JCOM
$74.68
J2 Global
$.62
.84%
Earnings Details
2nd Quarter June 2017
Thursday, August 3, 2017 4:15:03 PM
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Summary

j2 Global Reaffirms

J2 Global (JCOM) reported 2nd Quarter June 2017 earnings of $1.25 per share on revenue of $273.2 million. The consensus earnings estimate was $1.31 per share on revenue of $273.4 million. Revenue grew 29.0% on a year-over-year basis.

The company said it continues to expect 2017 non-GAAP earnings of $5.60 to $6.00 per share on revenue of $1.13 billion to $1.17 billion. The current consensus earnings estimate is $5.84 per share on revenue of $1.14 billion for the year ending December 31, 2017.

j2 Global Inc together with its subsidiaries provides cloud services to businesses of all sizes, from individuals to enterprises, and license its intellectual property ("IP") to third parties.

Results
Reported Earnings
$1.25
Earnings Whisper
-
Consensus Estimate
$1.31
Reported Revenue
$273.2 Mil
Revenue Estimate
$273.4 Mil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

j2 Reports Second Quarter 2017 Results

Announces Twenty-Fourth Consecutive Quarterly Dividend Increase

j2 Global, Inc. (JCOM) today reported financial results for the second quarter ended June 30, 2017 and announced that its Board of Directors has declared an increased quarterly cash dividend of $0.3850 per share.

SECOND QUARTER 2017 RESULTS

Q2 2017 quarterly revenues increased 29.0% to an all-time record of $273.2 million compared to $211.8 million for Q2 2016.

Net cash provided by operating activities decreased by 10.4% to $60.5 million compared to $67.5 million for Q2 2016. This decrease was driven by a $20.0 million contingent payment for Ookla which was paid during the quarter.

Free cash flow(1) for the quarter increased by 12.0% to $71.1 million compared to $63.5 million for Q2 2016 before the effect of the $20.0 million contingent payment for Ookla which was paid during the quarter.

GAAP earnings per diluted share(2) decreased 8.7% to $0.63 in Q2 2017 compared to $0.69 for Q2 2016. Adjusted non-GAAP earnings per diluted share(2)(3) for the quarter increased 9.9% to $1.33 compared to $1.21 for Q2 2016.

GAAP net income decreased by 7.1% to $31.4 million compared to $33.8 million for Q2 2016.

Adjusted EBITDA(4) for the quarter increased 13.0% to $110.2 million compared to $97.5 million for Q2 2016.

j2 ended the quarter with approximately $330.8 million in cash and investments after deploying approximately $52.0 million during the quarter for acquisitions and j2’s regular quarterly dividend.

Key financial results for Q2 2017 versus Q2 2016 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 2017
Q2 2016
% Change
Revenues
Cloud Services
$143.4 million
$141.4 million
1.4%
Digital Media
$128.5 million
$69.3 million
85.4%
IP Licensing
$1.3 million
$1.1 million
18.2%
Total Revenue:
$273.2 million
$211.8 million
29.0%
Operating Income
$58.6 million
$58.9 million
(0.5)%
Net Cash Provided by Operating Activities
$60.5 million
$67.5 million
(10.4)%
Free Cash Flow (1)
$71.1 million
$63.5 million
12.0%
GAAP Earnings per Diluted Share (2)
$0.63
$0.69
(8.7)%
Adjusted Non-GAAP Earnings per Diluted Share (2) (3)
$1.33
$1.21
9.9%
GAAP Net Income
$31.4 million
$33.8 million
(7.1)%
Non-GAAP Net Income
$64.8 million
$59.7 million
8.5%
Adjusted EBITDA (4)
$110.2 million
$97.5 million
13.0%
Adjusted EBITDA Margin (4)
40.3%
46.0%
(5.7)%

"I am very happy to report another quarter of record revenues totaling more than $273 million in the quarter, a 29% increase over the same quarter last year," said Hemi Zucker, CEO of j2. "In addition, our business was further validated by the debt market as our Cloud Services division issued $650 million of 8-year notes in an oversubscribed offering without guarantees from either our Media division or parent company, j2 Global. The debt raise both lowered our overall long-term cost of capital and increased cash on hand as of today to over $380 million."

