F O U R T H Q U A R T E R A N D F U L L Y E A R 2 0 2 0 R E S U L T S F E B R U A R Y 1 2 , 2021 Safe Harbor for Forward-Looking Statements 2 Certain statements in this presentation are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, particularly those regarding our 2021 Financial Guidance. Such forward-looking statements are subject to numerous assumptions, risks and uncertainties that could cause actual results to differ materially from those descri ...

J2 Global, Inc. (JCOM) Q4 2020 Results Earnings Conference Call February 12, 2021 8:30 AM ET Company Participants Vivek Shah - Chief Executive Officer Scott Turicchi - President and CFO Conference Call Participants Cory Carpenter - JPMorgan Daniel Ives - Wedbush Nick Jones - Citi James Fish - Piper Sandler Saket Kalia - Barclays Will Power - Baird James Breen - William Blair Shyam Patil - SIG Rishi Jaluria - D.A. Davidson Jon Tanwanteng - CJS Securities Operator Good day, ladies and gentlemen. And welcome t ...

[PART I. FINANCIAL INFORMATION](index=4&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section presents J2 Global's unaudited condensed consolidated financial statements and management's analysis for Q3 2020 [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents J2 Global's unaudited condensed consolidated financial statements for Q3 2020, including balance sheets, income, cash flows, and detailed notes [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The balance sheet shows J2 Global's financial position as of September 30, 2020, with decreases in total assets, liabilities, and equity | Metric | Sep 30, 2020 (in thousands) | Dec 31, 2019 (in thousands) | | :--------------------------------- | :-------------------------- | :-------------------------- | | Total Assets | $3,342,993 | $3,505,846 | | Total Liabilities | $2,166,656 | $2,194,654 | | Total Stockholders' Equity | $1,176,337 | $1,311,192 | | Cash and cash equivalents | $567,930 | $575,615 | | Accounts receivable, net | $192,800 | $261,928 | | Goodwill | $1,661,546 | $1,633,033 | [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Statements of operations detail J2 Global's performance for Q3 and nine months 2020, showing revenue growth and mixed net income trends | Metric | 3 Months Ended Sep 30, 2020 (in thousands) | 3 Months Ended Sep 30, 2019 (in thousands) | Change (YoY) | 9 Months Ended Sep 30, 2020 (in thousands) | 9 Months Ended Sep 30, 2019 (in thousands) | Change (YoY) | | :--------------------------------- | :--------------------------------------- | :--------------------------------------- | :----------- | :--------------------------------------- | :--------------------------------------- | :----------- | | Total revenues | $356,976 | $344,141 | 3.7% | $1,020,353 | $966,466 | 5.6% | | Gross profit | $301,154 | $282,425 | 6.6% | $848,598 | $793,471 | 7.0% | | Income from operations | $77,438 | $59,359 | 30.5% | $205,725 | $166,835 | 23.3% | | Net income | $60,883 | $30,745 | 98.0% | $92,580 | $95,783 | (3.3)% | | Basic EPS | $1.31 | $0.63 | 107.9% | $1.96 | $1.98 | (1.0)% | | Diluted EPS | $1.31 | $0.62 | 111.3% | $1.93 | $1.93 | 0.0% | [Condensed Consolidated Statements of Comprehensive Income](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) Comprehensive income statements show increased Q3 net income but a nine-month decrease, impacted by foreign currency translation adjustments | Metric | 3 Months Ended Sep 30, 2020 (in thousands) | 3 Months Ended Sep 30, 2019 (in thousands) | Change (YoY) | 9 Months Ended Sep 30, 2020 (in thousands) | 9 Months Ended Sep 30, 2019 (in thousands) | Change (YoY) | | :--------------------------------- | :--------------------------------------- | :--------------------------------------- | :----------- | :--------------------------------------- | :--------------------------------------- | :----------- | | Net income | $60,883 | $30,745 | 98.0% | $92,580 | $95,783 | (3.3)% | | Foreign currency translation adjustment | $(3,202) | $(8,166) | (60.8)% | $(12,085) | $(8,852) | 36.5% | | Other comprehensive loss, net of tax | $(3,194) | $(8,166) | (60.9)% | $(11,532) | $(8,294) | 39.0% | | Comprehensive income | $57,689 | $22,579 | 155.5% | $81,048 | $87,489 | (7.4)% | [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Cash flow statements show increased operating cash, decreased investing cash, and higher financing cash outflow for nine months 2020 | Metric | 9 Months Ended Sep 30, 2020 (in thousands) | 9 Months Ended Sep 30, 2019 (in thousands) | Change (YoY) | | :--------------------------------- | :--------------------------------------- | :--------------------------------------- | :----------- | | Net cash provided by operating activities | $356,009 | $309,307 | 15.1% | | Net cash used in investing activities | $(107,286) | $(472,928) | (77.3)% | | Net cash (used in) provided by financing activities | $(256,854) | $46,852 | (648.1)% | | Net change in cash and cash equivalents | $(7,685) | $(117,289) | (93.4)% | | Cash and cash equivalents at end of period | $567,930 | $92,185 | 516.1% | [Condensed Consolidated Statements of Stockholders' Equity](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders%27%20Equity) Stockholders' equity decreased from December 2019 to September 2020, mainly due to common stock repurchases | Metric | Sep 30, 2020 (in thousands) | Dec 31, 2019 (in thousands) | | :--------------------------------- | :-------------------------- | :-------------------------- | | Total Stockholders' Equity | $1,176,337 | $1,311,192 | | Common stock, shares outstanding | 44,767,341 | 47,654,929 | | Repurchase and retirement of common stock (9 months ended Sep 30, 2020) | $(238,905) | N/A | | Net income (9 months ended Sep 30, 2020) | $92,580 | N/A | [Notes to Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Detailed notes explain accounting policies, revenue, acquisitions, investments, debt, leases, taxes, equity, and other financial disclosures [1. Basis of Presentation](index=11&type=section&id=1.%20Basis%20of%20Presentation) J2 Global, an internet services provider, presents unaudited financials for Cloud Services and Digital Media, with modest COVID-19 impacts - J2 Global operates two main businesses: **Cloud Services** (fax, voice, backup, security, consumer privacy and protection, email marketing) and **Digital Media** (technology, gaming, broadband, B2B, healthcare markets)[20](index=20&type=chunk)[224](index=224&type=chunk) - The COVID-19 pandemic has had modest adverse impacts on the company's operations, with no material decline in asset carrying values (except for equity method investments) as of September 30, 2020, but future impacts are uncertain[25](index=25&type=chunk)[27](index=27&type=chunk) [2. Recent Accounting Pronouncements](index=16&type=section&id=2.%20Recent%20Accounting%20Pronouncements) J2 Global is evaluating new FASB ASUs, with ASU 2019-12 and 2020-01 expected to have no material impact - J2 Global expects to adopt **ASU 2019-12** (Income Taxes) and **ASU 2020-01** (Investments) on January 1, 2021, with no material impact on financial statements or disclosures[55](index=55&type=chunk)[56](index=56&type=chunk) - The company is currently evaluating the effects of **ASU 2020-04** (Reference Rate Reform) and **ASU 2020-06** (Convertible Instruments) on its financial statements and disclosures[57](index=57&type=chunk)[58](index=58&type=chunk) [3. Revenues](index=16&type=section&id=3.%20Revenues) Revenue from Digital Media and Cloud Services shows growth, with most revenue recognized 'over time' | Revenue Source | 3 Months Ended Sep 30, 2020 (in thousands) | 3 Months Ended Sep 30, 2019 (in thousands) | Change (YoY) | 9 Months Ended Sep 30, 2020 (in thousands) | 9 Months Ended Sep 30, 2019 (in thousands) | Change (YoY) | | :----------------------- | :--------------------------------------- | :--------------------------------------- | :----------- | :--------------------------------------- | :--------------------------------------- | :----------- | | Digital Media - Advertising | $135,219 | $123,463 | 9.5% | $371,403 | $339,024 | 9.5% | | Digital Media - Subscription | $49,386 | $47,048 | 5.0% | $136,534 | $128,402 | 6.3% | | Cloud Services - Subscription | $170,233 | $170,971 | (0.4)% | $507,021 | $491,669 | 3.1% | | Total Revenues | $356,976 | $344,141 | 3.7% | $1,020,353 | $966,466 | 5.6% | - The majority of the company's revenue (over **97%** for both periods) is recognized "over time," reflecting the subscription and service-based nature of its offerings[68](index=68&type=chunk) [4. Business Acquisitions](index=20&type=section&id=4.%20Business%20Acquisitions) J2 Global completed several acquisitions in 2020, adding **$5.9 million** in revenue and recognizing **$23.8 million** in goodwill - J2 Global completed acquisitions including SRFax and other Digital Media/Martech businesses in the first nine months of 2020[85](index=85&type=chunk) | Metric | 9 Months Ended Sep 30, 2020 (in thousands) | | :--------------------------------- | :--------------------------------------- | | Revenue contributed by 2020 acquisitions | $5,900 | | Total consideration for 2020 acquisitions | $39,100 | | Goodwill recognized from 2020 acquisitions | $23,817 | | Tax-deductible goodwill from 2020 acquisitions | $22,600 | [5. Investments](index=21&type=section&id=5.%20Investments) Investments saw a **$19.6 million** impairment loss on equity securities and a **$10.8 million** loss in the OCV Fund for nine months 2020 | Metric | Sep 30, 2020 (in thousands) | Dec 31, 2019 (in thousands) | | :--------------------------------- | :-------------------------- | :-------------------------- | | Equity securities (reported amount) | $29,896 | $27,135 | | Impairment loss on equity securities (9 months ended Sep 30, 2020) | $19,600 | N/A | | Available-for-sale corporate debt securities (Fair Value) | $653 | $22,670 | | Equity method investment (carrying amount) | $66,026 | $50,274 | | Investment loss (gain) in OCV Fund (9 months ended Sep 30, 2020) | $10,800 | $(100) | - The **$10.8 million** investment loss in the OCV Fund for the nine months ended September 30, 2020, was primarily due to a **$7.0 million** impairment of two investments resulting from COVID-19[106](index=106&type=chunk) [6. Assets Held For Sale](index=24&type=section&id=6.%20Assets%20Held%20For%20Sale) J2 Global sold non-core Voice assets in Australia and New Zealand in Q3 2020, realizing a **$17.1 million** gain - J2 Global sold non-core Voice assets in Australia and New Zealand on August 31, 2020[109](index=109&type=chunk) | Metric | 3 Months Ended Sep 30, 2020 (in thousands) | | :----------------------- | :--------------------------------------- | | Gain on sale of businesses | $17,100 | [7. Fair Value Measurements](index=25&type=section&id=7.%20Fair%20Value%20Measurements) Fair value measurements categorize assets and liabilities, with contingent consideration decreasing due to earn-out payments | Metric | Sep 30, 2020 (in thousands) | Dec 31, 2019 (in thousands) | | :--------------------------------- | :-------------------------- | :-------------------------- | | Total assets measured at fair value | $317,760 | $418,334 | | Total liabilities measured at fair value | $8,352 | $37,887 | | Contingent consideration liability (Level 3) | $8,352 | $37,887 | - The decrease in contingent consideration liability was due to **$20.0 million** paid for Humble Bundle earn-out targets and **$8.3 million** for other acquisition thresholds in the first nine months of 2020[118](index=118&type=chunk)[119](index=119&type=chunk) [8. Goodwill and Intangible Assets](index=27&type=section&id=8.%20Goodwill%20and%20Intangible%20Assets) Goodwill increased to **$1.66 billion** due to acquisitions, while intangible assets decreased with **$115.6 million** in amortization expense | Metric | Sep 30, 2020 (in thousands) | Jan 1, 2020 (in thousands) | | :--------------------------------- | :-------------------------- | :-------------------------- | | Goodwill | $1,661,546 | $1,633,033 | | Goodwill acquired (9 months ended Sep 30, 2020) | $23,817 | N/A | | Purchase accounting adjustments (9 months ended Sep 30, 2020) | $7,591 | N/A | | Goodwill written off (9 months ended Sep 30, 2020) | $(4,751) | N/A | | Total intangible assets subject to amortization (Net) | $427,832 | $524,868 | | Amortization expense (9 months ended Sep 30, 2020) | $115,600 | N/A | - The company amortizes customer relationship assets in a pattern that recognizes a substantial majority of the expense in the first 4 to 5 years, despite a longer overall asset life[125](index=125&type=chunk) [9. Debt](index=28&type=section&id=9.%20Debt) J2 Global's debt includes Senior and Convertible Notes, with the 6.0% Senior Notes being redeemed by new 4.625% Senior Notes | Debt Instrument | Sep 30, 2020 (in thousands) | Dec 31, 2019 (in thousands) | Fair Value Sep 30, 2020 (in thousands) | Fair Value Dec 31, 2019 (in thousands) | | :--------------------------------- | :-------------------------- | :-------------------------- | :--------------------------------------- | :--------------------------------------- | | 6.0% Senior Notes | $650,000 | $650,000 | $676,200 | $689,800 | | 3.25% Convertible Notes | $402,414 | $402,500 | $461,000 | $583,600 | | 1.75% Convertible Notes | $550,000 | $550,000 | $490,200 | $559,600 | | Total long-term debt, less current portion | $1,075,071 | $1,062,929 | N/A | N/A | - On October 7, 2020, J2 Global issued **$750 million** of 4.625% Senior Notes due 2030 to redeem the outstanding 6.0% Senior Notes[130](index=130&type=chunk)[217](index=217&type=chunk) - The 3.25% Convertible Notes are classified as current liabilities due to a holder repurchase option on June 15, 2021[137](index=137&type=chunk) [10. Leases](index=32&type=section&id=10.%20Leases) J2 Global recorded **$9.8 million** in lease asset impairment due to a remote work shift, with total operating lease liabilities at **$115.2 million** - J2 Global recorded a **$9.8 million** non-cash impairment charge on operating lease right-of-use assets and a **$3.6 million** impairment charge for associated property and equipment in Q3 2020[154](index=154&type=chunk)[155](index=155&type=chunk) - The impairment was due to a permanent shift to a "remote" or "partial remote" work model for a significant number of employees[154](index=154&type=chunk) | Metric | Sep 30, 2020 (in thousands) | Dec 31, 2019 (in thousands) | | :--------------------------------- | :-------------------------- | :-------------------------- | | Operating lease right-of-use assets | $97,439 | $125,822 | | Total operating lease liabilities | $115,236 | $130,997 | | Total lease cost (9 months ended Sep 30, 2020) | $34,463 | N/A | [11. Commitments and Contingencies](index=35&type=section&id=11.%20Commitments%20and%20Contingencies) J2 Global faces legal proceedings and has a **$20.8 million** tax reserve, with its Credit Agreement terminated post-quarter end - J2 Global is involved in several legal proceedings, including a TCPA class action and derivative claims, but management does not anticipate a material adverse effect[166](index=166&type=chunk)[167](index=167&type=chunk)[168](index=168&type=chunk)[169](index=169&type=chunk) - The company has a **$20.8 million** reserve for non-income related tax matters, with potential for additional liabilities[174](index=174&type=chunk) - The **$200.0 million** Credit Facility was terminated on October 7, 2020, with no outstanding amounts as of September 30, 2020[171](index=171&type=chunk)[172](index=172&type=chunk) [12. Income Taxes](index=36&type=section&id=12.