Innovate Corp (VATE) 2004 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to your 2004 fourth and annual financial results 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. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded. I would now like to introduce your host for today's conference, Mr. John DePodesta.

Good morning, ladies and gentlemen. Welcome to PRIMUS' fourth-quarter and full year 2004 financial results conference call and Web cast. I'm John DePodesta, Executive Vice President of PRIMUS. 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.PRIMUSL.com.

The morning call is a new format for us and in advance we apologize to our friends on the West Coast who may have had their sleep patterns interrupted by this schedule. Joining me from PRIMUS on today's conference call our Paul Singh, Chairman and Chief Executive Officer; Neil Hazard, Executive Vice President and Chief Operating Officer; and Tom Kloster, Chief Financial Officer. We will begin with formal remarks from management regarding the Company's fourth-quarter and full year 2004 performance and recent developments. This will be followed by a question-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 matters. 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 and other periodic filings with the Securities and Exchange Commission. 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. In the 11 years of PRIMUS' operations there has been only one constant in the telecommunications industry, consistent and dramatic change. To underscore that observation, it was just a year ago that we were reporting record revenues and adjusted EBITDA for the fourth quarter of 2003, principally fueled by our core high margin long distance and dial-up ISP businesses. Yet even in the midst of reporting those record results we cautioned that we were beginning to experience new and virulent forms of competition that threaten those stand-alone core businesses.

Some of the threats were presented by technological changes and product substitution as wireless use was displacing land lines and broadband DSL was challenging dial-up Internet services. Another manifestation of the threat was the emergence of product bundling by well entrenched and well financed competitors that challenged the viability of stand-alone services such as long distance voice.

To address these emerging threats we announced last February that we were embarking on a strategic shift for the Company. This was not a slight modification of our business model but rather a fundamental transformation of the Company. Our challenge was to evolve from our legacy long distance voice and dial-up ISP businesses into an integrated provider of broadband, VoIP, wireless and local services.

Given the emerging competitive circumstances, the only viable alternative to that course was to harvest our profitable core businesses, a strategy which would have generated higher levels of adjusted EBITDA in the short term but, with the inevitable attrition of the vulnerable customer base, would have resulted in a weakened and declining enterprise. We believe that the strategy which would maximize ultimate shareholder values was to position the Company to participate in the high-growth opportunities in telecom while simultaneously developing new products which could be bundled with our core services to stem their decline.

For this transformation to be successful we needed time, capital and execution. We knew that such a fundamental transformation could not occur overnight. Thus we established goals we believed to be challenging yet realistic. Our first milestone was to exit 2004 with an array of new products and services deployed in our major markets. I am pleased to report that we have met that goal.

Throughout the course of 2004 we innovated VoIP service, introduced the lowest cost and most extensive retail VoIP product in the United States with the launch of Lingo, targeted voice over DSL services to small and medium-size businesses in Australia, rolled out a local telephone service product bundled with long distance in Canada, launched a DSL service bundled with voice in Australia, and introduced wireless services in Canada and the United States.

With 2004 being the year of product deployment, 2005 will be the year of accelerated investment in sales and marketing to drive growth in the new initiatives to attain scale. As we reported this morning, the customer growth to date in the new initiatives has been very encouraging. In fact, in each of the major new products customer growth has at least doubled over the prior quarter.

Significantly other critical elements of our strategy are also showing early signs of success. There are very high take-up rates for our bundled local and DSL products and the corresponding average revenues per user are multiples of stand-alone long distance voice customers. Our challenge is to grow the revenue and margin contribution of the new initiatives at a rate that eclipses the decline in our core businesses. And, as the guidance provided today suggests, that critical juncture is expected to occur in the latter half of 2005, positioning the Company to attain adjusted EBITDA levels in excess of 100 million and return to positive free cash flow in 2006.

Critical to the success of the plan is adequate funding for the new initiatives. During 2004 we advertently deployed 30 million of adjusted EBITDA generated by our core businesses to invest in the new initiatives. In 2005 we expect to increase that level of investment to approximately $50 million. Thus we are drawing upon the profitability of our core businesses to build an enterprise that we believe will have sustaining the value due to its enhanced ability to compete and grow with bundled products. The consummation of our $100 million term loan facility last week provides us additional resources and management flexibility to accelerate the point at which promising initiatives reach the critical breakeven point while strengthening our overall liquidity.

