8x8 Inc (EGHT) 2008 Q4 法說會逐字稿

Good day, ladies and gentlemen and welcome to the 8x8 fiscal fourth quarter year end conference call. My name is Silvana, I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today's call, Joan Citelli, 8x8 Director of Corporate Communications. You may proceed.

Thank you and welcome, everyone, to our call. This morning I'm joined by 8x8's Chairman and Chief Executive Officer, Bryan Martin, and Chief Financial Officer, Dan Weirich, to discuss our fourth quarter and full year results for 8x8's fiscal year ended March 31, 2008. If you have not yet seen this morning's financial results, the press release is available on 8x8's corporate website, at investors.8x8.com. Following our comments, there will be an opportunity for questions.

Before I turn the call over to Bryan, I would like to remind all participants that during this conference call, any forward-looking statements are made pursuant to the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. Expressions of future goals, including financial guidance and similar expressions including, without limitation, expressions using the terminology may, will, believe, expect, plans, anticipates, predicts, forecasts, and expressions which otherwise request something other than historical fact are intended to identify forward-looking statements. These forward-looking statements involve a number of risks and uncertainties, including factors discussed in the risk factor sections in our annual report on Form 10-K, in our quarterly reports on Form 10-Q, and in our other SEC filings and company releases. Our actual results may differ materially from any forward-looking statements due to such risks and uncertainties. The company undertakes no obligation to revise or update any forward-looking statements in order to reflect events or circumstances that may arise after this conference call, except as required by law.

Please note that management will be continuing our corporate practice of not offering or providing any forward-looking guidance on the company's financial results, forecasts or similar future expectations and your cooperation is appreciated in not asking any questions in this regard. Thank you. And with that, I'll turn the call over to Bryan Martin, Chairman and Chief Executive Officer of 8x8.

Thank you, Joan and good morning everyone. I'm going to make some opening remarks, and then I'll pass the call over to our CFO, Dan Weirich, who will walk you through our detailed operating results and metrics. The most significant event of our report this morning was posting a profit for 8x8's fiscal year, ended March 31st, 2008. We've been listed as a publicly traded company on the NASDAQ for more than 10 years, and we last posted full year profitability for our fiscal year ended March 31st, 1998. Following the telecom crash in 2001, and our restart as a service provider at the end of 2002, we've grown our Packet8 revenues organically from about $1.3 million in fiscal 2004 to a total revenue base of $61.6 million for fiscal 2008. Our full year service revenues grew 25% year-over-year, versus fiscal 2007, and full year revenues overall grew by 16% year-over-year. Our business service revenues, which have been the focus of substantially all of our marketing and advertising resources since the December 2006 quarter, grew 81% year-over-year and they represented 50% of our total revenues for the fourth fiscal quarter of 2008.

We posted GAAP net income in the fourth fiscal quarter of $691,000. For the year, our net income of approximately $30,000 was achieved by posting net income in three of the four fiscal quarters with the only unprofitable quarter for the fiscal year driven by acquiring a large number of consumer subscribers from a failed competitor in fiscal Q2. Without that event, our net income would have been substantially higher, though cash from operating activities for the year would have been slightly lower. For the year, we added approximately $2.6 million to the balance sheet, and we ended March 31st, 2008 with $14.6 million in cash and investments and no debt. I'm also happy to report that in the fourth fiscal quarter, we posted a profit from operations of $695,000, our first operating income since the inception of the Packet8 business.

Our business subscriber base grew significantly this past year. We ended the fiscal year with 11,000, and 11 companies using our business communication services, up 57% from the 7,000 and three companies subscribed at March 31st, 2007. During the fourth quarter of fiscal 2008, we became a certified SalesForce.com app exchange partner, following the integration of our Packet8 Virtual Office service with their popular software to service CRM platform. We also began marketing our Packet8 MobileTalk international calling service for cell phones, and ended the fiscal year with over 2,000 subscribers on this service. For the year, we posted revenues from technology and patent licensing of $723,000, with $526,000 of that figure coming during the fourth fiscal quarter. The only services that did not grow this year were our residential and video offerings, which were down approximately 11% versus the quarter ended March 31st, 2007, due to our focus on the small business market.

