JCOM
$85.66
J2 Global Inc Cmn
$.98
1.16%
Earnings Details
4th Quarter December 2016
Thursday, February 09, 2017 4:15:07 PM
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Summary

j2 Global Sees Revenue Above Estimates

J2 Global Inc Cmn (JCOM) reported 4th Quarter December 2016 earnings of $1.47 per share on revenue of $251.8 million. The consensus earnings estimate was $1.34 per share on revenue of $234.0 million. Revenue grew 23.0% on a year-over-year basis.

The company said it expects 2017 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 $1.07 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
$1.47
Earnings Whisper
-
Consensus Estimate
$1.34
Reported Revenue
$251.8 Mil
Revenue Estimate
$234.0 Mil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

j2 Global Reports Fourth Quarter and Year End 2016 Results and Provides 2017 Outlook

Provides Fiscal 2017 Financial Estimates

Announces Twenty-Second Consecutive Quarterly Dividend Increase by $0.01 to $0.3650 per Share versus the Prior Quarter

j2 Global, Inc. (JCOM) today reported financial results for the fourth quarter and year ended December 31, 2016, provided fiscal 2017 financial estimates and announced that its Board of Directors has declared an increased quarterly cash dividend of $0.3650 per share.

FOURTH QUARTER 2016 RESULTS

Q4 2016 quarterly revenues increased 22.9% to a Q4 record of $251.8 million compared to $204.8 million for Q4 2015.

Net cash provided by operating activities increased by 11.6% to $89.8 million compared to $80.5 million for Q4 2015. Q4 2016 free cash flow(1) increased by 10.1% to $82.7 million compared to $75.1 million for Q4 2015.

GAAP earnings per diluted share(2) increased 23.6% to $0.89 in Q4 2016 compared to $0.72 for Q4 2015. Adjusted non-GAAP earnings per diluted share(2)(3) for the quarter increased 15.5% to $1.49 compared to $1.29 for Q4 2015.

GAAP net income increased by 21.7% to $43.2 million compared to $35.5 million for Q4 2015.

Quarterly Adjusted EBITDA(4) increased 16.4% to $116.5 million compared to $100.1 million for Q4 2015.

j2 ended the quarter with approximately $124.0 million in cash and investments after deploying approximately $508.2 million during the quarter for acquisitions and the payment of j2’s regular quarterly dividend.

Key financial results for Q4 2016 versus Q4 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.

Q4 2016
Q4 2015
% Change
Revenues
Cloud Services
$141.8 million
$133.8 million
6.0%
Digital Media
$108.8 million
$69.9 million
55.7%
IP Licensing
$1.2 million
$1.1 million
9.1%
Total Revenue:
$251.8 million
$204.8 million
22.9%
---------------------------------------------------- -------------------- ==================== ==================== ==================== ==================== ====================
Operating Income
$68.2 million
$53.1 million
28.4%
Net Cash Provided by Operating Activities
$89.8 million
$80.5 million
11.6%
Free Cash Flow (1)
$82.7 million
$75.1 million
10.1%
GAAP Earnings per Diluted Share (2)
$0.89
$0.72
23.6%
Adjusted Non-GAAP Earnings per Diluted Share (2) (3)
$1.49
$1.29
15.5%
GAAP Net Income
$43.2 million
$35.5 million
21.7%
Non-GAAP Net Income
$72.2 million
$63.1 million
14.4%
Adjusted EBITDA (4)
$116.5 million
$100.1 million
16.4%
Adjusted EBITDA Margin (4)
46.3%
48.9%
(2.6)%

FULL YEAR 2016 RESULTS

2016 revenues increased 21.3% to a record of $874.3 million compared to $720.8 million for 2015.

Net cash provided by operating activities increased by 23.3% to $282.4 million compared to $229.1 million for 2015. 2016 free cash flow(1) increased by 16.4% to $259.9 million compared to $223.2 million for 2015.