In summary, we have the plan, we have the resources, now it is up to management to execute. We take some comfort in the fact that such challenges are not new to PRIMUS. We have faced fundamental industry transforming events in our recent past and have demonstrated the ability to adjust successfully to change circumstances. We believe in our strategy and are confident in our ability to create again an enterprise with enduring value for our investors and stakeholders.

I would now ask Tom Kloster, our new Chief Financial Officer, to review the quarter. Tom has participated in previous calls but this is his first as CFO. Tom had served as Senior Vice President of Corporate Finance prior to his promotion. He had earlier been with a company as corporate controller and later served as Chief Financial Officer of North American operations. I'm delighted to now turn the call over to Tom.

John, thank you and good morning. As expected our fourth-quarter results continue to reflect a very competitive telecom environment and the effects of our previously announced investment in a number of new initiatives. Fourth-quarter net revenue increased 3 million or 1 percent sequentially from the third quarter primarily due to the strengthening of foreign currencies. On a constant currency basis sequential net revenue declined 12 million primarily due to an 8 million decline in our low margin wholesale voice revenue.

As we have said before, wholesale revenue tends to fluctuate from quarter-to-quarter. For example, we experienced a decline in Q2 followed by an increase in Q3. Although revenue for new initiatives is growing in line with our expectations, the amount in the fourth quarter is still relatively small in relation to our overall revenue base and is not yet sufficient to offset the overall decline in our core retail revenue stream.

Our mix of revenue on a geographic basis remained well-balanced in the fourth quarter. Retail revenue increased to 83 percent in Q4 from 81 percent in Q3. We also continue to make progress in increasing data and Internet revenues which reached a record high of 64 million or 19 percent of total revenue for the quarter. Net revenue, less cost of sales as a percentage of net revenue -- what we used to call gross margin -- was 38.3 percent, relatively stable from the prior quarter. We expect the margins from new products to improve as we build size and scale and migrate off selling (ph) DSL and local selling customers on net.

As expected, our SG&A expenses increased rising $4 million sequentially as we continued to invest in advertising for the new initiatives and also incurred an additional $2 million for Sarbanes-Oxley readiness efforts. Adjusted EBITDA for Q4 was $25 million, at the low-end of our previously announced guidance range, as a result of accelerated investment in the new initiatives. For the full year 2004 our adjusted EBITDA investment in the development and launch of retail VoIP, broadband, local and wireless initiatives totaled approximately $30 million, the vast majority of which occurred in the second half of the year.

Below the adjusted EBITDA line, the fourth quarter benefited from 13 million in non-cash gains recognized on intercompany foreign currency transactions. Net income for the quarter was -2 million or -2 cents per basic and diluted share. We ended the year with a total cash balance of $67 million including 17 million in restricted cash after generating 18 million positive cash flow from operations during the quarter.

We spent $16 million on CapEx during the quarter primarily on back office support systems for the new initiatives, on network equipment to support retail VoIP services in the U.S. and Canada, and on equipment for the Australian DSL network build. These items resulted in free cash flow of 2 million for the quarter. We reduced existing debt through normal amortization payments and ended the year with a long-term debt of 559 million.

On February 18, 2005 a direct wholly-owned subsidiary of PRIMUS closed on a 100 million senior secured 6-year term loan facility. The proceeds of this facility will provide the necessary financial flexibility to support and accelerate the new initiatives.

2005 is expected to be a year of investment and transition for PRIMUS. Assuming constant foreign currency exchange rates at current levels, we expect 2005 net revenue to remain relatively stable to that reported in 2004. A major revenue variable with minimal impact on EBITDA involved the potential restructuring of the Company's prepaid calling card business in Europe as a result of a recent court decision concerning the application of value added tax on prepaid card services.

The mix of revenues in 2005 is likely to change as the contribution from the new initiatives is expected to more than triple from 2004 levels. Further we anticipate that total revenue will likely decline over the first half of 2005 and then rebound in the latter half of the year as the new initiatives move beyond the initial stages of deployment. Consistent with that trend, we expect continued revenue growth in 2006.

Our 2005 business plan calls for the investment of approximately 50 million of adjusted EBITDA into the accelerated growth of the new initiatives with the majority of that investment occurring in the first half of the year. This investment includes onetime network transfer fees which we incur on each Canadian and Australian local customer we obtain. Therefore, the more customers we obtain the more up front costs we incur. These costs are expensed as incurred in cost of sales.

