ZD 10-Q Quarterly Report June 30, 2017

ZIFF DAVIS, INC.

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10-Q 1 jcom2017063010-q.htm 10-Q Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE

ACT OF 1934

For the quarterly period ended June 30, 2017

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission File Number: 0-25965

j2 GLOBAL, INC.

(Exact name of registrant as specified in its charter)



Delaware	47-1053457
(State or other jurisdiction	(I.R.S. Employer
of incorporation or organization)	Identification No.)

6922 Hollywood Boulevard, Suite 500

Los Angeles, California 90028

(Address of principal executive offices)

(323) 860-9200

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act). (Check one):



Large accelerated filer ý	Accelerated filer o	Non-Accelerated filer o	Smaller reporting company o
Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No ý

As of August 3, 2017 , the registrant had 48,336,201 shares of common stock outstanding.

j2 GLOBAL, INC. AND SUBSIDIARIES

FOR THE QUARTER ENDED JUNE 30, 2017

INDEX



			PAGE

PART I.	FINANCIAL INFORMATION

	Item 1.	Financial Statements
		Condensed Consolidated Balance Sheets (unaudited)	4
		Condensed Consolidated Statements of Income (unaudited)	5
		Condensed Consolidated Statements of Comprehensive Income (unaudited)	6
		Condensed Consolidated Statements of Cash Flows (unaudited)	7
		Notes to Condensed Consolidated Financial Statements (unaudited)	8

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	48

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	61

	Item 4.	Controls and Procedures	63


PART II.	OTHER INFORMATION

	Item 1.	Legal Proceedings	64

	Item 1A.	Risk Factors	64

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	65

	Item 3.	Defaults Upon Senior Securities	66

	Item 4.	Mine Safety Disclosures	66

	Item 5.	Other Information	66

	Item 6.	Exhibits	67

		Signature	68

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PART I. FINANCIAL INFORMATION


Item 1.	Financial Statements

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j2 GLOBAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited, in thousands except share and per share data)



	June 30, 2017			December 31, 2016
ASSETS
Cash and cash equivalents	$	330,743		$	123,950
Restricted cash	265,000			—
Short-term investments	65			60
Accounts receivable, net of allowances of $9,027 and $7,988, respectively	181,528			199,871
Prepaid expenses and other current assets	22,354			24,118
Current assets held for sale	5,770			—
Total current assets	805,460			347,999
Property and equipment, net	71,173			68,094
Trade names, net	110,444			115,853
Patent and patent licenses, net	11,908			13,928
Customer relationships, net	193,180			208,155
Goodwill	1,139,426			1,122,810
Other purchased intangibles, net	152,553			173,755
Deferred income taxes, non-current	7,228			5,289
Other assets	6,569			6,445
Non-current assets held for sale	29,720			—
TOTAL ASSETS	$	2,527,661		$	2,062,328
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable and accrued expenses	$	135,473		$	178,071
Income taxes payable	12,845			16,753
Deferred revenue, current	88,153			80,384
Line of credit	—			178,817
Current maturities of long-term debt	246,652			—
Other current liabilities	24			64
Current liabilities held for sale	523			—
Total current liabilities	483,670			454,089
Long-term debt	996,377			601,746
Deferred revenue, non-current	57			1,588
Liability for uncertain tax positions	46,988			46,537
Deferred income taxes, non-current	34,764			40,357
Other long-term liabilities	5,143			3,475
Non-current liabilities held for sale	5,103			—
TOTAL LIABILITIES	1,572,102			1,147,792
Commitments and contingencies	—			—
Preferred stock - Series A, $0.01 par value. Authorized 6,000; total issued and outstanding zero	—			—
Preferred stock - Series B, $0.01 par value. Authorized 20,000; total issued and outstanding zero	—			—
Common stock, $0.01 par value. Authorized 95,000,000; total issued and outstanding 47,591,011 and 47,443,716 shares, respectively	476			474
Additional paid-in capital	314,790			308,329
Retained earnings	679,029			660,382
Accumulated other comprehensive loss	(38,736		)	(54,649		)
TOTAL STOCKHOLDERS’ EQUITY	955,559			914,536
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	2,527,661		$	2,062,328

See Notes to Condensed Consolidated Financial Statements

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j2 GLOBAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited, in thousands except share and per share data)



	Three Months Ended June 30,					Six Months Ended June 30,
	2017		2016			2017		2016
Total revenues	$	273,174	$	211,800		$	527,843	$	412,302

Cost of revenues ⁽¹⁾	43,159		35,591			83,969		69,878
Gross profit	230,015		176,209			443,874		342,424
Operating expenses:
Sales and marketing ⁽¹⁾	80,862		48,617			158,339		96,729
Research, development and engineering ⁽¹⁾	11,555		9,213			23,307		18,201
General and administrative ⁽¹⁾	79,038		59,434			155,693		115,211
Total operating expenses	171,455		117,264			337,339		230,141
Income from operations	58,560		58,945			106,535		112,283
Interest expense, net	13,670		10,301			26,079		20,534
Other expense (income), net	4,227		(213		)	4,551		(87		)
Income before income taxes	40,663		48,857			75,905		91,836
Income tax expense	9,287		15,087			18,709		28,123
Net income	$	31,376	$	33,770		$	57,196	$	63,713

Net income per common share:
Basic	$	0.65	$	0.69		$	1.19	$	1.31
Diluted	$	0.63	$	0.69		$	1.16	$	1.30
Weighted average shares outstanding:
Basic	47,547,118		48,055,783			47,505,406		48,011,250
Diluted	48,948,315		48,265,298			48,857,405		48,251,698
Cash dividends paid per common share	$	0.3750	$	0.3350		$	0.7400	$	0.6600


⁽¹⁾ Includes share-based compensation expense as follows:
Cost of revenues	$	121	$	103		$	238	$	198
Sales and marketing	521		434			899		965
Research, development and engineering	281		221			518		428
General and administrative	4,639		2,681			7,522		4,657
Total	$	5,562	$	3,439		$	9,177	$	6,248

See Notes to Condensed Consolidated Financial Statements

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j2 GLOBAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited, in thousands)



	Three Months Ended June 30,					Six Months Ended June 30,
	2017		2016			2017		2016

Net Income	$	31,376	$	33,770		$	57,196	$	63,713
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment	12,331		(12,653		)	15,913		(9,238		)
Change in fair value on available-for-sale investments, net of tax expense (benefit) of zero and zero for the three and six months of 2017, respectively, and 1,380 and ($61) for the three and six months of 2016, respectively	—		2,251			—		(110		)
Other comprehensive income (loss), net of tax	12,331		(10,402		)	15,913		(9,348		)
Comprehensive Income	$	43,707	$	23,368		$	73,109	$	54,365

See Notes to Condensed Consolidated Financial Statements

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j2 GLOBAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)



	Six Months Ended June 30,
	2017			2016
Cash flows from operating activities:
Net income	$	57,196		$	63,713
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization	79,225			58,233
Accretion and amortization of discount and premium of investments	—			646
Amortization of financing costs and discounts	6,307			4,777
Share-based compensation	9,177			6,248
Provision for doubtful accounts	5,623			5,009
Deferred income taxes, net	(3,679		)	(2,064		)
Decrease (increase) in:
Accounts receivable	11,195			3,763
Prepaid expenses and other current assets	2,527			1,534
Other assets	(105		)	(1,894		)
Increase (decrease) in:
Accounts payable and accrued expenses	(55,047		)	(15,480		)
Income taxes payable	(4,464		)	2,034
Deferred revenue	1,817			(2,699		)
Liability for uncertain tax positions	(4		)	4,440
Other long-term liabilities	1,887			3,792
Net cash provided by operating activities	111,655			132,052
Cash flows from investing activities:
Maturity of available-for-sale investments	—			112,631
Purchase of available-for-sale investments	(5		)	(47,207		)
Purchases of property and equipment	(18,945		)	(9,186		)
Acquisition of businesses, net of cash received	(36,430		)	(76,725		)
Purchases of intangible assets	(768		)	(1,815		)
Net cash used in investing activities	(56,148		)	(22,302		)
Cash flows from financing activities:
Issuance of long-term debt, net	636,178			—
Proceeds from line of credit, net	44,981			—
Repayment of line of credit	(225,000		)	—
Repurchases of common stock and restricted stock	(6,738		)	(3,356		)
Issuance of common stock under employee stock purchase plan	133			123
Exercise of stock options	1,051			1,911
Dividends paid	(35,707		)	(32,202		)
Deferred payments for acquisitions	(3,339		)	(16,550		)
Other	(36		)	843
Net cash provided by (used in) financing activities	411,523			(49,231		)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	5,576			(2,295		)
Net change in cash, cash equivalents and restricted cash	472,606			58,224
Net change in cash balance included in assets held for sale	(813		)	—
Cash, cash equivalents and restricted cash at beginning of period	123,950			255,530
Cash, cash equivalents and restricted cash at end of period	$	595,743		$	313,754

See Notes to Condensed Consolidated Financial Statements

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2017

(UNAUDITED)


1.	Basis of Presentation

j2 Global, Inc., together with its subsidiaries (“j2 Global” or the “Company”), is a leading provider of Internet services. Through its Business Cloud Services Division, the Company provides cloud services to businesses of all sizes, from individuals to enterprises, and licenses its intellectual property (“IP”) to third parties. In addition, the Business Cloud Services Division includes j2 Cloud Connect, which primarily focuses on our voice and fax products. The Digital Media Division specializes in the technology, gaming, lifestyle markets and healthcare markets, reaching in-market buyers and influencers in both the consumer and business-to-business space.

The accompanying interim condensed consolidated financial statements include the accounts of j2 Global and its direct and indirect wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

The accompanying interim condensed consolidated financial statements are unaudited and have been prepared in accordance with instructions for Form 10-Q and Article 10 of Regulation S-X issued by the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and note disclosures required by GAAP for complete financial statements although the Company believes that the disclosures made are adequate to make that information not misleading. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been reflected in these interim financial statements. It is suggested that these financial statements be read in conjunction with the audited financial statements and the related notes thereto for the year ended December 31, 2016 included in our Annual Report (Form 10-K) filed with the SEC on March 1, 2017. Accordingly, significant accounting policies and other disclosures normally provided have been omitted since such items are disclosed therein.

The results of operations for this interim period are not necessarily indicative of the operating results for the full year or for any future period.

Use of Estimates

The preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, including judgments about investment classifications, and the reported amounts of net revenue and expenses during the reporting period. We believe that our most significant estimates are those related to the valuation of assets acquired and liabilities assumed in connection with business combinations, long-lived and intangible asset impairment, contingent consideration, income taxes and contingencies and allowances for doubtful accounts. On an ongoing basis, management evaluates its estimates based on historical experience and on various other factors that the Company believes to be reasonable under the circumstances. Actual results could materially differ from those estimates.

Allowances for Doubtful Accounts

j2 Global reserves for receivables it may not be able to collect. These reserves for the Company’s Business Cloud Services segment are typically driven by the volume of credit card declines and past due invoices and are based on historical experience as well as an evaluation of current market conditions. These reserves for the Company’s Digital Media segment are typically driven by past due invoices based on historical experience. On an ongoing basis, management evaluates the adequacy of these reserves.

Revenue Recognition

Business Cloud Services

The Company’s Business Cloud Services revenues substantially consist of monthly recurring subscription and usage-based fees, which are primarily paid in advance by credit card. In accordance with GAAP, the Company recognizes revenue when persuasive evidence of an arrangement exists, services have been provided, the sales price is fixed and determinable and collection is probable. The Company defers the portions of monthly, quarterly, semi-annually and annually recurring subscription and usage-based fees collected in advance and recognizes them in the period earned. Additionally, the Company defers and recognizes subscriber activation fees and related direct incremental costs over a subscriber’s estimated useful life.

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Along with our numerous proprietary Business Cloud Services solutions, the Company also generates revenues by reselling various third party solutions, primarily through our email security and online backup lines of business. These third party solutions, along with our proprietary products, allow the Company to offer customers a variety of solutions to better meet their needs. The Company determines whether reseller revenue should be reported on a gross or net basis by assessing whether the Company is acting as the principal or an agent in the transaction. If the Company is acting as the principal in a transaction, the Company reports revenue on a gross basis. If the Company is acting as an agent in a transaction, the Company reports revenue on a net basis. In determining whether the Company acts as the principal or an agent, the Company follows the accounting guidance for principal-agent considerations and the Company places the most weight on three factors: whether or not the Company (i) is the primary obligor in the arrangement, (ii) has latitude in determining pricing and (iii) bears credit risk.

The Company records revenue on a gross basis with respect to reseller revenue as the Company is the primary obligator in the arrangement, has latitude in determining pricing and bears all credit risk associated with our reseller program partners.

j2 Global’s Business Cloud Services also include patent license revenues generated under license agreements that provide for the payment of contractually determined fully paid-up or royalty-bearing license fees to j2 Global in exchange for the grant of non-exclusive, retroactive and future licenses to our intellectual property, including patented technology. Patent revenues may also consist of revenues generated from the sale of patents. Patent license revenues are recognized when earned over the term of the license agreements. With regard to fully paid-up license arrangements, the Company recognizes as revenue in the period the license agreement is executed the portion of the payment attributable to past use of the intellectual property and amortizes the remaining portion of such payments on a straight-line basis, or pro-rata revenue basis, as appropriate over the life of the licensed patent(s). With regard to royalty-bearing license arrangements, the Company recognizes revenues of license fees earned during the applicable period. With regard to patent sales, the Company recognizes as revenue in the period of the sale the amount of the purchase price over the carrying value of the patent(s) sold.

The Business Cloud Services business also generates revenues by licensing certain technology to third parties. These licensing revenues are recognized when earned in accordance with the terms of the underlying agreement. Generally, revenue is recognized as the third party uses the licensed technology over the period.

Digital Media

The Company’s Digital Media revenues primarily consist of revenues generated from the sale of advertising campaigns that are targeted to the Company’s proprietary websites and to those websites operated by third parties that are part of the Digital Media business’s advertising network. Revenues for these advertising campaigns are recognized as earned, either when an ad is placed for viewing by a visitor to the appropriate web page or when the visitor “clicks through” on the ad, depending upon the terms with the individual advertiser.

Revenues for Digital Media business-to-business operations consist of lead-generation campaigns for IT vendors and are recognized as earned when the Company delivers the qualified leads to the customer.

j2 Global also generates Digital Media revenues through the license of certain assets to clients, for the clients’ use in their own promotional materials or otherwise. Such assets may include logos, editorial reviews, or other copyrighted material. Revenues under such license agreements are recognized when the assets are delivered to the client. Also, Digital Media revenues are generated through the license of certain speed testing technology which is recognized when delivered to the client through providing data services primarily to Internet Service Providers (“ISPs”) and wireless carriers which is recognized as earned over the term of the access period. The Digital Media business also generates other types of revenues, including business listing fees, subscriptions to online publications, and from other sources. Such other revenues are recognized as earned.

The Company determines whether Digital Media revenue should be reported on a gross or net basis by assessing whether the Company is acting as the principal or an agent in the transaction. If the Company is acting as the principal in a transaction, the Company reports revenue on a gross basis. If the Company is acting as an agent in a transaction, the Company reports revenue on a net basis. In determining whether the Company acts as the principal or an agent, the Company follows the accounting guidance for principal-agent considerations and the Company places the most weight on three factors: whether or not the Company (i) is the primary obligor in the arrangement, (ii) has latitude in determining pricing and (iii) bears credit risk.

The Company records revenue on a gross basis with respect to revenue generated (i) by the Company serving online display and video advertising across its owned-and-operated web properties, on third party sites or on unaffiliated advertising networks, (ii) through the Company’s lead-generation business and (iii) through the Company’s Digital Media licensing program. The Company records revenue on a net basis with respect to revenue paid to the Company by certain third-party advertising

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networks who serve online display and video advertising across the Company’s owned-and-operated web properties and certain third party sites.

Fair Value Measurements

j2 Global complies with the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) Topic No. 820, Fair Value Measurements and Disclosures (“ASC 820”), in measuring fair value and in disclosing fair value measurements. ASC 820 provides a framework for measuring fair value and expands the disclosures required for fair value measurements of financial and non-financial assets and liabilities.

As of June 30, 2017 , the carrying value of cash and cash equivalents, short-term investments, accounts receivable, interest receivable, accounts payable, accrued expenses, interest payable, customer deposits and long-term debt are reflected in the financial statements at cost. With the exception of long-term debt, cost approximates fair value due to the short-term nature of such instruments. The fair value of the Company’s outstanding debt was determined using the quoted market prices of debt instruments with similar terms and maturities, if available. As of the same dates, the carrying value of other long-term liabilities approximated fair value as the related interest rates approximate rates currently available to j2 Global.

Property and Equipment

Property and equipment are stated at cost. Equipment under capital leases is stated at the present value of the minimum lease payments. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. The estimated useful lives of property and equipment range from 1 to 10 years. Fixtures, which are comprised primarily of leasehold improvements and equipment under capital leases, are amortized on a straight-line basis over their estimated useful lives or for leasehold improvements, the related lease term, if less. The Company has capitalized certain internal use software and website development costs which are included in property and equipment. The estimated useful life of costs capitalized is evaluated for each specific project and ranges from 1 to 5 years.

Debt Issuance Costs and Debt Discount

j2 Global capitalizes costs incurred with borrowing and issuance of debt securities and records debt issuance costs and discounts as a reduction to the debt amount. These costs and discounts are amortized and included in interest expense over the life of the borrowing or term of the credit facility using the effective interest method.

Contingent Consideration

j2 Global measures the contingent earn-out liabilities in connection with acquisitions at fair value on a recurring basis using significant unobservable inputs classified within Level 3 of the fair value hierarchy (see Note 5 - Fair Value Measurements). The Company may use various valuation techniques depending on the terms and conditions of the contingent consideration including a Monte-Carlo simulation. This simulation uses a probability distribution for each significant input to produce hundreds or thousands of possible outcomes and the results are analyzed to determine probabilities of different outcomes occurring. Significant increases or decreases to these inputs in isolation would result in a significantly higher or lower liability with a higher liability capped by the contractual maximum of the contingent earn-out obligation. Ultimately, the liability will be equivalent to the amount paid, and the difference between the fair value estimate and the amount paid will be recorded in earnings. The amount paid that is less than or equal to the liability on the acquisition date is reflected as cash used in financing activities in our consolidated statements of cash flows. Any amount paid in excess of the liability on the acquisition date is reflected as cash used in operating activities.

j2 Global reviews and re-assesses the estimated fair value of contingent consideration on a quarterly basis, and the updated fair value could be materially different from the initial estimates or prior quarterly amounts. Changes in the estimated fair value of our contingent earn-out liabilities are reported in operating income, except for the time component of the present value calculation which is reported in interest expense. Adjustments to the estimated fair value related to changes in all other unobservable inputs are reported in operating income.

