UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998.
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 000-23387
TELIGENT, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 54-1866562
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
8065 LEESBURG PIKE
VIENNA, VIRGINIA 22182
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (703) 762-5100
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 [_].
The number of shares outstanding of each of the registrant's classes of common
stock as of November 11, 1998 was as follows:
Common Stock, Class A 8,178,610
Common Stock, Class B 44,426,299
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets -
As of September 30, 1998 (unaudited) and December 31, 1997 3
Unaudited Condensed Statements of Operations For the three and nine
months ended September 30, 1998 and 1997,
and for the period from March 5, 1996 (date of inception) to
September 30, 1998 4
Condensed Statements of Stockholders' Equity (Deficit) For the period
from March 5, 1996 (date of inception) to December
31, 1997, and for the nine months ended September 30,
1998 (unaudited) 5
Unaudited Condensed Statements of Cash Flows For the nine months ended
September 30, 1998 and 1997, and for
the period from March 5, 1996 (date of inception) to September 30,
1998 6
Notes to Unaudited Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
PART II. OTHER INFORMATION
Item 2. Change in Securities and Use of Proceeds 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES
EXHIBIT INDEX
TELIGENT, INC.
(a development stage company)
CONDENSED BALANCE SHEETS
(amounts in thousands)
September 30, December 31,
1998 1997
------------ -----------
Assets (unaudited)
Current assets:
Cash and cash equivalents $509,478 $424,901
Prepaid expenses and other current assets 4,586 7,087
Restricted cash and investments 31,320 30,373
------- -------
Total current assets 545,384 462,361
Property and equipment, net 115,236 8,186
Restricted cash and investments 50,274 64,702
Intangible assets, net 85,426 60,354
Other assets 1,065 777
------- -------
Total assets $797,385 $596,380
======= =======
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 78,133 $ 16,577
Accrued interest and other current
liabilities 28,453 4,468
------- -------
Total current liabilities 106,586 21,045
11 1/2% Senior Notes, due 2007 300,000 300,000
11 1/2% Senior Discount Notes, due 2008 268,360 0
Other non-current liabilities 1,896 1,189
Commitments and contingencies
Stockholders' equity:
Preferred stock 0 0
Common stock 526 526
Additional paid-in capital 456,694 436,307
Deficit accumulated during the
development stage (327,927) (151,687)
------- -------
129,293 285,146
Notes receivable from Executive (8,750) (11,000)
------- -------
Total stockholders' equity 120,543 274,146
------- -------
Total liabilities and stockholders'
equity $797,385 $596,380
======= =======
See notes to condensed financial statements.
TELIGENT, INC.
(a development stage company)
CONDENSED STATEMENTS OF OPERATIONS
(amounts in thousands, except share and per share information)
(unaudited)
Period from March 5,
Three Months Ended Nine Months Ended 1996 (date of inception)
September 30, September 30, to September 30,
1998 1997 1998 1997 1998
----- ----- ------ ----- -----
Revenues:
Communications services $ 240 $ - $ 480 $ - $ 514
Management fees and other services - 1,200 - 2,914 4,664
------ ------ ------- ------ -------
Total revenues 240 1,200 480 2,914 5,178
------ ------ ------- ------ -------
Costs and expenses:
Cost of services 25,238 1,161 50,571 2,875 56,981
Sales, general and administrative
expenses 33,095 13,448 78,552 25,551 131,600
Stock-based compensation 6,721 14,062 20,274 51,935 107,096
Depreciation and amortization 3,389 140 7,042 306 13,660
------ ------ ------- ------ -------
Total costs and expenses 68,443 28,811 156,439 80,667 309,337
------ ------ ------- ------ -------
Loss from operations (68,203) (27,611) (155,959) (77,753) (304,159)
Interest and other income 8,970 56 27,236 105 30,488
Interest expense (19,313) (645) (47,517) (1,178) (54,256)
------ ------ ------- ------ ------
Net loss $(78,546) $(28,200) $(176,240) $(78,826) $(327,927)
====== ====== ======= ====== =======
Net loss per share $ (1.49) $ (0.63) $ (3.35) $ (1.77) $ (6.84)
====== ====== ======= ====== =======
Weighted average common shares
outstanding 52,593,191 44,426,299 52,589,921 44,426,299 47,909,301
========== ========== ========== ========== ==========
See notes to condensed financial statements.
TELIGENT, INC.
(a development stage company)
CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Period from March 5, 1996 (date of inception) to September 30, 1998
(amounts in thousands)
Capital /--------------- Common Stock --------------/
Contributions A B-1 B-2 B-3
------------- ------ ------ ------- ------
Balance at March 5, 1996 (date of inception) $ - $ - $ - $ - $ -
Member capital contributions 24,058 Notes receivable from Executive
Amortization of notes receivable from Executive Net loss
-------------------------------------------------------------------
Balance at December 31, 1996 24,058 - - - -
Contribution of licenses from members 8,497
Acquisition 31,500
Cash contributions 100,301
Conversion of member interests
to capital stock (164,356) 19 214 172 23
Stock based compensation
Equity contribution prior to public offering 35
Public stock offering 63
Amortization of notes receivable from Executive
Net loss
-------------------------------------------------------------------
Balance at December 31, 1997 - 82 214 172 58
Exercise of stock options
Stock-based compensation
Amortization of notes receivable from Executive
Net loss
-------------------------------------------------------------------
Balance at September 30, 1998 (unaudited) $ - $ 82 $ 214 $ 172 $ 58
===================================================================
See notes to condensed
financial statements.
