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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarterly Period Ended September 30, 2000
------------------
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 000-27127
IBASIS, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 04-3332534
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
20 SECOND AVENUE, BURLINGTON, MA 01803
(Address of Principal Executive Offices, Including Zip Code)
(781) 505-7500
(Registrant's Telephone Number, Including Area Code)
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
--- ---
As of November 9, 2000, there were 34,172,046 shares of the Registrant's
Common Stock, par value $0.001 per share, outstanding.
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IBASIS, INC.
Index
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<CAPTION>
PAGE
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1 - Condensed Financial Statements
Consolidated Balance Sheets at September 30, 2000 (Unaudited)
and December 31, 1999 2
Consolidated Statements of Operations for the Three Months Ended
September 30, 2000 and 1999 (Unaudited) 3
Consolidated Statements of Operations for the Nine Months Ended
September 30, 2000 and 1999 (Unaudited) 4
Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 2000 and 1999 (Unaudited) 5
Notes to Consolidated Financial Statements (Unaudited) 6-7
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of
Operations 7-12
Item 3 - Quantitative and Qualitative Disclosures About Market Risk 12
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 13
Signature 14
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1
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IBASIS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
---- ----
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $257,613,720 $123,665,961
Marketable securities 82,881,090 --
Accounts receivable, net of allowance for doubtful accounts of
approximately $1,788,000 and $633,000, respectively 12,002,500 5,404,338
Prepaid expenses and other current assets 5,358,995 964,675
------------ ------------
Total current assets 357,856,305 130,034,974
Property and equipment, at cost:
Construction in process 20,689,641 --
Network equipment 18,939,010 6,544,913
Equipment under capital lease 49,796,272 16,430,153
Leasehold improvements 3,042,107 1,696,755
Computer software 5,073,705 782,244
Furniture and fixtures 389,004 154,970
------------ ------------
97,929,739 25,609,035
Less- Accumulated depreciation and amortization (13,116,563) (3,218,920)
------------ ------------
84,813,176 22,390,115
Deferred debt financing costs, net of accumulated amortization of
approximately $558,000 and $0, respectively 4,615,242 --
Long term investment in non-marketable securities 5,000,000 --
Other assets 2,812,081 1,048,000
------------ ------------
$455,096,804 $153,473,089
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 6,085,104 $ 6,112,938
Accrued expenses 11,572,219 4,391,296
Current portion of long term debt 22,609,316 4,376,280
------------ ------------
Total current liabilities 40,266,639 14,880,514
Long term debt, net of current portion 187,658,500 11,688,843
Stockholders' equity:
Common stock, $.001 par value, authorized- 85,000,000 shares, issued
and outstanding- 34,151,177 and 31,642,728, respectively 34,151 31,642
Additional paid-in capital 298,166,711 156,887,447
Deferred stock-based compensation (1,753,483) (2,200,547)
Accumulated deficit (69,275,714) (27,814,810)
------------ ------------
Total stockholders' equity 227,171,665 126,903,732
------------ ------------
$455,096,804 $153,473,089
============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
2
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IBASIS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
2000 1999
---- ----
<S> <C> <C>
Net revenue $ 17,213,066 $ 5,780,287
Operating expenses:
Data communications and telecommunications 17,315,095 6,203,731
Research and development 2,958,311 1,837,466
Selling and marketing 5,376,533 1,534,513
General and administrative 5,216,709 1,463,062
Depreciation and amortization 5,719,155 1,024,985
------------ -----------
Total operating expenses 36,585,803 12,063,757
------------ -----------
Loss from operations (19,372,737) (6,283,470)
Interest income 5,947,293 219,923
Interest expense (4,061,832) (217,167)
------------ -----------
Net loss (17,487,276) (6,280,714)
Accretion of dividends on redeemable convertible
preferred stock -- (471,272)
------------ -----------
Net loss applicable to common stockholders $(17,487,276) $(6,751,986)
============ ===========
Net loss per share:
Basic and diluted net loss per share $ (0.51) $ (0.89)
============ ===========
Basic and diluted weighted average common shares outstanding 34,101,455 7,610,467
============ ===========
Pro forma net loss per share:
Basic and diluted net loss per share $ (0.51) $ (0.27)
============ ===========
Basic and diluted weighted average common shares outstanding 34,101,455 22,917,840
============ ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
3
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IBASIS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
2000 1999
---- ----
<S> <C> <C>
Net revenue $ 40,546,097 $ 11,817,291
Operating expenses:
Data communications and telecommunications 40,916,783 12,818,596
Research and development 10,231,462 4,019,692
Selling and marketing 13,278,069 3,581,513
General and administrative 13,504,784 2,961,596
Depreciation and amortization 10,011,294 1,889,776
Gain on disposal of property and equipment -- (15,297)
------------ ------------
Total operating expenses 87,942,392 25,255,876
------------ ------------
Loss from operations (47,396,295) (13,438,585)
Interest income 14,440,202 304,942
Interest expense (8,504,811) (446,330)
Other expense, net -- (3,337)
Minority interest in loss of joint venture -- 49,000
------------ ------------
Net loss $(41,460,904) (13,534,310)
Accretion of dividends on redeemable convertible
preferred stock -- (786,272)
Net loss applicable to common stockholders $(41,460,904) $(14,320,582)
============ ============
Net loss per share:
Basic and diluted net loss per share $ (1.24) $ (1.89)
============ ============
Basic and diluted weighted average common shares outstanding 33,416,437 7,557,104
============ ============
Pro forma net loss per share:
Basic and diluted net loss per share $ (1.24) $ (0.69)
============ ============
Basic and diluted weighted average common shares outstanding 33,416,437 19,552,857
============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
4
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IBASIS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $(41,460,904) $(13,534,310)
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation and amortization 10,011,294 1,889,776
Gain on disposal of property and equipment -- (15,297)
Amortization of deferred financing costs 557,815 --
Compensation expense related to stock option grant -- 13,750
Minority interest -- (49,000)
Amortization of deferred compensation 447,064 34,772
Changes in current assets and liabilities:
Accounts receivable (6,598,162) (2,355,811)
Prepaid expenses and other current assets (4,394,320) (569,986)
Accounts payable (27,834) (284,642)
Accrued expenses 7,180,923 2,912,186
------------ ------------
Net cash used in operating activities (34,284,124) (11,958,562)
------------ ------------
Cash flows from investing activities:
Increase in marketable securities (82,881,090) --
Purchases of property and equipment (19,724,353) (2,498,970)
Increase in long term investment in non-marketable securities (5,000,000) --
Increase in other assets (1,764,081) (1,576,178)
------------ ------------
Net cash used in investing activities (109,369,524) (4,075,148)
------------ ------------
Cash flows from financing activities:
Net proceeds from secondary offering of stock 140,338,067 --
Net proceeds from issuance of notes 144,826,943 --
Net proceeds from issuance of Series C redeemable convertible
preferred stock -- 25,051,593
Proceeds from issuance of shares related to employee stock
purchase plan 320,059 --
Proceeds from exercise of stock options 623,647 25,850
Payments on capital lease obligations (8,507,309) (460,151)
------------ ------------
Net cash provided by financing activities 277,601,407 24,617,292
------------ ------------
Net increase in cash and cash equivalents 133,947,759 8,583,582
Cash and cash equivalents, beginning of period 123,665,961 7,399,451
------------ ------------
Cash and cash equivalents, end of period $257,613,720 $15,983,033
============ ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS.
5
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IBASIS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) General
The interim condensed consolidated financial statements presented herein have
been prepared by iBasis, Inc. ("iBasis" or the "Company") without audit and,
in the opinion of management, reflect all adjustments of a normal recurring
nature necessary for a fair presentation. Interim results are not necessarily
indicative of results for a full year.
The consolidated balance sheet presented as of December 31, 1999, has been
derived from the consolidated financial statements that have been audited by
the Company's independent public accountants. The unaudited consolidated
financial statements have been prepared pursuant to the rules and regulations
of the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in the annual financial statements prepared in
accordance with generally accepted accounting principles have been omitted
pursuant to those rules and regulations, but the Company believes that the
disclosures are adequate to make the information presented not misleading.
The condensed consolidated financial statements and notes included herein
should be read in conjunction with the consolidated financial statements and
notes included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1999.
