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US LEC Announces Fourth Quarter 2005 Revenue of Over $100 Million and Adjusted EBITDA in Excess of $14 MillionCHARLOTTE, N.C., Feb. 23 /PRNewswire-FirstCall/ -- US LEC Corp. , a full-service provider of IP, data and voice solutions to businesses and enterprise organizations throughout the eastern United States, today announced strong financial and operating results for the fourth quarter and year ended December 31, 2005. In addition, the Company announced settlement of two outstanding disputes associated with prior billing of access charges to inter-exchange carriers leaving one dispute with a large inter- exchange carrier to be resolved. Operational and financial highlights of the fourth quarter and year ended 2005 include: Adjusted EBITDA of $11.0 million in the fourth quarter of 2004 - a 30% improvement (see definition and reconciliation of Adjusted EBITDA to net cash flow from operations as described in the attached) - Exceeding $100.0 million in total revenue for the quarter ended December 31, 2005 compared to $92.1 million in the same period last year - Achieving end-customer revenue of $86.2 million, an increase of over $11.4 million or 15% compared to the fourth quarter of 2004 - Increasing US LEC's business class customer base by 3,900 to over 26,000, a 17% improvement over 2004 - Settling access revenue disputes with two major inter-exchange carriers, taking a one-time, non-cash charge of $23.3 million in the fourth quarter of 2005 and anticipating receipt of cash of approximately $9.0 million in the first quarter of 2006 - Continuing the expansion of US LEC's enhanced IP product suite with the introduction of network wide MPLS VPN IP services and enhancing its Dynamic T(SM) VoIP product suite with the addition of Voice Messaging and Mobility services, BIGData(SM) and BIGVoice(SM) features Revenue for the fourth quarter ended December 31, 2005 totaled $100.1 million, compared with $92.1 million for the quarter ended December 31, 2004. Net loss attributable to common shareholders was $(30.3) million, or $(0.99) per share (basic and diluted), on 30.5 million average shares outstanding for the quarter ended December 31, 2005, compared with a net loss of $(9.9) million, or $(0.33) per share (basic and diluted), on 30.1 million average shares outstanding for the quarter ended December 31, 2004. Adjusted EBITDA for the quarter ended December 31, 2005 was $14.3 million (which excludes a one-time $23.3 million non-cash charge associated with disputes related to carrier access revenue) compared with Adjusted EBITDA of $11.0 million in the fourth quarter of 2004. Revenue for the year ended December 31, 2005 totaled $387.7 million compared with $356.2 million for the year ended December 31, 2004, a 9% year- over-year increase despite a decrease in inter-carrier compensation of $17.6 million. Net loss attributable to common shareholders was $(55.5) million, or $(1.83) per share (basic and diluted), on 30.4 million average shares outstanding for the year ended December 31, 2005, compared with a net loss of $(35.7) million, or $(1.19) per share (basic and diluted), on 29.9 million average shares outstanding for the year ended December 31, 2004. Adjusted EBITDA for the year ended December 31, 2005, was $52.1 million (which excludes a one-time $23.3 million non-cash charge associated with disputes related to carrier access revenue) and compared with 2004 Adjusted EBITDA of $45.7 million. Aaron D. Cowell, president and chief executive officer of US LEC, commented, "In the fourth quarter of 2005, we achieved over $100 million in total revenue and over $14 million in Adjusted EBITDA. We increased year- over-year top line revenue by 9.0% to approximately $388 million and end customer revenue grew by 16% or $46.8 million to $330.8 million for the year. During the year we had strong organic customer growth with the addition of over 3,900 business class customers or 17% year-over-year growth, net of customer churn, which remained at an industry leading rate of less than 1.0% per month due to customer care that continues to be one of our hallmarks. In addition, we continue to get excellent productivity gains from our team of 1,128 outstanding employees. Fourth quarter end customer revenue per employee increased to $76,400 in 2005 from $70,200 in the fourth quarter of 2004. Our double digit improvements in end customer revenue, customer count and Adjusted EBITDA in the fourth quarter are strong indicators that US LEC continues to be a solid growth company in an industry that has had few such successes." Cowell added, "2005 also marked a year of evolution for US LEC as we took great strides forward in transitioning the Company into a next-generation competitive carrier. We introduced our MPLS VPN offering and expanded its availability to virtually all of our markets. We also introduced our Dynamic T VoIP product suite in a number of markets and Ethernet product to nearly half of our central offices with plans for continued growth of these products in 2006. We will continue to leverage our strong operating results to continue to