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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
In addition to historical information, the following discussion and analysis of management contains forward-
looking statements. These
forward
-
looking statements involve risks, uncertainties and assumptions. The actual results may differ materially from those anticipated in these
forward
-
looking statements as a result of many factors, including but not limited to those discussed below, the results of any acquisition we may
complete and the factors discussed in Item 1A in this Annual Report on Form 10-
K entitled Risk Factors. Readers are cautioned not to place
undue reliance on these forward-looking statements, which reflect management’
s opinions only as of the date hereof. j2 Global undertakes no
obligation to revise or publicly release the results of any revision to these forward-
looking statements. Readers should carefully review the risk
factors described in this document as well as in other documents we file from time to time with the SEC, including the Quarterly Reports on
Form 10
-Q and any Current Reports on Form 8-K filed or to be filed by us in 2012.
Overview
j2 Global, Inc., formerly named j2 Global Communications, Inc. (“j2 Global”, “our”, “us” or “we”),
is a Delaware corporation and was
founded in 1995. We provide cloud services to businesses of all sizes, from individuals to enterprises. These services, which we provide through
the Internet to our customers’
computers, mobile devices and telephones, deliver our customers increased sales and greater efficiency, flexibility,
mobility, business continuity and security. We offer online fax, virtual phone systems, hosted email, email marketing, online backup, customer
relationship management and bundled suites of these services. We market our services principally under the brand names eFax® , eVoice®
,
FuseMail
® , Campaigner® , KeepItSafe
TM
, LandslideCRM
TM
and Onebox® .
We generate substantially all of our revenues from customer subscription and usage fees. Subscription fees are referred to as “fixed”
revenues, while usage fees are referred to as “variable”
revenues. We also generate revenues from patent licensing and sales, advertising and
revenue share from our customers’ use of premium rate telephone numbers (direct inward-dial numbers or “DIDs”).
As of December 31, 2011,
we had approximately 2.0 million paying subscribers, with additional DIDs in inventory. We operate in one reportable segment: cloud services
for business.
During the past three years, we have derived a substantial portion of our revenues from DID-based services, including eFax®
,
Onebox® and eVoice® .
As a result, we believe that paying DIDs and the revenues associated therewith are an important metric for
understanding a substantial portion of our business.
We market our services to a broad spectrum of prospective business customers including individuals, small to medium-
sized businesses
and large enterprises and government organizations. Our marketing efforts include enhancing brand awareness; utilizing online advertising,
search engines and affiliate programs; selling through both a telesales and direct sales force and cross-
selling. We continuously seek to extend
the number of distribution channels through which we acquire paying customers and improve the cost and volume of customers obtained through
our current channels.
In addition to growing our business organically, we have used acquisitions to grow our customer base, expand service offerings,
enhance our technology and acquire skilled personnel. Since fiscal year 2000, and including the three acquisitions closed thus far in 2012, we
have completed 37 acquisitions in the cloud services for business industry. For additional information on our acquisitions, see Note 3 –
Business
Acquisitions and Note 18 - Subsequent Events.
Through a combination of internal technology development and acquisitions, we have built a portfolio of numerous U.S. and foreign
patents and multiple pending U.S. and foreign patent applications. We generate licensing revenues from some of these patents. We are currently
engaged in litigation to enforce several of our patents. For a more detailed description of the lawsuits in which we are involved, see Item 3. Legal
Proceedings. We intend to continue to invest in patents, to aggressively protect our patent assets from unauthorized use and to continue to
generate patent licensing revenues from authorized users.
The following table sets forth our key operating metrics as of or for the years ended December 31, 2011, 2010 and 2009 (in thousands
except for percentages):
December 31,
2011
2010
2009
Paying telephone numbers
2,003
1,905
1,275
-
22
-