ATLANTA, Aug. 3, 2015 /PRNewswire/ -- EarthLink
Holdings Corp. (NASDAQ: ELNK), a leading managed network,
security and cloud solutions provider for multi-location
businesses, today announced financial results for its second
quarter of 2015.
"We are executing our strategy and continuing to deliver
favorable financial results," said EarthLink CEO and President
Joseph F. Eazor. "I'm optimistic
about our opportunity, and I look forward to continuing to tackle
our challenges."
Second Quarter
2015 Financial Summary
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Figures in US $
millions,
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First
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Second
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except per
share
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Second
Quarter
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Quarter
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Quarter
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2014
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2015
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Change
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2015
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2015
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Change
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Revenues
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Business
Services
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$
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234.2
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$
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227.6
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(2.8)
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%
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$
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226.3
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$
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227.6
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0.6
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%
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Consumer
Services
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63.1
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56.1
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(11.1)
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%
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56.1
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56.1
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—
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%
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Total
Revenue
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297.3
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283.7
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(4.6)
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%
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282.4
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283.7
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0.5
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%
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Gross
Margin
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153.2
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156.6
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2.2
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%
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153.0
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156.6
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2.4
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%
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Operating
Expenses
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104.6
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94.3
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(9.8)%
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95.3
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94.3
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(1.0)
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%
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Income (loss) from
Operations
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(7.4)
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10.6
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243.2
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%
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5.1
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10.6
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107.8
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%
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Net Loss
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(21.8)
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(9.9)
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(54.6)
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%
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(10.5)
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(9.9)
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(5.7)
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%
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Net Loss per
share
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(0.21)
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(0.10)
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(52.4)
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%
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(0.10)
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(0.10)
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—
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%
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Adjusted EBITDA
(1)
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50.9
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66.1
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29.9
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%
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61.1
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66.1
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8.2
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%
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Capital
Expenditures
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26.0
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20.9
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(19.6)%
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17.5
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20.9
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19.4
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%
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Cash and Marketable
Securities
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98.5
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87.4
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(11.3)
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%
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108.1
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87.4
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(19.1)
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%
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Net Cash Provided by
Operating Activities
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18.0
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33.3
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85.0
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%
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18.9
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33.3
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76.2
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%
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Unlevered Free Cash
Flow (1)
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24.9
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45.2
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81.5
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%
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43.6
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45.2
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3.7
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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.
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Revenue
- Total revenue was $283.7 million
during the second quarter of 2015, a decline of 4.6% from the prior
year quarter. This was an improvement compared to the 5.0%
year-over-year decline the company reported in the first quarter of
2015.
- Business Services revenue decreased 2.8% from the second
quarter of 2014, an improvement versus the 3.3% year-over-year
decline reported in the first quarter of 2015.
- Business Services and total company revenue during the second
quarter of 2015 were aided by seasonal pricing actions implemented
during the first quarter of 2015. In addition, in the second
quarter of 2015, total company revenue included $1.6 million of favorable dispute settlements and
reserve adjustments, which consisted of $1.0
million of revenue in the Business Services segment and
$0.6 million of revenue in the
Consumer Services segment. Business Services and total company
revenue in the first quarter of 2015 included $2.1 million in favorable dispute
settlements.
Income (Loss) from Operations, Net Loss, and Adjusted
EBITDA
- Income from operations was $10.6
million during the second quarter of 2015. This compares to
a loss from operations of $(7.4)
million in the second quarter of 2014 and income from
operations of $5.1 million in the
first quarter of 2015.
- Net loss was $(9.9) million
during the second quarter of 2015. This compares to a net loss of
$(21.8) million in the second quarter
of 2014 and $(10.5) million in the
first quarter of 2015. The net loss during the second quarter of
2015 included a $6.0 million loss on
extinguishment of debt.
- Adjusted EBITDA (a non-GAAP measure, see definition in
"Non-GAAP Measures" below) was $66.1
million in the second quarter of 2015, a 29.9% increase from
the second quarter of 2014 and an 8.2% increase from the first
quarter of 2015.
Balance Sheet and Cash Flow
- Net cash provided by operating activities was $33.3 million during the second quarter of 2015.
This compares to net cash provided by operating activities of
$18.0 million in the second quarter
of 2014 and $18.9 million in the
first quarter of 2015.
