Global Crossing Reports GCUK's Third Quarter 2007 Results
Thursday December 6, 6:59 am ET
LONDON, Dec. 6 /PRNewswire-FirstCall/ -- Global Crossing (Nasdaq: GLBC - News), a leading global IP solutions provider, today announced third quarter financial results for its subsidiary, Global Crossing (UK) Telecommunications Limited (GCUK).
Highlights
GCUK generated 73 million pounds in revenue, with adjusted gross margin at 72 percent of revenue and adjusted IFRS EBITDA of 21 million pounds for the third quarter. (Adjusted gross margin and adjusted IFRS EBITDA are non-GAAP metrics that are defined and reconciled below.) During the quarter, net cash provided by operating activities was 7 million pounds after interest.
"I'm pleased to report that GCUK's business has remained stable throughout the year as we've managed our costs closely, and it's now generating strong order volumes," said John Legere, Global Crossing's chief executive officer. "We reached a record high for order levels in October and have secured an estimated 165 million pounds in multi-year contracts during the first ten months of the year."
Revenue and Margin
GCUK generated revenue of 73 million pounds, which was essentially flat on a sequential basis but an increase of 20 percent year over year from 60 million pounds in the third quarter of 2006. The year-over-year increase resulted primarily from the inclusion of Fibernet's UK operations in GCUK's results.
The company continued to renew major contracts, with Network Rail being the most recent in the third quarter. During the course of the year, GCUK renewed several other major long-term contracts, creating a platform for continued revenue stability.
In the third quarter of 2007, adjusted gross margin was 52 million pounds or 72 percent of revenue. This compared with 51 million pounds or 70 percent of revenue in the second quarter of 2007 and 41 million pounds or 68 percent of revenue in the third quarter of 2006. Third quarter 2007 adjusted gross margin was 70 percent of revenue, excluding a reclassification of costs from cost of access to depreciation and amortization due to the alignment of Fibernet's accounting policies with those of GCUK.
Costs
Cost of revenue, which includes cost of access, technical real estate, network and operations, third party maintenance and cost of equipment sales, was 44 million pounds for the quarter, compared to 47 million pounds in the second quarter of 2007 and 39 million pounds in the third quarter of 2006. The year-over-year increase in cost of revenue was due to the addition of Fibernet's UK operations. The sequential decline was primarily due to accruing non-cash stock compensation performance plans at a lower rate for operations employees, a decline in cost of equipment sales and the cost of access benefit from alignment of Fibernet's accounting policies referenced above.
Sales, general and administrative expenses (SG&A) were 9 million pounds in the third quarter, compared with 11 million pounds in the second quarter of 2007 and 7 million pounds in the third quarter of 2006. The sequential variance in SG&A was principally attributable to lower intercompany management charges and accruing non-cash stock compensation performance plans at a lower rate. The third quarter of 2007 included a non-recurring restructuring expense of 1 million pounds relating to the vacating of a Fibernet facility. The sequential impact of this charge was effectively offset by a severance charge of approximately the same amount in the second quarter of 2007. The year-over-year increase in SG&A was primarily due to the inclusion of Fibernet's UK operations in GCUK's results.
Earnings
GCUK's adjusted IFRS EBITDA for the third quarter was 21 million pounds, compared with 17 million pounds in the second quarter of 2007 and 15 million pounds in the third quarter of 2006. The sequential adjusted IFRS EBITDA increase was due principally to a reduction in cost of revenue and SG&A expenses. The year-over-year increase in adjusted IFRS EBITDA was primarily attributable to the inclusion of Fibernet's UK operations in GCUK's results.
GCUK recorded a net profit of approximately 1 million pounds for the third quarter of 2007, compared with a loss of approximately 1 million pounds in the second quarter of 2007 and a net profit of 4 million pounds in the third quarter of 2006. The year-over-year decrease in net profit was primarily due to a 2 million pound increase in finance charges driven by less favorable non- cash exchange rate changes impacting the company's U.S. dollar-denominated senior secured notes and an additional 2 million pounds of financing charges in respect of the additional senior secured notes issued in December 2006.
Cash Position
As of September 30, 2007, GCUK had 30 million pounds of cash and cash equivalents. Net cash provided by operating activities during the third quarter totaled 7 million pounds after interest. GCUK's net decrease in cash and cash equivalents was 4 million pounds in the third quarter, including 11 million pounds for capital expenditures and principal payments on capital leases.
Non-GAAP Financial Measures
Pursuant to the U.S. Securities and Exchange Commission's (SEC's) Regulation G, the attached tables include definitions of adjusted IFRS EBITDA and adjusted gross margin measures, as well as reconciliations of such measures to the most directly comparable financial measures calculated and presented in accordance with International Financial Reporting Standards (IFRS) as published by the International Accounting Standards Board (IASB).
International Financial Reporting Standards
GCUK's results reported here include unaudited consolidated financial results for the three months ended September 30, 2007 and 2006 and June 30, 2007; the unaudited consolidated balance sheet as of September 30, 2007; and the audited consolidated balance sheet as of December 31, 2006, as adjusted (see attached tables), in accordance with IFRS. GCUK's results for the third quarters of 2007 and 2006 and the second quarter of 2007 were included in Global Crossing's consolidated results previously reported on November 6, 2007, in accordance with U.S. Generally Accepted Accounting Principles (U.S. GAAP).
Conference Call
Management has scheduled a conference call for Thursday, December 6, 2007, at 9:00 a.m. EST/2:00 p.m. GMT to discuss GCUK's financial results. The call may be accessed by dialing +1 212 676 4908 or +44 (0) 870 001 3146. Callers are advised to dial in 15 minutes prior to the 9:00 a.m. EST start time. The call will also be Webcast at investors.globalcrossing.com.
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