Genuity beats estimates

(Telephony) Genuity beat Wall Street for its first quarter 2001, but lowered guidance for the rest of the year and announced a staffing cut.

For the quarter ending March 31, the company posted pro forma loss per share of 30 cents, ahead of the 33-cent loss projected by First Call/ Thompson Financial.

Revenues for the quarter were $299 million, up 22% year over year. The company’s access services easily led the revenue mix, accounting for $218.1 million for the quarter.

Net loss, however, was up from $209.8 million in the first quarter 2000 to $292.4 million.

“Our long-term strategy we think is right and have not changed,” said Daniel O’Brien, Genuity’s chief financial officer. “We continue to focus on high-margin hosting and value-added service principally to enterprise customers. However we expect that because of the current environment, one in which customers tend to postpone large purchases such as Black Rocket [Genuity’s integrated network platform] and hosting deals, the growth in these services will be somewhat slower than originally anticipated in 2001.”

As a result of this slowdown, Genuity announced that it was cutting more than 800 employees, about 12% of its workforce. The company is also terminating about 1/3 of its contract workers, bringing the total full-time equivalent workforce for the company down 14%.

The company also said that it was cutting back capital expenditures for the quarter from $2.2 billion to $1.4 billion. About half of that, said O’Brien, comes from lower spending on network and other facilities, with the other half coming from lower spending on data center expansions and related equipment.

For 2001, Genuity now expects lower revenues as well, ranging from $1.3 billion to $1.35 billion, down from the $1.6 billion it had previously anticipated. EBITDA loss for the year is expected to be $675 million to $700 million, revised downward from $600 million to $650 million.

The news isn’t all bad for Genuity, however. Verizon has agreed to lend the company greater credit assistance. Verizon has a stake in Genuity’s success. If Verizon gains approval to provide long-distance service by 2005 in all the states in which it is the incumbent, it will have the option to purchase Genuity, which was spun off as a condition of the Bell Atlantic/GTE merger.

Under the revised credit agreements, Verizon will make an aggregate of $900 million in credit available to Genuity, up from $500 million, and will extend the maturity date of all borrowings from May 31 to December 31. The move, said O’Brien, provides Genuity with extra short-term liquidity.

In addition, Verizon has agreed to provide credit support for Genuity to raise up to $2 billion in new long-term capital.

According to Genuity Chairman and CEO Paul Gudonis, “This will enable us to grow our revenues and profitability to achieve the point of cash flow positive in our business plan.”