ELNK

EarthLink Holdings Corp. (ELNK)

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EarthLink, Inc. (ELNK)

Q3 2012 Earnings Call

October 30, 2012 8:30 AM ET

Executives

Louis Alterman – VP, Finance

Rolla Huff – Chairman and CEO

Joe Wetzel – President and COO

Brad Ferguson – EVP and CFO

Analysts

Mark Kelleher – Dougherty & Company

Barry McCarver – Stephens Inc

Mike Crawford – B Riley & Co

Donna Jaegers – DA Davidson

Presentation

Operator

Good morning. My name is Sherit, and I will be your conference operator today. At this time, I would like to welcome everyone to the EarthLink Third Quarter 2012 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session.

I would now like to turn the conference over to Mr. Louis Alterman, Vice President of Finance for EarthLink. Please go ahead, sir.

Louis Alterman

Thanks, and welcome to our call. During today’s call, we will refer to earnings slides that are available for you to view in the Investor Relations section of our website at www.earthlink.net. Following our comments, there will be an opportunity for questions.

Before we continue, I would like to point out that certain statements contained in our earnings release and on this conference call are forward-looking statements rather than historical facts that are subject to risks and uncertainties that could cause actual results to differ materially from those described.

With respect to such forward-looking statements, the company seeks the protections afforded by the Private Securities Litigation Reform Act of 1995. These risks include a variety of factors, including competitive developments and risk factors listed in the company’s SEC reports and public releases. Those lists are intended to identify certain principal factors that could cause actual results to differ materially from those described in the forward-looking statements, but are not intended to represent a complete list of all risks and uncertainties inherent to the company’s business.

In an effort to provide useful information to investors, our comments today also include non-GAAP financial measures. For details on these measures, including why we use them and a reconciliation of the most comparable GAAP measures, please refer to our earnings release and Form 8-K that has been furnished at SEC, both of which are available on our website earthlink.net.

After Rolla’s comments, Joe Wetzel, our President and Chief Operating Officer will provide an integration update; and Brad Ferguson, our Chief Financial Officer will discuss the quarter’s financial results.

Now, I would like to hand things off to Rolla Huff, our Chairman and CEO.

Rolla Huff

Thanks, Louis, and thanks to everyone who is joining us this morning. We know a significant number of people who tune into these calls, live in the Northeast and have been affected by Hurricane Sandy. We just want to express that to all of you that you are on our thoughts and we hope that everyone in your families are out of harm’s way. If you could not tune into this live and are reading a transcript or listening to the replay, please don’t hesitate to reach out after the fact to us with your questions.

In the third quarter, we continued our company’s transformation into being a nationwide provider of IT services for the midmarket business customer. While our transformation began less than two years ago, I think we’ve made substantial progress. I have to tell you I’ve never been more convinced that the need for IT services is rapidly emerging in this marketplace. Customers of all sizes are realizing the opportunity, and in fact the requirement to leverage the power of cloud based services. The need for IT organizations to become more cost-effective while increasing information security and optimizing application performance in an increasingly distributed and mobile world is growing every day. So I have no doubt this is the right opportunity for EarthLink to be pursuing.

The fiber networks that we have acquired have given us an important core foundation on which to build our IT services platform. The IT service companies we acquired have given us the ability to more quickly get products into this marketplace. And of course our base of 150,000 business customers has given us a better understanding of what drives propensity to buy.

Today, as shown on slide two, we announced the next step in the evolution of our IP network and our cloud services platform. We will invest $45 million over the next four quarters to increase the capacity of our core IP network, as well as make our next generation cloud architecture more ubiquitous with superior, underlying performance capabilities. We will expand our application management suite of services, which include hosting, networking, security and support in our existing data center in Rochester, New York, with completion in Q1 of next year.

We will extend these services into four new data centers in San Jose, Chicago, Dallas, and South Florida with completion in Q3 – by the end of Q3 next year. The data center rollouts we discussed at our Investor Day in June are included in this plan, although we have significantly expanded the scope of what we’re building with our new second-generation architecture in five locations, with an enhanced, underlying IP infrastructure.

In addition, we’ll now be able to offer collocation as a component of an IT solution bundle in the four new data centers. We have recognized the need to give customers a path to leveraging our cloud-based services without having to make the decision to go completely virtual in one step.

Read the rest of this transcript for free on seekingalpha.com