GAAP earnings per diluted share(5) increased 14.7% to $3.13 in 2016 compared to $2.73 for 2015. Adjusted non-GAAP earnings per diluted share(5)(6) for the year increased 19.7% to $4.99 compared to $4.17 for 2015.

GAAP net income increased by 14.1% to $152.4 million compared to $133.6 million for 2015.

Annual Adjusted EBITDA(4) increased 18.8% to $396.1 million compared to $333.3 million for 2015.

j2 ended the year with approximately $124.0 million in cash and investments after deploying approximately $719.4 million during the year with respect to the repurchase of approximately 935,000 shares of j2 common stock, twenty-two acquisitions and j2’s regular quarterly dividends.

Key financial results for 2016 versus 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.

2016
2015
% Change
Revenues
Cloud Services
$562.4 million
$498.9 million
12.7%
Digital Media
$307.3 million
$216.1 million
42.2%
IP Licensing
$4.6 million
$5.8 million
(20.7)%
Total Revenue:
$874.3 million
$720.8 million
21.3%
---------------------------------------------------- -------------------- ==================== ==================== ==================== ==================== ====================
Operating Income
$242.6 million
$199.4 million
21.7%
Net Cash Provided by Operating Activities
$282.4 million
$229.1 million
23.3%
Free Cash Flow (1)
$259.9 million
$223.2 million
16.4%
GAAP Earnings per Diluted Share (5)
$3.13
$2.73
14.7%
Adjusted Non-GAAP Earnings per Diluted Share (5) (6)
$4.99
$4.17
19.7%
GAAP Net Income
$152.4 million
$133.6 million
14.1%
Non-GAAP Net Income
$243.9 million
$203.0 million
20.1%
Adjusted EBITDA (4)
$396.1 million
$333.3 million
18.8%
Adjusted EBITDA Margin (4)
45.3%
46.2%
(0.9)%

"2016 was a remarkable year," said Hemi Zucker, CEO of j2 Global. "We exceeded our revenue expectations and achieved the high end of our EPS range. Fueled by our acquisition of Everyday Health, our largest ever, we are forecasting more than $1.1 billion in revenue, balanced between our Cloud and Media segments for this year. We are very excited about 2017 and are focused on our execution strength and planning for continued growth."

BUSINESS OUTLOOK

For fiscal 2017, the Company estimates that it will achieve revenues between $1.130 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 $14 and $16 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 has approved a quarterly cash dividend of $0.3650 per common share, a $0.01, or 2.8% increase versus last quarter’s dividend. This is j2’s twenty-second consecutive quarterly dividend increase since its first quarterly dividend in September 2011. The dividend will be paid on March 9, 2017 to all shareholders of record as of the close of business on February 22, 2017. Future dividends will be subject to Board approval.

EXTENSION OF SHARE REPURCHASE PROGRAM

The Company has extended its one-year five million share repurchase program set to expire February 20, 2017 by an additional year. Approximately 1.9 million shares remain available for purchase under the program.

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 25.8% for
Q4 2016 and 16.4% for Q4 2015. The estimated Adjusted non-GAAP
effective tax rates were approximately 29.0% for Q4 2016 and 27.6%
for Q4 2015.
(3)
For Q4 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, additional
tax benefit from prior years and diluted effect of convertible debt,
in each case net of tax, totaling $0.61 per diluted share. For Q4
2015, 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 benefit from prior years and dilutive effect of convertible
debt, in each case net of tax, totaling $0.60 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.
(5)
The estimated GAAP effective tax rates were approximately 27.9% for
2016 and 14.8% for 2015. The estimated Adjusted non-GAAP effective
tax rates were approximately 28.8% for 2016 and 28.4% for 2015.
(6)
For 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, additional
tax benefit from prior years, sale of investments and diluted effect
of convertible debt, in each case net of tax, totaling $1.92 per
diluted share. For 2015, 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 benefit from prior years, certain tax
consulting fees and diluted effect of convertible debt, in each case
net of tax, totaling $1.46 per diluted share.

