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| SureWest Communications Reports Second Quarter 2003 Financial Results
ROSEVILLE, Calif.--(BUSINESS WIRE)--Aug. 5, 2003--Integrated communications provider SureWest Communications (Nasdaq:SURW) reported its financial results today for the second quarter ended June 30, 2003. Revenues for the second quarter of 2003 were $50.3 million, a 16.7 percent increase over second quarter 2002 revenues of $43.1 million. Net income was $2.7 million, or $0.19 per share in the second quarter of 2003, compared to $1.7 million, or $0.12 per share in the second quarter of 2002. BizVantage – Beyond the news: indepth on business, investment and technology. "Our strategy to expand SureWest's customer base and revenues by offering a complete suite of services on a next-generation technology platform is delivering strong revenue growth and controlled expenses," said Brian Strom, President and Chief Executive Officer. "These solid operating results reflect steady execution of our plan." SureWest's significant revenue expansion resulted from growth in each of its three reportable segments. Broadband segment revenues, which include Internet service, and business and residential broadband service, increased by $5.1 million over last year's levels. Telecom segment revenues, within which network access revenues, highlighted below, are recorded, increased by $1.3 million, primarily due to a positive settlement with a long-haul carrier totaling $2.0 million. Wireless segment revenues grew by $0.7 million compared to the same period last year. Consolidated income from operations increased to $5.6 million in the second quarter of 2003, compared to $3.0 million in the second quarter of 2002. -- Internet service revenues increased by $2.5 million in the second quarter of 2003 compared to the same period a year ago, driven by continued strong DSL and ISP customer growth. In the fourth quarter last year, Roseville Telephone Company began providing wholesale DSL to SureWest Broadband, which retails service to end users. As a result, a higher share of DSL revenue is now recognized as Internet service revenue. Accordingly, network access revenues decreased. -- Business broadband service revenues, primarily driven by dedicated access and data transport, increased 58.7 percent year over year, reflecting higher line counts in service and greater usage. SureWest Broadband also received California Multiple Awards Schedule (CMAS) certification during the quarter to apply for contracts with the State of California. -- Residential broadband "triple-play" voice, data and video revenues climbed to $2.3 million in the second quarter from $1.9 million in the first quarter of 2003, as demand remained strong and the pace of installations accelerated. SureWest launched triple-play services in July of 2002. -- DSL customers totaled 17,995 at June 30, 2003, reflecting net subscriber additions of 1,152 in the second quarter and 31.4 percent growth over the same period a year ago. -- Network access revenues increased 8.9 percent primarily due to the $2.0 million settlement with a long-haul carrier mentioned earlier. Absent that effect, network access revenues decreased 6.3 percent, reflecting movement to a wholesale DSL model, which reduces network access revenues. -- Wireless revenues increased by 13.6 percent in the second quarter of 2003 to $6.7 million, which compares to $5.9 million, in the same period of 2002. SureWest Wireless continued to achieve revenue growth in a market crowded with ten providers, differentiating itself through quality service and coverage, affordable flat-rate plans and service area expansion. Operating EBITDA in the Wireless segment also showed strong improvement, driven by effective customer retention programs and tight cost controls. -- Consolidated operating expenses in the June quarter increased by $4.7 million compared to the same period last year. Expenses for customer operations and selling, and depreciation and amortization increased year over year primarily because of rapid DSL, Internet, Wireless and Broadband customer growth. General and administrative expenses rose due to significant increases in headcount and facilities for broadband segment businesses and higher insurance costs. Costs in the June quarter a year ago included $1.1 million of bad debt expense stemming from Worldcom's bankruptcy filing. -- Consolidated operating EBITDA rose to $18.1 million in the second quarter of 2003 compared to $14.1 million a year ago. Operating EBITDA benefited from reduced costs of services and products, as more customers leased DSL equipment and costs of broadband equipment declined. -- Interest expense in the second quarter of 2003 increased by $0.9 million compared to the second quarter of 2002, due to a $60 million private placement of ten-year notes at 4.74 percent in March of 2003. Consolidated capital expenditures related to operations totaled $19.2 million in the second quarter of 2003, compared to $15.8 million in the second quarter of 2002. Capital expenditures for the remainder of 2003 are expected to total about $31 million, including approximately $13 million for residential broadband (triple-play) services. Cash and equivalents at June 30, 2003, were $27.6 million, and short-term investments totaled $38.8 million. Long-term debt