Robert Scott Turicchi - President and Chief Financial Officer Nehemia Zucker - Chief Executive Officer.

James Fish Shyam Patil - Wedbush Securities Inc., Research Division Gregory Burns - Sidoti & Company, Inc. James Moore - FBR Capital Markets & Co., Research Division 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 my pleasure to introduce your host, Mr. Scott Turicchi, President of j2 Global. Thank you, Mr. Turicchi, you may begin..

Thank you very much. Good afternoon and welcome to our investor conference call for the third fiscal quarter of 2014. As the operator just mentioned, I'm Scott Turicchi, the President and CFO of j2 Global. And with me today is Hemi Zucker, our CEO.

This was another very strong quarter for both our Cloud and Media businesses, both financially and with respect to our M&A activity. We will discuss all of that in greater detail, as well as provide the Q3 results and an update on our 2 business segments. I would note that our board has increased the quarterly dividend to a payout of $0.285 per share.

We will use the presentation as a road map for today's call, a copy of which is available at our website. When you launch the webcast, there is 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 the website at www.j2global.com/press.

In addition, you'll be able to access the webcast from this site. After completing the formal presentation, we'll 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. As you know, this call and 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 additional risk factors that we have 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. Now if you would turn to Slide 5, I will briefly review the quarterly results for Q3 of 2014. As you know, we operate in 2 business segments. The Cloud Services segment and the Media segment. Let's start with the Cloud.

The Cloud had $108.7 million of revenue, a 16.4% growth versus Q3 of 2013. EBITDA margins remained strong, producing aggregate EBITDA slightly in excess of $51 million. The other piece of our Cloud segment is our IP Licensing group, which had $1.1 million of revenues and $816,000 of EBITDA.

As we stated before, the IP Licensing business will generally produce $1 million to $2 million in revenue and 70% to 90-some percent EBITDA margins, depending upon our rate of reinvestment in that business. As we stated last quarter, we are currently reinvesting in the IP Licensing business to launch new programs next year.

The total Cloud segment produced almost $110 million in revenue and approximately $52 million in EBITDA for the quarter. Our Media business produced $43.2 million of revenue and $12.7 million of EBITDA, a record for a non-fourth fiscal quarter and almost 29% EBITDA margins for the quarter.

Consolidated j2 produced $153 million of revenues in the quarter, $64.7 million of EBITDA, for approximately a 20% top line growth, 22% EBITDA growth. Then taking into account depreciation and amortization and taxes, we produced net income slightly around $40 million or $0.83 on an adjusted non-GAAP basis and $0.60 on a GAAP basis.

Our free cash flow for the quarter was $39 million, up 75% from the third fiscal quarter of 2013. I will remind you that we have $684 million of cash and investments available. The vast majority of which are U.S.-based. We spent $53 million of cash during the quarter, $13 million approximately on our quarterly dividend and $40 million on M&A.

For more detail now, I'll turn the call over to Hemi, who will take you through the business segments..

Thank you very much, Scott and good afternoon everybody. Now that Scott is also the CFO, we are the 2 of us, and I will talk and discuss a little bit more on the numbers than I used to do before. Let's start with Page 7 and I will talk about our total j2 Global numbers. We set a quarterly revenue record of $153 million.

Last quarter, to remind you, was $145.7 million. So we are more than 5% quarter 3 over quarter 2. Our quarterly revenue is up $26 million or 21% versus Q3 last year. September revenue was a record month of around $53 million. And for Q4, our run rate should be at the level of the $55 million per month.

This is mostly because we have added the Excel Micro and Web24. Excel Micro was actually acquired in October. I will discuss it in Page 11. In October, everything will continue to grow organically. Our email security and hosting business is nearing a $30 million revenue for the year. This is the current run rate -- annualized run rate for Q3.

And for Q4 with Excel Micro, those businesses are representing now a $45 million run rate as of October. So our total Cloud quarterly revenue is up $16 million or 17% versus Q3 2013. Media did even better, revenues up $11 million or 32% versus Q3.

