Good afternoon, ladies and gentlemen, and welcome to the j2 Global Q2 2012 Earnings Call. It is my pleasure to introduce your host, Mr. Scott Turicchi, President of j2 Global Communications. Thank you, Mr. Turicchi. You may begin.

Thank you very much, and good afternoon, and welcome to the j2 Global Investor Conference Call for the second fiscal quarter of 2012. As the operator just mentioned I'm Scott Turicchi, the company's President and with me today is Hemi Zucker, our Chief Executive Officer; and Kathy Griggs, our Chief Financial Officer. As you know, this has been a very exciting time for j2. We will be discussing the second quarter financial results, as well as provide you an update on our business and business prospects. Also as you know, approximately one week ago, we closed our $250 million bond offering. In addition, our board has increased the quarterly dividend to $0.22 a share. We will use the presentation for today's call, a copy of which 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 have not yet received a copy of the press release, you may access it through our corporate website at www.j2global.com/press. In addition, you will be able to access the webcast from this site. After completing the following presentation, we will conduct a Q&A session. The operator will instruct you at that time regarding the procedures for asking a question. In addition, you may e-mail questions to us at any time at investor@j2global.com. Before we begin our prepared remarks, I will 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 SEC filings, including our 10-K filings, recent 10-Q filings, various proxy statements and 8-K filings, as well as the 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. At this time, I'll turn the presentation over to Kathy, who will review the financial results for the second quarter.

Thank you, Scott. Good afternoon, ladies and gentlemen. Please refer to Slide 5 of the presentation for a recap of our Q2 GAAP and non-GAAP operating results and to the supplemental schedules at the end of the presentation for a reconciliation of all non-GAAP financial measures to their nearest GAAP equivalent. I am pleased to report that for Q2, we achieved record quarterly revenues, record EPS and record free cash flow. Our revenues were $89.5 million, the highest quarterly revenues in the company's history. Revenues increased 3.2% over Q1 2012 and 4.4% over Q2 2011. Other revenues of $1.4 million reflect continued traction with our intellectual property licensing efforts. Paid DIDs grew by 33,000 in the quarter, with Corporate Fax and Voice being the largest contributors. This is our largest quarterly DID growth since we acquired Protus in 2010. Our cancel rate for the quarter improved to 2.3%, another all-time quarterly record. ARPU grew to $13.19 for DID this quarter versus $12.85 last quarter. On a non-GAAP basis, our earnings for the quarter were $32.5 million, an increase of 6.3% from Q2 2011 and an all-time quarterly record. Non-GAAP gross and operating margins were 82.1% and 47.2% respectively. GAAP net earnings for the quarter were $31.2 million. Our operating margins were $40 million. Growth in operating margins were 81.9% and 44.7% respectively. For Q2 2012, we achieved non-GAAP EPS of $0.70 per diluted share, up 7.7% from $0.65 per diluted share in Q2 2011, and representing yet another all-time quarterly record. Our GAAP EPS for the quarter was $0.67 per share, also a quarterly record. Free cash flow for the quarter was $45.6 million, representing 51% of revenues and also a quarterly record. Our cash and investment balances totaled $207 million as of June 30, 2012. Additionally in Q2, we…

Thank you, Kathy, and great afternoon, everybody. Today, my presentation will be short, only 3 slides. As Scott said, let the numbers speak for themselves. So let's go to Slide 7. This quarter, we were able to demonstrate our lowest cancel rate ever, at 2.3%, it is not only quarterly but also all-time record. We are very happy with the record. So much work went into it. Virtually, every department in j2 is involved in this record. Now we will try to continue and hold to this amazing record. As you can see in the chart below, we have improvement of churn year-over-year starting from 2009, I believe, yes. And to demonstrate the importance of the reduction of the churn, 0.1% saves us almost $1.7 million in annual customer acquisition costs. To Slide 8, one of the things that we are focused here as management is the diversity of our business. As you can see, our fixed revenue has increased from 81% to 82%, another $3.5 million is more guaranteed and not dependent on usage and variable impact. Number two, our non-fax business is now on the run rate of $78 million. A year ago it was $66 million, growing in a rate of 39%. The third item that is not demonstrated on the chart is also if we take our 50 largest customers and add them up altogether, they're representing less than 3%. Our top customer which we all love, is it still less than 0.3 less than 3% of the revenue. All of those things are very important to us and for the strength of our revenue in our business. Now to Slide 9. As you all know, we had a bond offering and we were very excited when the opportunity showed up. And we went and raised $250 million. Why did we do it and how did we get there? Why, because the size of j2 became to a level that those markets opened themself to us. We were also able to demonstrate successful M&A of scale. As you know, we bought Protus for $230 million, integrated and demonstrated ability to reduce of the size. And what did we got? We got capital for 8 years tenure. We got in very attractive rates. As you can see, the rate that we got is 8%. If you calculate the effective cost of it, it's less than 5% because a, we'll get some income from investing it even in a conservative way until we use it of course, and secondly, tax effective is going to be less than 5%. I will now pass the call back to Scott.

