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Why Earthlink? EarthLink Overview 0 EarthLink Today Leading Nationwide IT Over 3,000 services, network employees and Over 1.2 million communications customer relationships provider Over $1.2 billion in revenue - 94% Business Services and Broadband 1 Investment Thesis • Improving revenue trajectory – $150M retail growth business growing at 20%+ per year with differentiated IT service offering – $150M wholesale growth business with unique fiber routes – Lower churn and better product mix of new bookings – Nationally recognized and trusted brand • Substantial cash flow – Legacy customer business generating meaningful cash flow • Strong balance sheet and significant tax assets 2 Opportunity Beyond Current Valuation Enterprise Value/EBITDA(1) EarthLink Share Price Sensitivity(2) (1) 14.0 EV/EBITDA Multiple 5.0x 5.5x 6.0x 6.5x 12.8 12.7 12.7 Theoretical Share Price $6.56 $7.62 $8.68 $9.75 based on „13 EBITDA Consensus(2) 12.0 9.6 10.0 8.8 8.4 8.3 7.9 8.0 5.9 5.8 6.0 5.1 4.7 4.0 3.3 2.0 0.0 EQIX CCOI RAX INAP CBB Peer TWTC LVLT CTL WIN FTR ELNK CBEY Avg (1) Enterprise Value/EBITDA is calculated using Enterprise Value based on market capitalization as of 5/3/13 less Q4 ‘12 Ending Cash minus Debt divided by FY ‘13 consensus for EBITDA. All data sourced from Thomson Reuters. (2) Theoretical share price sensitivity with (1)% - 0% organic revenue decline. Not intended to predict future share price. Adjusted EBITDA is a non-GAAP measure. See appendix for additional information on non-GAAP measures We are currently valued well below our peers 3 Financial Snapshot / Q1 Recap 2013 Guidance(1) Q1 ’13 Recap Revenue $1,255M - $1,268M • Strongest sales quarter in over a Adjusted EBITDA(2) $214M - $227M year in terms of bookings – 65% of sales in Q1 came from Growth Net Loss $(282)M - $(276)M products Implied EPS(3) $(2.74) - $(2.68) • Retail and Wholesale productivity Capital Expenditures $140M - $155M up nearly 50% and nearly 65% Balance Sheet & Valuation respectively Cash Balance $192M • Rolled out 4 of 5 next generation Gross Debt $593M data centers and have completed Net Cash Balance $(400)M nearly 70% of fiber expansion Market Cap(3)(4) $604M • The combination of higher bookings Enterprise Value(4) $1,004M and lower churn led to (4) Dividend Yield 3.4% improvements in both Business and Total Company revenue trajectory (1) Guidance as of date of earnings announcement (5/2/13); not being updated (2) Adjusted EBITDA is a Non-GAAP measure. See appendix for additional information on non-GAAP measures (3) Assumes Q1 Fully Diluted shares outstanding of 103M (4) Market Cap, Enterprise Value and Dividend Yield assume share price as of 5/3/13. All other balance sheet data as of 3/31/13 4 Market Opportunity 5 Market Opportunity for EarthLink Fortune 1000, $33b Small Business, $116b Mid Market/ Enterprise, $177b $326 Billion Nationwide IT Spend Market The market for IT Services is large. EarthLink‟s product portfolio will enable the company to compete for $100 Billion of the $177 Billion in Mid Market/Enterprise opportunity 6 Source: EarthLink customer revenue and analysis, D&B industry segmentation, TNS spend / opportunity sizing, and Computer Economics Annual IT Budget Benchmark Survey, December 2010 Challenges for Mid Market Customers Mid Market / Small Business Fortune 1000 Enterprise Customer Challenges • Consumers increasingly want to buy virtually • Complex regulatory and compliance requirements – PCI, HIPAA, etc. • Total cost of running IT infrastructure is growing faster than the top line • Technology is changing every day. Customers lack the resources to keep up with the increased complexity and risk in the IT world 7 Why EarthLink? EarthLink LECs Cable Regional VARs Managed Companies CLECs Hosting Consultative Breadth of Portfolio Private Network Ubiquity Competitive Price Customers can turn to EarthLink as a trusted partner 8 Source: EarthLink customer revenue and analysis, D&B industry segmentation, TNS spend / opportunity sizing Trusted Brand AT&T 86% Verizon 76% Sprint 68% EarthLink 43% Windstream 29% Level3 28% XO 24% tw telecom 22% MegaPath 19% Cbeyond 19% A brand study of IT professionals shows EarthLink has the highest brand recognition among competitive communication providers. We are investing more in the brand to build awareness in the IT Services space. 