 1
Third Quarter 2010
Earnings Conference Call
November 16, 2010
Filed by Primus Telecommunications Group, Incorporated
Pursuant to Rule 425 under the Securities Act of 1933
Subject Company: Arbinet
Corporation
Commission File No.: 000-51063 |
 2
Safe Harbor
In connection with the proposed merger, Primus Telecommunications Group,
Incorporated (“Primus”) will file with the Securities and Exchange Commission (“SEC”) a Registration
Statement on Form S-4 that will include a preliminary proxy statement of
Primus and Arbinet Corporation (“Arbinet”) that also constitutes a preliminary prospectus of Primus. A
definitive joint proxy statement/prospectus will be sent to security holders of
both Arbinet and Primus seeking their approval with respect to the proposed merger. Primus and Arbinet
also plan to file other documents with the SEC regarding the proposed
transaction. INVESTORS AND SECURITY HOLDERS ARE URGED TO CAREFULLY READ THE
JOINT PROXY STATEMENT/PROSPECTUS AND OTHER DOCUMENTS FILED WITH THE SEC WHEN
THEY BECOME AVAILABLE, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION.
Investors and security holders may obtain a free copy of the joint proxy statement/prospectus (when it becomes available) and other
documents filed by Primus and Arbinet with the SEC, without charge, at the
SEC’s web site at www.sec.gov. Copies of the joint proxy statement/prospectus, once available, and each
company’s SEC filings that will be incorporated by reference in the joint
proxy statement/prospectus may also be obtained for free by directing a request to: (i) Primus 703-748-8050, or
(ii) Arbinet (Andrea Rose/Jed Repko Joele Frank, Wilkinson Brimmer Katcher (212)
355-4449). Arbinet, Primus, and their respective directors, executive officers and other
members of their management and employees may be deemed to be “participants” in the solicitation of
proxies from their respective security holders in connection with the proposed
merger. Investors and security holders may obtain information regarding the names, affiliations and
interests of Primus’s directors, executive officers and other members of
its management and employees in Primus’s Annual Report on Form 10-K for the year ended December 31, 2009,
which was filed with the SEC on April 5, 2010, and amended in a Form 10-K/A
filed with the SEC on April 28, 2010, Primus’s proxy statement for its 2010 annual meeting, which was
filed with the SEC on June 14, 2010, and any subsequent statements of changes in
beneficial ownership on file with the SEC. Investors and security holders may obtain information
regarding the names, affiliations and interests of Arbinet’s directors,
executive officers and other members of their management and employees in Arbinet’s Annual Report on Form 10-
K for the year ended December 31, 2009, which was filed with the SEC on March
17, 2010, Arbinet’s proxy statement for its 2010 annual meeting, which was filed with the SEC on April
30, 2010, and any subsequent statements of changes in beneficial ownership on
file with the SEC. These documents can be obtained free of charge from the sources listed above.
Additional information regarding the interests of these individuals will also be
included in the joint proxy statement/prospectus regarding the proposed transaction when it becomes
available.
This document and related verbal statements include “forward-looking
statements” as defined by the Securities and Exchange Commission. All statements, other than statements of
historical fact, included herein that address activities, events or developments
that Arbinet or Primus expects, believes or anticipates will or may occur in the future, including anticipated
benefits and other aspects of the proposed merger, are forward-looking
statements. These forward-looking statements are subject to risks and uncertainties that may cause actual results
to differ materially. Risks and uncertainties that could affect
