Filed Pursuant to Rule 425
Filing Company: Genesys S.A.
Subject Company: Vialog Corporation
File No. 333-55392
Conference Call Genesys
Conference Call
Genesys
Thursday 15 February 2001
Business Update
---------------
Francois Legros
Chief Executive Officer
I. Preamble
Good afternoon, and thank you for joining us today. The Genesys stock price has
been under considerable pressure for the last two days. This has prompted us to
prevent any unnecessary and undeserved movements in the stock price of the
company by giving some indication of the profitability of Genesys in the past,
and what it should be in 2000. Therefore, I would like to make some comments on
the suggestions that have been made this week regarding the EBITDA level and the
profitability level that Genesys is anticipating for the full year 2000.
II. Revenue Growth
Revenue growth has been extremely strong in 2000. The growth rate has been 94%
over 1999, with overall consolidated revenue of the company reaching EUR92
million. Among the 94%, 44% was attributable to organic growth: a very strong
figure. Revenue has been strong in all three areas of Genesys operations in
2000: Europe, North America, and Asia-Pacific.
III. Profitability
Turning to profitability elements, we currently have visibility on non-audited
figures as to what our profitability levels should be in those three regions. In
North America, the gross margin is expected to have increased by 171% compared
with 1999, creating a figure of 51.5% of the revenue in 2000. Growth has been
continuous through the second half of the year. During the first half of the
year, the gross margin reached 49.3% of revenue. During the second half of the
year, the gross margin reached 53.4% of revenue.
IV. EBITDA
1. North America
The EBITDA level has also increased very significantly in North America. The
merger of the three companies that were acquired by Genesys in 1999 has enabled
the company to generate an EBITDA level of 13% of revenue. During 2000, we have
experienced significant improvements, with the EBITDA level during the first
half of the year has reached 22%. In the second half of the year, EBITDA has
reached 24% of revenue. This represents a significant and continuous growth of
the EBITDA profitability of the US operations of Genesys.
2. Europe
In Europe, excluding new acquisitions and Genesys' entry to new countries, we
have seen a similar situation. The gross margin remains very strong in 2000,
reaching a level of 67% of revenues. EBITDA should also increase in 2000
compared with 1999. In 1999, EBITDA level reached 37% of revenue. In 2000, we
expect EBITDA to reach 40% of revenues in Europe.
Furthermore, in the second half of 2000, the EBITDA level has significantly
increased compared to the second half of 1999. EBITDA was 39% of revenue in the
second half of 2000, by comparison with 35% of revenue in the second half of
1999.
3. Asia-Pacific
In this third region in which Genesys is operating, Genesys has enjoyed
significant improvement of its profitability level. The gross margin should
increase by over 150% over 1999, reaching 45.7% of revenue. Furthermore, this
should increase to 46.6% in the second half of the year, versus 45.5% in the
first six months of 2000.
The EBITDA level of the Group in Asia-Pacific has also made significant progress
in 2000, compared with 1999. Overall, we expect it to reach 14% of revenue in
2000. This progression has continued between the first half and the second half
of the year. During the first half of the year, the EBITDA level was 10% of
revenue. During the second half of the year, we expect EBITDA to reach 16% of
revenue, representing a very significant increase.
It can be seen that the performance of the company has been very strong in all
three regions in which Genesys has been operating. We have enjoyed the
continuous improvement of our gross margin levels and our EBITDA levels during
2000.
V. Corporate Expenses
However, at the end of the year, we also have two other important elements. The
first of these elements is that Genesys has invested in its corporate
organisation in order to be able to control, manage and integrate quickly and
effectively the Vialog and Astound acquisition. This investment also enables
full control of the Group: a Group that is going to be at least twice as large
as in 2000.
This has led to a rise in the corporate expenses of the group in the second half
of the year compared to the first half of the year. During the first half of
2000, corporate expenses represented 20% of the revenue of the Group. In the
second half of the year, this level fell to 16% of revenue.
However, if we were to include the 16% and compare that with the pro forma
revenue of the combined entity of Vialog and Genesys, this level would then fall
to 8%, which is below everybody's expectation regarding corporate expenses in
2000. Despite some increase in corporate expenses during the second half of the
year, in preparation for the integration of Vialog, and including the management
of a significantly larger Group this year, those levels are very reasonable
compared with the that the company is going to generate in the year 2001.
The second point has been the continuous growth for Genesys and its geographical
growth path. Genesys has been acquiring companies in the year 2000, such as
Mediactiv, Langages Virtuel, Time Eureka and Telcen, as well as having created
new subsidiary operations in Norway and Denmark.