And the important fact to mention here that the EBITDA for the Media grew to 29% versus only 17% last year, which is 70% EBITDA growth for the Media. Now I'll walk you through Page 8 and then Page 9, which is our DID business.

Our DID business and our marketing team there is doing excellent job, focusing on growing our -- and promoting our lead brands, which are eFax and eVoice. eVoice -- and eReceptionist. Fax and voice grew $6.2 million or 2% year-over-year. The eFax run rate grew 6%, corporate fax run rate grew 9%.

And our voice brands that are the leading brands are eVoice and eReceptionist are 18% up, strong growth both in the U.S. and in Europe. Fax is still growing. Fax is now only 47% of the total revenues, and the run rate -- at the run rate level. And to remind you, it was 57% of the total revenue just last year.

So still growing, but only 47% versus 57% a year ago. Let's go to Page 7 -- 10 sorry, Page 10, when I would discuss the non-DID business. Our non-DID business revenues are up $14 million or 193%, almost double versus last year. Online backup revenue is up $11.2 million, 500% versus Q3 '13.

And by now, we are fully integrated with our recent acquisitions of BUMI. I recently visited them in New York office. They moved to the New York office of Ziff Davis. And also, I visited last quarter Norway. They are now rebranded as KeepItSafe in Norway. LiveDrive. LiveDrive is launching its version 2 next month.

And it's very important because now we have revamped the entire design of the desktop and the mobile. In the past, our mobile app was actually allowing customers to view the backup that they did on the desktop, now the mobile is also backed up itself. The installation is much simple.

Once you install it, it starts to automatically -- does its own file selection, automatic backs it up. And it is acting now in the mobile side more like in the desktop when it also -- it's a pull versus push of the data. It automatically backs it up whenever it feels that you are in the right bandwidth.

Our email and security -- our email which is built on security and email marketing, Q3 revenue is up $2.3 million versus last year. And our annualized run rate revenue is 24 -- $25 million more than last year. Email security revenue up 279% versus prior year and email marketing, 25%.

Both, as I said before, a $45 million of revenue growing both organically and through acquisition. Page 11, I will discuss our recent 2 acquisitions. Excel Micro was actually purchased in the last day of the quarter, which has impacted our cash because we paid in the last day of the quarter. But revenue contribution actually starts in October.

We bought the company that is a significant supplier on the email security market out of Philadelphia.

They're an exceptional team with established channel partners, strong sales team that are growing the business organically, a full suite of services including security and archiving, and we are now ready -- already in M&A situations to continue and grow and acquire some of Excel Micro competitors.

The next acquisition was done in the last half of September. It is a company called Web24 out of Australia, Melbourne-based. I'm going to visit them next week. Web24 is an Infrastructure as a Service provider. And they are hosting solution for SMBs and enterprise customers.

They offer services like shared hosting, VPS, dedicated servers and as you know, j2 will continue and acquire other competitors in the space as well. Let me go through Page 12 and then 13 when I will discuss about our Media. As I said before, the Media revenue is 32% quarter 3 over quarter 3.

Usually, our past experience taught us that the Q4 is the strongest quarter for the Media. And EBITDA, as I said before, is also 70% up from previous to 29%. The Media, we are very happy with our Media business, which continues to demonstrate strong fundamentals.

Revenues grew up $10.6 million and 68% of the incremental year-over-year revenue flows to the EBITDA. This is very important. Revenue per thousand visit is $72, which is improvement of 32% versus last year. Important to mention here, the Media is continuing to be performance-focused.

As you know, performance means when you are paid for results versus when you are just paid for views. And the performance revenue in the Media now is larger, in the 30% of the Q3 revenue. We are very proud of this achievement.

PC Magazine, AskMen and IGN delivered 4.7 clicks (sic) [ 4.7 million clicks ] to retailers, and we have launched a new CPA initiative.

As you can see on the right-hand, this rectangular here, it's basically a high-value B2B categories when you recommend services, in this case it's web hosting, and we are paid by all the the web hosting companies, too small to see them, for our ability to generate customers for them. We have continued with our global expansion of our brands.

