Q2 2021 j2 Global Inc Earnings Call

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Good day, ladies and gentlemen, and welcome to J P. Global's second quarter 2021 earnings call My.

My name is Paul and I will be the operator, assisting you today.

At this time all participants are in a listen only mode.

A question and answer session will follow the formal presentation.

And you went should require operator assistance during the conference. Please press star zero on your telephone keypad.

On this call will be Vivek Shah CEO of J, 2 global and Scott <unk>, President and CFO J T.

I'll now turn the call over to Scott to Rekey, President and CFO of J 2 global.

Thank you you may begin.

Thank you good morning, ladies and gentlemen, and welcome to the J 2 global Investor Conference call for Q2.2021.

And the operator mentioned and I'm, Scott <unk>, President and CFO of J, 2 global and I'm joined today by our CEO Vivek Shah.

The presentation is available for today's call.

A copy of the presentation is available at our website.

And your launch and the webcast, there's a button on the viewer on the right hand side, which will allow you to expand the slides.

And if not received a copy of the press release, you may access it through our corporate website at J 2 global Dot com.

In addition, and you'll be able to access the webcast from this site.

After completing the formal presentation, we will be conducting a Q&A session. The operator will instruct you at that time regarding the procedures for asking a question and it is.

And you may email questions at any time to investor at J, 2 global Dot com.

Before we begin our prepared remarks allow me to read the Safe Harbor language as you know this call and the webcast include forward looking statements such statements may involve risks and uncertainties that could cause actual results to materially differ materially from anticipated results.

Some of those 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've included as part of the slideshow for the webcast. We refer you to discussions and those dock.

Acumen and regarding safe Harbor language as well as forward looking statements.

Now, let me turn the call over to Vivek for his opening remarks, Thank you Scott and good morning, everyone.

Our second quarter results were amongst the strongest if not and the strongest.

And the company's history.

We grew pro forma revenues by over 33%.

And while we experienced pandemic headwinds last year, you'll recall that we fared far better than peers by growing 2%.

And this quarter's result, especially gratifying.

We're also increasing our guidance for the second time and a year something we've never done before we believe J T was firing on all cylinders as we come closer to the spin off of the consensus business.

Given our shareholders direct ownership of 2 separate and compelling companies.

More than half of the 33, and a 5% pro forma revenue growth from the quarter was organic with the balance coming from the revenue contributions of assets acquired within the last 12 months, mainly retail me not.

And the advertising business, which represents about half of the company's revenues grew over 62%.

When excluding retail me not AD revenues grew over 32%, we believe our main ad categories.

Our tech telco gaming and entertainment health and shopping.

Well positioned for sustained growth as economies reopen.

And marketers continue to shift dollars from traditional vehicles to digital.

Gaming and entertainment was particularly strong with meaningful growth from games publishers and streaming platforms contributing to over 40% growth.

Health advertising, which continues to benefit from the shift of direct to consumer and.

And direct to provider advertising from traditional channels to digital.

Continues to be another key growth driver up nearly 33% and the quarter grew.

Group and recently raised their forecast for global advertising to 19% for this year up from 12% and we believe that we have 3 competitive advantages and the advertising market first we largely sell contextual advertising, which is predicated on content adjacencies as opposed.

To cookie based advertising.

Second given the nature of our verticals and decision oriented content, our audiences exhibit great purchase intent and making them very valuable to marketers and.

Third more than half of our advertising revenues are price based on performance, including cost per click cost per acquisition and cost per lead while the portion that is CPM based.

It generally held the quantitative performance measures advertisers continue to seek ROI from their advertising investments and we believe we're a key performance partner for our clients on the subscription side revenues grew over 14%.

The subscription businesses in the digital media segment grew by nearly 30% driven largely by our subscription and licensing solutions and the broadband connectivity space. We continue to believe our connectivity offerings are amongst the best and the industry.

