Qwest Reports Strong Third Quarter Results - Sustained Profitability, Margin Expansion and Solid Free Cash Flow.DENVER -- Qwest Communications
See: New York Stock Exchange : Q): [TABLE OMITTED] * Trends Improve in Key Growth Areas: * Bundle Penetration Advances to 56 Percent * Consumer ARPU (Average Revenue Per User) A calculation often used to determine the overall value of an application. It is also used to rate particular customers, especially in the wireless space, by comparing someone's account to the overall average. Increases 7 Percent to $50 * Total High-Speed Internet See broadband. Subscribers Reach Milestone of 2 Million * Nine Consecutive Quarters of Year-Over-Year Margin Expansion; Adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) A metric used to show a company's profitability, but not its cash flow. EBITDA became popular in the 1980s to show the potential profitability of leveraged buyouts, but has become Margin Advances to 32.5 Percent (a) * Third Consecutive Quarter of Improved Net Income * Free Cash Flow on Track (a) * Customer Service Improvements Continue Qwest Communications International Inc. (NYSE: Q) today reported solid third quarter results highlighted by higher revenue, strong growth in earnings per share and nine consecutive quarters of year-over-year margin expansion. For the quarter, Qwest reported net income of $194 million, or $0.10 per basic share compared with a loss of $144 million, or ($0.08) per share in the third quarter 2005. "We are very pleased that Qwest continues to gain momentum with its third quarter of sequential improvement in earnings per share," said Richard C. Notebaert, Qwest chairman and CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. . "Customers are embracing our higher-value, higher ARPU products that contribute to our revenue while our cost structure and investments remain focused and rational." Financial Results Qwest reported revenue of $3.5 billion for the third quarter, benefiting from improving sales within Qwest's diverse portfolio of growth products, including high-speed Internet, advanced data products and digital voice service. Year-ago revenues included the impact of $52 million recognized in the third quarter of 2005 from a large government contract. "We continue to deliver on our expectations for the year," said Oren G. Shaffer, Qwest vice chairman and CFO See Chief Financial Officer. . "Our margins continue to expand toward our target of the mid-30 percent range, our free cash flow is squarely on track for the year, and we continue to pursue additional opportunities to expand top-line growth." Qwest's operating expenses Operating expenses The amount paid for asset maintenance or the cost of doing business, excluding depreciation. Earnings are distributed after operating expenses are deducted. declined 6.3 percent to $3.1 billion for the third quarter of 2006, compared to the third quarter of 2005, as a result of improvements in productivity and operating efficiencies, lower facility costs and lower depreciation. Operating expense Operating Expense The essential things that a company must purchase in order to maintain business. Notes: For example, the payment of employees wages are an operating expense. Also known as OPEX. in the third quarter of 2006 included $43 million of severance charges as productivity improvements outpaced normal attrition Attrition The reduction in staff and employees in a company through normal means, such as retirement and resignation. This is natural in any business and industry. Notes: levels. Qwest's adjusted EBITDA margins increased to 32.5 percent in the third quarter, excluding severance charges, marking the ninth consecutive quarter of year-over-year margin expansion. This represents a 390 basis point improvement from the third quarter a year ago, after adjusting for $26 million of real estate realignment re·a·lign tr.v. re·a·ligned, re·a·lign·ing, re·a·ligns 1. To put back into proper order or alignment. 2. To make new groupings of or working arrangements between. in the year ago quarter, and up 60 basis points sequentially. Net income for the quarter improved to $194 million from a loss of $144 million in the year-ago quarter. The current quarter includes a benefit of $92 million from a tax-sharing settlement and a severance charge of $43 million. Cash Flow, Capital Spending capital spending Spending for long-term assets such as factories, equipment, machinery, and buildings that permits the production of more goods and services in future years. and Interest The company generated solid free cash flow of $358 million in the quarter resulting from continued improvement in operating results and lower debt levels. Free cash flow year-to-date totaled $803 million before one-time items, which is nearly 70 percent higher than the same period in 2005. Qwest continues to expect free cash flow of $1.35 billion to $1.5 billion in 2006 compared with $904 million in 2005 (both before one-time payments). Third-quarter capital expenditures totaled $394 million, compared to $445 million in the third quarter of 2005, with a continued focus on the proportion spent on broadband to enable higher speeds and footprint expansion. Capital spending in 2006 is expected to approximate the 2005 level as the company continues to focus on support for the highest service levels and disciplined investment in key growth areas, which includes approximately 