What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-11-09 compared with 2021-08-09 · 134 added, 127 removed, 269 unchanged (49% of the section changed)

12 unchanged sentences

or worldwide economy and the related impact on customer acquisition and retention rates, customer usage levels, and credit and debit card payment declines;

◦ Maintain and increase our Cloud Services customer base and average revenue per user;

◦ Maintain and increase our customer base and average revenue per user;

◦ Generate sufficient cash flow to make interest and debt payments, reinvest in our business, and pursue desired activities and businesses plans while satisfying restrictive covenants relating to debt obligations;

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◦ Recruit and retain key personnel;

◦ The form, terms, timing and ability to complete the proposed spin-off transaction or the sale of the B2B Backup business.

◦ Realize the expected benefits of the cloud fax spin-off transaction or the sale of the B2B Backup business.

In addition, other factors that could cause actual results to differ materially from those anticipated in these forward-looking statements or materially impact our financial results include the risks associated with new accounting pronouncements, as well as those associated with natural disasters, public health crises, pandemics including the COVID-19 outbreak and other catastrophic events outside of our control, including as to COVID-19 the scope and duration of the pandemic, actions taken by governmental authorities in response to the pandemic, and the direct and indirect impact of the pandemic on our customers, third parties and us.

J2 Global, Inc., together with its subsidiaries (“J2 Global”, “our”, “us” or “we”), is a leading provider of internet information and services.

Our Digital Media business specializes in the technology, shopping, gaming, and healthcare markets, offering content, tools and services to consumers and businesses.

Our Cloud Services business provides cloud-based subscription services to consumers and businesses including cloud fax, cybersecurity, privacy and marketing technology.

As of September 30, 2021, Ziff Davis, Inc., together with its subsidiaries (“Ziff Davis”, “our”, “us” or “we”), was a leading provider of internet information and services.

The Digital Media business specialized in the technology, shopping, gaming, and healthcare markets, offering content, tools and services to consumers and businesses.

The Cloud Services business provided cloud-based subscription services to consumers and businesses including cloud fax, cybersecurity, privacy and marketing technology.

In February 2021, we sold certain Voice assets in the United Kingdom and in September 2021, we sold our B2B Backup business.

On October 7, 2021 subsequent to the end of the third quarter of 2021, the spin-off of the cloud fax business into an independent public company (Consensus) was completed.

We believe the spin-off will enable the independent companies to create value with distinct management teams, capital structures and strategic focus.

Our Digital Media business generates revenues from advertising and sponsorships, subscription and usage fees, performance marketing and licensing fees.

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Such acquisitions could impact our consolidated profit margins and the variability of our revenues.

J2 Global was incorporated in 2014 as a Delaware corporation through the creation of a holding company structure, and our Cloud Services business, operated by our wholly owned subsidiary, J2 Cloud Services, LLC (formerly J2 Cloud Services, Inc.), and its subsidiaries, was founded in 1995.

Ziff Davis, Inc.

(formerly J2 Global, Inc.) was incorporated in 2014 as a Delaware corporation through the creation of a holding company structure, and our Cloud Services business, operated by our wholly owned subsidiary, J2 Cloud Services, LLC (formerly J2 Cloud Services, Inc.), and its subsidiaries, was founded in 1995.

Digital Media Performance Metrics

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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, 2021 and 2020 (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, 2021 and 2020 (in millions):

Three Months Ended

June 30, Six Months Ended

2021 2020 (1)

September 30, Nine Months Ended

September 30,

2021 2020 (1)

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Google Analytics and Partner Platforms and test results in connection with Ookla

(1) To more accurately reflect customer activity at Ookla, we have shifted to using tests as the basis instead of Google Analytics, resulting in pro-forma adjustments to data in Q1 2020.

(1) To more accurately reflect customer activity at Ookla, we have shifted to using tests as the basis instead of Google Analytics, resulting in pro-forma adjustments to data in 2020 and Q1 2021.

Cloud Services Performance Metrics

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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, 2021 and 2020 (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, 2021 and 2020 (in thousands, except for percentages):

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

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Cancel Rate (4)

1.9 % 2.2 % — % — %

(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.