And our recent acquisition of Saia, telling you only strengthens our position.

And the cloud services segment subscription revenues grew by over 10% with revenue growth and all of our subscription service areas and <unk>.

Cloud fax business grew by nearly 9% with the corporate fax portion growing by over 18%.

We just want a contract with 1 of the worlds largest clinical lab testing companies building and our strong enterprise penetration and momentum at cloud fax and soon to be an independent company called consensus is very strong and in a moment I'll provide an update on the spinoff process round.

Rounding out the subscription businesses are cyber security and Martech.

The former grew over 6% and the quarter and as I've mentioned and the last 2 calls we've been increasing our marketing and product investments to accelerate cyber securities growth.

We believe we have a world class suite of cyber security solutions, which can be run for both profitability and growth. The same can be said for our martech business, which grew over 20% and the quarter.

Same tailwind that exist and the advertising business hold from Martech, especially Ford Retail's heavy customer base.

We're also thrilled to have added Mas, a leader and SCO solutions to the Martech suite.

Our adjusted EBITDA margin and the quarter was 40%, which was substantially better than expected and an improvement sequentially.

The strong revenue performance and associated high flow through drove margins, but we can't help and being a bit wistful that we didnt put more investment dollars to work.

That's really a statement about the quality of the investment opportunities across the portfolio and the cautionary note to not always expect this kind of margin beat and the future.

At the midpoint of our newly revised guidance, we are projecting revenues to grow by over 21% adjust.

Adjusted EBITDA to grow by over 18% and adjusted non-GAAP EPS to grow by over 23% in 2021.

Remember that the second half of 2020 was relatively strong for J 2 including the acquisition of retail me knock in October of last year, making for a tougher comp, but as our new guidance suggests we believe we will experience revenue growth of roughly 17% and the second half of 2021, that's an improvement.

And over last year's second half year over year growth of 10% now just a quick update on the spinoff.

Since our last earnings call, we have made significant progress across all work streams.

And we're happy to report that we received a favorable private letter ruling from the IRS relating to certain key aspects of the tax free nature of the spin. We have also been engaged and productive dialogue with foreign tax authorities about the tax reorganization that will occur as part of the spin we.

We submitted and initial form 10 to the SEC on a confidential basis in June and have been in active communication with the SEC about the filing in recent weeks.

And our hope and expectation is that the form 10 will become public and the near future.

Consensus is planning its debt marketing for early September our team is also reaching and advanced stage and their separation planning and we now have many of the systems and processes in place to ensure that both companies run smoothly post close finally, as the future CEO of consensus.

And has done an excellent job of shaping his senior leadership team and positioning the organization for success post spin overall, we've made tremendous progress and remain optimistic that we will complete the separation and <unk>.

Late Q3 on the acquisitions front, we've deployed north of $100 million and capital.

Through the first 7 months of the year and as a point of reference we.

We've deployed on average about $400 million per year over the past few years. In addition, as we've seen in the past many of our larger acquisitions can take place towards the end of the year. So I'm optimistic about our chances of matching our average spend I've been asked a great deal about the competition.

And for acquisitions, especially with all of the spec activity and the market I would say that we will always lean and to compete for assets, where we are uniquely positioned to unlock value. We consider ourselves highly competitive for the assets. We are best suited to buy which tend to be lower middle market private companies.

And historically, 80% of our acquisitions fall into the $50 to $500 million enterprise value range I believe our ability to programmatically acquire smaller assets and integrate them into 1 of our platforms is 1 of our key advantages.

And those by the way and not really spec targets. Most importantly, our acquisition system is focused on the long game, where patients and pragmatism are awarded.

We never allow short term trends to impact our longer term thinking.

Earlier this week, we filed a stipulation of settlement relating to a derivative lawsuit that was filed based on J two's investment and the OCB venture fund while the company believes the investment and OCB was a good capital allocation choice at the time.

To that end and the fund is delivering a 20% IRR.

