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j2 Global Communications (NASDAQ:JCOM)
Q1 2019 Earnings Call
May. 08, 2019, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Greetings, and welcome to j2 Global first-quarter 2019 earnings conference call. [Operator instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Scott Turicchi, president and CFO.

Scott Turicchi -- President and Chief Executive Officer

Thank you. Good morning, ladies and gentlemen, and welcome to the j2 Global investor conference call for the first fiscal quarter of 2019. As the operator mentioned, I'm Scott Turicchi, president and CFO of j2 Global. And joining me today is our CEO, Vivek Shah.

We started the year in strong fashion with a record first quarter performance in a number of areas. Notably, we had record revenue, EBITDA, non-GAAP earnings and free cash flow for our first fiscal quarter. The board has approved an increase in the quarterly dividend by $0.01 to $0.455 per share. As noted in a press release, based on a significant pipeline of investment opportunities, the board has decided to suspend further dividend payments.

We will explain this in greater detail throughout the presentation. We will use the presentation as a road map for today's call. A copy of the presentation is available at our website. When you launch the webcast, there's a button on the viewer on the right-hand side which will allow you to expand the slides.

If you have not received a copy of the press release, you may access it through the corporate website at j2global.com/press. In addition, you will be able to access the webcast from this site. After we complete the formal presentation, we will conduct a Q&A session. The operator will instruct you at that time regarding the procedures for asking a question.

However, you may email us questions at any time at investor@j2global.com. Before we begin our prepared remarks, allow me to read the safe harbor language. As you know, this call and the webcast will include forward-looking statements. Such statements may involve risks and uncertainties that would cause actual results to differ materially from the anticipated results.

Some of 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 have included as part of the slideshow for the webcast. We refer you to discussions in those documents regarding safe harbor language, as well as forward-looking statements. Now let me turn the call over to Vivek for his remarks.

Vivek Shah -- Chief Executive Officer

Thank you, Scott, and good morning, everyone. We're pleased to once again report record revenues, adjusted EBITDA, EPS and free cash flow for the first quarter of 2019. The strength in the quarter, along with the acquisitions we've done this year contribute to the meaningful upward revision to our estimates for 2019, the earliest guidance raise in the company's history. As many of you know, when I took on the CEO role last year, we established the business unit structure across the company.

The business units at j2 are led by general managers who have full P&L responsibility for their units and oversee all aspects of their businesses from product to engineering to sales and marketing. Today, we have 14 business units at the company, six of those are in the cloud services segment and eight are in the digital media segment. These business units are led by individuals whom I often describe as CEOs to borrow a term from private equity and represent an incredible lineup of management talent. I can safely say that j2's management depth has never been stronger.

All 14 general manager positions are filled, and each one of them is identifying meaningful growth and investment opportunities. And they're in competition with each other for the company's capital, meaning while the GMs are responsible for generating earnings and cash from their operations, we hold all of the company's cash centrally and allocate it based on the most promising opportunities. Our portfolio of breadth allows us to consider a wide range of investment opportunities. First, we have two main business models, advertising and subscriptions; second, we sell products and services to every type of customer, ranging from consumers to SOHO to SMBs and enterprises; third, we're in an expanding set of verticals, including tech, health, entertainment, marketing and security.

We've also enhanced our Corporate Development function through the hiring of several new members of the team who are driving more deal flow and greater efficiencies in how we assess, diligence and transact. All of this is contributing to one of the most robust set of investment opportunities the company has ever seen, which gives us confidence that we can put ever larger amounts of capital to work that will still yield returns two to three times our cost of capital. Simply put, as stewards of the company's capital, we believe redirecting the dividend to these investment opportunities will yield better returns for our shareholders, which is why we are suspending the dividend after the June payment. Let me take a moment to describe the three main investment theses that are shaping our approach and generating these investment opportunities.

The first is our belief that vertical media audiences are valuable beyond traditional advertising. This has been a long-held thesis of ours that now has even more components. Historically, the execution of this thesis has been performance marketing revenues onto our media assets. Prime example of that is affiliate commerce where our sites generate traffic for online retailers, and where we receive a percentage of an ensuing transaction.

As more retail shifts online and there's plenty of room to grow, with e-commerce is still representing 10% of all commerce, we believe content can play a very important role in helping consumers discover, choose, buy and use products. In the health space, this means our ability to generate prescription lift for pharma companies and drive transactions including registries from expecting parents. We've extended the vertical media audience thesis to include two more components: monetizing the data exhaust of digital audiences and leveraging media audiences for subscription acquisition. On the data exhaust piece, our experience with Speedtest has been revealing.

