ATLANTA, March 31 /PRNewswire/ -- Preferred Networks, Inc.
(OTC Bulletin Board: PFNT)(PNI), a leading provider of network services to the
wireless industry and a developer and supplier of advanced communications
networking products, today reported its financial results for the year ended
December 31, 1999.
In 1999, PNI achieved a number of important milestones that have redefined
its strategic mission and significantly strengthened its financial condition.
During 1999, PNI developed its first advanced networking products based on its
patented switching technology, and in early 2000, began to ship commercial
products. Accordingly, during 1999, PNI restructured its operations to divest
of non-strategic operations and to strengthen its financial condition. Key
achievements were as follows:
* During 1999, repaid $13.0 million in debt, reducing total debt by more
than 68% to $6.1 million; and renewed senior revolving credit facility,
providing for up to $2.0 million of working capital financing.
* May 1999, sold engineering services subsidiary, Preferred Technical
Services, Inc. ("PTS") for approximately $4.5 million.
* September 1999, U.S. patent issued, granting all 15 claims on
"Intelligent, High-Speed Switching Matrix".
* September 1999, introduced beta versions of networking products at the
annual PCS Trade Show.
* December 1999, sold product repair subsidiary, EPS Wireless, Inc.
("EPS") for approximately $14.9 million.
* Ended 1999 with $5.5 million of cash.
PNI is in an early stage of development of its networking products
business. With commercial shipments of products beginning in 2000, the
following historical financial results primarily reflect revenues and costs
from PNI's network services business. Results of operations from EPS and PTS
are treated as discontinued operations and the prior year has been restated
accordingly.
Total revenues for the year ended December 31, 1999 decreased by $2.5
million, or 13.0%, to $17.0 million from $19.6 million in 1998. The decrease
resulted primarily from lower sales of pagers, which was due to PNI's limited
working capital resources in 1999 prior to the restructuring discussed above.
PNI supplies pagers to many of its reseller customers in order to add network
service units. Accordingly, the reduced pager sales also affected PNI's
network service units and resulting airtime revenues, although to a lesser
extent. Total units in service at December 31, 1999 were 525,622,
representing little change from 525,274 at December 31, 1998. Accordingly, of
the $2.5 million decrease in revenues, $2.2 million was attributable to
revenue from the sale of pagers and only $363,000 was attributable to airtime
revenues. Following the significant reduction of debt and the increase in
working capital as of December 1999, PNI believes it now has sufficient cash
resources to increase its pager purchases, which is expected to have a
positive effect on net service unit additions and resulting airtime revenue in
the future. Further, PNI's iTerminal(TM) networking products (which it began
to ship in the first quarter of 2000), allow businesses to become switched-
based wireless service providers at reduced cost, which PNI believes will
expand its base of network services customers.
Net loss from continuing operations (before one-time, non-cash charges and
tax benefits) for the year ended December 31, 1999 improved by $2.5 million,
or 19.7%, to $10.3 million compared to $12.9 million in 1998. The improvement
from operations is the result of both an increase in gross profit and a
decrease in overhead expenses in 1999 compared to 1998. During the past
several years, PNI has taken measures to gain greater operating efficiencies,
which in 1999, resulted in decreased network operating expenses, reduced pager
costs, and lower overhead expenses. PNI intends to continue to pursue cost
reduction strategies, including the planned internal deployment of its
networking products in 2000, which PNI expects will allow it to transport its
messaging traffic over the Internet, thereby eliminating the majority of its
dedicated telephone circuits and further reducing its monthly expenses.
PNI recorded two non-cash charges in 1999: (i) a cumulative effect of
change in accounting principle, resulting in the write-off of market start-up
costs of $1.2 million (net of $623,000 tax benefit), which represents the
adoption of SOP 98-5; and (ii) an impairment charge of $1.3 million, which
represents a write down of assets recorded for previously planned network
expansion.
The net loss from discontinued operations (PTS and EPS), net of tax, for
the year ended December 31, 1999 was $153,000 compared to net loss of
$2.3 million for the year ended December 31, 1998. PNI recorded a gain on the
sale of PTS and EPS of $8.6 million, of which $4.0 million is recorded as a
tax benefit to continuing operations.
