j2 Global Communications, Inc.

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j2 Global Communications, Inc.

6922 Hollywood Boulevard, Suite 500
Hollywood, California 90028
U.S.A.
Telephone: (323) 860-9200
Toll Free: (888) 438-5329
Fax: (323) 464-1446
Web site: http://www.j2global.com

Public Company
Incorporated: 1995 as JFax.com Inc.
Employees: 202
Sales: $106.3 million (2004)
Stock Exchanges: NASDAQ
Ticker Symbol: JCOM
NAIC: 517110 Wired Telecommunications Carriers

j2 Global Communications, Inc. is a Hollywood, California-based provider of messaging and communications services to both individuals and companies around the world. Originally designed as a computerized system to allow travelers to access their faxes and voice messages by phone, j2 Global now offers a range of value-added web-based unified messaging services, including message retrieval by either phone or email, web-initiated conference calls, complete fax sending and retrieving capabilities, fax broadcasting, email marketing campaign services, and document transfer and archiving services. All told, j2 Global has 400,000 paying subscribers and about 8.5 million users of its advertising-supported services. j2 Global is a public company listed on the NASDAQ.

Company's Genesis Dating to the Early 1990s

The man who spawned the idea for j2 Global was a musician born in East Germany named Jaye Muller. Growing up in East Berlin before the Communist system crumbled, Muller wanted to pursue a career in rock and roll but was required by the state to take night career training courses. He studied electronics, another area of interest and one that would pay dividends later in life. By the time he was 18 and the Berlin Wall had been toppled in dramatic fashion, Muller moved to Paris, where he furthered his musical career. He found a producer and manager in Jack Rieley, a former producer of the Beach Boys, and signed a record deal with A&M records. In January 1993, under the name J., he released his first album, We Are the Majority. Fortune described it as "a hip-hop rant about the supposedly Gestapo-like takeover of J.'s native East Germany by the West German government, with lyrics that got the album banned in Bonn." Despite the ban, the album did well in Europe, selling 350,000 copies. He toured widely to support the album, and it was during a swing through colleges in England that Muller received the inspiration that led to the birth of j2 Global. Because he was changing hotels every day, his faxes and voice messages were always a day or two behind. Not only were messages getting lost, Muller was disturbed that the hotel staff was reading his confidential faxes. A technophile, Muller had a laptop with Internet capabilities and was always able to keep up with his email messages. He thought that voice mail and faxes should be equally portable. When he realized that there was no such commercial service available, he and Rieley decided to start a business to fill that need.

In downtime during the rest of the tour Muller began sketching out an idea for an email-based retrieval system for voice mail and faxes, drawing heavily on his technical training. He then put his music career on hold, postponing work on his second album to turn his concept into a business, working closely with an Australian telecommunications software development company to develop a prototype. Muller relocated to New York City and in December 1995 he and Rieley incorporated JFax.com Inc. The need for $2 million in seed money, according to the Scottish newspaper, the Scotsman, pitched "Muller headlong into a maelstrom of accountants and meetings at a point when the 23-year-old musician knew virtually nothing about the ways of business. He coped with the situation, he says, by relying on a blend of instinct and 'how to' books. 'I literally picked things up as I went along. A lot of big numbers were being talked about, but for much of the time they were only on paper and didn't matter that much. I just mentally removed the zeroes from every figure they threw at me and didn't take anything too seriously.'"

Launching Operations in 1996

Muller and Rieley raised the necessary $2 million from a pair of "industrialists" (according to Global Finance ), and com-menced operations in April 1996. Within a matter of months JFax caught the attention of The New York Times, which in September 1996 published a lengthy profile on the start-up. The service at the time cost $12.50 a month plus a $15 setup fee. Already the company was offering local telephone numbers for New York, Los Angeles, San Francisco, Atlanta, Silicon Valley, and London. The rest of the United States could also use the service through toll-free numbers. A number of other messaging companies also were cropping up, but JFax's product and business model gave it a decided edge, even though the company was still months away from being able to answer voice messages through email or "reading" email over the phone. The technology was robust enough to support business customers, and unlike the competition, JFax did not give away its service and began to build a base of paying customers. Moreover, by carving out a significant share of the market in the early days, the company was gaining an edge that would make it difficult to be dislodged later.

JFax continued to successfully raise necessary funds. In April 1997 the company received venture funding from Orchard Capital Corporation, a firm run by Richard Ressler, who now took the reins of the start-up. According to Barron's, Ressler was "a former Drexel Burnham banker who had spent a number of years running companies controlled by corporate raider Bennett Lebow." Muller was able to back away and return to music, although he would remain as the company's cochairman along with Rieley. In 2000 he would resign from that post as well, although he remained a major stockholder and continued to play a role, using his charismatic personality in making presentations for the company.

Ressler raised more money for JFax in 1998, arranging with Donaldson, Lufkin & Jenrette for a private placement of stock, which according to Fortune amounted to $100 million. By now JFax had introduced its Telephone Access option, which allowed subscribers to access messages by way of a regular or cellular phone. Using text-to-speech software, email messages could be read aloud, and by using the telephone keypad subscribers could redirect faxes to a fax machine close at hand. The company also offered local phone numbers in some 60 cities around the world, especially attractive to companies looking to establish a foreign presence and a local identity. Customers in that market could use the local phone number and their messages would be instantly sent to the company wherever it was located.

