Robert Scott Turicchi - President and Chief Financial Officer Kathleen M. Griggs - Former Chief Financial Officer and Treasurer Nehemia Zucker - Chief Executive Officer.

Shyam Patil - Wedbush Securities Inc., Research Division Gregory Burns - Sidoti & Company, LLC Daniel H. Ives - FBR Capital Markets & Co., Research Division Josh Giles James D. Breen - William Blair & Company L.L.C., Research Division.

Good afternoon, ladies and gentlemen, and welcome to the j2 Global Second Quarter Earnings Conference Call. It is now my pleasure to introduce your host, Mr. Scott Turicchi, President of j2 Global. Thank you. Mr. Turicchi, you may now begin..

Thank you and good afternoon, ladies and gentlemen, and welcome to the j2 Global Investor Conference Call for the Second Fiscal Quarter of 2014. As the operator just mentioned, I'm Scott Turicchi, the company's President. And joining me today is Hemi Zucker, our CEO; and for one last time, Kathy Griggs, our CFO.

This was another strong quarter for both our Cloud and Media businesses, which we'll detail in much greater extent in a few slides. We will discuss those Q2 results, as well as provide you an update on our business segments. And I'll also alert you that our board has increased the quarterly dividend to $0.2775 per share.

We will use a presentation for today's call. A copy of this is available at our website. When you launch the webcast, there's a button on the viewer on the right-hand side which will allow you to expand the slides. If you've not yet received a copy of the press release, you may access it through our corporate website at j2global.com/press.

In addition, you will be able to access the webcast from this area. After completing the formal presentation, we will conduct a Q&A session. The operator will instruct you at that time regarding the procedures for asking a question. However, at any time, you may email questions to us at investor@j2global.com.

Before we begin our prepared remarks, allow me to read the Safe Harbor language. 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 SEC filings including our 10-K filings, recent 10-Q filings, proxy statements and 8-K filings, as well as additional risk factors that we've included as part of the slide show for the webcast.

We refer you to discussions in those documents regarding Safe Harbor language, as well as forward-looking statements. I'll now turn the presentation over to Kathy to discuss the financial results..

revenue growth versus Q2 of 2013 of 22.4% or $7 million from $31.2 million to $38.2 million, gross margin of 88.4%, operating margin of 25.6%, operating income of $9.8 million, EBITDA margin of 28.7% and EBITDA of $11 million. Please refer to Slide 23 of the presentation for a recap of our Q2 2014 non-GAAP consolidated operating results.

On a consolidated basis, adjusted net income for the quarter was $40.5 million. Consolidated adjusted growth in operating margins were 83.1% and 41.7%, respectively. For Q2 2014, we achieved adjusted diluted EPS of $0.84 compared to $0.76 in Q2 of 2013, an 11% increase, driven by strong performance in both of our segments.

With the issuance of convertible debt comes additional interest expense. We expect this to negatively impact our earnings per share by approximately $0.09 to $0.11 by the end of the year. For Q2 2014, amortization of intangibles on a pretax basis for the Cloud and Media segments were $7.5 million and $3.9 million, respectively.

This represents 7% of revenues for Business Cloud Services segment and 10.3% of revenues for the Digital Media segment. Consolidated free cash flow for the quarter was $54.1 million, representing 37% of revenues. Free cash flow for Q2 2013 was $39.2 million. Our cash and investment balances were $709 million at June 30, 2014.

During Q2, we issued $402.5 million of convertible bonds yielding approximately $391.4 million after issuance costs. During the quarter, we deployed $40.6 million for acquisitions and returned nearly $13 million to our shareholders as dividends. Today, we announced our 13th consecutive quarterly dividend and 12th consecutive dividend increase.

Specifically, our Board of Directors has approved a dividend payout of $0.2775 per share payable on September 2 to shareholders of record as of August 18. Since starting our dividend program in 2011, we have increased our quarterly payout by 35%.

