Ziff Davis Inc (ZD) 2012 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the j2 Global Third Quarter Earnings Call.

It is my pleasure to introduce your host, Mr. Scott Turicchi, President of j2 Global Communications.

Thank you, Mr. Turicchi.

You may begin.

Thank you very much.

Good afternoon and welcome to our investor conference call for the third quarter of 2012.

As the operator just mentioned, I'm Scott Turicchi, President of j2 Global and with me today is Hemi Zucker, our Chief Executive Officer, and Kathy Griggs, our Chief Financial Officer.

This has been a very exciting and strong quarter for j2, which both Kathy and Hemi will outline in greater detail.

We will discuss the Q3 financial results as well as provide an update on the business.

I would also alert you that our Board has approved an increase to quarterly dividend to $0.225 per share.

We'll use the corporate presentation for today's call.

A copy of that presentation is available at our website.

When you launch the webcast, there is a button on the viewer on the right-hand side, which will allow you to expand the slides.

I understand that earlier there was some difficulty with the provider in terms of having that presentation available, so if you cannot access it through our website under the webcast, you can go to the Investor tab and download the document where the Investor Call Presentation is a featured document.

Also, to receive the press release, if you do not already have access to it, it may be found on our website at j2global.com under the tab "Press."

After completing the presentation we will conduct a Q&A session.

At that time the operator will instruct you regarding the procedures for asking a question.

I remind you that at any time you may e-mail questions to investor@j2global.com.

Before beginning our prepared remarks, I will read the Safe Harbor language.

As you know, this call and the webcast will include forward-looking statements.

Such statements may involve risks and uncertainties that would cause actual results to differ materially from the anticipated results.

Some of those risks and uncertainties include but are not limited to the risk factors that we have disclosed in our various SEC filings including our 10-K filings, recent 10-Q filings, various proxy statements, and 8-K filings as well as additional risk factors that we've included as part of the slideshow for the webcast.

We refer you to discussions in those documents regarding Safe Harbor language as well as forward-looking statements.

I will now turn the call over to Kathy.

Thank you, Scott.

Good afternoon, ladies and gentlemen.

Please refer to slide 5 of the presentation for a recap of our Q3 GAAP and non-GAAP operating results and to the supplemental schedules at the end of the presentation for a reconciliation of all non-GAAP financial measures to their nearest GAAP equivalent.

I am pleased to report yet again that for Q3 we achieved record quarterly revenues.

Our revenues were $93.2 million, the highest quarterly revenues in the Company's history.

Revenues increased 4.2% over Q2 of 2012 and 8.4% over Q3 of 2011.

We achieved $3.6 million in revenue for our patent portfolio, which demonstrates continued success from our intellectual property licensing efforts.

We expect our future patent revenues to exceed our past patent revenues, but they will continue to fluctuate from quarter to quarter.

Paid DIDs grew by more than 19,000 in the quarter with corporate fax and voice being the largest contributors.

Our cancel rate for the quarter improved again from 2.34% to its record low rate now of 2.28%.

ARPU grew to $13.27 per DID this quarter versus $13.19 last quarter.

On a non-GAAP basis, our earnings for the quarter were $30.2 million, an increase of $200,000 from Q3 2011.

Let me remind you that in Q3 we issued $250 million in senior unsecured notes and for the quarter incurred $3.8 million of interest expense compared to only $41,000 in Q3 2011.

A full quarter of interest expense, which we'll experience in Q4 is $5.1 million before tax.

Non-GAAP growth and operating margin from 82.7% and 47.9%, respectively.

GAAP earnings for the quarter were $31.7 million, our operating earnings were $42.3 million.

Gross and operating margins were 82.5% and 45.3%, respectively.

For Q3 2012, we achieved non-GAAP EPS of $0.65 per diluted share, up a penny from $0.64 in Q3 2011.

Interest expense this quarter accounted for approximately $0.05 of after-tax expense.

Our GAAP EPS for the quarter was $0.69 per share, a quarterly record.

