HUNTSVILLE, Ala., Nov. 15, 2010 /PRNewswire-FirstCall/ — ITC^DeltaCom, Inc. (OTC Bulletin Board: ITCD), a leading provider of integrated communications services to customers in the southeastern United States, today announced its operating and financial results for the quarter ended September 30, 2010. These results are following the October 1, 2010 announcement of the definitive agreement for purchase of ITC^DeltaCom by EarthLink, Inc.
For the quarter ended September 30, 2010, ITC^DeltaCom reported total operating revenues of $110.9 million, net loss of $4.7 million, and adjusted EBITDA* of $21.8 million.
“Our third quarter results reflect the strengthening operational momentum we are seeing in the business in response to the investments we have been making to build a company with sustainable revenue growth,” said Randall E. Curran, ITC^DeltaCom’s Chief Executive Officer. “Our current operational trajectory backed by the scale and resources of EarthLink will drive increased value for all our stakeholders.”
Among its operating highlights for the third quarter, ITC^DeltaCom:
- recorded operating income of $7.0 million compared to $5.3 million for the third quarter of 2009, and a net loss of $4.7 million compared to a net loss of $2.1 million for the third quarter of 2009;
- recorded adjusted EBITDA* of $21.8 million, a 5.6% decrease from $23.1 million for the third quarter of 2009;
- recorded an increase of 0.02% in total operating revenues over the second quarter of 2010, which was a decrease in total operating revenues of $5.5 million, or 4.7%, compared to the third quarter of 2009;
- continued to derive benefit from investments in process redesign and other efficiency gains, resulting in selling, operations and administration expense of $38.7 million compared to $41.4 million for the third quarter of 2009;
- generated $20.2 million in net cash provided by operating activities, compared to $14.6 million generated for the third quarter of 2009; and
- generated adjusted unlevered free cash flow** of $7.0 million, which decreased from $12.8 million in the third quarter of 2009 as the result of an increase in capital expenditures of $4.5 million and a decrease of $1.3 million in adjusted EBITDA in third quarter 2010.
“Total revenue for the third quarter of $110.9 million represents the best sequential quarterly result since second quarter of 2008,” said Richard E. Fish, ITC^DeltaCom’s Chief Financial Officer. “The combination of Deltacom with EarthLink creates a company with the financial strength and national presence necessary to compete and win in today’s marketplace.”
A supplemental presentation of information complementary to the information presented in this release is available on our Investors page at www.deltacom.com.
*Adjusted EBITDA is defined by ITC^DeltaCom as net income (loss) before interest income and expense, net, provision for income taxes, depreciation and amortization, stock-based compensation, non-cash loss on extinguishment of debt, write-off of debt discount and issuance cost, prepayment penalties on debt, equity commitment fees, restructuring expenses, merger-related expenses, asset impairment loss and other income or loss, all as disclosed in the consolidated statements of operations and comprehensive loss. Adjusted EBITDA is not a measurement of financial performance under generally accepted accounting principles. For information about management’s reasons for providing data with respect to adjusted EBITDA, the limitations associated with the use of adjusted EBITDA and a quantitative reconciliation of adjusted EBITDA to net income (loss), as net income (loss) is calculated in accordance with generally accepted accounting principles, see the accompanying tables captioned “Adjusted EBITDA Reconciliation.”
**Adjusted unlevered free cash flow is defined by ITC^DeltaCom as adjusted EBITDA (as defined above) less capital expenditures (including equipment purchased through capital leases) and changes in accounts payable – construction, all as disclosed in the consolidated statements of cash flows. Adjusted unlevered free cash flow is not a measurement of financial performance under generally accepted accounting principles. For information about management’s reasons for providing data with respect to adjusted unlevered free cash flow, the limitations associated with the use of adjusted unlevered free cash flow, and a quantitative reconciliation of adjusted unlevered free cash flow to net cash provided by operating activities, as net cash provided by operating activities is calculated in accordance with generally accepted accounting principles, see the accompanying tables captioned “Adjusted Unlevered Free Cash Flow Reconciliation.”
ABOUT ITC^DELTACOM, INC.
