Telegroup, Inc. Announces Third Quarter's Results
- Revenues and Minutes Hit Record Highs
- Migration to Global Access Direct Service Underway
Fairfield, IA (November 10, 1997) -- Telegroup Inc. (NASDAQ: TGRP), a leading alternative provider of international telecommunications services, today announced financial results, including record revenues for the third quarter and nine months ended September 30, 1997.
Revenue for the third quarter grew to a record $84.3 million, being a 47.4% increase from $57.2 million reported for the third quarter 1996. For the nine months ended September 30, 1997, revenue increased to $238.5 million, a 61.4% increase from $147.8 million reported for the previous nine months ended September 30, 1996.
"We are pleased to report that the company's revenues have increased," stated Cliff Rees, President and Chief Executive Officer, in making the announcement. "Since going public in July 1997, the company has grown in line with our expectations, with retail and wholesale revenue in the third quarter 1997 growing at a rate of 26.4% and 121.7%, respectively, from the revenues reported in 1996's third quarter."
Billed minutes of use increased 7.7 million minutes, or 3.9% to 205.6 million minutes in the three months ended September 30, 1997. This compares to 197.9 million minutes reported at the end of the second quarter.
Reflecting on the third quarter results and the other recent announcements, Cliff Rees commented, "Telegroup has achieved its financing objectives by raising approximately $100 million in subordinated and senior debt on favorable terms and conditions which we believe were favorable to the company. We are now poised to achieve our business plan, including the full build-out of the Telegroup Intelligent Global Network, implementation of international and domestic marketing initiatives, and acquisition of companies worldwide that complement our business plan. Our recent acquisition of PCS Telecom is an early indication of the synergistic acquisitions we plan to make."
Gross profit for the third quarter 1997 grew to a record $22.4 million, or 26.6% of revenues, representing a 37.4% increase over gross profit of $16.3 million reported for the third quarter 1996. For the nine months ended September 30, 1997, gross profit grew to $64.2 million, or a 36.6% increase from $47.0 million in gross profit for the comparable 1996 reporting period.
For the third quarter and nine month periods of 1997, EBITDA was $(0.72) million and $0.60 million, respectively, compared to $1.07 million and $4.34 million, respectively, for the same two periods in 1996. EBITDA is a measure commonly used in the telecommunications industry to measure operating performance. The EBITDA computation does not include the loss from the early extinguishment of debt.
As a percentage of revenue, operating expenses increased from 27.6% in the third quarter 1996, to 29.0% in the third quarter 1997. Operating expenses are comprised of selling, general and administrative expenses, depreciation and amortization, and stock option-based compensation. Operating expenses as a percentage of revenue decreased 1.7%, from 29.6% for the nine months ended September 30, 1996, to 27.9% for the same period in 1997.
"The company achieved growth in revenues of 5.3% in the third quarter compared with the second quarter while completing its financings, and rolling-out new network and direct dial international and domestic long distance services," said Doug Neish, Telegroup's CFO. "Gross profit in the third quarter exceeded our expectations, as price pressures in the international long distance market overall have not been as strong as we had anticipated. Additionally, while increasing its revenues and gross profit to record levels and expanding its network internationally, the company ended the first nine months of the year with positive ebitda."
For the third quarter 1997, the company's net loss before extraordinary charges was $(1.6) million, or $(0.05) per share, compared with income of $0.3 million, or $0.01 per share, for the third quarter 1996. The net loss for the third quarter of 1997 was $(11.5) million, or $(0.39) per share. The loss was a result of an extraordinary charge of $9.97 million, of which $8.74 million was a non-cash charge created by the write-off of unamortized original issue discount attributable to the prepayment of senior subordinated debt in September. The weighted average number of common and common equivalent shares outstanding for the third quarter 1997 was 29.923 million, compared with 28.795 million for the third quarter 1996.
During the third quarter 1997, the expansion of the Telegroup Intelligent Global Network (TIGN) proceeded as planned, with the addition of the Frankfurt TIGN switch and six access nodes in major German cities, the addition of the Zurich TIGN switch and an access node in Geneva, and the addition of the Copenhagen TIGN switch. With these additions, the TIGN has a total of 18 switches distributed globally.
"At least two more switch installations are planned for the year, and more nodes and circuits are anticipated to be added in the fourth quarter," said Cliff Rees of Telegroup's network roll-out plans. "Code access interconnect agreements have been concluded already in the Netherlands and Sweden, and other such arrangements are being pursued to increase customer access to the company's network and telecom services."
Cliff Rees added, "With the roll-out of the TIGN, customer migration from Global Access CallBack to Global Access Direct is gaining momentum in several countries where Telegroup has a firm foothold in providing extensive services to its customers. Much of this service's appeal is due to the competitive rates that can be offered, and the higher quality and faster call completion. We plan to expand our new direct dial service to the professional market which recognizes the advantages of such a service."
Migration from Global Access CallBack to Global Access Direct was underway in the third quarter in France, Netherlands, UK, Australia, Japan and Hong Kong. In the fourth quarter, it is anticipated that Global Access Direct will be offered to new and existing customers Switzerland, Germany, and Denmark.
