Innovate Corp (VATE) 2006 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Primus Telecommunications Third Quarter 2006 Financial Results Call. [OPERATOR INSTRUCTIONS] As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's conference, Mr. John DePodesta, Executive Vice President and Co-Founder of Primus Telecommunications Incorporated.

Sir, you may begin.

Thank you, Patti, and good afternoon, ladies and gentlemen. And welcome to PRIMUS' third financial results conference call and web cast. I'm John DePodesta, Executive Vice President.

For those who have not had a chance to review the earning 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 third quarter. 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 to differ materially from actual results are discussed in the Company's Form 10K, and 10Q, 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 or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

I will now begin the management remarks. Our results for the third quarter demonstrate encouraging progress. Primus continues on a trajectory of improvement in EBITDA. Performance that is driven by revenue growth and increased margin contribution from new product and service initiatives, combined with aggressive cost reduction measures. These positive developments are occurring in an environment which holds significant opportunity for profitable growth. Recent investments in new product development and critical infrastructure systems have now taken root, thereby vastly strengthening our ability to compete effectively in our major markets.

Even regulatory uncertainties, which have long clouded our efforts in Australia appear to be approaching resolution in a manner favorable to Primus and to competition generally. The major impediment that stands in the way of our seizing this market opportunity has nothing to do with the marketplace, or products, or even strategy. Rather, in our current cash constrained environment, it has everything to do with our inability to devote adequate resources to accelerate the growth of our new initiatives.

We have made substantial progress in reducing costs of sales and SG&A expense, even as our new product initiatives gain traction. However, that progress has not been sufficient to overcome the considerable cash outlays required to service our debt, not with cash interest, currently consuming approximately 48 million per year.

While continued improvement in EBITDA will help narrow the gap, it is apparent that in order to exploit fully the profitable growth opportunities in our business, we must reduce significantly our overall debt and interest expense. While we have made major strides in this area over the last nine months, much more needs to be accomplished and it is a top priority of senior management.

The benefits that flow from attaining a level of free cash flow that allows increasing investment in the business have begun to reveal themselves in the current quarter's financial statements. As a result of our asset impairment charge in the second quarter, our non-cash depreciation and amortization charges are running at an annualized rate of around 28 million, roughly equivalent to our current rate of capital expenditure. But that 28 million is to be compared to the 88 million of depreciation and amortization charges in 2005. This positions the Company for a potentially unique confluence of events.

The attainment of free cash flow should also mark a point at which the Company should be reporting positive earnings per share. Such an attractive outcome for both bondholders and shareholders is clearly dependent upon our ability to work cooperatively with our stakeholders to reduce significantly our debt and interest expense. That, in turn, will allow us to fuel the lean, but highly competitive engine we have built over the past year with sufficient cash to accelerate our profitable growth, while positioning us to again consider complementing our organic growth with select acquisitions. In the end, all participants in our capital structure should benefit and that is why we are committed to deliver that outcome. The sooner, the better, and for all.

I will now hand the call over to Tom Kloster to review the operating and financial performance for the quarter.

John, thank you and good afternoon. Our third quarter results continue to reflect steady progress. Reported adjusted EBITDA of 16.6 million reflects an increase of 1 million over the prior quarter and represents the fourth consecutive quarter of growth in recurring adjusted EBITDA. We believe we have succeeded in re-establishing a stable base of operations for EBITDA performance.

We are also pleased with the continued progress of our new products, such as broadband, local, wireless, and voice. Revenue from these products reached 35 million for the quarter and, equally important, their profitability continues to improve as we increase scale and place more services on net.

The sale of our Indian subsidiary, which occurred during the second quarter, is treated as a discontinued operation from an accounting standpoint. Consistent with the accounting literature, all comparative results from prior periods now exclude the Indian operations from individual line items in the income statement. Those operations contributed approximately 3 million and 1 million of net revenue and EBITDA, respectively, for the second quarter of 2006 and for the third quarter of 2005.

