SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
--------------------------
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): April 28, 1999
KMC TELECOM HOLDINGS, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 333-50475 22-3545325
(State or Other (Commission (I.R.S. Employer
Jurisdiction File Number) Identification No.)
of Incorporation)
KMC Telecom Holdings, Inc.
1545 Route 206, Suite 300
Bedminster, New Jersey 07921
(Address of Principal Executive Offices, Including Zip Code)
Registrant's telephone number, including area code: 908-470-2100
Exhibit List Appears on Page 4
<PAGE>
Item 5. Other Events.
KMC Telecom Holdings, Inc. (the "Registrant") desires to
release its current unaudited financial results by filing them with the
Securities and Exchange Commission. Attached hereto is a copy of a press release
relating to the Registrant's current unaudited financial results for the three
month period ended March 31, 1999. Certain matters discussed in the press
release are forward-looking statements that involve risks and uncertainties,
including statements relating to its expansion plans, strategy, products and
back office and provisioning systems. As a result, actual results, events or
conditions, financial or otherwise, can differ materially from the results and
expectations referred to in those statements. You should read the Registrant's
Annual Report to the Securities and Exchange Commission on Form 10-K for the
year ended December 31, 1998, for certain cautionary statements concerning risk
factors that could affect the Registrant's future results and expectations. The
Registrant undertakes no duty to update such forward-looking statements.
Item 7. Financial Statements, Pro Forma Financial Information
and Exhibits.
(a) Financial Statements of Businesses Acquired.
Not Applicable
(b) Pro Forma Financial Information.
Not Applicable
(c) Exhibits.
The following exhibits are filed with this Report.
Exhibit No. Description.
99.1 Press Release, dated April 28, 1999
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<PAGE>
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 hereunto duly authorized.
KMC TELECOM HOLDINGS, INC.
Date: April 28, 1999 By: /S/ ROBERT F. HAGAN
-------------------------------------
Name: Robert F. Hagan
Title: Vice President, Controller
<PAGE>
EXHIBIT LIST
Exhibit No. Description
99.1 Press Release, dated April 28, 1999
FOR IMMEDIATE RELEASE
KMC Telecom Reports First Quarter 1999 Financial Results
-March 1999 annualized revenue run rate of nearly $50 million-
-23 markets in commercial operation; 14 under development-
-Total lines in service increase to 64,723-
-91% of new lines sold "on-switch"-
-DSL rollout meeting expectations-
Bedminster, NJ (April 28, 1999) - KMC Telecom Holdings, Inc., (KMC), today
reported financial results for the first quarter ended March 31, 1999.
Total revenue for the three months ended March 31, 1999 was $11.1 million
compared to $2.8 million reported in the first quarter of 1998. Lines sold
increased from 55,592 in the fourth quarter 1998 to 75,703 lines in the first
quarter 1999 -- 91% of the new lines will eventually be on-switch (i.e. to be
connected to our switch with an unbundled network element or our own fiber).
Lines installed also showed rapid growth, increasing from 48,342 in the fourth
quarter 1998 to 64,723 in the first quarter 1999, an increase of 16,381 lines.
Of the new installs, 48% were on-switch, with an additional 42% expected to
convert to on-switch over the next 120 days.
"Following outstanding progress in 1998, KMC is off to a strong start in
1999 with gains in access lines and revenue growth exceeding plan," reported
Michael Sternberg, president and chief executive officer of KMC. "Our network
rollout is progressing as planned, and we continue to expand in our current
networks. In February 1999, we completed $65 million in PIK preferred equity
financing and secured vendor financing from Lucent Technologies of an initial
$250 million expandable to $600 million on certain conditions and milestones.
These financings will facilitate our buildout of 14 new markets over the next
twelve months with an estimated addressable total market size of 3.1 million
commercial access lines.
Mr. Sternberg continued, "Because we believe that data and Internet are
critical components of a full service bundle, we are intensifying our focus on
rolling out our DSL strategy. KMC's DSL strategy is well suited to delivering
high-speed data and Internet access to our primary target customers --
businesses, governments and institutions. These heavy user groups require the
equal bandwidth at both the origin and destination points of voice and data
transmission enabled by DSL technology. Given our 56 collocations, we are well
qualified to serve, capture and retain the business customer with a highly
desirable and cost-effective suite of value-added data and Internet offerings."
