EarthLink Announces Fourth Quarter and Full Year 2013 Results
Provides Full Year 2014 Guidance

ATLANTA — February 19, 2014 — EarthLink Holdings Corp. (NASDAQ: ELNK) today announced financial results for its fourth quarter and full year ended December 31, 2013.

Highlights for the fourth quarter include:

  • Revenues of $301.8 million
  • Net loss of $(279.9) million or $(2.75) per share (which includes a $266.3 million non-cash charge to establish a valuation allowance against deferred tax assets)
  • Net loss per share, excluding valuation allowance (a non-GAAP measure), of $(0.13) per share.
  • Adjusted EBITDA (a non-GAAP measure) of $50.1 million
  • Net cash provided by operating activities of $40.7 million
  • Unlevered Free Cash Flow (a non-GAAP measure) of $16.2 million
  • Ending cash balance of $116.6 million

"I am excited to be a part of EarthLink. The company has many things going for it, including a fantastic customer base, a strong set of capabilities across information communications and technology, momentum penetrating the mid-market with technology solutions and managed services, and the best employees in the industry," said EarthLink Chief Executive Officer and President Joseph F. Eazor. "However, we have a lot of work to do. With a disciplined operational focus, I'm confident we will improve our business performance."

Financial and Operating Results
EarthLink reported revenue of $301.8 million for the fourth quarter of 2013 and $1.24 billion for the full year 2013. Business services segment revenue comprised 78% of EarthLink's revenue in the fourth quarter of 2013. EarthLink's retail emerging services reached an approximate $328 million annualized revenue run rate in the fourth quarter of 2013. EarthLink's consumer segment churn was a record low of 2.0% for the fourth quarter of 2013, compared to 2.2% in the third quarter of 2013 and 2.2% in the fourth quarter of 2012. Broadband services comprised 70% of consumer access revenue in the fourth quarter of 2013.

EarthLink's selling, general and administrative expenses were $105.6 million, or 35% of revenue, for the fourth quarter of 2013, and $426.1 million, or 34% of revenue, for the full year 2013. This compares to expenses of $109.1 million, or 33% of revenue, for the fourth quarter of 2012 and $429.1 million, or 32% of revenue, for the full year 2012.

Profitability and Other Financial Measures
EarthLink reported a net loss of $(279.9) million, or $(2.75) per share, in the fourth quarter of 2013 and a net loss of $(538.8) million, or $(5.25) per share, for the full year 2013. These compared to net income of $0.0 million, or $0.00 per share, in the fourth quarter of 2012 and $7.5 million, or $0.07 per share, for the full year 2012. The net loss for the fourth quarter and full year 2013 includes a $266.3 million non-cash charge to establish a valuation allowance against deferred tax assets. The net loss for the full year 2013 includes a $256.7 million pre-tax non-cash impairment charge to goodwill.

EarthLink generated Adjusted EBITDA (a non-GAAP measure, see definition in "Non-GAAP Measures" below) of $50.1 million in the fourth quarter of 2013 and $227.1 million for the full year 2013. Included in the company's fourth quarter 2013 results was approximately $4 million of favorable dispute and legal settlements, primarily within general and administrative expenses. The company reported Adjusted EBITDA of $67.2 million in the fourth quarter of 2012 and $283.9 million for the full year 2012. Included in the company's fourth quarter 2012 results was approximately $10 million of favorable dispute settlements.

Balance Sheet and Cash Flow
Net cash provided by operating activities was $40.7 million in the fourth quarter of 2013 and $124.2 million for the full year 2013. This compared to net cash provided by operating activities of $12.5 million in the fourth quarter of 2012 and $191.1 million for the full year 2012.

EarthLink generated Unlevered Free Cash Flow (a non-GAAP measure, see definition in "Non-GAAP Measures" below) of $16.2 million during the fourth quarter of 2013 and $83.5 million for the full year 2013. This compared to Unlevered Free Cash Flow of $0.1 million during the fourth quarter of 2012 and $136.5 million for the full year 2012. EarthLink's capital expenditures were $34.0 million for the fourth quarter of 2013 and $143.6 million for the full year 2013. The company made $5.1 million of dividend payments to shareholders in the fourth quarter of 2013 for a total of $20.8 million of dividend payments to shareholders during the full year 2013. EarthLink repurchased 1.2 million shares of common stock at an average price of $5.02 per share for the full year 2013.

