GST Telecommunications Inc. (www.gstcorp.com) is considering bankruptcy protection, according to a statement released last night after the markets closed.
"Management is concerned about its liquidity, and whether it is sufficient to enable the company to move forward," said Thomas Malone, GST's acting CEO, in statement released yesterday at 8 p.m. EDT. "The company has pursued a range of options with respect to liquidity, including new financing, re-financing, the sale of particular assets, and the sale of the company. The company has not been able to accomplish any of these options to date, and may need to seek protection under applicable bankruptcy laws."
Malone's statement was buried deep in a press release announcing the company's earnings for first quarter 2000. GST's revenue for the quarter ending March 31 were $63.7 million, down $6.3 million from the fourth quarter of 1999. However, revenue grew $3.1 million compared to the first quarter of 1999. Telecommunications services revenue rose modestly, to $54.5 million from $52.3 million, but revenue in just about every other category were down from the last sequential quarter. Net loss for the quarter declined to $26.4 million (70 cents a share), from $52.3 million ($1.44 a share) during the first quarter 1999. Adjusted EBITDA for the period ending March 31, 2000, was a loss of $16.9 million, up from $9.4 million during the same period last year.
First quarter results aside, GST has burned through $25.6 million in the past six weeks, according the release.
"GST's capital expenditures for the quarter totaled $37.7 million," the release stated. "On March 31, 2000, the company had cash and cash equivalents on hand totaling $42.4 million for general corporate purposes, plus an additional $21 million reserved for fixed asset purchases and future interest payments. At the close of business on Friday, May 5, 2000, the company had cash and cash equivalents available of $16.8 million and restricted cash balances of $3.4 million. The decline in cash balances is greater than management's expectations due to the deferral of certain previously anticipated receipts primarily related to unexpected delays associated with the company's construction activities and expected asset sales."
The largest single asset the company has been trying to sell is its operations in Hawaii, where it offers CLEC and ISP services. In March, sources told X-change that GST had reached a tentative agreement to sell the operations to MBN Communications Inc. of Maui for $75 million. Neither company would confirm the agreement at the time and the sale clearly has not closed.
GST possesses what is generally acknowledged to be a first-rate fiber optic network that spans the Western U.S. But the company has been beset by turmoil over the company's strategy, lawsuits brought by and against former board members, and a $1.1 billion corporate debt incurred in the building of that network.
Malone, brought aboard as COO late last year, became interim CEO in January and has eliminated much of the senior management - including the CFO, CIO, and vice president of marketing - that he found at GST when he arrived. In March, in announcing its fourth quarter 1999 earnings, GST also announced it had retained Salomon Smith Barney Inc. (www.smithbarney.com) to help it find ways to raise money and Deloitte Consulting LLC (www.dc.com) to help with strategy.
"They're not here to create our strategy for us, but to provide input to it," Malone told X-change at the time about Deloitte's role. "It's difficult to pull seven or eight people off the work they're doing and work solely on the formulation of strategy papers. I felt it needed full-time work."
GST will hold a conference call for analysts and reporters to explain its strategy and future prospects by the end of this month.
However, GST's horizon is clearly very short.
"The number one objective for GST is to continue addressing its short term liquidity," said Don Bloodworth, GST's CFO, in the first quarter 2000 earnings release. "The rate of capital consumption necessary to fuel the enterprise and to fund construction initiatives has put a significant strain on the company's liquidity."
In the release, Bloodworth's quote comes before Malone's comments, and that reflects the seriousness of the situation. In press releases, companies typically avoid blunt statements about short-term liquidity if at all possible, and usually bury any bad news several paragraphs beneath the CEO's comments. Other indications of gravity have been peppered through the past several weeks. The company laid off 100 workers around the same time as it was accepting the resignations of its previous CFO and other senior executives.
