Achieves Record First Quarter
Revenues
J2 Global, Inc. (NASDAQ: JCOM) today reported financial results
for the first quarter ended March 31, 2020.
“From the very beginning of this crisis, we have been focused on
ensuring the safety and well-being of our employees, helping our
customers and communities deal with the pandemic, and being a
careful steward of our shareholders’ capital,” said Vivek Shah, CEO
of J2 Global. “I am grateful and inspired by our organization’s
response to this crisis and impressed by the tremendous resilience
shown by our people and businesses.”
FIRST QUARTER 2020
RESULTS
Q1 2020 quarterly revenues increased 10.8% to a first quarter
record of $332.4 million compared to $299.9 million for Q1
2019.
Net cash provided by operating activities decreased to $102.0
million (inclusive of $20.1 million of earn out payments for
various acquisitions from previous years) compared to $116.9
million for Q1 2019. Q1 2020 free cash flow(2) decreased 8.7% to
$95.2 million compared to $104.3 million for Q1 2019. The decrease
in free cash flow(2) was due to an increase in capital expenditures
of $14.4 million in comparison to Q1 2019.
GAAP net (loss) income decreased by 119.7% to $(6.4) million as
compared to $32.4 million for Q1 2019. GAAP (loss) earnings per
diluted share(3) decreased 119.7% to $(0.13) in Q1 2020 compared to
$0.66 for Q1 2019. The Q1 2020 net loss and decrease in GAAP (loss)
earnings per diluted share(3) is due to the write down of certain
investments during the quarter, some of which were impacted in
their operations by COVID-19.
Adjusted non-GAAP earnings per diluted share(3)(4) for the
quarter remained at $1.40 as compared to Q1 2019.
Quarterly Adjusted EBITDA(5) increased 2.6% to $116.8 million
compared to $113.9 million for Q1 2019.
J2 ended the quarter with approximately $625 million in cash and
investments after deploying approximately $19 million during the
quarter for current period acquisitions and $36 million relating
substantially to contingent consideration payments for acquisitions
from previous years. In addition, J2 deployed approximately $56
million in respect of its share repurchase program.
Key financial results for Q1 2020 versus Q1 2019 are set forth
in the following table (in millions, except per share amounts).
Reconciliations of Adjusted non-GAAP earnings per diluted share,
Adjusted EBITDA and free cash flow to their nearest comparable GAAP
financial measures are attached to this Press Release.
Q1 2020
Q1 2019
% Change
Revenues
Cloud Services
$169.8 million
$152.2 million
11.5%
Digital Media
$162.6 million
$147.6 million
10.1%
Total
Revenue: (1)
$332.4 million
$299.9 million
10.8%
Operating Income
$55.2 million
$50.9 million
8.6%
Net Cash Provided by Operating
Activities
$102.0 million
$116.9 million
(12.7)%
Free Cash Flow (2)
$95.2 million
$104.3 million
(8.7)%
GAAP (Loss) Earnings per Diluted Share
(3)
$(0.13)
$0.66
(119.7)%
Adjusted Non-GAAP Earnings per Diluted
Share (3) (4)
$1.40
$1.40
—%
GAAP Net (Loss) Income
$(6.4) million
$32.4 million
(119.7)%
Adjusted Non-GAAP Net Income
$67.5 million
$68.4 million
(1.3)%
Adjusted EBITDA (5)
$116.8 million
$113.9 million
2.6%
Adjusted EBITDA Margin (5)
35.1%
38.0%
(7.5)%
BUSINESS OUTLOOK
Due to the global impact of COVID-19, the Company is withdrawing
its previously issued financial guidance for fiscal 2020. Moreover,
the Company believes that business projections should be evaluated
on a near-term basis. Based on our current performance and
expectations, we anticipate Q2 2020 revenues to be slightly down
versus Q2 2019 and Adjusted EBITDA and Adjusted non-GAAP EPS to be
down single digit percentages versus Q2 2019. At this time, we have
limited visibility into the macroeconomic factors that would inform
our financial projections for Q3 and Q4 2020.
