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EarthLink Announces Record Third-Quarter Results, Including First EBITDA Profit
Business Wire - October 12, 1998 17:21
PASADENA, Calif.--(BUSINESS WIRE)--Oct. 12, 1998--
EarthLink Achieves Positive EBITDA of $900,000,
a Revenue Increase of 137 Percent Year Over Year,
Record Member Growth of 105,000
and a Pro-Forma Loss-per-Share Improvement to 4 Cents
EarthLink Network Inc. (Nasdaq:ELNK) Monday announced record financial results that exceed consensus estimates for the third quarter ended Sept. 30, 1998.
"With the right focus, smart management and consistent execution, EarthLink is building the first pure Internet service provider for the masses," said Garry Betty, president and chief executive officer of EarthLink.
"We had the best quarter in our history, and EarthLink's business has never been stronger. During what is typically a seasonally slow quarter in our industry, EarthLink added 105,000 net new members, an increase of 208 percent over the same quarter last year, increasing our paying base to 815,000.
"We also posted our first-ever positive EBITDA, increased quarterly revenue 137 percent over last year, announced Premiere Partnerships with more than 20 leading Internet content and commerce providers, became the primary access provider on Apple's iMac computers, and signed an agreement with Charter Communications to provide cable Internet services nationwide."
Revenues for the quarter were $49.8 million, compared with $37.6 million in the prior quarter, a 32 percent increase. Year over year, revenues increased 137 percent from $21 million in the third quarter of 1997.
EBITDA was a positive $900,000, or 2 percent of revenue, in the third quarter of 1998, compared with a loss of $1.3 million, or 3 percent of revenue, in the prior quarter, excluding the one-time Sprint transaction charge, and negative $4.3 million, or 20 percent of revenue, for the third quarter of 1997.
EBITDA per share for the third quarter of 1998 was 3 cents, compared with negative 11 cents for the second quarter of 1998 and negative 22 cents for the third quarter of 1997.
The net loss for the quarter was $1.1 million, or 4 cents per share, prior to the amortization of assets acquired in the Sprint transaction of $17.8 million. This is an improvement over the second- quarter loss of $4.8 million, or 20 cents per share, prior to a $7.2 million charge for the amortization of assets acquired in the Sprint transaction.
The net loss for the third quarter of 1997 was $7.2 million, or 36 cents per share. The net loss attributable to common stockholders for the third quarter of 1998 was $22.1 million.
"Our gross margins continued to improve, increasing to 57 percent from 53 percent in the prior quarter, reflecting effective management of our communication costs," continued Betty. "In addition, we continued to maintain our award-winning service levels, as evidenced by our monthly churn rate remaining at 3.4 percent even as growth accelerated."
Last week, EarthLink announced Premiere Partnerships with 20 leading Internet companies for placement on EarthLink's new Personal Start Page 3.0. These companies include ABCNEWS.com, AccuWeather, American Greetings, CNN Interactive, CyberGold, ESPN.com, Excite, GEO, GoTo.com, Infoseek, Lycos, MBNA, MiningCo.com, Netopia, PC Quote, PhotoVision, Snap!, Sprint, SurfWatch, Travelscape.com, United Media and Wired Digital.
EarthLink's Premiere Partners will receive prime exposure to EarthLink's membership base through a variety of online and offline promotional channels. Moving forward, the Premiere Partnership program represents a strong source of incremental nonaccess revenue for the company. For the quarter, incremental revenue was $1.2 million.
EarthLink ended the quarter with $134 million in cash, compared with $138 million in cash at the end of the second quarter of 1998.
During the third quarter, EarthLink began to accelerate its marketing activities. All of these efforts led to a record 105,000 paying net new members.
About EarthLink
EarthLink is the world's largest independent Internet service provider. Through its unified EarthLink Sprint Internet-access service, the company makes the Internet relevant and productive to hundreds of thousands of individuals and businesses every day.
With headquarters in Pasadena, EarthLink provides a full range of innovative access and hosting solutions to thousands of communities internationally from more than 1,400 points of presence.
EarthLink and Sprint Corp. (NYSE:FON) have formed a broad business relationship to create an Internet service with the potential to reach millions of new customers. Sprint is a global communications company and one of the world's largest carriers of Internet traffic.
Information about EarthLink and EarthLink Sprint services can be obtained by calling 800/395-8425 and through EarthLink's Web site at www.earthlink.net.
Certain of the statements contained in this release are 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 in the forward-looking statements. With respect to such forward-looking statements, the company seeks the protections afforded by the Private Securities Litigation Reform Act of 1995. These risks include, without limitation, (1) that the company will not retain or grow its member base, (2) that the company will fail to be competitive with existing and new competitors, (3) that the company will not be able to sustain its current growth, (4) that the company will not adequately respond to technological developments impacting the Internet, (5) that needed financing will not be available to the company if and as needed, and (6) that the Year 2000 problem will adversely affect the company's operations. This list is intended to identify certain of the principal factors that could cause actual results to differ materially from those described in the forward-looking statements included elsewhere herein. These factors are not intended to represent a complete list of all risks and uncertainties inherent in the company's business, and should be read in conjunction with the more detailed cautionary statements included elsewhere in the company's filings with the Securities and Exchange Commission, especially in the company's Form 10-K for the year ended Dec. 31, 1997, and in the Risk Factors section of the company's most recently filed registration statement on Form S-1, filed in June 1998.
