j2 Global Communications (JCOM) Q3 2019 Earnings Call Transcript

j2 Global Communications (ZD 1.75%)
Q3 2019 Earnings Call
Nov 01, 2019, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Welcome to j2 Global's third-quarter 2019 earnings call. I am Sherry, the operator who'll be assisting you today. [Operator instructions] On this call will be Vivek Shah, CEO of j2 Global; and Scott Turicchi, president of j2. I will turn the call over to Scott Turicchi, president and CFO of j2 Global.

Scott Turicchi -- President

Thank you. Good morning, ladies and gentlemen, and welcome to the j2 Global investor conference call for Q3 2019. As the operator just mentioned, I'm Scott Turicchi, president and CFO of j2 Global. Joining me today is our CEO, Vivek Shah.

We had the best third fiscal-quarter performance ever, setting records for revenue, EBITDA, free cash flow and non-GAAP earnings per share. In addition, we completed four acquisitions this past quarter, which Vivek will address in his opening remarks. In addition, we repurchased approximately 200,000 shares of our stock at a price of $80.74 per share. 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 is 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 our corporate website at j2global.com/press. In addition, you'll be able to access the webcast from this site.

After we complete our formal presentation and remarks, we will be conducting 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 [email protected]. 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 not limited to, the risk factors that we have disclosed in our various SEC filings, including our 10-K filings, recent 10-Q filings, various proxy statements 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 opening remarks.

Vivek Shah -- Chief Executive Officer

Thank you, Scott, and good morning, everyone. This was another terrific quarter across the board. Revenues were up over 17%, which is the strongest growth quarter we've had this year. Cloud services grew 14%, while digital media grew over 21%.

We were particularly pleased with our 34% growth in digital media subscription revenues. And importantly, we continue to see strong growth in free cash flow, which increased over 12% year over year. We also completed four acquisitions in the quarter, and I wanted to use most of my time today to talk about them. As a reminder, we completed four acquisitions in Q1 and two acquisitions in Q2, making the total number of acquisitions this year to 10.

Generally speaking, we're seeing attractive deals across the markets and categories in which we operate. Our ability to transact efficiently, transparently and reliably and to see and create value where others cannot has allowed us to succeed in an M&A environment that can at times seem frothy. As you all know, we organized the company into 13 business units. Of the 13, five of the units are below $75 million in annual revenues.

As we continue to grow as a company, it's a priority for us to scale these units to be north of $75 million and ultimately north of $100 million in annual revenues. Meeting those marks not only achieves growth goals but also ensures the kind of diversification we look for in our portfolio of businesses. To that end, since January 2018, of the 21 deals that j2 has consummated, 11 were in cloud services and 10 were in digital media, with 11 of our 13 business units closing at least one transaction. Through a combination of organic growth and programmatic acquisitions, we have more than doubled our revenues and adjusted EBITDA at j2 over the past five years, making a recalibration of scale important and appropriate.

Two of the acquisitions consummated in the quarter should put two of our BUs north of the $75 million mark in the next 12 months. Let me address the first one, which is BabyCenter. The parenting and pregnancy space is a very attractive one to us. It sits at the nexus of a broad range of digital health extensions, including fertility services, women's health, child and family healthcare and genetic health services.

By owning both BabyCenter and What To Expect, we believe we have become a global leader in this vertical, where users can be served at every stage of the pregnancy and parenting journey. In the U.S., BabyCenter and What To Expect register a combined and deduplicated 70-plus percent of pregnancies annually. With BabyCenter, we now also have reach into non-U.S. markets.

BabyCenter operates 10 international sites, which include five that are non-English language. BabyCenter also brings a broader editorial focus, which extends beyond pregnancy in the first two years of parenting to include preconception and parenting up to nine years of age. From a value-creation point of view, this is very similar to our past digital media acquisitions. We see opportunities for business model innovation, as well as focusing the business on profitability.

On the former, we have at What To Expect, and at many of the j2 digital media brands, a great track record with performance marketing solutions, where we generate customers and leads for our clients. Today, the BabyCenter business is primarily display advertising. While the What To Expect business makes the majority of its revenues from performance marketing. We believe we can successfully implement performance-based solutions at BabyCenter to drive growth.

On the profitability point, BabyCenter was a noncore asset for its prior owner and not run for earnings. As you all know, that's not uncommon in the digital media world but we've identified synergies and approaches to the business, which we believe will make the business solidly profitable in 2020. We're also very excited with some of the talent we're picking up in the business, who are both mission-oriented and embrace the focus on profitability and profitable growth. The other acquisition that we expect to allow a business unit to achieve revenue scale is Spiceworks.

We love the information technology industry and over the last several years have acquired assets in the B2B space, such as emedia, Toolbox, Salesify and DemandShore. Spiceworks is the most established of these brands, the deepest roots in IT. It's a professional network and a true community of IT pros who look to it for content, product reviews and apps. Its business model is centered on being the marketplace where tech buyers and sellers come together.

The combination of Spiceworks with our existing B2B tech assets should position us as a close second to another fantastic public company in the space called TechTarget. We will go to market under the Spiceworks brand as it is highly recognized and admired among tech professionals. There are 18 million IT buyers in the Spiceworks community. For IT vendors, the combination of our assets will provide them a unified suite of advertising, performance marketing and content solutions.

And while the company has done a fantastic job in building true value for its audience and clients, as a venture-backed company, Spiceworks was not focused on profitability. We see a number of margin expansion opportunities when combining Spiceworks with our other B2B brands, and therefore, a clear path to earnings. And the Spiceworks team is on board and excited for the change in focus. The third acquisition in the quarter, SaferVPN, is notable as it represents our first acquisition for our privacy business unit, which is looking to be active in the VPN space.

