Earnings Call Transcript - ZD Q2 2020

Operator, Operator

Welcome to J2 Global Second Quarter 2020 Earnings Call. I am Michelle, the operator who will be assisting you today. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. On this call will be Vivek Shah, CEO of J2 Global; and Scott Turicchi, President and CFO of J2. I will now turn the call over to Scott Turicchi, President and CFO of J2 Global. Thank you. You may begin.

R. Scott Turicchi, President and CFO

Thank you. Good morning, ladies and gentlemen, and welcome to the J2 Global investor conference call for Q2 2020. As the operator mentioned, I'm Scott Turicchi, President and CFO of J2 Global. Joining me today is our CEO, Vivek Shah. We had our best second fiscal quarter ever setting records for revenue, adjusted EBITDA, non-GAAP earnings per share and free cash flow. In addition, due to our strong free cash flow generation, we ended the quarter with more than $616 million of cash. In addition, our board authorized a 10 million share repurchase program through August 6, 2025. We will use the presentation as a road map for today's call. A copy of the presentation is available at our website. When you launch the webcast, there is a button on the viewer on the right-hand side, which will allow you to expand the slides. If you have not yet received a copy of the press release, you may access it through our corporate website at j2global.com. In addition, you'll be able to access the webcast from this site. After completing the formal presentation, we'll be conducting a Q&A session. The operator will instruct you at that time regarding the procedures for asking a question. However, you may e-mail us questions at any time at investor@j2global.com. Before we begin our prepared remarks, allow me to read the Safe Harbor language. As you know, this call and the webcast will include forward-looking statements. Such statements may involve risks and uncertainties that would cause actual results to differ materially from the anticipated results. Some of those risks and uncertainties include, but are not limited to, the risk factors that we have disclosed in our various SEC filings including our 10-K filings, recent 10-Q filings, various proxy statements, and 8-K filings as well as additional risk factors that we've included as part of the slideshow for this webcast. We refer you to discussions in those documents regarding Safe Harbor language as well as forward-looking statements. Now, let me turn the call over to Vivek for his opening remarks.

