What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2020-08-10 compared with 2020-05-11 · 299 added, 272 removed, 1020 unchanged (36% of the section changed)

4 unchanged sentences

(Unaudited, in thousands except share and per share data)

March 31, 2020 December 31, 2019

June 30, 2020 December 31, 2019

Cash and cash equivalents $ 616,820 $ 575,615

2 unchanged sentences

Prepaid expenses and other current assets 45,767 49,347

Current assets held for sale 2,175 —

Total current assets 853,145 886,890

8 unchanged sentences

Other assets 16,199 15,676

Noncurrent assets held for sale 16,865 —

TOTAL ASSETS $ 3,419,445 $ 3,505,846

6 unchanged sentences

Other current liabilities 1,501 1,973

Current liabilities held for sale 2,388 —

Total current liabilities 772,181 833,104

6 unchanged sentences

Other long-term liabilities 28,810 10,228

Noncurrent liabilities held for sale 156 —

TOTAL LIABILITIES 2,156,277 2,194,654

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Authorized 95,000,000 ;

total issued and outstanding 47,113,423 and 47,654,929 shares at March 31, 2020 and December 31, 2019, respectively.

total issued and outstanding 46,892,691 and 47,654,929 shares at June 30, 2020 and December 31, 2019, respectively.

Additional paid-in capital 467,267 465,652

9 unchanged sentences

Three Months Ended

June 30, Six Months Ended

2020 2019 2020 2019

Total revenues $ 330,984 $ 322,432 $ 663,377 $ 622,325

13 unchanged sentences

Loss on investments, net 3 24 20,835 38

Other expense, net 6,876 2,202

Income before income taxes and net loss in earnings of equity method investment 6,568 32,628

Income tax expense (benefit) 8,703 ( 295 )

Net loss in earnings of equity method investment 4,269 474

Net (loss) income $ ( 6,404 ) $ 32,449

Net (loss) income per common share:

Other (income) expense, net ( 9,059 ) ( 401 ) ( 2,183 ) 1,800

Income before income taxes and net loss (income) in earnings of equity method investment 59,900 39,656 66,468 72,284

Income tax expense 15,978 11,148 24,681 10,853

Net loss (income) in earnings of equity method investment 5,821 ( 4,081 ) 10,090 ( 3,607 )

Net income $ 38,101 $ 32,589 $ 31,697 $ 65,038

Net income per common share:

Basic $ 0.81 $ 0.67 $ 0.67 $ 1.35

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AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited, in thousands)

Three Months Ended

Net (loss) income $ ( 6,404 ) $ 32,449

Other comprehensive (loss) income, net of tax:

June 30, Six Months Ended

2020 2019 2020 2019

Net income $ 38,101 $ 32,589 $ 31,697 $ 65,038

Other comprehensive loss, net of tax:

Foreign currency translation adjustment ( 169 ) ( 1,177 ) ( 8,883 ) ( 686 )

Change in fair value on available-for-sale investments, net of tax expense of zero and $ 177 for the three months ended March 31, 2020 and 2019, respectively.

Other comprehensive (loss) income, net of tax ( 8,006 ) 1,051

Comprehensive (loss) income $ ( 14,410 ) $ 33,500

Change in fair value on available-for-sale investments, net of tax expense of $ 173 and $ 173 for the three and six months ended June 30, 2020, respectively, and $ 7 and $ 184 for the three and six months ended June 30, 2019, respectively.

( 163 ) ( 2 ) 545 558

Other comprehensive loss, net of tax ( 332 ) ( 1,179 ) ( 8,338 ) ( 128 )

Comprehensive income $ 37,769 $ 31,410 $ 23,359 $ 64,910

See Notes to Condensed Consolidated Financial Statements

3 unchanged sentences

(Unaudited, in thousands)

Three Months Ended

Six Months Ended

Cash flows from operating activities:

Net (loss) income $ ( 6,404 ) $ 32,449

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

Net income $ 31,697 $ 65,038

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 104,068 106,212

Amortization of financing costs and discounts 14,102 5,995

Amortization of operating lease assets 4,834 4,796

Non-cash operating lease costs 11,453 9,038

Share-based compensation 12,843 11,948

2 unchanged sentences

Changes in fair value of contingent consideration ( 232 ) 8,475

Foreign currency remeasurement loss 7,801 —

Loss on equity method investments 4,269 628

Foreign currency remeasurement gain ( 704 ) —

Loss (income) on equity method investments 10,090 ( 4,765 )

Loss on equity and debt investments 20,826 —

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Cash flows from financing activities:

Proceeds from line of credit — 100,000

Repurchase of common stock ( 88,469 ) ( 3,807 )

Issuance of common stock under employee stock purchase plan 3,303 1,995

Exercise of stock options 952 5,274

2 unchanged sentences

Other ( 1,032 ) ( 429 )

Net cash used in financing activities ( 78,356 ) ( 19,276 )

Net cash (used in) provided by financing activities ( 101,542 ) 44,799

Effect of exchange rate changes on cash and cash equivalents ( 2,012 ) 451

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CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Three Months Ended March 31, 2019 and 2020

Three and Six Months Ended June 30, 2019 and 2020

(unaudited, in thousands, except share amounts)

Common stock Additional paid-in Treasury stock Retained other comprehensive Total Stockholders’

Shares Amount capital Shares Amount earnings loss Equity

Balance, April 1, 2019 47,661,015 $ 477 $ 358,932 — $ — $ 742,173 $ ( 44,928 ) $ 1,056,654

Net income — — — — — 32,589 — 32,589

Other comprehensive income, net of tax expense of $7 — — — — — — ( 1,179 ) ( 1,179 )

Dividends ($0.4550 per share) — — — — — ( 22,208 ) — ( 22,208 )

Exercise of stock options 500 — 15 — — — — 15

Issuance of shares under employee stock purchase plan 32,154 — 1,995 — — — — 1,995

Vested restricted stock 101,680 1 ( 1 ) — — — — —

Repurchase and retirement of common stock ( 29,480 ) — ( 2,086 ) — — ( 544 ) — ( 2,630 )

Share based compensation — — 6,832 — — 30 — 6,862

Balance, June 30, 2019 47,765,869 $ 478 $ 365,687 — $ — $ 752,040 $ ( 46,107 ) $ 1,072,098

Common stock Additional paid-in Treasury stock Retained other comprehensive Total Stockholders’

Shares Amount capital Shares Amount earnings loss Equity

Balance, April 1, 2020 47,113,423 $ 471 $ 462,430 — $ — $ 832,648 $ ( 54,468 ) $ 1,241,081

Net income — — — — — 38,101 — 38,101

Other comprehensive income, net of tax expense of $173 — — — — — — ( 332 ) ( 332 )

Issuance of shares under employee stock purchase plan 53,694 — 3,303 — — — — 3,303

Exercise of 3.25% Convertible Note — — ( 12 ) — — — — ( 12 )

Vested restricted stock 70,505 1 ( 1 ) — — — — —

Repurchase and retirement of common stock ( 344,931 ) ( 3 ) ( 4,983 ) — — ( 20,517 ) — ( 25,503 )

Share based compensation — — 6,530 — — — — 6,530

Balance, June 30, 2020 46,892,691 $ 469 $ 467,267 — $ — $ 850,232 $ ( 54,800 ) $ 1,263,168

Common stock Additional

7 unchanged sentences

Exercise of stock options 156,038 2 5,272 — — — — 5,274

Issuance of shares under employee stock purchase plan 32,154 — 1,995 — — — — 1,995

Vested restricted stock 140,757 1 ( 1 ) — — — — —

1 unchanged sentence

Share based compensation — — 11,883 — — 65 — 11,948

Balance, March 31, 2019 47,661,015 $ 477 $ 358,932 — $ — $ 742,173 $ ( 44,928 ) $ 1,056,654

Balance, June 30, 2019 47,765,869 $ 478 $ 365,687 — $ — $ 752,040 $ ( 46,107 ) $ 1,072,098

Common stock Additional

3 unchanged sentences

Balance, January 1, 2020 47,654,929 $ 476 $ 465,652 — $ — $ 891,526 $ ( 46,462 ) $ 1,311,192

Net loss — — — — — ( 6,404 ) — ( 6,404 )

Other comprehensive income, net of tax expense of zero — — — — — — ( 8,006 ) ( 8,006 )

Net income — — — — — 31,697 — 31,697

Other comprehensive income, net of tax expense of $173 — — — — — — ( 8,338 ) ( 8,338 )

Exercise of stock options 41,530 — 1,583 — — ( 631 ) — 952

Issuance of shares under employee stock purchase plan 53,694 — 3,303 — — — — 3,303

Exercise of 3.25% Convertible Note — — ( 12 ) — — — — ( 12 )

Vested restricted stock 248,001 3 ( 3 ) — — — — —

1 unchanged sentence

Share based compensation — — 12,843 — — — — 12,843

Balance, March 31, 2020 47,113,423 $ 471 $ 462,430 — $ — $ 832,648 $ ( 54,468 ) $ 1,241,081

Balance, June 30, 2020 46,892,691 $ 469 $ 467,267 — $ — $ 850,232 $ ( 54,800 ) $ 1,263,168

See Notes to Condensed Consolidated Financial Statements

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2020

JUNE 30, 2020

Basis of Presentation

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The Company began to experience modest adverse impacts of the COVID-19 pandemic in the second quarter of 2020 and these adverse impacts are expected to continue in the third quarter of 2020, and possibly longer.

Despite the modest adverse impacts, there are no indications that the COVID-19 pandemic has resulted in a material decline in the carrying value of assets, (except for equity method investments), or a material change in the estimate of any contingent amounts, recorded in the Company’s condensed consolidated balance sheet as of March 31, 2020.

However, there is uncertainty as to the duration and overall impact of the COVID-19 pandemic, which could result in an adverse material change in a future period to the Company’s results of operations, financial position or liquidity.

Despite the modest adverse impacts, there are no indications that the COVID-19 pandemic has resulted in a material decline in the carrying value of assets, (except for equity method investments), or a material change in the estimate of any contingent amounts, recorded in the Company’s Condensed Consolidated Balance Sheet as of June 30, 2020.

