Exhibit 99.1
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McLeod USA
[logo omitted]
McLeodUSA Reports Fourth Quarter and
Total Year 2003 Results
o Improved overall customer satisfaction rating to 92% and billing
accuracy rate to 99.7%
o Achieved cost improvements of over $110 million in 2003
o Reduced quarterly business customer line turnover to 1.8%
CEDAR RAPIDS, Iowa - February 18, 2004 - McLeodUSA Incorporated (Nasdaq:
MCLD), one of the nation's largest independent, competitive telecommunications
services providers, today reported financial and operating results for the
quarter and total year ended December 31, 2003.
Total revenues for the quarter were $209.5 million with gross margin(1) of
$93.5 million, or 44.6% of revenue. SG&A expenses for the quarter were $77.0
million. Adjusted EBITDA(1) for the competitive telecommunications ("Telco")
business for the period was $16.5 million, resulting in the seventh
consecutive quarter of positive Adjusted EBITDA. Reported net loss for the
quarter was $(56.6) million, or a loss per common share of $(0.20).
"We are extremely pleased with our success in continuing to execute our
strategic plan to drive significant improvements in the operational
performance of McLeodUSA in 2003," said Chris A. Davis, Chairman and Chief
Executive Officer. "We ended the year achieving a customer satisfaction rating
of 92%, a 99.7% billing accuracy rate and consistently delivering 99.999%
network reliability. Throughout 2003, we continued to reduce provisioning
intervals and migrate customers to the McLeodUSA network, with 65% of our
customer lines now being on-switch. Our strong focus on cost resulted in over
$110 million of cost improvements in 2003. As we look forward, we will
continue to invest to reduce the cost of service to our customers, including
our recently announced plans to deploy the next generation of Preferred
AdvantageSM services utilizing Internet Protocol (IP) technology."
"As we entered 2004, we were very proud to have Vijay Singh, #1 ranked on the
2003 PGA Tour Money List and #2 ranked golfer in the world, join the McLeodUSA
team as our marketing partner," added Ms. Davis. "We look forward to a
successful 2004, and we remain optimistic about our opportunities for future
growth."
For the quarter ended December 31, 2003, total Telco revenues of $209.5
million compared to $211.0 million in the third quarter of 2003 and $230.0
million in the fourth quarter of 2002. Revenues for the quarter were down
slightly from the third quarter of 2003 as the impact of fourth quarter
seasonality and a lower customer base was partially offset by higher revenue
per customer. Compared with the fourth quarter of 2002, revenue was down $20.5
million primarily driven by the FCC mandated reduction in access billing rates
and a lower customer base, of which approximately 28,000 customers valued at
$9.5 million of revenue resulted from the Company's intentional drive to
eliminate non-profitable customers.
Gross margin for the fourth quarter 2003 was $93.5 million compared to $93.6
million in the third quarter of 2003 and $93.2 million in the fourth quarter
of 2002. Gross margin as a percent of revenue improved to 44.6% versus 44.4%
in the third quarter of 2003 and 40.5% in the fourth quarter of 2002 as a
result of the Company's ongoing network cost reduction efforts.
SG&A expenses were $77.0 million in the fourth quarter of 2003 compared to
$80.0 million in the third quarter of 2003 and $81.8 million in the fourth
quarter of 2002. Adjusted EBITDA in the fourth quarter of 2003 was $16.5
million versus $13.6 million in the third quarter of 2003 and $11.4 million in
the fourth quarter of 2002, excluding discontinued operations in the 2002
period. Net loss from continuing operations for the quarter was $(56.6) million
versus $(82.2) million in the third quarter of 2003 and $(83.2) million in the
fourth quarter of 2002. The reduction in net loss from continuing operations
from both prior periods was primarily driven by improved operating performance
and gains in non-operating items, including the previously announced
settlement of the CapRock litigation, in the fourth quarter of 2003.