ITC^DeltaCom, Inc., headquartered in Huntsville, Alabama, provides, through its operating subsidiaries, integrated telecommunications and technology services to businesses and other communications providers in the southeastern United States. ITC^DeltaCom has a fiber optic network spanning approximately 12,483 route miles, and offers a comprehensive suite of data and voice communications services, including high-speed or broadband data communications (which consist of Ethernet and Internet access connectivity), local exchange, long-distance and conference calling, and mobile data and voice services. ITC^DeltaCom is one of the largest competitive telecommunications providers in its primary eight-state region. For more information about ITC^DeltaCom, visit ITC^DeltaCom’s web site at http://www.deltacom.com.
FORWARD-LOOKING STATEMENTS
Except for the historical and present factual information contained herein, this release contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. When used in this release, the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan” and similar expressions as they relate to ITC^DeltaCom, Inc. or its management are intended to identify these forward-looking statements. All statements by the Company regarding its expected financial position, revenues, liquidity, cash flow and other operating results, balance sheet improvement, business strategy, financing plans, forecasted trends related to the markets in which it operates, legal proceedings and similar matters are forward-looking statements. The Company’s actual results could be materially different from its expectations because of various risks. These risks, some of which are discussed under the caption “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009, and in the Company’s subsequent SEC filings, include the Company’s dependence on new product development, rapid technological and market changes, the Company’s dependence upon rights of way and other third-party agreements, debt service and other cash requirements, liquidity constraints and risks related to future growth and rapid expansion. Other important risk factors that could cause actual events or results to differ from those contained or implied in the forward-looking statements include, without limitation, customer attrition, delays or difficulties in deployment and implementation of colocation arrangements and facilities, appeals of or failures by third parties to comply with rulings of governmental entities, inability to meet installation schedules, general economic and business conditions, failure to maintain underlying service/vendor arrangements, competition, adverse changes in the regulatory or legislative environment, and various other factors beyond the Company’s control. The aforementioned risks also include those related to the pending acquisition of our company by EarthLink, Inc., including but not limited to our ability to obtain required regulatory approvals and to consummate the transaction. ITC^DeltaCom disclaims any responsibility to update these forward-looking statements.
| ITC^DeltaCom, Inc.
Financial Highlights (In thousands, except share and per share data) |
|||||
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||
| 2010 | 2009 | 2010 | 2009 | ||
| OPERATING REVENUES: | |||||
| Integrated communications services | $ 90,118 | $ 97,668 | $ 274,523 | $ 299,797 | |
| Wholesale services | 16,330 | 14,564 | 45,900 | 44,807 | |
| Equipment sales and related services | 4,472 | 4,167 | 12,537 | 12,373 | |
| TOTAL OPERATING REVENUES | 110,920 | 116,399 | 332,960 | 356,977 | |
| COSTS AND EXPENSES: | |||||
| Cost of services and equipment, excluding depreciation and amortization | 51,391 | 52,627 | 148,170 | 163,731 | |
| Selling, operations and administration | 38,670 | 41,378 | 118,744 | 126,865 | |
| Depreciation and amortization | 13,810 | 17,110 | 42,280 | 51,245 | |
| Total operating expenses | 103,871 | 111,115 | 309,194 | 341,841 | |
| OPERATING INCOME | 7,049 | 5,284 | 23,766 | 15,136 | |
| OTHER (EXPENSE) INCOME: | |||||
| Interest expense | (9,644) | (7,453) | (22,869) | (22,544) | |
| Interest income | 11 | 9 | 22 | 38 | |
| Write-off of debt discount and issuance cost | — | — | (7,948) | — | |
| Other income (expense) | (50) | 43 | 268 | (89) | |
| Merger cost | (2,064) | — | (2,064) | — | |
| Total other expense, net | (11,747) | (7,401) | (32,591) | (22,595) | |
| LOSS BEFORE INCOME TAXES | (4,698) | (2,117) | (8,825) | (7,459) | |
| INCOME TAX EXPENSE | — | — | — | — | |
| NET LOSS | $ (4,698) | $ (2,117) | $ (8,825) | $ (7,459) | |
| BASIC AND DILUTED NET LOSS PER COMMON SHARE | $ (0.06) | $ (0.03) | $ (0.11) | $ (0.09) | |
| BASIC AND DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING | 83,660,985 | 81,136,456 | 83,031,819 | 80,987,101 | |
| COMPREHENSIVE INCOME (LOSS) | |||||
| NET LOSS | $ (4,698) | $ (2,117) | $ (8,825) | $ (7,459) | |
| OTHER COMPREHENSIVE INCOME (LOSS) | |||||
| Change in unrealized gains on derivative instrument designated as cash flow hedging instrument, net of tax | — | 2,275 | — | 5,610 | |
| COMPREHENSIVE INCOME (LOSS) | $ (4,698) | $ 158 | $ (8,825) | $ (1,849) | |
| ITC^DeltaCom, Inc.
