<A> Teleport Communications Group Inc. --TCG-- Reported Fourth Quarter
1997 Revenues of $150.4 Million
DAYTON, N.J.--
Revenues for the Year 1997 Were $494.3 Million
Teleport Communications Group Inc. (Nasdaq/NM:TCGI) reported revenues
for the fourth quarter ended December 31, 1997 of $150.4 million, a
growth rate of 72% compared to the same period in 1996. Revenues for
the year 1997 were $494.3 million, a 74% increase over 1996.
Fourth quarter 1997 Recurring EBITDA (EBITDA(a) prior to a one-time
charge for in-process research and development) was $18.3 million, an
increase of 195% from the fourth quarter 1996. As a percentage of
revenues, recurring EBITDA was 12.2% compared to 7.1% a year ago.
Including the $22 million one-time charge for in-process research and
development related to CERFnet, EBITDA was $(3.7) million.
For the year 1997, recurring EBITDA was 9.1% of revenues, or double
the level of 4.4% of revenues for the year 1996.
Annualized monthly recurring revenue for December 1997 was $620
million, an increase of 88% over the same period in 1996.
"We are very pleased to report that for the year 1997, revenues grew
74% and recurring EBITDA increased by 256%," said Bob Annunziata,
TCG's Chairman, President and CEO. "This was the highest revenue
growth rate in the past five years and it was also on an expanding
revenue base. The results underscore the vast opportunities for our
company with multiple strategies for accessing the customer and a
wholesale and retail approach to customer segmentation and service
offerings."
Three months ended Twelve months ended
($ in millions) 12/31/97 12/31/96 12/31/97 12/31/96
-------- -------- -------- --------
Revenues $ 150.4 $ 87.4 $ 494.3 $ 283.4
Recurring EBITDA $ 18.3 $ 6.2 $ 44.9 $ 12.6
(a) EBITDA is defined as earnings before interest, taxes,
depreciation, amortization, and equity in losses of unconsolidated
affiliates.
Note: All results (financial and operational) presented in this
release which include results from the first six months of 1996 are
presented on a pro forma basis to reflect the TCG Reorganization,
described in TCG's Annual Report on Form 10-K, as amended, for the
year ended December 31, 1996.
Fourth Quarter 1997 Highlights:
Revenues:
Compared to third quarter 1997, total revenues for the fourth quarter
1997 increased by $19 million or 14.5%. Significant growth areas in
the fourth quarter include higher growth in dedicated services and
Internet and high speed data services. Dedicated services grew 21%,
switched services grew 7%, and Internet and high speed data services
grew 18% compared to the third quarter. Higher dedicated services
revenues in the fourth quarter 1997 reflected increased demand from
large customers for TCG's dedicated services.
Compared to fourth quarter 1996, switched service revenues grew 80%
and dedicated service revenues grew 58%. The trend of higher growth in
switched services compared to dedicated services has resulted in a
shift in the revenue mix. In the fourth quarter 1997, dedicated
services were 51% of revenues compared to 56% of revenues in the
fourth quarter 1996. Switched revenues in the fourth quarter 1997 were
43% of revenues compared to 41% of revenues in the fourth quarter
1996. Internet and high speed data grew by over 300% from the fourth
quarter 1996.
The investment in sales force and sales support continued in the
fourth quarter. During the fourth quarter 1997, TCG added 46 sales
employees to reach a total of 689. For the year 1997, TCG's sales
staff increased by 246 employees or 56% from 443 at year end 1996.
Operating results:
The significant growth of 55% in recurring EBITDA from $11.8 million
in the third quarter 1997 to $18.3 million in the fourth quarter 1997
was a result of lower growth, relative to revenues, in both operating
expenses and SG&A (sales, general and administrative) expenses.
Operating expenses in the fourth quarter were 55% of revenues compared
to 57% in the third quarter. SG&A expenses improved to 32% of revenues
from 34% in the third quarter.
