Innovate Corp (VATE) 2004 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the PRIMUS Telecommunications first quarter earnings release conference call. At this time all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. If anyone should require assistance during the conference please press star 0 on your touch-tone telephone. As a reminder this conference call is being recorded. I would now like to turn the conference over to your host, Executive Vice President, Mr. John DePodesta. Mr. DePodesta, you may begin.

Thank you, and good afternoon, ladies and gentlemen, and welcome to PRIMUS's 2004 first quarter financial results conference call and webcast. For those who have not had a chance to review the earnings release, it has been posted and can be viewed on our website at www.primustel.com. Joining me from PRIMUS on today's call are Paul Singh, Chairman and Chief Executive Officer; Neil Hazard, Executive Vice President and Chief Operating Officer; and Tom Kloster, Senior Vice President-Finance. We will begin with formal remarks regarding the company's first quarter 2004 performance and recent developments. This will be followed by the question-and-answer session.

Before we begin please be advised that statements made 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 matters. Forward-looking statements may differ from actuality and relying on them is subject to risks. Factors that could cause forward-looking statements in this presentation to differ materially from actual results are discussed in the company's Form 10-K and 10-Q and other periodic filings with the SEC. These filings may be obtained from our website at no cost. The company is not necessarily obligated to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. I will now begin the management remarks.

Since our last conference call, PRIMUS has attained another milestone. It was added to the ranks of the Fortune 1000. From a business plan to a Fortune 1000 company in a ten-year span is quite an accomplishment. We did not have much time to savor the moment as Paul Singh quickly declared that our new goal would be to crack into the Fortune 500, which for 2003 would have required over $3.2 billion of revenues. I was hardly surprised, for Paul has never been a man with small plans. I mention this because our performance in the last quarter is a small reflection of what it takes to grow and be successful in a highly competitive market where mastedons still prey. When we started PRIMUS, we entered markets already occupied by and dominated by huge, well-financed, former monopolies. In such an environment only the nimble and the creative survive. While there was some low-hanging fruit to pluck, to build a sustainable business model required network investments to liberate you from being dependent upon the monopolists and to be free to introduce new service and control the quality of that service.

That is why PRIMUS made substantial network investments in our major markets and connected those market with our global network infrastructure. But as events in the last quarter demonstrate, this is challenge is on going. The recent actions of the Telstra monopoly in Australia are representative. Seeking to undercut competitors who relied on Telstra's network to deliver DSL services, Telstra raised its wholesale rates to those carriers at a price point above Telstra's own retail offering. The Australian regulators called foul and are now seeking to penalize Telstra for its flagrant anti-competitive conduct. However, if you are going to succeed in this business you cannot rely on regulators or the courts to act swiftly or decisively enough. You need to be commercially proactive. That is why PRIMUS has been implementing its own DSL network in Australia, a program that we will now accelerate. Telstra can try to slow us down but it will not stop us.

Similarly, a large incumbent carrier in Canada slashed its long-distance rates in an effort to maintain market share. This is a scene being played out in most major telecom markets globally as the former monopoly carriers take desperate measures to stem their decline. For PRIMUS, declining long-distance pricing been a reality since we entered the market. The issue is how do you respond to it? Our strategy in Canada is to position ourselves through the provision of local services, both wireline and VoIP. Bundled with our Internet and long-distance services to attract and retain retail customers with higher average monthly spend. We are already beginning to see the fruits of this strategy in our deployment of retail VoIP in Canada. As you recall, PRIMUS pioneered retail VoIP in Canada in early January, and recently we announced expanding into all the major Canadian markets. The early returns are bearing out our business model in terms of customer additions, most are new customers to PRIMUS.

Monthly revenues are approximately double the existing average due to the local service component. Product bundling opportunities are ripe, and the VoIP gross margins are accretive to an already handsome retail gross margin in Canada. Let me put our progress there into perspective. Vonnage, a company that many of you have heard of, put out a press release when it reached 10,000 customers in the United States market, a feat that took them 10 months to accomplish. PRIMUS's Canadian subsidiary in a market one-tenth the size of the United States should reach that goal in about half the time it took Vonnage. Thus, the message is that intense competition in the telecom industry is a reality and shows no signs of abating. PRIMUS, however, has responses to these challenges which are basically being deployed through the rollout of our three major business initiatives: local services, retail VoIP, and international wireless services; to address the three major growth areas in the industry. It was exciting for Paul, Neil, and me to discuss with our country managers this week the programs they are pursuing in these areas.

