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EarthLink Announces Fourth Quarter and Full Year 2010 Results
ATLANTA, Feb. 8, 2011 /PRNewswire/ -- EarthLink, Inc. (Nasdaq: ELNK) today announced financial results for its fourth quarter and full year ended December 31, 2010. EarthLink's fourth quarter results include the transaction-related expenses associated with the December 8, 2010 closing of the acquisition of ITC^Deltacom as well as the financial impact of 24 days of Deltacom's operations. EarthLink's fourth quarter results also include transaction-related expenses associated with the December 20, 2010 announcement of the agreement to acquire One Communications, which is expected to close in the second quarter, and therefore does not include any transaction closing expenses or operating results.
Highlights for the fourth quarter include:
-- Record low consumer churn
-- Net income of $5.3 million or $0.05 per share; $0.19 per share excluding
acquisition-related costs (a non-GAAP measure)
-- Adjusted EBITDA (a non-GAAP measure) of $54.2 million
-- Free cash flow (a non-GAAP measure) of $38.9 million
-- Dividend payments to shareholders of $17.4 million
-- Ending cash and marketable securities balance of $563.1 million
-- Announced full year 2011 Adjusted EBITDA guidance of $250 million to
$260 million
"These results are indicative of the long-term thought process and diligent approach with which EarthLink operates its business. We believe this business discipline and operational rigor will allow us to create value for our shareholders and position us to continue to invest in the future of EarthLink as an IP managed services company with a path for growth," stated EarthLink Chairman and Chief Executive Officer Rolla P. Huff.
"With the acquisition of Deltacom complete and the One Communications acquisition on track to close in the second quarter of this year, we will have dense fiber network across the eastern half of the United States and a ubiquitous IP footprint that makes us unique in terms of the value proposition we can offer multi-location enterprise customers," added Huff.
Financial and Operating Results
EarthLink reported revenue of $166.8 million in the fourth quarter and $622.2 million for the full year 2010, representing a 1 percent increase from the fourth quarter of 2009 and down 14 percent from the full year 2009. Business services segment revenue comprised 36% of EarthLink's revenue in the fourth quarter of 2010, up from 21% in the year-ago quarter due to the inclusion of Deltacom's revenue. Broadband comprised 63% of EarthLink's consumer access revenue in the fourth quarter of 2010, up from 59% in the year-ago quarter.
For the company's consumer segment, net subscriber losses were 79,000 in the fourth quarter, an improvement from 93,000 in the third quarter of 2010 and 132,000 in the year-ago quarter. As EarthLink's subscriber base continues to increase in tenure, the company reported record performance in consumer customer churn. Consumer subscriber churn improved to 2.8% in the fourth quarter of 2010, down from 3.1% in the third quarter of 2010 and 3.2% in the year-ago quarter. In the fourth quarter of 2010, 90% of EarthLink's consumer narrowband and DSL customers had two or more years of tenure with the company and 58% had five or more years of tenure, with churn rates of 2.6% and 2.0%, respectively.
The company continues to aggressively manage expenses to keep costs in line with revenue trends. Total sales and marketing, operations, customer support, and general and administrative expenses were $50.9 million for the fourth quarter of 2010 and $178.4 million for the full year 2010, a 10% reduction from fourth quarter 2009 expenses and a 20% reduction from full year 2009 expenses.
Profitability and Other Financial Measures
Net income was $5.3 million, or $0.05 per share, in the fourth quarter of 2010 and $81.5 million, or $0.74 per share, for the full year 2010. Net income excluding acquisition-related costs (a non-GAAP measure, see definition in "Non-GAAP Measures" below) was $21.6 million, or $0.19 per share, in the fourth quarter of 2010 and $98.9 million, or $0.90 per share, for the full year 2010. These compared to net income of $193.3 million, or $1.79 per share, in the fourth quarter of 2009, and $287.1 million, or $2.66 per share, for the full year 2009.
The fourth quarter and full year 2009 results included a $24.1 million non-cash impairment charge for goodwill and intangible assets and included an income tax benefit of $181.8 million and $126.1 million, respectively, primarily due to releases of EarthLink's valuation allowance related to its deferred tax assets. The fourth quarter and full year 2010 results included a $1.7 million non-cash impairment charge for intangible assets and included an income tax provision of $7.7 million and $56.8 million, respectively.
EarthLink's strong results in customer retention, combined with its ability to aggressively manage costs ahead of revenue declines, resulted in the company generating Adjusted EBITDA (a non-GAAP measure, see definition in "Non-GAAP Measures" below) of $54.2 million in the fourth quarter of 2010 and $219.1 million for the full year 2010. This compares to Adjusted EBITDA of $50.9 million for the fourth quarter 2009 and $249.1 million for the full year 2009.
Balance Sheet and Cash Flow
EarthLink generated free cash flow (a non-GAAP measure, see definition in "Non-GAAP Measures" below) of $38.9 million during the fourth quarter of 2010 and $195.1 million for the full year 2010, compared to $48.4 million in the fourth quarter of 2009 and $236.0 million in the full year 2009.
EarthLink ended 2010 with $563.1 million in cash and marketable securities, reflecting a decrease of $207.5 million from the prior quarter ended September 30, 2010. The company used $215.0 million of cash during the fourth quarter of 2010 in connection with its acquisition of Deltacom and pending acquisition of One Communications, which included the net cash to acquire Deltacom as well as one-time payments for banker fees, severance and stock award payouts. Capital expenditures for the company were $15.3 million in the fourth quarter and $24.0 million for the full year. EarthLink made $17.4 million of dividend payments in the fourth quarter, for a total of $67.5 million of dividend payments to shareholders during the full year 2010.
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 announced guidance for the full year 2011, inclusive of the acquisition of Deltacom, but not including the pending acquisition of One Communications. Management expects 2011 Adjusted EBITDA of $250 million to $260 million; free cash flow of $160 million to $185 million; capital expenditures of $75 million to $90 million; and net income of $48 million to $53 million for the full year 2011. Subsequent to the closing of the One Communications acquisition, EarthLink will update its full year guidance.
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 restructuring and acquisition-related 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 restructuring and acquisition-related costs, less cash used for purchases of property and equipment and purchases of subscriber bases. Net income per share excluding acquisition-related costs is defined as net income before acquisition-related costs, including an estimated tax impact.
Adjusted EBITDA, free cash flow and net income per share excluding acquisition-related costs 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 5 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, February 8, 2011, 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 should reference "EarthLink's 4th Quarter 2010
Conference 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 February 8 through 12:00
midnight on February 15.
Dial 800-642-1687 from US and Canada, International callers dial
706-645-9291.
The replay confirmation code is 40269024.
The Webcast will be archived on the company's website at: http://
ir.earthlink.net/events.cfm
About EarthLink
EarthLink, Inc. (NASDAQ: ELNK) is a leading provider of Internet Protocol (IP) infrastructure and services to medium-sized and large businesses, enterprise organizations and over 1.5 million consumers across the United States. The company has been providing Internet access and communications services for decades and has earned an award-winning reputation for both outstanding customer service and product innovation. For consumers, EarthLink is a leading Internet Service Provider connecting people to the power and possibilities of the Internet. EarthLink Business(TM) provides voice, data, mobile and equipment services over a Southeast fiber network and MPLS-based services nationwide. For more information, visit EarthLink's website http://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. 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, the successful completion of the pending acquisition of One Communications Corp., including the receipt of required regulatory approvals; the ability to realize expected synergies, cost savings and growth opportunities; the possibility that the anticipated benefits from the acquisition cannot be fully realized or may take longer or present greater cost to realize than expected; our ability to successfully integrate the operations of One Communications Corp. upon its acquisition without detracting from our current operations; and other unforeseen difficulties that may occur. These risks and uncertainties also include (1) that we may not be able to execute our business strategy to transition to a leading IP infrastructure and managed services provider, which could adversely impact our results of operations and cash flows; (2) that we may be unsuccessful in making and integrating acquisitions into our business, including integrating ITC^Deltacom, which could result in operating difficulties, losses and other adverse consequences; (3) that we are exposed to additional risks specific to ITC^DeltaCom's business and industry, which could adversely affect our financial condition, results of operations and cash flows; (4) 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; (5) that we will have less ability in the future to implement cost reductions to offset our revenue declines, which will adversely affect our results of operations; (6) that we face significant competition which could reduce our profitability; (7) that adverse economic conditions may harm our business; (8) that our commercial and alliance arrangements may not be renewed or may not generate expected benefits, which could adversely affect our results of operations; (9) that our business is dependent on the availability of third-party telecommunications service providers; (10) 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; (11) 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; (12) 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; (13) 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; (14) that government regulations could adversely affect our business or force us to change our business practices; (15) that privacy concerns relating to our business could damage our reputation and deter current and potential users from using our services; (16) that we may not be able to protect our intellectual property; (17) 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; (18) that if we are unable to successfully defend against legal actions we could face substantial liabilities; (19) that our business depends on effective business support systems, processes and personnel; (20) 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; (21) 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; (22) 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; (23) that we may reduce, or cease payment of, quarterly dividends; (24) that our stock price may be volatile; (25) that our indebtedness could adversely affect our financial health and limit our ability to react to changes in our industry; and (26) 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 and our Form 10-Q for the period ended September 30, 2010.
