PSINet Reports Q2 2000 Revenue of $278.3 Million, A 125% Increase Over Q2 1999; EBITDA Loss Narrows HIGHLIGHTS: - Annualized revenue increases to $1.8 billion - Web hosting revenue increases 59% quarter over quarter - 640 basis point increase in gross margin (33.0% vs 26.6%) - EBITDA loss narrows; 25% improvement over first quarter - PSINet business accounts increase to over 102,000 - Acquisition of Metamor Worldwide, Inc. completed ASHBURN, Va., Aug. 8 /PRNewswire-AsiaNet/ -- PSINet (Nasdaq: PSIX), the Internet Super Carrier, today reported second quarter 2000 revenues of $278.3 million, a 125% increase over second quarter 1999 and a 25% increase over the first quarter 2000. EBITDA for the quarter was a negative $11.7 million, an improvement of 25% compared with the negative $15.5 million for the first quarter 2000. The Company's net loss available to common shareholders for the quarter was $215.6 million ($1.32 basic and diluted loss per share), compared with the $204.2 million ($1.35 basic and diluted loss per share) reported in the first quarter 2000. Included in the net loss for the quarter is $35.2 million of accelerated amortization of certain intangible assets, $1.0 million related to the external costs for the planned disposition of the consumer business and gains of $4.0 million from the sale of certain investments. PSINet's results for the quarter include revenue, positive EBITDA and net loss contributions, for the period June 15 through June 30, from the recently acquired PSINet Consulting Solutions (formerly Metamor Worldwide, Inc.) of $30.3 million, $122,000 and $6.5 million respectively. "PSINet's web-focused Internet assets are now fully assembled within the PSINet family of companies," said William L. Schrader, chairman and chief executive officer. "Our team is operational in 29 countries with an improving gross margin, increasing revenue per customer and complete product mix of global Internet business solutions that make increasing use of our fiber, data center and other assets. With the addition of PSINet Consulting Solutions, our entire team is focused on delivering high quality, high value complex managed web hosting products. With over $1.5 billion of cash and cash equivalents on the balance sheet at June 30, we consider the Company to be well positioned to execute on its strategies." "The addition of the assets of PSINet Consulting Solutions to PSINet's already formidable product set will allow us to leverage our network connectivity and offer complete Internet related global business solutions and high margin products to a customer base of over 102,000 accounts," said Harold S. "Pete" Wills, president and chief operating officer. "We continue to see very strong demand for our web hosting products, particularly in the U.S. where the average annual contract value for new web bookings in the quarter was in excess of $240,000. We expect these new web bookings to produce annual revenue per gross square foot, a more relevant metric, in the $2,500 range. We have opened additional carrier class hosting center space in Atlanta and Toronto, bringing the total square feet of available space to 345,000." "We were ahead of expectations for total revenue, gross margin, EBITDA and EPS for the quarter," said Larry Hyatt, executive vice president and chief financial officer. "We had a sequential quarterly increase of 640 basis points in gross margin. This quarter, for the first time, we are able to indicate what the pro-forma results of Inter.net, our consumer subsidiary, and PSINet would have looked like if Inter.net had been an independent business entity and wholesale customer of PSINet as of the beginning of the quarter. Looking at the business in this way, Inter.net had proforma revenue of approximately $26 million, and contributed approximately 40% of PSINet's negative EBITDA for the quarter." "This quarter has been a turning point for PSINet," continued Hyatt. "We have now completed our development from being simply an internet access provider, to being able to provide global internet business solutions to companies, with a particular