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, and Salesify 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 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 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.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED, IN THOUSANDS)
December 31,
December 31,
2016
2015
ASSETS
Cash and cash equivalents
$
123,950
$
255,530
Short-term investments
60
79,655
Accounts receivable, net of allowances of $7,988 and $4,261,
199,871
114,680
respectively
Prepaid expenses and other current assets
24,118
25,722
Deferred income taxes, current
--
7,218
Total current assets
347,999
482,805
Long-term investments
--
78,563
Property and equipment, net
68,094
57,442
Goodwill
1,122,810
807,661
Other purchased intangibles, net
511,691
352,641
Deferred income taxes, non-current
5,289
--
Other assets
6,445
4,607
TOTAL ASSETS
$ 2,062,328
$ 1,783,719
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable and accrued expenses
$
178,071
$
114,384
Income taxes payable
16,753
5,589
Deferred revenue, current
80,384
76,104
Line of credit
178,817
--
Capital lease, current
64
214
Deferred income taxes, current
--
363
Total current liabilities
454,089
196,654
Long-term debt
601,746
592,037
Deferred revenue, non-current
1,588
6,538
Capital lease, non-current
--
148
Liability for uncertain tax positions
46,537
35,917
Deferred income taxes, non-current
40,357
43,989
Other long-term liabilities
3,475
18,228
TOTAL LIABILITIES
1,147,792
893,511
Commitments and contingencies
Preferred stock
--
--
Common stock
474
479
Additional paid-in capital
308,329
292,064
Retained earnings
660,382
626,789
Accumulated other comprehensive loss
(54,649 )
(29,124 )
TOTAL STOCKHOLDERS’ EQUITY
914,536
890,208
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$ 2,062,328
$ 1,783,719
j2 GLOBAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED, IN THOUSANDS)
Three Months Ended
Twelve Months Ended
December 31,
December 31,
2016
2015
2016
2015
Total revenues
$ 251,837
$ 204,823
$ 874,255
$
720,815
Cost of revenues (1)
40,229
34,608
147,100
122,958
Gross profit
211,608
170,215
727,155
597,857
Operating expenses:
Sales and marketing (1)
63,717
42,189
206,871
159,009
Research, development and engineering (1)
10,881
8,625
38,046
34,329
General and administrative (1)
68,849
66,347
239,672
205,137
Total operating expenses
143,447
117,161
484,589
398,475
Income from operations
68,161
53,054
242,566
199,382
Interest expense, net
10,400
11,005
41,370
42,458
Other expense (income), net
(438 )
(384 )
(10,243 )
5
Income before income taxes
58,199
42,433
211,439
156,919
Income tax expense
15,041
6,966
59,000
23,283
Net income
$
43,158
$
35,467
$ 152,439
$
133,636
Basic net income per common share:
Net income attributable to j2 Global, Inc. common shareholders
$
0.90
$
0.73
$
3.15
$
2.76
Diluted net income per common share:
Net income attributable to j2 Global, Inc. common shareholders
$
0.89
$
0.72
$
3.13
$
2.73
Basic weighted average shares outstanding
47,348,372
47,849,748
47,668,357
47,627,853
Diluted weighted average shares outstanding
47,862,218
48,772,061
47,963,226
48,087,760
(1) Includes share-based compensation expense as follows:
Cost of revenues
$
123
$
100
$
436
$
373
Sales and marketing
393
624
1,782
2,435
Research, development and engineering
240
229
904
863
General and administrative
2,947
1,898
10,528
8,122
Total
$
3,703
$
2,851
$
13,650
$
11,793
j2 GLOBAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
Twelve Months Ended December 31,
2016
2015
Cash flows from operating activities:
Net income