While it was a very small deal, it is a step forward for the privacy unit's global expansion as SaferVPN is localized in 26 languages. We hope it represents the first of many tuck-ins in the VPN space. I'll also point out that the business is looking for ways to offer a broader suite of privacy and security solutions. For instance, we are working on ways in which we can bundle our VPN offerings with our SugarSync cloud storage offering and our VIPRE antivirus offering.

The fourth acquisition in the quarter, OffSiteDataSync, is in our cloud backup business unit, which, as you all know, has been in decline for the last couple of years, but highly profitable. OffSiteDataSync is a market leader in providing backup and higher-margin services such as disaster recovery based on Veeam software. These Veeam-based offerings enable us to better serve and retain our customers and to acquire new customers, both organically and through tuck-ins. Buying businesses is one thing.

But when we can buy brands, we tend to get very excited, a hallmark sign of a great brand, especially in the Internet business is its ability to endure and maintain a leadership position in its space. BabyCenter was founded in 1997. Spiceworks was founded in 2006. And iContact, which was our first acquisition of the year, was founded in 2003.

We believe we have an unparalleled track record at our company of enhancing brands and improving their business models. With that, let me hand the call back to Scott.

Scott Turicchi -- President

Thanks, Vivek. Q3 2019 set a number of financial records for j2, including revenue, EBITDA, free cash flow and non-GAAP EPS. These results were driven by several areas of strength in our portfolio of companies, notably strong growth in our media subscriptions, continuing growth in our VPN business, continuing good display advertising revenue and our relentless focus on costs resulting in strong EBITDA margins. We ended the quarter with approximately $191 million of cash and investments after spending $165 million in the quarter on acquisitions and share buybacks.

Now let's review the summary quarterly results on Slide 4. For Q3 2019, j2 saw a 17.6% increase in revenue from Q3 2018 to $344.1 million. Gross profit margin, which is a function of the relative mix of our 13 business units rose to 82.3% from 81.5% in Q2 2019. We saw EBITDA grow by 13.2% to a third-quarter record of $134.8 million.

The EBITDA margin for the quarter was 39.2%, which is strong in light of the fact that the four transactions completed in Q3 contributed an insignificant amount of EBITDA. Finally, adjusted EPS grew 11.1% to $1.70 per share versus $1.53 per share for Q3 2018. Turning to Slide 5. In Q3, we generated $80.5 million of free cash flow, which was 12.7% increase from Q3 2018.

On a trailing 12-month basis, we generated $366.4 million of free cash flow for 69.4% free cash flow conversion of our $528.1 million of trailing 12-month EBITDA. Now let's turn to the two segments, cloud and digital media for Q3, as outlined on Slide 6. The cloud business grew revenue 14% to $171.2 million due primarily to growth in our new VPN business unit. Reported EBITDA increased by approximately 12% to $83.9 million, compared to $75 million in Q3 2018.

The EBITDA margin is 49% after corporate allocations, down approximately 1 percentage point due to higher corporate allocations and a lower contribution margin from our VPN business. Exclusive of the corporate overhead allocations, EBITDA was $86.5 million for the quarter with a margin of 50.5%, compared to 50.9% in Q3 2018 due once again to the lower-margin contribution of our VPN business, which we continue to invest in for future revenue growth. Our media business grew 21.3% to $173 million and produced $53.5 million of EBITDA or 16% growth. EBITDA margin declined by 1.4 percentage points from Q3 2018 due to higher corporate allocations and negligible EBITDA contribution from our two newest media assets, BabyCenter and Spiceworks.

We are reiterating our revised guidance range for the year as outlined on Slide 8. To remind you, our original high end of our range was $1.33 billion of revenue and $540 million of EBITDA with $6.95 in non-GAAP earnings per share. Those have now become the low end of our new range of guidance. We now expect revenues to be between $1.33 billion and $1.37 billion of revenues, EBITDA to be between $540 million and $556 million and non-GAAP EPS to be between $6.95 per share and $7.15 per share.

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

Questions & Answers:

Operator

Thank you. [Operator instructions] Our first question is from Shyam Patil with Susquehanna. Please proceed.

Shyam Patil -- Susquehanna International Group -- Analyst

Hey, guys. Congrats again on another great quarter. I had a few questions. Vivek, you talked about the VPN opportunity in your prepared remarks.

Just wondering if you could talk a little bit more about kind of how you see the broader opportunity, the ability to do M&A and then just also, just how you think about the revenue growth, your margin profile and over time for this business? And then just maybe a little bit broader than that, how you see the cloud business evolving with the new head of cloud that you've brought on? I know you talked about security in your prepared remarks. Is that how you see that -- the focus kind of evolving for that?

Vivek Shah -- Chief Executive Officer

So great questions. I'll start on the VPN front and talk a little bit about the privacy space. And I think we've talked about this a little bit in the past. We think consumers and businesses really do care about privacy, everything you see in the news, revelations about social media, tracking, government surveillance are all just contributing to, I think, market demand for the kind of service that IPVanish and our VPNs offer.

So we think just from a marketplace point of view, we are well situated to take advantage of those trends. Specifically IPVanish is really performing well. It's at or above expectations. However, we look at it, we're really excited about the team under Nick Nelson, who is running that business for us.

And having our first tuck-in done for this business unit is pretty exciting. Typically, business units that are new to j2, it takes a little while for them to consummate their first transaction. They probably broke a record in terms of how quickly they were able to move. And part of that has to do with prior to our ownership, they also had done some tuck-in acquisitions in this space to get to the scale that they were at.

So in many ways, and one of the reasons why we viewed them as the right acquisition for us originally was a demonstrated track record from an M&A point of view. Long term, the way we often think here is you often hear in SaaS companies, they talk about the rule of 40, where you take your revenue growth, you take your margins and you try to get to that. And historically, on the cloud side, we would achieve that or more than that by more focus on margin than on organic growth. I view IPVanish as being a little bit different in that it has real organic growth.

