Source: EarthLink Press Release

EarthLink (Nasdaq:ELNK) today announced a corporate restructuring plan.  This plan will reduce operating costs across the company.  The restructuring will begin immediately and be completed by the end of the year.

"While we see this as an important first step in unlocking the underlying value that we believe is in our company, we are only eight weeks into the process of repositioning EarthLink for the future.  These changes get our cost structure in line, but there is much more to do," said Rolla P. Huff, EarthLink President and CEO. "We expect to announce additional steps as we continue our work over the coming weeks and months."

"We are extremely appreciative of our employees’ dedication and contributions, and we hope that the benefits and services we have put in place to provide assistance will help during this time of transition," stated Huff. "While we recognize this is a difficult time for those affected individuals, this was a needed action for the company to better align our cost structure with our existing business."

Approximately 900 jobs will be eliminated and the company will close its Orlando, FL; Knoxville, TN; Harrisburg, PA and San Francisco, CA offices and substantially reduce its presence in Pasadena, CA, and Atlanta, GA. EarthLink expects to record facility exit and restructuring costs of $60–$70 million associated with the plan. These costs include $30 - $35 million for certain employee-related costs, $10–$15 million for lease termination costs, $8–$10 million for other costs to streamline operations and $8–$10 million non-cash asset write-offs. EarthLink expects that these facility exit and restructuring costs will be recognized primarily in the third and fourth quarters of fiscal year 2007.

As a result of the corporate restructuring, EarthLink expects to generate $25 - $35 million in cost savings through the remainder of 2007. Management believes that due to the expected savings generated, the company should receive a positive payback on the restructuring costs within six months.

Additionally, EarthLink is modifying its previously issued revenue, adjusted EBITDA and net loss guidance for the third quarter and full year 2007.  For the third quarter of 2007, EarthLink now expects revenue of $290 - $300 million.  Excluding the one-time facility exit and restructuring charges, the company now expects adjusted EBITDA (a non-GAAP measure, see definition in ’Non-GAAP Measures’ below) of $30 - $35 million and a net loss of $(33) - $(43) million.  For the full year 2007, Earthlink now expects to end the year with approximately 3.9 million subscribers, with revenue of $1.190–$1.210 billion.  Excluding the one-time facility exit and restructuring charges, the company expects full year 2007 adjusted EBITDA of $135–$145 million and a net loss of $(79)–$(109) million.

Given current trends in the Internet access industry, management expects industry-wide gross subscriber additions to decelerate in 2008.  This will result in fewer gross subscriber additions for EarthLink as it will no longer add new subscribers that do not yield a positive lifetime value for our shareholders.  Additionally, as subscriber growth slows, the company expects to realize fewer migrations from narrowband to broadband.  This trend should result in longer tenured existing subscribers generating higher life-time cash values.  EarthLink expects that as it reduces its marketing efforts aimed at acquiring new customers who have high early life churn characteristics, our overall churn will come down over time as our longer tenured existing customers become the predominant part of our base.  As a result of this change in strategy, EarthLink preliminarily estimates that it will generate cash flow from operations in the low to mid $200 million range in 2008. Management expects to further refine this preliminary estimate when the company provides its customary yearly guidance with the release of full year 2007 results.

Share Repurchase 

The company also announced that its Board of Directors has expanded its existing share repurchase program, authorizing the purchase of an additional $200 million of its outstanding shares of common stock. As a result, with this new authorization, EarthLink now has $270 million available to purchase common stock.

"Because we believe our recent share price has not reflected the underlying value in our business, we began repurchasing our shares under our previously authorized buyback program. During the third quarter of 2007, we have purchased 3.9 million shares of our stock at an average price of $6.35 per share," stated Kevin Dotts, EarthLink’s Chief Financial Officer.

EarthLink may conduct its purchases in the general market, in privately negotiated transactions, through derivative transactions and through purchases made in accordance with Rule 10b5-1 under the Securities Exchange Act of 1934. The repurchase program does not require EarthLink to acquire any specific number of shares and may be terminated at any time.

Executive Addition

Finally, the company also announced that effective August 27, 2007, Joe Wetzel joined EarthLink as the new chief operating officer, reporting directly to Mr. Huff.

"I would like to welcome Joe Wetzel to our executive team. He brings a wealth of operating experience to the team that will help EarthLink realize its true value potential," said Huff.

Mr. Huff added, "EarthLink’s goal is to continue to deliver award-winning Internet tools and services to our 4 million customers, while re-positioning ourselves for long term profitable growth. Continuing to strengthen our executive operating talent is critical to delivering on that goal."