Partly as a result of our new initiative (indiscernible), adjusted EBITDA is expected to be in the range of 70 million to 90 million in 2005. Additionally, primarily in support of the new initiatives, we expect capital expenditures during 2005 to be in the range of 50 to 60 million. The combined effect of these investments is expected to result in negative free cash flow for 2005. However, as the new initiatives gain increasing momentum and scale throughout the year, we expect to exit 2005 with increasing adjusted EBITDA and free cash flow. As a result in 2006 we are targeting a return to adjusted EBITDA in excess of 100 million and positive free cash flow.

As the new CFO of PRIMUS I look forward to working with all of you in the quarters and year ahead. I'd like to take just a couple moments to share with you my primary goals. First and foremost is to ensure PRIMUS has the liquidity to execute on its aggressive transformation. The 100 million in additional funding announced last week will assist in this endeavor. Second, is to continue to manage aggressively our cost structure. If core business revenue and profitability shrink, then the associated cost structure will shrink at least as rapidly as the top line. And third is to delever the balance sheet over time.

I will now turn it back to the operator to open the call up for questions.

(OPERATOR INSTRUCTIONS) Chris Roberts, Tejas Securities Group.

Wanted to get some further clarification on the EBITDA investment that's expected during 2005. Right now are you seeing any EBITDA contribution from the new initiatives?

No, at this stage the new initiatives -- I think it is too early to expect them to start making positive contributions to EBITDA. So the answer to your question is not at this time.

Okay. And then on a separate topic, the press release mentions the possibility of monetizing one or more of your businesses this year. I was wondering what was driving that. Are you being approached by potential suitors or is it for liquidity requirements or are you just looking at favorable capital market conditions?

Let me give you one example. I think we mentioned Lingo by name in our press release. Here we have a very compelling product that's gaining a lot of traction. We have 50,000+ customers, brand awareness is improving, ARPU is improving, churn trends are positive and going in the right direction and our cost structure is also improving as per our business model.

Now the question there is with the amount of EBITDA investment we are making our cost of acquisition per customer has been quite favorable compared to competition. And the question now is what if we had -- we could scale that business maybe at 200 to 300 percent growth rate -- a growth rate that we are experiencing today if we had more marketing spend. And so far it seems like that model would work, it is scalable at much higher marketing spend. And as you know, our primary competitors are basically outspending us in marketing spend by 300 percent to 500 percent more than what we are doing.

So our sense is where the VoIP market is today it's going to enter a very high growth phase over the next 6 to 12 months and this is a good time for us to scale it up even a lot faster than what we -- the speed we are going at today. So it's a good problem to have and one of the ways we could do it is to look for other sources of funding for Lingo so it could get to be two to three times the size that we could make it on our own. And in that case it would be better to own -- that's (indiscernible) total pie, if the pie is two or three times bigger.

So that's what actually is driving us to look at potential sources of funding if those initiatives actually showed larger progress and if we thought by investing more money we could scale the growth even faster.

Okay. Thanks a lot.

David Pratt (ph), Lehman Brothers.

I was wondering if you could first talk about what the revenues were from the new initiative (technical difficulty) fourth-quarter. And maybe if you could give us some metrics for where you think it gets to in '05 and really in '06 to get to the 100 million of EBITDA that you were talking about. And maybe specifically if we could dig into the Lingo product and some of the metrics we should be looking for there in terms of maybe sub count you think you need to get to from where you are today at about 50,000 customers to actually reach EBITDA breakeven or maybe free cash flow breakeven in that business?

I'll try and answer some of those. One, we haven't disclosed the information on a quarterly break on the new initiatives. We have said that we had invested about $25 million -- or 30 million I should say -- in the new initiatives. A lion's share of that is in the Lingo product. We are seeing nice revenue growth in the Lingo product and the customer counts that we have been adding have been accelerating recently. As that happens obviously the revenue associated with it is ramping and is ramping quite nicely.

As far as the cost of it, I think we continue to spend a fair amount on advertising for the Lingo product. That all gets expensed immediately, there's no deferral of cost within the Lingo area. Therefore all of that drops down to negative EBITDA on a quick basis. David, you may want to repeat a couple of your questions.