What was originally an ad-based site and app, has become a business intelligence service, and we see opportunities to pursue that model at sites like Downdetector. On the subscription front, we've had success in our gaming business by leveraging our free content site to the benefit of our gaming subscription service. We recently acquired some privacy subscription businesses, which I will discuss in a moment that we believe can benefit from a number of our media brands. A second main investment thesis is built on the belief that we've reached the privacy and security tipping point for consumers and businesses.

We believe the growing awareness of the breadth of surveillance are occurring in our digital lives along with increased hacking and other attacks will create opportunities for companies that offer solutions. As I mentioned, we recently acquired a set of assets in the VPN space, including IP banish, encrypt2me strong VPN that offer tools to protect users on unsecured Wi-Fi, as well as shield their internet browsing activities. We view that as a strong growth area that extends our current and.and email security capabilities. In addition, privacy plays an important role in our backup and storage business when entering files are not just stored and available for retrieval were also kept private is important.

And of course, our cloud fax business rests largely on the secure nature of fax transmissions. It's why healthcare, financial services and the legal industry view fax transmissions as inherently more secure than other forms of document transfer. Between our various cloud services brands, we are building a strong value proposition in privacy and security for consumers and businesses. The third main investment thesis is that small and medium businesses are underserved when it comes to attracting, retaining and communicating with customers.

Many of the communication solutions in the marketplace today are built for large enterprises. We come at this with a strong lineup of brand such as Eye Contact, which we acquired earlier in the year Campaigner and communicator . We believe we can leverage our installed base to sell additional services while helping our customers solve their marketing and customer touch point needs. Many small businesses are getting priced out of search and social, and are looking for cost-effective sources of qualified websites and app traffic.

In addition, they are highly cost-conscious, so they would rather enhance their free and earned media and pay for media. No one has created a full suite of services that SMBs are seeking and that's an opportunity for us. Before I had a call back over to Scott, let me point out that j2 invested stock awards that are held by management and our board of directors either pay dividends or accumulate dividends, which are then paid on investing. Many companies don't pay dividends on unvested stock but we have done that for many years.

That means that like our common shareholders, we will not receive dividends during the extension periods. Personally, potential dividend income from my holdings is worth more than my annual salary. But we believe that redirecting that capital to feed our growing set of investment opportunities will yield a greater benefit in continuing the dividend at this time. We come out this from a position of strength in our solid earnings, upward revision to our business outlook and a clear view in a strong pipeline of deals and opportunities to drive long-term shareholder value.

Capital allocators were always evaluating the optimal use of our capital, whether for acquisitions, dividends or buybacks. With that, let me hand the call back to Scott.

Scott Turicchi -- President and Chief Executive Officer

Thanks, Vivek. Q1 2019 set a number of financial records for j2, including revenue, EBITDA, non-GAAP earnings, and free cash flow for our first fiscal quarter. These results were driven by several areas of strength in our portfolio of businesses, notably sustained improvement in the display advertising portion of our business, as well as our continuing strong growth in our media subscriptions, security and protect businesses, coupled with a focus on operating margin. We ended the quarter with approximately $320 million of cash and investments after spending $82 million in the quarter on acquisitions in dividends.

Now let's review the summary quarterly financial results on Slide 4. For Q1 2019, j2 saw a 6.9% increase in revenue from Q1 2018 to $299.9 million. We saw FX modestly affect our Q1 results by approximately $500,000 versus Q1 2018. Gross profit margin, which is a function of the relative mix of our 13 business units remain healthy at 83.2% and improved slightly from Q1 2018.

We saw EBITDA grow by 10.9% to $113.9 million. Finally, adjusted EPS grew 14.8% to $1.40 per share versus $1.22 per share for Q1 2018. As you know, our core thesis for j2 is the conversion of our EBITDA to strong free cash flow. Turning to Slide 5, you can see we had a 15% increase in our Q1 free cash flow to $104.3 million, a record for our first fiscal quarter.

On a trailing 12-month basis, we generated $358.5 million of free cash flow for 71.6 free cash flow conversion of our approximately $500 million of trailing 12-month EBITDA. Now let's turn to the two businesses, cloud and digital media, for Q1 as outlined on Slide 6. The cloud business grew revenue approximately 2% to $152.2 million and was negatively impacted slightly by FX, as well as continuing declines in our backup businesses. If you exclude our backup business, the cloud business grew by approximately 4.8% versus Q1 2018.

Reported EBITDA increased by approximately 2% to $75.1 million compared to $73.8 million in Q1 2018. The EBITDA margin was 49.4% after corporate allocations, similar to the margin in Q1 2018. Our media business grew revenues 12.6% to $147.6 million and produced $40.8 million of EBITDA for a 30% growth. EBITDA margin expanded from 24% in Q1 2018 to 27.6% in Q1 2019.