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Our critical accounting policies are described in our 2020 Annual Report on Form 10-K filed with the SEC on March 1, 2021.

During the three months ended June 30, 2021, there were no significant changes in our critical accounting policies and estimates.

Results of Operations for the Three and Six Months Ended June 30, 2021

During the three months ended September 30, 2021, there were no significant changes in our critical accounting policies and estimates.

Results of Operations for the Three and Nine Months Ended September 30, 2021

Digital Media

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Cloud Services

Assuming a stable or improving economic environment, and, subject to our risk factors, we expect 2021 revenue to be higher compared to the prior-year.

Excluding the impact of the spin-off of our cloud fax business, the sale of our backup business and assuming a stable or improving economic environment, and, subject to our risk factors, we expect 2021 revenue to be higher compared to the prior year.

The main strategic 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.

As a result, we expect to continue to take steps to enhance our existing offerings and offer new services to continue to satisfy the evolving needs of our customers.

On October 7, 2021, the Company completed the spin-off of its cloud fax business into an independent publicly traded company.

This cloud fax business represented approximately 50% of our total Cloud revenues and approximately 31% of our total Cloud operating costs for the nine months ended September 30, 2021.

As a result, we anticipate a reduction in our operating margins as the cloud fax business will not recur going forward.

We expect acquisitions to remain an important component of our strategy and use of capital in this business;

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Moreover, future acquisitions of businesses within this space but with different business models may impact Cloud Services’ overall profit margins.

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 fiscal year 2021 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.

Excluding the impact of the spin-off of our fax business and based on the trends discussed above with respect to our Cloud Services and Digital Media businesses, we anticipate our consolidated revenue for fiscal year 2021 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 has historically operated at a lower operating margin;

and (ii) the completion of the spin-off of our cloud fax business which historically operated at a higher operating margin than our remaining businesses.

(in thousands, except percentages)

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

2021 2020 2021 2020

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Cloud Services revenues primarily consist of revenues from “fixed” customer subscription revenues and “variable” revenues generated from actual usage of our services.

Our revenues in 2021 have increased over the comparable three and six month periods of 2020 primarily due to a combination of acquisitions and organic growth;

Our revenues in 2021 have increased over the comparable three and nine month periods of 2020 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.

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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

2021 2020 2021 2020

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Cost of revenues is primarily comprised of costs associated with content fees, editorial and production costs and hosting costs.

The increase in cost of revenues for the three months ended June 30, 2021 was primarily due to higher content fees, campaign fulfillment and other editorial and production costs and increased hosting costs.

The increase in cost of revenues for the six months ended June 30, 2021 was primarily due to higher content fees, editorial and production costs and hosting costs and increased depreciation.

The increase in cost of revenues for the three months ended September 30, 2021 was primarily due to higher content fees, campaign fulfillment and other editorial and production costs and increased hosting and other computer related costs.

The increase in cost of revenues for the nine months ended September 30, 2021 was primarily due to higher content fees, editorial and production costs, hosting and computer related costs and increased depreciation.

Operating Expenses

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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

2021 2020 2021 2020

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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, 2021 was $69.5 million (primarily consists of $41.2 million of third-party advertising costs and $21.6 million of personnel costs) compared to the second quarter of 2020 of $33.9 million (primarily consists of $23.4 million of third-party advertising costs and $8.9 million of personnel costs.

Advertising cost for the six months ended June 30, 2021 was $132.4 million (primarily consists of $75.6 million of third-party advertising costs and $45.4 million of personnel costs) compared to 2020 of $72.8 million (primarily consists of $50.7 million of third-party advertising costs and $18.4 million of personnel costs).

The increase in sales and marketing expenses for the three and six months ended June 30, 2021 versus the prior comparable period was primarily due to increased creative services, sales, advertising operations, advertising and product development costs associated with the acquisition of businesses acquired in and subsequent to the second quarter 2020 within the Digital Media and Cloud Services businesses.

Advertising cost for the three months ended September 30, 2021 was $72.8 million (primarily consists of $44.3 million of third-party advertising costs and $22.1 million of personnel costs) compared to the third quarter of 2020 of $35.4 million (primarily consists of $19.8 million of third-party advertising costs and $12.8 million of personnel costs.

