SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
- --------------------------------------------------------------------------------
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the Quarterly Period Ended JUNE 30, 2000
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Transition Period from __________ to __________
COMMISSION FILE NUMBER 000-27127
iBASIS, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 04-3332534
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
20 SECOND AVENUE, BURLINGTON, MA 01803
(Address of Principal Executive Offices, Including Zip Code)
(781) 505-7500
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO ___
As of August 7, 2000, there were 34,086,957 shares of the Registrant's Common
Stock, par value $0.001 per share, outstanding.
iBASIS, INC.
Index
PAGE
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PART I - FINANCIAL INFORMATION
Item 1 - Condensed Financial Statements
Consolidated Balance Sheets at June 30, 2000 and
December 31, 1999 (Unaudited) 2
Consolidated Statements of Operations for the Three Months Ended
June 30, 2000 and 1999 (Unaudited) 3
Consolidated Statements of Operations for the Six Months Ended
June 30, 2000 and 1999 (Unaudited) 4
Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 2000 and 1999 (Unaudited) 5
Notes to Consolidated Financial Statements (Unaudited) 6-7
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of
Operations 7-11
Item 3 - Quantitative and Qualitative Disclosures About Market Risk 12
PART II - OTHER INFORMATION
Item 4- Submission of Matters to a Vote of Security Holders 13
Item 6 - Exhibits and Reports on Form 8-K 13
Signature 14
1
iBASIS, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31,
2000 1999
---- ----
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $295,178,072 $123,665,961
Marketable securities 77,314,287 --
Accounts receivable, net of allowance for doubtful accounts of
approximately $1,633,000 and $633,000, respectively 9,787,053 5,404,338
Prepaid expenses and other current assets 3,467,261 964,675
------------ ------------
Total current assets 385,746,673 130,034,974
Property and equipment, at cost:
Construction in process 9,625,196 --
Network equipment 13,267,114 6,544,913
Equipment under capital lease 42,536,548 16,430,153
Leasehold improvements 2,236,203 1,696,755
Computer software 3,156,860 782,244
Furniture and fixtures 229,971 154,970
------------ ------------
71,051,892 25,609,035
Less- Accumulated depreciation and amortization (7,549,005) (3,218,920)
------------ ------------
63,502,887 22,390,115
Deferred debt financing costs, net of accumulated amortization of
approximately $300,000 and $0, respectively 4,837,352 --
Other assets 1,976,140 1,048,000
------------ ------------
$456,063,052 $153,473,089
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,022,037 $ 6,112,938
Accrued expenses 10,750,119 4,391,296
Current portion of long term debt 15,943,436 4,376,280
------------ ------------
Total current liabilities 30,715,592 14,880,514
Long term debt, net of current portion 181,315,510 11,688,843
Stockholders' equity:
Common stock, $.001 par value, authorized- 85,000,000 shares, issued
and outstanding- 34,078,182 and 31,642,728, respectively 34,078 31,642
Additional paid-in capital 297,688,813 156,887,447
Deferred stock-based compensation (1,902,504) (2,200,547)
Accumulated deficit (51,788,437) (27,814,810)
------------ ------------
Total stockholders' equity 244,031,950 126,903,732
------------ ------------
$456,063,052 $153,473,089
============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
2
iBASIS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
THREE MONTHS ENDED JUNE 30,
2000 1999
---- ----
Net revenue $13,607,538 $ 3,623,021
Operating expenses:
Data communications and telecommunications 13,521,184 4,028,563
Research and development 4,454,141 1,317,442
Selling and marketing 4,613,256 1,209,747
General and administrative 4,478,473 887,221
Depreciation and amortization 2,365,867 631,479
Gain on disposal of property and equipment -- (15,297)
------------- ------------
Total operating expenses 29,432,921 8,059,155
------------- ------------
Loss from operations (15,825,383) (4,436,134)
Interest income 6,041,616 30,773
Interest expense (3,533,713) (168,912)
Other expense, net -- (1,300)
------------- ------------
Net loss (13,317,480) (4,575,573)
============= ============
Accretion of dividends on redeemable convertible
preferred stock -- (157,500)
------------- ------------
Net loss applicable to common stockholders $(13,317,480) $(4,733,073)
============= ============
Net loss per share:
Basic and diluted net loss per share $ (0.39) $ (0.63)
============= ============
Basic and diluted weighted average common shares outstanding 33,961,212 7,560,000
============= ============
Pro forma net loss per share:
Basic and diluted net loss per share $ (0.39) $ (0.27)
============= ============
Basic and diluted weighted average common shares outstanding
33,961,212 17,846,291
============= ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS.
