Digex loss more than doubled in quarter

Revenues decreased

$57 million charge taken to write down assets

August 16, 2002|By Julie Bell | Julie Bell,SUN STAFF

Digex Inc., a corporate Web-hosting company that is majority-owned by financially troubled WorldCom, said yesterday that its second-quarter loss more than doubled as revenue declined and it took a $57 million charge to write down the value of certain assets.

The Laurel-based company, which announced last week the layoffs of 200 employees, 20 percent of its work force, said it lost $119 million, or $1.83 a share.

That compares with a loss of $48.3 million, or 76 cents a share, in the second quarter of last year. Revenue fell to $48.7 million from $53.8 million.

The company said it was retaining more customers than it did in the first quarter and reducing its reliance on cash borrowings from WorldCom Inc., the parent of long-distance carrier MCI, which has filed for Chapter 11 bankruptcy protection while it reorganizes.

Analyst Andrew M. Schroepfer of Tier 1 Research, a Minneapolis-based industry research and consulting firm, said the company's cost-cutting and debt-reduction efforts are beginning to pay off.

He said that he expects Digex to be able to renegotiate, and reduce its WorldCom debt this year.

Additionally, Schroepfer said the company's depreciation and amortization costs should decrease now that it's written down the value of assets, primarily property and equipment.

"That to me says Digex is worth a ton more, and it's gaining momentum," Schroepfer said of the trends toward keeping more customers while reducing operating costs and debt.

Schroepfer said his firm sells industry research to Digex but that the company is not a consulting customer.

Digex had a net customer count - the number of customers it added minus those that discontinued using its services - of 689 in the second quarter, up from 599 in the first quarter.

The company's cash borrowings from WorldCom declined to $9 million in this year's second quarter from $13.2 million in the first quarter. Digex has borrowed money from WorldCom every quarter since a funding agreement began Aug. 1, 2001.

The company had received $112 million from WorldCom as of June 30.

The bankruptcy court has agreed that WorldCom can continue lending Digex up to $10 million a month.

"Our executive team is very focused on moving Digex forward to a state of financial independence," Chief Executive Officer George Kerns said in a statement. "This continues to be an eventful period, and we have concentrated a good portion of our time to staying in close touch with our customers. I believe we are seeing the results of that effort through the success we have had retaining customers in this challenging business environment."

The company expects to end its dependence on WorldCom for cash to pay operating and capital costs within about a year.

Shares of Digex lost less than a cent yesterday to close at 15 cents.

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