Greetings and welcome to the J2 Global First Quarter 2020 Earnings Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Scott Turicchi, President and CFO. Thank you, sir. You may begin.
Thank you. Good morning, ladies and gentlemen, and welcome to the J2 Global Investor Conference Call for Q1 2020. As the operator mentioned, I'm Scott Turicchi, President and CFO of J2 Global, and I'm joined by our CEO, Vivek Shah. A presentation is available 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 yet received a copy of the press release, you may access it through our corporate website at www.j2global.com. In addition, you'll be able to access the webcast from this site. After completing the formal presentation, we will be conducting a Q&A session. The operator will instruct you at that time regarding the procedures for asking a question.
However, you may email us questions at any time at investor@j2global.com. Before we begin our prepared remarks, allow me to read the safe harbor language. As you know, this call and the webcast will include forward-looking statements. Such statements may involve risks and uncertainties that would cause actual results to differ materially from the anticipated results. Some of those risks and uncertainties include, but are not limited to the risk factors that we 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.
Thank you, Scott. Good morning. I hope everyone joining us today is doing well and are safe and healthy. I want to start by thanking all of J2's employees worldwide for their dedication and determination. I continue to be inspired by our organization's response to this crisis and impressed by the tremendous resilience shown by our people and businesses. We were early in our embrace of social distancing. We began shifting our entire workforce, which is more than 4,000 people in over 60 locations, to remote work on March 10th, which was well ahead of local orders. We're very thankful that our workforce remains healthy. Our ability to move everyone to remote work as seamlessly as we did is a tremendous tribute to our technology organization and the preparation and investments the company has made over the past couple of years.
We've always believed that being a company that produces and delivers nearly all of its products and services digitally is an advantage, even more so in this environment. We're pleased with our Q1 results, which were in line with our expectations. We're closely monitoring every part of the portfolio to evaluate the impact the pandemic is having on our businesses. Our March revenues were up 9.2% year-over-year, which was a tick under the first two months of the quarter, but in no way represents the kind of revenue drop many of our peers are reporting in March. Our April revenues are also relatively healthy, coming in flat year-over-year.
As we stated in the business outlook section of last night's press release, we anticipate Q2 2020 revenue to be slightly down and adjusted EBITDA and adjusted non-GAAP EPS to be down single-digit percentages versus Q2 2019 based on current performance. It's important to understand that our decision to withdraw our full-year financial guidance in no way reflects a lack of confidence in our business. Quite the contrary, we feel our portfolio is demonstrating remarkable resilience. Rather, it reflects a reluctance to engage in pure guesswork as to what the world is going to look like starting in July. It might be helpful, however, for me to share some of the broad market trends that we're observing. Let's start on the advertising side of our business. In any downturn, the first expense cuts happen within the marketing and advertising budgets of companies.
It's the easiest thing to turn off as there are few long-term non-cancelable contracts, there are few penalties or costs associated with canceling, and the revenue impact is felt in future periods. In this particular market, we have another factor, which is the explosion of ad inventory based on significant increases in media consumption that are causing compression on advertising rates. As a result of all of these trends, a number of the largest sellers of advertising in the world have reported significant, sudden, and steep declines in revenue. At J2, however, we are cautiously optimistic that our $510 million annual ad business can perform better in relative terms. First, our advertising business has little local retail exposure in terms of customers. We have roughly 1,100 advertisers who are mostly big companies.
While many of the social media companies have millions of advertisers, a good number of them, local businesses that have been hit hardest by the pandemic. Second, we have little exposure to the hardest-hit ad categories so far: travel, retail, food, and auto. In fact, roughly 40% of our ad revenues fall into the health category, where we are seeing growth from pharma marketers. As a point of reference, through April, Everyday Health has seen organic ad revenue growth of 5%. Third, the last marketing dollar cut is usually the best-performing dollar. As you know, about half of our ad business is performance-based, meaning cost per click, cost per lead, or cost per acquisition. The other half, which is impression-based display, is usually measured and optimized on performance outcomes. We're hopeful, moreover, that these are mitigating factors for us in a punishing environment for ad sales.
On the subscription side of our business, which is about $850 million annually, we are closely following subscription acquisition and cancellation trends. We have not yet seen any appreciable slowdown in our subscriber adds. We're stable in the near- term, we believe, for a few reasons. For starters, our services are viewed as more essential in a work-from-home environment. In fact, over the past six weeks, we've seen net adds for eFax in North America running about 50% ahead of plan as the rapid shift to remote work spurred orders, but we expect that will likely return to normal levels. Our voice businesses, which offer soft phone services, are relevant at a time like this, and we're seeing meaningful increases in email send volumes with our MarTech services. Security and privacy are as important now as at any time.
Also, much of our subscription revenue employs a lighter touch sales model, meaning web and phone-based customer acquisition, which have been less disrupted by the pandemic. Finally, our lower ACVs likely make purchasing much easier than larger ticket items. Where we have seen customer acquisition impact is where field sales and/or physical contact are necessary. Larger cloud fax deployments, which require in-person sales efforts, and Ekahau, which sells tools for commercial Wi-Fi deployments, have seen slowdowns. We've also seen meaningful reductions in corporate fax page volumes from healthcare customers who have suspended elective surgeries and therefore have lesser movement of medical records. On the cancel side, we have not yet observed higher rates of cancellations, evidenced by a slight decline in Q1 cancel rate from Q4 2019.
