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USi Lays Off 150, Edges Closer to Profitability

ASP pioneer USinternetworking Inc. Tuesday (Jan 16) announced it will reduce its workforce by 11 percent, or approximately 150 employees, while accelerating its previously disclosed target of EBITDA breakeven from fourth quarter 2001 to third quarter 2001.

"We're not reducing our capacity in any place that will affect our ability to serve our clients, or our ability to grow," said CEO Andrew A. Stern in a conference call Wednesday. "We see this as a natural change in the evolution of a still-young and high-growth company."

USi expects to report revenues for the fourth quarter ended December 31, 2000 of approximately $37.0 million, including one-time fees of approximately $3.0 million primarily related to the early termination of a contract with USWest. The Company expects to report an EBITDA loss of approximately $12.0 million. Actual results are subject to final audit.

Stern said the loss of the USWest contract was not a performance issue, but a competitive one. "USWest was acquired by Qwest, and Qwest is a competitor of ours," he explained.

During the fourth quarter, USi secured approximately $49.0 million in new service contract value. "The contract value sold in the quarter reflects both customer hesitations early in the quarter based on now-resolved liquidity concerns, as well as client sentiment regarding the broader economic environment," Stern said. "Nonetheless, we are pleased with the enterprise orientation and caliber of the 33 new client units signed in the quarter." New clients include companies such as Magellan Health Care, The Longaberger Company and Polyclad Technologies, a Cookson Electronics Company.

"We continue to be encouraged by the increasing efficiencies we are realizing in servicing our clients, as reflected in our improving EBITDA performance," said Stern. "We are deriving operating efficiencies by leveraging our experience in implementing and maintaining mission critical systems as well as from efficiency gains realized through recent organizational changes."

The workforce reductions will occur predominately in areas where increasing efficiency and organizational re-alignment have created excess capacity and accordingly will not impact client service levels or future growth.

"We continue to see good acceptance of our ASP value proposition among enterprise clients and foresee substantial opportunities for future growth. Despite the vagaries of the economic climate, USi is well positioned to achieve or exceed its profit and cash flow goals for 2001, while maintaining its commitment to exceptional customer service," said Stern.

Consistent with industry trends, USi continues to experience erosion of its early stage, venture backed client base, which is expected to represent approximately 7 percent of the 12-month backlog at the end of the fourth quarter 2000. Total backlog is expected to be approximately $104 million at year-end 2000.

USi expects revenue for the first quarter 2001 to be approximately $35 million, or slightly above fourth quarter 2000 revenues prior to termination fees. Revenue for 2001 is expected to be approximately $180 million, a 64 percent increase over expected 2000 revenues.

USi expects EBITDA loss for the first quarter 2001 to decline to approximately $11 million inclusive of costs associated with the reduction in workforce. For the full year 2001, USi expects the EBITDA loss to be in the range of $10 million to $11 million, down from an expected $72 million loss for 2000. The company expects to accelerate its previously disclosed target of EBITDA breakeven from fourth quarter 2001 to third quarter 2001.

Details concerning the fourth quarter and full year 2000 audited financial results, as well as a complete overview of fourth quarter 2000 operations, will be released on February 13, 2001. A conference call will be held at 5:30 PM (ET) on the same day to discu