[WinStar Reports Fourth Quarter and Year-End Results]
1998 Core Telecommunications Revenues Increase More Than Six Fold
"Project Millennium" Marketing Program Exceeds Expectations in Generating On-Net Orders
NEW YORK--(BUSINESS WIRE)--March 4, 1999--WINSTAR COMMUNICATIONS, INC. (NASDAQ:WCII) today reported continued strong growth in its core telecommunications business, significant progress in building the most widely available national broadband communications network for business customers, and success in generating substantial "on-net" orders through its breakthrough Project Millennium marketing program.
1998 CLEC revenues reached $141.5 million compared to $22.7 million in 1997, a more than six fold increase. Fourth quarter CLEC revenue totaled $56 million, an increase of more than 500% over the same period in 1997, and a 49% increase over the third quarter's total of $37 million. WinStar added 62,000 installed lines in the quarter, bringing its total cumulative line base to 319,000. CLEC revenue run rate now exceeds $209 million.
Total consolidated operating revenues for the year more than tripled to $244.4 million, compared to $71.2 million for 1997. Consolidated WinStar revenues for the fourth quarter increased to $81.1 million, more than 180% ahead of the corresponding 1997 period amount of $28.2 million and up nearly 33% over the third quarter.
In order to extend its first-to-market advantage, WinStar accelerated investments in its network build-out during the quarter, with the goal of expanding to 110 domestic and international markets by the year 2004. This accelerated network investment plan, as expected, increased the Company's fourth quarter EBITDA loss to $79.2 million. This compares to $48.3 million loss in the 1998 third quarter and $47.1 million loss in the December 1997 period. The company recorded a net loss applicable to common shareholders of $154.9 million, or ($3.80) in EPS, $0.06 better than the First Call consensus estimate of ($3.86) in EPS.
WinStar reported that 20% of its lines were fully on the WinStar network in the quarter, up from 18% in the third quarter, and said that it expects on-net percentage to accelerate in the first quarter of 1999 due to the success of the Project Millennium marketing campaign. This campaign produced a sharp increase in the number of on-net orders during the fourth quarter. WinStar is on track to provision these orders by March 31, 1999.
In New York City, WinStar's most mature market, the company reached the milestone of positive EBITDA for the quarter on continuing revenue growth and increasing "on-net" usage. The percentage of customer lines fully on the WinStar network in New York continued to increase and reached 55% at the end of the quarter, compared to 50% one year ago. Four other mature markets- Boston, Chicago, Los Angeles and Dallas-continued to track the trajectory of New York, with progress in revenue and customer growth. The percentage of customer lines fully on the WinStar network in the mature market group increased to 34% compared to less than 10% in last year's fourth quarter.
An Historic Quarter for WinStar
William J. Rouhana, Jr., Chairman and Chief Executive Officer, said today, "This was an historic quarter for WinStar. We sharply accelerated our network buildout, forged key partnerships with Lucent Technologies and Williams Communications, and launched an extremely successful marketing campaign that will result in future increases in the percentage of customers using the WinStar network. Our positive EBITDA in the New York market further validates our business model and points the way to similar results in other mature markets."
Rouhana continued: "The $400 million sale for two percent of our domestic broadband capacity to Williams Communications provided additional meaningful evidence of the growing value we are creating with our broadband network. At the same time, with the purchase of domestic broadband long haul assets, we are solidly on track to become the most widely available end-to-end global broadband network."
Nathan Kantor, President and Chief Operating Officer, said, "Our growth in 1998 was driven by the addition of over 10,000 CLEC customers, the opening of 13 new markets, the development of our Internet, data and enhanced services offerings, and a targeted attempt to reach Fortune 1000 companies and other large institutions. By the end of the year we achieved critical mass, with Wireless FiberSM service in over 30 markets, more than 15,000 customers, and access rights to more than 4,200 buildings.
Kantor continued: "We significantly increased the percentage of our customers who are fully on the WinStar broadband network throughout 1998. With the success of Project Millennium we are accelerating the addition of long-term, high margin on-net customers throughout 1999. This on-net momentum should continue positively to affect WinStar's gross margins in future periods.
"Millennium" Positions WinStar to Accelerate On-Net Line Growth
WinStar achieved sales orders for approximately 91,000 lines in the quarter, with a significant percentage attributable to Project Millennium. This breakthrough marketing program provided customers in 1,000 newly-connected WinStar buildings in 13 targeted markets free local service up to the year 2000 with a multi-year commitment.
WinStar said that Project Millennium orders exceeded expectations. In its first eight weeks, Project Millennium sales penetration reached 7% in Millennium buildings.
In New York, WinStar's largest and most mature market, 93% of new line orders during the Millennium promotion were on-net orders. Also, during the Millennium promotion, 73% of all line orders in Boston, 65% in Chicago and Dallas, and 56% in Los Angeles were fully on-net. A full 60% of Millennium customers are taking three-year contracts.