EARTHLINK, INC.
Unaudited Condensed Consolidated Statements Of Operations
(in thousands, except per share data)
Three Months Ended
December 31,
------------------
2009 2010
---- ----
Revenues $164,548 $166,789
Operating costs and
expenses (1):
Cost of revenues
(exclusive of
operating items shown
below) 59,741 64,600
Selling, general and
administrative
(exclusive of
operating items shown
below) 56,611 50,900
Depreciation and
amortization 5,352 9,738
Impairment of goodwill
and intangible assets
(2) 24,145 1,711
Restructuring and
acquisition-related
costs (3) 297 19,101
--- ------
Total operating costs
and expenses 146,146 146,050
Income from operations 18,402 20,739
Gain (loss) on
investments, net (1,626) -
Interest expense and
other, net (5,346) (7,740)
------ ------
Income before income
taxes 11,430 12,999
Income tax benefit
(provision) 181,839 (7,691)
------- ------
Net income $193,269 $5,308
======== ======
Net income per share
Basic $1.80 $0.05
===== =====
Diluted $1.79 $0.05
===== =====
Weighted average common
shares outstanding
Basic 107,075 108,320
======= =======
Diluted 108,178 111,317
======= =======
Twelve Months Ended December
31,
----------------------------
2009 2010
---- ----
Revenues $723,729 $622,212
Operating costs and
expenses (1):
Cost of revenues
(exclusive of
operating items shown
below) 265,668 234,633
Selling, general and
administrative
(exclusive of
operating items shown
below) 222,181 178,417
Depreciation and
amortization 23,962 23,390
Impairment of goodwill
and intangible assets
(2) 24,145 1,711
Restructuring and
acquisition-related
costs (3) 5,615 22,368
----- ------
Total operating costs
and expenses 541,571 460,519
Income from operations 182,158 161,693
Gain (loss) on
investments, net (1,321) 572
Interest expense and
other, net (19,804) (23,981)
------- -------
Income before income
taxes 161,033 138,284
Income tax benefit
(provision) 126,085 (56,804)
------- -------
Net income $287,118 $81,480
======== =======
Net income per share
Basic $2.69 $0.75
===== =====
Diluted $2.66 $0.74
===== =====
Weighted average common
shares outstanding
Basic 106,909 108,057
======= =======
Diluted 108,084 109,468
======= =======
EARTHLINK, INC.
Unaudited Condensed Consolidated Statements Of Operations (4)
(in thousands, except per share data)
Three Months Ended
December 31, 2010
-----------------
EarthLink DeltaCom Consolidated
--------- -------- ------------
Revenues $140,186 $26,603 166,789
Operating costs and
expenses (1):
Cost of revenues
(exclusive of
operating items shown
below) 51,626 12,974 64,600
Selling, general and
administrative
(exclusive of
operating items shown
below) 40,640 10,260 50,900
Depreciation and
amortization 4,853 4,885 9,738
Impairment of goodwill
and intangible assets
(2) 1,711 - 1,711
Restructuring and
acquisition-related
costs (3) 12,336 6,765 19,101
------ ----- ------
Total operating costs
and expenses 111,166 34,884 146,050
Income (loss) from
operations 29,020 (8,281) 20,739
Gain on investments,
net - - -
Interest expense and
other, net (5,651) (2,089) (7,740)
------ ------ ------
Income before income
taxes 23,369 (10,370) 12,999
Income tax (provision)
benefit (11,842) 4,151 (7,691)
------- ----- ------
Net income (loss) $11,527 $(6,219) $5,308
======= ======= ======
Twelve Months Ended
December 31, 2010
-----------------
EarthLink DeltaCom Consolidated
--------- -------- ------------
Revenues $595,609 $26,603 622,212
Operating costs and
expenses (1):
Cost of revenues
(exclusive of
operating items shown
below) 221,659 12,974 234,633
Selling, general and
administrative
(exclusive of
operating items shown
below) 168,157 10,260 178,417
Depreciation and
amortization 18,505 4,885 23,390
Impairment of goodwill
and intangible assets
(2) 1,711 - 1,711
Restructuring and
acquisition-related
costs (3) 15,603 6,765 22,368
------ ----- ------
Total operating costs
and expenses 425,635 34,884 460,519
Income (loss) from
operations 169,974 (8,281) 161,693
Gain on investments,
net 572 - 572
Interest expense and
other, net (21,892) (2,089) (23,981)
------- ------ -------
Income before income
taxes 148,654 (10,370) 138,284
Income tax (provision)
benefit (60,955) 4,151 (56,804)
------- ----- -------
Net income (loss) $87,699 $(6,219) $81,480
======= ======= =======
EARTHLINK, INC.
Reconciliation of Net Income (Loss) to Adjusted EBITDA (5)
(in thousands, except per share data)
Three Months Ended
December 31, 2010
-----------------
EarthLink DeltaCom Consolidated
--------- -------- ------------
Net income (loss) $11,527 $(6,219) $5,308
Interest expense and
other, net 5,651 2,089 7,740
Income tax (provision)
benefit 11,842 (4,151) 7,691
Depreciation and
amortization 4,853 4,885 9,738
Stock-based
compensation expense 2,773 109 2,882
Gain on investments,
net - - -
Impairment of goodwill
and intangible assets
(2) 1,711 - 1,711
Restructuring and
acquisition-related
costs (3) 12,336 6,765 19,101
------ ----- ------
Adjusted EBITDA (5) $50,693 $3,478 $54,171
======= ====== =======
Twelve Months Ended
December 31, 2010
-----------------
EarthLink DeltaCom Consolidated
--------- -------- ------------
Net income (loss) $87,699 $(6,219) $81,480
Interest expense and
other, net 21,892 2,089 23,981
Income tax (provision)
benefit 60,955 (4,151) 56,804
Depreciation and
amortization 18,505 4,885 23,390
Stock-based
compensation expense 9,850 109 9,959
Gain on investments,
net (572) - (572)
Impairment of goodwill
and intangible assets
(2) 1,711 - 1,711
Restructuring and
acquisition-related
costs (3) 15,603 6,765 22,368
------ ----- ------
Adjusted EBITDA (5) $215,643 $3,478 $219,121
======== ====== ========
EARTHLINK, INC.
Reconciliation of Net Income (Loss) to Free Cash Flow (5)
(in thousands, except per share data)
Three Months Ended
December 31, 2010
-----------------
EarthLink DeltaCom Consolidated
--------- -------- ------------
Net income (loss) $11,527 $(6,219) $5,308
Interest expense and
other, net 5,651 2,089 7,740
Income tax (provision)
benefit 11,842 (4,151) 7,691
Depreciation and
amortization 4,853 4,885 9,738
Stock-based
compensation expense 2,773 109 2,882
Gain on investments,
net - - -
Impairment of goodwill
and intangible assets
(2) 1,711 - 1,711
Restructuring and
acquisition-related
costs (3) 12,336 6,765 19,101
Purchases of property
and equipment (4,762) (10,515) (15,277)
------ ------- -------
Free cash flow (5) $45,931 $(7,037) $38,894
======= ======= =======
Twelve Months Ended
December 31, 2010
-----------------
EarthLink DeltaCom Consolidated
--------- -------- ------------
Net income (loss) $87,699 $(6,219) $81,480
Interest expense and
other, net 21,892 2,089 23,981
Income tax (provision)
benefit 60,955 (4,151) 56,804
Depreciation and
amortization 18,505 4,885 23,390
Stock-based
compensation expense 9,850 109 9,959
Gain on investments,
net (572) - (572)
Impairment of goodwill
and intangible assets
(2) 1,711 - 1,711
Restructuring and
acquisition-related
costs (3) 15,603 6,765 22,368
Purchases of property
and equipment (13,510) (10,515) (24,025)
------- ------- -------
Free cash flow (5) $202,133 $(7,037) $195,096
======== ======= ========
EARTHLINK, INC.
