Innovate Corp (VATE) 2002 Q4 法說會逐字稿

Good evening, ladies and gentlemen. Welcome to the Primus Telecommunications Group fourth quarter 2002 financial results conference call. At this time all participants are in a listen-only mode. Later we will conduct a question and answer session. I would now like to turn the call over to Mr. Jordan Darrow, Vice President of Investor Relations and Corporate Communications.

Thank you. Welcome to everyone. This is Primus's fourth quarter and full year 2002 financial results conference call and webcast, I am Jordan Darrow, Vice President of Investor Relations of Primus. For those who have not had a chance to review on the earnings release it has been posted and can be viewed at our website, www.primustel.com.

To summarize our results for the 4th quarter, we set a record level of $30 million of EBITDA, we recorded our third consecutive quarter of revenue growth and improved our gross margin to a record level of 36.3%. We also provided in the release our financial goals for 2003, which management will review during the conference call.

Joining me from Primus on today's conference call are Paul Singh, Chairman and Chief Executive Officer, John DePodesta, Executive Vice President, and Neil Hazard, Executive Vice President and Chief Operating and Financial Officer. We'll begin with proforma remarks from management regarding the fourth quarter and full year 2002 performance and recent developments. This will be followed by a questions and answer session.

Before we begin, please be advised that statements made by the company during this presentation that are not historical facts are forward-looking statements for purposes of safe harbor provisions under the Private Securities Litigation Reform Act of 1995. These statements may include but are not limited to revenue and earnings projections, statements of business plans and objectives and capital structure and other financial items.

Forward-looking statements may differ from actuality and relying on them is subject to risk. Factors that could cause forward-looking statements in this presentation to differ materially from actual results are discussed in the company's form 10-K and 10-Q filings with the Security and Exchange Commission. These filings may be obtained from our website at no cost. The company is not necessarily obligated to update revise any forward-looking statements whether as a result of new information future events or otherwise. I now have the pleasure of turning the call over to John DePodesta. John, please go ahead.

Thank you, Jordan. Good afternoon, ladies and gentlemen. By all measures 2002 was a banner year for Primus. Our operations were able to grow revenues and to generate over $100 million in EBITDA. All of this in extremely difficult market environment in which almost every other carrier is reporting revenue declines and profit erosion.

Debt reduction efforts which we launched in late 2000 continued throughout 2002 and even into 2003. In aggregate, we have now reduced almost 60% of the company's debt and the year ended on a very high note with a $42 million equity investment by AIG. While many have commented that this performance was indeed laudable, particularly given the financial and operational collapse of many carriers during this period, the irony is that we had earlier predicted a positive outcome but I suspect few were then listening.

I invite you to reread our press release issued on August 2, 2001, over 18 months ago when we announced the open market purchase of $386 million of our high-yield securities. At that point our total debt was approximately $800 million and we were approaching EBITDA positive. In that release, we outlined our road map to obtain financial self-sustainability and described our three prong strategy to grow EBITDA, reduce debt, and raise additional financing.

We concluded by saying, and I quote, "through a combination of initiatives in these three areas, the goal was to generate EBITDA sufficient to cover our debt service before year end 2002. We believe this strategy is achievable." The results we report today clearly suggest that the year end 2002 goal we announced 18 months ago was too modest. With $30 million EBITDA for Q4 we covered not only our $16 million in interest expense but also $7 million in capital expenditures.

In retrospect, what now appears to have been a modest goal was I suspect greeted with healthy skepticism when it was made 18 months ago. With all of the disasters that had occurred in telecom, up to that date, I doubt we made many converts with that press release. However, those intrepid investors who subsequently purchased our bonds and stock should have done well. In fact, bonds which could have then been bought at 20 cents on the dollar are now approaching par.

While our stock is also risen since that time we believe it has a lot of room to grow. While investor interest in telecom is still tepid, we resolutely continue to improve our financial performance, enhance our liquidity, and strengthen our balance sheet. in the confidence that when investor sentiment returns, Primus will be viewed as one of the select attractive investment opportunities.

