Consolidated gross margin as a percent of sales was 44.9% in the March 2001 quarter as compared with 47.6% of sales in the December 2000 quarter. Gross margins were somewhat lower in the current quarter as the Company continues to review non-paying customers, and where necessary, disconnect customers from its networks. The Company expects gross margin as a percent of sales will improve during the second quarter and throughout the remainder of calendar 2001. Consolidated EBITDA losses for the March 2001 quarter were better than expected at $15.3 million versus a $34.2 million EBITDA loss for the December 2000 quarter.
The Company achieved its goal of reducing selling, general and administrative costs associated with previous market expansion efforts, as well as controlling other discretionary spending.
In addition to the Company’s EBITDA loss for the March 2001 quarter, the Company recorded a restructuring charge totaling $5.0 million comprised primarily of direct costs associated with the previously announced revision of the Company’s business plan from 200 markets to its current 80 market business plan and severance costs associated with the related layoff of approximately 210 employees in January 2001.
The Company’s thirteen Class of 1996 markets continue to demonstrate strong financial results with sequential quarterly revenue growth of 5.8% in the March 2001 quarter and gross margin as a percentage of sales of 70.9%. Revenue for the Class of 1996 markets increased 39.6% as compared with the March 2000 quarter, with gross margins in excess of 70.0% of revenues for each of the past six quarters. As such, EBITDA for these markets before allocation of corporate overhead increased 64.5% from an annualized $79.4 million for the March 2000 quarter to an annualized $130.6 million for the March 2001 quarter.
Furthermore, from the March 2000 quarter to the March 2001 quarter, the eight Class of 1997/1998 markets’ revenues increased 73.6% from $9.4 million to $16.3 million. Gross margins for these markets increased 145.1% during the same period and annualized EBITDA before allocation of corporate overhead increased from $(0.4) million to $19.5 million, or to 29.9% of revenues in the March 2001 quarter.
The Class of 1999 markets also contributed to the Company’s improved financial performance with revenue growth of 112.7% as compared to the March 2000 quarter. Furthermore, EBITDA losses before allocation of corporate overhead decreased to $23.8 million for the March 2001 quarter compared to $26.6 million in the December 2000 quarter. The Class of 2000 markets also had EBITDA losses before allocation of corporate overhead which decreased from $6.4 million in the December 2000 quarter to $4.3 million in the March 2001 quarter.
As such, in the March 2001 quarter, each of the Company’s Class market groupings demonstrated improved EBITDA performance for the first time, with overall EBITDA before allocation of corporate overhead of positive $9.4 million as compared to positive $1.4 million in the December 2000 quarter.
Days sales outstanding in accounts receivable increased somewhat to 83 days as of March 31, 2001 from 78 days at December 31, 2000. The Company expects days sales outstanding to decrease to the mid-seventies by June 30, 2001.
During the March 2001 quarter, the Company and its consolidated subsidiaries invested approximately $136.3million in capital expenditures related primarily to local market construction, regional network ringactivations, and the central office build-out for the Class of 1999 and 2000 markets. The Company continues to expect full year calendar 2001 capital expenditures to be approximately $470-$500 million. As of March 31, 2001, total gross property, plant and equipment of the Company and its consolidated subsidiaries, was approximately $1.9 billion. During the March 2001 quarter, the Company funded its free cash flow deficit with draws from the proceedsfrom a common stock rights offering. Proceeds from the rights offering not needed to fund the quarter’s free cash flow deficit were used to pay down the Company’s bank credit facility. The Company expects to fundits projected future deficits through mid-2002 through a combination of additional draws under the credit facility and additional bank or institutional indebtedness.
