Ziff Davis Inc (ZD) 2014 Q4 法說會逐字稿

Good afternoon ladies and gentlemen. Welcome to the j2 Global fourth quarter and year end earnings call. It is my pleasure to introduce your host, Mr. Scott Turicchi, President of j2 global. Thank you Mr Turicchi

Thank you. Good afternoon and welcome to j2 Global's investor conference call for the fourth fiscal quarter of 2014. As the operator just mentioned I'm Scott Turicchi, the President and CFO of j2 global and with me today is Hemi Zucker, our Chief Executive Officer. We're very proud of our accomplishments in 2014 which we'll discuss in detail as well as our 2015 guidance and the underlying assumptions.

Performance was strong in the fourth quarter for both our cloud and media segments. As a result, our board has increased the quarterly dividend to $0.29.25 per share. We will use the presentation as a road map for today's call. A copy of this presentation is available at our website.

When you launch the webcast, there is a button on the viewer on the right-hand side which will allow you to expand the slides. If you've not received a copy of the press release, you may access it through our corporate website at j2 Global.com/press. In addition, you will be able to access the webcast from this site.

After we complete our presentation, we'll conduct a question-and-answer session. The operator will instruct you at that time regarding the procedures for asking a question. However, at any time, you may e-mail us questions at investor@j2Global.com. Before we begin our remarks, allow me to read the Safe Harbor language.

As you know this call and webcast does include forward-looking statements. Such statements may involve risks and uncertainties that would cause actual results to differ materially from the anticipated results. Some of these risks and uncertainties include but are not limited to the risk factors that we have disclosed in our SEC filings including our 10-K filings, recent 10-Q filings, various proxy statements and 8-K filings as well as additional risk factors that we have included as part of the slide show for the webcast. We refer you to discussions in those documents regarding safe harbor language as well as forward-looking statements.

If you would now turn to slide 5, I will review the 2014 accomplishments and the fourth quarter results. We hit a record revenue in 2014 of just under $600 million of GAAP revenue. EBITDA of $263 million and adjusted EPS of $3.42. All records. Our M&A strategy was a key element to our 2014 success as we expended $245 million across 29 acquisitions in both our media and cloud businesses as well as expanding our geographies into the nordics.

We also expanded our set of services in the cloud business into web hosting and we built our e-mail security business to four times larger than it was in 2013. For the business cloud services segment as a whole, it's revenues were up $41 million versus 2013 or 11% and our non-cloud revenue meaning our back-up e-mail security, e-mail marketing and web hosting was up $47 million or 160%. Our media business was up $37 million or 28% versus the prior year. It completed two acquisitions, eMedia and Ookla, also known as Speed test, and most importantly saw margin expansion from 23% to 31%.

Now, if you turn to slide six, I'll go through the quarterly results based on the way that we report. So our cloud services business which consist of our fax, voice, back-up, e-mail security, e-mail marketing and web hosting, subscription based services did $113.4 million of revenue in Q4 of 2014, up approximately 20% versus the fourth quarter of the prior year. EBITDA margin of that segment inclusive of our corporate overhead was 49% or $55.8 million. A growth of 16% versus the prior year.

I would know that that margin is slightly lower than Q4 of 2013 as we've stated throughout the year because of the shift in mix occurring within our cloud services business more in favor of our emerging cloud services which are smaller in nature and not yet fully scaled although contributing at approximately a 40% EBITDA margin. Our IP licensing segment did $1.25 million of revenues which is the baseline of revenues in the quarter.

It had a much lower EBITDA margin because of investments we have been making within one specific set of patents that are being prepared for licensing in this fiscal year. As a result, the EBITDA margin contribution in Q4 was 16%. Our cloud services business and our IP licensing combined make up the total cloud segment which was $114.6 million of revenue, up 19% versus Q4 of 2013. $56 million of EBITDA, which is a 49% EBITDA margin.

As I mentioned, our media business had a very strong quarter with revenues up over 26% to just under $53 million of revenue. And a 40% EBITDA margin in the quarter producing approximately $21 million of EBITDA. Those two segments combined resulted in $167.5 million of revenue for j2 Global, up more than 21% year-over-year. Almost $77 million of EBITDA, which is a 46% EBITDA margin flowing through to $0.98 of adjusted non-GAAP earnings per share. $0.66 on a GAAP basis.

I would note a couple of other items. We had $9.5 million of amortization expense in the fourth fiscal quarter. We ended the year with $590 million of cash after expending $143 million in Q4. $13 million which went to the dividend and $130 million for our eight M&A transactions. As i mentioned, the board approved a raise in the dividend rate to $0.2925 per share which will be payable in March and will use about $14 million of our total cash.

As thrilled as we are with these results and with our future for 2015, we are a little bit saddened and not able to take full advantage of this because of the passing of our good friend and colleague Jeff Adelman approximately one month ago. As some of you know, Jeff came to us 14 and a half years ago when the Company was very small. He set up the legal department. Set up our corporate structure which is now morphed into almost 80 subsidiaries around the world as well as our IP licensing business.

One of the things that you probably didn't know that he did is he would actually sit in this room on earnings call day and he would monitor the overall tone of the call as well as making sure that what Hemi and I were saying was all okay and good. We will miss Jeff. We do miss him and no call will ever be quite the same. Hemi?

Thank you very much, Scott. Good afternoon, everybody. We had an amazing 2014. And we are having an accelerated growth for 2015. I would like you to turn to page eight where I will talk about j2 Global consolidated and we'll discuss 2014 revenues and 2015 outlook. In a high level, all the comment that I will say now about revenue 2015 I will aim to the midrange or to the midpoint of the revenue and the numbers.

So for 2014, our growth rate was 15% and we are planning for 2015 growth rate of 17%. This is an amazing number if you can think about it, j2 Global is about to celebrate this year its 20 years from which it was established in 1995. So 20 years. And 16 years as a public company and if you take about the last 10 years' revenue growth is average revenue growth of 17% per year. So even though we are 20 years old in our age, we are still growing like a teenager and we take a lot of pride in it.

In 2014, our consolidated revenue grew $78 million, 2014 over 2013. Our grosses plan to be next year, 2015 over 2014, $100 million. We are growing and continue to grow across all of our segments in j2 Global. It is very important for us to emphasize that. Fax is still big. Fax and voice grew over $6 million over 2% in 2014 and we are expecting similar growth in 2015. Yes, fax is still growing. Fax was 48% of total revenue in 2014. It is expected to be 42% of total revenue in 2015. And as I said, still growing and delivering very high margins of EBITDA.

Our non-DID revenue in 2014 was $78 million. We're planning for projecting it to be $130 million in 2015. This is an annualized growth year-over-year of 63%. Our immediate revenue was $168 until 2014. Our outlook is talking about 25% more or approximately $210 million. If you want to -- the big picture of j2 Global in 2015, it is $700 million revenue where media is above $200 million and the cloud business is approaching half a billion or $500 million.

I want also to mention the foreign exchange. As you know, j2 Global is fortunate to be active in many countries around the world. We have calculated the impact of the foreign exchange on 2015 to be $26 million. So if we didn't have those changes reflected by the strength of the dollar, our revenue would not be $700 million. Could have been $726 million and delivering gross of 21%. So we are always are conservative in all of the numbers are taken already into effect the (inaudible) part I just wanted to mention to you it is definitely something that (inaudible) operation into Europe and around the world.

Page nine, please. I'll talk about the business cloud services and then page 10. We are going to introduce a new concept which is cloud connect. Cloud connect will be our fax and voice business that we are going to organize into a division. And the brands here are eFax, eFax Corporate, which are worldwide brands, and eVoice which is the U.S. brand and eReception is mostly in Europe. Sorry, in Europe.

Our gross leader for 2015, our premium brands. Those are the brands with the higher operational, eFax is selling for $16.95 and we are very happy to see that the market is actually growing in the full feature, full prize, the marquee brand of eFax. The next one in gross is eFax Corporate then eVoice, as I said, is the U.S. brand and eReception is the European. Another gross element is coming from our City Numbers. City Numbers is a worldwide toll free number provider that we required in the U.K. We are very pleased with its growth and we recently started to market it into the U.S. And we do see opportunities to do M&A in the states even though none of them is included in our focus.

Yesterday we announced the acquisition of the company called First Way Digital. A distributing fax or internet fax in France under the name of Fax Box. This is a nice site to provide digital fax together with our eFax. We believe that we are now the number one provider in France. Majority of the stuff of the french companies actually sitting in Dublin and there is a sales office in Paris and a little office in Nice for engineering. We are very pleased with it. And I'm going to travel next week and visit the team and make sure that we are integrating them very well into our Dublin office.

Next, page 11. When I will talk about our online back-up. As you know, we operate under the name of KeepItSafe and LiveDrive. LiveDrive we acquired last year in the U.K. Our 2014 full-year revenue is approximately -- was approximately $46 million. 2015 is expected to grow by approximately 25%. This part of our business is the one that was the hardest hit by these FX headwinds. Still it is growing very nicely. Still growing in local currency and in U.S. dollars.

We have extended the service during December into Denmark. We acquired a company that had significant or -- for Denmark, significant for Denmark, a back-up business. And we now operate in 10 countries when we can provide local operation, local language and local storage. It is very important for everybody to recognize that businesses are insisting that their data will be stored in their country under their legal system. We are -- we have opened in January a new office in Toronto with localized sales and growth team to drive the growth in Canada.

In the next page, page 12, I'll talk about FuseMail and our e-mail security update. This was a very big year for FuseMail. We just acquired in December two companies, Comendo Security out of Denmark and Stay Secure out of Sweden. I will visit them as well next week and address the team and very excited to go there.

Both companies are the number one and the number two in their countries. They used to be competitors and now together, they are organized together to cooperate and integrate. They used to be to have fierce legal issues and marketing issues. Now together as a team, we will focus on getting bigger market share in those important countries for us.

We also have acquired during last quarter, TestudoData. This is a U.S. supplier of email security and archiving. We are about to close in the next week another acquisition in the states. In our 2015 outlooks we have planned three acquisitions. This is one of them. We talk about RTE and there is another one that is about to close, I believe, also during February or March and the rest of the outlook, it does not include significant acquisitions.

So i will continue to talk about FuseMail. 2014 was $17 million. Which was an increase of 100% from prior year. Round rate revenue was $42 million and as I said, we are planning for 2015 to grow via organic and one M&A deal that I hope to announce soon. We have extended in geographies and now we have email security in the U.S., in Canada, UK, Denmark and Sweden. Our outlook for 2015 will include first and foremost, the integration of all of those assets that we acquired and continued roll-up when and if they show up.

Next page, 13. Our e-mail marketing update about Campaigner. The story of Campaigner is very special and it actually is the story of j2 Global. We have acquired this asset opportunistically as part of our product acquisition in 2010. We decided to check the space. We knew that the space is not very well known for acquisition integrations. Those products don't integrate well when you go from platform to platform. We have decided to still give it a try.

We've got a very dedicated and capable team and we first of all tried to integrate few very small, 100,000 to 200,000 assets of e-mail marketing companies that we actually own so there are other acquisitions. We did it well in 2013 and 2014 and then we dare to buy a real company which is [Contactology] that we acquired in 2010 -- 2014. We are very happy with the progress in how the integration is going on.

So encouraged are we that we are going to buy another company and soon hopefully and therefore bring the business to a revenue of $20 million for 2015. E-mail marketing now for us is on the road map of M&A as we have high confidence of our team to acquire and to move companies from their brand into our brand and into our platform and eliminate the platforms and consolidate it all into one. Very encouraging. Thank you for the [Campaigner] team.

Page 14. Page 15. Digital media. So we are now closing the full second year of our ownership of the Ziff Davis media business. When we acquired it, it was $50 some million of revenue. And we have now in two plus years more than tripled it. We are very thrilled about it. And we all recognize how good was the decision to get into the media business and especially with -- under their leadership.

In Q4, we had revenue of $53 million which is 26% versus last year Q4. EBITDA was $21 million which is 30% versus 2013. And the revenue per thousand visits of $17 is 6%, up versus our Q4 of 2013.

We have acquired Ookla, which is known as the speed test operator we regard it a very strategic acquisition. They are over 100 million visits per month. And 180 page views in the Ookla website. It is a global known leader for speed testing. We have very high, ambitious plans to continue to grow it and develop these assets through 2015 and on.

Moving to page 16, I will discuss the media highlight in 2014, IGN. IGN continues to grow year-over-year. Double digit in 2014 and 2015. This U.S. award licensing business continues to grow. For 2015, we are going to add another segment of licensing which is the Ookla licensing opportunity.

And to the bottom of the page we have continued with our international expansion. We sign partnership to launch IGN France, IGN Brazil, IGN Hungary and I'm sure that for me especially, they just launched the IGN Israel. Actually yesterday night, I went and visited the website instead of preparing myself for the earning call. I started to play IGN in Hebrew.

Anyways, my last comment before I pass the call to Scott, IGN is now live with 21 additions. In 16 languages and 95 countries. And before I give the call to Scott, it is very exciting to sit here and see this company up to 20 years, still deliver 70% year-over-year growth. We are very excited about the future. I'll give it to Scott to talk about our guidance.

Thank you Hemi. If you will turn to page 18 these outlines some of our high level assumptions that go into creating the 2015 outlook. So if we begin with the cloud services business, we are expecting and I would remind you this is inclusive of the j2 Global corporate overhead expense. Over the course of this year, we will be segmenting out the corporate parent from the operational divisions.

So in fact, the cloud services subscription business has approximately a 50% EBITDA margin but it's being fully loaded with all of the corporate overhead. That is how the Company originally grew up. So that EBITDA margin is expected to be stable at the 48% range. We are expecting though, higher growth from a revenue standpoint in our non-DID base business, which to remind you is our back-up e-mail security, e-mail marketing and web hosting.

Those contribute at margins of approximately 40%. And we expect our IP licensing to be between $5 and $6 million in revenue which is sort of the current quarterly run rate times four. However, as I mentioned, we've been making investments in a series of patents that will be ready for licensing later this year. Given the way licensing program works, it is possible we could derive some revenue from that late this year.

But as a degree of conservatism, we're going to assume that those revenues come in 2016 and beyond. For our media business we expect revenue growth to be 25% or more and we expect that distribution of revenue over the four quarters to be roughly similar to last year which is approximately 20% of the annual revenues of media will fall in Q1 and 30% or more will fall in Q4.

As you know, it is a seasonal business with an emphasis on the fourth fiscal quarter. You noted that in both the 2014 and 2013 Q4 results as well as the fixed cost nature of that business that when those incremental revenues come on, there is an expansion of the margin in the fourth fiscal quarter to approximately 40%. I would also note that from an FX standpoint, as Hemi mentioned, we believe there is about $26 million of headwinds in our FX this year relative to last year.

And we are basing that on the average FX exchange rate for our core currencies which would be the Euro, the Pound and the Nordic currencies against the U.S. dollar as well as the Canadian and the Australian dollar. We've used in our 2015 assumption, the current spot rate and then degraded that modestly beyond that to come up with this $26 million number. That has about a $9 million impact on EBITDA and $0.13 per fully diluted share.

We believe our tax rate will be between 27% and 29% this year. That's up from a little over 26% last year. Primarily because we expect more of our earnings to be sourced in the U.S.. In large part because of the strength of the media business which is taxed at a full U.S. corporate tax rate, state and federal of approximately 40%.

Our non-GAAP earnings exclude our share-based compensation which is between $9 and $11 million per year pre-tax. And our effective share count is 49.4 million shares. We use the effective share count because, as you know, we pay dividends on both vested and unvested restricted stocks. As a result, we have to bifurcate the net income into two categories and divide the net income available to shareholders by those shares outstanding that do not receive the actual dividend unvested.

We also will have some normal granting this year and as you'll note in our financials, we did an exchange with Ziff Davis at the end of the year to fully convert the series A into common stock of j2 Global. So all of those factors are increasing our share count to 49.4 million shares, although we did authorize an extension of the buy-back program for another year, we have assumed no buy-backs within the context of the 2015 guidance.

Now, slide 19 is that guidance. I think as you've noted in the past, our budget tends to fall right down the middle. Our revenue range for the year is between $690 million and $710 million, so the midpoint is $700 million of revenues. And our non-GAAP EPS is between $3.73 and $3.97 or the midpoint would be $3.85.

And then as you're aware, behind slide 20, our number of exhibits that provide the metrics, I would note that our cancel rate remains for the cloud near all-time lows at 2.1% per month. There is also media metrics and a variety of reconciliation scheduled to the nearest GAAP equivalent for the various non-GAAP measures that we have used in this presentation.

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

Thank you. We will now be conducting a question-and-answer session. (Operator Instructions). One moment while we poll for questions. Thank you. Our first question comes from the line of Shyam Patil with Wedbush. Please proceed.

Hey, guys, great year. Great guidance. Scott, I just wanted to understand on the guidance you provide on the earnings slide. Is that per cloud subscription, the margins or is that for overall cloud services? And if it's for overall then how we should think about the subscription growth margins and EBITDA margins for the year as well as for the IP licensing piece? I know that's small but curious if you could break that out as well.

Sure. So, we thought at work let's break the cloud into its two components so the cloud services subscription segment, that is consistently whether it's the cloud connect piece or the DID base versus the non-DID. Those are at or in excess of 80% gross margin. Not a lot of difference there.

The difference in the cloud services comes between the more mature and larger scaled cloud connect business where the EBITDA margins continue to be 50% and in the, for lack of a better term, the emerging cloud services for us because they're newer to us, at around 40%. Now within that cloud emerging group, there are a range of EBITDA margins but they are aggregating to about 40% both in 2014 and perspectively in 2015.

Now, on the IP licensing side, I do believe as you saw in Q4, we will continue to see investments in this patent portfolio probably for the first three quarters of this year and as a result, on say between $1 million and $2 million of quarterly revenue, there will be lower EBITDA margins and flow through than you've seen historically. The expectation is once that investment is made and we launch the next portfolio, that then as we go into 2016 and 2017, that will reverse itself and we'll start to experience higher revenues in the patent group and higher flow-through back to probably the 85%, 90% EBITDA margin range.

Got it. And have you mentioned in the comments about the 2015 guidance. Assuming some smaller acquisitions. Is that the case? Assuming basically three acquisitions which are expected to close in the next couple of months but nothing much beyond that? Is that correct?

That's correct.

So we took a conservative approach and we said we have healthy pipelines. We have in the pipeline as many deals as before. We had two or three of them that are north of $10 million. One is closer to $20 million. We actually already submitted offers. But because they're not vetted out yet, we didn't visit the targets, we didn't complete our due diligence, we decided not to count them.

Those that we count, these three, are one that is about to close. I would just ask to approve it today. There is another one or two that are very advanced. And those are the only ones that I include. So all of the rest is not. If we do the deals and they will be materially announced. If necessary, we will update the outlook when and if it is due.

I think the other comment on that is that given both our cash balances notwithstanding all of the M&A we did last year and our free cash flow generation, the M&A teams have been motivated to look for larger sized transactions both in the media and on the cloud side that we can really sink our teeth into. So there are a few of them right now that are percolating. Certainly if any one of them becomes actionable, then we're going to divert a major amount of our resources, our human resources to pursuing that given transaction.

So for that reason, that may slow down some of the smaller, talking M&A, probably more on the cloud side then the media side because the media side tends to have their sights on deals that are $10 million or more in revenue anyway. So for them, as you have seen in the last couple of years, for them to do a couple of deals a year is kind of a more normal pace versus in the cloud, you might do 20 to 25 deals in a year.

Got it. Just on the media business, you have done a tremendous job with that business. What would you attribute the 2014 success to -- how much of that was due to the gaming cycle? If you could just back up how much activity was there. How much was due to that? And then when you look at the growth for 2015 at 25%. How much of that is M&A versus organic kind of given the market is growing in the mid-teens range?.

For 2015, there is no M&A in the numbers. All of the numbers you are seeing are just full year in execution and basically increasing the productivity and the size of the businesses.

The big opportunity I think. Well, let me ask you a question for 2014. I think the success in 2014 was -- finally gets totally done but let's say the substantial completion of bringing to bear the Ziff Davis playbook particularly on the IGN asset which we bought in February of 2013. It was a fairly large asset for us to digest at the time.

As you know, there were kind of two phases of working that transaction. Phase one was a right sizing of the cost structure and getting the right properties in place which took about six months. And then beginning in September of 2013, what we thought was the more higher potential, more long term value add piece was to engage additional revenue streams and to get better monetization out of the visits out of IGN which is a process. It doesn't happen in a quarter or two.

So the team has been working that for, in realtime, almost six quarters. I don't think it is completely done but I think it is substantially done. It is no doubt that in 2014 there is some benefit to the game cycle for IGN. But notwithstanding that, we continue to see growth in the IGN business and it is contributory to the overall 2015 expectation of growth. I would say that if I look at the media business, I think the real opportunity in digital media over the last couple of years that we've owned it is to buy an asset that is, for some reason, underperforming from a revenue standpoint. It may or may not have the right cost structure but is underperforming from a revenue standpoint, relative to its visits. And for us to be able to engage better monetization out of that existing traffic.

The real opportunity I think in 2015 and 2016 comes from Ookla. It came right at the end of the year. It is not very contributory at all in 2014 but we see a big opportunity in the further monetization act the better monetization of those visits in the speed tests that are being conducted. For 2015, we're sort of doing the blocking and tackling. We have some bigger picture ideas that may launch toward the end of this year or 2016 for that specific business segment.

Great. And then just my last question. We tend to focus on large M&A. But if you look at 2014, you guys deployed almost $250 million on acquisitions, primarily through small to mid-size acquisitions. When you look out to 2015, given that those deals probably are more visible and not as difficult to close as the larger transactions, do you think that's a reasonable baseline to kind of assume in 2015 kind of barring Carbonite?

I don't think that's unreasonable. The question becomes do we end up spending a big chunk of money in one sort of poster transaction, a couple of medium to large transactions or is it spread over 20 or 25 small to mid-size transactions? But I think from an overall capital allocation standpoint, yes, the idea of being able to put $250 million to $300 million of capital to work, if not more, is absolutely something that we're focused on.

But I always have to caveat it by saying even if that's an affirmative desire, it's never a stated or affirmative goal because I think it is very important, I think we've demonstrated this over the years. It is better to do good deals than just to do a volume of deals or just to spend a certain amount of money. So both of the business units understand the discipline in terms of the financial rate of returns that we're looking for in a perspective deal and we don't have any desire to liberalize or bend that criteria.

You know, if you look at our cloud business, we have the fax and the voice. We have the FuseMail. And so the larger the division like FuseMail, it is a division that is coming close to $50 million. Back-up, $50 million. Those guys can do a $20 million deal and basically absorb it. If you look at Campaigner or Web Hosting, they were looking to deal with a smaller because you need to have a big fish to eat the smaller fish.

I think that we will do deals of smaller size on the web hosting and we are engaged with several of those. And on the Campaigner side. And those I talked about before the $20 million size deals, and up, will come from our largest operations and we have more experience, more people and are more comfortable and more confident. So yes, our pipeline looks the same as it looked like last year. Some deals are bigger, some are smaller. But we just decided for this year not to take the unnecessary stress of having those deals that are not closed, put into our budget at this stage.

Great. Thank you. Congrats on the year again.

Thank you very much.

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

Thanks for taking the question. Just one clarify on the guidance side. So the three deals that are in the guidance are -- none of those are in the media space, is that correct?

Yes. That's correct. All of them are small, you know.

Little tuck ins.

Little tuck ins. None of them -- nothing big.

And then third quarter, you gave us a pretty good idea of what you spent on M&A in the third quarter. Can you give us the same number for the fourth quarter given you had so many deals in the summer timeframe?

We spent $130 million in Q4. From a total cash perspective, we had the dividend which was another $13 million. So total cash out flows was $143 million gross before you take into account the cash that came in.

Okay. Great. And then just from a currency perspective, given some of the international M&A, as you look at your guidance for the full year of $600 million in revenue, how much of that is denominated in U.S. dollars versus outside the U.S.?

$700 million the midpoint. A little over $500 million of that would be U.S. dollar denominated.

$500 of the $700?

Correct. A little bit more than $500 of the total $700 million would be U.S. dollar denominated.

Okay. And then just finally from a competitive standpoint, you're obviously still growing organically in the cloud business a bit. You still sort of have the same targets in terms of organic growth of low to mid-single digits and then the rest of the growth coming from the M&A side.

Well, I really break the cloud into its component pieces. So I think what we're seeing is yes, that low single digit growth in cloud connect, fax and voice globally with, by the way, it takes also a brunt of the FX headwinds because of its size. And then stronger growth, albeit tamped down a little bit because of the FX and what we'll call the emerging cloud. So it is probably low double digits, 10%, 11%. And then the media is in the mid teens in terms of its organic growth. And then the deltas on top of that are M&A.

Okay. Then just finally on the back-up, obviously, you guys put the raised offer up there for Carbonite. Given the size of your back-up business now, it doesn't seem -- I don't think you believe you have it to full-scale yet. What is that going to be in terms of revenue where you really start to recognize the correct margins there?

I think there's two issues there. It is a little bit non-clear because, as Hemi mentioned, it is good news/bad news, we have our $46 million last year of revenue across ten countries. And because of the data privacy laws, there is an inefficiency there versus if that $46 million of revenue were all based in any one country. We would have one office. We would have a greater efficiency across the employee base. We would have greater data center efficiency.

So I actually think it's not bad that that $46 million of revs in ten countries, we can do 40% EBITDA margins. I'm actually very proud of that metric. So I think it is a little more complicated than just saying oh, double the revenues or triple them and 40% goes to 50%. We see a pathway to get to 50 but i think it doesn't matter how much of that incremental revenue falls into say one jurisdiction versus another.

If they came overall 10, you are probably going to see that EBITDA margin inch up more slowly. If it is concentrated in one jurisdiction, it is probably a more rapid reaching to the 50%. But I think it's definitely, it is a triple digit number, it's north of $100 million of total revenues in that business. Assuming we stay within 10 countries and not expand into 15 or 20.

You know, it is kind of tricky but if we slow the growth, we increase the EBITDA. It is not our goal to increase the EBITDA. We would rather increase the growth and keep the EBITDA so that's basically where our head is.

Great. Thank you very much.

You're welcome.

Thank you. Our next question comes from the line of Walter Pritchard with Citi. Please proceed.

Hello Hemi and Scott. It is actually Jim on for Walter.

Hey Jim. How are you?

Good. How are you?

Excellent.

Good quarter. Thanks for the additional color on the guidance as well.

No problem.

I just have a few questions myself.

Sure.

I was looking at the cash flow which seemed to come in a little bit lighter than I think what all of us were expecting. And I think the item there is the DSOs being up a little bit more than usual. What drove that?

Three things actually drove it. That's one piece of it.

Excellent question. We were ready.

You're always ready for my questions, Hemi.

First of all, remember, unlike last year, we had an interest payment on the convert. The current convert did not exist in 2013 so $6 million on a pretax basis was cash interest expense to those convert holders paid in the fourth fiscal quarter of 2014 that didn't exist in 2013. We also had about $7 million more in tax payments. And then you're correct. We had about $10 million more in AR. The vast majority of which comes from the media business which is fairly typical for them. Their DSOs can be 90 to 100 days. They get a big fiscal fourth quarter from a revenue and EBITDA standpoint but the cash doesn't actually come in until Q1.

Why most of our cloud business is prepaid --

It comes in every day.

Yes. It is prepaid for the beginning of the month or the beginning of the term. In the media it's post paid and when the media grows, and especially in Q4, you see what you see.

Great. Thanks. Thanks for that. And then kind of diving into the BCS business here. It seems like it was another strong quarter for ARPU and the cancel rate as well. Was it more LiveDrive than KeepItSafe again this quarter and what drove the cancel rate actually down Q over Q?

Yes. The LiveDrive is driven mostly through retail. We sell our units in the retail environment and they have more -- how to say renovation and more customers renewed their signings in the month of December. And this impacted also the new business that we bring in from the FuseMail line. Most of those businesses are email security, anti-spam, anti-virals. Those businesses usually have much higher loyalty than the average business of j2 Global and also commands of the nature of them a higher ARPU.

It is basically those metrics are driven by the mixed change and some seasonality. But I say most of it is -- the mix is moving toward more business, more -- the customers of (inaudible) and Testudo and all of those customers are -- many of them are very loyal in changing your anti-virus, anti-spam provider. Is unnecessary and hard job to do. So they stay.

I also say that the particularly efax was a positive contributor as it related to the cancel rate. It declined from Q3 to Q4. But I think it is better to look at it over some number of historic quarters the last six, seven, eight quarters. You see it has been pretty consistently between the low of two and say 2.3. Basically two to 2.25 has been the cancel rate for all the cloud services combined. It has, it likely will continue to bounce within that range.

We do believe that is the correct range to use for 2015. It is what we've used in our budget. So we do believe that notwithstanding, there can be different economic little tremors in different parts of the world but in the aggregate for where our revenue is coming from, we think the economies are relatively stable and as a result, the cancel rate should be stable within that range, not only as it has been in 2014 but also perspectively in 2015.

Great, thanks. Then just two quick ones for me to finish up here. E-mail security, you said was four times larger year over year. Is this an area that we can expect back-up to really kind of take off for you guys in terms of investment? And then any color as to what you can provide on the -- I think it was like eight acquisitions in December. Did that -- how much did that contribute to revenue in the quarter?

Okay. I'll try and answer first of all. Of course, FuseMail is growing faster than the Backup because it is a smaller base. Backup in the second year grew from -- I don't remember the exact number but it is four times, three times the nature of the smaller base. So Backup and FuseMail are now on the same size. I believe both have similar opportunities of growth. Both of them are basically i think in 2015 have the same opportunity to grow. And M&A opportunities exist all over. And the other question was --

Other question was how much the eight M&A deals contributed to revenue in Q4.

Very slowly in Q4.

Not that much. They were acquired all in December. We'll check in on a precise number. I think it was probably in the range of $3 million to $4 million at most.

Great. Thanks. That's all for me. Thanks very much, guys.

You're welcome.

All the best.

Thank you. Our next question comes from the line of Daniel Ives with FBR Capital Markets. Please proceed.

Great. Thanks, guys, this is Jim in for Dan Ives. Great quarter. Not bad. Maybe can you guys talk a little around what you see as the opportunity for driving page views on some of your existing properties and what kind of runways that you still have on that?

I think it's a great question. You'll notice in the metrics, actually we've said this before. The last couple of quarters. That our focus is less on page views than on the visits and their monetization. So we have about a $70 monetization per visit in the fourth fiscal quarter. You'll notice the visits were up. Page views were relatively flat. And we're actually debating internally whether page views even are a good metric in terms of looking at the business. It is not, for example, we look at M&A targets, what we're focused on.

We're really focused on the visitor volume and the monetization of it. One of the factors that is making page views less relevant is there are certain areas like the PlayStation and Xbox which don't count as page views. And you'll notice in Hemi's part of the presentation, that area and social media are increasing for us within our Ziff Davis properties but they're not reflected in the page view count.

The other thing is how videos are counted. Particularly in the IGN business, more and more of our traffic and our monetization is coming through videos. We're not ignoring page views totally but they are of secondary importance to us. It will actually be less on page views. So that is where our focus is and will continue to be. So we're focused on driving visits and focused on lengthening the stay of the visit because that gives us additional ways to monetize the visitor.

Okay, great. And then my last question just on IGN. You mentioned we should seek some good growth out of that in 2015 as you kind of implement the Ziff Davis strategy on it. Is that going to be a pretty steady growth or is that going to kind of ramp throughout 2015 into 2016 or how should we think about that?

I think it's going to be steady because it is all about entering new categories, new countries, new spaces, new games, more and more of the games are going online. So it's the industry and the gaming is something that grows rapidly. All you have to do is just supply the demand to keep your leadership. So we believe it is on-going.

Okay. Great. Thanks very much, guys.

All the best.

Thank you. Our next question comes from the line of Greg Burns with Sidoti & Company. Please proceed.

Good afternoon. The media business showed good leverage this year. I was wondering what your thoughts are longer term on what the margin profile of that business could be particularly now that you're projecting over $200 million in revenue this year. Just where do you think this could go going forward?

Well, when we bought the media business and our media guys cringe then and they cringe now. I said at the time that I thought we needed to get the business to scale before we could realize sort of long-term margins and that was at least in the $250 million zip code range of revenues. When we got there, 40% EBITDA margins did not seem unreasonable. There's all kinds of reasons why they get nervous when I say that. And for good reasons.

But if you look at what has exactly gone on, we bought a business that was doing a little under $50 million of revenues in the low 20% EBITDA margin. We've basically added, in the two-year timeframe, $120 million of revenue. And the margin has expanded by a little under 10 percentage points. And the reason for that is that that incremental revenue has flowed through consistently at 50% or better conversion to EBITDA.

So if you look where we are now at 167 and 31 and you look at another $70ish million, $75 million of revenue, under the assumption that the incremental flow through, it can be 50% or better, you'll find that mathematically, we'll be in the high 30s if not 40%. Now, in fairness, the caveat is always the following, that in that media business, there are a wide range of marginal margin contributions.

So in our cloud business, once we're up and running, it is not uncommon that we flow through 40% or 50% or better of the incremental revenue dollars to EBITDA. Irrespective of our starting point. But in the media business, there are different ways of monetization and those marginal monetizations might come in well below a 30% EBITDA margin and they might come in well north of that in the 80% or 90% contribution range.

So what the team has done a good job of doing in the last two years is from both the existing Ziff Davis properties we bought as well as all of the additional M&A, they've been able to focus on average at the higher end of the spectrum of creating incremental revenue streams, such that on average, we're getting 50% or better flow through. Now I have confidence that that will continue with this team and with the properties that they have. But, as I say, there is this wide swath of marginal revenue contribution that is more akin to the media business than it is to the cloud business.

And like I watching the cloud EBITDA growing and watching now the media. And it is improving every quarter and every year. So they're still accelerating in the EBITDA growth. And as Scott said, we're now in the mid to high 30s in the EBITDA. It is still going on strong.

Thanks. On the EBITDA margin for the cloud business this quarter was up pretty nicely sequentially. I guess the guidance is for it to come back down. That might be mostly because of mix. Could you just give a little color on that?

Yes. Two things. First of all, there is the mix shift that we talked about between cloud connect, fax and voice versus the non-cloud connect or the emerging. Also remember, although in the scheme of things it is rather modest, usually the fourth fiscal quarter will be the highest EBITDA margin for the cloud business as a whole and the first fiscal quarter is the lowest. And the primary reason for that is that when we come out of the box in early January, we have all of the new marketing programs across all of our business units on the cloud side and all of the countries that get launched.

So all of the new ideas that have been percolating in the fourth quarter and being worked on get released. What tends to happen is as we march through Q1 and into Q2, we start to see of the things that are new, which ones are really delivering the bang for the buck and which ones are not. So we start to pare back. So we basically have a fully deployed marketing budget in Q1. It tends to get optimized in Q2 and Q3.

And it actually tends to get minimized in Q4 particularly around the holidays where, from I would say Thanksgiving on, other than Search, we do very little cloud-based marketing because we leave that advertising space for those that are coming into play for the holiday season because our services are business services. So the holiday season has no real positive impact on the buy decision.

Okay. Thank you.

You're most welcome.

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

Thank you.

Thank you. Thanks, Hemi. Thank you, everyone for participating in our call today. Look for press releases over the next few weeks. There are a number of conferences that are coming up, particularly in the month of March that we will be participating in. So look for the announcement of those conferences. They begin the first week of March in San Francisco and they carry through pretty much to the end. We're obviously available to take questions either by e-mail or by call. And we look forward to speaking to you again formally in early May when we report Q1 results.

I wanted to also thank all of the employees that are listening. We are now in 14, 15 countries and one of the only ways that everybody gets to listen to Scott and I is through the earnings call. Thank you, everybody. And see you next quarter.

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