Many of you on this call have already made that decision and we will bring the story of Primus's success and potential to an ever widening audience. It is our intent that in the near future you will have a lot more company on these calls. I will now turn over to Neil who will report on the record results for the quarter, Paul will then conclude with a statement of our financial and operating goals for 2003.

Thank you, John. Good afternoon. I am very pleased to report that we have achieved record results once again for Primus Telecommunications Group for the fourth quarter ended December 31, 2002. These are one of the best quarterly operating results that we have achieved ever in our history.

In an adverse economic climate and a troubled telecom sector, Primus has been able to grow revenues both sequentially from the third quarter of 2002 and the year-over-year from the fourth quarter of 2001, while others have decreasing revenues. We achieved record gross margin in terms of percent of net revenue and we delivered record breaking EBITDA of $30.1 million which is a $120 million per year EBITDA run rate.

We continued to reduce our long term debt which stands at $591 million at the end of December 2002. Our quarterly interest expense on this debt has been going down steadily and was $16 million for the fourth quarter. We now have an EBITDA to interest expense coverage ratio of almost two times. We also achieved record breaking income from operations in the fourth quarter before a non-recurring asset impairment write down.

Our December ending cash balance, restrict and unrestrict, is $104 million and this includes $33 million of proceeds of the equity investment in Primus by affiliates of the AIG Insurance Company in December . We have delivered significant quarterly revenue growth in the fourth quarter. Our revenue grew 3.3% from a year ago fourth quarter while other telecom companies were declining and we grew 2.7% sequentially or $7 million from Q3 to $267.6 million revenue in Q4.

Our customer base has also increased during the fourth quarter to over 3 million customers. Our gross margin reached a record high of 36.3% of net revenue and $97 million in the fourth quarter which reflects higher margin data and internet revenues, lower costs for carrying our traffic, and more traffic carried on our own network. SG&A for the third quarter was $67 million which is 25% of net revenue. We continued to rationalize, downsize and eliminate sub scale and EBITDA negative products and businesses The net result was achievement of record breaking EBITDA of $30.1 million which is 11% of net revenue, both new all time records for Primus.

Our interest expense was down to $16.2 million, a record low point since 1988 due to our continuing debt reduction efforts. Capex spending in the fourth quarter was $7.4 million and $29 million for the full year of 2002. For the total year of 2002, revenue came in at $1.02 billion which was down 5% from 2001, but EBITDA was $101 million compared with $12 million for 2001 which is an 800% year over year increase.

Income from operations went from negative $146 million in 2001 to a positive $19 million in 2002, if you exclude asset impairment writedowns in both years. In January of 2003 we announced the purchase of half of our remaining August 2004 bonds outstanding. This leaves the balance of $43.6 million due in August of '04 which we expect to be able to payoff out of our cash, EBITDA and other funding resources by then. This transaction reduces our December year ending debt down to approximately $547 million and our run rate quarterly interest expense to $14 million.

At the end of the fourth quarter, we achieved both a recent record low in accounts receivable, and they were down $37 million from the year end 2001, as well as a recent record low in our days outstanding through faster cash collections. And we also achieved a recent low in our accounts payable and accrued expenses which were down $29 million from the year ended 2001, as we bought more of our vendor and carrier accounts current. This resulted in a working capital usage of $13 million in the fourth quarter.

Foreign currencies were positive for our results in the fourth quarter as the U.S. dollar has declined because 78% of our revenues come from foreign countries. This trend has continued so far into the first quarter of 2003 and hopefully will continue to benefit Primus throughout the year.

Regarding prices and costs, Primus's Q4, 2002 average revenue per minute decreased 5.9% from the year ago Q4 2001 period. Although this is a decrease, this decrease is significantly less than the 18.1% decline in our average revenue per minute between Q4 of 2000 and Q4 of 2001. Our costs, on the other hand, in terms of average costs per minute, decreased 8.4% over the past year and that's what derived the improvement in gross margin percentages in 2002.

