UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): February 18, 2015
EARTHLINK HOLDINGS CORP.
(Exact Name of Registrant as Specified in Its Charter)
Delaware (State of Incorporation) |
|
001-15605 (Commission File Number) |
|
46-4228084 (I.R.S. Employer Identification No.) |
1170 Peachtree Street, Suite 900, Atlanta, Georgia 30309
(Address of principal executive offices) (Zip Code)
(404) 815-0770
(Registrants telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report date)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Item 2.02 Results of Operations and Financial Condition
On February 18, 2015, EarthLink Holdings Corp. (the Company) issued a press release announcing its financial results for the three and twelve months ended December 31, 2014. A copy of the press release is attached hereto as Exhibit 99.1 to this Current Report on Form 8-K.
In accordance with General Instruction B.2 of Form 8-K, the information furnished in Item 2.02 of this Current Report on Form 8-K and in Exhibit 99.1 attached hereto shall not be deemed filed for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such a filing.
Item 7.01 Regulation FD Disclosure
In connection with the Companys conference call to be held on February 19, 2015, officers of the Company will be reviewing certain materials regarding financial results for the three and twelve months ended December 31, 2014 and guidance for the year ending December 31, 2015. A copy of the materials is attached hereto as Exhibit 99.2 to this Current Report on Form 8-K.
In accordance with General Instruction B.2 of Form 8-K, the information furnished in Item 7.01 of this Current Report on Form 8-K and in Exhibit 99.2 attached hereto shall not be deemed filed for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such a filing.
Item 9.01 Financial Statements and Exhibits
(d) Exhibits
Exhibit No. |
|
Description |
99.1 |
|
Press release dated February 18, 2015 |
99.2 |
|
Presentation regarding financial results and guidance |
2
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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EARTHLINK HOLDINGS CORP. |
|
(Registrant) |
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|
|
|
|
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By: |
/s/ Bradley A. Ferguson |
|
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Name: |
Bradley A. Ferguson |
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Title: |
Executive Vice President, |
|
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Chief Financial Officer |
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Date: February 18, 2015 |
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3
Exhibit Index
Exhibit No. |
|
Description |
99.1 |
|
Press release dated February 18, 2015 |
99.2 |
|
Presentation regarding financial results and guidance |
4
Exhibit 99.1
|
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Investors Trey Huffman 404-748-6219 huffmanal@elink.com |
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|
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|
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Media |
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Pam OConnor |
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919-863-7344 |
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Pamela.oconnor@elink.com |
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EARTHLINK REPORTS FOURTH QUARTER AND FULL YEAR 2014 RESULTS
· Revenue of $284.5 million
· Net loss of $(22.5) million and net loss per share of $(0.22)
· Adjusted EBITDA of $53.2 million
· Net cash provided by operating activities of $38.7 million
· Unlevered Free Cash Flow of $24.6 million
· Ending cash balance of $134.1 million
ATLANTA, GA - February 18, 2015 - EarthLink Holdings Corp. (NASDAQ: ELNK), a leading managed network and cloud solutions provider for multi-location businesses, today announced financial results for its fourth quarter and full year ended December 31, 2014.
EarthLink finished 2014 with another strong quarter, delivering revenue, Adjusted EBITDA and cash flow consistent with or better than our guidance, and making continued headway with our transformation, said EarthLink CEO and President Joseph F. Eazor. 2014 was dedicated to stabilizing the business and building a foundation so in 2015 we can focus on our strategy to become a leading managed services provider.
Fourth Quarter 2014 Financial Summary
|
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Third |
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Fourth |
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Figures in US $ millions, |
|
Fourth Quarter |
|
|
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Quarter |
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Quarter |
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|
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except per share |
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2013 |
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2014 |
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Change |
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2014 |
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2014 |
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Change |
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Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
Business Services |
|
$ |
235.7 |
|
$ |
225.7 |
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(4.2 |
)% |
$ |
237.0 |
|
$ |
225.7 |
|
(4.8 |
)% |
Consumer Services |
|
66.1 |
|
58.8 |
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(11.0 |
)% |
60.7 |
|
58.8 |
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(3.1 |
)% |
Total Revenue |
|
301.8 |
|
284.5 |
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(5.7 |
)% |
297.7 |
|
284.5 |
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(4.4 |
)% |
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|
|
|
|
|
|
|
|
|
|
|
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Gross Margin |
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151.7 |
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152.8 |
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0.7 |
% |
162.1 |
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152.8 |
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(5.7 |
)% |
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|
|
|
|
|
|
|
|
|
|
|
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Operating Expenses |
|
105.6 |
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102.0 |
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(3.4 |
)% |
105.9 |
|
102.0 |
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(3.7 |
)% |
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|
|
|
|
|
|
|
|
|
|
|
|
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Net Loss |
|
(279.9 |
) |
(22.5 |
) |
(92.0 |
)% |
(2.0 |
) |
(22.5 |
) |
NM |
|
Net Loss per share |
|
(2.75 |
) |
(0.22 |
) |
(92.0 |
)% |
(0.02 |
) |
(0.22 |
) |
NM |
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|
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|
|
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|
|
|
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|
|
|
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Adjusted EBITDA (1) |
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50.1 |
|
53.2 |
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6.2 |
% |
59.0 |
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53.2 |
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(9.8 |
)% |
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|
|
|
|
|
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Capital Expenditures |
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34.0 |
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28.6 |
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(15.9 |
)% |
24.9 |
|
28.6 |
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14.9 |
% |
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|
|
|
|
|
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Cash and Marketable Securities |
|
116.6 |
|
134.1 |
|
15.0 |
% |
129.6 |
|
134.1 |
|
3.5 |
% |
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|
|
|
|
|
|
|
|
|
|
|
|
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Net Cash Provided by Operating Activities |
|
40.7 |
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38.7 |
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(4.9 |
)% |
62.1 |
|
38.7 |
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(37.7 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
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Unlevered Free Cash Flow (1) |
|
16.2 |
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24.6 |
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51.9 |
% |
34.1 |
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24.6 |
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(27.9 |
)% |
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|
|
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(1) Adjusted EBITDA and Unlevered Cash Flow are non-GAAP measures, see definitions in Non-GAAP Measures below.
NM - Percentage is not meaningful.
Revenue
· Total revenue was $284.5 million during the fourth quarter of 2014 and $1.18 billion for the full year 2014. This was a 5.7% decline from the prior year quarter, compared to a 3.5% year-over-year decline reported in the third quarter of 2014; however, the decline during the third quarter of 2014 was offset by $6.8 million of one-time favorable revenue settlements.
· Business Services revenue decreased 4.2% from the fourth quarter of 2013, compared to a 1.5% year-over-year decline reported in the third quarter of 2014. This was primarily due to the $6.8 million of one-time favorable settlements during the third quarter of 2014.
· Consumer Services churn in the fourth quarter moderated to 1.9% after targeted price actions implemented during the third quarter of 2014.
Net Loss and Adjusted EBITDA
· Net loss was $(22.5) million during the fourth quarter of 2014. This compares to a net loss of $(279.9) million in the fourth quarter of 2013 and $(2.0) million in the third quarter of 2014. Net loss was $(72.8) million for the full year 2014 compared to a net loss of $(538.8) million for the full year 2013.
· The fourth quarter 2014 net loss included $3.0 million for asset impairments and $7.3 million of additional costs related to restructuring charges.
