Ziff Davis Inc (ZD) 2016 Q2 法說會逐字稿

Greetings. And welcome to the j2 Global second quarter 2016 earnings conference call. (Operator Instructions).

It is now my pleasure to introduce your host, Mr. Scott Turicchi, President and CFO of j2 Global. Thank you, sir. You may begin.

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

Q2 of 2016 was another outstanding quarter, with continued expansion in our EBITDA margins in both our Cloud and Media segments, resulting in our consolidated EBITDA margins for j2 increasing to 46%. As a result, our board has increased the quarterly dividend by one penny, to $0.345 per share.

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

After completing the formal presentation, we'll conduct a Q&A session. The operator will instruct you at that time regarding the procedures for asking a question. However, you may at any time email us questions at investor@j2global.com.

Before beginning our prepared remarks, I'll read the Safe Harbor language. As you know, this call and the webcast does provide forward-looking information. Such statements involve risks and uncertainties that could cause actual results to differ materially from the anticipated results.

Some of those risks and uncertainties include, but are not limited to, the risk factors that we have disclosed in our various SEC filings, including our 10-K filings, recent 10-Q filings, various proxy statements, 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'd now turn to slide 5, I'll summarize the financial results for the second fiscal quarter. It was a record revenue quarter of $212 million, up 20% versus Q2 of 2015. Importantly, EBITDA was $97.5 million, up 22.5% versus the second quarter of 2015.

During this quarter, as previously announced, we concluded small six M&A transactions, five of which were in the Cloud business and one in the Media business. To give you a little bit more color on the Cloud segment -- its revenues were $142.5 million or up 14% versus the second quarter of 2015. And its EBITDA was up $12 million or 19% versus Q2 of 2015. More specifically, our Cloud Connect, which is our fax and voice business, grew revenue $4 million or 4%; and our Cloud Services revenue grew $14 million or 40%; in each case versus the prior year.

The EBITDA margins were up to 53% versus 51% in the prior year for the Cloud segment as a whole. Our cancel rate was in line at 2.2% with the prior quarter. However, our ARPU reached a high since early 2008 at $15.26 per unit.

The Digital Media segment also had an outstanding quarter, with revenue just under $70 million, growing it by $18.5 million or 36% versus Q2 of 2015, and EBITDA growing by $7 million or 37% and having margin expansions of 37.4% for the quarter versus 37.1% for Q2 of 2015.

Before turning the call over to Hemi for greater detail, I would ask you to turn to slide 7 and just remind you that this is the presentation that we rolled out last quarter, which breaks the Cloud business into three component parts.

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

The Cloud Services, which include our Backup business, our Email Security, Email Marketing and hosting business, had $48.5 million of revenues in the quarter, almost $23 million of EBITDA, and an EBITDA margin of 47%. As we have said before, as these businesses both individually and in the aggregate scale, we expect them to reach 50% EBITDA margins; we are now closing in on that. And then, finally, the IP Licensing, which was relatively flat, at $1.1 million in revenue in Q2 of 2016, and a 68% EBITDA margin or $741,000.

The three of those added together gives you the total Cloud business of $142.5 million of revs, $75.3 million of EBITDA. And then, that all nets down to $1.21 for j2 Global Consolidated in non-GAAP earnings, $0.69 in GAAP earnings.

At this time, I'll turn the presentation over to Hemi to take you through both the Cloud business in greater detail as well as the Media.

Thank you, Scott, and good afternoon, everybody.

Our second quarter were extremely strong, and we broke many records. Let me take you to page 9, when I talk about the second quarter Cloud Connect highlights.

Our second quarter revenue was $93 million, 4% up versus Q2 2015, on annual run rate of $375 million. Of that, the fax revenue was $77 million, 1% up versus last year, led mostly by the premium brands in corporate stocks. Our fax revenue represents 36% of our consolidated Q2 revenue, and it is 44% of our EBITDA. The fax revenue was last year 38%. As I used to say before, the fax revenue still continues to grow, [albeit] become smaller percentage of our total business.

