J2 Global Reports Second Quarter 2019 Results

Achieves Record Second Quarter Revenues

LOS ANGELES--()--J2 Global, Inc. (NASDAQ: JCOM) today reported financial results for the second quarter ended June 30, 2019.

“We recently celebrated the 20th anniversary of J2’s IPO which gave us a moment to reflect on a remarkable 23 consecutive years of revenue growth,” said Vivek Shah, CEO of J2 Global. “I want to congratulate all J2 employees, past and present, on a terrific milestone. In addition, I am pleased with the double-digit revenue and EBITDA growth achieved in the second quarter while continuing our strong free cash flow conversion.”

SECOND QUARTER 2019 RESULTS

Q2 2019 quarterly revenues increased 12.0% to a second quarter record of $322.4 million compared to $287.9 million for Q2 2018.

Net cash provided by operating activities decreased to $95.4 million compared to $102.4 million for Q2 2018. This decrease was driven by payments of certain contingent consideration obligations which impacted net cash provided by operating activities by $8.7 million associated with our Media segment and additional tax payments of $4.5 million in comparison to the prior comparable period. Q2 2019 free cash flow(1) decreased 1.4% to $85.8 million compared to $87.0 million for Q2 2018 before the effects of payments associated with certain contingent consideration associated with our Media segment.

GAAP earnings per diluted share(2) increased 15.8% to $0.66 in Q2 2019 compared to $0.57 for Q2 2018.

Adjusted non-GAAP earnings per diluted share(2)(3) for the quarter increased 6.7% to $1.60 compared to $1.50 for Q2 2018.

GAAP net income increased by 14.4% to $32.6 million compared to $28.5 million for Q2 2018.

Quarterly Adjusted EBITDA(4) increased 10.3% to $125.2 million compared to $113.5 million for Q2 2018.

J2 ended the quarter with approximately $259 million in cash and investments after deploying approximately $242 million during the quarter for acquisitions and J2’s dividend.

Key financial results for Q2 2019 versus Q2 2018 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 2019

Q2 2018

% Change

Revenues

 

 

 

Cloud Services

$169.1 million

$150.3 million

12.5%

Digital Media

$153.3 million

$137.6 million

11.4%

Total Revenue:

$322.4 million

$287.9 million

12.0%

Operating Income

$56.6 million

$54.4 million

4.1%

Net Cash Provided by Operating Activities

$95.4 million

$102.4 million

(6.8)%

Free Cash Flow (1)

$85.8 million

$87.0 million

(1.4)%

GAAP Earnings per Diluted Share (2)

$0.66

$0.57

15.8%

Adjusted Non-GAAP Earnings per Diluted Share (2) (3)

$1.60

$1.50

6.7%

GAAP Net Income

$32.6 million

$28.5 million

14.4%

Adjusted Non-GAAP Net Income

$77.7 million

$73.7 million

5.4%

Adjusted EBITDA (4)

$125.2 million

$113.5 million

10.3%

Adjusted EBITDA Margin (4)

38.8%

39.4%

(0.6)%

BUSINESS OUTLOOK

For fiscal 2019, the Company reaffirms its previously revised estimates that it will achieve revenues between $1.33 billion and $1.37 billion and Adjusted EBITDA between $540 million and $556 million. In addition, the Company is reaffirming its previously revised estimates that it will achieve Adjusted non-GAAP earnings per diluted share of between $6.95 and $7.15.

Adjusted non-GAAP earnings per diluted share for 2019 excludes share-based compensation of between $23 million and $27 million, amortization of acquired intangibles and the impact of any currently unanticipated items, in each case net of tax.

It is anticipated that the non-GAAP effective tax rate for 2019 (exclusive of the release of reserves for uncertain tax positions) will be between 20.5% and 22.5%.

The Company has not reconciled the Adjusted non-GAAP earnings per diluted share and 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.

