J2 Global Reports Record First Quarter 2021 Results & Raises Full Year 2021 Guidance

·17 min read

J2 Global, Inc. (NASDAQ: JCOM) today reported financial results for the first quarter ended March 31, 2021.

"J2 continues to produce outstanding results across the board," said Vivek Shah, CEO of J2 Global. "Our strong momentum adds to the considerable excitement within our organization as we prepare to separate into two independent publicly traded companies."

FIRST QUARTER 2021 RESULTS

Q1 2021 quarterly revenues increased 19.8% to a Q1 record of $398.2 million compared to $332.4 million for Q1 2020. On a pro-forma(6) basis, Q1 2021 quarterly revenues increased 23.2% to $385.6 million compared to $313.0 million for Q1 2020.

Net cash provided by operating activities increased to $178.7 million compared to $102.0 million for Q1 2020. Q1 2021 free cash flow(2) increased 60.1% to $152.5 million compared to $95.2 million for Q1 2020.

GAAP earnings per diluted share(3) increased to $1.67 in Q1 2021 compared to $(0.13) for Q1 2020.

Adjusted non-GAAP earnings per diluted share(3)(4) for the quarter increased 55.8% to $2.18 as compared to $1.40 for Q1 2020. On a pro-forma(6) basis, Adjusted non-GAAP earnings per diluted share(3)(4) for the quarter increased 60.0% to $2.11 as compared to $1.32 for Q1 2020.

GAAP net income increased to $77.9 million as compared to $(6.4) million for Q1 2020.

Adjusted non-GAAP net income increased by 43.9% to $97.2 million as compared to $67.5 million for Q1 2020. On a pro-forma(6) basis, Adjusted non-GAAP net income increased by 48.3% to $94.0 million as compared to $63.4 million for Q1 2020.

Adjusted EBITDA(5) for the quarter increased 33.8% to $156.3 million compared to $116.8 million for Q1 2020. On a pro-forma(6) basis, Adjusted EBITDA(5) for the quarter increased 37.5% to $151.5 million compared to $110.2 million for Q1 2020.

J2 ended the quarter with approximately $511 million in cash, cash equivalents, and investments after deploying approximately $8 million during the quarter for prior year acquisitions.

Key financial results for Q1 2021 versus Q1 2020 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. The Pro-Forma Results below exclude Voice assets in Australia, New Zealand, and the United Kingdom that have been sold as well as the Company’s B2B Backup business which it expects to sell.

Pro-Forma Results(6)

Q1 2021

Q1 2020

% Change

Q1 2021

Q1 2020

% Change

Revenues

Cloud Services

$171.4

$169.8

0.9%

$158.8

$150.4

5.6%

Digital Media

$226.8

$162.6

39.5%

$226.8

$162.6

39.5%

Total Revenue: (1)

$398.2

$332.4

19.8%

$385.6

$313.0

23.2%

Operating Income

$78.5

$55.2

42.1%

Net Cash Provided by Operating Activities

$178.7

$102.0

75.2%

Free Cash Flow (2)

$152.5

$95.2

60.1%

GAAP Earnings per Diluted Share (3)

$1.67

$(0.13)

NM

Adjusted Non-GAAP Earnings per Diluted Share (3) (4)

$2.18

$1.40

55.8%

$2.11

$1.32

60.0%

GAAP Net Income (Loss)

$77.9

$(6.4)

NM

Adjusted Non-GAAP Net Income

$97.2

$67.5

43.9%

$94.0

$63.4

48.3%

Adjusted EBITDA (5)

$156.3

$116.8

33.8%

$151.5

$110.2

37.5%

Adjusted EBITDA Margin (5)

39.3%

35.1%

11.7%

39.3%

35.2%

11.6%

BUSINESS OUTLOOK

Based on better-than-expected operating performance, the Company is raising its revenue, Adjusted EBITDA, and Adjusted non-GAAP EPS estimates:

Original 2021 Range of Estimates (A)

Revised 2021 Range of Estimates (A)

