Dedicated hosting, co-location services, electronic commerce, and virtual private networks showed the strongest growth in the fourth quarter. Compared to the third quarter of 1999, dedicated hosting revenue increased 48%, co-location revenue rose 34%, and hosted e-commerce sites rose by more than 4,000 bringing the total to more than 10,000 packages sold. Sales of virtual private networks increased 22% from the prior quarter to over 170 units. Enhanced and Other revenues rose to 56% of revenue compared to 55% in the prior quarter and 38% in the fourth quarter of 1998.
Gross margin for the fourth quarter of 1999 was 70%, equal to the gross margin for the third quarter of 1999 after adjusting for the one time credit received in the third quarter from Qwest Communications. Operating expenses for the quarter improved to 69% of revenue compared to 70% in the third quarter. EBITDA for the fourth quarter was positive $0.5 million. During the quarter, Verio began to incur costs associated with the previously announced expansion of its hosting operations. Despite this increase, the net improvement in the results reflects the continued efficiencies associated with Verio’s scalable operating cost structure.
In the fourth quarter, Verio increased the number of web sites hosted by more than 40,000, to a new total of 340,000. In addition, parked domain names increased by over 40,000 to a new total of 210,000. Verio actively telemarkets to new parked-domain customers with a high conversion rate to recurring revenue web hosting services. High-speed access customers increased by more than 1,500 to a new total of 16,700 as our sales force increased its efficiency by 10% – generating over $5,500 in new recurring revenues per account executive. Customers continued to show interest in bundled solutions as 15% of new hosting customers chose an e-commerce package and over 30% of new DSL customers chose a web hosting product. In a recent survey of its installed base of T-1 customers, over 15% were also web hosting customers. During the fourth quarter, Verio sold 60% more e-commerce packages than in the third quarter, a further illustration of the acceleration of e-tailers’ interest in a complete, fully bundled package.