Altogether, those operations have negatively impacted on the EBITDA of the
company to the tune of approximately 1% of revenue. It is for this reason that
the EBITDA level that should have been expected from Genesys-in the range of
16%-has been reached, excluding those non-recurring and exceptional investments
in the future of the company. EBITDA will reach 13% effectively, taking into
account the previously mentioned elements.
VI. Outlook
I would like to sum up by saying that, as far as 2001 and is concerned, and for
the visibility that we have so far after the beginning of this year, we see a
significant improvement in the revenue growth and profitability of the company.
We are therefore very strongly optimistic regarding the combination of Genesys
and Vialog operations. We are also confident that we will be able to continue to
generate all the synergies and shareholder value that we have created in the
past.
Question and Answer Session
---------------------------
Neil, Stockholm
Why have the extra costs that have impacted your margins been communicated to
the market at such a late stage?
Presenter
I think that the costs have been communicated as they have become visible to us.
Taking the acquisitions that we have made in 2000, all of this has been
communicated to the market. Some analysts have taken them into account, whereas
some may not. Maybe we should have given them more information about these
elements. However, elements concerning the entrance into new countries was
communicated on time and this is not something that is in Genesys. We have
entered into eight new countries during the lifetime of Genesis, during which
time there has always been the same business model with the same investment
being made at the beginning and the same return on that investment after three
of four years, from these companies.
As far as the corporate expenses, we have communicated those as soon as we had
visibility on them. Maybe, we should have said to the market that we intended to
reforecast operating infrastructure[?], although we did not know the exact
impact that this would have on our EBITDA level. Instead of that, what we have
done is communicated information when we have had the possibility to measure the
impact of those reinforcements on the EBITDA level, rather than saying that
there is going to be an impact but we cannot say what kind of impact it will be
or how much it will be. This is why we did it and the reason it was done this
week was because as we had incorporated those elements in the years
forfirings[?] and the costs finings front[?], we did not want to ponsheral[?],
those that would read those documents to have this information with the others
not having the information.
I believe that we have probably been naive and poor in communicating those
elements to the market and by giving the market a dry 13% as a reference element
for the EBITDA, without any further explanations, we have created unnecessary
concerns and worries on the part of ourselves and the analysts. Therefore, we
are wondering whether several of the regions where Genesys is operating were
suffering from a decrease in the profits of the [inaudible] operation. What we
should have said is that in the three regions where Genesys is operating,
everything goes well and goes on line or below expectations but the growth is
very strong at Genesys and every week and every month new customers are joining
the group. The growth of the profitability elements, whether it be the gross
margins or the EBITDA level, are growing significantly, as well and that, it is
due to the preparation for the future of the company that we have incurred
additional costs that, maybe, were not taken into account by the analysts in
their prospects.
Participant 1
What happens to the Vialog there are certain share prices that are actually in
Warsaw[?]. What happens if share prices stay as they are?
Participant 2
Genesys has always, in the deal as it is set up right now, had the possibility
to close the deal. There is a level of EUR35 per share, where Genesys, until
this level is reached, increases the number of shares that is given to the
Vialog shareholders. At EUR35 per share Genesys will have to give Vialog
shareholders approximately 4.2 million shares of Genesys in renumeration. Below
this level, which is where we are today, not where we expect to be at closing,
Genesys has the possibility, without any further renegotiation with Vialog,
which may take place, to close the deal and compensate the difference in value
between the price in shares of EUR35 and the effective price of Genesys. Today
this represents approximately EUR25 million that would have to be paid to the
Vialog shareholders in cash.
Yesterday we had conversations with Vialog and Astound shareholders, who have
all reiterated their strong commitments to the transaction and are all showing
willingness toward the transaction. We have talked to some of the largest
shareholders and even though they are not happy about the current situation with
the stock price, as nobody is, they feel confident that Genesys and Vialog in
the Astound together are going to be a very strong company in the future of our
industry.
Andy Lynch
Schroeders
Could you separate the gross figures that you presented into organic and
acquisition based growth across the regions?
Participant 2
I do not have that information on a regional basis.
Andy Lynch
Could I have them on a consolidated level?
Participant 2
On a consolidated level, the growth in revenue has been 94% overall in the year
2000. 44% of this is attributable to the organic growth. Therefore, there has
been very strong growth of revenue overall, particularly in terms of organic
growth.
