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PSINet focuses on growth

PSINet hit analyst expectations for its second quarter, as it pared away unprofitable and delinquent corporate accounts.

    PSINet (PSIX) hit analyst expectations for its second quarter, as it pared away unprofitable and delinquent corporate accounts.

    The corporate Internet service provider reported a net loss of $11.3 million, or 28 cents per share, for the quarter. That compares with the year-ago quarter's net loss of $10.9 million, or 28 cents per share, which included a one-time gain of $1.8 million, or 5 cents per share, from a sale of investments.

    Revenue was $29.5 million, an increase of 46 percent over the $20.2 million reported a year ago, and an increase of 15 percent over the $25.6 million reported in the previous quarter.

    David Takata, an analyst with Gruntal & Company said PSINet's results were better than his expectations, adding that an expense control program launched by the company's chief financial officer Ed Postal is working. But Takata also said there is still more room to cut back on expenses--in marketing, for example.

    During the quarter, the company launched a review of its customer base. It is trimming down unprofitable accounts or those with shaky payment histories. This step has slowed growth of accounts, but those deals signed generate a higher level of revenues. The company had 21,900 current accounts as of June 30.

    "Really what they are doing is focusing on where the opportunities are. They are not AT&T (T), with unlimited resources, so they have to be more selective and focus on growth," said Takata. The company is concentrating on the higher-end businesses where they can generate revenue with Web hosting, e-commerce, and faxing services. "The connectivity business alone would never get this business to profitability."

    Takata expects losses to continue for another year, but next quarter the company should come just $500,000 shy of achieving a balanced cash flow before interest, taxes, depreciation, and amortization--a financial benchmark.

    "They want to bring on value-added contracts and that will slow their growth as they get more selective," Takata said. However, he added, that revenue will continue to increase as it offers those customers more services.

    The company's stock gained about 3 percent in early trading from yesterday's close of 7-7/8.