Low

High

Low

High

Revenue

$

1,630

$

1,676

$

1,676

$

1,700

Adjusted EBITDA

$

646

$

666

$

666

$

680

Adjusted non-GAAP EPS (B)

$

8.93

$

9.27

$

9.27

$

9.51

(A)

Balances are in millions, except per share amounts, and exclude the B2B Backup business and Voice assets in the United Kingdom

(B)

Assumed share cost does not factor in any share repurchases or issuances (e.g. convert settlement)

Adjusted non-GAAP earnings per diluted share for 2021 excludes share-based compensation of between $20 million and $24 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 2021 (exclusive of the release of reserves for uncertain tax positions) will be between 22% and 24%.

The Company has not reconciled the non-GAAP Business Outlook 2021 Adjusted EBITDA, Adjusted non-GAAP earnings per diluted share, and tax rate information included in this release to the most directly comparable GAAP measure because this cannot be done without unreasonable effort due to the variability with respect to forecasted revenues and costs primarily related to acquisitions and taxation, which are potential adjustments to future earnings, and the uncertainty as to when or if the B2B Backup Business will be sold. We expect the variability of forecasted revenues and costs to have a potentially unpredictable and significant impact on our future GAAP financial results.

Notes:

(1)

The revenues associated with each of the businesses may not foot precisely since each is presented independently.

(2)

Free cash flow is defined as net cash provided by operating activities, less purchases of property and equipment, plus contingent consideration. Free cash flow amounts are not meant as a substitute for GAAP, but are solely for informational purposes.

(3)

The estimated GAAP effective tax rates were approximately 9.6% for Q1 2021 and 132.5% for Q1 2020. The estimated Adjusted non-GAAP effective tax rates were approximately 22.5% for Q1 2021 and 22.0% for Q1 2020.

(4)

Adjusted non-GAAP earnings per diluted share excludes certain non-GAAP items, as defined in the Reconciliation of GAAP to Adjusted non-GAAP Financial Measures, for the three months ended March 31, 2021 and 2020 totaled $0.51 and $1.53 per diluted share, respectively.

(5)

Adjusted EBITDA is defined as earnings before interest; gain on sale of businesses; loss on investments, net; other (income) expense, net; income tax expense; (income) loss from equity method investment, net; depreciation and amortization; and the items used to reconcile EPS to Adjusted non-GAAP EPS, as defined in the Reconciliation of GAAP to Adjusted non-GAAP Financial Measures. Adjusted EBITDA amounts are not meant as a substitute for GAAP, but are solely for informational purposes.

(6)

Pro-forma figures are provided taking into consideration the sale of certain Voice assets in Australia, New Zealand, and the United Kingdom as well as the expected sale of the Company’s B2B Backup business as if they had occurred January 1, 2020.

About J2 Global

J2 Global, Inc. (NASDAQ: JCOM) is a leading internet information and services company consisting of a portfolio of brands including IGN, Mashable, Humble Bundle, Speedtest, PCMag, RetailMeNot, Offers.com, Spiceworks, Ekahau, Everyday Health, BabyCenter and What To Expect in its Digital Media business and eFax, eVoice, iContact, Campaigner, Vipre, IPVanish and KeepItSafe in its Cloud Services business. J2 reaches in excess of 240 million people per month across its brands. As of December 31, 2020, J2 had achieved 25 consecutive fiscal years of revenue growth. For more information about J2, please visit www.J2global.com.

"Safe Harbor" Statement Under the Private Securities Litigation Reform Act of 1995: Certain statements in this Press Release are "forward-looking statements" within the meaning of The Private Securities Litigation Reform Act of 1995, including those contained in Vivek Shah’s quote and the "Business Outlook" portion regarding the Company’s expected fiscal 2021 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 2020 Annual Report on Form 10-K filed by J2 Global on March 1, 2021, and the other reports filed by J2 Global from time-to-time with the SEC, each of which is available at www.sec.gov. The forward-looking statements provided in this press release, including those contained in Vivek Shah’s quote and in the "Business Outlook" portion regarding the Company’s expected fiscal 2021 financial performance are based on limited information available to the Company at this time, which is subject to change. Although management’s expectations may change after the date of this press release, the Company undertakes no obligation to revise or update these statements.