Notes
Common Additional Receivable
Stock Paid-in Accumulated From
Total Capital Deficit Executive Total
------ --------- ----------- --------- ------
Balance at March 5, 1996 (date of inception) $ - $ - $ - $ - $ -
Member capital contributions 24,058
Notes receivable from Executive (15,000) (15,000)
Amortization of notes receivable from Executive 1,000 1,000
Net loss (13,633) (13,633)
-------------------------------------------------------------------
Balance at December 31, 1996 - - (13,633) (14,000) (3,575)
Contribution of licenses from members 8,497
Acquisition 31,500
Cash contributions 100,301
Conversion of member interests
to capital stock 428 163,928 -
Stock based compensation 86,821 86,821
Equity contribution prior to public offering 35 59,965 60,000
Public stock offering 63 125,593 125,656
Amortization of notes receivable from Executive 3,000 3,000
Net loss (138,054) (138,054)
-------------------------------------------------------------------
Balance at December 31, 1997 526 436,307 (151,687) (11,000) 274,146
Exercise of stock options 113 113
Stock-based compensation 20,274 20,274
Amortization of notes receivable from Executive 2,250 2,250
Net loss (176,240) (176,240)
-------------------------------------------------------------------
Balance at September 30, 1998 (unaudited) $ 526 $456,694 $(327,927) $ (8,750) $ 120,543
===================================================================
See notes to condensed
financial statements.
TELIGENT, INC.
(a development stage company)
CONDENSED STATEMENTS OF CASH FLOWS
(amounts in thousands)
(unaudited)
Period from March 5,
1996 (date of
inception) to
Nine Months Ended September 30, September 30,
1998 1997 1998
---- ---- ----
Cash flows from operating activities:
Net loss $(176,240) $(78,826) $(327,927)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 7,042 306 13,660
Amortization of notes receivable
from Executive 2,250 2,250 6,250
Amortization of discount on
long-term debt 17,656 - 17,656
Amortization of debt issue costs 1,529 - 1,588
Other noncurrent liabilities 706 663 1,895
Stock-based compensation 20,274 51,935 107,096
Other (288) - (1,065)
Changes in current assets and
current liabilities:
Prepaid expenses and other current
assets 498 (5,670) (6,077)
Accounts payable 19,465 904 36,042
Accrued expenses and other current
liabilities 23,986 5,930 28,453
------- ------ -------
Net cash used in operations (83,122) (22,508) (122,429)
------- ------ -------
Cash flows from investing activities:
Restricted cash and investments 13,481 - (81,594)
Purchase of property and equipment (69,059) (3,717) (82,728)
Acquisitions and other investments - (5,770) (10,720)
------- ------ -------
Net cash used in investing
activities (55,578) (9,487) (175,042)
------- ------ -------
Cash flows from financing activities:
Proceeds from bank borrowing - 36,500 42,500
Repayment of bank borrowing - - (42,500)
Member contributions - - 109,359
Equity contribution prior to public
offering - - 60,000
Net proceeds from issuance of common
stock 125,656
Proceeds from long-term debt 250,703 - 550,703
Debt financing costs (27,539) - (38,882)
Proceeds from exercise of stock options 113 - 113
------- ------ -------
Net cash provided by financing activities 223,277 36,500 806,949
------- ------ -------
Net increase in cash and equivalents 84,577 4,505 509,478
Cash and cash equivalents, beginning
of period 424,901 1,303 -
------- ------ -------
Cash and cash equivalents, end of
period $ 509,478 $ 5,808 $ 509,478
======= ====== =======
See notes to condensed financial statements.
TELIGENT, INC.
(a development stage company)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(unaudited)
1. The Company
Teligent, Inc. ("Teligent" or the "Company") (a development stage
company), is a full-service, integrated communications company that offers small
and medium-sized business customers local, long-distance, high-speed data and
dedicated Internet services over its Digital SmartWave(TM) local networks in
fifteen markets. Eventually, the Company intends to expand service to 74 major
metropolitan areas throughout the United States. Teligent's offerings of
regulated services are subject to tariff approval.
The Company was formed in September 1997, as a wholly owned subsidiary
of Teligent, L.L.C. On November 21, 1997, concurrent with an initial public
offering of the Company's Class A Common Stock, Teligent, L.L.C. merged with and
into the Company (the "Merger") with the Company as the surviving entity.
Teligent, L.L.C. was originally formed in March 1996, by Microwave Services,
Inc. ("MSI") and Digital Services Corporation ("DSC"), both of which, through
affiliates, have extensive experience in pioneering wireless telecommunications
businesses. Prior to the Merger, Nippon Telegraph and Telephone Corporation
("NTT"), through its wholly owned subsidiary NTTA&T, acquired a 5% interest in
Teligent L.L.C., and immediately after the Merger acquired an additional 7.5%
equity interest in the Company. All of Teligent, L.L.C.'s member interests were
converted into shares of common stock upon the Merger in a manner proportionate
to each member's percentage interest in Teligent, L.L.C. immediately prior to
the Merger.
2. Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed financial statements included
herein have been prepared by the Company in accordance with the rules and
regulations of the Securities and Exchange Commission ("SEC"). In the opinion of
the Company's management, all adjustments and reclassifications of a normal and
recurring nature necessary to present fairly the financial position, results of
operations and cash flows for the periods presented have been made. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles ("GAAP")
have been condensed or omitted pursuant to SEC rules and regulations. These
condensed unaudited financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K for the period ended December 31, 1997 filed with the SEC. The
results of operations for the three and nine months ending September 30, 1998
are not necessarily indicative of the results that may be expected for the full
year.
Use of Estimates
The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual results
could differ from those estimates.
Income Taxes
The Company uses the liability method of accounting for income taxes.
Deferred income taxes result from temporary differences between the tax basis of
assets and liabilities and the basis reported in the financial statements.
During the three and nine months period ended September 30, 1998, the Company
recorded an income tax provision of zero given the limited operating history and
significant operating losses incurred to date.
Net Loss Per Share
During 1997, the Company adopted the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share", which
requires the Company to present basic and fully diluted earnings per share for
all years presented. For the period prior to 1998, the Company's net loss per
share calculation (basic and fully diluted), is based upon the number of common
shares outstanding immediately prior to the initial public offering, as if
outstanding for all periods presented similar to a stock split, plus the
weighted average common shares issued subsequent to the initial public offering.
The Company's 1998 net loss per share calculation (basic and fully diluted) is
based on the weighted average common shares outstanding. There are no
reconciling items in the numerator or denominator of the Company's net loss per
share calculation. Employee stock options have been excluded from the net loss
per share calculation because their effect would be anti-dilutive.
Comprehensive Income
Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
of Comprehensive Income" ("SFAS No. 130"). SFAS No. 130 establishes standards
for the display of comprehensive income and its components in a full set of
financial statements. Comprehensive income includes all changes in equity during
a period except those resulting from the issuance of shares of stock and
distributions to shareholders. There were no differences between net loss and
comprehensive loss.
Capitalization of Software Development Costs
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1 ("SOP 98-1"), "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use". This statement
requires internal and external costs incurred to develop internal-use computer
software during the application development stage, as well as costs to develop
or obtain software that allows for access or conversion of old data by new
systems, to be capitalized. SOP 98-1 is effective for fiscal years beginning
after December 15, 1998. The Company does not believe that its effect will be
material to the Company's reported financial condition or results of operations.
3. Supplemental Disclosure of Cash Flow Information
Investing Activities
During the nine months ended September 30, 1998, the Company incurred
capital expenditures of approximately $111.1 million, of which $42.1 million was
accrued, and is not reflected in the accompanying condensed statement of cash
flows.
4. Credit Facility
On July 2, 1998, the Company entered into a credit agreement (the "Bank
Credit Agreement") providing for facilities up to an aggregate of $800 million.
Funds borrowed under the Bank Credit Agreement will be used for working capital
and general corporate purposes, including the purchase of telecommunications
equipment, software and services. Availability of funds is subject to certain
conditions as defined in the Bank Credit Agreement. The Company's obligations
under the Bank Credit Agreement are secured by substantially all of the assets
of the Company and certain of its subsidiaries.
5. Discount Notes Offering
On February 20, 1998, the Company completed an offering (the "Discount
Notes Offering") of $440 million 11 1/2% Senior Discount Notes due 2008 (the
"Senior Discount Notes"). The Company received approximately $243.1 in million
net proceeds from the Discount Notes Offering, after deductions for offering
expenses of approximately $7.6 million. Under an exchange offer which commenced
on July 10, 1998 and expired on August 13, 1998 (the "Exchange Offer"), all
outstanding Senior Discount Notes were exchanged for 11 1/2% Series B Discount
Notes due 2008 (the "New Discount Notes") which have been registered under the
Securities Act of 1933, as amended. The New Discount Notes are identical in all
material respects to the Senior Discount Notes.
Item 2. Management's Discussion and Analysis of Financial Condition and
------ ---------------------------------------------------------------
Results of Operations
---------------------
Except for any historical information contained herein, the matters
discussed in this quarterly report on Form 10-Q contain certain "forward-looking
statements" within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended, and should be read in conjunction with the Company's 1997
Annual Report on Form 10-K. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors including, but not limited to,
economic, key employee, competitive, governmental, regulatory and technological
factors affecting the Company's growth, operations, markets, products, services,
licenses and other factors discussed in the Company's other filings with the
Securities and Exchange Commission. These factors may cause the actual results,
performance or achievements of the Company, or industry results, to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Given these
uncertainties, prospective investors are cautioned not to place undue reliance
on such forward-looking statements.
Overview and Results of Operations
As a full-service, integrated communications company, Teligent offers
small and medium-sized business customers local, long-distance, high-speed data
and dedicated Internet services over its Digital SmartWave(TM) local networks in
fifteen markets. Digital SmartWave (TM) technology is configured to handle both
voice and data traffic. Eventually, the Company intends to expand service to 74
major metropolitan areas throughout the United States. Teligent believes it can
capitalize on a convergence of technological, regulatory and market developments
to capture revenues in the estimated $110 billion business telecommunications
market.
