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Intermedia sales soar, but profit remains elusive

Intermedia Communications Inc.'s first-quarter revenues more than tripled, the company said Wednesday, fueled by a recent acquisition and fast growth in its local telephone and data services businesses.

Revenues in the quarter ended March 31 rose to $136.8-million from $43.9-million a year ago, meeting analysts' expectations. Because the Tampa telecommunications company is spending millions of dollars to expand its fiber-optic network and add new customers, analysts focus more on revenue growth than the bottom line.

Indeed, Intermedia has yet to post a profit since it was founded more than 10 years ago. In the first quarter, the net loss was $191.8-million, or $10.87 a diluted share, including a one-time charge of $85-million related to the $640-million acquisition of Shared Technologies Fairchild Inc. in March.

A year earlier, the net loss was $30.8-million, or $1.89 a share.

The acquisition of Shared Technologies added about $13-million to Intermedia's local telephone business, which more than doubled in the first quarter, chief financial officer Robert Manning told analysts in a conference call.

Intermedia now offers a package of local, long-distance and data services in 24 cities, mainly in the eastern half of the United States. In about half of those cities, Intermedia sends the phone traffic through its own networks.

On the Internet side, the company's Digex unit added several well-known customers, including Lucent Technologies, TWA, Pepsi and Universal Studios. This helped increase revenues for the data services business to $36.5-million, a 223 percent increase from a year ago.

"Data services continues to see a very strong upside going forward," said Michael Renegar, an analyst with ABN AMRO in New York.

His optimism is strengthened by Intermedia's recent agreement with regional Bell company U S West Communications. U S West will send data traffic that is outside its 14-state region on Intermedia's network. "We could be getting 1,000 new customer connections a month," said Chris Brown, Intermedia's head of investor relations. "It's a recurring revenue stream."

Intermedia's rapid growth has helped fuel the company's meteoric rise in the stock market. Shares climbed to $91.25 last month, partly on takeover rumors that constantly swirl around the company. The stock has since fallen from those lofty levels, closing at $70.37{ Wednesday, up $5.37{.

But with the growth comes headaches. Intermedia endured higher expenses in the first quarter, which hurt operating cash flows. The company is upgrading its back-office computer systems, including billing and order entry to make it easier for the sales force to deal with customers. For instance, Intermedia has five billing systems now, down from eight at the beginning of the year, and expects to pare its systems even further.

The pressure is on for the company to become more efficient as it integrates more acquisitions this year. After buying Shared Technologies, Intermedia spent more than $300-million on National Telecommunications of Florida Inc. and LDS Communications Group to boost its presence in the South.

Absorbing those companies will force the company to record another one-time restructuring charge later this year. Intermedia wrote off $85-million in the first quarter for research and development costs at Shared Technologies.

"We've grown from a small company with a regional focus to an enterprise with annual revenue of $750-million and a national scope," said David C. Ruberg, Intermedia's chairman, chief executive and president.

He added that the company can't afford to miss opportunities to grow by "focusing on short-term results."

Still, analysts are expecting Intermedia to have positive cash flows next quarter. "I think they are working through things now," Renegar said. "But time will tell if it works out well."