8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported) October 24, 2005

j2 Global Communications, Inc.

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization) 0-25965 (Commission File Number) 51-0371142 (IRS Employer Identification No.)

6922 Hollywood Blvd.

Suite 500

Los Angeles, California  90028

(Address of principal executive offices)

(323) 860-9200

(Registrant’s telephone number, including area code)

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02 and 7.01. Results of Operations and Financial Condition and Regulation FD Disclosure

On October 24, 2005, j2 Global Communications, Inc. issued a press release announcing its financial results for the third quarter of fiscal 2005. The press release also contained financial estimates for the fourth quarter of fiscal 2005 and a financial outlook for fiscal year 2006. A copy of the press release is furnished as Exhibit 99.1 to this Form 8-K.

Also on October 24, 2005, j2 Global hosted its third quarter 2005 earnings conference call and Webcast. Via the call and Webcast, j2 Global presented its October 2005 Investor Presentation, which contained a summary of j2 Global’s financial results for the third fiscal quarter; financial estimates for the fourth quarter of fiscal 2005; a financial outlook for fiscal year 2006; and certain other financial and operating information regarding j2 Global. A copy of this presentation is furnished as Exhibit 99.2 to this Form 8-K.

NOTE: This information is being furnished under both Item 2.02 (Results of Operations and Financial Condition) and Item 7.01 (Regulation FD Disclosure) of Form 8-K and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.

Item 9.01. Financial Statements and Exhibits.

(c) Exhibits

Exhibit Number	Description
99.1	Press Release dated October 24, 2005.
99.2	October 2005 Investor Presentation.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	j2 Global Communications, Inc. (Registrant)
Date: October 25, 2005	By:	/s/ R. Scott Turicchi
		R. Scott Turicchi Chief Financial Officer

INDEX TO EXHIBITS

Exhibit Number	Description
99.1	Press Release dated October 24, 2005.
99.2	October 2005 Investor Presentation.

EX-99.1

Exhibit 99.1

j2 Global Reports Q3 2005 Revenues Of $37.7 Million,

Up 36% VersusQ3 2004, With $0.49 EPS Excluding Gain

On Sale Of Investment, Up 54% Versus Q3 2004

Company provides 2006 outlook

LOS ANGELES—October 24, 2005—j2 Global Communications, Inc. [NASDAQ: JCOM], a leading provider of outsourced, value-added messaging and communications services, today reported record financial results for the third quarter ended September 30, 2005.

THIRD QUARTER 2005 RESULTS

Total revenues for Q3 2005 increased 36% to $37.7 million compared to $27.8 million for Q3 2004.

Net earnings for Q3 2005, excluding a $5.7 million after-tax gain on a sale of an investment, increased 54% to $12.5 million compared with $8.1 million for Q3 2004. Net earnings per share for Q3 2005, excluding this after-tax gain, increased 55% to $0.49 from $0.32 in Q3 2004.

Net earnings and net earnings per share for Q3 2005 were $18.2 million and $0.71, respectively.

The Company ended the quarter with approximately $131.6 million in cash and investments.

Key financial results for third quarter 2005 versus third quarter 2004 are as follows:

	Q3 2005	Q3 2004	% Increase
Revenues	$37.7 million	$27.8 million	36%
Net Earnings excluding gain(1)	$12.5 million	$8.1 million	54%
Net Earnings	$18.2 million	$8.1 million	124%
Diluted Net Earnings Per Share excluding gain(1)	$0.49	$0.32	55%
Diluted Net Earnings Per Share	$0.71	$0.32	124%

⁽¹⁾ “Net earnings excluding gain on sale of investment” in Q3 2005 are based upon a 27% tax rate compared to a 34% tax rate in Q3 2004. A reconciliation between “Net earnings excluding gain on sale of investment” (a non-GAAP measure) and Net Earnings, along with the determination of “Net earnings per share excluding gain on sale of investment” (also a non-GAAP measure) are set forth in the attached financial tables.