IGN launched in Latin America. PC Magazine and AskMen will follow this year as well. IGN launched in Portugal and in Greece, and PC Magazine launched in Australia. Next page when I will focus on the IGN-only results, as you know, video is key, is the future success of online advertising. Q3 video is up to 441 million, 35% growth versus last year.

And as bandwidth is getting better, video is becoming more important. IGN YouTube channel surpassed 5 million subscribers, which is 44% versus last year, same quarter. IGN video content expands to the Sony PlayStation 3 as well.

We are now the third most popular console app after the Xbox and 360 or what I wanted to say, the PlayStation 3 is now the third console after Xbox and PS4. We have now already have $1.7 million -- 1.7 million, sorry, console app downloads.

And during the quarter, we have streamed eSports, gaming content from Gamescom, International Tokyo Game Show and EVO. And lastly, IGN, AskMen and PC Magazine passed the 12 million social followers mark, up from 10 million. So 20% in only 1 quarter of growth in the social media. With that, I will pass the conversation to Scott..

Thank you, Hemi. If you turn to Slide 16, we are reaffirming the annual guidance, which, I will remind you, calls for revenues for the fiscal year to be between $580 million and $600 million, and our adjusted non-GAAP EPS to be between $3.23 per share and $3.47 per share.

I would note that we issued the convert in June of this year, so I'll just remind everybody that we have now total interest expense per quarter pretax on a non-GAAP basis of about $8.7 million and the convert itself translates into about $0.05 per share on the bottom line until those funds are reinvested in what we expect to be M&A activities.

Then I would point to Slide 17 and following, which are a combination of the consolidated metrics of j2. Specific metrics for the Cloud Services and Media businesses and then the reconciliation of the various non-GAAP measure used in the presentation such as EBITDA and free cash flow to their nearest GAAP equivalents.

And at this time, I'd ask the operator to come back on the line and to instruct the participants for the queuing of questions..

[Operator Instructions] Our first question is from Walter Pritchard of Citigroup..

Jim Fish on for Walter. Looks like a pretty decent quarter. I just had a couple questions in regards to a few of the metrics. It looked like ARPU was up quarter-over-quarter again.

What drove this higher, was it more the mix of backup or what was the driver there?.

Yes. I mean, it was up modestly on a quarter-to-quarter sequential basis. And what has been occurring both over the last 4 quarters and even within Q2 to Q3 is more of our incremental revenue in the Cloud business is coming from the non-DID-based piece of it, specifically the backup piece.

And as we noted on the last earnings call, that has generally a higher ARPU, particularly if it is in the KeepItSafe piece of the business, which is backing up the servers. Those tend to come around $80 per account per month in terms of ARPU..

Welcome to our new analyst. And also I wanted to mention, as I said, we are focused more on our more prominent brands like eFax. And they get higher ARPU as well versus the less prominent brands..

And then also on the cancel rate, it was up compared to last quarter whereas the overall trend has been typically down.

I mean, flat year-over-year, but was there anything that drove this up within the quarter as well?.

This is perfect question. I was waiting for it. So let me explain you. In the past, most of our revenue and most of our churn came from the fax and voice. And usually, we have a metric when we give you the first months or 2 free, sometimes 3 months, and then if you cancel, we count it as churn.

In the LiveDrive situation, we decided to give some customers even longer period before we call them to pay or go away. The reason is, as we were testing it, we found out that in the backup, it is better for us to wait a little bit, get the backup up and running, get the customer more engaged and then force them to pay.

So therefore, there is a little uptick on the churn. But just because of the change of method that is driven by the LiveDrive, which is a different product, if you understand what I was saying..

Yes, yes, that's very much clear. It just sounds as if you're offering more the premium version just for a longer period of time..

Exactly..

And that just led to a little bit of falloff..

The only thing I would note is that, remember, our cancel rate is always really looked at in a range. So right now, we're in the 2% to 2.25% cancel rate range. And it will fluctuate within that based on, in part operational decisions we make.

