EX-99.1 2 exhibit99-1.htm PRESS RELEASE DATED NOVEMBER 3, 2010 exhibit99-1.htm
j2 Global Reports Third Quarter 2010 Results
 
Adds over 76,000 Net Paid Telephone Numbers During the Quarter
Achieves Record $87.3M Nine Month Free Cash Flow
 
LOS ANGELES—November 3, 2010—j2 Global Communications, Inc. [NASDAQGS:JCOM] today reported financial results for the third quarter ended September 30, 2010.
 
THIRD QUARTER 2010 RESULTS
 
Total revenues for Q3 2010 were $62.8 million, which represents a growth of $1.0 million from $61.8 million in Q3 2009. The increase was primarily due to an increase in the Company’s subscriber base.
 
Subscriber revenues for Q3 2010 grew by $1.1 million to $62.1 million, compared to $61.0 million for Q3 2009.
 
For Q3 2010, the Company improved its gross margin to 82.9% versus 81.8% in Q3 2009 and its operating margin to 43.4% versus 43.1% in Q3 2009. Operating margin improvement was due primarily to increased revenues and reduced bad debt partially offset by planned increases in sales and marketing initiatives in the current period.
 
Net earnings per diluted share on a Non-GAAP basis, which excludes share-based compensation and related payroll taxes, was $0.47 for both Q3 2010 and Q3 2009. GAAP net earnings per diluted share was $0.43 for both Q3 2010 and Q3 2009.
 
The Company generated $26.7 million of free cash flow during the quarter and ended the quarter with $272.3 million in cash and investments, an increase of $7.4 million versus June 30, 2010 despite deploying approximately $19.8 million to purchase Venali, Inc. and Alban Telecom Ltd. during Q3 2010.
 
Key financial results for third quarter 2010 versus third quarter 2009 are as follows:
 
  Q3 2010 Q3 2009 % Change
Subscriber Revenues $62.1 million $61.0 million 1.8%
Total Revenues $62.8 million $61.8 million 1.6%
Non-GAAP Net Earnings per Diluted Share(1) (3) $0.47 $0.47 0%
GAAP Net Earnings per Diluted Share (2) $0.43 $0.43 0%
Free Cash Flow (4) $26.7 million $26.1 million 2.3%

 

      (1)      
The estimated non-GAAP effective tax rate was approximately 29% and 28% for Q3 2010 and Q3 2009, respectively.
   
  (2)  
The estimated effective tax rate was approximately 28% for both Q3 2010 and Q3 2009.
   
  (3)  
Share-based compensation and related payroll taxes impacted both Q3 2010 and Q3 2009 net earnings per diluted share by approximately $0.04, net of tax.
   
  (4)  
Free cash flow is defined as net cash provided by operating activities, less purchases of property, plant and equipment, plus excess tax benefit (deficiency) from share-based compensation. Excluding the impact of a $14.2 million payment in Q2 2010 to the IRS in settlement of an audit for transfer pricing covering tax years 2004 through 2008, which was fully accrued for in prior periods, for the nine month period ending September 30, 2010, the Company achieved the highest free cash flows for any nine month period in its existence.
 
"I am very pleased with our operational and financial performance this quarter,” said Hemi Zucker, j2 Global's chief executive officer. “We added over 76,000 net paying telephone numbers, of which approximately 50,000 came through acquisitions completed during the quarter. This is our largest quarterly growth since Q4 2000. We maintained our near record low cancel rate at 2.6%. In addition, we improved our year-over-year gross and operating margins and free cash flow, all while executing our acquisition strategy and adding new services and features to our existing product offerings.”
 
BUSINESS OUTLOOK
 
For fiscal 2010, j2 Global reaffirms it targeted revenue growth of 5% with a range of 3% to 7% compared to fiscal year 2009 revenues. Net earnings, excluding 123R non-cash compensation expense, are expected to approximate non-GAAP earnings in 2009 as the Company intends to reinvest its incremental operating income in initiatives designed to accelerate growth in 2011 and beyond.
 
The range of anticipated revenues takes into account both organic growth and acquisition related growth within the context of current economic conditions.
 
