R. Scott Turicchi - j2 Global, Inc. Nehemia (Hemi) Zucker - j2 Global, Inc..

Shyam Vasant Patil - Susquehanna Financial Group LLLP Walter H. Pritchard - Citigroup Global Markets, Inc. (Broker) Jim D. Breen - William Blair & Co. LLC Rishi Jaluria - JMP Securities LLC Jon E. Tanwanteng - CJS Securities, Inc. Greg J. Burns - Sidoti & Co. LLC.

Greetings, and welcome to the j2 Global Second Quarter 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. It is now my pleasure to introduce your host, Mr. Scott Turicchi, President and CFO of j2 Global. Thank you, sir. You may begin..

Thank you very much. Good afternoon, and welcome to j2 Global's investor conference call for the second fiscal quarter of 2016. As Adam just mentioned, I'm Scott Turicchi, the President and CFO of j2 Global, and with me today is Hemi Zucker, our Chief Executive Officer.

Q2 of 2016 was another outstanding quarter with continued expansion in our EBITDA margins in both our Cloud and Media segments, resulting in our consolidated EBITDA margins for j2 increasing to 46%. As a result, our board has increased the quarterly dividend by $0.01 to $0.3450 per share. We will use – the presentation is the roadmap for today's call.

You can download a copy of that at our website. You can also launch the webcast there. There's a button on the viewer on the right-hand side, which will allow you to expand the size of the slides. In addition, if you've not received the copy of the press release, you may access it through our corporate website at j2global.com/press.

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, you may at any time e-mail us questions at investor@j2global.com. Before beginning our prepared remarks, I'll read the Safe Harbor language.

As you know, this call and the webcast does provide forward-looking information. Such statements involve risks and uncertainties that could 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 slideshow for the webcast.

We refer you to discussions in those documents regarding Safe Harbor language as well as forward-looking statements. If you now turn to slide five, I'll summarize the financial results for the second fiscal quarter. It was a record revenue quarter of $212 million, up 20% versus Q2 of 2015.

Importantly, EBITDA was $97.5 million, up 22.5% versus the second quarter of 2015. During this quarter, as previously announced, we concluded small six M&A transactions, five of which were in the Cloud business and one in the Media business.

To give you a little bit more color on the Cloud segment, its revenues were $142.5 million or up 14% versus the second quarter of 2015, and its EBITDA was up $12 million or 19% versus Q2 of 2015.

More specifically, our Cloud Connect which is our fax and voice business grew revenue $4 million or 4% and our Cloud Services revenue grew $14 million or 40% in each case versus the prior year. The EBITDA margins were up to 53% versus 51% in the prior year for the Cloud segment as a whole. Our cancel rate was in line at 2.2% with the prior quarter.

However, our ARPU reached a high since early 2008 at $15.26 per unit. The Digital Media segment also had an outstanding quarter with revenue just under $70 million growing it by $18.5 million or 36% versus Q2 of 2015, and EBITDA growing by $7 million or 37% and having margin expansion to 37.4% for the quarter versus 37.1% for Q2 of 2015.

Before turning the call over to Hemi for greater detail, I would ask you to turn to slide seven and just remind you that this is the presentation that we rolled out last quarter, which breaks the Cloud business into three component parts.

The Cloud Connect business, which I'll remind you is our fax and voice, did approximately $93 million of revenue in the quarter, had $51.7 million of EBITDA or a 56% EBITDA margin, up both versus Q2 of 2015 as well as Q1 of 2016.

The Cloud Services, which include our Backup business, our email security, email marketing and hosting business, had $48.5 million of revenues in the quarter, almost $23 million of EBITDA and an EBITDA margin of 47%.

As we have said before, as these businesses both individually and in the aggregate scale, we expect them to reach 50% EBITDA margins; we are now closing in on that.

And then finally the IP Licensing, which was relatively flat at $1.1 million in revenue in Q2 of 2016 and a 68% EBITDA margin or $741,000, the three of those added together gives you the total Cloud business of $142.5 million of revs, $75.3 million of EBITDA.

And then that all nets down to a $1.21 for j2 Global consolidated in non-GAAP earnings, $0.69 in GAAP earnings. At this time, I'll turn the presentation over to Hemi to take you through both the Cloud business in greater detail as well as the Media..

