LOS ANGELES, Aug. 3, 2010 (GLOBE NEWSWIRE) -- j2 Global Communications, Inc. (Nasdaq:JCOM) today reported financial results for the second quarter ended June 30, 2010.
SECOND QUARTER 2010 RESULTS
Total revenues for Q2 2010 were $61.3 million, which represents a growth of $1.0 million from $60.3 million in Q1 2010. Total revenues for Q2 2009 were $62.5 million. The decrease from Q2 2009 to Q2 2010 was primarily due to $0.7 million in non-subscriber revenues recognized on the sale of certain non-core patent assets in Q2 2009.
Subscriber revenues for Q2 2010 were essentially flat at $60.6 million, compared to $61.0 million for Q2 2009.
For Q2 2010, the Company improved its gross margin to a record 83.1% versus 81.4% in Q2 2009. For Q2 2010, the Company achieved operating margins of 42.2% compared to 44.1% in Q2 2009 due to 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 and certain acquisition costs, for Q2 2010 was $0.46 compared to $0.48 in Q2 2009. The Q2 2009 amount reflects $0.4 million of incremental net earnings, representing approximately $0.01 per diluted share, from the sale of certain non-core patent assets during that period. GAAP net earnings per diluted share for Q2 2010 was $0.41 compared to $0.25 for Q2 2009. The Q2 2009 amount reflects $(8.4) million of incremental net earnings, representing approximately $(0.19) per diluted share, from the recording of a pre-tax impairment charge on auction rate and related securities during that period.
The Company generated $26.4 million of free cash flow(4) during the quarter and ended the quarter with $264.9 million in cash and investments.
Key financial results for second quarter 2010 versus second quarter 2009 are as follows:
| Q2 2010 | Q2 2009 | % Change | |
| Subscriber Revenues | $60.6 million | $61.0 million | (0.7)% |
| Total Revenues | $61.3 million | $62.5 million | (1.9)% |
| Non-GAAP Earnings per Diluted Share(1) (3) | $0.46 | $0.48 | (4.2)% |
| GAAP Net Earnings per Diluted Share (2) | $0.41 | $0.25 | 64% |
| Free Cash Flow (4) | $26.4 million | $22.9 million | 15% |
(1) The estimated non-GAAP effective tax rate was approximately 31% and 30% for Q2 2010 and Q2 2009, respectively.
(2) The estimated effective tax rate was approximately 31% and 40% for Q2 2010 and Q2 2009, respectively. The Q2 2009 effective tax rate was impacted by a pre-tax impairment charge on auction rate and related securities of $9.2 million which was not entirely deductible for tax purposes.
(3) Share-based compensation and related payroll taxes, together with certain acquisition costs, impacted Q2 2010 net earnings per diluted share by approximately $0.05, net of tax. Share-based compensation and related payroll taxes and elimination of other-than-temporary impairment losses impacted Q2 2009 net earnings per diluted share by approximately $0.23, 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. In addition, the amount shown for Q2 2010 excludes the impact of a $14.2 million settlement payment to the IRS in settlement of an audit for transfer pricing covering tax years 2004 through 2008 and was fully accrued for in prior periods. Including this settlement amount, the Company's free cash flow for the quarter was $12.2 million. Excluding this settlement, for the six month period ending June 30, 2010, the Company achieved record free cash flows for any six month period in its existence.
"I am very pleased with the operational and financial performance of the Company this quarter," said Hemi Zucker, j2 Global's chief executive officer. "We added 20,000 DIDs without acquisitions and reduced our cancel rate to 2.6% - down to the pre-recession level in 2006. In addition, we achieved new gross margin and free cash flow milestones, all while expanding our network into two new countries and approximately 500 new cities and launching localized service in Japan."
