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Global Crossing Reports GCUK's Fourth Quarter and Full Year 2007 Results
London - April 29, 2008 -- Global Crossing (NASDAQ: GLBC), a leading global IP solutions provider, today announced fourth quarter and full year 2007 financial results for its subsidiary, Global Crossing (UK) Telecommunications Limited (GCUK).
Highlights
GCUK generated 76 million pounds in revenue for the fourth quarter, with adjusted gross margin at 70 percent of revenue and adjusted IFRS EBITDA of 22 million pounds. (Adjusted gross margin and adjusted IFRS EBITDA are non-GAAP metrics that are defined and reconciled below.) Cash provided by operations for the fourth quarter was 16 million pounds before payment of interest.
GCUK continued to add new customers and additional services to existing customer relationships. During the fourth quarter, the company announced a new contract with HM Revenue and Customs (HMRC) under which HMRC will employ Global Crossing's hosted IP telephony service for the operation of all its telephony service across the UK, supporting 85,000 users. HMRC is using the recently launched Global Crossing Unified Communications offering, which provides fully managed hosted IP telephony, collaboration and messaging solutions over a single, converged IP network. In addition, GCUK announced an extension to its Internet Protocol Virtual Private Network (IP VPN) for Superdrug. Following successful implementation of an IP VPN for 700 Superdrug stores, the company expanded the service to an additional 200 retail outlets.
"GCUK exited 2007 as a larger, stronger business than it was in 2006. The combination of Fibernet's assets and strong orders at the end of the year delivered revenue growth and improved margins at GCUK," said John Legere, Global Crossing's chief executive officer. "As enterprises continue shifting from legacy networks, demand for our IP-based solutions will drive GCUK and the rest of Global Crossing's business to even greater successes."
On December 28, 2006, GCUK acquired certain of the Fibernet group of companies from a subsidiary of Global Crossing Limited and began consolidating Fibernet's UK operations into its own operations; therefore, the impact of Fibernet on GCUK's operating results for the fourth quarter and full year 2006 was not significant.
Fourth Quarter Results
In the fourth quarter, GCUK generated revenue of 76 million pounds, compared with 73 million pounds in the third quarter of 2007 and 62 million pounds in the fourth quarter of 2006. The sequential increase in revenue was due to increased enterprise revenue with the addition of HMRC, as well as an increase in revenue from equipment sales. Year-over-year growth was primarily due to the inclusion of Fibernet into GCUK's operations.
Adjusted gross margin was 53 million pounds or 70 percent of revenue in the fourth quarter of 2007. This compares with 52 million pounds or 72 percent of revenue in the third quarter of 2007 and 42 million pounds or 68 percent of revenue in the fourth quarter of 2006. Excluding the third quarter benefit to cost of access arising from the reclassification of costs from cost of access to depreciation and amortization to align Fibernet's accounting policies with those of GCUK, adjusted gross margin as a percentage of revenue was flat on a sequential basis. Year-over-year growth in adjusted gross margin was due to the consolidation of Fibernet's UK operations into GCUK.
Cost of revenue, which includes cost of access, technical real estate, network and operations, third party maintenance and cost of equipment sales, was 45 million pounds for the quarter, compared with 44 million pounds in the third quarter of 2007 and 43 million pounds in the fourth quarter of 2006. The sequential increase in cost of revenue was primarily due to increases in cost of equipment sales and an increase in cost of access from the third quarter principally due to the benefit recorded in the third quarter described above. These increases were offset by a rebate in real estate, network and operations and lower third party maintenance costs. The year-over-year increase in cost of revenue was primarily due to the addition of Fibernet's UK operations, offset by lower equipment sales.
Sales, general and administrative expenses (SG&A) for GCUK were 8 million pounds in the fourth quarter, compared with 9 million pounds in the third quarter of 2007 and 9 million pounds in the fourth quarter of 2006. SG&A for the third quarter of 2007 included a restructuring charge of one million pounds related to vacating a Fibernet facility. Other expenses remained relatively flat in the fourth quarter resulting in a sequential improvement in SG&A. The year-over-year decrease in SG&A was primarily due to severance and other restructuring expense related to the acquisition of Fibernet in the fourth quarter of 2006, partially offset by higher SG&A costs due to the addition of Fibernet's UK operations.
GCUK's adjusted IFRS EBITDA for the fourth quarter was 22 million pounds, compared with 21 million pounds in the third quarter of 2007 and 19 million pounds in the fourth quarter of 2006. The fourth quarter of 2006 included an 8 million pound non-cash net gain arising from the acquisition of Fibernet. (See Table 2 notes for reference.)
The company's consolidated net loss applicable to common shareholders was 2 million pounds for the fourth quarter, compared with net profit of approximately one million pounds in the third quarter of 2007 and a net loss of 2 million pounds in the fourth quarter of 2006.
