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Global Crossing Reports GCUK's Second Quarter 2007 Results
London - September 13, 2007 -- Global Crossing (NASDAQ: GLBC) today announced second quarter financial results for its subsidiary, Global Crossing (UK) Telecommunications Limited (GCUK).
Highlights
GCUK generated 73 million pounds in revenue, with adjusted gross margin at 70 percent of revenue and EBITDA of 16 million pounds for the second quarter. (Adjusted gross margin and EBITDA are non-GAAP metrics that are defined and reconciled below.) During the quarter, cash generated from operations was 17 million pounds, before interest paid.
During the second quarter, GCUK made progress with new and existing customer relationships. The company started the quarter with two significant contracts -- its previously announced agreement with Newsquest Media Group and the renewal of Managed Telecommunications Service (Mts) for OGCbuying.solutions. GCUK also secured a new contract from GfK Group, the fifth largest research organization worldwide. Global Crossing will provide GfK Group, with managed IP VPN, VoIP, managed security services and remote access across 50 sites globally under the four-year agreement. In addition, Global Crossing signed a three-year contract renewal with a large infrastructure consortium, worth a total value of 18 million pounds, for the continued provision of managed voice services. Additionally, Global Crossing boosted product and service offerings throughout the region during the second quarter. The company launched Global Crossing Unified Communications™, a new service based on Siemens technology that increases efficiencies for the UK government.
As reported previously, Global Crossing acquired Fibernet in October 2006 and sold it to GCUK on December 28, 2006. The integration of Fibernet into GCUK's operations has been completed, with integration expenses lower than originally forecasted.
"We're excited about the completion of the Fibernet integration - integration costs are below what we expected and we're beginning to realize cross-selling and up-selling opportunities that will increase as our business matures, particularly as it relates to carrier data," said John Legere, Global Crossing's chief executive officer. "Based on the cost reductions we implemented during second quarter, the accelerating sales efforts of our GCUK team, and a focus on delivering a differentiated experience to our customers, we believe GCUK is well positioned for the second half of the year."
Revenue, Margin and Costs
During the second quarter of 2007, GCUK generated revenue of 73 million pounds, 98 percent of which was produced by the "invest and grow" business category - namely, that part of the business focused on serving global enterprises, carrier data and indirect channel customers. This represented a 2 million pound sequential decrease over the previous quarter and a 22 percent year-over-year increase from 60 million pounds in the second quarter of 2006. The sequential decline in revenue was due to incremental billings resulting from a settlement with a customer and additional equipment sales to a large customer; both in the first quarter of 2007. The year-over-year increase resulted primarily from the inclusion of Fibernet's UK operations into GCUK's results.
Adjusted gross margin (as further defined in Table 7 that follows) was 51 million pounds or 70 percent of revenue during the second quarter of 2007. This compared with 52 million pounds or 69 percent of revenue in the first quarter of 2007 and 40 million pounds or 67 percent of revenue in the second quarter of 2006.
Cost of revenue, which includes cost of access, technical real estate, network and operations, third party maintenance and cost of equipment sales, was 47 million pounds for the quarter, compared to 49 million pounds in the first quarter of 2007 and 39 million pounds in the second quarter of 2006. The sequential decrease in cost of revenue was attributable to a decrease in cost of access primarily due to the network migration of previously sold contracts and lower cost of equipment sales, partially offset by higher real estate costs due to a utility credit in the first quarter. Cost of revenue increased year over year due to the addition of Fibernet operations and higher cost of equipment sales; these were partially offset by the savings from the contract novations described above.
Sales, general and administrative expenses (SG&A) in the second quarter were 11 million pounds compared with 8 million pounds in the first quarter of 2007 and 7 million pounds in the second quarter of 2006. The sequential variance in SG&A includes 2 million pounds in severance costs, higher non-cash stock compensation expense associated with prior retention program grants and a real estate restructuring credit in the first quarter. The year-over-year increase was primarily due to the inclusion of Fibernet in addition to the severance and non-cash stock compensation expense described above.
Earnings
GCUK's EBITDA for the second quarter, as defined in Table 5 that follows, was 16 million pounds, compared with 18 million pounds in the first quarter of 2007 and 13 million pounds in the second quarter of 2006. The sequential EBITDA decline was due principally to 2 million pounds of severance expense in the second quarter of 2007 and 2 million pounds in utility and real estate restructuring credits in the first quarter of 2007, partially offset by higher adjusted gross margin and lower cost of equipment sales. The year-over-year increase in EBITDA was primarily attributable to the inclusion of Fibernet's UK operations.
GCUK recorded a net loss of 1 million pounds for the second quarter of 2007, compared with a net profit of approximately 1 million pounds in the first quarter of 2007 and a net profit of 6 million pounds in the second quarter of 2006. The year-over-year change in net profit was primarily due to an increase in finance charges driven by 3 million pounds less favorable non-cash exchange rate movements on the company's U.S. dollar-denominated senior secured notes and 2 million pounds of additional finance charges from the issuance of the additional senior secured notes issued in December 2006.
