Reported results compared to the previous year:
- Communications services revenue more than triples to $790.4 million
- EBITDA grew nearly eight-fold to $186.9 million
Pro forma results compared to the previous year:
- Communications services revenue grew 46 percent to $790.4 million
- Internet and data services revenue continues triple-digit growth rate
- EBITDA grew over 200 percent to $186.9 million
Pro forma results compared to the previous quarter:
- Communications services revenue was up 11 percent
- Internet and data services revenue grew about 40 percent and now accounts for more than 20 percent of Qwest's communications services revenue
- Communications services EBITDA was up more than 30 percent to $134.2 million
- Completed construction of 18,500 miles of the company's U.S. network
- Completed strategic marketing relationship and investment by BellSouth
- Closed KPNQwest joint venture and secured $805 million in financing to build pan-European network
- Established strategic relationships with Hewlett-Packard, Oracle, SAP America and Siebel Systems to support Qwest's entry into the Applications Service Provider (ASP) marketplace
- Created Qwest Cyber.Solutions joint venture with KPMG LLP to enhance distribution of Qwest's ASP services
DENVER, July 27, 1999 - Qwest Communications International Inc. (Nasdaq: QWST), the broadband Internet communications company, today reported record financial results for the second quarter of 1999, its most active strategic quarter to date. For the ninth consecutive quarter Qwest exceeded the consensus of analysts' earnings estimates.
On a reported basis, communications services revenue for the quarter more than tripled from $239.8 million to $790.4 million, while total revenue grew 122 percent over the second quarter of 1998 from $393.7 million to $873.7 million. Total earnings before interest, taxes, depreciation and amortization (EBITDA) for the second quarter was $186.9 million, up 675 percent over the same quarter of a year ago. Earnings per share (EPS) on a diluted basis were $0.02, compared to a loss of ($1.67) per share in the previous year.
On a pro forma basis, communications services revenue grew to $790.4 million, a 46 percent increase over the same period in 1998. Total revenue was $873.7 million, a 26 percent increase over the previous year. Internet and data communications services revenue continues to expand as a percentage of the company's total revenue mix and continued to grow in excess of 100 percent. Total EBITDA grew to $186.9 million, up more than 200 percent, while communications services EBITDA increased to $134.2 million, five times the same period in 1998. The company reported net earnings of $18.5 million, or $0.02 per diluted share, compared to a pro forma net loss of $27.0 million (excluding one-time merger related charges), or ($0.04) loss per diluted share for the comparable period.
Commenting on the quarter, Qwest Chairman and CEO Joseph P. Nacchio said, "We are pleased with the record results that were achieved during the quarter. They clearly illustrate management's ability to effectively direct Qwest's day-to-day operations while expanding our market leadership position and focusing on the time consuming activities related to merger discussions with U S WEST. The strategic relationships with leading technology and communications companies that we secured during the quarter will help us leverage the full potential of the recently completed Qwest network."
Qwest reported 11 percent sequential growth in communications services revenue, after adjusting for the contribution of the EUnet operations to the KPNQwest joint venture, which closed in early April. Communications EBITDA was up more than 30 percent from the first quarter of 1999, reflecting continued improvements in margins, including growth of higher margin data and Internet services. Communications EBITDA margins improved from 14.3 percent in the first quarter to 17.0 percent in the second quarter.
"The financial results for the quarter reflect strong, year over year and sequential gains across the business in a very competitive marketplace," said Robert S. Woodruff, Qwest executive vice president and chief financial officer. "In addition to our strong operational results, during the quarter we also strengthened our balance sheet with the equity investment by BellSouth."
Data and Internet Services
Data and Internet services continued to be the company's fastest-growing segment and again posted more than a 100 percent increase in revenues compared to the same quarter in 1998. The data and Internet services segment now comprises more than 20 percent of Qwest's communications services revenue.