If past recessions are any indication, then we would expect to see increasing cancels as credit card statements and accounts payable ledgers all around the world get even greater scrutiny. Another headwind we have on the subscription side is forex, which has already cost us a million and a half dollars in the first four months of the year. All taken together, we are cautiously optimistic that the headwinds and tailwinds will cancel each other out, but much depends on the broader environment. Across the entire company, we have developed contingency plans to manage expenses, including pauses on hiring, delays on salary increases, delays on certain development projects, reducing less productive marketing spend, renegotiations with vendors and suppliers, and reductions in our real estate footprint.
At the same time, we have not had to resort to the more draconian measures that we're observing by many in the industries in which we operate. We're also funding some key growth initiatives at the company, given our very strong balance sheet and free cash flow. In the category of longer-term themes that we believe will emerge out of this crisis, we have identified four that are important to J2. The first is our belief that healthcare will finally embrace digital transformation. There are two areas in which we believe we can benefit. The first is in our cloud fax business. As we've said in the past, we estimate that the vast majority of healthcare faxes are done with machines and servers. This crisis underscores the need to move from an on-prem to cloud solution.
Furthermore, we recently launched a new platform called Consensus, which combines an improved enterprise cloud fax solution with secure direct messaging and patient record query capabilities. We believe that this will be an important platform as healthcare moves to the cloud. To learn more about it, please visit consensus.com. The second area where we see opportunity is in what's referred to as detailing in the pharma industry. Historically, that's meant sending sales reps in to see doctors. We believe that that will be replaced almost entirely by e-detailing, which is reaching doctors digitally through websites, email, and webinars. Everyday Health Pro is in this business, and our flagship site, MedPage Today, saw a 33% increase in its physician promo revenues in Q1. The second theme is the rise of remote working.
In cloud services, we are focusing our product development, marketing, and sales at our security, privacy, and voice businesses on work-from-home needs. What might have taken months of development is now being rolled out in weeks. A prime example of that is the eVoice Meet product, which is a fully encrypted video conferencing solution for our customers. You can try the beta for yourself at meet.evoice.com. The third theme is our belief that video game play will only grow and establish itself as a leading form of entertainment. The spikes in consumption are evident, and our ambition at Humble Publishing to be the leading indie game publisher is as promising as ever. We expect to launch 19 games this year, and another 60 games are in development for the future. The fourth theme is our belief that e-commerce will become the dominant form of retail.
Prior to the pandemic, e-commerce only represented 11% of all retail sales. The entire public is growing accustomed to shopping online. As you know, we have long focused on being a driver of qualified traffic to online retailers through our editorial sites such as PCMag, IGN, and Mashable, as well as our deal sites like offers.com and our Black Friday sites. A few words about M&A. We are pleased to have consummated two transactions in Q1. While small, it's nice to see us get our first cloud fax deal done in a few years, as well as add a condition-specific site to the Everyday Health portfolio. During this pandemic, we are very reluctant to close on transactions without visiting companies.
Right now, we are planting a ton of seeds, and when the clouds lift, we think we are going to be very well-positioned, strategically and financially, to act on some very interesting opportunities. We're also very focused on building our cash balance through ongoing free cash flow from our operations. Before I hand the call back to Scott, let me reiterate my utmost confidence in J2 and its prospects. I personally bought $1 million worth of shares during our open window in March. The resilience and strength we're showing should convince even our biggest doubters that J2's portfolio, operating discipline, and capital allocation are special. Scott?
Thanks, Vivek. I will provide a succinct overview of the Q1 results on slides four to six to ensure that we have ample time for Q&A. We ended the quarter with approximately $625 million of cash and investments after spending approximately $75 million in the quarter on acquisitions and share repurchases. Let's review the summary quarterly financial results beginning on slide four. As Vivek mentioned in his opening remarks, we had a solid Q1, which was in line with our expectations and saw an 11% growth in revenues to $332.4 million, up from approximately $300 million in the year-ago quarter. EBITDA grew 2.6% to $116.8 million. The slower EBITDA growth, which was anticipated, was due to lower margin revenue contribution from BabyCenter and Spiceworks, coupled with the timing of certain Humble Bundle payments in 2019 that shifted out of Q1 2019 and into Q2.
Earnings per share was flat at $1.40, aided by the higher operating income and lower share count, offset by higher interest expense due to the 1.75% convertible notes issued last November, as well as a modestly higher tax rate. We completed two tuck-in acquisitions during the quarter and have repurchased 1 million shares of our stock since the beginning of this year. Turning to slide five, in Q1, we generated $95.2 million of free cash flow, which was an 8.7% decrease from Q1 2019. The decrease was due to receivable collections anticipated in March that shifted to April of approximately $5 million and higher CapEx of approximately $14 million versus Q1 2019 that has been funding a variety of projects over the last year as well as the implementation of various corporate systems.