(2) Long term debt
Long term debt consists of the following:
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<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
---- ----
<S> <C> <C>
5 3/4% Convertible Subordinated Notes, due 2005 $150,000,000 $ --
Obligations under capital leases 60,267,816 16,065,123
------------ -----------
210,267,816 16,065,123
Less: current portion (22,609,316) (4,376,280)
------------ -----------
Long term debt, net of current portion $187,658,500 $11,688,843
============ ===========
</TABLE>
(3) Net Loss Per Share and Pro Forma Net Loss Per Share
In accordance with Statement of Financial Accounting Standards No. 128, basic
net loss per common share is calculated by dividing net loss by the weighted
average number of common shares outstanding. The calculation of diluted net loss
per share is consistent with that of basic net loss per share but gives effect
to all dilutive potential common shares (that is, securities such as options,
warrants or convertible securities) that were outstanding during the period,
unless the effect is antidilutive. For the three months ended September 30, 2000
and 1999, 2,817,655 and 1,116,890 potential common shares, respectively, have
been excluded from the calculation of diluted net loss per share, as their
effects are antidilutive. For the nine months ended September 30, 2000 and 1999,
3,260,394 and 214,887 potential common shares, respectively, have been excluded
from the calculation of diluted net loss per share, as their effects are
antidilutive.
6
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The calculation for pro forma basic and diluted net loss per share is adjusted
to give effect to the conversion of all shares of preferred stock, Class A
common stock and Class B common stock from the date of original issuance.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis of the Company's financial condition and
results of operations for the three months and nine months ended September 30,
2000 and 1999 should be read in conjunction with the consolidated financial
statements and footnotes for the nine months ended September 30, 2000 included
herein, and the year ended December 31, 1999, included in the Company's Annual
Report on Form 10-K.
This section and other parts of this Form 10-Q contain forward-looking
statements that involve risks and uncertainties. The Company's actual results
may differ significantly from the results discussed in the forward-looking
statements. Factors that might cause such differences include, but are not
limited to, those discussed in the subsection entitled "Factors That May
Affect Future Results and Financial Condition" below. The following
discussion should be read in conjunction with the 1999 Form 10-K and the
Condensed Consolidated Financial Statements and Notes thereto included
elsewhere in this Form 10-Q. All information is based on the Company's fiscal
calendar.
FACTORS THAT MAY AFFECT FUTURE RESULTS AND FINANCIAL CONDITION
The Company operates in a rapidly changing environment that involves a number
of uncertainties, some of which are beyond the Company's control. In addition
to the uncertainties described elsewhere in this report, there are many
factors that will affect the Company's future results and business, which may
cause the actual results to differ from those currently expected. The
Company's future operating results and financial condition are dependent upon
the Company's ability to successfully develop, manufacture, and market
technologically innovative products in order to meet dynamic customer demand
patterns. Inherent in this process are a number of factors that the Company
must successfully manage in order to achieve favorable future operating
results and a favorable financial condition. Potential risks and
uncertainties that could affect the Company's future operating results and
financial condition include, among other things, continued competitive
pressures in the marketplace and the effect of any reaction by the Company to
such competitive pressures, including pricing actions by the Company; risks
associated with international operations, including economic and labor
conditions, regional economic problems, political instability, tax laws and
currency fluctuations; increasing dependence on third-parties for
manufacturing and other outsourced functions such as logistics; the
availability of key components on terms acceptable to the Company; the
continued availability of certain components and services essential to the
Company's business currently obtained by the Company from sole or limited
sources, and the final assembly of certain of the Company's products; the
Company's ability to supply products in certain categories; the Company's
ability to supply products free of latent defects or other faults; the
Company's ability to make timely delivery to the marketplace of technological
innovations, including its ability to continue to make timely delivery of
planned enhancements; the availability of third-party software for particular
applications; the Company's ability to attract, motivate and retain key
employees; the effect of previously undetected Y2K compliance issues;
managing the continuing impact of the European Union's transition to the Euro
as its common legal currency; continuing fluctuations in the fair value of
the Company's non-current debt and equity investments, and the Company's
ability to retain the operational and cost benefits derived from its recently
completed restructuring programs. For a discussion of these and other factors
affecting the Company's future results and financial condition, see "Item 7
-- Management's Discussion and Analysis -- Factors That May Affect Future
Results and Financial Condition" in the Company's 1999 Form 10-K.
