Adds Over 76,000 Net Paid Telephone Numbers During the Quarter
Achieves Record $87.3M Nine Month Free Cash Flow
LOS ANGELES, Nov. 3, 2010 (GLOBE NEWSWIRE) -- j2 Global Communications, Inc. (Nasdaq:JCOM) today reported financial results for the third quarter ended September 30, 2010.
THIRD QUARTER 2010 RESULTS
Total revenues for Q3 2010 were $62.8 million, which represents a growth of $1.0 million from $61.8 million in Q3 2009. The increase was primarily due to an increase in the Company's subscriber base.
Subscriber revenues for Q3 2010 grew by $1.1 million to $62.1 million, compared to $61.0 million for Q3 2009.
For Q3 2010, the Company improved its gross margin to 82.9% versus 81.8% in Q3 2009 and its operating margin to 43.4% versus 43.1% in Q3 2009. Operating margin improvement was due primarily to increased revenues and reduced bad debt partially offset by planned increases in sales and marketing initiatives in the current period.
Net earnings per diluted share on a Non-GAAP basis, which excludes share-based compensation and related payroll taxes, was $0.47 for both Q3 2010 and Q3 2009. GAAP net earnings per diluted share was $0.43 for both Q3 2010 and Q3 2009.
The Company generated $26.7 million of free cash flow during the quarter and ended the quarter with $272.3 million in cash and investments, an increase of $7.4 million versus June 30, 2010 despite deploying approximately $19.8 million to purchase Venali, Inc. and Alban Telecom Ltd. during Q3 2010.
Key financial results for third quarter 2010 versus third quarter 2009 are as follows:
| Q3 2010 | Q3 2009 | % Change | |
| Subscriber Revenues | $62.1 million | $61.0 million | 1.8% |
| Total Revenues | $62.8 million | $61.8 million | 1.6% |
| Non-GAAP Net Earnings per Diluted Share(1) (3) | $0.47 | $0.47 | 0% |
| GAAP Net Earnings per Diluted Share (2) | $0.43 | $0.43 | 0% |
| Free Cash Flow (4) | $26.7 million | $26.1 million | 2.3% |
(1) The estimated non-GAAP effective tax rate was approximately 29% and 28% for Q3 2010 and Q3 2009, respectively.
(2) The estimated effective tax rate was approximately 28% for both Q3 2010 and Q3 2009.
(3) Share-based compensation and related payroll taxes impacted both Q3 2010 and Q3 2009 net earnings per diluted share by approximately $0.04, net of tax.
(4) Free cash flow is defined as net cash provided by operating activities, less purchases of property, plant and equipment, plus excess tax benefit (deficiency) from share-based compensation. Excluding the impact of a $14.2 million payment in Q2 2010 to the IRS in settlement of an audit for transfer pricing covering tax years 2004 through 2008, which was fully accrued for in prior periods, for the nine month period ending September 30, 2010, the Company achieved the highest free cash flows for any nine month period in its existence.
"I am very pleased with our operational and financial performance this quarter," said Hemi Zucker, j2 Global's chief executive officer. "We added over 76,000 net paying telephone numbers, of which approximately 50,000 came through acquisitions completed during the quarter. This is our largest quarterly growth since Q4 2000. We maintained our near record low cancel rate at 2.6%. In addition, we improved our year-over-year gross and operating margins and free cash flow, all while executing our acquisition strategy and adding new services and features to our existing product offerings."
BUSINESS OUTLOOK
For fiscal 2010, j2 Global reaffirms it targeted revenue growth of 5% with a range of 3% to 7% compared to fiscal year 2009 revenues. Net earnings, excluding 123R non-cash compensation expense, are expected to approximate non-GAAP earnings in 2009 as the Company intends to reinvest its incremental operating income in initiatives designed to accelerate growth in 2011 and beyond.
The range of anticipated revenues takes into account both organic growth and acquisition related growth within the context of current economic conditions.
