Ziff Davis, Inc. (ZD) Q3 2008 Earnings Report, Transcript and Summary

Good afternoon, ladies and gentlemen, and welcome to the j2 Global Communications third quarter 2008 earnings conference 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. Good afternoon and welcome to our investor conference call for Q3 2008. As the operator just mentioned, I'm Scott Turicchi, President of j2 Global and with me today is Hemi Zucker, Chief Executive Officer, and Kathy Griggs, our Chief Financial Officer. We'll be discussing our Q3 financial results as well as providing an update on operations. We will use the IR presentation as a roadmap for today’s call. A copy of that presentation is available at our web site. In addition, if you have not received a copy of the press release you may access it through the corporate web site at j2global.com/press. You can also access the webcast from this site. In addition, you will also find in PDF file format a copy of the presentation and the metrics, which are available for download and viewing. After completing the formal presentation, we will be conducting a Question and Answer session. The operator will instruct you at that time regarding the procedures for asking a question. However, at any time you may e-mail questions to us at investor@j2global.com. Before we begin the prepared remarks, allow me to 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 have included as part of the slideshow for the webcast. We refer you to discussions in those documents regarding the Safe Harbor language as well as forward-looking statements. Turning now to the quarter. We're very pleased with the operational results for Q3, especially in light of the deteriorating economic conditions that occurred during the course of the quarter. Our focus this year, as you know, has been and continues to be, on the improvement of our already excellent margin structure as well as the deployment of our cash balances and free cash flow into higher yielding assets. Consistent with this philosophy, we have remained disciplined on our subscriber acquisition and other operational costs, and focused on improving the overall cost structure of j2. I'll now turn the presentation over to Kathy, who will give you further detail and further coloring. Kathy.

Thank you, Scott. Good afternoon, ladies and gentlemen. I'd like you to please refer to Slide 9 in the presentation for a recap of our Q3 GAAP-based results. We were able to maintain a subscription revenue growth rate similar to last quarter's, despite the current economy. Our Q3 subscription revenue grew 12% or $6.5 million. Total international revenues grew 18.3% and our domestic revenue grew 9.2%. Total Q3 revenues were $61.6 million, compared to $55.7 million in Q3 of 2007, for an increase of approximately 11%. Our revenue would have been higher but we were impacted by approximately 200K from the rally in the U.S. dollar versus our foreign currency markets. The weak economy did have a negative impact on our advertising revenue and we expect this trend to continue into Q4. Advertising revenue, which is approximately 7/10ths of 1% of our total revenue is a component of our non-subscription revenue and is primarily display and email based. In Q3 we added organically over 36,100 DIDs. Similar to Q1 and Q2, our voice brands and corporate fax segments continued to perform the strongest. In fact, compared to a year ago, our voice DIDs had increased by almost 200%. In total, Q3 ending paid DIDs are almost $1.2 million an 18% increase from a year ago. The overall cancel rate remains the same as Q3 2007 at 3%, but somewhat elevated relative to the cancel rate experience before the weakening in the credit sensitive sector in mid-2007. The recent economic turmoil had a minimal impact on our fax usage. Usage trends in Q3 2008 were consistent with prior quarters. Slide 20 provides you with a summary of usage for credit sensitive and non-credit sensitive industries. We continue to see depressed levels of usage for our credit sensitive customers, but consistent usage since Q4 2007. Our non-credit sensitive customers continue to see modest increases in usage. Overall, variable revenue continues to remain stable, as the low 20% range of our total DIDs-based revenues. We continue to strive to improve our processes and increase our operating efficiencies. Our success in these endeavors are reflected in our ability to steadily improve both our growth and operating margins. Compared to a year ago, GAAP gross margins have improved by one percentage point, from 80% to 81% in Q3. GAAP operating margins have improved even more. A 2.7 percentage point increase to 40.9%. Overall, expenses as a percent of revenue declined across the board. Q3 GAAP selling expense was 17.5% of revenues. R&D was 4.9% of revenues and G&A was 17.7% of revenues. The improvement in our margins reflects our continued commitment to smart cost management, which we believe is essential to the continued success of j2. Our diluted GAAP EPS was $0.42 a share, which is an improvement of $0.05 or 14% from the prior quarter. One penny is attributable to a favorable returned provision upon filing our 2007 federal tax return, and approximately a penny more was added by the strengthening of the U.S. dollar which contributed to incremental other income. When we compare diluted GAAP EPS to Q3 of 2007, our GAAP EPS improved to $0.42 from $0.35, for a 20% increase. In Q4, the lowering of the interest rates by the Federal Reserve will put further pressure on our interest income. Given the economic uncertainty we have kept our cash in investment vehicles that are liquid and safe. For those folks on our non-GAAP EPS, you will need to adjust for (ph 00:09:33) 123(R) or 2 million pre-tax or 1.4 million after tax. The after-tax impact of 123(R) is approximately $0.03 per diluted share. Excluding 123(R) expense, our non-GAAP EPS was $0.45 a share. Our 10-Q and our press release exhibits will provide additional details by expense category. Moving on to the balance sheet, in Q3 we provided our investors and shareholders with a return on equity of 32.7% annualized. Free cash flow for the quarter was 12.8 million. This was impacted by higher estimated tax payments due to higher earnings, significantly lower stock compensation deductions from the exercise of stock options, and the elimination of the R&D tax credit which Congress only recently restored as part of the TARP Program. In addition, we had a reduction in payables of approximately $4 million from Q2. For the nine months ended 9/30/2008 we have had record free cash flows of $63 million. Finally, during the third quarter we completed our stock buy-back program, deploying approximately $11 million to acquire the final 465,000 shares of our 5 million share buy-back. We ended the quarter with $152 million of funds available and no debt. Now, I'd like to turn the call over to Hemi, who will provide you with an operational update.