%20Income%20Taxes) Effective tax rate increased to **32.2%** for nine months 2020 due to valuation allowances and reduced foreign income benefits | Metric | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | Change (YoY) | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | Change (YoY) | | :--------------------------------- | :-------------------------- | :-------------------------- | :----------- | :-------------------------- | :-------------------------- | :----------- | | Income tax expense | $24,330 | $6,998 | 247.7% | $49,011 | $17,851 | 174.6% | | Effective tax rate | 28.3% | 17.0% | 11.3 pp | 32.2% | 15.7% | 16.5 pp | | Liabilities for uncertain income tax positions (Sep 30, 2020) | $60,200 | N/A | N/A | N/A | N/A | N/A | - The increased effective tax rate for the nine months ended September 30, 2020, was primarily due to a valuation allowance on deferred tax assets related to investment impairments and a decrease in the benefit of foreign income taxed at lower rates[175](index=175&type=chunk)[261](index=261&type=chunk) [13. Stockholders' Equity](index=37&type=section&id=13.%20Stockholders%27%20Equity) J2 Global repurchased **1.14 million** shares for **$87.5 million** (2012 Program) and **2 million** shares for **$141.8 million** (2020 Program) - The 2012 Program, extended through February 2021, had **1,140,819 shares** repurchased for **$87.5 million** in the first nine months of 2020, exhausting the program's capacity[183](index=183&type=chunk)[184](index=184&type=chunk) - A new 2020 Program, approved on August 6, 2020, authorized the repurchase of up to **10 million shares** through August 6, 2025, with **2,000,000 shares** repurchased for **$141.8 million** by September 30, 2020[185](index=185&type=chunk)[186](index=186&type=chunk) - The Board of Directors suspended dividend payments for the foreseeable future after the June 4, 2019 payment, citing significant investment opportunities[188](index=188&type=chunk)[276](index=276&type=chunk) [14. Stock Options and Employee Stock Purchase Plan](index=38&type=section&id=14.%20Stock%20Options%20and%20Employee%20Stock%20Purchase%20Plan) Share-based compensation for nine months 2020 totaled **$18.6 million**, including stock options, restricted stock, and ESPP expenses | Metric | 9 Months Ended Sep 30, 2020 (in thousands) | 9 Months Ended Sep 30, 2019 (in thousands) | | :--------------------------------- | :--------------------------------------- | :--------------------------------------- | | Stock option compensation expense | $700 | $700 | | Restricted stock/RSU compensation expense | $16,400 | $16,700 | | Employee Stock Purchase Plan compensation expense | $1,500 | $1,000 | | Total share-based compensation expense | $18,643 | $18,394 | - As of September 30, 2020, unrecognized compensation for stock options was **$6.1 million** (expected over 5.3 years), and for restricted stock/RSUs was **$44.0 million** (expected over 4.4 years)[195](index=195&type=chunk)[200](index=200&type=chunk) [15. Earnings Per Share](index=41&type=section&id=15.%20Earnings%20Per%20Share) Basic EPS for Q3 2020 significantly increased to **$1.31**, while nine-month EPS remained stable at **$1.96** (basic) and **$1.93** (diluted) | Metric | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | Change (YoY) | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | Change (YoY) | | :--------------------------------- | :-------------------------- | :-------------------------- | :----------- | :-------------------------- | :-------------------------- | :----------- | | Basic EPS | $1.31 | $0.63 | 107.9% | $1.96 | $1.98 | (1.0)% | | Diluted EPS | $1.31 | $0.62 | 111.3% | $1.93 | $1.93 | 0.0% | | Weighted-average outstanding shares (Basic) | 46,279,515 | 47,673,211 | (2.9)% | 46,914,750 | 47,654,327 | (1.5)% | [16. Segment Information](index=42&type=section&id=16.%20Segment%20Information) J2 Global's Cloud Services and Digital Media segments show revenue growth, with Digital Media achieving significant operating income growth - J2 Global's operating segments are Fax and Martech; Voice, Backup, Security, and Consumer Privacy and Protection (CPP); and Digital Media[207](index=207&type=chunk) | Segment Revenue | 3 Months Ended Sep 30, 2020 (in thousands) | 3 Months Ended Sep 30, 2019 (in thousands) | Change (YoY) | 9 Months Ended Sep 30, 2020 (in thousands) | 9 Months Ended Sep 30, 2019 (in thousands) | Change (YoY) | | :--------------------------------- | :--------------------------------------- | :--------------------------------------- | :----------- | :--------------------------------------- | :--------------------------------------- | :----------- | | Cloud Services Total | $170,248 | $171,163 | (0.5)% | $507,090 | $492,540 | 3.0% | | Digital Media | $186,784 | $172,992 | 8.0% | $513,462 | $474,034 | 8.3% | | Total revenues | $356,976 | $344,141 | 3.7% | $1,020,353 | $966,466 | 5.6% | | Segment Operating Income | 3 Months Ended Sep 30, 2020 (in thousands) | 3 Months Ended Sep 30, 2019 (in thousands) | Change (YoY) | 9 Months Ended Sep 30, 2020 (in thousands) | 9 Months Ended Sep 30, 2019 (in thousands) | Change (YoY) | | :--------------------------------- | :--------------------------------------- | :--------------------------------------- | :----------- | :--------------------------------------- | :--------------------------------------- | :----------- | | Cloud Services Total | $65,757 | $60,945 | 7.9% | $183,470 | $181,826 | 0.9% | | Digital Media | $26,082 | $5,493 | 374.8% | $47,854 | $6,011 | 696.1% | | Total income from operations | $77,438 | $59,359 | 30.5% | $205,725 | $166,835 | 23.3% | [17. Accumulated Other Comprehensive Income](index=45&type=section&id=17.%20Accumulated%20Other%20Comprehensive%20Income) Accumulated other comprehensive loss increased to **$(57.99) million** due to foreign currency translation adjustments | Metric | Sep 30, 2020 (in thousands) | Jan 1, 2020 (in thousands) | | :--------------------------------- | :-------------------------- | :-------------------------- | | Ending balance of accumulated other comprehensive loss | $(57,994) | $(46,462) | | Foreign Currency Translation (9 months ended Sep 30, 2020) | $(12,085) | N/A | [18. Subsequent Events](index=45&type=section&id=18.%20Subsequent%20Events) Post-quarter end, J2 Global issued **$750 million** in new Senior Notes, terminated its Credit Agreement, and completed two acquisitions - On October 7, 2020, J2 Global issued **$750 million** in 4.625% Senior Notes due 2030 to fund the redemption of its 6.0% Senior Notes, including a **$29.2 million** early redemption premium[217](index=217&type=chunk) - The company terminated its Credit Agreement on October 7, 2020[218](index=218&type=chunk) - J2 Global completed the acquisition of RetailMeNot for approximately **$420 million** on October 28, 2020, and Inspired eLearning on November 2, 2020[218](index=218&type=chunk)[219](index=219&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=47&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management's discussion analyzes J2 Global's financial condition and results for Q3 and nine months 2020, including forward-looking statements and liquidity [Forward-Looking Information](index=47&type=section&id=Forward-Looking%20Information) Forward-looking statements are subject to risks including economic uncertainty, debt, acquisition integration, and the ongoing COVID-19 pandemic - Forward-looking statements are subject to risks including economic uncertainty, customer acquisition/retention, debt management, successful acquisition integration, international expansion challenges, and tax liabilities[221](index=221&type=chunk)[222](index=222&type=chunk) - The COVID-19 pandemic is a significant factor that could materially impact financial results, with its full extent, duration, and overall impact currently unknown[223](index=223&type=chunk)[230](index=230&type=chunk)[231](index=231&type=chunk) [Overview](index=48&type=section&id=Overview) J2 Global's core businesses, Cloud Services and Digital Media, drive growth through organic efforts and acquisitions, with COVID-19 impacts monitored - J2 Global operates two core businesses: **Cloud Services** (subscription-based, high-margin, stable) and **Digital Media** (advertising-driven, seasonal strength in Q4)[224](index=224&type=chunk)[228](index=228&type=chunk) - Acquisitions are a key growth strategy to expand customer bases, diversify offerings, enhance technology, and enter new markets[227](index=227&type=chunk) - The company is actively monitoring the global COVID-19 pandemic and its potential adverse effects on operations, financial position, and liquidity[229](index=229&type=chunk)[230](index=230&type=chunk)[231](index=231&type=chunk) [Cloud Services Performance Metrics](index=49&type=section&id=Cloud%20Services%20Performance%20Metrics) Cloud Services revenue slightly decreased in Q3 but increased for nine months 2020, with improved cancel rates | Metric | 3 Months Ended Sep 30, 2020 (in thousands) | 3 Months Ended Sep 30, 2019 (in thousands) | Change (YoY) | 9 Months Ended Sep 30, 2020 (in thousands) | 9 Months Ended Sep 30, 2019 (in thousands) | Change (YoY) | | :--------------------------------- | :--------------------------------------- | :--------------------------------------- | :----------- | :--------------------------------------- | :--------------------------------------- | :----------- | | Total subscriber revenues | $170,233 | $170,971 | (0.4)% | $507,021 | $491,669 | 3.1% | | Fixed subscriber revenues | $144,525 | $141,832 | 1.9% | $426,766 | $406,493 | 5.0% | | Variable subscriber revenues | $25,708 | $29,139 | (11.8)% | $80,255 | $85,176 | (5.8)% | | Average monthly revenue per Cloud Business Customer (ARPU) | $13.98 | $14.15 | (1.2)% | N/A | N/A | N/A | | Cancel Rate (3 months average) | 2.1% | 2.4% | (0.3 pp) | N/A | N/A | N/A | [Digital Media Performance Metrics](index=50&type=section&id=Digital%20Media%20Performance%20Metrics) Digital Media engagement increased for both Q3 and nine months 2020, with visits growing by **18.3%** and **26.8%** respectively | Metric | 3 Months Ended Sep 30, 2020 (in millions) | 3 Months Ended Sep 30, 2019 (in millions) | Change (YoY) | 9 Months Ended Sep 30, 2020 (in millions) | 9 Months Ended Sep 30, 2019 (in millions) | Change (YoY) | | :--------------------------------- | :---------------------------------------- | :---------------------------------------- | :----------- | :---------------------------------------- | :---------------------------------------- | :----------- | | Visits | 2,197 | 1,857 | 18.3% | 6,701 | 5,282 | 26.8% | | Page views | 7,244 | 7,008 | 3.4% | 22,777 | 20,587 | 10.6% | [Critical Accounting Policies and Estimates](index=50&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) Critical accounting policies and estimates remained unchanged during the three months ended September 30, 2020 - No significant changes occurred in critical accounting policies and estimates during the three months ended September 30, 2020[238](index=238&type=chunk) [Results of Operations](index=50&type=section&id=Results%20of%20Operations) Results of operations detail financial performance across segments, including revenues, costs, operating expenses, and taxes [Cloud Services Segment Results](index=55&type=section&id=Cloud%20Services%20Segment%20Results) Cloud Services net sales decreased in Q3 due to COVID-19 but increased for nine months 2020, with operating income growth - Cloud Services net sales decreased by **0.5%** for the three months ended September 30, 2020, due to COVID-19, but increased by **3.0%** for the nine-month period, primarily from acquisitions[266](index=266&type=chunk) - Operating income for Cloud Services increased by **7.9%** for the three months and **0.9%** for the nine months ended September 30, 2020, mainly due to lower amortization of intangible assets[268](index=268&type=chunk)[269](index=269&type=chunk) - Revenue for the remainder of fiscal year 2020 is expected to be flat to modestly lower due to the macroeconomic environment and COVID-19[239](index=239&type=chunk) [Digital Media Segment Results](index=56&type=section&id=Digital%20Media%20Segment%20Results) Digital Media net sales increased by **8.0%** (Q3) and **8.3%** (nine months) due to acquisitions, with substantial operating income growth - Digital Media net sales increased by **8.0%** for the three months and **8.3%** for the nine months ended September 30, 2020, primarily driven by business acquisitions[270](index=270&type=chunk) - Operating income for Digital Media surged by **374.8%** for the three months and **696.1%** for the nine months ended September 30, 2020, due to acquisitions and lower campaign fulfillment costs, despite lease asset impairments[271](index=271&type=chunk)[272](index=272&type=chunk) - Revenue for the remainder of fiscal year 2020 is expected to be higher due to the RetailMeNot acquisition, though still subject to COVID-19 risks[241](index=241&type=chunk) [J2 Global Consolidated Outlook](index=51&type=section&id=J2%20Global%20Consolidated%20Outlook) J2 Global expects higher consolidated revenue for the remainder of 2020, but operating profit margin may decrease due to Digital Media growth - Consolidated revenue for the remainder of fiscal year 2020 is expected to be higher compared to the prior-year comparable period[244](index=244&type=chunk) - Operating profit as a percentage of revenues is expected to decrease due to the growing share of the Digital Media business, which has lower operating margins[245](index=245&type=chunk) [Consolidated Revenues](index=51&type=section&id=Consolidated%20Revenues) Consolidated revenues increased by **4%** (Q3) and **6%** (nine months) driven by acquisitions and organic growth | Metric | 3 Months Ended Sep 30, 2020 (in thousands) | 3 Months Ended Sep 30, 2019 (in thousands) | Change (YoY) | 9 Months Ended Sep 30, 2020 (in thousands) | 9 Months Ended Sep 30, 2019 (in thousands) | Change (YoY) | | :--------------------------------- | :--------------------------------------- | :--------------------------------------- | :----------- | :--------------------------------------- | :--------------------------------------- | :----------- | | Revenues | $356,976 | $344,141 | 4% | $1,020,353 | $966,466 | 6% | - Revenue growth was primarily due to acquisitions and organic growth, partially offset by declines in specific areas of both Digital Media and Cloud Services[247](index=247&type=chunk) [Consolidated Cost of Revenues](index=52&type=section&id=Consolidated%20Cost%20of%20Revenues) Cost of revenues decreased by **10%** (Q3) and **1%** (nine months), primarily due to lower content and fulfillment costs | Metric | 3 Months Ended Sep 30, 2020 (in thousands) | 3 Months Ended Sep 30, 2019 (in thousands) | Change (YoY) | 9 Months Ended Sep 30, 2020 (in thousands) | 9 Months Ended Sep 30, 2019 (in thousands) | Change (YoY) | | :--------------------------------- | :--------------------------------------- | :--------------------------------------- | :----------- | :--------------------------------------- | :--------------------------------------- | :----------- | | Cost of revenue | $55,822 | $61,716 | (10)% | $171,755 | $172,995 | (1)% | | As a percent of revenue | 16% | 18% | (2 pp) | 17% | 18% | (1 pp) | - The decrease in cost of revenues was primarily driven by lower content fees, campaign fulfillment costs, and other editorial/production costs, partially offset by increased depreciation and amortization[248](index=248&type=chunk) [Consolidated Operating Expenses](index=52&type=section&id=Consolidated%20Operating%20Expenses) Consolidated operating expenses show mixed trends across sales and marketing, R&D, and general and administrative costs [Sales and Marketing](index=52&type=section&id=Sales%20and%20Marketing) Sales and marketing expenses decreased by **3%** (Q3) but increased by **5%** (nine months) due to acquisitions and personnel costs | Metric | 3 Months Ended Sep 30, 2020 (in thousands) | 3 Months Ended Sep 30, 2019 (in thousands) | Change (YoY) | 9 Months Ended Sep 30, 2020 (in thousands) | 9 Months Ended Sep 30, 2019 (in thousands) | Change (YoY) | | :--------------------------------- | :--------------------------------------- | :--------------------------------------- | :----------- | :--------------------------------------- | :--------------------------------------- | :----------- | | Sales and Marketing | $95,074 | $98,486 | (3)% | $287,317 | $273,812 | 5% | | As a percent of revenue | 27% | 29% | (2 pp) | 28% | 28% | 0 pp | - The three-month decrease was due to lower advertising costs, while the nine-month increase was driven by higher personnel costs and partner revenue share from acquisitions[249](index=249&type=chunk) [Research, Development and Engineering](index=52&type=section&id=Research,%20Development%20and%20Engineering) R&D expenses increased by **4%** (Q3) and **12%** (nine months), driven by costs from recent business acquisitions | Metric | 3 Months Ended Sep 30, 2020 (in thousands) | 3 Months Ended Sep 30, 2019 (in thousands) | Change (YoY) | 9 Months Ended Sep 30, 2020 (in thousands) | 9 Months Ended Sep 30, 2019 (in thousands) | Change (YoY) | | :--------------------------------- | :--------------------------------------- | :--------------------------------------- | :----------- | :--------------------------------------- | :--------------------------------------- | :----------- | | Research, Development and Engineering | $14,261 | $13,770 | 4% | $43,273 | $38,692 | 12% | | As a percent of revenue | 4% | 4% | 0 pp | 4% | 4% | 0 pp | - The increase in R&D costs was primarily due to expenses from businesses acquired in and subsequent to Q3 2019[251](index=251&type=chunk) [General and Administrative](index=53&type=section&id=General%20and%20Administrative) G&A costs increased by **3%** (Q3) due to impairments but decreased by **1%** (nine months) from lower amortization | Metric | 3 Months Ended Sep 30, 2020 (in thousands) | 3 Months Ended Sep 30, 2019 (in thousands) | Change (YoY) | 9 Months Ended Sep 30, 2020 (in thousands) | 9 Months Ended Sep 30, 2019 (in thousands) | Change (YoY) | | :--------------------------------- | :--------------------------------------- | :--------------------------------------- | :----------- | :--------------------------------------- | :--------------------------------------- | :----------- | | General and Administrative | $114,381 | $110,810 | 3% | $312,283 | $314,132 | (1)% | | As a percent of revenue | 32% | 32% | 0 pp | 31% | 33% | (2 pp) | - The three-month increase was due to lease asset impairments and additional depreciation, while the nine-month decrease was primarily due to lower amortization of intangible assets[252](index=252&type=chunk) [Consolidated Share-Based Compensation](index=53&type=section&id=Consolidated%20Share-Based%20Compensation) Total share-based compensation was **$5.8 million** for Q3 and **$18.6 million** for the nine months ended September 30, 2020 | Metric | 3 Months Ended Sep 30, 2020 (in thousands) | 3 Months Ended Sep 30, 2019 (in thousands) | Change (YoY) | 9 Months Ended Sep 30, 2020 (in thousands) | 9 Months Ended Sep 30, 2019 (in thousands) | Change (YoY) | | :--------------------------------- | :--------------------------------------- | :--------------------------------------- | :----------- | :--------------------------------------- | :--------------------------------------- | :----------- | | Total share-based compensation | $5,800 | $6,446 | (10.1)% | $18,643 | $18,394 | 1.3% | [Consolidated Non-Operating Income and Expenses](index=53&type=section&id=Consolidated%20Non-Operating%20Income%20and%20Expenses) Non-operating items show increased interest expense, a significant gain on business sales, and higher investment losses [Interest expense, net](index=53&type=section&id=Interest%20expense,%20net) Net interest expense increased by **31.2%** (Q3) and **30.2%** (nine months) due to 1.75% Convertible Senior Notes issuance | Metric | 3 Months Ended Sep 30, 2020 (in thousands) | 3 Months Ended Sep 30, 2019 (in thousands) | Change (YoY) | 9 Months Ended Sep 30, 2020 (in thousands) | 9 Months Ended Sep 30, 2019 (in thousands) | Change (YoY) | | :--------------------------------- | :--------------------------------------- | :--------------------------------------- | :----------- | :--------------------------------------- | :--------------------------------------- | :----------- | | Interest expense, net | $22,700 | $17,300 | 31.2% | $65,900 | $50,600 | 30.2% | - The increase in interest expense was primarily due to the issuance of 1.75% Convertible Senior Notes in Q4 2019[254](index=254&type=chunk) [Gain on sale of businesses](index=53&type=section&id=Gain%20on%20sale%20of%20businesses) J2 Global recognized a **$17.1 million** gain from the sale of Voice assets in Australia and New Zealand in Q3 2020 | Metric | 3 Months Ended Sep 30, 2020 (in thousands) | 3 Months Ended Sep 30, 2019 (in thousands) | Change (YoY) | 9 Months Ended Sep 30, 2020 (in thousands) | 9 Months Ended Sep 30, 2019 (in thousands) | Change (YoY) | | :--------------------------------- | :--------------------------------------- | :--------------------------------------- | :----------- | :--------------------------------------- | :--------------------------------------- | :----------- | | Gain on sale of businesses | $17,122 | $0 | N/A | $17,122 | $0 | N/A | - The gain resulted from the sale of certain Voice assets in Australia and New Zealand in Q3 2020[255](index=255&type=chunk) [Loss on investments, net](index=53&type=section&id=Loss%20on%20investments,%20net) Net loss on investments significantly increased to **$21.0 million** for nine months 2020 due to investee capital structure changes | Metric | 3 Months Ended Sep 30, 2020 (in thousands) | 3 Months Ended Sep 30, 2019 (in thousands) | Change (YoY) | 9 Months Ended Sep 30, 2020 (in thousands) | 9 Months Ended Sep 30, 2019 (in thousands) | Change (YoY) | | :--------------------------------- | :--------------------------------------- | :--------------------------------------- | :----------- | :--------------------------------------- | :--------------------------------------- | :----------- | | Loss on investments, net | $156 | $7 | 2128.6% | $20,991 | $45 | 46546.7% | - The substantial increase in loss on investments for the nine-month period was due to net losses from changes in investee capital structure and market volatility[257](index=257&type=chunk) [Other (income) expense, net](index=54&type=section&id=Other%20(income)%20expense,%20net) Other (income) expense, net, shifted to significant income due to increased gains on currency exchange | Metric | 3 Months Ended Sep 30, 2020 (in thousands) | 3 Months Ended Sep 30, 2019 (in thousands) | Change (YoY) | 9 Months Ended Sep 30, 2020 (in thousands) | 9 Months Ended Sep 30, 2019 (in thousands) | Change (YoY) | | :--------------------------------- | :--------------------------------------- | :--------------------------------------- | :----------- | :--------------------------------------- | :--------------------------------------- | :----------- | | Other (income) expense, net | $(14,230) | $857 | (1759.9)% | $(16,413) | $2,657 | (718.9)% | - The shift to income was primarily driven by increased gains on currency exchange[258](index=258&type=chunk) [Consolidated Income Taxes](index=54&type=section&id=Consolidated%20Income%20Taxes) Income tax provision significantly increased, with the effective tax rate rising to **32.2%** for nine months 2020 | Metric | 3 Months Ended Sep 30, 2020 (in thousands) | 3 Months Ended Sep 30, 2019 (in thousands) | Change (YoY) | 9 Months Ended Sep 30, 2020 (in thousands) | 9 Months Ended Sep 30, 2019 (in thousands) | Change (YoY) | | :--------------------------------- | :--------------------------------------- | :--------------------------------------- | :----------- | :--------------------------------------- | :--------------------------------------- | :----------- | | Provision for income taxes | $24,300 | $7,000 | 247.1% | $49,000 | $17,900 | 173.7% | | Effective tax rate | 28.3% | 17.0% | 11.3 pp | 32.2% | 15.7% | 16.5 pp | - The increase in the effective tax rate was primarily due to a valuation allowance on deferred tax assets related to investment impairments and a decrease in the benefit of foreign income taxed at lower rates[261](index=261&type=chunk) [Consolidated Equity Method Investment](index=55&type=section&id=Consolidated%20Equity%20Method%20Investment) Net loss from equity method investment was **$10.8 million** for nine months 2020, primarily due to COVID-19 related impairments | Metric | 3 Months Ended Sep 30, 2020 (in thousands) | 3 Months Ended Sep 30, 2019 (in thousands) | Change (YoY) | 9 Months Ended Sep 30, 2020 (in thousands) | 9 Months Ended Sep 30, 2019 (in thousands) | Change (YoY) | | :--------------------------------- | :--------------------------------------- | :--------------------------------------- | :----------- | :--------------------------------------- | :--------------------------------------- | :----------- | | Net loss (income) in earnings of equity method investment | $700 | $3,500 | (80.0)% | $10,800 | $(100) | 10900.0% | - The significant loss for the nine-month period was primarily due to a **$7.0 million** impairment of two investments resulting from COVID-19[263](index=263&type=chunk) [Liquidity and Capital Resources](index=57&type=section&id=Liquidity%20and%20Capital%20Resources) Liquidity decreased due to stock repurchases and acquisitions, despite increased operating cash flow, with new senior notes issued [Cash and Cash Equivalents and Investments](index=57&type=section&id=Cash%20and%20Cash%20Equivalents%20and%20Investments) Cash, cash equivalents, and investments decreased to **$664.5 million** due to repurchases and acquisitions, offset by operating cash flow | Metric | Sep 30, 2020 (in thousands) | Dec 31, 2019 (in thousands) | | :--------------------------------- | :-------------------------- | :-------------------------- | | Cash, cash equivalents and investments | $664,500 | $675,700 | | Cash and cash equivalents | $567,900 | $575,600 | | Long-term investments | $96,600 | N/A | - The decrease was primarily due to cash used for common stock repurchases, property and equipment purchases, investments, and business acquisitions, partially offset by operating cash flow[273](index=273&type=chunk) - Post-quarter end, the company terminated its Credit Agreement and issued **$750 million** in new 4.625% Senior Notes due 2030[274](index=274&type=chunk)[275](index=275&type=chunk) [Cash Flows](index=58&type=section&id=Cash%20Flows) Operating cash flow increased by **15.1%**, investing cash flow decreased by **77.3%**, and financing cash flow became a net outflow | Metric | 9 Months Ended Sep 30, 2020 (in thousands) | 9 Months Ended Sep 30, 2019 (in thousands) | Change (YoY) | | :--------------------------------- | :--------------------------------------- | :--------------------------------------- | :----------- | | Net cash provided by operating activities | $356,000 | $309,300 | 15.1% | | Net cash used in investing activities | $(107,300) | $(472,900) | (77.3)% | | Net cash (used in) provided by financing activities | $(256,900) | $46,900 | (648.1)% | - The increase in operating cash flow was due to decreased accounts receivable, prepaid expenses, and higher uncertain tax positions, partially offset by reduced accounts payable and deferred revenue[280](index=280&type=chunk) - The shift in financing cash flow was primarily due to common stock repurchases and the absence of net borrowings under the line of credit seen in 2019[282](index=282&type=chunk) [Stock Repurchase Program](index=58&type=section&id=Stock%20Repurchase%20Program) J2 Global repurchased **1.14 million** shares for **$87.5 million** (2012 Program) and **2 million** shares for **$141.8 million** (2020 Program) - Under the 2012 Program, **1,140,819 shares** were repurchased for **$87.5 million** in the first nine months of 2020, exhausting the program's capacity[283](index=283&type=chunk) - The new 2020 Program, approved in August 2020, authorized up to **10 million shares**, with **2,000,000 shares** repurchased for **$141.8 million** by September 30, 2020[284](index=284&type=chunk) [Contractual Obligations and Commitments](index=59&type=section&id=Contractual%20Obligations%20and%20Commitments) Total contractual obligations were **$2.05 billion**, primarily long-term debt and operating leases, excluding uncertain tax positions | Contractual Obligation | Total (in thousands) | | :--------------------------------- | :------------------- | | Long-term debt - principal | $1,602,414 | | Long-term debt - interest | $270,641 | | Operating leases | $135,179 | | Finance leases | $1,418 | | Telecom services and co-location facilities | $4,368 | | Holdback payments | $7,630 | | Transition Tax | $11,675 | | Self-Insurance | $11,980 | | Other | $1,600 | | Total | $2,046,905 | - The table excludes **$60.2 million** in uncertain tax positions, contingent acquisition consideration, and a **$102.0 million** commitment to OCV Management, LLC due to timing uncertainties[290](index=290&type=chunk)[291](index=291&type=chunk) [Off-Balance Sheet Arrangements](index=59&type=section&id=Off-Balance%20Sheet%20Arrangements) J2 Global has no material off-balance sheet arrangements - J2 Global has no material off-balance sheet arrangements[292](index=292&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=60&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section details J2 Global's market risk exposure, focusing on interest rate fluctuations and foreign currency risk [Interest Rate Risk](index=60&type=section&id=Interest%20Rate%20Risk) Interest rate risk stems from investments and variable-rate borrowings, with no impact from LIBOR changes due to no Credit Facility outstanding - J2 Global's interest rate risk is primarily related to its investment portfolio and variable-rate borrowings[294](index=294&type=chunk) | Metric | Sep 30, 2020 (in thousands) | Dec 31, 2019 (in thousands) | | :--------------------------------- | :-------------------------- | :-------------------------- | | Debt securities (maturities > 1 year) | $700 | N/A | | Cash and cash equivalent investments (maturities <= 90 days) | $567,900 | $575,600 | - As of September 30, 2020, there were no outstanding amounts under the Credit Facility, meaning a **100 basis point** increase in LIBOR would not impact annual interest expense from this facility[296](index=296&type=chunk)[298](index=298&type=chunk) [Foreign Currency Risk](index=61&type=section&id=Foreign%20Currency%20Risk) Foreign currency risk from international operations led to significant foreign exchange gains due to lower inter-company balances - J2 Global's principal foreign currency risk exposure relates to investments and inter-company debt in foreign subsidiaries operating in currencies like AUD, CAD, EUR, HKD, JPY, NZD, NOK, and GBP[300](index=300&type=chunk) | Metric | 3 Months Ended Sep 30, 2020 (in thousands) | 3 Months Ended Sep 30, 2019 (in thousands) | Change (YoY) | 9 Months Ended Sep 30, 2020 (in thousands) | 9 Months Ended Sep 30, 2019 (in thousands) | Change (YoY) | | :--------------------------------- | :--------------------------------------- | :--------------------------------------- | :----------- | :--------------------------------------- | :--------------------------------------- | :----------- | | Foreign exchange (gains) losses | $(13,900) | $1,000 | (1490.0)% | $(15,000) | $2,800 | (635.7)% | - The decrease in foreign exchange losses (i.e., increase in gains) was attributed to lower inter-company balances in foreign subsidiaries and exchange rate fluctuations[304](index=304&type=chunk) [Item 4. Controls and Procedures](index=61&type=section&id=Item%204.