Quarterly Highlights (Unaudited) (In thousands) |
||||||
| Three Months Ended | ||||||
| Sept 30, 2010 |
June 30, 2010 |
March 31, 2010 |
Dec 31, 2009 |
Sept 30, 2009 |
||
| Integrated communications services revenues: | ||||||
| Long distance and access | $ 14,263 | $ 14,015 | $ 14,153 | $ 14,007 | $ 15,375 | |
| Business local, data and internet | 75,855 | 77,272 | 78,965 | 80,352 | 82,293 | |
| Total integrated communications services revenues | 90,118 | 91,287 | 93,118 | 94,359 | 97,668 | |
| Wholesale services revenues: | ||||||
| Broadband transport | 14,265 | 13,046 | 11,917 | 12,327 | 12,284 | |
| Local interconnection | 70 | 93 | 120 | 127 | 181 | |
| Directory assistance and operator services | 1,000 | 964 | 919 | 925 | 986 | |
| Other | 995 | 1,178 | 1,333 | 1,215 | 1,113 | |
| Total wholesale services revenues | 16,330 | 15,281 | 14,289 | 14,594 | 14,564 | |
| Equipment sales and related services revenues | 4,472 | 4,332 | 3,733 | 3,394 | 4,167 | |
| Total operating revenues | 110,920 | 110,900 | 111,140 | 112,347 | 116,399 | |
| COSTS AND EXPENSES: | ||||||
| Cost of services and equipment, excluding depreciation and amortization | 51,391 | 47,634 | 49,144 | 48,899 | 52,627 | |
| Selling, operations and administration expense | 38,670 | 39,974 | 40,100 | 44,714 | 41,378 | |
| Depreciation and amortization | 13,810 | 13,648 | 14,822 | 17,819 | 17,110 | |
| Total operating expenses | 103,871 | 101,256 | 104,066 | 111,432 | 111,115 | |
| OPERATING INCOME | $ 7,049 | $ 9,644 | $ 7,074 | $ 915 | $ 5,284 | |
| ITC^DeltaCom, Inc.
Balance Sheet and Other Financial Highlights (In thousands) |
|||
| Balance Sheet Data (at period end): | September 30, 2010 | December 31, 2009 | |
| (Unaudited) | |||
| Cash and cash equivalents (unrestricted) | $ 81,798 | $ 67,786 | |
| Working capital | 43,106 | 40,371 | |
| Total assets | 385,932 | 368,494 | |
| Long-term liabilities | 320,271 | 303,747 | |
| Stockholders’ deficit | (26,173) | (16,724) | |
| Total liabilities and stockholders’ deficit | 385,932 | 368,494 | |
| Three Months Ended | ||||||
| Sept 30, 2010 |
June 30, 2010 |
March 31, 2010 |
Dec. 31, 2009 |
Sept 30, 2009 |
||
| Other Financial Data: | ||||||
| (Unaudited) | ||||||
| Capital expenditures(1) | $ 14,768 | $ 18,589 | $ 11,217 | $ 24,570 | $ 10,315 | |
| Cash flows (used in) provided by: | ||||||
| Operating activities | 20,173 | 19,959 | 19,039 | 15,579 | 14,622 | |
| Investing activities | (14,605) | (18,321) | (10,266) | (24,693) | (10,385) | |
| Financing activities | (315) | 1,033 | (2,685) | (573) | (576) | |
| Adjusted EBITDA(2) | 21,755 | 23,475 | 22,830 | 19,936 | 23,094 | |
| Adjusted unlevered free cash flow(3) | 6,987 | 4,886 | 11,613 | (4,634) | 12,779 | |
| ITC^DeltaCom, Inc.