Interest expense will account for approximately $0.07 of all after-tax expense for Q4.

Free cash flow for the quarter was $37.1 million representing 39.8% of revenue.

Year-to-date free cash flow for the nine months ended September 30 is $120.8 million.

We achieved record EBITDA this quarter of $50.5 million, up 15% from $43.9 million in the same quarter last year, and our cash and investment balances totaled a record $470 million as of September 30, 2012.

Today, as Scott announced, we are again increasing our dividend payout of $0.225 per share, the fifth consecutive quarterly increase.

The dividend will be paid on November 26th to shareholders of record as of November 12th.

Since starting our dividend program last year, we have increased the quarterly cap per share by 12.5%.

For Q3 2012 we incurred $3.8 million in noncash amortization expense on intangible assets representing approximately $0.06 per share of our EPS.

Fluctuations in foreign currencies this quarter resulted in unrealized gains of approximately $0.5 million compared to $400,000 in Q2, which is reflected in other income and expense.

These gains and in prior periods losses result primarily from the nature of our global structure where various subsidiaries carry short-term intercompany debt obligations denominating currencies other than the US dollar, especially the euro, the Australian dollar, and the yen.

Continued fluctuations in these currencies can affect both the direction and the magnitude of the changes in this category.

There is no cash impact, however, unless and until these balances are settled.

Our estimated effective GAAP tax rate for Q3 2012 is 19.9%, down from 23.6% for Q2 2012 and 30.6% for Q3 2011.

Our non-GAAP tax rate was 28.1% in the quarter due to evaluation (inaudible) on foreign tax credit.

We expect our normalized tax rate for the year to be in the 24% to 26% range.

In conclusion, let me remind you that the (inaudible) at the end of this presentation will provide you with more information on our metrics as well as the non-GAAP (inaudible) reconciliation schedule for all financial measures including my remarks.

Now I'll turn the call over to Hemi, who will provide you with an overview (inaudible).

Thank you, Kathy, and good afternoon, everybody.

This was an exciting quarter full of records.

Let's turn to page 7, and I'll start talking about our cancel rate.

This is our lowest cancel rate ever.

We are now at the 2.28%.

It is an improvement over the last four quarters, and it is the third consecutive calendar year where (inaudible).

A lot of work was put into reducing the churn rate, and I'll try to make (inaudible).

I'm not sure it beats the other reported, but definitely it is a task that involves everybody in the Company.

The number-one reason that I believe it reduced our churn is the quality of our late assignments in customers.

We are more focused on getting the highest-quality customers versus quantity, and as you can see, it's also reflected in our marketing expenses as percentage of revenue, by reducing a little bit wide, we are getting better churn.

Efficiency is key here.

The second issue that I believe is a large contribution is our customer support.

We are now having all of our customers support is native speakers.

It is impacting both our ability to retain the customer, save the customers in cross and upsell, and I will talk about it shortly.

Also, we have done a good job in our building and assignments department in reducing our decline rates.

As you know, many of our customers are paying with credit cards, and efficiency on this side of the business is an improvement.

Also we have more corporate customers.

They come with contracts and is longer-term on the business.

And we have more cross-sells.

We have learned over the past that customers that buy more than one product with us are more loyal and, of course, it costs us less.

Let's go to page 8 and I'll talk about our cross-sell efforts.

Our results of the cross sells in the last nine months, we grew from 13,000 to 26,000.

So we doubled it in nine months.

We are now so encouraged by that that we have decided to invest in (inaudible) and automation and resources, as we believe that we can make it much bigger.

We have sold year-to-date or from the start of date of the program, you can see the chart on the bottom, 26,000 seats.

We have seen $3.6 million of advertising.

I mean, when the customer [comes to] cross-sell either by our website or a cross-sell by the telesales, there is no cost of advertising, which, again, gives us efficiency.

We have signed up almost 5,000 cross-sells in this quarter, again increasing loyalty, increasing [channel] and lowering cost, and all those things are very exciting.

Now let's go to page 9. Our revenue from this slide is subscription revenue.

