ATLANTA, July 27 /PRNewswire-FirstCall/ -- EarthLink, Inc.
(Nasdaq: ELNK) today announced financial results for its second
quarter ended June 30, 2010.
Highlights of today's announcement include:
- Net income of $28.0 million or
$0.26 per share
- Adjusted EBITDA (a non-GAAP measure) of $56.7 million
- Free cash flow (a non-GAAP measure) of $54.0 million
- Ending cash and marketable securities balance of $740.1 million
- Raised full year 2010 Adjusted EBITDA (a non-GAAP measure)
guidance to $205 million to $211
million
- Dividend payments totaling $17.3
million and stock repurchases totaling $0.9 million in the quarter
"Today we announced results that once again exceeded
expectations and reflect positive momentum in our business. We are
pleased with the improvements in customer retention and tenure and
the resulting favorable impacts on cost structure and
profitability. As a result of these favorable trends, we also
announced that we have once again increased full-year guidance,"
explained EarthLink Chairman and Chief Executive Officer
Rolla P. Huff. "In addition,
we began to see sales traction in our New Edge business from
multi-location business customers as the economy is showing signs
of recovery. We believe that the strength of our balance sheet
continues to provide us with a range of strategic
alternatives."
Financial and Operating Results
EarthLink reported revenue of $153.0
million for the second quarter of 2010, declining 3 percent
from the first quarter of 2010 and 18 percent from the second
quarter of 2009. The company's revenue mix continued to shift
towards broadband as 60 percent of EarthLink's revenue in the
second quarter of 2010 was comprised of broadband, up from 56
percent in the year-ago quarter.
In the second quarter of 2010, 88 percent of EarthLink's
consumer narrowband and DSL customers had two or more years of
tenure with the company and 50 percent had five or more years of
tenure, up from 76 percent and 36 percent, respectively, in the
year-ago quarter. The continual increase in EarthLink's customer
tenure was the primary driver behind ongoing improvements in
monthly subscriber churn. In the second quarter of 2010, EarthLink
reported churn of 2.9 percent, an improvement from 3.1 percent in
the first quarter of 2010 and from 3.6 percent churn in the
year-ago quarter. EarthLink's subscriber losses continued to
attenuate with second quarter 2010 net subscriber losses of
109,000, as compared to net subscriber losses of 118,000 in the
first quarter of 2010 and 149,000 in the year-ago quarter.
The benefits of increasing customer tenure extend to the
company's cost structure, which was also positively impacted by new
technology rollouts, product simplifications and customer support
process improvements. EarthLink's total sales and marketing,
operations, customer support, and general and administrative
expenses were $43.3 million for the
second quarter of 2010, a 5 percent reduction from the first
quarter of 2010 and a 21 percent reduction from expenses in the
year-ago quarter.
Profitability and Other Financial Measures
For the second quarter of 2010, EarthLink's net income was
$28.0 million, or $0.26 per share, as compared to net income of
$26.7 million, or $0.25 per share in the first quarter of 2010 and
$31.5 million, or $0.29 per share, in the year-ago quarter.
Multiple business improvements, including those in customer
churn, network management and value-added services revenue
contributed to $56.7 million in
Adjusted EBITDA (a non-GAAP measure, see definition in "Non-GAAP
Measures" below) in the second quarter of 2010. EarthLink's
Adjusted EBITDA was $57.3 million in
the first quarter of 2010 and $68.5
million in the second quarter of 2009.
Balance Sheet and Cash Flow
EarthLink generated free cash flow (a non-GAAP measure, see
definition in "Non-GAAP Measures" below) of $54.0 million during the second quarter of 2010,
compared to $54.2 million in the
first quarter of 2010 and $66.6
million in the second quarter of 2009.
Capital expenditures for the company were $2.7 million in the second quarter of 2010.
EarthLink made $17.3 million of
dividend payments in the quarter and repurchased 0.1 million shares
of common stock for $0.85 million.
EarthLink ended the second quarter of 2010 with $740.1 million in cash and marketable
securities.
Business Outlook
The following statements are forward-looking, and actual results
may differ materially. See comments under "Cautionary
Information Regarding Forward-Looking Statements" below.
