RCN Reports Strong Second Quarter Results; Solid Increases in Revenues and Connections
Operations Improvements and Successful Rollout of ResiLink Bundles Over RCN's MegaBand(TM) Network Fuel Results
PRINCETON, N.J., July 31 /PRNewswire/ -- RCN Corporation (Nasdaq: RCNC - news) today reported results for the quarter ended June 30, 2000, reflecting continued growth in the Company's on-net connections and revenues, and significant improvement in its operations.
On-net connections grew by 38 percent this quarter as RCN added 96,254 new connections compared to 32,949 additions in the first quarter. The company finished the quarter with 352,167 total on-net connections. Total revenues increased by 9 percent to $96.2 million this quarter, an increase of $8.1 million from last quarter.
Homes passed, a key indicator of RCN's construction progress, increased by 30 percent in the second quarter to 1,051,174 while marketable homes, or those homes ready for immediate sale of all its services, increased to 830,989, a 38 percent increase.
RCN is currently active in 14 markets, including the second and third largest markets in the U.S. based on population density, with the addition of Los Angeles and Chicago. The company is building in a total of 81 towns across the country, with 19 added in the second quarter alone.
``We are rapidly building a valuable asset for the residential market -- a network that not only is unmatched in capacity and functionality but serves the most attractive, densely populated areas of the country,'' said David C. McCourt, RCN's Chairman and CEO. ``Our unique MegaBand(TM) network, our progress in improving the customer service organization, and our aggressive but careful market strategy gives us a competitive edge that will serve us well into the future. We are doing all of this with one of the strongest balance sheets in the industry.''
``Nearly half of the increase in on-net connections this quarter resulted from ResiLink sales, showing sustained strong demand for our bundled offering,'' McCourt said. ``The revenue per customer is averaging over $128 per month as customers are taking more than three services each. We now are marketing ResiLink to over 145,000 homes, up 62 percent from last quarter.''
For the quarter ended June 30, 2000, Pro Forma Total RCN revenues were $96.2 million, or a 9 percent increase from $88.1 million in the previous quarter. RCN's Pro Forma Total consolidated quarterly EBITDA in the quarter ended June 30 was a loss of $75.8 million as compared to a loss of $68.8 million in the previous quarter. This was the result of increased operational costs associated with employee growth and the expansion in new and existing markets. RCN reported a second quarter net loss to common shareholders of $208 million, or $(2.45) per common share, compared to a loss of $154 million or $(1.95) in the previous quarter. Net loss was impacted in the quarter by the consolidation of 21st Century's Chicago operations as well as a non-cash charge for stock-based compensation as required under SFAS 123.
During the quarter, the company adopted an innovative Outperform Stock Option (OSO) program to further align management interests with its shareholders. The program ties a portion of management compensation to their ability to outperform the stock market over the long term, benefiting RCN's shareholders.
Under SFAS 123, the fair value of an option, OSO, or other stock-based compensation (as computed in accordance with accepted option valuation models) on the date of grant is amortized over the vesting periods of the options. The recognition provisions of SFAS 123 are applied prospectively upon adoption. As a result, the recognition provisions are applied to all stock awards granted this year. The adoption of SFAS 123 resulted in a non-cash charge of $10.3 million during the quarter.
Impact of 21st Century Operations
RCN's acquisition of 21st Century closed at the end of April. With the inclusion of the Chicago market, RCN added $4.2 million in revenues, 47,044 on-net connections, and 137,000 marketable homes.
Measureable Improvements Seen in Customer Service Operations
In the second quarter, RCN continued its efforts to improve its back office operations to support the company's rapid growth. Over 60% of the Company's technicians have now been trained on all three services, resulting in an increase in the number of services installed per technician per day, to 6.9 in the second quarter, up from 5.0 from the fourth quarter of 1999. The number of customer calls per on-net connection has decreased by 15 percent for the quarter, 33 percent since the beginning of the year.
``We are ahead of our earlier projections in our key focus areas of installation, customer care and training. Our goal of training 80 percent of our technicians in handling all three of our services by year end is well within reach. We also see continued improvement in our ability to satisfy our customers up front, as measured by reductions in our calls per connection and in call handle times,'' said Mike Adams, President and Chief Operating Officer. ``The fact that these key customer metrics showed continued improvement this quarter gives us confidence that the execution of our long-term plan is yielding results.''
