Welcome to j2 Global's 2nd Quarter 2020 Earnings Call. I am Michelle, the operator who will be assisting you today. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. On this call will be Vivek Shah, CEO of j2 Global and Scott Chiriqui, President and CFO of j2.
I will now turn the call over to Scott Turicchi, President and CFO of j2 Global. Thank you. You may begin.
Thank you. Good morning, ladies and gentlemen, and welcome to the j2 Global Investor Conference Call for Q2 2020. As the operator mentioned, I'm Scott Turicchi, President and CFO of j2 Global. Joining me today is our CEO, Vivek Shah. We had our best second fiscal quarter ever, setting records for revenue, adjusted EBITDA, non GAAP earnings per share and free cash flow.
In addition, due to our strong free cash flow generation, we ended the quarter with more than $616,000,000 of cash. In addition, our Board authorized a $10,000,000 share repurchase program through August 6, 2025. We will use the presentation as a roadmap for today's call. A copy of the presentation is available at our website. When you launch the cast, 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 atj2global.com. In addition, you will be able to access the webcast from this site. After completing the formal presentation, we'll be conducting a Q and A session. The operator will instruct you at that time regarding the procedures for asking a question. However, you may e mail us questions at any time at investorj2global.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 have disclosed in our various SEC filings, including our 10 ks filings, recent 10 Q filings, various proxy statements and 8 ks filings, as well as additional risk factors that we have included as part of the slideshow for this 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.
Thank you, Scott, and good morning, everyone. The Q2 of 2020 was the most challenging and disruptive quarter our economy has ever faced. With GDP in the United States estimated to have declined an unprecedented 32.9%. This period presents a test of business resilience unlike any we've ever seen before. I'm proud to say that j2 passed with flying colors.
On every financial metric, revenue, adjusted EBITDA, adjusted EPS and cash flow, we exceeded our expectations and remarkably set records. This is a tribute to the thousands of hardworking and focused employees at j2 around the world who continue to demonstrate the ability to surmount challenges. 3 months ago, based on April results and trends, we believed we'd see a slight decline in revenues in the Q2. Instead, based on a significant rebound in May June, total revenues were up 2.7% in the 2nd quarter versus last year. We saw improvement within the quarter with May better than April and June better than May.
We were anticipating that our Digital Media segment revenue would decline in the quarter, given the massive dislocation in the ad market, but instead we grew close to 7%. Every single business unit in the Digital Media segment beat its forecast in the quarter as we saw advertisers return to spending. As I said in our last call, our ad business has little local, travel, food and auto exposure. Our display business is about 40% healthcare, which continues to show great strength. Everyday Health's display revenues grew 35% in the quarter.
We're also advantaged by our performance marketing businesses, which exhibited a meaningful recovery in the middle of the quarter. The Cloud Services segment also weathered the Q2 storm very nicely. Revenues were down 1.2% on a year over year basis. However, if you adjust for ForEx and JBLAST, which is a broadcast fax business we sold in October 2019, revenues were flat. Cloud fax was essentially flat in the quarter, notwithstanding a decline in medical record volumes.
The significant reduction in elective procedures in the U. S. Directly impacted our page volumes, but we're starting to see page volumes return to the Cloud Fax business as elective procedures are coming back. The Security and Privacy businesses grew, while SMB enablement declined as we experienced some losses and reductions of larger contracts and a slowdown in customer adds. Overall, the cancel rate at cloud services continues to be stable, which as you know is something we closely monitor.
We continue to be optimistic about our security and privacy portfolio, which is over $230,000,000 of revenues. We just announced the addition of a new leader to oversee all three of the cybersecurity business units. Vivek Kapil joins us as the Group General Manager of Security, Privacy and Data Protection, having worked at Norton LifeLock and Symantec for the past decade. We're excited to have Vivek on the team as we look to scale and develop our cybersecurity suite. We're also excited that Nick Nelson, who came to us in the IPVanish acquisition and has been a catalyst for a number of growth initiatives, has taken on a new role pursuing business development opportunities across the cloud services portfolio.
Even more impressive were the adjusted EBITDA and margin results in the quarter. Adjusted EBITDA grew 6.1% year over year and our margins expanded by 130 basis points to 40.1%. As I described in our last call, we were decisive in our actions to manage expenses, while continuing to invest in our organization. We have avoided the large reductions in force and more draconian cost reduction measures of many in our industries by focusing on better managing our vendor expenses and hiring. The careful cost management paid off in the quarter, not just with respect to adjusted EBITDA, but also with cash flow.
Our net cash from operations grew 46% and our free cash flow grew 35% year over year. We closed the quarter with $711,000,000 in cash and investments. This was after purchasing $24,000,000 of J Com shares during the quarter. And as we announced last night, the Board has authorized a new 10,000,000 share repurchase program over the next 5 years. We believe that our own stock currently represents one of the best investment opportunities available
to us.
Based on 2nd quarter performance and increased confidence in the state of the operating climate, we have reinstated guidance for the year. Our underlying assumption on our new guidance is that the business environment in Q3 and Q4 will be stable. But to be clear, we are not contemplating a sharp recovery. We're assuming more of the same. On the bottom line, we are estimating an adjusted EBITDA margin of over 40% as we continue to be very careful with our expenses.
On the M and A front, I'm happy to say that our acquisitions machine is back on and we are pursuing a number interesting opportunities as we have better visibility into the market environment and have gained comfort in transacting in a virtual manner. We continue to believe that our patience will pay off in higher quality opportunities, while giving us the time to optimize our current portfolio. I would hope that our Q2 performance gives our shareholders confidence in that approach. We continue to focus our M and A efforts on some core themes, including healthcare, embracing digital transformation small and medium businesses seeking cybersecurity solutions, video games emerging as the number one form of entertainment, and e commerce becoming the dominant form of retail. I'd like to take a moment to talk about corporate governance.