About Non-GAAP Financial Measures

To supplement our consolidated financial statements, which are prepared and presented in accordance with GAAP, we use the following Adjusted non-GAAP financial measures: Adjusted non-GAAP net income, Adjusted non-GAAP earnings per diluted share, Adjusted EBITDA and free cash flow. The presentation of this financial information is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP.

We use these Adjusted non-GAAP financial measures for financial and operational decision-making and as a means to evaluate period-to-period comparisons. Our management believes that these Adjusted non-GAAP financial measures provide meaningful supplemental information regarding our performance and liquidity by excluding certain expenses and expenditures that may not be indicative of our recurring core business operating results. We believe that both management and investors benefit from referring to these Adjusted non-GAAP financial measures in assessing our performance and when planning, forecasting, and analyzing future periods. These Adjusted non-GAAP financial measures also facilitate management’s internal comparisons to our historical performance and liquidity. We believe these Adjusted non-GAAP financial measures are useful to investors both because (1) they allow for greater transparency with respect to key metrics used by management in its financial and operational decision-making and (2) they are used by our institutional investors and the analyst community to help them analyze the health of our business.

For more information on these Adjusted non-GAAP financial measures, please see the appropriate GAAP to Adjusted non-GAAP reconciliation tables included within the attached Exhibit to this release.

J2 GLOBAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED, IN THOUSANDS)

March 31, 2021

December 31,
2020

ASSETS

Cash and cash equivalents

$

371,971

$

242,652

Short-term investments

663

663

Accounts receivable, net of allowances of $17,971 and $16,018, respectively

242,420

325,619

Prepaid expenses and other current assets

52,386

53,909

Current assets held for sale

8,063

Total current assets

675,503

622,843

Long-term investments

138,703

97,495

Property and equipment, net

155,799

156,577

Operating lease right-of-use assets

85,342

105,845

Goodwill

1,777,745

1,867,430

Other purchased intangibles, net

676,699

741,569

Deferred income taxes, noncurrent

49,282

56,545

Other assets

16,993

17,027

Noncurrent assets held for sale

127,591

TOTAL ASSETS

$

3,703,657

$

3,665,331

LIABILITIES AND STOCKHOLDERS’ EQUITY

Accounts payable and accrued expenses

$

201,141

$

230,651

Income taxes payable, current

32,693

31,753

Deferred revenue, current

193,934

190,644

Operating lease liabilities, current

30,330

32,211

Current portion of long-term debt

399,893

396,801

Other current liabilities

41

497

Current liabilities held for sale

9,502

Total current liabilities

867,534

882,557

Long-term debt

1,186,438

1,182,220

Deferred revenue, noncurrent

15,134

14,440

Operating lease liabilities, noncurrent

80,465

99,177

Income taxes payable, noncurrent

11,675

11,675

Liability for uncertain tax positions

58,386

57,081

Deferred income taxes, noncurrent

163,348

162,700

Other long-term liabilities

32,953

44,463

Noncurrent liabilities held for sale

12,813

TOTAL LIABILITIES

2,428,746

2,454,313

Commitments and contingencies

Preferred stock

Common stock

445

443

Additional paid-in capital

455,625

456,274

Retained earnings

882,071

809,107

Accumulated other comprehensive loss

(63,230

)

(54,806

)

TOTAL STOCKHOLDERS’ EQUITY

1,274,911

1,211,018

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

$

3,703,657

$

3,665,331

J2 GLOBAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED, IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)

Three Months Ended
March 31,

2021

2020

Total revenues

$

398,185

$

332,393

Cost of revenues (1)

57,822

59,131

Gross profit

340,363

273,262

Operating expenses:

Sales and marketing (1)

121,186

99,438

Research, development and engineering (1)

21,351

15,406

General and administrative (1)

119,346

103,171

Total operating expenses

261,883

218,015

Income from operations

78,480

55,247

Interest expense, net

21,704

20,971

Gain on sale of businesses

(1,979

)