Vivek Shah, Chief Executive Officer

Thank you, Scott. And good morning, everyone. The second quarter of 2020 was the most challenging and disruptive quarter our economy has ever faced. With GDP in the United States estimated to have declined an unprecedented 32.9%, this period presents a test of business resilience unlike any we've ever seen before. I'm proud to say that J2 passed with flying colors on every financial metric, revenue, adjusted EBITDA, adjusted EPS and cash flow. We exceeded our expectations and remarkably set records. This is a tribute to the thousands of hardworking and focused employees at J2 around the world who continue to demonstrate the ability to surmount challenges. Three months ago, based on April results and trends, we believed we'd see a slight decline in revenues in the second quarter. Instead, based on a significant rebound in May and June, total revenues were up 2.7% in the second quarter versus last year. We saw improvement within the quarter with May better than April and June better than May. We're anticipating that our Digital Media segment revenue will decline in the quarter, given the massive dislocation in the ad market. But instead, we grew close to 7%. Every single business unit in the Digital Media segment beat its forecast in the quarter as we saw advertisers return to spending. As I said in our last call, our ad business has little local, travel, food, and auto exposure. Our display business is about 40% health care, which continues to show great strength. Everyday Health display revenues grew 35% in the quarter. We're also advantaged by our performance marketing businesses, which exhibited a meaningful recovery in the middle of the quarter. The Cloud services segment also weathered the Q2 storm very nicely. Revenues were down 1.2% on a year-over-year basis. However if you adjust for foreign exchange and jBlast, which is a broadcast fax business we sold in October 2019, revenues were flat. Cloud fax is essentially flat in the quarter, notwithstanding the decline in medical record volumes. The significant reduction in elective procedures in the US directly impacted our page volumes, but we're starting to see page volumes return to the cloud fax business as elective procedures are coming back. The security and privacy businesses grew, while SMB enablement declined as we experienced some losses and reductions of larger contracts and a slowdown in customer ads. Overall, the cancel rate at Cloud Services continues to be stable, which as you know is something we closely monitor. We continue to be optimistic about our security and privacy portfolio, which is over $230 million of revenues. We just announced the addition of a new leader to oversee all three of the cybersecurity business units. Vivek Kapil joins us as the Group General Manager of Security, Privacy and Data Protection, having worked at NortonLifeLock and Symantec for the past decade. We're excited to have Vivek on the team as we look to scale and develop our cybersecurity suite. We're also excited that Nick Nelson, who came to us in the IPVanish acquisition and has been a catalyst for a number of growth initiatives, has taken on a new role pursuing business development opportunities across the Cloud Services portfolio. Even more impressive were the adjusted EBITDA and margin results in the quarter. Adjusted EBITDA grew 6.1% year-over-year and our margins expanded by 130 basis points to 40.1%. As I described in our last call, we were decisive in our actions to manage expenses while continuing to invest in our organization. We have avoided the large reductions in force and more draconian cost reduction measures of many in our industries by focusing on better managing our vendor expenses and hiring. The careful cost management paid off in the quarter, not just with respect to adjusted EBITDA but also with cash flow. Our net cash from operations grew 46% and our free cash flow grew 35% year-over-year. We closed the quarter with $711 million in cash and investments. This was after purchasing $24 million of JCOM shares during the quarter. And as we announced last night, the board has authorized a new 10 million share repurchase program over the next five years. We believe that our own stock currently represents one of the best investment opportunities available to us. Based on second quarter performance and increased confidence in the state of the operating climate, we have reinstated guidance for the year. Our underlying assumption on our new guidance is that the business environment in Q3 and Q4 will be stable, but to be clear, we are not contemplating a sharp recovery. We're assuming more of the same. On the bottom line, we are estimating an adjusted EBITDA margin of over 40% as we continue to be very careful with our expenses. On the M&A front, I'm happy to say that our acquisitions machine is back on and we are pursuing a number of interesting opportunities as we have better visibility into the market environment and have gained comfort in transacting in a virtual manner. We continue to believe that our patience will pay off in higher quality opportunities while giving us the time to optimize our current portfolio. I would hope that our Q2 performance gives our shareholders confidence in that approach. We continue to focus our M&A efforts on some core themes including: health care embracing digital transformation, small and medium businesses seeking cybersecurity solutions, video games emerging as the number one form of entertainment, and e-commerce becoming the dominant form of retail. I'd like to take a moment to talk about corporate governance. Earlier in the year, as we were speaking to shareholders and their proxy departments, the topic of board refreshment was discussed. At our February board meeting, our board supported the idea of identifying new director candidates for J2 and the company and the company and its recruiter developed a slate of potential candidates. We're very pleased to have announced yesterday that Scott Taylor has been appointed to our Board of Directors. Scott has spent over 20 years working in Silicon Valley, including 12 years as EVP and General Counsel of Symantec, a leader in consumer and enterprise cybersecurity. Scott brings a deep understanding of the cybersecurity industry, a market that is very important to J2, as well as extensive legal, corporate responsibility, and M&A experience to our board. Scott has more than 10 years of experience serving as a public and private company director, and brings a wealth of governance experience. We're grateful to welcome him to the J2 team. Scott's appointment does not mark the end of our refreshment efforts. We are studying policies, best practices, and approaches to ensuring and advancing ongoing board refreshment. The company has identified a number of highly qualified individuals, who would make excellent directors at J2, bringing fresh, new, and diverse perspectives to the company. The board is confident that we will be able to add an additional director in the near future. Also essential to our ESG framework are our diversity, equity, and inclusion efforts at the company. Last week, we published J2's 2020 Diversity Report, which provides detailed demographic and representation data at the company. We have unequivocally embraced the business and societal imperative to have a diverse and inclusive organization. I believe that doing is greater than talking, especially with diversity, equity and inclusion. Since January 2019, 65% of all new hires at J2 were women or people of color. As a result, today, 62% of our employees are women or people of color. We're proud of the progress we've made but we have more work to do, especially at ensuring diversity at every level and aspect of the organization. I encourage you to read the report, which is found on our website, to better understand our diversity initiatives and the seriousness with which we are pursuing them. Our commitment to diversity and inclusion goes beyond the company's walls. This past quarter, we leveraged our resources and platforms for educational and philanthropic purposes and support of the Black Lives Matter movement. We committed $5 million in advertising to the NAACP, Ad Council and other advocacy organizations to promote messages of racial equality. We raised nearly $4.4 million for the Legal Defense Fund and Race Forward through our Humble Bundle Fight for Racial Justice Bundle. We launched the Black Game Developer Fund, a $1 million annual program focused on supporting black game developers. We have earmarked $1 million of our annual freelance editorial budgets for journalists of color. And our publishing brands, including IGN, PCMag, Mashable, AskMen, Everyday Health, BabyCenter and What To Expect, have produced great content exploring topics relating to race and racial equality. Before I hand the call back to Scott, just a word about the report recently issued by a short seller. We are confident that we addressed the unfounded claims made in that report on the day in which it came out. We also believe that our actual performance and results are healthy reminders of the company that we are. With that, let me hand this call to Scott.