So in summary, our business is doing extremely well in a tough economic industry and capital markets environment and we will continue to work to increase our revenues, reduce our costs, increase our EBITDA, reduce our debt, and generate cash.

Thank you, Neil. Good afternoon, ladies and gentlemen. As Neil reported, Primus achieved record results in 2002. The good news is that we foresee that trend to continue in 2003. We are confident that we have a proven and profitable business model that has been successfully stress tested during the last 24 months and we believe that it will serve us well in the current year.

The strategic aspects of our business model for the year 2000 include: First, focus on increasing the number of retail customers in our targeted segments. i.e., small to medium size businesses and residential customers with international calling patterns and then market additional services to that customer base to enhance revenue for customers.

Second, focus on selling the core voice data and internet services that the retail customers essential to their needs. In the current economic environment, it's very difficult to sell customers on a new or cutting edge service that is not absolutely needed by them or that does not generate immediate cost savings.

Third, maintain a relentless focus on reducing our costs while improving the quality and the reliability of our services. Our customers are focused on reducing their telecom costs and being a low cost provider is essential to our success in the current market environment.

Fourth, narrow geographic focus to concentrate our limited resources to expand and strengthen our market position in the U.S., Canada, Australia and the U.K.., the countries where we already have a critical mass.

Fifth, position Primus as a preferred acquirer of telecom customer companies or customer bases by strengthen our balance street and gaining access to a larger pool of low cost capital. This is a continuation of our efforts to reduce debt and maintain an active dialogue with potential funding sources.

Let me now address our management financial goals for the year 2003. These goals have been set in the overall context of our strategic priority to demonstrate to investors that Primus is on track to produce sustainable and predictable sequential growth in revenue, EBITDA, net income and free cash flow over a long period of time. We have laid the foundation for this plan over the last six quarters and we expect 2003 to be a continuation of the positive trend.

In the year 2003, we expect to generate top line growth of 6 to 8% year over year. Our EBITDA growth is expected to exceed 30% sequential year over year and significantly we expect to be net income positive on a recurring basis before year end 2003. We estimate our 2003 capital expense budget to be in the range of 30 to $35 million. These are challenging financial goals in an environment where the overall demand for telecom services is weak. As a result of that, most of the incumbent tier 1 players are forecasting weaker results for the current year. But we are confident and excited to continue to execute on our business plan to attain our financial goals.

The main reason for my confidence is that we have a solid business model executed by a team of Primus executives and employees that I believe have demonstrated by their performance to be the best in the industry. This concludes my remarks and before opening the floor for your questions, I want to thank all of you for your continued support and confidence in Primus. Operator, we are ready to take questions.

Thank you. We will now take the question and answer session. If you have a question you will need to press the one on your touch tone phone you'll hear an acknowledge that you have been placed in queue, if your question has been answered and you wish to be removed from the queue, please press the pound sign.

If you are using a speaker phone, please pick up the handset before pressing the numbers. Once again if there are any questions please press the one on your touch-tone phone. One moment please. Our first question comes from Vic Grover from Kaufman Brothers. Please go ahead.

Hey guys congratulations on the progress.

Thanks.

Just a couple housekeeping questions. I might have missed it. I don't think I did, though. What was cap ex during the quarter? Neil, could you quantify the impact of foreign exchange during the period if you may be do it on a year-over-year or sequential basis just to try to get a view of that, I guess for the first time now, we're seeing favorable impact from foreign currency.

Then third housekeeping. Can you tell us the bad debt reserve in the fourth quarter and the third quarter so we can try to gauge the benefit that you might have picked up on the net revenues because of the improved collections? Thanks. And if that's not how you are looking at it maybe clarify that? Thank you.

Hi Vic. Our cap ex for the fourth quarter was $7.4 million and what's significant is that that brings the total cap ex for the year only to $29.4 million. And I know there were a lot of skeptics out there, a year or so ago, when we in the past have been spending $200 million a year on cap ex that say how could you guys grow your revenues and only spend $29, $30 million on cap ex.? Happy to report that we did deliver this year within our forecasted range of $25 to $30 million cap ex spending and you know we expect the similar level going forward next year as Paul said in 2003, slightly higher to $35 million to support additional revenue growth.

