What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-11-09 compared with 2020-08-10 · 129 added, 110 removed, 285 unchanged (46% of the section changed)

65 unchanged sentences

We also use this metric, in conjunction with the cancel rate, to help provide a directional indicator of Cloud Services revenue and calculate the lifetime value of customers within each of our business units.

The following table sets forth certain key operating metrics for our Cloud Services business as of and for the three and six months ended June 30, 2020 and 2019 (in thousands, except for percentages):

The following table sets forth certain key operating metrics for our Cloud Services business as of and for the three and nine months ended September 30, 2020 and 2019 (in thousands, except for percentages):

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

16 unchanged sentences

(1) The first quarter 2020 disclosure of $144.8 million in fixed subscriber revenue included $3.3 million of revenue which was subsequently determined to be variable subscriber revenue.

As a result, the fixed and variable subscriber revenue for the six months ended June 30, 2020 has been corrected in the table above.

As a result, the fixed and variable subscriber revenue for the nine months ended September 30, 2020 has been corrected in the table above.

(2) Quarterly ARPU is calculated using our standard convention of applying the average of the quarter’s beginning and ending base to the total revenue for the quarter.

12 unchanged sentences

Page views are measured each time a page on our websites is loaded in a browser.

The following table sets forth certain key operating metrics for our Digital Media business for the three and six months ended June 30, 2020 and 2019 (in millions):

The following table sets forth certain key operating metrics for our Digital Media business for the three and nine months ended September 30, 2020 and 2019 (in millions):

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

2 unchanged sentences

Google Analytics and Partner Platforms

(1) Page views for the six months ended June 30, 2020 include an adjustment of 0.6 billion views not previously reported

(1) Page views for the nine months ended September 30, 2020 include an adjustment of 0.6 billion views not previously reported

Critical Accounting Policies and Estimates

2 unchanged sentences

Our critical accounting policies are described in our 2019 Annual Report on Form 10-K filed with the SEC on March 2, 2020.

During the three months ended June 30, 2020, there were no significant changes in our critical accounting policies and estimates.

Results of Operations for the Three and Six Months Ended June 30, 2020

During the three months ended September 30, 2020, there were no significant changes in our critical accounting policies and estimates.

Results of Operations for the Three and Nine Months Ended September 30, 2020

Cloud Services

Given the uncertainty of the current macroeconomic environment and the impact of the COVID-19 pandemic, we expect the revenue for the remainder of fiscal year 2020 to be modestly lower compared to the prior-year comparable period.

Given the uncertainty of the current macroeconomic environment and the impact of the COVID-19 pandemic, we expect the revenue for the remainder of fiscal year 2020 to be flat to modestly lower compared to the prior-year comparable period.

The main focus of our Cloud Services offerings is to reduce or eliminate costs, increase sales and enhance productivity, mobility, business continuity and security of our customers as the technologies and devices they use evolve over time.

7 unchanged sentences

Digital Media

Given the uncertainty of the current macroeconomic environment and the impact of the COVID-19 pandemic, we expect the revenue for the remainder of fiscal year 2020 to be flat to slightly lower compared to the prior-year comparable period.

We expect the revenue for the remainder of fiscal year 2020 to be higher compared to the prior-year comparable period due to the acquisition of RetailMeNot, subject to the continued risk of the COVID-19 pandemic.

We expect the Digital Media business to improve as we integrate our recent acquisitions and over the longer term as advertising transactions continue to shift from offline to online, but these initiatives will be offset by the impact of COVID-19 in the near term.

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J2 Global Consolidated

Based on the trends discussed above with respect to our Cloud Services and Digital Media businesses, we anticipate our consolidated revenue for the remainder of fiscal year 2020 to be modestly lower compared to the prior-year comparable period.

Based on the trends discussed above with respect to our Cloud Services and Digital Media businesses, we anticipate our consolidated revenue for the remainder of fiscal year 2020 to be higher compared to the prior-year comparable period.

We expect operating profit as a percentage of revenues to generally decrease in the future primarily due to the fact that revenue with respect to our Digital Media business (i) is increasing as a percentage of our revenue on a consolidated basis and (ii) has historically operated at a lower operating margin.