%20Controls%20and%20Procedures) Disclosure controls and procedures were effective, with no material changes in internal control over financial reporting during Q3 2020 [Evaluation of Disclosure Controls and Procedures](index=61&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of September 30, 2020 - Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of September 30, 2020[308](index=308&type=chunk) [Changes in Internal Controls](index=61&type=section&id=Changes%20in%20Internal%20Controls) No material changes in internal control over financial reporting occurred during the third quarter ended September 30, 2020 - No material changes in internal control over financial reporting occurred during the third quarter ended September 30, 2020[309](index=309&type=chunk) [PART II. OTHER INFORMATION](index=62&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section provides other information, including legal proceedings, risk factors, equity sales, defaults, and exhibits [Item 1. Legal Proceedings](index=62&type=section&id=Item%201.%20Legal%20Proceedings) Legal proceedings, detailed in Note 11, are not expected to have a material adverse effect on the company - Information on legal proceedings is detailed in Note 11, where the company does not believe current claims will have a material adverse effect[310](index=310&type=chunk)[169](index=169&type=chunk) [Item 1A. Risk Factors](index=62&type=section&id=Item%201A.%20Risk%20Factors) Risk factors refer to prior filings, with no material changes reported from previously disclosed risks - Readers are directed to previously filed 10-K and 10-Q reports for detailed risk factors[311](index=311&type=chunk) - No material changes to the previously disclosed risk factors have occurred[311](index=311&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=62&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No unregistered sales of equity securities were reported, with details on common stock repurchase programs [Unregistered Sales of Equity Securities](index=62&type=section&id=Unregistered%20Sales%20of%20Equity%20Securities) No unregistered sales of equity securities were reported during the period - There were no unregistered sales of equity securities[312](index=312&type=chunk) [Issuer Purchases of Equity Securities](index=62&type=section&id=Issuer%20Purchases%20of%20Equity%20Securities) J2 Global repurchased **2.15 million** shares for **$69.80** average price in Q3 2020, with **8 million** shares remaining in the 2020 Program | Metric | 3 Months Ended Sep 30, 2020 | | :--------------------------------- | :-------------------------- | | Total shares purchased | 2,145,243 | | Average price paid per share | $69.80 | | Shares purchased under publicly announced plans | 2,140,819 | | Maximum shares yet to be purchased under 2020 Program | 8,000,000 | - The 2012 Program is fully utilized, and **8 million shares** remain available for repurchase under the 2020 Program[315](index=315&type=chunk)[316](index=316&type=chunk)[317](index=317&type=chunk) [Item 3. Defaults Upon Senior Securities](index=64&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) No defaults upon senior securities were reported by J2 Global - There were no defaults upon senior securities[318](index=318&type=chunk) [Item 4. Mine Safety Disclosures](index=64&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) Mine Safety Disclosures are not applicable to J2 Global - Mine Safety Disclosures are not applicable to the company[319](index=319&type=chunk) [Item 5. Other Information](index=64&type=section&id=Item%205.%20Other%20Information) No other information was reported under this item - No other information was reported under this item[320](index=320&type=chunk) [Item 6. Exhibits](index=64&type=section&id=Item%206.%20Exhibits) Exhibits include corporate governance documents, certifications, and XBRL financial information filed with the Form 10-Q - Exhibits include corporate governance documents, Sarbanes-Oxley certifications (Rule 13a-14(a) and Section 1350), and XBRL formatted financial information[321](index=321&type=chunk)[329](index=329&type=chunk) [Signature](index=65&type=section&id=Signature) The report was signed by the CEO, President and CFO, and Chief Accounting Officer on November 9, 2020 - The report was signed by the Chief Executive Officer, President and Chief Financial Officer, and Chief Accounting Officer on November 9, 2020[327](index=327&type=chunk)

Financial Data and Key Metrics Changes - J2 Global reported a 3.7% increase in revenue year-over-year for Q3 2020, reaching $357 million, exceeding expectations [33] - Adjusted EBITDA grew by 14.4% to a record $154.1 million, with an EBITDA margin of 43.2%, up from 39.2% a year ago [34] - Adjusted EPS increased approximately 20% to $2.02 per share compared to $1.70 per share in Q3 2019 [34] - Free cash flow reached a record $93.7 million, a 20% increase from Q3 2019, with a trailing 12-month free cash flow of $387 million [35] Business Line Data and Key Metrics Changes - The gaming business grew approximately 10% organically, benefiting from a new console cycle [9] - Broadband businesses also saw a 10% organic growth, with the Ekahau business returning to growth after previous COVID-related impacts [10] - Everyday Health revenues grew by 25%, primarily organic, with the MedPage brand traffic up 119% year-over-year [11] - Cloud fax businesses experienced a 4% revenue growth, with corporate cloud fax growing over 12% [12] - Cybersecurity portfolio saw a 10% organic growth in VPN businesses, while backup businesses declined as expected [13] Market Data and Key Metrics Changes - Speedtest set testing records with 1.75 billion tests in Q3, up 62% year-over-year [10] - RetailMeNot, acquired during the quarter, had trailing 12-month revenues of about $180 million with low 30s EBITDA margins [22] Company Strategy and Development Direction - The acquisition of RetailMeNot is seen as a strategic move to enhance the affiliate publishing and commerce space, with expectations of significant synergies [16][19] - The company aims to improve take rates and margins in its affiliate publishing business, with a focus on driving demand clicks [23][24] - J2 Global is committed to ongoing M&A activity, with a pipeline of mid-sized and larger deals, while also executing share buybacks [92] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to navigate the pandemic, achieving record financial results [3][7] - The company remains cautious about the ongoing pandemic's impact on the economy but is optimistic about continued growth in digital media and healthcare sectors [50][90] - Management highlighted the importance of focusing on execution during peak shopping periods, such as Black Friday and Cyber Monday [69] Other Important Information - J2 Global has made significant progress in ESG initiatives, including a $10 million deposit in Black-run banks and a $6 million advertising commitment to the NAACP [29] - The board has been refreshed with new directors bringing valuable industry experience, particularly in healthcare [30] Q&A Session Summary Question: Strategic benefits of RetailMeNot - Management highlighted the strong track record in affiliate publishing and the potential for robust synergies with RetailMeNot [45] Question: Expectations for revenue and profit in digital media vs. cloud segment - Management indicated that RetailMeNot would contribute significantly in Q4, with expectations of seasonality affecting cloud revenue [47][49] Question: Work composition and changes - Management expressed satisfaction with the current board composition and ongoing efforts to refresh it [52][55] Question: Trends in media segment - Management noted sequential improvement in digital media performance throughout Q3, with positive early trends in Q4 [57] Question: Opportunities in healthcare business - Management acknowledged existing affiliate commerce within Everyday Health and potential growth areas in pharmaceuticals [60] Question: Revenue and EBITDA guidance for RetailMeNot - Management indicated expectations for potential revenue decline in 2021 due to the shrink-to-grow strategy, but with improved margins [66] Question: Growth opportunity within fax business - Management expressed bullishness on the corporate fax business, highlighting its importance in healthcare for HIPAA compliance [70][71] Question: Impact of share buybacks and M&A strategy - Management confirmed the ability to pursue both share buybacks and M&A, emphasizing the attractiveness of current stock valuation [77] Question: Trends in healthcare pharma advertising - Management reported strong growth in the pharma market, with a shift from traditional to digital advertising [89]

Financial Performance - Q3 2020 - Revenue increased by 3.7% from $344.1 million in Q3 2019 to $357.0 million in Q3 2020[7] - Adjusted EBITDA increased by 14.4% from $134.8 million in Q3 2019 to $154.1 million in Q3 2020[8] - Adjusted Gross Profit increased by 6.7% from $283.3 million in Q3 2019 to $302.3 million in Q3 2020[10] - Adjusted EPS increased by 19.1% from $1.70 in Q3 2019 to $2.02 in Q3 2020[11] Business Segment Performance - Q3 2020 - Cloud Services revenue decreased by 0.5% from $171.2 million in Q3 2019 to $170.2 million in Q3 2020[22] - Cloud Services Adjusted EBITDA increased by 1.6% from $86.5 million in Q3 2019 to $87.8 million in Q3 2020[22] - Digital Media revenue increased by 8.0% from $173.0 million in Q3 2019 to $186.7 million in Q3 2020[22] - Digital Media Adjusted EBITDA increased by 33.1% from $56.4 million in Q3 2019 to $75.0 million in Q3 2020[22] Financial Guidance - Revenue guidance raised by 4.6% from a range of $1.38 billion - $1.40 billion to a range of $1.447 billion - $1.462 billion[24] - Adjusted EBITDA guidance raised by 6.6% from a range of $556 million - $570 million to a range of $595 million - $605 million[24] - Adjusted Non-GAAP EPS guidance raised by 8.7% from a range of $7.17 - $7.41 to a range of $7.85 - $8.00[24] Additional Information - The report includes a safe harbor statement for forward-looking statements, cautioning readers about potential risks and uncertainties that could affect actual results[2,4] - The report also lists various risk factors that could materially affect the business, prospects, financial condition, operating results, and cash flows[5]

Financial Data and Key Metrics Changes - J2 Global reported a record revenue of $331 million for Q2 2020, representing a 2.7% increase year-over-year [37] - Adjusted EBITDA grew by 6.1% to $132.9 million, with an EBITDA margin of 40.1%, up from 38.8% in Q2 2019 [37][20] - Adjusted EPS increased by 7% to $1.71 per share compared to $1.60 per share in Q2 2019 [37] - Free cash flow reached a record $115.9 million, a 35% increase from Q2 2019 [38] Business Line Data and Key Metrics Changes - The Cloud Services segment saw a slight revenue decline of 1.2% to $167.1 million, primarily due to currency exchange rates and lower healthcare-related variable revenue [39] - Digital Media segment revenue grew by 6.9% to $163.9 million, with EBITDA increasing by 27% to $54 million [41] - Everyday Health display revenues grew by 35% in the quarter, contributing positively to the Digital Media segment [15] Market Data and Key Metrics Changes - The overall advertising market experienced a significant rebound, with J2 Global's ad business growing close to 7% despite initial expectations of a decline [14] - The company noted a stable cancel rate in Cloud Services, indicating resilience in customer retention [17] Company Strategy and Development Direction - J2 Global is focusing on M&A opportunities, particularly in sectors like healthcare digital transformation and cybersecurity solutions [24][23] - The company is committed to ongoing board refreshment and diversity initiatives, aiming to align board expertise with business needs [70][68] - A new leader for cybersecurity business units has been appointed to enhance growth in that area [18] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's performance despite the challenging economic environment, citing strong cash flow and operational resilience [12][13] - The company reinstated its fiscal year 2020 guidance, expecting revenues between $1.38 billion and $1.4 billion, with adjusted EBITDA between $556 million and $570 million [44][42] - Management anticipates a tilted U-shaped recovery rather than a sharp V-shaped recovery in the economy [53] Other Important Information - J2 Global ended the quarter with approximately $711 million in cash and investments, after repurchasing $24 million of its shares [21][35] - The company announced a new 10 million share repurchase program, reflecting confidence in its stock value [21] Q&A Session Summary Question: How is the company approaching M&A in the current environment? - Management indicated confidence in conducting M&A virtually and is prepared to pursue both small and larger deals [48][51] Question: Can you provide guidance on Cloud versus Digital Media revenue for Q3 and Q4? - Management expects a decline in Cloud revenue due to the sale of Australian and New Zealand assets, while Digital Media is anticipated to be flat in Q3 and down in Q4 [55][56] Question: What are the drivers of margin expansion despite COVID-19? - Management highlighted cost structure improvements and renegotiated vendor contracts as key drivers for margin expansion [106][111] Question: How are the early bundling efforts on Cloud Services impacting churn rates? - Management noted that retention programs were prioritized, leading to improved cancel rates, while bundling initiatives will be accelerated in the future [118] Question: What is the outlook for the Digital Media business, particularly in tech and gaming? - Management reported strong growth in Everyday Health and noted a favorable category mix, while anticipating some pressure in tech advertising due to console release timing [96][97]

S E C O N D Q U A R T E R 2 0 2 0 R E S U L T S A U G U S T 1 1 , 2 0 2 0 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. ...

