August 8, 2002 -- The good news for Universal Access is that revenues from 23 of its 25 largest customers were stable or higher in the second quarter of 2002.
The bad news is that the other two were WorldCom and Metromedia Fiber, the company's two largest customers, which each filed for bankruptcy during the quarter.
That contributed to a $5 million decline in revenues to $24.1 million, compared to $29.1 million in the first quarter.
That revenue hit, along with a $50.5 million one-time charge, brought the overall quarterly loss for the Chicago-based network service provider to a whopping $72 million, compared to $13 million in the first quarter of 2002.
Universal Access said about $42 million of the impairment charge reflected a decline in the value of its 17 Universal Transport Exchange data centers, which the company now values at about $36 million.
Chairman and CEO Patrick Shutt said Universal Access is taking the difficult steps needed to survive.
"We successfully weathered the bankruptcies of two large customers in the second quarter," said Shutt. "We have taken actions to mitigate our risk ... and believe that, while there are no guarantees, there is less risk with our other large customers."
That customer list includes such names as AT&T, America Online, Microsoft and Level 3, he noted.
"We believe we are taking the necessary steps to help Universal Access make it through the valley," Shutt added.
That includes continuing efforts to reduce the company's burn rate, which was $12.5 million in the second quarter, down from $17.9 million in the previous quarter.
. But with just $30.5 million in cash remaining - representing less than three months of funding at the current burn rate - more needs to be done. Chief financial officer Randy Lay said additional cost reductions are planned.
"We are confident we have control over our costs and cash and can survive during this period of turmoil in the telecom industry," said Lay. "Despite the challenges our industry faces, we have a strong business model and have taken the steps necessary to protect our company's interests."
The impact of the WorldCom and MFN Chapter 11 filings affected Universal Access' margins "very dramatically," according to Shutt. That gross margin, which had been 27.1 percent in the first quarter, fell to 16 percent in the three months ended June 30.
Lay emphasized that this was a temporary phenomenon, caused by the lag time between disconnections by bankrupt customers and Universal Access' termination of the underlying services from interconnection partners.
As bankruptcies and asset sales roil the industry, Shutt said the company's Universal Information Exchange database will continue to be a critical asset for the industry. The database includes extensive information about fiber routes, interconnection points and other assets for most North American data networks.
"Even if the industry consolidates down to 5 players, those 5 players would need to deal with the morass of physical infrastructure," said Shutt.