Second quarter results compared with pro forma second quarter 2000:
- Total revenue grew 12.2 percent to $5.22 billion
- Pro forma normalized net income was $128 million, or $0.08 per diluted share
- Internet and data services revenue grew about 41 percent and represents more than 27 percent of total revenue
- Commercial revenue increased 26.7 percent with market share gains in global business services and wholesale markets
- Total EBITDA grew 13.1 percent to $2.03 billion compared with pro forma normalized EBITDA in second quarter 2000
Reported second quarter results compared with second quarter 2000:
- Total revenue of $5.22 billion grew 51.4 percent, while EBITDA of $2.03 billion increased 30.1 percent
- One-time and merger-related charges of $3.72 billion, pre-tax, primarily comprised of non-cash, non-operating write-downs in equity holdings of other companies
- Net loss of ($3.31) billion or ($1.99) per share compared to a net loss of ($121) million or ($0.14) per share in the second quarter of 2000
- DSL customers grew 105 percent to 360,000 customers over second quarter 2000
- Leadership changes in consumer, small business and wireless units drove record sales for those units in June
- Strong quarter for wholesale services led by Internet services and optical network services
Note to investors: Pro forma normalized information regarding Qwest?s results from operations is provided as a complement to reported results provided in accordance with accounting principles generally accepted in the United States (GAAP). The condensed consolidated pro forma normalized statements give retroactive effect as though the merger of Qwest and U S WEST, Inc. had occurred as of the beginning of the periods presented. Shares outstanding and earnings per share have been restated to give retroactive effect to the exchange ratio resulting from the Merger. In addition, results have been adjusted to eliminate the impact of non-recurring items, such as merger costs, a depreciation adjustment on access lines returned to service, gains/losses on the sale of investments, change in the market value of investments, the write-down of investments, elimination of in-region long-distance activity, and a tax true-up on merger-related expenses. Certain re-classifications have been made to prior periods to conform to the current presentation.
DENVER, July 24, 2001 ? Qwest Communications International Inc. (NYSE: Q), the broadband communications company, today announced strong revenue and earnings before interest, taxes, depreciation and amortization (EBITDA) for the second quarter of 2001. Total second quarter revenue increased to $5.22 billion, a 12.2 percent increase versus pro forma second quarter 2000 revenue. Second quarter EBITDA grew 13.1 percent on a pro forma normalized basis to $2.03 billion. In addition, Qwest recorded pro forma normalized net income of $128 million, or $0.08 per diluted share. Qwest has met or exceeded the consensus of analysts? estimates for the 17th consecutive quarter.
?We are pleased with our overall results achieved during the quarter. The Qwest team demonstrated its ability to continue strong revenue and EBITDA growth by leveraging our unique and diverse market position in challenging economic conditions,? said Joseph P. Nacchio, Qwest chairman and CEO. ?We are encouraged by strong growth in our commercial unit and by recent operational improvements, driven by new business leadership. These factors are key to our growth through the remainder of the year.?
Reported in accordance with generally accepted accounting principles (GAAP), Qwest?s revenue increased 51.4 percent; EBITDA grew 30.1 percent over reported second quarter 2000 results; and Qwest recorded a net loss of ($3.31) billion or ($1.99) per share for the second quarter 2001. The GAAP-based results include $3.72 billion in pre-tax one-time charges. The one-time items include $3.11 billion in non-cash investment write-downs principally comprised of the company?s holdings in KPNQwest; $415 million in merger-related charges; a non-cash charge of $222 million for additional depreciation on access lines previously held for sale; and $27 million in other one-time gains (net). These one-time items are excluded from the pro forma normalized results presented in Attachment A to this news release.
On July 20, 2001, Qwest terminated its agreement with Citizens Communications Company to sell access lines and related properties and ceased actively marketing all access lines held for sale. As a result, a cumulative depreciation catch-up of $222 million was recorded in the second quarter.