In Canada, Ted Chislett and his team have pioneered retail VoIP in that country and are expanding our provision of local services through wireline and broadband access. The recent acquisition of Magma Communications adds a premier data services facility to PRIMUS and presents an existing broadband customer base ripe for our VoIP services. In Europe, Andrew Reid and Ali Yazdanpanah introduced last quarter to critical acclaim, both technically and as a fashion statement, the PRIMUS-branded intelligent wireless handset that allows PRIMUS customers to make international calls at substantially reduced rates. They are now developing third-party marketing and distribution channels in Europe and Asia to increase the sale of the handsets and new wireless services as a virtual network mobile operator. In Australia, Greg Wilson, when he isn't slaying Telstra, is rolling out a VoIP service over our own DSL network targeted to the business community, and is accelerating the rollout of PRIMUS's DSL network. The recent acquisition of AOL|7, which is performing above expectation, presented us with some 90,000 new customer opportunities to cross-sell our voice services.

In the United States, John Melick and Jay Rosenblatt recently launched our global VoIP reseller program, which has attracted great market interest and is drawing customers, including Comsat International which we publicly announced. By midyear, John and Jay will bring to the U.S. market a retail VoIP product which should place PRIMUS in the first tier of VoIP providers. These are exciting developments occurring in each of our major markets and globally. Many of these projects are in their early stages but we are highly encouraged by the results to date and look forward to talking more about their progress in upcoming quarters. But now we need to focus on the last quarter, and for that I will turn it over to Neil Hazard.

Thank you, John, and good afternoon. I'm very pleased to report that we have once again achieved record results for PRIMUS in the first quarter of 2004. We achieved a new record high revenue in Q1, record high data and Internet revenue, both in total revenue dollars and percentage of revenue; record revenue less cost of sales, which is what we used to call gross margin; and record high profitability on an adjusted basis. Our revenues have grown to $348 million in Q1 which is an annual growth rate of 16% year-over-year and 3% sequentially from last quarter. We were aided by foreign currency increases during the first quarter. The foreign currency benefit to revenue was $12 million from the Q4 average exchange rates. However, there was one less revenue day in Q1 as compared to Q4, so the combined effect of these two resulted in stable to slightly positive revenues quarter-over-quarter.

Going down to the next level, our wholesale revenues declined during the quarter. Our prepaid service revenues declined but the remainder of our core retail revenues grew during the quarter at an annualized rate of 2.5%. Our mix of revenues in Q1 also improved from last quarter with an increase in retail revenues to 56% residential and 25% business, and 19% carrier. Our data and Internet revenues also increased to a new record high for PRIMUS of $60 million and climbed to 17% of our total revenue, also a new high. Along with the higher revenue, our revenue less cost of sales also increased to a new record high in total dollars and represented the same percentage of net revenues last quarter; this is what we used to call gross margin. Our SG&A expenses for the first quarter increased to $94 million, reflecting in part increased sales and marketing and development costs for our new product initiatives of VoIP, local services, and cellular VMNO in Europe. As a result, our operating income for the quarter was $21 million compared to $12 million for the year-ago quarter, a 75% increase.

We successfully completed a large senior notes offering in January of $240 million of ten-year notes at an 8% interest rate. We used these proceeds to pay off $165 million of older high-yield bonds, including the call premiums, with shorter maturities and higher interest rates; to repay a high-interest credit facility in Canada and to buy back $27 million, including premiums, in the open market of our 12.75% high-yield bonds. We now have only $91 million left of our old high-yield bonds, which are the 12.75% notes, which callable beginning in October of this year. These financing activities gave rise to a loss in Q1 of $15 million plus an additional $3 million of interest on the debt that was paid off. Our going forward interest expense is now approximately $12 million per quarter, which is the lowest for PRIMUS going back many years. We also had a foreign currency loss of $1 million in Q1 due to the March ending exchange rates of the Canadian and Australian dollar. This all resulted in a net loss for the quarter of $10 million or 11 cents per basic and diluted share.