However, there is uncertainty as to the full extent, duration and overall impact of the COVID-19 pandemic, which could result in an adverse material change in a future period to the Company’s results of operations, financial position or liquidity.

Use of Estimates

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b) the Company has the obligation to absorb losses of the VIE, or the right to receive benefits of the VIE, that could potentially be significant to the VIE (the economic criterion).

The Company has concluded that, as a limited partner, although the obligations to absorb losses or benefit from the gains is not insignificant, the Company does not have “power” over OCV because it does not have the ability to direct the significant decisions which impact the economics of OCV.

The Company has concluded that, as a limited partner, although the obligation to absorb losses or the right to benefit from the gains is not insignificant, the Company does not have “power” over OCV because it does not have the ability to direct the significant decisions which impact the economics of OCV.

J2 believes that the OCV general partner, as a single decision maker, holds the ability to make the decisions about the activities that most significantly impact the OCV Fund’s economic performance.

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Impairment or Disposal of Long-Lived Assets

J2 Global accounts for long-lived assets, which include property and equipment and identifiable intangible assets with finite useful lives (subject to amortization), in accordance with the provisions of FASB ASC Topic No.

J2 Global accounts for long-lived assets, which include property and equipment, operating lease right-of-use assets and identifiable intangible assets with finite useful lives (subject to amortization), in accordance with the provisions of FASB ASC Topic No.

360, Property, Plant, and Equipment (“ASC 360”), which requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

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J2 Global assessed whether events or changes in circumstances have occurred that potentially indicate the carrying amount of long-lived assets may not be recoverable.

No impairment was recorded in in the first quarter of 2020.

No impairment was recorded in the second quarter of 2020, excluding an immaterial impairment associated with a sublease (see Note 10 - Leases).

No impairment was recorded in the second quarter of 2019.

The Company classifies its long-lived assets to be sold as held for sale in the period (i) it has approved and committed to a plan to sell the asset, (ii) the asset is available for immediate sale in its present condition, (iii) an active program to locate a buyer and other actions required to sell the asset have been initiated, (iv) the sale of the asset is probable, (v) the asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value, and (vi) it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.

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If the carrying value of a reporting unit exceeds the reporting unit’s fair value, an impairment loss is recognized for the difference.

The Company performed a qualitative assessment which determined that one business unit required further consideration and necessitated a quantitative assessment as of March 31, 2020.

The qualitative assessment took into consideration macroeconomic, industry and market conditions, overall financial performance and any other relevant company-specific events.

The quantitative assessment did not indicate that the fair value was lower than the business unit’s carrying value, accordingly, no impairment was recorded.

J2 Global concluded that there were no impairments in the first quarter of 2020.

In addition, the COVID-19 pandemic could have an adverse impact on the Company’s consolidated financial results in the second quarter of 2020, and possibly longer.

As of March 31, 2020, there were no indications that the carrying value of goodwill and other intangible assets may not be recoverable.

In addition, the COVID-19 pandemic could have an adverse impact on the Company’s consolidated financial results in the third quarter of 2020, and possibly longer.

As of June 30, 2020, there were no indications that the carrying value of goodwill and other intangible assets may not be recoverable.

However, a prolonged adverse impact of the COVID-19 pandemic on the Company’s consolidated financial results may require an impairment charge related to one or more of these assets in a future period.

No impairment was recorded in the second quarter of 2020 or 2019.

Contingent Consideration

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J2 Global reviews and re-assesses the estimated fair value of contingent consideration on a quarterly basis, and the updated fair value could be materially different from the initial estimates or prior quarterly amounts.

Changes in the estimated

fair value of its contingent earn-out liabilities are reported in operating income.

Changes in the estimated fair value of its contingent earn-out liabilities are reported in operating income.

Adjustments to the estimated fair value related to changes in all other unobservable inputs are reported in operating income.

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Accordingly, J2 Global measures share-based compensation expense at the grant date, based on the fair value of the award, and recognizes the expense over the employee’s requisite service period using the straight-line method.

The measurement of share-based compensation expense is based on

several criteria, including but not limited to the valuation model used and associated input factors, such as expected term of the award, stock price volatility, risk free interest rate, dividend rate and award cancellation rate.

The measurement of share-based compensation expense is based on several criteria, including but not limited to the valuation model used and associated input factors, such as expected term of the award, stock price volatility, risk free interest rate, dividend rate and award cancellation rate.

These inputs are subjective and are determined using management’s judgment.

If differences arise between the assumptions used in determining share-based compensation expense and the actual factors, which become known over time, J2 Global may change the input factors used in determining future share-based compensation expense.

If differences arise between the assumptions used in determining share-based

compensation expense and the actual factors, which become known over time, J2 Global may change the input factors used in determining future share-based compensation expense.

Any such changes could materially impact the Company’s results of operations in the period in which the changes are made and in periods thereafter.

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Recent Accounting Pronouncements

In June 2016, the FASB issued ASU No.

2016-13, Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments.

The amendments in this ASU replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.

This ASU is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019.

In November 2018, the FASB issued ASU No.

2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses.

The amendments in this ASU align the implementation date for nonpublic entities’ annual financial statements with the implementation date for their interim financial statements.

In addition, the amendment clarifies that receivables arising from operating leases are not within the scope of Subtopic 326-20;

instead impairment of receivables arising from operating leases should be accounted for in accordance with Topic 842:

In April 2019, the FASB issued ASU No.

2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825 Financial Instruments.

The amendments in this ASU further clarify certain aspects of ASU No.

In May 2019, the FASB issued ASU No.

2019-05, Financial Instruments - Credit Losses (Topic 326):

Targeted Transition Relief.

The amendments in this ASU provide transition relief for ASU No.

2016-13 by providing an option to irrevocably elect the fair value option for certain financial assets measured at an amortized cost basis.

In November 2019, the FASB issued ASU No.

2019-10, Financial Instruments - Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842):

Effective Dates.

This ASU clarifies the effective dates of each related standards update and staggers such dates among filers and other types of entities.

Also in November 2019, the FASB issued ASU No.

2019-11, Codification Improvements to Topic 326, Financial Instruments - Credit Losses.

This ASU clarifies or addresses certain aspects of Update 2016-13.

Specifically, it addresses (1) expected recoveries for purchased financial assets with credit deterioration;

(2) transition relief for troubled debt restructuring;

(3) disclosures related to accrued interest variables;

(4) financial assets secured by collateral maintenance provisions;

and (5) a conforming Amendment to Subtopic 805-20.

In February 2020, the FASB issued ASU No.

2020-02, Financial Instruments - Credit Losses (Topic 326) and Leases (Topic 842):

Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No.

119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No.

2016-02, Leases (Topic 842).

This ASU codifies SEC Staff Accounting Bulletin No.

Each of the ASUs previously mentioned are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.

The Company has adopted these ASUs in the first quarter of 2020 using the modified retrospective method and has determined there is an immaterial impact on its financial statements and related disclosures.

In August 2018, the FASB issued ASU No.

2018-13, Fair Value Measurement (Topic 820):

Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement.

The amendments in this ASU remove, add, and modify certain disclosures.

The ASU removes the following disclosure requirements from Topic 820:

(1) the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy;

(2) the policy for timing of transfers between levels;

(3) the valuation process for Level 3 fair value measurements;

and (4) certain other requirements for nonpublic entities.

The ASU adds the following disclosure requirements:

(1) the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and (2) the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements.

For certain unobservable inputs, disclosure of other quantitative information may be more appropriate if the entity determines that other quantitative information would be a more reasonable and rational method to reflect the distribution of unobservable inputs used to develop Level 3 fair value measurements.

The ASU modifies disclosure requirements in Topic 820 relating to timing of liquidation of an investee’s assets, the disclosure of the date when restrictions from redemption might lapse, the intention of the measurement uncertainty disclosure, and certain other requirements for nonpublic entities.

This ASU is effective for fiscal

years, and interim periods within those fiscal years, beginning after December 15, 2019.

The Company has adopted this ASU in the first quarter of 2020 and has determined there to be an impact on its disclosures (see Note 6 - Fair Value Measurements).

In December 2019, the FASB issued ASU No.

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In March 2020, the FASB issued ASU No.

2020-03, Codification Improvements to Financial Instruments.

The amendments in this ASU clarify or address seven areas of improvement:

(1) fair value option disclosures;

(2) applicability of the portfolio exception in Topic 820 to nonfinancial items;

(3) disclosures for depository and lending institutions;

(4) cross-reference to line-of-credit or revolving-debt arrangements guidance in Subtopic 470-50;

(5) cross-reference to net asset value practical expedient in Subtopic 820-10;

(6) interaction of Topic 842 and Topic 326;

and (7) interaction of Topic 326 and Subtopic 860-20.

This ASU is effective for certain issues upon adoption and others in 2020.

The Company has adopted this ASU in the first quarter of 2020 and has determined there is no impact on its financial statements and related disclosures.

In March 2020, the FASB issued ASU No.

2020-04, Reference Rate Reform (Topic 848):

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Three Months Ended

June 30, Six Months Ended

Digital Media 2020 2019 2020 2019

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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

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Total $ 330,984 $ 322,432 $ 663,377 $ 622,325

The Company has recorded $ 68.5 million and $ 53.2 million of revenue for the three months ended March 31, 2020 and 2019, respectively, which was previously included in the contract liability balance as of the beginning of each respective year.

As of March 31, 2020, the Company acquired $ 0.5 million of deferred revenue in connection with the Company’s business acquisitions (see Note 4 - Business Acquisitions) which are subject to purchase accounting adjustments.

The Company has recorded $ 45.0 million and $ 31.3 million of revenue for the three months ended June 30, 2020 and 2019, respectively, and $ 113.5 million and $ 84.5 million of revenue for the six months ended June 30, 2020 and 2019, respectively, which was previously included in the contract liability balance as of the beginning of each respective year.

As of June 30, 2020, the Company acquired $ 0.5 million of deferred revenue in connection with the Company’s business acquisitions (see Note 4 - Business Acquisitions) which are subject to purchase accounting adjustments.

Performance Obligations

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The Company uses acquisitions as a strategy to grow its customer base by increasing its presence in new and existing markets, expand and diversify its service offerings, enhance its technology, and acquire skilled personnel.