 

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. With offices in eight cities worldwide, j2 Global's network spans more than 4,200 cities in 49 countries on six continents. The Company's websites appear in numerous languages, including Dutch, French, German, Spanish, English and more. Payments are accepted in currencies that include the U.S. Dollar, British Pound, Canadian Dollar, Japanese Yen, Euro, Hong Kong Dollar and more. j2 Global provides live sales and customer service support in multiple languages, including English, Spanish, Dutch, German, French, Cantonese and more. j2 Global markets its services principally under the brands eFax®, eFax Corporate®, Onebox®, eVoice® and Electric Mail®. As of December 31, 2009, j2 Global had achieved 14 consecutive fiscal years of revenue growth and eight consecutive fiscal years of positive and growing operating earnings. For more information about j2 Global, please visit www.j2global.com.
 
Contact:
 
                            Jeff Adelman
                            j2 Global Communications, Inc.
                            323-372-3617
                            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 regarding the Company’s expected fiscal 2010 financial performance). 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 revenue based on changing conditions in particular industries and the economy generally; 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 messaging and communications, including but not limited to the imposition or increase of taxes or regulatory-related fees; and the numerous 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 2009 Annual Report on Form 10-K filed by j2 Global on February 23, 2010, 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 forward-looking statements provided in this press release and particularly those contained in the “Business Outlook” portion regarding the Company’s expected fiscal 2010 financial performance are 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 statements.
 
 

j2 GLOBAL COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED, IN THOUSANDS)
 
    SEPTEMBER 30,   DECEMBER 31,
        2010       2009
ASSETS                
       Cash and cash equivalents   $ 212,700     $ 197,411  
       Short-term investments     16,198       31,381  
       Accounts receivable,                
              net of allowances of $2,593 and $3,077, respectively     13,170       11,928  
       Prepaid expenses and other current assets     6,433       13,076  
       Deferred income taxes     2,657       2,657  
                 
       Total current assets     251,158       256,453  
                 
       Long-term investments     43,406       14,887  
       Property and equipment, net     11,413       13,366  
       Goodwill     113,130       81,258  
       Other purchased intangibles, net     44,848       39,091  
       Deferred income taxes     9,532       8,717  
       Other assets     517       229  
                 
       TOTAL ASSETS   $ 474,004     $ 414,001  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY                
       Accounts payable and accrued expenses   $ 19,837     $ 15,941  
       Income taxes payable     1,702       1,563  
       Deferred revenue     12,349       11,411  
                 
       Total current liabilities     33,888       28,915  
                 
       Liability for uncertain tax positions     36,088       46,820  
       Deferred income taxes     359       —  
       Other long-term liabilities     2,990       2,094  
                 
       Total liabilities     73,325       77,829  
                 
       Commitments and contingencies     —       —  
                 
       Stockholders' Equity:                
       Preferred stock     —       —  
       Common stock     534       529  
       Additional paid-in capital     158,345       147,619  
       Treasury stock                 (112,671 )               (112,671 )
       Retained earnings     354,286       301,670  
       Accumulated other comprehensive income (loss)     185       (975 )
                 
       Total stockholders' equity     400,679       336,172  
                 
       TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY   $ 474,004     $ 414,001  
                 
 

j2 GLOBAL COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED, IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
 
    THREE MONTHS ENDED SEPTEMBER 30,   NINE MONTHS ENDED SEPTEMBER 30,
        2010       2009       2010       2009
Revenues                          
       Subscriber   $ 62,066   $ 61,045   $            182,173   $            181,734  
       Other     712     756     2,196     2,922  
                           
       Total revenue     62,778     61,801     184,369     184,656  
                           
Cost of revenues (including share-based compensation of                          
$304 and $963 for the three and nine months of 2010,                          
respectively, and $323 and $935 for the three and nine                          
months of 2009, respectively)     10,732     11,258     31,378     34,250  
                           