On the distribution side, we rolled out Packet8 Virtual Office phones in all of OfficeMax's more than 900 U.S. retail outlets, and we are currently in a trial with Staples with Packet8 Virtual Office end caps in three of their stores in the northeast. Office Depot, a partner who has carried our products in retail for more than 18 months, was responsible for about 13% of our new business sales during the fourth fiscal quarter, while our direct sales team produced 69% of our new business sales. On the technology front, 8x8's patent portfolio was bolstered during fiscal 2008 with the addition of five new U.S. patents covering various voice, video and voice over IP inventions. To date, the company has been awarded a total of 72 U.S. patents. With that, I'm going to turn the call over to Dan Weirich, the company's CFO, who will walk you through the detailed financial results and operating metrics of the business. Dan?

Thank you, Bryan. And good morning to everyone on the call. As of March 31, 2008, business services represented 50% of revenues, residential services represented 45% of revenues, videophone and mobile services represented 2% of revenues, and technology and patent licensing represented 3% of revenues. This is the first quarter that business service revenues represented half of our revenue, and technology licensing represented more than 1% of our revenue. A year ago, business services represented 37% of revenue. Churn for the fiscal year 2008 was 4.2%, unchanged from fiscal 2007.

The average number of services our business customers subscribe to slightly increased to 7.27 services, compared to 7.25 services in the December quarter. The average monthly recurring service fees billed to a service customer were $234 in the March quarter, compared to $229 in the same period last year. And $239 in the December quarter. The average monthly recurring service fees billed declined sequentially due to an increase in the average number of soft features subscribed to as well as decline in the average number of physical extensions subscribed to by each customer. Historically, the average business customer subscribed to approximately five physical extensions, whereas recently we have seen this figure move closer to four physical extensions per business customer.

The cost to acquire a new business customer decreased to $1,146, from $1,168 in the December quarter. Virtual Office service margins increased to 84%, compared to 83% in the third quarter, and 81% in the first and second quarters of fiscal 2008. Cost of sales, which includes all network expenses, headcount to manage our network, depreciation on a network equipment and stock compensation for the employees who manage our network was $37 per business customer per month. This compares to $40 in the December quarter. Our contribution margin per business customer is 66%, compared to 64%, 59% and 61% in the December, September and June quarters respectively. Contribution margin is gross margin less customer support and billing expenses. In the March quarter, customer service and billing expenses were approximately $43 per business customer per month, or 19% of a business customer's average service revenue, compared to $46 in the December quarter. The contribution margin of a Virtual Office company increased to an all-time high of $154 per month. We are very pleased with the expansion of both gross margin and contribution margin. These increases are due to continued reductions in our network expenses and increased efficiencies in our customer service department and billing processes.

The customer payback period, which is cost of acquisition divided by the contribution margin, was 7.4 months for the March quarter. Some non-cash items in our financials this quarter included a $43,000 non-cash mark-to-market gain on the value of our warrants, $314,000 stock compensation charge and $341,000 in depreciation. For the year, stock compensation charges included in our GAAP net income numbers were $1.3 million, 2% of revenue, and depreciation was $1.5 million, or 2.5% of revenue. Gross margins were 67% for the quarter, compared to 65% in the December quarter, with our service margins at 74%, which is an all-time high and product margins were negative 23%. EITF 01-09 requires us to reduce revenue by the amount of money we pay retailers for end caps. In the fourth quarter ended March 31, 2008, the application of this rule reduced our product revenue by approximately $65,000. Prior to this adjustment, product margins would have been negative 17% compared to the adjusted product margins of negative 15% I mentioned in our last conference call discussing the December quarter.

Cash outflow for inventory purchases was $859,000 during the fourth quarter, an increase of $171,000 over the third quarter. Capital expenditures for the quarter were $194,000, or 1.2% of revenues. For the year, capital expenditures were $699,000, or 1.1% of revenues. Advertising expenses totaled $1.8 million for the fourth quarter and $7 million for the entire year. As you will notice, we had a significant increase in the accounts receivable from $600,000 in December to 1.8 million in March. $800,000 of this increase is related to two retailers that market our business services in their stores and a little less than $500,000 of this increase is due from two licensees of our technology and patents.

On billing, cash collected in the quarter divided by the billings we attempted to collect was the highest in the company's history. As of March 31, 2008, we did not hold any auction rate securities. Our cash is currently held in corporate debt and cash funds that are regulated under SEC rule 2A7. As we emphasize liquidity on our cash and investments as a result of the current market conditions concerning treasury instruments we expect going forward that we will see a lower yield on our cash than in previous periods. As of March 31, 2008, total shares outstanding were 62 million total shares fully diluted were 80 million. The difference between the outstanding and the fully diluted share count is 7.9 million warrants and 10.3 million options. The average strike price on the warrants is $3.14, and the average strike price on the options is $2. The expiration dates on these warrants or $2.5 million will expire in calendar 2008, $3.6 million in calendar 2009 and $1.8 million in calendar 2010. We're currently in the process of completing a section 382 study regarding our NOL position that is in excess of $100 million. And I look forward to discussing the results of that study with you in a few months.

