Concentric Network Reports Second Quarter 1999 Results - Company Financial Information

Cambridge Telcom Report, August 2, 1999

Concentric Network Corporation (Nasdaq: CNCX) has announced financial results for its second quarter ended June 30, 1999. Second quarter revenue was $33.0 million, a 68% increase in comparison to revenue of $19.7 million in the second quarter of 1998, and an increase of 10% over revenue of $30.1 million for the first quarter of 1999. In the second quarter of 1999, revenue from WebTV Networks, Inc. comprised 26% of net revenue compared to 30% in the first quarter of 1999. Revenue for the six months ended June 30, 1999 increased 75% to $63.1 million, which compared to $36.1 million for the same period in 1998.

The net loss attributable to common stockholders for the second quarter was $26.2 million or $0.64 per share. This compares to a net loss of $21.5 million or $0.74 per share in the second quarter of 1998 and a net loss of $25.5 million or $0.75 per share in the first quarter of 1999. The 1999 second quarter net loss includes charges of $12.2 million related to the Company's financing and acquisition activities, as well as a $0.5 million one-time charge related to the issuance of a warrant to TMI Telemedia International, Ltd., a wholly owned subsidiary of Telecom Italia, SpA, as consideration for termination of exclusive rights to distribute Concentric services internationally. In the second quarter of 1998 financing and acquisition expenses were $8.4 million. These expenses represent dividends, accretion and interest expense on the Company's high yield debt and preferred stock and amortization of goodwill and other acquisition related charges. The net loss for the six months ended June 30, 1999 was $51.7 million or $1.37 per share, as compared to a net loss of $41.7 million or $1.46 per share for the same period ended June 30, 1998. Year to date expenses in 1999 related to financing, acquisitions and buyout of exclusivity rights were $24.7 million as compared to $18.9 million for such expenses in the same period of 1998. Such expenses for the six-month period in 1998 were partially offset by an extraordinary gain of $3.0 million on early retirement of debt. Per share figures reflect the Company's two-for-one stock split which was effected during the quarter ended June 30, 1999.

The Company strengthened its cash position during the second quarter ended June 30, 1999 with a $50.0 million investment from Microsoft. The Company issued Microsoft 50,000 shares of 7 percent convertible redeemable preferred stock due September 2010 having a liquidation preference of $1,000 per share in exchange for the investment. This preferred stock may be converted to common stock at a conversion price of $39.92 per share. Additionally, Concentric issued Microsoft a warrant to purchase 500,000 shares of common stock at a price of $33.27 per share. During the quarter, Concentric made a $5.0 million investment in NorthPoint Communications as part of a strategic DSL relationship and, subsequent to the end of the second quarter, the Company made a $5.0 million investment in register.com as part of a strategic Web hosting relationship. The Company's cash and short term investments at June 30, 1999 were $328.0 million, including $27.6 million of restricted cash, as compared to $310.7 million at March 31, 1999, which included $36.7 million of restricted cash.

"During the second quarter we again experienced revenue growth across all enterprise-related product lines," said Henry R. Nothhaft, Chairman, President and Chief Executive Officer. "Additionally, we entered into several key strategic agreements, including the Microsoft portal and WebTV service agreements and marketing relationships with register.com and MySoftware, which will serve to enhance our position as a leading provider of e-business services to the small and medium-sized business markets."

New Products and Strategic Partnerships

During the quarter, the Company announced several enhancements to its Virtual Private Network (VPN) product line. Concentric announced ConcentricQoS which provides fully managed bandwidth monitoring, utilization management and customer-specific traffic prioritization capabilities to allow business-critical or time-sensitive data to be given precedence over lower priority network traffic. In addition, enhanced Secure Remote Access features for the Concentric Enterprise VPN service were announced. These features allow the customer to have greater control over each user's access to the VPN. The Company also announced enhancements to Concentric RemoteLink which will simplify the set-up of remote user systems and allow the user to control disconnect and idle timeout attributes.

The Company announced that Williams Communications is implementing a VPN solution for traveling and telecommuting employees to improve dial-up performance and reduce costs. Approximately 22,000 Williams employees will have the ability to use Concentric RemoteLink for remote access needs. The Company also announced the development of a Concentric CustomLink VPN solution for Brethren Benefit Trust, Inc. to support ClearViewNet, an option for families and individuals to explore the Internet without the interference of objectionable content. In June 1999, Gobi, Inc. selected Concentric to provide Internet access for Gobi's PC members. Gobi provides its members with a new computer and unlimited Internet access for a monthly fee of $25.99.