Inclusive of our September 2 dividend, we now have returned $143 million to our shareholders or $3.06 per share through cash dividend payments. Gains or losses from fluctuations of foreign currencies were not material to either of our Q2 2014 or Q2 of 2013 results. Our estimated effective adjusted non-GAAP tax rate for Q2 2014 was 27.1%.

We anticipate our fiscal 2014 adjusted effective tax rate to remain between 27% and 29%. In conclusion, let me remind you that the supplemental schedules at the end of the presentation will provide you with more information on our metrics, as well as non-GAAP to GAAP reconciliation schedule for all financial measures, including our remarks.

Before I turn the call over to Hemi, I would like to thank all of you, our analysts and investors, our employees and management, our Board of Directors. I have enjoyed my time here at j2. And during the last 7-plus years that I've been here, all of us have created a lot of value in the corporation.

Your support, enthusiasm and efforts resulted in the success of our company. It's an honor and a pleasure to work with such a fine organization. I am certain you will continue to grow. And I will continue to follow up on your future success, and stay in touch..

Thank you, Kathy, very much. A few words about Kathy. I'm getting emotional, but I'll try not to. 12 days ago, j2 celebrated 15 years as a public company. Of those 15 years, almost half of the time, our CFO was Kathy. She did a wonderful job. I was first the CFO. She's by far better than me. I'm going to talk on behalf of Scott.

And I want to thank Kathy from the bottom of my heart. We had great time together, and we will stay friends forever..

Thank you, Hemi..

Thank you. So now let's go to business, Page 7. I will talk to you about our second quarter achievements. We had amazing quarter, probably one of the best ever that we have ever delivered in all the aspects of the business. Let me start with the consolidated numbers. We set quarterly revenue record of $146 million.

Our current quarterly revenues are up $18 million or 14% year-over-year. And the June revenue numbers, so our June month, had set a record of $53 million, divided roughly between $36 million for the Cloud and $17 million for Media. During the last 5 weeks at the end of the quarter, we continue to do acquisition and to grow organically.

And I am expecting a very strong second half of the year and expecting that the run rate for the month will grow $1 million or $2 million between now and the end -- or between now and the next earning call. We also raised $400 million in convertible debt.

I want to tell you, I'm a little bit sentimental because of Kathy, but when we went public, we raised $80 million. Then we raised a bond of $250 million, and now over $400 million of convertible debt. The terms are getting better, and it's much easier to raise it.

So I want to thank Scott here for leading -- especially leading with everybody, this effort. Let me move on to the business. Our non-fax revenue is now 52% of the business. While fax continues to grow, it is now only 48% of the last quarter. And based on June numbers, fax is now $25 million, so 47% of our last month.

Again, it continues to grow, but the rest is growing much faster. Talking about things that's growing faster, online backup business is nearing $60 million run rate revenue. I will have a dedicated page to discuss that.

Our business cloud subscription, revenue grew $12 million Q-over-Q, and the Digital Media $7 million, 22% on the Media and 13% on the Cloud. Let's go to Page 8 and 9, and I will talk to you about our Cloud business services.

So on Page 9, revenue growth by service, where I could, I tried to get you the best run rate, which is July, if it had any meaningful improvement or change. Our leading brand has always been eFax and eVoice. Those are the flagship premium brands of j2. They command higher price and provide better features.

In the last quarter, we see that they are starting again to be the bestsellers and leading the pack. These are very good news to us because not only they are commanding the highest price, they're also providing the best margins. eFax quarter-over-quarter is 4% better, driven by U.S. and international.

eVoice and eReceptionist, eReceptionist is the eVoice of Europe, is up quarter-over-quarter -- year-over-year, I mean, at 17%. This is very, very good. Online backup, I said 600%, and nearing $60 million of run rate revenue. And important to say, the EBITDA for the backup is on the high 30s and continues to improve as we scale up.