The Company completed the following acquisitions during the first three months of fiscal 2020, paying the purchase price in cash in each transaction:

The Company completed the following acquisitions during the first six months of fiscal 2020, paying the purchase price in cash in each transaction:

(a) an asset purchase of EDC Systems Inc.

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and (b) another immaterial acquisition of a digital media business.

The condensed consolidated statement of operations since the date of each acquisition and balance sheet as of March 31, 2020, reflect the results of operations of all 2020 acquisitions.

For the three months ended March 31, 2020, these acquisitions contributed $ 0.8 million to the Company’s revenues.

The Condensed Consolidated Statement of Operations since the date of each acquisition and balance sheet as of June 30, 2020, reflect the results of operations of all 2020 acquisitions.

For the six months ended June 30, 2020, these acquisitions contributed $ 2.9 million to the Company’s revenues.

Net income contributed by these acquisitions was not separately identifiable due to J2 Global’s integration activities and is impracticable to provide.

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Total $ 26,989

During the three months ended March 31, 2020, the purchase price accounting has been finalized for immaterial consumer privacy and protection businesses.

During the six months ended June 30, 2020, the purchase price accounting has been finalized for Highwinds Capital, Inc.

and Cloak Holdings, LLC and immaterial digital media and consumer privacy and protection businesses.

The initial accounting for all 2020 acquisitions is incomplete and subject to change, which may be significant.

J2 Global has recorded provisional amounts which may be based upon past acquisitions with similar attributes for certain intangible assets (including trade names, software and customer relationships), preliminary acquisition date working capital and related tax items.

During the three months ended March 31, 2020, the Company recorded adjustments to the initial working capital and to the purchase accounting due to the finalization of prior period acquisitions in the Voice, Backup, Security and CPP businesses which resulted in a net decrease in goodwill of $ 2.5 million.

In addition, the Company recorded adjustments to the initial working capital due to the finalization of prior period acquisitions in the Digital Media business, which resulted in a net decrease in goodwill of $ 14.0 thousand (see Note 7 - Goodwill and Intangible Assets).

Such adjustments had an immaterial impact on the amortization expense within the condensed consolidated statement of operations for the three months ended March 31, 2020.

During the six months ended June 30, 2020, the Company recorded adjustments to the initial working capital and to the purchase accounting due to the finalization of prior period acquisitions in the Voice, Backup, Security and CPP businesses which resulted in a net decrease in goodwill of $ 2.1 million.

In addition, the Company recorded adjustments to the initial working capital and to the purchase accounting due to the finalization of prior period acquisitions in the Digital Media business, which resulted in a net increase in goodwill of $ 9.1 million (see Note 8 - Goodwill and Intangible Assets).

Such adjustments had an immaterial impact on the amortization expense within the Condensed Consolidated Statement of Operations for the six months ended June 30, 2020.

Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired and represents intangible assets that do not qualify for separate recognition.

Goodwill recognized associated with these acquisitions during the three months ended March 31, 2020 is $ 16.7 million, of which $ 16.7 million is expected to be deductible for income tax purposes.

Goodwill recognized associated with these acquisitions during the six months ended June 30, 2020 is $ 16.5 million, of which $ 16.5 million is expected to be deductible for income tax purposes.

Investments consist of equity and debt securities.

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In addition, the Company determined that the shares of redeemable preferred stock that were also received as part of the consideration for the sale of Tea Leaves are corporate debt securities and are classified as available-for-sale securities.

Furthermore, the COVID-19 pandemic has recently had an adverse impact on the global financial markets.

Furthermore, the COVID-19 pandemic has had an adverse impact on the global financial markets.

A prolonged adverse impact of the COVID-19 pandemic could result in a decline in the equity and debt securities estimated fair value and, thus, a resulting charge to earnings in a future period.

1 unchanged sentence

Cost Impairment Adjustments Reported Amount

March 31, 2020

June 30, 2020

Equity securities $ 54,145 $ ( 23,769 ) $ ( 480 ) $ 29,896

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In March 2020, a portion of the Company’s investment in equity securities declined in value primarily due to changes in the investee’s capital structure and overall market volatility.

During the three months ended March 31, 2020, the Company recorded a $ 19.6 million impairment loss on equity securities, which is reflected in loss on investments, net in the condensed consolidated statements of operations.

During the year ended December 31, 2019, the Company recorded a $ 4.2 million impairment loss related to a portion of its equity securities without a readily determinable fair market value which is reflected in other expense, net in the consolidated statements of operations.

In a non-cash transaction of $ 18.3 million, the Company exchanged shares of redeemable preferred stock that were previously classified as available-for-sale corporate debt securities for a new series of preferred stock, classified as equity securities.

During the three months ended March 31, 2020, the Company recognized a loss on exchange of $ 4.4 million, which is reflected in loss on investments, net in the condensed consolidated statements of operations.

During three months ended March 31, 2020, the Company purchased preferred stock for $ 0.8 million and recognized a gain of $ 3.2 million, which is reflected in loss on investments, net in the condensed consolidated statements of operations.

During the three and six months ended June 30, 2020, the Company recorded zero and $ 19.6 million of impairment loss on equity securities, respectively, which is reflected in loss on investments, net in the Condensed Consolidated Statements of Operations.

In the first quarter of 2020, in a non-cash transaction of $ 18.3 million, the Company exchanged shares of redeemable preferred stock that were previously classified as available-for-sale corporate debt securities for a new series of preferred stock, classified as equity securities.

During the three and six months ended June 30, 2020, the Company recognized a loss on exchange of zero and $ 4.4 million, respectively, which is reflected in loss on investments, net in the Condensed Consolidated Statements of Operations.

At June 30, 2020, the Company had preferred stock, which was purchased for $ 0.8 million in the first quarter of 2020.

During the three and six months ended June 30, 2020, the Company recognized a gain of zero and $ 3.2 million, respectively, which is reflected in loss on investments, net in the Condensed Consolidated Statements of Operations.

The following table summarizes the gross unrealized gains and losses and fair values for investments classified as available-for-sale investments (in thousands):

March 31, 2020

June 30, 2020

Corporate debt securities $ 511 $ 132 $ — $ 643

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Total $ 23,256 $ 112 $ (698) $ 22,670

At March 31, 2020, the Company’s available-for-sale debt securities are carried at fair value, with the unrealized gains and losses reported as a component of other comprehensive income.

At June 30, 2020, the Company’s available-for-sale debt securities are carried at fair value, with the unrealized gains and losses reported as a component of other comprehensive income.

The following table summarizes J2 Global’s corporate debt securities designated as available-for-sale, classified by the contractual maturity date of the security (in thousands):

March 31, 2020 December 31, 2019

June 30, 2020 December 31, 2019

Due within 1 year $ — $ —

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Expected credit losses on available-for-sale debt securities are recognized in other expense, net on our Condensed Consolidated Statements of Operations, and any remaining unrealized losses, net of taxes, are included in accumulated other comprehensive loss in stockholders’ equity.

The following tables present gross unrealized losses and fair values for those investments that were in an unrealized loss position as of March 31, 2020 and December 31, 2019, aggregated by investment category and the length of time that individual securities have been in a continuous loss position (in thousands):

As of March 31, 2020

Less than 12 Months 12 Months or Greater Total

Fair Value Unrealized Loss Fair Value Unrealized Loss Fair Value Unrealized Loss

Corporate debt securities $ — $ — $ — $ — $ — $ —

Total $ — $ — $ — $ — $ — $ —

The following table presents gross unrealized losses and fair values for those investments that were in an unrealized loss position as of December 31, 2019, aggregated by investment category and the length of time that individual securities have been in a continuous loss position (in thousands).

There were no investments in an unrealized loss position as of June 30, 2020.

As of December 31, 2019

3 unchanged sentences

Total $ — $ — $ 22,047 $ (698) $ 22,047 $ (698)

As of March 31, 2020 and December 31, 2019, we did not recognize any credit losses related to debt securities.

As of June 30, 2020 and December 31, 2019, we did not recognize any credit losses related to debt securities.

On September 25, 2017 , the Company entered into a commitment to invest $ 200 million (approximately 76.6 % of equity) in the OCV Fund.

The total expected commitment to the OCV Fund is expected to be approximately $300 million.

The primary purpose of the Fund is to provide a limited number of select investors with the opportunity to realize long-term appreciation from public and private companies, with a particular focus on the technology and life science industries.

The general activities of the OCV Fund is to buy, sell, hold and otherwise invest in securities of every kind and nature and rights and options with respect thereto, including, without limitation, stock, notes, bonds, debentures and evidence of indebtedness;

to exercise all rights, powers, privileges and other incidents of ownership or possession with respect to securities held or owned by

the OCV Fund;

to exercise all rights, powers, privileges and other incidents of ownership or possession with respect to securities held or owned by the OCV Fund;

to enter into, make and perform all contracts and other undertakings;

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The commitment was approved by the Audit Committee of the Board in accordance with the Company’s related-party transaction approval policy.

In the first three months of 2020, the Company received capital call notices from the management of OCV Management, LLC.

for $ 22.8 million, inclusive of certain management fees, of which $ 22.8 million has been paid for the three months ended March 31, 2020.

In the first three months of 2019, the Company received capital call notices from the management of OCV Management, LLC.

for $ 9.8 million, inclusive of certain management fees, of which $ 9.8 million has been paid for the three months ended March 31, 2019.

In the first six months of 2020, the Company received capital call notices from the management of OCV Management, LLC.

for $ 26.5 million, inclusive of certain management fees, of which $ 26.5 million has been paid for the six months ended June 30, 2020.

In the first six months of 2019, the Company received capital call notices from the management of OCV Management, LLC.

for $ 19.3 million, inclusive of certain management fees, of which $ 14.7 million had been paid for the six months ended June 30, 2019.

The Company recognizes its equity in the net earnings or losses relating to the investment in OCV on a one-quarter lag due to the timing and availability of financial information from OCV.

If the Company becomes aware of a significant decline in value that is other-than-temporary, the loss will be recorded in the period in which the Company identifies the decline.

During the three months ended March 31, 2020 and 2019, the Company recognized an investment loss of $ 4.3 million and $ 0.5 million, net of tax benefit, respectively.

