Interliant’s Restructuring Delivers Improved Q3

Interliant, Inc. , the Purchase, NY.-based provider of managed hosting and messaging solutions, today reported results for its third fiscal quarter, ended September 30, 2001.

“We took several significant steps toward dramatically improving our financial position and successfully executing our plan in a difficult economic climate,” says Bruce Graham, Interliant president and CEO. “We disposed of three of our non-core businesses, one of our goals for the quarter, and we recently executed a binding agreement that puts us within reach of a $120 million reduction in the face value of our convertible debt.”

In addition, he says Interliant realized a 38 percent improvement in pro forma EBITDA and a 22 percent increase in security revenues as compared to the second quarter: “In light of these achievements, I believe we are well positioned to emerge as one of the last independent ASPs and that we will be in position to seize opportunities as the economy improves,” he says.

After implementing restructuring initiatives in Q1, Interliant says in the third quarter, the firm has demonstrated continued improvements in many of its operational metrics. Details of which follow:

• A 38 percent improvement in pro forma EBITDA to negative $9.4 million from negative $15.2 million in the second quarter, and an improvement of 55 percent from reported Q1 EBITDA of negative $21.0 million (EBITDA is defined as – earnings before interest, taxes, depreciation, amortization, non-cash compensation, restructuring, and asset impairment charges and losses from discontinued operations);
• A 33 percent improvement in pro forma cash burn from Q2 to Q3, and a 55 percent improvement in pro forma cash burn from Q1 to Q3 ($35 million in Q1 to $15.7 million in Q3);
• Execution of an agreement expanding and extending our DellHost relationship;
• The sale or disposition of non-core businesses in August, 2001, including Enterprise Resource Planning (ERP) and Customer Relationship Management (CRM) hosting, benefits processing, Interliant Europe, and non-OEM Web hosting accounts. This move is expected to relieve $3 million per quarter;
• Expansion of our security practices into the metro New York and Washington, DC. markets.
• Introduction of 15 new products, including INIT Remote Managed Firewall and INIT Remote Monitored Firewall Services, Vulnerability Assessment Service, INIT App Care and INIT Mail Migration; and
• The launch of a scalable, secure OEM Hosting Platform to support our Branded Solutions partners. The platform architecture incorporates products including, EMC storage, Sun and Dell server technologies, Cisco and Alteon network infrastructure and Check Point security.

Revenue for the third quarter was $28.3 million. EBITDA was negative $10.6 million. Interliant’s net loss was $120.3 million, or negative $2.34 per share. The net loss for the quarter included impairment losses of $83 million and restructuring charges of $3 million. Cash and cash equivalents at September 30 was $19.0 million.

Pro forma results for Interliant exclude exited non-core businesses and non-recurring charges for restructuring costs and asset impairment losses.

Total pro forma revenue for the third quarter of 2001 was $25.1 million. Revenue from the Company’s core solution areas was $18.3 million, consisting of recurring revenues of $7.8 million, professional services revenue of $5.5 million, and hardware/software product revenue of $5.0 million.

Third quarter 2001 pro forma EBITDA improved to negative $9.4 million from negative $15.2 million in the second quarter. Gross margin declined to 24.9 percent from 28.8 percent in the prior quarter, reflecting an increase in lower-margin hardware/software sales as a percentage of total revenue and weakened demand for certain professional services.

Graham says the firm is not expecting further reductions in the firm’s number of employees. Since September 2000, Interliant saw a 48 percent head count reduction from 1,525 to 797 employees.

Graham also said that all restructuring would be completed by the end of 2001.