Allstream Reports Third Quarter(1) 2003 Financial And Operating
Results Achieves Third Quarter EBITDA(2) of $66.1 Million and
Income From Operations of $39.7 Million TORONTO, Oct. 30
/PRNewswire-FirstCall/ -- Allstream Inc. (TSX: ALR.A, ALR.B;
NASDAQ: ALLSA, ALLSB), a leading communication solutions provider
with a world-class portfolio of Connectivity, Infrastructure
Management and IT Services, today reported financial and operating
results for the third quarter 2003.
-------------------------------------------------------------------------
John McLennan, Vice Chairman and Chief Executive Officer Allstream
made the following comments with regard to the Company's
performance during the third quarter. "Our solid financial
performance in the quarter confirms we are delivering on our
commitment to execute on our core business platform and drive
profitability and generate free cash flow. Our improving liquidity
position enhances our already strong financial footing, and
confirms the stability and permanence of this company in the eyes
of our existing and prospective customers. During the quarter we
had success in building upon our capabilities by introducing
several important new services, and in building relationships with
leading enterprise service providers Oracle, Sun and GRIC
Communications. In addition, we are encouraged by the continued
steps being taken by the regulator to remove hindrances to a
healthy and balanced Canadian telecommunications environment, and
we are hopeful that the regulator will continue its pro-competitive
momentum."
-------------------------------------------------------------------------
Q3 Financial and Operating Results
---------------------------------- Revenue ------- - Revenues for
the three months ended September 30, 2003, were $309.3 million,
compared to $359.9 million in the same period of 2002, and $336.6
million in the second quarter of 2003. At the beginning of the
third quarter, Allstream successfully concluded the sale of its
subsidiaries Contour Telecom Inc. and Argos Telecom Inc. for $7.4
million in cash consideration. Excluding revenue generated by these
subsidiaries, revenues for the three months ended September 30,
2002 were $347.6 million, and $325.0 million in the second quarter
of 2003. - Long Distance revenues now represent 36% of total
revenue down from 38% and 37% in the same period last year and the
previous quarter respectively. Revenues from all other services
including Local, Data, Internet, and IT Services represented 64% of
total revenue in the current quarter versus 62% in the third
quarter 2002, and 63% in the second quarter of 2003.
-------------------------------------------------------------------------
Discussion of revenue by product category provided hereafter will
focus on changes in the Company's revenue excluding Contour and
Argos, to assist the reader in understanding changes in the
Company's continuing revenue. To facilitate this discussion a chart
has been provided at the end of this release that excludes revenue
generated by Contour and Argos in prior periods.
-------------------------------------------------------------------------
- Revenue from Data, Internet and IT Services in the quarter of
$143.8 million declined by $10.3 million or 6.7% from the same
quarter in 2002, and $2.5 million or 1.7% compared to last quarter.
