Qwest Communications Reports First Billion Dollar Revenue Quarter And Continued Strong EBITDA Growth - Company Financial Information

Cambridge Telcom Report, Nov 1, 1999

Qwest Communications International Inc. (Nasdaq: QWST), the broadband Internet communications company, Wednesday announced that for the first time the company has recorded revenue for a quarter in excess of one billion dollars. For the tenth consecutive quarter the company met or exceeded the consensus of analysts' estimates.

The $1.02 billion in total revenue for the quarter reflects a 26 percent increase over the same period in 1998, while communications services revenue grew 69 percent. The strong revenue results were achieved during the quarter despite the expected decline in construction services revenue as a result of the mid-year completion of 18,500 miles of the company's U.S. network. Construction services accounted for less than two percent of total revenue for the quarter and was combined with communications services.

Total EBITDA was up 62 percent to $190.5 million compared to the third quarter of 1998, while communications services EBITDA increased more than 250 percent. Excluding one-time costs of $25.0 million directly related to the pending merger with U S WEST, Qwest reported net earnings of $19.8 million, or $0.03 per diluted share, compared to a pro forma net loss of ($0.02) per share during the same period in 1998. Including the merger-related costs, Qwest reported a net loss of $1.8 million, or ($0.00) per share, compared to a net loss of ($0.01) per share a year ago.

Commenting on the quarter, Qwest Chairman and CEO Joseph P. Nacchio said, "Reaching a billion dollars in revenue for the quarter is a major achievement -- and a significant milestone for the company. We've said from the beginning that we are creating a growth company and our results clearly show the steps we've taken -- building a next-generation network, acquiring strategic assets and capabilities, creating alliances to build advanced applications on our network, and rapidly growing our Internet and data business segment. We continue to see the payoff and the potential in what we've created."

On a sequential basis, Qwest reported a 29 percent increase in revenue as a result of continued growth in Internet and data services, the creation of the Cyber.Solutions joint venture with KPMG and the acceleration of business from major selected customers. As a result of strong revenue growth and improved gross margin, EBITDA for communications services was up 42 percent compared to the second quarter of 1999. Communications services EBITDA margin improved to 18.7 percent compared to 17.0 percent in the previous quarter. The margin improvement largely reflects the company's ability to achieve a more favorable product mix.

"The results for the third quarter demonstrate Qwest's ability to drive strong revenue and EBITDA growth while making the necessary investments for the future," said Robert S. Woodruff, Qwest's executive vice president and CFO. "With 18,500 miles of the U.S. network now complete, we are committing more resources to the expansion of the Qwest Internet and data services portfolio, CyberCenter operations, trans-Atlantic service platform and local broadband access services so that we may continue to capitalize on our first-to-market advantage."

INTERNET AND DATA SERVICES EXPANSION Internet and data services operations continued to be the company's fastest growing segment and was up more than 200 percent over the third quarter of 1998. The company's strong Internet and data services growth continues to be fueled by the high demand for dedicated Internet connectivity and broadband applications and services. Qwest also announced a major expansion of its CyberCenter operations, which are the platform for the delivery of hosting, e-commerce and other business applications. The company plans to add seven more Centers, bringing the total to 14. The new Centers will be up to 200,000 square feet each, providing more than 1.5 million of additional square feet of total operational space.

In order to increase application performance and drive the demand for broadband services, the company signed an agreement with Hewlett-Packard Company that will provide high-end data storage for Qwest's CyberCenters. This initiative is expected to provide approximately $200 million in revenue to Qwest in the first year and up to $1.5 billion in revenue to Qwest over the next three years.

QWEST/U S WEST MERGER The merger with US WEST is moving quickly and the companies have completed all government filings and shareowner mailings in anticipation of the shareowner meetings on November 2 in Denver and New York City.

The merger combines Qwest's advanced network and broadband Internet service capability with U S WEST's innovative local communications and broadband Internet access capability. The combined company will offer customers in the U.S. and around the world more choices and greater access to next-generation communications and broadband Internet-based services.

LOCAL BROADBAND ACCESS Qwest continues with the build-out of the QwestLink(SM) local broadband network in 25 markets. In each market, Qwest will offer a combination of access technologies including dedicated broadband access, fixed wireless and digital subscriber line (DSL). Networks in seven cities are expected to provide high-speed local broadband access services by the end of 2000, followed by 18 more in 2001.