Segment and Geographic Information

9 Months Ended

Sep. 30, 2019

Segments, Geographical Areas [Abstract]

Segment Information

In accordance with ASC Topic 280, Segment Reporting: (Topic 280), the Company’s businesses are based on the organizational structure used by the chief operating decision maker (“CODM”) for making operating and investment decisions and for assessing performance. The CODM views the Company as two businesses: Cloud Services and Digital Media. However, in accordance with the aggregation criteria within ASC Topic 280, J2 Global’s operating segments have been aggregated into three reportable segments: (i) Fax and Martech (formerly Email Marketing); (ii) Voice, Backup, Security, and Consumer Privacy and Protection; and (iii) Digital Media. Prior period segment information has been retrospectively revised to reflect the Company’s new reportable segments, as disclosed in the Company’s audited financial statements for the year ended December 31, 2018. In connection with the Highwinds Capital, Inc. and Cloak Holdings, LLC acquisition in the second quarter of 2019 (see Note 4 - Business Acquisitions), the Company renamed its Voice, Backup and Security reportable segment to include its newly acquired consumer privacy and protection business, now the Voice, Backup, Security and Consumer Privacy and Protection segment.

The Company’s Cloud Services business is driven primarily by subscription revenues that are relatively higher margin, stable and predictable from quarter to quarter with some seasonal weakness in the fourth quarter. The Cloud Services business also includes the results of our IP licensing business, which can vary dramatically in both revenues and profitability from period to period. The Company’s Digital Media business is driven primarily by advertising and subscription revenues, has relatively higher sales and marketing expense and has seasonal strength in the fourth quarter.

The accounting policies of the businesses are the same as those described in Note 1 - Basis of Presentation. The Company evaluates performance based on revenue, gross margin and profit or loss from operations before income taxes, not including nonrecurring gains and losses and foreign exchange gains and losses.

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



	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Revenue by reportable segment:
Fax and Martech	$	95,300		$	89,648		$	284,151		$	271,502
Voice, Backup, Security, and CPP	75,863			60,446			208,389			178,374
Cloud Services Total	171,163			150,094			492,540			449,876

Digital Media	172,992			142,655			474,034			411,407
Elimination of inter-segment revenues	(17		)	(27		)	(114		)	(51		)
Total segment revenues	344,138			292,722			966,460			861,232
Corporate ⁽¹⁾	3			2			6			4
Total revenues	$	344,141		$	292,724		$	966,466		$	861,236

Gross profit by reportable segment:
Fax and Martech	$	79,590		$	76,450		$	239,915		$	233,200
Voice, Backup, Security, and CPP	53,333			41,876			145,304			123,227
Cloud Services Total	132,923			118,326			385,219			356,427

Digital Media	149,516			125,206			408,360			359,745
Elimination of inter-segment gross profit	(17		)	(27		)	(114		)	(52		)
Total segment gross profit	282,422			243,505			793,465			716,120
Corporate ⁽¹⁾	3			2			6			4
Total gross profit	$	282,425		$	243,507		$	793,471		$	716,124

Direct costs by reportable segment ⁽²⁾:
Fax and Martech	$	27,670		$	32,067		$	93,384		$	97,390
Voice, Backup, Security, and CPP	44,308			29,170			110,009			86,876
Cloud Services Total	71,978			61,237			203,393			184,266

Digital Media	144,023			118,185			402,349			352,931
Elimination of inter-segment direct costs	(17		)	(27		)	(114		)	(52		)
Total segment direct costs	215,984			179,395			605,628			537,145
Corporate ⁽¹⁾	7,082			7,055			21,008			21,383
Total direct costs⁽²⁾	$	223,066		$	186,450		$	626,636		$	558,528

Operating income by reportable segment:
Fax and Martech	$	51,920		$	44,383		$	146,531		$	135,810
Voice, Backup, Security, and CPP	9,025			12,706			35,295			36,351
Cloud Services Total	60,945			57,089			181,826			172,161

Digital Media	5,493			7,021			6,011			6,814
Total segment operating income	66,438			64,110			187,837			178,975
Corporate⁽¹⁾	(7,079		)	(7,053		)	(21,002		)	(21,379		)
Total income from operations	$	59,359		$	57,057		$	166,835		$	157,596

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

The CODM does not use Balance Sheet and Cash Flow information in connection with operating and investment decisions other than as presented for Cloud Services and Digital Media. Accordingly, the following segment information is presented for Cloud Services and Digital Media.



	September 30, 2019		December 31, 2018
Assets:
Cloud Services	$	1,317,264	$	1,047,245
Digital Media	1,518,077		1,455,620
Total assets from Cloud Services and Digital Media	2,835,341		2,502,865
Corporate	57,959		57,965
Total assets	$	2,893,300	$	2,560,830


	Nine Months Ended September 30,
	2019		2018
Capital expenditures:
Cloud Services	$	17,216	$	10,654
Digital Media	32,267		34,274
Total capital expenditures from Cloud Services and Digital Media	49,483		44,928
Corporate	—		—
Total capital expenditures	$	49,483	$	44,928



	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Depreciation and amortization:
Cloud Services	$	24,605	$	15,046	$	58,445	$	44,236
Digital Media	38,990		30,580		110,067		85,751
Total depreciation and amortization from Cloud Services and Digital Media	63,595		45,626		168,512		129,987
Corporate	602		749		1,897		2,863
Total depreciation and amortization	$	64,197	$	46,375	$	170,409	$	132,850

J2 Global maintains operations in the U.S., Canada, Ireland, Japan and other countries. Geographic information about the U.S. and all other countries for the reporting periods is presented below. Such information attributes revenues based on jurisdictions where revenues are reported (in thousands).



	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Revenues:
United States	$	278,917	$	221,031	$	763,494	$	649,103
Canada	16,825		18,353		51,178		56,503
Ireland	14,228		18,182		44,604		52,296
All other countries	34,171		35,158		107,190		103,334
	$	344,141	$	292,724	$	966,466	$	861,236



	September 30, 2019		December 31, 2018
Long-lived assets:
United States	$	698,847	$	530,785
All other countries	82,004		62,810
Total	$	780,851	$	593,595