Broadwing Corporation (NASDAQ:BWNG): -- Total Revenue Increases
$2.0M Year-Over-Year -- Data/Broadband Revenue Increases $10.5M
Year-Over-Year -- Operating Loss Narrows 63% and Net Loss Narrows
70%, Year-Over-Year -- Stephen E. Courter to Lead Broadwing as CEO
Broadwing Corporation (NASDAQ:BWNG), a leading provider of optical
network communications services and solutions, today announced its
second quarter 2006 financial and operational results. For the
second quarter 2006, Broadwing reported total revenue of $224.3
million, compared to $224.0 million reported for the first quarter
2006 and $222.2 million for the second quarter 2005. Net loss for
the quarter was $11.7 million, or a loss of $0.13 per share. This
compares to a net loss for the first quarter 2006 of $20.0 million,
or $0.26 per share; and a net loss for the second quarter 2005 of
$38.3 million, or $0.52 per share. Second Quarter Selected
Highlights: -- Data/broadband revenue increased 9% year-over-year
with growth focused on high-speed optical and converged services.
-- Cost of revenue as a percentage of total revenue improved to 62%
from 66% year-over-year and to 62% from 64% quarter-over-quarter,
primarily attributable to improvements in our access architecture
and benefits resulting from investment in our voice network. -- Net
loss for the second quarter narrowed 70% year-over-year to $11.7
million. Net loss improvement year-over-year was primarily
attributable to cost reductions and decreased depreciation,
amortization, restructuring and interest expenses. "Strong
year-over-year data/broadband revenue growth was driven primarily
by sales of our new Converged Services and by increased demand
across virtually all of our broadband product set, but particularly
for high-speed optical circuits," said Lynn Anderson, chief
financial officer of Broadwing. "Recent broadband revenue growth
came mostly from enterprise customers. "The improvements in
operating loss and net loss we reported this quarter are primarily
the result of our successful efforts to reduce costs by improving
the efficiency of our network," said Anderson. New Leadership
Broadwing announced July 25 that Stephen E. Courter has joined the
Company as chief executive officer and director. Mr. Courter, 51,
brings over 20 years of telecommunications experience to his new
position, including his leadership of fiber-optic service provider
Neon Communications Inc. as CEO and Chairman until its merger with
Globix Corporation in 2005. Prior to Neon, Mr. Courter was CEO of
Enertel, a Dutch data, IP and corporate voice services provider and
the largest alternative network in The Netherlands. Mr. Courter
previously held executive positions with Sprint and Sprint
International, and subsequent to serving in the United States Army,
held positions with IBM and KPMG. He is a graduate of Pennsylvania
State University and holds an MBA from George Washington
University. "Broadwing has everything it takes to be successful in
this new telecom landscape -- leading-edge network, comprehensive
product set, agility, and experienced people with a strong customer
focus," said Courter. "My mission is to seize the opportunity
before us, leveraging Broadwing's impressive assets to capitalize
on our market position, the transition to next-generation services
and the growing demand for bandwidth." Quarterly Financial Results
Detail Broadwing Communications services revenue can be divided
into two main product categories: "data/broadband" and "voice."
Data/broadband consists of high-speed data transport services
utilizing Internet protocol ("IP") and ATM/frame relay platforms;
Converged Services; long-haul transmission of data, voice and
Internet traffic over dedicated circuits (Private Line); and Media
transport services. Voice includes revenue from sales of long
distance/local voice services, including Voice over Internet
Protocol (VoIP) services. Revenue from data/broadband services was
$125.7 million, or 56% of total revenue in the second quarter.
