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Technology Stocks : Broadband Wireless Access [WCII, NXLK, WCOM, satellite..] -- Ignore unavailable to you. Want to Upgrade?

To: SteveG who wrote (576)	8/11/1999 3:00:00 PM
From: SteveG	Read Replies (3) \| Respond to of 1860

CSFB's (II rated) high-yield telecom analyst Mark Rose: Winstar Second Quarter Results Overall, WinStar hit our expectations in its performance. The gross margin was slightly less than we expected, but SG&A expense containment was better. Liquidity remains strong for WinStar with $600+ million in cash, $500 million currently available on its Lucent facility and another $190 million expected from the William's contract. We continue to rate WinStar bonds with Buys and Strong Buys. Winstar posted $96.5 million in revenues for the second quarter, in line with our estimates. CLEC revenue for the quarter was $76.9 million, slightly ahead of our $75.5 million estimate. EBITDA loss for the quarter was ($83.5) million, slightly below our ($82.3) million estimate. During the quarter, Winstar added 69,000 lines, bringing total lines to 453,000. Project Millennium is tracking well, with 62% of new lines installed in the second quarter taking more than one service vs. 46% in the year ago quarter. Over 48% of line installs in the quarter were on-net, bringing on-net line total to 27%, up from 24% at the end of the first quarter. 44% of the total lines installed were off-net but connected through Winstar switches supporting breakeven to slightly positive EBITDA margins. The company indicated that 4-5% of lines installed were local resale and around 3% were PIC long distance only accounts. WinStar's continued accelerated growth of on-net lines is a key positive to this credit. In the five most mature markets, 62% of lines are on-net. In the next most mature group or the 2nd class of WinStar markets (including Denver, SF, and DC), approximately 67% of lines are fully on-net at the end of the quarter. In the Denver market, over 80% of installs in the quarter were on-net, bringing cumulative lines on-net to 85%. We think that the success in these markets, which the Company has only sought to add on-net lines from the beginning, validates the Winstar business model. On its conference call, WinStar also indicated that it will begin to breakout P&L results internally for each market. The sales manager will take on P&L responsibility and be compensated accordingly. We think that this practice is key for all CLECs. Gross margins improved 110 basis points sequentially to 24.0%. Management expects the gross margin to reach 28-30% in the third quarter and 35-40% in the fourth quarter. See attached model. The relatively small sequential increase from first to second quarter was attributed to a slight timing differential in the number of hubs added. Winstar lit 23 hubs during the quarter, adding nearly a third to its hub count. A big expense that hits the gross margin is the leased dedicated circuits that WinStar must use to connect hub sites to switches in its markets. Hubs are connected with large leased circuits (like a DS-3) WinStar's central office, and when a hub is relatively new, cash flow from customers is small to offset the leased circuits. In upcoming quarters, while the total number of hubs added will increase, the number of hubs added as a percentage of the total in operation and growing cash flows will decline resulting in lower expenses relative to the incremental capacity. With more of its wireless network in place and turning up buildings, Winstar's management has greater confidence in its ability to improve its gross margin in the second half of 1999. Margin improvement is also likely to be driven by increased building penetration as well as better penetration of high margin internet/data applications to the customer base. The point to multipoint rollout remains on track for fourth quarter. The company is currently ordering equipment and finalizing its engineering and operational rollout plans. At quarter end, 31 of the planned 60 U.S. markets were operational. Winstar expects to exit the year with 45 markets operational and begin service in the remaining 15 markets of its 60 city plan during 2000. On the international side, Winstar is putting on customers in Holland and Japan and plans to launch its network on Buenos Aries in the fall. Winstar's liquidity appears ample, with $2.5 billion available to fund growth over the next two years. At quarter end, Winstar had $611 million of cash on its balance sheet. In addition, the company has $500 million available on the Lucent facility (with the opportunity to draw down an additional $1.2 billion). Finally, Winstar has an additional $190 million in payments coming from Williams as hubsites are lit. In third quarter, we are estimating $113 million in revenues, a 17% sequential increase. Gross margin and SG&A containment should result in Winstar's EBITDA loss narrowing to ($74.2) million. For the full year, we estimate revenues and EBITDA losses of $435 million and ($298.1) million respectively.