R. Scott Turicchi, President and CFO

Thanks, Vivek. Q2 2020 set a number of financial records for J2 including revenue, EBITDA, non-GAAP EPS and free cash flow. Despite the COVID environment, these results were driven by resilient top line performance and a focus on cost containment. We ended the quarter with approximately $711 million of cash and investments after spending approximately $25 million in the quarter, primarily on stock repurchases. Now let's review the summary quarterly financial results beginning on slide 4. For Q2 2020, J2 saw a 2.7% increase in revenue from Q2 2019 to $331 million. Gross profit margin, which is a function of the relative mix of our business units, rose to 83% from 81.3% in Q2 2019 in part due to the lower content fees in the Media segment. We saw EBITDA grow by 6.1% to a second quarter record of $132.9 million. The EBITDA margin for the quarter was 40.1% versus 38.8% a year ago due to the aforementioned cost discipline. Finally, adjusted EPS grew 7% to $1.71 per share versus $1.60 per share in Q2 2019. Turning to slide 5, in Q2, we generated a record $115.9 million of free cash flow, which was a 35% increase from Q2 2019. This was after continuing to make significant investments in our businesses through our capital expenditure program. On a trailing 12-month basis, we generated $371.4 million of free cash flow for a 66.2% free cash flow conversion on our $560.8 million of trailing 12-month EBITDA. Now let's turn to the two businesses, Cloud and Digital Media for Q2 as outlined on slide 6. The Cloud business saw a slight decline in revenue of 1.2% to $167.1 million in revenue due primarily to currency exchange rates, the elimination of jBlast revenue and the lower variable revenue contribution as a result of fewer elective procedures in health care that we've discussed previously. Reported EBITDA decreased by approximately 5.2% to $80.7 million compared to $85.2 million in Q2 2019. The EBITDA margin is 48.3% after corporate allocations down approximately 2 percentage points due to higher corporate allocations, less variable revenue which has a high incremental margin, and a larger contribution from our VPN business, which also operates at a lower EBITDA margin in 50%. Our Media business grew revenue 6.9% to a $163.9 million and produced $54 million of EBITDA for 27% growth. The EBITDA margin increased by 5.2 percentage points from Q2 2019, due to an improved cost structure, lower content costs and BabyCenter beginning to contribute at its synergized margins. On slide 7, I am pleased that we are reintroducing fiscal year 2020 guidance. As you know, due to COVID-19 and the uncertainty surrounding the economy, as well as work-from-home, we suspended guidance on our Q1 earnings call. Our economic assumption is that the economy will modestly improve from its May/June levels. We are expecting more of a tilted U-shaped recovery versus a V-shaped recovery. We are expecting that each of our two segments will perform in a similar fashion. In addition, we are divesting our Australia and New Zealand voice assets in a transaction that was announced earlier today in Australia. We expect the transaction to close by the end of August, and it will have an impact of reducing our revenues in the back half of our year by approximately $5 million and EBITDA by approximately $2 million. Our reinstated full year guidance now estimates revenues between $1.38 billion and $1.4 billion, adjusted EBITDA between $556 million and $570 million, and non-GAAP EPS of between $7.17 per share and $7.41 per share. Following this guidance slide are various metrics and reconciliation statements for the various non-GAAP measures to their nearest GAAP equivalent. I would now ask the operator to rejoin us to instruct you on how to queue for questions.

Operator, Operator

Thank you. We will now be conducting a question-and-answer session. Our first question comes from the line of Shyam Patil with Susquehanna. Please proceed with your question.

Shyam Patil, Analyst (Susquehanna)

Hey, guys. Congrats on the great execution during a volatile time in the economy and on the buyback and the board member. I had a couple of questions. Vivek, you talked about the acquisition machine being back on and I think we were all waiting to hear that. The question is just how are you approaching M&A in this environment if you — I don't know how you guys are looking at it, but whether it's larger and smaller deals. And how are you guys approaching M&A in this environment right now?

Vivek Shah, Chief Executive Officer

Good morning, Shyam. We're running our entire business, over 4,000 people entirely remotely. Over the last three months, we've grown confident in our ability to operate in a remote fashion. We have hired and onboarded senior executives. I mentioned Vivek Kapil, even a board member, Scott Taylor, and it was all done virtually. So we now feel the same way about M&A — being virtual is no longer a real hindrance. We are prepared to transact without physically visiting companies. In instances where we can and in locations where it's safe and permissible, we'll do so. When we spoke about this three months ago, we were at the height of the pandemic. I think we're now in an environment where we think we can transact. We just sold a company in this environment, as Scott mentioned. Those considerations are not really considerations or conditions anymore. We also said we thought being patient would be beneficial to us. Seeing how the market is settling out and how businesses are responding to this pandemic is important information that informs the assets we choose to pursue and the price and terms at which we pursue them. With respect to the size of deals and categories, nothing has changed. We look at deals of a variety of sizes from tuck-ins to more substantial deals. We look at them across all of our business units and operating divisions. You should continue to see us lean in on assets that fit the themes I discussed earlier.

