Exhibit 99.1
Arbinet Announces Full Year and Fourth Quarter 2005 Financial Results
NEW BRUNSWICK, N.J., February 16, 2006 -Arbinet-thexchange, Inc. (Nasdaq: ARBX) reported financial results for its full year and fourth quarter ended December 31, 2005.
Full year 2005 fee revenues were $48.8 million, an increase of 9% compared to $44.7 million in the full year 2004. A total of 11.9 billion minutes were bought and sold on Arbinet’s exchange in 2005, an increase of 13% from 10.5 billion minutes in 2004. The Company completed 1.43 billion calls during 2005, an increase of 18% compared to 1.21 billion in 2004. The average call duration on Arbinet’s exchange for 2005 was 4.2 minutes per call compared to 4.3 minutes per call in 2004.
Fourth quarter 2005 fee revenues were $12.0 million, a decrease of 4% from $12.5 million in the same quarter 2004 and a decrease of 7% compared to $12.9 million in the third quarter 2005. A total of 2.92 billion minutes were bought and sold on Arbinet’s exchange in the fourth quarter 2005, down from 3.00 billion minutes in the fourth quarter 2004 and 3.04 billion in the third quarter 2005. Arbinet completed 352.3 million calls during the fourth quarter 2005, compared to 346.7 million for the comparable period of 2004 and 359.8 million in the third quarter 2005. The average call duration on Arbinet’s exchange for the quarter was 4.1 minutes per call compared to 4.3 minutes per call in the fourth quarter 2004 and 4.2 minutes per call in the third quarter 2005.
Curt Hockemeier, President and Chief Executive Officer of Arbinet, commented, “We increased our member base to 399 carriers, including the world’s ten largest international carriers as of the end of 2005. We are also pleased with the increase in our VoIP traffic, which represented 27% of minutes traded in the fourth quarter. The volatility inherent to our voice exchange impacted the fourth quarter. This volatility, which is primarily the result of changes to the mix of geographic markets bought and sold on our exchange, is to be expected.”
Net income for the full year 2005 was $10.8 million or $0.42 per diluted share compared to net income of $7.9 million or $0.36 per pro forma diluted share in the full year 2004. Net income for the full year 2005 included a gain of approximately $1.2 million related to renegotiation of a leased property that was exited in 2001, a $1.5 million insurance reimbursement received in the second quarter 2005, an income tax benefit of $1.3 million related to the reversal of a valuation allowance against deferred tax assets and a gain of $300,000 related to a discontinued operation from 1999. Excluding these items, full year 2005 adjusted net income was $6.5 million or $0.25 per diluted share compared to adjusted net income for the full year 2004 of $6.5 million or $0.30 per pro forma diluted share. Adjusted net income for the full year 2004 excludes a charge for litigation settlement and related legal expenses of $3.4 million and a one-time gain of $7.2 million and non-cash interest expense of $400,000 million associated with a series of preferred stock that was redeemed in connection with Arbinet’s December 2004 initial public offering.
Fourth quarter 2005 net income was $4.7 million or $0.18 per diluted share compared to net income of $6.0 million or $0.27 per pro forma diluted share in the fourth quarter 2004. Net income for the fourth quarter 2005 includes a gain of approximately $1.2 million related to a renegotiation of leased property which was exited in 2001, an income tax benefit of $2.1 million primarily related to the reversal of a valuation allowance against deferred tax assets and a gain of $300,000 related to a discontinued operation from 1999. Excluding these items, fourth quarter 2005 adjusted net income was $1.1 million or $0.04 per diluted share compared to adjusted net income for the fourth quarter 2004 of $2.5 million or $0.11 per pro forma diluted share. Adjusted net income for the fourth quarter 2004 excludes a charge for litigation settlement and related legal expenses of $3.4 million and a one-time gain of $7.2 million and non-cash interest expense of $400,000 associated with a series of preferred stock that was redeemed in connection with Arbinet’s December 2004 initial public offering.
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Arbinet had a balance of cash and cash equivalents, including marketable securities, of $63.6 million as of December 31, 2005 compared to $53.5 million as of December 31, 2004.