forward-looking statements include, but are not limited to, the following: the risk that the acquisition of Arbinet may not be
consummated for reasons including that the conditions precedent to the
completion of the acquisition may not be satisfied; the possibility that the expected synergies from the proposed
merger will not be realized, or will not be realized within the anticipated time
period; the risk that Primus’s and Arbinet’s businesses will not be integrated successfully; the possibility of
disruption from the merger making it more difficult to maintain business and
operational relationships; any actions taken by either of the companies, including, but not limited to,
restructuring or strategic initiatives (including capital investments or asset
acquisitions or dispositions); the ability to service substantial indebtedness; the risk factors or uncertainties
described from time to time in Arbinet’s filings with the Securities and
Exchange Commission; and the risk factors or uncertainties described from time to time in Primus’s filings with
the Securities and Exchange Commission (including, among others, those listed
under captions titled “Management’s Discussion and Analysis of Financial Condition and Results of
Operations — Liquidity and Capital Resources — Short- and
Long-Term Liquidity Considerations and Risks;” “— Special Note Regarding Forward-Looking Statements;” and “Risk
Factors” in Primus’s annual report on Form 10-K and quarterly
reports on Form 10-Q) that cover matters and risks including, but not limited to: (a) a continuation or worsening of
global recessionary economic conditions, including the effects of such
conditions on our customers and our accounts receivables and revenues; (b) the general fluctuations in the
exchange rates of currencies, particularly any strengthening of the United
States dollar relative to foreign currencies of the countries where we conduct our foreign operations; (c) the
possible inability to raise additional capital or refinance indebtedness when
needed, or at all, whether due to adverse credit market conditions, our credit profile or otherwise; (d) a
continuation or worsening of turbulent or weak financial and capital market
conditions; (e) adverse regulatory rulings or changes in the regulatory schemes or requirements and regulatory
enforcement in the markets in which we operate and uncertainty regarding the
nature and degree of regulation relating to certain services; and (f) successful implementation of cost
reduction efforts. Readers are cautioned not to place undue reliance on
forward-looking statements, which speak only as of their dates. Except as required by law, neither Arbinet nor
Primus intends to update or revise its forward-looking statements, whether
as a result of new information, future events or otherwise. Important
Information
and
Where
to
Find
It
Participants
in
the
Solicitation
Forward-Looking
Statements |
 Q3
and YTD 2010 Highlights 3
Notes:
All results of operations exclude Discontinued Operations and severance unless
otherwise specified. 1. EBITDA excludes impact of severance expenses,
$4.2 million in Q310 and $1.8 million in Q110 and is a non-GAAP financial measure. Definitions and reconciliations between
non-GAAP measures and relevant GAAP measures are available in the Appendix
and in the Company’s periodic SEC filings. 2. Free Cash Flow
is defined as Cash Flow from Operating Activities less Capital Expenditures.
(US$ 000s)
Q309
Q310
Change
Q309
Q310
Change
Revenue
$194.9
$188.2
($6.7)
$560.2
$575.8
$15.6
Gross Margin
68.1
67.3
(0.8)
196.4
209.0
12.6
Gross Margin %
34.9%
35.8%
0.9%
35.1%
36.3%
1.2%
Adjusted EBITDA
(1)
$21.2
$20.0
($1.2)
$60.7
$65.7
$5.1
EBITDA %
10.9%
10.6%
-0.3%
10.8%
11.4%
0.6%
Capex
3.9
6.4
2.5
9.5
16.7
7.2
Free Cash Flow
(2)
9.1
14.5
5.4
30.3
20.3
(10.0)
Cash Balance
$41.9
$49.6
$7.7
$41.9
$49.6
$7.7
Quarter ended
YTD |
 The
Primus Portfolio – Sum of the Parts
Adjusted
Adjusted
EBITDA
(US$ 000s)
