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Management

Boland Jones – Chairman and Chief Executive Officer

Ted Schrafft – President

David Trine – Chief Financial Officer

Sean O' Brien – Investor Relations

Analysts

Tavis McCourt – Morgan Keegan

Vijay Cory – Raymond James

Barry McCarver – Stephens

Mike Latimore – Northland Capital Markets

Sri Anantha – Oppenheimer

Bill Sutherland – Boenning & Scattergood

Marc Beattie –Wainhouse Research

Premiere Global Services Inc (PGI) Q3 2010 Earnings Call October 21, 2010 5:00 PM ET

Operator

Ladies and gentlemen please stand by we’re about to begin. Good day everyone and welcome to the Premiere Global Services Incorporated Third Quarter Fiscal 2010 Conference Call. Today’s call is being recorded. This call is also being also being simultaneously broadcasted over the Internet. You can go to our website at www.pgi.com and go to our press section.

Alternatively, you may listen to the rebroadcast from your telephone beginning at 8:00 PM Eastern Time today through midnight Friday, October the 29. The replay numbers are 1-888-203-1112, again that’s 888-203-1112 within the United States and Canada or at 1-719-457-0820, again that’s 719-457-0820 worldwide. The replay passcode is 6589334, again that is 6589334. All lines will be muted throughout the presentation until the question and answer period begins.

At this time, I would like to turn the conference over to the Senior Vice President of Strategy and Communications for PGi, Mr. Sean O'Brien. Mr. O’Brien, please go ahead Sir.

Sean O'Brien

Thank you and good afternoon everyone. If you have not received a copy of our third quarter earnings release, please visit our website at pgi.com or it is available in the Investor Relation section.

Joining on the call today are Boland Jones, Chairman and CEO of Premier Global Services, Ted Schrafft, President of PGi and David Trine, our CFO. Following some brief comments by management, we’ll open the call to your questions.

But before I turn the call over to Boland, I’d like to remind everyone that statements made in this conference call, other than those concerning historical information, should be considered forward-looking and subject to various risks and uncertainties.

Such forward-looking statements are based on management’s beliefs as well as assumption made by and information currently available to management, pursuing to the Safe Harbor provisions of the Private Securities Litigation Reform Act Of 1995.

Our actual results may differ materially from the result anticipated in these forward-looking statements as a result of a variety of factors, including those we identified in our annual report on Form 10-K for the year ended December 31, 2009, and our 10-Q filing for the quarter ended March 31, 2010.

In addition, during this call, we will present non-GAAP financial measures of our business. Please consult both our press release and Form 8-K filings of this afternoon for reconciliation of these non-GAAP financial measures to the most comparable GAAP measures. These materials are also available on our website at pgi.com.

At this point, I’d like to turn the call over to Boland.

Boland Jones

Thanks Sean; and good afternoon everyone. This is Boland Jones, Chairman and CEO of PGi. Welcome to everyone and thanks for joining our third quarter 2010 earnings call. And let me be the first to welcome everybody to the new PGi.

I’m so excited this afternoon, marks our very first call as a peer play virtual meetings company. This is a vision that we’ve been laying out for PGI for more than a year and we have executed towards this vision with extreme diligence and precision.

It’s an extremely exciting time for our industry. Virtual meetings have never been more mission critical than they are today and our increasingly mobile and socially connected world, and the tools and technologies have bring people together when their part have never been in higher demand. That’s what makes it a very exciting time for PGI with a news suite of virtual meeting solutions we are bringing to the market to meet these growing demands.

First of step is iMeet, with iMeet this next year we will set out with a vision to start over to enable people to meet in a simpler, better way. iMeet is targeted at a new breed of users, users looking for benefits and human connections enabled by desktop video. The simplicity and elegance of today’s best user applications and the ability to connect with their business associates and peers and their favorite social networks while collaborating in real time.

We are growing the iMeet beta pool as we speak at a rate of about 100 users per week, and the response we have received from the beta users, customers and industrialist that have been using it, have been overwhelming. We are planning a soft launch for iMeet next week followed by broad commercial release in January.

iMeet is an important corner stone of our new product strategy, but it’s not alone. Within the next 30 days, we planned to announce a second new virtual meeting solution. Like iMeet, we built this solution around a user to provide a simple and intuitive way to meet online; it’s aimed directly at current users of audio and web conferencing services, but with an entirely new desktop based approach that we have never seen in this market before and again different from iMeet.

Over the course of the next year we planned to extend our family of user focused meeting solutions. These solutions will incorporate everything we have learned while creating iMeet and the other solutions in the development shop today, and they will leverage the great assets PGi has built over last two decades is a leader in our space.

