ZD 8-K
Ziff Davis, Inc. (ZD)
8-K
2021-02-12
For: 2021-02-11
View Original
Added on
April 09, 2026
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934
Date of Report (date of earliest event reported) February 11, 2021
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) | (Commission File Number) | (I.R.S. Employer Identification No.) | |||||||||||||||
(Address of principal executive offices)
(323 ) 860-9200
Registrant's telephone number, including area code
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Item 2.02. Results of Operations and Financial Condition
On February 11, 2021, J2 Global, Inc. (the “Company”) issued a press release (the “Press Release”) announcing its financial results for the fourth quarter and year ended December 31, 2020, and financial guidance for fiscal year 2021.
A copy of the Press Release is furnished as Exhibit 99.1 to this Form 8-K.
Item 7.01. Regulation FD Disclosure.
On February 12, 2021, at 8:30 a.m. Eastern Time, the Company will host its fourth quarter and year-end 2020 earnings conference call and Webcast. Via the Webcast, the Company will present portions of its February 2021 Investor Presentation, which contains a summary of the Company’s financial results for the fiscal quarter and fiscal year ended December 31, 2020, financial estimates for fiscal year 2021, and certain other financial and operating information regarding the Company. A copy of this presentation is furnished as Exhibit 99.2 to this Form 8-K.
NOTE: The information in this Item 7.01 is being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933, as amended (the “Securities Act”) or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.
Item 8.01. Other Events.
On February 11, 2021, the Company announced that the independent directors of the Board appointed Sarah Fay as Lead Independent Director, effective February 9, 2021, succeeding Robert J. (Bob) Cresci in that role. Ms. Fay was selected unanimously by the independent directors of the Board, in recognition of her in-depth knowledge of J2, leadership experience and demonstrated independent judgment, integrity and commitment.
Item 9.01. Financial Statements and Exhibits
(d) Exhibits
Exhibit Number | Description | |||||||
99.1 | ||||||||
| 99.2 | ||||||||
104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) | |||||||
This Current Report on Form 8-K contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Such forward-looking statements are subject to numerous assumptions, risks and uncertainties that could cause actual results to differ materially from those described in such statements. Such forward-looking statements are based on management’s expectations or beliefs as of February 11, 2021. Factors that might cause such differences include, but are not limited to, a variety of economic, competitive, and regulatory factors, many of which are beyond the Company’s control and are described in the Company’s Annual Report on Form 10-K filed by the Company on March 2, 2020 with the Securities and Exchange Commission (the “SEC”) and the other reports the Company files from time to time with the SEC. The Company undertakes no obligation to revise or publicly release any updates to such statements based on future information or actual results.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
J2 Global, Inc. (Registrant) | |||||||||||
| Date: | February 11, 2021 | By: | /s/ Jeremy Rossen | ||||||||
| Jeremy Rossen Executive Vice President, General Counsel | |||||||||||
J2 Global Reports Fourth Quarter and Year End 2020 Results and Provides 2021 Outlook
Achieves Record Fourth Quarter and Full Year Revenues
LOS ANGELES -- J2 Global, Inc. (NASDAQ: JCOM) today reported financial results for the fourth quarter and year ended December 31, 2020, and provided fiscal 2021 financial estimates.
“Our organization produced extraordinary results at a time of unprecedented difficulty,” said Vivek Shah, CEO of J2 Global. “I’m exceedingly proud of my colleagues and excited for our continued growth.”
FOURTH QUARTER 2020 HIGHLIGHTS
Q4 2020 quarterly revenues increased 15.7% to a Q4 record of $469.2 million compared to $405.6 million for Q4 2019.
Q4 2020 quarterly operating income increased 17.0% to $128.9 million compared to $110.2 million for Q4 2019.
Net cash provided by operating activities increased 20.3% to $124.1 million compared to $103.2 million for Q4 2019. Q4 2020 free cash flow(2) increased 25.3% to $102.9 million compared to $82.1 million for Q4 2019.
GAAP earnings per diluted share(3) decreased 48.2% to $1.27 in Q4 2020 compared to $2.45 for Q4 2019 and GAAP net income decreased 52.8% to $58.1 million in Q4 2020 compared to $123.0 million for Q4 2019 primarily due to the recognition of a $53.7 million tax benefit in the fourth quarter of 2019 as the result of an intra-entity transfer as part of the reorganization of its international operating structure; no similar benefit was recognized in the fourth quarter of 2020.
Adjusted non-GAAP earnings per diluted share(3)(4) for the quarter increased 30.7% to $3.11 compared to $2.38 for Q4 2019.
Quarterly Adjusted EBITDA(5) increased 20.1% to $211.8 million in the quarter compared to $176.3 million for Q4 2019.
J2 ended the quarter with approximately $340.8 million in cash, cash equivalents, and investments which included $742.7 million of net proceeds from the issuance of its 4.625% Senior Notes (and the related redemption of $694.6 million of the previously outstanding 6.0% Senior Notes of its subsidiary, J2 Cloud Services, LLC), the use of approximately $455 million during the quarter for current period acquisitions and approximately $9 million in connection with payment for prior year acquisitions. In addition, J2 deployed approximately $36 million with respect to its share repurchase program during the quarter.
Key financial results for Q4 2020 versus Q4 2019 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 2020 | Q4 2019 | % Change | |||||||||
| Revenues | |||||||||||
| Cloud Services | $171.4 million | $169.3 million | 1.2% | ||||||||
| Digital Media | $297.9 million | $236.3 million | 26.1% | ||||||||
Total Revenue: (1) | $469.2 million | $405.6 million | 15.7% | ||||||||
| Operating Income | $128.9 million | $110.2 million | 17.0% | ||||||||
| Net Cash Provided by Operating Activities | $124.1 million | $103.2 million | 20.3% | ||||||||
Free Cash Flow (2) | $102.9 million | $82.1 million | 25.3% | ||||||||
GAAP Earnings per Diluted Share (3) | $1.27 | $2.45 | (48.2)% | ||||||||
Adjusted Non-GAAP Earnings per Diluted Share (3) (4) | $3.11 | $2.38 | 30.7% | ||||||||
| GAAP Net Income | $58.1 million | $123.0 million | (52.8)% | ||||||||
| Adjusted Non-GAAP Net Income | $138.7 million | $115.5 million | 20.1% | ||||||||
Adjusted EBITDA (5) | $211.8 million | $176.3 million | 20.1% | ||||||||
Adjusted EBITDA Margin (5) | 45.1% | 43.5% | 3.7% | ||||||||
FULL YEAR 2020 HIGHLIGHTS
2020 revenues increased 8.6% to a record of $1,489.6 million compared to $1,372.0 million for 2019.
2020 operating income increased 20.8% to $334.6 million compared to $277.1 million for 2019.
Net cash provided by operating activities increased 16.4% to $480.1 million in 2020 compared to $412.5 million for 2019. 2020 free cash flow(2) increased 16.4% to $407.7 million compared to $350.4 million for 2019.
GAAP earnings per diluted share(6) decreased 27.6% to $3.18 in 2020 compared to $4.39 for 2019 and GAAP net income decreased by 31.1% to $150.7 million in 2020 compared to $218.8 million for 2019 primarily due to the recognition of a $53.7 million tax benefit in 2019 as the result of an intra-entity transfer as part of the reorganization of its international operating structure; no similar benefit was recognized in 2020.
Adjusted non-GAAP earnings per diluted share(6)(7) for the year increased 15.5% to $8.18 compared to $7.08 for 2019.
Annual Adjusted EBITDA(5) increased 11.9% to $615.7 million in 2020 compared to $550.2 million for 2019.
J2 ended the year with approximately $340.8 million in cash, cash equivalents, and investments which included $742.7 million of net proceeds from the issuance of its 4.625% Senior Notes (and the related redemption of $694.6 million of the previously outstanding 6.0% Senior Notes of its subsidiary, J2 Cloud Services, LLC), the use of approximately $482 million during the year for current year acquisitions and approximately $49 million in connection with payments for prior year acquisitions. In addition, J2 deployed approximately $265 million with respect of its share repurchase programs during the year.
