SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event
reported): October 29, 1999
RSL Communications, Ltd.
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(Exact name of Registrant as specified in its charter)
Bermuda 333-25749 N/A
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(State or other jurisdiction of (Commission File Number) (I.R.S. Employer
Incorporation or Organization) Identification Number)
Clarendon House
Church Street
Hamilton HM CX Bermuda
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(Address of principal executive offices)
(441) 295-2832
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(Registrant's telephone number)
<PAGE>
ITEM 5. OTHER EVENTS
On October 29, 1999, the Registrant issued a press release regarding its third
quarter consolidated financial results. The press release did not include
certain financial statements, related footnotes and certain other financial
information that will be filed with the Securities and Exchange Commission as
part of the Registrant's Quarterly Report on Form 10-Q. A copy of the press
release is attached hereto as Exhibit 99.1 and is incorporated herein by
reference.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
99.1 Press release dated October 29, 1999.
<PAGE>
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 hereunto duly authorized.
RSL COMMUNICATIONS, LTD.
Date: October 29, 1999 By /s/ Donald R. Shassian
-----------------------------------------
Name: Donald R. Shassian
Title: Chief Operating Officer,
Chief Financial Officer and Treasurer
<PAGE>
Exhibit Index
99.1 Press Release dated October 29, 1999.
EXHIBIT 99.1
FOR: RSL COMMUNICATIONS, LTD.
CONTACT: Financial Community: Jim Magrone
(212) 891-7442
News Media: Alan Garratt
(212) 891-7450
FOR IMMEDIATE RELEASE
RSL COMMUNICATIONS, LTD. REPORTS THIRD QUARTER 1999 RESULTS
- - - - -
POSITIVE EBITDA FOR THE FIRST TIME
$2.1 Million
(Normalized)
Hamilton, Bermuda & New York, NY - October 29, 1999 - RSL Communications,
Ltd. (NASDAQ: RSLC) today announced record results for the third quarter and
first nine months of 1999.
Consolidated revenues for the third quarter 1999 were $368.8 million,
compared to $367.7 million for the second quarter 1999 and $265.9 million for
the third quarter 1998.
Normalized EBITDA(1) for the third quarter 1999 was $2.1 million, which
included normalized EBITDA(1) of $7.7 million from operations in Europe. This
marks the first quarter in the company's history that consolidated EBITDA was
positive.
Itzhak Fisher, President and Chief Executive Officer of RSL COM said, "I
am very proud to report positive consolidated EBITDA for the first time. We
achieved this milestone a short two years after our IPO despite startup
investments in Latin America and Asia as well as expenses attributable to
growing the marketing and product development for deltathree.com. Our business
in Europe is very strong, with sequential revenues up 5%, despite the
traditionally slow summertime vacation period. While revenues were down 10%
sequentially
<PAGE>
in the United States, the decline was, as expected, primarily from the low
margin prepaid and discontinued telemarketing businesses."
"Our reorganization is being successfully implemented on schedule, with
centralized global network and product development organizations aggressively
moving forward to capture the expected benefits of scale and scope. Our
integrated solutions strategy is moving along on target, with 7 countries
offering broadband data products now or by the end of this year, and in all 14
markets in Europe by the end of the first quarter 2000. We have fiber optic
national networks in the USA, Canada, Mexico, Finland, France, and Germany, and
are deploying fiber in the U.K. and Spain. And, we plan to interconnect all of
our European operations with fiber by early next year. This opens up exciting
growth opportunities in data, allows us to bundle voice and data products and
lower our cost structure," said Donald R. Shassian, Chief Operating Officer.
Revenues from operations in Europe, RSL COM's largest market segment, were
$187.0 million in the third quarter 1999, compared to $178.3 million for the
second quarter 1999, a gain of 4.9%, and more than double the $84.7 million
recorded in the third quarter 1998. Revenues from operations in North America
were $132.8 million in the third quarter 1999, compared to $145.2 million in the
second quarter 1999, a decline of 8.5%, and $145.9 million in the third quarter
1998, a decline of 9.0%. Revenues from operations in Asia/Pacific were $47.5
million in the third quarter 1999, compared to $43.3 million in the second
quarter 1999, a gain of 9.8%, and $35.2 million in the third quarter 1998, up
35.2%. Revenues from operations in Latin America and deltathree.com represented
the balance.