Our subscriber base to Cloud Connect was $2.4 million DIDs, 2% up versus last year and 4% annual CAGR for the [last] -- since 2011.

On the product side -- eFax corporate product enhancement -- we launched localized version of the French and German market, with ability to expand into other non-English-speaking markets. This is very important, as up to now, our corporate product was mostly launched and served in the English-speaking markets. And now, we developed those tools to go into the French and German market. In other development -- we have launch a new UI for administer and end user on the fax.

We've also acquired this quarter a company called MaxEmail. This acquisition needs an explanation. Back in 2000, when we were JFAX and they were eFax, we acquired this company, eFax, that actually was outsourcing its faxing system into a company called IGC. IGC, in the process of selling eFax to JFAX at the time, bought shares that converted to JCOM shares that they were holding up to July.

In July, we met the company, and we acquired both the operating business, which is MaxEmail; [and] acquired within the Company were 935,000 shares of j2 or JCOM, which we acquired for a 20% discount to the market. So basically now, we have retired 975,000 shares and also grew our fax business by the acquisition of MaxEmail, which is like 1% more on the Cloud Connect business.

We go to the next page, page number 10, when I will talk about our Cloud Backup highlights. Revenue was $29 million, 77% up versus last year and 6% up versus last quarter. EBITDA of $15.5 million, 125%, versus Q2 2015. EBITDA margin increased to 53% versus 32% in Q2 2015. So we're very excited about it as we scale up with the margins and the EBITDA on the Backup.

We've also acquired early in the same quarter a company called Frontsafe. Frontsafe is a Denmark company which is now becoming part of the KeepItSafe business, which helps us to grow into the Scandinavia market.

We continue to grow our Backup business. We have completed the addition of three smaller acquisition in Q2, altogether eight acquisitions year to date in 2016, with a still-healthy acquisition pipeline for Backup business.

Next page, page 11, when I'll talk about the email highlights -- Email Security -- Email Security Q2 revenue was $12 million, which is 2% up versus last year. The EBITDA grew up $4 million, which is 9% versus last year. The story here is that the revenue is up 2%, that EBITDA is up 9%. The focus of our Email Security business is integration and migration. We want to improve EBITDA to 40%-plus, and we are very close.

Email Marketing -- Q2 of 2012 [sic -- see investor presentation], revenue was $6.3 million, which is up 16% versus last year. Revenue run rate is $30 million, 36% versus last year. We also won an award -- Campaigner Named Best Email Marketing Service by CrowdRevenue.com [sic -- see investor presentation].

Also, we acquired a company called SMTP.com, a company which we were in talks for three or four years, and we just accomplished it. We bought a major platform in the pure SMTP relay space to pair with our email marketing service. SMTP stands for simple mail transfer protocol. Basically, if you want to send large quantities of emails, which we do and many other do, then you want to improve the delivery, and you want to be able to push high volume and high -- it coming from a trusted source, trusted IP. Instead of using yours, you come to SMTP, and SMTP provides you the service, which increases the chances of emails not being blocked, because you show up as a trusted source.

So this system gives us high and scalable platform. And it further increases our EBITDA margins versus prior year.

Now, I'd like to talk about the Media, when we go to page 13. The Digital Media business is very strong quarter, with revenue growing by 36%, to $69 million; and EBITDA growing by 37%, to $26 million. Q2 revenue benefitted from the timing of several significant licensing and business development agreement.

On the traffic side -- total multiplatform visits increased by 25%. Performance marketing, which includes our CPC, CPA and CPL businesses, grew 101% for the quarter and is now 47% of the total revenue. As you know, performance marketing has emerged as the fastest-growing and most important revenue stream in Digital Media.

Offers.com added 1,700 new merchants to its platform, bringing its total number of merchants to 12,000. Offers.com also launched CreditCardsOffers.com, a consumer finance site helping individuals select and apply for over 100 different credit cards. We find the credit card space is very lucrative.