Earlier in the year, as we were speaking to shareholders in their proxy departments, the topic of Board refreshment was discussed. At our February Board meeting, our Board supported the idea of identifying new Director candidates for j2 as the company and its recruiters develop a slate of potential candidates. We're very pleased to have announced yesterday that Scott Taylor has been appointed to our Board of Directors. Scott has spent over 20 years working in Silicon Valley, including 12 years as EVP and General Counsel of Symantec, a leader in consumer and enterprise cybersecurity. Scott brings a deep understanding of the cybersecurity industry, a market that is very important to j2, as well as extensive legal, corporate responsibility and M and A experience to our Board.
Scott has more than 10 years of experience serving as a public and private company director and brings a wealth of governance experience. We're grateful to welcome him to the J2 team. Scott's appointment does not mark the end of our refreshment efforts. We are studying policies, best practices and approaches to ensuring and advancing ongoing Board refreshment. The company has identified a number of highly qualified individuals who would make excellent directors at j2, bringing fresh, new and diverse perspectives to the company.
The Board is confident that we will be able to add an additional Director in the near future. Also essential to our ESG framework are our diversity, equity and inclusion efforts at the company. Last week, we published J2's 2020 Diversity Report, which provides detailed demographic and representation data at the company. We have unequivocally embraced the business and societal imperative to have a diverse and inclusive organization. I believe that doing is greater than talking, especially with diversity, equity and inclusion.
Since January 2019, 65% of all new hires at j2 were women or people of color. As a result, today 62 percent of our employees are women or people of color. We're proud of the progress we've made, but we have more work to do, especially at ensuring diversity at every level and aspect of the organization. I encourage you to read the report, which is found on our website to better understand our diversity initiatives and the seriousness with which we are pursuing them. Our commitment to diversity and inclusion goes beyond the company's walls.
This past quarter, we leveraged our resources and platforms for educational and philanthropic purposes in support of the Black Lives Matter movement. We committed $5,000,000 in advertising to the NAACP, Ad Council and other advocacy organizations to promote messages of racial equality. We raised nearly $4,400,000 for the Legal Defense Fund and Race Forward through our Humble Bundle Fight for Racial Justice Bundle. We launched the Black Game Developer Fund, a $1,000,000 annual program focused on supporting black game developers. We have earmarked $1,000,000 of our annual freelance editorial budgets for journalists of color.
And our publishing brands, including IGN, PCMag, Mashable, Ask Men, Everyday Health, Baby Center and What to Expect have produced great content exploring topics relating to race and racial equality. Before I hand the call back to Scott, just a word about the report recently issued by a short seller. We are confident that we address the unfounded claims made in that report on the day in which it came out. We also believe that our actual performance and results are healthy reminders of the company that we are. With that, let me hand this call to Scott.
Thanks, Vivek. Q2 2020 set a number of financial records for j2 including revenue, EBITDA, non GAAP EPS and free cash flow. Despite the COVID environment, these results were driven by resilient top line performance and a focus on cost containment. We ended the quarter with approximately $711,000,000 of cash and investments after spending approximately $25,000,000 in the quarter, primarily on stock repurchases. Now let's review the summary quarterly financial results, beginning on slide 4.
For Q2 2020, j2 saw a a 2.7% increase in revenue from Q2 2019 to $331,000,000 Gross profit margin, which is a function of the relative mix of our business units, rose to 83% from 81.3% in Q2 2019, in part due to lower content fees in the Media segment. We saw EBITDA grow by 6.1 percent to a 2nd quarter record of 132,900,000 dollars EBITDA margin for the quarter was 40.1 percent versus 38.8 percent a year ago due to the aforementioned cost discipline. Finally, adjusted EPS grew 7% to $1.71 per share versus $1.60 per share in Q2 2019. Turning to Slide 5. In Q2, we generated a record $115,900,000 of free cash flow, which was a 35% increase from Q2 2019.
This was after continuing to make significant investments in our businesses through our capital expenditure program. On a trailing 12 month basis, we generated $371,400,000 of free cash flow for a 66.2 percent free cash flow conversion on our $560,800,000 of trailing 12 month EBITDA. Now let's turn to the 2 businesses, Cloud and Digital Media for Q2, as outlined on slide 6. The Cloud business saw a slight decline in revenue of 1.2 percent to $167,100,000 in revenue due primarily to currency exchange rates, the elimination of JBLAST revenue, and the lower variable revenue contribution as a result of fewer elective procedures in healthcare that we've discussed previously. Reported EBITDA decreased by approximately 5.2 percent to $80,700,000 compared to $85,200,000 in Q2 2019.
The EBITDA margin is 48.3 percent after corporate allocations, down approximately 2 percentage points due to higher corporate allocations, less variable revenue which has a high incremental margin, and a larger contribution from our VPN business which also operates at a lower EBITDA margin than 50%. Our media business grew revenue 6.9 percent to $163,900,000 and produced $54,000,000 of EBITDA for 27% growth. The EBITDA margin increased by 5.2 percentage points from Q2 twenty nineteen due to an improved cost structure, lower content costs, and baby center beginning to contribute at its synergized margins. On Slide 7, I am pleased that we are reintroducing fiscal year 2020 guidance. As you know, due to COVID-nineteen and the uncertainty surrounding the economy, as well as work from home, we suspended guidance on our Q1 earnings call.
