes, current | — | 363 | ||||||
| Total current liabilities | 180,487 | 196,654 | ||||||
| Long-term debt | 599,260 | 592,037 | ||||||
| Deferred revenue, non-current | 2,354 | 6,538 | ||||||
| Capital lease, non-current | 12 | 148 | ||||||
| Liability for uncertain tax positions | 44,418 | 35,917 | ||||||
| Deferred income taxes, non-current | 39,975 | 43,989 | ||||||
| Other long-term liabilities | 4,445 | 18,228 | ||||||
| TOTAL LIABILITIES | 870,951 | 893,511 | ||||||
| Commitments and contingencies | ||||||||
| Preferred stock | — | — | ||||||
| Common stock | 472 | 479 | ||||||
| Additional paid-in capital | 304,385 | 292,064 | ||||||
| Retained earnings | 634,386 | 626,789 | ||||||
| Accumulated other comprehensive loss | (41,049 | ) | (29,124 | ) | ||||
| TOTAL STOCKHOLDERS' EQUITY | 898,194 | 890,208 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 1,769,145 | $ | 1,783,719 | ||||
|
j2 GLOBAL, INC. |
|||||||||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF INCOME | |||||||||||||||
| (UNAUDITED, IN THOUSANDS) | |||||||||||||||
|
Three Months Ended September 30, |
Nine Months Ended September 30, |
||||||||||||||
| 2016 | 2015 | 2016 | 2015 | ||||||||||||
| Total revenues | $ | 210,116 | $ | 178,701 | $ | 622,418 | $ | 515,992 | |||||||
| Cost of revenues (1) | 36,992 | 30,669 | 106,870 | 88,350 | |||||||||||
| Gross profit | 173,124 | 148,032 | 515,548 | 427,642 | |||||||||||
| Operating expenses: | |||||||||||||||
| Sales and marketing (1) | 46,425 | 38,808 | 143,155 | 116,819 | |||||||||||
| Research, development and engineering (1) | 8,965 | 8,289 | 27,165 | 25,704 | |||||||||||
| General and administrative (1) | 55,612 | 45,202 | 170,823 | 138,790 | |||||||||||
| Total operating expenses | 111,002 | 92,299 | 341,143 | 281,313 | |||||||||||
| Income from operations | 62,122 | 55,733 | 174,405 | 146,329 | |||||||||||
| Interest expense, net | 10,436 | 10,259 | 30,971 | 31,453 | |||||||||||
| Other expense (income), net | (9,718 | ) | 1,086 | (9,805 | ) | 390 | |||||||||
| Income before income taxes | 61,404 | 44,388 | 153,239 | 114,486 | |||||||||||
| Income tax expense | 15,835 | 7,013 | 43,958 | 16,317 | |||||||||||
| Net income | $ | 45,569 | $ | 37,375 | $ | 109,281 | $ | 98,169 | |||||||
| Basic net income per common share: | |||||||||||||||
| Net income attributable to j2 Global, Inc. common shareholders | $ | 0.95 | $ | 0.77 | $ | 2.25 | $ | 2.03 | |||||||
| Diluted net income per common share: | |||||||||||||||
| Net income attributable to j2 Global, Inc. common shareholders | $ | 0.94 | $ | 0.77 | $ | 2.24 | $ | 2.02 | |||||||
| Basic weighted average shares outstanding | 47,310,011 | 47,696,224 | 47,775,798 | 47,553,075 | |||||||||||
| Diluted weighted average shares outstanding | 47,494,744 | 47,953,871 | 47,997,674 | 47,777,622 | |||||||||||
| (1) Includes share-based compensation expense as follows: | |||||||||||||||
| Cost of revenues | $ | 116 | $ | 99 | $ | 314 | $ | 273 | |||||||
| Sales and marketing | 423 | 624 | 1,388 | 1,811 | |||||||||||
| Research, development and engineering | 235 | 227 | 663 | 635 | |||||||||||
| General and administrative | 2,925 | 1,820 | 7,582 | 6,224 | |||||||||||
| Total | $ | 3,699 | $ | 2,770 | $ | 9,947 | $ | 8,943 | |||||||
| j2 GLOBAL, INC. | ||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
|
(UNAUDITED, IN THOUSANDS) |
||||||||
|
|
Nine Months Ended September 30, | |||||||
| 2016 | 2015 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income | $ | 109,281 | $ | 98,169 | ||||