1 unchanged sentence

Three Months Ended

June 30, Percentage Change Six Months Ended

June 30, Percentage Change

September 30, Percentage Change Nine Months Ended

September 30, Percentage Change

2020 2019 2020 2019

4 unchanged sentences

Digital Media revenues primarily consist of advertising revenues, subscriptions earned through the granting of access to, or delivery of, certain data products or services to customers, fees paid for generating business leads, and licensing and sale of editorial content and trademarks.

Our revenues in 2020 have increased over the comparable three and six month periods of 2019 primarily due to a combination of acquisitions and organic growth;

Our revenues in 2020 have increased over the comparable three and nine month periods of 2019 primarily due to a combination of acquisitions and organic growth;

partially offset by declines in certain areas of both the Digital Media and Cloud Services businesses.

2 unchanged sentences

Three Months Ended

June 30, Percentage Change Six Months Ended

June 30, Percentage Change

September 30, Percentage Change Nine Months Ended

September 30, Percentage Change

2020 2019 2020 2019

2 unchanged sentences

Cost of revenues is primarily comprised of costs associated with network operations, content fees, editorial and production costs, database hosting and online processing fees.

The decrease in cost of revenues for the three months ended June 30, 2020 was primarily due to a lower content fees, campaign fulfillment cost and other editorial and production costs;

partially offset by an increase in depreciation.

The increase in cost of revenues for the six months ended June 30, 2020 was primarily due to higher depreciation, database hosting, network operations and online processing fees;

partially offset by a decrease in content fees, campaign fulfillment cost and other editorial and production costs.

The decrease in cost of revenues for the three months ended September 30, 2020 was primarily due to lower content fees, campaign fulfillment cost, other editorial and production costs and customer service;

partially offset by an increase in depreciation and amortization.

The decrease in cost of revenues for the nine months ended September 30, 2020 was primarily due to lower content fees, campaign fulfillment cost and other editorial and production costs;

partially offset by an increase in depreciation and amortization and database hosting.

Operating Expenses

2 unchanged sentences

Three Months Ended

June 30, Percentage Change Six Months Ended

June 30, Percentage Change

September 30, Percentage Change Nine Months Ended

September 30, Percentage Change

2020 2019 2020 2019

3 unchanged sentences

Our internet-based advertising relationships consist primarily of fixed cost and performance-based (cost-per-impression, cost-per-click and cost-per-acquisition) advertising relationships with an array of online service providers.

Advertising cost for the three months ended June 30, 2020 was $33.9 million (primarily consists of $23.4 million of third-party advertising costs and $8.9 million of personnel costs) compared to 2019 of $38.5 million (primarily consists of $28.1 million of third-party advertising costs and $9.6 million of personnel costs).

Advertising cost for the six months ended June 30, 2020 was $72.8 million (primarily consists of $50.7 million of third-party advertising costs and $18.4 million of personnel costs) compared to 2019 of $74.7 million (primarily consists of $53.2 million of third-party advertising costs and $19.4 million of personnel costs).The increase in sales and marketing expenses for the three and six months ended June 30, 2020 versus the prior comparable periods was primarily due to increased personnel costs, partner revenue share, software licenses and consulting fees associated with the acquisition of businesses acquired in and subsequent to the second quarter 2019 within the Digital Media and Cloud Services businesses.

Advertising cost for the three months ended September 30, 2020 was $35.4 million (primarily consists of $19.8 million of third-party advertising costs and $12.8 million of personnel costs) compared to 2019 of $40.6 million (primarily consists of $28.3 million of third-party advertising costs and $11.3 million of personnel costs).

Advertising cost for the nine months ended September 30, 2020 was $108.0 million (primarily consists of $57.8 million of third-party advertising costs and $39.4 million of personnel costs) compared to 2019 of $115.3 million (primarily consists of $81.5 million of third-party advertising costs and $30.7 million of personnel costs).The decrease in sales and marketing expenses for the three months ended September 30, 2020 versus the prior comparable period was primarily due to lower advertising costs;

partially offset by higher personnel costs and partner revenue share associated with the acquisition of businesses acquired in and subsequent to the third quarter 2019 within the Digital Media and Cloud Services businesses.

The increase in sales and marketing expenses for the nine months ended September 30, 2020 versus the prior comparable period was primarily due to increased personnel costs and partner revenue share, software licenses and consulting fees;

partially offset by lower advertising associated with the acquisition of businesses acquired in and subsequent to the third quarter 2019 within the Digital Media and Cloud Services businesses.