The net loss attributable to Common Stock for the year ended December 31,
1999 decreased by $9.7 million or 53.5% to $8.5 million from $18.2 million for
the year ended December 31, 1998.
Mark Dunaway, CEO of PNI, said, "This was a pivotal year in our Company.
We are proud of our accomplishments in 1999 and extremely excited about the
year ahead. With the development of our advanced networking products and the
successful sale of PTS and EPS, we enter 2000 with financial strength and an
extremely bright future. We are at the beginning of a very exciting
opportunity to deliver leading edge technology solutions to the telecom
marketplace. The events of 1999 have provided PNI with the capital to
maximize these new opportunities and to support our existing network service
customers in their growth."
Dunaway added, "We introduced the first of our advanced networking
products, the iTerminal(TM) in the first quarter of 2000 and have received a
tremendously positive response from customers. We are now taking repeat
orders from the first customers and building a backlog for second quarter
shipments. We also expect to ship the first Platform1(TM) units in the second
quarter and to introduce modules for value-added services later in the year,
including Internet applications. We believe these products will have a
powerful effect on businesses' ability to deliver more services, faster and at
lower cost."
Dunaway concluded, "We are grateful to our customers, vendors and
employees and shareholders for their commitment to PNI and their role in our
1999 accomplishments. Because of their support, we believe we are now
positioned to become a leading provider of access technology in the business
to business marketplace."
PNI was founded in 1991 to provide unbranded, wholesale one-way wireless
messaging network services to companies for resale to their customers. In
pursuing this strategy, PNI developed a number of advanced networking
technologies aimed at increasing its efficiency as a network operator. During
1999, PNI completed development of its intelligent, high-speed switching
technology and began to commercialize related products for sale to other
companies. This technology creates networking solutions that provide
companies with greater processing efficiencies, cost savings, and an open
platform to bring them closer to their customers through unified service
offerings. In early 2000, PNI began to ship its first software enhanced
networking products and is developing a number of additional hardware,
software and service offerings to address each of the wireless, fixed network
and Internet marketplaces. With the introduction of its networking products,
PNI has augmented its one-way wireless network services and is evolving into a
developer and supplier of advanced communications hardware and software
products. PNI's address on the World Wide Web is: http://www.pniaccess.net .
Safe Harbor Statement Under the Private Securities Litigation Reform Act
of 1995: The statements contained in this release which are not historical
facts, such as those concerning future financial performance and growth, are
forward-looking statements that are subject to risks and uncertainties,
including those identified in PNI's 1999 Annual Report on Form 10-K, and
actual results could differ materially from those anticipated in the
forwarding-looking statements. Certain information included in this release
(as well as information included in oral statements or other written
statements made or to be made by PNI) contains statements that are or will be
forward-looking, such as statements relating to expansion and other business
development activities. Such forward-looking information involves important
risks and uncertainties that could significantly effect anticipated results in
the future and, accordingly, such results may differ from those expressed in
any forward-looking statements made by or on behalf of PNI. These risks and
uncertainties include, but are not limited to, uncertainties affecting the
wireless industries generally; risks relating to PNI's expansion and other
business development activities; risks related to the deployment and
feasibility of PNI's new networking technologies and products; risks relating
to technological change in the wireless industries; risks associated with
PNI's efforts to commercialize and market successfully its networking
products, such as the Platform1(TM) and iTerminal(TM) products; the relatively
unproven nature of PNI's networking products, which represent a new product
line for PNI; challenges to PNI's technologies (such as challenges to the
validity of patents on PNI's switching technology); risks relating to the
ability of PNI to obtain additional funds in the form of debt or equity
(including availability of financing terms acceptable to PNI); fluctuations in
interest rates; and the existence of and changes to federal and state laws and
regulations. In particular, statements relating to the competitive position
and performance of PNI's current and future networking products and their
expected performance in the marketplace are forward-looking statements that
are subject to risks and uncertainties. PNI operates in a highly competitive
marketplace and new product developments by competitors can occur at any time,
thereby diminishing the attractiveness of PNI's products. Also, there can be
no assurance that the marketplace will find the price and functionality of
PNI's products attractive, which also can adversely affect networking product
sales.