Shyam Patil, Analyst (Susquehanna)

Thank you. That's very helpful. And then I just had a follow-up model question. I know you guys don't typically like to guide on a full year basis, but as you guys look out to Q3 and Q4, any guidepost you can offer us just in terms of how to think about Cloud versus Digital Media revenue as well as EBITDA?

R. Scott Turicchi, President and CFO

Let's try to unpack the back half of the year guidance, Shyam. First, our Media business is very seasonally positive in Q4 if you look at the four quarters. When you look at the back half of the year guidance after you take out the first six months, it's by far not equally weighted on the Media side. We made an economic assumption, which we generally don't like to do, but we think it's important for you to understand how we see the economy in the back half of the year. We call it the tilted U, meaning not a sharp V-shaped recovery, but that leg of the U having some upward slope from Q2 through Q3 and Q4. That may end up being a conservative assumption. Things do evolve week to week in the COVID environment. With that as the headline, let's break apart the two segments. For the Cloud piece, first recognize the ANZ sale — our Australian and New Zealand voice assets under contract to be sold. We assume that will occur between now and the end of August. The implication is we'll lose about $5 million of revenue in the back half of the year in Cloud — roughly $1 million in Q3 and $3.5 million to $4 million in Q4. The exact number will depend on closing timing. In Q2, in the Cloud business, after adjusting for ANZ, there's probably a 1% to 2% decline in revenues versus the pro forma numbers for Q3 and Q4 of 2020 versus 2019. For Media, June was probably the most representative month of the quarter. We saw sequential improvement from April to May to June. If we use the June run rate, the Media business would be a 2% to 3% decline year-over-year. Remember that's not equally weighted between Q3 and Q4. In our analysis, we would put more of that decline in Q4 as a degree of conservatism since it is the more important quarter and visibility will become clearer as we get closer to Q4. When you roll that all up, our Media business should be roughly flat year-over-year in Q3 and then down somewhat in Q4. We have a range. Things that will move us are the underlying economic reality and our response to that reality. In terms of margins, we expect, in both Q3 and Q4, our margin profile to continue what we've seen in Q2 and to be an improvement over Q3 and Q4 of 2019. So you'll see at the midpoint of the range EBITDA is up notwithstanding that revenue is expected to be down in the back half of the year.

Shyam Patil, Analyst (Susquehanna)

Great. Thanks, Scott. Great quarter, guys.

Operator, Operator

Thank you. Our next question comes from the line of Saket Kalia with Barclays. Please proceed with your question.

Saket Kalia, Analyst (Barclays)

Okay, great. Hey. Good morning, guys. Thanks for taking my questions here. Vivek, maybe just to start with you, you touched on this in your prepared remarks, but I'd love to just double-click on the board composition comments you made. Maybe the question is can you just talk maybe broad brush how the board could look in the next one to two years? And just as importantly, how is that composition important/relevant for the business?

Vivek Shah, Chief Executive Officer

We're committed to ongoing board refreshment. We appointed Scott Taylor, who brings a strong cybersecurity perspective; our $230 million and growing cybersecurity business is very important to the company and having that industry perspective and expertise at the board level is valuable. For future appointments, we want to align industry experience with the businesses we're in. For instance, we would like to see more health care experience on our board. Skill sets that align with subscriptions, marketing, M&A and transactional experience are important. Diversity matters a lot to me personally and to our business. We are doing things across the organization, including at the board level, to ensure our workforce and board represent the audiences and customers we serve. We have a goal to be a top-rated ESG company. You'll see more from us on diversity initiatives, and also on climate and sustainability initiatives. Our business is predicated on shifting from analog to digital, which shifts from carbon-heavy to carbon-friendly, so those initiatives will be part of our broader strategy.

Saket Kalia, Analyst (Barclays)

That's great. That's super helpful. Maybe for my follow-up for the detail on the seasonality across those two businesses to keep in mind. Maybe just to dig a little deeper into the Digital Media business, can you just remind us the split of performance versus display and maybe this is a question for both of you. How is that changing, if at all, in this new backdrop?

R. Scott Turicchi, President and CFO

If you look at the full fiscal year, Q4 is the big quarter for Media — roughly 31% to 32% of total revenue. On advertising between performance and display, when one leads the other can vary by quarter. In Q2, about 38% of our advertising revenue was display and 35% was performance. In Q1 of this year, that was flipped with performance a bit ahead of display. They're starting to converge and getting close to 50/50 from an advertising perspective. Subscriptions are separate from that advertising split.