Reconciliation of Net Income to Adjusted EBITDA (5)
(in thousands)
Three Months Ended
December 31,
------------------
2009 2010
---- ----
Net income $193,269 $5,308
Interest expense
and other, net 5,346 7,740
Income tax
(benefit)
provision (181,839) 7,691
Depreciation and
amortization 5,352 9,738
Stock-based
compensation
expense 2,679 2,882
Gain (loss) on
investments, net 1,626 -
Impairment of
goodwill and
intangible assets
(2) 24,145 1,711
Restructuring and
acquisition-
related costs (3) 297 19,101
--- ------
Adjusted
EBITDA (5) $50,875 $54,171
========
Twelve Months Ended December
31,
----------------------------
2009 2010
---- ----
Net income $287,118 $81,480
Interest expense
and other, net 19,804 23,981
Income tax
(benefit)
provision (126,085) 56,804
Depreciation and
amortization 23,962 23,390
Stock-based
compensation
expense 13,231 9,959
Gain (loss) on
investments, net 1,321 (572)
Impairment of
goodwill and
intangible assets
(2) 24,145 1,711
Restructuring and
acquisition-
related costs (3) 5,615 22,368
----- ------
Adjusted
EBITDA (5) $249,111 $219,121
=========
EARTHLINK, INC.
Reconciliation of Net Income to Free Cash Flow (5)
(in thousands)
Three Months Ended
December 31,
------------------
2009 2010
---- ----
Net income $193,269 $5,308
Interest expense
and other, net 5,346 7,740
Income tax
(benefit)
provision (181,839) 7,691
Depreciation and
amortization 5,352 9,738
Stock-based
compensation
expense 2,679 2,882
Gain (loss) on
investments,
net 1,626 -
Impairment of
goodwill and
intangible
assets (2) 24,145 1,711
Restructuring
and
acquisition-
related costs
(3) 297 19,101
Purchases of
property and
equipment (2,471) (15,277)
------ -------
Free cash flow
(5) $48,404 $38,894
======= =======
Twelve Months Ended
December 31,
-------------------
2009 2010
---- ----
Net income $287,118 $81,480
Interest expense
and other, net 19,804 23,981
Income tax
(benefit)
provision (126,085) 56,804
Depreciation and
amortization 23,962 23,390
Stock-based
compensation
expense 13,231 9,959
Gain (loss) on
investments,
net 1,321 (572)
Impairment of
goodwill and
intangible
assets (2) 24,145 1,711
Restructuring
and
acquisition-
related costs
(3) 5,615 22,368
Purchases of
property and
equipment (13,119) (24,025)
------- -------
Free cash flow
(5) $235,992 $195,096
======== ========
EARTHLINK, INC.
Reconciliation of Net Income to Net Income Per Share Excluding
Acquisition-Related Costs (5)
(in thousands, except per share amounts)
Three
Months Twelve Months
Ended Ended
December
31, December 31,
2010 2010
---- ----
Net income $5,308 $81,480
Acquisition-related
costs (3) 18,953 20,953
Estimated tax impact
* (2,686) (3,565)
Net income excluding
acquisition-
related costs (5) $21,575 $98,868
======= =======
Diluted per share
amount $0.19 $0.90
===== =====
* Acquisition-related costs for purposes of this reconciliation have
been reduced by an estimated tax impact. The tax impact does not
necessarily reflect the actual amount that would have resulted had
EarthLink not incurred these costs during the periods presented.
EARTHLINK, INC.
Reconciliation of Guidance Provided in Non-GAAP Measures (5)
(in millions)
Year
Ending
December
31,
2011
----
Net income $48 - $53
Interest expense
and other, net 48
Income tax
provision 31 - 36
Depreciation and
amortization 93
Stock-based
compensation
expense 16
Restructuring and
acquisition-
related costs (3) 14
---
Adjusted EBITDA (5) $250 - $260
===========
Year
Ending
December
31,
2011
----
Net income $48 - $53
Interest expense
and other, net 48
Income tax
provision 31 - 36
Depreciation and
amortization 93
Stock-based
compensation
expense 16
Restructuring and
acquisition-
related costs (3) 14
Purchases of
property and
equipment (90) - (75)
-----------
Free cash flow (5) $160 - $185
===========
EARTHLINK, INC.
Supplemental Financial Data
December
31, June 30,
2009 2010
---- ----
(in thousands)
Balance Sheet
Data
Cash and
marketable
securities $695,961 $740,100
Debt (6) 258,750 255,791
Stockholders'
equity 734,024 757,899
Employee Data
Number of
employees at
end of period
(7) 623 576
September 30, December 31,
2010 2010
---- ----
(in thousands)
Balance Sheet
Data
Cash and
marketable
securities $770,555 $563,070
Debt (6) 255,791 580,791
Stockholders'
equity 764,922 757,868
Employee Data
Number of
employees at
end of period
(7) 560 1,870
EARTHLINK, INC.
Consumer Services Operating Metrics
December 31, June 30,
2009 2010
---- ----
Consumer Subscriber
Detail
Narrowband access
subscribers 1,225,000 1,060,000
Broadband access
subscribers 804,000 748,000
------- -------
Total consumer
subscribers 2,029,000 1,808,000
========= =========
September 30, December 31,
2010 2010
---- ----
Consumer Subscriber
Detail
Narrowband access
subscribers 988,000 932,000
Broadband access
subscribers 727,000 704,000
------- -------
Total consumer
subscribers 1,715,000 1,636,000
========= =========
Three Months Ended
December 31,
------------------
2009 2010
---- ----
Consumer Subscriber
Activity
Subscribers at
beginning of period 2,161,000 1,715,000
Gross organic
subscriber additions 71,000 59,000
Adjustment (8) - -
Churn (203,000) (138,000)
Subscribers at end of
period 2,029,000 1,636,000
========= =========
Consumer Metrics
Average subscribers
(9) 2,093,000 1,675,000
ARPU (10) $20.72 $21.10
Churn rate (11) 3.2% 2.8%
Twelve Months Ended
December 31,
-------------------
2009 2010
---- ----
Consumer Subscriber
Activity
Subscribers at
beginning of period 2,643,000 2,029,000
Gross organic
subscriber additions 399,000 265,000
Adjustment (8) (7,000) -
Churn (1,006,000) (658,000)
Subscribers at end of
period 2,029,000 1,636,000
========= =========
Consumer Metrics
Average subscribers
(9) 2,310,000 1,817,000
ARPU (10) $20.76 $21.16
Churn rate (11) 3.6% 3.0%
EARTHLINK, INC.
Business Services Operating Metrics
December 31, June 30, September 30, December 31,
2009 2010 2010 2010
---- ---- ---- ----
Legacy EarthLink
Business Metrics
Narrowband access
subscribers 8,000 8,000 8,000 7,000
Broadband access
subscribers 54,000 53,000 53,000 53,000
Web hosting
accounts 75,000 70,000 68,000 66,000
ITC^DeltaCom
Business Metrics
Total fiber optic
route miles - - - 16,504
Colocations - - - 294
Voice and data
switches - - - 20
Retail voice lines - - - 414,000
Wholesale voice
lines - - - 6,000
--- --- --- -----
Total business
voice lines - - - 420,000
EARTHLINK, INC.