Notes:

(1)

 

Free cash flow is defined as net cash provided by operating activities, less purchases of property, plant and equipment. 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 28.1% for Q2 2019 and 18.3% for Q2 2018. The estimated Adjusted non-GAAP effective tax rates were approximately 21.0% for Q2 2019 and 18.5% for Q2 2018.

(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, 2019 and 2018 totaled $0.94 and $0.93 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 business and eFax, eVoice, Campaigner, Vipre, KeepItSafe and Livedrive in its Cloud Services business. J2 reaches over 180 million people per month across its brands. As of December 31, 2018, J2 had achieved 23 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 2019 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 2018 Annual Report on Form 10-K filed by J2 Global on March 1, 2019, 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 2019 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, 2019

 

December 31, 2018

ASSETS

 

 

 

Cash and cash equivalents

$

155,476

 

 

$

209,474

 

Accounts receivable, net of allowances of $11,747 and $10,422, respectively

174,142

 

 

221,615

 

Prepaid expenses and other current assets

35,717

 

 

29,242

 

Total current assets

365,335

 

 

460,331

 

Long-term investments

104,002

 

 

83,828

 

Property and equipment, net

110,697

 

 

98,813

 

Operating lease right-of-use assets

66,922

 

 

 

Goodwill

1,589,704

 

 

1,380,376

 

Other purchased intangibles, net

561,592

 

 

526,468

 

Other assets

11,680

 

 

11,014

 

TOTAL ASSETS

$

2,809,932

 

 

$

2,560,830

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

Accounts payable and accrued expenses

$

204,692

 

 

$

166,521

 

Income taxes payable, current

9,775

 

 

12,915

 

Deferred revenue, current

147,915

 

 

127,568

 

Operating lease liabilities, current

18,066

 

 

 

Other current liabilities

7,265

 

 

318

 

Total current liabilities

387,713

 

 

307,322

 

Long-term debt

1,119,438

 

 

1,013,129

 

Deferred revenue, noncurrent

15,508

 

 

13,200

 

Operating lease liabilities, noncurrent

53,079

 

 

 

Income taxes payable, noncurrent

11,675

 

 

11,675

 

Liability for uncertain tax positions

49,148

 

 

59,644

 

Deferred income taxes, noncurrent

81,550

 

 

69,048

 

Other long-term liabilities

19,723

 

 

51,068

 

TOTAL LIABILITIES

1,737,834

 

 

1,525,086

 

Commitments and contingencies

 

 

 

Preferred stock

 

 

 

Common stock

478

 

 

481

 

Additional paid-in capital

365,687

 

 

354,210

 

Treasury stock

 

 

(42,543

)

Retained earnings

752,040

 

 

769,575

 

Accumulated other comprehensive loss

(46,107

)

 

(45,979

)

TOTAL STOCKHOLDERS’ EQUITY

1,072,098

 

 

1,035,744

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

$

2,809,932

 

 

$

2,560,830

 

 

J2 GLOBAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

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

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

2019

 

2018

 

2019

 

2018

Total revenues

$

322,432

 

 

$

287,889

 

 

$

622,325

 

 

$

568,512

 

 

 

 

 

 

 

 

 

Cost of revenues (1)

60,266

 

 

47,749

 

 

111,279

 

 

95,894

 

Gross profit

262,166

 

 

240,140

 

 

511,046

 

 

472,618

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

Sales and marketing (1)

88,446

 

 

83,171

 

 

175,326

 

 

169,482

 

Research, development and engineering (1)

11,938

 

 

11,252

 

 

24,922

 

 

23,462

 

General and administrative (1)

105,168

 

 

91,334

 

 

203,322

 

 

179,133

 

Total operating expenses

205,552

 

 

185,757

 

 

403,570

 

 

372,077

 

Income from operations

56,614

 

 

54,383

 

 

107,476

 

 

100,541

 

Interest expense, net

17,335

 

 

15,502

 

 

33,354

 

 

31,254

 

Other (income) expense, net

(377

)

