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 March 31, 1999.
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
SUITE 400
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 May 7, 1999 was as follows:
Common Stock, Class A 8,316,777
Common Stock, Class B 44,426,299
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
As of March 31, 1999 (unaudited) and December 31, 1998 3
Unaudited Condensed Consolidated Statements of Operations
For the three months ended March 31, 1999 and 1998 4
Unaudited Condensed Consolidated Statements of Cash Flows
For the three months ended March 31, 1999 and 1998 5
Notes to Unaudited Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES
EXHIBIT INDEX
- 2 -
TELIGENT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
March 31, December 31,
1999 1998
----------- -----------
(unaudited)
Assets
Current assets:
Cash and cash equivalents .................... $ 294,438 $ 416,247
Prepaid expenses and other current assets .... 15,246 8,155
Restricted cash and investments .............. 38,155 32,184
--------- ---------
Total current assets ...................... 347,839 456,586
Property and equipment, net ...................... 230,945 180,726
Restricted cash and investments .................. 33,103 33,117
Intangible assets, net .......................... 82,039 83,857
Other assets .................................... 8,792 9,148
--------- ---------
Total assets .............................. $ 702,718 $ 763,434
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable ............................. $ 159,073 $ 135,158
Accrued interest and other ................... 27,026 19,020
--------- ---------
Total current liabilities ................. 186,099 154,178
11 1/2% Senior Notes, due 2007 .................. 300,000 300,000
11 1/2% Series B Discount Notes, due 2008 ....... 283,956 276,058
Other noncurrent liabilities .................... 2,394 2,145
Commitments and contingencies
Stockholders' equity:
Common stock ................................. 527 526
Additional paid-in capital ................... 471,012 463,685
Accumulated deficit .......................... (541,270) (433,158)
--------- ---------
Total stockholders' equity ................ (69,731) 31,053
--------- ---------
Total liabilities and
stockholders' equity ...................... $ 702,718 $ 763,434
========= =========
See notes to condensed consolidated financial statements.
- 3 -
TELIGENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except share and per share information)
Three Months Ended March 31,
1999 1998
------------ -----------
Revenues:
Communications services ................... $ 1,523 $ 98
Costs and expenses:
Cost of services .......................... 34,440 7,384
Sales, general and administrative expenses 45,355 17,911
Stock-based and other noncash compensation 7,864 7,954
Depreciation and amortization ............. 7,396 1,573
------------ ------------
Total costs and expenses ............... 95,055 34,822
------------ ------------
Loss from operations ...................... (93,532) (34,724)
Interest and other income ...................... 5,181 8,095
Interest expense ............................... (19,761) (11,929)
------------ ------------
Net loss before provision for income taxes (108,112) (38,558)
Provision for income taxes ..................... -- --
------------ ------------
Net loss .................................. $ (108,112) $ (38,558)
============ ============
Basic and diluted net loss per share............ $ (2.05) $ (0.73)
============ ============
Weighted average common shares outstanding ..... 52,674,601 52,585,382
============ ============
See notes to condensed consolidated financial statements.
- 4 -
TELIGENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
Three Months Ended March 31,
1999 1998
---------- ----------
Cash flows from operating activities:
Net loss .............................................. $(108,112) $ (38,558)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization .................... 7,396 1,573
Amortization of discount on long-term debt ....... 7,898 2,947
Amortization of debt issue costs ................. 985 262
Other noncurrent liabilities ..................... 249 234
Stock-based and other noncash compensation ....... 7,615 7,954
Other ............................................ (486) (30)
Changes in current assets and current liabilities:
Prepaid expenses and other current assets ..... (7,395) (2,133)
Accounts payable .............................. (1,199) (3,783)
Accrued interest and other .................... 8,006 11,344
--------- ---------
Net cash used in operating activities ...... (85,043) (20,190)
--------- ---------
Cash flows from investing activities:
Restricted cash and investments ..................... (5,958) (1,320)
Purchase of property and equipment .................. (31,546) (9,648)
--------- ---------
Net cash used in investing activities ............ (37,504) (10,968)
--------- ---------
Cash flows from financing activities:
Proceeds from long-term debt ........................ -- 250,703
Debt financing costs ................................ (31) (7,558)
Proceeds from issuance of common stock .............. 769 45
--------- ---------
Net cash provided by financing activities ........ 738 243,190
--------- ---------
Net (decrease) increase in cash and equivalents ....... (121,809) 212,032
Cash and cash equivalents, beginning of period ........ 416,247 424,901
--------- ---------
Cash and cash equivalents, end of period .............. $ 294,438 $ 636,933
========= =========
See notes to condensed consolidated financial statements.
