EasyLink Services International Corp. Reports Operating Results (10-Q)

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Mar 18, 2009
EasyLink Services International Corp. (ESIC, Financial) filed Quarterly Report for the period ended 2009-01-31.

Internet Commerce Corporation formerly known as Infosafe Systems Inc. is a development stage company engaged in the design development and marketing of systems for securing controlling metering and auditing electronic products documents and programs for use in stand-alone applications corporate networks and open networks such as the Internet. They have expertise in the areas of business-to-business electronic data interchange archiving reporting encryption and metering of valuable content as a trusted third party. EasyLink Services International Corp. has a market cap of $51.3 million; its shares were traded at around $2.1201 with a P/E ratio of 9.7 and P/S ratio of 0.6.

Highlight of Business Operations:

Revenue Total revenue for the six months ended January 31, 2009 was approximately $43.7 million, a decrease of approximately $966,000 as compared to the six-month period ended January 31, 2008. This decrease in revenues is primarily due to a decrease in revenues in the Supply Chain Messaging segment. Both service types in the Supply Chain Messaging segment, EDI Services and Telex Services, saw reductions for the first six months of 2009 due to customer volume reductions and fluctuations in exchange rates. The customer volume reductions approximated $950,000 due to the weakening global economy. It is estimated that fluctuations in foreign currencies, primarily the weakening of the GBP to the USD, totaled approximately $1.0 million in reduced services revenues. Partially offsetting these reduced revenues was the inclusion of a full month of August revenue for ESC in fiscal 2009 of approximately $1.0 million, as opposed to the period beginning August 20, 2007 in the first quarter of fiscal 2008, resulting from the acquisition of ESC as of that date. The increase in the On Demand Messaging segment of approximately $916,000 is due mainly to an approximately $927,000 increase to Fax Services revenue. This revenue increased due mainly to the inclusion of a full month of August revenue for ESC in fiscal 2009.

Cost of Revenue Total cost of revenue decreased approximately $523,000 due primarily to an approximate $580,000 decrease from foreign currency fluctuations and approximately $455,000 in reduced costs for the Supply Chain Messaging segment due to the reduction of revenues for the segment and the corresponding reduction in telecom costs. Telecom costs decreased approximately $300,000 for both segments for the six-month period. Labor and outside contractors costs decreased approximately $182,000 during the six-month period due to a resizing of the business. Partially offsetting these decreases was approximately $1.0 million in increases due to the inclusion of a full month of August costs for ESC in fiscal 2009, as opposed to the period beginning August 20, 2007 in the first quarter of fiscal 2008.

Selling and Marketing Selling and marketing expenses increased approximately $1.3 million from the six-month period ended January 31, 2008 to the six-month period ended January 31, 2009, due mainly to severance costs of approximately $312,000 that occurred during the second quarter of 2009, approximately $480,000 of increased costs due to the inclusion of a full month of August costs for ESC in fiscal 2009, as opposed to the period beginning August 20, 2007 in the first quarter of fiscal 2008, increased travel expenses of approximately $213,000, and increased professional fees and outside commissions of approximately $219,000. These increased expenses are the result of a focused effort to enhance and expand our sales and marketing activities. Partially offsetting these expenses are approximately $300,000 in reduced costs that were directly related to a change in foreign currency exchange rates during the period.

General and Administrative General and administrative expenses increased approximately $1.3 million from the six-month period ended January 31, 2008 to the six-month period ended January 31, 2009, due mainly to the expensing of approximately $1.5 million incurred with respect to a potential acquisition. These acquisition costs were previously capitalized on the balance sheet, but were expensed during the three months ended October 31, 2008 as we determined that the potential acquisition would not close. In addition to the acquisition costs, there was approximately $760,000 of increased costs due to the inclusion of a full month of August costs for ESC in fiscal 2009, as opposed to the period beginning August 20, 2007 in the first quarter of fiscal 2008, and increased severance costs of approximately $121,000. Offsetting these increased costs was approximately $450,000 of bonuses paid to certain executives upon the closing of the ESC acquisition during the first quarter of 2008 that did not reoccur during the six-month period ended January 31, 2009 and approximately $340,000 of reduced costs that were directly related to a change in foreign currency exchange rates during the period.

The On Demand Messaging segment decreased approximately $819,000 from the three-month period ended January 31, 2008, as compared to the three-month period ended January 31, 2009, due to decreases of approximately $376,000 for Fax services, approximately $13,000 for DCM services and approximately $429,000 for Other services. Reduction in customer volume reduced revenue by approximately $124,000 due to the weakening economy. It is estimated that fluctuations in foreign currencies reduced revenue by approximately $694,000.

Our principal source of liquidity consists of cash and cash equivalents generated from operations. As the majority of our revenue is reoccurring under contract, it is primarily affected by the volumes incurred by the customer using the underlying messaging service. Operating expenses are primarily driven by labor and telecom costs and are predictable from headcount and telecom volume usage, which is directly tied to customer utilization of messaging services. Cash and cash equivalents decreased approximately $20.9 million to a total balance of approximately $11.2 million as of January 31, 2009 from approximately $32.1 million as of July 31, 2008. This decrease in cash was primarily caused by approximately $18.8 million prepayment of principal on the Notes, a prepayment penalty of approximately $1.7 million on the Notes, approximately $1.8 million in purchases of treasury stock and approximately $3.2 million of fixed asset purchases for infrastructure upgrades. We also used approximately $3.7 million in cash to reduce accounts payable and accrual expenses.

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