WinStar Reports Third Quarter Results
November 5, 1998 04:11 PM
NEW YORK--(BUSINESS WIRE)--Nov. 5, 1998--
CLEC Revenue Run Rate Exceeds $176 million
On-Net Customer Lines Increase at Faster Pace
WINSTAR COMMUNICATIONS, INC. WCII today reported continued strong growth in its core telecommunications business, with CLEC revenues totaling $37.2 million for the third quarter ended September 30, 1998, more than quadruple the year ago total of $7.4 million and more than 24% over the preceding quarter's total of $30.0 million. The current CLEC run rate exceeds $176 million. The company also reported that the percentage of customer lines on WinStar's broadband network increased to more than 18%, up from 15% in the second quarter of 1998.
In line with its plan, WinStar's quarterly EBITDA loss narrowed for the third consecutive quarter to $48.3 million in the September period, compared to $48.6 million in the second quarter. The company reported that total revenues for the third quarter increased to $61.1 million, more than triple the year ago amount of $18.4 million. The company recorded a net loss applicable to common shareholders of $134.1 million or $2.83 per share from continuing operations in the 1998 third quarter, beating the First Call consensus.
William J. Rouhana, Jr., Chairman and Chief Executive Officer, said today, "WinStar has moved into a clear leadership position within our industry. We have reached critical mass in terms of network, customers, buildings and installed lines. We are particularly pleased that we have been able to significantly increase the number of higher-margin customers using WinStar's state-of-the-art broadband network. We led the industry with our court case against the General Services Administration, which opened up a potentially large market for the entire CLEC industry. We also broke new ground with our $2 billion strategic relationship with Lucent Technologies. Finally, our Project Millennium marketing campaign is bringing the same level of innovation to the local market that 'Friends and Family' brought to long distance."
Nathan Kantor, President and Chief Operating Officer, said, "We continue to have solid momentum and are now in a position to sharpen our focus even further and drive more customers onto our national broadband network. Once again, WinStar has achieved significant progress in every important measure of success, including revenues, new customer lines, on-net percentage and the number of buildings to which we can deliver our Wireless Fiber(SM) services. We remain on track with our plans to commercially deploy our next generation point-to-multipoint technology and to expand our switched services into a total of 30 markets by the end of the year. Our successful third quarter, together with the Lucent partnership and Project Millenium, gives us additional scale and momentum to build out our network and extend our services to more markets worldwide."
Continued Strong Growth in CLEC Operations
WinStar's strong growth in CLEC revenues is attributable to the ongoing expansion of the company's large accounts effort, the company's continued success in selling and installing local, long distance and Internet services for small and medium sized business customers, the ongoing buildout of the WinStar network, and the continuing success of the company's new broadband services unit.
For the first nine months of 1998, CLEC revenues reached $85.9 million compared to $13.4 million in 1997. Total operating revenues for the nine months were $163.4 compared to $42.9 for the same period in 1997.
Revenues from other telecommunications services, which consist of wholesale operations and MIDCOM long distance voice services, amounted to $11.2 million for the September quarter. As previously stated, the company expects a continual attrition of this other revenue over subsequent quarters.
Information services revenues provided by WinStar New Media increased to $12.8 million in the 1998 third quarter, compared to $11.0 million in the 1997 quarter. This gain of 15.7% was attributable to strong Internet and other advertising revenues. Information services revenues for the first nine months of 1998 reached $37.2 million, an increase of 44.8% over the comparable 1997 amount of $25.7 million.
The company's gross margin was $15.4 million, or 25% of revenue. This compares to $0.4 million a year ago. The gross margin continues to improve as the company continues to drive traffic onto its network, implement substantial supplier cost reductions and credits, and control its internal costs.
Selling, general and administrative expenses were $64 million, or 104% of the revenue for the quarter. This compares to $40 million, or 216% of revenue in the quarter one year ago.
During the quarter WinStar adopted a formal plan to dispose of its residential long distance business, WinStar Gateway Network. In addition, the company agreed to sell the remaining assets of WinStar Global Products, which was discontinued in 1997. Accordingly, a charge of $21.3 million was taken in the quarter to reflect these actions.
During the third quarter, WinStar added approximately 60,000 installed CLEC lines, a growth rate of approximately 20% over the second quarter of 1998. On a cumulative basis, installed lines surpassed 257,000 at September 30, 1998.