Third quarter net revenue was 248 million, as compared to 252 million in the prior quarter. The 4 million sequential decline was driven largely by a 4 million reduction in low margin, prepaid services representing the continued shedding of unprofitable revenue as part of our previously announced restructuring of that business. In addition, there was a reduction of 2 million in high margin retail services. These decreases were partially offset by an increase of 2 million in foreign currency movements. The 2 million decline in retail revenue reflects the continued softness of our legacy standalone long distance voice and dial up ISP services. Partially offset by an increase in revenue from our broadband local wireless and VoIP products.

As previously mentioned, we are encouraged by not only the consistent growth in revenue from our new services, but by the degree to which profitability from these products has improved, as we build scale and place more services onto our own network.

Net revenue, less cost of revenue, as a percentage of net revenue improved to 35.9%, as compared to 33.2% in the prior quarter. While the prior quarter's figure included the negative affect of a one-time restructuring charge, a portion of the sequential quarterly improvement reflects our priority focus on reducing our cost of revenue.

In Australia, we continue to be very actively engaged in the regulatory arena, in an effort to achieve a more level playing field with [Telstra]. Recently there have been news articles concerning certain actions by the regulatory body, the ACCC. Let me attempt to clarify the Australian regulatory environment as it pertains to Primus. We are focused on three primary areas of regulatory action, which could positively impact our business. First, the lowering of pick fees both prospectively and retroactively. To date, draft interim regulatory announcements have been issued, which suggest the lowering of several pick related charges on a prospective basis; however, until a more definitive determination is issued, we will continue to incur, pay, and expense the inflated pick fees currently being charged by Telstra.

The second major proceeding involves setting of lower off net local line charges. This fee was raised by Telstra in December 2005 and resulted in a quarterly increase of 1.2 million to our cost of sales. The ACCC has since commenced anti-competitive conduct measures versus Telstra, but has not yet finalized whether to see court enforcement. Again, without definitive final action, we continue to incur, pay, and expense the increased fees.

The third proceeding involves a reduction in the on net local line charge. The ACCC recently issued an interim determination, including that the rates being charged by Telstra for such services were excessive and set forth a lower fair market rate for such service. As most of our customer traffic remains off net, the proposed lower rate only applies to a small subset of our total cost structure, but is still estimated to reduce our annual cost of sales by approximately 2 million. In this case, the lower costs have been reflected in our results, effective September 2006.

We expect the final determination to uphold the lower rate and to include a retroactivity provision, but there's no certainty that will be the case. We remain optimistic that the ACCC will issue final rulings on all of these matters in a manner beneficial to Primus, but the substance, timing, and certainty of such rulings cannot be predicted.

Our SG&A expense was 72 million or 29.3% of net revenue in the third quarter, as compared to 72 million and 28.7% of net revenue in the prior quarter. Our stable level of SG&A was accomplished, despite a 1 million increase in advertising expense to support our new products and a 1 million charge for European administrative taxes. We are encouraged by the progress we have made to date in lower our cost structure, both in SG&A and, more recently, in cost of revenue. However, we understand that we need to do more.

Adjusted EBITDA for Q3 was 16.6 million, as compared to 15.6 million in the prior quarter before consideration of the Q2 4 million dollar non-cash charge for restructuring the prepaid card business. Thus, this quarter continues our trend over the past several quarters of steadily increasing recurring EBITDA.

We also generated 10 million of operating income this quarter, which was partially driven by reduced depreciation and amortization levels resulting from the asset impairment write down in the prior quarter.

We ended the quarter with an unrestricted cash balance of 71 million, as compared to 87 million as of June 30th, 2006. The 16 million decline is comprised of 17 million of EBITDA, offset by 16 million in cash interest, 8 million for capital expenditures, 2 million in fees paid related to the 5% notes issued in the second quarter, 2 million in scheduled debt principle reductions, 2 million in cash taxes, a million in transfer to restricted cash, and 2 million for working capital.