Thank you, Hemi, and welcome to those of you who are on the call who are our new bondholders. What I'd like to do for all of you is just quickly review the terms of the senior unsecured notes on Slide 11, and then some of the financial ratios that are relevant to our bondholder community. As Hemi mentioned, it was $250 million at 8%. They are unsecured notes issued by the parent corporation j2 Global. The maturity is in 8 years, and for the first 4 years, the notes are non. After that they are callable pursuant to an existing schedule. There are 3 primary types of covenants, which are, if we wish to incur additional debt, if we wish to put any liens on debts, have it be secured and make restricted payments. There are no maintenance covenants within this offering. Now Slide 12 will give you a sense of the financial picture from the bondholder's perspective. So at 6/30/12 pro forma for the offering of receiving $243.5 million of net proceeds, it brings our total cash and investments to $450.3 million. The only debt obligation that we have at this time pro forma would be the $250 million bond offering. Note that our total market capitalization as measured in the stock market is approximately $1.36 billion, meaning that we've got about 15% of our marked-to-market capitalization in debt and 85% in equity. Now a lot of our covenants key off of EBITDA. And in the back of this presentation, there's a slide now that includes not only the free cash flow that we've reported, but also EBITDA and how it is calculated. For the latest 12 months ended June 30, 2012, we have slightly in excess of $183 million of EBITDA. As I mentioned, there are 3…

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

I guess, Scott, the question on everyone's, I guess, mind now is the use of the proceeds. If there's something you're seeing in terms of the M&A pipeline that prompted you guys to do the raise, just given the amount of cash you had before and the amount of free cash flow you generate annually.

The answer is "no," in the sense that, as Hemi mentioned, the bond offering came at a time, really, when conditions presented themselves that we could access this market which, in our judgment, was previously not open to us on a historic basis and certainly not on any rates near the rate that we accomplished this offering. So having said that though, we have and we do maintain a list of targets that would be of the Protus size, meaning $200 million to $300 million in transaction value. Although we have no intentions of breaking our discipline that you're well aware of in terms of acting on those. But as you know, it just takes some right conditions for valuations and for certain situations to become actionable that might not be at the current moment. So we're now very well-positioned. Also as you know, the existing $207 million of cash, about $115 million or $120 million of that sits overseas. So we now have north of $300 million of cash that is U.S. domiciled, in addition to about $335 million that's U.S. domiciled and now $115 million overseas. So we're well-positioned if one of these situations presents itself to already be fully financed, to go in without any contingencies or any conditions, obviously other than diligence.

Got it. I know there's not much you can say in terms of the targets and so forth but when you look at the number of Protus-sized deals in your pipeline, can you talk about is that less than a handful? Is it more than 10? Maybe what areas you're potentially looking at?

Well I think if I get -- if I answer all those questions it will end up narrowing the field too much, which is a good question to ask. You should ask it. We won't answer it. I would say that we are tracking between 1 and 2 handfuls of situations right now, and I think if we kind of maybe take some of the criteria down a little south of $200 million of transaction value, we'd probably get up to close to 2 handfuls. They are certainly all cloud-based services, consistent with what we talked about in the past and consistent with what you've seen over the last few quarters of both spaces we are in but also in some situation, spaces that might be related to what we do but not exactly what we do today.

And to add, we have less than a handful smaller deals that we call -- used to do in the past that are in various stages from LOI to all those, but there are small deals that do not require these finances. But we are comparing [ph] on the other ones, yes.