Public in 1999

In 1999 Ressler was ready to take JFax public. With Donaldson, Lufkin & Jenrette, BancBoston Robertson Stephens, CIBC World Markets, and DLJdirect Inc. serving as underwriters, JFax sold 8.5 million shares of common stock at $9.50 per share in July 1999. The offering netted the company $73.9 million, earmarked to pay down debt, expand its international network, and fund advertising and marketing efforts. Unlike other initial offerings of the late 1990s, JFax did not enjoy an immediate surge, ending the first day of trading unchanged at $9.50. As a result a number of investors ignored the stock and it began to languish. Moreover, dot-coms were losing favor and the entire e-commerce market was on the verge of a major collapse. Unlike other companies with dot-com in their names, however, JFax had paying customers and was not pursuing a business model dependent on advertising revenues that might or might not develop over time. Nevertheless, JFax was lumped in with the rest of the dot-com companies, leading management to begin thinking about a name change.

In 2000 JFax began to use some of its stock to fuel growth through acquisitions. It also changed CEOs. The company traded $12 million in common stock in January 2000 to acquire Carlsbad, California-based SureTalk.Com, Inc., another Internet-based messaging and communications company. SureTalk's CEO, Steven J. Hamerslag, then took over as JFax's CEO, while Ressler stayed on as chairman. Hamerslag was a seasoned chief executive, the founder and head of MIT Technologies, a global provider of data storage management products and services, before joining SureTalk in July 1999. JFax completed another acquisition in March 2000, paying $1.1 million in common stock for TimeShift, Inc., a San Francisco company that brought with it web-based technology that allowed JFax subscribers to create impromptu conference calls, as point-to-point calls could be expanded on the flow. Finally, in November 2000, JFax used another $8.2 million in stock to acquire one of its chief rivals, eFax, a free Internet faxing service. The original deal, announced in April, called for JFax to pay $74 million, a far cry from the $787 million a comparable competitor, Onebox.com, had fetched in February 2000. But the carnage that took place on the NASDAQ in April changed everything, and eFax, running low on cash, had no options but to take what JFax had to offer. In fact, while the deal was being worked out, eFax had to borrow $5 million from its suitor in order to keep the doors open. eFax had built up a sizable base of users, nearly three million, for its free receive-only service. Since advertising revenues were eroding in the wake of the dotcom meltdown, and had never been high enough to make eFax commercially viable, the challenge for JFax was to convert as many of those people as possible to paying customers. JFax closed the year by dropping the dot-com from its name, becoming j2 Global Communications, Inc. For the year 2000, the company recorded sales of $13.9 million, resulting in a net loss of $22.2 million.

Company Perspectives:

j2 is the result of a marriage of a revolutionary patented suite of services and a financially strong and disciplined organization. This success benefits our customers, who are looking for a stable service provider for their advanced messaging needs; our shareholders, who look for increasing financial growth and value; and our employees, who work in a creative, positive and success-driven environment.

Sales continued to grow in 2001 while the company's net loss decreased significantly, and j2 Global also received a patent on its core technology (accepting incoming messages over a circuit-switched network and transmitting them over a packet-switched network), but the investment climate was such that none of this mattered much. The price of the company's stock dipped into penny stock status, prompting j2 Global to buy back shares to support the price and to eventually engineer a 1-for-4 reverse split to decrease the number of outstanding shares and boost the price over the $1 hurdle for listing requirements. However, many of its rivals were in far worse shape, going out of business to the benefit of j2 Global.

In July 2001 Hamerslag left the company, replaced as CEO by Scott M. Jarus. A former executive at Metromedia Communications, Jarus also had held senior positions at RCN Telecom and OnSite Access, Inc. before joining j2 Global. Jarus took over a company that was on the verge of a significant rebound. j2 Global posted sales of $33.2 million in 2001, an increase of almost 300 percent. The company's net loss also was cut by nearly two-thirds at $7.8 million. Sales continued to grow at a strong clip so that in the early months of 2002 j2 Global turned in the first profitable quarter in its history. Wall Street took notice and by the middle of the year the price of j2 Global stock, which stood at $5 at the start of the year, approached $17 a share, and in November topped the $27 mark. When the numbers for 2002 were tallied, revenues had increased to $48.2 million (due in no small measure to the company's ability to convert eFax's free subscribers into paying customers) and instead of a loss j2 Global posted net income of $14.3 million.

To take advantage of its position in the marketplace, j2 Global resumed its acquisition strategy, completing a pair of deals. Early in the year it bought Cyberbox, a Hong Kong-based message management company, gaining 40,000 local telephone numbers in Hong Kong, which j2 Global considered the gateway to the coveted market of mainland China. Later in the year j2 Global acquired San Mateo-based M4Internet, provider of corporate high-volume, personalized, permission-based email marketing campaigns. The addition of new territory and new services helped j2 Global to continue its upward financial trend. Sales increased to $71.6 million and net income climbed to $35.8 million.

More acquisitions followed in 2004. The Electric Mail, a Canadian-based provider of outsourced email and value-added messaging services, was purchased in March 2004. Its acquisition gave j2 Global an advanced email platform on which to build additional service offerings. The company added other technologies by acquiring the Onebox unified communications assets of Call Sciences, Ltd. These included full-featured unified communications software, and a "find me/follow me" feature that j2 Global hoped to incorporate into future product offerings. In addition, j2 Global also picked up a new group of customers. Sales improved to $106.3 million in 2004 and the company continued to realize a healthy net profit, which totaled $31.6 million for the year.

j2 Global completed yet another acquisition in July 2005, picking up the UniFax brand of Data on Call, LLC, and its subscriber base, as well as the technology for features such as dynamic delivery options via FTP, web-post with XML, and barcode data capture. The company would carry on without Jarus, who decided in 2005 to move on to "pursue other challenges," but stayed to help in a transition. In August 2005 the company named co-presidents: Hemi Zucker, who also served as chief operating officer, and Scott Turicchi, who also held the title of chief financial officer. They took over a company with $100 million in cash and stock approaching $40 per share. More than likely j2 Global would remain in the mood to entertain further acquisitions.