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NEWS RELEASE
MEDIA CONTACTS: INVESTOR RELATIONS:
Alice Andors Nicole Morodan Tania Almond
Digex, Inc. MS&L, for Digex Digex, Inc.
301.847.6471 212.213.7140 240.264.2237
[email protected] [email protected] [email protected]
DIGEX REPORTS RECORD THIRD QUARTER RESULTS
BENEFITS OF SCALE DRIVE SHARP MARGIN IMPROVEMENT;
QUARTERLY REVENUE INCREASES 189%; SIGNIFICANT NEW MANAGED SERVICES ADDED
BELTSVILLE, MD, OCTOBER 26, 2000 - Digex, Incorporated (Nasdaq: DIGX), a leading
high-end managed Web and application hosting service provider for businesses
worldwide, today announced revenue of $46.5 million for the quarter-ended
September 30, 2000, a 189% increase over the same period a year ago. Managed
servers totaled 3,914 with average monthly revenue per server reaching another
record high of $4,103. Gross margin improved to 45% while EBITDA* losses
narrowed to $17.8 million in the third quarter and net loss per share of $0.61,
excluding merger-related expenses.
"Digex's strong improvement in margins this quarter demonstrates the leverage we
can achieve through our deep expertise in developing pre-engineered, automated
platforms. These well designed systems form the foundation for building complex
and scalable solutions to meet the requirements of our diverse customers," said
Mark Shull, president and CEO of Digex. "We continue to see healthy growth in
our average monthly revenue per server, as customers increasingly recognize the
flexibility of building their e-business initiatives on top of hardened,
standardized platforms supported by our value-added managed products and
services."
As previously announced in early September, WorldCom announced an agreement to
become Digex's new majority shareholder. "WorldCom brings powerful distribution
channels, the largest global network, a domestic and international data center
footprint, and access to capital to Digex. We will leverage these assets to
accelerate our business model and become the global leader in outsourced
hosting," continued Shull.
In the third quarter, Digex continued its development of products and services
in the areas of performance, high availability and managed storage to meet the
increasingly complex needs of sophisticated e-business clients. Digex, Compaq
and Microsoft have recently unveiled an industry first interactive customer
management portal, the first phase of the three-year joint development --
project "Tiger." The portal provides real-time resource monitoring and
management, ticket management, and an XML framework for flexible,
standards-based data exchange between Digex back-office systems and client
applications. "This is another great milestone in Digex engineering. The
research and development work we're doing with Compaq and Microsoft promises to
further extend our leadership in high-value managed hosting services. We
continue to raise the bar in managed hosting, enabling tighter integration
between our sophisticated monitoring, billing and provisioning systems and the
internal systems and processes of our clients," concluded Shull.
Other key metrics driving the company's strong results in the quarter include:
- Annualized revenue per customer, grew to over $281,000, up 150% over 3Q99
and up from $227,000 in the previous quarter.
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- Average number of servers per customer rose to 6.0, up 79% over the
year-ago level and up from 5.4 last quarter.
"We are pleased with our financial results for the quarter, as we exceeded
guidance across revenue, EBITDA, EPS and most notably gross margin. We remain
comfortable with our previously increased guidance for 2000 and 2001," said Tim
Adams, chief financial officer for Digex.
"In the third quarter we placed a strong emphasis on adding significant
enhancements to our managed products and services. Our Intelligent Director
service, a Layer 7 Web Switching solution based on Cisco technology, further
enhances performance of e-business sites, in time for the upcoming holiday
shopping season," said Rebecca Ward, president, engineering, product management
and marketing for Digex. "The launch of our advanced Managed Storage SAN and
Tape Backup SAN solutions deepen our already strong capabilities in this mission
critical area, and we will continue our focus on storage as a strategic feature
of our managed computing environment."
"Our enterprise customer base continued to expand, with the addition of such
companies as First Republic Bank, Young America and La-Z-Boy," said Nancy
Faigen, president of sales and service delivery for Digex. "We have a great
track record with the financial services, manufacturing, retail and
transportation industries, and continue to see defined needs within these
industries as they implement their Internet strategies. We continue developing
core product groups to meet their ever growing set of complex requirements."
The Company's planned expansion of its direct sales force continued on track.
Quota-carrying salespeople grew to 121, out of a total Digex employee base of
1,191, as of September 30, 2000.
