LEVEL 3 COMMUNICATIONS REPORTS FIRST QUARTER 1999 RESULTS
Construction of Both U.S. Local and Intercity Networks Ahead of Schedule
OMAHA, NEBRASKA, April 23,1999 – Level 3 Communications, Inc. (NASDAQ: LVLT) today announced first quarter 1999 results, reporting consolidated revenues of $102 million. The net loss for the quarter was $105 million, or $0.33 per share. The per share calculation was determined giving effect to an increase in the number of shares of common stock outstanding as the result of a follow-on equity offering in March 1999. "During the first quarter, we achieved a number of strategic, operational and financial milestones," said James Q. Crowe, president and chief executive officer of Level 3. "In fact, we have surpassed our goals in a number of areas. We are currently significantly ahead of schedule for both our U.S. intercity and local network builds. Demand has been stronger than expected for many of our product offerings, which puts us well on the way to building a robust and stable customer base. We also completed a successful equity offering during the quarter. These positive steps will allow us to continue to proceed rapidly throughout 1999 and remain firmly on track with our strategic plan."
First Quarter Financial Highlights Communications and Information Services Revenue:
Communications and information services revenue was $46 million, a 59 percent increase over 1998 first quarter revenue of $29 million. The year over year increase was due to the significant expansion of the communications business during 1998. During the first quarter, the company was offering services in 17 U.S. cities and 2 European cities. Other Revenue: Other revenue of $56 million includes $51 million from coal mining, a 4 percent decline from first quarter 1998 coal mining revenue. The slight decrease in year over year coal revenue was due to timing of customer shipments for annual commitments. Expenses: Cost of Revenue: The cost of revenue for the first quarter of 1999 increased 48 percent from the first quarter 1998, to $62 million. The increase was primarily due to the planned expansion of the communications and information services businesses.
Employee Related Expenses:
Total selling, general and administrative (SG&A) expenses for the quarter were $107 million. This represents an increase of 133 percent from the first quarter 1998 SG&A expenses of $46 million. The company added approximately 500 employees during the quarter, bringing the total number of employees to approximately 2,700. Additional employee related expenses during the quarter include $18 million in stock- based compensation expense. These are non-cash expenses, accounted for in accordance with SFAS No. 123, "Accounting For Stock-Based Compensation."
Depreciation and Amortization:
Depreciation and amortization expenses for the quarter were $41 million, compared to $6 million for the first quarter 1998. These charges reflect the significant increase in capital spending for the growth of the communications business along with amortization of goodwill associated with prior acquisitions. These expenses include the increased amortization from the restatement of in-process R&D charges associated with the company's purchase of XCOM Technologies, Inc. This revised charge is still subject to final SEC review, however the company does not expect that any subsequent adjustment would be significant.
Capital Expenditures:
Capital expenditures for property, plant and equipment for the quarter were $407 million. The majority of the spending was for construction of the U.S. intercity network and certain local networks in the U.S. and Europe. 1999 annual capital expenditures are still expected to exceed $2 billion.
Equity Offering:
On March 9, 1999, Level 3 completed the offering of 28.75 million shares of its common stock, receiving proceeds of approximately $1.5 billion. The number of shares offered includes 3.75 million shares of common stock sold to the underwriters to cover over allotments. The offering brings the total number of shares outstanding at the end of the first quarter to 338.4 million. The offering substantially prefunds Phase 3 of the strategic plan, which includes local builds in eight European and Pacific Rim markets, a Pan-German intercity network and additional development in existing U.S. markets.
Acquisition:
On January 5, 1999, Level 3 acquired BusinessNet Limited, a leading London based Internet service provider. This acquisition accelerated Level 3's entry into the UK market. BusinessNet had an established market focus on the financial and professional services community, specifically through its intracity network, which offers access to financial and other Internet Protocol based services. The transaction was valued at approximately $16 million.