Vivek Shah, Chief Executive Officer

I would add that our ad business is high quality. In this environment, many ad businesses are challenged, yet we're up 10% year-over-year in advertising in the quarter. Three factors help: the performance orientation of our advertising, where display behaves like performance in many ways; our category mix, particularly healthcare — Everyday Health display grew 35% in the quarter; and our strong brands — Mashable, IGN, BabyCenter, Everyday Health, PCMag. Brands matter, especially when lower quality inventory gets shaken out and there's a return to quality.

Saket Kalia, Analyst (Barclays)

Makes a lot of sense. Thanks for taking my questions, guys.

Operator, Operator

Thank you. Our next question comes from the line of Daniel Ives with Wedbush Securities. Please proceed with your question.

Daniel Ives, Analyst (Wedbush)

Hey, so maybe just talking on the digital marketing side, are you guys doing anything different with customers, pricing just given the environment in terms of just making sure, especially even on some of the programs are facing headwinds to make sure that you can contain any risk as much as possible?

Vivek Shah, Chief Executive Officer

Do you mean on the Media side? The focus has been on driving leads, transactions and sales. That's where we're finding customers have appetite to spend and lean into. The pandemic has accelerated the embrace of digital marketing and online transactions. For companies that weren't online sellers before, many are today. This shift benefits our capabilities and value proposition.

Daniel Ives, Analyst (Wedbush)

Great. And just on the M&A, kind of like the first question but from a size perspective — tuck-in versus more transformative deals — are those still on the table? Even the larger pillar deals are still on the table despite the environment?

Vivek Shah, Chief Executive Officer

Everything is on the table as it always has been. We are open-minded. We have clear criteria and thresholds: unique value creation, cash-on-cash returns in excess of 20%, and a high level of confidence in execution. If those are met, we'll pursue deals, whether small or large. Historically, most dealmaking happens at the business unit level, so that denotes a certain size. As we expand the number of business units and general managers, you'll see more deal flow at that level.

Daniel Ives, Analyst (Wedbush)

Great, thanks.

Operator, Operator

Thank you. Our next question comes from the line of Will Power with Robert W. Baird & Company. Please proceed with your question.

William Verity Power, Analyst (Robert W. Baird)

Okay, great. Thanks, yeah. Congratulations on the results and I appreciate the board and diversity comments. I guess, Vivek, maybe just going back to Digital Media and trying to drill down into some of the upside drivers in the quarter. It sounds like Everyday Health was a big piece of that, particularly display, but could you comment on what you're seeing in the tech and gaming verticals? I know there have been questions about the console timing and how that would impact advertising trends. Secondly, what are you seeing on the subscription fronts as you look at Humble Bundle and Ookla — is that continuing with the same recent trend line? What kind of impacts are you seeing from COVID, if any, on that front?

Vivek Shah, Chief Executive Officer

On advertising, we're up 10% year-over-year in the quarter; strong organic growth at Everyday Health and Ookla. We benefited from BabyCenter in Q2 versus last year, which offset declines at IGN and Ziff Media (tech advertising). Gaming we anticipated would be down prior to the pandemic given the timing of the new PlayStation and Xbox going into Q4, so a seasonal shift was expected. The tech side still has some pressure, though June showed nice recovery. Display has had seven consecutive quarters of growth, which is important to understand — our display is different from many others. For subscriptions, we're up organically high single digits, but we have headwinds. Ekahau, which sells subscription-based Wi-Fi network software for commercial spaces, saw a contraction in Q2 due to COVID and delayed commercial installations. We're seeing some reversal in Q3 as offices consider returning. We saw a deceleration in Humble Bundle subscription due to weaker games and some competition. However, Humble publishing is doing very well. We had 20 games on the slate for 2020 and released 11 either as new games or on new platforms. Usually Q4 is the heavy game release quarter and we should see that activity.

William Verity Power, Analyst (Robert W. Baird)

Okay. Great. Thank you.

R. Scott Turicchi, President and CFO

Thank you.

Operator, Operator

Thank you. Our next question comes from the line of Cory Carpenter with JPMorgan. Please proceed with your question.

Ryder Cleary (on behalf of Cory Carpenter), Analyst (JPMorgan)

Hi. This is Ryder on for Cory. Thanks for taking my questions. You mentioned that your full year guidance implies EBITDA margin expansion in 2020 despite the headwinds from COVID-19. Could you talk about some of the drivers of the margin expansion? Specifically, are there any expense savings you've uncovered that may be carried through beyond COVID-19 or any changes to the investment levels you plan to make in some of your growth initiatives? And then stepping back, as we come out the other side of the pandemic, has there been any change to your thoughts on the longer term organic growth or margin opportunity in either of the two segments? Thanks.