So let's start again.

Our revenue for subscription -- over the years we were always suspected of being called this one-trick pony, fax, fax, fax.

In the recent year, as you can see, our fax revenue is now only 76% of the business, while 24% of our business now is the non-fax revenue.

To demonstrate it, in the third quarter of 2011, our non-fax revenue was $14 million.

Now it's increased by 35% and now our non-fax revenue is $90 million.

Voice is representing 15% of it, and the most important bullet on this page is while we are growing our non-fax revenue, we are able to maintain the same high margin of about 82%, and this is in spite of the fact that we just changed all our customer support to in-house versus outsource and, of course, the native speakers cost us more than the outsource.

Despite that and despite the fact that now almost a quarter of our revenue is not coming from fax, we are able to maintain our high margins, and I'm very proud of that.

Let's move to the next page, page 10 -- our patent and licensing.

From the beginning of the days, j2 in 2001 already started to be interested in patents.

We accumulated them, we invested in them.

Our legal department did a great job on that, and now since 2003, we already have licensing revenue of $22 million.

As you can see the chart below let me add that when you settle on patents, you collect for the past and you collect for the future.

We have another -- something like $3 million, so, together, $25 million patent revenue that includes the deferred patent revenue that we have not recognized yet.

We have now decided to try and estimate our future patent revenue in the next four years based on our pipeline, based on the nature of the settlement, and based on the size of the patent we are estimating that in the next four years we will generate $60 million of a patent revenue.

This is almost $1 million per month, but, of course, because of the nature of this business -- settlement, countersuit and everything -- it is going to be lumpy.

So we don't know exactly when it will come, but we are, in the first time of our history, putting out an estimate on this.

And now I will turn the call to Scott.

Thank you, Hemi.

I will turn your attention to slide 12 to discuss our financial outlook.

Before we go to the guidance, though, as was noted during this quarter, we issued $250 million of bonds.

We actually touched on that in the last earnings call, but it's part of our presentation.

Going forward, for the benefit of our noteholders, we have noted the important ratios and covenants.

So, as Kathy mentioned, we have just under $470 million of total cash and investments; $250 million of the 8% notes, so we have $220 million of net excess cash; market capitalization based on yesterday's close, up slightly less than $1.4 billion; and I'm very proud that the EBITDA on our trailing 12 basis through the end of 9/30 is now almost $190 million versus the approximately $180 million we went out and offered the bonds.

As a result of that, our three key ratios primarily utilized for the incurrence of future activities is that, one, our restricted payments basket remains, at this time, unlimited as to our ability to pay dividends and repurchase stock.

Because our leverage ratio, which is gross debt divided by the trailing 12 EBITDA, remains comfortably under the 1.75 ratio, it is currently at 1.32.

Our ability to incur additional [debt] also remains at a very comfortable level, as our coverage of interest is in excess of 9 times, and we are permitted to incur additional [debt] as long as our ratio is in excess of 2 times.

And as long as we're greater than 2 times on the leverage ratio, we can also lien that debt.

So -- all of the -- from the borrowers' perspective, all of the covenants have only improved since we issued the bonds approximately 12 weeks ago.

Now, in terms of the guidance, with respect to revenues, we reaffirm the annual range of $345 million to $365 million.

We are, though, increasing the non-GAAP EPS to now exceed that of 2011, which was $2.53 a share versus the prior guidance, which would be -- that it would be equal to the EPS of 2011.

And I would note this is, notwithstanding the fact that we will have the interest expense for approximately 4.25 months of this year without any material offset in terms of interest income or income from other assets.

We continue to maintain, from a guidance standpoint, that that money will be used for the future for our pipeline of predominantly M&A activity, which remains very robust.

For those who are new, which might include our bondholders, I will give the usual message at this time of the year, which is a couple of reminders about the fourth fiscal quarter that we are in.

As you know, our business is primarily a function of we call "effective business days," which are Mondays through Fridays excluding any holidays or holiday activity time.

