Innovate Corp (VATE) 2005 Q4 法說會逐字稿

Good day ladies and gentlemen and welcome to the PRIMUS Telecommunications fourth quarter 2005 financial results conference call. [OPERATOR INSTRUCTIONS] I would now like to introduce your host, Mr. John DePodesta, Executive Vice President and Co-Founder. Sir, you may begin.

Thank you very much, Matt. And good afternoon, ladies and gentlemen and welcome to PRIMUS' fourth quarter and full year 2005 financial results conference call and Webcast. I'm John Depodesta, Executive Vice President at PRIMUS. For those who have not had a chance to review the earnings release, it has been posted and can be viewed on our Website at www.primustel.com. Joining me from PRIMUS on today's conference call are Paul Singh, Chairman and Chief Executive Officer and Tom Kloster, Chief Financial Officer.

We will begin with formal remarks from management regarding the Company's fourth quarter and full year performance and recent developments. This will be followed by a question and answer session. Before we begin, please be advised that statements made by the Company during this presentation that are not historical facts are forward-looking statements for purposes of Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995.

These statements may include but are not limited to; revenue and earnings projections, statements of business plans and objectives and capital structure and other financial matters. Forward-looking statements may differ from actuality and relying on them is subject to risk. Factors that could cause forward looking statements in this presentation differ materially from actual results are discussed in the Company's Form 10-K and 10-Q and other periodic filings with the Securities and Exchange Commission. These filings may be obtained from our Website at no cost. The Company is not necessarily obligated to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

I will now begin the management remarks. In reporting fourth quarter and full-year results, it seems an appropriate time to provide a bit of perspective. A year ago we had recently developed and deployed a number of new products; local services in Canada, broadband services in Australia and retail VOIP services in the U.S. and Canada; in an effort to enter growth markets and to create more attractive product bundles for our core long distance voice and dialup ISP businesses. However, 12 months ago those efforts were in their early stages of deployment. And in fact, we had just begun to embark on building out our broadband network in Australia.

While we were confident that our strategy was sound, we knew that substantial investment was required and that execution risk, compounded by intense and evolving competitive threats would challenge our progress. 12 months later, a different perspective emerges. A cautiously optimistic outlook has given way to a renewed confidence in our ability to succeed. The tangible manifestation of that change is the operating and financial results we report today. We knew that our 2005 strategy to transform the Company to enable it to offer bundled local and long distance voice and VOIP and broadband services would result in substantially declining operating income until we could attain sufficient scale in our key initiatives. And we cautioned you at the time.

We also made clear that we had targeted the fourth quarter of 2005 as the potential inflection point. And we have delivered. Importantly, the encouraging progress allows us to set our 2006 base line operating assumption at $60 million adjusted EBITDA. And we believe we can improve upon that target. Beyond the raw numbers, there are a number of factors that underscore the progress we have made over the past 12 months.

First, with respect to our major new initiatives in rolling out local services in Canada and broadband services in Australia, we are substantially through the costly startup phase. And have attained a sufficient level of scale to assure that additional customers are accretive. Second, the new products we have developed, local broadband, VOIP, have now been proven in the marketplace and provide substantial opportunities for growth. The only constraint is adequate cash to fully exploit the opportunity.

And third, with our new products and with an enhanced ability to bundle them together with our core voice services, we have substantially reduced our vulnerability. To be sure, competitive threats remain and will continually evolve but the point is, that today PRIMUS is substantially stronger and more capable than it was a year ago. As highlighted in our press release, with cash resources constrained, our primary objective in 2006 is to manage the business to maximize cash flow.

While prudent, we are fully aware that this approach falls short of maximizing the growth opportunities that are available to us from the new initiatives. That is why our principle focus during 2006 is to find ways to generate additional cash to fund the accelerated growth of these earning initiatives. Accordingly, we intend to explore the feasibility of a number of strategies including; continued cost cutting, selected asset sales, opportunistic equity capital infusions, external funding for LINGO and reducing interest expense through potential balance sheet deleveraging.