Thank you very much Kathy and good afternoon everybody. Here at j2 we are doing well in a weak economy. The company has always been a prudent company that is managing our actions in a most prudent financial way. I would like to tell you that we didn't start panicking last quarter, a quarter ago. We started to manage it as a bad economy already in Q3, Q4 '07 and as you can see, the results are showing off. Let me take you through some of the major expenses when we did a good job. On the marketing stand, we are continuing to manage in our ROI basis. CPA corporate position is managed by each brand. We have integrated also lifetime value of every customer and venues where they are coming from and by brand. This yield efficiency on our marketing expense. Then let's go on to our network. Our network is spread over 40/50 locations around the world and we are able to move phone numbers or DIDs and other resources from one place to the other maintaining higher reliability and reduced costs. This also is something that you can see in our gross margins. On the income side, we started the year with 400 people, we acquired Phone People which is our largest acquisition. They added approximately 20 people and we are now around the same employee base as we were and we have (inaudible 00:12:37) alongside improvement in our talent pool and will continue to employ our talent pool for next year. Our contracts with our major vendors, we took the opportunity to renegotiate some of them. As a matter of fact being a financially stable company they are happy to co-operate with us knowing that we are going to be there in the long run. One of the upsides of a bad economy are M&A opportunities. We have currently two M&A opportunities on advance due diligence. One of them is a combination of voice and fax company. The CO, the management spent the last week here in our Hollywood offices. The other one is an (inaudible 00:13:24) company where our division CFO spent time in their offices last week. Both seem positive and we hope to close them sometime this quarter and report accordingly. Additional M&A opportunities are on and off. We have an international opportunity, we have local opportunities and believe that all these companies at the end will end up closing a deal with us if we go out over the years expert in the field and we can offer them a smooth transaction with very high likelihood of closing and getting cash in their hands. As you all know, we have $2 million cash in (inaudible 00:14:08) and we are planning to use it for further M&As. We are focused on the market. We are selling services that are defined as cost saving (inaudible 00:14:21) and we continue to emphasize it to our customers and we are focusing on our core competencies, which is outsourcing fax, outsourcing voice, and outsourcing email. Let's go to the next page 12. Talk a little bit about our fax services. I know that many of you are focused and interested in our corporate business. Our corporate business had a record month. We signed seven deals larger than thousand DIDs each. And additional smaller deals increased their counter-bid to come up to thousand DIDs. So, now we have additional nine deals of thousand each. This brings us to a record of nine deals, I think the last one or the best one we ever had was six. And we have an additional 66 active deals in our pipeline. Those are both local and international across multiple industries. We keep on seeing how we are replacing old fax infrastructure in a very successful way. On the eFax field, which is our (inaudible 00:15:36) product, it is sold for 16.95 (ph 00:15:38). This is the highest priced product in the market. We continue to command the price premium versus the other brand that are $10. We continue to increase the value of eFax and one of the things that we are planning to launch on beta this quarter is unique features that I'm keeping at this moment secretive while we are patenting it, but it's going to increase value and the functionality and the experience of fax users to something that nobody here in j2 have seen ever before. Enough said, but I hope to make a press release soon. On the international field, the economy is eating (ph 00:16:30) Europe as well, but if (ph 00:16:33) the penetration is lower there we continue to grow there in the faster rate than here in the U.S. market. Our alternative fax brands, as you know, we have several brands that are (inaudible 00:16:45) and competing on the $10 level. They are selling well, this is bad economy, so lower cost products are doing better than higher cost products. On the Voice, we are declaring ourselves the largest player in the market place. We have now four brands, Onebox, Phone People, and e-Receptionist which is our European product. Why do we believe that we are the largest? We have 180,000 DIDs deployed. We have revenue that is an around rate of $27 million a year. Our growth rate, including acquisitions from Q3 '07 to now is 189 or almost three times larger than we were a year ago. From geographical coverage we are selling mostly into three, maybe even four, large markets which are the U.S., Canada, U.K. and Ireland to certain degrees. And we are covering many, many local cities around the U.S. and Europe. We are proceeding well with our integration of Phone People. This is the company that we acquired this year. We have consolidated the offices in San Diego. We are consolidating the operations and realigning all the professional people there under ours and planning to move ahead with further consolidations. We are also now during our budgeting season, talking about our brand strategy. We are going to pick a lead brand and we are going to take leadership position in educating the market. The voice product is very complex. Less is more. Simplifying the product. Getting customers to buy on-line. As you know we are an on-line company and we are working hard to simplify so people can get comfortable sign on-line, call and buy it and I'm very pleased with the success. With that said, I will now pass the conversation to Scott for our guidance.

Thank you, Hemi. If you go to Slide 15 as you know, as a company we give guidance on an annual basis which on Slide 16 we are affirming today we wanted to draw and remind you of certain factors that are always the case in Q4 and certain factors that may be new to this Q4. Obviously what has gone on, the economy in the last several months, and specifically in the last several weeks, we believe will continue in Q4 and result in negative GDP growth. We believe they'll continue to be weakness in the economy in Europe. The results of these two is a malaise in the productivity and the activity of businesses post-Thanksgiving. Usually, we always have a decline in business days from Q3 to Q4 sequential. The calendar this year is a bit more unfavorable than in most years, resulting in a loss of five business days from Q3 to Q4. As I just mentioned, because of the economy we believe there'll be an additional lost business day of productivity as people take additional vacation, longer lunches, show up later to work, or not show up at all. To remind you, each business day has about $200,000 of variable revenue, so we're anticipating in Q4 relative to Q3 of reduction of approximately $1.2 million in our variable revenue due primarily to the calendar in business days and secondarily to the poor economy and I would also add that to the extent the dollar continues to remain strong against the euro and the pound, that will add a little bit of pressure for international operations. Our view is to continue to work on the margin structure, as Hemi has just outlined. There are still additional opportunities in both the cost of goods sold and certain other of our operating expenses to continue to maintain or improve margin structure and cash flows, complete the M&A deal that Hemi has already mentioned, as well to pursue more deals that are in the pipeline. I'll just give a quick commentary on the 2009 process. We are in the midst of our budgeting. It's relatively early stage. I think it's safe to assume that we will not have a – or we will have a consistent with what is going on in the marketplace view of the economy for '09. we are working through some of the items that Hemi just talked about such as brand strategy for voice and how that, as well as some of the M&A that's in work now will work through to '09 numbers, and we'll be prepared to give the '09 guidance in conjunction with the Q4 conference call, which should be sometime in mid-February. And that is the end of our prepared remarks. Slide 17 and following are the metrics, the reconciliation of free-cash-flow, and as Kathy mentioned on Slide 20, the usage chart, which showed relative consistency over the first three quarters of this year, both in terms of the usage of the credit-sensitive customer and the non-credit sensitive customers. At this time we will turn the conversation back to the operator, who will instruct you how to queue for questions.

Thank you. (Operator Instructions) Our first question comes from the line of Daniel Ives with FBR. Please proceed with your question.