$ 152,439
$ 133,636
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization
122,091
93,213
Accretion and amortization of discount and premium of investments
1,031
1,207
Amortization of financing costs and discounts
9,818
9,105
Share-based compensation
13,650
11,793
Excess tax benefits from share-based compensation
(2,271 )
(4,486 )
Provision for doubtful accounts
13,169
6,872
Deferred income taxes, net
(13,779 )
(17,083 )
Gain on sale of available-for-sale investments
(7,716 )
(549 )
Decrease (increase) in:
Accounts receivable
(30,687 )
(18,508 )
Prepaid expenses and other current assets
(957 )
1,461
Other assets
743
(602 )
Increase (decrease) in:
Accounts payable and accrued expenses
6,363
8,757
Income taxes payable
25,409
3,578
Deferred revenue
(4,213 )
(3,480 )
Liability for uncertain tax positions
10,620
(5,718 )
Other long-term liabilities
(13,323 )
9,865
Net cash provided by operating activities
282,387
229,061
Cash flows from investing activities:
Maturity of certificates of deposit
--
65
Purchase of certificates of deposit
--
(62 )
Maturity of available-for-sale investments
241,817
121,687
Purchase of available-for-sale investments
(80,918 )
(135,832 )
Purchases of property and equipment
(24,746 )
(17,297 )
Purchases of intangible assets
(4,321 )
(1,455 )
Acquisition of businesses, net of cash received
(580,691 )
(302,809 )
Net cash used in investing activities
(448,859 )
(335,703 )
Cash flows from financing activities:
Proceeds from line of credit, net
178,710
--
Repurchases of common and restricted stock
(56,495 )
(3,674 )
Issuance of stock, net of costs
3,824
5,218
Dividends paid
(65,835 )
(58,826 )
Excess tax benefits from share-based compensation
2,271
4,486
Deferred payments for acquisitions
(20,832 )
(14,271 )
Other
(492 )
(296 )
Net cash provided by (used in) financing activities
41,151
(67,363 )
Effect of exchange rate changes on cash and cash equivalents
(6,259 )
(4,128 )
Net change in cash and cash equivalents
(131,580 )
(178,133 )
Cash and cash equivalents at beginning of period
255,530
433,663
Cash and cash equivalents at end of period
$ 123,950
$ 255,530
j2 GLOBAL, INC.
RECONCILIATION OF GAAP TO ADJUSTED NON-GAAP FINANCIAL MEASURES
THREE AND TWELVE MONTHS ENDED DECEMBER 31, 2016 AND 2015
(UNAUDITED, IN THOUSANDS, EXCEPT SHARE AND 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 benefit from prior years; (6) sale of
investments; (7) IRS consulting fee; and (8) dilutive effect of the
convertible debt.
Three Months Ended December 31,
2016
Per Diluted Share *
2015
Per Diluted Share *
Net income
$
43,158
$
0.89
$
35,467
$
0.72
Plus:
1,366
0.03
1,842
0.04
Share based compensation (1)
8,788
0.18
9,578
0.20
Acquisition related integration costs (2)
(850 )
(0.02 )
1,399
0.03
Interest costs (3)
21,316
0.45
18,581
0.39
Amortization (4)
(1,574 )
(0.03 )
(3,770 )
(0.08 )
Tax benefit from prior years (5)
--
0.01
--
0.01
Convertible debt dilution (8)
Adjusted non-GAAP net income
$
72,204
$
1.49
$
63,097
$
1.29
Twelve Months Ended December 31,
2016
Per Diluted Share *
2015
Per Diluted Share *
Net income
$
152,439
$
3.13
$ 133,636
$
2.73
Plus:
8,598
0.18
8,413
0.18
Share based compensation (1)
12,564
0.26
16,568
0.35
Acquisition related integration costs (2)
3,467
0.07
5,511
0.12
Interest costs (3)
73,022
1.53
55,606
1.16
Amortization (4)
(1,520 )
(0.03 )
(16,558 )
(0.35 )
Tax benefit from prior years (5)
Sale of investments (6)
(4,675 )
(0.10 )
--
--
IRS consulting fee (7)
--
--
(157 )
--
Convertible debt dilution (8)
--
0.01
--
0.01
Adjusted non-GAAP net income
$
243,895
$
4.99
$ 203,019
$
4.17