The latter two possibilities deserve further mention. We were very encouraged by the announcement yesterday of Vonage's proposed IPO. And we hope that their success will serve as a funding catalyst for other independent VOIP providers, including LINGO. Their filing has now made public the key operating and financial merits of their VOIP business. And I'm happy to report that LINGO's business model compares quite favorably.

The major constraint to the growth of lingo has been and remains the availability of cash to invest in advertising and brand building. We plan to intensify our efforts to raise external funding for LINGO. However, in order to maximize our ability to succeed in this effort, we will need the cooperation of our bondholders to modify certain covenants in order to facilitate new investments. While we have flexibility in the provisions of our most recent 100 million term loan facility, we would like to have similar provisions in our other bond indentures as well.

Thus, we plan to meet with our bondholders to explore mutually advantageous outcomes that will allow us to make additional cash available to fund the acceleration of profitable growth of our new initiatives. The recent amendment of PRIMUS Canada's loan agreement is an example of creating such a win-win outcome. There, the lender agreed to amend loan covenants to give us more flexibility to grow our local and DSL businesses, as well as provide funding for capital projects.

We seek to work with our bondholders to create similar favorable outcomes that will enhance value for all investors. Thus, while we have made substantial progress over the last 12 months, we still have a challenging road to traverse. We are buoyed, however by the recognition that our investments are beginning to show positive results and that strategically, we are substantially better positioned than we were a year ago.

Before I turn the call over to Tom, I do want to comment on an issue that has been raised by many of you. Namely, the status of our listing on NASDAQ. As you know, in December of last year, we received a notice from NASDAQ that, because our stock had traded below $1 per share, we were subject to potential delisting. We appealed that determination and a hearing was held last month but no decision has been rendered to date.

In the event our appeal is unsuccessful, we should still have the ability to have our common stock listed on NASDAQ's Capital Market, which is also an electronic exchange. In that case, we would have until sometime mid-June of this year to come into compliance with a minimum $1 per share trading requirement. Our hope is that our continued operating and financial improvement will be reflected in an enhanced share price to meet listing requirements. I will now ask Tom to comment on the quarter and to share with you our road map to achieving cash self sufficiency in 2006. Tom.

Thank you and good afternoon. I'm pleased to report financial results for the quarter, which delivered on our pledge of substantial improvement in adjusted EBITDA. It is clear that our efforts over the past year in development of new product offerings, which enable us to bundle services, the implementation of strategic network elements, which allow us to increase margins; together with a stringent program of Company-wide cost reductions, have now combined to manifest themselves into improved financial results. We're obviously pleased with both our results and their implications for the future.

We continue to be encouraged by steady revenue growth from our new product initiatives, which grew to 29 million during the fourth quarter, 3 million higher than the prior quarter. The bulk of this growth is concentrated in local and DSL services, reflecting our reduced advertising spend in VOIP where revenue remains relatively constant. On a constant currency basis, net revenue from our Canadian and Australian operations remained stable. Reflecting growth in new product initiatives, offset by expected declines and standalone long distance voice and dialup Internet revenue.

Fourth quarter net revenue was 287 million as compared to 293 million in the prior quarter. The 6 million sequential decline is comprised of 2 million from foreign currency movements, 2 million in European base prepaid services revenue, 1 million in European based retail revenue and 1 million in U.S. retail revenue. We expect to continue to report steady revenue growth from our new initiatives in 2006. Enhanced growth from these initiatives is limited only by our capacity to invest fully in marketing them.

Consistent with our primary focus on profitability, we may elect to shed revenue from low margin services in 2006. While such actions could result in declines in total revenue during 2006, the effect on profitability should be positive. Net revenue less cost of revenue, as a percentage of net revenue, rose to 34.4%, as compared to 32.5% in the prior quarter. Our improvement in margin percentage this quarter was enhanced as a result of a 2 million reduction in network transfer fees. As you know, PRIMUS expenses the full amount of these pick fees as they are incurred.