Hey guys, a few questions. First, with the deals that are in the hop on the M&A side, can you give us like a general sense as to the total amount of that M&A opportunity? Or at least the near term with the two deals?

Hey guys, a few questions. First, with the deals that are in the hop on the M&A side, can you give us like a general sense as to the total amount of that M&A opportunity? Or at least the near term with the two deals?

The deals are relatively small, and hi, Daniel, how are you?

Hey.

Hey.

If we'll do both of them they will be maybe 2% of our total revenue. That's the magnitude both together.

Got it. And given the macro uncertainty, as you look into 2009, you know, maintaining your operating margin structure, can you just walk us through as a management team what you're doing maybe differently going into '09 than you did going into '08 in terms of cost and initiatives in the R&D front and stuff like that. Thanks.

Got it. And given the macro uncertainty, as you look into 2009, you know, maintaining your operating margin structure, can you just walk us through as a management team what you're doing maybe differently going into '09 than you did going into '08 in terms of cost and initiatives in the R&D front and stuff like that. Thanks.

We are continuing to grow the business while maintaining the cost is our main goal. I mean, we think that we are not going to grow dramatically in headcounts or not at all. Again, this is assuming no further acquisition beyond those that you already know. So, you should assume, you know, stable head count, maintain or maybe slight improvement on the margins and the rest is on the marketing standpoint it will be opportunistic meaning if we can't acquire customers and CPAs equals or better like we say we continue to do it; we are not committing there to any number. We are committing to efficiency. And Scott, have I missed something?

No, I think as Hemi pointed out earlier, when we saw the [inaudible 00:24:57] weekend almost a year ago, we took some of these incremental actions and applied them to '08. There are now further refinements that can be done as we go into '09. Some you'll see in the gross margin because it relates to COGS. The items Hemi just mentioned will float through operating expense, and I think our fundamental view is that is what is of primary importance. We've seen on the flip side the M&A pipeline become more robust. I think finally we're going to start to see the pricing come into line more where we thought it would have been 7, 8, 9 months ago. But I think with a reevaluation in the equity markets with negative GDP growth, it is going to make those negotiations at least as it relates to price, much easier and much better. So, it's too early to tell but I'm very optimistic and bullish about the kinds of M&A we'll be able to do in '09. The two deals that Hemi mentioned; they're small but as you know, the vast majority of the opportunities in all three of our spaces are small transactions. So, it's a combination of increasing the volume of those deals. But also having some spread across our three spaces. If we close these two deals we will have closed deals in '08 in each of the three spaces, fax, voice services and email. And we have additional opportunities in each of those three.

And just finally on the tax rate. Which would be the amount for 4Q?

And just finally on the tax rate. Which would be the amount for 4Q?

Well, the tax rate's an interesting question. As Kathy mentioned, every Q3, you actually pay your prior year taxes. So, you've been accruing with them from a GAAP perspective; you pay them and you have usually some modest differential. This year that differential went into our favor. It was about a penny and I would say that a normalized tax rate for us is 31, 31.5 GAAP. Now, one of the things that will come into play in Q4, as she also mentioned is that that's part of the part program, R&D credits were reinstated. So, we're evaluating what the impact positive will be of being able to take those R&D credits from 2008, which we have not accrued for because up until literally a couple of weeks ago we didn't think they would be available. But I'd say low 31, 31.5 is the core tax rate.

Thanks.

Thanks.

Our next question comes from the line of Youssef Squali with Jefferies & Company. Please proceed with your question.

Thank you very much. Good afternoon. A few questions. So, Scott, maybe this is more of a mechanical question but I guess guidance still has a – you can drive a truck through it. Why not change it? Is it because as long as you're going to land somewhere between the low end and the high end you're not going to change it or I mean, from listening to Hemi the contribution from these acquisitions is going to be relatively immaterial to Q4 for you to even come closer to the midpoint. So, what's the logic there? Jefferies & Company: Thank you very much. Good afternoon. A few questions. So, Scott, maybe this is more of a mechanical question but I guess guidance still has a – you can drive a truck through it. Why not change it? Is it because as long as you're going to land somewhere between the low end and the high end you're not going to change it or I mean, from listening to Hemi the contribution from these acquisitions is going to be relatively immaterial to Q4 for you to even come closer to the midpoint. So, what's the logic there?

Again, you've got several questions. You're correct on the acquisitions, one because we're obviously not quite halfway through a quarter but one-third or so through the quarter and those deals are not closed and they're small to where they close tomorrow, close in three weeks, they're going to have a modest impact on Q4 revenue. So, that's true. You're also correct as to, as we stated before, the philosophical viewpoint as it relates to giving guidance. So, as long as we're within the range, top and bottom-line, we see no reason and we do not intend to alter the range of those guidances. Even though it may be clear deep, deep, deep into a year that you're closer to one end of the range or another. And I don’t see that – as I say, that's a philosophical viewpoint. I don't see that changing. I think we've given a lot of information so I don't think breaking Q4 is that hard.

Right, right. I think it's fair to assume, considering where you sit today that you will be coming in at that low end obviously. I guess secondarily, I guess you guys talked a little bit about how variable revenues from credit-sensitive areas. Will stabilizing – is that something that I mean, is it because you guys saw it so early on that now you're – I think, the first time you recognized it was over a year ago so it's not necessarily behind you but you've already kind of hit bottom there or is there anything else that's at play that we may not be aware of? Jefferies & Company: Right, right. I think it's fair to assume, considering where you sit today that you will be coming in at that low end obviously. I guess secondarily, I guess you guys talked a little bit about how variable revenues from credit-sensitive areas. Will stabilizing – is that something that I mean, is it because you guys saw it so early on that now you're – I think, the first time you recognized it was over a year ago so it's not necessarily behind you but you've already kind of hit bottom there or is there anything else that's at play that we may not be aware of?

No, I think if you go to slide 20 and you look at the data there, I think a lot of it is yes, we caught that piece of the business early. I mean, not so much we caught it, it performed that way early on and of course we now know in hindsight, you know, with the carnage that's occurred at the brokerage firms and even some of the smaller banks, I think there's a collective better understanding of what was happening. But if you look at the graph, you'll see that it was already in the 75 to 85% range well into the Q4 of '06 about a year ago, and it's been hovering in the 72 to 80 range throughout the first nine months of this year. So, I think it's just that it took a big step down, fairly quickly in the latter half of last year. It's been kind of bouncing around at those lower levels, some quarters a little better, some quarters a little worse, but bouncing around those lower levels for the last nine, ten months.

