EarthLink Announces First Quarter 2013 Results

                EarthLink Announces First Quarter 2013 Results

Reports Strong Sales Traction

Increases 2013 Full-Year Revenue and Adjusted EBITDA Guidance

PR Newswire

ATLANTA, May 2, 2013

ATLANTA, May 2, 2013 /PRNewswire/ --EarthLink, Inc. (NASDAQ: ELNK) today
announced financial results for its first quarter ended March 31, 2013.

Highlights for the first quarter include:

  oNet loss of $(236.4) million (which includes a pre-tax non-cash goodwill
    impairment charge of $256.7 million)
  oNet Loss Before Goodwill Impairment (a non-GAAP measure) of $(7.5) million
  oAdjusted EBITDA (a non-GAAP measure) of $61.5 million
  oNet cash provided by operating activities of $31.8 million
  oUnlevered Free Cash Flow (a non-GAAP measure) of $19.0 million
  oIncreased full year revenue and Adjusted EBITDA guidance

"The first quarter of 2013 was one of substantial progress for our company. We
opened several new next-generation data centers, completed the majority of our
new unique fiber network routes and had our best quarter of sales bookings
since 2011," said EarthLink Chairman and Chief Executive Officer Rolla P.
Huff. "We expect this momentum to further accelerate throughout 2013 as we
continue to approach the inflection point of sustained positive growth."

Financial and Operating Results

EarthLink's total company revenue in the first quarter of 2013 was $320.0
million, as compared to $331.6 million in the fourth quarter of 2012 and
$344.4 million in the first quarter of 2012. EarthLink's business services
revenue was $247.8 million in the first quarter of 2013, compared to $256.5
million in the fourth quarter of 2012 and $260.3 million in the first quarter
of 2012. Business services segment revenue, which accounted for 77% of
EarthLink's revenue in the first quarter of 2013, declined just 0.8% versus
the prior quarter, when normalized for non-recurring settlements.

EarthLink's retail growth business, which includes MPLS, Hosted VoIP and IT
Services, reached an approximate $148 million annualized revenue run rate in
the first quarter of 2013, reflecting a 21% year-over-year organic growth
rate. Total growth product revenues, including Wholesale, reached an
approximate $300 million annualized revenue run rate. New recurring sales
bookings increased 14% in the first quarter of 2013 versus the prior quarter,
and 5% versus the year-ago quarter. In the first quarter of 2013, 65% of new
bookings were comprised of EarthLink's growth products, versus 40% of sales
bookings from growth products in the year-ago quarter.

EarthLink's consumer segment continues to perform well, with broadband
services comprising 69% of consumer access revenue in the first quarter of
2013. Subscriber churn in the consumer segment was a historical low of 2.2%
for the first quarter of 2013 compared to 2.3% in the fourth quarter of 2012
and 2.5% in the first quarter of 2012.

EarthLink's selling, general and administrative expenses were $108.1 million,
or 34% of revenue, for the first quarter of 2013, as compared to expenses of
$111.3 million, or 34% of revenue, for the fourth quarter of 2012, and $110.1
million, or 32% of revenue, for the year-ago quarter.

Profitability and Other Financial Measures

Net loss was $(236.4) million, or $(2.30) per share, in the first quarter of
2013, as compared to net income of $0.0 million, or $0.00 per share, in the
fourth quarter of 2012 and $7.3 million, or $0.07 per share, for the first
quarter of 2012. Net Loss Before Goodwill Impairment (a non-GAAP measure, see
definition in "Non-GAAP Measures" below) was $(7.5) million, or $(0.07) per
share, in the first quarter of 2013. During the first quarter of 2013,
EarthLink recorded a $256.7 million pre-tax non-cash impairment charge to
goodwill. Following a decline in its market capitalization during the quarter,
EarthLink performed an interim goodwill test. The primary factor contributing
to the impairment was a change in the discount rate and market multiples used
in the analysis.

