PACW PacWest Bancorp

Pac-West Telecomm Announces Third Quarter 2004 Results - Revenues rose 14.0% while net loss narrowed by 65.9% from the second quarter STOCKTON, Calif., Nov. 2 /PRNewswire-FirstCall/ -- Pac-West Telecomm, Inc. (NASDAQ:PACW), a provider of communications services to service providers and enterprise customers in the western U.S., today reported a 14.0% increase in third quarter revenues to $31.7 million from the previous quarter, reflecting $4.8 million received from SBC California (SBC) in a settlement of various disputes. The company's loss narrowed by 65.9% from the previous quarter to $3.1 million. "We achieved solid improvements in the third quarter as we continued to reshape the company for a new era in communications," said Hank Carabelli, Pac-West's president and chief executive officer. Carabelli cited growth in total minutes of customer usage on Pac-West's network, cost improvements, and the settlement with SBC as positive financial developments for the company in the quarter. According to Carabelli, "Recent regulatory decisions increasing state reciprocal compensation rates and removing outdated growth caps and new market entry rules are anticipated to benefit Pac-West. These decisions should remove artificial barriers to the growth of competitive telecom carriers, and remove the rationale by which carriers such as Verizon have withheld reciprocal compensation. Under an earlier interpretation of the rules, Verizon again began withholding reciprocal compensation payments due to Pac-West in the third quarter of 2004, prior to the FCC ruling. In addition, a California Public Utilities Commission decision impacting UNEs (unbundled network elements), while negative for many competitive telecom providers, is anticipated to benefit Pac-West by increasing the amount of intercarrier compensation revenue Pac-West is entitled to collect from SBC. We believe these decisions support Pac-West's business plan and the regulatory positions we have been advocating. In addition, these decisions, along with the $4.8 million settlement received from SBC in the third quarter, and the recently announced $5.9 million amendment to the settlement with SBC to be received in the fourth quarter, will contribute to our full year results." Carabelli continued, "Pac-West continues to meet the increasing pace of evolution in our industry. In the first half of 2004, we invested in network upgrades to transition to packet switching to enable VoIP-related services. In the third quarter of 2004, we announced PSTN On Ramp, a service that enables other communications providers access to Pac-West's infrastructure as an alternative to the incumbent networks of companies such as SBC or Verizon, or building and managing their own infrastructures. We expect to continue to add more services to make using our network easier, more efficient, and less costly than other alternatives." Operating Highlights Total minutes of use increased 10.8% to 11.3 billion in the third quarter of 2004 from 10.2 billion in the second quarter of 2004, driven primarily by higher usage from our Service Provider customers. Total minutes of use increased 0.9% from 11.2 billion in the third quarter of 2003. As Pac-West customers continue to move more toward usage-based rather than line-based services, the company anticipates that minutes of use will become a more relevant operational metric than lines in service. Total DS-0 equivalent lines in service, which include Enterprise and Service Provider on-network DS-0 line equivalents, increased 0.2% to 416,469 at September 30, 2004 from 415,737 lines at June 30, 2004, and decreased 2.0% on a year-over-year basis from 425,070 lines at September 30, 2003. Financial Highlights Three months ended ($ millions, except per share Sept. 30, June 30, Sept. 30, amounts) 2004 2004 2003 Total revenues $31.7 $27.8 $30.3 Net loss $(3.1) $(9.1) $(4.3) Loss per share diluted $(0.08) $(0.25) $(0.12) Cash, cash equivalents & short-term investments $34.0 $32.3 $61.3 Minutes of Use (billions) 11.3 10.2 11.2 Total DS-0 Equivalent Lines in Service 416,469 415,737 425,070 Revenues -- Pac-West's total revenues for the third quarter of 2004 increased 14.0% to $31.7 million from $27.8 million in the second quarter of 2004, primarily due to the $4.8 million settlement received from SBC in the third quarter of 2004. Revenues rose 4.6% in the third quarter of 2004, from $30.3 million in the third quarter of 2003, primarily due to the SBC settlement, partially offset by a lower rate per minute of use in the third quarter of 2004 resulting from SBC's implementation of the FCC Intercarrier ISP Order in August of 2003. Expenses -- Network expenses decreased 23.4% to $8.5 million in the third quarter of 2004 from $11.1 million in the second quarter of 2004, primarily reflecting receipt of negotiated supplier credits of approximately $2.4 million. Network expenses decreased 3.4% from $8.8 million in the third quarter of 2003, primarily due to the company's ongoing cost reduction efforts. SG&A -- Selling, general and administrative expense was relatively constant at $14.5 million in the third quarter of 2004 compared to $14.3 million in the second quarter of 2004. Selling, general and administrative expense decreased 4.6% from $15.2 million in the third quarter of 2003 primarily due to reductions in employee related expenses in 2004, partially offset by increased headcount over 2003. Net Loss -- Net loss for the third quarter of 2004 was $3.1 million, compared with a net loss of $9.1 million in the second quarter of 2004 and a net loss of $4.3 million for the third quarter of 2003. These movements were principally due to higher revenues and lower network expenses. EBITDA -- EBITDA (earnings before interest, net, income taxes, depreciation and amortization) for the third quarter of 2004 rose to $7.7 million from $2.0 million for the second quarter of 2004, and $6.3 million for the third quarter of 2003. The increases were principally due to higher revenues and lower network expenses. Liquidity -- As of September 30, 2004, the company's