EASY Easylink Services Corp CL A (MM)

EasyLink Services Corporation (NASDAQ: EASY), a leading global provider of outsourced business process automation services that transform manual and paper-based business processes into efficient electronic ones, reported financial results today for the second quarter ended June 30, 2007. During the second quarter EasyLink signed a definitive agreement with Internet Commerce Corporation (�ICC�) for ICC to acquire EasyLink. The second quarter results include approximately $0.7 million of expenses related to the planned transaction. Revenues for the second quarter of 2007 were $19.1 million as compared to $18.9 million during the second quarter of 2006 and $18.8 million in the first quarter of 2007. For the second quarter in a row, the Company�s newer Transaction Management Services revenue growth of 38.5% over the 2006 quarter and 7.2% over the prior quarter exceeded the continuing decline in Transaction Delivery Services revenues. Gross margin was 64% in the second quarter of 2007 as compared to 58% in the second quarter of 2006 and 63% in the first quarter of 2007. The favorable 2007 results reflect the full cost savings from our network consolidation program implemented throughout 2006. Net income amounted to $765,000 or $.07 per share including the $0.7 million of transaction expenses related to the proposed sale of the Company. This compares to a net loss of $89,000 or $(.01) per share for the second quarter of 2006 and net income of $296,000 (including approximately $0.8 million of expenses related to the proposed sale) or $.03 per share in the first quarter of 2007. The Company further reported that it achieved Earnings before interest, taxes, depreciation and amortization (�EBITDA�) of $2.0 million in the second quarter of 2007 as compared to EBITDA during the second quarter of 2006 of $0.9 million. A reconciliation of this non-GAAP financial measure to the most directly comparable GAAP financial measure, operating cash flows, is attached in addition to a reconciliation to net income (loss) for all periods presented. The Company considers EBITDA to be a financial indicator of its operational strength, its ability to service debt and its capacity to make new investments in its services. The Company�s cash and cash equivalents balance at the end of the second quarter of 2007 was $5.5 million as compared to $6.7 million as of December 31, 2006. For the six months ended June 30, 2007, net cash of $2.0 million was provided from operations while $0.8 million was used for capital expenditures and $2.5 million was used to reduce the Company�s outstanding loan balance. Thomas Murawski, Chairman, President and Chief Executive Officer of EasyLink, said, �I�m pleased with our second quarter�s performance where revenues exceeded the top end of our guidance and earnings came in on target including $0.7 million of expenses relating to the sale of our Company. As we previously noted, EasyLink is now reaping the benefits of the cost reduction programs that we implemented in 2006." For the second quarter of 2007 in comparison to the first quarter of 2007 and the second quarter of 2006, revenues (in thousands) for the Company�s services were as follows: % % 2nd Quarter 1st Quarter Increase/ 2nd Quarter Increase/ 2007 2007 (Decrease) 2006 (Decrease) � Transaction Management Services $ 6,804 $ 6,347 7.2% $ 4,912 38.5% Transaction Delivery Services EDI $ 4,276 $ 4,333 (1.3)% $ 4,712 ( 9.3%) Transaction Delivery Services Other $ 8,011 $ 8,079 (0.8)% $ 9,228 (13.2%) $ 19,091 $ 18,759 1.8% $ 18,852 1.3% Year-to-date Results Revenues for the six months ended June 30, 2007 were $37.9 million as compared to $37.3 million in the same period for 2006. The Company reported net income of $1.1 million (including approximately $1.4 million of expenses related to the proposed sale) or $.10 per share for the 2007 year-to-date period compared to a net loss of $464,000 or $(.05) per share for the 2006 period. EBITDA improved to $3.6 million in 2007 as compared to $1.5 million in 2006. About EasyLink Services Corporation EasyLink Services Corporation (NASDAQ: EASY), headquartered in Piscataway, New Jersey, is a leading global provider of outsourced business process automation services that enable medium and large enterprises, including 60 of the Fortune 100, to improve productivity and competitiveness by transforming manual and paper-based business processes into efficient electronic business processes. EasyLink is integral to the movement of information, money, materials, products, and