Innovate Corp (VATE) 2006 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth quarter 2006 financial results conference call.

At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time.

[OPERATOR INSTRUCTIONS]

As a reminder, this conference call may be recorded.

I would now like to turn the conference over to your host, Executive Vice-President, Mr. John DePodesta. Please go ahead, sir.

Thank you, very much, Jai.

Good afternoon, ladies and gentlemen, and welcome to PRIMUS's fourth quarter 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'll begin with formal remarks from management regarding the Company's full-year and fourth quarter results. 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 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. The fiscal year-end conference call is a good time to assess the progress over the past 12 months. I am sure that a year ago as we exited 2005 with annual Adjusted EBITDA of 18 million, that many investors were concerned, legitimately so, about the Company's prospects.

While we had finished the fourth quarter of 2005 on a high note, the unanswered question was whether the Company was on the road to recovery. Today, I think our quarterly and annual results have affirmatively answered that question.

Despite the expected decline in revenues over a majority of which was attributable to shedding low-margin products, PRIMUS was still able to generate 61 million of Adjusted EBITDA during 2006, an increase of 240% compared to the prior year. On a recurring basis Adjusted EBITDA for the year was at 67 million.

Credit this outcome to persistent execution of our announced strategy of maximizing cash flow from operations by driving down costs and concentrating available resources on high-margin broadband, VoIP, mobile and local services. Those services currently are on a $140 million revenue run rate and represent our major opportunity for future revenue and margin growth.

Our challenge is to find and devote adequate resources to exploit these growth opportunities such that they are generating margins sufficient to eclipse the decline in our legacy voice and dial-up ISP businesses. While it will not be possible to replicate the spectacular 91 million SG&A reduction in 2006 as compared to 2005, there are additional cost savings and efficiencies from targeted opportunities that can be redeployed into sales and marketing efforts.

Similarly, we have identified non-strategic assets in businesses that could be sold over the next two years, some with minimal EBITDA impact, with the proceeds supporting accelerated growth in our high-margin businesses. With such programs representing the cornerstones of our two-year Transformation Strategy, we expect to resume topline revenue growth before the end of 2008.

Significantly, our performance objective is to grow aggregate recurring Adjusted EBITDA in 2007 by 10% or more over 2006, assuming stable currency exchange rates throughout the year, and excluding any material expenses related to further restructuring.

Given the seasonal fluctuations in our business and markets, we anticipate corresponding quarterly fluctuations in our Adjusted EBITDA performance. In the first two months of 2007, we already had a running start with regard to another key objective of our Transformation Strategy. Namely, strengthening our balance sheet and liquidity position.

The key first step was securing the unanimous consent of our term loan holders to authorize the issuance of up to 200 million in new Second Lien Notes. We structured and priced these new securities to enable us to exchange 33 million principal amount of new 14.25% Second Lien Notes for 41 million principal amount of our existing 12.75% Senior Notes.

The net result of that exchange was a face reduction of 8 million of debt, reduced interest expense and an 18-month maturity extension. Simultaneously, we issued 24 million principal amount of the new Second Lien Notes for cash which bolstered our liquidity position.

In addition, we have further capacity of between 87 million and 143 million, depending upon the ultimate disposition of the outstanding 5% exchangeable notes, to issue Second Lien Notes in similar transactions.

In February we retired in maturity the remaining 23 million principal amount of our 5.75 Subordinated Convertible Debentures with cash. Regrettably, certain holders of a minority of our 8% bonds sought to frustrate our ability to pay off that maturing debt, although their legal challenge to prevent that payment was unsuccessful.

While 2006 began with uncertainty over the Company's prospects, the accomplishments over the past 14 months have materially altered that perspective. As Paul Singh aptly summed up in our press release today, and I quote.

"While we continue to operate in a most challenging environment, we believe the Company's prospects have improved dramatically from where they were even one year ago."

I will now ask Tom Kloster to review the financial and operating results of the quarter.