Vivek noted earlier our increased guidance for 2019. Based on our Q1 results and the M&A that we have done so far this year, we are raising our guidance as shown on Page 8. The previous high end of our range of $1.33 billion of revenue, $540 million of EBITDA, and $6.95 in non-GAAP earnings now becomes the low end of our new revised range of guidance. We currently expect revenues to be between $1.33 billion, and $1.37 billion of revenues for 2019, EBITDA to be between a $540 million, and $556 million and non-GAAP EPS to be between $6.95, and $7.15 per share.

Following our guidance slide for various metrics and reconciliation statements or various non-GAAP measures to the nearest GAAP equivalent. I would now like the Operator to rejoin us to instruct you on how to queue for questions.

Questions & Answers:


Operator

[Operator instructions] Our first question comes from the line of Shyam Patil with SIG. Please proceed with your question.

Shyam Patil -- Susquehanna International Group -- Analyst

Thank you. Hey, guys, good morning. Congrats on the -- being raised. Great to see it.

Vivek Shah -- Chief Executive Officer

Thanks. Good morning.

Shyam Patil -- Susquehanna International Group -- Analyst

Just in terms of I know, Vivek and guys you talked about some of the reasons for the guidance range. Could you just elaborate a little bit more on specific drivers behind the guidance raise? And how we should think about digital media versus cloud expectations for the year?

Vivek Shah -- Chief Executive Officer

Sure. Good morning, Sean. So I think the first thing is, you know we're stringing some strong quarters together. You recall Q4 was a very healthy quarter.

Q1, obviously, we feel really great about. So we got some momentum in the underlying businesses and assets. And so while the original guidance above the midpoint did contemplate additional M&A in 2019, the time and size of the transactions that we have done thus far this year is kind of driving this increase in outlook. So we've acquired five assets this year for a total of $270 million.

Four of those happened after our original guidance. So we're not going to break out each in terms of contributions and price but I can say that the VPN assets, IP vanish, etc. The one that we carved out from a company called, Stackpop are the largest. In terms of guidance, it's about 50-50, I would say, in revenue between media and cloud.

Scott Turicchi -- President and Chief Executive Officer

Yeah. And just -- as Vivek as noted, all the M&A down this year affects only the cloud side of the business. I would comment though in terms of as we look out over the remaining three quarters in digital media that as we talked about in the Q1 results, unlike some prior years, I think, we will see a continuing step function up in revenues over the four quarters. I know in the past we've talked about digital media having a weak Q1, a strong Q4 and kind of two and three are equal.

I see this year more on a revenue basis of stairstep function over the four quarters among the four. And also some shifting of cost which benefited Q1 on the media side but particularly in the game's area some investments we're making that will be impactful in Q2. So you will see a little different, I think, spread among the four quarters on digital media and in some historic period. On the clouds outcome are pretty much everything is incremental.

I would just add that the acquisitions we've just done would be at a somewhat lower EBITDA margin contribution in the core business, which before corporate allocation, is slightly north of 50%, post-corporate allocations about 49.5%.

Shyam Patil -- Susquehanna International Group -- Analyst

Great. Second question. Just on the pipeline for M&A. How would you characterize if -- the size of the deals, the types of deals? And last quarter, Vivek, we talked about, you know the carnage in the digital media industry overall.

A potential opportunity there. Could you just talk about how that's is looking for you guys as well.

Vivek Shah -- Chief Executive Officer

You know, I think I'll take the second question first. Look, I think, there are a number of investable opportunities for us in the digital media space. And we primarily look for companies that are display ad-dependent that have not developed the multiple monetization layers that we've developed in verticals where we think that's possible. And so we see a number of these and it is a big part of our pipeline.

I think in general, take a step back what is driving the pipeline are these 14 general managers. And so definitionally, the opportunities that we're seeing are bolt-ons and tuck-ins within our different business units. So I would think it would denote the size and impact consistent with what you've seen from the company over the last couple of years. Having said that, at the same time, we're always looking at deals of all types of sizes.

And then in the end, if they meet our hurdle requirements, you know we'll be in a position to transact. But the pipeline that we're looking at now for the most part, are to the benefit of the 14 business units in ways in which they can accelerate their growth.

Shyam Patil -- Susquehanna International Group -- Analyst

OK. Great. And just my last question. Google talked yesterday about some changes that are coming to Chrome and third-party cookies.

Just curious to get your take on what kind of impact you would expect to the ecosystem and tier digital media business, if any?

Vivek Shah -- Chief Executive Officer

You know, so all the focus, whether it's Google or other platforms on privacy, really impact the larger ad platforms that rely on data to inform the placement of ads. For us, little to none, I'd say, of our display ad business relies on third-party data. It's all placement based. In other words, placing, advertising next to contextually relevant content.

