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[CORECOMM LOGO]
CORECOMM LIMITED ANNOUNCES FINANCIAL RESULTS FOR THE THIRD QUARTER OF 2000
ACQUISITIONS OF ATX TELECOMMUNICATIONS SERVICES, INC. AND VOYAGER.NET COMPLETED
INTEGRATION ACTIVITIES PROCEEDING ON SCHEDULE AND SYNERGIES IDENTIFIED
SUCCESSFUL IMPLEMENTATION OF BUNDLING STRATEGY AND "CORE.COM" INTERNET-CENTRIC
SERVICE DELIVERY, WITH OVER 50% OF GROSS ADDITIONS TAKING "E-CHAT"
New York, New York (November 13th, 2000) - CoreComm Limited (NASDAQ: COMM)
announced today its operating results for the three months ended September 30,
2000.
Barclay Knapp, Chief Executive, stated: "We are pleased to announce another
successful quarter of operating results as well as significant progress in our
initial integration activities with ATX Telecommunications Services, Inc. and
Voyager.net, Inc. We closed the acquisitions of ATX and Voyager.net on September
29th, and integration teams spanning the management of CoreComm, ATX and
Voyager.net have focused on integrating our business activities as quickly and
smoothly as possible, while simultaneously identifying cost cutting
opportunities in the businesses. On November 2nd we announced that we would
eliminate 200 redundant positions across the combined companies. We expect that
this and other integration efforts will result in the creation of a stronger,
more efficient company. Other integration efforts that are underway include
interconnecting our voice and data networks, rationalizing operating functions,
and creating a common marketing and branding plan for the combined company.
"We have also made significant progress in our operating results this quarter.
Our new bundled telephone and Internet offering to the residential market is
showing accelerating results, as more than 50% of our gross customer additions
in the third quarter chose the `e-chat' bundled service packages.
"In addition, we have continued to demonstrate our valuable `Internet-centric'
service delivery systems. Today, potential residential customers can go to our
www.core.com site and, in a unique, fully online process, change their phone and
Internet service to CoreComm. In September, only seven months after the launch,
approximately 23% of our orders came directly through our web site. A key part
of our strategy is to become fully `Internet-centric', allowing all of our
customers to communicate with us online, thus both increasing convenience to the
customer and also lowering our operating costs.
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"We are also continuing to add customers onto our own facilities, by both
adding new customers directly onto our networks as well as through successfully
migrating resale customers on-net. Our proprietary information systems and our
electronically bonded provisioning systems continue to demonstrate their
significant efficiency and accuracy.
Knapp concluded, "We look forward to continuing the integration of ATX,
Voyager.net and CoreComm, and further developing the combined company into a
major Internet and telecommunications provider in the U.S."
OPERATING HIGHLIGHTS
The Company made significant developments in the third quarter:
Including the acquisitions of Voyager.net and ATX, CoreComm had the
following subscribers:
September 30, 2000
Residential Local Access Lines 44,000
Business Local Access Lines 201,000
Long Distance Access Line Equivalents 362,000
Internet Subscribers 462,000
Total Revenue Generating Units 1,069,000
Our fully integrated telephone and Internet residential product packages
are demonstrating success. Called "e-chat", the service includes local
telephone, long distance telephone, and Internet access for the same amount
as telephone alone from the incumbent telephone provider. 53% of total new
residential customers in the third quarter chose the e-chat package. Over
28% of our e-chat customers signed up for service online, up from 15% in
the second quarter. The e-chat packages, which vary slightly by region,
include: local telephone service, local calling plans, telephone features
(call waiting and caller-ID), long distance service (10 cents per minute),
a personal toll free 800-number, as well as premium Internet service with
unlimited access, multiple e-mail addresses and personal web space.
Customers can flexibly upgrade their package to include more services such
as additional telephone features, a second line, minutes of long distance,
and additional e-mail addresses.
Our WWW.CORE.COM website continued its development, with an increasing
number of hits and orders for service, and greater functionality. 23% of
new orders in September came in over the web site, and 78% of those
customers continued to use the web for online support. www.core.com also
continues to drive penetration of our e-chat product, with over 87% of the
online sign-ups selecting the e-chat product. Additionally,
www.c_Hlt498692397o_Hlt498692397re.coms hits expanded to over 180,000 per
day, up from 75,000 in the second quarter, while our e-mail response time
declined from approximately 8 minutes to 6 minutes reflecting additional
customer service capability to the site. We will continue to expand the
functionality of this site throughout the year.