And the distraction it's costs, it's just not worth it and therefore, we're pleased to have come to this settlement, which is designed to reduce J twos capital commitment from its original $200 million to no more than a $135 million, including the cessation of management fees.

At the end of this year J, 2 will retain its indirect interest and the fund's existing portfolio companies.

And we're optimistic that we will see a nice return from those.

And most importantly, we hope our shareholders feel that we've been responsive to their concerns and feedback.

Afore I hand, the call back to Scott, Let me provide you an update on our ESG efforts.

We're very pleased to have welcomed Dara Feldman to the company and a new corporate executive role reporting to me overseeing sustainability and responsibility of the company.

Dara has spent much of her career focused on social impact and she has already helped us move forward and some key areas.

Including arranging for our first companywide greenhouse gas audit and we will be conducting such and audit for 2019.2020 and 2021.

And once the audit is completed at year, and we will be and are positioned to assess our carbon goals. We will also be publishing and ESG report in Q1 of 2022, which will allow us to align with <unk> SaaS B and Tcf day reporting requirements.

And the best news is that earlier in the spring we delivered a number of ESG related disclosures to help the ratings agencies better report on our activities and.

And our last call I reviewed the great gains we made with ISS.

And now we've experienced a marked improvement and sustained analytics, where we went from the 74th to the ninth percentile and the software and services industry group and from the 24th to first percentile in the Internet software and services sub industry group.

And we're glad to see our ratings better reflect our goal of delivering profits and purpose.

Finally, we're thrilled to welcome trace Harris to our board of directors traces a 20 year veteran of the media industry. Most recently, serving as the Wendy's SVP of strategy.

Finance and business innovation.

He is joined our audit committee.

And we will be a terrific resource for the company.

With that I'll hand, the call back to Scott. Thanks, Vivek I will now provide an overview of both our non-GAAP and pro forma results for Q2.2021 is recall from our previous earnings call. We have sold certain ANZ voice assets in August 2020, and U K voice assets and February 2021.

And we now have our <unk> backup assets classified as assets held for sale.

As a result, we will present, our non-GAAP results, which include these operations for the periods owned and our pro forma results, which exclude the contribution from these assets and all comparative periods as.

And as Vivek as highlighted it was another stellar quarter driven by organic growth throughout J tubes and portfolio of businesses. We ended the quarter with approximately $465 million of cash and investments, including $348 million of cash now lets review the summer quarterly financial results on slide 4.

We'll begin with our revenues it was a record second fiscal quarter of revenues for J..2 we had revenue of 429 million and the quarter and 418 million of revenue on a pro forma basis, representing approximately 30% and 33 and 5% growth respectively and.

Adjusted EBITDA was also a record for our second fiscal quarter with 172 million as reported and $167.2 million on a pro forma basis, and the growth and EBITDA was 30% and 33% respectively consistent with our revenue growth.

And finally growth and earnings per share was even stronger and the second quarter, we had $2.41 of non-GAAP adjusted EPS and $2.32 of pro forma EPS, a growth of 41% and 45% respectively from Q2.2020.

Turning to slide 5 and Q2, we generated $80.5 million of free cash flow, representing a 36% decline from Q2, 2020 I would remind our investors that we had a difficult comparison is usually Q1 is our highest free cash flow producing quarter, but in 2020 Q2 was the highest free cash flow producer.

Linked quarter and Q2.2021, we had significant additional tax payments and we also had incremental capex versus Q2.2020, I would also remind those that are new to J too that our EBITDA to free cash flow conversion is best measured over a rolling 4 quarters and it's typically in the mid sixties.

On a trailing 12 month basis, our adjusted EBITDA is $694.3 million and our free cash flow is $429.5 million.

Now, let's turn to the 2 businesses cloud and digital media for Q2 as outlined on slide 6.

And the cloud business grew revenue 4.9% on a reported GAAP basis, and 10, 1% on a pro forma basis to $164 million and.