The Company has not reconciled the Adjusted non-GAAP earnings
per diluted share and any related tax rate information included in
this release to the most directly comparable GAAP measure because
this cannot be done without unreasonable effort due to the
variability with respect to costs related to acquisitions and
taxation, which are potential adjustments to future earnings. We
expect the variability of these items to have a potentially
unpredictable and significant impact on our future GAAP financial
results.
Notes:
(1)
The revenues associated with each of the
businesses may not foot precisely since each is presented
independently.
(2)
Free cash flow is defined as net cash
provided by operating activities, less purchases of property, plant
and equipment, plus contingent consideration. Free cash flow
amounts are not meant as a substitute for GAAP, but are solely for
informational purposes.
(3)
The estimated GAAP effective tax rates
were approximately 132.5% for Q1 2020 and (0.9)% for Q1 2019. The
estimated Adjusted non-GAAP effective tax rates were approximately
22.0% for Q1 2020 and 20.9% for Q1 2019.
(4)
Adjusted non-GAAP earnings per diluted
share excludes certain non-GAAP items, as defined in the
Reconciliation of GAAP to Adjusted non-GAAP Financial Measures, for
the three months ended March 31, 2020 and 2019 totaled $1.53 and
$0.74 per diluted share, respectively.
(5)
Adjusted EBITDA is defined as earnings
before interest; loss on investments, net; other expense, net;
income tax expense; net loss in earnings of equity method
investments; depreciation and amortization; and the items used to
reconcile EPS to Adjusted non-GAAP EPS, as defined in the
Reconciliation of GAAP to Adjusted non-GAAP Financial Measures.
Adjusted EBITDA amounts are not meant as a substitute for GAAP, but
are solely for informational purposes.
About J2 Global
J2 Global, Inc. (NASDAQ: JCOM) is a leading internet information
and services company consisting of a portfolio of brands including
IGN, Mashable, Humble Bundle, Speedtest, PCMag, Offers.com,
Spiceworks, Everyday Health, BabyCenter and What To Expect in its
Digital Media business and eFax, eVoice, iContact, Campaigner,
Vipre, IPVanish and KeepItSafe in its Cloud Services business. J2
reaches in excess of 180 million people per month across its
brands. As of December 31, 2019, J2 had achieved 24 consecutive
fiscal years of revenue growth. For more information about J2,
please visit www.J2global.com.
“Safe Harbor” Statement Under the Private Securities
Litigation Reform Act of 1995: Certain statements in this Press
Release are “forward-looking statements” within the meaning of The
Private Securities Litigation Reform Act of 1995, including those
contained in Vivek Shah’s quote and the “Business Outlook” portion
regarding the Company’s expected fiscal 2020 financial performance.
These forward-looking statements are based on management’s current
expectations or beliefs and are subject to numerous assumptions,
risks and uncertainties that could cause actual results to differ
materially from those described in the forward-looking statements.
These factors and uncertainties include, among other items: the
Company’s ability to grow non-fax revenues, profitability and cash
flows; the Company’s ability to identify, close and successfully
transition acquisitions; subscriber growth and retention;
variability of the Company’s revenue based on changing conditions
in particular industries and the economy generally; protection of
the Company’s proprietary technology or infringement by the Company
of intellectual property of others; the risk of adverse changes in
the U.S. or international regulatory environments, including but
not limited to the imposition or increase of taxes or
regulatory-related fees; and the numerous other factors set forth
in J2 Global’s filings with the Securities and Exchange Commission
(“SEC”). For a more detailed description of the risk factors and
uncertainties affecting J2 Global, refer to the 2019 Annual Report
on Form 10-K filed by J2 Global on March 2, 2020, and the other
reports filed by J2 Global from time-to-time with the SEC, each of
which is available at www.sec.gov. The forward-looking statements
provided in this press release, including those contained in Vivek
Shah’s quote and in the “Business Outlook” portion regarding the
Company’s expected fiscal 2020 financial performance are based on
limited information available to the Company at this time, which is
subject to change. Although management’s expectations may change
after the date of this press release, the Company undertakes no
obligation to revise or update these statements.