And when we use data to find tune targeting, it's our own first party data. So I'm not going to go so far as to say that this will be a help to publishers like us. There are some in our industry saying that it will be. But it certainly don't view it as a harm to us.

I'll also point out that it's sort of dovetails nicely with our own thinking, and move into the privacy business where we do believe consumers and businesses are demonstrating that they do care about pricing. And so a lot of what this is about, social media tracking, surveillance and privacy violations, we think, creates a real opportunity for providers of privacy solutions, which is why we moved into the VPN space and affiliated privacy businesses on the cloud side.

Shyam Patil -- Susquehanna International Group -- Analyst

Great. Thank you. Congrats, again.

Vivek Shah -- Chief Executive Officer

Thank you. Thanks.

Operator

Our next question comes from the line of Dan Ives with Wedbush Securities. Please proceed with your question.

Dan Ives -- Wedbush Securities -- Analyst

Anyway, how are you guys? Look, I don't remember you leasing for the year after our 1Q, I have to go back to the Clinton administration.

Vivek Shah -- Chief Executive Officer

We are barely public the, Dan.

Dan Ives -- Wedbush Securities -- Analyst

I know. That's why I was going back a long time. So look, obviously, we talk about on the M&A side. Could you just talk also organically what's happening on digital media in terms of drivers that are really giving increase confidence going into the year, even on the subscription side it seems.

Vivek Shah -- Chief Executive Officer

Yeah. So we've got a few things going on. So look, the display business is continuing to rebound. So our Q1 year-over-year growth and display is between 6% to 7%, which is even better than what it was in Q4.

So having that in the mix is really important. And as part of kind of the momentum we're feeling. At the same time, the subscription business on the probably on the media side, going to be north of $175 million. And so it's a significant growth engine for media.

So across the board, we're pleased with what we're seeing, the quality of the portfolio has really improved with assets like Humble Bundle. Ookla, we've talked about fair amount. We've got a great asset in . And also on the cloud side, the a VPN businesses that we've acquired are growth businesses.

We really see lots of opportunities for it to grow organically, as well as the space in which we can see a fair amount of acquisitions. We acquired an incredible team. We're really excited for what they're going to bring to the company. So really, it's kind of across the board we're feeling very good.

And then on the margin side, the margins are outstanding for the quarter. And so we feel good about that. Now to Scott's point, we are looking to make some investments in some game titles in Q2. But that's the mode we're in.

We're in a mode of putting capital to work. M&A within the business to drive top line and to drive future cash flow.

Scott Turicchi -- President and Chief Executive Officer

And I would just add to that. While we talk about display, you know as a category, we've seen continuing strength and firmness out of everyday health, which has a large chunk of display advertising in terms of its total monetization. So grew mid-teens organically, everyday health grew mid-teens organically in Q1.

Dan Ives -- Wedbush Securities -- Analyst

So that was actually going to be my question on the follow up on everyday health. I mean is that you've seen the pipeline, you have a pretty good visibility there, call, it three, six months ahead. So that continues to just step up.

Vivek Shah -- Chief Executive Officer

Yes. Yeah. We're feeling very good about the everyday health business and the components of it. I think I mentioned this on the last call.

The pipeline at the FDA is very robust, 59 new drugs got approved in 2018. But to Scott's point, we've got AdVent stone, an incredible leader to that division and it's put in place a fantastic team. And it's now beginning to put in place M&A. And we've had the additions of Prime, which is a continuing education company and getting into the CME space is very important for pharma.

And pharma are the driver of this business. And then we bought a great brand called Castle Connolly. You might know them into top doctors at the top hospital. And we love the whole rankings and ratings world as you know through a lot of the assets, particularly on the tech and gaming side of the company.

So smaller asset but we think a lot of potential. So we like the mix of portfolio. We like the management team and the results have been very good.

Dan Ives -- Wedbush Securities -- Analyst

Got it. Thanks.

Vivek Shah -- Chief Executive Officer

Thank you.

Operator

Our next question comes from the line of Nick Jones with Citi. Please proceed with your question.

Nick Jones -- Citi -- Analyst

Hi. Thanks for taking my questions. I guess it's -- the first one on visits and views for us. This came down a little bit but revenue went up for the media business.

Can you walk the dynamics there that kind of prorated that situation?

Vivek Shah -- Chief Executive Officer

Yeah. So – hey, Nick. So let's talk about Snapchat. So Snapchat made a significant change in its app experience, without to see a huge drop in traffic.