- Unlevered Free Cash Flow (a non-GAAP measure, see definition in
"Non-GAAP Measures" below) was $45.2
million during the second quarter of 2015. This compared to
Unlevered Free Cash Flow of $24.9
million in the second quarter of 2014 and $43.6 million in the first quarter of 2015.
- EarthLink ended the second quarter of 2015 with $87.4 million in cash. During the second quarter
of 2015, EarthLink redeemed and repurchased $75.0 million of outstanding 8.875% debt for
$78.3 million, plus accrued and
unpaid interest (which includes $5.0
million of repurchases that were initiated in the first
quarter of 2015 and settled in the second quarter of 2015).
EarthLink used $55.0 million from its
revolving credit facility and $24.0
million from existing cash to fund the redemption and
repurchase.
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, loss on extinguishment
of debt, 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, loss on extinguishment of debt, 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
EarthLink's Second Quarter 2015 Conference Call will be held on
Tuesday, August 4, 2015, at
8:30 a.m. ET and hosted by
EarthLink's Chief Executive Officer and President Joseph F. Eazor and Executive Vice President and
Chief Financial Officer Louis M.
Alterman.
The dial-in number is: (866) 887-3882.
Participants should reference the conference ID number 81173072 or
"EarthLink Second Quarter 2015 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 August 4, 2015 through midnight on September 4, 2015. Dial toll-free: (855)
859-2056. The replay confirmation code is 81173072. The Webcast
will be archived on the company's 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
management's 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, 2014.
EARTHLINK HOLDINGS
CORP.
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Unaudited
Condensed Consolidated Statements Of Operations
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(in thousands,
except per share data)
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Three Months
Ended
|
|
Six Months
Ended
|
|
June
30,
|
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June
30,
|
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2014
|
|
2015
|
|
2014
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|
2015
|
|
|
|
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Revenues
|
$
|
297,358
|
|
|
$
|
283,664
|
|
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$
|
594,678
|
|
|
$
|
566,111
|
|
Operating costs and
expenses:
|
|
|
|
|
|
|
|
Cost of revenues
(exclusive of depreciation and amortization shown separately
below)
|
144,188
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|
127,048
|
|
|
290,064
|
|
|
256,510
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Selling, general and
administrative (exclusive of depreciation and amortization shown
separately below)
|
104,598
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|
|
94,349
|
|
|
211,082
|
|
|
189,607
|
|
Depreciation and
amortization
|
45,615
|
|
|
47,723
|
|
|
92,470
|
|
|
94,987
|
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Impairment of
long-lived assets (1)
|
5,437
|
|
|
—
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|
|
10,771
|
|
|
—
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|
Restructuring,
acquisition and integration-related costs (2)
|
4,908
|
|
|
3,978
|
|
|
9,885
|
|
|
9,350
|
|
Total operating costs
and expenses
|
304,746
|
|
|
273,098
|
|
|
614,272
|
|
|
550,454
|
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Income (loss) from
operations
|
(7,388)
|
|
|
10,566
|
|
|
(19,594)
|
|
|
15,657
|
|
Interest expense and
other, net
|
(14,082)
|
|
|
(14,112)
|
|
|
(28,038)
|
|
|
(28,049)
|
|
Loss on
extinguishment of debt (3)
|
—
|
|
|
(5,966)
|
|
|
—
|
|
|
(7,252)
|
|
Loss from continuing
operations before income taxes
|
(21,470)
|
|
|
(9,512)
|
|
|
(47,632)
|
|
|
(19,644)
|
|
Income tax
provision
|
(374)
|
|
|
(410)
|
|
|
(737)
|
|
|
(761)
|
|
Loss from continuing
operations
|
(21,844)
|
|
|
(9,922)
|
|
|
(48,369)
|
|
|
(20,405)
|
|
Gain from
discontinued operations, net of tax (4)
|
6
|
|
|
—
|
|
|
61
|
|
|
—
|
|
Net loss
|
$
|
(21,838)
|
|
|
$
|
(9,922)
|
|
|
$
|
(48,308)
|
|
|
$
|
(20,405)
|
|
|
|
|
|
|
|
|
|
Basic and diluted net
loss per share
|
|
|
|
|
|
|
|
Continuing
operations
|
$
|
(0.21)
|
|
|
$
|
(0.10)
|
|
|
$
|
(0.47)
|
|
|
$
|
(0.20)
|
|
Discontinued
operations
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Basic and diluted net
loss per share
|
$
|
(0.21)
|
|
|
$
|
(0.10)
|
|
|
$
|
(0.47)
|
|
|
$
|
(0.20)
|
|
Basic and diluted
weighted average common shares outstanding
|
102,354
|
|
103,323
|
|
102,335
|
|
102,969
|
|
|
|
|
|
|
|
|
Dividends declared
per share
|
$
|
0.05
|
|
|
$
|
0.05
|
|
|
$
|
0.10
|
|
|
$
|
0.10
|
|
EARTHLINK HOLDINGS
CORP.
