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 first quarter ended March 31, 2007. First quarter results include approximately $0.8 million in expenses related to the review of strategic alternatives by the Company�s board of directors and its special committee, culminating in the execution of the definitive agreement on May 3, 2007 with Internet Commerce Corporation (�ICC�) for ICC to acquire the Company. Revenues for the first quarter of 2007 were $18.8 million as compared to $18.5 million during the first quarter of 2006 and $18.0 million in the fourth quarter of 2006. For the first time, the Company�s newer Transaction Management Services revenue growth of 38% over the 2006 quarter and 10% over the prior quarter exceeded the continuing decline in Transaction Delivery Services revenues. Gross margin was 63% in the first quarter of 2007 as compared to 60% in the first quarter of 2006 and 62% in the fourth quarter of 2006. Net income amounted to $296,000 or $.03 per share including approximately $0.8 million of transaction expenses related to the recently announced sale of the Company. This compares to a net loss of $376,000 or $(.04) per share for the first quarter of 2006 and a net loss of $(.01) per share in the fourth quarter of 2006. Excluding the sale related expenses of $0.8 million net income would have been $0.10 per share for the current period. The Company further reported that it achieved Earnings before interest, taxes, depreciation and amortization (�EBITDA�) of $1.6 million in the first quarter of 2007 as compared to EBITDA during the first quarter of 2006 of $0.8 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 adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (�FIN 48�) on January 1, 2007. As a result of the implementation of FIN 48, the Company recognized an increase in its tax liabilities and a reduction of retained earnings of $108,000. The impact on the first quarter 2007 was not significant. The Company�s cash and cash equivalents balance at the end of the first quarter 2007 was $5.3 million as compared to $6.7 million as of December 31, 2006. For the quarter ended March 31, 2007, net cash of $0.5 million was used in operations, $0.2 million was used for capital expenditures and $0.6 million was used to reduce the Company�s outstanding loan balance. Thomas Murawski, Chairman, President and Chief Executive Officer of EasyLink, said, �First, I�m pleased with the results of our strategic initiatives and believe that the recently announced sale of EasyLink to ICC is in the best interests of our customers, employees and stockholders. I�m also pleased with our first quarter�s performance. Revenue exceeded the top end of our guidance and earnings came in on target including $0.8 million of expenses relating to the sale of our Company. As noted last quarter, EasyLink is poised to reap the benefits of the cost reduction programs that we implemented in 2006 and we expect positive earnings to continue throughout 2007.� For the first quarter of 2007 in comparison to the fourth quarter of 2006 and the first quarter of 2006, revenues (in thousands) for the Company�s services were as follows: % % 1st Quarter 4th Quarter Increase/ 1st Quarter Increase/ 2007� 2006� (Decrease) 2006� (Decrease) Transaction Management Services $ 6,347� $ 5,789� 9.60% $ 4,602� 37.90% Transaction Delivery Services EDI $ 4,333� $ 4,204� 3.10% $ 4,714� (8.10)% Transaction Delivery Services Other $ 8,079� $ 8,030� 0.60% $ 9,145� (11.70)% � $ 18,759� $ 18,023� 4.10% $ 18,461� 1.60% Business Outlook The following statements are forward-looking and actual results may differ materially due to factors noted at the end of this release, among others. EasyLink expects the following performance for the second quarter of 2007: Second quarter revenues in the range of $18.2 to $18.6 million with TMS revenues in the range of $6.3 to $6.5 million, EDI revenue in the range of $4.1 to $4.2 million and TDS revenue in the range of $7.8 to $8 million Net income per share for the second quarter is expected to be in the range of $.05 to $.07 per share. For the full year 2007 EasyLink expects the following: Revenues in the range of $70 to $73 million. Net income per share in the range of $.20 to $.30 per share. Quarterly Conference Call EasyLink will host its quarterly conference call today at 10:30 a.m. EST. Listeners should call five minutes prior to the start of the call to 800/340-8363 and the reservation number is 6782241. The call will also be broadcast over the Internet. Online listeners should visit the investor relations� pages of the EasyLink web site, www.EasyLink.com, or www.streetevents.com prior to the start of the call for login information. If you are unable to participate, the online archive of the broadcast will be available on the investor relations� pages of www.EasyLink.com within two hours of the live call through Friday, May 25th at 11:59 p.m. EST. You can also access the replay by calling 800/642-1687 and entering the reservation number 6782241. 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 contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, but are not limited to, statements regarding the proposed transaction between the Company and Internet Commerce Corporation, including statements about the benefits of the transaction, the expected timetable for completing the transaction, managements� assumptions about the transaction, and other statements that are not historical or current facts. Such statements are based upon the current beliefs and expectations of the Company�s management, are subject to significant risks and uncertainties and may differ materially from actual future experience involving any one or more of such matters. 