- Revenue of $297.4 million
- Net loss of $(21.8) million and net loss of $(0.21) per share
- Adjusted EBITDA of $50.9 million
- Net cash provided by operating activities of $18.0 million
- Unlevered Free Cash Flow of $24.9 million
"I'm proud of our strong financial results we delivered this quarter," said EarthLink Chief Executive Officer and President Joseph F. Eazor. "We are intensely focused on improving our operations and cash flow generation. Our results this quarter reflect the team's good progress so far. We are still early in this process and we expect to continue to make additional run rate improvements."
Second Quarter 2014 Financial Summary
- EarthLink's total revenue for the second quarter of 2014 was $297.4 million, a decline of 5.1% from the prior year quarter. The revenue trajectory continued to show improvement versus the 6.1% year-over-year decline the company reported in the first quarter of 2014.
- Business Services revenue declined 3.7% from the second quarter of 2013, an improvement versus the 4.3% year-over-year decline reported in the first quarter of 2014. The company's sales teams continued to make progress extending the terms of contracts with existing customers.
- The Consumer Services revenue profile was aided by targeted price actions during the quarter. Consumer Services churn in the second quarter is commensurate with an increase in ARPU. We expect consumer churn to continue to moderate in future periods.
Net Loss and Adjusted EBITDA
- Net loss was $(21.8) million in the second quarter. This amount includes one-time non-cash charges of $5.4 million to record impairment of certain fixed assets. This compares to a net loss of $(11.2) million in the second quarter of 2013 and $(26.5) million in the first quarter of 2014.
- Adjusted EBITDA (a non-GAAP measure, see definition in "Non-GAAP Measures" below) was $50.9 million in the second quarter, a 2% increase from the first quarter of 2014, and a 15% decrease from the second quarter of 2013.
Balance Sheet and Cash Flow
- Net cash provided by operating activities was $18.0 million. EarthLink ended the second quarter with $98.5 million in cash. This compared to net cash provided by operating activities of $11.7 million in the second quarter of 2013 and $21.3 million in the first quarter of 2014. EarthLink made interest payments of $24.5 million during the second quarter and repurchased 0.7 million shares of common stock for $2.2 million.
- EarthLink generated Unlevered Free Cash Flow (a non-GAAP measure, see definition in "Non-GAAP Measures" below) of $24.9 million during the second quarter of 2014. This compared to Unlevered Free Cash Flow of $25.1 million in the second quarter of 2013 and $26.5 million in the first quarter of 2014.
Adjusted EBITDA is defined as net income (loss) before interest expense and other, net, income taxes, depreciation and amortization, stock-based compensation expense, impairment of goodwill and long-lived assets, restructuring, acquisition and integration-related costs, and gain (loss) from discontinued operations, net of tax. Unlevered Free Cash Flow is defined as net income (loss) before interest expense and other, net, income taxes, depreciation and amortization, stock-based compensation expense, impairment of goodwill and long-lived assets, restructuring, acquisition and integration-related costs, and gain (loss) from discontinued operations, net of tax, less cash used for purchases of property and equipment. Adjusted Net Loss is defined as net loss excluding the non-cash charge to record valuation allowance against deferred tax assets, the non-cash impairment of goodwill and estimated tax impact and the non-cash impairment of long-lived assets.
Adjusted EBITDA, Unlevered Free Cash Flow and Adjusted Net Loss are non-GAAP financial 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 measures to the most comparable measures reported in accordance with U.S. generally accepted accounting principles and Footnote 4 of the Consolidated Financial Highlights for a discussion of the presentation, comparability and use of such financial measures.
Conference Call for Analysts and Investors
EarthLink's Second Quarter 2014 Conference Call will be held on Tuesday, August 5, 2014 at 8:30 a.m. ET and hosted by EarthLink's Chief Executive Officer and President Joseph F. Eazor and Executive Vice President and Chief Financial Officer Bradley A. Ferguson.
The dial-in number is: (866) 887-3882.
Participants should reference the conference ID number 72905401 or "EarthLink Second Quarter 2014 Earnings Call" and dial in 10 minutes prior to the 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 at: http://ir.earthlink.net/.
A webcast replay will be available from 11:30 a.m. ET on August 5 through midnight on September 5, 2014. Dial toll-free: (855) 859-2056. The replay confirmation code is 72905401. The Webcast will be archived on the company's website at: http://ir.earthlink.net/events.cfm.
