Wednesday November 10, 6:00 am Eastern Time
Company Press Release
SOURCE: Convergent Communications, Inc.
Convergent Communications Reports Third Quarter Revenue of $42.4 Million, A 90 Percent Increase over Third Quarter of 1998
- Consolidated markets EBITDA breakeven during September
- Sequential data services revenue rises 110 percent as a result of continued investment in 'eBusiness' Internet Group
- Total ENS contract value doubles on sequential-quarter basis
- Convergent Capital net income positive during September
ENGLEWOOD, Colo., Nov. 10 /PRNewswire/ -- Convergent Communications, Inc. (Nasdaq: CONV - news), an Enterprise Network Carrier providing single-source business communications solutions, today reported consolidated revenue of $42.4 million for the third quarter ended September 30, 1999, a 90 percent increase over third quarter 1998 revenue of $22.3 million.
The company's 1999 third-quarter report reflects an 11 percent increase in sequential-quarter revenue growth from the $38.1 million reported for the three months ended June 30, 1999. Revenue for the nine months ended September 30, 1999 was $112.2 million, compared to revenue of $36.8 million reported for the nine months ended September 30, 1998.
Financial Highlights ($ in millions)
3 months 3 months Annual 9 months 9 months Annual
ended ended Pct. ended ended Pct.
9/30/99: 9/30/98: Change 9/30/99: 9/30/98: Change
Total Revenue $42.4 $22.3 90% $112.2 $36.8 205%
Gross Margin 36% 34% 2% 36% 31% 5%
EBITDA ($16.5) ($7.9) (109%) ($41.9) ($17.7) (137%)
Net Loss ($26.4) ($15.4) (72%) ($69.4) ($31.6) (120%)
Loss Per Share ($1.06) ($1.11) 5% ($3.92) ($2.31) (70%)
``We have reported 12 consecutive quarters of compounded double-digit revenue growth,' said Chairman and CEO John R. Evans. ``We are especially pleased to report that the consolidated market operations were EBITDA breakeven during the month of September.
``At the same time, Convergent Capital, our wholly owned full-service IT and communications equipment leasing and asset management company, was net income positive during September.'
The company's EBITDA loss for the third quarter of 1999 was $16.5 million, compared to a $7.9 million EBITDA loss reported for the three months ended September 30, 1998. EBITDA consists of earnings before interest (net), taxes, depreciation, amortization and other income (expense).
Corporate overhead grew to $4.8 million during the quarter ended September 30, 1999, compared to $4.0 million during the same period last year. Meanwhile, Support Services expanded from $5.0 million in the third quarter of 1998 to $7.7 million during the third quarter of 1999.
``While corporate overhead has leveled during the quarter and year,' Evans said, ``we continue to invest in the Support Services SG&A that is driving our high-margin initiatives in the Internet, ENS and our national IP+ATM Cisco-powered carrier network, as well as strengthening our customer support systems. We expect the investment in these initiatives to level out over the next few quarters.'
Overhead SG&A 3 months ended 3 months ended 3 months ended
components ($ in millions) 9/30/99: 6/30/99: 9/30/98:
Total Support Services
(ENS, Internet, IP + ATM
network, customer systems) $7.7 $6.7 $5.0
Corporate $4.8 $4.7 $4.0
Total Support Services
and Corporate SG&A $12.5 $11.4 $9.0
``We are making the necessary strategic investments today in infrastructure, people and systems to support our first-to-market advantage we are building as a next-generation communications provider,' Evans stated.
``The early returns on this investment are extremely encouraging and reflected in our data services segment, which increased 110 percent on a sequential quarter basis to $4.5 million, up from $2.1 million in the second quarter of 1999. This business also carried a 67 percent gross margin during our third quarter,' Evans said.
Evans noted that, on a sequential-quarter basis, the company's total ENS contract value more than doubled to $36.4 million at September 30, 1999, compared to the $16.2 million in total contract value at June 30, 1999. This contract value represents an annualized run rate of $7.1 million. The ENS client base more than doubled, growing from 23 to 47 during the three months ended September 30, 1999. At September 30, 1998, the company had entered into 16 ENS contracts representing $13.8 million in total contract value.
The net loss for the quarter ended September 30, 1999 was $26.4 million, or a net loss per share of $1.06, as compared to a net loss of $15.4 million, for the quarter ended September 30, 1998, or a net loss per share of $1.11. For the quarter ended June 30, 1999, the company reported a loss of $23.0 million, or a net loss per share of $1.61.
The company also reported that consolidated revenue increased $1.2 million in the first quarter of 1999 and $1.4 million in the second quarter of 1999, for a total year-to-date increase of $2.6 million. This additional revenue was due to an adjustment made to account for certain product leasing transactions that were provided to customers as sales-type leases. The results were improvements in net loss and EBITDA of $600,000 and $400,000 for the first and second quarters of 1999, respectively, for a total EBITDA loss of $41.9 million for the nine months ended September 30, 1999.
Build-out of Network, Service Support Staffs and Business Systems
During the third quarter, Convergent Communications continued to make significant progress in building out core competencies, including the company's Cisco-powered carrier network, the ongoing development of service capabilities, and enhancements to business systems.
The company has ``turned up' the first phase of its Cisco-powered network. With seven switches now in operation, the network is one of the nation's first carrier class data-centric switching platforms to integrate voice, video and data through a single, integrated platform.
``In addition to building and turning up this first phase of our network, we hired 17 people and trained them on the Cisco 'core' and 'edge' switch technologies,' Evans said. ``Our engineering, provisioning and operations personnel cut the typical implementation time of a project of this scope in half.'