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 statements. These risks and uncertainties are based upon a number of important factors including, among others: 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, including the expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976; 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; 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. While the Company believes that its forecasts and assumptions are reasonable, the Company cautions that actual results may differ materially. 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 (as amended) 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 This communication is not a solicitation of a proxy from any security holder of the Company. In connection with the proposed merger, the Company intends to file with the SEC a proxy statement and other relevant documents to be mailed by the Company to its stockholders. This proxy statement will contain important information about the Company, the transaction and related matters. THE COMPANY URGES INVESTORS AND SECURITY HOLDERS TO READ THE PROXY STATEMENT AND ANY OTHER RELEVANT DOCUMENTS CAREFULLY WHEN THEY BECOMES AVAILABLE, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED MERGER AND THE PARTIES THERETO. Investors and security holders will be able to obtain these materials (when they are available) and other documents filed by the Company with the SEC free of charge at the SEC�s Web site at http://www.sec.gov. In addition, a copy of the proxy statement (when it becomes available) may be obtained free of charge from the Company at EasyLink Services Corporation, Investor Relations, 33 Knightsbridge Road, Piscataway, New Jersey 08654. Participants in Solicitation The Company and its directors and executive officers and certain other persons 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 Company�s directors and executive officers is available in the Company�s Form 10-K/A, which was filed with the SEC on April 30, 2007. OTHER INFORMATION REGARDING THE PARTICIPANTS IN THE PROXY SOLICITATION AND A DESCRIPTION OF THEIR DIRECT AND INDIRECT INTERESTS, BY SECURITY HOLDINGS OR OTHERWISE, WILL BE CONTAINED IN THE PROXY STATEMENT AND OTHER RELEVANT MATERIALS TO BE FILED WITH THE SEC WHEN THEY BECOME AVAILABLE. EasyLink Services Corporation Condensed Consolidated Balance Sheets (in thousands) � � � Mar. 31, 2007 Dec. 31, 2006 � (unaudited) ASSETS Cash and cash equivalents $ 5,289� $ 6,707� Accounts receivable, net 10,943� 10,725� Other current assets � 2,701� � 2,511� Total current assets 18,933� 19,943� � Property and equipment, net 9,212� 9,703� Goodwill and other intangible assets, net 11,206� 11,282� Other assets � 213� � 305� � Total assets $ 39,564� $ 41,233� � LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable $ 5,898� $ 5,810� Accrued expenses 8,900� 10,299� Loans and notes payable 3,808� 4,413� Other current liabilities � 1,428� � 1,363� Total current liabilities 20,034� 21,885� � Long term liabilities � 1,027� � 1,186� � Total liabilities 21,061� 23,071� � Total stockholders' equity � 18,503� � 18,162� � Total liabilities and stockholders' equity $ 39,564� $ 41,233� EasyLink Services Corporation Unaudited Condensed Consolidated Statements of Operations (in thousands, except per share amounts) � � Three Months Ended Ended March 31, 2007� 2006� Revenues $ 18,759� $ 18,461� � Cost of revenues � 6,901� � 7,463� � Gross profit 11,858� 10,998� � Operating expenses: Sales and marketing 3,640� 4,555� General and administrative 5,672� 5,126� Product development � 1,781� � 1,747� � Total operating expenses � 11,093� � 11,428� � Income (loss) from operations 765� (430) � Other income (expense), net � (88) � (295) � Income (loss) before income taxes 677� (725) � Provision (credit) for income taxes � 381� � (349) � Net income (loss) $ 296� $ (376) � � Basic and diluted net income (loss) per share $ 0.03� $ (0.04) � � Weighted average basic shares outstanding � 10,984� � 9,061� � Weighted average diluted shares outstanding � 11,036� � 9,061� EasyLink Services Corporation Unaudited Condensed Consolidated Statements of Cash Flows (in thousands) � Three months ended March 31, � 2007� � 2006� � Cash flows from operating activities: Net income (loss) $ 296� $ (376) Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation 701� 727� Amortization of intangible assets 77� 402� Issuance of shares as matching contributions to employee benefit plans 135� 108� Other (157) 26� Changes in operating assets and liabilities: Accounts receivable, net 71� (10) Prepaid expenses and other assets (166) 92� Accounts payable, accrued expenses and other liabilities � (1,504) � (1,035) Net cash used in operating activities (547) (66) � Cash flows from investing activities: Purchases of property and equipment � (202) � (395) Net cash used in investing activities � (202) � (395) � Cash flows from financing activities: Proceeds (repayment) of bank loan advances (605) (950) Principal payments of notes payable ---� (600) Other � (10) � (4) Net cash used in financing activities � (615) � (1,554) � Effect of foreign exchange rate changes on cash and cash equivalents � (54) � (177) � Net decrease in cash and cash equivalents (1,418) (2,192) � Cash and cash equivalents at beginning of the period � 6,707� � 6,282� � Cash and cash equivalents at the end of the period � 5,289� $ 4,090� EasyLink Services Corporation Reconciliation of Non GAAP Financial Information to GAAP (in thousands) � � Three Months Ended Mar 31, 2007� 2006� � Net income (loss) $ 296� $ (376) Add: Depreciation 701� 727� Amortization of intangible assets 77� 402� Interest expense, net 131� 358� Income taxes (credits) � 381� � (349) � EBITDA 1,586� 762� � Less: Interest expense, net 131� 358� Income taxes (credits) 381� (349) � Add (subtract): Other non-cash items (22) 134� Changes in operating assets and liabilities � (1,599) � (953) Net cash used in operations $ (547) $ (66)