Segment Reporting

Accounting guidance establishes standards for the way that public business enterprises report information about operating segments in their annual consolidated financial statements and requires that those enterprises report selected information about operating segments in interim financial reports. Accounting guidance also establishes standards for related disclosures about

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products and services, geographic areas and major customers. The Company operates as two segments: (1) Business Cloud Services and (2) Digital Media.

Reclassifications

Certain prior year reported amounts have been reclassified to conform to the 2017 presentation.

2. Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers, as a new Topic, Accounting Standards Codification (“ASC”) Topic 606. The new revenue recognition standard provides a five-step analysis of transactions to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers: Deferral of the Effective Date, which deferred the effective date of the new revenue standard for periods beginning after December 15, 2016 to December 15, 2017, with early adoption permitted but not earlier than the original effective date. In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606). This ASU is related to reporting revenue gross versus net, or principal versus agent considerations. This ASU is meant to clarify the guidance in ASU 2014-09, Revenue from Contracts with Customers, as it pertains to principal versus agent considerations. Specifically, the guidance addresses how entities should identify goods and services being provided to a customer, the unit of account for a principal versus agent assessment, how to evaluate whether a good or service is controlled before being transferred to a customer, and how to assess whether an entity controls services performed by another party. In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing. This ASU is meant to clarify the guidance in FASB ASU 2014-09, Revenue from Contracts with Customers. Specifically, the guidance addresses an entity’s identification of its performance obligations in a contract, as well as an entity’s evaluation of the nature of its promise to grant a license of intellectual property and whether or not that revenue is recognized over time or at a point in time. In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients. This ASU does not change the core principle of the guidance in Topic 606. Instead, the amendments provide clarifying guidance in a few narrow areas and add some practical expedients. In December 2016, the FASB issued 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers. The amendments in this ASU represent changes to clarify the Codification or to correct unintended application of guidance. This ASU must be applied retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. The Company currently expects to adopt the standard on January 1, 2018 using the modified retrospective approach. The Company has substantially completed a review of the likely impact to the existing portfolio of customer contracts entered into prior to this adoption and will continue to evaluate the effect of adopting this guidance upon the Company’s results of operations, cash flows and financial position. Currently, the Company does not expect the adoption of this ASU to have a material impact on our financial statements, however, we do anticipate some changes within revenue recognition associated with licensing and patents. In addition, we expect additional reporting requirements under the new standard.

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The amendments in this ASU modify how entities measure equity investments and present changes in the fair value of financial liabilities. Under the new guidance, entities will have to measure equity investments that do not result in consolidation and are not accounted under the equity method at fair value and recognize any changes in fair value in net income unless the investments qualify for the new practicality exception. A practicality exception will apply to those equity investments that do not have a readily determinable fair value and do not qualify for the practical expedient to estimate fair value under ASC 820, Fair Value Measurements, and as such these investments may be measured at cost. This ASU is effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company does not expect the adoption of this ASU to have a material impact on our financial statements and related disclosures.

In February 2016, the FASB issued ASU No. 2016-02, Leases. This ASU establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is currently evaluating the impact of this ASU on our financial statements. The Company currently has both capital and operating leases both domestically and internationally with varying expiration dates through 2025 in the aggregate amount of $68.5 million for the period ended June 30, 2017.

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In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The amendments in this ASU replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. This ASU is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019. The adoption of this standard is not expected to have a material impact on our financial statements and related disclosures.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The new guidance is intended to reduce diversity in practice in how transactions are classified in the statement of cash flows. This ASU is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017. The adoption of this standard did not have a material impact on our financial statements.

In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other than Inventory. The amendments in this ASU reduce the complexity in the accounting standards by allowing the recognition of current and deferred income taxes for an intra-entity asset transfer, other than inventory, when the transfer occurs. Historically, the income tax consequence was not recognized until the asset was sold to an outside party. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted. The Company is currently evaluating the impact of this ASU on our financial statements.

In November 2016, the FASB issued 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash - a consensus of the FASB Emerging Issues Task Force. The amendments in this ASU require restricted cash and restricted cash equivalents to be classified in the statement of cash flows as cash and cash equivalents. The guidance will be applied on a retrospective basis beginning with the earliest period presented. The amendments in this ASU are effective for annual and interim periods beginning after December 15, 2017. Early adoption is permitted. The adoption of this standard did not have a material impact on our financial statements.

In January 2017, the FASB issued 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. The amendments in this ASU provide a robust framework to use in determining when a set of assets and activities is a business. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted and the standard should be applied prospectively. The Company does not expect the adoption of this ASU to have a material impact on our financial statements and related disclosures.

In January 2017, the FASB issued 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The amendments in this ASU simplify the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test and eliminating the requirement for a reporting unit with a zero or negative carrying amount to perform a qualitative assessment. Instead, under this pronouncement, an entity would perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and would recognize an impairment change for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized is not to exceed the total amount of goodwill allocated to that reporting unit. In addition, income tax effects will be considered, if applicable. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted and should be adopted on a prospective basis. The Company does not expect the adoption of this ASU to have a material impact on our financial statements and related disclosures.

In February 2017, the FASB issued 2017-05, Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets. This ASU provides guidance which clarifies the scope and accounting for financial assets that meet the definition of an “in-substance nonfinancial asset” and defines the term, “in-substance nonfinancial asset.” In addition, this ASU also adds guidance for partial sales of nonfinancial assets. This ASU is effective for fiscal years beginning after December 15, 2017 and interim periods within those years. Early adoption is permitted and should be adopted retrospectively for all periods presented or retrospectively with a cumulative-effect adjustment at the date of adoption. The Company does not expect the adoption of this ASU to have a material impact on our financial statements and related disclosures.

In March 2017, the FASB issued 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. The amendments in this ASU shorten the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. This ASU is effective for those fiscal years, beginning after December 15, 2018. Early adoption is permitted and should

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be adopted on a modified retrospective bases through a cumulative-effect directly to retained earnings as of the beginning of the period of adoption. The Company does not expect the adoption of this ASU to have a material impact on our financial statements and related disclosures.

In May 2017, the FASB issued 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting. The amendments in this ASU provide guidance about which changes to the terms or conditions of share-based payment award require an entity to apply modification accounting in Topic 718. Specifically, an entity should account for the effects of a modification unless all the following are met: (1) The fair value (or calculated value or intrinsic value, if such an alternative measurement method is used) of the modified award is the same as the fair value (or calculated value or intrinsic value, if such an alternative measurement method is used) of the original award immediately before the original award is modified. If the modification does not affect any of the inputs to the valuation technique that the entity uses to value the award, the entity is not required to estimate the value immediately before and after the modification; (2) The vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified; and (3)The classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified. This ASU is effective for those fiscal years, beginning after December 15, 2017. Early adoption is permitted and should be adopted on a prospective basis. The Company does not expect the adoption of this ASU to have a material impact on our financial statements and related disclosures.

3. Business Acquisitions

The Company uses acquisitions as a strategy to grow its customer base by increasing its presence in new and existing markets, expand and diversify its service offerings, enhance its technology, acquire skilled personnel and enter into other jurisdictions.

The Company completed the following acquisitions during the first six months of fiscal 2017, paying the purchase price in cash in each transaction: (a) an asset purchase of sFax, acquired on March 31, 2017, an Austin-based provider of mobile cloud faxing for health care; (b) a share purchase of the entire issued capital of WeCloud AB, acquired on June 12, 2017, a Swedish-based provider of cloud-based Internet security services; (c) an asset purchase of MyPhoneFax.com, acquired on June 30, 2017, a provider of online fax services; and (d) other immaterial acquisitions of email marketing and email security businesses.

The condensed consolidated statement of income, since the date of each acquisition, and balance sheet as of June 30, 2017 , reflect the results of operations of all 2017 acquisitions. For the six months ended June 30, 2017 , these acquisitions contributed $3.3 million to the Company’s revenues. Net income contributed by these acquisitions was not separately identifiable due to j2 Global’s integration activities and is impracticable to provide. Total consideration for these transactions was $48.3 million , net of cash acquired and assumed liabilities and is subject to certain post-closing adjustments which may increase or decrease the final consideration paid.

The following table summarizes the allocation of the purchase consideration for these acquisitions (in thousands):



Assets and Liabilities	Valuation
Accounts receivable	$	703
Prepaid expenses and other current assets	63
Property and equipment	486
Trade names	1,343
Customer relationships	21,803
Other intangibles	2,696
Goodwill	24,378
Accounts payable and accrued expenses	(1,280		)
Deferred revenue	(1,866		)
Total	$	48,326

During the six months ended June 30, 2017 , the purchase price accounting has been finalized for the following acquisitions: (i) Fonebox; and (ii) other immaterial fax, online data backup, email security and email marketing businesses. The initial accounting for all other 2017 acquisitions is incomplete and subject to change, which may be significant. j2 Global has recorded provisional

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amounts which may be based upon past acquisitions with similar attributes for certain intangible assets (including trade names, software and customer relationships), preliminary acquisition date working capital and related tax items.

During the six months ended June 30, 2017 , the Company recorded adjustments to prior period acquisitions due to the finalization of purchase accounting in the Business Cloud Services segment which resulted in a net decrease in goodwill of $(0.8) million . In addition, the Company recorded adjustments to the initial working capital related to prior period acquisitions in the Digital Media segment, which resulted in a net increase in goodwill of $1.3 million . Such adjustments had an immaterial impact to the amortization expense within the condensed consolidated statement of income for the six months ended June 30, 2017 .

Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired and represents intangible assets that do not qualify for separate recognition. Goodwill recognized associated with these acquisitions during the six months ended June 30, 2017 is $24.4 million , of which $19.6 million is expected to be deductible for income tax purposes.

4. Investments

Short-term investments consist of certificates of deposits, which are stated at fair market value.


5.	Assets Held for Sale

The Company classifies assets held for sale when management approves and commits to a formal plan of sale with the expectation the sale will be completed within one year. The net assets of the business held for sale are then recorded at the lower of their current carrying value or the fair market value, less costs to sell.

During the second quarter 2017, the Company committed to a plan to sell the Cambridge BioMarketing Group, LLC (“Cambridge”), a subsidiary within the Digital Media segment, as it was determined to be a non-core asset. This determination resulted in a reclassification of assets held for sale on the condensed consolidated balance sheet with a net carrying value of $29.8 million as of June 30, 2017.

The following table presents information related to the assets and liabilities that were classified as held for sale in our condensed consolidated balance sheets (in thousands):



	June 30, 2017

Cash	$	813
Accounts receivable, net	4,746
Prepaid expenses and other current assets	210
Property and equipment, net	472
Goodwill	17,815
Other intangible assets, net	11,405
Other assets	29
Total assets held for sale	$	35,490

Accounts payable and accrued expenses	$	562
Deferred income taxes, non current	5,064
Total liabilities held for sale	$	5,626

On July 12, 2017, in a cash transaction, the Company sold Cambridge. The Company is currently determining the financial impact to the statement of operations which will be recorded in the third quarter 2017 (see Note 18 - Subsequent Events). The Company does not expect a material gain or loss from this transaction.

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6. Fair Value Measurements

j2 Global complies with the provisions of ASC 820, which defines fair value, provides a framework for measuring fair value and expands the disclosures required for fair value measurements of financial and non-financial assets and liabilities. ASC 820 clarifies that the fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or a liability. As a basis for considering such assumptions, ASC 820 establishes a three-tier value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:



	l	Level 1 – Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

	l	Level 2 – Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

	l	Level 3 – Unobservable inputs which are supported by little or no market activity.

The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

The Company’s money market funds are classified within Level 1. The Company values these Level 1 investments using quoted market prices. The Company’s certificates of deposit are classified within Level 2. The Company values these Level 2 investments based on quoted market prices or model-driven valuations using significant inputs derived from or corroborated by observable market data.

The fair value of the Convertible Notes (see Note 8 - Long-Term Debt) is determined using recent quoted market prices or dealer quotes for such securities, which are Level 1 inputs. The fair value of our senior notes (8.0% senior unsecured notes at December 31, 2016 and 6.0% senior unsecured notes at June 30, 2017 ) (see Note 8 - Long-Term Debt) is determined using quoted market prices or dealer quotes for instruments with similar maturities and other terms and credit ratings, which are Level 2 inputs. The fair value of debt at June 30, 2017 and December 31, 2016 was $1.5 billion and $792.2 million , respectively.

In addition, the Convertible Notes contain terms that may require the Company to pay contingent interest on the Convertible Notes which is accounted for as a derivative with fair value adjustments being recorded to interest expense. This derivative is fair valued using a binomial lattice convertible bond pricing model using historical and implied market information, which are Level 2 inputs.

The Company classifies its contingent consideration liability in connection with the acquisitions of Ookla and Salesify within Level 3 because factors used to develop the estimated fair value are unobservable inputs, such as volatility and market risks, and are not supported by market activity. The fair value of the contingent consideration liability was determined using option based approaches. This methodology was utilized because the distribution of payments is not symmetric and amounts are only payable upon certain earnings before interest, tax, depreciation and amortization (“EBITDA”) thresholds being reached. Such valuation approach included the Monte-Carlo simulation for the contingency since the financial metric driving the payments is path dependent. Significant increases or decreases in either of the inputs noted above in isolation would result in a significantly lower or higher fair value of measurement.

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The following tables present the fair values of the Company’s financial assets or liabilities that are measured at fair value on a recurring basis (in thousands):



June 30, 2017	Level 1		Level 2		Level 3		Fair Value
Assets:
Cash equivalents:
Money market and other funds	$	11,787	$	—	$	—	$	11,787
Certificates of deposit	—		65		—		65
Total assets measured at fair value	$	11,787	$	65	$	—	$	11,852

Liabilities:
Contingent interest derivative	$	—	$	958	$	—	$	958
Total liabilities measured at fair value	$	—	$	958	$	—	$	958

December 31, 2016	Level 1		Level 2		Level 3		Fair Value
Assets:
Cash equivalents:
Money market and other funds	$	7,737	$	—	$	—	$	7,737
Certificates of deposit	—		60		—		60
Total assets measured at fair value	$	7,737	$	60	$	—	$	7,797

Liabilities:
Contingent consideration	$	—	$	—	$	17,450	$	17,450
Contingent interest derivative	—		958		—		958
Total liabilities measured at fair value	$	—	$	958	$	17,450	$	18,408

At the end of each reporting period, management reviews the inputs to the fair value measurements of financial and non-financial assets and liabilities to determine when transfers between levels are deemed to have occurred. For the six months ended June 30, 2017 , there were no transfers that have occurred between levels.

The following table presents a reconciliation of the Company’s Level 3 financial assets or liabilities that are measured at fair value on a recurring basis (in thousands):



	Level 3			Affected line item in the Statement of Income
Balance as of January 1, 2017	$	17,450
Contingent consideration	—
Total fair value adjustments reported in earnings	(600		)	General and administrative
Contingent consideration payments	(16,850		)	Not applicable
Balance as of June 30, 2017	$	—

In connection with the acquisition of Ookla, on December 1, 2014, $20.0 million ( $16.9 million of contingent consideration and $3.1 million of compensation) was paid during the second quarter of 2017.

In connection with the acquisition of Salesify, on September 17, 2015, contingent consideration of up to an aggregate of $17.0 million may be payable upon achieving certain future income thresholds and had a fair value of zero and $0.6 million at June 30, 2017 and December 31, 2016 , respectively, which was recorded as an other long-term liability on the consolidated balance sheet at June 30, 2017.

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During the six months ended June 30, 2017 , the Company recorded a decrease in the fair value of the contingent consideration of $0.6 million and reported such decrease in general and administrative expenses.

The following table presents a reconciliation of the Company’s derivative instruments (in thousands):



	Amount		Affected line item in the Statement of Income
Derivative Liabilities:
Level 2:
Balance as of January 1, 2017	$	958
Total fair value adjustments reported in earnings	—
Balance as of June 30, 2017	$	958

Losses associated with other-than-temporary impairments are recorded as a component of other income (expenses). Gains and losses not associated with other-than-temporary impairments are recorded as a component of other comprehensive income.

7. Goodwill and Intangible Assets

Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in a business combination. Intangible assets resulting from the acquisitions of entities accounted for using the acquisition method of accounting are recorded at the estimated fair value of the assets acquired. Identifiable intangible assets are comprised of purchased customer relationships, trademarks and trade names, developed technologies and other intangible assets. The fair values of these identified intangible assets are based upon expected future cash flows or income, which take into consideration certain assumptions such as customer turnover, trade names and patent lives. These determinations are primarily based upon the Company’s historical experience and expected benefit of each intangible asset. If it is determined that such assumptions are not accurate, then the resulting change will impact the fair value of the intangible asset. Identifiable intangible assets are amortized over the period of estimated economic benefit, which ranges from one to 20 years.

The changes in carrying amounts of goodwill for the six months ended June 30, 2017 are as follows (in thousands):



	Business Cloud Services			Digital Media			Consolidated
Balance as of January 1, 2017	$	559,152		$	563,658		$	1,122,810
Goodwill acquired (Note 3)	24,378			—			24,378
Goodwill reclassified to noncurrent assets held for sale ⁽¹⁾	—			(17,815		)	(17,815		)
Purchase accounting adjustments ⁽²⁾	(766		)	1,333			567
Foreign exchange translation	9,365			121			9,486
Balance as of June 30, 2017	$	592,129		$	547,297		$	1,139,426

⁽¹⁾ During the second quarter of 2017, the Company reclassifed $17.8 million of goodwill to noncurrent assets held for sale in connection with Cambridge (see Note 5 - Assets Held for Sale).

⁽²⁾ Purchase accounting adjustments relate to adjustments to goodwill in connection with prior year business acquisitions (see Note 3 - Business Acquisitions).

