Innovate Corp (VATE) 2011 Q4 法說會逐字稿

Welcome to the PTGi fourth quarter 2011 earnings conference call. At this time, all participants are in a listen-only mode. Following Management's prepared remarks we'll hold a Q&A session. (Operator Instructions) As a reminder, this conference is being recorded March 15, 2012. I would now like to turn the conference over to Mr. Richard Ramlall, Senior Vice President, Corporate Development and Chief Communications Officer.

Thank you, operator and good morning, ladies and gentlemen. With me today on the call are Pete Aquino, Chairman, President and Chief Executive Officer; and Ken Schwartz, Chief Financial Officer. This call is being webcast with an accompanying slide presentation that can be accessed in the Investor Relations section of our website at Investor PTGi.com on the main Investor overview page. Once you have registered for the webcast, a PDF version of the slides will be available for download through that link. Please note that all the financial information that we are presenting today reflects the acquisition of Arbinet, which was completed on February 20, 2011. Affects fourth quarter 2011 financial results and the fourth quarter 2011 divestiture of our Brazil operations which have been classified as discontinued operations.

Before we begin our call, we would like to remind you that statements made by the Company during this call that are not historical facts are forward-looking statements for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Such forward-looking statements may include, but are not limited to, statements regarding the Company's revenue and earnings projections, business plans and objectives, capital investments, capital structure, expected future financial operating performance, future products and services, future market opportunities, and other financial matters.

Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors and risks, which are more fully described in our annual report, quarterly reports or other filings with the Securities and Exchange Commission. Other unknown or unpredictable factors could also affect our business, financial condition and results. Although we believe that the expectations reflected in the forward-looking statements are reasonable, there can be no assurance that any of the estimated or projected results will be realized.

You should not place undue reliance on these forward-looking statements which represent our views as of today. Subsequent events and developments may cause our views to change. While we may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so. During this call we may also refer to certain non-GAAP financial measures. A discussion of any non-GAAP financial measures and reconciliations to the most directly comparable GAAP financial measures are available in the appendix to our presentation. And now I would like to turn the call over to Pete Aquino. Pete?

Thank you, Richard. And that was very complete. Good morning everyone. Welcome to our fourth quarter call and our end of year summary. As you can read from our press release, we finished the year very strong with a great fourth quarter in each of the PTGi business units in Canada, Australia, International Carrier Services or ICS, and US retail has made significant progress in improving their business models during the year and have great momentum going into 2012. So let's get started.

Turn to slide 3 to review our total performance for the year. As you will hear today, 2011 was certainly action-packed. I'm very proud of our employees and their commitment to handle many fronts simultaneously. Namely, ongoing financial and operations improvements, acquisitions and dispositions, a complete balance sheet transformation and last but not least we're in the middle of a strategic review of our global portfolio. Net revenue of $989 million was up significantly as we integrated Arbinet into our newly formed ICS group.

In addition our growth initiatives in our 10 operating data centers are contributing more and more every day. We're currently in construction for our 11th data center in Toronto, Canada which is targeted to come online later this year. Our total data center revenue with seven facilities in Canada and three in Australia reached nearly $11 million in the fourth quarter, and $42 million in revenue for the total year. Collectively, our annual growth rate in data center revenue was an organic 19%. We're very committed to fueling this opportunity in managed services, colocation and cloud services, in both Canada and Australia. Today our data centers generate approximately 25% of our total Company EBITDA.

Normalized EBITDA for PTGi defined as adjusted EBITDA less nonrecurring items reached $88.5 million in 2011. This is a new record for the Company. Please note that this achievement level does not include Brazil's EBITDA given our fourth quarter sale. Had we consolidated Brazil in our total Company results as in previous quarters, total normalized EBITDA would have cleared $90 million in 2011, and that's a key milestone. Regarding Brazil, we conducted a review process over the last few months and decided to sell the business in an all encompassing stock deal to a group of investors including our local partner. The net proceeds of $4.3 million were applied together with other funds to reduce our debt in the fourth quarter by $5 million.

We also exited India this year where we had nearly 200 employees in exchange for an outsource agreement with new partners. Although a relatively small part of our business, exiting both India and Brazil operations was aimed at simplifying our management structure, monetizing sub-scale assets, and gaining efficiencies for PTGi in the long run. Also in the category of unlocking value of non-core assets, our Canadian partner Globility in which we own a 46% interest finalized its sale of fixed wireless spectrum for CAD15 million last quarter. Our reported cash balance of $40 million includes the spectrum proceeds and is net of our $5 million in debt reduction. Finally, we continue to generate positive free cash flow from operations, defined as EBITDA less CapEx. We end the year generating nearly $58 million in free cash flow and adding an incremental $5 million year-over-year in capital program. All in all, our capital program finished the year at $31 million.

