Innovate Corp (VATE) 2005 Q1 法說會逐字稿

Good day ladies and gentlemen and welcome to your first quarter 2005 financial results conference call. [OPERATOR INSTRUCTIONS] Now I would like to introduce your host for today's conference call, Mr. John DePodesta. Sir, you may begin.

Thank you, John. And good afternoon ladies and gentlemen. Welcome to Primus' first quarter 2005 financial results conference call and webcast. I am John DePodesta, Executive Vice President at Primus. For those who have not had a chance to review the earning release, it has been posted and can be viewed on our website at www.primustel.com. Joining me from Primus on today's conference are 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 first quarter 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, statement 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 is could cause forward-looking statements in this presentation to differ materially from actual results are discussed in the Company's Form 10-K and Form 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. At our year end 2004 conference call, we announced that 2005 was to be a critical year of transition for Primus. Exiting 2004, we had deployed new products and services in local voice, VOIP, broadband and wireless in an effort to strengthen our competitive position in our major markets.

The principal challenge we were contending with was the erosion of our highly profitable core long distance voice and dial-up ISP businesses. The threats came from pricing competition, product substitution, such as wireless for fixed line and broadband for dial up, as well as bundled offerings. Our strategy was to grow aggressively the new initiatives, offer competing product bundles, and reach the point where the margin contribution from these new services would eclipse the profit decline in our core businesses.

We Knew that the transition would not be painless. We expected revenues to decline in the first half of the year, and our adjusted EBITDA similarly to decline, as it bore the twin weights of declining core profits and invests in new initiatives. And we provided guidance accordingly.

However, during the first quarter there were developments that added pressure to our performance. The faster than expected erosion of our core businesses and the decline, hopefully temporary, in our prepaid services businesses in Europe. While these developments make it necessary to lower our outlook for 2005, we maintain our objective of navigating this critical year to position the Company for a return to positive free cash-flow for 2006.

I thought it would be useful to share with you the critical metrics and milestones management monitors to place us on trajectory for our 2006 goal. In this regard, gauging the progress of our new major initiatives is critical. Let us start with our residential local offering in Canada. By way of background, it is important to recall that, at year-end 2003, our highly profitable Canadian operation was almost exclusively routed in long distance voice services, which then comprised approximately 90% of its total revenues.

While highly profitable, long distance voice services as a stand-alone product was and is subject to competitive attack from pricing, bundling and wireless substitution. To protect our business over the course of 2004, we rolled out retail local, VOIP, data and wireless products. The metrics we tracked on these new initiatives include the pace of new customer additions, the success of bundling efforts to preserve long distance voice revenues, increased ARPU, average revenue per user, and margin contribution.

In Canada, the model is working. Our new local customer additions are in-line with projections. Over 90% of such customers are bundling long-distance voice. And ARPU is multiples of stand-alone long-distance. Significantly, our reliance on stand-alone long distance in Canada has decreased from approximately 90% of revenues over a year ago to less than 73%, evidencing proportionately greater revenues from the new initiatives.

In Australia, our most significant initiative is the build-out of our DSL network. We expect the initial phase of this project to be completed this year, and the migration of customers to commence this quarter. For this initiative, we monitored growth in DSL customers, success of bundling efforts, progress of the DSL network build-out, the pace of customer migration, and margin improvement from bringing broadband and local customers and services on net. Thus far, the network deployment is progressing consistent with plan and customer migration has commenced.

With regard to our Lingo retail VOIP product, the important metrics are customer acquisition costs, ARPU, gross margins and churn. For competitive reasons, we do not divulge specific results other than reporting customer numbers, which currently are tracking to plan. As mentioned on our last conference call, we estimate that several hundred thousand customers would be needed to reach the break-even point for Lingo. Thus, at current levels of customer growth, Lingo will continue to be a consumer of EBITDA for some time.

That is why we have said we may explore, over the next several quarters, depending upon market conditions, performance metrics and acceptable valuations, the potential infusion of external capital, which could provide additional resources to propel Lingo's growth. Though we are encouraged with the growth and the new initiatives, we are still early in the execution phase for many of these efforts.