BUSINESS OUTLOOK

For fiscal 2017, the Company reaffirms estimates that it will achieve revenues between $1.130 billion and $1.170 billion and Adjusted non-GAAP earnings per diluted share of between $5.60 and $6.00.

Adjusted non-GAAP earnings per diluted share for 2017 excludes share-based compensation of between $17 and $19 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 2017 (exclusive of the release of reserves for uncertain tax positions) will be between 28.5% and 30.5%.

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.

DIVIDEND

j2’s Board of Directors approved a quarterly cash dividend of $0.3850 per common share, a $0.01, or 2.7% increase versus last quarter’s dividend. This is j2’s twenty-fourth consecutive quarterly dividend increase since its first quarterly dividend in September 2011. The dividend will be paid on September 1, 2017 to all shareholders of record as of the close of business on August 14, 2017. Future dividends will be subject to Board approval.

Notes:

(1)
Free cash flow is defined as net cash provided by operating
activities, less purchases of property, plant and equipment, plus
excess tax benefit from share-based compensation. Free cash flow
amounts are not meant as a substitute for GAAP, but are solely for
informational purposes.
(2)
The estimated GAAP effective tax rates were approximately 22.8% for
Q2 2017 and 30.9% for Q2 2016. The estimated Adjusted non-GAAP
effective tax rates were approximately 28.5% for Q2 2017 and 29.4%
for Q2 2016.
(3)
For Q2 2017, Adjusted non-GAAP earnings per diluted share excludes
share-based compensation, certain acquisition-related integration
costs, interest costs in excess of the coupon rate associated with
convertible notes, amortization of acquired intangibles, additional
tax expense from prior years and diluted effect of convertible debt,
in each case net of tax, totaling $0.70 per diluted share. For Q2
2016, Adjusted non-GAAP earnings per diluted share excludes
share-based compensation, certain acquisition-related integration
costs, interest costs in excess of the coupon rate associated with
convertible notes, amortization of acquired intangibles and
additional tax (expense) benefit from prior years, in each case net
of tax, totaling $0.53 per diluted share.
(4)
Adjusted EBITDA is defined as earnings before interest and other
expense, net; income tax expense; depreciation and amortization; and
the items used to reconcile EPS to Adjusted non-GAAP EPS referred to
in Note (3) above. Adjusted EBITDA amounts are not meant as a
substitute for GAAP, but are solely for informational purposes.

About j2 Global

j2 Global, Inc. (JCOM) provides Internet services through two segments: Business Cloud Services and Digital Media. The Business Cloud Services segment offers Internet fax, virtual phone, unified communications, hosted email, email marketing, online backup and CRM solutions. It markets its services principally under the brand names eFax (R), eVoice (R), Onebox (R), FuseMail (R), Campaigner (R), KeepItSafe (R), Livedrive(R) and LiveVault(R), and operates a messaging network spanning 50 countries on six continents. The Digital Media segment offers technology, gaming, lifestyle and healthcare content through its digital properties, which include PCMag, IGN, AskMen, Speedtest, Offers, ExtremeTech, Geek, Toolbox, Techbargains, emedia, Salesify, Everyday Health and others. As of December 31, 2016, j2 had achieved 21 consecutive fiscal years of revenue growth. For more information about j2, please visit www.j2global.com.