Adjusted EBITDA was $81.6 million as reported and $76.8 million on a pro forma basis generating growth from negative 2.3% and 0.7% respectively. The digital media business grew revenue 54, 8% to $253.8 million and experienced double digit revenue growth exclusive of.

Retail me not.

Adjusted EBITDA was up more than 77% to $101.2 million and digital media margins expanded to 39, 9% increasing by more than 5 percentage points from Q2.2020.

Finally, before going to a question and answer session I would like to turn your attention to our business outlook on slide 8.

And with the continuing impressive organic Q2 results, we are raising our guidance once again, the first time and the company's history twice in 1 year to remind you at this time, we estimated on a pro forma basis that revenues would be between $1.67.6 billion and $1.7 billion adjusted EBITDA between $666 million and 600 and.

And $80 million and non-GAAP adjusted EPS between $9.27, a share and $9 and 51 per share for 2020..1 we now estimate on a pro forma basis.

Revenues to be between $1.72 billion and 1.7, and 4.2 billion adjusted EBITDA to be between $695 million and $705 million and non-GAAP adjusted earnings per share to be between $9 and 57 per share and $9.73 per share.

I would note that the earnings per share include the 3 million shares that we issued earlier this week to settle the 3 and a quarter convertible notes following our business outlook are various metrics and reconciliation statements for the various non-GAAP measures to their nearest GAAP equivalents I would now ask the operator to rejoin us to instruct you on how to queue for questions.

Thank you.

We will now be conducting a question and answer session and the interest of time, we ask that you. Please limit yourself to 1 question.

I would like to ask a question. Please press star 1 on your telephone keypad.

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1 moment, please while we begin.

And the first question is coming from Shyam Patil from Sig, Sean Your Lynas lives.

Thank you Hey, guys. Good morning, Congrats on the great results.

Great. Thank you I had a couple of questions.

Maybe first 1 for the deck and then second 1 for Scott.

And you kind of talked about this and the call a little bit but.

And I can't remember the last time, we've seen this level of outperformance on a consistent basis.

Could you talk a little bit more about what's driving this.

Is it better and better processes internally that you introduced when you came on board is it the macro.

And just kind of how you think about the sustainability of this and then Scott just on the on the outlook any color you could offer us on how to think about digital media and cloud revenue for <unk> and for the year as well as just just.

Depreciation and Theres, another income and kind of share count for the year as well. Thank you.

Yes, Sean So let me, let me start and take your first question I, certainly think that the advertising market has been.

Really great for Us I think could say.

I think that's a overall secular trend where you do have the ongoing shift.

From advertising from analog to digital platforms, and we think thats going to.

Continue for for quite some time, but also the categories and which we operate I mentioned.

And at the beginning of the call, but tech telco gaming and entertainment health and pharma and shopping are amongst the strongest if not strongest and fastest growing categories within the advertising business.

And I think that the products and services that we have really produce great ROI and return on AD spend so I think that combination.

Answers the question as to the strength of the advertising based businesses within the company and then on the subscription side as you know we look for subscription businesses that are adjacent to the verticals and which we operate and those businesses.

Which include the connectivity subscription businesses under the Martech businesses and the cyber security businesses.

Are doing extremely well and then look I think we've got probably at this point the best roster of underlying businesses and brands through I think a careful process of of of of acquiring the right businesses and then disposing of the businesses that weren't the right fit for us and then look.

And I also think the talent the talent across the board in the organization is doing very well I also just want to say it.

Shouldn't go unnoticed that the cloud fax business. The consensus business is on fire I don't think we've seen results like that.

I haven't seen results like this.

At least and the decade, plus that I have been inside of the company. So so a lot of things working well for the company and we believe they will sustain and we believe they are part of our new normal.

And so in answer to your question, Sean as you know, we don't give quarterly guidance, but I think you can unpack the 6 month guidance and the following manner.