Download the Second Quarter 2014 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, without limitation: (1) we may not be able to execute our strategy to be a leading managed network services provider, which could adversely affect our results of operations and cash flows; (2) we may not be able to grow revenues from our growth products and services to offset declining revenues from our traditional products and services, which could adversely affect our results of operations and cash flows; (3) our failure to achieve operating efficiencies will adversely affect our results of operations; (4) as a result of our continuing review of our business, we may determine to undertake further restructuring plans that would require additional charges, including incurring facility exit and restructuring charges; (5) we may be unsuccessful integrating acquisitions into our business, which could result in operating difficulties, losses and other adverse consequences; (6) 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; (7) unfavorable general economic conditions could harm our business; (8) we may be unable to successfully identify, manage and assimilate future acquisitions, which could adversely affect our results of operations; (9) we face significant competition in the communications and IT services industry that could reduce our profitability; (10) failure to retain existing customers could adversely affect our results of operations and cash flows; (11) decisions by legislative or regulatory authorities, including 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; (12) 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; (13) our operating performance will suffer if we are not offered competitive rates for the access services we need to provide our long distance services; (14) we may experience reductions in switched access and reciprocal compensation revenue; (15) that failure to obtain and maintain necessary permits and rights-of-way could interfere with our network infrastructure and operations; (16) 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 wholesale revenue and results of operations; (17) we obtain a majority of our network equipment and software from a limited number of third-party suppliers; (18) work stoppages experienced by other communications companies on whom we rely for service could adversely impact our ability to provision and service our customers; (19) our commercial and alliance arrangements may not be renewed or may not generate expected benefits, which could adversely affect our results of operations; (20) our consumer business is dependent on the availability of third-party network service providers; (21) we face significant competition in the Internet access industry that could reduce our profitability; (22) the continued decline of our consumer access subscribers will adversely affect our results of operations; (23) potential regulation of Internet service providers could adversely affect our operations; (24) cyber security breaches could harm our business; (25) privacy concerns relating to our business could damage our reputation and deter current and potential users from using our services; (26) interruption or failure of our network, information systems or other technologies could impair our ability to provide our services, which could damage our reputation and harm our operating results; (27) our business depends on effective business support systems and processes; (28) if we, or other industry participants, are unable to successfully defend against disputes or legal actions, we could face substantial liabilities or suffer harm to our financial and operational prospects; (29) 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; (30) we may not be able to protect our intellectual property; (31) 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; (32) government regulations could adversely affect our business or force us to change our business practices; (33) our business may suffer if third parties are unable to provide services or terminate their relationships with us; (34) we may be required to recognize impairment charges on our goodwill and intangible assets, which would adversely affect our results of operations and financial position; (35) we may not realize our deferred tax assets, we may have exposure to greater than anticipated tax liabilities and we may be limited in the use of our net operating losses and certain other tax attributes in the future; (36) our indebtedness could adversely affect our financial health and limit our ability to react to changes in our industry; (37) we may require substantial capital to support business growth, and this capital may not be available to us on acceptable terms, or at all; (38) our debt agreements include restrictive covenants, and failure to comply with these covenants could trigger acceleration of payment of outstanding indebtedness or limit our ability to draw on our revolving credit facility; (39) we may reduce, or cease payment of, quarterly cash dividends; (40) our stock price may be volatile; (41) provisions of our certificate of incorporation, bylaws and other elements of our capital structure could limit our share price and delay a change of control of the company; and (42) our bylaws designate the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders' flexibility in obtaining a judicial forum for disputes with us or our directors, officers or employees. 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, 2013.
Founded in 1994, EarthLink Holdings Corp. (NASDAQ: ELNK) is a leading managed network and cloud services provider, empowering businesses with a fully-managed, end-to-end communications, IT and virtualization portfolio including cloud computing, IT security, colocation, enterprise-class hosted applications and IT support services. EarthLink operates an over 28,000 fiber route mile network, with 90 metro fiber rings and 8 secure data centers providing ubiquitous nationwide data and voice IP service coverage. EarthLink's service and product innovation enables the company to design scalable solutions specific to each client's IT needs, supported by an experienced customer care team. The company also offers award-winning high-speed, wireless and dial-up Internet services to residential customers across the U.S. For more information, visit www.earthlinkbusiness.com or follow @EarthLinkBiz.