DENVER - July 27, 1998 - Qwest Communications International Inc. today reported its second quarter results reflecting significant increases in revenues and EBITDA. For the three months ended June 30, 1998, revenues were $393.7 million, representing an increase of $165.0 million or 72 percent over the same quarter 1997. Communications services revenues grew ten-fold from $24.0 million to $239.8 million over the same quarter 1997. Earnings before interest, taxes, depreciation and amortization (EBITDA) in the second quarter was $24.1 million, an increase of $27.1 million over the prior year. Excluding the impact of previously announced one-time merger related charges that totaled $880.5 million, the company posted a net loss of $15.6 million in the quarter, or ($0.06) per share, compared to a net loss of $5.6 million, or ($0.03) per share a year ago. These results exceeded analyst expectations. After giving effect to the one-time merger related charges, the company?s net loss was $876.3 million in the quarter, or ($3.62) per share. Results for the quarter include one month of operations from LCI International, which was acquired during the quarter.
On a pro forma basis, communications services revenue grew to $540.4 million, an increase of $83.0 million over the same quarter 1997. Construction services revenue declined from $204.7 million to $153.9 million. The decline in construction services revenue reflects one-time non-recurring revenues in the second quarter of 1997 associated with the GTE contract. Pro forma EBITDA, excluding one-time merger related charges, grew to $66.7 million compared to $62.4 million a year ago. Pro forma net loss, excluding one-time merger related charges, was $20.0 million in the quarter or ($0.06) per share, compared to a loss of $11.3 million, or ($0.03) per share, in the second quarter of 1997.
?Qwest is pleased with its strong second quarter results. The demand for broadband capacity on the Qwest network continues to increase, and we have capitalized upon this growing demand. The company continues to expand organically and through strategic acquisitions,? said Robert S. Woodruff, executive vice president and chief financial officer of Qwest. ?The acquisition of LCI International was completed in just 88 days, and the integration of the two companies is progressing very well, with operating and capital synergies expected to be better than originally announced.?
Reported communications services revenue for the quarter grew ten-fold reaching $239.8 million, an increase of $215.8 million from the second quarter of 1997. On a pro forma basis, communications services revenue grew $83.0 million year over year to $540.4 million.
Pro forma revenue from business and wholesale customers comprised approximately 70 percent of revenue, while revenue from consumers made up approximately 30 percent. Carrier services achieved more than 40 percent growth in broadband private line services year over year. In total, the company?s data services grew by approximately 40 percent compared to the same quarter 1997, driven by industry leading IP, ATM and frame relay services. The strength in data services this quarter was achieved with only approximately 50 percent of the 18,449-mile planned network activated. In addition, consumer revenue grew more than 30 percent year over year and was achieved with continued development of alternate sales channels.
Reported construction services revenue for the quarter was $153.9 million, a decrease of $50.8 million or 25 percent from the second quarter of 1997. As indicated in the second quarter last year, $95.8 million of revenue was recognized upon signing of the GTE network contract for construction milestones, which had already been met (on segments for which construction was previously commenced). Adjusting for these revenues, construction services revenue would have grown approximately 40 percent year over year.
During the second quarter, Qwest activated most of its network west of the Mississippi River including the world?s first OC-192 four-fiber SONET ring, which is located between San Jose, Oakland and San Francisco. In addition, Qwest activated the crucial segment in the East between New York City and Washington, D.C. As of June 30, 1998, Qwest had approximately, 17,600 miles of rights of way secured, 12,300 miles of conduit in the ground, 9,700 miles of fiber optic cable installed, and 8,850 route miles activated. Construction of the Qwest network is expected to be completed by mid-1999.
?With the successful acquisition of LCI and EUnet International, Qwest has become - in less than a year - a formidable player in the multimedia communications industry. Our technologically advanced native IP network is not only attracting multimedia companies in need of the most advanced and prolific capacity available, it is also enabling Qwest to be creative and lead the industry in providing businesses and residential customers with the most cutting edge communication services available today,? said Joseph P. Nacchio, president and CEO of Qwest.
One-time merger related charges
As the company previously announced, the results for the quarter reflect a total of $880.5 million of one-time merger related charges. Of these non-recurring charges, $818.0 million was related to in process R&D from the LCI and EUnet acquisitions. In addition, there was $62.5 million oas severance, duplicate facilities, duplicate commitments and channel consolidation.
As a result of the acquisitions to date, which were accounted for as purchases, a total of $3.3 billion of goodwill will be amortized over an average life slightly less than 40 years, and $257.0 million of developed technology will be amortized over 10 years.
As previously announced, synergies created with the combination of Qwest and LCI International are expected to be greater than originally estimated. Over the four year period through 2001, operating synergies (both cost savings and contribution from incremental revenue) are expected to exceed $1.2 billion, which is consistent with earlier estimates, while capital savings are expected to exceed $600 million, an increase over the $290 million in savings initially estimated. In the second half of 1998, the company expects to realize approximately $75 million in cost savings and $70 million in avoided capital spending.
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 on Form 10-Q, 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, volatility of stock price, financial risk management and future growth subject to risks.
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