Our economic assumption is that the economy will modestly improve from its May June levels. We are expecting more of a tilted U shaped recovery versus a V shaped recovery. We are expecting that each of our 2 segments will perform in a similar fashion. In addition, we are divesting our Australian and New Zealand voice assets in a transaction that was announced earlier today in Australia. We expect the transaction to close by the end of August and it will have an impact of reducing our revenues in the back half of our year by approximately $5,000,000 and EBITDA by approximately $2,000,000 Our reinstated full year guidance now estimates revenues between $1,380,000,000 $1,400,000,000 adjusted EBITDA between $556,000,000 570,000,000 dollars and non GAAP EPS of between $7.17 per share $7.41 per share.
Following this 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.
Thank you. We will now be conducting a question and answer session. Our first question comes from the line of Shyam Patil with Susquehanna. Please proceed with your question.
Hey, guys. Congrats on the great execution during the volatile time in the economy and on the buyback and the Board number.
I had a couple of
questions. Vivek, you talked about the acquisition machine being back on. I think we were all waiting to hear that. The question is just kind of how are you approaching M and A kind of in this environment? If you I don't know how you guys are looking at it, but whether it's larger and smaller deals or such increases?
And how are you guys approaching M and A in this environment right now?
Craig, good morning, Sean. So look, we're running our entire business over 4,000 people entirely remotely. I think over the last 3 months, we've really grown confident in our ability to operate in a remote fashion. We have hired and onboarded senior executives. I mentioned Vivek Kapil, even a board member, Scott Taylor, and it was all done virtually.
So we now feel the same way about M and A, that being virtual is no longer a real hindrance and so we are prepared to transact without physically visiting companies in instances where we can and in locations where it's safe and permissible, we'll do so. But I think that's been a change. And I think really when we spoke about this 3 months ago, we were at the heart we were at the height of the pandemic. I think we're now in an environment where we think we can transact. And look, we just sold the company in this environment, as Scott just mentioned.
So look, I think those considerations are not really considerations or conditions anymore. And I also think the other thing that we said in that call was that we thought being patient would be beneficial to us. And so I think seeing how the market is settling out, seeing how businesses are responding to the test of this pandemic is really important information that informs the assets that we choose to pursue and the price at which in terms of which we were going to pursue them. So I would say that with respect to the size of deals, with respect to the categories, nothing's changed. I think we as you know, we look at deals of a variety of sizes from tuck ins to more substantial deals.
We look at them across all of our business units and operating divisions. So I wouldn't say anything has changed in terms of the nature of the things. I talked about the themes in the prepared remarks, the areas where we see the most opportunity. So you'll see us lean in on assets that fit against those themes.
Thank you. That's very helpful. Then I just had a follow-up model question. I know you guys don't typically like to guide on a full week basis. But as you guys look out to 3Q and 4Q, any guideposts you can offer us just in terms of how to think about cloud versus digital media revenue, as well as EBITDA?
Sure. Let's try to unpack the back half of the year guidance, Sean. So I think first of all, as most people on this call understand and know, our media business is very seasonally positive in Q4, if you look at the 4 quarters. So keep that in mind that when you look at the back half of the year guidance after you take out the 1st 6 months, it's by far from being equally weighted on the media side. Secondly, remember that we made an economic assumption.
That's generally not things we like to do. We think that's important in you understanding how we see the economy in the back half of the year, right? I call it the tilted U, meaning not a sharp V shaped recovery, but that leg of the U having some upward slope from Q2 through Q3 and Q4. That may end up being a conservative assumption, but obviously as we've talked about in now 2 earnings calls, things evolve very much in the COVID environment week to week. So with that kind of as the headline, then let's break apart the 2 segments.
I think in the cloud piece, the first thing you need to do is recognize and we can put another question if it's of interest get into greater detail on the ANZ sale, our Australian and New Zealand voice assets that are under contract to be sold. We assume that will occur between now and the end of August. So the implication is we'll lose about $5,000,000 of revenue in the back half of the year in cloud. Roughly that's going to be $1,000,000 in change in Q3 $3,500,000 to $4,000,000 in Q4. The exact number will of course be a function of the exact timing of closing.
So that's number 1. Then number 2, if we look and unpack Q2, really in the cloud business, as you know, it's very sequential. I think for a lot of businesses, both our cloud and our media, April you kind of have to ignore because as the movement from work from home and the hit in the economy was the most dramatic, we eliminate that. So in the cloud business, we look at May June and we see that after you've adjusted for A and Z, there's probably a 1% to 2% decline in revenues versus what I'll call the pro form a numbers for Q3 and Q4 of 2020 versus 2019. Now let's turn to the media side of the business.
In the media side of the business, we actually think that June of the 3 months in Q2 is probably the most representative. As Vivek mentioned, we saw sequential improvement from April to May, May to June. So if we look at the Media business, that's going to be a 2% to 3% decline year over year using the June run rate. Now remember that that's not equally weighted based my earlier comments between the two quarters. Also I think in our own analysis, we would put more of that decline in Q4 as a degree of conservatism since it is the more important quarter between the 2 for us in 2020 as it is in most years, but also because the visibility will become clear as we get closer to Q4 and that will have certain implications as to advertise.
So when you roll that all up, I think our media business should be roughly flat year over year in Q3 and then down somewhat in Q4. Obviously, the things we have a range, as you know, the things that will move us in that range will be, 1st and foremost the underlying economic reality and then our own response to that reality. In terms of the margins, we actually expect in both instances Q3 and Q4, our margin profile to continue what we've seen in Q2 and to be an improvement over Q3 and Q4 of 2019. So you'll see at the midpoint of the range, EBITDA is up, notwithstanding the fact that revenue is expected to be down in the back half of the year.
