TALK Talkspace Inc

Talk America (NASDAQ:TALK) FOURTH QUARTER HIGHLIGHTS -- Local voice and data equivalent lines on network of 341,000 -- Total local voice and data equivalent lines of 595,000 -- Total revenue of $114.6 million -- EBITDA of $16.0 million -- Net income of $2.0 million, or $0.07 per share on a diluted basis -- Cash balance of $46.3 million; total debt of $5.3 million YEAR END HIGHLIGHTS -- Total revenue of $462.7 million -- EBITDA of $86.9 million -- Net income of $26.1 million, or $0.89 per share on a diluted basis -- Cash flow from operations of $72.0 million Talk America (NASDAQ:TALK) today announced fourth quarter and full year results for 2005. For the fourth quarter 2005, we reported net income of $2.0 million, or $0.07 per share on a diluted basis, as compared to net income of $11.1 million, or $0.40 per share on a diluted basis, for the fourth quarter 2004. For the fourth quarter 2005, on-net revenues, off-net revenues, and long distance only and other revenues were $40.2 million, $58.2 million and $16.2 million, respectively. Talk America Chief Executive Officer and President, Ed Meyercord, commented, "We strengthened our competitive position in 2005 by transitioning to a network-based services provider and by expanding our reach into the commercial customer segment. Given the fundamental changes in our business throughout the year, we are pleased to deliver financial results ahead of plan." For the full year 2005, we reported net income of $26.1 million, or $0.89 per share on a diluted basis, as compared to net income of $36.8 million, or $1.32 per share on a diluted basis, for the full year 2004. For the full year 2005, on-net revenues, off-net revenues, and long distance only and other revenues were $75.2 million, $331.2 million and $56.3 million, respectively. Results for the year 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) With the build out of our network, that now covers 313 end offices in 10 states, including Network Telephone, and the migration of over 200,000 customers, approximately 57% of our current customer lines, at year-end, are served on our network. In the fourth quarter alone, we successfully provisioned an unprecedented 120,000 voice and data equivalent lines onto our network for a year end total of 341,000. We are not aware of any company in our industry that has ever undertaken a migration of customer lines of this scale. Our success is a testament to the quality and talent of our employees and an extraordinary team effort. In addition, with the acquisition of LDMI and NTC, we now have the reach and product portfolio to deliver integrated voice and data services to commercial customers in our networked markets. The integration initiatives continue to proceed according to plan. We are realizing the expected synergies from combined operations while improving the quality of service to our commercial customers. We are now focused on "best-in-class" service initiatives and the expansion of our product portfolio. FINANCIAL GUIDANCE Our financial guidance for 2006 reflects the acquisition of NTC, which closed on January 3, 2006. Guidance for 2006 EBITDA before Option Expense excludes the impact from the expensing of options pursuant to FAS 123(R). We expect that option expense will be approximately $1.5 million in the first quarter 2006 and $5.0 million for the full year 2006. Our financial targets are as follows: -0- *T Metrics Q1 2006 ------------------------------ --------------- Total Revenue $118-$120 mm EBITDA before Option Expense $13-$15 mm 2006 ----------------------------- Metrics Previous Current ----------------------------- ----------------------------- Total Revenue $445-$455 mm $445-$455 mm EBITDA before Option Expense $60-$70 mm $60-$70 mm Capital Expenditures (including Software) $21-$25 mm $25-$30 mm *T CONFERENCE CALL Talk America management will host a conference call to discuss the fourth quarter 2005 operating results at 10:00 a.m. ET on February 17, 2006. The call can be accessed by dialing the following: US 800-633-8486, International, 212-346-6527. A replay of the call will be available through 12:00 p.m. ET on February 24, 2006 by dialing the following: 800-633-8284, International 402-977-9140. The reservation number for the replay is 21283512. 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 future 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, 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 November 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. -0- *T TALK AMERICA HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except for per share data) (Unaudited) Three Months Ended Year Ended December 31, December 31, ------------------- ------------------- 2005 2004 2005 2004 --------- --------- --------- --------- Revenue $114,590 $125,251 $462,740 $471,012 Costs and expenses: Network and line costs, excluding depreciation and amortization (see below) 62,835 61,805 243,925 225,244 General and administrative expenses 22,981 18,415 82,906 72,020 Provision for doubtful accounts 4,206 7,259 19,114 21,313 Sales and marketing expenses 8,528 14,396 29,863 70,202 Depreciation and amortization 12,886 7,009 43,620 22,904 --------- --------- --------- --------- Total costs and expenses 111,436 108,884 419,428 411,683 --------- --------- --------- --------- Operating income 3,154 16,367 43,312 59,329 Other income (expense): Interest income 135 86 1,007 290 Interest expense (165) (35) (350) (733) Other income (expense), net 709 1,895 348 1,895 --------- --------- --------- --------- Income before provision for income taxes 3,833 18,313 44,317 60,781 Provision for income taxes 1,814 7,222 18,243 23,969 --------- --------- --------- --------- Net income $2,019 $11,091 $26,074 $36,812 ========= ========= ========= ========= Income per share - Basic: --------- --------- --------- --------- Net income per share $0.07 $0.41 $0.91 $1.37 ========= ========= ========= ========= Weighted average common shares outstanding 30,314 26,992 28,675 26,847 ========= ========= ========= ========= Income per share - Diluted: --------- --------- --------- --------- Net income per share $0.07 $0.40 $0.89 $1.32 ========= ========= ========= ========= Weighted average common and common equivalent shares outstanding 30,777 27,750 29,296 27,584 ========= ========= ========= ========= TALK AMERICA HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except for share and per share data) (Unaudited) December 31, December 31, 2005 2004 --------------- --------------- Assets Current assets: Cash and cash equivalents $46,288 $47,492 Accounts receivable, trade (net of allowance for uncollectible accounts of $14,366 and $17,508 at December 31, 2005 and December 31, 2004, respectively) 43,600 48,873 Deferred income taxes 18,476 34,815 Prepaid expenses and other current assets 6,338 6,888 --------------- --------------- Total current assets 114,702 138,068 Property and equipment, net 95,077 65,823 Goodwill 39,205 13,013 Intangibles, net 4,934 1,966 Deferred income taxes 20,774 14,291 Capitalized software and other assets 9,470 8,567 --------------- --------------- $284,162 $241,728 =============== =============== Liabilities and Stockholders' Equity Current liabilities: Accounts payable and accrued expenses $40,025 $38,843 Sales, use and excise taxes 3,970 11,179 Deferred revenue 13,824 15,321 Current portion of long-term debt 3,988 2,529 Accrued compensation 9,405 6,690 Other current liabilities 14,147 10,022 --------------- --------------- Total current liabilities 85,359 84,584 --------------- --------------- Long-term debt 1,289 1,717 Deferred income taxes 3,788 13,906 Other Liabilities 2,021 1 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; 31,679,046 and 27,037,096 shares issued and outstanding at December 31, 2005 and December 31, 2004, respectively 317 284 Additional paid-in capital 380,486 356,409 Accumulated deficit (184,098) (210,172) Treasury stock - $.01 par value, 1,315,789 shares at December 31, 2005 and December 31, 2004, respectively (5,000) (5,000) --------------- --------------- Total stockholders' equity 191,705 141,521 --------------- --------------- $284,162 $241,728 =============== =============== TALK AMERICA HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Year Ended December 31, ------------------------------- 2005 2004 --------------- --------------- Cash flows from operating activities: Net income $26,074 $36,812 Adjustments to reconcile net income to net cash provided by operating activities: Provision for doubtful accounts 18,874 21,313 Depreciation and amortization 43,620 22,904 Deferred income taxes 14,938 19,588 Other non-cash charges and (credits) 378 (943) Changes in assets and liabilities: Accounts receivable, trade (2,340) (34,461) Prepaid expenses and other current assets 3,481 (900) Other assets (15) 60 Accounts payable and accrued expenses (19,917) 8,143 Sales, use and excise taxes (7,788) (2,342) Deferred revenue (4,626) 4,448 Accrued compensation (274) (3,198) Other current liabilities (393) 3,171 --------------- --------------- Net cash provided by operating activities 72,012 74,595 --------------- --------------- Cash flows from investing activities: Proceeds from sale of fixed assets 70 -- Acquisition of LDMI, net of cash acquired (26,850) -- Capital expenditures (45,234) (12,963) Capitalized software development costs (3,989) (3,534) --------------- --------------- Net cash used in investing activities (76,003) (16,497) --------------- --------------- Cash flows from financing activities: Payments of borrowings -- (45,273) Payments of capital lease obligations (2,230) (1,228) Proceeds from exercise of options and warrants 5,017 653 --------------- --------------- Net cash provided by (used in) financing activities 2,787 (45,848) --------------- --------------- Net change in cash and cash equivalents (1,204) 12,250 Cash and cash equivalents, beginning of period 47,492 35,242 --------------- --------------- Cash and cash equivalents, end of period $46,288 $47,492 =============== =============== TALK AMERICA HOLDINGS, INC. AND SUBSIDIARIES NON-GAAP RECONCILIATION *T Non-GAAP Financial Measures: The non-GAAP financial measures that we use in this news release are listed below. We have included reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures in our financial statements. Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) is defined as operating income plus depreciation and amortization. Earnings Before Interest, Taxes, Depreciation, Amortization and Option Expense (EBITDA before Option Expense) is defined as operating income plus depreciation, amortization and option expense. -0- *T EBITDA ($ in thousands) Fourth Quarter Full Year ----------------- ----------------- 2005 2004 2005 2004 ----------------- ----------------- Operating Income $3,154 $16,367 $43,312 $59,329 Depreciation and Amortization 12,886 7,009 43,620 22,904 -------- -------- -------- -------- EBITDA $16,040 $23,376 $86,932 $82,233 ======== ======== ======== ======== *T