Telegroup, Inc. Reports Record Second Quarter and Six Month's Revenue results. Underwriters Exercise Over-Allotment.
FAIRFIELD, IA (August 11, 1997)- Telegroup, Inc. (Nasdaq/NM: TGRP), a leading provider of international telecommunications services, today announced record revenues for the second quarter and six month periods ended June 30, 1997. Clifford Rees, President and Chief Executive Officer, said, "We are pleased with Telegroup's progress during the second quarter, and we are confident that we can take full advantage of the opportunities that are developing from the continuing deregulation in the telecommunications markets."
The Company reported revenues of $80.1 million and $154.2 million for the second quarter and first six months of 1997, respectively, compared to revenues of $47.3 million and $90.6 million for the same period in 1996, respectively.
Billed minutes of use increased 13.0% to 197.9 million minutes in the three months ended June 30, 1997, as compared to 175.2 million minutes in the three months ended March 31, 1997.
In reporting these results, Mr. Douglas A. Neish, Chief Financial Officer, said, "Telegroup has been able to reduce some of the risk associated with the telecommunications industry by having a mix of wholesale and retail sales. The Company provides a variety of basic and enhanced services, appealing to a wide base of customers. Operating in over 170 countries, and serving approximately 204,000 active customers, the Company is not subject to the volatility associated with a single region, nation or service."
Gross profits were $20.9 million and $41.8 million for the second quarter and first six months of 1997, respectively, compared to gross profits of $15.1 million and $30.7 million for the same periods in 1996.
For the second quarter and first six months of 1997, EBITDA was $0.3 million and $1.3 million, compared to $0.99 million and $3.4 million, respectively, for the same periods in 1996. EBITDA, which consists of earnings before interest, income taxes, non-cash stock option-based compensation, and depreciation and amortization, is a measure commonly used in the telecommunications industry to measure operating performance.
Net income was $(1.0) million and $(1.3) million for the second quarter and first six months of 1997, respectively, compared to $0.4 million and $1.7 million for the same periods in 1996. As a percentage of revenue, operating expenses, comprised of selling, general and administrative expenses, depreciation and amortization, and stock option-based compensation, declined 3.4%, from 30.7% in the second quarter 1996, to 27.3% in the second quarter 1997. Similarly, operating expenses, as a percentage of revenue, declined 3.4%, from 30.8% in the first half 1996, to 27.4%, in the first half 1997.
As a leading global provider of international telecommunications services, the Company offers a broad range of discounted international and enhanced telecommunications programs to small and medium-sized business and residential customers. "The Company has achieved its significant international market penetration by developing a comprehensive global sales, marketing, and customer service organization. The Company operates a digital, switched-based network, (Telegroup Intelligent Global Network or TIGN) with switches in the U.S., Hong Kong, the United Kingdom, France, Japan, Netherlands, Australia, and Switzerland," said Mr. Rees.
In July 1997, the Company completed its initial public offering of $40.0 million, with net proceeds from the offering to the Company of approximately $35.6 million. The underwriting group of Smith Barney Inc., Alex. Brown & Sons Incorporated and Cowen & Company, exercised its over-allotment option. As a result, an additional 450,000 shares will be sold by the Company, yielding net proceeds of approximately $4.2 million, for total combined IPO proceeds of $39.8 million, a large portion of which will be used to expand the Company's TIGN.
Telegroup increased the number of switches and nodes in operation from 15 as of May 30, 1997 to 16 with the addition of a switch in Frankfurt, Germany which is installed and being tested. The Company plans to expand the number of switches/nodes to 20 by the end of 1997 and to 28 by the end of 1998.
In July 1997, the Company opened a North American Carrier Sales office in San Francisco, California. The office will undertake a program to expand the number of regional carriers served by the Company. It is headed by Ron Jackenthal, Vice President, North American Carrier Sales, who joined the firm in May 1997. Mr. Jackenthal will oversee sales, support, purchasing, vendor relationships and cost management. Prior to joining the Company, Mr. Jackenthal served as National Director, Carrier Sales, for Cable & Wireless, Inc.. Beginning in 1987, Mr. Jackenthal held various positions at Cable & Wireless, including Manager, Carrier Sales, from 1993 to 1995, and National Manager, Major Accounts, from 1990 to 1994.
The number of full and part-time employees grew 34.3%, from 399 full and part-time employees as of the second quarter 1996, to 536 as of the end of the second quarter 1997. The Company's sales force is made up of independent agents and an in-house sales staff. The number of independent agents grew from 1300 as of April 30, 1997 to 1450 as of June 30, 1997. The Company also expects to increase its in-house sales force.
During the third quarter 1997, the Company intends to prepay $20 million of 12% Senior Subordinated Notes to Greenwich Street Capital Partners, L.P. and its affiliated funds. When the notes are repaid, the Company will report approximately $10.3 million of non-cash interest expense associated with the realization of the original issue discount (OID) incurred at the time of the issuance of the notes. In addition, approximately $1.3 million associated with the expenses of the Greenwich offering, which were to have been amortized over the life of the notes, will be accelerated and realized in the third quarter. Both these charges were fully anticipated and explained during the pre-offering period of the Company's initial public offering.
Telegroup's objective is to become the leading alternative provider of telecommunications services to small and medium-sized businesses and high volume residential customers in its existing core markets and selected target markets. Telegroup, Inc. is based in Fairfield, Iowa. To learn more about Telegroup and its services, visit its website at http://www.telegroup.com.
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