R. Scott Turicchi, President and CFO

On the cost structure, we initiated projects to improve our overall cost structure while keeping three things intact: our employee base, sales and marketing spend, and our capital expenditure program. All three have been at levels consistent with pre-COVID. We did examine the other portion of our cost structure, which on a cash basis represents about 40% of total costs. We renegotiated terms, eliminated some activities that were deemed luxuries, and made reductions that will be permanent. Travel and entertainment will be lower than pre-COVID even once we're post-COVID. Another area is real estate — we are negotiating exits of certain leases. You'll see in Q3 a GAAP charge as we exit some real estate because we no longer need it given a likely permanent or hybrid work-from-home environment for some employees. A large percentage of what we've accomplished on cost should carry forward. On the longer-term outlook, while we don't provide multi-year guidance because of M&A variables, we believe post-COVID we will be stronger with a better cost structure. Some competition may be eliminated in the process. Overall, we expect growth rates to be consistent and margins to be somewhat better than previously articulated.

Vivek Shah, Chief Executive Officer

We run a decentralized operation pushing authority to business units, which helps performance but means we historically lacked a consolidated procurement function. During the pandemic, we established a corporate procurement function that worked across the organization to extract better vendor deals. That function will be permanent. We also have favorable mix with advertising doing well and strong advertising flow-through. There's operating leverage in our advertising business since we have little in the way of traffic acquisition costs, another unique feature of our advertising business.

Ryder Cleary (on behalf of Cory Carpenter), Analyst (JPMorgan)

Great. Thanks, guys.

Operator, Operator

Thank you. Our next question comes from the line of James Fish with Piper Sandler. Please proceed with your question.

James E. Fish, Analyst (Piper Sandler)

Hey, guys. Congrats on a great quarter. Glad to hear you're all doing well. How have the early bundling efforts on the Cloud Services been going? Is that what helped the monthly churn rate go lower at all? And is there any way to disaggregate between the DID and the non-DID services in terms of churn this quarter? Thanks.

Vivek Shah, Chief Executive Officer

Bundling is a significant opportunity, but in Q2 our top priority was maintaining strong service levels and delivery as we moved the organization to work from home. Retention programs were the top priority, and you see that in our slightly improved cancel rate quarter-over-quarter. We put some bundling initiatives on the back burner. With Vivek Kapil overseeing the cybersecurity units, we can accelerate bundling in the back half of the year and look at combining VPN, private endpoint, backup, file sync, endpoint/email security and others.

James E. Fish, Analyst (Piper Sandler)

Got it and then maybe while we're on security, obviously with COVID, VPN is a material product category in cybersecurity. Why is your VPN solution having as much success with a lot of the competition out there? And is there a way to think about the stability in the overall Business Cloud Services ARPU versus the impact that the VPN asset is having because it looks like, on an organic basis excluding the VPN business, it's relatively stable outside of the VPN impact due to a lower price point.

Vivek Shah, Chief Executive Officer

The VPN market is a rising tide that lifts all boats. There are several quality consumer VPN brands and we believe IPVanish is among the leaders. The market has strong tailwinds. The area where we don't have a significant toehold yet is the B2B corporate VPN market for secure remote access. Encrypt.me can be compelling in that space, but it needs channel and sales distribution that the consumer VPN business didn't have. That channel and sales force existence is strong at our VIPRE business. Leveraging distribution channels and cross-selling across business units ties back to bundling opportunities that we plan to pursue under Vivek Kapil's leadership.

James E. Fish, Analyst (Piper Sandler)

Thanks. That's great color, Vivek. Congrats on the quarter and take care.

Operator, Operator

Thank you. Our next question comes from the line of James Breen with William Blair & Company. Please proceed with your question.

Jim Breen, Analyst (William Blair)

Great. Thanks for taking the question. With respect to cash flow, obviously a strong quarter there and you talked a little bit about the margin structure in some teams being down. Can you talk about the relationship between EBITDA and cash flow and how you see that trending from here? And Vivek, maybe remind us about the impact of the video game platform cycle, some of the new boxes coming out in the back half of this year and how that generally can flow through the business? Thanks.