During the three months ended June 30, 2020 and 2019, the Company recognized an investment loss (gain) of $ 5.8 million and $( 4.1 ) million, net of tax benefit (expense), respectively, and during the six months ended June 30, 2020 and 2019, the Company recognized an investment loss (gain) of $ 10.1 million and $( 3.6 ) million, respectively.

The fiscal 2020 loss was primarily a result of the impairment of two of its investments as a result of COVID-19 in the amount of $ 7.0 million, net of tax benefit.

partially offset by investment income net of tax expense of $2.7 million.

The loss is presented in the Company’s condensed consolidated statement of operations as net loss in earnings of equity method investment.

During the three months ended March 31, 2020 and 2019, the Company recognized management fees of $ 0.8 million and $ 0.8 million, net of tax benefit, respectively.

In addition, the Company recognized an investment loss in fiscal 2020 in the amount of $3.1 million, net of tax benefit.

The loss is presented in the Company’s Condensed Consolidated Statement of Operations as net loss (income) in earnings of equity method investment.

During the three months ended June 30, 2020 and 2019, the Company recognized management fees of $ 0.8 million and $ 0.8 million, net of tax benefit, respectively, and for the six months ended June 30, 2020 and 2019, the Company recognized management fees of $ 1.5 million and $ 1.5 million, net of tax benefit, respectively.

The following table discloses the carrying amount for the Company’s equity method investment (in thousands):

March 31, 2020 December 31, 2019

Equity securities $ 67,491 $ 50,274

June 30, 2020 December 31, 2019

Equity method investment $ 63,503 $ 50,274

Maximum exposure to loss $ 63,503 $ 50,274

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Finally, there are no call or put options, or other types of arrangements, which limit the Company’s ability to participate in losses and returns of the Fund.

Assets Held For Sale

The Company classifies assets held for sale when management approves and commits to a formal plan of sale with the expectation the sale will be completed within one year.

The net assets of the business held for sale are then recorded at the lower of their current carrying value or the fair market value, less costs to sell.

During the second quarter of 2020, the Company committed to a plan to sell certain Voice assets in Australia and New Zealand as they were determined to be non-core assets.

Such assets are recorded within the Voice, Backup, Security, and CPP reportable segment.

This determination resulted in a reclassification of assets and liabilities held for sale on the Condensed Consolidated Balance Sheet with a net carrying value of $ 16.5 million.

The following table presents information related to the assets and liabilities that were classified as held for sale in our Condensed Consolidated Balance Sheet (in thousands):

June 30, 2020

Accounts receivable, net $ 1,638

Prepaid expenses and other current assets 537

Property and equipment, net 503

Operating lease right-of-use assets 271

Trade names, net 125

Customer relationships, net 1,864

Goodwill 13,595

Other purchased intangibles, net 37

Deferred income taxes, noncurrent 378

Other assets 92

Total assets held for sale $ 19,040

Accounts payable and accrued expenses $ 1,813

Deferred revenue, current 457

Operating lease liabilities, current 118

Operating lease liabilities, noncurrent 156

Total liabilities held for sale $ 2,544

Fair Value Measurements

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The fair value of the Credit Facility approximates its carrying amount due to its variable interest rate, which approximates a market interest rate, and is considered a Level 2 input.

The fair value of long-term debt at March 31, 2020 and December 31, 2019 was $ 1.6 billion and $ 1.8 billion, respectively (see Note 8 - Long-Term Debt).

The fair value of the Company’s debt instruments at June 30, 2020 and December 31, 2019 was $ 1.6 billion and $ 1.8 billion, respectively (see Note 9 - Debt).

In 2019, the Company entered into a $ 5.5 million note payable that was short-term in nature and associated with the quarter’s acquisition activity.

In the same year, the Company paid down $ 5.1 million of the outstanding note.

As of March 31, 2020, the carrying value of the note payable approximates fair value and is classified within Level 2.

As of June 30, 2020, the carrying value of the note payable approximates fair value and is classified within Level 2.

The Company classifies its contingent consideration liability in connection with acquisitions within Level 3 because factors used to develop the estimated fair value are unobservable inputs, such as volatility and market risks, and are not supported by market activity.

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Discount rate 28.6% - 42.0% 31.2 %

Monte Carlo Simulation Risk free rate (1)

Discount rate (1)

Market volatility 26.5% - 57.1% 41.8 %

Counter party risk rate (1)

(1) The input is a defined rate and, as a result, is not presented as a range or weighted average.

The following tables present the fair values of the Company’s financial assets or liabilities that are measured at fair value on a recurring basis (in thousands):

March 31, 2020 Level 1 Level 2 Level 3 Fair Value

June 30, 2020 Level 1 Level 2 Level 3 Fair Value

Cash equivalents:

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Contingent consideration payments ( 34,611 ) Not applicable

Balance as of March 31, 2020 $ 8,864

In connection with the acquisition of Humble Bundle, on October 13, 2017, contingent consideration of up to an aggregate of $ 40.0 million may be payable upon achieving certain future EBITDA thresholds and had a fair value of $ 0.1 million and $ 20.0 million at March 31, 2020 and December 31, 2019, respectively.

Due to the Company’s achievement of certain EBITDA targets for the years ended December 31, 2019 and 2018 and the amended contingent consideration agreement, $ 19.9 million was paid in the first quarter of 2020 and $ 20.0 million in fiscal 2019.

An additional $ 0.1 million remains payable and is classified as a current liability on the condensed consolidated balance sheet.

In connection with the acquisition of Ekahau Inc., on October 10, 2018, the Company achieved certain revenue thresholds and, as a result, contingent consideration of $ 9.1 million was paid in the first quarter of 2020.

There are no further payments pending related to this acquisition.

In connection with the Company’s other acquisition activity, contingent consideration of up to $ 19.5 million may be payable upon achieving certain future EBITDA, revenue, and/or unique visitor thresholds and had a combined fair value of $ 8.8 million and $ 8.8 million at March 31, 2020 and December 31, 2019, respectively.

Due to the achievement of certain thresholds, $ 4.8 million was paid in the first three months of 2020.

During the three months ended March 31, 2020, the Company recorded an decrease in the fair value of the contingent consideration of $ 0.2 million and reported such decrease in general and administrative expenses.

Balance as of June 30, 2020 $ 8,122

In connection with the acquisition of Humble Bundle on October 13, 2017, contingent consideration of up to an aggregate of $ 40.0 million may be payable upon achieving certain future EBITDA thresholds and had a fair value of approximately zero and $ 20.0 million at June 30, 2020 and December 31, 2019, respectively.

Due to the Company’s achievement of certain EBITDA targets for the years ended December 31, 2019 and 2018 and the amended contingent consideration agreement, $ 20.0 million was paid in the first six months of 2020 and $ 20.0 million in fiscal 2019.

In connection with the Company’s other acquisition activity, contingent consideration of up to $ 19.5 million may be payable upon achieving certain future EBITDA, revenue, and/or unique visitor thresholds and had a combined fair value of $ 8.1 million and $ 8.8 million at June 30, 2020 and December 31, 2019, respectively.

Due to the achievement of certain thresholds, $ 5.5 million was paid in the first six months of 2020.

During the six months ended June 30, 2020, the Company recorded a decrease in the fair value of the contingent consideration of $ 0.2 million and reported such decrease in general and administrative expenses.

Goodwill and Intangible Assets

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Identifiable intangible assets are amortized over the period of estimated economic benefit, which ranges from one to 20 years.

The changes in carrying amounts of goodwill for the three months ended March 31, 2020 are as follows (in thousands):

The changes in carrying amounts of goodwill for the six months ended June 30, 2020 are as follows (in thousands):

Fax and Martech Voice, Backup, Security and CPP Total Cloud Services Digital Media Consolidated

1 unchanged sentence

Goodwill acquired (Note 4) 15,844 — 15,844 622 16,466

Goodwill reclassified to noncurrent assets held for sale (1)

— ( 13,595 ) ( 13,595 ) — ( 13,595 )

Purchase accounting adjustments (2)

1 unchanged sentence

Foreign exchange translation ( 685 ) ( 4,325 ) ( 5,010 ) ( 542 ) ( 5,552 )

Balance as of March 31, 2020 $ 412,582 $ 469,475 $ 882,057 $ 755,136 $ 1,637,193

Balance as of June 30, 2020 $ 412,947 $ 460,034 $ 872,981 $ 764,306 $ 1,637,287

(1) During the second quarter of 2020, the Company reclassified $ 13.6 million of goodwill to noncurrent assets held for sale in connection with certain Voice assets in Australia and New Zealand (see Note 6 - Assets Held for Sale).

(2) Purchase accounting adjustments relate to measurement period adjustments to goodwill in connection with prior business acquisitions (see Note 4 - Business Acquisitions).

Intangible Assets with Indefinite Lives:

Intangible assets are summarized as of March 31, 2020 and December 31, 2019 as follows (in thousands):

Intangible assets are summarized as of June 30, 2020 and December 31, 2019 as follows (in thousands):

2020 December 31,

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Intangible Assets Subject to Amortization:

As of March 31, 2020, intangible assets subject to amortization relate primarily to the following (in thousands):

As of June 30, 2020, intangible assets subject to amortization relate primarily to the following (in thousands):

Weighted-Average

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Other purchased intangibles 4.4 years 377,698 232,151 145,547

Total $ 1,272,481 $ 777,510 $ 494,971

$ 1,274,073 $ 813,300 $ 460,773

(1) Historically, the Company has amortized its customer relationship assets in a pattern that best reflects the pace in which the asset’s benefits are consumed.

This pattern results in a substantial majority of the amortization expense being recognized in the first 4 to 5 years, despite the overall life of the asset.

(2) Intangible assets of $2.0 million, which were classified as assets held for sale, were included in the total at June 30, 2020.

As of December 31, 2019, intangible assets subject to amortization relate primarily to the following (in thousands):

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This pattern results in a substantial majority of the amortization expense being recognized in the first 4 to 5 years, despite the overall life of the asset.

Amortization expense, included in general and administrative expense, approximated $ 38.8 million and $ 37.3 million for the three months ended March 31, 2020 and 2019, respectively.