“Our results this quarter reflect our continued focus on containing our costs while we invest in our business to rapidly grow our revenues as we further penetrate our market opportunities,” said Scott Turicchi, co-president and chief financial officer. “We have made significant investments in our network, which resulted in the expansion of our global reach to more than 2,000 cities worldwide. In addition to growing our business organically by adding new subscribers and internally developing new services, we see numerous opportunities to extend the breadth of our services through acquisition and strategic partnering.”

BUSINESS OUTLOOK

“We are excited about our net addition of more than 49,000 paid phone numbers this quarter,” said Hemi Zucker, co-president and chief operating officer. “This level of growth is especially rewarding since we were able to achieve it as we improved the effectiveness of our marketing spend, resulting in improved subscriber acquisition cost. As we look towards 2006, the improved efficiency of our marketing programs should allow us to accelerate our marketing spend both in the U.S. and worldwide while maintaining our current level of profitability.”

Q4 2005 Estimates

For the fourth quarter of 2005, j2 Global anticipates total revenues to approximate $39 million to $41 million and net earnings per share to approximate $0.50 to $0.54. This EPS estimate assumes an effective tax rate of 27% and diluted shares of 25.5 million.

A summary of this Q4 2005 financial guidance is set forth in the table below:

	Q4 2005
Revenues	$39 - $41 million
Diluted Net Earnings Per Share	$0.50 - $0.54

Fiscal Year 2006 Outlook

For fiscal year 2006, the Company anticipates that its revenues will grow by approximately 30% over fiscal year 2005. For fiscal year 2006, the Company anticipates that its net earnings per share will grow by approximately 30% over fiscal year 2005. This guidance reflects the Company’s intention to continue to extend its marketing efforts both in the U.S. and worldwide and assumes a 27% effective annual tax rate and 25.5 million diluted shares.

This fiscal 2006 net earnings per share guidance does not reflect the impact of the Company being required to expense stock-based compensation, other than in accordance with currently adopted accounting standards.

About j2 Global Communications

Founded in 1995, j2 Global Communications, Inc., provides outsourced, value-added messaging and communications services to individuals and businesses around the world. j2 Global’s network spans more than 2,000 cities in 26 countries on five continents. The Company offers faxing and voicemail solutions, document management solutions, Web-initiated conference calling, and unified-messaging and communications services. j2 Global markets its services principally under the brand names eFax^®, j2^®, jConnect^®, JFAX^TM, eFax Corporate^®, Onebox^®, Electric Mail^®, jBlast^®, eFax Broadcast^TM, eVoice^®, PaperMaster^®, Consensus^TM, M4 Internet^®and Protofax^®. As of September 30, 2005, j2 Global had achieved 34 consecutive quarters of revenue growth and 15 consecutive quarters of growing operating earnings. For more information about j2 Global, please visit www.j2global.com.

Contacts
Christine Brodeur	Jeff Adelman
Socket Media, Inc.	j2 Global Communications, Inc.
800-338-6023 x101	323-372-3617
c.brodeur@socketmedia.com	press@j2global.com

“Safe Harbor” Statement Under the Private Securities Litigation Reform Act of 1995: Certain statements in this Press Release are “forward-looking statements” within the meaning of The Private Securities Litigation Act of 1995, particularly those contained in the “Business Outlook” portion (and specifically Q4 2005 Estimates and Fiscal Year 2006 Outlook). These forward-looking statements are based on management’s current expectations or beliefs and are subject to numerous assumptions, risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. These factors and uncertainties include, among other items: Subscriber growth and retention; variability of usage-based revenue based on changing conditions in particular industries and the economy generally; ability to obtain telephone numbers in sufficient quantities in desired locations on acceptable terms; protection of the Company’s proprietary technology or infringement by the Company of intellectual property of others; the risk of adverse changes in the U.S. or international regulatory environments surrounding unified messaging and telecommunications, including but not limited to the imposition of additional taxation or regulatory-related fees; and other factors set forth in j2 Global’s filings with the Securities and Exchange Commission (“SEC”). For a more detailed description of the risk factors and uncertainties affecting j2 Global, refer to the Annual Report on Form 10-K filed by j2 Global on March 28, 2005, and the other reports filed by j2 Global from time to time with the SEC, each of which is available at www.sec.gov. The financial estimates and outlook provided in the “Business Outlook” portion of this press release (and specifically Q4 2005 Estimates and Fiscal Year 2006 Outlook) is based on limited information available to the Company at this time, which is subject to change. Although management’s expectations may change after the date of this press release, the Company undertakes no obligation to revise or update these financial estimates or outlook.