Data/broadband revenue increased 1% from the prior quarter and 9%
from the second quarter 2005, with the year-over-year increase
largely due to increased sales of Converged Services and sales
growth across virtually all of our broadband products, particularly
higher speed optical circuits. Sequential revenue growth was
impacted in part by the expected disconnects of temporary "Katrina"
circuits sold to carriers affected by the hurricanes last year and
to continued rate compression. Voice revenue from sales of
long-distance and local voice services was $98.4 million, a 1%
decrease from the prior quarter and a 7% decrease from the second
quarter 2005. The year-over-year decrease in voice services revenue
was due primarily to the impact of industry-wide rate compression,
to lower wholesale voice volumes resulting from price increases
Broadwing implemented beginning in the second half of 2005, and to
a reduction in switched minutes of use from adoption of alternative
technologies. Voice revenue was 44% of total revenue. Net loss
improvement from prior quarter resulted primarily from network
improvements and decreased depreciation, restructuring and interest
expense. Financial Position During the quarter, Broadwing
strengthened its financial position by completing a private
placement of $150.0 million aggregate principal amount of 3.125%
Convertible Debentures due 2026. The Company also announced that
the initial purchasers had exercised their 30-day option under the
agreement to purchase an additional $30.0 million of the
Convertible Debentures. In total, the sale of Convertible
Debentures in the second quarter provided net cash proceeds of
$174.0 million to the Company. Under the terms of the agreement,
the Convertible Debentures are convertible into Broadwing's common
stock at a fixed conversion rate of 60.2410 shares per $1,000
principal amount of Convertible Debentures, equivalent to an
initial conversion price of approximately $16.60 per share subject
to certain anti-dilution adjustments and subject to adjustment upon
change of control. The Convertible Debentures will accrue interest
at a rate of 3.125% per year, which Broadwing will pay
semi-annually in cash. Total net proceeds from the sale of
Convertible Debentures in the second quarter and from private
placements of Broadwing's common stock with institutional investors
in the first quarter 2006, were approximately $278.0 million.
Broadwing intends to use the proceeds for general corporate
purposes which may include but are not limited to, investments in
its network and service infrastructure to support growth and
enhance efficiency. In addition, consistent with the Company's
long-term strategy, proceeds may also be used for costs related to
strategic acquisitions. Capital expenditures of $23.3 million as of
the three months ended June 30, 2006, included $5.2 million of a
Ciena deposit that was used for equipment purchases. Other capital
expenditures in the second quarter were primarily associated with
network investments to support new business including increased
optical circuit installations and continued enhancement of our
Converged Network. As of June 30, 2006, cash, cash equivalents and
investments totaled $351.6 million. Recent Announcements "We are
continuing to move forward on our strategic initiatives, enhancing
our network to meet customers' current and future service
requirements while improving our long-term network economics," said
Scott Widham, President of Sales and Marketing for Broadwing, with
additional responsibility for operations and engineering. "We
announced that we are deploying Infinera's DTN optical transmission
platform in Broadwing's regional and aggregation networks to
maintain our technology leadership, increase network flexibility,
and add new service capabilities. Infinera will significantly
enhance our optical story while providing a bridge to
next-generation transport capabilities coming into the marketplace
from major industry suppliers." "In addition to the operational and
economic benefits of deploying Infinera gear, the transfer of
manufacturing and support for our CorWave equipment to Infinera
allows us to focus solely on our core communications services
delivery business, while enabling us to continue to take advantage
of key Broadwing technology for our Ultra Long-haul (ULH) network,"
added Kim Larsen, SVP of Mergers and Acquisitions and Corporate
Development, and General Counsel for Broadwing. The addition of
Infinera to Broadwing's roster of strategic network suppliers is a
synergistic and complementary extension of the Company's optical
networking vision. The DTN's optical transmission capabilities will
enable Broadwing to continue to meet customers' current and future
needs without costly or operationally disruptive platform upgrades.
The DTN platform will enable Broadwing to offer additional managed
wavelength services in cities across its nationwide network.
Infinera's system and those of Broadwing's other major strategic
suppliers, give the Company a clear path to next-generation
transmission capabilities such as 40Gb/s OC-768 and native
high-speed Ethernet transport. In addition, Infinera is licensing
from Broadwing intellectual property including Raman amplification,
and will take over manufacturing and support for Broadwing's
CorWave network which will continue to utilize this technology.
Broadwing employees who provide engineering, manufacturing and
maintenance support for the CorWave network have continued in this
role as Infinera employees. "We also continue to execute on sales
and marketing fronts, leveraging Broadwing's agility, service
capabilities, and OSS investments to land a high-profile deal with
AOL to provide services and total system solution support for its
new AIM Phoneline service," said Scott Widham. "Broadwing's
innovative technical solutions and our complete solution approach
were also the primary reasons SEKO Worldwide Inc. chose us to
provide them with a comprehensive suite of business-critical
communications services." AOL is the largest instant messenger
provider in the United States. Broadwing is providing AOL with
inbound and outbound local calling capability, long distance voice
service, nationwide nomadic e911 service via Intrado, and total
project management support for AOL's new voice-enabled instant
messenger service -- AIM(R) Phoneline. With AIM Phoneline, AIM(R)
users can sign up online to instantly obtain a free-to-the-user,
local phone number for each AIM Screen Name. Like the AIM Screen
name, the Broadwing-supplied local phone number will follow users
wherever they go. AIM users can answer incoming calls or screen
calls with Caller ID. The service provides always-on voicemail
delivered to the user's AIM Mail inbox as well as other features.