Ookla -- Ookla had one of its strongest quarter. Our Ookla app had 19 million new installs, up 68% year over year, bringing up now the installs, total devices, to almost 200 million devices. For Ookla, we have 100 clients that buy our Ookla data. They are mostly high-speeds mobile carriers, including all major US carriers. But still, we have hundreds, if not thousands, more prospective clients. The Speedtest database is very unique and variable asset for us to monetize.

Next, to page 11 -- IGN future as a video-first brand is very bright. Both consumers and advertisers are flocking to video content across the digital landscape. In fact, our video business is almost as big is our display business at IGN.

The total video views across the IGN platform grew 84%, to $843 million. Part of that growth comes from our YouTube channel, which now has 8.9 million subscribers. IGN Snapchat channel grew 93% in daily unique visitors. IGN also produced a standalone special edition about virtual reality, which reached 11 million users in a day on Snapchat.

The E3 Gaming Expo is major annual event for IGN. This year was very strong, with 65 million multiplatform visitors and 550 social media impressions.

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

Finally, we launched with partners two more versions of IGN in Japan to digitally poll the market for us, and in Pakistan. We also launched a Latin America version of PC Magazine.

Now, let me pass the call to Scott for an update on the Gawker Media Group.

Thank you, Hemi.

Before we turn it over to questions and talk about our financial guidance, I just want to give you a brief update. As you know from the fact that this is all public, on July the 7th, the bankruptcy court approved our bid of $90 to be the stalking horse bid for Gawker Media Group, which consists of seven separate websites and properties across the tech, gaming and lifestyle spaces.

It has been reported that 15 companies are currently performing diligence. That's not necessarily an indicator, though, of how many, if any, of those will bid. However, on August the 15th, we will know if there are any over-bidders. To the extent there are, then an auction will be conducted on August the 16th. And the current plan is the court would choose the successful bidder on August the 18th.

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

Two other comments before we go to guidance -- free cash flow for the quarter was $63.5 million -- I think, more importantly, $124 million for the six months versus $98.5 million in the first six months of 2015, up 26%. And we ended the quarter with $407.2 million of cash and investment balances after deploying about $50 million in the quarter for acquisitions, interest and dividends.

Then finally, on slide 16, as is our custom, we are reaffirming our guidance. Even though it is clear from both the first and second quarter results that we are trending above the midpoint of the range, it is our policy that unless and until we violate definitively one of the ends of the range, we do not change that range. So as a result, we reconfirm our annual revenue guidance of between $830 million to $860 million and our adjusted non-GAAP EPS of between $4.70 and $5 per share.

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

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

(Operator Instructions) Shyam Patil; SIG.

Congrats on the quarter. I had a few questions.

The first one, Hemi -- you guys have done a great job of scaling the Cloud Backup business. Can you just talk about how big you want this business to be, or how big this business can be in the next few years; if you're able to execute the plan, and just kind of what the margin profiles would look there?

So yes, the business can be huge. And it's really about who will we acquire and how fast.

As you can see, it's not a secret to us that were trying to acquire large public competitor, which we didn't. Had we done that, it would more than double or triple. There are some other players who are very ambitious about the space. We keep on discovering very interesting players in the space.

I believe -- and you know, prediction was given to fools, but I will try to say that I believe that we can grow it at least $40 million, $50 million run rate this year based on deals that we are seeing. But discipline is key for us. We have very big pipeline, and we extended our appetite into so many places and areas of the space. So I believe it will continue to grow. And I would not be surprised that in two years it will be larger than the Cloud Connect.

Okay, great.

Scott, the acquisitions that you guys completed in the second quarter, could you give us a sense as to what kind of annual revenue run rate you expect from those, and EBITDA, once they're fully synergized? And as you look at your M&A pipeline for the back half of the year -- I know it's always hard to guide to M&A, but would you expect the second-half kind of pace and cadence to be similar to the first half, if you're able to execute the plan?