About j2 Global Communications
Founded in 1995, j2 Global Communications, Inc. provides outsourced, value-added messaging and communications services to individuals and businesses around the world. With offices in eight cities worldwide, j2 Global's network spans more than 4,200 cities in 49 countries on six continents. The Company's websites appear in numerous languages, including Dutch, French, German, Spanish, English and more. Payments are accepted in currencies that include the U.S. Dollar, British Pound, Canadian Dollar, Japanese Yen, Euro, Hong Kong Dollar and more. j2 Global provides live sales and customer service support in multiple languages, including English, Spanish, Dutch, German, French, Cantonese and more. j2 Global markets its services principally under the brands eFax®, eFax Corporate®, Onebox®, eVoice® and Electric Mail®. As of December 31, 2009, j2 Global had achieved 14 consecutive fiscal years of revenue growth and eight consecutive fiscal years of positive and growing operating earnings. For more information about j2 Global, please visit www.j2global.com.
The j2 Global Communications, Inc. logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=3907
"Safe Harbor" Statement Under the Private Securities Litigation Reform Act of 1995: Certain statements in this Press Release are "forward-looking statements" within the meaning of The Private Securities Litigation Act of 1995, particularly those contained in the "Business Outlook" portion regarding the Company's expected fiscal 2010 financial performance). These forward-looking statements are based on management's current expectations or beliefs and are subject to numerous assumptions, risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. These factors and uncertainties include, among other items: subscriber growth and retention; variability of revenue based on changing conditions in particular industries and the economy generally; protection of the Company's proprietary technology or infringement by the Company of intellectual property of others; the risk of adverse changes in the U.S. or international regulatory environments surrounding messaging and communications, including but not limited to the imposition or increase of taxes or regulatory-related fees; and the numerous other factors set forth in j2 Global's filings with the Securities and Exchange Commission ("SEC"). For a more detailed description of the risk factors and uncertainties affecting j2 Global, refer to the 2009 Annual Report on Form 10-K filed by j2 Global on February 23, 2010, and the other reports filed by j2 Global from time-to-time with the SEC, each of which is available at www.sec.gov. The forward-looking statements provided in this press release and particularly those contained in the "Business Outlook" portion regarding the Company's expected fiscal 2010 financial performance are based on limited information available to the Company at this time, which is subject to change. Although management's expectations may change after the date of this press release, the Company undertakes no obligation to revise or update these statements.
| j2 GLOBAL COMMUNICATIONS, INC. | ||
| CONDENSED CONSOLIDATED BALANCE SHEETS | ||
| (UNAUDITED, IN THOUSANDS) | ||
| SEPTEMBER 30, | DECEMBER 31, | |
| 2010 | 2009 | |
| ASSETS | ||
| Cash and cash equivalents | $ 212,700 | $ 197,411 |
| Short-term investments | 16,198 | 31,381 |
| Accounts receivable, net of allowances of $2,593 and $3,077, respectively | 13,170 | 11,928 |
| Prepaid expenses and other current assets | 6,433 | 13,076 |
| Deferred income taxes | 2,657 | 2,657 |