j2 GLOBAL COMMUNICATIONS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

	THREE MONTHS ENDED SEPTEMBER 30,				NINE MONTHS ENDED SEPTEMBER 30,
	2005		2004		2005		2004
Revenues
Subscriber	$	36,487	$	26,985	$	101,842	$	74,110
Other		1,202		786		2,956		2,434
Total revenue		37,689		27,771		104,798		76,544
Cost of revenues		8,105		5,455		21,514		15,393
Gross profit		29,584		22,316		83,284		61,151
Operating expenses:
Sales and marketing		5,742		4,729		16,714		13,275
Research, development and engineering		1,769		1,418		5,193		3,732
General and administrative		5,781		4,229		16,390		11,210
Total operating expenses		13,292		10,376		38,297		28,217
Operating earnings		16,292		11,940		44,987		32,934
Other income, net		10,208		505		11,539		1,043
Earnings before income taxes		26,500		12,445		56,526		33,977
Income tax expense		8,311		4,316		16,418		11,960
Net earnings	$	18,189	$	8,129	$	40,108	$	22,017
Basic net earnings per share	$	0.75	$	0.35	$	1.67	$	0.95
Diluted net earnings per share	$	0.71	$	0.32	$	1.58	$	0.87
Basic weighted average shares outstanding		24,369,865		23,348,269		23,956,172		23,227,534
Diluted weighted average shares outstanding		25,503,636		25,572,432		25,417,438		25,397,789

Certain prior year reported amounts have been reclassified to conform with the 2005 presentation.

j2 GLOBAL COMMUNICATIONS, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS)

	SEPTEMBER 30,		DECEMBER 31,
	2005		2004
ASSETS
Cash and cash equivalents	$	16,556	$	18,814
Short-term investments		85,571		47,225
Accounts receivable, net		9,790		8,227
Prepaid expenses and other		3,252		2,873
Deferred income taxes		2,520		2,520
Total current assets		117,689		79,659
Long-term investments		29,508		27,753
Property and equipment, net		15,573		12,386
Goodwill		20,064		20,173
Other purchased intangibles, net		20,630		11,256
Other assets		102		170
Deferred income taxes		1,550		1,520
TOTAL ASSETS	$	205,116	$	152,917
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable and accrued expenses	$	5,618	$	5,516
Deferred revenue		7,147		5,378
Current portion of long-term debt		659		1,196
Total current liabilities		13,424		12,090
Long-term debt		282		866
Total liabilities		13,706		12,956
Total stockholders’ equity		191,410		139,961
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	205,116	$	152,917