R. Scott Turicchi, President and CFO

Free cash flow is not linear nor perfectly correlated with the timing of earning EBITDA. We tend to focus on trailing 12-month EBITDA and trailing 12-month free cash flow to smooth timing differences like estimated tax payments. This quarter was a phenomenal quarter for cash from operations, up 40% year-over-year — the best cash collection quarter in company history. Free cash flow was a record $115.9 million after $23 million in CapEx. There is a timing difference with estimated tax payments that will slip into Q3 this year of about $14.5 million, but even with that paid in Q2 it would have been the best second fiscal quarter for free cash flow. On a trailing 12-month basis, we’re at about a 66% conversion of EBITDA to free cash flow, which is within our expected range. Don't focus on a single quarter's spot conversion rate as it can vary for timing reasons.

Vivek Shah, Chief Executive Officer

On gaming, the cancellation of major live events like E3 and Comic-Con was significant for the industry, since those are major marketing moments. Our IGN team staged the Summer of Gaming virtual event and it performed extremely well, generating roughly 600 million content views, 280 million video views, and 45 million global livestreams. That drove a lot of Q2 traffic and helped monetization, and laid the foundation for future virtual events. For Q4, with new consoles coming out, we expect advertising and marketing dollars to return to the console and gaming ecosystem and that should be helpful to the IGN business. Q4 should also be a strong release quarter for Humble Games. We may see revenue impact in 2021 from those releases, but we expect a strong slate.

Jim Breen, Analyst (William Blair)

Great. And then just one follow-up: you reauthorized the share buyback. I think you bought back shares in the low-70s in April generally around 8 to 8.5 times EBITDA. Can you refresh us on that and how you think about buying back shares?

Vivek Shah, Chief Executive Officer

Buybacks are part of the capital allocation toolkit and right now we believe the company at these levels represents a great buying opportunity. We want to support our shareholders internally and externally. We have a popular employee stock purchase plan and many employees are shareholders. When we see the ability to generate returns in excess of what we could do otherwise, whether through capital investment or M&A, we're going to act. That doesn't mean we don't have capital investment and M&A opportunities — we do — but buybacks sit alongside those as uses of capital. As many of you have reported, valuations are at historical lows now.

Jim Breen, Analyst (William Blair)

Great. Thanks.

Operator, Operator

Thank you. Our next question comes from the line of Shweta Khajuria with RBC Capital Markets. Please proceed with your question.

Shweta Khajuria, Analyst (RBC Capital Markets)

Okay, thanks. Let me try two please. Vivek, you pointed to 10% year-over-year growth in Media business. Maybe I misheard you, I see 7%. What does that 10% refer to?

Vivek Shah, Chief Executive Officer

That was advertising — the advertising business was up 10% year-over-year.

Shweta Khajuria, Analyst (RBC Capital Markets)

Okay, great, thanks. And then can you please quickly talk about some of the key strengths that you saw that largely beat your expectations? Every unit came in ahead of your expectations and which ones were the key outperformer that you would like to call out? And then in the back half, the guide assumes — Scott, thanks for the color for this back half. Given the tougher comps, could you provide some color on what does it mean for organic growth rate for the back half? I mean is it fair to say that you are assuming a U-shaped recovery to stable to improving assumptions for going forward with Q2 being the worst you've seen?

Vivek Shah, Chief Executive Officer

When we looked at Q2, April was the height of the dislocation in the ad market. By mid-May and into June we saw quick recovery. Performance marketing orientation benefits us because advertisers are looking for return on ad spend. Everyday Health was a major driver — pharma advertising and physician-directed marketing moved from physical to digital, benefiting assets like MedPage Today. Retail performance marketing suffered early in the quarter as some retailers could not fulfill demand and asked us not to send traffic; those supply chain issues resolved faster than expected and rebounded. Those dynamics were the main drivers of performance versus our initial expectations.

Operator, Operator

Thank you. Our next question comes from the line of Rishi Jaluria with D.A. Davidson. Please proceed with your question.

Rishi N. Jaluria, Analyst (D.A. Davidson)

Hi, Vivek and Scott. Thanks so much for taking my questions. Nice to see continued resiliency in the business. Wanted to start by digging a little bit more into the divesting of the ANZ voice assets. Scott, your directional guidance implies it's about a $15 million run rate business, about $6 million run rate EBITDA assuming it closes end of August. What's the impetus for divesting the asset? And given another recent divestment, Web24, which was also an Australia business, is there something directionally in the ANZ market that's leading you to two divestments here or is it just coincidence that both divestments happened to be in the same geography? And then I've got a follow-up.

R. Scott Turicchi, President and CFO

Our ANZ voice business has been in a state of revenue decline for several years. We likely will hit a somewhat lower EBITDA number this year in US dollars. We think we got a decent price at 6 times EBITDA, but this business has been in decline and likely to continue to do so. At the Analyst Day, Nate unpacked the Cloud business. What we do in Australia and New Zealand from a voice perspective is not a fit going forward. The core of our voice services are second-line service and virtual PBX. The voice business is geographically dispersed and not that large. For those reasons, independent of decisions made in 2017 prior to Nate joining on the Web24 side, it was determined these are not core assets and we could redeploy cash more effectively elsewhere.