EarthLink undertakes no obligation to update these
statements.
Today EarthLink increased its guidance for the full year 2010.
Management now expects 2010 Adjusted EBITDA of $205 million to $211 million; free cash flow of
$191 million to $201 million, based
upon the aforementioned Adjusted EBITDA guidance combined with
$10 million to $14 million in
estimated capital expenditures; and net income of $91 million to $97 million for the full year
2010.
Non-GAAP Measures
Adjusted EBITDA is defined as net income before interest expense
and other, net, income taxes, depreciation and amortization,
stock-based compensation expense, gain (loss) on investments, net,
impairment of goodwill and intangible assets, and facility exit and
restructuring costs.
Free cash flow is defined as net income before interest expense
and other, net, income taxes, depreciation and amortization,
stock-based compensation expense, gain (loss) on investments,
net, impairment of goodwill and intangible assets, and facility
exit and restructuring costs, less cash used for purchases of
property and equipment and purchases of subscriber bases.
Adjusted EBITDA and free cash flow are non-GAAP financial
performance 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 performance measures to the most
comparable measures reported in accordance with U.S. generally
accepted accounting principles and Footnote 2 of the Consolidated
Financial Highlights for a discussion of the presentation,
comparability and use of such financial performance measures.
Conference Call for Analysts and Investors
Conference Call Details
Tuesday, July 27, 2010, at
8:30 a.m. ET hosted by
EarthLink's Chairman and Chief Executive Officer, Rolla P. Huff and Chief Financial Officer,
Bradley A. Ferguson.
U.S. and Canada Dial-in
Number
|
800-706-0730
|
|
International Dial-in
Number
|
706-634-5173
|
|
|
|
|
|
|
Participants reference the EarthLink call and dial in 10 minutes
prior to scheduled start time.
Webcast
A live Webcast of the conference call will be available at:
http://ir.earthlink.net/index.cfm
Replay
Replay available from 11:30 a.m.
ET on July 27 through midnight
on August 3.
Dial 800-642-1687 from US and Canada, International callers dial
706-645-9291.
The replay confirmation code is 86028688.
The Webcast will be archived on the company's website at:
http://ir.earthlink.net/events.cfm
About EarthLink
"EarthLink. We revolve around you™." A leading Internet service
provider, Atlanta-based EarthLink
has earned an award-winning reputation for outstanding customer
service and its suite of online products and services. EarthLink
offers what every user should expect from their Internet
experience: high-quality connectivity, minimal online intrusions
and customizable features. Whether it's dial up, high speed, voice,
web hosting or "EarthLink Extras" like home networking or security,
EarthLink connects people to the power and possibilities of the
Internet. Learn more about EarthLink by calling (800) EARTHLINK or
visiting EarthLink's website at www.EarthLink.net.
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. We disclaim any obligation to update any
forward-looking statements contained herein, except as may be
required pursuant to applicable law. With respect to
forward-looking statements in this press release, the company seeks
the protections afforded by the Private Securities Litigation
Reform Act of 1995. These risks include, without limitation, (1)
that the continued decline of our consumer access subscribers,
combined with the change in mix of our consumer access subscriber
base from narrowband to broadband, will adversely affect our
results of operations; (2) that we will have less ability in the
future to implement cost reduction initiatives to offset our
revenue declines, which will adversely affect our results of
operations; (3) that we face significant competition which could
reduce our profitability; (4) that adverse economic conditions may
harm our business; (5) that we may not be able to execute our
business strategy for our Business Services segment, which could
adversely impact our results of operations and cash flows; (6) that
our commercial and alliance arrangements may not be renewed or may
not generate expected benefits, which could adversely affect our
results of operations; (7) that our business is dependent on the
availability of third-party telecommunications service providers;
(8) that we may be unable to retain sufficient qualified personnel,
particularly in light of recent workforce and cost reduction
initiatives and in a recovering economy, and the loss of any of our