Let's turn to our two segments, Cloud and Digital Media, for Q1 as outlined on slide six. The Cloud business grew revenue 11.5% to $169.8 million, with EBITDA growing 4.3% to $78.4 million after corporate allocations. The Digital Media segment saw a growth of 10.1% to $162.6 million, with a slight decline in EBITDA of 2.1% to approximately $40 million due to the shifting of timing of the Humble Bundle payments referenced earlier. I would note that absent corporate allocations, the Digital Media segment had a slight increase in EBITDA over Q1 2019. Before going to our question and answer session, I would like to turn your attention to our business outlook on slide seven. As noted in the press release, we are withdrawing our previously issued financial guidance due to COVID-19 and the uncertainty of the macroeconomic environment.
Based on our current performance and expectations, we expect Q2 2020 results to be slightly down for revenues and adjusted EBITDA and non-GAAP EPS to be down single-digit percentages from Q2 2019. I would note that Q2 2020 will benefit from acquisitions that are not contributory to Q2 2019 financial results. The revenue contribution from those acquisitions represents approximately 6 percentage points of year-over-year growth in the quarter. Given the nature of this macroeconomic environment and the need to evaluate operations on a short-term basis, we have limited visibility at this time into Q3 and Q4 financial expectations. Following our business outlook slide are various metrics and reconciliation statements for the various non-GAAP measures and 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. In the interest of time, we ask that you please limit yourself to one question. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for your questions. Our first question comes from the line of Cory Carpenter with JPMorgan. Please proceed with your question.
Great. Thanks for the questions. Hope everyone's doing well. Maybe one and then a follow-up, if I could. Vivek and Scott, appreciate the color on the March and April trends. Very helpful. I guess my question is, any signs of stability you're seeing in the first few weeks of May from a trend perspective? Then maybe kind of pulling it all together, could you talk about Digital Media and Cloud Services? Maybe the revenue and EBITDA assumptions embedded within your two-view guide. Thank you.
Good morning, Cory. Thanks for the questions. With respect to May, we're only 12 days in, but May looks just like April does, essentially flat across the board. I do want to point out what Scott said in his prepared remarks, which is adjusting for M&A that contributes to this year that was not present last year, that's about six points. On an organic basis, trending about six points down in April and May, and that's our expectation for Q2. Look, I think considering the environment in which we're operating, where essentially every business is feeling the negative impacts of the virus, particularly media businesses and ad-based businesses, we think that's really outstanding. It reflects the strength of the portfolio, it reflects the strength of these brands.
I think at this stage, and as I said, and as Scott reiterated, really, the reason why we're not going to really speak beyond Q2 is we have no idea what the operating environment's going to be. It has nothing really to do with our businesses. Our businesses are showing, I think, a fair amount of strength and resilience in this period. It's really, as I said, pure guesswork to figure out what's going to happen starting in July and for the rest of the year. I keep seeing all forms of different recovery notions. I think this morning was the swoosh recovery. Again, I think everyone's trying to understand what's happening in the marketplace, not just us.
I would just follow up on that, Cory, that in terms of the two segments, they look similar in their operating performance in the first five, six weeks of Q2, meaning flattishness on both. As Vivek just mentioned, the media business does benefit from some M&A in Q2 that was not present in Q2 of 2019, where that's not the case for the cloud business to any material degree.
Okay. Thank you. Very helpful. Just one follow-up, and you touched on this some on the call as well, but just hoping you could expand some. On your Q4 call, you did lay out some investment areas in 2020. Could you speak to how the current environment changes your plans, if at all? Maybe where you continue or plan to continue investing or even lean in, and then any areas where you may pull back.
No, I don't think it changes our investment themes and where we would like to put capital to work. I think it changes our timing, and I think it changes valuations. From a timing point of view, as I said, we're holding back right now, and it is us holding back thinking that we would prefer to be in an environment where we can actually visit companies before we transact. That's something that we'll see for how long that's going to be our reality. That's the timing issue. It's not about availability of ideas and availability of opportunities per se. In terms of valuation, I think that particularly in the media world and in the digital media world, I think seller expectations have come down appreciably, and not surprising. We think we're going to benefit from being patient here.
In the meanwhile, we're going to continue to add to our balance sheet and continue to add to our buying power. I think when the time comes for us to transact, I think we're going to see some very interesting opportunities.
Thank you. Our next question comes from the line of Saket Kalia with Barclays. Please proceed with your question.
Okay, great. Hey, thanks for taking my questions, guys, and thanks for having me on the call here.
Absolutely. Good morning.
Absolutely.
Good morning.
Good morning, Saket.
Good morning. Hey, Vivek, maybe just to start with you. Understanding to your point, it's really hard to think about the back half of the year here in terms of the pace of the recovery, et cetera. Definitely not looking for any sort of quantitative forecast here. Maybe the question is: What are you hearing from advertisers here for the latter part of the year? What are some of the leading indicators here that maybe are informing your thought around how the back half of the year could sort of transpire for your advertising business? Does that make sense?
Yeah, it does. Look, I think it's category dependent. If you look at the categories in which we operate.
You have different things going on, you have different ideas amongst our advertising clients. Let's start with pharma. Pharma, as I pointed out in my prepared remarks, continues to grow. It grows both on the direct-to-consumer side, but even more so on the direct-to-provider side. Pharma advertisers have historically had messages for patients and messages for providers. We are seeing some pretty healthy trends, particularly on the provider side. I think part of that has to do with this notion of physical detailing, a sales rep going in to see a physician, essentially isn't happening right now. I think this will affect a permanent shift. There are some exceptions. If there's a drug that has If there are any concerns about a negative interaction between that drug and the virus, they've gone dark.