Over the years, and this is true every single year, there are fewer days, particularly from Thanksgiving through the first full Monday in January.

As a result, Q4 generally has four to five fewer business days than the immediate two preceding quarters, Q2 and Q3, which generally have between 63 and 64 business days, Q4 generally has 59 to 60 business days.

It most directly impacts our variable revenue, which today runs at approximately $270,000 per business day.

So losing five business days sequentially from Q3 to Q4 has a revenue impact of $1.35 million on variable revenue.

I would also remind you it gives us five fewer selling days in terms of selling new customers and bringing in new gross ads.

Also, as Hemi just mentioned, I would not take the current Q3 patent and licensing revenue and extrapolate that forward because, as noted, that revenue can and will be lumpy.

So I just alert you to those two factors as it relates to our guidance.

Finally, as I mentioned at the beginning of the call, the quarterly dividend was approved for payment date on November 26 for shareholders of record as of November 12.

There was a half-penny increase to $0.225 per share, although, because of the buybacks done earlier in the year, our total cash outlay for the dividend remains approximately $10 million and will be comfortably serviced at of not only the cash balances but current quarter's free cash flow.

And then, as usual, behind the slide 15 is the supplemental information.

You've got 11 rolling quarters on slide 16 of our metrics.

On slide 17 are the reconciliation of free cash flow and EBITDA to their nearest GAAP equivalents, and on slide 18 the same for various elements in the P&L.

And at this time, I'd invite the operator to come back on and instruct you how to queue for questions.

(Operator Instructions) Shyam Patil, Raymond James & Associates.

First question, just on the patent revenue -- how should we be thinking about modeling that maybe on a quarterly basis, going forward, given that it is lumpy.

Is there maybe a safer range that you think is kind of better first used?

It's very tricky.

We have pipeline of various procedures at the various stages.

The settlement is very hard to predict.

We do believe that 50 over four years is good.

Maybe you can field 12 million a year, but more than that, I think would be risky to predict.

I think in the near term, I would look at the current quarter as being outstanding, but I would certainly not predict to replicate it in the succeeding quarter, meaning Q4, and I think I would take it back down to levels that you saw earlier this year.

Having said that, there are obviously eight weeks to go in the year.

A lot can happen, which is not even totally known to us.

Yes.

Also, because they are big, it's not like, you know, when you work with a lot of small numbers, you can calculate it and spread it over time.

But some of them are big, and when they happen, they kind of put the quarter in a certain direction.

And then, Scott, could you talk a little bit about just the M&A pipeline, particularly around large opportunities?

And then, as a follow-up to that, when we look at the areas that you are currently in, are there any that you don't think are likely -- where we're likely to see a large acquisition in the near term?

Sure.

First of all, I think that since we raised the bond offering, we, from an M&A perspective, have put increased attention on trying to do what, for us, would be larger-size deals.

And I think for those that have not been party to this conversation for a number of quarters, we're talking about revenue -- acquired revenue between $50 million, and, say, $100 million.

That might be a little higher, it might be a little lower, but in that ilk of range where we -- it would be a meaningful deal for j2 to bring it in-house.

I think in terms of -- so that's kind of the background.

So we put intense focus on that over the last 10 to 12 weeks, although we actually had our sights on some situations prior before raising the bond offering, but nothing was imminent, nothing still may be imminent.

However, we have seen that pipeline grow, both domestically, and there are even international opportunities as well.

I think in terms of what you're not likely to see occur in is, number one, the fax category.

Not that we wouldn't do additional deals in fax, but to the best of our knowledge, there really are not deals that meet the criteria that I just mentioned available both because there's almost no one left in terms of size that meets that criteria, or they are part of larger entities that are probably not going to sever that piece of their business.

And it's also not likely to occur at this point in the CRM space.

As you know, we acquired assets in the CRM space early this year in late January, and I think we said consistently over the course of this year that it's in an incubation mode under our ownership.

You heard on the last earnings call how we think that there are some unique opportunities of knitting in our voice, e-mail marketing, and other solutions that could make a differentiated product in CRM, and so there's been activity with respect to those efforts.