Operations in Europe contributed 50.7% of consolidated revenues in the
third quarter 1999 compared to 48.5% in the second quarter 1999 and 31.9% in the
third quarter 1998. RSL COM has successfully shifted more than half of its
revenue stream to the higher growth
<PAGE>
and higher margin European market. Revenues from operations in North America
were 36.0% of consolidated revenues in the third quarter 1999 versus 39.5% in
the second quarter 1999 and 54.8% in the third quarter last year. Revenues from
operations in Asia/Pacific were 12.9% of consolidated revenues in the third
quarter 1999 versus 11.8% in the second quarter 1999 and 13.2% in third quarter
1998. Revenues from operations in Latin America and deltathree.com represented
the balance.
Revenues from higher margin retail customers represented 43.3%, mobile was
26.9%, wholesale was 17.8% and prepaid card was 12.0% of consolidated revenues
in the third quarter 1999. This compares favorably to the second quarter 1999,
when retail revenues were 42.3%, mobile 24.8%, wholesale 18.5% and prepaid card
14.4% of consolidated revenues. In the third quarter last year, retail revenues
were 46.2%, mobile 19.3%, wholesale was 21.1% and prepaid card was 13.4% of
consolidated revenues.
The company had previously announced a special charge of approximately
$32.1 million, primarily for consolidating locations, streamlining operations,
discontinuing certain prepaid calling card plans and exiting the telemarketing
business. These expenses appear in the accompanying third quarter 1999 income
statement as $30.1 million in the Special Charge line item and $2.0 million in
the Cost of Services line item. Additionally, the company recorded non-cash
compensation expense of $2.7 million relating to stock incentive awards
previously granted to employees, primarily at deltathree.com. Upon successful
completion of deltathree.com's planned initial public offering, RSL COM will be
required to record additional non-cash compensation expense.
Cost of services in the third quarter 1999 was $256.1 million (including
$2.0 million of the special charge recorded this quarter), down 0.9% from $258.5
million in the second quarter 1999. The decline in cost of services is primarily
due to a deemphasis of high cost
<PAGE>
products and the termination of operating leases for certain facilities.
Compared to the third quarter 1998, cost of services is up 21.8% from $210.3
million, primarily due to strong growth in minutes.
The consolidated gross margin percentage(2) was 30.6% as reported in the
third quarter 1999, and normalized was 31.1% (excluding the impact of the
special charge), compared to 29.7% in the second quarter 1999 and 20.9% in the
third quarter 1998. RSL COM's European operations showed continued gains in
profitability, with a normalized gross margin of 37.8% in the third quarter
1999, compared to 36.3% in the second quarter 1999, and 21.8% in the third
quarter 1998.
Selling, general and administrative expense, which excludes the special
charge and non-cash compensation charge, was $112.6 million in the third quarter
1999, compared to $113.1 million in the second quarter, and $67.7 million in the
third quarter last year. SG&A expense in the third quarter 1999 declined
slightly, primarily due to the summer vacation period and a reduction in staff
and consolidation of office space.
The Company's normalized EBITDA(1) was $2.1 million in the third quarter
1999, excluding the $32.1 million special charge and the $2.7 million of
non-cash compensation expense incurred primarily by deltathree.com. In the
second quarter 1999, EBITDA was negative $3.9 million, excluding a $2.9 million
non-cash compensation charge. In the third quarter 1998, EBITDA was negative
$12.1 million. Net loss in the third quarter 1999 was $118.9 million, compared
to a loss of $72.9 million in the second quarter 1999 and a net loss of $58.9
million in the third quarter last year. The increase in the Company's net loss
was primarily due to the special charge and non-cash compensation expense, as
well as higher interest, depreciation and amortization expense relative to prior
periods.