Advertising cost for the nine months ended September 30, 2021 was $205.2 million (primarily consists of $119.7 million of third-party advertising costs and $67.5 million of personnel costs) compared to 2020 of $108.0 million (primarily consists of $57.8 million of third-party advertising costs and $39.4 million of personnel costs).

The increase in sales and marketing

expenses for the three and nine months ended September 30, 2021 versus the prior comparable period was primarily due to increased creative services, sales, advertising operations, advertising and product development costs associated with the acquisition of businesses acquired in and subsequent to the third quarter 2020 within the Digital Media and Cloud Services businesses.

Research, Development and Engineering.

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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

2021 2020 2021 2020

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, 2021 versus the prior comparable period was primarily due to an increase in costs associated with businesses acquired in and subsequent to the second quarter 2020.

The increase in research, development and engineering costs for the three and nine months ended September 30, 2021 versus the prior comparable period was primarily due to an increase in costs associated with businesses acquired in and subsequent to the third quarter 2020.

General and Administrative.

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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

2021 2020 2021 2020

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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 increase in general and administrative expense for the three and six months ended June 30, 2021 versus the prior comparable period was primarily due to increased amortization of intangible assets, salary and related costs and professional fees.

The increase in general and administrative expense for the three and nine months ended September 30, 2021 versus the prior comparable period was primarily due to increased amortization of intangible assets, salary and related costs and professional fees.

Goodwill impairment on business .

Our goodwill impairment on business is generated from the impairment of the B2B Backup business in the second quarter of 2021.

Goodwill impairment on business was $32.6 million for the nine months ended September 30, 2021.

See Note 6 - Dispositions from the footnotes to our Condensed Consolidated Financial Statements for additional information.

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, 2021 and 2020 (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, 2021 and 2020 (in thousands):

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

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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 $(21.4) million and $(22.2) million for the three months ended June 30, 2021 and 2020, respectively, and $(43.0) million and $(43.2) million for the six months ended June 30, 2021 and 2020, respectively.

Interest expense, net was comparable between the periods.

Gain on sale of businesses.

Our gain on sale of businesses is generated primarily from the sale of certain Voice assets in the United Kingdom in the first quarter of 2021 with a subsequent adjustment in the second quarter of 2021.

Gain on sale of businesses was $0.8 million and zero for the three months ended June 30, 2021 and 2020, respectively.

Gain on sale of businesses was $2.8 million and zero for the six months ended June 30, 2021 and 2020, respectively.

Goodwill impairment on business .

Our goodwill impairment on business is generated from the impairment of the B2B Backup business in the second quarter of 2021.

Goodwill impairment on business was $32.6 million and zero for the three and six months ended June 30, 2021 and 2020, respectively.

Interest expense, net was $19.9 million and $22.7 million for the three months ended September 30, 2021 and 2020, respectively, and $62.8 million and $65.9 million for the nine months ended September 30, 2021 and 2020, respectively.

Interest expense, net was lower due to the redemption of our 3.25% Convertible Notes on August 2, 2021.

Loss (gain) on sale of businesses.

Loss on sale of businesses was $24.6 million during the three months ended September 30, 2021 and a gain of $17.1 million for the three months ended September 30, 2020.

Loss on sale of businesses was $21.8 million during the nine months ended September 30, 2021 and a gain of $17.1 million for the nine months ended September 30, 2020.

Our loss on the sale of business during the third quarter of 2021 was related to the sale of our B2B Back-up business.

The loss on the sale of businesses during the nine months ended September 30, 2021 was due to the loss on the sale of the B2B Back-up business, partially offset by a gain on the sale of certain Voice assets in the United Kingdom in the first quarter of 2021 with a subsequent adjustment in the second quarter of 2021.

See Note 6 - Dispositions from the footnotes to our Condensed Consolidated Financial Statements for additional information.

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 $16.7 million and zero for the three months ended June 30, 2021 and 2020 and $16.7 million and $20.8 million for the six months ended June 30, 2021 and 2020, respectively.

