Tuesday October 26, 8:24 am Eastern Time
Company Press Release
SOURCE: PSINet Inc.
PSINet's 3Q99 Revenue Increases 108% to $140.6 Million; Accelerates Web
Hosting Center Rollout to 1.5 Million Square Feet Expands Global IP Network to 3.2 Terabits
HIGHLIGHTS * Annualized Revenue Increases to $562 Million * EBITDA for Quarter is $0.7 Million * Business Accounts
Increase 71% to 79,900 from 3Q98 * Over 1.2 Million Carrier & SOHO/Consumer Accounts Worldwide
HERNDON, Va., Oct. 26 /PRNewswire/ -- PSINet Inc. (Nasdaq: PSIX - news) today reported third quarter revenues of $140.6 million, an increase of 108%
over the $67.6 million reported for the third quarter of 1998 and an increase of 14% over the $123.8 million reported for the second quarter of 1999. EBITDA for
the quarter was a positive $0.7 million. The net loss available to common shareholders for the third quarter of 1999 was $87.7 million or $1.35 basic and diluted loss
per share. The results compare favorably to First Call's consensus EPS estimates of a $1.39 loss per share.
For comparison purposes, the net loss available to common shareholders for the third quarter of 1998, which included a charge of $13.4 million for acquired
in-process research and development, was $48.1 million or $0.93 basic and diluted loss per share. The net loss available to common shareholders for the second
quarter of 1999 was $62.0 million or $1.00 basic and diluted loss per share.
MANAGEMENT'S COMMENTS ON THE QUARTER
``This quarter marked another major milestone for PSINet, as we assembled the major components of our strategy to construct the leading Internet Super Carrier'
said William L. Schrader, chairman and chief executive officer. ``Today, PSINet has over 1,000 sales and marketing people in 22 countries on five continents
connected by a 3.2 terabit-capable network. PSINet has the most robust suite of products and services available to businesses, focused on global web hosting,
eCommerce, and high-speed Internet access. As we continue to solidify a leading position in the world's top twenty telecommunications markets, our global
customer base has grown to about 80,000 business accounts and over 1.2 million carrier customers. PSINet is setting the standard for 21st century
telecommunications.'
``Recently, we aggressively expanded our high-margin Web hosting business, opened our New York data center and announced construction plans for 1.5 million
square feet of data center space worldwide,' said Harold S. ``Pete' Wills, president and chief operating officer. PSINet's year-old Virginia and Toronto hosting
centers are nearly full. PSINet's London center is 30% full after three months of operation. ``Today, we have data centers under construction in Atlanta, Chicago,
Dallas, Hong Kong, Los Angeles, Tokyo and Toronto. Additionally, we continue to integrate our acquisitions by investing in both network and systems. The
combination of owning large globally dispersed hosting centers, owning the global fiber connecting them, and buying customers that we rapidly move to PSINet
services, are the keys to PSINet's strategy.'
``PSINet had an excellent quarter, growing revenues 14% sequentially, which consisted of organic growth of 10% and growth from acquisitions of 4%,' said
Edward D. Postal, executive vice president and chief financial officer. ``PSINet significantly improved on all key metrics including revenue, gross margin, and
EBITDA. We continue to invest in our fastest growing and highest margin businesses by expanding our data center strategy and increasing our modem deployment.
Our continued expansion in the global markets through investments in companies, fiber and hosting centers, should achieve significant operating leverage as these
companies increase in scale and we integrate the new acquisitions. It is particularly satisfying to report that for the second year in a row PSINet is on track to achieve
100% revenue growth.'