And so there, I'd be careful about managing the margin at historic cloud levels. And you see it a little bit in our cloud margins for the quarter, about 40-basis-point drag from the VPN business. So it doesn't make a huge impact in the segment, but we don't want to choke it from a growth point of view. And then I think your last question, which relates to Nate Simmons.

So super excited to have Nate. Nate's been with us now for 60 days. Nate and I worked together in a prior life at Time Inc., so we know each other well. His last spin was the COO of Symantec's multibillion-dollar consumer business.

And so when you look at our portfolio, and you look at our VIPRE business and you look at our IPVanish business and you look at our SugarSync and cloud businesses and even when you look at the cloud fax business, they're all security businesses, right? We've talked a lot about cloud fax, for instance, and how it's essentially a secure document transfer business. So, so much of the portfolio fits within that world, having an executive who brings industry perspective was really valuable. And then I'd also add that he's an expert at customer acquisition and retention, understands subscription models really from the beginning of his professional career. So having that skill set also at the leadership level was really valuable for us.

Shyam Patil -- Susquehanna International Group -- Analyst

Great. And on the digital media side, BabyCenter was like a really good deal. Just wondering kind of how the M&A environment is now in digital media as you look across the key verticals where you're a larger player?

Vivek Shah -- Chief Executive Officer

Yes, I think if you can be a cash buyer in the digital media industry, which we are and historically have been, I think your advantage. I think it's a buyer's market. There have been a lot of other deals in the industry. There've been equity deals.

Those are different, I think, because there it's relative valuations. It's trading stock for stock. I think if you are interested in an asset or were interested in an asset and we're willing to put our cash behind it, we generally are doing well. And so I think that is, in this environment, an advantage for us, and we're very excited for Baby Center, and we're very excited for Spiceworks.

In its industry, it is similarly well known and respected and established. So look, I think as we said in the past, the market, and I said in my prepared remarks, it can be frothy but I think the proposition we often present as a buyer in whatever space we're looking at can be attractive. And then the volume, the deal flow that we're seeing with all the general managers in place, with the divisional presidents in place, with corporate in place, continues to be pretty vibrant. I mean, we've deployed over 400 --

Scott Turicchi -- President

Yes. $420 million this year in the nine months.

Shyam Patil -- Susquehanna International Group -- Analyst

Great. And I have one last question. But could you talk about just how to think about the margins for the segments, not just in 4Q, but general framework at a high level, just going forward? And also, for 4Q, how are you guys thinking about the various opex lines, particularly sales and marketing?

Scott Turicchi -- President

OK. So in general, let's talk about the EBITDA margins by segment before corporate allocations because I'm starting to see that -- and the reason we do the corporate allocations, I think, as you know, is because of our bond structure at the cloud business and the fact that we have separate audited financials. And as a result, we have to impute a fully loaded charge to the cloud business and, as a result, do the same for the media business. One of the things I'm observing, and you'll see it even in the sequential numbers from Q2 to Q3, is an increase in corporate allocations, albeit the total corporate expense was roughly the same.

And the reason for that is that you're seeing, as we've talked about, both in the prepared remarks and the first question now, an increase in revenue for these deals without a commensurate current increase in EBITDA, but it is triggering more corporate allocations to be sent down to both the cloud and the media business units. So I think that the target margins for the segments before allocations continue to be around 50% for the cloud business, it was slightly higher than that in the quarter. And the target margin in media is about 35%, it's a little bit under that target margin. That's a trailing 12-month or an annualized margin.

Because to your point, in the fourth fiscal quarter, we will generally see our media business perform in excess of 40% EBITDA margin, not uncommon for to be 41-ish. And the cloud business really is not so much impacted by the fourth fiscal-quarter seasonality. And to the extent it is, it actually is negative. So there tends to be some dampening more on the top line, if we look sequentially from Q3 to Q4.

I would expect all those trends to be true in this fiscal year. One of the things that has changed though in the last year is that in the cloud business, it was common around the middle of November to pull back on sales and marketing. And so that was a compensating offset for the fact that there was less business days and, as a result, less revenue-generating opportunities. And that would not only sustain the margin in Q4, but sometimes even elevate it a bit.

That's something we began to reverse about a year ago. Obviously, it's something that Nate is studying right now in terms of the amount of marketing we should put in these businesses. But clearly, as you've heard Vivek talk, both as it relates specifically to the VPN assets, I'd say more broadly the cloud, where there are opportunities to spend money, we should do it. If there is profitable growth to be had, we should do that even if it means some slight degradation in the margin for the quarter.

I would make one further comment about Q4. I do expect our corporate expenses unallocated to increase as they normally do from three to four because we're now in the heart of the period from an audit standpoint for the filing of what will ultimately be the 10-K in February of 2020. And so it is typical that we have a several hundred thousand dollar increase sequentially in our corporate expenses from Q3 to Q4, as the Sarbanes work is done and the audit work is done and various tax work is done.

Shyam Patil -- Susquehanna International Group -- Analyst

Got it. Thanks guys. Congrats again.

Scott Turicchi -- President

Thank you.

Operator

Our next question is from Nick Jones with Citi. Please proceed.

Nick Jones -- Citi -- Analyst

Hi, good morning thanks for taking the questions. First, one on, I think you said on the prepared remarks that 11 of 13 units closed at least one transaction. I guess, can you talk about the ones that did not close on transactions? Is there something specific to those units that is more challenging in the pipelines?

Vivek Shah -- Chief Executive Officer

No. So the two units that didn't transact were our gaming unit, which is IGN and Humble Bundle, which is doing very well and growing very strong. And so we -- we're really focused on the organic opportunities that exist there. And actually, from a capital allocation point of view, one of the things that we're doing at Humble Bundle is really building out our Humble publishing business.

