Q3 2007 PRIMUS Telecommunications Group, Incorporated Earnings Conference Call - Final.

Original Source: FD (FAIR DISCLOSURE) WIRE

OPERATOR: Good day ladies and gentlemen, and welcome to your third quarter 2007 PRIMUS Telecommunication Group financial results conference call. At this time, all participants in a listen-only mode. Later, we will conduct a question and answer session and instructions will be given at that time. (OPERATOR INSTRUCTIONS) As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Mr. John DePodesta, Executive Vice President. Sir, you may begin.

JOHN DEPODESTA, EVP, PRIMUS TELECOMMUNICATIONS GROUP, INC.: Thank you, Siad, and good afternoon, ladies and gentlemen and welcome to PRIMUS' third quarter 2007 financial results conference call and webcast. I'm John DePodesta, Executive Vice President at PRIMUS. For those who have not had a chance to review the earnings release it has been posted and can be viewed on our website at www.primustel.com. Joining me from PRIMUS on today's conference call are: Paul Singh, Chairman and Chief Executive Officer, and Tom Kloster, Chief Financial Officer. We will begin with formal remarks from management regarding the company's third quarter. This will be followed by a question and answer session.

Before we begin, please be advised that statements made by the company during this presentation that are not historical facts are forward-looking statements for purposes of Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. These statements may include but are not limited to: revenue and earnings projections, statements of business plan and objectives and capital structure and other financial matters. Forward-looking statements may differ from actuality and relying on them is subject to risks. Factors that could cause forward-looking statements in this presentation to differ materially from actual results are discussed in the company's Form 10K and 10Q and other periodic filings with the Securities and Exchange Commission. These filings may be obtained from our website at no cost. The company is not necessarily obligated 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.

On last quarter's conference call I discussed the opportunity created by our successful financing transactions earlier this year which raised over $90 million cash and extended near-term debt maturities. These additional cash resources, and an extended runway, enable PRIMUS to take actions to accelerate growth of our high margin new services. I described our challenge then as being all about execution. While Tom will detail many of the capital investments and enhanced sales and marketing efforts that commence this quarter, some early indications are encouraging. Despite the revenue decline in our legacy voice and dial-up ISP businesses, our overall margin percentages and contribution grew in the third quarter. We believe this reflects not only the sequential growth in our new, high-margin products, which are now at a $220 million annual run rate, but also the benefits from capital expenditures in our network, which allow us to bring more services on net with resulting higher margins.

Our belief is that on going network investment, together with enhanced sales and marketing efforts, will support revenue growth and margin expansion as we move into 2008. As part of that strategy we intend to continue to fight to keep our existing voice customers through a combination of bundling, win-back campaigns and improved customer service. That business and those customer relationships are simply too valuable to lose. And we will utilize a portion of our enhanced resources in a concerted effort to retain them. Thus, through a combination, strategy of stemming the decline in our high margin legacy voice business, and increasing our investment in our new high margin broadband, VoIP, local, wireless, data and hosting services, we plan to grow our high margin revenues.

It is also significant to note that these initiatives are taking place against a back drop that is historically unique. As many of you know over 80% of PRIMUS' revenues are generated outside the United States, primarily in Canada, Australia, and western Europe. Simultaneously, the official currencies in each of those regions are trading at historic highs to the U.S. dollar. The confluence of these unique events not only results in dramatically increasing the U.S. dollar value of our foreign franchises, but also affords us the opportunity, which we are actively exploring, to lock in exchange rates to stabilize cash flows generated in our major foreign markets. In short, these are good times to be, as PRIMUS is, a truly global company. I will now ask Tom Kloster to comment on the quarter.

TOM KLOSTER, CFO, PRIMUS TELECOMMUNICATIONS GROUP, INC.: John, thank you, and good afternoon. Last quarter we announced our intent to invest further in both infrastructure and sales and marketing capabilities to support and accelerate growth in our high margin, broadband, VoIP, local, wireless, data and hosting products. These undertakings were made possible by the numerous liquidity enhancing events we were successful in completing in the first half of the year. I am pleased to report that our efforts are well underway. In Australia, we have made solid progress with our expansion into 75 new DSLAM locations, with half expected to be operational in Q4 and the other half in Q1, 2008. We are installing high capacity fiber to a portion of our DSLAM sites in order to provide higher speed service. These actions will provide us with broader market coverage, the ability to sell higher speed IP services, and the opportunity to place more customers on net at higher margins.

Also in Australia, we recently completed our data center expansion by adding 100 new cabinets of space. We reorganized our commercial direct sales group and are gradually adding additional quota-bearing direct sales reps while expanding our outbound telemarketing efforts focused on broadband sales to residential consumers. We have been very active in Canada as well. We are continuing the expansion of three existing data center facilities and the retrofitting of two newly acquired facilities in order to augment our ability to serve customer demand. Expansion of our hosting and IP products direct sales force is already underway. We are finalizing the installation of IP-based soft switches and migrating from our legacy TDM switch platforms which will help further improve our network operating costs. And we have increased our advertising spend focused on our bundled product offerings to the residential consumer.

In the U.S., we are also reorganizing and expanding our sales teams to drive sales of broadband and hosted IP products, targeted at small and medium-sized businesses. And we are very pleased to announce the recent appointment of DG Gulati as President of PRIMUS U.S. to spearhead these initiatives. In Europe we are successfully completing the migration to an IP-based soft …