In February 2001, we completed the purchase of Enthusiasm Technologies, Inc. (“Enthusiasm”), a Seattle-based developer of web-based data extraction and processing technology. Enthusiasm builds application-specific databases for a variety of portals, be they wired or wireless, voice or data. Enthusiasm’s proprietary data extraction and processing technology enables the creation and ongoing maintenance of high quality databases from distributed and fragmented data on the web and elsewhere. Enthusiasm will contribute to the expansion of our services and data offerings to our wireless and other customers.
The following table sets forth, for the periods indicated, the items of our statements of income as a percentage of revenues.
Revenues increased 69.0% to $50.2 million in the first quarter of 2001 from $29.7 million in the first quarter of 2000. Call volume grew to over 99 million calls in the first quarter of 2001 from approximately 56 million calls during the first quarter of 2000. These increases resulted primarily from the addition of new subscribers and new markets from existing customers, as well as increased usage of our services by existing subscribers.
Direct operating costs increased 55.4% to $28.8 million in the first quarter of 2001 from $18.5 million in the first quarter of 2000. This increase was primarily due to increased staffing costs associated with increased call volumes. As a percentage of revenues, direct operating costs decreased to 57.3% in the first quarter of 2001 from 62.3% in the first quarter of 2000. This decrease was due primarily to operating efficiencies and lower listings data costs.
General and administrative costs increased 55.3% to $14.5 million in the first quarter of 2001 from $9.3 million in the first quarter of 2000. This increase resulted primarily from additional costs necessary to support our larger base of call centers and increased call volumes. As a percentage of revenues, general and administrative costs decreased to 28.8% in the first quarter of 2001 from 31.4% in the first quarter of 2000. This decrease resulted primarily from efficiencies associated with the expansion of our national network of call centers. Depreciation and amortization increased by 64.6% to $3.4 million in the first quarter of 2001 from $2.0 million in the first quarter of 2000 due primarily to equipment purchased for new call centers, upgrades of existing call centers and product development activities.
Other income (expense), net for the three months ended March 31, 2001 was income of $417,000 consisting primarily of interest income partially offset by loss on disposal of assets. Other income (expense), net for the three months ended March 31, 2000 was expense of $98,000 and consisted primarily of loss on disposal of assets offset by interest income.
Interest expense and loan fees increased 39.9% to $852,000 from $609,000. This increase was primarily attributable to an increase in average outstanding debt. The debt was incurred to finance equipment purchased for existing and new call centers and for infrastructure and other corporate needs. All debt was paid in full as of March 31, 2001 using a portion of the proceeds from the investment from Sonera.
Income tax expense for the three months ended March 31, 2001 was $1.5 million, for an effective tax rate of approximately 23.4%. Income tax expense for the three months ended March 31, 2000 was $41,000, for an effective tax rate of approximately 3.5%. These rates differ from the combined federal and state statutory rate of approximately 41% due to the use of net operating loss carryforwards.
Liquidity and Capital Resources
Our cash and cash equivalents are recorded at cost, which approximates fair market value. As of March 31, 2001, we had $34.8 million in cash and cash equivalents compared to $6.5 million at December 31, 2000. The net increase of $28.3 million resulted primarily from the investment by Sonera and operating cash inflows partially offset by cash paid for capital expenditures, the repayment of debt and the acquisition of Enthusiasm.
Working capital was $53.1 million at March 31, 2001, compared to $12.8 million at December 31, 2000. This increase is due primarily to working capital provided by the investment of Sonera, offset by the use of cash for capital expenditures, the repayment of debt and the acquisition of Enthusiasm.
Cash Flow from Operations. Net cash provided by operations was $10.2 million for the three months ended March 31, 2001 resulting primarily from net income, the effect of non-cash depreciation and amortization, a decrease in accounts receivable and a decrease in prepaid expenses and other assets exclusive of investing activities. This was partially offset by an increase in accounts payable and accrued expenses.
Cash Flow from Investing Activities. Cash used in investing activities was $7.8 million for the three months ended March 31, 2001 resulting primarily from capital expenditures for the purchase of equipment for new call centers, the upgrade and expansion of existing call centers and cash paid in the acquisition of Enthusiasm.
Cash Flow from Financing Activities. Net cash provided by financing activities was $26.0 million for the three months ended March 31, 2001 resulting primarily from the proceeds of the investment by Sonera which was partially used for repayment of debt. Additional cash was provided by the exercise of common stock options.
We have a $10.0 million secured line of credit agreement with a commercial bank. The agreement expires in December 2001. Outstanding borrowings bear interest at the prime rate (8.0% at March 31, 2001) plus up to 0.5% based on the ratio of debt to cash flow, and all receivables are pledged to the bank as collateral. In addition, the line has an unused facility fee of up to 0.75%, also based on the ratio of debt to cash flow. The agreement contains minimum quick ratio, debt to equity and profitability requirements, as well as other restrictive covenants, and prohibits the payment of any dividends and other distributions and redemptions of our stock exceeding 10% of our tangible net worth. As of March 31, 2001, we had no outstanding borrowings under this agreement.
Future Capital Needs and Resources. The primary uses of our capital in the near future are expected to be the development or acquisition of technologies, features and content complementary to our business, to expand our call center and network capacity to serve existing and potential new customers and for general corporate purposes, including possible acquisitions, other corporate development activities and working capital. We anticipate that our capital expenditures will be approximately $25 million in 2001, resulting primarily from projected call center expansions, increased network capacity and corporate development activities.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Substantially all of our cash and cash equivalents are invested in money market instruments, and therefore the fair market value of these instruments is affected by changes in market interest rates. However, substantially all of our investments at March 31, 2001 were invested in overnight money market instruments and were redeemable on a daily basis. Substantially all of the underlying investments in the money market fund had maturities averaging three months or less. As a result, we believe the market risk arising from our holdings of financial instruments is minimal. A hypothetical 1% fluctuation in interest rates would not have a material adverse effect on our financial position, results of operations or cash flows.
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On February 2, 2001, we issued and sold 4,000,000 shares of our common stock to Sonera Media Holding B.V., for an aggregate purchase price of $68 million, pursuant to the terms of a Stock Purchase Agreement dated November 8, 2000. These securities were issued in a private transaction in reliance on the exemption to the registration requirements of the Securities Act of 1933, as amended, provided by Rule 506 of Regulation D, as promulgated under the Securities Act.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On January 31, 2001, a special meeting was held to approve the proposed sale and issuance of common stock as described above in Item 2. In addition, the shareholders were asked to approve an amendment of our 1994 Stock Incentive Plan to increase the number of shares available for issuance. The results of the votes were as follows.
| | Sonera
| Stock Incentive Plan
|
| For | 6,690,671 | 6,461,897 |
| Against | 470,326 | 2,815,606 |
| Abstain | 8,362 | 37,480 |
| Broker Non-Votes | 2,145,624 | 0 |
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports filed on Form 8-K
On February 15, 2001, we filed the following current report on Form 8-K under Item 5, Other Events:
Date of Report
| Topics
|
| | |
| February 2, 2001 | Metro One Telecommunications completes the sale of 4,000,000 shares of common stock to Sonera Media Holding B.V. |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | Metro One Telecommunications, Inc.
| |
| | Registrant | |
| | | |
| | | |
| | | |
| Date: May 15, 2001 | | |
| | | |
| | | |
| | /s/ Dale N. Wahl
| |
| | Dale N. Wahl | |
| | Senior Vice President | |
| | Chief Financial Officer | |
| | | |
