The company, created by theof NetZero and Juno Online, reported a third-quarter profit of $1.5 million, or 3 cents a share, based on generally accepted accounting principles (GAAP). The quarter ended Sept. 30. That's compared with a loss of $2.7 million, or 7 cents a share, in the previous quarter ended June 30.
Profitability was reached in part because of a streamlined cost structure and its success in attracting people who want to pay less for Internet access, according to analysts.have been saying that cost-cutting and efficient operations would help United become profitable once its revenue increased.
"The profits are really coming from lower telecom costs and from lower churn, which translates into a lower cost for customer acquisition," First Albany analyst Youssef Squali said. Churn rate is the rate at which customers drop their subscriptions.
Revenue for the quarter increased 7 percent from the previous quarter to $58.1 million.
Earnings before interest, taxes, depreciation and amortization (EBITDA) hit $9 million, up 27 percent from last quarter's $7.1 million. Free cash flow declined to $7.7 million from last quarter's $12.3 million as a result of a $3.8 million payment for employee bonuses.
Excluding one-time charges, United reported a pro forma net income of $6.5 million, or 15 cents a share, beating Wall Street analysts' estimate of 11 cents a share, according to a survey of analysts by First Call.
The company pointed to subscriber growth as the highlight of the quarter. It said the number of subscribers grew 141,000, or 8 percent, to 1.85 million, most of them subscribing to the company's dial-up service. Including people who use United's free ISP offering, total active users reached 4.8 million.
United reported growth despite industrywide woes with dial-up subscribers. Last month, rival ISP EarthLink said its dial-up subscriber base declined 5.2 percent from the previous year to 3.97 million. Market leader America Online last quarter reported near-stagnant , with subscriptions rising from 35.1 million to 35.3 million sequentially.
United expects it will add 260,000 to 300,000 new paid subscribers once its $8.4 millionof Kmart's BlueLight ISP business is completed. United will then have between 2.1 million and 2.15 million paid subscribers by the end of the calendar year.
United charges $9.95 a month for Internet access, in contrast to AOL's $23.90 and MSN and EarthLink's $21.95.