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

j2 GLOBAL, INC.
RECONCILIATION OF GAAP TO ADJUSTED NON-GAAP FINANCIAL MEASURES
THREE MONTHS ENDED DECEMBER 31, 2016 AND 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; (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; and (5) elimination of additional tax or
indirect tax related (expense) benefit from prior years.
Three Months Ended December 31,
2016
2015
Cost of revenues
$
40,229
$
34,608
Plus:
(123 )
(100 )
Share based compensation (1)
Acquisition related integration costs (2)
--
(327 )
(1,490 )
(1,314 )
Amortization (4)
Adjusted non-GAAP cost of revenues
$
38,616
$
32,867
Sales and marketing
$
63,717
$
42,189
Plus:
(393 )
(624 )
Share based compensation (1)
(4,327 )
(395 )
Acquisition related integration costs (2)
Adjusted non-GAAP sales and marketing
$
58,997
$
41,170
Research, Development and Engineering
$
10,881
$
8,625
Plus:
(240 )
(229 )
Share based compensation (1)
(947 )
(1 )
Acquisition related integration costs (2)
Adjusted non-GAAP research, development and engineering
$
9,694
$
8,395
General and administrative
$
68,849
$
66,347
Plus:
(2,947 )
(1,898 )
Share based compensation (1)
(7,699 )
(13,940 )
Acquisition related integration costs (2)
(25,906 )
(23,322 )
Amortization (4)
Tax benefit from prior years (5)
1,900
--
Adjusted non-GAAP general and administrative
$
34,197
$
27,187
Interest expense, net
$
10,400
$
11,005
Plus:
(8 )
--
Acquisition related integration costs (2)
Interest costs (3)
(1,448 )
(2,567 )
Tax benefit from prior years (5)
171
--
Adjusted non-GAAP interest expense, net
$
9,115
$
8,438
Income Tax Provision
$
15,041
$
6,966
Plus:
2,337
1,009
Share based compensation (1)
4,193
5,085
Acquisition related integration costs (2)
Interest costs (3)
2,298
1,168
6,080
6,055
Amortization (4)
Tax (expense) benefit from prior years (5)
(497 )
3,770
Adjusted non-GAAP income tax provision
$
29,452
$
24,053
Total adjustments
$ (29,046 )
$ (27,630 )
GAAP earnings per diluted share
$
0.89
$
0.72
Adjustments *
$
0.61
$
0.60
Adjusted non-GAAP earnings per diluted share
$
1.49
$
1.29