The Company's business commenced on March 5, 1996, and the Company has
generated only nominal revenues from operations to date. Prior to the transfer
by MSI and DSC of their fixed wireless licenses to the Company in October 1997,
revenues and cash flows associated with customers using the fixed wireless
licenses were accounted for by MSI and DSC. Accordingly, Teligent's historic
revenues principally reflect certain management and administrative services to
MSI and DSC in connection with the development, construction and operation of
their 18 GHz and subsequently 24 GHz fixed wireless networks.
On October 27, 1998, the Company introduced its integrated package of
communication services via a nationwide press release, and launched major sales
and advertising campaigns in its first ten markets - New York, Los Angeles,
Chicago, Houston, Dallas-Fort Worth, San Antonio, Austin, Washington, DC, Denver
and Tampa. On November 4, 1998, the Company initiated its communications
services in two additional markets (San Francisco-Oakland and San Jose) and on
November 10, 1998, initiated services in three Florida markets (Miami, Orlando
and Jacksonville). Highlighting big savings for small and medium-sized
businesses, the Company is offering qualified customers local, long distance,
high-speed data and dedicated Internet services for one flat monthly rate with
up to 30 percent savings. In most cases, customers who switch their existing
service - local service, long distance, or Internet - and sign up with Teligent
for a minimum of one year are eligible for the discount, which will be based on
the average of several of the customers' bills for local phone service, domestic
long distance and internet access, excluding taxes, surcharges and fees. The
new, discounted rate will be locked in on a flat monthly bill. The Company
expects that the creation of its own digital networks will give it a
substantially lower cost structure than the traditional local telephone
companies, or other competitors that use the existing local networks, allowing
the Company to pass these savings on to its customers.
The Company has experienced significant operating and net losses and
negative operating cash flow to date and expects to continue to experience
increasing operating and net losses and negative operating cash flow until such
time as it develops a revenue-generating customer base sufficient to fund
operating expenses. The Company will incur significant marketing costs in the
fourth quarter of 1998 as it rolls out this advertising campaign. The Company
expects that operating and net losses and negative operating cash flow will
increase significantly as the Company implements its growth strategy. See
"--Liquidity and Capital Resources."
Capitalization of Software Development Costs
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1 ("SOP 98-1"), "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use", which requires
internal and external costs incurred to develop internal-use computer software
during the application development stage to be capitalized. Costs to develop or
obtain software that allows for access or conversion of old data by new systems
must also be capitalized. SOP 98-1 is effective for fiscal years beginning after
December 15, 1998. The Company does not believe that its effect will be material
to the Company's reported financial condition or results of operations.
Year 2000
In September 1998, management presented a report to the Audit Committee
of the Company's Board of Directors outlining issues and areas that management
felt should be considered in connection with the Company's preparation of a Year
2000 plan. Subsequently, the Company appointed a Year 2000 committee to lead a
Company-wide effort to assess the scope of the Company's risks and ensure its
applications will function properly. The Year 2000 committee, which is made up
of employees in each area of the Company including finance, information
technology, and legal, is in the process of addressing Year 2000 issues and
formulating a plan that is expected to be implemented within the Company. The
committee is in the early stages of conducting its Year 2000 assessment, but is
making progress in identifying and evaluating Year 2000 issues and policies
regarding the compliance of internal and external systems and applications. The
committee expects to complete a written plan by year-end 1998, and testing of
the Company's systems is targeted to be completed by June 1999.
Generally, the Company contractually requires its key vendors and
suppliers to certify they are Year 2000 compliant. With respect to other vendors
and suppliers with which the Company's systems interface and exchange data, the
Company expects to initiate communication on an ongoing basis to discuss their
Year 2000 compliance. The Company has not determined the exact costs and
expenses it expects to incur relating to preparation of its systems for the Year
2000. Based on current assessments and compliance plans in process, the Company
does not expect that the Year 2000 issue, including the cost of making its
critical systems and applications compliant, will have a material effect on its
business operations, or its financial position or results of operations.
However, if appropriate modifications are required by the Company's key
suppliers and vendors, and if those modifications are not made on a timely
basis, the Company's actual costs or timing for Year 2000 compliance may differ
materially from current estimates. There can be no assurance that the systems of
other parties upon which the Company relies will be converted on a timely basis.
Three Months Ended September 30, 1998 Compared to Three Months Ended September
30, 1997
The Company generated revenue from communications services of
approximately $0.2 million for the three months ended September 30, 1998. During
the three months ended September 30, 1997, the Company generated revenue of
approximately $1.2 million for management and other services under arrangements
that ended during 1997.
Cost of services, consisting primarily of personnel-related costs and
site rent and acquisition expenses related to network operations, was
approximately $25.2 million for the three months ended September 30, 1998 as
compared with approximately $1.2 million for the corresponding period in 1997.
This increase reflects the Company's growth and development of its network
operations.
Sales, general and administrative expenses, consisting primarily of
headcount-related costs, were approximately $33.1 million for the three months
ended September 30, 1998, as compared with approximately $13.4 million for the
corresponding period in 1997. This increase relates primarily to additional
costs incurred to develop the Company's infrastructure as the Company prepares
for the commencement of operations.