Summary Financial Information
(In thousands, except per share data)
Year Ended December 31,
1998 1999
Revenues
Network services $13,204 $12,841
Pager sales 6,172 3,999
Other services 191 193
Total revenues 19,567 17,033
Cost of revenues
Network services 8,612 8,284
Pager sales 6,246 3,777
Other services -- 10
Total cost of revenues 14,858 12,071
Gross margin 4,709 4,962
Gross margin % 24.1% 29.1%
Selling, general and
administrative expenses 9,818 8,429
Other -- 14
Depreciation and amortization 6,095 5,204
Impairment loss(1) -- 1,340
Operating loss (11,204) (10,025)
Interest expense (2,010) (1,811)
Interest income 351 173
Gain/(loss) on asset disposal -- (5)
Income from continuing
operations before income
taxes and cumulative effect
of change in accounting
principle (12,863) (11,668)
Income tax benefit -- 4,000
Net loss from continuing
operations before
cumulative effect of change
in accounting principle (12,863) (7,668)
Discontinued operations:
Net income/(loss) from
discontinued operations,
net of income tax (2,328) (153)
Gain on sales of
subsidiaries, net of
income tax -- 4,013
Net income from discontinued
operations (2,328) 3,860
Cumulative effect of change
in accounting principle -- (1,209)
Net loss (15,192) (5,017)
Net loss attributable to
Common Stock $(18,220) $(8,479)
Net income/(loss) per share
of Common Stock from(2):
Continuing operations
before cumulative effect
of change in accounting
principle $(0.98) $(0.68)
Discontinued operations,
net of income tax $(0.14) $0.23
Cumulative effect of change
in accounting principle -- (0.07)
Net loss per share of
Common Stock $(1.12) $(0.52)
Weighted average number of
common shares used in
calculating net loss per
share of Common Stock 16,258 16,362
Pro forma net loss assuming
accounting principle is
applied retroactively $(14,984) $(3,184)
Pro forma net loss
attributable to
Common Stock assuming
change in accounting
principle is applied
retroactively $(18,012) $(6,647)
Pro forma net loss per share $(1.11) $(0.41)
EBITDA(3) $(5,109) $(3,481)
EBITDA % (26.1)% (20.4)%
Summary Balance Sheet Data
(In thousands)
December 31,
1998 1999
Cash $ 6,017 $ 5,490
Total assets 60,032 39,143
Total debt 19,033 6,069
Redeemable Preferred Stock 23,968 27,431
Stockholders' equity 10,556 2,101
Notes to Summary Financial Information
(1) All net loss per share amounts were computed using the requirements of
Statement of Financial Accounting Standards No. 128, Earnings per
Share, and SEC Staff Accounting Bulletin No. 98. Basic and diluted
amounts are identical. See note 1 to the consolidated financial
statements included in Item 8, "Financial Statements and Supplementary
Data" of the PNI's 1999 Annual Report on Form 10-K.
(2) At December 31, 1999, an impairment loss of $1.3 million was charged
to operations as a write down of the assets recorded by PNI for its
previously planned network expansion.
(3) "EBITDA" represents earnings from continuing operations before
impairment loss, interest expense, interest income, taxes,
depreciation and amortization. EBITDA is a financial measure commonly
used in the telecommunications industry and should not be construed as
an alternative to operating income (as determined in accordance with
generally accepted accounting principles), as an alternative to cash
flows from operating activities (as determined in accordance with
generally accepted accounting principles), or as a measure of
liquidity.
SOURCE Preferred Networks, Inc.
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Related links:
http://www.pni.net
http://www.pniaccess.net
Company News On-Call:
http://www.prnewswire.com/comp/109794.html or fax,
800-758-5804, ext. 109794
CONTACT:
Kathryn Loev Putnam, Senior Vice President
and Chief Financial Officer of Preferred Networks, 770-582-3507
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