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Fourth quarter net revenue was a record $339M, up 26.6% from the previous year; net income was $18M or $0.18 per share
February 6, 2004
MCLEAN, Va. -- PRIMUS Telecommunications Group, Incorporated (Nasdaq:PRTL - News), a global telecommunications provider offering an integrated portfolio of voice, Internet, voice-over-Internet protocol (VOIP), data and hosting services, announced today record results for the fourth quarter and for the full year 2003 and provided goals for 2004.
"The fourth quarter capped off a year of remarkable progress for PRIMUS with our record net revenue accompanied by having turned net income positive," stated K. Paul Singh, Chairman and Chief Executive Officer. "This performance, in the face of a challenging market environment, confirms that our fundamental business model is working.
"During the fourth quarter, we continued to pursue our major objectives for 2003, namely, strengthening our balance sheet through debt refinancing initiatives, bringing our accounts payable more current, and improving our liquidity by reducing overall interest payments and extending our debt maturity profile," Singh added. "This past year also signaled PRIMUS's return to the public capital markets with our successful issuance of $132 million of 3.75% convertible senior notes, the proceeds from which were used to retire higher interest debt. We closed 2003 with $542 million of debt, only $24 million of which is current. We continued these efforts into January 2004, when we issued $240 million of 8.0% senior notes due 2014 to retire higher interest debt and to extend our debt maturity profile. In connection with that offering, we were gratified to have received rating upgrades from Moody's Investors Service and Standard & Poor's.
"With these accomplishments, PRIMUS now enters its second decade--we celebrated our tenth anniversary yesterday--strongly positioned to pursue major initiatives to transform PRIMUS from its wireline long distance voice heritage into a combined wireless/broadband/wireline bundled service provider," Singh commented. "We intend to continue to grow profitably our wireline voice business in our existing major markets where there is more than sufficient market share growth opportunities. We have also selectively targeted opportunities for PRIMUS to participate in the major growth areas for telecommunications - local, wireless and broadband. Our approach in each of these areas has common elements: focus on bundling services to end-user customers with international calling patterns; leverage PRIMUS's existing global voice, data and Internet network; and utilize our established distribution channels and sophisticated back office systems.
"We believe the local services market is an untapped opportunity for significant revenue growth for PRIMUS, as the regulatory environment promotes more competition. We recently began offering local line service in Canada, bundled with our other product offerings of long distance and Internet access, in competition with the incumbent local exchange carriers. We are currently a local service provider in Australia offering resale and DSL services and today announced a new voice-over-DSL product targeted at business customers. We will begin pursuing opportunities for providing local services in the United States. The ability to bundle local service for our existing customer base and attract new customers to our existing services present tremendous future growth opportunities for PRIMUS.
"Our wireless initiative will target as potential new PRIMUS customers all wireless users in our existing major markets--Europe, United States, Canada, and Australia--who wish to make international calls using their mobile phones," Singh stated. "Currently, many wireless users are blocked by their service provider from making international calls, and those that can make international calls are charged excessively high rates. Through a combination of service initiatives, including "dial-around" services, special PIN (personal identification number) services, and PRIMUS-branded "intelligent" handsets, we will target the users of wireless carriers and offer substantially reduced international rates. Even with reduced rates, we believe our services would generate substantial margins for PRIMUS. From the wireless customer's perspective, there is no need to change their underlying wireless service provider or phone number--what we will offer is a value-added service that will provide a customer substantial cost savings on international calls. The current high rates for international calls from wireless phones has artificially suppressed this potentially huge market; PRIMUS intends to make international calling easy and affordable for wireless users.
"The target customers for our broadband VOIP products will be anyone who has a broadband connection anywhere in the world," Singh noted. "As we recently announced, we have been in the carrier VOIP market now for several years and carried over one billion minutes of international voice traffic in 2003 over the public Internet. We are now poised to launch retail enterprise, reseller and residential VOIP services around the globe which are expected to have higher profit potential than the carrier services. We will leverage our already deployed next generation VOIP network connecting over 125 countries and supported by our H.323, open settlement protocol and SIP capabilities.
"We anticipate that these three additional businesses--local, wireless and broadband--each have the potential to become as large as PRIMUS's existing wireline business and to support double digit top line revenue growth for the foreseeable future" Singh stated. "We are energized by our prospects and believe that PRIMUS is well-positioned, strategically and financially, to seize the opportunities to make our second decade as rewarding as the first."