j2 GLOBAL COMMUNICATIONS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

	THREE MONTHS ENDED SEPTEMBER 30,						NINE MONTHS ENDED SEPTEMBER 30,
	2005			2004			2005			2004
Cash flows from operating activities:
Net earnings	$	18,189		$	8,129		$	40,108		$	22,017
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization		1,794			1,290			5,187			3,455
Stock compensation expense		97			—			97			—
Compensation in exchange for note reduction		—			43			—			130
Tax benefit of non-qualifying stock option exercises		6,330			1,006			9,077			2,019
Deferred income taxes		(38	)		2,675			(38	)		8,688
Gain on sale of investment		(9,347	)		—			(9,347	)		—
Decrease (increase) in:
Accounts receivable		508			(513	)		(299	)		(2,332	)
Prepaid expenses		(1,016	)		432			(292	)		1,109
Other assets		(204	)		(13	)		(177	)		(356	)
(Decrease) increase in:
Accounts payable and accrued expenses		543			369			(1,342	)		1,344
Income taxes payable		(1,868	)		(169	)		545			(169	)
Deferred revenue		963			(9	)		1,421			631
Net cash provided by operating activities		15,951			13,240			44,940			36,536
Cash flows from investing activities:
Purchase of investments		(24,341	)		(18,470	)		(40,081	)		(28,642	)
Purchases of property and equipment		(2,433	)		(1,337	)		(6,326	)		(3,098	)
Acquisition of business, net of cash received		(261	)		(2,363	)		(7,728	)		(8,561	)
Purchase of intangible assets		(450	)		(41	)		(3,787	)		(4,860	)
Payment of accrued exit costs		(43	)		(348	)		(43	)		(348	)
Proceeds from sale of investment		8,708			—			8,708			—
Net cash used in investing activities		(18,820	)		(22,559	)		(49,257	)		(45,509	)
Cash flows from financing activities:
Issuance of common shares issued under Employee
Stock Purchase Plan		111			114			389			325
Exercise of stock options and warrants		1,477			707			3,258			1,074
Repayments of long-term debt and capital leases		(243	)		(285	)		(1,126	)		(1,119	)
Net cash provided by financing activities		1,345			536			2,521			280
Effect of exchange rate on cash and cash equivalents		220			26			(462	)		29
Net decrease in cash		(1,304	)		(8,757	)		(2,258	)		(8,664	)
Cash and cash equivalents, beginning of period		17,860			32,975			18,814			32,882
Cash and cash equivalents, end of period	$	16,556		$	24,218		$	16,556		$	24,218

j2 GLOBAL COMMUNICATIONS, INC.

UNAUDITED RECONCILIATION OF NET EARNINGS EXCLUDING GAIN ON SALE OF INVESTMENT

THREE MONTHS ENDED SEPTEMBER 30, 2005

(IN THOUSANDS)

“Net earnings excluding gain on sale of investment” and “Net earnings per share excluding gain on sale of investment” are not meant as a substitute for measures determined under generally accepted accounting principles (“GAAP”), but are solely for informational purposes. The following table illustrates the adjustments and reconciles “Net earnings excluding gain on sale of investment” to the related amount determined under GAAP as reported in the financial statements. The Company believes that these non-GAAP financial measures are useful measures of operating performance because they exclude a gain resulting from a non-recurring transaction outside the ordinary course of the Company's business.

 

Net earnings				$	$ 18,189
Less gain on sale of investment, net of taxes:
Gain on sale of investment	$	9,347
Income tax expense on gain		(3,692	)		(5,655	)
Net earnings excluding gain on sale of investment				$	12,534
Net earnings per share excluding gain on sale of investment				$	0.49
Diluted weighted average shares outstanding					25,503,636

EX-99.2

Investor Presentation

(Based upon Third Quarter 2005 results)

October 24, 2005

www.j2global.com

1

  Future operating results

  Subscriber growth and retention

  Earnings growth and expectations

  New products, services and features

  Corporate spending

  Liquidity

  Network capacity and coverage

  Regulatory developments

  Taxes

Certain statements in this presentation constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, particularly those contained in the slide entitled “Financial Guidance”. These forward-looking statements are based on management’s current expectations or beliefs as of October 24, 2005 and are subject to numerous assumptions, risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements.  We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements. Readers should carefully review the risk factors described in this presentation. Such statements address the following subjects:

Safe Harbor for Forward-Looking Statements

All information in this presentation speaks as of October 24, 2005 and any
distribution of this presentation after that date is not intended and will not be
construed as updating or confirming such information.

2

Risk Factors

Inability to sustain growth in our customer base, revenue or profitability

Competition in price, quality, features and geographic coverage

Inability to obtain telephone numbers in sufficient quantities on acceptable terms in desired locations

Enactment of burdensome telecommunications or Internet regulations including increased taxes or fees

Reduced use of fax services due to increased use of email or widespread adoption of digital signatures

Inadequate intellectual property protection or violations of third party intellectual property rights

System failures or breach of system or network security

Failure to expand and upgrade our systems and network infrastructure to accommodate increased traffic

Inability to adapt to technological change, or third party development of new technologies superior to ours

Economic downturns in industries which rely heavily on fax transmissions

Loss of services of executive officers and other key employees

Loss of third party suppliers and marketing relationships, and inability to enter into new such relationships
on acceptable terms