And it's probably easiest to deal with the cloud business as you saw it grew about 10% pro forma.

In Q2.

We're expecting a similar rate of growth and Q3.

And roughly the same and Q4 so.

So if you do that you can back into the digital media contribution.

And then in terms of some of the things below the line I would highlight a few items.

Our non-GAAP depreciation and amortization should show some sequential upticks in Q3 and Q4 from Q2's level.

And remind people that that non-GAAP depreciation and amortization was $16.5 million and Q2, we're expecting a little under $17 million and Q3 and right around $17 million and Q4.

And then our interest income and other and about $15.5 million $15.7 million respectively.

What I would also note for everyone to take into account and just to make sure you add for the 2 months of this quarter and the 3 months and next quarter and additional 3 million shares into your share count with a J.

July share count remains consistent with the count we've had before which is and the 44.7 range.

And that will jump from $4.7 and 747 each for the months of August September through the balance of the year.

Tax rates fairly consistent at the 'twenty 2 and.

65 range.

Great. Thank you guys.

Thank you.

Thank you.

And the next question is coming from James Breen.

Thanks, <unk> and the class.

Hi, Thanks for taking the question.

Scott can you just talk about the sequential cash flow really high and the first quarter 150 and down to 80, what are the differences there between the 2 and then there was an impairment charge of $32 million I think impairment charge.

And the ramp.

Yes, so on the cash flows and 1 of the downsides of.

Raising your guidance twice in the year and outperformance like this you've got to pay more taxes and so our estimated tax payments in Q2 were substantially higher and say we would have estimated the beginning of the year. So we had and close to $28 million more and estimated tax payments in Q2, and we did and the year ago quarter and about 20.

And $324 million more sequentially from Q1 to Q2, so taxes were a big big piece.

The volatility and cash flows.

Not let's say a typical we pay more estimated taxes and Q2 versus Q1, but the delta. This year was much more extreme given the strong not only current performance, but perspective performance through the balance of the year.

As I mentioned, we also had some increased capex year over year of about 758 million and then we just had outstanding collections in Q1 really collected all the receivables.

It was somewhat unusual normally some of that would have fallen into Q2. So I think you've got to look at the 2 quarters really in combination with each other and when you do that and we will look more normalized.

And then in terms of the write off.

And Theres a couple of write offs I'd like to highlight so the 1 you're referring to which is a 25 million net of taxes has to do with a write down of our BBB backup business. As you know we've been in a process to sell that business based on the indications of interest.

True.

Prudent and necessary that we take the write down of about $25 million.

Not included yet that transaction, but based on the indications of interest we received that was the necessary thing to do from an accounting standpoint separately 1 of the assets that we do not control, which is well talk they've informed us that they too have a process going on and based upon their indications of interest.

We took a write down of that asset as well.

Thank you.

And the next question is coming from will power from Baird. Your line of lives.

Okay, Great Yeah, I wanted to start actually with Scott and I.

And what it'll be consensus just looking at the strength and cloud fax and corporate fax or just wanted to drill down and get your perspective as to what Youre seeing there what the key.

Drivers there are that the stronger growth.

Great and lastly wanted to ask about the consensus business. So.

Really the consensus business is hitting on all cylinders.

There are 2 major streams of revenue there because what we call the Soho revenue stream, sometimes historically referred to as the web channel.

Which is much more diverse than the health care space and it is really geared to individuals and micro businesses.

And I think you've heard Vivek and I talk in the past that we've accepted that could be a low single digit declining business, but beginning about a year ago.

With some management changes and some reorienting of the marketing that.

And that business now is a modest grower and that occurred again in Q2, I think it was about 1% growth on the Soho side as I tell our perspective and census shareholders and not looking for that to be the growth driver, but I do think there's some opportunities to stabilize that revenue base and have some modest growth out of it.

Part of that will be and it's not contributing materially to day, but the introduction of new services bundled with the existing service.

