Venture Global Inc (VG) 2012 Q1 法說會逐字稿

Good day, everyone, and welcome to Vonage Holdings Corporation first quarter 2012 earnings conference call. Just as a reminder, today's call is being recorded. At this time, for opening remarks and introductions, I would like to turn the conference over to Ms. Leslie Arena, Vice President of Investor Relations. Please go ahead, Ms. Arena.

Thank you, operator. Good morning and welcome to our first quarter 2012 earnings conference call.

Speaking on the call this morning will be Marc Lefar, Chief Executive Officer, and Barry Rowan, CFO. Marc will discuss the Company's strategy and progress we are making on our growth initiatives and Barry will review our financial results. Slides that accompany Barry's discussions are available on the IR website. At the conclusion of our prepared remarks, we will be happy to take your questions.

As referenced on slide 2, I would like to remind everyone that statements made during this call that are not historical facts or information may be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These and all forward-looking statements are based on management's expectations and depend on assumptions that may be incorrect or imprecise.

Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially. More information about those risks and uncertainties is highlighted on the second page of the slides and contained in our SEC filings. We caution listeners not to rely unduly on forward-looking statements and disclaim any intent or obligation to update them.

During this call, we will be referring to non-GAAP financial measures. A reconciliation to GAAP measures is available on the IR website.

And now, I'll turn the call over to Marc.

Thank you, Leslie, and good morning, everyone. We entered 2012 with a financial strong business, characterized by strong cash flow, our lowest cost structure in six years, and a clean balance sheet.

With a stable core business, we're continuing to focus our efforts to drive revenue in three major areas. The first is international long distance, where we will build on our success through continued penetration of ethnic calling segments and expanded distribution. The second is mobile services, which builds on the recently launched Vonage Mobile platform. And third is international expansion, as we enter new geographic markets outside North America and the UK through strategic partnerships.

In the past year, Vonage World customers have grown from 43% of our base to nearly 50% today. Our base of active international callers now comprises 35% of all customers.

In recent months, we continued to grow our international long distance base, driven by our continued efforts in the Hispanic segment. In the first quarter, we experienced 6% growth in the number of callers to Mexico and Central America.

This builds upon our success that began in 2011 with the launch of our end-to-end Spanish language experience for our customers. This capability has contributed to an increase of 60% in monthly usage to Mexico, the Caribbean, and Latin America since the beginning of 2011.

In addition, we've experienced the number of community sales teams and broadened our retail distribution. These channels now deliver over 20% of total sales, primarily in key ethnic segments.

In the very near future, we will enhance our current service offerings to better meet the needs of the estimated 700,000 people of Pakistani descent living in the United States and the many millions of Latinos that call internationally to mobile phones.

Although not yet material to our overall financial results, let me take a moment to talk about the tangible progress that we've made in our mobile and international expansions efforts, where we've reached several key milestones since the beginning of this year.

On February 8th, we launched the Vonage Mobile app. For those of you not familiar with the app, Vonage Mobile is a free downloadable application for iPhone and Android that lets users make free high-definition calls and send free texts to all users of the app worldwide. It works over WiFi, 3G, and 4G wireless data networks.

When calling people who don't have the app, users get low-cost calling worldwide with pay-per-minute rates that are, on average, 70% less than major mobile carriers and 30% less than Skype. With over 1 million downloads in roughly 8 weeks, we are approaching usage of over 10 million minutes per month.

While pleased with the first version, we do see opportunities for improvement and we've been steadily updating the app to enhance ease of use, functionality, and performance. We've already implemented four releases for iOS and five releases for Android.

Just yesterday we released an update to the app that enhances our messaging solution to allow photo and location sharing and sharing of the app with friends on Facebook and Twitter. Connection quality, load times when opening the app, and battery life are top priorities we are continuing to address.

In the coming months, we will add desirable features such as Bluetooth and a low-cost international roaming capability that will allow customers traveling outside their home country to avoid high roaming fees. In addition, we plan to launch stand-alone mobile services for customers without smart phones, including low-cost international calling plans.