Commercial services revenues increased 26.7 percent to $2.90 billion, driven by a robust demand for Qwest?s broadband Internet, data and Internet Protocol (IP) services. Internet, data and IP services grew about 41 percent in the quarter as compared with the second quarter of the previous year. Strong demand for Qwest?s domestic and international wholesale and global business services led to continued market share gain, which offset the impact of the slowing economy on local service revenues.
The company?s small business and consumer units reported services revenue growth of 4.4 percent, or two percent including out-of-region long-distance service results.
Second quarter EBITDA, on a pro forma normalized basis grew 13.1 percent to $2.03 billion as EBITDA margins expanded 40 basis points from 38.5 percent in second quarter 2000 to 38.9 percent in second quarter 2001. This increase in EBITDA margin resulted from tight cost controls and productivity improvements.
?We are pleased with the continued execution of our financial and operational plans. Qwest?s ability to adjust to market conditions and deliver revenue growth demonstrates the value of our brand and our diverse asset portfolio,? said Robin R. Szeliga, Qwest executive vice president of finance and CFO. ?We achieved strong revenue and EBITDA growth for the quarter as we continued our focused execution of the company?s growth strategies. Additionally, we will continue to streamline the company?s cost structure and achieve operational efficiencies.?
On a pro forma normalized basis, the company recorded second quarter net earnings of $128 million, or $0.08 per diluted share, compared to net earnings of $255 million, or $0.15 per diluted share, a year ago. The decrease reflects increases in both interest expense and depreciation driven by Qwest?s growth-stimulated capital program and the amortization impact from merger-related purchase accounting. Pro forma normalized cash earnings per diluted share, which excludes amortization, were $0.29 for the second quarter of 2001 versus $0.32 in the second quarter of 2000.
For the full year 2001, Qwest expects to achieve total revenues of $21.3 billion to $21.5 billion and EBITDA of $8.5 billion to $8.6 billion. Qwest also expects to spend between $8.8 billion and $9.0 billion of capital in 2001.
Yesterday, Qwest proposed commencing a private placement of approximately $3.0 billion in notes to refinance commercial paper and other debt.
COMMERCIAL, SMALL BUSINESS AND CONSUMER MARKETS
Commercial revenues grew 26.7 percent compared to the second quarter 2000. Global business markets sales were strong, led by demand for IP-access services, including dedicated Internet access (DIA), virtual private network (VPN) services, and Internet dial ports. Data and IP sales comprised 70 percent of the total global business markets contracted sales in the second quarter 2001, compared with more than 60 percent in the first quarter.
In the second quarter, Qwest continued to grow its share in large, national market accounts with new contracts from such companies as Microsoft?s MSN, Kaiser Permanente and Fifth Third Bank. Qwest also won new business in the government and education sectors during the quarter, including the U. S. Mint, State of Maryland, State of Louisiana, the University of Missouri System and California State University.
Commercial wholesale revenues were sparked by strong demand for Internet and optical network capacity worldwide. Contributing to this demand was a ?flight to safety? spurred by reported and perceived difficulties of many new carriers. Wholesale revenue from Qwest?s 14-state local service territory benefited from strong demand for private line and access services stimulated in part by local competition.
Small business sales generated a 5.3 percent sequential growth and hit an all-time monthly high in June, reflecting the initial success of a newly formed business unit focused on the small business market.
More than 30 percent of Qwest consumer customers subscribe to bundled services including Internet access, voice messaging, caller identification, voice messaging and additional lines - a 12 percent increase over the second quarter of 2000. There is significant opportunity for further bundling of DSL and wireless services as only two percent of customers have bought fully integrated communications services bundles. The addition of long-distance service to the bundle, following Federal Communications Commission?s approval for Qwest to re-enter the long-distance business in the 14-state local service area, represents an additional, significant revenue growth opportunity.
Wireless services revenues grew 20 percent sequentially or 51 percent year-over-year to more than $181 million in the second quarter of 2001. Qwest wireless customers totaled over one million at the end of the quarter. Average revenue per user increased to $52 from $50 in the first quarter of 2001 as Qwest focused on high-value customers and exited the low-usage, pre-paid business. In June, the wireless business unit, under new leadership, benefited from promotional and marketing activities by winning nearly 95,000 new (gross) customers?a record monthly number. This puts Qwest Wireless on track to achieve between 70 percent to 80 percent annual revenue growth.