And then also, the aggregate mix of the business because there are different cancel rates, not only across different service sets, but in different parts of the world..

I also want to tell you that in the backup, it's a bit different. So the backup is done and the cost is once we have all your files in our backup. In the old days, we used to threaten to cancel and then keep the backup for another 90 days in case you changed your mind.

Now what we have decided to give you another 1 or 2 months of latitude and just delete it after 30 days. So actually, the cost is just the same. It's just the critical point is moved because we believe it's pointless to keep 90 days after you didn't show us money.

But it is beneficial to us to give customers more chance, especially as I've mentioned that we have a new app that we just launched. The new app, the special thing about the new app is that it has built-in reminders. So it's going to be the ultimate save features to increase commitment of our customers..

And then just one final question for me. You guys used to disclose the cross-sell between customers as well as the organic net adds.

I assume for the most part, given that Excel was so late that it really wasn't meaningful in terms of net adds, but can you guys give us a sense of where those 2 metrics were, the cross-sell as well as the organic net adds on the quarter?.

Yes. So first of all, Excel is new..

It didn't impact the quarter at all..

And it didn't have any impact on the quarter. And we are continuing to do the cross-sells, and I just read yesterday the report from our customer support that it is actually the cross-sells are even better. The increase in the eVoice is there. But we just decided to stop following on the metric.

Originally, we followed up with the metric just to make sure that everybody is doing his job. Actually, it is continuing in the same trend with some improvements that I'm anticipating because now with the Excel Micro and the Web24 and the other things. we'll have basically more product in the basket to offer.

And maybe I will bring it back next year as a metric. But definitely, this metric should do nothing but get better and better as we have more to offer in more markets. And by the way, backup is something that everybody needs. Fax, voice, do I need it? No. But everybody needs backup.

So and I believe that once we focus on it -- because now we are really focusing on integrating the new acquired company. But once we have a moment to spend time on it, it's the ultimate up-sell..

Our next call is from Shyam Patil of Wedbush Securities..

I wanted to focus on the Media business to start. The fourth quarter is a big quarter.

Just wondering if you could give us some insight into how things are looking thus far? What are the important weeks to monitor for the fourth quarter for that business?.

So we get weekly numbers from feedback in the Media team. Actually, the day before yesterday, we got the October numbers. And we feel that Q4, like before, will be a strong quarter, the strongest quarter of the year. There is several points like Black Friday and all those things that will kick in later this month.

But all the indication, traffic, orders and everything else are very good..

And in terms of the time frame, sort of the -- depending on when the Thanksgiving and Black Friday falls, usually the third week of November through Christmas and a couple of days after Christmas, that 4- to 5-week period is the most important period in Q4.

So although we've come out with a good October and growth versus October of a year ago, it's that 5-week period that we're about to enter that is the most important for the Media business in terms of the kinds of properties that we have..

Great. And then the revenue per thousand visits for Media looks very strong.

Do you guys know how that compares to your peers? I know that some of those metrics may not be readily available, but just any sense of how those compare to peers? And then where do you think that metric can go in terms of a ceiling over the long term?.

Okay. So I don't know versus peers. But I know that it's 32% better than we had been done -- doing ourselves a year ago. So when you grow 32%, it's definitely important. The world is tired of just simple views, viewability is the next big thing.

So we are trying to focus more and encourage that we can generate more traffic based on performance when they pay for results. Because when you are being paid for results, it's the best situation to be in good or in weak economy. I don't know if I actually answered your question.

But basically, we are moving towards a more quality versus quantity, which is always a good thing..

Got it, makes sense..

And I think you're right. It's hard necessarily to tease it out, particularly of the larger companies, where not all their revenue may be applicable to the visits they report, if they do in fact report that.

But I would say that given the nature of the verticals that we're currently involved in and the nature of the content that we create, which is really to drive decision-making, we expect, and that's really the whole key on all the M&A that we've done in this space, to enhance that overall revenue per visit.