We cannot wait to begin selling these new products, and we are confident that they will distinguish PGi in the market next year and drive value for both our customer and our shareholders. Now before I turn it over to Ted, to address our third quarter results, let me comment on our current trends.

Clearly our business, like most businesses today have been effected by the global economic turmoil. Despites some economic stabilization in recent months, employment hasn’t budged and business activity is still quite depressed.

In spite of this the number of meetings we host every month has continue to grow at a significant rate. However, over the past year we’ve been unable to convert our meetings growth into revenue growth, where the reasons there has been an shift in our revenue mix as we discussed on previous calls we continued to have very good success with large global accounts, but our SMB business has struggled with a higher rate of customer simply going out of business and a number of new to comparative alternatives in the marketplace in that market.

The main reason our revenue trends have not matched our meeting growth is that the majority of our customers are still under traditional pricing model. This usage based model has been especially vulnerable to price compression during these tough economic times, we believe our new products and pricing strategy will change this altogether.

Beginning next year in 2011, all of the PGi meeting products will be sold on a subscription or seat based plan to new customers. Further we planed to convert our current base to these new products and pricing plans over time beginning in January. All of our efforts are focused on positioning PGi to maximize our growth opportunities.

Going forward is all about execution, in my opinion our company is very good at executing and when we focused, we deliver and we are now solely focused on becoming the best virtual meetings company in the world.

We look forward to updating you on our progress in our upcoming calls and once again I would like to thank all of our valid customers and associates around the world for all your help and continued support.

At this point, I’ll turn it over to Ted Schrafft, our President. Ted.

Ted Schrafft

Thank you Boland and good afternoon everyone. Clearly we have more than usual to discuss this afternoon. Predominantly around our third quarter results and the sale of our PGiSend business, but before I get into that, I would like to quickly recap the strategic progress we have made and spend a few minutes on our priorities for the next few months. As we begin operating as a focused Pure Play meetings company.

Over the past year, we have operated through a difficult global economy, tightly manage the cost side of our business, develop and are ready to introduce an exciting set of new meetings products and with the sale of PGiSend we are now finishing the year as a streamline company with the singular focus of becoming the best virtual meetings company in the world.

While there were many [ph] cash and projects involved in this transformation that is core to accuse significant and important initiatives; first starting over a year ago we, began reducing investments and focus on initiatives outside of our core expertise in virtual meetings. This begin with a sale of our eMarketing business last summer and the repositioning of PGiSend as a focused organization with it’s own dedicated sales marketing and product resources last fall.

Leading up to the sale we announced this afternoon, we spend a great deal of time and effort this year separating the much more complex financial and operational, or back office side of the PGiSend business. All done to make the transitions as seamless and efficient as possible for PGi, EasyLink our employees and our customers.

The second initiative was at the same time to prepare PGi to be a focused meetings company. We’ve worked hard to ensure that we have the right people and the right products to continue to provide exceptional value to our customers, and to position PGi to gain market share in the meeting space.

As I said before, this required us to transition every aspect of PGi to an online meetings company from the sales people we hire, to the conversations we have with customers, to the products we sell, to how we service and support them. And I believe we’ve made excellent progress here as well. All of this has been accomplished despite a difficult operating environment that has put pressure on our meetings business, and has required a high degree of management time and attention.

While we are addressing a few remaining items to complete our transformation, we are happy to have this work largely behind us. Now, let me quickly discuss three specific priorities for the remainder of the year.

First, is the launch of our new products; as Boland mentioned, we are beginning to soft launch at iMeet next week and then in the next 30 days we’ve planned to announce the second new virtual meetings solution. We think these new products have the potential to be true game changers for PGi.

With subscription and seat based pricing models and higher margin profiles in our current product offering and more importantly, we believe they will enable us to distinguish PGi as the product level in today’s highly competitive and rapidly evolving market.

Second, is the training of our sales professionals and our channel partners on how to position and sell our new products effectively. With a very specific goal of having everyone fully versed on the value of these products and their opportunity in the market. This is all being done under our ongoing strategy of building a more complicative and value added sales approach to our customers.

And the third is the growth of our sales organization. With a clear vision of focused corporate strategy and a broad suite of compelling new products, we plan to add a significant number of new codes of caring sales people beginning through the first quarter next year. We believe that the investment in these incremental sales professionals will position us to maximize our growth opportunities in the year ahead.

In summary, let me say that despite the challenges we faced over the past few quarters, it is truly an exciting time for PGi as we look to open this new chapter in our nearly 20 year history. We’re optimistic about our near and long-term prospects and we look forward to providing more information on our financial outlook for 2011 after the first of the year.