people in the global economy, dramatically improving the flow of data and documents for mission-critical business processes such as client communications via invoices, statements and confirmations, insurance claims, purchasing, shipping and payments. Driven by the discipline of Six Sigma Quality, EasyLink helps companies become more competitive by providing the most secure, efficient, reliable, and flexible means of conducting business electronically. For more information, please visit www.EasyLink.com. This press release may contain statements regarding the proposed transaction between EasyLink Services Corporation (the �Company�) and Internet Commerce Corporation and the expected timetable for completing the transaction, in addition to managements� assumptions. These statements constitute forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to assess. Investors are cautioned that such statements are only predictions, and in evaluating such statements, investors should specifically consider the various factors that could cause actual events or results to differ materially from what is expressed or forecasted in such forward-looking statements. These risks and uncertainties are based upon a number of important factors including, among others: the ability to consummate the proposed transaction; the occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreement; the outcome of any legal proceedings that may be instituted against the Company and others following announcement of the merger agreement; the inability to complete the merger due to the failure to obtain stockholder approval or the failure to satisfy other conditions to the completion of the merger; risks that the proposed transaction disrupts current plans and operations and the potential difficulties in employee retention as a result of the merger; the amount of the costs, fees, expenses and charges related to the merger; the Company�s ability to manage business growth effectively; changes in customer relationships; the ability to attract additional customers or to expand services sold to existing customers; the Company�s ability to implement its business strategy successfully; and significant competition. For a more complete list and description of such risks and uncertainties, refer to the Company�s filings with the Securities and Exchange Commission (the �SEC�), including but not limited to the Company�s most recent Forms 10-K and 10-Q. All forward-looking statements are based on information available to the Company on the date of this press release. Except as required under federal securities laws and the rules and regulations of the SEC, the Company disclaims any intention or obligation to update any forward-looking statements, or to make any other forward-looking statements, after the distribution of this press release, whether as a result of new information, future events, developments, changes in assumptions or otherwise. IMPORTANT ADDITIONAL INFORMATION FILED WITH THE SEC In connection with the proposed merger with ICC, the Company has filed with the SEC and mailed to its stockholders a proxy statement covering a special meeting of stockholders to be held on August 16, 2007 to approve the merger, among other matters. INVESTORS AND SECURITY HOLDERS ARE URGED TO READ THE PROXY STATEMENT CAREFULLY AS IT CONTAINS IMPORTANT INFORMATION ABOUT THE PROPOSED MERGER AND THE PARTIES THERETO. Investors and security holders may obtain a free copy of the proxy statement and other documents filed by the Company at the SEC�s Web site at http://www.sec.gov. The Company and its directors, executive officers and certain other members of its management and employees may be deemed to be participants in the solicitation of proxies from the Company�s stockholders in connection with the proposed merger. Information regarding the interests of such directors and executive officers in the transaction described herein, which may be different than those of the Company�s stockholders generally, are more specifically set forth in the proxy statement relating to the merger. Additional information regarding these directors and executive officers is also included in the Company�s Form 10-K/A, which was filed with the SEC on April 30, 2007. EasyLink Services Corporation Condensed Consolidated Balance Sheets (in thousands) � Jun. 30, 2007 Dec. 31, 2006 (unaudited) � ASSETS Cash and cash equivalents $ 5,536 $ 6,707 Accounts receivable, net 10,613 10,725 Other current assets 2,803 2,511 Total current assets 18,952 19,943 � Property and equipment, net 9,075 9,703 