EarthLink (EarthLink Holdings Corp.), (NASDAQ:ELNK), a leading
network services provider dedicated to delivering great customer
experiences, today announced financial results for its first
quarter of 2016.
“2016 is a transformational year for EarthLink as we work to
become the industry leader in network services in the cloud world,”
said EarthLink Chief Executive Officer and President Joe Eazor. “In
the first quarter, we made progress on our journey and delivered
solid financial results, including strong cash flow and further
debt reduction.”
First Quarter 2016 Financial Summary
|
Figures in US $ millions, |
|
|
|
|
|
|
Fourth |
|
First |
|
|
|
|
except
per share |
First Quarter |
|
|
|
Quarter |
|
Quarter |
|
|
|
|
|
2015 |
|
2016 |
|
Change |
|
2015 |
|
2016 |
|
Change |
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
Enterprise/Mid-Market |
$ |
114.4 |
|
|
$ |
104.7 |
|
|
(8.5 |
)% |
|
$ |
106.2 |
|
|
$ |
104.7 |
|
|
(1.4 |
)% |
|
|
Small Business |
79.0 |
|
|
62.1 |
|
|
(21.5 |
)% |
|
66.5 |
|
|
62.1 |
|
|
(6.6 |
)% |
|
|
Carrier/Transport |
32.9 |
|
|
36.1 |
|
|
9.7 |
% |
|
34.3 |
|
|
36.1 |
|
|
5.2 |
% |
|
|
Consumer |
56.1 |
|
|
51.4 |
|
|
(8.4 |
)% |
|
53.3 |
|
|
51.4 |
|
|
(3.6 |
)% |
|
|
Total Revenue |
282.4 |
|
|
254.3 |
|
|
(10.0 |
)% |
|
260.2 |
|
|
254.3 |
|
|
(2.3 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Margin |
153.0 |
|
|
139.1 |
|
|
(9.1 |
)% |
|
138.5 |
|
|
139.1 |
|
|
0.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses |
95.3 |
|
|
81.4 |
|
|
(14.6 |
)% |
|
88.4 |
|
|
81.4 |
|
|
(7.9 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) |
(10.5 |
) |
|
7.9 |
|
|
|
NM |
|
(12.3 |
) |
|
7.9 |
|
|
|
NM |
|
|
Net Income (Loss) per
share |
(0.10 |
) |
|
0.07 |
|
|
|
NM |
|
(0.12 |
) |
|
0.07 |
|
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
(1) |
61.1 |
|
|
61.7 |
|
|
1.0 |
% |
|
53.9 |
|
|
61.7 |
|
|
14.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
Expenditures |
17.5 |
|
|
18.6 |
|
|
6.3 |
% |
|
27.1 |
|
|
18.6 |
|
|
(31.4 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
108.1 |
|
|
60.7 |
|
|
(43.8 |
)% |
|
91.3 |
|
|
60.7 |
|
|
(33.5 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Debt Outstanding
(2) |
578.9 |
|
|
466.9 |
|
|
(19.3 |
)% |
|
508.9 |
|
|
466.9 |
|
|
(8.3 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by
Operating Activities |
18.9 |
|
|
10.6 |
|
|
(43.9 |
)% |
|
41.4 |
|
|
10.6 |
|
|
(74.4 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unlevered
Free Cash Flow (1) |
43.6 |
|
|
43.2 |
|
|
(0.9 |
)% |
|
26.8 |
|
|
43.2 |
|
|
61.2 |
% |
|
|
|
|
|
(1)
Adjusted EBITDA and Unlevered Cash Flow are non-GAAP measures, see
definitions in “Non-GAAP Measures” below. |
|
|
|
|
|
(2) Gross
debt outstanding excludes unamortized debt issuance costs,
unamortized debt discount and capital leases. |
|
|
|
|
|
NM -
Percentage is not meaningful |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue and Gross Margin
- Total revenue was $254.3 million during the first quarter of
2016, a decline of 10.0% from the prior year quarter and 2.3% from
the fourth quarter of 2015.
