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| PGI > SEC Filings for PGI > Form 10-K on 2-Mar-2009 | All Recent SEC Filings |
2-Mar-2009
Annual Report
Overview
We develop and market a comprehensive suite of applied communication technologies. Our PGiCOS supports business applications within the following solution sets - PGiMeet, PGiSend, PGiNotify and PGiMarket - in our three segments in North America, Europe and Asia Pacific.
Key highlights of our financial and strategic accomplishments for 2008 include:
º Grew consolidated net revenues by 11.5% in 2008 compared to 2007;
º Generated organic consolidated revenues growth, excluding impacts from changes in foreign currency exchange rates and acquisitions, of approximately 5.6% in 2008 compared to 2007 (see "-Non- GAAP Financial Measures" and "-Net Revenues");
º Grew revenue from our PGiMeet solutions, the largest solution set within PGiCOS, by 23.6% in 2008 compared to 2007;
º Grew cash flows provided by operating activities by greater than 16% compared to 2007;
º Expanded our credit facility to $375.0 million from $325.0 million to augment our access to capital;
º Launched new pricing options, including subscription-based and license pricing options;
º Repurchased 1.5 million shares of our common stock in the open market;
º Furthered our strategy of expanding our global presence with our entry into India and China; and
º Enhanced our web site at www.premiereglobal.com and re-launched our online developer community at www.PGiConnect.com.
Our primary corporate objectives in 2009 are focused on continuing to enhance our customer value and to differentiate our products and our company from our competitors. We believe our success toward these initiatives will enhance the positive momentum we have generated in our business.
Specifically, in 2009, our strategic plan includes our continued focus on:
º Developing and launching innovative products and customer self-service tools that improve our user experience;
º Crafting pricing strategies aimed at enhancing the overall quality and consistency of our revenues; and
º Building a brand that is a sustainable asset for us.
In the fourth quarter of 2008, nearly 40% of our consolidated net revenues were denominated in currencies other than U.S. Dollars. Because we generate a significant portion of our consolidated net revenues from our international operations, movements in foreign currency exchange rates affect our reported results. We estimate that changes in foreign currency exchange rates during the fourth quarter of 2008 negatively impacted our consolidated
We have experienced revenue growth in our PGiMeet solutions through increases in minutes of use, offset in part by declines in average selling prices per minute for this solution. Traditional pricing for these services is on a per-minute basis. During 2008, we introduced pricing on a subscription-based pricing model similar to that of other on-demand service providers. Revenues from subscription-based pricing have been less than 5% of total revenues for our PGiMeet solutions. Revenues from our PGiMeet solutions in 2008, 2007 and 2006 were approximately $443.4 million, $358.7 million and $280.0 million, respectively.
We have experienced revenue volume declines in our broadcast fax delivery and fax delivery aspects of our PGiSend solutions. Pricing for these services are on a per-minute or per-page delivered basis. Revenues from these services in 2008, 2007 and 2006 were approximately $93.4 million, $115.2 million and $131.8 million, respectively. Declines in these fax delivery solutions have been primarily associated with volume declines. Although we have and will continue to convert such customers to other alternative solutions, we expect this overall decline in revenue to continue.
We expect that our continued growth in revenues and operating cash flows will be associated with growth in the remainder of our solutions, including continued volume growth in our audio conferencing PGiMeet solutions. We expect this growth will offset declines in our fax delivery solutions associated with broadcast fax and PGiSend.
We have made acquisitions of businesses, particularly conferencing and collaboration providers, which have increased our revenues and operating cash flows. These acquisitions have been primarily to expand our customer base, distribution channels and geographic presence. We are able to realize synergies by integrating these acquisitions into our own operating infrastructure. Historically, these acquisitions have generally been accretive to our revenues, operating cash flows and earnings per share.
During 2007, we acquired approximately 15% of our outstanding shares pursuant to our self-tender offer and in the open market which was the primary cause of net borrowings of $125.7 million of our credit facility. We purchased these shares under the self-tender offer at a premium of approximately 10%, or $12.65 a share. At March 31, 2007, prior to our self-tender offer, borrowings under our credit facility were $124.9 million. At June 30, 2007, after completing the self-tender offer, borrowings under our credit facility were $243.8 million. Since June 30, 2007, we have used our cash flows from operations less capital expenditures, or free cash flow, for debt repayments, acquisitions and stock repurchases. At December 31, 2008, borrowings under our credit facility were $266.2 million. During 2008, 2007 and 2006, our free cash flow was $56.5 million, $44.6 million and $41.2 million, respectively (see "-Non-GAAP Financial Measures"). Based on our historical free cash flow, we anticipate amending to extend the tenure or refinancing our existing credit facility prior to maturity. In 2009, we anticipate continuing to use our free cash flow to pay down our debt, while still continuing to be optimistic in possible acquisitions and share repurchases.
