Yipes Rides Back With $63.5M
"We're in the right place at the right time," boasts CEO Dennis Muse. "We have a backlog of customers and revenue. Our pipeline has grown significantly." Revenues went up 83 percent between July 2002 and June 2003, Muse says. The company expects to see revenues double between this year and next, and Muse predicts profitability in 2004. Further, there will be even more funding to keep things going: The next round's expected no later than March 2004, Muse says.
Last year, Yipes was piping a different tune. After a four-month stint in Chapter 11, the once-brash startup dipped under the radar (see Yipes Joins Chapter 11 Club and Yipes Reborn – Amid Accusations).
The news raises the question: What's different now? How can Yipes avoid falling prey to the snares that threatened it before -- namely, the high operating costs associated with running fiber-based Ethernet services to enterprise customers?
No problemo, Muse says. Despite the post-bubble market, Yipes has busily expanded its range of available customers. The provider added 90 buildings to its accessibility roster over the last year, and now has 474 buildings connected to its service in New York, Philadelphia, Washington, Chicago, Dallas, Houston, Denver, Seattle, San Francisco, and San Diego.
Plans are underway to more than double Yipes's U.S. presence (up to 24 cities), while including 16 to 18 international locations by the end of 2004, Muse says. Since Yipes is keen on financial services companies, London may be its first international stop, followed by other European bourse locations.
Meanwhile, Muse made good on his promise to cut staff, made after he took the helm from founding CEO Jerry Parrick in March 2002 (see Yipes's Parrick Gets the Boot). Yipes now has 135 employees, down from 375 in its early 2001 heyday. That census will stay through breakeven, Muse asserts.
Promod Haque, managing partner at Norwest Venture Partners, says Chapter 11 helped Yipes get its balance sheet in better shape. Since Yipes started early in the retail Ethernet services market, they signed twenty-year dark fiber contracts at high fixed rates. Competitors were able to take advantage of subsequent rate drops, cutting off Yipes at the knees. Going into receivership fixed that mess. "They cleaned up the cost structure," Haque says.
Still, challenges loom. Since Yipes sells retail Ethernet services to enterprise customers, it still relies on getting access into buildings. According to Vertical Systems Group, lack of fiber access presents the biggest obstacle to Ethernet service growth stateside, despite solid predictions from some analysts (see Access Is Fiber-Starved). Muse admits getting into the right buildings takes time and careful negotiation with realtors and other interested parties.
There have been setbacks, too: While Yipes has increased its access roster this year, it looks as if access agreements with at least two other companies -- e-xpedient/CAVU Inc. and Storm Telecommunications Ltd. (see Yipes Finds E-xpedient Partnership and Yipes Etherizes Europe) -- apparently were derailed before the restructuring.
Competition looms, as well: Cogent Communications Group Inc. (Amex: COI), itself successfully restructured (see Cisco Powers Cogent's Restructuring), has substantially more buildings in its access roster than Yipes does (750 at last count). Cogent unveiled a 10-Mbit/s Ethernet service for ISPs today (see Cogent Offers Cheap Prepaid Service).
Yipes will also need a ton of cash to keep its build-outs going. While the round announced today is the first under the company's new management, Yipes roared through more than $291 million in three rounds between 2001 and 2002 (see Metro Providers Retrench).
At least one analyst predicts that both Yipes and Cogent face ongoing challenges from incumbent LECs and IXCs that want their piece of the Ethernet services pie. "I'm optimistic [about Ethernet services], but not necessarily from those two companies," says Jason Knowles of Current Analysis. Still, if both can hold their own against the likes of each other and incumbents and keep operating costs down, "they should do okay," he says.
— Mary Jander, Senior Editor, Light Reading