>>I ask you to tell my the details of why GX is a bad investment.<<
Bad investment? It certainly has turned out to be, but seeing as to I still own the pos not sure how you can lump me in with those who bash the stock for gain.
Not sure what you're looking for, all along I have been commenting as to what I find distressing about the company. I've given plenty of examples. So as you ask "Why is GX a bad investment," Here we go:
1) Winnick dumps 10 million shares. If you go back and read around that time, you'll see how I tried to actually defend this move. "Oh he's not actually selling, he's just protecting capital" or whatever the hell I was trying to get myself to believe. Well, now we realize that he was getting out. And with his insider selling, let's look at number two:
2) Insiders bailing all the way down. CEO's, Directors, Founders, Vice Presidents... you name the position, they sold. Didn't matter what price. Of course they had no idea that business was slowing down now did they? (feel free to read that with sarcasm). But what was that reason for all the insiders selling? Oh yeah, they don't care what price? Yeah, whatever.
3) So if they were all bailing in the teens, they'd be buying it here at $5, right? And those options they exercised at less than buck and sold right away don't count. So far, not a peep. I'll believe the filings when I see them (and I'll certainly pick them apart... I won't be ignorant and take as a GOOD sign that someone who sold 1 million shares 10 points ago buys back 100k at a third the price... I've seen that game played before).
4) The debt. Yes, we all knew that GX had debt, but at 30%+ growth per year, this was nothing to worry about. Now the growth is essentially gone for the moment. How long will this last, who knows? What damange is being done to their business from customers worried about their viability (yes the companies in the sector talk trash about each other, as evidenced by Nacchio's dig right on CNBC that day)?
And that brings us to the second point on debt. They have a lot of it, and it starts coming due in a couple years. But of course you want numbers, you want to see the liquidity crisis, right? Guess what, numbers don't exist anymore. Know why? Not even GX can give you the numbers. It's called "no guidance." At this point, the analysts to those that claim to do their own analysis are clueless. You can build all the models you want, bottom line is, you got nothin' to work with. The company refused to give guidance for revenues and earnings for next year, and will only comment on capex that it will be lower than this year.
So just as you can sit there and say they will face no liquidity problems, and I can sit here and say that there's a chance they will need more money, neither of us can prove it. Bondholders seem to be the "smarter" traders on wall street, and the bonds right now are in the 60s. I assume that since you love GX, that you are of the opinion that LVLT is a goner then. Well, LVLT bonds trade in the 50s. Not that much difference in price given one company is supposed to go bankrupt and the other is going to take over the world.
So we're left at looking at what analyst models say. CSFB obviously says they have a funding gap. I unfortunately don't have the report of their's that goes through each number. And the other firms have now come out and basically said that GX is funded, but now they essentially have a small cushion (if any), and need to execute flawlessly. And then of course there are people like yourself that somehow have "models" to the extreme that suggest that GX will never face debt problems.
I consider myself to be in the camp of the realists. I do not doubt that GX will be able to raise financing should it come to that (CSFB suggest 1/2 billion gap, which could be doable a year from now if market conditions improve), but the usual questions of "at what cost to shareholders" etc. Now should the economy not take its miraculous turn for the better come the 4th quarter like everyone seems to hope (including GX), that can't be good for a debt-laden telco. We have to figure that GX is going to burn through its cash, it was what, $2.7 billion (??). I think there was $1 bil credit facility that was included in that number. Once they start drawing down on that, that will mean more interest payments. Should the economy continue to falter and GX is not able to grow its top line due to a number of factors, how does that bode well for them? And just because the economy should come back, doesn't necessarily mean that GX is going to get tons of orders again. How many people that BUY from GX will go under in that time frame? How many assets that compete with GX (I know, I know, not on a global level) will be bought for a song?
So given that the street, bondholders, and price of the stock reflect the troubles that GX can easily encounter... perhaps I'm not the one that needs to "prove it" so-to-speak. IMO, the burden falls onto you to state why GX is all that you make it out to be. If it had such amazing prospects, the cream would rise to the top. I can understand a very short-term decline in the stock that would equate to too much pessimism, but this has been going on for well over a year! Down down down down down. There cannot be any weak hands left... so people that are self-proclaimed "investors" must be selling. And please lets not open up the discussion that shortsellers are driving down the stock, as I think that shortsellers CAN have a temporary effect on a stock, but not one that lasts for over a year.
5) Management, and credibility (or lack thereof). So the DoD thing happened a couple days before Friday. Why is it that I have to dig through the yahoo boards that morning, and eventually track the CSFB report down through a friend, before I hear about it? This report was out that morning, and was the reason the stock opened at roughly 5. Why did we as shareholders have to wait until well after midday before GX finally opened their mouth? Why was the first person to defend the company, someone NOT from the company? Why didn't GX notify shareholders when they were informed of the whole debacle? Would they have even brought it up had CSFB not broken the story?
And this brings me to the second point on the DoD. GX comes out and says those reassuring words that "should we lose the contract it will have no material impact on our earnings." What does GX do when it lands a "significant" contract (I call this significant because it was a trophy, and their foot in the door to win more gov't contracts)? They brag. They talk them up. How many months have we heard the words SWIFT and EMBASSIES? And recently we heard all about what a win the DEPARTMENT OF DEFENSE was, and oh, don't forget the NATO buzzword.