In Australia, the fee per new activation was approximately $110 and in Canada, is $40. During 2005, we incurred 11 million in pick fees. One of the major developments during the quarter was a dramatic decline in SG&A, which was 84 million for the quarter, or 29.2% of net revenue, as compared to 93 million and 31.9% net revenue in the third quarter.

The 10 million sequential decline was driven by several factors; A 4 million reduction in salaries and benefit cost sas a result of reduced headcount and bonus payments. A 3 million seasonal decline in advertising expense because of the reduced effectiveness of advertising campaigns during the holiday season. A 2 million decline in sales and marketing costs, driven by lower promotion expenses and agent commissions. And a 1 million decline in general and administrative expenses.

We are pleased with progress we have made to date in lowering our cost structure. And we believe that our sustained focus on reducing cost will be an important driver of adjusted EBITDA expansion in 2006 and beyond. In that regard, the further reductions of nonmarketing costs have already been implemented in the first quarter of 2006 and additional actions will be taken. These actions will be partially offset by the expected increase in Canadian and Australian advertising spends to more normal levels during Q1 as compared to Q4.

Another key driver of adjusted EBITDA expansion is our intention to return our European and U.S. retail operations to profitability. During the fourth quarter, these operations lost a combined total of 9 million of adjusted EBITDA. Adjusted EBITDA for Q4 was 15 million, as compared to 2 million in Q3. As previously discussed, the 13 million sequential improvement is primarily the result of the 10 million reduction in SG&A and 3 in margin improvement. It's clear our diligence is what enabled us to deliver on our pledge of substantial improvement in adjusted EBITDA.

We ended the quarter with a total cash balance of 54 million, including 11 million in restricted cash. We utilized 14 million in cash for operating activities including 9 million on interest. We spent 7 million on CapEx and used 4 million for scheduled principal reductions on debt obligations. As you may remember in the past, we've stated that we expected to devote during 2005 some of our cash to improving our working capital position and thereby strengthening our balance sheet position. We felt it was critical to maintain strong commercial relationships with our strategic suppliers. Accordingly, during 2005 we have done just that.

Additionally, we have made great progress in reducing day sales outstanding on our accounts receivable to record low levels. Our accounts payable days outstanding are the lowest they have ever been. The combination of these efforts, has resulted in the use of 24 million in cash during 2005 to improve working capital. As a result of the progress made in 2005, our operating assumption in 2006 is to be working capital neutral.

During the quarter, we reduced debt by 7 million. Through the exchange of 8.6 million principal amount of our 12.75% senior notes for 5.2 million shares of PRIMUS' common stock and through scheduled principal reductions of 4 million. These debt reduction actions were partially offset by additional borrowing of 6 million through a new capital lease financing facility in Australia. This resulted in a debt balance of 635 million as of year end. In January 2006, the Company exchanged an additional 2.5 million of principal amount of the 12.75% senior notes for 1.8 million shares.

Also in January, the Company's wholly owned Canadian subsidiary completed an amended and restated loan agreement related to its existing secured nonrevolving term loan facility. The amended agreement extended the maturity to April 2008, altered selected financial covenants including reduction of minimum quarterly EBITDA requirements and an increase to the allowable leverage ratio. The agreement also reduced the maximum loan balance to 35 million Canadian dollars and established a quarterly principal payment of 1 million Canadian dollars commencing in April 2007.

On February 1, 2006, PRIMUS drew the remaining 17 million Canadian dollars on the amended agreement. Under our existing bond adventures we still have approximately 15 million available for the establishment of new debt to fund capital expenditures. As we go forward in 2006, our primary focus is and must be to maximize cash flow and fully fund our operating plan. Our 2006 operating obligations total approximately 90 million, which includes 52 million of interest expense, 35 million of capital expenditures and 3 million for cash taxes.

