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 Contact:

  Chris Reid
  732.509.9160
  [email protected]


FOR IMMEDIATE RELEASE

Arbinet Announces 2004 Financial Results

Company Reports Record Q4 Fee Revenues of $12.5 Million
Achieves Q4 Adjusted Net Income of $2.5 Million

New Brunswick, NJ – February 17, 2005 – Arbinet-thexchange, Inc. (NASDAQ: ARBX), the world’s leading electronic market for trading, routing, and settling communications capacity, reported record financial results for its fourth quarter and full year ended December 31, 2004.

Fourth quarter 2004 fee revenues were $12.5 million, an increase of 41% over the $8.9 million in the fourth quarter 2003. Fourth quarter 2004 net income was $6.0 million, an increase of 350% over the $1.3 million in the fourth quarter 2003. The fourth quarter 2004 included a charge for litigation settlement and related legal expenses of $3.4 million and a one-time gain of $7.2 million and non-cash interest expense of $0.4 million associated with a series of preferred stock that was redeemed in connection with Arbinet’s December 2004 initial public offering. Fourth quarter adjusted net income was $2.5 million, an increase of 89% over the $1.3 million in the fourth quarter 2003.

For the full year 2004, Arbinet generated fee revenues of $44.7 million, an increase of 32% over the $34.0 million in 2003. Full year net income was $7.9 million, compared to a five thousand dollar net loss in 2003. Full year 2004 adjusted net income was $6.5 million, compared to a five thousand dollar adjusted net loss in 2003.

"Our strong fourth quarter results highlight Arbinet’s solid growth throughout the year," said Curt Hockemeier, Arbinet’s president and chief executive officer. "Communications providers’ desire to better manage operating costs and improve margins continues to create a strong value proposition for our services as well as new services in development. I am proud of what the Arbinet team has accomplished in 2004 and I look forward to working with our team to deliver the best value we can for all of our members around the world in 2005."

Operating Metrics

Members – Arbinet ended 2004 with 360 Members of its voice exchange, 26% more than the 285 Members at end of year 2003.

Minutes volume – Arbinet Members bought and sold 3.0 billion and 10.5 billion minutes on Arbinet’s marketplace in the fourth quarter and full year 2004 respectively, up 43% and 31% from 2.1 billion and 8.0 billion minutes in the fourth quarter and full year 2003 respectively.

Other Developments

Scott Blackwell recently joined Arbinet as senior vice president sales, with responsibility for voice and data. He was most recently executive vice president sales at Totality, a leading provider of customer infrastructure management. Prior to Totality, Mr. Blackwell was vice president of Eastern U.S. sales at Exodus Communication, an Internet system and network management solutions company.

Business Outlook

For the full year 2005, Arbinet expects fee revenues to be within the range of $58 million to $64 million, and net income to be within the range of $19 million to $23 million, excluding any effects for FASB 123 (R) Share-Based Payment, that requires companies to expense the value of employee stock options.

Quarterly Conference Call

Arbinet will host a conference call to discuss fourth quarter and full year 2004 results at 5:00 p.m. Eastern Standard Time today. A live webcast of the conference call can be accessed through the company’s Investor Relations website at http://investor.arbinet.com. In addition, an archive of the webcast will be accessible through the same link.

About Adjusted Net Income

To supplement our consolidated financial statements in accordance with generally accepted accounting principles (GAAP), Arbinet uses adjusted net income which is adjusted from net income to exclude certain items. The adjusted net income is provided to enhance an overall understanding of our current financial performance. We have excluded items which are either non-recurring or unusual in nature. Adjusted net income is not intended to be considered in isolation from, or as a substitute for, financial results prepared in accordance with GAAP. The accompanying tables have more details on Arbinet’s net income and the reconciliation to adjusted net income.

About Arbinet

Arbinet is the leading electronic market for trading, routing and settling communications capacity. Members of the exchange, consisting primarily of communications service providers, anonymously buy and sell voice calls and Internet capacity based on route quality and price through its centralized, efficient and liquid marketplace. Members place orders through a web-based interface. Its fully automated, highly scalable trading platform matches these orders using proprietary software and delivers them through state-of-the-art facilities.