 

394

 

 

1,838

 

 

4,912

 

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

39,656

 

 

38,487

 

 

72,284

 

 

64,375

 

Income tax expense

11,148

 

 

7,037

 

 

10,853

 

 

14,055

 

Net (income) loss in earnings of equity method investment

(4,081

)

 

2,971

 

 

(3,607

)

 

2,971

 

Net income

$

32,589

 

 

$

28,479

 

 

$

65,038

 

 

$

47,349

 

 

 

 

 

 

 

 

 

Basic net income per common share:

 

 

 

 

 

 

 

Net income attributable to J2 Global, Inc. common shareholders

$

0.67

 

 

$

0.59

 

 

$

1.35

 

 

$

0.98

 

 

 

 

 

 

 

 

 

Diluted net income per common share:

 

 

 

 

 

 

 

Net income attributable to J2 Global, Inc. common shareholders

$

0.66

 

 

$

0.57

 

 

$

1.32

 

 

$

0.95

 

 

 

 

 

 

 

 

 

Basic weighted average shares outstanding

47,727,786

 

 

47,951,326

 

 

47,644,729

 

 

47,912,383

 

Diluted weighted average shares outstanding

49,102,879

 

 

49,218,521

 

 

48,806,492

 

 

48,962,835

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

Cost of revenues

$

131

 

 

$

129

 

 

$

263

 

 

$

250

 

Sales and marketing

389

 

 

467

 

 

793

 

 

832

 

Research, development and engineering

361

 

 

355

 

 

719

 

 

788

 

General and administrative

5,981

 

 

6,116

 

 

10,173

 

 

11,617

 

Total

$

6,862

 

 

$

7,067

 

 

$

11,948

 

 

$

13,487

 

J2 GLOBAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED, IN THOUSANDS)

 

 

Six Months Ended
June 30,

 

2019

 

2018

Cash flows from operating activities:

 

 

 

Net income

$

65,038

 

 

$

47,349

 

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

 

 

 

Depreciation and amortization

106,212

 

 

86,475

 

Amortization of financing costs and discounts

5,995

 

 

5,749

 

Amortization of operating lease assets

9,038

 

 

 

Share-based compensation

11,948

 

 

13,487

 

Provision for doubtful accounts

5,686

 

 

8,729

 

Deferred income taxes, net

3,908

 

 

453

 

Changes in fair value of contingent consideration

8,475

 

 

9,900

 

(Income) loss on equity investments

(4,765

)

 

7,614

 

Decrease (increase) in:

 

 

 

Accounts receivable

42,930

 

 

50,306

 

Prepaid expenses and other current assets

(3,277

)

 

649

 

Other assets

(1,233

)

 

2,252

 

Increase (decrease) in:

 

 

 

Accounts payable and accrued expenses

(12,452

)

 

(30,296

)

Income taxes payable

(3,810

)

 

(2,436

)

Deferred revenue

(3,292

)

 

4,637

 

Operating lease liabilities

(8,833

)

 

 

Liability for uncertain tax positions

(10,811

)

 

2,440

 

Other long-term liabilities

1,454

 

 

(1,015

)

Net cash provided by operating activities

212,211

 

 

206,293

 

Cash flows from investing activities:

 

 

 

Purchases of equity method investment

(14,668

)

 

(21,684

)

Purchases of available-for-sale investments

 

 

(500

)

Purchases of property and equipment

(30,791

)

 

(28,558

)

Acquisition of businesses, net of cash received

(266,000

)

 

(103,202

)

Purchases of intangible assets

 

 

(183

)

Net cash used in investing activities

(311,459

)

 

(154,127

)

Cash flows from financing activities:

 

 

 

Proceeds from line of credit

100,000

 

 

 

Repurchase of common stock

(3,807

)

 

(3,356

)

Issuance of stock, net of costs

7,269

 

 

1,475

 

Dividends paid

(43,507

)

 

(39,897

)