Balance Sheet and Other Financial Highlights (continued) (In thousands) |
|
| Notes: | |
| (1.) Includes equipment purchased through capital leases and changes in accrued capital related costs. | |
| (2.) Adjusted EBITDA is defined by ITC^DeltaCom as net income (loss) before interest income and expense, net, provision for income taxes, depreciation and amortization, stock-based compensation, non-cash loss on extinguishment of debt, write-off of debt discount and issuance cost, prepayment penalties on debt, equity commitment fees, restructuring expenses, merger-related expenses, asset impairment loss and other income or loss, all as disclosed in the consolidated statements of operations and comprehensive loss. Adjusted EBITDA is not a measurement of financial performance under generally accepted accounting principles. For information about management’s reasons for providing data with respect to adjusted EBITDA and a quantitative reconciliation of adjusted EBITDA to net income (loss), as net income (loss) is calculated in accordance with generally accepted accounting principles, see the accompanying tables captioned “Adjusted EBITDA Reconciliation.” | |
| (3.) Adjusted unlevered free cash flow is defined by ITC^DeltaCom as adjusted EBITDA, as defined above in Note (2), less capital expenditures (including equipment purchased through capital leases) and changes in accounts payable–construction, all as disclosed in the consolidated statements of cash flows. Adjusted unlevered free cash flow is not a measurement of financial performance under generally accepted accounting principles. For information about management’s reasons for providing data with respect to adjusted unlevered free cash flow and for a quantitative reconciliation of adjusted unlevered free cash flow to net cash provided by operating activities, as net cash provided by operating activities is calculated in accordance with generally accepted accounting principles, see the accompanying tables captioned “Adjusted Unlevered Free Cash Flow Reconciliation.” | |
| ITC^DeltaCom, Inc.
Adjusted EBITDA Reconciliation (In thousands) (Unaudited) |
|
Adjusted EBITDA is defined by ITC^DeltaCom as net income (loss) before interest income and expense, net, provision for income taxes, depreciation and amortization, stock-based compensation, non-cash loss on extinguishment of debt, write-off of debt discount and issuance cost, prepayment penalties on debt, equity commitment fees, restructuring expenses, merger-related expenses, asset impairment loss and other income or loss, all as disclosed in the consolidated statements of operations and comprehensive loss. Not all of these adjustments are applicable in every period. Adjusted EBITDA is not a financial measurement under generally accepted accounting principles (“GAAP”).See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Overview—Adjusted EBITDA” in our Annual Report on Form 10-K for our 2009 fiscal year for additional information regarding management’s reasons for including adjusted EBITDA data and for material limitations with respect to the usefulness of this measure. The following tables present adjusted EBITDA amounts for the fiscal quarters indicated and also sets forth a quantitative reconciliation of adjusted EBITDA to net income (loss), as net income (loss) is calculated in accordance with GAAP (in thousands):
| Three Months Ended | |||||||
| Sept 30, 2010 |
June 30, 2010 |
March 31, 2010 |
Dec. 31, 2009 |
Sept 30, 2009 |
|||
| (Unaudited) | |||||||
| Net income (loss) | $ (4,698) | $ (6,516) | $ 2,389 | $ (3,516) | $ (2,117) | ||
| Add: non-EBITDA items included in net income (loss): | |||||||
| Interest (income) and expense, net | 9,633 | 8,379 | 4,837 | 4,889 | 7,444 | ||
| Depreciation and amortization | 13,810 | 13,648 | 14,822 | 17,819 | 17,110 | ||
| Stock-based compensation | 896 | 183 | 934 | 1,202 | 700 | ||
| Write-off of debt discount and issuance cost | — | 7,948 | — | — | — | ||
| Other (income) loss | 50 | (167) | (152) | (458) | (43) | ||
| Merger cost | 2,064 | — | — | — | — | ||
| Adjusted EBITDA | $ 21,755 | $ 23,475 | $ 22,830 | $19,936 | $ 23,094 | ||
| ITC^DeltaCom, Inc.