Consequently, we are not yet at scale necessary to generate aggregate margin contribution from the new initiatives to offset the erosion and profitability of our core long distance voice and dial-up ISP businesses. Management is committed, however, to taking necessary actions under its control to place the Company on a trajectory by the ends of this year to be free cash-flow positive for 2006, an outcome which would successfully mark this year of transition.

I will now ask Tom Kloster, our Chief Financial Officer, to review the results of the quarter.

Thank you and good afternoon. Our first quarter results continue to reflect a highly competitive telecom environment, as evidenced by the accelerated erosion of our high margin retail core long distance and dial-up ISP businesses.

First quarter net revenue declined 23 million or 7% sequentially, from the fourth quarter. This is primarily the result of two major factors. First, we continue to experience a significant decline in our retail core long distance revenue from virtually all countries in which we operate. And we also have experienced a decline in dial-up ISP customers in Australia, as that market is rapidly adopting broadband alternatives. As a result, our core retail revenue declined approximately 15 million sequentially.

Second, a recent United Kingdom court decision exempted competing offshore prepaid service providers from collecting value-added taxes for prepaid cards distributed within the U.K., a tax that totaled 17.5%. Primus, as a fully licensed telecom operator in the U.K., has historically included the 17.5% vat in the price of its U.K. prepaid card services. The effect of the court decision was to immediately make the Company's prepaid card offering in the U.K. uncompetitive on price. And sales and activations of prepaid cards within the U.K. virtually ceased. As a result, European prepaid services revenue was down 23 million sequentially.

Sequential revenue gains of 8 million from our new product initiatives, 3 million in our wholesale voice business, and 4 million from the strengthening of foreign currencies, partially offset these revenue declines. Although revenue from new initiatives is growing in line with our expectations and in excess of 100% sequentially, the total amount in the first quarter is still relatively small in relation to our overall revenue base, and is not yet sufficient to offset the heightened decline in our core retail revenue stream.

Our mix of revenue, on a geographic basis, remained well-balanced in the first quarter. Retail was 80% of total revenue in Q1, residential comprising 56%, and business 24%, while wholesale was 20%.

We continue to make solid progress in increasing data, VOIP and Internet revenues, which reached a record high of 70 million or 22% of total revenue for the quarter. Net revenue, less cost of sales as a percentage of net revenue, was 35.6%, a sequential quarterly decline of 2.7 percentage points. Our margin this quarter was adversely affected by loss of high margin retail core revenue, the loss of significant prepaid services revenue, and by a $4 million write-down of European wireless handset inventory and receivables.

As we expected, our SG&A expenses increased, rising 2 million sequentially to 106 million for the first quarter. The sequential increase was driven largely by increased sales and marketing expenses and personnel costs to support the Company's new initiatives. These costs were partially offset by lower distributor commissions related to the decline in our prepaid services business.

Adjusted EBITDA for Q1 was 6 million, as compared to 25 million in Q4 of 2004. The $19 million decline is a result of the same factors I discussed earlier: One, lower revenue from our high-margin core retail businesses, which accounted for 10 million of the decline; Two, lower revenue from our European prepaid services, which accounted for 3 million of the decline. Three, the four million write-down of wireless handset inventory and receivables; and, four, higher SG&A of $2 million. Below the adjusted EBITDA line, the first quarter reflected a 3 million non-cash loss recognized on foreign currency transactions.

Net income for the quarter was negative 35 million, or negative $0.38 per basic and diluted share. We ended the quarter with a total cash balance of $130 million, including 13 million in restricted cash.

On February 18, 2005, a direct wholly-owned subsidiary of Primus closed on a 100 million senior secured six-year term loan facility, and the net proceeds of approximately 97 million are included in the previously mentioned cash balances. We utilized 10 million in cash for operating activities and spent 14 million on capital expenditures during the quarter. This resulted in negative free cash-flow of 24 million for the quarter. We reduced existing debt by 5 million through normal amortization payments, and ended the quarter with long-term debt of 656 million.

Although we continue to be pleased with the progress of our new initiatives, we are clearly disappointed by the accelerated decline in our core retail business and by the developments in our European prepaid services and wireless handset businesses. As a result, the Company plans to take the following actions in the near term: First, we will establish wholesale network service supply agreements with offshore prepaid service distributors and begin to further diversify the business by entering non-European markets with our prepaid service product; Second, we will continue to monitor closely the progress of our new initiatives and make revi -- refinements in our investment, as appropriate; And, third, we will aggressively reduce costs to minimize the impact of the faster than expected core retail revenue declines.