OVERVIEW
The Company is a provider of international voice and fax call completion
services, and other value-added services using the Internet. We were
incorporated in August 1996 and commenced commercial operations in May 1997.
We first recorded revenue from the sale of equipment in May 1997, and first
recorded revenue from the sale of voice and fax services over our network in
January 1998. In July 1999, we changed our name from "VIP Calling, Inc." to
"iBasis, Inc."
In November 1999, we completed our initial public offering and issued 7,820,000
shares of common stock, which resulted in total net proceeds to us of
approximately $114.7 million. In March 2000, we completed a secondary public
offering of our common stock and issued 2,026,637 shares of common stock, which
resulted in total net proceeds to us of approximately $140.3 million. Also in
March 2000, we completed an offering of $150.0 million in 5 3/4% convertible
subordinated notes, due in 2005. At any time prior to their maturity, these
notes are convertible into common stock at a conversion price of $86.14 per
share, subject to adjustment upon certain events.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
NET REVENUE. Our primary source of revenue is the fees that we receive from
customers for completing calls over our network. This revenue is dependent on
the volume of voice and fax traffic carried over the network, which is measured
in minutes. We charge our customers fees per minute of traffic that are
dependent on the length and destination of the call and recognize this revenue
in the period in which the call is completed. We also derive a limited amount of
revenue from the hosting of internet telephony and the sale of equipment to our
customers. Most of the equipment sales are financed by us offsetting termination
fees otherwise payable to local service providers against the equipment purchase
price until the full purchase price has been paid.
Our net revenue increased by $11.4 million to $17.2 million for the three
months ended September 30, 2000, from $5.8 million for the three months ended
September 30, 1999. This increase was primarily driven by an increase in
revenue from voice and fax call completion services to $16.6 million for the
three months ended September 30, 2000, from $5.6 million for the three months
ended September 30, 1999. The increase in voice and fax call completion
services net revenue resulted from an increase in
7
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the amount of traffic carried over our network to 168.0 million minutes for
the three months ended September 30, 2000, from 44.8 million minutes for the
three months ended September 30, 1999. The increase in traffic is a result of
an increase in the capacity of our worldwide network. Net revenue from
hosting Internet telephony and the sale of equipment was approximately
$602,000 and $195,000 for the three months ended September 30, 2000 and 1999,
respectively.
DATA COMMUNICATIONS AND TELECOMMUNICATIONS EXPENSES. Data communications and
telecommunications expenses are composed primarily of termination fees,
purchased minutes, equipment expense and other expenses associated with data
communications and telecommunications. Termination fees are paid to local
service providers to terminate calls received from our network. This traffic is
measured in minutes, and the per minute rates charged for terminating calls are
negotiated with the local service provider and included in our contract with our
local service provider. Should competition cause a decrease in our prices and,
as a result our profit margins, our contracts with our providers typically
provide us with the right to renegotiate the per minute termination fees.
Purchased minutes are fees we pay to other telecommunications carriers for
completing calls over the public circuit-switched network to destinations
outside of our network, and as a back-up to our network when our proprietary
Assured Quality Routing software indicates that either these lines are needed to
maintain the quality of our services or our capacity to a particular destination
has been exceeded. The amount of these fees depends on the volume of voice and
fax traffic carried over the public circuit-switched network, which is also
measured in minutes of traffic. The per minute rate charge for purchased minutes
is negotiated with public circuit-switched network carriers for each destination
served.
Other data communication and telecommunications expenses include charges for
Internet access at our Internet branch offices, fees for the fiber optic
connections between our Internet branch offices and our customers and/or
suppliers, facilities charges for overseas Internet access and phone lines to
the primary telecommunications carriers in particular countries, and charges
for the limited number of dedicated international private line circuits we
use. The primary direct expenses that we incur in selling our equipment are
those incurred to purchase the component parts of our equipment from a
variety of vendors. These expenses are recorded when the equipment is
installed and operational. The expenses vary on the basis of the number of
units to be completed and delivered in a particular period, and will increase
as equipment sales increase.