Our loss on investments, net increased for the three months ended June 30, 2021 versus the prior comparable period related to a decline in value due to a pending sale transaction of an investee.

Our loss on investments, net decreased for the six months ended June 30, 2021 versus the prior comparable period due to lower net losses realized on certain investments as a result of an impairment recognized in the current period and changes in the investee’s capital structure and overall market volatility recognized in the prior comparable period.

Our loss on investments, net was zero and $0.2 million for the three months ended September 30, 2021 and 2020 and $16.7 million and $21.0 million for the nine months ended September 30, 2021 and 2020, respectively.

Our loss on investments, net for the three months ended September 30, 2021 versus the prior comparable period was consistent.

Our loss on investments, net decreased for the nine months ended September 30, 2021 versus the prior comparable period due to lower net losses realized on certain investments as a result of an impairment recognized in the current period and changes in the investee’s capital structure and overall market volatility recognized in the prior comparable period.

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 $(0.8) million and $9.1 million for the three months ended June 30, 2021 and 2020, respectively and $(0.3) million and $2.2 million for the six months ended June 30, 2021 and 2020, respectively.

Other income (expense), net changed for the three and six months ended June 30, 2021 versus the prior comparable periods primarily due to changes in gain or losses on currency exchange.

Other income (expense), net was $1.7 million and $14.2 million for the three months ended September 30, 2021 and 2020, respectively and $1.4 million and $16.4 million for the nine months ended September 30, 2021 and 2020, respectively.

Other income (expense), net changed for the three and nine months ended September 30, 2021 versus the prior comparable periods primarily due to changes in gain or losses 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 $2.2 million and $16.0 million for the three months ended June 30, 2021 and 2020, respectively, and $7.9 million and $24.7 million for the six months ended June 30, 2021 and 2020, respectively.

effective tax rate was 9.1% and 26.7% for the three months ended June 30, 2021 and 2020, respectively, and 9.5% and 37.1% for the six months ended June 30, 2021 and 2020, respectively.

The decrease in our effective income tax rate for the three months ended June 30, 2021 was primarily attributable to the following:

a decrease in tax expense during 2021 due to recognizing a deferred tax asset related to the impairment of certain business units;

a decrease in tax expense due to discrete tax benefits related to a reduction in our net reserve for uncertain tax positions with no similar events for the three months ended June 30, 2020;

Provision for income taxes amounted to $8.8 million and $24.3 million for the three months ended September 30, 2021 and 2020, respectively, and $16.7 million and $49.0 million for the nine months ended September 30, 2021 and 2020, respectively.

Our effective tax rate was 16.6% and 28.3% for the three months ended September 30, 2021 and 2020, respectively, and 12.3% and 32.2% for the nine months ended September 30, 2021 and 2020, respectively.

The decrease in our effective income tax rate for the three months ended September 30, 2021 was primarily attributable to the following:

a decrease in tax expense during 2021 due to recognizing a current tax benefit related to the sale of the business-to-business backup business units;

a decrease in tax expense due to increased tax benefits related to tax deductions for the vesting of restricted stock units and exercises of stock options;

partially offset by

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state and local taxes due to a greater portion of our income being subject to tax in the U.S.

The decrease in our effective income tax rate for the six months ended June 30, 2021 was primarily attributable to the following:

a decrease in tax expense during 2021 due to recognizing a deferred tax asset related to the impairment of certain business units;

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

The decrease in our effective income tax rate for the nine months ended September 30, 2021 was primarily attributable to the following:

a decrease in tax expense during 2021 due to recognizing a tax benefit related to the disposition of certain business units;

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

partially offset by

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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 income (loss) from equity method investment, net was $(5.8) million and $(5.8) million net of tax benefit (expense) for the three months ended June 30, 2021 and 2020, respectively, and $18.5 million and $(10.1) million, for the six months ended June 30, 2021 and 2020, respectively.

The six months ended June, 30, 2021 gain was primarily a result of a gain on the underlying investments.

During the three months ended June 30, 2021 and 2020, 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, 2021 and 2020, the Company recognized management fees of $1.5 million and $1.5 million, net of tax benefit, respectively.