- On February 1, 2016, the Company sold certain assets related to
its IT services product offerings. Total revenue during the first
quarter of 2016 included $3.4 million of IT services revenue,
compared to $11.8 million during the first quarter of 2015 and
$10.2 million during the fourth quarter of 2015.
- Total revenue during the first quarter of 2016 included $0.9
million of favorable settlements, compared to $2.1 million during
the first quarter of 2015 and $0.9 million during the fourth
quarter of 2015. In addition, total revenue during the first
quarter of 2016 included $2.2 million of other favorable one-time
revenue items.
- Gross margin during the first quarter of 2016 was $139.1
million, compared to $153.0 million in the first quarter of 2015
and $138.5 million in the fourth quarter of 2015. Cost of revenue
in the first quarter of 2016 included $3.9 million of favorable
settlements, compared to $3.6 million in the first quarter of 2015
and $2.2 million in the fourth quarter of 2015.
Net Income (Loss) and Adjusted EBITDA
- Net income was $7.9 million during the first quarter of 2016.
This compares to a net loss of $(10.5) million in the first quarter
of 2015 and $(12.3) million in the fourth quarter of 2015. Net
income during the first quarter of 2016 includes a $5.7 million
pretax gain on the sale of the Company's IT services assets. Net
income during the first quarter of 2016 also reflects a decrease in
depreciation and amortization expense primarily due to certain
assets becoming fully amortized and a decrease in interest expense
due to lower outstanding debt as compared to the prior year
periods.
- Adjusted EBITDA (a non-GAAP measure, see definition in
“Non-GAAP Measures” below) was $61.7 million in the first quarter
of 2016. This compares to $61.1 million in the first quarter of
2015 and $53.9 million during the fourth quarter of 2015. Adjusted
EBITDA in the first quarter of 2016 includes the aforementioned
revenue and cost of revenue settlements and one-time items, which
totaled $7.0 million.
Balance Sheet and Cash Flow
- Net cash provided by operating activities was $10.6 million
during the first quarter of 2016. This compares to net cash
provided by operating activities of $18.9 million in the first
quarter of 2015 and $41.4 million in the fourth quarter of 2015.
Net cash provided by operating activities was unfavorably impacted
in the first quarter by seasonal changes to net working
capital.
- Unlevered Free Cash Flow (a non-GAAP measure, see definition in
“Non-GAAP Measures” below) was $43.2 million during the first
quarter of 2016. This compares to Unlevered Free Cash Flow of $43.6
million in the first quarter of 2015 and $26.8 million in the
fourth quarter of 2015.
- EarthLink ended the first quarter of 2016 with $60.7 million in
cash. EarthLink received $26.0 million of cash from the sale of its
IT services assets. EarthLink repurchased $7.0 million of
outstanding 8.875% senior notes at an average price of $100.35 per
$100 face value of notes and repaid all of the $35.0 million
outstanding under its revolving credit facility during the first
quarter of 2016.
Non-GAAP MeasuresAdjusted 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, gain on
sale of business and loss on extinguishment of debt. 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, gain on sale of business and loss on
extinguishment of debt, 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 4 of the Consolidated Financial Highlights
for a discussion of the presentation, comparability and use of such
financial measures.
Conference Call for Analysts and
InvestorsEarthLink’s First Quarter 2016 Conference Call
will be held on Tuesday, May 3, 2016, 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 91321780 or "EarthLink First
Quarter 2016 Earnings Call" and dial in 10 minutes prior to the
scheduled start time.
WebcastA live webcast of the conference call
will be available at: http://ir.earthlink.net/.
PresentationAn investor presentation to
accompany the conference call and webcast will be
available at: http://ir.earthlink.net/
ReplayA webcast replay will be available from
11:30 a.m. ET on May 3, 2016 through midnight on June 3, 2016. Dial
toll-free: (855) 859-2056. The replay confirmation code is
91321780. The webcast will be archived on the company’s website
at: http://ir.earthlink.net/events.cfm.