· The fourth quarter 2013 net loss included a $266.3 million non-cash charge to establish a valuation allowance against deferred tax assets.
· The third quarter of 2014 net loss included the $6.8 million of favorable revenue settlements noted above and a $4.5 million income tax benefit for the reduction of reserves due to expiration of statute of limitations.
· Adjusted EBITDA (a non-GAAP measure, see definition in Non-GAAP Measures below) was $53.2 million in the fourth quarter of 2014, a 6.2% increase from the fourth quarter of 2013 and a 9.8% decrease from the third quarter of 2014. Adjusted EBITDA was $213.0 million for the full year 2014 compared to $227.1 million for the full year 2013.
Balance Sheet and Cash Flow
· Net cash provided by operating activities was $38.7 million during the fourth quarter of 2014. This compared to net cash provided by operating activities of $40.7 million in the fourth quarter of 2013 and $62.1 million in the third quarter of 2014. Net cash provided by operating activities was $140.0 million for the full year 2014 compared to $124.2 million for the full year 2013. EarthLink ended the fourth quarter with $134.1 million in cash.
· Unlevered Free Cash Flow (a non-GAAP measure, see Non-GAAP Measures below) was $24.6 million during the fourth quarter of 2014. This compared to Unlevered Free Cash Flow of $16.2 million in the fourth quarter of 2013 and $34.1 million in the third quarter of 2014. Unlevered Free Cash Flow was $110.2 million for the full year 2014 compared to $83.5 million for the full year 2013.
Non-GAAP Measures
Adjusted EBITDA is defined as net income (loss) before interest expense and other, net, income taxes, depreciation and amortization, stock-based compensation expense, impairment of goodwill and long-lived assets, restructuring, acquisition and integration-related costs, and gain (loss) from discontinued operations, net of tax. Unlevered Free Cash Flow is defined as net income (loss) before interest expense and other, net, income taxes, depreciation and amortization, stock-based compensation expense, impairment of goodwill and long-lived assets, restructuring, acquisition and integration-related costs, and gain (loss) from discontinued operations, net of tax, less cash used for purchases of property and equipment.
Adjusted EBITDA and Unlevered Free Cash Flow are non-GAAP financial measures. They should not be considered in isolation or as an alternative to measures determined in accordance with U.S. generally accepted accounting principles. Please refer to the Consolidated Financial Highlights for a reconciliation of these non-GAAP financial measures to the most comparable measures reported in accordance with U.S. generally accepted accounting principles and Footnote 5 of the Consolidated Financial Highlights for a discussion of the presentation, comparability and use of such financial measures.
Conference Call for Analysts and Investors
EarthLinks Fourth Quarter 2014 Conference Call will be held on Thursday, February 19, 2015, at 8:30 a.m. ET and hosted by EarthLinks Chief Executive Officer and President Joseph F. Eazor and Executive Vice President and Chief Financial Officer Bradley A. Ferguson.
The dial-in number is: (866) 887-3882.
Participants should reference the conference ID number 67708412 or EarthLink Fourth Quarter 2014 Earnings Call and dial in 10 minutes prior to the scheduled start time.
Webcast
A live Webcast of the conference call will be available at: http://ir.earthlink.net/.
Presentation
An investor presentation to accompany the conference call and webcast will be available at: http://ir.earthlink.net/.
Replay
A webcast replay will be available from 11:30 a.m. ET on February 19 through midnight on March 19, 2015. Dial toll-free: (855) 859-2056. The replay confirmation code is 67708412. The Webcast will be archived on the companys website at: http://ir.earthlink.net/events.cfm.
About EarthLink
EarthLink (EarthLink Holdings Corp., NASDAQ: ELNK) provides managed network, security and cloud solutions for multi-location businesses. We help thousands of specialty retailers, restaurants, financial institutions, healthcare providers, professional service firms and local governments deliver a reliable and engaging customer experience in their stores and branch offices. We do so by building and managing MPLS WAN networks, by providing virtualized infrastructure, security, hosted voice, secure WiFi and compliance solutions, and by offering exceptional customer care. We operate a nationwide network spanning more than 28,000 fiber route miles, with 90 metro fiber rings and secure data centers that provide ubiquitous data and voice IP service coverage. Our EarthLink Carrier® division sells facilities-based wholesale telecommunications to other providers and our award-winning Internet services connect hundreds of thousands of residential customers across the U.S. For more, visit www.earthlink.com and follow @earthlink, LinkedIn and Google+.
Cautionary Information Regarding Forward-Looking Statements
This press release includes forward-looking statements (rather than historical facts) that are subject to risks and uncertainties that could cause actual results to differ materially from those described. Although we believe that the expectations expressed in these forward-looking statements are reasonable, we cannot promise that our expectations will turn out to be correct. Our actual results could be materially different from and worse than our expectations. With respect to such forward-looking statements, we seek the protections afforded by the Private Securities Litigation Reform Act of 1995. These risks include, without limitation: (1) that we may not be able to execute our strategy to successfully transition to a leading managed network, security and cloud
services provider, which could adversely affect our results of operations and cash flows; (2) that we may not be able to grow revenues from our growth products and services to offset declining revenues from our traditional products and services, which could adversely affect our results of operations and cash flows; (3) that failure to achieve operating efficiencies would adversely affect our results of operations and cash flows; (4) that we may have to undertake further restructuring plans that would require additional charges; (5) that is we are unable to adapt to changes in technology and customer demands, we may not remain competitive, and our revenues and operating results could suffer; (6) that we may be unable to successfully divest non-strategic products, which could adversely affect our results of operations(7) that we may be unable to successfully make or integrate acquisitions, which could adversely affect our results of operations; (8) that we face significant competition in the communications and managed services industry that could reduce our profitability; (9) that failure to retain existing customers could adversely affect our results of operations and cash flows; (10) that decisions by legislative or regulatory authorities, including the Federal Communications Commission relieving incumbent carriers of certain regulatory requirements, and possible further deregulation in the future, may restrict our ability to provide services and may increase the costs we incur to provide these services; (11) that if we are unable to interconnect with AT&T, Verizon and other incumbent carriers on acceptable terms, our ability to offer competitively priced local telephone services will be adversely affected; (12) that our operating performance will suffer if we are not offered competitive rates for the access services we need to provide our long distance services; (13) that we may experience reductions in switched access and reciprocal compensation revenue; (14) that failure to obtain and maintain necessary permits and rights-of-way could interfere with our network infrastructure and operations; (15) that we have substantial business relationships with several large telecommunications carriers, and some of our customer agreements may not continue due to financial difficulty, acquisitions, non-renewal or other factors, which could adversely affect our wholesale revenue and results of operations; (16) that we obtain a majority of our network equipment and software from a limited number of third-party suppliers; (17) that our commercial and alliance arrangements may not be renewed or may not generate expected benefits, which could adversely affect our results of operations; (18) our consumer business is dependent on the availability of third-party network service providers; (19) that we face significant competition in the Internet access industry that could reduce our profitability; (20) that the continued decline of our consumer access subscribers will adversely affect our results of operations; (21) that potential regulation of Internet service providers could adversely affect our operations; (22) that cyber security breaches could harm our business; (23) that privacy concerns relating to our business could damage our reputation and deter current and potential users from using our services; (24) that interruption or failure of our network, information systems or other technologies could impair our ability to provide our services, which could damage our reputation and harm our operating results; (25) that our business depends on effective business support systems and processes; (26) that if we, or other industry participants, are unable to successfully defend against disputes or legal actions, we could face substantial liabilities or suffer harm to our financial and operational prospects; (27) that we may be accused of infringing upon the intellectual property rights of third parties, which is costly to defend and could limit our ability to use certain technologies in the future; (28) that we may not be able to protect our intellectual property; (29) that we may be unable to hire and retain sufficient qualified personnel, and the loss of any of our key executive officers could adversely affect us; (30) that unfavorable general economic conditions could harm our business; (31) that government regulations could adversely affect our business or force us to change our business practices; (32) that our business may suffer if third parties are unable to provide services or terminate their relationships with us; (33) that we may be required to recognize impairment charges on our goodwill and other intangible assets, which would adversely affect our results of operations and financial position; (34) that we may have exposure to greater than anticipated tax liabilities and we may be limited in the use of our net operating losses and certain other tax attributes in the future; (35) that our indebtedness could adversely affect our financial health and limit our ability to react to changes in our business and industry; (36) that we may require substantial capital to support business growth, and this capital may not be available to us on acceptable terms, or at all; (37) that our debt agreements include restrictive covenants, and failure to comply with these covenants could trigger acceleration of payment of outstanding indebtedness; (38) that we may reduce, or cease payment of, quarterly cash dividends; (39) that our stock price may be volatile; (40) that provisions of our certificate of incorporation, bylaws and other elements of our capital structure could limit our share price and delay a change of control of the company; and (41) that our bylaws designate the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders flexibility in obtaining a judicial forum for disputes with us or our directors, officers or employees. These risks and uncertainties, as well as other risks and uncertainties that could cause our actual results to differ significantly from managements expectations, are not intended to represent a complete list of all risks and uncertainties
inherent in our business, and should be read in conjunction with the more detailed cautionary statements and risk factors included in our Annual Report on Form 10-K for the year ended December 31, 2013.