Rishi N. Jaluria, Analyst (D.A. Davidson)

Got it. That's very helpful. And then on free cash flow conversion: we look at this on a trailing 12-month basis at about 66% trailing 12-month EBITDA conversion, which is a nice uptick from last quarter. How should we think about free cash flow conversion on a full year basis this year? Should we expect it to be directionally up from last year? Are there COVID-related headwinds such as payment delays or changes in accounts receivable that would lead you to be down? Any directional color would be helpful.

R. Scott Turicchi, President and CFO

So far, collections have not been an issue. On a case-by-case basis, some counterparties were stressed and we accommodated them with more favorable terms, but generally we have not seen stress in collections. Last quarter some Media collections that normally occurred in March slipped into April as both we and our counterparties converted to work-from-home, but that money came in in April. Under our tilted U-shaped recovery thesis, I don't expect material change in our ability to collect. We are in a fairly tight range on a trailing 12-month conversion. 66% is our current point, and I'd view a range roughly between 64% and 68% on a trailing 12-month basis. Remember free cash flow is after CapEx, and as long as we can justify the spend, we intend to continue it. We won't cut CapEx or marketing if it yields justified returns.

Rishi N. Jaluria, Analyst (D.A. Davidson)

All right. Great. That's helpful. Thank you so much.

Operator, Operator

Thank you. Our final question comes from the line of Jon Tanwanteng with CJS Securities. Please proceed with your question.

Jon E Tanwanteng, Analyst (CJS Securities)

Hi. Good morning, guys. Thank you for taking my questions and a very nice quarter. My first one: can you talk about the health care fax business, one of the most profitable segments of your business. You mentioned elective surgery has had an impact in the second quarter but, given the surge in hospitalization, can we expect more of the same in the third quarter? How do you expect that business to run? What's built into your assumptions there for the time being?

Vivek Shah, Chief Executive Officer

The overall cloud fax business was essentially flat in the quarter when you adjust for foreign exchange and the jBlast disposition. Corporate fax is up 7% notwithstanding the issues on baselines, so corporate fax had a very strong organic growth quarter despite the baseline issues. In April, we saw page volumes down 22% versus a January/February baseline. May improved to down 14% and in July page volumes looked about down 3% versus pre-COVID baselines. That recovery is encouraging and could lead to stronger numbers in the second half.

R. Scott Turicchi, President and CFO

To quantify, the decline in page usage related primarily to health care and had an impact on variable revenue of about $2 million in Q2. Given the trends improving in usage, that could provide a tailwind to the fax business compared to Q2 performance.

Jon E Tanwanteng, Analyst (CJS Securities)

Great, thanks for that color. And then, Vivek, going back to M&A, how has the landscape changed compared to pre-COVID in terms of the number of opportunities, the quality of them, valuations, and which sectors have shifted? What's more available and what isn't at this point?

Vivek Shah, Chief Executive Officer

You're seeing more activity in Digital Media because many ad-based businesses have not weathered the pandemic as well, so sellers are looking at strategic alternatives. Companies with liquidity issues may seek transactions instead of financing. We're having conversations with companies that share our businesses and believe combining with us could scale them and provide access to capital for continued investment via M&A and CapEx. Our balance sheet position encourages those conversations because companies see us as well-positioned to help scale their businesses.

Jon E Tanwanteng, Analyst (CJS Securities)

Got it. And the size of the pipeline itself, has it shrunk or is it relatively the same?

Vivek Shah, Chief Executive Officer

The pipeline is as strong as it's been. If you measure it in deal value, it's probably as strong as ever. The number of deals is strong as well.

Jon E Tanwanteng, Analyst (CJS Securities)

Got it. Great. Thank you very much, guys. Congrats on the quarter.

Operator, Operator

Thank you. We have reached the end of our question-and-answer session. I'd like to turn the conference back over to Mr. Turicchi for any closing remarks.

R. Scott Turicchi, President and CFO

Thank you, Michelle. We appreciate all of you joining us today for our Q2 call. It did run a bit long, but it was important to take everybody's questions. We did have a release put out. In this environment, we have some virtual conferences and virtual non-deal road shows beginning tomorrow. There'll be a bit of a break and then they reengage post-Labor Day. Look for the release coming out a little later this month to announce our September conference slate, and then we will expect to have another quarterly call in November to discuss Q3 results. Thank you very much.

Operator, Operator

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.