j2 Global(ZD) - 2020 Q4 - Annual Report

PART I Item 1. Business J2 Global provides internet information and services through Digital Media and Cloud Services, focusing on growth via acquisitions and diverse offerings. - J2 Global operates two primary business segments: Digital Media and Cloud Services[14] - Digital Media revenues are generated from advertising, sponsorships, subscription/usage fees, performance marketing, and licensing fees[15] - Cloud Services revenues are primarily from customer subscription and usage fees[15] - The company actively pursues acquisitions to grow its customer base, diversify services, enhance technologies, and enter new markets[15] - Digital Media business is primarily advertising-driven with higher sales and marketing expenses and seasonal strength in Q4[16] - Cloud Services business is primarily subscription-driven with higher margins, stability, and minor seasonal weakness in Q4[16] - Digital Media web properties attracted approximately 9.1 billion visits and 31.5 billion page views in 2020[18] - Key competitive factors for Digital Media include brand reputation, ability to attract users and advertisers, and monetization expertise[45] - Cloud Services offerings include cloud fax (eFax), cybersecurity (VIPRE, Inspired eLearning, IPVanish), and SMB enablement (Campaigner, eVoice)[50][51][54] - Cloud Services revenues are substantially fixed subscription revenues, with a lesser extent from variable usage fees[48] - Key competitive factors for Cloud Services include financial strength, pricing, service reliability and security, intellectual property, and customer support[58] - Research, development, and engineering expenditures were $64.3 million in 2020, $54.4 million in 2019, and $48.4 million in 2018[70] - As of December 31, 2020, J2 Global had approximately 4,700 employees, split evenly between U.S. and non-U.S. based[71] - The company has made over 189 acquisitions since inception, including nine in 2020, highlighting its strong acquisition integration capability[72] - J2 Global's culture is built on core values (leadership, collaboration, efficiency, innovation, purpose) and 'Five Pillars of Purpose' including Diversity, Equity & Inclusion[73][74] - In 2020, 38% of new hires were people of color and 44% were women, demonstrating efforts in diversity hiring[80] Item 1A. Risk Factors J2 Global faces significant risks from acquisitions, advertising dependency, technological failures, economic downturns, intense competition, and evolving regulations. - Acquisitions are a significant growth driver but pose risks such as integration difficulties, market entry challenges, management distraction, and potential loss of key personnel[95][97] - The Digital Media business's revenue is largely from short-term advertising arrangements, making it vulnerable to reduced advertiser spending or inability to attract advertisers[99] - System failures, security breaches, or other technological issues could interrupt services, harm reputation, or lead to significant liability[102][103] - The COVID-19 pandemic has negatively affected the global economy and could continue to impact J2 Global's business, operations, and financial performance[106][107] - Cloud fax services constitute approximately 22% of consolidated revenues, making the business dependent on the continued use of fax and the ability to diversify offerings[108] - The company faces intense competition across its markets, with some competitors having greater resources, superior technologies, or more effective marketing strategies[116][119] - Potential liability for legal claims related to content creation/distribution, patent infringement, and other disputes could incur unforeseen expenses and divert resources[121][123] - Changes in tax rates, new tax legislation, or exposure to additional tax liabilities (e.g., sales and use taxes) may adversely impact financial results[131][133] - International operations expose the company to risks from currency fluctuations, political/social unrest, trade protection measures, and difficulties in managing global operations[130][136] - The level of indebtedness could adversely affect financial flexibility and competitive position, requiring significant cash for debt service and capital requirements[142][147] - The company is subject to evolving data privacy and security regulations worldwide, such as GDPR and CCPA, which impose significant compliance costs and risks[176][178][193] - Developments in the healthcare industry and associated regulations could adversely affect the Everyday Health Group