Loss on investments, net

20,832

Other (income) expense, net

(622

)

6,876

Income before income taxes and (income) loss from equity method investment, net

59,377

6,568

Income tax expense

5,725

8,703

(Income) loss from equity method investment, net

(24,270

)

4,269

Net income (loss)

$

77,922

$

(6,404

)

Basic net income (loss) per common share:

Net income (loss) attributable to J2 Global, Inc. common shareholders

$

1.75

$

(0.13

)

Diluted net income (loss) per common share:

Net income (loss) attributable to J2 Global, Inc. common shareholders

$

1.67

$

(0.13

)

Basic weighted average shares outstanding

44,399,149

47,620,774

Diluted weighted average shares outstanding

46,731,872

47,620,774

(1) Includes share-based compensation expense as follows:

Cost of revenues

$

132

$

134

Sales and marketing

362

398

Research, development and engineering

520

431

General and administrative

5,099

5,350

Total

$

6,113

$

6,313

J2 GLOBAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED, IN THOUSANDS)

Three Months Ended
March 31,

Cash flows from operating activities:

2021

2020

Net income (loss)

$

77,922

$

(6,404

)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation and amortization

65,492

53,980

Amortization of financing costs and discounts

7,296

6,997

Non-cash operating lease costs

3,320

4,834

Share-based compensation

6,113

6,313

Provision for doubtful accounts

2,485

2,826

Deferred income taxes, net

(5,380

)

(1,106

)

Gain on sale of businesses

(1,979

)

Lease asset impairments

1,086

Changes in fair value of contingent consideration

510

(240

)

Foreign currency remeasurement gain

655

7,801

(Income) loss from equity method investments

(24,270

)

4,269

Loss on equity and debt investments

20,826

Decrease (increase) in:

Accounts receivable

68,564

52,949

Prepaid expenses and other current assets

(2,481

)

(8,169

)

Other assets

1,193

2,612

Increase (decrease) in:

Accounts payable and accrued expenses

(22,078

)

(43,374

)

Income taxes payable

2,471

1,616

Deferred revenue

7,867

(686

)

Operating lease liabilities

(5,951

)

(5,062

)

Liability for uncertain tax positions

1,304

1,654

Other long-term liabilities

(5,415

)

400

Net cash provided by operating activities

178,724

102,036

Cash flows from investing activities:

Purchases of equity method investment

(8,064

)

(22,840

)

Purchases of equity investments

(999

)

(843

)

Purchases of property and equipment

(26,269

)

(26,885

)

Acquisition of businesses, net of cash received

385

(18,701

)

Proceeds from sale of businesses, net of cash divested

5,999

Proceeds from sale of assets

226

Purchases of intangible assets

(8

)

(19

)

Net cash used in investing activities

(28,956

)

(69,062

)

Cash flows from financing activities:

Repurchase of common stock

(12,179

)

(62,966

)

Exercise of stock options

444

952

Deferred payments for acquisitions

(7,853

)

(15,503

)

Other

(551

)

(839

)

Net cash used in financing activities

(20,139

)

(78,356

)

Effect of exchange rate changes on cash and cash equivalents

(310

)

(3,679

)

Net change in cash and cash equivalents

129,319

(49,061

)

Cash and cash equivalents at beginning of period

242,652

575,615

Cash and cash equivalents at end of period

$

371,971

$

526,554

J2 GLOBAL, INC. AND SUBSIDIARIES

RECONCILIATION OF GAAP TO ADJUSTED NON-GAAP FINANCIAL MEASURES

THREE MONTHS ENDED MARCH 31, 2021 AND 2020

(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Non-GAAP net income is GAAP net income (loss) with the following modifications: (1) elimination of share-based compensation; (2) elimination of certain acquisition related integration costs; (3) elimination of interest costs in excess of the coupon rate associated with outstanding debt; (4) elimination of amortization of patents and intangible assets that we acquired; (5) elimination of change in value on investment; (6) elimination of additional tax expense/benefit from prior years; (7) elimination of gain on sale of assets; (8) elimination of intra-entity transfers; (9) elimination of lease asset impairments and other charges; and (10) elimination of dilutive effect of the convertible debt.