New York Market Success Accelerates; Other Mature Markets Track New York Progress
In New York City, WinStar's revenue and EBITDA growth accelerated, with significant contributions coming from each of its General Business, Large Accounts and Data and Enhanced Services channels. The percentage of customer lines fully on the WinStar network in New York increased to 55% compared to 50% a year ago.
Boston, Chicago, Los Angeles and Dallas, which, along with New York, each had a switch and at least four fully operational hubs as of March 31, 1998, continued to track the revenue and EBITDA growth trajectory of New York. The percentage of customer lines fully on the WinStar network in this mature market group increased to 34%, compared to less than ten percent one year ago.
The on-net percentages in these mature markets are expected to accelerate in the first quarter, as each of these markets participated in the Millennium promotion, and the related on-net lines ordered will be provisioned in the first quarter of 1999.
Continued Growth in Consolidated Operations
WinStar continued to expand its telecommunications business and the scope of related support services during the fourth quarter. Services were being provided in 30 markets at December 31, versus 27 at the end of September. The number of customers being served through WinStar's CLEC operations reached more than 15,000, compared with 1,000 the prior year.
Total consolidated operating revenues for the year were $244.4 million compared to $71.2 million for 1997. For the quarter, consolidated operating revenues increased 187% to $81.1 million compared to $28.2 million in 1997.
For the year ended 1998, CLEC revenues reached $141.5 million compared to $22.7 million in 1997, a more than six fold increase. For the quarter, CLEC revenues increased 502% to $55.6 million compared to $9.2 million in 1997.
Revenues from other telecommunications services, which consist of wholesale operations and MIDCOM long distance voice services, amounted to$49.6 million for 1998, and $9.4 million for the December quarter. As previously stated, the company expects a continued attrition of other revenue over subsequent quarters.
Information services revenues were $16.1 million in the 1998 fourth quarter, compared to $15.7 million in the prior year. The increases resulted from stronger Internet and other advertising revenues. 1998 information services revenues generated by WinStar New Media reached $53.3 million, an increase of 28.7% over the comparable 1997 amount of $41.4 million.
The company's cost of revenue for the quarter was $72.5 million, or 89.5% of revenue. This compares to 106.6% of revenue a year ago, and 74.8% of revenue in the previous quarter. The increase in cost of revenue during the quarter reflects expanded network costs associated with Project Millennium. The combined positive impact of on-net progress and network expansion should reduce the cost of revenue in 1999. The company expects its cost of revenue to range from 80% to 85% of revenue in early 1999 and improving to 60% to 65% by the end of 1999.
Selling, general and administrative expenses were $87.8 million, or 108.2% of the revenue for the quarter. This compares to $45.2 million, or 160.0% of revenue in the quarter one year ago.
Building access rights, which enable WinStar to install its Wireless FiberSM services in customer buildings, exceeded 4,200, an increase of more than 700 buildings from September 30. This marked the third consecutive quarter during which WinStar obtained more than 500 building access rights. Over the past nine months, the company has gained access to large commercial office building portfolios including CIGNA with 96, Spieker with 250 and more than 400 served by DEVNET, LLC. In addition, as of today, WinStar has 71 hub sites installed, with another 26 under construction and due for completion over the next 60 days, and a total of 119 hub leases signed.
Building The Most Widely Available End-to-End Broadband Network
WinStar also reported significant progress in the expansion of its network during the fourth quarter. In October, the company entered into a five-year strategic relationship with Lucent Technologies to build out WinStar's network. Under the agreement, Lucent will provide network design, integration and buildout services for the company's end-to-end global network, as well as its state-of-the-art technology and equipment and up to $2 billion of financing.
The company also purchased from Williams Communications, Inc. national fiber capacity, previously obtained by WinStar at higher cost. This transaction will significantly lower WinStar's cost of revenue.
In a separate transaction with Williams, WinStar sold two percent of its long-term broadband capacity for $400 million. The transaction will generate an expected $400-450 million in additional revenue, and an expected $320-360 million in additional EBITDA to WinStar.
WinStar continued to expand the availability of its alternative broadband network to take advantage of the growing global demand for broadband communications services. The company plans to double the U.S. expansion of its network to 60 major markets by year-end 2000, beginning with a total of 45 domestic markets by year-end 1999.
WinStar also reported that it would begin service to 50 major business markets in Western Europe, the Asia / Pacific region, and the Americas within the next five years, beginning with six overseas markets by the end of 1999. WinStar, which has begun securing spectrum in the 20-40 GHz bands in targeted overseas markets, will initially sell data services and Internet access to large and medium-sized customers in targeted markets abroad. In December, the company named Kathleen Flaherty, a twenty-year veteran of the telecommunications industry, and former MCI senior executive as President and Chief Operating Officer, WinStar Europe.