Data and Internet revenues, excluding IT Services declined by $5.6
million or 4.1% from the third quarter of 2002, and were flat when
compared to last quarter. Industry wide softness in enterprise and
wholesale spending continues, although the Company is generating
double digit growth in next generation data services, and managed
security services. However, these growth areas represent a smaller
proportion of the total data portfolio and were more than offset by
pricing pressures in legacy product categories, and weakness in IT
Services revenue resulting in the overall decline. - Local revenue
in the quarter of $53.2 million declined by $2.8 million or 5.0% as
local access lines in service decreased by 38,603 from the third
quarter last year. Compared to last quarter, local revenues
declined by $1.9 million or 3.4% as total lines in service
decreased by 6,322 to 492,363, reflecting the previously announced
re-positioning of the Company's local services strategy to focus on
selling local lines on the Company's network. The percentage of
total lines that are now either on-net or on-switch increased to
57% from 53% in the same period last year and 55% in the second
quarter of 2003. - Revenue from long distance services in the
quarter of $109.9 million declined by $22.6 million or 17.1% year
over year, the result of a 9.0% reduction in average price per
minute, and an 8.1% decrease in minute volume. Compared to the
second quarter, long distance services revenue declined by $10.6
million or 8.8%, the result of a 6.5% reduction in average price
per minute, and a 2.3% decrease in minute volume. EBITDA ------ -
The Company's earnings before interest, taxes, depreciation and
amortization (EBITDA as outlined in the attached supplementary
financial information schedule) for the quarter totaled $66.1
million including $4.4 million of re-branding costs, an improvement
of $11.8 million from the third quarter of 2002. This improvement
in EBITDA can be attributed to the gross margin improvement of $2.5
million as reduced service costs of $53.1 million more than offset
lower revenues. On a percentage basis, gross margin improved by 700
basis points to 45.0% of revenue, the result of regulatory savings
(including $5.0 million in savings related to the Competitive
Digital Network Access (CDNA) decision announced in August, of
which $2.5 million relates to a prior period), operating efficiency
gains, and an emphasis on higher margin products and services. In
addition, the improvement in EBITDA is due to lower SG&A
expense of $9.4 million as the Company's efficiency gains exceeded
re-branding costs. - Compared to the previous quarter, EBITDA
declined by $3.0 million, the result of a $1.6 million decline in
gross margin, as the decline in revenue was almost entirely offset
by a 310 basis point improvement in gross margin. This improvement
in margin as a percentage of revenue was the result of savings from
regulatory (the result of the aforementioned CDNA decision), and
operating cost reductions. In addition, SG&A expenses increased
by $1.4 million. The impact of the sale of Contour/Argos on EBITDA
was nominal as these subsidiaries were EBITDA break-even. Income
From Operations ---------------------- - Income from operations for
the quarter totaled $39.7 million, the fifth consecutive quarter
that the Company and its predecessor has recorded positive income
from operations. This represents an improvement of $32.1 million
from the third quarter of 2002, and is the result of increased
EBITDA of $11.8 million, and lower depreciation and amortization
costs of $20.3 million, the result of adjustments to the carrying
value of capital assets. Compared to the second quarter of 2003,
income from operations declined by $1.5 million, the result of
lower EBITDA of $3.0 million, partially offset by $1.5 million in
reduced depreciation and amortization expense. Net Income
---------- - Allstream's Net Income for the quarter totaled $24.1
million, compared to a Net Loss of $256.8 million in the same
period last year. This $280.9 million improvement was primarily the
result of interest expense and non-cash foreign currency
translation losses recorded in the prior year totaling $263.5
million that the Company no longer incurs, after emerging from its
restructuring on April 1, 2003 with no long term debt. Also
contributing to the improvement in Net Income was increased income
from operations of $32.1 million, partially offset by an increase
in taxes (that are almost entirely non-cash in nature) of $14.9
million. Net income in the third quarter declined by $0.3 million
compared to the previous quarter, primarily the result of the
decrease in Income from Operations of $1.5 million, partially
offset by a reduction in non-cash taxes of $1.1 million. Provision
