jcom-20200810
0001084048false00010840482020-08-102020-08-10

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) August 10, 2020
jcom-20200810_g1.jpg
J2 Global, Inc.
(Exact name of registrant as specified in its charter)
Delaware
0-25965
47-1053457
(State or other jurisdiction of incorporation or organization)
(Commission File Number)
(I.R.S. Employer Identification No.)
700 S. Flower Street, 15th Floor
Los Angeles, California 90017
(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):

☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.01 par valueJCOMNasdaq Stock Market LLC
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 August 10, 2020, J2 Global, Inc. (the “Company”) issued a press release (the “Press Release”) announcing its financial results for the second quarter of fiscal 2020 and financial guidance for the remainder of fiscal year 2020.

A copy of the Press Release is furnished as Exhibit 99.1 to this Form 8-K.

Item 7.01. Regulation FD Disclosure

On August 11, 2020, at 8:30 a.m. Eastern Time, the Company will host its second quarter 2020 earnings conference call and Webcast. Via the Webcast, the Company will present portions of its August 2020 Investor Presentation, which contains a summary of the Company’s financial results for the fiscal quarter ended June 30, 2020, financial estimates, 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.

On August 12, 2020, the Company will participate in the Oppenheimer 23rd Annual Technology, Internet & Communications Conference. No Webcast is available.

Item 8.01. Other Events

On August 6, 2020, the Board of Directors (the “Board”) of the Company authorized and approved a share repurchase program for up to 10 million shares of the Company’s common stock over a period of five years. Under the stock repurchase program, the Company intends to repurchase shares through open market purchases, privately-negotiated transactions, block purchases or otherwise in accordance with applicable federal securities laws, including Rule 10b-18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

The Board also authorized the Company to enter into written trading plans under Rule 10b5-1 of the Exchange Act. Adopting a trading plan that satisfies the conditions of Rule 10b5-1 allows a company to repurchase its shares at times when it might otherwise be prevented from doing so due to self-imposed trading blackout periods or pursuant to insider trading laws. Under any Rule 10b5-1 trading plan, the Company’s third-party broker, subject to Securities and Exchange Commission regulations regarding certain price, market, volume and timing constraints, would have authority to purchase the Company’s common stock in accordance with the terms of the plan. The Company may from time to time enter into Rule 10b5-1 trading plans to facilitate the repurchase of its common stock pursuant to its share repurchase program.

The Company cannot predict when or if it will repurchase any shares of common stock as such stock repurchase program will depend on a number of factors, including constraints specified in any Rule 10b5-1 trading plans, price, general business and market conditions, and alternative investment opportunities. Information regarding share repurchases will be available in the Company’s periodic reports on Form 10-Q and 10-K filed with the Securities and Exchange Commission as required by the applicable rules of the Exchange Act.

Item 9.01. Financial Statements and Exhibits

(d) Exhibits
Exhibit
Number
   
 
Description
99.1 
99.2
104Cover 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 August 10, 2020. 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:August 10, 2020By:/s/ Jeremy Rossen
    Jeremy Rossen
Executive Vice President, General Counsel


J2 Global Reports Second Quarter 2020 Results

Achieves Record Second Quarter Revenues
Announces Share Repurchase Program of up to 10 Million Shares

LOS ANGELES -- J2 Global, Inc. (NASDAQ: JCOM) today reported financial results for the second quarter ended June 30, 2020.

“J2’s outstanding results in an exceptionally challenging environment demonstrate the strength and quality of our business and the dedication of our employees,” said Vivek Shah, CEO of J2 Global. “Our adaptability and focus led to record-breaking revenues, Adjusted EBITDA, and free cash flow for the quarter.”

SECOND QUARTER 2020 RESULTS

Q2 2020 quarterly revenues increased 2.7% to a second quarter record of $331.0 million compared to $322.4 million for Q2 2019.  

Net cash provided by operating activities increased to $139.6 million compared to $95.4 million for Q2 2019. Q2 2020 free cash flow(2) increased 35.1% to $115.9 million compared to $85.8 million for Q2 2019.

GAAP earnings per diluted share(3) increased 21.1% to $0.80 in Q2 2020 compared to $0.66 for Q2 2019.

Adjusted non-GAAP earnings per diluted share(3)(4) for the quarter increased 7.0% to $1.71 as compared to $1.60 for Q2 2019.

GAAP net income increased by 16.9% to $38.1 million as compared to $32.6 million for Q2 2019. 

Quarterly Adjusted EBITDA(5) increased 6.1% to $132.9 million compared to $125.2 million for Q2 2019.

