- Consolidated revenue grew 19 percent year over year to $547 million.
- Sales order volume for “invest and grow” hit all time high of $4.8 million in May.
- Adjusted cash EBITDA improved to $8 million in the second quarter.
- Company’s cost-cutting initiatives expected to yield close to $40 million per annum savings.
Florham Park, N.J. — Global Crossing (NASDAQ: GLBC) today reported consolidated financial and operational results for the second quarter of 2007.
The company reported $547 million of consolidated revenue, $266 million of adjusted gross margin and $8 million of adjusted cash EBITDA (non-GAAP metrics that are defined and reconciled below) for the second quarter. The company reduced headcount by 250, resulting in $14 million of severance expenses in the second quarter.
“Through continued sales success and management’s actions in the second quarter, our business is gaining momentum, as reflected in our improved financial performance worldwide,” said John Legere, Global Crossing’s chief executive officer. “The acquisitions of Impsat and Fibernet contributed as we anticipated during the quarter, giving us a glimpse into the full-blown synergies we’ll reap from these key parts of our business as we approach full integration.”
Global Crossing completed its acquisition of Impsat Fiber Networks on May 9, 2007. Integration of the business is proceeding as planned, with synergies of $10 million per annum and one-time costs of $10 million expected. Full integration is expected within 12 to 18 months of the acquisition’s closing. The company maintains its original forecasts for Impsat of $270 million in revenue and $70 million in adjusted cash EBITDA on a run-rate basis once integration is complete.
Through Global Crossing (UK) Telecommunications Limited’s (GCUK’s) acquisition of Fibernet and its metro networks, Global Crossing is now delivering advanced, secure Internet Protocol (IP) solutions to even more midsized multinational companies in the United Kingdom. Integration of Fibernet is substantially complete, and management believes the business is on track to meet originally forecasted net revenue of $80 million and adjusted cash EBITDA of $30 million on a run-rate basis. Integration expenses for the Fibernet business will be lower than the $10 million originally anticipated.
During the second quarter, management reduced the company’s workforce by more than 250 full-time employees and identified various third party costs to be eliminated. These initiatives will generate in-year gross savings of $30 million and net savings of approximately $16 million after severance expenses in 2007. The company incurred $14 million of severance expenses in the second quarter as a result of these headcount reductions ($12 million as part of a restructuring plan). These cost cutting initiatives are expected to generate savings close to $40 million annually, beginning in 2008.
Second Quarter Financial Results
Note: Second quarter 2006 financial results do not include contributions from Fibernet or Impsat. Second quarter 2007 financial results include full contribution from Fibernet and contribution from Impsat beginning May 9, 2007. As the result of the Impsat acquisition, management now operates three business segments: GCUK, GC Impsat and Rest of World (ROW). GC Impsat comprises GC Impsat Holdings I Plc and its subsidiaries (including the Latin American-based business acquired in the Impsat acquisition). Global Crossing’s Latin American subsidiaries owned prior to the Impsat acquisition are currently included in the ROW segment.
Revenue and Margin
During the second quarter of 2007, Global Crossing generated $547 million in revenue on a consolidated basis, representing $86 million or 19 percent year-over-year growth and $43 million or 9 percent sequential growth. GC Impsat contributed $50 million of revenue from May 9, 2007 through the end of the second quarter, most of which was within the company’s core “invest and grow” business — namely its business category focused on serving global enterprises, carrier data and indirect channel customers.
“Invest and grow” revenue was $432 million for the quarter, an increase of $51 million or 13 percent over the first quarter of 2007 and $133 million or 44 percent over the second quarter of 2006. The company’s GCUK segment generated $139 million of “invest and grow” revenue in the second quarter, down $2 million on a sequential basis due to a reduction of equipment sales and incremental billing in the first quarter resulting from a customer settlement. GCUK’s revenue increased 35 percent year over year, aided by Fibernet’s net contribution of $25 million of revenue in the second quarter of 2007. The GC Impsat segment contributed $49 million of revenue to “invest and grow.” ROW generated $247 million of “invest and grow” revenue for the second quarter, an increase of 3 percent or $7 million over the first quarter of 2007 and 26 percent or $51 million over the second quarter of 2006.
“Our sales engine continues to be strong, with monthly recurring order value in our ‘invest and grow’ business hitting a new all-time high of $4.8 million in May,” said Mr. Legere. “Not only does market demand for our solutions continue to be high, but we’re also seeing significant growth in bids and customer wins for converged services.”
Wholesale voice revenue for the second quarter was $114 million, compared with $122 million in the first quarter of 2007 and $160 million in the second quarter of 2006. The company expects this business will remain relatively flat going forward. More than 95 percent of wholesale voice revenue resides in the company’s ROW segment.
The company reported adjusted gross margin at 49 percent of revenue, or $266 million in absolute terms for the consolidated business in the second quarter. This compared with 44 percent or $220 million in the first quarter of 2007 and 38 percent or $175 million in the second quarter of 2006. The “invest and grow” business generated $252 million in adjusted gross margin or 58 percent of revenue, compared to 54 percent or $207 million in the first quarter of 2007 and 52 percent or $155 million in the second quarter of 2006.