Okay, and lastly for me, if I look at your ARPU, it's been, I guess, in sequential decline for the last five quarters. Last quarter I think it was about $15.87. What's the – what has the trend been in fixed ARPU versus variable? I'm assuming – I guess the question is has fixed ARPU been stable? Jefferies & Company: Okay, and lastly for me, if I look at your ARPU, it's been, I guess, in sequential decline for the last five quarters. Last quarter I think it was about $15.87. What's the – what has the trend been in fixed ARPU versus variable? I'm assuming – I guess the question is has fixed ARPU been stable?

No, it's declined too. Because you'll see usually the variable ARPU will have the biggest sequential change in 3 to 4 and 4 to 1. 3 to 4 to go down. I mean, if we're right and variable revenue is off 1.2 million, that is, you know, $0.25, $0.30 in ARPU per month. That would be an impact to Q4's variable ARPU. And then that reverses itself out in Q1. So, the – if you normalize it or you look at the for rolling quarter average, the bigger piece of it is this year the fixed ARPU declining because you've got lower fixed ARPUs in the voice and in the corporate enterprise fact piece. So, as those are adding more net dibs, they're creating a bigger proportion of our quarterly net DID ads and as a result a larger and larger piece of the overall base, you're seeing it pull fix down.

And you know, if you see yourself –

That will continue.

Yeah, Youssef, we have 180,000 voice services. They are going on about $10 a piece a month extension.

Eleven.

Eleven. And we are penetrating this market being low price and not leader but we are participating in this – in the market in the low price. We are planning to add features later on once we grab a larger market share and drive it up. But for now we believe that we are providing amazing value there but we are happy to do it in order to solidify our market position.

Okay, that makes sense. I guess the other side of it is that you're subscriber acquisition is pretty healthy, still very healthy. Okay great. Thanks a lot. Jefferies & Company: Okay, that makes sense. I guess the other side of it is that you're subscriber acquisition is pretty healthy, still very healthy. Okay great. Thanks a lot.

Bye-bye, Youssef.

Our next question comes from the line of Rai Archibold with Kaufman Brothers. Please proceed with your question.

Great, thank you. One just following up on the corporate activity. Obviously very strong over the last several quarters. I was just curious, one if you can give us a sense of the backlog of corporate DIDs that are remaining given that they tend to be spaced over time? And then I have a follow-up.

Great, thank you. One just following up on the corporate activity. Obviously very strong over the last several quarters. I was just curious, one if you can give us a sense of the backlog of corporate DIDs that are remaining given that they tend to be spaced over time? And then I have a follow-up.

Hi, Rai. First of all, as we said, we have a pipeline of 66 deals, 66 deals that are declaring themselves as potential of target and more. We have much more deals that we are not counting. Those deals are across the entire world; mostly U.S./Canada/UK. It is the end of the year so some organizations are, you know, Old World style. They want to bring it in before they lose a budget and some want to push it to next year. In most of those situations we are competing with a decision to replace a server or another outdated technology, so we know that most of them tend to close. We are competing; we have some competitors that are trying to sell it for lower prices. Our conversation rate is relatively high. We actually sell more and usually we are at the highest DIDder but we have a lot to bring to those customers. So, I believe that it will be irresponsible for me to tell you how many of them will go Q4 versus Q1, but it's a healthy by plan.

Actually, wait wait wait. I guess I did not make my question clear. Do the corporate accounts that you have booked today, all right? There are some number of DIDs that they've signed for and you've turned them on over a period of time so of the deals that you have signed, what is the backlog of DIDs that are yet to be turned on?

Actually, wait wait wait. I guess I did not make my question clear. Do the corporate accounts that you have booked today, all right? There are some number of DIDs that they've signed for and you've turned them on over a period of time so of the deals that you have signed, what is the backlog of DIDs that are yet to be turned on?

It's going to be 4 to 5,000 DIDs.

How many? I'm sorry?

How many? I'm sorry?

Four to 5,000. Of the nine deals signed during Q3 and some of them were signed late in Q3, there's between 4 and 5,000 DIDs that have not been yet deployed.

Okay. So, those will come on sometime over the next quarter.

Okay. So, those will come on sometime over the next quarter.

Well, some of them have actually come online, in terms of speaking in real time. But during the course of this quarter, as you know there's usually an up-to-one quarter backlog between when a contract is signed and when all the DIDs are fully deployed. Because of the combination of porting and there's a combination of taking from the inventory and a lot of that is in the hands of the company that is buying in what is their own plan and how do they wish to roll it out.

And then my next question really is kind of use of cash here. You're generating a fair amount of cash flow now. You have $152 million of cash on the balance sheet. I'm just curious what you're thinking about in terms of further repurchases.

And then my next question really is kind of use of cash here. You're generating a fair amount of cash flow now. You have $152 million of cash on the balance sheet. I'm just curious what you're thinking about in terms of further repurchases.

I think right now the heavy focus is on M&A. We're not displeased with having bought stock earlier this year, but obviously in hindsight we overpaid by $4 or $5 a share [inaudible 00:36:08] stock market. And I think that this is an environment – well, look. If the only money you've got is the money you've got and the cash flow that you earn. You can't be dependent upon banks or the financial markets. So, I think that in the near-to-intermediate term, until there's greater clarity as to the worldwide economy and the loosening up of the credit sector, that cash is most likely to be kept for M&A.

Okay, very good. Thank you.

Okay, very good. Thank you.

Thank you, Rai.

Hi, good evening. My first question is just around the two deals that you have in the pipeline in terms of the M&A. Should we think about those being in line with your historical targets in terms of accretion and multiples that you pay? Raymond James & Associates : Hi, good evening. My first question is just around the two deals that you have in the pipeline in terms of the M&A. Should we think about those being in line with your historical targets in terms of accretion and multiples that you pay?

I think in terms of multiples, yes, maybe even a little bit on the lower end. Accretion's a harder thing to discuss because a lot of it has to do with the purchase price accounting, although I anticipate both deals to be accretive individually and in the aggregate. And I don't have any reason to believe they're not going to be similar to what we're done in the past but that's an accounting question that Kathy either will want to have further commentary on. She's shaking her head no, so she needs a few more packs I think before she can wing it on that.

And Shyam, you know, we don't have actual history of buying email companies per say, besides electronic mail when we bought it.

The first one in '04.