Now let me discuss our third quarter financial results and our Q4 outlook in greater detail. Let me first note that the sales of PGiSend business closed this morning. We’ve retained the PGiSend business for the integrity of our third quarter and the Q3 results we will discuss on this call are on a consolidate basis including PGiSend.

Beginning in the fourth quarter, PGiSend results will be included in discontinued operations and going forward, our continuing operations will reflect only our meetings business, which we previously referred to as our PGiMeet solutions. To your convinces, we have included to pro forma financial tables at the very back of our earnings release and in our 8-K filing this afternoon. These pro forma tables present our results over the previous five quarters reflecting our PGiMeet solutions on a continuing operations basis and our PGiSend solutions in discontinued operations.

Now beginning with revenues, as reported our consolidated net revenues totaled $142.3 million in the third quarter. Consistent with historical performance the third quarter was seasonally slow, as a result of the reduced usage of our services that is typical of the several months especially in our European region.

Looking ahead the fourth quarter has several, fewer business days than Q3, because of the holidays in November and December. Because of this we currently anticipate net revenue from continuing operations, again for our meetings business only will be essentially flat or slightly down in Q4 from the third quarter levels of $109.5 million.

However, we are currently projecting a sequential improvement in revenue per business day, reflecting the modestly improving usage trends in our customer based and the effect of new customers ramping up business with us. Specifically, we anticipate fourth quarter net revenue from continuing operations will be in the range of $107 to $109 million based on current trends and foreign currency exchange rates.

Now turning to profitability, our gross margin in the third quarter was flat with second quarter levels, despite the lower consolidated revenues. Looking ahead to the fourth quarter, we anticipate the gross margin for our meetings business, which is historically been higher than our consolidated gross margin, we remain within recent ranges. Please review the pro forma tables included in our earnings release for information on our recent operating expense trends.

Our gross margin continues to be driven in large part of revenue mix, specifically by the varying weighting of our revenue across regions, sales channels and types of service, over time as we transition a greater sales of our own proprietary virtual meetings applications like iMeet, we anticipate our gross margin will improve, but these applications carry significantly higher gross margins in the third party applications that today make up the vast majority of our online meeting sales.

Further on profitability we continue to work to scrutinize and optimize discretionary expenses across our business. During the third quarter, we incurred restructuring cost and asset impairments in anticipation of the sale of our PGiSend business. Please review the reconciliation tables included in our earnings release for an itemization of these charges. We anticipate incurring additional transaction related restructuring cost in the fourth quarter, which we believe will be in the range of $3 to $5 million.

Non-GAAP EPS from continuing operations was $0.18 in the third quarter and during the quarter we did not expense any marketing or advertising cost associated with the release of iMeet. Where the soft launch of iMeet this month we will begin incurring, advertising and marketing launch cost during the fourth quarter.

We anticipate these cause would be in the range of $3 million to $4 million, reflecting cost that were prepaid over the course of the last few quarters and anticipated expenses associated with the direct marketing programs we will run over the next couple of months. We currently anticipate the majority of the iMeet launch cost will be incurred with external commercial release in the first quarter next quarter.

For the fourth quarter based on current trends and foreign currency exchange rates, we anticipate no-GAAP diluted EPS from continuing operation will be in the range of $0.09 to $0.11 including the launch cost for iMeet and our other new online meeting’s products. We continue to generate all cash flows in the third quarter with net cash provided by operating activities from continuing operations totaling $16.5 million.

These results include payments of approximately $3 million associated with our restructuring activities. And lastly on our Q3 performance, we ended the quarter, with total debt minus cash and equivalents of $217.6 million, down approximately $6 million from our June 30 levels.

Now let me quickly address the transaction we announce this afternoon. This morning we completed the sale of our PGiSend messaging business through the divestiture of our wholly owned subsidiary expedite systems and certain other PGiSend assets for $105 million in cash. As discussed in our release, we planned to use the net proceeds from the transaction to pay down a portion of our debt including retiring our $15 million Term A loan.

Consistent with our ongoing investment strategy, we also intend to continue to pursue acquisitions that accelerate the strategic execution of our meetings business as well as continuing to be opportunistic buyers of our shares of common stock.

Now in conclusion, let me say again that we are pleased with the progress we have made over the last to transition and focus our business to provide higher value to our customers, our company and ultimately our shareholders. And as Boland said, and I totally agree it’s not about execution, predominantly growing revenue and delivering returns on these investments.

I look forward to updating you on our progress, on our future calls. Until them let me join Boland in thanking our customers and all of our associates for their continuing support and commitment to our success.

