Talk America Reports Fourth Quarter and Full Year 2004 Results; Revenue and Net Income Within Guidance; Company Increases ''Networked'' Lines Forecast for 2005.RESTON Reston, uninc. city (1990 pop. 48,556), Fairfax co., N Va., a planned community established in 1961. A suburb of Washington, D.C., Reston is organized in a series of residential villages and commercial areas. , Va. -- Talk America America [for Amerigo Vespucci], the lands of the Western Hemisphere—North America, Central (or Middle) America, and South America. The world map published in 1507 by Martin Waldseemüller is the first known cartographic use of the name. (NASDAQ NASDAQin full National Association of Securities Dealers Automated Quotations U.S. market for over-the-counter securities. Established in 1971 by the National Association of Securities Dealers (NASD), NASDAQ is an automated quotation system that reports on :TALK) FOURTH QUARTER HIGHLIGHTS --Approximately 25,000 customer lines on network --Billed bundled bun·dle n. 1. A group of objects held together, as by tying or wrapping. 2. Something wrapped or tied up for carrying; a package. 3. Biology A cluster or strand of closely bound muscle or nerve fibers. lines of 671,000, up 21% over Q4 2003 --Approximately 22,000 dial-up Refers to using the regular "dial-up" telephone network to send data from a computer to a remote network or to a remote device. The computer's digital data are converted to analog signals in the same frequency range as human voice by a modem. subscribers --DSL testing on track --Total revenue of $125.3 million, up 24% over Q4 2003 --Bundled revenue of $110.7 million, up 36% over Q4 2003 --EBITDA of $23.4 million --Net income of $11.1 million, or $0.40 per share on a diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. basis --Cash balance of $47.5 million; total debt of $4.2 million YEAR END HIGHLIGHTS --Total revenue of $471.0 million, up 23% over 2003 --Bundled revenue of $407.7 million, up 44% over 2003 --EBITDA of $82.2 million --Net income of $36.8 million, or $1.32 per share on a diluted basis --Cash flow from operations of $74.4 million Talk America (NASDAQ:TALK) today announced fourth quarter and full year results for 2004. For the fourth quarter 2004, we reported net income of $11.1 million, or $0.40 per share on a diluted basis, as compared to net income of $7.6 million, or $0.27 per share on a diluted basis, for the fourth quarter 2003. Results for the fourth quarter 2004 include increased depreciation expense of $1.4 million related to a reduction in the remaining useful lives of our five long distance switches and other income of $1.9 million due to a reduction in sales and use tax Sales and use tax refers to:
Accounts on a balance sheet that represent liabilities and non-cash-based assets used in accrual-based accounting. These accounts include, among many others, accounts payable, accounts receivable, goodwill, future tax liability and future interest expense. . For the full year 2004, net income was $36.8 million, or $1.32 per share on a diluted basis, as compared to net income of $81.8 million, or $2.94 per share on a diluted basis, for the full year 2003. We have changed the classification of certain expenses presented in the accompanying ac·com·pa·ny v. ac·com·pa·nied, ac·com·pa·ny·ing, ac·com·pa·nies v.tr. 1. To be or go with as a companion. 2. financial information, including customer billing expenses, from network and line costs to general and administrative expense. As we discuss below, the results for the full year 2004 and the 2003 periods reflect our restatements of financial results for periods prior to our fourth quarter 2004. (Note: See the schedule accompanying this news release for reconciliation to generally accepted accounting principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting (GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). ) for the non-GAAP financial measure mentioned in this release) SUCCESSFUL EXECUTION OF NETWORKING PLAN As of December December: see month. 31, 2004, we had approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. 25,000 lines provisioned on our network. Our line conversion process is now fully automated au·to·mate v. au·to·mat·ed, au·to·mat·ing, au·to·mates v.tr. 1. To convert to automatic operation: automate a factory. 2. and we have increased our target to 175,000 lines to be converted by the end of 2005. We are moving forward with plans to install networking equipment in 80 end offices in Detroit Detroit, city, United States Detroit (dĭtroit`), city (1990 pop. 1,027,974), seat of Wayne co., SE Mich., on the Detroit River and between lakes St. Clair and Erie; inc. as a city 1815. and Grand Rapids, Michigan “Grand Rapids” redirects here. For other uses, see Grand Rapids (disambiguation). Grand Rapids is a city in the U.S. state of Michigan. As of the 2000 census, the city population was 197,800. during 2005. Ed Meyercord, Chief Executive Officer and President of Talk America, commented, "building a network for local phone service in Michigan Michigan (mĭsh`ĭgən), upper midwestern state of the United States. It consists of two peninsulas thrusting into the Great Lakes and has borders with Ohio and Indiana (S), Wisconsin (W), and the Canadian province of Ontario (N,E). provides us with a platform that addresses 1.9 million households and lays the groundwork for our expansion into new customer segments including small and medium sized businesses. We are keeping pace with our line migration objective and our margin assumptions are holding firm." HIGH SPEED DSL DSL in full Digital Subscriber Line Broadband digital communications connection