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qwest communications 1Q 06 Earnings
1. QWEST REPORTS BREAKTHROUGH FIRST QUARTER RESULTS;
EPS POSITIVE; MARGIN EXPANSION; IMPROVED YEAR-OVER-YEAR REVENUE
Unaudited (in millions, except per share amounts)
Seq. Y over Y
Q1 2006 Q4 2005 Change Q1 2005 Change
Operating Revenues $3,476 $3,480 (0.1)% $3,449 0.8%
Net Income (Loss) 88 (528) nm 57 54.4%
Net Income (Loss) per Diluted Share 0.05 (0.28) nm 0.03 66.7%
Positive Earnings Per Share
Adjusted EBITDA Margin Advances to 30.7 Percenta
Fourth Consecutive Quarter of Year-Over-Year Revenue Improvement
Free Cash Flowa -- Before Anticipated, One Time Items -- On Track
DENVER, May 3, 2006 — Qwest Communications International Inc. (NYSE: Q) today
reported solid first quarter results highlighted by positive earnings per share, revenue
growth, and continued margin expansion. For the quarter, Qwest reported earnings of
$88 million, or $0.05 per fully diluted share, compared with $57 million, or $0.03 per
share in the first quarter 2005, which included a $257 million, or $0.14 per share, gain
on the sale of wireless assets.
“Qwest has started the year with strong momentum, posting both solid operating and
financial performance for the first quarter and achieving important operating milestones
resulting in positive earnings per share,” said Richard C. Notebaert, Qwest chairman
and CEO.
Financial Results
Qwest’s first quarter revenue of $3.5 billion increased 0.8 percent compared to the first
quarter a year ago. Revenue trends improved as a result of strong sales within Qwest’s
portfolio of mass market bundles and growth products, including high-speed Internet,
advanced data products, long distance and wireless.
a
See attachment F for Non GAAP Reconciliation
2. “Revenue growth, improved ARPU and continued cost containment have resulted in a
200 basis point improvement first quarter over first quarter in our adjusted EBITDA
moving the margin to 31 percent,” said Oren G. Shaffer, Qwest vice chairman and CFO.
Qwest’s operating expenses declined 4 percent to $3.1 billion for the first quarter of
2006 over the first quarter of 2005 as a result of improvement in productivity and
operating efficiencies, optimization initiatives in facility costs and lower depreciation.
Capital Spending, Cash Flow and Interest
First quarter capital expenditures totaled $390 million, compared to $313 million in the
first quarter of 2005, with a continued increase in the proportion spent on broadband,
enabling higher speeds and footprint expansion. Capital spending in 2006 is expected
to be at or slightly above 2005 levels as the company continues to focus in a disciplined
fashion on investment in key growth areas and to support the highest service levels.
Free cash flow benefited from improved operating results, offset by anticipated seasonal
and one-time items in the quarter. Cash generated from operations was $140 million in
the first quarter, which includes a one-time previously announced payment of $100
million for shareholder litigation, as well as $250 million related to employee bonuses
and payroll timing. Qwest continues to expect to grow free cash flow by an incremental
$450 to $600 million in 2006 (before one-time payments), benefiting primarily from
improved operating results and reduced interest expense.
Interest expense totaled $296 million for the first quarter compared to $381 million in the
year-ago quarter. As a result of successfully tendering for and retiring high coupon
legacy debt in the fourth quarter of last year, interest expense is expected to be reduced
by approximately $300 million in 2006.
Balance Sheet Update
The company ended the quarter with total debt of $15.4 billion, a decline of $1.9 billion
compared with the first quarter a year ago, and $740 million in cash and short-term
investments.
Operational Highlights
Qwest’s improved revenue trends included operational progress in the following key
growth areas:
Customer Connections
Qwest’s customer connections – which include consumer and small-business primary
and secondary access lines, high-speed Internet subscribers, wireless and video
customers – grew 253,000 from the year-ago quarter, marking the third sequential
quarterly increase. Customer connections were up over 330,000 since new bundling
and localized sales initiatives began in May 2005.