Cash Position
As of June 30, 2007, GCUK had 34 million pounds of cash and cash equivalents. Cash generated from operations during the second quarter totaled 17 million pounds before interest paid. GCUK's net decrease in cash and cash equivalents was 4 million pounds in the second quarter, including 9 million pounds for capital expenditures and principal payments on capital leases as well as 16 million pounds in interest which included interest associated with the additional notes issued in December 2006.
Non-GAAP Financial Measures
Pursuant to the Securities and Exchange Commission's (SEC's) Regulation G, the attached schedules include definitions of 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 International Financial Reporting Standards as published by the IASB (IFRS).
International Financial Reporting Standards
GCUK's results reported here include unaudited consolidated financial results for the three months ended June 30, 2007 and 2006 and March 31, 2007; the unaudited consolidated balance sheet as of June 30, 2007; and the audited consolidated balance sheet as of December 31, 2006, in accordance with IFRS. GCUK's results for the second quarters of 2007 and 2006 and the first quarter of 2007 were included in Global Crossing's consolidated results previously reported on August 9, 2007, in accordance with U.S. GAAP.
Conference Call
Management has scheduled a conference call for Thursday, September 13, 2007, at 9:00 a.m. EDT/2:00 p.m. BST to discuss GCUK's financial results. The call may be accessed by dialing +1 212 676 5386 or +44 (0) 870 001 3144. Callers are advised to dial in 15 minutes prior to the 9:00 a.m. EDT start time. The call will also be Webcast at investors.globalcrossing.com/results.cfm.
A replay of the call will be available on Thursday, September 13, 2007, beginning at 11:00 a.m. EDT/4:00 p.m. BST and will be accessible until Thursday, September 20, 2007 at 11:00 a.m. EDT/4:00 p.m. BST. To access the replay, dial +1 402 977 9140 or +1 800 633 8284 and enter reservation number 21348714. UK callers may access the replay by dialing +44 (0) 870 000 3081 or 0 800 692 0831 and entering reservation number 21348714.
ABOUT GLOBAL CROSSING (UK) TELECOMMUNICATIONS LIMITED
Global Crossing (UK) Telecommunications Limited provides a full range of managed telecommunications services in a secure environment ideally suited for IP-based business applications. The company provides managed voice, data, Internet and e-commerce solutions to a strong and established commercial customer base, including more than 100 UK government departments, as well as systems integrators, rail sector customers and major corporate clients. In addition, GCUK provides carrier services to national and international communications service providers.
ABOUT GLOBAL CROSSING
Global Crossing (NASDAQ: GLBC) provides telecommunications solutions over the world's first integrated global IP-based network. Its core network connects more than 320 cities in 31 countries worldwide, and delivers services to more than 600 cities in 60 countries and 6 continents around the globe. The company's global sales and support model matches the network footprint and, like the network, delivers a consistent customer experience worldwide.
Global Crossing IP services are global in scale, linking the world's enterprises, governments and carriers with customers, employees and partners worldwide in a secure environment that is ideally suited for IP-based business applications, allowing e-commerce to thrive. The company offers a full range of data, voice and security products, to approximately 40 percent of the Fortune 500, as well as 700 carriers, mobile operators and ISPs. Its Professional Services and Managed Solutions provide VoIP, security and network consulting and management services to support its Global Crossing IP VPN service and Global Crossing VoIP services. Global Crossing was the first -- and remains the only -- global communications provider with IPv6 natively deployed in both its private and public backbone networks.
Please visit www.globalcrossing.com or blogs.globalcrossing.com for more information about Global Crossing.
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This press release contains statements about expected future events and financial results that are forward-looking and subject to risks and uncertainties that could cause GCUK's actual results to differ materially, including: the ability to realize the benefits anticipated from the acquisition of Fibernet; dependence on a number of key personnel; the level of competition in the marketplace; pricing pressures resulting from technology advances and regulatory changes; competitive disadvantages relative to competitors with superior resources; the concentration of revenue in a limited number of customers; customer contracts typically do not have firm commitments to purchase minimum levels of revenue or services; the reliance on a limited number of third party suppliers; periodic reviews of the company's financial condition by certain of the company's government customers; a change of control could lead to the termination of many of the company's government contracts; insolvency could lead to termination of certain of the company's contracts; slower than anticipated adoption by customers of next generation products; the influence of the company's parent, and possible conflicts of interest of the parent or of certain of GCUK's directors and officers; exposure to unreserved contingent liabilities; and other risks referenced from time to time in the company's filings with the Securities and Exchange Commission. The company undertakes no duty to update information contained in this press release or in other public disclosures at any time.
CONTACT GLOBAL CROSSING:
Press Contact
Becky Yeamans
+ 1 973 937 0155
PR@globalcrossing.com
Analysts/Investors Contact
Suzanne Lipton
+ 1 800 836 0342
glbc@globalcrossing.com
Gino Mathew
+ 1 973 937 0133
glbc@globalcrossing.com
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