Supplemental Schedule of Segment Information (12)
(in thousands)
Three Months Ended December 31,
-------------------------------
2009 2010
---- ----
Consumer Services
Revenues
Access and service $113,565 $92,025
Value-added services 16,503 14,027
------ ------
Total revenues 130,068 106,052
Cost of revenues 40,517 33,500
------ ------
Gross margin 89,551 72,552
Segment operating expenses 27,577 21,382
Segment income from
operations $61,974 $51,170
======= =======
Business Services
Revenues
Access and service $33,944 $60,219
Value-added services 536 518
--- ---
Total revenues 34,480 60,737
Cost of revenues 19,224 31,100
------ ------
Gross margin 15,256 29,637
Segment operating expenses 10,336 19,821
Segment income from
operations $4,920 $9,816
====== ======
Consolidated
Revenues
Access and service $147,509 $152,244
Value-added services 17,039 14,545
------ ------
Total revenues 164,548 166,789
Cost of revenues 59,741 64,600
------ ------
Gross margin 104,807 102,189
Direct segment operating
expenses 37,913 41,203
------ ------
Segment income from
operations 66,894 60,986
Stock-based compensation
expense 2,679 2,882
Depreciation and amortization 5,352 9,738
Impairment of goodwill and
intangible assets (2) 24,145 1,711
Restructuring and
acquisition-related costs
(3) 297 19,101
Other operating expenses 16,019 6,815
Income from operations $18,402 $20,739
======= =======
Twelve Months Ended December 31,
--------------------------------
2009 2010
---- ----
Consumer Services
Revenues
Access and service $503,769 $403,174
Value-added services 71,643 58,274
------ ------
Total revenues 575,412 461,448
Cost of revenues 183,248 143,956
------- -------
Gross margin 392,164 317,492
Segment operating expenses 122,575 87,660
Segment income from
operations $269,589 $229,832
======== ========
Business Services
Revenues
Access and service $146,087 $158,677
Value-added services 2,230 2,087
----- -----
Total revenues 148,317 160,764
Cost of revenues 82,420 90,677
------ ------
Gross margin 65,897 70,087
Segment operating expenses 40,249 50,096
Segment income from
operations $25,648 $19,991
======= =======
Consolidated
Revenues
Access and service $649,856 $561,851
Value-added services 73,873 60,361
------ ------
Total revenues 723,729 622,212
Cost of revenues 265,668 234,633
------- -------
Gross margin 458,061 387,579
Direct segment operating
expenses 162,824 137,756
------- -------
Segment income from
operations 295,237 249,823
Stock-based compensation
expense 13,231 9,959
Depreciation and amortization 23,962 23,390
Impairment of goodwill and
intangible assets (2) 24,145 1,711
Restructuring and
acquisition-related costs
(3) 5,615 22,368
Other operating expenses 46,126 30,702
Income from operations $182,158 $161,693
======== ========
EARTHLINK, INC.
Footnotes to Consolidated Financial Highlights
Certain amounts in prior periods have been
reclassified to conform to the current period.
Specifically, EarthLink reclassified
1. depreciation
expense from cost of revenues and selling, general
and administrative expenses to depreciation and
amortization expense. In addition,
EarthLink combined sales and marketing, operations
and customer support and general and administrative
into selling, general and
administrative expense. EarthLink's results of
operations were not impacted by these
reclassifications.
During the fourth quarter of 2009, EarthLink
concluded that the goodwill and certain of the
intangible assets recorded as a result of its
2. April 2006
acquisition of New Edge Networks were impaired and
recorded non-cash impairment charges of $24.1
million. EarthLink concluded the carrying
value of its goodwill and certain of the intangible
assets related to the New Edge acquisition were
impaired in conjunction with its annual test of
goodwill and intangible assets deemed to have
indefinite lives as well as updating its long-term
outlook. During the fourth quarter of 2010,
EarthLink recorded a non-cash impairment charge of
$1.7 million to write-down its New Edge trade name
as a result of a strategic decision to
re-brand New Edge as EarthLink Business.
3. Restructuring and acquisition-related costs consisted of the
following for the periods presented:
Three Months
Ended
December 31,
------------
2009 2010
---- ----
(in thousands)
Transaction-
related costs $- $8,164
Stock-based
compensation - 5,742
Severance and
retention - 5,047
--- -----
Acquisition-
related costs - 18,953
Facility exit and
restructuring
costs 297 148
--- ---
Total restructuring
and acquisition-
related $297 $19,101
==== =======
Twelve Months
Ended
December 31,
------------
2009 2010
---- ----
(in thousands)
Transaction-
related costs $- $10,164
Stock-based
compensation - 5,742
Severance and
retention - 5,047
--- -----
Acquisition-
related costs - 20,953
Facility exit and
restructuring
costs 5,615 1,415
----- -----
Total restructuring
and acquisition-
related $5,615 $22,368
====== =======
Acquisition-related costs consist of external costs directly related
to EarthLink's acquisitions, such as advisory, legal, accounting,
valuation and
other professional fees. Acquisition-related costs during the year
ended December 31, 2010 also include stock-based compensation
expenses
and employee severance and benefit costs associated with EarthLink's
acquisition of ITC^DeltaCom. Stock-based compensation expense
included in acquisition-related costs resulted from cash paid to
settle stock-based awards attributable to postcombination service
in connection
with the ITC^DeltaCom acquisition. EarthLink expects to incur
approximately $5.0 million of acquisition-related costs in the
first quarter of 2011.
Facility exit and restructuring costs consist of costs incurred for
EarthLink's restructuring plans. 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.
On December 8, 2010, EarthLink completed its
acquisition of ITC^DeltaCom, a provider of
integrated communications services to
4. customers
in the southeastern U.S., in an all-cash
transaction for $3.00 per share. Under the terms
of the merger agreement, EarthLink acquired 100%
of
ITC^DeltaCom in a merger transaction with
ITC^DeltaCom surviving as a wholly-owned
subsidiary of EarthLink. The results of
operations of
ITC^DeltaCom have been included in EarthLink's
consolidated financial statements since the
acquisition date. These condensed consolidating
statements of operations are being presented for
informational purposes.
Adjusted EBITDA is defined as net income
before interest expense and other, net,
income taxes, depreciation and amortization,
5. stock-based
compensation, gain (loss) on investments, net,
impairment of goodwill and intangible assets, and
restructuring and acquisition-related 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
restructuring and acquisition-related costs,
less purchases cash used for of property and
equipment and purchases of subscriber bases. Net
income per share excluding acquisition-related
costs is defined as net income before acquisition-
related costs, including an estimated tax impact.
Adjusted EBITDA, free cash flow and net income per
share excluding acquisition-related costs 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. Management
believes that excluding the effects of the items
noted above enables investors to better
understand and analyze the current period's
results
and provides a better measure of comparability.
Debt includes the principal amount of
EarthLink's Convertible Senior Notes and
ITC^DeltaCom's Senior Secured Notes. The
6. principal amount of the
Convertible Senior Notes was $258.8 million,
$255.8 million, $255.8 million and $255.8 million
as of December 31, 2009, June 30, 2010, September
30, 2010 and December 31, 2010, respectively. The
unamortized discount was $26.5 million, $19.6
million, $16.2 million and $12.7 million as of
December 31, 2009, June 30, 2010, September 30,
2010 and December 31, 2010, respectively. The net
carrying value was $232.2 million, $236.2
million, $239.6 million and $243.1 million as of
December 31, 2009, June 30, 2010, September 30,
2010 and December 31, 2010, respectively. The
principal amount of the DeltaCom notes was $325.0
million and the carrying value was $351.3
million.
7. Represents full-time equivalents.
During the twelve months ended December 31,
2009, EarthLink removed approximately 7,000
satellite subscribers from its broadband
8. subscriber
count and total subscriber count as a result of
the sale of these subscriber accounts.
Average subscribers for the three month
periods is calculated by averaging the ending
monthly subscribers or accounts for the four
9. months
preceding and including the end of the quarterly
period. Average subscribers for the twelve month
periods is calculated by averaging the ending
monthly subscribers or accounts for the thirteen
months preceding and including the end of the
period.
ARPU represents the average monthly revenue
per user (subscriber). ARPU is computed by
dividing average monthly revenue for the
10. 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.
Churn rate is used to measure the rate at
which subscribers discontinue service on a
voluntary or involuntary basis. Churn rate
11. is computed by
dividing the average monthly number of subscribers
that discontinued service during the period by
the average subscribers for the period.
The Company reports segment information along
the same lines that its chief executive
officer reviews its operating results in
12. 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 data services,
including managed IP-based network services and
broadband Internet access services; voice
services, including local exchange, long-distance
and conference calling; mobile data and voice
services; and web hosting.
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 and
acquisition-related costs, as they are not
evaluated in the measurement of segment
performance.