Got it, okay. One of the questions I get asked a lot from investors is in terms of adjacent areas that you could look to get into, kind of what those areas might be. Can you maybe talk about some of the more interesting areas that you're not in today that you are considering or have considered entering?

It's easier for me to tell you those that we are already in. We are in the internet faxing business, where we don't have any large target in mind. We are in the voice. There are several targets there from different sizes. We are in the backup, there are many targets there, different sizes. And on the hosted email, a bit less from a size standpoint, but in the email marketing, there are many companies that of size. What we are doing here is once we are into a space over a period of time, we get comfortable that we understand the business well enough to acquire a larger chunk of it. So those are the things that guide us. Of course, we are not limited to go and enter into other cloud-based services. The further they are from us, the more we have to be careful. The longer the process, the harder the due diligence. But we are confident that we can get into anything that has recurring revenue, subscription, all those types of things that we have gained a lot of expertise, processing credit card, customer support, international, local. All those kind of things are playing to our strength. I cannot be more precise. Definitely as Scott said, we have many, many companies that we are following, both private and public, both in the U.S. and outside the U.S. and we hope that the opportunity will show itself in the near future.

Our next question comes from the line of James Breen from William Blair and Associates.

Can you just talk about you had particular strength in DIDs as well as churn improving. How much of the increase in the DIDs was a result of lower churn just versus a higher growth adds? And then ARPU also went up. Can you talk about sort of what's driving that? And then lastly on the competitive front with EZLink getting bought, has it changed the competitive dynamic at all within the industry?

Okay, so with the churn, each 0.1% is a little bit more than 2,000 customers, 3 quarters, 6,000. So you can attribute 6,000 for the lowering of the churn. The source of the customers are from all the areas. The fax, it was mostly corporate and on the voice, it's voice -- our voice customers now are north of 300,000 customers. On the churn question, as you know, we have now 3 months of the Australian acquisition of Zintel. Zintel is typical of a higher ARPUs in the hundreds or sometimes in the thousands of dollars per customer, having them now for full quarter had impact on it. And is there anything else that I -- no. And the last question was the EZLink. We like it because Open Text seems to be more -- or less desperate than EZLink was when it came to pricing. We are feeling that they are more disciplined like we are and I think it's going to be only positive in the market. When you have a company that doesn't struggle but wants to give good customer service and wants to keep a financial logic and common sense, it's better for us. We are not -- so far, we don't feel anything like we are not losing deals or nothing changed.

Our next question comes from the line of Mark Murphy from Piper Jaffray.

This is Benjamin for Mark. I just wanted to ask about the other revenue line item. It's such a complicated quarter. I think it's been pretty strong, around 2% of revenue. Should we think that this level will continue going forward and is it mainly a contribution from OEMs?

There are several items there. And Scott will complement me if I got something. There was income discount from licensing. It's choppy because once we signed the deal, there is a back payment and there's this ongoing payment. So this is a little bit hard to predict. There is the licensing that's still going on, but again, unpredictable. We are basically dependent on the speed of shipment of equipment of a third party. So we don't control that. And the other smaller things that are really on the rounding error level.

Those are the 2 main primary components. And they're, in one case, the shipping of products, OEM, that's not in our control at all in terms of the timing of that. In the other case, it's a function of how many deals are signed up in the quarter and the exact nature of the deals. So I'm always on the cautious side in terms of establishing a run rate for this line item. We talked about in Q1, it was a bit higher at 1.9 million. Same commentary, we didn't know exactly what level it would be in Q2. I actually thought it would be not at the same magnitude. And I think we did better in Q2 than our own internal expectations. But I don't think it's necessarily appropriate to take that and straight-line it through the balance of the year. I'd have a more conservative approach to it and if things keep at the level and heartbeat that they are then maybe this level is sustainable for the balance of the year.

And can you comment anything on the corporate business? And I remember I think you said it's around low 20% of the total revenue. Can you comment on that, as well as any breakthrough into the government sector, if any?

You are correct on the size of the business.

A little bit north of that.

I think it's 70...

Almost 80 million or 21.2%.

