PSINet Announces Q3 2000 Results
ASHBURN, Va.--(BUSINESS WIRE)--Nov. 2, 2000--PSINet Inc. (NASDAQ:PSIX - news)
Revenue increases 151% over the same period last year and 27% quarter over quarter
Hosting center revenue increases 300% over same period last year and 24% quarter over quarter
New operating organization outlined; Harold S. (Pete) Wills resigns
Forward looking guidance to follow financial and operational review, to be completed by February 2001
As the review progresses, the Company will examine strategic alternatives
Xpedior classified as a discontinued operation
Non-strategic Consulting Solutions and other assets written down and held for sale
PSINet Inc. (NASDAQ:PSIX - news), the Internet Super Carrier, today reported third quarter 2000 revenues of $352.5 million; a 151% increase over third quarter 1999 and a 27% increase over the second quarter 2000. EBITDA for the quarter was a negative $13.8 million compared with a negative $11.7 million in the second quarter of 2000.
Included in the net loss for the quarter were $695.0 million for the results and expected loss on disposal of discontinued businesses, $16.2 million of net restructuring charges and $504.0 million for the impairment of certain long-lived assets. Including these charges, PSINet reported a net loss available to common shareholders for the quarter of $1.4 billion ($7.34 basic and diluted loss per share), compared with $215.6 million ($1.32 basic and diluted loss per share) reported in the second quarter 2000.
In order to link executive decision making more closely with customer requirements, the Company announced a new organizational structure. James F. Cragg has been named President for North American Operations, and Harry G. Hobbs has been named President for International Operations. Both will report to William L. Schrader, Chairman of the Board and Chief Executive Officer, and have full profit and loss responsibility for all bandwidth, hosting and consulting assets and operations in their respective regions.
As part of the reorganization, PSINet also announced that Harold S. (Pete) Wills has resigned as President and Chief Operating Officer, and as a member of the PSINet Board of Directors. ``We would like to thank Pete for his contributions and wish him well in his future endeavors,'' said William L. Schrader, PSINet chairman and chief executive officer. ``With the establishment of this new organization, this is the appropriate time for the Company to move in a different direction. I look forward to working more closely with Jim Cragg and Harry Hobbs, and I am confident that they will continue our focus on meeting customer needs as they drive margins and profitability''
In a related development, PSINet also disclosed that its Board of Directors is currently in discussions with several experienced external candidates to fill two vacancies on the Company's Board. The Board indicated that it expects to announce appointments in the near future. Once these vacancies are filled, the Company's six-person Board will comprise five outside Directors and one management insider.
PSINet also announced that forward-looking guidance will follow a complete financial and operational review, to be completed by February 2001. ``We have taken a number of steps to reduce our cash requirements,'' said Larry Hyatt, Executive Vice President and Chief Financial Officer. ``These include reductions in planned capital expenditures of between $100 million and $200 million, and the identification of a number of assets and businesses for sale. However, current internal forecasts suggest that the Company's results for the fourth quarter of 2000 may be lower than we previously expected. Rather than issue forward-looking guidance at this time, we plan to conduct a thorough financial and operational review of the restructured organization. E&Y Capital Advisors LLC, a subsidiary of Ernst & Young LLP, has been engaged to assist us with this review, which will be completed prior to the issuance of our annual results in February. At that time, we will provide guidance for 2001, and on the longer-term profits and cash flow of the Company.''
``With our fiber and hosting center assets, almost 100,000 corporate customers, and the best team of employees in the industry, PSINet is well positioned to meet its customers' needs for consulting and managed web hosting services together with reliable high speed Internet access,'' added Schrader. ``As we approach the completion of our network and hosting center build out, most of our competition is still in the early phases of the investment necessary to duplicate our solution set and product lines.''
``Current market conditions are quite challenging, as the slowdown in Internet spending becomes more apparent every day. PSINet needs to take clear and decisive steps to preserve and enhance value for our shareholders and bondholders. As we proceed with the financial and operational review, the Board will consider whether the long term interests of our stakeholders are better served by remaining independent or seeking other strategic alternatives.''
The Company also announced the following:
PSINet's 80% ownership stake in its subsidiary Xpedior, Inc. (NASDAQ:XPDR - news) is being classified as a discontinued operation, and the Company has recorded a $663.8 million expected loss on disposal, including estimated losses during the phase-out period. Additionally, included in the Company's net loss for the quarter is $28.5 million representing its share of Xpedior's third quarter net loss. PSINet has engaged CS First Boston to pursue the disposition of its stake in Xpedior. As previously announced by Xpedior, PSINet is making an additional $15 million investment in the company, in the form of convertible preferred stock. The Company considers this investment an integral step in preserving the value of its stake in Xpedior. Additionally, Xpedior has obtained bank financing and announced a series of management and Board changes, including electing Mr. Schrader as chairman of Xpedior's Board.
