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Z-Tel profits continue to be elusive
By JEFF HARRINGTON © St. Petersburg Times, published May 9, 2001 TAMPA -- The sputtering economy has forced Z-Tel Technologies to ramp down its ambitious expansion and push back predictions of when it will turn a profit. The Tampa provider of high-tech telephone services said Tuesday that it does not expect a positive cash flow until the fourth quarter instead of this summer, as previously forecast. Expanding at a breakneck pace last year, the company posted revenues of $75-million for the first quarter ended March 31, up 435 percent from $14-million in the year-ago period. But the bottom line remained the sticking point. For the quarter, Z-Tel lost $20.1-million, or 60 cents per diluted share, compared with a loss of $15.5-million, or 48 cents per share, in the first quarter of 2000. Z-Tel chief executive Gregg Smith said his company still intends to establish a presence in more than 30 states by year-end, up from 19. But its pace of growth will be much slower as it spends less on marketing in hopes of becoming profitable as soon as possible. Smith thanked analysts for their patience during a morning conference call, but some investors were bailing out as he spoke while others said Z-Tel's time to start performing may be running out. Once trading as high as $50, Z-Tel shares have been in the single digits throughout the year. The stock slumped another $1.13 a share, or 27 percent, Tuesday to close at $3.05 a share. "I thought it was a disappointing quarter and a disappointing announcement," said Charles Pluckhahn, an analyst at Stephens Inc. "The company still doesn't have a handle on many of its basic business execution issues" from marketing to sales strategy. Pluckhahn, whose company was one of the underwriters that took Z-Tel public in 1999, cut his recommendation of Z-Tel's shares from a "buy" to "outperform." "I'm familiar with lots of companies in the telecom business that are in a considerably more precarious position than Z-Tel," Pluckhahn said, "but enough time has passed. . . . There's a question mark hanging over them." According to the latest figures, the company's cash on hand has dwindled to $32-million from $47-million in the year-ago quarter. Dumas Garrett, Z-Tel senior vice president of finance and administration, predicted the company would have between $310-million and $335-million in revenues and between 460,000 and 500,000 subscriber lines by year-end. But he gave little hope for a quick profit. He forecast that the company's pretax losses -- an accounting figure known as earnings before interest, depreciation, taxes and amortization, or EBIDTA -- would be between $7-million and $10-million for the second quarter and between $17-million and $25-million for the year. As part of its cost-cutting efforts, Z-Tel recently eliminated about 400 jobs, reducing its work force to 1,800. Garrett said the head count would continue to decline but was not specific. On the upside, Smith stressed that the company has had success fighting problems with high-risk customers and chronic complaints about service, billing and slamming, which is commandeering customers who did not want Z-Tel to be their phone provider. He said the company's customer base has improved as it now relies more on referrals and independent agents to build business instead of telemarketing. Moreover, he said customer service has improved with initiatives such as a new procedure check on customers within five days of installation of a subscriber line. "We see the real progress we're making in terms of customer satisfaction," Smith said. "The numbers will show the same kind of progress shortly." - Jeff Harrington can be reached at (813) 226-3407.
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From the Times Business report Robert Trigaux
From the AP
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