TELEGROUP, INC. ANNOUNCES RESULTS FOR THE THIRD QUARTER ENDED SEPTEMBER 30, 1998 AND
AN INCREASE AND EXTENSION OF INTERIM FINANCING
Fairfield, IA (November 16, 1998) -- Telegroup, Inc. (Nasdaq: TGRP - news) today
reported record revenue for the third quarter and nine months ended September 30, 1998.
Telegroup also announced that it has successfully extended the maturity of a $15 million
loan to December 15, 1998, and increased the loan amount from $15 million to $25 million.
The Company continues to pursue funding and strategic partnering alternatives, working
with its advisor Salomon Smith Barney.
Clifford Rees, Telegroup's Chief Executive Officer, commented, "Telegroup’s
focus on its core retail businesses continues to bear good results and we are pleased that
our revenues grew in the third quarter, even with the initiation of restructuring efforts.
As a high priority, the Company is focusing aggressively on implementing its restructuring
plan, pursuing funding, and continuing discussions with potential strategic
partners."
For the third quarter, total revenue grew 26.7% to a record $106.8 million compared
with third quarter 1997 revenue of $84.3 million. On a sequential basis, revenue showed a
5.6% increase over that achieved in the second quarter of 1998.
Retail revenue achieved record levels of $66.5 million, 3.4% greater than in the second
quarter of 1998. Wholesale revenue for the quarter was $40.3 million, or 9.5% greater than
wholesale revenue reported in the second quarter of 1998.
For the third quarter of 1998, billed minutes of use reached 338 million minutes, also
a record. This represents an increase of 64% over the 206 million minutes used in the
third quarter of 1997. This growth in traffic occurred mainly in domestic and
international retail services.
The Company reported an EBITDA loss of $(13.8) million, or $(12.0) million net of
non-recurring write-offs, in the third quarter of 1998, compared to an EBITDA loss of
$(8.4) million in the second quarter of 1998 and an EBITDA loss of $(0.7) million in the
prior year's comparable period.
The Company incurred a net loss of $(22.5) million in the third quarter of 1998, or
$(0.67) per diluted share, compared to a net loss of $(11.5) million, or $(0.39) per
diluted share, in the third quarter of 1997. The weighted average number of common and
common equivalent shares outstanding for the third quarter 1998 was 33.5 million, compared
with 29.9 million for the third quarter in 1997.
Gross profit for the third quarter of 1998 was $21.0 million, or 19.7% of revenues,
compared to gross profit of $22.4 million or 26.6% of revenues, for the third quarter of
1997. This reflects a current business mix that includes greater wholesale revenue and
increased fixed recurring expenses stemming from the network build-out.
Clifford Rees commented, "Telegroup has a competitive cost structure to carry
retail traffic at attractive gross margins, and is in the process of restructuring its
business to focus primarily on high margin retail business. As a result, we expect to see
significant improvement in our gross margin in percentage terms."
Clifford Rees continued, "Telegroup expects to achieve significant reductions in
its operating expenses as implementation of its restructuring plan proceeds. An additional
reason for the increase in operating expenses has been the integration costs of
acquisitions in Australia being higher than planned. The integration is underway and
should enhance our competitive and strategic position in Australia and the Far East."
As a percentage of revenue, operating expenses, comprised of selling, general and
administrative expenses, depreciation and amortization, stock option-based compensation,
and impairment on goodwill increased from 29.1% in the third quarter 1997, to 38.1% in the
third quarter 1998. Operating expenses increased in the third quarter as a result of
professional services associated with the Company’s aborted debt and equity offering,
increased advertising initiatives in foreign markets, an increase in the number of
employees in subsidiaries to provide direct sales and sales support internationally, as
well as a $1.9 million impairment charge on goodwill in anticipation of the Company’s
fourth quarter plan of restructuring.
With regard to financing, the Company successfully extended the maturity of its $15
million loan to December 15, 1998, and obtained the commitment to have the loan increased
from $15 million to $25 million. Funding is expected as early as today. The augmented loan
is secured by the assets of the Company and matures on December 15, 1998. The Company
continues to pursue various financing alternatives and strategic business combinations to
enable the Company to address its liquidity needs, refinance the $25 million loan and
raise an additional $35 million to fund fully its revised business plan through 1999. In
the event the Company is unable to secure the necessary external financing or enter into a
transaction with potential strategic partners, it will consider alternatives, including
sale of certain business assets or, in a worst case scenario, filing for bankruptcy
protection in an effort to reorganize or otherwise maximize value.
Clifford Rees noted: "The total amount of financing required to fund the Company
through to a cash flow positive position has been reduced from $75 million to about $60
million. This reduction has resulted from implementing our restructuring plan, including
down-sizing the workforce and senior management, deferring expansion of our network, and
focusing on the retail segment of our business in which we can attain the highest gross
margin contribution."
