Ziff Davis, Inc.

Thank you very much. Good afternoon, and welcome to the j2 Global investor conference call for fourth quarter of 2011.

As the operator just mentioned, I'm Scott Turicchi, President of j2 Global. And with me today is Hemi Zucker, our CEO; and Kathy Griggs, our CFO.

In this call, we will be discussing our Q4 and fiscal year 2011 financial results, provide an outlook on our opportunities for 2012 and release our 2012 financial guidance. In addition, our board has authorized a 5 million share repurchase program that replaces our existing share repurchase program and increased the quarterly dividend to $0.21 a share.

We will use the presentation as a roadmap for today's call. A copy of that presentation is available at our website.

When you launch the webcast, there is a button on the viewer on the right-hand side which will allow you to expand the slides.

If you've not received the copy of the press release, you may access it through our corporate website at j2global.com/press. In addition, you will be able to access the webcast from the site.

After completing the presentation, we will conduct the Q&A session. The operator will instruct you at that time regarding the procedures for asking a question.

In addition, you may email questions anytime to [email protected].

Before we begin our prepared remarks, allow me to 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. Some of those risks and uncertainties include, 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've included as part of the slideshow for the webcast.

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

Since we initiated our dividend in August of 2011, we've had many new shareholders come to the company. As a result, we'll spend a few minutes to review our business philosophy.

I would ask you to turn to Slide 4.

For those of you that are familiar with the company, with j2 in the middle, the 7 balls around j2 represent each of the current business services that we offer. I will not go through them in great detail but I will point you to the top, which is the online fax brands led by eFax.

And if you go clockwise, you will come to Onebox, which is our Unified Communications suite.

In addition to those 2 services, we have the Virtual PBX phone system branded, eVoice; a host of email solutions under the brand, FuseMail; our recent acquisition which brought us into the CRM space under the brand, Landslide; our email marketing company under the brand, Campaigner; and our online backup company under the brand, KeepItSafe.

More importantly though is the information you see behind j2 and the 7 current balls. These are a variety of SaaS-based or cloud-based services used by businesses and business people.

As we told you before, our philosophy is to extend our suite of services that are applicable primarily to a small to midsize business customer or individual user that will make them more efficient, more mobile and more productive.

We view each of these spaces to varying degrees as potential areas of growth for us in terms of accessing those services either through building them, renting them, meaning like from a third-party or acquiring them through an M&A transaction much like how we got into the email marketing, online backup and CRM spaces.

Turn to Slide 5. These services, as you can see from our financials, produce very high margins both at the gross, EBITDA and operating level as well as free cash flow.

Kathy will give you the specific details in just a minute.

As you know, we deployed a significant amount of that free cash flow over the years into acquiring a variety of assets. Our M&A strategy has a four-pronged approach.

Let me briefly go through them.

One is a classic roll-off where we are purchasing assets, customer bases or a whole company in one of the existing spaces in which we already operate and merge them into the appropriate j2 business unit. The second is geographic expansion, allowing us to offer one or more of our services in an area of the world where either we have no presence today or very limited presence.

The third is service expansion, meaning bringing additional services into the j2 family. And finally, intellectual property purchases, which can include patents, domains and brands.

On Slide 6, you'll see that this business philosophy has been very successful. Since the company was born in late 1995, we've had 16 years of consecutive revenue growth, high operating margins currently in excess of 47% on a non-GAAP basis, free cash flow that currently exceeds $13 million per month, very efficient on our operations generating more than $600,000 of revenue per employee.

If you look at our telephony-oriented services, which constitute about 90% of our business today, more than 2 million paying DIDs or customers, coverage of our network in 49 countries on 6 continents, offering our services in 9 languages, accepting 10 currencies for payments and now, having offices in 7 countries. Already this year, we've already closed 3 small deals, bringing our total count since early 2000 to 37.

At this time, now I'd like to turn the presentation over to Kathy, who will give you the detailed financial results for the fourth fiscal quarter and full fiscal year of '11.

Thank you, Scott. Good afternoon, ladies and gentlemen.

Please refer to Slide 8 in the presentation for a recap of our Q4 GAAP and the non-GAAP operating results.