provide strong growth on our top and bottom line." J. Lyle Patrick, executive vice president and chief financial officer of US LEC, added, "Our financial and operating results for 2005 demonstrate solid execution by US LEC. Our recurring revenue business model continues to leverage our strong customer growth and very favorable retention rate. Total revenue increased by $31.6 million year-over-year and we are pleased with a 16% year-over-year growth in end customer revenue which accounted for 86% of total revenue for the fourth quarter. Adjusted EBITDA increased by 30% year over year to reach $14.3 million in the fourth quarter of 2005. In addition, we are pleased with our ability to control network expenses, which contributed to gross margins of 53% for the quarter ended December 31, 2005 and 52% for the 2005 fiscal year. The Company also achieved $17.8 million of cash flow from operations for the year. Cash capital expenditures were $8.8 million for the quarter and $35.0 million for the year. Finally, the Company ended the year with a strong cash position of $30.7 million. US LEC has a long history of being able to leverage its assets, financial strength and market position to steadily move toward profitability and 2005 was no exception. Additionally, we are pleased to announce the resolution of all but one of our inter-exchange carrier access revenue disputes," added Patrick. "As a result of the settlement of two inter-exchange carrier access disputes which primarily relate to charges for traffic exchanged prior to June 2004 and the interpretation of the FCC's Eighth Report and Order, the Company took a one- time, non-cash charge of $23.3 million in the fourth quarter of 2005. Additionally, US LEC will receive approximately $9.0 million in cash as part of these settlements. The resolution of these disputes leaves only one dispute with a large inter-exchange carrier to be resolved. We believe, based on the facts known at this time that the one-time charge referred to above and the reserves reflected on our balance sheet are adequate to account for the current settlements and the resolution of current disputes." Conference Call Information US LEC will hold a conference call to discuss this press release today, February 23, 2006, at 1:00 pm Eastern Time. The live broadcast will be available online at http://www.uslec.com/ and http://www.fulldisclosure.com/. To listen to the live call, please go to the web site at least fifteen minutes early to register, download, and install any necessary audio software. The online replay will follow shortly after the call and continue through February 28, 2006, and a replay via web cast will be available through March 23, 2006. About US LEC Based in Charlotte, N.C., US LEC is a full service provider of IP, data and voice solutions to medium and large businesses and enterprise organizations throughout 16 eastern states and the District of Columbia. US LEC offers advanced, IP-based, data and voice services such as MPLS VPN and Ethernet, as well as comprehensive Dynamic T(SM) VoIP-enabled services and features. The company also offers local and long distance services and data services such as frame relay, Multi-Link Frame Relay and ATM. US LEC provides a broad array of complementary services, including conferencing, data backup and recovery, data center services and Web hosting, as well as managed firewall and router services for advanced data networking. US LEC also offers selected voice services in 27 additional states and provides enhanced data services, selected Internet services and MegaPOP(R) (local dial-up Internet access for ISPs) nationwide. For more information about US LEC, visit http://www.uslec.com/. Except for the historical information contained herein, this report contains forward-looking statements, subject to uncertainties and risks, including the demand for US LEC's services, the ability of the Company to introduce additional products, the ability of the Company to successfully attract and retain personnel, competition in existing and potential additional markets, uncertainties regarding its dealings with ILECs and other telecommunications carriers and facilities providers, regulatory uncertainties, the possibility of adverse decisions related access charges owing to the Company, as well as the Company's ability to begin operations in additional markets. These and other applicable risks are summarized in the "Caution Regarding Forward-Looking Statements" and "Risk Factors" sections and elsewhere in the Company's Annual Report on Form 10-K for the period ended December 31, 2004, and in subsequent reports, which are on file with the Securities and Exchange Commission. US LEC is a registered service mark of US LEC Corp. US LEC and Design(R) is a registered service mark and trademark of US LEC Corp. StarNet(TM) and MegaPOP(R) are service marks of US LEC Corp. US LEC Corp. and Subsidiaries Condensed Consolidated Statements of Operations (In Thousands, Except Per Share Data) (Unaudited) Three months ended Twelve months ended December 31, December 31, 2005 2004 2005 2004 Revenue $100,055 $92,100 $387,738 $356,181 Network