We have seen a few drugs go dark from a marketing point of view, which I think is understandable. In the gaming area, we have something entirely different going on. Prior to COVID-19, I believe I mentioned this at the Analyst Day in early March, is we were anticipating that many gaming advertisers and publishers were going to hold their spend to support the next generation of consoles, both Sony and Microsoft's consoles, that are coming out during the holiday season in 2020. We saw that already happening. Add to that, demand for gameplay is so high, there's probably a notion amongst some of the publishers of they don't really need to advertise right now because the demand is coming in.
I think with the console cycle, if it still comes in the fall, I think we're going to see some budgets release. On the tech side, again, it depends. If you're direct-to-consumer, you're trying to feed online sales, where we are well-positioned. If you are enterprise in orientation, right now, you may not value leads that you can't follow up on and have an in-person call. It really is, there isn't one answer in the categories in which we operate. I don't know if it's we're lucky or we're good, but the things we're not dealing with are what many people are dealing with, which are travel and auto and these affected categories, as well as having the longer tail of advertisers. We don't have that. We have mostly enterprise buyers of advertising. That's kind of, it's not one neat answer.
As we often do, we're unpacking it based on each of these different categories.
Got it. That makes a ton of sense and is super helpful. Maybe for my follow-up for you, Scott, just maybe digging into the digital media business just a little bit more. How do you think about the subscription component of that business? I think that's going to include parts of businesses like parts of measurement, maybe some components of healthcare as well. I think that was down sequentially. How do you think about that sort of seasonally in a quote, unquote, "typical year?
Yeah, I think that's an interesting point because our subscriptions in Digital Media do behave differently than the typical subscriptions in the cloud business, which is very sequential in nature. For those of us, and I know, Saket, you're relatively new to J2, if you go back to Q4 2018 and Q1 2019, you'll also see a sequential dip in subscription revenues in Digital Media. You know, they're heavily weighted into the Ziff Davis business unit into the first two categories you mentioned, which is Humble Bundle on the games side and Ookla in the broadband division. They each behave somewhat differently, but let's take the games piece of the business. We tend to see a surge of activity later in the year, in the second half of the year, particularly in Q4.
That was noticed in Q4 of 2019, which had, even relative to our own expectation, about a 10% outperformance in that quarter. The interesting thing about Humble Bundle is people are allowed to pause their subscriptions, which is very common as we exit Q4 and go into Q1. We actually expect to see sequential declines in the Humble Bundle subscribers, and then as the year goes on, we tend to reamalgamate that growth and then even go beyond it. Ookla is a little bit different in that it tends to be a very small number of subscribers. They're very chunky. The timing on which they subscribe and for what they subscribe tends to influence the total revenue we book. Those two also seem to be a little bit weighted from Q2 to Q4 versus Q1, and it's also a function of the package they buy.
Some are very short-term in contract relationship, maybe measured in a matter of a few months, and some come at higher value levels than others. A lot of it has to do with the types of data that they are subscribing to. I think if you look at our total subscription revenues on a year-over-year basis for Q1, they're up 12.5%. I would say that if you look at the run rate, the way we look at it for the business, once again, with some degree of caution as we look at the back half of the year, we think that's tracking to about 10% year-over-year growth.
Got it. Very helpful. I'll get back in queue. Thanks, guys.
All right. Thanks, Saket.
Thank you.
Thank you. Our next question comes from the line of Daniel Ives with Wedbush Securities. Please proceed with your question.
Yeah, thanks. When you're talking about 2Q and obviously being down, so far it's been flat. Can you just maybe talk about assumptions in some of the businesses from a high level, as you're thinking about the quarter?
Yeah. I think I'll start and then Scott jump in. Again, when we're looking at it segment level, we look at cloud being essentially flat to slightly down with really no M&A in that mix. Remember against last year, you have a full quarter of ownership for our IPVanish business. Within that, if you just look within sort of the areas that we talked about at the Analyst Day, security and privacy and corporate fax continue to be very strong and strong organic growers offsetting a little bit of decline on the web fax side and a little bit of decline on the backup side.
In the Digital Media segment, again, we're saying revenues on a reported basis will be flat year-over-year. It benefits in the advertising portion from BabyCenter and Spiceworks on the revenue side, being in our Q2 2020 numbers and not in our Q2 2019 numbers. On that basis, really, that six points of M&A really all falls within the digital media segment. As a segment, it's down, let's just say, if you want to say, what is the organic decline in the digital media segment? It's six points.
Got it.
That's correct.
Maybe Scott could on the expense areas, but for me, from a media perspective, can you just talk about day-to-day what you're doing in terms of just with navigating the businesses? Look, obviously all the different business heads, they're almost running their own businesses, but just maybe talk specifically on digital media, what you're doing almost day-to-day with clients, with the business to kind of navigate this storm. Thanks.
Yeah, it's a great question. I think we're staying in constant contact with all of our clients. It's interesting in this remote work environment, there almost seems to be more of a willingness for clients to engage. I think everyone finds themselves with more working hours and less travel and commuting hours, and an interest in having these discussions. I think the quality of the engagement between us and our clients is very strong. Lots of discussions about future plans. I do think it's very healthy that way. From an operating point of view, and I'll say this for all of J2 Global, and I said this in my prepared remarks, but it is remarkable to me how quickly and early we were able to get into this new environment.
