SSB's Grubman: TGNT: Reports Strong 2Q99 Earnings; Strong
Operational Progress
Salomon Smith Barney
Thursday, August 12, 1999
--SUMMARY:--Teligent, Inc.--Telecommunications Services
*TGNT reported strong Q2'99 results after the close yesterday.
*Financially, revs of $4.0 mil & EBITDA losses of $89.7 mil were in line.
*TGNT ended Q2'99 w/total mkts in svc of 28; on track for 40 mkt YE goal.
*Lines in svc at end of Q2'99 totaled 37,526 exceeding our est of 31,000.
Net adds of 20,000 were more than double net adds in Q1'99.
*TGNT will not need financing until 2001 since it had a cash position at
the end of Q2'99 of $386 mil & $600 mil remaining on its credit facility.
*TGNT had 1,520 buildings on its own network vs 800 at the end of Q1'99.
*1,162 building leases and options were added, bringing total to 4,252.
Year end target raised from 5,000 to 6,000.
*Customers at end of Q2'99 were 3,534 w/avg rev/cust/mo increasing to more
than $500 vs $400 in Q1'99. Trained salespeople grew to 276 vs 189 (Q1'99)
--EARNINGS PER SHARE--------------------------------------------------------
FYE 1 Qtr 2 Qtr 3 Qtr 4 Qtr Year
Actual 12/98 EPS $(0.73)A $(1.12)A $(1.49)A $(2.00)A $(5.35)A
Previous 12/99 EPS $(2.05)A $(2.45)E $(2.65)E $(3.05)E $(10.20)E
Current 12/99 EPS $(2.05)A $(2.34)A $(2.75)E $(3.40)E $(10.54)E
Previous 12/00 EPS $N/A $N/A $N/A $N/A $(10.00)E
Current 12/00 EPS $N/A $N/A $N/A $N/A $(10.00)E
Previous 12/01 EPS $N/A $N/A $N/A $N/A $N/A
Current 12/01 EPS $N/A $N/A $N/A $N/A $N/A
Footnotes:
--FUNDAMENTALS--------------------------------------------------------------
Current Rank........:1S Prior:No Change Price (8/11/99).....:$64.00
P/E Ratio 12/99.....:N/Ax Target Price..:$70.00 Prior:No Change
P/E Ratio 12/00.....:N/Ax Proj.5yr EPS Grth...:N/A%
Return on Eqty 98...:N/A% Book Value/Shr(99)..:-1.14
LT Debt-to-Capital(a)N/A% Dividend............:$N/A
Revenue (99)........:35.00mil Yield...............:N/A%
Shares Outstanding..:61.2mil Convertible.........:No
Mkt. Capitalization.:3916.8mil Hedge Clause(s).....:#
Comments............:(a) Data as of the most recently reported quarter.
Comments............:
--OPINION:------------------------------------------------------------------
Teligent reported strong Q2'99 results after the close yesterday which
demonstrated management's ability to quickly and effectively roll out its
markets and its ability to sell its services. Teligent has already
completed the launch of its services in 13 additional markets this year
bringing total markets in service at the end of Q2'99 to 28. Lines in
service at the end of Q2'99 totaled 37,526 exceeding our estimate of
31,000 in only a few months in operation. Net additions of 20,000 were
more than double the number of lines added in Q1'99 as TGNT rolled out
additional markets, brought more buildings onto its network and increased
the number of full time equivalent salespeople. TGNT is well on its way
to reaching its goal of 40 markets and 75,000 lines in service by year
end 1999. Financially, revenues of $4.0 million and EBITDA losses of
$89.7 million were in line with expectations and based on our estimates
TGNT will not need financing until 2001 since it had a cash position at
the end of Q2'99 of $386 million with $600 million remaining on its bank
credit facility. Clearly, operationally and financially, TGNT has
continued to deliver strong results.
Financially, revenues for Q2'99 were $4.0 million in line with our
estimate with 65% of revenues from long distance, 20% from local and the
remaining from data services, consistent with the revenue mix in Q1'99.