This quarter for the first time we have included in our financial statement two non-GAAP measures which we believe many investors and analysts may already be calculating on their own, which we feel will help to better show the underlying dynamics of our business. The first one of these is what we call adjusted net income. This measure removes transactions, including gains and losses on bonds purchases at a premium or a discount for early retirements, as well as foreign currency gains and losses and asset write-downs included in our reported net income. For the first quarter, of 2004, our adjusted net income per this calculation is a profit of $6 million. On top of that, there was another $3 million of double interest paid during the quarter on the old debt obligations that were retired, for a total amount of $9 million positive net income. This compares very favorably to a positive $7 million of net income in Q4 2003 and a $5 million loss in the year ago quarter.

The second measure we've included is adjusted EBITDA which is calculated the same way that PRIMUS and others in the industry used to calculate EBITDA except that we now call it adjusted EBITDA. For PRIMUS in Q1, we generated positive $44 million as compared to positive $33 million in the year ago quarter. During the first quarter, we improved our working capital position on the balance sheet by $23 million which resulted in the net cash provided by operating activities of $13 million. We also spent $10 million on capex during the quarter. We also paid $18 million in the first quarter to acquire America Online, AOL, in Australia. This significantly increases our Internet customer base in Australia to where we are vying for the number two ISP ranking in Australia as well as giving us the AOL content for our customers. We ended Q1 with an unrestricted cash balance of $76 million.

At the end of March we have a recent record high positive working capital position. Our accounts receivable are near--are a near-term record low in terms of days sales outstanding and we have used the extra cash to pay down and bring our vendor accounts payables more current also to a new record low in terms of days outstanding. This is one of the strongest balance sheet positions we have been in, in recent history. With that I would like to ask the operator to open the call up for your questions.

[Caller Instructions] One moment, please. Our first question comes from Steve Flynn of Morgan Stanley.

Good afternoon. Couple of questions. Number one, could you talk a little bit about capex going forward? It sounded like in Australia you were looking to build out more of your own DSL network. Will that impact your capital expenditure forecast for 2004? Then also on the debt side could you give us some of the details surrounding some of the other debt obligations, some of the credit facilities and other debt obligations, what some of the balances are there?

This is Neil Hazard. We had given a goal of capex for the year of approximately 3% of revenues or $40 to $45 million. Our capex for Q1 was $10 million, so far we are tracking on that rate of spending. The -- we did have a portion of the project in Australia in this year's capital budget, and -- but this will be a project that will spill into next year, 2005. So it's not all in this year's budget, but what we need to spend this year is still within that number, the guidance number we gave.

Okay.

On the debt side, we're down on the long-term debt, we're down to, as I mentioned, $91 million of our old high-yield bonds, we have $240 million of the new high-yield bonds we issued in January, we have approximately $71 million of an old convertible note that we had issued back in the year 2000, then we have $132 million of what we call our new convertible note which was issued this past September. The -- that's the major long-term debt for the company. We still have some small capital lease debt for fiber cables and IRU, fiber IRUs in Australia on top of that.

Yeah, I was interested in that other part. I guess that's probably around $51 million or so. I was just wondering with the refinancing of your Canadian facility, I think there was a refinancing of that about $24 million, if you could address what did you there and what your plans are for that facility, is it just to reinvest back in the Canadian operations?

We had had a Canadian facility that--or $15 million that we had drawn upon, it was a very, very high interest rate, so with the proceeds of the January bond offering we repaid that in full and it's now zero. The lender had come back and actually had offered us and we accepted another credit facility, a new one, to replace it which is actually $42 million, a higher amount, but we have not borrowed anything on that facility. And the rate on that is 8%, similar to our bond. So, our view was that we really don't want to borrow anything, we don't want to take any more debt unless we absolutely have to, and we've got plenty of cash right now and we're generating cash from our operations, so we view that as more of a standby kind of a rainy day if we ever needed it. The kind of the lease debt, capital lease debt in Australia is for fiber cable systems and that's being paid off in the form of monthly payments of both principal and interest, so those amortize, you know, over the next three to four years, amortize and get fully paid off.

Okay. Great. Thank you.

Thank you. Our next question comes from David Sherette of Lehman Brothers.

Hi guys, good afternoon. Just a quick question on the minutes of use. I apologize if you addressed this before. Within Europe, in particular, if you looked quarter-on-quarter sequentially the minutes used were down, I think 8% or so. Was there something just seasonal there or was there something specific to that market?