Ookla had one of its strongest quarter. Our Ookla app had 19 million new installs, up 68% year-over-year, bringing up now the installs in total devices to almost 200 million devices. For Ookla, we have now 100 clients that buy our Ookla data. They are mostly high-speeds and mobile carriers including all major U.S.

carriers, but still we have hundreds, if not thousands, more prospective clients. The Speedtest database is very unique and valuable asset for us to monetize. Next to page 11 (sic) [14] (13:12). IGN future, as a video first brand, is very bright. Most consumers and advertisers are flocking to video content across the digital landscape.

In fact, our video business is almost as big as our display business in IGN – at IGN. The total video views across the IGN platform grew 84% to 843 million. Part of the growth come from our YouTube channel, which now at 8.9 million subscribers. IGN's Snapchat channel grew 93% in daily unique visitors.

IGN also produced a standalone Special Edition about virtual reality, which reached 11 million users in a day on Snapchat. The E3 Gaming Expo is major annual event for IGN. This year, it was very strong with 65 million multi-platform visitors and 550 million social media impressions.

On the business development side, we acquired assets and archives of GameTrailers. This will allow us to have a dedicated place for studios to provide us their video game trailer. IGN also made its first foray into radio, with a show on Esports on SiriusXM radio.

Finally, we launched with partners two more versions of IGN in Japan, a strategically important market for us, and in Pakistan. We also launched a Latin America version of PC Magazine. Now, let me pass the call to Scott for an update on the Gawker Media Group..

Thank you, Hemi. Before we turn it over to questions and talk about our financial guidance, I just want to give you a brief update.

As you know from the fact that this all public on July 7, the bankruptcy court approved our bid of $90 million to be the stalking horse bid for Gawker Media Group, which consists of seven separate websites and properties across the tech, gaming, and lifestyle spaces.

It has been reported that 15 companies are currently performing diligence, that's not necessarily an indicator, though, of how many, if any of those, will bid.

However, on August 15, we will know if there are any over-bidders to the extent there are, and then an auction will be conducted on August 16 and the current plan is the court would choose the successful bidder on August 18.

Our current position remains that these properties in the tech, gaming, and lifestyle would be a very good fit with our existing properties in Digital Media. And at this point, there is probably not a whole lot more that can be said, but stay tuned because there will be news come mid-August.

Two other comments before we go to guidance, free cash flow for the quarter was $63.5 million. I think, more importantly, $124 million for the six months versus $98.5 million in the first six months of 2015, up 26%.

And we ended the quarter with $407.2 million of cash and investment balances after deploying about $50 million in the quarter for acquisitions, interest and dividends.

Then finally on slide 16, as is our custom, we are reaffirming our guidance, even though it is clear from both the first quarter and second quarter results that we are trending above the midpoint of the range is our policy that unless and until we violate definitively one of the ends of the range, we do not change that range.

So, as a result, we reconfirm our annual revenue guidance of between $830 million and $860 million, and our adjusted non-GAAP EPS of between $4.70 per share and $5 per share.

And, finally, I would turn your attention to the supplement information, on slide 17 and following, there you will find the various metrics for the businesses as well as the reconciliations of the GAAP and non-GAAP measures that have been used in this presentation.

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

Thank you, ladies and gentlemen. Our first question comes from the line of Shyam Patil from SIG. Please go ahead..

Thanks, guys. Congrats on the quarter. I had a few questions. The first one, Hemi, you guys have done a great job of scaling the Cloud Backup business.

Can you just talk about how big you want this business to be or how big this business can be in the next few years, if you're able to execute the plan and just kind of what the margin profile would look there?.

Yes. Hi, Shyam. How are you? So, yes, the business can be huge and it's really about who you acquire and how fast. As you can see, it's not a secret to us, that we were trying to acquire a large, a public competitor, which we didn't – had we done that, it will more than double or triple.

There are some other players – we're very ambitious about this space, we keep on discovering very interesting players in this space. I believe – and you know, prediction was given to fools, but I would try to say that I believe that we can grow it at least $40 million, $50 million run rate this year based on deals that we are seeing.

But discipline is key for us. We have very big pipeline and we expanded our appetite into so many places and areas of this space. So, I believe it will continue to grow, and I would not be surprised that in two years it will be larger than the Cloud Connect..