Stock-based compensation expense, a non-cash expense, was approximately
$6.7 million for the three months ended September 30, 1998 as compared with
approximately $14.1 million for the corresponding period in 1997. The decrease
is due to the nature of the charge related to Company Appreciation Rights
granted prior to the Company's initial public offering.
Depreciation and amortization for the three months ended September 30,
1998 was approximately $3.4 million as compared with approximately $0.1 million
for the corresponding period in 1997 due to higher capital expenditures and
amortization of intangibles which were principally acquired beginning in the
fourth quarter of 1997.
Interest and other income for the three months ended September 30,
1998, was approximately $9.0 million, as compared with approximately $56,000 for
the corresponding period in 1997. This increase was primarily as a result of
interest earned on cash and investments.
Interest expense for the three months ended September 30, 1998 was
approximately $19.3 million, as compared with approximately $0.6 million for the
corresponding period in 1997. This increase was due to recognizing interest
expense on the 11 1/2% Senior Notes due 2007 issued in November 1997 (the
"Senior Notes") and the New Discount Notes.
Nine Months Ended September 30, 1998 Compared to Nine Months Ended September
30, 1997
The Company generated revenue from communications services of
approximately $0.5 million for the nine months ended September 30, 1998. During
the nine months ended September 30, 1997, the Company generated revenue of
approximately $2.9 million for management and other services under arrangements
that ended during 1997.
Cost of services, consisting primarily of personnel-related costs and
site rent and acquisition expenses related to network operations, was
approximately $50.6 million for the nine months ended September 30, 1998 as
compared with approximately $2.9 million for the corresponding period in 1997.
This increase reflects the Company's growth and development of its network
operations.
Sales, general and administrative expenses, consisting primarily of
headcount-related costs, were approximately $78.6 million for the nine months
ended September 30, 1998, as compared with approximately $25.6 million for the
corresponding period in 1997. This increase relates primarily to additional
costs incurred to develop the Company's infrastructure as the Company prepared
for the commencement of operations.
Stock-based compensation expense, a non-cash expense, was approximately
$20.3 million for the nine months ended September 30, 1998 as compared with
approximately $51.9 million for the corresponding period in 1997. The decrease
is due to the nature of the charge related to Company Appreciation Rights
granted prior to the Company's initial public offering.
Depreciation and amortization for the nine months ended September 30,
1998 was approximately $7.0 million as compared with approximately $0.3 million
for the corresponding period in 1997 due to higher capital expenditures and
amortization of intangibles which were principally acquired beginning in the
fourth quarter of 1997.
Interest and other income for the nine months ended September 30, 1998,
was approximately $27.2 million, as compared with approximately $0.1 million for
the corresponding period in 1997. This increase was primarily as a result of
interest earned on cash and investments.
Interest expense for the nine months ended September 30, 1998 was
approximately $47.5 million, as compared with approximately $1.2 million for the
corresponding period in 1997. This increase was due to recognizing interest
expense on the Senior Notes and the New Discount Notes.
The Company expects to generate significant operating and net losses
for the next several years.
Liquidity and Capital Resources
Discount Notes Offering
On February 20, 1998, the Company completed the Discount Notes
Offering. The Company received approximately $243.1 million in net proceeds from
the Discount Notes Offering, after deductions for offering expenses of
approximately $7.6 million. Pursuant to the Exchange Offer, all outstanding
Senior Discount Notes were exchanged for the New Discount Notes, which have been
registered under the Securities Act of 1933, as amended. The New Discount Notes
are identical in all material respects to the Senior Discount Notes.
Credit Facility
On July 2, 1998, the Company entered into the Bank Credit Agreement
providing for facilities up to an aggregate of $800 million (the "Credit
Facilities"). The Credit Facilities will be used primarily for the purchase of
telecommunications equipment, software and services and is also available for
other working capital and general corporate purposes. Under the Bank Credit
Agreement, the lenders will make $780 million of the Credit Facilities available
on behalf of Nortel in lieu of a vendor financing commitment letter previously
entered into with Nortel, and is considered "Vendor Debt" under the indentures
to which the Senior Notes and Senior Discount Notes were issued (together, the
"Indentures"). The remaining $20 million available under the Credit Facilities
is considered "Telecommunications Asset Debt" in accordance with the terms of
the Indentures. Availability of funds is subject to certain conditions as
defined in the Bank Credit Agreement. The Company's obligations under the Bank
Credit Agreement are secured by substantially all of the assets of the Company
and certain of its subsidiaries.
Historical Cash Flows
At September 30, 1998, the Company had working capital of $438.8
million and cash and cash equivalents of $509.5 million, as compared to working
capital of $441.3 million and cash and cash equivalents of $424.9 million at
December 31, 1997. The buildout of the Company's networks and the marketing of
its services will require significant capital and operating expenditures in the
future. The Company believes it has sufficient capital to finance the current
network buildout plans through the year 2000.
The Company's total assets increased from $596.4 million as of December
31, 1997 to $797.4 million at September 30, 1998, due primarily to cash proceeds
from the Discount Notes Offering and capital expenditures. Property and
equipment, net of accumulated depreciation, comprised $115.2 million at
September 30, 1998 compared to $8.2 million at December 31, 1997.