I think the productivity levels at the company haven't been higher, and I'm pretty amazed at the product development work that's going on. I mentioned a couple of the things that we've rolled out in the first quarter, but the pipeline is very strong and the product roadmap is very strong. That is a mindset that the company has right now, which is, look, you can't control the external environment, but we can certainly control our pace of development and our pace of innovation. That shows up a little bit in the expenses. I'll be the first to tell you that the driver expenses year-over-year is compensation, and that has to do with the organization that we've built to pursue the opportunities that we see in front of us, and those aren't change.
We have not engaged in any sort of large-scale reductions in force or layoffs. We don't believe that our businesses are anywhere close to feeling the effects that other businesses in our industry are feeling and have gone through those. We feel very fortunate at this point that we can keep this team in place and pursue all of the things that we are pursuing. Whether it's the Everyday Health Group, Ziff Davis or Cloud, each one of those divisions and inside of each of those business units have pretty ambitious projects on their plates.
Thank you. Our next question comes from the line of Shyam Patil with Susquehanna. Please proceed with your question.
Hey, guys. Good morning.
Morning. Morning, Shyam.
Vivek, at your Analyst Day, you talked about having some larger deals. It sounded like in the middle of the funnel. It sounds like there could be somewhat of a pause now given the travel restrictions. Can you just talk about kind of how you feel about those deals coming out of this? If you expect M&A to be weighted more toward larger deals kind of during the recovery. If you could just talk about that.
Yeah. Shyam, it's always hard to predict, but I will tell you that what might have been larger a couple of months ago just got smaller on the very same target, potentially. That we recognize, which is making sure that we understand the right price on preexisting assets, things that we've been working on, and then new assets start to come into view, right? We do have those dynamics going on. I'll give you the answer I always give because it is the truth. It's about putting capital to work to get maximum returns. We're built to do a series of small things or even larger things. To me, it's going to come down to what are the best available opportunities when we're in a position to transact. That's the key.
That's the unknown, is when are we going to be in a position to feel comfortable to transact? Will we ever get comfortable transacting without ever actually seeing a company physically? It's a question and a debate we have right now. Right now, my view is, I think that's a hard thing to do. Again, depending on how long this reality is in place, it's something that we'll at least have a healthy debate about.
Okay, good. Just a quick follow-up for Scott. Scott, in terms of gross margins overall and by segment and the OpEx by the bucket, any color you can give us in terms of how to think about those for 2Q, and just conceptually how you're thinking about those for the rest of the year?
Well, I think I'll limit my comments to Q2 just in general because of, as I say, the uncertainty of the macroeconomic outlook for the balance of the year. Although, I think some of these trends have a likelihood of persisting in terms of the cost structure. Really, that's more of a revenue question. In Q2 specifically, I would say that the gross margins, they're not moving around a whole lot within each of the two segments. I would think that those trends you saw in Q1 are likely to continue into Q2. In terms of the EBITDA margins, I would expect that our EBITDA margins to be somewhere between where we were in Q1, which was 35% EBITDA margin, and where we were in Q2 of last year, which was 39%. You could use the midpoint of that just as a guardrail.
A lot of where the margin comes in in Q2 will be a function of a couple of things. As Vivek mentioned at the beginning, as we said throughout this call, this is very much of a week-to-week analysis, primarily on the top line. Incremental revenues that come in or don't come in relative to our current expectation will generally have a very high flow through to EBITDA. Most of that's going to come because there's not a lot of OpEx associated with that incremental revenue. There might be 15 points-20 points of COGS, but that's about it. The second thing is that a number of the initiatives that Vivek outlined at the beginning of his call and answered to some degree on the question that was just asked by Dan, is really a timing issue.
We're tracking, independent of the revenues, all of the savings that are coming in from things like lack of T&E, although I wouldn't say that it's absolutely zero. Things like where there are elimination of certain costs that we previously thought were necessary and have deemed now to be more of a luxury. Those things are coming in during Q2. I think the good news is they will more fully benefit the back half of the year than they will Q2. That's why there's going to be some, I think, range of EBITDA margin regarding Q2. I think, as I say, it's a four-point band in which you should be thinking. I would just, You're not asking the question, but I'd like to bring it to the bottom line for Q2.
One of the things that we had going into this year was, relative to the last several years, a decent interest rate environment. Because of the convertible note offering in November of last year, we have significant cash balances, and they are growing. Even more than you see reported at the end of March, which is about $525 or the $625 of cash and investments. We were getting on a portion of that cash, a good portion, close to 1.5% interest, which was offsetting some of the incremental interest expense. That has pretty much vanished. We are still getting some yield, but I would say it's conservatively down 100 basis points, and we're now getting in the 40 basis point- 50 basis point range.
Just to make it clear to everybody, I'm looking at our interest expense net, assuming no currency translation adjustments in other income of $16.3 million for Q2. I think that's likely to sustain itself in each of the following quarters. Our non-GAAP depreciation right around $15 million. As you saw in Q1, our tax rate came in consistent with our budget, which is right around 22%. One last thing, because I know I'm going to get asked it, is we have the share buybacks. Technically, they spilled into the second quarter. As a practical matter, we actually executed all the trades in Q1, but we paid for about 350,000 of those shares in Q2. That's why I referenced earlier, we repurchased 1 million shares. There was a partial benefit of that in the effective share count for Q1.
