Digex tops expectations, sees bright future

Having posted fourth-quarter and year-end results that exceeded consensus expectations, Digex is hopeful that the Web-hosting space has turned a corner and is back on the way to profitability.

Digex posted a fourth-quarter loss of 73 cents a share, wider than the loss of 65 cents a year ago but less than the 87 cents analysts had predicted. Revenue of $55.2 million was down from last year’s $57.9 million.

All are part of a trend, said President and CEO Mark Shull, who claimed the company has survived a rough economy in 2001 and is poised for growth in 2002. Key to Shull’s optimism is Digex’ relationship with WorldCom, which entered into a series of commercial agreements with Digex when it acquired the company’s former parent company, Intermedia Partners. In 2001, WorldCom gave Digex $50 million. It’s expected to contribute a similar amount in 2002 as the Digex and WorldCom sales teams merge multiple responsibilities.

“This [merged sales effort] will allow us to deploy more hosting sales executives and to have one team under a single management structure,” said Shull.

The company remained constant in both numbers of employees and customers. It ended the fourth quarter with 601 customers, having churned 80 customers and added 80 customers during the period. Total employees--1,393--were down 11 from the third quarter.

In all, Digex is poised for growth, said John Callari, senior vice president of sales, who will assume more responsibility as the Digex-WorldCom sales teams continue to share responsibilities.

“In a period where we saw many companies in our marketplace struggling, we can point to several positive sales indicators that confirm we are well positioned for strong growth in 2002 and beyond,” Callari said, noting that the company acquired 51% more customers in the second half of the year compared to the first.

“This trend has been growing for the past four consecutive quarters,” he said.

The bright future can also be attributed to “a new market trend over the past six months in the enterprise accounts,” said Rebecca Ward, president of marketing, product management and engineering. “Hosting provides a lower-cost, centralized alternative for these [enterprise] IP systems. We believe this is a clear indication that hosting is evolving to the next level and companies move increasingly mission-critical business applications, in addition to the online presence, to centralized, highly available hosting providers to achieve better economics and scale.”

Digex, while anticipating funding from WorldCom, could not say how much because the two companies are in an ongoing budget process, company officials said.