Customer platform mix at the end of the fourth quarter 2003 was 65% UNE-L, 5%
resale and 30% UNE-M/P versus 62%, 6% and 32%, respectively, at the end of the
third quarter of 2003 and 52%, 15% and 33%, respectively, at the end of the
fourth quarter 2002 reflecting continued migration of customers from resale to
higher margin platforms, as well as installation of new customers on-switch.
Customer line turnover in the fourth quarter was 2.1% versus 2.3% in the third
quarter of 2003 and 2.6 % in the fourth quarter of 2002. Business customer line
turnover was 1.8% in the fourth quarter of 2003 compared to 2.5% in the fourth
quarter of 2002.
Total Telco revenues, excluding discontinued operations, for the twelve months
ended December 31, 2003 were $869 million versus $992 million for the year
2002. Reduction in revenues associated with the Company's efforts to eliminate
non-profitable customers was approximately $50 million in 2003. Telco gross
margin for the twelve-month period ending December 31, 2003 was $370.1 million
in 2003 versus $370.6 million in 2002. Gross margin as a percent of revenue for
the year improved to 42.6% from 37.4% in 2002. Telco Adjusted EBITDA was $57.9
million for year 2003 versus $21.3 million in 2002. Net loss from continuing
operations for the 2003 twelve-month period was $(295.7) million versus net
income of $397.5 million for the 2002 twelve-month period. The 2002 net income
from continuing operations includes the impact of reorganization charges and
the gain on the cancellation of debt. Excluding reorganization charges and the
gain on cancellation of debt, net loss from continuing operations was $(378.5)
million.
The Company ended the year with $56.5 million of cash on hand. Total capital
expenditures for the year of 2003 were $78.4 million. The Company expects 2004
capital expenditures to be slightly below 2003 depending on the timing of
revenue growth during the year. The Company has met all financial covenants
related to its credit agreement with its lenders, continues to have full access
to the $110 million exit credit facility and drew $40 million in the month of
October 2003, as planned.
Other recent highlights include:
o On January 21, 2004, the Company announced plans to deploy the next
generation of Preferred AdvantageSM services utilizing Internet
Protocol (IP) technology. The new Voice-over-IP (VoIP) platform will be
launched early in the second quarter across the McLeodUSA network to
initially offer McLeodUSA business customers an enhanced set of
flexible features for their Local, Long Distance and Internet services
via McLeodUSA's highly successful Integrated Access product. McLeodUSA
will also utilize VoIP to lower cost and enhance other Preferred
AdvantageSM services for both residential and business customers in
the near future.
o On January 25, 2004, the Company announced a two-year agreement with
Vijay Singh, the top PGA Tour money winner in 2003 and currently the
number two-ranked golfer in the world, to represent the Company by
wearing its logo and participating in promotions, advertising and sales
events. Singh began wearing the McLeodUSA logo at the Mercedes
Championship on January 9th and participated in the Company's 2004
Business Update Sales Event in Phoenix on January 25th and 26th and
won the AT&T Pro-Am at Pebble Beach on February 8, 2004.
o On January 8, 2004, the Company entered into a multi-year agreement
with Brightstar Corp., a distributor and provider of value-added
services for the wireless telecommunications industry. Brightstar will
provide handset fulfillment and supply chain logistics in support of
McLeodUSA's Preferred Advantage Wireless program.
(1)Non-GAAP Financial Measures
- ------------------------------
To provide further clarification the Company has begun using the term Adjusted
EBITDA as a replacement for EBITDA. Adjusted EBITDA is a non-GAAP financial
measure used by management to evaluate the effectiveness of the Company's
operating performance and to enhance the comparability between periods. EBITDA
is an acronym for earnings before interest, taxes, depreciation and
amortization. Adjusted EBITDA, as defined by McLeodUSA, further removes the
effects of discontinued operations, other income and expense, restructuring
adjustments and reorganization charges. Management removes the effects of
discontinued operations, other income and expense, restructuring adjustments and
reorganization charges from Adjusted EBITDA because it does not believe that
such items are representative of the core operating results of the Company's
ongoing competitive telecommunications activities. Management believes that
non-GAAP measures such as Adjusted EBITDA are commonly reported and used by
analysts, investors and other interested parties in the telecommunications
industry. Adjusted EBITDA is reconciled to net loss, the most comparable GAAP
measure, on the attached Condensed Consolidated Statements of Operations.