With prepaid services revenue expected to decline further in the second quarter, as we establish wholesale network agreements and enter new markets and in light of the faster than expected declines in our retail core businesses, we now expect 2005 annual revenue to be approximately 10% lower than in the prior year. Further, given the current rate of decline in our retail core revenue and the on-going impact of changes to our prepaid services business, we now expect adjusted EBITDA for 2005 to be in the range of 35 million to 50 million. Our goal remains to be free cash-flow positive for 2006.

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

[OPERATOR INSTRUCTIONS] Our first question comes from Romeo Reyes from Jefferies.

Good afternoon. A few questions for you actually. Can you walk us through, Tom, the cash burn. It seems like you earned $40 million of cash in the quarter, did you -- in addition to the $5 million of debt you paid down, plus the 25 million of free cash. Were there any other uses of cash there?

And then, as you talked about potentially refining your expenses for new initiatives, how much flexibility do you think you have to cut SG&A? I mean, in the last two years, your SG&A has gone up from 77 million a quarter to $105 million a quarter in assets. And you're looking at more than $100 million increase in SG&A in the last eight quarters. How much of that can you cut?

And then secondly on Capex, how much of your Australian DSL network have you already completed? How much of that Capex of the $50 to $60 million -- 50 to 60 million in Capex that you're spending this year, how much of that is devoted to the DSL network and how much more do you need to spend in '06?

Hey, Romeo. I'll start maybe with the middle question there, as far as the SG&A cuts. And, you know, we are committed to and are currently working on and will very shortly take action, to reduce our SG&A expenses, especially in our non-new initiative activities. And we mentioned that previously that if we saw further erosion in our core business, that we would -- that we would accordingly match the expenses with the decline in that core business. So we are committed to doing that.

We want to continue to fund the new initiatives, as we've started to see and we have been pleased with the growth in the new initiatives. However, you know, we'll continue to monitor that very closely. And depending on the advancement of the new initiatives, we will refine our look towards spending on the new initiatives. So, first off, is SG&A unrelated to the new initiatives and we are focused on that very closely. We think we can make a significant impact from cost cuts in that area.

From capex standpoint, we had previously given guidance that we would spend in the neighborhood of 50 to 60 million of capex in 2005. We still believe that that guidance is reasonable. We may see ourselves on the lower end rather than the higher end of that guidance. In the fourth -- in the first quarter, we had reported that 14 million of capex was spent. So we are running at a pace a little bit higher than on a standard pace of guidance divided by four pace.

Related to Australia and the capex that was spent there, a fairly significant portion of that 14 million is associated with the DSLAM roll-out in Australia. We had previously mentioned that we felt we would be spending in the neighborhood of 20-25 million in Australia on the DSLAM roll-out. So there still is a fair amount,, a sizeable amount of capex to be spent in Australia. But we have probably spent -- close to half of our capex in the first quarter was associated with Australia.

How much the capex was for start-up expenses, getting back office systems ready, software enhancement, et cetera, for the new initiatives? Was there any new initiative type of capex other than the Australia network?

Yes, there is definitely associated were capex with the Lingo product and the back-office on the Lingo. There is capex associated with some of our wireless initiatives, both in Canada and, I guess, to a lesser extent in the U.S. So, there is capex throughout all of the new initiatives, including the local initiative in Canada. Most of that capex is more in the software arena, in the back-office systems, and the development of the interfaces with our reseller partner versus, I think, in Australia, you see more of hard equipment purchases for deployment of our network.

I think your first question was associated with cash flow. And we reported in the first quarter that we utilized $10 million in operating expenses and then 14 million in capex. So, and with the rounding, it rounds up to 25 million of negative free cash-flow for the first quarter. We gave guidance on the capex so you will continue to see the capex spending in line with the lower end of our previous guidance.

And depending on the EBITDA levels we gave -- EBITDA levels you can kind of back in to the free cash-flow for the year, the one variable would be working capital. And the working capital, we did utilize some cash in the first quarter associated with working capital. And just depending on how our business advances over the rest of the year, I don't think that's necessarily going to be continuing from quarter to quarter.