|
Unaudited
Condensed Consolidated Balance Sheets
|
(in thousands,
except per share data)
|
|
|
December 31,
2014
|
|
June 30,
2015
|
ASSETS
|
|
|
Current
assets:
|
|
|
|
Cash and cash
equivalents
|
$
|
134,133
|
|
|
$
|
87,362
|
|
Accounts receivable,
net of allowance of $6,211 and $4,149 as of December 31, 2014
and June 30, 2015, respectively
|
92,616
|
|
|
85,524
|
|
Prepaid
expenses
|
13,761
|
|
|
16,485
|
|
Other current
assets
|
13,671
|
|
|
13,340
|
|
Total current
assets
|
254,181
|
|
|
202,711
|
|
Property and
equipment, net
|
404,713
|
|
|
382,256
|
|
Goodwill
|
137,751
|
|
|
137,751
|
|
Other intangible
assets, net
|
91,490
|
|
|
58,213
|
|
Other long-term
assets
|
22,026
|
|
|
18,134
|
|
Total assets
|
$
|
910,161
|
|
|
$
|
799,065
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
Accounts
payable
|
$
|
23,726
|
|
|
$
|
9,870
|
|
Accrued payroll and
related expenses
|
50,197
|
|
|
31,038
|
|
Other accrued
liabilities
|
85,181
|
|
|
69,795
|
|
Deferred
revenue
|
43,940
|
|
|
44,090
|
|
Current portion of
long-term debt and capital lease obligations
|
1,537
|
|
|
1,555
|
|
Deferred income
taxes, net
|
751
|
|
|
792
|
|
Total current
liabilities
|
205,332
|
|
|
157,140
|
|
Long-term debt and
capital lease obligations
|
606,284
|
|
|
566,961
|
|
Long-term deferred
income taxes, net
|
2,448
|
|
|
2,788
|
|
Other long-term
liabilities
|
21,313
|
|
|
22,717
|
|
Total
liabilities
|
835,377
|
|
|
749,606
|
|
|
|
|
|
Stockholders'
equity:
|
|
|
|
Preferred stock,
$0.01 par value, 100,000 shares authorized, 0 shares issued
and outstanding as of December 31, 2014 and June 30,
2015
|
—
|
|
|
—
|
|
Common stock, $0.01
par value, 300,000 shares authorized, 198,623 and 199,972
shares
issued as of December 31, 2014 and June 30, 2015, respectively, and
102,296 and
103,645 shares outstanding as of December 31, 2014 and June 30,
2015, respectively
|
1,986
|
|
|
2,000
|
|
Additional paid-in
capital
|
2,035,382
|
|
|
2,030,448
|
|
Accumulated
deficit
|
(1,217,727)
|
|
|
(1,238,132)
|
|
Treasury stock, at
cost, 96,327 shares as of December 31, 2014 and June 30,
2015
|
(744,857)
|
|
|
(744,857)
|
|
Total stockholders'
equity
|
74,784
|
|
|
49,459
|
|
Total liabilities and
stockholders' equity
|
$
|
910,161
|
|
|
$
|
799,065
|
|
EARTHLINK HOLDINGS
CORP.
