EXECUTIVE TELECARD ANNOUNCES THIRD QUARTER RESULTS
CONFERENCE CALL AVAILABLE TO SHAREHOLDERS
FOR IMMEDIATE RELEASE
DATE: February 17, 1998
DENVER, CO, February 17, 1998 - Executive TeleCard, Ltd. (NASDAQ: EXTL) today reported financial results for the third quarter and nine months ending December 31, 1997. Revenue for the third quarter was $8,132,851 compared with $8,278,029 for the same quarter last year. The Company reported a net loss of $2,965,202 (or $(0.17) per share) compared with net income of $177,922 (or $0.01 per share) in the same period last year. One-time allowances, adjustments and realignment expenses contributed more than two million dollars to the loss. Without these one-time costs, the Company would have sustained a loss from operations of $396,000 and realized positive EBITDA of $55,000.
For the nine months ended December 31, 1997, revenue was $25,583,730, compared with $25,421,903 for the same period a year earlier.
The Company has seen a number of changes in its operating Management and Board of Directors in the third and fourth calendar quarters of 1997. The new Management initiated a review of the operations and activities of the Company, which has resulted in a refocusing of the Company's marketing and sales activities and in an emphasis on its core business. In practical terms, this means that the Company has decided to sell its resale telephone business in Colorado within the next few quarters; that it has refocused its developing internet business on mobility and global access services that complement the core calling card services; that it has established a small staff devoted to improving its network structure and reducing its marginal transmission cost (and thus its cost of revenue); that it has increased its sales and marketing staff and implemented a budget for marketing and promotion activities; and that it has instituted a process to add new network and operations staff as necessary to support new contracts. In addition, Management has concluded the realignment activities begun in the third calendar quarter of 1997, with the exception of completing the simplification and rationalization of the current multi-layered corporate structure.
The realignment has reduced existing and anticipated cost in several areas (for example, the internet services staff was reduced from 19 to 4 and the anticipated cost of a global internet access network was reduced by combining operations with the voice network), but many of these reforms will add cost for the purpose of adding revenue (in sales, marketing and promotion) and for responding to new revenue requirements (in network and operations).
Equally important, as part of the review of operations, a thorough review of corporate practices and procedures was undertaken. Under the leadership and guidance of Allen Mandel, Senior Vice President for Corporate Affairs, the Company has improved its contract reporting requirements, is developing a formal policy of compensation for all employees, and has successfully completed an improved budgetary process for which Vice Presidents will be held accountable. This review also resulted in a re-examination of the internal accounting and financial processes of the Company and the implementation of a number of improvements to internal reporting. Consequently, this quarter's financial report includes allowances and adjustments to reflect one-time amounts in costs of operation in the following items: cost of revenue, selling, general and administrative expenses and depreciation and amortization.
The flat revenues, when compared to the prior period a year earlier, reflect a combination of three elements: a decline in revenues from the long distance resale services of the Company, lower per minute revenues due to a new pricing schedule which went into effect in the second quarter, and a lack of new revenue generating contracts in the prior period. Management expects revenues to remain flat for these same reasons in the current quarter but anticipates that its renewed and more focused sales efforts will have an impact in the second and third calendar quarters of 1998 recognizing that these renewed sales efforts, but rather require a three to six month cycle before results could be seen.
Cost of revenue rose, in the quarter, both in absolute numbers and as a percentage of revenue, primarily as a result of a one-time adjustment which represents approximately $600,000 of prior period costs. In addition, cost of revenue as a percentage of revenue rose in this period and may be expected to fluctuate in the next few periods as new pricing structures take hold, as new contractual structures are put in place and as the Company works to improve its network structure and transmission cost (which is the dominant element of cost of revenue).
Selling, general and administrative expenses, after adjustment for certain one-time allowances, are significantly reduced from the immediately prior quarter and generally equivalent to expenses for the same period in the prior year. The allowances and adjustments include a one-time increase in bad debt reserve of $425,000 and adjustments in rent and related expenses of approximately $50,000 related to costs of a prior period.
Selling, general and administrative expenses, net of such adjustments and allowances, can be expected to rise in the current quarter and in future quarters to reflect increases in sales and marketing personnel, spending for marketing and promotional activities, and spending for network development and increases in network operations staff as the Company acquires new business.
Corporate realignment activities continued from the prior quarter, reflecting the review and restructuring undertaken by new Corporate leadership. Most of these costs, which totaled $911, 819, involve employee severance, legal and consulting fees and the write down of certain investments made in the Company's internet service development in prior periods.
The Company does not anticipate realignment costs or adjustments for prior periods in the future with one exception: the cost of simplifying and rationalizing the existing multi-layered corporate structure. This effort will involve legal expenses and is likely to involve one-time tax or balance sheet adjustments. The Company currently anticipates completing its review of its corporate structure and initiating all the steps necessary to implement the rationalization program within the 1998 calendar year. In the judgment of management, this rationalization effort is expected to assist in improving management oversight and control, in lowering legal costs, and in improving the transparency of the Company to its shareholders and to the investment community.
As a result of the sales cycles for new customers and services and the expectation of increased costs in sales, marketing and network development, the Company does not anticipate future positive EBITDA for the first three quarters of calendar 1998, but anticipates positive results in the fourth quarter of the year.
Certain statements in this Quarterly Report on Form 10-Q are "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 and involve known and unknown risks, uncertainties and other factors that may cause the Company's actual results, performance or achievements to be materially different from the results, performance or achievements expressed or implied by the forward looking statements. These forward-looking statements include, among others, statements concerning the Company's outlook for 1998, pricing trends, the Company's need to raise additional funds, expectations and plans for increases in business volume and future growth, possibility of the Company incurring additional corporate realignment expenses, the collectability of accounts receivable and the possibility of adverse foreign currency exposures and other statements of expectations, beliefs, future plans and strategies, anticipated events or trends, and similar expressions concerning matters that are not historical facts. The forward-looking statements in this report are subject to risks and uncertainties that could cause results to differ materially from those expressed in or implied by the statements.
SHAREHOLDER CONFERENCE CALL
Executive TeleCard's CEO, Christopher Vizas will hold a conference call on Tuesday, February 17, 1998 at 10:00 A.M. (MST) to make a statement regarding the results of this quarter and answer questions. The call in number for the conference call is (212)896-6098.
-End-
For further information please call Dawn L. Van Zant or Samantha Haynes toll free at 888.368.8704 or Heidi E. Hirst toll free at 888.368.8703.
The entire news release can be viewed at prnewswire.com |
