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Genesys Conferencing Reports Second Quarter 2004 Results; Centralization of Major Functional Groups and Senior Management in North America
RESTON, Va. & MONTPELLIER, France --(Business Wire)-- Aug. 10, 2004 -- Increased Financial Flexibility Through Amendment to Existing Credit Facility
Genesys Conferencing (Euronext 3955) (NASDAQ: GNSY), a global multimedia conferencing leader, today reported financial results (unaudited) for the second quarter ended June 30, 2004. All results are reported under French Generally Accepted Accounting Principles (GAAP). Genesys also announced the centralization of its global operations and senior management at the company's Reston operations center near Washington, D.C., and the modification of the principal repayment schedules for 2004 to 2008 under its existing credit facility.
"Over the past two years, we have taken the major steps necessary to compete effectively in the global conferencing marketplace. Our centralization of senior management in North America marks a milestone in our evolution towards a more efficient and functionally aligned structure. It also increases our proximity to the greatest number of large enterprises we are targeting and to the many Fortune 500 companies which are already our customers," stated Francois Legros, Chairman and Chief Executive Officer. "In addition, the reduction of our principal repayments through 2006 provides us with additional financial flexibility to successfully execute our growth strategy." -0- *T Second Quarter 2004 Operating Results ------------------------------------- (in millions) USD(1) EUR ------ --- Revenue Q2 2004 $43.0 EUR 35.7 Q2 2003 $48.1 EUR 42.3 Change % -10.6% -15.6% EBITDA(2) Q2 2004 $ 7.0 EUR 5.8 Q2 2003 $12.5 EUR 11.0 Change % -44.3% -47.4% *T
Total call volume increased to 361.1 million minutes in the second quarter of 2004, up 6.6% from the prior year. Automated services call volumes were up 15.4% from the second quarter of 2003, representing approximately 73.7% of total revenue in the second quarter of 2004 compared to 64.6% in the second quarter of 2003.
For the second quarter of 2004, revenue was EUR 35.7 million, a 15.6% decrease compared to 2003 second quarter revenue of EUR 42.3 million. In U.S. dollars, revenue was $43.0 million, a 10.6% decrease compared to $48.1 million of revenue in the second quarter of 2003. Gross margin declined to 62.8% in the second quarter of 2004 compared to 66.4% in the previous year's second quarter. Revenue and gross margin results reflected price erosion and the continued migration to lower-priced, automated conferencing services. Although automated conferencing services generate higher margins, this was partially offset by the increase in volumes generated by large enterprise customers, which traditionally have lower margins.
Selling, general and administrative expenses, excluding non-recurring charges, were EUR 19.1 million in the second quarter of 2004 compared to EUR 20.3 million in the second quarter of 2003.
Earnings before interest, taxes, depreciation and amortization (EBITDA(2)), before non-recurring charges in the second quarter of 2004, were EUR 5.8 million as compared to EUR 11.0 million in the same period last year. In U.S. dollars, EBITDA, before non-recurring charges, was $7.0 million for the second quarter of 2004 compared to $12.5 million in the same period last year. EBITDA for the second quarter of 2004 excludes non-recurring charges of approximately EUR 2.0 million primarily incurred with the concentration of major functional groups at the company's operating center in the Dulles Technology Corridor near Washington, D.C.
The company on a regular basis re-evaluates the carrying value of its long-lived assets, consisting primarily of goodwill and intangible assets. Reflecting the current industry environment, including price erosion, a non-cash reduction of EUR 57.3 million in the carrying value of intangible and other long-lived assets was recorded in the second quarter of 2004 as a result of this assessment. This includes the complete write-off of goodwill associated with North America. Primarily as a result of this non-cash reduction, the company reported a net loss of EUR 61.4 million in the second quarter of 2004 as compared to net income of EUR 0.9 million in the second quarter of 2003.
As of June 30, 2004, the company's net cash(3) was EUR 14.2 million, down from EUR 21.2 million of net cash at March 31, 2004. The change in net cash included EUR 7.3 million of scheduled principal repayments in April 2004 made under the company's $125 million credit facility.