The income (loss) from equity method investment, net was $(1.9) million and $(0.7) million net of tax benefit (expense) for the three months ended September 30, 2021 and 2020, respectively, and $16.6 million and $(10.8) million, for the nine months ended September 30, 2021 and 2020, respectively.

The nine months ended September 30, 2021 gain was primarily a result of a gain on the underlying investments.

During the three months ended September 30, 2021 and 2020, 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, 2021 and 2020, the Company recognized management fees of $2.3 million and $2.3 million, net of tax benefit, respectively.

Digital Media and Cloud Services Results

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Digital Media

The following results are presented for the three and six months ended June 30, 2021 and 2020 (in thousands):

The following results are presented for the three and nine months ended September 30, 2021 and 2020 (in thousands):

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

6 unchanged sentences

Operating income $ 49,700 $ 26,082 $ 124,449 $ 47,854

Digital Media’s net sales of $254.0 million for the three months ended June 30, 2021 increased $90.0 million, or 54.9%, from the prior comparable period primarily due to business acquisitions.

Digital Media’s net sales of $480.9 million for the six months ended June 30, 2021 increased $154.2 million, or 47.2%, from the prior comparable period primarily due to business acquisitions.

Digital Media’s gross profit of $228.6 million for the three months ended June 30, 2021 increased $82.0 million, or 55.9%, from the prior comparable period primarily due to business acquisitions.

Digital Media’s gross profit of $434.6 million for the six months ended June 30, 2021 increased $146.1 million, or 50.6%, from the prior comparable period primarily due to business acquisitions.

Digital Media’s operating expenses of $184.5 million for the three months ended June 30, 2021 increased $54.7 million from the prior comparable period.

Digital Media’s operating expenses of $359.9 million for the six months ended June 30, 2021 increased $93.1 million from the prior comparable period.

The increase in the three and six months ended June 30, 2021 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;

Digital Media’s net sales of $262.4 million for the three months ended September 30, 2021 increased $75.6 million, or 40.5%, from the prior comparable period primarily due to business acquisitions.

Digital Media’s net sales of $743.3 million for the nine months ended September 30, 2021 increased $229.8 million, or 44.8%, from the prior comparable period primarily due to business acquisitions.

Digital Media’s gross profit of $238.7 million for the three months ended September 30, 2021 increased $69.3 million, or 40.9%, from the prior comparable period primarily due to business acquisitions.

Digital Media’s gross profit of $673.4 million for the nine months ended September 30, 2021 increased $215.4 million, or 47.0%, from the prior comparable period primarily due to business acquisitions.

Digital Media’s operating expenses of $189.0 million for the three months ended September 30, 2021 increased $45.6 million from the prior comparable period.

Digital Media’s operating expenses of $549.0 million for the nine months ended September 30, 2021 increased $138.9 million from the prior comparable period.

The increase in the three and nine months ended September 30, 2021 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) creative and selling costs;

and (c) increased amortization of intangible assets.

As a result of these factors, Digital Media’s operating income of $44.1 million for the three months ended June 30, 2021 increased $27.3 million, or 162.2%, from the prior comparable period.

Digital Media’s operating income of $74.7 million for the six months ended June 30, 2021 increased $53.0 million, or 243.3%, from the prior comparable period.

As a result of these factors, Digital Media’s operating income of $49.7 million for the three months ended September 30, 2021 increased $23.6 million, or 90.6%, from the prior comparable period.

Digital Media’s operating income of $124.4 million for the nine months ended September 30, 2021 increased $76.6 million, or 160.1%, from the prior comparable period.

Cloud Services

The following results are presented for the three and six months ended June 30, 2021 and 2020 (in thousands):

The following results are presented for the three and nine months ended September 30, 2021 and 2020 (in thousands):

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

6 unchanged sentences

Operating income $ 61,807 $ 65,757 $ 155,686 $ 183,470

Cloud Services’ net sales of $175.4 million for the three months ended June 30, 2021 increased $8.3 million, or 5.0%, from the prior comparable period primarily due to business acquisitions acquired;

partially offset by businesses sold subsequent to the second quarter 2020.