McLeodUSA's use of Adjusted EBITDA may not be comparable to similarly titled
measures used by other companies in the telecommunications industry. The use of
Adjusted EBITDA is not intended to replace measures of financial performance
reported in accordance with accounting principles generally accepted in the
United States.
Gross margin is another financial measure that management uses to evaluate
operating performance. Gross margin, which is calculated as revenues less cost
of service, excludes depreciation and amortization expenses. Cost of service
includes expenses directly associated with providing telecommunications service
to its customers. Costs classified as cost of service include, among other
items, the cost of connecting customers to the McLeodUSA network via leased
facilities, the costs paid to third party providers for interconnect access and
transport services, the costs of leasing components of network facilities and
the cost of fiber related to sales and leases of network facilities.
Conference Call
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McLeodUSA will host a conference call on Wednesday, February 18, 2004, at 10
a.m. Eastern Time to discuss fourth quarter and total year 2003 results and
the information contained in this release. The call may be accessed at
888-271-9098 (U.S.) or 706-634-6027 (International). A replay will be
available approximately 2 hours after completion of the call at 800-642-1687
(U.S.) or 706-645-9291 (International), Conference ID No. 5390025. The audio
replay will be available through midnight ET on Wednesday, February 25, 2004.
The call will also be webcast live and available via replay at:
http://www.mcleodusa.com/InvestorRelations/StreamingMedia.do
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# # #
About McLeodUSA
- ---------------
McLeodUSA provides integrated communications services, including local services,
in 25 Midwest, Southwest, Northwest and Rocky Mountain states. The Company is a
facilities-based telecommunications provider with, as of December 31, 2003, 38
ATM switches, 44 voice switches, 663 collocations, 435 DSLAMs and 3,119
employees. On April 16, 2002, Forstmann Little & Co. became a 58% shareholder in
the Company. Visit the Company's website at mcleodusa.com.
Some of the statements in this press release include statements about our future
expectations. Statements that are not historical facts are "forward-looking
statements" for the purpose of the safe harbor provided by Section 21E of the
Exchange Act and Section 27A of the Securities Act. Such statements may include
projections of financial and operational results and goals, including revenue,
EBITDA, Adjusted EBITDA, profitability, savings and cash. These forward-looking
statements are subject to known as well as unknown risks and uncertainties that
may cause actual results to differ materially from our expectations. Our
expectations are based on various factors and assumptions and reflect only our
predictions. Factors that could cause actual results to differ materially from
the forward-looking statement include technological, regulatory, public policy
or other developments in our industry, availability and adequacy of capital
resources, current and future economic conditions, the existence of strategic
alliances, our ability to generate cash, our ability to implement process and
network improvements, our ability to attract and retain customers, our ability
to migrate traffic to appropriate platforms and changes in the competitive
climate in which we operate. These and other risks are described in more detail
in our most recent Annual Report on Form 10-K and Form 10-K/A both filed with
the SEC. The Company undertakes no obligation to update publicly any
forward-looking statements, whether as a result of future events, new
information or otherwise.