So now there's the chance they'll lose the contract (albeit a small one)... so now they back off and say, "oh, it wasn't that big of a deal." So which is it? How can they make such a big deal out of it one day, and dismiss it the next? Doesn't this make you wonder what you can believe coming out of their mouths?
6) I decided to expand the managment credibility question to another number. Not sure what you did after that annual meeting and first quarter's earnings report, but I took an active interest. I and a friend of mine listened to the investors day, and noted how flat the management seemed. Last year they were full of energy and peppy. This year, they sounded like zombies. But guidance was unchanged according to them, and 30% growth over the next 5 years still existed.
So what did I and several others do between the earnings reports? We called the company. Can't tell you how many times I talked to their staff "analyst." I called them when I wanted to know why the Q&A was cut off, I called them when I wanted to ask about the collar, I called them asking about the industry outlook given the problems showing up at Q, and I even called them to let them know the Nacchio was taking shots at them on CNBC.
EVERY TIME I called, I was told the same thing. Guidance remained unchanged from what they had indicated at the end of the first quarter. GX wasn't experiencing the problems that their competitors were (this was about the time TSIXQ was on the ropes, and LVLT was preannouncing). GX was going to be THE leader, there was no slowdown, no fiber glut.
They stuck to their guns nonstop. They had me believing they were immune to an economic slowdown. What I was hearing was the business from TSIX and LVLT and every other bankrupt telco was coming in droves to GX. Well then came D-day. GX blows up, misses the numbers, and doesn't offer guidance. Sure GX said that they were comfortable with the loss estimates for this year, but how hard would that be? They've consistently beaten earnings by six to ten cents a share or so, so I have no doubt that they can meet the numbers without coming under.
Had you been talking to the company (maybe you did and they told you the same story), you would feel lied to. I sure do. A few others feel lied to as well. I know that I had conversations late enough into the quarter that they knew business was starting to suck. I know that they couldn't have told me they were having problems, but they least they could've done was to not try and bull me into the stock so much. They should've laid off the long lectures about what a future GX has, and laid off the BS that they weren't seeing the downturn as much in their business.
So there you have a company that has not been completely truthful to their shareholders, and when a crisis does hit (I'd consider Friday a minor crisis as the news was extremely damaging), they refuse to act quickly to defend their business or shareholders (and yes, they do have some responsibility to us). Don't you think that businesses that look to purchase longterm contracts with companies like GX and Q and WCOM take a minor interest in how the company is faring? What happens when they look at GX?
They see an extremely depressed stock price.
They see a company that is under fire from all fronts.
They see that Q reaffirms their estimates (given the lower part of the range).
They see GX warning that they won't make their numbers this year anymore.
They see an analyst come out and question their funding.
They see GX losing a contract (given on a technicality, but it still looks bad).
They have Nacchio slamming the company on CNBC by suggesting they (GX) have their own troubles... and you can bet he's slamming them when he meets with clients that both are bidding on.
7) Debt, part II. Let's not forget a little recent history here either. Every single next-gen telco that has gone under in the past year was "fully funded." GX even has had to go so far as to coin the phrase "TRULY fully funded" (I believe that was the 3rd of their 5 buzz words).
TSIXQ was the most recent one in our specific sector to go bye-bye. How many times did that ex-MSFT guy Maffei tell everyone who would listen that they too were fully funded? LVLT was also fully funded. Now they're forced to restructure debt, and their stock price is just depreciating to zero. TGNT, MCOMQ, all the clecs.... they were all fully funded. And not as a dig on you re: GSTRF, but how many times did you hear about them being fully funded? Didn't both they and IRIDQ all come out with the same statements? Nice projections for revenue growth, and as it turns out, they were being unrealistic (with regards to users & minutes used, etc). So here's why people take with a grain of salt those that are so bullish on GX:
There was ALWAYS someone on each message board that came out and said that XYZ was fully funded. XYZ was going to make it. They have no debt troubles, because it will all pay off when they turn cash-flow positive in 2003 (and while I'm on that topic, it's also been a trend that companies reiterate that they are going to be cash flow positive up until the last possible quarter before they have to say "ummmm, we're not gonna hit that target afterall). In this case, I would suggest that you and Robert are just such people (someone had also brought this point up within the last day or so). IMO, I don't know if you have a motive, or whether you believe it. I am obviously not head-over-heels in love with GX anymore.
So far I have history on my side. It all starts with a revenue warning. GX has done that. Then there's the cash flow and funding issues... the jury is still out on that point. But mark my words on this,... the story has ALWAYS started out as such. Hopefully, for the shares I still own and everyone else still long (yes, you included), GX will rewrite the fairy tale. And as I have also posted lately, GX has a lot to prove to their shareholders. There is a lot of rebuilding of trust to be done.
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I'm sure there's more, as I had other ideas, but I've wasted way too much time on this as it is, not to mention the fact that my hand is cramping up since I usually don't type this much <gg>. So when the other things pop back into my mind, I'll try to remember to commit them to the message board.
But I've think I've done a pretty good job of answering your question why GX is (has been?) a bad investment. I should've just copied & pasted these since it's the same things I've been saying for the last few weeks.
Here's to being civil,
Jason |