We expect our unrestricted cash balance to remain fairly stable as of December 31st, 2006; however, during the first quarter of 2007 there are scheduled principle maturities of 23 million of the 5¾% convertible subordinated debentures and 8 million of vendor financing. Payment of these obligations would result in a significant decrease in our unrestricted cash levels during the first quarter of 2007. As a result, Primus' highest management priority is to develop potential means to reduce the first quarter 2007 cash outflow.

I will now turn it back to the operator to open the call up for questions.

[OPERATOR INSTRUCTIONS] We'll pause one moment for questions. Our first question comes from Anna Goshko of Banc of America.

Let me ask -- I'll start with two questions. One on the liquidity outlook and options there, and then the second one on the operations. There seemed to be a notable essence in your comments of talk about potentially raising new proceeds, or asset sales, or sales of minority interests in your subsidiaries, which you highlighted quite a bit during the last call, last quarter. So wondering what you've been doing on that front? Do you still think there's potential or might you think that you've exhausted potentially possibilities on that front?

And then, secondly, on the revenue front, I’m having trouble reconciling the quarter-over-quarter change. There seems to be about 4 million sequential down turn. I had 6 million prepaid and legacy decline and then 2 million of an increase. And I think you're attributing that to mainly foreign currency changes, so I'm wondering does that mean that your newer services, was that pretty much flat organically? Because it seems like it went from 33 to 35, but I'm wondering if that was really the impact of FX more than anything else.

I can jump in and maybe answer the second one first, if that's okay.

Sure.

On the revenue, so one thing I just want to make clear is the figures we're quoting, you know, on a comparative basis for prior periods, when we owned Primus India have been adjusted to remove Primus India from our financial results to make them comparative, so the change in revenue, when you take out Primus India from the Q2 results, the change in revenue now it was abo5 4 million dollar decline. Our prepaid services business, below margin prepaid services business declined 4 million. And then in our retail side of the business, our legacy retail side of the business, in effect, declined in the neighborhood of 4 million, offset by an increase in our new products of 2 million, for a net increase of -- for a net decline of 2 million, so that’s six in total decline, and then that was partially offset by benefit for currency of 2 million, so that you're back to your net change of --

[Inaudible] and it's more clear. And if I can just follow up on this operation one then? On the prepaid front, is that about it or is there still more to come in prepaid declines? I know that last quarter you said you expected about 3 to 4 million decline this quarter. And then also what's your outlook on further declines kind of on a quarterly basis on the legacy LD dial up front?

I think on the prepaid business you're correct. The decline in the prepaid business should be over with now. That has been fully washed through from the standpoint of, you know, low margin business that's not profitable for us and, as you stated, we implied that last quarter.

And then from the legacy, do you want comment?

Yes. On the prepaid forum, I think it still has the -- in the current quarter you still have prepaid cost recognition, so and then on the prepaid card, we've just got to keep an eye on the profitability of that business. And if it turns out it's not going to be profitable or does not meet our needs, then we will take out those prepaid revenues. So going to -- I think the legacy part of the business is, again, we are allocating as much money as we can towards the sales and the growth of the new products. And legacy the net to decline of 2 to 3 million has -- it has slightly improved over the quarter. It used to be 4 million dollar decline and now it's 2 to 3 million dollar decline. And the only solution to that for us is to allocate more money towards sales of those products.

So do we have a solution that it won't happen next quarter? No. I think right now we are, just from John's comments, more resources we can put towards sales, I think better off we are going to be. But in today's environment we are constrained. Based on that one, right now the round rate of net decline is 2 to $3 million.

Anna, to respond to your first question, in terms of our past references to our pursuing potential selective asset sales, as well as seeking potential injection of funds through the same of minority interests in subsidiaries, suffice it to say that those activities are active and ongoing.

Okay. And then I would assume you would think the same for potential, you know, proceeds from additional sales of the 5% exchangeables or desk swaps?