# # #
EARTHLINK HOLDINGS CORP.
Unaudited Condensed Consolidated Statements Of Operations
(in thousands, except per share data)
|
|
Three Months Ended |
|
Twelve Months Ended |
|
|
|
December 31, |
|
December 31, |
|
|
|
2013 |
|
2014 |
|
2013 |
|
2014 |
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
301,839 |
|
$ |
284,472 |
|
$ |
1,240,606 |
|
$ |
1,176,895 |
|
Operating costs and expenses: |
|
|
|
|
|
|
|
|
|
Cost of revenues (exclusive of depreciation and amortization shown separately below) |
|
150,178 |
|
131,677 |
|
600,742 |
|
557,436 |
|
Selling, general and administrative (exclusive of depreciation and amortization shown separately below) |
|
105,601 |
|
101,989 |
|
426,070 |
|
419,019 |
|
Depreciation and amortization |
|
48,800 |
|
47,686 |
|
183,114 |
|
186,872 |
|
Impairment of goodwill and long-lived assets (1) |
|
|
|
2,974 |
|
255,599 |
|
14,334 |
|
Restructuring, acquisition and integration-related costs (2) |
|
11,562 |
|
9,095 |
|
40,030 |
|
20,088 |
|
Total operating costs and expenses |
|
316,141 |
|
293,421 |
|
1,505,555 |
|
1,197,749 |
|
Loss from operations |
|
(14,302 |
) |
(8,949 |
) |
(264,949 |
) |
(20,854 |
) |
Interest expense and other, net |
|
(13,972 |
) |
(14,253 |
) |
(60,686 |
) |
(56,261 |
) |
Loss from continuing operations before income taxes |
|
(28,274 |
) |
(23,202 |
) |
(325,635 |
) |
(77,115 |
) |
Income tax (provision) benefit (3) |
|
(251,260 |
) |
1,152 |
|
(211,231 |
) |
4,744 |
|
Loss from continuing operations |
|
(279,534 |
) |
(22,050 |
) |
(536,866 |
) |
(72,371 |
) |
Loss from discontinued operations, net of tax (4) |
|
(339 |
) |
(442 |
) |
(1,961 |
) |
(381 |
) |
Net loss |
|
$ |
(279,873 |
) |
$ |
(22,492 |
) |
$ |
(538,827 |
) |
$ |
(72,752 |
) |
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share |
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
(2.74 |
) |
$ |
(0.22 |
) |
$ |
(5.23 |
) |
$ |
(0.71 |
) |
Discontinued operations |
|
|
|
|
|
(0.02 |
) |
|
|
Basic and diluted net loss per share |
|
$ |
(2.75 |
) |
$ |
(0.22 |
) |
$ |
(5.25 |
) |
$ |
(0.71 |
) |
Basic and diluted weighted average common shares outstanding |
|
101,901 |
|
102,315 |
|
102,599 |
|
102,313 |
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per share |
|
$ |
0.05 |
|
$ |
0.05 |
|
$ |
0.20 |
|
$ |
0.20 |
|
EARTHLINK HOLDINGS CORP.
Unaudited Condensed Consolidated Balance Sheets
(in thousands, except per share data)
|
|
December 31, 2013 |
|
December 31, 2014 |
|
ASSETS |
|
|
|
|
|
Current assets: |
|
|
|
|
|
Cash and cash equivalents |
|
$ |
116,636 |
|
$ |
134,133 |
|
Accounts receivable, net of allowance of $8,615 and $6,211 as of December 31, 2013 and 2014, respectively |
|
100,792 |
|
92,616 |
|
Prepaid expenses |
|
15,945 |
|
13,761 |
|
Deferred income taxes, net |
|
549 |
|
|
|
Other current assets |
|
13,930 |
|
13,671 |
|
Total current assets |
|
247,852 |
|
254,181 |
|
Property and equipment, net |
|
438,321 |
|
404,713 |
|
Goodwill |
|
139,215 |
|
137,751 |
|
Other intangible assets, net |
|
155,428 |
|
91,490 |
|
Other long-term assets |
|
26,502 |
|
22,026 |
|
Total assets |
|
$ |
1,007,318 |
|
$ |
910,161 |
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
Accounts payable |
|
$ |
33,440 |
|
$ |
23,726 |
|
Accrued payroll and related expenses |
|
35,041 |
|
50,197 |
|
Other accrued liabilities |
|
88,225 |
|
85,181 |
|
Deferred revenue |
|
49,689 |
|
43,940 |
|
Current portion of long-term debt and capital lease obligations |
|
1,489 |
|
1,537 |
|
Deferred income taxes, net |
|
|
|
751 |
|
Total current liabilities |
|
207,884 |
|
205,332 |
|
Long-term debt and capital lease obligations |
|
606,442 |
|
606,284 |
|
Long-term deferred income taxes, net |
|
2,221 |
|
2,448 |
|
Other long-term liabilities |
|
28,553 |
|
21,313 |
|
Total liabilities |
|
845,100 |
|
835,377 |
|
Stockholders equity: |
|
|
|
|
|
Preferred stock, $0.01 par value, 100,000 shares authorized, 0 shares issued and outstanding as of December 31, 2013 and 2014 |
|
|
|
|
|
Common stock, $0.01 par value, 300,000 shares authorized, 197,491 and 198,623 shares issued as of December 31, 2013 and 2014, respectively, and 101,876 and 102,296 shares outstanding as of December 31, 2013 and 2014, respectively |
|
1,975 |
|
1,986 |
|
Additional paid-in capital |
|
2,047,607 |
|
2,035,382 |
|
Accumulated deficit |
|
(1,144,975 |
) |
(1,217,727 |
) |
Treasury stock, at cost, 95,615 and 96,327 shares as of December 31, 2013 and 2014, respectively |
|
(742,389 |
) |
(744,857 |
) |
Total stockholders equity |
|
162,218 |
|
74,784 |
|
Total liabilities and stockholders equity |
|
$ |
1,007,318 |
|
$ |
910,161 |
|
EARTHLINK HOLDINGS CORP.