The most notable is J sign which is a blockchain digital signature that we are in the midst of releasing on.

And on the corporate side the growth there was 18%.

And that is being driven almost exclusively through our health care activities. As Vivek mentioned is a combination of new wins, but it's also the onboarding of customers and their growth and traffic and so.

We're very excited about what's happening we have the opportunity that we did not last year to participate and hymns, which is coming up next week and Big Healthcare conference It will be in Las Vegas.

And to be and what is known as the interoperability showcase.

And every hour, we will be demonstrating how a fax transmission is translated into a direct secure message and then integrated into and EHR system, most notably epic.

We will be demonstrating this will have a booth, we've got participation and for interoperability panels and we've got a number of face to face meetings and interviews with depressed. So this is what we intended 18 months ago, we rolled out the first consensus.

But as you know right after our analyst day in March of 2000, and with the pandemic HIMSS was not just postponed with virtual it was actually cancel so this is a big deal for us coming up this coming week.

And if any shareholders happened to be and Las Vegas.

Free to reach out to me, we can the range special demonstrations and tourism floor, but this is really what is driving the overall consensus business.

Okay, Great and I guess, if I could fit in and what more actually on the digital media side to just give it given the strength there.

In fact, I know you've called out gaming of course healthcare, Inc. To 2 big verticals for you and particularly strong growth anything to think about the second half versus the trends you saw coming out of Q2 and have you seen those trends continue.

Thus far through the quarter and and judging from the full year guidance. It sounds like you have but any seasonal factors to consider anything else and the second half versus the strength you're seeing thus far.

Yes, and I'll look so I think and the second half remember and as I as I mentioned and the call last year second half was particularly robust for the company and we also had.

The benefit of the Retailmenot acquisition in late October so the comp gets more difficult and obviously in Q2, while we had a very strong Q2 last year growing 2% in relative terms, right, where I think most and our industries and our peer set saw significant declines and their revenue is making their Q2 comps.

This year, a tad easier than ours.

Wouldn't I wouldn't extrapolate that growth rate per se to the second half, but as I said, we're we're looking overall at a 17% growth rate in the second half of 'twenty..1. So we think the trends continue we think these are long term trends and again I think that.

I'd just go back to the overall and you almost have to go category by category, which I won't which I won't do today, but when you look at a category like pharma or you look at a category like shopping each has a.

A set of reasons as to why Youre seeing and acceleration of the shift from traditional to digital solutions and so I think that's going to continue for the foreseeable future I think we've got really nice tailwind and a bunch of these different places I mean, I think the big question will be how road.

Bust will the Q4 holiday shopping season and be that's obviously an unknown.

That's a big open question and obviously, depending on where that lands I think will be a driver of our ultimate result, because as you know that is a is a meaningful portion of the business and as you also know seasonally Q4 is our strongest quarter. So we are optimistic.

And you know all the signs, we're seeing and the marketplace and from our clients are strong the net revenue retention, we're seeing is really amazing and so.

And all signs are positive.

Great. Thank you congratulations on the results.

I appreciate it.

Thank you and.

And the next question is coming from socket calia from Barclays. So I catch your line is lives.

Okay, Great Hey, guys. Thanks for taking my questions here and I'll Echo my congrats on the quarter.

Thank you.

And could that maybe maybe for you.

You touched on this a little bit in your prepared remarks, but could you do you kind of have that split of advertising revenue between performance and display.

Yes.

It's about 55% of the advertising.

Is and the performance category and just just to make sure everyone's aware of when we say performance that really is a function of how it's priced so if it's priced on a cost per click cost per acquisition or commission basis or cost per lead that fits into the performance category. If it is priced.

On a CPM, meaning cost per thousand ads served or on cost per unique visitor reached so more of a reach metric that would that would fall into what we have generally called our display and video.

Got it got it so 50.545.

And whats the split sounds like which is great.