It was a public company so – but the multiples came down. Yes, up to the day, we are living in the current environment and we believe we are paying fairly but less.

Got it, got it. And could you just talk about how you view the free-cash-flow number this quarter relative to what your expectations might have been. And I know you don't provide explicit annual free-cash-flow guidance but you know, how should we think about it for the year? And maybe if you could break that down between the operating cash and the CapEx? Raymond James & Associates : Got it, got it. And could you just talk about how you view the free-cash-flow number this quarter relative to what your expectations might have been. And I know you don't provide explicit annual free-cash-flow guidance but you know, how should we think about it for the year? And maybe if you could break that down between the operating cash and the CapEx?

Well I think in terms of the – the CapEx is right on target. You know, we were a little under a million for Q3. I think it's that or less in Q4 so we'll be within the range we talked about for the year in terms of CapEx. In terms of the cash provided from operations, you know, payables come and payables go. I think going forward we're going to try to make sure we don't pay so quickly on some of those payables. And then the biggest issue had to do on the tax side of it. It was really a – there's probably actually four effects. Obviously one we have higher earnings, two because of the way we invest our cash we have very little – we have none actually that are in the form of monies getting us triple tax free. I understand and Kathy can comment on this – that there was a change this year in the way estimated taxes are paid, which changed the way they flow over the four quarters. But the biggest piece probably of all of those is the fact that when the stock is in the mid to high 20s people exercise stock options and we get a cash, not a GAAP earnings, but a cash tax deduction. With the stock at these levels, you know, a vast majority of our options are out of the money, so there will be no exercises and as a result there will be no offset for cash tax purposes. So, you'll notice in the first nine months of this year if you take our non-GAAP, exclude the 123, our non-GAAP pre-tax earnings. Our cash taxes are 30% of that, roughly equal to our GAAP tax rate. If you look at last year, you'll see we were only paying about 14% or 15% of the pre-tax earnings. And a big difference between the 15 and the 30 in terms of the cash way to taxes we pay is the fact that people were exercising options and the company was getting a deduction. That's not a current.

Right, that's right.

Okay, great. Thanks. And then moving on to voice services, the sequential increase this quarter, can you maybe help us understand how many of those ads were from the installed tax base Raymond James & Associates : Okay, great. Thanks. And then moving on to voice services, the sequential increase this quarter, can you maybe help us understand how many of those ads were from the installed tax base

You mean cross-sales and up-sells?

Yes. Raymond James & Associates : Yes.

And I actually don't have an exact number but I can tell you that we are going across our base. We serve on emails and I really don't have the number but I would say definitely, you know, not more than a third. Btu I had to qualify the number and it's called do you have a better guess?

No.

Okay, and then last quarter you talked about having a voice services deal. That was about I want to say 700 DIDs into an enterprise. I was wondering if you had any similar deals this quarter. Raymond James & Associates : Okay, and then last quarter you talked about having a voice services deal. That was about I want to say 700 DIDs into an enterprise. I was wondering if you had any similar deals this quarter.

No, this quarter all of our deals were standard.

SMBs.

Yeah.

All right, great. Thanks. Raymond James & Associates : All right, great. Thanks.

Thank you.

Our next question comes from the line of Tavis McCourt with Morgan Keegan & Company. Please proceed with your question.

All right. Thanks for taking my questions. I've got three of them. First, Scott, I wonder if you could elaborate on any of the deliberations going on at the FCC, whether you expect any outcome there to have an impact positive or negative to your - Morgan Keegan & Co., Inc.: All right. Thanks for taking my questions. I've got three of them. First, Scott, I wonder if you could elaborate on any of the deliberations going on at the FCC, whether you expect any outcome there to have an impact positive or negative to your -

I'm glad you asked. Okay, what's your next question?

The other one is one of your competitors in the voice space mentioned in an article on an online site today that they've seen really good trends the last three or four weeks in their voice business and I was wondering if you could comment a little bit about that business, perhaps being not as negatively impacted by the economy. If you're seeing that ,if you're seeing companies trade down to virtual PBXs if that’s the right way to put it. And then I also want some details on the churn rate. If you could talk about it, is the churn rate increasing? Is it in the premium price brand effects? Is it in the low-price brands or is it in the voice or kind of – you know, anything you can give us about where the increased churn is coming from. Morgan Keegan & Co., Inc.: The other one is one of your competitors in the voice space mentioned in an article on an online site today that they've seen really good trends the last three or four weeks in their voice business and I was wondering if you could comment a little bit about that business, perhaps being not as negatively impacted by the economy. If you're seeing that ,if you're seeing companies trade down to virtual PBXs if that’s the right way to put it. And then I also want some details on the churn rate. If you could talk about it, is the churn rate increasing? Is it in the premium price brand effects? Is it in the low-price brands or is it in the voice or kind of – you know, anything you can give us about where the increased churn is coming from.

Okay. Let's take them somewhat in different order. Let me start with commenting on the voice piece, and then we'll discuss the churn and then finally we'll end with the USF because that could take forever.

Hi, Tavis. I think that your comment is regarding the ring central. I didn't read it but I just got before the earning call the headline. And you know, this is a private company that spends so and so money of CPA. I guess they had somebody who give them a bunch of money, but our approach to CPA has been always based on our why, we are not trying to press anybody with quick deals. We are also not paying for trials; we are counting only customers that have been with us. Our growth rate with the voice services and again by the way they are mentioned to the best of my knowledge – did you read this, Scott?

Quickly.

To the best of my knowledge they are mentioned growth – we are mentioning net. It's a different world. And so I hope that they are seeing as much success that we do and our growth is doing very well and so is the net as we reported. And I cannot comment, there is no point of comparison to what I'm doing today versus previously and I hope that they will do excellently because we also do well if they do well. I mean, it's a big market. And considering the question about the churn. Why, I would say, that's maybe it is harder to maintain more expensive customers like on the ESOP side. I say that the churn is across the board, and I wouldn't say that we are having excellent results or wondrous as the others. Usually churn is limited to how long has the customer been with you? Those customers that are passing, you know, the 90 to 120 days, including in voice, are stable ones, and those that are being shorter or have suffering from lack of usage are those that we'll lose. But I could not indicate to you that the churn, you know, is burning the hole in our pocket in a certain area versus the other. It's every business has its own numbers. All are again focused on usage and value and Scott, do you have anything else to say? Have you noticed anything else?