Key financial results for 2020 versus 2019 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.
| 2020 | 2019 | % Change | |||||||||
| Revenues | |||||||||||
| Cloud Services | $678.5 million | $661.8 million | 2.5% | ||||||||
| Digital Media | $811.1 million | $710.2 million | 14.2% | ||||||||
Total Revenue: (1) | $1,489.6 million | $1,372.0 million | 8.6% | ||||||||
| Operating Income | $334.6 million | $277.1 million | 20.8% | ||||||||
| Net Cash Provided by Operating Activities | $480.1 million | $412.5 million | 16.4% | ||||||||
Free Cash Flow (2) | $407.7 million | $350.4 million | 16.4% | ||||||||
GAAP Earnings per Diluted Share (6) | $3.18 | $4.39 | (27.6)% | ||||||||
Adjusted Non-GAAP Earnings per Diluted Share (6) (7) | $8.18 | $7.08 | 15.5% | ||||||||
| GAAP Net Income | $150.7 million | $218.8 million | (31.1)% | ||||||||
| Adjusted Non-GAAP Net Income | $380.7 million | $344.4 million | 10.5% | ||||||||
Adjusted EBITDA (5) | $615.7 million | $550.2 million | 11.9% | ||||||||
Adjusted EBITDA Margin (5) | 41.3% | 40.1% | 3.0% | ||||||||
BUSINESS OUTLOOK
In February 2021, J2’s Board of Directors approved the exploration of strategic alternatives for our B2B Backup business. We believe a transaction involving this business is reasonably possible within calendar year 2021 and, therefore, are presenting our 2021 Business Outlook excluding the B2B Backup business.
2020 (1) | 2021 Range of Estimates (1)(3) | |||||||||||||||||||
| Actual | Excluded Assets (2) | Non-GAAP Pro-Forma | Low | High | ||||||||||||||||
| Revenue | $ | 1,490 | $ | (68) | $ | 1,422 | $ | 1,630 | $ | 1,676 | ||||||||||
Adjusted EBITDA | $ | 616 | $ | (26) | $ | 590 | $ | 646 | $ | 666 | ||||||||||
Adjusted non-GAAP EPS | $ | 8.18 | $ | (0.38) | $ | 7.80 | $ | 8.93 | $ | 9.27 | ||||||||||
(1) Balances are in millions, except per share amounts
(2) Excluded assets consist of certain Voice assets in Australia and New Zealand that were sold in the third quarter of 2020, certain Voice assets in the United Kingdom that were sold in February 2021, and certain assets of the Company’s B2B Backup business
(3) Revenue cannot be reconciled to GAAP as it is unknown when the sale of the Company’s B2B Backup business will occur
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 pro forma including 2021 revenue, 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 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.
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 24.8% for Q4 2020 and (43.2)% for Q4 2019. The estimated Adjusted non-GAAP effective tax rates were approximately 21.8% for Q4 2020 and 21.3% for Q4 2019. | |||||||
| (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 December 31, 2020 and 2019 totaled $1.84 and ($0.07) 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 (benefit); net loss in earnings of equity method investments; 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) | The estimated GAAP effective tax rates were approximately 29.7% for 2020 and (9.7)% for 2019. The estimated Adjusted non-GAAP effective tax rates were approximately 21.8% for 2020 and 21.3% for 2019. | |||||||
| (7) | 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 twelve months ended December 31, 2020 and 2019 totaled $5.00 and $2.69 per diluted share, respectively. | |||||||
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, 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 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.
Contact:
Rebecca Wright
J2 Global, Inc.
800-577-1790
“Safe Harbor” Statement Under the Private Securities Litigation Reform Act of 1995: Certain statements in this Press Release are “forward-looking statements” within the meaning of The Private Securities Litigation Reform Act of 1995, 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 2019 Annual Report on Form 10-K filed by J2 Global on March 2, 2020, 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)
| December 31, 2020 | December 31, 2019 | ||||||||||
| ASSETS | |||||||||||
| Cash and cash equivalents | $ | 242,652 | $ | 575,615 | |||||||
| Short-term investments | 663 | — | |||||||||
| Accounts receivable, net of allowances of $15,269 and $12,701, respectively | 325,619 | 261,928 | |||||||||
| Prepaid expenses and other current assets | 53,909 | 49,347 | |||||||||
| Total current assets | 622,843 | 886,890 | |||||||||
| Long-term investments | 97,495 | 100,079 | |||||||||
| Property and equipment, net | 156,577 | 127,817 | |||||||||
| Operating lease right-of-use assets | 105,845 | 125,822 | |||||||||
| Goodwill | 1,867,430 | 1,633,033 | |||||||||
| Other purchased intangibles, net | 741,569 | 556,553 | |||||||||
| Deferred income taxes, noncurrent | 56,545 | 59,976 | |||||||||
| Other assets | 17,027 | 15,676 | |||||||||
| TOTAL ASSETS | $ | 3,665,331 | $ | 3,505,846 | |||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
| Accounts payable and accrued expenses | $ | 230,651 | $ | 238,059 | |||||||
| Income taxes payable, current | 31,753 | 17,758 | |||||||||
| Deferred revenue, current | 190,644 | 162,855 | |||||||||
| Operating lease liabilities, current | 32,211 | 26,927 | |||||||||
| Current portion of long-term debt | 396,801 | 385,532 | |||||||||
| Other current liabilities | 497 | 1,973 | |||||||||
| Total current liabilities | 882,557 | 833,104 | |||||||||
| Long-term debt | 1,182,220 | 1,062,929 | |||||||||
| Deferred revenue, noncurrent | 14,440 | 12,744 | |||||||||
| Operating lease liabilities, noncurrent | 99,177 | 104,070 | |||||||||
| Income taxes payable, noncurrent | 11,675 | 11,675 | |||||||||
| Liability for uncertain tax positions | 57,081 | 52,451 | |||||||||
| Deferred income taxes, noncurrent | 162,700 | 107,453 | |||||||||
| Other long-term liabilities | 44,463 | 10,228 | |||||||||
| TOTAL LIABILITIES | 2,454,313 | 2,194,654 | |||||||||
| Commitments and contingencies | — | — | |||||||||
| Preferred stock | — | — | |||||||||
| Common stock | 443 | 476 | |||||||||
| Additional paid-in capital | 456,274 | 465,652 | |||||||||
| Retained earnings | 809,107 | 891,526 | |||||||||
| Accumulated other comprehensive loss | (54,806) | (46,462) | |||||||||
| TOTAL STOCKHOLDERS’ EQUITY | 1,211,018 | 1,311,192 | |||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 3,665,331 | $ | 3,505,846 | |||||||
J2 GLOBAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED, IN THOUSANDS)
| Three Months Ended December 31, | Twelve Months Ended December 31, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| Total revenues | $ | 469,240 | $ | 405,588 | $ | 1,489,593 | $ | 1,372,054 | |||||||||||||||
Cost of revenues (1) | 60,027 | 64,328 | 231,782 | 237,323 | |||||||||||||||||||
| Gross profit | 409,213 | 341,260 | 1,257,811 | 1,134,731 | |||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
Sales and marketing (1) | 126,157 | 105,371 | 413,474 | 379,183 | |||||||||||||||||||
Research, development and engineering (1) | 21,022 | 15,704 | 64,295 | 54,396 | |||||||||||||||||||
General and administrative (1) | 133,148 | 109,940 | 445,431 | 424,072 | |||||||||||||||||||
| Total operating expenses | 280,327 | 231,015 | 923,200 | 857,651 | |||||||||||||||||||
| Income from operations | 128,886 | 110,245 | 334,611 | 277,080 | |||||||||||||||||||
| Interest expense, net | 66,096 | 18,921 | 131,975 | 69,546 | |||||||||||||||||||