Our business telecom results within both the ATX and CoreComm markets
accelerated rapidly in the third quarter. In addition to adding net new business
lines in all markets, we have begun to integrate the ATX and CoreComm business
operations, including product offerings and sales
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management. For example, we are currently working on utilizing several of
ATX's most successful products, such as integrated T1 access for combined
voice and data services, to the CoreComm markets. In addition, the ATX and
CoreComm networks are being integrated in order to improve operating
leverage and expand the business on-net reach through the combined
networks.
We launched DSL service to residential and business customers in
Cleveland, Chicago and Columbus. Called "Speed-e DSL", the service gives
customers the ability to access the Internet at a variety of high speeds.
Our strategy is to provide DSL both over our own facilities, as well as in
expanded territories through resale of other DSL providers' services in
areas outside of our network.
RECENT DEVELOPMENTS
COMPLETION OF ACQUISITIONS
On September 29, 2000, the Company completed its acquisitions of ATX
Telecommunications Services and Voyager.net. ATX is a facilities based CLEC and
integrated communications provider serving the Mid-Atlantic states. Voyager.net
is the largest independent full-service Internet communications company in the
Midwest, and is rapidly expanding into DSL delivery of its services.
FIBER STRATEGY
Earlier this year, we announced the formation of a new subsidiary to bring the
power of fiber optic networks directly to the home. The new unit, tentatively
called CoreComm FiberCo, is planning the installation of a broadband IP-centric
network in the New York metropolitan area, and has already secured agreements
for the lease of fiber in New York City. FiberCo initially will concentrate on
bringing fiber directly to multiple dwelling units (MDUs) located in New York
and selected other markets. FiberCo.'s product offering will include telephony
service bundled with 10 megabit per second Ethernet access and a full Internet
service at a very attractive price point. The network architecture is based on
Ethernet technology, which, as a widespread standard, is easier to install, more
reliable and more customer friendly than other technologies. We formed FiberCo.
as a separate subsidiary in order to create focus and to facilitate financing.
***
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FINANCIAL RESULTS
<TABLE>
<S> <C> <C> <C> <C>
Nine Months
Three Months Ended Ended
September 30, September 30,
2000 (1) 1999 (2) 2000 (1) 1999 (2)
------------------ -------------------- ------------------- -------------------
(in thousands, except per share data)
Revenues $18,263 $21,107 $56,619 $37,139
Cost of sales 13,496 19,356 42,245 32,355
------------------ -------------------- ------------------- -------------------
Gross margin 4,767 1,751 14,374 4,784
Network costs:
Metropolitan fiber and access 3,108 - 10,094 -
National data network 5,118 4,018 15,101 5,169
Network personnel and administration 4,024 - 10,006 -
------------------ -------------------- ------------------- -------------------
Total network costs 12,250 4,018 35,201 5,169
Selling, general and administrative 23,123 24,205 72,044 43,725
------------------ -------------------- ------------------- -------------------
Operating EBITDA (30,606) (26,472) (92,871) (44,110)
Corporate 3,363 2,346 8,559 6,489
Non-cash compensation 3,234 1,056 35,420 1,056
Nonrecurring charges (243) - 775 -
Depreciation and amortization 10,866 8,797 29,306 11,679
------------------ -------------------- ------------------- -------------------
Operating (loss) (47,826) (38,671) (166,931) (63,334)
Other income (expense)
Net interest and other (2,274) (805) (5,958) 1,847
Income tax provision (49) (274) (321) (839)
------------------ -------------------- ------------------- -------------------
Net (loss) $(50,149) $(39,750) $(173,210) $(62,326)
================== ==================== =================== ===================
===================
Basic and diluted net (loss) per share (3) $(1.24) $(1.08) $(4.35) $(1.90)
================== ==================== =================== ===================
Weighted average shares 40,502 36,952 39,837 32,810
================== ==================== =================== ===================
(1) On September 29, 2000, we acquired ATX and Voyager. The results of
operations from the date of acquisition to September 30, 2000 of ATX
and Voyager were not significant and have not been included in our
consolidated results of operations.