- 5 -
TELIGENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. The Company
Teligent, Inc. ("Teligent" or the "Company"), is a full-service, integrated
communications company offering small and medium sized business customers local,
long-distance, high-speed data and dedicated Internet services over its
SmartWave(TM) local networks. The SmartWave(TM) local networks integrate
point-to-point and point-to-multipoint wireless technologies with traditional
broadband wireline technology.
2. Significant Accounting Policies
Basis of Presentation
---------------------
The unaudited condensed consolidated 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 consolidated 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 ending December 31, 1998
filed with the SEC. The results of operations for the three months ending March
31, 1999 are not necessarily indicative of the results that may be expected for
the full year.
Consolidation
-------------
The condensed consolidated financial statements include the accounts of the
Company and its subsidiaries after elimination of all significant intercompany
transactions.
Reclassifications
-----------------
Certain amounts in the prior periods' financial statements have been
reclassified to conform to the current year's presentation.
3. Supplemental Disclosure of Cash Flow Information
Investing Activities
--------------------
During the three months ended March 31, 1999 and 1998, the Company incurred
capital expenditures of approximately $56.7 million and $50.6 million,
respectively, of which $25.2 million and $40.9 million, respectively, was
accrued, and is not reflected in the accompanying condensed consolidated
statements of cash flows.
- 6 -
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 the Private Securities Litigation Reform Act
of 1995, and should be read in conjunction with the Company's 1998 Annual Report
on Form 10-K. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors including, without limitation, economic, key
employee, vendor, 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.
In this Quarterly Report on Form 10-Q, we refer to Teligent, Inc., a
Delaware corporation, as "Teligent," the "Company," "we," "us," and "our." Where
applicable, such references refer to Teligent's limited liability company
predecessor.
The following discussion should be read in connection with the attached
condensed consolidated financial statements and notes thereto, and with the
Company's audited financial statements and notes thereto as of and for the year
ended December 31, 1998, included in the Company's Form 10-K.
Overview and Results of Operations
- ----------------------------------
Teligent offers small and medium-sized business customers local, long
distance, high-speed data and dedicated Internet services over our SmartWave(TM)
local networks. Our SmartWave(TM) local networks integrate point-to-point and
point-to-multipoint wireless technologies with traditional broadband wireline
technology. By integrating these technologies, we believe we are able to
increase local network efficiency and significantly lower network costs. We are
currently offering commercial service using our SmartWave(TM) local networks in
26 of the nation's largest markets, comprising more than 430 cities and towns
with a combined population of more than 75 million.
From our inception on March 5, 1996, through the initiation of service in
October 1998, our main activities were the acquisition of licenses and
authorizations, the acquisition of building access rights, the hiring of
management and other key personnel, the raising of cash, the development of
operating systems, the negotiation of interconnection agreements and the
acquisition and deployment of our network.
On October 27, 1998, we introduced our integrated package of communication
services, and commenced commercial services in our first ten markets. Since
then, we have initiated communications services in 16 additional markets. We
offer local, long distance, high-speed data and dedicated Internet services for
- 7 -
one flat monthly rate, offering up to 30 percent savings compared to the
customer's existing provider. We expect that the creation of our own digital
networks will give us a lower cost structure than the traditional local
telephone companies, or other competitors that use the existing local networks,
allowing us to pass these savings on to our customers.
