EasyLink Services International Corporation ("EasyLink" or "Company") (NasdaqCM: ESIC, www.easylink.com), a global provider of comprehensive messaging services and e-commerce solutions, reported fiscal third quarter 2010 revenue of approximately $20.6 million, operating income of approximately $3.3 million, net income of approximately $2 million, earnings per share of $.06 per share, and adjusted earnings before income taxes, depreciation and amortization (“Adjusted EBITDA”) of approximately $5.9 million.

“I am extremely proud of the results turned in by the EasyLink team this quarter,” said Tom Stallings, CEO of EasyLink. “We continue to operate in a turbulent worldwide business environment and yet our team held our revenues steady while reducing our costs and expenses resulting in 28.5% Adjusted EBITDA margins.”

Financial Review

Revenue for the third quarter of fiscal 2010 was approximately $20.6 million compared to $21 million in the third quarter of fiscal 2009. We experienced another quarter of growth in our enterprise fax business, but overall revenue slightly declined due to lower volumes in our telex and other messaging services businesses. Gross margin was 73.2% in the third quarter of 2010 which is compared to 69.1% in the third quarter of fiscal 2009. Gross margins are expected to remain in the 70% to 72% range for the rest of the fiscal year.

Total revenue for the nine-month period ended April 30, 2010 was approximately $61.5 million compared to approximately $64.7 million for the first nine months of fiscal 2009. The absence of recessionary affect on revenue in the first quarter of fiscal 2009 combined with the continuing reduction in telex volumes contributed to the year-over-year decline in revenue. Gross margin for the nine months was 71.9% compared to 70.6% for the first nine months of fiscal 2009.

On Demand Messaging revenue for the third quarter of fiscal 2010, which includes fax, production messaging, document capture and management and e-mail services, was approximately $10.4 million compared to approximately $10.7 million in the third quarter of fiscal 2009. On Demand Messaging gross margin was 71.8% in the third quarter and represented 50.7% of total revenue. Supply Chain Messaging revenue for the third quarter of fiscal 2010, which includes electronic data interchange (“EDI”) products and services and telex was approximately $10.2 million compared to approximately $10.3 million in the third quarter of fiscal 2009. Supply Chain messaging gross margin was 74.7% in the third quarter and represented 49.3% of total revenue.

Net income attributable to common shareholders for the third quarter of fiscal 2010 was approximately $1.8 million, or $0.06 per basic and diluted share. Net income attributable to common shareholders for the nine-month period ended April 30, 2010 was approximately $4.0 million, or $0.15 per basic share and $0.14 per diluted share. Adjusted EBITDA, which includes non-cash compensation expense, was approximately $5.9 million for the third quarter of fiscal 2010 and approximately $15.9 million for the nine-month period ended April 30, 2010.

EasyLink provides adjusted EBITDA in this press release as additional information regarding its operating results. This measure is not in accordance with, or an alternative for, generally accepted accounting principles (“GAAP”) and may be different from non-GAAP EBITDA measures used by other companies. EasyLink believes that this presentation of adjusted EBITDA facilitates investors’ understanding of its historical operating trends, because it provides an important supplemental measurement in evaluating the operating results of our business. This press release should be read in conjunction with the Company’s Form 8-K earnings release filed with the Securities and Exchange Commission for the fiscal quarter ended April 30, 2010.

Investor Conference Call

The Company plans to hold a conference call on Friday, June 4, 2010, at 8:30 a.m. EDT to discuss the third quarter fiscal year 2010 results in detail.

The Company invites all those interested in hearing management’s discussion to join the call by dialing (877) 734-4565 (U.S. and Canada) or (678) 905-9374 (International). If you are unable to participate and would like to hear a replay of the call, an audio reply will be available on EasyLink’s investor relations website at http://ir.easylink.com/events.cfm.

Forward-Looking and Cautionary Statements

Except for the historical information and discussion contained herein, statements contained in this press release may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from those indicated by such forward-looking statements. These and other risk factors are set forth under the caption “Risk Factors” in the Company’s Annual Report on Form 10-K, the Company’s quarterly reports on Form 10-Q and the Company’s other filings with the Securities and Exchange Commission. These filings are available on a website maintained by the Securities and Exchange Commission at www.sec.gov.

The Company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein as a result of new information, future events or otherwise.