Amortization expense is estimated to approximate $ 120.2 million, $ 119.1 million, $ 73.5 million, $ 58.4 million and $ 32.0 million for the remaining nine months of fiscal year 2020 through fiscal year 2024, respectively, and $ 91.7 million thereafter through the duration of the amortization period.

Long-Term Debt

Amortization expense, included in general and administrative expense, approximated $ 35.6 million and $ 44.5 million for the three months ended June 30, 2020 and 2019, respectively, and $ 74.4 million and $ 81.8 million for the six months ended June 30, 2020 and 2019, respectively.

Amortization expense is estimated to approximate $ 82.3 million, $ 119.9 million, $ 69.1 million, $ 64.7 million and $ 35.4 million for the remaining six months of fiscal year 2020 through fiscal year 2024, respectively, and $ 89.4 million thereafter through the duration of the amortization period.

6.0% Senior Notes

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J2 Cloud received proceeds of $ 636.5 million, after deducting the initial purchasers’ discounts, commissions and offering expenses.

The 6.0% Senior Notes are presented as long-term debt, net of deferred issuance costs, on the condensed consolidated balance sheets as of March 31, 2020.

The 6.0% Senior Notes are presented as long-term debt, net of deferred issuance costs, on the Condensed Consolidated Balance Sheet as of June 30, 2020.

The 6.0% Senior Notes bear interest at a rate of 6.0% per annum, payable semi-annually in arrears on January 15 and July 15 of each year, commencing on January 15, 2018.

The 6.0% Senior Notes mature on July 15, 2025 , and are senior unsecured obligations of the Issuers and are guaranteed on an unsecured basis by certain subsidiaries of J2 Cloud (as defined in the Indenture agreement dated June 27, 2017, the “Indenture”).

If J2 Cloud or any of its restricted subsidiaries acquires or creates a domestic restricted subsidiary, other than an insignificant subsidiary (as defined in the Indenture), after the issue date, or any insignificant subsidiary ceases to fit within the definition of insignificant subsidiary, such restricted subsidiary is required to unconditionally guarantee, jointly and severally, on an unsecured basis, the Issuers’ obligations under the 6.0% Senior Notes.

If J2 Cloud or any of its restricted subsidiaries acquires or

creates a domestic restricted subsidiary, other than an insignificant subsidiary (as defined in the Indenture), after the issue date, or any insignificant subsidiary ceases to fit within the definition of insignificant subsidiary, such restricted subsidiary is required to unconditionally guarantee, jointly and severally, on an unsecured basis, the Issuers’ obligations under the 6.0% Senior Notes.

The Issuers may redeem some or all of the 6.0% Senior Notes at any time on or after July 15, 2020 at specified redemption prices plus accrued and unpaid interest, if any, to, but excluding the redemption date.

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Restricted payments, specifically dividend payments, are applicable only if J2 Cloud and subsidiaries designated as restricted subsidiaries has a leverage ratio of greater than 3.0 to 1.0.

In addition, if such leverage ratio is in excess of 3.0 to 1.0, the restriction on restricted payments is subject to various exceptions, including

an exception for the payment of restricted payments up to $75 million.

These contractual provisions did not, as of March 31, 2020, restrict J2 Cloud’s ability to pay dividends to J2 Global, Inc.

The company is in compliance with its debt covenants as of March 31, 2020.

In addition, if such leverage ratio is in excess of 3.0 to 1.0, the restriction on restricted payments is subject to various exceptions, including an exception for the payment of restricted payments up to $75 million.

These contractual provisions did not, as of June 30, 2020, restrict J2 Cloud’s ability to pay dividends to J2 Global, Inc.

The company is in compliance with its debt covenants as of June 30, 2020.

In addition, based on current expectations and assumptions about the COVID-19 pandemic, the Company does not anticipate the COVID-19 pandemic to impact the compliance with its debt covenants.

As of March 31, 2020 and December 31, 2019, the estimated fair value of the 6.0% Senior Notes was approximately $ 653.3 million and $ 689.8 million, respectively, and was based on the quoted market prices of debt instruments with similar terms, credit rating and maturities of the 6.0% Senior Notes which are Level 2 inputs (see Note 6 - Fair Value Measurements).

As of June 30, 2020 and December 31, 2019, the estimated fair value of the 6.0% Senior Notes was approximately $ 661.4 million and $ 689.8 million, respectively, and was based on the quoted market prices of debt instruments with similar terms, credit rating and maturities of the 6.0% Senior Notes which are Level 2 inputs (see Note 7 - Fair Value Measurements).

3.25% Convertible Notes

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As a result, the 3.25% Convertible Notes were convertible at the option of the holders during the quarter beginning January 1, 2020 and ending March 31, 2020.

Since the Company intended to settle the principal amount in cash, the net carrying amount of the 3.25% Convertible Notes was classified within current liabilities on the consolidated balance sheet as of December 31, 2019.

During the first quarter of 2020, the last reported sale price of the Company’s common stock did not meet the conversion price threshold requirements of the 3.25% Convertible Notes and, accordingly, the 3.25% Convertible Notes are no longer convertible at the option of the holders.

As a result, the net carrying amount of the 3.25% Convertible Notes was reclassified back to long-term debt on the condensed consolidated balance sheet as of March 31, 2020.

As of March 31, 2020, the conversion rate is 14.7632 shares of J2 Global common stock for each $1,000 principal amount of 3.25% Convertible Notes, which represents a conversion price of approximately $ 67.74 per share of J2 Global common stock.

Since the Company intended to settle the principal amount in cash, the net carrying amount of the 3.25% Convertible Notes was classified within current liabilities on the Condensed Consolidated Balance Sheet as of December 31, 2019.

During the second quarter of 2020, the last reported sale price of the Company’s common stock did not meet the conversion price threshold requirements of the 3.25% Convertible Notes and, accordingly, the 3.25% Convertible Notes are not currently convertible at the option of the holders.

As of June 30, 2020, the conversion rate is 14.7632 shares of J2 Global common stock for each $1,000 principal amount of 3.25% Convertible Notes, which represents a conversion price of approximately $ 67.74 per share of J2 Global common stock.

The conversion rate is subject to adjustment for certain events as set forth in the indenture governing the 3.25% Convertible Notes, but will not be adjusted for accrued interest.

1 unchanged sentence

J2 Global may not redeem the 3.25% Convertible Notes prior to June 20, 2021.

On or after June 20, 2021, J2 Global may redeem for cash all or part of the 3.25% Convertible Notes at a redemption price equal to 100% of the principal amount of

the 3.25% Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.

On or after June 20, 2021, J2 Global may redeem for cash all or part of the 3.25% Convertible Notes at a redemption price equal to 100% of the principal amount of the 3.25% Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.

No sinking fund is provided for the 3.25% Convertible Notes.

1 unchanged sentence

In addition, if a fundamental change, as defined in the indenture governing the 3.25% Convertible Notes, occurs prior to the maturity date, holders may require J2 Global to repurchase for cash all or part of their 3.25% Convertible Notes at a repurchase price equal to 100% of the principal amount of the 3.25% Convertible Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.

As a result of the Holders’ repurchase option on June 15, 2021, the net carrying value of the 3.25% Convertible Notes was classified within current liabilities on the Condensed Consolidated Balance Sheet as of June 30, 2020.

The 3.25% Convertible Notes are the Company’s general senior unsecured obligations and rank:

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The aggregate debt discount is amortized as interest expense over the period from the issuance date through the first stated repurchase date on June 15, 2021, which management believes is the expected life of the 3.25% Convertible Notes using an interest rate of 5.81%.

As of March 31, 2020, the remaining period over which the unamortized debt discount will be amortized is 1.2 years.

As of June 30, 2020, the remaining period over which the unamortized debt discount will be amortized is 1.0 year.

The 3.25% Convertible Notes are carried at face value less any unamortized debt discount and debt issuance costs.

1 unchanged sentence

If such information is not available, the fair value is determined using cash-flow models of the scheduled payments discounted at market interest rates for comparable debt without the conversion feature.

As of March 31, 2020 and December 31, 2019, the estimated fair value of the 3.25% Convertible Notes was approximately $ 487.8 million and $ 583.6 million, respectively.

As of June 30, 2020 and December 31, 2019, the estimated fair value of the 3.25% Convertible Notes was approximately $ 446.0 million and $ 583.6 million, respectively.

1.75% Convertible Notes

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(i) during any calendar quarter commencing after the calendar quarter ending on March 31, 2020 (and only during such calendar quarter), if the last reported sale price of J2 Global common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding the calendar quarter is greater than 130% of the applicable conversion price of the 1.75% Convertible Notes on each such applicable trading day;

during the five business day period following any 10 consecutive trading day period in which the trading price per $1,000 principal amount of 1.75% Convertible Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of J2 Global common stock and the applicable conversion rate on each such trading day;

(ii) during the five business day period following any 10 consecutive trading day period in which the trading price per $1,000 principal amount of 1.75% Convertible Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of J2 Global common stock and the applicable conversion rate on each such trading day;

or (iii) upon the occurrence of specified corporate events.

3 unchanged sentences

Holders of the notes will have the right to require the Company to repurchase for cash all or any portion of their notes upon the occurrence of certain corporate events, subject to certain conditions.

During the first quarter of 2020 and the fourth quarter of 2019, the last reported sale price of the Company’s common stock did not meet the conversion price threshold requirements of the 1.75% Convertible Notes.

During the second quarter of 2020 and the fourth quarter of 2019, the last reported sale price of the Company’s common stock did not meet the conversion price threshold requirements of the 1.75% Convertible Notes.

Therefore, the net carrying amount of the 1.75% Convertible Notes is classified as long-term debt on the consolidated balance sheets.

As of March 31, 2020, the conversion rate is 7.9864 shares of J2 Global common stock for each $1,000 principal amount of 1.75% Convertible Notes, which represents an conversion price of approximately $ 125.21 per share of J2 Global common stock.

As of June 30, 2020, the conversion rate is 7.9864 shares of J2 Global common stock for each $1,000 principal amount of 1.75% Convertible Notes, which represents an conversion price of approximately $ 125.21 per share of J2 Global common stock.

The conversion rate is subject to adjustment for certain events as set forth in the indenture governing the 1.75% Convertible Notes, but will not be adjusted for accrued interest.