Is there a sub count we should look for or any of the metrics that we should monitor in terms of the Lingo product that would tell us that business is turning to a positive EBITDA contribution from what was likely a large part of the 50 million EBITDA burn this year? Is the a subscriber count where you hit breakeven?

David, I think I would estimate at this stage it's going to take a few hundred thousand customers to get to an EBITDA breakeven level. It's also a function of the speed at which you grow, but we obviously want to get to EBITDA as fast as we can and our initial estimate at this time is it will take as a few hundred thousand customers.

David, just to add to that, obviously there's a number of metrics that affect that. The ARPU per customer, your acquisition cost per customer, a big one is your customer service or technical support cost per customer. So we're starting to get what we believe are good metrics on those things, but it's only been about 6 months or 7 months and sometimes as your customer base grows those metrics per customer come down. So we're still trying to monitor those and, depending on how those move over time, the number of customers to breakeven will change. But the few hundred thousand right now appears to be a pretty good estimate.

Are you willing to provide us with initial churn levels on the first 50,000 customers or CP G&A or your subscriber acquisition costs per customer right now?

We've chosen in this release not to do that, not that we want to hide that information other than we haven't seen any of our competitors disclose that information. We find it to be a competitive disadvantage to put that information out in the marketplace. From a churn standpoint we did state that we are seeing improving trends on the churn rates down to levels that we're comfortable with.

I think what we see is we see a higher churn in the early stages of a customer; once you start building up a mature customer base your overall churn rate comes down. Once a customer is on the service for a month or 2 months, the churn is very reasonable and very low whereas the churn in the first month for whatever reason -- you can't get it hooked up, can't get -- occasionally those type of situations you have a little higher churn rate. So we're seeing improving trends and trends that we're comfortable with in churn, but I don't think we're ready to disclose figures yet.

One other line of questioning on the regulatory side. I know Comet had made a big deal out of the recent CRTC decision. I know -- I think initially you thought it wasn't that big of an impact for PRIMUS; I just wanted to see if that's changed at all, if there is any sort of follow-on impact for you from that ruling and anything else in Australia on the regulatory side we should be watching for?

The Canada ruling -- I think it impacts Call-Net probably more than us because Call-Net has a pretty extensive local network, local services are what we're just getting into, and we don't have a big local network. We do get some benefit in '05 but it's pretty small, it's in the hundreds of thousands of dollars for the year. But what it does do is it does, for the future, lower our costs for access -- permanent T1 access for customers, particularly business customers. So now where we had a very low or no margin product with access for business customers, now there is quite a bit of margin in that based on these new tariffs and prices may come down a little bit but we don't have a large base to protect as the other incumbents do.

I think that could be an area in the next several months that we can start selling business customers and give us a lot more flexibility on the local access pricing to make us much more competitive. I think that is the positive impact of it for the future in terms of retail business customers.

Another thing I wanted to mention, you were speaking about new initiatives for '05 and beyond, is that a lot of our initiatives are local services in both Canada, local service in Australia moving in on that (ph) as well as OnNet DSL and selling DSL in Australia. In there are what we call PIC (ph) charges or network charges that we have to pay to Telstra, to Bell Canada every time we move a local line from their network to our network. So our EBITDA in 2005 is burdened also by these one time fees for moving local circuit PIC charges and that's for both a local circuit as well as a DSL circuit.

So as we are growing this, particularly in the early years, we are incurring significant PIC charges which is a cost to sales and is a drag on gross margin and EBITDA. But once we get through that and we pick up size and scale those will tend to taper down and become a much smaller percent of our revenue. So that's another thing that is impacting our near-term EBITDA, but gives us a bright future because as we sell more and more we will have a whole new revenue stream that we don't have today.

I think also just another comment on this. David, you asked how do you get to 100 million plus EBITDA in 2006. As Neil commented, I think you are going to have favorable trends going into 2006 and the primary ones are going to be -- number one, in Australia with the DSL customers today, like Neil said, because of the PIC charges and because of the Telstra wholesale pricing really doesn't leave any margin for us today. And actually it's a negative margin after the PIC charges. But as those customers go on net by year end that's going to contribute about 40 percent plus gross margin increases to those customers. So that's going to contribute to the bottom line as those customers come on net.