About Non-GAAP Financial Measures
To supplement our consolidated financial statements, which are
prepared and presented in accordance with GAAP, we use the
following Adjusted non-GAAP financial measures: Adjusted non-GAAP
net income, Adjusted non-GAAP earnings per diluted share, Adjusted
EBITDA and free cash flow. The presentation of this financial
information is not intended to be considered in isolation or as a
substitute for, or superior to, the financial information prepared
and presented in accordance with GAAP.
We use these Adjusted non-GAAP financial measures for financial
and operational decision-making and as a means to evaluate
period-to-period comparisons. Our management believes that these
Adjusted non-GAAP financial measures provide meaningful
supplemental information regarding our performance and liquidity by
excluding certain expenses and expenditures that may not be
indicative of our recurring core business operating results. We
believe that both management and investors benefit from referring
to these Adjusted non-GAAP financial measures in assessing our
performance and when planning, forecasting, and analyzing future
periods. These Adjusted non-GAAP financial measures also facilitate
management’s internal comparisons to our historical performance and
liquidity. We believe these Adjusted non-GAAP financial measures
are useful to investors both because (1) they allow for greater
transparency with respect to key metrics used by management in its
financial and operational decision-making and (2) they are used by
our institutional investors and the analyst community to help them
analyze the health of our business.
For more information on these Adjusted non-GAAP financial
measures, please see the appropriate GAAP to Adjusted non-GAAP
reconciliation tables included within the attached Exhibit to this
release.
J2 GLOBAL, INC. AND
SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE
SHEETS
(UNAUDITED, IN
THOUSANDS)
March 31,
2020
December 31,
2019
ASSETS
Cash and cash equivalents
$
526,554
$
575,615
Accounts receivable, net of allowances of
$13,080 and $12,701, respectively
204,783
261,928
Prepaid expenses and other current
assets
50,758
49,347
Total current assets
782,095
886,890
Long-term investments
98,020
100,079
Property and equipment, net
136,439
127,817
Operating lease right-of-use assets
115,455
125,822
Goodwill
1,637,193
1,633,033
Other purchased intangibles, net
526,656
556,553
Deferred income taxes, noncurrent
58,573
59,976
Other assets
14,462
15,676
TOTAL ASSETS
$
3,368,893
$
3,505,846
LIABILITIES AND STOCKHOLDERS’
EQUITY
Accounts payable and accrued expenses
$
162,656
$
238,059
Income taxes payable, current
16,732
17,758
Deferred revenue, current
160,924
162,855
Operating lease liabilities, current
26,715
26,927
Current portion of long-term debt
—
385,532
Other current liabilities
1,654
1,973
Total current liabilities
368,681
833,104
Long-term debt
1,455,446
1,062,929
Deferred revenue, noncurrent
12,225
12,744
Operating lease liabilities,
noncurrent
93,687
104,070
Income taxes payable, noncurrent
11,675
11,675
Liability for uncertain tax positions
54,105
52,451
Deferred income taxes, noncurrent
105,257
107,453
Other long-term liabilities
26,736
10,228
TOTAL LIABILITIES
2,127,812
2,194,654
Commitments and contingencies
—
—
Preferred stock
—
—
Common stock
471
476
Additional paid-in capital
462,430
465,652
Retained earnings
832,648
891,526
Accumulated other comprehensive loss
(54,468
)
(46,462
)
TOTAL STOCKHOLDERS’ EQUITY
1,241,081
1,311,192
TOTAL LIABILITIES AND STOCKHOLDERS’
EQUITY
$
3,368,893
$
3,505,846
J2 GLOBAL, INC. AND
SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(UNAUDITED, IN THOUSANDS
EXCEPT SHARE AND PER SHARE DATA)
Three Months Ended
March 31,
2020
2019
Total revenues
$
332,393
$
299,893
Cost of revenues (1)
59,131
51,013
Gross profit