Our fourth quarter revenues of $85.1 million represent our best Q4 ever, exceeding Q4 2010 revenues by more than $14 million or 20%. As a reminder, during Q4 2010, we already own both Venali and Protus for a full or partial quarter.

first, we had fewer business days resulting in $600,000 less variable revenue; second, the stronger U.S. dollar had a negative impact of approximately $400,000; third, Q4 was the first full quarter without revenues from certain unprofitable Venali customers we elected to discontinue last quarter; and fourth, $800,000 less than marketing spend driven by seasonality resulting in approximately 30,000 fewer gross sign-ups.

Our other revenues increased by $0.5 million due to our successful patent licensing efforts during the quarter. DIDs grew by more than 9,000 in the quarter with growth adversely impacted by the aforementioned $800,000 reduction in spend due to seasonality, which resulted in 30,000 fewer sign-ups.

one, less variable revenue due to seasonality; two, less fixed revenue due in part to currency translation; and three, the full quarter of high ARPU but low margin Venali customers that were let go in Q3.

On a non-GAAP basis, our earnings for the quarter were a record $30.6 million, an increase of 10% from Q4 2010. Non-GAAP gross and operating margins were 82.9% and 47.3%, respectively, both near historic highs.

GAAP net earnings for the quarter were $29.8 million. Our operating earnings increased by 29.2% to $38.5 million compared to $26.3 million in the same quarter last year.

Growth in operating margins were 82.8% and 45.2%, respective, both near historic highs.

In Q4, we achieved non-GAAP EPS of $0.64 per diluted share, up 6.7% from $0.60 per diluted share in Q4 2010, while GAAP EPS for this quarter was $0.62 per share, up 6.9% from the $0.58 in Q4 of 2010.

Please remember that the repurchased share issued under our share-based compensation plan participate in the j2 dividend payments, and therefore, further dilute our EPS by approximately 2%. It is as if we had 47.7 million shares outstanding for the purposes of calculating fully diluted EPS.

Free cash flow for the quarter was $40 million, representing more than 47% of revenues. Our cash and investment balances totaled $221 million as of December 31, 2011, up from $87 million as of December 31, 2010.

For Q4 2011, we incurred $3.2 million in noncash amortization expense on intangible assets or $0.04 in EPS. For the year, we incurred $13.3 million or $0.17 in EPS.

Our estimated effective GAAP tax rate for the 3- and 12-month periods ended December 2011 was 24.3% and 16.3%, respectively.

Let me remind you that we have released over $15 million in reserves for uncertain tax positions this year, which are driving the low GAAP effective tax rate. We expect our normalized effective tax rate to be between 24% and 26% for 2012.

Landslide Technologies, a Boston-based provider of cloud-based CRM services to small and midsized businesses; Offsite Backup Solutions, a Phoenix-based provider of online data backup services; and Zimo Communications [ph], a U.K. provider of cloud-based voice services marketed under the name -- brand name, Number Store [ph].

2011 was a record year for j2 Global. We had a record GAAP revenues of $330.2 million and non-GAAP revenues of $340.5 million, a 29% and 33% increase, respectively, over 2010 revenues of $255.4 million.

Free cash flow grew even faster, reaching more than $157 million for 2011, a 45% increase over 2010's $109 million. Year-over-year, our diluted GAAP EPS increased 34% from $1.81 to $2.42 and non-GAAP diluted EPS increased 29% from $1.96 to $2.53.

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, as well as the GAAP to non-GAAP reconciliation schedule for all financial measures included in our remarks.

Now I'd like to turn the call over to Hemi, who'll provide you with an overview of our activities for 2012.

Thank you, Kathy, and good afternoon, everybody. 2011 was an amazing year for j2.

We integrated substantially all of the 8 acquisitions that we purchased in 2010. We significantly outperformed our budget for 2012.

And midyear to remind you, we raised our guidance. We generated $157 million of cash flow -- free cash flow and initiated the dividend.

2012 is a year when we will make substantial investment in these new opportunities for j2. Geographical expansion is an important effort led by Japan.

We are planning to add more countries and we'll announce them later as they come on board.

Let's now turn to Slide 11. Slide 11.

Increased investment in Japan. We are very happy and we have just announced that we reached 10,000 paying customers in Japan.

Additional coverage of 45% so we move from 18 cities to 26 by adding another 8 cities in Japan. We added mobile apps both for the iPhone and the Android, and they are substantially and very important for our added customers.

As you know, mobile is very important worldwide and especially important in Japan. We are planning to double our efforts, double our spending, double our investment, employees in Japan, in the country.

And our goal for 2012 is 20,000 customers -- paying subscribers by the end of the year.

Next investment on Page 12. Slide 12.

We have just acquired Landslide CRM. It is a promising company out of Boston and they provide an easy-to-use, cloud-based CRM focused on small and midsized businesses, very simple to use, step-by-step kind of usage that helps you to close the deal, they're integrated with social media.

They have very strong leadership, 15 team members in the East Coast, great product and a small but growing customer base. We are just planning, and our initial plans are to integrate them with our Campaigner, which is email marketing and eVoice, when basically the sales product -- all from the beginning, from the website, from the phone number and out to the campaign that takes the leads in and send them a message trying to close.

We also considering, if we took a product and initiation. We are still thinking about this.

As you know, we have a very strong record and history of delivering free product with an upgrade to pay.

Important thing is the positioning of these products. As you know today, there are many products or CRM for sale, provided by very big and well-known companies.

Those products usually come at $1,000 a year per customer.

The CRM that is focused on sales will come less than half of the price, easy to use, no integration, no need for expert programming. So we believe that this will be a home run with our customer base.

Next one is Slide 13. Further investment in our cloud backup.

As you know, late in 2010, we bought a small company out of Ireland with great leadership, great knowledge and excellent product. During the year, we have doubled or almost doubled the run rate of the revenue from 2010 to 2011.

We have recently acquired a company called Offsite Backup Solutions, which is basically a U.S.-based for this backup. We are going to invest in the brand and the people in the infrastructure.

As you know, there are many competitors in the cloud backup but very few of them give a solution for a multinational company that needs to back up the left offs and establishing the field and they have to also be able to enable their employees to back it up into their own country because of different laws and different privacy issues. So we will be able to take a multinational company and offer them to back up different employees into different geographical areas.

We are planning to do additional acquisitions to add, certainly in other countries, and we are planning to grow 200%, 300% over 2012 with these backup products.

Next slide is Slide 14. Investing in database marketing.

If you know, this year, we have successfully launched in March a test. The test was basically focused on database marketing when we were selling to our existing customers additional products of j2.

During this year, we sold 14,000 seats, 4,000 of them in Q4. We saved by doing a $2.2 million in media venue.

And we are very encouraged and now, we are going to invest in a significant way in R&D, in systems automation and all of those to increase the cross selling as we have more product and more venues and more automation. We are planning to increase the sales that come out of that venue.

We launched www.j2.com. We have our services there.

This website is generating a lot of traffic and we also added in the last quarter an enterprise website, j2.com/enterprise.

Another important thing. In order to support the cross sells and the up sells, we are completing the migration of our customer and telesales support to the customers on local markets.

What it means? It means that our customers, if they call for support or if they call to buy, will be talking with people with their own native accent.

We believe that this is the important thing to go against the trend of moving to offshore. We are bringing it back onshore.

Next slide, Slide 15. Mobile.

Investing in mobile is very important. The world is going mobile.

Everybody knows that. We continue and we will invest more into the mobile applications.

Here, I'm going to give an example of what we have and what is coming soon.

On the eFax, this is the new eFax. The new eFax screenshot has added signed faxes.

Basically -- I don't know if you can see it, it's kind of small. But when you get the fax on the go, now with eFax, you can sign it.

Of course, this is on top of all the other features that we have. You can capture, create, send, search and even file as far as you get.

Now you can get fax or any other document and sign it and send it out with a signature.

The eVoice, going down. On the eVoice, I selected to show the screen with the by keep it [ph].

This is a new one. With eVoice, you can always take and make calls.

But now, you can also dial out. You can dial out using the VoIP.

And when you dial out, you can use the caller ID of your business, not the caller ID of your iPhone but any caller ID that you elect. So when the return call comes, you can go to your business.

Also with this, you can save money if you are traveling internationally. Also if you are stuck in an area where there's no coverage -- mobile coverage, you can use the WiFi to initiate calls.

Very important progress. We are now providing dial tone actually on eVoice and on Onebox.

The next one, on the top of the right is the Campaigner. We never show this.

Campaigner, which we bought in the late 2010. They also had a mobile app.

If you're on the go, small business, you want to run a campaign, you want to see the progress, the statistics, you want to confirm a broadcast. Everything can be done now through the mobile app.

Then the Onebox. The Onebox is a product that brings both fax and phone together.

And as you can see, we have -- we are showing here the homepage where you can choose or select whatever function you want to do.

a, you can purchase the program; and b, you can manage everything from a mobile website.

With that, I will turn it to Scott.

Thank you, Hemi. On Slide 17, we have our guidance for the fiscal year.

I'll just remind everybody that as a matter of course, we give an annual guidance of revenue and non-GAAP earnings per share. It is the intention to build in the case of a range, a range such that throughout the course of the year notwithstanding a variety of influences that may cause results to fall somewhere within that range or those results to be in that range.

So we do not look to get into a situation where we're constantly revising the guidance either up or down.

Our revenues are between -- expected to be between $345 million and $365 million. This does not assume any major or large acquisitions.

We look for non-GAAP EPS to be roughly equal or approximately equal to that of 2011. As Hemi mentioned, there are numerous initiatives on the table, each of which requires meaningful investment to the extent possible, even if we are to perform better than the midpoint of the range of revenues.

The goal would be to take those incremental profits and reinvest them in those opportunities.

We assume approximately 48 million shares outstanding on an effective basis for the calculation of fully diluted EPS. And for those who would like to go to a full GAAP, there will be an additional $9 million to $10 million of noncash comp expense.

Finally, the quarterly dividend. This will be the third payment of the dividend since it was initiated in August of 2011.

The record date is February 27, the payment date will be March 12. As I mentioned at the beginning of the call, the dividend was raised to $0.21 per share, remaining consistent with it being approximately 30% of our non-GAAP earnings, which were $0.64 for the quarter, approximately $10 million of cash will be paid out.

As we stated previously, this dividend is designed not to impact either our operational opportunities or M&A activities.

At this time, I would ask the operator to come back online and instruct you in terms of how to queue for questions.

I guess around the investments, j2 has been very, very prudent with investing in the past. It's always been very ROI-focused.

When you guys look out beyond '12, what kind of growth do you think or do you expect these investments to drive?

It's Hemi. The investments are meant to provide us with both organic growth in new areas so that we can enter with knowledge and experience.

So I believe that may be during 2012 but definitely in 2013, you will see growth coming out of those areas that are all non-fax, non-DIDs today. If you know today, only 20% of our revenue is not fax.

And all those initiatives are going to leverage the base that we have and the access that we have to customers into new and exciting spaces, all of them, as you know, are very, very big.

Okay. And, Hemi, I think this is the second quarter in a row where in the press release you talked about having an appetite for larger M&A.

I've always thought of fax and voice as being the 2 areas where the company's ready to do large acquisitions. It seems like IP backup may be another area.

But just -- what are the areas where you think j2 is ready to do a large deal?

I think that all the product that we have experience with are areas that we are comfortable. So we are comfortable with fax.

We are comfortable with voice. We are comfortable with everything.

CRM is totally new for us so we need some time. But all the rest are areas that we're comfortable.

j2 is very strong in anything that has subscription in the cloud, recurring revenue. We know how to manage it very effectively.

All those things that are geared towards businesses, small and are popular. We -- because of the nature of j2, when we sell online, we are looking for services that are popular, that most of the people need them.

So if we have a product that most businesses need, this is our sweet spot.

Okay. And then just a last question, Scott.

Around the share repurchase, is the intention to exhaust that by the expiration date? Or is it to be more opportunistic?

Well, I think as you know in the past, our share buybacks have always been designed for 2 purposes: one, to be opportunistic; and two, as a release valve if a combination of the cash on the balance sheet and free cash flow is such that given particularly the M&A opportunities in front of us, there's just so much that we probably will not spend it with any given fiscal year. So this is, as you pointed out, basically a 12-month program.

I don't know how much will get purchased under the program because it's in part a function of what other opportunities are available to us. So we remain flexible and fluid in the allocation of capital between the M&A, which is we've consistently said is always our preference.

But recognize that we've already built back the cash position almost to where we were pre the Protus acquisition, which is only 15, 16 months ago.

This is Tavis. A couple of follow-ups.

I was wondering, I mean you mentioned 25% of your business is non-fax at this point. I think in the past, you've talked about the number of voice subscribers and I was wondering if you're willing to give round figures there?

Yes. So 20% of our business is not faxed.

The voice run rate -- and Scott, correct me if I'm wrong, is 42 now with the new acquisition. Am I right?

It's right around -- yes, it's a little over 40, right around 40.

Yes, about 40.

You're talking about dollars, not...

Yes, we're talking dollars. Yes.

I said $40 million. And it is one of the fastest-growing part of our business here and in Europe.

And there are interesting opportunities there. And I cannot talk too much because we are talking with some of them.

And if we look at your breakdown of revenues between DID and non-DID, are all the DID-based revenues either fax or voice at this point?

Yes.

And so -- I'm trying to figure out how do we measure the success going forward in some of these investments and especially in the new services. The vast majority of the new service growth we should see picking up in non-DID-based revenue, is that correct?

Correct. So Scott and I have been talking.

There are metrics like seeds [ph] et cetera. Because we have a garden variety of things like we have email accounts, we have that.

We are still thinking about how to better help you there. We are -- for 2012, we are still seeing a growth in the DIDs, so it's still going to be important especially if you include the voice opportunities and the fax opportunities in the world and the globalization.

I did mention some other countries since we are aggressively trying to close deals or trying to enter markets. So hopefully, towards the beginning of Q1, we will be able to think about a different metric.

It's kind of complex because there are so many different ones.

And if you look at some of the newer services, non-fax, non-voice services, how -- I mean you've been testing a lot of these things for a while in quasi-test mode. How confident are you that kind of your historic strength in online acquisition is applicable to these services?

And then also, if you could talk about as they scaled up a bit kind of how are they trending from a margin perspective and business model perspective relative to what you guys have experienced historically?

So both businesses, let's say Campaigner and KeepItSafe have grown last year organically, very impressive. Of course, on a smaller base it's easier.

But the organic growth there is good because the acquisition there is low. The margins are high, not as high as fax but really high.

Not as high as fax. And we are helping them by the fact that the fax business brings the ability to get a very advantageous credit card processing and our -- and also they are benefiting from the heavy systems that we have built here.

They are a little bit less on the margin but not all of them. Because as you sell some of those services -- and you see I tried to talk about the KeepItSafe positioning, it is a one-stop for multinational company.

There's not a lot of competition there. We can expect premium prices there.

So most of those services, unlike fax, the cost keeps on going down. And the fax, it's down, it's where it should be.

But in KeepItSafe and in Campaigner, the cost is still going down all the time. So I believe that the margins will -- as the business mature, will come very close or similar to fax.

On the CRM business, it's just new. I'm hesitant to talk about this.

We are very encouraged about it, looks good. But the first year is not a year that we are planning to make profit.

And I would just add one comment on that. The real difference is in the OpEx.

So the COGS are very consistent across the board as you would expect in any cloud-based service. They are very high-gross margins.

Some may be somewhat lower than 80%, some will be in excess of 80%. Where the real decision comes in is the number of unique talent for a specific space or service, which obviously, as we enter a space, is not going to be fully leveraged.

As Hemi mentioned, we have 15 people for CRM on a very small base of customers. So that's not anywhere near fully leveraged.

And the second piece would be in the sales and marketing component. Or to the extent that a customer comes through a cross-sell effort or an internal effort, then there's almost no direct marketing costs associated.

And as a result, the EBITDA or the EBIT contribution margin's very high. Conversely, if the brand is not very well known or the service is not very well known in the target community, then your marketing cost will be higher.

So those are the 2 real areas to focus on and we'll look at the investment this year. And if you go through the sixth slide that Hemi went through, most of the investment is in people, in either jurisdictions or around product sets that we were not previously in, and around marketing of those services or in those jurisdictions.

And I guess one of the points I was trying to get at was the historic strength in kind of online marketing. Historically, your business, I always look at it in terms of kind of total sales and marketing divided by gross adds and you kind of get to a number in the mid-80s of cost of acquisition.

I'm sure, you have a much more accurate way to view it. But are these new services similar to kind of similar acquisition costs?

Or are they going to take different acquisition model that might kind of change the sales and marketing intensity of the businesses?

I'd say that if they were standalone because of the early stage, it would be more expensive because -- but because we intend to take the 2 million customers that we have and give them free ride on cross and upsell, it will balance it back to the numbers that we used to. We have an advantage there.

All those competitors do not have 2 million people. They trust them and are willing to do business with them.

When we sell through cross sell, the cost is 0. We'll pay a very small commission to the telesales people.

But it doesn't even come close to competing on keywords and advertising. So this is the way that we are going to do it.

And we will be able to compensate there.

And I can tell you the other thing that occurs over time -- and we've seen this both with the brand eFax and eVoice and also even though it's only under our ownership for 15 months, MyFax, is that as a brand is marketed over a longer duration and also with an amount of money -- could be short duration with a lot of money or a longer duration with a little bit amount of money in each period, you start to see more free customer acquisition, meaning customers coming directly to you, which then lowers your overall subscriber acquisition costs, even though you're paying more on the margin for programs, whether it's search or some of the display ads or affiliate programs. So you got new brands.

We've got new brands like KeepItSafe, which is basically unknown in the United States. Landslide, which would be relatively new and not as well known, although it has some degree of brand recognition in the CRM space.

Those are going to take some time for them to get straight customer-to-site acquisition which will then overtime drive down the subscriber acquisition cost. We've seen it in fax and we've seen it in voice.

Got you. And then final follow-up on that, I promise.

But -- so there's roughly 2 million customers and cross selling is kind of key to keeping the business model on these new services at a low enough CPGA that would make sense. Where are -- I think you've done some cross-selling this year.

And what I'm trying to understand is why wouldn't we have already seen the benefits of cross-selling already? Or am I misunderstanding it and you're kind of launching much bigger initiatives going forward?

Yes. The cross-selling that we did so far was minimal and based on -- customer we're calling and the sales person who would say something that was on the speaker or their screen.

Now this automation that we're just starting. And through an analyzation of it, we will have more to offer.

So I think we encouraged by the test. They're going to do more of it in automation.

So this should ride also the major focus on the cross sell was actually eVoice. We did not do -- so the vast majority of what we did was eVoice.

And now, we will start -- you see you have to develop a special formula. And we call it the right product in the right time in the right price.

And that's key. It's not that easy because you have always to figure out when a customer calls what exactly to offer, what was offered last time, was it rejected.

So all of these are things that we are working on now. And I am confident that we get better as we move along the growth.

That's great. So by the end of this year, we should have a good understanding of whether or not these are services that are attractive to your core customer base because you will have to touch them all through some kind of cross-selling initiative?

Yes.

And I think one of the point of what Hemi just said, you have to remember that 2 things. One, consistent with our philosophy, we wanted some data and some -- basically through a test to make sure the cross-sell effort justifies the amount of time and the monetary and the engineering investment.

So that was what the goal was last year. Also last year, those technical resources were substantially focused on the integration of all the acquisitions, specifically the Venali and the Protus acquisition.

So as that time frees up, more of it can be allocated to putting the systems in place, to build the cross sell and upsell system, if you will. And it justifies it because we got almost 12 months of results.

And Hemi highlighted some of them in the presentation and we talked about some of them in the previous presentations.

Can you just talk about across the different geographies what you're seeing in terms of sales growth? Are there certain areas when you look from an M&A perspective that you think of more attractive than others geographically going forward?

Yes. So first and foremost.

So organically, we are seeing more growth in markets that's outside the U.S. I talked about Japan.

I will talk about Canada. I will talk about Australia.

I will talk about the rest of the world. Some markets are virgin so it's easy.

Some markets are -- we don't have a strong competition. So on those markets, we see very good returns into -- on our dollars.

The problem is those markets are relatively small. So you can spend so much money and then it dries up.

Now from an M&A perspective, I'm very hesitant to tell you the countries. But you won't be wrong if you will get that we are more comfortable to operate in countries where they speak English, countries where they have economies that have this certain ethics on them.

So those are the countries that are easier and we have numerous discussions and you just have to wait and see our releases once we close those deals. But definitely, the geographies are those that are modern, talk English and have good -- we have good confident that we can do business in those countries without compromising any of our ethical standards.

So is it fair to say that the international markets are driving the top line from an organic growth perspective but the cash flow is really coming from the U.S. market?

Yes and no, because we are very profitable also in the non-U.S. markets.

Yes. But the U.S., of course, it's bigger.

So we are more efficient. So a profit -- gross margin profits are the same but we have no people in those countries relative into the size of the business.

So it impacts under the margin.

And the OpEx.

Congratulations on all the recent deals, but I guess I'm wondering on Landslide in particular. Obviously, when you guys went into the backup market, you stayed originally in U.K.

and you moved over here via an acquisition in the states. I guess I'm wondering what are your expectations for bringing some of that functionality may be over to Europe?

It's totally new to us and we will start with figuring out what's the best thing to do. We're only in it for only a few weeks.

We have a very strong team that have been added. I think that it's fair to say that we will start with the U.S.

We were thinking about the branding. Do we like the name or do we give them a name that has more j2 cliché [ph] to it?

But even though we have not decided, it seems to me it's going to be easier to start with the U.S. Also the U.S.

is as a certain way of generating leads, talking with the customers, not all the countries are the same. I think also in the U.S., more than other countries, these are being done without face-to-face meeting in many countries that are in Europe still developed countries because of the nature of the distance and everything.

They prefer to work with resellers and face-to-face meetings out, of course, is much better when you have communication with the customer both -- or more than one level, not only face-to-face and telephone, the email and all those kinds of things. So I think it's fair to say we start in the U.S.

But it's too early. Maybe in another 2 earning calls, I will be more intelligent about this.

That's great. And then I mean you guys are clearly moving down into just more of the app space, email and now CRM.

How attractive would -- like an ERP or your human capital management because it seems like a natural way to go sort of as you continue to digest some of these recent acquisitions?

It's one of the things that we are considering. There's so much you can take.

We said in previous earning calls, Matt, that we are looking into CRM also on online invoicing. The trick on selling on a low cost is you want to have something that is very popular, that is used by most businesses and most businesses need it.

Small businesses, ERP, it's a hell of discussion. So we are not saying that we won't do it.

But if we get into those spaces, we'd rather go big with an existing established brand that we can just better manage and add. But starting small on something like that probably will be less likely.

That's great. And then if I could just ask 2 housekeeping questions.

So I'm wondering total headcount for the year and at the end of last year about 600. And then how many large enterprise deals did you have in the quarter?

So people wise, we had 600 people in the end of 2000...

Little high.

That's at the end of 2011.

Sorry. In the end of 2010, we have 600 people.

In the end of 2011, we have a few less. So maybe 10 or 15 people or less.

So 680-some -- 580-some, sorry. So just -- I didn't give you organized answer, so let me organize myself.

At the end of 2010, 600 people. At the end of 2011, a little bit less, so 587, 590, something like this.

The final numbers will come soon. For 2012, we are planning to increase the headcount.

Year end to year end is not a very good way to measure cost but I would be -- to answer, calling for additional year end to year end, 30, 40 people. We have to remind you that several of those are the replacement of customer support that we actually moved from India into -- from outsourced to becoming employees.

We have now have a very few outsourced people. So most of the people that were outsourced are now converted to employees.

This does not include future acquisitions that might come with people. Did I answer you?

10 or 16 [ph].

Yes, I already said it Landslide came with 16 here.

That's great. And then in terms of enterprise deals?

There were 12 this quarter, 6 new large contracts and then there were 6 that were upgraded, meaning, they were smaller customers, and in the renewal process, they became bigger.

On the voice side of the business, you had kind of a run rate there. What is the sort of the year-over-year growth in -- in voice today?

You mean '11 over '10, right?

Yes, fourth quarter maybe versus fourth in [ph]?

I need a moment. I've come -- before the end of the call, I'll provide you the number.

Kathy will check. But what else, Mike?

Great. And is part of the strategy on the voice side of things to move upstream may be in the little bit bigger businesses?

Or are you going to stay at kind of the current target market there?

We are trying to move a little bit higher but without sacrificing the margins because larger companies tend to focus on cost there versus the functionality. One thing that I was planning to mention in my slides but I didn't, we are going to add much, much more voice-to-text.

Voice-to-text up to now was: a, expensive; b, not so reliable. The recent technology upgrades and some changes that we did in our system and with our partners allow us to give much better quality and in a better pricing.

So what we will do now -- up to now, we will ask you, do you want it? Tempt you to try it, temptation.

And this and that and hope that you will sign up. Now we are going to have much more of it included because we can guarantee better quality.

And I believe that it is still very essential. I'm surprised that back in the U.K.

nobody really offers it. And the idea here is I believe as a user, that the voice-to-text, while people don't talk about it a lot, is very, very key because it helps you not only to save the time reading versus listening, also the ability to forward it and to analyze and to search it.

And if you want to build statistics on the type of calls that you are getting, think about CRM. When you get it in a format of text, you can do much more with it.

So we are going to add it this year to our voice products. I didn't mention it but I originally planned.

So you can expect from us to see this feature added more generously in our packages included and built-in already.

Great. And then on the -- in terms of percent of DID, do you have a rough percent of DID that are in kind of that large enterprise category and then also into the low-price alternative fax category?

I think, 500,000 of...

Well, I think, Mike, you mean the largest of the large, the enterprise deals which would map to the 12 accounts that I just referenced. Of the roughly 2 million DIDs, approximately 15% are in the largest to the large category.

And there's roughly an equal amount in the -- slightly less but roughly equal, in the secondary or now, if you will, tertiary brands for individuals and micro businesses.

And Mike, give me a quarter or 2 again. The MyFax customers, we are still sorting them a little bit into what buckets to put them.

Some of them have small 4 accounts but actually, when you start to work with what you see is actually one company signing in 3 different periods. So we still have to clean it up a little bit there.

And how was the churn or the cancel rate look so far this quarter?

Similar to...

I think it's in line and our budget assumes basically a consistent cancel rate with what we experienced last year, which averaged probably something slightly in excess of 2.5%.

Okay. And last question, just good free cash flows in fiscal '11.

Do you think that the kind of free cash flow to revenue ratio that's on '11, do you think that is something that should play out in 2012 as well? Or do you see ...

Yes.

That's a no. Yes, generally.

However, you have to recognize -- and it's footnoted throughout the various quarters, that in 2011, there was a significant amount of exercise of stock options that were expiring in December of '11. And they had a very low strike price of $0.94.

So if I recall correctly, that exercise and maybe some additional ones generated $35 million roughly of tax deductions that do not affect the GAAP tax rate but they do affect your cash tax payments. So at 40% margin, there's about $15 million of benefit there.

So it's obviously very difficult to predict to what extent options will be exercised in this current fiscal year and what benefit, if any, will come to the company in terms of deductions. What I would do -- what we're looking at is the midpoint of Kathy's range that we gave for the guidance is 25%.

So to be safe or conservative, you could impute a 25% cash tax rate on the pretax earnings and then add back the depreciation and amortization and subtract out a few million dollars for CapEx to come up with the free cash flow number for '12.

And Mike, when I said yes, I mean the operational cash flow not the one that Scott just mentioned, which are activities that derive from tax and from stock purchasing. But from the operational standpoint, yes.

We are learning to have another strong year of free cash flow from operations.

So you spent a bit of time talking about adding to your people and marketing resources as you think about the OpEx focus for next year. As you further penetrate the corporate market and you're moving into more complex apps, do you believe that online is going to mean your primary go-to market for the corporate market?

Or do you see having to add to your direct sales to your telesales presence in order to further penetrate the corporate market?

And to answer your question, j2, including the corporate, sees belief versus close coming online. Today, people that look for cloud solutions go to the cloud to find them and research them.

So we are seeing more leads versus direct sign-ups for our products. As far as the sales force, the people that we have -- and we have several levels of sales people, we have a group of less than 15 that are actually situated around the world and they would not only take a call, they will also pay a visit to large customers.

We are growing those but insignificantly 2 or 3. So on the grand scheme of things, they don't -- it doesn't mean all a lot.

On the telesales, when they do those medium-sized deals, we are adding, it is already in the numbers. And again, we are adding another 5 maybe.

Those people are relatively -- their compensation is driven by commissions. And -- so to answer your questions, we are not seeing a reduction of the important and the leads that are coming from the online which are just different.

They come in many times in leads. Sometimes they came with the free tests.

But j2 is continuing to be a company that is selling online with low touch -- lowering the touch is always the goal here.

And do you think that will kind of apply, again, as you think about more complex apps like the CRM app. And if so, why?

The companies we acquired and as I said, we acquired a few weeks ago, they are like j2. Everything was done online.

They have only one sales guy and one sales manager. So they are online company.

You call, they give it a try. It's very simple.

If you have a simpler product that is -- I encourage you to go and try the Landslide product. It's extremely simple.

It's simple. There's no significant download or anything.

So it's easy and definitely low touch is something that we can do there. So now, the other question that came from Mike -- Mike Latimore.

And Kathy, why won't you say it?

Okay, to answer your question, Mike. For the period Q4 2011 over Q4 2010, we increased our voice revenues by approximately 8%.

And then for the full year, we increased 13% 2011 over 2010.

Okay. Thank you very much.

We appreciate all of you for joining us on this call today to discuss the past year's financial results and looking forward to 2012. We will be making announcements about conferences that we'll be attending over the next several weeks.

I know there's one coming up in the end of February in San Francisco, followed by a conference in Orlando in early March. And then we'll put an announcement in April regarding the timing of the May conference call to discuss Q1 results.

Thank you.

Bye-bye.