Nine Months Results
<PAGE>
Consolidated revenues for the first nine months of 1999 were $1,076.8
million, compared to $564.1 million in the same period of 1998, up 91%. Revenues
from operations in Europe were $517.4 million, or 48.0% of consolidated, for the
first nine months of 1999, compared to $168.7 million, or 29.9% of consolidated,
for the same period in 1998. Revenues from operations in North America were
$426.4 million, or 39.6% of consolidated, for the first nine months of 1999,
compared to $304.8 million, or 54.0% of consolidated, in the same period in
1998. Revenues from operations in Asia/Pacific were $129.8 million, or 12.1% of
consolidated, for the first nine months of 1999, compared to $89.2 million, or
15.8% of consolidated, for the same period last year. Revenues from operations
in Latin America and deltathree.com represented the balance.
For the first nine months of 1999, the normalized EBITDA(1) loss was $9.7
million, excluding the special charges in the third quarter and the non-cash
compensation charges recorded in the second and third quarters, compared to a
$45.6 million EBITDA loss in the same period in 1998. Net loss for the first
nine months of 1999 was $248.7 million, compared to $135.5 million before an
extraordinary charge in 1998.
At September 30, 1999, the Company had $295.9 million of cash and
marketable securities available and total assets were $1.8 billion.
RSL Communications, Ltd., is a global integrated communications provider
with operations on 4 continents in 21 countries that account for 75 percent of
the world's telecommunications traffic. The company provides international
services, including long distance, calling card, private line and other data
services, value-added and Internet-based services for businesses, consumers and
other carriers worldwide. RSL COM also owns deltathree.com, the world's largest
provider of international voice over Internet protocol with 45 points of
presence in 29 countries.
<PAGE>
This press release contains forward looking statements within the meaning of the
"Safe Harbor" provisions of the Private Securities Litigation Reform Act of
1995. These statements are based on management's current expectations or beliefs
and are subject to a number of risks and uncertainties that could cause actual
results to differ materially from those set forth in the forward looking
statements. For a detailed discussion of these cautionary statements, risk
factors and uncertainties, please refer to the Company's recent filings with the
Securities and Exchange Commission.
This release is available on the RSL COM website at www.rslcom.com.
Financial Tables Follow
<PAGE>
RSL Communications, Ltd.
Consolidated Statements of Operations
(In thousands, except per share data)
Unaudited
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
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1999 1998 % Change 1999 1998 % Change
---- ---- -------- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 368,831 $ 265,916 39% $ 1,076,812 $ 564,118 91%
Operating costs and expenses:
Cost of services (256,131) (210,316) 22% (765,009) (462,181) 66%
Selling, general and administrative
expenses (112,573) (67,677) 66% (323,470) (147,494) 119%
Non-cash compensation expense (2,676) -- -- (5,602) -- --
Special charge (30,143) -- -- (30,143) -- --
Depreciation and amortization (46,032) (22,158) 108% (126,115) (43,282) 191%
----------- ----------- ----------- -----------
Operating costs and expenses (447,555) (300,151) 49% (1,250,339) (652,957) 91%
----------- ----------- ----------- -----------
Loss from operations (78,724) (34,235) 130% (173,527) (88,839) 95%
Interest income 5,408 2,405 125% 16,502 13,239 25%
Interest expense (35,546) (18,316) 94% (95,820) (51,646) 86%
Other Income - net 326 241 35% 506 445 14%
Foreign exchange transaction gain
(loss) (3,468) (8,913) -61% 10,560 (10,621) N/A
Minority interest (4,791) 1,594 N/A (3,969) 4,322 N/A
Loss in equity interest of