How much was working capital usage in the quarter?

Actually, I don't have that right in front of me but it's within that 10 million, so I can come back to you on that one.

Normally the working capital is pretty flat, right?

Yes. Normally it's relatively flat. Our prepaid business affects it but then, also, depending on how we devote our cash to our suppliers. With the process of carriers and disputing traffic and paying vendors finally, depending on how we devote that cash, working capital can shift from quarter to quarter.

Then, on the liquidity side, how much -- I mean, the new debt that you can layer in front of the eight is about $8 million. Correct?

Well, we have -- we have the ability to do capital lease financing of a basket of up to $50 million.

Okay

So, that is available and currently unused. And I think what the $8 million that you are referring to is we have a credit facility carve-out in our indentures, which at the time we did the 100 million facility would have allowed us to be roughly 108. That's a percentage of our current accounts receivable base.

Are you looking to raise that $50 million right now, senior to that note?

We have explored financing certain equipment, especially the equipment in Australia. We don't have any definitive direction on that currently.

Did you have any payment, any sort of earn-outs that coming due in the next, say, 12 months?

Very small. There are some from some Canadian acquisitions, but not material.

In terms of raising equity to fund Lingo, where do you stand at this point? Is that a process? You talked about it last quarter. So, I mean had you three months or so. or at least a couple of months to work on it. Where do you stands at this point? Are you any closer to raising -- to raising equity there at an acceptable valuation?

As I indicated in my remarks, what we have said is that over the next several quarters we will explore, depending on market conditions, performance metrics, and acceptable valuation. We are still in that time frame.

Thank you.

Hey, Romeo, let me just follow-up on that working capital question. The working capital usage for the first quarter was about 9 million.

So that's not going to be recurring, obviously. Right?

I think that's primarily within our ability to alter.

Our next question comes from Chris Roberts from Tejas Securities Group.

Hey, guys, two quick questions. First, in your U.K. prepaid services business, you talk about repositioning to it avoid the value-added tax. Do you think, maybe not next quarter but towards the end of year, you might be able regain the market share that you lost during the first quarter? And then my next question was, could you comment on whether there's any financial covenants under your new $100 million senior secured term loan, and what the covenants are now in light of first quarter numbers?

Hi, Chris. Neil Hazard.

Hi, Neil.

Yes, on the U.K. prepaid card business, as we said, we're going to more of a reseller or wholesale model. And, yes, what the practical effect of that is that the commissions are then paid by the resellers as opposed to Primus. So, our model on that basis is we would remove -- the revenue would go down because we don't have that commission in the revenue. But, our (inaudible) SG&A goes down because we don't pay those commissions.

So on a percentage EBITDA basis the contribution percentages is roughly the same as the old model but, albeit on a lower revenue. But, yes, we have started that model. We are issuing cards in supporting resellers with cards in the U.K. as we speak. And, yes, our intent is to build that back up again. It will take time, certainly, to the get to the levels we had before, and -- but, so far so good.

Okay.

Chris, your second question on the financial covenants, the covenants in the term loan are very similar to our 8% senior notes offering that we did.

Okay.

There's really no financial covenants. There's things such as ratio tests for additional indebtedness. restricted payment items, those type of things, but no pure financial covenant.

Okay, good. And then, just one quick question. Do you still have the bank borrowing capacity up at the Canadian subsidiary? I think it was close to 35 million last quarter.

That facility is still outstanding and undrawn upon, but it is limited based on the comment we made earlier as, it's deemed to be a credit facility. So it would fall underneath our carve-out for credit facilities within our indentures and the 100 million that we borrowed really utilized the majority of that capability.

Okay. Good. Thank you.

Thank you, sir. Our next question comes from David Schraf from Lehman Brothers.

Thanks, guys. I guess I was hoping that given your EBITDA guidance for the year, I was wondering if you could give us an expectation for free cash-flow and maybe cash as of the end of the year under this new guidance?

And, just in terms of your covenants now, just wanted to address your restricted payment capacity to deal with the '07s or any other bonds that you would want to buy back. Are you now through the ratio tests on -- at this EBITDA level, unable to make restrictive payments to buy the '07s in the open market?