Contact:
McLeodUSA Incorporated, Cedar Rapids, IA
Investor Contact: Bryce Nemitz
Press Contact: Bruce Tiemann
Phone: (319) 790-7800
mcleodusa_ir@mcleodusa.com
McLeodUSA Incorporated and Subsidiaries
Condensed Consolidated Statements of Operations
(In millions, except per share data)
(UNAUDITED)
Reorganized McLeodUSA
-------------------------------------------
Three months ended
-------------------------------------------
December 31, 2003 December 31, 2002
--------------------- ---------------------
Revenue $ 209.5 $ 230.0
Operating expenses:
Cost of service (exclusive of depreciation and
amortization shown separately below) 116.0 136.8
Selling, general and administrative 77.0 81.8
Depreciation and amortization 86.6 82.7
Restructuring adjustment (0.2) (0.1)
--------------------- ---------------------
Total operating expenses 279.4 301.2
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Operating loss (69.9) (71.2)
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Nonoperating income (expense):
Interest expense, net of amounts capitalized (9.8) (11.9)
Other income (expense) 23.1 (0.1)
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Total nonoperating income (expense) 13.3 (12.0)
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Loss from continuing operations (56.6) (83.2)
Discontinued operations:
Loss from discontinued operations (including loss on
disposals of $14.4 for 2002) - (5.5)
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Net loss $ (56.6) $ (88.7)
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Preferred stock dividend (1.0) (1.2)
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Net loss applicable to common shares $ (57.6) $ (89.9)
===================== =====================
Basic and diluted loss per common share:
Loss from continuing operations $ (0.20) $ (0.31)
Discontinued operations - (0.02)
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Loss per common share $ (0.20) $ (0.33)
===================== =====================
Weighted average common shares outstanding 287.7 276.3
===================== =====================
Calculation of Gross Margin:
Revenue $ 209.5 $ 230.0
Less: Cost of Service (exclusive of depreciation
and amortization) 116.0 136.8
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Gross Margin $ 93.5 $ 93.2
===================== =====================
Reconciliation of Adjusted EBITDA:
Net loss $ (56.6) $ (88.7)
Discontinued operations - 5.5
Nonoperating (income) expense (13.3) 12.0
Depreciation and amortization 86.6 82.7
Restructuring adjustment (0.2) (0.1)
--------------------- ---------------------
Adjusted EBITDA $ 16.5 $ 11.4
===================== =====================
McLeodUSA Incorporated and Subsidiaries
Condensed Consolidated Statements of
Operations (In millions, except per share data)
Predecessor
Reorganized McLeodUSA McLeodUSA
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Twelve months ended April 17, 2002 to January 1, 2002
December 31, 2003 December 31, 2002 to April 16, 2002
---------------------- -------------------- ------------------
(unaudited)
Revenue $ 869.0 $ 680.7 $ 311.4
Operating expenses:
Cost of service (exclusive of depreciation and
amortization shown separately below) 498.9 410.3 211.2
Selling, general and administrative 312.2 240.4 108.9
Depreciation and amortization 340.5 217.9 126.3
Reorganization charges, net - - 1,596.8
Restructuring adjustment (0.2) (0.1) (6.8)
---------------------- -------------------- ------------------
Total operating expenses 1,151.4 868.5 2,036.4
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Operating loss (282.4) (187.8) (1,725.0)
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Nonoperating (expense) income:
Interest expense, net of amounts capitalized (35.8) (30.8) (33.2)
Other income (expense) 22.5 (0.5) 2.0
Gain on the cancellation of debt - - 2,372.8
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Total nonoperating (expense) income (13.3) (31.3) 2,341.6
---------------------- -------------------- ------------------
(Loss) income from continuing operations (295.7) (219.1) 616.6
Discontinued operations:
Income from discontinued operations (including net
(losses) gains on disposals of ($17.3) and
$148.3 for the periods April 17 to
December 31, 2002 and January 1 to April 16, 2002,
respectively) - 17.7 167.1
