Ziff Davis, Inc. (ZD) Earnings Call Transcript & Summary

[Audio Gap] Citi's Internet and Media Research Team. And very pleased to be joined by Scott Turicchi, who's the President and CFO of j2 Global. So I figure what we could do is start with a couple of questions. If anyone has questions, feel free to fill them out there. So Scott, thanks very much for joining us today. Appreciate it.

Thanks a lot. Let me just introduce also my colleague, Alan Steier. He's our VP of Corporate Finance, who is also up here on the dais with me. But go ahead, Ted. Fire away.

Yes, absolutely. Maybe just to start, for anyone who might be unfamiliar here in the room or on the webcast with j2 Global, would you mind just giving maybe a brief history of the company and overview of what j2 does?

Sure. And I've actually got a few slides that, I think, in response to that question, I'll show at least 1 or 2 of them. And then this slide deck, which is only 5 slides is available for those, both on the webcast as well as those in the room at our website. So going back, the company -- actually, this will be the 25th year of the company. December technically of 2020 will be the 25th anniversary. So in the late '95 time frame, our founders at that time conceived of a business around what was then known as unified messaging, and it was a subscription business, and it really is the core element of what became our cloud services business as we've evolved over this almost 25-year time frame. They were very colorful group in that they were musicians. And so they're not your typical, what I'll call, corporate types. And through raising capital and building a management team, the company essentially restarted itself in Los Angeles, because it was originally headquartered in New York, in the summer of 1997. So capital was raised, a couple of the non-band members moved from New York to Los Angeles. And that's about the time I got involved. I was an investment banker at the time at Donaldson, Lufkin & Jenrette. The Chairman of our company, who was at that time the CEO, he and I have worked together. And he called me up and he said, "I made this great investment in unified messaging company. I need to raise more money," and I had no idea what he was talking about. So we put a team together when I was at DLJ, we ended up doing a private round of financing in the middle of '98. Back in those days, it was probably different, but you could actually invest in your deals. So I invested in the $15 million tranche, and I became a Board member. There were 2 tranches. There was a debt with equity piece and there was a preferred with warrants. I invested in the junior piece, and I was their board nominee. So by, I don't know, summer, early fall of '98, I was a board member of what was then known as Jfax. And then in early 2000, I left investment banking and joined the company, and I've had a number of roles, essentially always been outwardly facing to the public because we did go public in July of '99. Currently, I hold the title of CFO and President at the parent level. So that was really the initial business unit of j2. Now if we -- and I have to fast forward, because a lot's happened in the 20-some succeeding years. We basically -- in the 2000 to 2002 time frame, we learned, I think, 2 important principles that make an imprint on our company to this day. Number one, you live through the dot-com implosion era. So cash became king for us. Unlike a lot of other public companies that went public in that era, we did not ran the money. We did have a burn but we were able to moderate the burn and survive. And the second piece is we acquired a company in late 2000 called eFax, which was also a public company, in its own transition from physical hardware to digital. Unfortunately, it had no real economic model around the digital piece. And in 2001, we learned that the combination of the 2, each losing money, through synergization could become profitable. And I like to quote many years now, we moved from it, we were on the famous Barron's Watchlist in 2000, that we would be extinct in about 13 months given our burn rate. So those 2 imprints were focus on cash and use M&A to grow your business. And those are the 2 underlying principles that have been consistent in j2 for 20-some years. Now we do it in a lot of different areas today. So if we leap forward to today, we have 13 business units organized in 3 divisions. We report in 2 segments. So we have the cloud segment, which has 6 business units that original unified messaging became known as digital fax. We have digital voice. We have backup, security, e-mail marketing/martech and privacy. And then in the media side, we have 2 divisions: Ziff Davis and Everyday Health. Under Ziff Davis, we have Ziff Davis Media group, which is basically our tech properties, so it'd be digital properties like PCMag.com, Mashable, TechBargains, Offers.com. We have a B2B group which generates leads for primarily software-type companies with the brand Spiceworks that we recently acquired sales of I&E Media. We have a broadband business unit that is best known for Speedtest and Speedtest Intelligence. And then we have a gaming business unit that has IGN, which is on the content side, and Humble Bundle, which is on the games distribution side. Then Everyday Health has 3 business units: consumer patient, where we manage and own and operate everydayhealth.com. And we manage mayoclinic.org and share the revenues with the Mayo Clinic; we have Medpages, which is dedicated to doctors; and we have pregnancy and parenting. But essential and common to all of those business units is the focus on EBITDA and free cash flow generation, and the use of M&A to build their businesses. And that's fundamental, and we look for managers of these business units. Those are important elements. Do they have an M&A track record in their past? Are they focused on EBITDA and cash generation? Not necessarily organic growth.

