EarthLink Raises Guidance Again

November 3rd, 2015 by · 3 Comments

While they reported a loss in Q3 and saw lower revenue and EBITDA, EarthLink once again managed to surprise the market to the upside. 

Revenues of $270.9M were down 4.5% from the prior quarter, while adjusted EBITDA of $61.4M were down 7.1% and the company lost $0.10 per share.  But analysts had been rather more pessimistic, with consensus down below $265M and a few pennies worse on EPS.

The quarter’s results were enough for EarthLink to raise 2015 guidance across the board to revenues of $1,085-1,092, adjusted EBITDA of $235-245, and net loss of $(48M)-$(44M).  Capex guidance was cut to $80-90M.  And EarthLink was also able to take its cash flow and pay off $30M in  8.875% debt and $15M in revolving credit.

Each quarter this year has seen EarthLink do quite well relative to some pretty low expectations.  They are focusing on the carrier and multi-site enterprise businesses, looking to turn the corner on growth.

But at some point one has to do well on an absolute scale.  It’s not clear how they do that with the assets and model they currently have, at least not yet.  The alternative of course is to at least to stabilize the business and restore some value before selling it.  That still seems like the most likely endgame to me.

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Categories: CLEC · Cloud Computing

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3 Comments So Far

  • Anonymous says:

    Interesting discussion on the analyst call around sales motion. It would appear they’ve taken non-contributing sales personnel out of the business. If you’re building for growth where are the sales QBR headcount additions? Also, was it me or did they kind of dance around the answer? finally, i am hearing ELNK laid off a considerable amount of QBRs when they were restructuring and then reversed the prior reductions to some extent but the damage was done. One has to wonder when the effects of these actions will appear in their overall numbers. Clearly the prior opex reductions and consolidations have helped the bottom line but those take you only so far. Lets see when all that is done benefiting the bottom line where the magic is? I don’t think the team at ELNK can really turn the corner so one then has to guess a sale? it can’t happen fast enough to out run the decline in their main businesses as well as offset the attrition they are experiencing b/c the backoffice systems are a nightmare.

  • Grant G. says:

    I would agree the results while interesting pose a deeper question. It would appear the improvements seen by ELNK are almost 100% of the cash flow improvement spanning 3 areas:

    1. Refinancing debt that is providing for debt service savings. Obviously this is a win fall for more than just ELNK but worth pointing out.

    2. Access savings (or reduction in third party costs to VZ, ATT, etc.). They brought in a few folks who had done this at XO and Global Crossing previously. While these saving are attained by renegotiating contracts to get better leveraged spend and or in some cases eliminating some contracts and moving existing capacity either on-net or to better contracted suppliers. Additionally those are one time actions that certainly benefit opex savings but aren’t very innovative and don’t really create new sales. Still give ELNK good marks for aggressively attacking what was clearly an area that had opportunity savings abound.

    (3) Reduction in forces. The nice thing about bringing in an entirely new leadership team is you can essentially say there is a large number of duplicative forces doing the same job. So you get to dump a bunch of them, close the offices (real estate savings) many of the former employees worked in. Now as i understand it ELNK also cut deep into sales teams and eliminated layers which isn’t a bad thing but when you get rid of managers their employees tend to follow. Will be interesting to see how ELNK grows with fewer sales headcount. BTW, I am sure finance guru Louie will say reps are higher productivity associated to their contributions….you expect him to say that. in the end bleeding sales teams doesn’t provide the long term growht you need.

    • Anonymous says:

      On #2, a favorite tactic used by the XO/GC crew now running access managemen is merely a dispute accrual adjustment.

      They simply increase the disputes with access vendors, then convince the auditors that they’ll win 50% of them and voila you’ve got this cosmetic but very real financial reporting impact.

      Many of the disputes are legit but their predecessors running access at ELNK never initiated the disputes. These guys do it and the real trick is convincing the auditors to take at least 50% of the dispute to the bottom line right now. (They’ve done this before, so they’re very good at making their case.)

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