EarthLink Shares Climb on 3Q Earnings, Raised Forecast

By Josh Long

Shares of EarthLink Inc. were up about 8 percent in late morning trade Thursday on the NASDAQ after the communications company reported third-quarter earnings and raised its forecast for the year.

Revenues climbed 146 percent over the year-ago quarter to $357.3 million, reflecting the acquisitions of ITC^DeltaCom and One Communications, but sales declined 2 percent from the previous quarter. Atlanta-based EarthLink posted a profit of $7.5 million or $0.07 per share, compared to net income of $21.4 million or $0.20 per share in the third quarter of 2010.

The company raised its forecast for the year, anticipating adjusting EBITDA of $325-$330 million, operating cash flow of $210-$225 million, capital expenditures of $105 to $115 million and net income of $29 to $33 million.

EarthLinks dramatic transition from a consumer-oriented ISP to a mostly business-focused telecommunications provider is evident in its revenues: Business services represented 74 percent of quarterly revenues, up from 23 percent in the third quarter of 2010.

EarthLink is working to revitalize some of the companies it has purchased, which were facing declining revenues at the time of the acquisitions. The company said it is making progress reversing that trend. In an investor presentation, EarthLink said revenues at ITC^DeltaCom were shrinking when the company was acquired, but the company noted revenues are now flat and are expected to grow prospectively. Revenues at One Communications, which EarthLink acquired last year, were shrinking at 16 percent. EarthLink said it expects to lower the decline in those revenues to 10 percent by the end of the year and set a path to growth.

EarthLink also mentioned it is doing a number of things to rapidly improve its revenue trajectory, including partnering with agent channels and introducing a national, unified product set in the fourth quarter, among other measures.