Reconciliation of Net Loss to Adjusted EBITDA (5)
(in thousands)
|
|
Three Months Ended |
|
Twelve Months Ended |
|
|
|
December 31, |
|
September 30, |
|
December 31, |
|
December 31, |
|
December 31, |
|
|
|
2013 |
|
2014 |
|
2014 |
|
2013 |
|
2014 |
|
Net loss |
|
$ |
(279,873 |
) |
$ |
(1,952 |
) |
$ |
(22,492 |
) |
$ |
(538,827 |
) |
$ |
(72,752 |
) |
Interest expense and other, net |
|
13,972 |
|
13,970 |
|
14,253 |
|
60,686 |
|
56,261 |
|
Income tax provision (benefit) (3) |
|
251,260 |
|
(4,329 |
) |
(1,152 |
) |
211,231 |
|
(4,744 |
) |
Depreciation and amortization |
|
48,800 |
|
46,716 |
|
47,686 |
|
183,114 |
|
186,872 |
|
Stock-based compensation expense |
|
4,057 |
|
2,930 |
|
2,392 |
|
13,275 |
|
12,600 |
|
Impairment of goodwill and long-lived assets (1) |
|
|
|
589 |
|
2,974 |
|
255,599 |
|
14,334 |
|
Restructuring, acquisition and integration-related costs (2) |
|
11,562 |
|
1,108 |
|
9,095 |
|
40,030 |
|
20,088 |
|
Loss from discontinued operations, net of tax (4) |
|
339 |
|
|
|
442 |
|
1,961 |
|
381 |
|
Adjusted EBITDA (5) |
|
$ |
50,117 |
|
$ |
59,032 |
|
$ |
53,198 |
|
$ |
227,069 |
|
$ |
213,040 |
|
EARTHLINK HOLDINGS CORP.
Reconciliation of Net Loss to Unlevered Free Cash Flow (5)
(in thousands)
|
|
Three Months Ended |
|
Twelve Months Ended |
|
|
|
December 31, |
|
September 30, |
|
December 31, |
|
December 31, |
|
December 31, |
|
|
|
2013 |
|
2014 |
|
2014 |
|
2013 |
|
2014 |
|
Net loss |
|
$ |
(279,873 |
) |
$ |
(1,952 |
) |
$ |
(22,492 |
) |
$ |
(538,827 |
) |
$ |
(72,752 |
) |
Interest expense and other, net |
|
13,972 |
|
13,970 |
|
14,253 |
|
60,686 |
|
56,261 |
|
Income tax provision (benefit) (3) |
|
251,260 |
|
(4,329 |
) |
(1,152 |
) |
211,231 |
|
(4,744 |
) |
Depreciation and amortization |
|
48,800 |
|
46,716 |
|
47,686 |
|
183,114 |
|
186,872 |
|
Stock-based compensation expense |
|
4,057 |
|
2,930 |
|
2,392 |
|
13,275 |
|
12,600 |
|
Impairment of goodwill and long-lived assets (1) |
|
|
|
589 |
|
2,974 |
|
255,599 |
|
14,334 |
|
Restructuring, acquisition and integration-related costs (2) |
|
11,562 |
|
1,108 |
|
9,095 |
|
40,030 |
|
20,088 |
|
Loss from discontinued operations, net of tax (4) |
|
339 |
|
|
|
442 |
|
1,961 |
|
381 |
|
Purchases of property and equipment |
|
(33,967 |
) |
(24,890 |
) |
(28,624 |
) |
(143,614 |
) |
(102,863 |
) |
Unlevered Free Cash Flow (5) |
|
$ |
16,150 |
|
$ |
34,142 |
|
$ |
24,574 |
|
$ |
83,455 |
|
$ |
110,177 |
|
EARTHLINK HOLDINGS CORP.
Reconciliation of Net Cash Provided by Operating Activities to Unlevered Free Cash Flow (5)
(in thousands)
|
|
Three Months Ended |
|
Twelve Months Ended |
|
|
|
December 31, |
|
September 30, |
|
December 31, |
|
December 31, |
|
December 31, |
|
|
|
2013 |
|
2014 |
|
2014 |
|
2013 |
|
2014 |
|
Net cash provided by operating activities |
|
$ |
40,726 |
|
$ |
62,063 |
|
$ |
38,657 |
|
$ |
124,156 |
|
$ |
139,995 |
|
Income tax provision (benefit) (3) |
|
251,260 |
|
(4,329 |
) |
(1,152 |
) |
211,231 |
|
(4,744 |
) |
Non-cash income taxes |
|
(253,076 |
) |
4,391 |
|
(4,530 |
) |
(212,870 |
) |
(591 |
) |
Interest expense and other, net |
|
13,972 |
|
13,970 |
|
14,253 |
|
60,686 |
|
56,261 |
|
Amortization of debt discount, premium and issuance costs |
|
(1,017 |
) |
(1,029 |
) |
(1,037 |
) |
(2,061 |
) |
(4,104 |
) |
Restructuring, acquisition and integration-related costs (2) |
|
11,562 |
|
1,108 |
|
9,095 |
|
40,030 |
|
20,088 |
|
Changes in operating assets and liabilities |
|
(13,612 |
) |
(16,918 |
) |
(2,578 |
) |
5,662 |
|
5,673 |
|
Purchases of property and equipment |
|
(33,967 |
) |
(24,890 |
) |
(28,624 |
) |
(143,614 |
) |
(102,863 |
) |
Other, net |
|
302 |
|
(224 |
) |
490 |
|
235 |
|
462 |
|
Unlevered Free Cash Flow (5) |
|
$ |
16,150 |
|
$ |
34,142 |
|
$ |
24,574 |
|
$ |
83,455 |
|
$ |
110,177 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
$ |
(33,967 |
) |
$ |
(25,390 |
) |
$ |
(28,624 |
) |
$ |
(112,500 |
) |
$ |
(102,777 |
) |
Net cash used in financing activities |
|
$ |
(6,026 |
) |
$ |
(5,513 |
) |
$ |
(5,512 |
) |
$ |
(52,641 |
) |
$ |
(19,721 |
) |
EARTHLINK HOLDINGS CORP.
