Ziff Davis Inc (ZD) 2004 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the j2 Global Communications' first quarter earnings conference call.

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

Thank you.

Mr. Turicchi, you may begin.

Thank you very much.

Welcome to our Q1 2004 earnings call.

As the operator mentioned, I'm Scott Turicchi, our Chief Financial Officer, and joining me today is Scott Jarus, our President, and Gregg Kalvin, our Chief Accounting Officer.

We will be discussing on this call our Q1 2004 financial results, as well as revealing new presentation information about how we look at our business.

We have made substantial improvements to our slide presentation so that it will provide you with a clear, simpler and better understanding of our business and its opportunities.

Finally, we will provide you with financial guidance for the second quarter and fiscal year 2004.

A copy of this presentation is available at our website, www.j2Global.com.

If you have a pop-up blocker, please disable it prior to viewing the slides.

Also, you can access a copy of our press release at www.j2Global.com\press.

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

The operator will instruct you at that time regarding the procedures for asking a question.

In addition, you may email questions at any time to, investor@j2Global.com.

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

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

Such statements may involve risks and 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 statement and 8-K filings, as well as additional risk factors that we have included as part of the slide show for the web cast.

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

I would now like to turn the results for the quarter.

This was an outstanding quarter for j2 Global, financially, operationally, and strategically.

This quarter has set us up well as we look out into the future.

Our revenues for the quarter just ended grew 51 percent year-over-year to 22.9 million.

Our gross profit margin continued to expand from a strong 80.2 percent in the first quarter of 2003, to 84.1 percent in Q1 2004.

Earnings before taxes rose 93 percent year-over-year to 10.2 million, or 44.4 percent of revenue.

On a per-share basis, earnings before taxes per share was 40 cents, up from 21 cents in the same quarter a year-ago.

Our net earnings were 25 cents per share, 2 cents above the high end of the company's guidance.

For GAAP purposes our effective tax rate is 37 percent.

Free cash flow hit a new high of almost 10 million and funds available to grow our business rose to 67.4 million, despite our spending almost 6 million for acquisitions during the quarter.

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 current IR presentation.

Thank you Scott.

I want to reiterate what Scott said.

We're very, very pleased with the financial and operational results of the quarter.

Our revenue did grow by 51 percent over last year at this time, with pretax earnings increasing 93 percent, again speaking to the financial strength of our business.

In addition both our gross and operating margins increased as did our free cash flow.

We're now providing our customers with more than 6.3 million telephone numbers representing the highest level of gross additions of telephone numbers in our history.

I would direct your attention now to slide number 4, which is our mission statements.

I want to say that we continue to fill out our mission statement.

The acquisitions which I will be discussing later in this presentation, have all served to reinforce and expand our suite of communications and messaging services.

In the very near future, we intend on leveraging these assets in combination with our core services to deliver new and innovative products.

On slide number 5, you see the expanded addition of our brands that we now market on a worldwide basis.

J2 Global's brand awareness expanded this quarter with the addition of The Electric Mail Company and M4 Internet, two well-known names in their respective market segments.

On slide number 6, we again talk about our unique assets of the company.

As previously mentioned, we have 6.3 million subscribed telephone numbers in our base.

Those numbers ride on a network which now is serving over 1,300 cities with local telephone number availability in 20 countries on five continents.

In addition to the 6.3 million subscribed phone numbers that we currently have active, we have another 1.5 million telephone numbers which are -- I'm sorry, another 2.5 million numbers in our inventory, which are waiting to be assigned as we add new customers to our service.

We have seven U.S. patents with nine patents pending.

We continue to exploit our expertise in the areas of telecom, messaging, email, Internet, ecommerce and Web marketing.

And particularly, we exploit our successes in the migration of customers from a free offering to a paid offering, and ultimately to an enterprise wide offering.

From a financial perspective, this was our 28th consecutive quarter of revenue growth and our ninth consecutive quarter of positive earnings.

As was previously mentioned, we grew our revenue 51 percent year-over-year and had a 93 percent year-over-year pretax earnings growth and we now have $67.4 million in cash and investments to fund our growth.

This is in spite of the fact that we spent a little over $6 million in acquisitions during the quarter.

We continue to have a nominal amount of debt.

In addition, we now have marketing relationships with the likes of Yahoo, AOL, both in the United States and Canada, Lycos, both in the United States, Canada and the UK, Monster.com, HotJobs, Google, Overture, Excite, and The New York Times, just to name a few.

Turning to slide number 7, we continue to do very well in our vertical markets, particularly in the real estate and the legal verticals.

We are experiencing extremely strong growth and high penetration in our legal market segment with some significant corporate wins this quarter.

We continue to believe that we have only scratched the surface within the enterprise market particularly as firms focus on efficiency, security and infrastructure replacement, and believe that we continue to be the leader of the pack when it comes to servicing the corporate or enterprise marketplace.

On slide number eight, as we have stated in the past two quarters, we have evolved in the way that we're looking at our business.