The foreign exchange was favorable in the fourth quarter and again I have a comparison of fourth quarter to third quarter sequentially. It did -- the revenue impact was approximately $2 million positive and the EBITDA impact was approximately $300,000 positive. Again we hope if these trends do continue that those continue to be favorable in 2003.

Last question I had was on the bad debt reserve for the fourth quarter versus the third quarter if we try to gauge the pickup you might have had because of better collections?

We've actually been -- we have had better collection, our days are down. We've actually increased our bad debt reserve slightly through the fourth quarter.

So, we're more reserved in a better position and again, it's you know in these days of carriers having a lot of trouble and businesses failing you know we think it's prudent that we rather be comfortably reserved trying to you know than be cutting things too close is our philosophy.

Okay. And one last question then I'll turn over the floor. Looks like the cable and wireless acquisitions was much less than I guess we had originally expected. Although I know you guys didn't really give guidance. But what is going on at the integration of that business? Are you seeing just you know significant amount of those customers who are just not real, were they bad credits or were they just on you know bad routes or off net? What is the reason for the relatively lower levels of revenue than the 100 to 150 that could have been realized had more of them come over?

As we said in our press release I think it was you know we said up to 150 we didn't really give a number as to how many we thought would actually come over. I think for all the reasons you've quoted, plus you know the fact that there were a lot of customers that had turned off where given cable wireless was shutting down that they decided to make alternative arrangements with other carriers so they did not select Primus, we just focused on the sub-set of customers that said you know yes I want to switch to Primus, please hook me up as soon as possible.

So, now it is important to point out that with the amount we owe cable wireless for the purchase price, it is based on the actual customers that signed up. So we had to give the $150 million number because we had to give the up to $32 million purchase price but because the sustainable revenue is only in the $40 million range the purchase price will be adjusted significantly downward corresponding to that. So we'll end up paying quite a bit less than we thought.

The good news is that the customers we have are 100% business, and they're also highly profitable. So, it is going to be very accretive to not only revenue but EBITDA.

Okay thanks a lot, guys.

Thanks.

Our next question comes from Jim McElroy from Unterberg Please go ahead.

All right. Thank you. If I look at cap ex for next year, can you try to segment that into maintenance cap ex, cap ex that's going to lower your operating costs and cap ex that's for incremental revenue generation?

I would say you know a small portion is maintenance, you know, somewhere in the 15 to 20% of the total would be maintenance. The rest of it is devoted to the other two categories which is revenue growth and cost reduction and you know, it probably splits out around 50/50 of what's left. Okay.

And I know pricing is kind of difficult to talk about on an aggregate basis but can you just qualitatively say what your assumptions are for pricing in '03? Flat, down, up? And kind of ballpark it on a percentage basis?

As I mention when we look at Q4 to Q4 year over year, you know our average price if you will, revenue per minute, decreased 5.9%. We would, I think our expectation going forward in 2003 is that we have a similar decrease in price again depending on the products and mix but in that kind of mid to high single digit range for the year.

We're just having discussion hopefully with some of the larger carriers emerging from bankruptcy kind of the price cuts and the craziness to just get revenue at any cost has gone away and the new owners will be much more conscious about gross margins and profitability.

Okay. And finally on the cable and wireless issue again. The $40 million that you referenced in the release, is that a best case scenario? Or a worst case scenario? Is there upside from that number?

Yes, that's more of a conservative estimate. As we said in the release we are in the process as we speak of transitioning customers over. So, the final numbers on that process will be in probably for our next conference call in May and yes, we certainly hope that you know that conservative number and we will do better and there's you know we are expecting some more upside this coming year. And once we have the customer transition over that we can sell them new services and increase their usage over what it was with C&W.

In connection with the C&W acquisition we also inherited relationships that were a group of very productive agents who we feel can also sell and expand their customer base and add to our customer base.