Our losses, as well as our negative operating cash flow have been
significant to date, and we expect both to continue until we develop a customer
base that will generate sufficient revenues to fund operating expenses. After we
initiate service in most of our of markets, we expect to have positive operating
margins over time by increasing the number of customers and selling them
additional capacity without significantly increasing related capital
expenditures, costs of building access rights and other operating costs. We
expect that operating and net losses and negative operating cash flow throughout
1999 will increase over 1998 as we begin our first full year providing
commercial service. Our ability to generate positive cash flow in the future
will depend in part on the extent of capital expenditures in current and new
markets, competition in our current market areas and any potential adverse
regulatory developments. Our operations will depend on various financing sources
to fund our growth as well as continued losses from operations. There can be no
assurance that such funding will be available, or available on terms acceptable
to us. See "Liquidity and Capital Resources."
Year 2000
- ---------
An issue affecting Teligent and other companies is whether computer systems
and applications will recognize and process date data for the Year 2000 and
beyond. The "Year 2000 issue" arises primarily because many computer programs
were written using two, rather than four digits to identify the applicable year.
As a result, date-sensitive computer programs may recognize a two-digit code for
a year in the next century as one related to this century. For example, "00,"
entered in a date field for the Year 2000 may be interpreted as the Year 1900,
resulting in system failures or miscalculations and disruption of operations.
We use the term "Year 2000 ready" to describe the status of our systems,
applications, and services. To be considered Year 2000 ready, the system,
application, or service must undergo certain inventory, assessment,
testing/remediation, and/or implementation processes and, to the extent
applicable, be able to read, compute, store, process, display, and print
calendar dates falling before, on, and after December 31, 1999, without material
interruption or degradation of performance, provided that all other products
(for example, hardware, software, and firmware) used in combination with the
system, application, or service are Year 2000 ready.
Our first priority in our Year 2000 effort is to protect mission-critical
operations from material service interruptions that could occur as a result of
the Year 2000 transition. Teligent defines mission-critical operations as those
systems and applications that are vital to the provision of voice, video and
data switching, processing and transport services to our customers. To that end,
in September 1998 management presented a report to the Audit Committee outlining
issues and areas that management felt should be considered in connection with
our preparation of a Year 2000 plan. Around that same time, we appointed a Year
- 8 -
2000 committee to lead the Company-wide effort to assess the scope of our risks
and ensure our applications will function properly. Our Year 2000 committee
consists of senior executives and other key personnel charged with the
responsibility of directing Teligent's Year 2000 activities and facilitating
timely resolution of issues, obstacles and decisions relating to the Year 2000
effort.
Our approach to addressing the Year 2000 challenge is consistent with
industry practice and is organized into four key phases:
o Inventory -- identify related data for any element within the Teligent
enterprise that may be impacted by the Year 2000 date change;
o Assessment -- analyze our Year 2000 exposure based on available
information and determine risks to Teligent's business continuity. Risk is
a factor of the likelihood of Year 2000 problems occurring and the impact
of such occurrences on the Company;
o Test & Remediate -- validate the assessment, determine remediation
approach, and take remediation action if we deem it necessary and
appropriate. Remediation may entail repair, replacement, manual
work-arounds, or, in some cases, no action. In this phase we will develop
mitigation and contingency plans for mission critical aspects of our
business; and
o Implement -- place mitigation and contingency plans into effect in order
of priority based on mission criticality, and, where necessary, validate
remediation action.
For purposes of our Year 2000 efforts, we have divided our operations into
categories or functions: Information Technology; infrastructure; end user
computing; suppliers; facilities and equipment; and products and services. We
have generally completed the Inventory and Assessment phases of our unique
network components from all of our business categories. We have also made
considerable progress in the Testing & Remediation and Implementation phases in
all of our business categories. Our Year 2000 readiness test strategy has been
developed, its test environment is in the final stages of setup, and our Year
2000 readiness test plans are being finalized. The Y2K readiness test is
scheduled to begin on May 17, 1999. We continue to project June 30, 1999, as our
readiness target. The most current update on the status of our Year 2000 project
may be found on our web site -- http://www.teligent.com.