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

The five on the Cloud -- we spent, by the way, on the aggregate about $26 million on the acquisitions of the $49.5 million of cash spend in Q2 on the M&A. So as you know, kind of our rules of thumb, you can infer there's about $10 million of annualized revenue there. Since really that's all coming out of the Cloud side of the business, each of those assets upon integration should be at, or maybe in some cases slightly in excess, of the 50% EBITDA margin. So when we look to 2017, we'll get maybe about $10 million of revs out of those businesses on a full-year basis and about $5 million, maybe a little over $5 million, of EBITDA.

In terms of the pipeline, I would say -- my comment on the pipeline would be this. And we've talked about this over a number of quarters. As we have grown as a company, and I think as we become more visible, and our appetite for acquisitions is better known, two things are going on. One is we maintain a pipeline of the small deals such as were done in Q2 and, to some extent, what you've already seen in Q3.

But we're also becoming active in what I'll call midsize deals. It's generally not the case that we're pursuing what the street would consider large transactions. But more and more, we're seeing deals that have $15 million to $50 million -- in some cases up to $100 million -- of revenue.

Now, that's almost a new pipeline that has been building for -- we have been building over the last few quarters. I would say that the probability of closing those deals will be lower than closing the smaller deals, because in some cases they may be contested. And valuation very well could be an issue.

But I actually believe -- and I polled our own M&A teams -- I think that's really the next wave for us at j2, is there are numerous of those assets that are out there, particularly on the Cloud side of the business. Some of them, I would argue, are stuck. They're in that range of revenue, they're not exhibiting very strong growth, for a whole variety of reasons. Their EBITDA margin profile is not what it could be, say, in our hands.

And so there's a big focus in that area, and we're building that pipeline. And I think that it may not bear a whole lot of fruit between now and the end of the year. We might get lucky, we might get one of -- two of those deals done. But the real goal is to build that to be a significant pipeline for 2017.

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

No, it's a range. And the range -- it's really an IRR-driven concept. So when we talk about multiples of EBITDA or multiples of revenue, those are literally rules of thumb guideposts that oftentimes are helpful. But they're not determinative in any given situation. So I think if you use those rule of thumbs, and you said well, they generally pay between two and three times revs, yes, some of those midsize deals might be at the midpoint or even towards the higher end of that range. Or we're in a four- to five-times EBITDA range, it'll be at the higher end of that range.

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

Great.

And then, just my last question -- in terms of private market valuation, what are you guys seeing in terms of expectation kind of now versus six to 12 months ago?

It's all over the map. I think a lot of little stuff is not influenced positively or negatively by market conditions. There are oftentimes factors that cause those assets to trade that don't have to do with valuations or comparable type multiples. I would say as we move into this category of midsize, that tends to become more of an influencer, it's not absolute. There are assets that come out of EC firms that maybe are winding down a fund that have a different motivation than pure maximization of value.

But I would say that it becomes an influencer. So it ebbs and flows. Clearly, you see it, we see it, [Dow's] at near or at record territory. That's generally not a positive.

And then, of course, as you move one step beyond that into the large deals, it's very much of an influencer.

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

Just heard today about -- actually, today and yesterday, we heard from two entrepreneurs that sold out these companies 10 and 15 years ago, and now another company they want to sell to us. So basically, our rolodex of M&A helps us. And sometimes the prices that we see are very attractive, because we do know the business, we don't know the people, we can promise them a fast transaction and reliable transaction without (inaudible).

So I think that the market is actually looking more favorable to us. Because we are considered a solid buyer with a very strong reputation. So I'm very optimistic.

Great. Thank you, guys.

Welcome.

Thank you.

Walter Pritchard, Citigroup.

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

Yes. So we have bought a company called Web24 in Australia, which is web hosting. We have not done other deals so far. We are seeing deals. In this space is a whole variety of businesses. Some of them are attractive; some are less attractive. The most attractive is the virtual shared servers, [where] the perceived value of what you're selling to the customer is very high, and you can make higher margins. Some of them are less.

We have not decided yet. But I'd say that if you look in our plans, it's still not a major contributor to our planned growth. We're still the wait-to-see kind of level.