Assuming our base line adjusted EBITDA for 2006 is 60 million, coupled with the recent draw of 15 million on our Canadian loan facility, we have an approximate shortfall of 15 million to consider our 2006 operating plan fully funded. We believe this 15 million shortfall can be addressed through any one, or a combination of, the following actions. Improved operating performance in excess of the 60 million EBITDA base line. Utilization of a portion of our year end cash balance of 43 million. Continued aggressive nonmarketing cost reductions. Moderating capital expenditures below the 35 million in the operating plan. Reducing debt and associated interest expense through such means as debt for equity conversions, managing working capital effectively, the sale of some noncore assets and the pursuit of potential financing alternatives including equity capital.

We are confident that any one, or a combination of these alternatives, will address the gap and thus make us cash self-sufficient during 2006. I will now turn it back to the operator to open the call up for questions.

Thank you, sir. [OPERATOR INSTRUCTIONS] Our first question is from David Sharret of Lehman Brothers. Your question, please.

Good afternoon. Great job on the cost side this quarter. I guess just starting there and I think Tom, you kind of addressed this in some of your comments. But when you look at the SG&A level you're at right now, it's kind of back to the levels you were at maybe in 2003, which is great to see. As you look at the mix you describe for '06, are you thinking about those two balancing each other out, the cost reductions that you have on the market side versus Australia and Canada? And can you keep it at this or lower levels of absolute SG&A?

Dave, I think our goal is to continue to focus on cost reductions. And nonmarketing cost reductions have the ability to channel cash into the marketing side and into the advertising side. So, we still do feel confident that there is cost savings and cost reduction actions to take. We're not done. It's still a large business with a lot of cost and cost of sales as well as down in SG&A. We have taken some actions already in the first quarter in January and here in early February in reducing headcount in selected locations, as well as some non-headcount actions. And we have other actions planned for February and into March. So, we still think there's opportunity to improve on the numbers that we currently are reflecting. And ideally get more money into advertising.

And just on your comments around discussions with bondholders in the near term. Could you provide a little more granularity about the covenants, specifically, you're looking to address? Are you talking about debt currents limitations that are problematic potentially at restricted subs or selling equity in restricted subs? What are the covenants you're looking to address?

Dave, John Depodesta. You identified two of them. As you may be familiar with the covenants in our recent term loan agreement, this is at a point in time when we had created LINGO and had expectations of raising financing for LINGO. We negotiated the specific carve-outs and flexibility in that instrument that would allow us to raise external capital and have those monies be used to grow the business. And it's similar kinds of provisions that we would seek to have in the other debentures, 8% and 12.75%. As well as perhaps a waiver in terms of debt to raise cash at the operating subsidiary level that can be devoted to growing the new initiatives.

Just to add to John, Dave, this is Paul. I think the opportunities are going to be available to accelerate the growth of some other new initiatives. I think having discussion along these lines would be helpful to maximize the growth potential of the Company.

And just as far as your Australian facility, this new cap lease, what's the size on that facility? And then just one final question for Tom. In your CapEx guidance for '06 were you including any payments on your leased fiber capacity, or use that you've been paying down historically?

Dave, on the Australian facility, it was 6 million U.S. and it was specific for certain equipment associated with the DSL buildout. So, it was tied to equipment that was already purchased. There's no excess in that facility.

Do you feel that you've got access to -- you have 15 million, you said, left in your carve-out. Do you think you have access to that for further DSL related investments?

Yes. I think in the numbers I went through, I excluded 15 million of principal payments on our existing debt facility such as primarily the higher use that we have. And the thought there was, that we do have 15 million of additional capital expenditure financing capacity. And that either through vendor financing or other facilities, we should be able to attain that. Although, we do not have anything in the works -- or we do not have anything signed or completed that would off set that 15 million, so that our debt would stay -- at least from those two standpoints would stay stable.

Understood. Thanks for taking the question.

Your next question is from Anna Goshko of Bank of America Securities.