We're moving away from looking at customer acquisitions by things such as billing type or marketing approach and instead will begin to look at our markets based upon segments of the type of users that we have.

Our business, marketing and pricing are defined by a continuum of customers and selling opportunities ranging from the individual subscribers who typically engage us through various websites and pay via credit cards, to small to medium-sized businesses looking for simple, efficient and cost-effective messaging solutions, all the way to large enterprises and governmental agencies looking to improve their processes, eliminate costly infrastructure, and/or enhance their internal communications.

As such, we have changed the way we will be discussing our future progress.

However, to assist those that are familiar with our previous way of reporting in the transition to this new way, we provided our metrics in the previous format as an appendix to this presentations, so you will find it at the very back.

This will be the last time we will be presenting these type of metrics that are in the appendix and will be moving forward with the presentation you are just about to see.

I want to focus -- a couple of things on the subscriber acquisition slide, on slide 8, in addition to what I've already said.

That is, that we now have a direct sales force which is currently made up of 18 salespeople of both inside salespeople and outside direct salespeople.

We continue to leverage our lifecycle management capability, in stimulating usage in both our small and medium-sized enterprise customers, as well as driving customers from the free service to our paid subscription service for individuals.

Turning to slide number 9, this slide is the first in the new format for the metrics we will be reporting.

These represent an improvement in the type of information that will be provided to you, the public.

Paid DIDs, represented in the graph that you are looking at, now represents all paid DIDs in what was historically defined as Web and corporate channels.

This slide also details the ARPU, or the Average Revenue Per User, or in our case telephone number, for each one of the paid and free DIDs, and those are listed on the VAR (ph) chart themselves, most notably having an ARPU of $16.68 in the first quarter of this year in our paid DIDs and an ARPU of five cents per DID in our free DIDs.

As you will recall from last quarter's earnings call, we explained that the last significant impact of the price increase we made to our customers in 2003 would be felt during this quarter, Q1 of 2004.

I am very pleased to report that the impact of the price change throughout the entire process, including during the first quarter this year, exceeded our expectations on all fronts.

Cancellations due to price change were much lower than forecast and the duration of the impact on cancellations was much shorter than expected.

This is evidenced by the 2.9 percent cancel rate in Q1, which is almost back to the levels we were experiencing prior to the price change in 2003.

Our marketing, lifecycle management and customer service teams did a wonderful job in messaging the price change, smoothly implementing it and then supporting those customers who had questions or concerns.

As you will notice in the chart, the paid base of DIDs grew by more than 34,000 in the fourth quarter with our free base growing by almost 700,000.

I will remind everyone that this growth in our free base of customers is very important to us, as the free to paid conversion process is one of our most successful programs for increasing our paid base of subscribers.

Lastly, let me focus on the ARPU a bit because we think it is also a telling story.

The ARPU now includes all of our paid DIDs, where as in the past the ARPU on the paid line, we reported only the Web channel paid and not the corporate.

And as stated, this includes all of our paid DIDs in what was historically REV and corporate.

Our paid DID ARPU grew by almost one dollar helped by the effect of the price change obviously but also impacted by several other contributors.

We saw increased individual user usage, we saw an increase in the use of our send fax service, an increase in nonmortgage usage from our enterprise base of customers, and a partial increase in usage due to lower mortgage interest rates during one month in Q1.

Pre-DID ARPU, by the way, includes advertising revenue associated with our pre-DIDS and our international calling party paid telco revenues.

Turning to slide number 10, this again is a new slide and a new way we are presenting things.

On an ongoing basis, we will be describing our revenues in two ways, total revenues and subscriber revenues, each with their own subcomponents.

We strongly believe that an analysis of these metrics, along with our DID growth and other financial indicators, is a very clear and concise way of understanding our business.

It is the way we internally look at our business and it's the way we believe that you should look at our business.

DID-base revenues are all revenues which are associated with telephone numbers.

These include not only the revenues from paid DIDs, but the revenues received through our free advertising-supported DIDs.

DID-based revenue, along with the fixed component of our subscriber revenue, which you will see on the next slide, are the two key metrics for understanding j2 Global's core backed digital fax business.

A couple of highlights from the total revenue slide.

DID-based revenue represents 94.4 percent of our total revenue, and hence the importance we put on it.

DID-based revenues grew within a fairly narrow band over the past ten quarters, approximately 10 to 13 percent quarter over quarter.

NonDID-based revenue, by the way, includes our jBox service, Electric Mail, which is our email company, M4 Internet, our permission based email marketing company, and licensing services, primarily software sales such as PaperMaster Pro.

As you can see from the chart, the growth rates in this particular non-DID based total revenues tends to move around a lot.

Turning to slide number 11, we have the next slide in our new presentation, it's the subscriber revenues.

The subscriber revenues look at our business in a bit of a different way.

It only looks at our subscription services, meaning that it excludes such things as licensing, services and advertising.

Subscriber revenues comprise 95 plus percent of our total revenue.

There are two components that you see, fixed and variable.

The fixed component is the other key metric along with the DID-based revenue in our total revenue, and this is how we understand our business.

