Ziff Davis Inc (ZD) 2003 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the j2 Global Communications fourth-quarter and year-end 2003 earnings conference call.

It is my pleasure to introduce your host Mr. Scott Turicchi, CFO of j2 Global Communications.

Thank you.

Mr. Turicchi, you may begin.

Thank you.

Good afternoon, ladies and gentlemen, and welcome to our investor conference call for the fiscal year-end 2003 and the fourth quarter.

As the operator just mentioned, I'm Scott Turicchi, our CFO.

With me today is Scott Jarus, our President; and Greg Kalvin, our Chief Accounting Officer.

We will be discussing the fiscal year 2003 financial results as well as our fourth quarter results for 2003.

In addition, you will see that we have taken this opportunity to make substantial improvements to our slide presentation, so that it will provide you with a better understanding of our business and its opportunities.

This presentation is designed to be more operational in nature, and focuses on the methods by which we acquire customers and our drivers for future growth.

In addition, we have provided you with additional metrics to help you analyze our business.

Finally we have provided guidance for the first quarter in the fiscal year 2004.

As a result of this additional information, as well as for new participants that may be on the call, we will be going through the IR presentation in detail today.

A copy of this presentation is available at our website.

If you've not received a copy of the press release outlining our earnings, you may access it through our corporate website at www.j2global.com/press.

In addition, you'll be able to access the Webcast from this site.

After completing the formal presentation, we'll be conducting a Q&A session.

The operator will instruct you at that time regarding procedures for asking questions.

In addition you may e-mail questions (Operator Instructions).

Before we begin our prepared remarks, allow me to read the Safe Harbor language.

As you know, this call and the Webcast will include forward-looking statements.

Such statements may involve risks uncertainties that would cause actual results to differ materially from the anticipated results.

Some of those risks and uncertainties include but are not limited to the risk factors that we have disclosed in our SEC filings including our 10-K filings, recent 10-Q filings, various proxy statements and 8-K filings, as well as additional risk factors that we have included as part of the sideshow for the Webcast.

We refer you to discussions in those documents regarding Safe Harbor language, as well as forward-looking statements.

I'm now pleased to present the results for the year.

This was a banner year for j2 Global and almost every respect, and has enabled us to take a giant step forward as a public Company.

Our revenues for 2003 grew 49 percent year-over-year to 271.6 million.

Our gross profit margin continued to expand from a robust 76.8 percent in 2002, to 81.4 percent in 2003.

Earnings before taxes rose 91 percent year-over-year to 27.7 million in 2003, or 38.6 percent of revenue.

On a per-share basis, earnings before taxes per share was $1.10, up from 61 cents per share in 2002.

For this fiscal year and for the fourth quarter we have introduced the term "modified earnings" to give you a better year-over-year presentation of our financial performance.

As you know from our previous conference calls and press releases, we have reversed certain deferred tax asset valuation allowances in the fourth quarter, which resulted in a onetime benefit of $9.5 million or 37 cents per fully diluted share.

Excluding this benefit, earnings for the year were 26.3 million, up 96 percent over 2002.

On a per-share basis, modified earnings were $1.04 per share for 2003, versus 56 cents for 2002.

Now for the quarter.

For the fourth quarter, revenue was 20.5 million, an increase of 46 percent over the fourth quarter of 2002, and an increase of 8.3 percent over Q3 2003.

Our gross profit margin, aided by the price change, increased 82.6 percent versus 81.5 percent in Q3 2003.

Earnings before taxes rose 60 percent to 8.6 million or 42.1 percent of revenue.

On a per-share basis, earnings before taxes per share was 34 cents, up from 22 cents per share in 2002.

Modified earnings per share were 8.1 million, or 32 cents per share, up from 7.2 million and 28 cents per share in Q3 2003.

Finally, GAAP earnings per share were aided by the 37 cents due to the previously mentioned valuation reserve adjustment for NOL (ph) that brought cordially GAAP EPS to 69 cents per share for the fourth quarter.

Funds available to grow our business rose by 9.3 million during the quarter, to 63.8 million as of December 31st.

We believe that this demonstrates the fundamental strength of our business.

At this time, Scott Jarus will take you through some of the highlights contained in our IR presentation.

Thank you, Scott.

Before I begin, let me remind everyone listening that you can submit (Operator Instructions).

At this point, I'll remind everyone about the Safe Harbor and risk factor statements contained in this presentation and in the Company's quarterly and annual SEC filings.

These statements are particularly important, as they apply to our first quarter and full year 2004 financial estimates.

For those of you familiar with previous presentations, you'll notice that we have refined the description of j2 Global's business to include what has always been assumed -- been an assumed component of our business.

That being, that we have deployed the power of the Internet to deliver our services.

With the enhancements we have made to our networks and the applications, the acquisition of Impor (ph) and the proposed acquisition of the Electric Mail Company, we felt that it was important to very clearly state how important the Internet is to our business.

Whether it is the secured delivery of faxes to our subscribers e-mail inboxes, the ability to deliver personalized permission-based e-mail messages, or the use of e-mail as an enabler of unique messaging capabilities -- all of them require that we are to leverage the power of the Internet.

The scalability, functionality, flexibility, efficiency and reach of the Internet are the power component which enable us to offer such a robust suite of services.

On slide 5, you'll see a list of the various brands we sell our services through.

In the next few sides, I'm going to explain how the selling propositions through these brands is changing the way we look -- the way would like you to look at our business.

Slight 6 gives you an update on the operational assets which make j2 global unique.

Since the past year, j2 Global has increased the number of new subscriber telephone numbers, or DID (ph), by approximately 1.3 million numbers, bringing us to 5.6 million.

This increase in subscribed numbers came through our free advertising supported and paid subscription offerings.

In addition, over the course of the year, we added approximately 1.6 million telephone numbers to our inventory of available numbers.