9 Source: 2010 B2B Telecommunications Study Strategic Product Portfolio EarthLink‟s Roadmap is focused on solutions which allow our customers more time and resources to focus on day to day business. We can be an extension of their IT Staff. myLink™ Customer Core Portfolio Control Point Differentiators • One Stop Shop for Evolving IT Needs Data Center Virtualization Application Managed Services Services Services Support Service • Service Model and Colocation Cloud Hosting Secure Email Managed Colocation Customer Resources Cloud Workspace Email Encryption Managed Cloud Hosting Cloud Backup Email Archive EarthLink TechCare Disaster Recovery Secure File Sharing Dedicated Server • Private Cloud, Web Hosting Secure Networking Hosted Network Security, Managed Firewall, Secure Remote via Distributed Security Services Access, Asset Management, Laptop Security Access Network MPLS Networks, Hosted VoIP, Internet IP Voice and Data Services Access, Integrated Voice & Data, SIP & PRI, • Control Point / Mobile Voice myLink™ Toolset 10 Network & Data Center Footprint Rochester Current Data Center Live New Data Center Marlborough 2nd Gen IT Services Chicago 1st Gen IT Services Live National Coverage San Jose Original Acquired Fiber Live New Fiber Expansion Atlanta Columbia Dallas Live Miami Mid ‘13 We have a broad network footprint that provides coverage across over 90% of the country. We have expanded our data center presence and added new network routes: • Allows for lower latency, customer bridging and a more fault-tolerant enterprise class product • Network and data center combination creates an end-to-end cloud solution 11 Sales Progress 12 Improved MRR and Mix of Bookings New Bookings - $ MRR $3.4M Q1 represented our $3.2M $3.2M $3.2M strongest sales quarter in over a year $2.9M • $84 million of total contract value sold Q1 '12 Q2 '12 Q3 '12 Q4 '12 Q1 '13 65% of sales in Q1 came from Growth products Business Bookings Mix • Launched our nationwide 7% 9% 13% 12% 25% product portfolio in Q1 „12 40% 34% 46% 36% 50% 50% 37% 39% 65% • We expect the mix of sales to 40% continue to improve as we complete the rollout of our 60% 54% 50% 50% 35% next generation cloud platform and unique fiber routes Q1 '12 Q2 '12 Q3 '12 Q4 '12 Q1 '13 Retail - CLEC & Legacy Products Retail Growth Wholesale Growth 13 Charts are MRR only and exclude non-recurring/usage based revenues Sales Productivity Retail - Sales Productivity $3.5k Per Rep / Month $3.1k Retail productivity up 45- $3.0k 50% from historical levels $2.5k $2.3k $2.2k $2.1k $2.1k • Averaged $3.1k in monthly $2.0k Retail rep productivity in Q1‟13 $1.5k • ~200 fewer employees in $1.0k Q1‟13 than we had last year $0.5k • Positive early traction from $- Q1 '12 Q2 '12 Q3 '12 Q4 '12 Q1 '13 SEM & advertising campaigns Total Retail/Wholesale – Sales Productivity driving leads to inside sales Per Rep / Month $4.5k $3.9k $4.0k Retail/Wholesale productivity $3.5k $3.0k up 60-65% from historical $2.5k $2.4k $2.5k $2.3k $2.3k levels $2.0k • Averaged $3.9k in total $1.5k $1.0k business monthly rep $0.5k productivity $- Q1 '12 Q2 '12 Q3 '12 Q4 '12 Q1 '13 14 Charts are MRR only and exclude non-recurring/usage based revenues Churn Improvement Over Time Business Services Churn(1) 2.5% Churn in our Business segment 2.3% 2.1% improved 7bps in Q1 ‘13 1.9% • Business churn is well below pre- 1.7% acquisition levels and while quarterly 1.5% 1.3% results can be lumpy, churn has 1.1% generally declined over time 0.9% • Driven by integration activities, 0.7% 0.5% improved product portfolio and account OneComm Deltacom Q1 '12 Q2'12 Q3 '12 Q4 '12 Q1 '13 Pre-Acq '10 Pre-Acq '10 management 4.0% Consumer Churn(2) Consumer churn of 2.2% in Q1 3.5% ’13 (new historical low) 3.0% • We expect further improvement over time as mix of tenured customers 2.5% increases 2.0% • Nearly 70% of Consumer subscribers have been with us for 5+ years 1.5% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 '09 '09 '09 '09 '10 '10 '10 '10 '11 '11 '11 '11 '12 '12 '12 '12 '13 15 (1) Monthly average revenue churn excluding write-downs and write-ups for Total Business including Retail, Carrier , IT Services and Web Hosting (2) Monthly average churn Revenue Components As Reported Q1 ’13 vs. FY 2012 Q1 2012 Q4 2012 Q1 2013 Q1 ’12 Outlook $ in Millions Variance Retail • Expect to grow revenue at 20% or $130M $31M $36M $37M 21% $300M Growth greater annualized run-rate Growth • Q4‟12 and Q1„13 included $3M and Business $1M, respectively, for favorable – was $280 settlements a quarter Wholesale $152M $37M $39M $39M 5% • Installing large Q1 „13 sales in Q2 „13 ago • Expect to grow at the high end of 0- 2% market range as we capitalize more on new unique routes • Anticipate this business will decline ~10% for FY ‟13, including $(8)M Retail CLEC removal of systems revenue in 2H $749M $193M $182M $172M -11% • Declines are in high single digits & Legacy when normalizing for settlements and systems exit • Improving further in ‟14 and beyond • Pre-acquisition, businesses were Total Business $1,031M $260M $256M $248M -5% declining in double digits • Expect Consumer to decline ~13-15% Consumer $318M $84M $75M $72M -14% for FY ‟13 and ~12-13% in „14 Total Company $1,349M $344M $332M $320M -7% • Decline was over 10% a year ago 16 Revenue component amounts sourced from billing data.
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