Data communications and telecommunications expenses increased by $11.1 million
to $17.3 million for the three months ended September 30, 2000, from $6.2
million for the three months ended September 30, 1999. The increase in data
communications and telecommunications expense was driven by the increase in
traffic described above, as termination fees increased to $8.9 million for the
three months ended September 30, 2000, from $2.7 million for the three months
ended September 30, 1999, and purchased minutes increased to $5.5 million for
the three months ended September 30, 2000, from $2.0 million for the three
months ended September 30, 1999. Equipment expenses directly related to
equipment sales increased to $470,000 for the three months ended September 30,
2000, from $239,000 for the three months ended September 30, 1999. Other data
communications and telecommunications expenses, including Internet access,
public circuit-switched network access, and international private line charges,
increased to $2.4 million for the three months ended September 30, 2000, from
$1.2 million for the three months ended September 30, 1999. As a percentage of
total revenue, data communications and telecommunications expenses decreased to
101% for the three months ended September 30, 2000, from 107% for the three
months ended September 30, 1999.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses include the
expenses of developing, operating, supporting and expanding our international
and domestic network, expenses associated with improving and operating our
global network operations center, salary, and payroll taxes and benefits paid
for employees directly involved in the development and operation of our global
network operations center and the rest of our network. Also included in this
category are research and
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development expenses that consist primarily of expenses incurred in enhancing,
developing, updating and supporting our network and our proprietary software
applications.
Research and development expenses increased by $1.2 million to $3.0 million for
the three months ended September 30, 2000, from $1.8 million for the three
months ended September 30, 1999. This increase in research and development
expenses is due principally to the increase in personnel and facilities needed
to support our expanding network. As a percentage of total revenue, research and
development expenses decreased to 17% for the three months ended September 30,
2000, from 32% for the three months ended September 30, 1999.
SELLING AND MARKETING EXPENSES. Selling and marketing expenses include expenses
relating to the salaries, payroll taxes, benefits and commissions that we pay
for sales personnel and the expenses associated with the development and
implementation of our promotion and marketing campaigns, including expenses
relating to our outside public relations firm and industry analysts.
Selling and marketing expenses increased by $3.9 million to $5.4 million for the
three months ended September 30, 2000, from $1.5 million for the three months
ended September 30, 1999. This increase is attributable to an increase in the
number of personnel and increased marketing expenses, particularly in connection
with public relations campaigns. As a percentage of total revenue, selling and
marketing expenses increased to 31% from 27% for the three months ended
September 30, 2000, and 1999, respectively.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses include
salary, payroll tax and benefit expenses and related costs for general corporate
functions, including executive management, administration, information
technology and human resources.
General and administrative expenses increased by $3.7 million to $5.2 million
for the three months ended September 30, 2000, from $1.5 million for the three
months ended September 30, 1999. General and administrative expenses increased
primarily due to an increase in the number of personnel, an increase in
consulting and professional fees, and an increase in our allowance for doubtful
accounts. As a percentage of total revenue, general and administrative expenses
increased to 30% for the three months ended September 30, 2000, from 25% for the
three months ended September 30, 1999.
DEPRECIATION AND AMORTIZATION EXPENSES. Depreciation and amortization expenses
increased by $4.7 million to $5.7 million for the three months ended September
30, 2000, from $1.0 million for the three months ended September 30, 1999. This
increase primarily resulted from additional purchases of capital equipment and
software that were needed to support our expanding network. As a percentage of
total revenue, depreciation and amortization expense increased to 33% from 18%
for the three months ended September 30, 2000 and 1999, respectively.
INTEREST INCOME AND INTEREST EXPENSE. Interest expense is primarily comprised of
interest on our 5-3/4% convertible subordinated notes and the various capital
leases pursuant to which we have financed a substantial majority of the hardware
components of our network. Interest income is primarily composed of income
earned on our cash, cash equivalents and marketable securities.
Interest income increased by $5.7 million to $5.9 million for the three months
ended September 30, 2000, from $220,000 for the three months ended September 30,
1999. This increase was primarily attributable to increased interest earnings on
our cash, cash equivalents and marketable securities as a result of our initial
public offering, completed in November 1999, our secondary offering of our
common stock, completed in March 2000, and the issuance of our 5 3/4%
subordinated notes, due in 2005, also completed in March 2000. Interest expense
increased by $3.8 million to $4.1 million for the three months ended
9
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September 30, 2000, from $217,000 for the three months ended September 30, 1999.