| Gain on sale of business | — | — | (17,122) | — | |||||||||||||||||||
| Loss on investments, net | — | 2 | 20,991 | 47 | |||||||||||||||||||
| Other (income) expense, net | (15,219) | 5,232 | (31,632) | 7,889 | |||||||||||||||||||
| Income before income taxes and net loss in earnings of equity method investment | 78,009 | 86,090 | 230,399 | 199,598 | |||||||||||||||||||
| Income tax expense (benefit) | 19,382 | (37,227) | 68,393 | (19,376) | |||||||||||||||||||
| Net loss in earnings of equity method investment | 539 | 294 | 11,338 | 168 | |||||||||||||||||||
| Net income | $ | 58,088 | $ | 123,023 | $ | 150,668 | $ | 218,806 | |||||||||||||||
| Basic net income per common share: | |||||||||||||||||||||||
| Net income attributable to J2 Global, Inc. common shareholders | $ | 1.30 | $ | 2.54 | $ | 3.24 | $ | 4.52 | |||||||||||||||
| Diluted net income per common share: | |||||||||||||||||||||||
| Net income attributable to J2 Global, Inc. common shareholders | $ | 1.27 | $ | 2.45 | $ | 3.18 | $ | 4.39 | |||||||||||||||
| Basic weighted average shares outstanding | 44,504,222 | 47,626,833 | 46,308,825 | 47,647,397 | |||||||||||||||||||
| Diluted weighted average shares outstanding | 45,642,292 | 49,425,395 | 47,122,511 | 49,025,684 | |||||||||||||||||||
(1) Includes share-based compensation expense as follows: | |||||||||||||||||||||||
| Cost of revenues | $ | 122 | $ | 135 | $ | 535 | $ | 525 | |||||||||||||||
| Sales and marketing | 319 | 335 | 1,454 | 1,547 | |||||||||||||||||||
| Research, development and engineering | 439 | 385 | 1,779 | 1,477 | |||||||||||||||||||
| General and administrative | 4,483 | 4,673 | 20,238 | 20,373 | |||||||||||||||||||
| Total | $ | 5,363 | $ | 5,528 | $ | 24,006 | $ | 23,922 | |||||||||||||||
J2 GLOBAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
| Twelve Months Ended December 31, | |||||||||||
| 2020 | 2019 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net income | $ | 150,668 | $ | 218,806 | |||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | 228,737 | 232,032 | |||||||||
| Amortization of financing costs and discounts | 28,476 | 14,038 | |||||||||
| Non-cash operating lease costs | 17,686 | 21,419 | |||||||||
| Share-based compensation | 24,006 | 23,922 | |||||||||
| Provision for doubtful accounts | 13,283 | 13,134 | |||||||||
| Deferred income taxes, net | 5,840 | (63,444) | |||||||||
| Loss on extinguishment of debt | 37,969 | — | |||||||||
| Gain on sale of businesses | (17,122) | — | |||||||||
| Lease asset impairments and other charges | 12,121 | — | |||||||||
| Changes in fair value of contingent consideration | (80) | 6,318 | |||||||||
| Foreign currency remeasurement gain | (34,646) | — | |||||||||
| Loss on equity method investments | 11,338 | 139 | |||||||||
| Loss on equity and debt investments | 20,826 | 4,164 | |||||||||
| Decrease (increase) in: | |||||||||||
| Accounts receivable | (31,611) | (30,680) | |||||||||
| Prepaid expenses and other current assets | 3,046 | (8,685) | |||||||||
| Other assets | (3) | (4,083) | |||||||||
| Increase (decrease) in: | |||||||||||
| Accounts payable and accrued expenses | 2,184 | (770) | |||||||||
| Income taxes payable | 6,489 | (1,738) | |||||||||
| Deferred revenue | 4,720 | 6,844 | |||||||||
| Operating lease liabilities | (16,439) | (20,240) | |||||||||
| Liability for uncertain tax positions | 9,391 | (453) | |||||||||
| Other long-term liabilities | 3,200 | 1,816 | |||||||||
| Net cash provided by operating activities | 480,079 | 412,539 | |||||||||
| Cash flows from investing activities: | |||||||||||
| Distribution from equity method investment | — | 10,288 | |||||||||
| Purchases of equity method investment | (32,340) | (29,584) | |||||||||
| Purchase of equity investments | (843) | — | |||||||||
| Purchases of property and equipment | (92,552) | (70,588) | |||||||||
| Proceeds from sale of assets | 507 | — | |||||||||
| Acquisition of businesses, net of cash received | (482,227) | (415,343) | |||||||||
| Proceeds from sale of businesses, net of cash divested | 24,353 | — | |||||||||
| Purchases of intangible assets | (3,118) | (46) | |||||||||
| Net cash used in investing activities | (586,220) | (505,273) | |||||||||
| Cash flows from financing activities: | |||||||||||
| Proceeds from issuance of long-term debt | 750,000 | 550,000 | |||||||||
| Payment of note payable | (400) | — | |||||||||
| Debt issuance cost | (7,272) | (12,862) | |||||||||
| Payment of debt | (650,000) | (5,100) | |||||||||
| Debt extinguishment costs | (29,250) | — | |||||||||
| Proceeds from line of credit | — | 185,000 | |||||||||
| Repayment of line of credit | — | (185,000) | |||||||||
| Repurchase of common stock | (275,654) | (20,803) | |||||||||
| Issuance of common stock under employee stock purchase plan | 7,382 | 4,512 | |||||||||
| Exercise of stock options | 1,619 | 5,274 | |||||||||
| Dividends paid | — | (43,918) | |||||||||
| Deferred payments for acquisitions | (29,180) | (18,876) | |||||||||
| Other | (1,878) | (1,532) | |||||||||
| Net cash (used in) provided by financing activities | (234,633) | 456,695 | |||||||||
| Effect of exchange rate changes on cash and cash equivalents | 7,811 | 2,180 | |||||||||
| Net change in cash and cash equivalents | (332,963) | 366,141 | |||||||||
| Cash and cash equivalents at beginning of year | 575,615 | 209,474 | |||||||||
| Cash and cash equivalents at end of year | $ | 242,652 | $ | 575,615 | |||||||
J2 GLOBAL, INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP TO ADJUSTED NON-GAAP FINANCIAL MEASURES
THREE AND TWELVE MONTHS ENDED DECEMBER 31, 2020 AND 2019
(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; (2) elimination of certain acquisition-related integration costs; (3) elimination of interest costs in excess of the coupon rate associated with the convertible notes and overlapping interest of senior notes prior to extinguishment; (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; (10) elimination of leasehold improvement impairments; and (11) elimination of dilutive effect of the convertible debt.
| Three Months Ended December 31, | |||||||||||||||||
| 2020 | Per Diluted Share * | 2019 | Per Diluted Share * | ||||||||||||||
| Net income | $ | 58,088 | $ | 1.27 | $ | 123,023 | $ | 2.45 | |||||||||
| Plus: | |||||||||||||||||
Share based compensation (1) | 4,643 | 0.10 | 7,843 | 0.16 | |||||||||||||
Acquisition related integration costs (2) | 7,363 | 0.17 | (824) | (0.02) | |||||||||||||
Interest costs (3) | 40,133 | 0.90 | 5,198 | 0.11 | |||||||||||||
Amortization (4) | 37,862 | 0.85 | 30,399 | 0.64 | |||||||||||||
Investments (5) | (2,158) | (0.05) | 3,567 | 0.08 | |||||||||||||
Tax expense (benefit) from prior years (6) | 2,841 | 0.06 | (10) | — | |||||||||||||
Sale of assets (7) | 374 | 0.01 | — | — | |||||||||||||
Intra-entity transfers (8) | (12,124) | (0.27) | (53,690) | (1.13) | |||||||||||||
Lease asset impairments and other charges (9) | 1,708 | 0.04 | — | — | |||||||||||||
Leasehold improvement impairments (10) | (3) | — | — | — | |||||||||||||
Convertible debt dilution (11) | — | 0.03 | — | 0.07 | |||||||||||||
| Adjusted non-GAAP net income | $ | 138,727 | $ | 3.11 | $ | 115,506 | $ | 2.38 | |||||||||
* The reconciliation of net income per share from GAAP to Adjusted non-GAAP may not foot since each is calculated independently.