key executive officers could adversely affect us; (9) that we may
be unsuccessful in making and integrating acquisitions into our
business, which could result in operating difficulties, losses and
other adverse consequences; (10) that if we do not continue to
innovate and provide products and services that are useful to
subscribers, we may not remain competitive, and our revenues and
operating results could suffer; (11) that our business may suffer
if third parties used for customer service and technical support
and certain billing services are unable to provide these services
or terminate their relationships with us; (12) that interruption or
failure of our network and information systems and other
technologies could impair our ability to provide our services,
which could damage our reputation and harm our operating results;
(13) that government regulations could adversely affect our
business or force us to change our business practices; (14) that
privacy concerns relating to our business could damage our
reputation and deter current and potential users from using our
services; (15) that we may not be able to protect our
intellectual property; (16) 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; (17) that if we are unable to
successfully defend against legal actions we could face substantial
liabilities; (18) that our business depends on effective business
support systems, processes and personnel; (19) that as a result of
our continuing review of our business, we may have to undertake
further restructuring plans that would require additional charges,
including incurring facility exit and restructuring charges; (20)
that we may be required to recognize additional impairment charges
on our goodwill and intangible assets, which would adversely affect
our results of operations and financial position; (21) that we may
have exposure to greater than anticipated tax liabilities and the
use of our net operating losses and certain other tax attributes
could be limited in the future; (22) that we may change our cash
return strategy; (23) that our stock price may be volatile; (24)
that our indebtedness could adversely affect our financial health
and limit our ability to react to changes in our industry; and (25)
that provisions of our second restated certificate of
incorporation, amended and restated bylaws and other elements of
our capital structure could limit our share price and delay a
change of management. 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, 2009.
EARTHLINK, INC.
|
|
Unaudited Condensed Consolidated
Statements Of Operations
|
|
(in thousands, except per share
data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June
30,
|
|
Six Months Ended June
30,
|
|
|
|
|
2009
|
|
2010
|
|
2009
|
|
2010
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
Access and service
|
$ 166,918
|
|
$ 137,748
|
|
$ 345,616
|
|
$ 279,085
|
|
|
Value-added services
|
18,679
|
|
15,259
|
|
39,044
|
|
31,180
|
|
|
|
Total revenues
|
185,597
|
|
153,007
|
|
384,660
|
|
310,265
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and
expenses:
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
69,270
|
|
58,018
|
|
144,835
|
|
118,832
|
|
|
Sales and marketing
|
14,543
|
|
11,623
|
|
31,565
|
|
22,924
|
|
|
Operations and customer
support
|
23,940
|
|
18,930
|
|
51,686
|
|
38,587
|
|
|
General and
administrative
|
16,409
|
|
12,742
|
|
35,031
|
|
27,116
|
|
|
Amortization of intangible
assets
|
2,038
|
|
1,232
|
|
4,185
|
|
2,496
|
|
|
Facility exit and restructuring
costs (1)
|
4,927
|
|
(89)
|
|
5,415
|
|
1,346
|
|
|
|
Total operating costs and
expenses
|
131,127
|
|
102,456
|
|
272,717
|
|
211,301
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from
operations
|
54,470
|
|
50,551
|
|
111,943
|
|
98,964
|
|
Gain on investments,
net
|
11
|
|
154
|
|
270
|
|
572
|
|
Interest expense and other,
net
|
(5,100)
|
|
(5,483)
|
|
(9,391)
|
|
(10,775)
|
|
|
|
Income before income
taxes
|
49,381
|
|
45,222
|
|
102,822
|
|
88,761
|
|
Income tax provision
|
(17,896)
|
|
(17,182)
|
|
(38,840)
|
|
(33,974)
|
|
|
|
Net income
|
$ 31,485
|
|
$ 28,040
|
|
$ 63,982
|
|
$ 54,787
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share
|
|
|
|
|
|
|
|
|
|
Basic
|
$
0.30
|
|
$
0.26
|
|
$
0.60
|
|
$
0.51
|
|
|
Diluted
|
$
0.29
|
|
$
0.26
|
|
$
0.59
|
|
$
0.50
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding
|
|
|
|
|
|
|
|
|
|
Basic
|
105,908
|
|
108,053
|
|
106,976
|
|
107,840
|
|
|
Diluted
|
107,080
|
|
108,888
|
|
108,110
|
|
108,685
|
|
|
|
|
|
|
|
|
|
|
|
EARTHLINK, INC.