Research, Development and Engineering.

1 unchanged sentence

Three Months Ended

June 30, Percentage Change Six Months Ended

June 30, Percentage Change

September 30, Percentage Change Nine Months Ended

September 30, Percentage Change

2020 2019 2020 2019

2 unchanged sentences

Our research, development and engineering costs consist primarily of personnel-related expenses.

The increase in research, development and engineering costs for the three and six months ended June 30, 2020 versus the prior comparable periods was primarily due to an increase in costs associated with businesses acquired in and subsequent to the second quarter 2019.

The increase in research, development and engineering costs for the three and nine months ended September 30, 2020 versus the prior comparable periods was primarily due to an increase in costs associated with businesses acquired in and subsequent to the third quarter 2019.

General and Administrative.

1 unchanged sentence

Three Months Ended

June 30, Percentage Change Six Months Ended

June 30, Percentage Change

September 30, Percentage Change Nine Months Ended

September 30, Percentage Change

2020 2019 2020 2019

2 unchanged sentences

Our general and administrative costs consist primarily of personnel-related expenses, depreciation and amortization, changes in the fair value associated with contingent consideration, share-based compensation expense, bad debt expense, professional fees, severance and insurance costs.

The decrease in general and administrative expense for the three months ended June 30, 2020 versus the prior comparable period was primarily due to decreased amortization of intangible assets.

The decrease in general and administrative expense for the six months ended June 30, 2020 versus the prior comparable period was primarily due to changes in the fair value of contingent consideration and decreased amortization of intangible assets;

partially offset by increased depreciation, costs relating to businesses acquired in and subsequent to the second quarter 2019, professional fees and non-income taxes.

The increase in general and administrative expense for the three months ended September 30, 2020 versus the prior comparable period was primarily due to the recognition of lease asset impairments and additional depreciation due to leasehold impairments;

partially offset by decreased amortization of intangible assets.

The decrease in general and administrative expense for the nine months ended September 30, 2020 versus the prior comparable period was primarily due to decreased amortization of intangible assets;

partially offset by increased depreciation due to leasehold impairments.

Share-Based Compensation

The following table represents share-based compensation expense included in cost of revenues and operating expenses in the accompanying Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2020 and 2019 (in thousands):

The following table represents share-based compensation expense included in cost of revenues and operating expenses in the accompanying Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2020 and 2019 (in thousands):

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

8 unchanged sentences

Our interest expense, net is generated primarily from interest expense due to outstanding debt, partially offset by interest income earned on cash, cash equivalents and investments.

Interest expense, net was $22.2 million and $17.3 million for the three months ended June 30, 2020 and 2019, respectively, and $43.2 million and $33.4 million for the six months ended June 30, 2020 and 2019, respectively.

Interest expense, net was $22.7 million and $17.3 million for the three months ended September 30, 2020 and 2019, respectively, and $65.9 million and $50.6 million for the nine months ended September 30, 2020 and 2019, respectively.

Interest expense, net increased over the prior comparable periods primarily due to the issuance of our 1.75% Convertible Senior Notes in the fourth quarter 2019.

Gain on sale of businesses.

Our gain on sale of businesses is generated primarily from the sale of certain Voice assets in Australia and New Zealand in the third quarter of 2020.

Gain on sale of businesses was $17.1 million and zero for the three months ended September 30, 2020 and 2019, respectively, and $17.1 million and zero for the nine months ended September 30, 2020 and 2019, respectively.

Loss on investments, net.

Our loss on investments, net is generated from gains or losses from investments in equity and debt securities.

Our loss on investments, net was $3 thousand and $24 thousand for the three months ended June 30, 2020 and 2019, respectively, and $20.8 million and $38.0 thousand for the six months ended June 30, 2020 and 2019, respectively.

Our loss on investments, net for the three month ended June 30, 2020 was comparable to the prior period.

Our net loss on investments, net increased for the six months ended June 30, 2020 versus the prior comparable periods due to net losses realized on certain investments as the result of changes in the investee’s capital structure and overall market volatility.

Our loss on investments, net was $156 thousand and $7 thousand for the three months ended September 30, 2020 and 2019, respectively, and $21.0 million and $45.0 thousand for the nine months ended September 30, 2020 and 2019,

respectively.