On our email businesses, as you know, we have FuseMail and Campaigner hosting in email services and email marketings. They grow together -- grew together 42% from 20 million to 29 million hosted email or email services. iCritical in the U.K. was an acquisition that we have announced last quarter.

We also since have done another acquisition during last month -- or it's really this week -- this month, I think, MXSweep. Yes, we did it this month, in August. MXSweep is an Irish company with email security. And then on the email marketing side, the first time ever we have done an acquisition of a company called Contactology.

It is out of North Carolina. It's our first acquisition, which is very important because now, we gained the comfort and the confidence to start to acquire also in the email marketing space, which as you know, is very big. It's not easy, but I think we'll figure it out as well.

And I'm looking forward to keep on reporting to you about the integration of this first acquisition. Page #10, when I will talk about the online backup. KeepItSafe and LiveDrive, our brands, current run rate is $60 million. Q2 actuals grew year-over-year 480% or from $2 million in Q2 last year to almost $12 million in the current quarter.

And the growth of quarter-over-quarter, meaning from Q1 to Q2, was from $8 million to $12 million for the Q. And as I said, August run rate is nearing $5 million. And we have done several acquisitions in July and already in August, something small as well. We are seeing very healthy ARPU in our businesses.

As you know, KeepItSafe is pure SMB business only. The annual ARPU, annual revenue per user, is $1,000 per year approximately. Then on the LiveDrive, which is mostly focused on individuals, we are seeing a healthy ARPU, annual ARPU of $100 per year.

KeepItSafe, the business service have added features like business continuity, professional services, when we can help a company to set up the policy and meet the compliance, compliance like FINRA, SEC compliance, file-locking and special packages for financial institution. And we have there marquee customers.

While I cannot think of details, the names or the top names, top shelf names in the financial world. On the mobile side, we already sold more than 5,000 seats. We have a healthy pipeline of more than 10,000 seats. We added features like e-discovery and legal hold.

Sometimes companies have to lock data in the backup as they go through e-discovery, and all those other requirements. We have it, and this help us to get top prices. We have launched in LiveDrive a new life cycle management, improves retention and activation rate. And we have launched new packages in videos for families, et cetera. Next page, our churn.

As you know, we changed the way we measured the churn from 4 numbers only in the past to now to include all our services. It is a record low of 2%. We are not reporting the DIDs on the phone numbers anymore, but I just made the extra effort to calculate them for you. And actually, we have a record of 2%. To remind you, it was 2.2% last year.

So again, improvement in the top leading brands of eFax and eVoice helped us to even further lower our churn. Everybody knows that it is all going down to the bottom line. Next, I will talk about the Digital Media, Page 13. Here are the highlights for the Media. As you remember, in 2012, we started with the media acquisition.

We bought Ziff Davis at the time. Before we bought them, the Ziff Davis revenue for Q2 '12 was only $10.8 million with an EBITDA of $2.4 million. So 20% EBITDA. The business is scaling and continues to scale in an amazing way. Now the $10.8 million revenue grew to $38 million. The EBITDA grew from 20% to 29%.

We are showing better monetization of the traffic and the cost management. Actually, in the last couple of quarters, the flow-through of additional revenue is even more than 50% down to the bottom line. We are very pleased with the Media business of j2. Some operationals number. Our video views grew 16% to 420 million per quarter.

Our visits to our websites of IGN, AskMen to PC Magazine grew 9% to 607 million visits. And our page views grew to 2 billion visits per quarter. Those are amazing numbers. Coupled with the fact that we became also a social media empire, we have more than 10 million social followers.

For reference, 10 million followers position us in the top tier of our relevant space, and we are very, very proud of this achievement. Next page, Page 14. I wanted to thank Vivek and Pierre [ph] for inviting me to the E3 show here at downtown L.A. I took my son. He loved me more than ever.

And during the E3 Conference, IGN was the major sponsor, was controlling the flow there. And we had record visit sites of 18 million, 68 million video sites. We delivered 96 million views, and we have simultaneously all time 300,000 users tuned in.