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

Yes. In the US market, acquiring those assets, the prices are not attractive to us. Also, one thing that is probably clear to the analysts but less clear to the public -- those business require very, very heavy fix assets investment. And j2, that is cash-focused, is less attracted to those infrastructure type of businesses of hosting.

On the side of the main hosting, the space is strongly commoditized, there's a lot of switch-and-bait type of offers. We are not interested in being a player there.

Hope I answered you, Walter.

Yes, you did.

And then, I guess on the sub number overall, it was up -- on the BCF side, it was up marginally over Q1. Could you talk about kind of puts and takes there? Were there businesses that grew the subscriber base faster and some that were more headwinds in terms of getting to that number that was somewhat flat on a sequential basis?

Yes, I want to -- oh, you want to talk about the cleanup in --

Yes. So on the businesses, we have on the Backup some businesses like -- they have resellers, like Elitedrive in the UK. And there are other places -- after we acquired the business and felt comfortable, we went through some of the resellers, and we found out that it's very hard to make profit with them. Because they use too much storage, and they don't pay us enough. We pushed them to a price increase. The net effect was that we got more revenue, more profit. But we lost some customers [that you] didn't hear about, because they were not paying enough. So this is what you're seeing.

As you can see also, the ARPU went up. And this was one of the things that impacted. We just basic cleaned up some.

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

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

Yes, it's about 10% of the total revenue. Obviously, the revenue grew in the quarter. So it's keeping pace. It's about $7 million of revenue paid from licensing. The whole variety of licensing -- I think Hemi --

Right.

-- about it in his part. He talked a lot about Ookla and the 100 new customers that have signed up for access to the data. But it also does include the licensing of the intellectual property in foreign jurisdictions as well as the awards.

Yes, with Ookla, when we divide a state or a country or a city to more smaller regions, it is actually more valuable data for the carriers. Because they're focus on the two-mile-by-two-mile parameter, sometimes even smaller if it's a big city like New York. So when you divide the data, you [give] data that talks to more precise zones and regions, you basically create more licensing revenue. And on the other side, you provide more value to the buyers. So these type of licensing deals are happening all the time.

Great. Thank you very much.

You're welcome. Thank you, Walter.

James Breen, William Blair. Please go ahead.

Thanks for taking the question.

If you look at sort of the M&A track so far this year, I think you've underspent what you have in years past. Is this sort of tied into the fact that you have the stalking horse bid out there for Gawker? And a couple weeks, if you were not to get that asset, would we see a significant ramp-up in the back half on M&A?

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

As to the first question, Jim -- no. I would agree that the number of deals is actually roughly on-pace with prior years. The amount of spend -- that, I'd say, $75 million -- is less. Gawker has nothing to do with that. I think as you know, Gawker was something that really materialized in the June timeframe, May-June timeframe. And so, obviously, there's been a lot of activity even before Gawker was a possibility. And as you can see, we've got more than ample cash balances to fund that transaction and still do much more.

And if we do not win Gawker, the answer is also no. I mean, there's going to be a push to do M&A. I would say that if we win Gawker, there might be some things on the media side that we would like to defer. Because we're going to spend the time to absorb the Gawker properties. So that might change somewhat on the margin, but certainly has no effect on the Cloud business or no effect on j2's general appetite for M&A.

As to your second question -- I think that all of the other Cloud Services remain under-scaled. However, the one that's closest to scale is the Backup business. It did tip over 50% EBITDA margins this quarter, which is one of the factors we use in terms of determining scale. But it's not solely determinative. But it is clearly marching in that direction of being a full-scale business unit that could be standalone. That's really more of the internal definition. And we expect that when those businesses meet that criteria, as a result of it, they should be at 50% or better EBITDA margins.

So the Backup is the closest, I think, as Hemi mentioned. Depending upon the pace of M&A over the next six to 12 months, it probably reaches its scale. Not necessarily its full potential, but its scale.