Expenses (excluding depreciation and amortization shown below) 46,863 43,504 186,924 171,292 Depreciation and Amortization 12,415 12,974 50,668 49,851 Selling, General and Administrative Expenses 38,884 37,568 148,902 139,231 Charge Related to Carrier Access Disputes 23,292 - 23,292 - Loss from Operations (21,399) (1,946) (22,048) (4,193) Net Interest Expense 4,583 3,915 16,802 11,153 Charges Related to Early Extinguishment of Debt - - - 4,416 Other Income - - (202) - Net Loss (25,982) (5,861) (38,648) (19,762) Preferred Stock Dividends (4,155) (3,915) (16,256) (15,316) Preferred Stock Accretion of Issuance Costs (159) (150) (623) (587) Net Loss Attributable to Common Stockholders $(30,296) $(9,926) $(55,527) $(35,665) Net Loss Attributable to Common Stockholders Per Common Share Basic and Diluted $(0.99) $(0.33) $(1.83) $(1.19) Weighted Average Number of Shares Outstanding Basic and Diluted 30,507 30,056 30,399 29,927 Adjusted EBITDA consists of earnings (loss) before interest income and expense, income taxes, depreciation and amortization and the charge related to carrier access disputes. Adjusted EBITDA as used by the Company may be different than similarly used measures by other companies and is not a measure of financial performance under GAAP. Management believes Adjusted EBITDA is a useful measure of the Company's liquidity and is used by investors and analysts to evaluate companies in our industry. Adjusted EBITDA is reconciled to net cash provided by operating activities as follows: Three months ended Twelve months ended December 31, December 31, 2005 2004 2005 2004 Loss from Operations $(21,399) $(1,946) $(22,048) $(4,193) Other Income - - 202 - Depreciation and Amortization 12,415 12,974 50,668 49,851 Charge Related to Carrier Access Disputes 23,292 - 23,292 - Adjusted EBITDA 14,308 11,028 52,114 45,658 Changes in Working Capital (7,414) 5,960 (17,336) (10,627) Net Interest Expense (4,583) (3,915) (16,802) (11,153) Miscellaneous Other 116 (1,525) (195) 1,341 Net Cash Provided by Operating Activities $2,427 $11,548 $17,781 $25,219 US LEC Corp. and Subsidiaries Condensed Consolidated Balance Sheets (In Thousands, Except Per Share Data) (Unaudited) December 31, December 31, 2005 2004 Assets Cash and cash equivalents $30,704 $48,232 Restricted cash 67 169 Accounts receivable, net 49,841 60,745 Property and equipment, net 144,350 158,617 Deferred income taxes 2,792 1,507 Other assets 24,598 29,041 Total Assets $252,352 $298,311 Liabilities and Stockholders' Deficiency Accounts payable $10,109 $21,466 Notes Payable - 980 Deferred revenue 14,292 13,573 Accrued network costs 20,252 28,730 Accrued expenses 37,446 26,913 Deferred income taxes 2,792 1,507 Long-term debt 149,438 149,288 Total Liabilities 234,329 242,457 Series A Redeemable Convertible Preferred Stock 278,037 261,158 STOCKHOLDERS' DEFICIENCY Common Stock - Class A 307 303 Additional paid-in capital 93,181 92,368 Accumulated Deficit (353,502) (297,975) Total Stockholders' Deficiency (260,014) (205,304) Total Liabilities, Convertible Preferred Stock and Stockholders' Deficiency $252,352 $298,311 US LEC Corp. and Subsidiaries Quarterly Statistical Highlights (Unaudited) Dec. 31, Sept. 30, June 30, March 31, Dec. 31, 2005 2005 2005 2005 2004 Revenue (in 000s): End Customer Revenue Voice Monthly Recurring Charges $41,425 $40,418 $39,515 $37,836 $37,044 Data Monthly Recurring Charges 32,137 30,820 29,476 28,391 26,062 Long Distance 12,615 12,851 12,421 12,892 11,709 86,177 84,089 81,412 79,119 74,815 Percent of Total Revenue 86% 85% 85% 85% 81% Carrier Charges Carrier Access 8,107 9,022 8,826 8,994 12,345 Reciprocal Compensation 2,188 2,053 2,165 2,296 2,134 10,295 11,075 10,991 11,290 14,479 Percent of Total Revenue 10% 11% 12% 12% 16% Other Revenue (1) 3,583 3,660 2,940 3,107 2,806 Percent of Total Revenue 4% 4% 3% 3% 3% Total Revenue $100,055 $98,824 $95,343 $93,516 $92,100 Customers: Total Customers 38,096 37,974 37,998 38,071 38,273 Business Class Customers 26,225 25,212 24,213 23,420 22,324 Business Class Customers Purchasing Data Services 20,219 18,735 17,582 14,007 13,294 Shared Hosting/Dial Up Customers 11,871 12,762 13,785 14,651 15,949 Active Channels (2): Voice 499,562 481,207 460,185 439,032 426,422 Data 397,714 371,900 348,357 327,153 303,802 Total active channels 897,276 853,107 808,542 766,185 730,224 Statistical Data: Central Offices 27 27 27 27 27 Number of employees 1,128 1,099 1,092 1,078 1,065 Number of sales and sales support employees 485 482 476 471 460 End Customer Revenue/Employee (in 000s) $76.4 $76.5 $74.6 $73.4 $70.2 (1) Other revenue is derived from wholesale customers, installation revenue and other miscellaneous sources. (2) Shared hosting and Dial-Up Internet Access are not included in Active Channels. Investor Contact: James Stawski, 704-319-1189, or [email protected], or Media Contact: Brian Crenshaw, 704-319-1942, or [email protected] First Call Analyst: FCMN Contact: US LEC Corp. CONTACT: Investor, James Stawski, +1-704-319-1189, or [email protected],or Media, Brian Crenshaw, +1-704-319-1942, or [email protected], both of USLEC Corp. Web site: http://www.uslec.com/ |