J2 ended the quarter with approximately $711 million in cash, cash equivalents, and investments after deploying approximately $1 million during the quarter in connection with contingent consideration payments for acquisitions from previous years. In addition, J2 deployed approximately $24 million in respect of its share repurchase program during the quarter.

Key financial results for Q2 2020 versus Q2 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.
 Q2 2020Q2 2019% Change
Revenues   
Cloud Services$167.1 million$169.1 million(1.2)%
Digital Media$163.9 million$153.3 million6.9%
Total Revenue: (1)
$331.0 million$322.4 million2.7%
Operating Income$73.0 million$56.6 million29.0%
Net Cash Provided by Operating Activities$139.6 million$95.4 million46.4%
Free Cash Flow (2)
$115.9 million$85.8 million35.1%
GAAP Earnings per Diluted Share (3)
$0.80$0.6621.1%
Adjusted Non-GAAP Earnings per Diluted Share (3) (4)
$1.71$1.607.0%
GAAP Net Income$38.1 million$32.6 million16.9%
Adjusted Non-GAAP Net Income$80.6 million$77.7 million3.7%
Adjusted EBITDA (5)
$132.9 million$125.2 million6.1%
Adjusted EBITDA Margin (5)
40.1%38.8%3.4%



BUSINESS OUTLOOK

The Company has reinstated full-year guidance and now estimates that for fiscal year 2020 it will achieve revenues between $1.380 billion and $1.400 billion; Adjusted EBITDA between $556 million and $570 million; and Adjusted non-GAAP earnings per diluted share of between $7.17 and $7.41.

Adjusted non-GAAP earnings per diluted share for 2020 excludes share-based compensation of between $23 million and $27 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 2020 (exclusive of the release of reserves for uncertain tax positions) will be between 20.5% and 22.5%.

The Company has not reconciled the Adjusted non-GAAP earnings per diluted share and any related 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.

SHARE REPURCHASE PROGRAM

J2 Global’s Board of Directors has approved a share repurchase program. Under the new program, the Company may purchase in the public market or in off-market transactions up to 10 million shares through August 6, 2025. The timing and amounts of any purchases will be determined by the Company from time to time, depending on market conditions and other factors it deems relevant.

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 26.7% for Q2 2020 and 28.1% for Q2 2019. The estimated Adjusted non-GAAP effective tax rates were approximately 21.8% for Q2 2020 and 21.0% for Q2 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 June 30, 2020 and 2019 totaled $0.91 and $0.94 per diluted share, respectively.
(5)Adjusted EBITDA is defined as earnings before interest; loss on investments, net; other (income) expense, net; income tax expense; net loss (income) 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.



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, 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 of 180 million people per month across its brands. As of December 31, 2019, J2 had achieved 24 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
[email protected]
 
“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 2020 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 2020 financial performance are based on limited information available to the Company at this time, which is subject to change. Although management’s expectations may change after the date of this press release, the Company undertakes no obligation to revise or update these statements.

About Non-GAAP Financial Measures

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

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

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


J2 GLOBAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED, IN THOUSANDS)
June 30, 2020December 31, 2019
ASSETS  
Cash and cash equivalents$616,820  $575,615  
Accounts receivable, net of allowances of $11,834 and $12,701, respectively188,383  261,928  
Prepaid expenses and other current assets45,767  49,347  
Current assets held for sale2,175  —  
Total current assets853,145  886,890  
Long-term investments 94,042  100,079  
Property and equipment, net144,494  127,817  
Operating lease right-of-use assets110,031  125,822  
Goodwill1,637,287  1,633,033  
Other purchased intangibles, net490,435  556,553  
Deferred income taxes, noncurrent56,947  59,976  
Other assets16,199  15,676  
Noncurrent assets held for sale16,865  —  
TOTAL ASSETS$3,419,445  $3,505,846  
LIABILITIES AND STOCKHOLDERS’ EQUITY 
Accounts payable and accrued expenses$166,289  $238,059  
Income taxes payable, current24,402  17,758  
Deferred revenue, current159,907  162,855  
Operating lease liabilities, current26,602  26,927  
Current portion of long-term debt391,092  385,532  
Other current liabilities1,501  1,973  
Current liabilities held for sale2,388  —  
Total current liabilities772,181  833,104  
Long-term debt1,071,364  1,062,929  
Deferred revenue, noncurrent11,501  12,744  
Operating lease liabilities, noncurrent91,279  104,070  
Income taxes payable, noncurrent11,675  11,675  
Liability for uncertain tax positions57,565  52,451  
Deferred income taxes, noncurrent111,746  107,453  
Other long-term liabilities28,810  10,228  
Noncurrent liabilities held for sale156  —  
TOTAL LIABILITIES2,156,277  2,194,654  
Commitments and contingencies—  —  
Preferred stock —  —  
Common stock469  476  
Additional paid-in capital 467,267  465,652  
Retained earnings850,232  891,526  
Accumulated other comprehensive loss(54,800) (46,462) 
TOTAL STOCKHOLDERS’ EQUITY1,263,168  1,311,192  
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY$3,419,445  $3,505,846  



