Esprit Telecom Announces Record Q3 1998 Results; Total Revenue Up 49% Over Second Quarter; Gross Margins Increase for the Fourth Consecutive Period

Financial: Esprit Telecom Announces Record Q3 1998 Results; Total Revenue Up 49% Over Second Quarter; Gross Margins Increase for the Fourth Consecutive Period


Unaudited Financial Highlights (UK GAAP) (1)

(In thousands, except per ordinary share, per ADS and per minute

amounts, number of customers and numbers of employees and route


Three Months Ended Nine Months Ended

June 30 June 30

—————— —————–

1998 1997 1998 1997

—– —- —- —-

pounds pounds pounds pounds

sterling sterling sterling sterling

Consolidated Profit

and Loss Account Data:

Revenue 21,681 13,475 49,315 32,742

Cost of revenue (17,478) (11,567) (40,257) (27,233)

—— —— —— ——

Gross profit 4,203 1,908 9,058 5,509

Other operating


Selling, general and

administrative (8,809) (4,133) (20,507) (9,946)

Restructuring costs – – – (377)

Stock option


costs (2) 27 (34) (112) (407)

Depreciation and

amortization (3,133) (735) (5,775) (1,885)

European network

depreciation (527) – (527) –

—— —— —— ——

Operating loss before

interest (8,239) (2,994) (17,863) (7,106)

Profits on the sale of investment – – 200 –

Net interest

income/(expense) (5,398) 385 (8,327) 451

—— —— —— —–

Loss on ordinary


before taxation (13,637) (2,609) (25,990) (6,655)

Taxation on loss on

ordinary activities – – (2) –

—— —— —— ——

Loss for the period (13,637) (2,609) (25,992) (6,655)

====== ====== ====== ======

Pro forma loss per

Ordinary Share (0.11) (0.02) (0.21) (0.07)

====== ====== ====== ======

Proforma weighted

average number of

shares (3) 124,656 120,071 124,357 99,492

Equivalent pro forma

loss per ADS (4) (0.77) (0.15) (1.46) (0.47)

====== ====== ====== ======

Other Financial Data

EBITDA (5) (4,579) (2,259) (11,361) (5,221)

Summary Operating Data:

Number of billable

minutes (000s) (6) 173,753 71,213 390,485 176,896

Average revenue per

billable minute 0.125 0.189 0.126 0.185

Average gross margin

per billable minute 0.024 0.027 0.023 0.031

Number of customers

(at period-end) 5,902 1,575

Number of employees

(at period-end) 639 240

European Network –

Route Kilometres (7) 1,267 n/a

Esprit Telecom Group plc (Nasdaq: ESPRY; Easdaq: ESPR) one of Europe’s leading independent telecommunications companies, Wednesday announced its financial results for the quarter ended 30 June 1998. Strong growth in retail sales revenue, customer numbers and minutes carried contributed to significant increases in total revenues and enhanced gross margin.

During the third quarter ended 30 June 1998 total revenue was 21.7 million pounds sterling, an increase of 49% over revenue of 14.5 million pounds sterling for the second quarter ended 31 March 1998. Retail customer numbers, switched minutes and gross profit also reached their highest ever levels during the quarter.

Retail revenue grew to a record 14.9 million pounds sterling during the quarter, a 222% increase over retail revenue of 4.6 million pounds sterling during the same period one year ago and a 66% increase over the 9.0 million pounds sterling retail revenue reported in the second quarter ended 31 March 1998.

According to David L. Oertle, Chief Executive Officer at Esprit Telecom Group plc: “Esprit Telecom has again shown excellent progress in all key areas of the business. Retail sales, the barometer of our overall performance, once again showed substantial quarter on quarter growth. These retail sales now account for 69% of total group revenue compared with 34% for the same quarter last year. We again exceeded our target of 20% retail growth per quarter, achieving 26% organic retail growth in the third quarter. With the continued growth of our business in continental European markets, 59% of our revenue is now generated outside the UK.”

For the fourth consecutive quarter, gross margin increased. For the quarter ended 30 June 1998, gross margin reached 19.4%, compared with 18.3% for the previous quarter. Gross margin has now increased by 5.2 percentage points from the 14.2% gross margin reported for the third quarter ended 30 June 1997.

This resulted in gross profit of 4.2 million pounds sterling for third quarter ended 30 June 1998, more than double the gross profit of 1.9 million pounds sterling reported for the same period last year, and up by 58% over the 2.7 million pounds sterling gross profit reported for the second quarter ended 31 March 1998.

Esprit Telecom billed over 170 million minutes during the third quarter of 1998, more than doubling the 71 million minutes billed during the third quarter of 1997 and an increase of 42% over the 122 million billed minutes the previous quarter. Customer numbers grew to 5,902 during the third quarter of 1998, more than tripling the 1,575 customers reported at the end of the same period in 1997. Of the increase in customers, 670 were attributable to the PLUSNET acquisition.

Esprit Telecom began re-establishing its wholesale business during the third quarter after a period of deliberate curtailment. This accounted for a rise in wholesale revenue to 2.7 million pounds sterling in the third quarter from 1.6 million pounds sterling in the second quarter.

A number of significant operational milestones were also reached during the third quarter. In April 1998, the first ring of the Esprit Telecom pan-European broadband fibre network a 1,267 route kilometre fibre SDH ring between London and Paris became operational. Over the next 15 months, Esprit Telecom plans to extend its pan-European telecommunications network 9,000 route kilometres throughout Europe, operating at an initial minimum capacity of 2.5 Gbits/second (STM-16).