The other units, though, remain small -- the Email Security, the Email Marketing, and the web hosting. Web hosting really is very, very tiny; it's about $5 million to $6 million of revs. The Email Marketing is about $30 million, and the Email business is right around a little over $50 million. So each of those three business units, to varying degrees, have to increase from a pure revenue standpoint fairly dramatically to hit scale.

I'll try to answer you, too, James.

There are two elements, revenue and EBITDA. So from a revenue standpoint, the Cloud Connect is growing slow. We have potential in voice, both in the US and internationally, but a slow grower. EBITDA is very high, mid-50s to 60s.

On the Backup, we just reach over 50% EBITDA. I believe that we can improve the cash flow there. As we scale, we have better ways of reducing cost on our [colo storage]. And also, we keep on introducing services that are very highly valued. But we don't really represent, beyond the initial investment cost, those services like disaster recovery. And as you know now, more companies are dealing with -- they're being compromised by hackers that lock their data and they want ransom, ransomware. So this service is now something that we can provide. If basically somebody invades your data and locks it with -- encrypts it, you can go to us and say -- I would like to go back to my last pickup, which was, let's say, two days ago, before they invaded me. And you can basically recover [to] companies.

The server doesn't necessarily cost us more. It's just more sophistication. So with this sophistication, and with these services at a very highly value, the price is not an issue there. And it's unlike what you call stupid pickup -- smart pickup. I do believe that we can continue to increase the EBITDA there, too.

On the Email Security, we're at a 40% level kind of. I believe that we can go up to 50% once we continue to integrate all our customer to single platforms (inaudible) platform. And we are making progress there.

Email Marketing revenue, EBITDA continues to grow. It's a small business, $30 million. We see a lot of acquisition. Much less competition there, because the integration there is engineering challenge that we absolutely like and can do. And the EBITDA there is very high.

So I hope I answered you all about the Cloud and the ability to scale. And same with Media. So I believe that with the Cloud Connect being a slow-grower, all the rest have big potential to continue to grow in the next five to 10 years.

Great, thanks.

You're welcome.

Rishi Jaluria; JMP Securities.

Thanks for taking my questions, and congrats on a solid quarter.

Just a couple quick ones for you. On the Email Security side, if I'm not mistaken, I think we saw a little bit of slowdown of growth here relative to Q1. Was this just a function on the acquisition side, or were there other dynamics contributing here?

So excellent question, Rishi.

First of all, this revenue is more than half outside the US. So it doesn't impact inside Denmark and Norway and those countries. So there's some FX impact.

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

So we don't care so much about the revenue there. This group is focus about integration. But every time we integrate a customer, we are saving $0.20 to $0.25 per email box per month. And that's the focus. The focus there is EBITDA. And some customers refuse to migrate or have some specific. So the revenue growth is lower, but the EBITDA growth is really fast.

Okay, great.

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

That's a piece of it, but it's not limited to the videos. So we talked about over the last year, we've got a couple things going on. You've got a couple of additional properties that were added year over year. So if you recall, Offers.com was acquired in late 2015, actually 12/31. So we have the visits and the page views from that in Q2 of 2016, which we don't have in Q2 of 2015. So that's probably one of the more important contributors to that delta, as well as what's going on just in the overall core business, including the video views.

Okay. And within the video side, I mean, looks like we've seen some pretty impressive growth on views and subscribers, with IGN. I guess, how should we think about the monetization side of these? How successful have you been on converting that to revenue and to EBITDA? And what's kind of the pathway going out from here?

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

And also a big shift to mobile, which is very important.

So we've seen it have an increasing share, while at the same time the total revenues of Ziff Davis are growing.

So I think that the answer to your question is yes, there's very good conversion of those video views into actual not only monetization of revenue, but it's also aiding on the EBITDA contribution.

Got it, all right. Well (multiple speakers) -- sorry, go --

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

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

No problem.

Thank you.

Jon Tanwanteng, CJS Securities.

Very nice quarter, and thank you for taking my questions.