That's a helpful rundown, thank you. And maybe just to follow-up on the M&A side. It's pretty clear that M&A does remain sort of a key growth driver in the future. How would you characterize sort of the acquisition pipeline today and maybe where valuations are relative to what they've been historically?

So we get this question a lot. The slide I have up actually just highlights the 2 segments. Now we have not reported Q4 yet. So this is LTM through the third fiscal quarter. It just gives you a sense, I'm not going to go through the details, a rather busy slide. But I'll give you a sense of the 2 relative sizes of the segments. They coincidentally are about equal in revenue. But you will notice a disproportionate production of EBITDA. The cloud generally runs around 50%, Media's target is 35%, and there are some select brands beneath. Getting to your question now, we get it a lot in terms of, well, markets are at an all-time high, how does it affect your M&A? The answer is, it really doesn't in most cases. And that is because we are not gearing for large transformative transactions. We typically do 10 to 20 deals a year. The average transaction size will be $30 million, $40 million, $50 million. With some deals smaller than that, and occasionally, a deal or 2 larger than that. And oftentimes, we are creating our own situations. So we're not waiting for somebody to say I want to sell, let's retain a bank, let's run a process. I mean we do participate in some of those. But what we task our business unit GMs and Division Presidents is, as the experts in their business you know who your competitors are and you know who your adjacencies are. So if you look at your business today, over the next 3 to 4 years, what would you like to own, forget the price, to make your business better, more valuable, larger, et cetera, more scaled. And so they come up with the lists. And then the M&A team can assist them to try to reach out and make contacts. As you can imagine, a lot of the people we reach out to are not thinking about selling today or they have very unrealistic prices, not because of the market just because that's their way of signaling they really don't want to sell. But the key for us is to establish a relationship with them and explain, look, if you're part of j2 in this business unit, this is the role you can play, this is how your business will interact with the other pieces of that business unit or the division. I could use the transaction we did earlier last year in April, when we bought the VPN assets from StackPath. So in our cloud business, and it's probably too little to see there, we have security assets branded VIPRE. Those are endpoint security as well as e-mail hygiene. We also have backup assets like SugarSync and LiveVault and Livedrive. Well, privacy is sort of a cousin or sister, if you will, to those other assets. So we said, look, this is a big enough deal, about $200 million transaction value that will set it up as its own business unit in j2. And the senior guy that came over, you can be the GM of that business unit. So you can run your show, you'll have full P&L responsibility, and you'll have access to these other businesses that are under the cloud umbrella, both as a division and as a segment. That can be very attractive for management who wants to come over. So we lay all that out. And oftentimes, that can be mitigating factor against, say, the highest price or timeliness of transaction. We do carve-outs. We bought assets from HP in the past, assets from News Corp, assets from Johnson & Johnson. Speed of execution is very important in those kinds of deals. So we've actually won some of those deals, in fact, I think, all 3 without being the highest bidder. So if you do large things, sure, market valuations, comparable transactions can weigh on you, but when you're looking at smaller assets, there generally is less correlation. I wouldn't say they're uncorrelated, but there's less correlation with what's going on in the market. So we don't see -- I'd say, in certain deals, yes, we'll see some friction on the pricing. But in the deals that we are percolating and nurturing along, those generally tend to be less tethered to what you see out there. And that's why we can get deals done even in a bull market. In terms of the general pipeline, one of the things we've done in the last year or so is to evolve our M&A process and really engage the 13 business unit leaders and the 3 division presidents, so there's 16 people to actively come up with ideas. Once again, not necessarily actionable today, but ideas to feed into the pipeline to begin establishing relationships. So we always, at any moment in time, have about 40 to 50 situations that we are engaged in. Some of them are in letter of intent stage and hopefully getting close to a completed transaction. Some are very early stage, where we're in that exploratory realm, exchanging very basic information. But we generally do not have, what I call, an issue of not having enough things for our M&A team to focus on. Usually it is the opposite, which is how do we fit it down and really get to sort of the 10 or 15 things that are more likely than not to transact in the next 6 to 12 months and really focus our efforts there with some time given to the other 30 to 40, but not an overcommitment.

