McClean, Virginia - (The Hosting News) - December 12, 2007 - Integrated communications and hosting services provider, PRIUMS Telecommunications Group, Incorporated, has reported its financial results for the quarter ending September 30, 2007.
PRIMUS reported second quarter 2006 net revenue of $225 million, down $2 million in the prior quarter and $20 million in the third quarter of 2006. The Company reported net income for the quarter of $6 million, compared to net income of $12 million in the prior quarter and break-even in the third quarter 2006. As a result, the Company reported $0.04 and $0.03 of basic and diluted net income per common share, respectively, in the third quarter 2007, as compared to basic and diluted net income per common share of $0.10 and $0.07 in the prior quarter and $0.00 for both measures in the year-ago quarter.
As reported last quarter, PRIMUS's improved operating results and Adjusted EBITDA performance enabled it to raise over $94 million in cash year-to-date and to extend its near-term debt maturities. These liquidity-enhancing transactions provided the necessary resources to enable the Company to re-initiate significant levels of investment in support of growth opportunities in broadband, VOIP, local, wireless, data and hosting services. As a result, capital investments and sales and marketing activities increased in the third quarter 2007, with anticipated revenue and contribution growth expected to occur in 2008.
During the third quarter, the investment program included the following initiatives: opening new, and expanding existing, data centers in Canada and Australia; expansion of the DSLAM footprint and network capacity to offer higher speed DSL services in Australia; and expansion of the Company's direct sales force and telemarketing capabilities across its major markets.
K. Paul Singh, Chairman and Chief Executive Officer of PRIMUS remarked, ''While we continue to experience declining revenue from legacy long distance voice and dial-up ISP services, we have again managed to increase overall margin percentage and contribution, said . These favorable results are from a combination of sequential growth from our high margin products, selective pruning of low-margin revenue streams and improvements in our network cost structure. In the third quarter, net revenue from high margin growth products increased 2% sequentially reaching annualized net revenue of nearly $220 million. Thus, our strategy of generating increased contribution from products such as broadband, VOIP, local, wireless, data and hosting is well underway, and we plan to accelerate this effort with prudent investments. Our objective, over time, is to generate increased growth product contribution that exceeds the corresponding declines in legacy voice and dial-up Internet products. Even with the enhanced investment to support these growth products, we continue to expect full year 2007 Adjusted EBITDA to be in the range of $60 million to $65 million.''
The Company sold its Australian domain name business in the first quarter 2007 and sold its 51% interest in a German subsidiary in the third quarter 2007. From an accounting perspective, as a result of these events, the businesses have been treated as discontinued operations, and therefore, those operating results are excluded from the individual line items of the statement of operations in the current and all prior period results. Additionally, the operating results and the gain from sale of discontinued operations are shown as separate line items on the statement of operations. In 2006, the revenue and net income from these operations were $9 million and $1 million, respectively.
Thomas R. Kloster, Chief Financial Officer noted, ''Third quarter 2007 revenue was $225 million, down 1% or $2 million from the prior quarter and down 8% or $20 million from the third quarter 2006. The $2 million decrease from the prior quarter was comprised of a $6 million increase from the weakening of the United States dollar, offset by a $1 million decrease in low-margin wholesale services revenue, $1 million decrease in Canadian prepaid services and a net decrease of $6 million in retail services revenue, The $6 million decline in retail revenue reflects a continued decline in legacy voice and dial-up Internet services revenue offset by continued growth from high-margin broadband, VOIP, local, wireless, data and hosting revenues.''
Net revenue from broadband, VOIP, local, wireless, data and hosting services was $55 million (24% of net revenue) for the third quarter 2007, as compared to $53 million (23% of net revenue) in the prior quarter. Geographic retail revenue mix was 32% coming from Asia-Pacific, 29% from Canada, 8% from Europe and 12% from the United States. The mix of net revenue was 81% retail (53% residential and 28% business) and 19% wholesale.
A expense in the third quarter was $73 million (32.3% of net revenue), up $4 million from $69 million in the prior quarter (30.3% of net revenue) and up $1 million from $72 million (29.2% of net revenue) in the year-ago quarter. The third quarter increase over the second quarter resulted from a $3 million increase in outbound telemarketing, customer care, additional direct sales and support headcount, and customer win-back costs, a $1 million increase in advertising expense, and a $1 million increase in severance payments. These increases were partially offset by a decline in professional fees.