Vonage Extensions, which expands the benefits of our core service beyond the walls of the home to any other phone, including mobile, has also been very well received. More than 500,000 customers have signed up for Extensions and have already made more than 70 million mobile calls.

Reflecting the Company's progress executing against its mobile strategy, approximately 15% of international calling minutes now originate from mobile devices.

As we discussed on prior calls, our approach to enter new international markets is primarily through partnerships. We have identified meaningful opportunities and are in active discussions with several prospective partners to offer services in large emerging markets.

Today, we announced our first partnership, with Globe, the second largest carrier in the Philippines, to deliver affordable calling plans to and from the Philippines. With more than 8 million Filipinos living abroad, which includes 3 million living in the United States, the Filipino calling segment represents a substantial growth opportunity for Vonage and for Globe.

This attractive customer segment is highly educated, has an average income that is 50% higher than the US average population, has a high penetration of broadband service, and a high affinity for staying connected to friends and family overseas.

The partnership allows for the exchange and termination of traffic with Globe, with each company offering exceptional pricing to consumers in their respective companies for calls made between Vonage and Globe. This alliance marks a significant milestone in Vonage's strategy to expand our services beyond North America.

By leveraging our heritage of voice innovation and expertise in international long distance, we can offer partners such as Globe the ability to expand their communications businesses in their local markets and beyond. We expect to be in-market and generating revenue during the summer.

We are also in discussions with Globe about extending the partnership in other ways to meet their strategic interests of serving Filipinos globally.

In other markets, we are actively developing additional partnerships that parallel the Globe relationship, as well as other opportunities, including the delivery of voice services that would complement the existing product suites of international carriers, broadband providers, and retailers.

We are pleased that prospective partners are interested in leveraging Vonage's expertise, proven track record, international focus, well-recognized brand, and technology innovation to get to market quickly. And while the number and quality of opportunities that are presenting themselves excite us, we are taking a disciplined approach to assessing economics and selecting partners.

Let me now discuss the financial and operating results for our core business. The continued strong cash flow generated by our core business provides a solid financial foundation to fund the growth initiatives we've highlighted.

Reflecting on our strong commitment to these initiatives and in line with the guidance provided on last quarter's earnings call, we invested $7 million building organizational capacity, adding development resources, and investing in marketing in the first quarter. As a result, adjusted EBITDA was $32 million. Revenue of $216 million was flat sequentially.

Gross line additions in the quarter were impacted by several offsetting factors and ended relative flat sequentially at 165,000 lines. During the quarter we added more customers through our retail channels. Although these gains were offset by lower customer additions as we implemented contracts, reduced the level of discounting in our promotional offers, and were impacted by some aggressive competitive promotional offers.

Our retail channel contributed to 21% of gross line additions in the quarter, up from 19% sequentially. Our nearly 60 feet-on-the-street event teams now operate in 19 states with high ethnic concentrations, including California, Texas, Florida, and New York.

The cost of acquisition, or SLAC, increased 5% sequentially to $323, driven by media tests early in the quarter. We're seeing some tightness in the second quarter media marketplace, pushing pricing upwards and this may place some pressure on second quarter GLAs.

As discussed on last quarter's call, higher churn in the Hispanic segment had impacted overall churn. Based on the positive actions we've taken to implement contracts and to improve retention and tele-sales efforts, we believe churn peaked during the first quarter.

While churn for the full quarter was 2.8%, 10 basis points higher sequentially, it has declined since reaching a high in January. Based on recent trends, we fully expect to see lower churn in the second quarter.

As many of you will recall, we eliminated contracts a year and a half ago based on the churn reductions we had already achieved during that past year and with the belief that service agreements were a barrier to acquisition. As a result, churn for no-contract customers increased.

After assessing the tradeoffs of our no-contract policy, we did reinstitute contracts this past February. Customers now have the option of taking a contract and receiving the promotional price, or choosing no contract. Approximately 65% of new customers now opt for the contract, which we believe will further improve churn later in the year.

As a result of the relatively flat GLAs and modestly higher churn, net losses were 19,000, slightly worse than the 14,000 lines lost in the fourth quarter.