| Adjustments to reconcile net earnings to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | 88,569 | 63,635 | ||||||
| Accretion and amortization of discount and premium of investments | 896 | 871 | ||||||
| Amortization of financing costs and discounts | 7,224 | 6,774 | ||||||
| Share-based compensation | 9,947 | 8,943 | ||||||
| Excess tax benefits from share-based compensation | (2,071 | ) | (4,541 | ) | ||||
| Provision for doubtful accounts | 9,072 | 5,015 | ||||||
| Deferred income taxes, net | (2,328 | ) | 219 | |||||
| Gain on sale of available-for-sale investments | (7,709 | ) | (37 | ) | ||||
| Decrease (increase) in: | ||||||||
| Accounts receivable | (7,631 | ) | (4,296 | ) | ||||
| Prepaid expenses and other current assets | (663 | ) | 2,815 | |||||
| Other assets | 937 | (77 | ) | |||||
| Increase (decrease) in: | ||||||||
| Accounts payable and accrued expenses | (4,601 | ) | (5,783 | ) | ||||
| Income taxes payable | (927 | ) | (13,565 | ) | ||||
| Deferred revenue | (4,134 | ) | (3,727 | ) | ||||
| Liability for uncertain tax positions | 8,502 | (9,916 | ) | |||||
| Other long-term liabilities | (11,824 | ) | 4,074 | |||||
| Net cash provided by operating activities | 192,540 | 148,573 | ||||||
| Cash flows from investing activities: | ||||||||
| Maturity of certificates of deposit | — | 65 | ||||||
| Purchase of certificates of deposit | — | (62 | ) | |||||
| Maturity of available-for-sale investments | 145,005 | 87,976 | ||||||
| Purchase of available-for-sale investments | (75,834 | ) | (78,281 | ) | ||||
| Purchases of property and equipment | (17,447 | ) | (11,927 | ) | ||||
| Purchases of intangible assets | (2,014 | ) | (1,258 | ) | ||||
| Acquisition of businesses, net of cash received | (91,401 | ) | (259,838 | ) | ||||
| Net cash used in investing activities | (41,691 | ) | (263,325 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Repurchases of common and restricted stock | (56,083 | ) | (3,159 | ) | ||||
| Issuance of stock, net of costs | 3,463 | 4,814 | ||||||
| Excess tax benefits from share-based compensation | 2,071 | 4,541 | ||||||
| Dividends paid | (48,768 | ) | (43,526 | ) | ||||
| Deferred payments for acquisitions | (18,939 | ) | (5,411 | ) | ||||
| Other | (391 | ) | (250 | ) | ||||
| Net cash used in financing activities | (118,647 | ) | (42,991 | ) | ||||
| Effect of exchange rate changes on cash and cash equivalents | (2,169 | ) | (3,552 | ) | ||||
| Net change in cash and cash equivalents | 30,033 | (161,295 | ) | |||||
| Cash and cash equivalents at beginning of period | 255,530 | 433,663 | ||||||
| Cash and cash equivalents at end of period | $ | 285,563 | $ | 272,368 | ||||
j2 GLOBAL, INC.
RECONCILIATION OF GAAP TO ADJUSTED
NON-GAAP FINANCIAL MEASURES
THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 2016 AND 2015
(UNAUDITED, IN THOUSANDS, EXCEPT
SHARE AND PER SHARE AMOUNTS)
Non-GAAP net income is GAAP net income with the following modifications, net of tax: (1) elimination of share-based compensation and the associated payroll tax expense; (2) elimination of certain acquisition-related integration costs; (3) elimination of interest costs in excess of the coupon rate associated with the convertible notes; (4) elimination of amortization of patents and intangible assets that we acquired; (5) elimination of additional tax or indirect tax related (expense) benefit from prior years; (6) sale of investments; and (7) IRS consulting fee.