* 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.
RECONCILIATION OF GAAP TO ADJUSTED NON-GAAP FINANCIAL MEASURES
TWELVE MONTHS ENDED DECEMBER 31, 2016 AND 2015
(UNAUDITED, IN THOUSANDS, EXCEPT SHARE AND 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; (6)
sale of investments; and (7) IRS consulting fee
Twelve Months Ended December 31,
2016
2015
Cost of revenues
$ 147,100
$ 122,958
Plus:
Share based compensation (1)
(436 )
(373 )
Acquisition related integration costs (2)
--
(327 )
Amortization (4)
(5,380 )
(3,376 )
Adjusted non-GAAP cost of revenues
$ 141,284
$ 118,882
Sales and marketing
$ 206,871
$ 159,009
Plus:
Share based compensation (1)
(1,782 )
(2,435 )
Acquisition related integration costs (2)
(5,859 )
(1,110 )
Adjusted non-GAAP sales and marketing
$ 199,230
$ 155,464
Research, development and engineering
$
38,046
$
34,329
Plus:
Share based compensation (1)
(904 )
(863 )
Acquisition related integration costs (2)
(997 )
(81 )
Adjusted non-GAAP research, development and engineering
$
36,145
$
33,385
General and administrative
$ 239,672
$ 205,137
Plus:
Share based compensation (1)
(10,528 )
(8,122 )
Acquisition related integration costs (2)
(11,926 )
(23,930 )
Amortization (4)
(95,561 )
(73,902 )
Tax benefit (expense) from prior years (5)
1,000
(3,651 )
IRS consulting fee (7)
--
204
Adjusted non-GAAP general and administrative
$ 122,657
$
95,736
Interest expense, net
$
41,370
$
42,458
Plus:
Acquisition related integration costs (2)
(8 )
--
Interest costs (3)
(7,186 )
(7,982 )
Tax benefit (expense) from prior years (5)
171
(472 )
Adjusted non-GAAP interest expense, net
$
34,347
$
34,004
Other expense (income), net
$ (10,243 )
$
5
Plus:
Tax benefit from prior years (5)
811
--
Sale of investments (6)
7,540
--
Adjusted non-GAAP other expense (income), net
$
(1,892 )
$
5
Income tax provision
$
59,000
$
23,283
Plus:
Share based compensation (1)
5,052
3,380
Acquisition related integration costs (2)
6,226
8,880
Interest costs (3)
3,719
2,471
Amortization (4)
27,919
21,672
Tax (expense) benefit from prior years (5)
(462 )
20,681
Sale of investments (6)
(2,865 )
--
IRS consulting fee (7)
--
(47 )
Adjusted non-GAAP income tax provision
$
98,589
$
80,320
Total adjustments
$ (91,456 )
$ (69,383 )
GAAP earnings per diluted share
$
3.13
$
2.73
Adjustments *
$
1.92
$
1.46
Adjusted non-GAAP earnings per diluted share
$
4.99
$
4.17

* 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, 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.

(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 Benefits 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) Gain on Sale of Investment. The Company excludes the gain on sale of its strategic equity investment in Carbonite, Inc. The Company believes that the Non-GAAP financial measures excluding this item provide meaningful supplemental information regarding operational performance. In addition, excluding this item from the Non-GAAP measures facilitates comparisons to historical operating results.

(7) IRS Consulting Fee. The Company excludes IRS consulting fees related to IRS audit appeals and settlements. 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) 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.
NET INCOME TO ADJUSTED EBITDA RECONCILIATION
THREE MONTHS AND TWELVE MONTHS ENDED DECEMBER 31, 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 December 31,
Twelve Months Ended December 31,
2016
2015
2016
2015
Net income
$
43,158
$
35,467
$ 152,439
$ 133,636
Plus:
Interest expense, net
10,400
11,005
41,370
42,458
Other expense (income), net
(438 )
(384 )
(10,243 )
5
Income tax expense
15,041
6,966
59,000
23,283
Depreciation and amortization
33,522
29,578
122,091
93,213
Reconciliation of GAAP to Adjusted non-GAAP financial measures:
Share-based compensation and the associated payroll tax expense
3,703
2,851
13,650
11,793
Acquisition-related integration costs
12,973
14,663
18,782
25,448
Indirect tax (benefit) expense from prior years
(1,900 )
--
(1,000 )
3,651
IRS consulting fee
--
--
--
(204 )
Adjusted EBITDA
$ 116,459
$ 100,146
$ 396,089
$ 333,283

Adjusted EBITDA as calculated above represents earnings before interest and other expense, net, income tax expense, depreciation and amortization and the items used to reconcile GAAP to Adjusted non-GAAP financial measures, including (1) share-based compensation, (2) certain acquisition-related integration costs, (3) additional indirect tax (benefit) expense from prior years, and (4) IRS consulting fee. 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)
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: Excess tax benefit share-based compensation
264
833
974
200
2,271
Free cash flows
$ 60,467
$ 63,496
$ 53,201
$ 82,748
$ 259,912
Q1
Q2
Q3
Q4
YTD
2015
Net cash provided by operating activities
$ 45,716
$ 51,894
$ 50,963
$ 80,488
$ 229,061
Less: Purchases of property and equipment
(2,401 )
(4,554 )
(4,972 )
(5,370 )
(17,297 )
Add: Excess tax benefit (expense) share-based compensation
334
1,770
2,437
(55 )
4,486
Add: IRS settlement*
--
5,753
1,164
--
6,917
Free cash flows
$ 43,649
$ 54,863
$ 49,592
$ 75,063
$ 223,167