As of December 31, 2013, the company had cash of $116.6 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 financial guidance for the full year 2014. Management expects revenue of $1.160 to $1.180 billion; Adjusted EBITDA of $180 million to $195 million; capital expenditures of $125 million to $135 million; and net loss of $(85) million to $(95) million for the full year 2014.

Other Matters
Today, EarthLink also announced that Rolla P. Huff will retire from the Board of Directors effective on February 21, 2014. The Board has appointed current director Dr. Julie A. Shimer to succeed Huff as interim Chairman of the Board. Additionally, Marce Fuller announced her retirement from the Board of Directors effective upon the election of directors at the 2014 Annual Meeting of Stockholders. Fuller has served on the EarthLink Board since October 2001. EarthLink has scheduled its 2014 Annual Meeting of Stockholders for Tuesday, April 29, 2014 at its Atlanta, GA headquarters.

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, restructuring, acquisition and integration-related costs, and loss from discontinued operations, net of tax. 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, restructuring, acquisition and integration-related costs, and loss from discontinued operations, net of tax, less cash used for purchases of property and equipment. Net Loss Excluding Valuation Allowance is defined as net loss excluding the non-cash charge to record valuation allowance against deferred tax assets.

Adjusted EBITDA, Unlevered Free Cash Flow and Net Loss Excluding Valuation Allowance 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 5 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, February 20, 2014, at 8:30 a.m. ET hosted by EarthLink's Chief Executive Officer and President Joseph F. Eazor and Chief Financial Officer Bradley A. Ferguson.
Dial-in Number: 855-590-8814
New Dial-in Number 855-590-8814 (toll-free)
Participants should reference the conference ID number 46365767 or "EarthLink's 4th 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
A webcast replay will be available from 11:30 a.m. ET on February 20 through midnight on February 27, 2014. Dial toll-free 855-859-2056. The replay confirmation code is 46365767. The Webcast will be archived on the company's website at: http://ir.earthlink.net/events.cfm

Download the Fourth Quarter 2013 Financial Statements

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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 a leading IT services and communications provider, which could adversely affect our results of operations and cash flows; (2) that we may not be able to grow revenues from our growth products and services to offset declining revenues from our traditional products and services, which could adversely affect our results of operations and cash flows; (3) that our failure to achieve operating efficiencies will adversely affect our results of operations; (4) 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; (5) that we may be unsuccessful integrating acquisitions into our business, which could result in operating difficulties, losses and other adverse consequences; (6) 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; (7) that unfavorable general economic conditions could harm our business; (8) that we may be unable to successfully identify, manage and assimilate future acquisitions, which could adversely affect our results of operations; (9) that we face significant competition in the communications and IT services industry that could reduce our profitability; (10) that failure to retain existing customers could adversely affect our results of operations and cash flows; (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) 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 will adversely affect our results of operations; (23) that potential regulation of Internet service providers could adversely affect our operations; (24) that cyber security breaches could harm our business; (25) that privacy concerns relating to our business could damage our reputation and deter current and potential users from using our services; (26) that interruption or failure of our network, information systems or other technologies could impair our ability to provide our services, which could damage our reputation and harm our operating results; (27) that our business depends on effective business support systems and processes; (28) 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; (29) 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; (30) that we may not be able to protect our intellectual property; (31) 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; (32) that government regulations could adversely affect our business or force us to change our business practices; (33) that our business may suffer if third parties are unable to provide services or terminate their relationships with us; (34) 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; (35) that we may not realize our deferred tax assets, we may have exposure to greater than anticipated tax liabilities and we may be limited in the use of our net operating losses and certain other tax attributes in the future; (36) that our indebtedness could adversely affect our financial health and limit our ability to react to changes in our industry; (37) that we may require substantial capital to support business growth, and this capital may not be available to us on acceptable terms, or at all; (38) that our debt agreements include restrictive covenants, and failure to comply with these covenants could trigger acceleration of payment of outstanding indebtedness; (39) that we may reduce, or cease payment of, quarterly cash dividends; (40) that our stock price may be volatile; (41) that provisions of our certificate of incorporation, bylaws and other elements of our capital structure could limit our share price and delay a change of control of the company; and (42) that our bylaws designate the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders' flexibility in obtaining a judicial forum for disputes with us or our directors, officers or employees. 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.

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