Additional quarterly highlights for Digex include;
- Won key enterprise customers, including First Republic Bank, La-Z-Boy,
Vertecon (formerly Primary WebWorks), Tribal - DDB Dallas, Tourneau, NPD,
Young America and web-centric customers including IntellExchange and
Juritas. New application service providers (ASPs) in the quarter included
mindlever.com, PowerCerv and Indus International.
- Implemented significant expansion among customers including American Century
Investments, J. Crew and Medem, along with organic growth within its ASP
customer base with expansions by Celarix and Commerce One Global Services.
- Opened a unified engineering lab, creating the ultimate development Internet
ecosystem for product engineering, network development, training and
research and development.
- Enhanced support of industry-leading e-business applications including
BroadVision, Vignette, BEA WebLogic, IBM WebSphere and ATG Dynamo.
- Launched Intelligent Director, a traffic management and distribution system
based on Layer-7 switching for both Web sites and firewalls.
- Introduced SQL Server 2000 for high-transaction volume e-business sites.
Financial highlights:
- Revenue mix by segments for the third quarter was approximately:
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Enterprises 70%
Internet-centric 20%
Application Service Providers 10%
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- Gross margin in the quarter was 45.2%, up 3.4% sequentially from the
normalized 2Q00 level of 41.8%, which excludes the equipment sale
- Capital investments for the quarter totaled $72.4 million
- Cash and cash equivalents were $142.7 million as of September 30, 2000
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Digex expects fourth quarter 2000 results as follows:
- Expected revenue in the range of $52-$54 million, with full year 2000
revenue expected in the range of $168-$170 million
- Expected gross margin of approximately 45%
- Expected EBITDA* losses in the range of $17-$18 million
- Depreciation and amortization in the range of $27-$29 million, based
largely on demand driven capital spending
- Net loss per share of approximately $0.68-$0.72
Digex expects full year 2001 results as follows:
- Revenue in the range of $300-$310 million
- Gross margin in the range of 49%-51%
- EBITDA* losses in the range of $10-$20 million
- Net loss per share in the range of $2.60- $2.65
- Capital expenditures of approximately $200 million
FORWARD LOOKING STATEMENTS
Statements contained in this news release regarding expected financial results
and other planned events are forward looking statements, subject to
uncertainties and risks, including, but not limited to, the demand for Digex's
services and the ability of Digex to successfully implement its strategies, each
of which may be impacted, among other things, by economic, competitive or
technological conditions. These and other applicable risks are summarized under
the caption "Risk Factors" in the Company's annual 10K filing, and are updated
periodically through the filing of reports and registration statements with the
Securities and Exchange Commission.
ABOUT DIGEX
Digex (Nasdaq: DIGX) is a leading provider of managed Web and application
hosting services for some of the world's leading companies that rely on the
Internet as a critical business tool. Digex customers, from mainstream
enterprise corporations, Internet-based businesses and Application Service
Providers (ASPs), leverage Digex services to deploy secure, scaleable, high
performance business solutions, including electronic retailing, online financial
services, online procurement and customer self-service applications. Digex also
offers value-added enterprise and professional services, including performance
and security testing, monitoring, reporting and networking services. Additional
information on Digex is available at www.digex.com.
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INTERNET USERS: Digex news releases and other useful information are available
on the Digex Web site at www.digex.com. To receive news releases by e-mail or to
request that information be mailed to you, please visit the Investor Relations
section of the site and click on the "Investor Information Request Form" link.
- EBITDA consists of earnings (net loss) before interest expense, interest
and other income, merger-related expenses, foreign exchange gain or
loss, income taxes, deferred compensation, depreciation, and amortization.
EBITDA does not represent funds available for management's discretionary
use and is not intended to represent cash flow from operations. EBITDA
should also not be construed as a substitute for operating income or a
better measure of liquidity than cash flow from operating activities, which
are determined in accordance with generally accepted accounting principles.
This caption excludes components that are significant in understanding and
assessing the results of operations and cash flows. In addition, EBITDA is
not a term defined by generally accepted accounting principles and as a
result EBITDA may not be comparable to similarly titled measures used by
other companies. However, the Company believes that EBITDA is relevant and
useful information that is often reported and widely used by analysts,
investors and other interested parties in the Web site and application
hosting industry. Accordingly, the Company is disclosing this information
to permit a more comprehensive analysis of the Company's operating
performance, as an additional meaningful measure of performance and
liquidity, and to provide additional information with respect to the
Company's ability to meet future debt service, capital expenditures and
working capital requirements.