At this point in time, we will open up the call to your questions.

Question-and-Answer Session

Operator

Thank you, sir. (Operator Instructions) And for our first question, we got to Tavis McCourt with Morgan Keegan.

Tavis McCourt - Morgan Keegan

Hi, thanks for taking my question and congratulations on your sale. I got a couple of questions related to the sale of the business. You mentioned part of proceeds will be used to pay down debt. Is it just the $50 million are you going to pay down or is it more than that? And what will be done kind of immediately with the remainder of the cash if anything?

David Trine

Tavis, this is David Trine. We’re required under the credit agreement can pay down the term loans, so we paid down immediately, the $50 million and we’ll pay down our revolver with the other $50 million and then just look at opportunities whether their acquisitions or stock buybacks in the future.

Tavis McCourt - Morgan Keegan

Okay. You pay down the term loan and then also the credit facility with the remainder?

David Trine

That’s right. Short-term. And then we’ll decide - -.

Tavis McCourt - Morgan Keegan

Okay. You’re not going to continue with excess cash on the balance sheet?

David Trine

Yes.

Tavis McCourt - Morgan Keegan

Okay. Great. And then, in terms of, have you mentioned rolling the sales force, which is kind of the first time you’ve done that and in few quarters now. What kind of metrics can you give us in terms of maybe the percentage growth in quarter bearing sales wrap and in terms of the ability to get them up to revenue generation quickly? What is your expectation in terms of payback on that investment?

David Trine

Tavis, we’re looking at, as I said in my comments, I want to say fairly substantial increase in our sales force, and you’re right, this is the first time we’ve really grown that so well. We think the timing, obviously with the Pure Play and the new products, is the perfect time to be dealing this.

So, we’re dealing really few things. Part of is it, as we’re going to look at our existing mix of sales folks and shift, I’ll say, some of those dollars and what we call kind of pure hunter roles, again really trying to take advantage of the new products because growth is the key, so acquisition is going to be key.

So we are putting together those metrics right now. So, there’s going to be a shift in personnel from kind of, again account manager the hunter growing it, and then there’s obviously going to be just pure addition of new acquisition sales quoted, bearing sales folks.

And I want to say probably I’ll give you a range of 30% over where it was quarter bearing sales headcount levels are today, alright. We are also looking at with the new product exactly what the training and ramp time is of a new sales person kind of back to your metric question.

We’re thinking that from the time we bring somebody on board, we’re thinking it’s probably -- I wanted to get it down, there’s always 90 days before we have them fully ramped and productive and we put in together those revenue metrics and acquisition metrics as we speak right now.

Tavis McCourt - Morgan Keegan

Great. And then David, as it relates to the debt. I haven’t done the math yet, but what is the trailing 12 months EBITDA on kind of the run rate business, just to get the essence of where you can bring debt up-to the leverage to be able to fix it, well incur it at this point if we do acquisition.

David Trine

Well Tavis, one thing you got to remember. When we did the amendment, which was required for the deal, they gave us, we were able to add back some of our restructuring cost for EBITDA. And so as a result, we will still be under, the three time maximum leverage that’s in our current credit facility. In other words, our covenants did not change and so we’ll be clearly under the three times.

Tavis McCourt - Morgan Keegan

Okay. And I guess, final question here is related to, I guess, I don’t know if you call it the iMeet platform now, because there’ll be multiple products of it. So what degree does this require added investments as you iterate these new products. How much incremental investments [Inaudible] R&D or CapEx perspective?

David Trine

We think, listen, we got obviously a great platform and great product and we think that the incremental investment, obviously we’re going to have 1.1 and 2.0 and 3.0 versions and some of those, but there’s the incremental investment that really kind of get this product launch and going is not, other than the marketing cost and the things we’re going to put behind, from a platform standpoint, it’s not significant. So ...

Boland Jones

I think we’ve spend a lot of money this -- I mean, we’ve spend a lot of money this year in CapEx so for develop of platform for these new products including the one that we did announce a little bit. So, I mean web apps and the things that we’re going to add to this feature [Inaudible] it’s not much.

So, I don’t expect a big incremental surge, although we’re not going, we’re going to continue to develop this product this month and then release it. So we’re going to try to -- metrics numbers are pretty good, that’s all, just I don’t see a big incremental up charge for those type....

Tavis McCourt - Morgan Keegan

Thanks a lot.

David Trine

Thanks then.

Operator

And for our next question, we go to Vijay Cory with Raymond James.