|
Reconciliation of
Net Loss to Adjusted EBITDA (5)
|
(in
thousands)
|
|
|
Three Months
Ended
|
|
June
30,
|
|
March
31,
|
|
June
30,
|
|
2014
|
|
2015
|
|
2015
|
Net loss
|
$
|
(21,838)
|
|
|
$
|
(10,483)
|
|
|
$
|
(9,922)
|
|
Interest expense and
other, net
|
14,082
|
|
|
13,937
|
|
|
14,112
|
|
Income tax
provision
|
374
|
|
|
351
|
|
|
410
|
|
Depreciation and
amortization
|
45,615
|
|
|
47,264
|
|
|
47,723
|
|
Stock-based
compensation expense
|
2,335
|
|
|
3,415
|
|
|
3,814
|
|
Impairment of
long-lived assets (1)
|
5,437
|
|
|
—
|
|
|
—
|
|
Restructuring,
acquisition and integration-related costs (2)
|
4,908
|
|
|
5,372
|
|
|
3,978
|
|
Loss on
extinguishment of debt (3)
|
—
|
|
|
1,286
|
|
|
5,966
|
|
Gain from
discontinued operations, net of tax (4)
|
(6)
|
|
|
—
|
|
|
—
|
|
Adjusted EBITDA
(5)
|
$
|
50,907
|
|
|
$
|
61,142
|
|
|
$
|
66,081
|
|
|
|
|
Reconciliation of
Net Loss to Unlevered Free Cash Flow (5)
|
(in
thousands)
|
|
|
Three Months
Ended
|
|
June
30,
|
|
March
31,
|
|
June
30,
|
|
2014
|
|
2015
|
|
2015
|
Net loss
|
$
|
(21,838)
|
|
|
$
|
(10,483)
|
|
|
$
|
(9,922)
|
|
Interest expense and
other, net
|
14,082
|
|
|
13,937
|
|
|
14,112
|
|
Income tax
provision
|
374
|
|
|
351
|
|
|
410
|
|
Depreciation and
amortization
|
45,615
|
|
|
47,264
|
|
|
47,723
|
|
Stock-based
compensation expense
|
2,335
|
|
|
3,415
|
|
|
3,814
|
|
Impairment of
long-lived assets (1)
|
5,437
|
|
|
—
|
|
|
—
|
|
Restructuring,
acquisition and integration-related costs (2)
|
4,908
|
|
|
5,372
|
|
|
3,978
|
|
Loss on
extinguishment of debt (3)
|
—
|
|
|
1,286
|
|
|
5,966
|
|
Gain from
discontinued operations, net of tax (4)
|
(6)
|
|
|
—
|
|
|
—
|
|
Purchases of property
and equipment
|
(25,965)
|
|
|
(17,529)
|
|
|
(20,873)
|
|
Unlevered Free Cash
Flow (5)
|
$
|
24,942
|
|
|
$
|
43,613
|
|
|
$
|
45,208
|
|
|
|
|
Reconciliation of
Net Cash Provided by Operating Activities to Unlevered Free Cash
Flow (5)
|
(in
thousands)
|
|
|
Three Months
Ended
|
|
June
30,
|
|
March
31,
|
|
June
30,
|
|
2014
|
|
2015
|
|
2015
|
Net cash provided by
operating activities
|
$
|
17,969
|
|
|
$
|
18,865
|
|
|
$
|
33,262
|
|
Income tax
provision
|
374
|
|
|
351
|
|
|
410
|
|
Non-cash income
taxes
|
(242)
|
|
|
(185)
|
|
|
(196)
|
|
Interest expense and
other, net
|
14,082
|
|
|
13,937
|
|
|
14,112
|
|
Amortization of debt
discount and debt issuance costs
|
(1,022)
|
|
|
(1,029)
|
|
|
(994)
|
|
Restructuring,
acquisition and integration-related costs (2)
|
4,908
|
|
|
5,372
|
|
|
3,978
|
|
Changes in operating
assets and liabilities
|
14,732
|
|
|
23,741
|
|
|
16,255
|
|
Purchases of property
and equipment
|
(25,965)
|
|
|
(17,529)
|
|
|
(20,873)
|
|
Other, net
|
106
|
|
|
90
|
|
|
(746)
|
|
Unlevered Free Cash
Flow (5)
|
$
|
24,942
|
|
|
$
|
43,613
|
|
|
$
|
45,208
|
|
|
|
|
|
|
|
Net cash used in
investing activities
|
$
|
(25,379)
|
|
|
$
|
(17,529)
|
|
|
$
|
(20,873)
|
|
Net cash used in
financing activities
|
$
|
(2,651)
|
|
|
$
|
(27,416)
|
|
|
$
|
(33,080)
|
|
EARTHLINK HOLDINGS
CORP.
|
Supplemental
Schedule of Segment Information (6)
|
(in
thousands)
|
|
|
Three Months
Ended
|
|
Six Months
Ended
|
|
June
30,
|
|
June
30,
|
|
2014
|
|
2015
|
|
2014
|
|
2015
|
|
|
|
|
|
|
|
|
Business
Services
|
|
|
|
|
|
|
|
Revenues
|
$
|
234,216
|
|
|
$
|
227,558
|
|
|
$
|
468,219
|
|
|
$
|
453,875
|
|
Cost of revenues
(excluding depreciation and amortization)
|
121,555
|
|
|
106,829
|
|
|
244,819
|
|
|
216,291
|
|
Gross
margin
|
112,661
|
|
|
120,729
|
|
|
223,400
|
|
|
237,584
|
|
Direct segment
operating expenses
|
86,834
|
|
|
81,538
|
|
|
172,445
|
|
|
162,786
|
|
Segment operating
income
|
$
|
25,827
|
|
|
$
|
39,191
|
|
|
$
|
50,955
|
|
|
$
|
74,798
|
|
Consumer
Services
|
|
|
|
|
|
|
|
Revenues
|
$
|
63,142
|
|
|
$
|
56,106
|
|
|
$
|
126,459
|
|
|
$
|
112,236
|
|
Cost of revenues
(excluding depreciation and amortization)
|
22,633
|
|
|
20,219
|
|
|
45,245
|
|
|
40,219
|
|
Gross
margin
|
40,509
|
|
|
35,887
|
|
|
81,214
|
|
|
72,017
|
|
Direct segment
operating expenses
|
11,401
|
|
|
7,332
|
|
|
22,961
|
|
|
15,654
|
|
Segment operating
income
|
$
|
29,108
|
|
|
$
|
28,555
|
|
|
$
|
58,253
|
|
|
$
|
56,363
|
|
Consolidated
|
|
|
|
|
|
|
|
Revenues
|
$
|
297,358
|
|
|
$
|
283,664
|
|
|
$
|
594,678
|
|
|
$
|
566,111
|
|
Cost of
revenues
|
144,188
|
|
|
127,048
|
|
|
290,064
|
|
|
256,510
|
|
Gross
margin
|
153,170
|
|
|
156,616
|
|
|
304,614
|
|
|
309,601
|
|
Direct segment
operating expenses
|
98,235
|
|
|
88,870
|
|
|
195,406
|
|
|
178,440
|
|
Segment operating
income
|
54,935
|
|
|
67,746
|
|
|
109,208
|
|
|
131,161
|
|
Depreciation and
amortization
|
45,615
|
|
|
47,723
|
|
|
92,470
|
|
|
94,987
|
|
Impairment of
long-lived assets (1)
|
5,437
|
|
|
—
|
|
|
10,771
|
|
|
—
|
|
Restructuring,
acquisition and integration-related costs (2)
|
4,908
|
|
|
3,978
|
|
|
9,885
|
|
|
9,350
|
|
Corporate operating
expenses
|
6,363
|
|
|
5,479
|
|
|
15,676
|
|
|
11,167
|
|
Income (loss) from
operations
|
$
|
(7,388)
|
|
|
$
|
10,566
|
|
|
$
|
(19,594)
|
|
|
$
|
15,657
|
|
EARTHLINK HOLDINGS
CORP.
|
Supplemental
Schedule of Revenue Detail
|
(in
thousands)
|
|
|
Three Months
Ended
|
|
Six Months
Ended
|
|
June
30,
|
|
June
30,
|
|
2014
|
|
2015
|
|
2014
|
|
2015
|
|
|
|
|
|
|
|
|
Business
Services
|
|
|
|
|
|
|
|
Retail
services
|
$
|
191,386
|
|
|
$
|
188,702
|
|
|
$
|
383,906
|
|
|
$
|
377,198
|
|
Wholesale
services
|
37,970
|
|
|
34,034
|
|
|
74,412
|
|
|
67,006
|
|
Other
services
|
4,860
|
|
|
4,822
|
|
|
9,901
|
|
|
9,671
|
|
Total
revenues
|
234,216
|
|
|
227,558
|
|
|
468,219
|
|
|
453,875
|
|
Consumer
Services
|
|
|
|
|
|
|
|
Access
services
|
52,514
|
|
|
44,872
|
|
|
105,149
|
|
|
89,918
|
|
Value-added
services
|
10,628
|
|
|
11,234
|
|
|
21,310
|
|
|
22,318
|
|
Total
revenues
|
63,142
|
|
|
56,106
|
|
|
126,459
|
|
|
112,236
|
|
Total
Revenues
|
$
|
297,358
|
|
|
$
|
283,664
|
|
|
$
|
594,678
|
|
|
$
|
566,111
|
|
EARTHLINK HOLDINGS
CORP.