Signaling the rapid start of its international expansion, WinStar obtained a spectrum grant in the Netherlands and began constructing its first local network overseas under its arrangement with Lucent. Amsterdam is targeted for launch in April, 1999. WinStar acquired a 35% interest in a joint venture with KDD Corporation and Sumitomo Corporation. The venture received a major grant of spectrum at no cost which the venture will use to deploy fixed wireless service in Japan beginning in Tokyo later this year. WinStar also purchased a 95% ownership interest in Macrocom SA, an Argentine company holding nationwide licenses for 400 MHz of spectrum in that country's 38 GHz band. WinStar intends to begin delivering data services and Internet access to large and medium-sized business customers in Argentina by the end of 1999.
WinStar Communications, Inc.
Condensed Consolidated Balance Sheets
(in thousands)
December 31, December 31,
1997 1998
-------------- --------------
ASSETS
Current assets
Cash and cash equivalents $ 402,559 $ 208,256
Short term investments 16,903 104,774
-------------- --------------
Cash, cash equivalents
and short term investments 419,462 313,030
Accounts receivable, net 28,728 70,939
Inventories 10,296 14,880
Prepaid expenses and
other current assets 8,834 28,402
Net assets of
discontinued operations 1,145 -
-------------- --------------
Total current assets 468,465 427,251
Property and
equipment, net 284,835 639,673
Investment in equity
securities - 26,400
Licenses, net 174,763 310,649
Intangible assets, net 14,293 178,050
Deferred financing
costs, net 27,463 53,308
Other assets 4,015 27,851
-------------- --------------
Total assets $ 973,834 $ 1,663,182
============== ==============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Current portion of
long-term debt $ 386 $ 6,487
Accounts payable
and accrued expenses 95,685 159,252
Deferred revenue - 2,105
Net liabilities of
discontinued operations - 7,254
Current portion of
capitalized lease
obligations 6,741 59,021
-------------- --------------
Total current liabilities 102,812 234,119
Capitalized lease
obligations, less current portion 21,392 49,354
Long-term debt, less
current portion 768,469 1,396,635
Other liabilities - 12,588
Deferred income taxes 24,000 18,500
-------------- --------------
Total liabilities 916,673 1,711,196
-------------- --------------
Series C exchangeable
redeemable preferred
stock 175,553 201,478
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
34,611 and 41,352,
respectively 346 414
Additional paid-in-capital 255,741 404,112
Accumulated deficit (374,518) (819,242)
Accumulated other
comprehensive loss - (34,818)
-------------- --------------
Total stockholders' deficit (118,392) (449,492)
-------------- --------------
Total liabilities,
redeemable preferred stock
and stockholders' deficit $ 973,834 $ 1,663,182
============== ==============
WinStar Communications, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
For the three For the twelve
months ended months ended
December 31, December 31,
(unaudited)
1997 1998 1997 1998
Operating revenues
Telecommunications
services
CLEC $9,235 $55,608 $22,653 $141,466
Other 3,351 9,367 7,143 49,643
------------------------------------------
Total telecommunications
services 12,586 64,975 29,796 191,109
Information services 15,661 16,118 41,354 53,338
------------------------------------------
Total operating revenues 28,247 81,093 71,150 244,447
------------------------------------------
Operating expenses
Cost of services
and products 30,115 72,549 73,898 204,748
Selling, general and
administrative expenses 45,202 87,760 150,688 263,155
Depreciation
and amortization 10,453 26,287 25,102 74,953
------------------------------------------
Total operating expenses 85,770 186,596 249,688 542,856
------------------------------------------
Operating loss (57,523) (105,503) (178,538) (298,409)
Other (expense) income
Interest expense (24,183) (44,895) (77,257) (156,599)
Interest income 6,525 5,772 17,577 29,758
Other income -- -- 2,219 --
------------------------------------------
Loss from continuing
operations before income
tax benefit (75,181) (144,626) (235,999) (425,250)
Income tax benefit 2,500 1,500 2,500 5,500
------------------------------------------
Loss from
continuing operations (72,681) (143,126) (233,499) (419,750)
Loss from
discontinued operations (10,748) -- (15,985) (24,974)
------------------------------------------
Net loss (83,429) (143,126) (249,484) (444,724)
Preferred stock
dividends (1,998) (11,773) (5,879) (42,968)
------------------------------------------
Net loss applicable
to common stockholders $(85,427) $(154,899) $(255,363) $(487,692)
==========================================
Basic and diluted
loss per share:
From continuing
operations $(2.18) $(3.80) $(7.20) $(11.96)
From discontinued
operations (0.32) 0.00 (0.48) (0.65)
------------------------------------------
Net loss per share $(2.50) $(3.80) $(7.68) $(12.61)
==========================================
Weighted average
shares outstanding 34,215 40,793 33,249 38,681
==========================================
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