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The aggregate debt discount is amortized as interest expense over the period from the issuance date through the maturity date of November 1, 2026, which management believes is the expected life of the 1.75% Convertible Notes using an interest rate of 5.5%.

As of March 31, 2020, the remaining period over which the unamortized debt discount will be amortized is 6.6 years.

As of June 30, 2020, the remaining period over which the unamortized debt discount will be amortized is 6.3 years.

In connection with the issuance of the 1.75% Convertible Notes, the Company incurred $ 12.9 million of deferred issuance costs, which primarily consisted of the underwriters’ discount, legal and other professional service fees.

Of the total deferred issuance costs incurred, $ 10.1 million of such deferred issuance costs were attributable to the liability component and are recorded within other assets and are being amortized to interest expense through the maturity date.

The unamortized balance, as of March 31, 2020, was $ 9.7 million.

The unamortized balance, as of June 30, 2020, was $ 9.5 million.

The remaining $ 2.8 million of the deferred issuance costs were netted with the equity component in additional paid-in capital at the issuance date.

2 unchanged sentences

As of March 31, 2020 and December 31, 2019, the estimated fair value of the 1.75% Convertible Notes was approximately $ 507.3 million and $ 559.6 million, respectively.

As of June 30, 2020 and December 31, 2019, the estimated fair value of the 1.75% Convertible Notes was approximately $ 465.9 million and $ 559.6 million, respectively.

Credit Facility

During the three months ended March 31, 2020, the Company did not draw down any amounts under its Credit Facility.

During the six months ended June 30, 2020, the Company did not draw down any amounts under its Credit Facility.

The Company has capitalized a total of $ 0.4 million in debt issuance costs, which are being amortized to interest expense over the life of the Credit Facility.

As of March 31, 2020, these debt issuance costs, net of amortization, were $ 0.3 million.

The related interest expense was zero for the three months ended March 31, 2020 and zero for the three months ended March 31, 2019.

As of June 30, 2020, these debt issuance costs, net of amortization, were $ 0.3 million.

The related interest expense was zero and $ 1.2 million for the three months ended June 30, 2020 and 2019, respectively, and was zero and $ 1.2 million for the six months ended June 30, 2020 and 2019, respectively.

See Note 11, “Commitments and Contingencies” for additional information.

Long-term debt as of March 31, 2020 and December 31, 2019 consists of the following (in thousands):

March 31, 2020 December 31, 2019

Long-term debt as of June 30, 2020 and December 31, 2019 consists of the following (in thousands):

June 30, 2020 December 31, 2019

6.0% Senior Notes $ 650,000 $ 650,000

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Three Months Ended

June 30, Six Months Ended

2020 2019 2020 2019

Operating lease cost $ 9,114 $ 5,377 $ 16,218 $ 11,175

2 unchanged sentences

Supplemental balance sheet information related to leases was as follows (in thousands):

March 31, 2020 December 31, 2019

June 30, 2020 December 31, 2019

Operating leases

Operating lease right-of-use assets $ 110,031 $ 125,822

Operating lease right-of-use assets classified as assets held for sale 271 —

Total operating lease right-of-use assets $ 110,302 $ 125,822

Operating lease liabilities, current $ 26,602 $ 26,927

Operating lease liabilities, current classified as assets held for sale 118 —

Operating lease liabilities, noncurrent 91,279 104,070

Operating lease liabilities, noncurrent classified as assets held for sale 156 —

Total operating lease liabilities $ 118,155 $ 130,997

Supplemental cash flow information related to leases was as follows (in thousands):

Three Months Ended

Six Months Ended

Cash paid for amounts included in the measurement of lease liabilities:

3 unchanged sentences

Other supplemental operating lease information consists of the following:

March 31, 2020 December 31, 2019

June 30, 2020 December 31, 2019

Operating leases:

1 unchanged sentence

Weighted average discount rate 4.25 % 3.95 %

Maturities of operating lease liabilities as of March 31, 2020 were as follows (in thousands):

Maturities of operating lease liabilities as of June 30, 2020 were as follows (in thousands):

Operating Leases

4 unchanged sentences

Present value of operating lease liabilities $ 118,155

Total sublease income for the three months ended March 31, 2020 and 2019 was $ 0.8 million and $ 0.9 million for the three months ended March 31, 2020 and 2019, respectively.

Total sublease income for the three months ended June 30, 2020 and 2019 was $ 1.0 million and $ 0.6 million, respectively, and was $ 1.8 million and $ 1.5 million for the six months ended June 30, 2020 and 2019, respectively.

Total estimated aggregate sublease income to be received in the future is $ 3.6 million.

In the second quarter of 2020, the Company recorded $ 2.1 million of impairment associated with one of its sublease tenants in default as a result of the economic effects of COVID-19.

The impairment is presented in general and administrative expenses on the Condensed Consolidated Statement of Operations.

Significant Judgments

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On January 21, 2016, Davis Neurology, P.A.

filed a putative class action against two J2 Global affiliates in the Circuit Court for the County of Pope, State of Arkansas (58-cv-2016-40), alleging violations of the TCPA.

filed a putative class action lawsuit against two J2 Global affiliates in the Circuit Court for the County of Pope, State of Arkansas (58-cv-2016-40), alleging violations of the TCPA.

The case was removed to the U.S.

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On December 20, 2019, the court granted the Plaintiff’s motion for leave to amend its complaint.

The J2 Global affiliates have moved to dismiss the amended pleading.

On May 21, 2020, the court denied J2 Global affiliates’ motion to dismiss.

Plaintiff has filed a notice for approval of class notice, which the J2 Global affiliates have opposed.

On July 8, 2020, Jeffrey Garcia filed a putative class action lawsuit against J2 Global in the Central District of California (20-cv-06906), alleging violations of federal securities laws.

J2 Global intends to defend against the lawsuit.

J2 Global does not believe, based on current knowledge, that the foregoing legal proceedings or claims, after giving effect to existing accrued liabilities, are likely to have a material adverse effect on the Company’s consolidated financial position, results of operations, or cash flows.

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The proceeds of the Credit Facility are intended to be used for working capital and general corporate purposes of J2 Cloud and its subsidiaries, including to finance certain permitted acquisitions and capital expenditures in accordance with the terms of the Credit Agreement.

As of March 31, 2020, were no amounts outstanding under the Credit Facility.

As of June 30, 2020, were no amounts outstanding under the Credit Facility.

At J2 Cloud’s option, amounts borrowed under the Credit Agreement will bear interest at either (i) a base rate equal to the greatest of (x) the Federal Funds Effective Rate (as defined in the Credit Agreement) in effect on such day plus 1/2 of 1% per annum, (y) the rate of interest per annum most recently announced by the Agent as its U.S.

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and (iii) a minimum EBITDA of not less than $50.0 million for any fiscal quarter for J2 Cloud and its restricted subsidiaries.

The Credit Agreement also contains restrictive covenants that limit, among other things, J2 Cloud’s and its restricted subsidiaries’ ability to incur additional indebtedness, create, incur or assume liens, consolidate, merge, liquidate or dissolve, pay dividends or make other distributions or other restricted payments, make or hold any investments, enter into certain transactions with affiliates, sell assets other than on terms specified by the Credit Agreement, amend the terms of certain other indebtedness and organizational

documents and change their lines of business and fiscal years, in each case, subject to customary exceptions.

The Credit Agreement also sets forth customary events of default, including, among other things, the failure to make timely payments under the Credit Facility, the failure to satisfy certain covenants, cross-default and cross-acceleration to other material debt for borrowed money, the occurrence of a change of control and specified events of bankruptcy and insolvency.

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Each quarter the Company updates its estimated annual effective tax rate and, if the estimate changes, makes a cumulative adjustment.

The Company’s effective tax rate was 132.5 % and ( 0.9 )% for the three months ended March 31, 2020 and 2019, respectively.

The Company’s increased rate is primarily a result of an increase in tax expense during the period to establish a valuation allowance on deferred tax assets related to the impairment of certain investments.

In addition, during the three months ended March 31 2019, the Company had a decrease in the effective rate as a result of a reduction in its reserve for uncertain tax positions with no similar event for the three months ended March 31, 2020.

(Loss) income before income taxes included income from domestic operations of $( 18.9 ) million and $ 2.5 million for the three months ended March 31, 2020 and 2019, respectively, and income from foreign operations of $ 25.5 million and $ 30.1 million for the three months ended March 31, 2020 and 2019, respectively.

As of March 31, 2020 and December 31, 2019, the Company had $ 54.1 million and $ 52.5 million, respectively, in liabilities for uncertain income tax positions.

The Company’s effective tax rate was 26.7 % and 28.1 % for the three months ended June 30, 2020 and 2019, respectively, and 37.1 % and 15.0 % for the six months ended June 30, 2020 and 2019, respectively.

The Company’s increased rate during the six months ended June 30, 2020 is primarily a result of an increase in tax expense to establish a valuation allowance on deferred tax assets related to the impairment of certain investments.

In addition, during the six months ended June 30, 2019, the Company had a decrease in the effective rate as a result of a reduction in its reserve for uncertain tax positions with no similar event for the six months ended June 30, 2020.

(Loss) income before income taxes included income from domestic operations of $( 2.5 ) million and $ 4.0 million for the six months ended June 30, 2020 and 2019, respectively, and income from foreign operations of $ 69.0 million and $ 68.3 million for the six months ended June 30, 2020 and 2019, respectively.

As of June 30, 2020 and December 31, 2019, the Company had $ 57.6 million and $ 52.5 million, respectively, in liabilities for uncertain income tax positions.

Accrued interest and penalties related to unrecognized tax benefits are recognized in income tax expense on the Company’s consolidated statement of operations.

Cash paid for income taxes net of refunds received was $ 6.6 million and $ 6.7 million for the three months ended March 31, 2020 and 2019, respectively.

Cash paid for income taxes net of refunds received was $ 8.9 million and $ 22.4 million for the six months ended June 30, 2020 and 2019, respectively.

Certain taxes are prepaid during the year and, where appropriate, included within prepaid expenses and other current assets on the Condensed Consolidated Balance Sheet.

The Company’s prepaid taxes were $ 3.7 million and $ 3.7 million at March 31, 2020 and December 31, 2019, respectively.