cash, cash equivalents and short-term investments increased to $34.0 million from $32.3 million at June 30, 2004. This increase in cash was primarily due to borrowings of $3.0 million under the financing arrangement with Merrill Lynch Capital. Reconciliation of Non-GAAP Financial Measures Although EBITDA is not a measure of financial performance under generally accepted accounting principles, the company believes EBITDA is a common measure used by analysts and investors to evaluate its capacity to meet its obligations. Management also uses EBITDA as an internal measurement tool and accordingly, believes that the presentation of EBITDA provides useful and relevant information. The reconciliation of EBITDA to operating cash flow for the periods presented is: Three months ended ($ millions) Sept. 30, June 30, Sept. 30, 2004 2004 2003 EBITDA $7.7 $2.0 $6.3 Changes in operating assets and liabilities (1.4) 3.4 6.9 Interest expense, net (3.1) (3.0) (3.1) Amortization of deferred stock compensation 0.1 0.1 -- Operating Cash Flow $3.3 $2.5 $10.1 Investor Call Management is holding an investor conference call on Wednesday, November 3, 2004 at 8:30 a.m. PT/11:30 a.m. ET to discuss the quarterly results. Investors are invited to participate by dialing 1-888-291-0829 or 706-679-7923. A live webcast will be available on Pac-West's website at http://www.pacwest.com/investor. A replay will be available through November 17, 2004 by dialing 1-800-642-1687 or 706-645-9291 (ID# 1734976), or on Pac-West's website. Supplemental Financial and Operational Data Additional supplemental financial and operational data can be accessed in a summary that is posted on Pac-West's website at http://www.pacwest.com/investor/supplemental. Pac-West's filings with the SEC are also available online at http://www.pacwest.com/investor. About Pac-West Telecomm, Inc. Founded in 1980 and first incorporated in 1981, Pac-West Telecomm, Inc. has been offering telephone service to its customers since 1982. Pac-West is currently one of the largest competitive local exchange carriers headquartered in California. Pac-West's network averages over 120 million minutes of voice and data traffic per day, and carries an estimated 20% of the dial-up Internet traffic in California. In addition to California, Pac-West has operations in Nevada, Washington, Arizona, and Oregon. For more information, please visit Pac-West's website at http://www.pacwest.com/. Forward-Looking Statements In this press release, our use of the words "outlook," "expect," "anticipate," "estimate," "forecast," "project," "likely," "objective," "plan," "designed," "goal," "target," and similar expressions is intended to identify forward-looking statements. While these statements represent our current judgment on what the future may hold, and we believe these judgments are reasonable, actual results may differ materially due to numerous important risk factors that are described in our Annual Report on Form 10-K for the period ended December 31, 2003, as filed with the SEC on March 30, 2004, which may be revised or supplemented in subsequent reports filed by us with the SEC. Such risk factors include, but are not limited to: our substantial indebtedness; an inability to generate sufficient cash to service our indebtedness; regulatory and legal uncertainty with respect to intercarrier compensation payments received by us; the declining rate at which intercarrier compensation payments are determined; the inability to expand our business as a result of the unavailability of funds to do so; adverse affects on our operations as a result of covenants in agreements related to our borrowings; the loss of key executive officers could negatively impact our business prospects; the possible delisting of our common shares from the Nasdaq SmallCap Market; and our principal competitors for local services and potential additional competitors have advantages that may adversely affect our ability to compete with them. Pac-West Telecomm, Inc. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands except per share amounts) Three Months Ended Nine Months Ended September 30 September 30 (unaudited) (unaudited) 2004 2003 2004 2003 Revenues $31,652 $30,312 $88,912 $106,550 Costs and expenses: Network expenses 8,535 8,829 30,175 26,532 Selling, general and administrative 14,454 15,155 42,984 44,609 Depreciation and amortization 7,760 9,862 24,975 33,913 Restructuring charges 124 -- 503 125 Total operating expenses 30,873 33,846 98,637 105,179 Income (loss) from operations 779 (3,534) (9,725) 1,371 Interest expense, net 3,073 3,149 8,852 9,541 Other (income) expense, net 833 13 817 30 Loss before income taxes (3,127) (6,696) (19,394) (8,200) Income tax expense (benefit) -- (2,382) 3 (2,733) Net loss $(3,127) $(4,314) $(19,397) $(5,467) Basic weighted average number of shares outstanding 36,618 36,492 36,686 36,464 Diluted weighted average number of shares outstanding 36,618 36,492 36,686 36,464 Basic and diluted net loss per share $(0.08) $(0.12) $(0.53) $(0.15) CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) Sep. 30, 2004 Dec. 31, 2003 (unaudited) Cash, cash equivalents and short-term investments $34,029 $34,657 Trade accounts receivable, net 8,804 7,713 Prepaid expenses and other current assets 4,331 4,576 Deferred tax assets -- 3,467 Total current assets 47,164 50,413 Property and equipment, net 104,623 121,211 Deferred financing costs, net 1,225 1,635 Other assets, net 1,977 943 Total assets $154,989 $174,202 Accounts payable and accrued liabilities $10,559 $11,133 Other current liabilities 7,081 11,957 Total current liabilities 17,640 23,090 Long-term debt 63,071 54,523 Capital lease payable 757 191 Deferred revenue 398 467 Deferred income taxes -- 3,467 Total liabilities 81,866 81,738 Stockholders' equity 73,123 92,464 Total liabilities and stockholders' equity $154,989 $174,202 Certain prior period amounts have been reclassified to conform to current period presentations. DATASOURCE: Pac-West Telecomm, Inc. CONTACT: Investors and Media, Reid Cox, +1-209-926-3417, or Web site: http://www.pacwest.com/

Copyright