In October 1998, the Company launched commercial services on its
digital wireless communications network in ten major markets, and began a
targeted advertising campaign in newspapers and business publications across the
country. Additional commercial launches were made in November 1998. As a result
of the commercial launches and the advertising campaign, the Company expects a
significant increase in capital and operating expenditures in the fourth quarter
of 1998.
Cash used in operating activities totaled $83.1 million for the nine
months ended September 30, 1998, due primarily to the operating loss for the
period reduced by non-cash compensation, amortization and depreciation, and
other charges. For the same period in 1997, the Company used cash in operations
of $22.5 million, due primarily to the operating loss for the period offset
primarily by non-cash stock-based compensation.
The Company used cash in investing activities of $55.6 million for the
nine months ended September 30, 1998 relating primarily to the purchase of
property and equipment, offset by interest received on restricted investments.
For the same period in 1997, the Company used $9.5 million in investing
activities, consisting of $3.7 million relating to the purchase of property and
equipment and the remainder relating primarily to the acquisition of FirstMark
Communications, Inc.
The Company's cash flows provided by financing activities for the nine
months ended September 30, 1998 were $223.3 million, consisting primarily of net
proceeds from the Discount Notes Offering, net of offering costs, and the
payment of fees relating to the Bank Credit Agreement. For the same period in
1997, cash flows from financing activities were $36.5 million consisting of
borrowings under a credit agreement that was terminated in November 1997.
PART II OTHER INFORMATION
Item 2. Change in Securities and Use of Proceeds
- - ------- ----------------------------------------
Change in Securities
Pursuant to the Exchange Offer all outstanding Senior Discount Notes
were exchanged for New Discount Notes. The Exchange Offer expired on August 13,
1998. The New Discount Notes are identical in all material respects to the
Senior Discount Notes.
Use of Proceeds
In November 1997, the Company completed an offering of 6,325,000 shares
of the Company's Class A Common Stock (the "Equity Offering"). The net proceeds
from the Equity Offering were approximately $125.7 million, after deductions for
offering expenses. As of September 30, 1998, the Company has used such net
proceeds, together with proceeds from capital contributions received prior to
the Equity Offering and with the proceeds from the Company's Senior Notes
offering and Discount Notes Offering, as follows: (i) $42.5 million to repay in
full indebtedness outstanding under the Company's former credit facility, (ii)
$93.9 million to purchase Pledged Securities to provide for payment in full of
the first six interest payments due on the Senior Notes, (iii) $69.1 million for
the purchase property and equipment, and (iv) to fund general corporate
purposes.
Item 5. Other Information
- - ------- -----------------
On July 17, 1998, the Federal Communications Commission released an
order unanimously affirming its March 1997 decision relocating Teligent's 18 GHz
DEMS licenses to the 24 GHz band.
On July 7, 1998, the U.S. District Court for the Northern District of
Texas granted the preliminary injunction sought by Teligent barring the city of
Dallas from requiring Teligent to obtain a franchise and pay "rights of way"
fees to offer communications services over its fixed wireless networks in the
city of Dallas.
Item 6. Exhibits and Reports on Form 8-K
- - ------- --------------------------------
(a) Exhibits
Exhibit Index
(b) Reports on Form 8-K
On October 30, 1998, the Company filed a report on Form 8-K
comprising items 5 and 7. The Report, dated October 27, 1998,
announced the launch of the Company's services in its first
ten markets.
SIGNATURES
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.
TELIGENT, INC.
(Registrant)
Date: November 16, 1998 By: /s/ Abraham L. Morris
----------------------
Abraham L. Morris
Senior Vice President,
Chief Financial Officer
and Treasurer (Principal Financial
Officer)
Date: November 16, 1998 By: /s/ Cindy L. Tallent
---------------------
Cindy L. Tallent
Vice President and Controller
(Principal Accounting Officer)
EXHIBIT INDEX
Exhibit No. Description of Exhibit
- - ----------- ----------------------
3.1 Form of Certificate of Incorporation of Registrant, filed as
Exhibit 3.1 to the Company's Registration Statement on Form S-1
(Registration No. 333-37381), dated November 26, 1997, and
incorporated herein by reference.
3.2 Form of By-laws of Registrant, filed as Exhibit 3.2 to the
Company's Registration Statement on Form S-1 (Registration No.
333-37381), dated November 26, 1997, and incorporated herein by
reference.
4.1 Form of Indenture between the Registrant, as issuer, and First
Union National Bank, as Trustee, relating to Registrant's Senior
Discount Notes due 2008, including form of Note, filed as Exhibit
4.4 to the Company's Form of Annual Report on Form 10-K, filed on
March 31, 1998, and incorporated by reference herein.
4.2 Form of Indenture between the Registrant, as issuer, and First
Union National Bank, as Trustee, relating to Registrant's Senior
Notes due 2007, including form of Note, filed as Exhibit 4.2 to
the Company's Registration Statement on Form S-1 (Registration No.
333-37381), dated November 26, 1997, and
incorporated herein by reference.