3
iBASIS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
SIX MONTHS ENDED JUNE 30,
-------------------------
2000 1999
---- ----
Net revenue $23,333,030 $ 6,037,004
Operating expenses:
Data communications and telecommunications 23,601,687 6,614,865
Research and development 7,273,150 2,182,226
Selling and marketing 7,901,536 2,047,000
General and administrative 8,288,075 1,498,534
Depreciation and amortization 4,292,139 864,793
Gain on disposal of property and equipment -- (15,297)
------------- ------------
Total operating expenses 51,356,587 13,192,121
------------- ------------
Loss from operations (28,023,557) (7,155,117)
Interest income 8,492,908 85,019
Interest expense (4,442,978) (229,164)
Other expense, net -- (3,337)
Minority interest in loss of joint venture -- 49,000
------------- ------------
Net loss $(23,973,627) (7,253,599)
Accretion of dividends on redeemable convertible
preferred stock -- (315,000)
------------- ------------
Net loss applicable to common stockholders $(23,973,627) $(7,568,599)
============= ============
Net loss per share:
Basic and diluted net loss per share $ (0.72) $ (1.01)
============= ============
Basic and diluted weighted average common shares
outstanding 33,083,545 7,530,041
============= ============
Pro forma net loss per share:
Basic and diluted net loss per share $ (0.72) $ (0.41)
============= ============
Basic and diluted weighted average common shares
outstanding 33,083,545 17,842,541
============= ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS.
4
iBASIS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
SIX MONTHS ENDED JUNE 30,
-------------------------
2000 1999
---- ----
Cash flows from operating activities:
Net loss $(23,973,627) $ (7,253,599)
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation and amortization 4,292,139 864,793
Gain on disposal of property and equipment -- (15,297)
Amortization of deferred financing costs 299,795 --
Compensation expense related to stock option grant -- 13,750
Minority interest -- (49,000)
Amortization of deferred compensation 298,043 --
Changes in current assets and liabilities:
Accounts receivable (4,382,715) (1,467,910)
Prepaid expenses and other current assets (2,502,587) (235,226)
Accounts payable (2,090,901) 585,560
Accrued expenses 6,358,823 1,119,670
------------ -----------
Net cash used in operating activities (21,701,030) (6,437,259)
------------ -----------
Cash flows from investing activities:
Increase in marketable securities (77,314,287) --
Purchases of property and equipment (12,384,616) (81,905)
Increase in other assets (928,140) (395,998)
------------ -----------
Net cash used in investing activities (90,627,043) (477,903)
------------ -----------
Cash flows from financing activities:
Net proceeds from secondary offering of stock 140,373,977 --
Net proceeds from issuance of notes 144,862,853 --
Proceeds from exercise of stock options 429,825 --
Payments on capital lease obligations (1,826,471) (460,460)
Advances from investors -- 3,430,564
------------ -----------
Net cash provided by financing activities 283,840,184 2,970,104
------------ -----------
Net increase (decrease) in cash and cash equivalents 171,512,111 (3,945,058)
Cash and cash equivalents, beginning of period 123,665,961 7,399,451
------------ -----------
Cash and cash equivalents, end of period $295,178,072 $3,454,393
============ ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
5
iBASIS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) General
The interim consolidated financial statements presented herein have been
prepared by iBasis, Inc. ("iBasis" or the "Company") without audit and, in the
opinion of management, reflect all adjustments of a normal recurring nature
necessary for a fair presentation. Interim results are not necessarily
indicative of results for a full year.
