Good day, ladies and gentlemen, and welcome to J2 Global’s Second Quarter 2021 Earnings Call. My name is Paul, and I will be the operator assisting you today. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] On this call will be Vivek Shah, CEO of J2 Global; and Scott Turicchi, President and CFO of J2. I will now turn the call over to Scott Turicchi, President and CFO of J2 Global. Thank you. You may begin.

Thank you. Good morning, ladies and gentlemen, and welcome to the J2 Global investor conference call for Q2 2021. As the Operator mentioned, I am Scott Turicchi, President and CFO of J2 Global, and I'm joined today by our CEO, Vivek Shah. A presentation is available for today's call. A copy of the presentation is available at our Web site. When you launch in the webcast there is a button on the viewer, on the right-hand side, which will allow you to expand the slides. If you have not received a copy of the press release, you may access it through our corporate Web site at www.j2global.com. In addition, you will be able to access the webcast from this site. After completing the formal presentation, we will be conducting a Q&A session. The Operator will instruct you at that time regarding the procedures for asking a question. In addition, you may e-mail questions at any time to investor@j2global.com. Before we begin our prepared remarks, allow me to read the Safe Harbor language. As you know, this call and the webcast will include forward-looking statements. Such statements may involve risks and uncertainties that would cause actual results to differ materially from the anticipated results. Some of those risks and uncertainties include, but are not limited to, the risk factors that we have disclosed in our various SEC filings including our 10-K filings, recent 10-Q filings, various proxy statements, and 8-K filings, as well as the additional risk factors that we've included as part of the slide show for this webcast. We refer you to discussions in those documents regarding Safe Harbor language as well as forward-looking statements. Now, let me turn the call over to Vivek for his opening remarks.

Thank you, Scott, and good morning, everyone. Our second quarter results were amongst the strongest, if not the strongest, in the company's history. We grew pro forma revenues by over 33%. And while we experienced pandemic headwinds last year, you'll recall that we fared far better than peers by growing 2%, making this quarter's results especially gratifying. We're also increasing our guidance for the second time in a year, something we've never done before. We believe J2 is firing on all cylinders as we come closer to the spin-off of the Consensus business, giving our shareholders direct ownership of two separate and compelling companies. More than half of the 33.5% pro forma revenue growth in the quarter was organic, with the balance coming from the revenue contributions of assets acquired within the last 12 months, mainly RetailMeNot. The advertising business, which represents about half of the company's revenues, grew over 62%. When excluding RetailMeNot, ad revenues grew over 32%. We believe our main ad categories, which are tech, telco, gaming and entertainment, health, and shopping are well-positioned for sustained growth as economies reopen and marketers continue to shift dollars from traditional vehicles to digital. Gaming and entertainment was particularly strong, with meaningful growth from games publishers and streaming platforms contributing to over 40% growth. Health advertising, which continues to benefit from the shift of direct-to-consumer and direct-to-provider advertising from traditional channels to digital, continues to be another key growth driver, up nearly 33% in the quarter. GroupM recently raised their forecast for global advertising to 19% for this year, up from 12%. And we believe that we have three competitive advantages in the advertising market. First, we largely sell contextual advertising, which is predicated on content adjacencies as opposed to cookie-based advertising. Second, given the nature of our verticals and…

Thanks, Vivek. I will now provide an overview of both our non-GAAP and pro forma results for Q2 2021. As you recall from our previous earnings call, we have sold certain ANZ voice assets in August 2020 and UK voice assets in February 2021. And we now have our B2B backup assets classified as assets held for sale. As a result, we will present our non-GAAP results, which include these operations for the periods owned and our pro forma results, which excludes the contribution from these assets in all comparative periods. As Vivek has highlighted, it was another stellar quarter driven by organic growth throughout J2's portfolio of businesses. We ended the quarter with approximately $465 million of cash and investments, including $348 million of cash. Now let's review the summer quarterly financial results on slide four, we'll begin with our revenues. It was a record second fiscal quarter of revenues for J2. We had revenue of $429 million in the quarter and $418 million of revenue on a pro forma basis, representing approximately 30% and 33.5% growth respectively. Adjusted EBITDA was also a record for second fiscal quarter with $172 million as reported and $167.2 million on a pro forma basis. And the growth in EBITDA was 30% and 33% respectively consistent with our revenue growth. Finally growth in earnings per share was even stronger. In the second quarter, we had $2.41 of non-GAAP adjusted EPS and $2.32 of pro forma EPS, a growth of 41% and 45% respectively from Q2 2020. Turning to slide five, in Q2, we generated $80.5 million of free cash flow, representing a 30.6% decline from Q2 2020. I would remind our investors that we had a difficult comparison as usually Q1 is our highest free cash flow producing quarter, but in 2020, Q2…

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] And the first question is coming from Shyam Patil from SIG. Shyam, your line is live.