10.1 Registration Rights Agreement dated as of March 6, 1998, by and
between Teligent, Inc., and Microwave Services, Inc. filed as
Exhibit 10.16 to the Company's Form of Annual Report on Form 10-K,
filed on March 31,1998, and incorporated herein by reference.
10.2 Credit Agreement, dated July 2, 1998 among Teligent, Inc.,
several banks and other financial institutions or entities, Chase
Securities Inc., Goldman Sachs Credit Partners L.P. and TD
Securities (USA) Inc., as advisers and arrangers, Goldman Sachs
Credit Partners L.P., as syndication agent, The Chase Manhattan
Bank, as administrative agent and Toronto Dominion (Texas), Inc.
as documentation agent. Filed as Exhibit 10 to the Company's Form
8-K, filed on August 13, 1998, and incorporated herein by
reference.
27.1 Financial Data Schedule for the nine months ended September 30,
1998 (filed only electronically with the Securities and Exchange
Commission).
99.1 Press release of Teligent, Inc. dated November 11, 1998
(filed herein).
EXHIBIT 99.1
FOR IMMEDIATE RELEASE
CONTACTS:
Media Investors
Robert W. Stewart Michael S. Kraft
703-762-5175 703-762-5359
888-894-7812 800-981-5994
Teligent reports third quarter financial results, completes launch of first
15 markets
VIENNA, VA., November 11, 1998 - Teligent, an integrated communications company,
today released its third quarter financial results, a day after completing the
launch of lower-cost, high bandwidth communications services in its first 15
markets.
"We've exceeded the goal that we set for ourselves last January, when we
announced that we would be up and running in ten markets by the end of 1998,"
said Teligent Chairman and Chief Executive Officer Alex J. Mandl. "And we've met
another key objective: We are the industry leader in the early integration of
point-to-multipoint radio equipment into our local broadband communications
networks.
"Today, we are setting a new goal for 1999," Mandl added. "We intend to offer
Teligent's full range of communications services - local, long distance,
high-speed data and dedicated Internet access - in a total of 40 markets by the
end of next year.
"Those 40 markets comprise more than 540 cities and towns with a combined
population of more than 90 million," Mandl said. "And, as we've said before, we
intend to complete the buildout of all of our 74 markets, which cover 750 cities
and towns and 130 million people, by the end of 2001."
Reflecting its aggressive rollout schedule, Teligent reported a net loss of
$78.5 million for the third quarter on revenues of approximately $240,000,
compared to a net loss of $28.2 million for the third quarter of 1997. "These
results are right on target with our expectations," Mandl said.
For the nine months ending September 30, Teligent reported a net loss of $176.2
million on revenues of approximately $480,000, compared to a net loss of $78.8
million for the first three quarters of 1997.
Teligent's capital investment as of September 30 was $125.3 million, with
investment in property and equipment rising $45.7 million during the third
quarter. The company reported total assets of $797.4 million as of September 30,
with cash and cash equivalents of $509.5 million.
"Because we obtained our financing early, we've secured enough capital
approximately $1.7 billion - to finance our current network buildout plans
through the year 2000," said Teligent Chief Financial Officer Abraham L. Morris.
"We have about $500 million in cash on hand, and we have yet to draw down any of
our $800 million bank credit facility. That puts us in a very strong position as
we move into 1999."
By the end of this year, Morris said, Teligent anticipates that its capital
expenditures will total about $175 million. The company is targeting 1999
capital expenditures of approximately $300 million.
In the past two weeks, Teligent has launched sales and marketing campaigns in 15
markets, highlighting big savings, big bandwidth and a big bundle of service
offerings for small and medium-sized business customers. To date, Teligent has
launched service over its integrated broadband wireless networks in New York,
Los Angeles, Chicago, Houston, Dallas-Forth Worth, San Francisco-Oakland, Miami,
Denver, Washington DC, San Jose, San Antonio, Orlando, Jacksonville, Tampa and
Austin. Those markets comprise nearly 300 cities and towns with a combined
population of 50 million.
A key element of the marketing program is a revolutionary savings offer that
will save customers up to 30 percent off what they are currently paying for
local, long distance and Internet service, transforming their communications
bill into a simple, predictable package.
Teligent is able to make that offer because of the lower cost structure of its
integrated local communications networks, which feature Digital SmartWave(TM)
technology.
"The results of our initial marketing campaign have been phenomenal," said
Teligent President and Chief Operating Officer Kirby G. "Buddy" Pickle. "We have
generated literally thousands of inquiries, and in our markets, the sales force
is working hard to turn these leads into sales."
Teligent has put in place the key systems required to acquire, bill, serve and
satisfy customers, Pickle said. Teligent has been producing and delivering
production bills since June and has deployed a full suite of automation tools to
the sales force. In addition, Teligent has built an advanced set of network
monitoring tools to track more than 250 network elements on a real time basis.
"We're moving from the building phase to the building and implementing stage,"
said Pickle. "As we make that transition, we have a clear advantage. Unlike
other new competitors in the local marketplace, we are focused on the direct
sales of retail communications services over our own local networks. We do not
have a local resale strategy. And we're not wholesalers. And that gives us a
significant leg up."