EarthLink generated Adjusted EBITDA (a non-GAAP measure, see definition in
"Non-GAAP Measures" below) of $61.5 million in the first quarter of 2013, as
compared to $66.5 million in the fourth quarter of 2012 and $77.6 million in
the first quarter of 2012.

Balance Sheet and Cash Flow

Net cash provided by operating activities was $31.8 million in the first
quarter of 2013 as compared to $12.5 million in the fourth quarter of 2012 and
$66.2 million in the year-ago quarter.

During the first quarter of 2013, EarthLink generated Unlevered Free Cash Flow
(a non-GAAP measure, see definition in "Non-GAAP Measures" below) of $19.0
million, as compared to $(0.2) million during the fourth quarter of 2012 and
$45.9 million in the first quarter of 2012. EarthLink's capital expenditures
were $42.5 million for the first quarter of 2013.

As of March 31, 2013, the company had cash and marketable securities of $192.1
million.

Business Outlook

The following statements are forward-looking, and actual results may differ
materially. See comments under "Cautionary Information Regarding
Forward-Looking Statements" below. EarthLink undertakes no obligation to
update these statements.

Today EarthLink announced increased revenue and Adjusted EBITDA guidance for
the full year 2013. Management now expects revenue of $1.255 to $1.268
billion; Adjusted EBITDA of $214 million to $227 million; capital expenditures
of $140 million to $155 million; and net loss of $(276) million to $(282)
million for the full year 2013.

Non-GAAP Measures
Adjusted EBITDA is defined as net income (loss) before interest expense and
other, net, income taxes, depreciation and amortization, stock-based
compensation expense, impairment of goodwill and intangible assets, and
restructuring, acquisition and integration-related costs. Unlevered Free Cash
Flow is defined as net income (loss) before interest expense and other, net,
income taxes, depreciation and amortization, stock-based compensation expense,
impairment of goodwill and intangible assets, and restructuring, acquisition
and integration-related costs, less cash used for purchases of property and
equipment. Net Loss Before Goodwill Impairment is defined as net loss before
impairment of goodwill and estimated tax impact of impairment of goodwill.

Adjusted EBITDA, Unlevered Free Cash Flow and Net Loss Before Goodwill
Impairment are non-GAAP financial measures. They should not be considered in
isolation or as an alternative to measures determined in accordance with U.S.
generally accepted accounting principles. Please refer to the Consolidated
Financial Highlights for a reconciliation of these non-GAAP financial measures
to the most comparable measures reported in accordance with U.S. generally
accepted accounting principles and Footnote 3 of the Consolidated Financial
Highlights for a discussion of the presentation, comparability and use of such
financial measures.

Conference Call for Analysts and Investors

Conference Call Details

Thursday, May 2, 2013, at 8:30 a.m. ET hosted by EarthLink's Chairman and
Chief Executive Officer Rolla P. Huff, and Chief Financial Officer Bradley A.
Ferguson.

Dial-in Number 800-706-0730

Participants should reference the conference ID number 33812687 or
"EarthLink's 1^st Quarter 2013 Conference Call" and dial in 10 minutes prior
to scheduled start time.

Webcast
A live Webcast of the conference call will be available at:
http://ir.earthlink.net/

Presentation
An investor presentation to accompany the conference call and webcast will be
available at: http://ir.earthlink.net/

Replay
Replay available from 11:30 a.m. ET on May 2 through 12:00 midnight on May 9,
2013. Dial toll-free 855-859-2056. The replay confirmation code is 33812687.
The Webcast will be archived on the company's website at:
http://ir.earthlink.net/events.cfm

About EarthLink

EarthLink, Inc. (NASDAQ: ELNK) is a leading IT services and communications
provider to more than 150,000 businesses and one million consumers nationwide.
EarthLink empowers customers with managed services including cloud computing,
managed and private cloud, and virtualization services such as managed hosting
and cloud workspace. EarthLink also offers a robust portfolio of IT security,
application hosting, colocation and IT support services. The company operates
an extensive network spanning 29,421 route fiber miles with 90 metro fiber
rings and 8 secure data centers providing ubiquitous nationwide data and voice
IP service coverage across more than 90 percent of the country. Founded in
1994, EarthLink's award-winning reputation for outstanding service and product
innovation is supported by an experienced team of professionals focused on
best-in-class customer care. For more information, visit EarthLink's website
at www.earthlink.net.