The consolidated balance sheet presented as of December 31, 1999, has been
derived from the consolidated financial statements that have been audited by the
Company's independent public accountants. The unaudited consolidated financial
statements have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in the annual financial statements prepared in accordance with
generally accepted accounting principles have been omitted pursuant to those
rules and regulations, but the Company believes that the disclosures are
adequate to make the information presented not misleading. The consolidated
financial statements and notes included herein should be read in conjunction
with the consolidated financial statements and notes included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1999.
(2) Long term debt
Long term debt consists of the following:
JUNE 30, DECEMBER 31,
2000 1999
---- ----
5 3/4% Convertible Subordinated Notes, due 2005 $150,000,000 $ --
Obligations under capital leases 47,258,946 16,065,123
------------ -----------
197,258,946 16,065,123
Less: current portion (15,943,436) (4,376,280)
------------ -----------
Long term debt, net of current portion $181,315,510 $11,688,843
============ ===========
(3) Net Loss Per Share and Pro Forma Net Loss Per Share
In accordance with Statement of Financial Accounting Standards No. 128, basic
net loss per common share is calculated by dividing net loss by the weighted
average number of common shares outstanding. The calculation of diluted net loss
per share is consistent with that of basic net loss per share but gives effect
to all dilutive potential common shares (that is, securities such as options,
warrants or convertible securities) that were outstanding during the period,
unless the effect is antidilutive. For the three months ended June 30, 2000 and
1999, 2,639,783 and 641,788 potential common shares, respectively, have been
excluded from the calculation of diluted net loss per share, as their effects
are antidilutive. For the six months ended June 30, 2000 and 1999, 3,026,010 and
176,620 potential common shares, respectively, have been excluded from the
calculation of diluted net loss per share, as their effects are antidilutive.
6
The calculation for pro forma basic and diluted net loss per share is adjusted
to give effect to the conversion of all shares of preferred stock, Class A
common stock and Class B common stock from the date of original issuance.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis of the Company's financial condition and
results of operations for the three months and six months ended June 30, 2000
and 1999 should be read in conjunction with the consolidated financial
statements and footnotes for the six months ended June 30, 2000 included herein,
and the year ended December 31, 1999, included in the Company's Annual Report on
Form 10-K.
Any forward-looking statements in this quarterly report are not guarantees of
future performance, and actual results, development and business decisions may
differ from those envisaged by these forward-looking statements, possibly
materially. iBasis disclaims any duty to update any forward-looking statements,
even if new information becomes available or other events occur in the future.
OVERVIEW
We are a provider of international voice and fax call completion services,
and other value-added services using the Internet. We were incorporated in
August 1996 and commenced commercial operations in May 1997. We first recorded
revenue from the sale of equipment in May 1997, and first recorded revenue from
the sale of voice and fax services over our network in January 1998. In July
1999, we changed our name from "VIP Calling, Inc." to "iBasis, Inc."
In November 1999, we completed our initial public offering and issued 7,820,000
shares of common stock, which resulted in total net proceeds to us of
approximately $114.7 million. In March 2000, we completed a secondary public
offering of our common stock and issued 2,026,637 shares of common stock, which
resulted in total net proceeds to us of approximately $140.4 million. Also in
March 2000, we completed an offering of $150.0 million in 5 3/4% convertible
subordinated notes, due in 2005. At any time prior to their maturity, these
notes are convertible into common stock at a conversion price of $86.14 per
share, subject to adjustment upon certain events.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2000 AND 1999
NET REVENUE. Our primary source of revenue is the fees that we receive from
customers for completing calls over our network. This revenue is dependent on
the volume of voice and fax traffic carried over the network, which is
measured in minutes. We charge our customers fees per minute of traffic that
are dependent on the length and destination of the call and recognize this
revenue in the period in which the call is completed. We also derive a
limited amount of revenue from the hosting of Internet telephony and the sale
of equipment to our customers. Most of the equipment sales are financed by us
by offsetting termination fees otherwise payable to local service providers
against the equipment purchase price until the full purchase price has been
paid.