Three Months Ended March 31,

2021

Per Diluted
Share *

2020

Per Diluted
Share *

Net income (loss)

$

77,922

$

1.67

$

(6,404

)

$

(0.13

)

Plus:

Share based compensation (1)

4,049

0.09

4,808

0.10

Acquisition related integration costs (2)

2,670

0.06

1,095

0.02

Interest costs (3)

4,845

0.11

4,315

0.09

Amortization (4)

33,343

0.75

31,858

0.67

Investments (5)

(25,444

)

(0.57

)

25,094

0.53

Tax expense from prior years (6)

388

0.01

Sale of assets (7)

(1,875

)

(0.04

)

(197

)

Intra-entity transfers (8)

6,563

0.14

Lease asset impairments and other charges (9)

1,648

0.04

Convertible debt dilution (10)

0.08

Adjusted non-GAAP net income

$

97,158

$

2.18

$

67,520

$

1.40

* 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 MARCH 31, 2021 AND 2020

(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Non-GAAP net income is GAAP net income (loss) with the following modifications: (1) elimination of share-based compensation; (2) elimination of certain acquisition related integration costs; (3) elimination of interest costs in excess of the coupon rate associated with outstanding debt; (4) elimination of amortization of patents and intangible assets that we acquired; (5) elimination of change in value on investment; (6) elimination of additional tax expense/benefit from prior years; (7) elimination of gain on sale of assets; (8) elimination of intra-entity transfers; (9) elimination of lease asset impairments and other charges; and (10) elimination of dilutive effect of the convertible debt.

Three Months Ended March 31,

2021

2020

Cost of revenues

$

57,822

$

59,131

Plus:

Share based compensation (1)

(132

)

)

Acquisition related integration costs (2)

(40

)

(55

)

Amortization (4)

(596

)

(450

)

Adjusted non-GAAP cost of revenues

$

57,054

$

58,492

Sales and marketing

$

121,186

$

99,438

Plus:

Share based compensation (1)

(362

)

(398

)

Acquisition related integration costs (2)

(837

)

(514

)

Adjusted non-GAAP sales and marketing

$

119,987

$

98,526

Research, development and engineering

$

21,351

$

15,406

Plus:

Share based compensation (1)

(520

)

(431

)

Acquisition related integration costs (2)

(324

)

Adjusted non-GAAP research, development and engineering

$

20,507

$

14,975

General and administrative

$

119,346

$

103,171

Plus:

Share based compensation (1)

(5,099

)

(5,350

)

Acquisition related integration costs (2)

(2,830

)

(729

)

Amortization (4)

(48,417

)

(38,713

)

Lease asset impairments and other charges (9)

(2,179

)

Adjusted non-GAAP general and administrative

$

60,821

$

58,379

Interest expense, net

$

21,704

$

20,971

Plus:

Interest costs (3)

(6,417

)

(5,934

)

Adjusted non-GAAP interest expense, net

$

15,287

$

15,037

Gain on sale of businesses

$

(1,979

)

$

Plus:

Sale of assets (7)

1,979

Adjusted non-GAAP gain on sale of businesses

$

$

Loss on investments, net

$

$

20,832

Plus:

Investments (5)

(20,825

)

Adjusted non-GAAP loss on investments, net

$

$

7

Other (income) expense, net

$

(622

)

$

6,876

Plus:

Sale of assets (7)

(200

)

257

Intra-entity transfers (8)

(6,702

)

Adjusted non-GAAP other (income) expense, net

$

(822

)

$

431

Income tax provision

$

5,725

$

8,703

Plus:

Share based compensation (1)

2,064

1,505

Acquisition related integration costs (2)

1,361

203

Interest costs (3)

1,572

1,619

Amortization (4)

15,670

7,305

Investments (5)

1,174

Tax benefit from prior years (6)

(388

)

Sale of assets (7)

96

(60

)

Intra-entity transfers (8)

139

Lease asset impairments and other charges (9)