Other factors set forth in our Annual Report on Form 10-K filed on 3/28/05 and the other reports filed by
us from time to time with the Securities and Exchange Commission

The following factors, among others, could cause our business, prospects, financial condition, operating results
and cash flows to be materially adversely affected:

3

Unique Assets

10.2 million subscribed telephone numbers (DIDs)

Global advanced messaging network

2,000+ cities in 26 countries on 5 continents

14.2MM+ unique DIDs worldwide in inventory

Patented technology

A portfolio of 23 issued U.S. patents, and numerous pending U.S. patent
applications, issued foreign patents and pending foreign applications

Expertise

Effective customer acquisition strategies and Web marketing

Breadth, depth and management of a complex network & architecture

Strong financial position

34 consecutive quarters of Revenues growth

15 consecutive quarters of positive and growing Operating Earnings

30%+ year-over-year Revenues growth

$131.6MM of cash & investments to fund growth (as of 9/30/05)

Nominal amount of debt

4

2,000+ cities

in 26 countries

on 5 continents

Source:  US Census Bureau (2003),
www.internetstats.com 2005 and j2 Global

Current population of j2 Global-
served countries:  826 million

Representing 349+ million Internet
users

j2 Global has only ~ 746,000
international subscribers

137 million total US employees

j2 Global has only 9.5 million U.S. subscribers

Breadth of Network

5

All brand names and logos are trademarks of j2 Global Communications, Inc. or its affiliates in the U.S. and/or internationally.

6

Subscriber Acquisition

Individuals

Targeted Web marketing

    (e.g. AOL, MSN, Yahoo!, Google, CareerBuilder, New York Times, etc.)

Sold primarily through: www.eFax.com and www.j2.com

Use of proprietary Life Cycle Management   ( e.g.  Free       Paid conversions)

Advertising & Calling-Party-Pays revenue supports the Free base

Small to Mid-Sized Businesses

Sold through: www.eFaxCorporate.com, supported by Telesales

Self-service Web-based broadcast fax engine at www.jblast.com

Outsourced email, spam & virus protection through Electric Mail

Use of proprietary Life Cycle Management (i.e. usage stimulation)

Large Enterprise/Government

Direct sales force

Marketed through Web and traditional direct selling methods

Use of proprietary Life Cycle Management (i.e. usage stimulation)

7

Paid Subscription Drivers

Six Drivers for Paid Subscription additions:

Subscribers coming directly to the Company’s Websites/Telesales

Brand awareness

Search engine discovery

Free-to-Paid subscriber upgrades

Life Cycle Management

eFax Corporate SME sales

Hybrid Website and human interaction (i.e. Telesales)

Direct enterprise & government sales

Through the outside Corporate Sales team

Direct marketing spend for Paid subscribers

Targeted marketing

CPA deals

International marketing programs in Western Europe

8

Historical Revenue & Operating Earnings Growth

34 consecutive quarters of Revenue growth

15 consecutive quarter of Operating Earnings growth

9

Operational Philosophy

10

j2 Global Paid Fax Usage Trend

  Paid DIDs Increasing at a 40% Annual Rate

  Average Pages per Paid DID Stable

  Message Delivery Each Business Day on Average

  Regular Interaction with Customer

11

Each Delivery Reinforces Customer Awareness

Branding/Word of Mouth Largest New DID Contributor

Upsell Messages Refreshed and Targeted

New Services Lead to Increased Usage and Loyalty

Training Raises Awareness of Less Used Features  

eFax Delivery Page

12

  eFax^®/eVoice^®Upsells and Upgrades

eFax/eVoice Free to Paid

Easy Access to Customer Support

Upgrade to eFax Pro^®

eFax Corporate^® Help

Tailored Marketing Messages

13

Low and Declining Individual Paid SAC Cost

  Analytical Approach to Marketing (ROI Based)

  Spend with Breadth of Vendors

  Key Long-Term Vendor Relationships

  Strong Direct to Website Customer Acquisition

14

Financial Highlights

15

Cost Trends

*

*

* Reflects a reclassification of certain network operations and depreciation expenses
  into Cost of Revenues, which was implemented in Q1 2005, versus their historical
  inclusion in General & Administrative expenses.  See Slide #23 for a reconciliation
  to previously reported numbers.