I think as Hemi said, it's pretty much across the board and possibly, with the exception of some of the larger enterprise deals given how their contracts work, but certain whether it's international or voice or domestic, it's across all those.

I don't want to be committed or something, I believe that despite the economy continuing to be bad, the weak players may be already out and maybe we should thin out capitalization of improvement. Because at the end of the day, by using the service, it's not going to kill you. It's not a big amount of money. I think that it takes usually several quarters to weed out the weak players and then I'd assume stability or improvement towards the first half of next year. But I cannot forecast it.

Now, I'll address USF. There was a lot of activity going on in anticipation of the STC's meeting tomorrow, which will still go forward. Earlier today, Chairman Martin pulled his consideration for a vote on his interior compensation in USF reform. So, there will be no vote on that tomorrow. It is unclear what, if any, vote will occur in their December meeting. And then there'll be some probably fairly substantial changes in the commission come January or February of next year. The commission is composed of three members of the party that occupies the White House and two members of the minority party, so there's three Republicans, Chairman Martin, a Republican with two other Republicans occupying three of the seats and the commissioner's cop and Eidelstein, the two Democrats. We'll know by tomorrow night whether there's going to be three Democrats and two Republicans. But in almost any scenario, Chairman Martin will not be the chairman sometime in '09. It has been a goal of his for years to try to address USF reform, which has many tentacles. The only one of which that we've had any interested is the contribution system of how people pay into USF and it's a percentage of long distance revenues today. He has had various proposals for a fixed fee per number. Part of the controversy for the meeting tomorrow is that his 160-page policy statement and order is not public so only his fellow commissioners and maybe others who it might have been leaked to have any actual real knowledge of what is in that 160-page order. Four commissioners today, meaning everyone but Chairman Martin put out a statement and they've actually asked in a variety of ways, as have various members of Congress, that this be put out for public comment so everyone knows exactly what is being proposed. We've heard all kinds of things. There maybe be carve outs. You will see really over the last year several filings by J2 because as we meet with commissioners and/or their legislative staff, we file what are known as ex partes. It summarizes the nature of the meetings. In some instances, there's even attached presentations and commentary. So, it is unclear at this point in his current order what carve outs exist, if any. He has a distinction between residential and business. We also don't know the full extent of those definitions. So, at this point, it's difficult to say definitively if or had his proposal gone through, what impact to J2 any would have had. It is clear that if something is approved, there will be a many, many month period. Even AT&T and Verizon, who have their own proposals on the table, are saying that changing from a revenue usage-based contribution system to a fixed bid-base will take 18 months. You'll see in our filings we suggested up to 30 months if there's no carve out and this is primarily relating – the last three and a half, almost four years of this – to what was the impact and how would it influence our free base of customers. So, we've talked about, over that time period, that if something were to occur, if there were to be no exemptions, and whenever the final beta transition occurred, it would effectively mean a change to the way the free base operates. Either it would disappear in its entirety and become fully monetized, meaning that those customers would become paid in some form, albeit maybe at lower prices than what we currently maintain today because of their history of being a good free customer. That would include whatever USF charge would be passed through. An alternative – and they're not mutually exclusive – would be to ask those customers to provide a billing relationship and to pay on an annual basis the USF charge. So, if it were $0.85 or $1.00 per month, you take that and multiply it by 12, add a small administrative fee, charge that annually, collect the money, make no profit, send it to the Universal Service agency, and allow the free customers to maintain their service under the same terms in service that they have currently as a free customer. So, nothing has changed from our viewpoint in terms of how we would address it if and when such time would occur and I'm sure we'll know more over the next coming weeks. I would also make this statement, that even had there been a vote tomorrow and had it been successful, and had it been unfavorable because it didn't provide the relief we wanted, because of the election and because of the change that will occur in Washington and because there will be a transition period, what you would've seen are a combination of petitions for reconsideration, possible legal challenges, and maybe even Congressional intervention of the 111th Congress and, of course, those petitions for consideration before the FCC would be actually before a newly constituted commission. As I tell people whenever something happens here, you're at the beginning, not at the end.

Can you elaborate a little more, Scott? Morgan Keegan & Co., Inc.: Can you elaborate a little more, Scott?

As I said, it could take all date. If you really want to know more, it could take all day.

Thanks for the commentary. Morgan Keegan & Co., Inc.: Thanks for the commentary.

I tried to make it brief. Probably a tough one.

He's excited about it. It's that good.

Our next question comes from the line of Rod Ratliff from the Stanford Group. Please proceed with your question.

Scott, can you hear me okay?

Scott, can you hear me okay?

How you doing?

Doing pretty well, Scott. How about yourself?

Doing pretty well, Scott. How about yourself?

Good.

Tavis stole my thunder on the USF question because one of our policy analysts just put a note out today about the chairman's statement. But suffice it to say, J2's stance about this has not changed since April of 2005 when the controversy really started to hit the wires, right?

Tavis stole my thunder on the USF question because one of our policy analysts just put a note out today about the chairman's statement. But suffice it to say, J2's stance about this has not changed since April of 2005 when the controversy really started to hit the wires, right?

That's correct.

Okay. So,, we'll move on. Hemi, are you seeing what you would classify as sort of flight to quality given what you said earlier about the tight credit markets and the tough economy? Any of the smaller guys in the space that you would consider to be in trouble?

Okay. So,, we'll move on. Hemi, are you seeing what you would classify as sort of flight to quality given what you said earlier about the tight credit markets and the tough economy? Any of the smaller guys in the space that you would consider to be in trouble?

Say it again. You used a word there that was what?

Flight to quality.

Flight to quality. My English is not my mother tongue. What do you mean?

Customers that are leaving companies that are in trouble and coming to J2 because J2's not in trouble.

Customers that are leaving companies that are in trouble and coming to J2 because J2's not in trouble.

Yes. We see it absolutely in the corporate environment. If I said we are usually, I say we are 100% of the time, those companies are excused and they are (inaudible 00:53:11) requests for bids and we are always the higher bidder. And financial capability equals not only stability in your numbers, also in many types, they are worried about security shortcuts. We are definitely on the corporate side. On the individual, I don’t know who today makes the decision based on eFax versus our competitors. Some of them have been around. Some of them have been established. I believe that the individual guys are more focused on who came first, who is the known brand and prices of course. But definitely, when it comes to our corporate, it is every day that we are getting the bids even though we command a higher price. On the voice side, I don’t know what is known. If you remember, I said that we have to better learn and better get better knowledge of the space. I say I was your consultant and you ask me – I said be really careful not to choose a weak player for your voice because your voice is lead number that breaks into four and 10 extensions and you don't really want to be there in a bid for it. It's much easier to tell people that you have a new fax number versus your lead voice structure. So, again, I don't know how people think but if I would advise you, I'd say be careful when you choose your voice provider.