David, it's Neil. It's really in relation to wholesale. Those are wholesale minutes. As I mentioned earlier in the call, our wholesale revenues actually declined sequentially from Q4 to Q1, so most of that revenue decline is going to come from wholesale that you're talking about. The good news is that we were able to grow our core retail revenues sequentially in Q1 versus Q4.

I may have missed it. Thank you.

Our next question comes from Andrew Tuttle of Jefferies.

Thanks. If my calculations are right, your net debt level increased for about $465 or so million to about $500 million in the quarter. Like you pointed out you tied up cash in that working capital, and you had the acquisition. I believe in the second quarter you also expect to have some -- put some cash towards working capital so can we expect the same type of net debt increase in the second quarter, then after that do you expect to start paring that load going forward?

Andrew, this is Tom Kloster. Just roughly the debt from the fourth quarter of $542 million to $587 million, so about a $45 million increase which really relates to us taking the proceeds from the $240 million and paying some call premiums and also paying the fees to the underwriters. We don't expect the debt to go up in the second quarter, we expect it to continue to decline.

Okay. Thanks.

Our next question comes from Jeff Gazakoff from SG Cowen.

Thanks, good afternoon. I was just wondering if you could tell us a little bit more about the acquisition of Magma. At what level of -- or amount of EBITDA was it generating, or what multiple was paid? And secondly, how many other transactions do you think you would do in the remainder of the year and what would be the total cash usage for that?

Jeff, it is very EBITDA positive. As you know they're in the hosting and the data Internet business at very, very high gross margins, so, we have not disclosed the exact amount but it's -- it is well EBITDA positive and is accretive to PRIMUS. Going forward, again, I think as we gave our guidance for the year that you would expect us to do smaller acquisitions within our major countries of Australia, Canada, U.S. and Europe, to add customer bases or products to our portfolio; but we tend to, you know, -- but we're cheap guys, we don't pay a high price. The payback on the Magma transaction, in terms of the amount paid versus the EBITDA--cash we expect to receive is a relatively short period of several years. There's another company in Canada that is in the same business that's comparable, it's a little bit bigger, and they just did an IPO a week or two ago at much, much higher valuation, so we think we got a very good deal on that acquisition.

Okay. Could you also tell us what amount of inter-company debt there would be at the various operating companies?

That's all eliminated upon consolidation. We do have fixed inter-company notes between PRIMUS U.S. and PRIMUS Canada and PRIMUS Australia, which does give rise to that foreign currency gain or loss at the end of each quarter. But, again, it's all -- as we consolidate it's all eliminated.

That's a number that changes quite a bit just depending on traffic flow, so we flow traffic among all of the regions of our business. So the number changes just depending on how traffic flow occurs and how we settle that. It changes dramatically just depending on what we're trying to accomplish from a tax planning strategy, so it's a very dynamic number, but it eliminates in consolidation.

Can we assume that the cash that gets pushed up to the parent company to pay debt obligations would result in a corresponding security being issued from the parent company to the op co? For a similar amount?

The way we've traditionally financed the company, when we started, we raised most of the money in the U.S. here at the PRIMUS parent level and then as we were -- we would then send the cash down to our operating subsidiaries as they were building out their network and investing in developing products and acquiring customers; so you remember we had EBITDA losses for a number of years in the beginning. And now that's all turned around where those operating subsidiaries are EBITDA positive, net income positive, they're generating cash, so when they send the cash back to us it's in the form of paying the interest on those inter-company loans and the principal back. So we don't create -- we don't create more inter-company loan. It actually pays back older loans that we made in the past.

Okay. That's helpful. Thank you.

[Caller Instructions] Our next question comes from Deborah Zohar, Gruss & Company.

I didn't ask any question.

[Caller Instructions] Our next question comes from Frank Barbetta of Probe Group.

Thank you very much. What is your reading on the recent FCC decision on VoIP connected with the AT&T petition?

Hi, this is Paul. I think I would -- it doesn't have any immediate impact on us, you know, because most of the VoIP that we plan to originate is going to be from the broadband connections, whether it's the DSL or the cable modem, and there are a lot of other developments going on in terms of the access rate, so we are keeping an eye on it and we'll play the game, whatever the rules are set up by the FCC.

Okay. Thank you.

Yeah.

Our next question comes from Rick Grubbs of Kaufman Bros.

Hi, good evening, guys.

Hello, Rick.