[PART I. FINANCIAL INFORMATION](index=4&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This part presents J2 Global's unaudited condensed consolidated financial statements and management's discussion and analysis [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents J2 Global's unaudited condensed consolidated financial statements and related notes for Q2 2020 [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section provides a snapshot of the company's financial position at June 30, 2020, and December 31, 2019 Condensed Consolidated Balance Sheets (in thousands) | Metric | June 30, 2020 (in thousands) | December 31, 2019 (in thousands) | | :--------------------------------- | :----------------------------- | :------------------------------- | | **Assets** | | | | Cash and cash equivalents | $616,820 | $575,615 | | Accounts receivable, net | $188,383 | $261,928 | | Total current assets | $853,145 | $886,890 | | Goodwill | $1,637,287 | $1,633,033 | | TOTAL ASSETS | $3,419,445 | $3,505,846 | | **Liabilities & Equity** | | | | Accounts payable and accrued expenses | $166,289 | $238,059 | | Current portion of long-term debt | $391,092 | $385,532 | | Total current liabilities | $772,181 | $833,104 | | Long-term debt | $1,071,364 | $1,062,929 | | TOTAL LIABILITIES | $2,156,277 | $2,194,654 | | TOTAL STOCKHOLDERS' EQUITY | $1,263,168 | $1,311,192 | - Total assets decreased from **$3,505,846 thousand** at December 31, 2019, to **$3,419,445 thousand** at June 30, 2020, a decrease of approximately **2.4%**[10](index=10&type=chunk) - Total liabilities decreased from **$2,194,654 thousand** at December 31, 2019, to **$2,156,277 thousand** at June 30, 2020, a decrease of approximately **1.7%**[10](index=10&type=chunk) - Total stockholders' equity decreased from **$1,311,192 thousand** at December 31, 2019, to **$1,263,168 thousand** at June 30, 2020, a decrease of approximately **3.7%**[10](index=10&type=chunk) [Condensed Consolidated Statements of Operations](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This section details the company's revenues, expenses, and net income for the three and six months ended June 30, 2020 Condensed Consolidated Statements of Operations (in thousands) | Metric | Three Months Ended June 30, 2020 (in thousands) | Three Months Ended June 30, 2019 (in thousands) | Six Months Ended June 30, 2020 (in thousands) | Six Months Ended June 30, 2019 (in thousands) | | :--------------------------------- | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------ | :------------------------------------------ | | Total revenues | $330,984 | $322,432 | $663,377 | $622,325 | | Gross profit | $274,182 | $262,166 | $547,444 | $511,046 | | Income from operations | $73,040 | $56,614 | $128,287 | $107,476 | | Net income | $38,101 | $32,589 | $31,697 | $65,038 | | Basic EPS | $0.81 | $0.67 | $0.67 | $1.35 | | Diluted EPS | $0.80 | $0.66 | $0.65 | $1.32 | - Total revenues increased by **3%** for the three months ended June 30, 2020, and by **7%** for the six months ended June 30, 2020, compared to the prior year periods[13](index=13&type=chunk) - Net income increased by **16.9%** for the three months ended June 30, 2020, but decreased by **51.2%** for the six months ended June 30, 2020, compared to the prior year periods[13](index=13&type=chunk) - Diluted EPS increased by **21.2%** for the three months ended June 30, 2020, but decreased by **51.5%** for the six months ended June 30, 2020, compared to the prior year periods[13](index=13&type=chunk) [Condensed Consolidated Statements of Comprehensive Income](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) This section presents net income and other comprehensive income components for the three and six months ended June 30, 2020 Condensed Consolidated Statements of Comprehensive Income (in thousands) | Metric | Three Months Ended June 30, 2020 (in thousands) | Three Months Ended June 30, 2019 (in thousands) | Six Months Ended June 30, 2020 (in thousands) | Six Months Ended June 30, 2019 (in thousands) | | :------------------------------------ | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------ | :------------------------------------------ | | Net income | $38,101 | $32,589 | $31,697 | $65,038 | | Other comprehensive loss, net of tax | $(332) | $(1,179) | $(8,338) | $(128) | | Comprehensive income | $37,769 | $31,410 | $23,359 | $64,910 | - Comprehensive income increased by **20.2%** for the three months ended June 30, 2020, but decreased by **64.0%** for the six months ended June 30, 2020, compared to the prior year periods[14](index=14&type=chunk) - Other comprehensive loss, net of tax, significantly increased for the six months ended June 30, 2020, to **$(8,338) thousand** from **$(128) thousand** in the prior year, primarily due to foreign currency translation adjustments[14](index=14&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section outlines the cash inflows and outflows from operating, investing, and financing activities for the six months ended June 30, 2020 Condensed Consolidated Statements of Cash Flows (in thousands) | Metric | Six Months Ended June 30, 2020 (in thousands) | Six Months Ended June 30, 2019 (in thousands) | | :------------------------------------ | :-------------------------------------------- | :-------------------------------------------- | | Net cash provided by operating activities | $241,627 | $212,211 | | Net cash used in investing activities | $(96,868) | $(311,459) | | Net cash (used in) provided by financing activities | $(101,542) | $44,799 | | Net change in cash and cash equivalents | $41,205 | $(53,998) | | Cash and cash equivalents at end of period | $616,820 | $155,476 | - Net cash provided by operating activities increased by **13.9%** to **$241,627 thousand** for the six months ended June 30, 2020, compared to **$212,211 thousand** in the prior year[17](index=17&type=chunk) - Net cash used in investing activities significantly decreased by **68.9%** to **$(96,868) thousand** for the six months ended June 30, 2020, from **$(311,459) thousand** in the prior year, primarily due to fewer business acquisitions[17](index=17&type=chunk) - Net cash from financing activities shifted from a provision of **$44,799 thousand** in 2019 to a usage of **$(101,542) thousand** in 2020, mainly due to common stock repurchases and lower dividend payments[17](index=17&type=chunk) [Condensed Consolidated Statements of Stockholders' Equity](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders%27%20Equity) This section details changes in stockholders' equity, including common stock, retained earnings, and comprehensive loss Condensed Consolidated Statements of Stockholders' Equity (in thousands) | Metric | June 30, 2020 (in thousands) | June 30, 2019 (in thousands) | | :------------------------------------ | :----------------------------- | :----------------------------- | | Total Stockholders' Equity | $1,263,168 | $1,072,098 | | Common stock shares outstanding | 46,892,691 | 47,765,869 | | Retained earnings | $850,232 | $752,040 | | Accumulated other comprehensive loss | $(54,800) | $(46,107) | - Total stockholders' equity increased by **$191,070 thousand** from June 30, 2019, to June 30, 2020[18](index=18&type=chunk)[19](index=19&type=chunk) - The number of common stock shares outstanding decreased from **47,765,869** at June 30, 2019, to **46,892,691** at June 30, 2020, reflecting share repurchases[18](index=18&type=chunk)[19](index=19&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements [Note 1. Basis of Presentation and Significant Accounting Policies](index=12&type=section&id=Note%201.%20Basis%20of%20Presentation%20and%20Significant%20Accounting%20Policies) This note outlines the basis for preparing interim financial statements, key accounting policies, and the impact of COVID-19 - J2 Global operates two main businesses: Cloud Services (fax, voice, backup, security, consumer privacy and protection, email marketing, IP licensing) and Digital Media (technology, gaming, broadband, B2B, healthcare content, tools, and services)[22](index=22&type=chunk) - The COVID-19 pandemic began to have modest adverse impacts in Q2 2020, expected to continue into Q3 2020 and possibly longer, but no material decline in asset carrying value (except equity method investments) or contingent amounts as of June 30, 2020[27](index=27&type=chunk) - Significant accounting estimates include revenue recognition, valuation and impairment of investments, VIE consolidation, share-based compensation, business combination fair values, long-lived asset impairment, contingent consideration, income taxes, and doubtful accounts[28](index=28&type=chunk) [Note 2. Recent Accounting Pronouncements](index=17&type=section&id=Note%202.%20Recent%20Accounting%20Pronouncements) This note discusses new accounting standards, including those simplifying income tax accounting and clarifying equity investments - The FASB issued ASU No. 2019-12 to simplify income tax accounting, effective for fiscal years beginning after December 15, 2020[57](index=57&type=chunk) - ASU No. 2020-01 clarifies interactions between accounting for equity securities, equity method investments, and derivatives, effective for fiscal years beginning after December 15, 2020[58](index=58&type=chunk) - ASU No. 2020-04 provides optional expedients for financial reporting affected by reference rate reform (e.g., LIBOR phase-out), effective from March 12, 2020, through December 31, 2022[59](index=59&type=chunk) [Note 3. Revenues](index=17&type=section&id=Note%203.%20Revenues) This note details revenue recognition policies and provides a breakdown of revenues by segment and source Revenue by Source (in thousands) | Revenue Source | Three Months Ended June 30, 2020 (in thousands) | Three Months Ended June 30, 2019 (in thousands) | Six Months Ended June 30, 2020 (in thousands) | Six Months Ended June 30, 2019 (in thousands) | | :----------------------- | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------ | :------------------------------------------ | | **Digital Media** | | | | | | Advertising | $120,919 | $109,961 | $236,184 | $215,561 | | Subscription | $41,720 | $40,976 | $87,148 | $81,354 | | Other | $1,348 | $2,422 | $3,346 | $4,127 | | Total Digital Media revenues | $163,987 | $153,359 | $326,678 | $301,042 | | **Cloud Services** | | | | | | Subscription | $167,040 | $168,909 | $336,788 | $320,698 | | Other | $18 | $223 | $54 | $679 | | Total Cloud Services revenues | $167,058 | $169,132 | $336,842 | $321,377 | | **Total Revenues** | $330,984 | $322,432 | $663,377 | $622,325 | - Digital Media advertising revenue increased by **10.0%** for the three months and **9.6%** for the six months ended June 30, 2020, year-over-year[70](index=70&type=chunk) - Cloud Services subscription revenue decreased by **1.1%** for the three months but increased by **5.0%** for the six months ended June 30, 2020, year-over-year[70](index=70&type=chunk) - The majority of revenue (over **98%**) is recognized 'over time' for both periods, reflecting the subscription-based nature of many services[70](index=70&type=chunk) [Note 4. Business Acquisitions](index=21&type=section&id=Note%204.%20Business%20Acquisitions) This note describes the company's acquisitions in the first half of 2020 and their financial impact - J2 Global completed two acquisitions in the first six months of 2020: EDC Systems Inc. (SRFax) and an immaterial digital media business, with total consideration of **$27.0 million**[87](index=87&type=chunk)[88](index=88&type=chunk) - These 2020 acquisitions contributed **$2.9 million** to the Company's revenues for the six months ended June 30, 2020[88](index=88&type=chunk) Assets and Liabilities Acquired (in thousands) | Assets and Liabilities Acquired (in thousands) | Valuation | | :----------------------------------- | :-------- | | Accounts receivable | $194 | | Property and equipment | $44 | | Trade names | $992 | | Customer relationships | $8,645 | | Goodwill | $16,466 | | Other intangibles | $1,261 | | Accounts payable and accrued expenses | $(94) | | Deferred revenue | $(519) | | Total | $26,989 | [Note 5. Investments](index=22&type=section&id=Note%205.%20Investments) This note details the company's equity and debt investments, including impairment losses and fair value measurements - For equity securities without readily determinable fair value, the company recorded a **$19.6 million** impairment loss for the six months ended June 30, 2020, due to investee capital structure changes and market volatility[95](index=95&type=chunk) Equity Securities without Readily Determinable Fair Value (in thousands) | Equity Securities without Readily Determinable Fair Value (in thousands) | June 30, 2020 | December 31, 2019 | | :------------------------------------------------------- | :------------ | :---------------- | | Cost | $54,145 | $34,977 | | Impairment | $(23,769) | $(4,164) | | Adjustments | $(480) | $(3,678) | | Reported Amount | $29,896 | $27,135 | - The company recognized a **$10.1 million** investment loss (net of tax benefit) in its equity method investment in the OCV Fund for the six months ended June 30, 2020, primarily due to COVID-19 related impairments[108](index=108&type=chunk) [Note 6. Assets Held For Sale](index=25&type=section&id=Note%206.%20Assets%20Held%20For%20Sale) This note describes the reclassification of certain Voice assets in Australia and New Zealand as held for sale - In Q2 2020, J2 Global committed to selling Voice assets in Australia and New Zealand, reclassifying **$16.5 million** net carrying value of assets and liabilities as held for sale[112](index=112&type=chunk) Assets Held for Sale (in thousands) | Assets Held for Sale (in thousands) | June 30, 2020 | | :---------------------------------- | :------------ | | Accounts receivable, net | $1,638 | | Property and equipment, net | $503 | | Customer relationships, net | $1,864 | | Goodwill | $13,595 | | Total assets held for sale | $19,040 | | Total liabilities held for sale | $2,544 | [Note 7. Fair Value Measurements](index=26&type=section&id=Note%207.