Deferred payments for acquisitions

(14,269

)

 

(1,308

)

Other

(887

)

 

(138

)

Net cash provided by (used in) financing activities

44,799

 

 

(43,224

)

Effect of exchange rate changes on cash, cash equivalents and restricted cash

451

 

 

(2,120

)

Net change in cash, cash equivalents and restricted cash

(53,998

)

 

6,822

 

Cash, cash equivalents and restricted cash at beginning of period

209,474

 

 

350,945

 

Cash, cash equivalents and restricted cash at end of period

$

155,476

 

 

$

357,767

 

 

J2 GLOBAL, INC. AND SUBSIDIARIES

RECONCILIATION OF GAAP TO ADJUSTED NON-GAAP FINANCIAL MEASURES

THREE AND SIX MONTHS ENDED JUNE 30, 2019 AND 2018

(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 of change in value on investment; (6) elimination of additional tax expense/benefit from prior years; and (7) elimination of dilutive effect of the convertible debt.

 

Three Months Ended June 30,

 

2019

Per Diluted
Share *

 

2018

Per Diluted
Share *

Net income

$

32,589

 

$

0.66

 

 

$

28,479

 

$

0.57

 

Plus:

 

 

 

 

 

Share based compensation (1)

6,266

 

0.13

 

 

4,351

 

0.09

 

Acquisition related integration costs (2)

3,245

 

0.07

 

 

7,301

 

0.15

 

Interest costs (3)

2,438

 

0.05

 

 

991

 

0.02

 

Amortization (4)

35,938

 

0.75

 

 

29,302

 

0.61

 

Investments (5)

(4,081

)

(0.08

)

 

3,257

 

0.07

 

Tax expense from prior years (6)

1,335

 

0.03

 

 

 

 

Convertible debt dilution (7)

 

0.02

 

 

 

0.01

 

Adjusted non-GAAP net income

$

77,730

 

$

1.60

 

 

$

73,681

 

$

1.50

 

* 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,

 

2019

Per Diluted

Share *

 

2018

Per Diluted
Share *

Net income

$

65,038

 

$

1.32

 

 

$

47,349

 

$

0.95

 

Plus:

 

 

 

 

 

Share based compensation (1)

9,553

 

0.20

 

 

9,287

 

0.19

 

Acquisition related integration costs (2)

7,620

 

0.16

 

 

13,179

 

0.27

 

Interest costs (3)

3,735

 

0.08

 

 

2,603

 

0.05

 

Amortization (4)

61,441

 

1.29

 

 

55,671

 

1.16

 

Investments (5)

(3,607

)

(0.07

)

 

5,376

 

0.11

 

Tax expense from prior years (6)

2,345

 

0.05

 

 

 

 

Convertible debt dilution (7)

 

0.03

 

 

 

0.02

 

Adjusted non-GAAP net income

$

146,125

 

$

3.00

 

 

$

133,465

 

$

2.71

 

* 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, 2019 AND 2018

(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 of change in value on investment; (6) elimination of additional tax expense/benefit from prior years; and (7) elimination of dilutive effect of the convertible debt.

Three Months Ended June 30,

 

2019

 

2018

Cost of revenues

$

60,266

 

 

$

47,749

 

Plus:

 

 

 

Share based compensation (1)

(131

)

 

(129

)

Acquisition related integration costs (2)

(55

)

 

(43

)

Amortization (4)

(461

)

 

(546

)

Adjusted non-GAAP cost of revenues

$

59,619

 

 

$

47,031

 

 

 

 

 

Sales and marketing

$

88,446

 

 

$

83,171

 

Plus:

 

 

 

Share based compensation (1)

(389

)

 

(467

)

Acquisition related integration costs (2)

154

 

 

(484

)

Adjusted non-GAAP sales and marketing

$

88,211

 

 

$

82,220

 

 

 

 

 

Research, development and engineering

$

11,938

 

 

$

11,252

 

Plus:

 

 

 

Share based compensation (1)

(361

)

 

(355

)

Acquisition related integration costs (2)

 

 

(178

)

Adjusted non-GAAP research, development and engineering

$

11,577

 

 

$

10,719

 

 

 

 

 

General and administrative

$

105,168

 

 

$

91,334

 

Plus:

 

 

 

Share based compensation (1)

(5,981

)

 

(6,116

)

Acquisition related integration costs (2)

(4,794

)

 

(7,487

)

Amortization (4)

(44,493

)

 

(33,717

)

Adjusted non-GAAP general and administrative

$

49,900

 

 

$

44,014

 

 

 

 

 

Interest expense, net

$

17,335

 

 

$

15,502

 

Plus:

 

 

 

Acquisition related integration costs (2)

 

 

(23

)

Interest costs (3)

(2,276

)

 

(2,148

)

Adjusted non-GAAP interest expense, net

$

15,059

 

 

$

13,331

 

 

 

 

 

Other (income) expense, net

$

(377

)

 

$

394

 

Plus:

 

 

 

Investments (5)

 

 

(199

)

Adjusted non-GAAP other (income) expense, net

$

(377

)

 

$

195

 

 

 

 

 

Income tax provision

$

11,148

 

 

$

7,037

 

Plus:

 

 

 

Share based compensation (1)

596

 

 

2,716

 

Acquisition related integration costs (2)

1,450

 

 

914

 

Interest costs (3)

(162

)

 

1,157

 

Amortization (4)

9,016

 

 

4,961

 

Investments (5)

 

 

(87

)

Tax benefit from prior years (6)

(1,335

)

 

 

Adjusted non-GAAP income tax provision

$

20,713

 

 

$

16,698

 

 

 

 

 

Net (income) loss in earnings of equity method investment

$

(4,081

)

 

$

2,971

 

Plus:

 

 

 

Investments (5)

4,081

 

 

(2,971

)

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

$

 

 

$

 

 

 

 

 

Total adjustments

$

(45,141

)

 

$

(45,202

)

 

 

 

 

GAAP earnings per diluted share

$

0.66

 

 

$

0.57

 

Adjustments *

$

0.94

 

 

$

0.93

 

Adjusted non-GAAP earnings per diluted share

$

1.60

 

 

$

1.50

 

* 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, 2019 AND 2018

(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 of change in value on investment; (6) elimination of additional tax expense/benefit from prior years; and (7) elimination of dilutive effect of the convertible debt.

Six Months Ended June 30,

 

2019

 

2018

Cost of revenues

$

111,279

 

 

$

95,894

 

Plus:

 

 

 

Share based compensation (1)

(263

)

 

(250

)

Acquisition related integration costs (2)

(55

)

 

(43

)

Amortization (4)

(983

)

 

(1,140

)

Adjusted non-GAAP cost of revenues

$

109,978

 

 

$

94,461

 

 

 

 

 

Sales and marketing

$

175,326

 

 

$

169,482

 

Plus:

 

 

 

Share based compensation (1)

(793

)

 

(832

)

Acquisition related integration costs (2)

276

 

 

(924

)

Adjusted non-GAAP sales and marketing

$

174,809

 

 

$

167,726

 

 

 

 

 

Research, development and engineering

$

24,922

 

 

$

23,462

 

Plus:

 

 

 

Share based compensation (1)

(719

)

 

(788

)

Acquisition related integration costs (2)

 

 

(275

)

Adjusted non-GAAP research, development and engineering

$

24,203

 

 

$

22,399

 

 

 

 

 

General and administrative

$

203,322

 

 

$

179,133

 

Plus:

 

 

 

Share based compensation (1)

(10,173

)

 

(11,617

)

Acquisition related integration costs (2)

(10,280

)

 

(14,423

)

Amortization (4)

(81,813

)

 

(66,867

)

Tax expense from prior years (6)

(3,373

)

 

 