Any of the three of you I guess can chime in on this one. Would you say that the recent downward trend, is it being affected by the growing preponderance of corporate accounts and multi-thousand DID accounts? Just the volume, they've got to drive ARPU down.

Any of the three of you I guess can chime in on this one. Would you say that the recent downward trend, is it being affected by the growing preponderance of corporate accounts and multi-thousand DID accounts? Just the volume, they've got to drive ARPU down.

There are four reasons. First of all, if you say corporate, they are very profitable to us. Their profit is higher but ARPU is lower. It's one bill for a thousand bids and they're not turning because they're multiple year contracts and it's fully automated. So, they are more profitable, the lower the ARPU. The next one is our international. The dollar is becoming weaker. Prices are fixing the euro and in pounds, et cetera. The next one is usage. Usage also declines as the ARPU goes down. And the last one is the voice product. We are offering a product at 11, when in fact it's 16.95. So, all those are impacting and there is another one, the fifth one. We are selling more $10.00 DADs on the fax book core.

The alternative fax book.

The alternative fax book. So, all those, and in this economy, our decision is to focus on how many customers versus giving them a hard time when they're trying to (ph 00:56:15) another dollar out of them. That's not the thing to do. The right thing to do is to get the means and we have a good history of successful price changes. Not now.

Great. Thanks a lot, guys.

Great. Thanks a lot, guys.

Thank you.

Our next question is a follow up question from the line of Rai Archibold. Please proceed with your question.

I just wanted to touch base on '09. In the past, you've given sort of preliminary idea in terms of what your growth expectations are for the following year at this point. So, I was just curious. I realize you're in the middle of your budget planning but perhaps you can give us a sense as to what you're thinking as to the growth outlook for '09 at this point.

I just wanted to touch base on '09. In the past, you've given sort of preliminary idea in terms of what your growth expectations are for the following year at this point. So, I was just curious. I realize you're in the middle of your budget planning but perhaps you can give us a sense as to what you're thinking as to the growth outlook for '09 at this point.

Well, Ray, you're correct. We've done it in the past. I'm not sure why we did it in the past because you get kind of two bites of the apple. You kind of give a view today and then you firm it up with your guidance in about 60 to 90 days. We made a decision this year that there were enough moving pieces within the economy and also within the fluidity of some of the of the M&A transactions that it didn’t make sense for us to do what could effectively become two budgets. So, we started the process more recently. It'll finish up, my guess is probably late December/early January. Technically it won't close and never closes until we get the 12/31 actual bid count in numbers. So, we do the last bit of cleanup the first couple weeks of January. I think we're on schedule to meet that but we're still in the early stages and I know we don't have a view right now in terms of the organic or combined growth rate for '09.

Also Ray we, by design, decided this year to drag and start all the budgeting later because of all those reasons. It's very hard in this environment to predict so the more actual data, the more knowledge we have on the M&A and the more we are closer to the stabilization of the dollar – so we by design, we have all the templates ready, we are still later than- I've been here since the beginning. We have never been sitting in November and not having the number yet. It's by design.

Very good. Thank you.

Very good. Thank you.

Our next question comes from the line of Chitra Sundaram with Cardinal Capital Management. Please proceed with your question.

Yes, thank you. I just wondered with the growth in voice and enterprise, can you give a ballpark of how the customer mix sort of looks from the (inaudible 00:58:59) perspective. My notes sort of had 66% individual and then about 30% B2B and 4% sort of a mix. Has that changed materially?

Yes, thank you. I just wondered with the growth in voice and enterprise, can you give a ballpark of how the customer mix sort of looks from the (inaudible 00:58:59) perspective. My notes sort of had 66% individual and then about 30% B2B and 4% sort of a mix. Has that changed materially?

At a macro level, no. I think it probably has shifted a point or two. The corporate enterprise is probably mid- to high single digits. The SMB was a little bit rich at the 30 level. It's probably closer to the mid-20s and whatever's left over is individual. The SMB is probably a little bit larger than that. It depends whether you're including or excluding the voice piece because the voice is all SMB and as Hemi pointed out, that' s15% of our dips.

Okay. I used all that.

Okay. I used all that.

You want to take SMB fax and SMB voice combined, yes, you're probably in the 35% range.

Okay. I used all that. And then on the credit sensitive side, just sort of a breakdown. I don’t know if I missed it fixed towards the variable. Do you have anything? Is it still half and half? I think you said it remained in the low 20s, right?

Okay. I used all that. And then on the credit sensitive side, just sort of a breakdown. I don’t know if I missed it fixed towards the variable. Do you have anything? Is it still half and half? I think you said it remained in the low 20s, right?

To be honest with you, I did not update that but I have no reason to believe that the mix is still not- It shifted a little bit because obviously, as you see from the chart, some of the usage revenue and variable revenue has bled off. So, I think 50/50 is probably, that was what it was about a year ago when the credit sensitive first started deteriorating the usage. It's probably closer to 64/40 in favor of fixed today.

I think you're right. I think (inaudible 01:00:39) seven plus and then 5.5 or thereabouts.

I think you're right. I think (inaudible 01:00:39) seven plus and then 5.5 or thereabouts.

Right.

I guess that trend sort of stayed on.

I guess that trend sort of stayed on.

Right.

Great. Thank you so much.

Great. Thank you so much.

You're welcome.

You're welcome.

I want to remind everybody, we've not received, and we do have and will accept any questions by email if there's anybody that is out there that does not want to queue in and give us the question verbally. And also, I'd ask the operator to poll for any additional questions at this point.

(Operator instructions) Our next question comes from the line of Scott Blumenthal with Emerald Advisers. Please proceed with your question.

Good afternoon, Hemi, Scott, Kathy. Kathy, should we read anything into or be concerned about the fact that deferred revenues are down a little bit?

Good afternoon, Hemi, Scott, Kathy. Kathy, should we read anything into or be concerned about the fact that deferred revenues are down a little bit?