That will be fully realized in Q2. If you look at the EPS, the effective share count in Q4 of last year was 48.5 million. In Q1 of this year was 48.1, we're expecting it to be in Q2 around 47.2, 47.3.
Great. Thank you.
Thank you. Our next question comes from the line of Nick Jones with Citi. Please proceed with your question.
Great. Thank you for taking my questions. Could you dive in a little bit on the cloud services side and what you're hearing from the SMBs? I think you have a pretty broad coverage there of the types of users. Any additional color there would be helpful. Thanks.
Yeah, Nick. Thanks. Again, I think the question that everyone's asking really is on the cancel side. Are you seeing the kind of cancellations that others that are SMB focused are experiencing? The answer to that, to this point, is no. Actually cancels, as I think I mentioned in my remarks in Q1, were an improvement over Q4 and in the early goings of Q2. We yet haven't seen any indication of it. Scott does remind me, that in past recessions, we had seen increasing cancels. We were a very different product portfolio there. We were largely web fax. It'll be interesting to see how the non-web fax portion, which is larger than the web fax portion within cloud, will behave. I think you've got a couple of things going on. I think number one is, we're not selling very high price point products.
I believe that the products that we're selling, if you are a going concern in business or products that you need and are somewhat essential to what you're doing. I mean, you look at our email marketing business, I was surprised by this, the send volumes are even bigger. That's because if you are a retailer and you're trying to drive online sales, you're going to use email marketing as a cost-effective and quick to turn on tool. I guess it shouldn't be that surprising. On the ad side, again, because most of our customer acquisition is done on the phone or on the web, those have been unaffected and some could argue have been more effective in this environment than other forms of customer acquisition. Where we are seeing challenges, as I mentioned, is we are seeing significant page volume decreases.
It's not a huge portion of the overall revenue, but we are seeing fewer sends amongst healthcare enterprise customers where we do get an incremental amount of revenue on volume. We think that will return when elective surgeries and non-COVID care start to kick in across our customer base. The only other thing, sorry. Just the only other thing is I would say that, just on the healthcare piece, because healthcare is a huge part of the cloud customer world, I really do believe that this event is going to trigger a lot of change. I think that change is going to be helpful to us, and you should spend some time on Consensus, because I think you'll get an appreciation for the interoperability solution that we're building. I'm bullish about that.
Obviously, again, I can't tell you when healthcare will return to some form of normalcy, but I do believe that the solutions that we're building here are important. In many ways, these are healthcare solutions that are a big part of the cloud business.
What I wanted to follow up on, Nick, was that when Vivek said that the product mix is substantially evolved from, say, the Great Recession of 2008, 2009, I'll be a little bit more, I think, definitive on that. Really the business, if you look at the late 2008, early 2009 timeframe, is what we call the cloud fax business that was outlined in the Analyst Day by Nate. That was heavily, really SOHO weighted at the time, not even what we now call SMB. The mix between SOHO, SMB, and Enterprise is substantially different today than it was back in 2008, 2009. Just to give you a benchmark, going into the Great Recession in terms of the peak, the cancel rate increased about 50 basis points per month. It started at a higher rate.
It was at 3% versus the current 2.3, 2.4, and it peaked at 3.5%.
Great.
Thank you. Our next question comes from the line of James Fish with Piper Sandler. Please proceed with your question.
Hey, guys. Thanks for the question. You guys actually have answered most of mine, but just one for you. One thing that was not addressed at the Analyst Day was the prior cross-sell programs that I think are important in the cloud business that really didn't work out in the past cycle when you guys tried to do it under the old management team. I guess one of the difference this time and how are the early cloud cross-sell programs going with this environment?
Yeah, thanks, Jim. Appreciate that question. We're doing a few things. We might have talked about this, I can't remember, at the Analyst Day. We've started to bundle SugarSync and IPVanish. That really is a retention play. Same price, both products together. It's early because we're not in that many renewal cycles. The month-to-month look good, we haven't yet hit an annual cycle. From a retention point of view, that seems to be working, and we're seeing some good early positive signs. We've also bundled VPN with VIPRE. VIPRE being our endpoint product, and then we've created a VIPRE VPN leveraging our white label VPN technology inside of the security and privacy business. There, we're trying to drive more average revenue per user.
There, we're seeing some good progress, some solid numbers, double-digit growth in revenues on that bundle. We've got the Speedtest VPN, which is actually a digital media and cloud services collaboration where we're leveraging the footprint of the native application Speedtest and builds inside of it a white label Speedtest VPN that for the beginning was just free with some data limits, and now we've added a monetization layer to that, and the early results are good. When you hit the usage cap, you have to convert into a paid subscriber if you want to continue to use the Speedtest VPN. In another Cloud Digital Media bundle, we actually used Humble Bundle. Humble Bundle did a work-from-home bundle that had non-J2 and J2 products.
I think we had Encrypt.me, which is our remote access VPN product in that bundle, and we drove some good orders. For the most part, I think the natural bundling has happened, and that's mostly in sort of security plus privacy coming together, as well as we're now exploring some more on the SMB enablement side, which is, Do our MarTech customers want our soft phone services? Do our soft phone services want our MarTech? That's the next wave of exploration in terms of ways in which we can cross-sell.