We came in at the lower end of guidance at $31 million to $33 million in capital program, reflecting our conservative yet strategic reinvestment plan. Our success-based capital is directed towards expanding capacity in our data centers to meet growing demand, adding voice over IP CPE for consumers and SMB and also to groom and upgrade our networks in Australia to provide Metro Fibre high capacity services. This year we completed new Rings in Sydney and Melbourne and began designing Brisbane, Adelaide and Perth. This is among the top five cities in Australia. The intercity connections will be augmented to handle new anticipated bandwidth requirements and low latency routes reflect the state-of-the-art telecom network demanded by larger enterprises including the financial services and IT sectors in Australia.

We are very excited about our rapid progress and already selling optical transport network or OTN services in Melbourne and Sydney as we speak. The initial OTN customer contracts along with a growing pipeline of prospects in Australia are very encouraging. Given the relatively low incremental capital needed to groom our existing fiber in the country, we consider that the launch of our new Metro Fibre business is going to be one of the best investments for PTGi over the long run. To put a bow on our accomplishments for 2011, we were listed on the New York Stock Exchange under the symbol PTGi. The relaunch of the new Primus sets the stage for a more focused international telecom company in the future.

Let's now turn to slide 4 to review the PTGi portfolio. In summary, for 2011, the four core business units contributed $989 million of revenue and over $100 million of EBITDA before corporate overhead. More importantly, business unit operating free cash flow defined as EBITDA less CapEx resulted in over $70 million for the year.

Some of the main tenets of our management philosophy employed in 2011 to drive sustainable and profitable growth include moving customers on-net where we can best maximize our margins, selling broadband services to our large addressable consumer and business base. Utilizing ICS to improve our international calling rates in our retail businesses. Investing in high value managed services, colocation and cloud platforms and emerging as a premier high capacity data service provider to medium and large enterprises. With these objectives in mind, and our use of best practices across all of our business units, we expect to continue to ring out our synergies and benefits wherever possible going forward.

For example, by the end of 2011, we appointed the Canadian team to manage US retail as a new territory. Leveraging their expertise and back office. US retail closed the year at over $5 million in EBITDA before integration into Canada's operations. The cost synergies going forward are expected to be between $2 million and $3 million a year, giving Canada's scale. Canada's end of year normalized EBITDA margin of 21% is leading the PTGi portfolio, in part due to its growing data center composition and management focus on profitable growth.

Please note that Canada reported $53 million in EBITDA for the year, but we normalized back to $51 million to reflect one-time tax benefits. Regarding the Canadian data center business, the team produced over $8 million in the fourth quarter in revenue or approximately $33 million annualized. Given nearly 50% direct EBITDA margins in this business, we are very committed to building value in our core competencies across now eight Tier II to Tier III data center facilities.

Australia's another great story for this quarter. EBITDA margin was over 14% for the year and trending in the right direction. We exited the fourth quarter at $13 million of EBITDA or 19% EBITDA margin. The traction that we now have on margin improvement is primarily due to better cost efficiency and redirecting our sales force to on-net territories. Looking ahead to 2012, we're now certified by the Australian government to sell both broadband and voice services over NBN's newly announced Fiber to the Home territories.

In addition, we recently qualified to join Australia Federal Government's data center panel. We expect this to translate into opportunities for us to compete for larger data center deals in Melbourne and Sydney where we have a strong presence. By the end of the fourth quarter, the Australian team also landed a notable deal with Hungry Jacks or as we know it, Burger King. This contract allows us to provide iPrimus branded Wi-Fi and IP voice services to over 300 Hungry Jacks across the country. In summary, it's clear that the team has really stepped up across all business units and making their mark amongst the competition. At this point let me turn it over to Ken to go over the financials in more detail. Ken?

Thank you, Pete and good morning everyone. I'll now walk you through the financial results. As a reminder, please note that results include the Arbinet acquisition from March 1, 2011 on. Therefore our fourth quarter and year-to-date results are not directly comparable with prior periods. In addition, we removed Brazil's financial results from prior periods as during the fourth quarter we sold the stock of the entity holding our investments and classified Brazil as a discontinued operation.