Compared to fourth quarter 1996, the reductions in operating expenses
as a percentage of revenues were more significant with an improvement
of a full four percentage points from 59% of revenues in the fourth
quarter 1996 to 55% in the fourth quarter 1997.
During December, 1997, TCG received the appraisal concerning the value
of the acquired net assets and the acquired in-process research and
development of CERFnet Services, Inc. from the independent
consultants, which placed a value on the acquired in-process research
and development of $22 million. This amount was recorded in the fourth
quarter 1997.
The net loss for the fourth quarter 1997 was $72.5 million or $0.42
per share versus a loss of $43.5 million or $0.27 per share in the
fourth quarter of 1996. The additional losses include a $22 million
one-time charge for in-process research and development and additional
depreciation.
Highlights for the year ended December 31, 1997:
Revenues:
Total revenues for the year 1997 were $494.3 million, an increase of
$210.9 million or 74% from the year 1996.
Switched service revenues for the year 1997 increased by 90% from the
year 1996 to $215.2 million and 44% of total revenues. Dedicated
service revenues increased 56% to $252.4 million and 51% of total
revenues.
Internet revenues were added in February of 1997 as a result of the
CERFnet acquisition. Combined with high speed data, the two lines of
business now comprise 4.5% of total revenues.
For the year 1997, TCG doubled the total number of access lines
served. Total access lines served at the year end 1997 were 282,700,
an addition of 144,100 lines during the year.
Voice grade equivalents (VGEs) is a measurement of all circuits in
service and at year end 1997, TCG was serving 7.4 million VGEs
compared to 4.4 million VGEs at year end 1996. Billed minutes in the
December quarter 1997 were at an annualized run rate of 10.6 billion
minutes. Total minutes billed for the year 1997 was 7.7 billion
minutes, over three times the 2.5 billion minutes billed in 1996.
Operating results:
As a percentage of revenues, operating expenses declined from 61% in
the year 1996 to 57% in 1997. Although TCG continued to invest during
1997 in sales and marketing to capitalize on the opportunities in the
marketplace, SG&A continued to improve from 35% of revenues in 1996 to
34% of revenues in 1997. At year end 1997, total employees were 3,059,
an increase 1,009 employees from the 2,050 employees at year end 1996.
Recurring EBITDA for the year 1997 increased by $32.3 million or 256%
from the year 1996. Recurring EBITDA margins improved to 9.1% in 1997,
which was double the 4.4% of revenues in 1996.
Net loss for the year 1997 was $222.7 million or $1.34 per share
compared to a loss of $126.6 million or $0.86 in 1996. Additional
losses in 1997 were a result of higher depreciation costs, a one-time
charge for in-process research and development related to the CERFnet
acquisition and higher interest expenses.
Network Expansion:
For the 1997 fourth quarter, capital expenditures totaled $165 million
and year to date capital expenditures totaled $501 million. During the
fourth quarter, TCG added 8 new markets and brings total Metropolitan
Statistical Areas (MSAs) served by TCG to 65. Kansas City FiberNet
will add an additional MSA and ACC Corp. will add an additional 18
MSAs. TCG's total MSAs served will increase to 84 MSAs after the
completion of the acquisitions.
Equally important, 357 on-net buildings were added during the fourth
quarter 1997, which brings the total number of on-net buildings to
4,638. For the year 1997, 1,789 on-net buildings were added. Total
buildings served were 13,514, an increase of 5,769 buildings or 74%
from year end 1996.
The following is a comparison of TCG's network statistics at year end
1997 versus year end 1996.
12/31/97 12/31/96 Increase
Route Miles 9,474 6,744 2,730
Fiber Miles 491,097 346,039 145,058
Voice-Grade Equivalents 7,350,527 4,428,770 2,921,757
Buildings: On-net 4,638 2,849 1,789
Off-net 8,876 4,896 3,980
--------- ----- ----- -----
Total Buildings 13,514 7,745 5,769
Local Serving Offices 152 102 50
Digital Voice Switches Installed 35 25 10
During the fourth quarter 1997, a new switch was installed in San
Francisco and in Atlanta.