|
|
Reconciliation of Net Income to
Adjusted EBITDA (2)
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
|
|
|
June 30,
|
|
March 31,
|
|
June 30,
|
|
|
|
|
2009
|
|
2010
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
31,485
|
|
$
26,747
|
|
$ 28,040
|
|
Income tax provision
|
|
17,896
|
|
16,792
|
|
17,182
|
|
Depreciation and
amortization
|
|
6,069
|
|
4,748
|
|
4,577
|
|
Stock-based compensation
expense
|
|
3,026
|
|
2,667
|
|
1,707
|
|
Gain on investments,
net
|
|
(11)
|
|
(418)
|
|
(154)
|
|
Interest expense and other,
net
|
|
5,100
|
|
5,292
|
|
5,483
|
|
Facility exit and restructuring
costs (1)
|
|
4,927
|
|
1,435
|
|
(89)
|
|
|
Adjusted EBITDA (2)
|
|
$
68,492
|
|
$
57,263
|
|
$ 56,746
|
|
|
|
|
|
|
|
|
|
|
Depreciation - cost of
revenues
|
|
$
1,996
|
|
$
1,934
|
|
$ 1,889
|
|
Depreciation - other
|
|
2,035
|
|
1,550
|
|
1,456
|
|
Amortization of intangible
assets
|
|
2,038
|
|
1,264
|
|
1,232
|
|
|
Depreciation and
amortization
|
|
$
6,069
|
|
$
4,748
|
|
$ 4,577
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EARTHLINK, INC.
|
|
Reconciliation of Net Income to
Free Cash Flow (2)
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
|
|
|
June 30,
|
|
March 31,
|
|
June 30,
|
|
|
|
|
2009
|
|
2010
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
31,485
|
|
$
26,747
|
|
$ 28,040
|
|
Income tax provision
|
|
17,896
|
|
16,792
|
|
17,182
|
|
Depreciation and
amortization
|
|
6,069
|
|
4,748
|
|
4,577
|
|
Stock-based compensation
expense
|
|
3,026
|
|
2,667
|
|
1,707
|
|
Gain on investments,
net
|
|
(11)
|
|
(418)
|
|
(154)
|
|
Interest expense and other,
net
|
|
5,100
|
|
5,292
|
|
5,483
|
|
Facility exit and restructuring
costs (1)
|
|
4,927
|
|
1,435
|
|
(89)
|
|
Purchases of property and
equipment
|
|
(1,927)
|
|
(3,072)
|
|
(2,711)
|
|
|
Free cash flow (2)
|
|
$
66,565
|
|
$
54,191
|
|
$ 54,035
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EARTHLINK, INC.
|
|
Reconciliation of Guidance
Provided in Non-GAAP Measures (2)
|
|
(in millions)
|
|
|
|
|
|
|
|
|
|
Year
|
|
|
|
|
Ending
|
|
|
|
|
December 31,
|
|
|
|
|
2010
|
|
Net income
|
|
$91 - $97
|
|
Income tax provision
|
|
61
|
|
Depreciation
|
|
14
|
|
Amortization of intangible
assets
|
|
4
|
|
Stock-based compensation
expense
|
|
12
|
|
Interest expense and other,
net
|
|
21
|
|
Facility exit and restructuring
costs (1)
|
|
2
|
|
|
Adjusted EBITDA (2)
|
|
$205 - $211
|
|
|
|
|
|
|
|
|
|
Year
|
|
|
|
|
Ending
|
|
|
|
|
December 31,
|
|
|
|
|
2010
|
|
Net income
|
|
$91 - $97
|
|
Income tax provision
|
|
61
|
|
Depreciation
|
|
14
|
|
Amortization of intangible
assets
|
|
4
|
|
Stock-based compensation
expense
|
|
12
|
|
Interest expense and other,
net
|
|
21
|
|
Facility exit and restructuring
costs (1)
|
|
2
|
|
Purchases of property and
equipment
|
|
(14) - (10)
|
|
|
Free cash flow (2)
|
|
$191 - $201
|
|
|
|
|
|
EARTHLINK, INC.