       Gross profit     52,046     50,543     152,991     150,406  
                           
Operating expenses:                          
       Sales and marketing (including share-based compensation                          
       of $464 and $1,460 for the three and nine months of 2010,                          
       respectively, and $477 and $1,338 for the three and nine                          
       months of 2009, respectively)     10,878     9,347     32,327     27,443  
       Research, development and engineering (including share-based                          
       compensation of $204 and $645 for the three and nine months                          
       of 2010, respectively, and $217 and $634 for the three and nine                          
       months of 2009, respectively)     3,008     2,862     8,810     8,685  
       General and administrative (including share-based compensation                          
       of $1,805 and $5,699 for the three and nine months of 2010,                          
       respectively, and $1,877 and $5,188 for the three and nine                          
       months of 2009, respectively)     10,921     11,667     34,263     33,582  
                           
       Total operating expenses     24,807     23,876     75,400     69,710  
                           
Operating earnings     27,239     26,667     77,591     80,696  
                           
Other-than-temporary impairment losses     —     —     —     (9,193 )
                           
Interest and other income, net     491     20     1,750     477  
                           
Earnings before income taxes     27,730     26,687     79,341     71,980  
                           
Income tax expense     7,896     7,353     23,161     22,857  
                           
Net earnings   $ 19,834   $ 19,334   $ 56,180   $ 49,123  
                           
Basic net earnings per common share   $ 0.44   $ 0.44   $ 1.26   $ 1.12  
                           
Diluted net earnings per common share   $ 0.43   $ 0.43   $ 1.23   $ 1.09  
                           
Basic weighted average shares outstanding     44,716,366     44,126,038     44,488,561     43,840,308  
                           
Diluted weighted average shares outstanding     45,939,172     45,296,147     45,738,389     44,985,160  
                           
 

j2 GLOBAL COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
 
    NINE MONTHS ENDED SEPTEMBER 30,
    2010       2009
Cash flows from operating activities:              
               Net earnings $ 56,180     $ 49,123  
       Adjustments to reconcile net earnings to net cash              
       provided by operating activities:              
  Depreciation and amortization   10,973       10,990  
  Amortization of discount or premium of investments   670       0  
 
Share-based compensation
   8,767       8,095  
  Excess tax benefits from share-based compensation   (164 )     (3,126 )
  Provision for doubtful accounts   1,542       1,710  
  Deferred income taxes   (815 )     (924 )
 
Other-than-temporary impairment losses
   —       9,193  
       Decrease (increase) in:              
  Accounts receivable   (1,354 )     (803 )
  Prepaid expenses and other current assets   1,097       (737 )
  Other assets   (262 )     (108 )
       (Decrease) increase in:              
  Accounts payable and accrued expenses   2,350       (723 )
  Income taxes payable   (11,426 )     (724 )
  Deferred revenue   (422 )     219  
  Liability for uncertain tax positions   6,339       5,776  
  Other   677       22  
Net cash provided by operating activities   74,152       77,983  
   
Cash flows from investing activities:              
  Maturity of certificates of deposit   31,653       —  
  Redemptions/sales of available-for-sale investments   9,019       —  
  Purchases of available-for-sale investments   (52,921 )     —  
  Purchases of certificates of deposit   —       (31,150 )
  Purchases of property and equipment   (1,273 )     (1,704 )
  Proceeds from sale of assets   —       1,340  
  Acquisition of businesses, net of cash received   (36,546 )     (11,915 )
  Purchases of intangible assets   (6,953 )     (3,146 )
Net cash used in investing activities   (57,021 )     (46,575 )
   
Cash flows from financing activities:              
  Repurchases of common stock and restricted stock   (4,175 )     (441 )
  Issuance of common stock under employee stock purchase plan   85       89  
  Exercise of stock options   2,349       2,638  
  Excess tax benefits from share-based compensation   164       3,126  
Net cash (used in) provided by financing activities   (1,577 )     5,412  
   
Effect of exchange rate changes on cash and cash equivalents   (265 )     750  
   
Net increase in cash and cash equivalents   15,289       37,570  
Cash and cash equivalents at beginning of period   197,411       150,780  
Cash and cash equivalents at end of period $                212,700     $                188,350  
   

 

j2 GLOBAL COMMUNICATIONS, INC.
UNAUDITED RECONCILIATION OF MODIFIED NET EARNINGS
THREE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009
(UNAUDITED, IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
 
Modified net earnings are GAAP net earnings with the following modifications (1) elimination of share-based compensation expense for 2010 and 2009; (2) elimination of payroll taxes associated with share-based compensation and (3) elimination of income tax expense associated with share-based compensation and associated payroll taxes Modified net earnings and modified net earnings per share are not meant as a substitute for measures determined under GAAP, but are solely for informational purposes. The following table illustrates and reconciles the GAAP net earnings with the aforementioned exclusions. The Company believes that this non-GAAP financial information are useful measures of operating performance because they exclude certain transactions outside the ordinary course of the Company's business.
 