Okay. Great. Scott, the acquisitions that you guys completed in the second quarter, could you give us a sense as to what kind of annual revenue run rate you expect from those and EBITDA once they are fully synergized.

And as you look to your – as you look at your M&A pipeline for the back half of the year, I know it's always hard to guide to M&A, but would you expect the second half kind of pacing cadence to be similar to the first half if you're able to execute the plan?.

Yeah. Actually, the deals done in Q2 were relatively small, in fact, GameTrailers, which was done in the Media side, was really the acquisition of a web property that allows us to populate it with content on the trailer side. So there's actually no revenue associated with that acquisition, or not any revenue to speak of.

The five on the cloud side – we spend, by the way, in the aggregate, about $26 million on the acquisitions of the $49.5 million of cash spend in Q2 on the M&A.

So, as you know, kind of our rules of thumb, you can infer there's about $10 million of annualized revenue there, since really that's all coming out of the Cloud side of the business, each of those assets upon integration should be at or maybe, in some cases, slightly in excess of a 50% EBITDA margin.

So, when we look to 2017, we'll get maybe about $10 million of revs out of those businesses. On a full year basis, about $5 million – maybe a little over $5 million of EBITDA. In terms of the pipeline, I would say, my comment on the pipeline would be this – and we've talked about this over a number of quarters.

As we have grown as a company and I think as we become more visible and our appetite for acquisitions is better known, two things are going on. One is, we maintain a pipeline of the small deals, such as we're done in Q2 and, to some extent, the – what you've already seen in Q3. But we're also becoming active in, what I'll call, mid-size deals.

It's generally not the case that we're pursuing what the Street would consider large transactions, but more and more we're seeing deals that have $15 million to $50 million, in some cases, up to $100 million of revenue. Now, that's almost a new pipeline that has been building for – we've been building over the last few quarters.

I would say that the probability of closing those deals will be lower than closing the smaller deals because, in some cases, they may be contested and valuation very well could be an issue.

But I actually believe and I polled our own M&A teams, I think that's really the next wave for us at j2, is there are numerous of those assets that are out there, particularly on the Cloud side of the business. Some of them, I would argue, are stuck.

They're in that range of revenue, they're not exhibiting very strong growth for a whole variety of reasons. Their EBITDA margin profile is not what it could be, say, in our hands. And so, there's a big focus in that area, and we're building that pipeline.

And I think that it may not bear a whole lot of fruit between now and the end of the year, we might get lucky, we might get one of the – two of those deals done, but the real goal is to build that to be a significant pipeline for 2017..

And just to follow-up on that, would you expect kind of your valuation parameters in terms of what you're willing to pay on multiple to be similar with these mid-size deals or would you expect to be more at the higher end of the range?.

No. As you know, it's a range. And the range, it's really an IRR driven concept. So, when we talk about multiples of EBITDA or multiples of revenue, those are literally rules of thumb guideposts, that oftentimes are helpful, but they're not determinative in any given situation.

So, I think, if you use those rule of thumbs, and you said, well, they generally pay between two times and three times revs, yes, some of those mid-size deals might be at the midpoint or even towards the higher-end of that range. Or we're in a four times to five times EBITDA range, it will be at the higher-end of that range.

But the goal is really not, or the issue is not really what is the multiple of revenue or EBITDA, what is the plan for that business within j2, and what's the expective cash-on-cash return. That discipline is consistent..

Okay. And then my last question.

In terms of private market valuations, what are you guys seeing in terms of expectations kind of now versus six months to 12 months ago?.

It's all over the map. I think a lot of little stuff is not influenced positively or negatively by market conditions. There are oftentimes factors that cause those assets to trade that don't have to do with valuations or comparable type multiples.

I would say, as we move into this category of mid-size, that tends to become more of an influencer, it's not absolute. There are assets that come out of VC firms that maybe are winding down a fund that have a different motivation than pure maximization of value.

But I would say that it becomes an influencer, so it ebbs and flows clearly, you see it, we see it. Dow's at near or at record territory, that's generally not a positive. And then, of course, as you move one step beyond that into the large deals, it's very much of an influencer..