It is the component we can control the most, representing the fruits of our sales and marketing efforts, meaning our gross adds, and our ability to control cancellations, our net adds, meanings our net adds, and the fixed component of our ARPU.

The variable component primarily represents the usage of our service.

It includes inbound usage and outbound usage as appropriate.

While we attempt to influence the usage through our lifecycle management and messaging programs, we have only marginal ability to influence how much our customers actually use the service.

One highlight I want to point out from the chart you are looking at, as a percentage of subscriber revenue, it has been consistently around 70 percent.

We believe that the previous three slides indicate that we are not seeing any slowdown in our growth or a change in our market opportunities, and to some extent we're actually seeing an acceleration.

The market for our digital fax is very large and our penetration, even as we reach the 100 million plus in our total revenues this year, is very low.

Therefore, even if you believe there is a rational level of decline in the fax market, we believe that our growth is sustainable at the levels we have historically experienced.

We are adding a lot of users, usage is growing, and the ARPU on those users is increasing.

Turning to slide number 12, you see the map of our network.

We now are serving more than 1,300 cities with local telephone numbers around the world.

We have 52 points of presence worldwide, with 30 of them in the United States.

We are particularly excited about the progress of our international marketing efforts.

We are launching the company's first international full-service localized offering, meaning we will be localized in currency language and support.

It will start out in Dutch in Q2 of this year and I will explain in a minute why we have chosen Dutch as the first language that we have localized.

Turning to slide number 13, we have our product roadmap, and with the edition of M4 Internet and the Electric Mail Company, j2 Global is now offering through our permission based email marketing, which is an engine used by tier one companies such as various multinational banks, to communicate en masse to their customers, employees and partners.

And through Electric Mail we are now offering a full suite of outsourced value-added business email solutions ranging from top three IMAP mail, to hosted Microsoft Exchange.

In the very near future we will begin to offer storage and archiving services for our fax to email subscribers using our newly acquired email service provider as the platform.

The increasing adoption by our enterprise customers for the delivery of faxes in PDF format is also something to note, as it has become a very popular way of receiving faxes in our enterprise channel.

I am now going to turn this back over to Scott Turicchi, who will walk you through the financial highlights for the quarter.

Thank you.

Our first slide is 15, which is the 28th consecutive quarters of historical revenue growth, a slide that we are very proud of.

If you go to slide 16, this is how we report our revenues for GAAP purposes.

As Scott mentioned, about 96 percent of our total revenue is subscriber revenue.

The other two categories of advertising and licensing and other as we proceed forward, are becoming less and less important to the company.

We want to focus you on that quarter-to-quarter growth rate for subscriber revenue.

As you can see from the history, both advertising and licensing tend to have some degree of movement in terms of their growth or decline on a quarter-to-quarter basis.

Slide 17 is showing you the dynamism of our business model.

As we generate additional revenue in a given quarter relative to the prior quarter, we are able to flow through very large percentages of it to the operating income line.

This is seen from this graph, particularly looking at Q1 2004.

Our gross margins, aided by the residual effect of the price change, has now found its way to 84.1 percent.

If you look at the green, blue and orange lines, those are the three components of our operating expenses.

We continue to get very good leverage out of our G&A, and as a result it has declined to 19.5 percent of our total revenues.

Our engineering hovers around 5 percent, and sales and marketing this quarter did kick up to 16.5 percent in large part because of the deal that Scott mentioned at the beginning of the presentation.

As a result, our total operating margin for the company has now trended to 43.5 percent.

As we said before, on slide 18, a large percentage of our revenues are immediately recognizable in the form of cash.

What you will see is that our free cash flow historically has exceeded our GAAP net earnings.

That continues to be true in Q1 of 2004.

We hit almost $10 million in free cash flow for the quarter and as you can see, the bar is substantially in excess of our GAAP net earnings due in part to the fact that for the first time we have an effective tax rate for GAAP purposes of 37 percent.

This leads us to our financial guidance.

For the current quarter, Q2, we are estimating revenues to be between 25.0 in 25.4 million.

Earnings before taxes for fully diluted share, which we continue to believe is a more relevant proxy for our growth in historical comparison given the fact that we are now accruing GAAP taxes, of 42 to 44 cents a share, and net earnings, inclusive of the tax accrual, of between 27 and 28 cents per share.

This assumes slightly under 25.6 million shares in the fully diluted calculation.

On February 2nd, we gave you our annual guidance which we are reaffirming for the year, of 100 to 105 million of revenues, $1.65 to $1.75 of pretax earnings per share, and $1.00 to $1.15 in net earnings per share.

However, in the case of both pretax earnings per share and net earnings, we believe that based upon what we have seen in the first quarter, and what we currently see in the second quarter, that we will be operating at the higher end of those ranges.

Scott.

I want to wrap up by going through several of the recent events we've had in the past quarter.

We did complete the Asset Purchase of The Electric Mail Company, the Vancouver based provider of outsource email and messaging services and have begun the process of rolling them into the operations of our company, as well as leveraging their skill set toward expanding our product suite.