brands[199][200] - New technologies that block advertisements or impair interest-based advertising could harm operating results[211] - Conversions of Convertible Notes will dilute the ownership interest of existing stockholders[217] Item 1B. Unresolved Staff Comments No unresolved staff comments from the SEC. - No unresolved staff comments[223] Item 2. Properties J2 Global leases global headquarters, Digital Media offices, and co-location centers for network equipment, deemed sufficient. - Global headquarters in Los Angeles: approximately 48,000 sq ft, lease expires January 31, 2031[224] - Digital Media business headquarters in New York City: approximately 39,000 sq ft, lease extends through October 2024[224] - Digital Media's Everyday Health division occupies 80,000 sq ft, lease extends through October 2023[224] - Additional smaller leased offices are located across Asia, North America, Europe, and Australia[224] - All network equipment is housed in leased properties or multiple co-location facilities globally[225] Item 3. Legal Proceedings Legal proceedings information is detailed in Note 12 of the consolidated financial statements. - Legal proceedings information is incorporated by reference from Note 12, 'Commitments and Contingencies'[226] Item 4. Mine Safety Disclosures This item is not applicable to J2 Global, Inc. - Not applicable[227] PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities J2 Global's common stock trades on Nasdaq; dividends were suspended, while share repurchase programs remain active, with equity compensation details provided. - Common stock is traded on the Nasdaq Global Select Market under the symbol "JCOM"[228] - As of February 24, 2021, there were 246 registered stockholders[229] - The Board of Directors suspended dividend payments after June 4, 2019, to prioritize investment opportunities[231][350] Dividends Declared (Fiscal Year 2019) | Declaration Date | Dividend per Common Share (dollars) | | :--------------- | :------------------------ | | February 6, 2019 | $0.4450 | | May 2, 2019 | $0.4550 | - The 2012 share repurchase program was completed as of December 31, 2020, with 1,140,819 shares repurchased in 2020 at an aggregate cost of $87.5 million[235][362] - A new 2020 Program authorized the repurchase of up to ten million shares through August 6, 2025[236][363] - Under the 2020 Program, 2,490,599 shares were repurchased in 2020 at an aggregate cost of $177.8 million[236][363] - As of December 31, 2020, 7,509,401 shares remain available for purchase under the 2020 Program[237][364] Equity Compensation Plan Information (as of December 31, 2020) | Plan Category | Number of Securities to Be Issued Upon Exercise of Outstanding Options, Warrants and Rights (a) | Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights (b) | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) (c) | | :----------------------------------------------- | :------------------------------------------------------------------------------------------ | :------------------------------------------------------------------------------ | :-------------------------------------------------------------------------------------------------------------------------------------------------- | | Equity compensation plans approved by security holders | 475,601 | $69.61 | 3,424,289 | | Equity compensation plans not approved by security holders | — | — | — | | Total | 475,601 | $69.61 | 3,424,289 | Item 6. Selected Financial Data This section presents selected consolidated financial data for the past five fiscal years, including income statement and balance sheet highlights. Selected Statement of Income Data (Years Ended December 31, in thousands, except per share amounts) | Indicator | 2020 (in thousands) | 2019 (in thousands) | 2018 (in thousands) | 2017 (in thousands) | 2016 (in thousands) | | :------------------------------------------------ | :------------ | :------------ | :------------ | :------------ | :------------ | | Revenues | $1,489,593 | $1,372,054 | $1,207,295 | $1,117,838 | $874,255 | | Gross profit | $1,257,811 | $1,134,731 | $1,006,221 | $945,525 | $727,155 | | Income from operations | $334,611 | $277,080 | $244,280 | $245,708 | $242,566 | | Net income | $150,668 | $218,806 | $128,687 | $139,425 | $152,439 | | Basic EPS | $3.24 | $4.52 | $2.64 | $2.89 | $3.15 | | Diluted EPS | $3.18 | $4.39 | $2.59 | $2.83 | $3.13 | | Cash dividends declared per common share | $— | $0.9000 | $1.6800 | $1.5200 | $1.3600 | Selected Balance Sheet Data (Years Ended December 31, in thousands) | Indicator | 2020 (in thousands) | 