Let's start with slide 5 titled financial summary which provides four key financial metrics and their trends over the last five quarters. In the fourth quarter, net revenue increased 36.5% year-over-year to $249.6 million. Overall, the impact of foreign currency translation was a modest benefit of $679,000. On a constant currency basis net revenue increased 36.2%. The primary driver of revenue growth was our carrier services expansion through the Arbinet acquisition as well as our continued focus on the growth of on-net services in our consumer, SME and enterprise segments across our global portfolio.

Growth services revenue which is a key focus for Management and consisted of primarily consumer and SME broadband, date center and other commercial data services grew 7.1% year-over-year. On a sequential basis, revenue grew 0.8% or $2.1 million and adjusted EBITDA margin expanded 80 basis points on a reported basis and 130 basis points on a normalized basis. I will cover these specifics as I walk through the business units. Reported adjusted EBITDA grew 24.2% to $24.3 million in the fourth quarter 2011, compared to $19.6 million in the fourth quarter 2010. The positive impact of foreign exchange to adjusted EBITDA year-over-year was only $0.2 million which demonstrates real operational improvements in our fourth quarter results.

Normalized adjusted EBITDA grew 16.3% to $25.7 million in the fourth quarter 2011, compared to $22.1 million in the fourth quarter 2010. Normalized adjusted EBITDA margin decreased 180 basis points to 10.3% in the fourth quarter 2011 from 12.1% in the fourth quarter 2010. But expanded 130 basis points from the third quarter of 2011 primarily due to continued SG&A optimization and increased contribution from our higher margin growth services revenue, particularly our data center, data services and on-net traffic. In addition as part of our ICS strategy we continue to minimize some nonproductive revenue and focus on higher margin wholesale traffic.

Capital expenditures in the fourth quarter 2011 were $8.6 million or 3.4% of net revenue compared to $9.1 million or 5% of net revenue in the fourth quarter of 2010. Capital spending in the quarter continued to be driven primarily by our core investments in Australia and Canada, expanding our data centers, grooming our Metro Ring highways and migrating customers on-net. Normalized adjusted EBITDA less capital expenditures was $17.1 million in the fourth quarter 2011, a significant contribution from operations.

Free cash flow for the fourth quarter 2011 was a positive $8.2 million, even after a partial interest payment of $6 million. This compares favorably to a negative $10 million in the fourth quarter 2010. The fourth quarter 2011's positive free cash flow reversed the same quarter trend from 2010. As a result of the timing of the debt exchange, we also paid less interest in the fourth quarter 2011 than we will on a go-forward basis. We remain committed to growing positive free cash flow through stronger adjusted EBITDA profitability while we continue to invest in our growth businesses.

Let's move to slide 6 now and review our operations in Canada. Primus Canada delivered in local currency fourth quarter 2011 revenues of CAD60.2 million, and adjusted EBITDA of CAD14.0 million, or 23.2% of net revenue on a reported basis. This compares to CAD59.6 million and adjusted EBITDA of CAD12 million, or 20.1% of net revenues in the fourth quarter 2010. The consistent growth in adjusted EBITDA in the quarter is driven by continued efforts to improve the product mix, cuts in SG&A and our focus on data centers. In the quarter, Primus Canada also booked a net favorable tax refund of $1.1 million which we included as part of our net normalization to fairly represent operating results.

To give you a snapshot of our current revenue mix I refer you to the pie chart shown on the left of this page. We are very focused on our data center, SME, VoIP and broadband services which are increasing over time and are now up to 32% of our Canadian revenue. As we examine the growth versus traditional product lines to Primus Canada's full services telecom suite we consider broadband data service to the consumer, SME and enterprise segments to be part of our growth areas. This includes VoIP and high speed Internet access and our soon to be eight data centers as significant growth prospects. A very similar growth services set is also in place in Primus Australia with the added contribution of our Metro Fibre business which I will discuss in a moment.

In summary, Canada growth services revenue increased 11.7% year-over-year with data center revenue accounting for 40% of -- 44% of the growth category, growing 14.7% year-over-year to CAD8.5 million, for the fourth quarter 2011 alone. Other telecom services including traditional long distance, local, prepaid, wireless and dialup comprise 68% of Canada and decreased by 5.2%. On a combined basis the net effect of cost cuts and better margin performance, fourth quarter gross profit of $33 million increased 8.3% year-over-year yielding a gross margin of 54.7%, roughly a 400 basis improvement from 51% last year.

