Helio continues drag on EarthLink results

EarthLink Inc. posted a third-quarter loss driven by restructuring costs and its investment in mobile virtual network operator Helio L.L.C., but promised that it was in the midst of a turnaround.
EarthLink’s loss for the quarter was $79.4 million on revenues of nearly $300 million. The company said that figure included losses of $41.9 million from Helio and a $54.8 million charge for restructuring.
EarthLink’s stock was down slightly after the news to around $7.50 per share.
EarthLink is in the process of cutting its workforce by about 900 positions, including closing several offices, in response to financial pressures. Helio, which operates as a separate entity, also reduced its workforce by about 100 positions.
SK Telecom, which had been a 50-50 partner with EarthLink in the formation of Helio, agreed during the third quarter to an additional investment of up to $270 million in the venture, which would “allow Helio to continue to grow and permit EarthLink to retain a meaningful ownership interest . while not requiring the company to provide additional capital,” according to EarthLink president and CEO Rolla Huff.
Kevin Dotts, the company’s CFO, told investors that “while EarthLink is participating in some potentially attractive growth opportunities, the company is no longer investing significant amounts of current operating cash. However, due to the timing of the restructuring, only limited benefits of the restructuring are reflected in our third quarter results.”
During the third quarter, EarthLink said it provided Helio with a $30 million loan to cover day-to-day expenses. The company said it would not participate in future funding rounds for Helio, but would “retain a meaningful ownership stake” in the company. EarthLink added that its investment balance in Helio was reduced to zero during the quarter, and the company will no longer record a net loss for its equity interest in Helio under generally accepted accounting practices-so EarthLink expects its net income for 2008 to be positive.
Helio generated $51.7 million in revenue during the third quarter but still posted a net loss of $92.3 million, reflecting costs of $48 million per month during the quarter-which is even higher than its second-quarter spending rate of about $40 million per month. The MVNO has so far raised nearly $800 million from its parent companies.
Helio has said that its customer base surpassed 130,000 during the quarter, and that it expects to have between 200,000 and 250,000 subscribers by the end of the year.