But in terms of being ready to do a large M&A deal in CRM, I think it's unlikely because we've not done a small deal in CRM where we've tried to integrate a target into our current platform and see where the pain points and the difficulties are.

Pretty much everything else that we are in, we've already done those kinds of small deals.

We've tested, like an online backup, we've test various types of integration, and we now understand what to look for, where the pain points from the customer, the pain points internally and how to, as a result, deal with those when we look at valuing an asset.

So our (inaudible) very, very broad with the exception of, I think, the CRM piece.

And (inaudible) jurisdictionally.

We are looking at stuff outside of the United States, some of which would meet the criteria of being a larger deal and, certainly, those that would not be large would be in the medium-size category.

Great, that was helpful.

And just one more -- could you maybe provide us an update on how Japan is progressing, and do you think that could be, "a needle mover" in the next couple of years, or it would take longer than that?

Thank you.

Yes, so Japan, our focus for the year was in the high teens.

Customers.

Yes, customers, yes.

I am supposed to go there next month.

I believe we will be able to be at the level of 20,000 customers, which is above our original forecast, either in December or beginning of January.

We are adding area codes, and we find out that the more area codes, the more they like it.

We have now started to engage with some major-league resellers.

The Japanese market is conservative.

They want you to show what you can do before they engage.

So we have high hopes, and all the signs that we've got so far are positive and they are all -- I think I mentioned, but I don't mind to mention it again -- in Japan we have the lowest churn we have ever seen, and the highest ARPU, meaning revenue per month that we see.

The cost for acquisition is still high, but it's coming down all the time.

We even tried TV advertising, which we actually never did in the US, as a test.

And everything looks good.

I just am afraid to be too optimistic about the speed of the [close], but I have no doubt that it's growing, and it's going to be big.

But it doubled.

It's on the pace to double this year.

Yes, yes, yes.

Within this calendar year.

Yes.

James Breen, William Blair & Associates.

Can you talk a little about the geographic diversity of business.

Are you seeing different trends in different markets?

And then also with respect to churn, it was very good this quarter.

Do you think you can stay low, get lower, and what's driving that lower churn?

Thanks.

Okay, so regarding the regions of the world, I think that we are coming close to see Australia and New Zealand being the size of Europe.

The economy -- in other words, the economy of our business is in Europe, but that's still growing.

Our US market, as you know, is the majority of the business.

We are doing well in Canada and --

-- in Japan.

And in Japan, yes.

So I think that the -- most likely the fastest growth in the next year will be down under, Japan, Australia, and New Zealand.

It's too early to turn my statement into something that is for sure, for sure, but if I have to get this is where we will see the largest international penetration from the standpoint of large opportunities that we can do with M&A when we are going to do a large deal, they are in the US.

The largest competitors, the largest opportunities are in the US, but we believe that we can do relatively larger-than-ever deals in that part of the world.

Now, about the churn, I kind of covered it, but I will be happy to -- the lowest you go, the hardest it is to improve it.

There is no such a thing as negative churn.

So at 2.28, I can tell you I believe and hope that we can do some improvement, but I will be very pleased if we can just maintain it.

As we have more larger customers, corporate, they help because the corporate churn rate is less than 2%, but the [effort] of everything is about 2%.

And the beauty of the churn is that it adds a lot of money to the bottom line, as you know.

If you have a specific question, I will be happy to answer that, but I think, in general, that this is all I can say, James.

So do you think that the churn coming down is a result of the size of the customers you're winning as well as existing customers taking more services?

Yes, I think that -- it's not so measurable.

So I am just telling you things based on metrics that I see.

The more cost, the more loyalty.

The more corporate, the more loyalty.

Better job on decline, better.

Not trying to take the edgy customer that you have to give him six months free to try.

You get the higher customer.

Customers that come through searching the word "e-fax" are better the customer than -- that are looking for the word "fax machine."

