COMPANY PRESS RELEASE: Genuity has announced its fourth quarter 2001 results with revenue of $316 million in the quarter, a 5 percent sequential increase from the previous quarter, and reported its first quarter of positive gross margin.
For the year, total revenue grew 7 percent to $1.2 billion. The company also announced that it is recording a special charge of $2.7 billion, primarily consisting of a $2.6 billion non-cash charge to reflect a decrease in the market value of certain network-related assets. Excluding the special charge, results for the fourth quarter were in line with Genuity’s previous guidance.
In addition to its fourth quarter and year-end financial results, Genuity announced:
Improvements to the profitability of its access business by:
Exiting the wholesale dial access business with the exception of services to AOL and Verizon;
Expanding agreements with third-party providers to outsource its dial access infrastructure; and
Agreeing to restructure its contractual relationship with Verizon for Internet Protocol (IP) services.
Over the past 12 months, we have taken aggressive steps to re-engineer Genuity to successfully navigate through this dramatically changed marketplace, said Genuity Chairman and CEO Paul R. Gudonis. We have improved significantly the cost structure of our business through a number of initiatives, including outsourcing a costly portion of our operations and exiting an unprofitable line of business. We have reduced our workforce to match the realities of the economy, and we are modifying our long-term contracts with our two largest customers to provide more economic certainty around these relationships. As a result of these steps, and in recognition of the reduced asset values in our industry, we have recorded a special charge, which should not have any adverse impact on Genuity’s operations and our ability to serve new and existing customers going forward. We continue to have a fully funded business plan with access to all of our available financial resources.
Genuity remains on its path to profitability and, with the changes we have implemented within our business, continues on its trajectory to hit a point of EBITDA breakeven in the fourth quarter of this year, added Gudonis. The economy, our industry sector, and Genuity have all undergone tremendous change in a relatively short period of time, and I am confident that Genuity will emerge from the current economic recession as a strong, viable player in this important and growing market.
EBITDA loss in the fourth quarter, excluding the special charge, was $129 million, a $23 million or 15 percent improvement from the previous quarter and a $78 million or 38 percent improvement from the fourth quarter of 2000.
Genuity’s fourth quarter 2001 pro forma loss per share, assuming full conversion of Class B common stock, was a loss of $3.00. Pro forma loss per share, excluding the special charge, was $0.30 in the quarter.
Total revenue for the fourth quarter, including revenue of $8 million from recently acquired Integra S.A., increased 5 percent sequentially and 1 percent year-over-year. Excluding Integra revenue, total revenue grew 2 percent sequentially and decreased 1 percent year-over-year.
Genuity’s total access revenue grew 6 percent both sequentially and from last year’s fourth quarter. Broadband revenue contributed to the majority of this growth in the quarter, driven by a sequential increase in broadband revenue of 36 percent and 27 percent growth in subscribers from the previous quarter. Broadband revenue increased 69 percent from the prior year quarter, reflecting a 185 percent increase in subscribers over the last 12 months. Revenue from dedicated connectivity services decreased 4 percent sequentially, but increased 6 percent from the prior year, contributing to the year-over-year growth in access revenue.
Dial access revenues, which include wholesale, enterprise and AOL services, increased 1 percent from the previous quarter, but decreased 11 percent or $16 million from the prior year. The year-over-year decrease in dial access revenue reflects the company’s earlier decision to de-emphasize and now exit the wholesale dial access business. Domestic dial access revenues from AOL increased 3 percent sequentially and 14 percent from the prior year quarter, the result of higher volumes.
Transport revenue declined 19 percent sequentially and 26 percent as compared to the same quarter last year. These reductions in transport revenue are a result of ending a transitional supply arrangement with a customer, related to the initial spin-off of Genuity, and price competition in the industry.
Managed Web Hosting and Value-Added Services revenue continued to be heavily impacted by the overall slower economic environment, the widespread reduction in IT spending and ongoing customer churn. Revenue in this segment declined 15 percent from the previous quarter and 22 percent from the prior year quarter.
International services revenues for the fourth quarter increased 62 percent from the previous quarter, reflecting the acquisition of Integra. Excluding Integra, International revenues increased 5 percent sequentially and declined 20 percent from the prior year due to the timing of licensing revenue.