TALK Talkspace Inc

Talk America (NASDAQ:TALK), a leading provider of integrated voice and data communications services, today announced second quarter results for 2006. Talk America reported total revenue of $114.1 million and Adjusted EBITDA of $12.7 million. On-net revenue, off-net revenue and long distance and other revenue in the second quarter 2006 were $61.4 million, $39.5 million and $13.2 million, respectively. Talk America ended the period with 653,000 local voice and data equivalent lines of which 475,000 were on-net, representing 73% of total lines. Growth in on-net lines for the second quarter was driven by new customer additions throughout our networking footprint in the midwest and southeast and 21,000 customer migrations, primarily in the Atlanta market. While on-net churn tempered the line increase, it was lower than churn for the first quarter. Our commercial business is poised for sequential growth. During the second quarter, we invested in our commercial sales and marketing channels, setting the stage for growth and productivity improvements. We expanded our direct and agent sales channels, ending the quarter with 168 sales professionals, up by 12% from the first quarter, which helped us to achieve record T-1 sales for the month of June. We are also investing in our network and developing new service offerings strengthening our position in the market. We've enabled fax and modem capabilities on our integrated T-1 product, launched a bonded T-1 product suite for higher bandwidth needs and rolled out IP PRI throughout Michigan. During the quarter, we changed our consumer business strategy to focus on the delivery of high-speed internet services. We repackaged our service offerings, which now include unlimited voice and 6 Mbps download speeds for $49.95 per month, a non-promotional price for residential customers. We are seeing an immediate impact from these offers from higher sales and conversion rates of new customers. Our research and experience indicate that there is clearly demand for a third competitor like Talk America in our footprint. Although our churn during the quarter was higher than expected in response to aggressive marketing of double and triple play promotional offers from AT&T and Comcast, it is trending lower in the third quarter. Ed Meyercord, Talk America's President and Chief Executive Officer commented, "Our financial results reflect our business transformation to a network-based provider in a highly competitive and rapidly changing market. While our on-net churn is not where we want it to be, we have taken aggressive measures to improve our performance and our numbers are trending favorably. We closed out June with over 460 T-1 sales and we expect that the growth in our direct sales force and product enhancements to drive commercial business revenue growth in the future." Mr. Meyercord continued, "On the consumer side, our new high speed internet offerings represent the best value in the market and we expect a strong response from our new marketing initiatives. There is room in the market for a third competitor to take share and for the fourth year in a row we beat out our larger competitors in the J.D. Power & Associates customer satisfaction surveys. People still want the freedom of choice!" (Note: See the schedules accompanying this news release and www.talkamerica.com for reconciliation to generally accepted accounting principles (GAAP) for the non-GAAP financial measures mentioned in this announcement and to download a copy of the presentation to be reviewed on today's conference call.) -0- *T Financial Guidance 2006 --------------------------------- Q3 2006 Previous Current ------------- -------------- ----------------- Revenue $101-$103 $437-$443 mm $437-$443mm Adjusted EBITDA $11-$13 $53-$58 mm $53-$58 mm Capital Expenditures -- $25-$30 mm $25-$30 mm *T Conference Call Talk America management will host a conference call to discuss the second quarter 2006 operating results at 5:00 p.m. ET on August 8, 2006. The call can be accessed by dialing the following: US 800-745-2192, International, 212-231-2661. A replay of the call will be available through 7:00 p.m. ET on August 15, 2006 by dialing the following: 800-633-8284, International 402-977-9140. The reservation number for the replay is 21298254. Additionally, a live web simulcast of the conference call will be available online at www.talkamerica.com and www.streetevents.com. About Talk America Talk America, is a leading competitive, integrated communications provider that offers phone services and high speed Internet access to both business and residential customers. Services include local and long distance phone service, and data services such as