Canada capital spending in the fourth quarter of 2011 was CAD6.1 million, compared to CAD3.4 million in the fourth quarter 2010. Representing a significant share of PTGi's overall capital expenditures. The incremental spending as discussed was devoted primarily to our expansion at our data centers. Canada adjusted EBITDA less capital expenditures was CAD6.8 million in the quarter compared to CAD10 million in the fourth quarter 2010 as we ramped up our investment in our future growth.

Let's now move to slide 7 and discuss our US retail operations that are now managed by our Canadian team. Fourth quarter 2011 was Canada's team's first quarter managing its retail operations. US retail net revenues for the fourth quarter 2011 were $11 million, a 7.6% decrease from $11.9 million in the fourth quarter 2010, reflected anticipated attrition in legacy services. Partially offset by our growth in our IP PBX services. On a sequential basis revenue decreased 1.9% from $11.2 million in the third quarter. Adjusted EBITDA for the fourth quarter 2011 was $1.7 million, a $700,000 decrease from $2.4 million in the fourth quarter 2010. But it was up $1.2 million from adjusted EBITDA of $600,000 in the third quarter as we see improvements resulting from the efficiencies of the combination with our Canadian operations.

US retail capital spending in the fourth quarter was $300,000, flat compared to prior year and slightly down from last quarter. This produced adjusted EBITDA less capital expenditures of $1.5 million in the fourth quarter which is down approximately $600,000 from the fourth quarter 2010, but up approximately $1.3 million from third quarter 2011. Canada's leadership is now managing this business to generate $2 million to $3 million in cost savings on an annualized basis, a portion of which we saw in the fourth quarter 2011 and the remainder of which we anticipate seeing in the first half of 2012.

Let's now move to slide 8 and discuss our Australian operations. Primus Australia delivered in local currency in the fourth quarter 2011 revenues of AUD68.6 million and adjusted EBITDA of AUD12.7 million, or 18.6% of net revenue on a reported basis. This compares to revenues of AUD71.8 million, and adjusted EBITDA of AUD9 million or 12.5% of net revenues in the fourth quarter of 2010. The year-over-year revenue decrease resulted from continued attrition in our traditional services, increasingly offset by the growth services over the course of 2011. On a sequential basis revenue grew $400,000, adjusted EBITDA in the quarter was driven by our efforts to focus on growth services, the inclusion of the capitalization of our Trans-Pacific cable lease and continued efforts to aggressively manage our SG&A as a percentage of revenue, streamlining the service delivery process to our customers.

To give you a snapshot of the current revenue mix in Australia, let's look at the pie chart on the left on your page. In this business unit we are very focused on investing in our growth services which includes our data center, Metro Fibre, VPN, SME, VoIP, high speed broadband and local on-net services. We are successfully growing these services which are now up to 47.2% of Australian revenue and remain key areas of growth. Australia growth services increased 4.6% year-over-year with broadband revenue accounting for 50% of the growth category. Growing slightly year-over-year to $16 million for the quarter.

Other telecom services including traditional long distance services, local, prepaid, wireless and dialup comprise 43% of Australia and decreased 13%. The net effect of these factors I just mentioned is that the fourth quarter of $29.4 million increased 7.5% year-over-year, yielding a gross margin of 43%, roughly a 480 basis point improvement from the 38% last year. Fourth quarter SG&A as a percentage of revenue improved 140 basis points to 24% from last year.

Australia's capital spending in the fourth quarter was AUD1.9 million, compared to AUD5.5 million in the fourth quarter 2010. Decreasing primarily because of timing of investments we are making. Australian adjusted EBITDA less capital expenditures was AUD11 million in the fourth quarter 2011, compared to AUD3.4 million in the fourth quarter 2010 as we grew our adjusted EBITDA and spent less capital. In 2012, we expect to continue investing in Australia, focusing on high ROI Metro Fibre, our data centers, and our network expansion projects.

Now let's move to our International Carrier Services, ICS. PTGi's International Carrier revenues in the fourth quarter 2011 of $110.3 million increased 168.7% from the fourth quarter 2010, primarily through the inclusion of Arbinet. The impact of foreign currency was an unfavorable $400,000. On a constant currency basis net revenue increased 170%. Sequentially, ICS net revenue increased to $8.8 million, increased to -- $8.8 million from $101.5 million in the third quarter as we continued our integration efforts and focused on stabilizing our revenue growth while experiencing higher seasonal volumes in the fourth quarter.