Because we believe we're bringing valuable content that's aiding people in making a decision. And when they make that decision, that makes them -- the advertisers want to come back and take more. So that's really been the focus. We've talked about it before. It's been a big emphasis with the IGN property that we bought in February of '13.

And the first phase, the first 6 months or so was really a rightsizing of the cost structure, which ended literally about a year ago in the September time frame of '13.

But the next 12 months, bringing us through where we are today, has been focused heavily on this concept of, not so much growing the page views and visits, but the improvement of the monetization of the traffic that was already resident there. And that's clearly starting to bear fruit.

You can see it if you track this metric over time, over the last 4 or 5 quarters. And it's being driven in large part, not exclusive, but in large part by IGN..

Great. That's very helpful. And maybe just last one on M&A just what you're seeing out there in terms of valuations across the U.S.

and international and across the various business segments? And maybe how you characterize your pipeline for large and mid-sized opportunities at this point?.

Well, as you know, it's been a very choppy stock market. So there's been some -- in our view, very good days when the Dow has been down 300 points. But then, it seems like it pops back within a matter of a few trading days. And of course, now we're trending at or near all-time highs on most of the major indices domestically.

So what that has done is, I think the volatility has opened up the opportunity domestically somewhat. And I think we're a little bit more positive on domestic opportunities for medium to larger size M&A.

Having said that though, the vast majority of our focus and time continues to remain in the international marketplace where valuations are, depending on what country we're in, anywhere from 40 cents to 60 cents on the U.S. dollar. So we will continue to look in a multiplicity of jurisdictions.

Certainly, on a selective basis, in the United States or if there's a more major correction, maybe on a more systemic basis, we would allocate more time to the U.S..

The pipeline is very big. We have several deals in LOI. Some of them are more advanced than the others. We have to be careful when we talk specifics. But I will be surprised if we will not do another few deals in the $10 million range revenues and up during the Q4..

Our next question is from Greg Burns of Sidoti..

Web hosting is a new market for you.

Can you just talk about what the characteristics of that market are? Why that was an attractive area for you to get into? And maybe your thoughts on expanding it beyond the New Zealand market?.

It's Australian. It's Australian..

Australian market..

Australian, Australian, sorry..

But we're actually looking -- we consider -- we have management we call ANZ, Australia New Zealand. So web hosting for sure is a very big and exciting market. In the U.S., there are significant players and we didn't see ourselves getting into these markets with valuations that are....

Robust..

Robust. There is an IPO of GoDaddy there. But what we did find is that in other foreign markets, j2 -- the name j2 Global is earned by our ability to operate in foreign markets in a very effective way. So in those markets, the competition for the assets is very low..

Much less..

Much less. They speak English. We have significant, robust headquarters there. So we went there, the company that we bought, Web24, is a very neatly organized top-tier company. They basically have basis for everything else, and it will be our launching pads to more. And as we said, we went there. The EBITDAs are nice. The space is growing.

And we believe that instead of focusing in the U.S. when everybody is chasing, I mean, we tried to buy some U.S. companies, and we were really going above our standard valuation, and still we were beaten. Somebody really -- I don't know what I can say. But basically, we lost by a mile. So now we go to those markets when they there less competition.

And we get very attractive deals and using our foreign cash, which as you know, always something that we prefer to use over our U.S. cash to bring contribution. Taxation is better. All the good reasons to do it..

So the other thing, too, I would point out on the web hosting. I think this looks very much like when we bought KeepItSafe in Ireland back in late 2010. We knew we wanted to be in the backup business.

I'd say at the time, we were not as sensitized to the different types of customer bases and the types of backup that they were using, ranging from the individual, all the way up through the enterprise. But we got a toehold in by buying KeepItSafe.

And you're always going to understand a business much better by owning the asset versus being on the outside and looking in through diligence and third-party research reports.

And so obviously, you know what happened, that business now is almost a $60 million revenue global business from an initial seed in Ireland that started out at $2 million of revenue. So we're doing the same thing with the web hosting.

