<PAGE>
Exhibit 99.1
NEWS
FOR IMMEDIATE RELEASE
CONTACT: Investor Contacts Media Contacts
Steve Smith/ Tom Kennedy Jil Hicks
(303) 749-2900 (303) 749-2970
[email protected] [email protected]
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Convergent Communications(TM) Third Quarter Results Exceed Street Expectations
. $5.2 million gross margin: a 72% sequential improvement
. $30.0 million EBITDA deficit: a 35% sequential improvement
. Reductions in cash burn on target to meet year-end objective
ENGLEWOOD, Colo., Nov. 1, 2000 Convergent Communications, Inc. (Nasdaq: CONV),
today reported total revenue of $53.5 million and an EBITDA (earnings before
interest, taxes, depreciation and amortization) deficit of $30.0 million for the
three months ended September 30, 2000, a 35 percent sequential improvement. This
compares to revenues of $53.3 million and an EBITDA deficit of $46.6 million in
the quarter ended June 30, 2000.
"I am pleased with our progress in the third quarter - our best quarter to date
- as we exceeded expectations on EBITDA performance and cash burn reductions
while maintaining our revenue," said Joseph R. Zell, president and CEO of
Convergent Communications. "The company's third-quarter results are strong
indicators that we are getting our business redirected toward profitability."
Gross margin for the three months ended September 30, 2000, was $5.2 million, a
72 percent sequential improvement, compared to $3.0 million in the second
quarter. As a percentage of revenue, gross margin for the quarter ended
September 30, 2000, was 10 percent, compared to six percent in the second
quarter, 2000.
The company's recurring EBITDA deficit, which excludes restructuring expenses,
for the third quarter, 2000, was $24.0 million, a 29 percent improvement over
the $34.0 million recurring EBITDA deficit reported in the second quarter this
year.
The company's average recurring monthly cash burn was reduced to $10.2 million
during the third quarter compared to an average of $14.5 million per month
during the first half of the year. The company's third-quarter average monthly
cash burn, which included restructuring and other one-time charges, was $13.2
million. September's actual cash burn rate was $5.8 million and benefited from
several successful one-time cash improvements associated with working capital,
capital expenditures, headcount reductions and office closures.
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2
"I am pleased with our actual cash burn for the month of September," Zell said.
"Although this number is not sustainable because of the benefits of one-time
cash sources during the month, we are clearly on target to meet our goal of
reducing our average monthly burn rate to $9.0 million or less, by year end."
HIGHLIGHTS OF THIRD-QUARTER ACHIEVEMENTS
<TABLE>
<CAPTION>
Objective Status Report
--------------------------------------------------------------------------------------------------
<S> <C>
Improve Financial Results/ Condition
--------------------------------------------------------------------------------------------------
Revenue $53.5 million; exceeded expectations
--------------------------------------------------------------------------------------------------
Gross margin 72% sequential improvement; exceeded expectations
--------------------------------------------------------------------------------------------------
EBITDA 35% sequential improvement; exceeded expectations
--------------------------------------------------------------------------------------------------
Cash burn reduction On target for year-end objective
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Strengthen Product Portfolio through Partnerships
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Covad Signed agreement 8/00; Rolled out DSL 9/00
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Exodus Signed agreement 8/00; Rolled out "Powered by Exodus" branding
program 9/00
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IBM Agreement signed 9/00; Planned rollout of WebSphere 12/00 (On
schedule)
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Strengthen Back-Office Business Systems
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Sales automation Implemented front-end sales force automation tool from
Salesforce.com 9/00
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Order management Currently implementing MetaSolv/ Oracle hybrid order management
solution (target completion 12/00 - phase 1, DSL and Frame Relay
services) (On schedule)
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Billing Currently implementing Portal's billing solution (target
completion 12/00 - phase 1, DSL and Frame Relay services) (On
schedule)
--------------------------------------------------------------------------------------------------
Contract administration Clear Contracts, integration complete 9/00. Implementation
scheduled for 11/00 (On schedule)
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Improve Business Practices
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GL consolidation Completed consolidation of seven previous general ledgers into
one Oracle-based financial system, 8/00
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Elimination of costly Eliminated EMS as offering; Sold EMS equipment during Q3
non-strategic services
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</TABLE>
FINANCIAL REVIEW
Revenue
Convergent Communications' revenue reported for the three months ended September
30, 2000 was $53.5 million despite six market closures, the completion of a 15
percent reduction in headcount and the elimination of non-strategic services.
Revenue from Web Services, which includes Web Development and Web Hosting, was
$1.3 million for the quarter ended September 30, 2000, a slight decrease of
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3
$119,000 from the second quarter of 2000. Web hosting for the most recent
quarter more than doubled to $439,000, compared to $211,000 in the second
quarter, 2000.