| Twelve Months Ended December 31, | |||||||||||||||||
| 2020 | Per Diluted Share * | 2019 | Per Diluted Share * | ||||||||||||||
| Net income | $ | 150,668 | $ | 3.18 | $ | 218,806 | $ | 4.39 | |||||||||
| Plus: | |||||||||||||||||
Share based compensation (1) | 18,993 | 0.41 | 21,701 | 0.46 | |||||||||||||
Acquisition related integration costs (2) | 10,134 | 0.22 | 13,152 | 0.28 | |||||||||||||
Interest costs (3) | 54,062 | 1.17 | 10,367 | 0.22 | |||||||||||||
Amortization (4) | 127,260 | 2.75 | 130,547 | 2.74 | |||||||||||||
Investments (5) | 33,337 | 0.72 | 3,441 | 0.07 | |||||||||||||
Tax expense from prior years (6) | 7,757 | 0.17 | 62 | — | |||||||||||||
Sale of assets (7) | (9,897) | (0.21) | — | — | |||||||||||||
Intra-entity transfers (8) | (25,440) | (0.55) | (53,690) | (1.13) | |||||||||||||
Lease asset impairments and other charges (9) | 11,099 | 0.24 | — | — | |||||||||||||
Leasehold improvement impairments (10) | 2,774 | 0.06 | — | — | |||||||||||||
Convertible debt dilution (11) | — | 0.06 | — | 0.12 | |||||||||||||
| Adjusted non-GAAP net income | $ | 380,747 | $ | 8.18 | $ | 344,386 | $ | 7.08 | |||||||||
* 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 DECEMBER 31, 2020 AND 2019
(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; (2) elimination of certain acquisition-related integration costs; (3) elimination of interest costs in excess of the coupon rate associated with the convertible notes and overlapping interest of senior notes prior to extinguishment; (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; (10) elimination of leasehold improvement impairments; and (11) elimination of dilutive effect of the convertible debt.
| Three Months Ended December 31, | |||||||||||
| 2020 | 2019 | ||||||||||
| Cost of revenues | $ | 60,027 | $ | 64,328 | |||||||
| Plus: | |||||||||||
Share based compensation (1) | (122) | (135) | |||||||||
Acquisition related integration costs (2) | (57) | (43) | |||||||||
Amortization (4) | (115) | (450) | |||||||||
| Adjusted non-GAAP cost of revenues | $ | 59,733 | $ | 63,700 | |||||||
| Sales and marketing | $ | 126,157 | $ | 105,371 | |||||||
| Plus: | |||||||||||
Share based compensation (1) | (319) | (335) | |||||||||
Acquisition related integration costs (2) | (1,117) | 274 | |||||||||
Lease asset impairments and other charges (9) | (76) | — | |||||||||
Leasehold improvement impairments (10) | (3) | — | |||||||||
| Adjusted non-GAAP sales and marketing | $ | 124,642 | $ | 105,310 | |||||||
| Research, development and engineering | $ | 21,022 | $ | 15,704 | |||||||
| Plus: | |||||||||||
Share based compensation (1) | (439) | (385) | |||||||||
Acquisition related integration costs (2) | (627) | 48 | |||||||||
Lease asset impairments and other charges (9) | (35) | — | |||||||||
| Adjusted non-GAAP research, development and engineering | $ | 19,921 | $ | 15,367 | |||||||
| General and administrative | $ | 133,148 | $ | 109,940 | |||||||
| Plus: | |||||||||||
Share based compensation (1) | (4,483) | (4,673) | |||||||||
Acquisition related integration costs (2) | (7,990) | 801 | |||||||||
Amortization (4) | (48,655) | (48,333) | |||||||||
Lease asset impairments and other charges (9) | (2,610) | — | |||||||||
Leasehold improvement impairments (10) | (23) | — | |||||||||
| Adjusted non-GAAP general and administrative | $ | 69,387 | $ | 57,735 | |||||||
| Interest expense, net | $ | 66,096 | $ | 18,921 | |||||||
| Plus: | |||||||||||
Interest costs (3) | (50,869) | (3,293) | |||||||||
| Adjusted non-GAAP interest expense, net | $ | 15,227 | $ | 15,628 | |||||||
| Loss on investments, net | $ | — | $ | 2 | |||||||
| Adjusted non-GAAP loss on investments, net | $ | — | $ | 2 | |||||||
| Continued from previous page | |||||||||||
| Other (income) expense, net | $ | (15,219) | $ | 5,232 | |||||||
| Plus: | |||||||||||
Acquisition related integration costs (2) | 209 | — | |||||||||
Investments (5) | — | (4,164) | |||||||||
Sale of assets (7) | (32) | — | |||||||||
Intra-entity transfers (8) | 17,474 | — | |||||||||
Lease asset impairments and other charges (9) | 385 | — | |||||||||
| Adjusted non-GAAP other (income) expense, net | $ | 2,817 | $ | 1,068 | |||||||
| Income Tax Provision | $ | 19,382 | $ | (37,227) | |||||||
| Plus: | |||||||||||
Share based compensation (1) | 720 | (2,315) | |||||||||
Acquisition related integration costs (2) | 2,219 | (256) | |||||||||
Interest costs (3) | 10,736 | (1,905) | |||||||||
Amortization (4) | 10,908 | 18,384 | |||||||||
Investments (5) | 2,697 | 891 | |||||||||
Tax (benefit) expense from prior years (6) | (2,841) | 10 | |||||||||
Sale of assets (7) | (342) | — | |||||||||
Intra-entity transfers (8) | (5,350) | 53,690 | |||||||||
Lease asset impairments and other charges (9) | 628 | — | |||||||||
Leasehold improvement impairments (10) | 29 | — | |||||||||
| Adjusted non-GAAP income tax provision | $ | 38,786 | $ | 31,272 | |||||||
| Net loss in earnings of equity method investment | $ | 539 | $ | 294 | |||||||
| Plus: | |||||||||||
Investments (5) | (539) | (294) | |||||||||
| Adjusted non-GAAP net loss in earnings of equity method investment | $ | — | $ | — | |||||||
| Total adjustments | $ | (80,639) | $ | 7,517 | |||||||
| GAAP earnings per diluted share | $ | 1.27 | $ | 2.45 | |||||||
| Adjustments * | $ | 1.84 | $ | (0.07) | |||||||
| Adjusted non-GAAP earnings per diluted share | $ | 3.11 | $ | 2.38 | |||||||
* 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
TWELVE MONTHS ENDED DECEMBER 31, 2020 AND 2019
(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; (2) elimination of certain acquisition-related integration costs; (3) elimination of interest costs in excess of the coupon rate associated with the convertible notes and overlapping interest of senior notes prior to extinguishment; (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; (10) elimination of leasehold improvement impairments; and (11) elimination of dilutive effect of the convertible debt.