According to Keith Burge, president and chief operating officer, expansion of the company's sales force remained on track during the second quarter. The sales force grew to 172 people, out of a total employee base of 1,380 at September 30, 1999, up from 155 out of a total employee base of 1,206 at June 30, 1999.
``We have also made great strides in building out business systems that will help anchor customer loyalty and cross-selling initiatives,' Burge noted.
During the third quarter, Convergent Communications began implementation of phase I of its $7 million customer loyalty platform known as ECLIPSE (Enterprise Customer Loyalty Integration Platform for Service Excellence). Implemented by a 70-person project team, ECLIPSE effectively ties the Clarify-based front office with the company's Oracle-based financial management ``back office' system.
``The rollout of this platform contributed to higher expenses in the third quarter, but we expect those expenses to subside toward the end of the fourth quarter and the beginning of the first quarter of 2000,' Burge said.
Rollout of the ECLIPSE platform has begun in six of Convergent Communications' 35 markets: Denver, Albuquerque, N.M., Phoenix, Salt Lake City, Portland, Ore. and Seattle. It is scheduled to be rolled out incrementally to the remaining 29 markets by year-end.
``In addition to enhancing our capability to support the entire customer life cycle, ECLIPSE and the implementation of Clarify supports up-selling and cross-selling initiatives from our existing base of 33,000 active customers,' Burge said. ``In conjunction with this, we are in the early stages of launching a business development program that will leverage the Clarify 'Clear Sales`` module to drive incremental revenue, sales pipeline, lead qualification, and improved customer loyalty through portfolio management techniques.'
Key ENS and Internet Services Wins
During the third quarter we announced the signing of a six-year, $3.8 million ENS agreement with UPSIDE Media, Inc., a five-year, $8.6 million ENS and product services agreement with CTS Technologies and a multi-year, multi-million ENS contract with Sagent Technology.
Convergent Communications' eBusiness group provided Web development and hosting services to 13 new clients during the quarter ended September 30, 1999. Contracts signed during the quarter included CTS Technologies (ENS client), Snalf.com, a $600,000 contract for Web development and hosting, and a three-year, $1.8 million agreement with Thomas Weisel Partners LLC., for the hosting, monitoring and design of the merchant banker's Web site platform.
``We are beginning to see significant synergies between our Internet and ENS offerings,' Burge said. ``Clients find Convergent Communications attractive because of our ability to be the single source for all of their e-commerce, general Web development and hosting, and Internet access needs, as well as their data and voice systems and transport needs.'
Integration of Acquisitions, Cross-Selling Initiatives Continue
Convergent Communications enhanced the scope of its national market presence during the quarter with its acquisitions of Network Technologies Group (NTG), a provider of data integration services in the Miami and Tampa Bay areas in Florida, and Choice Solutions, a leading provider of data integration services in the Dallas market. The NTG acquisition increased Convergent Communications' ``fully converged' markets - markets where the company has combined data and voice skill sets - to 14.
Burge said growing the company's combined data and voice capabilities continues to be an important initiative because of the cross-selling opportunities that exist within the markets.
``We are increasingly focusing on getting more of our customers' total communications bill. We generated 65 cross sales, resulting in $1.75 million in third-quarter revenue. These are combined voice and data sales in our converged markets, which we will expand as we build integrated capability in all our markets,' Burge added.
Third Quarter Revenue Analysis
Convergent Communications' services-driven revenue for the quarter ended September 30, 1999 increased to $17.6 million, a 65 percent increase over $10.7 million reported in the year-ago period.
Data and voice services contributed approximately $16.5 million for the quarter ended September 30, 1999, compared to $10.1 million for the quarter ended September 30, 1998. Data and voice services consist of Web design, Web hosting, Internet access, Frame Relay, data network support, monitoring, design, implementation, consulting, long-distance services, local telephone services, maintenance and support contracts.
ENS (Enterprise Network Services) revenue for the quarter ended September 30, 1999 was approximately $1.1 million, compared to $646,000 for the quarter ended September 30, 1998, a 67 percent increase.
Through its ENS offering, Convergent Communications owns, manages, maintains and monitors client data and voice networks under long-term service agreements.
Product-related revenue contributed $24.9 million for the quarter ended September 30, 1999, compared to $11.6 million for the quarter ended September 30, 1998. Data and voice products revenue includes the sale of data and voice network equipment.
Gross Margin (before depreciation) Analysis
The company's total gross margin increased to $15.4 million, or 36 percent of total revenue, for the quarter ended September 30, 1999, compared to a gross margin of $7.6 million, or 34 percent of total revenue, for the quarter ended September 30, 1998. Gross margin for the nine months ended September 30, 1999 was $40.8 million, or 36 percent of total revenue, compared to a gross margin of $11.5 million, 31 percent of total revenue, reported for the nine months ended September 30, 1998.
Data and voice services contributed approximately $8.7 million in gross margin for the quarter ended September 30, 1999, compared to a $4.7 million gross margin contribution for the quarter ended September 30, 1998.
ENS contributed $885,000 in gross margin for the quarter ended September 30, 1999, compared to $424,000 for the quarter ended September 30, 1998. As a percentage of revenue, the ENS gross margin was 82 percent for the third quarter of 1999, compared to 66 percent in the year-ago quarter.
Data and voice products contributed $5.9 million in gross margin for the quarter ended September 30, 1999, compared to $2.5 million in gross margin for the quarter ended September 30, 1998.
Operating Costs and Expenses
Cost of sales, excluding depreciation, for the quarter ended September 30, 1999, was $26.9 million (64 percent of revenue), compared to $14.7 million (66 percent of revenue) for the third quarter of 1998.
SG&A (Selling, General and Administrative) expenses increased to $31.9 million for the three months ended September 30, 1999, compared to $15.5 million for the same period in 1998, and $27.4 million for the second quarter of 1999. |
