Focal reports strong Q1

CLEC Focal Communications reported reported solid revenue growth and lower EBITDA losses for the first quarter, citing an increase in telecom services lines and a customer base shift to enterprise users. Focal also said it is seeking additional funding and had drawn down on an existing credit facility during the quarter.

Compared to the year-ago quarter, Focal’s revenues increased 81% to $81.9 million, $6 million of which was nonrecurring. Sequentially, revenue in telecom services—which includes circuit switched services to enterprises and network solutions providers—rose 19% to $28.4 million. Data services revenue increased 9% to $47.5 million. Data revenue includes results from the Focal Internet eXchange platform as well as colocation, private line and DSLs.

Focal’s earnings before interest, taxes, depreciation and amortization (EBITDA) during the first quarter of 2001 was $3.8 million, compared to negative EBITDA of $2.5 million in the year-ago quarter. Excluding the nonrecurring revenue, the company had an EBITDA loss of $2.1 million. Focal’s quarterly net loss was $33.5 million, or 55¢ a share, compared to $20.8 million, or 35¢ a share last year.

“We see the recent problems some of the CLECs have encountered as company-specific issues and not evidence of an industry wide problem,” said Robert Taylor, Focal’s president and CEO. “We think our results illustrate that we are in the sweet spot of this industry, targeting large users in tier-one markets.”

Focal’s revenue and customer base leaned more heavily toward enterperise customers, Taylor said. About 82% of Focal’s 65,757 line adds were for enterprises, which now make up 44% of the carrier’s customer base, compared to 29% one year ago.

Still, reciprocal compensation accounted for 29% of Focal’s quarterly revenue, and access charges made up 14%. Focal reconfirmed guidance for the second quarter and for the year, saying the FCC’s phasing out of reciprocal compensation would not heavily impact the company due to existing agreements with BellSouth and Verizon that are immune to regulatory action.

Focal expects second quarter revenue of $83-$85 million and an EBITDA loss of $1.5 million to $2.0 million. The company projects full-year revenue of $375-$400 million and an EBITDA margin between 0% and 5%.

As of March 31, Focal had about $107 million in cash and cash equivalents on hand, down from $182 million at the end of the fourth quarter. During the quarter, Focal drew down $40 million of a credit facility.

“We believe there is access to capital for companies with strong operating results,” said Ronald Reising, chief financial officer. “We are looking to raise additional funds. We are confident in our ability to do so because the additional funding is relatively modest and will be used primarily to support success-based growth, not to support EBITDA losses.”