Cloud Services’ net sales of $346.8 million for the six months ended June 30, 2021 increased $9.9

million, or 3.0%, from the prior comparable period primarily due to business acquisitions acquired;

partially offset by businesses sold subsequent to the second quarter 2020.

Cloud Services’ gross profit of $137.1 million for the three months ended June 30, 2021 increased $9.5 million, or 7.4%, from the prior comparable period primarily due to business acquisitions;

partially offset by businesses sold subsequent to the second quarter 2020.

Cloud Services’ gross profit of $271.5 million for the six months ended June 30, 2021 increased $12.5 million, or 4.8%, from the prior comparable period primarily due to business acquisitions;

partially offset by businesses sold subsequent to the second quarter 2020.

Cloud Services’ operating expenses of $74.1 million for the three months ended June 30, 2021 increased $8.4 million from the prior comparable period primarily due to expense associated with businesses acquired in and subsequent to the second quarter 2020 and increased marketing and advertising costs;

Cloud Services’ net sales of $182.2 million for the three months ended September 30, 2021 increased $11.9 million, or 7.0%, from the prior comparable period primarily due to business acquisitions acquired, partially offset by businesses sold subsequent to the third quarter 2020.

Cloud Services’ net sales of $529.0 million for the nine months ended September 30, 2021

increased $21.9 million, or 4.3%, from the prior comparable period primarily due to business acquisitions acquired, partially offset by businesses sold subsequent to the third quarter 2020.

Cloud Services’ gross profit of $141.4 million for the three months ended September 30, 2021 increased $9.6 million, or 7.3%, from the prior comparable period primarily due to business acquisitions;

partially offset by businesses sold subsequent to the third quarter 2020.

Cloud Services’ gross profit of $412.9 million for the nine months ended September 30, 2021 increased $22.0 million, or 5.6%, from the prior comparable period primarily due to business acquisitions;

partially offset by businesses sold subsequent to the third quarter 2020.

Cloud Services’ operating expenses of $79.6 million for the three months ended September 30, 2021 increased $13.5 million from the prior comparable period primarily due to expense associated with businesses acquired in and subsequent to the third quarter 2020 and increased marketing and advertising costs;

partially offset by businesses sold subsequent to the prior comparable period.

Cloud Services’ operating expenses of $145.0 million for the six months ended June 30, 2021 increased $3.7 million from the prior comparable period primarily due to expense associated with businesses acquired in and subsequent to the second quarter 2020;

partially offset by businesses sold subsequent to the prior comparable period including increased marketing and advertising costs.

As a result of these factors, Cloud Services’ operating income of $63.0 million for the three months ended June 30, 2021 increased $1.1 million, or 1.7%, from the prior comparable period.

Cloud Services’ operating income of $126.5 million for the six months ended June 30, 2021 increased $8.8 million, or 7.5%, from the prior comparable period.

Cloud Services’ operating expenses of $257.2 million for the nine months ended September 30, 2021 increased $49.8 million from the prior comparable period primarily due to expense associated with businesses acquired in and subsequent to the third quarter 2020, increased marketing and advertising costs and the recognition of a goodwill impairment on business;

partially offset by businesses sold subsequent to the prior comparable period.

As a result of these factors, Cloud Services’ operating income of $61.8 million for the three months ended September 30, 2021 decreased $(4.0) million, or (6.0)%, from the prior comparable period.

Cloud Services’ operating income of $155.7 million for the nine months ended September 30, 2021 decreased $(27.8) million, or (15.1)%, from the prior comparable period.

Liquidity and Capital Resources

Cash and Cash Equivalents and Investments

At June 30, 2021, we had cash, cash equivalents and investments of $465.3 million compared to $340.8 million at December 31, 2020.

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

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

At June 30, 2021, cash and investments consisted of cash and cash equivalents of $347.9 million, short-term investments of zero and long-term investments of $117.4 million.

At September 30, 2021, we had cash, cash equivalents and investments of $657.2 million compared to $340.8 million at December 31, 2020.

The increase in cash and investments resulted primarily from cash provided from operations and proceeds from the Bridge Loan Facility (defined below);

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

At September 30, 2021, cash and investments consisted of cash and cash equivalents of $546.5 million, short-term investments of zero and long-term investments of $110.7 million.

