j2 Reports Second Quarter 2016 Results

Achieves Record Second Quarter Revenues (up 20.3% to $211.8 million vs. Q2 2015),

Operating Income (up 17.6% to $58.9 million vs. Q2 2015)

Announces Twentieth Consecutive Quarterly Dividend Increase

LOS ANGELES -- j2 Global, Inc. (NASDAQGS: JCOM) today reported financial results for the second quarter ended June 30, 2016 and announced that its Board of Directors has declared an increased quarterly cash dividend of $0.3450 per share.

Q2 2016 quarterly revenues increased 20.3% to a Q2 record of $211.8 million compared to $176.0 million for Q2 2015.  

Net cash provided by operating activities increased by 30.1% to $67.5 million compared to $51.9 million for Q2 2015. Q2 2016 free cash flow⁽¹⁾ increased by 15.7% to $63.5 million compared to $54.9 million for Q2 2015 which included an adjustment to free cash flow of $5.8 million associated with taxes for prior periods under audit. Exclusive of the impact in Q2 2015, free cash flow increased by 29.3% compared to $49.1 million for Q2 2015.

In Q2 2015, the Company released certain income tax reserves in conjunction with a favorable IRS tax settlement of $11.9 million, or $0.25 per diluted share which contributed to a decrease in GAAP earnings per diluted share⁽²⁾ of (13.8)% to $0.69 in Q2 2016 compared to $0.80 for Q2 2015. Exclusive of the impact of the tax reserves release in Q2 2015, GAAP earnings per diluted share⁽¹⁾ increased by 25.5% compared to $0.55 for Q2 2015. Adjusted Non-GAAP earnings per diluted share⁽²⁾⁽³⁾ for the quarter increased 22.2% to $1.21 compared to $0.99 for Q2 2015.

GAAP net income decreased by (13.1)% to $33.8 million compared to $38.9 million for Q2 2015. As noted above, the decrease was attributed to certain non-recurring income tax reserves in conjunction with a favorable IRS tax settlement.

Quarterly Adjusted EBITDA⁽⁴⁾ increased 22.5% to $97.5 million compared to $79.6 million for Q2 2015.

j2 ended the quarter with approximately $407.2 million in cash and investments after deploying $43.0 million during the quarter for acquisitions and j2's regular quarterly dividend.

Key financial results for Q2 2016 versus Q2 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.

 

 

"Our second quarter results highlight the positive combination of healthy revenue growth and efficient expense management" said Hemi Zucker, CEO of j2 Global. "Our employees' efforts yielded an impressive 23% year-over-year Adjusted EBITDA growth on 20% year-over-year revenue growth. With the excellent results of our first-half in hand, I am both optimistic and confident in the future of j2's businesses and their prospects."

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 increase from 28.4% to 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.

j2's Board of Directors has approved a quarterly cash dividend of $0.3450 per common share, a $0.01, or 3.0% increase versus last quarter's dividend. This is j2's twentieth consecutive quarterly dividend increase since its first quarterly dividend in September 2011. The dividend will be paid on September 1, 2016 to all shareholders of record as of the close of business on August 17, 2016. Future dividends will be subject to Board approval.

Notes:

 

 

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 PCMag.com, IGN.com, AskMen.com, Toolbox.com and others. The Digital Media Division also operates NetShelter ® Powered by BuyerBase ®, an advanced digital ad targeting platform, and Ziff Davis B2B, a leading provider of research to enterprise buyers and leads to IT vendors. 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.

Contact:

Laura Hinson

j2 Global, Inc.