The Company’s prepaid taxes were $ 3.7 million and $ 3.7 million at June 30, 2020 and December 31, 2019, respectively.

Income Tax Audits :

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Internal Revenue Service (“IRS”) for its 2012 through 2016 tax years.

As of March 31, 2020, the audits are ongoing.

As of June 30, 2020, the audits are ongoing.

J2 Global is under income tax audit by the California Franchise Tax Board (the “FTB”) for its tax years 2012 and 2013.

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In August 2018, the FTB notified the Company that it will commence an audit of tax years 2015 and 2016.

As of March 31, 2020, the audits are ongoing.

As of June 30, 2020, the audits are ongoing.

In June 2019, the New York State Department of Taxation and Finance (“NYS”) notified the Company that it will commence an audit for tax year 2015.

As of March 31, 2020, the audit is ongoing.

In April 2020, the NYS notified the Company that it will also commence an audit for tax years 2016 and 2017.

As of June 30, 2020, the audits are ongoing.

It is reasonably possible that these audits may conclude in the next 12 months and that the uncertain tax positions the Company has recorded in relation to these tax years may change compared to the liabilities recorded for these periods.

If the recorded uncertain tax positions are inadequate to cover the associated tax liabilities, the Company would be required to record additional tax expense in the relevant period, which could be material.

If the recorded uncertain tax positions are adequate to

cover the associated tax liabilities, the Company would be required to record any excess as a reduction in tax expense in the relevant period, which could be material.

If the recorded uncertain tax positions are adequate to cover the associated tax liabilities, the Company would be required to record any excess as a reduction in tax expense in the relevant period, which could be material.

However, it is not currently possible to estimate the amount, if any, of such change.

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600,000 shares were repurchased under the share repurchase program in 2018 at an aggregate cost of $ 42.5 million and were subsequently retired in March 2019.

During the three month period ended March 31, 2020, the Company repurchased 680,016 shares under this program at an aggregate cost of $ 55.6 million, which were subsequently retired.

Cumulatively at March 31, 2020, 3.6 million shares were repurchased at an aggregate cost of $ 172.6 million (including an immaterial amount of commission fees).

During the six month period ended June 30, 2020, the Company repurchased 1,000,000 shares under this program at an aggregate cost of $ 79.1 million, which were subsequently retired.

Cumulatively at June 30, 2020, 3.9 million shares were repurchased at an aggregate cost of $ 196.2 million (including an immaterial amount of commission fees).

In July 2016, the Company acquired and subsequently retired 935,231 shares of J2 Global common stock in connection with the acquisitions of Integrated Global Concepts, Inc.

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As a result of the acquired shares through acquisition and the purchase of J2 Global common stock through the Company’s share repurchase program, the number of shares available for purchase under the 2012 Program is 140,819 shares of J2 Global common stock.

Periodically, participants in J2 Global’s stock plans surrender to the Company shares of J2 Global stock to pay the exercise price or to satisfy tax withholding obligations arising upon the exercise of stock options or the vesting of restricted stock.

During the three month period ended March 31, 2020, the Company purchased 80,516 shares from plan participants for this purpose.

During the three month period ended June 30, 2020, the Company purchased 24,947 shares from plan participants for this purpose.

The following is a summary of each dividend declared during fiscal year 2020 and 2019:

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Options under the 2007 Plan may be granted at exercise prices determined by the Board of Directors, provided that the exercise prices shall not be less than the fair market value of J2 Global’s common stock on the date of grant for incentive stock options and not less than 85 % of the fair market value of J2 Global’s common stock on the date of grant for non-statutory stock options.

As of March 31, 2020, 53,811 shares underlying options and 340 shares of restricted units were outstanding under the 2007 Plan.

As of June 30, 2020, 53,811 shares underlying options and zero shares of restricted units were outstanding under the 2007 Plan.

The 2007 Plan terminated on February 14, 2017.

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Options under the 2015 Plan may be granted at exercise prices determined by the Board of Directors, provided that the exercise prices shall not be less than the higher of the par value or 100% of the fair market value of J2 Global’s common stock subject to the option on the date the option is granted.

As of March 31, 2020, 423,000 shares underlying options and 194,187 shares of restricted stock units were outstanding under the 2015 Plan.

As of June 30, 2020, 423,000 shares underlying options and 210,814 shares of restricted stock units were outstanding under the 2015 Plan.

All stock option grants are approved by “outside directors” within the meaning of Internal Revenue Code Section 162(m).

Stock Options

The following table represents stock option activity for the three months ended March 31, 2020:

The following table represents stock option activity for the six months ended June 30, 2020:

Number of Shares Weighted-

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Exercised ( 41,530 ) 22.92

Outstanding at March 31, 2020 476,811 $ 69.51 6.9 $ 2,619,831

Exercisable at March 31, 2020 172,211 $ 59.94 5.4 $ 2,585,331

Vested and expected to vest at March 31, 2020 382,175 $ 68.14 6.7 $ 2,619,410

The total intrinsic values of options exercised during the three months ended March 31, 2020 and 2019 were $ 3.0 million and $ 8.0 million, respectively.

The Company recognized $ 0.2 million and $ 0.2 million of compensation expense related to stock options for the three months ended March 31, 2020 and 2019, respectively.

As of March 31, 2020 and December 31, 2019, unrecognized stock compensation related to non-vested stock options granted under each of the share-based compensation plans approximated $ 6.6 million and $ 6.8 million, respectively.

Outstanding at June 30, 2020 476,811 $ 69.51 6.6 $ 1,820,971

Exercisable at June 30, 2020 176,811 $ 60.13 5.2 $ 1,820,971

Vested and expected to vest at June 30, 2020 388,971 $ 68.26 6.4 $ 1,820,971

The total intrinsic values of options exercised during the six months ended June 30, 2020 and 2019 were $ 3.0 million and $ 8.0 million, respectively.

The Company recognized $ 0.2 million and $ 0.2 million of compensation expense related to stock options for the three months ended June 30, 2020 and 2019, respectively, and $ 0.4 million and $ 0.5 million for the six months ended June 30, 2020 and 2019, respectively.

As of June 30, 2020 and December 31, 2019, unrecognized stock compensation related to non-vested stock options granted under each of the share-based compensation plans approximated $ 6.3 million and $ 6.8 million, respectively.

Unrecognized stock compensation expense related to non-vested stock options granted under these plans is expected to be recognized ratably over a weighted-average period of 5.5 years (i.e., the remaining requisite service period).

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The Company uses an annualized dividend yield based upon the per share dividends declared by its Board of Directors.

Estimated forfeiture rates were 11.57 % and 12.63 % as of March 31, 2020 and 2019, respectively.

Estimated forfeiture rates were 11.52 % and 12.98 % as of June 30, 2020 and 2019, respectively.

Restricted Stock and Restricted Stock Units

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Vesting periods are approximately one year for awards to members of the Company’s Board of Directors, five years for senior staff (excluding market-based awards discussed below) and eight years for the Chief Executive Officer.

On May 7, 2020, the Board of Directors approved the contract modification of an insignificant number of shares of restricted stock awards whereby selected participants waived their right to receive dividends with respect to outstanding and unvested restricted shares under their restricted stock agreements.

There was no incremental compensation cost as a result of the modification.

Restricted Stock - Awards with Market Conditions

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Stock-based compensation expense related to an award with a market condition will be recognized over the requisite service period using the graded-vesting method regardless of whether the market condition is satisfied, provided that the requisite service period has been completed.

During the three months ended March 31, 2020 and 2019, the Company awarded 82,112 and 72,734 market-based restricted stock awards, respectively.

The per share weighted average grant-date fair values of the market-based restricted stock awards granted during the three months ended March 31, 2020 and 2019 were $ 70.99 and $ 69.99 , respectively.

During the six months ended June 30, 2020 and 2019, the Company awarded 82,112 and 74,051 market-based restricted stock awards, respectively.

The per share weighted average grant-date fair values of the market-based restricted stock awards granted during the six months ended June 30, 2020 and 2019 were $ 70.99 and $ 69.99 , respectively.

The weighted-average fair values of market-based restricted stock awards granted have been estimated utilizing the following assumptions:

March 31, 2020 March 31, 2019

June 30, 2020 June 30, 2019

Underlying stock price at valuation date $ 91.17 $ 84.58

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Risk-free interest rate 0.7 % 2.5 %

Restricted stock award activity for the three months ended March 31, 2020 is set forth below:

Restricted stock award activity for the six months ended June 30, 2020 is set forth below:

Shares Weighted-Average

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Canceled ( 4,681 ) 77.13

Nonvested at March 31, 2020 927,938 $ 64.51

Restricted stock unit award activity for the three months ended March 31, 2020 is set forth below:

Nonvested at June 30, 2020 858,863 $ 63.32

Restricted stock unit award activity for the six months ended June 30, 2020 is set forth below:

Shares Weighted-Average

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Canceled ( 1,920 )

Outstanding at March 31, 2020 194,527 4.6 $ 14,560,346

Vested and expected to vest at March 31, 2020 115,546 3.9 $ 8,648,626

The Company recognized $ 5.6 million and $ 4.5 million of compensation expense related to restricted stock, restricted stock units and market-based restricted stock for the three months ended March 31, 2020 and 2019, respectively.

As of March 31, 2020 and December 31, 2019, the Company had unrecognized share-based compensation cost of approximately $ 54.3 million and $ 46.1 million, respectively, associated with these awards.

Outstanding at June 30, 2020 210,814 4.1 $ 13,325,553

Vested and expected to vest at June 30, 2020 133,910 3.4 $ 8,464,473

The Company recognized $ 5.7 million and $ 6.4 million of compensation expense related to restricted stock, restricted stock units and market-based restricted stock for the three months ended June 30, 2020 and 2019, respectively, and $ 11.3 million and $ 10.8 million for the six months ended June 30, 2020 and 2019, respectively.

As of June 30, 2020 and December 31, 2019, the Company had unrecognized share-based compensation cost of approximately $ 49.3 million and $ 46.1 million, respectively, associated with these awards.

This cost is expected to be recognized over a weighted-average period of 4.6 years for awards and 5.0 years for units.