"Finally, our goal to have the first phase of all back office systems and
electronic provisioning in place by the third quarter is well underway. We are
making substantial progress with implementation of our support systems and
billing system."
<PAGE>
Separately, on April 27th, KMC announced that it filed a petition with the
FCC urging an end to the monopolistic contract termination penalties on
consumers.
KMC's business strategy is to provide a broad range of retail services
including local dial tone, private line, long distance, data and Internet access
to communications intensive entities including businesses, government agencies,
institutions, and Internet service providers (ISPs). KMC also provides wholesale
services to other telecommunications providers.
Revenue Components:
KMC's revenue derived from on-net special access, private line and
switched services was $4.9 million for the three months ended March 31, 1999
compared to $0.7 million for the corresponding period in 1998. KMC's revenue run
rate, based on annualized March 1999 results, was $49.3 million.
Revenue derived from resale of switched and dedicated services was $6.2
million for the three months ended March 31, 1999 compared to $2.1 million for
the corresponding period in 1998. As of the end of the first quarter, with 22 of
our 23 markets in full operation, we expect a continuing decline in the
percentage of revenue derived from resale.
Revenue Components
($ in millions)
Three months ended 3/31/99 12/31/98 9/30/98 6/30/98 3/31/98
On-net / UNE $4.9 $4.0 $2.1 $1.4 $.7
Resale 6.2 4.8 4.2 3.1 2.1
$11.1 $8.8 $6.3 $4.5 $2.8
Network Operating Costs:
Network operating costs for the quarter ended March 31, 1999 were $19.7
million, compared to $5.8 million for the corresponding quarter last year. This
increase was primarily attributable to the increase in the number of systems in
commercial operation in the first quarter of 1999 and the related increases in
costs associated with providing resale services and unbundled network elements,
personnel, network support and other direct operating costs.
KMC's gross profit (revenue less network operating costs) was a negative
$(8.6) million for the three months ended March 31, 1999.
Gross Profit
($ in millions)
Three months ended 3/31/99 12/31/98 9/30/98 6/30/98 3/31/98
Revenue $11.1 $8.8 $6.3 $4.5 $2.8
Network Operating 19.7 12.7 10.7 8.1 5.8
Costs
Gross Profit $(8.6) $(3.9) $(4.4) $(3.6) $(3.0)
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<PAGE>
SG&A Costs:
Selling, general and administrative ("SG&A") expenses for the three months
ended March 31, 1999 were $12.0 million, compared to $3.5 million for the same
three-month period in 1998. SG&A as a percentage of total revenue was 108% for
the first quarter of 1999, compared to 124% for the corresponding quarter last
year.
EBITDA:
For the quarter ended March 31, 1999, total consolidated EBITDA deficit
was $20.6 million (EBITDA is defined as earnings before interest, taxes,
depreciation, and amortization, and non-cash stock compensation), compared to a
deficit of $6.5 million reported in the corresponding period in 1998.
Net Loss:
Net loss for the three months ended March 31, 1999 was $39.4 million,
compared to a net loss of $13.0 million recorded for the corresponding period in
1998.
Resources and Capital Expenditures:
KMC had $76.8 million in cash, cash equivalents and short-term investments
at March 31, 1999.
The company's capital expenditures for the three months ended March 31,
1999 were $49.4 million.
Operations:
At March 31, 1999, KMC had 60,584 fiber strand miles compared to 47,797 at
December 31, 1998, and had 913 fiber route miles operational at March 31, 1999
compared to 714 at December 31, 1998. The company reached 1,167 building
connected at March 31, 1999, compared to 721 buildings at December 31, 1998, an
increase of 62 percent.
The company had 22 switches at the end of the first quarter in 1999 and 56
collocations. This compares to 35 collocations at the end of 1998. KMC's 23
markets have an addressable total market estimated at 4.5 million commercial
access lines.
About KMC Telecom:
KMC Telecom Holdings, Inc. is a facilities based, privately held
competitive local exchange carrier (CLEC) presently operating in 23 Tier III
markets, predominantly in the Southeast and Midwest US. The company offers a
broad range of retail services including local dial tone, private line, long
distance, data and Internet access to over 3,000 customers in 23 markets. Over
its advanced fiber network, KMC serves communications intensive entities
including businesses, government agencies, institutions, and Internet service
providers and provides wholesale services to other telecommunications providers.