Scott, thanks for the color and good luck this quarter.
Thank you.
Thanks.
Thank you. Our next question comes from the line of James Breen with William Blair & Company. Please proceed with your question.
Thanks for taking the question. Just a couple. One, Vivek just talked a little bit about Ookla. What have you seen as a trend there? We've seen with people working from home, a lot of people are checking their speeds to make sure they get the bandwidth they need remotely. Then two, just from an M&A perspective, obviously, not a lot happening when you can't meet face-to-face. What is, not capital-wise, but from an operating perspective, your ability to do multiple deals in a single quarter? If things were to open up a bit, and you could do a bunch of stuff at one time, to what extent can you do that across your different operating segments and your different general managers? Thanks.
Yeah, great question. Just on the Speedtest side, we've seen testing volume increase 25% year-over-year, really for the reasons that you just described. That doesn't necessarily immediately translate into revenue, as you remember, the foundation of the business is subscription and licensing of data. Certainly, having more data helps improve that product. It's not something we would necessarily charge more for. It certainly cements our position in measurement and broadband measurement. We'll take it, and it's good. A traffic lift does not equate to a dollar-for-dollar lift in revenue. In terms of the second question, look, I think as we've said in the past, given our general manager structure, as long as the deals are spread generally across the various general managers, we could do a lot at once.
Because again, we get deals done at the general manager level, we get deals done at the divisional level, we get deals done at the corporate level. When you look across the number of sponsors that you have inside of the company, it's close to 20 sponsors. Sponsors being individual sponsors, just to clarify. Having that many sponsors allows us, I think, to integrate and to acquire a fair number at the same time, if that's what ends up happening.
Thank you. Our next question comes from the line of Shweta Khajuria with RBC Capital Markets. Please proceed with your question.
Great. Thank you. Could you please, Scott, talk about how you're thinking about marketing spend just overall across the business? How we should think about it as maybe traffic on some properties increase, and you may want to lean into it if pricing is attractive, versus not on some other businesses. How should we think about marketing spend in Q2, and if you can, for the rest of the year? Thank you.
Sure.
Oh, go ahead, Scott.
No, go ahead. Go ahead.
I was just going to say, through the first four months of the year, we've actually increased our marketing spend year-over-year, slightly, not in a significant way, largely due to what you've just described. We think there's some interesting buying opportunities as a marketer from a customer acquisition point of view, and this is entirely on the cloud side. On the digital media side, we don't do much in the way of traffic acquisition. It's mostly organic. On the cloud side, we spend marketing to acquire subscribers. As I think I might have mentioned in my call, we're seeing, for instance, on the eFax side, a nice uptick in customer additions, sub-adds. We want to lean in because as others we compete with may be paring back, there's some interesting prime real estate available for us. We're going to do that.
Having said that, we have cut other spend that we just didn't think held the same kind of return as some of this new incremental spend. Our ability, I hope, to manage the marketing budget to being slightly up but getting far more yield out of it is what we're attempting to do.
Where I was going to go, I think Vivek has hit most of the points, is this was as we started to look at Q2, but also beyond, meaning Q3 and Q4, in this environment, where should marketing be? There was an implementation in the Great Recession of 2008, 2009, of, I'd say, across-the-board cuts in marketing. We chose to take a different approach this time because it really is a function of the effectiveness and the yield of that spend. One of the things, particularly with the cloud business, since that's where most of that spend originates, is to really look at it day by day and week by week. We are monitoring the effectiveness of this spend. We're making judgments about the LTV of the customers acquired.
Of course, the important aspect on the marketing is most of that can be moderated positively or negatively very quickly. That's one of the key items that we're very vigilant on as we look forward, not just in this Q2 that we're currently in, but also for the balance of the year. Right now, as long as the spend is good, certainly in those areas that Vivek mentioned, we would continue to spend the money.
Okay. Thank you, Vivek. Thank you, Scott.
You're welcome, Shweta.
Thank you. Our next question comes from the line of Will Power with Robert W. Baird & Co.. Please proceed with your question.
Oh, great. Thanks. Yeah. A couple do, I guess slip in. Maybe just to come back or follow up on some of the SMB commentary. Obviously encouraging, I guess thus far not to be seeing an increase in cancel rates, but I wonder if there's anything else you're seeing with respect to deferred payments, any higher bad debt, anything along those lines that gives you early signs of caution there?
No, look, nothing meaningful, nothing appreciable. Again, it's early and possibly one thing to think about is, because our price points are relatively low, and as people start to study their expenses, whether it's showing up on a credit card or showing up on an AP ledger, we're further down that list. That could be a possibility. The other thing is, remember, our industries happen to be healthcare, legal, financial services. Those seem to be doing better than some other industries. I think it's important to draw a distinction between local retail and SMB. I think they're conflated in a lot of people's minds, we're thinking about all of the businesses that have shuttered on Main Street. That's not our customer base. That's another distinction. Again, it's early.
That's the thing that I continue to press internally and externally is, we're only two months into this.
Yeah. Okay. Yeah, that's helpful color. Okay. Then I wonder if you could just touch on VPN. As it turns out, I think, moving into that business was probably timely.