And as you think about growth going forward, is there any sort of trade-off between pursuing M&A and then investing back into the existing assets? And if so, how do you sort of balance those 2 elements?

To some degree, yes, because within each business unit, there is no SWAT team that does M&A. So each business unit, each division is responsible for the integration of those transactions. So I do believe that if you are pursuing and integrating a company that you just bought, then you have less effort and time available for organic efforts. One of the reasons why, as a company, we don't really talk a lot about the organic growth rates, it's not a target element for us, say, in terms of how we compensate people. Because we do fuel most of our growth, probably 70% to 80% in most years from M&A and the synergization of those assets and the production of more EBITDA and free cash flow. So I do believe there's competition for people's time. Having said that, we sit at a time of the year where budgets are rolling out for the new fiscal year and everybody's got their organic efforts, under the assumption that they're not either integrating a deal right now or they don't know if something will come to fruition. But I will tell you the minute that a deal does come to fruition in that BU, that becomes the #1 priority. And so it will oftentimes displace or delay, what would be the organic efforts that they had the intention of pursuing in December of the previous year or January or February of the current year. But it's hard to quantify that. It's interesting, if you look at our P&L, we spend a lot more each year in operational dollars than we do in M&A dollars. So there's not -- it's not as though there's a crimping of the money that we spend on both people, marketing, development, et cetera, but I'd say the incremental juice tends to come from the M&A.

We can maybe pause and see if there are any questions out there? All right. Well, I guess I'd love to maybe dive into the 2 segments a little bit more, if we were to start on the...

I am going to go back there, okay.

If we were to start on the cloud side, and you sort of think of the assets on that side of the portfolio, what's sort of most exciting to you right now?

