EarthLink: Business Segment Remains Crucial to Growth

EarthLink anticipates continuing its metamorphosis this year as its business segment proves even more critical to its growth. 

“Our strategy for growth is for EarthLink to serve as an IT services company for businesses with IT and network security needs,” the company stated last week in an annual filing with the Securities and Exchange Commission.

Through a number of acquisitions in recent years, the Atlanta-based company once synonymous with home dial-up Internet access has transformed into a network and communications provider for businesses.

In 2011, EarthLink’s Business Services segment brought home 71 percent of EarthLink’s revenues. That figure is not only up from a modest 26 percent in 2010, EarthLink anticipates that business services revenues will become an even greater portion of its sales this year as its consumer revenues and residential customer base continues to plunge. In the fourth quarter of 2011, the Business Services segment accounted for 75 percent of revenues. In an investor presentation, EarthLink also said it’s moved to reduce its business churn.

The company is aiming to sell larger and more complex solutions to its business customers, and it’s partially relying on channel partners to drive growth. EarthLink said in the investor presentation that it’s signing new agent and VAR agreements.

“We believe we are on a trajectory to show quarterly sequential growth in our business segment revenues as we exit this year,” EarthLink CEO Rolla Huff said in a statement that was released as part of the company’s quarterly and annual earnings.

EarthLink relies on a number of network providers such as AT&T, Comcast, Level 3 Communications and Time Warner Cable to offer consumer Internet and VoIP phone services, and several of its contracts with these companies expire over the next two years.

“Our strategy for consumer access subscribers is to engage in limited sales and marketing efforts and focus instead on retaining customers and adding customers that are more likely to produce an acceptable rate of return,” EarthLink stated in the regulatory filing. “If we do not maintain our relationships with current customers or acquire new customers, our revenues will decline and our profitability will be adversely affected,” added the company, whose base of average consumer access subscribers decreased to 1.5 million at the end of last year from 2.3 million in 2009.

EarthLink said it’s continuing to integrate acquired companies like ITC^DeltaCom and One Communications as it concentrates its marketing efforts on its nationwide bundle of services, including cloud, managed security and IT support services. EarthLink also has expressed interest in potential acquisitions in order to grow. The company’s latest acquisition was in December when it completed the purchase of the IT Solution Center and hosted application business from New York-based Synergy Global Solutions.

Earlier this month, EarthLink reported a 2011 profit of $34.6 million, or $0.32 per share, on revenues of $1.31 billion. Several acquisitions contributed to a more than doubling of annual revenues. EarthLink only posted revenues of $622.2 million in 2010, although its $81.5 million profit was better than last year’s income.

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