I can answer the second one first, Dave. You know, within our bond indentures, we do have restricted payment carve-outs and it's really a number of different tests. The big carve-out or determination of restricted payments is the, what I'd call a more typical test, which is historical cash flow reduced by fixed charges and then increased by any equity raises or stock sales that we have done over a period of time. That calculation works out to be quite a robust or quite a large restricted payment capability.

The second test which factors into that is that , if the Company does not have any debt inoccurrence underneath the ratio test, then that large basket is not available to us, restricted payment basket. So, as we sit right now with our current EBITDA levels, we do not have any debt inoccurrence capability under the ratio tests, so that large restricted payment baskets is not available to us.

There is a second restricted payment carve-out that's unrelated to the calculation that is just a bucket, in effect, for restricted payments, which would include repurchasing convertible debt. In the 8% and in the term notes, that's a bucket of 25 million. However, in the 12 and three-quarters senior notes that we have, that's a little bit more restrictive. That's 5 million. So that's the one that we are guided by as it being the most restrictive covenant.

None of those restrict you from buying back that maturity. Those are just voluntary purchases between now and then?

That's correct.

And then, in terms of free cash-flow and cash targets for the end of the year?

We hadn't really disclosed that, Dave. I guess what we can tell you is, with the cash levels we disclosed, kind of take the capex guidance less what we put forth in the first quarter. Your estimate of where we will be at EBITDA and then our interest payments on an annual basis are about $50 million with a new term loan facility. For the most part, incurred ratably over the quarters. And then we typically have about 5 million of cash taxes.

So, if I used, let's say, 40 million of EBITDA less 50 of capex, 50 of interest and five of cash taxes, about 65 million burned, of which 25 experienced already in the first quarter, giving you about 40 below the current levels of 130, so closer to 90 million by the end of the year, of which 13 would be restricted, give or take if that's where the EBITDA comes out.

13 is definitely restricted. So, the unrestricted cash you work off would be 117 to start.

Right. I guess in terms of the core business, particularly in Australia on the dial-up side you are going to release, can you give us an update on how many dial-up customers you have in Australia, as of the end of the quarter, maybe as of the end of 2004, just to get a sense of what the decline has been?

Hi, Dave, it's Neil. I would rather talk about number of broadband customers we've gained now as a result of the Telstra turmoil and pricing, which I think is behind us now. But right now, our whole advertising in Australia, as is others, is entirely broadband. The whole country is talking broadband, going broadband, and this is the time people are making the change. Because Telstra has lowered their prices for broadband and our costs have gone down accordingly, so that now broadband isn't really that much more expensive than dial-up and the switch is on.

We now have over 60,000 DSL customers in Australia, which are all new customers to us. And the good news is that most of those customers, 90% plus, are taking voice services, both local and long distance, as a bundle with the broadband. So that gives us an ARPU of approximately $100 Australian per customer for the bundle of those services. And that -- the pace of adding customers is very brisk and we're experiencing dial-up churn, of course. So is everybody else because, really, the whole country is going to broadband.

And the good news for us is that we are in the process of implementing our own DSLAM network at approximately 180 Telstra exchanges. So, we'll be able to put those customers within those exchanges on net and get -- enjoy a much higher gross margin than we can on a resell basis with Telstra. ,So that combined with the bundling of our traditional local and long distance business will give us gross margin back to where we were in 2003 and earlier.

One last question just to follow-up on the cash before. The $13 million of cash, the restricted cash. What is it restricted for and will that free up at some point?

It's primarily to support , actually, our relationship with Telstra in Australia. Telstra requires us to deposit a certain percentage of our usage with them. So, a good portion of that 13 million relates to Telstra. We don't expect that to free up in that they are typically in the driver's seat, being a monopolistic carrier.

The rest of it just supports standard, every day operating practice, where we have to provide a letter of credit to support certain other carrier relationships. And that periodically, we stop doing business with a carrier or start doing business with the carrier. So, as we cease letters of credit or install new letters of credit, that restricted cash balance changes.

All right. Thanks, guys.

Thank you, sir. Thank you again. Our next question comes from Steve Quinn from Morgan Stanley.