high-speed connectivity, security, web hosting, and network services. Talk America delivers value in the form of savings, simplicity and quality service to its customers through its leading edge network and award-winning back office. Please Note: The statements contained herein regarding the future results of operations of Talk America should be, and certain other of the statements contained herein may be, considered "forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such statements are identified by the use of forward-looking words or phrases, including, but not limited to, "estimates," "expects," "expected," "anticipates," "anticipated," "forecast," "guidance," and "targets". These forward-looking statements are based on our current expectations. Although we believe that the expectations reflected in such forward-looking statements are reasonable, there can be no assurance that such expectations will prove to have been correct. Forward-looking statements involve risks and uncertainties and our actual results could differ materially from our expectations. In addition to those factors discussed in the foregoing, important factors that could cause such actual results to differ materially include, among others, our inability to integrate effectively and as anticipated acquired businesses, dependence on the availability and functionality of local exchange carriers' networks as they relate to the unbundled network element platform, failure to operate our own local network in a profitable manner, increased price competition for long distance, local and data services, failure of the marketing of the bundle of local and long distance services, long distance services and data services under our direct marketing channels to a smaller marketing footprint, attrition in the number of end users, failure to manage our collection management systems and credit controls for customers, interruption in our network and information systems, failure to provide adequate customer service, and changes in government policy, regulation and enforcement and/or adverse judicial or administrative interpretations and rulings relating to regulations and enforcement. Additional information concerning these and other important factors can be found within Talk America's filings with the Securities and Exchange Commission. The forward-looking statements contained herein are made only as of the date of this release, and we undertake no obligation to update the forward-looking statements to reflect subsequent events or circumstances. For a more detailed discussion of these factors, see the Risk Factors discussion in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2005 filed March 16, 2006, as amended by our Form 10-K/A filed March 28, 2006. -0- *T -- Financial Tables to Follow-- TALK AMERICA HOLDINGS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except for per share data) (Unaudited) Three Months Ended Six Months Ended June 30, June 30, ------------------- ------------------- 2006 2005 2006 2005 --------- --------- --------- --------- Revenue $114,052 $107,669 $234,568 $227,504 Costs and expenses: Network and line costs, excluding depreciation and amortization 62,250 55,681 124,087 116,677 General and administrative expenses 23,892 18,330 52,476 36,450 Provision for doubtful accounts 4,201 4,806 8,251 10,394 Sales and marketing expenses 13,006 3,773 23,942 14,041 Depreciation and amortization 11,916 9,615 23,151 19,116 --------- --------- --------- --------- Total costs and expenses 115,265 92,205 231,907 196,678 --------- --------- --------- --------- Operating income (loss) (1,213) 15,464 2,661 30,826 Other income (expense): Interest income 196 366 514 674 Interest expense (204) (25) (431) (50) Other expense, net (60) (336) 53 (356) --------- --------- --------- --------- Income (loss) before provision for income taxes (1,281) 15,469 2,797 31,094 Provision (benefit) for income taxes (14) 6,101 1,683 12,256 --------- --------- --------- --------- Net income (loss) $(1,267) $9,368 $1,114 $18,838 ========= ========= ========= ========= Income (loss) per share - Basic: --------- --------- --------- --------- Net income (loss) per share $(0.04) $0.34 $0.04 $0.69 ========= ========= ========= ========= Weighted average common shares outstanding 30,453 27,474 30,418 27,283 ========= ========= ========= ========= Income (loss) per share - Diluted: --------- --------- --------- --------- Net income (loss) per share $(0.04) $0.33 $0.04 $0.67 ========= ========= ========= ========= Weighted average common and common equivalent shares outstanding 30,453 28,218 30,598 28,021 ========= ========= ========= ========= TALK AMERICA HOLDINGS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except