John, thank you, and good afternoon.

Our fourth quarter results reflect continued operational improvement, Adjusted EBITDA of 18.5 million is an increase of 1.9 million or 11% over the prior quarter, further illustrating our success in re-establishing a stable base of operations for EBITDA performance. Our full-year 2006 Adjusted EBITDA was 61 million, up 240% as compared to 18 million in the prior year.

Fourth quarter net revenue was 242 million as compared to 248 million in the prior quarter. The 6 million sequential decline was driven largely by a 6 million reduction in retail services revenue. In addition, there is a reduction of 2 million in the low-margin wholesale services revenue.

These decreases were partially offset by a 1 million increase from our retail growth products and a 1 million increase from foreign currency movements. The net 5 million decline in retail revenue reflects the continued softness of our legacy stand-alone long-distance voice and dial-up ISP services. Together with the fact that the rate of increase in revenue from our broadband, local, wireless and VoIP products is currently insufficient to offset the legacy product decline.

As mentioned in our earnings release, the achievement of accelerated growth from these products is of the Company's top priorities over the next two years. In the interim, we continue to be very encouraged by the enhanced, incremental profitability of these growth products as we build scale and place more services onto our own network.

Net revenue, less cost of revenue, as a percentage of net revenue, was 35% as compared to 35.9% in the prior quarter, which had benefited from some favorable non-recurring settlements.

The Australian regulatory environment continues to evolve slowly. There have not been any final determinations issued on three material matters to PRIMUS. Customer network migration fees, off-net line rental fees and on-net line rental fees. However, the ACCC did announce recently that it will not pursue further legal action against Telstra for anti-competitive pricing on off-net line rental fees but will rather allow for adjustments through arbitration.

Accordingly, PRIMUS continues to incur, pay and expense the inflated fees assessed by Telstra as we remain optimistic that final rulings from the ACCC will be beneficial to PRIMUS.

Our SG&A expense was 66 million or 27.3% of net revenue in the fourth quarter as compared to 72 million and 29.3% of net revenue in the prior quarter. The decline in SG&A includes a reduction of 2 million in salaries and benefits, advertising expense decreased by two million, as is typical for PRIMUS in the seasonal fourth quarter. We further reduced the variety of general expenses by 1 million and the prior quarter included a 1 million charge for European administrative taxes.

Although we are pleased with our success in managing our cost structure over the past year, we will continue to focus aggressively in this area throughout 2007. We expect to achieve further improvements through an ongoing effort to outsource and offshore certain functions to lower-cost locations globally and through internal efforts to centralize other functions. Our goal is to free up funding to redeploy towards sales and marketing activities with the highest near-term return on investment.

Adjusted EBITDA for Q4 was 18.5 million, as compared to 16.6 million in the prior quarter, or an increase of 11%. However, it should be noted that the first quarter has less calendar and business days, and also experiences holiday seasonality in Australia. Additionally, in the first quarter the normal advertising and marketing expenditures levels will resume, and we expect professional fees to increase as a result of litigation costs.

Thus, we expect to see a decline in Adjusted EBITDA in the first quarter 2007 as compared to the fourth quarter 2006 levels.

We ended the quarter with an unrestricted cash balance of 64 million as compared to 71 million as of September 30th, 2006. The 7 million decline is comprised of 18 million of EBITDA, and 1 million for lower-restricted cash levels, offset by 9 million for capital expenditures, 8 million for cash interest payments, 6 million for working capital and 3 million in scheduled debt principal reductions.

Our cash usage this quarter was somewhat higher than expected as a result of higher capital expenditures to support future customer growth and a one-day drop in our days payable outstanding. Our full-year capital expenditures for 2006, were 33 million, in line with our guidance of 30 to 35 million.

From a financing and liquidity standpoint, the first couple of months of 2007 have been quite busy. As John mentioned, we obtained the consent of our term loan holders to issue up to 200 million of Second Lien Notes and completed in exchange of 41 million of principal amount of our 12.75% Senior Notes for 33 million principal amount of the Second Lien Notes.