Vijay Cory – Raymond James

Hi there. This is Vijay Cory filling in for Shyam Patil. I just had few quick questions. My first question is in regards to the expertise divesture, how you guys arrive at the $105 million evaluation?

David Trine

It was, this is David. There was, looking at the cash flow, looking at the potential revenue, looking at the amount of capital that we want to reinvest and continue to invest in the meetings business all those things, we looked at when we were coming up to the $105 million.

Vijay Corey Raymond James

Okay, thanks. And David you can you talk a little about how big the deal was as percentage of cash flow in that component of CapEx?

David Trine

As far as, lets talk about the revenue side of it, you can do the math, just looking at the continued offset, discontinued offset, that’s approximately $33 million, that we are going to be re-classing down to discontinued, that’s been sold from an EBITDA standpoint, is somewhere around $25 million a year. So the $33 million at the quarter and the EBITDA that we think for year it’s about $25 million.

Vijay Corey Raymond James

Okay, great. And do you expect to pay taxes on the sale?

David Trine

No.

Vijay Corey Raymond James

Okay. And then in terms of I guess that – how you kind of view your, the valued stock, how do you kind of view it in regards to seeking acquisition opportunities in M&A strategy?

David Trine

I don’t understand the question, but we’ve always got a little pipeline work and right now we’ve a decent pipeline. We are trying to just stop the timing of when we want to add a company in here right now versus we’re just now exiting a company.

So, we got a little bit of work to do, but we have -- and we have got great products, in fact new products to sell, we are just going to absolutely we think, do a good job and put a pretty big dip in the market place with those products, but we are always actively talking, we’re always actively opportunistic of promise, and we are so now, as well as looking at the value of our stock going forward and how we’ll do to take opportunities there to bring some of that back.

Vijay Corey Raymond James

Alright, thanks. And my last question is just have the clarification, I know you guys mentioned $3, $4 million in launch cost of iMeet, is that over a 4Q and 1Q or how does that breakout?

David Trine

That was a fourth quarter number that we put out there. So the number put out $3 million to $4 million was for the fourth quarter.

Vijay Corey Raymond James

Okay, thanks.

Operator

We go next to Barry McCarver with Stephens.

Barry McCarver – Stephens

Hi guys, thanks for taking my question. So, I guess, the first I am just looking at the core PGiMeet business I know the third quarter seasonally is always a tough quarter, so looking at this quarter versus 3Q, 2009, do you fell like just in general, you’re still seeing a lot more stability. I guess my perception was, you saw that in 1Q, flatten down a little bit in 2Q with some small business softness and its sounds like that happened again in 3Q is that fair?

Ted Schrafft

Barry, this is Ted, I think in the third quarter again, summer month and probably most notably in Europe you get some of that seasonality, but the quarter for us acted as we would have normally expected a third quarter summer month quarter to act, okay, so I think, get back to your question I think yeah we are seeing that kind of stability still and again I view that as kind a good indicator and of where we are. Now, we are still bounce on the bottom of the soft economy, but I think we are seeing some strength in the baseline there.

And then as I said to you going forward, looking in the fourth quarter we gave a range even though we got some shorter business based in the fourth quarter, we are looking and expecting as I said, to see some make a slight up-tick in revenue per business day again kind of indicating continuous stability on the numbers.

Barry McCarver – Stephens

And then just I guess secondly with the rollout of iMeet coming on here, have you seen or heard any change in what some of your primary competitors are offering or maybe even doing with pricing that the in the marketplace. I assume there are constantly working on new offering as well?

Ted Schrafft

I am sure they are, and I won’t get into that per se as this is our place for commercial here Barry, we have reveled the total pricing plan of iMeet number one, and we’ll start to do in about three days since its test, and you want really be able to tell what our final pricing is and that’s the whole reason for the market stuff and we’re holding in on it.

And secondly is, as I said in my remarks, my prepared remarks before the question, we’ve got another product coming out that we thinks it’s going to put some of those competitors on their heels, it they are not already there thinking of and we think that we are going to have a good time next year between iMeet and between the products we just announce in a couple of weeks.

We think between the two of them, we are very confident that, we have different ends to the market and the competitors on their heels, both from disrupted pricing and some product technologies.

So we haven’t seen, to answer your question in short, we haven’t see any drastic move nor what we expect to, because they own a lot of that markets, today that online market, we don’t, but we’ve got big plans for it.

Barry McCarver – Stephens

Just on clear on today, others products, would all these still falls, kind of fall under behind me familiar products or is this something completely different to what we might have seen with iMeet demo?

Ted Schrafft

Complete different from what we’re see with iMeet demo, it’s another first of it’s kind and we without giving it away, I’ll just let those remarks speak for themselves in a couple of weeks.