Can you maybe start with the potential synergy opportunities with Gawker, if you do win that bid? And where do you think the bidding gets silly from a dilution standpoint, given the numerous people out there that may be bidding on it?

Second one I'm not going to comment on. I don't know.

The first one, though, is -- there are seven properties. And so the two tech properties, Gizmodo and LifeHacker, fit very well into our tech vertical, where we have a number of different websites catering to different audiences.

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

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

So we would integrate these individual properties into our core verticals. We think that there are opportunities to both improve the top-line performance as well as the bottom-line. But I'm not going to get any more specific than that at this time.

Okay, great. And you have the opportunity to refinance some of your debt later this year. How does that fit into your current M&A strategy, especially considering some of the large opportunities you're talking about, compared to your longer-term capital structure and leverage goals?

Sure. So the 8% notes actually became callable as of August 1 of this month, so a couple of days ago, at [104]. So that's -- if we wanted to get rid of them, that's $260 million. I think as you know -- and there's obviously many different ways to either finance or refinance, but if we stayed within the high-yield markets, I would say they've had a somewhat volatile year, start off very poorly. Although in the last six weeks or so, that market's caught fire post-Brexit. And I feel pretty good that if we were to refinance in the current market environment, we clearly could lower our cost of capital from the current 8% on those notes, probably in or around the 6% range.

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

So when we look at our total needs, we look at the [407] [bolded] and aggregate number. But then we also look at the split between the US portion and the foreign portion. I think right now it's around [240] US and [160] overseas as of June 30th.

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

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

Great, thanks, that's helpful.

(Operator Instructions) Greg Burns, Sidoti.

Most everything's been covered. I just had a little housekeeping, in terms of the disclosures. It doesn't look like you gave the segment detail with the kind of return metrics in this quarter. Is that something you plan on giving again in the future? Or maybe like once annually? Or how would you update on that (multiple speakers) --

Yes, we're going to do that at least annually. Obviously, this breaking down of the Cloud business into component pieces you see in the front part of the presentation. So from an operating basis, that is the way we will continue to report. And over time, there'll actually be even probably a further fracturing of what are called Cloud Services as these business units grow up. So I think the next one to break out would be the Backup business. At least, that'd be the current trend. And then, whatever is still small would be in just Cloud services.

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

Okay, thanks. And I also see that Scott removed Hemi's favorite chart on churn. So have to work on getting that back in there --

(Laughter)

-- for the next quarter. All right. [Good luck], guys.

It's --

Great, we wanted to make sure that you are really focused and you noticed it. And I want to take the opportunity to tell our listeners today, at this time, there are like hundred earning calls. And we got Greg, Jon, Rishi, James, everybody (multiple speakers), and Shyam. So we want to thank you for giving us the priority to jump on our call versus the other 90-some alternative that you have. And we want to thank you. We don't take it easy.

All right. Goodnight, guys.

Thank you.

Thank you.

A couple of --

Go ahead. Adam?

No, gentlemen, the floor is yours.

Thanks.

Okay. Couple of other comments -- as you know, we do take questions by email. One is a comment on currency and FX, which nobody asked. I'll let you know that the various Brexit volatility, and its volatility surround the pound-to-US dollar, had about $1.5 million impact in the second fiscal quarter on revenues, although much more muted on an EBITDA or earnings basis.

We continue to monitor, really, the basket of 10 currencies that matter to us, although I'd say this year, the GBP has probably been the one that's been most influential. Our best estimation is the back half of the year for the total business relative to last year will be about a $5 million top-line impact, but once again more muted as it relates to EBITDA of probably only around a couple million dollars.

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

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

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

But everything remains consistent for the full fiscal year, just some timing differences between the quarters.

And if the operator has no other either polled questions, or we don't have any other questions by email, we would just once again thank you for joining us.

There will be a number of conferences beginning in September after Labor Day that we will be presenting at. There'll be a press release on those probably in late August announcing the specific venues and times. And so we would encourage you to attend those conferences or listen to the webcast and, if you're in those locations, to seek us out for one-on-one.

Thank you.

Thank you very much.

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