About EasyLink Services International Corporation

EasyLink Services International Corporation (EasyLink) (NasdaqCM: ESIC), headquartered in Norcross, GA, offers a comprehensive portfolio of “any to any” business messaging and transaction services that can bridge the most challenging technology gaps while creating significant cost efficiencies across an organization. From Desktop Fax and Production Messaging to EDI, Managed File Transfer, Document Capture and Management, Secure Messaging and Telex we help companies drive costs out of their operations. With over two decades of servicing customers around the globe, EasyLink has established a proven track record for providing effective, reliable and secure communications. For more information on EasyLink, visit www.easylink.com.

EASYLINK SERVICES INTERNATIONAL CORPORATION

Consolidated Statements of Income

(in thousands, except per share data)
 
  Three Months Ended   Nine Months Ended
April 30, April 30,

2010(unaudited)
 

2009(unaudited)

2010(unaudited)
 

2009(unaudited)
 
Service revenue $ 20,593 $ 21,039 $ 61,495 $ 64,710
 
Cost of services 5,509 6,501 17,272 19,023
Gross Profit 15,084 14,538 44,223 45,687
 
Operating expenses:
Product development and enhancement 1,884 1,774 5,500 5,902
Selling and marketing 3,087 3,124 9,584 9,780
General and administrative 6,765 6,759 20,634 22,649
Intangible impairment - - - 4,246
 
Operating income 3,348 2,881 8,505 3,110
 
Other income (expense):
Interest and investment income 7 11 21 152
Interest expense

 
(336) (1,585) (1,264) (10,603)
Foreign exchange gain 249 168 503 304
Other income (expense) 34 1 3 100
 
Income (Loss) before income taxes 3,302 1,476 7,768 (6,937)
 
Provision for income taxes 1,313 240 3,107 995
 
Net income (loss) 1,989 1,236 4,661 (7,932)
 
Dividends on preferred stock (209) (49) (642) (149)
 
Income (loss) attributable to common stockholders $ 1,780 $ 1,187 $ 4,019 $ (8,081)
 
Basic income (loss) per common share $ 0.06 $ 0.05 $ 0.15 $ (0.33)
 
Diluted income (loss) per common share $ 0.06 $ 0.05 $ 0.14 $ (0.33)
 
Weighted average number of common shares outstanding – basic 29,110 24,243 27,199 24,460
 

Weighted average number of common shares outstanding – diluted
29,793 24,670 29,519 24,460
 

EASYLINK SERVICES INTERNATIONAL CORPORATION

Consolidated Balance Sheets

(in thousands) (Unaudited)
 
  April 30,   July 31,
  2010     2009  
ASSETS
Current assets:
Cash and cash equivalents $ 15,644 $ 10,972
Accounts receivable, net 13,220 11,509
Other current assets   2,722     3,836  
Total current assets 31,586 26,317
 
Property and equipment, net 6,077 8,231
Goodwill and other intangible assets, net 51,179 56,248
Other long term assets   3,147     5,521  
Total assets $ 91,989   $ 96,317  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 9,686 $ 9,689
Current portion of long term debt 9,635 9,495
Other current liabilities   2,032     1,847  
Total current liabilities 21,353 21,031
 
Long term debt 10,266 17,512

Other liabilities
  322     554  
Total liabilities 31,941 39,097
 
Stockholders' Equity:
Preferred stock (a) (a)
Common Stock 302 273
Additional paid-in capital 138,749 138,463
Treasury Stock (2,122 ) (2,122 )
Accumulated other comprehensive loss (6,450 ) (4,442 )
Accumulated deficit   (70,431 )   (74,952 )
Total stockholders' equity   60,048     57,220  
Total liabilities and stockholders' equity $ 91,989   $ 96,317  
(a) less than 1,000
 

EASYLINK SERVICES INTERNATIONAL CORPORATION

Calculation of Adjusted Earnings before Interest, Taxes, Depreciation and Amortization (unaudited, includes non-cash compensation and intangible asset impairment)

(in thousands)
 
  Three Months Ended April 30,   Nine Months Ended April 30,
2010   2009 2010   2009
Net Income (Loss) $ 1,989 $ 1,236 $ 4,661 $ (7,932 )
Interest 336 1,585 1,264 10,603
Taxes 1,313 240 3,107 995
Depreciation and amortization 2,006 2,064 6,139 6,469
Non-cash compensation 221 166 679 739
Intangible asset impairment   -   -   -   4,246  
Adjusted EBITDA $ 5,865 $ 5,291 $ 15,850 $ 15,120  

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