That's in the arsenal and that's available to us if we elect that, of course.

Our next question comes from Brent Brewer of APS Financial.

Yeah just thanks for the clarifications on the Australia situation, as normally I would ask about it and I did have just a follow up on that though. I was trying to refresh my memory on what that rate was back in December before Telstra unilaterally raised that and then how that compares to what you're actually paying right now currently?

Well, they raised the rate for us effective. They're really part of December 2005 and we had announced, I think, in the first quarter that it had an effect of us about 2 million, which included really a four-month effect, December, January, and February. The rate was $22 a month and it was raised up to $30 a month.

And that affect --

I'd say for over a four-month period that we reported in the first quarter.

I got you and thanks for that four month period. That explains my notes on the 2 million. So then, you know, the reports I've seen about 1770 or something like that, that's what you were saying is sort of pending, but being talked about.

Now the 1770 was a different, so the 1770 is the on net local charge. The other one that we were referring to, the 2230 is the off net local loop charge. And the on net local loop charge is the one that has been in the press recently and is the one that we have a smaller subset of services on; therefore, their effect on us is smaller and it's, you know, in the neighborhood of -- a little bit south of 200,000 a month or in the neighborhood of around 2 million a year of benefit.

So nothing to sneeze at. We'll certainly take that and that ruling, which came out in the August time frame we have taken the benefit of, you know, the roughly 200,000 a month effective September 1st, 2006 into our P&L.

Okay. So then that leaves me, I guess, with my final question is just it's hard to tell with the disclosures in this release, you know, with a combination of Australia and Canada DSL, you know, how much growth is just Australian. The last number I had for Australian DSL customers was 144 and it looks like combined now with Australia and Canada is 183. I don't know if you can provide that clarity or if you can just answer the question as to, you know, just lower, you know, on net fee are now on that charge you're now paying led to any acceleration or intent to accelerate, so the migration of customers over to the network?

I think one of the concerns on that still is the pick fees haven't been adjusted, so the pick fees are still heavy to make that transfer. You know, we speak in kind of both languages sometimes related to customers and then related to on net services, so from a customer standpoint, we've stated we have 186,000 DSL customers. Obviously the majority of those are down in Australia, but then excess of 150,000 being in Australia.

Our next question comes from Chris Roberts of Tejas Securities Group.

I had a couple of questions on the SG&A side of things. It ended up at 29% of revenues and they're down from 2005 levels, but it has been as low as say 26 to 27% of the revenue base. In light of your decision to increase advertising efforts on net services, can we expect this level to hold going forward at around 29% of revenues?

Chris, our general goal obviously is to reduce the SG&A. What we have been trying to do is to allocate, like I said, more of the cutting costs in other areas and allocating that money more in the sales and marketing area, again, to close the gap of revenue decline, some high margin legacy business. So to the extent we get an opportunity where we see that that money would be spent effectively, that has been the most that we have been [Inaudible].

So our efforts continue to reduce non-advertising, non-sales and marketing SG&A. I think those efforts, Chris, will be ongoing and we hope to continue to have benefits from those. The level of the savings that we put back into advertising depends on our ability to support it from a cash standpoint.

Kind of balancing it out. And just one final question on the SG&A. The 1 million expense for the European administrative taxes that was incurred during the quarter, do you expect that to be recurring?

No, that was just a one-time matter.

Our next question comes from David Sharret of Lehman Brothers.

I guess just to follow up on the advertising point and the SG&A point, just first you talked about you spent an additional million dollars in advertising in the third quarter. Is that the right level of where you want to be in the fourth quarter or was that a partial quarter and you would expect to see that dollar amount, if you have a dollar amount in mind, increase further in terms of advertising in the fourth quarter?

I would think some is a function of, you know, how well the campaigns are running, but because December is, generally the last two weeks of December we don't advertise much, so based on that, I would expect it will probably flat.