|
|
Supplemental Financial Data and
Key Operating Metrics
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
December 31,
|
|
March 31,
|
|
June 30,
|
|
|
|
|
|
2009
|
|
2009
|
|
2010
|
|
2010
|
|
Balance Sheet
Data
|
|
(in thousands)
|
|
Cash and marketable
securities
|
|
$ 610,349
|
|
$
695,961
|
|
$ 707,777
|
|
$ 740,100
|
|
Convertible Senior Notes
(3)
|
|
258,750
|
|
258,750
|
|
255,791
|
|
255,791
|
|
Stockholders' equity
|
|
539,809
|
|
734,024
|
|
745,241
|
|
757,899
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee Data
|
|
|
|
|
|
|
|
|
|
Number of employees at end of
period (4)
|
|
693
|
|
623
|
|
600
|
|
576
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
December 31,
|
|
March 31,
|
|
June 30,
|
|
|
|
|
|
2009
|
|
2009
|
|
2010
|
|
2010
|
|
Subscriber Data
(5)
|
|
|
|
|
|
|
|
|
|
Consumer services
|
|
|
|
|
|
|
|
|
|
|
Narrowband access subscribers
(6)
|
|
1,456,000
|
|
1,225,000
|
|
1,134,000
|
|
1,060,000
|
|
|
Broadband access subscribers
(7)
|
|
845,000
|
|
804,000
|
|
781,000
|
|
748,000
|
|
|
|
Total consumer
subscribers
|
|
2,301,000
|
|
2,029,000
|
|
1,915,000
|
|
1,808,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business services
|
|
|
|
|
|
|
|
|
|
|
Narrowband access
subscribers
|
|
11,000
|
|
8,000
|
|
8,000
|
|
8,000
|
|
|
Broadband access
subscribers
|
|
56,000
|
|
54,000
|
|
52,000
|
|
53,000
|
|
|
Web hosting accounts
|
|
81,000
|
|
75,000
|
|
73,000
|
|
70,000
|
|
|
|
Total business
subscribers
|
|
148,000
|
|
137,000
|
|
133,000
|
|
131,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total subscribers at end of
period
|
|
2,449,000
|
|
2,166,000
|
|
2,048,000
|
|
1,939,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June
30,
|
|
Six Months Ended June
30,
|
|
|
|
|
|
2009
|
|
2010
|
|
2009
|
|
2010
|
|
Subscriber
Activity
|
|
|
|
|
|
|
|
|
|
Subscribers at beginning of
period
|
|
2,598,000
|
|
2,048,000
|
|
2,806,000
|
|
2,166,000
|
|
Gross organic subscriber
additions
|
|
120,000
|
|
66,000
|
|
236,000
|
|
143,000
|
|
Adjustment (8)
|
|
-
|
|
-
|
|
(7,000)
|
|
-
|
|
Churn
|
|
(269,000)
|
|
(175,000)
|
|
(586,000)
|
|
(370,000)
|
|
Subscribers at end of
period
|
|
2,449,000
|
|
1,939,000
|
|
2,449,000
|
|
1,939,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Churn Rate (9)
|
|
3.6%
|
|
2.9%
|
|
3.8%
|
|
3.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Data
|
|
|
|
|
|
|
|
|
|
Average subscribers
(10)
|
|
2,371,000
|
|
1,859,000
|
|
2,457,000
|
|
1,915,000
|
|
ARPU (11)
|
|
$
20.75
|
|
$
21.57
|
|
$
20.84
|
|
$
21.23
|
|
Churn rate (9)
|
|
3.6%
|
|
3.0%
|
|
3.8%
|
|
3.1%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business Data
|
|
|
|
|
|
|
|
|
|
Average subscribers
(10)
|
|
152,000
|
|
132,000
|
|
156,000
|
|
133,000
|
|
ARPU (11)
|
|
$
83.32
|
|
$
82.71
|
|
$
82.80
|
|
$
82.95
|
|
Churn rate (9)
|
|
2.7%
|
|
1.9%
|
|
2.9%
|
|
1.9%
|
|
|
|
|
|
|
|
|
|
|
|
|
EARTHLINK, INC.
