USINTERNETWORKING INC
8-K, EX-99.1, 2000-10-26
COMPUTER PROGRAMMING SERVICES
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                                                                    EXHIBIT 99.1


FINANCIAL ANALYST & INVESTOR CONTACT:                MEDIA CONTACT:
Dave Miller                                          Christopher Walker
USinternetworking, Inc.                              USinternetworking, Inc.
(410) 897-1746                                       (410) 897-3560
[email protected]                                  [email protected]

     USINTERNETWORKING, INC. ANNOUNCES THIRD QUARTER 2000 FINANCIAL RESULTS
         EBITDA LOSSES CONTINUE TO NARROW, BACKLOG EXCEEDS $100 MILLION

ANNAPOLIS, MARYLAND, OCTOBER 24, 2000 - USinternetworking, Inc. (USi, Nasdaq:
USIX), a leading Application Service Provider, today announced results for the
quarter ended September 30, 2000. Revenue for the third quarter of $28.3 million
represents a 189% increase compared to the same period for 1999, and an 8%
increase over the previous quarter. EBITDA loss for the quarter improved to
$18.0 million, and the net loss amounted to $47.8 million or $0.49 per share.

Additional highlights:

         -        Secured over $76 million in new service contract value, the
                  Company's second highest quarterly performance, bringing
                  contract value sold year to date to $240 million.

         -        Secured 45 new service contracts, including enterprise &
                  government clients such as Amadeus Global Travel Services,
                  GMAC Home Services, Nextel, the Federal Railroad
                  Administration, and the Federal Energy Regulatory Commission
                  through a subcontractual agreement with a systems integrator.

         -        Renewed contracts with early clients Hershey Foods Corporation
                  and Knoll Pharmaceutical, indicative of USi's ability to
                  provide its clients with exceptional service and client
                  support.

         -        Reached 12-month backlog of $101.3 million.

         -        Increased average monthly recurring revenue to $44,200.

         -        45% of the Company's clients have now upgraded their
                  contracts.

         -        21% of the Company's clients now utilize multiple services,
                  buying on average 2.5 services each.

"While revenue and backlog growth this quarter were lower than expected, our
losses narrowed faster than anticipated through substantial gains in operating
efficiency. EBITDA and EPS were better than forecasted despite revenue below
plan," said Andrew A. Stern, Chief Executive Officer of USi. "We were also
pleased by the level of contract value sold given the market environment,
reflecting continued strong demand for USi's solutions."

The Company attributed lower than expected growth for the quarter to a mix of
several factors including a reduction in dot.com business, the timing and level
of new contract value sold, and a decrease in professional services revenue.



<PAGE>   2

Deteriorating dot.com business was the primary reason the Company experienced
slower growth than expected. During the quarter, several of USi's dot.com
clients faced financial difficulties. As a result, USi discontinued recognizing
revenue and wrote off related costs and backlog associated with these clients.
"Start-up, venture funded companies represented only 13% of our backlog at the
end of the quarter," said Stern. "The vast majority of our revenues come from
contracts with well-established, enterprise companies."

USi achieved significant operating efficiencies in the quarter, as evidenced by
better than anticipated EBITDA and EPS. The Company consolidated the number of
business units from eight to four, and reduced headcount growth to more
effectively utilize labor.

The debt commitments previously announced have closed with the exception of the
$50 million revolving line of credit. The anticipated closure of the revolver
was slowed by the complexities of required inter-creditor agreements. The
commitment expired without final closure due to acceleration in capital
expenditures and a deteriorating debt financing environment. The Company's
discussions with this lender are ongoing. The Company's ability to draw on its
credit lines is subject to achievement of operating metrics and other customary
terms and conditions.

The Company is in the process of raising additional capital and is in engaged in
discussions with strategic partners and investors. A nationally recognized first
tier investment bank has been retained to manage this process and to review a
broad range of financing alternatives.

 "The capital structure enhancements we are pursuing will form a strong base
from which to finance future growth," said Stern. "This capital base, combined
with our actions to improve capital utilization and cost efficiency, will allow
the Company to realize its longer-term objective of maintaining our leadership
position in the ASP market while generating attractive returns on our capital."