SOURCE EarthLink
EarthLink
CONTACT: Investors: Louis Alterman, +1-404-748-7650, +1-678-472-3252, altermanlo@corp.earthlink.com, Media: Michele Sadwick, +1-404-748-7255, +1-404-769-8421, sadwick@corp.earthlink.com
Web Site: http://www.earthlink.net
EarthLink Announces Fourth Quarter and Full Year 2010 Results
ATLANTA, Feb. 8, 2011 /PRNewswire/ -- EarthLink, Inc. (Nasdaq: ELNK) today announced financial results for its fourth quarter and full year ended December 31, 2010. EarthLink's fourth quarter results include the transaction-related expenses associated with the December 8, 2010 closing of the acquisition of ITC^Deltacom as well as the financial impact of 24 days of Deltacom's operations. EarthLink's fourth quarter results also include transaction-related expenses associated with the December 20, 2010 announcement of the agreement to acquire One Communications, which is expected to close in the second quarter, and therefore does not include any transaction closing expenses or operating results.
Highlights for the fourth quarter include:
-- Record low consumer churn
-- Net income of $5.3 million or $0.05 per share; $0.19 per share excluding
acquisition-related costs (a non-GAAP measure)
-- Adjusted EBITDA (a non-GAAP measure) of $54.2 million
-- Free cash flow (a non-GAAP measure) of $38.9 million
-- Dividend payments to shareholders of $17.4 million
-- Ending cash and marketable securities balance of $563.1 million
-- Announced full year 2011 Adjusted EBITDA guidance of $250 million to
$260 million
"These results are indicative of the long-term thought process and diligent approach with which EarthLink operates its business. We believe this business discipline and operational rigor will allow us to create value for our shareholders and position us to continue to invest in the future of EarthLink as an IP managed services company with a path for growth," stated EarthLink Chairman and Chief Executive Officer Rolla P. Huff.
"With the acquisition of Deltacom complete and the One Communications acquisition on track to close in the second quarter of this year, we will have dense fiber network across the eastern half of the United States and a ubiquitous IP footprint that makes us unique in terms of the value proposition we can offer multi-location enterprise customers," added Huff.
Financial and Operating Results
EarthLink reported revenue of $166.8 million in the fourth quarter and $622.2 million for the full year 2010, representing a 1 percent increase from the fourth quarter of 2009 and down 14 percent from the full year 2009. Business services segment revenue comprised 36% of EarthLink's revenue in the fourth quarter of 2010, up from 21% in the year-ago quarter due to the inclusion of Deltacom's revenue. Broadband comprised 63% of EarthLink's consumer access revenue in the fourth quarter of 2010, up from 59% in the year-ago quarter.
For the company's consumer segment, net subscriber losses were 79,000 in the fourth quarter, an improvement from 93,000 in the third quarter of 2010 and 132,000 in the year-ago quarter. As EarthLink's subscriber base continues to increase in tenure, the company reported record performance in consumer customer churn. Consumer subscriber churn improved to 2.8% in the fourth quarter of 2010, down from 3.1% in the third quarter of 2010 and 3.2% in the year-ago quarter. In the fourth quarter of 2010, 90% of EarthLink's consumer narrowband and DSL customers had two or more years of tenure with the company and 58% had five or more years of tenure, with churn rates of 2.6% and 2.0%, respectively.
The company continues to aggressively manage expenses to keep costs in line with revenue trends. Total sales and marketing, operations, customer support, and general and administrative expenses were $50.9 million for the fourth quarter of 2010 and $178.4 million for the full year 2010, a 10% reduction from fourth quarter 2009 expenses and a 20% reduction from full year 2009 expenses.
Profitability and Other Financial Measures
Net income was $5.3 million, or $0.05 per share, in the fourth quarter of 2010 and $81.5 million, or $0.74 per share, for the full year 2010. Net income excluding acquisition-related costs (a non-GAAP measure, see definition in "Non-GAAP Measures" below) was $21.6 million, or $0.19 per share, in the fourth quarter of 2010 and $98.9 million, or $0.90 per share, for the full year 2010. These compared to net income of $193.3 million, or $1.79 per share, in the fourth quarter of 2009, and $287.1 million, or $2.66 per share, for the full year 2009.
The fourth quarter and full year 2009 results included a $24.1 million non-cash impairment charge for goodwill and intangible assets and included an income tax benefit of $181.8 million and $126.1 million, respectively, primarily due to releases of EarthLink's valuation allowance related to its deferred tax assets. The fourth quarter and full year 2010 results included a $1.7 million non-cash impairment charge for intangible assets and included an income tax provision of $7.7 million and $56.8 million, respectively.
EarthLink's strong results in customer retention, combined with its ability to aggressively manage costs ahead of revenue declines, resulted in the company generating Adjusted EBITDA (a non-GAAP measure, see definition in "Non-GAAP Measures" below) of $54.2 million in the fourth quarter of 2010 and $219.1 million for the full year 2010. This compares to Adjusted EBITDA of $50.9 million for the fourth quarter 2009 and $249.1 million for the full year 2009.
Balance Sheet and Cash Flow
EarthLink generated free cash flow (a non-GAAP measure, see definition in "Non-GAAP Measures" below) of $38.9 million during the fourth quarter of 2010 and $195.1 million for the full year 2010, compared to $48.4 million in the fourth quarter of 2009 and $236.0 million in the full year 2009.
EarthLink ended 2010 with $563.1 million in cash and marketable securities, reflecting a decrease of $207.5 million from the prior quarter ended September 30, 2010. The company used $215.0 million of cash during the fourth quarter of 2010 in connection with its acquisition of Deltacom and pending acquisition of One Communications, which included the net cash to acquire Deltacom as well as one-time payments for banker fees, severance and stock award payouts. Capital expenditures for the company were $15.3 million in the fourth quarter and $24.0 million for the full year. EarthLink made $17.4 million of dividend payments in the fourth quarter, for a total of $67.5 million of dividend payments to shareholders during the full year 2010.
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 announced guidance for the full year 2011, inclusive of the acquisition of Deltacom, but not including the pending acquisition of One Communications. Management expects 2011 Adjusted EBITDA of $250 million to $260 million; free cash flow of $160 million to $185 million; capital expenditures of $75 million to $90 million; and net income of $48 million to $53 million for the full year 2011. Subsequent to the closing of the One Communications acquisition, EarthLink will update its full year guidance.
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 restructuring and acquisition-related 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 restructuring and acquisition-related costs, less cash used for purchases of property and equipment and purchases of subscriber bases. Net income per share excluding acquisition-related costs is defined as net income before acquisition-related costs, including an estimated tax impact.
Adjusted EBITDA, free cash flow and net income per share excluding acquisition-related costs 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 5 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, February 8, 2011, 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 should reference "EarthLink's 4th Quarter 2010
Conference 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 February 8 through 12:00
midnight on February 15.
Dial 800-642-1687 from US and Canada, International callers dial
706-645-9291.
The replay confirmation code is 40269024.
The Webcast will be archived on the company's website at: http://
ir.earthlink.net/events.cfm
About EarthLink
EarthLink, Inc. (NASDAQ: ELNK) is a leading provider of Internet Protocol (IP) infrastructure and services to medium-sized and large businesses, enterprise organizations and over 1.5 million consumers across the United States. The company has been providing Internet access and communications services for decades and has earned an award-winning reputation for both outstanding customer service and product innovation. For consumers, EarthLink is a leading Internet Service Provider connecting people to the power and possibilities of the Internet. EarthLink Business(TM) provides voice, data, mobile and equipment services over a Southeast fiber network and MPLS-based services nationwide. For more information, visit EarthLink's website http://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. 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, the successful completion of the pending acquisition of One Communications Corp., including the receipt of required regulatory approvals; the ability to realize expected synergies, cost savings and growth opportunities; the possibility that the anticipated benefits from the acquisition cannot be fully realized or may take longer or present greater cost to realize than expected; our ability to successfully integrate the operations of One Communications Corp. upon its acquisition without detracting from our current operations; and other unforeseen difficulties that may occur. These risks and uncertainties also include (1) that we may not be able to execute our business strategy to transition to a leading IP infrastructure and managed services provider, which could adversely impact our results of operations and cash flows; (2) that we may be unsuccessful in making and integrating acquisitions into our business, including integrating ITC^Deltacom, which could result in operating difficulties, losses and other adverse consequences; (3) that we are exposed to additional risks specific to ITC^DeltaCom's business and industry, which could adversely affect our financial condition, results of operations and cash flows; (4) 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; (5) that we will have less ability in the future to implement cost reductions to offset our revenue declines, which will adversely affect our results of operations; (6) that we face significant competition which could reduce our profitability; (7) that adverse economic conditions may harm our business; (8) that our commercial and alliance arrangements may not be renewed or may not generate expected benefits, which could adversely affect our results of operations; (9) that our business is dependent on the availability of third-party telecommunications service providers; (10) 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; (11) 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; (12) 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; (13) 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; (14) that government regulations could adversely affect our business or force us to change our business practices; (15) that privacy concerns relating to our business could damage our reputation and deter current and potential users from using our services; (16) that we may not be able to protect our intellectual property; (17) 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; (18) that if we are unable to successfully defend against legal actions we could face substantial liabilities; (19) that our business depends on effective business support systems, processes and personnel; (20) 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; (21) 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; (22) 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; (23) that we may reduce, or cease payment of, quarterly dividends; (24) that our stock price may be volatile; (25) that our indebtedness could adversely affect our financial health and limit our ability to react to changes in our industry; and (26) 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 and our Form 10-Q for the period ended September 30, 2010.