AIM Phoneline users can also instantly upgrade to a fee-based
outbound calling service with additional features. To meet AOL's
requirement for service automation from pre-qualification to
provisioning to billing, Broadwing leveraged existing
infrastructure previously put into place for its own Converged,
Voice Over Internet Protocol (VoIP) and internal operations support
and automation applications. SEKO Worldwide Inc., a global freight
and logistics provider, has selected Broadwing to replace its
legacy 46-node frame relay corporate network with Broadwing's
Converged Layer 3 Multiprotocol Label Switching (MPLS) virtual
private network (VPN) solution with Internet access, collocation
facilities and remote data protection for disaster recovery. This
deal clearly illustrates Broadwing's ability to supply complete
solutions encompassing both next-generation networking and
cutting-edge business utilities such as remote data protection.
Broadwing announced that it has expanded its relationship with Big
Pipe Inc., a division of Canada's Shaw Communications, and a
leading provider of data networking and Internet services to North
American businesses. Big Pipe has purchased high-speed,
OC-192-based network backbone service from Broadwing. The 10 Gbps
of dedicated bandwidth will provide Big Pipe with increased
capacity on three key routes: Seattle to San Jose, Calif.; San Jose
to Chicago; and Ashburn, Va. to New York. Broadwing also announced
that it has extended the international reach of its Layer 3 MPLS
Virtual Private Network (VPN) service via an agreement with Global
Crossing. This agreement complements the Layer 2 Virtual Private
LAN Service (VPLS) extension agreement with Hutchison Global
Communications that was announced in the first quarter of this
year. The Company believes that its best-of-breed, multi-vendor
strategy for expanding the global availability of its services
provides customers with route diversity, network stability, access
options, economy and in-region expertise. Broadwing's Converged VPN
services are now available in most of the world's major business
centers in North America, South America, Africa, Asia, Australia,
and Europe. Webcast Information Broadwing will host a conference
call to review its second quarter 2006 financial results and other
operational developments, today, August 3, at 10:30 a.m. ET. The
live broadcast of the conference will be available via Broadwing's
website, www.broadwing.com. An archived audio of the conference
call will be available for future reference through the Broadwing
website at www.broadwing.com. About Broadwing Corporation Broadwing
Corporation (NASDAQ:BWNG), through its consolidated subsidiary
Broadwing Communications LLC (Broadwing) delivers innovative data,
voice, and media solutions to enterprises and service providers.
Enabled by its leading-edge optical network and award-winning
products and services, Broadwing Communications provides
communications solutions with unparalleled customer focus and
speed. For more information, visit www.broadwing.com. Broadwing and
its logo are trademarks and/or service marks of Broadwing
Communications LLC and/or Broadwing Corporation. All trademarks and
service marks not belonging to Broadwing are the property of their
respective owners. Investor Note Regarding Forward-Looking
Statements Statements in this press release regarding Broadwing
Corporation and/or Broadwing Communications LLC (collectively
"Broadwing"), that are not statements of historical fact may
include forward-looking statements, and statements regarding
Broadwing's beliefs, plans, expectations or intentions regarding
the future are forward-looking statements, within the meaning of
Section 27A of the Securities Act of 1933, as amended and Section
21E of the Securities Exchange Act of 1934, as amended. All such
forward-looking statements are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995.