Andy Lynch
Have you made any forward looking statements as to what you expect a combined
Vialog and Genesys EBITDA to be for 2001.
Participant 2
No I have not. The mere fact that we are registered on the NASDAQ prevents us
from giving any forecasts but I can tell you that we are expecting a substantial
rise in the EBITDA figure from the two companies being together this year. This
is for three reasons: Firstly, we are going to push more strongly the automation
of our services in the US. At the end of 2000, Genesys services were 20% fully
automated, compared with [inaudible] in Europe, which is 90%. As you recall, the
fully automated services are generating much higher gross margins than the
operator assisted services. If you compare the gross margin that we are
generating in Europe, which we expect to 67% in 2000, with the one we had that
we think that we have generated in North America of 51%, you can measure the
room we have for improvement, as far as the gross margin is concerned. This is
restructuring existing clients from one service to another and are improvements
that will quickly translate in the EBITDA level.
The second aspect, as we mentioned when we signed the Vialog deal, the combined
entity of Genesys and Vialog is going to be much stronger in the US in its
ability to attract larger deals from clients and once we have automated our
services our business becomes one of volume, where any additional volume becomes
extremely profitable. Therefore, this ability to generate further growth, and we
are anticipating additional growth in the US and, as a matter of fact, from the
elements we have in January both from Vialog and Genesys, we see a significant
improvement in the growth of revenue that we are generating in North America.
This improvement of the revenue should also translate into an improvement of the
profitability, now that both companies have been restructured with profitability
levels being significantly improved in the US. The third element, as I mentioned
earlier, is that although we have increased our corporate expenses on the second
half of last year, in order to prepare the integration of Vialog and our
capability management to control the group, which is going to be more than twice
the size than it was in 2000. Although this level has reached 16% of revenue in
the second half of 2000
If you take the second half of 2000 and combine the Vialog and Genesys revenue
pro forma, then that complete level would have gone down to 8% of revenue. That
is also going to dilute the corporate expenses of a larger company which is
going to result in an EBITDA increase.
Further, the reinforcement of that corporate level has enabled us to work very
hard and solidly on the integration of both companies in the US. At the time we
announced the deal, we were expecting $2 million of savings from the culmination
of Genesys and Vialog in the USA. With the work that has been done, the $2
million of annual savings and necessary synergies are going to be in place at
the close of the acquisition. What often happens with mergers in this industry
is that typically, one often has to wait for six to eight months in order to put
synergies into place and effect. We have worked very hard with Vialog in those
tests and from day one, most of those synergies will be in place.
Participant
Could you confirm that with 6% of costs to become 8% of your revenue, this
implicitly suggests that the Vialog Head Office costs are largely eliminated
from your and have been transferred into the Genesys figures for the second
half?
Respondent
Vialog only had operations in the USA, so there are a certain number of
functions that Genesys performs which are not performed at Vialog. For example,
R&D, international management of subsidiaries, information systems management,
which si centrally controlled in Genesys. Those elements are going to remain the
same for Genesys, whether Vialog is part of the Group or not. Vialog is not
bringing additional overheads. Furthermore, we have worked closely with Vialog
in the USA to determine the appropriate management organisation for the American
entity. This has been done very quickly and efficiently; there are a certain
number of positions that have been or will be eliminated as a result.
Participant
Why are the margins declining in euros between H1 and H2. Secondly, with respect
to the Vialog deal, the compensation in cash is at a price below EUR35. Is that
already in the deal or does this need to be renogotiated before acceptance.
Lastly, are you certain that at a rate below EUR35, the Vialog shareholder is
[inaudible]?
Respondent
With regard to EBITDA levels in Europe, it is typical. The holiday season in
Europe is much heavier than in the USA. Therefore, the EBITDA level is lower in
the first half of the year in Europe. [Transmission fault]
In 1999, the EBITDA level for the first half of the year was 40% of the revenue.
In the second half of the year, it went down to 35%. In 2000, we had the same
structure although we had no significant improvement. In the first half of the
year, our EBITDA level was 41% as opposed to 40%. In the second half of the
year, it was [inaudible] instead of 35%. There were structural reasons for the
EBITDA's lower level in the second half. When comparing first and second half
year on year, it is very clear that there is an [inaudible] on the Genesys
model.