And it’s an another online desktop and mobile app product that subscription-base and/or licensed based pricing and it’s a totally different approach than iMeet, but it’s on all that new technology platform that we still find it on resulted on that same technology platform this product is build on that same platform in flash based technology largely and on all that new technology, so they are cousins as far as technology, but there are going to hack different ends of the market.

Barry McCarver – Stephens

Okay and I guess, this is my last question kind of more on housekeeping in modeling, but as I think about ramping up on the sales force side here, it sounds like a lot that’s going to be straight commission based, I suspect that success next year with iMeet and the other related products are probably going to carry – it sounds like given a deliver mechanism much higher potential margin. What should we be thinking about in terms of margins, early on as you started to add the headcount here?

Ted Schrafft

Well, first of all we got approximately $450 million base for working against, so it’s going to take us some time, everything is not I guess going to change in January. Although we share your excitement, it’s going build, but I will say and we are going to reveal the pricing of iMeet here in the coming days and than we can talk about it with each and every one of your every body, but and then the second product will reveal and reveal the pricing there and we’ll help you do analysis once we revealed on, but the very substantial margin that you would expect sold, in a software price product with breakage and seat- based pricing in the whole work.

So, substantial margin in those products and it will definitely be and up to the current margin today although, remember we are starting from nothing against the big point of $50 million base, but we do plan on going backwards during the year and starting to work on converting the current customer base, as we said in our remarks earlier to these products and we haven’t done it yet, we don’t know what kind of success we will have, but we are optimistic.

Barry McCarver - Stephens

As you, that actually rise in one more question as you start to move over some of the current customers generating revenue today, is that going to cannibalize some of your, some of the revenue base from 2010?

Ted Schrafft

We hope not, I mean we are not going to move over anything that we were in start moving over something were that revenue would g o down I can promise you that.

Barry McCarver – Stephens

Okay.

Ted Schrafft

We’re starting to place before we hopefully move it up, and as I said just overtime for that reason. We certainly don’t want to go knockdown anything we’ve already spend money on selling to begin with, where customers are content and happy where they are.

Barry McCarver – Stephens

Okay, prefect, great. Thank you.

Operator

And for our next question we go to Mike Latimore with Northland Capital Markets.

Mike Latimore – Northland Capital Markets

Yes, hi guys, thanks for the time. This is actually Esternon [ph] in for Mike today. Real quick, I think you talked of the past about spending $10 million on the iMeet launch. Is that, should we still expect kind of a $6 million number in Q1 of 11’?

Boland Jones

I wouldn’t put it at $6 million, probably less than that in Q1 and we’ll consistent build probably somewhere between right round a $4 million number between four low ends of four right amount there in the Q1 and then built from there.

Mike Latimore – Northland Capital Markets

Okay, alright. And then what about this other new product, any color you could give, I don’t if you can, but just in terms of really how its differentiated from iMeet and then kind of what you would look at for a launch cost on that product?

Boland Jones

Alright, well, it’s not going to be quite a launch cost iMeet is; iMeet will be are certainly more spend on flagship product. Again, without revealing what that products look and like or doing, I would love to hold my comments until we really release what that product is in the coming week here which I, we’ve already seen the release, and written release that we are very serious about releasing in the next 30 days.

So you’ll see it and then we’ll get into it, then if you don’t mind, but as I said in my earlier comments not to repeat myself, but it’s a totally different approach that iMeet. It’s a very disruptive approach with very disrupted pricing on it and it’s very targeted at the current market leaders in the web conferencing area.

Mike Latimore – Northland Capital Markets

Okay, alright. Any idea, how quickly you’re going to be able to add to the sales force kind of get to that 30% sales force growth number?

Boland Jones

I’m sorry; I missed the beginning of your question.

Mike Latimore – Northland Capital Markets

I’m just wondering how quickly you’re going to be adding to the sales force, when we can expect sort of fully loaded and ready to go..?

Boland Jones

Well, our plans are to start on and immediately, in fact to have some of that conversion done by the time January gets here, but we will get to the full appreciation of what we are trying to do probably till mid-year. But we spent, we expect to do it right away and I just want to mention its back to you the previous question or comments about that first quarter advertising cost.

Obviously all that is success days, so we’re not, I want to caution you that we’re not going to spend blindly into the well, we’re going to try to figure some stuff out and build consistently in the quarters over the year to get these products just ride on a success basis in the advertising model.

Mike Latimore – Northland Capital Markets

Sure, sure. Interest expense, Q1, Q4 any idea there? Well how we should think about that?