273,262
248,880
Operating expenses:
Sales and marketing (1)
99,438
86,880
Research, development and engineering
(1)
15,406
12,984
General and administrative (1)
103,171
98,154
Total operating expenses
218,015
198,018
Income from operations
55,247
50,862
Interest expense, net
20,971
16,019
Loss on investments, net
20,832
13
Other expense, net
6,876
2,202
Income before income taxes and net loss in
earnings of equity method investment
6,568
32,628
Income tax expense (benefit)
8,703
(295
)
Net loss in earnings of equity method
investment
4,269
474
Net (loss) income
$
(6,404
)
$
32,449
Basic net (loss) income per common
share:
Net (loss) income attributable to J2
Global, Inc. common shareholders
$
(0.13
)
$
0.67
Diluted net (loss) income per common
share:
Net (loss) income attributable to J2
Global, Inc. common shareholders
$
(0.13
)
$
0.66
Basic weighted average shares
outstanding
47,620,774
47,560,749
Diluted weighted average shares
outstanding
47,620,774
48,509,181
(1) Includes share-based compensation
expense as follows:
Cost of revenues
$
134
$
132
Sales and marketing
398
404
Research, development and engineering
431
358
General and administrative
5,350
4,192
Total
$
6,313
$
5,086
J2 GLOBAL, INC. AND
SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(UNAUDITED, IN
THOUSANDS)
Three Months Ended
March 31,
Cash flows from operating activities:
2020
2019
Net (loss) income
$
(6,404
)
$
32,449
Adjustments to reconcile net (loss) income
to net cash provided by operating activities:
Depreciation and amortization
53,980
49,209
Amortization of financing costs and
discounts
6,997
2,965
Amortization of operating lease assets
4,834
4,796
Share-based compensation
6,313
5,086
Provision for doubtful accounts
2,826
2,888
Deferred income taxes, net
(1,106
)
548
Changes in fair value of contingent
consideration
(240
)
5,003
Foreign currency remeasurement loss
7,801
—
Loss on equity method investments
4,269
628
Loss on equity and debt investments
20,826
—
Decrease (increase) in:
Accounts receivable
52,949
41,926
Prepaid expenses and other current
assets
(8,169
)
(2,143
)
Other assets
2,612
(144
)
Increase (decrease) in:
Accounts payable and accrued expenses
(43,374
)
(10,422
)
Income taxes payable
1,616
(2,333
)
Deferred revenue
(686
)
(2,352
)
Operating lease liabilities
(5,062
)
(4,526
)
Liability for uncertain tax positions
1,654
(5,464
)
Other long-term liabilities
400
(1,260
)
Net cash provided by operating
activities
102,036
116,854
Cash flows from investing activities:
Purchases of equity method investment
(22,840
)
(9,794
)
Purchases of equity investments
(843
)
—
Purchases of property and equipment
(26,885
)
(12,531
)
Acquisition of businesses, net of cash
received
(18,701
)
(59,339
)
Proceeds from sale of assets
226
—
Purchases of intangible assets
(19
)
—
Net cash used in investing activities
(69,062
)
(81,664
)
Cash flows from financing activities:
Repurchase of common stock
(62,966
)
(1,177
)
Exercise of stock options
952
5,259
Dividends paid
—
(21,758
)
Deferred payments for acquisitions
(15,503
)
(1,395
)
Other
(839
)
(205
)
Net cash used in financing activities
(78,356
)
(19,276
)
Effect of exchange rate changes on cash
and cash equivalents
(3,679
)
1,224
Net change in cash and cash
equivalents
(49,061
)
17,138
Cash and cash equivalents at beginning of
period
575,615
209,474
Cash and cash equivalents at end of
period
$
526,554
$
226,612
J2 GLOBAL, INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP TO ADJUSTED NON-GAAP FINANCIAL
MEASURES THREE MONTHS ENDED MARCH 31, 2020 AND 2019
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Non-GAAP net income is GAAP net (loss) 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; (7) elimination of gain on sale of assets; (8)
elimination of intra-entity transfers; and (9) elimination of
dilutive effect of the convertible debt.