J2 GLOBAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED, IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
Three Months Ended
June 30,		Six Months Ended
June 30,
2020201920202019
Total revenues$330,984  $322,432  $663,377  $622,325  
Cost of revenues (1)
56,802  60,266  115,933  111,279  
Gross profit274,182  262,166  547,444  511,046  
Operating expenses:
Sales and marketing (1)
92,805  88,446  192,243  175,326  
Research, development and engineering (1)
13,606  11,938  29,012  24,922  
General and administrative (1)
94,731  105,168  197,902  203,322  
Total operating expenses201,142  205,552  419,157  403,570  
Income from operations73,040  56,614  128,287  107,476  
Interest expense, net22,196  17,335  43,167  33,354  
Loss on investments, net3  24  20,835  38  
Other (income) expense, net(9,059) (401) (2,183) 1,800  
Income before income taxes and net loss (income) in earnings of equity method investment59,900  39,656  66,468  72,284  
Income tax expense15,978  11,148  24,681  10,853  
Net loss (income) in earnings of equity method investment5,821  (4,081) 10,090  (3,607) 
Net income$38,101  $32,589  $31,697  $65,038  
Basic net income per common share:
Net income attributable to J2 Global, Inc. common shareholders$0.81  $0.67  $0.67  $1.35  
Diluted net income per common share:
Net income attributable to J2 Global, Inc. common shareholders$0.80  $0.66  $0.65  $1.32  
Basic weighted average shares outstanding46,850,944  47,727,786  47,235,859  47,644,729  
Diluted weighted average shares outstanding47,437,555  49,102,879  48,279,417  48,806,492  
(1) Includes share-based compensation expense as follows:
Cost of revenues$143  $131  $277  $263  
Sales and marketing416  389  814  793  
Research, development and engineering484  361  915  719  
General and administrative5,487  5,981  10,837  10,173  
Total$6,530  $6,862  $12,843  $11,948  




J2 GLOBAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
                                                              Six Months Ended
June 30,
 Cash flows from operating activities:20202019
Net income$31,697  $65,038  
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization104,068  106,212  
Amortization of financing costs and discounts14,102  5,995  
Non-cash operating lease costs11,453  9,038  
Share-based compensation12,843  11,948  
Provision for doubtful accounts6,793  5,686  
Deferred income taxes, net2,752  3,908  
Changes in fair value of contingent consideration(232) 8,475  
Foreign currency remeasurement gain(704) —  
Loss (income) on equity method investments10,090  (4,765) 
Loss on equity and debt investments20,826  —  
Decrease (increase) in:
Accounts receivable63,675  42,930  
Prepaid expenses and other current assets(4,185) (3,277) 
Other assets(300) (1,233) 
Increase (decrease) in:
Accounts payable and accrued expenses(34,682) (12,452) 
Income taxes payable7,376  (3,810) 
Deferred revenue(2,698) (3,292) 
Operating lease liabilities(8,780) (8,833) 
Liability for uncertain tax positions5,114  (10,811) 
Other long-term liabilities2,419  1,454  
Net cash provided by operating activities241,627  212,211  
Cash flows from investing activities:
Purchases of equity method investment(26,523) (14,668) 
Purchases of equity investments(843) —  
Purchases of property and equipment(50,537) (30,791) 
Acquisition of businesses, net of cash received(19,349) (266,000) 
Proceeds from sale of assets407  —  
Purchases of intangible assets(23) —  
Net cash used in investing activities(96,868) (311,459) 
Cash flows from financing activities:
Proceeds from line of credit—  100,000  
Repurchase of common stock(88,469) (3,807) 
Issuance of common stock under employee stock purchase plan3,303  1,995  
Exercise of stock options952  5,274  
Dividends paid—  (43,965) 
Deferred payments for acquisitions(16,296) (14,269) 
Other(1,032) (429) 
Net cash (used in) provided by financing activities(101,542) 44,799  
Effect of exchange rate changes on cash and cash equivalents(2,012) 451  
Net change in cash and cash equivalents41,205  (53,998) 
Cash and cash equivalents at beginning of period575,615  209,474  
Cash and cash equivalents at end of period$616,820  $155,476  