I want to add also, one of the assets of j2 is, that for years we're keeping in touch with thousands of potential sellers of companies. Just this last month, SMTP and IGC as an example of companies that we were talking, one of them for many years and one of them for less years.

I just heard today about – actually today and yesterday, we heard from two entrepreneurs that sold out these companies 10 years and 15 years ago and now we're not a competitor, they want to sell to us. So basically our Rolodex of M&A helps us.

And sometimes the prices that we see are very attractive because we do know the business, we don't know the people, we can promise them a fast transaction and reliable transaction without whole base. So, I think that the market is actually looking more favorable to us, because we are considered a solid buyer with very strong reputation.

So, I'm very optimistic..

Great. Thank you, guys..

You're welcome..

Thank you..

Thank you. Our next question comes from the line of Walter Pritchard from Citigroup. Please go ahead..

Hi. Thanks. Hemi and Scott, I'm wondering if you could give us an update on the web services registrar market and your appetite to expand that business. I know you've been sort of experimenting with some smaller deals there. And then I just had one follow-up..

Yeah. So, we have bought a company called Web24 in Australia, which is web hosting. We have not done other deals so far. We are seeing deals. In this space is a whole variety of businesses, some of them are attractive, some are less attractive.

The most attractive is virtual shared servers, when the perceived value of what you are selling to the customer is very high, you can make high margins. Some of them are less. We have not decided yet. But I'd say that if you look in our plans, it's still not a major contributor to our planned growth. We are still on the way to see kind of levels..

I'd also say that given the size of the business and its location, all activity right now is centered in either Australia or New Zealand..

Yeah. In the U.S. market acquiring those assets are – the prices are not attractive to us. Also one thing that is probably clear to the analysts, but less clear to the public, those business require very, very heavy fixed assets investment in j2 that is cash focus is less attractive to those infrastructure type of businesses of hosting.

On the side of domain hosting, this space is strongly commoditized, there is a lot of switch and bait type of offers. We are not interested in being a player there. Hope I answered you, Walter..

Yes. You did. And then I guess on the sub number overall, it was up – on the BCS side, it was up marginally over Q1.

Could you talk about kind of puts and takes there, were there businesses that grew the subscriber base faster and some that were more headwinds in terms of getting to that number that that was somewhat flat on a sequential basis?.

Yeah, I want to – oh, do you want to talk about the cleanup and....

Yeah. So, on the businesses we have on the Backup, some businesses, like – they have resellers like Livedrive in the U.K.

and other places, after we acquired the business and felt comfortable, we went through some of the resellers and we found out that it's very hard to make profit with them, because they use too much storage and they don't pay us enough. We pushed into a price increase.

The net effect was that we got more revenue, more profit, but we lost some customers that we didn't care about, because they were not paying enough. So, this is what you're seeing. As you can see also, the ARPU went up. And this was one of the things that impacted. We just basically cleaned up some and we continue to increase prices.

When we acquire companies, sometimes we find customers that are basically, historically paying low prices and we call them to go up to market price and what you're seeing is the effect of that..

And then last one on our end, I think, you talked about, it sounded like licensing on the Digital Media side was pretty healthy this quarter, I know in the past you've given us a percentage of that revenue.

Any update on that number in terms of the GM contribution in the quarter?.

Yeah, it's about 10% of the total revenue, obviously the revenue grew in the quarter so it's keeping pace. There's about $7 million of revenue came from Licensing. The whole variety of licensing..

Yeah..

I think Hemi talked about it in his part, he talked a lot about Ookla and the 100 new customers that have signed up for access to the data, but it also does include the licensing of the intellectual property in foreign jurisdictions as well as the awards..

Yes.

With Ookla, when we divide a state or a country or a city, to more smaller regions, it is actually more valuable data for the carriers, because they are focused on the two mile by two mile parameters, sometimes even smaller if it's a big city like New York, so when you divide the data and you give a data that talks to more precise zones and region, you basically create more Licensing revenue and on the other side, you provide more value to the buyer.

So this type of licensing deals are happening all the time..

Great. Thank you very much..

You're welcome. Thank you, Walter..

Thank you. Our next question comes from the line of James Breen from William Blair. Please go ahead..

Thanks for taking the question. If you look at sort of the M&A track so far this year, I think you understand what you have in years past. Is this sort of tied into the fact that you have a stock more stood out there for Gawker and couple of weeks if you were not at that asset, but we see a significant ramp-up in the back half on M&A.