This increase was attributable to interest on our 5 3/4% convertible
subordinated notes and capital equipment financing.
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
NET REVENUE. Our net revenue increased by $28.7 million to $40.5 million for the
nine months ended September 30, 2000, from $11.8 million for the nine months
ended September 30, 1999. This increase was primarily driven by an increase in
revenue from voice and fax call completion services to $39.4 million for the
nine months ended September 30, 2000, from $11.3 million for the nine months
ended September 30, 1999. The increase in voice and fax call completion services
net revenue resulted from an increase in the amount of traffic carried over our
network to 372.6 million minutes for the nine months ended September 30, 2000,
from 92.7 million minutes for the nine months ended September 30, 1999. Net
revenue from the sale of equipment was approximately $1.1 million and $485,000
for the nine months ended September 30, 2000 and 1999, respectively.
DATA COMMUNICATIONS AND TELECOMMUNICATIONS EXPENSES. Data communications and
telecommunications expenses increased by $28.1 million to $40.9 million for the
nine months ended September 30, 2000, from $12.8 million for the nine months
ended September 30, 1999. The increase in data communications and
telecommunications expense was driven by the increase in traffic described
above, as termination fees increased to $22.3 million for the nine months ended
September 30, 2000, from $5.0 million for the nine months ended September 30,
1999, and purchased minutes increased to $11.2 million for the nine months ended
September 30, 2000, from $4.9 million for the nine months ended September 30,
1999. Equipment expenses directly related to equipment sales increased to
$833,000 for the nine months ended September 30, 2000, from approximately
$437,000 for the nine months ended September 30, 1999. Other data communications
and telecommunications expenses, including Internet access, public
circuit-switched network access, and international private line charges,
increased to $6.6 million for the nine months ended September 30, 2000, from
$2.5 million for the nine months ended September 30, 1999. As a percentage of
total revenue, data communications and telecommunications expenses decreased to
101% for the nine months ended September 30, 2000, from 108% for the nine months
ended September 30, 1999.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses increased
by $6.2 million to $10.2 million for the nine months ended September 30, 2000,
from $4.0 million for the nine months ended September 30, 1999. This increase in
research and development expenses is due principally to the increase in
personnel needed to support our expanding network. As a percentage of total
revenue, research and development expenses decreased to 25% for the nine months
ended September 30, 2000, from 34% for the nine months ended September 30, 1999.
SELLING AND MARKETING EXPENSES. Selling and marketing expenses increased by $9.7
million to $13.3 million for the nine months ended September 30, 2000, from $3.6
million for the nine months ended September 30, 1999. This increase is
attributable to an increase in the number of personnel and increased marketing
expenses, particularly in connection with public relations campaigns. As a
percentage of total revenue, selling and marketing expenses increased to 33%
from 30% for the nine months ended September 30, 2000 and 1999, respectively.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased by $10.5 million to $13.5 million for the nine months ended September
30, 2000, from $3.0 million for the nine months ended September 30, 1999.
General and administrative expenses increased primarily due to an increase in
the number of personnel, an increase in consulting and professional fees, and an
increase in our allowance for doubtful accounts. As a percentage of total
revenue, general and administrative expenses increased to 33% for the nine
months ended September 30, 2000, from 25% for the nine months ended September
30, 1999.
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DEPRECIATION AND AMORTIZATION EXPENSES. Depreciation and amortization expenses
increased by $8.1 million to $10.0 million for the nine months ended September
30, 2000, from $1.9 million for the nine months ended September 30, 1999. This
increase primarily resulted from additional purchases of capital equipment and
software that were needed to support our expanding network. As a percentage of
total revenue, depreciation and amortization expense increased to 25% for the
nine months ended September 30, 2000, from 16% for the nine months ended
September 30, 1999.
INTEREST INCOME AND INTEREST EXPENSE. Interest income increased by $14.1 million
to $14.4 million for the nine months ended September 30, 2000, from $305,000 for
the nine months ended September 30, 1999. This increase was primarily
attributable to increased interest earnings on our cash, cash equivalents and
marketable securities as a result of our initial public offering, completed in
November 1999, our secondary offering of our common stock, completed in March
2000, and the issuance of our 5 3/4% convertible subordinated notes, due in
2005, also completed in March 2000. Interest expense increased by $8.1 million
to $8.5 million for the nine months ended September 30, 2000 from $446,000 for
the nine months ended September 30, 1999. This increase was attributable to
interest on our 5 3/4% convertible subordinated notes and capital equipment
financing.