But it really had no effect in our revenues since Snap is less than, I think, one half of 1% of our digital media revenues, which makes it even smaller across all of j2. So adjusting for Snap, we'd up. There's also been changes in the source of traffic data we move from armature in some instances to Google analytics. And that's showing some declines and that is hard for us to internally recognize hundred lesson fit with actual ad impressions, which is frankly the statistic that matters for display.

So we're investigating that.

Nick Jones -- Citi -- Analyst

OK.

Scott Turicchi -- President and Chief Executive Officer

I would just add, Nick, that even from the beginning, when we acquired Ziff Davis back in '12, we have talked about sort of what are the right metrics by which to measure the business. Back in the day, because it was 80 plus percent display advertising, visits and page views were gingerly or relative with a revenue productivity of the business. That's evolved over the last three to four years in particular with the addition of performance-based marketing and subscription. We're now about two third of our revenue is either almost uncorrelated to traffic and visits or very likely correlated.

So as Vivek mentioned, we are -- we continue to pursue one of the right metrics to give you insights into where digital media business. But clearly, the correlation is weakened over the last two to three years, and will likely continue to weaken as we see display and video be 30-ish percent of the total media's revenues.

Vivek Shah -- Chief Executive Officer

Yeah. Just one last dynamic, which is when you're in the performance marketing transaction business, you're trying to move the users as quickly as possible to the retailer sites to get the transaction, dwelling on your side does not get you paid. So there's also the inverse relationship where the quicker you get them out to transact, the better.

Nick Jones -- Citi -- Analyst

Got it. Got it. It makes sense. Thanks.

And one quick follow up on backup. You guys kind of manage decline. You know what's the rationale of the team to acquire is that part of the men's the client so we expect to see more acquisitions and that vertical?

Vivek Shah -- Chief Executive Officer

Yeah. Look, I think, were looking at some of the small tuck-ins that fit our ROI model. Remember, we have been sort of fungicide lines in the backups phase because valuations have been too high. We're beginning to see that shift, at least for smaller assets.

To work on be opportunistic and then additionally, we made some investments in the business that we think will help drive retention of our existing customers. These are really high value customers whose data continues to grow which drive revenue growth. So just simply retaining customers has sort of interesting financial value. And so we're doing those pieces but we're not -- love, continues to be in sort of this manage decline.

We think we'll see some deceleration in that decline based on some of these small tuck-ins and investments and account management and infrastructure.

Scott Turicchi -- President and Chief Executive Officer

And I would just add, it actually had a pretty good Q1. and it was pretty much like the Q4 of last year in terms of revenues. So the M&A did not really aid it since the two deals are both small and occurred late in Q1.

Nick Jones -- Citi -- Analyst

Got it. Thank you for taking my questions.

Vivek Shah -- Chief Executive Officer

Thank you. Not a problem.

Operator

Our next question comes from the line of Charlie Erlikh with Robert W. Baird. Please proceed with your question.

Charlie Erlikh -- Robert W. Baird and Company -- Analyst

Hey, guys. Thanks for taking my question and congrats for the strong quarter.

Vivek Shah -- Chief Executive Officer

Thank you.

Charlie Erlikh -- Robert W. Baird and Company -- Analyst

I just wanted to ask a question about the fax business. First, how did that a corporate fax segment performing the quarter, and then also, just from an industry point of view, what percentage of the market would you say is cloud fax versus traditional hardware-based of facts and is the cloud fax portion of the industry going out all? And within that, what you think the market share or what do you think your market share is within the cloud fax business? Thanks.

Vivek Shah -- Chief Executive Officer

So we have an interesting perspective into the share of the market that we have, right? Because we can see in situations are be on the other side. 95% of the time, we are not, OK? So that tells you that it's maybe a little more than 95%. But at best, we had 5% of the volume. Hard to tell you definitively how much of that volume is cloud versus server versus machine, putting server and machine together just calling that analog.

But our own channel checks and understanding of the market will tell you it's a vast, vast majority. Cloud probably is not more than 10 points, if even, of the overall market. So we see the real opportunity on the corporate side for us to be able to really change the behaviors of those customers of the analog side of the equation. In terms of the corporate business, we are continuing to see it grow.

It's becoming a larger share of our fax business. It's almost 40%.

Scott Turicchi -- President and Chief Executive Officer

Yes.

Vivek Shah -- Chief Executive Officer

Is going to be the total.

Scott Turicchi -- President and Chief Executive Officer

Of total fax business, which is increasing -- has been increasing.

Vivek Shah -- Chief Executive Officer

Right.

Scott Turicchi -- President and Chief Executive Officer

And I would just add back to Vivek's earlier's comment. The corporate space, when leaving business, almost always, the displacement of some physical hardware. It could be if it's a large entity, server or servers or server farm, if it's a smaller entity, it might be a physical device that has some telephony input. But it's usually not taking share from another cloud fax provider.