Our loss on investments, net for the three month ended September 30, 2020 was consistent to the prior period.

Our net loss on investments, net increased for the nine months ended September 30, 2020 versus the prior comparable period due to net losses realized on certain investments as the result of changes in the investee’s capital structure and overall market volatility.

Other (income) expense, net.

Our other (income) expense, net is generated primarily from miscellaneous items and gain or losses on currency exchange.

Other (income) expense, net was $(9.1) million and $(0.4) million for the three months ended June 30, 2020 and 2019, respectively, and $(2.2) million and $1.8 million for the six months ended June 30, 2020 and 2019, respectively.

Other (income) expense, net increased for the three and six months ended June 30, 2020 versus the prior comparable periods primarily due to reduced losses on currency exchange.

Other (income) expense, net was $(14.2) million and $0.9 million for the three months ended September 30, 2020 and 2019, respectively, and $(16.4) million and $2.7 million for the nine months ended September 30, 2020 and 2019, respectively.

Other (income) expense, net increased for the three and nine months ended September 30, 2020 versus the prior comparable periods primarily due to increased gains on currency exchange.

Our effective tax rate is based on pre-tax income, statutory tax rates, tax regulations (including those related to transfer pricing) and different tax rates in the various jurisdictions in which we operate.

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When necessary, we establish valuation allowances to reduce our deferred tax assets to an amount that will more likely than not be realized.

Provision for income taxes amounted to $16.0 million and $11.1 million for the three months ended June 30, 2020 and 2019, respectively, and $24.7 million and $10.9 million for the six months ended June 30, 2020 and 2019, respectively.

Our 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 decrease in our effective income tax rate for the three months ended June 30, 2020 was primarily attributable to the following:

a decrease during 2020 due to similar discrete tax costs having a lesser impact to our effective income tax rate as a result of the increase in our pre-tax income;

Provision for income taxes amounted to $24.3 million and $7.0 million for the three months ended September 30, 2020 and 2019, respectively, and $49.0 million and $17.9 million for the nine months ended September 30, 2020 and 2019, respectively.

Our effective tax rate was 28.3% and 17.0% for the three months ended September 30, 2020 and 2019, respectively, and 32.2% and 15.7% for the nine months ended September 30, 2020 and 2019, respectively.

The increase in our effective income tax rate for the three months ended September 30, 2020 was primarily attributable to the following:

a decrease in the benefit of a portion of our income being taxed in foreign jurisdictions and subject to lower tax rates than in the U.S.;

an increase in tax expense due to the discrete tax cost for the disposition of certain foreign subsidiaries and establishing the related valuation allowance on deferred tax assets resulting from the disposition;

partially offset by

a decrease in tax expense in 2020 due to a reduction in foreign income subject to U.S.

income tax (Global Intangible Low-Taxed Income or “GILTI”) as part of the Tax Cuts and Jobs Act of 2017.

partially offset by

an increase in tax expense during 2020 due to establishing a valuation allowance on deferred tax assets related to the impairment of certain investments;

a decrease in the benefit of a portion of our income being taxed in foreign jurisdictions and subject to lower tax rates than in the U.S.

The increase in our effective income tax rate for the six months ended June 30, 2020 was primarily attributable to the following:

The increase in our effective income tax rate for the nine months ended September 30, 2020 was primarily attributable to the following:

an increase in tax expense during 2020 due to establishing a valuation allowance on deferred tax assets related to the impairment of certain investments;

an increase in tax expense due to discrete tax benefits related to a reduction in our net reserve for uncertain tax positions that was recorded for the six months ended June 30, 2019 with no similar events for the six months ended June 30, 2020;

an increase in tax expense due to discrete tax benefits related to a reduction in our net reserve for uncertain tax positions that was recorded for the nine months ended September 30, 2019 with no similar events for the nine months ended September 30, 2020;

a decrease in the benefit of a portion of our income being taxed in foreign jurisdictions and subject to lower tax rates than in the U.S.;

6 unchanged sentences

Equity Method Investment

Net loss in earnings of equity method investment.

Net loss in earnings of equity method investment is generated from our investment in the OCV Fund for which we receive annual audited financial statements.

Net loss (income) in earnings of equity method investment.

Net loss (income) in earnings of equity method investment is generated from our investment in the OCV Fund for which we receive annual audited financial statements.

The investment in the OCV Fund is presented net of tax and 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.