Right. But that process hasn't started? I mean those agents haven't tried to start cross selling yet have they?

I think right now we're in the -- most of the folks you has been in transition of customers to Primus so they don't lose service because cable and wireless was shutting down their network.

Once a customer has been transitioned and the service is up and run, then you know then the focus will shift as we go forward to you know more selling opportunities.

Right. Great. Okay. Thank you.

Our next question comes from Chris Roberts from Haas Security Group. Please go ahead.

Good afternoon and congratulations on another good quarter.

Thanks, Chris.

I've got two questions. First I was wondering if there was an unfavorable working capital variance during the quarter? When I go through all the numbers to reconcile the cash burn I show it should have been a little higher than what was reported. Was the working capital a use of cash during the quarter?

Yes. We had, as I mentioned in my remarks the actual change in cash from working capital for the quarter was approximately $13.5 million as usage. And you know, primarily driven by settlements with large vendors of some old disputed amounts and conscious effort by our part to bring our suppliers you know the big carriers of PTTs more current than they had been in the past.

Okay. I'm sorry I got on the call late. I apologize if I missed that. Not to beat up the cable and wireless issue, but I was wondering what type of EBITDA margins you expect to generate from that customer base?

You know it's a little uncertain because we don't exactly know what the final mix is going to be, but it is 100% business customers, they are retail margins so we do expect very healthy EBITDA margin. I think on the next call we'll be able to report little bit more definitely on what that number is. It will be accretive and will be higher than our eleven percent EBITDA margin in the quarter.

So, I guess your 2003 goal of 30% EBITDA growth maybe a third of that comes from the cable and wireless customer base with the remaining portion just coming from intrinsic improvement?

Yes I think that's a fair.

Something in that. Or 25 to 33%.

Okay. All right. Thanks a lot and congratulations again.

Thanks.

Our next question comes from Grant Peck from PRI Investors. Please go ahead.

Yes I am one of the intrepid investors John spoke about earlier having purchased bonds and shares alike, I am wondering if there's on spot on your compensation committee, I'd like to make some recommendations about your salary raise.

You can do it on a non-solicited basis.

Two quick questions. One is fairly obtuse. I am wondering if you might comment on what you might anticipate the impact of war, how that might affect you? And secondly, with the equity infusion of, what was it $33 million I think John said, can you comment or address any specific acquisition plans that you may have such to justify that equity investment?

First of all, with respect to the war, I think that was our reference in defining our goals is barring any geopolitical impacts, I think it's fairly hard to assess, Grant, there are puts and takes on it. Number one, I think the uncertainties and the concerns that the potential for war creates for people I think tends to slow buying patterns and makes more conservative living conditions.

On the other hand, in time times of crisis, it is generally one which, quite frankly, animates more communication between friends and family particularly in distant locations, so it's hard to evaluate the ultimate impact. As I say there are pluses and minuses with respect to its impact on telecommunications.

And regarding the equity infusion and perhaps acquisition plans, that type of thing?

Yes Grant, this is Paul. I think on the acquisition front we are you know constantly getting opportunities to look at potential acquisitions. We have a very stringent set of criteria to make sure the acquisitions are accretive to us in terms of cash flow and the payback periods are very short. But we do get a lot of opportunities to see them and you will see us being very selective and opportunistic and when we do do an acquisition we want to make sure that it does improve our results especially on the cash flow side and the EBITDA side.

On the question of the user proceeds regarding from the EIG, just in general we wanted to reduce our '04 debt, the payment. So, we reduced it by half and now we believe it's now very quite manageable and we feel comfortable that we don't have liquidity issues to worry about and that actually generate a pretty good return on investment because we were successful in capturing a fairly decent discount. Instead of keeping that money in the bank and earning you know 1%, it was a great use of money.

You still holding your bonds, Grant?

Yes. [ Laughter ] To maturity. [ Laughter ]

1% is a great investment.

Our next question comes from Keil Bakara from Q. Investments. Please go ahead.