About EarthLinkEarthLink (EarthLink Holdings
Corp.), (NASDAQ:ELNK) is a leading network services provider
dedicated to delivering great customer experiences in a cloud
connected world. We help thousands of multi-location businesses
securely establish critical connections in the cloud. Our
solutions for cloud and hybrid networking, security and compliance,
and unified communications provide the cost-effective performance
and agility to serve customers anytime, anywhere, via any channel,
or any device. We operate a nationwide network spanning 29,000+
fiber route miles, with 90 metro fiber rings and secure data
centers that provide ubiquitous data and voice IP coverage. To
learn why thousands of specialty retailers, restaurants,
franchisors, financial institutions, healthcare providers,
professional service firms, local governments, residential
consumers and other carriers choose to connect with us, visit us at
www.earthlink.com, @earthlink, on LinkedIn and Google+.
Cautionary Information Regarding Forward-Looking
StatementsThis 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 increase 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 if 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;
(4) that failure to achieve operating efficiencies and otherwise
reduce costs would adversely affect our results of operations and
cash flows; (5) that we may have to undertake further restructuring
plans that would require additional charges; (6) that we may be
unable to successfully divest non-strategic products, which could
adversely affect our results of operations; (7) that acquisitions
we complete could result in operating difficulties, dilution,
increased liabilities, diversion of management attention and other
adverse consequences, which could adversely affect our results of
operations; (8) that we face significant competition in our
business markets, which could adversely affect our results of
operations; (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 the continued decline in switched
access and reciprocal compensation revenue will adversely affect
our results of operations; (13) that failure to obtain and maintain
necessary permits and rights-of-way could interfere with our
network infrastructure and operations; (14) that if our larger
carrier customers terminate the service they receive from us, our
wholesale revenue and results of operations could be adversely
affected; (15) that we obtain a majority of our network equipment
and software from a limited number of third-party suppliers; (16)
that work stoppages experienced by other communications companies
on whom we rely for service could adversely impact our ability to
provision and service our customers; (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) that 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 lack of regulation governing wholesale
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, 2015.
EARTHLINK HOLDINGS CORP. |
Unaudited Condensed Consolidated Statements Of
Operations |
(in thousands, except per share
data) |
|
|
|
|
|
Three Months Ended |
|
|
March 31, |
|
|
2015 |
|
2016 |
|
|
|
|
|
Revenues |
|
$ |
282,447 |
|
|
$ |
254,262 |
|
Operating costs and
expenses: |
|
|
|
|
Cost of revenues (exclusive of
depreciation and amortization shown separately below) |
|
129,462 |
|
|
115,206 |
|
Selling, general and administrative
(exclusive of depreciation and amortization shown separately