Revenue
EBITDA
(1)
Capex
less Capex
Canada
$172.4
$34.9
$7.3
$27.6
Australia
205.7
29.8
7.6
22.2
Global Wholesale
137.6
3.2
0.1
3.1
Sub-Total
$515.7
$67.9
$15.0
$52.9
US Retail
$38.8
$4.1
$0.8
$3.3
Brazil
21.3
1.3
0.8
0.4
Corporate / India
-
(7.6)
-
(7.6)
$575.8
$65.7
$16.7
$49.0
Discontinued Operations
36.4
(0.4)
0.3
(0.8)
Severance
-
(6.1)
-
(6.1)
Total
$612.2
$59.2
$17.1
$42.2
YTD Q310
Total before
Discontinued Operations
Canada
30%
Australia
35%
Wholesale
24%
US
7%
Brazil
4%
4
Canada
48%
Australia
41%
Wholesale
4%
US
5%
Brazil
2%
Notes:
1. A non-GAAP financial measure. Definitions and reconciliations between
non-GAAP measures and relevant GAAP measures are available in the Appendix and in the Company’s periodic SEC filings. |
 Primus Canada Highlights
5
•
Headquartered in Toronto,
Ontario
•
C$240M revenue in annualized
revenue
•
800 employees
•
Data centers and sales offices in
BC, Alberta, and Ontario
•
450K customers across the
country
•
70 DSLAMs
(primarily in
Ontario & Quebec)
•
Provide on-net equal access to
~90% of population
•
Call centers in Ontario (Ottawa)
and New Brunswick |
 Primus Australia Highlights
6
•
Headquartered in Melbourne
•
A$305 million in annualized
revenue
•
575 employees
•
3 Data Centers in Melbourne
and Sydney
•
Offices in Melbourne, Sydney,
Adelaide, Brisbane and Perth
•
250K customers located in all
territories
•
5 carrier-grade voice switches
and 66 points of interconnect
•
281 DSLAMs
primarily in major
cities and surrounding suburbs
•
Central business district metro
fiber in Sydney and Melbourne |
 Global Wholesale Services
Key
Combination
Considerations:
•
Increased scale in carrier services market
•
Benefits
of
thexchange
TM
–
Arbinet’s
world-class
telecommunications
trading
platform
•
Added products and services and enhanced access to certain international
routes •
Complementary market presence
•
Synergy potential of $3 million to $7 million (when fully integrated)
•
Consolidation benefits for network and facilities
7
Combined
PRIMUS
Before
(all figures in millions and annualized, except customers)
Carrier
Arbinet
Synergies
Revenue
(1)
$183.4
$330.0
$513.4
Gross Margin
(1)
$10.8
$25.0
$35.8
Gross Margin %
5.9%
7.6%
7.0%
Customers
262
1,237
Minutes of Use
4,340
12,667
(1) Revenue and Gross Margin are presented net of Bad Debt allowance.
YTD Q310 Annualized |
 Financial Summary
Revenue
Adjusted EBITDA
(1) (2)
Capital Expenditures
Free
Cash
Flow
(1)
($ Millions)
8
$195
$203
$193
$195
$188
$0
$50
$100
$150
$200
$250
Q309
Q409
Q110
Q210
Q310
-3.3%
% Sequential
Change
5.9 %
4.0%
-4.7%
0.8%
3.4%
% of
Revenue
2.0%
2.7%
2.5%
3.0%
10.6%
% of
Revenue
10.7%
10.8%
11.8%
11.7%
$14
($7)
$13
$6
$9
-$10
-$5
$0
$5
$10
$15
$20
Q309
Q409
Q110
Q210
Q310
$21
$22
$23
$23
$20
$0
$5
$10
$15
$20
$25
Q309
Q409
Q110
Q210
Q310
$6
$6
$5
$6
$4
$0
$2
$4
$6
$8
$10
Q309
Q409
Q110
Q210
Q310
7.4%
% of
Revenue
4.7%
3.0%
6.7%
(3.6)%
(1)
A non-GAAP financial measure. Definitions and reconciliations between
non-GAAP measures and relevant GAAP measures are available in the Appendix and in the Company’s periodic SEC filings.
(2)
Adjusted EBITDA excludes impact of severance charges in Q109 ($1.8 million) and
Q310 ($4.2 million). Note:
All results of operations exclude Discontinued Operations unless otherwise
specified. |
 9
Canada Overview
Net Revenue
Adjusted EBITDA
(1)
(0.8)%
59.1
(CAD$)
$63.1
$62.1
$59.8
$59.6
Sequential Change
(2.0)%
(1.6)%
(3.6)%
(0.4)%
20.0%
(3.3)%
$11.8
(CAD$)
$12.8
$11.8
$12.1
$12.2
Sequential Change
(7.9)%
(7.8)%
2.5%
0.8%
% of Revenue
20.3%
19.1%
20.2%
20.5%
($Millions)
($Millions)
Most profitable business unit
in the portfolio
Stable EBITDA averaging
20% of net revenue despite
declining revenues
40% and 7% growth year-
over-year in Hosted IP/PBX
and data center revenues,
respectively
Effective cost controls helped
offset the impact of declining
revenues on EBITDA and free
cash flow
$56.9
$58.0
$57.5
$58.7
$57.4
$0
$25
$50
$75
Q309
Q409
Q110