Our investments consist of equity and debt securities.

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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, 2021, cash and investments held within domestic and foreign jurisdictions were $335.7 million and $129.6 million, respectively.

On April 7, 2021, J2 Global, Inc.

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 administrative agent, collateral agent and sole lead arranger for the Lenders (the “Agent”).

Pursuant to the Credit Agreement, the Lenders have provided J2 with a revolving credit facility of $100 million (the “Credit Facility”).

Subject to customary conditions, J2 may, from time to time, request increases in the commitments under the Credit Agreement in an aggregate amount up to $250 million, for a total aggregate commitment of up to $350 million.

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

As of September 30, 2021, cash and investments held within domestic and foreign jurisdictions were $491.0 million and $166.2 million, respectively.

On April 7, 2021, the Company 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 administrative agent, collateral agent and sole lead arranger for the Lenders (the “Agent”).

Pursuant to the Credit Agreement, the Lenders have provided the Company with a revolving credit facility of $100 million (the “Credit Facility”).

Subject to customary conditions, the Company may, from time to time, request increases in the commitments under the Credit Agreement in an aggregate amount up to $250 million, for a total aggregate commitment of up to $350 million.

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

The final maturity of the Credit Facility will occur on April 7, 2026.

On April 19, 2021, we announced plans to separate into two independent publicly traded companies, J2 Global, Inc.

and Consensus, through a spin-off.

The transaction is subject to certain conditions, including, among others, obtaining final approval from J2’s Board of Directors, receipt of a favorable ruling with respect to the tax-free nature of the transaction for favorable income tax purposes and the effectiveness of a registration statement on Form 10.

On June 2, 2021, we entered into a First Amendment (the “Amendment”) to Credit Agreement, dated as of April 7, 2021 (the “Existing Credit Agreement”), The Amendment (i) provides for the issuance of a senior secured term loan under the Existing Credit Agreement, in an aggregate principal amount of $405,000,000 (the “Bridge Loan Facility”), (ii) permits the spin-off of a portion of J2’s Cloud Services business into a new publicly traded company, and (iii) provides for certain other changes to the Existing Credit Agreement as set forth in the Amendment.

Citicorp North America, Inc.

has committed to provide $243,000,000 of the Bridge Loan Facility and MUFG Union Bank, N.A.

has committed to provide $162,000,000 of the Bridge Loan Facility.

In connection with its announcement of the proposed transaction, we announced our intention to redeem our 3.25% Convertible Senior Notes due 2029,and we subsequently redeemed all of the outstanding 3.25% Convertible Senior Notes due 2029 effective August 2, 2021.

The cash portion of the redemption price for the principal amount of the notes was funded by the Bridge Loan Facility, with the remainder of the redemption price funded through the issuance of shares of J2 Global common stock.

On June 2, 2021, June 21, 2021, August 20, 2021 and September 16, 2021, we entered into First, Second, Third and Fourth Amendments (together the “Amendments”) to Credit Agreement.

The Amendments (i) provided for the issuance of a senior secured term loan under the Credit Agreement, in an aggregate principal amount of $485.0 million (the “Bridge Loan Facility”), (ii) permitted the spin-off of our cloud fax business into a new publicly traded company, and (iii) provided for certain other changes to the Credit Agreement.

On October 7, 2021, in exchange for the equity interest in Consensus, Consensus paid Ziff Davis approximately $269.6 million of cash and issued $500.0 million of senior notes due 2028 to Ziff Davis and Ziff Davis exchanged such notes with the lenders under the Credit Agreement and Credit Agreement Amendments by and among the subsidiaries of Ziff Davis party thereto as guarantors, Citicorp North America Inc.

and MUFG Union Bank, N.A.

and MUFG Union Bank, N.A., as administrative agent for the lenders, in exchange for extinguishment of a similar amount indebtedness under the Bridge Loan Facility.

Such lenders or their affiliates agreed to resell the 2028 notes to qualified institutional buyers in the United States pursuant to Rule 144A.

On September 25, 2017, the Board of Directors of the Company authorized the Company’s entry into a commitment to invest $200 million in an investment fund (the “Fund”) over several years at a fairly ratable rate.