Our net revenue increased by $10.0 million to $13.6 million for the three
months ended June 30, 2000, from $3.6 million for the three months ended June
30, 1999. This increase was primarily driven by an increase in revenue from
voice and fax call completion services to $13.3 million for the three months
ended June 30, 2000, from $3.5 million for the three months ended June 30, 1999.
The increase in voice and fax call completion services net revenue resulted from
an increase in the amount of traffic carried over our network to 119.4 million
minutes for the three months ended June 30, 2000, from 31.1 million
7
minutes for the three months ended June 30, 1999. Net revenue from hosting
Internet telephony and the sale of equipment was approximately $345,000 and
$127,000 for the three months ended June 30, 2000 and 1999, respectively.
DATA COMMUNICATIONS AND TELECOMMUNICATIONS EXPENSES. Data communications and
telecommunications expenses are composed primarily of termination fees,
purchased minutes, equipment expense and other expenses associated with data
communications and telecommunications. Termination fees are paid to local
service providers to terminate calls received from our network. This traffic is
measured in minutes, and the per minute rates charged for terminating calls are
negotiated with the local service provider and included in our contract with our
local service provider. Should competition cause a decrease in our prices and,
as a result our profit margins, our contracts with our providers typically
provide us with the right to renegotiate the per minute termination fees.
Purchased minutes are fees we pay to other telecommunications carriers for
completing calls over the public circuit-switched network to destinations
outside of our network, and as a back-up to our network when our proprietary
Assured Quality Routing software indicates that either these lines are needed to
maintain the quality of our services or our capacity to a particular destination
has been exceeded. The amount of these fees depends on the volume of voice and
fax traffic carried over the public circuit-switched network, which is also
measured in minutes of traffic. The per minute rate charge for purchased minutes
is negotiated with public circuit-switched network carriers for each destination
served.
The primary direct expenses that we incur in selling our equipment are those
incurred to purchase the component parts of our equipment from a variety of
vendors. These expenses are recorded when the equipment is installed and
operational. The expenses vary on the basis of the number of units to be
completed and delivered in a particular period, and will increase as equipment
sales increase. Other data communication and telecommunications expenses include
charges for Internet access at our Internet branch offices, fees for the fiber
optic connections between our Internet branch offices and our customers and/or
suppliers, facilities charges for overseas Internet access and phone lines to
the primary telecommunications carriers in particular countries, and charges for
the limited number of dedicated international private line circuits we use.
Data communications and telecommunications expenses increased by $9.5 million to
$13.5 million for the three months ended June 30, 2000, from $4.0 million for
the three months ended June 30, 1999. The increase in data communications and
telecommunications expense was driven by the increase in traffic described
above, as termination fees increased to $7.7 million for the three months ended
June 30, 2000, from $1.4 million for the three months ended June 30, 1999, and
purchased minutes increased to $3.4 million for the three months ended June 30,
2000, from $1.7 million for the three months ended June 30, 1999. Equipment
expenses directly related to equipment sales increased to $261,000 for the three
months ended June 30, 2000, from $105,000 for the three months ended June 30,
1999. Other data communications and telecommunications expenses, including
internet access, public circuit-switched network access, and international
private line charges, increased to $2.2 million for the three months ended June
30, 2000, from $800,000 for the three months ended June 30, 1999. As a
percentage of total revenue, data communications and telecommunications expenses
decreased to 99% for the three months ended June 30, 2000, from 111% for the
three months ended June 30, 1999.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses include the
expenses of developing, operating, supporting and expanding our international
and domestic network, expenses associated with improving and operating our
global network operations center, salary, and payroll taxes and benefits paid
for employees directly involved in the development and operation of our global
network operations center and the rest of our network. Also included in this
category are research and development expenses that consist primarily of
expenses incurred in enhancing, developing, updating and supporting our network
and our proprietary software applications.