Thank you. Hey guys, good morning. Congrats on the great results.

Thank you.

I had a couple of questions, maybe first one for Vivek, and then second one for Scott. Vivek, you kind of talked about this in the call a little bit, but it's -- I can't remember the last time we've seen this level of outperformance on a consistent basis. Could you talk a little bit more about what's driving this? Is it better processes internally that you introduced when you came onboard, is it the macro, and just kind of how you think about the sustainability of this? And then, Scott, just on the outlook, any color you could offer us on how to think about visual media and cloud revenue for 3Q and for the year? As well as just the -- like depreciation, interest and other income, and share count for the year as well? Thank you.

Yes, Shyam, so let me start and take your first question. I certainly think that the advertising market has been really great for us. I think it's a -- I think that's a overall secular trend where you do have the ongoing shift from advertising from analog to digital platforms, and we think that's going to continue for quite some time. But also, the categories in which we operate, I mentioned them at the beginning of the call, but tech, telco, gaming and entertainment, health and pharma, and shopping are amongst the strongest, if not strongest and fastest growing categories within the advertising business. And I think that the products and services, that we have really produced great ROI and return on ad spend. So, I think that combination answers the question as to the strength of the advertising-based businesses within the company. And then on the subscription side, as you know, we look for subscription businesses that are adjacent to the verticals in which we operate. And those businesses, which include the connectivity subscription businesses under Ookla, the MarTech businesses, and the cybersecurity businesses are doing extremely well. And then, look, I think we've got probably at this point the best roster of underlying businesses and brand through, I think, the careful process of acquiring the right businesses, and then disposing of the businesses that weren’t the right fit for us. And then, look, I also think the talent. The talent across the board in the organization is doing very well. I also just want to say it shouldn’t go unnoticed that the cloud fax business, the Consensus business is on fire. I don’t think we've seen results like it -- I haven't seen results like this at least in the decade-plus that I've been inside of the company. So, a lot of things went working well for the company, and we believe they will sustain. And we believe they are part of our new normal.

And so, in answer to your question, Shyam, as you know, we don’t give quarterly guidance. But I think you can unpack the six-month guidance in the following manner. And it's probably easiest to deal with the cloud business. As you saw, it grew about 10% pro forma in Q2. We're expecting a similar rate of growth in Q3, and roughly the same in Q4. So if you do that you can back into the Digital Media contribution. Then in terms of some of the things below the line, I would highlight a few items. Our non-GAAP depreciation and amortization should show some sequential upticks in Q3 and Q4 from Q2 level. I'd remind people that non-GAAP depreciation and amortization was $16.5 million in Q2, we're expecting a little under $17 million in Q3, and right around $17 million in Q4. And then our interest income and other, about $15.5 million, $15.7 million, respectively. What I would also note everyone to take into account is to make sure you add for the two months of this quarter and the three months of next quarter an additional three million shares into your share count. So, the July share count remains consistent with the count we've had before, which is in the [44.7] [Ph] range, but then that will jump to [47.7 - 47.8] [Ph] for the months of August, September, through the balance of the year. Tax rate is fairly consistent at the 22 and 65 range.

Great. Thank you, guys.

Thank you.

Thank you. And the next question is coming from James Breen. James, your line is live.

Thanks for taking the question. Scott, can you just talk about the sequential cash flow. It was really high in the first quarter, 115, down to 80. What are the differences there between the two? And then there was an impairment charge, a $32 million, I think, impairment charge [indiscernible].