"Safe Harbor" Statement Under the Private Securities Litigation Reform Act of 1995: Certain statements in this Press Release are "forward-looking statements" within the meaning of The Private Securities Litigation Reform Act of 1995, particularly those contained in Hemi Zucker’s quote and the "Business Outlook" portion regarding the Company’s expected fiscal 2017 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 2016 Annual Report on Form 10-K filed by j2 Global on March 1, 2017, 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 2017 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, 2017
December 31, 2016
ASSETS
Cash and cash equivalents
$
330,743
$
123,950
Restricted cash
265,000
--
Short-term investments
65
60
Accounts receivable, net of allowances of $9,027 and $7,988,
181,528
199,871
respectively
Prepaid expenses and other current assets
22,354
24,118
Current assets held for sale
5,770
--
Total current assets
805,460
347,999
Property and equipment, net
71,173
68,094
Goodwill
1,139,426
1,122,810
Other purchased intangibles, net
468,085
511,691
Deferred income taxes, non-current
7,228
5,289
Other assets
6,569
6,445
Non-current assets held for sale
29,720
--
TOTAL ASSETS
$ 2,527,661
$ 2,062,328
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable and accrued expenses
$
135,473
$
178,071
Income taxes payable
12,845
16,753
Deferred revenue, current
88,153
80,384
Line of credit
--
178,817
Current maturities of long-term debt
246,652
--
Other current liabilities
24
64
Current liabilities held for sale
523
--
Total current liabilities
483,670
454,089
Long-term debt
996,377
601,746
Deferred revenue, non-current
57
1,588
Liability for uncertain tax positions
46,988
46,537
Deferred income taxes, non-current
34,764
40,357
Other long-term liabilities
5,143
3,475
Non-current liabilities held for sale
5,103
--
TOTAL LIABILITIES
1,572,102
1,147,792
Common stock
476
474
Additional paid-in capital
314,790
308,329
Retained earnings
679,029
660,382
Accumulated other comprehensive loss
(38,736 )
(54,649 )
TOTAL STOCKHOLDERS’ EQUITY
955,559
914,536
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$ 2,527,661
$ 2,062,328
j2 GLOBAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED, IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
Three Months Ended
Six Months Ended
June 30,
June 30,
2017
2016
2017
2016
Total revenues
$ 273,174
$ 211,800
$ 527,843
$ 412,302
Cost of revenues (1)
43,159
35,591
83,969
69,878
Gross profit
230,015
176,209
443,874
342,424
Operating expenses:
Sales and marketing (1)
80,862
48,617
158,339
96,729
Research, development and engineering (1)
11,555
9,213
23,307
18,201
General and administrative (1)
79,038
59,434
155,693
115,211
Total operating expenses
171,455
117,264
337,339
230,141
Income from operations
58,560
58,945
106,535
112,283
Interest expense, net
13,670
10,301
26,079
20,534
Other expense (income), net
4,227
(213 )
4,551
(87 )
Income before income taxes
40,663
48,857
75,905
91,836
Income tax expense
9,287
15,087
18,709
28,123
Net income
$
31,376
$
33,770
$
57,196
$
63,713
Basic net income per common share:
Net income attributable to j2 Global, Inc. common shareholders
$
0.65
$
0.69
$
1.19
$
1.31
Diluted net income per common share:
Net income attributable to j2 Global, Inc. common shareholders
$
0.63
$
0.69
$
1.16
$
1.30
Basic weighted average shares outstanding
47,547,118
48,055,783
47,505,406
48,011,250
Diluted weighted average shares outstanding
48,948,315
48,265,298
48,857,405
48,251,698
(1) Includes share-based compensation expense as follows:
Cost of revenues
$
121
$
103
$
238
$
198
Sales and marketing
521
434
899
965
Research, development and engineering
281
221
518
428
General and administrative
4,639
2,681
7,522
4,657
Total
$
5,562
$
3,439
$
9,177
$
6,248
j2 GLOBAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
Six Months Ended June 30,
2017
2016
Cash flows from operating activities:
Net income
$
57,196
$
63,713
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization
79,225
58,233
Accretion and amortization of discount and premium of investments
--
646
Amortization of financing costs and discounts
6,307
4,777
Share-based compensation
9,177
6,248
Provision for doubtful accounts
5,623
5,009
Deferred income taxes, net
(3,679 )
(2,064 )
Decrease (increase) in:
Accounts receivable
11,195
3,763
Prepaid expenses and other current assets
2,527
1,534
Other assets
(105 )
(1,894 )
Increase (decrease) in:
Accounts payable and accrued expenses
(55,047 )
(15,480 )
Income taxes payable
(4,464 )
2,034
Deferred revenue
1,817
(2,699 )
Liability for uncertain tax positions
(4 )
4,440
Other long-term liabilities
1,887
3,792
Net cash provided by operating activities
111,655
132,052
Cash flows from investing activities:
Maturity of available-for-sale investments
--
112,631
Purchase of available-for-sale investments
(5 )
(47,207 )
Purchases of property and equipment
(18,945 )
(9,186 )
Acquisition of businesses, net of cash received
(36,430 )
(76,725 )
Purchases of intangible assets
(768 )
(1,815 )
Net cash used in investing activities
(56,148 )
(22,302 )
Cash flows from financing activities:
Issuance of long-term debt, net
636,178
--
Proceeds from line of credit, net
44,981
--
Repayment of line of credit
(225,000 )
--
Repurchases of common and restricted stock
(6,738 )
(3,356 )
Issuance of stock, net of costs
1,184
2,034
Dividends paid
(35,707 )
(32,202 )
Deferred payments for acquisitions
(3,339 )
(16,550 )
Other
(36 )
843
Net cash provided by (used) in financing activities
411,523
(49,231 )
Effect of exchange rate changes on cash, cash equivalents and
5,576
(2,295 )
restricted cash
Net change in cash, cash equivalents and restricted cash
472,606
58,224
Net change in cash balance included in assets held for sale
(813 )
--
Cash, cash equivalents and restricted cash at beginning of period
123,950
255,530
Cash, cash equivalents and restricted cash at end of period
$ 595,743
$ 313,754