8
Research and development expenses increased by $3.2 million to $4.5 million for
the three months ended June 30, 2000, from $1.3 million for the three months
ended June 30, 1999. This increase in research and development expenses is due
principally to the increase in personnel needed to support our expanding
network. As a percentage of total revenue, research and development expenses
decreased to 33% for the three months ended June 30, 2000, from 36% for the
three months ended June 30, 1999.
SELLING AND MARKETING EXPENSES. Selling and marketing expenses include expenses
relating to the salaries, payroll taxes, benefits and commissions that we pay
for sales personnel and the expenses associated with the development and
implementation of our promotion and marketing campaigns, including expenses
relating to our outside public relations firm and industry analysts.
Selling and marketing expenses increased by $3.4 million to $4.6 million for the
three months ended June 30, 2000, from $1.2 million for the three months ended
June 30, 1999. This increase is attributable to an increase in the number of
personnel and increased marketing expenses, particularly in connection with
public relations campaigns. As a percentage of total revenue, selling and
marketing expenses were 34% and 33% for the three months ended June 30, 2000,
and 1999, respectively.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses include
salary, payroll tax and benefit expenses and related costs for general corporate
functions, including executive management, administration, facilities,
information technology and human resources.
General and administrative expenses increased by $3.6 million to $4.5 million
for the three months ended June 30, 2000, from $0.9 million for the three months
ended June 30, 1999. General and administrative expenses increased primarily due
to an increase in the number of personnel, an increase in consulting and
professional fees, and an increase in our allowance for doubtful accounts. As a
percentage of total revenue, general and administrative expenses increased to
33% for the three months ended June 30, 2000, from 25% for the three months
ended June 30, 1999.
DEPRECIATION AND AMORTIZATION EXPENSES. Depreciation and amortization expenses
increased by $1.8 million to $2.4 million for the three months ended June 30,
2000, from $0.6 million for the three months ended June 30, 1999. This increase
primarily resulted from additional purchases of capital equipment and software
that were needed to support our expanding network. As a percentage of total
revenue, depreciation and amortization expense remained at 17% for the three
months ended June 30, 2000 and 1999.
INTEREST INCOME AND INTEREST EXPENSE. Interest expense is primarily comprised of
interest on our 5 3/4% convertible subordinated notes and the various capital
leases pursuant to which we have financed a substantial majority of the hardware
components of our network. Interest income is primarily composed of income
earned on our cash, cash equivalents and marketable securities.
Interest income increased by $6.0 million to $6.1 million for the three months
ended June 30, 2000, from $31,000 for the three months ended June 30, 1999. This
increase was primarily attributable to increased interest earnings on our cash,
cash equivalents and marketable securities as a result of our initial public
offering, completed in November 1999, our secondary offering of our common
stock, completed in March 2000, and the issuance of our 5 3/4% subordinated
notes, due in 2005, also completed in March 2000. Interest expense increased by
$3.3 million to $3.5 million for the three months ended June 30, 2000, from
$169,000 for the three months ended June 30, 1999. This increase was
attributable to interest on our 5 3/4% convertible subordinated notes and
capital equipment financing.
9
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
NET REVENUE. Our net revenue increased by $17.3 million to $23.3 million for the
six months ended June 30, 2000, from $6.0 million for the six months ended June
30, 1999. This increase was primarily driven by an increase in revenue from
voice and fax call completion services to $22.9 million for the six months ended
June 30, 2000, from $5.8 million for the six months ended June 30, 1999. The
increase in voice and fax call completion services net revenue resulted from an
increase in the amount of traffic carried over our network to 204.6 million
minutes for the six months ended June 30, 2000, from 48.0 million minutes for
the six months ended June 30, 1999. Net revenue from the sale of equipment was
approximately $398,000 and $239,000 for the six months ended June 30, 2000 and
1999, respectively.
