Telegroup, Inc., Announces Fourth Quarter and Year End Results
Revenues and Minutes Reach Record Levels
Fairfield, IA (March 10, 1998) -- Telegroup Inc. (NASDAQ: TGRP - news), a leading alternative provider of international telecommunications services, today announced record revenues and billed minutes of use for the fourth quarter and year ended December 31, 1997.
Total revenue for the fourth quarter of 1997 grew 51% to $99.0 million compared to $65.4 million reported for the fourth quarter of 1996. On a sequential basis, revenue for the 1997 fourth quarter grew 17% over the $84.3 million reported in the third quarter of 1997. For the year ended December 31, 1997, total revenue increased 58% to $337.4 million from $213.2 million reported in the comparable 1996 period.
For the fourth quarter of 1997, billed minutes of use increased by 28% to 263.0 million minutes due to increased usage by the Company's retail customers and greater than anticipated wholesale traffic. This represents an increase of 57.4 million minutes over the 205.6 million minutes reported for the third quarter of 1997. For the year, billed minutes used increased 70% to 841.7 million billed minutes.
Clifford Rees, Telegroup's Chief Executive Officer, stated, "This year, Telegroup has had increased revenues and billable minutes for each consecutive quarter. This performance indicates that our strategy of building a global service network is working and that we continue to attract new customers and increase usage by existing customers as we expand our network and introduce new services."
"To do this, we continue to make significant investments in infrastructure," Rees added. "We successfully completed a high yield debt offering to fund the accelerated deployment of network infrastructure and marketing channels in anticipation of deregulation in many of the Company's key markets worldwide."
The Company noted that on October 23, 1997, it raised $97 million principal amount at maturity, 10.5% Senior Discount Notes due 2004, for net proceeds to the Company of $72.3 million. A significant portion of the funds will be used for the second phase of the Company's network roll out strategy. Over the balance of 1998, Telegroup will continue to deploy additional switches and enhanced services platforms, and also acquire additional fiber optic cable capacity.
Gross profit for the fourth quarter of 1997 was $17.5 million, or 17.7% of revenues, compared to gross profit of $15.7 million, or 24.0% of revenues, reported for the fourth quarter 1996. Gross profit in the fourth quarter was lower, mainly due to high levels of wholesale traffic, increased competition in certain international markets, and the compressed fourth quarter network roll out schedule. For the year ended December 31, 1997, gross profit grew to $81.7 million compared to $62.7 million in gross profit for 1996.
"Due to the Senior Notes offering being completed later than expected, the net effect of higher network investment in the fourth quarter was that a significant amount of fixed cost facilities were installed but underutilized," added Mr. Rees.
Mr. Rees continued, "The deregulation that gives us the opportunity to gain the transport cost efficiencies of a facilities-based carrier, also creates price pressures in the international long distance market. We expect to compensate for these price declines in specific markets by achieving increased utilization of our new network to transport traffic, especially in this yearÕs second half when we shall be introducing frame cell voice networking, a form of digitized switching, that will enable network efficiencies not seen before in traditional circuit switched networks. We also have plans to develop and deploy a high-bandwidth, global, multi-service ATM network."
For the fourth quarter of 1997, EBITDA before an extraordinary loss due to the early extinguishment of debt was negative, as anticipated, reaching $(7.4) million compared to $(1.4) million for the fourth quarter of 1996. For the year, EBITDA before an extraordinary loss was $(6.8) million compared to $3.0 million in 1996.
As a percentage of revenue, operating expenses, comprised of selling, general and administrative expenses, depreciation and amortization, and stock option-based compensation, decreased from 28.7% in the fourth quarter of 1996, to 27.2% in the fourth quarter of 1997. Operating expenses as a percentage of revenue decreased 1.6% to 27.7% for 1997 from 29.3% for the year ended December 31, 1996.
Doug Neish, TelegroupÕs Chief Financial Officer, commented, "SG&A expenses increased in absolute terms in line with our expectations as we expanded our marketing and customer service functions in anticipation of deregulation in many of our top markets on January 1, 1998."
"The Company increased its revenues to record levels and expanded its network domestically and internationally on time and on target, and with operating expenses that were on plan," added Mr. Neish. "Although the Company had better than anticipated gross profit in the third quarter, for the fourth quarter, gross profit was affected negatively by price pressures in the international long distance market and the compressed network deployment. We shall continue with our plan to roll-out and use network to gain cost-efficiencies and operating benefits, and we expect to regain EBITDA profitability during the second half of the year."