%20Fair%20Value%20Measurements) This note outlines the fair value hierarchy for financial assets and liabilities, including contingent consideration - The fair value of contingent consideration liabilities decreased from **$37,887 thousand** at December 31, 2019, to **$8,122 thousand** at June 30, 2020, primarily due to **$34,611 thousand** in payments[122](index=122&type=chunk) Fair Value Measurements (in thousands) | Fair Value Measurements (in thousands) | June 30, 2020 | December 31, 2019 | | :------------------------------------- | :------------ | :---------------- | | **Assets** | | | | Money market and other funds (Level 1) | $383,236 | $395,664 | | Corporate debt securities (Level 2) | $643 | $623 | | Corporate debt securities (Level 3) | — | $22,047 | | Total assets measured at fair value | $383,879 | $418,334 | | **Liabilities** | | | | Contingent consideration (Level 3) | $8,122 | $37,887 | | Total liabilities measured at fair value | $8,122 | $37,887 | - The fair value of the **6.0% Senior Notes** was **$661.4 million** at June 30, 2020, and **$689.8 million** at December 31, 2019, classified as Level 2 inputs[117](index=117&type=chunk)[138](index=138&type=chunk) [Note 8. Goodwill and Intangible Assets](index=30&type=section&id=Note%208.%20Goodwill%20and%20Intangible%20Assets) This note details changes in goodwill and provides a breakdown of intangible assets subject to amortization Goodwill (in thousands) | Goodwill (in thousands) | January 1, 2020 | June 30, 2020 | | :---------------------- | :-------------- | :------------ | | Balance | $1,633,033 | $1,637,287 | | Acquired | — | $16,466 | | Reclassified to held for sale | — | $(13,595) | | Purchase accounting adjustments | — | $6,935 | | Foreign exchange translation | — | $(5,552) | Intangible Assets Subject to Amortization (in thousands) | Intangible Assets Subject to Amortization (in thousands) | Weighted Average Amortization Period | Historical Cost | Accumulated Amortization | Net (June 30, 2020) | | :--------------------------------------- | :----------------------------------- | :-------------- | :----------------------- | :------------------ | | Trade names | 10.0 years | $194,131 | $90,848 | $103,283 | | Customer relationships | 8.4 years | $634,319 | $425,977 | $208,342 | | Other purchased intangibles | 4.4 years | $377,698 | $232,151 | $145,547 | | Total | | $1,274,073 | $813,300 | $460,773 | - Amortization expense was **$74.4 million** for the six months ended June 30, 2020, down from **$81.8 million** in the prior year period[132](index=132&type=chunk) [Note 9. Debt](index=31&type=section&id=Note%209.%20Debt) This note describes the company's debt structure, including Senior Notes, Convertible Notes, and the Credit Facility Debt Instrument (in thousands) | Debt Instrument | June 30, 2020 (in thousands) | December 31, 2019 (in thousands) | | :---------------------- | :----------------------------- | :------------------------------- | | 6.0% Senior Notes | $650,000 | $650,000 | | 3.25% Convertible Notes | $402,414 | $402,500 | | 1.75% Convertible Notes | $550,000 | $550,000 | | Total Notes | $1,602,414 | $1,602,500 | | Less: Unamortized discount | $(127,381) | $(139,981) | | Deferred issuance costs | $(12,577) | $(14,058) | | Total long-term debt | $1,462,456 | $1,448,461 | | Less: current portion | $(391,092) | $(385,532) | | Total long-term debt, less current portion | $1,071,364 | $1,062,929 | - The **3.25% Convertible Notes** (principal amount **$402.4 million**) are classified as current liabilities due to a holder repurchase option on June 15, 2021[145](index=145&type=chunk)[160](index=160&type=chunk) - The **1.75% Convertible Notes** (principal amount **$550.0 million**) are classified as long-term debt, maturing November 1, 2026[150](index=150&type=chunk)[151](index=151&type=chunk)[160](index=160&type=chunk) - The company has a **$100.0 million** Credit Facility with no outstanding amounts as of June 30, 2020[177](index=177&type=chunk) [Note 10. Leases](index=38&type=section&id=Note%2010.%20Leases) This note details the company's operating lease obligations, costs, and related right-of-use assets Lease Metric (in thousands) | Lease Metric (in thousands) | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2020 | | :-------------------------- | :------------------------------- | :----------------------------- | | Operating lease cost | $9,114 | $16,218 | | Short-term lease cost | $648 | $1,093 | | Total lease cost | $9,762 | $17,311 | - Operating lease right-of-use assets totaled **$110,302 thousand** at June 30, 2020, down from **$125,822 thousand** at December 31, 2019[163](index=163&type=chunk) - The company recorded a **$2.1 million** impairment in Q2 2020 due to a sublease tenant defaulting as a result of COVID-19[166](index=166&type=chunk) - The weighted average remaining lease term for operating leases is **5.6 years**, with a weighted average discount rate of **4.25%** as of June 30, 2020[164](index=164&type=chunk) [Note 11. Commitments and Contingencies](index=40&type=section&id=Note%2011.%20Commitments%20and%20Contingencies) This note addresses legal proceedings, credit facility compliance, and non-income related tax contingencies - J2 Global is involved in several legal proceedings, including a TCPA class action and a federal securities lawsuit, but management does not anticipate a material adverse effect on financial position[174](index=174&type=chunk) - The company has a **$100.0 million** Credit Facility with no outstanding amounts as of June 30, 2020, and is in compliance with its debt covenants[177](index=177&type=chunk)[181](index=181&type=chunk) - A **$21.2 million** reserve has been established for non-income related tax matters, with potential for additional liabilities[183](index=183&type=chunk) [Note 12. Income Taxes](index=41&type=section&id=Note%2012.%20Income%20Taxes) This note details the effective tax rates, uncertain tax positions, and ongoing income tax audits Income Tax Metrics | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Income tax expense | $15,978 | $11,148 | $24,681 | $10,853 | | Effective tax rate | 26.7% | 28.1% | 37.1% | 15.0% | - The effective tax rate for the six months ended June 30, 2020, increased to **37.1%** from **15.0%** in the prior year, primarily due to a valuation allowance on deferred tax assets related to investment impairments[184](index=184&type=chunk) - Liabilities for uncertain income tax positions were **$57.6 million** as of June 30, 2020, up from **$52.5 million** at December 31, 2019[185](index=185&type=chunk) - The company is currently undergoing income tax audits by the IRS (2012-2016), California FTB (2012-2013, 2015-2016), and New York State (2015-2017)[187](index=187&type=chunk)[188](index=188&type=chunk)[189](index=189&type=chunk) [Note 13. Stockholders' Equity](index=42&type=section&id=Note%2013.%20Stockholders%27%20Equity) This note describes the common stock repurchase program and the suspension of dividend payments - During the six months ended June 30, 2020, J2 Global repurchased **1,000,000 shares** of common stock for an aggregate cost of **$79.1 million** under its 2012 Program[192](index=192&type=chunk) - Cumulatively, **3.9 million shares** have been repurchased under the 2012 Program at a cost of **$196.2 million**, with the program completed in July 2020[192](index=192&type=chunk)[235](index=235&type=chunk) - The Board of Directors suspended dividend payments after June 4, 2019, to focus on investment opportunities[196](index=196&type=chunk)[292](index=292&type=chunk) [Note 14. Stock Options and Employee Stock Purchase Plan](index=43&type=section&id=Note%2014.%20Stock%20Options%20and%20Employee%20Stock%20Purchase%20Plan) This note details share-based compensation plans, expenses, and unrecognized compensation costs Share-Based Compensation Expense (in thousands) | Share-Based Compensation Expense (in thousands) | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2020 | | :---------------------------------------------- | :------------------------------- | :----------------------------- | | Cost of revenues | $143 | $277 | | Sales and marketing | $416 | $814 | | Research, development and engineering | $484 | $915 | | General and administrative | $5,487 | $10,837 | | Total | $6,530 | $12,843 | - Unrecognized stock compensation related to non-vested stock options was approximately **$6.3 million** as of June 30, 2020, expected to be recognized over **5.5 years**[204](index=204&type=chunk) - Unrecognized share-based compensation cost for restricted stock and units was approximately **$49.3 million** as of June 30, 2020, expected to be recognized over **4.6 to 5.0 years**[210](index=210&type=chunk) - **53,694 shares** were purchased under the Employee Stock Purchase Plan for **$3.3 million** during the six months ended June 30, 2020[213](index=213&type=chunk) [Note 15. Earnings Per Share](index=48&type=section&id=Note%2015.%20Earnings%20Per%20Share) This note provides the calculation of basic and diluted earnings per share for the reported periods EPS Metric | EPS Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Basic EPS | $0.81 | $0.67 | $0.67 | $1.35 | | Diluted EPS | $0.80 | $0.66 | $0.65 | $1.32 | - Diluted EPS for the three months ended June 30, 2020, increased by **21.2%** year-over-year, while for the six months, it decreased by **51.5%**[217](index=217&type=chunk) - The dilutive effect of convertible debt was **586,611 shares** for the three months and **1,023,521 shares** for the six months ended June 30, 2020[217](index=217&type=chunk) [Note 16. Segment Information](index=48&type=section&id=Note%2016.%20Segment%20Information) This note presents financial information for the Cloud Services and Digital Media segments Segment Revenue (in thousands) | Segment Revenue (in thousands) | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :----------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Fax and Martech | $93,976 | $95,567 | $188,643 | $188,850 | | Voice, Backup, Security, and CPP | $73,082 | $73,565 | $148,199 | $132,527 | | Cloud Services Total | $167,058 | $169,132 | $336,842 | $321,377 | | Digital Media | $163,987 | $153,359 | $326,678 | $301,042 | | Total revenues | $330,984 | $322,432 | $663,377 | $622,325 | Segment Operating Income (in thousands) | Segment Operating Income (in thousands) | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Fax and Martech | $48,456 | $49,686 | $96,207 | $94,637 | | Voice, Backup, Security, and CPP | $13,523 | $12,661 | $21,506 | $26,244 | | Cloud Services Total | $61,979 | $62,347 | $117,713 | $120,881 | | Digital Media | $16,820 | $1,533 | $21,772 | $518 | | Total income from operations | $73,040 | $56,614 | $128,287 | $107,476 | - Digital Media operating income significantly increased by **997.2%** for the three months and **4,103.1%** for the six months ended June 30, 2020, year-over-year, primarily due to business acquisitions[289](index=289&type=chunk) [Note 17. Accumulated Other Comprehensive Income](index=55&type=section&id=Note%2017.%20Accumulated%20Other%20Comprehensive%20Income) This note summarizes changes in accumulated other comprehensive income, primarily due to foreign currency translation Accumulated Other Comprehensive Income (in thousands) | Accumulated Other Comprehensive Income (in thousands) | Beginning Balance (Jan 1, 2020) | Other Comprehensive Income (Loss) | Ending Balance (June 30, 2020) | | :---------------------------------------------------- | :------------------------------ | :-------------------------------- | :----------------------------- | | Unrealized Gains (Losses) on Investments | $(275) | $545 | $270 | | Foreign Currency Translation | $(46,187) | $(8,883) | $(55,070) | | Total | $(46,462) | $(8,338) | $(54,800) | - The accumulated other comprehensive loss increased by **$8,338 thousand** for the six months ended June 30, 2020, primarily driven by foreign currency translation adjustments[234](index=234&type=chunk) [Note 18. Subsequent Events](index=55&type=section&id=Note%2018.