For Income Taxes -------------------------- - The Income Statement
includes a Provision for Income Taxes of $16.6 million for the
current quarter. This charge does not give rise to any cash income
tax liability, as the Company is able to utilize its tax loss
carry-forwards to offset it. The rules under fresh start accounting
require that the utilization of tax loss carry-forwards from
predecessor companies be recorded as contributed surplus on the
balance sheet. If this accounting treatment was not required, net
income shown on the Income Statement would have been higher by the
amount of the tax provision. Liquidity --------- - At September 30,
2003 Allstream had cash on hand of $307.7 million, an increase of
$59.3 million from the previous quarter. This increase in cash was
the result of the $49.1 million in Free Cash Flow (as outlined in
the attached supplementary financial information schedule)
generated in the quarter, and to working capital and other
activities that generated $10.2 million. Tax Loss Carry Forward
Balance ------------------------------ - During the current
quarter, the Company completed its evaluation of the impact of its
financial restructuring on the amount of tax losses, and the fair
value of other tax assets, that are available for carry-forward as
at April 1, 2003. Based on corporate tax filings for the
Predecessor Company and its subsidiaries, on April 1, 2003 the
consolidated non-capital loss balance available for carry-forward
is approximately $3.2 billion. The acquisition of control of the
Predecessor that occurred on the implementation of the Plan
required the write-down of all the tax assets of the Predecessor to
fair market value. In addition, the Company used a portion of its
non- capital losses to offset income created from the forgiveness
of debt as part of the restructuring. The net impact of these
transactions is an increase in the consolidated tax loss pool from
$2.2 billion at December 31, 2002 to $3.2 billion at April 1, 2003,
and a decrease in the tax depreciable basis of the Company's
capital assets. John MacDonald, President and Chief Operating
Officer Allstream added, "With the introduction of important new
products during the quarter we have demonstrated success in
launching innovative new services that enhance the value
proposition we bring to the Canadian marketplace. Also during the
quarter we launched the second phase of our branding initiative
with an advertising campaign, themed upon Allstream's new tagline,
'There's more to networks'. This new tagline embodies the Company's
awareness that a successful customer relationship is more than the
data and voice that flows on the network, but is about
understanding a customer's needs and working in collaboration to
deliver effective business solutions. With our continued promise to
collaborate with our customers to enhance their ability to compete
more effectively, we are confident that we can deepen our
competitive position in the Canadian marketplace." Outlook(4)
---------- Mr. McLennan made the following remarks with respect to
financial guidance for the balance of the year. "We have had
considerable success in driving profitability and generating free
cash flow in a very difficult global telecom environment. We have
focused on the quality of our revenues and the efficiency of our
business. In addition, we have benefited from an improving
regulatory environment. We expect revenue for full year 2003 of
approximately $1,300 million, which includes the impact of the sale
of the Contour/Argos subsidiaries at the beginning of the third
quarter. We are increasing our EBITDA guidance to a range of $240
to $250 million including re-branding costs, up from $200 to $220
million, and forecast Capex of approximately $100 million."
-------------------------------------------------------------------------
Note: Management Discussion & Analysis and Financial Statements
for the three months ended September 30, 2003, including a
presentation to augment management remarks during the 5:00 p.m.
conference call, are available at
http://www.allstream.com/investor/2003.html
-------------------------------------------------------------------------
Other Developments ------------------ Allstream Announces
Significant Expansion of Data Ethernet Serving Area
-----------------------------------------------------------------------
- On October 27 Allstream announced it had significantly increased
the reach of its Ethernet services across Canada. Through its
Transparent LAN Service (TLS), customers now can get Ethernet
access to the Allstream network from more than 300,000 business
locations in more than 150 communities across Canada. This
represents a considerable expansion of Allstream's Ethernet service
from hundreds of locations, to hundreds of thousands of locations.