Great. Thanks, Scott. Great quarter, guys.
Thanks, John.
Thank you. Our next question comes from the line of Saket Kalia with Barclays. Please proceed with your question.
Okay, great. Hey, good morning guys. Thanks for taking my questions here. Good morning. Vivek, maybe just to start with you, You touched on this in your prepared remarks, but I'd love to just double click on the Board composition comments you made.
Maybe the question is, can you just talk maybe broad brush how the Board could look in the next 1 to 2 years? And just as importantly, how is that composition importantrelevant for the business?
Yes. So look, I think as I said in the prepared remarks, we're committed to ongoing refreshments. So we've appointed Scott, who is a fantastic appointment for the J2 Board, brings a great cybersecurity perspective. As I mentioned, we have a $230,000,000 and growing cybersecurity business. It's very important to the company and having that kind of industry perspective and expertise is really valuable.
So that will be something as we think about future appointments, making sure that we align industry experience against the businesses we're in. So one for instance that I would tell you is that healthcare. We would like to see some more healthcare experience within our board and that's an area that we are very much looking at. I think the other thing is just skill sets that align with the businesses that we're in. Subscription marketing skill sets, M and A and transactional skill sets are all really important to having at the Board and at the Board level.
And then diversity, I spent quite intentionally a lot of time on my prepared remarks around the company's diversity, equity and inclusion initiatives. They matter a lot to me personally and they frankly matter a lot to our business. They are essential and we are doing things up and down the organization including at the board level to make sure that our workforce and our Board represents the audiences and the customers that we serve. So diversity is absolutely an important part of it. And I would tell you even more broadly that we have a goal at the company to be a top rated ESG company.
And so we're going to do you're going to see a lot from us not just around DEI initiatives, but also our climate sustainability initiatives. Look, our entire business is predicated on shifting from analog to digital, which really means shifting from carbon heavy to carbon friendly. So all of those things I think will come together into a larger ESG set of activities and communications, initiatives and strategy designed to really make us a top name and a leader in the space. So look, I think we're excited. We're excited by what we've done and we are really excited about what's coming.
That's great. That's super helpful. Maybe for my follow-up for the detail on the seasonality across those two businesses to keep in mind. Maybe just to dig a little deeper into the Digital Media business, can you just remind us the split of performance versus display? And maybe this is a question for both of you.
How is that changing, if at all, in this new backdrop?
Yes. So the first of all, let me begin by just saying if you just to remind everybody and leverage off of the previous question. On Digital Media irrespective of display performance or subscriptions, there's a much heavier weighting to Q4 than Q3. So if we look at the full fiscal year, Q4 exclusive of any M and A will be 31%, 32% of our total reps. That obviously reverses out in Q1.
Q2 and Q3 tend to be in most years somewhat similar. So that's just one factoid. I think as it relates to your question, we're starting to see a convergence when you look at the advertising between performance and display. Now in any given quarter, one may have a slight leadership over the other. So I believe that in Q2, for example, about 38% of our advertising revenue was display, 35% was performance.
In Q1 of this year, that was actually flipped where performance had a slight edge over display. So I think you should be thinking that all things being equal, they're starting to converge and they're getting close to fifty-fifty from an advertising perspective. Then of course the subscriptions would be on top of that.
The only thing, Saket, I would add to what Scott just said is that if there was ever a question about our ad business, I would tell you that this is as high quality an ad business as you can have. I mean, frankly, this environment for advertising businesses is incredibly punishing. And here we are doing really well with the advertising business up 10% year over year. I think you've got three factors. Number 1, and we talked about this, but the performance orientation of our advertising business, which is not just the performance marketing quotient of it, but even our display business behaves like performance marketing.
In other words, it is bought and judged based on its ability to generate return on ad spend. And performance, performance really stands out, performance oriented advertising does well in markets like this. 2, I think our category mix is really favorable, particularly with the healthcare piece. I mean, as I said, the everyday health display business grew 35% in the quarter. So we feel really good about the mix we have between health, tech and gaming.
And then finally, we've got great brands. I think over time we've assembled between Mashable and IGN and Baby Center and Everyday Health and PC Mag, we have a great collection of brands and brands do matter and brands sometimes matter more in markets like these, where I think prior to the pandemic, I think you had a lot of lower quality ad inventory in the marketplace that was creating sort of a price pressure and commoditizing effect. I think that's shaken out and there's a return of quality. And so we sell quality.
Makes a lot of sense. Thanks for taking my questions, guys.
Thank you.
Thank you. Our next question comes from the line of Daniel Ives with Wedbush Securities. Please proceed with your question.
Hey. So maybe just talking on the digital marketing side, what are you guys doing anything different with customers, pricing, just given the environment in terms of just making sure, especially even on some of the programs that are facing headwinds to make sure that you contain any risk as much as possible?
Hey, Dan. Do you mean from a performance marketing, do you mean on the media side or do you mean cloud services, customer acquisition and marketing
on the media side?
Yes, no, look, I think the focus has just been on in this market trying to drive leads, transaction and sales. And that's where we're finding our customers have a lot of appetite to spend and lean into. And I think the other thing you got to recognize is if you weren't an online retailer or an online seller before, you are today. I think what the pandemic has done is accelerated the embrace of digital marketing, digital transactions, recognizing that right now physical retail, physical sales even are challenging. And so to us, I think it's just the shift in the market just favors essentially our capabilities and our value proposition.
Great. And just on the M and A, I mean, kind of like the first question, but just to drill in too little. But from a size in terms of acquisitions, when we think about tuck ins versus more game changers in everyday health, is it I mean, those are still on the table, right, in terms of this environment. Just so we're clear in terms of going forward that even the larger potentially other sort of pillar deals are still on the table despite the environment?