Goodwill and other intangible assets, net 11,130 11,282 Other assets � 192 � 305 � Total assets $ 39,349 $ 41,233 � LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable $ 5,586 $ 5,810 Accrued expenses 10,542 10,299 Loans and notes payable 1,913 4,413 Other current liabilities 957 1,363 Total current liabilities 18,998 21,885 � Long term liabilities 805 1,186 � Total liabilities 19,803 23,071 � Total stockholders' equity � 19,546 � 18,162 � Total liabilities and stockholders' equity $ 39,349 $ 41,233 EasyLink Services Corporation Unaudited Condensed Consolidated Statements of Operations (in thousands, except per share amounts) � Three Months Ended Ended June 30, 2007 2006 � Revenues $ 19,091 $ 18,852 � Cost of revenues � 6,905 � 7,895 � Gross profit 12,186 10,957 � Operating expenses: Sales and marketing 3,560 4,504 General and administrative 5,616 4,665 Product development � 1,842 � 1,736 � Total operating expenses � 11,018 � 10,905 � Income from operations 1,168 52 � Other income (expense), net � (67) � (65) � Income (loss) before income taxes 1,101 (13) � Provision for income taxes � 336 � 76 � Net income (loss) $ 765 $ (89) � Basic and diluted net income (loss) per share $ 0.07 $ (0.01) � � Weighted average basic shares outstanding � 11,014 � 10,489 � Weighted average diluted shares outstanding � 11,116 � 10,489 EasyLink Services Corporation Unaudited Condensed Consolidated Statements of Operations (in thousands, except per share amounts) � Six Months Ended Ended June 30, 2007 2006 � Revenues $ 37,850 $ 37,313 � Cost of revenues � 13,806 � 15,358 � Gross profit 24,044 21,955 � Operating expenses: Sales and marketing 7,200 9,059 General and administrative 11,288 9,794 Product development � 3,623 � 3,482 � Total operating expenses � 22,111 � 22,335 � Income (loss) from operations 1,933 (380) � Other income (expense), net � (156) � (357) � Income (loss) before income taxes 1,777 (737) � Provision (credit) for income taxes � 716 � (273) � Net income (loss) $ 1,061 $ (464) � Basic and diluted net income (loss) per share $ 0.10 $ (0.05) � Weighted average basic shares outstanding � 10,999 � 9,779 � Weighted average diluted shares outstanding � 11,073 � 9,779 EasyLink Services Corporation Unaudited Condensed Consolidated Statements of Cash Flows (in thousands) � Six months ended June 30, 2007 2006 � Cash flows from operating activities: Net income (loss) $ 1,061 $ (464) Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation 1,404 1,421 Amortization of intangible assets 153 485 Issuance of shares as matching contributions to employee benefit plans 234 218 Other (55) 90 Changes in operating assets and liabilities: Accounts receivable, net 431 (650) Prepaid expenses and other assets (316) 86 Accounts payable, accrued expenses and other liabilities (854) (543) Net cash provided by operating activities 2,058 643 � Cash flows from investing activities: Purchases of property and equipment � (755) � (812) Net cash used in investing activities � (755) � (812) � Cash flows from financing activities: Proceeds (repayment) of bank loan advances (2,500) (950) Principal payments of notes payable --- (4,200) Proceeds from issuance of stock 69 5,405 Other � (15) � (25) Net cash provided by (used in) financing activities � (2,446) � 230 � Effect of foreign exchange rate changes on cash and cash equivalents � (28) � (78) � Net decrease in cash and cash equivalents (1,171) (17) � Cash and cash equivalents at beginning of the period � 6,707 � 6,282 � Cash and cash equivalents at the end of the period $ 5,536 $ 6,265 EasyLink Services Corporation Reconciliation of Non GAAP Financial Information to GAAP (in thousands) � � Three Months Ended June 30, 2007 2006 � Net income (loss) $ 765 $ (89) Add: Depreciation 736 735 Amortization of intangible assets 43 43 Interest expense, net 85 177 Income taxes (credits) � 336 � 76 � EBITDA 1,965 942 � Less: Interest expense, net 85 177 Income taxes (credits) 336 76 � Add (subtract): Other non-cash items 201 174 Changes in operating assets and liabilities � 860 � (154) � Net cash provided by (used in) operations $ 2,605 $ 709 � � Six Months Ended June 30, 2007 2006 � Net income (loss) $ 1,061 $ (464) Add: Depreciation 1,404 1,421 Amortization of intangible assets 153 485 Interest expense, net 216 357 Income taxes (credits) 716 (273) � EBITDA 3,550 1,526 � Less: Interest expense, net 216 357 Income taxes (credits) � 716 � (273) � Add (subtract): Other non-cash items 179 308 Changes in operating assets and liabilities (739) (1,107) � Net cash provided by operations $ 2,058 $ 643