Rhythms Reports 2000 Year-End Subscriber Growth and Evolving Business
Model
Productivity Improvements and Workforce Reduction Extend Cash Position
Into 2002 First Quarter
ENGLEWOOD, Colo., Jan 16, 2001 /PRNewswire via COMTEX/ -- Rhythms NetConnections
Inc. (Nasdaq: RTHM), an international provider of broadband communication
services, today reported its 2000 fourth quarter subscriber total and its
evolving business model for 2001.
As of December 31, 2000, Rhythms had approximately 67,000 digital subscriber
lines (DSL) in service, representing a 43 percent, or a 20,000 line increase,
over the 47,000 lines in service at the end of the 2000 third quarter. The
67,000 cumulative lines in service at the end of 2000 are a significant increase
over the 12,500 lines in service at the end of 1999.
The increase to 67,000 lines at the end of 2000 was accomplished despite Rhythms
discontinuing to process orders from Flashcom, Inc. during the last 45 days of
the fourth quarter, due to Flashcom's deteriorating financial situation. In an
unprecedented four-week timeframe, Rhythms successfully transitioned the
majority of its 7,000 former Flashcom residential and business DSL customers to
more financially stable partners.
"Despite rapidly changing market and sector dynamics, we have adapted quickly,"
said Catherine Hapka, Chairman and Chief Executive Officer of Rhythms. "The year
2000 was a year of tremendous operational accomplishments for Rhythms. We raised
nearly $1 billion in funding; expanded into Canada and formed a Japanese joint
venture; completed our U.S. build; fought for and won several regulatory
victories, the most important being the right to implement line sharing; and
initiated an extensive upgrade to our back-office systems. In 2001, we are
focused on expanding our capabilities to compete vigorously in the growing,
broadband market."
Evolving Business Model
Rhythms has taken the following actions to strengthen its business:
Balance Customer Mix
Rhythms has a broad mix of customers that includes large enterprises,
telecommunications carriers, Internet service providers, and broadband
communication resellers. The company will continue to build relationships with
larger, more financially stable partners while balancing its mix of business and
consumer customers. By effectively managing the quality and quantity of
customers and installed lines, Rhythms has maintained the highest average
revenue per subscriber (ARPU) among the national DSL providers. At the end of
the 2000 third quarter, Rhythms' ARPU was 70 percent higher than its national
competitors.
Reduce Monthly Network Costs
Rhythms will concentrate on serving its 40 largest markets. This concentrated
focus will enable Rhythms to serve 40 percent of homes and 45 percent of
businesses across the U.S. and still meet current lines in service estimates for
2001. By focusing on fewer markets, Rhythms believes it will achieve improved
economies of scale and allow the company to reduce its full-time workforce in
this area by 100 employees.
Drive Cost Reduction Through Operational Productivity
Rhythms continues to improve its ability to provision and scale through process
engineering, continued upgrades to its back-office systems, and Six-Sigma
quality initiatives. During 2000, the company experienced a 50 percent increase
in successful first-time installations and a 25 percent reduction in failed
installations. These productivity improvements are enabling Rhythms to reduce
its full-time workforce in this area by 300 employees.
Eliminate Certain Selling, General & Administrative (SG&A) Costs
Rhythms expects to reduce its 2001 SG&A expenses by approximately $80 million or
30 percent to approximately $200 million for the year. This is being
accomplished through savings in several areas, including the workforce reduction
and reducing partner marketing development funds, facility costs and
professional service fees.
Focus on Line-Sharing for Consumer Installations
Line sharing represents a breakthrough in reducing customer service intervals as
well as one-time customer acquisition costs and recurring monthly costs. Rhythms
is the only national provider that elected to locate the splitter in its central
offices (COs). The splitter, when combined with the CO-equipped metallic loop
testing capability, allows Rhythms to control the quality of the wiring and test
the end-to-end circuit remotely, eliminating the need to dispatch a technician
to the consumer's premise. Accordingly, Rhythms believes it is the only national
provider that offers to eligible customers a "true," super simple, self-install
that requires no truck-roll to get the consumer's service operational. Of the
20,000 lines installed during the 2000 fourth quarter, 20 percent, or 4,000, of
these lines were "consumer self-installed, no truck-roll," line-shared lines.
The implementation of line sharing has significantly improved the economics of
the consumer market due to lower, one-time customer acquisition costs and lower
recurring monthly line charges. One-time, gross customer acquisition costs for
line-shared lines have decreased by 70 percent, with the elimination of the
copper loop conditioning charge and related installation labor costs. Lower
monthly network costs are attributable to a reduced monthly line charge as
compared to the monthly cost of a new loop. From the beginning, Rhythms has
fought for and in certain states has won its argument that the monthly cost of a
line-shared loop should be zero. As the company continues to aggressively pursue
zero costs, further cost savings may be realized.
