Earnings per Share of 5 Cents Prior to Acquisition Integration Charges Annual Revenue to Over $600 M an Increase of 30%, Quarterly Revenue at $154 M
Overall Gross Profit to Over $87 M for 1999, Quarterly Gross Profit
To $24.8 M or 16%
Fourth Quarter Recurring Adjusted EBITDA at $7.1 M and Year End at $36.5 M
Quarterly Retail Revenue Grew 29% Over Last Quarter, Contributing 46% of Voice
Gross Margin
Definitive Agreement Signed With NOS Communications to Acquire International
Subsidiary Onyx Network Reaches Tokyo and London
BURLINGAME, Calif., March 1 /PRNewswire/ --
Pacific Gateway Exchange, Inc. (Nasdaq: PGEX) today announced its fourth quarter revenue was $154 million, a 22% increase over the same quarter last year. Gross profit increased to $24.8 million, a 26% increase from the fourth quarter a year ago. Annual revenue increased 30% to $604.6 million from $466.3 million in 1998. Annual gross profit increased to $87.3 million, a 20% increase from 1998. Recurring Adjusted EBITDA decreased to $7.1 million from $9.3 million in the fourth quarter last year, reflecting the Company's fourth quarter investment of $7.9 million in Onyx, the Company's Internet subsidiary. Recurring Adjusted EBITDA for fiscal 1999 increased to $36.5 million from $35.9 million in 1998.
"We are delighted with the financial results for 1999," said Mr. Howard A. Neckowitz, President and CEO of Pacific Gateway. "The stage is now set for major expansion in our Internet and retail operations which are important components of our long term business plan."
Onyx Networks, the Company's Internet subsidiary, earned revenue in the fourth quarter of $0.5 million, with a gross margin of 70%. Pacific Gateway invested $7.5 million of its fourth quarter recurring Adjusted EBITDA in developing its Internet and data network services. The Company expects to increase its expenditures for this line of business through 2000. The Company's Internet strategy is to target global companies and network resellers, including content and Internet delivery. Onyx offers Internet access and collocation and expects to add more advanced global services, including VPN, content and application service, to its portfolio. The Company continues to achieve its internal goals in developing its global Internet Network with six U.S. cities, Tokyo, and London on-line today. "We have achieved remarkable growth in our global Internet operations in the latter part of 1999," said Mr. Neckowitz. "With services already being offered in three countries, expanding to five countries in the next 6 months, we are set to be a major player in the global Internet market."
The Company's investment in state-of-the-art global cable networks provides for profitable bandwidth sales and assures low-cost capacity for its operations. Total committed bandwidth sales represent over 50% of the Company's investment in the Japan-U.S. and TAT-14 cable networks.
The Company is rapidly expanding its retail operations through acquisitions and internal growth. Retail voice revenue increased 29% to $19.8 million this quarter from $15.3 million in the third quarter. The Company's retail subsidiary, IECom, provides retail services to over 300,000 international and domestic customers. The Company's retail variable gross margin for the fourth quarter was 59% compared to 54% last quarter and 57% for the fourth quarter last year. Retail contributed 41% of the Company's variable gross margin from voice compared to 33% in the third quarter and 14% in the fourth quarter last year. Pacific Gateway has completed several retail acquisitions, which contributed significantly to earnings. Most notably, the Company is acquiring the international division of NOS Communications, Inc. (NOS) for $40 million in cash and stock. The addition will enhance billing and customer service platforms and greatly contribute to the Company's revenue and earnings growth in 2000. In addition, IECom is conducting market trials with packaged Internet Consumer Services (ICS) including Internet access bundled with Intelligent CPE, unified messaging and local and long distance services.