| Twelve Months Ended December 31, | |||||||||||
| 2020 | 2019 | ||||||||||
| Cost of revenues | $ | 231,782 | $ | 237,323 | |||||||
| Plus: | |||||||||||
Share based compensation (1) | (535) | (525) | |||||||||
Acquisition related integration costs (2) | (227) | (368) | |||||||||
Amortization (4) | (1,921) | (1,893) | |||||||||
| Adjusted non-GAAP cost of revenues | $ | 229,099 | $ | 234,537 | |||||||
| Sales and marketing | $ | 413,474 | $ | 379,183 | |||||||
| Plus: | |||||||||||
Share based compensation (1) | (1,454) | (1,547) | |||||||||
Acquisition related integration costs (2) | (1,803) | (2,870) | |||||||||
Lease asset impairments and other charges (9) | (76) | — | |||||||||
Leasehold improvement impairments (10) | (3) | — | |||||||||
| Adjusted non-GAAP sales and marketing | $ | 410,138 | $ | 374,766 | |||||||
| Research, development and engineering | $ | 64,295 | $ | 54,396 | |||||||
| Plus: | |||||||||||
Share based compensation (1) | (1,779) | (1,477) | |||||||||
Acquisition related integration costs (2) | (606) | (2,039) | |||||||||
Lease asset impairments and other charges (9) | (35) | — | |||||||||
| Adjusted non-GAAP research, development and engineering | $ | 61,875 | $ | 50,880 | |||||||
| General and administrative | $ | 445,431 | $ | 424,072 | |||||||
| Plus: | |||||||||||
Share based compensation (1) | (20,238) | (20,373) | |||||||||
Acquisition related integration costs (2) | (10,752) | (11,745) | |||||||||
Amortization (4) | (162,802) | (180,603) | |||||||||
Tax expense from prior years (6) | — | (104) | |||||||||
Lease asset impairments and other charges (9) | (14,801) | — | |||||||||
Leasehold improvement impairments (10) | (3,628) | — | |||||||||
| Adjusted non-GAAP general and administrative | $ | 233,210 | $ | 211,247 | |||||||
| Interest expense, net | $ | 131,975 | $ | 69,546 | |||||||
| Plus: | |||||||||||
Acquisition related integration costs (2) | — | 27 | |||||||||
Interest costs (3) | (68,961) | (10,121) | |||||||||
| Adjusted non-GAAP interest expense, net | $ | 63,014 | $ | 59,452 | |||||||
| Continued from previous page | |||||||||||
| Gain on sale of businesses | $ | (17,122) | $ | — | |||||||
| Plus: | |||||||||||
Sale of assets (7) | 17,122 | — | |||||||||
| Adjusted non-GAAP gain on sale of businesses | $ | — | $ | — | |||||||
| Loss on investments, net | $ | 20,991 | $ | 47 | |||||||
| Plus: | |||||||||||
Investments (5) | (20,825) | — | |||||||||
Sale of assets (7) | (165) | — | |||||||||
| Adjusted non-GAAP loss on investments, net | $ | 1 | $ | 47 | |||||||
| Other (income) expense, net | $ | (31,632) | $ | 7,889 | |||||||
| Plus: | |||||||||||
Acquisition related integration costs (2) | 209 | — | |||||||||
Investments (5) | — | (4,164) | |||||||||
Sale of assets (7) | 618 | — | |||||||||
Intra-entity transfers (8) | 35,460 | — | |||||||||
Lease asset impairments and other charges (9) | 385 | — | |||||||||
| Adjusted non-GAAP other (income) expense, net | $ | 5,040 | $ | 3,725 | |||||||
| Income tax provision | $ | 68,393 | $ | (19,376) | |||||||
| Plus: | |||||||||||
Share based compensation (1) | 5,013 | 2,221 | |||||||||
Acquisition related integration costs (2) | 3,045 | 3,843 | |||||||||
Interest costs (3) | 14,899 | (246) | |||||||||
Amortization (4) | 37,463 | 51,949 | |||||||||
Investments (5) | (1,174) | 891 | |||||||||
Tax (benefit) expense from prior years (6) | (7,757) | 42 | |||||||||
Sale of assets (7) | (7,678) | — | |||||||||
Intra-entity transfers (8) | (10,020) | 53,690 | |||||||||
Lease asset impairments and other charges (9) | 3,428 | — | |||||||||
Leasehold improvement impairments (10) | 857 | — | |||||||||
| Adjusted non-GAAP income tax provision | $ | 106,469 | $ | 93,014 | |||||||
| Net loss in earnings of equity method investment | $ | 11,338 | $ | 168 | |||||||
| Plus: | |||||||||||
Investments (5) | (11,338) | (168) | |||||||||
| Adjusted non-GAAP net loss in earnings of equity method investment | $ | — | $ | — | |||||||
| Total adjustments | $ | (230,079) | $ | (125,580) | |||||||
| GAAP earnings per diluted share | $ | 3.18 | $ | 4.39 | |||||||
| Adjustments * | $ | 5.00 | $ | 2.69 | |||||||
| Adjusted non-GAAP earnings per diluted share | $ | 8.18 | $ | 7.08 | |||||||
* 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 U.S. 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, retention bonuses, 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 features, 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 income statement. 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 two months of overlapping interest expense and loss on extinguishment in the fourth quarter of 2020 in connection with the 6.0% senior unsecured notes and the issuance of the 4.625% Senior Notes in October of 2020. 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 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) 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) Leasehold Improvement Impairments. The Company excludes leasehold improvement impairments 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.
(11) 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 Gain on Sale of Businesses, Adjusted non-GAAP Loss on Investments, Adjusted non-GAAP Other (Income) Expense, 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 TWELVE MONTHS ENDED DECEMBER 31, 2020 AND 2019
(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, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| Net income | $ | 58,088 | $ | 123,023 | $ | 150,668 | $ | 218,806 | |||||||||||||||
| Plus: | |||||||||||||||||||||||
| Interest expense, net | 66,096 | 18,921 | 131,975 | 69,546 | |||||||||||||||||||
| Gain on sale of businesses | — | — | (17,122) | — | |||||||||||||||||||
| Loss on investments, net | — | 2 | 20,991 | 47 | |||||||||||||||||||
| Other (income) expense, net | (15,219) | 5,232 | (31,632) | 7,889 | |||||||||||||||||||
| Income tax expense (benefit) | 19,382 | (37,227) | 68,393 | (19,376) | |||||||||||||||||||
| Net loss in earnings of equity method investment | 539 | 294 | 11,338 | 168 | |||||||||||||||||||
| Depreciation and amortization | 65,057 | 61,623 | 228,737 | 232,032 | |||||||||||||||||||
| Reconciliation of GAAP to Adjusted non-GAAP financial measures: | |||||||||||||||||||||||
| Share-based compensation | 5,363 | 5,528 | 24,006 | 23,922 | |||||||||||||||||||
| Acquisition-related integration costs | 9,791 | (1,080) | 13,388 | 17,022 | |||||||||||||||||||
| Additional indirect tax expense from prior years | — | — | — | 104 | |||||||||||||||||||
| Lease asset impairments and other charges | 2,721 | — | 14,912 | — | |||||||||||||||||||
| Adjusted EBITDA | $ | 211,818 | $ | 176,316 | $ | 615,654 | $ | 550,160 | |||||||||||||||
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 (benefit), net loss in earnings of equity method investments, 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 expense from prior years; and (4) 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 | |||||||||||||||||||||||||
| 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. | |||||||||||||||||||||||||||||
| Q1 | Q2 | Q3 | Q4 | YTD | |||||||||||||||||||||||||
| 2019 | |||||||||||||||||||||||||||||
| Net cash provided by operating activities | $ | 116,854 | $ | 95,357 | $ | 97,096 | $ | 103,232 | $ | 412,539 | |||||||||||||||||||
| Less: Purchases of property and equipment | (12,531) | (18,260) | (18,692) | (21,105) | (70,588) | ||||||||||||||||||||||||
| Add: Contingent consideration* | — | 8,698 | (240) | — | 8,458 | ||||||||||||||||||||||||
| Free cash flows | $ | 104,323 | $ | 85,795 | $ | 78,164 | $ | 82,127 | $ | 350,409 | |||||||||||||||||||
| * Free Cash Flows of $85.8 million for Q2 2019 and $78.2 million for Q3 2019 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 DECEMBER 31, 2020
(UNAUDITED, IN THOUSANDS)
| Cloud | Digital | ||||||||||||||||||||||
| Services | Media | Corporate | Total | ||||||||||||||||||||
