Infonet Announces First Quarter Results
Quarterly Core Revenue Up 5%
biz.yahoo.com
EL SEGUNDO, Calif.--(BUSINESS WIRE)--Aug. 5, 2002--Infonet Services Corporation (NYSE:IN; FSE:IN):
Financial Highlights Q1 FY 2003 vs. Q1 FY 2002
Revenue: $147 vs. $172 million, down 14%
Net income/(loss): $(36) vs. $3 million After KPNQwest and WorldCom write-offs
KPNQwest shutdown gives rise to $41 million write-off
Core revenue: $130 vs. $124 million, up 5%
Network services: $79 vs. $78 million, up 2%
Core EBITDA: $5 vs. $12 million, down 54% After $5 million write-off due to WorldCom bankruptcy
New client contracts: 160 vs. 185, down 14%
Infonet Services Corporation (NYSE:IN - News; FSE:IN) today announced fiscal year (FY) 2003 first quarter (Q1) revenue of $147 million versus $172 million for the comparable period in FY '02. Infonet's core (non-AUCS platform) revenue grew five percent to $130 million in Q1 FY '03 compared to $124 million in Q1 FY '02.
Revenue for network services was $79 million in Q1 FY '03 versus $78 million for Q1 FY '02, an increase of two percent. Excluding the impact of the loss of a major client in FY '02, network services revenue increased by four percent in Q1 FY '03 from Q1 FY '02.
Infonet's consulting, integration and provisioning revenue declined slightly in this quarter from $48 million in Q1 FY '02 to $46 million in Q1 FY '03. Core (non-AUCS platform) consulting, integration and provisioning revenue increased from $36 million in Q1 FY '02 to $42 million in Q1 FY '03, an increase of 17 percent.
Infonet's application services for this quarter remained unchanged from the first quarter of FY '02 at $2 million. As expected, other communications services, almost 80 percent of which were composed of AUCS platform-related revenue in Q1 FY '02, declined 55 percent from $45 million to $20 million in Q1 FY '03. The AUCS contract is expected to terminate on October 1, 2002.
Jose A. Collazo, Chairman, President and CEO of Infonet, said, "It is gratifying that during these difficult times in the technology sector, demand for our core (non-AUCS platform) services which represents almost 90% of our business resulted in revenue growth of 5% in this quarter compared to the first quarter of the previous fiscal year."
Impact of Recent Telecom Bankruptcies/Shutdowns
In the first quarter, Infonet incurred a charge of approximately $41 million resulting from the write-off of capacity previously purchased from KPNQwest and its affiliates. KPNQwest stopped operating in July 2002. In addition, Infonet created a reserve of approximately $5 million to cover anticipated losses related to the bankruptcy of WorldCom.
Mr. Collazo does not believe any future bankruptcies among service capacity providers will materially affect Infonet's long-term strategic plans. "If we have to replace additional capacity to continue to ensure service integrity," he said, "we expect to have more than enough cash to do it."
EBITDA
Earnings before interest, taxes, depreciation and amortization (EBITDA) during Q1 FY '03 decreased to $10 million from $22 million in Q1 FY '02. Core (non-AUCS platform) EBITDA decreased to $5 million in Q1 FY '03 from $12 million in Q1 FY '02 after the impact of the aforementioned $5 million of bad debt expense.
"In order to cover network redundancies wiped out by the shutdown of KPNQwest, Infonet made the decision to lease some additional unplanned capacity this year at an estimated cost of $5 million in the latter quarters of this fiscal year," said Mr. Collazo. "While the economics of this decision are attractive to us long-term, the increased expenses will negatively impact our EBITDA."
Operating Income, Net Income, EPS and Capital Expenditures
Operating income/(loss) for Q1 FY '03 was ($55) million from $117,000 in Q1 FY '02. Before non-cash, stock-based compensation charges, operating income/(loss) was ($51) million for Q1 FY '03 and $4 million for Q1 FY '02. Stock-based compensation charges for Q1 FY '03 were $4 million.
"Approximately $46 million of the decrease in operating income was the result of unusual charges recorded in the quarter," said Mr. Collazo.
Depreciation and amortization for Q1 FY '03 was $20 million compared to $18 million in Q1 FY '02 exclusive of the $41 million write-off in Q1 FY '03.
First quarter net income/(loss), also heavily affected by the asset write-off and bad debt related reserve expense, was a loss of ($36) million versus income of $3 million in the comparable quarter in FY '02. Basic and diluted earnings per share for Q1 FY '03 were a loss of ($0.08) versus $0.01 in Q1 FY '02.
Capital expenditures in this quarter were $10 million compared to $27 million in Q1 FY '02.
Client Data
During Q1 FY '03, Infonet added 160 new client service contracts. Of the new contracts, 88 were new clients and 72 represented additional sales to existing clients from cross-selling activities, including eight migrated KPNQwest clients.
"Our client wins are expected to continue at a strong pace and should increase above normal rates as we sign a limited number of former KPNQwest clients. The financial problems of some of our competitors has led to increased sales activities, but it takes some time to translate this into revenue, and the additional benefit, if any, will only be seen next year," said Mr. Collazo.
Summary
Mr. Collazo said, "Infonet continues to be in an enviable financial position with approximately $500 million in cash on our books and very little debt. Multinational companies looking to outsource their mission critical applications need to find stable partners to minimize the risk of business interruption," he said. "As the company with the lowest debt-to-equity ratio in our peer group, with 30 years of experience, with cash from operations to cover maintenance cap-ex, and with $500 million in cash, Infonet is a more attractive alternative to provide these services than ever.
"Although we expect the turmoil impacting the industry to benefit Infonet in the long run, it is premature to speculate on any additive revenue impact. In fact, because WorldCom and other financially impaired operators are resellers of our services, we are reevaluating their contributions to expected core revenue growth. Our previously expected FY '03 growth in core (non-AUCS platform) revenue of 15-20% is now more likely to be approximately 15%."
Mr. Collazo also said that the WorldCom bankruptcy may not necessarily alleviate pricing pressures in the market, and, in any event, it will take time for pricing issues to 'work their way through' the market.
"In the meantime, our strategy remains the same: to focus our energies on providing the highest levels of customer service available to multinational corporations."
Mr. Collazo said that he expects more than $25 million of AUCS platform-related (previously booked as other communications services) revenue to transition into core revenue during the second half of the year. In addition, revenue associated with a large contract signed last year will begin ramping up in the second half.
In January 2002, Infonet announced that its board of directors had authorized the expenditure of up to $100 million over 24 months to repurchase shares of the Company's common stock. As of June 30, 2002, Infonet had spent approximately $4.9 million to purchase approximately 2.3 million shares at an average price of $2.15 per share.
"Our strong financial position, enhanced by a favorable IRS ruling, enable us to continue our share repurchase program," said Mr. Collazo. "We feel that this is an additional avenue to building shareholder value."
Finally, Mr. Collazo said that, in order to provide fuller information earlier to the financial community, future earnings press releases will include a summary balance sheet, income statements and cash flow information. "We're a stable company and we want to make sure everyone can see this information as soon as possible." |