So all those things that I can see on the activity are indicative of things that increase -- sorry -- improve the churn and also, as I mentioned before, I believe that our customer support are doing terrific job, and we have recently, after the acquisition or Protus, we have basically -- took the customer support out of Ottawa and actually added people there, and they are doing a terrific job.

I think that staying at the 2.2 range, 2.3 range, will be a huge achievement.

If we could do that, I'll be very happy.

Yes, I would just like to comment that you do recall for a number of years, and I think we've been reporting this cancel rate for in excess of a decade, 2.5% to 2.75% per month has been considered within a normal range of cancel, and the exceptions to that have been the three times that prices were raised and, of course, the recession.

So -- I would agree with Hemi that if, on an annual basis, the cancel rate can move down 25 basis points in terms of its range to 2.25 to 2.50, that would, at least, as a first step, be a big achievement.

And also, James, you have to note that at the same time, the ARPU went up.

So it's much harder to have the prices inching up while the churn goes down.

So this is a unique one.

Okay, and then just one follow-up, Scott, on the M&A side.

You talked about the size of revenue you'd like to acquire and some of the spaces.

Just any color you can give on the thought about the types of targets.

Is it targets that would drive higher ARPU or drive more customers?

I think while they would all drive -- they would all be customer-focused.

Some of them would lend themselves, over time, to cross-selling.

So the nature of the services would permit a cross-sell and to the extent the bases are different in customers, and there's not a high degree of overlap, you could have cross-sells going in both directions.

Some of them would be more from a consolidation and synergistic play, and some would be adding new areas to j2.

So we are -- as I mentioned earlier, we are looking very broadly at a wide array of opportunities.

I think the key thing to understand, and you probably know this about j2, we're looking to put our money to work to make the good return.

That is really, as we talked about in M&A all along, it's really what is the invested capital and what is the expected return on that invested capital.

That is our primary marker when we look at M&A, and, as I say, we look sometimes right down the middle in terms of things we're already doing that can be consolidation in plays, and sometimes we look one or two degrees to the right or to the left.

Mark Murphy, Piper Jaffray.

This is Benjamin for Mark.

Could you please remind us what's the organic net new data addition for this quarter?

Did Zintel contribute anything?

A little bit.

It wasn't much.

So of the 19,000, I would say, two-thirds.

More organic within the acquisition of Zintel New Zealand, but they have larger customers so the deep count is not so high, but the ARPU is high.

So -- some of (inaudible) but if I -- we didn't measure it so otherwise we'll give it a number.

But I'd say that the 19,000, 15,000 or more organic, but this is just an estimate.

We didn't try to look at it that way.

Okay, and how should we think about modeling ARPU going forward since Zintel Australia as well as New Zealand is in the mix now?

Going through 2013, how should we think about it?

I think that the main event will be currency fluctuation, to be honest.

Because between Japan, down under, Canada, the US dollar versus the currency, I think, will be the first influence and then the mix, because we're not trying to drive higher ARPU, we are trying to get more relationships.

So I don't know yet, but I think that $1 up, $1 down, is the maximum.

But I don't know.

Yes, I would say if you froze the business today and did no more M&A, that -- and Kathy highlighted this -- if incremental -- we'll call it the organic gross adds -- come from corporate fax and voice, they have, usually, a lower ARPU than the 13.27.

So I would expect, as has been the case for a number of years, that there will continue to be, subject to currency fluctuations and, of course, we're not a static business in terms of the M&A, a downward bias on that aggregate metric of ARPU.

Now, I have actually, I think, encouraged some of you to do this -- to go back to 2007 when we had a peak ARPU of in excess of $17 a month and to look at the ARPU trends over the last, now, five years and sort of fit our regression line to it, and my recollection is that, on average, there's like a 4% to 5% decline.

Although per year in the ARPU, but it will vary based upon the currencies based upon the pace of M&A, based upon the type of M&A that's being acquired.

But, in general, the corporate business, fax and voice, and the voice business in its entirety with some corner case exceptions, have lower ARPU than 13.27 it did, so it tells me there's downward pressure.

