Williams Communications Reports First Quarter 2000 Results
Strong Demand for Network Services Leads to Continued Growth In Customer Base and Long-Term Revenue Commitments
May 2, 2000 07:17 AM Eastern Time
TULSA, Okla., May 2 /PRNewswire/ -- Williams Communications Group, Inc. WCG today reported unaudited first-quarter revenues of $533.4 million, reflecting continued growth in sales of Network capacity. Excluding dark fiber leases accounted for as sales-type leases, Network revenue increased 14 percent versus the fourth quarter of 1999, to $109.9 million.
Williams Communications, which is in the final phase of its accelerated national fiber-optic network construction, reported an EBITDA loss of $14.5 million and a loss before a change in accounting principle of $96.2 million or 21 cents per share for the first quarter. Effective Jan. 1, Williams Communications changed its revenue recognition policy within its Solutions segment related to new system sales and upgrades from the percentage of completion method to the completed contract method. The cumulative effect of this change in accounting principle was a one-time charge of $25.4 million, net of tax and minority interest, or 5 cents per share. Williams Communications' net loss for the quarter was $121.6 million or 26 cents per share.
"The first quarter continued a trend of significant achievements for our Network business," said Howard Janzen, president and chief executive officer of Williams Communications. "We again met all key construction milestones established as part of our accelerated network build-out; we successfully launched our local access initiative; we entered into several transactions which expand our global footprint, and we signed more than $1.5 billion of long-term revenue commitments with new customers.
"We continue to be enthusiastic about the long-term quality of our expanding revenue base," Janzen continued. "During the first quarter, the number of carrier customers increased 34 percent to 110, with more than 75 percent of the revenue base associated with contracts of five years or more. One out of every five of our carrier contracts is for 20 years or more."
Operating Highlights for the First Quarter
By the end of the first quarter, all remaining segments of the network were under construction. On a completed segment basis, more than 27,000 route miles were in place and in excess of 24,000 route miles of fiber were lit and operational. Additionally, 10 more data centers were completed bringing the total number constructed along the network to 90.
Williams Communications' revenue base continued to build, reflecting an expanding market for carrier-class customers. During the quarter, sales agreements with 28 new carrier customers were signed. This added more than $1.5 billion to the company's revenue base, with more than 75 percent of that amount supporting growth in data services.
Also announced during the quarter were several strategic transactions focused on expanding the network reach globally. Among these were the securing of undersea cable capacity on a trans-Atlantic cable, the acquisition of dark fiber in Europe and the purchase of interests in undersea cables between the U.S. and China and the U.S. and Japan. Additional capacity agreements connecting Williams Communications' domestic network to key Asian markets were in the works early in the second quarter.
Financial Highlights for the Quarter
Unaudited Network revenue of $130.3 million rose $5.6 million versus the fourth quarter of 1999, as increased capacity revenues were partially offset by lower dark fiber leases accounted for as sales-type leases. Network EBITDA for the quarter was a loss of $23.5 million. This includes $31.5 million in gains associated with sales of technology investments.
As expected, gross margins for the quarter were $36.7 million lower than the fourth quarter of 1999. Contributing to the adverse variance are lower dark fiber leases accounted for as sales-type leases ($10.3 million), the commencement of lease payments associated with the Asset Defeasance Program ($12.2 million) and greater ad valorem tax accruals, reflecting the increased asset base associated with the network build-out ($4 million). Higher off-network costs and operations and maintenance costs contributed to the remainder of the variance.
Broadband Media, a new business reporting segment, with Williams Vyvx Services at its core, reported first-quarter revenues of $40.9 million resulting in EBITDA of $1.1 million, a $.9 million EBITDA increase over the fourth quarter of 1999.
Solutions reported unaudited revenue of $373.2 million with an EBITDA loss of $11 million. The improvement in EBITDA versus the fourth quarter includes the effect of approximately $6 million as a result of the change in Solutions' revenue recognition policy as well as lower provisions for doubtful accounts. Strategic Investments reported an EBITDA of $18.9 million largely as a result of a $16.5 million gain on the sale of a portion of its investment in Algar Telecom Leste S.A. (ATL), a Brazilian-based cellular telephone company. After the sale, Williams retains an economic interest of approximately 50 percent of ATL.
Capital expenditures for the quarter were $661 million, including $646 million related to the network build-out.
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