DATA COMMUNICATIONS AND TELECOMMUNICATIONS EXPENSES. Data communications and
telecommunications expenses increased by $17.0 million to $23.6 million for the
six months ended June 30, 2000, from $6.6 million for the six months ended June
30, 1999. The increase in data communications and telecommunications expense was
driven by the increase in traffic described above, as termination fees increased
to $13.4 million for the six months ended June 30, 2000, from $2.3 million for
the six months ended June 30, 1999, and purchased minutes increased to $5.7
million for the six months ended June 30, 2000, from $2.8 million for the six
months ended June 30, 1999. Equipment expenses directly related to equipment
sales increased to $363,000 for the six months ended June 30, 2000, from
approximately $200,000 for the six months ended June 30, 1999. Other data
communications and telecommunications expenses, including Internet access,
public circuit-switched network access, and international private line charges,
increased to $4.2 million for the six months ended June 30, 2000, from $1.3
million for the six months ended June 30, 1999. As a percentage of total
revenue, data communications and telecommunications expenses decreased to 101%
for the six months ended June 30, 2000, from 110% for the six months ended June
30, 1999.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses increased
by $5.1 million to $7.3 million for the six months ended June 30, 2000, from
$2.2 million for the six months ended June 30, 1999. This increase in research
and development expenses is due principally to the increase in personnel needed
to support our expanding network. As a percentage of total revenue, research and
development expenses decreased to 31% for the six months ended June 30, 2000,
from 36% for the six months ended June 30, 1999.
SELLING AND MARKETING EXPENSES. Selling and marketing expenses increased by $5.9
million to $7.9 million for the six months ended June 30, 2000, from $2.0
million for the six months ended June 30, 1999. This increase is attributable to
an increase in the number of personnel and increased marketing expenses,
particularly in connection with public relations campaigns. As a percentage of
total revenue, selling and marketing expenses remained 34% for the six months
ended June 30, 2000 and 1999.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased by $6.8 million to $8.3 million for the six months ended June 30,
2000, from $1.5 million for the six months ended June 30, 1999. General and
administrative expenses increased primarily due to an increase in the number of
personnel, an increase in consulting and professional fees, and an increase in
our allowance for doubtful accounts. As a percentage of total revenue, general
and administrative expenses increased to 36% for the six months ended June 30,
2000, from 25% for the six months ended June 30, 1999.
DEPRECIATION AND AMORTIZATION EXPENSES. Depreciation and amortization expenses
increased by $3.4 million to $4.3 million for the six months ended June 30,
2000, from $0.9 million for the six months ended June 30, 1999. This increase
primarily resulted from additional purchases of capital equipment and software
that were needed to support our expanding network. As a percentage of total
revenue, depreciation and amortization expense increased to 18% for the six
months ended June 30, 2000, from 14% for the six months ended June 30, 1999.
10
INTEREST INCOME AND INTEREST EXPENSE. Interest income increased by $8.4
million to $8.5 million for the six months ended June 30, 2000, from $85,000
for the six months ended June 30, 1999. This increase was primarily
attributable to increased interest earnings on our cash, cash equivalents and
marketable securities as a result of our initial public offering, completed
in November 1999, our secondary offering of our common stock, completed in
March 2000, and the issuance of our 5 3/4% convertible subordinated notes,
due in 2005, also completed in March 2000. Interest expense increased by $4.2
million to $4.4 million for the six months ended June 30, 2000 from $0.2
million for the six months ended June 30, 1999. This increase was
attributable to interest on our 5 3/4% convertible subordinated notes and
capital equipment financing.
LIQUIDITY AND CAPITAL RESOURCES
Our principal capital and liquidity needs historically have related to the
development of our network infrastructure, our sales and marketing activities,
research and development expenses, and general capital needs. Our capital needs
have been met, in large part, from the net proceeds from our initial and
secondary public offerings, the issuance of our 5 3/4% convertible subordinated
notes and the sale of our Class B common stock and preferred stock. As we have
placed greater emphasis on expanding our network infrastructure, we have also
sought to meet our capital needs through vendor capital leases and other
equipment financings. We have also established a line of credit with a bank.
Net cash used in operating activities was $21.7 million for the six months ended
June 30, 2000, as compared to $6.4 million for the six months ended June 30,
1999. Cash used in operating activities for both periods resulted from net
losses.