Yes, so on the cash flows, one of the downsides of raising your guidance twice in the year and outperformance like this; you've got to pay more taxes. And so, our estimated tax payments in Q2 were substantially higher than, say, we would have estimated at the beginning of the year. So, we had close to $28 million more in estimated tax payments in Q2 than we did in the year-ago quarter and about $23 million-$24 million more sequentially from Q1 to Q2. The taxes were a big, big piece of the volatility and cash flows. That it's not, let's say, atypical. We pay more estimated taxes in Q2 versus Q1. But the delta this year was much more extreme given the strong not only current performance, but prospective performance through the balanced of the year. As I mentioned, we also had some increased CapEx year-over-year of about $7.5 million-$8 million. And then we just had outstanding collections in Q1, really collected all the receivables, which was somewhat unusual. Normally, some of that would have fallen into Q2. So, I think you got to look at the two quarters really in combination with each other. And when you do that it will look more normalized. And then in terms of the write-off, there's a couple of write-offs I'd like to highlight. So, the one you're referring to, which is $25 million net of tax, has to do with the write-down of our B2B Backup business. As you know, we've been in a process to sell that business. Based on the indications of interest, it was prudent and necessary that we take the write-down of about $25 million that that's not included yet, that transaction. But based on the indications of interest we've received, that was the necessary thing to do from an accounting standpoint. Separately, one of the assets that we do not control, which is Welltok, they've informed us that they too have a process going on, and based upon their indications of interest we took a write-down of that asset as well.

Thank you. And the next question is coming from Will Power from Baird. Will, your line is live.

Okay, great. Yes, I want to start actually with Scott, and I guess what will be Consensus. Just looking at the strength in cloud fax and corporate fax, would just love to drill down and get your perspective as to what you're seeing there and what the key drivers there are of that, the stronger growth?

Great. I'm glad somebody wants to ask about the Consensus business. So, really, the Consensus business is hitting on all cylinders. There are two major streams of revenue there. There's what we call the SOHO revenue stream, sometimes historically referred to as the web channel, which is much more diverse than the healthcare space. And it is really geared to individuals and micro businesses. And I think you've heard Vivek and I talk in the past that we've accepted that to be a low single-digit declining business. But beginning about a year ago with some management changes and some reorienting of the marketing, that business now is a modest grower. And that occurred again in Q2. I think it was about 1% growth on the SOHO side. As I tell our prospective Consensus shareholders, I'm not looking for that to be the growth driver. But I do think there are some opportunities to stabilize that revenue base and have some modest growth out of it. Part of that will be, that's not contributing materially today, but the introduction of new services to bundle with the existing service, the most notable is jSign, which is a blockchain digital signature that we're in the midst of releasing. On the corporate side, the growth that was 18%, that is being driven almost exclusively through our healthcare activities as Vivek mentioned, it's a combination of new wins, but it's also the onboarding of customers and their growth in traffic. And so, we're very excited about what's happening. We'd have the opportunity that we did not last year to participate in HIMSS, which is coming up next week. It's the big healthcare conference. It'll be in Las Vegas. We're actually going to be in what is known as the interoperability showcase. And every hour we will be demonstrating how a fax transmission is translated into a direct secure message and then integrate it into an EHR system, most notably epic. We'll be demonstrating this. We'll have a booth. We've got participation in four interoperability panels and we've got a number of face-to-face meetings and interviews with the press. So this is what we intended 18 months ago. We rolled out the first consensus product, but as you know, right after our Analyst Day in March of 2000 with the pandemic HIIMS was not just postponed or when virtual was actually canceled. So this is a big deal for us coming up this coming week. If any shareholders happened to be in Las Vegas, feel free to reach out to me. We can arrange a special demonstration in [indiscernible] floor, but this is really what is driving the overall consensus business.

Okay, great. And I guess if I could fit in one more actually on the digital media side to just given the strength there. Vivek, I know you called gaming, of course, healthcare have been to two big verticals for you and particularly strong growth. Anything to think about in the second-half versus the trends you saw coming out of Q2. I mean, have you seen those trends continue thus far through the quarter and judging from the full-year guidance it sounds like you have, but any seasonal factors to consider anything else in the second-half versus the strength you've seen thus far?

Yes, no, looks so I think in the second-half remembering, as I mentioned in the call, last year's second-half was particularly robust for the company and we also had the benefit of the RetailMeNot acquisition in late October. So the comp gets more difficult. And obviously, in Q2, while we had a very strong Q2 last year growing 2% in relative terms, right, where I think most in our industries and in our peer set saw significant declines in their revenues, making their Q2 comps this year a tad easier than ours. I wouldn't extrapolate that growth rate per se to the second-half, but as I said we're looking overall at a 17% growth rate in the second-half of 2021. So we think the trends continue. We think these are long-term trends. And again, I think that I just go back to the overall -- and you almost have to go category by category, which I won't do today. But when you look at a category like pharma or you look at a category like shopping, each has a set of reasons as to why you're seeing an acceleration of the shift from traditional to digital solutions. And so I think that's going to continue for the foreseeable future. I think we've got really nice tailwinds in a bunch of these different places. I mean, I think, the big question will be how robust will the Q4 holiday shopping season be? That's obviously an unknown. That's a big open question. And obviously depending on where that lands, I think will be a driver of our ultimate results because as you know that is a meaningful portion of the business. And as you also know, seasonally, Q4 is our strongest quarter. So we're optimistic. All the signs we're seeing in the marketplace and from our clients are strong. The net revenue retention we're seeing is really amazing. And so, all signs are positive.