And any time during the 12 hours of live coverage provided by IGN at the E3, we did a leading video game trade shows. Subscribers to IGN Prime continue to grow to a record of 57,000, the highest level since the acquisition.

We continue with our global expansion with PC Magazine now launched in the U.K., Australia and Benelux, and AskMen launched in the Middle East, in India, in Greece, in Turkey, and in the Benelux as well. With that, I will pass the mic to Scott..

Thank you, Hemi. And before getting to the guidance, I'd like to turn your attention to Slide 16, which is the legal structure. As some of you may know, in conjunction with issuing the convertible notes, the company went through a reorganization, by which j2 Global, Inc. is sometimes now referred to as HoldCo.

In the current structure, it owns j2 Cloud Services, which is the Business Cloud Services unit. And it in turn owned Ziff Davis, LLC, our digital media subsidiary and advanced messaging technologies and its subsidiaries, which encompasses our IP. Subsequent to another step, ultimately, j2 Global, Inc.

will hold the 3 subsidiaries directly as sister companies. The parent company in red is the issuer of the $402.5 million of senior unsecured convertible notes due 2029, with a 3.25% coupon, and j2 Cloud Services is the issuer of the $250 million of 8% senior unsecured notes.

As Kathy noted earlier, in conjunction with the issue of the new converts, we will have on a non-GAAP basis about $3.5 million a quarter of additional interest expense or $2.2 million after tax.

Under the assumption that those proceeds are not immediately invested, there will be a charge to earnings of about $0.045 per quarter or on average about $0.10 for this fiscal year since we did incur about $0.006 in the second fiscal quarter, specifically in the month of June. So I remind you to follow that through your various models.

Notwithstanding that though, we are reaffirming our guidance for the fiscal year, and to remind you that is revenues of between $580 million and $600 million and our adjusted non-GAAP EPS of between $3.23 a share and $3.47 a share, with an estimated non-GAAP tax rate of between 27% and 29%.

Finally, behind the supplemental information slide are the various metrics for the Business Cloud Services and Media entities, as well as a variety of reconciliation schedules of the various non-GAAP measures used in this presentation to their nearest GAAP equivalent.

At this time, I would ask the operator to come back on and to instruct you to queue for questions..

[Operator Instructions] Our first question comes from the line of Shyam Patil from Wedbush Securities..

First question, and thanks for breaking out the fax growth run rate, but on -- just focusing on that for a second, where would you say the growth is coming from or back? And where is it growing, where would you say it's not growing right now?.

Thank you very much, Shyam, and thank you for attending our call. I know that at the same time now, many earning calls are happening, and we appreciate the fact that you joined us. Our fax is growing in Japan, in Asia Pacific, Australia and New Zealand. We did a few acquisitions in Q1, small, but growing.

Our corporate continues to grow and delivering these low cancel rates because those are multiyear contracts. And also, in the local, I mean, a bit here, a bit there, but the drivers are Asia Pacific and corporate..

Got it. And in the online backup space, that space is -- that segment has been scaling pretty nicely for you over the past several quarters. How many targets do you think are out there that you'd be interested in that could realistically scale that business? We know of Carbonite.

But when you look at the market, how many would you say are out there, like a significant scale to cause the backup business?.

Let me divide it to 2. There are companies that have their own technology, meaning they have a group of engineers that are maintaining, developing and continue to add features to their backup like Carbonite, for example. And there are companies that are using third-party software.

Of those that are running their own, I can think immediately about 10, with maybe 1 -- maybe 2, maybe 1 of $100 million and up; and then several on the $50 million to -- and I'm talking only U.S., yes? And then there are probably a dozen of companies that have $10 million to $50 million revenue with their own technology.

Then on the companies that are using -- we are now using 4 third-party softwares that we can acquire, that know this software, how to support it and do full integration of those. There are hundreds, hundreds or thousands of companies that are starting.