Looking ahead, we plan to target domestic callers with a lower price, limited-feature, domestic-only offer. We've talked about -- talked previously about plans for this offer, which was originally slated for later in the year. We are now accelerating those plans and expect to have an offer in place in the coming months.

In summary, our core business is financially sound and continues to generate significant cash flow and, at the same time, we're making tangible progress executing on our growth strategy in international long distance, mobile, and international expansion. We look forward to providing you with an update on our progress.

And now, I'll pass the call to Barry.

Thanks, Marc, and good morning, everyone. I'm pleased to review our financial and operating performance with you.

Financial results were generally in line with our expectations and we finished the quarter with tangible early progress delivering on our growth initiatives. As planned, we are investing in international long distance, mobile, and international expansion to lay the foundation for future growth.

Beginning on slide 3, our core business EBITDA remains strong. You will recall from last earnings call that we said we expected to invest $5 million to $10 million per quarter in our strategic growth initiatives throughout 2012. During the first quarter, we invested $7 million to fund organizational growth, add development resources and invest in marketing across these initiatives.

EBITDA was $32 million for the quarter, down, as planned, from $40 million sequentially and $43 million in the year-ago quarter.

Moving to slide 4, GAAP net income was $14 million or $0.06 per share, down from $21 million or $0.10 per share in the year-ago quarter. This decline reflects lower operating income and higher income tax expense resulting from last quarter's release of our valuation allowance of $326 million.

While our 2012 effective tax rate is expected to be 33%, the effective tax rate in the first quarter was 26% due to the timing of certain items, primarily related to adjustments in stock compensation.

As a reminder, the change in accounting for income taxes reflected in this quarter's results and going forward has no impact on the actual cash taxes we pay, which will remain minimal due to our net operating loss carryforwards.

Net income was $19 million or $0.08 per share, excluding adjustments, a decline from $26 million or $0.11 per share sequentially and a decline from $23 million or $0.10 per share in the year-ago quarter.

Compared to the first quarter of last year, we saved $5 million in interest expense, which largely funded the $7 million we invested in our strategic growth initiatives during the first quarter of this year.

Moving to slide 5, revenue of $216 million was flat sequentially and down from $220 million in the year-ago quarter, reflecting 2% fewer lines in service and a $1 million reduction in deferred revenues from legacy activation fees.

Average revenue per user increased sequentially to $30.42 from $30.19, aided by higher USF and improved bad debt. Average revenue per user was roughly flat compared to the year-ago quarter, as improvements in customer mix and higher USF mitigated the decline in legacy activation fee revenue.

Moving to slide 6, in the first quarter cost of telephony services or COTS of $62 million increased from $59 million sequentially and $60 million in the prior year. This reflects higher international long distance termination and USF costs, offset, in part, by lower domestic termination costs, which declined to an all-time low in the first quarter.

On a per-line basis, cost of telephony services was $8.68, up from $8.24 sequentially and from $8.34 a year ago.

Direct margin declined slightly to 67% from 68% sequentially and compared to the prior year's quarter on higher international termination costs associated with increased ILD minutes. Going forward, we expect that the upward pressure on COTS from our continued focus on growing our ILD base and local services will be substantially mitigated by the next-generation call routing and peering relationships we are implementing.

On slide 7, SG&A of $62 million increased from $59 million sequentially and $58 million a year ago, reflecting increased investment in staff, development resources, and marketing for mobile services -- all key components of our strategic growth initiatives.

We continue to improve the efficiency of customer care in our core business as we reduce per-line costs by 6% from the prior year. These improvements also provided a portion of the funding for our growth initiatives.

Moving to slide 8, in the first quarter, marketing expense increased to $53 million from $52 million sequentially and $49 million in the year-ago quarter.

Turning to slide 9, while we continue to make progress strengthening our retail channels, gross line additions overall were roughly flat sequentially at 165,000 lines and down from 175,000 in the year-ago quarter. The combination of flat sequential gross line additions and increased churn, which rose to 2.8% from 2.7% sequentially resulted in the net line loss of 19,000 lines in the quarter. This is an increase in line losses of 5,000 lines from the fourth quarter of last year.