Hi, guys. Thanks. Couple things. First just in terms of the mix of your business that we can expect this year, one of the things you talked about was consciously shedding lowe margin revenue. I'm wondering, what kind of business is it, what kind of geographies is this business? What percent of your total revenue today would that constitute? And then in the same line of thinking, I think you've said that you have 29 million in the quarter of revenue from the new initiative. That's about 10% of total. Wondering where you think you will be by the end of the year? And given that changing mix of revenue, where do you think you can be in EBITDA margin by the end of the year? And then just the second topic, Paul, you mentioned some new initiatives in addition to LINGO. And that begs the question of what those are and would welcome some insight on the nature of those other new initiatives, whether they're VOIP or something else?

Okay. I'll take the last one. Just to give you an example, I think one example in addition to LINGO would be the MVNO business. I think we believed that we had very strong products in MVNO. But we also realized in order to be really successful in those initiatives you do need lot of cash. And if you don't have enough cash, then it would be not prudent for us to get into those businesses and then stop it halfway in the middle. So, that would be one example of, again, trying to find investments into initiatives that potentially are very high growth and also fairly high profit margins. So, that would fit into the example.

In terms of the low margin businesses, I think as Tom said, in the U.S. and in Europe, we had a loss of $9 million in the fourth quarter. Our focus right now is to turn those businesses around and that would be a total of $9 million loss. And to even break even would be a gain of $9 million per quarter. Within that one, in Europe, we have different businesses, some of them at lower margin, some have higher margins. And we have all of the started the exercise and our European team is doing a great job to figure out which businesses we should stay in, which businesses we should get out of in order to maximize the profitability of that business. And as time goes and those decisions are final, then we can make comments on what the revenue impact of that one would be.

Anna, this is Tom. You had asked about the 29 million of the new initiatives revenue and where that would grow to. We are providing funding and a lot of our cash flow is focused on the Canadian and the Australian new initiatives. And we see them being the opportunities that have the quickest pay back and really the best opportunities for us. Depending on how our cash flow evolves, will depend on how much additional resources we can devote into those regions. Or depending on what evolves with funding for VOIP, will decide on how fast that new initiative could grow. So, I think the growth of the new initiatives and where we expected to be at year end is dependent on the resources that we find available to devote to those initiatives during the year.

Okay thanks.

Next question is from Brent Brewer from APS Financial. Your question, please.

Yes. Thanks. I wanted to clarify in the release this time that the numbers provided for lines and service and customers for Australia, Canada and LINGO -- or I should say the retail VOIP are all as of year end and not the latest -- not just the latest numbers?

Brent, those are not as of year end. Those are as of effective today.

Okay. So, they are. I thought that would be a difference from previous.

Brent, on that one, that is is a consistent backing we have used. So, it's typically, basically three months.

I just want to make sure. And then just kind of following on sort of the last question. Are there sort of goals for '06? You kind of have a base line EBITDA target. So, are there some other sort of goals for where these new customer lines and service and customers should grow to during this year?

I think as Tom said, the growth of the new initiative is strictly going to be a function of how much marketing and ad spend been that we can afford to make. And in the cash constrained environment that we are in, the first order of priority would be to maximize the cash flow to be cash self sufficient. And I think within that budget, we have gone to fund the -- I would say the initiatives that has the most potential. And it's very hard for us to say this much that we are going spend on this initiative at this stage. But we have delivered in our budget and we are going to maximize the growth potential within that.

Thanks. Maybe I'll ask it a little bit different way. It looks like you have a target in Canada. You started a new initiative there to install DSL modes and 20 have been installed and expectations were reaching 66 by the end of the year. What kind of geographic coverage would that give you and so what kind of growth would be left to reach your ultimate goal in Canada for this new service?

If my memory serves me right, you need about 150 to 200 DSLAM units to have pretty wide coverage nationwide, which means in the major cities. I think we are trying the first phase, which is 66 of them. That will cover the most dense population, so we can get the best output from the investment. And the reason we are very specific on that, that's included in our plan for the CapEx. That would enhance our gross margins. That allows us to package DSL, plus local and for the future the IPTV and the quad-play. So, those are the reasons we thought it was a good investment for us to make. And just like in Australia, that strengthens our position in the growth area.