* 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 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.
RECONCILIATION OF GAAP TO ADJUSTED NON-GAAP FINANCIAL MEASURES
THREE MONTHS ENDED DECEMBER 31, 2016
(UNAUDITED, IN THOUSANDS)
Cloud
Cloud
IP
Digital
Connect
Services
Licensing
Media
j2 Global, Inc.
Total
Revenues
GAAP revenues
$
92,982
$
48,857
$
1,158
$ 108,840
$ --
$ 251,837
Gross profit
GAAP gross profit
$
76,452
$
35,231
$
1,157
$
98,768
$ --
$ 211,608
Non-GAAP adjustments:
Share-based compensation
103
20
--
--
--
123
Acquisition Related Integration Costs
--
--
--
--
--
--
Amortization
89
1,401
--
--
--
1,490
Additional Tax Expense (Benefit) from Prior Years
--
--
--
--
--
--
Adjusted non-GAAP gross profit
$
76,644
$
36,652
$
1,157
$
98,768
$ --
$ 213,221
Operating profit
GAAP operating profit
$
45,507
$
11,034
$
(1,243 )
$
17,460
$
(4,597 )
$
68,161
Non-GAAP adjustments:
Share-based compensation
950
515
--
711
1,527
3,703
Acquisition related integration costs
50
--
--
12,923
--
12,973
Amortization
5,225
11,225
1,569
9,377
--
27,396
Additional Tax Expense (Benefit) from Prior Years
(1,900 )
--
--
--
--
(1,900 )
Sale of investments
--
--
--
--
--
--
Adjusted non-GAAP operating profit
$
49,832
$
22,774
$
326
$
40,471
$
(3,070 )
$ 110,333
Depreciation
1,224
1,320
--
3,582
--
6,126
Adjusted EBITDA
$
51,056
$
24,094
$
326
$
44,053
$
(3,070 )
$ 116,459
NOTE: Table above excludes certain intercompany allocations
j2 GLOBAL, INC.
RECONCILIATION OF GAAP TO ADJUSTED NON-GAAP FINANCIAL MEASURES
THREE MONTHS ENDED DECEMBER 31, 2015
(UNAUDITED, IN THOUSANDS)
Cloud
Cloud
IP
Digital
Connect
Services
Licensing
Media
j2 Global, Inc.
Total
Revenues
GAAP revenues
$
88,906
$
44,930
$
1,117
$
69,870
$ --
$
204,823
Gross profit
GAAP gross profit
$
74,676
$
31,008
$
1,117
$
63,414
$ --
$
170,215
Non-GAAP adjustments:
Share-based compensation
100
--
--
--
--
100
Acquisition Related Integration Costs
--
327
--
--
--
327
Amortization
122
1,192
--
--
--
1,314
Adjusted non-GAAP gross profit
$
74,898
$
32,527
$
1,117
$
63,414
$ --
$
171,956
Operating profit
GAAP operating profit
$
42,961
$
6,743
$
(970 )
$
8,981
$
(4,661 )
$
53,054
Non-GAAP adjustments:
Share-based compensation
1,219
--
--
447
1,185
2,851
Acquisition related integration costs
--
647
--
14,016
--
14,663
Amortization
5,205
11,673
1,625
6,133
--
24,636
Adjusted Non-GAAP operating profit
$
49,385
$
19,063
$
655
$
29,577
$
(3,476 )
$
95,204
Depreciation
1,396
974
--
2,572
--
4,942
Adjusted EBITDA
$
50,781
$
20,037
$
655
$
32,149
$
(3,476 )
$
100,146
NOTE: Table above excludes certain intercompany allocations