This translates into the expansion of the Company's addressable
market from 5% to 54% of business locations, in this the fastest
growing product category in the data market. Allstream Introduces
International Data Network Services
-------------------------------------------------------- - On
October 9 Allstream announced it had expanded its comprehensive
Data Network services portfolio internationally. Through
partnership arrangements, Allstream will provide its customers with
seamless global connectivity in over 50 countries. As the single
point of contact for a customer's entire global network Allstream
provides its customers with the ability to centralize control and
run their businesses more efficiently. Allstream Launches Global
Internet Access In Partnership With GRIC Communications
------------------------------------------------------------------
- On October 2 Allstream announced that it had expanded its
portfolio of data services with the launch of Global Internet
Access. Allstream will offer GRIC's leading Internet-based mobile
office communications solution and WiFi services to enterprise
customers seeking to reduce mobility management costs, and increase
the productivity of their workforce. This service enables mobile
and remote workers to stay connected to their enterprise network
for access to e-mail, file sharing and other critical productivity
applications, as well as providing access to the Internet from more
than 35,000 wired and nearly 2,000 wireless WiFi access points
across more than 150 countries worldwide. This service provides a
single point of contact and interconnection to Allstream's secure
Internet Virtual Private Network providing customers with seamless
global connectivity. Allstream Introduces Managed Intrusion
Protection Services
------------------------------------------------------------ - On
October 23 Allstream announced the introduction Managed Intrusion
Protection Services, with the support of industry leader Internet
Security Systems, Inc. This new addition to Allstream's world-class
portfolio of security solutions is designed to target security
vulnerabilities within organizations. Customers are provided with a
comprehensive outsourced security solution that ensures that their
company's network and proprietary information are protected,
without requiring an extensive investment in hardware, software or
technical staff. This in turn allows the organization to focus on
their core competencies and business objectives, while mitigating
risk most effectively. Allstream Establishes Important Alliance
with Oracle ---------------------------------------------------- -
On September 15 the Company announced it had become the first
Canadian company to be awarded the highest membership level within
the Oracle PartnerNetwork. This global network of select system
integrators specializes in delivering innovative enterprise
business solutions based on Oracle software platforms. It is a
significant competitive advantage to be the only Canadian company
to have achieved this designation, and confirms Allstream's
position in the marketplace as the premier specialist in delivering
fully integrated applications based on Oracle's leading-edge
software. Allstream, Sun Microsystems and Oracle Announce Joint
Initiative
---------------------------------------------------------------- -
On October 6 the Company announced an initiative with Oracle and
Sun Microsystems to jointly serve the needs of enterprise customers
in managing communications environments through Oracle's
Collaboration Suite. This sophisticated software platform
integrates the entirety of an organization's communications tools,
including email, voicemail, fax, conferencing, and calendaring
functions, and is well recognized for its reliability, advanced
security features, and its ability to integrate both voice and data
systems in a highly cost effective manner. Sun will provide the
scalable hardware platform for Oracle Collaboration Suite
customers, while Allstream will provide the integration expertise
required to help customers implement the solution successfully.
Regulatory ---------- - The Company is encouraged that the CRTC
continues its pro-competitive momentum. During the quarter the CRTC
confirmed that the "access" and "link" portions of Competitive
Digital Network Access (CDNA) are eligible for cost based
treatment. Also during the quarter the regulator issued a decision
that requires Bell Canada and other incumbents to file public
tariffs on a customer specific basis. The CRTC has ordered Bell to
issue new and revised tariffs with respect to over 150 contracts.
In the case of five of these contracts the regulator has determined
that Bell priced service well below tariffed rates, and has ordered
Bell to increase pricing by up to 25%, or to discontinue services
under the contracts. Bell Canada has since filed an application
with the Federal Court of Appeal, seeking leave to appeal aspects
of the decision. On October 23 the CRTC issued a Public Notice
inviting comment on proposals to limit the ability of the
incumbents to engage in targeted discount pricing. These decisions
are an important step in levelling the playing field between
incumbent and competitive entrants. - The Company continues to
pursue its "Part VII" application relating to next generation
services, and is hopeful the regulator will issue a decision in the
near term. The Company believes that by granting competitive
entrants cost based access to these facilities and services the
CRTC would be applying consistent logic with that utilized in