During the quarter Qwest entered the applications service provider (ASP) market with several strategic announcements. To accelerate distribution and customize the delivery of ASP services to customers, Qwest formed a joint venture with KPMG LLP called Qwest Cyber.Solutions LLC. The venture establishes the industry's most robust facilities-based ASP by combining Qwest's technology assets with KPMG's integration expertise to deliver outsourced end-to-end Internet-based applications solutions to businesses around the world. The venture has multi-year contracts under management valued at more than $400 million that will provide a solid foundation to compete in the market for applications management.
To support the venture, Qwest also reached strategic relationships with SAP America, Hewlett-Packard, Siebel Systems and Oracle Corporation. The Qwest ASP solution combines Qwest's high-speed fiber optic network and state-of-the-art hosting CyberCenters with Siebel Systems' front office solutions, SAP's high-end enterprise resource planning software solutions, Oracle's business applications and Hewlett-Packard's state-of-the-art server platform and services.
Broadband Local Access
During the quarter the company took additional steps to grow its local broadband connectivity options to deliver end-to-end, next-generation communications services to customers. Qwest announced that it will invest $90 million for a 18 percent stake in Advanced Radio Telecom, a provider of high-speed fixed wireless network services. The move complements Qwest's previously announced Digital Subscriber Line (DSL) investments and broadband local network construction plans.
The company said that it has completed construction of 18,500 miles of its U.S. network and that it will formally celebrate this strategic milestone in early September. Construction revenue for the quarter totaled $83.3 million, representing less than 10 percent of Qwest's total revenue for the quarter, reflecting Qwest's successful transition to a leading provider of broadband Internet communications services.
BellSouth Strategic Relationship
During the quarter Qwest and BellSouth Corporation announced a strategic relationship that will significantly accelerate the companies' efforts to provide a full set of integrated digital data, image and voice communications services to their customers. As a result of the agreement, Qwest received approximately $1.9 billion from BellSouth in exchange for 40.7 million shares of Qwest common stock. Qwest's principal stockholder also sold 33.3 million shares of Qwest common stock to BellSouth for approximately $1.6 billion.
The two companies have begun coordinated marketing efforts that have resulted in a number of contracts with new customers and more than 200 joint proposals to provide services to businesses. Qwest is delivering a portfolio of data networking, Internet and voice services, while BellSouth provides a full complement of local networking and Internet services.
U S WEST Merger
Qwest and U S WEST, Inc. also agreed on July 19 to a strategic merger that will create a Fortune 100 company dedicated to providing customers in the U.S and worldwide more choice and greater access to next-generation broadband Internet and communications services. The new company will bring together the world's most advanced network providing broadband Internet communications with the most innovative local communications and the nation's leader in providing high-speed Internet access through advanced DSL technology.
On the international front, Qwest finalized its joint venture with KPN, the Dutch telecommunications company and named John A. (Jack) McMaster as chief executive officer of KPNQwest. McMaster was Qwest's executive vice president of international business and had been serving as the lead executive for KPNQwest since the venture was announced in November of 1998. Immediately following closing of the venture, KPNQwest secured $805 million of 10-year debt in a combination of 450 million in U.S. dollars and 340 million euros, to complete construction of their fiber-optic network connecting 39 key business markets in Europe. To date, the venture has completed 2,100 miles of the planned 8,100 mile network.
Qwest Communications International Inc. (Nasdaq: QWST) is a leader in reliable and secure broadband Internet-based data, voice and image communications for businesses and consumers. Headquartered in Denver, Qwest has more than 9,000 employees working in North America, Europe and Mexico. The Qwest Macro Capacity® Fiber Network, designed with the newest optical networking, spans more than 18,500 route miles in the United States, with an additional 315-mile network route to be completed by the end of the year. In addition, Qwest and KPN, the Dutch telecommunications company, have formed a venture to build and operate a high-capacity European fiber optic, Internet Protocol-based network that has 2,100 miles and will span 8,100 miles when it is completed in 2001. Qwest also has completed a 1,400-mile network in Mexico.
This release may contain 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 SEC, 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, dependence on new product development, rapid technological and market change, failure to complete the network on schedule and on budget, financial risk management and future growth subject to risks, Qwest's ability to achieve Year 2000 compliance, adverse changes in the regulatory or legislative environment, and failure to complete the U S WEST merger timely or at all. 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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