Centralization of Senior Management in North America
In connection with its overall strategy to enhance productivity, manage costs and maximize opportunities for growth in the global enterprise market, Genesys announced that it will complete a multi-phase operational restructuring in the fourth quarter of 2004. Senior executives, along with the majority of the company's finance, legal and administration departments, will be centralized in the Dulles Technology Corridor near Washington, D.C., at its global production center in Reston, Virginia. Over 60% of the company's volume is generated in North America and nearly 55% percent of its 1,000 employees are based in North America. Genesys' local sales and technology presence will remain unchanged in the 21 countries in which the company serves its customers.
Credit Facility Amendment
Last week, the company amended its $125 million credit facility entered in April 2001 and rescheduled its principal repayments for the third quarter of 2004 and the years 2005 and 2006 to defer approximately $26.8 million to 2008.
Annual principal repayments will now be made as follows: -0- *T Repayment Installments (USD Million) Term Repayment ---------------------- Current Amended ---------------------------------------------------------------------- 2004 (October semi-annual payment) $11.0 $8.3 ---------------------------------------------------------------------- 2005 22.0 12.0 ---------------------------------------------------------------------- 2006 30.0 16.0 ---------------------------------------------------------------------- 2007 22.3 22.3 ---------------------------------------------------------------------- 2008 23.0 56.3 ---------------------------------------------------------------------- *T
The interest rate under the credit facility remains unchanged with the exception of the $26.8 million repayment postponed to October 31, 2008, for which the margin will be increased by 50 basis points on December 31, 2004.
The credit facility's financial ratios, now including consolidated EBITDA ratios, were amended to reflect the company's revised business plan and cash flow projections. Further, in the event the company falls short of certain financial ratio levels, it was provided with the additional flexibility to implement one or more curative actions. These curative actions may include, but are not limited to, a capital increase or rights offering, new financial indebtedness, a bond issuance or other debt or hybrid securities, merger transactions or divestitures, or a tender offer for the shares of the company if approved by the company's board of directors and the senior secured lenders. All measures would also require any necessary authorizations of the company's board and shareholders in accordance with French law.
Guidance
Due to the competitive and rapidly changing business environment, Genesys is withdrawing its previously issued revenue and EBITDA guidance for fiscal 2004. The company currently expects revenue and EBITDA to be seasonally weak during the third quarter of 2004. In the fourth quarter of 2004, the company expects revenue to be stable as compared with the revenue in the fourth quarter of 2003, excluding any volatility in foreign exchange rates. The company further expects EBITDA margins for the fourth quarter of 2004 to be approximately twenty percent.
(1) USD amounts were calculated using the average quarterly exchange rate.
(2) See attached note to consolidated statements of operations for reconciliation of operating income and EBITDA. (French GAAP)
(3) Net cash is equivalent to cash and cash equivalents less bank overdrafts.
Conference Call and Webcast
Chief Executive Officer Francois Legros and Executive Vice President/Chief Financial Officer Michael E. Savage will host a conference call on Tuesday, August 10, 2004, at 5:30 p.m. Central European Time or 11:30 a.m. Eastern Daylight Time to discuss second quarter 2004 financial results.
The conference call will be webcast live and may be accessed at www.genesys.com.
A replay of the call will be available at www.genesys.com.
Impact of Exchange Rates
Our acquisitions have expanded our international operations and thus increased our exposure to exchange rate fluctuations, in particular the U.S. dollar. In 2003, the U.S. dollar declined significantly compared to the euro, and its value has remained weak during 2004. As a result, the comparability of our revenues and results of operations expressed in euros were significantly impacted.
We prepare our consolidated financial statements in euros. In order to demonstrate the impact of the decline of the U.S. dollar on our revenues from the second quarter 2003 to the second quarter 2004, we have recalculated our revenues as if our functional currency had been the U.S. dollar rather than the euro. For this purpose, we have used the average for each quarter of the daily euro/U.S. dollar exchange rates for the second quarters of 2003 and 2004, respectively, which are the rates we used for translation purposes in our consolidated income statement.
We believe that this analysis is useful because the majority of our revenues were actually earned in U.S. dollars. However, the change in our U.S. dollar revenues also reflects the mechanical impact of exchange rate differences on the portion of our consolidated revenues earned in euros.