J2 GLOBAL, INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP TO ADJUSTED NON-GAAP FINANCIAL MEASURES
THREE AND SIX MONTHS ENDED JUNE 30, 2020 AND 2019
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Non-GAAP net income is GAAP net income with the following modifications: (1) elimination of share-based compensation; (2) elimination of certain acquisition related integration costs; (3) elimination of interest costs in excess of the coupon rate associated with the convertible notes; (4) elimination of amortization of patents and intangible assets that we acquired; (5) elimination of 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 June 30,
2020
Per Diluted Share *
2019
Per Diluted Share *
Net income$38,101  $0.80  $32,589  $0.66  
Plus:
Share based compensation (1)
4,990  0.11  6,266  0.13  
Acquisition related integration costs (2)
498  0.01  3,245  0.07  
Interest costs (3)
4,831  0.10  2,438  0.05  
Amortization (4)
25,225  0.54  35,938  0.75  
Investments (5)
9,714  0.21  (4,081) (0.08) 
Tax expense from prior years (6)
1,977  0.04  1,335  0.03  
Sale of assets (7)
(137) —  —  —  
Intra-entity transfers (8)
(6,432) (0.14) —  —  
Lease asset impairments and other charges (9)
1,826  0.04  —  —  
Convertible debt dilution (10)
—  0.01  —  0.02  
Adjusted non-GAAP net income$80,593  $1.71  $77,730  $1.60  
* The reconciliation of net income per share from GAAP to Adjusted non-GAAP may not foot since each is calculated independently.


Six Months Ended June 30,
2020
Per Diluted Share *
2019
Per Diluted Share *
Net income$31,697  $0.65  $65,038  $1.32  
Plus:
Share based compensation (1)
9,798  0.21  9,553  0.20  
Acquisition related integration costs (2)
1,593  0.03  7,620  0.16  
Interest costs (3)
9,146  0.19  3,735  0.08  
Amortization (4)
57,083  1.21  61,441  1.29  
Investments (5)
34,808  0.73  (3,607) (0.07) 
Tax expense from prior years (6)
2,365  0.05  2,345  0.05  
Sale of assets (7)
(334) (0.01) —  —  
Intra-entity transfers (8)
131  —  —  —  
Lease asset impairments and other charges (9)
1,826  0.04  —  —  
Convertible debt dilution (10)
—  0.01  —  0.03  
Adjusted non-GAAP net income$148,113  $3.11  $146,125  $3.00  
* The reconciliation of net income per share from GAAP to Adjusted non-GAAP may not foot since each is calculated independently.


J2 GLOBAL, INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP TO ADJUSTED NON-GAAP FINANCIAL MEASURES
THREE MONTHS ENDED JUNE 30, 2020 AND 2019
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Non-GAAP net income is GAAP net income with the following modifications: (1) elimination of share-based compensation; (2) elimination of certain acquisition related integration costs; (3) elimination of interest costs in excess of the coupon rate associated with the convertible notes; (4) elimination of amortization of patents and intangible assets that we acquired; (5) elimination of 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 June 30,
20202019
Cost of revenues$56,802  $60,266  
Plus:
Share based compensation (1)
(143) (131) 
Acquisition related integration costs (2)
(55) (55) 
Amortization (4)
(448) (461) 
Adjusted non-GAAP cost of revenues$56,156  $59,619  
Sales and marketing$92,805  $88,446  
Plus:
Share based compensation (1)
(416) (389) 
Acquisition related integration costs (2)
(167) 154  
Adjusted non-GAAP sales and marketing$92,222  $88,211  
Research, development and engineering$13,606  $11,938  
Plus:
Share based compensation (1)
(484) (361) 
Acquisition related integration costs (2)
26  —  
Adjusted non-GAAP research, development and engineering$13,148  $11,577  
General and administrative$94,731  $105,168  
Plus:
Share based compensation (1)
(5,487) (5,981) 
Acquisition related integration costs (2)
(605) (4,794) 
Amortization (4)
(35,439) (44,493) 
Lease asset impairments and other charges (9)
(2,406) —  
Adjusted non-GAAP general and administrative$50,794  $49,900  
Interest expense, net$22,196  $17,335  
Plus:
Interest costs (3)
(6,018) (2,276) 
Adjusted non-GAAP interest expense, net$16,178  $15,059  
Loss on investments, net$3  $24  
Adjusted non-GAAP loss on investments, net$3  $24  
Other income, net$(9,059) $(401) 
Plus:
Sale of assets (7)
181  —  
Intra-entity transfers (8)
8,267  —  
Adjusted non-GAAP other income, net$(611) $(401) 