USinternetworking, Inc. will hold its quarterly conference call on Tuesday,
October 24, 2000 at 5:30 p.m. ET, at which time the aforementioned issues will
be further addressed. The call will be accessible via Webcast at
http://www.usi.net/aboutusi/investors . A re-play of the call will be available
beginning at 9:00 p.m. ET on October 24, 2000 and will remain available through
7:00 p.m. ET on October 31, 2000.

ABOUT USINTERNETWORKING, INC.
USinternetworking Inc. (Nasdaq: USIX), a leading Application Service Provider
delivering e-commerce and enterprise software as a service. The company's iMAP
portfolio of service offerings delivers the rich functionality of leading
software from Ariba, BroadVision, Lawson, Microsoft, Oracle, PeopleSoft and
Siebel as a continuously supported, flat-rate monthly service via an advanced,
secure global data center network.

Internet Managed Application Provider, iMAP, AppHost, PriorityPeering, USiGSP,
USiSAN USiAccelerate, and Making Software Simple are service marks of
USinternetworking, Inc. All other



<PAGE>   3

trademarks are the property of their respective owners. USi strategic partners
and providers are publicly traded on Nasdaq under the symbols: ARBA, BVSN, CSCO,
MSFT,ORCL, PSFT and SEBL.

Information in this release may involve guidance, expectations, beliefs, plans,
intentions or strategies regarding the future. These forward-looking statements
involve risks and uncertainties. All forward-looking statements included in this
release are based upon information available to USinternetworking Inc. as of the
date of the release, and we assume no obligation to update any such
forward-looking statement. The statements in this release are not guarantees of
future performance and actual results could differ materially from our current
expectations. Numerous factors could cause or contribute to such differences.
Some of the factors and risks associated with our business are discussed in the
Company's registration statement on Form S-3 filed with the Securities and
Exchange Commission ("SEC") on October 12, 2000, the Company's Form 10-Q filed
with the SEC on August 15, 2000, and in our other reports filed from time to
time with the SEC.
                                      # # #





<PAGE>   4



                             USINTERNETWORKING, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
                                                                                  SEPTEMBER 30,          JUNE 30,
                                                                                      2000                 2000
                                                                                -----------------    -----------------
                                                                                   (unaudited)          (unaudited)
<S>                                                                            <C>                  <C>
 ASSETS

 Current assets:
      Cash, cash equivalents, and marketable securities                             $ 81,071,731        $ 165,354,222
      Accounts receivable, net                                                        29,071,528           26,500,532
      Prepaid expenses and other current assets                                       21,579,609           18,606,877
                                                                                -----------------    -----------------
          Total current assets                                                       131,722,868          210,461,631

 Deferred iMAP costs, net                                                             28,822,137           22,058,691
 Property and equipment, net and prepaid software licenses                           226,522,876          197,014,594
 Goodwill                                                                             29,957,716           25,929,716
 Other assets                                                                         11,504,421            6,721,706
                                                                                -----------------    -----------------

          Total assets                                                             $ 428,530,018        $ 462,186,338
                                                                                =================    =================


 LIABILITIES AND STOCKHOLDERS' EQUITY

 Current liabilities:
      Accounts payable, accrued expenses, and other current liabilities             $ 47,025,803         $ 47,285,484
      Deferred revenue                                                                19,623,730           17,201,639
      Current portion of capital lease obligations and long term debt                 45,933,041           41,753,915
                                                                                -----------------    -----------------
          Total current liabilities                                                  112,582,574          106,241,038

 Capital lease obligations and long term debt, less current portion                   74,701,512           78,120,432
 Long term subordinated notes payable                                                125,000,000          125,000,000
                                                                                -----------------    -----------------

          Total liabilities                                                          312,284,086          309,361,470
                                                                                -----------------    -----------------


 Stockholders' equity:
      Common stock, $.001 par value, 450,000,000 shares authorized,
         97,778,753 and 96,853,430 shares issued and outstanding                          97,778               96,853
      Additional paid-in capital                                                     384,264,933          372,621,121
      Due from officer for purchase of common stock                                  (2,250,000)          (2,250,000)
      Other comprehensive income                                                               -              779,298
      Unearned compensation                                                            (724,208)          (1,031,624)
      Accumulated deficit                                                          (265,142,571)        (217,390,780)
                                                                                -----------------    -----------------