Supplemental Schedule of Segment Information (6)
(in thousands)
|
|
Three Months Ended
December 31, |
|
Twelve Months Ended
December 31, |
|
|
|
|
|
|
|
2013 |
|
2014 |
|
2013 |
|
2014 |
|
Business Services |
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
235,730 |
|
$ |
225,658 |
|
$ |
964,227 |
|
$ |
930,931 |
|
Cost of revenues (excluding depreciation and amortization) |
|
127,299 |
|
110,919 |
|
506,245 |
|
469,523 |
|
Gross margin |
|
108,431 |
|
114,739 |
|
457,982 |
|
461,408 |
|
Direct segment operating expenses |
|
87,980 |
|
85,459 |
|
342,630 |
|
345,982 |
|
Segment operating income |
|
$ |
20,451 |
|
$ |
29,280 |
|
$ |
115,352 |
|
$ |
115,426 |
|
Consumer Services |
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
66,109 |
|
$ |
58,814 |
|
$ |
276,379 |
|
$ |
245,964 |
|
Cost of revenues (excluding depreciation and amortization) |
|
22,879 |
|
20,758 |
|
94,497 |
|
87,913 |
|
Gross margin |
|
43,230 |
|
38,056 |
|
181,882 |
|
158,051 |
|
Direct segment operating expenses |
|
12,005 |
|
10,081 |
|
50,623 |
|
43,615 |
|
Segment operating income |
|
$ |
31,225 |
|
$ |
27,975 |
|
$ |
131,259 |
|
$ |
114,436 |
|
Consolidated |
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
301,839 |
|
$ |
284,472 |
|
$ |
1,240,606 |
|
$ |
1,176,895 |
|
Cost of revenues |
|
150,178 |
|
131,677 |
|
600,742 |
|
557,436 |
|
Gross margin |
|
151,661 |
|
152,795 |
|
639,864 |
|
619,459 |
|
Direct segment operating expenses |
|
99,985 |
|
95,540 |
|
393,253 |
|
389,597 |
|
Segment operating income |
|
51,676 |
|
57,255 |
|
246,611 |
|
229,862 |
|
Depreciation and amortization |
|
48,800 |
|
47,686 |
|
183,114 |
|
186,872 |
|
Impairment of goodwill and long-lived assets (1) |
|
|
|
2,974 |
|
255,599 |
|
14,334 |
|
Restructuring, acquisition and integration-related costs (2) |
|
11,562 |
|
9,095 |
|
40,030 |
|
20,088 |
|
Corporate operating expenses |
|
5,616 |
|
6,449 |
|
32,817 |
|
29,422 |
|
Loss from operations |
|
$ |
(14,302 |
) |
$ |
(8,949 |
) |
$ |
(264,949 |
) |
$ |
(20,854 |
) |
EARTHLINK HOLDINGS CORP.
Supplemental Schedule of Revenue Detail
(in thousands)
|
|
Three Months Ended
December 31, |
|
Twelve Months Ended
December 31, |
|
|
|
|
|
|
|
2013 |
|
2014 |
|
2013 |
|
2014 |
|
|
|
|
|
|
|
|
|
|
|
Business Services |
|
|
|
|
|
|
|
|
|
Retail services |
|
$ |
194,039 |
|
$ |
183,719 |
|
$ |
793,940 |
|
$ |
756,747 |
|
Wholesale services |
|
36,791 |
|
36,909 |
|
151,071 |
|
154,109 |
|
Other services |
|
4,900 |
|
5,030 |
|
19,216 |
|
20,075 |
|
Total revenues |
|
235,730 |
|
225,658 |
|
964,227 |
|
930,931 |
|
Consumer Services |
|
|
|
|
|
|
|
|
|
Access services |
|
54,713 |
|
47,343 |
|
231,448 |
|
202,008 |
|
Value-added services |
|
11,396 |
|
11,471 |
|
44,931 |
|
43,956 |
|
Total revenues |
|
66,109 |
|
58,814 |
|
276,379 |
|
245,964 |
|
Total Revenues |
|
$ |
301,839 |
|
$ |
284,472 |
|
$ |
1,240,606 |
|
$ |
1,176,895 |
|
EARTHLINK HOLDINGS CORP.
Supplemental Financial Data
|
|
December 31, |
|
September 30, |
|
December 31, |
|
|
|
2013 |
|
2014 |
|
2014 |
|
Employee Data |
|
|
|
|
|
|
|
Number of employees at end of period (7) |
|
3,035 |
|
2,843 |
|
2,659 |
|
EARTHLINK HOLDINGS CORP.
Consumer Services Operating Metrics
|
|
Three Months Ended |
|
|
|
December 31, |
|
September 30, |
|
December 31, |
|
|
|
2013 |
|
2014 |
|
2014 |
|
|
|
|
|
|
|
|
|
Average narrowband subscribers (8) |
|
553,000 |
|
501,000 |
|
487,000 |
|
Average broadband subscribers (8) |
|
441,000 |
|
372,000 |
|
350,000 |
|
Average consumer subscribers (8) |
|
994,000 |
|
873,000 |
|
837,000 |
|
|
|
|
|
|
|
|
|
ARPU (9) |
|
$ |
22.15 |
|
$ |
23.18 |
|
$ |
23.42 |
|
Churn rate (10) |
|
2.0 |
% |
2.2 |
% |
1.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
EARTHLINK HOLDINGS CORP.
Footnotes to Consolidated Financial Highlights
1. During the first quarter of 2013, the Company recognized a $256.7 million non-cash impairment charge to goodwill related to its Business Services reporting unit, of which $255.6 million is included in continuing operations and $1.1 million is reflected in discontinued operations. The impairment was based on an analysis of a number of factors after a decline in the Companys market capitalization following the announcement of its fourth quarter 2012 earnings and 2013 financial guidance. The primary factor contributing to the impairment was a change in the discount rate and market multiples as a result of the change in these market conditions, both key assumptions used in the determination of fair value.
During the three and twelve months ended December 31, 2014, the Company recorded $3.0 million and $14.3 million, respectively, for impairment of long-lived assets, which consisted of impairments of work in progress for information technology projects not expected to be used, software licenses not expected to be used and other long-lived asset impairments.
2. Restructuring, acquisition and integration-related costs consisted of the following for the periods presented (in thousands):
|
|
Three Months Ended December 31, |
|
Twelve Months Ended December 31, |
|
|
|
2013 |
|
2014 |
|
2013 |
|
2014 |
|
|
|
|
|
|
|
|
|
|
|
Integration-related costs |
|
$ |
5,944 |
|
$ |
1,058 |
|
$ |
21,622 |
|
$ |
9,043 |
|
Severance, retention and other employee costs |
|
5,126 |
|
7,292 |
|
14,844 |
|
9,297 |
|
Transaction-related costs |
|
36 |
|
|
|
1,021 |
|
4 |
|
Facility-related costs |
|
456 |
|
745 |
|
2,328 |
|
1,744 |
|
Legacy plan restructuring costs |
|
|
|
|
|
215 |
|
|
|
Restructuring, acquisition and integration-related costs |
|
$ |
11,562 |
|
$ |
9,095 |
|
$ |
40,030 |
|
$ |
20,088 |
|
Restructuring, acquisition and integration-related costs consist of costs related to the Companys restructuring, acquisition and integration-related activities. Such costs include: 1) integration-related costs, such as system conversions, rebranding costs and integration-related consulting and employee costs; 2) severance, retention and other employee termination costs associated with acquisition and integration activities and with certain voluntary employee separations; 3) facility-related costs, such as lease termination and asset impairments; and 4) transaction-related costs, which are direct costs incurred to effect a business combination, such as advisory, legal, accounting, valuation and other professional fees.
3. The income tax provision for the three and twelve months ended December 31, 2013, includes a $266.3 million non-cash charge to record a valuation allowance against the Companys deferred tax assets. During the fourth quarter of 2013, the Company determined it will not be able to fully realize its deferred tax assets in the future.
4. The operating results of the Companys telecom systems business acquired as part of ITC^DeltaCom have been separately presented as discontinued operations for all periods presented. On August 2, 2013, the Company sold its telecom systems business. The Company has no significant continuing involvement in the operations or significant continuing direct cash flows. The telecom systems results of operations were previously included in the Companys Business Services segment.
5. Adjusted EBITDA is defined as net income (loss) before interest expense and other, net, income taxes, depreciation and amortization, stock-based compensation expense, impairment of goodwill and long-lived assets, restructuring, acquisition and integration-related costs, and gain (loss) from discontinued operations, net of tax. Unlevered Free Cash Flow is defined as net income (loss) before interest expense and other, net, income taxes, depreciation and amortization, stock-based compensation expense, impairment of goodwill and long-lived assets, restructuring, acquisition and integration-related costs, and gain (loss) from discontinued operations, net of tax, less cash used for purchases of property and equipment.
Adjusted EBITDA and Unlevered Free Cash Flow are non-GAAP measures and are not determined in accordance with U.S. generally accepted accounting principles. These non-GAAP financial measures are commonly used in the industry and are presented because management believes they provide relevant and useful information to investors. Management uses these non-GAAP financial measures to evaluate the performance of its business and determine bonuses. Management
believes that excluding the effects of certain non-cash and non-operating items enables investors to better understand and analyze the current periods results and provides a better measure of comparability. There are limitations to using these non-GAAP financial measures. Adjusted EBITDA and Unlevered Free Cash Flow are not indicative of cash provided or used by operating activities and may differ from comparable information provided by other companies. Adjusted EBITDA and Unlevered Free Cash Flow should not be considered in isolation, as an alternative to, or more meaningful than measures of financial performance determined in accordance with U.S. GAAP.
6. The Company reports segment information along the same lines that its chief executive officer reviews its operating results in assessing performance and allocating resources. The Company operates two reportable segments, Business Services and Consumer Services. The Companys Business Services segment provides a broad range of data, voice and IT services to retail and wholesale business customers. The Companys Consumer Services segment provides nationwide Internet access and related value-added services to residential customers.
The Company presents its Business Services revenue in the following three categories: (1) retail services, which includes data, voice and managed services provided to business customers; (2) wholesale services, which includes the sale of transmission capacity to other telecommunications carriers and businesses; and (3) other services, which primarily consists of web hosting. The Company presents its Consumer Services revenue in the following two categories: (1) access services, which includes dial-up and high-speed Internet access services; and (2) value-added services, which includes revenues from ancillary services sold as add-on features to the Companys Internet access services, such as security products, premium email only, home networking and email storage; search revenues; and advertising revenues.
EarthLink evaluates performance of its operating segments based on segment income from operations. Segment income from operations includes revenues from external customers, related cost of revenues and operating expenses directly attributable to the segment, which include expenses over which segment managers have direct discretionary control, such as advertising and marketing programs, customer support expenses, site operations expenses, product development expenses, certain technology and facilities expenses, billing operation and provisions for doubtful accounts. Segment income from operations excludes other income and expense items and certain expenses that segment managers do not have discretionary control over. Costs excluded from segment income from operations include various corporate expenses (consisting of certain costs such as corporate management, human resources, finance and legal), depreciation and amortization, stock-based compensation expense, impairment of goodwill and intangible assets and restructuring, acquisition and integration-related costs, as they are not evaluated in the measurement of segment performance.
7. Represents full-time equivalents.
8. Average subscribers for the three month periods is calculated by averaging the ending monthly subscribers or accounts for the four months preceding and including the end of the quarterly period.
9. ARPU represents the average monthly revenue per user (subscriber). ARPU is computed by dividing average monthly revenue for the period by the average number of subscribers for the period. Average monthly revenue used to calculate ARPU includes recurring service revenue as well as nonrecurring revenues associated with equipment and other one-time charges associated with initiating or discontinuing services.
10. Churn rate is used to measure the rate at which subscribers discontinue service on a voluntary or involuntary basis. Churn rate is computed by dividing the average monthly number of subscribers that discontinued service during the period by the average subscribers for the period.
Exhibit 99.2
|
[LOGO]
|
|
Q4 2014
Earnings Highlights February 19, 2015
|
|
Participants
Joe Eazor President and Chief Executive Officer Brad Ferguson Executive Vice
President and Chief Financial Officer
|
|
2014
Achievements Improved Financial Performance Improved Operating Performance
Defined Clear Strategy Implemented Business Unit Organization Model
|
|
EarthLink
Businesses Manage for cash Pursue growth and strategic alternatives
Right-size and manage for cash Customer Base Operating Strategy Invest in
growth products Consumer Small Business Carrier / Transport Managed Services
Individuals & families Telco providers & large enterprises Small,
often single location businesses Distributed multi-location companies
|
|
2015 Agenda
Focus Relentlessly pursue strategy for each business unit Productivity Drive
more profit from our revenue and more return on our investment Position for
Growth Build on strength in Managed Services with refined sales motion and
new products Plan to Optimize Balance Sheet Consider divestiture of dark
fiber as potential first step Drive Operational Excellence Strive to be best
in class
|
|
Q4 2014
Operating & Financial Results Revenue Q4 14 and Q3 14 include favorable
settlements of $4M and $7M, respectively Gross Margin Compared to Q4 13,
gross margin expanded on an absolute and percentage basis Unlevered Free Cash
Flow Strong Adjusted EBITDA results combined with lower capital expenditures
~$8M more Unlevered Free Cash Flow than Q4 13 Adjusted EBITDA, Adjusted
EBITDA Margin and Unlevered Free Cash Flow are Non-GAAP measures. See
appendix for additional information on non-GAAP measures. Fully Diluted
Weighted Average Shares $ Millions Q4 '13 Q3 '14 Q4 '14 Var to Q3 '14 Total
Revenue 301.8 $ 297.7 $ 284.5 $ (13.2) $ Business Revenue 235.7 237.0 225.7
(11.3) Consumer Revenue 66.1 60.7 58.8 (1.9) Cost of Revenue 150.2 135.7
131.7 (4.0) Total Gross Margin 151.7 $ 162.1 $ 152.8 $ (9.3) $ Gross Margin %
50% 54% 54% 0% Business Gross Margin 108.4 123.3 114.7 (8.5) Business Gross
Margin % 46% 52% 51% -1% Consumer Gross Margin 43.2 38.8 38.1 (0.7) Consumer
Gross Margin % 65% 64% 65% 1% Selling, G&A Expenses 105.6 105.9 102.0
(4.0) Adjusted EBITDA (1) 50.1 $ 59.0 $ 53.2 $ (5.8) $ Net Income/(Loss)
(279.9) $ (2.0) $ (22.5) $ (20.5) $ Shares Outstanding (2) 102 102 102 0
Earnings Per Share (2.75) $ (0.02) $ (0.22) $ (0.20) $ Capital Expenditures
34.0 24.9 28.6 3.7 Unlevered Free Cash Flow (1) 16.2 34.1 24.6 (9.5) Adjusted
EBITDA Margin % (1) 17% 20% 19%
|
|
Notes: Revenue
component amounts sourced from billing data. Managed network and cloud
services revenue for 2014 includes full year of CenterBeam Revenue Components
$ in Millions Q4 2013 Q3 2014 Q4 2014 Q4 14 vs. Q4 13 Notes Consumer $66
$61 $59 -11% Consumer revenue declined 11% during 2014 Carrier/Transport
(Wholesale) $37 $43 $37 0% FY 2014 Wholesale revenue increased 2% FY 2014
included $10 M in settlements CLEC $153 $144 $138 -10% FY 2014 CLEC revenues
decreased 10% Managed Network and Cloud Services $46 $51 $51 11% FY 2014 growth
rate was 19% Total Business Retail (CLEC plus Managed Network and Cloud
Services) $199 $194 $189 -5% Total Business Retail revenue declined 4% FY
2014 Total Company $302 $298 $285 -6%
|
|
Monthly average
revenue churn excluding write-downs and write-ups for Total Business
including Retail, Wholesale, IT Services and Web Hosting Monthly average
churn; reflects 2012 true-up of cable subscribers Churn Business churn at
1.9% After increasing in Q3, churn stabilized and began to decrease during Q4
Business Services Churn(1) Consumer Churn(2) Consumer churn at record low
Churn fell to 1.9% in Q4
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Cash Flow
Strong Unlevered Free Cash Flow driven by Adjusted EBITDA and Capex
improvements Capex of $29 million for the quarter, and $103 million for FY
2014, lowest annual capex since 2011 Adjusted EBITDA and Unlevered Free Cash
Flow are a Non-GAAP measures. See appendix for additional information on
non-GAAP measures Adj. EBITDA, Cap. Exp., and Unlevered Free Cash Flow(1) $ Millions Q4 '14 Beginning Cash & Cash Equivalents 130 $ Adjusted EBITDA
(1) 53 Capital Expenditures (29) Integration & Restructuring (3) Bond
Coupons (25) Dividends (5) Other/Changes in Net Working Capital 13 Ending
Cash & Cash Equivalents 134 $
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Balance Sheet
Highlights We maintain a healthy balance sheet Gross leverage remained below
3x during Q4 We continue to maintain net leverage well below 3x We have
access to a $135M revolving credit facility that remains undrawn Excludes
capital leases Adjusted EBITDA is a Non-GAAP measure. See appendix for
additional information on non-GAAP measures $ Millions Q4 '14 EarthLink Cash
134 $ 8 7/8% Senior Notes due 2019 300 7 3/8% Senior Secured Notes due 2020
300 $135 M Credit Facility - Undrawn - Total Debt (1) 600 Net Debt 466 $ 2014
Adjusted EBITDA (2) 213 $ Total Debt/Adj. EBITDA (2) 2.8x Net Debt/Adj.
EBITDA (2) 2.2x
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2014 Results
Original Guidance (February 2014) 2014 Results Notes $ Millions Low End High
End Revenue $1,160 $1,180 $1,177 Favorable settlements and price actions
Adjusted EBITDA(1) $180 $195 $213 Reductions in cost of revenue and operating
expense Net Loss $(95) $(85) $(73) Adj. EBITDA above guidance, partially
offset by restructuring charge Capital Expenditures $125 $135 $103 Aggressive
management of capital spending Adjusted EBITDA is a Non-GAAP measure. See
appendix for additional information on non-GAAP measures
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2015 Full Year
Guidance 2014 Results FY 2015 Guidance Notes Low End High End $ Millions
Revenue $1,177 $1,045 $1,065 Consumer (expect 12% - 15% decline) Pricing
activity that created benefit in 2014 will be smaller in 2015
Carrier/Transport (expect 13% - 15% decline) Expect less settlement benefit
in 2015 Low-margin usage continues to decline Business Retail (expect 8% -
10% decline) More focus on Managed Services sales Reduced selling activity to
small business base Elimination of low-margin non-core products Adjusted
EBITDA(1) $213 $195 $210 Continuing focus on productivity and margin
improvements Net Loss $(73) $(75) $(65) Includes amortization, depreciation,
restructuring and other costs Capital Expenditures $103 $90 $100 Continuing
aggressive management of capital spending Adjusted EBITDA is a Non-GAAP
measure. See appendix for additional information on non-GAAP measures
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EarthLink
Customers Gov. Financial Services Retail Other Health-care
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Non GAAP
Information EarthLink Non-GAAP Measures Adjusted EBITDA is defined as net
income (loss) before interest expense and other, net, income taxes,
depreciation and amortization, stock-based compensation expense, impairment
of goodwill and long-lived assets, restructuring, acquisition and
integration-related costs, and gain (loss) from discontinued operations, net
of tax. Unlevered Free Cash Flow is defined as net income (loss) before
interest expense and other, net, income taxes, depreciation and amortization,
stock based compensation expense, impairment of goodwill and long-lived,
restructuring, acquisition and integration-related costs, and gain (loss)
from discontinued operations, net of tax, less cash used for purchases of
property and equipment. Adjusted EBITDA Margin is defined as Adjusted EBITDA
divided by total revenue. Adjusted EBITDA, Unlevered Free Cash Flow and
Adjusted EBITDA Margin are non-GAAP measures and are not determined in accordance
with U.S. generally accepted accounting principles. These non-GAAP financial
measures are commonly used in the industry and are presented because
management believes they provide relevant and useful information to
investors. Management uses these non-GAAP financial measures to evaluate the
performance of its business and determine bonuses. Management believes that
excluding the effects of certain non-cash and non-operating items enables
investors to better understand and analyze the current periods results and
provides a better measure of comparability. There are limitations to using
these non-GAAP financial measures. Adjusted EBITDA, Unlevered Free Cash Flow
and Adjusted EBITDA Margin are not indicative of cash provided or used by
operating activities and may differ from comparable information provided by
other companies. Adjusted EBITDA, Unlevered Free Cash Flow and Adjusted
EBITDA Margin should not be considered in isolation, as an alternative to, or
more meaningful than measures of financial performance determined in
accordance with U.S. GAAP.
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2015 Guidance
Non GAAP Reconciliation Year Ending December 31, 2015 Net Loss ($75) - ($65)
Interest expense and other, net 56 Income tax expense/(benefit) 1 - 2
Depreciation and amortization 189 - 192 Stock-based compensation expense 14
Restructuring, acquisition and integration-related costs 10 - 11 Adjusted
EBITDA $195 - $210 EarthLink Holdings Corp. Reconciliation of Adjusted EBITDA
to Net Income (in millions)
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Historical Non
GAAP Reconciliations December 31, March 31, June 30, September 30, December
31, 2013 2014 2014 2014 2014 Net loss (279,873) $ (26,470) $ (21,838) $ (1,952) $ (22,492) $ Interest expense and other, net 13,972 13,956 14,082
13,970 14,253 Income tax provision (benefit) 251,260 363 374 (4,329) (1,152)
Depreciation and amortization 48,800 46,855 45,615 46,716 47,686 Stock-based
compensation expense 4,057 4,943 2,335 2,930 2,392 Impairment of goodwill and
long-lived assets - 5,334 5,437 589 2,974 Restructuring, acquisition and integration-related
costs 11,562 4,977 4,908 1,108 9,095 (Gain) loss from discontinued
operations, net of tax 339 (55) (6) - 442 Adjusted EBITDA 50,117 $ 49,903 $ 50,907 $ 59,032 $ 53,198 $ Total Revenue 301,839 $ 297,320 $ 297,358 $ 297,745 $ 284,472 $ Adjusted EBITDA Margin 17% 17% 17% 20% 19% EARTHLINK
HOLDINGS CORP. Reconciliation of Net Loss to Adjusted EBITDA (in thousands)
Three Months Ended
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Additional Non
GAAP Reconciliations December 31, March 31, June 30, September 30, December
31, 2013 2014 2014 2014 2014 Net loss (279,873) $ (26,470) $ (21,838) $ (1,952) $ (22,492) $ Interest expense and other, net 13,972 13,956 14,082
13,970 14,253 Income tax provision (benefit) 251,260 363 374 (4,329) (1,152)
Depreciation and amortization 48,800 46,855 45,615 46,716 47,686 Stock-based
compensation expense 4,057 4,943 2,335 2,930 2,392 Impairment of goodwill and
long-lived assets - 5,334 5,437 589 2,974 Restructuring, acquisition and
integration-related costs 11,562 4,977 4,908 1,108 9,095 (Gain) loss from
discontinued operations, net of tax 339 (55) (6) - 442 Purchases of property
and equipment (33,967) (23,384) (25,965) (24,890) (28,624) Unlevered Free
Cash Flow 16,150 $ 26,519 $ 24,942 $ 34,142 $ 24,574 $ December 31, March 31,
June 30, September 30, December 31, 2013 2014 2014 2014 2014 Net cash
provided by operating activities 40,726 $ 21,306 $ 17,969 $ 62,063 $ 38,657 $ Income tax provision (benefit) 251,260 363 374 (4,329) (1,152) Non-cash
income taxes (253,076) (210) (242) 4,391 (4,530) Interest expense and other,
net 13,972 13,956 14,082 13,970 14,253 Amortization of debt discount, premium
and issuance costs (1,017) (1,016) (1,022) (1,029) (1,037) Restructuring,
acquisition and integration-related costs 11,562 4,977 4,908 1,108 9,095
Changes in operating assets and liabilities (13,612) 10,437 14,732 (16,918)
(2,578) Purchases of property and equipment (33,967) (23,384) (25,965)
(24,890) (28,624) Other, net 302 90 106 (224) 490 Unlevered Free Cash Flow
16,150 $ 26,519 $ 24,942 $ 34,142 $ 24,574 $ Net cash used in investing
activities (33,967) (23,384) (25,379) (25,390) (28,624) Net cash used in
financing activities (6,026) (6,045) (2,651) (5,513) (5,512) (in thousands)
Three Months Ended EARTHLINK HOLDINGS CORP. Reconciliation of Net Loss to
Unlevered Free Cash Flow (in thousands) Three Months Ended EARTHLINK HOLDINGS
CORP Reconciliation of Net Cash Provided by Operating Activities to Unlevered
Free Cash Flow
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Cautionary
Information Regarding Forward Looking Statements This presentation includes
forward-looking statements (rather than historical facts) that are subject
to risks and uncertainties that could cause actual results to differ
materially from those described. Although we believe that the expectations
expressed in these forward-looking statements are reasonable, we cannot
promise that our expectations will turn out to be correct. Our actual results
could be materially different from and worse than our expectations. With
respect to such forward-looking statements, we seek the protections afforded
by the Private Securities Litigation Reform Act of 1995. These risks include,
without limitation: (1) that we may not be able to execute our strategy to
successfully transition to a leading managed network, security and cloud
services provider, which could adversely affect our results of operations and
cash flows; (2) that we may not be able to grow revenues from our growth
products and services to offset declining revenues from our traditional
products and services, which could adversely affect our results of operations
and cash flows; (3) that failure to achieve operating efficiencies would
adversely affect our results of operations and cash flows; (4) that we may
have to undertake further restructuring plans that would require additional
charges; (5) that is we are unable to adapt to changes in technology and
customer demands, we may not remain competitive, and our revenues and
operating results could suffer; (6) that we may be unable to successfully
divest non-strategic products, which could adversely affect our results of
operations(7) that we may be unable to successfully make or integrate
acquisitions, which could adversely affect our results of operations; (8)
that we face significant competition in the communications and managed
services industry that could reduce our profitability; (9) that failure to
retain existing customers could adversely affect our results of operations
and cash flows; (10) that decisions by legislative or regulatory authorities,
including the Federal Communications Commission relieving incumbent carriers
of certain regulatory requirements, and possible further deregulation in the
future, may restrict our ability to provide services and may increase the
costs we incur to provide these services; (11) that if we are unable to interconnect
with AT&T, Verizon and other incumbent carriers on acceptable terms, our
ability to offer competitively priced local telephone services will be
adversely affected; (12) that our operating performance will suffer if we are
not offered competitive rates for the access services we need to provide our
long distance services; (13) that we may experience reductions in switched
access and reciprocal compensation revenue; (14) that failure to obtain and
maintain necessary permits and rights-of-way could interfere with our network
infrastructure and operations; (15) that we have substantial business
relationships with several large telecommunications carriers, and some of our
customer agreements may not continue due to financial difficulty,
acquisitions, non-renewal or other factors, which could adversely affect our
wholesale revenue and results of operations; (16) that we obtain a majority
of our network equipment and software from a limited number of third-party
suppliers; (17) that our commercial and alliance arrangements may not be
renewed or may not generate expected benefits, which could adversely affect
our results of operations; (18) our consumer business is dependent on the
availability of third-party network service providers; (19) that we face
significant competition in the Internet access industry that could reduce our
profitability; (20) that the continued decline of our consumer access
subscribers will adversely affect our results of operations; (21) that
potential regulation of Internet service providers could adversely affect our
operations; (22) that cyber security breaches could harm our business; (23)
that privacy concerns relating to our business could damage our reputation
and deter current and potential users from using our services; (24) that
interruption or failure of our network, information systems or other
technologies could impair our ability to provide our services, which could
damage our reputation and harm our operating results; (25) that our business
depends on effective business support systems and processes; (26) that if we,
or other industry participants, are unable to successfully defend against
disputes or legal actions, we could face substantial liabilities or suffer
harm to our financial and operational prospects; (27) that we may be accused
of infringing upon the intellectual property rights of third parties, which
is costly to defend and could limit our ability to use certain technologies
in the future; (28) that we may not be able to protect our intellectual
property; (29) that we may be unable to hire and retain sufficient qualified
personnel, and the loss of any of our key executive officers could adversely
affect us; (30) that unfavorable general economic conditions could harm our
business; (31) that government regulations could adversely affect our
business or force us to change our business practices; (32) that our business
may suffer if third parties are unable to provide services or terminate their
relationships with us; (33) that we may be required to recognize impairment
charges on our goodwill and other intangible assets, which would adversely
affect our results of operations and financial position; (34) that we may
have exposure to greater than anticipated tax liabilities and we may be
limited in the use of our net operating losses and certain other tax
attributes in the future; (35) that our indebtedness could adversely affect
our financial health and limit our ability to react to changes in our
business and industry; (36) that we may require substantial capital to support
business growth, and this capital may not be available to us on acceptable
terms, or at all; (37) that our debt agreements include restrictive
covenants, and failure to comply with these covenants could trigger
acceleration of payment of outstanding indebtedness; (38) that we may reduce,
or cease payment of, quarterly cash dividends; (39) that our stock price may
be volatile; (40) that provisions of our certificate of incorporation, bylaws
and other elements of our capital structure could limit our share price and
delay a change of control of the company; and (41) that our bylaws designate
the Court of Chancery of the State of Delaware as the sole and exclusive
forum for certain types of actions and proceedings that may be initiated by
our stockholders, which could limit our stockholders flexibility in
obtaining a judicial forum for disputes with us or our directors, officers or
employees. These risks and uncertainties, as well as other risks and
uncertainties that could cause our actual results to differ significantly
from managements expectations, are not intended to represent a complete list
of all risks and uncertainties inherent in our business, and should be read
in conjunction with the more detailed cautionary statements and risk factors
included in our Annual Report on Form 10-K for the year ended December 31,
2013.
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