| Three Months Ended September 30, | |||||||||||||||||
| 2016 | Per Diluted Share * | 2015 | Per Diluted Share * | ||||||||||||||
| Net income | $ | 45,569 | $ | 0.94 | $ | 37,375 | $ | 0.77 | |||||||||
| Plus: | |||||||||||||||||
| Share based compensation (1) | 2,660 | 0.06 | 2,112 | 0.04 | |||||||||||||
| Acquisition related integration costs (2) | (588 | ) | (0.01 | ) | 3,398 | 0.07 | |||||||||||
| Interest costs (3) | 1,623 | 0.03 | 1,556 | 0.03 | |||||||||||||
| Amortization (4) | 16,065 | 0.34 | 11,413 | 0.24 | |||||||||||||
| Tax benefit from prior years (5) | — | — | (5,140 | ) | (0.11 | ) | |||||||||||
| Sale of investments (6) | (4,674 | ) | (0.10 | ) | — | — | |||||||||||
| Adjusted non-GAAP net income | $ | 60,655 | $ | 1.25 | $ | 50,714 | $ | 1.04 | |||||||||
| Nine Months Ended September 30, | |||||||||||||||||
| 2016 | Per Diluted Share * | 2015 | Per Diluted Share * | ||||||||||||||
| Net income | $ | 109,281 | $ | 2.24 | $ | 98,169 | $ | 2.02 | |||||||||
| Plus: | |||||||||||||||||
| Share based compensation (1) | 7,232 | 0.15 | 6,572 | 0.14 | |||||||||||||
| Acquisition related integration costs (2) | 3,777 | 0.08 | 6,989 | 0.15 | |||||||||||||
| Interest costs (3) | 4,318 | 0.09 | 4,112 | 0.09 | |||||||||||||
| Amortization (4) | 51,705 | 1.08 | 37,025 | 0.77 | |||||||||||||
| Tax expense (benefit) from prior years (5) | 53 | — | (12,786 | ) | (0.27 | ) | |||||||||||
| Sale of investments (6) | (4,675 | ) | (0.10 | ) | — | — | |||||||||||
| IRS consulting fee (7) | — | — | (159 | ) | — | ||||||||||||
| Adjusted non-GAAP net income | $ | 171,691 | $ | 3.50 | $ | 139,922 | $ | 2.88 | |||||||||
* The reconciliation of net income per share from GAAP to Adjusted non-GAAP may not foot since each is calculated independently.
j2 GLOBAL, INC.
RECONCILIATION OF GAAP TO ADJUSTED
NON-GAAP FINANCIAL MEASURES
THREE MONTHS ENDED SEPTEMBER 30,
2016 AND 2015
(UNAUDITED, IN THOUSANDS, EXCEPT SHARE AND PER
SHARE AMOUNTS)
Non-GAAP net income is GAAP net income with the following modifications: (1) elimination of share-based compensation and the associated payroll tax expense; (2) elimination of certain acquisition-related integration costs; (3) elimination of interest costs in excess of the coupon rate associated with the convertible notes; (4) elimination of amortization of patents and intangible assets that we acquired; (5) elimination of additional tax or indirect tax related (expense) benefit from prior years; and (6) sale of investments.