Additionally, we sold 24 million of Second Lien Notes for net cash proceeds of 19 million after discounts and expenses. Further, we sold our Australian domain-named business for net cash proceeds of 6 million. As expected, we paid 23 million in cash to fully redeem our maturing 5.75% Convertible Subordinated Debentures.

We amended the terms of an $8 million capital lease facility in Australia which was due in the first quarter of 2007, to amortize over 24 equal monthly payments. These mentioned actions had roughly a zero impact on cash. In other words, the 23 million debt payment was fully offset by the other actions.

As we look toward 2007, we believe we are well-positioned to continue our growth in recurring Adjusted EBITDA and expect 2007 to be at least 10% higher than 2006, assuming stable currency rates and excluding any material expenses related to further restructuring. As such expected Adjusted EBITDA levels coupled with expected capital expenditures between 25 to 30 million and our existing cash balances, we believe our 2007 business plan is fully funded.

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

Thank you.

[OPERATOR INSTRUCTIONS]

One moment for our first question.

Our first question comes from David Sharret from Lehman Brothers. Please go ahead.

Good afternoon.

If I could just follow up on a couple points in terms of the two-year plan.

First just on the cost structure side, you talked about outsourcing, I was wondering if you could quantify the dollar amount that you think is achievable and maybe some of the -- talk about some of steps you've already taken and the timing for when you expect that to work its way through the numbers.

And then just in terms of the new initiatives growth. It appeared to slow in this quarter up $1 million, I think last quarter up about $2 million on the revenue side to 35 million run rate. If you could just talk about what you're seeing there and if you think that can reaccelerate.

There are slowing trends even among the new initiatives. Thanks.

David, this is Paul. I think in terms of the outsourcing for one of the things we did in this press release was talk about a two-year plan.

As you know, some of the restructuring efforts are going to be more structure changes in our cost structure, which means some of the functions we may move to other locations, where there is general cheaper labor cost for us, and some of them may be insourced and that could be insourcing in any of the countries in which we operate, where again we can capture cost efficiencies because of labor, or because of the economies of scale.

It's going to be a combination of that. We have started doing it in starting in Europe, so we have some people who will be working in India, which would be a part of PRIMUS, and some of them being outsourced, so that effort did start actually this year. And as a result of that, generally in the short run, we may have actually doubled the costs, because you want to train the new people and then they get established after a while, so there is some transition costs associated with this.

But we do believe that within 9 to 18 months pay back periods and in some cases it may be much quicker, if we outsource certain functions and in other cases it will take us a longer time. But that is the time period. That's why we talked about a two-year plan and not next quarter you're going see all the reductions.

But I believe it is necessary for us to look at our overall cost and make structural changes and what we did in 2006.

David, just to follow up on that, the easiest thing I think to outsource or go offshore with, sometimes is your call center operations. And we have historically had some portion of our call center operations outsourced. We did in late Q4 shut down a Canadian call center operation on the west coast and moved some of those functions offshore, as well as moved them internally.

So we have started taking those steps, and we started an operation in India to also relocate some of our administrative jobs and back-office jobs. Training is starting with some Indian-based employees in Europe, as Paul had mentioned, coming to our offices to train for certain positions, and then moving the jobs overseas.

So it's in the works but it is a relatively long process.

Plus also we want to be cautious about this thing. We want to make sure we get the quality of service we expect to get, so we are going to be -- go very steady and be cautious about this thing.

Comment that Tom made in call centers in Canada, was the call center that serviced some of the U.S. customers, and actually in Canada we may find call center costs are actually quite good. So it may make sense for us to even consolidate some of the call centers in Canada, where the costs are actually much cheaper.

So, anyway, a number of initiatives are going on, but they just started and, again, this is the reason we focused more on a two-year plan than to just go quarter by quarter.