I think there's a few things. One, as I mentioned, we have these assets that are the VPN assets. We call them the privacy assets. We're coming up on the 1 year anniversary as we hit the end of March of this year, 2020. And we're starting to see, and we knew this at the time we bought the assets, that there really are cross-pollinization and synergies with the security and the back-up business units. So one of the things that we're doing in 2020 is taking SugarSync, which is a brand you see in the far upper right-hand corner, which historically has been domiciled in the backup business unit, and moving it into the privacy business unit. It is a file-sync-and-share service. And so that asset is transitioning over actually to a -- to the privacy business unit. The other thing that is being launched, either has or about to be launched, are certain bundling between IPVanish and VIPRE on the security side. So we're testing different bundles of different portfolios of security and privacy offerings. So you'll see those now and over the coming months. So we think that the security and privacy assets that we have today make an interesting valuation and proposition to SMBs, whether they're small or sort of midsize, and that's something you're going to see, and I think there's some upside for us. The other area that would surprise people is in our digital fax business. Our digital fax business essentially has 2 pieces. There is a SOHO piece which has -- these are, we call them onesie-twosie, people that work out of their homes. They could be independent consultants, lawyers, accountants, they have their little practices. And that's where that digital fax business really grew up on, going back all the way to the founders and the morphing of the unified messaging business into digital fax. But in the last 10 years or so, maybe a little bit longer we put a corporate piece in place. And initially that corporate piece were really to cater to SMBs. But over the years, it's moved more and more upstream into actually the true enterprise. Those 2 pieces are not quite equal. The SOHO piece still has slight leadership in terms of revenue over the corporate piece, but they're starting to get close to parity. And in that corporate piece, and it's been true the last several years, we see pretty consistently growth out of that element. And we see real opportunity, and we've talked about this in a number of our earnings calls, in the health care area. Because health care is very fax intensive in the United States in the way medical records are moved amongst doctors, hospitals, labs, pharmacies and insurance companies. And even with the push to electronic health and electronic medical records those systems don't talk amongst themselves, but ironically, they're all fax enabled. So the ability for a Cerner and Epic solution to talk to each other is actually through the fax protocol. So we've developed some APIs over the last 12 to 18 months to facilitate that movement of traffic. We actually have evolved our sales force. We've hired now almost 2 years ago a new GM for the fax business unit that actually comes from the health care space. And so our real focus there is on health care and at some of the very, very largest levels. People are surprised when we talk about RFPs that are out there for annual contracts that are $10 million or more in revenue. Generally of those size and of that volume no one company will win it outright. There'll be 2 or 3 providers. But literally, there are millions and millions of dollars, billions of pages in the United States sent around regarding health care via the fax protocol. And the vast majority of that today is done, we'd call it, traditionally, meaning with either standalone machines, multifunction devices or servers. And so our value proposition is to come in and to say there's a better way to do it, oftentimes more cost-effective, and also you get this added benefit of interoperability.

Then maybe if we could pivot to the digital media side and just sort of drill down on the revenue drivers in that segment, sort of thinking about subscription revenue and ad revenue. In the third quarter, you guys reported very strong subscription revenue growth. Would you mind just maybe walking through sort of what the drivers of that are?

That's a good point. Let me just note, and you kind of can see on this slide. 100% of the cloud business is subscription. So whether you're at the SOHO level the enterprise, it's all subscriptions. So yes, some contracts are month-to-month, some are multi-month, some are annual, some are multi-annual, but they're all subscriptions. Digital media for us, and we got into the business in late 2012 when we bought Ziff Davis, which really is Ziff Davis Media Group, that was the core asset that we bought at the time, was 100% or almost 100% advertising business, and most of that was display advertising. And our team at the time, including Vivek, who now is the CEO of the parent company, saw that there were trends in digital media, where you wanted a better value proposition on the advertising side and you wanted diversification. So we started to do things in digital media, such that today, we've got a business between Ziff Davis and Everyday Health that about 27%, 28% of the revenue are subscriptions, a little more than 1/3 is performance-based marketing, and the remainder is a combination of display and video advertising versus what was almost 100% just 7 years ago. Now the subscriptions for us, to be clear, is not putting content behind the paywall. So our content on our owner-operated sites is free, advertising-supported. But we have areas that generate subscriptions. Most notably, they come on the Ziff Davis side of the business in the broadband business unit, where we have very rich data on primarily speeds, connection speeds, Wi-Fi, cellular, et cetera. So our customers there tend to be cellular providers, cell tower providers, mobile carriers and telcos. They buy the data from us on a corporate basis. So we don't sell a seat license, we sell a corporate license. So that's very large enterprises, very small number of customers, usually in the neighborhood of a couple of 100 a year, generating most of the revenue. Humble Bundle in the games is completely the opposite. It looks a lot more like our cloud businesses, on the SOHO side because these are individual gamers who are predominantly buying a bundle of games each month at a discounted price, usually around $10 to $12. Three to 4 times a year, they get what we call a AAA-rated game, which will be a big game, 6 to 9 months removed from its initial release. And by the way, when you purchase this bundle in a subscription, those games are yours to keep. So you'll get a handful of indie games, and then you'll get this AAA-rated game. In the off months, you get indie games. So most of our subscriptions are driven by Humble Bundle and by Speedtest Intelligence. And then there's a little bit in Ziff Davis Media Group, there's a little bit in Everyday Health. And so we've seen very strong growth in the subscription portion of our business, really over the last 3 to 4 years. It's a little bit noisy because there's M&A that is woven in there, but I think it's safe to say that we've got organic growth in the subscription part of the media business that is certainly double-digit, over 10%.

