SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report July 26, 2001
(Date of earliest event reported) (July 26, 2001)
CTC COMMUNICATIONS GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-27505 04-3469590
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
220 Bear Hill Rd., Waltham, Massachusetts 02451
(Address of principal executive offices) (Zip Code)
(781) 466-8080
(Registrant's telephone number including area code)
(Former name or former address if changed since last report)
Item 5. Other Events
On July 26, 2001, the Registrant issued the following press release:
CTC Communications Group Reports Record Revenue and Operating Results
for the Quarter Ending June 30, 2001
WALTHAM, Mass.--July 26, 2001-
- --Reports Strong Growth and Outlines Plan to Attain EBITDA and Net Income
Profitability-
Quarterly Highlights
-- Quarterly Revenue of $74.5 million
-- Annualized Revenue Run Rate of $298 million
-- $2.4 million (150 basis point) Increase in Margin from the
March Quarter
-- $3.0 million (34%) Reduction in EBITDA Losses from the
March Quarter
-- 40,600 Increase in Access Lines in Service
-- 535,400 Total Access Lines in Service
-- 958 (39%) Increase in Customer Locations On-Net from
the March Quarter
-- 3,400 Total Customer Locations On-Net
-- Fully Funded Business Plan
CTC Communications Group (NASDAQ NM: CPTL)-- today reported record results
for the June quarter and presented a plan that it believes will enable the
Company to reach EBITDA positive in fourth quarter 2001 and net income
profitability in the subsequent 12 to 18 months.
For the quarter ended June 30, 2001, the Company reported revenues of
$74,512,000, a 46% increase over the $51,053,000 for the quarter ended June
30, 2000 (pro forma as adjusted for SAB101) and a 10% increase over the
$67,621,000 reported for the quarter ended March 31, 2001.
For the quarter ended June 30, 2001, the Company reported margin as a
percent of revenue at 19.7% which represents a 150 basis point improvement
from the March 31, 2001 quarter, EBITDA losses at $5,928,000 representing a
34% improvement from the March 31, 2001 quarter, and a Net Loss of
$27,614,000 representing a 5% improvement from the March 31, 2001 quarter.
The Company added 40,600 access line equivalents (ALE's), net of churn, in
the quarter bringing total ALEs in service as of June 30, 2001 to 535,400
which represents an 8% sequential growth rate in total ALEs in service over
the quarter ended March 31, 2001.
The Company added 958 customer locations to its PowerPath(SM) network in
the June quarter bringing total on-net customer locations in service as of
June 30, 2001 to 3,400, which represents a 39% sequential growth rate over
the quarter ended March 31, 2001. The Company ended the June quarter with
approximately 10% of its access lines on its network.
Other June quarter metrics included annualized revenue of $435,000 per
employee and an accounts receivable balance at 51 days sales outstanding
(DSOs), both industry leading levels.
From a network perspective, in the June quarter the Company began accepting
delivery of its local fiber, completed construction of its Advanced
Technology Data Center, began its commercial offering of on-network local
dial tone services in western Massachusetts and began the expansion of on-
net local dial tone services to its second major market, eastern
Massachusetts.
Bob Fabbricatore, Chairman and CEO stated, "June quarter results and
improvements over previous quarters signal the early benefits of the
Company's long standing business model. CTC has had the same business model
since it entered the CLEC marketplace in 1998. In its simplest form, our
model drives the growth of the business through three phases; acquire
customers on a resale basis, build a facility network and then, move
customers onto the network. Executing this model over the past three years
has put us on a "road less traveled" when compared to others in the
Industry. Our progression through phases one and two of the model has
resulted in substantial growth, at anticipated low margins, with a
workforce of less than 700 employees. Looking forward, the advantages and
unique strengths of our model will become increasingly clear as we move
through the second half of 2001 and to 2002. We believe that significant
margin improvement should be realized as we move more and more of our
customers onto the network. Furthermore, our on-network services are now
beginning to include the provision of local dial tone services, an
industry-leading "new-world" application - carrier grade voice services
over a packet based IP+ATM network."
Fabbricatore continued. "In the June quarter the Company realized
improvements in virtually every income statement metric and continued to
maintain its fully funded status. In short, we believe that June results
demonstrate all our financial nadirs are behind us and we are now moving
substantively into phase three of the model. Phase three consists of moving
our existing customer base onto the network, acquiring new customers
directly on the network and achieving significant margin improvement as we
move rapidly to profitability. We have built the customer base, invested
the capital and prudently managed our resources. What lies ahead is putting
the customers and the capital together, moving to critical mass and
realizing the exceptional margins inherent in our model."
