PSINet Reports $1.4 Billion Loss, Fires President
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Third quarter losses of $1.4 billion prompted the PSINet Inc., board of directors to fire its president, chief operating officer and fellow board member, Harold Wills, Thursday.
Taking Wills' place, PSINet board chairman William Schrader named James Cragg president of North American operations and Harry Hobbs as international operations president.
PSINet is also discontinuing its operations with subsidiary Xpedior Inc., in which it has 80 percent ownership. The company expects to lose about $664 million in the phase out.
It's been a bad quarter for the international backbone, Web hosting and consulting solutions provider, and officials don't expect it to get any better in the fourth quarter.
"There's been a caution in buying in general throughout our operations," Schrader said. "I think it is the start of a recession, or the continuation of a recession that started six months ago (with the devaluation of the dot com industry). However, I believe we're positioned well for when the recession ends."
Answering an indirect charge of incompetence of the former management, Schrader came to the outgoing president's defense.
"There's no way we could have predicted the market would valuate the dot-coms with billions and billions of dollars," Schrader maintained, "but giving our company, with real assets and a solid business plan, nearly no valuation."
An outside agency will also help the troubled carrier conduct a thorough operational and financial review of the company, which will be released before the 2000 annual report is released in February, 2000.
Until the review is completed, PSINet plans to delay and renegotiate most of the agreements it is currently under. It's first step is to reduce its planned capital expenditures by $100 to $200 million.
"I am committed to getting the shareholder value back in this company," Schrader said. "We will take all of the strategic options available and if the board of directors and I can't find a way to bring back value, we will seek outside help."
PSINet doesn't plan to scale back on its Web hosting business, however, because of strong gains it sees in the market. It currently has 10 Web hosting centers open now worldwide and plan to have another four operational next year.
Another undisclosed board member was released Thursday, and officials said they are currently in discussions with several external candidates to fill the two vacancies on the board.
Schrader said the directors realized it was time to refocus it strategy after the $7.34 per share loss his company saw this quarter.
"We would like to thank Pete for his contributions and wish him well in his future endeavors," Schrader said of the outspoken former chief operating officer. "With the establishment of this new organization, this is the appropriate time for the company to move in a different direction. I look forward to working more closely with Jim Cragg and Harry Hobbs, and I am confident that they will continue our focus on meeting customer needs as they drive margins and profitability.