Wholesale/transport services

Arbinet Deals a Strong Q4

In its first earnings announcement as a public company, Arbinet-thexchange Inc. (Nasdaq: ARBX) reported an 88 percent increase in fourth-quarter earnings, driven by strong end-of-year exchange business from its international telecom carrier customers.

The New Brunswick, N.J., company earned a quarterly profit of $2.5 million, or 11 cents per pro forma diluted share, on revenues of $12.5 million, compared with earnings of $1.3 million, or 6 cents per pro forma diluted share, on revenues of $8.9 million in the year earlier period.

The company’s net income was $6 million before the subtraction of various legal expenses and shareholder charges for GAAP reasons. Arbinet's numbers still bested analysts' expectations of 6 cents per share, according to Thomson First Call.

Arbinet acts as a matchmaker for telephone companies around the world that either want to buy or sell network bandwidth for voice or data. Once a buyer/seller agreement has been made, Arbinet routes the calls to the seller's network, and pays the seller itself within 15 days of the sale. An insurer covers the risk of it not being paid, CEO Curt Hockemeier says.

“We improve their back office costs and there are no payment disputes,” Hockemeier says. “We make that go away.”

The company traded more than 3 billion minutes of voice time among its 360 participating carriers, an increase of 40 percent over the year-ago quarter.

“Arbinet represents an interesting growth opportunity in the communication capacity trading space, with virtually no competitors," says Merrill Lynch & Co. Inc. analyst Greg Smith. "We believe Arbinet’s financial model will scale quickly over the next few years."

Merrill Lynch analysts had expected revenues of $12.3 million for the quarter. Analysts' consensus revenue expectations were unavailabe, partly because only a few firms have initiated coverage on Arbinet. Arbinet CFO John Roberts says the higher-than-expected fees came from increased carrier trading activity at Arbinet’s exchange over the last two quarters of 2004, apparently to meet sales expectations.

Roberts wouldn't give guidance numbers for Arbinet’s performance next quarter, but said he expects to see revenues of between $58 million and $64 million, and earnings of between 19 cents and 23 cents per share, for full-year 2005. Merrill Lynch analysts expect Arbinet’s fee revenue to be $13.4 million next quarter and $61.4 million for full-year 2005.

Roberts says that, as of yet, very little of Arbinet’s fees come from companies buying or selling bandwidth for data traffic, while the voice business alone has seen 45 percent annualized growth over the last seven months.

Roberts says nine of the 10 largest international telephone carriers now participate at Arbinet’s exchange.

Arbinet stock was trading down 57 cents at $25.47 in midday trading Friday.

— Mark Sullivan, Reporter, Light Reading

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