RCN Regulatory and Network Construction Activity
RCN has now received Federal Open Video System (OVS) approval for over 15 million homes, and 5.2 million homes with local OVS approval. On the West Coast, RCN received approval to construct its network in Beverly Hills, Calif., and is making progress in achieving similar approvals in the Portland, Oregon market. Once regulatory approvals are received, design and construction of the network begins and the market is typically ready to serve customers in 12 to 18 months.
In the second quarter, RCN continued ramping up construction of its high-capacity Megaband(TM) Network, building over 1,200 fiber route miles in 81 towns in 14 major markets, compared to 62 towns in 11 major markets last quarter. RCN has now laid a total of 5,922 fiber-optic route miles of its fiber-optic network, excluding Chicago. This quarter's route miles mark the sixth consecutive quarter of increased quarterly network buildout.
Capital expenditures for the quarter totaled $285 million, bringing the total for the year to over $455 million.
Strong Balance Sheet, Pre-funded to 5 Million Homes
With $3.1 billion in available cash, RCN has one of the strongest balance sheets in the industry. With its current capital structure, the company is pre-funded to 5 million homes.
About The RCN MegaBand(TM) Network
RCN's Megaband(TM) Network is a unique broadband fiber-optic platform capable of offering a full suite of communications services -- including fully featured voice, video and high-speed Internet -- to residential customers. The network employs SONET ring backbone architecture, and localized nodes built to ensure RCN's state-of-the-art fiber optics travel to within 900 feet of RCN customers, with fewer electronics and lower maintenance costs than existing local networks. RCN's high-capacity local fiber-optic networks target densely populated areas that represent 44% of the U.S. residential communications market located in just 6% of its geography.
About RCN Corporation
RCN Corporation (Nasdaq: RCNC - news) is the nation's first and largest facilities-based provider of bundled local and long distance phone, cable television and high-speed Internet services to the most densely populated residential markets in the country. RCN is currently delivering broadband services over its Megaband(TM) Network or designing and building its network on the East and West coasts and in the Chicago area. In addition, RCN is a leading Internet Service Provider in its markets. Additional information can be found at: rcn.com.
Some of the statements made by RCN in this press release are forward-looking in nature. Actual results may differ materially from those projected in forward-looking statements as a result of a number of factors. RCN believes that the primary factors include, but are not limited to uncertainties relating to economic conditions, acquisitions and divestitures, government and regulatory policies, the pricing and availability of equipment, materials, inventory and programming, RCN's ability to develop and penetrate existing and new markets, technological developments and changes in the competitive environment in which RCN operates. Additional information concerning these and other important factors can be found in RCN's filings with the Securities and Exchange Commission. Statements in this release should be evaluated in light of these important factors.