That concludes my prepared remarks. And I will now turn the call back over to Bryan.

Thank you, Dan. We have posted a transcript of our prepared remarks on 8x8's new investor website that you can find at investors.8x8.com for your reference and convenient. It's investors.8x8.com And also, Dan will be presenting our year-end results at the Kaufman conference in New York City tomorrow, May 22nd, 2008. This year has been a great turning point for 8x8's services business and we believe that investors are beginning to notice our story. We have had three new research analysts pick up coverage of 8x8 this past year with published models of our company now available from analysts at Merriman, Curhan and Ford, MDB Capital Group, B. Riley & Co. and Kaufman Brothers.

The infrastructure and operations we have built our business around have continued to scale this past year and we believe that our fixed costs need to grow little in order to support continued revenue expansion. We believe, as we continue to grow the top line, that we should see a significant portion of that growth drop to the bottom line with our current contribution margins and expanding operating margins. We are looking forward to our next report to you in about 60 days when we will be able to update you on several new product initiatives. We are currently in beta testing with both a new family of IP phones that will complement and expand the functionality of our existing Packet8 Virtual Office Business services and a new virtual trunking service that will work with larger businesses who already have an existing PBX system. That concludes our prepared remarks, and I'll turn the call back over to Silvana for any questions you might have.

(OPERATOR INSTRUCTIONS). Please stand by for our first question. Our first question comes from the line of Mr. Colby Synesael from Merriman. You may proceed.

Great. Thank you. I have three questions for you guys and I'll just blurt them all out and then we can just go through them. The first one has to do with profitability. I would think that one of the things that's been limiting your top line growth has been the fact that you have not expanded your marketing capabilities. As you guys are now generating cash, is that something you guys are going to start to expand and could that assume that we're going to see accelerating revenue growth. Would that necessarily impact the profitability that we've been seeing since you may be starting to spend more money? The second question has to do with the patent revenue licenses which we saw this quarter. I think you mentioned $526,000. How should we model that going forward? Is that recurring? Should we model that as happening once a year? Just some comments that since that is obviously a new trend we are seeing. And then your final question has to do with ARPU. You mentioned that ARPU on the Virtual Office has gone down and you mentioned lines going from five to four. Is that based off of current customers actually disconnecting some of their lines? Or is it based on some of the new customers that you've now signed up taking less lines and that's just taking the average down? Thank you.

Thanks, Colby. Great questions. I'm going to take the first two and I'm going to let Dan deal with the third. So on the profitability side, I think we've been telegraphing for the last three or four quarters that we believe that our shareholders are best served by driving our business models to profitability and certainly cash flow is how we like to model the business, these accounting charges are sometimes difficult to predict and sometimes run counter to kind of the reality of the business. So cash flow has been something that we pound the table on consistently in all of our investor presentations. You may notice that we didn't spend as much in advertising in the fourth quarter as we did in the third quarter and part of the reason for that was we wanted to manage the business to maintain some profitability and achieve the milestone that we achieved. Going forward, as we start generating more cash, we completely intend to reinvest a portion of that back into the business. We believe that now that we've achieved net income, we need to get the revenue growth going again but we do not anticipate sacrificing profitability in an absolute term in order to achieve revenue growth. I just don't think that's a business model that is going to work in the space right now. So hopefully that will answer that question in terms of what our strategy will be going into fiscal '09.

Your second question on the patent licenses, this is a relatively new program that we launched in the November time frame. We've mentioned on numerous calls that we have a breadth of intellectual property. We believe the time in the kind of IT communications market is right to -- especially with business services, the rush to business services that we see out there, all of the start-ups that are flocking into the mobile space, we definitely believe that it can be a revenue source for us. We did some patent sales in fiscal Q3. We did some licensing that kind of originated from discussions we began in the November and December time frame in Q4. I don't have an answer for you in terms of how to model it going forward. I think it can be kind of lumpy and -- but it certainly is something that we've shown that can be a material revenue stream going forward and of course the margins on that activity are essentially 100%. So it's kind of gravy that adds to our operating margins to the extent we can continue that. Our strategy is definitely to establish an ongoing kind of continuous stream from royalties, but it's kind of early in the process and we've really just begun the program at the end of last, say, four to five months.