Cautionary Information Regarding Forward-Looking Statements

This press release includes "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. Although we believe
that the expectations expressed in these forward-looking statements are
reasonable, we cannot promise that our expectations will turn out to be
correct. Our actual results could be materially different from and worse than
our expectations. With respect to such forward-looking statements, we seek the
protections afforded by the Private Securities Litigation Reform Act of 1995.
These risks include, without limitation (1) that we may not be able to execute
our strategy to be an IT services company for small and medium-sized
businesses with IT and network security needs, which could adversely affect
our results of operations and cash flows; (2) that we may not be able to grow
revenues from our evolving Business Services product portfolio to offset
declining revenues from our legacy Business Services products and from our
Consumer Services segment, which could adversely affect our results of
operations and cash flows; (3) that we may not be able to develop the optimal
sales model necessary to implement our business strategy; (4) that we may be
unsuccessful integrating acquisitions into our business, which could result in
operating difficulties, losses and other adverse consequences; (5) that if we
are unable to adapt to changes in technology and customer demands, we may not
remain competitive, and our revenues and operating results could suffer; (6)
that our failure to achieve operating efficiencies will adversely affect our
results of operations; (7) that as a result of our continuing review of our
business, we may have to undertake further restructuring plans that would
require additional charges, including incurring facility exit and
restructuring charges; (8) that unfavorable general economic conditions could
harm our business; (9) that we may be unable to successfully identify, manage
and assimilate future acquisitions, which could adversely affect our results
of operations; (10) that we face significant competition in the IT services
and communications industry that could reduce our profitability; (11) that
decisions by legislative or regulatory authorities, including the Federal
Communications Commission relieving incumbent carriers of certain regulatory
requirements, and possible further deregulation in the future, may restrict
our ability to provide services and may increase the costs we incur to provide
these services; (12) that if we are unable to interconnect with AT&T, Verizon
and other incumbent carriers on acceptable terms, our ability to offer
competitively priced local telephone services will be adversely affected; (13)
that our operating performance will suffer if we are not offered competitive
rates for the access services we need to provide our long distance services;
(14) that we may experience reductions in switched access and reciprocal
compensation revenue; (15) that failure to obtain and maintain necessary
permits and rights-of-way could interfere with our network infrastructure and
operations; (16) that we have substantial business relationships with several
large telecommunications carriers, and some of our customer agreements may not
continue due to financial difficulty, acquisitions, non-renewal or other
factors, which could adversely affect our wholesale revenue and results of
operations; (17) that we obtain a majority of our network equipment and
software from a limited number of third-party suppliers; (18) that work
stoppages experienced by other communications companies on whom we rely for
service could adversely impact our ability to provision and service our
customers; (19) that our commercial and alliance arrangements may not be
renewed or may not generate expected benefits, which could adversely affect
our results of operations; (20) that our consumer business is dependent on the
availability of third-party network service providers; (21) that we face
significant competition in the Internet access industry that could reduce our
profitability; (22) that the continued decline of our consumer access
subscribers, combined with the change in mix of our consumer access base from
narrowband to broadband, will adversely affect our results of operations; (23)
that potential regulation of Internet service providers could adversely affect
our operations; (24) that if we, or other industry participants, are unable to
successfully defend against disputes or legal actions, we could face
substantial liabilities or suffer harm to our financial and operational
prospects; (25) that we may be accused of infringing upon the intellectual
property rights of third parties, which is costly to defend and could limit
our ability to use certain technologies in the future; (26) that we may not be
able to protect our intellectual property; (27) that we may be unable to hire
and retain sufficient qualified personnel, and the loss of any of our key
executive officers could adversely affect us; (28) that our business depends
on effective business support systems and processes; (29) that privacy
concerns relating to our business could damage our reputation and deter
current and potential users from using our services; (30) that cyber security
breaches could harm our business; (31) that interruption or failure of our
network and information systems and other technologies could impair our
ability to provide our services, which could damage our reputation and harm
our operating results; (32) that government regulations could adversely affect
our business or force us to change our business practices; (33) that
regulatory audits have in the past, and could in the future, result in
increased costs; (34) that our business may suffer if third parties are unable
to provide services or terminate their relationships with us; (35) that we may
be required to recognize impairment charges on our goodwill and intangible
assets, which would adversely affect our results of operations and financial
position; (36) that we may have exposure to greater than anticipated tax
liabilities and the use of our net operating losses and certain other tax
attributes could be limited in the future; (37) that our indebtedness could
adversely affect our financial health and limit our ability to react to
changes in our industry; (38) that we may require substantial capital to
support business growth or refinance existing indebtedness, and this capital
may not be available to us on acceptable terms, or at all; (39) that our debt
agreements include restrictive covenants, and failure to comply with these
covenants could trigger acceleration of payment of outstanding indebtedness or
inability to borrow funds under our existing credit facility; (40) that we may
reduce, or cease payment of, quarterly cash dividends; (41) that our stock
price may be volatile; and (42) that provisions of our third restated
certificate of incorporation, amended and restated bylaws and other elements
of our capital structure could limit our share price and delay a change of
control of the company. These risks and uncertainties, as well as other risks
and uncertainties that could cause our actual results to differ significantly
from management's expectations, are not intended to represent a complete list
of all risks and uncertainties inherent in our business, and should be read in
conjunction with the more detailed cautionary statements and risk factors
included in our Annual Report on Form 10-K for the year ended December 31,
2012.