(2) As a result of the completion of the acquisitions of 100% of the stock of MegsINet Inc. and the CLEC assets of
USN Communications, Inc. in May 1999, we consolidated the results of operations of these businesses from the
dates of acquisition.
(3) After giving effect to the dividends and accretion on preferred stock of
$104 in the three and nine months ended September 30, 2000.
</TABLE>
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DISCUSSION OF THIRD QUARTER RESULTS
The decrease in revenues to $18,263,000 from $21,107,000 is primarily due to the
decline in the customer base associated with the USN assets. The revenues from
the USN customer base peaked in the third quarter of 1999 after our acquisition
in May 1999 and declined thereafter. These customers are now fully integrated
into our overall customer base. Additionally, prepaid cellular debit card and
cellular long distance revenues declined as a result of our termination of these
services in the third quarter of 1999. We had revenues of $511,000 in the three
months ended September 30, 1999 from the provision of these services.
Cost of sales decreased to $13,496,000 from $19,356,000 and total network costs
increased to $12,250,000 from $4,018,000 due to our migration to a
facilities-based infrastructure. The decline in cost of sales reflects the
reduction in the resale component of our business, partially due to the use of
our own facilities and partially due to the decline in resale customers acquired
from USN. In addition, in the three months ended September 30, 1999, cost of
sales included $427,000 related to the prepaid cellular debit card and cellular
long distance services. Total network costs as a percentage of revenues is
expected to remain higher than 1999 levels until customer and revenue growth
exceeds the increase in facilities-based infrastructure costs.
Selling, general and administrative expenses decreased to $23,123,000 from
$24,205,000 primarily due to the various synergies and cost savings recognized
from the integration of MegsINet and USN.
Corporate expenses include the costs of our officers and headquarters staff, the
costs of operating the headquarters and costs incurred for strategic planning
and evaluation of business opportunities. Corporate expenses were $3,363,000 in
2000 and $2,346,000 in 1999.
In April 2000, the Compensation and Option Committee of the Board of Directors
approved the issuance of options to purchase approximately 2.7 million shares of
the Company's common stock to various employees at an exercise price of $14.55,
which was less than the fair market value of the Company's common stock on the
date of the grant. In accordance with APB Opinion No. 25, "Accounting for Stock
Issued to Employees," in April 2000 the Company recorded a non-cash compensation
expense of approximately $29.0 million and a non-cash deferred expense of
approximately $31.3 million. In the three months ended September 30, 2000, $3.2
million of the deferred non-cash compensation was charged to expense. The
Company will charge the deferred expense to non-cash compensation expense over
the vesting period of the stock options as follows: $3.3 million in 2000, $12.9
million in 2001, $7.5 million in 2002 and $1.2 million in 2003. The compensation
charge of $1,056,000 in 1999 is a non-cash charge related to a change in
employee stock option agreements.
Nonrecurring charges of $775,000 in the nine months ended September 30, 2000 are
for restructuring costs relating to the Company's announcement in March 2000 of
a reorganization of certain of its operations. The original charge consisted of
employee severance and related costs of $580,000 for approximately 70 employees
to be terminated, primarily from the sales and customer operations departments,
and lease exit costs of $846,000. As of September 30, 2000, $597,000 of the
provision had been used, including $370,000 for employee severance and related
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costs and $227,000 for lease exit costs. As of September 30, 2000,
$651,000 of the provision had been reversed, including $210,000 due to a
reduction in the number of employees who will receive severance payments and
$441,000 due to a reduction in the number of facilities to be closed. Of the
$651,000 that has been reversed, $408,000 was reversed in the second quarter of
2000 and $243,000 was reversed in the third quarter. As of September 30, 2000,
none of the employees to be terminated remain with the Company. The remaining
provision for leases will be used through 2003.
Depreciation and amortization expense increased to $10,866,000 from $8,797,000
primarily as a result of an increase in fixed assets partially through
acquisitions in 1999.
