[GST 4Q98 and year-end results]
Closing out a year of exceptional growth and significant change, GST Telecommunications, Inc. announced revenues of $49.9 million for the quarter ended December 31, 1998, a 14 percent increase over the three months ended September 30, 1998 and an 81 percent increase over the corresponding quarter in 1997(A). For the twelve months ended December 31, 1998, GST reported revenues of $163.3 million, an 83 percent increase over the $89.0 million reported for the twelve months ended December 31, 1997. As a percentage of revenue, selling, general and administrative expenses (SG&A) dropped to 53 percent for the fourth quarter of 1998, from 57 percent in the third quarter of 1998, and telecommunications services gross margin increased from 33 percent in the third quarter to 38 percent for the fourth quarter.
For the quarter ended December 31, 1998, the Company reported adjusted EBITDA(B) of $(12.3) million, compared with $(13.5) million for the quarter ended September 30, 1998. Adjusted EBITDA for the twelve months ended December 31, 1998 was $(55.4) million, a $2.8 million improvement over $(58.7) million reported for the twelve months ended December 31, 1997.
In its entirety, 1998 was a remarkable year for GST in terms of the Company's growth, strengthening the management team, upgrading its Operational Support Systems (OSS), and the emergence of a sharpened and defined business strategy focusing on local dial tone, data, and broadband services. Access line installations for the quarter ended December 31, 1998 were 34,187, of which, 96 percent were on-switch. Cumulative on-switch access lines increased to 95 percent, compared with 89 percent the previous quarter.
For the three months ended December 31, 1998, the Company recorded special charges totaling $14.9 million. The charges are the result of the Company's previously reported change in strategic direction to focus on its core domestic-based business and include asset impairments and abandonment related to international submarine projects, wholesale long distance services and equipment rendered obsolete by the implementation of the VITA network, and severance costs related to prior management.
1998 Milestones:
- Became one of the first Integrated Communications Providers (ICPs) to develop and deploy a converged network utilizing 'next generation' technology with the turnup of the first phase of its Virtual Integrated Transport and Access, or VITA network.
- Signed agreements to swap fiber with IXC Communications and the FTV Partnership (Enron Communications, Williams and Touch America) to augment and expand GST's state-of-the-art fiber optic network in the Western United States.
- Sold conduit to Williams Communications on GST's Portland to Sacramento long haul route, currently under construction, for approximately $47.2 million of which GST will receive $23.6 million.
- Reached an agreement to sell fiber infrastructure for $30 million to FTV partnership and swapped additional fiber to create a redundant long haul backbone.
- Completed the launch of local dial tone service in all of its markets throughout an eight-state region.
- Successfully completed the sale of the Company's majority interest in NACT Telecommunications for approximately $86.5 million in net cash proceeds.
- Acquired Seattle-based ICON Communications, San Francisco-based Whole Earth Networks, and Call America Phoenix.
- Awarded a DARPA (Defense Advanced Research Projects Agency) contract, as part of the NTON Consortium, to provide infrastructure and manage the West Coast backbone of the next generation Internet.
'Our transition from a developing company to a fully-operational Integrated Communications Provider and the implementation of the right business strategy are the hallmarks of 1998,' stated Joe Basile, president and chief executive officer of GST. 'As our performance indicates, our efforts to strategically focus the Company on its core business, coupled with our continued progress in the deployment of our converged network infrastructure and integrated Operational Support Systems (OSS) are positioning us positively for future growth and scalability. Our record revenues, the growth of our data business, improvement in our gross margins, and more closely controlled SG&A, point to the fact we are on the right track.'
'We are extremely pleased with our financial results this quarter,' added Dan Trampush, chief financial officer of GST. 'We once again have reported double-digit revenue growth and improved our adjusted EBITDA performance. We closed the year with capital expenditures, including cash and accrued payments, of $248.2 million. Capital expenditures for the quarter ended December 31, 1998 were $78.1 million.'
Fourth Quarter Milestones:
- Activated first phase of next generation Virtual Integrated Transport and Access (VITA) network. The turn up of 13 cities with the VITA architecture positions company for deployment of advanced Internet Protocol (IP) services.
- Awarded DARPA contract, as part of the NTON Consortium, to manage West Coast backbone of the next generation Internet.
- Reached fiber sales agreements with Williams and FTV.
- Introduced two new ISDN products catering to business customers and ISPs.