The Company's U.S. and offshore wholesale voice revenue decreased by 11% to $134.0 million in the fourth quarter from $148.2 million in the third quarter. Wholesale variable gross margins were 13% for the quarter. The Company primarily carries wholesale traffic to maintain its low cost structure for its retail operations. The Company expects to expand its customer base and decrease its costs by utilizing VoIP technology as PC-phone usage increases. Pacific Gateway today has one of the largest VoIP networks with over 40 global points. The Company is focusing on VoIP as a core area of growth as customers continue to demand termination at the lowest cost and the technology quickly reaching the quality level that customers expect. "Our wholesale base continues to provide us with a vehicle to grow our value creating Internet and retail operations," added Mr. Neckowitz. "With our network investment complete to support our wholesale revenue stream and with around $60 million invested today achieving 2%-3% EBITDA margins, we still achieve a 12%-15% return on capital."
CONSOLIDATED RESULTS
The following table summarizes the Company's reported fourth quarter and fiscal year results of operations.
Three Months Ended Year Ended
December 31, December 31,
1999 1998 1999 1998
(Unaudited) (Unaudited)
(in thousands, except per share amounts)
Consolidated information:
Revenue $154,415 $126,414 $604,591 $466,291
Net income (loss) $ (722) $5,023 $9,528 $19,936
Net Income (loss) per share $(0.04) $0.25 $0.48 $0.97
Recurring net income $1,042 $5,023 $11,292 $19,936
Recurring net income
per share $0.05 $0.25 $0.57 $0.97
Recurring Adjusted EBITDA $7,088 $9,283 $36,526 $35,860
Adjusted EBITDA and recurring Adjusted EBITDA:
Operating income $(1,453) $6,888 $12,605 $27,147
Depreciation &
amortization 4,726 2,395 14,815 8,713
Non cash cost of capacity
sold 4 -- 740 --
Incremental cash deferred
revenue 1,097 -- 5,652 --
Adjusted EBITDA 4,374 9,283 33,812 35,860
Acquisition integration
expenses 2,714 -- 2,714
Recurring adjusted EBITDA $7,088 $9,283 $36,526 $35,860
The Company's Business Segment Results are summarized in the following table.
Three Months Ended Year Ended
Telecommunication Services December 31, December 31,
1999 1998 1999 1998
(Unaudited) (Unaudited)
(in thousands)
Revenue
Wholesale $133,928 $119,693 $547,687 $446,333
Retail 19,757 6,721 49,670 19,958
Total Revenue 153,685 126,414 597,357 466,291
EBITDA 11,061 9,283 36,878 35,860
Recurring Adjusted EBITDA 13,775 9,283 39,592 35,860
Bandwidth Services
Revenue 266 -- 6,620 --
EBITDA (254) -- 4,462 --
Recurring Adjusted EBITDA 847 -- 10,854 --
Internet Services
Revenue 464 -- 614 --
EBITDA (7,534) -- (13,920) --
Recurring Adjusted EBITDA (7,534) -- (13,920) --
Definition of Terms Used
In this press release, "Adjusted EBITDA" refers to operating income (loss) plus depreciation and amortization, non-cash cost of capacity sold and incremental cash deferred revenue. "Recurring Adjusted EBITDA" refers to Adjusted EBITDA plus amounts relating to Acquisition integration expenses. "Recurring net Income" refers to net income plus Acquisition integration expenses, net of tax.
About Pacific Gateway Exchange, Inc.
Pacific Gateway is a global facilities-based communications carrier providing voice, bandwidth, data and Internet services to a wide array of domestic and international carriers, ISPs and retail customers.
Pacific Gateway, through its wholly-owned subsidiary, IECom, provides voice, data access, and travel services to the ethnic small office/home office, and residential markets in the U.S. and will be expanding into selected international markets in the coming year.
Onyx Networks, also a wholly-owned subsidiary of Pacific Gateway, provides Internet access and high bandwidth services to the global market. It is expanding its network and global points of presence to provide connectivity, collocation, managed data and other advanced Internet applications to the exploding global Internet services market.