Boland Jones

Yes, it’d be somewhere around $1.8 million range for where we are projecting now.

Operator

And for the next question we go to Sri Anantha with Oppenheimer.

Sri Anantha – Oppenheimer

Thank you. Boland, I know you talked about the beta testing of your iMeet product. Can you share like how has been the initial reception for the product and are you beta testing these products with your existing users or you going after complete the new enterprise user?

Boland Jones

Okay, the large part of the beta program is with new enterprise users and a small portion of it is with current customers. The response is, I don’t want to sound like a broken ranker, but the response is very good, obviously the response is a stuff like I’ve never anything like this, its super easy to use, I’ve never used my webcam in my life and I just clicked on the button on iMeet to turn it on and it turned it on for me automatically. It looks like they are spending a little bit more time, because it’s early on it they’ve seen the product, but they spend a little more time in meetings then they would be normally according to the rest of our business.

Meetings are going on just a tiny bit longer, comments like I’ve never been glued to a meeting like this, there is always something to do during the meeting and I’m never board or tired of this thing. What’s the next application you’re coming out with, I wanted some more of it except et cetera and so forth.

So, and look there is been some other comments to, something like it was hard for me to originally get my login number, so I mean we have to workout some things mostly not in the product, but on the front-end of the product of getting from the emails into getting their account information, so forth. So we’ve some smoothing out to do there, but very minor.

But, the fact that people can see who they are talking to and see who is talking, with an active indicator of the speaker and share all kinds of files and emails stuff into their, people are really enjoying it.

Sri Anantha – Oppenheimer

I know in the past you’ve talked about integrating more apps on to this platform, but spot on just some of the app provides just out there. Is there any way that you could give us any color on how big a market opportunity would that be potentially be on just conferencing services.

Boland Jones

A great question, same question we’ve been working on with some people internally here, in fact we’ve got some of the big consulting firms helping us to sort through some of that right now. There seems to be absolutely everybody looks at us and says what a great distance learning app, so we’ve started down the road there with some of the more obvious players in distant learning. It also has an hedge to it for tell medicine and so we have made some inroads in those areas too with the apps you could suggest there.

We are early on in that stuff, so I just want to caution you, I would estimate it wouldn’t be till next April or May until we tried of adventure into the next thing, we are trying to do here.

We got to figure out how to sell this thing initially as it is, but we are not slowing down in the background, and we’re working on these other opportunities. I just don’t see it, getting into those other opportunities until late spring next year literally.

Sri Anantha – Oppenheimer & Co

Alright and just from a financial model perspective, I know you talk about the iMeet is going to high margin business center, it’s more than a be software oriented does that mean that we should expect your gross margins to trend higher going forward of exiting 2011 or how should we think we think about the model?

Ted Schrafft

Well, I am not sure it will effect our gross margins next year; the other gentlemen asked the same question just from a weighted average standpoint. I have got a $450 million that I am less with approximately run rate type of business, $435 million or so, that has a current gross margin today. If I add, $10 million, $15 million, $20 million, $25 million, $30 million at these products I’m going to get in the next year, I am not sure that the gross margin is so big that it would move it a ton.

Obviously, as you can expect, this is going to be a bigger gross margin than audio conferencing. And that’s the bulk of my business today, its 75% or 80% of my business today.

So I will look at it mathematically with you, I wouldn’t think that gross margin its heading north all of a sudden just for no reason at all because of these products next year, but I would certainly think that, that gross margin trend of these products and going back in the my current base and having some luck change the amount should affect it positively for sure.

Sri Anantha – Oppenheimer & Co

One last question Ted, on the last call you were pretty cautious about the volume trends on the conferencing side. Have you seen any improvement there or it’s still relatively stable.

Ted Schrafft

Sri, as I said, we were, that the third quarter, performance volumes we just as we again would have expected over the summer, had some seasonal softness here et cetera so like I said, I think we’re seeing stability in that and we’re looking at, and I think I said in my opening comments, there maybe a slight up-tick in that, a mass improvement in that in the fourth quarter on a per business day basis.

So it’s still – I think there is, it’s like I mentioned earlier we are kind of bouncing on the bottom of that economy, but I think we are starting to see some stability, and that’s where we get excited about the opportunity to kind of turn the corner going into the next year as Pure Play meetings with the new products we think is thus certainly an opportunity to stop bouncing on the bottom here and do some lift in the overall revenue.

Sri Anantha - Oppenheimer & Co

Thank you very much.

Operator

And for our next question, we go to Bill Sutherland with Boenning & Scattergood.