So all that gives us sort of indirect evidence that the overall penetration of the very vast tracts market is still modest from a cloud perspective. And then there's been some studies done or surveys, and I treat them with a grain of salt because I've looked at this over the past 15 to 20 years. They're generally done by surveying techniques in terms of trying to size the market. We obviously know, for tickling the markets that we are directly participatory end like North America, Western Europe, again, said, what's going on there.

There extrapolating part of the world know penetration are very light sharing like China, Russia, Africa. so these studies for what they're worth, we'll will tell you that the cloud fax business in its entirety. So living aside servers, leaving aside machines is probably between $1 billion and $2 billion of annual revenue globa tour shares would be higher in about 15 countries where we have local presence. Although we have telephone numbers in over 50 countries but we don't necessarily have people underground.

Charlie Erlikh -- Robert W. Baird and Company -- Analyst

Great. Thanks for the color. Appreciate it.

Operator

Our next question comes from the line of Rishi Jaluria with D.A. Davidson. Please proceed with your question.

Rishi Jaluria -- D.A. Davidson -- Analyst

Thanks, guys. Thanks for taking my questions. Let me start with some of the announcements around the VPN side of the business. I think to start off with -- what do you see was a potential synergies with the other security offerings you have like a viper or the other kind of core email security side and one more follow-up on the VPN.

Vivek Shah -- Chief Executive Officer

Yeah. It's a great question, Rishi. We think privacy and security are essentially becoming the same thing. So adding VPN to our roster of assets in the space should VIPRE to use examples.

We believe forms a nice foundation for broader solution for consumers, small and medium businesses where we can solve all of their privacy and security needs in the suite. And so we are looking at ways of bundling. We're looking at ways of cross-selling. We're looking at ways to attach multiple of these things to one another.

We have interesting channel where in some of our backup businesses, we have some channels that are not available VPN, the same and our endpoint and VIPRE. So exploring the way to leverage these channels together was part of these thesis. So we see these things that's working well together but also independently, right? So you got customers are just want each one of this point solutions and were not going to lose our focus they are. But we do see them as being highly synergistic.

I'll also say that we do see some marketing opportunities on the digital media side, given the nature of our audience and that we have many advertisers who are VPNs. And so we can advertise our own products, and you've seen us do that and other areas as part of what I mentioned in my prepared remarks, which is how do you leverage media assets and how deleverage and venture remarketing to the benefit of your own products.

Rishi Jaluria -- D.A. Davidson -- Analyst

Got it. OK. That's helpful. And then following up in the VPN side of the business.

Look, I mean, if I go to your own property at PC Magazine, it seems like some of the leading motivators for VPN usage obviously some of this is giving free versus paid. It looks like some of the leading motivators tend to be more entertainment or social media-driven. How do you think about just your VPN offerings and SMB angle versus the consumer angle?

Vivek Shah -- Chief Executive Officer

Yeah. So look, there are multiple uses of VPN and there is VPN for security, there is VPN for privacy and there is VPN for remote access and connect, which is the classic VPN when we think in the business world of VPN. We think this asset is positioned to do all of it. So they increased me VPN retains.

This is a proposition if you're a small media business and you have your employees are traveling the world and accessing the internet over unsecured when the plaintiff you're doing an airport, and they're doing it in the hotel. We have a product that allows all of those endpoints to simply have our VPN owned to protect their connection. And that is becoming an increasing use case. So that is a business argument.

On the consumer side, I do. I think there's enough of surveillance activity and I don't want them to know what I'm doing regardless of what I'm doing, whatever category that activity may fit in, the ability to make that private, I think, it's also a dry be. There is a part of the market that's looking to get access the content not in the territory. That's certainly part of the market.

But I think the brands we've got kind of hit on each one of those and the reputation scores of these brands are very strong. There are a number of players in the VPN space you really need to trust is the biggest piece that drives the success of a VPN brand and service. And they earn very high trust marks.

Rishi Jaluria -- D.A. Davidson -- Analyst

Got it. Thanks. The last one for me and I'll jump off. I wanted to maybe dive a little bit deeper until one of your more recent acquisitions, which is Ekahau.

Maybe talk a little bit about some of the earlier traction you're seeing with that since Ekahau kind of falls under the Ookla side, if I'm not mistaken.

Vivek Shah -- Chief Executive Officer

Yeah.

Rishi Jaluria -- D.A. Davidson -- Analyst

Maybe talk a little bit about how you can read together some of the core functionality of Ookla and to what Eka how does and may be a stronger offering.

Vivek Shah -- Chief Executive Officer

Yeah. It's a great question. So Ekahau primarily works with businesses and workspaces to design, deploy Wi-Fi within those basis. So that could be office building, that could be hotels, that can be Stadiums, that could be coffee shops, right? National chain.

