J2 Global Responds to False Claims and Distortions in Short-Seller “Research” Report
01 July 2020 - 1:57PM
Business Wire
J2 Global, Inc. (NASDAQ: JCOM), a leading Internet information
and services company, today announced a response to the recent
short-selling communications from Hindenburg Research.
“It’s regrettable and reprehensible that an individual,
motivated by personal gain, can distort facts and make meritless
claims at the expense of thousands of our hard-working employees
and our loyal shareholders,” said Vivek Shah, CEO of J2 Global.
“While 24 consecutive years of revenue growth, outstanding earnings
and cash flow speak for themselves, we won’t allow this so-called
research to stand unchallenged.”
Below is J2 Global’s response to claims made in Hindenburg's
report:
- Hindenburg claims that Jeroen van der Weijden received $20
million for the acquisition of his business, which is patently
false. J2 paid approximately $900,000 for Mr. van der Weijden’s
consulting business in 2015 at which point he became a full time
employee of J2 until his departure from J2 in 2018. Clearly, the
transaction was immaterial to J2. Hindenburg also reports that the
legal entity purchased from Mr. van der Weijden was dissolved
shortly after his departure in 2018 as if to suggest dissolving
excess legal entities is somehow nefarious. As anyone familiar with
large corporations would know, it is common to dissolve legal
entities after acquisition and integration of the assets — to do
otherwise would be wasteful. It is also important to note that Mr.
van der Weijden was not a related party at the time of the $900,000
acquisition (contrary to Hindenburg’s assertion), as he was not an
employee, director or significant shareholder. He was a consultant
for J2 from 2004 until 2015. Moreover, Mr. van der Weijden was
never an executive officer of J2 so the reporting of this
immaterial transaction was never required.
- Despite Hindenburg’s confusion about OCV, the purpose of our
investment in it has been well documented over the past few years.
OCV allows J2 an opportunity to generate solid returns while giving
us a window into early-stage and minority investment opportunities
that we do not pursue in our acquisition program. To date, OCV has
made 12 investments in the technology and biotech spaces. OCV has
eight individuals vetting investments including two PhDs on staff
with expertise in pharmacology, pharmaceutical sciences,
biochemistry and molecular biophysics. COVID-19 has negatively
impacted two of the investments for which J2 booked a $9.2 million
loss in Q1 2020, while the other 10 continue to show promise. J2
has a $200 million commitment to OCV (not $300 million as described
in Hindenburg’s report), about half of which has been funded.
- Hindenburg’s characterizations of our Chairman’s investing
track record are grossly misleading and reckless. Richard Ressler
is a Co-Founder and Principal of CIM Group and OFS Capital
Management, with more than 30 years of active investing experience
in public and private companies, real estate, infrastructure and
lending. Since their respective formations in 1994 and 2003, Mr.
Ressler has chaired the investment committees of both firms,
leading over 5,000 investments across more than 30 separate
portfolios and funds, representing approximately $70 billion of
invested capital. Calling out 12 investments without any context or
order of magnitude is itself intellectually dishonest. Nonetheless,
the investments Hindenburg selected delivered, as a portfolio, a
return of over four times invested capital. In addition, Mr.
Ressler was the principal venture capital investor in J2 in 1997,
took the Company public as its CEO, and has been instrumental in
its formative acquisitions and its continued growth.
- Hindenburg baselessly accuses J2 of suspending its dividend as
a result of J2’s “lack of liquidity.” J2 maintains over $600
million in cash and short-term investments on its balance sheet.
Moreover, J2 has generated free cash flow in excess of $2.5 billion
from January 1, 2007 through March 30, 2020. As we stated at the
time, J2 suspended its dividend to redirect that cash to enhance
the growth of our various businesses based on the significant
number of investment opportunities within J2’s portfolio of
businesses and the historic returns from prior investments.
Furthermore, this step was taken even though it reduced income for
J2 insiders. At the time, unvested stock held by management and our
board of directors either paid dividends or accumulated dividends,
which were then paid on vesting.
- Hindenburg erroneously claims that the J2 Board of Directors
lacks independence. Based on all applicable Nasdaq and SEC rules,
J2’s Board is independent and evaluates its independence annually.
Certain of our Board members serve together as board members and
advisors to other businesses which we believe is both customary and
beneficial to J2. These other service opportunities build
collegiality and cultivate relationships in varying industries and
sectors, enhancing the value that the members bring to our Board.
In addition, because members of our Board have deep experience in
many different industries, it is no surprise that they are
regularly asked for advice with respect to such experience. Since
we have a $200 million commitment to OCV, we are encouraged that
OCV would seek the advice of one of our Board members to help it
make decisions with respect to the operation of businesses within
OCV’s portfolio. In no event do any of our Board members who serve
or have served as advisors to OCV receive any compensation related
to such service that would require disclosure under applicable SEC
rules.