And then I guess just, you know, bigger picture question in terms of asset sales and partnering. Just if one of you had any comments. I know there were articles last week about [Vote a Phone] in Australia looking for a fixed line partner and you and a couple of others were mentioned as parties that they've talked to. I mean, anything you can say about, you know, maybe what you know of that they're looking for, potential for partnership there, or if you would consider asset sales more broadening involving Australia as well? If there's anything you can touch on there?

I have really no direct comments to make with respect to the Vote a Phone interest, David, at this point. But I think Australia, like Canada, is one of our major markets that from time to time interest has been expressed with parties who potentially seek to have an investment interest in that entity. And as we have disclosed over the last several quarters and we reaffirmed today, are pursuing selected asset sales and the potential investment minority stakes in some of our significant operating subsidiaries are matters that we would consider, right pricing.

But it is important that the right price.

I guess maybe just one last question as far as your new initiatives. I mean, you talk about the $35 million in revenues this quarter that is up 35% year-over-year and up from 33 million last quarter. Just if you can give me a sense of the increases that you've seen in terms of new initiatives? How much of that increased revenue is coming from entirely new customers to Primus versus existing legacy customers maybe in your dial up or LD businesses that are just switching over to your new higher margin platforms?

Clearly, I think, in Canada our local customers are all new. That's a new product for us. And, similarly, as we roll out broadband there, that's new, because we never had a broadband service before. And the benefit obviously is that hopefully we're able to bundle those local services with long distance services. In fact, in Canada we're having singular success on that. We're finding that the long distance [ARPU] of a bundled customer and our local service is higher than standalone ARPU of long distance customers, which is surprising and a grateful outcome for us.

Yeah, I think the only place, David, in the new initiatives that you'd see existing customers moving into that new initiative revenue is in Australia when we would lose the dial up ISP customer and he would move to a DSL customer of ours. And that's probably, you know, a much smaller portion of the total new initiative revenue in the growth and the new initiative's not something we have stats on right now.

Our next question comes from Steven Segal from Janney Montgomery Scott.

Already asked.

Our next question comes from Michael McNulty of Context Capital.

I just wanted to drill down a little bit more into your EBITDA. It looks like, just on the margin, EBITDA was about $1 million better, but you also had about $600,000 lower COGs because of the new Telstra on net ruling, if you will, that you took this quarter and I just 200 times three, 200 per month times three. And without considering the extra advertising, et cetera, is that the right way to look at it, where 600,000 of the million came from the on net fee?

No, Michael, that change in the on net fee went into effect September 1st for us, so we only really had one month of that and the actual calculation is something a little bit less than 200,000. So a relatively small portion is reflected in Q3 and in Q4 we would have the benefit for all three months of that. So the majority of the million of increased EBITDA Is related to other matters outside of that.

And then going on step further, if you assume that the extra million dollars of advertising costs and the extra -- if you look at the extra advertising cost and the extra million dollar tax, would it be fair to say then that the EBITDA would have been better by 3 million?

[Inaudible], Michael. It's the advertisement expenses we are trying to increase, so we decrease the revenue decline.

I'm sorry, Paul. I couldn't understand you there. Can you just speak up a little bit? I'm sorry.

Yeah. Can you hear me okay?

Yes. Thank you.

In terms of the advertisement expenses, those I think would stay flat and to the extent we can afford to spend more on selling new services, that's what we would like to do. Even though we have to frame them, we can't always have enough money to grow the new services to their fullest potential. And terms of extrapolating we spend a million dollar more next quarter, we won't do it. It's not the right assumption. So I would say the marketing expenses would be flat from quarter-to-quarter.

So would it be fair to say though that there was an extra million dollars worth of tax and an extra million dollars worth of marketing expenses in the third quarter versus the second quarter? And even with that, your EBITDA was about $800,000 better?

Yes. Clearly, oh yes. Yeah. I think that's the right way to look at it. Underlying fundamental improvements are taking place in our business and so your way of calculating that part is correct.