So this isn't the subscription service. This is where we serve as the publisher with an Indie game developer. And we right now have 47 games that we've either launched or in development that will be Humble games, and so those games get released in the normal cycle and channels of game releases. We have participation as the publisher in the revenue generated from those games and then the ability to include those games in our subscription service, which, obviously, has great advantages since we have an economic interest in those very games.

So we're putting capital to work there from a game development point of view. The other business unit, where we haven't done a transaction, is actually cloud fax. And so there, I think I would also say that a lot of the focus has been on the corporate fax side, where we continue to see solid growth and continuing to pursue that. That isn't to say that we wouldn't be interested in web fax deals.

We are. There just aren't as many of them today as they've been historically. And so our equation historically was sort of maintain the business through acquisition of web fax and bringing those subscribers on. What we're doing now is really growing the corporate business to sort of manage any of the pressures we're feeling on the web fax side.

So those are the two where we haven't done a deal in the last little bit.

Nick Jones -- Citi -- Analyst

Another one kind of on M&A. Is there -- as kind of the ad business seems to be really focusing on audio and video. I mean, are those verticals or areas that you guys would like to monetize? And is that kind of on your radar for acquisitions?

Vivek Shah -- Chief Executive Officer

Well, look, video is a key part of how we monetize properties today inside of our advertising business. IGN has got a substantial video business. Mashable has got a substantial video business. Everyday Health has a video business.

So video has been part of our advertising mix for a while. We don't do as much in audio. We -- it's a space we'll look at. But remember, in our advertising business, I'd say a couple of things.

Number one is, the display business continues to grow, and it's been growing for four consecutive quarters after there was a period of time where we were having some challenges. So we feel very good about that. And then the customer generation performance marketing components of what we do, where we're not selling CPM advertising, cost per 1,000 display advertising, but we're selling cost per click, cost per lead, cost per acquisition. That is sort of -- that is what the marketplace is really looking for.

So when you put format aside, what they really want is, can you generate customers for us. Can you get us measurable ROI, where we're fitting into their CAC LTV equation. That's where we do our best. And so any format that can produce those outcomes, we're interested in.

But we're really focused on being able to drive those outcomes.

Nick Jones -- Citi -- Analyst

Got it. And then just one last one. Given kind of the size of the deals j2 Global has done this year, is there any kind of color you can give us on organic revenue growth?

Vivek Shah -- Chief Executive Officer

Yes. So look, I think our view on organic growth and our perspective is unchanged. We still look for mid-single digits on the digital media side, kind of low -- flat to low single digits on the cloud side, and then the balance really coming from the acquisition activity. But as I've said in the past, it's one of those things where we look at it as whether I'm putting marketing dollars to work or staff dollars to work at the income statement level to drive top line, which we will do, or I am putting cash from our balance sheet to work to acquire businesses where we can generate more cash, we'll do that, too.

And so we kind of look at it as how do we put our capital to work to generate the best returns. And that changes over time. It also changes on the portfolio.

Scott Turicchi -- President

Yes. It's very much business unit by business unit, absolutely.

Nick Jones -- Citi -- Analyst

Great. Thanks for taking the questions.

Scott Turicchi -- President

Thank you.

Operator

Our next question is from Will Power with Robert W. Baird & Company. Will, your line is live.

Will Power -- Robert W. Baird -- Analyst

Yes. I'm sorry, can you hear me now?

Operator

Yes.

Vivek Shah -- Chief Executive Officer

We can hear you, yes.

Will Power -- Robert W. Baird -- Analyst

OK. Great. Yes. I guess, a couple of questions.

Maybe, Scott, just starting with guidance framework, you had some nice upside in revenue, in particular, in the quarter here. How we think about full-year guidance in conjunction with that, given you'll have a full quarter in Q4 with the recent acquisitions? So why don't I -- why don't we start with that, then I have a second question.

Scott Turicchi -- President

Sure. So I think it's a good place to start because, obviously, we only had a partial impact of the four deals in Q3. And I think as we've highlighted, the media deals, Baby Center and Spiceworks were meaningfully more large than the two deals on the cloud side in this particular quarter. So I think that if you look at our full-year guidance range, which we reaffirmed, we do expect that on the revenue side, we should be trending toward the very high end of that range, which, if you recall, was $1.370 billion for the year.

However, given the fact that Spiceworks and BabyCenter are very much in transition in terms of gaining profitability, both at the EBITDA and the bottom line, from an EBITDA and EPS perspective, I expect us to be around the midpoint of those ranges. So that's $548 million is the exact midpoint of the revised increased range of EBITDA and $7.05 in EPS.

Will Power -- Robert W. Baird -- Analyst

OK. That's helpful. I think makes good sense. I guess, the second question is just coming back to BabyCenter and Spiceworks.

Any color with respect to how you're thinking about either revenue contribution or revenue growth trends from here? And how kind of the normal shrink to grow kind of fits into that? Just trying to get a sense for contribution kind of growth rates going forward? And I guess, just, Vivek, maybe tied to BabyCenter, what do the display trends there look like? Because it sounds like that's the bulk of the business. Is that business still growing, too? Or how do you think about transitioning and that how fast performance marketing?

Vivek Shah -- Chief Executive Officer

Yes. It's a great question. Look, the first order of battle here, and it is consistent with what we've done in the past, whether it was Mashable, IGN, even PC Mag at the beginning, is to really get to profitability. As Scott said, and as I mentioned earlier, these are not profitable businesses.

We believe they will be profitable businesses. We've seen -- as I've said, we've seen these scenarios before. It will be a combination of the two things you mentioned. In the case of BabyCenter, for instance, building in the performance marketing revenue streams, the lead gen and affiliate commerce revenue streams that are nascent or nonexistent there that are a majority of the What to Expect business does will unlock new revenues and likely offset some of the challenges that do exist in the display business.

On the Baby Center side they've had some challenges there. But again, I think as we add in these new revenue streams, those offset those challenges. And I think we can also probably bring some of our skill set on the display side. But then really on the cost side, the business wasn't run for earnings.