2019 (in thousands) | 2018 (in thousands) | 2017 (in thousands) | 2016 (in thousands) | | :------------------------ | :------------ | :------------ | :------------ | :------------ | :------------ | | Cash and cash equivalents | $242,652 | $575,615 | $209,474 | $350,945 | $123,950 | | Working capital | $(259,714) | $53,786 | $153,009 | $355,325 | $(106,090) | | Total assets | $3,665,331 | $3,505,846 | $2,560,830 | $2,453,093 | $2,062,328 | | Total stockholders' equity | $1,211,018 | $1,311,192 | $1,035,744 | $1,020,305 | $914,536 | Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes J2 Global's financial condition, operational results, and liquidity, forecasting higher revenue but lower operating margins due to segment mix. - J2 Global anticipates higher consolidated revenue for fiscal year 2021, driven by acquisitions and organic growth[310] - Operating profit as a percentage of revenues is expected to generally decrease due to the increasing proportion of lower-margin Digital Media revenue[311] Digital Media Performance Metrics (in millions) | Metric | 2020 (in millions) | 2019 (in millions) | 2018 (in millions) | | :--------- | :---- | :---- | :---- | | Visits | 9,091 | 7,542 | 7,706 | | Page views | 31,453| 29,292| 31,727| Cloud Services Performance Metrics (in thousands, except percentages) | Metric | 2020 (in thousands) | 2019 (in thousands) | 2018 (in thousands) | | :-------------------------------------- | :-------- | :-------- | :-------- | | Total subscriber revenues | $678,013 | $660,814 | $597,281 | | Fixed subscriber revenues (% of total) | 84.3% | 83.2% | 81.9% | | Variable subscriber revenues (% of total)| 15.7% | 16.8% | 18.1% | | Average monthly revenue per customer (ARPU) | $13.93 | $14.54 | $15.61 | | Cancel rate | 2.3% | 2.4% | 2.1% | - Revenues increased over the past three years primarily due to acquisitions and organic growth[315] - Cost of revenues decreased by 2% in 2020, primarily due to lower content, campaign fulfillment, and editorial costs, partially offset by increased depreciation and amortization[316] - Sales and marketing expenses increased by 9% in 2020, mainly due to increased personnel costs and advertising associated with recent acquisitions[318] - Research, development, and engineering costs increased by 18% in 2020, primarily due to costs associated with Digital Media business acquisitions[320] - General and administrative expenses increased by 5% in 2020, driven by lease asset impairments, additional depreciation, legal settlements, and professional fees, partially offset by decreased amortization[322] Share-Based Compensation Expense (in thousands) | Category | 2020 (in thousands) | 2019 (in thousands) | 2018 (in thousands) | | :-------------------------------- | :------ | :------ | :------ | | Cost of revenues | $535 | $525 | $510 | | Sales and marketing | $1,454 | $1,547 | $1,798 | | Research, development and engineering | $1,779 | $1,477 | $1,553 | | General and administrative | $20,238 | $20,373 | $24,232 | | Total | $24,006 | $23,922 | $28,093 | - Interest expense, net, significantly increased to $132.0 million in 2020 from $69.5 million in 2019, primarily due to the issuance of 1.75% Convertible Senior Notes and refinancing of 6.0% Senior Notes[324] - A $17.1 million gain on sale of businesses was recognized in 2020 from the sale of certain Voice assets in Australia and New Zealand[325] - Loss on investments, net, increased to $21.0 million in 2020 from $4.2 million in 2019, mainly due to net losses from investee recapitalization and market volatility[326] - Other (income) expense, net, showed a significant income of $(31.6) million in 2020, primarily due to currency exchange gains[327] Effective Tax Rates | Year | Effective Tax Rate (%) | | :--- | :----------------- | | 2020 | 29.7% | | 2019 | (9.7)% | | 2018 | 25.2% | - Net loss in earnings of equity method investment was $11.3 million in 2020, primarily due to impairment of two OCV Fund investments as a result of COVID-19[336] - Cash, cash equivalents, and investments decreased to $340.8 million at December 31, 2020, from $675.7 million at December 31, 2019, due to debt repayment, acquisitions, and stock repurchases[347] - A net working capital deficit of approximately $259.7 million was reported at December 31, 2020, primarily due to cash outflows for business combinations and share repurchases, and the reclassification of 3.25% Convertible Notes to current liability[348] - Issued $750 million aggregate principal amount of 4.625% Senior Notes due 2030 in October 2020, using proceeds to redeem outstanding 