"The challenge before us over the next year is to take our new direct dial offer to the professional market where historically callback services have been poorly received," said Georges Apple, newly appointed head of Telegroup's European operations. "This requires establishing marketing awareness and a re-packaging of our offer appropriate to the expectations of a more demanding professional sector."
During the third quarter and October, many significant events took place, including:
- The sale of $25 million, 8% Convertible Subordinated Debentures due 2005, for net proceeds to the company of $24.3 million.
- The appointment of three outside directors to its seven member Board of Directors.
- The issuance of $97 million principal amount at maturity, 10.5% Senior Discounted Notes due 2004, for net proceeds to the company of $72.3 million.
- The acquisition of PCS Telecom, Inc., a leading provider of turnkey PC-based voice processing switches, with sales of $3.6 million during 1996.
The company had previously entered into a letter of intent to acquire World Telecommunications Company (WTC), a privately-held English company. Negotiations to purchase were terminated recently as another bidder was willing to pay more for WTC than the company determined was prudent, and consequently, the company will not pursue the transaction any further.
Telegroup, Inc. markets its telecommunications services to small and medium-sized businesses and residential customers, mainly in North America, Europe and the Pacific Rim. Telegroup, Inc. is based in Fairfield, Iowa. To learn more about Telegroup and its services, visit its website at:- http://www.telegroup.com.
TELEGROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In 000's except per share data) Three Months Ended Nine Months Ended September September September September 30, 1996 30, 1997 30, 1996 30, 1997 Retail revenue 44,463.9 56,192.6 128,827.9 169,720.1 Carrier revenue 12,687.8 28,128.7 18,950.7 68,758.0 Total revenues 57,151.7 84,321.3 147,778.6 238,478.1 Cost of revenues 40,853.4 61,876.4 100,794.1 174,273.2 Gross profit 16,298.3 22,444.9 46,984.5 64,204.9 Commissions 7,079.7 8,487.5 19,748.4 26,437.6 SG&A 8,166.9 14,713.2 22,899.9 36,993.7 D&A 513.2 1,264.5 1,158.1 3,208.1 Operating income 538.5 (2,020.3) 3,178.1 (2,434.5) Interest income 84.2 427.7 210.9 782.3 Interest expense (151.4) (645.3) (200.2) (2,134.7) FX gain (loss) 34.0 (130.5) (56.7) (587.3) Other (18.8) 79.6 61.0 159.2 EBT & EX 486.5 (2,288.8) 3,193.1 (4,215.0) Tax benefit (expense) (183.1) 727.6 (1,143.5) 1,366.1 Net income (loss) before extraordinary 303.4 (1,561.2) 2,049.6 (2,848.9) charge Extraordinary charge--loss on early extinguishment - (9,970.8) - (9,970.8) of debt, net of applicable taxes Net income (loss) 303.4 (11,532.0) 2,049.6 (12,819.7) EBITDA 1,066.9 (721.1) 4,340.5 602.3 Net income (loss) per share before 0.01 (0.05) 0.07 (0.10) extraordinary charge Net income (loss) per share after 0.01 (0.39) 0.07 (0.47) extraordinary charge Weighted average common and common equivalent 28,795 29,923 28,795 27,462 shares outstanding (in thousands)
Telegroup, Inc. and Subsidiaries Third Quarter 1997 Consolidated Results Balance Sheets (Condensed, in 000's) Selected Balance Sheet December September Data 31, 1996 30, 1997 Cash and cash equivalents 14,155.0 58,215.2 Accounts receivable (net) 32,288.5 48,007.4 Income tax recoverable 1,796.8 2,924.5 Deferred tax asset 1,392.1 1,639.1 Other current assets 345.8 992.5 Property, plant and equipment 11,256.1 21,597.0 Intangible assets (net) 4,345.5 5,593.3 Other assets 376.6 688.6 Total Assets 65,956.4 139,657.6 Payables and accrued expenses 39,280.6 56,647.2 Operating loan - 15,000.0 Current portion of capital lease 138.3 127.1 Current portion of long term debt 232.6 127.1 Other current liabilities 667.2 877.5 Capital lease (net of current portion) 301.4 218.3 Long term debt (net current portion) 11,216.9 25,042.1 Deferred tax liability 756.9 730.8 Shareholder equity 13,362.5 40,922.4 Total Liabilities and Shareholder Equity 65,956.4 139,657.6
This press release contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements regarding the Company's ability to seize opportunities from continuing deregulation of the telecommunications markets, the number of switches/nodes, circuits and facilities the Company plans to install, the anticipated expansion of regional carrier sales, the anticipated expansion of the Company's direct dial service, the ability to migrate customers from Global Access CallBack to Global Access Direct, the increase in the Company's internal and external sales forces, and the achievement of the Company's business plan. The Company's revenues and ability to continue its expansion are difficult to forecast and could differ materially from those projected in the forward-looking statements as a result of numerous factors, including without limitation, operating and technical problems, regulatory uncertainties, possible delays in the full implementation of liberalization initiatives, competition, availability of capital, foreign currency fluctuations, and changes in the US and foreign tax laws.
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