Look, I think everything is on the table as it always has been. We are very open minded about situations. We have a very clear set of criteria and thresholds if we can uniquely create value, if we can generate cash on cash returns in excess of 20%, We have a high level of confidence in our abilities to execute against our plan. We're going to do it, whether it's a small deal or a larger deal. So nothing again changes.
I think that has been historically consistent. What you should recognize is that ultimately most of the deal making does happen at the business unit level, right? So that denotes a certain size. As we expand in the number of business units and the number of general managers against those business units, you're going to continue to see more deal flow there. And so I think if you looked at it as a function of deal flow, I think the kinds of deals that fit inside of business units will typically be the most likely deals that ultimately get done.
Great. Thanks.
Thank you. Our next
great. Thanks. Yes, congratulations on the results and appreciate the Board and diversity comments. I guess, Vivek, maybe just coming back to digital media and just trying to drill down into some of the upside drivers in the quarter. I mean, it sounds like everyday health was a big piece of that, particularly display.
But I wonder if you could comment on what you're seeing in the tech and gaming verticals. I know there have been questions for some time with respect to the console timing and how that would impact advertising trends. And then secondly, what are you seeing on the subscription front? As you look at Humble Bundle and Ookla? I mean, is that continued to the same recent trend line?
What kind of impacts are you seeing from COVID, if any, on that front?
So, just in terms of advertising, as I said, we're up 10% year over year in the quarter. Organic strong organic growth at Everyday Health and Ookla. We did have the benefit of baby center in Q2 versus last year that offset declines at IGN and Ziff Media, which is the tech advertising. Now the gaming piece we were anticipating even before the pandemic would be down just given the timing of the new PlayStation and Xbox going into Q4. So we were expecting to experience a seasonality shift anyway based on the timing of console releases.
And then on the tech side, there's still a little bit of One thing I'll point out about display, One thing I'll point out about display is that we've had 7 consecutive quarters of growth in display. I think that's important for people to understand because I think there can be a perception at times that display is under a lot more pressure than it really is. Our display is different from other display. And I think that's one of the distinctions we're trying to make here and have people under understand. Now in terms of, I think you were asking a little bit about the subscription business, I think we are up organically high single digits in subscription revenues, but we do have a couple of tailwinds.
So number a couple of headwinds. Number 1 is the Ekahau business, which deploys Wi Fi networks in commercial space to sell software, subscription based software to do that, did see a contraction in its Q2 revenues as a result of COVID. So the planning being done in commercial spaces, obviously was under a lot of pressure in Q2. We're beginning to see some reversal of that in Q3, but that's really tied to when our workers are going to go back into offices and when are their IT departments going to focus on Wi Fi installations and upgrades. So we do have some pressure there.
And we have seen a deceleration in our Humble Bundle subscription business in the quarter. We had weaker games and weaker IP in the quarter. We've had some competition in the gaming subscription business, but then the humble publishing business where we are a publisher of games is doing very well. I think in a prior call, I think it was in the last call or maybe 2 calls prior to that, we talked about having 20 games on the slate for 2020 where we've released 11 either entirely new games or new platforms. So we are on pace and usually I could argue we're ahead of pace.
Usually Q4 is the heavy game release quarter, and we should see that too.
Okay, great. Thank you.
Thank you.
Thank you. Our next question comes from the line of Cory Carpenter with JPMorgan. Please proceed with your question.
Hi, this is Ryder on for Cory. Thanks for taking my questions. So you mentioned that your full year guidance implies EBITDA margin expansion in 2020 despite the headwinds from COVID-nineteen. Could you talk about some of the drivers of the margin expansion? Specifically, are there any expense savings you've uncovered that may be carried through beyond COVID-nineteen?
Or any changes to the investment levels you plan to make in some of your growth initiatives? And then stepping back, as we come out the other side of the pandemic, has there been any change to your thoughts on the longer term organic growth or margin So I think that the in terms of the overall cost structure, as we outlined at the beginning a quarter ago when we were obviously right in the midst of it, we initiated a number of projects to improve our overall cost structure, but leaving sort of three things intact. Number 1, 1st and foremost was the employee base. Number 2 was to preserve good sales and marketing spend. And the 3rd piece was our capital expenditure program.
And all three of those actually have been at levels that we would consider to be consistent with where we were pre COVID. Having said that, we did look at the other portion of our cost structure, which on a cash basis or a non GAAP basis represents about 40% of our total cost structure. And we have renegotiated terms and conditions. We have eliminated a number of activities that pre COVID were thought to be necessary, but now are deemed luxuries. And so a lot of those are going to be permanent.
I believe even our T and E will be lowered from the levels that it was pre COVID even once we're in a post COVID world. The other thing that we're working on that actually has no current benefit to the Q2 financials and for that matter is not expected to impact Q3 and Q4 is our whole real estate program. Fact, I would just note that we're working right now on negotiating the exit of certain of our leases. And you'll actually see in Q3 on a GAAP basis a charge as we exit some of our real estate because we no longer have the necessity for it given what will become the work from home environment either on a permanent or a hybrid basis for a portion of our employees. So I think we feel very good that while there will be some flex in the cost structure as we look out, a large percentage of what we have accomplished so far should carry forward.
I think in terms of your second question, while as you know, we don't generally give multiple year guidance in large part because of the M and A that is yet to be done. I think that in a post COVID world, whenever that occurs, 2 things will have benefited us. 1, we will be stronger as a company with a better cost structure. Clearly, there will be certain competition that will be eliminated through this process. And so I think that our general view would be that the growth rates certainly aggregated growth rate and margins would be consistent or in the case of margins somewhat better than what we've articulated in the past.