Because Wi-Fi is critical. As we often say it's like electricity for all businesses. And when it goes down, bad things happen. So having a solution that ensures the proper deployment under proper management of those networks is super important.

So I think just as a business on its own it's a great business to be in and it complements what is largely a consumer install base that we have on the Speedtest side. Where we start to get really excited is ways in which we can put Speedtest monitoring inside of Ekahau in the way we can put Ekahau inside of Speedtest. An example of that would be how do you turn Speedtest into essentially an app that allows you to figure out how to set up your home network. That would be a very interesting use case leveraging Ekahau inside of Speedtest to allow Speedtest to be not just a tool that tests how your broadband is at home, right, how your Wi-Fi is at home.

But to how to possibly place a router, how to configure a router, add repeaters, etc., based on the configuration of your home. That would be a great use case to drive usage for the Speedtest business. There are multiple examples like that. I won't go through the list.

But you can start to see how what we do for consumers can apply to business and vice versa.

Rishi Jaluria -- D.A. Davidson -- Analyst

Got it. That's helpful. Thanks.

Operator

Our next question comes from the line of Jon Tanwanteng with CJ securities. Please proceed with your question.

Jon Tanwanteng -- CJS Securities -- Analyst

Good morning, gentlemen. Congrats on the strong quarter on the outlook.

Vivek Shah -- Chief Executive Officer

Thank you.

Scott Turicchi -- President and Chief Executive Officer

Thank you.

Jon Tanwanteng -- CJS Securities -- Analyst

Regarding the dividend suspension and the firepower , how much capacity do you actually have for investments in M&A right now?

Vivek Shah -- Chief Executive Officer

So there's a couple of different elements to that. There's obviously the cash we have on our balance sheet, the cash we generate and the ability to take on additional leverage. So we maintain, a fair amount of cash, but I'd say most of that we have to date, post the acquisition of the assets from stock bath would be working capital-oriented. So there are some small amount there, maybe a $50 million, $75 million that would be available for future deployment, depending upon the jurisdiction of a potential acquired assets because some of that money still remains overseas.

In terms of leverage capabilities, we still remain moderately leveraged, not even take into account a race guidance or pro forma contribution from the M&A we've done this year. And I think we can very easily, within our structure, move to three times debt-to-EBITDA even if you assume no contribution from either potential acquired assets. You don't get credit for the pro forma EBITDA acquired, which means another close to $500 million of borrowing capacity. And then, of course, we have free cash flow generation.

We generated $104 million of free cash flow in Q1. I would say that with our raised guidance, we're probably in the 360 range, 360-plus range for the year. We do intend to make some capital investments we talked about in Q4, which were very light in Q1 but will accelerate through Q4. So we've got another $256 million to $260 million of free cash flow that we will generate for the course of the year.

We will pay the last dividend this quarter, that's about $22 million. So you should take that out of your calculations. But if you add all that up, you're around $650 million, $800 million, without really stretching the balance sheet. Now clearly, if demand warrants it, we could temporarily go North of three times leverage and take that up even beyond that $750 million, $800 million.

So I think we're in very good shape right now. But the dividend, the suspension of the dividend does give us relief. Just to give you a sense of order of magnitude. We have expanded it through the June payment coming up about $475 million on dividend payments since it was initiated in August of '11.

And clearly, the circumstances are very different today than they were back then. Some of you will recall and some of you recovered us for that duration. We were essentially a digital fax company with close to a 90% of revenue in digital fax and probably 95% of our EBITDA. And we had very early stages of going into those other cloud services like backup what is now Marked Tech and security.

So we thought the dividend was a prudent thing to do to return capital to shareholders, not knowing what the M&A landscape would be in those other areas to do two things. To preserve the existing shoulder base that we have built at a time but also to try to seek new investors, ideally those seeking to yield. And somewhat ironically, almost eight years later, we have less than 2%, probably closer to 1% of our shares are actually held by funds that needed dividend or ownership. So, you know the landscape has changed dramatically in that eight-year time frame.

We've now got 14 businesses, not 1. We've got an evolution of the management structure and the demands for capital were quite robust.

Jon Tanwanteng -- CJS Securities -- Analyst

Is it a safe assumption to make that you wouldn't have suspended the dividend if you're able to do what you wanted to do without doing it, you know via debt or other finance -- financing?

Scott Turicchi -- President and Chief Executive Officer

I think if we had lesser demand -- I'd say it this way. We had lesser demands in our capital. In other words, the dividend and our M&A were funded out of free cash flow. We probably would have maintained the dividend.