Hi, good evening. A couple of questions. Number one, in Canada did you say about 73% of your business is core long distance or 73% of your revenues in Canada are still core long distance? And, if so, can you -- it seems like you are starting to feel even greater and greater pressure on that business. Can you talk about what you can do to alleviate some of the pressure, if any signs that that pressure may slow down a little bit or should we look for that business just to continue to deteriorate throughout the rest of the year? Thanks.

Steve, this is John DePodesta. Yes, 73% of our current revenues are derived from long distance. That's down from approximately 90% a year ago. The efforts that are being made are really in our local initiative in Australia, where we are seeking to bundle the long distance with our local service and, as I indicated in my remarks, that our experience has been that over 90% of our new local customers are also opting to bundle long distance.

So it's really -- It's a strategy of bundling with our new products to preserve that long-distance base, as well as also coming to market with some new product. We recently launched an unlimited long distance product in Canada that has received a very favorable response. So, there's a range of initiatives that we're employing to try to hold on to what has been a very profitable business segment for us.

Steve, this is Paul Singh. I think the other interesting thing in Canada is that actually the number of customers for long distance is pretty stable. Actually I think may have even gone up a little bit, but fairly stable. What hurts us is the actual minutes of use per customer. And if the minutes of use decline per customer, it's the one that actually has the most impact on the long distance revenues and not the customers. And it's really not all that much you can do on that one, because it comes from the user's increasing of use of cell phone, increasing of use of Internet. So the approach we are taking is, again, with the selling other product, which are higher ARPU and are less -- you know, where the usage is more likely to stay more constant than just on the long distance part. And -- and to some degree, I think (inaudible) for long distance in other countries. If the having more impact than the price reduction and, even though the pricing pressure also contributes to some degree.

Great. Thanks. Just one more question, can you talk a little bit about, are there any non-core assets or any sort of asset sales that you can look at to raise liquidity, if needed?

That's a prospect.

What would you deem non-core or anything, you can give us some direction to figure out what's non-core?

I don't think definitionally it would make much difference, but there are some operations that we think, that depending on terms and price, we would consider doing in exchange.

Great. Thank you.

Our next question comes from Johmy (ph) Jensen from McMahon Securities.

Just to follow up a bit on the '07 converts given that, I guess, from the discussions it looks like your cash balance may be around 77 million at the end of '05. What are your thoughts for meeting that 71 million maturity? What kind of contingency plans do you have for that, at this point?

Well, I think the -- primarily we'll be ending up with 77 million cash, but our projection is that we would also be free cash-flow positive in 2006. And , I think, we attain and maintain that status, I think a number of potential financing alternatives will be available to us.

Do you have a sense for how much capital you could raise from asset sales, if that were needed?

Not at this point.

Okay. Thank you.

Thank you, ma'am. Our next question comes from Jonathan -- hold for our next question, please. Our next question comes from Steve Seigel from Jennings. Please go ahead, sir.

On the 7%, what month do they come due in '0,7 and are there any convertible items that convert to equity that might have a floating or reset rate in regards to diluting the equities? Then one other quick one.

On the '07 maturity, they mature in February 15, 2007.

Okay.

And as far as equity, there really is no other equity instruments that reset or convert.

Okay, and in regards to the network that you're -- you mentioned you're building something on the DSLAM network. What do you think the replacement costs would be for any of your networks that you have that wouldn't be, I guess, what I would consider becoming obsolete, which would be I guess dial-up and things of that nature?

Actually, I'm not sure we understood that. Can you ask that question again?

Yes, I'm trying to get an idea of what the might be for your equipment, at this point in time, if somebody wanted to kind of replicate what you have.

We don't have that number. We don't have that number.

I mean, as we said before, the Australia local network, DSLAM network, is budgeted at about $25 million. So that's a start in terms of if someone wanted to replicate it. But we already are -- we are in a lot of the central offices sites already, so it's a little bit different for us than starting from scratch.

Okay. Thanks.

Thank you, sir. Ladies and gentlemen, we have run out of time for our question and answer session. I'll like to turn the program back to your host, John DePodesta.

Thank you, John. That concludes Primus' first quarter 2005 financial results conference call. Replay information can be found on our website at www.primustel.com. The replay will be available in about an hour. Thank you very much for joining us today and good evening.

Ladies and gentlemen, this does conclude your presentation for today. Everyone have a great evening. You may now disconnect. Good day.