800-577-1790

 

"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)

 

		June 30, 2016				December 31, 2015
ASSETS
Cash and cash equivalents		$	313,754			$	255,530
Short-term investments			50,915				79,655
Accounts receivable, net of allowances of $5,542 and $4,261, respectively			106,365				114,680
Prepaid expenses and other current assets			22,472				25,722
Deferred income taxes, current			—				7,218
Total current assets			493,506				482,805
Long-term investments			42,537				78,563
Property and equipment, net			60,053				57,442
Goodwill			840,946				807,661
Other purchased intangibles, net			344,246				352,641
Deferred income taxes, non-current			6,494				—
Other assets			5,369				4,607
TOTAL ASSETS		$	1,793,151			$	1,783,719
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses		$	106,512			$	114,384
Income taxes payable			4,147				5,589
Deferred revenue, current			74,558				76,104
Capital lease, current			29				214
Deferred income taxes, current			—				363
Total current liabilities			185,246				196,654
Long-term debt			596,813				592,037
Deferred revenue, non-current			4,788				6,538
Capital lease, non-current			79				148
Liability for uncertain tax positions			40,356				35,917
Deferred income taxes, non-current			42,352				43,989
Other long-term liabilities			5,124				18,228
TOTAL LIABILITIES			874,758				893,511
Commitments and contingencies
Preferred stock			—				—
Common stock			481				479
Additional paid-in capital			299,349				292,064
Retained earnings			657,035				626,789
Accumulated other comprehensive loss			(38,472	)			(29,124	)
TOTAL STOCKHOLDERS' EQUITY			918,393				890,208
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY		$	1,793,151			$	1,783,719

 

 

 

j2 GLOBAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED, IN THOUSANDS)

 

		Three Months Ended June 30,								Six Months Ended June 30,
		2016				2015				2016				2015
Total revenues		$	211,800			$	176,038			$	412,302			$	337,291
Cost of revenues (1)			35,591				29,494				69,878				57,681
Gross profit			176,209				146,544				342,424				279,610
Operating expenses:
Sales and marketing (1)			48,617				40,421				96,729				78,011
Research, development and engineering (1)			9,213				8,969				18,201				17,415
General and administrative (1)			59,434				47,088				115,211				93,588
Total operating expenses			117,264				96,478				230,141				189,014
Income from operations			58,945				50,066				112,283				90,596
Interest expense, net			10,301				10,881				20,534				21,194
Other expense (income), net			(213	)			88				(87	)			(696	)
Income before income taxes			48,857				39,097				91,836				70,098
Income tax expense			15,087				181				28,123				9,304
Net income		$	33,770			$	38,916			$	63,713			$	60,794
Basic net income per common share:
Net income attributable to j2 Global, Inc. common shareholders		$	0.69			$	0.81			$	1.31			$	1.26
Diluted net income per common share:
Net income attributable to j2 Global, Inc. common shareholders		$	0.69			$	0.80			$	1.30			$	1.25
Basic weighted average shares outstanding			48,055,783				47,537,597				48,011,250				47,480,315
Diluted weighted average shares outstanding			48,265,298				47,853,574				48,251,698				47,737,006
(1) Includes share-based compensation expense as follows:
Cost of revenues		$	103			$	91			$	198			$	174
Sales and marketing			434				603				965				1,187
Research, development and engineering			221				213				428				408
General and administrative			2,681				2,261				4,657				4,404
Total		$	3,439			$	3,168			$	6,248			$	6,173

 

 

 

j2 GLOBAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

 

 

j2 GLOBAL, INC.

RECONCILIATION OF GAAP TO ADJUSTED NON-GAAP FINANCIAL MEASURES

THREE MONTHS ENDED JUNE 30, 2016

(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) elimination of income tax provision associated with the noted modifications.

 

										(2)												(5)
										Acquisition												Additional
						(1)				related				(3)								Tax Expense
						Share-based				Integration				Interest				(4)				(Benefit) from				Adjusted
		GAAP				Compensation				Costs				Costs				Amortization				Prior Years				Non-GAAP
Revenues		$	211,800				—				—				—				—				—			$	211,800
Cost of revenues			35,591				(103	)			—				—				(1,311	)			—				34,177
Operating expenses:
Sales and marketing			48,617				(434	)			(581	)			—				—				—				47,602
Research, development and engineering			9,213				(221	)			—				—				—				—				8,992
General and administrative			59,434				(2,681	)			(3,371	)			—				(24,868	)			(150	)			28,364
Interest expense (income), net			10,301				—				—				(1,913	)			—				—				8,388
Other expense (income), net			(213	)			—				—				—				—				—				(213	)
Income tax provision (6)			15,087				919				1,369				552				6,857				51				24,835
Net income		$	33,770				2,520				2,583				1,361				19,322				99			$	59,655
Net income per share attributable to j2 Global, Inc. common stockholders*
Basic		$	0.69				0.05				0.05				0.03				0.40				(0.00	)		$	1.21
Diluted		$	0.69				0.05				0.05				0.03				0.40				(0.00	)		$	1.21

 

* The reconciliation of net income per share from GAAP to adjust non-GAAP may not foot since each is calculated independently.

