MindSpring Q2 Results and Accelerated Growth Initiative - Company Financial Information

Edge: Work-Group Computing Report, August 2, 1999

MindSpring Enterprises, Inc. (Nasdaq:MSPG), a leading national Internet Service Provider, Tuesday announced results for the second quarter ended June 30, 1999.

MindSpring reported earnings per share, excluding tax-effected amortization expense ("EPS A") of $0.11 for the second quarter. Excluding the tax-effected amortization charges, MindSpring recorded income for the second quarter of 1999 of $7,521,000, compared with income of $4,690,000, or $0.08 per diluted share, in the first quarter of 1999, and income of $2,733,000, or $0.05 per diluted share, for the second quarter of 1998.

Total revenues for the second quarter were $85,664,000, compared with $61,628,000 for the prior quarter and $25,060,000 for the second quarter of 1998. Earnings before interest expense, taxes, depreciation and amortization ("EBITDA") for the second quarter of 1999 was $15,718,000, or $0.24 per diluted share, compared with $11,028,000, or $0.18 per diluted share for the prior quarter and $5,088,000, or $0.10 per diluted share in the same quarter of 1998. Including amortization, net loss for the second quarter was $7,081,000, or $(0.11) per share, compared with $3,304,000, or $(0.06) per share for the prior quarter, and net income of $2,020,000, or $0.04 per diluted share for the second quarter 1998. The increase in the loss per share is attributable to the second quarter 1999 being the first full quarter of amortization expense related to the Netcom acquisition, which was closed in the first quarter of 1999.

MindSpring had approximately 1,228,000 customers at the end of the second quarter, up from 1,157,000 at the end of the prior quarter and 393,000 at the end of the second quarter 1998. Included in the total are approximately 55,000 Web Hosting customers, up from 47,000 in the prior quarter and 15,000 at the end of the second quarter 1998, and approximately 3,000 dedicated Internet access accounts.

During the second quarter, MindSpring launched MindSpring Biz, a new division of MindSpring that focuses on providing a complete package of Internet access and Web-based tools to small and medium size businesses. MindSpring also continued its development of broadband service offerings with the announcements of Digital Subscriber Line (DSL) access agreements with BellSouth Corporation (NYSE:BLS) and Covad Communications (Nasdaq:COVD). These agreements will allow the Company to offer DSL services over large portions of the U.S.

"We are very pleased with our second quarter financial results and accomplishments. We have successfully integrated the Sprynet and Netcom subscribers and employees, our operations are solid, and we are poised to take on new challenges," said Charles Brewer, MindSpring's chairman and chief executive officer. "We see an important market opportunity to grow significantly faster than we had planned. Accordingly, we are embarking on an aggressive organic growth initiative designed to accelerate our growth rate through increased sales and marketing expenditures beginning in the third quarter of 1999 and significantly ramping upward in the fourth quarter of 1999 and the first quarter of 2000. Our plan is to increase our sales and marketing expenditures through the first quarter of 2000 by approximately $45 - $55 million above our original plan, which was targeted at 20% of revenue. Our marketing spending will increase across the board and will include a major television advertising campaign. We have retained Fallon McElligott, a leading advertising agency, to work with us on our marketing program. Our goal is to reach two million subscribers by the middle of next year. While the aggressive growth plan will have a near-term negative impact on our profitability, we believe that this plan will enable us to build the MindSpring brand nationwide, more rapidly grow our subscriber base, and become a stronger, more valuable company." Brewer concluded, "While we do plan to increase our sales and marketing expenditures in pursuit of more aggressive growth, we will certainly continue to operate our business with the financial discipline that has distinguished our performance in the past."

MindSpring is a leading national Internet service provider focused on delivering outstanding service and support to its customers. MindSpring's dial-up subscribers can browse the World Wide Web, send electronic mail, participate in informative on-line chats and access over 20,000 newsgroups. MindSpring offers local Internet service in more than 890 locations throughout the United States. The MindSpring Biz division is a leading provider of Web hosting services and domain registrations, and offers other value-added services such as Web page design.