Switched services revenue was recorded for the first time in Portland
and Cleveland during the fourth quarter and is serviced by switches
installed during the third quarter 1997. Internet revenues were
recorded for the first time in Omaha and Salt Lake City.
Mergers and Transactions:
On November 26, 1997, TCG announced a definitive agreement to acquire
ACC Corp. in a stock for stock merger. To date, the waiting period
under the Hart Scott Rodino has been expired and we have received
approval from the FCC on the transfer of ACC Corp.'s International
Operating Authority to TCG. Approvals from 13 of 14 states in the U.S.
and all foreign approvals have been secured. The merger is subject to
an affirmative vote of a majority of the outstanding shares of ACCC
common stock. TCG continues to move ahead on completing the
transaction.
On December 2, 1997, TCG announced a definitive agreement to acquire
the assets of Kansas City Fiber Network, L.P. The transaction is
pending regulatory approval.
On January 8, 1998, TCG and AT&T announced a definitive agreement for
the merger of TCG with AT&T in a stock-for-stock transaction at an
exchange rate of .943 shares of AT&T for every share of TCG. Requests
for regulatory approvals have been filed.
As a result of the definitive agreement reached with AT&T, Moody's
upgraded TCG's debt ratings to investment grade Baa3.
TELEPORT COMMUNICATIONS GROUP INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
($ in millions, except EPS)
Three Months Ended
December 31
1997 1996
------ -----
Revenue $150.4 $87.4
Expenses:
Operating 83.4 51.5
Selling, Gen, & Admin. 48.7 29.7
In Process Research & Development 22.0 0.0
Depreciation/Amort. 48.0 27.3
----- -----
Operating Loss (51.7) (21.1)
Interest Income 6.7 12.9
Interest Expense (27.1) (29.2)
Minority Interest 0.0 1.3
Equity in Losses of Unconsol. Affiliates ( 0.2) (6.7)
------ -----
Loss Before Taxes (72.3) (42.8)
Income Tax Provision ( 0.2) (0.7)
------ -----
Net Loss $(72.5) $(43.5)
====== ======
Recurring EBITDA $ 18.3 $ 6.2
EBITDA $ (3.7) $ 6.2
EPS $( 0.42) $( 0.27)
Weighted Avg. Shares (millions) 170.7 159.9
EBITDA is defined as earnings/(loss) before interest, taxes,
depreciation, amortization, minority interest, and equity in losses of
unconsolidated affiliates. Recurring EBITDA is defined as EBITDA prior
to the in-process research and development expense.
TELEPORT COMMUNICATIONS GROUP INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
($ in millions, except EPS)
For The Year Ended
December 31
1997 1996(a)
------ ------
Revenue $494.3 $283.4
Expenses:
Operating 283.4 72.4
Selling, Gen, & Admin. 166.0 98.4
In Process Research & Development 22.0 0.0
Depreciation/Amort. 155.4 96.2
----- ----
Operating Loss (132.5) (83.6)
Interest Income 31.1 29.2
Interest Expense (116.2) (66.9)
Minority Interest 0.0 4.7
Equity in Losses of Unconsol. Affiliates ( 3.4) (7.7)
-------- -----
Loss Before Taxes (221.0) (124.3)
Income Tax Provision ( 1.7) ( 2.3)
-------- ------
Net Loss $(222.7) $(126.6)
======== ========
Recurring EBITDA $ 44.9 $ 12.6
EBITDA $ 22.9 $ 12.6
EPS $ (1.34) $ (0.86)
Weighted Avg. Shares (millions) 165.7 146.4
EBITDA is defined as earnings/(loss) before interest, taxes,
depreciation, amortization, minority interest, and equity in losses of
unconsolidated affiliates. Recurring EBITDA is defined as EBITDA prior
to in-process research and development expense.
(a) Pro forma results
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