 

 

 

 

The Company discloses adjusted non-GAAP Earnings Per Share ("EPS") 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 adjusted non-GAAP measure is broadly used by analysts, rating 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

THREE MONTHS ENDED JUNE 30, 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 and the impact of fair value adjustments to deferred revenue purchased in the Livedrive acquisition; (3) elimination of interest costs in excess of the coupon rate associated with the convertible notes; (4) IRS consulting fee; (5) elimination of amortization of patents and intangible assets that we acquired; (6) elimination of additional income tax (expense) benefit from prior years; and (7) elimination of income tax provision associated with the noted modifications.

 

 

* The reconciliation of net income per share from GAAP to adjust non-GAAP may not foot since each is calculated independently.

 

 

 

The Company discloses adjusted non-GAAP Earnings Per Share ("EPS") 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 adjusted non-GAAP measure is broadly used by analysts, rating 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

SIX MONTHS ENDED JUNE 30, 2016

(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) elimination of income tax provision associated with the noted modifications.

 

 

* The reconciliation of net income per share from GAAP to adjust non-GAAP may not foot since each is calculated independently.

 

 

The Company discloses adjusted non-GAAP Earnings Per Share ("EPS") 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 adjusted non-GAAP measure is broadly used by analysts, rating 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

SIX MONTHS ENDED JUNE 30, 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 and the impact of fair value adjustments to deferred revenue purchased in the Livedrive acquisition; (3) elimination of interest costs in excess of the coupon rate associated with the convertible notes; (4) IRS consulting fee; (5) elimination of amortization of patents and intangible assets that we acquired; (6) elimination of additional income tax (expense) benefit from prior years; and (7) elimination of income tax provision associated with the noted modifications.

 

 

* The reconciliation of net income per share from GAAP to adjust non-GAAP may not foot since each is calculated independently.

 

 

 

The Company discloses adjusted non-GAAP Earnings Per Share ("EPS") 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 adjusted non-GAAP measure is broadly used by analysts, rating 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.

NET INCOME TO ADJUSTED EBITDA RECONCILIATION

THREE MONTHS AND SIX MONTHS ENDED JUNE 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 June 30,								Six Months Ended June 30,
		2016				2015				2016				2015
Net income		$	33,770			$	38,916			$	63,713			$	60,794
Plus:
Interest expense, net			10,301				10,881				20,534				21,194
Other expense (income), net			(213	)			88				(87	)			(696	)
Income tax expense			15,087				181				28,123				9,304
Depreciation and amortization			31,058				21,893				58,233				43,181
Reconciliation of GAAP to adjusted non-GAAP financial measures:
Share-based compensation and the associated payroll tax expense			3,439				3,168				6,248				6,173
Acquisition-related integration costs			3,952				1,895				6,546				5,429
Additional indirect tax expense from prior years			150				2,533				900				3,651
Fees associated with prior year audits			—				—				—				(204	)
Adjusted EBITDA		$	97,544			$	79,555			$	184,210			$	148,826

 

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 and (3) 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.

NON-GAAP FINANCIAL MEASURES

(UNAUDITED, IN THOUSANDS)

 

 

 

 

 

* 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 JUNE 30, 2016

(UNAUDITED, IN THOUSANDS)

 

 

 

 

 

 

 

 

 

j2 GLOBAL, INC.

RECONCILIATION OF GAAP TO ADJUSTED NON-GAAP FINANCIAL MEASURES

THREE MONTHS ENDED JUNE 30, 2015

(UNAUDITED, IN THOUSANDS)