j2 GLOBAL, INC. AND SUBSIDIARIES RECONCILIATION OF GAAP TO ADJUSTED NON-GAAP FINANCIAL MEASURES THREE AND SIX MONTHS ENDED JUNE 30, 2017 AND 2016 (UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Non-GAAP net income is GAAP net income with the following modifications, net of tax: (1) elimination of share-based compensation and the associated payroll tax expense; (2) elimination of certain acquisition-related integration costs; (3) elimination of interest costs in excess of the coupon rate associated with the convertible notes; (4) elimination of amortization of patents and intangible assets that we acquired; (5) elimination of additional tax or indirect tax related (expense) benefit from prior years; and (6) dilutive effect of the convertible debt.

Three Months Ended June 30,
2017
Per Diluted Share *
2016
Per Diluted Share *
Net income
$
31,376
$
0.63
$
33,770
$
0.69
Plus:
Share based compensation (1)
3,329
0.07
2,520
0.05
Acquisition related integration costs (2)
4,966
0.10
2,583
0.05
Interest costs (3)
2,030
0.04
1,361
0.03
Amortization (4)
21,031
0.44
19,322
0.40
Tax expense from prior years (5)
2,058
0.04
99
(0.00 )
Convertible debt dilution (6)
--
0.02
--
--
Adjusted non-GAAP net income
$
64,790
$
1.33
$
59,655
$
1.21
Six Months Ended June 30,
2017
Per Diluted Share *
2016
Per Diluted Share *
Net income
$
57,196
$
1.16
$
63,713
$
1.30
Plus:
Share based compensation (1)
5,753
0.12
4,572
0.09
Acquisition related integration costs (2)
10,891
0.23
4,365
0.09
Interest costs (3)
3,295
0.07
2,694
0.06
Amortization (4)
43,365
0.91
35,640
0.74
Tax expense from prior years (5)
2,058
0.04
52
0.00
Convertible debt dilution (6)
--
0.03
--
--
Adjusted non-GAAP net income
$ 122,558
$
2.52
$
111,036
$
2.25

* 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, 2017 AND 2016 (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 additional tax or indirect tax related (expense) benefit from prior years; and (6) dilutive effect of the convertible debt.

