McLeodUSA earnings on target

(Telephony) McLeodUSA reported a strong fourth quarter today that included 55% revenue growth and a thirteenth consecutive quarter of positive EBITDA, but analysts took the company to task for a slow ramp in the company’s data revenues. The sentiment was shared by investors, who pushed McLeodUSA’s shares down 5% in morning trading.

The CLEC’s fourth quarter revenues reached $410 million, a greater than 50% increase from 1999’s comparable quarter. The revenue composition included 28% local, 20% long distance, 16% data, and 6% ILEC services.

On a conference call, several analysts questioned the lack of growth in data revenue and the company’s slowness in launching new data services. McLeodUSA’s President and co-CEO Steve Gray said the company is de-emphasizing wholesale dial-up services and taking a cautious approach toward signing up ISP customers, as the industry shakeout has created a capital "black hole" for other CLECs.

When asked if McLeodUSA had plans to launch a Gigabit Ethernet product, Gray said the company’s focus would continue to be selling local line service and everything connected with it. "There is no silver bullet data product that will make or break the company," Gray said.

McLeodUSA was downgraded by analyst W. Todd Scott of Morgan Stanley Dean Witter this morning. Scott also lowered 2001 revenue projections by $50 million to reflect a more conservative rollout of nationwide data services. "The company is pulling away from the unprofitable ISP business while targeting higher-bandwidth long-haul services, which are not expected to be available until later 2001," Scott said in a report.

For the fourth quarter, McLeodUSA’s earnings before interest, taxes, depreciation and amortization (EBITDA) was $26.6 million, compared to $15.1 million in the third quarter and $24.0 million in 1999’s fourth quarter. The net loss was $155 million, or 26¢ per share, up from $67 million in 1999. That matched the consensus expectations of 17 analysts polled by First Call/Thomson Financial. For full year 2000, McLeodUSA recorded a loss of $531 million. Revenue was $1.4 billion, up 54% over 1999, and EBITDA came in at $60.8 million.

The carrier had more than $1.5 billion in cash and cash equivalents on hand at the end of the fourth quarter. According to Scott, McLeodUSA is over-funded by more than $400 million, "providing the opportunity to drive additional upside via acquisitions."

In 2001, McLeodUSA plans to increase its telecom sales team nearly 50% to 1,850, said Gray. In addition, it will expand active fiber route miles by nearly 45% to more than 31,000 miles, grow total revenue by an additional 50% and increase EBITDA by 270% over 2000. Revenue is projected to exceed $2.1 billion and EBITDA $225 million. McLeodUSA will be providing more detailed 2001 guidance at a meeting with financial analysts on February 19.