EARTHLINK,INC.
Unaudited Condensed Consolidated Statements Of Operations
(in thousands, except per share data)

                                                  Three Months Ended March 31,
                                                  2012            2013
Revenues                                          $  344,376      $ 320,016
Operating costs and expenses:
Cost of revenues (exclusive of depreciation and
amortization                                      159,337         154,424

 shown separately below)
Selling, general and administrative (exclusive of
depreciation                                      110,069         108,069

 and amortization shown separately below)
Depreciation and amortization                     45,254          43,400
Impairment of goodwill (1)                        —               256,700
Restructuring, acquisition and                    3,521           11,401
integration-related costs (2)
Total operating costs and expenses                318,181         573,994
Income (loss) from operations                     26,195          (253,978)
Interest expense and other, net                   (15,758)        (14,556)
Income (loss) before income taxes                 10,437          (268,534)
Income tax (provision) benefit                    (3,174)         32,119
Net income (loss)                                 $  7,263        $ (236,415)
Net income (loss) per share
Basic                                             $  0.07         $ (2.30)
Diluted                                           $  0.07         $ (2.30)
Weighted average common shares outstanding
Basic                                             106,258         102,913
Diluted                                           106,926         102,913
Dividends declared per share                      $  0.05         $ 0.05



EARTHLINK,INC.
Unaudited Condensed Consolidated Balance Sheets
(in thousands, except per share data)