          Total stockholders' equity                                                 116,245,932          152,824,868
                                                                                -----------------    -----------------

          Total liabilities and stockholders' equity                               $ 428,530,018        $ 462,186,338
                                                                                =================    =================
</TABLE>




<PAGE>   5

                            USINTERNETWORKING, INC.
                            STATEMENT OF OPERATIONS
                                  (Unaudited)


<TABLE>
<CAPTION>
                                            Three months        Three months        Nine months          Nine months
                                               ended               ended               ended                ended
                                           Sept. 30, 2000      Sept. 30, 1999      Sept. 30, 2000       Sept. 30, 1999
                                          ----------------    ----------------    ----------------     ----------------

<S>                                        <C>                 <C>                 <C>                 <C>
REVENUE                                     $  28,268,486       $   9,776,622       $  72,280,955       $  20,851,714

DIRECT COST OF REVENUE
      Directs cost of services                 18,222,017           5,822,941          46,758,044          13,897,698
      Network and infrastructure costs          7,038,279           4,613,826          19,350,579          11,360,299
                                            -------------       -------------       -------------       -------------

Cost of goods sold                             25,260,296          10,436,767          66,108,623          25,257,997
                                            -------------       -------------       -------------       -------------

Gross margin                                    3,008,190            (660,145)          6,172,332          (4,406,283)
                                            -------------       -------------       -------------       -------------

Sales and marketing expenses                   17,740,115          10,960,212          52,676,141          24,552,985
General and administrative expenses             6,843,910           4,959,316          19,855,611          15,841,863
Product research and development                  944,919           1,197,379           2,285,812           2,005,107
Depreciation and amortization                  13,475,117           4,546,714          30,660,816          10,710,756
Amortization of goodwill                        1,972,000           1,401,000           5,716,000           4,083,000
Non-stock compensation expense                  6,019,444           3,445,248          15,895,184           6,805,486
                                            -------------       -------------       -------------       -------------

Operating expenses                             46,995,505          26,509,869         127,089,564          63,999,197

Operating loss                                (43,987,315)        (27,170,014)       (120,917,232)        (68,405,480)
                                            -------------       -------------       -------------       -------------

Other income (expense)
      Interest income                           2,384,610             725,445           6,882,760           2,146,810
      Interest expense                         (6,149,086)         (1,322,469)        (15,336,764)         (2,793,399)
                                            -------------       -------------       -------------       -------------
                                               (3,764,476)           (597,024)         (8,454,004)           (646,589)
                                            -------------       -------------       -------------       -------------

Net loss                                    $ (47,751,791)      $ (27,767,038)      $(129,371,236)      $ (69,052,069)
                                            =============       =============       =============       =============

Basic and diluted loss per common share     $       (0.49)      $       (0.31)      $       (1.36)      $       (1.65)
                                            =============       =============       =============       =============

OTHER FINANCIAL DATA

EBITDA (a)                                  $ (17,985,787)      $ (16,864,349)      $ (59,269,420)      $ (45,546,238)
Recurring revenue                                      88%                 69%                 84%                 54%
12-Month Contract Backlog (b)               $ 101,298,964       $  29,840,690       $ 101,298,964       $  29,840,690
Total Contract Backlog (c )                 $ 311,667,779       $  82,180,564       $ 311,667,779       $  82,180,564
Weighted average shares outstanding            97,146,353          90,142,979          95,342,494          57,688,153
</TABLE>


<PAGE>   6



(a)  The Company defines EBITDA as Earnings Before Interest, Taxes,
     Depreciation, Amortization, and Non-Cash Stock Compensation Expense.
     Amortization of implementation labor and other costs for the three months
     ended September 30, 2000 and 1999 was $4,534,967 and $912,703 respectively.
     Amortization of implementation labor for the nine months ended September
     30, 2000 and 1999 was $9,375,812 and $ 1,260,000, respectively.

(b)  The Company defines 12-month contract backlog as the minimum recurring
     revenue to be recognized over the next twelve-months from existing
     contracts.

(c)  The Company defines total contract backlog as the total recurring revenue
     not yet recognized from existing contracts.

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