Forward-Looking Statements
This release contains statements that constitute forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements other than historical information or statements of current condition. These statements appear in a number of places in this release and include statements concerning the parties' intent, belief or current expectations regarding future events and trends affecting the parties' financial condition or results of operations. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and actual results may differ materially from those in the forward-looking statements as a result of various factors. Some of these factors are described in the Form 20-F that was filed by Genesys with the Securities and Exchange Commission on April 28, 2004. Although management of the parties believe that their expectations reflected in the forward-looking statements are reasonable based on information currently available to them, they cannot assure you that the expectations will prove to have been correct. Accordingly, you should not place undue reliance on these forward-looking statements. In any event, these statements speak only as of the date of this release. Except to the extent required by law, the parties undertake no obligation to revise or update any of them to reflect events or circumstances after the date of this release, or to reflect new information or the occurrence of unanticipated events.
About Genesys Conferencing
Genesys Conferencing is a leading provider of integrated Web, voice and video conferencing services to over 18,000 clients worldwide, including 200 of the Fortune 500. The company's services are designed to meet the full range of communication needs within the global enterprise, from small, collaborative team meetings to large, high-profile online events. The company's flagship product, Genesys Meeting Center, provides a single-platform multimedia conferencing solution that is easy to use and available on demand. With offices in 21 countries across North America, Europe and Asia Pacific, the company offers an unmatched global presence and strong local support. Genesys Conferencing is listed on the Nouveau Marche in Paris (Euronext: 3955) and Nasdaq (GNSY). Additional information is available at www.genesys.com. -0- *T GENESYS CONFERENCING Consolidated Balance Sheets (French GAAP) (In thousands of euros, except share data) ---------------------------- December 31, June 30, 2003 2004 unaudited ---------------------------- ASSETS Fixed assets ------------ Goodwill, net EUR 54,992 EUR 18,210 Intangible assets, net 47,504 21,736 Tangible assets, net 22,014 20,258 Financial assets, net 1,255 1,488 Investments in affiliated companies 141 178 ------------- ------------- Total fixed assets 125,906 61,870 Current assets Inventory 29 22 Accounts receivable, less allowances (EUR 2,537 and EUR 2,417 at December 31, 2003 and June 30, 2004, respectively) 30,206 29,051 Deferred tax assets 840 236 Other current assets 10,600 6,988 Prepaid expenses and deferred charges 4,858 4,332 Marketable securities 9,614 5,556 Cash at bank 12,094 11,516 ------------- ------------- Total current assets 68,241 57,701 ------------- ------------- Total assets EUR 194,147 EUR 119,571 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Shareholders' equity Ordinary shares, nominal value of EUR 1 per share 18,307,756 shares issued and outstanding at December 31, 2003 and June 30, 2004 EUR 18,308 EUR 18,308 Common shares to be issued 140 140 Additional paid-in capital 185,080 185,080 Additional paid-in capital to be issued 3,844 3,809 Accumulated deficit (137,950) (174,470) Net loss for the period (36,544) (65,478) Currency translation adjustments 15,945 14,754 ------------- ------------- Total shareholders' equity 48,823 (17,857) Provisions for risks and charges 5,558 5,044 Long-term debt Long-term portion of long term debt 82,445 80,407 Long-term portion of capitalized lease obligations 298 114 ------------- ------------- Total long-term debt 82,743 80,521 Current liabilities Bank overdrafts 3,850 2,904 Accounts payable and accrued liabilities 14,353 14,395 Tax payable and deferred compensation 15,611 15,746 Current portion of long-term debt 19,144 15,407 Current portion of capitalized lease obligations 572 470 Deferred revenue 88 108 Other liabilities 3,405 2,833 ------------- ------------- Total current liabilities 57,023 51 863 ------------- ------------- Total liabilities and shareholders' equity EUR 194,147 EUR 119,571 ========== ========== GENESYS CONFERENCING Unaudited Consolidated Statements of Operations (French GAAP) (Unaudited - in thousands of euros, except share