We continue to expect revenue growth to be in line with the overall industry averages. Reported adjusted EBITDA in the fourth quarter 2011 was $700,000, compared to $400,000 in the fourth quarter of 2010. Normalized adjusted EBITDA in the fourth quarter 2011 was $1.6 million after adjusting for our integration costs and severance. The gross margin increased to 5.2% in the quarter compared to 4.5% last year as we increased our US domestic termination and our overall focus on profitability.

We continue to believe that we are beginning to approach, in a sustainable fashion, industry standards on gross margin in the wholesale business. Fourth quarter 2011 SG&A was 4.6% of net revenue, compared to 3.6% in the fourth quarter 2010. Reflecting the inclusion of Arbinet but was down from the 5% in the third quarter 2011 as we completed major elements of our integration, organizational changes and sales alignment actions associated with the Arbinet acquisition. ICS capital spending in the fourth quarter of 2011 was $4.4 million, compared to zero in the fourth quarter 2010, resulting in adjusted EBITDA less capital expenditures of $1.2 million, compared to $400,000 in the fourth quarter 2010. With respect to the integration cost savings that we have discussed, we generated 2011 integration synergies of over the $3 million targeted and we continue to analyze opportunities for network consolidation.

Now let's move to our balance sheet on slide 10. Unrestricted cash and cash equivalents at quarter end were $41.1 million, up from $27.2 million at September 30, 2011. This $41.1 million includes $13.8 million associated with our 45.6% ownership in Globility Communications Corporation which completed the sale of the Canadian spectrum in the third quarter. The cash was received during the fourth quarter.

Cash was generated during the fourth quarter in the following amounts. $24.3 million of adjusted EBITDA. $15.6 million of net proceeds from the sale of the assets. Offset in part by the usage of $8.7 million for capital, $7.4 million for interest payments, $5 million to reduce the 10% senior secured notes, $2.5 million associated with the debt exchange, $1.7 million in capital lease payments, and $700,000 used in working capital. We did not repurchase any shares in the fourth quarter 2011 under our buyback program.

With respect to Brazil, as I mentioned earlier, during the fourth quarter as part of our strategic process we completed a process to divest non-core Brazilian operations to a consortium including our local partners for $4.3 million. This included all the assets and outstanding liabilities of the operation. We applied the majority of these proceeds to the reduction of debt. Overall in 2011, we successfully transformed our balance sheet with a debt exchange. We reduced our interest expense and we increased our ability to generate free cash flow, improving our adjusted EBITDA generation, we divested non-core assets, all while investing capital in services that improve our competitive position and offer sustained profitable growth. Our long-term obligations at quarter end stood at $245.8 million, composed primarily of 10% notes, up from the $242.7 million at year end 2010, which was comprised primarily of our 13% and 14.2% notes.

Our leverage and our interest ratios improved primarily due to the lower interest resulting from the debt exchange and the change in accounting for our Trans-Pacific lease. We expect to see continued improvement in these ratios going forward. We continue to manage the business to generate sustainable growth in adjusted EBITDA. Our CapEx program remains aimed at high return on investment projects such as our data centers and Metro Rings and should allow for consistent grow and positive free cash flow generation. This concludes my prepared remarks and I'll turn it back over to Pete now.

Thank you, Ken. So to wrap up our remarks, please turn to slide 11. So the immediate next steps this year are to keep up the pace on operational financial performance. We'll look to benchmark our results against the peer groups in each segment and strive to make improvements across the board. Our future is squarely on the back of high growth and profitable services. We'll continue to direct our strategic capital spend towards high return on investment projects, namely in the data centers and the Metro Rings.

We also have a great opportunity to leverage the embedded base of consumer and business customers that we have in our network. Our goal is to aggressively continue to migrate and upsell customers to broadband IP services to improve our bottom line. Any other benefits we can gain across the PTGi portfolio will be targeted including utilizing ICS carrier contracts to help our retail business in Canada, Australia and the US. As you can see from this past quarter, excess cash above our growth capital needed to fuel the business could be considered for debt reduction.

Finally, as you're all aware we're in the midst of a strategic review in an effort to unlock the value embedded in the sum of the parts. I will not be commenting on this process during the Q&A session today but promise to get back to you as soon as we conclude our work in the upcoming months. So at this point, operator, we'll be happy to take questions.