Couple of questions. I know John was talking about, I guess, the Australian situation, and I guess it's Optel down there, but I was wondering from a timing point of view when you guys might expect some ruling regarding their pricing? And secondly just kind of going to Canada, I was wondering -- I may have missed this, but I was wondering just sort of the markets that you're targeting for the VoIP product and kind of where that goes and how you see that growing? And just also on -- while we're talking about VoIP, just sort of -- you can reiterate or just add a little color to the functionality that you now have.

Okay. First, I think think you meant ACCC in Australia.

Yes.

Telstra anti-competitive activities is really nothing new to us. Over the last six, seven years, it seems like every 18 months when their revenues don't grow or their stock price is down they would do something like this, and I would think about 50% of the time, maybe more, ACCC, you know, won the cases, in which case in Australia sometimes they have to compensate going back to the date that ACCC filed the complaint. So we could actually benefit retroactively if ACCC wins the case. So this is an ongoing activity, but whenever these things happen they obviously have, you know, short-term impact on us but then we come up with new ideas as we are doing in the DSL case. So this is not something that happened the first time, it has happened over the last few years several times.

On the VoIP part of it, I think as I said, the first part was the launch in Canada which happened in January. We have several thousand customers signed up and active. What we found is ARPU is almost twice as much as of our existing customers. Most of the customers take the local and the long-distance connection which, again, serves our objective of offering local service to those customers. Gross margins are excellent. They are accretive to even other Canadian margins which are already quite high. In terms of the feature set, we have a full feature set, I think you must have seen Vonnage and AT&T. The feature sets are very competitive to those, and in Canada we also introduced 911 service so they can access 911 service as well, so all of these services are functional.

Like I said, we have several thousand customers. We consider that a small sample, but every month we learn new things, and the other thing we found is, you know, you introduce the VoIP service, so depending on the performance of the cable DSL, that also impacts your performance of the VoIP, obviously, so your DSL service goes down sometimes, then the customers are out of service; and so depending on the cities we are also finding out where to launch, you know, you obviously want to be focusing on the areas where DSL service is quite reliable. But these are the kind of things we are picking up, and that's going to make us better as we roll out further. So that's in Canada.

In the U.S., like John said, by midyear we would be launching VoIP service in the U.S. Again this will be similar to AT&T service and Vonnage, very competitive set of feature function and there will be a couple of things that we will be able to differentiate ourselves with compared to those. We are looking at to start with it would be a U.S. launch, and we would advertise through different media, and so you should expect that coming up towards the end of the second quarter. A soft launch would happen slightly before that just to make sure, you know, the provisioning issues and all those things are taken care of. So we are excited about that, and we will report on that the next conference call. Then towards the end of the year we would launch the same services in our European markets. So that is planned more for the third and fourth quarters. And in Australia obviously we have our own DSL services, so we package the VoIP service with that. So that's kind of the launch schedule. We are right in the beginnings of those. And we should have a very exciting, you know, VoIP rollout of services.

Great. One last question. This is probably for Neil. I know in the last call, and I guess as evidenced in these results, you mentioned that you were going to be investing more, I guess, capital into the balance sheet in the sense of bringing the current ratio more in line. It looks like you made some progress there. I was wondering along those lines if we could look for more of that as we go through the year. Also on the SG&A line it looks like it was up about 7%. You had also told us that was going to increase this quarter as you roll into new markets. I'm just kind of wondering if we can look for that sort of magnitude increase going forward or if it will flatten out from this point for the remainder of the year?

The first question, we had said in the last conference call that we intended to invest $40 to $45 million for the year in our working capital, in other words, paying off some of our older vendors and getting, you know, the company to where we have very good positive working capital, we meet all of the rating agencies tests and we've made half that progress in the first quarter. I expect to complete that in the second quarter, so you should see a similar amount in our Q2 results. I think we're finished at that point, you know, on or about the end of the second quarter, so the third and fourth quarter that would be over, and we should see a very, very sharp increase in our cash flow from operations.

Okay. Fantastic. Thanks, guys.

Our next question comes from Rudolph Carbone.

Hello, John, how are you?

Good, Rudy.

I just would like to know regarding the high-yield bonds that are becoming callable whether or not they are callable in part or in whole and if they are callable in part, why did you decide to buy any in the open market?

I'm going to turn it over to Tom Kloster who managed that transaction for us, Rudy.