for share and per share data) (Unaudited) June 30, December 31, 2006 2005 ------------ ------------ Assets Current assets: Cash and cash equivalents $31,412 $46,288 Restricted cash 1,920 -- Accounts receivable, trade (net of allowance for uncollectible accounts of $15,177 and $13,838 at June 30, 2006 and December 31, 2005, respectively) 38,370 43,600 Deferred income taxes 18,370 18,096 Prepaid expenses and other current assets 11,333 10,297 ------------ ------------ Total current assets 101,405 118,281 Property and equipment, net 98,327 98,492 Goodwill 36,479 36,479 Intangibles, net 3,768 4,934 Deferred income taxes 33,650 21,033 Capitalized software and other assets 10,757 9,470 ------------ ------------ $284,386 $288,689 ============ ============ Liabilities and Stockholders' Equity Current liabilities: Accounts payable and accrued expenses $34,186 $40,025 Sales, use and excise taxes 7,416 7,316 Deferred revenue 14,126 13,824 Current portion of long-term debt 3,309 3,988 Accrued compensation 6,342 9,405 Other current liabilities 11,688 12,933 ------------ ------------ Total current liabilities 77,067 $87,491 ------------ ------------ Long-term debt 750 1,289 Deferred income taxes 3,942 4,853 Other non-current liabilities 5,789 3,269 Commitments and contingencies Stockholders' equity: Preferred stock - $.01 par value, 5,000,000 shares authorized; no shares outstanding -- -- Common stock - $.01 par value, 100,000,000 shares authorized; 31,791,154 and 31,684,056 shares issued and 30,475,365 and 30,368,267 shares outstanding at June 30, 2006 and December 31, 2005, respectively 318 317 Additional paid-in capital 384,417 380,481 Accumulated deficit (182,897) (184,011) Treasury stock at cost 1,315,789 shares at June 30, 2006 and December 31, 2005, respectively (5,000) (5,000) ------------ ------------ Total stockholders' equity 196,838 191,787 ------------ ------------ $284,386 $288,689 ============ ============ TALK AMERICA HOLDINGS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Six Months Ended June 30, ----------------- 2006 2005 -------- -------- Cash flows from operating activities: Net income $1,114 $18,838 Adjustments to reconcile net income to net cash provided by operating activities: Provision for doubtful accounts 8,251 10,394 Depreciation and amortization 23,151 19,115 Other non-cash charges 429 349 Deferred income taxes 650 10,015 Stock-based compensation 3,217 -- Changes in assets and liabilities: Accounts receivable, trade 1,422 162 Prepaid expenses and other current assets 1,173 (442) Other assets (66) (47) Accounts payable and accrued expenses (9,009) (8,929) Sales, use and excise taxes (537) (3,636) Deferred revenue (1,719) (1,939) Accrued compensation (7,622) (1,926) Other liabilities (3,083) 1,046 -------- -------- Net cash provided by operating activities 17,371 43,000 -------- -------- Cash flows from investing activities: Acquisition of NTC, net of cash acquired (16,485) -- Proceeds from sale of fixed assets 48 42 Capital expenditures (12,579) (19,986) Capitalized software development costs (2,608) (2,023) Decrease in restricted cash 1,375 -- -------- -------- Net cash used in investing activities (30,249) (21,967) -------- -------- Cash flows from financing activities: Payments of capital lease obligations (2,656) (701) Proceeds from exercise of options 358 1,643 Tax benefit of stock-based compensation 300 -- -------- -------- Net cash provided by (used in) financing activities (1,998) 942 -------- -------- Net change in cash and cash equivalents (14,876) 21,975 Cash and cash equivalents, beginning of period 46,288 47,492 -------- -------- Cash and cash equivalents, end of period $31,412 $69,467 ======== ======== TALK AMERICA HOLDINGS, INC. AND SUBSIDIARIES NON-GAAP RECONCILIATION Non-GAAP Financial Measure: The non-GAAP financial measure that we use in this news release is listed below. We have included reconciliation of this non-GAAP financial measure to the most directly comparable GAAP measures in our financial statements. Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA) is defined as operating income plus depreciation and amortization, stock-based compensation expense and gains/losses on the sale of property and equipment. Adjusted EBITDA ($ in thousands) Second Quarter June Year to Date ------------------ ----------------- 2006 2005 2006 2005 ----------------- ----------------- Operating Income $(1,213) $15,464 $2,661 $30,826 Depreciation and Amortization 11,916 9,615 23,151 19,116 Stock-based Compensation 1,609 -- 3,217 -- Loss on Sale of Property and Equipment 410 -- 410 -- -------- -------- -------- -------- Adjusted EBITDA $12,722 $25,079 $29,439 $49,942 ======== ======== ======== ======== *T