The second question related to the vinyl transaction. As a matter of fact, in
this deal Genesys has the right to top up the consideration, in case Genesys'
stock price goes below 35. Thus, we have the right to do that, and therefore it
is a possibility which is already included in the existing deal, without the
need for any further negotiation. Although I do not expect that our stock prices
will remain below the level of 35, in fact we hope that it will go up, we cannot
rule out. the ground that it has lost during the last two days. If it were to
stay below that, we still have the possibility of going back to [inaudible] and
ascertaining whether this has to be in cash or cheque, and arbitrate that issue.
Thus, the right to top up is already in the existing agreement.
Participant
There will be a difference in cash ability. We said that Genesys will trade at
33, whereas we know that the bottom end of the collar is 35. They estimate that
now it will cost them EUR25 million, to pay in cash, and this will be the
difference between what they should have received, should Genesys have traded at
35. Is that right?
Respondent
Yes, that is the exact explanation.
Participant
I would like to ask about the topping up to Vialog shareholders. If you are
below EUR35, you have the right to top up to the value that it would be at
EUR35, in cash or perhaps equity.
Respondent
That is correct. In cash today, and perhaps in equity, if that can be
negotiated.
Participant
Assuming a conversion ratio of your rate of 0.91, and a .033515 share in
Genesys, that would imply that you would make Vialog shareholders hold up to
about $10.58. Is that correct?
Respondent
Yes, that is correct.
Participant
Thus, you have the right to pay Vialog shareholders up to $10.58 in value. Do
you plan to do that, if your stock remains below the EUR35 benchmark?
Respondent
At the present time, on both Vialog's and our side, there is a strong
willingness to carry out and close this transaction. We still believe that this
is a very beneficial transaction for both companies, and will create a very
powerful company, being one of the key leaders in this industry. Despite what
has happened to Genesys' stock price, this really does not change the fact that
Genesys and Vialog will be able to build a future together, in terms of
generating further synergies, being able to grow further by being larger in the
United States, and generating a significant amount of additional profitability.
The dilution of the corporate expenses relates to research and development, as
well as international development, thus there are necessary steps to take,
whether Vialog is part of Genesys or not. At present, we do not see any reason
not to do this deal.
Participant
If the additional compensation was necessary and was in the form of additional
Genesys equity, would a new merger agreement or F4 have to be filed, or could it
simply be transacted?
Respondent
I do not currently have the answer to that question. This is something that our
legal department has not checked yet. We have not yet started to discuss any
form of compensation with Vialog, or whether it will be cash or shares, because
both companies had a conversation yesterday with the management of Vialog, and
both are comfortable that Genesys' stock price should not be where it is at the
moment. It should not be significantly below the EUR35 level. Thus, we have not
started discussing this point yet.
Participant
Will the pricing period be starting fairly shortly?
Respondent
The pricing period is between 7 March and 21 March. We still have time for
recovery and there is one thing that I can promise you now. We are going to make
a lot of effort to ensure that the unclear message that we deployed, which added
to the unnecessary panic and decrease in Genesys' stock price, is clearly and
fully understood by both our shareholders and the market.
Participant
Could you give more detail on the decrees and your working hours for your
information systems, and so forth. I understand that you are unable to give a
lot of information concerning your targets, but could you give some indication
for 2001 and 2002 regarding your targets until then?
Respondent
With regards to the MIS system, Genesys has worked very hard throughout its
history in order to build very strong MIS systems. In the merger, and within the
way in which both companies compliment each other, one of the aspects that
Genesys will bring to the new group is a strong MIS system. There are a certain
number of systems, investments, and expenses that Vialog were planing to do in
the year 2000, that were not done. Part of the 2 million operating expenses that
we have announced will come from the MIS systems, and that is what Genesys will
bring, to prevent Vialog having to invest in them.
MIS covers everything from the reservation systems for our services, down to the
billing, accounting and management report systems, where we have a full chain of
systems and software that will be implemented in the Vialog organisation.
With regards to the targets, you must appreciate that, given that we are
registered by the ACC now, we are unable to give any forecasts for 2001.
However, we feel very comfortable that we will see a significant increase in our
level of profitability within the Genesys group in 2001. We should see this
though an increase in our profitability in North America, due to an increase in
volume, and a further transfer from the operated services to the fully automated
services. We are going to continue seeing very strong levels of profitability in
Europe, and I believe that in Asia Pacific we will see a continuous improvement,
as we have already seen over the last three years, year after year, and quarter
after quarter. Moreover, the corporate expenses that we will have this year
should be below the level that we have now, because they will be diluted in a
larger amount of revenue. When I talked about the 16% of our revenue that was
represented by the corporate expenses in the second half of 2000, if we had
combined the revenue of Vialog and Genesys during this time, that corporate
level would have decreased to 8%. Thus, this will also increase our
profitability.