INTERNET, DATA and IP SERVICES
Second quarter Internet, data and IP services revenues grew about 41 percent over the second quarter 2000. Internet and data revenues represent more than 27 percent of total revenue. Strong growth was realized in the following areas: Web hosting and related services, dedicated Internet access (DIA), DSL, virtual private network (VPN), and Internet professional services.
Digital Subscriber Line (DSL) growth remained strong with an increase of more than 105 percent annually to approximately 360,000 customers. The number of DSL customers is expected to hit 500,000 by the end of 2001.
Qwest and Microsoft during the quarter formed a five-year strategic alliance to combine premium MSN Internet Access, content and services with Qwest?s broadband Internet network and telecommunications services for 10 million consumer homes in Qwest?s local service area. Qwest will exclusively market MSN Internet Access and services alone or in bundles of services to new and existing customers starting later this summer. In addition, MSN will purchase from Qwest; broadband capacity, digital subscriber lines (DSL), dial ports, and billing and collections services to support the delivery of its content solutions and services to consumers.
The company extended its global network to more than 113,000 route miles (4.5 million fiber miles) through 7,000-miles of fiber-optic routes in Asia and the Middle East that provide customers with seamless global connectivity on Qwest facilities. Qwest acquired these new routes through transactions with other carriers, taking advantage of favorable pricing for existing assets. In addition, Qwest beat its goal of operating local broadband networks in 25 major markets outside its 14-state local service territory seven months ahead of schedule.
J.D. Power and Associates has named Qwest number one in customer satisfaction among residential long-distance customers nationwide who spend more than $50 monthly. The survey measured customer satisfaction across a number of key attributes including service, product quality and value. The study also cited Qwest for significant improvement in the past year in resolving customer questions with one call.
During the quarter, Qwest continued to see the best customer service results in seven years in key areas for residential and small business customers, including installations, repairs and out-of-service response intervals. Total customer complaints in the second quarter were down 18 percent as compared with the same period a year ago. This is the fourth consecutive quarter of service improvements.
Conference Call Today
As previously announced, Qwest will host a conference call for investors and the media today at 9 a.m. (EDT), featuring Joseph P. Nacchio, Qwest chairman and CEO, and Robin R. Szeliga, Qwest executive vice president of finance and CFO. The call may be heard on the Web at www.qwest/com/about/investor/meetings.
Qwest Communications International Inc. (NYSE: Q) is a leader in reliable, scalable and secure broadband data, voice and image communications for businesses and consumers. The Qwest Macro Capacity® Fiber Network, designed with the newest optical networking equipment for speed and efficiency, spans more than 113,000 miles globally. For more information, please visit the Qwest web site at www.qwest.com.
This release may contain projections and other forward-looking statements that involve risks and uncertainties. These statements may differ materially from actual future events or results. Readers are referred to the documents filed by Qwest with the Securities and Exchange Commission, specifically the most recent reports which identify important risk factors that could cause actual results to differ from those contained in the forward-looking statements, including potential fluctuations in quarterly results, volatility of Qwest?s stock price, intense competition in the communications services market, changes in demand for Qwest?s products and services, dependence on new product development and acceleration of the deployment of advanced new services, such as broadband data, wireless and video services, which could require substantial expenditure of financial and other resources in excess of contemplated levels, higher than anticipated employee levels, capital expenditures and operating expenses, rapid and significant changes in technology and markets, adverse changes in the regulatory or legislative environment affecting Qwest?s business and delays in Qwest?s ability to provide interLATA services within its 14-state local service territory, failure to maintain rights of way, and failure to achieve the projected synergies and financial results expected to result from the acquisition of U S WEST timely or at all and difficulties in combining the operations of Qwest and U S WEST. This release may include analysts? estimates and other information prepared by third parties for which Qwest assumes no responsibility. Qwest undertakes no obligation to review or confirm analysts? expectations or estimates or to release publicly any revisions to any forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
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