And then, Scott, you sort of alluded to the enterprise side of things. We'd love to talk a little bit more about Ekahau and Ookla. Just exactly sort of what those are, how you monetize them? And then maybe over time, if there's an opportunity to sort of replicate what you've done with those with some other assets?

Okay. So Ookla, to be clear, is the entity name, which is better known as Speedtest. So Speedtest is predominantly an app, although you can download it to your desktop, that allows you to monitor the speeds that your carrier is providing to you because they all tell you the fastest this or whatever. And then you say, well, it seems really slow today. You get it out, you test it, you get the upload and the download speeds and the jitter and a few other data points. When you conduct that test, that -- there's advertising servers. So some people ask, well, why is the broadband in the media business. When we bought that business 4-plus years ago, it was almost 100% advertising-driven. And to this day, when you run a test, an ad pops up, and we get paid some millipennies on it, but in very large volume, it does add some revenue. But as I mentioned, where the real value comes in is the aggregation of this data and what it tells you about your own performance as a carrier, your competitors. And so that business model has evolved with what we call Speedtest Intelligence. So Speedtest is the app that does the measurement. Speedtest Intelligence is the collection of the data for which you can buy a corporate license to get access to it. So that's what we do in Ookla. Ekahau is really a play on the Wi-Fi in buildings, sports arenas, multi-tenant-type dwelling situations. And it can occur at various points in time. If you're building a new building, what it does is it maps the optimal placement for the Wi-Fi, given the quality you want and what you're willing to spend. So it could be rehabbing a building, it could be you're building a new building, you're building a stadium, these are all kinds of customers that we have. And you bring us literally the CAD/CAM drawings and a bunch of information of how the wall -- where the walls being constructed with how thick are they. We will crunch data, and we'll say, all right, for this level of quality, this is where you need the router, this is where you need the repeaters. We'll actually sell you that equipment, if you like, and then we do ongoing monitoring of that environment for you, which becomes the subscription piece of it. So in terms of your core question, we call this the broadband business unit because right now, everything we do in it really revolves around speeds of connection. But we think more broadly in this business unit, that it's really about data measurement. So while there's a lot yet to be done, certainly, with the rollout of 5G, there's more data, the Internet of Things, we're not limiting ourselves, when we call it the broadband business unit, that it will only be measuring things that are speeds that exist in the telephony world. It could very well morph beyond it. I don't think, though, to your point, it's necessarily taking existing brands, content or business units we have and shaking data out of them. The data that we get from, say, a PCMag.com or a Mashable is very different. And that's data that we tend to use more internally to optimize the value of the traffic. And a lot of that is from a performance-based standpoint, which is, we're trying to drive oftentimes sales for a producer of either a virtual or real good, and then we get compensated when there's a transaction that closes. But that's a different use -- that's a different kind of data and it's a different use of data than really what goes on in the broadband business unit.

And then maybe just to stay on the digital media side, as you think about that part of the business strategically, anything you can sort of offer in terms of insight around how you look at different types of assets to acquire? Are you looking to become sort of a one-stop shop vertical in some subsectors? Or is there some other calculus at play?