Yes
demand for work from home and whatnot. I know you touched on some of the cross-selling initiatives there, but maybe just talk about the broader trends you're seeing there or anything on growth rates would be great.
Yeah, no, we're continuing on the personal VPN side. We continue to grow organically in that business at nice growth rates. We think the stay-at-home orders absolutely help us. Where we are very focused, I was talking about product development and roadmap. One of our brands called Encrypt.me is a remote access VPN. Think of VPN both as a privacy tunnel as well as a remote access platform. We're more of the former, but we have the technology and ambition on the latter. That we think could be a very interesting opportunity for us. We have some product development and marketing work that we need to do there.
We also have a white label VPN business that we've used internally with Speedtest and VIPRE, but we also work with other partners who will want to build VPN technology into their offerings, and then we get paid a licensing fee or a seat fee, and that's also picking up. We're happy to be in that business. I agree with you. I think, we really liked the business prior to the pandemic, but we like it even more now. It's a very relevant and timely proposition.
Great. Thank you.
Thank you. Our next question comes from the line of Rishi Jaluria with D.A. Davidson. Please proceed with your question.
Hi, Vivek and Scott, thanks so much for taking my questions. Glad you're all staying safe out there. I just wanted to ask about the two of the different businesses. First on the Everyday Health side, Vivek, appreciate your commentary that advertising revenue is up 5% in April. What are you seeing out there in terms of traffic patterns there, especially with the flagship Everyday Health property? Then, Scott, on BabyCenter, you did mention it's a lower margin business, which hit a little bit of the EBITDA growth in Q1. Can you just remind us on BabyCenter, what the EBITDA profile right now looks like and what kind of work needs to be done to get those margins more in line with the rest of the media business or the rest of the healthcare business? Thanks.
I'll start just on the Everyday Health traffic question. Our consumer-facing properties, Everyday Health, What to Expect, and BabyCenter, have seen low double-digit increases in traffic as obviously more and more individuals go online to search on COVID and COVID-related items. Where we're seeing a very significant amount of traffic is on the provider side with MedPage Today, where traffic's increased 100%. That's where, by the way, more of the monetization opportunities exist, as I mentioned, with more focus on direct-to-provider advertising versus direct-to-consumer advertising. I think there are two reasons why our MedPage traffic has grown. One is that I think you've got more medical professionals who are at home, who are researching, and MedPage Today's coverage of COVID-19 has been just outstanding. We're seeing the provider community come in.
I also think we're seeing consumers, we're seeing patients, we're seeing individuals who want a deeper medically driven and scientific set of answers and content that maybe historically they haven't looked for. We're seeing the traffic growth. We're seeing it in consumer far more on the professional side, smaller base, albeit. Again, it's the professional side that's really driving our revenue gains. Again, that 5% is the organic overall Everyday Health growth rate is higher than that because of BabyCenter in the mix.
I think you had a question then, Rishi, on the BabyCenter integration. I would say this is probably an applicable statement also to Spiceworks.
BabyCenter being in the Everyday Health Group, Spiceworks being, of course, within Ziff Davis. We are seeing improvement as those assets are being integrated. I would say that there still is probably 7 percentage points- 10 percentage points yet to be picked up as BabyCenter continues to be integrated into What to Expect. There is some seasonality in that business, as well as the broader trends in digital media. That integration is very much on track, very much continuing, and I expect that we will continue to pick up those points over the balance of the next, in real time, probably four to five months. That was a Q3 2019 transaction, and we said it would probably take about a year in each instance to bring those to target margins.
Great. Thank you.
Thank you. We have reached the end of our question and answer session. I'd like to turn the call back over to Mr. Turicchi for any closing remarks.
Thank you very much. We did receive one question via email. I'd like to address that before we actually close out the call. When we were talking earlier about the first six weeks of Q2, the question came in whether we were speaking about its flatness relative to Q1 or Q2 of 2019. Remember, particularly in digital media, the quarters matter. Sequential really is not what we look at in digital media. You can look at that in cloud. In the case of cloud, I would say both year-over-year and sequentially flat would be appropriate. In the case of digital media, we're speaking about the year-over-year comparisons. There was just a question in terms of the mix of our revenues in Q1 of 2020 versus Q1 of 2019 in our media business.
I do actually want to note this, that we did see in Q1 of 2020, actually, performance-based marketing slightly eclipsed display. Display was 35% of the revs, performance marketing was 36%, subscriptions were about 28%. If we look at the year ago period, which was Q1 of 2019, that would have been 37% display, 34% performance, and 27% subscriptions. I think as we talked about throughout this call and throughout a number of calls, the goal has been to move more and more of that advertising revenue into performance category, and we are seeing some shifts in the proportional relationships. As the operator mentioned, this does conclude our earnings call for Q2. Normally, I would say we will be out there meeting you at a variety of conferences. I think they've all converted, even through mid-June, to the virtual format.
We do have a number of those. We have a press release out already talking about the two we'll participate in May, including one tomorrow. There also, in early June, are six or seven conferences in the first 10 days of June. I think there's seven or eight between now and mid-June. We look forward for you to reach out to the various brokerage firms hosting those conferences. We will be doing one-on-ones, and in some cases, fireside chats as well. We would look to announce our Q2 results as we normally do in the first 10 days of August. Thank you very much.
Thank you. This concludes today's call conference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.