Curt Hockemeier stated, “Over the last five years, Arbinet has built a powerful, low-cost trading platform which is the foundation of the world’s leading electronic market for trading, routing, and settling communications capacity. During this period, we have established relationships with the world’s leading telecommunications providers, both big and small. Looking ahead, Arbinet plans to leverage our proven platform, intellectual property and long-term relationships, with an eye on developing new products and solutions to enable our members to move more traffic over to our low cost platform and to manage the increased complexities of routing traffic across traditional and VoIP networks. Overall, we will continue to focus on activities that can help expand our core business and we also look forward to pursuing additional opportunities that can best contribute to Arbinet’s growth. To drive additional growth in the business, we may invest some of the cash flow from our core business to develop these new products and services that we believe can help our customers become more competitive and support the exchange of other forms of digital communications and goods.”
Quarterly Conference Call
Arbinet will host a conference call to discuss full year and fourth quarter 2005 results, among other matters, at 5:00 p.m. EST today. The dial-in number for the live audio call is (201) 689-8560. A live webcast of the conference call can be accessed through the Company’s Investor Relations website at http://investor.arbinet.com. In addition, a replay of the call will be available from 7:00 p.m. on Thursday, February 16, 2006 through 11:59 p.m. EST on Thursday, February 23, 2006 at http://investor.arbinet.com and by telephone at (201) 612-7415. The account number to access the replay is 3055 and the conference ID is 190208.
About Adjusted Net Income
To supplement our consolidated financial statements in accordance with generally accepted accounting principles (GAAP), Arbinet uses adjusted net income which is adjusted from net income to exclude certain items. The adjusted net income is provided to enhance an overall understanding of our current financial performance. We have excluded items which are either non-recurring or unusual in nature. Adjusted net income is not intended to be considered in isolation from, or as a substitute for, financial results prepared in accordance with GAAP. The accompanying tables have more details on Arbinet’s net income and the reconciliation to adjusted net income.
About Arbinet
Arbinet is the leading electronic market for trading, routing and settling communications capacity. Members of the exchange, consisting primarily of communications service providers, buy and sell voice calls and Internet capacity based on route quality and price through its centralized, efficient and liquid marketplace. Members place orders through a web-based interface. Its fully automated, highly scalable trading platform matches these orders using proprietary software and delivers them through state-of- the-art facilities.
Forward-Looking Statements
This press release contains “forward-looking statements” (within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended), including but not limited to statements about the Company’s growth, business plans, product development and service offerings, and future operating results. Various important risks and uncertainties may cause the Company’s actual results to differ materially from the results indicated by these forward-looking statements, including, without limitation: members (in particular, significant trading members) not trading on our exchange or utilizing our new and additional services (including data on thexchange, mobile on thexchange services, and DirectAxcessSM trading service); continued volatility in the volume and mix of trading activity (including the average call duration and the mix of geographic markets traded); our uncertain and long member enrollment cycle; the failure to manage our credit risk; failure to manage our growth; competitive factors; system failures, human error and security
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breaches could cause the Company to lose members and expose it to liability; future government regulation; and the Company’s ability to obtain and enforce patent protection for our methods and technologies. For a further list and description of the risks and uncertainties the Company faces, please refer to the Company’s 10-K and other filings, which have been filed with the Securities and Exchange Commission. The Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