| Revenues | |||||||||||||||||||||||
| GAAP revenues | $ | 171,372 | $ | 297,868 | $ | — | $ | 469,240 | |||||||||||||||
| Gross profit | |||||||||||||||||||||||
| GAAP gross profit | $ | 133,318 | $ | 275,895 | $ | — | $ | 409,213 | |||||||||||||||
| Non-GAAP adjustments: | |||||||||||||||||||||||
| Share-based compensation | 119 | 3 | — | 122 | |||||||||||||||||||
| Acquisition related integration costs | 57 | — | — | 57 | |||||||||||||||||||
| Amortization | 115 | — | — | 115 | |||||||||||||||||||
| Adjusted non-GAAP gross profit | $ | 133,609 | $ | 275,898 | $ | — | $ | 409,507 | |||||||||||||||
| Operating profit | |||||||||||||||||||||||
| GAAP operating profit | $ | 60,615 | $ | 85,571 | $ | (17,300) | $ | 128,886 | |||||||||||||||
| Non-GAAP adjustments: | |||||||||||||||||||||||
| Share-based compensation | 1,017 | 1,334 | 3,012 | 5,363 | |||||||||||||||||||
| Acquisition related integration costs | 337 | 8,116 | 1,338 | 9,791 | |||||||||||||||||||
| Amortization | 15,759 | 32,903 | 109 | 48,771 | |||||||||||||||||||
| Lease asset impairment and other charges | — | 2,721 | — | 2,721 | |||||||||||||||||||
| Leasehold improvement impairments | — | 26 | — | 26 | |||||||||||||||||||
| Adjusted non-GAAP operating profit | $ | 77,728 | $ | 130,671 | $ | (12,841) | $ | 195,558 | |||||||||||||||
| Depreciation | 5,639 | 10,621 | — | 16,260 | |||||||||||||||||||
| Adjusted EBITDA | $ | 83,367 | $ | 141,292 | $ | (12,841) | $ | 211,818 | |||||||||||||||
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 DECEMBER 31, 2019
(UNAUDITED, IN THOUSANDS)
| Cloud | Digital | ||||||||||||||||||||||
| Services | Media | Corporate | Total | ||||||||||||||||||||
| Revenues | |||||||||||||||||||||||
| GAAP revenues | $ | 169,296 | $ | 236,290 | $ | 2 | $ | 405,588 | |||||||||||||||
| Gross profit | |||||||||||||||||||||||
| GAAP gross profit | $ | 132,345 | $ | 208,913 | $ | 2 | $ | 341,260 | |||||||||||||||
| Non-GAAP adjustments: | |||||||||||||||||||||||
| Share-based compensation | 133 | 2 | — | 135 | |||||||||||||||||||
| Acquisition related integration costs | 43 | — | — | 43 | |||||||||||||||||||
| Amortization | 450 | — | — | 450 | |||||||||||||||||||
| Adjusted non-GAAP gross profit | $ | 132,971 | $ | 208,915 | $ | 2 | $ | 341,888 | |||||||||||||||
| Operating profit | |||||||||||||||||||||||
| GAAP operating profit | $ | 58,713 | $ | 63,211 | $ | (11,679) | $ | 110,245 | |||||||||||||||
| Non-GAAP adjustments: | |||||||||||||||||||||||
| Share-based compensation | 1,211 | 1,146 | 3,171 | 5,528 | |||||||||||||||||||
| Acquisition related integration costs | 783 | (1,863) | — | (1,080) | |||||||||||||||||||
| Amortization | 19,531 | 28,663 | 589 | 48,783 | |||||||||||||||||||
| Adjusted Non-GAAP operating profit | $ | 80,238 | $ | 91,157 | $ | (7,919) | $ | 163,476 | |||||||||||||||
| Depreciation | 2,995 | 9,845 | — | 12,840 | |||||||||||||||||||
| Adjusted EBITDA | $ | 83,233 | $ | 101,002 | $ | (7,919) | $ | 176,316 | |||||||||||||||
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. | |||||||||||||||||||||||
J2 GLOBAL, INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP TO ADJUSTED NON-GAAP FINANCIAL MEASURES
TWELVE MONTHS ENDED DECEMBER 31, 2020
(UNAUDITED, IN THOUSANDS)
| Cloud | Digital | ||||||||||||||||||||||
| Services | Media | Corporate | Total | ||||||||||||||||||||
| Revenues | |||||||||||||||||||||||
| GAAP revenues | $ | 678,461 | $ | 811,130 | $ | — | $ | 1,489,591 | |||||||||||||||
| Gross profit | |||||||||||||||||||||||
| GAAP gross profit | $ | 524,200 | $ | 733,658 | $ | (47) | $ | 1,257,811 | |||||||||||||||
| Non-GAAP adjustments: | |||||||||||||||||||||||
| Share-based compensation | 525 | 10 | — | 535 | |||||||||||||||||||
| Acquisition related integration costs | 227 | — | — | 227 | |||||||||||||||||||
| Amortization | 1,921 | — | — | 1,921 | |||||||||||||||||||
| Adjusted non-GAAP gross profit | $ | 526,873 | $ | 733,668 | $ | (47) | $ | 1,260,494 | |||||||||||||||
| Operating profit | |||||||||||||||||||||||
| GAAP operating profit | $ | 250,306 | $ | 139,807 | $ | (55,502) | $ | 334,611 | |||||||||||||||
| Non-GAAP adjustments: | |||||||||||||||||||||||
| Share-based compensation | 5,623 | 5,539 | 12,844 | 24,006 | |||||||||||||||||||
| Acquisition related integration costs | 606 | 11,289 | 1,493 | 13,388 | |||||||||||||||||||
| Amortization | 61,159 | 99,901 | 3,663 | 164,723 | |||||||||||||||||||
| Lease asset impairment and other charges | — | 14,912 | — | 14,912 | |||||||||||||||||||
| Leasehold improvement impairments | — | 3,631 | — | 3,631 | |||||||||||||||||||
| Adjusted non-GAAP operating profit | $ | 317,694 | $ | 275,079 | $ | (37,502) | $ | 555,271 | |||||||||||||||
| Depreciation | 18,595 | 41,788 | — | 60,383 | |||||||||||||||||||
| Adjusted EBITDA | $ | 336,289 | $ | 316,867 | $ | (37,502) | $ | 615,654 | |||||||||||||||
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. | |||||||||||||||||||||||
J2 GLOBAL, INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP TO ADJUSTED NON-GAAP FINANCIAL MEASURES
TWELVE MONTHS ENDED DECEMBER 31, 2019
(UNAUDITED, IN THOUSANDS)
| Cloud | Digital | ||||||||||||||||||||||
| Services | Media | Corporate | Total | ||||||||||||||||||||
| Revenues | |||||||||||||||||||||||
| GAAP revenues | $ | 661,835 | $ | 710,211 | $ | 8 | $ | 1,372,054 | |||||||||||||||
| Gross profit | |||||||||||||||||||||||
| GAAP gross profit | $ | 517,565 | $ | 617,158 | $ | 8 | $ | 1,134,731 | |||||||||||||||
| Non-GAAP adjustments: | |||||||||||||||||||||||
| Share-based compensation | 516 | 9 | — | 525 | |||||||||||||||||||
| Acquisition related integration costs | 153 | 215 | — | 368 | |||||||||||||||||||
| Amortization | 1,893 | — | — | 1,893 | |||||||||||||||||||
| Adjusted non-GAAP gross profit | $ | 520,127 | $ | 617,382 | $ | 8 | $ | 1,137,517 | |||||||||||||||
| Operating profit | |||||||||||||||||||||||
| GAAP operating profit | $ | 247,838 | $ | 76,965 | $ | (47,723) | $ | 277,080 | |||||||||||||||
| Non-GAAP adjustments: | |||||||||||||||||||||||
| Share-based compensation | 3,796 | 5,016 | 15,110 | 23,922 | |||||||||||||||||||
| Acquisition related integration costs | 1,917 | 15,105 | — | 17,022 | |||||||||||||||||||
| Amortization | 69,386 | 110,623 | 2,487 | 182,496 | |||||||||||||||||||
| Additional tax expense from prior years | 104 | — | — | 104 | |||||||||||||||||||
| Adjusted non-GAAP operating profit | $ | 323,041 | $ | 207,709 | $ | (30,126) | $ | 500,624 | |||||||||||||||
| Depreciation | 11,585 | 37,951 | — | 49,536 | |||||||||||||||||||
| Adjusted EBITDA | $ | 334,626 | $ | 245,660 | $ | (30,126) | $ | 550,160 | |||||||||||||||
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. | |||||||||||||||||||||||
F O U R T H Q U A R T E R A N D F U L L Y E A R 2 0 2 0 R E S U L T S F E B R U A R Y 1 2 , 2 0 2 1
Safe Harbor for Forward-Looking Statements Certain statements in this presentation are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, particularly those regarding our 2021 Financial Guidance. Such forward-looking statements are subject to numerous assumptions, risks and uncertainties that could cause actual results to differ materially from those described in those statements. Readers should carefully review the Risk Factors slide of this presentation. These forward-looking statements are based on management’s expectations or beliefs as of February 12, 2021 as well as those set forth in our Annual Report on Form 10-K filed by us on March 2, 2020 with the Securities and Exchange Commission (“SEC”) and the other reports we file from time to time with the SEC. We undertake no obligation to revise or publicly release any updates to such statements based on future information or actual results. Such forward-looking statements address the following subjects, among others: All information in this presentation speaks as of February 12, 2021 and any redistribution or rebroadcast of this presentation after that date is not intended and will not be construed as updating or confirming such information. • Future operating results • Ability to acquire businesses on acceptable terms and integrate and recognize synergies from acquired businesses • Deployment of cash and investment balances to grow the company • Subscriber growth, retention, usage levels and average revenue per account • Cloud services and digital media growth and continued demand for fax services • International growth • New products, services, features and technologies • Corporate spending including stock repurchases • Intellectual property and related licensing revenues • Liquidity and ability to repay or refinance indebtedness • Systems capacity, coverage, reliability and security • Regulatory developments and taxes 2