As Marc discussed, our churn levels peaked in January and have declined since then. Based on the actions we're taking resulting -- and this positive trend, we expect churn to be lower in the second quarter than the 2.8% level we saw during the first quarter of this year.

We'll now move to a discussion of CapEx, cash flow, and the balance sheet, highlighted on slide 10.

As we discussed on prior calls, our cash flow is helped by our low CapEx requirements, which remain at less than 5% of revenue. For the quarter, CapEx was $9 million, down from $13 million in the fourth quarter of last year, and up from $5 million a year ago due to timing of CapEx projects.

The majority of our capital expenditures are for investments in information technology and systems infrastructure in support of our core business and growth initiatives. The balance is dedicated to maintenance capital.

Our CapEx investment is primarily related to the transformation of our information technology and systems infrastructure, such as electronic data warehouse, online customer service, customer management platforms, and a new billing and order management system.

As we progressed with the implementation phase of the billing and order management system in recent months, we have encountered some quality and stability issues. This has resulted in incremental costs to the Company and will cause delays in transitioning customers to the system. We're working with the vendor to resolve these issues. However, the implementation of the new system is now expected to continue into the first half of 2013.

These issues are not causing us to revise our EBITDA guidance for the year and we continue to expect capital and software expenditures to be in the range of $40 million to $45 million for 2012.

Now, let me turn to a discussion of our cash flow and balance sheet. As a result of our investment and growth initiatives, the timing of CapEx and uses of working capital, free cash flow was down from $13 million a year ago to $2 million this quarter.

Consistent with prior years, we are a net user of working capital in the first quarter due to the timing of bonus payouts and hardware and software maintenance renewals. We used $17 million in working capital during the first quarter and expect it to be approximately neutral for the full year, repeating the seasonal pattern we saw during 2011.

As of March 31st, cash and cash equivalents was $55 million, down from $59 million sequentially. In addition, the Company has restricted cash of $6 million.

We ended the quarter with a strong balance sheet, reflected in total leverage to EBITDA of just 0.5 times and net debt of $26 million. We're pleased to have a strong balance sheet that offers us substantial flexibility to invest for future growth.

In summary, we reported solid financial results in our core business. Based on positive trends and churn, we believe that we will see a decline in the second quarter from the peak in the first quarter of this year.

We're taking steps to execute on our strategy in ILD, mobile, and international expansion, as highlighted by our new international partnership with Globe and our previously announced mobile milestones.

Our guidance for the balance of the year remains consistent. We continue to expect 2012 adjusted EBITDA of $30 million to $35 million per quarter and $120 million to $140 million for the year. This reflects the investment of $5 million to $10 million per quarter we are making in our strategic growth initiatives. We continue to believe these initiatives have the potential to achieve over $100 million in annualized revenue within 2 to 3 years.

Thank you, again, for your interest in Vonage. I'll now turn the call back over to Leslie to initiate the Q&A session.

Thank you, Barry. Operator, please open the line for questions.

Thank you. (Operator Instructions). And our first question comes from Mike Latimore from Northland Capital.

Okay. Thanks. Good morning. On the -- on that Globe deal, can you help just maybe quantify what you see as the opportunity there? I believe you had a Philippines initiative last year. How is that different under a Globe partnership and just a little more quantification of what that might mean?

Sure, Mike. It's Marc. Let me take that one for you.

So, first off, as I mentioned in my script, there are other 3 million Filipinos living in the US. So, it's a very substantial market audience. Filipinos generally pay somewhere between $0.08 and $0.12 per minute for terminated traffic to call back to the Philippines and pricing into the US from the Philippines is not terribly attractive, either.

It's an audience that has significant income. They're very close within their families, and they parallel some of the other ethnic segments where we've had significant success, like the Asian Indian segment in terms of how close they are in family and how fast word of mouth travels upon deals.

The product that was launched well over a year ago was based upon economics that were broadly available in the marketplace, without any kind of strategic partnership or alignment. We did a fair bit of research on that product, knew when we came out with it, it was really only going to be appreciated by folks who are extremely heavy users and started with a minimum ante of about $65 to $70 to get into the marketplace.