| Three Months Ended September 30, | ||||||||
| 2016 | 2015 | |||||||
| Cost of revenues | $ | 36,992 | $ | 30,669 | ||||
| Plus: | ||||||||
| Share based compensation (1) | (116 | ) | (99 | ) | ||||
| Amortization (4) | (1,334 | ) | (733 | ) | ||||
| Adjusted non-GAAP cost of revenues | $ | 35,542 | $ | 29,837 | ||||
| Sales and marketing | $ | 46,425 | $ | 38,808 | ||||
| Plus: | ||||||||
| Share based compensation (1) | (423 | ) | (624 | ) | ||||
| Acquisition related integration costs (2) | (409 | ) | — | |||||
| Adjusted non-GAAP sales and marketing | $ | 45,593 | $ | 38,184 | ||||
| Research, Development and Engineering | $ | 8,965 | $ | 8,289 | ||||
| Plus: | ||||||||
| Share based compensation (1) | (235 | ) | (227 | ) | ||||
| Acquisition related integration costs (2) | (51 | ) | — | |||||
| Adjusted non-GAAP research, development and engineering | $ | 8,679 | $ | 8,062 | ||||
| General and administrative | $ | 55,612 | $ | 45,202 | ||||
| Plus: | ||||||||
| Share based compensation (1) | (2,925 | ) | (1,820 | ) | ||||
| Acquisition related integration costs (2) | 1,196 | (5,356 | ) | |||||
| Amortization (4) | (23,730 | ) | (16,037 | ) | ||||
| Adjusted non-GAAP general and administrative | $ | 30,153 | $ | 21,989 | ||||
| Interest expense, net | $ | 10,436 | $ | 10,259 | ||||
| Plus: | ||||||||
| Interest costs (3) | (1,940 | ) | (1,831 | ) | ||||
| Adjusted non-GAAP interest expense, net | $ | 8,496 | $ | 8,428 | ||||
| Other expense (income), net | $ | (9,718 | ) | $ | 1,086 | |||
| Plus: | ||||||||
| Sale of investments (6) | 7,540 | — | ||||||
| Adjusted non-GAAP other expense (income), net | $ | (2,178 | ) | $ | 1,086 | |||
|
|
||||||||
|
|
||||||||
| Income Tax Provision | $ | 15,835 | $ | 7,013 | ||||
| Plus: | ||||||||
| Share based compensation (1) | 1,039 | 658 | ||||||
| Acquisition related integration costs (2) | (148 | ) | 1,958 | |||||
| Interest costs (3) | 317 | 275 | ||||||
| Amortization (4) | 8,999 | 5,357 | ||||||
| Tax benefit from prior years (5) | — | 5,140 | ||||||
| Sale of investments (6) | (2,866 | ) | — | |||||
| Adjusted non-GAAP income tax provision | $ | 23,176 | $ | 20,401 | ||||
| Total adjustments | $ | (15,086 | ) | $ | (13,339 | ) | ||
| GAAP earnings per diluted share | $ | 0.94 | $ | 0.77 | ||||
| Adjustments * | $ | 0.32 | $ | 0.28 | ||||
| Adjusted non-GAAP earnings per diluted share | $ | 1.25 | $ | 1.04 | ||||
* 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.
RECONCILIATION OF GAAP TO ADJUSTED
NON-GAAP FINANCIAL MEASURES
NINE MONTHS ENDED SEPTEMBER 30,
2016 AND 2015
(UNAUDITED, IN THOUSANDS, EXCEPT SHARE AND PER
SHARE AMOUNTS)
Non-GAAP net income is GAAP net income with the following modifications, net of tax: (1) elimination of share-based compensation and the associated payroll tax expense; (2) elimination of certain acquisition-related integration costs; (3) elimination of interest costs in excess of the coupon rate associated with the convertible notes; (4) elimination of amortization of patents and intangible assets that we acquired; (5) elimination of additional tax or indirect tax related (expense) benefit from prior years; (6) IRS consulting fee; and (7) sale of investments.
