J2 Global, Inc. (now identified in the request as Ziff Davis, Inc.) — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021, compared with Q1 2020. The filing is under the name J2 Global, Inc.; investors should verify the issuer and filing identity against the company name in the request.
Business context and financial performance
J2 Global operated Digital Media and Cloud Services businesses, including advertising, consumer and business content, cloud fax, cybersecurity, privacy and marketing technology. Statements are unaudited.
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Revenue | $398.2 million | $332.4 million |
| Gross profit / margin | $340.4 million / 85.5% | $273.3 million / 82.2% |
| Operating income / margin | $78.5 million / 19.7% | $55.2 million / 16.6% |
| Net income (loss) | $77.9 million | $(6.4) million |
| Diluted EPS | $1.67 | $(0.13) |
| Operating cash flow | $178.7 million | $102.0 million |
- Revenue rose 20%. Digital Media revenue increased 39.5% to $226.9 million, primarily from acquisitions; Cloud Services revenue increased 1.0% to $171.4 million.
- Digital Media operating income was $30.7 million; Cloud Services operating income was $63.5 million. Digital Media growth was acquisition-led, while Cloud Services benefited from lower operating expenses and modest revenue growth.
- Cash and cash equivalents were $372.0 million at quarter-end, versus $242.7 million at December 31, 2020. Cash, cash equivalents and investments totaled $511.3 million.
- Net cash used in investing activities was $29.0 million, including $26.3 million of property and equipment purchases. Net cash used in financing was $20.1 million, including $12.2 million of share repurchases and acquisition-related payments.
- Debt carrying value was $1.586 billion, including $402.4 million of 3.25% convertible notes classified as current because holders could require repayment on June 15, 2021. Long-term debt was $1.186 billion. The company reported compliance with debt covenants.
Changes, outlook and notable items
- Net income improved substantially from the prior-year loss, partly reflecting a $24.3 million net gain from the OCV equity-method investment, compared with a $4.3 million net loss in Q1 2020. The 2021 result primarily reflected gains on underlying investments.
- The prior-year comparison included a $20.8 million loss on investments, net; none was recorded in Q1 2021. Q1 2021 also included a $2.0 million gain on the sale of UK Voice assets.
- The effective tax rate was 9.6%, versus 132.5%, primarily due to release of a valuation allowance on deferred tax assets related to investment impairments, among other factors.
- Management expected fiscal 2021 revenue to be higher than the prior year for both Digital Media and Cloud Services, subject to economic conditions and other risks. No specific numerical revenue or earnings guidance was provided. Management expected operating profit as a percentage of revenue to generally decline as Digital Media grows as a share of revenue, given its historically lower operating margin. It also noted pressure from advertising shifts to mobile and newer formats.
- In Q1 the company designated its B2B Backup business for sale; assets of $135.7 million and liabilities of $22.3 million were classified as held for sale. After quarter-end, on April 19, the company announced a proposed spin-off of its Cloud Fax business as Consensus, subject to approvals and tax-related conditions. It also entered a $100 million revolving credit facility on April 7.
- Risks include COVID-19 uncertainty, customer retention and advertising demand, acquisition execution, foreign exchange, tax and regulatory exposure, and litigation. The company had a $23.7 million reserve for indirect tax matters and approximately $4.5 million accrued for certain legal contingencies. Management said existing cash and operating cash flows should meet anticipated needs for at least 12 months.
Key facts for investors to verify
- Confirm issuer identity: the supplied filing identifies the registrant as J2 Global, Inc., while the request names Ziff Davis, Inc.
- Assess the June 2021 holder repurchase option on $402.4 million of 3.25% convertible notes and the company’s stated intention, after quarter-end, to call those notes for redemption.
- Review the assumptions and sustainability of the $24.3 million OCV investment gain and the impact of acquisitions on reported revenue and margins.
- Track the B2B Backup sale process and the proposed Cloud Fax spin-off, including completion conditions, costs and tax treatment.
- Monitor the $23.7 million indirect-tax reserve, ongoing tax audits and litigation exposures, as well as the company’s significant goodwill and intangible assets.