EARTHLINK, INC.
Unaudited Condensed Consolidated Statements Of Operations
(in thousands, except per share data)
Three Months Ended
December 31,
------------------
2009 2010
---- ----
Revenues $164,548 $166,789
Operating costs and
expenses (1):
Cost of revenues
(exclusive of
operating items shown
below) 59,741 64,600
Selling, general and
administrative
(exclusive of
operating items shown
below) 56,611 50,900
Depreciation and
amortization 5,352 9,738
Impairment of goodwill
and intangible assets
(2) 24,145 1,711
Restructuring and
acquisition-related
costs (3) 297 19,101
--- ------
Total operating costs
and expenses 146,146 146,050
Income from operations 18,402 20,739
Gain (loss) on
investments, net (1,626) -
Interest expense and
other, net (5,346) (7,740)
------ ------
Income before income
taxes 11,430 12,999
Income tax benefit
(provision) 181,839 (7,691)
------- ------
Net income $193,269 $5,308
======== ======
Net income per share
Basic $1.80 $0.05
===== =====
Diluted $1.79 $0.05
===== =====
Weighted average common
shares outstanding
Basic 107,075 108,320
======= =======
Diluted 108,178 111,317
======= =======
Twelve Months Ended December
31,
----------------------------
2009 2010
---- ----
Revenues $723,729 $622,212
Operating costs and
expenses (1):
Cost of revenues
(exclusive of
operating items shown
below) 265,668 234,633
Selling, general and
administrative
(exclusive of
operating items shown
below) 222,181 178,417
Depreciation and
amortization 23,962 23,390
Impairment of goodwill
and intangible assets
(2) 24,145 1,711
Restructuring and
acquisition-related
costs (3) 5,615 22,368
----- ------
Total operating costs
and expenses 541,571 460,519
Income from operations 182,158 161,693
Gain (loss) on
investments, net (1,321) 572
Interest expense and
other, net (19,804) (23,981)
------- -------
Income before income
taxes 161,033 138,284
Income tax benefit
(provision) 126,085 (56,804)
------- -------
Net income $287,118 $81,480
======== =======
Net income per share
Basic $2.69 $0.75
===== =====
Diluted $2.66 $0.74
===== =====
Weighted average common
shares outstanding
Basic 106,909 108,057
======= =======
Diluted 108,084 109,468
======= =======
EARTHLINK, INC.
Unaudited Condensed Consolidated Statements Of Operations (4)
(in thousands, except per share data)
Three Months Ended
December 31, 2010
-----------------
EarthLink DeltaCom Consolidated
--------- -------- ------------
Revenues $140,186 $26,603 166,789
Operating costs and
expenses (1):
Cost of revenues
(exclusive of
operating items shown
below) 51,626 12,974 64,600
Selling, general and
administrative
(exclusive of
operating items shown
below) 40,640 10,260 50,900
Depreciation and
amortization 4,853 4,885 9,738
Impairment of goodwill
and intangible assets
(2) 1,711 - 1,711
Restructuring and
acquisition-related
costs (3) 12,336 6,765 19,101
------ ----- ------
Total operating costs
and expenses 111,166 34,884 146,050
Income (loss) from
operations 29,020 (8,281) 20,739
Gain on investments,
net - - -
Interest expense and
other, net (5,651) (2,089) (7,740)
------ ------ ------
Income before income
taxes 23,369 (10,370) 12,999
Income tax (provision)
benefit (11,842) 4,151 (7,691)
------- ----- ------
Net income (loss) $11,527 $(6,219) $5,308
======= ======= ======
Twelve Months Ended
December 31, 2010
-----------------
EarthLink DeltaCom Consolidated
--------- -------- ------------
Revenues $595,609 $26,603 622,212
Operating costs and
expenses (1):
Cost of revenues
(exclusive of
operating items shown
below) 221,659 12,974 234,633
Selling, general and
administrative
(exclusive of
operating items shown
below) 168,157 10,260 178,417
Depreciation and
amortization 18,505 4,885 23,390
Impairment of goodwill
and intangible assets
(2) 1,711 - 1,711
Restructuring and
acquisition-related
costs (3) 15,603 6,765 22,368
------ ----- ------
Total operating costs
and expenses 425,635 34,884 460,519
Income (loss) from
operations 169,974 (8,281) 161,693
Gain on investments,
net 572 - 572
Interest expense and
other, net (21,892) (2,089) (23,981)
------- ------ -------
Income before income
taxes 148,654 (10,370) 138,284
Income tax (provision)
benefit (60,955) 4,151 (56,804)
------- ----- -------
Net income (loss) $87,699 $(6,219) $81,480
======= ======= =======
EARTHLINK, INC.
Reconciliation of Net Income (Loss) to Adjusted EBITDA (5)
(in thousands, except per share data)
Three Months Ended
December 31, 2010
-----------------
EarthLink DeltaCom Consolidated
--------- -------- ------------
Net income (loss) $11,527 $(6,219) $5,308
Interest expense and
other, net 5,651 2,089 7,740
Income tax (provision)
benefit 11,842 (4,151) 7,691
Depreciation and
amortization 4,853 4,885 9,738
Stock-based
compensation expense 2,773 109 2,882
Gain on investments,
net - - -
Impairment of goodwill
and intangible assets
(2) 1,711 - 1,711
Restructuring and
acquisition-related
costs (3) 12,336 6,765 19,101
------ ----- ------
Adjusted EBITDA (5) $50,693 $3,478 $54,171
======= ====== =======
Twelve Months Ended
December 31, 2010
-----------------
EarthLink DeltaCom Consolidated
--------- -------- ------------
Net income (loss) $87,699 $(6,219) $81,480
Interest expense and
other, net 21,892 2,089 23,981
Income tax (provision)
benefit 60,955 (4,151) 56,804
Depreciation and
amortization 18,505 4,885 23,390
Stock-based
compensation expense 9,850 109 9,959
Gain on investments,
net (572) - (572)
Impairment of goodwill
and intangible assets
(2) 1,711 - 1,711
Restructuring and
acquisition-related
costs (3) 15,603 6,765 22,368
------ ----- ------
Adjusted EBITDA (5) $215,643 $3,478 $219,121
======== ====== ========
EARTHLINK, INC.
Reconciliation of Net Income (Loss) to Free Cash Flow (5)
(in thousands, except per share data)
Three Months Ended
December 31, 2010
-----------------
EarthLink DeltaCom Consolidated
--------- -------- ------------
Net income (loss) $11,527 $(6,219) $5,308
Interest expense and
other, net 5,651 2,089 7,740
Income tax (provision)
benefit 11,842 (4,151) 7,691
Depreciation and
amortization 4,853 4,885 9,738
Stock-based
compensation expense 2,773 109 2,882
Gain on investments,
net - - -
Impairment of goodwill
and intangible assets
(2) 1,711 - 1,711
Restructuring and
acquisition-related
costs (3) 12,336 6,765 19,101
Purchases of property
and equipment (4,762) (10,515) (15,277)
------ ------- -------
Free cash flow (5) $45,931 $(7,037) $38,894
======= ======= =======
Twelve Months Ended
December 31, 2010
-----------------
EarthLink DeltaCom Consolidated
--------- -------- ------------
Net income (loss) $87,699 $(6,219) $81,480
Interest expense and
other, net 21,892 2,089 23,981
Income tax (provision)
benefit 60,955 (4,151) 56,804
Depreciation and
amortization 18,505 4,885 23,390
Stock-based
compensation expense 9,850 109 9,959
Gain on investments,
net (572) - (572)
Impairment of goodwill
and intangible assets
(2) 1,711 - 1,711
Restructuring and
acquisition-related
costs (3) 15,603 6,765 22,368
Purchases of property
and equipment (13,510) (10,515) (24,025)
------- ------- -------
Free cash flow (5) $202,133 $(7,037) $195,096
======== ======= ========
EARTHLINK, INC.