Broadband revenue, which consists of Internet Access, Frame Relay and Monitoring
Services, grew to $1.3 million, a 39 percent sequential-quarter increase
compared to $0.9 million. The improvement was primarily the result of increased
Monitoring Services and Internet Access sales.
Network Services revenue contributed $1.5 million for the quarter ended
September 30, 2000. Long-distance revenue increased slightly to $1.3 million,
compared to the second quarter, 2000, revenue of $1.2 million.
Revenue from the company's Systems Integration business segment, which includes
Integration Services, Voice Systems sales and Data Systems sales, accounted for
$49.4 million in revenue for the quarter ended September 30, 2000. Integration
Services increased 13 percent to $16.7 million, compared to $14.8 million
recorded for the three months ended June 30, 2000.
COGS, Gross Margins and SG&A
Cost of sales for the three months ended September 30, 2000, was $48.3 million,
a decrease compared to $50.2 million recorded in the second quarter this year.
Total gross margin increased sequentially to $5.2 million, or 10 percent of
revenue, for the three months ended September 30, 2000 compared to $3.0 million,
or six percent of revenue, for the quarter ended June 30, 2000.
Selling, General and Administrative (SG&A) expenses for the third quarter of
2000 were $29.2 million, a 21 percent decline sequentially from the quarter
ended June 30, 2000. This was primarily attributable to the company's recently
completed reduction in headcount, market closures and tighter expense policies.
Restructuring expenses were $6.1 million for the three months ended September
30, 2000, compared to $12.6 million for the three-month period ended June 30,
2000. Restructuring charges include compensation and severance related to
changes in management and costs associated with headcount reductions and office
closures.
EBITDA and Net Loss
The company's EBITDA deficit for the third quarter of 2000 was $30.0 million,
compared to a deficit of $46.6 million recorded for this year's second quarter.
Adjusted for restructuring expenses, the company's EBITDA deficit for the third
quarter, 2000 was $24.0 million, compared to an EBITDA deficit of $34.0 million
for the three months ended June 30, 2000, or a 29 percent sequential
improvement.
The net loss for the quarter ended September 30, 2000, was $43.9 million, which
compares to a loss of $78.1 million for the quarter ended June 30, 2000, a 44
percent improvement. This improvement was due to improvements in EBITDA and the
goodwill impairment charge of $17.6 million recorded during the second quarter
this year. After adjusting for this goodwill write-down, the company's net loss
improved 27 percent. The net loss attributable to common shareholders, after
accrued dividends and accretion related to preferred stock, was $48.0 million,
or a loss of $1.63 per share, for the three months ended September 30, 2000.
Sequentially, this
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4
compares to a loss of $2.79 for the three months ended June 30, 2000, which
included a recorded impairment charge.
Financial Highlights ($ in thousands, except per share data)
<TABLE>
3 months 3 months 3 months
ended ended Pct. ended Pct.
9/30/00: 6/30/00: Change 9/30/99: Change
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Web Services $ 1,349 $ 1,469 (8)% $ 896 51%
-----------------------------------------------------------------------------------------------
Broadband $ 1,279 $ 921 39% $ 131 877%
-----------------------------------------------------------------------------------------------
Network Services $ 1,476 $ 1,488 (1%) $ 1,621 (9)%
-----------------------------------------------------------------------------------------------
Systems Integration $ 49,368 $ 49,386 0% $ 39,774 24%
-----------------------------------------------------------------------------------------------
Total Revenue $ 53,472 $ 53,264 0% $ 42,422 26%
-----------------------------------------------------------------------------------------------
Gross Margin $ 5,219 $ 3,042 72% $ 10,330 (49)%
-----------------------------------------------------------------------------------------------
EBITDA $(30,047) $ (46,576) 35% $(16,483) (82)%
-----------------------------------------------------------------------------------------------
Net Loss available to $(48,023) $ (81,368) 41% $(26,358) (82)%
common shareholders
-----------------------------------------------------------------------------------------------
Loss Per Share $ (1.63) $(2.79) 42% $(1.06) (54)%
-----------------------------------------------------------------------------------------------
</TABLE>
CAPITAL EXPENDITURES AND LIQUIDITY
During the quarter ended September 30, 2000, Convergent Communications' capital
expenditures were $7.9 million. Property plant and equipment increased $4.5
million, net of $3.4 million in sales of EMS equipment. Total cash, cash
equivalents and restricted cash at September 30, 2000 was $104 million.
Unrestricted cash at September 30, 2000, was $72 million. At the end of
September 2000, the company had a $50 million revolving credit facility of which
no borrowings were recorded.