                                                    December31,  March31,
                                                    2012          2013
ASSETS
Current assets:
Cash and cash equivalents                           $ 157,621     $ 146,148
Marketable securities                               42,073        41,845
Restricted cash                                     1,013         1,013
Accounts receivable, net of allowance of $7,872 and
$8,580
                                                    112,765       109,953
 as of December 31, 2012 and March 31, 2013,
respectively
Prepaid expenses                                    17,171        19,023
Deferred income taxes, net                          15,954        9,902
Other current assets                                20,303        24,042
Total current assets                                366,900       351,926
Long-term marketable securities                     4,778         4,108
Property and equipment, net                         418,966       430,928
Long-term deferred income taxes, net                195,012       232,873
Goodwill                                            379,415       122,715
Other intangible assets, net                        214,685       199,446
Other long-term assets                              19,654        19,757
Total assets                                        $ 1,599,410   $ 1,361,753
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable                                    $ 18,792      $ 17,271
Accrued payroll and related expenses                31,003        22,792
Other accrued liabilities                           129,572       143,514
Deferred revenue                                    51,690        51,287
Current portion of long-term debt and capital lease 1,375         1,399
obligations
Total current liabilities                           232,432       236,263
Long-term debt and capital lease obligations        614,890       613,666
Other long-term liabilities                         33,284        32,455
Total liabilities                                   880,606       882,384
Stockholders' equity:
Convertible preferred stock, $0.01 par value,
100,000

 sharesauthorized, 0 shares issued and            —             —
outstanding as of

 December31, 2012 and March 31, 2013
Common stock, $0.01 par value, 300,000 shares
authorized,

196,919 and 197,242 shares issued as of December
31,

2012 and March 31, 2013, respectively, and 102,739 1,969         1,972
and

103,062 shares outstanding as of December 31, 2012
and

March 31, 2013, respectively
Additional paid-in capital                          2,057,974     2,054,950
Accumulated deficit                                 (606,148)     (842,563)
Treasury stock, at cost, 94,180 shares as of
December 31,                                        (735,003)     (735,003)

2012 and March 31, 2013
Accumulated other comprehensive income              12            13
Total stockholders' equity                          718,804       479,369
Total liabilities and stockholders' equity          $ 1,599,410   $ 1,361,753



EARTHLINK, INC.
Reconciliation of Net Income (Loss) to Adjusted EBITDA (3)
(in thousands)

                                         Three Months Ended
                                         March31,  December 31,  March31,
                                         2012       2012          2013
Net income (loss)                        $ 7,263    $  (9)        $ (236,415)
Interest expense and other, net          15,758     15,157        14,556
Income tax (provision) benefit           3,174      (1,842)       (32,119)
Depreciation and amortization            45,254     46,405        43,400
Impairment of goodwill (1)               —          —             256,700
Stock-based compensation expense         2,672      2,259         3,969
Restructuring, acquisition and           3,521      4,508         11,401
integration-related costs (2)
Adjusted EBITDA (3)                      $ 77,642   $  66,478     $ 61,492



EARTHLINK, INC.
Reconciliation of Net Income (Loss) to Unlevered Free Cash Flow (3)
(in thousands)

                                         Three Months Ended
                                         March31,  December 31,  March31,
                                         2012       2012          2013
Net income (loss)                        $ 7,263    $   (9)       $ (236,415)
Interest expense and other, net          15,758     15,157        14,556
Income tax (provision) benefit           3,174      (1,842)       (32,119)
Depreciation and amortization            45,254     46,405        43,400
Impairment of goodwill (1)               —          —             256,700
Stock-based compensation expense         2,672      2,259         3,969
Restructuring, acquisition and
integration-                            3,521      4,508         11,401

related costs (2)
Purchases of property and equipment      (31,775)   (66,631)      (42,454)
Unlevered Free Cash Flow (3)             $ 45,867   $   (153)     $ 19,038



EARTHLINK, INC.
Reconciliation of Net Cash Flows from Operating Activities to Unlevered Free
Cash Flow (3)
(in thousands)