that operates over standard copper telephone wires. It requires a DSL modem, which splits transmissions into two frequency bands: the lower frequencies for voice (ordinary DEPLOYMENT TO TRACK NETWORK BUILD-OUT Build-out is an urban planner’s estimate of the amount and location of potential development for an area. Build-out is one step of the land use planning process. Evaluation of potential development impacts begins with a build-out analysis. We have been testing the delivery of high-speed internet See broadband. access to customers using digital subscriber line See DSL. (communications, protocol) Digital Subscriber Line - (DSL, or Digital Subscriber Loop, xDSL - see below) A family of digital telecommunications protocols designed to allow high speed data communication over the existing copper telephone lines between end-users and , or DSL, technology. We have been pleased with the results and plan to offer DSL services to those customers in our networking footprint The amount of geographic space covered by an object. A computer footprint is the desk or floor surface it occupies. A satellite's footprint is the earth area covered by its downlink. See form factor. 1. , which we expect will expand significantly during 2005. Mr. Meyercord added, "our networking and IT development teams have been working to develop the DSL product commensurate com·men·su·rate adj. 1. Of the same size, extent, or duration as another. 2. Corresponding in size or degree; proportionate: a salary commensurate with my performance. 3. with our network build-out in Michigan. Delivery of a cost effective, high quality product is critical to our competitiveness in the consumer and small and medium sized business markets." BUNDLED BUSINESS TO GENERATE SIGNIFICANT CASH FLOW During 2004, our business generated $74.4 million of cash from operations which funded our capital expenditures and debt reduction during the year. We expect to generate significant cash flow during 2005 that will fund the build-out of our network in Michigan and will provide us with significant financial flexibility. ACCOUNTING RESTATEMENTS During the course of the year-end year-end also year·end n. The end of a year. adj. Occurring or done at the end of the year: a year-end audit. Noun 1. closing process and in considering certain comments that we recently received from the Securities and Exchange Commission in respect of our 2003 and quarterly 2004 reports, we have determined that we should correct our accounting for deferred tax assets, certain customer fees and diluted net income per share. Management has made an initial evaluation of the effect of these corrections and has included financial results reflecting those estimates, which are not yet audited. On February February: see month. 25, 2005, our Audit Committee, after discussion with management and consultation with our independent public accounting firm, PricewaterhouseCoopers LLP LLP - Lower Layer Protocol , approved the restatement Restatement A revision in a company's earlier financial statements. Notes: The need for restating financial figures can result from fraud, misrepresentation, or a simple clerical error. of our annual and quarterly financial statements for 2003 and the first three quarters of 2004 as recommended by management, to reflect the required revisions to our accounting. The restatements presented below and in the accompanying financial information include adjustments that result from the determinations described above. Accordingly, the financial statements in our reports filed with the Securities and Exchange Commission covering the periods noted should not be relied upon until restatements of such financial statements are filed with the Securities and Exchange Commission. We are restating our results for 2003 and 2004 to account for (1) the recording of certain fee revenue that was previously misclassified as a liability, (2) the timing of recording of certain deferred tax assets, (3) the increase in deferred tax assets and corresponding decrease to goodwill related to net operating losses Net operating losses Losses that a firm can take advantage of to reduce taxes. acquired as part of our acquisition of Access One and (4) an overstatement o·ver·state tr.v. o·ver·stat·ed, o·ver·stat·ing, o·ver·states To state in exaggerated terms. See Synonyms at exaggerate. o in the number of fully diluted shares outstanding due to the exclusion exclusion /ex·clu·sion/ (eks-kloo´zhun) 1. a shutting out or elimination. 2. surgical isolation of a part, as of a segment of intestine, without removal from the body. of the deferred tax benefit of option exercises. With the exception of the deferred tax assets recorded in connection with the Access One acquisition, these changes are immaterial Not essential or necessary; not important or pertinent; not decisive; of no substantial consequence; without weight; of no material significance. immaterial adj. to our balance sheet and cash flow statements for the periods proposed to be restated. The following table summarizes the effect of the anticipated adjustments described above on our previously reported revenue, operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. , pre-tax pre-tax adj → anterior al impuesto pre-tax adj → avant impôt(s) pre-tax adj → al lordo d'imposta income, net income, fully diluted earnings per share diluted earnings per share An earnings measure calculated by dividing net income less preferred stock dividends for a period by the average number of shares of common stock that would be outstanding if all convertible securities were converted into shares of and fully diluted shares.