Okay. I just want to make sure that if you hadn't spent those and you took out the 200,000 dollar benefit from the COGs or from the on net ruling, that your EBITDA would have been better, instead of by a million, it would have been better by 2.8 million?

Yeah. I mean, every quarter you're allowed to [Inaudible].

But that's a material difference to you folks?

Yeah.

Okay. I just wanted to make sure. All right. Then last thing, just to also reiterate and clarify on the difference between the Q2 and the Q3, all quarters, excluding the Q2 and Q3 exclude India, such that the low margin prepaid was negative 4 million, the legacy was negative about 4 million, the FX effect was positive 2 million, and the new services were positive 2 million for a net decline of 4 million. Is that?

That's correct.

That is it.

You got it.

Okay. I just wanted to double check.

Our next question comes from Robert Konafou of Imperial Capital.

A couple of questions. I guess on the Australian regulatory front, in prior calls you had mentioned an 8 million dollar cost savings from, I believe, all of the aspects that were up for review and you've dealt with two here. That means that the pick and local line charges represent the other six?

Yeah. I think those are the other major items. Quantifying it becomes challenged based on what levels Telstra or what levels ACCC would come out with in the way of rate reductions. You know, we also feel that there will be retroactive benefits when the decisions are made; however, how far back does retroactive benefits go is also something that's difficult to estimate and quantify.

On the --

Practically speaking, it's probably a good idea not to forecast -- not to try to forecast which quarter, how much the savings would be until the final rulings come out of that. That's the lesson we have learned over the last [Inaudible].

Sure. No, I understand. I just wanted to see what was sort of up for grabs. On the advertising front, you, in your remarks John, had mentioned through the capital constraint keeps you from investing in growth. Should we expect higher advertising levels going forward as well?

Only to the extent we can afford it. We also have payments to make and so no. I think what we are trying to do is to be very practical what we can afford to do and where it will produce the best results for us. And there we sort of look at the payback periods. If you invest the money, when would we get this cash back. Based on those we make our decisions. So should you expect it increase based on today? Generally, we are trying to increase our EBITDA in the face of declining [south line] revenue and that becomes a challenging game all by itself.

Obviously --

[Inaudible] answer to the extent that we can reduce other than sales and marketing costs, we would like to plow those savings back into sales and marketing without any aggregate increase in the SG&A. Just redeploying the savings into sales and marketing.

Just too I think it may be useful. Last time we did the same exercise. When our legacy business goes down by $4 million [Inaudible] 40% growth margin, that basically ends up a $1.6 million negative EBITDA. So we could reduce it to half by spending marketing money. Obviously, you know, the bulk of them would cancel. Then it's a question of you if spend the money today, would we get it back in three months or six months? And that's basically the exercise we go through.

And then I guess the third and final area, wanted to make sure I understand how the covenant structure works. I think I had spoken to you, Tom, off line on there's no covenant that restricts you from paying off the 5 ¾ notes in 2007, correct? In full, if it gets to that?

There's no covenant or restriction about our meeting maturity obligations when due.

And would there be any restriction to incur debt? I'm not quite sure how you do this, but at least [parry] or ahead of the eights in order to try to refinance it as an alternative to paying it off or doing some sort of exchange offer. Is there a way to refinance it at a level that is, you know, [parry pasoo] or more senior than the 8% notes?

Well, not more senior than the 8 percents, but parry pasoo and that's why God invented the 5% exchangeable notes.

So you might have room in the basket, but you'd need to raise the money in order to consummate that kind of refinancing?

No, no. No, we could do an exchange of the 5 ¾ --

Into the 5 --

-- into the 5% exchangeable note.

Got it. Got it. And then just if you were to do an asset sale, can you walk me through how the term loan prepayments from asset sales would work? You're allowed to do a Lingo public offering or equity offering and retain those post [Inaudible] Lingo, but would there be any other asset sale you could do that would allow you to retain the cash, as opposed to have to pay down the term loan?

