A Leaner, Faster Interpath

In a year and a half, ASP Interpath has dropped out of the ISP, CLEC and long-distance markets and slashed 500 of its 700 workers. CEO Joel Schleicher tells Dawn Bushaus why the company is now positioned to prosper.

After getting bailed out of financial trouble by Bain Capital Partners a year a half ago, application service provider Interpath looks like a whole new company. By most accounts, Interpath grew too quickly under its former ownership, Carolina Power & Light (now Progress Energy). During the dot-com heyday, the company employed about 700 people and operated in several lines of business.

When Bain Capital stepped in in May 2000, the investment firm replaced Interpaths then-CEO Chris Darby with Joel Schleicher. Under Schleicher, Interpath is a 200-employee company with a sharper focus on application hosting. Schleicher recently spoke with Services Editor Dawn Bushaus about where Interpath has been and where the ASP is headed.

Q: How has Interpath changed?

A: The Interpath of today really is not the same as the old Interpath. The only commonality is the name. When CP&L owned it, Interpath was an ISP, a CLEC, a long-distance reseller, an ASP and a consulting company. Today were down to 200 employees and were a pure-bred ASP.

Q: When we spoke a year ago, you said that Interpath was going to shift its focus away from enterprise resource planning applications because businesses arent interested yet in outsourcing that function. Is that still the case?

A: We felt all along that we would have to have some ERP apps, but that they should not be our focus. We wanted to focus on e-business, CRM (customer relationship management) and e-commerce, and weve done that. In terms of ERP, we have a partnership with Deloitte & Touche where were the back end for their ERP applications – sort of an application infrastructure provider. We dont want to do the systems integration work, so that works out well. In addition, in July we bought the PeopleSoft practice of Interliant. That gave us a back-up data center in Columbus, Ohio.

Q: What percentage of your business comes from your work as an application infrastructure provider, and do you see that percentage shifting over time?

A: Today 90% of our business is still the traditional ASP, but over time deals like the one we have with Deloitte could represent 20% to 30% of our business.

Q: Do you sell application infrastructure services to smaller ASPs as well?

A: No, we dont, and we dont have any plans to.

Q: Interpath has two data centers. Will you add more?

A: We were looking at the idea of having PODs, or points of delivery, where we would operate several small 1,000-to-5,000-square-foot data centers, but the addition of the Columbus center gave us more than enough space.

Q: A year ago, you said Interpath was on track to be cash-flow positive some time this year. Will that still happen?

A: The events of 9-11 may have caused us to slip a quarter but, yes, were still looking to be cash-flow positive by the fourth quarter this year, possibly the first quarter next year.

Q: In May 2000, Interpath received $50 million from Bain and $50 million from CP&L. Will you need more funding than that?

A: Were about halfway through the funding we got, so the remainder will see us through.

Q: Bain Capital recently stepped in to rescue another ASP, USinternetworking, with a promise of $106 million when USi emerges from bankruptcy. What does this mean for Interpath?

A: By entering the transaction with USi, Bain has affirmed its confidence in the outsourced IT space. But even though USi has entered a pre-negotiated bankruptcy proceeding, theres no guarantee that the Bain transaction will close. There could even be a topping bid. So well continue to run our business the way weve been running it.

Q: What happens if the Bain-USi deal does go through? Do you foresee Interpath and USi merging?

A: Once the USi deal closes, the parties will look at the options. Well have to look at whether there is a strategy synergy between the two companies. If there is, those discussions might take place. If not, were very confident well continue to move forward. Were going to win either way.