Three Months Ended June 30,
2017
2016
Cost of revenues
$
43,159
$
35,591
Plus:
Share based compensation (1)
(121 )
(103 )
Amortization (4)
(639 )
(1,311 )
Adjusted non-GAAP cost of revenues
$
42,399
$
34,177
Sales and marketing
$
80,862
$
48,617
Plus:
Share based compensation (1)
(521 )
(434 )
Acquisition related integration costs (2)
(1,033 )
(581 )
Adjusted non-GAAP sales and marketing
$
79,308
$
47,602
Research, development and engineering
$
11,555
$
9,213
Plus:
Share based compensation (1)
(281 )
(221 )
Acquisition related integration costs (2)
(248 )
--
Adjusted non-GAAP research, development and engineering
$
11,026
$
8,992
General and administrative
$
79,038
$
59,434
Plus:
Share based compensation (1)
(4,639 )
(2,681 )
Acquisition related integration costs (2)
(1,884 )
(3,371 )
Amortization (4)
(32,077 )
(24,868 )
Tax expense from prior years (5)
(3,007 )
(150 )
Adjusted non-GAAP general and administrative
$
37,431
$
28,364
Interest expense, net
$
13,670
$
10,301
Plus:
Interest costs (3)
(2,859 )
(1,913 )
Adjusted non-GAAP interest expense, net
$
10,811
$
8,388
Other expense (income), net
$
4,227
$
(213 )
Plus:
Acquisition related integration costs (2)
(2,635 )
--
Adjusted non-GAAP other expense (income), net
$
1,592
$
(213 )
Income tax provision
$
9,287
$
15,087
Plus:
Share based compensation (1)
2,233
919
Acquisition related integration costs (2)
834
1,369
Interest costs (3)
829
552
Amortization (4)
11,685
6,857
Tax expense from prior years (5)
949
51
Adjusted non-GAAP income tax provision
$
25,817
$
24,835
Total adjustments
$ (33,414 )
$ (25,885 )
GAAP earnings per diluted share
$
0.63
$
0.69
Adjustments *
$
0.70
$
0.53
Adjusted non-GAAP earnings per diluted share
$
1.33
$
1.21

* 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, 2017 AND 2016 (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 additional tax or indirect tax related (expense) benefit from prior years; and (6) dilutive effect of the convertible debt.

Six Months Ended June 30,
2017
2016
Cost of revenues
$
83,969
$
69,878
Plus:
Share based compensation (1)
(238 )
(198 )
Acquisition related integration costs (2)
(195 )
--
Amortization (4)
(1,758 )
(2,555 )
Adjusted non-GAAP cost of revenues
$
81,778
$
67,125
Sales and marketing
$ 158,339
$
96,729
Plus:
Share based compensation (1)
(899 )
(965 )
Acquisition related integration costs (2)
(2,471 )
(1,124 )
Adjusted non-GAAP sales and marketing
$ 154,969
$
94,640
Research, development and engineering
$
23,307
$
18,201
Plus:
Share based compensation (1)
(518 )
(428 )
Acquisition related integration costs (2)
(825 )
--
Adjusted non-GAAP research, development and engineering
$
21,964
$
17,773
General and administrative
$ 155,693
$ 115,211
Plus:
Share based compensation (1)
(7,522 )
(4,657 )
Acquisition related integration costs (2)
(8,287 )
(5,422 )
Amortization (4)
(62,934 )
(45,925 )
Tax expense from prior years (5)
(3,007 )
(900 )
Adjusted non-GAAP general and administrative
$
73,943
$
58,307
Interest expense, net
$
26,079
$
20,534
Plus:
Interest costs (3)
(4,889 )
(3,798 )
Adjusted non-GAAP interest expense, net
$
21,190
$
16,736
Other expense (income), net
$
4,551
$
(87 )
Plus:
Acquisition related integration costs (2)
(2,635 )
--
Tax benefit from prior years (5)
--
811
Adjusted non-GAAP other expense (income), net
$
1,916
$
724
Income tax provision
$
18,709
$
28,123
Plus:
Share based compensation (1)
3,424
1,676
Acquisition related integration costs (2)
3,522
2,181
Interest costs (3)
1,594
1,104
Amortization (4)
21,327
12,840
Tax expense from prior years (5)
949
37
Adjusted non-GAAP income tax provision
$
49,525
$
45,961
Total adjustments
$ (65,362 )
$ (47,323 )
GAAP earnings per diluted share
$
1.16
$
1.30
Adjustments *
$
1.36
$
0.95
Adjusted non-GAAP earnings per diluted share
$
2.52
$
2.25

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

The Company discloses Adjusted non-GAAP Earnings Per Share ("EPS") as a supplemental non-GAAP financial performance measure, as it believes it is a useful metric by which to compare the performance of its business from period to period. The Company also understands that this Adjusted non-GAAP measure is broadly used by analysts, rating agencies and investors in assessing the Company’s performance. Accordingly, the Company believes that the presentation of this Adjusted non-GAAP financial measure provides useful information to investors.