And then, in line with that, are there any areas in Cloud now where you feel like you've reached scale or are there areas where you continue to believe you need to get a little bit bigger to get the better margins. Thanks..

So, the first question, Jim, no. I would agree that, the number of deals is actually roughly on pace with prior years. The amount of spend that, I'd say, $75 million is less. Gawker has nothing to do with that. I think, as you know, Gawker was something that really materialized in the June timeframe, May-June timeframe.

And so, obviously, there's been a lot of activity even before Gawker was a possibility. And as you can see, we've got more than ample cash balances to fund that transaction and still do much more. So, and if we do not win Gawker, the answer is also no. I mean there is going to be a push to do M&A.

I would say that if we win Gawker, there might be some things on the Media side that we would like to defer because we're going to spend the time to absorb the Gawker properties. So, that might change somewhat on the margin, but it certainly has no effect on the Cloud business or no effect on j2's general appetite for M&A.

As to your second question, I think that all of the other cloud services remain under-scaled. However, the one that's closest to scale is the Backup business. It did tip over 50% EBITDA margins this quarter, which is one of the factors we use in terms of determining the scale, but it's not solely determinative.

But it is clearly marching in that direction of being a full scale business unit that could be standalone, that's really more of the internal definition. And we expect that when those businesses meet that criteria, as result of it, they should be at 50% or better EBITDA margins. So the Backup is the closest.

I think as Hemi mentioned, depending upon the pace of M&A over the next 6 months to 12 months, it probably reaches its scale, not necessarily its full potential, but its scale. The other units, though, remain small, the email security and email marketing and the web hosting.

Web hosting really is very, very tiny, it's about $5 million to $6 million of revs. The email marketing is about $30 million, and the email business is – right around a little over $50 million. So, each of those three business units, to varying degrees, have to increase from a pure revenue standpoint fairly dramatically to hit scale..

I'll try to answer you, too, James. There are two elements, revenue and EBITDA. So from a revenue standpoint, the Cloud Connect is growing slow. We have potential in voice, both in the U.S. and internationally, but slower grower. EBITDA is very high, mid-50%s to 60%s. On the Backup, we just reached over 50% EBITDA.

I believe that we can improve the cash flow there, as we scale we have better ways of reducing cost on our colo storage. And also we keep on introducing services that are very highly valued, but we they really represent beyond the initial investment cost to services like disaster recovery.

And as you know, now, more companies are dealing with – they are being compromised by hackers that lock the data, and they want ransom – ransomware, though this service is now something that we can provide, if basically somebody invades your data and locks it with – and encrypt it.

You can go to us and say, I would like to go back to my last backup which was, let's say, two days ago before they invaded me and you can basically recovered it to companies. This service doesn't necessarily cost us more, it's just more sophistication.

So with this sophistication and with this services that are very highly valued and price is not an issue there and it's unlike of what you call stupid backup, smart backup. I do believe that we can continue to increase the EBITDA there, too.

On the email security, we're at the 40% level kind of, I believe that we can go up to 50% once we continued to integrate all our customers to a single platform, which is (36:06) platform and we are making progress there. Email marketing, revenue and EBITDA continues to grow. It's a small business, $30 million. We see a lot of acquisitions.

Much less competition there, because the integration there is engineering challenge that we absolutely like and can do. And the EBITDA there is very high. So, I hope I answered you all about the Cloud and the ability to scale and same with me there.

So I believe that with the Cloud Connect being a slow grower, all the rest have big potential to continue to grow in the next 5 years to 10 years..

Great. Thanks..

You're welcome..

Thank you. Our next question comes from the line of Rishi Jaluria from JMP Securities. Please go ahead..

Hey, guys. Thanks for taking my questions and congrats on a solid quarter. Just a couple of quick ones for you. On the email security side, if I'm not mistaken, I think we saw a little bit of slowdown of growth here relative to Q1.

Was this just a function on the acquisition side or were there other dynamics contributing here?.

So, excellent question, Rishi. First of all, this revenue is more than half outside the U.S., so it doesn't impact – it's in Denmark, in Norway and those countries, so they have some FX impact.

