EARTHLINK ANNOUNCES FOURTH QUARTER AND FULL YEAR 2011 RESULTS|
ATLANTA — February 16, 2012 — EarthLink, Inc. (NASDAQ: ELNK) today announced financial results for its fourth quarter and full year ended December 31, 2011.
Highlights for the fourth quarter include:
- Net income of $4.2 million or $0.04 per share
- Adjusted EBITDA (a non-GAAP measure) of $81.6 million
- Operating cash flow (a non-GAAP measure) of $50.6 million
- Ending cash and marketable securities balance of $241.4 million
"We have made significant progress in EarthLink's continuing transformation to an enterprise IT services company," said EarthLink Chairman and Chief Executive Officer Rolla P. Huff. "During the fourth quarter, we again delivered solid Adjusted EBITDA and operating cash flow, while continuing to execute on our integration plans. In December, we launched our EarthLink Complete nationwide data, cloud based security, and hosted voice offering. In 2012 we intend to further expand our IT cloud services. We believe we are on a trajectory to show quarterly sequential growth in our business segment revenues as we exit this year."
Financial and Operating Results
EarthLink reported revenue of $350.2 million in the fourth quarter and $1.31 billion for the full year 2011, more than doubling from both the fourth quarter of 2010 and the full year 2010 due to the acquisitions of ITC^Deltacom, One Communications and five IT services companies since December 2010. Business services segment revenue comprised 75% of EarthLink's revenue in the fourth quarter of 2011, up from 36% in the year-ago quarter reflecting the company's acquisitions which are included in the business services segment. EarthLink's consumer segment continues to perform well, with broadband services comprising 66% of consumer access revenue in the fourth quarter of 2011, as compared to 63% in the year ago quarter. Subscriber churn in the consumer segment was 2.6% for the fourth quarter of 2011, as compared to 2.7% in the third quarter of 2011 and 2.8% in the fourth quarter of 2010.
EarthLink's selling, general and administrative expenses were $110.6 million or 32% of revenue for the fourth quarter of 2011 and $406.4 million or 31% of revenue for the full year 2011. This compares to expenses of $50.9 million, or 31% of revenue in the fourth quarter of 2010, and $178.4 million, or 29% of revenue for full year 2010.
Profitability and Other Financial Measures
Net income was $4.2 million, or $0.04 per share, in the fourth quarter of 2011 and $34.6 million, or $0.32 per share, for the full year 2011. These compared to net income of $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.
EarthLink generated Adjusted EBITDA (a non-GAAP measure, see definition in "Non-GAAP Measures" below) of $81.6 million in the fourth quarter of 2011 and $330.7 million for the full year 2011. This compares to Adjusted EBITDA of $54.2 million for the fourth quarter 2010 and $219.1 million for the full year 2010.
Balance Sheet and Cash Flow
EarthLink generated operating cash flow (a non-GAAP measure, see definition in "Non-GAAP Measures" below) of $50.6 million during the fourth quarter of 2011 and $228.8 million for the full year 2011, compared to $38.9 million in the fourth quarter of 2010 and $195.1 million in the full year 2010.
As of December 31, 2011, the company reported cash and marketable securities of $241.4 million. Capital expenditures were $31.0 million for the fourth quarter of 2011 and $102.0 million for the full year 2011. During the fourth quarter of 2011, the company redeemed $260.0 million of convertible notes, including $255.8 million of principal and $4.2 million of accrued interest. Additionally, the company made $5.6 million of dividend payments to shareholders in the fourth quarter for a total of $22.9 million of dividend payments to shareholders during the full year 2011. EarthLink repurchased 1.3 million shares of common stock at an average price of $6.31 per share in the fourth quarter, and repurchased a total of 6.3 million shares of common stock at an average price of $7.40 per share for the full year 2011.
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 2012. Management expects Adjusted EBITDA of $285 million to $295 million; operating cash flow of $150 million to $180 million; capital expenditures of $115 million to $135 million; and net income of $3 million to $10 million for the full year 2012.
Adjusted EBITDA is defined as net income before interest expense and other, net, income taxes, depreciation and amortization, stock-based compensation expense, impairment of goodwill and intangible assets, and restructuring and acquisition-related costs. Operating cash flow is defined as net income before interest expense and other, net, income taxes, depreciation and amortization, stock-based compensation expense, impairment of goodwill and intangible assets, and restructuring and acquisition-related costs, less cash used for purchases of property and equipment.
Adjusted EBITDA and operating cash flow are non-GAAP financial performance measures. They should not be considered in isolation or as an alternative to measures determined in accordance with U.S. generally accepted accounting principles. Please refer to the Consolidated Financial Highlights for a reconciliation of these non-GAAP financial performance measures to the most comparable measures reported in accordance with U.S. generally accepted accounting principles and Footnote 3 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
Thursday, February 16, 2012, at 8:30 a.m. ET hosted by EarthLink's Chairman and Chief Executive Officer Rolla P. Huff, President and Chief Operating Officer Joseph M. Wetzel, and Chief Financial Officer Bradley A. Ferguson.