(in 000s, except
per share data)
(Unaudited) 2003
-------------------------------------------------
Q1 Q2 Q3 Q4 Year
Revenues:
Reported $87,843 $93,748 $99,929 $101,143 $382,663
As Restated 88,202 93,906 100,178 101,407 383,693
Operating Income:
Reported $15,179 $19,027 $17,620 $13,432 $65,258
As Restated 15,538 19,185 17,869 13,696 66,288
Pre-Tax Income:
Reported $14,961 $17,500 $16,106 $12,197 $60,764
As Restated 15,319 17,658 16,355 12,461 61,793
Net Income:
Reported $9,126 $10,675 $51,566 $7,094 $78,461
As Restated 9,343 10,771 54,102 7,601 81,817
Fully Diluted EPS:
Reported $0.32 $0.37 $1.74 $0.25 $2.75
As Restated 0.32 0.37 1.88 0.27 2.94
Fully Diluted
Shares:
Reported 29,940 29,562 29,761 28,884 28,514
As Restated 29,940 29,570 28,877 28,107 27,806
(in 000s, except per share data)
(Unaudited) 2004
-----------------------------
Q1 Q2 Q3
Revenues:
Reported $109,321 $114,881 $120,537
As Restated 109,619 115,213 120,929
Operating Income:
Reported $14,103 $13,973 $13,864
As Restated 14,401 14,305 14,256
Pre-Tax Income:
Reported $13,387 $13,573 $14,486
As Restated 13,685 13,905 14,878
Net Income:
Reported $8,356 $8,548 $9,147
As Restated 8,288 8,422 9,011
Fully Diluted EPS:
Reported $0.29 $0.30 $0.32
As Restated 0.29 0.30 0.32
Fully Diluted Shares:
Reported 28,862 28,694 28,212
As Restated 28,130 28,039 27,737
We continue to review our internal controls over financial reporting and whether the facts and circumstances CIRCUMSTANCES, evidence. The particulars which accompany a fact. 2. The facts proved are either possible or impossible, ordinary and probable, or extraordinary and improbable, recent or ancient; they may have happened near us, or afar off; they are public or underlying the accounting corrections reflected in the restatements constitute "material weaknesses" as defined by the Public Company Accounting Oversight
Oversight may refer to:
tr.v. re·stat·ed, re·stat·ing, re·states To state again or in a new form. See Synonyms at repeat. re·state our financial statements, as described above, indicates "material weaknesses" as defined by these standards. FINANCIAL GUIDANCE Our capital expenditure forecast, including capitalized Capitalized Recorded in asset accounts and then depreciated or amortized, as is appropriate for expenditures for items with useful lives longer than one year. software, for 2005 is $43 - $47 million. As a result of a reduction in the remaining useful lives of our long distance switches and additional capital expenditures related to our network build-out, we expect that our depreciation and amortization expense will increase to approximately $42 million in 2005. Our operational and financial targets for the first quarter 2005 and for the full year 2005 are as follows:
Metrics Q1 2005 2005
------------- -------------
Lines on Network 25-30k 175k
Total Revenue $113-$118 mm $375-$385 mm
EBITDA $18-$20 mm $68-$72 mm
CONFERENCE CALL Talk America's management will host a conference call to discuss the fourth quarter and full year 2004 operating results at 5:00 PM ET on March 1, 2005. The call can be accessed by dialing the following: US (800) 263-9155, International, (212) 676-4900. A replay of the call will be available through 7:00 p.m. ET on March 8, 2005 by dialing the following: US (800) 633-8284, International (402) 977-9140. The reservation number for the replay is 21225980. Additionally, a live web simulcast Simulcast is a portmanteau of "simultaneous broadcast", and refers to programs or events broadcast across more than one medium, or more than one service on the same medium, at the same time. of the conference call will be available online at www.talkamerica.com and www.streetevents.com. About Talk America Talk America is a leading competitive communications provider that offers phone services and high speed internet access See how to access the Internet. to both residential and business customers. Talk America delivers value in the form of savings, simplicity and quality service to its customers through its leading edge network and award-winning Adj. 1. award-winning - having received awards; "this award-winning bridge spans a distance of five miles" back office. For further information, visit us online at: http://www.talkamerica.com. Please Note: Certain of the statements contained herein may be considered forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such statements are identified by the use of forward-looking for·ward-look·ing adj. Concerned with or making provision for the future: forward-looking educators; a forward-looking corporate plan. Adj. 1. words or phrases, including, but not limited to, "estimates," "expects," "expected," "anticipates," "anticipated," and "targets". These forward-looking statements are based on our current expectations. Although we believe that the expectations reflected in such forward-looking statements are reasonable, there can be no assurance that such expectations