                                        Three Months Ended
                                        March31,    December 31,  March31,
                                        2012         2012          2013
Net cash provided by operating          $ 66,211     $  12,527     $ 31,844
activities
Income tax provision (benefit)          3,174        (1,842)       (32,119)
Non-cash income taxes                   (1,244)      (878)         32,248
Interest expense and other, net         15,758       15,157        14,556
Amortization of debt discount, premium  494          475           414
and issuance costs
Restructuring, acquisition and          3,521        4,508         11,401
integration-related costs (2)
Changes in operating assets and         (9,989)      36,070        2,763
liabilities
Purchases of property and equipment     (31,775)     (66,631)      (42,454)
Other, net                              (283)        461           385
Unlevered Free Cash Flow (3)            $ 45,867     $  (153)      $ 19,038
Net cash provided by (used in)          $ 35,224     $  (65,110)   $ 24,363
investing activities
Net cash used in financing activities   $ (10,957)   $  (51,589)   $ (13,362)



EARTHLINK, INC.
Reconciliation of Net Loss to Net Loss Before Goodwill Impairment (3)
(in thousands)

                                         Three Months Ended
                                         March31,
                                         2013
Net loss                                 $   (236,415)
Impairment of goodwill                   256,700
Estimated tax impact *                   (27,828)
Net Loss Before Goodwill Impairment (3)  $   (7,543)
Diluted per share amount                 $   (0.07)



* Impairment of goodwill for purposes of this reconciliation has been reduced
by an estimated tax impact. The tax impact does not necessarily reflect the
actual amount that would have resulted had EarthLink not incurred the
impairment during the period presented.



EARTHLINK, INC.
Reconciliation of Guidance Provided in Non-GAAP Measure (3)
(in millions)

                                                         Year Ending
                                                         December31, 2013
Net loss                                                 ($282) - ($276)
Interest expense and other, net                          60
Income tax benefit                                       (41) - (36)
Depreciation and amortization                            181 - 183
Impairment of goodwill                                   257
Stock-based compensation expense                         17
Restructuring, acquisition and integration-related costs 22
Adjusted EBITDA (3)                                      $214 - $227



EARTHLINK, INC.
Supplemental Schedule of Segment Information (4)
(in thousands)

                                                      Three Months Ended
                                                      March31,
                                                      2012        2013
Business Services
Revenues                                              $ 260,264   $ 247,791
Cost of revenues (excluding depreciation and          131,818     129,477
amortization)
Gross margin                                          128,446     118,314
Direct segment operating expenses                     86,024      86,003
Segment operating income                              $ 42,422    $ 32,311
Consumer Services
Revenues                                              $ 84,112    $ 72,225
Cost of revenues (excluding depreciation and          27,519      24,947
amortization)
Gross margin                                          56,593      47,278
Direct segment operating expenses                     16,399      12,482
Segment operating income                              $ 40,194    $ 34,796
Consolidated
Revenues                                              $ 344,376   $ 320,016
Cost of revenues                                      159,337     154,424
Gross margin                                          185,039     165,592
Direct segment operating expenses                     102,423     98,485
Segment operating income                              82,616      67,107
Depreciation and amortization                         45,254      43,400
Impairment of goodwill                                —           256,700
Restructuring, acquisition and integration-related    3,521       11,401
costs
Corporate operating expenses                          7,646       9,584
Income (loss) from operations                         $ 26,195    $ (253,978)



EARTHLINK, INC.
Supplemental Schedule of Revenue Detail
(in thousands)

                     Three Months Ended
                     March31,
                     2012        2013
Business Services
Retail services      $ 214,935   $ 201,081
Wholesale services   36,942      38,858
Other services       8,387       7,852
Total revenues       260,264     247,791
Consumer Services
Access services      71,767      60,740
Value-added services 12,345      11,485
Total revenues       84,112      72,225
Total Revenues       $ 344,376   $ 320,016



EARTHLINK, INC.
Supplemental Financial Data

                                         March31,   December31,  March31,
                                         2012        2012          2013
Balance Sheet Data                       (in thousands)
Cash and marketable securities           $ 270,797   $  204,472    $ 192,101
Debt (5)                                 624,800     592,300       592,300
Stockholders' equity                     753,992     718,804       479,369
Employee Data
Number of employees at end of period (6) 3,103       3,205         2,979