|
|
Supplemental Schedule of Segment
Information (12)
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June
30,
|
|
Six Months Ended June
30,
|
|
|
|
|
2009
|
|
2010
|
|
2009
|
|
2010
|
|
Consumer Services
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
Access and service
|
$ 129,479
|
|
$ 105,552
|
|
$ 269,269
|
|
$ 213,750
|
|
|
|
Value-added services
|
18,127
|
|
14,753
|
|
37,899
|
|
30,119
|
|
|
|
Total revenues
|
147,606
|
|
120,305
|
|
307,168
|
|
243,869
|
|
|
Cost of revenues
|
47,345
|
|
37,507
|
|
99,679
|
|
77,968
|
|
|
Gross margin
|
100,261
|
|
82,798
|
|
207,489
|
|
165,901
|
|
|
Segment operating
expenses
|
33,372
|
|
23,248
|
|
70,578
|
|
47,213
|
|
|
Segment income from
operations
|
$ 66,889
|
|
$ 59,550
|
|
$ 136,911
|
|
$ 118,688
|
|
|
|
|
|
|
|
|
|
|
|
|
Business Services
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
Access and service
|
$ 37,439
|
|
$ 32,196
|
|
$ 76,347
|
|
$ 65,335
|
|
|
|
Value-added services
|
552
|
|
506
|
|
1,145
|
|
1,061
|
|
|
|
Total revenues
|
37,991
|
|
32,702
|
|
77,492
|
|
66,396
|
|
|
Cost of revenues
|
21,925
|
|
20,511
|
|
45,156
|
|
40,864
|
|
|
Gross margin
|
16,066
|
|
12,191
|
|
32,336
|
|
25,532
|
|
|
Segment operating
expenses
|
9,823
|
|
10,449
|
|
21,082
|
|
20,390
|
|
|
Segment income from
operations
|
$ 6,243
|
|
$ 1,742
|
|
$ 11,254
|
|
$ 5,142
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
Access and service
|
$ 166,918
|
|
$ 137,748
|
|
$ 345,616
|
|
$ 279,085
|
|
|
|
Value-added services
|
18,679
|
|
15,259
|
|
39,044
|
|
31,180
|
|
|
|
Total revenues
|
185,597
|
|
153,007
|
|
384,660
|
|
310,265
|
|
|
Cost of revenues
|
69,270
|
|
58,018
|
|
144,835
|
|
118,832
|
|
|
Gross margin
|
116,327
|
|
94,989
|
|
239,825
|
|
191,433
|
|
|
Direct segment operating
expenses
|
43,195
|
|
33,697
|
|
91,660
|
|
67,603
|
|
|
Segment income from
operations
|
73,132
|
|
61,292
|
|
148,165
|
|
123,830
|
|
|
Stock-based compensation
expense
|
3,026
|
|
1,707
|
|
7,416
|
|
4,374
|
|
|
Amortization of intangible
assets
|
2,038
|
|
1,232
|
|
4,185
|
|
2,496
|
|
|
Facility exit and restructuring
costs (1)
|
4,927
|
|
(89)
|
|
5,415
|
|
1,346
|
|
|
Other operating
expenses
|
8,671
|
|
7,891
|
|
19,206
|
|
16,650
|
|
|
Income from
operations
|
$ 54,470
|
|
$ 50,551
|
|
$ 111,943
|
|
$ 98,964
|
|
|
|
|
|
|
|
|
|
|
|
EARTHLINK, INC.
|
|
Footnotes to Consolidated
Financial Highlights
|
|
|
|
|
1.
|
In August 2007, EarthLink
adopted a restructuring plan (the "2007 Plan") to reduce costs and
improve the efficiency of the Company's operations. The 2007 Plan
was the result of a comprehensive review of operations within and
across the Company's functions and businesses. Under the 2007 Plan,
the Company reduced its workforce by approximately 900 employees,
closed office facilities in Orlando, Florida; Knoxville, Tennessee;
Harrisburg, Pennsylvania; and San Francisco, California and
consolidated its office facilities in Atlanta, Georgia and
Pasadena, California. The 2007 Plan was primarily implemented
during 2007 and 2008. However, since management continues to
evaluate EarthLink’s businesses, there have been and may continue
to be supplemental provisions for new plan initiatives as well as
changes in estimates to amounts previously recorded.