Fabbricatore concluded by saying, "The unique strength of our model is
further demonstrated by the fact that we expect to attain positive EBITDA
on a gross margin of less than 30% and with less than 20% of our customer's
access lines on the network. Given no further deterioration in the economy,
we anticipate that continued execution beyond 2001 should result in the
Company rapidly attaining net income positive results. I believe that
moving rapidly to profitability is critically essential to increasing
shareholder value in this marketplace, and the Company is aligned and
focused on this goal. Our "road less traveled" business model has
positioned us to accomplish this rapidly and effectively."
Attaining Positive EBITDA
The Company's attainment of positive EBITDA in this year's December quarter
will be dependent upon three primary initiatives; 1.) moving its existing
resale customers onto the network, which doubles the margin associated with
those customers, 2.) replacing currently leased network facilities with
owned and operated fiber facilities, which will reduce network cost of
goods by over $700,000 a month and, 3.) ongoing attention to efficiently
managing the Company's capital, cash and human resources.
1.) The Company currently has over 14,000 customers generating $74.5
million in quarterly revenue. $68.9 million of this revenue is on the
Company's resale platform and $5.6 million is on the Company's network.
Margin on resale revenue is 21% and incremental margin on network revenue
is 50% plus. Each dollar of revenue the Company moves from its resale
platform to its network platform, doubles the margin realized from that
dollar of revenue.
The Company currently has 3,400 customer locations on its network and seeks
to increase that number to between 6,000 and 7,000 by the end of 2001. The
Company has positioned itself to support this accelerated level of network
growth. The network build out has progressed to the point where the number
of customer access points are adequate to support well over twice this
year-end objective. OSS systems for ordering, provisioning and installation
are in place as are the field resources associated with installation and
customer conversion. The sales and service force is focused on moving the
Company's existing resale customers onto the network as a top priority and,
their compensation plan was adjusted on July 1st to reflect this priority.
2.) By year-end 2001, the Company anticipates reducing its current network
cost of goods expense by over $700,000 a month, from the June baseline, by
replacing leased broadband facilities with CTC owned and operated fiber
facilities. The Company currently spends over $1.4 million a month for
leased facilities that connect its customers from the ILEC local switching
office to its network. Many of these leased facilities will be replaced
with CTC owned and operated fiber starting last month and continuing into
2002. As the Company's fiber is placed in service, existing network
customers in those locations will be re-assigned from leased facilities to
the CTC fiber and the leased facilities will be disconnected. The Company
recently placed 7 fiber locations in service and customer re-assignment has
begun. The Company plans to progressively install and place in service 53
additional fiber locations by the end of 2001. In addition to reducing its
current network costs, the Company will avoid future leased costs for
existing resale customers in these 60 locations that move onto the network.
In the early stages of its network deployment, the Company leased the long
haul fiber facilities that interconnected its packet switches as well as
the broadband facilities that connected customers to its packet switches.
In 2000, the Company elected to purchase its own long haul fiber and
discontinue the leasing of long haul facilities. In late 2000 and early
2001 the Company elected to purchase its own metropolitan and suburban
fiber, began taking delivery in May of 2001 and is progressively placing it
in service in 60 locations. This fiber will enable the leased broadband
facilities in these 60 locations to be disconnected. The Company made the
decision to purchase its own fiber facilities to reduce network costs,
eliminate dependency on leased facility providers, improve its network
provisioning interval from 90 days to 30 days and to have the independent
capability to manage the growing bandwidth needs of its customers and
network infrastructure.
3.) The Company will continue to strive to effectively manage the business
and maintain its fully funded business plan.
For the remainder of 2001, total employees are anticipated to remain in the
680 to 725 range and SG&A expenses should grow conservatively. SG&A as a
percent of revenue is expected to moderate to the 23-25% range by year-end
from its June quarter level of 27.6%.
As of June 30, 2001, the Company had $30 million in cash and an additional
$100 million available from its bank lines. Cash consumption should
moderate for the remainder of 2001, fueled by continued EBITDA improvements
on a going forward basis.
Capital expenditures for the remaining two quarters of 2001 should continue
at the current pace of $53 million for the first six months, thus allowing
the Company to remain within its estimates of $110-120 million for the
Calendar Year, with an increasing percent of this capital spending being
success based and utilized to move customers onto the network. The Company
expects to continue to utilize capital leases from multiple sources to
finance these investments whenever possible.