At March 31, 1999, KMC had 620 full time employees.
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<PAGE>
Certain matters discussed in this release are forward-looking statements that
involve risks and uncertainties, including construction risks and other risks
detailed from time to time in KMC's reports filed with the Securities Exchange
Commission, including those contained in KMC's Annual Report on Form 10-K for
the year ended December 31, 1998. As a result, actual results, events or
conditions, financial or otherwise, can differ materially from the results
referred to in those statements. KMC undertakes no duty to update such
forward-looking statements.
For further information on KMC Telecom Holdings, visit the company's web site at
http://www.kmctelecom.com.
(Tables Attached)
# # #
Investors and Analysts Contact:
Jim Grenfell
Chief Financial Officer
Phone: 908.470.2102
Fax: 908.719.8775
E-mail: [email protected]
4
<PAGE>
KMC Telecom Holdings, Inc.
Unaudited Consolidated Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
December 31, March 31,
1998 1999
----------- -----------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents........................... $ 21,181 $ 47,792
Accounts receivable, net of allowance for doubtful
accounts of $350 and $446 in 1998 and 1999,
respectively ..................................... 7,539 11,256
Prepaid expenses and other current assets........... 1,315 826
----------- -----------
Total current assets.................................. 30,035 59,874
Investments held for future capital expenditures...... 27,920 29,000
Networks and equipment, net........................... 224,890 269,474
Intangible assets, net................................ 2,829 2,930
Deferred financing costs, net......................... 20,903 29,768
Due from affiliates................................... - 607
Other assets.......................................... 4,733 2,009
----------- -----------
$ 311,310 $ 393,662
=========== ===========
Liabilities and redeemable and nonredeemable equity
Current liabilities:
Accounts payable.................................... $ 21,052 $ 29,364
Accrued expenses.................................... 10,374 20,524
----------- -----------
Total current liabilities............................. 31,426 49,888
Notes payable......................................... 41,414 75,000
Senior discount notes payable......................... 267,811 275,071
----------- -----------
Total liabilities..................................... 340,651 399,959
Redeemable equity:
Redeemable cumulative convertible preferred stock,
par value $.01 per share 599 shares authorized;
shares issued and outstanding:
Series A, 124 shares in 1998 and 1999 ($12,380
liquidation preference)....................... 30,390 36,704
Series C, 175 shares in 1998 and 1999 ($17,500
liquidation preference)......................... 21,643 24,298
Series E, - 0 - shares in 1998 and 25 shares in
1999 ($25,000 liquidation preference............ - 20,575
Series F, - 0 - shares in 1998 and 40 shares in
1999 ($40,000 liquidation preference............ - 35,249
Redeemable common stock, 224 shares issued and
outstanding in 1998 and 1999...................... 22,305 23,782
Redeemable common stock warrants.................... 674 2,895
----------- -----------
Total redeemable equity............................... 75,012 143,503
----------- -----------
Nonredeemable equity (deficiency):
Common stock, par value $.01 per share; 3,000
shares authorized, 614 shares and 629 shares
issued and outstanding in 1998 and 1999,
respectively...................................... 6 6
Additional paid-in capital.......................... 13,750 6,923
Unearned compensation............................... (5,824) (5,085)
Accumulated deficit................................. (112,285) (151,644)
----------- -----------
Total nonredeemable equity (deficiency)............... (104,353) (149,800)
----------- -----------
$ 311,310 $ 393,662
=========== ===========
</TABLE>
5
<PAGE>
KMC Telecom Holdings, Inc.