|
|
|
|
|
2.
|
Adjusted EBITDA is defined as
net income before interest expense and other, net, income taxes,
depreciation and amortization, stock-based compensation, gain
(loss) on investments, net, impairment of goodwill and intangible
assets, and facility exit and restructuring costs. Free cash
flow is defined as net income before interest expense and other,
net, income taxes, depreciation and amortization, stock-based
compensation, gain (loss) on investments, net, impairment of
goodwill and intangible assets, and facility exit and restructuring
costs, less purchases cash used for of property and equipment and
purchases of subscriber bases.
|
|
|
|
|
|
Adjusted EBITDA and free cash
flow are non-GAAP measures and are not determined in accordance
with U.S. generally accepted accounting principles. These financial
performance measures are not indicative of cash provided or used by
operating activities and may differ from comparable information
provided by other companies, and they should not be considered in
isolation, as an alternative to, or more meaningful than measures
of financial performance determined in accordance with U.S.
generally accepted accounting principles. These financial
performance measures are commonly used in the industry and are
presented because EarthLink believes they provide relevant and
useful information to investors. EarthLink utilizes these financial
performance measures to assess its ability to meet future capital
expenditures and working capital requirements. EarthLink also uses
these financial performance measures to evaluate the performance of
its business, for budget planning purposes and as factors in its
employee compensation programs.
|
|
|
|
|
3.
|
The principal amount of the
Convertible Senior Notes was $258.8 million, $258.8 million, $255.8
million and $255.8 million as of June 30, 2009, December 31,
2009, March 31, 2010 and June 30, 2010, respectively. The
unamortized discount was $32.9 million, $26.5 million, $22.9
million and $19.6 million as of June 30, 2009, December 31, 2009,
March 31, 2010 and June 30, 2010, respectively. The net carrying
value was $225.8 million, $232.2 million, $232.8 million and $236.2
million as of June 30, 2009, December 31, 2009, March 31, 2010 and
June 30, 2010, respectively.
|
|
|
|
|
4.
|
Represents full-time
equivalents.
|
|
|
|
|
5.
|
Subscriber counts do not include
nonpaying customers. Customers receiving service under promotional
programs that include periods of free service at inception
are not included in subscriber counts until they become paying
customers.
|
|
|
|
|
6.
|
Narrowband access subscribers
include customers who subscribe to our premium and value priced
dial-up Internet access services and customers who subscribe to our
premium email only service.
|
|
|
|
|
7.
|
Paying customers who subscribe
to EarthLink DSL and Home Phone service are counted as both a
broadband subscriber and a voice subscriber.
|
|
|
|
|
8.
|
During the six months ended June
30, 2009, EarthLink removed approximately 7,000 satellite
subscribers from its broadband subscriber count and
total subscriber count as a result of the sale of these subscriber
accounts.
|
|
|
|
|
9.
|
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.
|
|
|
|
|
10.
|
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. Average subscribers for
the six month periods is calculated by averaging the ending monthly
subscribers or accounts for the seven months preceding and
including the end of the period.
|
|
|
|
|
11.
|
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.
|
|
|
|
|
12.
|
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,
Consumer Services and Business Services. The Company's Consumer
Services segment provides Internet access services and related
value-added services to individual customers. These services
include dial-up and high-speed Internet access and
voice-over-Internet protocol services, among others. The Company's
Business Services segment provides integrated communications
services and related value-added services to businesses and
communications carriers. These services include managed IP-based
wide area networks, dedicated Internet access and web hosting,
among others.
|
|
|
|
|
|
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), amortization of
intangible assets, stock-based compensation expense, impairment of
goodwill and intangible assets and facility exit and restructuring
costs, as they are not evaluated in the measurement of segment
performance.
|
|
|
|
SOURCE EarthLink, Inc.