Hey, Rudy. In response to your first question, yes, they are callable in part. So we can elect to call any portion of the outstanding debt after October 15th, that we choose to do. As far as why did we purchase in the open market, you know, we did have excess cash proceeds and the open market does allow us, you know, the bonds to trade at a yield that is appropriate, so yield to call in effect that still makes it an effective transaction for us. So we can retire 12.75% notes versus having the money in the bank earning much less rate.

I think the short answer, Rudy, you may not beholding those 12.75's for too much longer.

I got that idea. And the other thing I would like to ask John, we haven't heard in a couple of calls about the prepaid calling card situation in Europe. I know several conference calls ago there was a lot of optimism about that, and I just wonder if we could just cover that for just a few seconds.

This is Paul. Actually, no, the prepaid part, remember it was prepaid services targeted at wireless customers, and that was sort of precursor to our rollout of the VMNO strategy, which is a rollout of wireless services. That business is doing quite well. We have now gotten to the next step, and like John said, we have developed a handset, wireless handset, which actually has a PRIMUS key on it, and what the PRIMUS key does is say you go to London and you want to make international calls using a wireless phone you can -- you dial the wireless -- dial the international number, then you press one key, just like you would say, you know, you will talk on your wireless phone today, and this will bypass the wireless network, it will dial our local switch and all your international calls will then go on our global wireline network, resulting in tremendous savings to the user.

And I was in London a couple of months ago, and I used the service. It's just terrific. I made calls to all kind of different countries, and I, you know, you really don't feel any delay because it dials -- you know, first our switch, then dials the international numbers; but the customer really doesn't to have worry about what number he's dialing, you just dial the way you dial from your normal wireless phone, and it been very well received. We are looking for distribution channels so we can not only give them the sim card, which it could be prepaid, but we give them a handset and they can sign up with the local carrier and still use PRIMUS to make international calls. Or they can buy our handset, then we can provide them the wireless service which would be on a resell basis from the local player. So that start of the strategy which started with the prepaid services continuing now to expand into becoming a virtual wireless operator, also having intelligent handsets so customers don't first have to dial an 800 number and then dial the international number. So it's a very exciting product, and it was launched in the U.K., and now we are setting up distribution channels in other countries.

Thank you very much.

Okay. You're welcome.

Thank you. We have time for one last question. We have a follow-up question from Jeff Gazakoff of SG Cowen.

Thank you. Earlier in the call you mentioned that a Canadian ISP had an IPO at an attractive multiple. Additionally, ManitobaTel is proposing an attractive for Allstream. Have you considered an attractive IPO of the Canadian operations given the attractive multiples you're seeing?

We look at all those things on an ongoing basis, so, yeah, we have our Canadian company, as you know is highly profitable. So you always have the opportunity to do those things, but we just look at them and review them on an ongoing basis.

Okay. What is the cost of acquisition for your Canadian VoIP customers?

We have not -- it's really a little too soon, because we are just in the first two, three months, so even if I gave you numbers, I don't think they would mean much. These are the kind of -- this is the kind of data we are collecting and seeing if over long periods of time, you know, they will meet our models or not.

Right.

I think in three to six months we'll have more stable numbers, because during the launch those numbers are not the ones you want to know. Plus for competitive reasons also we may not want to give it at this stage.

So does that mean that you're still assessing the profitability of that product and are evaluating whether that's a the best business avenue for you?

No, no. It's a great avenue for us. It's just the -- when you do your business model and the first month of launch is not the time that you take those acquisition costs and base your future on it.

Right.

When we said last conference call-- when I said these are the three initiatives, we are going to pursue those three initiatives and make them a very significant part of our business over the next few years. As most of you know we don't try to start things and then leave them half-way there. No, we believe in these initiatives. They are -- our experience, even though quite limited, is only a few months, so far it matches what we expected.

Okay. Can you tell us the cost of the hardware?

Again, for the same reasons, I'd rather not give you all the metrics at this stage. Some of it is for competitive reasons, so --.

Okay.

Maybe at a later stage we'll give you more details.

I'll try that same question in three months.

Okay.

All right. Well, thank you very much. I think this concludes PRIMUS's first quarter 2004 financial results conference call. Replay information can be found on our website at www.primustel.com. And the replay will be available in about an hour. Thank you again for joining us today, and good evening.