Talk America (NASDAQ:TALK): THIRD QUARTER HIGHLIGHTS -- Voice
equivalent lines on network of 192,000 -- Total voice equivalent
lines of 580,000 -- Data equivalent lines of 65,000 -- Total
revenue of $120.6 million -- EBITDA of $20.9 million -- Net income
of $5.2 million, or $0.17 per share on a diluted basis -- Cash
balance of $42.3 million; total debt of $5.9 million Talk America
(NASDAQ:TALK) today announced results for the third quarter 2005.
For the third quarter 2005, we reported net income of $5.2 million,
or $0.17 per share on a diluted basis, as compared to net income of
$9.0 million, or $0.32 per share on a diluted basis, for the third
quarter 2004. For the third quarter 2005, on-net revenues, off-net
revenues and long distance only and other revenues were $23.9
million, $79.9 million and $16.8 million, respectively. Results for
the quarter include the operations of LDMI from July 13, 2005, the
closing date of the acquisition. (Note: See the schedule
accompanying this news release for reconciliation to generally
accepted accounting principles (GAAP) for the non-GAAP financial
measure mentioned in this release) INCREASING YEAR-END TARGET FOR
NETWORKED LINES During the third quarter 2005, we migrated over
80,000 customer lines onto our network representing new sales and
existing customer migrations. Ed Meyercord, Chief Executive Officer
and President of Talk America, commented "our success in achieving
these aggressive targets is based on focused execution and the
coordination of networking, IT and customer operations. Our
automated back office systems allow us to seamlessly migrate
customers onto our own networking platform. We expect to migrate
over 100,000 customer lines in the fourth quarter and are raising
our year-end target for voice lines on network to the range of
275,000 to 285,000." INTEGRATION OF LDMI ACQUISITION Mr. Meyercord
commented, "We closed the acquisition of LDMI in the third quarter
and integration initiatives are going well. We have used our core
competency in operations to improve quality of service, streamline
business processes and drive economic efficiencies. The successful
integration of LDMI provides a roadmap for future combinations."
NEW GROWTH OPPORTUNITIES WITH NETWORK TELEPHONE ACQUISITION Our
acquisition of NTC will open new markets and create new growth
opportunities for the combined entity. Our current plans are to
commence sales and customer migrations in the Atlanta market in the
first quarter of 2006 and augment 22 NTC end offices with five
additional end offices to address our footprint of 25,000 lines and
a market of approximately 1.6 million business and residential
lines. We will use our soft-switched IP network to deliver voice
and broadband services in the Southeast. This new network will
enable NTC's business-focused sales team to begin offering
customers a higher end product solution for more complex
telecommunication needs. In addition, we have begun to jointly
evaluate with NTC the remaining markets where they've been
successful in building business franchises for potential expansion
into the consumer market. FINANCIAL GUIDANCE Our financial guidance
for 2006 reflects the acquisition of NTC assuming closing on
January 3, 2006. Guidance for 2006 EBITDA excludes the impact from
the expensing of options pursuant to FAS 123(R). We expect that the
expensing of options will have a negative effect on EBITDA for 2006
and will adjust our guidance when we have more information on the
projected impact. Our operational and financial targets are as
follows: -0- *T Metrics Q4 2005 ----------------- ---------------
Voice Equivalent Lines on Network 275k-285k Data Equivalent Lines
70k Total Revenue $107-$110 mm EBITDA $13-$16 mm 2005 2006
-------------------------- ------------------------- Metrics
Previous Current Previous Current -----------------
-------------------------- ------------------------- Voice
Equivalent Lines on Network 255k 275k-285k 400k 455k Data
Equivalent Lines 70k 70k 90k 160k Total Revenue $430-$440 mm
$455-$458 mm $385-$395 mm $445-$455 mm EBITDA $83-$87 mm $84-$87 mm
$55-$65 mm $60-$70 mm Capital Expenditures (Including Software)
$53-$58 mm $53-$58 mm $18-$22 mm $21-$25 mm *T CONFERENCE CALL Talk
America management will host a conference call to discuss the third
quarter 2005 operating results at 5:00 p.m. ET on November 1, 2005.