40 percent of wireline spending focused on broadband. Interest expense totaled $291 million for the third quarter, compared to $384 million in the year-ago quarter, which is on track with the company's expectation for a $300 million reduction in annual interest expense resulting from its retirement of high coupon, legacy debt and lower debt levels. Balance Sheet Update In its effort to continue to improve the balance sheet and free cash flow, Qwest reduced total net debt (gross debt less cash and short-term investments) to $13.7 billion, down $800 million since year-end 2005. The company maintained strong liquidity with cash and short-term investments of $1.2 billion at the end of the quarter. Bundles Since the launch of new bundles in 2005, Qwest has experienced measurable success in growing the number of customers who subscribe to Verb 1. subscribe to - receive or obtain regularly; "We take the Times every day" subscribe, take buy, purchase - obtain by purchase; acquire by means of a financial transaction; "The family purchased a new car"; "The conglomerate acquired a new company"; more than one service. Qwest's full-featured bundled offering includes digital voice, high-speed Internet access, a national wireless offering and integrated TV services through Qwest's own ChoiceTV or its marketing alliance with DIRECTV, Inc. The company's bundle penetration increased to 56 percent in the quarter, compared to 50 percent a year ago. Sales of voice packages plus three or four products continue to drive significant growth. Customer demand for value-added services A value-added service (VAS) is a telecommunications industry term for non-core services or, in short, all services beyond standard voice calls and fax transmissions. is driving higher consumer ARPU, which increased 7 percent to $50 from $47 a year ago. Customer Connections The company continues to see growth from customer connections as a result of bundling and localized sales initiatives. Qwest's customer connections - which include consumer and small-business primary and secondary access lines, high-speed Internet subscribers, wireless and video customers - grew 121,000 sequentially and 344,000 from the year ago quarter, marking the fourth consecutive quarter of year-over-year increases. Strong results in bundle subscriber additions and customer connections were partially offset by year-over-year total retail line losses of 5.1%, excluding 32,000 affiliate disconnects in the prior year. High-Speed Internet Qwest High-Speed Internet continued to show robust growth for the quarter. As a result, mass markets data and Internet revenues increased 10 percent sequentially and 42 percent year-over-year. Qwest benefited from strong demand, particularly in the conversion of customers from dial-up to broadband and migration to higher-speed offerings. The company added over 175,000 high-speed Internet lines in the third quarter. This represents a 10 percent increase sequentially and a 47 percent increase year-over-year in total subscribers. This month, the company reached total subscribers of 2 million - a key milestone. In July, Qwest launched the "Price for Life" promotion that offers Qwest Choice(TM) DSL DSL in full Digital Subscriber Line Broadband digital communications connection that operates over standard copper telephone wires. It requires a DSL modem, which splits transmissions into two frequency bands: the lower frequencies for voice (ordinary Deluxe (1.5 Mbps) for new customers who sign a two-year term commitment, a fixed price for life (unless they terminate, change service or change ISPs). Due to the strong response to this promotion, Qwest expanded "Price for Life" in October to new Qwest Choice DSL Premium (3-5 Mbps) customers. Qwest continued to invest in its high-speed Internet footprint as well as increase the speeds available to customers. Currently, 82 percent of Qwest's households are eligible for broadband services See broadband and broadband service provider. , up from approximately 67 percent at the end of 2004 with growing focus on increasing speeds to the footprint. Digital Voice Last quarter, the company launched its "digital voice" campaign to promote Qwest's reliable, high-quality, integrated local and long-distance services. Qwest's digital voice penetration, which is long-distance subscribers as a percent of retail local lines, expanded to 39 percent from 36 percent a year ago. Wireless Wireless revenue grew 3 percent compared to the prior year, driven by promotions and successful bundling efforts. Qwest continues to benefit from wireless in the bundle with approximately 75 percent of wireless subscribers on an integrated bill with at least one other service. The company's wireless subscriber base totaled 781,000 for the quarter. During the quarter, Qwest introduced two new wireless handsets - the Samsung A920 and the ultra-thin Sanyo 6600 Katana Nihontō (日本刀:にほんとう nihontō . The A920 includes Music on Demand and full-track music downloading A music download refers to the transferring of a music file from an Internet-facing computer or website to a user's local computer. This term encompasses both legal downloads and downloads of copyright material without permission or payment if required. through the Qwest music store. Both the A920 and the Katana handsets support some of the most advanced wireless technologies, including global positioning system Global