                  MINDSPRING ENTERPRISES, INC.
                 Unaudited Financial Highlights
        (Dollars in thousands, except per share amounts)

                     Three Months Ended         Six Months Ended
                           June 30,                  June 30,
Statements of         1999         1998         1999         1998
 Operations Data:
Revenues:
 Access           $  71,620    $  21,667    $ 124,044    $  39,878
 Business services   14,044        3,393       23,248        6,566
  Total revenues     85,664       25,060      147,292       46,444

Costs and expenses:
 Cost of revenues $  29,120    $   7,585    $  50,518    $  14,192
 Gross margin        56,544       17,475       96,774       32,252

 General and
  administrative     26,460        8,512       45,891       16,311
 Selling             14,366        3,875       24,137        6,928
 EBITDA(a)           15,718        5,088       26,746        9,013
 Depreciation         4,692        1,905        8,215        3,625
 Acquired customer
  base amortization  23,720        1,189       37,043        2,341
Operating (loss)
 income             (12,694)       1,994      (18,512)       3,047
Interest income
 (expense), net       1,183           88        1,487          (75)
(Loss) Income
  before taxes      (11,511)       2,082      (17,025)       2,972
Income tax benefit
 (provision)          4,430          (62)       6,640          (92)
Net (loss) income $  (7,081)   $   2,020    $ (10,385)   $   2,880
Net income plus
 amortization     $   7,521    $   2,733    $  12,211    $   4,285
Net (loss) income
 per share:
  Basic           $   (0.11)   $    0.04    $   (0.17)   $    0.06
  Diluted                      $    0.04                 $    0.06
EPS   A(b):
 Basic            $    0.12    $    0.06    $    0.20    $    0.11
 Diluted          $    0.11    $    0.05    $    0.19    $    0.11

Weighted average
 common shares
 outstanding:
  Basic              62,610       47,345       59,899       46,313
  Diluted            65,431       50,280       62,757       49,176


All share and per share amounts have been adjusted to reflect the
two-for-one stock split effected in June 1999.

                                          June 30,     December 31,
                                           1999            1998
Balance Sheet Data:                     (Unaudited)
Cash                                     $388,027        $167,743
Current assets other than cash             13,908           7,457
Property and equipment, net                66,998          35,841
Intangible and other assets               255,023          36,558
Total assets                              723,956         247,599
Current liabilities                        52,376          38,094
Long-term liabilities                     180,972           2,424
Stockholders' equity                      490,608         207,081

Other Operating Data:
Approximate number of subscribers
 at end of period                       1,228,000         693,000
Number of employees at end of period        1,682             977

(a) EBITDA represents earnings before interest expense, income taxes,
depreciation and amortization. EBITDA is not a measurement of financial
performance under generally accepted accounting principles and should not
be considered an alternative to net income as a measure of performance.

(b) EPS   A represents earnings per share, excluding tax-effected
amortization expense. EPS   A is not a measurement of financial
performance under generally accepted accounting principles and should not
be considered an alternative to net income as a measure of performance.


                  MINDSPRING ENTERPRISES, INC.
       Unaudited Selected Financial Statement Information
        (Dollars in thousands, except per share amounts)

                                            Three Months Ended
                                            June 30,   March 31,
Statements of Operations Data:               1999        1999
Revenues:
 Access                                    $ 71,620    $ 52,424
 Business services                           14,044       9,204
  Total revenues                             85,664      61,628

Costs and expenses:
 Cost of revenues                          $ 29,120    $ 21,398
 Gross margin                                56,544      40,230

 General and administrative                  26,460      19,431
 Selling                                     14,366       9,771
 EBITDA(a)                                   15,718      11,028
 Depreciation                                 4,692       3,523
 Acquired customer base amortization         23,720      13,323
Operating (loss)                            (12,694)     (5,818)
Interest income, net                          1,183         304
(Loss) before taxes                         (11,511)     (5,514)
Income tax benefit                            4,430       2,210
Net (loss)                                 $ (7,081)   $ (3,304)
Net income plus amortization               $  7,521    $  4,690
Net (loss) per share - Basic               $  (0.11)   $  (0.06)

EPS   A(b)
Basic                                      $   0.12    $   0.08
Diluted                                    $   0.11    $   0.08

Weighted average common shares outstanding:
Basic                                        62,610      57,202
Diluted                                      65,431      60,131

All share and per share amounts have been adjusted to reflect the
two-for-one stock split effected in June 1999.

Other Operating Data:
Approximate number of
 subscribers at end of period             1,228,000   1,157,000
Number of employees at end of period          1,682       1,790