Net interest and other expenses increased to $1,274,000 from $805,000 primarily
due to interest on the 6% Convertible Subordinated Notes issued in October 1999,
offset by an increase in interest income.
The income tax provision of $49,000 and $274,000 in 2000 and 1999, respectively,
is for state and local income tax.
The acquisition of certain assets of USN contributed significantly to the
company's operating results since May 1999. Although USN quickly developed a
large customer list and revenue base in 1997 and 1998, it had difficulties under
its previous management providing services, including billing, customer care and
other operational areas, and filed for bankruptcy in February 1999. Since the
acquisition, we have been focusing on improving these operations, and have been
successful in many areas. However, because of quality deficiencies in the
operations acquired from USN, and the need to improve quality in order to
continue to sell lines in the former USN markets, and consistent with our due
diligence, transaction structure and purchase price, revenues associated with
the USN assets declined significantly since our acquisition.
Our integration activities related to the acquisitions of ATX and Voyager are
proceeding on schedule and synergies have been identified. We anticipate that we
will realize significant cost savings from this effort in the latter half of
fiscal 2001. We expect to incur a restructuring charge in fiscal 2000 as a
result of this review, although to date we are still in the process of
finalizing this charge.
We will require significant resources to fund the construction of our
facilities-based network, develop and expand our existing businesses and fund
near term operating losses and debt service. We expect to be able to meet our
cash requirements through December 31, 2001 with cash and securities on hand of
approximately $50.5 million as of September 30, 2000, the remaining $75 million
commitment under our $150 million senior secured credit facility provided by The
Chase Manhattan Bank and the $50 million available under our commitment for a
senior unsecured credit facility from The Chase Manhattan Bank and Chase
Securities Inc. The availability of the remaining $75 million under the senior
secured facility is subject to the satisfaction of certain conditions. The
funding of the senior unsecured facility is subject to the completion of
definitive documentation for the facility and the full availability of the
remaining $75 million of the senior secured facility. In addition, the $50
million senior unsecured credit facility is available only on or after January
31, 2001. Thus, we have to manage our cash and securities on hand to ensure they
are adequate to meet our cash requirements until the amounts committed under the
two facilities are made available. In addition, as a result of the
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general conditions of the capital markets in our industry, we have eliminated
business projects from our current plans, including our entry into several
markets. In general, we cannot give any assurance that we will have sufficient
resources available to meet our expected cash requirements and obligations.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
In addition to the historical information presented, this release also includes
certain forward-looking statements concerning trends in operating results. Such
statements represent the Company's reasonable judgment on the future and are
based on assumptions and factors that could cause actual results to differ
materially. Examples of relevant assumptions and factors include, but are not
limited to, general economic and business conditions, industry trends,
technological developments, the Company's ability to continue to design and
deploy efficient network routes, obtain and maintain any required regulatory
licenses or approvals and finance network development, all in a timely manner,
at reasonable costs and on satisfactory terms and conditions, as well as
assumptions about customer acceptance, churn rates, overall market penetration
and competition from providers of alternative services, the impact of new
business opportunities requiring significant up-front investment, and
availability, terms and deployment of capital. The Company assumes no obligation
to update these forward-looking statements to reflect actual results, changes in
assumptions or changes in factors affecting such statements.
***
CoreComm is an innovative communications company that provides integrated
telephone, Internet and data services to business and residential customers in
targeted markets throughout the United States. We are exploiting the convergence
of telecommunications and information services through a smart build strategy,
which involves the ownership of switches and related equipment for the
provisioning of services, and the leasing of the unbundled local loop, combined
with the provisioning of an IP-based, national network. This configuration of
local and national owned and leased facilities allows us to deliver a wide range
of communications services over a network architecture that we design to be
capital efficient and primarily requires success-based incremental capital. Our
goal is to expand our facilities, geography and services to become a leading
switch-based communications provider in selected major markets across the United
States. In addition, CoreComm has formed FiberCo., a new subsidiary which is
planning the installation of a broadband, IP-centric network in the New York
metropolitan area.
***
For further information please contact: Michael A.Peterson, Vice President -
Corporate Development, Richard J.Lubasch, Senior Vice President -
General Counsel, or Amy Minnick, Investor Relations at (212) 906-8485.