will prove to have been correct. Forward-looking statements involve risks and uncertainties and our actual results could differ materially from our expectations. In addition to those factors discussed in the foregoing, important factors that could cause such actual results to differ materially include, among others, dependence on the availability and functionality of local exchange carriers' networks as they relate to the unbundled network element Unbundled Network Elements (UNE) are a requirement mandated by the United States Telecommunications Act of 1996. They are the parts of the telecommunications network that the incumbent local exchange carriers (ILECs) are required to offer on an unbundled basis. platform, failure to establish and deploy our own local network as we plan to do or to operate it in a profitable manner, increased price competition for long distance and local services, failure of the marketing of the bundle To sell hardware and software as a combined product or to combine several software packages for sale as a single unit. Contrast with unbundle. See bundled software and bundling. of local and long distance services and long distance services under our direct marketing channels and our various marketing partners, failure to manage the nonpayment Non`pay´ment n. 1. Neglect or failure to pay. Noun 1. nonpayment - act of failing to meet a financial obligation nonremittal, default failure - an act that fails; "his failure to pass the test" of amounts due us from our customers from bundled and long distance services, attrition Attrition The reduction in staff and employees in a company through normal means, such as retirement and resignation. This is natural in any business and industry. Notes: in the number of end users, failure or difficulties in managing our operations, including attracting and retaining qualified personnel, failure to be able to expand our active offering of local bundled services in a greater number of states, failure to provide timely and accurate billing information to customers, failure to manage our collection management systems and credit controls for customers, interruption INTERRUPTION. The effect of some act or circumstance which stops the course of a prescription or act of limitation's. 2. Interruption of the use of a thing is natural or civil. in our network and information systems, failure to provide adequate customer service, and changes in government policy, regulation and enforcement and/or and/or conj. Used to indicate that either or both of the items connected by it are involved. Usage Note: And/or is widely used in legal and business writing. adverse judicial or administrative interpretations and rulings relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc regulations and enforcement, including, but not limited to, the continued availability of the unbundled network element platform of the local exchange carriers network and unbundled network element pricing methodology. For a discussion of such risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see the discussions contained in our Quarterly report on Form 10-Q Form 10-Q See 10-Q. filed November November: see month. 9, 2004 and our Annual Report on Form 10-K Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. for the year-ended December 31, 2003, filed March 12, 2004, as amended a·mend v. a·mend·ed, a·mend·ing, a·mends v.tr. 1. To change for the better; improve: amended the earlier proposal so as to make it more comprehensive. 2. by our Form 10-K/A filed May 7, 2004, and any subsequent filings. We undertake no obligation to update our forward-looking statements. Financial Tables To Follow
TALK AMERICA HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except for per share data)
(Unaudited)
Three Months Ended For the Year Ended
December 31, December 31,
------------------- -------------------
2004 2003 2004 2003
--------- --------- --------- ---------
Restated Restated
Revenue $125,251 $101,407 $471,012 $383,693
Costs and expenses:
Network and line costs 62,479 46,420 225,918 173,349
General and administrative
expenses 17,741 17,184 71,346 63,104
Provision for doubtful
accounts 7,259 3,038 21,313 11,599
Sales and marketing expenses 14,396 15,862 70,202 51,008
Depreciation and
amortization 7,009 5,207 22,904 18,345
--------- --------- --------- ---------
Total costs and expenses 108,884 87,711 411,683 317,405
--------- --------- --------- ---------
Operating income 16,367 13,696 59,329 66,288
Other income (expense):
Interest income 86 51 290 388
Interest expense (35) (1,287) (733) (7,353)
Other income (expense), net 1,895 1 1,895 2,470
--------- --------- --------- ---------
Income before provision for
income taxes 18,313 12,461 60,781 61,793
Provision (benefit) for income
taxes 7,222 4,860 23,969 (20,024)
--------- --------- --------- ---------
Net income $11,091 $7,601 $36,812 $81,817
========= ========= ========= =========
