Genuity gets $2B in credit, cuts 12% of staff

In a sign of the rough-and-ready times in the Internet economy, telecommunication service provider Genuity Inc. announced Thursday both that it is laying off 12 percent, or more than 800, of its employees, and that it is has received up to US$2 billion in additional long-term capital financing from majority shareholder Verizon Communications Inc.

The announcements came as Genuity posted slightly better-than-expected first-quarter results: A 21 percent growth in total revenue over the same period last year to $299 million, with a pro forma loss of $0.30 in earnings per share, assuming Verizon fully converts its stock options on Class B common shares, the company said. The consensus from analysts polled by Thomson Financial/First Call was that the company would post a $0.33 pro forma loss per share for the quarter.

Reported basic and diluted losses per common share were $1.52 for the quarter.

In a conference call Thursday, Genuity Chairman and Chief Executive Officer (CEO) Paul Gudonis said the company was being affected by a general economic slowdown, leading to a sense of uncertainty that has curbed IT spending.

For that reason, the company has implemented a cost-cutting scheme including the layoff of more than 800 employees, effective immediately, and has nixed plans to move to new facilities. During the conference call, the company emphasized that the staff cuts do not affect customer-service personnel.

Genuity is also shifting strategy, Gudonis said, by planning to focus on the corporate market and concentrating on improving dial-up access margins rather than on growth. These plans will be aided by the credit line extended by Verizon, which Genuity plans to tap into within the next two quarters.

The company posted a net loss of $292 million, compared to $210 million in the same period last year.

Genuity also posted a loss of $199 million in consolidated earnings before interest, taxes, depreciation and amortization (EBITDA), a 38 percent increase compared to the same period last year, and a 4 percent increase over the previous quarter. The company pinned the loss on its continued investments in network infrastructure as well as new sales and marketing campaigns.

Revenue from America Online Inc. (AOL), for which Genuity offers DSL (digital subscriber line) and dial-up access services, represented 32 percent of the company's total revenue, compared to 46 percent in the first quarter last year.

Overall DSL revenue jumped from $5 million in the first quarter of 2000 to $31 million in the same quarter of this year, representing a 500 percent increase in subscribers, the company said.

Revenues from hosting and value-added services during the period increased 53 percent over the first quarter last year and 14 percent over the previous quarter.

Looking ahead, the company expects to post an earnings-per-share loss of $0.30 to $0.35 for the second quarter, and predicts a $1 to $1.35 earnings-per-share loss for the year, Genuity Chief Financial Officer (CFO) Daniel O'Brien said during the conference call.

Although the company is posting overall losses, Verizon's partnership and credit injection have spelled a positive sign for investors and analysts.

However, Genuity's stock (GENU) was down .04 percent in mid-afternoon trading Thursday to $2.68.

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