I would remind everyone that this is a very, very important -- because it provides the Company with a supply of DIDs to support our growth -- particularly the growth of our free advertising supported base of customers, which is a significant source of paid subscription customers.

Also because the acquisition of telephone numbers, particularly in the United States, can sometimes difficult given telephone number exhaustion issues in certain parts of the country.

We viewed these 7.1 million telephone numbers as valuable assets for the Company.

In 2003, j2 Global expanded its network of local access points.

In other words, those locations where are able to offer our subscribers local telephone numbers.

We're now able to offer local telephone numbers in over 1,100 cities and 20 countries around the world.

Most recently, we introduced service in Mexico, Israel and added new locations in Canada.

In addition, we opened additional markets in the United States.

The geographic expansion of our international presence and the launching of in-country marketing opportunities, with localized language and currency, have been and is a major focus for the Company going forward.

During the fourth quarter, j2 Global filed an application for one new additional patent.

This brings the Company's stable of patents to seven issued patents and nine patents pending.

J2 Global views this intellectual property as a very important asset, and will continue to look for, or develop, new and unique opportunities to build and leverage its patent portfolio.

Lastly, the expertise of the organization has been, and will be, expanding.

With the edition of M4 (ph) Internet, j2 Global has gained experience in the personalized permission-based e-mail marketing business.

The use of these capabilities has been, and will continue to be, a key component of our business, and we're fortunate to now have this expertise and in the house.

We recently announced that we had entered into a definitive agreement to acquire the assets of the Electric Mail Company.

Assuming the transaction is completed, it will provide us with control over a solid and proven e-mail platform.

Since e-mail is such a critical component of our business, we're extremely excited about the opportunities the Electric Mail acquisition will present us.

Slide number seven describes the financial strength j2 Global has demonstrated.

As Scott Turicchi stated at the outset of the call, the Company performed well during the fourth quarter and for the year as a whole.

We ended the year with 71.6 million in revenue, 26.3 million in modified earnings -- which excludes the benefits primarily of our net operating loss carryforward, or NOL's -- and 35.8 million in GAAP earnings.

This continues the Company's track record of revenue and earnings growth.

It was the 27th consecutive quarter of revenue growth and the eighth consecutive quarter of positive earnings.

Probably, this represent the 49 percent growth in year-over-year revenues, and a 91 percent growth in pretax earnings.

We ended the quarter with $63.8 million in cash and investments, up from 32.7 million a year ago.

We continue to have a nominal amount of debt, totaling approximately 1.2 million at the end of 2003.

Turning to slide 8, I want to outline a very general strategy we embarked upon in 2003.

We invested a great deal of energy and resources in -- on continuing to penetrate into our existing market.

These included further geographic expansion in the United States and Canada.

We continued to recognize that local number availability for our customers is an extremely attractive and important.

In order to attract more customers, particularly those interested in sampling our services through our free advertising-supported offering, we expanded our marketing presence by entering into agreements with Yahoo! through their Yahoo! mail portal, AOL through their aol.com mail portal, and Monster, the job search portal.

These marketing efforts, along with several others, have enabled us to grow our net subscriber base by 1.3 million in 2003, of which more than 130,000 are new paid subscribers.

We also expanded our corporate sales organization by adding a net of six account managers throughout the year.

This organization has successfully grown our corporate account list by almost 1,000 new accounts in 2003, and has grown revenue by 61.5 percent over the same period of time.

We're continuing to learn through experience how to be successful in this selling environment, and will be refining our selling message, value proposition and efficiency throughout 2004.

2003 saw significant international geographic and marketing expansion.

We entered Hong Kong through an acquisition, and Israel and Mexico through our own operational efforts.

In addition, we secured a marketing partner in Latin America, which is gaining attraction in four countries.

Several new enhanced versions of our products suite were launched in 2003.

Our secure fax offering, and the soon-to-be announced PDS (ph) Capability, have become very attractive to our corporate customers.

In addition, we have enabled our latest release of messenger with OCR capabilities -- that's optical character recognition -- and a more intuitive look and feel.

Both of which are intended to be beneficial to individual and corporate users.

Turning to slight number 9, we believe that our primary goal is to drive subscribers to our services through (technical difficulty) marketing activities, many of which bleed across both channels.

We successfully attract customers.

Slide number 10 provides you with a profile of the many vertical markets for which we been successful in attracting subscribers.

You'll notice that real estate remains an important vertical market for us.

In the next few slides, I will update you on the impact of this market on the Company, in particular the impact of the decline in the mortgage refinancing sector.

That being said, the customers in our corporate and Web channels are diversified over many industries, and we continue to see growth in many industry sectors, particularly as we continue to roll out new feature functionalities, specifically addressing the needs of various markets.

These include secure fax or legal for the legal profession, health-care, financial and professional service industries, an inbound fax to pdf file conversion for a multitude of businesses.

The value proposition we sell to all of our subscribers, be it an individual our members of enterprise, are the ability to eliminate paper documents, an increase -- increase their privacy and security.

We want to make them more efficient, we want to help them save money and we want to provide for a logical replacement to their aging and obsolete messaging infrastructure.

Turning to slide 11.

One of the recurring themes you have begun to hear throughout this presentation is that our business, and the way we need to describe it, are evolving.

Historically, we have presented our business through the lenses of two major sales channels -- Web and incorporate.

In the early stage of the Company, and particularly of our efforts selling directly into businesses, we thought that describing our business by the, quote, "method of sale," or, quote, "method of billing," were appropriate.

The Web channel sold exclusively through the Company's various Web sites and billed via credit card, while the corporate channel sold through direct sales involving one of our corporate account executives, and we invoiced our customers directly.

Even though we knew, and stated repeatedly, that there is a significant amount of interdependency between the sales channels, we did not appreciate how true that statement really was.

Over the past year we have discovered that our business is significantly more dynamic and intertwined than the simple two sales channel description can illustrate.