Subsequent to June 30th, the Company drew-down the remaining $100 million
of the bank facility which will be primarily used for working capital
requirements as needed. The Company does not anticipate any need for
additional capital to achieve profitability within its current business
plan.
The Company intends to maintain its Industry leading results in revenue
quality, productivity, the management of its receivables and minimizing bad
debt.
Attaining Net Income Profitability
The Company's progress to profitability will be enabled by three primary
attributes of its business model; 1.) its current customer base, 2.) the
advanced technology it selected and deployed and, 3.) the capital structure
that comprises its fully funded business plan
1.) The Company has built a major customer base of over 14,000 medium and
large business clients generating approximately $23 million in monthly
revenue on its resale platform. The majority of these customers average
over 40 lines, have multiple business locations and are data intense users.
They are ideal candidates in size, networking need, and consumption levels
to move to the Company's network.
The Company has already acquired these customers. Today, the Company is
providing these customers with their voice and data services on a resale
basis, billing them under the CTC brand and providing them the full array
of customer service and account management functions. In short, as CTC
customers, they already have a strong relationship with the Company and are
open and supportive to working with the Company to improve their services
and reduce their costs. Both of these improvements are inherent in the
Company's network.
The Company is not dependent on selling new applications to convince
customers to move to its network. The Company's network is a lower cost
replacement for today's legacy voice and data networks. When the Company
moves a resale customer to its network the customer saves 10% to 35% on the
existing voice and data services they are already using. The Company
realizes margins of 50% or more on that customer's network revenue.
2.) Within its fully funded business model, the Company has been
progressively building out its network and seeks to have sufficient
capacity to support in excess of 10,000 customer locations on the network
by year-end 2001.
Unique to the Company's advanced technology is the fact that the individual
customer voice and data services on its network do not vary significantly
in the margins they generate. Since all voice and data services are
provided over a single broadband connection to the customer and processed
by a single network, margins are a function of overall fixed costs with
little to no variable cost difference between individual voice and data
services. Although the array of voice and data services for any particular
customer are part of the provisioning and operations aspects of the
network, from a margin perspective, the Company is relatively indifferent
to the individual services mix. All generate margins at or above 50%.
The Company's advanced network technology includes a packet-based, IP+ATM
switching network interconnected with high-speed fiber transmission
facilities. Customers are connected to the network over a single broadband
access facility to their location. This advanced technology enables all of
the customer's voice, data and Internet services to be provided over a
single access facility and processed by a single network. From both a
capital and operating perspective, this arrangement is far less costly and
much more efficient than traditional voice and data network technologies.
The Company has progressively selected technology and developed
applications that have equipped its network to be a lower cost, replacement
for today's legacy voice, data, and hybrid networks. In late 1999 the
Company began by providing data and Internet services on the network. In
early 2000, dedicated long distance voice was added to the network and in
early 2001 switched long distance and local dial tone services were added.
The Company's June quarter resale revenue was $68.9 million. $8.4 million
of this revenue was associated with data and Internet services, $ 17.4
million for long distance voice services and $43.1 million for local dial
tone services. Today, over $25 million of this resale revenue is eligible
for movement to the Company's network and 100 % will be eligible for
movement to the network in the first quarter of 2002.
Currently the Company's network provides dedicated long distance voice,
data and Internet services throughout its Northeast and Mid-Atlantic states
operating area. The switched long distance and local dial tone services
that were added earlier this year are in the process of implementation and
are currently available in Massachusetts only. These two services are being
progressively implemented on a state by state basis and it is estimated
that they will be available across the Company's entire operating area by
the end of first quarter of 2002.
3.) The Company raised $500 million in capital to support execution of its
business plan. This consists of $225 million in Bank Lines, $200 million in
Preferred Equity and $80 million in common equity. In addition, the Company
has also entered into capital leases currently at the $85 million level.
The Company's capital structure does not include any high yield debt or
extraordinary financing arrangements. The Company's capital structure
results in an average cost of debt of less than 12%.
The Company does not anticipate any need for additional capital to achieve
profitability within its current business plan.
-- June 30, 2001 Quarterly Analysis --
Summary
From an operating perspective, the Company generated record revenues and
access lines in service, improved margins, reduced SG&A, passed through the
milestone of 500,000 access lines in service, broke through the 30% SG&A
milestone, continued to prudently manage its cash and maintain its fully
funded business plan.