Also in these businesses, we are trying to migrate customers to our FuseMail product from we have, like, three or four or maybe five brands that we bought, they're all migrated into FuseMail. The migration cause us to lose some customer. But every customer that we migrate, the EBITDA doubles and triples.

So we don't care so much about the revenue there, this group is focused about integration because every time we integrate a customer then we are saving $0.20 to $0.25 per email box per month, and that is the focus.

The focus there is EBITDA, and some customers refuse to migrate or have some specific, so the revenue growth is slower, but the EBITDA growth is really fast..

Okay. Great.

And on the Digital Media side of the business, it looks to me, views were nearly doubled relative to Q2 of last year, was this driven primarily by the growth you saw on the video side or how should we be thinking about the growth that we're seeing on that?.

Well, that's a piece of it, but it's not limited to the videos. So, we've talked about over the last year, we've got a couple of things going on. You've got a couple of additional properties that were added year-over-year.

So if you recall Offers.com was acquired in late 2015, at actually 12/31, so we have the visits and the page views from that in Q2 of 2016, which we don't have in Q2 of 2015. So that's probably one of the more important contributors to that delta as well as what's going on just in the overall core business including the video views..

Okay. And within the video side, I mean, it looks like we've seen some pretty impressive growth on views and subscribers with IGN.

I guess, how should we think about the monetization side of these? How successful have you been on converting that to revenue and to EBITDA, and what's kind of the pathway going out from here?.

It's been an important contributor. I think if you go back over the last few earnings calls when we've talked about video, it's been in the neighborhood of 5% of our Media revenue. That's now upwards of 10%..

Also a big shift to mobile, which is very important..

So we've seen it, have an increasing share while at the same time, the total revenues of Ziff Davis are growing. So, I think that the answer to your question is, yes, there is very good conversion of those video views into actual, not only monetization of revenue, but it's also aiding on the EBITDA contribution..

Got it. All right. Well – sorry, go ahead..

That's an area we've been very bullish in. Now, it is not those systemically the case across all of our web properties. It's heavily driven by IGN and by AskMen. Most of the video content comes out of those two properties, whether it is viewed on our owned and operated websites or through third parties such as Snapchat, Facebook, and Twitter, YouTube..

Wonderful. Okay. Well, thanks a lot, Hemi and Scott. I appreciate it..

No problem..

Thank you..

Thank you. Our next question comes from the line of Jon Tanwanteng from CJS Securities. Please go ahead..

Hi, gentleman, very nice quarter and thank you for taking my questions.

Can you maybe start with the potential synergy opportunities with Gawker if you do win that bid, and where do you think the bidding gets silly from valuation standpoint, given the numerous people out there that maybe bidding on it?.

Second one, I'm not going to comment on. I don't know. The first one, though, is there are seven properties. And so, the two tech properties, Gizmodo and Lifehacker, fit very well into our tech vertical, where we have a number of different websites catering to different audiences.

Kotaku fits into the games area, where we actually have a much more limited set of web properties. We have GameTrailers now, IGN.com, and if we're successful, Kotaku.

And then there's three other properties that Gawker has that, in our view, we would combine with AskMen.com to form more of a lifestyle category, and that's Jalopnik, which caters to autos; Deadspin, which is sports; and Jezebel, which is a women's lifestyle. So, we would integrate these individual properties into our core verticals.

We think that there are opportunities to both improve the top-line performance as well as the bottom line, but I'm not going to give any more specific than that at this time..

Okay. Great. And you have the opportunity to refinance some of your debt later this year.

How does that fit into your current M&A strategy, especially considering some of the larger opportunities you're talking about and compared to your longer-term capital structure and the risk goals?.

Sure. So the 8% notes actually became callable as of August 1 of this month, so a couple of days ago at, 104% (42:36), so that's – if we wanted to get rid of them, that's $260 million.

I think as you know, and there's obviously many different ways to either finance or refinance, but if we stayed within the high-yield markets, I would say they've had a somewhat volatile year, start-off very poorly. Although in the last six weeks or so that markets caught fire post Brexit.

And I feel pretty good that if we were to refinance in the current market environment, we clearly could lower our cost of capital from the current 8% on those notes probably in or around the 6% range.

And then I think the second question is, do we have a need for more capital based upon our prospective pipeline of transactions, and the answer to that is, maybe, part of that would be influenced by Gawker, not only the purchase price at Gawker, but the fact that that is likely the all U.S. cash.

So, when we look at our total needs, we look at the $407 million, both as an aggregate number, but then we also look at the split between the U.S. portion and the foreign portion. I think right now, it's around $240 million U.S., and $160 million overseas as of June 30.

So we put all that together to decide, what we need to do if anything to prepare ourselves for the next $300 million of spend? Obviously, we're generating a significant amount of free cash flow as we march along.

So, we've made no commitment at this point in terms of calling the notes or formally refinancing them, but it's clearly something that I'm looking at..

Great. Thanks. That's helpful..

Thank you. Our next question comes from the line of Greg Burns from Sidoti. Please go ahead..

Good afternoon. Most of everything has been covered. I just had a little housekeeping in terms of the disclosures.

It doesn't look like you – you gave the segment detail with kind of the return metrics in this quarter, is that something you plan on giving again in the future or maybe like once annually or how will you update on that (45:02) going forward?.

Yeah, we're going to do that at least annually. Obviously, the breaking down of the Cloud business into component pieces, you see in the front part of the presentation. So, from an operating basis, that is the way we're continuing to report.

And, over time, they'll actually be even probably a further fracturing of, what are called, Cloud Services as these business units grow up. So, I think, the next one to break out would be the Backup business, at least that'd be the current trend. And then, whatever is still small would be in just Cloud Services.

And that at least once a year, on an annual basis, which you saw last quarter, you'll have the total capital spend and the implicit returns for each of the sub pieces..

Okay. Thanks. And then I also see that Scott removed Hemi's favorite chat on churns. So, we'll have to work on getting that back in there for the next quarter. All right, guys, good night, guys..

It's a – Greg, we wanted to make sure that you are really focused and you noticed it, and I want to take the opportunity to tell you now our listeners today, at this time, there are like 100 earning calls, and we got Greg, Jon, Rishi, James....

Everybody..

...and Shyam. So, we want to thank you for giving us the priority to jump on our call versus the other 90-some or other that you have. And we want to thank you, we don't take it easy..

All right. Good night, guys..

Thank you..

Thank you..

A couple of – go ahead, Adam?.

No. Gentlemen, the floor is yours..

Thank you..

Okay. A couple of other comments as you know we do take questions by email. One comment on currency and FX, which nobody asked. I'll let you know that the various Brexit volatility and its volatility surrounding the pound to U.S.

dollar had about $1.5 million impact in the second fiscal quarter on revenues, although, much more muted on an EBITDA or earnings basis. We continue to monitor really the basket of 10 currencies that matter to us, although I'd say in this year, the GDP is probably been the one that's been most influential.

Our best estimation is the back half of the year for the total business relative to last year will be about a $5 million top-line impact, but once again more muted as it relates to EBITDA, probably only run a couple of million dollars.

Next question has to do with and this has been an issue sometimes in how to spread the Media revenue over the course of the year. So, as you know, we give the annual guidance I think in February. When we first gave that guidance, we talked a little bit about the distribution of revenue as it relates to Q1 and Q4, but not necessarily as to Q2 and Q3.

It is – what you've typically seen, although there is no necessity to it, is that the Q3 median revenue is greater than Q2. That's been more happenstance and luck than anything else. Our view is that generally those two quarters are roughly equal.

However, I would note that in the current Q2, we had the acceleration of certain licensing and business development agreements that will probably take actually a little bit of revenue away from Q3. So, as a result, don't be surprised if Q3 revenue in the Media business is somewhat lighter than Q2's revenues.

But everything remains consistent as for the full fiscal year, just some timing differences between the quarters. And if the operator has no other either polled questions or we don't have any other questions by email, we would just once again thank you for joining us.

There will be a number of conferences beginning in September after Labor Day that we will be presenting at. There will be a press release on those, probably in late August, announcing the specific venues and times.

And so, we would encourage you to attend those conferences or listen to the webcast and if you are in those locations to seek us out for a one-on-one. Thank you..

Thank you very much..

Thank you, ladies and gentlemen. We have no further questions at this time and this does conclude our teleconference for today. You may now disconnect your lines at this time. Thank you for your participation and have a wonderful day..