Second, you're going to have less EBITDA losses from Lingo and from other new initiatives. Again, compared to 2005 going into 2006 as we have more scale the EBITDA losses are also going to decrease from those. Lastly, the SG&A costs which are quite high because of the development of new product, launches of new products and initial sales and marketing expenses -- I think those ones also will settle down and there won't be increases in those as we go into 2006. So a combination of all of these factors are going to give a boost to EBITDA as we go into 2006.

Thanks, guys.

Romeo Reyes, Jefferies & Co.

A couple of quick questions on this VoIP initiative. Of the 20+ million that you've spent on VoIP in 2004, can you give us a sense of how much that was one sort of time developmental costs versus variable expenses associated with customer acquisition? And then secondly, can you give us a sense of what the incremental lift from layering long distance on top of the basic local services? I guess one of your strategies was to maintain your core long distance by adding local and bundling services. Can you give us a sense of where that is at this point? Thanks.

Let me just comment on the bundling part first. Romeo, in terms of the (indiscernible) in Canada, about more than -- I believe more than 90 percent of the customers take long distance with the local line subscription. That's quite high and I think it's a good indicator of the success of our bundling strategy in Canada. In Australia with the DSL package that we sell I believe it's more than 80 percent of those customers take local long distance and DSL service. And the ARPU for those DSL customers is roughly about 400 percent more than just a stand-alone dial-up Internet customer, it's about 40 percent more than the customers who just took a local and long distance bundle.

Not only that; we get a 2-year contract with the DSL service, so that itself is a huge benefit as far as future churn is concerned. Then on top of that the local part of the service that comes with the DSL in Australia would also benefit from the gross margin expansion of about 40 percent plus as the local revenues will get onto the DSLAM network by the year end. So you get the benefit of the gross margin expansion not only on the DSL which is pretty much a zero margin business, but also on the local service which also is a very low gross margin business today.

So I would say overall we are trying to focus on the bundling strategies and in Australia and in Canada it's working quite well.

And Romeo, you also asked about the onetime charges. I think we had mentioned that we had EBITDA dilution from the new initiatives in 2004 of about $30 million. And as far as the onetime charges, the majority of those type of charges really aren't in the VoIP area. They're in the area of the local customers for Canada, as Neil had mentioned, and in the DSL on the local customers for Australia. In Canada we incur roughly a US$40 charge per customer to move that local customer to our network and then in Australia it's about a US$75 charge per customer.

In the VoIP area we don't have anything per se like that. We do have some initial costs -- some development costs of those type of costs. We were initially running 3 months free, now it's 1 month free. So that is a cost -- a onetime cost of obtaining a customer. But primarily when we speak of onetime costs we're referring to the local and DSL customer transfer charges.

And then can you go over the CapEx? It's increasing by some $15 million I guess, 10 to 20 million it seems like in '05 versus '04. Can you give a sense of where the incremental CapEx is going and what do you expect that to be in '06?

We haven't given any guidance for '06 on the CapEx. On the '05 and the growth in it, it's -- the vast majority of the growth is to support the new initiatives and what we believe is the accelerated growth in the new initiatives. As we mentioned before, a significant portion of that will be in the DSL buildout in Australia and extensive enough to serve the market in there and our existing customer base that we want it so serve. But there are also the additional CapEx in the area of local expansion in Canada and if we ramp our VoIP business in the U.S. that will result in some additional CapEx.

Last question. For '05, how much do you expect working capital to drain in terms of cash? Is it going to be a use of cash or a source of cash in 2005?

I think in 2005 working capital will be a slight use of cash and that's factored in our disclosure of it being negative free cash flow in 2005. It's mainly as we continue to -- well, it's part for the new initiatives and also to continue to cleanup some outstanding carrier disputes that we have which we mentioned in 2004 that we addressed some of our working capital issues and so that, unfortunately, has carried into 2005. Then I expect it to be relatively stable beyond that.

Romeo, just on CapEx, one other element of CapEx is going to be the customer premise equipment whether it's a DSL modem, wireless handsets, Lingo modems. So as the number of subscribers increase in those initiatives we also have CapEx associated with them.

Thank you.

Brent Brewer, APS Financial.

Most of my questions have been answered, but a couple quick ones -- mostly sort of housecleaning. Can you give the latest cash balance for pro forma for the deal?