Telegroup provides national and international long distance telecommunications
services, serving residential and small and medium-sized business customers in more than
200 countries worldwide. The company also provides value-added wholesale services to over
40 domestic and international telecommunications carriers. Telegroup operates a global,
digital, facilities-based network, the Telegroup Intelligent Global Network ®, which
consists of 25 Nortel DMS 250/300 and Excel LNX voice switches in 12 countries, 23 Nortel
Passport ATM switches, 6 enhanced services platforms, 26,000 miles of owned and leased
capacity on digital fiber-optic cable links, and leased parallel data transmission
capacity. Telegroup had revenues of $337 million in 1997.
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 and
network expansion. 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, market competition, unforeseen operating and technical
problems, regulatory uncertainties, possible delays in the full implementation of
liberalization initiatives by foreign governments, foreign currency fluctuations, 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.
-- (Financial Tables Follow) --
Telegroup, Inc. and Subsidiaries
Unaudited Consolidated Statements of Operations
(In $000’s, except per share data)
|
Three Months Ended |
Nine Months Ended |
|
September
30,
1997 |
September
30,
1998 |
September
30,
1997 |
September
30,
1998 |
| Retail revenue |
56,193 |
66,485 |
169,720 |
187,806 |
| Carrier revenue |
28,129 |
40,319 |
68,758 |
105,930 |
| Total revenues |
84,322 |
106,804 |
238,478 |
293,736 |
| Cost of revenues |
61,876 |
85,808 |
174,273 |
237,201 |
| Gross profit |
22,446 |
20,996 |
64,205 |
56,535 |
| Commissions |
8,488 |
7,035 |
26,438 |
20,127 |
| SG&A |
14,713 |
27,476 |
36,994 |
65,805 |
| D&A |
1,265 |
4,260 |
3,208 |
9,163 |
| Impairment of goodwill |
-- |
1,888 |
-- |
1,888 |
| Operating income |
(2,020) |
(19,663) |
(2,435) |
(40,448) |
| Interest income |
427 |
195 |
782 |
2,135 |
| Interest expense |
(645) |
(2,718) |
(2,135) |
(7,583) |
| FX loss |
(131) |
(462) |
(587) |
(810) |
| Other |
80 |
88 |
159 |
252 |
| EBT & EX |
(2,289) |
(22,560) |
(4,216) |
(46,454) |
| Tax benefit
(expense) |
728 |
23 |
1,366 |
(221) |
| Net loss before extraordinary
charge |
(1,561) |
(22,537) |
(2,850) |
(46,675) |
| Extraordinary
charge-- loss on early
extinguishment of
debt, net of
applicable taxes |
(9,971) |
-- |
(9,971) |
-- |
| Net loss |
(11,532) |
(22,537) |
(12,821) |
(46,675) |
| EBITDA |
(721) |
(13,803) |
602 |
(29,699) |
| Net loss per share before
extraordinary
charge |
(0.05) |
(0.67) |
(0.10) |
(1.42) |
| Net loss per share
after extraordinary charge |
(0.39) |
(0.67) |
(0.47) |
(1.42) |
| Weighted average
common and common equivalent shares outstanding (in thousands) |
29,923 |
33,468 |
27,462 |
32,912 |
--more--
Telegroup, Inc. and Subsidiaries
Unaudited Consolidated Balance Sheets
(Condensed, in $000’s)
| Selected Balance
Sheet Data |
December
31, 1997 * |
September
30,
1998 |
|
|
|
| Cash and cash
equivalents |
74,214 |
14,831 |
| Securities
available- for-sale |
21,103 |
-- |
| Accounts
receivable (net) |
54,189 |
63,164 |
| Income tax
recoverable |
2,694 |
2,676 |
| Other current
assets |
1,577 |
7,160 |
| Property, plant
and equipment (net) |
27,913 |
61,783 |
| Intangible assets
(net) |
8,475 |
42,992 |
| Other assets |
3,594 |
16,362 |
| Total Assets |
193,759 |
208,968 |
|
|
|
| Payables and
accrued expenses |
60,606 |
88,763 |
| Note Payable |
-- |
15,000 |
| Current portion of
capital lease |
159 |
189 |
| Current portion of
long term debt |
94 |
1,065 |
| Other current
liabilities |
965 |
1,232 |
| Capital lease (net
of current portion) |
221 |
135 |
| Long term debt
(net current portion) |
101,451 |
107,704 |
| Shareholder equity |
30,263 |
(5,120) |
| Total Liabilities
and Shareholder Equity |
193,759 |
208,968 |
* Selected balance sheet data for December 31, 1997 is derived from audited financials
at that date.
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