QUARTERLY HIGHLIGHTS AND RECENT DEVELOPMENTS
Products and Services
* Announced major new agreements that position the company as an Internet
Super Carrier (ISC), including;
- eCommerce Global Web Hosting Centers Expansion; 21 centers with 1.5
million square feet
- Extensive global distribution; 1,000 sales and marketing personnel, 2
2,500 value added resellers (VARs)
- One global brand, supported by local language sales, provisioning and
customer service
- Owned worldwide fiber optic IP networks capable of 3.2 terabits per
second speeds
* Announced the release of NDC's eCommerce Complete(TM), an end-to-end
credit and debit virtual storefront solution for businesses. The service
includes Internet connectivity, web hosting, store building capability,
shopping cart applications, live technical and graphical support, and on-
line, real-time transactions processing in over 160 currencies.
* Announced an agreement to provide wholesale Internet connectivity to
NetZero, Inc. (Nasdaq: NZRO - news), a leading national provider of free Internet
access and free e-mail. Under the agreement, NetZero will use PSINet's
IP-optimized network to provide dial-up access to its subscribers
throughout the United States. NetZero, which began publicly trading
shares on September 24, 1999, added over 1.68 million users between
October 1998 and August 1999.
* Announced that PSINet DSL (Digital Subscriber Line) service is now
available in 21 major metropolitan markets in the United States through
partnerships with Covad Communications, Inc. (Nasdaq: COVD - news) and Rhythms
NetConnections, Inc. (Nasdaq: RTHM - news). By partnering with leading DSL
providers, PSINet believes that it will be able to more rapidly deploy a
high quality product nationally than our competitors. PSINet's service is
now available in Atlanta, Austin, Baltimore, Boston, Chicago, Dallas,
Denver, Detroit, Houston, Los Angeles, Miami, Minneapolis, New York,
Philadelphia, Phoenix, Portland, Raleigh/Durham, Sacramento, San Diego,
San Francisco and Washington, DC.
* Formed a marketing technology alliance with Hewlett-Packard Company
(NYSE: HWP - news), and TWIinteractive that combines global Internet hosting,
access and management from PSINet; enterprise-server equipment and
technical integration services from HP; and sports-marketing expertise and
Web site development from TWIinteractive. This alliance added four
preeminent sports customers this quarter including, the British Open Golf
Championship, the America's Cup Challenger Series; the Brazilian National
Soccer teams and FC Barcelona, the largest professional soccer team in
Spain.
* PSINet also launched a new Internet universal transit product that
connects IP traffic in every country for a single price. PSINet's transit
product has global routing characteristics, a significant technological
advantage over competitors such as MCI WorldCom, Cable and Wireless and
Sprint.
Acquisitions and Alliances
* PSINet announced it had entered into a definitive agreement to acquire
Transaction Network Services, Inc. (NYSE: TNI - news). TNI, headquartered in
Reston, Virginia, is the leading worldwide provider of eCommerce data
communications processing, handling more than 20 million transactions per
day from 2 million businesses. The company handles over 70 percent of the
electronic point of sale transactions in the U.S. During the quarter
ended September 30, 1999, TNI reported revenue of $46.1 million, EBITDA of
$14.3 million and a net profit of $5.5 million. The purchase of TNI is
expected to be immediately accretive to PSINet's EBITDA and EPS measures.
The aggregate purchase price consists of $351 million in cash and 7.8
million PSINet common shares. TNI shareholders may elect to receive cash,
PSINet stock, or both. The stock portion of the transaction has been
designed to achieve tax-free treatment for federal income tax purposes.
The transaction is expected to close in late November, subject to TNI
shareholder approval.
* In U.S./Canada, acquired two ISPs, Internet Network Technologies in the
U.S. and TotalNet in Canada. Combined, these companies add 100 business
accounts and over 58,100 SOHO/Consumer accounts.
* In Europe, acquired seven ISPs: InterComputer, Abaforum, Infase and
Ciberia in Spain, Netwing in Austria, Elender in Hungary, and
Terzomillennio in Italy. Combined, these companies add over 1,200
business accounts and over 60,900 SOHO/Consumer accounts.
* In Asia Pacific, acquired two ISPs: Global Link and Vision Network
Online in Hong Kong. Combined, these companies add 500 business accounts
and over 4,000 SOHO/Consumer accounts.