%20Subsequent%20Events) This note discloses events occurring after June 30, 2020, including the completion of a share repurchase program - In July 2020, J2 Global completed its 2012 share repurchase program by repurchasing **140,819 shares** for **$8.4 million**[235](index=235&type=chunk) - On August 6, 2020, the Board approved a new share repurchase program for up to **10 million shares**, valid through August 6, 2025[235](index=235&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=57&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on J2 Global's financial condition and operational results for Q2 2020 [Forward-Looking Information](index=57&type=section&id=Forward-Looking%20Information) This section highlights forward-looking statements and factors that could cause actual results to differ materially - The report contains forward-looking statements based on estimates and assumptions, subject to risks and uncertainties, and claims protection under the Private Securities Litigation Reform Act of 1995[237](index=237&type=chunk) - Factors that could cause actual results to differ include economic conditions, customer acquisition/retention, cash flow generation, acquisition integration, international expansion risks, tax liabilities, third-party vendor relationships, digital media content creation, business management risks, competition, regulatory changes, and the impact of the COVID-19 pandemic[238](index=238&type=chunk)[239](index=239&type=chunk) [Overview](index=58&type=section&id=Overview) This section provides an overview of J2 Global's Cloud Services and Digital Media businesses and the impact of COVID-19 - J2 Global is a leading internet services provider with two businesses: Cloud Services (fax, voice, backup, security, CPP, email marketing, IP licensing) and Digital Media (technology, gaming, broadband, B2B, healthcare content)[240](index=240&type=chunk) - Cloud Services primarily generates subscription and usage fees, while Digital Media generates advertising, sponsorship, subscription, performance marketing, and licensing fees[242](index=242&type=chunk) - The COVID-19 pandemic is expected to negatively affect the global economy and J2 Global's operations, with management actively monitoring and adjusting operations[245](index=245&type=chunk)[246](index=246&type=chunk) [Cloud Services Performance Metrics](index=60&type=section&id=Cloud%20Services%20Performance%20Metrics) This section presents key performance indicators for the Cloud Services segment, including subscriber revenues and ARPU Cloud Services Performance Metrics | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | | :------------------------------------ | :------------------------------- | :------------------------------- | | Total subscriber revenues | $167,040 | $168,909 | | Fixed subscriber revenues (% of total) | 84.3% | 83.1% | | Variable subscriber revenues (% of total) | 15.7% | 16.9% | | Average monthly revenue per Cloud Business Customer (ARPU) | $13.66 | $14.01 | | Cancel Rate | 2.2% | 2.5% | - Cloud Services total subscriber revenues decreased by **1.1%** for the three months ended June 30, 2020, year-over-year[249](index=249&type=chunk) - Average monthly revenue per Cloud Business Customer (ARPU) decreased from **$14.01** in Q2 2019 to **$13.66** in Q2 2020[249](index=249&type=chunk) - The cancel rate for Cloud Services improved from **2.5%** in Q2 2019 to **2.2%** in Q2 2020[249](index=249&type=chunk) [Digital Media Performance Metrics](index=62&type=section&id=Digital%20Media%20Performance%20Metrics) This section presents key performance indicators for the Digital Media segment, including website visits and page views Digital Media Performance Metrics (in millions) | Metric | Three Months Ended June 30, 2020 (in millions) | Three Months Ended June 30, 2019 (in millions) | Six Months Ended June 30, 2020 (in millions) | Six Months Ended June 30, 2019 (in millions) | | :------------- | :------------------------------------------- | :------------------------------------------- | :----------------------------------------- | :----------------------------------------- | | Visits | 2,359 | 1,618 | 4,504 | 3,425 | | Page views | 7,786 | 6,492 | 15,533 | 13,579 | - Digital Media visits increased by **45.8%** for the three months and **31.5%** for the six months ended June 30, 2020, year-over-year[253](index=253&type=chunk) - Page views increased by **19.9%** for the three months and **14.4%** for the six months ended June 30, 2020, year-over-year[253](index=253&type=chunk) [Critical Accounting Policies and Estimates](index=62&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section confirms no significant changes in critical accounting policies and estimates during the quarter - There were no significant changes in critical accounting policies and estimates during the three months ended June 30, 2020[254](index=254&type=chunk) [Results of Operations for the Three and Six Months Ended June 30, 2020](index=62&type=section&id=Results%20of%20Operations) This section analyzes J2 Global's consolidated and segment-specific financial performance for the reported periods [Consolidated Outlook](index=63&type=section&id=Consolidated%20Outlook) This section provides J2 Global's anticipated consolidated revenue and operating profit trends for the remainder of fiscal year 2020 - Consolidated revenue for the remainder of fiscal year 2020 is anticipated to be modestly lower year-over-year[260](index=260&type=chunk) - Operating profit as a percentage of revenues is expected to decrease due to Digital Media's increasing revenue share and lower operating margins[261](index=261&type=chunk) [Revenues Analysis](index=63&type=section&id=Revenues%20Analysis) This section analyzes the drivers of total revenue growth for the three and six months ended June 30, 2020 Revenues Analysis (in thousands) | Metric | Three Months Ended June 30, 2020 (in thousands) | Three Months Ended June 30, 2019 (in thousands) | Percentage Change | Six Months Ended June 30, 2020 (in thousands) | Six Months Ended June 30, 2019 (in thousands) | Percentage Change | | :------- | :-------------------------------------------- | :-------------------------------------------- | :---------------- | :------------------------------------------ | :------------------------------------------ | :---------------- | | Revenues | $330,984 | $322,432 | 3% | $663,377 | $622,325 | 7% | - Revenue growth in 2020 was primarily due to acquisitions and organic growth, partially offset by declines in specific areas of Digital Media and Cloud Services[263](index=263&type=chunk) [Cost of Revenues Analysis](index=64&type=section&id=Cost%20of%20Revenues%20Analysis) This section analyzes changes in cost of revenues and their impact on gross profit for the reported periods Cost of Revenues Analysis (in thousands) | Metric | Three Months Ended June 30, 2020 (in thousands) | Three Months Ended June 30, 2019 (in thousands) | Percentage Change | Six Months Ended June 30, 2020 (in thousands) | Six Months Ended June 30, 2019 (in thousands) | Percentage Change | | :------------- | :-------------------------------------------- | :-------------------------------------------- | :---------------- | :------------------------------------------ | :------------------------------------------ | :---------------- | | Cost of revenue | $56,802 | $60,266 | (6)% | $115,933 | $111,279 | 4% | | As a percent of revenue | 17% | 19% | | 17% | 18% | | - The decrease in cost of revenues for the three months ended June 30, 2020, was primarily due to lower content fees, campaign fulfillment costs, and other editorial and production costs[264](index=264&type=chunk) - The increase in cost of revenues for the six months ended June 30, 2020, was mainly due to higher depreciation, database hosting, network operations, and online processing fees[264](index=264&type=chunk) [Operating Expenses Analysis](index=64&type=section&id=Operating%20Expenses%20Analysis) This section analyzes the trends and drivers of the company's various operating expenses [Sales and Marketing](index=64&type=section&id=Sales%20and%20Marketing) This section analyzes the increase in sales and marketing expenses, primarily due to recent acquisitions Sales and Marketing (in thousands) | Metric | Three Months Ended June 30, 2020 (in thousands) | Three Months Ended June 30, 2019 (in thousands) | Percentage Change | Six Months Ended June 30, 2020 (in thousands) | Six Months Ended June 30, 2019 (in thousands) | Percentage Change | | :---------------- | :-------------------------------------------- | :-------------------------------------------- | :---------------- | :------------------------------------------ | :------------------------------------------ | :---------------- | | Sales and Marketing | $92,805 | $88,446 | 5% | $192,243 | $175,326 | 10% | | As a percent of revenue | 28% | 27% | | 29% | 28% | | - The increase in sales and marketing expenses was primarily due to increased personnel costs, partner revenue share, software licenses, and consulting fees from recent acquisitions[265](index=265&type=chunk) [Research, Development and Engineering](index=64&type=section&id=Research,%20Development%20and%20Engineering) This section analyzes the increase in R&D and engineering costs, mainly from acquired businesses Research, Development and Engineering (in thousands) | Metric | Three Months Ended June 30, 2020 (in thousands) | Three Months Ended June 30, 2019 (in thousands) | Percentage Change | Six Months Ended June 30, 2020 (in thousands) | Six Months Ended June 30, 2019 (in thousands) | Percentage Change | | :-------------------------------- | :-------------------------------------------- | :-------------------------------------------- | :---------------- | :------------------------------------------ | :------------------------------------------ | :---------------- | | Research, Development and Engineering | $13,606 | $11,938 | 14% | $29,012 | $24,922 | 16% | | As a percent of revenue | 4% | 4% | | 4% | 4% | | - The increase in R&D and engineering costs was primarily due to expenses associated with businesses acquired in and subsequent to Q2 2019[266](index=266&type=chunk) [General and Administrative](index=66&type=section&id=General%20and%20Administrative) This section analyzes the decrease in G&A expenses, driven by lower amortization and contingent consideration changes General and Administrative (in thousands) | Metric | Three Months Ended June 30, 2020 (in thousands) | Three Months Ended June 30, 2019 (in thousands) | Percentage Change | Six Months Ended June 30, 2020 (in thousands) | Six Months Ended June 30, 2019 (in thousands) | Percentage Change | | :------------------------ | :-------------------------------------------- | :-------------------------------------------- | :---------------- | :------------------------------------------ | :------------------------------------------ | :---------------- | | General and Administrative | $94,731 | $105,168 | (10)% | $197,902 | $203,322 | (3)% | | As a percent of revenue | 29% | 33% | | 30% | 33% | | - The decrease in G&A for the three months was primarily due to decreased amortization of intangible assets[268](index=268&type=chunk) - The decrease in G&A for the six months was primarily due to changes in the fair value of contingent consideration and decreased amortization of intangible assets[268](index=268&type=chunk) [Share-Based Compensation](index=66&type=section&id=Share-Based%20Compensation) This section details the share-based compensation expense for the three and six months ended June 30, 2020 Share-Based Compensation Expense (in thousands) | Share-Based Compensation Expense (in thousands) | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :---------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Cost of revenues | $143 | $131 | $277 | $263 | | Sales and marketing | $416 | $389 | $814 | $793 | | Research, development and engineering | $484 | $361 | $915 | $719 | | General and administrative | $5,487 | $5,981 | $10,837 | $10,173 | | Total | $6,530 | $6,862 | $12,843 | $11,948 | [Non-Operating Income and Expenses Analysis](index=66&type=section&id=Non-Operating%20Income%20and%20Expenses%20Analysis) This section analyzes the company's interest expense, investment losses, and other non-operating income/expenses [Interest Expense, Net](index=66&type=section&id=Interest%20Expense,%20Net) This section analyzes the increase in net interest expense, primarily due to new convertible senior notes Interest Expense, Net (in thousands) | Metric | Three Months Ended June 30, 2020 (in thousands) | Three Months Ended June 30, 2019 (in thousands) | Six Months Ended June 30, 2020 (in thousands) | Six Months Ended June 30, 2019 (in thousands) | | :-------------------- | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------ | :------------------------------------------ | | Interest expense, net | $22,196 | $17,335 | $43,167 | $33,354 | - The increase in net interest expense was primarily due to the issuance of the **1.75% Convertible Senior Notes** in Q4 2019[270](index=270&type=chunk) [Loss on Investments, Net](index=66&type=section&id=Loss%20on%20Investments,%20Net) This section analyzes the significant increase in net loss on investments due to market volatility and capital structure changes Loss on Investments, Net (in thousands) | Metric | Three Months Ended June 30, 2020 (in thousands) | Three Months Ended June 30, 2019 (in thousands) | Six Months Ended June 30, 2020 (in thousands) | Six Months Ended June 30, 2019 (in thousands) | | :-------------------- | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------ | :------------------------------------------ | | Loss on investments, net | $3 | $24 | $20,835 | $38 | - The significant increase in net loss on investments for the six months ended June 30, 2020, was due to net losses on certain investments from changes in investee capital structure and market volatility[271](index=271&type=chunk) [Other (Income) Expense, Net](index=66&type=section&id=Other%20(Income)%20Expense,%20Net) This section analyzes the improvement in other (income) expense, net, driven by reduced currency exchange losses Other (Income) Expense, Net (in thousands) | Metric | Three Months Ended June 30, 2020 (in thousands) | Three Months Ended June 30, 2019 (in thousands) | Six Months Ended June 30, 2020 (in thousands) | Six Months Ended June 30, 2019 (in thousands) | | :-------------------- | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------ | :------------------------------------------ | | Other (income) expense, net | $(9,059) | $(401) | $(2,183) | $1,800 | - The increase in other (income) expense, net, for both periods was primarily due to reduced losses on currency exchange[272](index=272&type=chunk) [Income Taxes Analysis](index=68&type=section&id=Income%20Taxes%20Analysis) This section analyzes the effective tax rates and the impact of valuation allowances on deferred tax assets Income Taxes Analysis | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Provision for income taxes | $16.0 million | $11.1 million | $24.7 million | $10.9 million | | Effective tax rate | 26.7% | 28.1% | 37.1% | 15.0% | - The six-month effective tax rate increased significantly due to establishing a valuation allowance on deferred tax assets related to investment impairments and the absence of prior year's discrete tax benefits[277](index=277&type=chunk) [Equity Method Investment Analysis](index=69&type=section&id=Equity%20Method%20Investment%20Analysis) This section analyzes the net loss from equity method investments, including COVID-19 related impairments Equity Method Investment Analysis (in thousands) | Metric | Three Months Ended June 30, 2020 (in thousands) | Three Months Ended June 30, 2019 (in thousands) | Six Months Ended June 30, 