BUSINESS OUTLOOK
The following statements are based on current expectations. These statements are
forward-looking, and actual results may differ materially. The company intends
to continue its practice of not updating forward-looking statements until its
next quarterly results announcement, other than in publicly available
statements.
The management of Convergent Communications is comfortable with current Wall
Street analyst expectations for its fourth quarter, 2000 and year-end 2001 which
consist of the following:
Fourth Quarter 2000 Expectations
. Revenue is expected to be approximately in-line with the third quarter as
the company continues to develop and launch new products focused on
Broadband and Web Services opportunities.
. EBITDA deficit is expected to improve to the mid-to-upper $20 million
range.
. Recurring average monthly cash burn is expected to be at or below $9
million in December.
2001 Expectations
. Revenue growth expected in the 25-35% range.
. EBITDA deficit is expected to be reduced by approximately 50 percent or
better, compared to the year-end 2000 EBITDA deficit.
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5
. The company expects to demonstrate continued reductions in cash burn
thereby enabling it to have sufficient cash and cash availability through
2001.
. Capital expenditures expected to be in the $20-30 million range.
About Convergent Communications
Convergent Communications, Inc. (Nasdaq: CONV), through its subsidiary,
Convergent Communications Services, Inc., is a Broadband Networking and Web
Services provider with full service network and systems integration capabilities
for small and medium-sized businesses. For more information on Convergent
Communications, visit the company's Web site at http://www.converg.com.
----------------------
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The statements made by Convergent Communications in this press release may be
forward-looking in nature. Information in this press release is qualified by the
more detailed information contained in the company's 1999 annual report on Form
10-K/A filed with the Securities and Exchange Commission (SEC) on April 24,
2000, form 10-Q for the period ended March 31, 2000 filed with the SEC, form 10-
Q for the period ended June 30, 2000 filed with the SEC. Forward-looking
statements in this news release are expectations, not historical facts. Such
statements are subject to risks and uncertainties that could cause actual
results or outcomes to differ materially. In particular, there can be no
assurance that the company will be able to accelerate its growth rate given the
highly competitive nature of its market and the unproven nature of its business
model. In addition, the company has recently released, and its business plan
requires the future release of, new products and services which have not
previously been provided by the company. These products and services are being
designed to provide increased margins to the company to further help reduce the
company's monthly cash burn. These products and services, such as DSL services,
are in evolving and highly competitive markets with a number of competitors
providing these products and services. These competitors typically have
substantially more resources than the company and have significantly more
experience in selling these products and services. The company also relies on a
number of third parties for the implementation and delivery of these new
products and services, which creates significant risk of non-performance and may
adversely affect the company's operations and financial performance. The
company's actual results may be materially impacted in the event that the
company is unable to sell these products and services in a timely and cost
effective manner. The company's existing debt and preferred stock obligations
also create financial and operating risks and there can be no assurance that the
company can satisfy its debt or preferred stock covenants or be able to obtain
adequate financing to fund future initiatives. Such risks and uncertainties
also include other factors discussed in the company's filings with the
Securities and Exchange Commission.
<PAGE>
Convergent Communications, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Sequential
Year-over-Year Three Months Ended
Three Months Ended September
September 30, June 30, 30,
------------------------------- -------- ---------
1999 2000 Change 2000 2000 Change
-------- -------- -------- -------- --------- --------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Revenue
Web Services $ 896 $ 1,349 $ 453 $ 1,469 $ 1,349 $ (120)
Broadband 131 1,279 1,148 921 1,279 358
Network 1,621 1,476 (145) 1,488 1,476 (12)
Integration 39,774 49,368 9,594 49,386 49,368 (18)
-------- -------- -------- -------- --------- --------
Total 42,422 53,472 11,050 53,264 53,472 208
Gross Margin (before depreciation)
Web Services (200) (946) (746) (88) (946) (858)
Broadband 156 (1,685) (1,841) (2,635) (1,685) 950
Network (320) (375) (55) 73 (375) (448)
Integration 10,694 8,225 (2,469) 5,692 8,225 2,533
-------- -------- -------- -------- --------- --------
Total 10,330 5,219 (5,111) 3,042 5,219 2,177
Selling, general and administrative 26,813 29,215 2,402 37,001 29,215 (7,786)
Restructuring charges - 6,051 6,051 12,617 6,051 (6,566)
Depreciation and amortization 4,872 8,722 3,850 8,402 8,722 320
Impairment of long-lived assets - 144 144 17,645 144 (17,501)
Interest expense/(income) and other 5,003 5,023 20 5,504 5,023 (481)
-------- -------- -------- -------- --------- --------
Net loss (26,358) (43,936) (17,578) (78,127) (43,936) 34,191
-------- -------- -------- -------- --------- --------
Preferred stock dividends
and accretion - (4,087) (4,087) (3,241) (4,087) (846)
-------- -------- -------- -------- --------- --------
Net loss available
to common shareholders $(26,358) $(48,023) $(21,665) $(81,368) $(48,023) $ 33,345
======== ======== ======== ======== ========= ========
Net loss per share $ (1.06) $ (1.63) $ (0.57) $ (2.79) $ (1.63) $ 1.16
======== ======== ======== ======== ========= ========
Weighted average shares outstanding 24,775 29,529 29,172 29,529
======== ======== ======== =========
-----------------------------------------------------------------------------------------------------------------------------
EBITDA $(16,483) $(30,047) $(13,564) $(46,576) $(30,047) $ 16,529
EBITDA: Consists of earnings before interest, income taxes, depreciation, amortization, impairment of long-lived assets, and
other income (expense), EBITDA is a measure commonly used in the communications industry to analyze companies on the basis
of operating performance. It is not a measure of financial performance under generally accepted accounting principles and
should not be considered as an alternative to net income as a measure of performance as an alternative to cash flow as a
measure of liquidity. The Company's measure of EBITDA may not be comparable to similarly titled measures of other companies.