below) |
|
95,258 |
|
|
81,412 |
|
Depreciation and amortization |
|
47,264 |
|
|
40,199 |
|
Restructuring, acquisition and
integration-related costs (1) |
|
5,372 |
|
|
3,013 |
|
Total operating costs and
expenses |
|
277,356 |
|
|
239,830 |
|
Income from operations |
|
5,091 |
|
|
14,432 |
|
Gain on sale of business
(2) |
|
— |
|
|
5,727 |
|
Interest expense and
other, net |
|
(13,937 |
) |
|
(11,109 |
) |
Loss on extinguishment of
debt (3) |
|
(1,286 |
) |
|
(232 |
) |
Income (loss) before income
taxes |
|
(10,132 |
) |
|
8,818 |
|
Income tax provision |
|
(351 |
) |
|
(951 |
) |
Net income (loss) |
|
$ |
(10,483 |
) |
|
$ |
7,867 |
|
|
|
|
|
|
Net income (loss) per
share |
|
|
|
|
Basic |
|
$ |
(0.10 |
) |
|
$ |
0.08 |
|
Diluted |
|
$ |
(0.10 |
) |
|
$ |
0.07 |
|
|
|
|
|
|
Weighted average common
shares outstanding |
|
|
|
|
Basic |
|
|
102,611 |
|
|
|
104,433 |
|
Diluted |
|
|
102,611 |
|
|
|
107,700 |
|
|
|
|
|
|
Dividends declared per
share |
|
$ |
0.05 |
|
|
$ |
0.05 |
|
EARTHLINK HOLDINGS CORP. |
Unaudited Condensed Consolidated Balance
Sheets |
(in thousands, except per share
data) |
|
|
|
|
|
|
|
December 31, 2015 |
|
March 31, 2016 |
ASSETS |
Current assets: |
|
|
|
|
Cash and cash equivalents |
|
$ |
91,296 |
|
|
$ |
60,713 |
|
Accounts receivable, net of
allowance of $3,537 and $2,984 as of December 31, 2015 |
|
74,724 |
|
|
77,249 |
|
and March 31, 2016,
respectively |
|
|
|
|
|
|
Prepaid expenses |
|
14,187 |
|
|
13,884 |
|
Other current assets |
|
9,724 |
|
|
8,898 |
|
Total current assets |
|
189,931 |
|
|
160,744 |
|
Property and equipment,
net |
|
372,504 |
|
|
348,171 |
|
Goodwill |
|
137,751 |
|
|
135,489 |
|
Other intangible assets,
net |
|
25,325 |
|
|
9,867 |
|
Other long-term
assets |
|
9,141 |
|
|
8,559 |
|
Total assets |
|
$ |
734,652 |
|
|
$ |
662,830 |
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
Current liabilities: |
|
|
|
|
Accounts payable |
|
$ |
18,442 |
|
|
$ |
11,739 |
|
Accrued payroll and related
expenses |
|
50,532 |
|
|
14,681 |
|
Other accrued liabilities |
|
64,305 |
|
|
71,393 |
|
Deferred revenue |
|
40,229 |
|
|
37,904 |
|
Current portion of long-term debt
and capital lease obligations |
|
6,787 |
|
|
1,864 |
|
Total current liabilities |
|
180,295 |
|
|
137,581 |
|
Long-term debt and capital
lease obligations |
|
505,613 |
|
|
469,003 |
|
Long-term deferred income
taxes, net |
|
3,876 |
|
|
4,202 |
|
Other long-term
liabilities |
|
22,022 |
|
|
26,427 |
|
Total liabilities |
|
711,806 |
|
|
637,213 |
|
|
|
|
|
|
Stockholders’ equity: |
|
|
|
|
Preferred stock, $0.01 par value,
100,000 shares authorized, 0 shares issued and |
|
|
|
|
|
|
outstanding as of December 31, 2015
and March 31, 2016 |
|
— |
|
|
— |
|
Common stock, $0.01 par value,
300,000 shares authorized, 200,207 and 201,397 shares |
|
|
|
|
|
|
issued as of December 31, 2015 and
March 31, 2016, respectively, and 103,880 and |
|
|
|
|
|
|
105,070 shares outstanding as of
December 31, 2015 and March 31, 2016, |
|
|
|
|
|
|
respectively |
|
2,002 |
|
|
2,014 |
|
Additional paid-in capital |
|
2,026,638 |
|
|
2,021,530 |
|
Accumulated deficit |
|
(1,260,937 |
) |
|
(1,253,070 |
) |
Treasury stock, at cost, 96,327
shares as of December 31, 2015 and March 31, 2016 |
|
(744,857 |
) |
|
(744,857 |
) |
Total stockholders’ equity |
|
22,846 |
|
|
25,617 |
|
Total liabilities and stockholders’
equity |
|
$ |
734,652 |
|
|
$ |
662,830 |
|