As you know, a large company can be $10 million, $12 million leading their country, and can be as small as $0.5 million, can be a reseller number, 55 in the U.K. So it's a very -- there are many of them, and I hope I answered your question..

Yes, that was helpful.

And the convert, could you talk about just how you want to -- how you're thinking about using it, the use of proceeds? Obviously, we just talked about the online backup, but just if you could talk at high level about areas that are interesting and maybe areas that you're in right now that aren't interesting, that'd be very helpful..

2 things. First of all, as we noted, there's an excess of $700 million of cash and investments available. About $550 million of that is now U.S.-domiciled and it's highly liquid. All of the convert proceeds obviously were U.S. cash. So we have -- but we can export that money if transactions are large enough in foreign jurisdictions.

So we feel very good about the fact that we've got an ample amount of U.S. cash, as well as worldwide cash. First and foremost, we'll look to the 2 existing segments of the business, meaning the Cloud Services and the Media, for further deployment of capital.

But we will also look for other segments that could be complementary to those 2 under the overall umbrella of j2 Global being an owner of digital assets, digital/Internet-oriented assets.

I would say that obviously, with this amount of cash, we're looking for deals that tend to be at the larger end of the spectrum, although we feel no urgency to put the cash to work. The timing of the convert was one that we felt was somewhat opportunistic given the market conditions.

We think we have an attractive coupon and all-in financing cost structure for it, but we would like to put the capital work in larger chunks than we have done historically..

Scott, plus other few members of the team spent the last months traveling around the world, trying to discover new areas that we can expand into. We found some interesting potentials, but none of them is big enough for me to talk about or disclose.

But we are definitely spending time, energy and everything we have to expand our reach to new spaces with our either in the Media side or in the Cloud businesses or maybe a third one..

Great. And just a follow-up on that, and just honing in on Media. How should we think about the roadmap to continue to scale that business, particularly from an M&A standpoint? And then when you look at the margins, it seems like they've been a little bit stronger than we've been expecting.

How are you thinking about the long-term margin targets for that business? And how does it change given the recent outperformance?.

Well, I think on the Media side, we have 3 areas from an M&A perspective in which to enhance and further scale that business. One is to acquire additional like assets in tech and games domestically or U.S. and Canada, where we already have strong leadership position.

The second, though, would be to acquire assets in those spaces in foreign jurisdictions. And we, in fact, have been looking outside of the United States.

And then the third piece would be to add additional verticals beyond tech and games, staying consistent with the philosophy that we want content-driven digital media where it is leading to some form of a buy or purchase decision. So there's actually a lot of room to go within the Digital Media space given that we have these 3 different angles.

In terms of the longer-term margin profile, you're correct, we're running ahead of budget this year in terms of both the aggregate EBITDA, as well as the margin. I think we said so far throughout this year that it would be unlikely that the Media business would produce a 30% EBITDA margin for the full fiscal year.

I think that assumption is likely to be challenged, given that we've had strong margins that are up about 15 percentage points versus the comparable quarter in the prior year, and that's true for both Q1 and Q2.

The answer to your question is in part a function of how large the business gets; and what is the mix of those incremental revenues beyond the current book of business? Because there's a much wider range of margins in the Digital Media business than there exists in the Cloud business.

When we get into a cloud space, the ones that we are in, it is not uncommon, as we start to get to scale, that incremental revenue flows through initially at, say, 30% to EBITDA, and then once we start to get to even modest scale, 40%, and then ultimately, 50%.

And there's not a lot of variation in the types of customers on the margin for producing that incremental flow-through to EBITDA. The Media business, though, however, has a very wide range of marginal margins. They can be as low as 10% to as high as in excess of 90%.

So the mix of your revenues, and certainly your incremental revenues on top of the base, will influence where your margin ultimately settles at. I'm a believer that as this business scales and adds the next 100-and-some million dollars of revenue, clearly, we'll be in the 30%-plus EBITDA range.