Adjusted non-GAAP general and administrative

$

97,683

 

 

$

86,226

 

 

 

 

 

Interest expense, net

$

33,354

 

 

$

31,254

 

Plus:

 

 

 

Acquisition related integration costs (2)

27

 

 

(45

)

Interest costs (3)

(4,519

)

 

(4,265

)

Adjusted non-GAAP interest expense, net

$

28,862

 

 

$

26,944

 

 

 

 

 

Other expense, net

$

1,838

 

 

$

4,912

 

Plus:

 

 

 

Investments (5)

 

 

(2,900

)

Adjusted non-GAAP other expense, net

$

1,838

 

 

$

2,012

 

 

 

 

 

Income tax provision

$

10,853

 

 

$

14,055

 

Plus:

 

 

 

Share based compensation (1)

2,395

 

 

4,200

 

Acquisition related integration costs (2)

2,412

 

 

2,531

 

Interest costs (3)

784

 

 

1,662

 

Amortization (4)

21,355

 

 

12,336

 

Investments (5)

 

 

495

 

Tax expense from prior years (6)

1,028

 

 

 

Adjusted non-GAAP income tax provision

$

38,827

 

 

$

35,279

 

 

 

 

 

Net (income) loss in earnings of equity method investment

$

(3,607

)

 

$

2,971

 

Plus:

 

 

 

Investments (5)

3,607

 

 

(2,971

)

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

$

 

 

$

 

 

 

 

 

Total adjustments

$

(81,087

)

 

$

(86,116

)

 

 

 

 

GAAP earnings per diluted share

$

1.32

 

 

$

0.95

 

Adjustments *

$

1.69

 

 

$

1.76

 

Adjusted non-GAAP earnings per diluted share

$

3.00

 

 

$

2.71

* 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. 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/Benefit 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) Expense, Adjusted non-GAAP Income Tax Provision, Adjusted non-GAAP Net (Income) Loss in Equity Method Investment and Adjusted non-GAAP Net Income because the Company believes that these provide useful information about our operating results and enhance the overall understanding of past financial performance and future prospects.

J2 GLOBAL, INC. AND SUBSIDIARIES

NET INCOME TO ADJUSTED EBITDA RECONCILIATION

THREE AND SIX MONTHS ENDED JUNE 30, 2019 AND 2018

(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,

 

2019

 

2018

 

2019

 

2018

Net income

$

32,589

 

 

$

28,479

 

 

$

65,038

 

 

$

47,349

 

Plus:

 

 

 

 

 

 

 

Interest expense, net

17,335

 

 

15,502

 

 

33,354

 

 

31,254

 

Other (income) expense, net

(377

)

 

394

 

 

1,838

 

 

4,912

 

Income tax expense

11,148

 

 

7,037

 

 

10,853

 

 

14,055

 

Depreciation and amortization

57,003

 

 

43,857

 

 

106,212

 

 

86,475

 

Reconciliation of GAAP to Adjusted non-GAAP financial measures:

 

 

 

 

 

 

 

Share-based compensation and the associated payroll tax expense

6,862

 

 

7,067

 

 

11,948

 

 

13,487

 

Acquisition-related integration costs

4,695

 

 

8,192

 

 

10,059

 

 

15,665

 

Investments

(4,081

)

 

2,971

 

 

(3,607

)

 

2,971

 

Additional indirect tax expense from prior years

 

 

 

 

3,373

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA

$

125,174

 

 

$

113,499

 

 

$

239,068

 

 

$

216,168

 

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

2019

 

 

 

 

 

 

 

 

 

Net cash provided by operating activities

$

116,854

 

 

$

95,357

 

 

$

 

 

$

 

 

$

212,211

 

Less: Purchases of property and equipment

(12,531

)

 

(18,260

)

 

 

 

 

 

(30,791

)

Add: Contingent consideration*

 

 

8,698

 

 

 

 

 

 

8,698

 

Free cash flows

$

104,323

 

 

$

85,795

 

 

$

 

 

$

 

 

$

190,118

 

 

 

 

 

 

 

 

 

 

 

* Free Cash Flows of $85.8 million for Q2 2019 is before the effect of payments associated with certain contingent consideration associated with recent acquisitions.