      THREE MONTHS ENDED SEPTEMBER 30, 2010   THREE MONTHS ENDED SEPTEMBER 30, 2009
      Reported   Non-GAAP Entries Non-GAAP       Reported   Non-GAAP Entries Non-GAAP
Revenues                                                          
       Subscriber $ 62,066   $ -       $ 62,066   $ 61,045   $ -       $ 61,045
    Other   712     -         712     756     -         756
                                               
    Total revenue   62,778     -         62,778     61,801     -         61,801
                                               
Cost of revenues (1)   10,732     (304 )  (1)     10,428     11,258     (323 )  (1)     10,935
                                           
    Gross profit   52,046     304         52,350     50,543     323         50,866
                                               
Operating expenses:                                          
    Sales and marketing (1)   10,878     (464 )  (1)     10,414     9,347     (477 )  (1)     8,870
    Research, development and engineering(1)   3,008     (204 )  (1)     2,804     2,862     (217 )  (1)     2,645
    General and administrative (1) (2)   10,921     (1,826 )  (1) (2)     9,095     11,667     (1,909 )  (1) (2)     9,758
                                               
    Total operating expenses   24,807     (2,494 )       22,313     23,876     (2,603 )       21,273
                                               
Operating earnings   27,239     2,798         30,037     26,667     2,926         29,593
                                           
Interest and other income, net   491     -         491     20     -         20
                                           
Earnings before income taxes   27,730     2,798         30,528     26,687     2,926         29,613
                                           
Income tax expense (3)   7,896     883   (3)     8,779     7,353     902    (3)     8,255
                                           
Net earnings $        19,834   $        1,915       $        21,749   $      19,334   $          2,024       $ 21,358
 
 
Diluted net earnings per share $ 0.43             $ 0.47   $ 0.43             $ 0.47
 
Diluted weighted average shares outstanding   45,939,172               45,939,172     45,296,147               45,296,147
 
 
(1) Share-based compensation expense:                                          
       Cost of revenues       $ (304 )                 $ (323 )        
    Sales and marketing       $ (464 )                 $ (477 )        
    Research, development and engineering       $ (204 )                 $ (217 )        
    General and administrative       $ (1,805 )                 $ (1,877 )        
            $ (2,777 )                 $ (2,894 )        
                                               
(2) Payroll taxes associated with share-based compensation       $ (21 )                 $ (32 )        
 
(3) Income tax adjustment, net impact of the items above                                          
    Share-based compensation expense       $ 877                   $ 893          
    Payroll taxes associated with share-based compensation       6                     9          
            $ 883                   $ 902          
 

 

j2 GLOBAL COMMUNICATIONS, INC.
UNAUDITED RECONCILIATION OF MODIFIED NET EARNINGS
NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009
(UNAUDITED, IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
 
Modified net earnings are GAAP net earnings with the following modifications (1) elimination of share-based compensation expense for 2010 and 2009; (2) elimination of payroll taxes associated with share-based compensation; (3) elimination of certain acquisition costs; (4) elimination of other-than-temporary impairment losses and (5) elimination of income tax expense associated with share-based compensation and associated payroll taxes, certain acquisition costs and other-than-temporary impairment losses. Modified net earnings and modified net earnings per share are not meant as a substitute for measures determined under GAAP, but are solely for informational purposes. The following table illustrates and reconciles the GAAP net earnings with the aforementioned exclusions. The Company believes that this non-GAAP financial information are useful measures of operating performance because they exclude certain transactions outside the ordinary course of the Company's business.
 
    NINE MONTHS ENDED SEPTEMBER 30, 2010   NINE MONTHS ENDED SEPTEMBER 30, 2009
       Reported      Non-GAAP Entries      Non-GAAP      Reported      Non-GAAP Entries      Non-GAAP
Revenues                                              
       Subscriber   $ 182,173   $ -       $ 182,173   $ 181,734     $ -       $ 181,734
       Other     2,196     -         2,196     2,922       -         2,922
       Total revenue     184,369     -         184,369     184,656       -         184,656
Cost of revenues (1)     31,378     (963 )  (1)     30,415     34,250       (935 )  (1)     33,315
       Gross profit     152,991     963         153,954     150,406       935         151,341
Operating expenses:                                              
       Sales and marketing (1)     32,327          (1,460 )   (1)     30,867     27,443       (1,338 )  (1)     26,105
       Research, development and engineering (1)     8,810     (645 )   (1)     8,165     8,685       (634 )  (1)     8,051
       General and administrative (1) (2) (3)     34,263     (6,073 )  (1) (2) (3)     28,190     33,582       (5,237 )  (1) (2)     28,345
       Total operating expenses     75,400     (8,178 )       67,222     69,710                (7,209 )       62,501
Operating earnings     77,591     9,141         86,732     80,696       8,144         88,840
Other-than-temporary impairment losses (4)     -     -         -     (9,193 )     9,193    (4)     -
Interest and other income, net     1,750     -         1,750     477       -         477
Earnings before income taxes     79,341     9,141         88,482     71,980       17,337         89,317
Income tax expense (5)     23,161     2,849    (5)     26,010     22,857       3,255    (5)     26,112
Net earnings   $ 56,180   $ 6,292       $ 62,472   $ 49,123     $ 14,082       $ 63,205
 
Diluted net earnings per share   $ 1.23             $ 1.37   $ 1.09               $ 1.41
 
Diluted weighted average shares outstanding     45,738,389               45,738,389     44,985,160                 44,985,160
 
(1) Share-based compensation expense:                                              
       Cost of revenues         $ (963 )                   $ (935 )        
       Sales and marketing         $ (1,460 )                   $ (1,338 )        
       Research, development and engineering         $ (645 )                   $ (634 )        
       General and administrative         $ (5,699 )                   $ (5,188 )        
          $ (8,767 )                   $ (8,095 )        
(2) Payroll taxes associated with share-based compensation         $ (169 )                   $ (49 )        
(3) Acquisition costs         $ (205 )                   $ -          
(4) Other-than-temporary impairment losses         $ -                     $ 9,193          
(5) Income tax adjustment, net impact of the items above                                              
       Share-based compensation expense         $ 2,738                     $ 2,463          
       Payroll taxes associated with share-based compensation       51                       16          
       Acquisition costs           60                       -          
       Other-than-temporary impairment losses           -                       776          
          $ 2,849                     $ 3,255          
 

 

j2 Global Communications, Inc.
Free Cash Flows
 
        Q1       Q2       Q3       Q4       YTD
2010                              
Net cash provided by operating activities   34,688     12,317     27,147           74,152  
Less: Purchases of property and equipment   (86 )   (495 )   (692 )         (1,273 )
Add: Excess tax (deficiency) benefit from share-based compensation   (406 )   374     196           164  
Add: IRS settlement*   -     14,223     -           14,223  
    34,196     26,419     26,651     -     87,266  
                               
* Free cash flow of $26.4 million is before the effects of our IRS settlement. In the second quarter, we successfully settled our audit for transfer pricing for the years of 2004 to 2008 for $14.2 million, which was fully accrued for in prior periods. Taking this settlement into consideration, our free cash flow for the quarter was $12.2 million.
 
2009                              
Net cash provided by operating activities     31,152       20,362       26,469       23,850       101,833  
Less: Purchases of property and equipment   (721 )   (217 )   (767 )   (1,546 )   (3,251 )
Add: Excess tax benefit (deficiency) from share-based compensation   5     2,718     403     (63 )   3,063  
    30,436     22,863     26,105     22,241     101,645  
 
2008                              
Net cash provided by operating activities   27,411     23,840     15,676     23,789     90,716  
Less: Purchases of property and equipment   (469 )   (796 )   (937 )   (305 )   (2,507 )
Add: Excess tax benefit from share-based compensation   239     204     212     910     1,565  
    27,181     23,248     14,951     24,394     89,774