Generally, we contractually require our key vendors and suppliers to
guarantee in writing that they are Year 2000 ready. The majority of our
mission-critical systems have been acquired from third party vendors. We have
identified certain key vendors and contacted those vendors to discuss the
readiness of their respective products. These discussions are ongoing. In the
event that a vendor or supplier is not able to provide satisfactory Year 2000
assurances, we will monitor the vendor's progress in this area and, if
appropriate, may arrange to have available an alternate vendor or supplier who
can give such assurances. Similar to other telecommunications providers, our
products and services are also dependent upon other service and
telecommunications providers. With respect to those providers with which our
systems interface and exchange data, we are initiating or continuing discussions
regarding their Year 2000 readiness.
- 9 -
We have not determined the exact costs and expenses we expect to incur
relating to preparation of our systems for the Year 2000. The principal cost
identified to date is the Company's retention of external consultants together
with the cost of internal resources, both dedicated to Year 2000 program
management, inventory, and assessment efforts, which costs are estimated to be
less than $5 million. Based on current assessments and compliance plans in
process, we do not expect that the Year 2000 issue, including the cost of making
our mission critical systems and applications Year 2000 ready, will have a
material adverse effect on our business operations, consolidated financial
condition, cash flows and results of operations.
Despite our efforts to address the Year 2000 impact on operations, we may
not be able to fully identify such impact or resolve it without disruption to
our business and without incurring significant expense. If appropriate
modifications are not made on a timely basis by our vendors or by other
providers on which we depend, or if our actual costs or timing for our Year 2000
readiness differ materially from our present estimates, Teligent's operations
and financial results could be significantly adversely affected. In particular,
there can be no assurance that the systems of other parties upon which our
business relies will be ready on a timely basis.
Our contingency plans, which are being developed as the inventory and
assessment phases progress, are designed to minimize the disruptions or other
adverse effects resulting from Year 2000 incompatibilities with respect to
mission-critical systems. Our contingency plans contemplate an assessment of all
our critical internal information technology systems and our internal
operational systems that use computer-based controls. In addition, we are
assessing any critical disruptions due to Year 2000-related failures that are
external to Teligent. These processes will begin January 1, 2000, and will
continue as long as circumstances require.
Our contingency plans will include the creation of teams that will be
prepared to respond immediately and as necessary to critical Year 2000 problems
as soon as they become known. The composition of teams that are assigned to deal
with such problems will vary according to the nature, significance, and location
of the problem.
Three Months Ended March 31, 1999 Compared to Three Months Ended March 31, 1998
- -------------------------------------------------------------------------------
We generated revenue from communications services of approximately $1.5
million for the three months ended March 31, 1999, reflecting our first full
quarter of commercial operations, compared with approximately $98,000 for the
three months ended March 31, 1998.
Cost of services, consisting primarily of personnel-related costs,
telecommunications expenses, and site rent and site acquisition expenses related
to network operations, was approximately $34.4 million for the three months
ended March 31, 1999, compared with approximately $7.4 million for the
corresponding period in 1998.
Sales, general and administrative expenses, consisting primarily of
headcount-related costs, were approximately $45.4 million for the three months
ended March 31, 1999, compared with approximately $17.9 million for the
corresponding period in 1998.
- 10 -
Stock-based and other noncash compensation expense was approximately $7.9
million for the three months ended March 31, 1999 and 1998. Depreciation and
amortization for the three months ended March 31, 1999 increased to
approximately $7.4 million, compared with approximately $1.6 million for the
corresponding period in 1998, due primarily to higher capital expenditures.
Depreciation expense will increase in future quarters as we continue to add
fixed assets.