Well, actually proceeds from asset sales generally, and this is sort of consistent through all of our indentures, you know, the Company has the ability to utilize those proceeds generally for a one-year period, so long as you redeploy it into the business, capital expenditures, or invest in like businesses, and acquisitions. You can use that for 365 days or 360 days. And at the end, if there are net remaining proceeds from the asset sales that then is available to be offered to holders, first to the term loan holders and they have a 30-day lead time on that. And if they don't take it up, the remaining balance would be offered to the 8%.

[OPERATOR INSTRUCTIONS] Our next question comes from Nesh Canjon of Simran Capital Management.

My question was I believe you touched a little briefly earlier on reducing interest expense going forward. Have there been any plans devised to address that and do they include debt reduction?

The answer is yes and yes. We have a number of ideas and concepts, Nesh, that we continue to work through and hopefully we'll be engaging holders to see whether they may be interested in some of those concepts.

Also, my second question is how has subscriptions been quarter-over-quarter and are there any plans to expand in new markets with products such as your voiceover IP or Lingo?

Can you repeat that [Inaudible]?

Sure. My question was just how have subscriptions been quarter-over-quarter and are there any plans to expand into new markets with products such as your voiceover IP or Lingo?

Well, I think with respect to subscriptions generally, I think if you look at our new initiatives, you know, quarter-over-quarter, you know we've had good growth in our broadband customers and our customers in Canada continue to grow. Our VoIP customers in Canada continue to grow. And, Paul, you may want --

Our Lingo customers are fairly stable, but the profitability of Lingo is actually produced positive EBITDA to our 100K marketing expense per month, which is a huge toll along from last year. And Lingo is now it's part of the US business already. It is managed by the same person. The overall US performance actually did quite a bit better. Better than plan in the third quarter, so that's also very positive outcome and VoIP overseas, yes. VoIP would be rolled out overseas. And we are also rolling out some other actually international voice services that are online, combined with Lingo, so the customers can have local service and at the same time would have the Globe Talk. It's being sold under the brand Globe Talk. Would have -- keep [Inaudible] international calling. Combination of that would position Lingo also more among the international users and that's kind of leveraging our experience and the brand name in the [Inaudible] channels in the US.

Our next question comes from Thomas Koch of Turnaround Capital.

[Inaudible].

Our next question comes from Grant Peck, a private investor.

Quick question about the subscriber count for your bundled customers in Canada. I note that you've not released numbers for it looks like three quarters now and in light of the combined number that you provided this quarter for both Australia and Canada, it looks like there's some attrition going on, and I'm wondering if you can address whiter that's happening, and shed some light on that?

Grant, we refer to I think on net services in the release of our net services being 88,000 and that's, you know, a combination of both Canada and Australia, you know, services both local for DSL, if it's local and DSL, that's Canada's two services. We have seen growth on on net services in both Canada and Australia quarter-over-quarter, with Canada really having the most significant growth Q2 to Q3. Just started to market -- as we started to market our on net local services and DSL services in Canada, as we've completed or virtually completed our D Slam network there. So the numbers are up quarter-over-quarter and I think last quarter we got mixed up a little bit between customers and services, and there were some numbers in the Q2 release that made that somewhat confusing. After the release we issued an 8K that clarified those figures.

So then what would the net change in services be from second to third quarter? You're at 88,000 now. What were you then at the end of second quarter?

We were at about 74,000.

We have exceeded the allotted time for questions. I would now like to turn the program back to Mr. DePodesta.

Before we close, I'd like to inform you that Primus is scheduled to participate at Banc of America's 2006 Credit Conference, which will be held on the 4th and 5th of December in Orlando, Florida and our own Tom Kloster will be featured at that event.

This concludes Primus' Third Quarter 2006 Financial Results Conference Call. Replay information can be found on our website at www.primustel.com. The replay will be available in about an hour.

Thank you for joining us today and good evening.

Ladies and gentlemen, thank you for participating in today's conference. This conclude the program. You may all disconnect. Everyone have a great day.