We now recognize that our customers are more appropriately described, if you -- especially if you wish to understand how they impact our business -- by their usage behavior.

To give you an example, j2 Global is now selling what has historically been described as corporate opportunity through our new website eFaxcorporate.com.

The customers we attract through this selling method are typically small to medium-size Companies seeking multiple fax telephone numbers.

Though we are also attracting larger organizations to visit the Web sites to learn more about our services and pricing.

Are these Web channel customers or are they corporate channel customers?

Our individual subscribers who provide us with credit cards for payment, but who use the service many times greater than typical consumers, really a Web customer or are they more in fact more closely related to the behavior of a corporate user?

Frankly, we think that the web and corporate definitions have become increasingly blurred and no longer represent a good way of looking our business.

Instead, we want you to start thinking about our business in terms of subscribers; which includes both the fix recurring revenue source and a variable usage base revenue source.

It also includes advertising -- we also include advertising and license services as a separate source of revenue -- which by the way, all represent how we describe our GAAP financials.

That being said, we will continue to present you with these original definitions for awhile as we transition to this evolved way of looking at our business.

If you'll turn to slide number 12, will provide a summary of our telephone number, or DID, inventory.

Please focus your attention on the bar end data, on the right side of the chart, as it represents the fourth quarter we have just completed.

As previously stated, the number of active bids grew by 1.3 million over the course of 2003.

In addition, we added more than 130,000 new page subscribers and 1.2 million free advertising supported customers.

We intend on aggressively growing our free advertising supported base of customers throughout 2004.

As we said, these customers are a significant source of growth in our paid subscription base, as a result of our upgrade and lifecycle management processes.

On slide 13, we illustrate the components which make up our current definition of the Web channel.

As I said earlier, many of the factors we subscribe to Web channel, including the way we attract customers and its revenue drivers, are identical or similar to the way we attract corporate customers and that drive its revenue.

Our primary sources of marketing through individuals within the Web channel are the various Web sites we employ.

EFax.com is primarily used to market our fax e-mails services.

J2.com markets are unified communications offering, and consensus promotes our Web-based voice conference calling service.

In addition to the subscriber and usage revenue we derive from the Web channel, we also receive advertising revenue to support our free base of subscribers.

Web channel revenue is primarily driven by the recurring component of the subscription fee, though there is an increasing amount of usage based revenue also being generated by this channel.

Slight 14 provides you with a financial and operating metrics of the Web channel.

As you will see, Web channel revenue grew by 46 percent between 2002 and 2003.

We continue to see quarterly revenue and paid DID gross.

Though paid DID growth as expected was effected during the fourth quarter primarily due to the impact of the price change on our existing base of customers and an expected degree of seasonality.

The ARCU, or the average revenue per user, for the channel, was positively impacted by the price change and the cancellation rate, while up for the quarter, due to the price change did not rise to the level we had expected.

On that note, let me touch on the outcome of the price change.

As we stated on the third quarter earnings conference call, we have affected the price change on approximately 150,000 DIDs during the fourth quarter.

As a result of the positive success, which we experienced during this initial push, including fewer cancellations than expected, and a more efficient management of customer reaction, we accelerated the pace of the price change beyond what was originally planned.

As a result, we ended the year with approximately 80 percent of our Web channel DID having gone through the price change process.

For the most part, the price change has been substantially implemented, with the exception of annual subscriptions, and a few anomalous accounts which are being worked on individually.

Turning to slide 15, you'll find a description of the components which make up our current definition of the corporate channel.

Among the areas which represent a blurring of the distinction between the corporate and Web channels are TeleSales, and the recently launched eFaxcorporate.com Website.

We are now selling both individual and corporate users through a combination of TeleSales and Web-based marketing.

Unlike the Web channel, whose revenue is heavily weighted toward the recurring fixed subscription fee, the corporate channel derives two-thirds of its revenue from usage.

In addition, the corporate channel is impacted much more significantly by the number of infected business days in a period than is the Web channel.

In other words, we can't directly sell to an enterprise if they're not open for business, and if they're not open for business, it is unlikely they are using our service.

The chart provides some insight into the impact felt by the number of effected business days during the fourth quarter of 2003, and the number of effected business days expected for each quarter in 2004.

Over the past several months, we have spoken publicly regarding an important trend about our business.

J2 Global's corporate channel has and continues to expand considerable success marching it into the real estate sector of the economy.

During the fourth quarter, it accounted for approximately 25 percent of our corporate usage.

During the period of declining mortgage rates in 2002 and the first half of 2003, we reap the benefits of the significant activities -- such as refinancing generated in this industry.

For us, this meant an increase in usage of our services -- in other words the pages (ph) of fact is traveling across our network.

Conversely, as mortgage refinancing activities rapidly decline beginning in July 2003, we saw a decline in the volume of traffic placed on our network by our customers in the sector.

Followed by a decline in the number of telephone numbers subscribed to by this vertical market.

If you take a moment to look at slide number 17, you will observe the impact the mortgage industry has had on corporate usage.

While we believe that the most noticeable impact of the mortgage refinancing decline has been on our corporate sales channel, where the customer is more easily definable, and where usage is a more meaningful component of revenues, we also believe that the impact of the slowing real estate markets is also being felt in our Web channel for the individual users of our service, such as real estate brokers.

It is our belief that the impact of mortgage refinancing decline will continue to wash itself out over the first quarter or two of this year.

We have taken this factor into account in our 2004 budgeting process and public guidance.

I also want to draw your attention to slide number 17, to describe the continued growth of our nonmortgage business.

Slide number 16 provides you with the financial operating metrics of the corporate channels.

As you see, corporate channel revenues grew by 61.5 percent between 2002 and 2003.

We continue to see significant progress in moving our sale upstream to larger enterprises.

However, we are disappointed in the performance of the corporate channel in the fourth quarter.

There were three primary reasons for this disappointment.