I'm sorry to interrupt. Is that something, then, that we should expect to see more of in every quarter, just may not be the same number every quarter? Or is it something where one quarter could be zero and the next quarter could be another 500,000?

It's a combination of a lump sum payment and then a recurring component. So the lump sum payment piece could be lumpy.

Okay.

His third question was on the ARPU.

So on the ARPU, the primary driver on that is that we had seen a -- throughout the quarter, we started to see a decline in the number of -- like the size of the customer. So they were smaller than they have historically been, so the average customer historically had had bought, approximately call it eight total services and now we're seeing closer to seven. Granted, the number of services per company actually increased and that was slightly. That was driven by an increase in the number of features that they were subscribing to. But we've seen customers buy less physical extensions on average.

Why do you think that is?

Well, I think it's a combination of factors. One is that they're just -- our product works very, very, very well in the very small business and I think that we've got a niche where we're between a one line system, which is not going to work for these businesses, and between the folks who are competing at 25 lines and above and the number of small businesses in this four to five employees is a gigantic number. So it's just a sweet spot that we've got a great price and a great niche. But I think some of it possibly is related to some of the economic issues going on. People are just a little bit more conscious of what they're buying and what they're spending.

Well, congratulations on reaching profitability.

Thanks, Colby.

Thank you.

Next question comes from the line of Rai Archibold from Kaufman Brothers. You may proceed.

Good morning. Thank you. Couple questions. One is on the $800,000 -- I guess on the accounts receivable, the 800,000 at retailers, that accounted -- 800,000, that increase on the retailers. Should we look for those to be lump sum payments in future quarters or is this something that's likely to trickle out over time? And then I have a follow-up.

Okay. On the first question, yeah, I mean, the $800,000 relates to two big box retailers who we publicly announced who we -- what stores they're in. So one of them was a new one that we sent a lot of equipment to in mid- to late March and s they owe us a sizable amount of money. And the other one is one that we've been working with for quite some time. So it was just a lot of shipments and I don't think there's any payment risk there.

Okay. So would most of that $800,000 related -- be related to the new retailer then, should we think of it that way, they were just stocking up in anticipation of the launch?

Yes, pretty much. I mean, it's roughly half and half.

Okay. And then the licensing deals, or the two licensees, what's the nature of that and how should we think, again, looking at what portion of the license revenues are recurring versus one-time fees, et cetera.

Yeah, so on the lump sum payment component related to the licensee piece which is mentioned is just a little bit less than $500,000 owed to us, so the way that we structured these is that they pay us over a period of time and that period of time is less than six months.

Okay. And then can you bring us up-to-date on the trunking product in terms of how the testing has gone and how the market's received it and kind of how you expect to go to market with the product and service?

Yeah. So we've been working on this new suite of services for a while. We are in beta testing. We have live customers up and running across the board. The product and services have been well-received. We have some very interesting tweaks on how kind of historically zip trunking has been offered and that's why we have specifically named our service virtual trunking. I think we'll be able to give you a pretty good update, Rai, with our June call but we are in the process of finishing the beta testing.

We have signed up a national installation team that will be rolling trucks to work with customers to get these services installed and we're also in the process of complimenting our existing direct sales group which already frankly has leads for these customers with a regional sales force that will concentrate more on the traditional bar and telecom reseller channel to generate additional revenue. So we really view that or really expect that this will complement the Virtual Office hosted offering that we've got out in the market. It will let us address customers that we have up to now had to turn away because we did not have a solution that would go into the back of a PBX and frankly I hope it will let us Mix & Match both our hosted services with the fixed line trunking service so that you could have a campus customer that's using us in the back of their PBX but be able to connect their remote employees using our existing hosted Virtual Office offering. So we think there's some exciting synergies there.

Very good. Thank you. Nice quarter, guys.

Thanks, Rai.

And the next question comes from the line of [Naveed Fasoli from LD Micro]. You may proceed.

Good morning, Bryan, Dan, Joan. Congratulations on the good quarter.

Good morning, Naveed.

I had just had three questions. The first one being about the relief about the functionality for the Packet8 Virtual Office. I think it's a great attribute. I was curious to see if you guys had any estimates of how many of your current customers would be you think adopting the new function? I'm assuming this would be a very high margin source of revenue. Am I correct in that assumption?