Certain of the Company's Consulting Solutions businesses acquired as part of Metamor Worldwide have been identified as non-strategic, and the Company has engaged the investment banking firms of Lazard Freres & Company and Daniels & Company, to assist with their valuation and sale. The Company is taking a $504.0 million asset write-down to reflect these businesses and certain other assets at their estimated fair market value.
Capital expenditure requirements for the remainder of 2000 and 2001 have been reduced by between $100 million and $200 million, primarily by delaying the construction of hosting centers scheduled to open after the end of 2001.
The provision for bad debts as a percentage of total revenue increased from 1.6% in the second quarter to 3.3% in the third quarter of 2000. This increase reflects the combination of customers in the Internet industry negatively impacted by recent market conditions and systems integration issues in recent acquisitions. The reserve for bad debts was 16.8% of total receivables at the end of the third quarter, compared with 13.5% at the end of the second quarter.
A net restructuring charge of $16.2 million was incurred in the quarter, primarily reflecting the costs involved with selected head count reductions.
QUARTERLY HIGHLIGHTS
In September, opened a new Carrier Class global eCommerce Internet hosting center in Toronto, Canada. Additionally and subsequent to the quarter end, opened new Carrier Class global eCommerce Internet hosting centers in Amsterdam, The Netherlands and Seoul, Korea.
Selected by General Electric International, Inc., a business unit of General Electric, Inc. (NYSE:GE - news), to provide web-hosting services to its Japanese division.
Selected by Hewlett Packard Company (NYSE:HP - news) as the Application Service Provider (ASP) for its global supply chain management system.
Partnered with Sallie Mae (NYSE:SLM - news) to deliver an ASP program to schools and universities nationwide.
Announced an expansion of the existing partnership with Akamai (NASDAQ:AKAM - news), through which PSINet will now offer the full suite of Akamai's Internet content, streaming media and applications delivery services to its worldwide customer base.
Announced a multi-year commitment with Equilon Enterprises LLC and Motiva Enterprises LLC, oil refining and marketing joint ventures of Shell Oil Company (NYSE:RD - news and SC - news), Texaco, Inc. (NYSE:TX - news), and Saudi Refining, Inc. to offer Internet service to more than 23,000 Shell and Texaco retail gasoline stations in the United States. The arrangement supports ``allianceonline,'' a secured internal Internet portal used for conducting paperless business transactions between the companies, and Texaco and Shell retailers and wholesalers.
PSINet Consulting Solutions became a strategic ASP partner with Great Plains Software, Inc. (NASDAQ: GPSI - news), a leading provider of e-business solutions that interconnect business communities.
Announced an agreement to provide Virtual ISP (VISP) service to LatinoFam.com, the first Hispanic Internet Service Provider (ISP) for the Latino community in the United States and Latin America.
PSINet named the top North American Internet Service Provider by Network Magazine in its 2000 North American ISP Survey, conducted with Extelligent, an independent Denver-based technology market consulting and research firm.
OPERATING RESULTS
Hosting revenue grew 300% compared with third quarter 1999 and 24% sequentially.
During the quarter, PSINet stopped offering or renewing contracts for low margin, dial-up and shared web accounts, mainly in the U.S. At the end of the quarter, PSINet provided service to over 97,000 corporate customer accounts. Accounts outside the U.S. represented 75% of PSINet's customer base at September 30, 2000, compared with 60% at September 30, 1999.
Gross margin for the quarter was 31%, a decrease of 2% from last quarter, largely as a result of the performance of the Consulting Solutions businesses, which had a gross margin of 28% for the quarter.
Average annual new contract value for PSINet corporate accounts increased to $15,000 for the quarter from $9,800 for the second quarter 2000. This continues to reflect the increasing demand for value-added services, specifically managed web hosting, and higher levels of bandwidth.
The average annual new contract value for U.S. managed web service accounts during the quarter was $354,000, an increase of 46% over the value in the second quarter.
The PSINet annualized corporate account retention rate remained strong for the quarter at 80%.
As of September 30, 2000, PSINet serviced over 2.4 million end users of its carrier customers around the world. |