The call can be accessed by dialing the following: US 800-255-2466,
International, 212-676-4900. A replay of the call will be available
through 7:00 p.m. ET on November 8, 2005 by dialing the following:
800-633-8284, International 402-977-9140. The reservation number
for the replay is 21265816. Additionally, a live web simulcast 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 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 back office. Please
Note: The statements contained herein regarding the consummation of
the acquisition of NTC, the future results of NTC and the effects
and results of the acquisition on the business and results of
operations of Talk America should be, and certain other of the
statements contained herein 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 statements are identified by the use of forward-looking words
or phrases, including, but not limited to, "estimates," "expects,"
"expected," "anticipates," "anticipated," "forecast," "guidance,"
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, the non-completion of
the NTC acquisition or our inability to integrate effectively and
as anticipated the business of NTC upon the completion of the
acquisition, dependence on the availability and functionality of
local exchange carriers' networks as they relate to the unbundled
network element 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 of local and long
distance services and long distance services under our direct
marketing channels to a smaller marketing footprint, attrition in
the number of end users, failure to manage our collection
management systems and credit controls for customers, interruption
in our network and information systems, failure to provide adequate
customer service, and changes in government policy, regulation and
enforcement and/or adverse judicial or administrative
interpretations and rulings relating to 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 filed August 9, 2005, our Annual
Report on Form 10-K for the year-ended December 31, 2004, filed on
March 16, 2005, as amended by our Form 10-K/A filed March 30, 2005,
and any subsequent filings. We undertake no obligation to update
our forward-looking statements. -- Financial Tables To Follow-- -0-
*T TALK AMERICA HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED
STATEMENTS OF OPERATIONS (In thousands, except for per share data)
(Unaudited) Three Months Ended Nine Months Ended September 30,
September 30, ------------------- ------------------- 2005 2004
2005 2004 --------- --------- --------- --------- Revenue $120,645
$120,929 $348,149 $345,761 Costs and expenses: Network and line
costs, excluding depreciation and amortization (see below) 64,413
58,260 181,090 164,500 General and administrative expenses 23,496
17,925 59,946 52,544 Provision for doubtful accounts 4,515 5,728
14,909 14,054 Sales and marketing expenses 7,294 19,318 21,335
55,806 Depreciation and amortization 11,618 5,442 30,734 15,895
--------- --------- --------- --------- Total costs and expenses
111,336 106,673 308,014 302,799 --------- --------- ---------
--------- Operating income 9,309 14,256 40,135 42,962 Other income
(expense): Interest income 199 61 873 204 Interest expense (114)
561 (164) (698) Other expense, net (5) -- (361) -- ---------
--------- --------- --------- Income before provision for income
taxes 9,389 14,878 40,483 42,468 Provision for income taxes 4,172
5,867 16,428 16,747 --------- --------- --------- --------- Net
income $5,217 $9,011 $24,055 $25,721 ========= ========= =========
========= Income per share - Basic: --------- --------- ---------
--------- Net income per share $0.18 $0.33 $0.86 $0.96 =========
========= ========= ========= Weighted average common shares
outstanding 29,808 26,974 28,122 26,799 ========= =========
========= ========= Income per share - Diluted: --------- ---------
--------- --------- Net income per share $0.17 $0.32 $0.84 $0.92
========= ========= ========= ========= Weighted average common and
common equivalent shares outstanding 30,357 27,737 28,796 27,854
========= ========= ========= ========= TALK AMERICA HOLDINGS, INC.
AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except
for share and per share data) (Unaudited) September 30, December
31, 2005 2004 ------------- ------------- Assets Current assets:
Cash and cash equivalents $42,318 $47,492 Accounts receivable,
trade (net of allowance for uncollectible accounts of $14,835 and
$17,508 at September 30, 2005 and December 31, 2004, respectively)
45,240 48,873 Deferred income taxes 20,207 34,815 Prepaid expenses
and other current assets 8,010 6,888 ------------- -------------
Total current assets 115,775 138,068 Property and equipment, net
95,234 65,823 Goodwill 39,492 13,013 Intangibles, net 4,997 1,966
Deferred income taxes 21,893 14,291 Capitalized software and other
assets 9,234 8,567 ------------- ------------- $286,625 $241,728
============= ============= Liabilities and Stockholders' Equity
Current liabilities: Accounts payable and accrued expenses $42,535
$38,843 Sales, use and excise taxes 7,142 11,179 Deferred revenue
15,294 15,321 Current portion of long-term debt 4,207 2,529 Accrued
compensation 8,321 6,690 Other current liabilities 13,341 10,022
------------- ------------- Total current liabilities 90,840 84,584
------------- ------------- Long-term debt 1,714 1,717 Deferred
income taxes 4,589 13,906 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; 30,299,778 and 27,037,096
shares issued and outstanding at September 30, 2005 and December
31, 2004, respectively 316 284 Additional paid-in capital 380,283
356,409 Accumulated deficit (186,117) (210,172) Treasury stock -
$.01 par value, 1,315,789 shares at September 30, 2005 and December
31, 2004, respectively (5,000) (5,000) ------------- -------------
Total stockholders' equity 189,482 141,521 -------------
------------- $286,625 $241,728 ============= ============= TALK
AMERICA HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF
CASH FLOWS (In thousands) (Unaudited) Nine Months Ended September
30, --------------------- 2005 2004 ---------- ---------- Cash
flows from operating activities: Net income $24,055 $25,721
Adjustments to reconcile net income to net cash provided by
operating activities: Provision for doubtful accounts 14,909 14,054
Depreciation and amortization 30,734 15,895 Loss on sale,
retirement and write-down of assets 359 -- Non-cash interest and
amortization of accrued interest liabilities -- (956) Deferred
income taxes 13,341 14,257 Non-cash compensation -- 9 Changes in
assets and liabilities: Accounts receivable, trade 726 (22,609)
Prepaid expenses and other current assets 1,745 (1,979) Other
assets 80 (17) Accounts payable and accrued expenses (20,149) 7,238
Sales, use and excise taxes (4,553) (977) Deferred revenue (3,156)
4,715 Accrued compensation (1,563) (5,217) Other current
liabilities (162) (653) ---------- ---------- Net cash provided by
operating activities 56,366 49,481 ---------- ---------- Cash flows
from investing activities: Proceeds from sale of fixed assets 63 --
LDMI acquisition (26,536) Capital expenditures (35,220) (8,053)
Capitalized software development costs (2,946) (2,673) ----------
---------- Net cash used in investing activities (64,639) (10,726)
---------- ---------- Cash flows from financing activities:
Payments of borrowings -- (44,258) Payments of capital lease
obligations (1,586) (949) Proceeds from exercise of options 4,685
564 ---------- ---------- Net cash provided by (used in) financing
activities 3,099 (44,643) ---------- ---------- Net change in cash
and cash equivalents (5,174) (5,888) Cash and cash equivalents,
beginning of period 47,492 35,242 ---------- ---------- Cash and
cash equivalents, end of period $42,318 $29,354 ==========
========== TALK AMERICA HOLDINGS, INC. AND SUBSIDIARIES NON-GAAP
RECONCILIATION *T Non-GAAP Financial Measure: The non-GAAP
financial measure that we use in this news release is listed below.
We have included reconciliation of this non-GAAP financial measure
to the most directly comparable GAAP measures in our financial
statements. Earnings Before Interest, Taxes, Depreciation and
Amortization (EBITDA) is defined as operating income plus
depreciation and amortization. -0- *T EBITDA ($ in thousands) Third
Quarter --------------------- 2005 2004 ---------- ----------
Operating Income $9,309 $14,256 Depreciation and Amortization
11,618 5,442 ---------- ---------- EBITDA $20,927 $19,698
========== ========== *T
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