Full Year Results
GCUK generated 297 million pounds of revenue for 2007, 98 percent of which was generated from the "invest and grow" category - namely that part of the business focused on serving global enterprises and carrier customers excluding wholesale voice. This represents growth in total annual revenue of 56 million pounds, or 23 percent, compared with 2006. The growth in total annual revenue is primarily due to the addition of Fibernet's UK operations and to a lesser extent due to additional revenues from the new HMRC contract referenced above, a settlement with a certain customer, and additional revenues from new business within the carrier data channel, offset by continued attrition in the revenue base and by price reductions made available to some customers during the year.
In 2007, Camelot announced its intention to replace its existing service supplied by GCUK. As previously stated, Camelot's plans are to start migration of the network shortly. Although the precise impact on GCUK will depend on the details and timing of Camelot's actual network transition, the company has yet to see a revenue impact but expects revenue from Camelot to decline substantially through the third and fourth quarters of 2008 and the first quarter of 2009.
GCUK reported adjusted gross margin of 209 million pounds, or 70 percent, for 2007. This compares with 164 million pounds, or 68 percent of revenue, in 2006. The 45 million pounds year-over-year increase was primarily due to the addition of Fibernet's UK operations and associated savings in cost of access expense during the year.
Cost of revenue was 185 million pounds in 2007, or 62 percent of revenue, compared with 159 million pounds, or 66 percent of revenue, in 2006. The 26 million pound year-over-year increase was primarily due to the inclusion of Fibernet, an increase in cost of access due to greater enterprise and carrier sales volume, and an increase in cost of equipment sales.
SG&A expenses were 36 million pounds, or 12 percent of revenue in 2007, compared with 31 million pounds, or 13 percent of revenue, in 2006. The year-over-year increase was primarily due to the inclusion of Fibernet, increased salaries and sales commissions, retention and motivation grant expenses, and charges relating to Global Crossing's May 2007 restructuring plan.
GCUK reported 78 million pounds of adjusted IFRS EBITDA for 2007, compared with 62 million pounds of adjusted IFRS EBITDA for 2006.
The company's consolidated net loss applicable to common shareholders was 2 million pounds for 2007, compared with net income of 13 million pounds in 2006.
Cash Position
As of December 31, 2007, GCUK had 24 million pounds of cash and cash equivalents. Net cash provided from operating activities totaled less than half a million pounds after 16 million pounds of interest paid during the fourth quarter. After interest income of 2 million pounds and a use of 9 million pounds for capital expenditures and principal payments on capital leases, GCUK's net decrease in cash and cash equivalents in the fourth quarter was 6 million pounds.
Net cash provided from operating activities during 2007 totaled 14 million pounds after 34 million pounds of interest paid during the year. GCUK's net decrease in cash and cash equivalents was 16 million pounds for 2007 after capital expenditures of 40 million pounds including principal payments on capital leases.
Non-GAAP Financial Measures
Pursuant to the U.S. Securities and Exchange Commission's (SEC's) Regulation G, the attached tables include definitions of adjusted IFRS 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 (IFRS) as published by the International Accounting Standards Board (IASB).
International Financial Reporting Standards
GCUK's results reported here include audited consolidated financial results for the years ended December 31, 2007 and 2006; unaudited consolidated financial results for the three months ended December 31, 2007 and 2006; and audited consolidated balance sheets as of December 31, 2007 and 2006, in accordance with IFRS. GCUK's fourth quarter 2007 and 2006 results, as well as those for the full years 2007 and 2006, were included in Global Crossing's consolidated results previously reported on March 12, 2007, in accordance with U.S. Generally Accepted Accounting Principles (U.S. GAAP).
Conference Call
Management has scheduled a conference call for Tuesday, April 29, 2008, 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 4908 or +44 (0) 870 001 3132. 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 Tuesday, April 29, 2008, beginning at 11:00 a.m. EDT/4:00 p.m. BST and will be accessible until Tuesday, May 6, 2008 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 21381571. UK callers may access the replay by dialing +44 (0) 870 000 3081 or +44 (0) 800 692 0831 and entering reservation number 21381571.
ABOUT GLOBAL CROSSING (UK) TELECOMMUNICATIONS LIMITED
Global Crossing (UK) Telecommunications Limited (GCUK) provides a wide 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, the company 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 approximately 390 cities in more than 30 countries worldwide, and delivers services to approximately 690 cities in more than 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 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 level of competition in the marketplace; pricing pressures resulting from technology advances and regulatory changes; competitive disadvantages relative to competitors with superior resources; dependence on a number of key personnel; 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; 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; risks relating to the operation, administration, maintenance and repair of our systems; terrorist attacks or other acts of violence or war that may adversely affect the financial markets and our business and operations; the accuracy of our real estate restructuring provision; the influence of the company's parent, and possible conflicts of interest of the parent or of certain of GCUK's directors and officers; the sharing of corporate and operational services with our parent; our ability to raise capital through financing activities; 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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