| Total current assets | 251,158 | 256,453 |
| Long-term investments | 43,406 | 14,887 |
| Property and equipment, net | 11,413 | 13,366 |
| Goodwill | 113,130 | 81,258 |
| Other purchased intangibles, net | 44,848 | 39,091 |
| Deferred income taxes | 9,532 | 8,717 |
| Other assets | 517 | 229 |
| TOTAL ASSETS | $ 474,004 | $ 414,001 |
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||
| Accounts payable and accrued expenses | $ 19,837 | $ 15,941 |
| Income taxes payable | 1,702 | 1,563 |
| Deferred revenue | 12,349 | 11,411 |
| Total current liabilities | 33,888 | 28,915 |
| Liability for uncertain tax positions | 36,088 | 46,820 |
| Deferred income taxes | 359 | -- |
| Other long-term liabilities | 2,990 | 2,094 |
| Total liabilities | 73,325 | 77,829 |
| Commitments and contingencies | — | — |
| Stockholders' Equity: | ||
| Preferred stock | — | — |
| Common stock | 534 | 529 |
| Additional paid-in capital | 158,345 | 147,619 |
| Treasury stock | (112,671) | (112,671) |
| Retained earnings | 354,286 | 301,670 |
| Accumulated other comprehensive income (loss) | 185 | (975) |
| Total stockholders' equity | 400,679 | 336,172 |
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ 474,004 | $ 414,001 |
| j2 GLOBAL COMMUNICATIONS, INC. | ||||
| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | ||||
| (UNAUDITED, IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) | ||||
| THREE MONTHS ENDED SEPTEMBER 30, | NINE MONTHS ENDED SEPTEMBER 30, | |||
| 2010 | 2009 | 2010 | 2009 | |
| Revenues | ||||
| Subscriber | $ 62,066 | $ 61,045 | $ 182,173 | $ 181,734 |
| Other | 712 | 756 | 2,196 | 2,922 |
| Total revenue | 62,778 | 61,801 | 184,369 | 184,656 |
|
Cost of revenues (including share-based compensation of $304 and $963 for the three and nine months of 2010, respectively, and $323 and $935 for the three and nine months of 2009, respectively) |
10,732 | 11,258 | 31,378 | 34,250 |
| Gross profit | 52,046 | 50,543 | 152,991 | 150,406 |
| Operating expenses: | ||||
|
Sales and marketing (including share-based compensation of $464 and $1,460 for the three and nine months of 2010, respectively, and $477 and $1,338 for the three and nine months of 2009, respectively) |
10,878 | 9,347 | 32,327 | 27,443 |
|
Research, development and engineering (including share-based compensation of $204 and $645 for the three and nine months of 2010, respectively, and $217 and $634 for the three and nine months of 2009, respectively) |
3,008 | 2,862 | 8,810 | 8,685 |
|
General and administrative (including share-based compensation of $1,805 and $5,699 for the three and nine months of 2010, respectively, and $1,877 and $5,188 for the three and nine months of 2009, respectively) |
10,921 | 11,667 | 34,263 | 33,582 |
| Total operating expenses | 24,807 | 23,876 | 75,400 | 69,710 |
| Operating earnings | 27,239 | 26,667 | 77,591 | 80,696 |
| Other-than-temporary impairment losses | — | — | — | (9,193) |
| Interest and other income, net | 491 | 20 | 1,750 | 477 |
| Earnings before income taxes | 27,730 | 26,687 | 79,341 | 71,980 |
| Income tax expense | 7,896 | 7,353 | 23,161 | 22,857 |
| Net earnings | $ 19,834 | $ 19,334 | $ 56,180 | $ 49,123 |
| Basic net earnings per common share | $ 0.44 | $ 0.44 | $ 1.26 | $ 1.12 |
| Diluted net earnings per common share | $ 0.43 | $ 0.43 | $ 1.23 | $ 1.09 |
| Basic weighted average shares outstanding | 44,716,366 | 44,126,038 | 44,488,561 | 43,840,308 |
| Diluted weighted average shares outstanding | 45,939,172 | 45,296,147 | 45,738,389 | 44,985,160 |
| j2 GLOBAL COMMUNICATIONS, INC. | ||
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||
| (UNAUDITED, IN THOUSANDS) | ||
| NINE MONTHS ENDED SEPTEMBER 30, | ||
| 2010 | 2009 | |
| Cash flows from operating activities: | ||
| Net earnings | $ 56,180 | $ 49,123 |
|
Adjustments to reconcile net earnings to net cash provided by operating activities: |
||
| Depreciation and amortization | 10,973 | 10,990 |
| Amortization of discount or premium of investments | 670 | 0 |
| Share-based compensation | 8,767 | 8,095 |
| Excess tax benefits from share-based compensation | (164) | (3,126) |
| Provision for doubtful accounts | 1,542 | 1,710 |
| Deferred income taxes | (815) | (924) |
| Other-than-temporary impairment losses | — | 9,193 |
| Decrease (increase) in: | ||
| Accounts receivable | (1,354) | (803) |
| Prepaid expenses and other current assets | 1,097 | (737) |
| Other assets | (262) | (108) |
| (Decrease) increase in: | ||
| Accounts payable and accrued expenses | 2,350 | (723) |
| Income taxes payable | (11,426) | (724) |
| Deferred revenue | (422) | 219 |
| Liability for uncertain tax positions | 6,339 | 5,776 |
| Other | 677 | 22 |
| Net cash provided by operating activities | 74,152 | 77,983 |
| Cash flows from investing activities: | ||
| Maturity of certificates of deposit | 31,653 | — |
| Redemptions/sales of available-for-sale investments | 9,019 | — |
| Purchases of available-for-sale investments | (52,921) | — |
| Purchases of certificates of deposit | — | (31,150) |
| Purchases of property and equipment | (1,273) | (1,704) |
| Proceeds from sale of assets | — | 1,340 |
| Acquisition of businesses, net of cash received | (36,546) | (11,915) |
| Purchases of intangible assets | (6,953) | (3,146) |
| Net cash used in investing activities | (57,021) | (46,575) |
| Cash flows from financing activities: | ||
| Repurchases of common stock and restricted stock | (4,175) | (441) |
| Issuance of common stock under employee stock purchase plan | 85 | 89 |
| Exercise of stock options | 2,349 | 2,638 |
| Excess tax benefits from share-based compensation | 164 | 3,126 |
| Net cash (used in) provided by financing activities | (1,577) | 5,412 |
| Effect of exchange rate changes on cash and cash equivalents | (265) | 750 |
| Net increase in cash and cash equivalents | 15,289 | 37,570 |
| Cash and cash equivalents at beginning of period | 197,411 | 150,780 |
| Cash and cash equivalents at end of period | $ 212,700 | $ 188,350 |
| j2 GLOBAL COMMUNICATIONS, INC. | ||||||
| UNAUDITED RECONCILIATION OF MODIFIED NET EARNINGS | ||||||
| THREE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009 | ||||||
| (UNAUDITED, IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) | ||||||
|
Modified net earnings are GAAP net earnings with the following modifications (1) elimination of share-based compensation expense for 2010 and 2009; (2) elimination of payroll taxes associated with share-based compensation and (3) elimination of income tax expense associated with share-based compensation and associated payroll taxes. Modified net earnings and modified net earnings per share are not meant as a substitute for measures determined under GAAP, but are solely for informational purposes. The following table illustrates and reconciles the GAAP net earnings with the aforementioned exclusions. The Company believes that this non-GAAP financial information are useful measures of operating performance because they exclude certain transactions outside the ordinary course of the Company's business. |
||||||
| THREE MONTHS ENDED SEPTEMBER 30, 2010 | THREE MONTHS ENDED SEPTEMBER 30, 2009 | |||||
| Reported | Non-GAAP Entries | Non-GAAP | Reported | Non-GAAP Entries | Non-GAAP | |
| Revenues | ||||||
| Subscriber | $ 62,066 | $ -- | $ 62,066 | $ 61,045 | $ -- | $ 61,045 |
| Other | 712 | -- | 712 | 756 | -- | 756 |
| Total revenue | 62,778 | -- | 62,778 | 61,801 | -- | 61,801 |
| Cost of revenues (1) | 10,732 | (304) (1) | 10,428 | 11,258 | (323) (1) | 10,935 |
| Gross profit | 52,046 | 304 | 52,350 | 50,543 | 323 | 50,866 |
| Operating expenses: | ||||||
| Sales and marketing (1) | 10,878 | (464) (1) | 10,414 | 9,347 | (477) (1) | 8,870 |
| Research, development and engineering (1) | 3,008 | (204) (1) | 2,804 | 2,862 | (217) (1) | 2,645 |
| General and administrative (1) (2) | 10,921 | (1,826) (1) (2) | 9,095 | 11,667 | (1,909) (1) (2) | 9,758 |
| Total operating expenses | 24,807 | (2,494) | 22,313 | 23,876 | (2,603) | 21,273 |
| Operating earnings | 27,239 | 2,798 | 30,037 | 26,667 | 2,926 | 29,593 |
| Interest and other income, net | 491 | -- | 491 | 20 | -- | 20 |
| Earnings before income taxes | 27,730 | 2,798 | 30,528 | 26,687 | 2,926 | 29,613 |
| Income tax expense (3) | 7,896 | 883 (3) | 8,779 | 7,353 | 902 (3) | 8,255 |
| Net earnings | $ 19,834 | $ 1,915 | $ 21,749 | $ 19,334 | $ 2,024 | $ 21,358 |
| Diluted net earnings per share | $ 0.43 | $ 0.47 | $ 0.43 | $ 0.47 | ||
| Diluted weighted average shares outstanding | 45,939,172 | 45,939,172 | 45,296,147 | 45,296,147 | ||
| (1) Share-based compensation expense: | ||||||
| Cost of revenues | $ (304) | $ (323) | ||||
| Sales and marketing | $ (464) | $ (477) | ||||
| Research, development and engineering | $ (204) | $ (217) | ||||
| General and administrative | $ (1,805) | $ (1,877) | ||||
| $ (2,777) | $ (2,894) | |||||
| (2) Payroll taxes associated with share-based compensation | $ (21) | $ (32) | ||||
| (3) Income tax adjustment, net impact of the items above | ||||||
| Share-based compensation expense | $ 877 | $ 893 | ||||
| Payroll taxes associated with share-based compensation | 6 | 9 | ||||
| $ 883 | $ 902 | |||||
| j2 GLOBAL COMMUNICATIONS, INC. | ||||||
| UNAUDITED RECONCILIATION OF MODIFIED NET EARNINGS | ||||||
| NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009 | ||||||
| (UNAUDITED, IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) | ||||||
|
Modified net earnings are GAAP net earnings with the following modifications (1) elimination of share-based compensation expense for 2010 and 2009; (2) elimination of payroll taxes associated with share-based compensation; (3) elimination of certain acquisition costs; (4) elimination of other-than-temporary impairment losses and (5) elimination of income tax expense associated with share-based compensation and associated payroll taxes, certain acquisition costs and other-than-temporary impairment losses. Modified net earnings and modified net earnings per share are not meant as a substitute for measures determined under GAAP, but are solely for informational purposes. The following table illustrates and reconciles the GAAP net earnings with the aforementioned exclusions. The Company believes that this non-GAAP financial information are useful measures of operating performance because they exclude certain transactions outside the ordinary course of the Company's business. |
||||||
| NINE MONTHS ENDED SEPTEMBER 30, 2010 | NINE MONTHS ENDED SEPTEMBER 30, 2009 | |||||
| Reported | Non-GAAP Entries | Non-GAAP | Reported | Non-GAAP Entries | Non-GAAP | |
| Revenues | ||||||
| Subscriber | $ 182,173 | $ -- | $ 182,173 | $ 181,734 | $ -- | $ 181,734 |
| Other | 2,196 | -- | 2,196 | 2,922 | -- | 2,922 |
| Total revenue | 184,369 | -- | 184,369 | 184,656 | -- | 184,656 |
| Cost of revenues (1) | 31,378 | (963) (1) | 30,415 | 34,250 | (935) (1) | 33,315 |
| Gross profit | 152,991 | 963 | 153,954 | 150,406 | 935 | 151,341 |
| Operating expenses: | ||||||
| Sales and marketing (1) | 32,327 | (1,460) (1) | 30,867 | 27,443 | (1,338) (1) | 26,105 |
| Research, development and engineering (1) | 8,810 | (645) (1) | 8,165 | 8,685 | (634) (1) | 8,051 |
| General and administrative (1) (2) (3) | 34,263 | (6,073) (1) (2) (3) | 28,190 | 33,582 | (5,237) (1) (2) | 28,345 |
| Total operating expenses | 75,400 | (8,178) | 67,222 | 69,710 | (7,209) | 62,501 |
| Operating earnings | 77,591 | 9,141 | 86,732 | 80,696 | 8,144 | 88,840 |
| Other-than-temporary impairment losses (4) | -- | -- | -- | (9,193) | 9,193 (4) | -- |
| Interest and other income, net | 1,750 | -- | 1,750 | 477 | -- | 477 |
| Earnings before income taxes | 79,341 | 9,141 | 88,482 | 71,980 | 17,337 | 89,317 |
| Income tax expense (5) | 23,161 | 2,849 (5) | 26,010 | 22,857 | 3,255 (5) | 26,112 |
| Net earnings | $ 56,180 | $ 6,292 | $ 62,472 | $ 49,123 | $ 14,082 | $ 63,205 |
| Diluted net earnings per share | $ 1.23 | $ 1.37 | $ 1.09 | $ 1.41 | ||
| Diluted weighted average shares outstanding | 45,738,389 | 45,738,389 | 44,985,160 | 44,985,160 | ||
| (1) Share-based compensation expense: | ||||||
| Cost of revenues | $ (963) | $ (935) | ||||
| Sales and marketing | $ (1,460) | $ (1,338) | ||||
| Research, development and engineering | $ (645) | $ (634) | ||||
| General and administrative | $ (5,699) | $ (5,188) | ||||
| $ (8,767) | $ (8,095) | |||||
| (2) Payroll taxes associated with share-based compensation | $ (169) | $ (49) | ||||
| (3) Acquisition costs | $ (205) | $ -- | ||||
| (4) Other-than-temporary impairment losses | $ -- | $ 9,193 | ||||
| (5) Income tax adjustment, net impact of the items above | ||||||
| Share-based compensation expense | $ 2,738 | $ 2,463 | ||||
| Payroll taxes associated with share-based compensation | 51 | 16 | ||||
| Acquisition costs | 60 | -- | ||||
| Other-than-temporary impairment losses | -- | 776 | ||||
| $ 2,849 | $ 3,255 | |||||
| j2 Global Communications, Inc. | |||||
| Free Cash Flows | |||||
| Q1 | Q2 | Q3 | Q4 | YTD | |
| 2010 | |||||
| Net cash provided by operating activities | 34,688 | 12,317 | 27,147 | 74,152 | |
| Less: Purchases of property and equipment | (86) | (495) | (692) | (1,273) | |
| Add: Excess tax (deficiency) benefit from share-based compensation | (406) | 374 | 196 | 164 | |
| Add: IRS settlement* | -- | 14,223 | -- | 14,223 | |
| 34,196 | 26,419 | 26,651 | -- | 87,266 | |
|
* Free cash flow of $26.4 million is before the effects of our IRS settlement. In the second quarter, we successfully settled our audit for transfer pricing for the years of 2004 to 2008 for $14.2 million, which was fully accrued for in prior periods. Taking this settlement into consideration, our free cash flow for the quarter was $12.2 million. |
|||||
| 2009 | |||||
| Net cash provided by operating activities | 31,152 | 20,362 | 26,469 | 23,850 | 101,833 |
| Less: Purchases of property and equipment | (721) | (217) | (767) | (1,546) | (3,251) |
| Add: Excess tax benefit (deficiency) from share-based compensation | 5 | 2,718 | 403 | (63) | 3,063 |
| 30,436 | 22,863 | 26,105 | 22,241 | 101,645 | |
| 2008 | |||||
| Net cash provided by operating activities | 27,411 | 23,840 | 15,676 | 23,789 | 90,716 |
| Less: Purchases of property and equipment | (469) | (796) | (937) | (305) | (2,507) |
| Add: Excess tax benefit from share-based compensation | 239 | 204 | 212 | 910 | 1,565 |
| 27,181 | 23,248 | 14,951 | 24,394 | 89,774 | |