Income per share - Basic:
Net income per share $0.41 $0.29 $1.36 $3.10
========= ========= ========= =========
Weighted average common
shares outstanding 26,992 26,526 26,847 26,376
========= ========= ========= =========
Income per share - Diluted:
Net income per share $0.40 $0.27 $1.32 $2.94
========= ========= ========= =========
Weighted average common and
common equivalent shares
outstanding 27,750 28,107 27,854 27,806
========= ========= ========= =========
TALK AMERICA HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except for share and per share data)
(Unaudited)
December 31, December 31,
2004 2003
------------ ------------
Restated
Assets
Current assets:
Cash and cash equivalents $47,492 $35,242
Accounts receivable, trade (net of allowance
for uncollectible accounts of $17,508 and
$9,414 at December 31, 2004 and 2003,
respectively) 48,873 40,321
Deferred income taxes 34,815 24,605
Prepaid expenses and other current assets 6,888 5,427
------------ ------------
Total current assets 138,068 105,595
Property and equipment, net 65,823 68,069
Goodwill 13,013 13,013
Intangibles, net 1,966 4,666
Deferred income taxes 14,291 48,288
Other assets 8,567 7,547
------------ ------------
$241,728 $247,178
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $43,439 $35,296
Sales, use and excise taxes 11,179 13,521
Deferred revenue 15,321 10,873
Current portion of long-term debt 2,529 16,806
Accrued compensation 6,690 9,888
Other current liabilities 5,426 6,851
------------ ------------
Total current liabilities 84,584 93,235
------------ ------------
Long-term debt 1,717 31,791
Deferred income taxes 13,906 19,009
Commitments and contingencies
Stockholders' equity:
Preferred stock - $.01 par value, 5,000,000
shares authorized; no shares outstanding -- --
Common stock - $.01 par value, 100,000,000
shares authorized; 27,037,096 and
26,662,952 shares issued and outstanding at
December 31, 2004 and 2003, respectively 284 280
Additional paid-in capital 356,409 354,847
Accumulated deficit (210,172) (246,984)
Treasury stock - $.01 par value, 1,315,789
shares at December 31, 2004 (5,000) (5,000)
------------ ------------
Total stockholders' equity 141,521 103,143
------------ ------------
$241,728 $247,178
============ ============
TALK AMERICA HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Year Ended December 31,
-------------------------
2004 2003
------------ ------------
Restated
Cash flows from operating activities:
Net income $36,812 $81,817
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for doubtful accounts 21,313 11,599
Depreciation and amortization 22,904 18,345
Other non-cash charges 9 --
Non-cash interest and amortization of
accrued interest liabilities (956) (260)
Loss on sale and retirement of assets 4 22
Gain from extinguishment of debt -- (2,476)
Deferred income taxes 19,441 (23,410)
Changes in assets and liabilities:
Accounts receivable, trade (29,865) (24,077)
Prepaid expenses and other current
assets (900) (1,533)
Other assets 60 1,410
Accounts payable 8,143 3,144
Deferred revenue 4,448 4,393
Sales, use and excise taxes (2,342) 2,082
Accrued compensation (3,198) 4,279
Other current liabilities (1,425) (2,163)
------------ ------------
Net cash provided by operating
activities 74,448 73,172
------------ ------------
Cash flows from investing activities:
Acquisition of intangibles -- (133)
Capital expenditures (12,963) (11,844)
Capitalized software development costs (3,534) (2,738)
------------ ------------
Net cash used in investing activities (16,497) (14,715)
------------ ------------
Cash flows from financing activities:
Payments of borrowings (45,273) (52,918)
Payments of capital lease obligations (1,228) (61)
Proceeds from exercise of options and
warrants 800 1,176
Purchase of treasury stock -- (5,000)
------------ ------------
Net cash used in financing activities (45,701) (56,803)
------------ ------------
Net increase in cash and cash equivalents 12,250 1,654
Cash and cash equivalents, beginning of year 35,242 33,588
------------ ------------
Cash and cash equivalents, end of year $47,492 $35,242
============ ============
TALK AMERICA HOLDINGS, INC. AND SUBSIDIARIES
NON-GAAP RECONCILIATION
Non-GAAP Financial Measure:
The non-GAAP financial measure that we use in this news release is
listed below. We have included reconciliation of this non-GAAP
financial measure to the most directly comparable GAAP measures in our
financial statements.
Earnings Before Interest, Taxes, Depreciation and Amortization
(EBITDA) is defined as operating income plus depreciation and
amortization.
EBITDA
($ in thousands) Fourth Quarter
-----------------
2003 2004 2003 2004
-------- -------- -------- --------
Operating Income $66,288 $59,329 $13,696 $16,367
Depreciation & Amortization 18,345 22,904 5,207 7,009
-------- -------- -------- --------
EBITDA $84,633 $82,233 $18,903 $23,376
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