Yeah, I think you're correct on the margin assumption. This is another one of these kind of virtual services or features that is implemented purely in software and it's delivered over the IP connection to the end customer. We've seen a need in the space. We've had our complete contact center service, which is a very high end, full featured hosted contact center product out there for probably going on a year now and we're seeing some good traction there. But we did see a need for a more affordable version of that that would just enable a customer -- we have a lot of these customers that they're not a full-fledged call center but they take a lot of calls during the day, so healthcare providers that are scheduling appointments or, real estate, mortgage broker professionals that have high phone traffic and these businesses want a very simple mechanism for being able to put a bunch of callers in queue and be able to stack them up for a team of dedicated employees to answer the call. And so a lot of them have implemented this historically using some of our ring group features but frankly you didn't get the kind of reporting capabilities and kind of the routing capabilities that you would need with a call, a formal call queueing function. So we've rolled this out as a middle solution. You can still use our existing ring groups which are very low cost at the low end. You can use our contact center product at the high end if you're a real call center and you need those capabilities. And this we think fits right in the middle for those small businesses that are getting this high phone traffic.

Right. Any goal on the percentages of companies that will utilize it or is that still just in the air?

I think we don't really -- we probably have the data in our systems. We haven't looked at billing records to estimate how many of our customers generate the daily phone traffic that would be low hanging fruit for this. To give you an example when we rolled out our fax services, we went from zero percent penetration to 33% of our companies today take at least one fax line from us. And again, I just don't know how many of these companies are doing enough phone traffic to justify the additional feature. But I can tell you the reason we rolled this out was we saw demand in our existing customers for the feature.

Okay. Great. My second question is you guys have averaged roughly 1,000 new customers every quarter for the past few quarters. I was just curious if the trend is increasing on the amount of customers you're acquiring given the current economy. I know consumers are becoming fiscally a lot tighter with their spending. I was just curious if small businesses were looking for new ways to save money and remain profitable and if this is one of the avenues that they're going down?

Yes, so we have not seen any impact of the economic climate on our new sales or our ability to attract and close new customers. The sales cycle, we have not seen that lengthen with these new customers. So I don't think we're seeing any hesitation on the up front sales piece. I will say in the March quarter, we saw, a larger percentage than normal of businesses that were cancelling, related to kind of the real estate and mortgage broker market and it's a trend that we're watching but we don't have heavy customer concentrations in any one segment. So overall, you've seen our growth remain steady and I'm happy to tell you that our new sales haven't seen any impact from the -- obviously the toughening climate out there.

My last question is you guys have now cash basically of $14.6 million. Other than marketing, which I think was mentioned earlier on the call, are there any other ideas or plans for this cash to be utilized or is that still up in the air?

Yeah, I think it's really just investing the cash flow back into the business. I'm really pleased we have a strong balance sheet. I think we've seen in the last six months, we've seen dramatic illustrations of what happens when you run out of cash in the IP communications space, a lot of the funding sources have really dried up and I'm really glad we're not out in the market having to raise cash right now. So we like the balance sheet. We'd like to see it grow even more and but I'll just, again, covet that remark with the remark I made earlier that we intend to maintain modest profitability to the extent possible as we reinvest our cash. So we're not going to do anything crazy. And you won't see a Super Bowl ad from us if I'm in charge of the company next year.

Thanks for answering my questions.

Next question comes from the line of Brian Horey from Aurelian. Please proceed.

Thanks for taking my question and congratulations on making the profitability milestone for the year. That's great.

Thanks, Brian.

Is the patent and licensing revenue, is that in the services line?

Yes.

Okay. With respect to service gross margins, it looked like there was an appreciable drop quarter-to-quarter in the cost of services. Is there anything in particular that drove that?

So we renegotiated a lot of pricing. In fact, with our network providers, effective December 1st, so you saw one month of that a quarter ago and you saw full quarter of it this quarter. And throughout the quarter, we had some improvements in our cost structure related to other kind of network elements. So the environment on that side is very good.

Okay. So this kind of rate of service margin I guess leaving aside the impact of patent and licensing revenue should be sustainable going forward as far as we can tell?

Yes.

Okay. With respect to the receivables with the retailers, is it reasonable to assume that they're going to be slower payors going forward than the rest of your customer base and that to the extent that they increase their share of the revenue stream we should see DSOs drift up over time?