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 4,100 cities in 48 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) | ||
| June 30, | DECEMBER 31, | |
| 2010 | 2009 | |
| ASSETS | ||
| Cash and cash equivalents | $ 211,991 | $ 197,411 |
| Short-term investments | 11,332 | 31,381 |
| Accounts receivable, net of allowances of $2,624 and $3,077, respectively | 11,179 | 11,928 |
| Prepaid expenses and other current assets | 5,767 | 13,076 |
| Deferred income taxes | 2,657 | 2,657 |
| Total current assets | 242,926 | 256,453 |
| Long-term investments | 41,534 | 14,887 |
| Property and equipment, net | 11,475 | 13,366 |
| Goodwill | 93,706 | 81,258 |
| Other purchased intangibles, net | 43,715 | 39,091 |
| Deferred income taxes | 9,433 | 8,717 |
| Other assets | 353 | 229 |
| TOTAL ASSETS | $ 443,142 | $ 414,001 |
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||
| Accounts payable and accrued expenses | $ 15,754 | $ 15,941 |
| Income taxes payable | 2,716 | 1,563 |
| Deferred revenue | 12,829 | 11,411 |
| Total current liabilities | 31,299 | 28,915 |
| Liability for uncertain tax positions | 33,992 | 46,820 |
| Other long-term liabilities | 3,471 | 2,094 |
| Total liabilities | 68,762 | 77,829 |
| Commitments and contingencies | — | — |
| Total stockholders' equity | 374,380 | 336,172 |
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ 443,142 | $ 414,001 |
| j2 GLOBAL COMMUNICATIONS, INC. | ||||
| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | ||||
| (UNAUDITED, IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) | ||||
| THREE MONTHS ENDED JUNE 30, | SIX MONTHS ENDED JUNE 30, | |||
| 2010 | 2009 | 2010 | 2009 | |
| Revenues | ||||
| Subscriber | $ 60,560 | $ 61,049 | $ 120,107 | $ 120,689 |
| Other | 751 | 1,415 | 1,484 | 2,166 |
| Total revenue | 61,311 | 62,464 | 121,591 | 122,855 |
| Cost of revenues (including share-based compensation of $330 and $659 for the three and six months of 2010, respectively, and $331 and $612 for the three and six months of 2009, respectively) | 10,380 | 11,600 | 20,646 | 22,992 |
| Gross profit | 50,931 | 50,864 | 100,945 | 99,863 |
| Operating expenses: | ||||
| Sales and marketing (including share-based compensation of $505 and $996 for the three and six months of 2010, respectively, and $484 and $861 for the three and six months of 2009, respectively) | 10,297 | 9,211 | 21,449 | 18,096 |
| Research, development and engineering (including share-based compensation of $221 and $441 for the three and six months of 2010, respectively, and $221 and $417 for the three and six months of 2009, respectively) | 2,893 | 2,880 | 5,802 | 5,823 |
| General and administrative (including share-based compensation of $1,993 and $3,894 for the three and six months of 2010, respectively, and $1,870 and $3,311 for the three and six months of 2009, respectively) | 11,848 | 11,209 | 23,342 | 21,915 |
| Total operating expenses | 25,038 | 23,300 | 50,593 | 45,834 |
| Operating earnings | 25,893 | 27,564 | 50,352 | 54,029 |
| Other-than-temporary impairment losses | — | (9,193) | — | (9,193) |
| Interest and other income, net | 1,067 | 315 | 1,259 | 457 |
| Earnings before income taxes | 26,960 | 18,686 | 51,611 | 45,293 |
| Income tax expense | 8,250 | 7,549 | 15,265 | 15,504 |
| Net earnings | $ 18,710 | $ 11,137 | $ 36,346 | $ 29,789 |
| Basic net earnings per common share | $ 0.42 | $ 0.25 | $ 0.82 | $ 0.68 |
| Diluted net earnings per common share | $ 0.41 | $ 0.25 | $ 0.80 | $ 0.66 |
| Basic weighted average shares outstanding | 44,493,676 | 43,762,333 | 44,372,770 | 43,695,076 |
| Diluted weighted average shares outstanding | 45,808,173 | 45,044,005 | 45,651,647 | 44,806,260 |
| j2 GLOBAL COMMUNICATIONS, INC. | ||
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||
| (UNAUDITED, IN THOUSANDS) | ||
| SIX MONTHS ENDED JUNE 30, | ||
| 2010 | 2009 | |
| Cash flows from operating activities: | ||
| Net earnings | $ 36,346 | $ 29,789 |
| Adjustments to reconcile net earnings to net cash provided by operating activities: | ||
| Depreciation and amortization | 7,897 | 7,363 |
| Amortization of discount or premium of investments | 391 | — |
| Share-based compensation | 5,990 | 5,201 |
| Tax deficiency (excess tax benefits) from share-based compensation | 32 | (2,723) |
| Provision for doubtful accounts | 744 | 593 |
| Deferred income taxes | (716) | (1,221) |
| Other-than-temporary impairment losses | — | 9,193 |
| Decrease (increase) in: | ||
| Accounts receivable | 334 | (516) |
| Prepaid expenses and other current assets | 1,703 | 436 |
| Other assets | (98) | 40 |
| (Decrease) increase in: | ||
| Accounts payable and accrued expenses | (58) | 579 |
| Income taxes payable | (9,684) | 189 |
| Deferred revenue | 185 | (777) |
| Liability for uncertain tax positions | 3,310 | 3,354 |
| Other | 629 | 14 |
| Net cash provided by operating activities | 47,005 | 51,514 |
| Cash flows from investing activities: | ||
| Maturity of certificates of deposit | 31,653 | — |
| Redemptions/sales of available-for-sale investments | 1,650 | — |
| Purchases of available-for-sale investments | (39,427) | — |
| Purchases of property and equipment | (581) | (938) |
| Proceeds from sale of assets | — | 1,011 |
| Acquisition of businesses, net of cash received | (16,642) | (11,910) |
| Purchases of intangible assets | (5,250) | (2,272) |
| Net cash used in investing activities | (28,597) | (14,109) |
| Cash flows from financing activities: | ||
| Repurchases of common stock and restricted stock | (3,630) | (92) |
| Issuance of common stock under employee stock purchase plan | 58 | 61 |
| Exercise of stock options | 1,498 | 802 |
| (Tax deficiency) excess tax benefits from share-based compensation | (32) | 2,723 |
| Net cash (used in) provided by financing activities | (2,106) | 3,494 |
| Effect of exchange rate changes on cash and cash equivalents | (1,722) | 897 |
| Net increase in cash and cash equivalents | 14,580 | 41,796 |
| Cash and cash equivalents at beginning of period | 197,411 | 150,780 |
| Cash and cash equivalents at end of period | $ 211,991 | $ 192,576 |
| j2 GLOBAL COMMUNICATIONS, INC. | ||||||
| UNAUDITED RECONCILIATION OF MODIFIED NET EARNINGS | ||||||
| THREE MONTHS ENDED JUNE 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. | ||||||
| THREE MONTHS ENDED JUNE 30, 2010 | THREE MONTHS ENDED JUNE 30, 2009 | |||||
| Reported |
Non-GAAP Entries |
Non-GAAP | Reported | Non-GAAP Entries | Non-GAAP | |
| Revenues | ||||||
| Subscriber | $ 60,560 | $ -- | $ 60,560 | $ 61,049 | $ -- | $ 61,049 |
| Other | 751 | -- | 751 | 1,415 | -- | 1,415 |
| Total revenue | 61,311 | -- | 61,311 | 62,464 | -- | 62,464 |
| Cost of revenues (1) | 10,380 | (330)(1)(2)(3) | 10,050 | 11,600 | (331)(1) | 11,269 |
| Gross profit | 50,931 | 330 | 51,261 | 50,864 | 331 | 51,195 |
| Operating expenses: | ||||||
| Sales and marketing (1) | 10,297 | (505)(1) | 9,792 | 9,211 | (484)(1) | 8,727 |
| Research, development and engineering (1) | 2,893 | (221)(1) | 2,672 | 2,880 | (221)(1) | 2,659 |
| General and administrative (1) (2) (3) | 11,848 | (2,216)(1)(2)(3) | 9,632 | 11,209 | (1,887)(1)(2) | 9,322 |
| Total operating expenses | 25,038 | (2,942) | 22,096 | 23,300 | (2,592) | 20,708 |
| Operating earnings | 25,893 | 3,272 | 29,165 | 27,564 | 2,923 | 30,487 |
| Other-than-temporary impairment losses (4) | -- | -- | -- | (9,193) | 9,193(4) | -- |
| Interest and other income, net | 1,067 | -- | 1,067 | 315 | -- | 315 |
| Earnings before income taxes | 26,960 | 3,272 | 30,232 | 18,686 | 12,116 | 30,802 |
| Income tax expense (5) | 8,250 | 1,022(5) | 9,272 | 7,549 | 1,675(5) | 9,224 |
| Net earnings | $ 18,710 | $ 2,250 | $ 20,960 | $ 11,137 | $ 10,441 | $ 21,578 |
| Diluted net earnings per share | $ 0.41 | $ 0.46 | $ 0.25 | $ 0.48 | ||
| Diluted weighted average shares outstanding | 45,808,173 | 45,808,173 | 45,044,005 | 45,044,005 | ||
| (1) Share-based compensation expense: | ||||||
| Cost of revenues | $ (330) | $ (331) | ||||
| Sales and marketing | $ (505) | $ (484) | ||||
| Research, development and engineering | $ (221) | $ (221) | ||||
| General and administrative | $ (1,993) | $ (1,870) | ||||
| $ (3,049) | $ (2,906) | |||||
| (2) Payroll taxes associated with share-based compensation | $ (148) | $ (17) | ||||
| (3) Acquisition costs | $ (75) | $ -- | ||||
| (4) Other-than-temporary impairment losses | $ -- | $ 9,193 | ||||
| (5) Income tax adjustment, net impact of the items above | ||||||
| Share-based compensation expense | $ 954 | $ 892 | ||||
| Payroll taxes associated with share-based compensation | 45 | 7 | ||||
| Acquisition costs | 23 | -- | ||||
| Other-than-temporary impairment losses | -- | 776 | ||||
| $ 1,022 | $ 1,675 | |||||
| j2 GLOBAL COMMUNICATIONS, INC. | ||||||
| UNAUDITED RECONCILIATION OF MODIFIED NET EARNINGS | ||||||
| SIX MONTHS ENDED JUNE 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. | ||||||
| SIX MONTHS ENDED JUNE 30, 2010 | SIX MONTHS ENDED JUNE 30, 2009 | |||||
| Reported |
Non-GAAP Entries |
Non-GAAP | Reported | Non-GAAP Entries | Non-GAAP | |
| Revenues | ||||||
| Subscriber | $ 120,107 | $ -- | $ 120,107 | $ 120,689 | $ -- | $ 120,689 |
| Other | 1,484 | -- | 1,484 | 2,166 | -- | 2,166 |
| Total revenue | 121,591 | -- | 121,591 | 122,855 | -- | 122,855 |
| Cost of revenues (1) | 20,646 | (659)(1) | 19,987 | 22,992 | (612)(1) | 22,380 |
| Gross profit | 100,945 | 659 | 101,604 | 99,863 | 612 | 100,475 |
| Operating expenses: | ||||||
| Sales and marketing (1) | 21,449 | (996)(1) | 20,453 | 18,096 | (861)(1) | 17,235 |
| Research, development and engineering (1) | 5,802 | (441)(1) | 5,361 | 5,823 | (417)(1) | 5,406 |
| General and administrative (1) (2) (3) | 23,342 | (4,247)(1)(2)(3) | 19,095 | 21,915 | (3,328)(1)(2) | 18,587 |
| Total operating expenses | 50,593 | (5,684) | 44,909 | 45,834 | (4,606) | 41,228 |
| Operating earnings | 50,352 | 6,343 | 56,695 | 54,029 | 5,218 | 59,247 |
| Other-than-temporary impairment losses (4) | -- | -- | -- | (9,193) | 9,193(4) | -- |
| Interest and other income, net | 1,259 | -- | 1,259 | 457 | -- | 457 |
| Earnings before income taxes | 51,611 | 6,343 | 57,954 | 45,293 | 14,411 | 59,704 |
| Income tax expense (5) | 15,265 | 1,966(5) | 17,231 | 15,504 | 2,353(5) | 17,857 |
| Net earnings | $ 36,346 | $ 4,377 | $ 40,723 | $ 29,789 | $ 12,058 | $ 41,847 |
| Diluted net earnings per share | $ 0.80 | $ 0.89 | $ 0.66 | $ 0.93 | ||
| Diluted weighted average shares outstanding | 45,651,647 | 45,651,647 | 44,806,260 | 44,806,260 | ||
| (1) Share-based compensation expense: | ||||||
| Cost of revenues | $ (659) | $ (612) | ||||
| Sales and marketing | $ (996) | $ (861) | ||||
| Research, development and engineering | $ (441) | $ (417) | ||||
| General and administrative | $ (3,894) | $ (3,311) | ||||
| $ (5,990) | $ (5,201) | |||||
| (2) Payroll taxes associated with share-based compensation | $ (148) | $ (17) | ||||
| (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 | $ 1,861 | $ 1,570 | ||||
| Payroll taxes associated with share-based compensation | 45 | 7 | ||||
| Acquisition costs | 60 | -- | ||||
| Other-than-temporary impairment losses | -- | 776 | ||||
| $ 1,966 | $ 2,353 | |||||
| j2 Global Communications, Inc. | |||||
| Free Cash Flows | |||||
| Q1 | Q2 | Q3 | Q4 | YTD | |
| 2010 | |||||
| Net cash provided by operating activities | 34,688 | 12,317 | 47,005 | ||
| Less: Purchases of property and equipment | (86) | (495) | (581) | ||
| Add: Excess tax (deficiency) benefit from share-based compensation | (406) | 374 | (32) | ||
| Add: IRS settlement* | -- | 14,223 | 14,223 | ||
| 34,196 | 26,419 | -- | -- | 60,615 | |
| * 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 | |