Adjusted non-GAAP EPS is not in accordance with, or an alternative to, net income per share and may be different from non-GAAP measures with similar or even identical names used by other companies. In addition, this Adjusted non-GAAP measure is not based on any comprehensive set of accounting rules or principles. This Adjusted non-GAAP measure has limitations in that it does not reflect all of the amounts associated with the Company’s results of operations determined in accordance with GAAP.

Non-GAAP Financial Measures

To supplement its condensed consolidated financial statements, which are prepared and presented in accordance with US GAAP, the Company uses the following Non-GAAP financial measures: Adjusted EBITDA, Adjusted non-GAAP net income, and Adjusted non-GAAP diluted EPS (collectively the "Non-GAAP financial measures"). The presentation of this financial information is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with U.S. GAAP. The Company uses these Non-GAAP financial measures for financial and operational decision making and as a means to evaluate period-to-period comparisons. The Company believes that they provide useful information about core operating results, enhance the overall understanding of past financial performance and future prospects, and allow for greater transparency with respect to key metrics used by management in its financial and operational decision making.

(1) Share Based Compensation. The Company excludes stock-based compensation because it is non-cash in nature and because the Company believes that the Non-GAAP financial measures excluding this item provide meaningful supplemental information regarding operational performance. The Company further believes this measure is useful to investors in that it allows for greater transparency to certain line items in its financial statements. In addition, excluding this item from the Non-GAAP measures facilitates comparisons to historical operating results and comparisons to peers, many of which similarly exclude this item.

(2) Acquisition Related Integration Costs. The Company excludes certain acquisition and related integration costs such as severance, lease terminations, retention bonuses and other acquisition-specific items. The Company believes that the Non-GAAP financial measures excluding this item provide meaningful supplemental information regarding operational performance. In addition, excluding this item from the Non-GAAP measures facilitates comparisons to historical operating results and comparisons to peers, many of which similarly exclude this item.

(3) Interest Costs. In June 2014, the Company issued $402.5 million aggregate principal amount of 3.25% convertible senior notes. In accordance with GAAP, the Company separately accounts for the value of the liability and equity features of its outstanding convertible senior notes in a manner that reflects the Company’s non-convertible debt borrowing rate. The value of the conversion feature, reflected as a debt discount, is amortized to interest expense over time. Accordingly, the Company recognizes imputed interest expense on its convertible senior notes of approximately 5.8% in its income statement. The Company excludes the difference between the imputed interest expense and the coupon interest expense of 3.25% because it is non-cash in nature and because the Company believes that the Non-GAAP financial measures excluding this item provide meaningful supplemental information regarding core operational performance. In addition, the Company has excluded 3 days of overlapping interest expense in connection with the 8.0% senior unsecured notes and deferred issuance costs associated with the repayment of the line of credit. 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) 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.

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

j2 GLOBAL, INC. AND SUBSIDIARIES
NET INCOME TO ADJUSTED EBITDA RECONCILIATION
THREE AND SIX MONTHS ENDED JUNE 30, 2017 AND 2016
(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,
2017
2016
2017
2016
Net income
$
31,376
$ 33,770
$
57,196
$
63,713
Plus:
Interest expense, net
13,670
10,301
26,079
20,534
Other expense (income), net
1,592
(213 )
1,916
(87 )
Income tax expense
9,287
15,087
18,709
28,123
Depreciation and amortization
39,902
31,058
79,225
58,233
Reconciliation of GAAP to Adjusted non-GAAP financial measures:
Share-based compensation and the associated payroll tax expense
5,562
3,439
9,177
6,248
Acquisition-related integration costs
5,800
3,952
14,413
6,546
Additional indirect tax expense from prior years
3,007
150
3,007
900
Adjusted EBITDA
$ 110,196
$ 97,544
$ 209,722
$ 184,210