We introduced a free service in Canada through a marketing relationship with AOL Canada.

We also announced that we have now integrated optical character recognition, or OCR, into our Messenger Plus application.

We are very excited about Messenger Plus and have several other features that we will be rolling out shortly.

We also filed a patent infringement lawsuit against Venali.

You can find more information about that in the press release regarding that lawsuit.

We completed the acquisition of a company called Jump, and while we haven't distributed a public press release regarding Jump, I wanted to discuss it here so you understood what this means to us as a company.

Jump is a unified messaging -- unified communication service provider based in the Netherlands which markets directly to European ISPs.

Their strength has been in getting large FASB contracts with European ISPs to sell unified communication services through the marketing channel of the ISP.

We view this as a great opportunity for us to leapfrog into the European market, and particularly into the Netherlands, and have taken advantage of that through the contracts that they have with those European ISPs.

In addition, it gives us an on-continent marketing presence in Europe that we will be able to leverage.

This is a small acquisition relative to the amount of money that we spend for it, and its impact on our financials is de minimis which is another reason why we did not issue a formal press release regarding this.

However, on a long-term strategic view, we believe that the acquisition of Jump again gives us a toe-hold in Europe, it gives us considerable input into the large European ISPs which we believe are a tremendous marketing opportunity for the company.

We also released an enhanced version of our Messenger Plus for MAC users which is a small but growing group of users that we wish to serve.

There are a couple of other highlights that I wanted to mention that are more recent that are not on the page, two of importance.

One is, many of you are aware that j2 Global through an acquisition it made several years ago, owns stock in a privately held fabless semiconductor firm known as Oasis Semiconductor.

Oasis Semiconductor filed for an IPO on March 19 of this year.

They are currently in registration.

J2 Global currently owns, pre-IPO, about 17.5 percent of the stock in that company.

Once and if the company does go public, we will obviously value the stock at the market value once that occurs.

So, you have second -- by the way there is no assurance that the IPO will go-forward.

We are just a shareholder, and are awaiting information directly from Oasis.

One last thing is, that we have recently hired a new head of sales here at j2 Global.

We are very excited about this opportunity.

We look forward to his involvement going forward on the rapid expansion of our enterprise selling strategy and sales force.

That wraps up the recent events.

Again, if you turn to the last three pages, or the last four pages of the presentation, you will find the appendix which has the metrics as we used to report them, brought up to date to this quarter.

As I mentioned this will be the last time we will be issuing these, but it should give those interested a way of tying the previous way of reporting to the new way that we will be reporting our business.

With that, I wrap up the presentation and we will now turn it back to the operator for any questions that may exist.

Ladies and gentlemen, we will now be conducting a question-and-answer session. (OPERATOR INSTRUCTIONS).

Joe Noel with Pacific Growth Equities.

Hi guys.

I should say thank you for the good numbers here.

I won't say congratulations, I'll thank you very much.

I like them.

Let's see here.

You had a huge increase in the free base.

I was hoping you could tell us what you did there.

Was it coincidental?

There was a very big increase if you compare it to previous quarters there?

Well our free base -- we have been stating for the last several quarters that it is our intention to aggressively grow our free base throughout 2004.

So we are, one, simply executing on the plan; number two, we have continued to be successful in the marketing partnerships that we have out there, some of which I listed earlier in the presentation, which has again drawn significant quantity of free customers to our service; and lastly, I think we have been increasingly successful in getting our free base of customers to try our service and to adopt it even on a limited basis, and therefore the numbers of free customers that drop out the bottom either because of a lack of use, or a desire not to live to the terms of the conditions that we set for them, has been improving over time.

I suspect, because we're not done with the aggressive growth of our free base of customers, that you will continue to see good growth in that sector.

Good.

Just a follow-up question here.

What do we do with sales and marketing expenses moving forward or what kind of guidance can you give us considering this big jump we had?

Our sales and marketing expense is -- there is obviously a baseline level which you are seeing in that chart.

However, as we have always stated, we will take advantage of any opportunistic spend that we believe will have long-term impact of bringing both free and paid subscribers into our company.

The increase you saw in this quarter was a reflection of some of that, some of those opportunities coming to fruition.

I wish I could tell you that it is predictable, but it is not because the market for Web-based advertising, partner marketing advertising, partner marketing in general is very fluid, and if we have good deals out there, we will take them.

If we don't, we won't.

As historically has been the case, there is that baseline which you can kind of see from the trendline, but there will be spikes when we come across these good opportunities.

The one thing I would add to that, Joe, is I would take Q1 as the new baseline.

That although it may not be the case every quarter going forward, our intention would be to spend at least this level in sales and marketing as we look forward.

Obviously there will be some variation quarter-to-quarter, but if the deals are available, if the supplementing of the various enterprise and eFax Corporate.com efforts are available to us, we do intend to spend that money.

The last thing here, how much more cost savings can we get out of cost of goods sold here?

What kind of guidance can you give us?

I know you want to be vague on it, but what about the gross margins?

I think we continue to say this is clearly an 80 percent plus gross margin business.

As you have noted in the last couple of quarters, we've taken not all, but some of the effect of the price change through the gross margin, but we've also reinvested some of that back into the network, both the existing footprint as well as the new cities.

Our intention will be, continue to do the same.

As ARPU, as we expect over time, continues to grow, we will put some of that back into the network and some of that will flow through down to gross.

But, I don't think we can give you a more definitive target, gross margin.

Personally, I would like to see us reinvest most of the increment going forward.

These are very healthy gross margins.

If we can reinvest it back into the network I think that is a good thing, and particularly in aiding our international expansion effort.

By the one other thing I would add with regard to sales and marketing expense, and that is we do not view our sales and marketing expense as constrained, either by budget, by capital, by cash or by resources.

It is simply a matter opportunity, not any constraints that we have put on how much money we are willing to spend for that.

Great.

Thank you.

Dan Ernst with Rodman & Renshaw.

Good afternoon.

Three questions.

First can you give us a little color on conversion metrics?

With the free base growing so large, it's hard to get a view of the free to paid conversion.

We see the growth but can we get some percentage numbers?

Second, on the new metrics you gave out on variable versus fixed, the last few quarters it looks like the fixed has grown considerably faster than the variable side.

Shouldn't that imply that ARPU is going down?

Third, you mentioned a lot about distribution.

Can you talk about the distribution within distribution, i.e. is Yahoo! no longer the vast majority of growth?

Are you getting more equally distributed among the other vendors?

Let's see if I can remember all those questions.

As to the first question, yes the amount of the free's are growing as we intended.

As we've said before, we believe that our lifecycle management process, which gets to the heart of your question, is something that is proprietary, so we've never released conversion rates from the free base to the paid.

However, let me give you a little bit of an insight in terms of how we look at it on a big picture basis.

If you look at the base of customers and you take the incremental 700,000 that came to us in Q1, those customers need about a ninety day seasoning period before they become ripe for upgrade, before they either on their own initiative or through an offer we give them or through violation of the fair use policy.

Beginning in the month three of their life and for about the next 12 months, from month three to 15, that is the right target phase, if you will, for their conversion.

And you can imagine that you had greater success in the earlier months and then it begins to tail off as you hit month 15.

We do get conversions beyond month 15, but at that point you have obviously had the service for quite a while, you have seen many offers from us, so our expectation of your conversion goes down substantially.

So that how we look at it internally.

In our case, with internal numbers, obviously we put real numbers to it in terms of how that will roll forward in terms of gross adds, but it's not a number we have publicly discussed nor do we intend to.

Your second question, I believe had to do with --?

Fixed versus variable growth rates.

What you see in the last three quarters there, you will recall if you go back to slide 11, you will recall that in Q's one, two and three last year there was aggressive growth in the mortgage component of the business.

That growth was predominantly variable revenue.

Then, particularly in Q4, there was actually a falloff in the revenue from the mortgage component of what was then called corporate.

That is why you see the percentage shifting from variable to fixed.

At the same time you also had the price increase rolling through, what used to be called the Web channel customers or the individuals, which is all fixed revenue.

So, those two issues I'm not sure that it moved dramatically, but caused the 68/32 split to go to 72/27.

But ARPU goes up because of the fixed price change going up.

So, there are lots of in's and out's there.

Some may cause the ARPU to go up, some may cause it to go down.

But net, net the ARPU has gone up.

Going forward then, it would look like the fixed should grow a little bit slower than variable?

Not necessarily.

It depends on the kind of customers and the kind of contracts that they have.

For example, some of this is within our discretion and some of it is not.

If we go and we do a large enterprise deal on a substantially variable base or usage base, that would then potentially shift the mix between fixed and variable.

If we're doing deals where they are predominantly fixed based, either because they are individual customers or they are eFax Corporate.com customers, you could see a continued growth in the fixed versus variable components.

Frankly, even with our enterprise customers, as we have stated in the past, we're very flexible on how we price our large enterprise deals.

We have some customers who wish to have high fixed rates with low variable usage rates, and we have others that like to have high usage rates with low fixed rates.

A lot has to do with how they account for within their business and how they wish to recognize it.

So, a large enterprise could come in, and even though they would be generating the same number -- the same amount of usage or the same number of seats, could skew it one way or the other based upon how they wish to have their pricing and contract handled.

Third question?

Third question was an update on distribution.

We've seen you add some new names and you listed off the who's who list of the Internet, but I think I was under the assumption that predominantly Yahoo! has been the place where you have gotten new individual users.

Can you talk about the progress with other channels?

The list that I gave you, first of all, again was a partial list, but even so we're constantly squeezing the balloon, if you will, and pushing efforts towards one or another depending on the tenure of the deal, the nature of the deal, etc.

And so I would tell you that all of the deals are positively accretive to our business across the board, though some are more than others either because their populations are larger or better or have different dynamics.

In the case of the Yahoo! deal, as was commented on last quarter, and as you will see if you go to Yahoo! mail, we went from 100 percent visibility on the Yahoo! mail toolbar a year ago, to what is now about 50 percent visibility or placement on the toolbar so that every ten clicks you should see us five times.

And the reason we have done that is because the longer we are in these marketing relationships, the less sizzle, if you will, those users that are on those services will see because they have become blind to our button overtime and so we need to allow our advertising, our placement, our branding to go foul (ph) a little bit so that when we come back at some future time, it is new to you, sort of thing.

So Yahoo!, the number of placements hasn't declined, others have increased, and that flexibility and fluidity in the placement of our marketing ads will continue ad infinitum as we sign more deals, and jettison other deals and then come back to them.

Let me ask the question a different way.

Is Yahoo! still more than half the new adds?

We don't break down by marketing relationship publicly where they are coming from.

Yahoo! remains a very healthy source for us, particularly on our freebase of customers.

But I'm unwilling, I'm not willing to comment on whether it's the majority or even what percentage of it is, and I wouldn't do that for any of the other sources as well.

Last question then.

I noticed actually on the Yahoo! offer you changed it from, hey add a fax number to your Yahoo! account to add a number in your city.

You are giving them a free trial of the paid service versus --.

This is an evolution, if you will, in our marketing ability, some of the marketing science, if you will, that we go through and their's as well.

We are now through several of our partners and through some work we have done outside of our partners, are now able to determine in many cases the geographic location or at least an idea of the geographic location of people who click on the button in our promotion.

And we are always experimenting and playing with promotional ideas where instead of offering just a blanket free number, we can market to you to have a number in a particular location.

Now you can still choose to get a free number, but obviously you won't get it in your location.

So there's a bit of what you might call personalization of the offer based upon where your coming from.

Okay.

Thank you very much.

I want to take a couple of e-mail questions before the next live question.

We had one question that came in wanting to know about the revenue and EBIT contribution from the acquired company?

We owned the Jump business, which is the Netherlands business, for one month.

We owned The Electric Mail Company for about half a month.

In combination it was less than $100,000 of revenue and virtually no contribution to EBIT.

We had another question regarding Oasis.

The Oasis IPO, we don't know at this time a valuation range.

We are waiting for them to file their next round of documentation with the SEC.

Then named underwriters at this point, (indiscernible) J.P.

Morgan and Merrill Lynch.

Next live question?

Youssef Squali with Jefferies & Co.

Thank you very much.

Hi Scott and Scott.

I have a number of questions and I apologize if some of those have been asked before.

I just got on.

Could you -- did you quantify the eFax corporate.com contribution?

Or if you did not quantify it maybe you can qualify it since you have had it for almost a quarter now.

Number two -- maybe I will let you answer that and come back with more questions.

We get confused when you give too many questions.

We haven't quantified it specifically, but what we can tell you is that eFax Corporate, the website and the inside selling that goes on, has been very successful for us.

It has become a very valuable and consistent contributor to our net adds throughout this quarter.

We're very pleased with it and as a matter of fact, have intentions of growing that particular marketing approach both virtually in some additions to the website selling, as well as adding some additional in-house selling people, some actual people, because of the volumes that we're seeing.

How many salespeople do you have now?

We currently -- well as of this morning, we actually now have three.

In eFax Corporate.

In eFax Corporate.

In total corporate?

Total corporate is 18.

This is a turnaround from what we heard you say last call when the corporate was somewhat of a lagger, so you certainly seem to be seeing it improving quite a bit.

We made some both tactical and strategic changes in the way we were attacking what was our corporate channel.

We have obviously implemented eFax Corporate site and that has been very successful for us and brought with it initially two inside salespeople and now three.

Within the direct selling channel, we had a good quarter with gross and net adds to the base.

In addition, we've also seen some large opportunities come to us through the quarter.

We made some tactical changes to the organizational structure of our corporate selling organization.

You probably missed it at the beginning, but I mentioned during the presentation that we have now hired a new head of sales who we are very excited about and believe that he will take that channel even further.

So, yes, there has been a turnaround this quarter.

We still have a long way to go to reach the potential that we think it is possible of reaching, but yes, we are on the right trajectory.

That's great.

Secondly, I know you don't like to quantify the AOL Yahoo! contributions, etc., but could you actually just rank the top three generators of subscribers in the quarter, if you can?

Yahoo! historically was number one.

Can you just put numbers on that?

Actually, no, we can't do it here in real time, but I've got to tell you, one of the largest contributors don't have websites, without the aid of anyone.

Okay, so --.

I don't know (indiscernible).

A lot of comments have been made about the impression that Yahoo! or specific deals, had to the company.

I don't know where that came from because the company has never endorsed that.

We have always said that there are really three ways we get customers, either free or paid.

One is direct to our website which is a very important contributor.

The second is, if you are talking about paid customers, the conversion of the free base to paid.

And the third would be advertising relationships.

Within those, there are many of them, as Scott mentioned, and each one depending on the month or the quarter or the promotion, will have varying degrees of success on a relative basis compared to the others.

I guess just to reiterate that, the partner -- the marketing relationships that we have our additive to the success we have in just drawing our own -- customers to our own web sites without the aid of those marketing deals.

I understand.

Okay.

Lastly, I don't know if you have touched on this, but historically or the last eight quarters, we have seen your increased guidance literally every single quarter.

When you did not you at least tweaked it to the upside.

I noticed that it was not the case here.

You basically reiterated the same guidance.

I was trying to figure out why is that?

Are you -- is that out of conservativism or are you seeing something out there that is preventing you from increasing guidance?

Two things.

First, I don't if you heard, we did say that for the year guidance we expect to be at the higher end of the range of our pretax and our net per share.

In terms of guidance, generally though, we take a look each quarter or when appropriate during the quarter to see whether it's appropriate to either reiterate guidance or to give guidance.

Generally, if we're speaking at a conference we take that as an opportunity to comment on the guidance, and then of course, at the end of a quarter during our quarterly call.

And our goal is to try to operate within our guidance.

There are sometimes reasons why we do better and so we have to raise our guidance, but our fundamental goal is to operate within the guidance range we give people.

We valuate it at least every quarter for the purposes of the quarterly call.

This was certainly a very, very nice quarter.

Congrats.

(OPERATOR INSTRUCTIONS)

While we are waiting, let me read one more, another email question.

The question asks what portion of revenue is derived from customers in the mortgage sector and how will the expected (and actual) slowdown in more mortgage activity impact revenue going forward?

This is a reflection of comments we made in our fourth quarter earnings call.

We have not quantified, for the sake of this call, the amount of traffic generated by the mortgage, particularly the mortgage refinancing business, not the mortgage in general.

However, what we can tell you is that while we took the slippery slope down in the third and fourth quarter of last year, when mortgage refinancing bottomed out, we did have a small recovery for just a month in the first quarter.

If you follow mortgage refinancing rates, you will notice that the rates dipped for about a month and then came back again.

So, my answer, our answer is that I think we have seen the worst of the impact of mortgage refinancing on our usage, and that it will now somewhat stabilize based upon what is going on in the mortgage refinancing industry, in general.

In addition, subsequent to the third and fourth quarter of last year, our base of customers, particularly on the enterprise side, continues to diversify into other industry segments either because the mortgage industry as a result of the mortgage rates is going through its own problems and downsizing, as well as we're just having successes in many other verticals which are not impacted by it.

So, we don't consider it to be a significant threat to our business going forward, and believe that we again have seen the worst of the impact of the mortgage refinancing business on us.

Next live question?

Stephen DeLucia with Sidoti & Co.

You talked about previously that the AOL advertising relationship was just a trial.

Has that moved beyond the trial phase?

Is that still continuing or what are your expectations there?

The AOL.com opportunity remains a trial.

We went through a, if you want to call it a concept phase during the first quarter.

We have yet to sign onto a more long-term opportunity with AOL as we are evaluating the results of the trial period.

You have to remember that, as Scott had mentioned in a previous question, it takes between three and four months for a customer, particularly a free customer to mature and to become fully baked, if you will, and ready for conversion to paid.

We only are about halfway through that process with some of those AOL.com customers who don't have enough information in which to make a decision yet.

If I could ask about an old metric, it looked like page, the corporate page index was at a new record, up significantly from the fourth quarter, and you mentioned just a slight increase in the mortgage refinancing.

Was there anything else going on there?

Do you think that is a sustainable increase?

I think that, no, we have hit a new plateau in answer to your question.

We had 7,500 net bids that we added during the quarter.

As Scott mentioned, a large portion of what we are bringing in has nothing to do with real estate or mortgage, so this is just the business growing.

I can also tell you looking into the first few days of April even after interest rates have spiked, we're still maintaining our daily volume in terms of pages that run through our network for both inbound and outbound.

I think yes, we are now at a point where we're going to be seeing, if this index will continue to be reported, our page index continue to grow.

By the way, we are also very active in promoting the use of our send fax function, both in our enterprise sales and our individual sales and we are seeing significant traction in the promotion of that send fax service.

Okay.

Great.

Thanks.

Steve Levenson with Advest.

Good afternoon, Scott, Scott and Gregg.

One thing a little different in your call today, you talked about hiring a new head of sales and going after the larger enterprises.

Is this a change in strategy to go after bigger customers?

No, no, no.

I didn't say that we're going after bigger customers.

I just mentioned that we had hired a new head of sales and that we are -- corporate sales, and we are now gaining success in finding large deals.

We have always been going after the big opportunities, and it is very much I guess like a snowball.

Once you kind of figure out the secret sauce or the methods of doing it, it becomes easier and easier to get them and we're beginning to see some traction in that regard.

Secondly, what is up with the GSA approvals?

Are you seeing some traction there as well?

I would love to tell you that we were, except that it is the federal government.

So the answer is we are seeing more attention paid to it, and having more opportunities to get in the door, but it is the federal government, and I couldn't predict, even with a crystal ball, how successful we will be.

All I can tell you is that it does get us in the door now a lot easier, and does present us with interesting opportunities that we hope will materialize.

A step in the right direction.

With a potential for a windfall on Oasis and your current cash and investment balances, and the low level of capital expenditures required, are there any plans to pay a dividend?

We look at the question, Steve, a little bit broader.

Regularly it's the board which is, what should we be doing with the amount of cash that we do have and that is growing.

Basically, the board considers regularly two possibilities.

The investment or the reinvestment, if you will, in acquisitions, intellectual property, including CAPEX to invest back in the business.

And the second would be returning it to shareholders in some form, be it a dividend or a stock repurchase.

As we stated before, there is no current dividend today.

There is no stock repurchase program.

It is regularly considered at the board.

As you saw in the last quarter, we were successful in deploying some of that cash into the former category by buying The Electric Mail Company, by buying Jump.

We actually did pay down a little bit of debt.

We did have some CAPEX.

So depending upon the opportunities that we see over at three to six-month window will influence where we come out on that spectrum of how to utilize our cash.

We think there are some great opportunities to build this business through our M&A capacities and whether that is directly by acquiring someone that is square in the space or whether it is by acquiring additional feature functionality and technology, like we did with Electric Mail.

We are just constantly in conversations with the board about those very issues.

I can tell you we continue to see a lot of interesting M&A opportunities.

Last question is, if you look in your crystal ball, what is the next sort of thing we are going to see in unified communications?

Our strategy is to expand our capabilities incrementally to provide greater functionality for our customers.

As I mentioned in the presentation, we will be offering, soon, the ability for our customers to store and archive their documents, be they faxes or voicemail, remotely and have the ability to retrieve them from any web terminal anywhere in the world.

We believe that is a step in the direction of providing a unified messaging capability.

We also are continuing to expand our functionality through the addition of new services like, as I mentioned, we are now offering the delivery of our faxes in PDF format to our corporate customers.

That, in and of itself, provides a certain amount of mobility and unification, if you will, because many wireless devices and other devices have the ability to read PDF files.

Then lastly, the addition of Electric Mail specifically and Jump, the Netherlands company, a bit less, gives us some additional capabilities that we want to explore, kind of tweak a bit, and then leverage for the benefit of our core fax, digital fax customers to provide a more broader experience.

Great.

Thanks very much.

We have a couple of email questions related to the Oasis IPO.

One question is, where has Oasis been mentioned?

It was actually in our most recent 10-K filing, also there were some news stories that came out about ownership on Oasis and of course, were disclosed in their S-1 registrations statement.

The second question was, would we be a selling stockholder in the IPO?

I don't know that for a couple of reasons.

Number one, we have to be offered that opportunity which I suspect the company, as it gets closer to actually filing its final documents, will address the issue of whether there will be any selling stockholders or not.

But even if there's the opportunity, I couldn't tell you at this point whether j2 Global would be a selling stockholder.

What I can tell you is that subsequent to their IPO, whatever shares we own will locked up for about six months.

So, we would not be able to sell during that window until the lockup is either -- expires on its terms or is waived by the underwriters.

Another e-mail question that we got, a little bit different, and it was the impact of VoIP, voice over IP technology, on j2's position both in the market and how it might leverage it itself.

It is a long winded discussion, but in a nutshell it is true that many of the new capabilities which come with VoIP PBXs or soft switches, whatever you want to call them, do sometimes come with a digitized fax capability.

However, the customers are still required if they wish to use it, to manage it themselves, to have telephone numbers only in their own local jurisdiction or local area, and to manage the service, and we believe that we have continued to offer a service which has much broader applicability to businesses, particularly those that are in offices over disparate geographic distances.

We also offer much more feature functionality with our ability to annotate, to provide a client matter ID, to provide a SecureFax capability, etc. etc., which differentiates us from the in-house, many of the in-house VoIP functionality.

Asked how we would leverage VoIP to our advantage, the answer is, we are not right now primarily because VoIP is, as the name implies, it's voice over IP, and fax over IP is a wholly different technology and not one that is tremendously advantageous to us right now given our cost position and our technology.

However, that being said, we are looking at VoIP as an enabling technology for some of the unified messaging capabilities we hope to offer in the future.

Our network is well-positioned to leverage IP in any of its form, VoIP, fax over IP, video over IP, etc., and it is just a matter of creating a product suite and tweaking the network to be able to provide those services to our customers.

So in a nutshell, while we understand that VoIP and some of the equipment manufacturers may be a bit of a competitive threat to us, we don't view it as a major competitive threat.

Second of all, we hope to leverage the VoIP technology to our advantage as it matures and as we mature our applications and product suite in the unified messaging and communication services.

That wraps up our email questions.

Kelly, do we have any other live questions?

There are no further questions at this time.

Representative: Well we thank you all very much for your participation in the Q1 2004 earnings call for j2 Global Communications.

If you have any other questions, please don't hesitate to email them to us at investor@j2Global.com.

If you have anything else, feel free to call us as usual.

We will be talking with you July 19 at our next quarterly earnings call.

Thank you.

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

You may disconnect your lines at this time.

Thank you for your participation.