The only thing I might add to what Scott said is that, as you know, we run a decentralized operation where we try to push as much authority P and L product and business authority down into the business units. We believe that ultimately that's how they'll perform better. One of the disadvantages of that is that you don't have the ability to aggregate often your spend to command better rates. And so during the pandemic or really right prior to it, we identified it as an opportunity and established a procurement function at the corporate level, never existed before at j2. That procurement function has worked across the organization to extract far better deals with vendors.
So we don't change our mindset around, look, the vendor selection and partner selections can happen at the business unit level, but we're going to run it through corporate procurement to attract the greatest value. And that's been very successful and will be permanent to Scott's point. I also think you should recognize that we've got some favorable mix. As the advertising businesses continue to do well, the advertising flow through is very strong and it is one of the great benefits. There's a lot of operating leverage in our advertising business as we don't have much in the way of traffic acquisition costs, which is another, I think unique feature of our advertising business.
Great. Thanks guys.
Thank you.
Thank you. Our next question comes from the line of James Fish with Piper Jaffray.
Congrats on a great quarter. Glad to hear you're all doing well. How have the early bundling efforts on the cloud services been going? Is that what helped kind of the monthly churn rate go lower at all? And is there any way to kind of disaggregate between the DID and the non DID services in terms of churn this quarter?
Thanks.
Yes. So just with respect to bundling, it is a significant opportunity. I wouldn't say it was a top priority in Q2. We were really just focused on maintaining strong service levels and delivery and support. We were moving the entire organization to work from home.
A lot of our customers had questions that we wanted to manage. So retention programs were the top priority and I think you see that in our cancel rates slightly improved actually quarter over quarter, which is I think sensational. And so a lot of what we were focused on, so we put a few of the bundling initiatives on the back burner. Now with Vivek Kapil's appointment overseeing the cybersecurity set of business units, we think we can accelerate those going into the back half of the year and look at ways in which we can combine our VPN, our private endpoint, our backup, our file sync, our endpoint email security and put those pieces together.
Got it. And then maybe while we're on security, obviously with COVID VPN is a material product category in cybersecurity, but why is your VPN solution having as much success with a lot of the competition out there? And is there a way to think about the stability in the overall business cloud services ARPU versus what the impact of the VPN asset is having? Because from our angle, it looks like on an organic basis ex the VPN business, it's actually been relatively stable outside of that VPN impact just having a lower price point?
Yes, that's right. So you're seeing that in the ARPU numbers as VPN is priced lower. But to answer your first question, look, I think that the VPN space is a rising tideless all boats space. I think there are a number of quality brands in the personal VPN space. We believe IPVanish is amongst the leaders there.
And so I think we continue to feel that we'll do well. We think the market is going to do well. We think this is one of those, these one of these markets that have really strong tailwinds. The part of the market where we do not yet have a significant, sole hold, but we would like to is really around the B2B side, which is corporate VPNs, which is remote secure access into networks. And so that is where encrypt.
Me, we think can be really compelling. And part of the logic by the way of bringing these units under Vivek Kapil's leadership is that what we need to ensure that Encrypt. Me does well is to actually have channel and sales force distribution that the VPN business unit didn't have. The VPN business unit is a consumer marketing business unit. It does a fair amount of customer acquisition online.
In order to succeed in the corporate market, the B2B market with Encrypt. Me, unique channel and unique sales force. Channel and Salesforce exists for instance at our VIPER business. And so leveraging the various distributional channels is another almost sort of think of it as an extension of the bundling question that we think we're going to be able to pursue with Vivek Kapil's appointment.
That's great color, Vivek. Congrats on the quarter and take care.
Thank you.
Thank you. Our next question comes from the line of James Green with William Blair and Company. Please proceed with your question.
Great. Thanks for taking the question. Just with respect to cash flow, obviously, a strong quarter there. And you talked a little bit about the margin structure and some PE and stuff being down. Can you just talk about maybe the relationship between EBITDA and cash flow and how you see that trending from here?
And then, Vivek, maybe if you can remind us a little bit about you touched on it briefly, the impact of the video game platform recycle, some of the new boxes coming out in the back half of this year and how that generally can flow through the business?
Thanks. Great. So let me address your question, Jim, on the free cash flow. And I would just note for everybody on the call that free cash flow is not linear nor perfectly correlated with the timing of the earning of EBITDA. So you'll note both in the prepared remarks and if you go back into prior transcripts, we tend to focus on the trailing 12 month EBITDA and trailing 12 month free cash flow.
That tends to smooth out particularly things like the timing of estimated tax payments and their magnitude. So in the specific quarter, it was a phenomenal quarter, particularly from the cash from operations standpoint, up 40% year over year, best cash collection quarter the company has ever had in its history. That's after and then free cash flow is after we spent $23,000,000 in CapEx in the quarter, still produced a record free cash flow of almost 100 and $16,000,000 Now I would note that talking about tax payments, there is a timing difference that happens to slip into Q3 this year of some estimated tax payments of about $14,500,000 But even if we had paid those in Q2, it still would have been the best 2nd fiscal quarter for free cash flow. If we look at the trailing 12 month conversion, we're at about a 66% conversion of EBITDA to free cash flow. And that's within the range of our expectations.
So don't look at the 85% conversions in the quarter, the spot conversion rate, because I say there are things that can influence that and we do see variation if you just look at the quarterly contribution of free cash flow from EBITDA.