Positioning System: see navigation satellite. Global Positioning System (GPS) Precise satellite-based navigation and location system originally developed for U.S. military use. (GPS) navigation and Bluetooth[R] capabilities. DIRECTV[R] Alliance Total DIRECTV subscribers reached 311,000 in the quarter with customers growing more than 45 percent from the second quarter and more than three times from a year ago. Qwest and DIRECTV's strategic relationship allows Qwest to offer DIRECTV digital satellite television services to residential customers across the entire Qwest 14-state region. In August, the company in coordination with DIRECTV, launched the "Qwest Football Bundle" - Qwest High-Speed Internet service, digital voice (unlimited local and long-distance service) and DIRECTV programming, including its college football and exclusive professional football package subscriptions, just in time for the football season. Enterprise and Wholesale Enterprise and Wholesale channels continue to be driven by strong demand in data and Internet services. Qwest continues to advance its MPLS-based capabilities, VoIP and iQ suite of services in the marketplace driving strong volumes. Enterprise growth products continue to gain traction representing over 20 percent of business revenue and growing at nearly 30 percent on an annualized annualized Of or relating to a variable that has been mathematically converted to a yearly rate. Inflation and interest rates are generally annualized since it is on this basis that these two variables are ordinarily stated and compared. basis, excluding the impact of the large government contract in the prior year. During the quarter, Qwest closed its acquisition of OnFiber Communications, Inc., an Austin, Texas-based provider of custom-built and managed metropolitan Ethernet and wide-area networks Wide-area networks Communication networks that are regional, nationwide, or worldwide in geographic area, with a minimum distance typical of that between major metropolitan areas. Smaller networks include metropolitan and local-area networks. . OnFiber operates an all-optical network A communications network that works completely in the optical domain. It uses optical switches connected by optical fibers. See optical switch and optical computer. in 23 metropolitan areas across the nation and features a full offering of access and transport services The collective functions of layers 1 through 4 of the OSI model. . Also in the quarter, Qwest announced new or expanded networking and voice and data agreements with Buca, Inc., the State of Minnesota, USDA USDA, n.pr See United States Department of Agriculture. Forest Service, OpSource, C&D Technologies, Brooke Corporation and Affiliated Computer Services Affiliated Computer Services (ACS) (NYSE: ACS) is a Fortune 500 company that provides information technology outsourcing as well as business process outsourcing solutions to businesses, government agencies, and non-profit organizations. (ACS (Asynchronous Communications Server) See network access server. ). The company's wholesale channel continued to drive growth and improve efficiency in delivering services to customers. Wholesale long-distance revenue grew 6.1 percent year over year, continuing to benefit from its focus on growth customers including cable, wireless and VoIP providers. In the quarter, Qwest added Qwest IP Voice 8xx Origination and Qwest Wholesale Hosted VoIP services to its suite of VoIP solutions, giving wholesale customers a one-stop shop One-Stop Shop A company or a location that offers a multitude of services to a client or a customer. The idea is to provide convenient and efficient service and also to create the opportunity for the company to sell more products to clients and customers. for all their VoIP needs. Customer Service Qwest continues to make measurable improvements toward the goal of providing best-in-class customer service. In the consumer business, J.D. Power and Associates recently released the second wave results for its 2006 Internet Service Provider Internet service provider (ISP) Company that provides Internet connections and services to individuals and organizations. For a monthly fee, ISPs provide computer users with a connection to their site (see data transmission), as well as a log-in name and password. Residential Customer Satisfaction survey. The results showed improvement for Qwest in every category, with overall high-speed Internet satisfaction up nearly 6 percent since the first wave earlier this year. In addition, Qwest technicians continue to be ranked higher than the industry average in all areas. The results demonstrate Qwest employees' commitment to further improve customer satisfaction. In October, Atlantic-ACM - a research consultancy serving the telecommunications and information industries - published survey results that ranked Qwest's wholesale channel No. 1 in the industry for provisioning and customer service. In addition, Qwest earned four Metro Carrier Excellence Awards for its local voice, transport, SONET and direct Internet connection services. Conference Call Today As previously announced, Qwest will host a conference call for investors and the media today at 9 a.m. EST EST electroshock therapy. EST abbr. electroshock therapy with Richard C. Notebaert, Qwest chairman and CEO, and Oren G. Shaffer, Qwest vice chairman and CFO. The call can be heard on the Web at