Revenue and Margin Analysis
During the quarter ended June 30, 2001, CTC increased its local service
revenues from $40.0 million in 1Q01 to $43.1 million in 2Q01, or 8%
sequentially, due primarily to continued success at acquiring and retaining
medium and larger sized business customers.
Toll revenues for the quarter increased from $15.6 million in 1Q01 to $18.0
million for 2Q01 or 15% sequentially. The Company continued to grow toll
revenues due to increased customer penetration and higher minutes of use.
Data revenues for the quarter increased from $12.0 million in 1Q01 to $13.4
million in 2Q01, or 12% sequentially, due primarily to continued strong
demand for the Company's broadband PowerPath(SM) network.
Margin for the quarter increased from 18.2% in 1Q01 to 19.7% in 2Q01. This
increase is due to the migration of customers onto our PowerPath(SM)
network.
Selling, general and administrative expenses (SG&A), excluding depreciation
and amortization, decreased from $21.2 million in 1Q01 to $20.6 million in
2Q01, reflecting the effects of the Company's ongoing cost management
efforts.
EBITDA losses decreased from $8.9 million in 1Q01 to $5.9 million in 2Q01
due to the increase in margin and the reduction in SG&A expenses.
Net losses, including preferred stock dividends and accretion costs,
decreased from $33.7 million ($1.26 per share) in 1Q01 to $32.5 million
($1.21 per share) in 2Q02, due primarily to the EBITDA improvement.
Investor Conference Call
The Company will host its June Quarter investor conference call on
Thursday, July 26, 2001 at 1:15 PM Eastern Time.
There will be an initial presentation by management and then the lines will
be opened for questions and answers. Topics will include operating results
for the quarter as well as other appropriate subjects.
In addition to the standard call in procedure, this Investor Conference
Call will be audio broadcast live over the Internet for those who would
like to participate via this medium. It should be noted that the Internet
audio broadcast is listen only and there is no capability to ask questions.
To participate via the traditional dial in conference call, please call
877-797-1768 and ask for the CTC Communications Group Conference call. The
call will start promptly at 1:15 PM Eastern Time.
To participate via the audio broadcast on the Internet, please access
www.ctcnet.com, follow the link on the home page and register using the
password: ctc072601. The call will start promptly at 1:15 PM Eastern Time.
For those unable to participate, the conference call will be replayed
through August 3, 2001. Please call 877-519-4471 and use PIN# 2722436 for
the replay. Replay will also be available through August 3, 2001 under the
Investor Relations section of CTC's website at www.ctcnet.com. Please
register using the password: ctc072601.
About CTC Communications
CTC is a rapidly growing "next generation" Integrated Communications
Carrier utilizing advanced technology and providing its customers with
converged voice, data, Internet and video services on a broadband, packet-
based network. The Company serves medium and larger business customers from
Virginia to Maine, which includes the most robust telecommunications region
in the world--the Washington D.C. to Boston corridor. CTC was managing more
than 535,000 access lines as of June 30, 2001.
CTC's Cisco Powered IP+ATM packet network and its 450 member sales and
service teams, provide contiguous marketing and technology coverage
throughout the Northeast and Mid-Atlantic States. The Company, through its
dedicated commitment to exceptional customer service, has achieved an
industry-leading market share in the Northeast and an access line retention
rate in excess of 99 percent. CTC can be found on the worldwide web at
www.ctcnet.com.
The statements in this press release that relate to future plans, events or
performance are forward-looking statements that involve risk and
uncertainties that could cause actual results to differ materially from
those reflected in the forward-looking statements including the attainment
of EBITDA positive and net income positive results, improved margins,
network and fiber deployment plans and schedules, revenue growth, resale
customer movement to the network, network applications development and
deployment, financial results and operating metric expectations and reduced
operating costs. Readers are, accordingly, cautioned not to place undue
reliance on these forward-looking statements. Additional information about
these risks and uncertainties is set forth in the Company's most recent
report on Forms 10-K and 10Q. CTC undertakes no obligation to release
publicly the results of any revisions to these forward-looking statements
that may be made to reflect results, events or circumstances after the date
hereof.