2020 (in thousands) | Six Months Ended June 30, 2019 (in thousands) | | :------------------------------------ | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------ | :------------------------------------------ | | Net loss (income) in earnings of equity method investment | $5,821 | $(4,081) | $10,090 | $(3,607) | - The fiscal 2020 loss was primarily a result of a **$7.0 million** impairment of two investments due to COVID-19 and an additional **$3.1 million** investment loss[279](index=279&type=chunk) [Cloud Services Segment Results](index=62&type=section&id=Cloud%20Services%20Segment%20Results) This section analyzes the net sales and operating income performance of the Cloud Services segment Cloud Services Segment Results (in thousands) | Metric | Three Months Ended June 30, 2020 (in thousands) | Three Months Ended June 30, 2019 (in thousands) | Six Months Ended June 30, 2020 (in thousands) | Six Months Ended June 30, 2019 (in thousands) | | :-------------------- | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------ | :------------------------------------------ | | Net sales | $167,058 | $169,132 | $336,842 | $321,377 | | Gross profit | $127,631 | $132,534 | $259,055 | $252,296 | | Operating expenses | $65,652 | $70,187 | $141,342 | $131,415 | | Operating income | $61,979 | $62,347 | $117,713 | $120,881 | - Cloud Services net sales decreased by **1.2%** for the three months ended June 30, 2020, due to the COVID-19 pandemic, but increased by **4.8%** for the six months due to business acquisitions[282](index=282&type=chunk) - Operating income for Cloud Services decreased by **0.6%** for the three months and **2.6%** for the six months ended June 30, 2020[285](index=285&type=chunk) [Digital Media Segment Results](index=63&type=section&id=Digital%20Media%20Segment%20Results) This section analyzes the net sales and operating income performance of the Digital Media segment Digital Media Segment Results (in thousands) | Metric | Three Months Ended June 30, 2020 (in thousands) | Three Months Ended June 30, 2019 (in thousands) | Six Months Ended June 30, 2020 (in thousands) | Six Months Ended June 30, 2019 (in thousands) | | :-------------------- | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------ | :------------------------------------------ | | Net sales | $163,987 | $153,359 | $326,678 | $301,042 | | Gross profit | $146,649 | $129,691 | $288,569 | $258,844 | | Operating expenses | $129,829 | $128,158 | $266,797 | $258,326 | | Operating income (loss) | $16,820 | $1,533 | $21,772 | $518 | - Digital Media net sales increased by **6.9%** for the three months and **8.5%** for the six months ended June 30, 2020, primarily due to business acquisitions[286](index=286&type=chunk) - Digital Media operating income increased significantly by **997.2%** for the three months and **4,103.1%** for the six months ended June 30, 2020, year-over-year[289](index=289&type=chunk) [Liquidity and Capital Resources](index=71&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses J2 Global's cash position, capital resources, and cash flow activities - Cash and investments increased to **$710.9 million** at June 30, 2020, from **$675.7 million** at December 31, 2019, primarily from cash provided by operations[290](index=290&type=chunk) - Net cash provided by operating activities increased by **13.9%** to **$241.6 million** for the six months ended June 30, 2020[295](index=295&type=chunk) - Net cash used in investing activities decreased significantly to **$96.9 million** for the six months ended June 30, 2020, from **$311.5 million** in the prior year, mainly due to fewer business acquisitions[296](index=296&type=chunk) - Net cash from financing activities shifted from a **$44.8 million** provision in 2019 to a **$101.5 million** usage in 2020, driven by common stock repurchases and lower dividend payments[297](index=297&type=chunk)[298](index=298&type=chunk) [Cash and Cash Equivalents and Investments](index=71&type=section&id=Cash%20and%20Cash%20Equivalents%20and%20Investments) This section details the company's cash and investment balances and their expected sufficiency for future needs - Cash and investments increased to **$710.9 million** at June 30, 2020, from **$675.7 million** at December 31, 2019[290](index=290&type=chunk) - The Credit Facility's borrowing capacity was reduced to **$100.0 million**, with no outstanding amounts as of June 30, 2020[291](index=291&type=chunk) - Dividends were suspended after June 4, 2019, to prioritize investment opportunities[292](index=292&type=chunk) [Cash Flows Analysis](index=72&type=section&id=Cash%20Flows%20Analysis) This section analyzes cash flows from operating, investing, and financing activities for the six months ended June 30, 2020 Cash Flow Activity (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2020 (in thousands) | Six Months Ended June 30, 2019 (in thousands) | | :------------------------------------ | :-------------------------------------------- | :-------------------------------------------- | | Net cash provided by operating activities | $241,627 | $212,211 | | Net cash used in investing activities | $(96,868) | $(311,459) | | Net cash (used in) provided by financing activities | $(101,542) | $44,799 | - Operating cash flow increased due to a decrease in accounts receivables, higher uncertain tax positions, and income taxes payable, partially offset by a decrease in accounts payable and accrued expenses[295](index=295&type=chunk) - The decrease in investing cash flow was primarily due to fewer business acquisitions[296](index=296&type=chunk) [Stock Repurchase Program](index=73&type=section&id=Stock%20Repurchase%20Program) This section details the company's common stock repurchase activities, including the completion of one program and approval of a new one - **1,000,000 shares** were repurchased for **$79.1 million** under the 2012 Program during the six months ended June 30, 2020[299](index=299&type=chunk) - The 2012 Program was completed in July 2020 with the repurchase of **140,819 shares** for **$8.4 million**[299](index=299&type=chunk) - A new program for up to **10 million shares** was approved on August 6, 2020, valid through August 6, 2025[300](index=300&type=chunk) [Contractual Obligations and Commitments](index=74&type=section&id=Contractual%20Obligations%20and%20Commitments) This section outlines J2 Global's total contractual obligations, including debt, leases, and other commitments Contractual Obligations (in thousands) | Contractual Obligations (in thousands) | Total | | :------------------------------------- | :-------- | | Long-term debt - principal | $1,602,414 | | Long-term debt - interest | $290,141 | | Operating leases | $139,313 | | Finance leases | $1,820 | | Telecom services and co-location facilities | $5,119 | | Short-term note payable | $400 | | Holdback payments | $7,554 | | Contingent consideration | $2,092 | | Transition Tax | $11,675 | | Self-Insurance | $16,679 | | Other | $1,923 | | Total | $2,079,130 | - The liability for uncertain tax positions was **$57.6 million** as of June 30, 2020, not included in the table due to timing uncertainty[304](index=304&type=chunk) - A remaining commitment of approximately **$101.4 million** to OCV Management, LLC, is also not presented due to uncertainty of funding request timing[305](index=305&type=chunk) [Off-Balance Sheet Arrangements](index=74&type=section&id=Off-Balance%20Sheet%20Arrangements) This section confirms that J2 Global has no material off-balance sheet arrangements - The company has no material off-balance sheet arrangements[306](index=306&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=75&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section discusses J2 Global's exposure to interest rate risk and foreign currency risk from its operations and investments - J2 Global's primary market risks are interest rate risk (investments, Credit Facility) and foreign currency risk (international operations)[308](index=308&type=chunk)[314](index=314&type=chunk) - As of June 30, 2020, there were no amounts outstanding under the Credit Facility, mitigating immediate interest rate risk from variable borrowings[310](index=310&type=chunk)[312](index=312&type=chunk) - Foreign exchange (gains) losses for the six months ended June 30, 2020, were **$1.1 million**, with cumulative translation adjustments of **$(8.9) million**[318](index=318&type=chunk)[319](index=319&type=chunk) - The company does not currently use derivative financial instruments for hedging purposes[320](index=320&type=chunk) [Interest Rate Risk](index=75&type=section&id=Interest%20Rate%20Risk) This section details the company's exposure to interest rate fluctuations on its investments and credit facility - The company's investment portfolio and Credit Facility are exposed to interest rate fluctuations[308](index=308&type=chunk) - As of June 30, 2020, cash and cash equivalents were **$616.8 million**, primarily in money market funds with maturities of **90 days or less**[309](index=309&type=chunk) - No amounts were outstanding under the Credit Facility as of June 30, 2020, meaning a **100 basis point** increase in LIBOR-based rates would not increase annual interest expense from this facility[310](index=310&type=chunk)[312](index=312&type=chunk) [Foreign Currency Risk](index=76&type=section&id=Foreign%20Currency%20Risk) This section discusses the foreign currency risk arising from international operations and related exchange gains/losses - J2 Global conducts business in foreign markets (Canada, Australia, EU) and is exposed to foreign currency risk from investments and inter-company debt in non-U.S. Dollar functional currencies[314](index=314&type=chunk) - Foreign exchange (gains) losses for the three months ended June 30, 2020, were **$(8.8) million**, and for the six months, **$1.1 million**[318](index=318&type=chunk) - Cumulative translation adjustments, net of tax, included in other comprehensive income were **$(8.9) million** for the six months ended June 30, 2020[319](index=319&type=chunk) [Item 4. Controls and Procedures](index=76&type=section&id=Item%204.%20Controls%20and%20Procedures) This section confirms the effectiveness of disclosure controls and procedures and the absence of material internal control changes - Disclosure controls and procedures were evaluated and deemed effective as of June 30, 2020[322](index=322&type=chunk) - No material changes in internal control over financial reporting occurred during the second quarter ended June 30, 2020[323](index=323&type=chunk) [PART II. OTHER INFORMATION](index=77&type=section&id=PART%20II.%20OTHER%20INFORMATION) This part provides additional information, including legal proceedings, risk factors, equity sales, and exhibits [Item 1. Legal Proceedings](index=77&type=section&id=Item%201.%20Legal%20Proceedings) This section refers to Note 11 for details on legal proceedings and management's assessment of their impact - Information on legal proceedings is detailed in Note 11 – Commitments and Contingencies[324](index=324&type=chunk) - Management does not believe current legal proceedings are likely to have a material adverse effect on the company's financial position, results of operations, or cash flows[174](index=174&type=chunk) [Item 1A. Risk Factors](index=77&type=section&id=Item%201A.%20Risk%20Factors) This section directs readers to previously disclosed risk factors and confirms no material changes - Readers should review risk factors from previous filings (10-K for 2019, 10-Q for Q1 2020) and other SEC documents[325](index=325&type=chunk) - There have been no material changes from the previously disclosed risk factors[325](index=325&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=77&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section reports no unregistered equity sales and details common stock repurchase activities - No unregistered sales of equity securities occurred[326](index=326&type=chunk) - Cumulatively, **3.9 million shares** were repurchased under the 2012 Program for **$196.2 million** by June 30, 2020[327](index=327&type=chunk) - The 2012 Program was completed in July 2020, and a new program for up to **10 million shares** was approved on August 6, 2020[327](index=327&type=chunk)[330](index=330&type=chunk) [Item 3. Defaults Upon Senior Securities](index=79&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section confirms that there were no defaults upon senior securities - There were no defaults upon senior securities[333](index=333&type=chunk) [Item 4. Mine Safety Disclosures](index=79&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section states that mine safety disclosures are not applicable to the company - Mine safety disclosures are not applicable[334](index=334&type=chunk) [Item 5. Other Information](index=79&type=section&id=Item%205.%20Other%20Information) This section indicates that there is no other information to report - No other information to report[335](index=335&type=chunk) [Item 6. Exhibits](index=79&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including certifications and XBRL financial information - Exhibits include organizational documents, a waiver form, and certifications from the Principal Executive Officer and Principal Financial Officer[336](index=336&type=chunk)[343](index=343&type=chunk) - Financial information for the quarter ended June 30, 2020, is provided in XBRL format[336](index=336&type=chunk)[343](index=343&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2020 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission File Number: 0-25965 J2 GLOBAL, INC. (Exact name of registrant as specified in its charter) Delaware 47-1053457 (State or other juris ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2019 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 0-25965 J2 GLOBAL, INC. (Exact name of registrant as specified in its charter) Delaware 47-1053457 (State or other jurisdiction of incorporation or ...