Unaudited Consolidated Statements of Operations
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------
1998 1999
----------- -----------
<S> <C> <C>
Revenue............................. $ 2,793 $ 11,078
Operating expenses:
Network operating costs........... 5,816 19,670
Selling, general and
administrative.................. 3,472 11,990
Stock option compensation expense. 1,099 3,869
Depreciation and amortization..... 994 5,523
---------- ----------
Total operating expenses........ 11,381 41,052
---------- ----------
Loss from operations................ (8,588) (29,974)
Interest income..................... 2,166 942
Interest expense.................... (6,542) (10,327)
---------- ----------
Net loss............................ $ (12,964) $ (39,359)
Dividends and accretion on
redeemable preferred stock........ (3,353) (11,444)
---------- ----------
Net loss applicable to common
shareholders...................... $ (16,317) $ (50,803)
========== ==========
Net loss per common share........... $ (20.18) $ (59.87)
========== ==========
Weighted average number of common
shares outstanding................ 808 849
=========== ==========
</TABLE>
6
<PAGE>
Financial Highlights
(In thousands, except per shares amounts)
<TABLE>
<CAPTION>
Quarter Quarter Quarter Year Year
Ended Ended Ended Ended Ended
3/31/99 3/31/98 12/31/98 12/31/98 12/31/97
- --------------------------------------------------------------------------------------------
Statements of Operations Data:
<S> <C> <C> <C> <C> <C>
Revenue $ 11,078 $ 2,793 $ 8,837 $ 22,425 $ 3,417
Operating Expenses:
Network Operating Costs 19,670 5,816 12,759 37,336 7,735
Selling, general and
administrative 11,990 3,472 9,233 24,534 9,923
Stock option compensation
expense 3,869 1,099 486 7,080 13,870
Depreciation and amortization 5,523 994 4,059 9,257 2,506
------------------------------------------------------------
Total operating expenses 41,052 11,381 26,537 78,207 34,034
------------------------------------------------------------
Loss from operations (29,974) (8,588) (17,700) (55,782) (30,617)
Interest expense, net 9,385 4,376 5,350 20,971 2,069
------------------------------------------------------------
Net loss (39,359) (12,964) (23,050) (76,753) (32,686)
Dividends and accretion on
redeemable preferred stock (11,444) (3,353) (4,128) (18,285) (8,904)
-----------------------------------------------------------
Net loss applicable to
common shareholders $ (50,803) $ (16,317) $ (27,178) $ (95,038) $ (41,590)
===========================================================
Net loss per common share $ (59.87) $ (20.18) $ (32.44) $ (114.42) $ (64.93)
===========================================================
Weighted average number of
common shares outstanding 849 808 838 831 641
===========================================================
Other Financial Data:
Capital expenditures
including acquisitions $ 49,393 $ 8,772 $ 70,865 $ 161,803 $ 61,146
EBITDA before stock option
compensation $ (20,582) $ (6,495) $ (13,155) $ (39,445) $ (14,241)
EBITDA $ (24,451) $ (7,594) $ (13,641) $ (46,525) $ (28,111)
3/31/99 12/31/98 12/31/97
- --------------------------------------------------------------------
Balance Sheets Data:
Cash, cash equivalents and
investments $ 76,792 $ 49,101 $ 15,553
Network and equipment, gross $ 284,951 $ 235,558 $ 73,755
Network and equipment, net $ 269,474 $ 224,890 $ 71,371
Total assets $ 393,662 $ 311,310 $ 95,943
</TABLE>
(a) EBITDA consists of earnings (loss) before net interest, income taxes,
depreciation and amortization charges. EBITDA before stock option compensation
expense consists of earnings (loss) before net interest, income taxes,
depreciation, amortization and stock option compensation charges. The Company
includes these measurements because they are commonly used in the
telecommunications industry. EBITDA is not calculated under generally accepted
accounting principles and is not necessarily comparable to similarly titled
measures of other companies. It should not be considered an alternative to net
income as a measure of performance or to cash flows as a measure of liquidity.
7
<PAGE>
Statistical Highlights
<TABLE>
<CAPTION>
3/31/99 12/31/98 9/30/98 6/30/98 3/31/98
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Markets Served 23 22 11 8 8
Networks
- Operating with Switches 22 22 11 8 7
- Complete awaiting Switch - - - - 1
- Under Construction 1 1 12 15 15
Access Lines 64,723 48,342 35,090 28,838 18,435
Dedicated Circuits (DS0
Equivalents) 96,035 78,621 56,337 46,907 33,652
Total Building Connected to
Network (On-net / UNE) 1,167 721 275 214 166
Route Miles 913 714 432 334 312
Fiber Miles 60,584 47,797 24,951 15,817 14,467
Switches in Operation 22 22 11 8 7
Interconnection Agreements 8 8 8 8 8
Collocations 56 35 21 - -
Employees 620 494 389 290 197
Customers 3,069 1,713 1,248 894 574
</TABLE>
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