It just wasn't the purpose of that business inside of its -- inside of the prior company. And obviously, for us, having earnings assets and cash flowing assets is critical and central to what we do. So it is a bit of the shrink to grow. It is a revenue diversification.

And I think it's also just being clear about what successes and what the goals are for the business, which I will say the team, that is the go-forward team, absolutely embraces and understands.

Will Power -- Robert W. Baird -- Analyst

OK. No, helpful from that standpoint. I mean, any other color you're able to provide at this point in terms of how to think about general growth trajectories? I mean, does it fit within the broader digital media framework in terms of what they've been generating over the last 12 months in terms of growth rates?

Vivek Shah -- Chief Executive Officer

Yes. Well, I think there'll be -- I think they will look like the other businesses that have gone through the process that I just described. And so -- and I actually think, particularly in the parenting and pregnancy space, it could be even more attractive. This is a specific leadership positions in a lot of different categories.

This could be our strongest leadership position from a digital media point of view. It sort of reminds me of the position we have in our broadband world with Ookla and some of its assets. So it has those characteristics.

Will Power -- Robert W. Baird -- Analyst

OK. Thank you.

Operator

Your next question is from Rishi Jaluria with D.A. Davidson. Please proceed.

Hannah Rudoff -- D. A. Davidson -- Analyst

Good morning, guys. This is actually Hannah, on for Rishi. So Vivek, you said on BabyCenter, it's primarily display advertising currently and then you plan on developing performance marketing down the line. Do you see an opportunity to monetize it as a subscription offering at all?

Vivek Shah -- Chief Executive Officer

Yes. It's a great question. And obviously, building the subscription business inside of digital media is a focus. What we may more likely see is that I think we can be an engine for other subscription services within the broader space and either becoming marketplace and, therefore, get compensated for driving subscriptions to various services.

For instance, we do that today in the cord blood industry with What to Expect, where we are a pretty significant provider of customers for what is essentially a subscription service that lasts quite literally the life of the cord blood that is banked from the baby. So that is an example where, no, we would likely not be a cord blood bank ourselves. We would much rather be in the business of generating subscribers for them. I think there may be other instances where if it's a subscription service that feels like the kind of subscription service we can either -- that we could operate, either build or acquire that is closer to what we do then that might be something that we would spin up to leverage the media audience like we've done with IGN and Humble Bundle.

But if the question is, would I charge for what is currently free, the app, the pregnancy tracking, the tools? No, we wouldn't do that.

Hannah Rudoff -- D. A. Davidson -- Analyst

OK. Great. That's helpful. And then could you talk about how Ekahau performed in the quarter? And I think you previously mentioned,integrating Ekahau in Speedtest.

I was wondering where we are on that?

Vivek Shah -- Chief Executive Officer

Yes. So Ekahau is doing great. It's a strong double-digit organic grower, will continue to be that. It is -- primarily, right now, its market are systems integrators who use the software and the sidekick hardware to design, deploy and manage Wi-Fi networks in commercial settings.

And Wi-Fi in commercial settings is very important, right? Any business -- any entity if their Internet is not working or is not working at the level they'd like it to work, it's a real problem from a productivity point of view. So that market continues to be great. We do see opportunities in other ways of looking at this market more from a monitoring point of view versus more at the front end of design and deployment. And so we are starting to see some interesting traction there.

And then the integration right now or building of a product in Speedtest that essentially allows you to do at home what Ekahau allows you to do in commercial places is on the road map. It has taken a little bit of a backseat to things that we're doing a VPN space between IPVanish and Speedtest. That has presented itself as a more pressing and more interesting opportunity, and so we'll be launching a new product, a collaboration between Speedtest and IPVanish in the fourth quarter.

Hannah Rudoff -- D. A. Davidson -- Analyst

Great. Thank you, guys.

Operator

Our next question is from James Breen with William Blair. Please proceed.

James Breen -- William Blair and Company -- Analyst

Thanks for taking the questions. Just one clarification. Scott, I think you said that you spent $420 million through the first nine months on M&A. Is that correct?

Scott Turicchi -- President

That's correct.

James Breen -- William Blair and Company -- Analyst

So -- and I think you were $270 million through the first six months. So if you look at what you spent, the $150 million this quarter, any sort of guidance in terms of the relative size of those deals? And maybe the general multiples, have they been in line with what you've done historically?

Scott Turicchi -- President

And you got it. That's exactly right. No, so yes, the $150 million of spend although was across, obviously, different business units and the two segments, we are consistent with, as you know, the multiples we historically pay. I'd say on a revenue basis, although, as you know, that's not how we buy these businesses, but you can think of it in that way.

Obviously, we don't have -- we're not giving specifics by deal or even by business unit because we don't report that way. But I think if you take the aggregate and, as I mentioned earlier, that $150 million of spend is heavily weighted to the media segment versus the cloud segment in this particular quarter. The $270 million though that was spent in the first six months was all cloud.

James Breen -- William Blair and Company -- Analyst

OK. All right. And then just as I look at through your -- the supplemental stats, looking at cash flow. You tend to see a pretty good bump up in the fourth quarter, it looks like you have to be up north of the $110 million range.

You're sort of in that $375 million level that you have been talking about previously. Is that -- given the M&A this year and despite some of the increased expense in the fourth quarter, it still seems you can be in that $370 million, $375 million range for the full year?

Scott Turicchi -- President

Yes. I think that's correct. I think it might be a little high on what we need to book in Q4, but you're in the ballpark. And I think that, yes, that is -- would be consistent with our expectations in terms of the EBITDA generation in Q4.

Now you know the Q4 EBITDA and media partly is collected in Q4. A larger chunk is collected in Q1 of the following year. So a lot of the cash flow that we'll collect in Q4 will be basically all of the EBITDA generation on the cloud side and a fraction from the media side. But I think that if you look at what we did last year, look at the kind of growth rates we're having that maintains -- that remains achievable.