Maybe maybe logistically.

And maybe maybe this is Scott question. So logistically Scott 1 is consensus no longer going to be consolidated with J..2 results I guess I was maybe expecting it to be next quarter, but the guide of courses for total remain co.

And to make sure I understood the timing and terms of when when consensus sort of kind of.

And sort of out of out of J 2 results and we could start to look at kind of remain co versus spin co separately.

Sure. So so the.

The answer to your question is consensus remains consolidated until the moment of distribution now.

And now right now we have a range of dates that's anywhere from mid to late September meaning that the consensus will be consolidated for the majority if not substantially all of Q3, depending on the exact date of spin.

The reason we can't be more specific is as Vivek mentioned in his opening comments, we're still awaiting final sign off from the SFC and then we're preparing our materials. So the consensus could go to market post labor day to raise debt under the timeframe that we believe is realistic both of those things will happen such that.

Probably mid third week of September we would be able to consummate the separation, which means the consensus would be part of J twos consolidated results for 2 and a half or 2 and 3 quarters months and then at that point consensus has its own separate standalone financials and remain co would.

Ex consensus we discussed.

And how and when it makes sense to provide remain co and spin co our guidance and I think as we get closer and we can better define the day to the spin and then we can come back to the market and say this is what the 2 companies will look like for the balance of the year.

Okay got it that's very clear thank you.

Thank you.

Thank you and once again, a reminder, ladies and gentlemen, if you wish to join the Q&A. Kim you can press star 1 on your phone at any time.

And the next question is coming from James Fish from Piper Sandler James Your line is flat.

Nice quarter.

Wanted to first start on the cloud services side. It was the lowest churn rate I could go back to 2015 I believe.

The puts and takes you are and why churn was so low or is that really the impact of the divestitures playing through the strength of the corporate Fox part or something else and is that sustainable rate and that.

Round, 2% range, the right way to think about it how do we think about <unk> versus non VIP.

And I'll just leave GARP.

Yeah. So first part is the divestiture since the divestitures not happened yet from the <unk> backup.

And is not a factor in the cancel rate. So the <unk> backup is a component of.

Of that 2% cancel rate.

And we've seen strength across the board.

Is that the case that as I mentioned, a consensus is a big driver of the overall cancel rate consensus has been strong in both its customer acquisition, but also its customer retention. So that has a big influence, but it's not exclusive we've seen strength and the Viper product as well as our Martech products now in terms of sustainability I'm always are.

Nervous to talk about sustainability of a metric when it's at or near an all time low because I look at these generally trading ranges and.

So I would say that within a 25 basis point range is probably fair and I think that is.

The economy remains generally stable that should be a fair expectation.

That's helpful and if I could sneak in 1 more on the digital media side is there a change in Mexico, and non really or advertisers really looking more at Allstate, Mitch and vertical specific sites rather than the broader search sites because that monetization rate was just off the charts and even better than most of your Q4 is where that that rate is really strong.

No. It's a great point and I just wanted to.

Jim if I could just on the cancel rate piece add 1 piece to which is as as businesses like consensus the cloud fax business.

Starting to see the enterprise portion, becoming a larger ratio the revenue retention or the cancel rates just to really extraordinary. So I think there's a positive mix that goes on there as well.

And just in terms of your advertising question look I think the there is vertical strength. So as I said the verticals we're in.

Are the fastest growing verticals.

Within the Internet advertising World I do think there is also.

A fair amount of.

Migration from.

Non performing to performing media, which we fit into because and while I've pointed out that 55% of the advertising business is performance price I should have pointed out that the 45% that isn't is measure that as if it is so there is all return on invested.

On advertising spend across everything we do so I think performance matters more and then the last thing I will say is that there's been a lot of discussion and the industry about the shift away from interest based ad targeting and back to more.

Textually relevant.

And premium environments and that obviously is what we deal and as well. So I think all 3 of those have contributed to the to the gains that we've seen and the advertising business and again I think they're all long term trends.