6.0% Senior Notes[349][574] - Net cash provided by operating activities increased to $480.1 million in 2020 from $412.5 million in 2019[357] - Net cash used in investing activities was $586.2 million in 2020, primarily for business acquisitions and capital expenditures[358] - Net cash used in financing activities was $(234.6) million in 2020, mainly for debt repayment, stock repurchases, and business acquisitions, partially offset by debt issuance proceeds[359] Contractual Obligations and Commitments (as of December 31, 2020, in thousands) | Contractual Obligations | 1 Year (in thousands) | 2-3 Years (in thousands) | 4-5 Years (in thousands) | More than 5 Years (in thousands) | Total (in thousands) | | :-------------------------------------- | :-------- | :-------- | :-------- | :---------------- | :---------- | | Long-term debt - principal | $402,414 | $910 | $— | $1,300,000 | $1,703,324 | | Long-term debt - interest | $51,719 | $88,625 | $88,625 | $183,063 | $412,032 | | Operating leases | $34,636 | $58,392 | $28,131 | $38,447 | $159,606 | | Finance leases | $608 | $350 | $— | $— | $958 | | Telecom services and co-location facilities | $2,836 | $1,683 | $— | $— | $4,519 | | Holdback payment | $7,274 | $3,079 | $— | $— | $10,353 | | Transition tax | $— | $— | $11,675 | $— | $11,675 | | Self-Insurance | $21,557 | $479 | $— | $— | $22,036 | | Other | $1,535 | $598 | $— | $— | $2,133 | | Total | $522,579| $154,116| $128,431| $1,521,510 | $2,326,636| Item 7A. Quantitative and Qualitative Disclosures About Market Risk J2 Global's market risks primarily involve interest rate fluctuations on investments and foreign currency exposures from international operations, without current hedging. - Primary market risk exposure relates to interest rates on the investment portfolio and foreign currency fluctuations[372][375] - Cash and cash equivalents are primarily in money market funds with maturities of 90 days or less, limiting significant interest rate risk[373] - Outstanding long-term debt has fixed interest rates, meaning no interest rate risk on debt[373] - Foreign currency risk stems from operations in Canada, Australia, and the European Union, impacting operating results and comparability[375][377] - Foreign exchange gains amounted to $28.5 million in 2020, compared to losses of $(4.0) million in 2019 and $(2.3) million in 2018[380] - The company does not currently use derivative financial instruments for hedging, speculative, or trading purposes[381] Item 8. Financial Statements and Supplementary Data This section provides audited consolidated financial statements for 2018-2020, including auditor's unqualified opinion and detailed notes on accounting and operations. - BDO USA, LLP issued an unqualified opinion on the consolidated financial statements for the three years ended December 31, 2020[383] - The company adopted ASC 842, Leases, effective January 1, 2019, using the modified retrospective approach[385] Consolidated Balance Sheets (as of December 31, in thousands) | ASSETS | 2020 (in thousands) | 2019 (in thousands) | | :---------------------------------------------- | :------------ | :------------ | | Cash and cash equivalents | $242,652 | $575,615 | | Total current assets | $622,843 | $886,890 | | Goodwill | $1,867,430 | $1,633,033 | | Total assets | $3,665,331 | $3,505,846 | | LIABILITIES AND STOCKHOLDERS' EQUITY | | | | Total current liabilities | $882,557 | $833,104 | | Long-term debt | $1,182,220 | $1,062,929 | | Total liabilities | $2,454,313 | $2,194,654 | | Total stockholders' equity | $1,211,018 | $1,311,192 | | TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $3,665,331| $3,505,846| Consolidated Statements of Operations (Years Ended December 31, in thousands) | Indicator | 2020 (in thousands) | 2019 (in thousands) | 2018 (in thousands) | | :------------------------------------------------ | :------------ | :------------ | :------------ | | Total revenues | $1,489,593 | $1,372,054 | $1,207,295 | | Gross profit | $1,257,811 | $1,134,731 | $1,006,221 | | Income from operations | $334,611 | $277,080 | $244,280 | | Interest expense, net | $131,975 | $69,546 | $61,987 | | Net income | $150,668 | $218,806 | $128,687 | | Basic EPS | $3.24 | $4.52 | $2.64 | | Diluted EPS | $3.18 | $4.39 | $2.59 | Consolidated Statements of Cash Flows (Years Ended December 31, in thousands) | Cash Flow Activity | 2020 (in thousands) | 2019 (in thousands) | 2018 (in thousands) | | :------------------------------------------------ | :------------ | :------------ | :------------ | | Net cash provided by operating activities | $480,079 | $412,539 | $401,325 | | Net cash used in investing activities | $(586,220) | $(505,273) | $(406,613) | | Net cash (used in) provided by financing activities | $(234,633) | $456,695 | $(131,362) | | Net change in cash and cash equivalents | $(332,963) | $366,141 | $(141,471) | | Cash and cash equivalents at end of year | $242,652 | $575,615 | $209,474 | - Total revenues for Digital Media were $811.4 million in 2020, up 14.2% from 2019, primarily due to business acquisitions[339] - Total revenues for Cloud Services were $678.5 million in 2020, up 2.5% from 2019, primarily due to business acquisitions[343] - In 2020, the company acquired RetailMeNot, Inc. for $414.4 million, contributing $47.6 million to revenues in 2020[498][499][504][506] - Goodwill recognized from 2020 acquisitions totaled $218.7 million[503] - The 3.25% Convertible Notes (principal $402.4 million) are classified as a current liability as of December 31, 2020, due to the holder's option to convert in Q1 2021[348][583] - The company recorded a non-cash impairment charge of $12.1 million related to operating lease right-of-use assets in 2020 due to a shift to a remote/partial remote work model[607] - The total amount of unrecognized tax benefits was $49.1 million as of December 31, 2020[638] - The company is currently under audit by the IRS for 2012-2016 tax years, and by the California FTB and New York State Department of Taxation and Finance for various tax years[642][643][644] Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure No changes in or disagreements with accountants on accounting and financial disclosure have occurred. - No changes in or disagreements with accountants on accounting and financial disclosure[696] Item 9A. Controls and Procedures Management concluded disclosure controls and internal control over financial reporting were effective, with an unqualified auditor's opinion, excluding 2020 acquisitions. - Management concluded that disclosure controls and procedures were effective as of December 31, 2020[698] - Management concluded that internal control over financial reporting was effective as of December 31, 2020[699] - The assessment of internal control over financial reporting excluded 2020 acquisitions, which constituted 17.7% of total assets and 4.2% of revenues for the year ended December 31, 2020[699][705] - There were no material changes in internal control over financial reporting during the fourth quarter of fiscal year 2020[700] - BDO USA, LLP issued an unqualified opinion on the company's internal control over financial reporting as of December 31, 2020[701] Item 9B. Other Information No other information is required to be disclosed in this section. - No other information[710] PART III Item 10. Directors, Executive Officers and Corporate Governance Information for this item is incorporated by reference from the 2021 Proxy Statement. - Information incorporated by reference from the 2021 Proxy Statement[711] Item 11. Executive Compensation Information for this item is incorporated by reference from the 2021 Proxy Statement. - Information incorporated by reference from the 2021 Proxy Statement[712] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information for this item is incorporated by reference from the 2021 Proxy Statement. - Information incorporated by reference from the 2021 Proxy Statement[713] Item 13. Certain Relationships and Related Transactions, and Director Independence Information for this item is incorporated by reference from the 2021 Proxy Statement. - Information incorporated by reference from the 2021 Proxy Statement[714] Item 14. Principal Accounting Fees and Services Information for this item is incorporated by reference from the 2021 Proxy Statement. - Information incorporated by reference from the 2021 Proxy Statement[715] PART IV Item 15. Exhibits and Financial Statement Schedules This section lists all financial statements, schedules, and a comprehensive array of exhibits filed with the Annual Report on Form 10-K. - Includes Report of Independent Registered Public Accounting Firm, Consolidated Balance Sheets, Statements of Operations, Comprehensive Income, Stockholders' Equity, and Cash Flows[716] - Includes Financial Statement Schedule II—Valuation and Qualifying Accounts[716] - A comprehensive list of exhibits is filed with the report or incorporated by reference, covering corporate governance, debt instruments, stock plans, and other agreements[718][720][721][723] Item 16. Form 10-K Summary No Form 10-K Summary is provided. - No Form 10-K Summary is provided[722]