Income from operations was $9 million in the third quarter 2007, an increase from $8 million in the prior quarter and consistent with the third quarter 2006. Third quarter 2007 Adjusted EBITDA, as calculated in the attached schedule, of $16 million was even with the prior and year-ago quarters. Adjusted EBITDA. In the third quarter, the Company realized a $3 million reduction to cost of revenue from a gain reflecting recovery of payments related to retroactive price reductions which partially offset the unfavorable impact to Adjusted EBITDA from the revenue decline and SG and A increase discussed above.
Interest expense for the third quarter 2007 was $16 million, stable with the prior quarter and up from $13 million in the third quarter 2006. The increase over the year-ago quarter is attributable to the interest related to the 14% Senior Secured Notes, issued in February and March 2007.
Net income was $6 million in the third quarter 2007 (including a $12 million gain on foreign currency transactions), as compared to net income of $12 million in the second quarter 2007 (including a $2 million loss on early extinguishment or restructuring of debt and a $15 million gain on foreign currency transactions), and break-even in the third quarter 2006 (including a $4 million gain on foreign currency transactions).
Basic and diluted net income per common share was $0.04 and $0.03, respectively, for the third quarter 2007, as compared to basic and diluted net income per common share of $0.10 and $0.07 in the prior quarter and $0.00 for both measures in the year-ago quarter. Adjusted Basic and Diluted Net Loss Per Common Share, as calculated in the attached schedule, was ($0.05) for the third quarter 2007, compared to $0.00 for the second quarter 2007 and ($0.04) in the year-ago quarter.
The Company is currently assessing the impact of Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes, and determining the impact of other events as they relate to income taxes on its third quarter results. Therefore, certain figures presented in the press release, may, depending on the outcome of the assessment, differ from those that will be presented in the Company's Form 10-Q for the quarter ended September 30, 2007.
PRIMUS ended the third quarter 2007 with a cash balance of $118 million ($109 million unrestricted) as compared to $113 million ($105 million unrestricted) as of June 30, 2007. This total reflects $16 million of Adjusted EBITDA, $2 million from working capital, offset by $17 million on debt coupon and other interest payments. In addition, $19 million was raised by the sale of 22.5 million shares of the Company's common stock; $2 million was generated from changes in foreign currency exchange rates; $1 million was received for the sale of the Company's interest in a German subsidiary; $13 million of cash was used for capital expenditures; $3 million was used to purchase the Company's outstanding 12.75% senior notes for retirement; and $2 million was used for scheduled principal reductions. During this period, an additional $1 million became restricted.
In addition to the third quarter capital expenditures of $13 million, the Company spent $6 million and $11 million, respectively in the first and second quarters 2007 for a year-to-date total of $30 million. Capital expenditures for the full year 2007 are expected to be within our prior guidance range of between $40 million and $45 million.
Free Cash Flow for the third quarter 2007, as calculated in the attached schedule, was negative ($10) million (comprised of $3 million provided by operating activities and $13 million utilized for capital expenditures) as compared to $1 million in the prior quarter and negative ($14) million in the third quarter 2006. The sequential decline from the second quarter 2007 Free Cash Flow is primarily caused by the timing of debt coupon and other interest payments of $11 million during the second quarter 2007 as compared to $17 million paid in this quarter and an increase in capital expenditures.
The principal amount of PRIMUS's long-term debt obligations as of September 30, 2007 was $679 million, as compared to $684 million at June 30, 2007. The Company and/or its subsidiaries will evaluate and determine on a continuing basis, depending upon market conditions and the outcome of events and uncertainties described within any forward-looking statement descriptions in this release and its SEC filings, the most efficient use of the Company's capital and resources, including investment in the Company's network, systems, and product initiatives, purchasing, refinancing, exchanging, tendering for or retiring certain of the Company's outstanding debt securities in privately negotiated transactions, open market transactions or by other direct or indirect means, issuing equity or purchasing its equity in the open market to the extent permitted by existing covenants.
PRIMUS Telecommunications Group, Incorporated (OTCBB:PRTL) is an integrated communications services provider offering international and domestic voice, voice-over-Internet protocol (VOIP), Internet, wireless, data and hosting services to business and residential retail customers and other carriers located primarily in the United States, Canada, Australia, the United Kingdom and western Europe. PRIMUS provides services over its global network of owned and leased transmission facilities, including approximately 350 points-of-presence (POPs) throughout the world, ownership interests in undersea fiber optic cable systems, 16 carrier-grade international gateway and domestic switches, and a variety of operating relationships that allow it to deliver traffic worldwide. Founded in 1994, PRIMUS is based in McLean, Virginia.
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