Ashburn-based MCI Inc. yesterday reported its first quarterly profit since emerging from Chapter 11 bankruptcy protection last year, as cost-cutting helped offset a broad decline in revenue at the communications company.
MCI, which has agreed to be bought by Verizon Communications Inc., surprised Wall Street by announcing a second-quarter profit of $64 million (19 cents a share) compared with a loss of $71 million (22 cents) in the comparable quarter a year earlier.
Revenue slid to $4.68 billion from $5.22 billion, while operating costs shrank to $4.62 billion from $5.19 billion.
An MCI spokesman said the company had shed more than 15,000 employees over the past year.
"The market remains challenging," MCI chief executive Michael D. Capellas told analysts, according to a transcript of a conference call on the second-quarter results.
MCI has seen its traditional business of providing long-distance telephone service to consumers gradually erode, but it maintains valuable corporate and government clients that Verizon wants.
Capellas said Verizon's planned $8.5 billion purchase of MCI was already helping bring customers -- especially large corporations seeking combined data, Internet, voice and network management services -- to MCI.
"There is no doubt in my mind that this raises our relevancy with our large enterprise customers," he said, according to the transcript. "We are getting more opportunities for bigger, longer-term deals."
Under its previous name of WorldCom Inc., the company engaged in an $11 billion accounting fraud and in 2002 filed for Chapter 11 bankruptcy protection.
The company emerged from bankruptcy court in April 2004 amid fierce competition for long-distance service. The company began to focus more on marketing its swath of the Internet "backbone" that carries data around the world and on serving big corporate and government clients.
The company benefited from a $244 million decrease in its depreciation and amortization costs in the quarter, the result of taking $3.5 billion in charges last year to write off assets.
That contributed to the big drop in overall costs, which helped the company return to profitability despite shrinking operating profits in its business segments.
The company's enterprise markets business, which sells data, Internet, voice and network services to large corporations and government clients, reported operating profit of $55 million for the quarter, down from $83 million a year ago. The segment's revenue declined to $1.17 billion from $1.2 billion.
The U.S. sales and service business, which serves retail customers as well as small to large corporate customers, reported a drop in profit to $49 million from $76 million and a fall in revenue to $1.97 billion from $2.3 billion.
MCI's international and wholesale markets business, which serves customers in 164 countries as well as U.S. Internet providers that buy large volumes of communications services with bulk discounts, saw its operating loss shrink to $43 million from $122 million and a revenue decline to $1.55 billion from $1.72 billion.