U.S. and Canada Dial-in Number 800-706-0730
International Dial-in Number 706-634-5173
Participants reference the EarthLink call and dial in 10 minutes prior to scheduled start time.
A live Webcast of the conference call will be available at: http://ir.earthlink.net/
An investor presentation to accompany the conference call and webcast will be available
Replay available from 11:30 a.m. ET on February 16 through midnight on March 1, 2012.
To access the replay, dial toll-free 855-859-2056 and enter confirmation code 47527459.
The Webcast will be archived on the company's website at: http://ir.earthlink.net/events.cfm
Download the Fourth Quarter 2011 Financial Statements
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 (1) that we may not be able to execute our strategy to grow our business services revenue, which could adversely impact our results of operations and cash flows; (2) that we may be unsuccessful integrating acquisitions into our business, which could result in operating difficulties, losses and other adverse consequences; (3) that we may be unable to successfully identify, manage and assimilate future acquisitions, which could adversely affect our results of operations; (4) that if we are unable to adapt to changes in technology and customer demands, we may not remain competitive, and our revenues and operating results could suffer; (5) that our failure to achieve operating efficiencies will adversely affect our results of operations; (6) that unfavorable general economic conditions could harm our business; (7) that we face significant competition in the communications and managed IT services industry that could reduce our profitability; (8) that decisions by the Federal Communications Commission relieving incumbent carriers of certain regulatory requirements, and possible further deregulation in the future, may restrict our ability to provide services and may increase the costs we incur to provide these services; (9) that if we are unable to interconnect with AT&T, Verizon and other incumbent carriers on acceptable terms, our ability to offer competitively priced local telephone services will be adversely affected; (10) that our operating performance will suffer if we are not offered competitive rates for the access services we need to provide our long distance services; (11) that we may experience reductions in switched access and reciprocal compensation revenue; (12) that failure to obtain and maintain necessary permits and rights-of-way could interfere with our network infrastructure and operations; (13) that our rights to use the fiber that makes up our network may be affected by the financial health of, or disputes with, our fiber providers; (14) that we have substantial business relationships with several large telecommunications carriers, and some of our customer agreements may not continue due to financial difficulty, acquisitions, non-renewal, or other factors, which could adversely affect our revenue and results of operations; (15) that our commercial and alliance arrangements may not be renewed or may not generate expected benefits, which could adversely affect our results of operations; (16) that our consumer business is dependent on the availability of third-party network service providers; (17) that we face significant competition in the Internet industry that could reduce our profitability; (18) that the continued decline of our consumer access subscribers, combined with the change in mix of our consumer access base from narrowband to broadband, will adversely affect our results of operations; (19) that potential regulation of Internet service providers could adversely affect our operations; (20) that we may be unable to hire and retain sufficient qualified personnel, and the loss of any of our key executive officers could adversely affect us; (21) that privacy concerns relating to our business could damage our reputation and deter current and potential users from using our services; (22) that security breaches could damage our reputation and harm our operating results; (23) 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; (24) that our business depends on effective business support systems and processes; (25) that government regulations could adversely affect our business or force us to change our business practices; (26) that our business may suffer if third parties are unable to provide services or terminate their relationships with us; (27) that we may not be able to protect our intellectual property; (28) 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; (29) that if we, or other industry participants, are unable to successfully defend against legal actions, we could face substantial liabilities or suffer harm to our financial and operational prospects; (30) 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; (31) 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; (32) that our indebtedness could adversely affect our financial health and limit our ability to react to changes in our industry; (33) that we may require additional capital to support business growth, and this capital may not be available to us on acceptable terms, or at all; (34) that we may reduce, or cease payment of, quarterly cash dividends; (35) that our stock price may be volatile; and (36) that provisions of our third 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, 2010 and subsequent filings with the SEC.
About EarthLinkClick Here To Print This Press Release
EarthLink, Inc. (NASDAQ: ELNK) is a leading IT services and communications provider to more than 150,000 businesses and one million consumers nationwide. EarthLink empowers customers with managed services including cloud computing, managed and private cloud, and virtualization services such as managed hosting and cloud workspace. EarthLink also offers a robust portfolio of IT security, application hosting, colocation and IT support services. The company operates an extensive network spanning 29,421 route fiber miles with 90 metro fiber rings and 8 secure data centers providing ubiquitous nationwide data and voice IP service coverage across more than 90 percent of the country. Founded in 1994, EarthLink's award-winning reputation for outstanding service and product innovation is supported by an experienced team of professionals focused on best-in-class customer care. For more information, visit EarthLink's website at www.earthlink.net.