| Nine Months Ended September 30, | ||||||||
| 2016 | 2015 | |||||||
| Cost of revenues | $ | 106,870 | $ | 88,350 | ||||
| Plus: | ||||||||
| Share based compensation (1) | (314 | ) | (273 | ) | ||||
| Amortization (4) | (3,890 | ) | (2,062 | ) | ||||
| Adjusted non-GAAP cost of revenues | $ | 102,666 | $ | 86,015 | ||||
| Sales and marketing | $ | 143,155 | $ | 116,819 | ||||
| Plus: | ||||||||
| Share based compensation (1) | (1,388 | ) | (1,811 | ) | ||||
| Acquisition related integration costs (2) | (1,534 | ) | (715 | ) | ||||
| Adjusted non-GAAP sales and marketing | $ | 140,233 | $ | 114,293 | ||||
| Research, development and engineering | $ | 27,165 | $ | 25,704 | ||||
| Plus: | ||||||||
| Share based compensation (1) | (663 | ) | (635 | ) | ||||
| Acquisition related integration costs (2) | (50 | ) | (79 | ) | ||||
| Adjusted non-GAAP research, development and engineering | $ | 26,452 | $ | 24,990 | ||||
| General and administrative | $ | 170,823 | $ | 138,790 | ||||
| Plus: | ||||||||
| Share based compensation (1) | (7,582 | ) | (6,224 | ) | ||||
| Acquisition related integration costs (2) | (4,226 | ) | (9,990 | ) | ||||
| Amortization (4) | (69,654 | ) | (50,580 | ) | ||||
| Tax benefit from prior years (5) | (900 | ) | (3,651 | ) | ||||
| IRS consulting fee (6) | — | 204 | ||||||
| Adjusted non-GAAP general and administrative | $ | 88,461 | $ | 68,549 | ||||
| Interest expense, net | $ | 30,971 | $ | 31,453 | ||||
| Plus: | ||||||||
| Interest costs (3) | (5,739 | ) | (5,415 | ) | ||||
| Tax benefit from prior years (5) | — | (472 | ) | |||||
| Adjusted non-GAAP interest expense, net | $ | 25,232 | $ | 25,566 | ||||
| Other expense (income), net | $ | (9,805 | ) | $ | 390 | |||
| Plus: | ||||||||
| Tax benefit from prior years (5) | 811 | — | ||||||
| Sale of investments (7) | 7,540 | — | ||||||
| Adjusted non-GAAP other expense (income), net | $ | (1,454 | ) | $ | 390 | |||
|
|
||||||||
| Income tax provision | $ | 43,958 | $ | 16,317 | ||||
| Plus: | ||||||||
| Share based compensation (1) | 2,715 | 2,371 | ||||||
| Acquisition related integration costs (2) | 2,033 | 3,795 | ||||||
| Interest costs (3) | 1,421 | 1,303 | ||||||
| Amortization (4) | 21,839 | 15,617 | ||||||
| Tax benefit from prior years (5) | 36 | 16,909 | ||||||
| IRS consulting fee (6) | — | (45 | ) | |||||
| Sale of investments (7) | (2,865 | ) | — | |||||
| Adjusted non-GAAP income tax provision | $ | 69,137 | $ | 56,267 | ||||
| Total adjustments | $ | (62,410 | ) | $ | (41,753 | ) | ||
| GAAP earnings per diluted share | $ | 2.24 | $ | 2.02 | ||||
| Adjustments * | $ | 1.26 | $ | 0.86 | ||||
| Adjusted non-GAAP earnings per diluted share | $ | 3.50 | $ | 2.88 | ||||
* 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 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, 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.
(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) Tax Benefits 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.
(6) Gain on Sale of Investment. The company excludes the gain on sale of its strategic equity investment in Carbonite, Inc. 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) IRS Consulting Fee. The company excludes IRS consulting fees related to IRS audit appeals and settlements. The company believes that the Non-GAAP financial measures excluding this item provide meaningful supplemental information regarding operational performance. In addition, excluding this item from the Non-GAAP measures facilitates comparisons to historical operating results.
The company presents Adjusted non-GAAP Cost of Revenues, Adjusted non-GAAP Research, Development and Engineering, Adjusted non-GAAP Sales and Marketing, Adjusted non-GAAP General and Administrative, Adjusted non-GAAP Interest Expense, Adjusted non-GAAP Other Expense (Income), Adjusted non-GAAP Income Tax Provision and Adjusted non-GAAP Net Income because the company believes that these provide useful information about our operating results and enhance the overall understanding of past financial performance and future prospects.