Two we couldn't control, and one we could.

Obviously, j2 Global had no control over the rapid decline in the mortgage refinancing sector.

This was and is a key vertical of the Company.

While we reap the financial benefits of the mortgage refinancing boom in 2002 and the half of 2003, we have now faced the downside of decline in refinancing activities.

The decline in usage from this vertical market we believe was a precursor to the decline in net DID additions in our corporate channel, due to the cancellation of DIDs within the mortgage refinancing industry segment.

The current volatility in mortgage rates does not help us in projecting what will happen with this vertical market.

That being said, we are continuing to put forth efforts to diversify our customer base in both channels.

The second factor outside of our control was the 5 percent decline in a number of effected business days during the fourth quarter.

If businesses are not open for business, we can't sell to them; and those which are already customers don't use our service.

Remember, usage makes up more than two-thirds of the revenue of the corporate channel.

As you saw on the previous slide, 2004's business day calendar looks much better than 2003.

The final reason for the disappointing performance of the corporate channel during the fourth quarter is something we can and should have done a better job of controlling.

The productivity of our corporate sales team was significantly below expectation.

Some of this was due to a change of focus within the organization, and in the way we provided leads to the sales team.

These changes took much too long to take root, and we took much too long to recognize the underperformance.

We have already made changes to the way we are managing our corporate sales efforts, including a more for efficiently targeted offering to small and midsized DID deployments to our new eFaxcorporate.com Web site, which we launched on January 8th of this year.

This in turn allows our outside sales corporate accounts sales managers to continue to focus on large and customized sales opportunity.

Turning to slide number 18, I would like to provide you with an overview of some of the challenges and opportunities we face.

To foster continued and consistent growth in our subscriber base, we must increase the number of growth editions to the base and we must vigorously work to control subscriber cancellation.

We do this through continued expansion of our marketing efforts through various partners and means.

We have done a good job of reducing the cancellation rate within our subscriber base, and particularly during the key period following the announcement of our price increases.

New tools and monitoring capabilities have already been put in place with more to follow.

Which should provide us with the increased the visibility and understanding into why customers cancel their service.

We hope that this will enable us to continue to make progress in controlling cancellations.

Diversification across industry verticals not only provides insurance against swings caused by changes in particular industries, but also enables us to expand our value proposition with new features specifically tailored for different industries and government entities.

We have tremendous opportunities ahead of us.

We have recently completed several product enhancements, and will be rolling them out to our customers this quarter.

These include the delivery of faxes in pdf format and the ability to OCR, or optical character read, incoming faxes.

We continue to enhance the features offered in our existing services, and expand our offerings through a combination of in-house development and the acquisition of synergistic Companies.

We believe that our lifecycle management capabilities can be extended into several new areas, which will enable us to expand our free-to-pay business model to additional services, and to potentially offer these capabilities on an outsourced basis to enable third parties to enhance their marketing efforts.

Lastly, as we stated in the past, we believe that international expansion -- particularly expansion which is localized by language, currency and income through marketing, represents a large prospect for our future.

We begin -- we began these efforts in 2003, and we expect the initial fruits of this labor to be seen in 2004.

By way of a specific example of a challenge and opportunity we have faced, I direct your attention to the next slide, number 19.

We decided in 2003 to refocus our corporate sales team on moving upstream to larger enterprises and customized solutions.

This a the potential void in the marketing (indiscernible) services to Companies desiring small and midsize deployments.

The challenge was to find a more efficient way to market to these prospective customers which would allow our outside corporate sales account executives to focus exclusively on large opportunities.

Our expertise in Web marketing led us to a logical conclusion.

Market to these prospective base using a proven sales tool -- the Web -- but add to it a alive salesperson available over the telephone.

Hence the birth of our eFax.com Web site.

The initial results of this endeavor, while much too early to draw a definite conclusion, indicate a success.

Turning to slide number 20, I would merely highlight again the fact that we have continued to expand our international footprint in 2003, adding Mexico, Israel and several new cities in United States and Canada.

We currently have 53 physical points of presence around the world, serving 1,100 cities in 20 countries.

Slide number 21 describes our evolving product roadmap.

It has often been updated to reflect recent announcements.

During the year, we introduced several features -- additional features to our secure fax offering, and a new enhanced version of our messenger applet (ph) which is now OCR enabled and supports double byte languages.

We will shortly introduce the ability to receive fax as a pdf format, which is already being provided to several beta customers.

We've also added to our product roadmap the e-mail services segment.

This segment currently includes the capability acquired through the addition of an M4 Internet to our Company, and will hopefully include in the near future the capabilities of the Electric Mail Company.

At this point, I'm going to turn the presentation back over to Scott Turicchi, and then we will come back to wrap it up with a review of several recent events for the Company.

Scott?

Thank you.

I'd like to turn your attention to slide 23.

This is our 27th consecutive quarter of revenue growth ending the fourth quarter of 2003.

On slide 24, as Scott mentioned, this is how we report our GAAP revenues.

You'll see that more than 90 percent of our revenues are subscriber revenues, and this grew 54 percent year-over-year.

More importantly, if you look at the each of the four quarters for 2003, you will see that it grew quarter-to-quarter sequential in a rather tight range of 9 to 13 percent.

Over the last 12 quarters, it has well grown between 5.3 percent and 12.8 percent quarter-to-quarter sequential.

We believe this is an important metric to focus on as we go forward.

Slide 25 gives you our cost structure by the categories in which we report.

As you can see, our gross margin, as I mentioned earlier, was 82.6 percent for the quarter.

And in each of the four quarters of 2003 exceeded 80 percent.

Because of the leverage we're able to obtain in our G&A and our engineering, we were able to take the operating margin from 34 percent to a quarter ending 41.4 percent.

Slide 26, I think, really demonstrates the power of our business.

In this slide, we are comparing our earnings in the case of Q4 2003 as are modified earnings, against our free cash flow; which is defined as our net cash provided by operating activities, less our purchases of FF&E (ph).

The reason that we believe this is important, is because our business is predominantly a cash business.

And you can just backtrack through this metric as well as the cash added on our balance sheet, how well the Company is doing.

What you will observe is that for each of the quarters in 2003 and for the year is a whole, our free cash flow exceeded our earnings.

We will expect this to continue in 2004.

Slide 27 is a recap of some of the tax considerations that I think we've talked about already today, but just to remind everybody -- we did reverse the valuation allowance on our deferred tax assets, as of the end of Q4 2003.

The results of that are as follows -- a onetime tax benefit in the fourth quarter of $9.5 million or 37 cents per fully diluted share.

As a result, beginning in this quarter, Q1 of 2004, we will begin accruing a tax rate which we believe will be between, approximately, 35 percent and 40 percent.

Assuming of course that federal and state tax rates stays as they currently are.

However, we believe we will have a negligible payment of cash taxes in 2004, due to remaining NOLs (ph), future stock option deductions, as well as federal and state tax credit.

Finally, slide 28 is our financial guidance.

If you look at the far right hand column, we are estimating revenues for the year of between 100 and 105 million.

Pretax earnings per share of $1.65 to $1.75, as compared to $1.10 for 2003.

And net earnings per fully diluted share of $1.00 to$1.15.

That assumes a 35 to 40 percent tax rate.

I would like to make several comments regarding the year-end guidance.

We believe we that could drive earnings before taxes per share higher than this range.

However, in the process our budgeting, we believe it is important that we spend additional dollars to expand substantially our free base of customers this year.

As you'll recall, when we acquire a free customer, for those instances where we have a marketing spend, it is expensed at the time we acquire that customer.

However, our revenue stream at that moment is relatively the minimus -- basically, the advertising revenue we derive from that customer.

It takes a couple of months before those customers are seasoned and eligible for our lifecycle management processes to begin to convert them to paid.

Therefore, as we acquire more free customers later in this year, we will actually see somewhat of a slight drag on Q3 and Q4 earnings versus if we had not done that.

However, we believe this is an important piece of our business that we should build up as we look into 2005.

Also, we will be adding additional headcount this year, as the business has generally grown.

For the quarter, we are expecting a range of revenues of between 22.2 million and 22.7 million, earnings before taxes of 37 cents to 39, and fully diluted net earnings per share of 22 to 23 cents.

As a comparison, we have given you a pro forma number for Q4 2003 of net earnings per share of 20 cents.

For the year as a whole, it would be 66 cents.

This is also assumed that 25.6 million shares is used in the calculation of fully diluted.

At this time, I'll turn the presentation back to Scott.

Thank you, Scott.

I'll wrap up this presentation by directing your attention to slide number 29, entitled recent events.

As I indicated earlier in this presentation, we recently announced the we had entered into an agreement to purchase the assets of the Electric Mail Company.

The conclusion of this transaction will add very important capabilities to our product suite, including control over message transmission and the addition of source capabilities, that can serve as a basis for expanded features and service offerings.

A little less than a week ago, we announced that we had received authorization and contract approval from the general services administration and the federal government.

We intend to leverage this agreement to expedite our penetration into the federal government.

I won't spend any more time explaining our eFax corporate initiative except to say we're very pleased with the early results.

We recently expanded our marketing efforts by entering into a relationship with AOL, to market through their AOL.com Web mail site.

In addition, we extended our marketing relationships with Yahoo! for continued inclusion on the Yahoo! mail website.

And finally, we successfully deployed our first large-scale implementation of the secure fax VPN offering.

This capability enables us to market and deploy in industries which are very sensitive about privacy and security, such as law firms, health-care insurance, and the government, to name a few.

For more information about each of these, you can go to our press release tab on the www.j2global.com Web site.

This concludes the formal presentation for this conference call.

At this time, we will be taking questions both live and via e-mail. (Operator Instructions).

We will now turn the call over to the operator for live questions.

Thank you. (Operator Instructions).

Joe Noel, Pacific Growth Equities, Inc.

Couple of quick questions here.

Your 80 percent now priced affected with the price increase for customers, that is.

Will you ever get to 100 percent?

I know there was some sensitivity with maybe the lower usage customers, that they would be more sensitive to the price increase.

Will you get to 100 percent?

Ever is a long time.

I can tell you that it is our anticipation that over the course of the next year, the vast majority will be affected by the price increase, including those that are on annual plans.

I would suspect that if you were to ask this question a year from now, all or virtually all of our customers would be converted to that new price.

The remaining 20 percent -- am I correct in the assumption that they are lower usage customers?

No, that is not correct.

Their accommodations -- (multiple speakers)

Can you fill us in on how you selected that 20 percent?

The 20 percent is actually a combination of our annual subscribers and those on special historic pricing plans that we need to work through on individual case basis.

Okay good.

Second question is -- you mentioned adding staff.

Could you just give us a quick rundown of where you are planning on doing that and how much of that is sales oriented?

If you include in the sales category those in our corporate sales -- our eFax.com in-house sales, our TeleSales, and our customer support organizations, they represent the vast majority of additions for 2004.

In addition, we plan on adding some additional headcount in our engineering organization, to help us in developing some of the new services and feature functionalities we will be offering.

And also to assist in the integration work with some of the acquisitions that we're working on.

The -- there is a very, very small incremental increase in some of our G&A headcount and most of it has to do with the incremental increase in our customer growth -- such as in our corporate, where we need additional people in our finance organization for billing or accounting purposes.

Okay, thank you.

Youssef Squali, First Albany.

Two questions.

First, I was wondering if you could just guide us as to how we should be thinking about sequential, or the just -- looking at the subscriber growth going forward throughout 2004 -- looking at the last three quarters, we've seen sequential decline and that's a large degree can be explained by the price increase.

Now we're at 80 percent.

You are also with AOL, you're expanding internationally.

It is fair to assume a reversal in that trend and acceleration in that?

You are talking on a DID basis for the Web channel?

Correct.

Okay, yes, you'll see, we believe, some additional effect of the price change as it relates to cancelled in Q1.

Although, we believe the vast majority of that has been absorbed in Q4.

But as we stated before -- as we effect customers with a price change, there are really three opportunities a customer can cancel.

Upon notification, 30 to 45 days later upon seeing it on their bill for the first time, and another billing cycle later which is generally 30 days.

So we do believe that there will be some continued rate of increase cancels in Q1.

But generally to your point, yes -- as we get through this Q4, Q1 phenomena of the price change, we would expect to seen net paid DID increase off of the current level of 14,000.

I would also add, Youssef, that we -- as was indicated several times in the presentation -- we are intending to aggressively grow our free base of customers in 2004.

And as has been stated, the free base represents the -- one of the best channels or opportunities we have for acquiring paid subscribers.

So, if we're successful in acquiring a significant number of new free customers to us, that should result in a increase in the number of paid subscribers which we get through our lifecycle management and upgrade process.

But just remember -- its generally at least a one quarter lag.

It would be a painting of those free customers until they are ripe for becoming paid candidates.

Okay I understand.

And a question to Scott Jarus.

You said something interesting earlier.

You said that the -- you obviously see your intellectual property is an important asset.

You received an additional patent.

Particularly on the corporate side, as competition primarily from Pete Deck (ph) is emergent -- can you, number one, tell us whether you're seeing them out there?

And number two, has that changed any of your business strategy for that market?

I think there's two questions embedded there.

One is -- what is our intention to leverage our intellectual property?

And the second one is whether we're seeing competition out there?

So let me answer the first question by saying that -- we have historically been very aggressive in developing intellectual property and in seeking ways of defending that intellectual property from potential infringement.

And we see no reason to change that behavior, and we will continue to explore licensing opportunities as well as other opportunities, which will allow us to leverage that intellectual property.

With regard to your second question -- with regard to competition in the corporate channel -- I can tell you that in anticipation of this question coming up, I had a lengthy conversation with our VP of Corporate Sales and several members of his sales team.

And I can tell you that they do not see any significant competition when they are going in to make sales to these corporations or enterprises.

In only one case that they could recall over the last six to seven months have they actually run into a known name in the industry, and in that particular case, it was true in RFP (ph) in a bidding war.

But, again, they don't run into competition from any of the publicly announced or known Companies.

Most of the competition they run into it is internal to the organization trying to decide whether they're going to -- A, replace their current infrastructure and if they are -- B, whether they are going to do it in-house through a fax service solution or outsource it through us.

And just on the first question -- have you had your internal guys look at the Vtech solution (ph) to see if they do indeed fringe on your patents or not?

We have -- we have employed an intellectual property consulting firm, which has assisted us in fully vetting and investigating our intellectual property and mapping it against others who may appear to be utilizing our technology.

And so the answer to your question is -- yes.

It's a part of our intellectual property management and will continue to be.

Okay thank you.

Let's take a couple of questions from e-mail.

We have one -- as you'll notice on our balance sheet, as we started to generate incremental cash, we have started to put some that was categorized as long-term investments.

We got a question asking what that 8.4 million is, and are they liquid?

(indiscernible) accounting rules -- when we invest in securities that are more than a year in maturity, we're required to book them as long-term.

These are high-grade debt securities for which there is a readily tradable market -- that are 13 to 15 months in maturity.

And as a result, we're picking up a modest amount of incremental yield versus if they were in 90 day and under.

Second question had to do with -- as we make a push for more freesub (ph) -- and I want to clarify -- it's not just in Q3 and Q4 of this year.

It's in all the quarters.

However, what could be a drag, if you will, on the P&L would be those customers that we acquire later in the year as they won't have the fullability (ph) to become paid customers during the 2004 year.

The question was -- can we quantify how many we hope to add and what sort of marketing expense?

It's a very dynamic question, because in order to get a large number of additional free (ph) beyond what we did last year, this will embark upon some additional and new marketing techniques, as well as new marketing programs.

One of which you have seen us already talk about with the aol.com that we are currently in a trial on.

The timing of putting those programs in place, and the success of them, of course, is unknown at this time.

But suffice it to say, that it is our goal to have more free subs a year from now that we do today.

And you'll notice over the course of last year, we increased free subs by 1.2 million net.

And we certainly want to grow by even more than that during this year.

We had another question -- (multiple speakers)

This is a question that came up and said -- asked -- what incremental revenue do you expect to be generated from GSA certification in 2004 and 2005?

The answer is -- we don't know.

The GSA certification process that we were took almost a year -- a little over a year -- for us to get that certification.

So all of our initial planning for it kind of went out the window because of the amount of time it took.

And so, we have not forecasted anything for the federal government sales in our 2004 budget or guidance, though we anticipate making substantial inroads in gathering some of new federal business this year.

Next question on the phone.

Daniel Ernst, Rodman & Renshaw.

Couple of questions here.

Actually on the -- I will just rattle them off and you can ask me to repeat them.

On the GSA front, can you remind us, do we have feet on a street in Washington still?

And are there -- were you able to bid on contracts before getting the certification or did you have to wait for that, so now you have to start the bidding price?

Bidding process?

Then on the corporate selling side -- I understand you were somewhat disappointed with the performance of the group.

But you had been indicating you have been getting entering bids for larger and larger contracts -- moving up the food chain -- which generally longer leadtime sales.

Can you give us some anecdotal evidence of progress there?

Or what you're seeing on the (indiscernible) and the size of those contracts?

With regard to the federal government -- we do have a -- an account executive in Washington D.C., though he is not primarily directed towards acquiring federal customers or federal organization customers.

And if you've ever experienced what it's like to sell into the federal government, it's a very specialized selling proposition and requires somewhat specialized people to do it.

So we will be hiring up a specific person to sell into the federal government in Washington D.C.

In the meantime, our existing Washington D.C. account executive will be looking at opportunities that come up around the beltway.

The -- the second part of your question with regard to the GSA is -- did the fact that we didn't have certification prior to this stop us from bidding on federal business?

The answer is -- no.

We actually have a large contract with the Federal Reserve Board that we have had for more than a year now.

Which we got through an RFP (ph) process.

You're not precluded from doing business with the federal government without -- if you don't have a GSA certification.

A GSA certification just makes it easier for you to do business with the government, because it is a negotiated contract, with terms and pricings etc., that you don't have to redo every time you settle into the federal government.

The second part of your question, with regard to the corporate sales channel, was to give you some anecdotal flavor on the successes that we are having with larger enterprises.

Without going into specific names of customers -- because most ours won't allow us to release their name -- I can tell you that, over the last six months, we have made tremendous progress in breaking into what you would reconsider large DID deployment opportunities.

And those are in the neighborhood of 1,000 plus telephone numbers at a wack.

These range from traditional organizations in the financial institution.

They include, again, mortgage banking institutions, they include tax folks.

They include communications Companies.

Etc.

So the diversification of these opportunities is across the board, and you're absolutely correct.

As we move upscale to these larger opportunities, the sales cycle are taking much longer.

The sales are much more complex.

And by the way, most of these -- many of these customers are requiring or asking for what we could would consider customized solutions.

I mentioned in my presentation that we had just deployed our first secure fax VTM solution.

That was initially a customized solution for a particular industry requirement.

We deployed it, brought it live, and will now be -- what you might call commercializing it for general release to other industries.

So, as we go upscale, it not only takes longer but they typically are asking for some specialized development for it, which we are happy to do if the opportunity is large enough.

Great.

Just a follow-up to that answer.

Did you win any 1,000 plus data accounts or 500 plus data accounts in the quarter?

And then, what was the leadtime -- from bid to win on a contract excluding the customized VPN solution you just described?

Yes.

The answer is -- we have won several of those large sales, and I wish I could give you a quick answer to the leadtime.

We have one particular case which comes to mind -- from start to finish it was all of about 45 to 60 days.

And we have another one which comes to mind, which took about six and a half months.

So, it really varies all over the place as to -- and the real determining factor is whether the organization we're selling into is already disposed, or -- is already disposed to looking at outsourcing their fax infrastructure.

And if they are, in our mind the obvious choice is our eFax corporate solutions.

And it just then becomes a matter of the terms and conditions, pricing and getting the service installed.

Okay, thank you much.

Steve Levenson, Advest.

Since the Electric Mail Company isn't expected to add to earnings right now, can you tell us what the benefits and what the importance was of adding the e-mail platform to your infrastructure?

Yeah.

It's pretty straightforward.

E-mail is an integral component of how we deliver services, obviously.

Faxed e-mail wouldn't work very well without e-mail.

And, part of the challenge we've had historically is the fact that we don't control that e-mail delivery platform or process.

And it has caused us to have to deal with the intricacies of the e-mail service provider market.

It has also forced us to deal with the way various e-mail providers handle security and privacy and spam control.

And even more importantly, it has -- it has been an obstacle for us not having an e-mail platform to be able to roll out new services and functionality which we can now do once we control the delivery of faxes to e-mail.

That does include things such as storage -- does include things like such as controlling access to messages -- therefore it's a secure fax type of solution.

Does include the ability to layer on a more enhanced voicemail offering.

Because you have control of the e-mail platform.

And, by the way, we believe that e-mail is another one of those market opportunities which may lend itself successfully to a free to paid upgrade model.

Similar to what we offer now for our fax, e-mail and voicemail to e-mail.

We obviously have to learn a lot more about it to ensure that is true, but we believe that it is.

So, in a nutshell, we want to control the food chain of our service -- the technical food chain of our service.

We want to develop new service and functionality offerings -- and e-mail enables us to do.

And, we want to experiment with the successes we've had in lifecycle management and the free to pay upgrade process.

That all sounds good.

Does the Electric Mail Company have any sort of substantial customer base that you feel you can convert to your fax services as well?

I guess I would say that substantial is relative.

It is a publicly traded Company.

In Canada on the Toronto stock exchange.

They have several hundred thousand -- several hundred customers representing thousands -- 16,000 -- 60,000 mailboxes.

Several hundred customers representing 60,000 mailboxes.

Let me get that out.

That we believe fall into the profile of customers that are similar to what we currently service through our fax to e-mail and voicemail to e-mail platform.

Okay, last question is -- are you seen the sort of performance on your buttons on the AOL and Monster sites as you were hoping.

Similar to something you were seeing on Yahoo!?

Well, the AOL opportunity is very new.

And so, I really can't comment on it, because it is just too soon to tell.

The Monster opportunity is also relatively new, though I can tell you that the monster opportunity from the get go appears to be a very good marketing channel for us.

So we're pleased with that one.

AOL -- again, it's just even newer and it is just too soon to tell.

Thanks very much.

Joe Noel, Pacific Growth Equities, Inc.

Just a clarification on one of questions.

I think Youssef asked -- is Ptech (ph) infringing on the patents?

And I think you mentioned that you're investigating it, but I didn't really hear an answer.

And the second question is -- can you just remind us what the percentage of price effected customers was during Q3 -- meaning, the new price?

Let me deal with the second question first.

At the end of Q3, 20 percent of the Web channel bids were at the higher price point, and the revenue impact during the course of the quarter was about 10 percent.

At the end of Q4, about 80 percent were affected -- so, you could see that about 50 percent revenue impact during Q4.

With regard to our intellectual properties, I really can't comment on any action that we're taking with regard to our intellectual properties -- I'm guessing you're referring to enforcement of our property rights with regard to Ptech or anyone else in the industry.

As we've said for more than a year now -- we're very aggressive in managing our intellectual property, and will be continuing to do so in the future.

Great.

Thanks for clearing that up.

Gentlemen, there are no further questions at this time.

We do have some additional e-mail questions which we will try to run through quickly.

We had a question about how much government business we did in 2003.

As Scott's already mentioned, the primary contractor that would fit into the government category within our corporate would be with the Federal Reserve.

Although we do know that within our Web channel we do have a number of .gov e-mail addresses.

But I think it's safe to say that less than 5 percent of the Company's revenue was derived directly or indirectly from any kind of government source in 2003.

Another interesting question which we would like to address -- we got an which is -- discuss the sustainability of the Company's growth rate.

I think this is a very good question.

And I would like to draw your attention to a couple of factors.

First of all, our position has been -- and we used to have in fact a slight our presentation which we do not anymore, but we may think about putting something like it back in -- which talks about the size of the opportunities in the various vertical markets that we approach.

One is the fax market which far and away in our judgments is the largest.

But there is also the voice mail market, there's the conference calling market and the unified messaging market.

But if you take a look just at the fax market, today we have about 400,000 paying phone numbers and an additional almost 5 million -- a little over 5 million -- free members.

Based upon some research that is a bit dated, and we need to see if there's some updates, although it's getting harder to find, we know that there are millions, in fact, tens of millions of fax machines within the United States and Canada, and that's leaving aside the rest of the world.

Now, as you probably know from listening to our previous conference calls, it's very common that when someone deploys our service, they actually increase the number of fax numbers that they would use, relative to a server-based solution or a physical machine in their office.

So, when we look at 400,000 paying (indiscernible) across millions of machines that are out there, we think there's still very large market opportunity available for us.

We do not have a current three to five-year plan but I can tell you that there is a specific growth rate the Company is targeting.

But what I can point you to is our history, which is that for six years consecutive, we have had year-over-year growth in revenues in excess of 40 percent and you'll see that our guidance this year is 40 percent or above.

We had a question regarding -- have we considered a stock buyback?

I would just answer that in the ordinary course, as we build cash, both the management team and the board considered the variety of ways that we could deploy that cash.

Obviously, one of those ways is through a stock buyback.

We currently do not have any plans or any authorized buyback in place.

But it is something that we do consider on a regular basis.

There was a question about success on our recent marketing deal -- I think as Scott mentioned, they are relatively new -- AOL was specifically mentioned and Microsoft.

Microsoft is as new as AOL for us.

So we will have to wait probably another quarter before we have some information we can share.

There was a question -- Could you discuss the issue of number portability and how it impacts your business?

It's a good question.

The number portability -- particularly in landline services which is what we deal with -- has been around for many, many, many years.

So this is nothing new to us.

J2 Global maintains the inventory of numbers under its own ownership. if you will, and so, we do not allow customers who have subscribed to our service to port one of our numbers away to their own service or to someone else.

Now, what we are exploring is how we can efficiently go about enabling a customer to port their number to j2 Global services.

This is not an easy technical situation -- particularly when you are serving over 1,100 markets around world, because it means that you have to have a method and a presence in all 1,100 that can accept the porting of a number and currently we do not.

But we are continuing to look at that as an opportunity in the future.

We have alive question.

Youssef Squali, First Albany.

Just a quick follow-up.

The guidance you have put forth for topline for 2004, of 100 to 105 million is roughly 42 -- 43 percent year-over-year.

I was wondering if you could just give us some -- a little more clarity on the assumptions for growth between what the corporate -- in other words, corporate business was flat sequentially.

What kind of assumptions -- what kind of growth assumptions are you making there and therefore can (indiscernible) Web growth?

Thanks.

Well, as Scott, I think, pointed out, in the core of the presentation we believe that the distinction is somewhat artificial.

So, as we have always said, we don't get into a breakdown in our financial guidance between channels or modes of distribution or products.

So, unfortunately I cannot really help you there in terms of how we will grow other than the primary driver of growth this year will be through net paid DID additions that will be obviously some impact from the price change that has rolled through to the quote un-quote "Web channel customer base" but the world driver for growth this year is net (indiscernible) across all of those methods of distribution.

Now the one comment I would point out is, as Scott mentioned, we do assume and did assume in our guidance -- both for the quarter and for the year -- that for the first quarter and probably the second, we will see some sluggishness or drag from the real estate's last mortgage sector.

We're obviously not interest rate prognosticators.

But based upon everything we know and see, they are probably is at least another quarter of working through the volatility within that piece of our corporate business.

Okay.

But having said that, on the Web site -- you look at your (indiscernible) of $14.73 -- that's about $1.20 sequential increase, and you said earlier that about 50 percent -- you've seen about a 50 percent revenue impact in the fourth quarter -- from 80 percent of your --?

It's as if -- it's as if 50 percent of it is worth a higher price point.

Right.

So if we were to roll over to another quarter -- so by the end of the first quarter -- is it fair to assume that the impact on (indiscernible) should be roughly an additional $1.00 or $1.20?

That's probably bit high.

Okay.

But (multiple speakers)

Because remember -- we will never get to -- well I won't say never because there is a usage components in there.

But it is unlikely we will get to the theoretical maximum, because of the way these annuals play in.

And the special program that we have for a portion of our customers that are power users.

But we have some power users that are on their own programs, that don't fit, although they are small in number -- they don't fit into the normal pricing matrix.

And as Scott mentioned, those have to be handled as one off situations.

Okay.

That's helpful.

Thank you.

Gentleman.

There are no further questions at this time.

Okay.

I think that ends this conference call for Q4 and year-end 2003.

We thank you very much for your participation, and we look forward to speaking with you again following the release of our Q1 results during the third week of April.

Thank you again, by-by.

Ladies and gentlemen, this does conclude today's teleconference.

You may disconnect your lines at this time.

Thank you for your participation.