EARTHLINK, INC.
Consumer Services Operating Metrics

                              March31,   December31,  March31,
                              2012        2012          2013
Consumer Subscriber Detail
Narrowband access subscribers 704,000     626,000       602,000
Broadband access subscribers  591,000     526,000       505,000
Total consumer subscribers    1,295,000   1,152,000     1,107,000



                                   ThreeMonthsEnded
                                   March31,    December31,  March31,
                                   2012         2012          2013
Consumer Subscriber Activity
Subscribers at beginning of year   1,350,000    1,197,000     1,152,000
Gross organic subscriber additions 45,000       34,000        31,000
Churn                              (100,000)    (79,000)      (76,000)
Subscribers at end of period       1,295,000    1,152,000     1,107,000
Consumer Metrics
Average consumer subscribers (7)   1,322,000    1,175,000     1,128,000
ARPU (8)                           $  21.20     $   21.32     $  21.34
Churn rate (9)                     2.5       %  2.3        %  2.2       %



EARTHLINK, INC.
Footnotes to Consolidated Financial Highlights

1.During the three months ended March 31, 2013, the Company recognized a
$256.7 million non-cash impairment charge to goodwill related to its Business
Services reporting unit. The impairment was based on an analysis of a number
of factors after a decline in the Company's market capitalization following
the announcement of its fourth quarter 2012 earnings and 2013 financial
guidance. The primary factor contributing to the impairment was a change in
the discount rate and market multiples as a result of the change in these
market conditions, both key assumptions used in the determination of fair
value.

2.Restructuring, acquisition and integration-related costs consisted of the
following for the periods presented (in thousands):

                                                  Three Months Ended March 31,
                                                  2012            2013
Severance and retention costs                     $   1,547       $  4,727
Integration-related costs                         1,151           5,002
Transaction-related costs                         839             104
Facility-related costs                            165             1,568
Legacy plan restructuring costs                   (181)           —
Restructuring, acquisition and                    $   3,521       $  11,401
integration-related costs

Restructuring, acquisition and integration-related costs consist of costs
related to EarthLink's restructuring, acquisition and integration-related
activities. Such costs include: 1) severance and retention costs; 2)
integration-related costs, such as system conversion, rebranding costs and
integration-related consulting and employee costs; 3) transaction-related
costs, which are direct costs incurred to effect a business combination, such
as advisory, legal, accounting, valuation and other professional fees; and 4)
facility-related costs, such as lease termination and asset impairments.

3.Adjusted EBITDA is defined as net income (loss) before interest expense
and other, net, income taxes, depreciation and amortization, stock-based
compensation, impairment of goodwill and intangible assets, and restructuring,
acquisition and integration-related costs. Unlevered Free Cash Flow is
defined as net income (loss) before interest expense and other, net, income
taxes, depreciation and amortization, stock-based compensation, impairment of
goodwill and intangible assets, and restructuring, acquisition and
integration-related costs, less purchases cash used for of property and
equipment. Net Loss Before Goodwill Impairment is defined as net loss before
impairment of goodwill and estimated tax impact of impairment of goodwill.

Adjusted EBITDA, Unlevered Free Cash Flow and Net Loss Before Goodwill
Impairment are non-GAAP measures and are not determined in accordance with
U.S. generally accepted accounting principles. These non-GAAP financial
measures are commonly used in the industry and are presented because
management believes they provide relevant and useful information to investors.
Management uses these non-GAAP financial measures to evaluate the performance
of its business and determine bonuses. Management believes that excluding the
effects of certain non-cash and non-operating items enables investors to
better understand and analyze the current period's results and provides a
better measure of comparability. There are limitations to using these non-GAAP
financial measures. Adjusted EBITDA, Unlevered Free Cash Flow and Net Loss
Before Goodwill Impairment are not indicative of cash provided or used by
operating activities and may differ from comparable information provided by
other companies. Adjusted EBITDA, Unlevered Free Cash Flow and Net Loss
Before Goodwill Impairment should not be considered in isolation, as an
alternative to, or more meaningful than measures of financial performance
determined in accordance with U.S. GAAP.