EARTHLINK HOLDINGS CORP. |
Reconciliation of Net Income (Loss) to
Adjusted EBITDA (4) |
(in thousands) |
|
|
|
Three Months Ended |
|
March 31, |
|
December 31, |
|
March 31, |
|
2015 |
|
2015 |
|
2016 |
Net income (loss) |
$ |
(10,483 |
) |
|
$ |
(12,282 |
) |
|
$ |
7,867 |
|
Interest expense and
other, net |
13,937 |
|
|
11,192 |
|
|
11,109 |
|
Income tax provision
(benefit) |
351 |
|
|
(91 |
) |
|
951 |
|
Depreciation and
amortization |
47,264 |
|
|
46,826 |
|
|
40,199 |
|
Stock-based compensation
expense |
3,415 |
|
|
3,730 |
|
|
4,086 |
|
Restructuring, acquisition
and integration-related costs (1) |
5,372 |
|
|
4,484 |
|
|
3,013 |
|
Gain on sale of business
(2) |
— |
|
|
— |
|
|
(5,727 |
) |
Loss on extinguishment of
debt (3) |
1,286 |
|
|
— |
|
|
232 |
|
Adjusted EBITDA (4) |
$ |
61,142 |
|
|
$ |
53,859 |
|
|
$ |
61,730 |
|
Reconciliation of Net Income (Loss) to
Unlevered Free Cash Flow (4) |
(in thousands) |
|
|
|
Three Months Ended |
|
March 31, |
|
December 31, |
|
March 31, |
|
2015 |
|
2015 |
|
2016 |
Net income (loss) |
$ |
(10,483 |
) |
|
$ |
(12,282 |
) |
|
$ |
7,867 |
|
Interest expense and
other, net |
13,937 |
|
|
11,192 |
|
|
11,109 |
|
Income tax provision
(benefit) |
351 |
|
|
(91 |
) |
|
951 |
|
Depreciation and
amortization |
47,264 |
|
|
46,826 |
|
|
40,199 |
|
Stock-based compensation
expense |
3,415 |
|
|
3,730 |
|
|
4,086 |
|
Restructuring, acquisition
and integration-related costs (1) |
5,372 |
|
|
4,484 |
|
|
3,013 |
|
Gain on sale of business
(2) |
— |
|
|
— |
|
|
(5,727 |
) |
Loss on extinguishment of
debt (3) |
1,286 |
|
|
— |
|
|
232 |
|
Purchases of property and
equipment |
(17,529 |
) |
|
(27,055 |
) |
|
(18,573 |
) |
Unlevered Free Cash Flow (4) |
$ |
43,613 |
|
|
$ |
26,804 |
|
|
$ |
43,157 |
|
Reconciliation of Net Cash Provided by
Operating Activities to Unlevered Free Cash Flow (4) |
(in thousands) |
|
|
|
Three Months Ended |
|
March 31, |
|
December 31, |
|
March 31, |
|
2015 |
|
2015 |
|
2016 |
Net cash provided by
operating activities |
$ |
18,865 |
|
|
$ |
41,359 |
|
|
$ |
10,630 |
|
Income tax provision
(benefit) |
351 |
|
|
(91 |
) |
|
951 |
|
Non-cash income
taxes |
(185 |
) |
|
(145 |
) |
|
(298 |
) |
Interest expense and
other, net |
13,937 |
|
|
11,192 |
|
|
11,109 |
|
Amortization of debt
discount and debt issuance costs |
(1,029 |
) |
|
(831 |
) |
|
(859 |
) |
Restructuring, acquisition
and integration-related costs (1) |
5,372 |
|
|
4,484 |
|
|
3,013 |
|
Changes in operating
assets and liabilities |
23,741 |
|
|
(2,324 |
) |
|
36,589 |
|
Purchases of property
and equipment |
(17,529 |
) |
|
(27,055 |
) |
|
(18,573 |
) |
Other, net |
90 |
|
|
215 |
|
|
595 |
|
Unlevered Free Cash Flow (4) |
$ |
43,613 |
|
|
$ |
26,804 |
|
|
$ |
43,157 |
|
|
|
|
|
|
|
Net cash (used in)
provided by investing activities |
$ |
(17,529 |
) |
|
$ |
(27,055 |
) |
|
$ |
7,427 |
|
Net cash used in
financing activities |
$ |
(27,416 |
) |
|
$ |
(10,631 |
) |
|
$ |
(48,640 |
) |
EARTHLINK HOLDINGS CORP. |
Supplemental Schedules of Segment Information
(5) |
(in thousands) |
|
The
following table presents segment results for the three months ended
March 31, 2015 and 2016: |
|
|
|
Three Months Ended |
|
March 31, |
|
2015 |
|
2016 |
Enterprise/Mid-Market |
|
|
|
Revenues |
$ |
114,391 |
|
|
$ |
104,689 |
|
Cost of revenues (excluding
depreciation and amortization) |
56,272 |
|
|
51,571 |
|
Gross margin |
58,119 |
|
|
53,118 |
|
Small