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. AND SUBSIDIARIES
NON-GAAP FINANCIAL MEASURES
(UNAUDITED, IN THOUSANDS)
Q1
Q2
Q3
Q4
YTD
2017
Net cash provided by operating activities
$ 51,191
$
60,464
$ --
$ --
$ 111,655
Less: Purchases of property and equipment
(9,660 )
(9,285 )
--
--
(18,945 )
Add: Contingent consideration*
20,000
19,950
--
--
39,950
Free cash flows
$ 61,531
$
71,129
$ --
$ --
$ 132,660
* Free cash flows of $61.5 million for Q1 2017 and $71.1 million for
Q2 2017 is before the effect of payments associated with certain
contingent consideration associated with recent acquisitions.
Q1
Q2
Q3
Q4
YTD
2016
Net cash provided by operating activities
$ 64,524
$
67,528
$
60,488
$
89,847
$ 282,387
Less: Purchases of property and equipment
(4,321 )
(4,865 )
(8,261 )
(7,299 )
(24,746 )
Add: Contingent consideration*
8,000
--
--
--
8,000
Add: Excess tax benefit share-based compensation
264
833
974
200
2,271
Free cash flows
$ 68,467
$
63,496
$
53,201
$
82,748
$ 267,912
* Free cash flows of $68.5 million for Q1 2016 is before the effect
of payments associated with certain contingent consideration
associated with recent acquisitions. Amounts reflected were adjusted
from previously disclosed periods in order to be comparable to the
current period.

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, 2017
(UNAUDITED, IN THOUSANDS)
Cloud
Cloud
IP
Digital
Connect
Services
Licensing
Media
j2 Global, Inc.
Total
Revenues
GAAP revenues
$
95,667
$
47,763
$
1,279
$ 128,465
$ --
$
273,174
Gross profit
GAAP gross profit
$
78,485
$
35,017
$
1,272
$ 115,241
$ --
$
230,015
Non-GAAP adjustments:
Share-based compensation
106
15
--
--
--
121
Amortization
119
520
--
--
--
639
Adjusted non-GAAP gross profit
$
78,710
$
35,552
$
1,272
$ 115,241
$ --
$
230,775
Operating profit
GAAP operating profit
$
45,435
$
12,892
$
(218 )
$
10,129
$
(9,678 )
$
58,560
Non-GAAP adjustments:
Share-based compensation
1,167
348
--
1,091
2,956
5,562
Acquisition related integration costs
119
31
--
3,015
--
3,165
Amortization
4,866
8,749
1,261
17,840
--
32,716
Additional indirect tax expense from prior years
--
--
--
--
3,007
3,007
Adjusted non-GAAP operating profit
$
51,587
$
22,020
$
1,043
$
32,075
$
(3,715 )
$
103,010
Depreciation
1,214
1,098
--
4,874
--
7,186
Adjusted EBITDA
$
52,801
$
23,118
$
1,043
$
36,949
$
(3,715 )
$
110,196
NOTE: Table above excludes certain intercompany allocations
j2 GLOBAL, INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP TO ADJUSTED NON-GAAP FINANCIAL MEASURES
THREE MONTHS ENDED JUNE 30, 2016
(UNAUDITED, IN THOUSANDS)
Cloud
Cloud
IP
Digital
Connect
Services
Licensing
Media
j2 Global, Inc.
Total
Revenues
GAAP revenues
$
92,858
$
48,509
$
1,093
$
69,340
$ --
$
211,800
Gross profit
GAAP gross profit
$
76,851
$
34,485
$
1,093
$
63,780
$ --
$
176,209
Non-GAAP adjustments:
Share-based compensation
103
--
--
--
--
103
Amortization
127
1,184
--
--
--
1,311
Adjusted non-GAAP gross profit
$
77,081
$
35,669
$
1,093
$
63,780
$ --
$
177,623
Operating profit
GAAP operating profit
$
42,548
$
10,721
$
(751 )
$
11,505
$
(5,078 )
$
58,945
Non-GAAP adjustments:
Share-based compensation
1,465
--
--
592
1,382
3,439
Acquisition related integration costs
88
--
--
3,864
--
3,952
Amortization
6,345
11,140
1,492
7,202
--
26,179
Additional indirect tax expense from prior years
--
--
--
150
--
150
Adjusted non-GAAP operating profit
$
50,446
$
21,861
$
741
$
23,313
$
(3,696 )
$
92,665
Depreciation
1,230
1,044
--
2,605
--
4,879
Adjusted EBITDA
$
51,676
$
22,905
$
741
$
25,918
$
(3,696 )
$
97,544
NOTE: Table above excludes certain intercompany allocations

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j2 Global, Inc.
Laura Hinson
800-577-1790
press@j2.com