Three Months Ended March
31,
2020
Per Diluted
Share *
2019
Per Diluted
Share *
Net (loss) income
$
(6,404
)
$
(0.13
)
$
32,449
$
0.66
Plus:
Share-based compensation (1)
4,808
0.10
3,287
0.07
Acquisition related integration costs
(2)
1,095
0.02
4,377
0.09
Interest costs (3)
4,315
0.09
1,296
0.03
Amortization (4)
31,858
0.67
25,504
0.54
Investments (5)
25,094
0.53
474
—
Tax expense from prior years (6)
388
0.01
1,009
0.02
Sale of assets (7)
(197
)
—
—
—
Intra-entity transfers (8)
6,563
0.14
—
—
Convertible debt dilution (9)
—
—
—
0.01
Adjusted non-GAAP net income
$
67,520
$
1.40
$
68,396
$
1.40
* The reconciliation of net (loss) 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 MARCH 31, 2020 AND 2019
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Non-GAAP net income is GAAP net (loss) 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; (7) elimination of gain on sale of assets; (8)
elimination of intra-entity transfers; and (9) elimination of
dilutive effect of the convertible debt.
Three Months Ended March
31,
2020
2019
Cost of revenues
$
59,131
$
51,013
Plus:
Share-based compensation (1)
(134
)
(132
)
Acquisition related integration costs
(2)
(55
)
—
Amortization (4)
(450
)
(523
)
Adjusted non-GAAP cost of
revenues
$
58,492
$
50,358
Sales and marketing
$
99,438
$
86,880
Plus:
Share-based compensation (1)
(398
)
(404
)
Acquisition related integration costs
(2)
(514
)
122
Adjusted non-GAAP sales and
marketing
$
98,526
$
86,598
Research, development and
engineering
$
15,406
$
12,984
Plus:
Share-based compensation (1)
(431
)
(358
)
Adjusted non-GAAP research, development
and engineering
$
14,975
$
12,626
General and administrative
$
103,171
$
98,154
Plus:
Share-based compensation (1)
(5,350
)
(4,192
)
Acquisition related integration costs
(2)
(729
)
(5,487
)
Amortization (4)
(38,713
)
(37,320
)
Tax expense from prior years (6)
—
(3,373
)
Adjusted non-GAAP general and
administrative
$
58,379
$
47,782
Interest expense, net
$
20,971
$
16,019
Plus:
Acquisition related integration costs
(2)
—
27
Interest costs (3)
(5,934
)
(2,242
)
Adjusted non-GAAP interest expense,
net
$
15,037
$
13,804
Loss on investments, net
$
20,832
$
13
Plus:
Investments (5)
(20,825
)
—
Adjusted non-GAAP loss on investments,
net
$
7
$
13
Other expense, net
$
6,876
$
2,202
Plus:
Sale of assets (7)
257
—
Intra-entity transfers (8)
(6,702
)
—
Adjusted non-GAAP other expense,
net
$
431
$
2,202
Income tax provision
$
8,703
$
(295
)
Plus:
Share-based compensation (1)
1,505
1,799
Acquisition related integration costs
(2)
203
961
Interest costs (3)
1,619
946
Amortization (4)
7,305
12,339
Tax (benefit) expense from prior years
(6)
(388
)
2,364
Sale of assets (7)
(60
)
—
Intra-entity transfers (8)
139
—
Adjusted non-GAAP income tax
provision
$
19,026
$
18,114
Net loss in earnings of equity method
investment
$
4,269
$
474
Plus:
Investments (5)
(4,269
)
(474
)
Adjusted non-GAAP net loss in earnings
of equity method investment
$
—
$
—
Total adjustments
$
(73,924
)
$
(35,947
)
GAAP earnings per diluted share
$
(0.13
)
$
0.66
Adjustments *
$
1.53
$
0.74
Adjusted non-GAAP earnings per diluted
share
$
1.40
$
1.40
* The reconciliation of net (loss) 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 (loss) income per share and may be different
from Non-GAAP measures with similar or even identical names used by
other companies. In addition, this Adjusted non-GAAP measure is not
based on any comprehensive set of accounting rules or principles.
This Adjusted non-GAAP measure has limitations in that it does not
reflect all of the amounts associated with the Company’s results of
operations determined in accordance with GAAP.