Impact of Evolving Business Model
Workforce Reduction
The above changes are resulting in a total reduction in Rhythms' full-time
workforce of 23 percent, or 450 employees. Rhythms' employees were notified
today of the reduction.
"While a reduction in workforce is always a difficult decision, we are pleased
with the operational improvements we implemented in 2000. These improvements
have enabled us to increase our productivity, thereby reducing our required
staffing levels," said Steve Stringer, President and Chief Operating Officer of
Rhythms.
Restructuring Charge
As a result of Rhythms' focus on its 40 largest markets and its workforce
reduction, the company will take a one-time, 2001 first quarter restructuring
charge that will range between $15 and $17 million.
2001 Financial Impact
Based on its evolving business model, Rhythms expects to reduce its 2001 EBITDA
loss, before the one-time restructuring charge, to an estimated $395 million, a
savings of approximately 15 percent from current analyst expectations. These
savings will enable the company to extend its cash into the 2002 first quarter.
"We believe our evolving business model strikes the right balance between growth
and cash conservation in order to support the long-term future of the company,"
said Jay Braukman, Chief Financial Officer of Rhythms.
2001 Business Outlook
The following statements are based on current expectations. These statements are
forward-looking, and actual results may differ materially. Rhythms expects:
-- Its cumulative subscriber base to exceed 175,000 lines in service by
December 31, 2001.
-- Net revenue to exceed $150 million for the year ending December 31,
2001, before adoption of SAB 101 which is expected to reduce net
revenue by approximately $20 million.
-- EBITDA loss to approximate $395 million for the year ending December
31, 2001, before the first quarter restructuring charge of $15 to
$17 million. The EBITDA loss includes approximately $100 million in
operating lease expense.
-- Capital expenditures will approximate $75 million.
The company's cash balances along with $50 million of vendor lease financing
obtained in November 2000, are expected to fund Rhythms' operations into the
2002 first quarter.
Conference Call Information
On Wednesday, January 17, 2001 at 5:00 p.m. Eastern Standard Time, Rhythms will
host a conference call to discuss its evolving business model. To access the
live conference call, dial (712) 271-3211 and provide "Rocky Mountains" as the
password. The replay number for the call is (402) 220-4880, with no password
required. The replay will be available through Tuesday, January 23, 2001. An
archive of the conference call will be available on the company's Web site
through Friday, February 16, 2001.
About Rhythms
Based in Englewood, Colo., Rhythms NetConnections Inc. (Nasdaq: RTHM) provides
DSL-based, broadband communication services to businesses and consumers.
Telecommunications services for Rhythms are provided by Rhythms Links Inc., a
wholly owned subsidiary of Rhythms. For more information, call 1-800-RHYTHMS
(1-800-749-8467), or visit the company's Web site at www.rhythms.com.
Rhythms, Rhythms NetConnections and (any product names for which trademark
applications have been filed) are trademarks of Rhythms NetConnections Inc.
The statements contained in these materials which are not historical facts may
contain forward-looking statements with respect to events, the occurrence of
which involve risks and uncertainties. Such statements are indicated by words or
phrases such as "anticipate," "estimate," "projects," "believes," "intends,"
"expects" and similar words and phrases. The following are important factors
that could cause Rhythms' actual results to differ materially from those
expressed or implied by such forward looking statements: the highly competitive
nature of the DSL market; the rapid rate of technological change in the
telecommunications industry; Rhythms' history of operating losses and the
unproven nature of its business model; customer agreements are generally
non-exclusive and terminable by the customer on short notice; several customers
are young, emerging companies that are not fully funded; Rhythms' existing
capital structure may affect its ability to raise additional capital in the
future; Rhythms' dependence on incumbent carriers for collocation and
transmission facilities and on unrelated strategic third parties for certain
sales and marketing services, equipment installation and fiber optic transport
facilities; the need to retain and attract key personnel; and other economic,
business, competitive and governmental and/or regulatory risks detailed in
Rhythms' filings with the Securities and Exchange Commission. Rhythms undertakes
no obligation to review or confirm analysts' expectations or estimates or to
release publicly any revisions to any forward- looking statements after the date
hereof or to reflect the occurrence of unanticipated events.
SOURCE Rhythms NetConnections Inc.
CONTACT: Karen Breen, Rhythms Investor Relations, 303-876-2611,
kbreen@rhythms.com, or Chris Hardman, Rhythms Public Relations, 303-476-4259,
chardman@rhythms.com, both of Rhythms NetConnections Inc.
URL: rhythms.com
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