2Q99 3Q99 4Q99 1Q00 2Q00
Advanced Fiber
On-Net
Voice 49,539 56,209 62,733 68,550 95,065
Video 110,565 120,353 138,577 160,665 216,810
Data 13,024 17,985 21,654 26,698 40,292
Subtotal
On-Net 173,128 194,547 222,964 255,913 352,167
Off-Net
Voice 54,917 49,271 46,986 45,262 41,428
Video 165,523 164,859 153,627 139,383 134,627
Data 508,992 535,107 523,728 500,495 488,054
Subtotal
Off-Net 729,432 749,237 724,341 685,140 664,109
Total Service
Connections 902,560 943,784 947,305 941,053 1,016,276
Advanced Fiber
Homes Passed 427,843 550,771 713,823 808,023 1,051,174
Marketable
Homes 361,015 440,112 551,006 601,745 830,989
Quarterly Yearly
Change Change
Advanced Fiber
On-Net -- --
Voice -- --
Video -- --
Data -- --
Subtotal On-Net 38% 103%
Off-Net -- --
Voice -- --
Video -- --
Data -- --
Subtotal Off-Net -- --
Total Service Connections -- --
Advanced Fiber Homes Passed 30% 146%
Marketable Homes 38% 130%
PRO FORMA TOTAL RCN (1)
RCN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in Thousands, Except Per Share Data)
(Unaudited)
QUARTER ENDED SIX MONTHS ENDED
June 30, March 31, June 30, June 30, June 30,
2000 2000 1999 2000 1999
SALES:
VOICE $ 17,290 $ 15,465 $ 14,730 $32,755 $29,550
VIDEO 38,772 34,084 31,297 72,856 61,798
DATA 28,127 27,386 28,294 55,513 55,352
OTHER 11,982 11,204 6,962 23,186 14,324
TOTAL SALES 96,171 88,139 81,283 184,310 161,024
COSTS &
EXPENSES,
EXCLUDING
DEPRECIATION AND AMORTIZATION:
DIRECT
EXPENSES 47,921 42,087 38,800 90,008 77,035
OPERATING
AND SG&A 124,097 114,859 67,168 238,956 130,161
EBITDA BEFORE
NON-CASH STOCK
BASED
COMPEN-
SATION (75,847) (68,807) (24,685) (144,654) (46,172)
NON-CASH
STOCK BASED
COMPENSATION 10,284 1,163 -- 11,447 --
DEPRECIATION
AND
AMORTIZATION 75,441 50,321 36,108 125,762 75,520
OPERATING
(LOSS) (161,572) (120,291) (60,793) (281,863) (121,692)
INTEREST
INCOME 31,221 36,460 19,175 67,681 32,701
INTEREST
EXPENSE (55,362) (53,336) (35,672) (108,698) (67,462)
GAIN ON SALE
OF LANCIT
MEDIA -- -- 8,930 -- 8,930
OTHER INCOME
(LOSS), NET (1,388) (1,130) (234) (2,518) 473
(LOSS) BEFORE
INCOME
TAXES (187,101) (138,297) (68,594) (325,398) (147,050)
(BENEFIT)
FOR INCOME
TAXES (725) (796) (1,520) (1,521) (2,534)
(LOSS) BEFORE
EQUITY IN
UNCONSOLIDATED
ENTITIES AND
MINORITY
INTEREST (186,376) (137,501) (67,074) (323,877) (144,516)
EQUITY IN (LOSS)
OF UNCONSOLIDATED
ENTITIES 2,856 (9,107) (4,233) (6,251) (4,609)
MINORITY
INTEREST IN
LOSS OF
CONSOLIDATED
ENTITIES 10,660 8,487 7,949 19,147 18,013
NET (LOSS)
BEFORE
EXTRAORDINARY
ITEM (172,860) (138,121) (63,358) (310,981) (131,112)
EXTRAORDINARY
ITEM: DEBT
PREPAYMENT
COSTS 0 0 (424) 0 (424)
NET (LOSS) (172,860) (138,121) (63,782) (310,981) (131,536)
PREFERRED
DIVIDEND AND
ACCRETION
REQUIREMENTS 35,170 15,462 4,083 50,632 4,083
NET (LOSS)
TO COMMON
SHARE-
HOLDERS $(208,030) $(153,583) $(67,865) $(361,613) $(135,619)
(1)The Pro Forma Total RCN results reflect the consolidation of all domestic joint ventures and show the ownership share of its joint venture partners as minority interests.
