Article from the WSJ:November 8, 2000
Dow Jones Newswires
Winstar CEO Says Funding Provides Future Flexibility
By JANET WHITMAN
Of DOW JONES NEWSWIRES
NEW YORK -- Winstar Communications Inc. (WCII) Chairman and Chief Executive William Rouhana said the more than $1 billion in additional financing agreements announced Wednesday provides the telecom upstart with future flexibility.
"Basically it gives us the capital we need to get past the point we need to get to be EBITDA positive in the first half of next year and into the first part of 2002, and through the completion of (Winstar's) core network buildout," Rouhana told Dow Jones Newswires in an interview.
Beyond that point, "we can grow the business at our own pace with our own capital," he said. "We have the flexibility to grow our business at whatever pace we choose based on the environment in the capital market."
The funding, which was composed of equity, vendor financing, and expansion of its senior credit facility, will allow Winstar to be "opportunistic" about further funding possibilities, said Rouhana.
The financing agreements announced early Wednesday include a $270 million equity investment from Microsoft Corp. (MSFT), Compaq Computer Corp. (CPQ), CSFB Private Equity, and Welsh, Carson, Anderson & Stowe VIII LP.
Winstar said the $750 million balance of the financing agreements, of which $500 million is available immediately, includes an increase in the company's senior credit facility and new vendor relationships with Cisco Systems Inc. (CSCO) and Compaq.
"We have currently available, between all of the financing, over $800 million and then an additional $250 million from Cisco," said Rouhana.
As of the end of the third quarter, Winstar had $1.6 billion immediately available, including its previous facility with Lucent Technologies Inc. (LU), he said.
The new financing agreements won't alter management's strategy for Winstar, a New York-based competitive local exchange carrier, or CLEC, said Chief Executive Rouhana.
The company, which currently operates in 60 domestic markets, has access rights to a total of 13,000 buildings, which includes access provided by incumbent telecom companies.
In terms of "on-net" access - or buildings directly connected to Winstar's broadband network - Winstar increased the total number of buildings by a record 1,000 to a cumulative total of 3,400 buildings by the end of the third quarter.
Rouhana said that Winstar expects to obtain on-net access rights to 9,700 buildings by the end of 2001, giving it access to 250,000 business customers.
"Compared to U S West and BellSouth, our addressable market will start to be bigger than each of those two companies," he said. "And ours is on a broadband network, not a copper network. And we're offering more comprehensive services. We should be in a good position in terms of selling and marketing services."
Winstar's international strategy also is unchanged, said Rouhana.
"We plan to continue to move forward in obtaining more spectrum as we need it, but only in a very cost-effective way," he said. "We will build out in Europe only with data as we already have done, a strategy which minimizes capital (needs)."
Will 'Remain Very Careful' On Potential Acquisitions
Noting that he has been called an "aggressive window-shopper" in the past, Rouhana said he will "remain very careful" in looking at potential acquisition targets.
Winstar has made three acquisitions over the past seven years, each of which were companies in distress and whose assets were bought for "significantly less" than their value, he added.
Winstar would only consider acquisitions that are "strategically consistent with our plan, extremely well-valued," and won't create any additional funding need for the company, he said. "We would have to be extremely comfortable with each of those (criteria)."
Rouhana said that, generally, the financial markets have "taken too negative a view of the CLEC space."
CLECs that are approaching positive EBITDA, have a good business plan, and continue to execute can obtain funding, "and on reasonable terms," he said. "I don't think we will be the last to be funded. We just happen to be the first in this environment."
CEO Reiterates Revenue, EBITDA Guidance
Reiterating guidance from a morning conference call, Rouhana said Winstar expects to report revenue for this year and next at the high end of analysts' expectations.
For 2000, analysts had projected a range in revenue between $700 million and $740 million and, for 2001, a range of $900 million and $1.05 billion, he said.
Rouhana also reiterated that losses for earnings before interest, taxes, depreciation and amortization, or EBITDA, for 2000 will be on the low end of analysts' expectations, which range from a loss of $20 million to $30 million.
For next year, Winstar expects the company will show EBITDA on the high end of expectations, closer to a gain of $30 million, rather than a loss of $10 million.
Gross margins are projected to increase to 50% for the fourth quarter, up from 47.3% in the third quarter. Margins will likely continue to show a "steady, although smaller" sequential increase, said Rouhana.
Winstar shares were up about 20% at $27.00, on volume of 8.6 million shares, up from average daily volume of 2.7 million shares, following the funding news and better-than-expected third-quarter results.
-By Janet Whitman, Dow Jones Newswires; 201-938-5248; janet.whitman@dowjones.com |