Currently, LD is a greater part of TGNT's revenue mix since if Teligent
has a prospective customer and the customer's building is in Teligent's
territory but the building is not prepared for Teligent services,
Teligent will pre-sell long distance via its agreement with Frontier with
local and data services to follow as the building is put on-net. We
expect local revenues to become a greater part of the revenue mix as the
year progresses as more buildings are put on-net. TGNT had 1,520
buildings on its own network vs 800 at the end of Q1'99 with nearly 737
of these buildings equipped with fixed wireless installations vs 471 at
the end of Q1'99. Roughly 75% of the fixed wireless buildings deployed
are equipped with point-to-multipoint equipment. We expect on-net
buildings to increase to 3,000 by year end. The company added 1,162
building leases and options, which must be obtained prior to bringing a
building on-net, bringing the total to 4,252. As a result of TGNT's
success in obtaining these building leases and options, the company has
increased its year end target from 5,000 to 6,000.
Cash expenses were $93.7 million excluding a $7.9 million non-cash charge
for stock-based compensation. EBITDA loss excluding the above-mentioned
items was $89.7 million also in line with our estimate. Capital
expenditures for the quarter were $34.8 million which was lower than
expected as TGNT concentrated on further penetration of customers on each
node versus node build-out. Consistent with previous guidance, capital
expenditures are estimated to be $300 million in 1999. TGNT plans to
invest in its own ISP infrastructure by deploying ATM switches and
advanced data routers in each of its 19 switching centers which serve all
of TGNT's markets. Currently, TGNT resells Concentric services and with
this new infrastructure in place, TGNT estimates its cost savings will be
more than $50 million over a 5 year period. The estimated investment in
year 1 is roughly $10-$20 million, with positive cost savings by year 3
of deployment. Due to TGNT's investment in ISP facilities we are
revising our EBITDA loss estimate for 1999 to $370 million compared with
our previous $350 million EBITDA loss estimate. Teligent's target for
1999 revenues remains $35 million.
During the quarter, TGNT added 2 additional markets as expected, bringing
the total markets in service to 28 at the end of Q2'99. These markets
comprise more than 460 cities and towns with a combined population of
more than 83 million. Teligent will install and equip a core number of
point-to-multipoint base stations and customer building antennas in each
market. Base stations or nodes at the end of Q2'99 totaled 70 up from 60
at the end of Q1'99 for an average of 2.5 per market and are estimated to
reach 100 by year end. Switches installed totaled 19 compared with 17 at
the end of Q1'99.
At the end of Q2'99 TGNT had 37,526 lines in service compared with 17,600
at the end of Q1'99, providing multiple services to 30%-40% of lines in
service (for example local/LD or local/data vs. LD only). In fact, more
than 50% of lines in service were taking local, more than 60% took long
distance and 15-20% of lines took data. Currently, TGNT's average lines
per customer is in the 10-11 line range, exceeding our estimate of 9.5
lines per customer. On a per building basis, TGNT currently has on
average 1.8-2.0 customers per building with a long term goal of 3-4
customers per building. The average building that TGNT provides service
to is in the 20-25 tenants per building range, thus penetration levels
are in the 8-10% range. Net adds for the quarter were roughly 20,000,
more than double the 8,500 net adds in Q1'99. We expect TGNT will be
able to meet its goal of 75,000 lines in service for the year especially
as the number of fully trained salespeople, buildings on-net and markets
in service grow. Total customers at the end of the quarter were 3,534
with average revenue per customer per month increasing to more than $500
during the quarter compared with $400 in Q1'99 due to bringing more
buildings on-net and thus increasing the services that TGNT can offer to
the customer.
Teligent ended the quarter with 433 salespeople up from 333 at the end of
Q1'99 and nearly 2,237 total employees. The number of full-time
equivalent salespeople that were fully trained to sell TGNT services grew
to 276 from 189 at the end of Q1'99. TGNT estimates that it takes 3-4
months before a salesperson is properly trained to sell TGNT services and
to thus become a "full-time equivalent" salesperson.
NET/NET: Teligent continues to deliver strong results, especially
operationally, and is on track to meet its targets for year end. We
reiterate our Buy and $70 target. |