Reconciliation of Net Income to Adjusted EBITDA (5)
(in thousands)
Three Months Ended
December 31,
------------------
2009 2010
---- ----
Net income $193,269 $5,308
Interest expense
and other, net 5,346 7,740
Income tax
(benefit)
provision (181,839) 7,691
Depreciation and
amortization 5,352 9,738
Stock-based
compensation
expense 2,679 2,882
Gain (loss) on
investments, net 1,626 -
Impairment of
goodwill and
intangible assets
(2) 24,145 1,711
Restructuring and
acquisition-
related costs (3) 297 19,101
--- ------
Adjusted
EBITDA (5) $50,875 $54,171
========
Twelve Months Ended December
31,
----------------------------
2009 2010
---- ----
Net income $287,118 $81,480
Interest expense
and other, net 19,804 23,981
Income tax
(benefit)
provision (126,085) 56,804
Depreciation and
amortization 23,962 23,390
Stock-based
compensation
expense 13,231 9,959
Gain (loss) on
investments, net 1,321 (572)
Impairment of
goodwill and
intangible assets
(2) 24,145 1,711
Restructuring and
acquisition-
related costs (3) 5,615 22,368
----- ------
Adjusted
EBITDA (5) $249,111 $219,121
=========
EARTHLINK, INC.
Reconciliation of Net Income to Free Cash Flow (5)
(in thousands)
Three Months Ended
December 31,
------------------
2009 2010
---- ----
Net income $193,269 $5,308
Interest expense
and other, net 5,346 7,740
Income tax
(benefit)
provision (181,839) 7,691
Depreciation and
amortization 5,352 9,738
Stock-based
compensation
expense 2,679 2,882
Gain (loss) on
investments,
net 1,626 -
Impairment of
goodwill and
intangible
assets (2) 24,145 1,711
Restructuring
and
acquisition-
related costs
(3) 297 19,101
Purchases of
property and
equipment (2,471) (15,277)
------ -------
Free cash flow
(5) $48,404 $38,894
======= =======
Twelve Months Ended
December 31,
-------------------
2009 2010
---- ----
Net income $287,118 $81,480
Interest expense
and other, net 19,804 23,981
Income tax
(benefit)
provision (126,085) 56,804
Depreciation and
amortization 23,962 23,390
Stock-based
compensation
expense 13,231 9,959
Gain (loss) on
investments,
net 1,321 (572)
Impairment of
goodwill and
intangible
assets (2) 24,145 1,711
Restructuring
and
acquisition-
related costs
(3) 5,615 22,368
Purchases of
property and
equipment (13,119) (24,025)
------- -------
Free cash flow
(5) $235,992 $195,096
======== ========
EARTHLINK, INC.
Reconciliation of Net Income to Net Income Per Share Excluding
Acquisition-Related Costs (5)
(in thousands, except per share amounts)
Three
Months Twelve Months
Ended Ended
December
31, December 31,
2010 2010
---- ----
Net income $5,308 $81,480
Acquisition-related
costs (3) 18,953 20,953
Estimated tax impact
* (2,686) (3,565)
Net income excluding
acquisition-
related costs (5) $21,575 $98,868
======= =======
Diluted per share
amount $0.19 $0.90
===== =====
* Acquisition-related costs for purposes of this reconciliation have
been reduced by an estimated tax impact. The tax impact does not
necessarily reflect the actual amount that would have resulted had
EarthLink not incurred these costs during the periods presented.
EARTHLINK, INC.
Reconciliation of Guidance Provided in Non-GAAP Measures (5)
(in millions)
Year
Ending
December
31,
2011
----
Net income $48 - $53
Interest expense
and other, net 48
Income tax
provision 31 - 36
Depreciation and
amortization 93
Stock-based
compensation
expense 16
Restructuring and
acquisition-
related costs (3) 14
---
Adjusted EBITDA (5) $250 - $260
===========
Year
Ending
December
31,
2011
----
Net income $48 - $53
Interest expense
and other, net 48
Income tax
provision 31 - 36
Depreciation and
amortization 93
Stock-based
compensation
expense 16
Restructuring and
acquisition-
related costs (3) 14
Purchases of
property and
equipment (90) - (75)
-----------
Free cash flow (5) $160 - $185
===========
EARTHLINK, INC.
Supplemental Financial Data
December
31, June 30,
2009 2010
---- ----
(in thousands)
Balance Sheet
Data
Cash and
marketable
securities $695,961 $740,100
Debt (6) 258,750 255,791
Stockholders'
equity 734,024 757,899
Employee Data
Number of
employees at
end of period
(7) 623 576
September 30, December 31,
2010 2010
---- ----
(in thousands)
Balance Sheet
Data
Cash and
marketable
securities $770,555 $563,070
Debt (6) 255,791 580,791
Stockholders'
equity 764,922 757,868
Employee Data
Number of
employees at
end of period
(7) 560 1,870
EARTHLINK, INC.
Consumer Services Operating Metrics
December 31, June 30,
2009 2010
---- ----
Consumer Subscriber
Detail
Narrowband access
subscribers 1,225,000 1,060,000
Broadband access
subscribers 804,000 748,000
------- -------
Total consumer
subscribers 2,029,000 1,808,000
========= =========
September 30, December 31,
2010 2010
---- ----
Consumer Subscriber
Detail
Narrowband access
subscribers 988,000 932,000
Broadband access
subscribers 727,000 704,000
------- -------
Total consumer
subscribers 1,715,000 1,636,000
========= =========
Three Months Ended
December 31,
------------------
2009 2010
---- ----
Consumer Subscriber
Activity
Subscribers at
beginning of period 2,161,000 1,715,000
Gross organic
subscriber additions 71,000 59,000
Adjustment (8) - -
Churn (203,000) (138,000)
Subscribers at end of
period 2,029,000 1,636,000
========= =========
Consumer Metrics
Average subscribers
(9) 2,093,000 1,675,000
ARPU (10) $20.72 $21.10
Churn rate (11) 3.2% 2.8%
Twelve Months Ended
December 31,
-------------------
2009 2010
---- ----
Consumer Subscriber
Activity
Subscribers at
beginning of period 2,643,000 2,029,000
Gross organic
subscriber additions 399,000 265,000
Adjustment (8) (7,000) -
Churn (1,006,000) (658,000)
Subscribers at end of
period 2,029,000 1,636,000
========= =========
Consumer Metrics
Average subscribers
(9) 2,310,000 1,817,000
ARPU (10) $20.76 $21.16
Churn rate (11) 3.6% 3.0%
EARTHLINK, INC.
Business Services Operating Metrics
December 31, June 30, September 30, December 31,
2009 2010 2010 2010
---- ---- ---- ----
Legacy EarthLink
Business Metrics
Narrowband access
subscribers 8,000 8,000 8,000 7,000
Broadband access
subscribers 54,000 53,000 53,000 53,000
Web hosting
accounts 75,000 70,000 68,000 66,000
ITC^DeltaCom
Business Metrics
Total fiber optic
route miles - - - 16,504
Colocations - - - 294
Voice and data
switches - - - 20
Retail voice lines - - - 414,000
Wholesale voice
lines - - - 6,000
--- --- --- -----
Total business
voice lines - - - 420,000
EARTHLINK, INC.