---------------------- -------------------- ------------------
Net (loss) income $ (295.7) $ (201.4) $ 783.7
---------------------- -------------------- ------------------
Preferred stock dividend (4.6) (3.5) (4.8)
---------------------- -------------------- ------------------
Net (loss) income applicable to common shares $ (300.3) $ (204.9) $ 778.9
====================== ==================== ==================
Basic and diluted (loss) income per common share:
(Loss) income from continuing operations $ (1.07) $ (0.80) $ 0.97
Discontinued operations - 0.06 0.27
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(Loss) income per common share $ (1.07) $ (0.74) $ 1.24
====================== ==================== ==================
Weighted average common shares outstanding 280.4 276.3 627.7
====================== ==================== ==================
Calculation of Gross Margin:
Revenue $ 869.0 $ 680.7 $ 311.4
Less: Cost of Service (exclusive of depreciation
and amortization) 498.9 410.3 211.2
---------------------- -------------------- ------------------
Gross Margin $ 370.1 $ 270.4 $ 100.2
====================== ==================== ==================
Reconciliation of Adjusted EBITDA:
Net (loss) income $ (295.7) $ (201.4) $ 783.7
Discontinued operations - (17.7) (167.1)
Nonoperating expense (income) 13.3 31.3 (2,341.6)
Restructuring adjustment (0.2) (0.1) (6.8)
Reorganization charges, net - - 1,596.8
Depreciation and amortization 340.5 217.9 126.3
---------------------- -------------------- ------------------
Adjusted EBITDA $ 57.9 $ 30.0 $ (8.7)
====================== ==================== ==================
McLeodUSA Incorporated and Subsidiaries
Condensed Consolidated Balance Sheets
(In millions)
December 31, 2003 December 31, 2002
----------------------- -----------------------
(unaudited)
ASSETS
Current Assets
Cash and cash equivalents $ 56.5 $ 170.6
Trade receivables, net 65.6 93.1
Prepaid expense and other 22.4 26.2
Assets held for sale 2.0 11.1
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Total Current Assets 146.5 301.0
----------------------- -----------------------
Non-current Assets
Property and equipment, net 1,007.7 1,203.1
Goodwill and other intangibles, net 446.9 472.3
Other non-current assets 29.5 23.9
----------------------- -----------------------
Total Non-current Assets 1,484.1 1,699.3
----------------------- -----------------------
Total Assets $ 1,630.6 $ 2,000.3
======================= =======================
LIABILITIES AND EQUITY
Current Liabilities
Current maturities of long-term debt $ 27.1 $ 15.0
Accounts payable 30.5 71.1
Deferred revenue, current portion 6.9 9.8
Other current liabilities 121.5 176.4
Liabilities related to discontinued operations 1.1 6.3
----------------------- -----------------------
Total Current Liabilities 187.1 278.6
----------------------- -----------------------
Long-term Liabilities
Long-term debt, excluding current maturities 717.3 704.9
Deferred revenue less current portion 15.1 13.5
Other long-term liabilities 58.3 54.9
----------------------- -----------------------
Total Long-term Liabilities 790.7 773.3
----------------------- -----------------------
Redeemable Convertible Preferred Stock 131.1 172.6
Stockholders' Equity 521.7 775.8
----------------------- -----------------------
Total Liabilities and Equity $ 1,630.6 $ 2,000.3
======================= =======================
McLeodUSA Incorporated and Subsidiaries
Selected Telecommunications Statistical Data
------------------ ------------------- -------------------
12/31/02 9/30/03 12/31/03
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Active central offices 1,738 1,719 1,724
Collocations 562 604 663
Switches owned
CO / LD 50 44 44
ATM / Frame Relay 38 38 38
DSLAMs installed 430 435 435
Total Competitive:
Customers 432,084 407,124 395,641
Access Units / Customer 2.8 2.7 2.8
Revenue per Customer / Month
Local $ 109.19 $ 109.24 $ 111.18
Long distance 39.06 35.28 31.53
Private line & data 28.46 27.61 29.95
------------------ ------------------- -------------------
Total $ 176.71 $ 172.13 $ 172.66
================== =================== ===================
Platform Distribution
Resale 15% 6% 5%
UNE-M/P 33% 32% 30%
UNE-L 52% 62% 65%
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Total 100% 100% 100%
================== =================== ===================