Brent, just to follow on to that is, we won't stop selling local services on the all-stream network. They have, I believe, little over 100 locations as well that we have been selling into. That will continue. We'll obviously target some of our advertising to the postal codes that surround the locations of where we're putting our sites but we won't discontinue putting customers on the Australian network.

Okay. Thanks a lot. Just one more for Tom. For you, Tom. I don't know, maybe I missed it or if you're just not providing this. Is there by chance the latest cash and total debt balance as of sometime last day or so that takes into consideration the additional Canadian line borrowings and maybe possibly any other debt stops that may have been done?

It's not something that we have Brent, or that we typically put out any information mid-quarter. We did feel that the two events that we mentioned were significant events, the drawing of the 17 million Canadian, which occurred on February 1. And we thought the additional debt for equity swap of 2.5 million principle was significant to mention. So, those are the two material items that have happened since 12/31.

Okay. Thanks a lot, Tom. Great quarter.

Our next question is from Chris Roberts of Tejas Securities. Your question?

Good afternoon, guys. Congratulations on another solid quarter. Wanted to follow up regarding the Form T3 that you filed last night regarding the proposed exchange for the 5.75 convert. You mentioned that you were approached by a majority holder. Would that be someone who holds in excess of 25 million? I guess there's 50 million outstanding?

That's correct.

Do you have the idea about the timing for such an exchange?

Well, under the SEC rules, they have 20 days, calendar days before this could become effective. Obviously, if they have any comments or want further review, that could be extended. But the elapsed time would be 20 calendar days from filing.

So, we might get some type of further clarity in 20 days?

Correct.

Okay. And then moving to LINGO, how big of an impact was caused by the e-9/11 regulations versus the planned moderation to CapEx? In other words, what kind of normalized growth in LINGO can we expect going forward with the reduced level of spending to support the business?

I think in the fourth quarter, 9/11 did have a significant impact. As you know, the FCC rules are clear. Some companies are following them. Some companies are not following them. It's all over the lot. Position we have taken is to thus far has been to follow what the FCC said. And that did have an adverse impact on the sales.

Okay. Any idea of, Paul, what kind of impact that had? And if that was removed I guess going forward, what type of growth could we expect with this lower voluntary level of spending?

I think as Tom said in his remarks, the good news I think for this year February 2006 versus February 2005, I think for the first time in several years, I can tell you the PRIMUS has now moved products in place that has a huge upside growth potential. Whether this is broadband, it's local in Canada and broadband in Canada. Whether it's VOIP. So, we have a number of initiatives now, which are well proven in the market place. We are constrained by how much advertisement and marketing money we can put into that. LINGO is one of those initiatives. And we are going to allocate the resources, again, where we can have the best outcome in a shorter period of time. If we had more money, we can fund, the LINGO can grow quite a bit, as you saw the growth in 2005 versus 2004. So, it's really a function of; what our capacity to fund these initiatives? And we are going to fund them where we can get the best result.

Okay. And one follow-up question. Regarding the one Vonage S-1 filing, it revealed a churn of 2.1% and RPU of around $27. Could you comment, is that in line with what LINGO reveals?

Our RPU is better than Vonage. Our churn rate is closer to 3%. And it may be less than 3% if I used the definition of Vonage. We calculate it more like normalized churn and they have a different definition. But it's in that range. Obviously, if were putting in the kind of money, marketing money, they're putting in, your churn actually comes down. The more brand awareness you have. So with respect to that one, I would think of a business model of LINGO compared to Vonage as quite favorable actually.

And I think another significant metric there Chris also is customer acquisition costs. And their published acquisition cost was in excess of $200 per customer. And LINGO is substantially less.

Less, than half of that.