Continued from previous page
Income tax provision$15,978  $11,148  
Plus:
Share based compensation (1)
1,540  596  
Acquisition related integration costs (2)
303  1,450  
Interest costs (3)
1,187  (162) 
Amortization (4)
10,662  9,016  
Investments (5)
(3,893) —  
Tax benefit from prior years (6)
(1,977) (1,335) 
Sale of assets (7)
(44) —  
Intra-entity transfers (8)
(1,835) —  
Lease asset impairments and other charges (9)
580  —  
Adjusted non-GAAP income tax provision$22,501  $20,713  
Net loss (income) in earnings of equity method investment$5,821  $(4,081) 
Plus:
Investments (5)
(5,821) 4,081  
Adjusted non-GAAP net loss (income) in earnings of equity method investment$—  $—  
Total adjustments$(42,492) $(45,141) 
GAAP earnings per diluted share$0.80  $0.66  
Adjustments *$0.91  $0.94  
Adjusted non-GAAP earnings per diluted share$1.71  $1.60  
* The reconciliation of net income per share from GAAP to Adjusted non-GAAP may not foot since each is calculated independently.

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

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



J2 GLOBAL, INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP TO ADJUSTED NON-GAAP FINANCIAL MEASURES
SIX MONTHS ENDED JUNE 30, 2020 AND 2019
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Non-GAAP net income is GAAP net income with the following modifications: (1) elimination of share-based compensation; (2) elimination of certain acquisition related integration costs; (3) elimination of interest costs in excess of the coupon rate associated with the convertible notes; (4) elimination of amortization of patents and intangible assets that we acquired; (5) elimination of 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.
Six Months Ended June 30,
20202019
Cost of revenues$115,933  $111,279  
Plus:
Share based compensation (1)
(277) (263) 
Acquisition related integration costs (2)
(110) (55) 
Amortization (4)
(898) (983) 
Adjusted non-GAAP cost of revenues$114,648  $109,978  
Sales and marketing$192,243  $175,326  
Plus:
Share based compensation (1)
(814) (793) 
Acquisition related integration costs (2)
(681) 276  
Adjusted non-GAAP sales and marketing$190,748  $174,809  
Research, development and engineering$29,012  $24,922  
Plus:
Share based compensation (1)
(915) (719) 
Acquisition related integration costs (2)
26  —  
Adjusted non-GAAP research, development and engineering$28,123  $24,203  
General and administrative$197,902  $203,322  
Plus:
Share based compensation (1)
(10,837) (10,173) 
Acquisition related integration costs (2)
(1,334) (10,280) 
Amortization (4)
(74,152) (81,813) 
Tax expense from prior years (6)
—  (3,373) 
Lease asset impairments and other charges (9)
(2,406) —  
Adjusted non-GAAP general and administrative$109,173  $97,683  
Interest expense, net$43,167  $33,354  
Plus:
Acquisition related integration costs (2)
—  27  
Interest costs (3)
(11,952) (4,519) 
Adjusted non-GAAP interest expense, net$31,215  $28,862  
Loss on investments, net$20,835  $38  
Plus:
Investments (5)
(20,825) —  
Adjusted non-GAAP loss on investments, net$10  $38  


Continued from previous page
Other (income) expense, net$(2,183) $1,800  
Plus:
Sale of assets (7)
438  —  
Intra-entity transfers (8)
1,565  —  
Adjusted non-GAAP other (income) expense, net$(180) $1,800  
Income tax provision$24,681  $10,853  
Plus:
Share based compensation (1)
3,045  2,395  
Acquisition related integration costs (2)
506  2,412  
Interest costs (3)
2,806  784  
Amortization (4)
17,967  21,355  
Investments (5)
(3,893) —  
Tax (benefit) expense from prior years (6)
(2,365) 1,028  
Sale of assets (7)
(104) —  
Intra-entity transfers (8)
(1,696) —  
Lease asset impairments and other charges (9)
580  —  
Adjusted non-GAAP income tax provision$41,527  $38,827  
Net loss (income) in earnings of equity method investment$10,090  $(3,607) 
Plus:
Investments (5)
(10,090) 3,607  
Adjusted non-GAAP net loss (income) in earnings of equity method investment$—  $—  
Total adjustments$(116,416) $(81,087) 
GAAP earnings per diluted share$0.65  $1.32  
Adjustments *$2.46  $1.69  
Adjusted non-GAAP earnings per diluted share$3.11  $3.00  
* 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. 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. 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 non-GAAP Loss on Investments, Adjusted non-GAAP Other (Income) Expense, Adjusted non-GAAP Income Tax Provision, Adjusted non-GAAP Net Loss (Income) in Earnings of Equity Method Investment and Adjusted non-GAAP Net Income because the Company believes that these provide useful information about our operating results and enhance the overall understanding of past financial performance and future prospects.