Remember, there will be definitely downward pressure in Q4 because of the five business days that are missing and calls to $1.35 million variable revenue that comes out of the equation.

That is almost $0.20 a month -- it would be $0.25 a month in ARPU just for Q4 alone, and then, of course, that reverses out by Q2 of next year.

This quarter, 13.27 is exactly the same as Q3 last year.

So it goes up, and it goes down.

I think that what helped us is, you know, as I said, the Japanese yen is pulling up at small -- what we just said about the two deals -- Zintel, they have higher ARPUs, but it's very hard to guess.

I think, as Scott said, we are growing in voice, we are growing on corporate.

On the other hand, the dollar versus the other currencies is also an impact, and --

(inaudible).

Okay, thanks a lot on that.

A last one for me -- I recently saw that you launched a channel partner for (inaudible) associated with the online backup business.

I am not sure if you already have a channel partner program for the core fax business, but is this something that you are looking at, kind of, to increase the distribution of other products as well?

We have, over the years, tried, and nothing worked for us.

But in the cloud we advance on acquisitions, when they had partnerships and resellers at work so we kept them, and we have a small one in the voice and a smaller one in the fax that are working well.

They are unique companies that are not -- while they do nice business with us, they are not moving the needle for us.

So -- to say it depends on the geography.

For instance, in the UK, resellers are much more common in the US, and I don't think that j2 is standing in front of a huge change.

We are always trying and, of course, if it's successful we'll do more.

But still in 90 -- I don't know -- 8%, 9% of our business is sold directly.

Greg Burns, Sidoti & Company.

Good afternoon.

Just a quick question on the cross-selling opportunities.

What's your highlight in today's presentation?

Are those mainly cross-sells between fax and voice, or are your other services included in that?

And also what kind of investments do you still need to make, and when do you think you'll have the people and systems in place to be at scale in terms of your ability to upsell?

Okay, Greg, so, yes, most of the cross-sells are -- the nature of it -- we have a lot of fax customers, and we convinced them to buy voice products.

We have some other directions, but this is the most, as you predicted.

There are several companies out there that are providing services for those type of opportunities.

What they do is, they take all your databases from all your customers, all your product, plus everything that you are running in your CRM plus everything that you are running -- any system that you think is indicative, they do what some people call, like, "big data." And they try to help us to predict, based on usage, based on where they come from the website, based on many, many things including pixel and everything, what is the best offering, the best time.

We invested in the system.

Those systems cost a few hundred thousand dollars a year, but the core thing is how to implement them.

So we already made the purchase.

We have already the system.

Now we are starting to implement it.

I was (inaudible) something we already -- they will have something to show by the end of this quarter.

It will be period of time that we will train.

The system is as good as the drivers are.

So we already contracted with what we think is the leading company in the States.

Now we are installing it and basically tying it to all the data sources.

It's a trial and error, but those guys that sold that are a relatively known new public company that does a lot of business with companies like us based on the (inaudible).

So we believe that because everybody else is successful, and they are a successful growing company, we'll be as successful.

So -- I believe that we will see the fruits of the start in Q1, Q2 next year.

We start in domestic market, we start on our mainstream products, and then we will start as possible based on the results.

There are no further questions at this time.

I would like to turn the floor back over to management for closing comments.

Okay, thank you very much.

We appreciate your time today to listen to our Q3 earnings call and ask questions.

There was going to be a couple of upcoming conferences in New York that we were going to be attending, but due to the situation with the weather, one of them has been canceled.

So look for press releases to see what our attendance will be in terms of any conferences between now and the end of the year.

We obviously do encourage you, though, to call or e-mail us with additional follow-up questions and, undoubtedly, we will be on the road in a non-deal roadshow context also to reach out to investors in various cities.

And then we would look forward to talking to you again for our Q4 earnings call, which although not specifically scheduled, is likely to be in mid-February of 2013.

Thank you.

This concludes today's teleconference.

You may disconnect your lines at this time.

Thank you for your participation.