The Company and its offshore subsidiaries are a party to 44 operating agreements providing landing rights in 28 countries and have ownership interests in 32 digital undersea fiber optic cable systems providing for the exchange of telecommunications traffic with foreign carriers. The Company also is investing over $150 million in the Japan-U.S. and TAT-14 Cable Networks, to position itself as a low cost provider of telecommunications services.
In addition, Pacific Gateway's domestic network spans 12 major metropolitan cities. Pacific Gateway also operates switching and international gateway facilities in New York, Los Angeles, Dallas, the United Kingdom, Russia, New Zealand, Japan, Australia, and Germany and is developing additional offshore markets.
Additional Pacific Gateway information is available at www.pgexch.com. IECom information is available at www.go-iecom.com. Onyx Networks information is available at www.onyx.net.
Application of the Safe Harbor of the Private Securities Litigation Reform Act of 1995: This press release contains statements that are not historical facts and may be considered "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, such as statements regarding: 1) adequacy of funding sources to meet capital requirements; 2) increased expenditures for Internet and data services; 3) expansion of retail and Internet operations; 4) beneficial effect of NOS acquisition on billing and customer service platforms and on 2000 revenue and earnings growth; 5) cost reductions from VoIP technology.; and 6) continued growth of retail customer bases. Actual results may differ materially from those projected due to numerous factors, including: 1) the difficulties that might be encountered in integrating the NOS acquisition and in entering the retail business and completing major construction projects (such as cable construction projects and data centers), relating for example to the location, acquisition, construction, integration or implementation of facilities, service offerings and sales programs; 2) increased competition; 3) failure to reduce costs; 4) unforeseeable developments relating to the Company's Internet and network expansion and operations; 5) regulatory developments in the U.S. and in foreign countries; 6) the availability of suitable opportunities for cable sales and swaps; 7) the Company's success in finding and integrating corporate acquisitions, new offshore facilities, and the construction of cable facilities; 8) the Company's success in developing new business programs; 9) foreign currency fluctuations; 10) termination of operating agreements; 11) changes in the U.S. tax law; 12) changes in the credit markets and in the availability of financing for the Company on acceptable terms; and 13) finding qualified personnel to begin Internet and telecom operations in foreign countries. Additional factors affecting whether forward-looking statements are realized may be found in the Company's Report on Form 10-K, on file with the SEC.
PACIFIC GATEWAY EXCHANGE, INC.
STATEMENTS OF OPERATIONS
(in thousands, except net income per share and revenue per minute)
Three Months Year
Ended December 31, Ended December 31,
1999 1998 1999 1998
(Unaudited) (Unaudited)
Revenue $154,415 $126,414 $604,591 $466,291
Cost of services and
capacity sold 129,656 106,804 517,297 393,640
Gross profit 24,759 19,610 87,294 72,651
Selling, general, and
administrative expenses 21,486 10,327 59,874 36,791
Depreciation and amortization 4,726 2,395 14,815 8,713
Total operating expenses 26,212 12,722 74,689 45,504
Operating income (1,453) 6,888 12,605 27,147
Other (income) expense, net (44) (14) (1,090) (1,132)
Interest (income) expense,
net (298) (591) (923) (2,292)
Income before income taxes (1,111) 7,493 14,618 30,571
Provision for income taxes (389) 2,470 5,090 10,635
Net income $(722) $5,023 $9,528 $19,936
Net income per share
- basic $(0.04) $0.26 $ 0.49 $1.05
Net income per share
- diluted $(0.04) $0.25 $ 0.48 $0.97
Weighted average number of
common shares
Outstanding - basic 19,378 19,101 19,297 19,071
Weighted average number of
common shares
Outstanding - diluted 19,718 20,267 19,786 20,495
Other Operating Data:
Minutes 680,524 462,032 2,433,602 1,635,285
Revenue per minute $0.23 $0.27 $0.25 $ 0.29
Capital expenditures $20,797 $18,687 $77,600 $49,611
The financial results presented in this press release are Unaudited and are subject to audit completion.
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