James Breen -- William Blair and Company -- Analyst

OK. And then just one on the buyback, just some of the details there. And then how you guys structurally are thinking about that?

Scott Turicchi -- President

So in the quarter, we bought just under 200,000 shares at about $80.74 price. As you know, in Q4 of last year, it was 600,000 shares at right around $71. So we're in about 800,000 shares since we've evolved the program at about $73 a share. So it's worked very well.

The philosophy and I think the evolution in our thinking on buybacks, and this even predated the cessation of the dividend, although I think now in hindsight, you can see the value in eliminating the dividend, given the capital we've deployed this year, the $420 million in M&A plus almost $20 million on buybacks. So we have, I'll call it, an algorithm that we come up with a price where we can say internally to our business units and division presidents that if we're going to take this capital and go into the market and buy our stock, we believe it will have a competitive return versus if we gave it to your business units to go do a deal. And so the good news is having bought 800,000 shares at $73 and the stock's at $95, that point has been validated within that 800,000 buybacks. So that's how we do it every 90-day window.

They don't map to calendar quarters. They're offset a little bit. But every 90-day window, we come up with a price. And if that price is hit during the quarter, as it was in Q3, we buy.

When the stocks then travels above that price, we don't buy. And so I think given the history and what's been almost a year now under this program, I think our judgment, it is working. I think in hindsight, we wish we would have bought some more shares at these prices. But we do need to spread the capital around.

So we will continue under this program. No doubt, there will be, I think as we look forward, some tweaks to it. We -- as next year in February, it's in February of every year, we look at the total size of the buyback program. We've been operating under a program that was started several years ago with 5 million shares, and we've just been degradating that as we've bought shares back.

I think now we're close to 1 million shares left under that program. So one of the questions in February will be the size of the program on a going-forward basis. But that's for a few months from now.

James Breen -- William Blair and Company -- Analyst

OK. And just strategically, maybe for Vivek, as you look across the 14 business units, are there any that you feel maybe underscaled here? Was there an opportunity to get bigger through M&A, obviously, and then some drive just better margins and profitability?

Vivek Shah -- Chief Executive Officer

Yes. Look, I mentioned earlier in the call, there were five units that haven't yet met the $75 million annual revenue threshold. And that was the pregnancy and parenting unit and our B2B unit in the Ziff Davis side. With those strategic acquisitions, we've moved those above that hurdle.

The three that are still not there are our voice business, our martech business and our endpoint security business. So I could say on the endpoint security business, depends on how you define things because if I attach the multiple of our security brands together, we would certainly be at that scale. So those are areas we would like to see some traction. We've done some interesting things, obviously, in martech.

We bought the iContact brand, which we like a lot. In voice, a couple of years ago, we bought Line 2, which is a really good product, which makes scale it as a business. So those are probably some areas where we would like to see some activity.

James Breen -- William Blair and Company -- Analyst

And in terms of the pipeline, obviously, you guys stepped up the M&A this year. And a big part of what you spent year to date was the VPN transaction. But do you feel like now sort of that level of transaction, you can sort of maintain this $400 million kind of run rate? Over the next couple of years, there are enough deals out there?

Vivek Shah -- Chief Executive Officer

I mean, look, I think, again, I think it is -- first, I'll say that I think there are a lot of interesting acquisition opportunities for us right now. And I think, again, depending on where the markets are and what the business climate is, there may be even more. So I'm optimistic from an acquisitions point of view in terms of what the next 12 to 36 months will look like. I'll start there.

Within the portfolio, we have -- we have a number of high-quality, organically growing businesses where we see runway. And that's our broadband businesses with Ookla and Ekahau. That's our gaming businesses with IGN and Humble. It's our Everyday Health group, which continues to grow organically, high single digits, possibly low double digits on the corporate fax side, on VPN.

So there's a number of things that we feel very good about within the portfolio of businesses. And then, look, I think as you know, historically, we've probably generated about $3 billion of cash since --

Scott Turicchi -- President

Since we became cash flow positive.

Vivek Shah -- Chief Executive Officer

Since the company became cash flow positive.

Scott Turicchi -- President

2002.

Vivek Shah -- Chief Executive Officer

And we probably spent about $3 billion on acquisitions. And so it's kind of what we internally refer to as the cash flywheel. We generate cash from these operations. We deploy them to generate businesses that we can optimize to generate cash that will allow us to go back and continue to do that.

So I think you should expect and from my perspective, that's what we do. And I think the markets are aligned for that.

Scott Turicchi -- President

I would just add one comment. I think in the last couple of years, the -- I'll call it, the system of acquisition in j2 has been refined and evolved. And part of it is the structural elements of the M&A team, the size of it, I think bringing it to corporate, not having a fracture between cloud and media is an important element in the amount of M&A that can get analyzed. The other thing is just the sheer diversity of the number of business units and the expansion of the number of business units over the last two to three years because we've got more eyes and ears out there seeking deals to make and enhance their business units and their divisions.

And so the combination of those two, which I think we've seen accumulate over the last two years, is why we're able to spend this level without doing a large transformational deal, because I get that question a lot. Well, don't you have to do a large deal to perpetuate this kind of spend and this kind of growth? I say, no. No, we've got really 17 different places we can put money. If you count the parent, it's 18.

All looking for deals, and those deals, with some exceptions maybe at the parent, don't have to be that large. But they can be very impactful and very meaningful for a given business unit or for a given division.

James Breen -- William Blair and Company -- Analyst

Great. Thank you very much.

Operator

Our next question is from Daniel Ives with Wedbush Securities. Please proceed.