We already appreciate the gradations of the business that exists from sort of the lower end on the pure domain side and the web hosting, then more of the solutions of -- infrastructure and solutions.

And then you've got some very high-end opportunities that include even renting out a data center space, which is not something that we do or intend to do. But by being in the business, we'll get a look at all the different types of hosting that's available.

And also look at it in different parts of the world to see not only if there's different behavioral differences, margin differences, but also valuation differences. And right now, clearly, the -- our focus is outside of the United States for this category.

Initially, in Australia and New Zealand, stay tuned after we do more there, we'll see if we want to export that to other parts of the world..

Okay. And then on the fax business, it looks like your primary properties are growing much faster than the consolidated rate.

So is there some dynamic outside of those primary properties where you're seeing declines or attrition?.

Not a decline, but some of the brands that we acquire we no longer sell, so they keep....

We're running them off..

They can take only one direction. If you're not selling a brand, it can go only down or stay if you're lucky. So the eFax brand is $16.95. Some of the brands that we bought are like $6. So that's what you are seeing..

And that's also true in the voice because those 2 are reported together under the Cloud. And there's a brand that we acquire like part of Protus, My1Voice, Phone People, which was a separate acquisition, all of those are being run off. So that's why you're seeing, for certain brands, higher growth rates than for the consolidated whole..

And also, it has sometimes good impact on the ARPU..

Our next question comes from the line of Daniel Ives of FBR Capital Markets..

This is actually Jim in for Dan.

Could you just talk a little about maybe your priorities when it comes to M&A and whether you're targeting Media versus Cloud, specifically what puts and takes are there when you think about that?.

Both. As you know, we sit on approaching $700 million of cash. So both of the groups have been charged, and they obviously know our overall financial wherewithal. And they also know that we're not limited to the $700 million. There'd be access to more if we needed it.

So both of them, since we raised the convert back in June, understand that it is our preference at the parent to deploy the capital back into the 2 groups where we know the businesses and the management team is the best. So that would be Digital Media and it would be our various cloud-based services.

So in terms of between the 2, the parent is really agnostic. We're looking for our expected rate of return on that capital, the standard is the same for the 2 segments of the business. So each of them are going out there trying to find deals whether they'd be large or medium or a series of small deals that can meet our criteria.

As I've said before, I would love to be faced with a situation where there are so many large deals that we actually have to have a really tough internal debate as to who's going to get the last marginal dollar of capital because we literally have expended all of our funds and all of our proceeds.

But I would say that given the earlier comment I made on valuations domestically, I don't think that is a near-term likelihood that we'll quickly spend $684 million of cash. But we are looking, as I say, aggressively on both sides of the house for deals to put that money to work..

Okay.

And then can you also talk about the pricing trends and maybe competition around the backup business, just given your comments about the ARPU?.

Actually, we don't see competition on the backup business. Most of the companies out there are organic growers with their own technology that are limited to their own strategical planning..

And geographic area..

And geographic, and we saw some companies that chose to go into markets that we are not interested in. But it's just a matter of execution. We have -- we are doing some deals that are too small to mention, but we are doing it in a way that doesn't even bother us and continue to strengthen our situation.

In certain markets, we already are the largest player and continue to be aggressive about it..

Before we take the next question, we do have a couple of questions that have come in via email that I'd like to address. So one of them I think we just talked about, which was in the Cloud business, the growth rate of some of the brands relative to the total. There was a question about the EBITDA margin specifically for the Cloud business.

It is the case that from Q2 to Q3, it's down a couple of hundred basis points or year-over-year a little bit more. The primary reasons for that are severalfold. One is on a quarter-to-quarter sequential basis, FX had an impact of about $700,000 to the top line and about $250,000 or so to EBITDA.

So it's a small contributor, but a contributor to the EBITDA margin. We also have somewhat higher G&A expenses driven by legal, which tends to come and go on a quarter-to-quarter basis, as well as bad debt expense, which normalized in Q3. It was somewhat abnormally low in Q2.