As a result of this partnership, without giving specific details for competitive reasons, we anticipate that we will have extremely disruptive pricing at the time the launch comes forward such that people calling between Globe and Vonage structured in a unique rate plan will radically shift the overall value proposition. We think it will increase both our market share, but overall volume of minutes passing between the countries.

We believe the opportunity on a full-year basis is well in excess of $10 million in revenue for us. Until we're in-market, I hesitate to provide a more specific range, because we're dealing with quantitative market research, but until you're in-market with the product it's difficult to forecast hard dollars.

Sure. Okay, got it. And then on the -- you talked about the media pricing in the second quarter. Do you expect, then, that maybe gross adds would be down sequentially a little bit or how should we think about gross adds, given the media pricing?

That's a completely fair question, Mike, and I don't want to at all appear to dodge it. The issue is one, as you know, we purchase direct response television in the marketplace. So, we're in buying on a regular basis. The availability of GRPs and how much we're willing to pay for them to get a good return on our customer acquisition varies week by week.

So, we literally are managing that plan as the quarter unfolds. So one of two things happens. If we think we can get the inventory and still get a good return on that investment, you could see slightly higher marketing expense on our core business. Alternatively, you could see us say, you know what, it's really not worth that investment and we could see slight softness in GLAs.

So, it's a choice we make week by week. What I'll tell you that we're really doing is we have a number of new, exciting products that are coming out before end of the quarter and we are pushing on those through alternate channels, beyond traditional media, so that if there is softness in GLAs driven by television media, we hope to be able to offset or exceed those expectations.

But I just think it's important for investors to understand that unlike an AT&T or somebody who's buying in the fixed media market well in advance, we take advantage of very low cost media, but that puts us at a little bit more risk as markets tighten and flex.

In fact, we had an opportunity in the first quarter to take advantage of soft media markets in January and that's why we invested a bit more in marketing. We held some quantitative testing on media-heavy ups to see what kind of lift we can get and we're actually going to build on that learning in the second and third quarter.

We actually were able to see for windows of times some very interesting positive response to certain types of media when we're able to purchase that at high weights in certain segments. So, it is an experiment and the second quarter is a tight media market from a pricing standpoint.

Then just last on your mobile app, it sounds like the downloads have gone very well since the launch. I guess, have you seen any -- sort of in terms of daily downloads, have you seen any change in the last, say, month? Is it -- have the downloads improved, stayed the same as they've always been? Just a little bit, maybe, more real-time information on daily downloads around mobile apps?

As you'd expect, once you get through your initial surge, it's a little bit softer than it was in the first couple of weeks, to be sure. The issue now is, over the next six to 12 months, is how do you build that usage and build viral spreading of downloads. It's not unusual to see a softening and then an acceleration again when you look at other companies who want similar kinds of products.

But the direct answer to your question is, our daily downloads are not as strong as they were in the first two weeks, but we are still well ahead of what our expected first quarter downloads were and we are seeing solid usage.

Very good. Great, thank you.

Next question, operator?

Thank you. Our next question comes from Robert Routh from Phoenix Partners.

Yes, good morning, guys. A couple quick questions. As far as the partnership that you announced this morning, I know you can't speak much, go into too much detail for competitive reasons, but can you give us any sense as to how we should look at it in terms of is this like a new legal entity within -- that you guys are sharing equity or is this just a partnership with a revenue share? I mean, how shall we look at it for kind of modeling your valuation purposes? And what is the length of time of this agreement that you have with the Globe?

So, let me try to keep it high level. This is a strategic partnership. It does include reciprocal marketing. It does include, in some cases, a sharing of some forms of revenue, as well as some cost sharing. So, we've built the economics on this bilaterally. That's what makes it unique and that's what's going to allow us to both go into market with something that is more aggressive than what has been seen thus far.

From a cost structure standpoint, we obviously wouldn't be doing it unless we thought that on a combination we thought it had a strong net present value. Beyond that, it's difficult for me to get into any of the specifics of the terms of the agreement.