And Chris, I think on the churn, I believe the way they calculate it, is they exclude any churn that occurs in the first 30 days of the customer's life, so that that's excluded from their churn figure. Sometimes you have to be careful that you're comparing apples to apples.

Okay, great.

But the benefit of all this Chris, is that is now public information. The operating and financial metrics are out there. And now we can match LINGO up against it.

I obviously the market's weighing some type of enterprise value that we can assign to a VOIp sub. And kind of use that as a bench mark for LINGO subs.

Absolutely.

We have a passing interest in that.

I'll keep you posted.

All right.

Guys, thanks for taking my questions and congrats again on the quarter.

Thank you, Chris.

[OPERATOR INSTRUCTIONS] Next question is from Romeo Reyes at Jefferies and Company. Your question, sir? We'll come back to him. [OPERATOR INSTRUCTIONS] Our next question is from Chris Brown of Richie Capital.

Just a quick question. Could you let us know what your current cash balance is? I don't think you said it. I think it was 54 million including the restricted you said at the end of the year. Can you update us on that?

Chris, I think that was actually asked a little bit earlier as well. We don't typically disclose any information in between the quarter end. We did mention two significant items that occurred post end of the year associated with cash balances. And that is that we did draw down 15 million U.S., 17 million Canadian from a credit facility in Canada. So, that occurred post year end and added to our cash balances. And just really a noncash item is we retired an additional 2.5 million in debt through an issuance of equity.

Sorry, for running you through that again.

That's all right. If I could ask one other. At the risk that this was discussed as well. Any comment on the potential for Canadian income trust?

Well Chris, we continue to follow the developments in Canada. As you know in late fall, that financing mechanism was somewhat stalled as a result of some governmental review of the whole process. However, since that time, I think that the blockage has been removed. And our understanding is that the new conservative government is favorably disposed to the income trust structure. So, that's all positive news. But for us, I think the game plan is to continue to execute on our model. We are now rolling out the DSL. So, we're going to expand our product sets and strengthen our infrastructure, improve our margins and cash flow. All of which is going to create even more opportunities for us going forward. So, we're delighted that the potential for that kind of a financing structure appears to be viable again and we'll continue to improve our operating performance. And we'll see what opportunities present in the future.

Thanks.

At this time, we have time for one final question from Matthew Dunden of MTI Securities. Your question?

Hi. Two quick questions. First in yesterday's T-3, it was mentioned that you may or may not extend the exchange offer on the 5.75 converts to other than this majority holder. I'm wondering sort of what the timing and the factors that may bear into a decision about making the exchange offer more broad based? And secondly, obviously people can be hopeful about LINGO. But is there a point which it reaches a fish or cut bait in terms of the sustainability of the cash flow vis a vis the realistic prospects from bringing in money that could market it to a point of cash flow neutrality?

Andrew, let me address your question first on the T-3. First, I want to make absolutely clear that we are not soliciting exchanges from any holders at this point in time. And quite frankly, for regulatory reasons, I am not at liberty to provide any additional information that is not otherwise set forth in the SEC filing.

Okay. Fair enough.

And on the question of LINGO, the LINGO is part of our U.S. business unit. And so I don't think you have to worry about whether we'll just cut it off. We are going to continue with our LINGO product as one of the products in our portfolio and the business will continue. So, we are not thinking or making decisions, should we just get out of LINGO or should we stay in it. We do know if we are able to get external funding, we have a huge upside potential for growth. As you see from Vonage numbers. And frankly, this will be a function of how much money you put in it. And I don't think there are any other constraints. And we can probably do at least just as well. So, that's why we are looking for the opportunity to see if we could grow much faster than we would otherwise be able to do.

At this time I'd like to turn it back over to Mr. DePodesta for any closing comments.

Thank you. Ladies and gentlemen, this concludes PRIMUS' fourth quarter and year end 2006 financial results conference call. Replay information can be found on our Website at www.primustel.com. And that replay should be available in about an hour. Thank you all for joining us today and good evening.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Good day.