- Hindenburg shows a fundamental misunderstanding of U.S. GAAP.
As a U.S. company, J2 assesses the fair value of goodwill at one
level below the segment level which is the business-unit level. We
compare the fair value of the entire business unit to its carrying
amount. That valuation is a function of the adjusted EBITDA of the
business as well as its revenues. As a result, when we eliminate
unprofitable revenues from acquired companies, revenues will
decline while adjusted EBITDA increases. We frequently refer to
this as our “shrink to grow” strategy. Therefore, in these
instances, the value of the business can be greater than its value
at the time of its acquisition. In 2019, we engaged third-party
valuation specialists to calculate the fair value of each reporting
unit. It was determined that none of our business units had a fair
value that was lower than the carrying value, so no impairments
existed. This valuation was rigorously audited by our registered
public auditor. As for assets such as OCV and WellTok, changes in
valuation are taken as losses on investments, not impairment of
goodwill.
- Hindenburg misrepresents J2 CEO Vivek Shah’s compensation by
failing to include a full explanation of his 2018 compensation and
ignores Mr. Shah’s 2019 compensation entirely and the detailed
information presented on his long-term equity award included in the
Company’s 2019 and 2020 Proxy Statements. Specifically, in
connection with his elevation to CEO, Mr. Shah was awarded an
upfront, one-time long-term equity award vesting over eight years.
The award consisted of 400,000 stock options, 400,000
performance-based restricted shares, and 200,000 time-based
restricted shares to incentivize Mr. Shah during his tenure as CEO.
SEC rules require that the full value of equity awards — even those
that are one-time and not designed to be annual — be recognized in
the year in which they are granted regardless of the period over
which they are to be earned or vest. This resulted in over $43
million worth of equity compensation being recognized in 2018 as
opposed to being spread over the 8-year window. By contrast, Mr.
Shah’s 2019 total compensation was approximately $2.2 million
according to J2’s 2020 Proxy Statement due to the fact that the
Company issued no equity to Mr. Shah in 2019 and has not issued any
in 2020. Hindenburg also fails to point out that the vast majority
of Mr. Shah’s 2018 equity award is only realized with significant
growth in J2’s stock price. The exercise price of the stock options
granted to Mr. Shah in 2018 is equal to $75.03. The
performance-based restricted share award vests in one-eighth
increments based upon increasing stock price thresholds from $83.93
to $183.90.
- Hindenburg failed to adequately review or incorporate publicly
available information about J2 to properly educate itself about our
businesses. If it had, then it would clearly have understood that
the reason why Cloud Customer ARPU declined is based on lower
subscription prices related to our successful IPVanish subscription
service. Moreover, Hindenburg fails to disclose that Cloud
Customers have increased from 3.17 million in 2018 to 4.04 million
in 2019. Furthermore, Hindenburg failed to disclose or understand
that the pageview decline in Digital Media from 2018 to 2019, as
has been discussed during a number of earnings calls, was primarily
due to a reduction in traffic on J2’s Snapchat pages that carried
little monetization. If Hindenburg truly researched J2, it would
also understand that a majority of J2’s Digital Media revenues are
in the form of subscriptions and performance marketing that are not
directly linked to pageview volumes. Moreover, J2 reported that
visits increased 18.7% in Q1 2020 versus Q1 2019. Finally,
Hindenburg fails to use standard sources of traffic data, such as
Google Analytics or comScore. It instead used a source whose
measurement code J2 has elected not to install on most of its
sites, seemingly undercounts mobile traffic and is, therefore,
unreliable as it relates to J2.
Attacks from “short and distort” outfits like Hindenburg
ordinarily would not be dignified with a response. However, the
attempted impugning of J2’s integrity and ethics required a clear
and thorough refutation of Hindenburg’s baseless allegations and
disparaging misrepresentations. J2 is justifiably proud of its
history of growth and innovation, and takes very seriously its
moral and ethical responsibilities to its employees, customers,
partners, shareholders and communities.
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 segment and eFax, eVoice, iContact, Campaigner,
Vipre, IPVanish and KeepItSafe in its Cloud Services segment. J2
Global reaches over 180 million people per month across its brands.
As of December 31, 2019, J2 Global had achieved 24 consecutive
fiscal years of revenue growth. For more information, visit:
www.j2global.com.
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version on businesswire.com: https://www.businesswire.com/news/home/20200630006133/en/
Rebecca Wright J2 Global, Inc. 212-503-5247
press@J2.com
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