During the third quarter, Esprit Telecom acquired the business of PLUSNET Gesellschaft fr Netzwerk Services mbH (“PLUSNET”) from Thyssen Telecom, a subsidiary of Thyssen AG. The deal positions Esprit Telecom as one of the leading telecommunications service providers in the $47 billion German telecommunications market.

David L. Oertle said: “With PLUSNET, we acquired not only one of the largest and most respected telecommunications operators in Germany, but also gained unique and invaluable management, sales, and technical skill sets that have helped us establish a leading position in Europe’s largest single market. The integration of PLUSNET and Esprit Telecom has been smooth and is now effectively complete, with virtually no loss of staff or customers. This marks the latest and most significant in a series of acquired businesses that have been successfully integrated into the Esprit Telecom Group.”

Following the PLUSNET acquisition, German revenue now accounts for 25% of Esprit Telecom group revenue and will be reported as a separate geographic category as of the current quarter.

Also during the third quarter ended 30 June 1998, Esprit Telecom completed a formal agreement with French national operator France Telecom for the technical interconnection of the telecommunications networks of the two companies.

Further progress was made in France when, in June, the French Administrative Supreme Court (Conseil d’Etat) confirmed Esprit Telecom’s right to receive the single digit national carrier select code ‘6’ in France. The award of the single digit code also know as an ‘E Digit’ – positions Esprit Telecom with a select group of six telecommunications companies entitled to compete on an equal basis with France Telecom across France. Esprit Telecom is in the process of building a national fibre network in France.

To support the continued expansion of the Esprit Telecom business across Europe, in June Esprit Telecom successfully raised an aggregate 140 million pounds sterling ($150 million at 10.875% and DM 150 million at 11.000 %) of Senior Notes due 2008.

Subsequent Events Last week, the company announced the appointment of Dr. Hans-Peter Kohlhammer as managing director, sales and marketing, effective October 1, 1998. Dr. Kohlhammer joins Esprit Telecom from Thyssen Telecom AG, where he was chairman of the Board of Management. Since 1996, Dr. Kohlhammer has also been president of Germany’s leading telecommunications industry body, VATM (The Association of Providers of Telecom and Value Added Services). He brings to Esprit Telecom 27 years of senior management experience at leading telecommunications companies.

The company made two other significant senior management appointments during the quarter. In July, the company named Dr. Jrgen Hernichel, formerly managing director of PLUSNET, as managing director for all of Esprit Telecom’s German operations. In May, the company announced the appointment of Jaime Gamell-Riera as Managing Director of Esprit Telecom Spain. Gamell-Riera brings 28 years of senior management experience, incorporating 14 years in a telecommunications environment across four continents.

In July, Esprit Telecom became the first independent telecommunications company in Belgium to receive a national public network operator licence. Included in the licence is the right to interconnect with dominant national operator Belgacom at the lowest available interconnect rates.

In August, Esprit Telecom announced that it had purchased and is currently deploying an advanced billing and customer care system. This system will be implemented on a pan-European basis and provides a solid basis for long-term growth as Esprit Telecom builds a consistent billing and customer care platform to support its pan-European products and services. The system has the ability to support a broad range of services in multiple languages and multiple currencies, including the Euro. Also in August, Esprit Telecom became the first independent operator in Europe to offer customers pricing in Euros.

Esprit Telecom Group plc, a NASDAQ and EASDAQ quoted company trading under the symbols “ESPRY” and “ESPR” respectively, is one of the largest independent European telecommunications service providers. Established in 1992, the company has sales offices in 26 major cities in the United Kingdom, Germany, The Netherlands, Spain, France, Belgium and Italy and operates a pan-European telecommunications network that reaches more than 30 cities in eight European countries.

1. The Company prepares its financial statements in accordance with accounting principles generally accepted in the United Kingdom (UK GAAP), which differ in certain significant respects from the accounting principles generally accepted in the United States. The financial results set forth above represent the Company’s financial results under UK GAAP. All amounts derive from continuing operations.

2. Since September 1997, the Company’s financial information has been restated from that previously published in order to give effect to a change in UK GAAP relating to the granting of employee stock options at a discount to the market price. The financial value of such discounts are now recognised as employee compensation and charged against net income. As required by UK GAAP, this accounting change has been effected by restating the results of previous periods.

3. Under UK GAAP, pro forma loss per Ordinary Share is calculated based upon the weighted average number of shares outstanding during the period, adjusted to reflect the redesignation of the “A” ordinary shares as Ordinary Shares and the fifty for one Share Split that occurred in February 1997.

4. Each ADS represents seven Ordinary Shares.

5. Earnings before interest and similar items, taxes, depreciation and amortisation (“EBITDA”) is presented because it is a measure commonly used in the telecommunications industry and is presented solely to enhance the understanding of the Company’s operating results. EBITDA, however, should not be considered as an alternative to operating income or income for the periods as an indicator of the operating performance of the Company. Similarly, EBITDA should not be considered as an alternative to cash flows from operating activities as a measure of liquidity.

6. Billable minutes are those minutes during which a call is connected to any Company switch and for which the Company bills a customer.

7. Route Kilometres is the number of kilometres of distance of physically diverse controlled infrastructure operating at STM1 capacity or above within Esprit Telecom’s European Network. The total excludes Transatlantic cable capacity.

COPYRIGHT 1998 EDGE Publishing

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