The ongoing mix of the business within the Cloud towards the email, email marketing and online backup where the contribution, particularly for a newly acquired asset, will generally be on the lower end of our spectrum. That business, the non-DID-based business, on average contributes about 40% EBITDA margin of its revenues.

But when we newly acquire an asset, we have things like transition services agreement, which are basically cost that we're bearing until we migrate to our own platform. And that creates a drag on the contribution in the near term. So we'll have some asset that are only contributing, say, 20% until they're fully integrated. And then, it is a quarter.

Q3 is the quarter where we effectuate our salary raises, and we do various things like bonus true-ups, which were negative to us in Q3 of this year versus Q3 of a year ago or versus Q2. So those things make up a couple of hundred basis points difference on the EBITDA. In terms of the Media Business being strong, I think Hemi addressed that.

Really driven by the focus on the getting more out of the revenue per visits and the performance-based marketing. And we are expecting, as Hemi mentioned, a strong Q4 for the Media Business, as well as for the cloud as a whole. There's a question, I'll just reiterate, someone asked about our interest expense.

I'll remind you that it's a combination of the $250 million of 8% notes at the Cloud Services level, which is $20 million a year in cash interest expense, a little bit more in the total expense because we are amortizing the fees for which that deal got done. And then the $402.5 million at 3.25%, those are the converts plus their fees.

So that total is about $8.7 million a quarter of interest expense. And let's see. That's it. We'll go back to any live questions..

Our next question comes from the line of James Breen of William Blair..

Just a couple of questions. One, to clarify, Scott, did you said that you spent $40 million on M&A in the quarter..

Approximately, yes..

Approximately. Can you talk about maybe a split there in terms of between the Media and Cloud if it's all in this Cloud segment or not? And then....

The emedia was done in Q2 in May. That's the Media deal that's been done this year. So everything that was done in Q3 was done in Cloud albeit, as Hemi pointed out, Excel Micro was done -- it closed in the very last day of the month. So the cash is out as it relates to Q3, but no revenues or profits are in..

Okay.

So the $40 million that you spent this quarter will see revenue in the fourth quarter from those acquisitions?.

Correct..

Yes..

Correct..

Okay. And then just on the the free cash flow in general. I think it was down a bit sequentially quarter-to-quarter. Can you just talk about some of the puts and takes there.

And then maybe as we look toward the fourth quarter, are there any things like interest expense whatever that happened in this quarter that won't happen next quarter, and so we'll see a rebound there?.

No, we pointed out, interest expense for us on our various notes occurs predominantly in Q3 and Q1. So we do take some seasonality hit, if you will, on the overall free cash flow. You saw that last year, albeit it was much less dramatic this year than last year. That's why free cash flows were up about 75% on a year-over-year basis.

And then there's some normal things that will ebb and flow in terms of the payables and the receivables. Last year, which was punitive to Q3, there was a big contraction of about $11.5 million that hit cash flows. The other thing that occurs in Q3 are the payment of taxes.

So whatever our true-up, if any, on our tax bill when we file our fiscal year return, which is usually in mid-September, those will be either potential inflows or outflows. It depends how much has been already paid in as estimated tax payments versus what is actually due when we file the return. So those are some anomalies that occur in Q3.

Sometimes that they're to our benefit. Sometimes they're to our detriment. But those are things that are unique to Q3..

There are no further questions at this time. I would like to turn the floor back to management for closing comments..

All right. Thank you. We appreciate your participation in the Q3 earnings call. Look for some releases coming out over the next several weeks about conferences that we'll be participating in now through the end of the year, as well as in early January. We don't have a date set yet for the Q4 earnings call, but that's likely to be in mid-February.

At that time, obviously, we'll review the fourth quarter and full fiscal year results. Also release guidance for fiscal year 2015. If you do have any further questions, feel free to contact us either by email or by calling us. Thank you..

Thank you..

This concludes today's conference. Thank you for your participation. You may disconnect your lines at this time..