Although there was an argument that from a pure capital allocation standpoint, was going to have that discussion. But the reality has been in the last five years, in three of those years, we've had more M&A and free cash flow we generated whether we paid a dividend or not. So in essence, you can argue we've been funding the dividends through borrowings, which is I think, not a good idea. I see those demands from the BUs also increasing, I mean, to be at a 270 spend rate in the first four months of the year.

And let's say I'm right and we're in the 360 to 370 range of free cash flow, I only can give you that hard of this year to spend another $100 million.

Jon Tanwanteng -- CJS Securities -- Analyst

Got it. And terms of what you're seeing opportunity over your 14 BUs used, can you give us a relative peek at the size and timing where you could see the most impact?

Scott Turicchi -- President and Chief Executive Officer

Well, the great news is we got I think 10 -- actually they're all 14 but 10 that are really active. So it really is an across-the-board. I think you've heard of this talk about how to build them marked tech business. Obviously iContact early in the year was a piece of that puzzle.

But that puzzle is far from complete. We talk a lot about security. The privacy assets are a key piece to that. We've got some interesting living in the healthcare space in each of our three business units there that could in some cases even transform some of those business units.

So it really is, I think, probably the only one that is digesting right now would be the broadband business unit.

Vivek Shah -- Chief Executive Officer

Look the only thing I would just underscore, I mentioned this in my remarks at the beginning. But again, one of the advantages, we think in our structure, as well as the be used are generating deal flow. The capital allocation decision happen centrally. And so we sweep all of the cash that they're generating from their operations and we had corporate are looking at all of it and we can really make we think the best choices that generate the most returns for j2 not just making the choice that this is what one BU wants to do in the context of the business.

So we are seeing just a larger volume of really quality deals, and I would also just say that the quality of the portfolio is better than it's ever been. And when you look at the assets that we've been acquiring in recent memory, the Humble Bundles, the IP vanishes, Ekahau, PRIME continuing medical education a vicious line to and voice inside, these are quality growth-oriented businesses that want to be fed. And they're doing two things. A lot of times, we talk about the three types of M&A we do.

All the deals Vivek just mentioned contributed in all cases, at least two of the three. Not only are they scaling in existing business also extending their product content and service reach of what this business did prior to the acquisition. So we're getting sort of a double on a given deal. That was small tuck-in deal generally only fits into one of those categories.

It's either going to bring us customers or traffic. It's got to bring us new service or it's going to bring us a new geography. But these are deals that are not large in size but larger than a tuck in. And we're often getting a double.

Jon Tanwanteng -- CJS Securities -- Analyst

Got it. Thank you so much for the color, guys. Give it a [Inaudible]

Vivek Shah -- Chief Executive Officer

Thank you.

Operator

Our next question comes from the line of Patrick Walravens with JMP Securities. Please proceed with your question.

Unknown Analyst

Hi, this is Joey on for Pat. Thank you for taking my question and congrats again. Just on the competitive front, do you see anything changing specifically?

Vivek Shah -- Chief Executive Officer

Yeah. I mean look, I think, the great thing is in all of our businesses, we actually of competition which speaks to the quality of those businesses, right? I often say we want to be in spaces where others more people are trying to get a share of that market. And even see it in our cloud fax arena, this competition. Trying to solve secure document transfer in industries like healthcare, even financial services and legal is not without competition.

We feel we've got good assets in each one of the market segments in which we operate from that point of view. There is competition but we feel we have great assets to compete. in the M&A marketplace, there's always competition. Now where we have an advantage is we have value creation opportunities for at least the deals we do, have to have value creation opportunities that are unique to us.

By virtue of us owning the business, we can create value in ways that others can't and that's how we are able to compete on it.

Unknown Analyst

Thank you so much.

Operator

Ladies and gentlemen, we've reached the end of the question-and-answer session, and I would like to turn the call back to Scott for closing remarks.

Scott Turicchi -- President and Chief Executive Officer

Great. Thank you very much, Dana, and thank you all for joining us today for the first quarter 2019 earnings call of j2 Global. As usual, we will be out on the road over the next coming weeks, specifically at some conferences. You'll see a press release probably the next week or so announcing those that are coming up.

I believe they started early June. There's a flurry of fame in the first week of June. And then --

Duration: 56 minutes

Call participants:

Scott Turicchi -- President and Chief Executive Officer

Vivek Shah -- Chief Executive Officer

Shyam Patil -- Susquehanna International Group -- Analyst

Dan Ives -- Wedbush Securities -- Analyst

Nick Jones -- Citi -- Analyst

Charlie Erlikh -- Robert W. Baird and Company -- Analyst

Rishi Jaluria -- D.A. Davidson -- Analyst

Jon Tanwanteng -- CJS Securities -- Analyst

Unknown Analyst

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