- Announced Local Number Portability capabilities in all markets the Company serves within the top 100 MSAs as mandated by the Federal Communications Commission.
Operational Support System Update:
- California network inventory is substantially complete. On track for completion of network inventory in California by the end of the first quarter of 1999. Entire network inventory scheduled for completion in mid 1999, making GST one of the first companies to complete such an inventory.
- Deploying Kenan Arbor, a converged billing software system, and ISM-BC, an integrated customer care system.
- The key objective for GST's OSS is a fully integrated system. The OSS Framework is an object-based system which provides a unified and coherent structure for all back office systems. We expect to begin realizing benefits in the second quarter of 1999.
Looking ahead to 1999, Basile noted that 'the management team's primary goal is to deliver on our commitment to achieve EBITDA break even by the close of the first half of 1999 and to subsequently improve sequential quarter-over-quarter EBITDA along with solid revenue growth. The fundamental objective is to generate organic revenue from our existing core products, but most importantly to increase gross margins by bundling ourproducts in packages that best meet our customers needs. This strategy, in turn, will provide the Company with the greatest returns and also will provide customers with cost effective service solutions.'
Basile added 'The management team has placed long-term emphasis on solid growth to ensure increasing positive operating cash flow as well as significantly increasing gross margin as a percent of revenue. In addition, both operating and SG&A expenses will be managed closely.'
(A) All 1997 operating results described within the text of this press release exclude the results of NACT Telecommunications. In addition, the operating expense comparisons included herein exclude special charges.
(B) Earnings before interest, taxes, depreciation, and amortization, non-cash charges, litigation costs, Y2K remediation costs, and special charges.
GST Telecommunications, Inc.
Consolidated Statement of Operations
(In thousands, except share and per share amounts)
(unaudited)
Three Months Twelve Months
Ended December 31, Ended December 31,
1998 1997 1998 1997
Revenue:
Telecommunication
and other services $48,594 $27,552 $158,609 $91,708
Telecommunication products 1,317 8,706 4,708 27,300
49,911 36,258 163,317 119,008
Operating costs and expenses:
Network expenses 30,357 19,427 105,744 69,949
Facilities administration
and maintenance 4,846 3,511 16,703 12,490
Cost of product revenues 792 3,102 2,999 9,271
Selling, general and
administrative 26,575 22,428 96,506 79,242
Research and development -- 781 -- 2,687
Depreciation and amortization 13,792 8,864 45,957 28,334
Special charges 14,876 -- 30,580 7,445
91,238 58,113 298,489 209,418
Loss from operations (41,327) (21,855) (135,172) (90,410)
Other expenses (income):
Interest income (4,925) (4,101) (24,145) (10,288)
Interest expense 27,293 18,948 101,648 51,179
Other 1,588 1,569 (57,985) (3,894)
23,956 16,416 19,518 36,997
Loss before income taxes
and minority interest (65,283) (38,271) (154,690) (127,407)
Income taxes -- (850) -- (1,753)
Minority interest
in income of subsidiaries -- (472) -- (1,137)
-- (1,322) -- (2,890)
Net loss $(65,283) $(39,593) $(154,690)$(130,297)
Net loss per common and common
equivalent share
-- basic and diluted (A) $(1.90) $(1.39) $(4.52) $(5.11)
Weighted average common
and common equivalent
shares outstanding 36,249,428 30,804,376 35,834,19626,707,249
Net loss per common and common
equivalent share excluding
special charges
-- basic and diluted (A) $(1.49) $(1.39) $(3.66) $(4.83)
Adjusted EBITDA (B) $(12,263) $(12,032) $(55,449) $(50,705)
(A) Net loss per share is increased for preference shares' accretion
totaling $3,653 and $3,145 for the three-month periods and $7,106 and
$6,114 for the twelve-month periods ended December 31, 1998 and 1997,
respectively.
(B) Earnings before interest, taxes, depreciation, amortization,
non-cash charges, litigation costs, year 2000 remediation and special
charges. Special charges for the three months ended December 31, 1998
include $11,726 of non-cash charges.
EBITDA Reconciliation
Three Months Three Months
Ended Ended
December 31, September 30,
1998 1998
Adjusted EBITDA $(12,263) $(13,454)
Special charges,
excluding non-cash items (3,150) --
Year 2000 remediation costs (518) --
Litigation costs (969) (452)
EBITDA* $(16,900) $(13,906)
*Earnings before interest, taxes, depreciation, amortization and
non-cash charges.