Fourth Quarter Financial Results
PRIMUS's net revenue in the fourth quarter of 2003 was $339 million compared with $328 million in the prior quarter, a growth of 3.2%, and $268 million for the fourth quarter of 2002, a growth of 26.6%. "The increase in net revenue, both sequential and year-over-year, is attributable to growth in all three of our products: voice, data/Internet, and VOIP," stated Neil L. Hazard, Chief Operating Officer. Data/Internet and VOIP net revenues for the fourth quarter were $55 million, representing over 16% of net revenue, as compared to $50 million in the prior quarter and $42 million in the fourth quarter of 2002. Net revenue for the fourth quarter on a geographic basis remained well balanced: 40% from North America, 30% from Europe and 30% from Asia-Pacific. The mix of net revenue by customer type in the fourth quarter was 80% retail (55% residential and 25% business) and 20% carrier compared with year-ago figures of 77% retail and 23% carrier.
Selling, general and administrative (SG&A) expenses for the fourth quarter of 2003 were $88 million or 26.0% of net revenue, as compared to $87 million or 26.6% of net revenue in the prior quarter and $67 million or 25.1% of net revenue for the fourth quarter of 2002.
Income from operations was $21 million in the fourth quarter, compared with $24 million in the prior quarter and a loss from operations of ($14) million in the fourth quarter of 2002. The fourth quarter 2003 includes an asset impairment charge of $2.1 million.
PRIMUS's net income for the fourth quarter of 2003 was $18 million inclusive of $14 million of foreign currency transaction gains. This compares to net income of $6 million in the prior quarter and a net loss of ($18) million in the fourth quarter of 2002, inclusive of $9 million of foreign currency transaction gains.
Basic and diluted income per common share was $0.20 and $0.18, respectively, for the fourth quarter 2003, compared to a basic and diluted loss per common share of ($0.28) in the fourth quarter of 2002. Basic and diluted weighted average common shares outstanding for the fourth quarter 2003 were 88 million and 107 million, respectively.
Full Year Results for 2003
For the full year 2003, net revenue was $1.3 billion as compared to $1.0 billion for the full year 2002, an increase of 25.8%, attributable to growth across all product and geographic segments of our business. Income from operations for 2003 was $70 million as compared to a loss from operations of ($3) million in 2002. PRIMUS's 2003 net income was $55 million or $0.56 diluted income per common share as compared to a net loss of ($35) million or ($0.54) diluted loss per common share in 2002. Net income for 2003 includes gains from foreign currency transactions of $39 million and gains from the early extinguishment of debt of $13 million. Net loss for 2002 includes gains from foreign currency transactions of $8 million and gains from the early extinguishment of debt of $37 million.
Liquidity and Capital Resources
PRIMUS ended the fourth quarter of 2003 with restricted and unrestricted cash of $77 million reflecting the full deployment of the $132 million in proceeds from the convertible senior notes offering completed in September 2003 to refinance its long-term debt, resulting in lower interest payments and extended debt maturities. During 2003 PRIMUS generated $67 million in cash from operating activities and spent $25 million on capital expenditures. In January 2004, a subsidiary of the Company issued $240 million of 8.0% senior notes, the proceeds of which were used to satisfy and discharge the Company's 9.875% and 11.25% senior notes and repay certain vendor debt obligations, and the balance of the proceeds are earmarked for capital expenditures, working capital and other general corporate purposes.
PRIMUS's long-term debt obligations as of December 31, 2003 were $542 million as compared to $601 million at the end of 2002. The Company will continue to pursue opportunities to strengthen the balance sheet through debt reduction and refinancing initiatives and enhance liquidity through reducing its carrying costs of debt, extending its debt maturity profile and bringing its accounts payable more current. The Company has an effective shelf registration statement on file with the SEC for issuance of up to an aggregate of $200 million of securities.
2004 Goals
The Company entered 2004 having accomplished its 2003 goals of double digit revenue growth, improved operating profitability, generation of net income, a stronger balance sheet and enhanced liquidity. Its goals for 2004, assuming currencies are stable from year-end 2003 levels, are: (1) revenue growth in the range of 12% to 15%; (2) operating income growth in the range of 40% to 50%; (3) capital expenditures in the range of 3% of net revenue; (4) and net income in the range of $20 million to $25 million, which includes approximately $15 million of costs associated with the early extinguishment of debt and related interest expense in the first quarter of 2004. Diluted weighted average common share outstanding balances are expected to be in the range of 107 million to 110 million. Our goals reflect a number of significant differences from 2003 including: the turn to taxable profitability of the Canadian and Australian operations and, thereby, the expectation that income tax expense will grow from $6 million in 2003 to in the range of $20 million in 2004, and the incremental investment of approximately $20 million to $25 million in SG&A costs for new product initiatives. Further, to strengthen the Company's balance sheet, in the first half of 2004 the Company plans to deploy $40 million to $50 million to bring its accounts payable more current and improve its ratio of priority obligations to total assets, in an effort to improve its credit ratings and reduce future cost of capital.
Primus Telecommunications Group Inc.
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