granting cost based access for CDNA services. - On September 25 the
Government of Canada stated that the recommendation of the Standing
Committee for Industry, Science and Technology for the removal of
foreign investment restrictions in the Canadian telecommunications
industry was appropriate, would benefit the industry, and was a
significant recommendation for both the Government's "Smart
Regulation" and "Innovation" agendas. The Government committed to
bring forward solutions to address this recommendation by the
spring of 2004. (1) On April 1, 2003, AT&T Canada Inc. (the
"Predecessor") implemented the Consolidated Plan of Arrangement and
Reorganization (the "Plan") and emerged from protection under the
Companies' Creditors Arrangement Act (Canada) ("CCAA"). Pursuant to
the Plan, a new parent company ("New AT&T Canada Inc.") was
incorporated under the Canada Business Corporations Act (the "Act")
and pursuant to Articles of Reorganization dated April 1, 2003 (the
"Articles of Reorganization") became the sole shareholder of
Predecessor. On June 18, 2003, New AT&T Canada Inc. changed its
name to Allstream Inc. (the "Company" or "Allstream"). Accordingly
the quarter ended September 30, 2003 is referenced as the Third
Quarter of 2003 (calendar), but represents the second reporting
quarter of the "New" Company. The quarter ended March 31, 2003 is
referenced as the First Quarter of 2003 (calendar), but represents
the last quarter of the "Predecessor" Company. Likewise the quarter
ended June 30, 2003 is referenced as the Second Quarter of 2003
(calendar), although it represents the first quarter of the new
company. (2) EBITDA is a measure commonly used in the
telecommunications industry to evaluate operating results and is
generally defined as earnings before interest, income taxes,
depreciation and amortization. The Company has also excluded the
provision for restructuring as this item is not expected to be
recurring in nature as the Company completed the restructuring of
its balance sheet and emerged from protection under the CCAA
proceeding on April 1, 2003. EBITDA is a measure the Company
believes is used by investors to evaluate the Company's financial
performance, although it does not have a standardized meaning under
Canadian Generally Accepted Accounting Principles ("GAAP") and is
not necessarily comparable to similar measures disclosed by other
issuers. Accordingly, EBITDA is not intended to replace
income/(loss) from operations, net income/(loss) for the period,
cash flow, or other measures of financial performance and liquidity
reported in accordance with Canadian GAAP. (3) Free Cash Flow is a
measure commonly used to evaluate operating and financial results
and is defined as net cash generated from operating activities
excluding changes in working capital less additions to property,
plant and equipment. Free Cash Flow is a measure the Company
believes is used by investors to evaluate the Company's operating
and financial performance, although it does not have a standard
meaning under Canadian GAAP, and is not necessarily comparable to
similar measures disclosed by other issuers. Accordingly, Free Cash
Flow is not intended to replace income/(loss) from operations, Net
cash generated by (used in) operating activities, cash flow, or
other measures of financial performance and liquidity reported in
accordance with Canadian GAAP. (4) The outlook for the full year
2003 period represents the three months ended March 31, 2003 for
the Predecessor Company and the nine months ended December 31, 2003
for the new Company. Note to Investors ----------------- This news
release includes statements about expected future events and/or
financial results that are forward-looking in nature and subject to
risks and uncertainties. For those statements, we claim the
protection of the safe harbor for forward-looking statements
provisions contained in the United States Private Securities
Litigation Reform Act of 1995. The Company cautions that actual
performance will be affected by a number of factors, many of which
are beyond the Company's control, and that future events and
results may vary substantially from what the Company currently
foresees. Discussion of the various factors that may affect future
results is contained on page 1 of the Company's Annual Information
Form dated May 2, 2003, which is filed with the Securities and
Exchange Commission, the Ontario Securities Commission, and SEDAR.
The Board of Directors of Allstream reviewed this news release
prior to it being issued. About Allstream --------------- Allstream
is a leading communication solutions provider with a world- class
portfolio of Connectivity, Infrastructure Management and IT
Services. Allstream collaborates with customers to create tailored
business solutions that meet their unique needs and help them
compete more effectively. Spanning more than 18,800 kilometres,
Allstream has an extensive broadband fibre-optic network and the
greatest reach of any competitive carrier in Canada, and provides
international connections through strategic partnerships and
interconnection agreements with other international service
providers. Allstream has approximately 4,000 employees and is a
public company with its stock traded on the Toronto Stock Exchange
under the symbols ALR.A and ALR.B, and the NASDAQ National Market
System under the symbols ALLSA and ALLSB. Visit Allstream's
website, http://www.allstream.com/ for more information about the
Company. > DATASOURCE: Allstream Inc. CONTACT: Media: May Chong,
(416) 345-2342, ; Investors and Analysts: Brock Robertson, (416)
345-3125, ; Dan Coombes, (416) 345-2326,
Copyright