Okay, fair enough. And you mentioned, obviously, you're going to target the Pakistani market at some point and the domestic phone use, kind of two new initiatives. With this new announcement with the Globe, how much can the Company handle this year? I mean, how many more partnerships might we see internationally or do -- is that kind of what you plan on doing for the balance of the year, just from a time management point of view?

We do have additional initiatives that are planned in the back half of the year. The launch for the Pakistani market, as well as some modifications to pricing to provide much better value for folks calling into Mexico and Central American mobile phones, that's a place that is an underserved segment, as well, as many of you are aware.

Those rate plans and those segment marketing programs, that's kind of our part of our overall plan and has been going into the year, so we expect to be able to execute those in a pretty straightforward way.

The major partnership kinds of activities, like Globe, those are larger undertakings, to be sure. We do anticipate additional activity. Whether it is in-market or not remains to be seen, based upon the speed of contract finalization and the complexity of those products. But we do have capacity in the back half of the year to do more than what we have currently announced.

I'll also make mention, because I did in my earnings script, we expect to launch an international long distance product. We think about it as virtual or digital calling card. So, this basically becomes a very competitive product to what you would see in the calling card market, but delivers, for many of those people in the US that still do not have smart phones -- and it's still a very large, substantial portion of the population -- that are ethnic, that do have international calling needs, that are underserved and we believe, frankly, are taken advantage of, in many cases, by some of the prevailing calling card vendors with a lot of hidden fees and others. We think we can simplify that process and drive some volume there, as well.

So, we think that we have the capacity to execute all of those initiatives this year.

Okay, great. And just one last question. Obviously, you guys did an incredibly job deleveraging the balance sheet. I mean, your net debt at only $25 million and gross debt at $80 million, delevered at less than 1 times cash flow. The question is, what do you think is the proper leverage for this Company, given -- based on your EBITDA and your CapEx guidance? It looks like you should do $50 million to $70 million in real free cash flow there. And, in the event that you were to generate the free cash flow, if these initiatives work, given how fast you've been able to deleverage, is there any possibility you'd put in place some fixed-rate debt at a very low rate and leverage -- and kind of rebalance the capital structure and repurchase shares or do something in the future?

Yes, Rob, it's Barry. Let me take that one.

We think about the capital structure, really, in two phases. As you point out, we have low leverage now, paying very low interest rates, less than 4%. But the first phase is really this year, as we look at it.

As you know, this is an investment year, as we said before. We are really primarily focused on driving organic growth. We want to preserve the maximum flexibility in doing that. We certainly don't have massive acquisitions on our radar screen, but if there were some small acquisitions that we did to accelerate technology, for example, we think that might -- that would be an appropriate use of funds, if they were to present themselves in appropriate economic terms.

So, during the course of this year we see that the strategy is to maintain the debt capacity as opposed to take on debt.

I would also just point out, we have a very valuable asset in our NOLs that were put in place last quarter with that recognition and we just need to be cognizant of accounting issues associated with that, that really create more space by the end of this year.

So, when you take all those things into consideration, we look at this year as an investment year and wouldn't expect to lever up at this point.

Now, on a go-forward basis, as we continue to pay down the debt, different capital structure alternatives are -- is something that we would be open to considering. The cash flows of the business certainly can sustain, obviously, much higher levels of debt. So, it is something that we would look to potentially do on a go-forward basis.

But we think about the capital structure in those two phases, really for the balance of this year, and then to preserve the potential debt capacity and then beyond that.

Great. Thank you very much. Makes sense.

Next question, operator?

Thank you. (Operator Instructions). Our next question comes from Michael Rollins from Citi.

Hi, good morning. Thanks for taking my questions. Two questions this morning.

First, I was wondering if you could talk about where do you think the churn is going? So, with some of the incremental churn that you've seen over the last few quarters, what do you think is happening there? Are they leaving the category? Are they going to a competitor? And just your thoughts on the environment, competitively.

And then, sort of related to that, if you look at the investment that you've made to expand retail distribution over the last 12 months, why hasn't that been more accretive to the overall gross adds? So, I suppose, why are you gaining in one channel and do you think you're ceding some share, maybe, in some of the more traditional areas of where you've had success? Thanks.

