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Interliant Posts Losses, But Sees Brighter Future

Interliant Inc. posted a net loss of $1.65 per share for the first quarter, but experienced a 26-percent increase in recurring hosting revenue on its four core product lines that remain from an April 2 restructuring.

This quarter has been tumultuous for the Purchase, N.Y.-based ASP. Last week, Herb Hribar resigned as president and CEO, and as a member of the Interliant Board, to "pursue other opportunities." This week, it was revealed that the other opportunity was with VeriSign as executive VP and general manager of VeriSign's Global Registry Services group. Hribar was replaced by former COO Bruce Graham.

"For Interliant, this first quarter of 2001 has been a period of transition, in which we have taken actions that we believe have strengthened our fiscal and market position and helped align the Company to successfully implement its streamlined business plan,'' Graham said.

The April 2 restructuring eliminated Interliant's Enterprise Resource Planning (ERP), including HR and financials, Customer Relationship Management (CRM), and e-commerce offerings, leaving a set of four core offerings, including INIT Managed Messaging, INIT Managed Hosting, INIT Web Hosting and INIT Security Services, plus associated professional services.

On the remaining product solutions, Interliant experienced a 26-percent annualized increase in recurring hosting revenue, flat growth in professional services and a 29-percent decrease in hardware and software sales. "What this shows is that our hosting business continues to be fundamentally sound with areas of strong growth," Graham said. "At the same time, we were negatively impacted in these go-forward solutions by tightened capital spending in high-end network and security equipment."

Non-core product lines, which have been discontinued, saw a 12-percent decrease in revenues, 49-percent decrease in professional services and a 100-percent decrease in one-time software sales, he said.

Revenues were $39.6 million for the first quarter of 2001. This compares to revenue of $48.3 million in the fourth quarter of 2000 and $26.9 million for the same period a year earlier. This is an eight percent decrease after adjusting for certain one-time sales in the prior quarter. Hosting recurring revenue in the four core solutions grew at an annualized rate of 26 percent in the first quarter. This, however, was more than offset by a decline in product revenues.

First quarter 2001 EBITDA (earnings before interest, taxes, depreciation, amortization, non-cash compensation, restructuring and asset impairment charges and other non-operating income and expenses) was negative $21.0 million compared to negative $16.3 million reported for the fourth quarter of 2000 and negative $11.0 million for the same period a year earlier. First quarter 2001 operating results also include a non-cash charge of $36.2 million for asset impairment associated with the restructuring and planned disposition of assets.

Interliant's net loss was $81.2 million or $1.65 per share for the first quarter of 2001, compared to a net loss of $28.6 million, or $0.62 per share in the first quarter of 2000, and a net loss of $41.4 million or $0.86 per share in the fourth quarter of 2000. Excluding the $36.2 million impairment charge, the first quarter 2001 net loss was $45.0 million, or $0.92 per share.

Interliant ended the quarter with $47.5 million of cash and has in place agreements with affiliates of Charterhouse Group International Inc., and SOFTBANK Technology Ventures, VI, LP, and its related funds for commitments totaling $19 million in future funding. Under a separate agreement, EYT Inc. will repurchase Interliant's prior investment in EYT for $1 million.

"It's our hope that we'll be successful in attaining cash from the sale of our non-core businesses sufficient to prevent the need to access the committed funds from Charterhouse, SOFTBANK and EYT," Graham said. "While the company will have operating losses as we progress through the year, we believe that we are now well funded to reach positive EBITDA and breakeven cashflow."