Right. So okay, close to 80 million, 22%. Government is still not significant. We have, with the government, an arrangement that they can, under certain arrangement, pick up small offices of government and nothing big. So they're still buying here and there but nothing of significance. We don't have any large government customer. They are slow to move. They talk the talk but they don't walk the walk. They want us all to be green. Well, they are not so much. But hopefully, it will pick up.

Okay, and with respect to FX exposure, can you remind us, do you have any exposure to Europe and how much is it?

Yes, there's 2 different levels of exposure. The answer is "yes". Can I give you the specific -- we have obviously a European business that is both euro and pound denominated. So if I recall correctly...

It's more pound.

It's more pound.

7.5%.

About 7.5%, 8% of total revenue is denominated in euros, although there are also expenses that are euro denominated so the actual profit would be at a margin not at a -- the revenue level, we do not hedge that. So it does float with whatever the euro-dollar exchange rate ratio is. And then, as Kathy mentioned in her script, there are balances kept around the world in a variety of currencies including the Aussie dollar, the euro and the yen primarily, which based on the functional currencies and the translation back into U.S. dollars, we take a noncash, either benefit or hit, based on how much is outstanding and the exchange rates that you see in other income. And as Kathy mentioned, it was minus $1 million in Q1. It swung to positive $400,000 in Q2. So it's a $1.4 million swing within the context of the 2 quarters. I would just comment on that, that as to the latter piece, when we look at budgets and when we look at forecasting, unless there's some obvious trend, we generally hold the basket of currencies constant to where they are at say, the end of a given fiscal quarter. Although in reality, there will undoubtedly be fluctuations. Usually though, over the course of any 12 month period, they tend to net themselves out. And Kathy, I don't know if you have any other commentary on the FX.

No. In fact, it seems like the swings were fairly similar last year about the same period. We experienced a lot of the same swings Q1 to Q2 so it's not favorable and then moving to favorability. So it's not uncommon. It tends to smooth out over a period of time.

Our next question comes from the line of Joanna Makris from Mizuho Securities.

So I'm just looking at the revenue composition of the non-fax business and it looks like on a percentage basis, voice has shown the most acceleration. So just curious about on the CRM and backup, I know those acquisitions are fairly new but maybe you can talk a little bit about what plans you have in place to sort of accelerate traction and any metrics you can give us on kind of early adoption of those services.

Yes, Joanna, I'd be glad to answer. So first of all, on the backup, it is growing in a nice bit rate but small as you can imagine. So while it's -- we are happy with the growth, it doesn't move the needle for a $350-plus million company. On the CRM, I'm not sure if I talked about -- I think I talked about this last call, but what we are doing is taking the CRM product and we are repositioning it. First of all from branding, we are calling it Campaigner Pro and we are now building a product that is basically going to be tying the Campaigner and the Campaigner Pro. So when you basically try to sell an e-mail marketing platform, we are trying to provide a, the voice side, which we did not integrate yet but we are planning to integrate. So we will be able to give to any Campaigner customer phone numbers that will be dedicated for product or whatever they want. So when the call comes in, that will be the way to identify what product, what promotion is there. If we go into the CRM, which you're going to open Campaigner Pro, so it will be one-stop shop in the e-mail marketing, the lead generation of contract leads and follow-up when you close the deal and the voice side of it. The size of the CRM is very small. We are now -- have launched also a simplified versions and other, I cannot tell too much because it is a competitive product. But we are definitely in the investment period. The revenue there is holding and increasing a little bit. But again, the increasing there of tens of thousands of dollars doesn't mean a lot for us, but the main focus is to march to the milestones and we are doing it very well.

There are no further questions and I'd like to hand the call back over to Mr. Turicchi for closing comments.

Okay. Thank you very much. We did have one question that came in by e-mail. It was a question about the DID. Just to remind people, there was no M&A done during the quarter, both in terms of cash expended or generation of any DIDs or any revenue during the quarter. As you've heard from the tone of the call, we are building a nice pipeline of both some of the largest situations that we discussed in the context of the offering, but also some midsized -- small or midsized deals. So hopefully, you'll be hearing from us over the course of the next 2 quarters as some of those transactions come to fruition. We thank you for joining us on this call. We'll be available if you have any additional follow-up questions. You can continue to e-mail us at the address that we gave you earlier and there will be several conferences that we'll be participating in after Labor Day for which there will be press releases announcing them. Thank you.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.