Net cash used in investing activities was $90.6 million for the six months ended
June 30, 2000, as compared to approximately $500,000 for the six months ended
June 30, 1999. Cash used in investing activities was primarily related to our
investing in marketable securities during the six months ended June 30, 2000,
and the purchases of equipment during the six months ended June 30, 2000 and
1999.
Net cash provided by financing activities was $283.8 million for the six months
ended June 30, 2000, as compared to net cash provided by financing activities of
$3.0 million for the six months ended June 30, 1999. For the six months ended
June 30, 2000, these amounts are primarily attributable to the net proceeds from
our secondary public offering of our common stock and the issuance of our 5 3/4%
convertible subordinated notes. For the six months ended June 30, 1999, the
amount was primarily attributable to the issuance of Class B common stock and
preferred stock.
INITIAL PUBLIC OFFERING. In November 1999, we completed our initial public
offering and issued 7,820,000 shares of common stock, which resulted in total
net proceeds to us of $114.7 million.
SECONDARY PUBLIC OFFERING. In March 2000, we completed our secondary public
offering in which we sold 2,026,637 shares of common stock, which resulted in
total net proceeds to us of $140.4 million. Concurrently, we offered $150.0
million in 5 3/4% convertible subordinated notes, due in 2005. The notes are
convertible at any time prior to maturity into common stock at a conversion
price of $86.14 per share, subject to adjustment upon certain events.
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ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
To date, we have not engaged in trading market risk sensitive instruments or
purchasing hedging instruments that would be likely to expose us to market risk,
whether interest rate, foreign currency exchange, commodity price or equity
price risk. We have not purchased options or entered into swaps of forward or
futures contracts. Our primary market risk exposure is that of interest rate
risk on borrowings under our credit lines, which are subject to interest rates
based on the banks' prime rate, and a change in the applicable interest rate
that would affect the rate at which we could borrow funds or finance equipment
purchases. While to date our global operations have generated revenues in United
States dollars, we are currently evaluating the impact of foreign currency
exchange risk on our results of operations as we continue to expand globally.
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PART II - OTHER INFORMATION
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Following are the results of all matters submitted to a vote of security holders
during the quarter ended June 30, 2000. These matters were voted on at the 2000
Annual Meeting of Stockholders held on May 24, 2000:
PROPOSAL 1: Election of Class 1 Directors - Vote to elect two (2) Class 1
directors to serve until the Company's 2003 Annual Meeting of Stockholders, or
until their successors are elected and qualified.
For Against Abstain
---------- ------- -------------------
Charles S. Houser 26,809,464 33,925 0
Gordon VanderBrug 26,808,319 35,070 0
The following directors' terms continued after the 2000 Annual Meeting of
Stockholders: Ofer Gneezy, Charles N. Corfield, John Jarve, Charles Skibo and
Carl Redfield.
PROPOSAL 2: Ratification of the Appointment of the Firm of Arthur Andersen LLP
as Independent Public Auditors of the Company.
For Against Abstain
---------- ------- -------------------
26,784,076 54,228 5,085
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed herewith:
27.1 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the three
months ended June 30, 2000.
CERTAIN IMPORTANT FACTORS
This quarterly report on Form 10-Q contains forward-looking statements based on
current expectations, estimates and projections about iBasis's industry and
management's beliefs and assumptions. In some cases you can identify these
statements by forward-looking words such as "anticipate," "believe," "could,"
"estimate," "expect," "intend," "may," "should," "will," and "would" or similar
words. You should read statements that contain these words carefully because
they discuss future expectations, contain projections of future results of
operations or of financial position or state other "forward-looking"
information. You should be aware that the occurrence of the events described in
this quarterly report could have an adverse effect on the business, results of
operations and financial position of iBasis.
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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.
iBasis, Inc.
AUGUST 11, 2000 By: /S/ MICHAEL J. HUGHES
(date) ------------------------------------------
Michael J. Hughes
Vice President and Chief Financial Officer
(Authorized Officer and
Principal Accounting Officer)
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