Forward-Looking Statements

This press release contains "forward-looking statements" (within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended), including statements about the Company’s growth and future operating results. Various important risks and uncertainties may cause the Company’s actual results to differ materially from the results indicated by these forward-looking statements, including: members (in particular, significant trading members) not trading on our exchange or utilizing our new and additional services (including data on thexchange and mobile on thexchange services); our uncertain and long member enrollment cycle; the failure to manage our credit risk; failure to manage our growth; competitive factors; system failures, human error and security breaches could cause the Company to lose members and expose it to liability; future government regulation; and the Company’s ability to obtain and enforce patent protection for our methods and technologies. For a further list and description of the risks and uncertainties the Company faces, please refer to the Registration Statement on Form S-1 it has filed with the Securities and Exchange Commission. The Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

 

CONSOLIDATED STATEMENTS OF OPERATIONS
         
    Three Months Ended December 31,
    2003   2004
         
Trading revenues   $ 97,495,070   $133,175,192
Fee revenues   8,917,075   12,536,770
    Total revenues   106,412,145   145,711,962
    Cost of trading revenues   97,495,371   132,892,935
    8,916,774   12,819,027
         
Costs and expenses        
    Operations and development   2,732,729   3,893,634
    Sales and marketing   1,123,110   1,736,565
    General and administrative   2,078,552   2,728,937
    Depreciation and amortization   1,368,515   2,549,672
    Litigation settlements       2,825,021
        Total costs and expenses   7,302,906   13,733,829
         
Income from operations   1,613,868   (914,802)
         
Interest income   76,930   92,192
Interest expense   (365,600)   (610,783)
Other income, net   6,088   7,427,259
         
Net income   $ 1,331,286   $ 5,993,866
Preferred stock dividends and accretion   (1,899,359)   (1,500,726)
Net (loss) income attributable to common stockholders   $ (568,073)   $ 4,493,140
         
Earnings per share        
    Basic   $ (0.28)   $ 0.72
    Diluted   $ (0.28)   $ 0.54
    Pro forma diluted   $ 0.06   $ 0.27
         
Weighted average number of common shares        
    Basic   2,049,025   6,210,720
    Diluted   2,049,025   8,251,519
    Pro forma diluted   21,331,892   22,472,359
         
Adjusted net income (1):        
Net income   $ 1,331,286   $ 5,993,866
    Add: Litigation settlements     2,825,021
    Add: Litigation settlements       561,267
    Less: Gain on payback of Series B preferred stock     (7,223,766)
    Add: Non cash interest expense     353,304
         
Adjusted net income:   $ 1,331,286   $ 2,509,692

(1) To supplement our consolidated financial statements in accordance with generally accepted accounting principles (GAAP), Arbinet uses adjusted net income which is adjusted from net income to exclude certain items. The adjusted net income is provided to enhance an overall understanding of our current financial performance. We have excluded items which are either non-recurring or unusual in nature. Adjusted net income is not intended to be considered in isolation from, or as a substitute for, financial results prepared in accordance with GAAP.

 

CONSOLIDATED STATEMENTS OF OPERATIONS
         
    Year Ended December 31,
    2003   2004
         
Trading revenues   $ 369,989,619   $475,231,245
Fee revenues   33,958,652   44,734,469
    Total revenues   403,948,271   519,965,714
    Cost of trading revenues   369,972,234   474,916,419
    33,976,037   45,049,295
         
Costs and expenses        
    Operations and development   10,881,862   13,437,734
    Sales and marketing   4,712,839   5,673,789
    General and administrative   9,588,015   9,344,634
    Depreciation and amortization   7,203,682   9,266,416
    Litigation settlements     3,675,021
       Total costs and expenses   32,386,398   41,397,594
         
