EasyLink Services International Corporation (NASDAQ:ESIC)
Fiscal Q2 2010 Earnings Call
March 4, 2010, 8:30 a.m. EST
Andrew Kaminsky - IR
Tom Stallings - Chief Executive Officer
Good morning, and welcome to the EasyLink Services International Corporation's fiscal 2010 second quarter conference call. If you do not have a copy of the earnings release, you may access it through the investor relations section of the Company's web site at Easylink.com.
This call is being recorded for future playback and will be available later today in the events and presentations tab in the investor relations portion of the Company's Web site.
I would now like to turn the call over to Andrew Kaminsky for opening remarks.
Thank you. Good morning and thank you for joining us. Joining me today is Tom Stallings, EasyLink's Chief Executive Officer, and Glen Shipley, EasyLink's Chief Financial Officer.
Please note that during this conference call, we may make forward-looking statements regarding future events or financial performance and outlook that are based on information currently available to management. You are cautioned that any forward-looking statements are not a guarantee of future performance and are subject to a number of uncertainties and other factors which could cause the actual results to differ materially from those currently expected.
For a more detailed description of factors that can cause such a difference, please see EasyLink's filings with the Securities and Exchange Commission. In providing forward-looking statements, the Company does not intend and is not undertaking any duty or obligation to update these statements as a result of new information, future events or otherwise. I refer you to the documents that EasyLink Services International Corporation files from time to time with the Securities and Exchange Commission, particularly the Company’s annual report on Form 10-K for the fiscal year ended July 31, 2009, filed with the SEC on October 29, 2009, including the risk factor discussion in Item 1A of that report and the risk factor discussion in Part II, Item 1A of our subsequent quarterly reports on Form 10-Q. These documents contain and identify important factors that could cause actual results to differ materially from those contained in our projections. EasyLink Services International Corporation undertakes no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events, or changes in future operating results.
Also note that all dollar figures and percentages are approximations and that the detailed reconciliations of GAAP to adjusted results can be found in the press release we issued yesterday that is posted on our Web site. After we review first quarter results, we will open the lines for questions.
At this time, I would like to turn the conference call over to Tom.
Thank you, Andrew. Good morning and thank all of you for joining us today. I am going to provide a brief overview of our second quarter accomplishments and financial results, comment on our 2010 outlook and then Glen and I will take any questions you may have.
Before I begin with the quarterly review, I would to like to welcome our new shareholders that joined us over the last month or so. As many of you have seen, our trading volume has dramatically increased as some of our larger shareholders distributed or sold their shares. Between the distribution of Blue Water Capital’s shares to its investors and York Capital’s sale of common stock, as well as the exercise of all their warrants, liquidity in our stock has significantly improved. It appears that these new investors have discovered the potential value that EasyLink stock offers shareholders. We look forward to meeting all of you soon.
Turning to the quarterly overview, we are very pleased with our second quarter results and continue to be enthusiastic about the prospects for the rest of the year. Our sales and marketing team has continued to aggressively market our products and services to new enterprises around the world.
During the second quarter our sales team took advantage of the fact that Atlanta is home to a number of Fortune 500 companies and closed some prestigious contracts with two of them. First, we won a multi-year contract for desktop messaging and production faxing with a large soft drink company. There we competed with two other software-as-a-service providers and convincingly demonstrated the superiority of our EasyLink solution.
Additionally, we worked with a large forest products and building materials company to eliminate its on premise fax infrastructure in Europe in favor of our out sourced services offering. Doing so has increased the security of their communications, increased productivity and reduced their costs by using their existing email system to send and receive faxes.
Our continued focus on customer service with our existing customers is providing us expansion opportunities within some large accounts, as well as sales opportunities for some our new products and services, like Managed File Transfer. As I mentioned before, we continue to look for new ways to expand internationally. During the quarter, we successfully added new sales channels in Asia with the addition of two new resellers in China and one in India.
Our outsourced solutions-as-a-service model is very compelling to companies as they strive to create more efficient operations and drive additional profitability within their own organizations. Our products and services continue to be an integral component in the communications food chain of our customers allowing them to securely and cost effectively communicate with their customers, employees and trading partners. We believe that when employment begins to stabilize and the economic cycle turns, we are well positioned to grow within our existing customer base and capture new accounts throughout the world.
As for our financial performance, we reported $20.4 million of revenue this quarter bringing our total revenue for the first six months to $40.9 million. Revenue in the second quarter was split almost equally between On Demand Messaging and Supply Chain Messaging. We believe that our quarterly revenue for the remainder of the fiscal year should be in the $20 to $21 million range, which keeps us within our previously announced guidance of low to mid $80 million.
On a year over year basis we have seen double digit growth in our enterprise desktop fax services and expect this trend to continue. Additionally, since the beginning of the economic downturn, this is the first quarter we have seen growth in our EDI services business. This growth is primarily the result of our sales effort and the addition of major new customers and the expansion of existing accounts. We are cautiously optimistic that we have turned a corner and will continue to see increases in our EDI services. I would like to thank Kevin Maloney, our EVP of Sales and Marketing, and his team for this fine effort.
However, as we experienced through this quarter end, we expect to see a continued decrease in the telex services for the rest of the fiscal year as the result of lower customer volumes. The balance of the decline in revenues through this quarter is primarily the result of decreased production fax volume by several major financial institutions due to economic conditions and changing product focus. Unlike the telex business, this decrease does not represent a continuing trend and is not expected to continue into fiscal 2011.
Adjusted EBITDA for the quarter was $5.3 million bringing the six month total to approximately $10 million. Net income to common shareholders for the quarter was $1.1 million or $.04 per share. And our six month total was $2.2 million or $.09 per share.
The exercise of the York Capital warrants has added approximately 2.8 million shares to our shares outstanding. Although we are on track to meet our previously issued net income guidance, the issuance of these shares will change our previously announced EPS guidance to approximately $.24 to $.29 per basic common share.
In estimating our fiscal 2010 EPS, we have always factored in the affect of the expected year end tax expense. Under GAAP, we are currently using the existing statutory tax rates to estimate tax expense at the end of every quarter. However, because of our tax net operating loss carry forwards and the fact that we now have had taxable income for the last 12 quarters and continue to project additional taxable income, we will be required to release some or all of the reserve held against our loss carry forwards during this fiscal year.
We ended the quarter with $15.5 million of cash and $24.8 million of total debt. Since the quarter ended on a Sunday, our quarterly principal and interest payment to our lenders was not due until the following Monday, February 1st. After this $2.5 million principal payment, our cash balance was approximately $13 million and our total debt was $22.3 million. Quarter after quarter, we continue to reduce debt while increasing cash.
As many of you know, we continue to evaluate M&A opportunities on a proactive and opportunistic basis and believe they are a key component to the growth and future of EasyLink. If an appropriate transaction does not materialize, we will evaluate all alternatives to drive shareholder value, which may include share repurchases or dividends.
All things being considered, we believe that our results for the second quarter are outstanding and continue to position us well for the rest of the fiscal year. Glen joins me in thanking our team of 290 colleagues around the world for their continued dedication and hard work, especially during these challenging times.
Before we take questions, I would like to remind you that our management team is extremely focused on efficiently running the business and building shareholder value.
At this point, I will turn the call back over to the operator for questions.
Thank you again for participating in our call today we look forward to sharing additional positive results with you next quarter.
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