Risk Factors • Inability to sustain growth or profitability, and any related impact of U.S. or worldwide economic issues on customer acquisition, retention and usage levels, advertising spend and credit and debit card payment declines • Inability to acquire businesses on acceptable terms or successfully integrate and realize anticipated synergies • Reduced use of fax services due to increased use of email, scanning or widespread adoption of digital signatures or otherwise • Failure to offer compelling digital media content causing reduced traffic and advertising levels; loss of advertisers or reduction in advertising spend; increased prevalence or effectiveness of advertising blocking technologies; inability to monetize handheld devices and handheld traffic supplanting monetized traffic; and changes by our vendors or partners that impact our traffic or publisher audience acquisition and/or monetization • New or unanticipated costs and/or fees or tax liabilities, including those relating to federal and state income tax and indirect taxes, such as sales, value-added and telecommunications taxes • The scope and duration of the COVID-19 pandemic, actions taken by governmental authorities in response to the pandemic, and the direct and indirect impact of the pandemic on our customers, third parties and us, as well as other unforeseen global crises, such as war, strife, global health pandemics, earthquakes, or major weather events or other uncontrollable events could negatively impact our revenue and operating results • Inability to manage certain risks inherent to our business, such as fraudulent activity, system failure, security breach, or compliance obligations; inability to manage reputational risks associated with our businesses • Competition from others with regard to price, service, content and functionality • Inadequate intellectual property (IP) protection, expiration, invalidity or loss of key patents, violations of 3rd party IP rights or inability or significant delay in monetizing IP • Inability to continue to expand our business and operations internationally • Inability to maintain required services on acceptable terms with financially stable telecom, co-location and other critical vendors; and inability to obtain telephone numbers in sufficient quantities on acceptable terms and in desired locations • Level of debt limiting availability of cash flow to reinvest in the business; inability to repay or refinance debt when due; and restrictive covenants relating to debt imposing operating and financial restrictions on business activities or plans • Inability to maintain and increase our customer base or average revenue per user • Inability to achieve business or financial results in light of burdensome telecommunications, internet, advertising, health care, consumer, privacy or other regulations, or being subject to existing regulations • Inability to adapt to technological change and diversify services and related revenues at acceptable levels of financial return • Loss of services of executive officers and other key employees • Other factors set forth in our Annual Report on Form 10-K filed by us on March 2, 2020 with the SEC and the other reports we file from time to time with the SEC The following factors, among others, could cause our business, prospects, financial condition, operating results and cash flows to be materially adversely affected: 3
Q4 2020 Consolidated Financial Snapshot (1) See slides 17, and 19-23 for a GAAP to non-GAAP reconciliation of adjusted gross profit, adjusted EBITDA and adjusted earnings per diluted share for the Company as a whole and by Business for Q4 2020 (2) Figures are adjusted non-GAAP4
FY 2020 Consolidated Financial Snapshot (1) See slides 17, and 19-23 for a GAAP to non-GAAP reconciliation of adjusted gross profit, adjusted EBITDA and adjusted earnings per diluted share for the Company as a whole and by Business for FY 2020 (2) Figures are adjusted non-GAAP5
Adjusted EBITDA and Free Cash Flow (1) (1) See slides 18 and 19 for a GAAP reconciliation of Free Cash Flow and adjusted EBITDA (2) Figures are adjusted non-GAAP 6
Q4 2020 Financial Snapshot By Business 7 (1) Figures are adjusted non-GAAP (2) See slides 20 and 21 for a GAAP reconciliation of adjusted EBITDA for the Company as a whole and by Business for Q4 2020
FY 2020 Financial Snapshot By Business 8 (1) Figures are adjusted non-GAAP (2) See slides 22 and 23 for a GAAP reconciliation of adjusted EBITDA for the Company as a whole and by Business for FY 2020
2021 FINANCIAL GUIDANCE
10 2021 Outlook (Forward-Looking Statements) (1) Figures are adjusted non-GAAP. (2) See slides 17-23 for a GAAP reconciliation of adjusted earnings per diluted share, free cash flow, and adjusted EBITDA; these EBITDA margins are before corporate allocations Our guidance is exclusive of the B2B backup assets and, for comparative purposes to 2020, also excludes our previously sold UK and ANZ Voice assets Cloud Services • Excludes B2B Backup and Voice UK assets • Revenue growth expected to be ~3% • Adjusted EBITDA(1)(2) margin expected to be between 48% - 49% • 150bps of investments in our Cybersecurity and MarTech businesses Digital Media • Revenue growth expected to be ~25% • Adjusted EBITDA(1)(2) margin expected to be 38% - 39% • Distribution of Revenues in 2020 • Q1 expected to represent ~20% of total annual Revenue • Q4 expected to represent ~32% of total annual Revenue Corporate • Tax rate expected to be between 22% - 24% • Excludes Share-Based Compensation of between $20 - $24MM • Effective Share Count used for EPS calculation is estimated to be 44.6MM, with no assumed dilution from the convertible notes
11 2021 Guidance (Forward-Looking Statements) Our annual guidance of Revenues, Adjusted EBITDA and Adjusted non-GAAP EPS (1)(2)(3) (1) Figures are adjusted non-GAAP (2) Adjusted earnings per diluted share excludes share-based compensation, amortization of acquired intangibles and the impact of any currently anticipated items, in each case net of tax (3) 2021 Revenues cannot be reconciled to GAAP as it is unknown when the sale of the Company’s B2B Backup business will occur Actuals Excluded Assets Non-GAAP Pro-Forma Revenue ($MM) $1,490 ($68) $1,422 Adjusted EBITDA ($MM) $616 ($26) $590 Adjusted Non-GAAP EPS $8.18 ($0.38) $7.80 FY 2020 Low Midpoint High Midpoint YoY % Increase vs 2020PF Revenue ($MM) $1,630 $1,653 $1,676 16.2% Adjusted EBITDA ($MM) $646 $656 $666 11.2% Adjusted Non-GAAP EPS $8.93 $9.10 $9.27 16.7% J2 FY 2021 Guidance Range
12 Pro-Forma(1) Performance (1) 2017-2020 figures are pro-forma (unaudited) for the exclusion of certain assets within Voice ANZ, Voice UK, and B2B Backup; see slide 24 for reconciliation from Actuals to Pro-Forma (2) Revenue cannot be reconciled to GAAP as it is unknown when the sale of the Company’s B2B Backup business will occur (3) 2021 is the midpoint of the 2021 guidance range 42% 40% 40% 42% 40% EBITDA Margin
SUPPLEMENTAL INFORMATION