focus on complex managed web hosting. Clearly we still have a significant customer base of network connectivity businesses, but we expect our web and wholesale businesses to grow with more robustness. We believe that these dynamics, together with an increased investment in the positioning of Inter.net in anticipation of its planned disposition, will be beneficial for our stakeholders going forward. Before taking account of PSINet Consulting Solutions, we anticipate achieving our revenue target for the second half of 2000 of between $610 million and $620 million. We anticipate positive EBITDA for the half year in the 4.5% to 5.0% of revenue range, with EBITDA neutral to slightly positive for the full year. As we continue to focus upon cost control, we anticipate continuing improvement in our gross margins, with full year gross margins in the range of 33% to 36%." QUARTERLY HIGHLIGHTS -- On June 15, completed the acquisition of Metamor Worldwide, Inc. (Nasdaq: MMWW), a leading provider of information technology solutions. The acquisition also gives PSINet a majority interest in Metamor's publicly traded e-Business solutions subsidiary, Xpedior Incorporated (Nasdaq: XPDR). -- In June, announced the opening of a new state-of-the-art 88,000 square foot global eCommerce Internet hosting center in the City of Atlanta. -- Was an official sponsor of the Euro2000 soccer tournament in Europe, the third-most watched sporting event in the world. -- PSINet Ventures completed 36 new investments in the quarter, bringing the total to 80 investments through June 30. Investments to date are expected to produce over $75 million in revenue for PSINet. -- Signed an agreement with Cisco to purchase 100,000 modem ports in exchange for Cisco delivering 1,000,000 VISP customers to PSINet. PSINet and Cisco also entered into a joint marketing agreement, promoting PSINet as a Cisco powered network and partner. -- Signed multi-year wholesale agreement with Juno Online, the nation's third largest provider of dial-up Internet services. -- Subsequent to the quarter end, PSINet hired Larry Hyatt as executive vice president and chief financial officer and Lota Zoth as senior vice president and corporate controller. OPERATING RESULTS -- Significantly improved gross margin to 33.0% compared with 26.6% for the first quarter 2000. -- Web revenues grew 218% compared with second quarter 1999 and 59% sequentially. -- Provided service to over 102,000 business customer accounts at June 30, 2000, an increase of 39% over the 73,000 customer accounts at June 30, 1999. Accounts outside the U.S. represented 70% of the customer account base at June 30, 2000, compared with 57% at June 30, 1999. -- Average annual new contract value for PSINet business accounts increased to $9,800 for the second quarter of 2000 from $7,300 for the first quarter 2000. This continues to reflect the increasing demand for value-added services, specifically managed web hosting, and higher levels of bandwidth. -- The PSINet annualized corporate account retention rate remained strong for the quarter at 75%. -- As of June 30, 2000, PSINet serviced 1.8 million end users of its carrier customers around the world. HISTORIC PERFORMANCE METRICS Quarter Ended: 06/30/00 03/31/00 06/30/99 PSINet Business Accounts 102,300 98,900 73,400 PSINet Carrier Customers' end users 1,800,000 1,300,000 616,000 Average New Contract Value -- PSINet Business Accounts $9,800 $7,300 $7,300 PSINet Corporate Account Retention Rate 75% 75% 80% Capital Expenditures (in millions) $458.2 $423.6 $113.9 Revenues (in millions): U.S. and Canada $173.0 $136.4 $70.0 % of Total Revenues 62% 61% 57% Latin America $16.9 $14.1 $3.3 % of Total Revenues 6% 6% 2% Europe $45.3 $33.7 $18.7 % of Total Revenues 16% 16% 15% Asia Pacific $43.1 $38.7 $31.8 % of Total Revenues 16% 17% 26% BALANCE SHEET At June 30, 2000, PSINet had cash, restricted cash and short-term investments of $1.5 billion, compared with $2.0 billion at March 31, 2000. This includes an escrow of $38.7 million to fund the next semi-annual interest payment on PSINet's 10% Senior Notes. Property and equipment, net of accumulated depreciation and amortization, increased to $2.0 billion at June 30, 2000, from $1.5 billion at March 31, 2000. The company's debt obligations were $3.6 billion at June 30, 2000, up from the $3.3 billion at March 31, 2000. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In millions of U.S. dollars, except share amounts) Three Months Ended June 30, Six Months Ended June 30, 2000 1999 2000 1999 (Unaudited) Revenue: Internet services $248.0 $123.8 $471.0 $228.7 Consulting services 30.3 -- 30.3 -- Total revenue 278.3 123.8 501.3 228.7 Operating costs and expenses: Data communications and operations 167.3 86.7 331.0 162.8 Cost of consulting services revenue 19.2 -- 19.2 -- Sales and marketing 55.6 21.9 94.1 40.5 General and administrative 47.9 15.4 84.2 32.5 Depreciation and amortization 130.2 34.4 264.7 61.2 Restructuring charge -- -- 16.9 -- Costs related to planned distribution and sale of consumer of business 1.0 -- 2.1 -- Total operating costs and expenses 421.2 158.4 812.2 297.0 Loss from operations (142.9) (34.6) (310.9) (68.3) Interest expense (77.8) (31.9) (156.8) (61.5) Interest income 22.0 8.1 46.8 12.8 Other income (expense), net (0.7) (0.2) 32.9 (0.3) Loss before income taxes and minority interest (199.4) (58.6) (388.0) (117.3) Income tax benefit -- 0.4 -- 0.4 Minority interest 0.2 -- 0.2 -- Net loss (199.2) (58.2) (387.8) (116.9) Return to preferred shareholders (16.4) (4.2) (32.0) (4.8) Net loss available to common shareholders $(215.6) $(62.4) $ (419.8) $ (121.7) Weighted average shares outstanding (in thousands) (a) 163,871 123,912 157,080 115,314 Basic and diluted loss per share $(1.32) $(0.51) $(2.67) $(1.06) Basic and diluted loss per share excluding certain items (b) $(1.12) $(0.51) $(2.18) $(1.06) EBITDA (c) (11.7) (0.2) (27.2) (7.1) (a) The weighted-average shares outstanding used in all calculations give retroactive effect to the company's two-for-one stock split to holders of record as of the close of business on January 28, 2000. (b) For the three months ended June 30, 2000, excludes $1.0 million of incremental direct costs incurred in conjunction with efforts to consolidate the worldwide retail consumer operations into a new retail business unit named Inter.net Ltd., gains of $4.0 million from the sale of certain investments and $35.2 million of accelerated amortization of certain intangible assets. For the six months ended June 30, 2000, excludes $2.1 million of incremental direct costs incurred under Inter.net Ltd., gains of $36.5 million from the sale of certain investments, a $16.9 million restructuring charge and $94.2 million in depreciation and amortization for the write-off and accelerated depreciation and amortization of certain tangible and intangible assets relating to implementing a global brand image, eliminating redundancies in our network, streamlining operations and product offerings, and taking advantage of synergies created by the Company's integration process. The results for the three and six months ended June 30, 1999 include $0.7 million gain resulting from an adjustment to a non-recurring arbitration charge originally recorded in 1998. (c) 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, restructuring charge, and costs related to the planned distribution and sale of the consumer business. PSINet's definition of EBITDA may not be comparable to similarly titled measures used by other companies. SELECTED BALANCE SHEET DATA (In millions of U.S. dollars) June 30, December 31, 2000 1999 Cash, cash equivalents, short-term investments and marketable securities (including restricted amounts) $1,539.7 $ 1,755.3 Property, plant and equipment, net 1,983.1 1,162.6 Goodwill and other intangibles, net 2,809.6 1,212.0 Total assets 7,058.9 4,492.3 Current portion of debt 195.6 115.0 Long-term debt 3,418.1 3,185.2 Total liabilities 4,382.7 3,769.3 Total shareholders' equity 2,676.2 723.0 SOURCE PSINet CONTACT: Robert Leahy, media, 703-726-1063, or [email protected], or Kevin Libby, Analysts, 877-990-PSIX, or [email protected], both of PSINet Web site: http://www.psinet.com -END-