The second question you had was in the--

New initiatives growth were slowing.

Yes, fourth quarter was slower than the second and third quarters. It is hard to tell in the sense of December generally is a not good month when people buy a lot of services. As you know, businesses don't do much and even the residential customers don't buy as much in the fourth quarter.

It is hard to tell if that is the reason, or I know one reason, as I mentioned in the press release, is marketing--couple of marketing campaigns that we have did not turn out to be as effective as we generally expect. So combination of those may be the reason.

But as we go in the future, I think we are watching that one, and to -- making sure that we do generate growth. But that's all we know.

David, we have clearly targeted those new high-margin services as being our primary opportunity for growth, and that's where we intend to devote--continue to devote our resources.

If you look at your overall revenue on an annualized basis, the 242, I guess something like 970 on an annualized basis of which 140 is from the new initiatives, I mean, of the -- of everything other than the new initiatives and how much do you think is in the real at-risk declining LD voice and dial-up internet, and are you seeing any stability there that you're through maybe the worst on that?

I hate to say we've seen the worst of it.

We expected to slow down, but as I think quarter to quarter it has actually slowed down, we see a decline of pretty much the same range of $4 to $5 million decline, and we are, again, trying to find ways to slow that decline, and in 2007 and early 2008 we expect it to be slower than -- I think we do feel comfortable that our decline would be slower in 2007, than we had 2006 over 2005. But we are not happy or satisfied with that part.

I think we really want to find ways to slow it down and then in 2008 actually reverse that trend. To do that one, again, this is why the strategy we have multiple action items we have to take in order to invest money into the high margin and high-growth initiatives. But there is no way to stop decline in general dail-up internet. We can hack the prices to save it. That is not the right move to make.

So some of the things is not worth investing in to slow it down because economically you don't get the returns, so we have to focus on investing in sales people, investing in channels. I can tell you that the products we have, whether it is an enterprise IP of Lingo product, our local products, voice-over DSL in Australia, we do have very good products.

We are very competitive. Service is good. Customers like it. So then it comes down to how much capital we have, how much EBITDA we can make every quarter into the channels, hiring more sales people, or working our deals, or putting CapEx into EPE that is needed to grow faster and this is where those constraints come in.

We also need to live within our constraints. So that is when the talents come. But the opportunities are there and hopefully out of this four-prong strategy we have put together, we get some more financial flexibility to actually make more aggressive moves to change the mix.

That's what we plan to achieve.

Right. Thank you.

Okay.

Our next question comes from Ana Goshko from Banc of America. Please go head.

Hi. Thanks. Two questions.

First, on the non-strategic assets that you have identified as potential sale candidates, can you give us a sense of what kind of businesses those are and what you consider non-strategic. I think many of us would have been hard pressed to have known about the India operations or the Australian domain name business that you were able to sell for $19 million.

I wanted to get a sense of what the opportunity is there.

And then, secondly, I haven't heard much about Lingo for a while. I know you used to report the subscribers there. I wonder what the subscriber trends are, one issue in there is you needed a lot more investment which wasn't available this past year.

Is that something that is still trending positively and is that something that you still can consider strategic?

Okay. Let me answer the first one.

Yes, I think there are quite a few businesses or actually I should say sub businesses that we don't talk about everyday, like PRIMUS India. Generally, everybody thought it is worth nothing, but it was worth a lot of money for us. So domain name business.

So there are a lot of small revenue streams that happen to be also profitable, but sometimes we are not -- either we don't have the resources or it doesn't make sense to grow them and invest too much money in them. We may have better opportunities. So that's kind of the products that we have.

The other ones maybe--I guess if you took an example of Lingo. Lingo on one hand, IP technology is strategic, that is where the technologies are going. On the other hand, Lingo does not make a material contribution to our EBITDA today. If it doesn't, and we can sell it, it will generate quite a bit of cash and that cash can be redeployed generally into the Lingo investing into growing other businesses.