Daniel Ives -- Wedbush Securities -- Analyst

Yes. Thanks. Scott, to your point that you talked about -- just talk about appetite for maybe -- is this something where you feel like you can lever up more if the right deal or the right number of deals came through, just given the success you guys have been having? Maybe just talk about that and even our leverage structure, in terms of the parent or on media and cloud?

Scott Turicchi -- President

Yes. So let's start with where we're at right now. So I would say, we are modestly leveraged. As I mentioned earlier, we have somewhat of a unique structure and that all of our debt is not at the parent.

The bulk of it is at the cloud. The media is not a participant or an obligor in any way. The converts sit at the parent. So we look at the structure, it's interesting, both the cloud level and consolidated.

We're at about a little over two times gross debt-to-EBITDA leverage. So we take, at the cloud level, it will be $650 million of the 6% notes plus $128 million drawn with the line divided by its trailing 12-month EBITDA. Then when we do consolidate it, we add another $402.5 million at the parent for the converts, but we bring in the media EBITDA. Coincidentally, it's about two point one, two point two times.

We've got about $100 million of cash in the bank. We've got about $72 million of borrowings under the line of credit, because while we did bring it up to acquire Spiceworks and BabyCenter, we also intra-quarter paid it back down to the $128 million level. So we've got, between the cash flow we generate every month, the availability into the line and the cash on the balance sheet for, I'll call, our garden variety M&A, what we just did last quarter, spent $150 million, that's already in-house. Now as we look forward, I think there's two opportunities.

One is, and it's not necessarily in direct relation to your question, but I think we have an opportunity in a low interest rate environment over time to clean up capital structure. I think we can make it more efficient, and I think we can also lower our cost of capital. I think in conjunction with that, we can also expand though the availability of our access to capital. And one of the things that I'm looking for over time, not necessarily imminently, is for us to get to a position where we've got $200 million to $300 million of undrawn lines of credit available, specifically for our capital allocation activities.

So that if we do have a larger transaction in a given quarter, we borrow under the line. Then as cash flow comes in, we pay that back down. But certainly, from a direct answer to your question, the ability for us to take leverage up from two to three times, very easy to do in a very accommodative marketplace. We've told the rating agencies, we've told the public that we're very comfortable up to three times gross debt-to-EBITDA.

We've also had the caveat that said, look, under the right circumstances, we might temporarily take it higher than that. So I feel very good about our positioning in terms of access to the capital markets, our liquidity for both what are our likely needs but what might also be our theoretical needs if certain other situations present themselves.

Daniel Ives -- Wedbush Securities -- Analyst

Great. That was really insightful. That's it. Thanks.

Operator

Our next question is from Pat Walravens with JMP Group. Please proceed.

Pat Walravens -- JMP Group -- Analyst

Great. Thank you, and congratulations to you, guys. So first off, post the WeWork debacle and all the news about that, are you seeing the owners of some of these assets thinking that maybe they're more interested in selling?

Vivek Shah -- Chief Executive Officer

Look, I wouldn't comment on a specific situation. I do think, I call it, sort of as an anti-unicorn sentiment that seems to be pervading the marketplace, I think, is benefiting us from a few points of view. I think you've got investors who are taking a look at our name and our story that may not have in the past, and we're having those conversations, and that's nice to see. I think that also in the M&A market, I think some of the transactions we're doing, BabyCenter, Spiceworks, iContact, these are known brands out of known owners.

And so when you do that that also puts you on some other radar screens. Look, I think we're well known as a buyer. But I think some of these deals have put us on some other radar screens that we may not have been on. So I think that's helped us from an awareness point of view.

And then, generally speaking, I think, look, I think you've got a lot of owners, whether they're venture owners, PE owners, public companies that are looking at their futures and wondering would it be better right now to seek a strategic alternative. And that's our wheelhouse. When you think of the three deals that I've mentioned, two were carve-outs of large -- from large public companies. And not everyone is able to consummate that kind of deal and do it in the way in which we can do it, which understands, from their point of view, what makes the deal a smooth deal.

Pat Walravens -- JMP Group -- Analyst

All right. Great. And then my follow-up is, what are you guys seeing in the macroeconomic environment? Are you seeing any signs of change? And then can you just remind us, and Scott, we talked about this when we had you on the road, but can you just remind us sort of the last time around when we hit an economic downturn, what did you see? How long did it last? And then what happened afterwards?

Scott Turicchi -- President

Sure. So I think the answer to your first question is no. I think we continue to see, certainly, in our core markets, which -- about 80% of our revenue is derived in the U.S. On the media side, it's probably closer to 95%.

On the cloud side, it's around 75%. So really, for us, U.S. and Canada would be the core marketplace, followed then by Western Europe, where there is and has been some volatility, particularly in the U.K., more on the currency side around Brexit. So we've seen some toing and froing on the GBP to U.S.

dollar, which has had some headwinds in the most recent quarter, particularly on our cloud business, because that's where most of the GBP revenue is coming from within j2. But I think in terms of general macro conditions in the U.S., there's some economic information out this morning on jobs. I think we can -- we see it to continue to be in the good, stable category. And we look at sort of some underlying KPIs or metrics from some of our business units.

And what you're referring to, we go back to the great recession, which is now 10-plus years ago, and obviously -- hopefully, they -- whatever the future recession is, is not of such a draconian magnitude. But there, we were able to see things in some of the underlying metrics some number of months ahead before Lehman went bankrupt in September of '08, which really triggered what became very obvious in terms of declining in GDP and layoff spike and unemployment, etc. So I'm not suggesting that one should use that as an analogy for what might be a future recession, but if you wanted to stress test and say that this is sort of at the three standard deviations out there from the norm. What we saw at that time was -- and of course, we didn't own the media business, so this is really a cloud perspective or subscription business perspective, was an increase in the cancel rate.