excluding the current portion at June 30, 2003, totaled $96.4 million. SureWest paid $3.6 million in dividends in the second quarter of 2003, representing a quarterly payment of $0.25 per share. Non-GAAP Financial Measures Operating EBITDA is not a generally accepted accounting principle (GAAP) financial measure, and should be considered in addition to, and not as a substitute for or superior to, either net income determined in accordance with GAAP as an indicator of financial performance, nor cash flows from operating activities determined in accordance with GAAP as a measure of liquidity. SureWest believes that EBITDA is an appropriate measure because it permits greater comparability of the company's financial results against historical results and it is useful, particularly in the telecommunications sector, in helping investors assess the results of the company's operations. Management uses EBITDA as an important indicator for planning and forecasting in future periods. A reconciliation of operating EBITDA to net income, the most directly comparable GAAP measure, is provided in the table entitled "Operating EBITDA Reconciliation to Net Income." Conference call and Webcast SureWest Communications will provide details about its results and business strategy, including the development of its emerging services on a conference call on Tuesday, August 5, 2003 at 11:00 a.m., EDT. A simultaneous live webcast of the call will be available at www.surewest/investor.com and will be archived shortly after the conclusion of the call for replay through the second quarter of 2003. Additionally, a telephone replay of the call will be available through Saturday, August 9, 2003 by calling 1-888-203-1112 and entering passcode 423335. About SureWest Communications With nearly 90 years in Northern California, SureWest Communications and its family of companies represent an integrated network of highly reliable advanced communications products and services with the highest standards of customer care. Founded as Roseville Telephone Company, the company has expanded to provide digital cable TV, fiber optics, PCS wireless, DSL, high-speed Internet access, data transport, local and long distance telephone service, and directories. For more information, visit the SureWest web site at www.surewest.com. Safe Harbor Statement Statements made in this news release that are not historical facts are forward-looking statements and are made pursuant to the safe harbor provisions of the Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to a number of risks, assumptions and uncertainties that could cause the company's actual results to differ from those projected in such forward-looking statements. Important factors that could cause actual results to differ from those set forth in the forward-looking statements include, but are not limited to: advances in telecommunications technology, changes in the telecommunications regulatory environment, changes in competition in markets in which the company operates, the availability of future financing, changes in the demand for services and products, new product and service development and introductions, pending and future litigation and unanticipated changes in the growth of the company's emerging businesses, including the PCS, Internet and CLEC operating entities. SUREWEST COMMUNICATIONS
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Amounts in thousands, except per share amounts)
Quarter Ended Quarter Ended
June 30, 2003 June 30, 2002
-------------- -------------
Operating Revenues:
Local service $16,292 $16,436
Network access service 13,984 12,843
Directory advertising 3,705 3,616
Long distance service 1,257 1,332
Wireless service 6,686 5,943
Internet service 3,957 1,423
Residential broadband service 2,276 -
Business broadband service 917 578
Other 1,215 947
-------------- -------------
Total operating revenues 50,289 43,118
Operating expenses:
Cost of services and products 13,947 14,444
Customer operations and selling 8,407 7,216
General and administrative 9,857 7,385
Depreciation and amortization 12,511 11,026
-------------- -------------
Total operating expenses 44,722 40,071
-------------- -------------
Income from operations 5,567 3,047
Other income (expense)
Interest income 354 225
Interest expense (1,262) (337)
Gain on sale of alarm monitoring assets - -
Other, net (29) (82)
-------------- -------------
Total other income (expense), net (937) (194)
-------------- -------------
Income before income taxes 4,630 2,853
Income taxes 1,917 1,150
-------------- -------------
Net income $2,713 $1,703
============== =============
Basic and diluted earnings per share (1) $0.19 $0.12
============== =============
Cash dividends per share (2) $0.25 $0.25
============== =============
Shares of common stock used to calculate
earnings per share 14,521 14,775
============== =============
(1) Shares used in the computation of basic earnings per share are
based on the weighted average number of common shares outstanding,
excluding unvested restricted common shares. Shares used in the
computation of diluted earnings per share are based on the
weighted average number of common and other potentially dilutive
securities outstanding in each period.
(2) Cash dividends per share are based on the actual dividends per
share, as declared by the Company's Board of Directors.