I'd like to believe that will be trending towards the middle and maybe even the higher end of that range. But I would just caveat, it is going to be very sensitive to the mix of that incremental hundred or so million dollars of revenue..

Great. And then just my last question.

Just on the shares outstanding, how should we think about the diluted share count going forward with the convert?.

They won't be in effect until they're in the money. So until the stock's at about $70 a share. We have a net share settlement, so you'll only be looking at the delta above that amount. So we'll settle the first $402.5 million in cash. But you can calculate what it is based on a future stock price. You can see the incremental dilution..

Our next question comes from Greg Burns from Sidoti..

Just a question about LiveDrive.

Have you considered taking that model to other geographies or maybe expanding the retail distribution that you have in the U.K.?.

Yes and yes. We are talking to you about taking it to the U.S. with a major retailer. We are taking it to other countries. So yes..

Okay. And in terms of the growth of the -- the mix of your revenue, I guess, at the beginning of the year, it was like fax was going to be a little bit less than 50%. Obviously, you're ahead of that now.

So has the growth outside of fax been stronger than expected or is fax just slower? Could you just give us a little color on that?.

Yes, Greg. Fax is, on its plan, adjusted the other elements, are growing faster than we planned. So yes, fax is continuing to grow and is surpassing our expectations..

Okay. And then it looks like given the run rate revenues that you were discussing for June and maybe July that, that would kind of imply you're going to be above the top end of your guidance range.

I mean, is it just not enough to raise the range? How should we think about that?.

Be careful, run rate revenue are going forward. So you've got the first 6 months of the year. They are what they are. And then you can take the current heartbeat of business. And remember, in the Digital Media business, the third month of each fiscal quarter is usually the best month of the quarter.

So you can't take $53 million in June and multiply it by 6 necessarily or by 12. And in fact, if you did it for Digital Media, you'd probably understate the revenues because Q4 tends to be seasonally better. But also, remember that Q4 for Cloud is somewhat seasonally weaker.

So right now, we do not see ourselves exceeding the top end of the revenue guidance. Now that may change between now and the end of the year. But as of now, we don't. And hence, there's no change in the range..

We took a conservative approach. And as you know, as Scott just said, usually Q4, Media is very strong. You can see the last year's numbers, how much stronger it was in the previous quarter. We thought about it. And as I said, we took the conservative approach but your thoughts are things that we have in mind as well..

Okay. And then lastly, it looks like the monetization of the Media assets is improving. I know IGN, there's some work to do in terms of getting the data sets and the infrastructure in place to better monetize that.

Can you just give us an update on where you stand with the IGN kind of integration and the revenue bench with that asset?.

I think what you see in the first 2 quarters of this year is really bearing out, primarily the work that has been done at IGN. As you recall, when we bought Ziff Davis, we told everybody. This is a well-optimized asset.

So integration was virtually done in a day because we absorbed both the technological platform, the brands and the people, but then really wanted to leverage that infrastructure and that team for a much larger base of revenue.

So we're now more than triple roughly the revenue that we acquired in 2012 and to your point of the acquisitions we've done in the Digital Media space, IGN was not only the largest in terms of revenue, but probably the most complicated, in that we had to first exit certain business units that we could not justify given their financial profile.

We focused that business back to its core games and lifestyle orientation. And then, three, and probably most importantly, take advantage of the very large amount of traffic, really not focus on growing the traffic, but better monetizing the traffic.

And in fact, you can go into the metrics and calculate sort of the value we're generating per visit, granted it's for the digital publishing business as a whole. But a lot of that has been driven by the improvements that have come from the monetization of the IGN traffic. So we're done with integration. We have exactly who we want with that business.

We are now going through, and I think starting to prove out, the success of the business model that in fact, there is a way to derive more value by going to a multipronged approach from each of those visits that show up at the IGN website. So I don't think we're done, but it's not so much a technological effort at this point or integration effort.

It's to what you earlier said, getting more and more data, refining the approach of how we can slice that data up for ad sales. But clearly, we are very pleased with the results in the 15 months that we've owned IGN..