|
Supplemental
Financial Data
|
|
|
June
30,
|
|
March
31,
|
|
June
30,
|
|
2014
|
|
2015
|
|
2015
|
|
|
|
|
|
|
Number of employees
at end of period (7)
|
2,981
|
|
|
2,402
|
|
|
2,314
|
|
EARTHLINK HOLDINGS
CORP.
|
Consumer Services
Operating Metrics
|
|
|
Three Months Ended
|
|
June
30,
|
|
March
31,
|
|
June
30,
|
|
2014
|
|
2015
|
|
2015
|
|
|
|
|
|
|
Average narrowband
subscribers (8)
|
518,000
|
|
474,000
|
|
469,000
|
Average broadband
subscribers (8)
|
397,000
|
|
332,000
|
|
313,000
|
Average consumer
subscribers (8)
|
915,000
|
|
806,000
|
|
782,000
|
|
|
|
|
|
|
ARPU (9)
|
$
|
22.99
|
|
|
$
|
23.20
|
|
|
$
|
23.62
|
|
Churn rate
(10)
|
2.3
|
%
|
|
2.1
|
%
|
|
1.9
|
%
|
|
EARTHLINK HOLDINGS
CORP.
|
|
Footnotes to
Consolidated Financial Highlights
|
|
|
1.
|
During the three and
six months ended June 30, 2014, the Company recorded $5.4 million
and $10.8 million, respectively, for impairment of property and
equipment, which consisted of impairment of work in progress for
information technology projects not expected to be used.
|
|
|
2.
|
Restructuring,
acquisition and integration-related costs consisted of the
following for the periods presented (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
|
2014
|
|
2015
|
|
2014
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
Integration-related
costs
|
$
|
2,762
|
|
|
$
|
1,658
|
|
|
$
|
6,715
|
|
|
$
|
2,975
|
|
|
Severance, retention
and other employee costs
|
958
|
|
|
1,048
|
|
|
1,966
|
|
|
3,949
|
|
|
Facility-related
costs
|
1,186
|
|
|
1,272
|
|
|
1,202
|
|
|
2,426
|
|
|
Transaction-related
costs
|
2
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
Restructuring,
acquisition and integration-related costs
|
$
|
4,908
|
|
|
$
|
3,978
|
|
|
$
|
9,885
|
|
|
$
|
9,350
|
|
|
|
|
|
|
|
|
|
|
Restructuring,
acquisition and integration-related costs consist of costs related
to the Company's 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.
The Company expects to incur restructuring, acquisition and
integration-related costs of $4.0 million to $5.0 million during
the third quarter of 2015.
|
|
|
3.
|
During the three and
six months ended June 30, 2015, the Company recorded $6.0 million
and $7.3 million, respectively, for loss on extinguishment of debt.
The Company recognized a $5.6 million loss on the redemption of
$70.0 million outstanding principal of its 8.875% Senior Notes due
2019 ("Senior Notes") in June 2015, consisting of $3.1 million for
the premium paid, $1.4 million for the write-off of unamortized
discount on debt and $1.1 million for the write-off of unamortized
debt issuance costs; a $1.3 million loss on the repurchase of $21.1
million outstanding principal of its Senior Notes in March 2015,
consisting of $0.5 million for premiums paid on the repurchase and
$0.8 million for the write-off of unamortized discount on debt and
debt issuance costs; and a $0.4 million loss on the repurchase of
$5.0 million outstanding principal of its Senior Notes in April
2015, consisting of $0.2 million for premiums paid on the
repurchase and $0.2 million for the write-off of unamortized
discount on debt and debt issuance costs.
|
|
|
4.
|
The operating results
of the Company's 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 Company's 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, loss on
extinguishment of debt, 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, loss on extinguishment
of debt, 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
period's 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 Company's Business
Services segment provides a broad range of data, voice and managed
services to retail and wholesale business customers. The Company's
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 Company's Internet access services, such as
security products, premium email only, home networking and email
storage; search revenues; and advertising revenues.
|
|
|
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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.
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7.
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Represents full-time
equivalents.
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8.
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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.
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9.
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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.
Average monthly revenue for the three months ending June 30, 2015
excludes a $0.6 million favorable settlement adjustment recorded
during the period.
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10.
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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.
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To view the original version on PR Newswire,
visit:http://www.prnewswire.com/news-releases/earthlink-reports-second-quarter-2015-results-300122795.html
SOURCE EarthLink Holdings Corp.