ONI Systems Inc. (Nasdaq: ONIS) today announced the departure of CFO Chris A. Davis, who's leaving to join a newly created turnaround team at McLeodUSA (Nasdaq: MCLD) (see ONI Shuffles Execs and McLeod Reports Results, Restructuring).

Davis, whose tenure at ONI Systems lasted roughly 14 months, is taking on a bigger title at McLeodUSA. She will become COO and CFO and join a newly formed executive committee. At the new job, she'll be rejoining ex-colleague Ted Forstmann, senior partner at Forstmann Little & Co., an investment firm that's also playing a key role at McLeod.

Davis and Forstmann worked together for several years at Gulfstream Aerospace Corp., where Davis worked as executive VP and CFO prior to joining ONI Systems.

On a conference call with analysts this morning, Forstmann praised Davis's work and expressed pleasure at having her help with the McLeod turnaround. "Chris was an enormous help to me at Gulfstream, and together we faced a number of operating challenges," he said. He cited Davis as an executive particularly talented at streamlining operations in order to achieve financial makeovers.

Back at ONI, several steps are being taken to cope with the loss of Davis, who had been with the company since May 2000 when she helped shepherd its IPO. First, Ken Burckhardt, VP of finance, will become interim CFO until the company finds a Davis replacement. At the same time, Rusty Cumpston has been promoted from executive VP of engineering and operations to a newly created job of COO. Cumpston has been with ONI Systems since 1998.

Ordinarily, the departure of a CFO meets disapproval on Wall Street, particularly if the exec's tenure is short. But ONI shares weren't hit too hard on the news. In morning trading today, they were trading at $23.17, down 0.31 (1.32%). McLeodUSA shares were trading at $2.33, down 0.49 (17.38%).

Some analysts downplayed the move. "CFO departure is clearly a negative, but should have no material impact on ONI's opportunities and performance in the optical networking equipment market," wrote analysts Jim Parmelee and Gregory McNiff of Credit Suisse First Boston in a note yesterday.

The analysts say "ONI's fundamentals remain intact," and they're maintaining a Strong Buy rating on its shares.

Indeed, today's news looks to be more signficant for McLeodUSA than ONI Systems. The ailing carrier today announced a sweeping reorganization. Besides the appointment of Davis, the reorg includes the promotion of Steve Gray, former co-CEO, to the position of president and CEO, and the formation of an executive committee comprising management and newly appointed board members, including Ed Breen, president of the Networks Sector of Motorola Inc. (NYSE: MOT); Dale Frey, ex-CEO of ad agency Young and Rubicam; and Peter Ueberroth, who owns the Pebble Beach Co. golf mecca.

McLeodUSA also has embarked on a complex restructuring plan, primarily aimed at regrouping the company's finances. Included is the reworking of the carrier's investment arrangements with Forstmann Little, as well as an equity infusion of $100 million from that same firm.

McLeodUSA announced early in July that it had drawn $175 million of its $1.3 billion Secured Credit Facility.

Execs say these moves and others will help McLeod raise its ailing financials. "This structure has worked well [in other firms}," CEO Gray told analysts this morning. And he expressed "relief" at having the team in place to "move McLeod to the next level."

Analysts on the call praised the moves, while questioning whether the carrier really can achieve its goals in the present environment.

The carrier announced second-quarter 2001 results today, including revenues of $473.6 million for the quarter ended June 30 -- a 43 percent improvement year over year. EBITDA (earnings before interest, taxes, depreciation, and amortization) was $34.2 million for the quarter, up 300 percent year over year.

McLeodUSA says its 2001 EBITDA will be $150 million to $155 million on revenues of about $1.9 billion. For 2002, the company projects EBITDA to be $300 million to $325 million on revenues of $2.1 billion to $2.3 billion.

- Mary Jander, Senior Editor, Light Reading
http://www.lightreading.com