Bill Sutherland – Boenning & Scattergood

Thanks, thanks for taking the question. I only have a couple at this point. Ted or David, on the revenue outlook for Q4, curious how much or what is the FX impact on year-over-year?

Ted Schrafft

I am not sure if I know the exact amount at this point. We did have some FX improvement. I mean it helped us go from Q2 to Q3 by about 800,000, and from Q3 to Q3 of last year it was basically breakeven. So I don’t think it’s going to have a material impact going into Q4.

Bill Sutherland – Boenning & Scattergood

Okay, what I have got you, where is CapEx going to end up do you think in the year?

Ted Schrafft

Probably end up somewhere from on a continuing ops, somewhere around the 31 million, 32 million, that range.

Bill Sutherland – Boenning & Scattergood

Okay, and have you talked about the savings that had been generated here in restructuring, I guess since ’09 was pretty significant. I’d realize that some of this is maybe involving the business being separated. So maybe it’s a difficult calculation at this point, but I am kind of curious what do you think you have been able to achieve there?

Ted Schrafft

The restructuring comprises of the two different pieces, primarily severance and then lease abandonment cost. The leased abandonment costs are over a period of time and then the severances are more current type savings. I don’t, to go back and say what each savings was for restructuring would be very difficult to do.

Bill Sutherland – Boenning & Scattergood

That’s true. One thing I didn’t quite get clearly on the prepared comments was in Q3 the launch cost that were actually in there, because I know that most of that’s gotten pushed to Q4, but was there anything?

Ted Schrafft

No, there was no launch cost expense in Q3.

Bill Sutherland – Boenning & Scattergood

Okay. I think that’s it to me. Thanks everybody.

Ted Schrafft

Okay, thank you.

Operator

And for our final question, we go to Marc Beattie with Wainhouse Research.

Marc Beattie – Wainhouse Research

Congratulations gentlemen. This is great, I think it’s fantastic the year Pure Play Virtual Meetings Company right now, I have used iMeet and I think it’s a fantastic product. So I think you’ll have great luck with it.

Ted Schrafft

Thanks Marc.

Marc Beattie - Wainhouse Research

I was just curious to be quoting the role out of iMeet, obviously your Global Collaboration Services Company, and what’s that going to look like from January onwards or are we looking at a January launch in multiple languages and continent?

Ted Schrafft

No, January is United States only to begin with and then probably in the March time frame we’ve got plans to do the Western European, Pan European area and we’ll branch into maybe one or two languages and then we’ll finish up doing out Europe later on in this year and then by the summer, late summer we’ll be in Asia with some of their languages, but we plan on offering it to each of those places in the English language probably by March, so we won’t just be in Pan Europe for languages of German and French, but if our agent market wants to adopting it, wants to start testing it out they will be able to do for instance as early as March or April in an English language format.

Marc Beattie - Wainhouse Research

Great.

Ted Schrafft

For places like Australia and so forth it will work.

Marc Beattie - Wainhouse Research

Yeah, of course. A question on the acquisitions, looking forward to acquisitions obviously I understand that you’re developing this platform yourself, are you looking at technology acquisitions and services acquisitions or just service acquisitions going forward?

Ted Schrafft

A little bit of technology but mostly service, but we are looking at both. I really can’t differ between the two, we are looking at both. We are looking at technology and service. We are looking for opportunities with the technology as much as anything else.

We are fairly confident in the short term of where we are around technology we are very comfortable in the short term, but couple of years ago we bought some key technology to start this whole iMeet platform to begin with. So we’ve always got our eyes open on it, but as much as services that is anything for technology also.

Marc Beattie - Wainhouse Research

Thanks, and last question. We are tracking the hosted and managed unified communications market right now and it’s really taking off like a rocket ship and I’m just curious how you view your play with regards to being a Pure Play of Virtual Meeting company in alignment with what’s going on with regards to hosted unified communication.

Sean O' Brien

Yes, Marc. Thanks for asking that question, this is Sean, we actual have a lot going on in our Global Collaboration Services team. In fact, last week we were up at an event where we announced our new approach to optimizing collaboration services across the global enterprise. And I’m happy to provide you more about that, we actually put out a press release on this, I think, the week before last.

Marc Beattie - Wainhouse Research

Great. Thanks so much.

Operator

And with that ladies and gentlemen, we have no further questions on our roster, therefore Mr. O’Brien, I will turn the conference back over to you for any closing remarks.

Sean O'Brien

Thanks Rufus, and thank you all for your interest and attention. If you any follow-up questions, please feel free to call me on 404-262-8462. Have a great day.

Operator

And ladies and gentlemen, this does conclude today’s conference. Thank you for your participation.

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