 

 

 

 

 

 

 

 

 

 

 

Q1

 

Q2

 

Q3

 

Q4

 

YTD

2018

 

 

 

 

 

 

 

 

 

Net cash provided by operating activities

$

103,910

 

 

$

102,383

 

 

$

87,823

 

 

$

107,209

 

 

$

401,325

 

Less: Purchases of property and equipment

(13,165

)

 

(15,393

)

 

(16,370

)

 

(11,451

)

 

(56,379

)

Free cash flows

$

90,745

 

 

$

86,990

 

 

$

71,453

 

 

$

95,758

 

 

$

344,946

 

 

 

 

 

 

 

 

 

 

 

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, 2019

(UNAUDITED, IN THOUSANDS)

 

 

Cloud

 

Digital

 

 

 

 

 

Services

 

Media

 

Corporate

 

Total

Revenues

 

 

 

 

 

 

 

GAAP revenues

$

169,132

 

 

$

153,298

 

 

$

2

 

 

$

322,432

 

 

 

 

 

 

 

 

 

Gross profit

 

 

 

 

 

 

 

GAAP gross profit

$

132,534

 

 

$

129,630

 

 

$

2

 

 

$

262,166

 

Non-GAAP adjustments:

 

 

 

 

 

 

 

Share-based compensation

128

 

 

3

 

 

 

 

131

 

Acquisition related integration costs

55

 

 

 

 

 

 

55

 

Amortization

461

 

 

 

 

 

 

461

 

Adjusted non-GAAP gross profit

$

133,178

 

 

$

129,633

 

 

$

2

 

 

$

262,813

 

 

 

 

 

 

 

 

 

Operating profit

 

 

 

 

 

 

 

GAAP operating profit

$

62,408

 

 

$

1,471

 

 

$

(7,265

)

 

$

56,614

 

Non-GAAP adjustments:

 

 

 

 

 

 

 

Share-based compensation

1,367

 

 

1,388

 

 

4,107

 

 

6,862

 

Acquisition related integration costs

894

 

 

3,801

 

 

 

 

4,695

 

Amortization

17,702

 

 

26,638

 

 

614

 

 

44,954

 

Adjusted non-GAAP operating profit

$

82,371

 

 

$

33,298

 

 

$

(2,544

)

 

$

113,125

 

 

 

 

 

 

 

 

 

Depreciation

2,789

 

 

9,260

 

 

 

 

12,049

 

Adjusted EBITDA

$

85,160

 

 

$

42,558

 

 

$

(2,544

)

 

$

125,174

 

 

 

 

 

 

 

 

 

NOTE 1: Table above excludes certain intercompany allocations

NOTE 2: The table above is impacted by certain expenses associated with the Corporate entity that were allocated to the Cloud Services business and the Digital Media business as these costs are shared costs incurred by the Corporate entity. As a result, expenses were allocated from Corporate to Cloud Services and Digital Media in the amount of $2.3 million and $2.5 million, respectively.

 

The effect noted above reduces Adjusted EBITDA for Cloud Services and Digital Media by $2.3 million and $2.5 million, respectively.

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 certain expenses associated with the Corporate entity that were allocated to the Cloud Services business and Digital Media business as these costs are shared costs incurred by the Corporate entity. As a result, expenses were allocated from Corporate to Cloud Services and Digital Media in the amount of $1.2 million and $1.2 million, respectively.

 

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

 

Contacts

Scott Turicchi
J2 Global, Inc.
800-577-1790
press@J2.com

Release Summary

J2 Global Reports Second Quarter 2019 Results

Contacts

Scott Turicchi
J2 Global, Inc.
800-577-1790
press@J2.com