| Contacts: | ||
Mike Lemberg Arbinet 1.732.509.9220 mlemberg@arbinet.com | David Pasquale or Denise Roche The Ruth Group 1.646.536.7006 / 1.646-526-7008 dpasquale@theruthgroup.com / droche@theruthgroup.com |
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ARBINET - THEXCHANGE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
| Year Ended December 31, | ||||||||||||
| 2003 | 2004 | 2005 | ||||||||||
Trading revenues | $ | 369,989,619 | $ | 475,231,245 | $ | 481,606,758 | ||||||
Fee revenues | 33,958,652 | 44,734,469 | 48,848,318 | |||||||||
Total revenues | 403,948,271 | 519,965,714 | 530,455,076 | |||||||||
Cost of trading revenues | 369,972,234 | 474,916,419 | 481,200,159 | |||||||||
| 33,976,037 | 45,049,295 | 49,254,917 | ||||||||||
Costs and expenses | ||||||||||||
Operations and development | 10,881,862 | 13,437,734 | 13,990,619 | |||||||||
Sales and marketing | 4,712,839 | 5,673,789 | 7,564,010 | |||||||||
General and administrative | 9,588,015 | 9,344,634 | 12,541,470 | |||||||||
Depreciation and amortization | 7,203,682 | 9,266,416 | 8,864,950 | |||||||||
Restructuring costs and litigation settlements | — | 3,675,021 | (2,673,449 | ) | ||||||||
Total costs and expenses | 32,386,398 | 41,397,594 | 40,287,600 | |||||||||
Income from operations | 1,589,639 | 3,651,701 | 8,967,317 | |||||||||
Interest income (expense), net | (1,626,009 | ) | (2,504,652 | ) | 1,432,708 | |||||||
Other income (expense), net | 31,779 | 6,717,593 | (1,242,477 | ) | ||||||||
Income (loss) from continuing operations before income taxes | (4,591 | ) | 7,864,642 | 9,157,548 | ||||||||
Income tax benefit | — | — | (1,298,062 | ) | ||||||||
Income (loss) from continuing operations | (4,591 | ) | 7,864,642 | 10,455,610 | ||||||||
Discontinued operations: | ||||||||||||
Income from discontinued operations, net of income tax of $20,265 | — | — | 295,888 | |||||||||
Net income (loss) | (4,591 | ) | 7,864,642 | 10,751,498 | ||||||||
Preferred stock dividends and accretion | (8,005,573 | ) | (6,678,541 | ) | — | |||||||
Net income (loss) attributable to common stockholders | $ | (8,010,164 | ) | $ | 1,186,101 | $ | 10,751,498 | |||||
Basic earnings per share: | ||||||||||||
Continuing operations | $ | (4.13 | ) | $ | 0.35 | $ | 0.43 | |||||
Discontinued operations | $ | — | $ | — | $ | 0.01 | ||||||
Net income (loss) | $ | (4.13 | ) | $ | 0.35 | $ | 0.44 | |||||
Diluted earnings per share: | ||||||||||||
Continuing operations | $ | (4.13 | ) | $ | 0.21 | $ | 0.41 | |||||
Discontinued operations | $ | — | $ | — | $ | 0.01 | ||||||
Net income (loss) | $ | (4.13 | ) | $ | 0.21 | $ | 0.42 | |||||
Pro Forma Diluted | N/A | $ | 0.36 | N/A | ||||||||
Weighted average number of common shares | ||||||||||||
Basic | 1,940,835 | 3,367,848 | 24,590,454 | |||||||||
Diluted | 1,940,835 | 5,630,964 | 25,777,740 | |||||||||
Pro Forma Diluted | — | 21,925,740 | N/A | |||||||||
Adjusted net income (loss) (1): | ||||||||||||
Net income (loss) | $ | (4,591 | ) | $ | 7,864,642 | $ | 10,751,498 | |||||
Add: Litigation settlements and insurance reimbursement | 3,675,021 | (1,450,000 | ) | |||||||||
Add: Legal expenses associated with litigation settlements | 561,267 | |||||||||||
Less: Gain on payback of Series B preferred stock | (7,223,766 | ) | ||||||||||
Add: Non cash interest expense | 1,610,674 | |||||||||||
Less: Restructuring reversal | (1,223,449 | ) | ||||||||||
Less: Income tax benefit | (1,298,062 | ) | ||||||||||
Less: Income from discontinued operations | (295,888 | ) | ||||||||||
Adjusted net income (loss): | $ | (4,591 | ) | $ | 6,487,838 | $ | 6,484,099 | |||||
(1) To supplement our consolidated financial statements in accordance with generally accepted accounting principles (GAAP), Arbinet uses adjusted net income which is adjusted from net income to exclude certain items. The adjusted net income is provided to enhance an overall understanding of our current financial performance. We have excluded items which are either non-recurring or unusual in nature. Adjusted net income is not intended to be considered in isolation from, or as a substitute for, financial results prepared in accordance with GAAP.