16

Financial Guidance

⁽¹⁾ Assumes an effective annual tax rate of 27% and 25.5 million fully diluted shares outstanding

$0.50 – $0.54

$39 – $41

Q4

2005

~30%

Net Earnings per Share ⁽¹⁾

~30%

Revenues (millions)

2006

Growth Rate

17

Updates

18

Initiative Updates

Enterprise Sales

16 Enterprise accounts with 1,000+ DIDs – all under annual or
multi-year contracts

Largest account has nearly 10,000 DIDs provisioned

Pipeline:  63 qualified 1,000+ DID opportunities, of which 15
are international

International

56% increase in paid subscribers year over year

Taipei, Taiwan service launched

170 cities/area codes in the UK now live

eVoice

Approximately 4,000 Paid subscribers

International (Europe) eVoice launched in Q3 2005

19

Recent Events

j2 Global’s network expanded to include 170 cities in the
UK; Taipei, Taiwan; and additional cities in Italy

Intellectual property licensing program yielded additional
licenses

Upgraded free offering to include DID matching and offering
storage on a trial basis

Sold Oasis Semiconductor investment for ~ $10 MM

Increased analyst coverage with the addition of Freidman
Billings Ramsey

20

Supplemental Information

21

Metrics

22

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Fixed Subscriber Revenues

$9,916

$11,177

$12,121

$13,976

$16,021

$17,750

$19,122

$20,823

$22,773

$23,756

$25,229

Variable Subscriber Revenues

4,538

5,130

5,685

5,542

6,041

7,314

7,863

8,226

8,502

10,323

11,258

   Subscriber Revenues

$14,454

$16,307

$17,806

$19,517

$22,062

$25,063

$26,985

$29,050

$31,275

$34,079

$36,487

Other Revenues

754

730

1,097

957

880

768

786

749

949

806

1,202

      Total Revenues

$15,208

$17,037

$18,903

$20,474

$22,942

$25,831

$27,771

$29,799

$32,224

$34,885

$37,689

DID Based Revenues

$14,063

$15,835

$17,478

$19,216

$21,664

$24,057

$25,994

$27,937

$30,186

$33,009

$34,760

Non-DID Revenues

1,145

1,202

1,424

1,258

1,278

1,774

1,777

1,862

2,038

1,876

2,929

      Total Revenues

$15,208

$17,037

$18,903

$20,474

$22,942

$25,831

$27,771

$29,799

$32,224

$34,885

$37,689

Subscriber Revenue/Total Revenues

95.0%

95.7%

94.2%

95.3%

96.2%

97.0%

97.2%

97.5%

97.1%

97.7%

96.8%

DID Based/Total Revenues

92.5%

92.9%

92.5%

93.9%

94.4%

93.1%

93.6%

93.8%

93.7%

94.6%

92.2%

%

Fixed

 Subscriber Revenues

68.6%

68.5%

68.1%

71.6%

72.6%

70.8%

70.9%

71.7%

72.8%

69.7%

69.1%

%

Variable

 Subscriber Revenues

31.4%

31.5%

31.9%

28.4%

27.4%

29.2%

29.1%

28.3%

27.2%

30.3%

30.9%

Paid DIDs

(4)

304,969

348,988

380,230

400,245

434,616

469,328

515,162

553,949

598,490

641,720

691,096

Average Monthly Revenue/DID

$15.59

$15.52

$15.36

$15.73

$16.68

$17.22

$16.95

$16.87

$16.85

$17.21

$16.89

Cancel Rate

(1)

3.6%

3.0%

2.8%

3.3%

2.9%

2.4%

2.6%

2.7%

2.8%

2.5%

2.8%

Free DIDs

4,320,975

4,825,991

5,146,838

5,150,388

5,843,167

6,873,083

7,106,249

8,180,452

8,448,517

8,653,386

9,549,886

Average Monthly Revenue/DID

$0.05

$0.04

$0.05

$0.05

$0.05

$0.04

$0.04

$0.04

$0.04

$0.04

$0.03

Total DID Inventory (MM)

