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From the Washington Post
By Yuki Noguchi, Between them, K. Paul Singh and John F. DePodesta have shed 33 pounds in the past year through exercise. They've also shed $675 million in debt from their telecommunications company, Primus Telecommunications Group Inc. Both measures proved healthy. Were it not for the debt reduction, "we'd be in bankruptcy," said DePodesta, executive vice president of Primus. He co-founded the McLean firm with Singh in 1994. Other telecom companies stuck with $2 billion or more in debt "are caught in the middle of the ocean and there is no way for them to reach the shore," he said. Primus, which sells long-distance phone service as well as Internet services, now has about $79.4 million in cash and is generating roughly $2 million a quarter. Primus's goals also have shifted. It's no longer gunning to get big fast. It has canceled some of its profitless ventures, including calling cards and Web-design services. It is sticking to selling voice and Internet services to residential and commercial customers, and it has cut its spending from almost $150 million a year to $50 million. And it's trying to reduce its debt even more. It may even generate a bona fide profit in 18 to 24 months. Not many Washington telecom firms can make such a claim. Primus is one of a handful of companies that has quietly turned itself around, said Vik Grover, an analyst with investment firm Kaufman Bros., which underwrote one of Primus's stock offerings in 1999. "The stock hasn't worked, obviously," Grover said, noting the company's stock price has fallen from $51.69 a share in March 2000, to its closing share price yesterday of 54 cents a share. But in the interim, Primus has laid off 1,300 people in the last year and cut spending, which means it has a shot of generating more cash than it spends by the middle of this year, he said. To be sure, Primus hasn't escaped the past year unscathed. At one point, the company announced it only had enough cash to fund its operations for 18 months -- a dire warning that sent investors bailing out of Primus stock, Singh said. The sell-off continued, as larger competitors offering similar services -- Concert Communications Co., Teleglobe Inc. -- encountered difficulty. Analysts turned generally sour on the entire sector. In November 1999, DePodesta and Singh sat at Singh's conference table contemplating their options: Sit still, or start using some of the cash they had left to try to trim their debt -- a move discouraged by investment bankers because it would deplete a dwindling supply of cash. At that time, Primus had $1.2 billion in revenue, $1.3 billion in debt, and $300 million in cash left in the bank. "Our calculations were rather simple," said Singh, a Harvard Business School grad who started Primus as provider of international long-distance phone calls at a discount to Washington's growing immigrant communities. "Interest costs were roughly $130 million a year at that time, or $40,000 a day," and if they did nothing, they'd be out of money within 18 months, he said. Or they could use their precious cash to buy back their debt at a heavy discount, and control their future, he said. Since Primus owns about 55 percent of its own bonds, it could change some restrictions on the debt, giving it the option to use that debt as collateral. More importantly, it has been able to cut interest payments to $60 million a year. Primus bought its debt on the open market, bit by bit. Usually, that would have raised the prices of the bonds, making it more expensive to buy back its debt. But the downward spiral of the telecom industry -- and telecom bonds -- worked to Primus's favor. No one believed in telecom anymore, DePodesta said of the series of bankruptcies in the industry, and no one wanted to buy bonds, so Primus was able to purchase bonds at about 20 percent of its actual value, he said. At the same time, the company trimmed costs, DePodesta said, by getting rid of some of its smaller business ventures, consolidating its call centers in Scotland and cutting back on its Web-development business. The weaker dollar has also helped Primus, which gets roughly 70 percent of its revenue from outside of the United States, giving it a 6 percent to 7 percent revenue boost. "We trimmed down, and made ourselves leaner," both physically and financially, DePodesta said. "I feel great." View the article in the Washington Post
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2003 Primus Telecommunications Group, Inc. |