Yes, great. Thank you. Congratulations on the results.

Thank you.

Appreciate it.

Thank you. And the next question is coming from Saket Kalia from Barclays. Saket, your line is live.

Okay, great. Hey, guys. Thanks for taking my questions here, and I'll let go my congrats on the quarter.

Thank you.

Vivek, maybe for you, I think you touched on this a little bit in your prepared remarks, but do you do kind of have that split of advertising revenue between performance and display?

Yes, it’s about 55% of the advertising is in the performance category. And just to just to make sure everyone's aware of when we say performance, that really is a function of how it's priced. So if it's priced on a cost per click, cost per acquisition or commission basis, our cost per lead that fits into the performance category, if it is priced on a CPM meaning cost per 1000 ads served or on cost per Unique Visitor reached, so more of a reach metric that would fall into what we have generally called our display in video.

Got it. Got it, so 55:45 is the split sounds like, which is great. Maybe logistically, maybe this is a Scott question. So logistically, Scott, when is consensus no longer going to be consolidated with J2 results? I guess I was maybe expecting it to be next quarter. But the guide of course is for total RemainCo, I wanted to make sure I understood the timing in terms of when consensus sort of kind of is sort of, out of J2 results, and we could start to look at kind of RemainCo versus SpinCo separately?

So, the answer to your question is, consensus remains consolidated until the moment of distribution. Now, right now, we have a range of dates, that's anywhere from mid to late September, meaning that consensus be consolidated for the majority, if not substantially all of Q3, depending on the exact date of spin. The reason we can't be more specific is as Vivek mentioned in his opening comments, we're still awaiting final sign-off from the SEC. And then we're preparing materials, so that consensus can go to market, post Labor Day to raise debt, under the timeframe that we believe is realistic, both of those things will happen such that probably mid-third week of September, we would be able to consummate the separation, which means that consensus would be part of J2’s consolidated results for two and a half or two and three quarters months. And then at that point, consensus has its own separate standalone financials and RemainCo would be ex-consensus. We discussed how and when it makes sense to provide RemainCo and SpinCo guidance. And I think as we get closer and we can better define the date of the spin, then we can come back to the market and say, this is what the two companies will look like, for the balance of the year.

Okay, got it. That’s very clear, thank you.

Thank you.

Thank you. [Operator Instructions] And the next question is coming from James Fish from Piper Sandler. James, your line is live.

Hey, guys, nice quarter. I wanted to first start on the cloud services side, it was the lowest churn rate I had to go back to 2Q ’15 I believe. What's the portion [indiscernible] churn was so low, is that really the impact of the divestitures playing through the strength of the corporate fax part or something else? And is that sustainable rate in that round 2% range, the right way to think about it? And how do we think about DID versus non-DID, maybe I’ll just leave there.

Yes, so first part is the divestiture since the divestiture has not happened yet, in terms of B2B backup it’s not a factor in the cancel rate. So the B2B backup is a component of that 2% cancel rate. We've seen strength across the board. It isn't the case that as I mentioned, a consensus is a big driver of the overall cancel rate. Consensus has been strong in both its customer acquisition, but also it’s customer retention. So that is a big influence, but it's not exclusive. We've seen strength in the Viper product, as well as our Martech products. Now in terms of sustainability, I'm always a little nervous to talk about sustainability of a metric when it's at or near an all-time low, because I look at these generally trading in ranges. And so I would say that within a 25 basis point range is probably fair. And I think that if the economy remains generally stable, that should be a fair expectation.

That's helpful and if I can sneak in one more on the digital media side. Is there a change in mix going on really, are advertisers really looking more at, I'll say niche and vertical specific sites rather than the broader search sites because that monetization rate was just off the charts, and even better than most your Q4s where that rate is really strong?