CTC Communications Group
Balance Sheet
June 30, December 31,
2001 2000
Assets
Cash and cash equivalents $ 30,074,051 $ 80,029,442
Accounts receivable, net 42,046,855 43,137,423
Other current assets 5,732,685 10,137,037
Total current assets 77,853,591 133,303,902
Property and equipment (net) 217,908,165 195,741,815
Other assets 14,673,902 15,082,876
Total Assets $ 310,435,658 $ 344,128,593
Liabilities and Stockholders'
Deficit
Capital Leases/ Notes payable $ 28,688,813 $ 29,039,834
Accounts payable and accrued expenses 45,607,888 52,743,629
Total current liabilities 74,296,701 81,783,463
Capital Leases Long Term 57,009,776 52,763,576
Notes payable Long Term 129,367,038 103,018,589
Total long term debt 186,376,814 155,782,165
Series B Preferred Stock 212,848,029 203,249,272
Stockholders' deficit (163,085,886) (96,686,307)
Total Liabilities and
Stockholders' Deficit $ 310,435,658 $ 344,128,593
CTC Communications Group
Statements of Operations
Three months ended June 30,
2001 2000 2000
(as reported) (Adjusted
SAB101)
Total revenues: $ 74,512,308 $ 52,469,087 $ 51,052,832
Costs and expenses:
Cost of
telecommunication
revenue (excluding
depreciation) 59,852,566 40,101,657 39,178,593
Selling, general
and administrative 20,587,956 17,711,341 17,554,156
Depreciation and
amortization 17,094,524 8,962,107 8,962,107
Total costs and
expenses 97,535,046 66,775,105 65,694,856
Loss from operations (23,022,738) (14,306,018) (14,642,024)
Interest income/(expense) (4,591,016) (3,534,673) (3,534,673)
Loss before cumulative
effect of change in (27,613,754) (17,840,691) (18,176,697)
accounting principle
Cumulative effect of
accounting change
in principle -- -- (2,878,949)
Net Loss (27,613,754) (17,840,691) (21,055,646)
Preferred stock
dividends and
accretion 4,844,147 2,268,048 2,268,048
Net loss
applicable to
common stockholders ($32,457,901) ($20,108,739) ($23,323,694)
EBITDA (5,928,214) (5,343,911) (5,679,917)
Loss per common share:
Basic and diluted ($ 1.21) ($ 0.77) ($ 0.90)
Loss per common share
before cumulative effect:
Basic and diluted ($ 1.21) ($ 0.77) ($ 0.79)
Shares in computing
Loss per common share
Basic and diluted 26,810,572 25,966,463 25,966,463
CTC Communications Group
Statements of Operations
Six months ended June 30,
2001 2000 2000
(as reported) (Proforma)
Total revenues: $ 142,133,452 $ 99,044,995 $ 95,978,603
Costs and expenses:
Cost of
telecommunication
revenue (excluding
depreciation) 115,196,751 75,790,724 74,085,613
Selling, general
and administrative 41,787,722 33,191,956 33,007,784
Depreciation
and amortization 33,728,760 16,035,099 16,035,099
Total costs and
expenses 190,713,233 125,017,779 123,128,496
Loss from operations (48,579,781) (25,972,784) (27,149,893)
Interest income/(expense) (7,982,626) (7,312,143) (7,312,143)
Loss before extraordinary
item and cumulative
effect of change in
accounting principle (56,562,407) (33,284,927) (34,462,036)
Extraordinary item-
early extinguishment
of debt -- (2,430,456) (2,430,456)
Loss before cumulative
effect of change in
accounting principle (56,562,407) (35,715,383) (36,892,492)
Cumulative effect of
accounting change
in principle -- -- (2,878,949)
Net Loss (56,562,407) (35,715,383) (39,771,441)
Preferred stock
dividends and
accretion 9,598,756 2,836,867 2,836,867
Net loss
applicable to
common stockholders ($ 66,161,163) ($ 38,552,250) ($ 42,608,308)
EBITDA (14,851,021) (9,937,685) (11,114,794)
Loss per common share:
Basic and diluted ($ 2.47) ($ 1.57) ($ 1.73)
Loss per common
share before
cumulative effect:
Basic and diluted ($ 2.47) ($ 1.57) ($ 1.62)
Loss per common share
before extraordinary
item and
cumulative effect:
Basic and diluted ($ 2.47) ($ 1.47) ($ 1.52)
Shares in computing
Loss per common share
Basic and diluted(1) 26,736,549 24,571,468 24,571,468
<FN>
(1) recalculated the weighted average shares for the proforma six
months ended June 30,2000.
</FN>
CONTACT: CTC COMMUNICATIONS
John Pittenger
EVP and Chief Financial Officer
781.466.1302
pitt@ctcnet.com
www.ctcnet.com
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized on July 26, 2001.
CTC COMMUNICATIONS GROUP, INC.
By: /s/ John D. Pittenger
John D. Pittenger,
Executive Vice President, Finance and Administration