(Operator Instructions) In the interest of time we ask that you please limit yourself to one question and one follow-up. (Operator Instructions) One moment please for the first question. Kenneth Miller, Nokomis Capital.

Good morning, gentlemen. Thanks for taking my question. I wanted to ask what you thought was achievable in 2012 for EBITDA margins in your International Carrier Services or wholesale business. Obviously that's by far your lowest margin business and it's producing a pretty low percentage of your overall EBITDA today. Given what you hope to accomplish in 2012 and the synergies you've outlined, what do you think is achievable in 2012?

Thanks for the question. I think for the most part we try to stay away from guidance for some of the futures, but let me give you something to work with. In the Carrier business, the gross margin best-in-class level that we're trying to achieve is basically between 4% and 7%. We're in the 5% plus range right now. That's kind of a good place for us to be at this point.

Scale is a big factor in the carrier business as you can imagine, which was one of the reasons we took on the Arbinet deal. But for the most part, looking forward if we could gain scale and gain more efficiency, we'll really be focusing on gross margin and trying to stay within those benchmark levels to the best of our ability. Some of that is strategy, where to sell, what routes are better and that kind of thing but you're on point and it is different than our other businesses. Carrier is unique. It's in an industry that is very similar in the way it behaves. But I'll give you that as a reference point going forward. Hopefully that will help you.

It helps somewhat. But that doesn't imply a great deal of improvement in 2012. It seems like such a low level of EBITDA. I don't know if there's synergies with other parts of your business or it helps you sell your other services, but it seems almost not worth doing I guess at those EBITDA levels.

Yes, again, it's a different type of business. It's certainly helpful to our retail business and we use it to our advantage. But it's a business that we've had in our D&A for years and it's one of those businesses where scale, like I said, really matters. So it's in or out and if you're in, you have to get scale. That's been our strategy and literally we've been at this for -- the new Management team's been at it a year plus, and that's been our take on it. But your point is well-taken. It is a different animal, though and just be aware that as you're trying to compare that type of business to the other businesses we have, it is unique in that sense. But your point's well-taken.

Okay. I understand. Thank you.

Keith Rosenbloom, Cruiser.

Hey, Pete, Ken and Richard, congratulations on a really great quarter, guys.

Thanks, Keith.

You're welcome, guys. Really delivering on so many different levels. As a follow-up to the question that just was on the ICS revenues and gross margin, you alluded in the discussion that you were moving towards best-in-class, moving from the 5% to the 7% gross margin. If we read the numbers correctly, for the three months that ended, you had it looks like $75 million of gross profit. Is that the right way to think about that? For the overall business, combined business.

You're talking about ICS specifically?

No, the combined -- I guess what I'm getting at is ICS's contribution, overall contribution to your gross margin is high, at 5% on $500 million, that's $25 million for the year, right?

Right.

So the way you're amortizing those expenses throughout the organization, is there more of a contribution on a cash flow basis than we're seeing or is it really like as you said, this is sort of contributing 1% EBITDA margin?

Yes, that's the nature of the business. I think what we could expect, though, with improvements in size, you can get absolute gross margin improvement. But the ratios in terms of gross margin percentage as you can see even year over year is diluted by more Carrier in your diet. Overall, the gross margin absolute dollars for Primus has improved. So it's kind of a mix of trying to drive EBITDA dollars absolutely through the help of ICS.

And again, the synergies that are achieved in the retail businesses are not necessarily benefiting ICS specifically. And I would hear that from my brother in ICS. But for the most part, it is a business that is a certain -- it's a commodity now. The margins have been squeezed. Primus has that, like I said, in its history and it's very helpful to have very good contracts for the retail business, especially as you're talking international routes for Australia, Canada and the US, voice or IP customers and SME customers. So all in all, Keith, the only thing I can tell you is we have it. We're trying to use it to the best of our ability. And with the acquisition of Arbinet, I think we've made really good improvements, just trying to stay within the industry benchmarks for what it is.

Got it. Well, it certainly contributes to cash flow with that $25 million gross margin, so just great job, guys. You're really doing a great job building out. Thanks again.

Thanks, Keith.

Thank you.

There are no further questions at this time. Please proceed with your presentation or any closing remarks.

Well, thank you, operator. And thank you everyone for your participation today. We look forward to updating you on our progress in the first quarter. Thank you very much.

Ladies and gentlemen, that concludes your conference call for today. We thank you for your participation and ask that you please disconnect your lines.