Hart Operates on Excite

Patti Hart knows she's stepping into a broadband maelstrom. The new chairman and chief executive officer of beleaguered Excite@Home Corp. has a challenging task ahead.

On her to-do list: Solve the company's severe cash crunch, reshape the content side of the business, launch new revenue streams, stabilize operational and technical problems, spend wisely, navigate an MSO minefield space and please an impatient Wall Street.

That's life in the Excite@Home tornado. In fact, when the cable-modem service provider warned Wall Street two weeks ago that it faced a severe cash crunch — just days after Hart's name first appeared as a CEO candidate — rumors circulated that Hart was livid about being kept in the dark about the broadband service provider's precarious financial position.

The truth, she said last week, is that Excite@Home's board of directors tabled final discussions to bring her on board a while back, specifically to address the cash issue. "That made me feel even better about joining a board who acted responsibly," Hart said. Still, Hart has her work cut out for her, and she'll start with the cash crunch. The company's available cash position dropped from $201 million at year-end 2000 to $104.5 million on March 31.

To stem the tide, Excite@Home is exploring several options, including the sale or leaseback of its backbone to AT&T Corp. for $75 million to $85 million. The company is also looking at selling off certain media assets, raising money through new equity or debt arrangements and tightening management of its operating and capital expenses, she said. "We have enough alternatives to solve the cash problems," Hart said.

When asked what Excite@Home will look like a year from now, Hart said she'll spend the next 45 to 60 days tackling that question. Hart, who was chairman, chief executive officer and president of Telocity Inc. — a digital subscriber line provider sold to DirecTV Inc. earlier this year — said the broadband services industry is reshaping itself, and will continue to do so.

Excite@Home will retain its leadership role in broadband services, she maintained. On the other hand, "We'll look at our [media] assets and evaluate what we are," she said. "Are we creating shareholder value? There are many assets that can be remolded and reshaped."

Hart takes pain to differentiate the different parts of Excite@Home's "media" business. The Excite.com narrowband portal has suffered from Internet advertising cutbacks.

At a minimum, "we have to find a way to make those assets work harder," she said. Selling its narrowband media assets also are a possibility.

Broadband content is a different matter because it helps to sell cable modems, she said. "There will be more of a distinction between narrowband and broadband content" going forward, she said.

Both Excite@Home and AT&T Broadband executives say they're studying possible price increases in monthly cable-modem subscription packages, but no final decisions have been made. Since many DSL providers have raised monthly rates, many analysts feel cable has room to make similar pricing moves.

During AT&T Corp.'s first-quarter earnings announcement last week, AT&T Broadband president Daniel Somers said the MSO was looking at ways of "broadening the [data] product line."

Hart said Excite@Home could develop premium services in tandem or separately from its MSO partners, which could range from lifestyle applications — such as entertainment services — to productivity and utility/communications services. Examples of the latter would include customer provisioning or security applications.

Hart's appointment — and the immediate resignation of former chairman George Bell — came the on same day as Excite@Home's first-quarter earnings announcement.

First-quarter revenue totaled $142.8 million, a 3 percent increase over first quarter 2000, as a 45-percent drop in advertising revenue on the Excite portal offset the increase in cable-modem service fee revenue.

The revenue drop sent net operating losses plummeting to $61.6 million, or 15 cents a share, compared to $4.6 million or 1 cent a share a year ago.

Net loss for the quarter was $832.6 million, the bulk of which — $630.5 million —stemmed from writing down company assets and restructuring charges.

Executive vice president and CFO Mark McEachen said Excite@Home had to dip into its cash to pay for two-thirds of its $68 million in capital expenditures in first quarter 2001, which contributed to the near 50 percent drop in its cash position.

The company is negotiating with AT&T for $75 million to $85 million in cash to maintain operations. The cash would be part of the backbone sale/leaseback strategy announced two weeks ago.

"We will lease an increasing percentage of capex going forward," McEachen said.

Excite added 449,000 net new subscribers in the quarter, a 40 percent increase from first quarter 2000's 321,000 additions. (Excite@Home doesn't include subscriber figures from Cablevision Systems Corp. for current or historical periods, since the two companies parted ways several months ago.)

But the first-quarter addition of 449,000 subscribers was down nearly 100,000 subscribers from fourth quarter 2000 on a run-rate basis.

Revenue per user was $9.60 in the quarter, said McEachen, down slightly from the previous quarter due to marketing costs.

McEachen said he expects worldwide subscriber growth of between 13 percent and 15 percent in the second quarter, and estimated that the company will finish the year with between 4.8 million and 5.1 million subscribers, up from today's 3.2 million.

He added that second-quarter revenue, operating costs and operating losses would be similar to the first-quarter numbers as broadband access revenue gains are offset by losses in the media business.

McEachen expects low single-digit revenue growth in the third quarter and high single-digit growth in the fourth quarter, with the company looking to become cash-flow positive by the end of the year.

Capital expenditures will fall between $250 million and $270 million this year, he said.