SUREWEST COMMUNICATIONS
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Amounts in thousands)
June 30, Dec 31,
2003 2002
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents $27,609 $20,385
Short-term investments 38,763 -
Accounts receivable, net 20,841 19,747
Refundable income tax 8,317 6,868
Inventories 6,249 4,649
Deferred directory costs 4,410 3,657
Prepaid expenses and other current assets 3,051 2,325
--------- ---------
Total current assets 109,240 57,631
Property, plant and equipment, net 325,956 320,261
Intangible and other assets:
Wireless licenses, net 13,566 13,566
Goodwill 2,171 2,171
Intangible asset relating to pension plans 1,507 1,507
Intangible asset relating to favorable
operating leases, net 721 1,260
Deferred charges and other assets 706 343
--------- ---------
18,671 18,847
--------- ---------
$453,867 $396,739
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $4,708 $5,779
Current portion of capital lease obligations 319 309
Accounts payable and other accrued liabilities 11,601 7,112
Estimated shareable earnings obligations 12,121 9,350
Advance billings and deferred revenues 9,697 8,142
Accrued pension benefits 8,803 5,613
Accrued compensation 5,585 4,902
--------- ---------
Total current liabilities 52,834 41,207
Short-term borrowings refinanced on a long-term
basis - 15,000
Long-term debt 96,364 36,364
Long-term capital lease obligations 451 607
Deferred income taxes 31,440 26,552
Other liabilities and deferred revenues 7,524 8,004
Commitments and contingencies
Shareholders' equity:
Common stock, without par value; 100,000
shares authorized, 14,537 and 14,529 shares
issued and outstanding at June 30, 2003 and
December 31, 2002, respectively 158,782 158,567
Deferred stock-based compensation (201) (116)
Accumulated other comprehensive loss (1,637) (1,637)
Retained earnings 108,310 112,191
--------- ---------
Total shareholders' equity 265,254 269,005
--------- ---------
$453,867 $396,739
========= =========
OPERATING EBITDA RECONCILIATION TO NET INCOME
(Unaudited)
(Amounts in thousands)
Quarter Ended June 30, 2003
Telecom Broadband Wireless Consol
Net income/(loss) 8,727 (2,727) (3,287) 2,713
Add back : Income Taxes 6,072 (1,872) (2,283) 1,917
Less : Other Income/(Expense) 166 (650) (453) (937)
Add back : Depreciation &
Amortization 7,691 965 3,855 12,511
--------- --------- --------- ---------
Operating EBITDA (1) 22,324 (2,984) (1,262) 18,078
========= ========= ========= =========
Quarter Ended June 30, 2002
Telecom Broadband Wireless Consol
Net income/(loss) 6,068 (761) (3,604) 1,703
Add back : Income Taxes 4,192 (559) (2,482) 1,151
Less : Other Income/(Expense) 289 3 (486) (194)
Add back : Depreciation &
Amortization 6,926 372 3,728 11,026
--------- --------- --------- ---------
Operating EBITDA (1) 16,897 (951) (1,872) 14,074
========= ========= ========= =========
(1) Operating EBITDA represents income from operations plus income
taxes and depreciation and amortization, less other
income/expenses, and is a common measure of operating performance
in the telecommunications industry. Operating EBITDA is not a
measure of financial performance under generally accepted
accounting principles and should not be construed as a substitute
for consolidated net income as a measure of performance.
SELECTED OPERATING METRICS
As of and for the three mos. ended
June 30, June 30, Pct
2003 2002 Change
----------- ----------- -----------
TELECOM
ILEC access lines 136,850 135,700 0.8%
ILEC voice-grade equivalents 400,000 325,000 23.1%
ILEC fiber strand miles 32,000 31,000 3.2%
Long distance lines 41,071 37,405 9.8%
Long distance penetration 30.01% 27.56% 8.9%
WIRELESS
Subscribers 44,490 35,836 24.1%
Average subscribers 43,878 35,449 23.8%
POPs 3,300,000 3,300,000 -
POPs covered 2,800,000 2,500,000 12.0%
Net contract additions 1,464 2,139 -31.6%
Net non-contract additions 101 -1,952 105.2%
Contract churn (1) 2.77% 3.64% 23.9%
ARPU(2) $46.65 $50.72 -8.0%
BROADBAND
CLEC voice-grade equivalents 128,000 81,000 N/A
CLEC fiber strand miles 23,000 20,000 15.0%
DSL subscribers 17,995 13,700 31.4%
ISP and custom data subscribers 21,800 16,600 31.3%
As of and for the three mos. ended
June 30, Mar 31, Pct
2003 2003 Change
----------- ----------- -----------
Sequential data (preceding
quarter)
Triple play homes passed 59,000 45,000 31.1%
Triple play marketable homes 34,800 28,300 23.0%
Triple play unique subscribers 7,516 6,412 17.2%
Revenue-generating units (RGUs)
(3) 17,605 15,042 17.0%
Marketable homes penetration 21.6% 22.7% -4.7%
Triple play ARPU (4) $109.73 $103.25 6.3%
Triple play churn 1.3% 1.4% -7.1%
(1) Monthly turnover in contract customers.
(2) Wireless average monthly revenue per subscriber is monthly revenue
excluding equipment and insurance revenues.
(3) Revenue-generating units (RGUs) are the sum of all primary digital
video, telephony and high-speed data customers, not counting
additional units.
(4) Average revenue per subscriber (ARPU) per month.
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