| j2 GLOBAL, INC. | ||||||||||||||||
| NET INCOME TO ADJUSTED EBITDA RECONCILIATION | ||||||||||||||||
| THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2016 AND 2015 | ||||||||||||||||
| (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 September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2016 | 2015 | 2016 | 2015 | |||||||||||||
| Net income | $ | 45,569 | $ | 37,375 | $ | 109,281 | $ | 98,169 | ||||||||
| Plus: | ||||||||||||||||
| Interest expense, net | 10,436 | 10,259 | 30,971 | 31,453 | ||||||||||||
| Other expense (income), net | (9,718 | ) | 1,086 | (9,805 | ) | 390 | ||||||||||
| Income tax expense | 15,835 | 7,013 | 43,958 | 16,317 | ||||||||||||
| Depreciation and amortization | 30,336 | 20,454 | 88,569 | 63,635 | ||||||||||||
| Reconciliation of GAAP to Adjusted non-GAAP financial measures: | ||||||||||||||||
| Share-based compensation and the associated payroll tax expense | 3,699 | 2,770 | 9,947 | 8,943 | ||||||||||||
| Acquisition-related integration costs | (736 | ) | 5,356 | 5,810 | 10,784 | |||||||||||
| Additional indirect tax expense from prior years | — | — | 900 | 3,651 | ||||||||||||
| IRS consulting fee | — | — | — | (204 | ) | |||||||||||
| Adjusted EBITDA | $ | 95,421 | $ | 84,313 | $ | 279,631 | $ | 233,138 | ||||||||
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) additional indirect tax expense from prior years, and (4) IRS consulting fee. 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. | ||||||||||||||||||||
| NON-GAAP FINANCIAL MEASURES | ||||||||||||||||||||
| (UNAUDITED, IN THOUSANDS) | ||||||||||||||||||||
| Q1 | Q2 | Q3 | Q4 | YTD | ||||||||||||||||
|
2016 |
||||||||||||||||||||
| Net cash provided by operating activities | $ | 64,524 | $ | 67,528 | $ | 60,488 | $ | — | $ | 192,540 | ||||||||||
| Less: Purchases of property and equipment | (4,321 | ) | (4,865 | ) | (8,261 | ) | — | (17,447 | ) | |||||||||||
| Add: Excess tax benefit share-based compensation | 264 | 833 | 974 | — | 2,071 | |||||||||||||||
| Free cash flows | $ | 60,467 | $ | 63,496 | $ | 53,201 | $ | — | $ | 177,164 | ||||||||||
| Q1 | Q2 | Q3 | Q4 | YTD | ||||||||||||||||
|
2015 |
||||||||||||||||||||
| Net cash provided by operating activities | $ | 45,716 | $ | 51,894 | $ | 50,963 | $ | 80,488 | $ | 229,061 | ||||||||||
| Less: Purchases of property and equipment | (2,401 | ) | (4,554 | ) | (4,972 | ) | (5,370 | ) | (17,297 | ) | ||||||||||
| Add: Excess tax benefit share-based compensation | 334 | 1,770 | 2,437 | (55 | ) | 4,486 | ||||||||||||||
| Add: IRS settlement* | — | 5,753 | 1,164 | — | 6,917 | |||||||||||||||
| Free cash flows | $ | 43,649 | $ | 54,863 | $ | 49,592 | $ | 75,063 | $ | 223,167 | ||||||||||
* Free cash flows of $54.9 million and $49.6 million for Q2 2015 and Q3 2015, respectively, were before the effect of payments associated with taxes for prior periods under audit.
The Company discloses Free Cash Flows as supplemental Non-GAAP financial performance measure, as it believes it is a useful metrics 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. | ||||||||||||||||||||||||
| RECONCILIATION OF GAAP TO ADJUSTED NON-GAAP FINANCIAL MEASURES | ||||||||||||||||||||||||
| THREE MONTHS ENDED SEPTEMBER 30, 2016 | ||||||||||||||||||||||||
| (UNAUDITED, IN THOUSANDS) | ||||||||||||||||||||||||
| Cloud | Cloud | IP | Digital | |||||||||||||||||||||
| Connect | Services | Licensing | Media | j2 Global, Inc. | Total | |||||||||||||||||||
