USi cuts more staff, reduces earnings outlook, still targets third quarter for breakeven

By Jennifer Mears
Network World, 04/25/01

ANNAPOLIS, Md.- Application service provider USinternetwork is continuing the consolidation it began earlier this year, announcing it would lay off about a quarter of its workforce, or some 250 employees, as it strives to compete in a slowing economy.

In a conference call Tuesday, USi CEO Andrew Stern also said the company would halt spending on stand-alone professional services and e-commerce because of slowing demand. In addition, Stern reduced growth forecasts for the year from $180 million to $150 million.

"What is clear," he said, " is the market growth is slower than we anticipated."

Stern, who took over the helm of the company last July, stood behind his claim that the company will breakeven in the third quarter, when the $35 million in annualized savings expected from the restructuring will be realized.

Stern says the ASP model is gaining greater traction in mainstream enterprises, but a lagging economy is slowing purchase decisions.

"We did see clients and prospects delaying their decisions, deferring their decisions, in some cases canceling projects they thought they were going to do, and in other cases reducing the magnitude of projects," he said.

USi reported a net loss of $45.4 million, or 33 cents per share, for the quarter ended March 31, compared to a loss of $39.6 million, or 42 cents per share, for the first quarter last year. Revenue in the first quarter of this year was $36.7 million, compared to $17.8 million during the same quarter a year ago. ASP services accounted for 91% of revenue in the first quarter this year.

First quarter contracts totaled $43 million, and new clients include Coors Brewing Company, Merchant's Tire & Auto Centers and the Arthritis Foundation, Stern says. He says about 30% of USi clients now buy more than one service from the ASP.

William Dering, an analyst with C.E. Unterberg, Towbin, says USi is heading down the right path by consolidating and trimming out inefficiencies. He says the ASP market is strengthening, but notes USi still needs to reduce some of its capital intensity. Some analysts have criticized USi for building out its own data centers.

However, Stern noted that capital expenditures decreased to $16 million in the first quarter, down from $26 million the quarter before, and that the company likely will not build out its own data centers in the future.

USinternetworking: www.usi.net

USi cuts more staff, reduces earnings outlook, still targets third quarter for breakeven

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