No. I think that if you look back over the course of time, you'll find that deferred revenues do tend to dip at certain points during the year. Q3 is one of them. I don’t think there's any concern there. We continue to sign up on a deferred basis the number of customers that want to pay ahead annually. That really hasn't changed to any significant level so I think what you're going to find is that as time goes off, you'll see decreases but you'll also see increases coming on board as people sign up.

Scott, there's nothing that we are aware of that should impact the deferred revenue.

Okay. So, that's just the function of when customers had signed up.

Okay. So, that's just the function of when customers had signed up.

That's right. You'll find a lot of your customers on the annual signups. Typically, we see the most robustness in that occurring in the first and second quarters. During Qs 3 and 4 tend to be a little quieter.

The spring is usually heavy for annual signups.

Also I think it has to do with the life of the customer, right? No? Am I wrong? No, there is nothing that we are aware of Scott that should alert you.

Okay, great. And Hemi, something that you said earlier in English.

Okay, great. And Hemi, something that you said earlier in English.

By the way, Scott speaks Hebrew so be careful. I know this guy.

It led me to believe that you possibly have or may have the potential to get an enterprise voice customer. Does such a thing exist?

It led me to believe that you possibly have or may have the potential to get an enterprise voice customer. Does such a thing exist?

Yes. We talked about it I think two quarters ago. We had a candidate and they signed, yes. It was something like seven hundred and some extensions. I don't remember exactly who it was but it's a company that has done it with their sales force.

Okay, terrific. That I guess kind of staying on that topic, you talked about a couple of customers who were kind of SMBs that have graduated to the enterprise level. You've mentioned in the past that once you kind of get in there and install things, these tend to lead these customers whether they're SMBs or enterprise customers to add more bids. You have been focusing on the enterprise customers, the 66, but can you give us, I'm going to call them graduates-

Okay, terrific. That I guess kind of staying on that topic, you talked about a couple of customers who were kind of SMBs that have graduated to the enterprise level. You've mentioned in the past that once you kind of get in there and install things, these tend to lead these customers whether they're SMBs or enterprise customers to add more bids. You have been focusing on the enterprise customers, the 66, but can you give us, I'm going to call them graduates-

You are asking me there are customers that had five and marching up to seven, which is a bonus too deep for us.

It's happening on a much larger scale. That's 500 going on 800.

Look, on our corporate side, we have more than half of the customers, those that came into the medium of 10 bids. We are seeing their improvements not only because they are always adding numbers. To add a number when you are that kind of customer, you don’t need to call us, you don't need to do anything. You go to the administrative tool and you put down the area code that you want and you enter your email address and you're done. So, there is constant growth there. Also, I'm ashamed to say it, but up to now, we didn't monetize these customers very well and now we have a new talent, a new director managing our tele-sales and he started in the last few months to address those customers. Those customers, we kept them away from our marketing emails and everything, didn't call them out, so recently, we started and we are seeing the encouraging signs. That's about it. We are not maximizing our upsell opportunities. We always focus on grabbing market share because those we have, you know. We said they're secondary in our effort. We always prefer to take somebody who's not with us rather than sell another unit to an existing customer. But it is growing and I just recently, without preparing my presentation for our board of directors meeting; I noticed that there is a segment of the mid tier that is growing. Yes.

Okay. That's really helpful. If you look at I guess the SMB customers that you currently have, maybe you can give me a degree compared to enterprise customers, but how many of them that you have are potentially enterprise customers? You have four times the number of SMB customers that are potential to be enterprise customers, as you have enterprise customers?

Okay. That's really helpful. If you look at I guess the SMB customers that you currently have, maybe you can give me a degree compared to enterprise customers, but how many of them that you have are potentially enterprise customers? You have four times the number of SMB customers that are potential to be enterprise customers, as you have enterprise customers?

Let me try to establish that. When we look at the corporate bids, the ones that are graduating up, we used to have actually a separate category, an intermediate designation called SME, small to medium enterprises. Those are the ones, if you're talking about upgrading to 1,000 bids or more, it's that subset that is the most likely because upon initial deployment, there's not full penetration. We're not talking about a small business with 10 employees somehow growing to the size of 1,000 employees and as a result, taking DIDs along the way. So, if the SME component of J2's corporate piece which technically has three components – SMB, SME and enterprise – I don’t have a sense of that customer count. I would say the general answer to your question is yes, the SME segment of our corporate business is ripe for growth as we further penetrate additional elements of that business. But I don't know the order of magnitude off the top of my head.

Scott, when we had those smaller builds they're usually managed by automation by our computers, by what we call our CRM programs. But those are larger, that are a few hundred. They have a designated salesperson and he/she will go to the organization and "Okay, you took a large load here. You took 200 numbers from me in your Cincinnati office. I know your major corporation is sitting in Chicago." He/she will follow up with them until the server dies and then at this point, they will strike and then you'll see a customer moving from 200 to 1,200. Those are the manual builds that we have and those are, if you said, that this quarter we have two of them, like using your language – graduated. Those are those.

Okay, great, and just one last question. Thank you for being so patient with me. I'm assuming – I'm not sure everybody is – but I'm assuming that the turn rate in phone customers is close to zero because those are, like you said Hemi, it's kind of a pain to change your phone number and tell everybody else.

Okay, great, and just one last question. Thank you for being so patient with me. I'm assuming – I'm not sure everybody is – but I'm assuming that the turn rate in phone customers is close to zero because those are, like you said Hemi, it's kind of a pain to change your phone number and tell everybody else.

Yes and no. They are very sensitive in the initial 90 to 120 days and usually what you need to do, you need to make sure that they are giving the number out because remember, Scott, those guys come with their mobile number or their home office number and they have to start to give the number that we give them out. If they fail, then it's not good. And if they succeed, then the only reason for them to decline is they're going out of business. And also, I can tell you, it's not the same with toll free numbers versus regular numbers. Toll free numbers are more sensitive.

Okay. All right, that's really helpful. Thank you.

Okay. All right, that's really helpful. Thank you.

You're welcome.

There are no further questions in the live electronic queue.

All right. Thank you very much. We do not have any other email questions at this point so we will conclude the Q3 conference call. We thank you. We will be participating at the upcoming UBS Conference in New York on Thursday, November the 20th. There'll be a press release that will go out shortly with the time of the presentation which will be web cast. I will be there also posting one-on-ones throughout the day and then we'll look forward to speaking to you probably sometime in February for Q4 results and fiscal year end. Thank you.

Bye-bye.

Ladies and gentlemen, this does conclude today's conference. Thank you for your participation. You may disconnect your lines at this time.