| Revenues | ||||||||||||||||||||||||
| GAAP revenues | $ | 92,599 | $ | 49,624 | $ | 1,119 | $ | 66,774 | $ | — | $ | 210,116 | ||||||||||||
| Gross profit | ||||||||||||||||||||||||
| GAAP gross profit | $ | 76,652 | $ | 34,197 | $ | 1,116 | $ | 61,159 | $ | — | $ | 173,124 | ||||||||||||
| Non-GAAP adjustments: | ||||||||||||||||||||||||
| Share-based compensation | 97 | 19 | — | — | — | 116 | ||||||||||||||||||
| Amortization | 127 | 1,207 | — | — | — | 1,334 | ||||||||||||||||||
| Adjusted non-GAAP gross profit | $ | 76,876 | $ | 35,423 | $ | 1,116 | $ | 61,159 | $ | — | $ | 174,574 | ||||||||||||
| Operating profit | ||||||||||||||||||||||||
| GAAP operating profit | $ | 43,543 | $ | 10,354 | $ | (996 | ) | $ | 13,887 | $ | (4,666 | ) | $ | 62,122 | ||||||||||
| Non-GAAP adjustments: | ||||||||||||||||||||||||
| Share-based compensation | 962 | 495 | — | 713 | 1,529 | 3,699 | ||||||||||||||||||
| Acquisition related integration costs | 65 | — | — | (801 | ) | — | (736 | ) | ||||||||||||||||
| Amortization | 4,552 | 11,821 | 1,442 | 7,249 | — | 25,064 | ||||||||||||||||||
| Adjusted non-GAAP operating profit | $ | 49,122 | $ | 22,670 | $ | 446 | $ | 21,048 | $ | (3,137 | ) | $ | 90,149 | |||||||||||
| Depreciation | 1,399 | 1,004 | — | 2,869 | — | 5,272 | ||||||||||||||||||
| Adjusted EBITDA | $ | 50,521 | $ | 23,674 | $ | 446 | $ | 23,917 | $ | (3,137 | ) | $ | 95,421 | |||||||||||
| NOTE: Table above excludes certain intercompany allocations | ||||||||||||||||||||||||
| j2 GLOBAL, INC. | |||||||||||||||||||||||
| RECONCILIATION OF GAAP TO ADJUSTED NON-GAAP FINANCIAL MEASURES | |||||||||||||||||||||||
| THREE MONTHS ENDED SEPTEMBER 30, 2015 | |||||||||||||||||||||||
| (UNAUDITED, IN THOUSANDS) | |||||||||||||||||||||||
| Cloud | Cloud | IP | Digital | ||||||||||||||||||||
| Connect | Services | Licensing | Media | j2 Global, Inc. | Total | ||||||||||||||||||
| Revenues | |||||||||||||||||||||||
| GAAP revenues | $ | 89,511 | $ | 35,819 | $ | 1,106 | $ | 52,265 | $ | — | $ | 178,701 | |||||||||||
| Gross profit | |||||||||||||||||||||||
| GAAP gross profit | $ | 75,226 | $ | 25,356 | $ | 1,106 | $ | 46,343 | $ | 1 | $ | 148,032 | |||||||||||
| Non-GAAP adjustments: | |||||||||||||||||||||||
| Share-based compensation | 99 | — | — | — | — | 99 | |||||||||||||||||
| Amortization | 122 | 611 | — | — | — | 733 | |||||||||||||||||
| Adjusted non-GAAP gross profit | $ | 75,447 | $ | 25,967 | $ | 1,106 | $ | 46,343 | $ | 1 | $ | 148,864 | |||||||||||
| Operating profit | |||||||||||||||||||||||
| GAAP operating profit | $ | 46,222 | $ | 7,922 | $ | (986 | ) | $ | 7,296 | $ | (4,721 | ) | $ | 55,733 | |||||||||
| Non-GAAP adjustments: | |||||||||||||||||||||||
| Share-based compensation | 1,185 | — | — | 479 | 1,106 | 2,770 | |||||||||||||||||
| Acquisition related integration costs | 95 | — | — | 5,261 | — | 5,356 | |||||||||||||||||
| Amortization | 4,106 | 5,403 | 1,622 | 5,639 | — | 16,770 | |||||||||||||||||
| Adjusted Non-GAAP operating profit | $ | 51,608 | $ | 13,325 | $ | 636 | $ | 18,675 | $ | (3,615 | ) | $ | 80,629 | ||||||||||
| Depreciation | 1,415 | 628 | — | 1,641 | — | 3,684 | |||||||||||||||||
| Adjusted EBITDA | $ | 53,023 | $ | 13,953 | $ | 636 | $ | 20,316 | $ | (3,615 | ) | $ | 84,313 | ||||||||||
| NOTE: Table above excludes certain intercompany allocations | |||||||||||||||||||||||