Business |
|
|
|
Revenues |
79,054 |
|
|
62,133 |
|
Cost of revenues (excluding
depreciation and amortization) |
37,597 |
|
|
29,734 |
|
Gross margin |
41,457 |
|
|
32,399 |
|
Carrier/Transport |
|
|
|
Revenues |
32,872 |
|
|
36,069 |
|
Cost of revenues (excluding
depreciation and amortization) |
15,593 |
|
|
15,464 |
|
Gross margin |
17,279 |
|
|
20,605 |
|
Consumer |
|
|
|
Revenues |
56,130 |
|
|
51,371 |
|
Cost of revenues (excluding
depreciation and amortization) |
20,000 |
|
|
18,437 |
|
Gross margin |
36,130 |
|
|
32,934 |
|
Total
Segments |
|
|
|
Revenues |
282,447 |
|
|
254,262 |
|
Cost of revenues (excluding
depreciation and amortization) |
129,462 |
|
|
115,206 |
|
Gross margin |
$ |
152,985 |
|
|
$ |
139,056 |
|
The
following table presents a reconciliation of segment gross margin
to consolidated income (loss) before income taxes for thethree
months ended March 31, 2015 and 2016: |
|
Three Months Ended |
|
March 31, |
|
2015 |
|
2016 |
Gross margin |
$ |
152,985 |
|
|
$ |
139,056 |
|
Operating costs and
expenses: |
|
|
|
Selling, general and administrative
expenses |
95,258 |
|
|
81,412 |
|
Depreciation and amortization |
47,264 |
|
|
40,199 |
|
Restructuring, acquisition and
integration-related costs |
5,372 |
|
|
3,013 |
|
Total operating costs and
expenses |
147,894 |
|
|
124,624 |
|
Gain on sale of
business |
— |
|
|
5,727 |
|
Interest expense and
other, net |
(13,937 |
) |
|
(11,109 |
) |
Loss on extinguishment of
debt |
(1,286 |
) |
|
(232 |
) |
Income (loss) before
income taxes |
$ |
(10,132 |
) |
|
$ |
8,818 |
|
EARTHLINK HOLDINGS CORP. |
Supplemental Schedule of Revenue
Detail |
(in thousands) |
|
|
|
Three Months Ended |
|
March 31, |
|
2015 |
|
2016 |
|
|
|
|
|
(in thousands) |
|
|
|
|
Monthly recurring
revenues |
$ |
247,975 |
|
|
$ |
223,402 |
|
Usage revenues |
27,678 |
|
|
22,458 |
|
Equipment revenues |
3,724 |
|
|
4,107 |
|
Non-recurring and other
revenues |
3,070 |
|
|
4,295 |
|
Total revenues |
$ |
282,447 |
|
|
$ |
254,262 |
|
EARTHLINK HOLDINGS CORP. |
Supplemental Financial Data |
|
|
|
|
|
|
|
March 31, |
|
December 31, |
|
March 31, |
|
2015 |
|
2015 |
|
2016 |
|
|
|
|
|
|
Number of employees at
end of period (6) |
2,402 |
|
|
2,138 |
|
|
1,895 |
|
EARTHLINK HOLDINGS CORP. |
Consumer Operating Metrics |
|
|
|
Three Months Ended |
|
March 31, |
|
December 31, |
|
March 31, |
|
2015 |
|
2015 |
|
2016 |
|
|
|
|
|
|
Average narrowband
subscribers (7) |
|
475,000 |
|
|
|
454,000 |
|
|
|
441,000 |
|
Average broadband
subscribers (7) |
|
331,000 |
|
|
|
286,000 |
|
|
|
275,000 |
|
Average consumer
subscribers (7) |
|
806,000 |
|
|
|
740,000 |
|
|
|
716,000 |
|
|
|
|
|
|
|
ARPU (8) |
$ |
23.20 |
|
|
$ |
24.01 |
|
|
$ |
23.91 |
|
Churn rate (9) |
2.1 |
% |
|
1.8 |
% |
|
1.8 |
% |
EARTHLINK HOLDINGS
CORP.Footnotes to Consolidated Financial
Highlights
1. Restructuring, acquisition and integration-related costs
consisted of the following for the periods presented (in
thousands):
|
|
Three Months Ended March 31, |
|
|
2015 |
|
2016 |
|
|
|
|
|
Integration-related
costs |
|
$ |
1,317 |
|
|
$ |
1,779 |
|
Severance, retention and
other employee costs |
|
2,901 |
|
|
891 |
|
Facility-related
costs |
|
1,154 |
|
|
343 |
|
Restructuring, acquisition and
integration-related costs |
|
$ |
5,372 |
|
|
$ |
3,013 |
|
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; and 3)
facility-related costs, such as lease termination and asset
impairments.