So that is one example of minimal EBITDA impact it basically can generate a lot of cash for us. That is one example. And there are -- I'll give you a couple of businesses in Europe, smaller countries, again, generally generator 5, 10 million revenues, but EBITDA wise it is not material, but if it could sell those assets, therefore, take that money and invest into other countries where we are getting traction in our new initiatives, that would make a lot of sense.

And it will also get our focus on fewer countries. At the end of it, you will see us in fewer countries and key franchises and it may turn out to be five countries in which four countries we put our energy in and grow those franchises.

On Lingo, Lingo we have made lot of progress. In terms of the number of customers, that is sort of flat. But in terms of EBITDA performance it is a world of difference between what you saw in 2005 and in 2006 we have actually -- it is sort of EBITDA-neutral, but we do spend about $150,000 of marketing money we have started putting in it now, in general.

So the basically when the EBITDA, while it doesn't make contribution but we have started taking money from savings in that and started putting into marketing. We are looking at other channels and I hope we reverse that trend but it is too early to tell.

So based on your comments, is that still a business that you're--have very committed to as a strategic pillar of your business, or is that something that you would consider selling?

We have explored selling the Lingo U.S. business, and so I think we are going to just stay opportunistic about that, because there are quite a bit of opportunities in partnerships and so on. It really depends on what we're able to execute on that, how much contribution it makes to EBITDA.

Do we have better opportunities if we sold that? Could we deploy that to grow the broadband business or Enterprise IP business? So we are going make those choices as we go through the two-year plan.

Okay. Great. Thank you very much.

Okay.

Our next question call is from Brent Brewer from APS financial. Please go ahead.

Thanks. Good afternoon, guys.

Hello, Brent.

I guess you already covered Australia pretty well this time around.

I noticed in December, though, I wonder if you can provide some additional clarification on this -- the Canadian regulatory landscape and whether or not there has been a meaningful change there with this December announcement that the Telecom Minister may granting pricing flexibility to some of the big players there?

Yes. I think the reality in Canada is we actually compete quite a bit with the cable companies who have all the flexibility and the bundles.

So we think from a practical point of view, actually, that competition, because of the cable businesses, is already there. So I don't think materially it is going to change, it will change our business materially or competitive strategy materially or not. But the competition we are not just--we don't feel secure just because of the government regulations, and the competition with cable companies in general, they have all the flexibility they need.

Okay.

You know, just a few comments or questions I guess on, the Second Lien. First just kind of clarifying a comment that -- when I do the calculations I'm actually seeing a net increase in cash interest, when I thought that the goal in your restructuring transactions and debt exchanges and whatnot was actually the lower cash interests.

I guess on the exchange amount it actually is lower, but when you include the additional subscription amount of 24 million you get a larger sort of run rate in cash interest. Am I looking at that right? Is there something else I should be able to expect with the $200 million capacity and can you comment on what you believe the availability of the carve-out currently is?

I think, Brent, on the cash interest expense, when we factor in the exchange that we did, and then you factor in the new issuance of the Second Lien Notes that we did for cash, then you also have to back out the fact that we repaid 23 million of the 5.75% debt, so that that goes away.

And then we have normal principal amortization on some of our capital leases. Factor all of that together, I'm not sure if you got the 23 million of the 5.75 going away, but it will result in slightly higher cash interest expense. The Second Lien Notes transaction of the exchange was relatively neutral.

Yes, okay. Yes, and that's what I came up with on my calculations. Okay. Good.

Can you say what you believe your constrained by on the ability to tap additional amounts of the $200 million carve-out.

When you say constrained, there is $200 million carve out it can't exceed that any one particular time. Currently with the 56 million of 5% exchangeable notes outstanding, we have about 87 million of capacity to issue additional Second Lien Notes.

