Exodus issues earnings warning

Exodus Communications yesterday said earnings for the 2nd quarter and the 2001 fiscal year would fall far short of consensus estimates. To cut costs, the Web-hosting company said it would continue to slash its expansion plans, reduce operating costs and cut more staff.

In anticipation of a possible trip to the banks, Exodus also announced it would repay a $150 million loan, clearing the way for more than $500 million in borrowing.

“While the current economic slowdown has not improved as quickly as we’d hoped, Exodus remains well-positioned for long term success,” CEO Ellen Hancock said during an investors call Wednesday. “Our number-one priority is becoming earnings and cash-flow positive, and to do this, we have taken aggressive actions to minimize expenses and to preserve cash.”

Exodus said it expects 2nd quarter revenues of $315 million--$40 million short of consensus estimates from First Call/Thomson Financial--and revenues of $1.35 billion, down from Exodus’s previous projections of $1.5 billion to $1.6 billion. The company will post an estimated loss of $500 million for the year and $140 million for the 2nd quarter.

Richard Stoltz, Exodus’ interim chief financial officer, blamed the shortfalls on declining new customer installations, increasing cancellations, current customers scaling back their orders and the bankruptcies of many dot-com customers. Stoltz attempted to paint silver lining on the news, saying the worst of the dot-com fallout is over.

“The number of customers that went out of business or left Exodus peaked in March, and we have been seeing a decreasing churn since that time,” Stoltz said in the call. “Although two months is not a trend, we are encouraged.”

Exodus plans to cut capital spending drastically, virtually halting data-center expansion by the end of the year. Exodus allotted $510 million for capital improvements in the current quarter and will cut those expenditures to $280 million. For the remaining two quarters of the fiscal year, however, Exodus is outlaying only $110 million for capital expenses. And Stoltz said Exodus would only spend $200 million on capital expenditures for all of 2002.

The company will also seek to reduce operating expenses. Exodus officials said the most likely place for those cuts to occur are among its staff, but they offered no details about when and how many employees would be laid off. Last month, Exodus announced 675 job cuts.

Exodus began the quarter with $1.04 billion in cash. By the end of the quarter, it will have half that amount, and only $200 million remaining by end of the year. Stoltz claimed the sum is enough to last Exodus through the 2nd quarter of 2002, after which the company expects to be cash-flow positive.

Stoltz acknowledged Exodus will be cutting it close financially, which is why the company is paying off the debt facility. Clearing the loan from its books frees up its assets, giving the company further flexibility in obtaining financing. While Stoltz did not say whether the company would seek another round of debt, he said the company now has the option to borrow in excess of $500 million.

Exodus has been hammered in the markets of late as bad news came pouring out of the company. Since January, annual revenue projections have steadily dropped from $2.3 billion to $1.35 billion. In April, President and COO Don Casey, Chief Financial Officer Marshall Case, and Executive Vice President Beverly Brown all left the company – a black eye for the company that smarted even more because two of the departures were never officially announced.

In today’s trading, Exodus hit its all time low of $1.53, down 32 percent.