Teligent has made significant progress so far this year, Pickle said. "We have
Teligent teams working in 30 markets. The Teligent workforce has grown to more
than 1,200, and the sales force numbers 150. That compares to a total workforce
of 830 and a sales force of 68 at the end of the second quarter."
The company has signed leases or option agreements covering access rights to
about 1,600 buildings. It has installed 13 Nortel DMS switches, and has recently
ordered an additional five switches.
The company so far has received authority to offer competitive local telephone
services in 35 states and the District of Columbia, comprising 70 of Teligent's
markets. That compares to 27 markets in which authority had been granted at the
end of 1997.
Teligent also has successfully negotiated interconnection agreements covering 64
markets with all of the major local exchange carriers, including Ameritech, Bell
Atlantic, BellSouth, GTE, Pacific Bell, Southwestern Bell, Sprint (Centel), and
U S WEST. At the end of 1997, Teligent's interconnection agreements covered 25
markets.
Instead of digging up streets and drilling holes in buildings, Teligent delivers
Digital SmartWave(TM) service by installing small antennas on the roofs of
customer buildings. When a customer picks up a telephone, turns on a computer or
activates a videoconference, the signal travels over inside wiring to the
rooftop antenna. The customer building antenna then relays the voice, data or
video signals to a Teligent base station antenna.
The base station antenna gathers signals from a cluster of surrounding customer
buildings, aggregates the signals and then routes them to a Teligent broadband
switching center. At the switching center, Teligent uses ATM (asynchronous
transfer mode) switches and data routers along with Nortel DMS switches to hand
off the traffic to other networks - the public circuit-switched voice network,
the packet-switched Internet, and private data networks.
As it builds its local networks, Teligent is combining the latest in
point-to-multipoint radio technology with more traditional network technology,
including point-to-point fixed wireless and broadband wireline to access its
customers. Point-to-multipoint radio technology offers significant cost savings
because it allows a single base station to serve a large cluster of customer
buildings.
Digital SmartWave(TM) technology is configured to handle both voice and data
traffic with equal ease, ensuring that Teligent can handle today's huge volume
of voice traffic and at the same time is prepared for the anticipated explosion
of data traffic.
Based in Vienna, Va., Teligent, Inc. (NASDAQ: TGNT) is a full-service,
integrated communications company that is offering small and medium-sized
business customers lower-cost local, long distance, high-speed data and
dedicated Internet services over its Digital SmartWave(TM) local networks in 15
major markets. Eventually, Teligent will expand service to 74 major metropolitan
areas throughout the United States. Teligent's offerings of regulated services
are subject to tariff approval.
For more information, visit the Teligent website at: http: www.teligent.com
Teligent is a registered trademark.
Except for any historical information contained herein, the matters discussed in
this press release contain forward-looking statements. While these statements
reflect the company's best current judgment, they are subject to risks and
uncertainties that could cause actual results to vary. These risks and
uncertainties include, but are not limited to, economic, key employee,
competitive, governmental, regulatory and technological factors affecting the
company's growth, operations, markets, products, services, licenses and other
issues discussed in the company's filings with the Securities and Exchange
Commission.
Financial Tables Follow
TELIGENT, INC.
(a development stage company)
STATEMENTS OF OPERATIONS
(unaudited)
(Dollars In Thousands Except Share and Per Share Information)
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- ---------------------------------
1998 1997 1998 1997
-------------------------------- ---------------------------------
Revenues:
Communications services $ 240 $ - $ 480 $ -
Management fees and other services - 1,200 - 2,914
------------------ ---------------- --------------- --------------
Total revenues 240 1,200 480 2,914
Costs and expenses:
Cost of services 25,238 1,161 50,571 2,875
Sales, general and administrative expenses 33,095 13,448 78,552 25,551
Stock-based compensation 6,721 14,062 20,274 51,935
Depreciation and amortization expense 3,389 140 7,042 306
------------------ ---------------- --------------- -------------
Total costs and expenses 68,443 28,811 156,439 80,667
------------------ ---------------- --------------- -------------
Loss from operations (68,203) (27,611) (155,959) (77,753)
Interest and other income 8,970 56 27,236 105
Interest expense (19,313) (645) (47,517) (1,178)
------------------ ---------------- -------------- -------------
Net loss $ (78,546) $ (28,200) $ (176,240) $ (78,826)
================== ================ =============== =============
Net loss per share (2) $ (1.49) $ (0.63) $ (3.35) $ (1.77)
================== ================ =============== =============
Weighted average common shares
outstanding (2) 52,593,151 44,426,299 52,589,921 44,426,299
================== ================ =============== =============
SELECTED FINANCIAL AND OTHER DATA:
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
1998 1997 1998 1997
-------------- -------------- ------------- ------------
EBITDA (1) $ (56,816) $ (12,659) $ (124,776) $ (24,012)
Cash used in operations (29,138) (9,099) (83,122) (22,508)
September, December,
1998 1997
------------- ------------
Cash and cash equivalents $ 509,478 $ 424,901
Total assets 797,385 596,380
Total stockholders' equity 120,543 274,146
Number of employees 1,133 221
(1) EBITDA (earnings before interest, taxes, depreciation and amortization)
excludes noncash charges for stock-based compensation and for amortization of
notes receivable from executives.
(2) Pro forma for the three and nine month periods ended September 30,
1997