We do not see any reason why the business model that Genesys has today should be
reviewed. This medium term business model has always involved us expecting to
generate approximately 35% of EBITDA levels from our three combined regions, and
that we should deduct 10% of corporate expenses from that. This is what we will
aim for, and this is what I believe we can reach, within a reasonable medium
term period.
Participant
Have you had any contact with BridgeTown and [inaudible] in relation to any of
these issues?
Respondent
We talked to them yesterday, and I believe that we are going to talk to them
tonight as well. We talked to the management of both companies, as well as some
of the largest shareholders. At this moment there is no panic and everything
about the deal feels very comfortable. We do not see any reason why this deal
should not be contemplated.
I thank you all for attending this conference and hope that the information I
have given has been sufficient in allowing you to have more confidence in the
true levels of profitability and performance that Genesys is capable of. These
are strong, will remain strong, and are continuing to improve in 2001.
US SEC Filings
Genesys has filed a registration statement on Form F-4 (No. 333-55392) with the
United States Securities and Exchange Commission. The Form F-4 contains a proxy
statement / prospectus relating to the Vialog special meeting and other related
documents. Vialog plans to mail the proxy statement/prospectus contained in the
Form F-4 to its stockholders. The Form F-4 and proxy statement/prospectus
contain important information about Genesys, Vialog, the Vialog transaction and
related matters. Investors and stockholders should read the proxy
statement/prospectus and the other documents filed with the US SEC in connection
with the Vialog transaction carefully before they make any decision with respect
to the Vialog transaction. A copy of the merger agreement with respect to the
Vialog transaction has been filed by Vialog as an exhibit to its Form 8-K dated
October 2, 2000. The Form F-4, the proxy statement/prospectus, the Form 8-K and
all other documents filed with the US SEC in connection with the transaction are
available free of charge at the US SEC's web site at www.sec.gov. In addition,
the proxy statement/prospectus, the Form 8-K and all other documents filed with
the US SEC in connection with the Vialog transaction will be made available to
investors free of charge by calling or writing to:
Genesys S.A.
Pierre Schwich
Chief Financial Officer
4 Rue Jules Ferry, BP 1145
34008 Montpellier, Cedex 1, France
Phone: 33 4 67 06 27 55
Email: pierre.schwich@genesys.com
Vialog Corporation
Michael E. Savage
Chief Financial Officer
32 Crosby Drive
Bedford, MA 01730
Phone: 781-761-6200
Email: msavage@vialog.com
In addition to the Form F-4, the proxy statement/prospectus and the other
documents filed with the US SEC in connection with the Vialog transaction,
Vialog is obligated to file annual, quarterly and special reports, proxy
statements and other information with the US SEC. You may read and copy any
reports, statements and other information filed with the US SEC at the US SEC's
public reference rooms at 450 Fifth Street, N.W., Washington, D.C. 20549 or at
the other public reference rooms in New York, New York and Chicago, Illinois.
Please call the US SEC at 1-800-SEC-0330 for further information on public
reference rooms. Filings with the US SEC also are available to the public from
commercial document-retrieval services and at the web site maintained by the US
SEC at http://www.sec.gov.
Forward-Looking Statements
This release contains statements that constitute forward looking statements
within the meaning of the U.S. Private Securities Litigation Reform Act of 1995.
Forward looking statements are statements other than historical information or
statements of current condition. These statements appear in a number of places
in this release and include statements concerning the parties' intent, belief or
current expectations regarding future events, including: the transactions to
which the parties may be a party; competition in the industry; changing
technology and future demand for products; changes in business strategy or
development plans; ability to attract and retain qualified personnel; worldwide
economic and business conditions; regulatory, legislative and judicial
developments; financing plans; and trends affecting the parties' financial
condition or results of operations. Forward looking statements are not
guarantees of future performance and involve risks and uncertainties, and actual
results may differ materially from those in the forward looking statements as a
result of various factors. Although management of the parties believe that their
expectations reflected in the forward looking statements are reasonable based on
information currently available to them, they cannot assure you that the
expectations will prove to have been correct. Accordingly, you should not place
undue reliance on these forward looking statements. In any event, these
statements speak only as of the date of this release. Except to the extent
required by law, the parties undertake no obligation to revise or update any of
them to reflect events or circumstances after the date of this release, or to
reflect new information or the occurrence of unanticipated events.