Good afternoon. John, and, Paul, just a few questions, please, for you. Stress again your attention to cost, I was wondering if you could elaborate as for the quarter was 67 million and change which is up 3 and a half, 4 million dollars on the quarter, and which is also higher relative to revenues. Can you explain why and if I should see any trend in there? Then I have another follow-up question please.

I think Neil can answer this. I believe the reason for higher SG&A is we had to get ready for C&W, transitioning those customers. So, you have to get you know some people lined up and get ready for the channels as well as transitioning those customers so that was a major cost that didn't see much revenue.

Two other reasons, one is just the normal you know foreign currency issues. You know as the dollar gets weaker and our costs 78% revenues are coming from a loss, our costs are denominated in those currencies. Naturally, as the currencies rise in value if you look at one line item on our P&L the SG&A expenses will rise because the majority is overseas.

The revenue as well, though.

Yes, the revenue as well, but the revenue and gross margin also raised more so we have more EBITDA. And second is that, I think this quarter there was a little bit more spending on sales and marketing, on advertising, on agent commissions, other marketing activities because again, you know we're shifting out of the you know survival mode a year ago let's cut everything we can to survive to now, we're back in to growth.

And this is the third consecutive quarter where we've actually grown the revenues and you know our plan is to keep growing revenues and growing EBITDA and so it takes additional sales and marketing. Okay. Then the follow-up question I had. I mean, you already spoke about it to some extent, the $13 million cash back on the working capital which was mostly due or partially due to a $20 million reduction in your payables and you said that you did want to bring PTTs covered. It is still a fairly large amount. Were you under pressure by some of your vendors to pay them on a asap basis because they were, I don't know, afraid of something? Or whatever the reason is. I mean why such a big reduction in the quarter? As I mentioned, our cash receivables you know we've been collecting a lot faster, they're down. The days accounts receivable is one of the all time lowest. We're very satisfied with the receivable side. That gave us some extra cash.

The payable side, no there's no you know concern or fear. In fact just the opposite, I think carriers are feeling better about Primus and our prospects and are willing to give us more credit as opposed to less. But I think it was really driven because it was year end by a settlement of a lot of outstanding balances and disputes from the past, there were disputes on the rates and the number of minutes and you know you kind of let those go when you get towards year end. Then all of a sudden everybody wants to get things settled then cash in the door so. we did have a fairly large amount of those type of dispute settlements that had really occurred during the year and since it's vendor once we agree you know we get a favorable settlement but then we have to pay the cash.

So the good news is the settlement dispute was favorable from P&L stance the bad news we have to pay the cash. I think that was the main driver of that $13 million usage.

Okay. And just last thing, given your guidance as far as revenues are concerned for next year, and where you stand now that you seem to be pretty happy with on the working capital items side, would you expect working capital items to be to swing one way or the other next year? Or should it have essentially no impact?

We are expecting working capital to be neutral for next year. Just in terms of very rough numbers on a cash flow, as Paul said, our EBITDA is expected to grow 30% for the year. We have you know approximately $55 million of interest payments that we have to make and there's approximately $40 million of principal payments on debt that we would make in the next twelve months and so if you kind of cap ex is around $30 to $35 million. So you know that all sort of comes out neutral that you know we're generating cash to meet all of our obligations and pay down our debt and our assumption there is that working capital will stay relatively flat. We won't gain anything but we won't we've taken care of the segments now so we won't have a use of working capital.

Okay. And just one very last thing. What was the cash flow from operations generated in the quarter?

You'll see when the 10-K comes out, but it's approximately $8 million positive of cash provided from operating activities.

Okay. Thank you.

Our next question comes from Josephine Shea from Morgan Joseph. Please go ahead.

Hi. Good afternoon. I wanted to ask if I understand it correctly, to mend our vendor financing arrangements to defer some of the payments? Can you comment on the proceeding?

Then secondly if I read correctly in our last Q, your German investment you had in parts telecom has filed for insolvency. And could you sort of comment on that and you're also considering consolidating the French, German and Japanese operations? And could you comment on what that will do to your revenue maybe now going forward? Thanks.