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DIGEX, INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
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THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
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2000 1999 2000 1999
---------------- ------------------ ---------------- -----------------
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Revenues $ 46,531 $ 16,111 $ 116,727 $ 38,132
Costs and expenses:
Cost of operations 4,237 2,698 17,275 7,044
Cost of services 21,256 6,331 49,480 13,761
Selling, general and administrative 38,880 20,119 101,872 46,846
Deferred compensation 1,087 509 3,077 509
Depreciation and amortization 21,883 8,146 52,435 18,112
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Total costs and expenses 87,343 37,803 224,139 86,272
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Loss from operations (40,812) (21,692) (107,412) (48,140)
Other income (expense)
Interest expense (523) (373) (1,395) (612)
Interest and other income 2,838 1,293 10,239 1,293
Merger-related expenses (2,708) - (2,708) -
--------------- ------------------- ---------------- -----------------
Total interest and other income 130 1,293 7,531 1,293
Net loss before income tax benefit (41,205) (20,772) (101,276) (47,459)
Income tax benefit - - - 4,839
--------------- ------------------ ---------------- -----------------
Net loss $ (41,205) $ (20,772) $ (101,276) $ (42,620)
=============== ================== ================ =================
Net loss per common share -
basic and diluted (1) $ (0.65) $ (0.36) $ (1.60) $ (0.81)
=============== ================== ================ =================
Net loss per common share -
basic and diluted (3) $ (0.61) $ (0.36) $ (1.56) $ (0.81)
=============== ================== ================ =================
Shares used in computing basic and
diluted net loss per share 63,616,765 57,250,000 63,248,403 52,443,223
=============== ================== ================ =================
EBITDA (2) (17,842) (13,037) (51,900) (29,519)
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(1) Basic and diluted loss per share have been calculated assuming that the
common shares issued in connection with the Company's recapitalization in
April 1999 were outstanding for all periods presented.
(2) EBITDA consists of earnings (net loss) before interest expense, interest
and other income, merger-related expenses, foreign exchange gain or loss,
income taxes, deferred compensation, depreciation and amortization. EBITDA
does not represent funds available for management's discretionary use and
is not intended to represent cash flow from operations. EBITDA should not
to be considered as an alternative to net loss as an indicator of the
Company's operating performance or to cash flows as a measure of liquidity.
In addition, EBITDA is not a term defined by generally accepted accounting
principles, and, as a result, the measure of EBITDA presented herein may
not be comparable to similarly titled measures used by other companies.
(3) Basic and diluted loss per share have been calculated excluding
merger-related expenses in Interest and Other Income.
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DIGEX, INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE INFORMATION)
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<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
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(UNAUDITED)
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ASSETS
Current assets:
Cash and cash equivalents $ 142,732 $ 88,778
Restricted investments 2,000 -
Accounts receivable, net of allowance of $3,586 and
$4,362 in 2000 and 1999, respectively 32,569 17,271
Due from Intermedia - 3,110
Prepaid expenses and other current assets 9,072 1,496
------------------ ----------------------
Total current assets 186,373 110,655
Property and equipment, net 326,783 205,903
Intangible assets, net 24,220 27,213
Other assets 1,184 538
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Total assets $ 538,560 $ 344,309
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 49,837 $ 33,619
Deferred revenue - 222
Due to Intermedia 326 -
Current portion of note payable 2,730 1,235
Current portion of capital lease obligations 1,694 801
------------------ ----------------------
Total current liabilities 54,587 35,877
Note payable 1,405 2,477
Capital lease obligations 27,204 15,766
------------------ ----------------------
Total liabilities 83,196 54,120
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Stockholders' equity:
Preferred stock, $.01 par value; 5,000,000 shares
authorized; 100,000 designated as Series A
Convertible; 100,000 shares issued and outstanding in 2000 1 -
Class A common stock, $.01 par value; 100,000,000 shares
authorized; 24,492,510 and 11,500,000 shares
issued and outstanding in 2000 and 1999, respectively 245 115
Class B common stock, $.01 par value; 50,000,000
shares authorized; 39,350,000 and 50,000,000 shares
issued and outstanding in 2000 and 1999, respectively 393 500
Additional paid-in capital 620,593 354,553
Accumulated deficit (154,044) (52,768)
Deferred compensation (11,824) (12,211)
------------------ ----------------------
Total stockholders' equity 455,364 290,189
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Total liabilities and stockholders' equity $ 538,560 $ 344,309
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