LIQUIDITY AND CAPITAL RESOURCES
Our principal capital and liquidity needs historically have related to the
development of our network infrastructure, our sales and marketing
activities, research and development expenses, and general capital needs. Our
capital needs have been met, in large part, from the net proceeds from our
initial and secondary public offerings, the issuance of our 5-3/4%
convertible subordinated notes and the sale of our common and preferred
stock. As we have placed greater emphasis on expanding our network
infrastructure, we have also sought to meet our capital needs through vendor
capital leases and other equipment financings. We have also established lines
of credit with banks and other lenders.
Net cash used in operating activities was $34.3 million for the nine months
ended September 30, 2000, as compared to $12.0 million for the nine months ended
September 30, 1999. Cash used in operating activities for both periods resulted
from net losses.
Net cash used in investing activities was $109.4 million for the nine months
ended September 30, 2000, as compared to $4.1 million for the nine months
ended September 30, 1999. For the nine months ended September 30, 2000, cash
used in investing activities was primarily related to our investment in
marketable securities whose maturities exceed 90 days, our non-marketable
equity investment in eYak, Inc., a provider of Internet-based
teleconferencing services, and the purchases of equipment. For the nine
months ended September 30, 1999, the amount was primarily attributable to
equipment purchases.
Net cash provided by financing activities was $277.6 million for the nine months
ended September 30, 2000, as compared to net cash provided by financing
activities of $24.6 million for the nine months ended September 30, 1999. For
the nine months ended September 30, 2000, these amounts are primarily
attributable to the net proceeds from our secondary public offering of our
common stock and the issuance of our 5-3/4% convertible subordinated notes. For
the nine months ended September 30, 1999, the amount was primarily attributable
to the issuance of Series C preferred stock.
INITIAL PUBLIC OFFERING. In November 1999, we completed our initial public
offering and issued 7,820,000 shares of common stock, which resulted in total
net proceeds to us of $114.7 million.
SECONDARY PUBLIC OFFERING. In March 2000, we completed our secondary public
offering in which we sold 2,026,637 shares of common stock, which resulted in
total net proceeds to us of $140.3 million. Concurrently, we issued $150.0
million in 5 3/4% convertible subordinated notes, due in 2005. The notes are
convertible at any time prior to maturity into common stock at a conversion
price of $86.14 per share, subject to adjustment upon certain events.
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ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
To date, we have not engaged in trading market risk sensitive instruments or
purchasing hedging instruments that would be likely to expose us to market risk,
whether interest rate, foreign currency exchange, commodity price or equity
price risk. We have not purchased options or entered into swaps of forward or
futures contracts. Our primary market risk exposure is that of interest rate
risk on borrowings under our credit lines, which are subject to interest rates
based on the banks' prime rate, and a change in the applicable interest rate
that would affect the rate at which we could borrow funds or finance equipment
purchases. While to date our global operations have generated revenues in United
States dollars, we are currently evaluating the impact of foreign currency
exchange risk on our results of operations as we continue to expand globally.
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PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed herewith:
27.1 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the
three months ended September 30, 2000.
CERTAIN IMPORTANT FACTORS
This quarterly report on Form 10-Q contains forward-looking statements based on
current expectations, estimates and projections about iBasis's industry and
management's beliefs and assumptions. In some cases you can identify these
statements by forward-looking words such as "anticipate," "believe," "could,"
"estimate," "expect," "intend," "may," "should," "will," and "would" or similar
words. You should read statements that contain these words carefully because
they discuss future expectations, contain projections of future results of
operations or of financial position or state other "forward-looking"
information. You should be aware that the occurrence of the events described in
this quarterly report could have an adverse effect on the business, results of
operations and financial position of iBasis.
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SIGNATURE
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.
iBasis, Inc.
NOVEMBER 14, 2000 By: /s/ Michael J. Hughes
----------------- ------------------------------------------
(date) Michael J. Hughes
Vice President and Chief Financial Officer
(Authorized Officer and
Principal Accounting Officer)
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