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Operator
Good afternoon, ladies and gentlemen.
And welcome to the j2 Global' s fourth quarter 2010 earnings conference call.
It is my pleasure to introduce your host, Mr.
Scott Turicchi, President of j2 Global Communications.
Thank you, Mr.
Turicchi, you may now begin.
- President
Thank you.
Good afternoon, ladies and gentlemen, and welcome to the j2 Global investor conference call for Q4 2010.
We apologize for the slight delay and understand that some of you are having difficulty accessing our Press Release.
As a result, after reading the introductory comments I will read a portion of the Press Release and then we will begin the formal comments.
As the Operator mentioned, I am Scott Turicchi, President of j2 Global.
With me today is Hemi Zucker, our CEO, and Kathy Griggs, our CFO.
As part of this call we will be discussing the Q4 financial results, provide an update on our 2010 acquisitions and their integration, our operating strategy for 2011, and provide 2011 annual guidance.
We will use the presentation as a road map for today's call, a copy of which is available at our website.
In addition, you can also get the metrics and the Press Release at j2global.com\press.
You can also access the webcast from this portion of our website.
After completing the formal presentation, we will conduct a Q&A session.
The Operator will instruct you at that time regarding the procedures for asking a question.
In addition, you may e-mail questions to investor@j2global.com.
Before beginning our prepared remarks, I will read the Safe Harbor language.
As you know, this call and the webcast will include Forward looking statements.
Such statements may involve risks and uncertainties that would cause actual results to differ materially from the anticipated results.
Part of those risks and uncertainties includes, but are not limited to, the risk factors that we have disclosed in our various 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 slide show for the webcast.
We refer you to discussions in those documents regarding Safe Harbor language as well as Forward looking statements.
I will now read to you the substantive part of the Press Release regarding the fourth quarter results.
j2 Global reports Q4 and year end 2010 results and provides 2011 outlook.
Record quarterly and annual revenues, record quarterly and annual non-GAAP EPS.
Fourth quarter 2010 results.
During the quarter the Company added over $500,000 paying bids bringing its total to more than $1.9 million.
Subscriber revenues increased 17% to a quarterly record $70.3 million compared to $60.2 million in Q4 2009.
Total revenues increased 17% to a quarterly record $71 million compared to $60.9 million in Q4 2009.
GAAP net earnings per diluted share increased 49% to $0.58 per share compared to $0.39 per share for Q4 2009.
Non-GAAP net earnings per diluted share increased 33% to a quarterly record $0.60 per share compared to $0.45 per share in Q4 2009.
For Q4 2010, non-GAAP earnings per diluted share exclude share-based compensation and related payroll taxes, certain acquisition related integration costs, and the gain on the sale of auction rate securities, in each case net of cash totaling $0.02.
For Q4 2009, non-GAAP earnings per diluted share excludes share-based compensation expense and related payroll taxes, disposal of a long-lived asset and the gain on auction rate securities, in each case, net of tax, totaling $0.06.
Free cash flow for Q4 2010 was $21.6 million after the impact of approximately $3.3 million net of tax of transaction and transition related costs compared to $22.2 million for Q4 2009.
Free cash flow is defined as net cash provided by operating activities less the purchases of property, plant and equipment, plus excess tax benefit from share-based compensation.
There is also in the release full year 2010 results which I will not read, but I will read you the business outlook.
Which for fiscal 2011, j2 Global expects revenues to be between $320 million and $340 million, and non-GAAP net earnings per diluted share between $2.21 and $2.42, exclusive of between $9 million and $11 million of share-based compensation expense, and between $5 million and $8 million of acquisition related transition costs.
It is anticipated that the normalized tax rate for 2011, exclusive of a release of certain FIN 48 reserves, will be between 28% and 30%.
I would now ask you to turn to slide four of the presentation as we are unveiling a new format.
We believe that this format better articulates j2 as a Company, as well as the core principles under which we operate.
Hemi will describe a little bit later in greater detail the wheel that you see with j2 in the middle, and the slogan - Cloud Services for Business.
What I want to emphasize, though, is the underpinnings of our strategy which we internally dub as core.
The C stands for Cloud Services for Business.
We believe that represents not only the services that we offer today but also the services we seek to offer in the future.
The O stands for our own brands.
As you all know, we are brand centric.