Intangible Assets with Indefinite Lives:

Intangible assets are summarized as of June 30, 2017 and December 31, 2016 as follows (in thousands):



	June 30, 2017		December 31, 2016
Trade name	$	27,379	$	27,379
Other	5,432		5,432
Total	$	32,811	$	32,811

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Intangible Assets Subject to Amortization:

As of June 30, 2017 , intangible assets subject to amortization relate primarily to the following (in thousands):



	Weighted-Average Amortization Period	Historical Cost		Accumulated Amortization		Net
Trade names	11.4 years	$	128,379	$	45,314	$	83,065
Patent and patent licenses	6.6 years	66,272		54,364		11,908
Customer relationships ⁽¹⁾	9.2 years	411,833		218,653		193,180
Other purchased intangibles	5.0 years	194,151		47,030		147,121
Total		$	800,635	$	365,361	$	435,274

⁽¹⁾ Historically, the Company has amortized its customer relationship assets in a pattern that best reflects the pace in which the asset’s benefits are consumed. This pattern results in a substantial majority of the amortization expense being recognized in the first 4 to 5 years, despite the overall life of the asset.

As of December 31, 2016 , intangible assets subject to amortization relate primarily to the following (in thousands):



	Weighted-Average Amortization Period	Historical Cost		Accumulated Amortization		Net
Trade names	11.5 years	$	127,342	$	38,868	$	88,474
Patent and patent licenses	6.6 years	65,605		51,677		13,928
Customer relationships ⁽¹⁾	9.6 years	390,930		182,775		208,155
Other purchased intangibles	6.0 years	195,913		27,590		168,323
Total		$	779,790	$	300,910	$	478,880

Amortization expense, included in general and administrative expense, approximated $31.7 million and $24.8 million for the three month period ended June 30, 2017 and 2016 , respectively, and $62.5 million and $45.8 million for the six month period ended June 30, 2017 and 2016, respectively. Amortization expense is estimated to approximate $156.6 million , $98.5 million , $61.3 million , $36.5 million and $28.9 million for fiscal years 2017 through 2021 , respectively, and $116.1 million thereafter through the duration of the amortization period.

Long-Term Debt

6.0% Senior Notes

On June 27, 2017 , j2 Cloud Services, LLC (“j2 Cloud”) and j2 Cloud Co-Obligor (the “Co-Issuer” and together with j2 Cloud, the “Issuers”), wholly-owned subsidiaries of the Company, completed the issuance and sale of $650 million aggregate principal amount of their 6.0% senior notes due in 2025 (the “6.0% Senior Notes”) in a private placement offering exempt from the registration requirements of the Securities Act of 1933. j2 Cloud received proceeds of $636.2 million , after deducting the initial purchasers’ discounts, commissions and offering expenses and is presented as Long-term debt, net of deferred issuance costs, on the condensed consolidated balance sheets as of June 30, 2017 . The proceeds were used to redeem all of j2 Cloud’s 8.0% notes due in 2020, and to distribute sufficient net proceeds to j2 Global to pay off all amounts outstanding under its existing credit facility, with the remaining net proceeds to be used for general corporate purposes, including acquisitions.

The 6.0% Senior Notes bear interest at a rate of 6.0% per annum, payable semi-annually in arrears on January 15 and July 15 of each year, commencing on January 15, 2018. The 6.0% Senior Notes mature on July 15, 2025 , and are senior unsecured obligations of the Issuers and are guaranteed on an unsecured basis by certain subsidiaries of j2 Cloud (as defined in the Indenture agreement dated June 27, 2017, the “Indenture”). If j2 Cloud or any of its restricted subsidiaries acquires or creates a domestic

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restricted subsidiary, other than an insignificant subsidiary (as defined in the Indenture), after the issue date, or any insignificant subsidiary ceases to fit within the definition of insignificant subsidiary, such restricted subsidiary is required to unconditionally guarantee, jointly and severally, on an unsecured basis, the Issuers’ obligations under the 6.0% Senior Notes.

The Issuers may redeem some or all of the 6.0% Senior Notes at any time on or after July 15, 2020 at specified redemption prices plus accrued and unpaid interest, if any, to, but excluding the redemption date. Before July 15, 2020, in connection with certain equity offerings, the Issuers also may redeem up to 35% of the 6.0% Senior Notes at a price equal to 106.000% of the principal amount, plus accrued and unpaid interest, if any, to, but excluding the redemption date. In addition, at any time prior to July 15, 2020, the Issuers may redeem some or all of the 6.0% Senior Notes at a price equal to 100% of the principal amount, plus accrued and unpaid interest, if any, to the redemption date, plus an applicable “make-whole” premium.

The indenture governing the 6.0% Senior Notes contains certain restrictive and other covenants applicable to j2 Cloud and subsidiaries designated as restricted subsidiaries including, but not limited to, (i) pay dividends or make distributions on j2 Cloud’s capital stock or repurchase j2 Cloud’s capital stock; (ii) make certain restricted payments; (iii) create liens or enter into sale and leaseback transactions; (iv) enter into transactions with affiliates; (v) merge or consolidate with another company; and (vi) transfer and sell assets. These covenants include certain exceptions. Violation of these covenants could result in a default which could result in the acceleration of outstanding amounts if such default is not cured or waived within the time periods outlined in the indenture. Restricted payments, specifically dividend payments, are applicable only if j2 Cloud and subsidiaries designated as restricted subsidiaries has a leverage ratio of greater than 3.0 to 1.0. In addition, if such leverage ratio is in excess of 3.0 to 1.0, restricted payments are permitted up to $75 million. These contractual provisions did not, as of June 30, 2017 , restrict j2 Cloud’s ability to pay dividends to j2 Global, Inc.

As of June 30, 2017 , the estimated fair value of the 6.0% Senior Notes was approximately $650.0 million and was based on the quoted market prices of debt instruments with similar terms, credit rating and maturities of the 6.0% Senior Notes which are Level 2 inputs (see Note 6 - Fair Value Measurements).

8.0% Senior Notes

On June 27, 2017, j2 Cloud deposited sufficient funds with the trustee under the indenture with respect to its 8.0% senior unsecured notes to fund the redemption of the outstanding aggregate principal amount of those notes, to pay the redemption premium equal to 102% of the principal amount and to pay accrued and unpaid interest on the redemption date of August 1, 2017. As a result, the Company has reclassified $265 million , which includes a redemption premium and relevant accrued interest, from cash to restricted cash and classified the long-term debt associated with the 8.0% senior unsecured notes from noncurrent to current on the condensed consolidated balance sheet as of June 30, 2017 (see Note 18 - Subsequent Events).

As of June 30, 2017 and December 31, 2016 , the estimated fair value of the 8.0% senior unsecured notes was approximately $255.0 million and $275.4 million , respectively, and was based on the quoted market prices of debt instruments with similar terms, credit rating and maturities of the notes which are Level 2 inputs (see Note 6 - Fair Value Measurements).

3.25% Convertible Notes

On June 10, 2014 , j2 Global issued $402.5 million aggregate principal amount of 3.25% convertible senior notes due June 15, 2029 (the “Convertible Notes”). The Convertible Notes bear interest at a rate of 3.25% per annum, payable semiannually in arrears on June 15 and December 15 of each year. Beginning with the six-month interest period commencing on June 15, 2021, the Company must pay contingent interest on the Convertible Notes during any six-month interest period if the trading price per $1,000 principal amount of the Convertible Notes for each of the five trading days immediately preceding the first day of such interest period equals or exceeds $1,300. Any contingent interest payable on the Convertible Notes will be in addition to the regular interest payable on the Convertible Notes.

Holders may surrender their Convertible Notes for conversion at any time prior to the close of business on the business day immediately preceding the maturity date only if one or more of the following conditions is satisfied: (i) during any calendar quarter commencing after the calendar quarter ending on September 30, 2014 (and only during such calendar quarter), if the closing sale price of j2 Global common stock for at least 20 trading days in the period of 30 consecutive trading days ending on the last trading day of the calendar quarter immediately preceding the calendar quarter in which the conversion occurs is more than 130% of the applicable conversion price of the Convertible Notes on each such trading day; (ii) during the five consecutive business day period following any ten consecutive trading day period in which the trading price for the Convertible Notes for each such trading

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day was less than 98% of the product of (a) the closing sale price of j2 Global common stock on each such trading day and (b) the applicable conversion rate on each such trading day; (iii) if j2 Global calls any or all of the Convertible Notes for redemption, at any time prior to the close of business on the business day prior to the redemption date; (iv) upon the occurrence of specified corporate events; or (v) during either the period beginning on, and including, March 15, 2021 and ending on, but excluding, June 20, 2021 or the period beginning on, and including, March 15, 2029 and ending on, but excluding, the maturity date. j2 Global will settle conversions of Convertible Notes by paying or delivering, as the case may be, cash, shares of j2 Global common stock or a combination thereof at j2 Global’s election. The Company currently intends to satisfy its conversion obligation by paying and delivering a combination of cash and shares of the Company’s common stock, where cash will be used to settle each $1,000 of principal and the remainder, if any, will be settled via the Company’s common stock.

As of June 30, 2017 , the conversion rate is 14.5422 shares of j2 Global common stock for each $1,000 principal amount of Convertible Notes, which represents a conversion price of approximately $68.77 per share of j2 Global common stock. The conversion rate is subject to adjustment for certain events as set forth in the indenture governing the Convertible Notes, but will not be adjusted for accrued interest. In addition, following certain corporate events that occur on or prior to June 20, 2021, j2 Global will increase the conversion rate for a holder that elects to convert its Convertible Notes in connection with such a corporate event.

j2 Global may not redeem the Convertible Notes prior to June 20, 2021. On or after June 20, 2021, j2 Global may redeem for cash all or part of the Convertible Notes at a redemption price equal to 100% of the principal amount of the Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. No sinking fund is provided for the Convertible Notes.

Holders have the right to require j2 Global to repurchase for cash all or part of their Convertible Notes on each of June 15, 2021 and June 15, 2024 at a repurchase price equal to 100% of the principal amount of the Convertible Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the relevant repurchase date. In addition, if a fundamental change, as defined in the indenture governing the Convertible Notes, occurs prior to the maturity date, holders may require j2 Global to repurchase for cash all or part of their Convertible Notes at a repurchase price equal to 100% of the principal amount of the Convertible Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.

The Convertible Notes are the Company’s general senior unsecured obligations and rank: (i) senior in right of payment to any of the Company’s future indebtedness that is expressly subordinated in right of payment to the Convertible Notes; (ii) equal in right of payment to the Company’s existing and future unsecured indebtedness that is not so subordinated; (iii) effectively junior in right of payment to any of the Company’s secured indebtedness to the extent of the value of the assets securing such indebtedness; and (iv) structurally junior to all existing and future indebtedness (including trade payables) incurred by the Company’s subsidiaries.

Accounting for the Convertible Notes

In accordance with ASC 470-20, Debt with Conversion and Other Options, convertible debt that can be settled for cash is required to be separated into the liability and equity component at issuance, with each component assigned a value. The value assigned to the liability component is the estimated fair value, as of the issuance date, of similar debt without the conversion feature. The difference between the cash proceeds and estimated fair value of the liability component, representing the value of the conversion premium assigned to the equity component, is recorded as a debt discount on the issuance date. This debt discount is amortized to interest expense using the effective interest method over the period from the issuance date through the first stated repurchase date on June 15, 2021.

j2 Global estimated the borrowing rates of similar debt without the conversion feature at origination to be 5.79% for the Convertible Notes and determined the debt discount to be $59.0 million . As a result, a conversion premium after tax of $37.7 million was recorded in additional paid-in capital. The aggregate debt discount is amortized as interest expense over the period from the issuance date through the first stated repurchase date on June 15, 2021, which management believes is the expected life of the Convertible Notes using an interest rate of 5.81% . As of June 30, 2017 , the remaining period over which the unamortized debt discount will be amortized is 4.0 years .

The Convertible Notes are carried at face value less any unamortized debt discount and debt issuance costs. The fair value of the Convertible Notes at each balance sheet date is determined based on recent quoted market prices or dealer quotes for the Convertible Notes, which are Level 1 inputs (see Note 6 - Fair Value Measurements). If such information is not available, the fair value is determined using cash-flow models of the scheduled payments discounted at market interest rates for comparable debt without the conversion feature. As of June 30, 2017 and December 31, 2016 , the estimated fair value of the Convertible Notes was approximately $552.2 million and $516.8 million , respectively.

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Long-term debt as of June 30, 2017 and December 31, 2016 consists of the following (in thousands):



	June 30, 2017			December 31, 2016
Senior Notes:
6.0% Senior Notes	$	638,634		$	—
8.0% Senior Notes	246,652			247,359
3.25% Convertible Notes	366,168			362,144
Less: Deferred issuance costs	(8,425		)	(7,757		)
Total debt	1,243,029			601,746
Less: current portion	246,652			—
Total long-term debt, less current portion	$	996,377		$	601,746

9. Commitments and Contingencies

Litigation

From time-to-time, j2 Global and its affiliates are involved in litigation and other legal disputes or regulatory inquiries that arise in the ordinary course of business. Any claims or regulatory actions against j2 Global and its affiliates, whether meritorious or not, could be time consuming and costly, and could divert significant operational resources. The outcomes of such matters are subject to inherent uncertainties, carrying the potential for unfavorable rulings that could include monetary damages and injunctive relief.

On February 17, 2011, Emmanuel Pantelakis (“Pantelakis”) filed suit against a j2 Global affiliate in the Ontario Superior Court of Justice (No. 11-50673), alleging that the j2 Global affiliate breached a contract relating to Pantelakis’s use of the Campaigner ^® service. The j2 Global affiliate filed a responsive pleading on March 23, 2011 and responses to undertakings on July 16, 2012. On November 6, 2012, Pantelakis filed a second amended statement of claim, reframing his lawsuit as a negligence action. The j2 Global affiliate filed an amended statement of defense on April 8, 2013. Discovery is ongoing.

On January 17, 2013, the Commissioner of the Massachusetts Department of Revenue (“Commissioner”) issued a notice of assessment to a j2 Global affiliate for sales and use tax for the period of July 1, 2003 through December 31, 2011. On July 22, 2014, the Commissioner denied the j2 Global affiliate’s application for abatement. On September 18, 2014, the j2 Global affiliate petitioned the Massachusetts Appellate Tax Board for abatement of the tax asserted in the notice of assessment (No. C325426). A trial was held on December 16, 2015. On May 18, 2017, the Appellate Board decided in favor of the Commonwealth of Massachusetts. The j2 Global affiliate has requested the findings of fact and conclusions of law from the Appellate Board.

On October 16, 2013, a j2 Global affiliate entered an appearance as a plaintiff in a multi-district litigation pending in the Northern District of Illinois (No. 1:12-cv-06286). In this litigation, Unified Messaging Solutions, LLC (“UMS”), a company with rights to assert certain patents owned by the j2 Global affiliate, has asserted five j2 Global patents against a number of defendants. While claims against some defendants have been settled, other defendants have filed counterclaims for, among other things, non-infringement, unenforceability, and invalidity of the patents-in-suit. On December 20, 2013, the Northern District of Illinois issued a claim construction opinion and, on June 13, 2014, entered a final judgment of non-infringement for the remaining defendants based on that claim construction. UMS and the j2 Global affiliate filed a notice of appeal to the Federal Circuit on June 27, 2014 (No. 14-1611). The appeal is pending.

On January 21, 2016, Davis Neurology, P.A. filed a putative class action against two j2 Global affiliates in the Circuit Court for the County of Pope, State of Arkansas (58-cv-2016-40), alleging violations of the TCPA. The case was ultimately removed to the U.S. District Court for the Eastern District of Arkansas (the “Eastern District of Arkansas”) (No. 4:16-cv-00682). On June 6, 2016, the j2 Global affiliates filed a motion for judgment on the pleadings. On March 20, 2017, the Eastern District of Arkansas dismissed all claims against the j2 Global affiliates. On April 17, 2017, Davis Neurology filed a noticed of appeal to the Federal Circuit (No. 17-1820).

j2 Global does not believe, based on current knowledge, that the foregoing legal proceedings or claims, after giving effect to existing reserves, are likely to have a material adverse effect on the Company’s consolidated financial position, results of

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operations, or cash flows. However, depending on the amount and timing, an unfavorable resolution of some or all of these matters could have a material effect on j2 Global’s consolidated financial position, results of operations, or cash flows in a particular period.

The Company has not accrued for any material loss contingencies relating to these legal proceedings because materially unfavorable outcomes are not considered probable by management.

Credit Agreement

On June 27, 2017, the Company paid off the entire line of credit of $225.0 million , in addition to interest and miscellaneous fees of $0.5 million .

Non-Income Related Taxes

As a provider of cloud services for business, the Company does not provide telecommunications services. Thus, it believes that its business and its users (by using the Company’s services) are generally not subject to various telecommunication taxes. Moreover, the Company generally does not believe that its business and its users (by using the Company’s services) are subject to other indirect taxes, such as sales, business tax and gross receipt tax. However, several state and municipal taxing authorities have challenged these beliefs and have and may continue to audit and assess the Company’s business and operations with respect to telecommunications and other indirect taxes.

On February 24, 2016, President Obama signed into law H.R. 644, the “Trade Facilitation and Trade Enforcement Act of 2015”, which included a provision to permanently ban state and local authorities from imposing access or discriminatory taxes on the Internet. The new law allows “grandfathered” states and local authorities to continue their existing taxes on Internet access through June 2020.

The Company is currently under audit for indirect taxes in several states and municipalities including New York State, Massachusetts, Ohio, and the City of Los Angeles. On March 3, 2017, the New York State Department of Taxation and Finance issued a notice of assessment to a j2 Global affiliate for sales and use tax for the period of March 1, 2009 through February 28, 2014. We have reserved for potential adjustments to our accrual of indirect taxes that may result from examinations by or any negotiated agreements with these tax authorities and we believe that the final outcome of these examinations or agreements will not have a material effect on our results of operations. If events occur which indicate payment of these amounts is unnecessary, the reversal of the liabilities would result in the recognition of benefits in the period we determine the liabilities are no longer necessary. If our estimated indirect tax liabilities are less than the ultimate assessment, it would result in a further charge to expense.

10. Income Taxes

The Company’s tax provision for interim periods is determined using an estimate of the Company’s annual effective tax rate. Each quarter the Company updates its estimated annual effective tax rate and, if the estimate changes, makes a cumulative adjustment. j2 Global’s annual effective tax rate is normally lower than the 35% U.S. federal statutory rate and applicable apportioned state tax rates primarily due to anticipated earnings of the Company’s subsidiaries outside of the U.S. in jurisdictions where the Company’s effective tax rate is lower than in the U.S. The Company’s effective tax rate was 22.8% and 30.9% for the three months ended June 30, 2017 and 2016 , respectively and 24.6% and 30.6% for the six months ended June 30, 2017 and 2016 , respectively. j2 Global does not provide for U.S. income taxes on the undistributed earnings of the Company’s foreign operations because the Company intends to permanently reinvest such earnings in foreign jurisdictions and any determination of the amount of unrecognized deferred tax liability related to these earnings is not practicable. Income before income taxes included income from domestic operations of $9.2 million and $40.3 million for the six months ended June 30, 2017 and 2016 , respectively, and income from foreign operations of $66.7 million and $51.5 million for the six months ended June 30, 2017 and 2016 , respectively.

As of June 30, 2017 and December 31, 2016 , the Company had $47.0 million and $46.5 million , respectively, in liabilities for uncertain income tax positions. Accrued interest and penalties related to unrecognized tax benefits are recognized in income tax expense on the Company’s consolidated statement of income.

Cash paid for income taxes net of refunds received was $26.5 million and $25.0 million for the six months ended June 30, 2017 and 2016 , respectively.

Certain taxes are prepaid during the year and, where appropriate, included within prepaid expenses and other current assets on the consolidated balance sheet. The Company’s prepaid taxes were zero at June 30, 2017 and December 31, 2016 , respectively.

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Income Tax Audits :

The Company is under income tax audit by the U.S. Internal Revenue Service (“IRS”) for its 2012 through 2014 tax years. Additionally, the Company was notified on March 22, 2017 that the IRS will be auditing Everyday Health’s 2014 tax year.

j 2 Global is under income tax audit by the California Franchise Tax Board (the “FTB”) for its tax years 2012 and 2013. The FTB, however, has agreed to suspend its audit for 2012 and 2013 pending the outcome of the IRS audit for such tax years.

The Company is under income tax audit by the New York State Department of Taxation and Finance (“NYS”) for tax years 2011 through 2013. On March 16, 2017, the Company was notified that NYS would be auditing its 2014 tax year.

It is reasonably possible that these audits may conclude in the next 12 months and that the uncertain tax positions the Company has recorded in relation to these tax years may change compared to the liabilities recorded for these periods. If the recorded uncertain tax positions are inadequate to cover the associated tax liabilities, the Company would be required to record additional tax expense in the relevant period, which could be material. If the recorded uncertain tax positions are adequate to cover the associated tax liabilities, the Company would be required to record any excess as a reduction in tax expense in the relevant period, which could be material. However, it is not currently possible to estimate the amount, if any, of such change.

11. Stockholders’ Equity

Common Stock Repurchase Program

In February 2012, the Company’s Board of Directors approved a program authorizing the repurchase of up to five million shares of our common stock through February 20, 2013 (the “2012 Program”) which was subsequently extended through February 19, 2018. In July 2016, the Company acquired and subsequently retired 935,231 shares of j2 Global common stock in connection with the acquisition of Integrated Global Concepts, Inc. As a result of the purchase of j2 Global common stock, the Company’s Board of Directors approved a reduction in the number of shares available for purchase under the 2012 Program by the same amount leaving 1,938,689 shares of j2 Global common stock available for purchase under this program. During the six month period ended June 30, 2017 , we repurchased zero shares under this program. Cumulatively at June 30, 2017 , 2.1 million shares were repurchased at an aggregate cost of $58.6 million (including an immaterial amount of commission fees).

Periodically, participants in j2 Global’s stock plans surrender to the Company shares of j2 Global stock to pay the exercise price or to satisfy tax withholding obligations arising upon the exercise of stock options or the vesting of restricted stock. During the three month period ended June 30, 2017 , the Company purchased 72,673 shares from plan participants for this purpose.

Dividends

The following is a summary of each dividend declared during fiscal year 2017 and 2016 :



Declaration Date	Dividend per Common Share		Record Date	Payment Date
February 10, 2016	$	0.3250	February 23, 2016	March 10, 2016
May 5, 2016	$	0.3350	May 18, 2016	June 2, 2016
August 2, 2016	$	0.3450	August 17, 2016	September 1, 2016
November 1, 2016	$	0.3550	November 18, 2016	December 5, 2016
February 9, 2017	$	0.3650	February 22, 2017	March 9, 2017
May 4, 2017	$	0.3750	May 19, 2017	June 2, 2017

Future dividends are subject to Board approval.

12. Stock Options and Employee Stock Purchase Plan

j2 Global’s share-based compensation plans include the 2007 Stock Plan (the “2007 Plan”), 2015 Stock Option Plan (the “2015 Plan”) and 2001 Employee Stock Purchase Plan (the “Purchase Plan”). Each plan is described below.

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The 2007 Plan provides for the granting of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units and other share-based awards. 4,500,000 shares of j2 Global common stock are authorized to be used for 2007 Plan purposes. Options under the 2007 Plan may be granted at exercise prices determined by the Board of Directors, provided that the exercise prices shall not be less than the fair market value of j2 Global’s common stock on the date of grant for incentive stock options and not less than 85% of the fair market value of j2 Global’s common stock on the date of grant for non-statutory stock options. As of June 30, 2017 , 315,675 shares underlying options and 14,140 shares of restricted units were outstanding under the 2007 Plan.

The 2015 Plan provides for the granting of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance share units and other share-based awards and is intended as a successor plan to the 2007 Stock Plan since no further grants will be made under the 2007 Stock Plan. 4,200,000 shares of j2 Global common stock are authorized to be used for 2015 Plan purposes. Options under the 2015 Plan may be granted at exercise prices determined by the Board of Directors, provided that the exercise prices shall not be less than the higher of the par value or 100% of the fair market value of j2 Global’s common stock subject to the option on the date the option is granted. As of June 30, 2017 , 62,000 shares underlying options and 28,700 shares of restricted stock units were outstanding under the 2015 Plan.

All stock option grants are approved by “outside directors” within the meaning of Internal Revenue Code Section 162(m).

Stock Options

The following table represents stock option activity for the six months ended June 30, 2017 :



	Number of Shares		Weighted- Average Exercise Price		Weighted-Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
Outstanding at January 1, 2017	413,858		$	31.09
Granted	—		—
Exercised	(36,183	)	29.05
Canceled	—		—
Outstanding at June 30, 2017	377,675		$	31.28	3.6	$	20,322,158
Exercisable at June 30, 2017	338,475		$	27.33	3.1	$	19,549,090
Vested and expected to vest at June 30, 2017	368,546		$	30.39	3.5	$	20,158,778

The total intrinsic values of options exercised during the six months ended June 30, 2017 and 2016 were $2.0 million and $2.5 million , respectively.

The Company recognized $50,000 and $0.1 million of compensation expense related to stock options for the three months ended June 30, 2017 and 2016, respectively, and $0.1 million and $0.2 million for the six months ended June 30, 2017 and 2016, respectively. As of June 30, 2017 and December 31, 2016 , unrecognized stock compensation related to non-vested stock options granted under each of the share-based compensation plans approximated $0.5 million and $0.7 million , respectively. Unrecognized stock compensation expense related to non-vested stock options granted under these plans is expected to be recognized ratably over a weighted-average period of 2.7 years (i.e., the remaining requisite service period).

Fair Value Disclosure

j2 Global uses the Black-Scholes option pricing model to calculate the fair value of each option grant. The expected volatility is based on historical volatility of the Company’s common stock. The Company estimates the expected term based upon the historical exercise behavior of our employees. The risk-free interest rate is based on U.S. Treasury zero-coupon issues with a term equal to the expected term of the option assumed at the date of grant. The Company uses an annualized dividend yield based upon the per share dividends declared by its Board of Directors. Estimated forfeiture rates were 14.43% and 12.33% as of June 30, 2017 and 2016 , respectively.

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Restricted Stock and Restricted Stock Units

j2 Global has awarded restricted stock and restricted stock units to its Board of Directors and senior staff pursuant to certain share-based compensation plans. Compensation expense resulting from restricted stock and restricted unit grants is measured at fair value on the date of grant and is recognized as share-based compensation expense over the applicable vesting period. Beginning in fiscal year 2012, vesting periods are approximately one year for awards to members of the Company’s Board of Directors and five years for senior staff (excluding market-based awards discussed below).

Restricted Stock - Awards with Market Conditions

In May 2017, certain key employees were granted market-based restricted stock awards. The market-based awards have vesting conditions that are based on specified stock price targets of the Company’s common stock. Market conditions were factored into the grant date fair value using a Monte Carlo valuation model, which utilized multiple input variables to determine the probability of the Company achieving the specified stock price targets with a 20 day lookback (trading days). Stock-based compensation expense related to an award with a market condition will be recognized over the requisite service period using the graded-vesting method regardless of whether the market condition is satisfied, provided that the requisite service period has been completed. During the six months ended June 30, 2017 and 2016, the Company awarded 85,825 and 106,780 market-based restricted stock awards, respectively. The per share weighted average grant-date fair values of the market-based restricted stock awards granted during the six months ended June 30, 2017 were $72.20 .

The weighted-average fair values of market-based restricted stock awards granted have been estimated utilizing the following assumptions:



	June 30, 2017
Underlying stock price at valuation date	$	91.17
Expected volatility	29.0		%
Risk-free interest rate	2.17		%

Restricted stock award activity for the six months ended June 30, 2017 is set forth below:



	Shares		Weighted-Average Grant-Date Fair Value
Nonvested at January 1, 2017	705,015		$	41.40
Granted	219,220		54.40
Vested	(176,341	)	45.17
Canceled	(1,850	)	87.68
Nonvested at June 30, 2017	746,044		$	44.22

Restricted stock unit award activity for the six months ended June 30, 2017 is set forth below:



	Number of Shares		Weighted-Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
Outstanding at January 1, 2017	51,950
Granted	7,100
Vested	(9,530	)
Canceled	(6,680	)
Outstanding at June 30, 2017	42,840		1.9	$	3,645,256
Vested and expected to vest at June 30, 2017	32,409		1.7	$	2,757,659

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The Company recognized $5.5 million and $3.2 million of compensation expense related to restricted stock and restricted stock units for the three months ended June 30, 2017 and 2016, respectively, and $9.1 million and $6.0 million for the six months ended June 30, 2017 and 2016, respectively. As of June 30, 2017 and December 31, 2016 , the Company had unrecognized share-based compensation cost of approximately $45.8 million and $37.9 million , respectively, associated with these awards. This cost is expected to be recognized over a weighted-average period of 3.7 years for awards and 3.4 years for units.

Employee Stock Purchase Plan

The Purchase Plan provides for the issuance of a maximum of two million shares of the Company’s common stock. Under the Purchase Plan, eligible employees can have up to 15% of their earnings withheld, up to certain maximums, to be used to purchase shares of j2 Global common stock at certain plan-defined dates. The price of the j2 Global common stock purchased under the Purchase Plan for the offering periods is equal to 95% of the fair market value of the j2 Global common stock at the end of the offering period. For the six months ended June 30, 2017 and 2016 , 1,606 and 1,920 shares were purchased under the plan, respectively. Cash received upon the issuance of j2 Global common stock under the Purchase Plan was $133,000 and $123,000 for the six months ended June 30, 2017 and 2016 , respectively. As of June 30, 2017 , 1,624,920 shares were available under the Purchase Plan for future issuance.

13. Earnings Per Share

The components of basic and diluted earnings per share are as follows (in thousands, except share and per share data):



	Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
Numerator for basic and diluted net income per common share:
Net income attributable to j2 Global, Inc. common shareholders	$	31,376		$	33,770		$	57,196		$	63,713
Net income available to participating securities ^(a)	(401		)	(494		)	(708		)	(905		)
Net income available to j2 Global, Inc. common shareholders	$	30,975		$	33,276		$	56,488		$	62,808
Denominator:
Weighted-average outstanding shares of common stock	47,547,118			48,055,783			47,505,406			48,011,250
Dilutive effect of:
Equity incentive plans	235,814			209,515			239,367			221,095
Convertible debt ^(b)	1,165,383			—			1,112,632			19,353
Common stock and common stock equivalents	48,948,315			48,265,298			48,857,405			48,251,698
Net income per share:
Basic	$	0.65		$	0.69		$	1.19		$	1.31
Diluted	$	0.63		$	0.69		$	1.16		$	1.30


^(a)	Represents unvested share-based payment awards that contain certain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid).


^(b)	Represents the incremental shares issuable upon conversion of the Convertible Notes due June 15, 2029 by applying the treasury stock method when the average stock price exceeds the conversion price of the Convertible Notes (see Note 8 - Long Term Debt).

For the three months ended June 30, 2017 and 2016 , there were zero and 62,000 options outstanding, respectively, which were excluded from the computation of diluted earnings per share because the exercise prices were greater than the average market price of the common stock. For the six months ended June 30, 2017 and 2016 , there were zero and 62,000 options outstanding, respectively, which were excluded from the computation of diluted earnings per share because the exercise prices were greater than the average market price of the common stock.

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14. Segment Information

The Company’s business segments are based on the organization structure used by management for making operating and investment decisions and for assessing performance. j2 Global’s reportable business segments are: (i) Business Cloud Services and (ii) Digital Media.

Information on reportable segments and reconciliation to consolidated income from operations is as follows (in thousands):



	Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
Revenues by segment:
Business Cloud Services	$	144,709		$	142,460		$	286,254		$	280,599
Digital Media	128,474			69,385			241,605			131,794
Elimination of inter-segment revenues	(9		)	(45		)	(16		)	(91		)
Total revenues	273,174			211,800			527,843			412,302

Direct costs by segment ⁽¹⁾ :
Business Cloud Services	86,610			89,987			171,854			177,849
Digital Media	118,335			57,835			234,968			112,511
Direct costs by segment ⁽¹⁾ :	204,945			147,822			406,822			290,360

Business Cloud Services operating income ⁽²⁾	58,099			52,473			114,400			102,750
Digital Media operating income	10,139			11,550			6,637			19,283
Segment operating income	68,238			64,023			121,037			122,033

Global operating costs ⁽²⁾	9,678			5,078			14,502			9,750
Income from operations	$	58,560		$	58,945		$	106,535		$	112,283

⁽¹⁾ Direct costs for each segment include cost of revenues and other operating expenses that are directly attributable to the segment, such as employee compensation expense, local sales and marketing expenses, engineering and network operations expense, depreciation and amortization and other administrative expenses.
⁽²⁾ Global operating costs include general and administrative and other corporate expenses that are managed on a global basis and that are not directly attributable to any particular segment.



	June 30, 2017		December 31, 2016
Assets:
Business Cloud Services	$	1,421,170	$	911,327
Digital Media ⁽¹⁾	1,101,684		1,124,535
Total assets from reportable segments	2,522,854		2,035,862
Corporate	4,807		26,466
Total assets	$	2,527,661	$	2,062,328
⁽¹⁾ Assets of $35.5 million classified as held for sale were included within Digital Media at June 30, 2017.

	Six Months Ended June 30,
	2017		2016
Capital expenditures:
Business Cloud Services	$	2,804	$	2,087
Digital Media	16,141		7,099
Total from reportable segments	18,945		9,186
Corporate	—		—
Total capital expenditures	$	18,945	$	9,186

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	Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016
Depreciation and amortization:
Business Cloud Services	$	17,189	$	21,251	$	33,953	$	38,752
Digital Media	22,714		9,808		45,272		19,481
Total from reportable segments	39,903		31,059		79,225		58,233
Corporate	—		—		—		—
Total depreciation and amortization	$	39,903	$	31,059	$	79,225	$	58,233

The Company’s Business Cloud Services segment consists of several services which have similar economic characteristics, including the nature of the services and their production processes, the type of customers, as well as the methods used to distribute these services.

j2 Global groups its Business Cloud services into three main categories based on the similarities of these services: Cloud Connect, Cloud Services and Intellectual Property. Cloud Connect consists of our Fax and Voice services. Cloud Services consist of Backup, Email Security, Email Marketing and Web Hosting.



	Three Months Ended June 30, 2017							Six Months Ended June 30, 2017
	Revenue		Depreciation and Amortization		Operating Income			Revenue		Depreciation and Amortization		Operating Income

Cloud Connect (Fax/Voice)	$	95,667	$	6,081	$	44,942		$	189,300	$	11,963	$	89,381
Cloud Services	47,763		9,847		13,375			94,476		19,382		25,791
Intellectual Property	1,279		1,261		(218		)	2,478		2,608		(772		)
Total	$	144,709	$	17,189	$	58,099		$	286,254	$	33,953	$	114,400



	Three Months Ended June 30, 2016							Six Months Ended June 30, 2016
	Revenue		Depreciation and Amortization		Operating Income			Revenue		Depreciation and Amortization		Operating Income

Cloud Connect (Fax/Voice)	$	92,858	$	7,575	$	42,574		$	183,102	$	13,145	$	83,094
Cloud Services	48,509		12,184		10,650			95,228		22,501		21,624
Intellectual Property	1,093		1,492		(751		)	2,269		3,106		(1,968		)
Total	$	142,460	$	21,251	$	52,473		$	280,599	$	38,752	$	102,750

- 28 -

j2 Global maintains operations in the U.S., Canada, Ireland, Japan and other countries. Geographic information about the U.S. and all other countries for the reporting periods is presented below. Such information attributes revenues based on jurisdictions where revenues are reported (in thousands).



	Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016
Revenues:
United States	$	202,493	$	144,475	$	388,255	$	282,113
Canada	19,351		18,900		38,752		37,266
Ireland	18,479		18,595		36,380		36,449
All other countries	32,851		29,830		64,456		56,474
	$	273,174	$	211,800	$	527,843	$	412,302



	June 30, 2017		December 31, 2016
Long-lived assets:
United States	$	425,118	$	453,053
All other countries	93,207		93,430
Total	$	518,325	$	546,483

15. Unrestricted Subsidiaries (unaudited)

Reorganization

On August 12, 2016, all of the equity interests in Ziff Davis, LLC, a Delaware limited liability company, and all of the equity interests in Advanced Messaging Technologies, Inc., a Delaware corporation, held by j2 Cloud Services, LLC, a Delaware limited liability company, were distributed to j2 Global, the parent company of j2 Cloud Services, LLC.

Until the reorganization noted above, the Company’s Board of Directors had designated the following entities as “Unrestricted Subsidiaries” under the indenture governing j2 Cloud Services’ 8.0% senior unsecured notes, which were redeemed in full in August 2017 (see Note 8 - Long-Term Debt):

Ziff Davis, LLC and subsidiaries

Advanced Messaging Technologies, Inc. and subsidiaries

The financial position and results of operations of these Unrestricted Subsidiaries are included in the Company’s condensed consolidated financial statements.

- 29 -

As required by the indenture governing j2 Cloud Services’ 8.0% senior unsecured notes, information sufficient to ascertain the financial condition and results of operations excluding the Unrestricted Subsidiaries must be presented for any period in which j2 Cloud Services had Unrestricted Subsidiaries. Accordingly, the Company is presenting the following tables.

The financial position of the Unrestricted Subsidiaries as of June 30, 2017 and December 31, 2016 is as follows (in thousands):



	June 30, 2017			December 31, 2016
ASSETS
Cash and cash equivalents	$	40,247		$	17,931
Accounts receivable	137,622			158,730
Prepaid expenses and other current assets	15,060			13,494
Current assets held for sale	5,770			—
Total current assets	198,699			190,155
Property and equipment, net	45,106			38,752
Trade names, net	64,925			69,093
Patent and patent licenses, net	11,350			13,303
Customer relationships, net	76,793			95,855
Goodwill	547,297			563,658
Other purchased intangibles, net	139,201			163,023
Deferred income taxes, non-current	47			482
Other assets	5,657			5,541
Non-current assets held for sale	29,720			—
Total assets	$	1,118,795		$	1,139,862
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable and accrued expenses	$	127,493		$	163,130
Income taxes payable	—			4,353
Deferred revenue, current	19,665			13,773
Current liabilities held for sale	523			—
Total current liabilities	147,681			181,256
Long-term debt	642,665			602,662
Liability for uncertain tax positions	1,001			—
Deferred income taxes, non-current	6,196			11,816
Other long-term liabilities	1,747			1,454
Non-current liabilities held for sale	5,103			—
Total liabilities	804,393			797,188
Additional paid-in capital	314,806			318,160
Retained earnings	1,521			27,004
Accumulated other comprehensive loss	(1,925		)	(2,490		)
Total stockholders’ equity	314,402			342,674
Total liabilities and stockholders’ equity	$	1,118,795		$	1,139,862

- 30 -

The results of operations of the Unrestricted Subsidiaries for the three and six months ended June 30, 2017 and 2016 is as follows (in thousands):



	Three Months Ended June 30,					Six Months Ended June 30,
	2017			2016		2017			2016
Revenues	$	128,474		$	69,385	$	241,606		$	131,842

Cost of revenues	13,231			5,560		24,943			10,871
Gross profit	115,243			63,825		216,663			120,971
Operating expenses:
Sales and marketing	58,532			27,244		113,858			53,705
Research, development and engineering	5,759			3,169		11,258			5,652
General and administrative	42,311			23,706		88,158			46,524
Total operating expenses	106,602			54,119		213,274			105,881
Income from operations	8,641			9,706		3,389			15,090
Interest expense, net	14,420			4,486		28,031			8,613
Other expense, net	744			315		120			487
Income (loss) before income taxes	(6,523		)	4,905		(24,762		)	5,990
Income tax expense	774			1,691		1,857			2,271
Net income (loss)	$	(7,297	)	$	3,214	$	(26,619	)	$	3,719

16. Accumulated Other Comprehensive Income

The following table summarizes the changes in accumulated balances of other comprehensive income, net of tax, for the three months ended June 30, 2017 (in thousands):



	Unrealized Gains (Losses) on Investments		Foreign Currency Translation			Total
Beginning balance	$	—	$	(51,067	)	$	(51,067	)
Other comprehensive income before reclassifications	—		12,331			12,331
Net current period other comprehensive income	—		12,331			12,331
Ending balance	$	—	$	(38,736	)	$	(38,736	)

The following table summarizes the changes in accumulated balances of other comprehensive income, net of tax, for the six months ended June 30, 2017 (in thousands):



	Unrealized Gains (Losses) on Investments		Foreign Currency Translation			Total
Beginning balance	$	—	$	(54,649	)	$	(54,649	)
Other comprehensive income before reclassifications	—		15,913			15,913
Net current period other comprehensive income	—		15,913			15,913
Ending balance	$	—	$	(38,736	)	$	(38,736	)

- 31 -

17. Condensed Consolidating Financial Statements

In connection with the June 2014 Convertible Note issuance, j2 Global, Inc. entered into a supplemental indenture related to the 8.0% senior unsecured notes, pursuant to which it fully and unconditionally guaranteed, on an unsecured basis, the full and punctual payment of the 8.0% senior unsecured notes issued by its wholly owned subsidiary, j2 Cloud. j2 Cloud Services, LLC was subject to restrictions on dividends in its existing indenture with respect to the 8.0% senior unsecured notes until their redemption in full in August 2017 (see Note 8 - Long-Term Debt). While substantially all of the Company’s assets are owned directly or indirectly by j2 Cloud Services, LLC, those contractual provisions did not, as of June 30, 2017, meaningfully restrict j2 Cloud Services, LLC’s ability to pay dividends to j2 Global, Inc.

The following condensed consolidating financial statements present, in separate columns, financial information for (i) j2 Global, Inc. (the “Parent”) on a parent-only basis, (ii) j2 Cloud Services, LLC, (iii) the non-guarantor subsidiaries on a combined basis, (iv) the eliminations and reclassifications necessary to arrive at the information for the Company on a consolidated basis, and (v) the Company on a consolidated basis. The condensed consolidating financial statements are presented in accordance with the equity method. Under this method, the investments in subsidiaries are recorded at cost and adjusted for the Company’s share of subsidiaries’ cumulative results of operations, capital contributions, distributions and other equity changes. Intercompany charges (income) between the Parent and subsidiaries are recognized in the condensed consolidating financial statements during the period incurred and the settlement of intercompany balances is reflected in the condensed consolidating statement of cash flows based on the nature of the underlying transactions. Consolidating adjustments include consolidating and eliminating entries for investments in subsidiaries, intercompany activity and balances.

- 32 -

j2 GLOBAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEET

June 30, 2017

(Unaudited, in thousands except share and per share data)



BALANCE SHEET	j2 Global, Inc.		j2 Cloud Services		Non-guarantor Subsidiaries			Consolidating Adjustments			j2 Global Consolidated
ASSETS
Cash and cash equivalents	$	4,248	$	169,330	$	157,165		$	—		$	330,743
Restricted cash	—		265,000		—			—			265,000
Short-term investments	—		—		65			—			65
Accounts receivable, net	—		11,678		169,996			(146		)	181,528
Prepaid expenses and other current assets	41,434		1,682		21,082			(41,844		)	22,354
Current assets held for sale	—		—		5,770			—			5,770
Intercompany receivable	687,229		530,478		157,243			(1,374,950		)	—
Total current assets	732,911		978,168		511,321			(1,416,940		)	805,460
Property and equipment, net	—		5,715		65,458			—			71,173
Trade names, net	—		10,767		99,677			—			110,444
Patent and patent licenses, net	—		534		11,374			—			11,908
Customer relationships, net	—		17,491		175,689			—			193,180
Goodwill	—		83,298		1,056,128			—			1,139,426
Other purchased intangibles, net	—		7,114		145,439			—			152,553
Investment in subsidiaries	1,167,712		803,353		(1,071		)	(1,969,994		)	—
Deferred income taxes, non-current	—		22,933		3,391			(19,096		)	7,228
Other assets	—		435		6,134			—			6,569
Non-current assets held for sale	—		—		29,720			—			29,720
Total assets	$	1,900,623	$	1,929,808	$	2,103,260		$	(3,406,030	)	$	2,527,661
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable and accrued expenses	$	5,567	$	42,227	$	129,669		$	(41,990	)	$	135,473
Income taxes payable	—		101,314		39			(88,508		)	12,845
Deferred revenue, current	—		20,966		67,187			—			88,153
Current maturities of long-term debt	—		246,652		—			—			246,652
Other current liabilities	—		—		24			—			24

- 33 -



Current liabilities held for sale	—		—		523			—			523
Intercompany payable	547,092		—		739,350			(1,286,442		)	—
Total current liabilities	552,659		411,159		936,792			(1,416,940		)	483,670
Long-term debt	359,820		636,557		—			—			996,377
Deferred revenue, non-current	—		57		—			—			57
Liability for uncertain tax positions	—		40,254		6,734			—			46,988
Deferred income taxes, non-current	32,515		—		21,345			(19,096		)	34,764
Other long-term liabilities	1,141		1,972		2,030			—			5,143
Non-current liabilities held for sale	—		—		5,103			—			5,103
Total liabilities	946,135		1,089,999		972,004			(1,436,036		)	1,572,102
Commitments and contingencies	—		—		—			—			—
Preferred stock - Series A, $0.01 par value	—		—		—			—			—
Preferred stock - Series B, $0.01 par value	—		—		—			—			—
Common stock, $0.01 par value	476		—		—			—			476
Additional paid-in capital	470,681		89,066		424,399			(669,356		)	314,790
Retained earnings	483,331		750,667		745,669			(1,300,638		)	679,029
Accumulated other comprehensive income (loss)	—		76		(38,812		)	—			(38,736		)
Total stockholders’ equity	954,488		839,809		1,131,256			(1,969,994		)	955,559
Total liabilities and stockholders’ equity	$	1,900,623	$	1,929,808	$	2,103,260		$	(3,406,030	)	$	2,527,661

- 34 -

j2 GLOBAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEET

December 31, 2016

(Unaudited, in thousands except share and per share data)



BALANCE SHEET	j2 Global, Inc.		j2 Cloud Services		Non-guarantor Subsidiaries			Consolidating Adjustments			j2 Global Consolidated
ASSETS
Cash and cash equivalents	$	23,935	$	22,949	$	77,066		$	—		$	123,950
Short-term investments	—		—		60			—			60
Accounts receivable, net	—		11,464		188,498			(91		)	199,871
Prepaid expenses and other current assets	25,922		2,266		21,246			(25,316		)	24,118
Intercompany receivable	635,740		281,078		166,210			(1,083,028		)	—
Total current assets	685,597		317,757		453,080			(1,108,435		)	347,999
Property and equipment, net	—		6,318		61,776			—			68,094
Trade names, net	—		10,097		105,756			—			115,853
Patent and patent licenses, net	—		601		13,327			—			13,928
Customer relationships, net	—		2,519		205,636			—			208,155
Goodwill	—		58,310		1,064,500			—			1,122,810
Other purchased intangibles, net	—		4,804		168,951			—			173,755
Investment in subsidiaries	1,091,412		730,153		(1,071		)	(1,820,494		)	—
Deferred income taxes, non-current	1,346		26,667		2,171			(24,895		)	5,289
Other assets	—		443		6,002			—			6,445
Total assets	$	1,778,355	$	1,157,669	$	2,080,128		$	(2,953,824	)	$	2,062,328
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable and accrued expenses	$	4,545	$	28,179	$	170,754		$	(25,407	)	$	178,071
Income taxes payable	—		82,795		—			(66,042		)	16,753
Deferred revenue, current	—		19,277		61,107			—			80,384
Line of credit	178,817		—		—			—			178,817
Other current liabilities	—		—		64			—			64
Intercompany payable	296,658		11		720,317			(1,016,986		)	—
Total current liabilities	480,020		130,262		952,242			(1,108,435		)	454,089
Long-term debt	355,143		246,604		(1		)	—			601,746
Deferred revenue, non-current	—		1,588		—			—			1,588
Liability for uncertain tax positions	—		41,259		5,278			—			46,537

- 35 -



Deferred income taxes, non-current	28,687		—		36,565			(24,895		)	40,357
Other long-term liabilities	1,040		505		1,930			—			3,475
Total liabilities	864,890		420,218		996,014			(1,133,330		)	1,147,792
Commitments and contingencies	—		—		—			—			—
Preferred stock - Series A, $0.01 par value	—		—		—			—			—
Preferred stock - Series B, $0.01 par value	—		—		—			—			—
Common stock, $0.01 par value	474		—		—			—			474
Additional paid-in capital	464,220		89,066		424,399			(669,356		)	308,329
Retained earnings	448,771		648,233		714,516			(1,151,138		)	660,382
Accumulated other comprehensive income (loss)	—		152		(54,801		)	—			(54,649		)
Total stockholders’ equity	913,465		737,451		1,084,114			(1,820,494		)	914,536
Total liabilities and stockholders’ equity	$	1,778,355	$	1,157,669	$	2,080,128		$	(2,953,824	)	$	2,062,328

- 36 -

j2 GLOBAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF INCOME

Three Months Ended June 30, 2017

(Unaudited, in thousands except share and per share data)



	j2 Global, Inc.			j2 Cloud Services			Non-guarantor Subsidiaries			Consolidating Adjustments			j2 Global Consolidated
Revenues:
Total revenues	$	—		$	60,706		$	224,039		$	(11,571	)	$	273,174

Cost of revenues	—			18,341			36,389			(11,571		)	43,159
Gross profit	—			42,365			187,650			—			230,015
Operating expenses:
Sales and marketing	—			10,845			70,017			—			80,862
Research, development and engineering	—			2,845			8,710			—			11,555
General and administrative	9,678			7,200			62,160			—			79,038
Total operating expenses	9,678			20,890			140,887			—			171,455
Income (loss) from operations	(9,678		)	21,475			46,763			—			58,560
Equity earnings in subsidiaries	33,960			39,948			—			(73,908		)	—
Interest (income) expense, net	(5,284		)	5,545			13,409			—			13,670
Other (income) expense, net	—			(129		)	4,356			—			4,227
Income before income taxes	29,566			56,007			28,998			(73,908		)	40,663
Income tax (benefit) expense	(1,809		)	14,750			(3,654		)	—			9,287
Net income	$	31,375		$	41,257		$	32,652		$	(73,908	)	$	31,376

- 37 -

j2 GLOBAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF INCOME

Three Months Ended June 30, 2016

(Unaudited, in thousands except share and per share data)



	j2 Global, Inc.			j2 Cloud Services			Non-guarantor Subsidiaries		Consolidating Adjustments			j2 Global Consolidated
Revenues:
Total revenues	$	—		$	66,254		$	166,079	$	(20,533	)	$	211,800

Cost of revenues	—			16,992			39,087		(20,488		)	35,591
Gross profit	—			49,262			126,992		(45		)	176,209
Operating expenses:
Sales and marketing	—			10,260			38,402		(45		)	48,617
Research, development and engineering	—			2,930			6,283		—			9,213
General and administrative	5,078			4,431			49,925		—			59,434
Total operating expenses	5,078			17,621			94,610		(45		)	117,264
Income (loss) from operations	(5,078		)	31,641			32,382		—			58,945
Equity earnings in subsidiaries	38,019			20,786			—		(58,805		)	—
Interest expense, net	1,591			5,193			3,517		—			10,301
Other (income) expense, net	(300		)	(93		)	180		—			(213		)
Income before income taxes	31,650			47,327			28,685		(58,805		)	48,857
Income tax (benefit) expense	(2,120		)	9,308			7,899		—			15,087
Net income	$	33,770		$	38,019		$	20,786	$	(58,805	)	$	33,770

- 38 -

j2 GLOBAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF INCOME

Six Months Ended June 30, 2017

(Unaudited, in thousands except share and per share data)



	j2 Global, Inc.			j2 Cloud Services			Non-guarantor Subsidiaries			Consolidating Adjustments			j2 Global Consolidated
Revenues:
Total revenues	$	—		$	136,042		$	431,927		$	(40,126	)	$	527,843

Cost of revenues	—			35,568			88,520			(40,119		)	83,969
Gross profit	—			100,474			343,407			(7		)	443,874
Operating expenses:
Sales and marketing	—			21,655			136,691			(7		)	158,339
Research, development and engineering	—			5,795			17,512			—			23,307
General and administrative	14,502			11,971			129,220			—			155,693
Total operating expenses	14,502			39,421			283,423			(7		)	337,339
Income (loss) from operations	(14,502		)	61,053			59,984			—			106,535
Equity earnings in subsidiaries	60,390			57,776			—			(118,166		)	—
Interest (income) expense, net	(10,593		)	10,752			25,920			—			26,079
Other income, net	—			(175		)	4,726			—			4,551
Income before income taxes	56,481			108,252			29,338			(118,166		)	75,905
Income tax expense	(714		)	21,239			(1,816		)	—			18,709
Net income	$	57,195		$	87,013		$	31,154		$	(118,166	)	$	57,196

- 39 -

j2 GLOBAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF INCOME

Six Months Ended June 30, 2016

(Unaudited, in thousands except share and per share data)



	j2 Global, Inc.			j2 Cloud Services			Non-guarantor Subsidiaries		Consolidating Adjustments			j2 Global Consolidated
Revenues:
Total revenues	$	—		$	122,639		$	321,645	$	(31,982	)	$	412,302

Cost of revenues	—			34,481			67,288		(31,891		)	69,878
Gross profit	—			88,158			254,357		(91		)	342,424
Operating expenses:
Sales and marketing	—			20,888			75,932		(91		)	96,729
Research, development and engineering	—			6,219			11,982		—			18,201
General and administrative	9,750			9,902			95,559		—			115,211
Total operating expenses	9,750			37,009			183,473		(91		)	230,141
Income (loss) from operations	(9,750		)	51,149			70,884		—			112,283
Equity earnings in subsidiaries	72,342			48,482			—		(120,824		)	—
Interest expense, net	3,462			10,425			6,647		—			20,534
Other (income) expense, net	(209		)	(1,013		)	1,135		—			(87		)
Income before income taxes	59,339			90,219			63,102		(120,824		)	91,836
Income tax (benefit) expense	(4,374		)	17,877			14,620		—			28,123
Net income	$	63,713		$	72,342		$	48,482	$	(120,824	)	$	63,713

- 40 -

j2 GLOBAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME

Three Months Ended June 30, 2017

(Unaudited, in thousands except share and per share data)



	j2 Global, Inc.		j2 Cloud Services		Non-guarantor Subsidiaries		Consolidating Adjustments			j2 Global Consolidated

Net income	$	31,375	$	41,257	$	32,652	$	(73,908	)	$	31,376
Other comprehensive income, net of tax:
Foreign currency translation adjustment	—		—		12,331		—			12,331
Change in fair value on available-for-sale investments, net of tax expense (benefit)	—		—		—		—			—
Other comprehensive income, net of tax	—		—		12,331		—			12,331
Comprehensive income	$	31,375	$	41,257	$	44,983	$	(73,908	)	$	43,707

- 41 -

j2 GLOBAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Three Months Ended June 30, 2016

(Unaudited, in thousands except share and per share data)



	j2 Global, Inc.		j2 Cloud Services		Non-guarantor Subsidiaries			Consolidating Adjustments			j2 Global Consolidated

Net income	$	33,770	$	38,019	$	20,786		$	(58,805	)	$	33,770
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment	—		—		(12,653		)	—			(12,653		)
Change in fair value on available-for-sale investments, net of tax benefit	2,251		—		—			—			2,251
Other comprehensive income (loss), net of tax	2,251		—		(12,653		)	—			(10,402		)
Comprehensive income	$	36,021	$	38,019	$	8,133		$	(58,805	)	$	23,368

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j2 GLOBAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME

Six Months Ended June 30, 2017

(Unaudited, in thousands except share and per share data)



	j2 Global, Inc.		j2 Cloud Services		Non-guarantor Subsidiaries		Consolidating Adjustments			j2 Global Consolidated

Net income	$	57,195	$	87,013	$	31,154	$	(118,166	)	$	57,196
Other comprehensive income, net of tax:
Foreign currency translation adjustment	—		—		15,913		—			15,913
Change in fair value on available-for-sale investments, net of tax expense (benefit)	—		—		—		—			—
Other comprehensive income, net of tax	—		—		15,913		—			15,913
Comprehensive income	$	57,195	$	87,013	$	47,067	$	(118,166	)	$	73,109

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j2 GLOBAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME

Six Months Ended June 30, 2016

(Unaudited, in thousands except share and per share data)



	j2 Global, Inc.			j2 Cloud Services		Non-guarantor Subsidiaries			Consolidating Adjustments			j2 Global Consolidated

Net income	$	63,713		$	72,342	$	48,482		$	(120,824	)	$	63,713
Other comprehensive loss, net of tax:
Foreign currency translation adjustment	—			—		(9,238		)	—			(9,238		)
Change in fair value on available-for-sale investments, net of tax expense (benefit)	(110		)	—		—			—			(110		)
Other comprehensive loss, net of tax	(110		)	—		(9,238		)	—			(9,348		)
Comprehensive income	$	63,603		$	72,342	$	39,244		$	(120,824	)	$	54,365

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j2 GLOBAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW

Six Months Ended June 30, 2017

(Unaudited, in thousands except share and per share data)



	j2 Global, Inc.			j2 Cloud Services			Non-guarantor Subsidiaries			Consolidating Adjustments		j2 Global Consolidated
Net cash (used in) provided by operating activities	$	(79,270	)	$	26,037		$	164,888		$	—	$	111,655
Cash flows from investing activities:
Purchase of available-for-sale investments	—			—			(5		)	—		(5		)
Purchases of property and equipment	—			(820		)	(18,125		)	—		(18,945		)
Acquisition of businesses, net of cash received	—			(22,453		)	(13,977		)	—		(36,430		)
Purchases of intangible assets	—			(8		)	(760		)	—		(768		)
Net cash used in investing activities	—			(23,281		)	(32,867		)	—		(56,148		)
Cash flows from financing activities:
Issuance of long-term debt	—			636,178			—			—		636,178
Proceeds from line of credit, net	44,981			—			—			—		44,981
Repayment of line of credit, net	(225,000		)	—			—			—		(225,000		)
Repurchases of common and restricted stock	(6,738		)	—			—			—		(6,738		)
Issuance of common stock under employee stock purchase plan	133			—			—			—		133
Exercise of stock options	1,051			—			—			—		1,051
Dividends paid	(35,707		)	—			—			—		(35,707		)
Deferred payments for acquisitions	—			(1,035		)	(2,304		)	—		(3,339		)
Other	—			—			(36		)	—		(36		)
Intercompany	280,863			(226,442		)	(54,421		)	—		—
Net cash provided by (used in) financing activities	59,583			408,701			(56,761		)	—		411,523
Effect of exchange rate changes on cash, cash equivalents and restricted cash	—			(76		)	5,652			—		5,576
Net change in cash, cash equivalents and restricted cash	(19,687		)	411,381			80,912			—		472,606
Net change in cash balance included in assets held for sale	—			—			(813		)	—		(813		)
Cash, cash equivalents and restricted cash at beginning of period	23,935			22,949			77,066			—		123,950
Cash, cash equivalents and restricted cash at end of period	$	4,248		$	434,330		$	157,165		$	—	$	595,743

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j2 GLOBAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW

Six Months Ended June 30, 2016

(Unaudited, in thousands except share and per share data)



	j2 Global, Inc.			j2 Cloud Services			Non-guarantor Subsidiaries			Consolidating Adjustments		j2 Global Consolidated
Net cash (used in) provided by operating activities	$	(695	)	$	25,755		$	106,992		$	—	$	132,052
Cash flows from investing activities:
Maturity of available-for-sale investments	112,631			—			—			—		112,631
Purchase of available-for-sale investments	(47,207		)	—			—			—		(47,207		)
Purchases of property and equipment	—			(542		)	(8,644		)	—		(9,186		)
Acquisition of businesses, net of cash received	—			—			(76,725		)	—		(76,725		)
Purchases of intangible assets	—			(104		)	(1,711		)	—		(1,815		)
Net cash provided (used in) by investing activities	65,424			(646		)	(87,080		)	—		(22,302		)
Cash flows from financing activities:
Repurchases of common stock and restricted stock	(3,356		)	—			—			—		(3,356		)
Issuance of common stock under employee stock purchase plan	123			—			—			—		123
Exercise of stock options	1,911			—			—			—		1,911
Dividends paid	(32,202		)	—			—			—		(32,202		)
Deferred payments for acquisitions	—			(873		)	(15,677		)	—		(16,550		)
Other	1,097			—			(254		)	—		843
Intercompany	(13,674		)	5,683			7,991			—		—
Net cash (used in) provided by financing activities	(46,101		)	4,810			(7,940		)	—		(49,231		)
Effect of exchange rate changes on cash and cash equivalents	53			(239		)	(2,109		)	—		(2,295		)
Net change in cash and cash equivalents	18,681			29,680			9,863			—		58,224
Cash and cash equivalents at beginning of period	55,516			9,975			190,039			—		255,530
Cash and cash equivalents at end of period	$	74,197		$	39,655		$	199,902		$	—	$	313,754

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18. Subsequent Events

On August 2, 2017 , the Company’s Board of Directors approved a quarterly cash dividend of $0.3850 per share of j2 Global common stock payable on September 1, 2017 to all stockholders of record as of the close of business on August 14, 2017 .

On July 12, 2017, in a cash transaction, the Company sold Cambridge, a subsidiary within the Digital Media segment. The Company is currently determining the financial impact to the statement of operations which will be recorded in the third quarter 2017. The Company does not expect a material gain or loss from this transaction.

On August 1, 2017, j2 Cloud redeemed all of its outstanding $250 million 8.0% senior unsecured notes due in 2020 for $265 million , including a redemption premium and relevant accrued interest. As a result of the redemption, j2 Cloud has satisfactorily discharged its obligations to the holders of such notes.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Information

In addition to historical information, we have also made forward-looking statements in this report. These statements are based on our estimates and assumptions and are subject to risks and uncertainties. Forward-looking statements include the information concerning our possible or assumed future results of operations. Forward-looking statements also include those preceded or followed by the words “anticipates,” “believes,” “estimates,” “hopes” or similar expressions. For those statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including but not limited to those discussed below, the risk factors discussed in Part II, Item 1A - “Risk Factors” of this Quarterly Report on Form 10-Q (if any) and in Part I, Item 1A - “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016 (together, the “Risk Factors”), and the factors discussed in the section in this Quarterly Report on Form 10-Q entitled “Quantitative and Qualitative Disclosures About Market Risk.” Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s opinions only as of the date hereof. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements. Readers should carefully review the Risk Factors and the risk factors set forth in other documents we file from time to time with the SEC.

Some factors that could cause actual results to differ materially from those anticipated in these forward-looking statements include, but are not limited to, our ability and intention to:


◦	Sustain growth or profitability, particularly in light of an uncertain U.S. or worldwide economy and the related impact on customer acquisition and retention rates, customer usage levels and credit and debit card payment declines;


◦	Maintain and increase our Cloud Services customer base and average revenue per user;


◦	Generate sufficient cash flow to make interest and debt payments and reinvest in our business, and pursue desired activities and businesses plans while satisfying restrictive covenants relating to debt obligations;


◦	Acquire businesses on acceptable terms and successfully integrate and realize anticipated synergies from such acquisitions;


◦	Continue to expand our businesses and operations internationally in the wake of numerous risks, including adverse currency fluctuations, difficulty in staffing and managing international operations, higher operating costs as a percentage of revenues or the implementation of adverse regulations;


◦	Maintain our financial position, operating results and cash flows in the event that we incur new or unanticipated costs or tax liabilities, including those relating to federal and state income tax and indirect taxes, such as sales, value-added and telecommunication taxes;


◦	Accurately estimate the assumptions underlying our effective worldwide tax rate;


◦	Continue to pay a comparable cash dividend on a quarterly basis;


◦	Maintain favorable relationships with critical third-party vendors whose financial condition will not negatively impact the services they provide;


◦	Create compelling digital media content causing increased traffic and advertising levels; additional advertisers or an increase in advertising spend; and effectively target digital media advertisements to desired audiences;


◦	Manage certain risks inherent to our business, such as costs associated with fraudulent activity, system failure or network security breach; effectively maintaining and managing our billing systems; time and resources required to manage our legal proceedings; or adhering to our internal controls and procedures;


◦	Compete with other similar providers with regard to price, service and functionality;


◦	Cost-effectively procure, retain and deploy large quantities of telephone numbers in desired locations in the United States and abroad;


◦	Achieve business and financial objectives in light of burdensome domestic and international telecommunications, Internet or other regulations including data privacy, security and retention;


◦	Successfully manage our growth, including but not limited to our operational and personnel-related resources, and integration of newly acquired businesses;

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◦	Successfully adapt to technological changes and diversify services and related revenues at acceptable levels of financial return;


◦	Successfully develop and protect our intellectual property, both domestically and internationally, including our brands, patents, trademarks and domain names, and avoid infringing upon the proprietary rights of others; and


◦	Recruit and retain key personnel.

In addition, our financial results could be materially impacted by risks associated with new accounting pronouncements.

Overview

j2 Global, Inc., together with its subsidiaries (“j2 Global”, the “Company”, “our”, “us” or “we”), is a leading provider of Internet services. Through our Business Cloud Services Division, we provide cloud services to businesses of all sizes, from individuals to enterprises, and license our intellectual property (“IP”) to third parties. In addition, the Business Cloud Services Division includes our j2 Cloud Connect business which primarily focuses on our voice and fax products. The Digital Media Division specializes in the technology, gaming, lifestyle and healthcare markets, reaching in-market buyers and influencers in both the consumer and business-to-business space.

Our Business Cloud Services Division generates revenues primarily from customer subscription and usage fees and from IP licensing fees. Our Digital Media Division generates revenues primarily from advertising and sponsorship, subscription and usage fees, performance marketing and licensing fees.

In addition to growing our businesses organically, on a regular basis, we acquire businesses to grow our customer bases, expand and diversify our service offerings, enhance our technology and acquire skilled personnel.

Our consolidated revenues are currently generated from three basic business models, each with different financial profiles and variability. Our Business Cloud Services Division is driven primarily by subscription revenues that are relatively higher margin, stable and predictable from quarter to quarter with some seasonal weakness in the fourth quarter. The Business Cloud Services Division also includes the results of our IP licensing business, which can vary dramatically in both revenues and profitability from period to period. Our Digital Media Division is driven primarily by advertising revenues, has relatively higher sales and marketing expense and has seasonal strength in the fourth quarter. We continue to pursue additional acquisitions, which may include companies operating under business models that differ from those we operate under today. Such acquisitions could impact our consolidated profit margins and the variability of our revenues.

j2 Global was incorporated in 2014 as a Delaware corporation through the creation of a new holding company structure, and our Business Cloud Services segment, operated by our wholly-owned subsidiary, j2 Cloud Services, LLC (formerly j2 Cloud Services, Inc.), and its subsidiaries, was founded in 1995. We manage our operations through two business segments: Business Cloud Services and Digital Media. Information regarding revenue and operating income attributable to each of our reportable segments is included within Note 14 - Segment Information of the Notes to Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q.

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Business Cloud Services Segment Performance Metrics

The following table sets forth certain key operating metrics for our Business Cloud Services segment as of and for the three and six months ended June 30, 2017 and 2016 (in thousands, except for percentages):



	Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
Subscriber revenues:
Fixed	$	117,556		$	117,199		$	233,282		$	232,694
Variable	25,862			24,156			50,469			45,609
Total subscriber revenues	$	143,418		$	141,355		$	283,751		$	278,303
Other license revenues	1,291			1,105			2,503			2,296
Total revenues	$	144,709		$	142,460		$	286,254		$	280,599

Percentage of total subscriber revenues:
Fixed	82.0		%	82.9		%	82.2		%	83.6		%
Variable	18.0		%	17.1		%	17.8		%	16.4		%

Total revenues:
Number-based	$	95,490		$	92,592		$	188,928		$	182,559
Non-number-based	49,219			49,868			97,326			98,040
Total revenues	$	144,709		$	142,460		$	286,254		$	280,599

Average monthly revenue per Cloud Business Customer (ARPU) ⁽¹⁾⁽²⁾	$	15.28		$	15.26
Cancel Rate ⁽³⁾	2.1		%	2.2		%

⁽¹⁾

Quarterly ARPU is calculated using our standard convention of applying the average of the quarter’s beginning and ending base to the total revenue for the quarter. We believe ARPU provides investors an understanding of the average monthly revenues we recognize associated with each Cloud Business Customer. As ARPU varies based on fixed subscription fee and variable usage components, we believe it can serve as a measure by which investors can evaluate trends in the types of services, levels of services and the usage levels of those services across our Cloud Business Customer base.


⁽²⁾	Cloud Business Customers is defined as paying direct inward dialing numbers for fax and voice services, and direct and resellers’ accounts for other services.

⁽³⁾

Cancel Rate is defined as cancels of small and medium business and individual Cloud Business Customers with greater than four months of continuous service (continuous service includes Cloud Business Customers administratively canceled and reactivated within the same calendar month), and enterprise Cloud Business Customers beginning with their first day of service. Calculated monthly and expressed as an average over the three months of the quarter.

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Digital Media Segment Performance Metrics

The following table sets forth certain key operating metrics for our Digital Media segment for the three and six months ended June 30, 2017 and 2016 (in millions):



	Three Months Ended June 30,		Six Months Ended June 30,
	2017	2016	2017	2016
Visits	1,352	1,160	2,754	2,256
Page views	6,054	4,215	11,440	7,852

Sources: Google Analytics and Partner Platforms

Critical Accounting Policies and Estimates

In the ordinary course of business, we have made a number of estimates and assumptions relating to the reporting of results of operations and financial condition in the preparation of our financial statements. Actual results could differ significantly from those estimates under different assumptions and conditions. Our critical accounting policies are described in our 2016 Annual Report on Form 10-K filed with the SEC on March 1, 2017. During the three months ended June 30, 2017 , there were no significant changes in our critical accounting policies and estimates.

Results of Operations for the Three and Six Months Ended June 30, 2017

Business Cloud Services Segment

Assuming a stable or improving economic environment, and subject to our risk factors, we expect the revenue and profits as included in the results of operations below in our Business Cloud Services segment to be stable for the foreseeable future (excluding the impact of acquisitions). The main focus of our Business Cloud Services offerings is to reduce or eliminate costs, increase sales and enhance productivity, mobility, business continuity and security of our customers as the technologies and devices they use evolve over time. As a result, we expect to continue to take steps to enhance our existing offerings and offer new services to continue to satisfy the evolving needs of our customers. Through our IP licensing operations, which are included in the Business Cloud Services segment, we seek to make our IP available for license to third parties, and we expect to continue to attempt to obtain additional IP through a combination of acquisitions and internal development in an effort to increase available licensing opportunities and related revenues.

We expect acquisitions to remain an important component of our strategy and use of capital in this segment; however, we cannot predict whether our current pace of acquisitions will remain the same within this segment. In a given period, we may close greater or fewer acquisitions than in prior periods or acquisitions of greater or lesser significance than in prior periods. Moreover, future acquisitions of businesses within this segment but with different business models may impact the segment’s overall profit margins. Also, as IP licensing often involves litigation, the timing of licensing transactions is unpredictable and can and does vary significantly from period to period. This variability can cause the overall segment’s financial results to materially vary from period to period.

Digital Media Segment

Assuming a stable or improving economic environment, and subject to our risk factors, we expect the revenue and profits in our Digital Media segment to improve over the next several quarters as we integrate our recent acquisitions and over the longer term as advertising transactions continue to shift from offline to online. However, we expect overall lower margins in our Digital Media segment as the recent acquisition of Everyday Health currently operates at a lower level than our historical results. We expect that margins will trend back towards historical levels once the acquisition of Everyday Health is integrated into our existing cost structure and amortization expense is substantially realized. The main focus of our advertising programs is to provide relevant and useful advertising to visitors to our websites and those included within our advertising networks, reflecting our commitment to constantly improve their overall web experience. As a result, we expect to continue to take steps to improve the relevance of the ads displayed on our websites and those included within our advertising networks.

The operating margin we realize on revenues generated from ads placed on our websites is significantly higher than the operating margin we realize from revenues generated from those placed on third-party websites. Growth in advertising revenues from our websites has generally exceeded that from third-party websites. This trend has had a positive impact on our operating

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margins, and we expect that this will continue for the foreseeable future. However, the trend in advertising spend is shifting to mobile devices and other newer advertising formats which generally experience lower margins than those from desktop computers and tablets. We expect this trend to continue to put pressure on our margins.

j2 Global Consolidated

We anticipate that the stable revenue trend in our Business Cloud Services segment combined with the improving revenue and profits in our Digital Media segment will result in overall improved revenue and profits for j2 Global on a consolidated basis, excluding the impact of any future acquisitions and revenues associated with licensing our IP which can vary dramatically from period to period.

We expect operating profit as a percentage of revenues to generally decrease in the future primarily due to the fact that revenue with respect to our Digital Media segment (i) is increasing as a percentage of our revenue on a consolidated basis and (ii) has historically operated at a lower operating margin. Moreover, we expect lower overall margins as the recent acquisition of Everyday Health currently operates at a lower level as compared to our historical results. We expect that margins will trend back towards historical levels once the acquisition of Everyday Health is integrated into our existing cost structure and amortization expense is substantially realized.

Revenues

(in thousands, except percentages)



	Three Months Ended June 30,		Percentage Change	Six Months Ended June 30,		Percentage Change
	2017	2016		2017	2016
Revenues	$273,174	$211,800	29%	$527,843	$412,302	28%

Our revenues consist of revenues from our Business Cloud Services segment and from our Digital Media segment. Business Cloud Services revenues primarily consist of revenues from “fixed” customer subscription revenues and “variable” revenues generated from actual usage of our services. We also generate Business Cloud Services revenues from IP licensing. Digital Media revenues primarily consist of advertising revenues, fees paid for generating business leads, and licensing and sale of editorial content and trademarks.

Our revenues in 2017 have increased over the comparable three and six month period of 2016 primarily due to a combination of acquisitions and organic growth within both the Digital Media and Business Cloud Services segments.

Cost of Revenues

(in thousands, except percentages)



	Three Months Ended June 30,		Percentage Change	Six Months Ended June 30,		Percentage Change
	2017	2016		2017	2016
Cost of revenue	$43,159	$35,591	21%	$83,969	$69,878	20%
As a percent of revenue	16%	17%		16%	17%

Cost of revenues is primarily comprised of costs associated with data and voice transmission, numbers, network operations, customer service, editorial and production costs, online processing fees and equipment depreciation. The increase in cost of revenues for the three and six months ended June 30, 2017 was primarily due to an increase in costs associated with businesses acquired in and subsequent to the second quarter 2016 that resulted in additional editorial and production, database hosting, and customer service costs.

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Operating Expenses

Sales and Marketing.

(in thousands, except percentages)



	Three Months Ended June 30,		Percentage Change	Six Months Ended June 30,		Percentage Change
	2017	2016		2017	2016
Sales and Marketing	$80,862	$48,617	66%	$158,339	$96,729	64%
As a percent of revenue	30%	23%		30%	23%

Our sales and marketing costs consist primarily of Internet-based advertising, sales and marketing, personnel costs and other business development-related expenses. Our Internet-based advertising relationships consist primarily of fixed cost and performance-based (cost-per-impression, cost-per-click and cost-per-acquisition) advertising relationships with an array of online service providers. Advertising cost for the three months ended June 30, 2017 was $34.4 million (primarily consists of $23.0 million of third-party advertising costs and $10.1 million of personnel costs) compared to 2016 of $22.6 million (primarily consists of $15.0 million third-party advertising costs and $5.9 million personnel costs). Advertising cost for the six months ended June 30, 2017 was $66.0 million (primarily consists of $43.7 million of third-party advertising costs and $20.1 million of personnel costs) compared to 2016 of $46.1 million (primarily consists of $31.1 million third-party advertising costs and $11.8 million personnel costs).The increase in sales and marketing expenses for the three and six months ended June 30, 2017 versus the prior comparable periods was primarily due to increased personnel costs and advertising associated with the acquisition of Everyday Health within the Digital Media segment, which was acquired in December 2016.

Research, Development and Engineering .

(in thousands, except percentages)



	Three Months Ended June 30,		Percentage Change	Six Months Ended June 30,		Percentage Change
	2017	2016		2017	2016
Research, Development and Engineering	$11,555	$9,213	25%	$23,307	$18,201	28%
As a percent of revenue	4%	4%		4%	4%

Our research, development and engineering costs consist primarily of personnel-related expenses. The increase in research, development and engineering costs for the three and six months ended June 30, 2017 versus the prior comparable periods was primarily due to additional personnel costs associated with acquisitions within the Business Cloud Services and Digital Media segments and additional expenses for professional services.

General and Administrative.

(in thousands, except percentages)



	Three Months Ended June 30,		Percentage Change	Six Months Ended June 30,		Percentage Change
	2017	2016		2017	2016
General and Administrative	$79,038	$59,434	33%	$155,693	$115,211	35%
As a percent of revenue	29%	28%		29%	28%

Our general and administrative costs consist primarily of personnel-related expenses, depreciation and amortization, changes in the fair value associated with contingent consideration, share-based compensation expense, bad debt expense, professional fees, severance and insurance costs. The increase in general and administrative expense for the three and six months ended June 30, 2017 versus the prior comparable periods was primarily due to additional amortization of intangible assets, personnel costs relating to businesses acquired in and subsequent to the second quarter 2016, severance costs associated with acquisitions, and depreciation of fixed assets, and professional fees.

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Share-Based Compensation

The following table represents share-based compensation expense included in cost of revenues and operating expenses in the accompanying condensed consolidated statements of income for the three and six months ended June 30, 2017 and 2016 (in thousands):



	Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016
Cost of revenues	$	121	$	103	$	238	$	198
Operating expenses:
Sales and marketing	521		434		899		965
Research, development and engineering	281		221		518		428
General and administrative	4,639		2,681		7,522		4,657
Total	$	5,562	$	3,439	$	9,177	$	6,248

During the second quarter of 2017, the Company accelerated the vesting of certain shares held by employees which were surrendered to the Company to satisfy tax withholding obligations in connection with such employees’ restricted stock. The Company recognized share-based compensation of $1.4 million during the second quarter 2017 due to this vesting acceleration.

Non-Operating Income and Expenses

Interest expense, net . Our interest expense, net is generated primarily from interest expense due to outstanding debt, partially offset by interest income earned on cash, cash equivalents and short and long-term investments. Interest expense, net was $13.7 million and $10.3 million for the three months ended June 30, 2017 and 2016 , respectively, and $26.1 million and $20.5 million for the six months ended June 30, 2017 and 2016 , respectively. Interest expense, net has increased over the prior comparable periods primarily due to increased interest expense associated with our line of credit borrowings and decreased interest income on cash, cash equivalents and investments.

Other expense (income), net . Our other expense (income), net is generated primarily from miscellaneous items and gain or losses on currency exchange and sale of investments. Other expense, net was $4.2 million and $(0.2) million for the three months ended June 30, 2017 and 2016 , respectively, and $4.6 million and $(0.1) million for the six months ended June 30, 2017 and 2016 , respectively. Other expense, net increased over the prior comparable periods primarily due to increased losses on currency exchange.

Income Taxes

Our effective tax rate is based on pre-tax income, statutory tax rates, tax regulations (including those related to transfer pricing) and different tax rates in the various jurisdictions in which we operate. The tax bases of our assets and liabilities reflect our best estimate of the tax benefits and costs we expect to realize. When necessary, we establish valuation allowances to reduce our deferred tax assets to an amount that will more likely than not be realized.

Provision for income taxes amounted to $9.3 million and $15.1 million for the three months ended June 30, 2017 and 2016 , respectively, and $18.7 million and $28.1 million for the six months ended June 30, 2017 and 2016 , respectively. Our effective tax rate was 22.8% and 30.9% for the three months ended June 30, 2017 and 2016 , respectively, and 24.6% and 30.6% for the six months ended June 30, 2017 and 2016 , respectively.

The decrease in our effective income tax rate for the three months and six months ended June 30, 2017 was primarily attributable to the following:


1.	a decrease during 2017 in the valuation allowance for foreign tax credit carryforwards;


2.	an increase in the portion of our income being taxed in foreign jurisdictions and subject to lower tax rates than in the U.S. (relative to income from U.S. domestic operations); partially offset by


3.	an increase during 2017 in the amount of deemed distribution income (Subpart F) from our foreign subsidiaries.

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Significant judgment is required in determining our provision for income taxes and in evaluating our tax positions on a worldwide basis. We believe our tax positions, including intercompany transfer pricing policies, are consistent with the tax laws in the jurisdictions in which we conduct our business. Certain of these tax positions have in the past been, and are currently being, challenged, and this may have a significant impact on our effective tax rate if our tax reserves are insufficient.

Segment Results

Our business segments are based on the organization structure used by management for making operating and investment decisions and for assessing performance. Our reportable business segments are: (i) Business Cloud Services; and (ii) Digital Media.

We evaluate the performance of our operating segments based on segment revenues, including both external and intersegment net sales, and segment operating income. We account for intersegment sales and transfers based primarily on standard costs with reasonable mark-ups established between the segments. Identifiable assets by segment are those assets used in the respective reportable segment’s operations. Corporate assets consist of cash and cash equivalents, deferred income taxes and certain other assets. All significant intersegment amounts are eliminated to arrive at our consolidated financial results.

Revenues

The following table presents our revenues by source as a percentage of total revenues for the three and six months ended June 30, 2017 and 2016 :



	Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016
Business Cloud Services revenues:
Fax and Voice	35.0	%	43.8	%	35.9	%	44.4	%
Other	18.0	%	23.5	%	18.3	%	23.6	%
Total Business Cloud Services revenues:	53.0	%	67.3	%	54.2	%	68.0	%
Digital Media revenues:
Media	47.0	%	32.7	%	45.8	%	32.0	%
Total revenues	100.0	%	100.0	%	100.0	%	100.0	%

Business Cloud Services

The following segment results are presented for the three and six months ended June 30, 2017 and 2016 (in thousands):



	Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016
External net sales	$	144,709	$	142,460	$	286,253	$	280,599
Inter-segment net sales	—		—		—		—
Segment net sales	144,709		142,460		286,253		280,599
Cost of revenues	29,935		30,030		59,032		59,011
Gross profit	114,774		112,430		227,221		221,588
Operating expenses	56,675		59,957		112,821		118,838
Segment operating income	$	58,099	$	52,473	$	114,400	$	102,750

Segment net sales of $144.7 million for the three months ended June 30, 2017 increased $2.2 million , or 1.6% , and segment net sales of $286.3 million for the six months ended June 30, 2017 increased $5.7 million , or 2.0% , from the prior comparable periods primarily due to business acquisitions.

Segment gross profit of $114.8 million for the three months ended June 30, 2017 increased $2.3 million , and segment gross profit of $227.2 million for the six months ended June 30, 2017 increased $5.6 million from the prior comparable periods primarily due to business acquisitions.

Segment operating expenses of $56.7 million for the three months ended June 30, 2017 decreased $(3.3) million and segment operating expenses of $112.8 million for the six months ended June 30, 2017 decreased $(6.0) million from the prior

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comparable periods primarily due to (a) lower amortization of intangible assets and transition service costs associated with businesses acquired in and subsequent to the prior comparable periods; and (b) reduced miscellaneous general and administrative related fees. As a result of these factors, segment operating income of $58.1 million for the three months ended June 30, 2017 increased $5.6 million , or 10.7% , and segment operating income of $114.4 million for the six months ended June 30, 2017 increased $11.7 million , or 11.3% , from the prior comparable periods. Our Business Cloud Services segment consists of several services which have similar economic characteristics, including the nature of the services and their production processes, the type of customers, as well as the methods used to distribute these services.

We group these services into three main categories based on the similarities of these services: Cloud Connect, Other Cloud Services and Intellectual Property. Cloud Connect consists of our Fax and Voice services and Other Cloud Services consist of Backup, Email Security, Email Marketing and Web Hosting.



	Three Months Ended June 30, 2017							Six Months Ended June 30, 2017
	Revenue		Depreciation and Amortization		Operating Income			Revenue		Depreciation and Amortization		Operating Income ⁽⁴⁾

Cloud Connect (Fax/Voice)	$	95,667	$	6,081	$	44,942		$	189,300	$	11,963	$	89,381
Cloud Services	47,763		9,847		13,375			94,476		19,382		25,791
Intellectual Property	1,279		1,261		(218		)	2,478		2,608		(772		)
Total	$	144,709	$	17,189	$	58,099		$	286,254	$	33,953	$	114,400



	Three Months Ended June 30, 2016							Six Months Ended June 30, 2016
	Revenue		Depreciation and Amortization		Operating Income			Revenue		Depreciation and Amortization		Operating Income ⁽⁴⁾

Cloud Connect (Fax/Voice)	$	92,858	$	7,575	$	42,574		$	183,102	$	13,145	$	83,094
Cloud Services	48,509		12,184		10,650			95,228		22,501		21,624
Intellectual Property	1,093		1,492		(751		)	2,269		3,106		(1,968		)
Total	$	142,460	$	21,251	$	52,473		$	280,599	$	38,752	$	102,750

Digital Media

The following segment results are presented for the three and six months ended June 30, 2017 and 2016 (in thousands):



	Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016
External net sales	$	128,465	$	69,340	$	241,589	$	131,703
Inter-segment net sales	9		45		16		91
Segment net sales	128,474		69,385		241,605		131,794
Cost of revenues	13,224		5,560		24,936		10,867
Gross profit	115,250		63,825		216,669		120,927
Operating expenses	105,111		52,275		210,032		101,644
Segment operating income	$	10,139	$	11,550	$	6,637	$	19,283

Segment net sales of $128.5 million for the three months ended June 30, 2017 increased $59.1 million , or 85.2% , and segment net sales of $241.6 million for the six months ended June 30, 2017 increased $109.8 million , or 83.3% , from the prior comparable periods primarily due to the acquisition of Everyday Health in December 2016.

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Segment gross profit of $115.3 million for the three months ended June 30, 2017 increased $51.4 million , or 80.6% , and segment gross profit of $216.7 million for the six months ended June 30, 2017 increased $95.7 million , or 79.2% , from the prior comparable periods primarily due to the acquisition of Everyday Health in December 2016.

Segment operating expenses of $105.1 million for the three months ended June 30, 2017 increased $52.8 million and segment operating expenses of $210.0 million for the six months ended June 30, 2017 increased $108.4 million from the prior comparable periods primarily due to the acquisition of Everyday Health in December 2016 comprised primarily of salary and related costs, marketing costs, and amortization of intangible assets.

As a result of these factors, segment operating income of $10.1 million for the three months ended June 30, 2017 decreased $(1.4) million , or (12.2)% and segment operating income of $6.6 million for the six months ended June 30, 2017 decreased $(12.6) million , or (65.6)% from the prior comparable periods.

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Liquidity and Capital Resources

Cash and Cash Equivalents and Investments

At June 30, 2017 , we had cash and investments of $330.8 million (excluding restricted cash) compared to $124.0 million at December 31, 2016 . The increase in cash and investments resulted primarily from the issuance of long-term debt and cash from operations, partially offset by the repayment of the line of credit, business acquisitions, dividends and interest paid, and purchases of property and equipment. At June 30, 2017 , cash and investments consisted of cash and cash equivalents of $330.7 million and short-term investments of $0.1 million . We retain a substantial portion of our cash and investments in foreign jurisdictions for future reinvestment. As of June 30, 2017 , cash and investments held within foreign and domestic jurisdictions were $121.3 million and $209.5 million , respectively. If we were to repatriate funds held within foreign jurisdictions, we would incur U.S. income tax on the repatriated amount at the federal statutory rate of 35% and the state statutory rate where applicable, net of a credit for foreign taxes paid on such amounts.

On February 9, 2017, the Company declared a quarterly cash dividend of $0.3650 per share of common stock payable on March 9, 2017 to all stockholders of record as of the close of business on February 22, 2017. Future dividends are subject to Board approval. On May 4, 2017, the Company’s Board of Directors approved a quarterly cash dividend of $0.3750 per share of j2 Global common stock payable on June 2, 2017 to all stockholders of record as of the close of business on May 19, 2017.

On June 27, 2017, j2 Cloud Services, LLC (“j2 Cloud”), a wholly-owned subsidiary of j2 Global, Inc., and j2 Cloud Co-Obligor, Inc., a wholly-owned subsidiary of j2 Cloud (the “Co-Issuer” and together with j2 Cloud, the “Issuers”) completed the issuance and sale of $650 million aggregate principal amount of its 6.0% senior notes due 2025 in a private placement. The proceeds were used to redeem all of its j2 Cloud’s 8.0% notes due in 2020, and to distribute sufficient net proceeds to j2 Global to pay off all amounts outstanding under its existing credit facility (as described further below), with the remaining net proceeds to be used for general corporate purposes, including acquisitions.

On December 5, 2016, j2 Global, Inc. entered into a Credit Agreement (the “Credit Agreement”) with MUFG Union Bank, N.A., as administrative agent, and certain other lenders from time to time party thereto (collectively, the “Lenders”). Pursuant to the Credit Agreement, the Lenders provided j2 with a credit facility of $225.0 million (the “Credit Facility”), $180.0 million of which was drawn at closing of the Everyday Health acquisition and used to finance a portion of the cash consideration in the acquisition. During the prior quarter, the Company drew an additional $45.0 million . On June 27, 2017, the Company repaid the outstanding credit facility with cash received from its subsidiary, j2 Cloud, and terminated the Credit Agreement.

On June 27, 2017, j2 Cloud notified U.S. Bank National Association, as trustee (the “2012 Trustee”) under the indenture, dated as of July 26, 2012 (as amended, supplemented or otherwise modified, the “2012 Indenture”), between j2 Cloud and the 2012 Trustee, governing the 8.0% senior unsecured notes due 2020 (the “2020 Notes”) that j2 Cloud would redeem the 2020 Notes and pay the redemption premium equal to 102% of the principal amount on the 2020 Notes and to pay accrued and unpaid interest on the 2020 Notes effective August 1, 2017 (the “Redemption Amount”). On that same date, j2 Cloud deposited a portion of the cash proceeds from the issuance and sale of the 6.0% senior notes in an amount equal to the Redemption Amount with the 2012 Trustee for purposes of the payment of that amount on August 1, 2017.

In order to timely complete the Everyday Health acquisition, the Company borrowed $126.8 million from its non-US subsidiaries. During the third quarter 2017, the Company repaid its non-U.S. subsidiaries. At June 30, 2017, the Company does not expect the borrowing from its non-U.S. subsidiaries to result in incremental U.S. tax expense in future periods due to the availability of foreign tax credits. The Company’s practice and intent is to continue to indefinitely reinvest earnings from its non-U.S. subsidiaries to support growth outside of the U.S. through funding of acquisitions, operating expenses, research and development expenses, capital expenditures and other cash needs of its non-U.S. subsidiaries.

We currently anticipate that our existing cash and cash equivalents and short-term investment balances and cash generated from operations and the additional debt facilities described above will be sufficient to meet our anticipated needs for working capital, capital expenditure, stock repurchases and cash dividends for at least the next 12 months.

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Cash Flows

Our primary sources of liquidity are cash flows generated from operations, together with cash and cash equivalents and short-term investments. Net cash provided by operating activities was $111.7 million and $132.1 million for the six months ended June 30, 2017 and 2016 , respectively. Our operating cash flows resulted primarily from cash received from our customers offset by cash payments we made to third parties for their services, employee compensation and interest payments associated with our debt. The decrease in our net cash provided by operating activities in 2017 compared to 2016 was primarily attributable to a decrease in accounts payable and accrued expenses including a $20.0 million payment of certain contingent compensation obligations of Everyday Health as well as a payment of contingent consideration of $20.0 million associated with the acquisition of Ookla; partially offset by a decrease in accounts receivable and increased depreciation and amortization. Our cash and cash equivalents and short-term investments were $330.8 million and $124.0 million at June 30, 2017 and December 31, 2016 , respectively.

Net cash used in investing activities was $(56.1) million and $(22.3) million for the six months ended June 30, 2017 and 2016 , respectively. For the six months ended June 30, 2017 , net cash used in investing activities was primarily attributable to business acquisitions, capital expenditures associated with the purchase of property and equipment and the purchase of intangible assets. For the six months ended June 30, 2016 , net cash used in investing activities was primarily attributable to business acquisitions, the purchase of available-for-sale investments, property and equipment and intangible assets; partially offset by the maturity of available-for-sale investments. The decrease in our net cash used in investing activities in 2017 compared to 2016 was primarily attributable to a decrease in business acquisitions and the purchase of investments; partially offset by the maturity of investments.

Net cash provided by (used in) financing activities was $411.5 million and $(49.2) million for the six months ended June 30, 2017 and 2016 , respectively. For the six months ended June 30, 2017 , net cash provided by financing activities was primarily attributable to proceeds from the issuance of long-term debt, additional borrowings under our line of credit and exercise of stock options; partially offset by the repayment in full of the line of credit, dividends paid, repurchases of stock and business acquisitions. For the six months ended June 30, 2016 , net cash used in financing activities was primarily attributable to dividends paid, business acquisitions and repurchases of stock; partially offset by the exercise of stock options. The change in net cash provided by financing activities in 2017 compared to 2016 was primarily attributable to the proceeds from the issuance of long-term debt; partially offset by the net payment associated with the payment in full of our line of credit.

Stock Repurchase Program

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Contractual Obligations and Commitments

The following table summarizes our contractual obligations and commitments as of June 30, 2017 :



	Payments Due in (in thousands)
Contractual Obligations	2017		2018		2019		2020		2021		Thereafter		Total
Long-term debt - principal (a)	$	250,000	$	—	$	—	$	—	$	402,500	$	650,000	$	1,302,500
Long-term debt - interest (b)	16,541		54,031		52,081		52,081		45,541		156,000		376,275
Long-term debt - premium (c)	5,000		—		—		—		—		—		5,000
Operating leases (d)	7,777		14,200		12,404		9,032		8,089		17,006		68,508
Capital leases (e)	17		9		—		—		—		—		26
Telecom services and co-location facilities (f)	2,646		2,774		770		118		—		—		6,308
Holdback payment (g)	4,397		2,008		—		—		—		—		6,405
Other (h)	374		—		—		—		—		—		374
Total	$	286,752	$	73,022	$	65,255	$	61,231	$	456,130	$	823,006	$	1,765,396


(a)	These amounts represent principal on long-term debt. In 2017, amount represents the principal on j2 Cloud’s 8.0% senior unsecured notes (which were redeemed on August 1, 2017 (see Note 18 - Subsequent Events).


(b)	These amounts represent interest on long-term debt.


(c)	These amounts represent the redemption premium in connection with the redemption of the j2 Cloud’s 8.0% senior unsecured notes (which was redeemed on August 1, 2017).


(d)	These amounts represent undiscounted future minimum rental commitments under noncancellable operating leases.


(e)	These amounts represent undiscounted future minimum rental commitments under noncancellable capital leases.


(f)	These amounts represent service commitments to various telecommunication providers.


(g)	These amounts represent the holdback amounts in connection with certain business acquisitions.


(h)	These amounts represent certain consulting and Board of Directors fee arrangements.

As of June 30, 2017 , our liability for uncertain tax positions was $47.0 million . The future payments related to uncertain tax positions have not been presented in the table above due to the uncertainty of the amounts and timing of cash settlement with such authorities.

Off-Balance Sheet Arrangements

We are not party to any material off-balance sheet arrangements.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

The following discussion of the market risks we face contains forward-looking statements. Forward-looking statements are subject to risks and uncertainties. Actual results could differ materially from those discussed in forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s opinions only as of the date hereof. j2 Global undertakes no obligation to revise or publicly release the results of any revision to these forward-looking statements. Readers should carefully review the risk factors described in this document and in the other documents incorporated by reference herein, including our Annual Report on Form 10-K for the year ended December 31, 2016 as well as in other documents we file from time to time with the SEC, including the Quarterly Reports on Form 10-Q and any Current Reports on Form 8-K filed or to be filed by us in 2017.

Interest Rate Risk

Our exposure to market risk for changes in interest rates relates primarily to our investment portfolio. The primary objectives of our investment activities are to preserve our principal while at the same time maximizing yields without significantly increasing risk. To achieve these objectives, we maintain our portfolio of cash equivalents and investments in a mix of instruments that meet high credit quality standards, as specified in our investment policy. Our cash and cash equivalents are not subject to significant interest rate risk due to the short maturities of these instruments. As of June 30, 2017 , the carrying value of our cash and cash equivalents approximated fair value. Our return on these investments is subject to interest rate fluctuations.

As of June 30, 2017 , we had no investments in debt securities with effective maturities greater than one year. As of June 30, 2017 and December 31, 2016 , we had cash and cash equivalent investments primarily in time deposits and money market funds with maturities of 90 days or less of $330.7 million and $124.0 million , respectively.

We cannot ensure that future interest rate movements will not have a material adverse effect on our future business, prospects, financial condition, operating results and cash flows. To date, we have not entered into interest rate hedging transactions to control or minimize certain of these risks.

Foreign Currency Risk

We conduct business in certain foreign markets, primarily in Canada, Australia and the European Union. Our principal exposure to foreign currency risk relates to investment and inter-company debt in foreign subsidiaries that transact business in functional currencies other than the U.S. Dollar, primarily the Australian Dollar, the Canadian Dollar, the Euro, the Hong Kong Dollar, the Japanese Yen, the New Zealand Dollar, the Norwegian Kroner and the British Pound Sterling. If we are unable to settle our short-term inter-company debts in a timely manner, we remain exposed to foreign currency fluctuations.

As we expand our international presence, we become further exposed to foreign currency risk by entering new markets with additional foreign currencies. The economic impact of currency exchange rate movements is often linked to variability in real growth, inflation, interest rates, governmental actions and other factors. These changes, if material, could cause us to adjust our financing and operating strategies.

As currency exchange rates change, translation of the income statements of the international businesses into U.S. Dollars affects year-over-year comparability of operating results, the impact of which is immaterial to the comparisons set forth in this Quarterly Report on Form 10-Q.

Historically, we have not hedged translation risks because cash flows from international operations were generally reinvested locally; however, we may do so in the future. Our objective in managing foreign exchange risk is to minimize the potential exposure to changes that exchange rates might have on earnings, cash flows and financial position.

Foreign exchange losses for the three months ended June 30, 2017 and 2016 were $4.2 million and $0.1 million , respectively, and for the six months ended June 30, 2017 and 2016 were $4.6 million and $0.9 million , respectively. The increase in losses to our earnings in the current period were attributable to increased inter-company debt between periods in foreign subsidiaries that were in functional currencies other than the U.S. Dollar.

Cumulative translation adjustments, net of tax, included in other comprehensive income for the three months ended June 30, 2017 and 2016 were $12.3 million and $(12.7) million , respectively, and for the six months ended June 30, 2017 and 2016 were $15.9 million and $(9.2) million , respectively.

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We currently do not have derivative financial instruments for hedging, speculative or trading purposes and therefore are not subject to such hedging risk. However, we may in the future engage in hedging transactions to manage our exposure to fluctuations in foreign currency exchange rates.

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Item 4. Controls and Procedures


(a)	Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information required to be disclosed in the Company’s reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the principal executive officer and the principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

As of the end of the period covered by this report, j2 Global’s management, with the participation of Nehemia Zucker, our principal executive officer, and R. Scott Turicchi, our principal financial officer, carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon that evaluation, Mr. Zucker and Mr. Turicchi concluded that these disclosure controls and procedures were effective as of the end of the period covered in this Quarterly Report on Form 10-Q.


(b)	Changes in Internal Controls

There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) which occurred during the second quarter ended June 30, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

See Note 9 – Commitments and Contingencies of the Notes to Financial Statements (Part I, Item 1) for information regarding certain legal proceedings in which we are involved.

Item 1A. Risk Factors

In addition to the other information set forth in this report, before deciding to invest in j2 Global or to maintain or increase your investment, you should carefully consider the factors discussed in Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016 (the “10-K Risk Factors”) as well as in other documents we file from time to time with the SEC, including the Quarterly Reports on Form 10-Q and any Current Reports on Form 8-K filed or to be filed by us in 2017. If any of these risks occur, our business, prospects, financial condition, operating results and cash flows could be materially adversely affected. The 10-K Risk Factors are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations. There have been no material changes from the 10-K Risk Factors, except for the risks described below relating to the issuance of the $650 million aggregate principal amount of 6.0% senior notes due in 2025 (the “6.0% Senior Notes”).

Our level of indebtedness could adversely affect our financial flexibility and our competitive position.

Our level of indebtedness could have significant effects on our business. For example, it could:


•	make it more difficult for us to satisfy our obligations, including our current indebtedness and any other indebtedness we may incur in the future;


•	increase our vulnerability to adverse changes in general economic, industry and competitive conditions;


•	require us to dedicate a substantial portion of our cash flow from operations to make payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, acquisitions and other elements of our business strategy and other general corporate purposes, including share repurchases and payment of dividends;


•	limit our flexibility in planning for, or reacting to, changes in our business and the industries in which we operate;


•	require us to repatriate cash for debt service from our foreign subsidiaries resulting in tax costs or require us to adopt other disadvantageous tax structures to accommodate debt service payments;


•	restrict us from exploiting business opportunities;


•	place us at a competitive disadvantage compared to our competitors that have less indebtedness; and


•	limit our ability to borrow additional funds for working capital, capital expenditures, acquisitions, debt service requirements, execution of our business strategy or other general corporate purposes.

In addition, the indenture governing the 6.0% Senior Notes of our subsidiary, j2 Cloud Services, LLC (“j2 Cloud Services”), and the agreements evidencing or governing other future indebtedness may contain restrictive covenants that will limit our ability to engage in activities that may be in our long-term best interests. Our failure to comply with those covenants could result in an event of default which, if not cured or waived, could result in the acceleration of all of our indebtedness.

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To service our debt and fund our other capital requirements, we will require a significant amount of cash, and our ability to generate cash will depend on many factors beyond our control.

Our ability to meet our debt service obligations and to fund working capital, capital expenditures, acquisitions and other elements of our business strategy and other general corporate purposes, including share repurchases and payment of dividends, will depend upon our future performance, which will be subject to financial, business and other factors affecting our operations. To some extent, this is subject to general and regional economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. We cannot ensure that we will generate cash flow from operations, or that future borrowings will be available, in an amount sufficient to enable us to pay our debt or to fund our other liquidity needs.

If our cash flows and capital resources are insufficient to fund our debt service obligations, we could face substantial liquidity problems and could be forced to reduce or delay investments and capital expenditures or to dispose of material assets or operations, seek additional indebtedness or equity capital or restructure or refinance our indebtedness. We may not be able to effect any such alternative measures on commercially reasonable terms or at all and, even if successful, those alternative actions may not allow us to meet our scheduled debt service obligations. The indenture governing the 6.0% Senior Notes restrict our ability to dispose of assets and may also restrict our ability to raise indebtedness or equity capital to be used to repay other indebtedness when it becomes due. We may not be able to consummate those dispositions or to obtain proceeds in an amount sufficient to meet any debt service obligations then due.

Our inability to generate sufficient cash flows to satisfy our debt obligations, or to refinance our indebtedness on commercially reasonable terms, or at all, would materially and adversely affect our financial position and results of operations.

The terms of the indenture governing the 6.0% Senior Notes restrict our current and future operations of j2 Cloud Services, particularly the ability of us and our subsidiaries to respond to changes or to take certain actions.

The indenture governing the 6.0% Senior Notes contain a number of restrictive covenants that impose significant operating and financial restrictions and may limit our ability to plan for or react to market conditions, meet capital needs or make acquisitions, or otherwise restrict our activities or business plans. These include restrictions on our ability to:


•	incur additional indebtedness;


•	create liens;


•	engage in sale-leaseback transactions;


•	pay dividends or make distributions in respect of capital stock;


•	purchase or redeem capital stock;


•	make investments or certain other restricted payments;


•	sell assets;


•	enter into transactions with affiliates; or


•	effect a consolidation or merger.

A breach of the covenants under the indenture governing the 6.0% Senior Notes could result in an event of default. Such a default may allow the creditors to accelerate the related indebtedness and may result in the acceleration of any other indebtedness to which a cross-acceleration or cross-default provision applies. In the event our lenders or the holders of our 6.0% Senior Notes accelerate the repayment of our borrowings, we and our subsidiaries may not have sufficient assets to repay that indebtedness or our other indebtedness.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds


(a)	Unregistered Sales of Equity Securities

None.

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(b)	Issuer Purchases of Equity Securities

Effective February 15, 2012, the Company’s Board of Directors approved a program authorizing the repurchase of up to five million shares of our common stock through February 20, 2013 (the “2012 Program”) which was subsequently extended through February 19, 2018. In July 2016, the Company acquired and subsequently retired 935,231 shares of j2 Global common stock in connection with the acquisition of Integrated Global Concepts, Inc. As a result of the purchase of j2 Global common stock, the Company’s Board of Directors approved a reduction in the number of shares available for purchase under the 2012 Program by the same amount leaving 1,938,689 shares of j2 Global common stock available for purchase under this program. During the six month period ended June 30, 2017 , we repurchased zero shares under this program. Cumulatively at June 30, 2017 , 2.1 million shares were repurchased at an aggregate cost of $58.6 million (including an immaterial amount of commission fees).

The following table details the repurchases that were made under and outside the 2012 Program during the three months ended June 30, 2017 :



Period	Total Number of Shares Purchased ⁽¹⁾	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Program	Maximum Number of Shares That May Yet Be Purchased Under the Plans or Program
April 1, 2017 - April 30, 2017	—	$	—	—	1,938,689
May 1, 2017 - May 31, 2017	39,360	$	89.54	—	1,938,689
June 1, 2017 - June 30, 2017	33,313	$	87.04	—	1,938,689
Total	72,673			—	1,938,689


⁽¹⁾	All shares purchased were surrendered to the Company to pay the exercise price and/or to satisfy tax withholding obligations in connection with employee stock options and/or the vesting of restricted stock issued to employees.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not Applicable.

Item 5. Other Information

None.

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Item 6. Exhibits




4.1	Indenture dated as of June 27, 2017, among j2 Cloud Services, LLC, j2 Cloud Co-Obligor, Inc., the guarantors named therein and U.S. Bank National Association, as trustee ⁽¹⁾ .

31.1	Rule 13a-14(a) Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2	Rule 13a-14(a) Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1	Section 1350 Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2	Section 1350 Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101	The following financial information from j2 Global, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2017, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets as of June 30, 2017 and December 31, 2016, (ii) Condensed Consolidated Statements of Income for the three and six months ended June 30, 2017 and 2016, (iii) Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2017 and 2016, (iv) Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2017 and 2016, and (v) the Notes to Condensed Consolidated Financial Statements.

⁽¹⁾ Incorporated by reference to j2 Global’s Current Report on Form 8-K filed with the Commission on June 27, 2017.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



		j2 Global, Inc.



Date:	August 8, 2017	By:	/s/ NEHEMIA ZUCKER
			Nehemia Zucker
			Chief Executive Officer
			(Principal Executive Officer)




Date:	August 8, 2017	By:	/s/ R. SCOTT TURICCHI
			R. Scott Turicchi
			President and Chief Financial Officer
			(Principal Financial Officer)




Date:	August 8, 2017	By:	/s/ STEVE P. DUNN
			Steve P. Dunn
			Chief Accounting Officer

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INDEX TO EXHIBITS



Exhibit Number	Description

4.1	Indenture dated as of June 27, 2017, among j2 Cloud Services, LLC, j2 Cloud Co-Obligor, Inc., the guarantors named therein and U.S. Bank National Association, as trustee ⁽¹⁾ .

31.1	Rule 13a-14(a) Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2	Rule 13a-14(a) Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1	Section 1350 Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2	Section 1350 Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101	The following financial information from j2 Global, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2017, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets as of June 30, 2017 and December 31, 2016, (ii) Condensed Consolidated Statements of Income for the three and six months ended June 30, 2017 and 2016, (iii) Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2017 and 2016, (iv) Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2017 and 2016, and (v) the Notes to Condensed Consolidated Financial Statements.

⁽¹⁾ Incorporated by reference to j2 Global’s Current Report on Form 8-K filed with the Commission on June 27, 2017.

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TABLE OF CONTENTS

Part I. Financial Information Item 1. Financial Statements Item 2. Management S Discussion and Analysis Of Financial Condition and Results Of Operations Item 3. Quantitative and Qualitative Disclosures About Market Risk Item 4. Controls and Procedures Part II. Other Information Item 1. Legal Proceedings Item 1A. Risk Factors Item 2. Unregistered Sales Of Equity Securities and Use Of Proceeds Item 3. Defaults Upon Senior Securities Item 4. Mine Safety Disclosures Item 5. Other Information Item 6. Exhibits

ZD 10-Q Quarter ended June 30, 2017