[Interview with CEO]
Found this posted on the Yahoo! thread...
MEETING WITH TOM MALONE OFFERS CLEARER INSIGHT INTO WHAT'S
GOING ON AT GST
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GST TELECOMMUNICATIONS, INC. (GSTX/5 7/16)
MAINTAIN/SPECULATIVE
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We recently met with Tom Malone, GST's Chief Operating
Officer and acting CEO, to discuss his plans for spurring
revenue growth and improving future results. Overall, we
feel positive about efforts that are underway to stimulate
growth of high margin revenue and improve the company's
operations. Although the company ended a challenging year in
1999, it cleared a number of operational hurdles, offering a
very solid operational and network platform for growing the
business. It appears that Malone is taking the right steps
to focus the company on sales and marketing with a smaller
portfolio of high margin products. For existing
shareholders, we encourage patience as the first two
quarters of 2000 will probably not reflect the impact of
these changes. We are not recommending, however, the
purchase of new shares until we see more substantial
evidence that Malone's efforts are delivering results; hence
we are staying with our maintain rating.
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Market Cap: $205 mil. Price Objective: N/A
52-week price range: 17 15/16 - 4 3/16 Estd. 1998-2001 EPS cagr: N/A
Dividend: nil Yield: N/A
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Malone is bringing to GST a solid track record for results.
Tom Malone has 22 years of telecom and data services industry
experience. He started his career at Compuserve and then
moved to GTE Telenet. While at Telenet, he started the
company's electronic messaging unit, which eventually became
Sprint Mail. In 1988, Malone accepted a position of Assistant
Vice President of Business Development at Cable & Wireless.
In this position, he started the company's broadcast fax
business, growing annual revenue to $40 million, making it
the second largest broadcast fax provider in the U.S. Malone
was named President of Cable & Wireless' U.S. operations in
1998, where he managed the integration of MCI's Internet
properties that were acquired from MCI WorldCom at the time
that MCI and WorldCom merged.
GST made great strides cleaning up operational challenges and
distractions in 1999. First, GST filed lawsuits against
Global Light (formerly GST global) and former GST board
members to collect compensation that was due for a project
initiated by GST and transferred to Global Light. GST settled
with Global Light last fall, collecting about $30 million.
Second, GST was burdened by several non-strategic operations
that had been acquired or initiated by previous management.
GST has successfully completed the disposition of virtually
all of these assets. Third, GST implemented a new back office
system that streamlines the provisioning of customer orders.
Fourth, GST completed the construction of its local backbone
facilities in several markets.
Malone has restructured the company into three lines of
business and replaced much of the previous management team.
The business units are as follows: Internet and data
services, local and long distance voice services, and private
line services. Each business line will have its own profit
and loss responsibility. Management changes have included new
Senior Vice Presidents for data services and voice services,
a new Chief Technology Officer, a new Chief Information
Officer and a new Chief Financial Officer.
Marketing will be concentrated on a smaller set of
standardized products. Previously, GST was offering a wide
variety of services, but actual sales were concentrated among
a fairly small percentage of these services. Also, too many
of the services sold were customized to that particular
customer's needs, making provisioning of each order too
cumbersome. GST will offer a smaller set of standardized
products that reflect what customers have been demanded most
in the marketplace. Also, GST will focus on customers that
need a package of services, which can be most efficiently
provisioned on a high capacity T1 line. As a result, targeted
customers will not be as many "mom and pop" businesses that
just need a few voice lines, but businesses needing 10 or
more voice lines plus high speed Internet access. These
service packages will also have better profit margins, and
sales people will be compensated for selling the higher
margin packages. The previous incentive plan emphasized only
selling voice services and not a package of multiple voice
lines combined with data.
Malone also provided reassurance regarding the need for
additional funds. The cash currently on the balance sheet
will sustain GST into the third quarter. Although no formal
agreements have been signed, some of GST's vendors are
willing to provide financing that will easily sustain the
company through 2000. Also, Malone anticipates more facility
sales in the future that will generate additional cash. These
funding sources should allow additional breathing room while
the company seeks other funding, such as private equity and
the sale of its Hawaiian network. Although we would prefer a
clearer financial picture, we are encouraged that GST has
time available. Also, if GST can improve its operational
results, it should become more attractive to potential
private equity investors.
In a nutshell, previous management ran the company with a
network focus, but not a sales and marketing focus. Also, the
company placed too much emphasis on voice services, rather
than data services. Malone is simplifying GST's product
offerings and restructuring sales force incentive plans to
reward sales of high margin services. As we have stated for
quite awhile, GST has a cutting edge network with an
attractive West Coast footprint. It essentially has the right
network in place, but must effectively sell services on the
network. With a new management team in place and the
distractions of 1999 behind them, we are hopeful that Tom
Malone can move the company in the right direction. For
existing shareholders, we encourage patience as the first two
quarters of 2000 will probably not reflect the impact of
these changes. We are not recommending, however, the purchase
of new shares until we see more substantial evidence that
Malone's efforts are delivering results; hence we are
staying with our maintain rating. |