WinStar continued to expand its telecommunications business and the scope of related support services during the third quarter. Services were being provided in 27 markets at September 30, versus 26 at the end of June. The number of customers being served through WinStar's CLEC operations reached more than 12,000, compared with just over 9,000 three months earlier. Additionally, building access rights, which enable WinStar to install its Wireless Fiber services in customer buildings, exceeded 3,500, an increase of nearly 600 from June 30. This marked the second consecutive quarter during which WinStar obtained more than 500 building access rights. WinStar had 58 hub sites installed on September 30, with another 26 in progress and a total of 93 hub leases signed.
Major Developments
Over the past several months, WinStar has made strong progress with a number of key initiatives. Its $2 billion strategic relationship with Lucent gives the company additional financial flexibility to build out its network to the top 100 global markets. The Lucent agreement also gives WinStar the operational support to accelerate the network buildout with world class technology and services. At the same time, WinStar's breakthrough Project Millennium marketing campaign, under which new customers in 1,000 recently networked WinStar buildings will receive free local phone service until the year 2000, will further increase the percentage of high-margin "on-net" customers.
Even before launching Project Millennium, WinStar made significant progress in driving customers onto its broadband network and its own switches. Overall, more than 37% of the company's lines are now "on-switch" and over 18% are now "on-net." In New York City, over 54% of its customer lines are now fully on the WinStar network and 80% are "on-switch." In its five mature markets, 33% of lines are "on-net" and 51% are "on switch."
In addition, WinStar won a federal court case that will potentially open telecommunications contracts worth hundreds of millions of dollars to bidding by WinStar and other competitive carriers. The U.S. Court of Federal Claims rejected the federal government's decision to limit multimillion-dollar local telecommunications contracts to a single awardee, opening federal telecommunications markets in dozens of U.S. cities to more than one service provider.
The Court made this decision in response to a protest filed by WinStar relating to a contract to be awarded by the U.S. General Services Administration (GSA) under its Metropolitan Area Acquisition (MAA) Program. The first MAA contract will be for local telecommunications service in the New York City area and is valued at up to $200 million. WinStar, which is the only CLEC to be placed on the GSA list of qualified bidders for these contracts, has bid for the New York City MAA contract as well as for those in Chicago and San Francisco. WinStar is uniquely positioned to compete for a significant portion of these contracts because of the flexibility and broadband capacity provided by its Wireless Fiber service.
WinStar Communications, Inc. is a facilities-based national local communications company, serving business customers in major markets throughout the U.S. The company provides local and long distance phone service and high speed data, Internet access and information services. WinStar provides these Wireless FiberSM services over its own network, using its licenses in the 28 and 38 GHz spectrum.
Except for any historical information contained herein, the matters discussed in this press release contain forward-looking statements that involve risks and uncertainties, which are described in the company's SEC reports, including the 10-K for the period ended December 31, 1997 and the 10-Q for the period ended June 30, 1998.
WinStar is a registered trademark, and Wireless Fiber is a service mark of WinStar Communications, Inc.
WinStar Communications, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
For the three For the nine
months ended months ended
September 30, September 30,
1997 1998 1997 1998
Operating revenues
Telecommunications services
CLEC $ 7,429 $ 37,221 $ 13,417 $ 85,858
Other - 11,175 3,792 40,276
Total telecommunications
services 7,429 48,396 17,209 126,134
Information services 11,017 12,750 25,693 37,220
Total operating revenues 18,446 61,146 42,902 163,354
Operating expenses
Cost of services and products 18,408 45,722 43,783 132,199
Selling, general and
administrative expenses 39,864 63,764 105,486 175,395
Depreciation and amortization 6,802 20,372 14,649 48,666
Total operating expenses 65,074 129,858 163,918 356,260
Operating loss (46,628) (68,712) (121,016) (192,906)
Other (expense) income
Interest expense (22,018) (42,599) (52,863) (111,704)
Interest income 4,298 8,805 12,415 24,043
Other income 2,220 - 2,220 -
Loss from continuing operations before income
tax benefit (62,128) (102,506) (159,244) (280,567)
Income tax benefit - 1,500 - 4,000
Loss from continuing
operations (62,128) (101,006) (159,244) (276,567)
Discontinued operations:
Loss from operations of
the segments (1,655) (1,045) (4,834) (2,759)
Estimated loss on
disposal of the segments
(including a provision
of $4,183 for operating
losses during the phase
out period) (1,500) (20,290) (1,977) (22,272)
Loss from discontinued
operations (3,155) (21,335) (6,811) (25,031)
Net loss (65,283) (122,341) (166,055)(301,598)
Preferred stock dividends (1,535) (11,710) (3,881) (31,195)
Net loss applicable to
common stockholders $(66,818) $(134,051) $(169,936) $(332,793)
Basic and diluted
loss per share:
From continuing operations $ (1.91) $ (2.83) $ (4.95) $ (8.10)
From discontinued operations (0.10) (0.53) (0.21) (0.66)
Net loss per share $ (2.01) $ (3.36) $ (5.16) $ (8.76)
Weighted average shares
outstanding 33,188 39,876 32,923 37,970
WinStar Communications, Inc.