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The Company uses an annualized dividend yield based upon the per share dividends declared by its Board of Directors.

Estimated forfeiture rates were 5.80 % and 1.96 % as of March 31, 2020 and 2019, respectively.

For the three months ended March 31, 2020 and 2019, zero shares were purchased under the Purchase Plan, respectively.

Cash received upon the issuance of J2 Global common stock under the Purchase Plan was zero for the three months ended March 31, 2020 and 2019, respectively.

As of March 31, 2020, 1,523,568 shares were available under the Purchase Plan for future issuance.

The Company recognized $ 0.5 million and $ 0.4 million of compensation expense related to the Purchase Plan for the three months ended March 31, 2020 and 2019, respectively.

Estimated forfeiture rates were 16.50 % and 0.78 % as of June 30, 2020 and 2019, respectively.

The increase in forfeiture rate comes as a result of the Purchase Plan being offered to all employees regardless of employment location.

For the six months ended June 30, 2020 and 2019, 53,694 shares and 32,154 shares were purchased under the Purchase Plan, respectively.

Cash received upon the issuance of J2 Global common stock under the Purchase Plan was $ 3.3 million and $ 2.0 million for the six months ended June 30, 2020 and 2019, respectively.

As of June 30, 2020, 1,469,874 shares were available under the Purchase Plan for future issuance.

The Company recognized $ 0.6 million and $ 0.3 million of compensation expense related to the Purchase Plan for the three months ended June 30, 2020 and 2019, respectively, and $ 1.1 million and $ 0.6 million for the six months ended June 30, 2020 and 2019, respectively.

The compensation expense related to the Purchase Plan has been estimated utilizing the following assumptions:

March 31, 2020 March 31, 2019

June 30, 2020 June 30, 2019

Risk-free interest rate 0.1 % 2.4 %

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Three Months Ended

June 30, Six Months Ended

2020 2019 2020 2019

Numerator for basic and diluted net income per common share:

Net (loss) income attributable to J2 Global, Inc.

Net income attributable to J2 Global, Inc.

common shareholders $ 38,101 $ 32,589 $ 31,697 $ 65,038

Net (loss) income available to participating securities (a)

Net (loss) income available to J2 Global, Inc.

Net income available to participating securities (a)

( 178 ) ( 401 ) ( 221 ) ( 825 )

Net income available to J2 Global, Inc.

common shareholders $ 37,923 $ 32,188 $ 31,476 $ 64,213

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Dilutive effect of:

Equity incentive plans (b)

Convertible debt (b) (c)

Equity incentive plans — 64,291 20,037 76,652

Convertible debt (b)

586,611 1,310,802 1,023,521 1,085,111

Common stock and common stock equivalents 47,437,555 49,102,879 48,279,417 48,806,492

Net (loss) income per share:

Net income per share:

Basic $ 0.81 $ 0.67 $ 0.67 $ 1.35

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(a) Represents unvested share-based payment awards that contain certain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid).

(b) For the three months ended March 31, 2020, the Company reported a net loss attributable to common shareholders.

As a result, equity incentive awards of 40,074 and incremental shares of common stock issuable upon conversion of the 3.25% and 1.75% Convertible Notes of 1,460,431 and zero , respectively, were excluded from the calculation of diluted EPS.

(c) Represents the incremental shares issuable upon conversion of the 3.25% Convertible Notes due June 15, 2029 and 1.75% Convertible Notes due November 1, 2026 by applying the treasury stock method when the average stock price exceeds the conversion price of the Convertible Notes (see Note 8 - Long Term Debt).

Exclusive of the effect of the net loss incurred by the Company, for the three months ended March 31, 2020 and 2019, there were zero options outstanding, respectively, which were excluded from the computation of diluted earnings per share because the exercise prices were greater than the average market price of the common stock.

(b) Represents the incremental shares issuable upon conversion of the 3.25% Convertible Notes due June 15, 2029 and 1.75% Convertible Notes due November 1, 2026 by applying the treasury stock method when the average stock price exceeds the conversion price of the Convertible Notes (see Note 9 - Debt).

For the three and six months ended June 30, 2020 and 2019, there were zero options outstanding, respectively, which were excluded from the computation of diluted earnings per share because the exercise prices were greater than the average market price of the common stock.

Segment Information

In accordance with ASC Topic 280, Segment Reporting:

(Topic 280), the Company’s businesses are based on the organizational structure used by the chief operating decision maker (“CODM”) for making operating and investment decisions and for assessing performance.

(Topic 280), the Company’s businesses are based on the organizational structure used by the chief operating decision maker (“CODM”) for making operating and investment decisions

and for assessing performance.

The CODM views the Company as two businesses:

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and (iii) Digital Media.

In connection with the Highwinds Capital, Inc.

and Cloak Holdings, LLC acquisition in the second quarter of 2019, the Company renamed its Voice, Backup and Security reportable segment to include its newly acquired consumer privacy and protection business, now the Voice, Backup, Security and Consumer Privacy and Protection segment.

The Company’s Cloud Services business is driven primarily by subscription revenues that are relatively higher margin, stable and predictable from quarter to quarter with some seasonal weakness in the fourth quarter.

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Three Months Ended

June 30, Six Months Ended

2020 2019 2020 2019

Revenue by reportable segment:

Fax and Martech (1)

$ 93,976 $ 95,567 $ 188,643 $ 188,850

Voice, Backup, Security, and CPP (1)

73,082 73,565 148,199 132,527

Cloud Services Total 167,058 169,132 336,842 321,377

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Fax and Martech (1)

$ 77,245 $ 81,141 $ 156,714 $ 160,326

Voice, Backup, Security, and CPP (1)

50,386 51,393 102,341 91,970

Cloud Services Total 127,631 132,534 259,055 252,296

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Corporate (2)

( 37 ) 2 ( 36 ) 3

Total gross profit $ 274,182 $ 262,166 $ 547,444 $ 511,046

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Fax and Martech (1)

$ 28,789 $ 31,455 $ 60,507 $ 65,689

Voice, Backup, Security, and CPP (1)

36,863 38,732 80,835 65,726

Cloud Services Total 65,652 70,187 141,342 131,415

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Corporate (2)

5,722 7,268 11,162 13,926

Total direct costs (3)

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Fax and Martech (1)

$ 48,456 $ 49,686 $ 96,207 $ 94,637

Voice, Backup, Security, and CPP (1)

13,523 12,661 21,506 26,244

Cloud Services Total 61,979 62,347 117,713 120,881

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Total income from operations $ 73,040 $ 56,614 $ 128,287 $ 107,476

(1) The Company reclassified certain intercompany revenue and expenses within the six months ended June 30, 2020 and three and six months ending June 30, 2019 for Cloud Services in order to better align with a stand-alone presentation.

(2) Corporate includes costs associated with general and administrative and other expenses that are managed on a global basis and that are not directly attributable to any particular segment.

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Accordingly, the following segment information is presented for Cloud Services and Digital Media.

March 31, 2020 December 31, 2019

June 30, 2020 December 31, 2019

Cloud Services (1)

$ 1,477,190 $ 1,466,969

Digital Media 1,433,537 1,561,024

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Total assets $ 3,419,445 $ 3,505,846

Three Months Ended

(1) Assets of $19.0 million, which were classified as held for sale, were included with Cloud Services at June 30, 2020 (see Note 6 - Assets Held For Sale).

Six Months Ended

Capital expenditures:

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Three Months Ended

June 30, Six Months Ended

2020 2019 2020 2019

Depreciation and amortization:

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Three Months Ended

June 30, Six Months Ended

2020 2019 2020 2019

United States $ 261,157 $ 253,234 $ 531,466 $ 484,577

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All other countries (1)

79,474 76,927

Total $ 716,073 $ 778,507

(1) Long-lived assets of $ 2.8 million, which were classified as assets held for sale, were included with foreign assets at June 30, 2020.

Accumulated Other Comprehensive Income

The following table summarizes the changes in accumulated balances of other comprehensive income (loss), net of tax, for the three months ended March 31, 2020 (in thousands):

The following table summarizes the changes in accumulated balances of other comprehensive income (loss), net of tax, for the three months ended June 30, 2020 (in thousands):

Unrealized Gains (Losses) on Investments Foreign Currency Translation Total

Beginning balance $ 433 $ ( 54,901 ) $ ( 54,468 )

Other comprehensive loss ( 163 ) ( 169 ) ( 332 )

Net current period other comprehensive loss ( 163 ) ( 169 ) ( 332 )

Ending balance $ 270 $ ( 55,070 ) $ ( 54,800 )

The following table summarizes the changes in accumulated balances of other comprehensive income (loss), net of tax, for the six months ended June 30, 2020 (in thousands):

Unrealized Gains (Losses) on Investments Foreign Currency Translation Total

Beginning balance $ ( 275 ) $ ( 46,187 ) $ ( 46,462 )

Other comprehensive income (loss) 545 ( 8,883 ) ( 8,338 )

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Ending balance $ 270 $ ( 55,070 ) $ ( 54,800 )

The following table provides details about reclassifications out of accumulated other comprehensive loss for the three months ended March 31, 2020 (in thousands):

The following table provides details about reclassifications out of accumulated other comprehensive loss for the three and six months ended June 30, 2020 (in thousands):

Details about Accumulated Other Comprehensive Loss Components Amount Reclassified from Accumulated Other Comprehensive Loss Affected Line Item in the Statement of Operations

Three Months Ended

March 31, 2020

June 30, 2020 Six Months Ended

June 30, 2020

Unrealized loss on available-for-sale investments $ — $ 698 Loss on investments, net

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— — Income tax expense

Total reclassifications for the period $ 698 Net Loss

Total reclassifications for the period $ — $ 698 Net Income

Subsequent Events

In April 2020, the Company repurchased 319,984 shares under its share repurchase program at an aggregate cost of $ 23.6 million, which were subsequently retired.

In July 2020, the Company repurchased 140,819 shares under its share repurchase program at an aggregate cost of $ 8.4 million, which were subsequently retired.

The July repurchase of shares completes the Company’s 2012 Program.

On August 6, 2020, the Company’s Board of Directors approved a program authorizing the repurchase of up to 10 million shares of the Company’s common stock through August 6, 2025.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements