Good afternoon, ladies and gentlemen, and welcome to the j2 Global First Quarter 2012 Earnings Call. It is my pleasure to introduce your host, Mr. Scott Turicchi, President of j2 Global. Thank you. Mr. Turicchi, you may begin.

Thank you. Good afternoon, and welcome to our investor conference call for the first quarter of fiscal year 2012. As the operator mentioned, I'm Scott Turicchi, President of j2 Global, and with me today is Hemi Zucker, our Chief Executive Officer; and Kathy Griggs, our Chief Financial Officer. We'll be discussing our Q1 2012 financial results, as well as provide an update on the business and the initiatives that we outlined for you last quarter. In addition, our board has increased the quarterly dividend to $0.215 a share. We will use the presentation as a roadmap for today's call. A copy of the presentation is available at our website. When you launch the webcast, there's a button on the viewer on the right-hand side which will allow you to expand the slides. If you've not received a 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 this site. [Operator Instructions] In addition, you may e-mail questions at any time to investor@j2global.com. Before I 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 have 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. At this time, I'll turn the presentation over to Kathy, who will review the results for the first fiscal quarter.

Thank you, Scott. Good afternoon, ladies and gentlemen. Please refer to Slide 5 in the presentation for a recap of our Q1 GAAP and non-GAAP operating results. I'm pleased to report first quarter revenues of $86.7 million, our best quarter ever. Revenues increased 4% over Q1 2011 on a non-GAAP basis. Additionally, our deferred revenues increased by $1.5 million this quarter. Our other revenues increased by $1.3 million due to the strong performance of our intellectual property licensing efforts. Paid DIDs grew by more than 22,000 in the quarter. Corporate fax and voice were the largest contributors to our growth. Our cancel rate for the quarter improved to under 2.4%, a record for any first quarter and remaining at historic lows for any quarter. ARPU is $12.85 per DID this quarter versus $12.91 in Q4, primarily driven by corporate fax and voice growth. On a non-GAAP basis, our earnings for the quarter were $30.3 million, an increase of 8% from Q1 2011. Non-GAAP gross and operating margins were 82% and 46.3%, respectively. GAAP net earnings for the quarter were $28.5 million. Our operating earnings were $37.6 million. Gross and operating margins were 81.7% and 43.4%, respectively. For Q1 2012, we achieved non-GAAP EPS of $0.64 per diluted share, up 6.7% from $0.60 per diluted share in Q1 2011. Free cash flow for the quarter was $38.1 million, representing 44% of revenues. This is consistent with free cash flow in the year ago quarter despite our investment in several acquisitions since that time that have not been fully integrated into our cost structure. Our cash and investment balances totaled $193 million as of March 31, 2012, up from $127 million a year ago. We repurchased 1.3 million shares of stock this quarter, deploying nearly $39 million in cash. As Scott mentioned,…

Thank you, Kathy, and good afternoon, everybody. Let's go to Page 7. Today, I will start with some metrics on our business, metrics that we have never provided before. Some of our analysts are asking us to get – to provide more information on the business and the fax, and we decided to share the information with everybody at the same time. As you can see here on the cancel rate, we are providing the data on a quarter-by-quarter basis. As you can see, on the first quarter, since 2009, we were up at 3.5% and now down to under 2.4%. This is huge. Every 0.1% of a decline or reduction that we can achieve on the churn has value of over $300,000 that goes all the way to the bottom line. Our customers are using our services more and, as you can see on the left bottom side on the chart, we are providing an index on the pages. So total global customer of j2, which is everybody, has grown by 20 -- by 10% in the last 10 years -- 2 years. So again, 10% in the last 2 years. In our corporate, we've grown 26% when you count the pages per DID. On the right side, we have provided the number of DIDS on the fax. In the last 2 years, we have grown the total fax -- j2 Fax DIDs by 59% from 1,083,000 to 1.7 million. And the corporate, they grew even faster from 323,000 to 554,000, 72% more DIDs. One of the things that we are trying also to measure is what part of the global fax business in the world have we penetrated. There are no metrics, but what we have done is we've tried to run a query that checks how many…

Thank you, Hemi. Now if you could turn to Slide 12, we're reaffirming the guidance that we issued for the full fiscal year on our Q4 call in mid-February to remind you that these revenues are between $345 million and $365 million, and non-GAAP EPS equal approximately to that, which we had in 2011, which was $2.53 a share. A couple of facts on the dividend. As I mentioned at the beginning of the call, the dividend payout will be $0.215 a share for those who are shareholders of record on May 16. The payment date will be May 30. It will represent approximately $10 million of cash payments and 30% of our quarterly non-GAAP earnings. As we've stated in the past, this dividend program is designed to neither impact operational or M&A activities. As Kathy mentioned, there are a number of supplemental schedules on Slides 14 and following. And I'd ask the operator now to come back and instruct you for the question-and-answer session.

[Operator Instructions] Our first question comes from the line of Shyam Patil of Raymond James.

First question, Scott, can you talk a little bit about how you're thinking about large M&A at this point, and what areas seem attractive to you?

Sure. Well as Hemi talked about, obviously we've done a fair amount of M&A already this year, all in Q1. We continue to maintain a very active pipeline of deals. We are clearly desirous of doing a deal that would be of the size of Protus. As you know, that has been very successful in terms of both the initial acquisition, the subsequent integration and the financial results that have occurred following that. I would say that there are opportunities, albeit somewhat limited in most of the spaces that we currently operate in, although we would not limit our focus only to those 5 spaces. And I think, because it's a limited pool, I remain very cautious in terms of the ability or the timing to actually complete such a large transaction.

And then I guess switching to ARPU and churn, there's been a lot of discussion on churn in the investment community. You guys, obviously, put up a great number this quarter. Can you talk about how you're thinking about it for the balance of the year and if there's any seasonality in that metric that we should take into account?

Sure. I will answer it. As you see, it's very hard to predict, but we have done a presentation here quarter-over-quarter. In the last 3 years -- or actually 4 years if you include Q1, it was going down every quarter against the quarter before it. As far as I can see, the first quarter, the numbers are good. There is no reason for us to have a spike there. It's doing good. The usage is increasing, our customer loyalty is increasing. I know that you are looking for some concrete number for your modeling, but I think that, at least here, the expectations are that we'd stay on those levels, under 2.5% for the next quarter or 2. And I cannot think about Q4 yet, but the coming quarter, Q2, I think will be a strong one both on added DIDs and on low churn.

Great. I guess my final question is, in general, when you look at the small to mid-sized business environment here in North America, any kind of takeaways in terms of if it's stabilized to getting better or if it's still very uncertain? Just curious to get your thoughts on that.

It's very hard. I know that our costs for acquisitions are strong and low. I know that we are not worried about anything. We are seeing good numbers. The team is finding ways to improve it. So yes, the economy is unpredictable, but we continue to be a cost-saving high-value proposition product. So I think that even with the bad times, we will do better than what the economy does.

Our next question comes from Mark Murphy of Piper Jaffray.

I was wondering, did the cancel rate decline for both the corporate and the individual/SMB fax users in Q1?

We do not measure it separately, but it has to be because we have such a large base at the noncorporate that you can adjust -- move the needle with the corporate only. So while I'm not measuring it, if I had to predict it based on my knowledge of the situation, yes. I know that we have done several improvements. We have improved the cash, I think we [ph] did a very good job on getting better success rates on credit cards and safe programs and everything else. So yes, I think it is done mostly on the low -- smaller customers level.

Okay. And also, the other revenue looked like it was higher than it's been in a while, can you remind us what that is? Would -- did it relate to patent licensing or advertising or something else and maybe any...

It's not advertising. Advertising is very, very small. I mean, so small that I only remember the number. It is mostly our IT, and we have some programs when our product is embedded with other products that's also been increasing. So a company that sell a hardware solution or other solutions and embed eFax in it. So they are the largest contributor. The largest contribution is coming from there.

And Hemi, what about how that should flow forward into Q2? Is this kind of the run rate sustainable?

It's very -- I tell you what, it's very hard to predict because there are settlements on certain things that are increasing, and there are sales of hardware that are done by third parties, and it's hard to predict. But what I can tell you is it all flows all the way to the bottom line.

Okay. How about the -- in terms of the DID adds in Q1? Should we be assuming that the 22,000 -- is that the organic number or was there some -- was there any kind of contribution from the 4 acquisitions?

Yes, there was contribution for the other acquisitions, but I told and I indicated that in April, which we kind of closed, we have 8,000 all-organic because we didn't do any acquisition in the last month. So I believe that this will continue and therefore, I anticipate better result in Q2 from the standpoint of added DIDs, but it's too early. We have another 2 months to go.

Okay. So for the -- so you're not providing an organic number for Q1?

I don't even know, even if I wanted. But I can tell you that it's probably, if I have to estimate, it's 1/3, 2/3. Like 1/3 from acquisitions and 2/3 organic. But this is just -- I mean, Scott, do you think it's kind of close?

Okay. And Scott, I wanted to ask you as well. On the idea of the suite of services that you're clearly expanding. I'm wondering how many spaces do you think you could be in maybe a few years down the road. And what is the strategy for selecting or maybe rejecting any new adjacencies that you might be looking at?

Well I think we keep an active list, and we have not included this in this investor presentation for the earnings call. But when I go out on the road, there's a slide that we introduced last quarter that has the 7 independent services around j2 in the middle and behind it. There's a lot of text, and it doesn't print out very well but if you look at it on a screen, there are basically the cloud service spaces as we currently see them targeting businesses. I think there's about 40 of them. And you'll see some are a lot closer to the j2 ball and are a lot larger in type. And that was by design because those are, in our judgment, better fits than those that would be out on the periphery. So in a normal course, we are refreshing that list of spaces or subspaces that would be business-oriented, SMB-focused, subscription-based. And then we are looking for ways -- I would say there is no set number but probably, realistically, to absorb 2 or maybe 3 a year. And part of the absorption will be how we actually get into those additional spaces. Is it through an M&A transaction like in the CRM space where we actually acquire an asset, a platform, a team and a customer base? Or is it through organic development, which would generally have a longer tail to it in terms of being able to enter the market? Or is it through a licensing relationship, where we are licensing some third party's technology, either in whole or in part? But the general idea, and I think it's representative of KeepItSafe back in '10, Landslide now in early '12 is that we'll get access to a technology in one of those forms. It…

Our next question comes from Joanna Makris of Mizuho Securities.

You mentioned in your fax overview that about 17% of the revenue was usage-based, and I'm just wondering how you expect that to trend, say, over the next 12 months and what factors could potentially drive an increase in usage-based portion of the pricing?

Okay. The usage is basically, mostly pages that are not included in the package. So eFax, you have so many pages; inbound, 160; and 100 outbound. If you go above it, you generate usage. Then we have our other products that are the developer type and all those against usage again. Those things have been pretty consistent, 260,000 per business day. So if you want to see how many business days are in Q2 versus Q1, this will be the strongest indication. Also, as Kathy mentioned, our deferred revenue grew in this quarter $1.5 million. The deferred is actually subscription-based. So this usually, not every quarter we are depositing money on the deferred. Sometimes, it's coming back. So I think this was the high contribution towards our future revenue. It might reverse itself and come back in Q2 and so and so.

And I'd add follow-up, Joanna, to Hemi's commentary. There -- I'd have to take a look, but I believe there's one additional business day in Q2 versus Q1. Q2 is generally the seasonally best quarter from a calendar basis in terms of business days because the only full legal holiday in the quarter is Memorial Day and it's a Monday. I would say, too, to add on to his comment, that more than minor deviations, positive or negative, would most likely be caused by some significant change in the economy.

And also, because the acquisitions that we did in Q1 were partial contribution and now in Q2, we'll have the full benefit of those acquisitions, there are $1 million or $2 million additional revenue that are sitting there to be recognized on a full quarter basis.

Our final question of today comes from James Breen of William Blair.

Just a couple of questions. One, can you give us some color in terms of the sales profile and basically how the revenue's being generated from the sales front in terms of inbound or outbound? And does that differ greatly against -- across the products? And then as you do look at some M&A across different product groups, is there going to be a significant change in sort of the free cash flow profile or the capital efficiency of the company over that time frame?

So on the M&A front, we have -- we are very conservative. I'm talking about it, but we have several of them, I think foreign LOI. They are mostly in our current businesses, so nothing major that is new business. When we buy a business in our current business, the efficiency is fast. They are mostly international. So we can utilize our cash receipts abroad. Cash flow and integration takes time, but I cannot predict in accuracy but most of them, those that I see of significance, are going to be contributing cash at the same rate that we have done before from day one. Those are companies that are in our basic services. So they should be doing well from the beginning.

Okay. So basically, as you're looking at some of these deals, the parameters you're using for cash flow generation and capital efficiency, you want to stick around where your business is today?

Yes, they should either be the same or better.

Okay. And then just in terms of the sales channel, as your business mix changes a little bit, do you see any real changes there?

Not really. Inbound is still a larger part of our business as the outbound, which is also more profitable. And as we have more customers that take built-in packages, they add to the subscription revenue more than the usage, which is a positive.

And as you upsell some of these existing customers with more products, is the margin -- the incremental margins there sort of north of 80% because there's not a lot of support that goes behind that?

Yes. Most of our sales are fax and voice, and both of those are the largest contributor to the mix that you're seeing today. So I would not anticipate any change of any significance.

Okay. We have one question that's come by e-mail and then if there's anybody else in the queue, we can go back to the operator for those questions. One question that's come in by e-mail is, as some of you may be aware, within the last couple of days, it was announced that Open Text is in a definitive agreement to purchase EZLink. And so the question is, what is the likely impact to our take on that situation?

So we had 2 competitors out there. One was selling hardware and software solution for in-house solution that we were competing all the time with. And the other one was selling online fax services. Both of those companies are competing with us with the high, high-end of the enterprise and customers. Those customers come with many DIDs but relatively low ARPU. We are very happy that now instead of 2 competitors, we'll have one. And the way I see it, the purchaser of this company is financially stronger and therefore, I believe that they will be less competitive when it comes to dropping the prices and lowering the ARPUs. So I think, all in all, it's positive for us, but time will tell.

Okay, any other questions? For the operator, is there anybody else in the queue?

There are no further questions at this time.

All right. Well, we thank you all for joining us for the Q1 call. As is usual and typical, there will be 2 or 3 conferences between now and the next earnings call that we'll be participating in. There will be press releases put out to alert you as to the time and place and how to access those calls through a webcast. And we will look forward, if we don't talk to you before then, to talking to you in early August to report the Q2 results. Thank you.