* In Latin America, acquired seven ISPs: Sinfonet and OrbiNet in Panama,
Domain Internet, ServNet, and TBA in Brazil, NetSystem in Argentina, and
Netline in Chile. Combined, these companies add over 500 business
accounts and over 64,800 SOHO/Consumer accounts.
* Subsequent to the end of the quarter, acquired three additional
companies, including Zebra.Net in the United States, SPIN in Switzerland,
and Zircon in Australia. Combined, these companies add over 2,300 business
accounts and over 17,600 SOHO/Consumer accounts.
Network
* Opened two new global hosting centers, in London, England and New York,
New York. In aggregate these centers will add over 120,000 square feet of
revenue producing data center capacity and connect to PSINet's network at
speeds over OC-192.
* Signed an agreement with Loral Orion, Inc. for the purchase of two
satellite transponders that are scheduled for service in December 1999.
This transaction will provide connectivity to the rapidly expanding PSINet
operations in Latin America.
* Agreed to purchase a dark fiber pair on the FLAG Atlantic-1 cable
system. The fiber pair is capable of 800 Gbps of capacity. The system
will connect PSINet's New York, London and Paris hosting facilities. The
fiber will be ready for service in the first quarter of 2001.
* In October, agreed to purchase multiple dark fibers from IXC
Communications. The agreement also includes substantial collocation space
and interconnection arrangements. The initial plan is to light the first
4-fiber system by 2000, covering over 13,700 route miles across the U.S.
* Signed an agreement, subject to regulatory approval, that will allow
PSINet's customers to purchase Symmetrical Digital Subscriber Loop (SDSL)
in New York City. The local loop network will consist of an 11 node OC-48
SONET ring in Manhattan covering multiple central offices serving the New
York City business marketplace. Approval is anticipated in the fourth
quarter of 1999.
Corporate
* Announced the sale of $1.2 billion aggregate principal amount of 11%
Senior Notes due 2009, consisting of $1.05 billion aggregate principal
amount of 11% Senior Notes due 2009 and Euro 150 million 11% Senior Notes
due 2009. The net proceeds of the offering are expected to be used to
finance capital expenditures including the acquisition of additional
telecommunications bandwidth, related facilities and equipment; the
construction of Internet data centers; and for corporate acquisitions and
general corporate purposes.
* Expanded our relationship with Nortel Networks by signing a three-year,
global purchase agreement whereby Nortel products and services will be
used extensively throughout PSINet's network. In addition, PSINet and
Nortel are cooperating in joint marketing efforts and Nortel will finance
100% of the equipment purchased.
OPERATING RESULTS
* PSINet provided service to 79,900 business accounts at September 30,
1999, an increase of 71% over the 46,700 business accounts at September
30, 1998. Accounts outside the U.S. represented 60% of PSINet's customer
account base at September 30, 1999, compared with 51% at September 30,
1998.
* The average annual new contract value for business accounts was $6,700
for the third quarter, $700 above the average for the full year 1998, and
a decrease from the $7,300 in the second quarter of 1999. During this
quarter, non-US acquisitions in some less mature business markets lowered
the average contract values for the quarter.
* The business account retention rate remained strong for the quarter at
80%, the same as in the second quarter of 1999 and compared with a full-
year retention rate in 1998 of 79%.
* PSINet's Carrier and ISP business added a net 280 new customers this
quarter, bringing the total served to 644. These ISPs provide, along with
PSINet's SOHO/Consumer customers around the world, Internet services to
1.2 million customers using PSINet Internet solutions.