Supplemental Schedule of Segment Information (12)
(in thousands)
Three Months Ended December 31,
-------------------------------
2009 2010
---- ----
Consumer Services
Revenues
Access and service $113,565 $92,025
Value-added services 16,503 14,027
------ ------
Total revenues 130,068 106,052
Cost of revenues 40,517 33,500
------ ------
Gross margin 89,551 72,552
Segment operating expenses 27,577 21,382
Segment income from
operations $61,974 $51,170
======= =======
Business Services
Revenues
Access and service $33,944 $60,219
Value-added services 536 518
--- ---
Total revenues 34,480 60,737
Cost of revenues 19,224 31,100
------ ------
Gross margin 15,256 29,637
Segment operating expenses 10,336 19,821
Segment income from
operations $4,920 $9,816
====== ======
Consolidated
Revenues
Access and service $147,509 $152,244
Value-added services 17,039 14,545
------ ------
Total revenues 164,548 166,789
Cost of revenues 59,741 64,600
------ ------
Gross margin 104,807 102,189
Direct segment operating
expenses 37,913 41,203
------ ------
Segment income from
operations 66,894 60,986
Stock-based compensation
expense 2,679 2,882
Depreciation and amortization 5,352 9,738
Impairment of goodwill and
intangible assets (2) 24,145 1,711
Restructuring and
acquisition-related costs
(3) 297 19,101
Other operating expenses 16,019 6,815
Income from operations $18,402 $20,739
======= =======
Twelve Months Ended December 31,
--------------------------------
2009 2010
---- ----
Consumer Services
Revenues
Access and service $503,769 $403,174
Value-added services 71,643 58,274
------ ------
Total revenues 575,412 461,448
Cost of revenues 183,248 143,956
------- -------
Gross margin 392,164 317,492
Segment operating expenses 122,575 87,660
Segment income from
operations $269,589 $229,832
======== ========
Business Services
Revenues
Access and service $146,087 $158,677
Value-added services 2,230 2,087
----- -----
Total revenues 148,317 160,764
Cost of revenues 82,420 90,677
------ ------
Gross margin 65,897 70,087
Segment operating expenses 40,249 50,096
Segment income from
operations $25,648 $19,991
======= =======
Consolidated
Revenues
Access and service $649,856 $561,851
Value-added services 73,873 60,361
------ ------
Total revenues 723,729 622,212
Cost of revenues 265,668 234,633
------- -------
Gross margin 458,061 387,579
Direct segment operating
expenses 162,824 137,756
------- -------
Segment income from
operations 295,237 249,823
Stock-based compensation
expense 13,231 9,959
Depreciation and amortization 23,962 23,390
Impairment of goodwill and
intangible assets (2) 24,145 1,711
Restructuring and
acquisition-related costs
(3) 5,615 22,368
Other operating expenses 46,126 30,702
Income from operations $182,158 $161,693
======== ========
EARTHLINK, INC.
Footnotes to Consolidated Financial Highlights
Certain amounts in prior periods have been
reclassified to conform to the current period.
Specifically, EarthLink reclassified
1. depreciation
expense from cost of revenues and selling, general
and administrative expenses to depreciation and
amortization expense. In addition,
EarthLink combined sales and marketing, operations
and customer support and general and administrative
into selling, general and
administrative expense. EarthLink's results of
operations were not impacted by these
reclassifications.
During the fourth quarter of 2009, EarthLink
concluded that the goodwill and certain of the
intangible assets recorded as a result of its
2. April 2006
acquisition of New Edge Networks were impaired and
recorded non-cash impairment charges of $24.1
million. EarthLink concluded the carrying
value of its goodwill and certain of the intangible
assets related to the New Edge acquisition were
impaired in conjunction with its annual test of
goodwill and intangible assets deemed to have
indefinite lives as well as updating its long-term
outlook. During the fourth quarter of 2010,
EarthLink recorded a non-cash impairment charge of
$1.7 million to write-down its New Edge trade name
as a result of a strategic decision to
re-brand New Edge as EarthLink Business.
3. Restructuring and acquisition-related costs consisted of the
following for the periods presented:
Three Months
Ended
December 31,
------------
2009 2010
---- ----
(in thousands)
Transaction-
related costs $- $8,164
Stock-based
compensation - 5,742
Severance and
retention - 5,047
--- -----
Acquisition-
related costs - 18,953
Facility exit and
restructuring
costs 297 148
--- ---
Total restructuring
and acquisition-
related $297 $19,101
==== =======
Twelve Months
Ended
December 31,
------------
2009 2010
---- ----
(in thousands)
Transaction-
related costs $- $10,164
Stock-based
compensation - 5,742
Severance and
retention - 5,047
--- -----
Acquisition-
related costs - 20,953
Facility exit and
restructuring
costs 5,615 1,415
----- -----
Total restructuring
and acquisition-
related $5,615 $22,368
====== =======
Acquisition-related costs consist of external costs directly related
to EarthLink's acquisitions, such as advisory, legal, accounting,
valuation and
other professional fees. Acquisition-related costs during the year
ended December 31, 2010 also include stock-based compensation
expenses
and employee severance and benefit costs associated with EarthLink's
acquisition of ITC^DeltaCom. Stock-based compensation expense
included in acquisition-related costs resulted from cash paid to
settle stock-based awards attributable to postcombination service
in connection
with the ITC^DeltaCom acquisition. EarthLink expects to incur
approximately $5.0 million of acquisition-related costs in the
first quarter of 2011.
Facility exit and restructuring costs consist of costs incurred for
EarthLink's restructuring plans. 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.
On December 8, 2010, EarthLink completed its
acquisition of ITC^DeltaCom, a provider of
integrated communications services to
4. customers
in the southeastern U.S., in an all-cash
transaction for $3.00 per share. Under the terms
of the merger agreement, EarthLink acquired 100%
of
ITC^DeltaCom in a merger transaction with
ITC^DeltaCom surviving as a wholly-owned
subsidiary of EarthLink. The results of
operations of
ITC^DeltaCom have been included in EarthLink's
consolidated financial statements since the
acquisition date. These condensed consolidating
statements of operations are being presented for
informational purposes.
Adjusted EBITDA is defined as net income
before interest expense and other, net,
income taxes, depreciation and amortization,
5. stock-based
compensation, gain (loss) on investments, net,
impairment of goodwill and intangible assets, and
restructuring and acquisition-related 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
restructuring and acquisition-related costs,
less purchases cash used for of property and
equipment and purchases of subscriber bases. Net
income per share excluding acquisition-related
costs is defined as net income before acquisition-
related costs, including an estimated tax impact.
Adjusted EBITDA, free cash flow and net income per
share excluding acquisition-related costs 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. Management
believes that excluding the effects of the items
noted above enables investors to better
understand and analyze the current period's
results
and provides a better measure of comparability.
Debt includes the principal amount of
EarthLink's Convertible Senior Notes and
ITC^DeltaCom's Senior Secured Notes. The
6. principal amount of the
Convertible Senior Notes was $258.8 million,
$255.8 million, $255.8 million and $255.8 million
as of December 31, 2009, June 30, 2010, September
30, 2010 and December 31, 2010, respectively. The
unamortized discount was $26.5 million, $19.6
million, $16.2 million and $12.7 million as of
December 31, 2009, June 30, 2010, September 30,
2010 and December 31, 2010, respectively. The net
carrying value was $232.2 million, $236.2
million, $239.6 million and $243.1 million as of
December 31, 2009, June 30, 2010, September 30,
2010 and December 31, 2010, respectively. The
principal amount of the DeltaCom notes was $325.0
million and the carrying value was $351.3
million.
7. Represents full-time equivalents.
During the twelve months ended December 31,
2009, EarthLink removed approximately 7,000
satellite subscribers from its broadband
8. subscriber
count and total subscriber count as a result of
the sale of these subscriber accounts.
Average subscribers for the three month
periods is calculated by averaging the ending
monthly subscribers or accounts for the four
9. months
preceding and including the end of the quarterly
period. Average subscribers for the twelve month
periods is calculated by averaging the ending
monthly subscribers or accounts for the thirteen
months preceding and including the end of the
period.
ARPU represents the average monthly revenue
per user (subscriber). ARPU is computed by
dividing average monthly revenue for the
10. 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.
Churn rate is used to measure the rate at
which subscribers discontinue service on a
voluntary or involuntary basis. Churn rate
11. is computed by
dividing the average monthly number of subscribers
that discontinued service during the period by
the average subscribers for the period.
The Company reports segment information along
the same lines that its chief executive
officer reviews its operating results in
12. 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 data services,
including managed IP-based network services and
broadband Internet access services; voice
services, including local exchange, long-distance
and conference calling; mobile data and voice
services; and web hosting.
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 and
acquisition-related costs, as they are not
evaluated in the measurement of segment
performance.
SOURCE EarthLink
EarthLink
CONTACT: Investors: Louis Alterman, +1-404-748-7650, +1-678-472-3252, altermanlo@corp.earthlink.com, Media: Michele Sadwick, +1-404-748-7255, +1-404-769-8421, sadwick@corp.earthlink.com
Web Site: http://www.earthlink.net