Hey, Mike, it's Marc. Good question. Thanks.

Let me take the churn question first. So, in terms of where we see churn going, I personally feel pretty good that we did see the peak in January. We've consistently been coming down in February, March, and I see ourselves going back into that mid-2s levels. I think that's a sustainable range going forward.

In terms of kind of what's been happening, there's a couple different factors at work, as is always the case. One, our experiment with leaving contracts completely obviously lead to a higher level of churn during the course of the year. We see that coming back into range.

In the fall of last year, I will tell you that in some of the ethnic segments that we had done extremely well in, Asian Indian, in particular, we had some very small competitors that came out with some aggressive pricing and before we responded they had had churn and we got kind of a seven or eight week spike. And as soon as we responded promotionally and put retention plans in place, we were able to bring that back under control.

So that was a tactical issue relative to pricing and the lesson there learned is you've simply got to be competitive with promotional rates as small folks come in. You can't allow them -- even if they're doing it unprofitably -- to get any kind of sustained levels of share.

The broader picture, however, is twofold. One, the Hispanic market has a higher churn level, on average, versus the general market. While their ILD churn is still lower than domestic general market churn, it is, in fact, higher. As that becomes a larger portion of the base, you see a little bit higher overall churn.

The second issue that we're facing -- and this is one that is macro and it's our job to offset that -- is while we have grown over the past two years, the total number of international callers in our customer base to the tune of 100,000 subscribers of total growth we, frankly, the domestic-only light user is a group that is either moving to wireless only -- and we've got to do a better job balancing the revenue cannibalization, our own revenue migration downward to those folks who are spending $25 and, at that price, getting great value, but some are leaving us.

I mean, we still have an awful lot. It's a large portion of our base. We've got to strike a better balance of how we're going to market and still attract what is roughly 60% of households in the US that still want basic, low-cost domestic phone service.

And I talked probably last fall about partnerships with third parties where we would white label our services. Those conversations continues, but, as you might imagine, some of the large mass merchants have some problems of their own and they're moving slower than we might like, so we're going to have to, under secondary brands and flankers, make some moves to shelter versus our existing base and be a bit more aggressive on profitable domestic limited-offer plans, which we think become real complements to wireless.

So, we believe that will help us grow both the top end and, over time, minimize the amount of churn that we're seeing in the domestic-only user base, which is where our real churn spike has been.

On the second question, around retail, the -- we have an unusual dilemma here, which is, as we've moved to ethnic segments, our goal originally was, we wanted to shift the vast majority of all of our selling online where it's fundamentally cheaper.

But a lot of the ethnic segments, particularly Hispanics, are less comfortable purchasing in an online environment, at least in the near and short term. We expect that to move to more general-market-like trends over the next couple of years, but there is a strong, demonstrated preference to purchase in face-to-face channels, whether it be people that are local to the community or in big box retailers.

So, that portion of the business has increased and we have scaled that to meet the need and then, what you see offsetting is the decline in what is the traditional domestic segments, which were easier purchases online. So, we're seeing some of the online and inbound telemarketing channels soften as a percentage of the mix, while some of the retail and face-to-face channels increase.

And just, real quickly, did you do any price increases in the quarter? Or any that are coming up for the existing base in terms of fees, charges, and what that could represent with respect to incremental revenue opportunity? Thanks.

We have not taken any price changes in the quarter. We do continuously evaluate opportunities for price changes, both up and down, as we look at individual segments going forward. There are a couple of opportunities for additional pricing that we see over the next six to nine months as people continue to get extraordinary value from the combination of Vonage World and the Extension services, there may be additional opportunities for pricing.

But, as you know, we do those quite surgically. We do them in a way to minimize potential churn risk, and we do it against segments where we have a good appreciation for their stickiness with our core product.

So, we are looking at those. There are some opportunities that we see over the next six to nine months.

Thanks very much.

Next question, operator?

Thank you. (Operator Instructions).

If there are no further questions, operator, we'll conclude the call. Thank you for joining us today.

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