531

Adjusted non-GAAP income tax provision

$

28,193

$

19,026

(Income) loss from equity method investment, net

$

(24,270

)

$

4,269

Plus:

Investments (5)

24,270

(4,269

)

Adjusted non-GAAP (income) loss from equity method investment, net

$

$

Total adjustments

$

(19,236

)

$

(73,924

)

GAAP earnings per diluted share

$

1.67

$

(0.13

)

Adjustments *

$

0.51

$

1.53

Adjusted non-GAAP earnings per diluted share

$

2.18

$

1.40

* 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 adjustments to contingent consideration, severance, lease terminations, retention bonuses and other acquisition-specific items. The Company believes that the Non-GAAP financial measures excluding this item provide meaningful supplemental information regarding operational performance. In addition, excluding this item from the Non-GAAP measures facilitates comparisons to historical operating results and comparisons to peers, many of which similarly exclude this item.

(3) Interest Costs. In June 2014, the Company issued $402.5 million aggregate principal amount of 3.25% convertible senior notes and in November 2019, the Company issued $550.0 million aggregate principal amount of 1.75% convertible senior notes. In accordance with GAAP, the Company separately accounts for the value of the liability and equity features of its outstanding convertible senior notes in a manner that reflects the Company’s non-convertible debt borrowing rate. The value of the conversion feature, reflected as a debt discount, is amortized to interest expense over time. Accordingly, the Company recognizes imputed interest expense on its 3.25% and 1.75% convertible senior notes of approximately 5.8% and 5.5%, respectively, in its statement of operations. The Company excludes the difference between the imputed interest expense and the coupon interest expense of 3.25% and 1.75%, respectively, because it is non-cash in nature and because the Company believes that the Non-GAAP financial measures excluding this item provide meaningful supplemental information regarding core operational performance. In addition, the Company has excluded the difference between the imputed and coupon interest expense associated with the 4.625% Senior Notes. The Company has determined excluding these items from the Non-GAAP measures facilitates comparisons to historical operating results and comparisons to peers, many of which similarly exclude this item.

(4) Amortization. The Company excludes amortization of patents and acquired intangible assets because it is non-cash in nature and because the Company believes that the Non-GAAP financial measures excluding this item provide meaningful supplemental information regarding operational performance. In addition, excluding this item from the Non-GAAP measures facilitates comparisons to historical operating results and comparisons to peers, many of which similarly exclude this item.

(5) Change in Value on Investments. The Company excludes the change in value on its investments. The Company believes that the Non-GAAP financial measures excluding this item provide meaningful supplemental information regarding operational performance. In addition, excluding this item from the Non-GAAP measures facilitates comparisons to historical operating results.

(6) Tax Expense/Benefit from Prior Years. The Company excludes certain income tax-related items in respect of income tax audit settlements and their related reversals of income tax reserves accounted for through ASC 740-10. The Company believes that the Non-GAAP financial measures excluding these items provide meaningful supplemental information regarding operational performance. In addition, excluding these items from the Non-GAAP measures facilitates comparisons to historical operating results.

(7) Gain on Sale of Assets. The Company excludes the gain on sale of certain of its assets. The Company believes that the Non-GAAP financial measures excluding this item provide meaningful supplemental information regarding operational performance. In addition, excluding this item from the Non-GAAP measures facilitates comparisons to historical operating results.

(8) Intra-Entity Transfers. The Company excludes certain effects of intra-entity transfers to the extent the related tax asset or liability in the financial statement is not recovered or settled, respectively during the year. During December 2019, the Company entered into an intra-entity asset transfer that resulted in the recording of a tax benefit and related tax asset representing tax deductible amounts to be realized in future years which is expected to be recovered over a period of up to 20 years and related foreign currency fluctuations. The Company believes that the Non-GAAP financial measures excluding the cumulative future unrealized benefit of the assets transferred and including the tax benefit in the year of realization provides meaningful supplemental information regarding operational performance. In addition, excluding this item from the Non-GAAP measures facilitates comparisons to historical operating results.