I think we look at a couple of different things. We have a very strong portfolio, and we want in the verticals that we're in a strong portfolio where we have an aggregate audience that will rank very high. You can take, for example, comScore, and everyone will debate whether comScore accurately measures all the traffic, leave that aside. We'll assume that whatever error there is, is systemic. And so on a relative basis, because it is readily available, you want to be able to score high, but you've got a large audience reach. So we've done that in tech. We've done it in games. We've done it/continue to do it in health care. We've looked at other verticals where we have a very light presence today. It would be encapsulated really under another brand. Like for example, if you go to Mashable, you'll find some information on finance, but we're not obviously known for having a depth of content or audience share in that area. So we look for other verticals where we could, through a transaction or series of transactions, amalgamate a brand or series of brands and traffic such that we would be in a leadership role from a traffic standpoint. And what we look for is that, that content is consistent with our thesis that we want the content to help drive a decision, usually a purchase decision. Health care, it's a little bit different because you can't usually buy the drug, unless it's OTC. You've got to go to a doctor. But nevertheless, you go in informed, you work with the doctor, the doctor's informed, the 2 of you come together, and that can result in a prescription be written. So we like those content verticals where the information is used in your decision-making process, not just it's curious. So we're generally not enthused in the news category. Okay. All the stuff going on in the new is very interesting. It can be spiky, but it doesn't naturally lead to a purchase of some good. So we like those verticals where there's a natural nexus between the content and the purchase. Or once the purchase is made, getting more value out of what you just bought. How can we help you use that piece of technology better, that gain better. So that will then lure you to come back to that website to not only decide in the first instance, which one to buy, but then how to get the maximum usage out of it. So it helps to then generate a repeat cycle of traffic. So those are things that we look for. Clearly, yes, finance will be a vertical. We talked in the past about autos. There's a whole many different flavors of autos. There's a number of verticals that I think would be of interest to us, but key into our business model, is to find the right entrée which means finding the right M&A situation that we can go in. It's not too small, and it's not too large, right? It's got to be the right size to stand up, probably as its own division, but at least as its own business unit. And it's also got to have, particularly if it's at division-level, backable management.

And then maybe on a related note, would it be fair to say that you're interested in sort of pull content types of assets, where you can sort of grow the traffic over time without needing to lay out sort of incremental marketing or advertising dollars?

Yes. And this is one of the reasons why, like domain authority and brand awareness is important to us. You'll notice that in most of our digital media, we have bought brands that have been -- certainly in the digital media world, have been around for a long time. Now digital media world is not that old. But you have a 10-year brand in digital media, that's actually got a fair amount of historic investment behind it. And we've also done that on the cloud side. You take -- even going all the way back to eFax. That was a brand that was heavily invested in prior to our acquisition. You might debate in the late '90s, whether it was all prudent spend. But nevertheless, for the size of the business as it was, there was a huge investment made in branding eFax, so we love to find well-established and well-known brands because what it tends to lead to is what we would call organic traffic. And organic traffic on the cloud side, and these people show up at your website because they type in eFax.com or SugarSync.com, and you're not paying Google or anybody else for generating that traffic. They're truly organic, and they bring down your average cost. On the media side, is to your point, you don't have TAC. So you've got traffic naturally showing up because, okay, IGN has been around as a brand for 30 years. It's been in the digital world 10-plus, and it's viewed as the authority on all things gaming. People naturally show up there. So you don't have to spend a lot of money to attract incremental traffic, no. Obviously, we don't have all brands across both portfolios that are of equal -- they're not equally well known. So yes, there will be some brands in digital media, and there'll be some brands in cloud that we have to spend more money on because the brands are -- generally the business unit is smaller, the brands are not as well known, so we need to spend those marketing dollars to make people aware and to bring them in. But the idea and the goal is, is that as you build over time and as you scale, you'll start to see a tipping point where if your brand is brand-new, in theory 100% of your spend is going to make people aware and bring customers in. At some point, it starts to be only 90%, 80%, 70%. You get to a brand that's well known, you might only be at 10% or 20% spend, and 80%, 90% comes to you naturally. So those are important elements to us, and it's how we look to get the kind of margins we get really on both sides of the house versus what you might compare us to in terms of other companies.

We can do another quick check for any audience questions. All right.

It is very quiet. I know some of these people. So it's -- go ahead.