Helpful. Good luck with the Sprint index.

Thank you.

Thank you.

And the next question is coming from John and Tom Lun Tang from suggest Securities. John Your line is live.

Hey, good morning, guys really fantastic quarter, and it's nice to see that.

And all cookie and tracking and privacy pieces playing out finally.

My first question Vivek I wanted to go back to your margin commentary for.

For Q2, how that was probably not sustainable as we go forward.

Q3 is usually a better quarter than Q2, I know, it's fairly close but just help me think of what investments you might be making in Q3 that might make the.

The EBITDA margin lesser or how should we think about it as we go forward.

Yes, and it looks and a great question, we're really trying to put money to work on the marketing side within cyber security and Martech.

And as we've talked about in the past.

And these businesses really ought to be growth year, and we have run them from margin and while we're not ever going to move away from our margin focus I mean, you all understand how we operate businesses at J too it doesn't makes sense for not for us not to invest and marketing to accelerate longer term.

<unk> growth, so youre going to continue to see that some of that played out we didn't move as quickly on some programs as I wish we had.

In Q2, and so we are primed to move quickly in Q3, so thats an element of it and then the other element on the digital media side is obviously the advertising business has an incredible amount of operating leverage and so given the mix of that revenue and the digital media side. The flow through was very high I don't want to always really.

Hi on that and as the as the revenue growth rates will compress a little bit as the comps get stronger and the second half I think we have to keep that in mind and then I do think there is some amount of costs that have not re entered the system. We don't have much travel going on and that type of expense that probably does.

And back into the company at some point in the second half. So those are sort of the puts and takes on it but look I think.

And the important point and all of this and what we've demonstrated really over the last 4 or 5 quarters is that there's a fair amount of internally generated growth opportunities that we ought to feed and finding that balance between feeding and investing those against that sort of the near term profitability along with it.

And with our acquisition program and balancing all of those pieces.

Okay, great. Thanks, Vivek and 1 for Scott.

Did cloud fax outperforming expectations and in the quarter it sounds like it did.

And if so does that change the outlook for consensus compared to what you were talking about when you announced the deal.

And the spin to.

So the comps just get much harder and the second half where are you in line with what you thought youre going to do just a little more color and how you're thinking about that.

While the comps do get a little bit harder because as you know and Q2 of 2020, we had a falloff in and <unk>.

Medical procedures that were elective because of Covid and activity decline and we saw I think youll recall, a year ago, we talked about it a.

Couple of million dollars of headwinds and <unk> usage from our health care accounts that obviously has not only bounce back but it has gone well above that so we saw that rebounding beginning in the May June timeframe of last year, having said that I think the business does remain very strong and I think that if you're talking about.

2% kind of growth.

And we referenced back in April when we discuss the spin for the first time no we are.

I think confidently.

Now of the opinion. This is a mid single digit grower over time tracking to a high if not double digit grower and I think in the near to intermediate term.

Mid single digits for consensus is the expectation and that would be and organic growth.

Great. Thank you very much and congrats again.

Thank you.

Thank you and there were no other questions in queue I would like to hand, the call back to Scott to Ricky for any closing remarks.

Great. Thank you very much Paul we appreciate you all joining us today for our Q2 earnings call as I mentioned during the call.

Consensus will be at the HIMSS conference coming up beginning Monday of this week and Las Vegas.

We also do have 1 conference we're participating and virtually on August 11th from those that have signed up it's 1 on 1 only.

We'll then be providing additional information over the coming weeks and terms of the exact timing.

Timing of the spin, which you should be looking for is a flipping of our form 10 and to a public document and then at that point. The declaration date. The record date, and then ultimately the distribution fee.

Thank you very much.

Thank you ladies and gentlemen, this does conclude today's conference you may disconnect. Your phone lines at this time and have a wonderful day. Thank you for your participation.