Year Ended: Qtr. Ended: Qtr. Ended: Qtr. Ended:
HISTORIC PERFORMANCE
METRICS 12/31/98 3/31/99 6/30/99 9/30/99
Business Accounts 54,700 59,700 73,400 79,900
Carrier & SOHO/Consumer
Accounts 863,000 898,000 1,041,000 1,261,000
Average New Contract
Value - Business Accounts $6,000 $6,200 $7,300 $6,700
Business Account
Retention Rate 79% 81% 80% 80%
Capital Expenditures
(in millions) $303.6 $101.5 $113.9 $194.3
Revenues (in millions):
U.S./Canada $183.5 $59.0 $70.0 $75.1
% of Total Revenues 71% 56% 57% 53%
Latin America -- -- $3.3 $7.3
% of Total Revenues -- -- 3% 5%
Europe $40.0 $15.9 $18.7 $23.7
% of Total Revenues 15% 15% 15% 17%
Asia $36.1 $29.9 $31.8 $34.5
% of Total Revenues 14% 29% 26% 25%
BALANCE SHEET
At September 30, 1999, PSINet had cash, restricted cash and short-term investments of $1.7 billion, compared with $485.0 million at December 31, 1998. This
includes an escrow of $66.7 million to fund the next two semi- annual interest payments on PSINet's 10% Senior Notes. Property and equipment, net of
accumulated depreciation and amortization, increased to $790.4 million at September 30, 1999, from $389.5 million at December 31, 1998. The September 30,
1999 balance includes $310.6 million in fiber assets. The company's debt obligations were $2.49 billion at September 30, 1999, compared with $1.12 billion at
December 31, 1998.
Consolidated Statements of Operations
(In millions of U.S. dollars, except loss per share)
Three Months Ended
September 30, 1999 September 30, 1998
% of % of
Amount Revenue Amount Revenue
Revenue $140.6 100.0% $67.6 100.0%
Operating costs and expenses:
Data communications
and operations 97.5 69.3 51.9 76.8
Sales and marketing 27.5 19.6 14.7 21.8
General and administrative 14.9 10.6 11.6 17.2
Depreciation and amortization 41.6 29.6 14.7 21.7
Charge for acquired in-process
Research and development --- --- 13.4 19.8
Total operating costs
and expenses 181.5 129.1 106.3 157.3
Loss from operations (40.9) (29.1) (38.7) (57.3)
Interest expense (59.4) (42.2) (18.7) (27.7)
Interest income 19.7 14.0 4.7 7.0
Non-recurring arbitration charge --- --- --- ---
Other income (expense), net (1.0) (0.7) 5.3 7.9
Loss before income taxes (81.6) (58.0) (47.3) (70.1)
Income tax benefit (expense) 0.3 0.2 --- ---
Net loss (81.3) (57.8) (47.3) (70.1)
Return to preferred shareholders (6.4) (3.4) (0.8) (1.1)
Net loss available to common
shareholders $(87.7) (62.4)% $(48.1) (71.2)%
Weighted average shares
outstanding (thousands) 64,844 51,659
Basic and diluted loss
per share (1) $(1.35) $(0.93)
Basic and diluted loss
per share excluding one-time
gains and charges (1) $(1.35) $(0.78)
EBITDA (2) $0.7 $(10.6)
Nine Months Ended
September 30, 1999 September 30, 1998
% of % of
Amount Revenue Amount Revenue
Revenue $369.3 100.0% $165.7 100.0%
Operating costs and expenses:
Data communications
and operations 259.9 70.4 130.5 78.8
Sales and marketing 68.0 18.4 37.9 22.9
General and administrative 47.3 12.8 29.4 17.7
Depreciation and amortization 102.8 27.8 37.0 22.3
Charge for acquired in-process
Research and development --- --- 40.4 24.4
Total operating costs
and expenses 478.0 129.4 275.3 166.1
Loss from operations (108.7) (29.4) (109.6) (66.1)
Interest expense (120.8) (32.7) (38.2) (23.1)
Interest income 32.6 8.8 11.4 6.9
Non-recurring arbitration charge 0.7 0.2 --- ---
Other income (expense), net (2.3) (0.6) 6.4 3.9
Loss before income taxes (198.5) (53.7) (130.0) (78.4)
Income tax benefit (expense) 0.8 0.2 (0.1) (0.1)
Net loss (197.7) (53.5) (130.1) (78.5)
Return to preferred shareholders (11.2) (3.0) (2.3) (1.4)
Net loss available to common
shareholders $(208.9) (56.5)% $(132.4) (79.9)%
Weighted average shares
outstanding (thousands) 60,105 49,120
Basic and diluted loss
per share (1) $(3.48) $(2.70)
Basic and diluted loss
per share excluding one-time
gains and charges (1) $(3.48) $(1.87)
EBITDA (2) $(6.0) $(32.1)
(1)The results for the three and nine month periods ended September 30,
1998 include $13.4 million and $40.4 million charges, respectively, for
acquired in-process research and development.
(2)EBITDA is used in the Internet services industry as one measure of a
company's operating performance and historical ability to service debt.
EBITDA is not determined in accordance with generally accepted
accounting principles, is not indicative of cash used by operating
activities and should not be considered in isolation or as an
alternative to, or more meaningful than, measures of performance
determined in accordance with generally accepted accounting principles.
PSINet defines EBITDA as earnings (losses) before interest expense and
interest income, taxes, depreciation and amortization, other non-
operating income and expenses, and charges for acquired in-process
research and development. PSINet's definition of EBITDA may not be
comparable to similarly titled measures used by other companies.
Condensed Consolidated Balance Sheets
(In millions of U.S. dollars)
September 30, 1999 December 31, 1998
Assets
Cash, restricted cash and
short-term investments $1,710.8 $485.0
Accounts receivable, net 65.5 50.2
Other current assets 54.2 30.1
Total current assets 1,830.5 565.3
Property and equipment, net 790.4 389.5
Goodwill and other intangibles, net 544.8 282.8
Other assets and deferred charges 133.8 46.6
Total assets $3,299.5 $1,284.2
Liabilities and shareholders'
equity (deficit)
Current portion of long-term debt $89.5 $60.0
Trade accounts payable 85.7 90.0
Accrued interest 50.0 29.0
Other accrued expenses 93.2 91.2
Deferred revenue 22.6 19.4
Total current liabilities 341.0 289.6
Long-term debt 2,402.8 1,064.6
Deferred income tax liabilities 2.9 6.1
Other liabilities 64.9 44.1
Total liabilities 2,811.6 1,404.4
Shareholders' equity (deficit)
Preferred stock 368.8 28.8
Common stock and capital
in excess of par value 826.5 402.5
Accumulated deficit (636.5) (427.6)
Treasury stock (2.0) (2.0)
Accumulated other comprehensive income 54.0 36.7
Bandwidth asset to be delivered
under IXC agreement (122.9) (158.6)
Total shareholders' equity (deficit) 487.9 (120.2)
Total liabilities and shareholders'
equity (deficit) $3,299.5 $1,284.2
Headquartered in Herndon, VA, PSINet is an Internet Super Carrier offering global eCommerce infrastructure and a full suite of retail and wholesale Internet
services through wholly-owned PSINet subsidiaries. Services are provided on PSINet-owned and operated fiber, satellite, Web hosting and switching facilities
providing direct access in more than 800 metropolitan areas in 22 countries on five continents. PSINet information can be obtained by e-mail at info@psi.com, by
accessing the Web site at www.psinet.com or by calling in the U.S.800-799-0676.
PSINet's third quarter earnings conference call will be broadcast over the Web via live video and audio streaming beginning at 11:00 a.m. Eastern Daylight Time and
can be accessed at psinet.com. Questions will be accepted via email at investor-relations@psi.com.
Cautionary Statement Concerning Forward Looking Statements Certain of the statements made in this release are forward-looking statements that are subject to
material risks and uncertainties. Actual results could differ materially, as a result of a variety of factors, including competitive developments, risks associated with the
company's growth, the development of the Internet market, regulatory risks and other risks which are discussed in the company's fillings with the Securities and
Exchange Commission.
SOURCE: PSINet Inc. |