j2 GLOBAL, INC.
RECONCILIATION OF GAAP TO ADJUSTED NON-GAAP FINANCIAL MEASURES
TWELVE MONTHS ENDED DECEMBER 31, 2016
(UNAUDITED, IN THOUSANDS)
Cloud
Cloud
IP
Digital
Connect
Services
Licensing
Media
j2 Global, Inc.
Total
Revenues
GAAP Revenues
$ 368,682
$ 193,711
$
4,545
$ 307,317
$ --
$ 874,255
Gross Profit
GAAP Gross Profit
$ 305,061
$ 136,794
$
4,537
$ 280,763
$ --
$ 727,155
Non-GAAP Adjustments:
Share-based Compensation
397
39
--
--
--
436
Amortization
464
4,916
--
--
--
5,380
Adjusted Non-GAAP Gross Profit
$ 305,922
$ 141,749
$
4,537
$ 280,763
$ --
$ 732,971
Operating Profit
GAAP Operating Profit
$ 172,116
$
43,132
$
(4,207 )
$
50,539
$
(19,014 )
$ 242,566
Non-GAAP Adjustments:
Share-based Compensation
4,632
1,010
--
2,392
5,616
13,650
Acquisition Related Integration Costs
203
--
--
18,579
--
18,782
Amortization
20,334
43,443
6,118
31,046
--
100,941
Additional Tax Expense (Benefit) from Prior Years
(1,150 )
--
--
150
--
(1,000 )
Adjusted Non-GAAP Operating Profit
$ 196,135
$
87,585
$
1,911
$ 102,706
$
(13,398 )
$ 374,939
Depreciation
5,209
4,429
--
11,512
--
21,150
Adjusted EBITDA
$ 201,344
$
92,014
$
1,911
$ 114,218
$
(13,398 )
$ 396,089
NOTE: Table above excludes certain intercompany allocations
j2 GLOBAL, INC.
RECONCILIATION OF GAAP TO ADJUSTED NON-GAAP FINANCIAL MEASURES
TWELVE MONTHS ENDED DECEMBER 31, 2015
(UNAUDITED, IN THOUSANDS)
Cloud
Cloud
IP
Digital
Connect
Services
Licensing
Media
j2 Global, Inc.
Total
Revenues
GAAP Revenues
$ 353,893
$ 144,980
$
5,765
$ 216,177
$ --
$ 720,815
Gross Profit
GAAP Gross Profit
$ 296,508
$ 101,156
$
5,765
$ 194,428
$ --
$ 597,857
Non-GAAP Adjustments:
Share-based Compensation
373
--
--
--
--
373
Acquisition Related Integration Costs
--
327
--
--
--
327
Amortization
489
2,887
--
--
--
3,376
Adjusted Non-GAAP Gross Profit
$ 297,370
$ 104,370
$
5,765
$ 194,428
$ --
$ 601,933
Operating Profit
GAAP Operating Profit
$ 168,855
$
23,377
$
(3,520 )
$
30,240
$
(19,570 )
$ 199,382
Non-GAAP Adjustments:
Share-based Compensation
4,519
--
--
1,803
5,471
11,793
Acquisition Related Integration Costs
332
1,326
--
22,975
815
25,448
Amortization
17,972
29,179
7,261
22,865
--
77,277
Additional Tax Expense (Benefit) from Prior Years
3,651
--
--
--
--
3,651
IRS consulting fee
(204 )
--
--
--
--
(204 )
Adjusted Non-GAAP Operating Profit
$ 195,125
$
53,882
$
3,741
$
77,883
$
(13,284 )
$ 317,347
Depreciation
5,515
3,277
--
7,144
--
15,936
Adjusted EBITDA
$ 200,640
$
57,159
$
3,741
$
85,027
$
(13,284 )
$ 333,283
NOTE: Table above excludes certain intercompany allocations

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