GST Telecommunications, Inc.
Consolidated Balance Sheets
December 31, 1998 and December 31, 1997
(in thousands)
December 31, December 31,
1998 1997
ASSETS
Current assets:
Cash and cash equivalents $86,070 $199,053
Restricted cash and investments 34,107 31,731
Accounts receivable, net 32,935 27,324
Investments 46 7,619
Prepaid expenses and other current assets 12,939 16,539
Total current assets 166,097 282,266
Restricted investments 247,257 112,719
Property, plant and equipment 678,374 433,680
less accumulated depreciation (62,522) (26,785)
615,852 406,895
Other assets 145,905 117,908
less accumulated amortization (40,028) (21,614)
105,877 96,294
$1,135,083 $898,174
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable $26,411 $14,798
Accrued liabilities 37,445 30,869
Current portion of capital lease obligations 6,030 6,286
Current portion of long term debt 5,649 4,579
Other current liabilities 13,417 993
Total current liabilities 88,952 57,525
Other liabilities 21,377 3,551
Capital lease obligations,
less current portion 19,741 13,994
Long term debt, less current portion 1,092,959 763,292
Minority interest in subsidiaries -- 12,732
Preference shares 61,741 54,635
Shareholders' deficit:
Common shares 234,267 221,105
Commitment to issue shares -- 604
Deficit (383,954) (229,264)
Total shareholders' deficit (149,687) (7,555)
$1,135,083 $898,174
GST Telecommunications, Inc.
Consolidated Statement of Operations
Excluding NACT
(In thousands, except share and per share amounts)
(unaudited)
Three Twelve
Months Months
Ended Ended
December 31,
1997
Revenue:
Telecommunication and other services $26,165 $86,215
Telecommunication products 1,406 2,797
27,571 89,012
Operating costs and expenses:
Network expenses 18,039 64,271
Facilities administration and maintenance 3,511 12,490
Cost of product revenues 775 1,624
Selling, general and administrative 20,391 72,605
Research and development 35 86
Depreciation and amortization 8,584 27,371
Special charges -- 7,445
51,335 185,892
Loss from operations (23,764) (96,880)
Other expenses (income):
Interest income (3,879) (9,548)
Interest expense 18,948 51,150
Other 1,570 (3,738)
16,639 37,864
Loss before income taxes
and minority interest (40,403) (134,744)
Income taxes -- 72
Minority interest in income of subsidiaries -- --
-- 72
Net loss $ (40,403) $(134,672)
Net loss per common and common
equivalent share (A) $(1.41) $(5.27)
Weighted average common and common
equivalent shares outstanding 30,804,376 26,707,249
Adjusted EBITDA $ (14,431) $ (58,678)
(1) Net loss per share is increased for preference shares' accretion
totaling $3,145 for the three-month period and $6,114 for the
twelve-month period ended December 31, 1997, respectively.
GST Selected Statistical Information
Access Lines
December September December
31, 30, 31,
1998 1998 1997
Access Lines - Sold by quarter 31,337 38,015 25,335
Access Lines Installed by quarter 34,187 30,439 15,132
Other Selected Statistical Information
Cities Served 43 42 39
GST Owned Route Miles* 5,748 1,768 1,501
Leased Route Miles 884 1,652 1,594
Route Miles (total) 6,632 3,420 3,095
GST Owned Fiber Miles* 288,527 121,800 101,309
Leased Fiber Miles 11,196 26,947 24,474
Fiber Miles (total) 299,723 148,747 125,783
Buildings On-Net 689 669 529
Customers 105,858 103,427 67,254
Interconnection Agreements 13 13 13
Employees 1,394 1,359 1,100
Class 4/5 Switches Operational 14 14 8
Class 4/5 Switches Installed 1 1 6
Frame Relay Switches Operational 24 22 21
ATM Switches Operational 22 5 2
*Beginning in the Fourth Quarter of 1998, GST adjusted its 'owned
mileage' to include both operational and under construction. Under
construction mileage was previously reported in 'in progress.'
The Company is hosting a conference call on Tuesday, March 2 at 5:00 p.m. EST. Callers can access the call by dialing 800-633-8680, reservation number 11521450 (domestic ) and 360-882-2360, reservation number 886350 (international). Replay is available for 7 days by calling 800-633-8265, reservation number 11521450 (domestic) and 360-882-2360, reservation number 886350 (international). |