The preparation of financial statements in conformity with generally accepted accounting principles in the United States, or GAAP, requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of net revenues and expenses during the reporting period. Actual results could differ from the estimates. See the section in this annual report entitled "-Critical Accounting Policies." The following discussion and analysis provides information which we believe is relevant to an assessment and understanding of our consolidated results of operations and financial condition. This discussion should be read in conjunction with our consolidated financial statements contained herein and notes thereto.
The following table presents the percentage relationship of our consolidated statements of operations line items to our consolidated net revenues for the periods indicated:
Year Ended December 31,
-----------------------------
2008 2007 2006
---------- ----- -----
Net revenues 100.0 % 100.0 % 100.0 %
Operating expenses:
Cost of revenues (exclusive of depreciation and
amortization 41.1 40.6 40.5
shown separately below)
Selling and marketing 24.6 25.2 26.7
General and administrative (exclusive of net legal
settlements shown
separately below) 10.6 11.8 11.8
Research and development 2.7 2.5 2.4
Excise tax expense 0.5 - -
Depreciation 5.3 5.4 4.9
Amortization 2.5 2.8 2.6
Restructuring costs 0.5 0.6 1.7
Asset impairments 0.7 - -
Net legal settlements and related expenses 0.4 0.1 0.1
------- ----- -----
Total operating expenses 88.9 89.0 90.7
------- ----- -----
Operating income 11.1 11.0 9.3
------- ----- -----
Other (expense) income:
Interest expense (3.1 ) (2.4 ) (1.8 )
Unrealized loss on change in fair value of
interest rate swaps - (0.8 ) -
Interest income 0.1 0.1 0.1
Other, net 0.1 0.3 0.3
------- ----- -----
Total other (expense) income (2.9 ) (2.8 ) (1.4 )
------- ----- -----
Income before income taxes 8.2 8.2 7.9
Income tax expense 2.4 2.7 2.8
------- ----- -----
Net income 5.8 % 5.5 % 5.1 %
------- ----- -----
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Net Revenues
The following table presents certain financial information about our segments
for the periods presented (in millions, except percentages):
Change Change
Year Ended 2008 from 2007 from
December 31, 2007 2006
------------------------ ----------- -----------
2008 2007 2006 $ % $ %
------ ------ ------ ---- ---- ---- ----
Net Revenues:
North America $384.8 $356.7 $319.3 28.1 7.9 37.4 11.7
Europe 122.5 103.3 93.0 19.2 18.6 10.3 11.0
Asia Pacific 116.9 99.7 84.2 17.2 17.2 15.5 18.4
------ ------ ------ ---- ---- ---- ----
Consolidated Net Revenues $624.2 $559.7 $496.5 64.5 11.5 63.2 12.7
------ ------ ------ ---- ---- ---- ----
Net Income (Loss):
North America $ 15.5 $ 20.3 $ 21.5
Europe 12.2 5.3 (0.7 )
Asia Pacific 8.4 4.8 4.7
------ ------ ------
Consolidated Net Income $ 36.1 $ 30.4 $ 25.5
------ ------ ------
Percent of Net Revenues:
North America 61.7% 63.7% 64.3%
Europe 19.6% 18.5% 18.7%
Asia Pacific 18.7% 17.8% 17.0%
------ ------ ------
Consolidated Net Revenues 100.0% 100.0% 100.0%
------ ------ ------
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Organic growth
We define "organic growth" as revenue changes excluding the impact of foreign currency exchange rate fluctuations, using the average exchange rates from the current year period and applying them to prior period results, and acquisitions made during the periods presented. We have presented organic growth for our segments and present this non-GAAP financial measure to exclude the effect of those items that are not completely within management's control, such as foreign currency exchange rate fluctuations, or that do not reflect our ongoing core operations or underlying growth, such as acquisitions. Organic growth is further discussed in our "-Non-GAAP Financial Measures." The following table presents a reconciliation of organic revenue to net revenues for the periods indicated (in millions):
Impact of Organic
fluctuations in Organic net
Consolidated foreign net Consolidated revenue
net revenues currency Impact of revenue net revenues growth
2007 exchange rates acquisitions growth 2008 rate
------------- ---------------- ------------- -------- ------------- --------
Net Revenues:
North America $356.7 $0.1 $11.0 $17.0 $384.8 4.7%
Europe 103.3 3.2 13.4 2.6 122.5 2.6%
Asia Pacific 99.7 5.2 - 12.0 116.9 12.1%
----------- ------------ ---------- ------ ----------- ------
Consolidated Net
Revenues $559.7 $8.5 $24.4 $31.6 $624.2 5.6%
----------- ------------ ---------- ------ ----------- ------
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Impact of Organic
fluctuations in Organic net
Consolidated foreign net Consolidated revenue
net revenues currency Impact of revenue net revenues growth
2006 exchange rates acquisitions growth 2007 rate
------------- ----------------- ------------- -------- ------------- --------
Net Revenues:
North America $319.3 $1.0 $15.1 $21.3 $356.7 6.7%
Europe 93.0 8.1 2.6 (0.4 ) 103.3 (0.5)%
