Raises Full Year Guidance
- Net income of $28.0 million or $0.26 per share
- Adjusted EBITDA (a non-GAAP measure) of $56.7 million
- Free cash flow (a non-GAAP measure) of $54.0 million
- Ending cash and marketable securities balance of $740.1 million
- Raised full year 2010 Adjusted EBITDA (a non-GAAP measure) guidance to $205 million to $211 million
- Dividend payments totaling $17.3 million and stock repurchases totaling $0.9 million in the quarter
"Today we announced results that once again exceeded expectations and reflect positive momentum in our business. We are pleased with the improvements in customer retention and tenure and the resulting favorable impacts on cost structure and profitability. As a result of these favorable trends, we also announced that we have once again increased full-year guidance," explained EarthLink Chairman and Chief Executive Officer Rolla P. Huff. "In addition, we began to see sales traction in our New Edge business from multi-location business customers as the economy is showing signs of recovery. We believe that the strength of our balance sheet continues to provide us with a range of strategic alternatives."
Financial and Operating Results
EarthLink reported revenue of $153.0 million for the second quarter of 2010, declining 3 percent from the first quarter of 2010 and 18 percent from the second quarter of 2009. The company's revenue mix continued to shift towards broadband as 60 percent of EarthLink's revenue in the second quarter of 2010 was comprised of broadband, up from 56 percent in the year-ago quarter.
In the second quarter of 2010, 88 percent of EarthLink's consumer narrowband and DSL customers had two or more years of tenure with the company and 50 percent had five or more years of tenure, up from 76 percent and 36 percent, respectively, in the year-ago quarter. The continual increase in EarthLink's customer tenure was the primary driver behind ongoing improvements in monthly subscriber churn. In the second quarter of 2010, EarthLink reported churn of 2.9 percent, an improvement from 3.1 percent in the first quarter of 2010 and from 3.6 percent churn in the year-ago quarter. EarthLink's subscriber losses continued to attenuate with second quarter 2010 net subscriber losses of 109,000, as compared to net subscriber losses of 118,000 in the first quarter of 2010 and 149,000 in the year-ago quarter.
The benefits of increasing customer tenure extend to the company's cost structure, which was also positively impacted by new technology rollouts, product simplifications and customer support process improvements. EarthLink's total sales and marketing, operations, customer support, and general and administrative expenses were $43.3 million for the second quarter of 2010, a 5 percent reduction from the first quarter of 2010 and a 21 percent reduction from expenses in the year-ago quarter.
Profitability and Other Financial Measures
For the second quarter of 2010, EarthLink's net income was $28.0 million, or $0.26 per share, as compared to net income of $26.7 million, or $0.25 per share in the first quarter of 2010 and $31.5 million, or $0.29 per share, in the year-ago quarter.
Multiple business improvements, including those in customer churn, network management and value-added services revenue contributed to $56.7 million in Adjusted EBITDA (a non-GAAP measure, see definition in "Non-GAAP Measures" below) in the second quarter of 2010. EarthLink's Adjusted EBITDA was $57.3 million in the first quarter of 2010 and $68.5 million in the second quarter of 2009.
Balance Sheet and Cash Flow
EarthLink generated free cash flow (a non-GAAP measure, see definition in "Non-GAAP Measures" below) of $54.0 million during the second quarter of 2010, compared to $54.2 million in the first quarter of 2010 and $66.6 million in the second quarter of 2009.
Capital expenditures for the company were $2.7 million in the second quarter of 2010. EarthLink made $17.3 million of dividend payments in the quarter and repurchased 0.1 million shares of common stock for $0.85 million. EarthLink ended the second quarter of 2010 with $740.1 million in cash and marketable securities.
The following statements are forward-looking, and actual results may differ materially. See comments under "Cautionary Information Regarding Forward-Looking Statements" below. EarthLink undertakes no obligation to update these statements.
Today EarthLink increased its guidance for the full year 2010. Management now expects 2010 Adjusted EBITDA of $205 million to $211 million; free cash flow of $191 million to $201 million, based upon the aforementioned Adjusted EBITDA guidance combined with $10 million to $14 million in estimated capital expenditures; and net income of $91 million to $97 million for the full year 2010.
Adjusted EBITDA is defined as net income before interest expense and other, net, income taxes, depreciation and amortization, stock-based compensation expense, gain (loss) on investments, net, impairment of goodwill and intangible assets, and facility exit and restructuring costs.
Free cash flow is defined as net income before interest expense and other, net, income taxes, depreciation and amortization, stock-based compensation expense, gain (loss) on investments, net, impairment of goodwill and intangible assets, and facility exit and restructuring costs, less cash used for purchases of property and equipment and purchases of subscriber bases.
Adjusted EBITDA and free cash flow are non-GAAP financial performance measures. They should not be considered in isolation or as an alternative to measures determined in accordance with U.S. generally accepted accounting principles. Please refer to the Consolidated Financial Highlights for a reconciliation of these non-GAAP financial performance measures to the most comparable measures reported in accordance with U.S. generally accepted accounting principles and Footnote 2 of the Consolidated Financial Highlights for a discussion of the presentation, comparability and use of such financial performance measures.
Conference Call for Analysts and Investors
Conference Call Details
Tuesday, July 27, 2010, at 8:30 a.m. ET hosted by EarthLink's Chairman and Chief Executive Officer, Rolla P. Huff and Chief Financial Officer, Bradley A. Ferguson.
U.S. and Canada Dial-in Number 800-706-0730
International Dial-in Number 706-634-5173
Participants reference the EarthLink call and dial in 10 minutes prior to scheduled start time.
A live Webcast of the conference call will be available at: http://ir.earthlink.net/index.cfm
Replay available from 11:30 a.m. ET on July 27 through midnight on August 3.
Dial 800-642-1687 from US and Canada, International callers dial 706-645-9291.
The replay confirmation code is 86028688.
The Webcast will be archived on the company's website at: http://ir.earthlink.net/events.cfm
Download the Second Quarter 2010 Financial Statements
"EarthLink. We revolve around you™." As the nation's Internet expert, Atlanta-based EarthLink has earned an award-winning reputation for outstanding customer service and its suite of online products and services. Serving millions of subscribers, EarthLink offers what every user should expect from their ISP: high-quality connectivity, minimal online intrusions and customizable features. Whether it's dial up, high-speed Internet services like DSL and cable Internet, home phone service, Web hosting, or "EarthLink Extras" like home networking or security, EarthLink connects people to the power and possibilities of the Internet. Learn more about EarthLink by calling (800) EARTHLINK or visiting EarthLink's Web site at www.EarthLink.net.