Broadwing's actual results could differ materially from these
statements. -0- *T BROADWING CORPORATION AND SUBSIDIARIES CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per
share data) Unaudited Quarter Ended ---------------------- June 30,
June 30, 2006 2005 ---------- ---------- Revenue $224,273 $222,224
Cost of revenue, excluding depreciation expense 139,148 147,335
Research and development (including equity-based expense of $0 and
$180 for the period ending June 30, 2006 and 2005, respectively) --
3,108 Sales, general and administrative (including equity-based
expense of $2,648 and $794 for the period ending June 30, 2006 and
2005, respectively) 81,652 76,693 Depreciation 14,499 28,241
Amortization 1,313 1,404 Restructuring and other charges (including
equity-based expense of $250 and $0 for the period ending June 30,
2006 and 2005, respectively) 759 1,027 ---------- ---------- Total
operating expenses 237,371 257,808 Operating loss (13,098) (35,584)
Other income, net 3,574 2,048 Interest expense, net of capitalized
amounts (2,172) (4,812) ---------- ---------- Net loss $(11,696)
$(38,348) ========== ========== Net loss per common share $(0.13)
$(0.52) ========== ========== Weighted average shares outstanding
87,262 73,593 ========== ========== BROADWING CORPORATION AND
SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In
thousands, except per share data) Unaudited Quarter Ended
------------------------ June 30, March 31, 2006 2006 ------------
----------- Revenue $224,273 $224,046 Cost of revenue, excluding
depreciation expense 139,148 143,721 Sales, general and
administrative (including equity-based expense of $2,648 and $1,803
the period ending June 30, 2006 and March 31, 2006, respectively)
81,652 79,861 Depreciation 14,499 15,444 Amortization 1,313 1,404
Restructuring and other charges (including equity-based expense of
$250 and $2,364 for the period ending June 30, 2006 and March 31,
2006, respectively) 759 2,631 ------------ ----------- 237,371
243,061 Operating loss (13,098) (19,015) Other income, net 3,574
1,336 Interest expense, net of capitalized amounts (2,172) (2,280)
------------ ----------- Net loss $(11,696) $(19,959) ============
=========== Net loss per common share $(0.13) $(0.26) ============
=========== Weighted average shares outstanding 87,262 77,169
============ =========== BROADWING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except per
share data) Unaudited June 30, March 31, 2006 2006 ------------
------------- ASSETS ---------------------------------------
Current assets: Cash and cash equivalents $335,224 $157,251
Short-term investments 16,377 16,985 Trade accounts receivable, net
of allowances of $39,638 and $37,412 at June 30, 2006 and March 31,
2006, respectively 75,945 73,867 Prepaids and other current assets
23,251 23,629 ------------ ------------- Total current assets
450,797 271,732 Restricted cash, non-current 13,603 14,060 Property
and equipment, net 265,946 261,268 Goodwill 58,354 58,354
Intangible assets, net 22,103 23,416 Other non-current assets, net
24,881 24,957 ------------ ------------- Total assets $835,684
$653,787 ============ ============= LIABILITIES AND STOCKHOLDERS'
EQUITY --------------------------------------- Current liabilities:
Accounts payable $59,087 $48,640 Accrued expenses and other
liabilities 51,230 51,354 Accrued communication service costs
19,372 17,104 Deferred revenue, current portion 5,986 6,718 Capital
lease obligations, net of current portion 1,357 1,352 Accrued
restructuring and other charges 2,690 4,492 Notes payable, net of
discounts, current portion 321 311 ------------ ------------- Total
current liabilities 140,043 129,971 Deferred revenue, net of
current portion 17,877 17,639 Capital lease obligations, net of
current portion 19,454 19,745 Notes payable, net of discounts and
current portion 180,565 637 Other long-term liabilities 12,037
12,317 ------------ ------------- Total liabilities 369,976 180,309
Commitments and contingencies Stockholders' equity: Common stock --
$0.01 par value; 1,900,000,000 shares authorized; 88,598,636 shares
issued and 87,370,456 shares outstanding as of June 30, 2006;
88,383,844 shares issued and 87,155,664 shares outstanding as of
March 31, 2006 877 876 Treasury Stock (1,228,180 shares at June 30,
2006 and March 31, 2006 at cost) (9,512) (9,512) Additional paid-in
capital 3,312,781 3,308,876 Accumulated other comprehensive loss:
Unrealized investment losses (17) (36) Accumulated deficit
(2,838,421) (2,826,726) ------------ ------------- Total
stockholders' equity 465,708 473,478 ------------ -------------
Total liabilities and stockholders' equity $835,684 $653,787
============ ============= OTHER FINANCIAL INFORMATION (In
thousands) Unaudited Three Months Ended June 30, 2006 June 30, 2005
----------------- ----------------- Capital expenditures(a) $23,322
$20,079 (a) Capital expenditures of $23.3 million for the three
months ended June 30, 2006 included $5.2 million of Ciena deposit
that was used for purchases of equipment in the second quarter. *T
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