GAAP BASIS
RCN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in Thousands, Except Per Share Data)
(Unaudited)
QUARTER ENDED SIX MONTHS ENDED
June 30, March 31, June 30, June 30, June 30,
2000 2000 1999 2000 1999
SALES $ 78,952 $ 71,257 $ 66,929 $150,209 $134,318
COSTS & EXPENSES,
EXCLUDING
DEPRECIATION
AND
AMORTIZATION:
DIRECT
EXPENSES 43,501 38,081 34,556 81,582 69,318
OPERATING
AND SG&A 108,147 99,563 57,779 207,710 111,854
EBITDA BEFORE
NON-CASH
STOCK BASED
COMPEN-
SATION (72,696) (66,387) (25,406) (139,083) (46,854)
NON-CASH
STOCK BASED
COMPENSATION 10,284 1,163 - 11,447 -
DEPRECIATION AND
AMORTIZATION 68,802 44,412 30,541 113,214 62,815
OPERATING
(LOSS) (151,782) (111,962) (55,947) (263,744) (109,669)
INTEREST
INCOME 31,020 36,320 19,090 67,340 32,492
INTEREST
EXPENSE (55,362) (53,337) (35,672) (108,699) (67,462)
GAIN ON
SALE OF
LANCIT MEDIA -- -- 8,930 -- 8,930
OTHER INCOME
(LOSS),
NET (1,388) (1,130) (234) (2,518) 473
(LOSS) BEFORE
INCOME
TAXES (177,512) (130,109) (63,833) (307,621) (135,236)
(BENEFIT) FOR
INCOME TAXES (725) (796) (1,520) (1,521) (2,534)
(LOSS) BEFORE
EQUITY IN
UNCONSOLIDATED
ENTITIES AND
MINORITY
INTEREST (176,787) (129,313) (62,313) (306,100) (132,702)
EQUITY IN (LOSS) OF
UNCONSOLIDATED
ENTITIES (1,939) (13,201) (6,613) (15,140) (10,516)
MINORITY INTEREST
IN LOSS OF
CONSOLIDATED
ENTITIES 5,866 4,393 5,568 10,259 12,106
(LOSS) BEFORE
EXTRAORDINARY
ITEM (172,860) (138,121) (63,358) (310,981) (131,112)
EXTRAORDINARY
ITEM: DEBT
PREPAYMENT
COSTS 0 0 (424) 0 (424)
NET (LOSS) (172,860) (138,121) (63,782) (310,981) (131,536)
PREFERRED
DIVIDEND AND
ACCRETION
REQUIREMENTS 35,170 15,462 4,083 50,632 4,083
NET (LOSS) TO
COMMON
SHARE-
HOLDERS $(208,030) $(153,583) $(67,865) $(361,613) $(135,619)
BASIC AND DILUTED (LOSS) PER AVERAGE COMMON SHARE:
(LOSS) BEFORE
EXTRAORDINARY
ITEM $(2.45) $(1.95) $(0.97) $ (4.42) $ (2.00)
EXTRAORDINARY
ITEM: DEBT
PREPAYMENT
COSTS -- -- (0.01) -- (0.01)
NET (LOSS) TO
COMMON
SHAREHOLDERS $(2.45) $(1.95) $(0.98) $ (4.42) $ (2.01)
WEIGHTED
AVERAGE SHARES
OUT-
STANDING 84,877,774 78,921,825 69,478,473 81,900,146 67,554,148
GAAP BASIS
RCN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
June 30, December 31,
2000 1999
ASSETS
Current assets
Cash, temporary cash investments and
short-term investments $2,559,548 $1,793,289
Accounts receivable from related parties 20,979 8,015
Accounts receivable, net of reserve for
doubtful accounts of $14,544 at
June 30, 2000 and $12,258 at
December 31, 1999 33,210 30,558
Interest and dividends receivable 13,820 15,049
Material and supply inventory,
at average cost 69,951 21,064
Prepayments and other 21,168 13,853
Investments restricted for debt service 12,220 23,111
Total current assets 2,730,896 1,904,939
Property, plant and equipment, net of
accumulated depreciation of $322,468 at
June 30, 2000 and $230,581 at
December 31, 1999 1,429,689 893,179
Investments restricted for debt service 5,521 48
Investments 212,984 190,571
Intangible assets, net of accumulated
amortization of $203,381 at
June 30, 2000 and $158,384 at
December 31, 1999 438,836 138,491
Deferred charges and other assets 77,676 64,886
Total assets $4,895,602 $3,192,114
GAAP BASIS
RCN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
June 30, December 31,
2000 1999
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt and
capital lease obligations $654 $1,225
Accounts payable to related parties 42,365 35,809
Accounts payable 77,155 92,785
Advance billings and customer deposits 21,480 16,901
Deferred income taxes 1,485 1,464
Accrued expenses 138,020 101,261
Total current liabilities 281,159 249,445
Long-term debt 2,202,471 2,143,096
Other deferred credits 21,746 24,598
Minority interest 89,489 129,234
Redeemable preferred stock 1,918,486 253,438
Common shareholders' equity 382,251 392,303
Total liabilities and shareholders' equity $4,895,602 $3,192,114
SOURCE: RCN Corporation |