And then just on the gaming piece, we saw the cancellation of major live events like E3 and Comic Con, which in the video game industry, that's like the Super Bowl being canceled. They are moments where you see large marketing activations and you see just a lot of economic opportunity. And so we have to weather the cancellation of these live events, but I will tell you the IGN team did really an extraordinary job. They staged something called the Summer of Gaming, which is a virtual event that the gaming industry really came around and we sort of took the place of those events that were canceled. We generated something like 600,000,000 content views, 280,000,000 video views, 45,000,000 global live streams.
I mean, it was a big deal. And while it helped drive a ton of Q2 traffic, did help support some of the monetization, it really just laid the foundation for the future because I think we're going to see more of these virtual events. And even possibly post pandemic, we still may find that virtual events for other reasons are compelling. So I just feel like the brands did a very nice job in responding and adjusting to the realities of the market. Now with Q4 with new consoles coming out that should free up dollars and that is we do anticipate that will come into play in Q4 and be helpful to the IGN business and then I think I also said that Q4 should be a strong release quarter for Humble Games.
We'll see the revenue for that until 2021, but we think it's going to be a strong game release window for us.
Great. And then just one follow-up, you reauthorized the share buyback. I think you bought back shares in the low 70s in April, generally around sort of 8x, 8.5x forward EBITDA. Can you just kind of refresh us with your thoughts on that and how you think about buying back shares?
Look, my view is it is part of the capital allocation toolkit. And as far as we're concerned, the company right now at these levels represents a great buying opportunity. And I also want to tell you that we want to support our shareholders internally and externally. We have a very popular employee stock purchase plan. A lot of our employees are shareholders.
And when we see the ability to generate returns in excess of what we could do otherwise, whether through capital investment or through M and A, we're going to do it, which doesn't mean that we don't have capital investment on M and A opportunities. We absolutely do, but it should sit alongside those within the in terms of uses of our capital. As you all know and many of you have reported, we're at historic lows right now in terms of the valuation of the company. Great. Thanks.
Thank you. Our next question comes from the line of Shweta Khajuria with RBC Capital Markets. Please proceed with your question.
Okay, thanks. Let me try 2 please. Vivek, you pointed to 10% year over year growth in media business, maybe I misheard you. I see 7%. What does that 10% refer to?
That was advertising. Advertising.
Okay, great. Thanks. And can you please quickly talk about some of the key strengths that you saw that largely beat your expectations? Every unit came in ahead of their expectations, which ones were the key out performers that you would like to call out? And then in the back half, the guide assumes Scott, thanks for giving the color for the back half.
Given the tougher comps, could you provide some color on what does it mean for organic growth rate for the back half? I mean, is it fair to say that you're assuming a U shaped recovery, so stable to improving assumptions for going forward with Q2 being the worst you've seen? Thanks.
So maybe, Seth, I'll just start with respect to the Q2 question, Shweta. So, yes, look, I think that, again, this was when we were talking about this in May, we really only had April and April was the really the height of the dislocation in the ad market. We quickly saw some recovery basically by the middle of May and then into June. And again, I think it's the factors I spoke about, which is performance, marketing and orientation as dollars shifted from brand advertising in the marketplace to performance that if we're going to advertise marketers who said, look, we need to generate ROI and real return on ad spend, it does benefit that we are significantly in the pharmaceutical advertising market at the Everyday Health Group, which was very, very helpful overall. It's a very strong category and a major driver of that.
I've talked about before, which is the marketing that's done to physicians, which in the industry exceeds the spending on marketing to patients and consumers has gone from a physical process of sales reps visiting physical doctors offices to entirely a digital process and our MedPage today and associated assets are leaders in that space. So that movement was a big driver in the overall pharma and healthcare performance component. And then just the retail performance marketing where we get compensated for driving traffic to online retailers who then pay us a percentage of the ensuing transaction. In that business, what we were seeing early in the quarter were a number of retailers saying, look, we can't take the demand, don't send us the traffic, we can't fulfill. Those supply chain issues were fully resolved faster than we had thought.
And so that came back entirely. That rebounded in its entirety and we're optimistic about it for the rest of the year.
Thank you. Our next question comes from the line of Rishi Jaluria with D. A. Davidson. Please proceed with your question.
Hi Vivek, it's Scott. Thanks so much for taking my Nice to see continued resiliency in the business. Wanted to start by digging a little bit more into implies it's about a $15,000,000 run rate business, about $6,000,000 run rate EBITDA assuming it does close end of August. I guess, A, why what's the impetus for divesting the asset? And then, B, if we think about this along with the context of another of your relatively recent divestments, which is Web 24 that was also an Australia business.
Is there just something directionally in the ANZ market that's leading you to 2 divestments here? Is it just kind of a coincidence that both of these divestments happen to be kind of in the same area geographically? And then I've got a follow-up.
So I think there's a few things, Rishi. First of all, our ANZ business on the voice side has been in a state of revenue decline for several years now. So we actually probably will hit this year somewhat lower EBITDA number than you just referenced in U. S. Dollars.
So we think we got a decent price for it, about 6 times EBITDA. But as I say, it's one that's been in decline and likely to continue to do so. Then if you go back to the Analyst Day and you remember Nate's unpacking of the cloud business, I think when you look at our SMB enablement, what we do in Australia and New Zealand from a voice perspective really is not a fit on a going forward basis. So the core of our voice services are 2nd line service and the virtual PBX. We have different services down under in Australia and New Zealand.
I think the third element is just the management allocation of time. The voice business is not that big a business and yet it's very geographically dispersed between Australia and New Zealand on the one hand, the United States and Canada on the other and then Western Europe. So for all of those reasons, independent of the decisions that were made in 2017 prior to Nate joining us on the Web 24 side, it was determined that, a, those were not core assets and 2, we could take back cash and better redeploy it.