The net loss (income) in earnings of equity method investment was $5.8 million and $(4.1) million, net of tax benefit (expense) for the three months ended June 30, 2020 and 2019, respectively, and $10.1 million and $(3.6) million for the six months ended June 30, 2020 and 2019, respectively.

The net loss (income) in earnings of equity method investment was $0.7 million and $3.5 million, net of tax benefit for the three months ended September 30, 2020 and 2019, respectively, and $10.8 million and $(0.1) million, net of tax benefit (expense) for the nine months ended September 30, 2020 and 2019, 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.

In addition, the Company recognized an investment loss in fiscal 2020 in the amount of $3.8 million, net of tax benefit.

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.

During the three months ended September 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 nine months ended September 30, 2020 and 2019, the Company recognized management fees of $2.3 million and $2.3 million, net of tax benefit, respectively.

Cloud Services and Digital Media Results

8 unchanged sentences

Cloud Services

The following results are presented for the three and six months ended June 30, 2020 and 2019 (in thousands):

The following results are presented for the three and nine months ended September 30, 2020 and 2019 (in thousands):

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

6 unchanged sentences

Operating income $ 65,757 $ 60,945 $ 183,470 $ 181,826

Cloud Services’ net sales of $167.1 million for the three months ended June 30, 2020 decreased $2.1 million, or 1.2%, from the prior comparable period due to the impact of the COVID-19 pandemic.

Net sales of $336.8 million for the six months ended June 30, 2020 increased $15.5 million, or 4.8%, from the prior comparable period primarily due to business acquisitions acquired in and subsequent to the second quarter 2019.

Cloud Services’ gross profit of $127.6 million for the three months ended June 30, 2020 decreased $4.9 million, or 3.7%, and gross profit of $259.1 million for the six months ended June 30, 2020 increased $6.8 million, or 2.7%, from the prior comparable periods primarily due to the impact of the COVID-19 pandemic.

Cloud Services’ operating expenses of $65.7 million for the three months ended June 30, 2020 decreased $4.5 million from the prior comparable period primarily due to lower amortization of intangible assets.

Operating expenses of $141.3 million for the six months ended June 30, 2020 increased $9.9 million from the prior comparable period primarily due to

expense associated with businesses acquired in and subsequent to the prior comparable period including (a) marketing and advertising costs;

Cloud Services’ net sales of $170.2 million for the three months ended September 30, 2020 decreased $0.9 million, or 0.5%, from the prior comparable period due to the impact of the COVID-19 pandemic.

Net sales of $507.1 million for the nine months ended September 30, 2020 increased $14.6 million, or 3.0%, from the prior comparable period primarily due to business acquisitions acquired in and subsequent to the third quarter 2019.

Cloud Services’ gross profit of $131.8 million for the three months ended September 30, 2020 decreased $1.1 million, or 0.8%, and gross profit of $390.9 million for the nine months ended September 30, 2020 increased $5.7 million, or 1.5%, from the prior comparable periods primarily due to business acquisitions acquired in and subsequent to the third quarter 2019;

partially offset by increased depreciation and amortization and the impact of the COVID-19 pandemic.

Cloud Services’ operating expenses of $66.1 million for the three months ended September 30, 2020 decreased $5.9 million from the prior comparable period primarily due to lower amortization of intangible assets.

Operating expenses of $207.4 million for the nine months ended September 30, 2020 increased $4.0 million from the prior comparable period primarily due to expense associated with businesses acquired in and subsequent to the prior comparable period including (a) marketing and advertising costs;

(b) non-income taxes;

and (c) additional salary and related costs.

As a result of these factors, Cloud Services’ operating income of $62.0 million for the three months ended June 30, 2020 decreased $0.4 million, or 0.6%, and operating income of $117.7 million for the six months ended June 30, 2020 decreased $3.2 million, or 2.6%, from the prior comparable periods.

As a result of these factors, Cloud Services’ operating income of $65.8 million for the three months ended September 30, 2020 increased $4.8 million, or 7.9%, and operating income of $183.5 million for the nine months ended September 30, 2020 increased $1.6 million, or 0.9%, from the prior comparable periods.

