A quarterly report filed with the Securities and Exchange Commission earlier this week by EarthLink led to the suspension of its stock trading and sent executives scrambling to explain themselves.
EarthLink said in the original filing that it did not believe available cash will be sufficient to meet the company's operating expenses and capital requirements through the end of this fiscal year, given its current burn rate.
Today's filing contradicted that statement: "The company believes that available cash will be sufficient to meet the company's operating expenses and capital requirements through the end of this fiscal year."
The Internet service provider, which said it was just "being conservative," stated in the SEC filing that its finances might be strained by an insufficient cash supply and that it expects to continue to incur losses at least through the end of 1997.
EarthLink said it planned to continue spending to build out its infrastructure, develop new service and product offerings, and build its sales and marketing and administrative organizations.
The company said it plans to raise additional cash from potential sources such as debt, leases, existing investors, large institutional investors, or strategic partners. The original filing said, "the company has no formal commitments for additional financing, and there can be no assurance that any such commitments can be obtained on favorable terms, if at all."
Afterwards, the company said that was just legalese.
Company CFO Barry Hall said "We filed our 10Q, and a section talks about capital resources...We try to be conservative, but we worded it a bit too harshly, and one of the wire services made it look like we were about to go out of business."
Hall noted that the company has no formal commitments for future financing but that deals have been offered and should be closed in the near future. The new filing went on to say that capital requirements depend on a number of factors, and while their timing and amount cannot accurately be predicted, many of these factors are within the control of management. "The company believes that financing alternatives are available to address the company's current liquidity requirements should the need arise."
Company CEO Garry Betty said EarthLink, like other ISPs, is continuing to generate a negative cash flow. "We spend money in advance of having subscribers on board in order to be able to accommodate growth...We've grown over 50 percent this year alone."
The company expects to reach cash flow neutrality, known as EBITDA, at 500,000 customers. The company currently has 340,000 customers.
For the quarter ending in June, EarthLink reported a net loss of $7.8 million, on revenue of $18.8 million.