www.qwest.com/about/investor/events. About Qwest Qwest offers a unique and powerful combination of voice and data solutions for businesses, government agencies and consumers - locally and throughout the country. Customers coast to coast are turning to Qwest's industry-leading national fiber optic network and its Spirit of Service for quality products and superior customer experience. For more information on Qwest, and its various operating subsidiaries An operating subsidiary is a business term frequently used within the United States railroad industry. In the case of a railroad, it refers to a company that is a subsidiary but operates with its own identity and rolling stock. , please go to www.qwest.com. Forward-Looking Statement forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. Note This release may contain projections and other forward-looking statements that involve risks and uncertainties. These statements may differ materially from actual future events or results. Readers are referred to the documents filed by us with the Securities and Exchange Commission, specifically the most recent reports which identify important risk factors that could cause actual results to differ from those contained in the forward-looking statements, including but not limited to: access line losses due to increased competition, including from technology substitution of our access lines with wireless and cable alternatives, among others; our substantial indebtedness, and our inability to complete any efforts to de-lever our balance sheet through asset sales or other transactions; any adverse outcome of the current investigation by the U.S. Attorney's office in Denver into certain matters relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc us; adverse results of increased review and scrutiny by regulatory authorities Noun 1. regulatory authority - a governmental agency that regulates businesses in the public interest regulatory agency administrative body, administrative unit - a unit with administrative responsibilities , media and others (including any internal analyses) of financial reporting issues and practices or otherwise; rapid and significant changes in technology and markets; any adverse developments in commercial disputes or legal proceedings All actions that are authorized or sanctioned by law and instituted in a court or a tribunal for the acquisition of rights or the enforcement of remedies. , including any adverse outcome of current or future legal proceedings related to matters that are or were the subject of governmental investigations, and, to the extent not covered not covered Health care adjective Referring to a procedure, test or other health service to which a policy holder or insurance beneficiary is not entitled under the terms of the policy or payment system–eg, Medicare. Cf Covered. by insurance, if any, our inability to satisfy any resulting obligations from funds available to us, if any; potential fluctuations in quarterly results; volatility of our stock price; intense competition in the markets in which we compete including the likelihood of certain of our competitors consolidating with other providers; changes in demand for our products and services; acceleration of the deployment of advanced new services, such as broadband data, wireless and video services, which could require substantial expenditure of financial and other resources in excess of contemplated levels; higher than anticipated employee levels, capital expenditures and operating expenses; adverse changes in the regulatory or legislative environment affecting our business; changes in the outcome of future events from the assumed outcome included in our significant accounting policies; and our ability to utilize net operating losses Net operating losses Losses that a firm can take advantage of to reduce taxes. in projected amounts. The information contained in this release is a statement of Qwest's present intention, belief or expectation and is based upon, among other things, the existing regulatory environment, industry conditions, market conditions and prices, the economy in general and Qwest's assumptions. Qwest may change its intention, belief or expectation, at any time and without notice, based upon any changes in such factors, in Qwest's assumptions or otherwise. The cautionary statements contained or referred to in this release should be considered in connection with any subsequent written or oral forward-looking statements that Qwest or persons acting on its behalf may issue. This release may include analysts' estimates and other information prepared by third parties for which Qwest assumes no responsibility. Qwest undertakes no obligation to review or confirm analysts' expectations or estimates or to release publicly any revisions to any forward-looking statements and other statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. By including any information in this release, Qwest does not necessarily acknowledge that disclosure of such information is required by applicable law or that the information is material. The Qwest logo is a registered trademark of Qwest Communications International Inc. in the U.S. and certain other countries. (a) See attachment E for Non GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). Reconciliation [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] |
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