It. Got it. That's really helpful. And then I wanted to go back to an earlier question on free cash flow conversion. So, I recognize we look at this on a trailing 12 month basis, so about 66% trailing 12 month EBITDA conversion of free cash flow, which is a nice uptick from last quarter.
How should we be thinking about the free cash flow conversion on a full year basis this year? And without getting into very strict free cash flow guidance, should we expect it to be directionally up from last year? Are there going to be some level of COVID related headwinds as it comes to payment and maybe some delays on there and changes in accounts receivable that would lead it to be down. Any sort of directional color on how to think about the conversion for the full year would be helpful?
So far, the answer to that question, Rishi, on the collections is no. I mean, obviously, we have a number of different accounts. And yes, on a case by case basis, there have been some that have been stressed, some we've accommodated with more favorable terms. But in general, we have not seen a stress in collections. Now we did C and I referenced this a quarter ago, certain collections from media side of the business that would have normally occurred in March that did slip into April.
I think that was more just a function of the conversion to the work from home environment, both for us on the collection side as well as our counterparties, but that money came in, in April. So under our sort of tilted U shaped recovery thesis, I don't expect that we would see any material change in our ability to collect. So as a result of that, I think that we are in a fairly tight range on a trailing 12 month basis of conversion. And it's not 66% is not an absolute definitive point estimate. You can look at it as 64% to 67%, 68% on a trailing 12 month basis.
The one thing I would note is remember when we say free cash flow, that's after CapEx. And as I've referenced earlier, as long as we can justify that spend, we intend to continue to make that spend very similar to in the operating P and L as long as we can justify the returns from a marketing perspective, we will continue to spend the marketing dollars. It's not an area that is targeted for cutting. So I think we're in that range on a trailing 12 month basis for this year. And as I said, I don't think under our economic assumption, there's much friction coming from collection issues.
All right, great. That's helpful. Thank you so much.
Thanks, Rishi.
Thank you. Our final question comes from the line of Jon Tanwanteng with CJS Securities. Please proceed with your question.
Hi, good morning guys. Thank you for taking my questions and very nice quarter. My first one just can you talk about the healthcare fax business, one of the most profitable segments of your business. You mentioned elective surgeries had an impact in the Q2, but given the surge of hospitalization, can we expect more of the same in the Q3? How do you expect that business to run?
What's built into your assumptions there for the time being?
Yes. Thank you for the question. I think it's very important. So the overall Cloud Fax business was essentially flat in the quarter when you adjust for ForEx and the JBLAST disposition. Corporate facts was up 7%, notwithstanding the issues we had on page volumes.
So actually Corporate Fax had a very strong growth organic growth quarter notwithstanding the fact that we were seeing page volumes in April that were down 22% versus the Jan Feb baseline. So, we did see a significant drop in page volumes. May proved to be better than April, about down 14% in page volumes. And now we're looking in July and the numbers look like about down 3%. So this is page volumes in July down 3% again kind of the pre COVID baselines, which make us which are great, which are great for us.
And we think could mean some leads to stronger numbers for the second half.
And I would just follow on and to quantify it. That decline in the page usage related primarily or almost exclusively to healthcare had an impact on the fax business variable revenue of about $2,000,000 in Q2. So I think actually a very strong quarter that was offset by new ads and the fixed revenue that comes with that. So if these trends continue to improve in terms of the usage, then that gives a little bit of tailwind to the fax business relative to its performance in Q2.
Great. Thanks for that color. And then Vivek, just to maybe jump back to the M and A topic that you started with. I was just wondering how the landscape has changed in terms of pre COVID in terms of the number of opportunities you've seen, the quality of them, and evaluations have come up or down and kind of what sectors have shuffled around as compared to before the pandemic, what's more available and what isn't at this point?
I don't you know, look, I think you're seeing a little more in the digital media space because I don't think many of that many have weathered the COVID storm, the pandemic storm as well. So I think those that have advertising based businesses that have not done well, obviously, are looking for strategic alternatives. I think also the businesses that have liquidity issues and whether or not the right answer for them is to seek more financing or maybe seek a transaction. And then I think we're hearing from a lot of companies that have they have similar businesses as ours, feel like it needs to be scaled and put in combination with something of equal size and then access to future capital to continue to invest against the business through M and A and CapEx, we're having those conversations. I think people have taken note of our balance sheet position and it's encouraged them to say, look, you're better positioned to help drive our businesses in combination to a higher level, let's talk about that.
So really all of those situations are presenting themselves.
Got it. Thanks. And the
size of the pipeline itself? Sorry, come again, John? You said the size of
the pipeline itself, has it shrunk or is it relatively the same?
No, I mean, I think it's as strong as it's been. I mean, I think you can measure if you measure it in deal value, it's probably as strong as it's ever been. In number of deals, I'd have to look at that and check that, but it's strong.
Got it. Great. Thank you very much, guys. Congrats on the quarter.
Thank you. Thank you.
Thank you. We have reached the end of our question and answer session. I'd like to turn the conference back over to Mr. Turicchi for any closing remarks.
Thank you, Michelle, and we appreciate all of you joining us today for our Q2 call. It did run a little bit long, but I think it was important to take everybody's questions. We did have a release put out in this environment. We have some virtual conferences and virtual non deal roadshows actually beginning tomorrow. Then there'll be a bit of a break and then they reengage post Labor Day.
So look for the release coming out a little later this month to announce our September conference slate And then we will expect to have another quarterly call in November to discuss Q3 results. Thank you very much.
Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.