Investor Presentation
(Based upon Third Quarter 2005 results)
October 24, 2005
www.j2global.com
1
Future operating results
Subscriber growth and retention
Earnings growth and expectations
New products, services and features
Corporate spending
Liquidity
Network capacity and coverage
Regulatory developments
Taxes
Certain statements in this presentation constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, particularly those contained in the slide entitled “Financial Guidance”. These forward-looking statements are based on management’s current expectations or beliefs as of October 24, 2005 and are subject to numerous assumptions, risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements. Readers should carefully review the risk factors described in this presentation. Such statements address the following subjects:
Safe Harbor for Forward-Looking Statements
All information in this presentation speaks as of October 24, 2005 and any
distribution of this presentation after that date is not intended and will not be
construed as updating or confirming such information.
2
Risk Factors
Inability to sustain growth in our customer base, revenue or profitability
Competition in price, quality, features and geographic coverage
Inability to obtain telephone numbers in sufficient quantities on acceptable terms in desired locations
Enactment of burdensome telecommunications or Internet regulations including increased taxes or fees
Reduced use of fax services due to increased use of email or widespread adoption of digital signatures
Inadequate intellectual property protection or violations of third party intellectual property rights
System failures or breach of system or network security
Failure to expand and upgrade our systems and network infrastructure to accommodate increased traffic
Inability to adapt to technological change, or third party development of new technologies superior to ours
Economic downturns in industries which rely heavily on fax transmissions
Loss of services of executive officers and other key employees
Loss of third party suppliers and marketing relationships, and inability to enter into new such relationships
on acceptable terms
Other factors set forth in our Annual Report on Form 10-K filed on 3/28/05 and the other reports filed by
us from time to time with the Securities and Exchange Commission
The following factors, among others, could cause our business, prospects, financial condition, operating results
and cash flows to be materially adversely affected:
3
Unique Assets
10.2 million subscribed telephone numbers (DIDs)
Global advanced messaging network
2,000+ cities in 26 countries on 5 continents
14.2MM+ unique DIDs worldwide in inventory
Patented technology
A portfolio of 23 issued U.S. patents, and numerous pending U.S. patent
applications, issued foreign patents and pending foreign applications
Expertise
Effective customer acquisition strategies and Web marketing
Breadth, depth and management of a complex network & architecture
Strong financial position
34 consecutive quarters of Revenues growth
15 consecutive quarters of positive and growing Operating Earnings
30%+ year-over-year Revenues growth
$131.6MM of cash & investments to fund growth (as of 9/30/05)
Nominal amount of debt
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2,000+ cities
in 26 countries
on 5 continents
Source: US Census Bureau (2003),
www.internetstats.com 2005 and j2 Global
Current population of j2 Global-
served countries: 826 million
Representing 349+ million Internet
users
j2 Global has only ~ 746,000
international subscribers
137 million total US employees
j2 Global has only 9.5 million U.S. subscribers
Breadth of Network
5
All brand names and logos are trademarks of j2 Global Communications, Inc. or its affiliates in the U.S. and/or internationally.
6
Subscriber Acquisition
Individuals
Targeted Web marketing
(e.g. AOL, MSN, Yahoo!, Google, CareerBuilder, New York Times, etc.)
Sold primarily through: www.eFax.com and www.j2.com
Use of proprietary Life Cycle Management ( e.g. Free Paid conversions)
Advertising & Calling-Party-Pays revenue supports the Free base
Small to Mid-Sized Businesses
Sold through: www.eFaxCorporate.com, supported by Telesales
Self-service Web-based broadcast fax engine at www.jblast.com
Outsourced email, spam & virus protection through Electric Mail
Use of proprietary Life Cycle Management (i.e. usage stimulation)
Large Enterprise/Government
Direct sales force
Marketed through Web and traditional direct selling methods
Use of proprietary Life Cycle Management (i.e. usage stimulation)
7
Paid Subscription Drivers
Six Drivers for Paid Subscription additions:
Subscribers coming directly to the Company’s Websites/Telesales
Brand awareness
Search engine discovery
Free-to-Paid subscriber upgrades
Life Cycle Management
eFax Corporate SME sales
Hybrid Website and human interaction (i.e. Telesales)
Direct enterprise & government sales
Through the outside Corporate Sales team
Direct marketing spend for Paid subscribers
Targeted marketing
CPA deals
International marketing programs in Western Europe
8
Historical Revenue & Operating Earnings Growth
34 consecutive quarters of Revenue growth
15 consecutive quarter of Operating Earnings growth
9
Operational Philosophy
10
j2 Global Paid Fax Usage Trend
Paid DIDs Increasing at a 40% Annual Rate
Average Pages per Paid DID Stable
Message Delivery Each Business Day on Average
Regular Interaction with Customer
11
Each Delivery Reinforces Customer Awareness
Branding/Word of Mouth Largest New DID Contributor
Upsell Messages Refreshed and Targeted
New Services Lead to Increased Usage and Loyalty
Training Raises Awareness of Less Used Features
eFax Delivery Page
12
eFax®/eVoice® Upsells and Upgrades
eFax/eVoice Free to Paid
Easy Access to Customer Support
Upgrade to eFax Pro®
eFax Corporate® Help
Tailored Marketing Messages
13
Low and Declining Individual Paid SAC Cost
Analytical Approach to Marketing (ROI Based)
Spend with Breadth of Vendors
Key Long-Term Vendor Relationships
Strong Direct to Website Customer Acquisition
14
Financial Highlights
15
Cost Trends
*
*
* Reflects a reclassification of certain network operations and depreciation expenses
into Cost of Revenues, which was implemented in Q1 2005, versus their historical
inclusion in General & Administrative expenses. See Slide #23 for a reconciliation
to previously reported numbers.
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Financial Guidance
(1) Assumes an effective annual tax rate of 27% and 25.5 million fully diluted shares outstanding
$0.50 – $0.54
$39 – $41
Q4
2005
~30%
Net Earnings per Share (1)
~30%
Revenues (millions)
2006
Growth Rate
17
Updates
18
Initiative Updates
Enterprise Sales
16 Enterprise accounts with 1,000+ DIDs – all under annual or
multi-year contracts
Largest account has nearly 10,000 DIDs provisioned
Pipeline: 63 qualified 1,000+ DID opportunities, of which 15
are international
International
56% increase in paid subscribers year over year
Taipei, Taiwan service launched
170 cities/area codes in the UK now live
eVoice
Approximately 4,000 Paid subscribers
International (Europe) eVoice launched in Q3 2005
19
Recent Events
j2 Global’s network expanded to include 170 cities in the
UK; Taipei, Taiwan; and additional cities in Italy
Intellectual property licensing program yielded additional
licenses
Upgraded free offering to include DID matching and offering
storage on a trial basis
Sold Oasis Semiconductor investment for ~ $10 MM
Increased analyst coverage with the addition of Freidman
Billings Ramsey
20
Supplemental Information
21
Metrics
22
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Fixed Subscriber Revenues
$9,916
$11,177
$12,121
$13,976
$16,021
$17,750
$19,122
$20,823
$22,773
$23,756
$25,229
Variable Subscriber Revenues
4,538
5,130
5,685
5,542
6,041
7,314
7,863
8,226
8,502
10,323
11,258
Subscriber Revenues
$14,454
$16,307
$17,806
$19,517
$22,062
$25,063
$26,985
$29,050
$31,275
$34,079
$36,487
Other Revenues
754
730
1,097
957
880
768
786
749
949
806
1,202
Total Revenues
$15,208
$17,037
$18,903
$20,474
$22,942
$25,831
$27,771
$29,799
$32,224
$34,885
$37,689
DID Based Revenues
$14,063
$15,835
$17,478
$19,216
$21,664
$24,057
$25,994
$27,937
$30,186
$33,009
$34,760
Non-DID Revenues
1,145
1,202
1,424
1,258
1,278
1,774
1,777
1,862
2,038
1,876
2,929
Total Revenues
$15,208
$17,037
$18,903
$20,474
$22,942
$25,831
$27,771
$29,799
$32,224
$34,885
$37,689
Subscriber Revenue/Total Revenues
95.0%
95.7%
94.2%
95.3%
96.2%
97.0%
97.2%
97.5%
97.1%
97.7%
96.8%
DID Based/Total Revenues
92.5%
92.9%
92.5%
93.9%
94.4%
93.1%
93.6%
93.8%
93.7%
94.6%
92.2%
%
Fixed
Subscriber Revenues
68.6%
68.5%
68.1%
71.6%
72.6%
70.8%
70.9%
71.7%
72.8%
69.7%
69.1%
%
Variable
Subscriber Revenues
31.4%
31.5%
31.9%
28.4%
27.4%
29.2%
29.1%
28.3%
27.2%
30.3%
30.9%
Paid DIDs
(4)
304,969
348,988
380,230
400,245
434,616
469,328
515,162
553,949
598,490
641,720
691,096
Average Monthly Revenue/DID
$15.59
$15.52
$15.36
$15.73
$16.68
$17.22
$16.95
$16.87
$16.85
$17.21
$16.89
Cancel Rate
(1)
3.6%
3.0%
2.8%
3.3%
2.9%
2.4%
2.6%
2.7%
2.8%
2.5%
2.8%
Free DIDs
4,320,975
4,825,991
5,146,838
5,150,388
5,843,167
6,873,083
7,106,249
8,180,452
8,448,517
8,653,386
9,549,886
Average Monthly Revenue/DID
$0.05
$0.04
$0.05
$0.05
$0.05
$0.04
$0.04
$0.04
$0.04
$0.04
$0.03
Total DID Inventory (MM)
5.8
6.5
6.7
7.1
8.6
9.5
11.3
11.9
12.7
13.6
14.2
Cities Covered
1,000
1,000
1,100
1,100
1,300
1,350
1,400
1,500
1,500
1,500
2,005
Countries Covered
18
19
20
20
20
20
20
22
23
25
26
Gross Margin
(3)
80.2%
80.9%
81.5%
82.6%
84.1%
84.3%
84.3%
85.1%
79.8%
80.2%
78.5%
Operating Margin
34.2%
36.1%
39.2%
41.4%
43.5%
42.6%
43.0%
44.0%
41.4%
44.0%
43.2%
Cash/Funds Available for Growth
(millions)
$38.7
$46.5
$54.5
$63.8
$67.4
$74.2
$83.9
$93.8
$98.2
$108.6
$131.6
Free Cash Flow
(2)
(millions)
$5.0
$7.1
$7.7
$9.5
$9.9
$11.6
$11.9
$10.9
$11.3
$13.8
$13.5
(1)
Cancel Rate is defined as individual customer DIDs with greater than 4 months of continuous service (continuous service includes customer DIDs which are administratively cancelled and
reactivated within a calendar month), and DIDs realted to enterprise customers beginning with their first day of service. Calculated monthly and expressed here as an average over the three
months of the quarter.
(2)
Free Cash Flow is net cash provided by operating activities, less purchases of property and equipment. In Q4 2003, it excludes the benefit of $9.5 million to record the reversal of certain
valuation allowances of defered tax assets.
(3)
Reflects the inclusion of certain network operations and depreciation expense in Cost of Revenues in Q1 2005 versus its historical inclusion in General & Administrative expense.
(4)
For Q1 2005, reduced by 6,625 DIDs due to the discontinuance of a marketing trial.
2005
2003
2004
23
Reconciliation of Previously Reported
Cost of Revenues and General & Administrative Expenses for 2004
($ in thousands)
Q3-2004
% of Rev
Q4-2004
% of Rev
Cost of Revenues
Previously reported
4,363
$
15.7%
4,448
$
14.9%
Add: Certain network operations
and depreciation expenses
1,092
1,128
Adjusted Cost of Revenues
5,455
$
19.6%
5,576
$
18.7%
Gross Margin
Previously reported
84.3%
85.1%
Adjusted Gross Margin
80.4%
81.3%
General and Administrative Expenses
Previously reported
5,321
$
19.2%
5,506
$
18.5%
Less: Certain network operations
and depreciation expenses
1,092
1,128
Adjusted General
and Administrative Expenses
4,229
$
15.2%
4,378
$
14.7%
(1) In Q4 2003, excludes benefit of $9.5 million to record the reversal of certain valuation allowances of our deferred tax assets.
(2) Prior to Q4 2003, the Company accrued tax expense at the rate of 5% or less.
(3) Net cash provided by operating activities, less purchases of property & equipment. Free Cash Flow amounts are not meant
as a substitute for GAAP, but are solely for informational purposes.
Computation of Free Cash Flow
($ in millions)
(1,2)
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Q1 '03
Q2 '03
Q3 '03
Q4 '03
Q1 '04
Q2 '04
Q3 '04
Q4 '04
Q1 '05
Q2 '05
Q3 '05
Net cash provided by operating activities
$5.308
$8.542
$8.623
$10.375
$10.252
$13.044
$13.240
$14.785
$13.762
$15.227
$15.951
Purchases of property & equipment
(0.300)
(1.414)
(0.947)
(0.906)
(0.319)
(1.442)
(1.337)
(3.883)
(2.473)
(1.420)
(2.433)
Free Cash Flow
(3)
$5.008
$7.128
$7.676
$9.469
$9.933
$11.602
$11.903
$10.902
$11.289
$13.807
$13.518
®
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