Q210
Q310
$11.3
$12.0
$11.6
$11.2
$11.6
$0
$5
$10
$15
$20
Q309
Q409
Q110
Q210
Q310
(1)
A non-GAAP financial measure. Definitions and reconciliations between
non-GAAP measures and relevant GAAP measures are available in the Appendix and in the Company’s periodic SEC filings. |
 10
Australia Overview
Net Revenue
Adjusted EBITDA
(1)
(0.8)%
$75.8
(AUS$)
$76.5
$75.9
$77.3
$76.4
Sequential Change
(0.9)%
(0.8)%
1.9%
(1.2)%
13.2%
(2.9)%
$10.0
(AUS$)
$9.8
$9.7
$12.9
$10.3
Sequential Change
(10.1)%
(1.0)%
33.0%
(20.2)%
% of Revenue
12.9%
12.8%
16.6%
13.5%
($Millions)
($Millions)
Stable revenue stream
Declining residential revenue
replaced by higher margin
business revenue
46% growth year-over-year in
data center revenues and 6%
growth for business revenues in
aggregate
Adjusted EBITDA of 13.2% of
net revenue in Q310 versus
12.9% in Q309
$68.4
$69.9
$63.7
$69.0
$67.5
$60
$64
$68
$72
Q309
Q409
Q110
Q210
Q310
$9.0
$9.1
$11.6
$8.8
$8.2
$0
$2
$4
$6
$8
$10
$12
$14
Q309
Q409
Q110
Q210
Q310
(1) A non-GAAP financial measure. Definitions and
reconciliations between non-GAAP measures and relevant GAAP measures are available in the Appendix and in the Company’s periodic SEC filings.
|
 Global Wholesale Overview
Net Revenue
Gross Margin %
(1)
$53.6
$54.9
$46.5
$49.2
$41.9
$0
$20
$40
$60
$80
Q309
Q409
Q110
Q210
Q310
4.1%
3.9%
3.7%
4.9%
5.2%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
Q309
Q409
Q110
Q210
Q310
(1)
A
non-GAAP
financial
measure.
Gross
Margin
%
is
defined
as
Net
Revenue
less
costs
of
revenue
divided
by
Net
Revenue.
(14.9)%
Sequential Change
6.5%
2.5%
(15.3)%
5.8%
($Millions)
($Millions)
Gross margins, as a percentage
of net revenue, improved 110
basis points to 5.2% in Q310
versus Q309 as we focused on
higher margin US domestic
terminations
Summer seasonality in Europe
had expected effect on
quarterly traffic
Focus on profitability vs.
Revenue drove decision to
prune less profitable traffic
11 |
 Primus’
Other Businesses
United States:
Net Revenue for the quarter decreased $4.1 million year over year to $12.1
million
Adjusted EBITDA for the quarter decreased $1.6 million year over
year to
$0.9 million
Brazil:
Net Revenue for the quarter increased BRR 8.2 million year over year to BRR
15.9 million
Adjusted EBITDA for the quarter remained flat year over year as the
significant increase in revenue was derived from low-margin reseller voice
services
Europe Retail:
All European retail operations classified as “Discontinued
Operations” in the
financial statements
$6.2 million (non-cash) impairment charge for goodwill and long-lived
assets, primarily intangibles established as part of fresh start
accounting Adjusted EBITDA of (€2K) and (€71K) for the third
quarters 2010 and 2009, respectively |
 13
Foreign Currency Effects
More than 80% of revenue generated outside US
Natural in-country currency hedge
Revenue and costs are largely denominated in each country’s local
currency Impact of currency fluctuations driven by US dollar
remittances from foreign units to service debt
.5688
0.9617
0.9023
Q310
0.5536
0.9602
0.9036
Q110
0.5559
0.9731
0.8835
Q210
0.5800
0.9900
0.9900
As of
11/15/10
Q309
Q409
AUD $
0.8323
0.9087
CAN $
0.9097
0.9460
BRR
0.5335
0.5728
Average Exchange Rate to US$ |
 14
Balance Sheet
($US Millions)
Q309
Q409
Q110
Q210
Q310
Total Debt / LTM Adjusted EBITDA
3.30x
3.15x
2.99x
2.79x
2.81x
Net Debt / LTM Adjusted EBITDA
2.76x
2.63x
2.38x
2.40x
2.24x
Interest Coverage Ratio
2.50x
1.77x
2.45x
2.69x
2.31x
Note:
All results of operations exclude Discontinued Operations and severance unless
otherwise specified. Cash balance of $49.6 million at September 30,
2010 Principal amount of total debt at 9/30/10 was $245.9
million compared to $246.3 million at 6/30/10
Improving leverage ratios
(1)
A non-GAAP financial measure. Definitions and reconciliations between
non-GAAP measures and relevant GAAP measures are available in the Appendix and in the Company’s
periodic SEC filings.