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ARBINET - THEXCHANGE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
| Three Months Ended December 31, | ||||||||
| 2004 | 2005 | |||||||
Trading revenues | $ | 133,175,192 | $ | 114,239,999 | ||||
Fee revenues | 12,536,770 | 12,015,679 | ||||||
Total revenues | 145,711,962 | 126,255,678 | ||||||
Cost of trading revenues | 132,892,935 | 114,335,393 | ||||||
| 12,819,027 | 11,920,285 | |||||||
Costs and expenses | ||||||||
Operations and development | 3,893,634 | 3,670,932 | ||||||
Sales and marketing | 1,736,565 | 2,107,519 | ||||||
General and administrative | 2,728,937 | 3,482,819 | ||||||
Depreciation and amortization | 2,549,672 | 1,928,573 | ||||||
Restructuring costs and litigation settlements | 2,825,021 | (1,223,449 | ) | |||||
Total costs and expenses | 13,733,829 | 9,966,394 | ||||||
Income (loss) from operations | (914,802 | ) | 1,953,891 | |||||
Interest income (expense), net | (518,591 | ) | 596,305 | |||||
Other income (expense), net | 7,427,259 | (209,124 | ) | |||||
Income from continuing operations before income taxes | 5,993,866 | 2,341,072 | ||||||
Income tax benefit | — | (2,109,223 | ) | |||||
Income from continuing operations | 5,993,866 | 4,450,295 | ||||||
Discontinued operations: | ||||||||
Income from discontinued operations, net of income tax of $20,265 | — | 295,888 | ||||||
Net income | 5,993,866 | 4,746,183 | ||||||
Preferred stock dividends and accretion | (1,500,726 | ) | — | |||||
Net income attributable to common stockholders | $ | 4,493,140 | $ | 4,746,183 | ||||
Basic earnings per share: | ||||||||
Continuing operations | $ | 0.72 | $ | 0.18 | ||||
Discontinued operations | $ | — | $ | 0.01 | ||||
Net income | $ | 0.72 | $ | 0.19 | ||||
Diluted earnings per share: | ||||||||
Continuing operations | $ | 0.54 | $ | 0.17 | ||||
Discontinued operations | $ | — | $ | 0.01 | ||||
Net income | $ | 0.54 | $ | 0.18 | ||||
Pro Forma Diluted | $ | 0.27 | N/A | |||||
Weighted average number of common shares | ||||||||
Basic | 6,210,720 | 24,722,542 | ||||||
Diluted | 8,251,519 | 25,748,740 | ||||||
Pro Forma Diluted | 22,472,359 | N/A | ||||||
Adjusted net income (1): | ||||||||
Net income | $ | 5,993,866 | $ | 4,746,183 | ||||
Add: Litigation settlements | 2,825,021 | — | ||||||
Add: Legal expenses associated with litigation settlements | 561,267 | — | ||||||
Less: Gain on payback of Series B preferred stock | (7,223,766 | ) | — | |||||
Add: Non cash interest expense | 353,304 | — | ||||||
Less: Restructuring reversal | (1,223,449 | ) | ||||||
Less: Income tax benefit | (2,109,223 | ) | ||||||
Less: Income from discontinued operations | (295,888 | ) | ||||||
Adjusted net income: | $ | 2,509,692 | $ | 1,117,623 | ||||
| (1) | To supplement our consolidated financial statements in accordance with generally accepted accounting principles (GAAP), Arbinet uses adjusted net income which is adjusted from net income to exclude certain items. The adjusted net income is provided to enhance an overall understanding of our current financial performance. We have excluded items which are either non-recurring or unusual in nature. Adjusted net income is not intended to be considered in isolation from, or as a substitute for, financial results prepared in accordance with GAAP. |
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ARBINET - THEXCHANGE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| As of December 31, | ||||||
| 2004 | 2005 | |||||
| Assets | ||||||
Current Assets: | ||||||
Cash and cash equivalents | $ | 53,532,660 | $ | 40,364,777 | ||
Marketable securities | — | 23,230,913 | ||||
Trade accounts receivable, net | 27,351,810 | 24,831,554 | ||||
Other current assets | 2,369,746 | 1,543,875 | ||||
Total current assets | 83,254,216 | 89,971,119 | ||||
Property and equipment, net | 24,689,053 | 21,775,895 | ||||
Other long-term assets | 6,923,671 | 7,932,321 | ||||
Total Assets | $ | 114,866,940 | $ | 119,679,335 | ||