2. On February 1, 2016, the Company sold certain
assets related to its IT services product offerings. The primary
purpose of the sale was to simplify operations and provide more
flexibility to invest in new capabilities and services to drive
growth in the Company's core business. The purchase price in the
transaction was $29.0 million, subject to post-closing
contingencies that could increase or decrease the purchase price by
$5.0 million. The Company received $26.0 million of cash upon
completion of the sale. The other $3.0 million of consideration was
deposited into an escrow account to fund potential indemnification
obligations. The Company recognized a pretax gain of $5.7 million
and recorded a $2.0 million deferred gain for contingent
consideration. The carrying amount of the IT services assets was
$17.5 million, which included $11.4 million of property and
equipment, $2.3 million of goodwill, $3.5 million of other
intangible assets and $0.3 million of other assets and liabilities.
Total revenue of the Company's IT services business was
approximately $11.8 million and $3.4 million, respectively, during
the three months ended March 31, 2015 and 2016. Total revenue of
the Company's IT services business included in its
Enterprise/Mid-Market segment was $7.9 million and $2.3 million
during the during the three months ended March 31, 2015 and 2016,
respectively, and total revenue of the Company's IT services
business included in its Small Business segment was $3.9 million
and $1.1 million during the during the three months ended March 31,
2015 and 2016, respectively.
3. During the three months ended March 31, 2015
and 2016, the Company repurchased $21.1 million and $7.0 million,
respectively, outstanding principal of its 8.875% Senior Notes due
2019 and recorded $1.3 million and $0.2 million, respectively, for
losses on extinguishment of debt. The losses consisted of premiums
paid on the Company's debt repayments, the write-off of unamortized
discount on debt and the write-off of unamortized debt issuance
costs.
4. 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, gain on sale of business
and loss on extinguishment of debt. 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, gain on
sale of business and loss on extinguishment of debt, 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.
5. The Company reports segment information along
the same lines that its Chief Operating Decision Maker reviews its
operating results in assessing performance and allocating
resources. The Company's Chief Operating Decision Maker is its
Chief Executive Officer. The Company's reportable segments are
strategic business units that are aligned around distinct customer
categories to optimize operations. The Company operates the
following four reportable segments:
- Enterprise/Mid-Market. The Company’s Enterprise/Mid-Market
segment provides a broad range of data, voice and managed network
services to distributed multi-site business customers.
- Small Business. The Company’s Small Business segment provides a
broad range of data, voice and managed network services to small,
often single-site business customers.
- Carrier/Transport. The Company’s Carrier/Transport segment
provides transmission capacity and other data, voice and managed
network services to telecommunications carriers and large
enterprises.
- Consumer. The Company’s Consumer segment provides nationwide
Internet access and related value-added services to residential
customers.
The Company evaluates performance of its
segments based on segment gross margin. Segment gross margin
includes revenues from external customers and related cost of
revenues. Costs excluded from segment gross margin include selling,
general and administrative expenses, depreciation and amortization,
impairment of goodwill and intangible assets, restructuring,
acquisition and integration-related costs, gain on sale of
business, interest expense and other, net, and loss on
extinguishment of debt, as they are not considered in the
measurement of segment performance.
6. Represents full-time equivalents.
7. Consumer 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.
8. Consumer 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.
9. Consumer 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.
Investors
Trey Huffman
404-748-6219
huffmanal@elnk.com
Media
Randi Drinkwater
404-709-3404
randi.drinkwater@elnk.com
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