Condensed Consolidated Balance Sheets
(in thousands)
December 31, September 30,
1997 1998
(unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 402,559 $ 311,863
Short term investments 16,903 162,043
Cash, cash equivalents and
short term investments 419,462 473,906
Accounts receivable, net of allowance
for doubtful accounts 28,728 80,606
Inventories 10,296 16,028
Prepaid expenses and other current assets 8,834 39,427
Net assets of discontinued operations 1,145 -
Total current assets 468,465 609,967
Property and equipment, net 284,835 447,186
Investment in equity securities - 14,954
Licenses, net 174,763 283,558
Intangible assets, net 14,293 149,291
Deferred financing costs 27,463 39,378
Other assets 4,015 12,492
Total assets $ 973,834 $ 1,556,826
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Current portion of long-term debt $ 386 $ 5,517
Accounts payable and accrued expenses 95,685 78,530
Net liabilities of discontinued operations - 11,618
Current portion of capitalized lease
obligations 6,741 13,646
Total current liabilities 102,812 109,311
Capitalized lease obligations,
less current portion 21,392 52,448
Long-term debt, less current portion 768,469 1,293,823
Other liabilities - 13,237
Deferred income taxes 24,000 20,000
Total liabilities 916,673 1,488,819
Series C exchangeable redeemable
preferred stock 175,553 194,738
Series D senior cumulative convertible
redeemable preferred stock - 200,000
Stockholders' equity (deficit)
Series A Preferred stock 39 41
Series E Preferred stock - 1
Common stock, par value $.01; authorized
200,000 shares,
issued and outstanding 34,610 and
40,565, respectively 346 405
Additional paid-in-capital 255,741 394,303
Accumulated deficit (374,518) (676,116)
Accumulated other comprehensive loss - (45,365)
Total stockholders' deficit (118,392) (326,731)
Total liabilities, redeemable
preferred stock
and stockholders' deficit $ 973,834 $ 1,556,826
WinStar Communications, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
Restated to Reflect WinStar Gateway Network as a Discontinued Operation
(in thousands, except per share data)
(unaudited)
For the three For the three
months ended months ended
March 31, 1998 June 30, 1998
Operating revenues
Telecommunications services
CLEC $ 18,635 $ 30,002
Other 15,394 13,707
Total telecommunications
services 34,029 43,709
Information services 11,949 12,521
Total operating revenues 45,978 56,230
Operating expenses
Cost of services and
products 41,252 45,225
Selling, general and
administrative expenses 52,492 59,139
Depreciation and
amortization 11,399 16,895
Total operating expenses 105,143 121,259
Operating loss (59,165) (65,029)
Other (expense) income
Interest expense (28,613) (40,492)
Interest income 4,898 10,340
Loss from continuing
operations before
income tax benefit (82,880) (95,181)
Income tax benefit 1,100 1,400
Loss from continuing
operations (81,780) (93,781)
Loss from discontinued
operations (3,179) (517)
Net loss (84,959) (94,298)
Preferred stock dividends (8,198) (11,287)
Net loss applicable
to common stockholders $ (93,157) $ (105,585)
Basic and diluted loss
per share:
From continuing operations $ (2.51) $ (2.76)
From discontinued operations (0.09) (0.01)
Net loss per share $ (2.60) $ (2.77)
Weighted average shares
outstanding 35,899 38,081
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