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Convergent Communications, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------
1999 2000 Change
-------- --------- ----------
(in thousands, except per share amounts)
<S> <C> <C> <C>
Revenue
Web Services $ 1,027 $ 4,907 $ 3,880
Broadband 219 2,762 2,543
Network 6,291 4,604 (1,687)
Integration 104,646 147,310 42,664
-------- --------- ----------
Total 112,183 159,583 47,400
Gross Margin (before depreciation)
Web Services (1,044) (825) 219
Broadband 4 (5,725) (5,729)
Network 614 (273) (887)
Integration 26,779 22,048 (4,731)
-------- --------- ----------
Total 26,353 15,225 (11,128)
Selling, general and administrative 68,279 100,997 32,718
Restructuring charges - 21,695 21,695
Depreciation and amortization 11,842 24,847 13,005
Impairment of long-lived assets - 17,789 17,789
Interest expense/(income) and other 15,679 16,752 1,073
-------- --------- ----------
Net loss (69,447) (166,855) (97,408)
Preferred stock dividends and accretion - (7,328) (7,328)
-------- --------- ----------
Net loss available to common shareholders $(69,447) $(174,183) $ (104,736)
-------- --------- ----------
Net loss per share $ (3.92) $ (5.97) $ (2.05)
======== ========= ==========
Weighted average shares outstanding 17,697 29,165
======== =========
------------------------------------------------------------------------------------------------
EBITDA $(41,926) $(107,467) $ (65,541)
EBITDA: Consists of earnings before interest, income taxes, depreciation, amortization,
impairment of long-lived assets, and other income (expense). EBITDA is a measure commonly used
in the communications industry to analyze companies on the basis of operating performance. It is
not a measure of financial performance under generally accepted accounting principles and should
not be considered as an alternative tro net income as a measure of performance or as an
alternative to cash flow as a measure of liquidity. The Company's measure of EBITDA may not be
comparable to similarly titled measures of other companies.
------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Convergent Communications, Inc.
CONSOLIDATED BALANCE SHEETS
(unaudited)
December 31, September 30,
1999 2000
(in thousands)
ASSETS
Cash and cash equivalents and short-term investments $ 59,957 $ 71,964
Restricted cash 20,800 20,514
Trade accounts receivable, net 39,922 38,794
Inventory 13,810 12,957
Prepaid expenses and other current assets 9,070 16,223
-------- --------
Total current assets 143,559 160,452
Property, network and equipment, net 62,163 72,934
Restricted cash, non-current 17,669 11,532
Goodwill, net 56,037 35,481
Other intangible assets, net 10,967 11,327
Investments, leases receivable and other assets 6,962 13,547
-------- ---------
Total assets $297,357 $ 305,273
======== =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Trade accounts payable and accrued liabilities $ 41,499 $ 40,757
Accrued interest expense 5,308 10,400
Deferred revenue and customer deposits 8,456 10,010
Current portion of notes payable and capital leases 11,321 20,312
-------- ---------
Total current liabilities 66,584 81,479
Notes payable and capital leases, net
of current portion 194,153 185,753
Redeemable Preferred stock - 158,600
Shareholders' equity (deficit) 36,620 (120,559)
-------- ---------
Total liabilities and shareholders'
equity (deficit) $297,357 $ 305,273
======== =========