Asia Pacific 84.2 3.0 2.9 9.6 99.7 11.5%
----------- ------------- ---------- ------ ----------- ------
Consolidated Net
Revenues $496.5 $12.1 $20.6 $30.5 $559.7 6.1%
----------- ------------- ---------- ------ ----------- ------
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Consolidated Net Revenues
Net revenues increased to $624.2 million in 2008 from $559.7 million in the previous year primarily as a result of $31.6 million of organic net revenue growth, excluding the impact of foreign currency exchange rate fluctuations and acquisitions that occurred subsequent to December 31, 2006. The increase in organic net revenues was primarily driven by our PGiMeet solutions partially offset by declines in broadcast fax and the fax aspect of our PGiSend solution. Organic net revenues are impacted by both price and volume changes. In 2008, the increase in organic net revenues of $31.6 million was associated with decreases in average selling prices of $23.4 million resulting from a higher mix of large volume enterprise customers and price reductions from existing customers, offset by increases in volume of $55.0 million from both new and existing customers. Other contributions to our 2008 net revenue growth include $8.5 million from strengthening of various currencies to the U.S. Dollar and $24.4 million from our recent acquisitions including Budget Conferencing, Soundpath, iLinc Communications, Inc. and Meet24.
Net revenues increased to $559.7 million in 2007 from $496.5 million in the previous year primarily as a result of $30.5 million of organic net revenue growth, excluding the impact of foreign currency exchange rate fluctuations and acquisitions that occurred subsequent to December 31, 2005. The increase in organic net revenues was primarily driven by our PGiMeet solutions partially offset by declines in broadcast fax and the fax aspect of our PGiSend solution. In 2007, the increase in organic net revenues of $30.5 million was associated with decreases in average selling prices of $35.3 million resulting from a higher mix of large volume enterprise customers and price reductions from existing customers, offset by increases in volume of $65.8 million from both new and existing customers. Other contributions to our 2007 net revenue growth include $12.1 million from strengthening of various currencies to the U.S. Dollar and $20.6 million from our acquisitions including eNunciate, ECT, Budget, Meet24 and Accucast.
These consolidated net revenues trends, as well as the segment net revenue trends discussed below, are reconciled above and further described in "-Non-GAAP Financial Measures."
Segment Net Revenue
North America net revenue increased to $384.8 million in 2008 from $356.7 million in the previous year and increased to $356.7 million in 2007 from $319.3 million in 2006. North America organic net revenues increased $17.0 million during 2008 and $21.3 million during 2007. The increase in organic net revenues for both years was primarily driven by revenue growth in our PGiMeet solutions partially offset by declines in broadcast fax and the fax aspect of our PGiSend solution. In 2008, the increase in organic net revenues of $17.0 million was associated with decreases in average selling prices of $23.5 million, offset by increases in volume of $40.5 million. In 2007, the increase in organic net revenues of $21.3 million was associated with decreases in average selling prices of $28.2 million offset by increases in volume of $49.5 million. In 2008 and 2007, decreases in average selling prices were primarily associated with PGiMeet, while volume increases in both years were associated with PGiMeet offset in part with volume decreases in broadcast fax and the fax aspect of our PGiSend solution.
Europe net revenue increased to $122.5 million in 2008 from $103.3 million in the previous year and increased to $103.3 million in 2007 from $93.0 million in 2006. Europe organic net revenues increased $2.6 million during 2008 and decreased $0.4 million during 2007. The increase in organic net revenues during 2008 was
Asia Pacific net revenue increased to $116.9 million in 2008 from $99.7 million in the previous year and increased to $99.7 million in 2007 from $84.2 million in 2006. Asia Pacific organic net revenues increased $12.0 million during 2008 and $9.6 million during 2007. The increase in organic net revenues for both years was primarily driven by revenue growth in our PGiMeet solutions and in our Maritime PGiNotify solutions (which we resell from a third party to shipping companies in the region). In 2008, the increase in organic net revenues of $12.0 million was associated with increases in average selling prices of $5.4 million and by increases in volume of $6.6 million. In 2007, the increase in organic net revenues of $9.6 million was associated with decreases in average selling prices of $5.3 million offset by increases in volume of $14.9 million. In 2008 and 2007, changes in average selling prices and volumes were primarily associated with PGiMeet.