Consolidated Metrics (1) See slide 17 for a reconciliation of adjusted non-GAAP earnings and EPS to GAAP Net Income and diluted GAAP EPS (2) See slide 18 for a definition of Free Cash Flow and reconciliation to Net Cash Provided by Operating Activities (3) See slide 19 for a definition of adjusted EBITDA and reconciliation to Net Income (4) Figures are adjusted non-GAAP 14
Cloud Services & Digital Media Metrics (1) Cloud Services revenue includes IP Licensing revenue; Q3 2020 Cloud Services Revenue excludes $1.0MM in projected September revenues and $0.3MM in September EBITDA for the divested Voice ANZ asset (2) Cloud Services Customers are defined as paying DIDs for Fax & Voice services and direct and resellers’ accounts for other services (3) Quarterly Average Revenue per Customer is calculated using our standard convention of applying the average of the quarter’s beginning and ending customer base to the total revenue of the quarter; Q2 2019 assumes NetProtect acquisition closed on March 31, instead of April 2, 2019 (4) User cancel rate, also called user churn, is defined as cancellation of service by Cloud Business customers with greater than four months of continuous service (continuous service includes Cloud Business customers that are administratively cancelled and reactivated within the same calendar month). User cancel rate is calculated monthly and expressed here as an average over the three months of the quarter (5) Digital Media Traffic figures based on Google Analytics & Partner Platforms; To more accurately reflect customer activity at Ookla, we have shifted to using tests as the basis instead of Google Analytics, resulting in pro-forma adjustments to data from Q4 2019 through Q4 2020 15 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Revenue by Type Fixed Subscriber Revenues (1) $120,840 $123,648 $123,111 $121,350 $124,309 $140,352 $141,832 $142,420 $141,486 $140,755 $144,525 $144,864 Variable Subscriber Revenues (1) $28,482 $26,479 $26,781 $26,591 $27,481 $28,557 $29,139 $26,725 $28,262 $26,285 $25,708 $26,128 Subscriber Revenues $149,322 $150,127 $149,892 $147,940 $151,790 $168,909 $170,971 $169,145 $169,748 $167,039 $170,233 $170,991 Other Licenses Revenue $163 $170 $202 $158 $455 $223 $192 $151 $36 $18 $15 $380 Total Cloud Services Revenues $149,485 $150,297 $150,094 $148,099 $152,245 $169,132 $171,163 $169,296 $169,784 $167,058 $170,248 $171,372 Revenue - DID vs Non-DID DID Based Revenues $98,692 $98,488 $98,897 $97,003 $97,068 $97,379 $97,219 $96,668 $96,514 $94,988 $98,000 $97,397 Non-DID Based Revenues $50,793 $51,809 $51,197 $51,096 $55,177 $71,753 $73,944 $72,628 $73,270 $72,070 $72,248 $73,974 Total Cloud Services Revenues $149,485 $150,297 $150,094 $148,099 $152,245 $169,132 $171,163 $169,296 $169,784 $167,058 $170,248 $171,372 Cloud Services Customers (2) 3,185 3,197 3,204 3,165 3,148 4,015 4,039 4,036 4,076 4,076 4,041 4,018 Average Monthly Revenue/Customer (3) $15.65 $15.68 $15.61 $15.49 $16.03 $14.01 $14.15 $13.96 $13.95 $13.66 $13.98 $14.14 Cancel Rate (4) 2.2% 2.0% 2.2% 2.1% 2.2% 2.5% 2.4% 2.4% 2.3% 2.2% 2.1% 2.4% Visits 1,957,985 1,952,270 1,949,167 1,846,496 1,806,992 1,618,612 1,856,953 2,259,469 2,145,142 2,359,206 2,196,539 2,390,020 Views 8,159,496 7,528,471 7,980,168 8,058,385 7,086,701 6,492,120 7,008,292 7,583,974 7,166,683 7,553,164 7,166,624 8,659,830 2020 Digital Media Metrics (5) (i n ' 0 0 0 s) |- -- -- -- -- -- -- -- -- -- -- -( in '0 0 0 s) -- -- -- -- -- -- -- -- -- -- -- | 2019 Cloud Services Metrics 2018
16 Return on Invested Capital (ROIC) Calculation (1) Cumulative spend based on PPE, purchase of acquisitions (net of proceeds from sale of businesses), purchase of intangibles and deferred payments for acquisitions from Statement of Cash Flow; Average is the current year’s ending balance and previous year’s ending balance divided by two (2) Adjusted EBITDA is defined as net income plus interest and other expense, net; income tax expense; depreciation and amortization and the items used to reconcile GAAP to Adjusted Non-GAAP EPS. Adjusted EBITDA amounts are not meant as a substitute for GAAP, but are solely for informational purposes. See slide 19 for GAAP reconciliation to adjusted EBITDA (3) Figures are adjusted non-GAAP (4) Investment Equity Capital defined as Initial Equity plus GAAP Net Income less Dividends less Buybacks (5) Net Debt defined as Total Debt less Cash (in Millions) Cumulative Spend (1) Adjusted EBITDA (2)(3) Cumulative Spend / Adjusted EBITDA (3) Free Cash Flow (FCF) (3) Cumulative FCF (3) since 2008 Invested Equity Capital (IEC) (4) ROIC FCF (3) / IEC (4) IEC (4) & Net Debt (5) ROIC FCF (3) / (IEC (4) & Net Debt (5) ) 2014 $920.5 $262.6 3.5x $171.5 $945.6 $513.1 33.4% $672.7 25.5% 2015 $1,209.1 $333.3 3.6x $223.2 $1,168.8 $580.9 38.4% $926.5 24.1% 2016 $1,671.8 $396.1 4.2x $267.9 $1,436.7 $659.8 40.6% $1,137.6 23.5% 2017 $2,052.7 $463.0 4.4x $264.8 $1,701.5 $718.2 36.9% $1,419.8 18.7% 2018 $2,315.2 $489.5 4.7x $344.9 $2,046.4 $722.8 47.7% $1,526.5 22.6% 2019 $2,742.6 $550.2 5.0x $350.4 $2,396.8 $802.4 43.7% $1,675.3 20.9% 2020 $3,260.7 $615.7 5.3x $407.7 $2,804.5 $744.5 54.8% $2,080.8 19.6%
Q4 and FY 2020 Reconciliation of GAAP to Adjusted Non-GAAP Earnings & EPS(1) 17 Non-GAAP net income is GAAP net income 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 the convertible notes and overlapping interest of senior notes prior to extinguishment; (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) lease asset impairments and other charges; and (10) leasehold improvement impairments.
GAAP Reconciliation - Free Cash Flow (1)(2) 18 (1) Free Cash Flow is defined as net cash provided by operating activities, less purchases of property, plant and equipment, plus excess tax benefits (deficits) from share based compensation, plus IRS settlement, plus contingent consideration. Free Cash Flow amounts are not meant as a substitute for GAAP, but are solely for informational purposes; The free cash flows in 2016, 2017, 2019, and 2020 are before the effect of payments associated with certain contingent consideration associated with recent acquisitions (2) Figures are adjusted non-GAAP
GAAP Reconciliation - Adjusted EBITDA (1)(2) (1) Adjusted EBITDA is defined as net income plus interest and other expense, net; income tax expense; depreciation and amortization and the items used to reconcile GAAP to Adjusted Non-GAAP EPS. Adjusted EBITDA amounts are not meant as a substitute for GAAP, but are solely for informational purposes (2) Figures are adjusted non-GAAP19 (Figures in Millions)
(1) Figures are adjusted non-GAAP 20 Q4 2020 Reconciliation of GAAP to Adjusted EBITDA (1) NOTE 1: Table above excludes certain intercompany allocations
21 (1) Figures are adjusted non-GAAP Q4 2019 Reconciliation of GAAP to Adjusted EBITDA (1) 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
(1) Figures are adjusted non-GAAP22 FY 2020 Reconciliation of GAAP to Adjusted EBITDA (1) 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
(1) Figures are adjusted non-GAAP 23 FY 2019 Reconciliation of GAAP to Adjusted EBITDA (1) 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
(1) Adjustments for excluded assets consist of certain Voice assets in Australia and New Zealand that were sold in the third quarter of 2020, certain Voice assets in the United Kingdom that were sold in February 2021, and the certain assets of the Company’s B2B Backup business24 Reconciliation of Non-GAAP to Pro-Forma 2017A 2018A 2019A 2020A Stated Revenues $1,117.8 $1,207.3 $1,372.1 $1,489.6 Adjustments (1) (143.1) (95.1) (84.4) (67.9) Pro-forma Total 974.7 1,112.2 1,287.7 1,421.7 Stated EBITDA 463.0 489.5 550.3 615.7 Adjustments (1) (56.5) (43.7) (38.6) (25.7) Pro-forma Total 406.5 445.8 511.8 590.0 Stated Diluted EPS 5.64 6.35 7.08 8.18 Adjustments (1) (0.85) (0.74) (0.54) (0.38) Pro-forma Total $4.79 $5.61 $6.54 $7.80 (Figures in Thousands, except per share amounts)