We believe in Lead brands and Secondary brands for each of our services.
The R is for recurring revenue, implying that all that we do is on a subscription based model, with a heavy component towards a fixed fee and a smaller component towards a variable usage-based fee.
And then E is really more to our internal focus of efficient operations and high margins.
Slide five, our model in action.
Targeting the Cloud-ready business customers needs, providing them with tools to solve their problems.
Buying or building brands that addresses that core need.
Allow those new businesses to officially leverage what we call the j2 machine.
That's our 600 employees, our platforms and our network.
Extend the brands to enable up-sells, cross-sells and deeper market penetration.
Hemi will go into this in greater detail later.
Then, once that is accomplished, acquire complementary brands, customer bases, feature sets and intellectual property.
Finally, address different market segments providing different features and different modes of accessing customers for the SOHO, the individual user; the small business, generally up to a couple hundred users; the medium-sized enterprise up to a few hundred; and the enterprise constituting a few thousand or even tens of thousands.
Expand the geographical footprint, which is already global in nature, to include not only more countries but more cities in those countries.
And then maximize the number of services per customer which increases the lifetime value of that customer.
Slide six tells you what we have done in the last 15 years.
For each of those years we have shown consecutive growth in revenues.
We have operated at 40% non-GAAP margins.
We have a current run rate in excess of $10 million of free cash flow per month.
Nine consecutive years of non-GAAP EBITDA growth.
Efficiency, which we're very proud of, of more than $500,000 of revenue per employee.
A customer base that is 1.9 million paid phone numbers, 11 million free phone numbers, in addition to seats for our e-mail, e-mail marketing and backup customers.
Coverage in more than 4,300 cities in 49 countries.
The ability to deliver services in nine languages, payment in ten currencies and offices in seven countries.
As you know, we are very M&A centric, having closed 31 deals since early 2000, including eight deals in 2010 alone.
And in the IP front, both developing and acquiring numerous US and foreign patents, as well as having multiple patents pending.
We hope that, that gives you a good clear sense of not only who we are but how we look at our business going forward.
At this point I will turn the presentation over to Kathy who will walk you through in greater detail the financial results for the fourth quarter and fiscal year.
- CFO
Thank you, Scott.
Good afternoon, ladies and gentlemen.
Please refer to slide eight in the presentation for a recap of our Q4 GAAP operating results.
In addition, please refer to slide nine for a summary of 2010 in total.
Q4 2010 revenue was $71 million.
Revenue grew $8.2 million from $62.8 million in Q3, 2010, fueled by organic growth and a partial month of Protus.
Revenue in Q4 2010 was $10.1 million higher than Q4 2009 revenue of $60.9 million.
Our desktop faxing corporate revenue was up 8% year-over-year.
And despite Q4 seasonal downward pressure on usage, it did not decline and is relatively flat with Q3 2010.
Our voice revenue is up 2.6% over last quarter.
As Scott indicated, at the end of Q4 we deployed 1,905,000 paid members .Our paid DIDs grew by approximately 500,000 in the quarter with the largest share coming from Protus.
Year-over-year our paid numbers increased by nearly 630,000 DIDs.
Excluding Protus, our corporate segment led the growth, increasing by more that 76,000 DIDs, or 24% compared to the same period last year.
Our cancel rate for the quarter was 2.7%, down from 3% in Q4 of last year.
The current cancel rate remains within our historic acceptable range of 2.5% to 2.75% per month.
Our ongoing focus is to further improve these rates in the coming quarters as we continue to increase the value proposition of our services, actively manage customer retention, and the economy at least maintains its current level of activity.
ARPU for Q4 was $13.22, down from $14.21 for Q3 2010, and $14.85 for Q4 of 2009.
The decline in ARPU was impacted by the acquisition of Protus, as well as a result of continued growth in our lower priced Fax brand and our Corporate Fax segment.
In addition, our standard convention of calculating ARPU, which applies the average of the quarter's beginning and ending base to the total revenue for the quarter, also overstates the decline.
December 2010 ARPU with almost a full month of Protus subscription revenue is $13.27.
I'm very pleased to report that we continued to experience very strong operating performance in Q4.
Let me remind you that these margins include significant acquisition and exit-related costs for Protus.
Acquisition and exit costs totaled $4.3 million for the quarter pre-tax.
Certain acquisition related costs will continue in 2011 and should be between $5 million and $8 million.
We expect them to conclude in the fourth quarter of 2011 when we have completed the integration process.
Total non-GAAP operating margins for the quarter were $32.9 million.
Non-GAAP operating margin was 46.3%.
Cost for acquiring Protus and the initial integration were $4.3 million in the quarter, or 6.1% of revenue.
Non-GAAP net earnings for the quarter were $27.7 million.
Other income was $5 million for the quarter compared to $500,000 for Q3 of 2010.
The gain was primarily due to the redemption of one of our auction rate securities previously impaired for book purposes.
In Q4 non-GAAP EPS is $0.60 per share, up 33% from Q4 of last year.
Please refer to slide 20 and the supplemental section of the presentation for GAAP to non-GAAP reconciliation schedule.
For 2010 we incurred $8.8 million in non-cash amortization expense on intangible assets.
For 2011 we will enter approximately $12 million to $14 million in non-cash amortization expense on intangible assets.
This is between $0.26 and $0.30 per diluted share for 2011.
Our non-GAAP effective tax rate was only 18% for Q4 2010 and 31% for Q4 of 2009.
The Q4 2010 non-GAAP rate was reduced by increased foreign income tax at a lower rate, and a full year of R&D credit recognized in Q4.
If you take our Q4 non-GAAP pre-tax earnings of $33.9 million and use a normalized tax rate of 29%, you get an EPS of $0.52 per diluted share which is representative of a more normalized Q4.
Our effective tax rate for 2010 was only 25% due to settlement of our IRS audit, increased foreign income tax at a lower rate, and the book but not tax gain on the sale of auction rate securities.
In conjunction with the settlement of the IRS audit, in Q1 2011 the Federal Statute of Limitations has expired in regards to the tax years of 2004 to 2006.
We will release approximately $10 million to $12 million of FIN 48 reserves because of this.
Excluding that release, we expect our 2011 effective tax rate to be approximately 29%.
Q4 capped our best year ever for M&A activity, a year in which we deployed $249 million on acquisitions, and ended up with $87 million in cash and investments and no debt.
We acquired an Irish company named KeepItSafe, an online backup space company.
This acquisition further expands our service offerings and extends our reach into new global markets and customers.
We also acquired Protus IT Solutions, Inc in December of 2010.
The Protus acquisition further expands our fax and voice subscriber base.
And with the addition of the Campaigner service we are now becoming a major player in the world of e-mail marketing.
Year-over-year our free cash flow grew 7% to $108.8 million at a faster rate than revenue, indicating improvement in our free cash flow margins.
Free cash flow for Q4 was $21.6 million compared to $22.2 million for the same quarter last year.
Let me remind you that these numbers include $3.3 million net of tax of acquisition and exit-related costs related to Protus.
In conclusion, let me remind you that the supplemental schedules at the end of the presentation will provide you with more information on our metrics.
Now I will turn the call over to Hemi who will provide you with a fourth quarter recap, additional 2010 overview, and 2011 goals.
- CEO
Thank you Kathy, and good afternoon, everybody.
2010 was an amazing year for us.
For those of you have bothered to calculate our net enterprise value, it was up 80%.
So I'm very happy for our investors and our employees.
Another exciting factor, when we started 2010 we had less than 1.3 million paying customers.
We ended the year with over 1.9 million.
This is additional, almost 50% more paid customers.
Why is it so important?
We are entering an era of relationship and multiple sales to customers and we would like to sell more than one feature to every customer.
Having a larger base of customers, almost two million of them, is extremely exciting for us when we start 2011.
Let me go through the presentation.
I will try to rush it a little bit because we started late.
First slide is 2010 accomplishments, page 11.
We have exceeded our operational objectives.
We are now even stronger.
We are leading the Fax business worldwide.
We have now more than 1.630 or 1.6 million paid customers on our fax services.
If you remember, I was talking last year, 200,000, 210,000 whatever voice customers, we now have 270,000 paying voice customers.
To the best of our knowledge, the largest by far.
Most of it is in the US and Europe as well.
So we are very proud of this achievement of almost two million customers.
Our cancel rate, very important for our recurring revenue business, as Kathy just said, we ended this quarter with 2.7%.
We had last year two quarters of 2.6%.
And very exciting fact is that Protus, that we just acquired last year, has even lower churn rate which we are hoping to learn and to adopt and to become better.
And I will further discuss it later in my presentation.
In 2010 we continued to grow, especially in the Voice and the Corporate.
Our Corporate business grew from $43 million in 2009 to over $50 million in 2010.
We are planning for it to continue and grow in 2011.
We have started new relationship with HP, a hardware manufacturer.
Our product is embedded.
So you buy the HP printers, eFax is inside.
That is our relationship where they pay us for including of our services.
We are talking with them on the next deal and we are also talking with other manufacturers of hardware.
Very excited.
eFax next was launched and we coming like roll of thunder every quarter.
In other features, I'm not going to steal the thunder, and leave it for our next Press Release.
We expanded our coverage.
As you know, always j2 was focused on adding more coverage, more countries, more cities.
We added amazing 23% area codes this year.
Top five countries are the UK, Germany, Canada, Australia and Switzerland.
The new countries that we added are China, South Korea and Gibraltar, and Japan.
As you know, j2 was trying for many years to penetrate into Japan.
We now have in Japan an established entity, board members, employees, customer support in Japanese.
And the market is waking up.
Our portfolio of services, this is extremely important, we were a company that was offering Fax, Voice and hosted E-mails.
Now, in the last quarter, we have added two significant businesses.
One of them is the Campaigner and the other one is KeepItSafe.
I will talk about these later.
On the M&A front, amazing year.
Eight builds; three builds in the US, two in the UK, one in Australia, one in Ireland and one in Canada.
This is our largest deal we have ever done.
We paid over $230 million for our acquisition of Protus.
We are excited about it and we are planning to do more deals.
And of course, as we already mentioned, the excitement about having another 630,000 customers.
Our year-over-year revenue grew by $9.8 million, only 4%, but our cash grew 7%.
This was a major focus for j2.
We always are trying to grow the cash, or the net cash flow, free cash flow faster than the revenue, and achieved it this year with 4% revenue and 7% additional cash flow cash.
Let's move to the next page, page 12, our 2011 strategic objective.
First of all, to utilize the full synergistic opportunities, our priority number one, integration of MyFax and Venali.
This is something that all of us are putting lots of effort.
The faster, the better.
We are going to, in 2011, invest in our two new businesses, Campaigner and KeepItSafe.
Those two businesses are growing much faster than the rest of our business, and Campaigner is growing over 20% year-over-year.
KeepItSafe some 40%.
I will talk about it more.
Our goal is to learn those business, understand opportunities, cross and up sell, both, and make sure they get central attention from us.
In 2011 we are going to continue and grow our core businesses like online Voice, Fax and E-mail.
Our Corporate business is planned to grow from $50 million to $72 million.
This is an amazing growth rate of 44%.
We have here both organic growth.
Momentum is there.
We also will have full year in Venali and Protus.
So, very exciting on the organic side and in the corporate penetration.
We are going also this year, if you calculate the mean point of our revenue gross for next year, which is 30%, and this is in the year we are going to lose $4 million to $5 million of business intentionally.
These are non core businesses of ours, and mainly the Fax ,Broadcast and Sound Voice businesses.
That, while we continue to support, it's a market of 30% year-over-year decline.
This is the nature of those services.
So $4 million to $5 million there.
There's another $1 million.
As you know, over the years we were allowing third party advertisers to advertise to our free unpaid base.
Now that we have a paid base of almost two million, and free of 11 million, we have decided to slow down the advertising.
We have now five products.
We are going to use all this inventory to up sell and cross sell our own inventory.
So all the revenue that was coming from the third party, we are going to let it go by the side line and use this inventory for our own need.
We are going, also, to continue as usual to extend our geographic area reach.
We are going to continue to increase our market share in Canada.
As you know, Protus was a Canadian company.
They had much better success than we did in selling into the Canadian market.
We are going to keep this edge.
In Australia, we bought mBox last year.
We believe that we are the largest player in the Australia, as well as in Canada, in the UK, in the US of course, in other countries.
In Japan we are also focused and we are going to continue to implement our plan.
I'm very excited about the Japanese market.
I'm actually going to visit there next month.
We have now arrived to a rate of 200 sign ups per day.
Since we started, all the other Japanese communication companies, those are giants like NCT, KBB and the KOMO.
They all launched online fax services and the market is hot.
As I said, we are selling 200 of them and doing very well.
Finally, it is a validation of not only we believe in the market, also the giant Telecom's, they are.
So exciting for us.
We are going to continue to pursue M&A.
We have a healthy pipeline.
Those of you who follow-up on our cash flow, you know we were gathering cash and then we did this big deal in Protus in Canada.
By the end of the year we had $87 million.
Now mid February probably have $100 million or more.
In our rate of cash, we probably will finish the year north of $200 million unless we do a major deal.
All of this money is available for M&A.
And we are seeing deals, mostly International.
We are focusing on strategic deals, larger deals.
So we have our expectations there.
But there is no material impact on our outlook.
Our outlook is mostly without M&A.
Let's go to the next page, page 13, our 2011 goals.
Our margins, which are very high, are entering the year or finishing last year, our margins were as high as 84% of our gross margins, and 46% of our operating margins.
We need now the next four quarters to optimize and to drive the Company back to this level of margins.
We are planning to finish 2011 with margins that are the same or better, and we will keep you updated on the progress.
Our plans for the brands that we acquired is to continue to support Campaigner.
We have now two leading fax brands, eFax and MyFax.
We are going to migrate the My1Voice into our platform.
The brand of My1Voice is not as strong as the brand we have.
So are probably going to turn those customers into eVoice and give them more features and more coverage, and we believe they will be very happy there.
We are going to continue to support MyFax as the second largest brand.
And hopefully we will remove the MyFax customer by the second half of this year into our platform and getting the scale and all the other advantages that come with one platform.
In MyFax we found also some technological advantages.
There are many things they do better than us, including the ability to send faxes, they have better technologies.
We are going to focus our capabilities out of Canada, Ottawa.
By doing this, we will reduce our cost structure.
Also we increase our redundancy which is getting more and more important for our corporate customers.
There are other benefits there.
One of the largest benefits is very highly skilled customer support organization.
As you know, we have now, with the acquisition of Protus, four large Customer Support and Telesales Centers.
The largest one is Ottawa.
The second one is here in Hollywood, then in Dublin and in India.
Naturally, most of the customers, when they make a call, they prefer to talk with a native language speaker.
This is something that Protus always had the advantage over us.
Now, we are going to optimize all the four Centers that we have.
When people will call, we try to take most of the calls by Canada, American or our Dublin base when it comes to Voice.
And shift more of our e-mail and chat towards India.
Our India outsource are doing excellent work, very high quality, but when it comes to accent, our customers prefer to talk with native accent.
When it comes to the other things, India is doing excellent work.
So we are going to optimize it.
We are now approximately 600 employees, and then on top of it close to 100 employees, or something like this -- or not employees, contractors -- in India.
We are going to finish the year approximately with similar head count.
I talked about our operating results already.
One of our goals is to continue and invest in the early success in Japan.
And most important is with our now added services.
We are going to focus on cross and up sells.
As the year progresses, we will tell you more about it.
Let's go now to page 14.
This is our new presentation, the wheel of the j2 services.
Scott told me not to say the Wheel of Fortune so I'm not saying it.
Our core strategy here is fax, continue to dominate.
eFax is our leading brand, together with MyFax.
Corporate is the leading growth on corporate.
And MyFax is continuing, as we speak, to grow organically.
eVoice and our voice services are targeted to grow around 10% year-over-year in discounts.
Important here is our hosted FuseMail.
FuseMail is a brand that we acquired last year.
Together with Electric Mail now we have lots of features that are, to the best of our knowledge, first of breed in the market.
We have decided by the recommendation of the hosted email team to focus around a younger, more modern brand, FuseMail, which will have all the features of Electric Mail.
And we are planning for this brand to cross the $10 million revenue this year.
They are close, and they are capable, and well-suited to participate in the cross and up-sells of the Company.
Campaigner, Campaigner is a major acquisition of ours.
Campaigner, as you know, is an E-mail marketing company.
Revenue is planned to grow more than $10 million, more than 22% year-over-year.
We are very excited about it.
There are many opportunities there in this market to do cross and up-sell to our base.
And we kept a significant amount of employees in Ottawa that are capable to continue develop new features and increase the foothold of Campaigner in the market.
Last but not least, KeepItSafe.
KeepItSafe is a young company out of Ireland.
Their revenue is more than EUR1 million, or $1.3 million, $1.4 million.
They are the fastest growing part of our business, but on a small basis, over 40%.
We are very excited about them.
We are focusing in Europe and we have already four or five months of managing them under our belt and they are executing to our satisfaction.
Last, but not least, is Onebox.
This is the unified communication.
This is basically a product that has most of our services, Fax, Voice, E-mail included.
We are thinking about including some of our other services, as well.
On top of it, Onebox also has features like conference calling, webcasting, et cetera.
We are going to continue and keep it as the place where, like this holistic place so the consumer can end up with the Onebox brand.
I'm done and I am going to move to Scott.
- President
Thank you, Hemi.
Slide 16, the guidance which I read you from the Press Release at the beginning of the call.
But to reiterate a few things, revenues between $320 million and $340 million this year versus 2010.
Or a 25% to 33% increase.
I remind you, as Hemi pointed out, that is after an affirmative decision to not support as aggressively certain lines of non core businesses that will result in a loss of about $5 million of revenue from 2010 to 2011.
Non-GAAP EPS of $2.21 to $2.41 per share.
The items that, that is inclusive and exclusive of are the following.
It's exclusive of non-cash compensation expense of $9 million to $11 million.
It's exclusive of transition related costs of between $5 million and $8 million.
It is exclusive of a benefit on the tax basis given the release of FIn 48 reserves in Q1 of between $10 million and $12 million.
It assumes a normalized tax rate on the pre-tax earnings of between 28% and 30%.
It also assumes that both M&A and stock buybacks are not material to the overall guidance.
As Kathy pointed out, following that, the supplemental schedules you are familiar with for the various metrics and reconciliation of the non-GAAP items to the nearest GAAP measure.
I would now ask the Operator to come back and instruct you for questions.
I would also remind you, you can e-mail a question at any time.
Operator
Thank you.
We will now be conducting a question and answer session.
(Operator Instructions) Our first question comes from Shyam Patil from Raymond James.
- Analyst
Hi, good evening guys.
The first question, the 2011 top line guidance, can you help us understand what that assumes for organic growth versus acquired growth?
And then can you help us maybe understand what the 2010 organic growth rate was?
- President
As I said, there is no M&A that is material to the guidance top or bottom line for 2011.
In terms of 2010, I would say most -- I don't have the exact number but most, if not all, of the growth came from M&A.
- Analyst
And, thirdly, Scott, you haven't been terribly bullish on the e-mail marketing space.
But it seems like on this call at least, you guys talked quite a bit about Campaigner.
Anything change in terms of your outlook on that market, just curious?
If so, what has changed?
You guys seem pretty optimistic about it.
- CEO
The market is big.
We had a very home-grown, dedicated platform where the largest customer was J2 itself.
So our Internet platform was focused mostly around large customers with very deep understanding of the e-mail space.
Even for experts.
This space, I think, is still not very exciting.
But the Campaigner of the world are mostly done for Low Touch customers that are small, that have something to tell the world and they want to do it in a professional way.
This is our SME sweet spot.
Free customers like it, paid customers like it.
Our excitement now is around the product that we have.
We were not excited about the product that we had, and had no intention to build it from scratch.
Now we have got Campaigner.
It is a company that has a strong momentum.
They have all the features, they are a dedicated team.
And they have proven to themselves and to us now that they are capable of growing, and that's why we are excited.
- Analyst
Okay.
And then maybe another question around the guidance for 2011.
Protus had lower ARPU services compared to j2.
How should we think about ARPU for the year.
Also, what are the net add assumptions in guidance, as well?
- President
Two things on that.
First of all, they actually had a competitive price as it related to what we refer to as the Secondary Fax brands.
Meaning that MyFax was generally priced at around $10 per DID per month, consistent with where our pricing of the Secondary brands are like Fax.com.
So, that's just one take away point.
The ARPU, I think, is a somewhat different question.
Which is, as we have said for a couple of years, and I believe it continues to be true, as we sell more mid to large size Corporate, as we sell more voice, all of which are priced at $10, or in some cases even below $10 per DID per month, I believe you will continue to see the average ARPU per DID ease down.
So, no change in that belief.
I also believe it is not maybe at some point as relevant of a metric as it has been historically.
As Hemi mentioned, I think this is an important theme to understand.
The j2 is about building the customer relationships and extending the number of services and account takes.
Not included in our metrics is about $50 million of revenue that does not require a telephone number.
And I think more and more you will see, both in terms of the business we do -- meaning the businesses we manage today -- as well as the services we will have in the future, there will probably be less of it on an incremental basis that will be DID based.
So, one of the things we are actually looking at, and we're not going to spring it on any of you, is whether the DID based competition of ARPU is, in fact, a good metric to use on a going forward basis.
I think this will take a number of months, if not quarters, to study, fully understand and implement.
But I fully believe that at some point in the future this will be a metric that will fade in its importance.
- CEO
And I want to add that both on Campaigner and on our KeepItSafe, our revenue per account is significantly higher than the DID ARPU.
As Scott said, we are considering few ways to better serve the metrics, and once we are ready, we will share it with you.
- Analyst
Great, thanks.
And congrats on closing the Protus, too.
- CFO
Thank you.
- President
Thank you very much.
Operator
Thank you.
Our next question comes from James Breen from William Blair.
- Analyst
Hello, everybody.
- CFO
Hi.
- Analyst
With your recent success for corporate customers and emphasis on unified communications with Onebox, I was wondering if you are seeing demand from your enterprise customers for video conferencing solutions.
And are you pursuing any sort of partnerships for video conferencing solutions or would you maybe attempt to acquire a company, intellectual property like you did with KeepItSafe?
- CEO
We are not offering video conferencing for our Onebox.
Onebox is mostly web-casting.
We are not seeing high usage there.
It is a very crowed place.
The competition there is per minute, per second, per megabyte.
As we call it, race to the ground.
But when people buy one service, and they like to have four or five or six features around it, cost is not an issue.
This is where we come in and we make high margins and we provide the one-stop shopping.
In our one-stop shopping, nothing is less expensive, and corporate tends to find the best deal.
So we cannot serve them.
But if it is a small customer that wants to have one relationship instead of five, Onebox is the solution.
More expensive pair, but less expensive as a whole.
- Analyst
Okay.
You guys talked about potentially developing other channel partnerships besides the one you have with Hewlett-Packard for 2011.
I was wondering what impact that could potentially have on margins versus you going with your direct sales force.
- CEO
That is a very good question, James.
Those services are offered to customers that buy Bluetooth enabled WiFi devices.
If you think about it, in the old world you can get your eFax to your e-mail.
Now you can get your eFax -- it's an app -- to your HP product.
We are offering them free but paid.
So they paid to us but they don't pay to HP.
Basic service for those who want to get several pages into a non local area code, but there is an up-sell there.
So we make money on the free and we make even more money when it is an up-sell.
I hope this addresses your questions.
- Analyst
Excellent, thanks very much then.
- CEO
Alright, thank you.
Operator
Thank you.
Our next question comes from Daniel Ives from FBR Capital Markets.
- CEO
Daniel Ives, how are you?
- Analyst
Hello, guys.
In regards to geographic mix, when you think about 2011 or even longer term, what is the ideal percent that you're looking to get from abroad?
- President
You mean International?
- Analyst
Yes.
- CEO
I think I addressed it last time.
In the US, our penetration with 300 million people, we are making like $200 million.
We would like to get those ratios around the world.
I think we are going to achieve it faster in Canada and the UK versus other markets when they are traditionally on an earlier stage of the adoption curve.
Or some markets are still traditionally focused around more help in the office, more personal assistants and cultural things that are continuing to keep the fax in the fax machine versus the fax on the e-mail.
But I believe that we are going to continue to penetrate in the US, in replacing fax machines.
And worldwide, I don't know, but I think that it is -- don't quote me when we meet again in three years -- but I think we have a good chance in three years to be in a position that half of our revenue is domestic and half is not.
- Analyst
Okay.
And then in regards to Corporate, obviously Corporate is doing well.
Is there any particular vertical where you are really seeing trends?
The financial, obviously more compliant.
Just talk about what is going on there in the Corporate fax.
- CEO
We are getting more and more into the business of replacing fax servers.
Low firms we are seeing now beginning in the Health, Government.
And we are also seeing more and more services like Venali that are embedded, fax services that are embedded into the ERPs and the databases and the creation of documents out of the systems of the corporations versus just dumb, one copy fax that goes from Point A to B.
We call it production fax.
All those where it is served by servers or in-house systems, or smaller companies.
They are all now focused on more reliable, larger enterprises also.
You know at the beginning of the year, there were five companies doing, servicing the Online Fax business.
We acquired two; one of our competitors got into one unit.
So now from five to two.
That is something that will definitely help us.
- Analyst
Thanks, guys, good quarter.
- CFO
Thank you.
Operator
Thank you.
Our last question comes from James Cakmak from Sidoti & Company.
- Analyst
Hi, thanks for taking my questions.
- President
Hi, James.
- Analyst
Hi.
With your newly defined core strategy you outlined today, what exactly are you guys planning on doing to deepen the relationships with your customer base?
Is it more of a function of taking a more streamlined approach to push the Onebox unified bundle package, or with your newly acquired KeepItSafe and Campaigner brands?
And on the Corporate side, would you characterize the success that you are seeing more domestic or are you beginning to see more elevated demand internationally?
- CEO
I will start with the corporate question.
On the Corporate, we are seeing growth both locally and internationally.
We have now three customers executives, or executive salespeople in Europe.
They are seeing large growth, mostly in the UK.
Traditionally j2 was doing well early stage with the English speaking countries.
We are also seeing tremendous success with the multinational companies because they are those companies that have employees all over.
They are trying to unify the services.
So the multi-nationals, we are very good for them because we cover so many countries.
The rest is in that order, US, UK and Canada.
Now, regarding the added services, we are not going to push them into the Onebox.
We are not going to push.
We are going to try to, first of all, increase the awareness.
Most of our customers do not know that we offer more than whatever they are having.
We have not done a very good job in emphasizing it.
So from now on we are going to, first of all, focus on increasing the awareness everywhere we can.
In our website, in our signatures, when we talk with customers, when we talk about ourselves.
Secondly, we are looking into finding a scientific way of what to offer.
Something that we coined here which is STOs -- salesmanship, timing and the offer.
So basically if you have good salesmanship and you come in the right timing with the right offer, you will be able to sell.
We are testing it.
We have weekly meetings and everyone in our marketing team is owning a piece of it.
We are not trying to sell the customer into the Onebox which is still a complex concept.
We are trying to sell and find out what fits each.
So when you are a fax customers, and you call, we will try to offer you maybe voice services.
And if you said no, we will market our CRN system, and next time we will offer you something else.
Not too aggressive but smart enough to figure it out.
All our customer support, as I mentioned, they are all now using, or some of them are about to use, the same back end, the same CRN system, and also the same phone system.
So if you call a customer support in, let's say, in Canada, they can pass the call to our Vancouver office when they will try and sell you e-mail.
Or, if you call India, they can pass you to Ottawa, when they try to sell Campaigner, all in the same in house phone system, seamless to the customer.
So we are working on the infrastructure now.
- Analyst
Got it.
Historically, you have been able to improve margins, profitability once your acquisitions have been fully integrated.
Improved them on a consolidated basis.
Would you say you are expecting the same scenario now with Protus?
- CEO
Yes, absolutely.
As I said, our gross and operating margins at year end were a record number.
We believe by the end of next year, quarter by quarter, we will be able to show improvement as we unify the systems.
Our plan for now is for the last quarter of 2011 to be in the same, or most probably better, both on the operating and on the gross margins.
- Analyst
Okay.
Great.
Thank you very much.
- CEO
Thank you James.
[It's] to James today.
Operator
Thank you.
I would now like to turn the call back over to management for any closing comments.
- President
All right, thank you very much.
We appreciate you joining us on the Q4 earnings call.
We will announce tomorrow morning that I will be in the Deutsche Bank Small and Mid Cap Conference in Naples, Florida on Thursday.
So there will be a webcast available for that presentation.
Also, although there are already a number of one-on-ones scheduled, for those of you who will happen to be at that conference, I would be open to taking more one-on-ones .A couple weeks later, we will be at the Raymond James conference in Orlando.
And also will be doing some non-deal road shows in various cities, including Boston, New York, San Francisco and Portland.
We invite you back to our Q1 earnings call which will most likely be on May 5.
So a few days later than normal to accommodate some travel schedules.
But we will put out a Press Release as we get much nearer.
Thank you.
Operator
Thank you.
This does conclude today's teleconference.
You may disconnect your lines at this time.
Thank you for your participation.