Total retail line losses improved to a decline of 4.2 percent year-over-year, compared to
a decline of 5.3 percent a year ago, excluding 53,000 UUnet and affiliate disconnects in
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3. the prior year. Continued and anticipated pressure from the decline in the number of
access lines resold by Qwest’s competitors offset the improvement. As a result, total
switched access lines declined 4.8 percent from a year ago, excluding the disconnects
referenced above.
Qwest maintained its leadership role in working with wholesale customers by signing
commercially negotiated agreements on the company’s Qwest Platform Plus contracts.
However, wholesale line losses continued from competitive pressures and technology
substitution.
High-Speed Internet
Growing demand for Qwest High-Speed Internet was a highlight for the quarter. The
company added 198,000 high-speed Internet lines in the first quarter, which includes
18,000 subscribers added in previous periods but not recognized in prior subscriber
counts. The company benefited from strong demand, particularly in the conversion of
customers from dial-up to broadband, as well as reduced churn. These record net
additions brings the total subscribers to 1.7 million – a 13 percent increase sequentially
and a 50 percent increase year-over-year. The company’s mass markets data and
Internet revenues increased 11 percent sequentially and 34 percent year-over-year. The
company sees a significant potential revenue opportunity by increasing the current
broadband penetration to industry benchmark levels.
Qwest continued to invest in its high-speed Internet footprint, as well as increase the
speeds available to customers. Currently, 78 percent of Qwest’s households are eligible
for broadband services, up from approximately 67 percent at the end of 2004. About 98
percent of qualified households are able to purchase broadband speeds of 1.5 Mbps or
greater and more than 50 percent are able to purchase service at speeds in excess of
3.0 Mbps. In addition to its focus on availability and speeds, Qwest was able to increase
retention by devoting attention to the customer service and support experience.
In the quarter, Qwest announced a new home and small-business modem-based
wireless networking solution that included availability of extended around-the-clock
customer support and service. The solution delivers customers a second layer of
security, as well as a selection of applications, including remote access and content
control options.
Bundles
Qwest has been rewarded for its aggressive focus on bundle packaging and sales.
Since the launch of new bundles a year ago, followed by targeted incentives and
promotional initiatives, the company has significantly increased the number of products
available in its bundled offerings. Sales of voice packages plus three products are up
over 100 percent, and sales of packages plus four products are up nearly seven times
since launch. Customer demand for value-added services has contributed to increased
consumer average monthly revenue per wireline customer by 6 percent to $49 from $46
a year ago.
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4. Qwest’s full-featured bundled offering includes high-speed Internet access, a national
wireless offering, local and long-distance service and integrated TV services through
Qwest’s own ChoiceTV or its marketing alliance with DIRECTV, Inc. The company’s
bundle penetration increased to 53 percent in the quarter, compared to 47 percent a
year ago.
In-Region Long-Distance
Long-distance penetration of total retail lines increased to 38 percent in the first quarter,
compared to 34 percent a year ago. Qwest increased total long-distance lines by
46,000 in the quarter. The company ended the quarter with more than 4.8 million long-
distance lines, a 5 percent increase over a year ago.
Wireless
Wireless revenue grew 10 percent compared to the prior year as a result of promotions
and successful bundling efforts. Qwest saw the fourth sequential quarter of growth in its
wireless subscribers. The company’s subscriber base grew by 14,000 in the quarter,
bringing total wireless subscribers to 784,000. The company continues to benefit from
wireless in the bundle with approximately 75 percent of wireless subscribers on an
integrated bill with at least one other service. This has contributed to significantly lower
churn this year.
Qwest’s data and enhanced features are driving higher wireless ARPU, which increased
9 percent to $50 from $46 a year ago. The company continues to focus on adding
wireless data subscribers and approximately 50 percent of new customers sign up for a
data service.
DIRECTV® Alliance
Customer net additions for DIRECTV service grew 33 percent in the first quarter.
Qwest and DIRECTV’s strategic relationship allows Qwest to offer DIRECTV digital
satellite television services to residential customers across the Western United States.
Enterprise and Wholesale
Revenues from Qwest’s enterprise channel, which includes business and government
customers, increased 3.3 percent over last year’s results – a benefit of continued growth
in data and IP sales. In the quarter, Qwest announced new or expanded networking and
voice and data agreements with NASA, Allina Hospitals and Clinics and the State of
Wyoming.