Well, the deal was a $100 million facility, Brent, and we netted roughly 97 after expenses. So you'd add 97 million to our existing balance.

And that considers the latest burn, though, so far for this quarter?

No, I guess I gave pro forma (indiscernible) the 97 million to our December 31st cash balances that we --.

Oh, yes, I was just to get a more recent figure if you had something to give us.

No, nothing that we've disclosed.

Okay. And then how about -- I don't know how much you can comment on the foreign currency translation impact so far for the quarter and how much of that may have reversed from the fourth quarter trend?

Brent, as you know, we had a good fourth quarter in terms of the U.S. dollar was down our foreign currencies were up. In January and the first part of February that did go the other way and the U.S. dollar had strengthened somewhat so that was a little bit negative. But just recently it's now reversed again and the U.S. dollar is getting weaker. So it fluctuates up and down and it's hard to predict, but I think we may be back today closer to where we started the year. It may be (indiscernible) by the end of the quarter it may be flat.

That's really all I had. Thanks.

Joni Benton (ph), McMahon Securities.

You discussed obviously some of your goals going forward are to continue reducing leverage and I wanted to see how that fits in with your current plans to expand some of your initiatives versus say working to continue taking out the converts of '07 or your 12.75 percent notes.

Joni, I think our first goal is to make sure we have the adequate resources to expand our initiatives at the rate we want to expand those initiatives. But if we see success and continued success in some of these initiatives and view the opportunity to accelerate those would be beneficial for the Company, our first priority is to do that and have the resources to do that.

Your first priority is to expand the initiatives and have the resources to do that. That's what you're saying?

That's correct; that's our first priority. Having said that, we have been very focused on our balance sheet and deleveraging our balance sheet and we'll continue to do that. We'll continue to be focused on it. However, we're not going to delever the balance sheet short-term at the detriment of expanding our new initiatives should we see success in those and want to go more rapidly to expand them.

One thing I did want to mention thought is that we do make roughly $15 million a year of principal amortization on amortizing debt. That will occur whether we go out and buyback public debt in the marketplace or not we will reduce our debt through normal amortization.

Okay, thank you.

(OPERATOR INSTRUCTIONS) Donna Jaegers, Janco Partners.

I was just curious if you could expand a little on the impact of the value added tax in Europe and what your plans are for your European calling card business?

There was a recent court ruling in the UK right at the end of the year where IDT was being sued for not charging value added tax on pre paid cards sold in the UK. And the outcome of that case was that IDT won in terms of their rule that they could operate from outside the UK and sell those services and not charge value added tax. That in turn affects the pricing of the prepaid cards and we had been selling our cards with the value added tax added into the pricing, we were paying the value added tax.

So this kind of changed the landscape somewhat and we're reevaluating how we structure that and sell cards. And I think we may move to more of a reseller model going forward where we are selling the cards more on a wholesale basis to other resellers who would be operating offshore under the same kind of model that IDT uses. That's why I say that would remove the high commissions from the equation so the SG&A would go way down, but it would be more -- the revenue would go down correspondingly because of more of a wholesale model than the actual retail model. We think the impact on EBITDA will be minimal and hopefully we'll get more EBITDA at the end of the day.

How soon can you set up that offshore structure? Is that already in place selling to offshore resellers?

This will happen during the course of the year going forward -- the coming year.

All right, thanks.

Lance Taconda (ph), Concordia.

Just two questions. The first is did you say that you had closed the $100 million term loan?

Yes, Lance, we closed it on Friday of last week.

And then earlier in the Q&A you had mentioned that you -- I think you said you were happy with the churn rates that you were seeing on the Lingo product or was it that you were -- that trends were moving toward where you would be happy?

Lance, we are never happy with the churn rate. But I think we are following the business model that we had put in place, so we are happy to the extent that they are lower than what we had assumed in our business model. But I think they still need to come down quite a bit more.

Great, thanks very much.

I'm showing no further questions. I'd like to turn the conference back over to you.

In closing I would like to announce that PRIMUS' management will be presenting at the Lehman Brothers 2005 high yield bond and syndicated loan conference scheduled for March 16, 2005 in Orlando Florida. That concludes PRIMUS' fourth-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 for joining us today.

Ladies and gentlemen, this now concludes today's conference. Thank you all for your participation. You may now disconnect. Have a great day.