No, it's a great point, I just wanted to, Jim, if I could just on the cancel rate piece, add one piece to which is as businesses like consensus, the cloud fax business start to see the enterprise portion becoming a larger ratio, the revenue retention or the cancel rates is just really extraordinary. So I think there's a positive mix that goes on there as well. Just in terms of your advertising question look, I think there is vertical strength. So as I said, the verticals we're in are the fastest growing verticals within the Internet advertising world. I do think there is also a fair amount of migration from non-performing to performing media, which we fit into because and while I've pointed out that 55% of the advertising business is performance price, I should have pointed out that the 45%, that isn't is measured that is as if it is, so there is all return on invested on advertising spend across everything we do. So, I think performance matters more. And then the last thing, I will say is that there's been a lot of discussion in the industry about the shift away from interest based ad targeting and back to more contextually relevant, and premium environments. And that obviously is what we deal in, as well. So I think all three of those have contributed to the gains that we've seen in the advertising business. And again, I think they're all long-term trends.

Helpful, good luck for the spring, guys.

Thank you.

Thank you.

Thank you. The next question is coming from Jon Tanwanteng from CJS Securities. John, your line is live.

Hey, good morning guys. Really fantastic quarter, and it's nice to see that cookie and tracking and privacy thesis playing out finally. My first question, Vivek, just I want to go back to your margin commentary for Q2, how that was probably not sustainable as we go forward. Q3 is usually a better quarter than Q2, I know it's fairly close. But just help me think of what investments you might be making in Q3 that might make the EBITDA margin lesser, or how should we think about it as we go forward?

Yes, it looks is a great question. We're really trying to put money to work on the marketing side within cyber security and Martech. As we've talked about in the past, these businesses really ought to be growth here. And we have run them for margin. And while we're not ever going to move away from our margin focus, I mean you all understand how we operate businesses at J2, it doesn't make sense, but not for us not to invest in marketing to accelerate longer term growth. So, you're going to continue to see that some of that played out, we didn't move as quickly on some programs, as I wish we had in Q2, and so we're primed to move quickly in Q3. So that's an element of it. And then the other element on the digital media side is obviously the advertising business has an incredible amount of operating leverage. And so, given the mix of that revenue on the digital media side, the flow through was very high, I don't want to always rely on that. And as the revenue growth rates will compress a little bit as the comps get stronger in the second-half, I think we have to keep that in mind. And then I do think there's some amount of costs that have not reentered the system, we don't have much travel going on. And that type of expense, that probably does come back into the company at some point in the second-half. So, those are sort of the puts and takes on it. But look, I think maybe a point in all of this, and what we've demonstrated really over the last four or five quarters is that, there's a fair amount of internally generated growth opportunities that we ought to feed, and finding that balance between feeding and investing those against the sort of the near-term profitability, along with our acquisition program and balancing all of those pieces.

Okay, great. Thanks, Vivek. And one for Scott, just did cloud fax outperform your expectations in the quarter? It sounds like it did. And if so, does that change the outlook for consensus compared to what you were talking about when you announced the spin, does the comps get much harder in the second-half, were you in line with what you thought you're going to do? Just a little more color on how you’re thinking about that?

Well, the comps do get a little bit hard because as you know, in Q2 of 2020, we've had a fall-off in medical procedures that were elected because of COVID and activity declined and we saw, I think you'll recall, the year-ago, we talked about it a couple million dollars of headwind in usage from our healthcare accounts, that obviously has not only bounced back, but it has gone well above that. So, we saw that rebounding beginning in the May, June timeframe of last year. Having said that, I think the business does remain very strong. And I think that if you're talking about the 2% kind of growth that we referenced back in April, we discussed the spin for the first time. No, we're, I think confidently now of the opinion, this is a mid single-digit grower, over time tracking to a high, if not double-digit grower. But I think in the near to intermediate term, mid-single-digits for consensus is the expectation and that would be in organic growth.

Great, thank you very much, and congrats again.

Thank you.

Thank you.

Thank you. And there were no other questions in queue. I would like to hand the call back to Scott Turicchi for any closing remarks.

Great, thank you very much, Paul. We appreciate you all joining us today for our Q2 earnings call. As I mentioned, during the call, Consensus will be at the HIMSS Conference coming up beginning Monday of this week in Las Vegas. We also do have one conference we're participating in virtually on August the 11th. For those that have signed up, it's one-on-one only, we will then be providing additional information over the coming weeks in terms of the exact timing of the spin, what you should be looking for is a flipping of our Form 10 to a public document, and then at that point, the declaration date, the record date, and then ultimately the distribution date. Thank you very much.

Thank you, ladies and gentlemen, this does conclude today's conference. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.