John, do you want to talk about that.

I think Josephine your first question related to the letter of intent that we've executed with GECC involving some $57 million of our equipment obligations. I think I can report that we're in the final lap of those discussions. I think for the transaction has had the gestation period of an elephant. But I think both sides are working very cooperatively to get the final documentation done. We're both anxious to conclude the transaction.

GECC continues their cooperation and acquiescence in agreeing to defer the principal payments that are due pending the consummation of this transaction. So, hopefully we'll be able to report on that in the not too distant future that that transaction is in fact consummated.

Just to comment on the investment subsidiaries that you had mentioned. You are correct. In early October our German subsidiary, I think it was partially owned did file for liquidation.

I think the reason was it was just not a sustainable business model and that action really was reflecting our push over the last two years to rid ourselves of EBITDA negative businesses and products and business models that aren't sustainable. The same way as we announced in the third quarter our internet subsidiary in France, Internext, was the same situation where the business model was really not sustainable. The best beneficiary of our Internext business model was France Telecom, we didn't really want to be in business to make money for France Telecom. So, that was also wound down and put into liquidation in the third quarter and the third one you mentioned Becko is a internet partially owned internet company in Japan. And we have -- that was basically discontinued we're not consolidating it any more that was also in the beginning of the fourth quarter.

So really our fourth quarter revenue already reflects Primus not having those revenues from those companies on a consolidated basis and despite that, we were still able to grow revenue significantly from the third quarter and from last year. So that none of those affect our goals for revenue for 2003.

Great. And last question, can you mention what the revenue contribution was of the cable and wireless side in the fourth quarter or was it negligible?

We had recorded approximately $2 million from cable and wireless just in the month of December . There was zero revenue on October and November . Great thanks.

Our final question comes from Romeo Reyes from Jeffries & Company. Please go ahead.

Yes. Good afternoon, gentlemen. Couple of questions for you. I am trying to figure out where you see your gross margins going in 2003. I would assume that there should be some improvement given the 30% EBITDA growth that you are projecting right now.

And also where do you see your traffic on net going from the fourth quarter of '02 to the fourth quarter of '03? And lastly, John, you are not the only one who is to brag about your results. I was telling people 18 months ago that your results were going to improve. Thanks. [ Laughter ]

Romeo this is Neil. In our model -- our goals for 2003 do include a modest continuing improvement in gross margin. I would say it's on the order of the same improvement we had in 2002 versus 2001. We're continually looking for opportunities to decrease our costs and put more traffic on that.

So, yes part of our goal is continued improvement in gross margins and again things like the cable wireless customer base acquisition will help that because it's all business revenue and it's all retail margins. Our wholesale business is relatively flat so you know obviously that being a lower margin and traffic on net, that may actually stay the same because you know it used to be where you would spend a lot of cap ex and getting network and putting everything on that with the all the overcapacity and the industry we're actually getting some very, very good prices and good deals from other carriers on selected routes.

So, our policy is that you know our routing people look at it on a weekly and daily basis we route to the lowest cost carrier and just you know, yes, over time we'll get more and more traffic on that particularly as we expand our voice over internet routes. But you know from quarter to quarter you may not actually see it increasing. It may actually decrease in some cases.

And just to clarify lastly on the quarterly cash flow from operations you said it was $8 million even after the $20 million reduction in payables?

Yes. That $8 million positive figure was the traditional net cash provided by operating activities which would be your EBITDA plus the add backs of allowance deappreciation, less interest paid, less cash from working capital. So yes less accounts payable.

Great.

That's before cap ex and before financing activities.

Great. Thanks a lot.

I would now like to turn the call back to Mr. Darrow for closing comments.

Thank you. That does conclude Primus's fourth quarter and full year 2002 financial results conference call. We play information can be found on our website at www.primustel.com. The replay will be available in about an hour and can be accessed until at least mid-March. Thank you for joining us today. Good night.

This does conclude today's teleconference, you may now disconnect.