Digital Media

The following results are presented for the three and six months ended June 30, 2020 and 2019 (in thousands):

The following results are presented for the three and nine months ended September 30, 2020 and 2019 (in thousands):

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

5 unchanged sentences

Operating expenses 143,312 144,023 410,109 402,349

Operating income (loss) $ 16,820 $ 1,533 $ 21,772 $ 518

Digital Media’s net sales of $164.0 million for the three months ended June 30, 2020 increased $10.6 million, or 6.9%, from the prior comparable period due to business acquisitions.

Net sales of $326.7 million for the six months ended June 30, 2020 increased $25.6 million, or 8.5%, from the prior comparable period primarily due to business acquisitions.

Digital Media’s gross profit of $146.6 million for the three months ended June 30, 2020 increased $17.0 million, or 13.1%, and gross profit of $288.6 million for the six months ended June 30, 2020 increased $29.7 million, or 11.5%, from the prior comparable periods primarily due to business acquisitions.

Digital Media’s operating expenses of $129.8 million for the three months ended June 30, 2020 increased $1.7 million, and operating expenses of $266.8 million for the six months ended June 30, 2020 increased $8.5 million from the prior comparable periods primarily due to additional expense associated with businesses acquired in and subsequent to the prior comparable period including (a) additional salary and related costs including severance;

Operating income $ 26,082 $ 5,493 $ 47,854 $ 6,011

Digital Media’s net sales of $186.8 million for the three months ended September 30, 2020 increased $13.8 million, or 8.0%, from the prior comparable period due to business acquisitions.

Net sales of $513.5 million for the nine months ended September 30, 2020 increased $39.4 million, or 8.3%, from the prior comparable period primarily due to business acquisitions.

Digital Media’s gross profit of $169.4 million for the three months ended September 30, 2020 increased $19.9 million, or 13.3%, and gross profit of $458.0 million for the nine months ended September 30, 2020 increased $49.6 million, or 12.1%, from the prior comparable periods primarily due to business acquisitions and lower campaign fulfillment related costs.

Digital Media’s operating expenses of $143.3 million for the three months ended September 30, 2020 decreased $0.7 million, and operating expenses of $410.1 million for the nine months ended September 30, 2020 increased $7.8 million from the prior comparable periods.

The decrease in the three months ended September 30, 2020 is primarily due to lower depreciation and amortization, marketing and advertising costs and reduced corporate allocations;

partially offset by an impairment associated with lease assets and additional expense associated with businesses acquired in and subsequent to the prior comparable period.

The increase in the nine months ended September 30, 2020 is primarily due to additional expense associated with businesses acquired in and subsequent to the prior comparable period including (a) additional salary and related costs including severance;

(b) marketing and advertising costs;

and (c) depreciation;

partially offset by (d) lower fair value adjustments associated with contingent consideration;

and (e) amortization of intangible assets.

As a result of these factors, Digital Media’s operating income of $16.8 million for the three months ended June 30, 2020 increased $15.3 million or 997.2%, and operating income of $21.8 million for the six months ended June 30, 2020 increased $21.3 million, or 4,103.1%, from the prior comparable periods.

Liquid ity and Capital Resources

partially offset by (c) lower amortization of intangible assets.

As a result of these factors, Digital Media’s operating income of $26.1 million for the three months ended September 30, 2020 increased $20.6 million or 374.8%, and operating income of $47.9 million for the nine months ended September 30, 2020 increased $41.8 million, or 696.1%, from the prior comparable periods.

Liquidity and Capital Resources

Cash and Cash Equivalents and Investments

At June 30, 2020, we had cash and investments of $710.9 million compared to $675.7 million at December 31, 2019.

The increase in cash and investments resulted primarily from cash provided from operations;

partially offset by cash used in the repurchase of common stock, purchases of property and equipment (including capitalized labor), investments and business acquisitions.

At June 30, 2020, cash and investments consisted of cash and cash equivalents of $616.8 million and long-term investments of $94.0 million.

At September 30, 2020, we had cash, cash equivalents and investments of $664.5 million compared to $675.7 million at December 31, 2019.

The decrease in cash and investments resulted primarily from cash used in the repurchase of common stock, purchases of property and equipment (including capitalized labor), investments and business acquisitions;

partially offset by cash provided from operations.

At September 30, 2020, cash and investments consisted of cash and cash equivalents of $567.9 million and long-term investments of $96.6 million.

Our investments consist of equity and debt securities.