| Liabilities & Stockholders’ Equity | ||||||
Current Liabilities: | ||||||
Short-term debt obligations | $ | 1,924,023 | $ | 914,778 | ||
Accounts payable | 15,645,826 | 13,785,594 | ||||
Deferred revenue | 4,314,006 | 3,967,970 | ||||
Accrued expenses and other current liabilities | 9,445,247 | 11,160,418 | ||||
Total current liabilities | 31,329,102 | 29,828,760 | ||||
Other long-term liabilities | 8,299,972 | 4,080,489 | ||||
Total Liabilities | 39,629,074 | 33,909,249 | ||||
Stockholders’ Equity | 75,237,866 | 85,770,086 | ||||
Total Liabilities & Stockholders’ Equity | $ | 114,866,940 | $ | 119,679,335 | ||
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ARBINET - THEXCHANGE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Year Ended December 31, | ||||||||||||
| 2003 | 2004 | 2005 | ||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||
Net income (loss) | $ | (4,591 | ) | $ | 7,864,642 | $ | 10,751,498 | |||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
Depreciation and amortization | 7,070,956 | 9,266,416 | 8,864,950 | |||||||||
Amortization of deferred compensation | 34,370 | 71,135 | 541,190 | |||||||||
Loss on sale of property and equipment | 166,895 | — | — | |||||||||
Gain on discontinued operations | (295,888 | ) | ||||||||||
Deferred income taxes | (1,542,125 | ) | ||||||||||
Non-cash interest on redeemable preferred stock | — | 1,610,574 | — | |||||||||
Gain on redemption of Series B/B-1 | — | (7,223,766 | ) | — | ||||||||
Common stock issued for litigation settlement | — | 2,350,000 | — | |||||||||
Foreign currency exchange (gain) loss | (871,908 | ) | (577,872 | ) | 471,143 | |||||||
Changes in operating assets and liabilities: | ||||||||||||
Trade accounts receivable, net | (3,310,006 | ) | (8,220,662 | ) | 2,481,385 | |||||||
Other assets | 342,176 | (738,206 | ) | 2,165,557 | ||||||||
Accounts payable | 2,156,261 | 4,685,188 | (1,907,930 | ) | ||||||||
Deferred revenue, accrued expenses and other current liabilities | 2,308,236 | 3,476,407 | 1,630,158 | |||||||||
Other long-term liabilities | (1,485,269 | ) | (985,434 | ) | (2,300,416 | ) | ||||||
Net cash provided by operating activities | 6,407,120 | 11,578,422 | 20,859,522 | |||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||
Acquisition of certain assets of Band-X | — | (4,266,528 | ) | — | ||||||||
Acquisition of certain intangible assets of Summit | — | — | (1,100,000 | ) | ||||||||
Proceeds from sales on equipment | 1,309,051 | — | — | |||||||||
Purchases of property and equipment | (8,255,449 | ) | (10,639,266 | ) | (5,946,056 | ) | ||||||
Purchases of marketable securities | — | — | (53,905,377 | ) | ||||||||
Proceeds from sales and maturities of marketable securities | — | — | 30,648,000 | |||||||||
Net cash used in investing activities | (6,946,398 | ) | (14,905,794 | ) | (30,303,433 | ) | ||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||
Issuance (repayment) of indebtedness, net | 2,874,977 | (11,255,938 | ) | (765,658 | ) | |||||||
Redemption of Series B and Series B-1 preferred stock | — | (15,224,898 | ) | — | ||||||||
Issuance of common stock, net of costs | 20,165 | 68,283,161 | 209,540 | |||||||||
Issuance of preferred stock, net of issuance costs | 9,918,651 | — | — | |||||||||
Loans made to stockholders, net of repayments | 188,561 | 151,723 | — | |||||||||
Net payments on obligations under capital leases | (2,426,332 | ) | (2,782,006 | ) | (1,846,501 | ) | ||||||
Net cash provided by (used in) financing activities | 10,576,022 | 39,172,042 | (2,402,619 | ) | ||||||||
Effect of foreign exchange rate changes on cash | 767,795 | 540,745 | (1,321,353 | ) | ||||||||
Net increase (decrease) in cash and cash equivalents | 10,804,539 | 36,385,415 | (13,167,883 | ) | ||||||||
Cash and cash equivalents, beginning of period | 6,342,706 | 17,147,245 | 53,532,660 | |||||||||
Cash and cash equivalents, end of period | $ | 17,147,245 | $ | 53,532,660 | $ | 40,364,777 | ||||||
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