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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 six months of 2021, the Company received capital call notices from the management of OCV Management, LLC for $11.1 million, inclusive of certain management fees.

Of the outstanding balance, $10.1 million has been paid for the six months ended June 30, 2021.

In the first nine months of 2021, the Company received capital call notices from the management of OCV Management, LLC for $21.2 million, inclusive of certain management fees.

Of the outstanding balance, $21.2 million has been paid for the nine months ended September 30, 2021.

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 $290.0 million and $241.6 million for the six months ended June 30, 2021 and 2020, respectively.

Net cash provided by operating activities was $430.3 million and $356.0 million for the nine months ended September 30, 2021 and 2020, 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 2021 compared to 2020 was attributable to additional income after considering noncash items, less cash outflow associated with accounts payable and accrued expenses and increased cash inflow associated with deferred revenue;

partially offset by higher income tax payments.

Our cash and cash equivalents were $347.9 million and $242.7 million at June 30, 2021 and December 31, 2020, respectively.

Net cash used in investing activities was $152.6 million and $96.9 million for the six months ended June 30, 2021 and 2020, respectively.

For the six months ended June 30, 2021 and 2020, net cash used in investing activities was primarily due to business acquisitions and capital expenditures associated with the purchase of property and equipment (including capitalized labor) and the purchase of investments;

partially offset by proceeds from the sale of businesses.

partially offset by higher income tax payments, cash outflow associated with long-term liabilities and higher accounts receivable and prepaid expenses.

Our cash and cash equivalents were $546.5 million and $242.7 million at September 30, 2021 and December 31, 2020, respectively.

Net cash used in investing activities was $159.6 million and $107.3 million for the nine months ended September 30, 2021 and 2020, respectively.

For the nine months ended September 30, 2021 and 2020, net cash used in investing activities was primarily due to business acquisitions and capital expenditures associated with the purchase of property and equipment (including capitalized labor) and the purchase of investments;

partially offset by proceeds from the sale of businesses and distributions from an equity method investment.

The increase in our net cash used in investing activities in 2021 compared to 2020 was primarily due to additional cash used for business acquisitions.

Net cash used in financing activities was $31.6 million and $101.5 million for the six months ended June 30, 2021 and 2020, respectively.

For the six months ended June 30, 2021, 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 2021 compared to 2020 was primarily attributable to lower repurchases of common stock and business acquisitions.

Net cash provided by (used in) financing activities was $39.8 million and $(256.9) million for the nine months ended September 30, 2021 and 2020, respectively.

For the nine months ended September 30, 2021, net cash provided by financing activities was primarily due to the proceeds from the Bridge Loan Facility, issuance of common stock under the employee stock purchase plan and the exercise of options, partially offset by the repayment of debt, repurchase of common stock and business acquisitions.

The change in net cash provided by financing activities in 2021 compared to 2020 was primarily attributable to proceeds from a bridge loan in 2021.

Stock Repurchase Program

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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”) in addition to the five million shares repurchased under the 2012 Program.

During the three month period ended June 30, 2021, we repurchased no shares under this program.

Cumulatively at June 30, 2021, 2,490,599 shares were repurchased at an aggregate cost of $177.8 million (including an immaterial amount of commission fees) under the 2020 Program, which were subsequently retired.

During the three month period ended September 30, 2021, we repurchased no shares under this program.

Cumulatively at September 30, 2021, 2,490,599 shares were repurchased at an aggregate cost of $177.8 million (including an immaterial amount of commission fees) under the 2020 Program, which were subsequently retired.

Contractual Obligations and Commitments

The following table summarizes our contractual obligations and commitments as of June 30, 2021

The following table summarizes our contractual obligations and commitments as of September 30, 2021

Payments Due in

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Operating leases (d) 8,507 31,926 26,494 18,839 10,497 35,250 131,513

Finance leases (e) 279 315 30 — — — 624

Telecom services and co-location facilities (f) 2,539 1,712 456 42 — — 4,749

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

As of June 30, 2021, our liability for uncertain tax positions was $53.5 million.

As of September 30, 2021, our liability for uncertain tax positions was $54.2 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