Yes, they're slower payors than our customers that pay with credit cards. So definitely that. But I wouldn't -- I would say this is probably a high water mark. I'm forecasting that on June 30th it's going to be below this number.

Okay. Okay.

It's just that the way that it works is that as Rai alluded to a minute ago, is they start up and they need to stock 1,000 stores or so, and they have to order a lot of equipment and we sent it to them in mid-march and they didn't get it in their stores until mid-april. There's some kind of getting up and running takes a little bit of time. And then usually they pay and then it gets down to a more respectable number.

And you recognize product revenue when you ship in to them and then the service revenue starts to get recognized when the customer actually initiates the service; is that correct?

No, so the product revenue is actually recognized upon sell-through. So we receive sell-through from these retailers through EDI Connections, and we can tell that someone went and purchased a unit at an Office Depot store, so if you look at our deferred revenue number, it increased quite a bit during the quarter. The increase in deferred revenue is related to these retailers.

Okay. Got it. Can you give us any color on -- with respect to the technology and patent revenues, which patents drove that in terms of their -- what they cover, if you can name any names in terms of who licensed it or what particular part of the telecom business they're in, the size of the entity, some sense as to maybe how many other people are out there that are in the similar space or look similar in terms of what they do that might be licensees?

Bryan, I think we're early in the program and I think our preference would be not to give you any sort of detail on that, but I think as we move forward hopefully if we're successful in this initiative you'll just hear it through the grapevine. But at this point I think it's a bit early to give you any more color on that.

Can you tell us if they were so-to-speak end users of the technology or are they kind of third parties that are now off trying to license it in some one-off kind of effort?

No, they would tend to be service providers or equipment manufacturers that are in the space and in most cases competing with us.

Okay. Two last questions. Do you guys have an estimate of what your incremental EBIT margin is on a dollar of revenue at this point?

No. I mean, we're not providing that information. I mean, the purpose of the kind of contribution margin illustration of a business customer kind of assist you with that. But what we stated is is that the contribution margin of a business customer is in this most recent period is 66% and we noted that our fixed costs infrastructure we could support call it double the revenue and increase the fixed cost by a lot less than 100%. So -- but no, we're not providing that information.

Okay. And do you have any kind of an estimate of what you think CapEx will be for fiscal '09? Or will it be materially different than what we saw last year?

I do not believe it will be materially different. I mean, it was 1.1% of revenue at 699,000 -- it could be 1.5%. I mean, I just don't know. Once you get into such small dollar amounts, it's going to be a small number, I'll tell you that.

Okay. Great. Congrats again on the quarter.

All right. Thank you.

Thanks, Bryan.

And the next question comes from the line of Colby Synesael , a follow-up question, from Merriman. You may

Just a real quick one. Can you just break out stock comp by line item?

Yes. For the quarter, it was- cost of service was $19,000, cost of product, $5,000, R&D, $81,000, SG&A, $209,000.

Great. Thanks.

Our next question comes from the line of Rai Archibold from Kaufman Brothers. You may proceed.

Yeah, just a follow-up question also. I think you gave us the churn number for fiscal '08 but can you share what the churn was in the fourth quarter, please, and how the process of tightening up your credit standards, et cetera, has been impacting the new customers additions, et cetera.

Churn in the fourth quarter was 4%. And we haven't -- I mean, we haven't really tightened our credit standards. Our policies for credit have been the same for a couple of years, so --

I guess let me restate. Not the credit standards. You had put in implements last quarter, a more rigorous screening process, whether the -- if the service could actually be delivered to the customer. I'm just curious how that's been progressing.

Yes. So in January we rolled out -- we started a task force to address churn. Churn is not where we want it to be. A component of that is screening customers and making sure we're signing up good customers from the beginning and when I say good, meaning like their network works and things such as that. So we're not wasting time on customers that are never going to work for us. And I would say that we're still pretty early in that, but I can just tell you that we definitely are seeing improvement but it's still too early. I think it's a six to nine months out you can probably get better visibility as to how these actions are -- what's happening related to these.

Great. Thank you.

I will pass the call over for closing remarks to Bryan Martin.

Okay. Thank you, Silvana, and thank you everybody for listening today. If you're not already a customer, I would encourage you to sign up today and try our services. We've got great services for your business, mobile and home phones. And you can sign up for those by visiting us at www.packet8.net. Go ahead, Silvana.

This will conclude the presentation for today. Thank you for your participation. You may now disconnect.