Yes. You're doing a good job answering all the questions. Maybe just to pivot back to the cloud side. Maybe within the sort of marketing subsegment. As you think about investments in that segment, would you say those are more targeted towards sort of local agencies and more do-it-yourself, small-, medium-sized businesses?

It's really both, and it's evolving. As I say, our roots in the cloud business, we're in the do-it-yourself, onesie-twosies, little small groups, direct marketing to them through mostly online meetings, a little bit of offline. That's evolved over the last probably 5 to 6 years. Still a very important piece of our base. Most of the business units in cloud still go direct with online marketing, but some do go through reseller channels now. In some cases, we have sales forces that are going out after the larger clientele. Like I mentioned, in the digital fax space, that's very people intensive. I mean we have technical people that are counterparties in those situations. So they want to be -- there's a dialogue that goes on, which is, what's your technology, what's the total cost of ownership, what are the feature functionalities. So it's evolved for us. I would say, if you looked at the portfolio today in the aggregate, probably about half would be maybe a little bit less with -- the VPN asset's probably a little bit more. But around half, let's say, would be in that do-it-yourself, small category. And the other half would be various sizes of SMBs up through enterprise with, in some cases, somewhat different go-to-market business models to reach those customers. So the smaller-end SMBs tends to be telesales driven. So we do marketing. It's our own marketing, it's direct, but you call us -- an internal rep will basically close the deal and get you set up. And then all the way up the extreme, you have the enterprise sales force. And then kind of woven in there in certain business units, you'll have reseller channels. So it's a mixture today.

And then on the security side, I think you talked a bit about the VPN acquisition. I think prior to that deal, you talked a little bit about potentially maybe having some holes within the web security business. How do you sort of feel about that broad offering today?

Well, right now, what we do to sort of plug that is we resell third parties. So what we have is our owned IP in the privacy business unit, the security business unit and the backup business unit. The piece that you're talking about, and it's actually a transaction we looked at in the first instance, was Webroot. We happen to resell Webroot for that specific piece that we don't own outright. A little bit of the history there. You probably know, it was sold to Carbonite, and then Carbonite was just recently purchased by OpenText. So in the first round when Webroot was an independent company, we looked at it, could not get comfortable with the expectation of pricing, and so we bowed out pretty quickly. But it is an area that we have looked at. And maybe if I go all the way back to your first question, I would say, security is an area where you do find frothiness in pricing on a more probably systemic basis. We were able, for example, to get VIPRE because we hunted around for that endpoint security transaction. It happened to be in a VC small private equity portfolio that was winding down. And so it wasn't going to be -- VIPRE was, call it, $30 million-ish revenue business, not growing very much. And so they had a decision to make, which is to bring in new management, throw more capital at it, and try to see if they could reenergize growth to do something more with it or just sell it, which gives you a little bit of an insight as to how we think. That was a very good acquisition for us to get in what's generally a very hot space. And so we're looking for situations like that. Where there are assets -- because we're not to say, the fact that it doesn't grow very much is okay for us. We said, okay, we can do much better on the margin, though. It doesn't have to be in the low single-digit EBITDA margin. It can be in the 30% to 40% EBITDA margin range. So we look through people's portfolios. What do you have that is $10 million, $20 million, $30 million, $40 million, $50 million, $100 million in revs, but for one reason or another, is not core to you. As I mentioned earlier, we love to do carve-outs from larger companies. Johnson & Johnson decided, I think, correctly. They're not a digital media company. So they sold BabyCenter, something that we wanted to complement What To Expect.

And then on the file backup side, I know -- I think you guys have sort of talked about that segment, having been in sort of managed decline mode...

Managed decline.

Is that a fair way to characterize that, anything else?