Qwest is pleased the industry analyst community is beginning to recognize the
company’s progress. In the Forrester Research 2005 North American MPLS Services
Wave Report (Feb. 14, 2006), Forrester analysts highlighted Qwest's revenue and
customer growth, and gave Qwest its top ranking in overall MPLS strategy.
Qwest continued to advance its MPLS-based networking capabilities into the
marketplace with news that it would offer to its wholesale customers Qwest IP
Solutions™ – a wide-area networking solution that simplifies complex data
communications.
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5. Special Items
See Attachment E for special items.
Conference Call Today
As previously announced, Qwest will host a conference call for investors and the media
today at 9 a.m. EDT with Richard C. Notebaert, Qwest chairman and CEO, and Oren G.
Shaffer, Qwest vice chairman and CFO. The call can be heard on the Web at
www.qwest.com/about/investor/events
About Qwest
Qwest Communications International Inc. (NYSE: Q), through its operating subsidiaries,
is a leading provider of high-speed Internet, data, video and voice services. With nearly
40,000 employees, Qwest is committed to the “Spirit of Service” and providing world-
class services that exceed customers’ expectations for quality, value and reliability. For
more information, please visit the Qwest Web site at www.qwest.com.
###
Forward Looking Statement Note
This release may contain projections and other forward-looking statements that involve risks and uncertainties. These statements
may differ materially from actual future events or results. Readers are referred to the documents filed by us with the Securities and
Exchange Commission, specifically the most recent reports which identify important risk factors that could cause actual results to
differ from those contained in the forward-looking statements, including but not limited to: access line losses due to increased
competition, including from technology substitution of our access lines with wireless and cable alternatives, among others; our
substantial indebtedness, and our inability to complete any efforts to de-lever our balance sheet through asset sales or other
transactions; any adverse outcome of the current investigation by the U.S. Attorney's office in Denver into certain matters relating to
us; adverse results of increased review and scrutiny by regulatory authorities, media and others (including any internal analyses) of
financial reporting issues and practices or otherwise; rapid and significant changes in technology and markets; any adverse
developments in commercial disputes or legal proceedings, including any adverse outcome of current or future legal proceedings
related to matters that are or were the subject of governmental investigations, and, to the extent not covered by insurance, if any,
our inability to satisfy any resulting obligations from funds available to us, if any; potential fluctuations in quarterly results; volatility of
our stock price; intense competition in the markets in which we compete including the likelihood of certain of our competitors
consolidating with other providers; changes in demand for our products and services; acceleration of the deployment of advanced
new services, such as broadband data, wireless and video services, which could require substantial expenditure of financial and
other resources in excess of contemplated levels; higher than anticipated employee levels, capital expenditures and operating
expenses; adverse changes in the regulatory or legislative environment affecting our business; changes in the outcome of future
events from the assumed outcome included in our significant accounting policies; and our ability to utilize net operating losses in
projected amounts.
The information contained in this release is a statement of Qwest's present intention, belief or expectation and is based upon,
among other things, the existing regulatory environment, industry conditions, market conditions and prices, the economy in general
and Qwest's assumptions. Qwest may change its intention, belief or expectation, at any time and without notice, based upon any
changes in such factors, in Qwest's assumptions or otherwise. The cautionary statements contained or referred to in this release
should be considered in connection with any subsequent written or oral forward-looking statements that Qwest or persons acting on
its behalf may issue. This release may include analysts' estimates and other information prepared by third parties for which Qwest
assumes no responsibility.
Qwest undertakes no obligation to review or confirm analysts' expectations or estimates or to release publicly any revisions to any
forward-looking statements and other statements to reflect events or circumstances after the date hereof or to reflect the occurrence
of unanticipated events.
By including any information in this release, Qwest does not necessarily acknowledge that disclosure of such information is required
by applicable law or that the information is material.
The Qwest logo is a registered trademark of Qwest Communications International Inc. in the U.S. and certain other countries.
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6. Media Contact: Investor Contact:
Contacts:
Bob Toevs Stephanie Comfort
303-965-6264 800-567-7296
bob.toevs@qwest.com IR@qwest.com
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