Lines sold as well as lines installed posted all-time Allegiance quarterly records, with new lines sold increasing from 122,800 lines in 2Q00 to 135,500 lines in 3Q00. Lines installed also showed growth — despite a work stoppage by Verizon employees during the quarter — with net new lines installed increasing from 81,100 in 2Q00 to 91,900 in 3Q00. Since inception, Allegiance has installed 499,700 net lines, of which 89 percent are on-switch.
A remarkable September effort by Allegiance’s provisioning organization resulted in more than 91,000 lines installed during the third quarter, said Royce J. Holland, chairman and chief executive officer of Allegiance Telecom. The Verizon work stoppage affected nearly 40 percent of Allegiance territory for almost half of the third quarter. We were unable to install lines in the Boston-New York-Washington D.C. corridor during this period. In the equivalent of a dramatic two-minute drill in football, Allegiance’s provisioning group rose to the challenge and installed a phenomenal number of lines during the final month of the quarter, minimizing the impact of the Verizon work stoppage, he said.
Allegiance’s network rollout proceeded on track, with 25 markets operational at the end of 3Q00 including Atlanta, Baltimore, Boston, Chicago, Cleveland, Dallas, Denver, Detroit, Fort Worth, Houston, Long Island, Los Angeles, Miami, Minneapolis/St. Paul, New York, Northern New Jersey, Oakland, Orange County, Philadelphia, St. Louis, San Diego, San Francisco, San Jose, Seattle and Washington, D.C. Phoenix became operational on October 16, 2000 and an additional market, Tampa Bay/St. Petersburg, is expected to be added in the fourth quarter.
Allegiance continued to post strong gains in the addressable market during the third quarter. At the end of September, the Company was collocated in 552 central offices for unbundled loops, representing an addressable on-switch market of approximately 14.73 million local business access lines, an increase of 11 percent from 2Q00.
With the activation of dedicated switches serving San Jose, Orange County and northern New Jersey (and the addition of a switch for Minneapolis/St. Paul) during the quarter (and Phoenix in the fourth quarter), Allegiance now has 25 switches in operation, supporting the following markets: Atlanta, Baltimore, Boston, Chicago, Cleveland, Dallas/Fort Worth (2), Denver, Detroit, Houston, Los Angeles, Miami, Minneapolis/St. Paul, New York /Long Island (2), Northern New Jersey, Orange County, Philadelphia, Phoenix, St. Louis, San Diego, San Francisco/Oakland, San Jose, Seattle and Washington, D.C.
Allegiance Telecom again posted a strong sales increase for the quarter, with lines sold increasing from 122,800 lines in 2Q00 to 135,500 in 3Q00, an increase of 10 percent compared with 2Q00 and an increase of 94 percent compared with 3Q99. Lines installed also showed significant growth, with organic lines installed increasing from 81,100 in 2Q00 to 91,900 in 3Q00, a 13 percent increase in new installs compared to 2Q00 and an increase of 55 percent compared with 3Q99.
Effective personnel recruitment efforts resulted in Allegiance’s sales force growing to 1,231 people, out of a total Allegiance employee base of 2,936 as of September 30, 2000. One of the key facets of the Company’s business plan is the continuous building of an end user direct sales organization, bringing Allegiance products and services directly to customers in each of the Company’s operational markets.
For the third quarter 2000, Allegiance Telecom had consolidated revenues of $80 million, an annual increase of 150 percent from 3Q99. Gross margin continued to improve to 47.7 percent. Allegiance continues to use its capital to support the development of new markets, resulting in a third quarter EBITDA loss of $31.7 million and capital expenditures of $141.2 million.
Allegiance Telecom used approximately $132.0 million of its cash and short-term investments during the third quarter to further expand its operations, capital expenditures related to switching platforms, collocations, construction of its SONET fiber networks and its data network — which supports the Company’s product suite of local, long distance, data and Internet services — and acquisitions, said Thomas M. Lord, Allegiance executive vice president of corporate development and chief financial officer. At September 30, 2000, Allegiance had an undrawn committed credit facility of $500 million and more than $856 million of cash and short-term investments. This liquidity fully funds Allegiance’s 36-market business plan.
At the end of the third quarter, Allegiance announced its acquisition on September 28, 2000, of Virtualis Systems, Inc., a leading Web hosting company and applications service provider (ASP) based in the Los Angeles area. Business owners use Virtualis’ 25 e-business management software applications to create, manage and grow their on-line presence. Virtualis has more than 4,000 customers and in excess of 40,000 hosted domains. The company’s proprietary software tools are used by 45,000 affiliates in more than 180 countries around the world.
E-commerce holds tremendous potential for our target audience of small and medium-sized businesses, said Dan Yost, president and chief operating officer of Allegiance Telecom. With the acquisition of Virtualis Systems, Allegiance Telecom significantly enhances its position in the Web hosting field and solidifies its role as the single source provider for all the communication needs of business.