4.The Company reports segment information along the same lines that its
chief executive officer reviews its operating results in assessing performance
and allocating resources. The Company operates two reportable segments,
Business Services and Consumer Services. The Company's Business Services
segment provides a comprehensive suite of communications and technology
services, including voice, data, managed network services, cloud hosting and
equipment services, to business customers. The Company's Consumer Services
segment provides nationwide Internet access and related value-added services
to residential customers.

The Company presents its Business Services revenue in the following three
categories: (1) retail services, which includes data, voice and managed IT
services; (2) wholesale services, which includes the sale of transmission
capacity to other telecommunications carriers; and (3) other services, which
includes the sale of customer premises equipment and web hosting. The Company
presents its Consumer Services revenue in the following two categories: (1)
access services, which includes include narrowband and broadband Internet
access services and (2) value-added services, which includes revenues from
ancillary services sold as add-on features to EarthLink's Internet access
services, such as security products, premium email only, home networking,
email storage and Internet call waiting; search revenues; and advertising
revenues.

EarthLink evaluates performance of its operating segments based on segment
income from operations. Segment income from operations includes revenues from
external customers, related cost of revenues and operating expenses directly
attributable to the segment, which include expenses over which segment
managers have direct discretionary control, such as advertising and marketing
programs, customer support expenses, site operations expenses, product
development expenses, certain technology and facilities expenses, billing
operation and provisions for doubtful accounts. Segment income from operations
excludes other income and expense items and certain expenses that segment
managers do not have discretionary control over. Costs excluded from segment
income from operations include various corporate expenses (consisting of
certain costs such as corporate management, human resources, finance and
legal), depreciation and amortization, stock-based compensation expense,
impairment of goodwill and intangible assets and restructuring, acquisition
and integration-related costs, as they are not evaluated in the measurement of
segment performance.

5.Debt represents the principal amount of EarthLink's Senior Notes,
EarthLink's Convertible Senior Notes and ITC^DeltaCom's Senior Secured Notes.
Below is a summary of the carrying amount of EarthLink's debt (in thousands):

                                          March31,   December31,  March31,
                                          2012        2012          2013
EarthLink Senior Notes - Principal        $ 300,000   $  300,000    $ 300,000
EarthLink Senior Notes - Discount         (9,547)     (8,818)       (8,563)
ITC^DeltaCom Senior Secured Notes -       324,800     292,300       292,300
Principal
ITC^DeltaCom Senior Secured Notes -       20,914      15,694        14,605
Premium
Carrying amount of debt                   $ 636,167   $  599,176    $ 598,342



6.Represents full-time equivalents.

7.Average subscribers for the three month periods is calculated by
averaging the ending monthly subscribers or accounts for the four months
preceding and including the end of the period.

8.ARPU represents the average monthly revenue per user (subscriber). ARPU
is computed by dividing average monthly revenue for the period by the average
number of subscribers for the period. Average monthly revenue used to
calculate ARPU includes recurring service revenue as well as nonrecurring
revenues associated with equipment and other one-time charges associated with
initiating or discontinuing services.

9.Churn rate is used to measure the rate at which subscribers discontinue
service on a voluntary or involuntary basis. Churn rate is computed by
dividing the average monthly number of subscribers that discontinued service
during the period by the average subscribers for the period.

SOURCE EarthLink, Inc.

Website: http://www.earthlink.net
Contact: Investors, Louis Alterman, 404-748-7650 or 678-472-3252,
altermanlo@corp.earthlink.com; Media, Michele Sadwick, 404-748-7255 or
404-769-8421, sadwick@corp.earthlink.com
 
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