Segment Information

The Company’s business segments are based on the organization structure used by management for making operating and investment decisions and for assessing performance. j2 Global’s reportable business segments are: (i) Business Cloud Services and (ii) Digital Media.

The Company’s Business Cloud Services segment is driven primarily by subscription revenues that are relatively higher margin, stable and predictable from quarter to quarter with some seasonal weakness in the fourth quarter. The Business Cloud Services segment also includes the results of our IP licensing business, which can vary dramatically in both revenues and profitability from period to period. The Company’s Digital Media segment is driven primarily by advertising revenues, has relatively higher sales and marketing expense and has seasonal strength in the fourth quarter.

Information on reportable segments and reconciliation to consolidated income from operations is as follows (in thousands):



	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Revenues by segment:
Business Cloud Services	$	145,787		$	143,342		$	432,039		$	423,941
Digital Media	127,865			66,819			369,470			198,613
Elimination of inter-segment revenues	(36		)	(45		)	(51		)	(136		)
Total revenues	273,616			210,116			801,458			622,418

Direct costs by segment⁽¹⁾:
Business Cloud Services	89,662			90,485			261,515			268,333
Digital Media	115,499			52,887			350,467			165,398
Direct costs by segment⁽¹⁾:	205,161			143,372			611,982			433,731

Business Cloud Services operating income⁽²⁾	56,125			52,857			170,524			155,608
Digital Media operating income	12,366			13,932			19,003			33,215
Segment operating income	68,491			66,789			189,527			188,823

Global operating costs⁽²⁾	5,534			4,667			20,035			14,418
Income from operations	$	62,957		$	62,122		$	169,492		$	174,405

⁽¹⁾ Direct costs for each segment include cost of revenues and other operating expenses that are directly attributable to the segment, such as employee compensation expense, local sales and marketing expenses, engineering and network operations expense, depreciation and amortization and other administrative expenses.
⁽²⁾ Global operating costs include general and administrative and other corporate expenses that are managed on a global basis and that are not directly attributable to any particular segment.



	September 30, 2017		December 31, 2016
Assets:
Business Cloud Services	$	1,129,996	$	911,327
Digital Media ⁽¹⁾	1,084,970		1,124,535
Total assets from reportable segments	2,214,966		2,035,862
Corporate	89,720		26,466
Total assets	$	2,304,686	$	2,062,328
⁽¹⁾Assets of $64.7 million classified as held for sale were included within Digital Media at September 30, 2017.

	Nine Months Ended September 30,
	2017		2016
Capital expenditures:
Business Cloud Services	$	5,399	$	6,251
Digital Media	24,084		11,196
Total from reportable segments	29,483		17,447
Corporate	—		—
Total capital expenditures	$	29,483	$	17,447



	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Depreciation and amortization:
Business Cloud Services	$	17,145	$	20,218	$	51,097	$	58,971
Digital Media	22,227		10,118		67,500		29,598
Total from reportable segments	39,372		30,336		118,597		88,569
Corporate	—		—		—		—
Total depreciation and amortization	$	39,372	$	30,336	$	118,597	$	88,569

The Company’s Business Cloud Services segment consists of several services which have similar economic characteristics, including the nature of the services and their production processes, the type of customers, as well as the methods used to distribute these services.

j2 Global groups its Business Cloud services into three main categories based on the similarities of these services: Cloud Connect, Cloud Services and Intellectual Property. Cloud Connect consists of our Fax and Voice services. Cloud Services consist of Backup, Email Security, Email Marketing and Web Hosting.



	Three Months Ended September 30, 2017							Nine Months Ended September 30, 2017
	Revenue		Depreciation and Amortization		Operating Income			Revenue		Depreciation and Amortization		Operating Income

Cloud Connect (Fax/Voice)	$	96,882	$	7,001	$	44,663		$	286,163	$	18,964	$	133,958
Cloud Services	47,693		8,949		11,947			142,187		28,330		37,824
Intellectual Property	1,212		1,195		(485		)	3,689		3,803		(1,258		)
Total	$	145,787	$	17,145	$	56,125		$	432,039	$	51,097	$	170,524



	Three Months Ended September 30, 2016							Nine Months Ended September 30, 2016
	Revenue		Depreciation and Amortization		Operating Income			Revenue		Depreciation and Amortization		Operating Income

Cloud Connect (Fax/Voice)	$	92,599	$	5,950	$	43,503		$	275,700	$	19,096	$	126,598
Cloud Services	49,624		12,826		10,350			144,853		35,327		31,974
Intellectual Property	1,119		1,442		(996		)	3,388		4,548		(2,964		)
Total	$	143,342	$	20,218	$	52,857		$	423,941	$	58,971	$	155,608

j2 Global maintains operations in the U.S., Canada, Ireland, Japan and other countries. Geographic information about the U.S. and all other countries for the reporting periods is presented below. Such information attributes revenues based on jurisdictions where revenues are reported (in thousands).



	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Revenues:
United States	$	201,543	$	142,691	$	589,797	$	424,804
Canada	19,312		19,939		58,064		57,205
Ireland	18,350		18,068		54,730		54,517
All other countries	34,411		29,418		98,867		85,892
	$	273,616	$	210,116	$	801,458	$	622,418



	September 30, 2017		December 31, 2016
Long-lived assets:
United States	$	394,102	$	453,053
All other countries	88,088		93,430
Total	$	482,190	$	546,483