5.8

6.5

6.7

7.1

8.6

9.5

11.3

11.9

12.7

13.6

14.2

Cities Covered

1,000

1,000

1,100

1,100

1,300

1,350

1,400

1,500

1,500

1,500

2,005

Countries Covered

18

19

20

20

20

20

20

22

23

25

26

Gross Margin

(3)

80.2%

80.9%

81.5%

82.6%

84.1%

84.3%

84.3%

85.1%

79.8%

80.2%

78.5%

Operating Margin

34.2%

36.1%

39.2%

41.4%

43.5%

42.6%

43.0%

44.0%

41.4%

44.0%

43.2%

Cash/Funds Available for Growth

(millions)

$38.7

$46.5

$54.5

$63.8

$67.4

$74.2

$83.9

$93.8

$98.2

$108.6

$131.6

Free Cash Flow

(2)

(millions)

$5.0

$7.1

$7.7

$9.5

$9.9

$11.6

$11.9

$10.9

$11.3

$13.8

$13.5

(1)

Cancel Rate is defined as individual customer DIDs with greater than 4 months of continuous service (continuous service includes customer DIDs which are administratively cancelled and

     reactivated within a calendar month), and DIDs realted to enterprise customers beginning with their first day of service. Calculated monthly and expressed here as an average over the three

    months of the quarter.

(2)

Free Cash Flow is net cash provided by operating activities, less purchases of property and equipment.  In Q4 2003, it excludes the benefit of $9.5 million to record the reversal of certain

    valuation allowances of defered tax assets.

(3)

Reflects the inclusion of certain network operations and depreciation expense in Cost of Revenues in Q1 2005 versus its historical inclusion in General & Administrative expense.

(4)

For Q1 2005, reduced by 6,625 DIDs due to the discontinuance of a marketing trial.

2005

2003

2004

23

Reconciliation of Previously Reported

Cost of Revenues and General & Administrative Expenses for 2004

($ in thousands)

Q3-2004

% of Rev

Q4-2004

% of Rev

Cost of Revenues

Previously reported

4,363

$      

15.7%

4,448

$      

14.9%

Add: Certain network operations

and depreciation expenses

1,092

1,128

Adjusted Cost of Revenues

5,455

$      

19.6%

5,576

$      

18.7%

Gross Margin

Previously reported

84.3%

85.1%

Adjusted Gross Margin

80.4%

81.3%

General and Administrative Expenses

Previously reported

5,321

$      

19.2%

5,506

$      

18.5%

Less: Certain network operations

and depreciation expenses

1,092

1,128

Adjusted General

and Administrative Expenses

4,229

$      

15.2%

4,378

$      

14.7%

⁽¹⁾ In Q4 2003, excludes benefit of $9.5 million to record the reversal of certain valuation allowances of our deferred tax assets.

⁽²⁾  Prior to Q4 2003, the Company accrued tax expense at the rate of 5% or less.

⁽³⁾ Net cash provided by operating activities, less purchases of property & equipment.  Free Cash Flow amounts are not meant
as a substitute for GAAP, but are solely for informational purposes.

Computation of Free Cash Flow

($ in millions)

^(1,2)

24

Q1 '03

Q2 '03

Q3 '03

Q4 '03

Q1 '04

Q2 '04

Q3 '04

Q4 '04

Q1 '05

Q2 '05

Q3 '05

Net cash provided by operating activities

$5.308

$8.542

$8.623

$10.375

$10.252

$13.044

$13.240

$14.785

$13.762

$15.227

$15.951

Purchases of property & equipment

(0.300)

(1.414)

(0.947)

(0.906)

(0.319)

(1.442)

(1.337)

(3.883)

(2.473)

(1.420)

(2.433)

Free Cash Flow  

(3)

$5.008

$7.128

$7.676

$9.469

$9.933

$11.602

$11.903

$10.902

$11.289

$13.807

$13.518

®

25