Interest and other income for the three months ended March 31, 1999, was
approximately $5.2 million, compared with approximately $8.1 for the
corresponding period in 1998. This decrease was primarily the result of interest
earned on decreased levels of cash and investments in 1999 compared to 1998.
Interest expense for the three months ended March 31, 1999 was
approximately $19.8 million compared with approximately $11.9 million for the
corresponding period in 1998. This increase was due to recognizing interest
expense on the 11 1/2% Series B Discount Notes due 2008, issued in February
1998.
Liquidity and Capital Resources
- -------------------------------
Credit Facility
- ---------------
On July 2, 1998, we entered into a credit agreement (the "Bank Credit
Agreement") providing for credit facilities up to an aggregate of $800 million
(the "Credit Facility"). The Credit Facility will primarily be used for the
purchase of telecommunications equipment, software and services and is also
available for working capital and general corporate purposes. Availability of
funds under the Credit Facility is subject to certain conditions as defined in
the Bank Credit Agreement. As of March 31, 1999, we had no outstanding loan
balance under the Credit Facility. We currently anticipate drawing down
approximately $200 million under the Credit Facility by mid-year and may make
additional draw-downs if required later in the year.
Historical Cash Flows
- ---------------------
At March 31, 1999, we had working capital of approximately $161.7 million
and unrestricted cash and cash equivalents of approximately $294.4 million,
compared to working capital of approximately $302.4 million and cash of
approximately $416.2 million at December 31, 1998. The decrease in working
capital is primarily a result of lower cash levels and an increase in accounts
payable to vendors as we implement our growth strategy. We will need a
significant amount of cash to build our networks, market our services and cover
operating expenditures. Although we anticipate our existing cash and cash
equivalents on hand together with the Credit Facility will provide enough money
to carry out our current business plan through the year 2000, our management
continually evaluates potential financing options.
Our total assets decreased from approximately $763.4 million as of December
31, 1998 to approximately $702.7 million at March 31, 1999, due primarily to
lower levels of cash and cash equivalents. Property and equipment, net of
accumulated depreciation, comprised approximately $230.9 million at March 31,
1999 compared to approximately $180.7 million at December 31, 1998.
- 11 -
We used cash in operations of approximately $85 million for the three
months ended March 31, 1999, due primarily to the operating loss for the period
reduced by stock-based and other noncash compensation, depreciation and
amortization, and other charges. For the same period in 1998, we used cash in
operations of approximately $20.1 million, due primarily to the operating loss
for the period offset primarily by stock-based and other noncash compensation.
We used cash in investing activities of approximately $37.5 million for the
three months ended March 31, 1999 consisting of approximately $31.6 relating to
the purchase of property and equipment and approximately $5.9 million relating
to the purchase of certificates of deposit used to secure letters of credit. For
the same period in 1998, we used approximately $11.0 million in investing
activities relating primarily to the purchase of property and equipment.
Cash flows provided by financing activities for the three months ended
March 31, 1999 were approximately $0.7 million, consisting primarily of proceeds
from the exercise of employee stock options. For the same period in 1998, cash
flows from financing activities were approximately $243.2 million consisting
primarily of net proceeds from the offering of the 11 1/2% Series B Discount
Notes, after costs of approximately $7.6 million.
- 12 -
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Index
(b) Reports on Form 8-K
None
- 13 -
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: May 14, 1999 By: /s/ Abraham L. Morris
---------------------
Abraham L. Morris
Senior Vice President, Chief Financial Officer
and Treasurer (Principal Financial Officer)
Date: May 14, 1999 By: /s/ Cindy L. Tallent
---------------------
Cindy L. Tallent
Vice President and Controller
(Principal Accounting Officer)
EXHIBIT INDEX
Exhibit No. Description of Exhibit
- ----------- ----------------------
27 Financial Data Schedule for the three months ended March 31, 1999
(filed only electronically with the Securities and Exchange
Commission).
99.1 Press release of Teligent, Inc. dated May 12, 1999 (filed herein).