Non-GAAP Financial Measures
To supplement its condensed consolidated financial statements,
which are prepared and presented in accordance with US GAAP, the
Company uses the following Non-GAAP financial measures: Adjusted
EBITDA, Adjusted non-GAAP Net Income, and Adjusted non-GAAP Diluted
EPS (collectively the “Non-GAAP financial measures”). The
presentation of this financial information is not intended to be
considered in isolation or as a substitute for, or superior to, the
financial information prepared and presented in accordance with
U.S. GAAP. The Company uses these Non-GAAP financial measures for
financial and operational decision making and as a means to
evaluate period-to-period comparisons. The Company believes that
they provide useful information about core operating results,
enhance the overall understanding of past financial performance and
future prospects, and allow for greater transparency with respect
to key metrics used by management in its financial and operational
decision making.
(1) Share-based Compensation. The Company excludes stock-based
compensation because it is non-cash in nature and because the
Company believes that the Non-GAAP financial measures excluding
this item provide meaningful supplemental information regarding
operational performance. The Company further believes this measure
is useful to investors in that it allows for greater transparency
to certain line items in its financial statements. In addition,
excluding this item from the Non-GAAP measures facilitates
comparisons to historical operating results and comparisons to
peers, many of which similarly exclude this item.
(2) Acquisition Related Integration Costs. The Company excludes
certain acquisition and related integration costs such as
adjustments to contingent consideration, severance, lease
terminations, retention bonuses and other acquisition-specific
items. The Company believes that the Non-GAAP financial measures
excluding this item provide meaningful supplemental information
regarding operational performance. In addition, excluding this item
from the Non-GAAP measures facilitates comparisons to historical
operating results and comparisons to peers, many of which similarly
exclude this item.
(3) Interest Costs. In June 2014, the Company issued $402.5
million aggregate principal amount of 3.25% convertible senior
notes and in November 2019, the Company issued $550.0 million
aggregate principal amount of 1.75% convertible senior notes. In
accordance with GAAP, the Company separately accounts for the value
of the liability and equity features of its outstanding convertible
senior notes in a manner that reflects the Company’s
non-convertible debt borrowing rate. The value of the conversion
feature, reflected as a debt discount, is amortized to interest
expense over time. Accordingly, the Company recognizes imputed
interest expense on its 3.25% and 1.75% convertible senior notes of
approximately 5.8% and 5.5%, respectively, in its statement of
operations. The Company excludes the difference between the imputed
interest expense and the coupon interest expense of 3.25% and
1.75%, respectively, because it is non-cash in nature and because
the Company believes that the Non-GAAP financial measures excluding
this item provide meaningful supplemental information regarding
core operational performance. The Company has determined excluding
these items from the Non-GAAP measures facilitates comparisons to
historical operating results and comparisons to peers, many of
which similarly exclude this item.
(4) Amortization. The Company excludes amortization of patents
and acquired intangible assets because it is non-cash in nature and
because the Company believes that the Non-GAAP financial measures
excluding this item provide meaningful supplemental information
regarding operational performance. In addition, excluding this item
from the Non-GAAP measures facilitates comparisons to historical
operating results and comparisons to peers, many of which similarly
exclude this item.
(5) Change in Value on Investments. The Company excludes the
change in value on its investments. The Company believes that the
Non-GAAP financial measures excluding this item provide meaningful
supplemental information regarding operational performance. In
addition, excluding this item from the Non-GAAP measures
facilitates comparisons to historical operating results.
(6) Tax Expense/Benefit from Prior Years. The Company excludes
certain income tax-related items in respect of income tax audit
settlements and their related FIN48 accrual reversals. The Company
believes that the Non-GAAP financial measures excluding these items
provide meaningful supplemental information regarding operational
performance. In addition, excluding these items from the Non-GAAP
measures facilitates comparisons to historical operating
results.
(7) Gain on Sale of Assets. The Company excludes the gain on
sale of certain of its assets. The Company believes that the
Non-GAAP financial measures excluding this item provide meaningful
supplemental information regarding operational performance. In
addition, excluding this item from the Non-GAAP measures
facilitates comparisons to historical operating results.