For the fourth quarter of 1997, the company's net loss was $(10.9) million, or $(0.35) per share, compared with net loss of $(2.2) million, or $(0.08) per share, for the fourth quarter of 1996. The net loss before extraordinary charges, for the year ended December 31, 1997 was $(13.8) million, or $(0.49) per share, compared with net loss of $(0.1) million, or $(0.00) per share, for the year ended December 31, 1996. Including the 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 1997, the net loss for the year ended December 31, 1997 was $(23.7) million, or $(0.84) per share. The weighted average number of common and common equivalent shares outstanding for the fourth quarter and year end 1997 was 30.881 million and 28.324 million, respectively, compared with 26.212 and 25.091 million for the same periods in 1996.
TELEGROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In 000's except per share data)
================================================================
Three Months Ended Twelve Months Ended
December December December December
31, 1996 31, 1997 31, 1996 31, 1997
================================================================
Retail revenue 50,318.8 55,303.4 179,146.8 225,023.5
Carrier revenue 15,110.0 43,650.8 34,060.7 112,408.9
-------- -------- --------- ---------
Total revenues 65,428.8 98,954.2 213,207.5 337,432.4
Cost of revenues 49,742.8 81,467.5 150,536.9 255,740.7
-------- -------- --------- ---------
Gross profit 15,686.0 17,486.7 62,670.6 81,691.7
Commissions 7,242.4 7,800.4 26,990.8 34,238.0
SG&A 10,793.8 17,287.6 33,693.7 54,281.3
D&A 723.5 1,787.0 1,881.6 4,995.1
-------- -------- --------- ---------
Operating income (3,073.7) (9,388.3) 104.5 (11,822.7)
-------- -------- --------- ---------
Interest income 166.6 1,232.3 377.5 2,014.6
Interest expense (378.3) (2,073.7) (578.5) (4,208.4)
FX gain (loss) (91.1) (17.1) (147.8) (604.4)
Other 57.5 131.4 118.5 290.6
-------- -------- --------- ---------
Earnings before taxes (3,319.0) (10,115.4) (125.8) (14,330.3)
& extraordinary
charge
Tax benefit (expense) 1,150.9 (789.6) 7.5 576.5
Net income (loss) 2,168.1) (10,905.0) (118.3) (13,753.8)
before extraordinary
charge
Extraordinary - - - (9,970.8)
charge--loss on early
extinguishment of
debt, net of
applicable taxes
Net income (loss) (2,168.1) (10,905.0) (118.3) (23,724.6)
======== ======== ========= =========
EBITDA (1,351.2) (7,401.4) 2,989.4 (6,799.0)
Net income (loss) (0.08) (0.35) (0.00) (0.49)
pershare before
extraordinary charge
Net income (loss) per (0.08) (0.35) (0.00) (0.84)
share after
extraordinary charge
Weighted average 26,212 30,881 25,091 28,324
common and common
equivalent shares
outstanding (in
thousands)
Telegroup, Inc. and Subsidiaries
Consolidated Balance Sheets
(Condensed, in 000's)
===========================================================
Selected Balance Sheet Data December December
31, 1996 31,1997
===========================================================
Cash and cash equivalents 14,155.0 95,316.9
Accounts receivable (net) 32,288.5 54,188.8
Income tax recoverable 1,796.8 2,693.7
Deferred tax asset 1,392.1 -
Other current assets 345.8 1,576.5
Property, plant and equipment 1,256.1 27,913.0
Intangible assets (net) 4,345.5 8,475.5
Other assets 376.6 3,594.1
-------- ---------
Total Assets 65,956.4 193,758.5
============================================================
Payables and accrued expenses 39,280.6 60,605.9
Operating loan - -
Current portion of capital lease 138.3 158.7
Current portion of long term debt 232.6 93.8
Other current liabilities 667.2 964.8
Capital lease (net of current portion) 301.4 221.2
Long term debt (net current portion) 11,216.9 101,451.0
Deferred tax liability 756.9 -
Shareholder equity 13,362.5 30,263.1
-------- ---------
Total Liabilities and Shareholder Equity 65,956.4 193,758.5
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 Telegroup's future operating performance. Telegroup's actual results might differ materially from those projected in forward-looking statements as a result of numerous factors including without limitation, the Company's success in developing its business plan and acquiring additional financing needed to meet this plan, anticipated expansion and success of SPECTRA service, market competition, unforeseen operating and technical problems, regulatory uncertainties, possible delays in the full implementation of liberalization initiatives by foreign governments, foreign currency fluctuations, the effects of deregulation, the viability of frame call voice network, introduction of new services, accelerated deployment of the network infrastructure and marketing channels, acquisition of cable capacity, and changes in the U.S. and foreign tax laws. Those and other risks are described in the Company's filings with the Securities and Exchange Commission.
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