Operational Highlights for the Quarter U.S. Network Construction Ahead of Schedule:
At the end of the quarter, approximately 1,300 miles of the U.S. intercity network were completed – more than double the previously targeted total of 600 miles – with another 2,500 miles under construction. In addition, 800 miles of rights-of-way (ROW) were acquired during the quarter, bringing the total ROW under contract to 15,200 miles or 95 percent of the total required. Local network development is currently underway in 25 U.S. cities. The first loops of local networks became operational in seven cities during the quarter – Dallas, Denver, Seattle, Boston, San Francisco, Chicago, and Detroit – compared to the previously targeted total of three local loops. The company has received Certificates of Public Convenience and Necessity from regulatory bodies in 37 states. These certificates are required in order to operate as a telecommunications service provider within a state. The company has also executed interconnection agreements with incumbent local exchange carriers in 24 markets, allowing Level 3 to interconnect its network with those of the incumbent telephone companies.
European Network Construction Underway:
Design and development of local city networks and the European intercity network are currently underway and on schedule in five countries – the United Kingdom, France, Germany, The Netherlands, and Belgium. Level 3 has been granted national and international facilities licenses, along with Public Telephony Voice licenses in eight European countries. The company plans to launch its second gateway in Europe in the second quarter, with five markets expected to be in service by the end of 1999.
Transatlantic Cable Build:
As announced separately today, Level 3 has signed an agreement with Tyco Submarine Systems to design and develop a high capacity transatlantic cable system. This system will provide a critical link in Level 3's international IP Network. The system is currently under development and is expected to be in service in the third quarter of 2000.
IP Voice Service Development On Track:
Level 3 successfully demonstrated its IP Voice service at an Analyst and Investor conference in February and concluded initial ('alpha') testing during the quarter. The service is currently in commercial ('beta') testing. Subject to successful completion of beta testing, full commercial launch of the IP Voice service is still expected for the second half of 1999.
Outlook:
"We are pleased with the progress that has been made during the quarter. What is particularly encouraging is the strong response to the product offerings we've put into the market place. Clearly, demand is strong for a high quality product at a better price," said Crowe.
About Level 3 Communications
Level 3 Communications, Inc. (NASDAQ: LVLT), an international communications company, operates one of the largest Internet backbones in the world, connecting 180 markets in 18 countries. The company serves a broad range of wholesale, enterprise and content customers with a comprehensive suite of services including: Internet Protocol (IP) services, broadband transport and infrastructure services, colocation services, voice and voice over IP services, content delivery and media distribution services. These services provide the building blocks to enable Level 3’s customers to meet their growing demands for advanced communications solutions. The company’s Web address is www.Level3.com.
"Level 3 Communications,” "Level 3," the red 3D brackets and the Level 3 Communications logo are registered service marks of Level 3 Communications, LLC in the United States and/or other countries. Level 3 services are provided by wholly owned subsidiaries of Level 3 Communications, Inc. Any other service, product or company names recited herein may be trademarks or service marks of their respective owners.
Forward-Looking Statement
Some of the statements that we make in this press release are forward looking in nature. These statements are based on management’s current expectations or beliefs. These forward looking statements are not a guarantee of performance and are subject to a number of uncertainties and other factors, many of which are outside our control, which could cause actual events to differ materially from those expressed or implied by the statements. The most important factors that could prevent us from achieving our stated goals include, but are not limited to our ability to: successfully integrate acquisitions; increase the volume of traffic on our network; defend our intellectual property and proprietary rights; develop new products and services that meet customer demands and generate acceptable margins; successfully complete commercial testing of new technology and information systems to support new products and services; attract and retain qualified management and other personnel; and meet all of the terms and conditions of our debt obligations. Additional information concerning these and other important factors can be found within Level 3’s filings with the Securities and Exchange Commission. Statements in this press release should be evaluated in light of these important factors. Level 3 is under no obligation to, and expressly disclaims any such obligation to, update or alter its forward-looking statements, whether as a result of new information, future events, or otherwise.