(8) Intra-Entity Transfers. The Company excludes certain effects
of intra-entity transfers to the extent the related tax asset or
liability in the financial statement is not recovered or settled,
respectively during the year. During December 2019, the Company
entered into an intra-entity asset transfer that resulted in the
recording of a tax benefit and related tax asset representing tax
deductible amounts to be realized in future years which is expected
to be recovered over a period of up to 20 years. The Company
believes that the Non-GAAP financial measures excluding the
cumulative future unrealized benefit of the assets transferred and
including the tax benefit in the year of realization provides
meaningful supplemental information regarding operational
performance. In addition, excluding this item from the Non-GAAP
measures facilitates comparisons to historical operating
results.
(9) Convertible Debt Dilution. The Company excludes convertible
debt dilution from diluted EPS. The Company believes that the
Non-GAAP financial measures excluding this item provide meaningful
supplemental information regarding operational performance. In
addition, excluding this item from the Non-GAAP measures
facilitates comparisons to historical operating results.
The Company presents Adjusted non-GAAP Cost of Revenues,
Adjusted non-GAAP Research, Development and Engineering, Adjusted
non-GAAP Sales and Marketing, Adjusted non-GAAP General and
Administrative, Adjusted non-GAAP Interest Expense, Adjusted
non-GAAP Loss on Investments, Adjusted non-GAAP Other Expense,
Adjusted non-GAAP Income Tax Provision, Adjusted non-GAAP Net Loss
in Earnings of Equity Method Investment and Adjusted non-GAAP Net
Income because the Company believes that these provide useful
information about our operating results and enhance the overall
understanding of past financial performance and future
prospects.
J2 GLOBAL, INC. AND SUBSIDIARIES NET
INCOME TO ADJUSTED EBITDA RECONCILIATION THREE MONTHS ENDED
MARCH 31, 2020 AND 2019 (UNAUDITED, IN THOUSANDS)
The following table sets forth a reconciliation of Adjusted
EBITDA to net (loss) income, the most directly comparable GAAP
financial measure.
Three Months Ended March
31,
2020
2019
Net (loss) income
$
(6,404
)
$
32,449
Plus:
Interest expense, net
20,971
16,019
Loss on investments, net
20,832
13
Other expense, net
6,876
2,202
Income tax expense
8,703
(295
)
Net loss in earnings of equity method
investment
4,269
474
Depreciation and amortization
53,980
49,209
Reconciliation of GAAP to Adjusted
non-GAAP financial measures:
Share-based compensation and the
associated payroll tax expense
6,313
5,086
Acquisition-related integration costs
1,298
5,365
Additional indirect tax expense from prior
years
—
3,373
Adjusted EBITDA
$
116,838
$
113,895
Adjusted EBITDA as calculated above represents earnings before
interest, loss on investments, net, other expense, net, income tax
expense, net loss in earnings of equity method investments,
depreciation and amortization and the items used to reconcile GAAP
to Adjusted non-GAAP financial measures, including (1) share-based
compensation, (2) certain acquisition-related integration costs,
(3) 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
2020
Net cash provided by operating
activities
$
102,036
$
—
$
—
$
—
$
102,036
Less: Purchases of property and
equipment
(26,885
)
—
—
—
(26,885
)
Add: Contingent consideration*
20,054
—
—
—
20,054
Free cash flows
$
95,205
$
—
$
—
$
—
$
95,205
* Free Cash Flows of $95.2 million for Q1
2020 is before the effect of payments associated with certain
contingent consideration associated with recent acquisitions.
Q1
Q2
Q3
Q4
YTD
2019
Net cash provided by operating
activities
$
116,854
$
95,357
$
97,096
$
103,232
$
412,539
Less: Purchases of property and
equipment
(12,531
)
(18,260
)
(18,692
)
(21,105
)
(70,588
)
Add: Contingent consideration*
—
8,698
(240
)
—
8,458
Free cash flows
$
104,323
$
85,795
$
78,164
$
82,127
$
350,409
* Free Cash Flows of $85.8 million for Q2
2019 and $78.2 million for Q3 2019 is before the effect of payments
associated with certain contingent consideration associated with
recent acquisitions.