data) Three months ended Six months ended June 30, June 30, ----------------------- ----------------------- 2003 2004 2003 2004 ----------- ----------- ----------- ----------- Revenue: Services EUR 42 125 35 667 EUR 87 696 EUR 71.707 Products 145 23 228 201 ----------- ----------- ----------- ----------- 42 270 35 690 87 924 71 908 Cost of revenue: Services 14 113 13 275 30 860 27 005 Products 85 15 144 43 ----------- ----------- ----------- ----------- 14 198 13 290 31 004 27 048 ----------- ----------- ----------- ----------- Gross Profit 28 072 22 400 56 920 44 860 Operating expenses: Research and development 1 053 962 2 085 2 083 Selling and marketing 10 484 10 021 19 160 18 987 General and administrative 9 186 8 799 20 987 18 850 Restructuring charge - 1 550 - 2 089 Amortization and impairment of intangible assets 2 390 23 625 4 784 25 249 ----------- ----------- ----------- ----------- 23 113 44.957 47 016 67 258 ----------- ----------- ----------- ----------- Operating income / (loss) 4 959 (22.557) 9 904 (22.398) Financial expenses, net (2 099) (1 035) (3 829) (3 068) Equity in income of affiliated companies 11 6 15 37 Income tax expense (1 101) (1 152) (2 041) (2 105) Amortization and impairment of goodwill (908) (36.617) (2 506) (37.944) ----------- ----------- ----------- ----------- Net income/(loss) EUR 862 (61.355) EUR 1 543 EUR(65.478) =========== =========== =========== =========== Basic net income/(loss) per share EUR 0.06 EUR (3.34) EUR 0.10 EUR (3.56) ======= ======= ======= ======= Diluted net income/(loss) per share EUR 0.05 EUR (3.34) EUR 0.10 EUR (3.56) ======= ======= ======= ======= Number of outstanding shares used in computing basic net income/(loss) per share 15 547 280 18 372 841 15 547 280 18 372 841 Number of outstanding shares used in computing diluted net income/(loss) per share 16 099 468 18 372 841 16 099 468 18 372 841 GENESYS CONFERENCING Notes to the Consolidated Financial Statements (unaudited) (In thousands of Euros) NOTE A- EBITDA Three months ended Six months ended calculation June 30, June 30, 2003 2004 2003 2004 ------- -------- ------- -------- Operating income (loss) EUR 4 959 EUR (22 557) EUR 9 904 EUR (22.398) Amortization of deferred acquisition and deferred financing costs 382 257 777 504 Amortization of intangible assets 2 390 23 625 4 784 25 249 Depreciation and provisions 3 324 2 453 6 628 5 378 ------------------------------------------------------- EBITDA (1) EUR 11 055 EUR 3 778 EUR 22 093 EUR 8 733 Restructuring charge 1 550 2 089 Other non recurring charges 22 476 22 1 881 ------------------------------------------------------- EBITDA before non-recurring items EUR 11 077 EUR 5 804 EUR 22 115 EUR 12 703 ======================================================= NOTE B- DETAIL OF Three months ended Six months ended FINANCIAL June 30, June 30, EXPENSES, NET 2003 2004 2003 2004 ------- -------- ------- -------- Interest and other financial income EUR 16 EUR 32 EUR 478 EUR 286 Foreign exchange gains 12 735 2 362 2 795 ------------------------------------------------------- Total financial income 28 767 2 840 3 081 Interest and other financial expenses 1 286 1 312 4 228 2 826 Foreign exchange losses 841 490 2 441 3 323 ------------------------------------------------------- Total financial charges 2 127 1 802 6 669 6 149 ------------------------------------------------------- Financial expenses, net EUR (2 099) EUR (1 035) EUR (3 829) EUR (3 068) ======================================================= NOTE C- DETAIL OF Three months ended Six months ended INCOME June 30, June 30, TAX EXPENSE 2003 2004 2003 2004 ------- -------- ------- -------- Deferred tax expense EUR 17 EUR (27) EUR (31) EUR (546) Income tax expense (1 118) (1 125) (2 010) (1 559) ------------------------------------------------------- Total income tax expense EUR (1 101) EUR (1 152) EUR (2 041) EUR (2 105) ------------ ======================================================= NOTE D- DETAIL December 31, June 30, ACCOUNTS 2003 2004 RECEIVABLES, NET ------------ ------------ Billed portion of accounts receivables, net EUR 23,462 EUR 23,701 Un-billed portion of accounts receivables, net 6,744 5,350 ------------------------------------- Total accounts receivables, net EUR 30,206 EUR 29,051 ------------------------------- =========== ============ *T
(1) We believe that EBITDA is a meaningful measure of performance, because it presents our results of operations without the potentially volatile impact (which can be substantial) of goodwill impairment and the non-cash impacting nature of depreciation and amortization.
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