Yes, although I'm getting more optimistic on what -- you'll hear more in the earnings call in about 4 weeks when we release Q4 results. But to what your -- for the audience, what we're talking about, and there's ample commentary on this over the last couple of years is, we saw beginning about 2 years ago, probably even longer, on an organic basis, what we felt were uneconomic pursuit of new customers and organic growth. So we basically cut all of the marketing. And really, the thesis of building that business was to do a lot of M&A. We did a lot of M&A. And we did 60-some transactions to build our business. But we started to see, even in the M&A world, competition from Carbonite and a few others who were willing to pay more than we were. And so there was a point, probably beginning in the middle of 2017 where we said we're not going to chase the M&A. That's just not what we do. We have to be disciplined. We have to be consistent because 16 people are sitting around the table looking for capital at the parent, and we've got to be able to say, it's a heads up, fair gain for all of you. And we're not willing to spend these organic dollars where the payback is maybe 4, 5 years down the road. So what do you do? Well, if you're capital allocated, you say, all right, I'm realistic about that business. How can I manage the cost very tightly to keep the margins high, 50 -- actually, we were north of 50% at that time, which is pretty much unheard of in the backup space. And we will export capital out of that business unit to the parent for other purposes, meaning it might go to another cloud business unit, it might go to media, it might go out as share buybacks. So that's kind of been the model for the last couple of years. We brought in new management about 18 months ago. He took the latter half of '18 to assess the situation, started to make changes in '19. You'll notice we started to do some small M&A in the first 9 months. He did 3 transactions. Not like the old days when we did 12 or 13, you can kind of choke on the integration a little bit. He did 3, including 1 in Q3, that I think is a very important transaction called ODS, which really gets us into the disaster-recovery-as-a-service provider. So you're going to hear more about that, I think, in the Q4 earnings call and as we talk about 2020. But I think he started to see where the opportunity is within that space. As I mentioned, we're taking SugarSync, file sync-and-share out and moving it over into the privacy because we think there's a better nexus there and better opportunities of joining those 2 assets together. So I think we're starting to see where the backup can play out. Yes, it's been anywhere from sort of mid- to high single-digit revenue declines, '17 to '18, '18 to '19.

And maybe just as a final question. We've talked quite a bit about M&A, and the focus has obviously been on j2 as a buyer. How do you think sort of philosophically about divestitures? And how should investors sort of think about that?

Generally, we've always been a net buyer, both in terms of total capital to a number of deals. We have sold 3 business units. Coincidently, they were all in '17. Two of them really came from when we bought Everyday Health in late '16, and at that time, viewed 2 of their 5 business units as noncore. So those were divested in separate transactions in '17. At the same time, we decided there was a very small business unit in the cloud, which was a web hosting business in Australia and New Zealand. We divested that as well. So we look at our assets. Usually, we say things are not officially for sale, but being a capital allocator, anybody comes to us, we will entertain a conversation for an asset or a piece of an asset or a division. But we do look at the portfolio from time to time and say, are things lagging behind. We're sensitive to the size of the business units relative to the divisions and relative to the company as a whole. So one thing to look at is, if you've got a $20 million, $30 million revenue business unit, it could be growing organically, great, and doing all these great things, but at some point, it's just too small. So size is an element. Obviously, if there's a valuation arbitrage between kind of where we trade and where an asset may trade for in the open market that could be a motivator. But for the most part, we spend most of our time thinking about how to build these business units bigger. Because think about it, most of them -- our largest business unit is digital fax, at $327 million revs. So most of our business units are from $60 million of revs to pushing $200 million. They're not that big. So the focus is, how do we get these business units bigger as individual units and as the divisions that they are part of. And I think if you look out 3 or 4 years down the road, there could be some interesting opportunities if we execute on this first phase. How we bundle different business units together maybe differently than they are today or split current divisions into multiple divisions. And then you start looking at, well, do those divisions have a certain size and substance within the markets that they participate in that either they might be right for a sale, they might even be right for some other form of transaction. But that's down the road. We're a $1.3 billion revenue company, and we've got -- across 13 business units, we've got, I think, a lot of work to do.

All right. Well, I think we'll leave it there. But Scott, thank you very much, and thank you, Alan, for being here today. We appreciate it.

Thanks. Thanks, Ted. Thank you very much. Appreciate it.