Adjusted Unlevered Free Cash Flow Reconciliation (In thousands) (Unaudited) |
|
Adjusted unlevered free cash flow is defined by ITC^DeltaCom as adjusted EBITDA (as defined above) less capital expenditures (including equipment purchased through capital leases) and changes in accounts payable–construction, all as disclosed in the consolidated statements of cash flows. Adjusted unlevered free cash flow is not a measurement of financial performance under GAAP. ITC^DeltaCom has included data with respect to adjusted unlevered free cash flow because its management considers adjusted unlevered free cash flow to be a useful, supplemental indicator of its operating performance. When measured over time, adjusted unlevered free cash flow provides supplemental information to investors concerning the growth rate in ITC^DeltaCom’s operating results and its ability to generate cash flows to satisfy mandatory debt service requirements and make other mandatory, non-discretionary expenditures. ITC^DeltaCom’s management believes that consideration of adjusted unlevered free cash flow should be supplemental, however, because adjusted unlevered free cash flow has limitations as an analytical financial measure, including the following:
- adjusted unlevered free cash flow does not reflect ITC^DeltaCom’s cash expenditures for changes in current operating assets and liabilities;
- adjusted unlevered free cash flow does not reflect ITC^DeltaCom’s cash expenditures for interest expense or accrued restructuring and merger costs, prepayment penalties on debt paid in cash, equity commitment fees, changes in restricted cash balances, or proceeds from sales of fixed assets;
- ITC^DeltaCom does not pay income taxes due to net operating losses and, therefore, generates greater adjusted unlevered free cash flow than a comparable business that does pay income taxes; and
- adjusted unlevered free cash flow may be calculated in a different manner by other companies in ITC^DeltaCom’s industry, which limits its usefulness as a comparative measure.
ITC^DeltaCom’s management compensates for these limitations by relying primarily on ITC^DeltaCom’s results under GAAP to evaluate its operating performance and by considering independently the economic effects of the foregoing items that are not reflected in adjusted unlevered free cash flow. As a result of these limitations, adjusted unlevered free cash flow should not be considered as a measure of liquidity nor as an alternative to net cash provided by operating activities, cash used in investing activities, cash provided by (used in) financing activities or change in cash and cash equivalents, as calculated in accordance with GAAP. The following tables present adjusted unlevered free cash flow amounts for the fiscal quarters indicated and also set forth a quantitative reconciliation of adjusted unlevered free cash flow to net cash provided by operating activities, as net cash provided by operating activities is calculated in accordance with GAAP (in thousands):
| Three Months Ended | ||||||
| Sept 30, 2010 |
June 30, 2010 |
March 31, 2010 |
Dec. 31, 2009 |
Sept 30, 2009 |
||
| (Unaudited) | ||||||
| Net cash provided by operating activities | $ 20,173 | $ 19,959 | $ 19,039 | $ 15,579 | $ 14,622 | |
| Adjustments to reconcile adjusted unlevered free cash flow to net cash provided by operating activities | ||||||
| Elements included in net cash provided by (used in) operating activities not included in adjusted unlevered free cash flow: | ||||||
| Total changes in current operating assets and liabilities | (8,508) | (3,207) | 459 | 1,369 | 2,858 | |
| Provision for bad debts | (795) | (950) | (925) | (1,300) | (1,225) | |
| Interest expense excluding interest paid in kind and in common stock, and amortization of debt issuance costs and debt discount, net of interest income | 8,923 | 7,673 | 4,236 | 4,288 | 6,839 | |
| Other (income) loss | (102) | — | 21 | — | — | |
| Merger cost | 2,064 | — | — | — | — | |
| Adjusted EBITDA | 21,755 | 23,475 | 22,830 | 19,936 | 23,094 | |
| Less: | ||||||
| Capital expenditures | (15,472) | (13,798) | (15,381) | (24,716) | (10,437) | |
| Change in accounts payable –construction | 704 | (4,791) | 4,164 | 146 | 122 | |
| Adjusted unlevered free cash flow | $ 6,987 | $ 4,886 | $ 11,613 | $ (4,634) | $ 12,779 | |
| Investor Contact: | |
| Richard E. Fish | |
| Chief Financial Officer | |
| 256-382-3827 | |
| Richard.fish@deltacom.com |
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