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Z-Tel execs put accent on growth
By MICHAEL BRAGA © St. Petersburg Times, published November 3, 2000 Z-Tel Technologies executives emphasized their company's strong third-quarter revenue growth and improved cash flow during a conference call with analysts Thursday but played down the start-up's failure to meet income targets. Tampa-based Z-Tel, which offers local telephone service in nine states in competition with giant telephone companies such as Verizon and BellSouth, reported losses of $30.7-million, or 92 cents per share, for the quarter ended Sept. 30. That's 23 cents per share higher than analysts expected. The company said the higher losses were because of charges related to its recent fundraising deals and that it expects similar charges in the fourth quarter. On the whole, analysts responded favorably to Z-Tel's explanations. Z-Tel's stock closed at $8.88, down 13 cents. All in all, Z-Tel chief executive Gregg Smith said the quarter was a positive period for his company. Given that many telecommunications companies had trouble raising money in recent months, he said it was encouraging that Z-Tel was able to raise $50-million in October by issuing convertible preferred shares to a mutual fund managed by New York investment bank Brown Brothers Harriman. Z-Tel chief financial officer John Hutchens said the money has given Z-Tel management confidence that it has enough resources to rapidly expand its services across the country and achieve its income targets in the months ahead. "Our liquidity is excellent, and our cash position is solid," Hutchens said. Z-Tel executives also said the company added 86,000 customers during the third quarter, raising the total to 256,000. That helped boost revenues 35 percent to $54.4-million from $40.2-million in the second quarter and a whopping 7,202 percent from $745,000 a year ago when Z-Tel was just starting out. Smith said he expects revenues to grow by 25 percent to 30 percent to about $70-million in the next three months as Z-Tel adds more customers, and that the company is on track to have positive cash flow by the middle of next year. Smith said Z-Tel's growth will be spurred by the company's new City of America service, which will allow Z-Tel customers across the country to call each other at no extra charge. "The service makes each customer a salesperson for us," Smith said. That's because they have an incentive to get their friends and family to switch to Z-Tel. In the meantime, Z-Tel is continuing to spend and lose money at a rapid rate. The company's net loss in the third quarter includes $1.3-million in dividend payments owed to convertible preferred shareholders and a $7.4-million accounting charge also related to the company's $56-million convertible preferred offering in July. Next quarter, Z-Tel is expecting similar charges relating to the $50-million in financing received in October. Z-Tel's third-quarter losses were 33 percent higher than the $23.1-million, or 70 cents per share, lost in the second quarter and 146 percent higher than the $12.5-million, or 96 cents a share, lost during the third quarter a year ago. In total, Z-Tel spent $37.3-million in the third quarter and had $23.4-million in cash left by Sept. 30. Smith acknowledged that his company was continuing to lose about 4 percent of its customers every month, amounting to a churn of about 48 percent a year. He said Z-Tel's biggest problems with customer retention occur when the company enters new states. Because of difficulties in switching customers to Z-Tel from one of the large local phone providers, some customers get angry and drop the service altogether, Smith said. But once Z-Tel has been operating for a while in a particular state, those problems tend to go away. "We keep getting better and better," Smith said.
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From the Times Business report
From the AP
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