8/2...GBLX..Ahead of Estimates
By Chris Rugaber
International fiber optic telecom company Global Crossing (Nasdaq: GBLX - news) reported second quarter earnings last night, beating consensus estimates. The company posted combined revenues from continuing and discontinued operations of $1.415 billion, above expectations of $1.295 billion, and operating earnings of $435 million versus estimates of $392 million. Including acquisition costs, the company lost $504 million, or $0.61, two cents above expectations. The company also announced it will revise full-year revenue and cash flow estimates upwards. Global Crossing traded up about 12% this morning, to $28 7/16.
A telecom workhorse
Global Crossing aims to be one of the workhorses of the telecom world. The company is building an international, Internet protocol (IP)-based fiber-optic network, which upon completion will cover 101,000 miles across five continents and 27 countries. Global Crossing's networks are operational in North America, Europe, and Asia, and last week the company announced the beginning of its network buildout in Latin America.
The company sells capacity on its networks to large telecommunications carriers, multinational corporations, and government agencies. For example, one of the contracts it signed this quarter is to provide a Virtual Private Network (VPN) for British diplomatic outposts worldwide, connecting embassies and consulates in over 100 countries. The contract is worth at least $270 million over 10 years, with additional potential revenues based on bandwidth usage.
Building the company's international network is certainly capital-intensive, which is why Global Crossing, like many in the telecom world, focuses on EBITDA (earnings before interest, taxes, depreciation, and amortization) rather than net income. Nevertheless, the company also announced that it has sufficient funds on hand to complete its network buildout, at least until it becomes cash-flow positive in 2002.
One source of cash was the company's sale of its local phone operations to Citizens Communications (NYSE: CZN - news) in the second quarter for $3.65 billion. Global Crossing also completed a secondary offering this spring, and will raise additional funds from selling a tracking stock for its Web-hosting unit, Global Center, and from selling shares in its Asian division. As a result, shareholders should be spared any further dilution, and Global Crossing will end up with a decent cash hoard.
Focusing on core businesses
The sale of the company's local phone business caused some speculation about Global Crossing's strategic intentions -- including whether it was positioning itself to be bought out -- but the company seems to be focusing on its core businesses at this point, and investors should probably do so as well.
Global Crossing's networks should benefit from increased data usage worldwide, through services like VPNs as well as general Internet usage. CEO Leo Hindery pointed out to Bloomberg last night that data services represented 59% of the company's telecommunications services revenue, up from 51% from the previous quarter and 44% just a year ago. As a result, the company is less-dependent on voice usage, and is much more than a "long-distance company," as some have reported. Investors interested in learning more about the company may want to start with a Post of the Day from last March.
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