Cost of Revenues
Change Change
2008 from 2007 from
Year Ended December 31, 2007 2006
--------------------------- ----------- -----------
2008 2007 2006 $ % $ %
------- ------- ------ ---- ---- ---- ----
North America $161.7 $142.0 $124.4 19.7 13.9 17.6 14.1
Europe 40.9 37.0 35.4 3.9 10.4 1.6 4.6
Asia Pacific 54.0 48.3 40.7 5.7 12.0 7.6 18.7
------- ------- ------ ---- ---- ---- ----
Consolidated $256.6 $227.3 $200.5 29.3 12.9 26.8 13.4
------- ------- ------ ---- ---- ---- ----
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Year Ended
December 31,
----------------------------
2008 2007 2006
----- ------------ -----
Cost of revenues as a percent of net revenues:
North America 42.0% 39.8% 39.0%
Europe 33.4% 35.9% 38.1%
Asia Pacific 46.2% 48.4% 48.3%
Consolidated 41.1% 40.6% 40.5%
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Consolidated cost of revenues as a percentage of consolidated net revenues increased in 2008 from the previous year primarily as a result of growth in higher cost of revenue large enterprise customers in our North America PGiMeet solutions and the reduction of lower cost of revenue associated with our broadcast fax and enterprise document delivery solutions revenues. These increases in cost were offset in part by cost reductions primarily from our fax service delivery organization re-engineering efforts in North America and Europe, began in the second quarter of 2007, and network upgrades to our fax delivery platform in Asia Pacific during the second half of 2007. Consolidated cost of revenues as a percentage of consolidated net revenues remained flat in 2007 compared to the previous year as a result of re-negotiated lower telecommunications costs, our continued migration to VoIP and the initial benefits of our service delivery organization re-engineering efforts. These cost reductions, however, were offset by declines in high margin broadcast fax services and price compression in our PGiMeet solutions. Fluctuations in foreign currency exchange rates resulted in consolidated cost of revenues growth of approximately $3.1 million in 2008 and approximately $4.9 million in 2007 from the previous year. For the years ended December 31, 2008, 2007 and 2006, we capitalized network engineering costs associated with the development and deployment of customer-supporting infrastructure of approximately $5.4 million, $2.8 million and $0.4 million, respectively. The increase in capitalization costs are primarily related to network upgrades to our global service delivery platforms. Capitalized network engineering costs as a percentage of total cash cost of
North America cost of revenue includes approximately $0.2 million, $0.3 million and $0.7 million for 2008, 2007 and 2006, respectively, of equity-based compensation expense. The 2008 increase in North America cost of revenue as a percentage of operating segment net revenue was attributable primarily to our acquisitions of iLinc and Soundpath and growth in higher cost of revenue large enterprise customers in our PGiMeet solutions net revenue, offset in part by a decline in our broadcast fax net revenue, which has a lower cost of revenue in North America than our other solutions. The increase in North America cost of revenue as a percentage of operating segment net revenue in 2007 from the previous year was attributable primarily to lower average selling prices per minute in our PGiMeet solutions, declines in our lower cost of revenue broadcast fax net revenue and growth in our higher cost of revenue web conferencing services, offset by lower negotiated telecommunications costs per minute and reduced customer service costs associated with our non-PGiMeet solutions revenue. These reduced non-PGiMeet solutions customer service costs are a result of our re-engineering efforts in the first half of 2007. Fluctuations in foreign currency exchange rates from our Canadian operations resulted in North America cost of revenue growth of approximately $0.1 million in 2008 and approximately $0.4 million in 2007 from the previous year.
The 2008 decrease in Europe cost of revenue as a percentage of operating segment net revenue was attributable primarily to declines in broadcast fax net revenue, which has a higher cost of revenue than our other solutions, growth in lower cost of revenue PGiMeet solutions net revenue, cost savings associated with our service delivery organization re-engineering efforts in Europe that began in the second quarter of 2007, and network upgrades to our fax delivery platform in the first half of 2008, partially offset by our acquisition of Meet24. The decrease in Europe cost of revenue as a percentage of operating segment net revenue in 2007 from the previous year was attributable primarily to an increase in revenue mix towards lower cost of revenue PGiMeet solutions from higher cost of revenue broadcast fax services and reduced customer service costs associated with our non-PGiMeet solutions revenue. These reduced customer service costs are a result of our re-engineering efforts in the first half of 2007. Fluctuations in foreign currency exchange rates resulted in Europe cost of revenue growth of approximately $1.1 million in 2008 and approximately $3.1 million in 2007 from the previous year.
The 2008 decrease in Asia Pacific cost of revenue as a percentage of operating segment net revenue was attributable primarily to network cost savings . . .
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