But as I mentioned in my remarks, depending upon the ultimate disposition of those 5% exchangeable notes, for instance, if they were to be equitized, that would restore an additional 56 million of capacity that we could issue additional Second Lien Notes.

So the range of capacity, remaining capacity is between 87 million and 143 million, again depending upon the ultimate disposition of the 5% exchangeable notes.

Right. Okay.

Just don't assume that they are going to get equitized tomorrow or something.

No.

The terms of those exchangeable notes are, they're strike prices of $1.20 a share and there is a mandatory conversion at $1.80.

And it looks like they can be paid in, interest payment can be paid in lieu of cash this year.

That's correct. That's correct.

Okay.

Just a clarification on amortization for '07, it looks like, if I look at the December sort of short-term debt and back out what was both paid in February and then sort of renegotiated under the Australian facility, looks like '07 amortizations are in the neighborhood of 10 million?

I think that is correct, Brent. Slightly lower, say 9 millionish for 2007.

Okay. All right. And thanks a lot, guys. That's it.

Thanks.

Our next question comes from Chris Roberts from Tejas Security Group. Please go ahead.

Thank you for taking my call.

I had a quick follow-up question about this Second Lien Notes issuance that you did last week, the press release indicated that you received contents for amendments the 12.75 Senior Note Indenture. Can you provide some background on those consents, specifically will it allow you to purchase bonds in the open market?

Well, the consents, basically, resulted in the issuance of an amended indenture for the 12.75%, which, among other things, eliminated some restrictions under those indentures that were more restrictive and are now remaining indentures.

For instance, it was a restriction in the 12.75 of a 5 million restricted payment basket. But as a result of consent and the new indenture, the next lowest level of restricted payment basket is in the 8% in term loan which is at 25 million.

So the Company has picked up some incremental flexibility under the restricted payment baskets for its outstanding indentures and term loans.

Okay.

So this would give you to opportunity to use up to 25 million of cash for open market purchases?

Yes.

Okay. Good.

Kind of a follow up to that. Going on to the term loan consent. Were there any significant modifications to the term loan. Any change in money terms?

I think we in our press release I think we did indicate there was some modifications. There is a 25 basis point step-up in the rate.

Okay. And there was some adjustments also to the call provisions of those notes. Extension of the call protection.

Right.

Okay. Good. Well, thanks for taking my call and congrats on a solid quarter.

Thank you, Chris.

Our next question comes from Laurent Horrut from J.P. Morgan. Please go ahead.

Thank you, guys. Just a question on Australia, if I can.

I'm just wondering the number of DSL customers as of December, and of that how many were on that? And, second, if you had any update in terms of strategic discussion you have with regard to the ownership of the business.

What was the second question?

It was just regarding the sort of update on the strategic discussions concerning the ownership of the Australian business?

Ownership of the business?

Yes.

We still own 100%.

Do you know something we don't?

No, it is no mystery in the last quarter you referred to some discussions with third parties with regard to the Australian business. I was just on the back of that comment back then if you had any update.

I'm confused.

I'm talking about--

I don't know of any discussions we have had or comment I may have made. I don't think so.

Okay.

Maybe something else.

I can comment on some of the customer figures.

We have in Australia -- for roughly DSL customers in total about 195,000 across our universe. The majority of those are in Australia, probably 75% of that is based in Australia, and of those probably a third or so are on-net versus off-net.

Okay. That's great. Thank you, very much.

[OPERATOR INSTRUCTIONS[

Our next question comes from Andrew Cray from Phoenix Investment Advisors. Please go ahead.

Hi, guys. Congratulations on another sequential business improvement.

I just wanted to -- I wonder if you could expand on your comments regarding the lowest sequential EBITDA you expect for Q1. Any kind of indication as to -- well, first of all what were the items that are going to cause that lower number, and then essentially how much lower could that number be?

Yes, Andrew, I think, the first to answer your question, Andrew, I think, the guidance that we're putting out there today is aggregate EBITDA for 2007, which we think at a minimum will be in excess of 10% of 2006.