(9) Lease Asset Impairments and Other Charges. The Company excludes lease asset impairments and other charges as they are 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.

(10) 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 Gain on Sale of Businesses, Adjusted non-GAAP Loss on Investments, Adjusted non-GAAP Other (Income) Expense, Adjusted non-GAAP Income Tax Provision, Adjusted non-GAAP (Income) Loss from Equity Method Investment, Net 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.

Pro-Forma Financial Results

Key pro-forma financial results for Q1 2021 versus Q1 2020 are set forth in the following table (in millions, except per share amounts). The financial results below reflect the Company’s results, on a pro-forma basis, taking into consideration the sale of certain Voice assets in Australia, New Zealand, and the United Kingdom as well as the expected sale of the Company’s B2B Backup business as if they had occurred January 1, 2020.

Q1 2021

Q1 2020

% Change

Total Revenues

$398.2 million

$332.4 million

19.8%

Pro-Forma Revenue Adjustments

$(12.6) million

$(19.4) million

(35.1)%

Pro-Forma Total Revenue: (1)

$385.6 million

$313.0 million

23.2%

Adjusted Non-GAAP Earnings per Diluted Share (1)

$2.18

$1.40

55.8%

Pro-Forma Earnings per Diluted Share Adjustments

$(0.07)

$(0.08)

(12.5)%

Adjusted Pro Forma Earnings per Diluted Share (1)

$2.11

$1.32

60.0%

GAAP Net Income (Loss)

$77.9 million

$(6.4) million

(1,316.8)%

Pro-Forma Net Income Adjustments

$16.1 million

$69.8 million

(76.9)%

Adjusted Pro-Forma Net Income

$94.0 million

$63.4 million

48.3%

Adjusted EBITDA (1)

$156.3 million

$116.8 million

33.8%

Pro-Forma EBITDA Adjustments

$(4.8) million

$(6.6) million

(27.3)%

Adjusted Pro-Forma EBITDA (1)

$151.5 million

$110.2 million

37.5%

Adjusted EBITDA Margin (1)

39.3%

35.1%

11.7%

Pro-Forma EBITDA Margin Adjustments

0.0%

0.1%

(45.8)%

Adjusted Pro-Forma EBITDA Margin (1)

39.3%

35.2%

11.6%

(1) Refer to the notes on page 2 of this Release

J2 GLOBAL, INC. AND SUBSIDIARIES

NET INCOME TO ADJUSTED EBITDA RECONCILIATION

THREE MONTHS ENDED MARCH 31, 2021 AND 2020

(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 March 31,

2021

2020

Net income (loss)

$

77,922

$

(6,404

)

Plus:

Interest expense, net

21,704

20,971

Gain on sale of businesses

(1,979

)

Loss on investments, net

20,832

Other (income) expense, net

(622

)

6,876

Income tax expense

5,725

8,703

(Income) loss from equity method investment, net

(24,270

)

4,269

Depreciation and amortization

65,492

53,980

Reconciliation of GAAP to Adjusted non-GAAP financial measures:

Share-based compensation

6,113

6,313

Acquisition-related integration costs

4,031

1,298

Lease asset impairments and other charges

2,179

Adjusted EBITDA

$

156,295

$

116,838

Adjusted EBITDA as calculated above represents earnings before interest, gain on sale of businesses, loss on investments, net, other (income) expense, net, income tax expense, (income) loss from equity method investments, net, 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) lease asset impairments and other charges. 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

2021

Net cash provided by operating activities

$

178,724

$

$

$

$

178,724

Less: Purchases of property and equipment

(26,269

)

(26,269

)

Free cash flows

$

152,455

$

$

$

$

152,455

Q1

Q2

Q3

Q4

YTD

2020

Net cash provided by operating activities

$

102,036

$

139,591

$

114,382

$

124,070

$

480,079

Less: Purchases of property and equipment

(26,885

)

(23,652

)

(20,729

)

(21,286

)

(92,552

)

Add: Contingent consideration*

20,054

49

99

20,202

Free cash flows

$

95,205

$

115,939

$

93,702

$

102,883

$

407,729

* Free Cash Flows of $95.2 million for Q1 2020, $93.7 million for Q3 2020 and $102.9 million for Q4 is before the effect of payments associated with certain contingent consideration associated with recent acquisitions.