And what tends to happen there is your smaller customers, depending on the severity of a recession and its duration, just close shop. And so we saw an increase in the cancel rate over about a two-quarter period, it escalated over that six-month period of about 75 basis points per month over what was the then norm. But then by March of '09, when really the worst had already occurred, then the cancel rate started to come down and, in fact, hit new lows. Lows that had been pretty much sustained within a tight band to the present time.

And really what happened on the cloud side was those smaller, weaker SMBs that could not withstand the recession were gone. The customer base that remained was inherently stronger and then new customers that you added through that period also tended to be stronger, hence, the lower cancel rate on a going-forward basis. So that gives you some sense of it in terms of how the business responded under very difficult circumstances about 10 years ago.

Pat Walravens -- JMP Group -- Analyst

That's super help. Thank you.

Operator

Our next question is from Jon Tanwanteng with CJS. Please proceed.

Jon Tanwanteng -- CJS Securities Inc. -- Analyst

Hey. Good morning, guys. Nice quarter. My first question.

Vivek, can you clarify just a bit on the opportunity you said you see in M&A, just for the near term? Is there more to do this year in Q4? And does the pipeline support kind of the $400 million run rate you've done already in 2019?

Vivek Shah -- Chief Executive Officer

Yes. Look, I'm going to speculate on this quarter right now, there's a lot of things taking place. I kind of look a little bit over longer periods of time. So I think if you look at the next 12 months, I think if you look even further out there.

This is kind of the run rate. I think it's around equal to our free cash flow. This is -- this year was a little bit higher. I think there can be years where it's a little bit lower.

And if you look by year, that's kind of proven to be true. In fact, I don't think this even is the year where we've deployed the most amount of capital that was probably several years ago.

Scott Turicchi -- President

That was '16.

Vivek Shah -- Chief Executive Officer

That was '16.

Scott Turicchi -- President

On Everyday Health.

Vivek Shah -- Chief Executive Officer

All right. So if there are deals of that magnitude, then obviously, that can change the capital allocation in a particular year. So again, I would just look at it more on sort of these longer -- on these longer views than just the next quarter or the next two quarters.

Jon Tanwanteng -- CJS Securities Inc. -- Analyst

OK. Fair enough. And what are your target margin expectations for Spiceworks and BabyCenter? I get they're not contributing or maybe not even profitable in Q4, but did they get to that 35% segment margin next year and then --

Vivek Shah -- Chief Executive Officer

Yes, absolutely.

Scott Turicchi -- President

Yes.

Vivek Shah -- Chief Executive Officer

No, that's the goal. That's the goal. Now as you know, that margin may not be attached to the same top line because we often fire revenue that can't make that. So we get rid of or empty-calorie revenue might be a different way to say it.

So we like highly caloric, I guess, revenue. But we do anticipate that for both of those businesses.

Jon Tanwanteng -- CJS Securities Inc. -- Analyst

OK. Got it. It was in the next year?

Vivek Shah -- Chief Executive Officer

Yes. That one, again, it may not be for the next 12 months, but that will be the run rate. It takes us a while to optimize. It doesn't -- it's not a light switch.

Jon Tanwanteng -- CJS Securities Inc. -- Analyst

Sure. OK. Perfect. And then finally, just a little bit more into the breeze on the Ookla side of the business.

Can you update us on the integration of both Ekahau and Mosaik? Some really good IP there. Is there an opportunity ahead of the 5G deployments here in the U.S. and around the world?

Vivek Shah -- Chief Executive Officer

Yes. No, look, I think there are big opportunities for all the brands. And I'd also add Downdetector, which is another brand within our broadband family that has just launched or relaunched a subscription service to help NTDC when their services have service interruptions. So I think across the board, there are collaborations.

Sales teams are working together. Just to be clear, they are individual sales teams, but sales teams are working together. We go to certain events like Mobile World Congress together to look for ways in which we can support one another's proposition. The buyers are a little bit different, just to be clear.

On the Speedtest intelligence side, our DaaS, Data as a Service product, you're generally selling to network buyers at ISPs and carriers, to some degree device makers, government, cell tower companies. Whereas in the case of Ekahau today as the business is currently constructed, it's mostly systems integrators that are hired by commercial tenants or commercial building owners to develop the Wi-Fi plan within the structure, right? So a little bit different, but we're also beginning to see as a new body of data that is different than consumer-initiated testing, which you have at Speedtest that I think could become an interesting data set within our Data as a Service business. That hasn't happened yet, but that could be an interesting new opportunity for us. Ultimately, in all of these, whether it's carriers looking for 5G deployment or commercial tenants looking for the best Wi-Fi, and to be clear, 5G is not going to solve Wi-Fi within workplace.

That is not a replacement for. If anything, it is possibly a increase in expectation of the experience you're going to have within your office.

Jon Tanwanteng -- CJS Securities Inc. -- Analyst

OK, great. Thanks, guys.

Operator

This does conclude the question-and-answer session. I would like to turn the conference back over to management for closing remarks.

Scott Turicchi -- President

Thank you very much. We appreciate everyone for joining us on our Q3 call. We did put a press release a few days ago announcing our upcoming conference activity in November. A little later this month, we'll be putting out the conference activity for the month of December.

I know there are several already slated, including the NASDAQ conference in London, Barclays conference in San Francisco. So stay tuned for that. And then our next regularly scheduled call will be sometime in February to announce Q4 results and provide 2020 guidance. Thank you.

Operator

[Operator signoff]

Duration: 69 minutes

Call participants:

Scott Turicchi -- President

Vivek Shah -- Chief Executive Officer

Shyam Patil -- Susquehanna International Group -- Analyst

Nick Jones -- Citi -- Analyst

Will Power -- Robert W. Baird -- Analyst

Hannah Rudoff -- D. A. Davidson -- Analyst

James Breen -- William Blair and Company -- Analyst

Daniel Ives -- Wedbush Securities -- Analyst

Pat Walravens -- JMP Group -- Analyst

Jon Tanwanteng -- CJS Securities Inc. -- Analyst

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