Income from operations   1,589,639   3,651,701
         
Interest income   341,786   287,671
Interest expense   (1,967,795)   (2,792,323)
Other income, net   31,779   6,717,593
         
Net income (loss)   $ (4,591)   $ 7,864,642
Preferred stock dividends and accretion   $ (8,005,573)   (6,678,541)
Net (loss) income attributable to common stockholders   $ (8,010,164)   $ 1,186,101
         
Earnings per share        
    Basic   $ (4.13)   $ 0.35
    Diluted   $ (4.13)   $ 0.21
    Pro forma diluted   $ (0.00)   $ 0.36
         
Weighted average number of common shares        
    Basic   1,940,835   3,367,848
    Diluted   1,940,835   5,629,615
    Pro forma diluted   18,931,969   21,924,391
         
Adjusted net income (loss) (1):        
Net income (loss)   $ (4,591)   $ 7,864,642
    Add: Litigation settlements     3,675,021
    Add: Legal expenses associated with litigation settlements       561,267
    Less: Gain on payback of Series B preferred stock     (7,223,766)
    Add: Non cash interest expense     1,610,674
         
Adjusted net income (loss):   $ (4,591)   $ 6,487,838

(1) To supplement our consolidated financial statements in accordance with generally accepted accounting principles (GAAP), Arbinet uses adjusted net income which is adjusted from net income to exclude certain items. The adjusted net income is provided to enhance an overall understanding of our current financial performance. We have excluded items which are either non-recurring or unusual in nature. Adjusted net income is not intended to be considered in isolation from, or as a substitute for, financial results prepared in accordance with GAAP.

 

CONSOLIDATED BALANCE SHEETS
         
    As of December 31,
    2003 2004
Assets        
    Current Assets:        
Cash and cash equivalents   $ 17,147,245   $ 53,532,660
Trade accounts receivable, net   19,177,272   27,351,810
Other current assets   1,882,732   2,369,746
    Total current assets   38,207,249   83,254,216
         
Property and equipment, net   22,072,904   24,689,053
Security deposits   2,562,396   2,469,970
Intangible assets, net     1,862,772
Goodwill     2,170,236
Other assets   685,318   420,693
    Total Assets   $ 63,527,867   $ 114,866,940
         
Liabilities & Stockholders’ Equity (Deficit)        
    Current Liabilities:        
Loan payable – current portion $ 4,214,277   $ 765,658
Capital lease obligations-current portion   2,736,693   1,158,365
Accounts payable   10,966,151   15,645,826
Deferred revenue   3,609,494   4,314,006
Accrued expenses and other current liabilities   6,477,995   9,209,488
    Total current liabilities   28,004,610   31,093,343
         
Loan Payable – long term 8,717,640   910,321
Capital Lease – long-term   1,967,277   808,860
Other long-term liabilities 7,566,225   6,580,791
    Total Liabilities   46,255,752   39,393,315
         
Series A-1 Preferred Stock   8,213,275  
Series B and B-1 Preferred Stock   20,838,090  
Series C-1 Preferred Stock   20,838,090  
Series E Preferred Stock   43,536,702  
Series E-1 Preferred Stock   10,375,854  
         
Commitments & Contingences    
         
Stockholders’ Equity (Deficit)        
    Series D Preferred Stock   1,196  
    Series D-1 Preferred Stock   57,235  
    Common Stock   2,188   24,584
    Additional Paid-In Capital   22,453,176   176,309,056
    Stockholders’ loans   (1,426,272)  
    Deferred Compensation   (244,838)   (160,707)
    Accumulated other comprehensive loss   (433,751)   (350,571)
    Accumulated Deficit   (106,938,830)   (99,074,188)
    Treasury Stock     (1,274,549)
        Total Stockholders’ Equity (Deficit)   (86,529,896)   75,473,625
            Total Liabilities & Stockholders’ Equity (Deficit)   $ 63,527,867   $ 114,866,940

 

120 Albany St. Tower II, Suite 450, New Brunswick, NJ 08901
phone: 732-509-9100, fax: 732-509-9101

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