Yes. Sounds like a--

And so for the year we anticipate and expect EBITDA growth within those ranges. But during the course of the year there may well be fluctuations that reflect seasonality in our business historically, the fact that the first quarter is also a shorter month in terms of business days, which has its own inherent implications, in terms of revenues and EBITDA.

So those--those are the major factors, and I guess rather than sort of focusing quarter over quarter, I think the important outlook here is to look on an aggregate basis in terms of what our guidance is for the year.

Sure.

And I'm assuming 10% target seems you get no relief from the Telstra situation. Is that fair to say?

We'll see what happens with Telstra.

So, yes, I think, again, we are counting on the total for the year, some positive things would happen, some negative things would happen. I think we just have to manage the business, whatever it comes.

As a general matter we do not project regulatory windfalls in our guidance.

Okay.

The only other count I mentioned in my remarks that John missed there was, that we do see professional fees tied to the litigation going up in the first quarter, and affecting our EBITDA. So I think our comments there was sometimes people forget about the calendar days, they forget about the seasonality, and we give annual guidance and somebody gets surprised in the first quarter.

So we just wanted to remind people that that's standard practice for our first quarter, and then in addition we have these non-standard higher professional fees than what we typically experienced.

No, I think that is very helpful.

And then to secondly could you just expand a little bit on in the Australia, the marketing programs that you said were a little less successful than you expected.

What exactly--what exactly were those, and what are the--what are the competitive conditions you're seeing there? Because, I guess, there is a fair bit of competition there on the DSL side.

Yes. One thing I should first tell you is that I think our employees and our management team in Australia, they performed quite well compared to our peers. So let's make sure we don't confuse the two.

Compared to our general internal goals and expectations, we fell short of that, so I thought it was fair to let everybody know. And one of the reasons is that our campaigns --this is in consumer market you run your campaigns and as you know not all of the campaigns become successful.

And in the second half of the campaigns did not produce the kind of customers that we expected it would produce. Or compared to the same half last year, in 2005 we did much better.

So it is just the consumer campaigns were not as effective, did not produce the yield of customers as we had expected, and that resulted in lower than expected revenue, and therefore lower than expected EBITDA.

Was it more of an effect in Q4 or in Q3 as well.

Second half. Campaigns generally done for several months.

Okay. Great. Thank you very much.

You're very welcome.

We have time for one last question from Mr. Brent Brewer from A.P.S. Financial. Please go ahead.

Thanks for taking my follow-up here.

Couple of quick follow-ups, that is. Do you have the exact maturity date on the Second Lien?

I believe--

It was 2011, I don't know if it was end of February, mid-March, or--

We're going to be filing the indenture and other related instruments in connection with our--with our K.

Brent, we don't know that off the top of our head. We're all looking at each other for the exact date. We can call you back with that.

We're not hiding that. We just don't know it off the top of our head.

I can tell you this, it is after the term loan.

I assumed that. Yes. How soon do you expect the K out?

What was that question? I'm sorry.

I'm sorry.

How soon do you expect the 10-K to get out?

It is due on March 16th.

Okay.

And you probably use up--us all the time you need there?

Yes, we typically do.

Lot going on. So that's understandable.

Thanks for taking my follow-ups.

Ladies and gentlemen, we have run out of time for questions.

I would now like to turn the conference back over to your host, Mr. John DePodesta for closing remarks.

Thank you, Jai.

I would like to inform you that PRIMUS in the person of Tom Kloster is scheduled to participate at Lehman Brothers 2007 high yield bond and syndicated loan conference, which will be held March 26 through the 28 in Phoenix, Arizona, and Tom is looking for candidates to fill out his foursome.

That concludes PRIMUS's fourth 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.

Ladies and gentlemen, thank you for joining us today, and good evening.

Ladies and gentlemen, thank you for your participation in today's conference.

This concludes the program. You may all disconnect, and have a wonderful day.