EARTHLINK NETWORK INC.
Unaudited Consolidated Financial Highlights
(in thousands, except per share data)
Three Months Ended Sept. 30,
Percent Percent
of Total of Total
1997(e) Revenues 1998 Revenues
Statement of Operations Data:
Revenues:
Recurring revenues $ 19,450 93% $ 46,877 94%
Other revenues 1,559 7% 1,699 3%
Incremental revenues 1,248 3%
Total revenues 21,009 100% 49,824 100%
Operating costs and expenses:
Cost of recurring
revenues 9,304 44% 21,174 42%
Cost of other revenues 352 1% 394 1%
Sales and marketing 6,670 32% 9,975 20%
General and administrative 3,511 17% 5,843 12%
Operations and member
support 7,970 38% 15,078 30%
Amortization and
transaction costs (a) 17,754 36%
Total operating costs
and expenses 27,807 132% 70,218 141%
Loss from operations (6,798) -32% (20,394) -41%
Interest income 116 1% 1,919 4%
Interest expense (516) -3% (353) -1%
Net loss (7,198) -34% (18,828) -38%
Deductions for dividends
on convertible preferred
stock (b) (3,276) -7%
Net loss attributable to
common stockholders $ (7,198) -34% $ (22,104) -45%
Basic and diluted net
loss per share $ (0.36) $ (0.78)
Weighted average common
shares outstanding 19,864 28,458
EBITDA (c) $ (4,285) -20% $ 900 2%
Before Amortization and
Transaction Costs (a)
Net loss $ (7,198) -34% $ (1,074) -2%
Net loss per share $ (0.36) $ (0.04)
EBITDA (c) $ (4,285) -20% $ 900 2%
Nine Months Ended Sept. 30,
Percent Percent
of Total of Total
1997 (e) Revenues 1998 (e) Revenues
Statement of Operations Data:
Revenues:
Recurring revenues $ 51,869 92% $ 109,957 94%
Other revenues 4,558 8% 4,897 4%
Incremental revenues 2,786 2%
Total revenues 56,427 100% 117,640 100%
Operating costs and expenses:
Cost of recurring
revenues 25,828 46% 53,163 45%
Cost of other revenues 1,326 2% 730 1%
Sales and marketing 18,904 34% 25,348 21%
General and administrative 10,462 18% 15,344 13%
Operations and member
support 22,183 39% 36,248 31%
Amortization and
transaction costs (a) 24,962 21%
Total operating costs
and expenses 78,703 139% 155,795 132%
Loss from operations (22,276) -39% (38,155) -32%
Interest income 416 1% 2,568 2%
Interest expense (1,467) -3% (1,661) -1%
Net loss (23,327) -41% (37,248) -31%
Deductions for dividends
on convertible preferred
stock (b) (4,330) -4%
Net loss attributable to
common stockholders $ (23,327) -41% $ (41,578) -35%
Basic and diluted net
loss per share $ (1.22) $ (1.64)
Weighted average common
shares outstanding 19,186 25,292
EBITDA (c) $ (15,705) -28% $ (4,759) -4%
Before Amortization and
Transaction Costs (a)
Net loss $ (23,327) -41% $ (12,286) -10%
Net loss per share $ (1.22) $ (0.49)
EBITDA (c) $ (15,705) -28% $ (3,362) -3%
EARTHLINK NETWORK INC.
Balance Sheet Data
Dec. 31, 1997 Sept. 30, 1998
Cash and cash equivalents $ 16,450 $ 134,397
Total assets 46,887 273,342
Long-term debt 8,218 7,288
Total liabilities 40,812 54,486
Accumulated (deficit) (66,072) (107,650)
Stockholders' equity $ 6,075 $ 218,855
Other Operating Data:
Member count at end of period 420,000 815,000
Number of employees at end
of period (d) 796 1,200
(a) "Amortization and Transaction Costs" represents $23,565,000 in
amortization of intangible assets acquired and a one time
transaction cost of $1,397,000 due to the company's strategic
alliance with Sprint in June 1998.
(b) Reflects the accretion of Liquidation Dividends on Series A
convertible preferred stock at 3 percent compounded quarterly and
the accretion of a dividend related to the beneficial conversion
feature in accordance with EITF D-60.
(c) Represents earnings (loss) before depreciation and amortization,
interest income and expense and income tax expense. EBITDA is not
determined in accordance with generally accepted accounting
principles, is not indicative of cash used by operating
activities and should not be considered in isolation or as an
alternative to, or more meaningful than measures of performance
determined in accordance with generally accepted accounting
principles.
(d) Represents full-time equivalents.
(e) Certain reclassifications have been made to the amounts in the
prior year and first and second quarters of 1998 to conform with
the presentation of the third quarter of 1998.
CONTACT: EarthLink Network Inc., Pasadena
Kirsten Kappos, 626/296-2467
kirstenk@earthlink.net
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