ELNK

EarthLink Holdings Corp. (ELNK)

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EarthLink (ELNK)

Q4 2012 Earnings Call

February 19, 2013 8:30 am ET

Executives

Louis Alterman

Rolla P. Huff - Chairman, Chief Executive Officer and President

Bradley A. Ferguson - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

Analysts

Michael Crawford - B. Riley & Co., LLC, Research Division

Mark Kelleher - Dougherty & Company LLC, Research Division

Scott H. Kessler - S&P Equity Research

Presentation

Operator

Good morning. My name is Jenisha, and I will be your conference operator today. At this time, I would like to welcome everyone to Earthlink's Fourth Quarter and Full Year 2012 Earnings Call. [Operator Instructions] I would now turn the conference over to Louis Alterman, Senior Vice President of Finance of Earthlink. Please go ahead.

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 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 to the most comparable GAAP measures, please refer to our earnings release and the Form 8-K that has been furnished to the SEC, both of which are available on our website at earthlink.net.

After Rolla's opening comments, Brad Ferguson, our Chief Financial Officer, will discuss the quarter's financial results. Now I'd like to hand things over to Rolla Huff, our Chairman and CEO.

Rolla P. Huff

Thanks, Louis, and good morning to everyone joining us on the call today.

Before we get into the quarterly results, I wanted to take a step back and talk about EarthLink's progression since we began our evolution to a Business Services company 2 years ago. As you all are well aware, we're now nearly 2/3 of the way through a 3-year transformative integration that began at the end of 2010 when we purchased ITC^DeltaCom, followed shortly thereafter by One Communications.

We went into these deals with eyes wide open, discussing with our investors that there were substantial portions of the revenue bases that were declining and would continue to do so, and of course, the multiples we paid reflected the fact that these were declining businesses. We understood that the CLEC business model and the legacy products in that model wouldn't be the products that drive our growth over the long-term, but the acquisitions came with long-lived valuable fiber assets, as well as a customer base and cash flow, and our view of the best path forward was to use these assets and customers to build a new sustainable business.

Over the past 24 months, we put these assets together with additional IT services capabilities, some that were bought and others that we developed ourselves. We began to go to market in 2012 to address what, we are confident, is the substantial emerging opportunity to sell IT services to mid-market business customers. We're at the midst of the integration. We're still early in the new sales motion and nothing is easy, but our growth products are getting substantial traction. More specifics on this in a minute. And I'm more convinced than ever that we're positioning Earthlink to fully participate in a massive wave that is just beginning to form.

That wave is being driven by the need for all but the very smallest business customers to move more and more of their business model to the web without compromising the security of their data and the personal information that their customers send them. These businesses are recognizing that their top lines are not keeping up with the ever-increasing cost of IT, IT infrastructure, data security and regulatory compliance requirements. It is precisely because of that reality that Earthlink has been developing an integrated set of capabilities for customers to choose from. These capabilities will allow customers to variabilize their IT cost structure, while operating their enterprise-class operating platforms and expertise.

Our differentiated blend of secured, near-ubiquitous IP connectivity, state-of-the-art cloud platforms and emerging control point technology, as well as our history of outstanding customer service, is now starting to be recognized by industry groups and analysts that cover this substantial technology shift. We are increasingly being included in the list of companies that are leaders in the space. Just this week, Earthlink Business was ranked, not just on the list, but as the top managed services company by MSPmentor, who ranks the Top 100 Managed Services Providers. That's an important recognition for Earthlink, and we'll be sending out a press release in the coming days announcing this. There is much work still to do, but our long-term opportunity and potential has substantially improved over the past 24 months. Over these past 2 years, we've made significant strides on our top line trajectory.

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