The Company discloses free cash flows as supplemental Non-GAAP
financial performance measure, as it believes it is a useful metric
by which to compare the performance of its business from period to
period. The Company also understands that this Non-GAAP measure is
broadly used by analysts, rating agencies and investors in
assessing the Company’s performance. Accordingly, the Company
believes that the presentation of this Non-GAAP financial measure
provides useful information to investors.
Free cash flows is not in accordance with, or an alternative to,
Cash Flows from Operating Activities, and may be different from
Non-GAAP measures with similar or even identical names used by
other companies. In addition, the Non-GAAP measure is not based on
any comprehensive set of accounting rules or principles. This
Non-GAAP measure has limitations in that it does not reflect all of
the amounts associated with the Company’s results of operations
determined in accordance with GAAP.
J2 GLOBAL, INC. AND
SUBSIDIARIES
RECONCILIATION OF GAAP TO
ADJUSTED NON-GAAP FINANCIAL MEASURES
THREE MONTHS ENDED MARCH 31,
2020
(UNAUDITED, IN
THOUSANDS)
Cloud
Digital
Services
Media
Corporate
Total
Revenues
GAAP revenues
$
169,784
$
162,608
$
1
$
332,393
Gross profit
GAAP gross profit
$
131,424
$
141,837
$
1
$
273,262
Non-GAAP adjustments:
Share-based compensation
132
2
—
134
Acquisition related integration costs
55
—
—
55
Amortization
450
—
—
450
Adjusted non-GAAP gross profit
$
132,061
$
141,839
$
1
$
273,901
Operating profit
GAAP operating profit
$
55,818
$
4,868
$
(5,439
)
$
55,247
Non-GAAP adjustments:
Share-based compensation
1,590
1,303
3,420
6,313
Acquisition related integration costs
110
1,188
—
1,298
Amortization
16,197
22,380
586
39,163
Adjusted non-GAAP operating profit
$
73,715
$
29,739
$
(1,433
)
$
102,021
Depreciation
4,642
10,175
—
14,817
Adjusted EBITDA
$
78,357
$
39,914
$
(1,433
)
$
116,838
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 $3.2 million and
$3.5 million, respectively.
The effects noted above reduce Adjusted
EBITDA for Cloud Services and Digital Media by $3.2 million and
$3.5 million, respectively.
J2 GLOBAL, INC. AND
SUBSIDIARIES
RECONCILIATION OF GAAP TO
ADJUSTED NON-GAAP FINANCIAL MEASURES
THREE MONTHS ENDED MARCH 31,
2019
(UNAUDITED, IN
THOUSANDS)
Cloud
Digital
Services
Media
Corporate
Total
Revenues
GAAP revenues
$
152,245
$
147,647
$
1
$
299,893
Gross profit
GAAP gross profit
$
119,762
$
129,117
$
1
$
248,880
Non-GAAP adjustments:
Share-based compensation
130
2
—
132
Amortization
523
—
—
523
Adjusted non-GAAP gross profit
$
120,415
$
129,119
$
1
$
249,535
Operating profit
GAAP operating profit
$
58,569
$
(1,050
)
$
(6,657
)
$
50,862
Non-GAAP adjustments:
Share-based compensation
(143
)
1,271
3,958
5,086
Acquisition related integration costs
—
5,365
—
5,365
Amortization
10,581
26,581
681
37,843
Additional indirect tax expense from prior
years
3,373
—
—
3,373
Adjusted non-GAAP operating profit
$
72,380
$
32,167
$
(2,018
)
$
102,529
Depreciation
2,768
8,598
—
11,366
Adjusted EBITDA
$
75,148
$
40,765
$
(2,018
)
$
113,895
NOTE 1: Table above excludes
certain intercompany allocations
NOTE 2: The table above is impacted
by certain expenses associated with the Corporate entity that were
allocated to the Cloud Services business and Digital Media business
as these costs are shared costs incurred by the Corporate entity.
As a result, expenses were allocated from Corporate to Cloud
Services and Digital Media in the amount of $2.3 million and $2.5
million, respectively.
The effects noted above reduce Adjusted
EBITDA for Cloud Services and Digital Media by $2.3 million and
$2.5 million, respectively.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200511005533/en/
Rebecca Wright J2 Global, Inc. 800-577-1790 press@J2.com
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