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During Q3, the company's consolidated revenue grew sequentially by $5M to $466M
November 9, 2006
FLORHAM PARK, N.J. -- Global Crossing (Nasdaq: GLBC - News) announced its financial results for the third quarter of 2006 and provided updates on its business activities for the same period.
"We've revved up our business and it shows on many fronts. We've generated positive adjusted EBITDA in the third quarter and posted revenue growth for the second quarter in a row - and with the completed acquisition of Fibernet and our announced merger with Impsat, we've found two companies that complement our portfolio and are expected to contribute positively to our overall financial goals," said John Legere, Global Crossing's CEO. "Our strategy is sound, our business is healthy and our employees are focused on ensuring that Global Crossing is a true stand-out in the telecommunications industry."
Highlights
Global Crossing's business performance continued to improve in the third quarter of 2006 on a sequential and year-over-year basis. On a sequential basis, "invest and grow" revenue, namely that part of the business focused on serving global enterprises, carrier data and indirect channel customers, grew by 5 percent compared to the second quarter for both the company's UK subsidiary (GCUK) and for its businesses outside of the UK. Adjusted gross margin improved to 41 percent of revenue from 38 percent in the second quarter, and adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) was positive, ending the quarter at $7 million.
In addition, Global Crossing recently announced the acquisition of UK-based Fibernet Group Plc and the planned acquisition of Latin America-based Impsat Fiber Networks. Both companies will accelerate execution of Global Crossing's strategy of delivering converged IP services to enterprises and carriers globally, and they will expand Global Crossing's UK and Latin American offerings in their respective regions.
Global Crossing expects the Fibernet acquisition to contribute annual revenue of more than $80 million, and to yield annual adjusted EBITDA of $30 million after completion of the integration and operational synergies are fully realized. Additionally, the combination of Fibernet with GCUK will yield up to $10 million of capital expense savings. Integration is expected to be complete in 12 to 18 months and to cost up to $10 million.
The Impsat acquisition is expected to generate $270 million in annual revenue and $70 million in adjusted EBITDA following integration, which includes the impact of anticipated net expense synergies of more than $10 million per year. Integration will take approximately 12 to 18 months after the transaction closes, which is expected in the first quarter of 2007.
Revenue and Margin
During the third quarter, the company's consolidated revenue grew sequentially by $5 million to $466 million. Adjusted gross margin (as defined in the tables that follow) grew $16 million and was 41 percent of revenue or $191 million in absolute terms, compared with 38 percent of revenue or $175 million in the second quarter. "Invest and grow" revenue grew sequentially by 5 percent or $14 million to $313 million in the third quarter. This was driven by growth in the company's businesses outside of the UK, which generated $205 million in "invest and grow" revenue, up $9 million from $196 million in the second quarter. In addition, the company's GCUK subsidiary generated $108 million in "invest and grow" revenue, a $5 million sequential improvement. Adjusted gross margin for the "invest and grow" segment was $172 million in absolute terms or 55 percent of revenue for the third quarter. This was a $17 million sequential improvement from $155 million in the second quarter of 2006 or 52 percent of revenue.
Cost of revenue -- which includes cost of access; technical real estate, network and operations; third party maintenance; and cost of equipment sales - - was $381 million in the third quarter, down $12 million or 3 percent from $393 million in the second quarter of 2006. Cost of access accounted for $275 million of Global Crossing's cost of revenue during the third quarter, down $11 million or 4 percent from the second quarter of 2006 when cost of access expense was $286 million. Sales, general and administrative (SG&A) costs were $78 million in the third quarter of 2006, compared with $85 million in the second quarter of 2006.
Earnings
Adjusted EBITDA (as defined in the tables that follow) was positive for the third quarter at $7 million, compared with a loss of $17 million in the second quarter of 2006. Consolidated loss applicable to common shareholders was $51 million, compared with a loss of $77 million in the second quarter of the year.
Cash and Liquidity
As of September 30, 2006, unrestricted cash and cash equivalents totaled $417 million, and restricted cash was $7 million. Global Crossing used $39 million of cash in the third quarter, including the use of $45 million for capital expenditures and principal on capital leases (cash capex). Cash sources included $17 million of sales proceeds for Indefeasible Rights of Use (IRUs).
The company expects that it will generate positive cash flow for the fourth quarter of 2006.
On October 11, 2006 Global Crossing announced it had acquired Fibernet for approximately $95 million in cash. The company has received a financing commitment for up to approximately $95 million from ABN Amro to finance the Fibernet acquisition. On October 26, 2006, Global Crossing announced an agreement to acquire Impsat for $95 million in cash and the assumption of Impsat's debt, which totaled $241 million as of June 30, 2006. The company will fund the Impsat transaction with approximately $160 million of its cash resources, and it has received a financing commitment from Credit Suisse for up to $200 million to be used to refinance existing Impsat debt. Closing is subject to the approval of Impsat's common shareholders, certain debt holders, certain regulatory approvals and other closing conditions.
Global Crossing (Nasdaq: GLBC)
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