1 unchanged sentence

Short-term investments mature within one year of the date of the financial statements and long-term investments mature one year or more from the date of the financial statements.

As of June 30, 2020, cash and investments held within domestic and foreign jurisdictions were $645.7 million and $65.2 million, respectively.

As of September 30, 2020, cash and investments held within domestic and foreign jurisdictions were $584.3 million and $80.2 million, respectively.

On January 7, 2019, J2 Cloud Services, LLC entered into a Credit Agreement (the “Credit Agreement”) with certain lenders from time to time party thereto (collectively, the “Lenders”) and MUFG Union Bank, N.A., as sole lead arranger and as administrative agent for the Lenders (the “Agent”).

2 unchanged sentences

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

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

On October 7, 2020, the Company provided notice of termination of the Credit Agreement.

On October 7, 2020, the Company issued $750 million aggregate principal amount of 4.625% Senior Notes due in 2030.

A portion of the proceeds were deposited with the trustee under the Indenture in an amount sufficient to fund the redemption of the outstanding aggregate principal amount of the 6.0% Senior Notes and to pay the redemption premium due in respect of such redemption and accrued and unpaid interest to, but excluding, the redemption date, which will be December 7, 2020.

Subsequent to the quarter end, the Company is pursuing to reestablish a credit facility at the J2 Global, Inc.

level of $100.0 million expandable to $350.0 million.

On February 6, 2019, the Company’s Board of Directors approved a quarterly cash dividend of $0.4450 per share of J2 Global common stock payable on March 12, 2019 to all stockholders of record as of the close of business on February 25, 2019.

9 unchanged sentences

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

for $31.0 million, inclusive of certain management fees, of which $30.0 million has been paid for the nine months ended September 30, 2020.

We currently anticipate that our existing cash and cash equivalents and cash generated from operations will be sufficient to meet our anticipated needs for working capital, capital expenditures and stock repurchases, if any, for at least the next 12 months.

Our primary sources of liquidity are cash flows generated from operations, together with cash and cash equivalents.

Net cash provided by operating activities was $241.6 million and $212.2 million for the six months ended June 30, 2020 and 2019, respectively.

Net cash provided by operating activities was $356.0 million and $309.3 million for the nine months ended September 30, 2020 and 2019, respectively.

Our operating cash flows resulted primarily from cash received from our customers offset by cash payments we made to third parties for their services, employee compensation and interest payments associated with our debt.

The increase in our net cash provided by operating activities in 2020 compared to 2019 was attributable to a decrease in accounts receivables, higher uncertain tax positions and income taxes payable;

partially offset by a decrease in accounts payable and accrued expenses due to the timing of payments.

Our cash and cash equivalents were $616.8 million and $575.6 million at June 30, 2020 and December 31, 2019, respectively.

Net cash used in investing activities was $96.9 million and $311.5 million for the six months ended June 30, 2020 and 2019, respectively.

For the six months ended June 30, 2020 and 2019, net cash used in investing activities was primarily due to capital expenditures associated with the purchase of property and equipment (including capitalized labor), the purchase of investments and business acquisitions.

The increase in our net cash provided by operating activities in 2020 compared to 2019 was attributable to a decrease in accounts receivables, prepaid expenses and other current assets, higher uncertain tax positions and income taxes payable;

partially offset by a decrease in accounts payable and accrued expenses due to the timing of payments and reduced deferred revenue.

Our cash and cash equivalents were $567.9 million and $575.6 million at September 30, 2020 and December 31, 2019, respectively.

Net cash used in investing activities was $107.3 million and $472.9 million for the nine months ended September 30, 2020 and 2019, respectively.

For the nine months ended September 30, 2020 and 2019, net cash used in investing activities was primarily due to capital expenditures associated with the purchase of property and equipment (including capitalized labor), the purchase of investments and business acquisitions;

partially offset by proceeds from the sale of businesses.

The decrease in our net cash used in investing activities in 2020 compared to 2019 was primarily due to fewer business acquisitions.

Net cash (used in) provided by financing activities was $(101.5) million and $44.8 million for the six months ended June 30, 2020 and 2019, respectively.

For the six months ended June 30, 2020, net cash used in financing activities was primarily due to repurchase of common stock and business acquisitions.