Global Crossing made significant strides in managing its access expenses in the second quarter, resulting in improved adjusted gross margin. Cost of access expense for the second quarter was $281 million, compared with $284 million in the first quarter of 2007 and $286 million in the second quarter of 2006. The reduction in cost of access expense was achieved despite the inclusion of $14 million in cost of access expense for GC Impsat in the second quarter. Cost of revenue — which includes cost of access; technical real estate, network and operations; third party maintenance; and cost of equipment sales — was $430 million in the second quarter, compared with $421 million in the previous quarter and $393 million second quarter of 2006. The sequential increase in cost of revenue expense resulted principally from including GC Impsat’s $14 million of access expense and GC Impsat’s $11 million of “other” cost of revenue expense.
Sales, general and administrative (SG&A) expenses were $128 million in the second quarter, compared with $106 million in the first quarter of 2007 and $85 million in the second quarter of 2006. The company incurred a total of $14 million in severance expense during the second quarter, $12 million of which was recorded as a restructuring charge. In addition, the inclusion of GC Impsat resulted in $16 million in incremental SG&A costs in the quarter after May 9, 2007. Non-cash stock compensation accounted for $19 million in the second quarter, compared with $15 million in the previous quarter and $7 million in the second quarter of 2006. The sequential increase in non-cash stock compensation was primarily attributable to a previously announced motivation and retention bonus for employees.
As noted above, the company expects to generate annual savings of close to $40 million beginning in 2008 through cost reductions identified in the second quarter, with approximately $30 million of gross savings ($16 million of net savings after severance costs) in 2007.
Global Crossing reported $8 million of adjusted cash EBITDA for the second quarter, including $14 million in severance expenses. This compared to an adjusted cash EBITDA loss of $8 million in the first quarter of 2007 and an adjusted cash EBITDA loss of $10 million in the second quarter of last year. GCUK contributed $30 million of adjusted cash EBITDA in the second quarter, including $3 million in severance expense, compared to $34 million in the first quarter of 2007 and $22 million in the second quarter of 2006. GC Impsat contributed $9 million of adjusted cash EBITDA in the quarter. ROW incurred an adjusted cash EBITDA loss of $31 million in the second quarter, including $11 million in severance expense, compared to a loss of $42 million in the first quarter of 2007 and a loss of $32 million in the second quarter of 2006.
Consolidated net loss applicable to common shareholders was $101 million for the second quarter, compared with a loss of $121 million in the first quarter and a loss of $77 million in the second quarter of 2006. The company recorded a settlement gain of $27 million as a result of the Impsat acquisition in the second quarter of 2007.
Cash and Liquidity
As of June 30, 2007, Global Crossing had $462 million of unrestricted cash and cash equivalents. In addition, the company held $59 million in restricted cash and cash equivalents. During the quarter, the company used a total of $385 million in connection with the closing of the Impsat acquisition, comprised of $160 million of cash and $225 million in senior unsecured notes. The company also completed a senior secured term loan for gross proceeds of $350 million.
Outside of financing activities and cash used for acquisitions, the company used $85 million of cash during the second quarter. Cash use included $57 million for capital expenditures and principal on capital leases and long-term debt associated with capital expenditures, as well as $30 million for interest on indebtedness. The company also used working capital to continue to reduce days payable with key access vendors, which should facilitate more favorable terms and operational throughput. These cash expenditures were partially offset by $39 million in proceeds from the sale of indefeasible rights of use.
The following table represents the company’s 2007 guidance provided on May 10, 2007.
|Metric ($ in millions)||2007 Guidance|
|Revenue||$2,170 – $2,245|
|Invest and grow revenue||$1,710 – $1,755|
|Wholesale voice revenue||$460 – $490|
|Adjusted gross margin percentage||50%|
|Invest and grow adjusted gross margin percentage||60%|
|Wholesale voice adjusted gross margin percentage||12%|
|Adjusted cash EBITDA||$165 – $195|
|Cash use (1)||($115) – ($95)|
(1) Cash use guidance and actuals for 2007 do not include cash used for the purchase of Impsat, fees for financing and M&A activities or proceeds from financing activities.
Pursuant to the Securities and Exchange Commission’s (SEC’s) Regulation G, the attached schedules include definitions of Global Crossing’s adjusted cash EBITDA and adjusted gross margin measures, as well as reconciliations of such measures to the most directly comparable financial measures calculated and presented in accordance with U.S. Generally Accepted Accounting Principles (U.S. GAAP).
The company will hold a conference call on Thursday, August 9, 2007 at 9:00 a.m. EDT to discuss its financial results. The call may be accessed at +1 212 231 6010 or +44 (0) 870 001 3146. Callers are advised to access the call 15 minutes prior to the start time. A Webcast with presentation slides will be available at investors.globalcrossing.com/events.cfm.
A replay of the call will be available on Thursday, August 9, 2007 beginning at 11:00 a.m. EDT and will be accessible until Thursday, August 16, 2007 at 11:00 a.m. EDT. The replay may be accessed by dialing +1 402 977 9140 or +1 800 633 8284 and entering reservation 21346003. Callers in the UK can dial +44 (0) 870 000 3081 or +44 (0) 800 692 0831 and enter reservation number 21346003.