Yes, the biggest change is there's more video and we make more money for each video that we run. And IGN is a leading channel in with PlayStation and all those kinds of things. So all the technology integration is working very well in our favor..

Our next question comes from Daniel Ives from FBR..

So just in terms of acquisitions, how do you view domestic versus international opportunities relative to your pot of cash?.

To some extent, I guess, we're agnostic in terms of where the acquisitions take place. Obviously, as you know in our model, we're looking to buy assets that can yield a certain return based upon how we intend to manage them going forward. So you've heard me say for the last probably 2 or 3 earnings calls that we spend a lot of time outside of the U.S.

given the fact that the various stock market indices in the U.S. were at or trending near all-time highs. We've obviously seen a lot more volatility to the downside in the U.S. markets in the last couple of weeks, which is not enough to make a whole story. As Hemi mentioned, we took some international trips to various parts of the world.

But if in fact there is a significant crack in the U.S. stock market and/or a major correction, I think that would bode very well for us putting the capital to work in the U.S., which to some extent would be, I guess, on the margin, preferable because in both the Media business and the Cloud business, the majority of our employees are U.S.-domiciled.

So it is easier to deploy management teams for integration purposes. But as you know, we've done deals in far flung places like Australia and New Zealand. So....

Norway..

Norway, it's not quite so far flung..

Yes, then if we are getting more comfortable with certain countries, and then we get comfortable with a country or a region, we start to look. Recently, we have developed a good trust and capabilities in the Nordics. Scandinavia and all those countries have very good businesses that represents a very good opportunity with public companies.

They are traded in a much better -- much more attractive than here in the U.S. And we are positioned to -- and we are looking all over. Our M&A, actually, lead is a European guy. But we are not committed to anything. Obviously, with the last capital, we are no longer limited. Before, we have so much available in the U.S. and so much internationally.

Now most of the money is available on both..

Our next question comes from Ryan MacDonald from Northland Capital Markets..

This is Josh in for Ryan.

Say, I was wondering what's your latest opinion on your Carbonite position? Is there any update there? And then you've already talked about M&A quite a bit, but can you nail down any specific verticals that are attractive at this point?.

Yes, so first of all, on Carbonite, I'm going to disappoint you and give you the same answer as I gave last quarter and the quarter before. We are almost 10% shareholders. We wish they will perform a bit better so we get a better return on our investment. And we are waiting for development, but nothing to report.

On the acquisitions around the world in the other spaces -- so I cannot talk about public companies from the sensitive nature of it, but definitely, we see small and midsized companies, including midsized public companies. Nothing came to the level that we are comfortable to disclose..

But I think of in terms of within the Cloud space, you might have been thinking more of suites of services or types of services. We're thinking very broadly.

Obviously, anything that we are currently engaged in doing and even 1 or 2 degrees removed, so the DID base set of services, the email services and the online backup, all of those categories we continue to be aggressive and looking for acquisitions around the world. But then we also look for new sets of services.

I would say we pretty much excluded nothing. I know it's probably been a couple of years since we talked about the range of these Cloud-based services. I would say most of them would be ways in which small businesses are further automating or moving processes to the Cloud.

That's really, I think, where we see the opportunity is, is more of those things that used to be software-based or even done manually move themselves to the Cloud. Those are the things we're exploring. Now when we do an exploration, first thing we have to do is get comfortable at what stage is that process of movement.

Some things look very interesting, but they're very early stages, not much really of an industry. There's not a lot of players. There's not a lot of revenue. So it's not clear if it will really shake out as a legitimate category of service. Others tend to be a little bit more mature.

So you can actually look at a range of players in the space in a region of the world, get a sense of the aggregate kind of revenue, the type of growth rates that are going on, a better sense in the overall margin structure.

So we're sort of -- we're doing an end-to-end analysis and looking at where can we enter a space that has some degree of maturity, meaning that it has players in the space, it has revenue.