The change in net cash used in financing activities in

2020 compared to 2019 was primarily attributable repurchase of common stock and borrowing under the line of credit in 2019 that did not occur in 2020;

Net cash (used in) provided by financing activities was $(256.9) million and $46.9 million for the nine months ended September 30, 2020 and 2019, respectively.

For the nine months ended September 30, 2020, net cash used in financing activities was primarily due to repurchase of common stock and business acquisitions.

The change in net cash used in financing activities in 2020 compared to 2019 was primarily attributable repurchase of common stock and net borrowings under the line of credit in 2019 that did not occur in 2020;

partially offset by lower dividend payments.

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In February 2012, the Company’s Board of Directors approved a program authorizing the repurchase of up to five million shares of our common stock through February 20, 2013 (the “2012 Program”) which was subsequently extended through February 20, 2021.

During the six month period ended June 30, 2020, we repurchased 1,000,000 shares under this program.

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).

During the nine month period ended September 30, 2020, we repurchased 1,140,819 shares under this program.

Cumulatively at September 30, 2020, 4.1 million shares were repurchased at an aggregate cost of $204.6 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.

As a result of the purchase of J2 Global common stock, the Company’s Board of Directors approved a reduction in the number of shares available for purchase under the 2012 Program by the same amount.

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.

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 (see Note 18 - Subsequent Events of the Notes to the Condensed Consolidated Financial Statements).

As a result of the acquired shares through acquisition and the purchase of J2 Global common stock through the Company’s share repurchase program, no shares remain available for purchase under the 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 our common stock through August 6, 2025 (the “2020 Program”).

During the nine month period ended September 30, 2020, we repurchased 2,000,000 shares under this program.

Cumulatively at September 30, 2020, 2,000,000 shares were repurchased at an aggregate cost of $141.8 million (including an immaterial amount of commission fees).

Contractual Obligations and Commitments

The following table summarizes our contractual obligations and commitments as of June 30, 2020:

The following table summarizes our contractual obligations and commitments as of September 30, 2020:

Payments Due in

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Telecom services and co-location facilities (e) 890 2,261 1,114 103 — — 4,368

Short-term note payable (f) 400 — — — — — 400

Holdback payments (g) 4,532 1,511 1,511 — — — 7,554

Contingent consideration (h) 2,092 — — — — — 2,092

Transition Tax (i) — — — — 3,189 8,486 11,675

Self-Insurance (j) 10,926 5,753 — — — — 16,679

Other (k) 711 614 598 — — — 1,923

Holdback payments (f) 4,608 1,511 1,511 — — — 7,630

Transition Tax (g) — — — — 3,189 8,486 11,675

Self-Insurance (h) 5,815 6,165 — — — — 11,980

Other (i) 388 614 598 — — — 1,600

Total $ 30,920 $ 497,817 $ 78,281 $ 69,140 $ 65,540 $ 1,305,207 $ 2,046,905

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(e) These amounts represent service commitments to various telecommunication providers.

(f) These amounts represent short-term note payable.

(g) These amounts represent the holdback amounts in connection with certain business acquisitions.

(h) These amounts represent the contingent earn-out liabilities in connection with certain business acquisitions.

(i) These amounts represent commitments related to the transition tax on unrepatriated foreign earnings reduced by the 2017 overpayment of US Federal Income Tax.

(j) These amounts represent health and dental insurance plans in connection to self-insurance.

(k) These amounts represent certain consulting and Board of Directors fee arrangements, software license and implementation commitments and others.

As of June 30, 2020, our liability for uncertain tax positions was $57.6 million.

(f) These amounts represent the holdback amounts in connection with certain business acquisitions.

(g) These amounts represent commitments related to the transition tax on unrepatriated foreign earnings reduced by the 2017 overpayment of US Federal Income Tax.

(h) These amounts represent health and dental insurance plans in connection to self-insurance.

(i) These amounts represent certain consulting and Board of Directors fee arrangements, software license and implementation commitments and others.

On October 7, 2020, the Company issued $750 million aggregate principal amount of 4.625% senior notes due 2030.

The principal and interest included in the schedule above do not give effect to the issuance and deposit on October 7, 2020 and the redemption in December 2020.

As of September 30, 2020, our liability for uncertain tax positions was $60.2 million.

The future payments related to uncertain tax positions have not been presented in the table above due to the uncertainty of the amounts and timing of cash settlement with such authorities.

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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 2. Management’s Discussion and Analysis