J2 GLOBAL, INC. AND SUBSIDIARIES
NET INCOME TO ADJUSTED EBITDA RECONCILIATION
THREE AND SIX MONTHS ENDED JUNE 30, 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 June 30,Six Months Ended June 30,
2020201920202019
Net income$38,101  $32,589  $31,697  $65,038  
Plus:
Interest expense, net22,196  17,335  43,167  33,354  
Loss on investments, net3  24  20,835  38  
Other (income) expense, net(9,059) (401) (2,183) 1,800  
Income tax expense15,978  11,148  24,681  10,853  
Net loss (income) in earnings of equity method investment5,821  (4,081) 10,090  (3,607) 
Depreciation and amortization50,088  57,003  104,068  106,212  
Reconciliation of GAAP to Adjusted non-GAAP financial measures:
Share-based compensation6,530  6,862  12,843  11,948  
Acquisition-related integration costs801  4,695  2,099  10,059  
Additional indirect tax expense from prior years—  —  —  3,373  
Lease asset impairments and other charges2,406  —  2,406  —  
Adjusted EBITDA$132,865  $125,174  $249,703  $239,068  

Adjusted EBITDA as calculated above represents earnings before interest, loss on investments, net, other (income) expense, net, income tax expense, net loss (income) 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)
Q1Q2Q3Q4YTD
2020
Net cash provided by operating activities$102,036  $139,591  $—  $—  $241,627  
Less: Purchases of property and equipment(26,885) (23,652) —  —  (50,537) 
Add: Contingent consideration*20,054  —  —  —  20,054  
Free cash flows$95,205  $115,939  $—  $—  $211,144  
* Free Cash Flows of $95.2 million for Q1 2020 is before the effect of payments associated with certain contingent consideration associated with recent acquisitions.
Q1Q2Q3Q4YTD
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 JUNE 30, 2020
(UNAUDITED, IN THOUSANDS)
        
CloudDigital
ServicesMediaCorporateTotal
Revenues
GAAP revenues$167,058  $163,926  $—  $330,984  
Gross profit
GAAP gross profit$127,631  $146,588  $(37) $274,182  
Non-GAAP adjustments:
Share-based compensation140  3  —  143  
Acquisition related integration costs55  —  —  55  
Amortization448  —  —  448  
Adjusted non-GAAP gross profit$128,274  $146,591  $(37) $274,828  
Operating profit
GAAP operating profit$62,038  $16,759  $(5,757) $73,040  
Non-GAAP adjustments:
Share-based compensation1,628  1,544  3,358  6,530  
Acquisition related integration costs37  764  —  801  
Amortization13,088  22,268  531  35,887  
Lease asset impairments and other charges—  2,406  —  2,406  
Adjusted non-GAAP operating profit$76,791  $43,741  $(1,868) $118,664  
Depreciation3,904  10,297  —  14,201  
Adjusted EBITDA$80,695  $54,038  $(1,868) $132,865  
NOTE 1: Table above excludes certain intercompany allocations
NOTE 2: The table above is impacted by certain expenses associated with the Corporate entity that were allocated to the Cloud Services business and the Digital Media business as these costs are shared costs incurred by the Corporate entity. As a result, expenses were allocated from Corporate to Cloud Services and Digital Media in the amount of $2.8 million and $3.1 million, respectively.

The effects noted above reduce Adjusted EBITDA for Cloud Services and Digital Media by $2.8 million and $3.1 million, respectively.



J2 GLOBAL, INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP TO ADJUSTED NON-GAAP FINANCIAL MEASURES
THREE MONTHS ENDED JUNE 30, 2019
(UNAUDITED, IN THOUSANDS)
        
CloudDigital
ServicesMediaCorporateTotal
Revenues
GAAP revenues$169,132  $153,298  $2  $322,432  
Gross profit
GAAP gross profit$132,534  $129,630  $2  $262,166  
Non-GAAP adjustments:
Share-based compensation128  3  —  131  
Acquisition related integration costs55  —  —  55  
Amortization461  —  —  461  
Adjusted non-GAAP gross profit$133,178  $129,633  $2  $262,813  
Operating profit
GAAP operating profit$62,408  $1,471  $(7,265) $56,614  
Non-GAAP adjustments:
Share-based compensation1,367  1,388  4,107  6,862  
Acquisition related integration costs894  3,801  —  4,695  
Amortization17,702  26,638  614  44,954  
Adjusted non-GAAP operating profit$82,371  $33,298  $(2,544) $113,125  
Depreciation2,789  9,260  —  12,049  
Adjusted EBITDA$85,160  $42,558  $(2,544) $125,174  
NOTE 1: Table above excludes certain intercompany allocations
NOTE 2: The table above is impacted by certain expenses associated with the Corporate entity that were allocated to the Cloud Services business and Digital Media business as these costs are shared costs incurred by the Corporate entity. As a result, expenses were allocated from Corporate to Cloud Services and Digital Media in the amount of $2.3 million and $2.5 million, respectively.

The effects noted above reduce Adjusted EBITDA for Cloud Services and Digital Media by $2.3 million and $2.5 million, respectively.


SECOND QUARTER 2020 RESULTS AUGUST 11, 2020

 
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 2020 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 August 11, 2020 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: • 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 All information in this presentation speaks as of August 11, 2020 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. 2

 
Risk Factors The following factors, among others, could cause our business, prospects, financial condition, operating results and cash flows to be materially adversely affected: • 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 or a security breach; 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 3 • 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

 
Q2 2020 Consolidated Financial Snapshot (1) See slides 11, 13, 14, 15 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 Q2 2020 4 (2) Figures are adjusted non-GAAP

 
Adjusted EBITDA and Free Cash Flow(1) (1) See slides 12 and 13 for a GAAP reconciliation of adjusted EBITDA and Free Cash Flow (2) Figures are adjusted non-GAAP 5

 
Q2 2020 Financial Snapshot By Business (1) See slides 14 and 15 for a GAAP reconciliation of adjusted EBITDA for the Company as a whole and by Business for Q2 2020 (2) Figures are adjusted non-GAAP; Certain shared corporate expenses at J2 Global, Inc. were allocated to Cloud Services and Digital Media resulting in reductions to adjusted EBITDA as follows: Cloud Services adjusted EBITDA was reduced by $2.3MM and $2.8MM in Q2 2019 and Q2 2020, respectively, and Digital Media adjusted EBITDA was reduced by $2.5MM and 6 $3.1MM in Q2 2019 and Q2 2020, respectively.

 
2020 Guidance (Forward-Looking Statements) J2 has reinstated full-year guidance of Revenues, Adjusted EBITDA and Adjusted non-GAAP EPS Revenues $1,380MM - $1,400MM Adjusted $556MM - $570MM EBITDA(1)(2) Adjusted non- GAAP EPS(1)(2) $7.17 - $7.41 (1) Figures are adjusted non-GAAP 7 (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

 
SUPPLEMENTAL INFORMATION

 
Consolidated Metrics (1) See slide 11 for a reconciliation of adjusted non-GAAP earnings and EPS to GAAP Net Income and diluted GAAP EPS (2) See slide 12 for a definition of Free Cash Flow and reconciliation to Net Cash Provided by Operating Activities (3) See slide 13 for a definition of adjusted EBITDA and reconciliation to Net Income 9 (4) Figures are adjusted non-GAAP

 
Cloud Services & Digital Media Metrics (1) The Q1 2020 disclosure of $144.0 million in fixed subscriber revenue included $2.5 million of revenue which was determined to be variable subscriber revenue. This has been corrected in the table above (2) Cloud Services revenue includes IP Licensing revenue (3) Cloud Services Customers are defined as paying DIDs for Fax & Voice services and direct and resellers’ accounts for other services (4) 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 (5) 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 (6) Digital Media Traffic figures based on Google Analytics & Partner Platforms; Excluding Snap, Q2 2020 visits and views would have been up 67% and 55%, respectively, over Q2 2019; Page views for Q1 2020 10 include an adjustment of 0.6 billion views not previously reported and is corrected in the table above

 
Q2 2020 Reconciliation of GAAP to Adjusted Non-GAAP Earnings & EPS(1) Figures in Thousands Three Months Ended June 30, 2019 2020 Cost of revenues $ 60,266 $ 56,802 Plus: Share based compensation (1) (131) (143) Acquisition related integration costs (2) (55) (55) Amortization (4) (461) (448) Adjusted non-GAAP cost of revenues $ 59,619 $ 56,156 Sales and marketing $ 88,446 $ 92,805 Plus: Share based compensation (1) (389) (416) Acquisition related integration costs (2) 154 (167) Adjusted non-GAAP sales and marketing $ 88,211 $ 92,222 Research, development and engineering $ 11,938 $ 13,606 Plus: Share based compensation (1) (361) (484) Acquisition related integration costs (2) - 26 Adjusted non-GAAP research, development and engineering $ 11,577 $ 13,148 General and administrative $ 105,168 $ 94,731 Plus: Share based compensation (1) (5,981) (5,487) Acquisition related integration costs (2) (4,794) (605) Amortization (4) (44,493) (35,439) Lease asset impairments and other charges (9) - (2,406) Adjusted non-GAAP general and administrative $ 49,900 $ 50,794 Interest expense, net $ 17,335 $ 22,196 Plus: Interest costs (3) (2,276) (6,018) Adjusted non-GAAP interest expense, net $ 15,059 $ 16,178 Loss on investments, net $ 24 $ 3 Adjusted loss on investments, net $ 24 $ 3 Other income net $ (401) $ (9,059) Plus: Sale of assets (7) - 181 Intra-entity transfers (8) - 8,267 Adjusted non-GAAP other expense, net $ (401) $ (611) Income tax provision $ 11,148 $ 15,978 Non-GAAP net income is GAAP net income with the following Plus: Share based compensation (1) 596 1,540 modifications: (1) elimination of share-based compensation; (2) Acquisition related integration costs (2) 1,450 303 elimination of certain acquisition-related integration costs; (3) Interest costs (3) (162) 1,187 elimination of interest costs in excess of the coupon rate Amortization (4) 9,016 10,662 Investments (5) - (3,893) associated with the convertible notes; (4) elimination of Tax benefit from prior years (6) (1,335) (1,977) amortization of patents and intangible assets that we acquired; Sale of assets (7) - (44) (5) elimination of change in value on investment; (6) elimination (8) - (1,835) Intra-entity transfers of additional tax from prior years; (7) elimination of gain on sale Lease asset impairments and other charges (9) - 580 Adjusted non-GAAP income tax provision $ 20,713 $ 22,501 of assets; and (8) elimination of intra-entity transfers; and (9) Net income (loss) in earnings of equity method investment $ (4,081) $ 5,821 lease asset impairments and other charges. Plus: Investments (5) 4,081 (5,821) Adjusted non-GAAP net income (loss) in earnings of equity method investment $ - $ - Total adjustments $ (45,141) $ (42,492) GAAP earnings per diluted share $0.66 $0.80 Adjustments * $0.94 $0.91 Adjusted non-GAAP earnings per diluted share $1.60 $1.71 11

 
GAAP Reconciliation - Free Cash Flow(1)(2) (1) Free Cash Flow is defined as net cash provided by operating activities, less purchases of property, plant and equipment, less patent settlement, 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 (2) Figures are adjusted non-GAAP 12

 
GAAP Reconciliation - Adjusted EBITDA(1)(2) (Figures in Millions) (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-GAAP 13

 
Q2 2020 Reconciliation of GAAP to Adjusted EBITDA(1) NOTE 1: Table above excludes certain intercompany allocations NOTE 2: The table above is impacted by certain expenses associated with the Corporate entity that were allocated to the Cloud Services business and the Digital Media business as these costs are shared costs incurred by the Corporate entity. As a result, expenses were allocated from Corporate to Cloud Services and Digital Media in the amount of $2.8 million and $3.1 million, respectively. The effects noted above reduce adjusted EBITDA for Cloud Services and Digital Media by $2.8 million and $3.1 million, respectively. (1) Figures are adjusted non-GAAP 14

 
Q2 2019 Reconciliation of GAAP to Adjusted EBITDA(1) NOTE 1: Table above excludes certain intercompany allocations NOTE 2: The table above is impacted by certain expenses associated with the Corporate entity that were allocated to the Cloud Services business and Digital Media business as these costs are shared costs incurred by the Corporate entity. As a result, expenses were allocated from Corporate to Cloud Services and Digital Media in the amount of $2.3 million and $2.5 million, respectively. The effects noted above reduce adjusted EBITDA for Cloud Services and Digital Media by $2.3 million and $2.5 million, respectively. (1) Figures are adjusted non-GAAP 15