I think the spaces that we have entered over the last several years are representative, meaning that they're not sort of these brand-new startup kind of ideas, but they are with real customers, real revenue. You can see how people are valuing the proposition for whatever service that is.

Then the issue for us is, do we think that's going to be a large enough space that will be meaningful to j2? Can we enter with the right asset? And then probably as importantly, can we buy into the space at the right price? Obviously, we said yes to online backup. We've said yes, to email, yes to email marketing.

Some of the other ones are still under exploration, and there's many of them..

Our next question is a follow-up from Greg Burns from Sidoti..

Just a question on the Digital Media, expanding it globally, you had a couple of announcements moving into new geographies.

Can you just explain how that works? So you're just licensing like the IGN or PCMag brand to them? Are you licensing within contents? Are you providing the ad network? Like how does that work?.

All your questions today Greg were yes, yes, yes. And it's like yes. Licensing, sometimes we take it on ourself to translate. Sometimes, we license. In those locations, most of them are of the licensing nature..

So we define the brand, the content and the third parties create their own version of the website and translate or transliterate the content, and then build their own model in terms of monetization around it..

And they can run their own local competition, interviews, but we provide the channel and the frame and mostly the brand..

Okay.

So you have no -- like you're not selling ads to those platforms or don't like data to be collected by you and monetize or anything like that?.

We don't, but if, let's say, PlayStation or one of those who wants to come and say, "Hey, I would like to advertise including those countries." Yes, we will organize it..

Our next question comes from Jim Breen from William Blair..

Just a couple of questions. Just on the cash flow side, cash flow's quarter was particularly strong. I think it's $54 million.

Is that -- is there anything there in terms of -- is that the assumed run rate going forward or that fluctuate more in the back half?.

It tends to fluctuate typically when you have certain payments due in certain periods such as income taxes. So I wouldn't necessarily say its property is after a run rate. Typically, we pay in Q3 estimated taxes, Q1 as well. And then, of course, you have capital investments throughout the world that occur.

While they're not large, oftentimes, they will occur around the budgeting timeframe, which is typically Q4 or Q1. So let's just keep that in mind..

And you'll notice that last year, I mean, Q3 was the lightest of the free cash flow, leaving aside the CapEx timing. Just the net cash provided by operating activities was the lowest because of the timing of certain payments. So I would not take $54 million.

I wish you could take $54 million and annualize it and run-rate it, but I think that would probably be a bit too aggressive..

Yes, yes..

Okay. And again, last quarter, I think, it was around $39 million or so.

So is that $39 million to $50 million sort of the range on a quarterly basis and will fluctuate based on where the payments come in?.

Yes..

The payments and the size of the payment..

The size of the payment. So you can't say that $39 million is the absolute minimum because the size and the timing of the payments in Q3, as it did last year, could cost it to go less than that "lower-end threshold" that you just mentioned..

But then our forecast is a little bit short of $200 million. So we just did the -- we did the convert. Things move right and left, but basically, those are the ranges..

And a follow-up to the previous question that you're asked on the announcements you made this morning. Is there -- do you have any capital equipment there? Is it basically just a name that....

Very small. Our capital expenditure is really small. We get excited when we spend $1 million. It's like a big deal..

I get excited..

. Thank you. I will now turn the call back over to Mr. Turicchi for closing comments..

Good. Thank you, very much. We appreciate everyone joining us for our Q2 Earnings Call. We've put our press release a few days ago. Tomorrow, myself and Vivek Shah of our media group, we will be at the Needham Conference in New York City. We have a presentation at 9 a.m. Eastern. So either listen over the webcast, or if you're in town, join us live.

And then there will be other conferences between now and the next earnings call, which will be the first week of November. So please look for press releases announcing those. And then finally, I'd like to give my own congratulations to Kathy and my own sign-off to her for the last time. It's been great..

Thank you, Scott. It's been fun. Thank you..

Thank you very much..

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation..