Ziff Davis Inc (ZD) 2015 Q4 法說會逐字稿

Greetings and welcome to the j2 Global fourth-quarter and 2015 year-end conference call.

(Operator Instructions)

It is now my pleasure to introduce your host Mr. Scott Turricchi, President of j2 Global. Thank you Mr. Turricchi, you may begin.

Thank you very much. Good afternoon and welcome to j2 Global's investor conference call for the fourth fiscal quarter and full FY15. As the operator just mentioned, I'm Scott Turricchi, President and CFO of j2, and with me today is Hemi Zucker, our Chief Executive Officer.

Simply put Q4 in FY15 provided stellar operating results validating our business strategy of operating in multiple business units, focusing on EBITDA and free cash flow generation, and utilizing M&A to more rapidly build these businesses to scale. Many records were set, which we will detail throughout the presentation.

As a result of this performance our Board has increased the quarterly dividend by $0.01 to $0.325 per share. As a reminder we initiated the dividend in Q3 of 2011. For the succeeding five quarters we raised the dividend by 1/2 penny sequentially.

This was then followed by a quarterly dividend raise of 3/4 of a penny for the next 12 quarters. Including this declared dividend, we will have returned $231 million to our shareholders through this program. We still have on our balance sheet of December 31, $414 million of cash and investments available, not only to fund our dividend program but, as importantly, to fund our M&A.

We will use the presentation as a roadmap 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. Also if you have not received a copy of the press release you can access it through our corporate website at j2global.com. In addition you will be able to access the webcast from the site.

After we complete the presentation we will conduct a Q&A session. At that time the operator will instruct you regarding the procedures for asking a question. However at any time you may email questions to us at investor@j2global.com.

Before we begin the prepared remarks, allow me read the Safe Harbor language. As you know this call and webcast does include forward-looking statements. These 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've disclosed in our various SEC filings including our 10-K filings, recent 10-Q filings, various proxy statements, and 8-K filings as well as additional risk factors that we have included as part of the slide show for this 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 the presentation and go to slide 5. As I mentioned in the opening remarks this was a quarter and a year filled with records. In the fourth fiscal quarter, it was the first time the Company had achieved a quarter in excess of $200 million in revenue, $100 million in EBITDA, and $75 million in free cash flow resulting in adjusted EPS of $1.29 per share.

For the full fiscal year also all records were revenue of $721 million, EBITDA of $333 million, and free cash flow of $223 million resulting in adjusted full-year EPS of $4.17. Our 2015 revenue grew by $120 million, or 20% versus the prior year. Our M&A strategy continued to drive both revenue and margin expansion as we completed 24 acquisitions in 2015 for both Cloud and Media segments spending slightly in excess of $300 million.

Our Business Cloud services had fiscal year revenue up $71 million versus 2014 or 17%, driven largely by our non-Cloud Connect business cloud services that generated $66 million of that $71 million increase, or up 85% versus the prior year.

Media also was a strong contributor with its 2015 revenue up almost $50 million or 29% versus the prior year, acquiring two companies during the process -- Salesify in September and Offers.com right at the end of the year and most importantly expanding EBITDA margin from 32% to 39%.

On slide 6 I'll remind you this is how we present our financial results. Operating in two business segments, we have the Cloud segment and the Digital Media. Cloud segment has two components, Cloud Services, whose revenues were up 18% to $133.8 million contributing a 50% EBITDA margin or $67.3 million of EBITDA. As you recall our patents are owned in a separate entity so we have an IP licensing stream, a little over $1 million of revenue in the quarter, approximately 60% EBITDA margin. Add the two of those together and you get the total Cloud segment which generated slightly less than $135 million of revenue, approximately $68 million of EBITDA, and a 50% EBITDA margin. Digital Media, as I mentioned, had its best quarter ever with almost $70 million of revenue, $32 million of EBITDA, and an EBITDA margin of 46%.

Taking the Cloud and Media and adding them together gives us j2 Global's consolidated results of $204.8 million or a 22.3% growth. EBITDA of $100.1 million, a growth of 30%, and a 49% consolidated EBITDA margin and adjusted non-GAAP earnings of $1.29 per share, up 31.6% versus Q4 of 2014.

At this time I will now turn the presentation over to Hemi, who will give you a lot of detail regarding each of the business units.

Thank you very much, Scott, and good afternoon everybody.

Before I go through the j2 consolidated slide I want just to mention that last December we celebrated 20 years. For those of you who've been around, I've seen this stock growing from $0.23 and up to $80 this December when we were celebrating 20 years. I'm sure that the next 10 years will be much more exciting than the last 10 years as we continue to grow over 20% year over year. And it's a larger Company, we have much more options than we ever had before.

Without further drama let me go to slide 8, where I will talk about our total quarterly revenue mix by service. Q4 2011 to [two] Q4 2015 is demonstrated here with the 25% CAGR. Revenue has increased across our three categories, the category of fax and voice, which was 93% or $79 million in Q4 2011. It is now in Q4 of 2015 $88 million. And became from 93% of our business only 43% and we are anticipating it to, while growing, to become 36% of our next year revenue. Our growth engines as you can see are the Media, that was 10% in 2012 and is now 34%, and the other Cloud that was 7% in 2011 and is now 22%.

Let me go to the next slide where I will talk about our Business Cloud services. Page 10 is my favorite slide, we talk about our ever-increasing churn. It's down for the first quarter to 2.06%. We have now more than ever larger customers with longer contracts, and multi-year contracts, that help us to show and benefit from the lowest churn.

The next page, page 11. Cloud Connect. Cloud Connect is our largest segment, it's $345 million. Mostly as I said before fax and voice. Still is growing, grew 2% on the quarter. This is despite $2 million in foreign currency headwind.

2015 full-year revenue grew by $4.3 million. Could have been $30 million in constant currencies. This is our largest business that has the largest international portion, therefore it's most impacted by Euro, Pound, and other currency. Fax was 42% as I said in 2015, will be 36% in 2016 according to outlook, still growing.

We have done four very small acquisitions the last year. Three in France, which we believe are now -- we are dominanting this market; one in the US. All are small but still are important. We have continued to improve our EBITDA which was already very high to more than 53%.

Revenue is expected to grow by 3% to $365 million. Again with strong headwind in the foreign exchange, [that we] anticipated and baked into the budget. We have acquisition pipeline we believe that those will come more from the voice business, as there are many opportunities there and we're going to continue to sustain very high EBITDA margin.

Next page 12. I will talk about our Cloud Backup. Cloud Backup is among the other what we call non-Cloud Connect portion of the Cloud business. That's where the growth engine in 2015.

Cloud Backup in Q4 grew 52% versus the previous quarter, so from Q3 to Q4 52%, and year over year 102% on a quarterly basis. On a full year, revenue was 74% -- excuse me, $74 million which is 60% growth versus last year. EBITDA at 49% improvement of -- huge improvement of 85% versus prior year. We believe we can continue to improve the EBITDA.

We have acquired this year SugarSync in March and LiveVault in September of 2015. We have successfully launched Cloud2Cloud enterprise grade backup recovery solutions and other various additions to our products and features.

Our 2016 outlook is to grow 50% to $110 million and this is without any significant M&A. EBITDA is expected to grow more than 50%. We have a healthy acquisition pipeline and we can easily deliver another year in 2016 of annual revenue growth that is more than 60% if we'll execute the next few M&A deals that we have in our pipeline.

Next, I will talk about Email Security. Email security had an amazing year 2015. We grew the revenue on an annual basis 162%. The focus on this business is now to improve our EBITDA. This business is probably our lowest EBITDA business in j2, mid-30% and we have very strong plans to move it up to 40% and up.

How are we going to do it? Basically we're going to shift in Sweden and in Denmark our businesses that we acquired, Comendo, Stay Secure, from the old platform to our FuseMail platform, and by doing this we will be significantly decrease our cost structure and have unified platform for all these businesses. Our growth is not based on any potential further M&A. Even though there is a lot to do we did not bake any M&A into our forecast or outlook for 2016.

Next, Email Marketing. Email Marketing revenue on a quarterly basis was up 44% versus last year. And on an annual basis 58%, so now $21 million of revenue. We added features like White Label. We continue to prove our ability to integrate new acquisitions, which is rare in this industry. The main important thing, as you can see, we shifted our customers to a more profitable, sustainable, and professional uses of email representing monthly ARPU that went up from $127 to almost double to $219 per user per month which reflects the sustainability of this business.

Our outlook for 2016 is to grow it 10% year over year mostly organic. EBITDA we continue to improve -- this business has EBITDA higher than 50%. We bought a very small business in Canada in the beginning of the year. There is no -- any significant M&A included in our outlook even though there is lots of potentials out there.

Digital Media, Digital Media on page 16. The Media had an amazing year. Revenue grew 29%. EBITDA grew to 39% which is very impressive and very strong for the digital media industry. There is a lot to say here, I'll try to focus on the main event. Quarterly digital media business demonstrated strong fundamentals. Quarterly revenue of $70 million, 32% versus last quarter, EBITDA $32 million, up 54% -- yes, 54% up on the EBITDA. Our platform, multiple platforms increase of 44% in the visits to a total of 1.1 billion visits per quarter.

With the current trends of the Media business it is very important for us to focus more and more on performance marketing. This is what is sustainable in this environment. Our performance marketing continues to grow and it was up to 37% during the quarter.

IGN, AskMen, PC Magazine were up 40% year over year on performance marketing. Impressive in that execution of the intersection of content and commerce.

We continue to cover more and more businesses -- business software coverage to continue to grow, and now we are reviewing 19 categories including [voice] HR, social media, et cetera, bringing it up to quarterly click rate of 40,000. Ziff Davis acquired an Austin-based company, Offers.com, at the end of 2015. Very important acquisition, no revenue impact in 2015, and yes, nice impact to 2016.

Let's go to next page, 17. We have several key product launches, the [T-1000] in Q4. IGN launched Apple TV. We also launched fully mobile version of PC Magazine and ComputerShopper. We launched IGN in Poland. IGN in the Middle East had several conventions both in Bahrain and Abu Dhabi.

And we continue to expand into Facebook Video with IGN and AskMen and Ookla. Ookla, which is our [speed test] which we acquired in 2014 has been very well integrated and we're very pleased with it. The installs are up 43% to 172 million versus last year and we had the record installation of 15 million this quarter. Very high margins and excellent business.

Moving to slide 18 where I will talk -- continue to talk about Media. Our 2015 results as Scott said, and I'm saying it again because I enjoy it, we are up to $216 million or $49 million, 29% over last year. We've acquired two companies, Salesify in September and Offers in December. EBITDA margins, this is really important here, is greater than 39% versus 32% in the prior year. We're very proud with the team, how they integrate and continue to drive profit.

Our 2016 forecast or outlook is expected to grow 25%. Let me emphasize even though we did acquisitions, and we have pipeline, this does not include any acquisitions.

Our performance marketing that I just said two slides ago, is very important, is planned to grow from 37% of the year to 49% of the year. This is something that's very important versus the trends that are going out there. EBITDA margin consistent with prior year, around 39%.

And now let me -- Scott?

Thank you, Hemi.

If you go to slide 20, I'll give you some of the parameters that generate our 2016 guidance. So, in the Cloud Services business what we are expecting is contribution from both Cloud Connect as well as our non-Cloud Connect services; however, the larger share of growth will come from those other services.

In the Cloud Connect business the goal is to maintain EBITDA margins around the 53% level and then in our non-Cloud Connect businesses to see EBITDA margins around 48% or hopefully a little higher. IP licensing we are budgeting at the current run rate, so that's between $3 million and $4 million per year. I would note this does not include or anticipate any future or additional settlements either from the existing portfolio or a portfolio that is in the early to mid stages of going through its licensing program. I think if those were to happen, though, they would be later in the year.

Media we're expecting to grow greater than 25% this year versus last year. Maintain EBITDA margins in the very high 30s. We are going to be making some investments in the media business particularly in the area of Ookla, and for further benefits in terms of our data monetization strategy, but we're not anticipating any benefit from those investments this year, that would be 2017 and beyond.

I'd also remind you for the Digital Media business it is seasonal as you can see from the Q4 results so the way our revenue lays out over the four fiscal quarters, we are anticipating that the first fiscal quarter that we are in now will generate approximately 20% of its annual revenue and the fourth fiscal quarter will generate approximately 30% with Q2 and Q3 being roughly equal.

Then on a corporate basis, as Hemi has mentioned, we're assuming based upon our core currencies of GBP, euro, aussie dollar, New Zealand dollar, and Japanese yen, that there will be about a $12 million headwind in revenue. That has been taken into account in generating this guidance. So that's been distributed across the various business segments based upon their international revenue streams.

We further assume the capital structure of j2 remains unchanged. Even though there's been some speculation that we may refinance the 8% notes that have their first call date on August 1, 2016 at [$1.04] and that is something we will evaluate. We've not assumed any change to the capital structure or any benefits from refinancing.

We do expect our tax rate to be somewhat higher this year than last year. Our range is 29% to 31%, versus 28.25% for the full fiscal year. The primary reason for this is we are generating more income from our media business, and our backup business now has a much stronger presence in the United States and all that's being taxed on a marginal basis at around 38%.

Our share-based comp will be between $12 million and $14 million. That is excluded, though, from non-GAAP earnings and the effective share count is estimated to be about 49.2 million shares. That would take our reported non-GAAP net income divided by 49.2, that would give you your EPS for a quarter.

I would also note that in terms of M&A there are a few relatively small deals that are currently in the process of being finalized. And so those we have included in the guidance and in our budget for 2016, but then none beyond that. So any M&A that occurs beyond that would be outside of the scope of the budget and would likely shift where we are within the range of guidance all else being equal.

So finally on slide 21, that generates a revenue range for 2016 of between $830 million and $860 million. $845 million is the mid-point, or about 17% growth versus 2015, and adjusted non-GAAP EPS of between $4.70 and $5. $4.85 is the mid-point, also about 17% growth on the bottom line.

And then finally our supplemental information includes a variety of the metrics that you're used to seeing as well as the various reconciliations of our non-GAAP measurements to their nearest GAAP equivalents.

And at this time I would ask the operator to come back and to instruct you for questions.

(Operator Instructions)

Shyam Patil, SIG.

Hi, guys, thanks. Great job on the quarter and the year. Just a few questions. First one, can you talk about how the M&A environment is right now? Obviously the overall market is choppy. Is that what you are seeing in the M&A environment and is that a good or bad thing for you guys? And then I have a follow-up to that.

I would say that the last five years have been the warm-up act. The question and the issue is really the degree with which this market, really the negativity in the market will persist. Right now, you're talking about in real-time about six weeks. I don't think that's sufficient for it to change materially the M&A landscape.

As you know, I think we've been very successful in very robust market conditions of doing M&A that's been very successful and has returned economically very well to the Company and the shareholders. What we're really looking for is whether it's a combination of external risks that might be systemic, economic recessionary concerns, any basket of those things that will cause a more elongated dampening of valuations as evidenced say by where the NASDAQ trades or the Dow or the S&P.

Because it takes a while for it to set in and for people to appreciate particularly in larger situations that this is the new norm. And this is the basis off of which they have to think about selling their company. So I think today it's too early, but it's a good first phase and it's a good opening act for, if this continues, to lead to some very interesting opportunities in the next several months, and opportunities that we would have thought, literally 10, 12 weeks ago, would not work in our economic model.

So three or four years ago we were bidding on companies on our regular purchasing parameters, and somebody would come and make a bid that was so high that we said we're out, we're not even trying to sharpen our pencils. Now, in the last few years it's much shorter, negotiation -- people respect the fact that we can execute, that we don't play games.

We have the cash -- we have $400 million-plus in cash, we have lines if available, and execution is key, and people don't want in this environment to get [earnout] or complex deals. We pay cold cash, and actually we're very excited and we just didn't know how to handicap so we can't do an outlook without it, and as we will do those deals you will hear about it, and I'm expecting a phenomenal year.

Excellent, and just in terms of the pipeline spend, how would you characterize the pipeline for M&A? You guys put to work I think about $300 million last year.

If you look at 2016, would you characterize your pipeline and (inaudible) deals as potentially being able to put that much capital or more to work this year? How would you talk about the pipeline?

I think if you look over the last three or four fiscal years now, we've put anywhere, in each year, between the low-$200 millions and the low-$300 millions to work, probably $250 million is the average of those last four fiscal years. I just did -- I just looked at it the other day, we spent $931 million in M&A from January 1, 2012, to December 31, 2015, in four years, so it's a little under $250 million a year on average, although with a general increase I think from year to year from 2012 through 2015.

I would say our garden-variety pipeline of deals in that four-year time frame, the only deal that was really large in size in terms of transaction value was the initial purchase of Ziff Davis in late 2012 for about $167 million. I think it's become a fairly comfortable number to achieve with what I'll call the garden-variety, day in and day out deals, generally more heavily weighted to Cloud because they have more, both jurisdictions in which they can look, more services, but also they are able and willing to integrate deals that are smaller than what makes sense on the Media side.

So you will notice that the pace of Media deals is generally a couple a year versus 20 or more for the Cloud. So I think, yes, the pipeline is intact to maintain that. I think the wildcard is will, because of these market conditions, intermediate-size deals or even larger deals come into play, which could dramatically change the answer to this question and take the amount of capital deployed up, maybe even a whole step function up.

Got it. And this is my last question, for the Media business you guys are guiding to north of 25% growth this year. I know there is some M&A from the second half of last year that's a net number. Generally we thought of that business is growing kind of in the 15% to 20% range organically. Is that still the right organic range as we prepare to project that beyond 2016, or is the organic growth rate also accelerated?

The Media business is becoming a little bit more complex as we have businesses within businesses, so the answer is I think in general aggregate, no. I would guide to a lower overall organic growth rate; however, having said that we do have pieces of the business that are growing in the high-teens to 20%.

As you do know, there are systemically some headwinds in the display business; issues that have been talked about before either on our calls or in general about viewability of ads, to some lesser extent ad-blocking technologies and things like that. We're taking that into account.

I hope that we are being unduly conservative. And if I looked at Q4, I would say that our budgetary guidance for 2016 is probably more conservative than Q4 would imply. But I think it's a prudent thing to do because I think that the display business, which is a declining percentage of our business as we are focusing more on performance-based marketing and licensing, really the -- I'll call it the data monetization from assets like Speedtest -- are generating a larger and larger share of our revenue. But there is still a piece there that is going to operate at a low growth rate.

Great, thanks guys, and congrats again.

Thanks, Shyam.

James Breen, William Blair.

Thanks for taking the question, just a couple. For the free cash flow, it obviously it seemed like a pretty big quarter here, part of that's probably the margin expansion you saw. Can you just talk about what you think drove the margin so high in the fourth quarter?

And then, on a run rate basis, that free cash flow would be closer to $300 million for 2016, I think there's some seasonality there, but what your general thoughts are in terms of free cash flow growth? Thanks.

Sure. It was an outstanding quarter. I think it was probably -- if you look at our average quarters the last couple of years, I think 50-ish was sort of the high watermark, so this is almost 50% better than that. I would note and I think you could debate when it should be included.

We do have in the $75 million about an $8 million tax refund, so the question is -- it gets booked when it gets booked, or taken when it's taken. You could pro forma it out and say it's $67 million; you could back spread it over previous quarters. I think there's a fair conversation that could be had over that.

So that's one point I would make. The second point is you are correct, we do have, in general now, an aggregate seasonal bias in Q4, primarily because the media business has a much -- you can see between 20% and 30% of its revenues, and that much or more of its EBITDA on a percentage basis comes in Q4 relative to, say, Q1. And as it's becoming a bigger piece of j2's overall business, it's tipping j2 as a whole company towards a positive Q4 seasonality bias.

You recall the Cloud business actually has a negative seasonality in Q4, but it is massively swamped by what's going on with Media, given Media's current size. So you cannot take Q4 and seasonalize either $75 million or annualize or $67 million, that would not be correct. But I think if you look at, say, $215 million as a core number for 2015, and you look at the kind of growth rates top and bottom line.

And I will tell you EBITDA is going to be consistent with that, these are highly correlative, there's always a little bit of an issue in projecting free cash flow in terms of the actual cash taxes you're going to pay, which can be different from your accrual rate, but in general, it should grow in line with the top and bottom line. It should be roughly within that area.

So that would get you to a number that's going to be probably a little bit north of $250 million this year -- $250 million, $255 million. There is one other wrinkle, which is the CapEx, but I don't think we see anything that would cause us in dollars to think that CapEx is going to be materially different in 2016 versus 2015.

We have done our plans, capital asset -- if you need to factor it in, same percentage as last year will be pretty good. No --

I think it may be a little high, actually.

Exactly. And that's added to what Shyam asked, you know, we have the cash, and then we have the cash flow of the year that we are generating, so we are ready to grow.

Great, and then just on the business segments in Cloud. Cloud Backup now, you saw coming out of third quarter with LiveVault's sort of $100 million run rate, where do you get that business to in order to get that EBITDA margin up? I think you talked about the mid- to low-50s, and we're close to that now.

Yes. We have in this business several elements, those that are fully integrated and those are the less, those that are small, those are the large. For instance, we have LiveVault, which is fully integrated, [Eat] has now a business that can take more business into it. LiveVault is the higher-end of -- big companies, they can definitely integrate into this team another $10 million with marginal cost.

Our KeepItSafe continues to grows and it grows, so basically improvements can be done on our KeepItSafe and on our LiveVault. And in the UK, our business, which LiveWire was fully optimized and very profitable, so I think we can definitely grow above [50%]. It depends on the speed of the integration and how many acquisitions we will do. But this business has the potential, if you analyze it, to be in the mid-50s of EBITDA.

Great. Thanks

You're welcome.

Peter Lowry, JMP.

Great, thanks. Can you provide some color around the Ookla investments you are making and the long-term opportunity to monetize Speedtest and what the strategies are there?

Sure, it's something that actually began in 2015, so just to reset everybody, we bought -- Ookla is the entity name, Speedtest is how it's better known, but that allows you to test the speeds of your connection, whether it's on a mobile device, a tablet, a laptop, or anything, desktop. The core of the model when we bought the business [and proved] through 2015 is ads that are being served as a test is being conducted. And the tests can be done on one of those devices or through an app.

So depending upon how you are conducting the test, you will see a different array of advertisements. The first phase was to take the inventory and put it in a more contextual setting. So as you can imagine, if you are testing speed on a mobile device, people like the mobile carriers are very good advertisers to those who are conducting the test. That was not the case prior to our ownership.

So phase one was to enhance the quality and the revenue coming from core display advertising while tests are being conducted. However, when we looked at that deal, we believed that the long-term real benefit and value is going to come from the underlying data that is part of each test. And so there were, prior to our ownership, what I will call ad hoc reporting that was done on a fee basis for those that were interested in the data.

They wanted to know, say here in Los Angeles, during the business week, between 9 and 12, what the various carriers were in terms of their upload and download speeds. That data was available, but internally it had to be assembled and put into an Excel spreadsheet and there would be a fee for that.

Our team decided that for a whole variety of reasons, in terms of ease of service and use, better experience, but also better ability to monetize, this really needed to move to a more formal program where those third parties could have direct access to the data, and in order to do that, they would pay us some form of a fee, quarterly fee, annual fee, et cetera. So in 2015, we began the work that released in late Q4 -- during Q4, the, I'll call it, 1.0 of the portal, and that allows a user to come in, have access to data, and basically create their own reports.

That initial phase -- that initial testing has been very successful, and we do have more revenue in 2015 coming from that piece than occurred in 2014 prior to our ownership. We believe that will be an increasing percentage of Ookla's revenue as we look out to 2016 and beyond. So as a result of that, we're going to put more investment into, what I will call, the overall portal concept, and then leverage that in terms of further monetization. But the investments will come this year, with the anticipation that the upside comes in 2017 and beyond.

The other area we are making investments in, in Media, is in sort of the over-the-top situations, like a Snapchat, or as Hemi referred to Facebook, some of these third-party platforms, which are creating proprietary -- where we have the opportunity to create proprietary content or channels within those environments for additional monetization. And there's work that has to be done with each of those third-party network platforms.

So you'll recall, I think it was September of last year, we announced that our first foray was with Snapchat. That's been very successful. We looked at the traffic that it was generating, certainly during Q4, and that has encouraged us to pursue this as an additional avenue of revenue monetization.

Let me just add something. As you know, the carriers that provide Internet, either via antennas or with cable or Wi-Fi, whatever, they have massive investment in capital, and they really want to know where is the perfect place for them to invest. They can today measure the signal strength, the antenna level, the socket level of the cable, whatever, but they can never test it at the end device of the user at the time that he uses it, in the room that he uses it, under the weather, and everything.

We are providing them this amazing data that is very important for them, and they are willing to pay for it, and we are unique there. So all those are getting us excited about Speedtest and Ookla.

The only thing I'd add is it reinforces itself, Hemi mentioned it, that there's 172 million downloads or potential users, and I think more importantly than the base is the 15 million approximately that were added in Q4 alone. So it's a building base of testers, if you will, which means an increasing base of data.

Great, thank you.

You're welcome.

Walter Pritchard, Citi.

Hey, thanks. Scott, I'm wondering just on ARPU, you saw nice improvement there, your backup business is doing well, I'm wondering if you could just give us a little bit -- another level of detail there as to the drivers within -- of ARPU specifically, and around backup?

Sure, so I think you were referring on the metric slide that we posted $14.79 of average monthly revenue per customer, up from $14.23 in Q4 of 2014, and up sequentially from $14.06 in Q3 of 2015?

Yes.

The comments I would make on that is there's been a general upward trend over the last eight or nine quarters, not perfectly quarter-to-quarter sequentially, but what we are seeing, and I think this is true really across the board in the Cloud business, is a somewhat larger than historic average customer, who is paying us more per, either seat, if it's measured that way, or more per account or per customer.

And certainly, with the LiveVault acquisition within the backup space, we're getting a somewhat larger customer with a higher ARPU, even though in the Cloud Connect business, the real thrust of that business has been the corporate fax. And so we are getting these larger customers to come in. Those are the key core drivers in terms of the rise in ARPU either sequentially or year over year.

Great. And then, Scott just on the -- or Hemi, on the macro side, the stock markets are obviously telling us that potentially things could get more challenging here, and I'm wondering, given what you are seeing, I think we understand the BCS business better.

But on the Media side, with the performance marketing, I think display is tougher, can you help us understand what you are looking at to gauge how those businesses are faring on the leading basis, and what would you tell us there if we are trying to do the same?

Absolutely, we believe that in that market a certain marketing budget will diminish but those that will stay are those that have a guaranteed result behind them. Offers, for instance, is a company that's basing itself on ability to deliver the best price to the shopper.

So we are investing more and more into products that are performance based, which we always in any economy, if you are telling me what is my given cost to get the customer, I can calculate it and just -- as I tell my marketing [team] you have an endless amount of marketing money if you can bring the customer for one, two, three months of revenue.

Those, in my opinion, are going to continue to be the winners, and those with the lofty promises of 1 million banners or things like this are going through a harder time. So I think the performance marketing is the best thing after Google for people that want to advertise and measure by the click and by the moment. So actually that economy in my opinion here is definitely important and good for our EBITDA because those inventories are homemade.

We don't have to go and buy it. It's all within the current cost structure, already baked in. All you have to do is sell it. So for us -- j2 from an M&A standpoint and from media acquisitioning versus the market will do very good in a stressed environment or economy.

Thank you.

You're welcome.

Greg Burns, Sidoti.

Good afternoon. I think in the fourth quarter you did your first follow-up acquisition in the web hosting market, and I know that's not a huge business for you now, but it seems to be similar to the game plan you followed to build your Online Backup business, so I'm just wondering if you can give us an update on (multiple speakers) on that market?

Sure. I think you heard us talk about for several quarters after we bought Web24 that we've been attempting to do a small follow-on acquisition consistent with what we did after we bought KeepItSafe, and for that matter, when we got Campaigner out of Protus. And it took a little longer than we would have liked, but the idea is to do a small transaction that is financially inconsequential, so it's very tiny in terms of its revenue.

Recall that Web24 itself is only about $5 million of revenue, so it's not very big. But that transaction closed and is important in that it allows us the opportunity to go through, as we do in each new business segment or business unit, what are the real stress points or issues in integration? Because for our model, the way our model works, there's a lot of key variables, but one of them is what is a fair expectation for the time of integration?

If it's 30 days versus a year, that may very well influence what you're willing to pay for the business and your ultimate return on invested capital. So having the Web24 business under our ownership for about a year, a little over a year, we're able to finally acquire an asset. It is in the process of being integrated as we speak. In fact, likely by the end of this fiscal quarter, if not early Q2, it should be integrated.

And then we will take a step back, look at what the issues and challenges were if any, and that will then be an influencer in terms of how we look at that business going forward, meaning does it change the way we value the businesses? Does it cause us to maybe operate within one region versus multiple regions? All those things will sort of fall out from our analysis.

Greg, you know j2 is very opportunistic, and we saw opportunity in, we call it ANZ, Australia and New Zealand. We have there -- we've been there for a long time with the fax and the voice. We have some backup, Ziff Davis, we also have advertising people.

So we said look, we have offices, we have talent, we have a CFO, we have all the structures there, we have very strong management. And this was a place where we could add another product and service without adding a lot of infrastructure and actually driving the EBITDA up. So we're still going to continue in this region to push more backup fax and voice and other j2 products when they make sense. It is a remote area.

The good news is there's not a lot of competition of American companies trying to compete against us. The Australian dollar and the New Zealand dollar are very weak. We're going to be opportunistic there, and we feel very comfortable because we have very good and strong management infrastructure, offices, and everything that we need [to act] in the region.

At the end of the day, the region is not very big so we have to try a different style of business management, and we [mimic] there basically what we have in the headquarters, and we're waiting for opportunities there, including in web hosting, but they all have to make sense. I hope I answered you, Greg.

Yes, thank you.

You're welcome.

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

Okay, thank you. We appreciate you participating today in our year-end conference call. I would ask you to look for upcoming press releases that will announce various conferences that we will be presenting at particularly in the month of March, and we look forward then to talking to you again for our Q1 results in early May. Thank you.

Thank you, goodbye.

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