unconsolidated subsidiaries (1,184) (1,625) -27% (1,560) (1,625) -4%
Income taxes (918) (92) 898% (1,408) (726) 94%
----------- ----------- ----------- -----------
Loss before extraordinary item (118,897) (58,941) 102% (248,716) (135,451) 84%
Extrordinary item -- -- -- (20,800) N/A
----------- ----------- ----------- -----------
Net loss $ (118,897) $ (58,941) 102% $ (248,716) $ (156,251) 59%
=========== =========== =========== ===========
Loss per share of common stock
before extraordinary
item $ (2.17) $ (1.34) 63% $ (4.63) $ (3.17) 46%
Extraordinary item per share of
common stock $ -- $ -- $ -- $ (0.49) N/A
Net loss per share of common stock $ (2.17) $ (1.34) 63% $ (4.63) $ (3.66) 27%
Weighted average number of shares
of common stock outstanding 54,702 44,124 24% 53,676 42,740 26%
EBITDA (1) $ 2,084 $ (12,077) N/A $ (9,710) $ (45,557) -79%
</TABLE>
<PAGE>
Other Operating Data:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------------------- --------------------------------------
1999 1998 % Change 1999 1998 % Change
---- ---- -------- ---- ---- --------
Revenue: (in thousands)
North American $ 132,799 $ 145,851 -9% $ 426,428 $ 304,809 40%
European
- - fixed wire 109,339 49,337 122% 301,250 133,288 126%
- - mobile 77,619 35,384 119% 216,121 35,384 511%
Asia and Other
- - fixed wire 26,102 19,636 33% 73,459 53,108 38%
- - mobile 21,762 15,829 37% 57,338 36,665 56%
deltathree.com (3) 1,210 (121) N/A 2,217 864 157%
Billable Minutes: (in thousands)
North American 778,603 743,132 5% 2,371,999 1,503,890 58%
European
- - fixed wire 568,199 209,447 171% 1,395,184 515,271 171%
- - mobile 111,247 N/A N/A 326,704 N/A N/A
Asia and Other
- - fixed wire 81,880 62,363 31% 203,463 152,852 33%
- - mobile 30,082 20,593 46% 85,786 54,976 56%
deltathree.com 5,602 1,040 439% 13,952 3,071 354%
Consolidated revenue per minute (4)
$ 0.17 $ 0.20 -15% $ 0.18 $ 0.22 -18%
<CAPTION>
Customers as of September 30, 1999 Carrier Business Residential Mobile Total
------- -------- ----------- ------ -----
<S> <C> <C> <C> <C>
North American 117 94,461 42,597 -- 137,175
European 101 77,322 50,078 410,486 537,987
Asia and Other 1 17,928 99,412 101,292 218,633
</TABLE>
<PAGE>
Balance Sheet Data (in thousands):
Sept 30, Dec 31,
1999 1998 % Change
---- ---- --------
Cash and marketable securities -
available for sale $ 295,935 $ 479,371 -38%
Working capital 171,183 255,150 -33%
Total assets 1,802,482 1,714,593 5%
Debt 1,218,604 1,024,830 19%
(1) EBITDA, as used herein, consists of loss from operations before
depreciation and amortization. For the third quarter 1999, normalized
EBITDA excludes $2.0 million charge for inventory write-off recorded in
cost of services in connection with the one-time special charge, the
special charge of $30.1 million to reorganize and streamline operations
and $2.7 million of non-cash compensation expense. The year-to-date 1999
normalized EBITDA excludes non-cash compensation expense of $5.6 million
and $32.1 million of special charges. EBITDA is provided because it is a
measure commonly used in the telecommunications industry. It is presented
to enhance an understanding of the Company's operating results and is not
intended to represent cash flow or results of operations in accordance
with U.S. GAAP for the periods indicated.
(2) Gross margin percentage is defined as revenues less cost of services
divided by revenues.
(3) Excludes services provided to other RSL COM operating companies of
$991,000 for the third quarter 1999 and $4,077,000 for year-to-date 1999.
The third quarter 1998 amount includes a year-to-date adjustment to
eliminate intercompany revenue.
(4) Consolidated revenue per minute consists of consolidated revenues less:
revenues derived from equipment sales, revenues generated from directory
assistance and European mobile and data services, divided by total
billable minutes excluding minutes generated from the Company's European
mobile and data services.
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