|
 15
Adjusted EBITDA
Adjusted EBITDA, as defined by us, consists of net income (loss)
before reorganization items, net, share-based compensation
expense, depreciation and amortization, asset impairment
expense, gain (loss) on sale or disposal of assets, interest
expense, amortization or accretion on debt discount or premium, gain (loss) on
early extinguishment or restructuring of debt, interest income and
other income (expense), gain (loss) from contingent value
rights valuation, foreign currency transaction gain (loss),
income tax benefit (expense), income (expense) attributable to
the non-controlling interest, income (loss) from discontinued
operations, net of tax, and income (loss) from sale of
discontinued operations, net of tax. Our definition of
Adjusted EBITDA may not be similar to Adjusted EBITDA measures
presented by other companies, is not a measurement under
generally accepted accounting principles in the United States,
and should be considered in addition to, but not as a substitute for,
the information contained in our statements of operations.
We believe Adjusted EBITDA is an important performance measurement for
our investors because it gives them a metric to analyze our
results exclusive of certain non- cash items and items which
do not directly correlate to our business of selling and
provisioning telecommunications services. We believe Adjusted
EBITDA provides further insight into our current performance
and period to period performance on a qualitative basis and is
a measure that we use to evaluate our results and performance
of our management team.
Free Cash Flow
Free Cash Flow, as defined by us, consists of net cash provided by
(used in) operating activities before reorganization items less
net cash used in the purchase of property and equipment.
Free Cash Flow, as defined above, may not be similar to Free Cash Flow
measures presented by other companies, is not a measurement under
generally accepted accounting principles in the United States,
and should be considered in addition to, but not as a
substitute for, the information contained in our consolidated
statements of cash flows.
We believe Free Cash Flow provides a measure of our ability, after
purchases of capital and other investments in our
infrastructure, to meet scheduled debt principal
payments. We use Free Cash Flow to monitor the impact of our
operations on our cash reserves and our ability to generate
sufficient cash flow to fund our scheduled debt maturities and
other financing activities, including discretionary refinancings and
retirements of debt. Because Free Cash Flow represents the
amount of cash generated or used in operating activities less
amounts used in the purchase of property and equipment before
deductions for scheduled debt maturities and other fixed obligations
(such as capital leases, vendor financing and other long-term
obligations), you should not use it as a measure of the amount
of cash available for discretionary expenditures.
Non-GAAP Measures
Note:
All results of operations excluded Discontinued Operations unless otherwise
specified. Three Months
Three Months
Three Months
Ended
Ended
Ended
September 30,
June 30,
September 30,
2010
2010
2009
NET INCOME (LOSS) ATTRIBUTABLE TO
PRIMUS TELECOMMUNICATIONS GROUP,
INCORPORATED$
5,080
(13,038)
$
2,165
$
Reorganization items, net
-
-
307
Share-based compensation expense
(12)
117
307
Depreciation and amortization
13,641
18,194
18,740
(Gain) loss on sale or disposal of assets
-
(189)
36
Interest expense
8,602
8,733
8,747
Accretion (amortization) on debt premium/discount, net
46
45
-
(Gain) loss on early extinguishment of debt
-
(164)
-
Interest and other (income) expense
(254)
(153)
(160)
(Gain) loss from Contingent Value Rights valuation
(33)
382
4,229
Foreign currency transaction (gain) loss
(14,006)
9,623
(13,448)
Income tax (benefit) expense
(3,238)
(1,883)
(2,121)
Income (expense) attributable to the non-controlling interest
74
(106)
210
(Income) loss from discontinued operations,
net of tax
5,464
1,528
2,110
(Gain) loss from sale of discontinued operations,
net of tax
389
(193)
110
ADJUSTED EBITDA
15,753
$
22,896
$
21,232
$
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES BEFORE REORGANIZATION
ITEMS$ 20,865
(1,140)
$
12,992
$
Net cash used in purchase of property
and equipment
(6,410)
(5,824)
(3,886)
FREE CASH FLOW
14,455
$
(6,964)
$
9,106
$
|