The Company discloses free cash flows as supplemental Non-GAAP financial performance measure, as it believes it is a useful metric by which to compare the performance of its business from period to period. The Company also understands that this Non-GAAP measure is broadly used by analysts, rating agencies and investors in assessing the Company’s performance. Accordingly, the Company believes that the presentation of this Non-GAAP financial measure provides useful information to investors.

Free cash flows is not in accordance with, or an alternative to, Cash Flows from Operating Activities, and may be different from Non-GAAP measures with similar or even identical names used by other companies. In addition, the Non-GAAP measure is not based on any comprehensive set of accounting rules or principles. This Non-GAAP measure has limitations in that it does not reflect all of the amounts associated with the Company’s results of operations determined in accordance with GAAP.

J2 GLOBAL, INC. AND SUBSIDIARIES

RECONCILIATION OF GAAP TO ADJUSTED NON-GAAP FINANCIAL MEASURES

THREE MONTHS ENDED MARCH 31, 2021

(UNAUDITED, IN THOUSANDS)

Cloud

Digital

Services

Media

Corporate

Total

Revenues

GAAP revenues

$

171,379

$

226,806

$

$

398,185

Gross profit

GAAP gross profit

$

134,415

$

206,013

$

(65

)

$

340,363

Non-GAAP adjustments:

Share-based compensation

129

3

132

Acquisition related integration costs

40

40

Amortization

596

596

Adjusted non-GAAP gross profit

$

135,180

$

206,016

$

(65

)

$

341,131

Operating profit

GAAP operating profit

$

63,517

$

30,600

$

(15,637

)

$

78,480

Non-GAAP adjustments:

Share-based compensation

1,491

1,647

2,975

6,113

Acquisition related integration costs

859

2,053

1,119

4,031

Amortization

11,859

37,059

95

49,013

Lease asset impairments and other charges

463

1,716

2,179

Adjusted non-GAAP operating profit

$

78,189

$

73,075

$

(11,448

)

$

139,816

Depreciation

5,188

11,291

16,479

Adjusted EBITDA

$

83,377

$

84,366

$

(11,448

)

$

156,295

NOTE 1: Table above excludes certain intercompany allocations

J2 GLOBAL, INC. AND SUBSIDIARIES

RECONCILIATION OF GAAP TO ADJUSTED NON-GAAP FINANCIAL MEASURES

THREE MONTHS ENDED MARCH 30, 2020

(UNAUDITED, IN THOUSANDS)

Cloud

Digital

Services

Media

Corporate

Total

Revenues

GAAP revenues

$

169,784

$

162,608

$

1

$

332,393

Gross profit

GAAP gross profit

$

131,424

$

141,837

$

1

$

273,262

Non-GAAP adjustments:

Share-based compensation

132

2

134

Acquisition related integration costs

55

55

Amortization

450

450

Adjusted non-GAAP gross profit

$

132,061

$

141,839

$

1

$

273,901

Operating profit

GAAP operating profit

$

59,022

$

8,370

$

(12,145

)

$

55,247

Non-GAAP adjustments:

Share-based compensation

1,590

1,303

3,420

6,313

Acquisition related integration costs

110

1,188

1,298

Amortization

16,197

22,380

586

39,163

Adjusted non-GAAP operating profit

$

76,919

$

33,241

$

(8,139

)

$

102,021

Depreciation

4,642

10,175

14,817

Adjusted EBITDA

$

81,561

$

43,416

$

(8,139

)

$

116,838

NOTE 1: Table above excludes certain intercompany allocations

NOTE 2: Table above has been recast to remove the impact of certain expenses associated with the Corporate entity that were previously allocated to the Cloud Services and Digital Media businesses.

View source version on businesswire.com: https://www.businesswire.com/news/home/20210510005844/en/

Contacts

Rebecca Wright
J2 Global, Inc.
800-577-1790
press@J2.com

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