EX-99.1 2 g01234exv99w1.htm EX-99.1 Ex-99.1
 

(US LEC PRESS RELEASE)
FOR IMMEDIATE RELEASE
         
Media Contact:
  Corporate Contact:   Investor Contact:
Marisa Puthoff
  Brian Crenshaw   James Stawski
Edelman Public Relations
  US LEC   US LEC
404-262-3000
  704-319-1942   704-319-1189
marisa.puthoff@edelman.com
  bcrenshaw@uslec.com   jstawski@uslec.com
US LEC ACHIEVES RECORD REVENUE OF $102.8 MILLION FOR FIRST QUARTER 2006
END CUSTOMER REVENUE UP BY OVER 13% COMPARED TO THE FIRST QUARTER 2005
CHARLOTTE, NC (May 2, 2006) — Continuing to build on solid financial and operational results, US LEC Corp. (Nasdaq: CLEC), a full-service provider of IP, data and voice solutions to businesses and enterprise organizations throughout the Eastern United States, announced today results for the first quarter ended March 31, 2006. The results were highlighted by:
  •   Achieving total revenue of $102.8 million, a $9.3 million, or a 10% increase over the first quarter of 2005
 
  •   Reaching end customer revenue of $89.7 million, an increase of over $10.6 million or 13%, compared to the same period last year
 
  •   Growing data revenue, a key component of end customer revenue, to $33.2 million, now accounting for over 32% of total revenue
 
  •   Achieving Adjusted EBITDA of over $14.7 million, compared to $11.9 million in the first quarter of 2005 and $14.3 million in the fourth quarter of 2005 (see definition and reconciliation of Adjusted EBITDA to net cash flow from operations below)
 
  •   Achieving the 27,000 business class customer milestone
 
  •   Expanding IP-based MPLS VPN service to all but 2 switching centers and increasing US LEC’s VoIP-based Dynamic TSM product into over a third of the Company’s switching centers
 
  •   Extending its strategic partnership with ExtreamTV early in the second quarter by making an investment for a 37.5% ownership stake
     Revenue for the quarter ended March 31, 2006, increased 10% to $102.8 million, compared with $93.5 million for the quarter ended March 31, 2005, and revenue of $100.1 million for the quarter ended December 31, 2005. The Company reported a net loss attributable to common stockholders of ($7.1) million, or ($0.23) per share, on 30.8 million average shares outstanding for the quarter ended March 31, 2006, compared with a net loss attributable to common stockholders of ($8.9) million, or ($0.29) per share, on 30.3 million average shares outstanding for the first quarter of last year. Earnings per share for the quarter ended March 31, 2006 were negatively impacted by $0.02 per share related to stock-based compensation expense associated with the Company’s adoption of SFAS No. 123R during the quarter. Adjusted EBITDA for the first quarter of 2006 was $14.7 million compared with Adjusted EBITDA of $11.9 million in the first quarter of 2005, an increase of 24%.
     Commenting on the Company’s first quarter 2006 results, Aaron D. Cowell, president and chief executive officer of US LEC, said, “US LEC is off to a strong start in 2006. Growth in end customer revenue from $86.2 million in the fourth quarter of 2005 to $89.7 million in the first quarter of 2006 continued to be driven by solid customer acquisition and retention results. Our customer retention rate continues to be very strong at over 99% per month as very few businesses choose to go back to the typical telecommunications provider for their communications needs after they have tried our

 

 

US LEC Announces First Quarter 2006 Results
Page 2 of 6
May 2, 2006
brand of customer care. We continued to improve our product take rate per customer which, for customers acquired organically has now reached an average of 5.0 products per customer, compared to 4.8 products last quarter. Additionally, over 40%, or approximately 11,000 of our more than 27,000 customers, buy 6 or more of our products. Clearly, our customers recognize US LEC’s ability to provide reliable, quality services and customer service that is second to none.”
     Cowell continued, “During the quarter we also continued our IP evolution and expanded the market reach of our various Internet protocol based products including our Dynamic TSM and MPLS VPN products. US LEC’s Dynamic TSM and Ethernet product coverage have been expanded to 10 and 11 of our switching centers, respectively, and we will substantially complete the Ethernet expansion in the third quarter of 2006. In addition, in the 6 months since we first announced our MPLS VPN product with both WAN and Metro capabilities, we have expanded the network to include all but 2 switching centers.
     “Finally, early in the second quarter of 2006, US LEC agreed to make an investment for a 37.5% ownership stake in ExtreamTV LLC. Our investment solidifies our partnership with a next-generation provider of video-on-demand and High-Speed Internet Access. US LEC has over 2,300 customers in the hospitality industry and we believe we can leverage our success in this key vertical with the addition of ExtreamTV’s digital VOD product to create an attractive triple play solution, and our initial sales efforts confirm that we are on the right track,” concluded Cowell.
     J. Lyle Patrick, executive vice president and chief financial officer of US LEC, added, “US LEC’s financial and operating results during the first quarter of 2006 continued to gain momentum. Our recurring revenue business model continues to leverage our strong customer growth and very favorable retention rate. During the first quarter, total revenue increased by 10% over the first quarter of 2005 to reach $102.8 million and end customer revenue increased by approximately 13% over the same period last year to reach $89.7 million. Notably, end customer revenue accounted for over 87% of total revenue in the first quarter. Adjusted EBITDA increased by 24% year over year to reach $14.7 million in the first quarter of 2006. Significantly, on a per employee basis, end customer revenue increased from $76,400 in the fourth quarter of 2005 to $79,600 in the first quarter of 2006 as US LEC’s team consistently proves they are one of the most efficient teams in the industry. In addition, by continuing to control network expenses, gross margins were over 51% for the quarter ended March 31, 2006 and SG&A as a percentage of revenue decreased through our continued vigilance over expenses. As a result, we achieved positive operating income of $1.8 million in the first quarter of 2006. The Company also achieved $14.0 million of cash flow from operations during the first quarter and cash capital expenditures were $7.7 million for the quarter. Finally, the Company ended the quarter with a strong cash position of $36.7 million. We remain focused on our mission to be the best competitive carrier in our markets by providing a full service product portfolio and unrivaled customer care. These operational goals have been, and continue to be the hallmark of our business.”
Conference Call Information
     US LEC will hold a conference call to discuss this press release today, May 2, 2006, at 1:00 p.m. Eastern Time. A live broadcast of the conference call will be available online at www.uslec.com, and www.earnings.com. To listen to the live call, visit either web site at least fifteen minutes early to download, and install any necessary audio software. For those who cannot listen to the live broadcast, a telephone replay will be available shortly after the call through the close of business on May 5, 2006 and replay via web cast will be available through June 2, 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

 

 

US LEC Announces First Quarter 2006 Results
Page 3 of 6
May 2, 2006
Columbia. US LEC offers advanced, IP-based, data and voice services such as MPLS VPN and Ethernet, as well as comprehensive Dynamic TSM 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, dedicated Internet services and MegaPOP® (local dial-up Internet access for ISPs) nationwide. For more information about US LEC, visit 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 to reciprocal compensation and 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, 2005, 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.
-end-

 

 

US LEC Announces First Quarter 2006 Results
Page 4 of 6
May 2, 2006
US LEC Corp. and Subsidiaries
Condensed Consolidated Statements of Operations
(In Thousands, Except Per Share Data)
(Unaudited)
                 
    Three months ended  
    March 31,  
    2006     2005  
Revenue
   $ 102,797     $ 93,516  
Network Expenses (excluding depreciation and amortization shown below)
     50,250       45,784  
Depreciation and Amortization
     12,194       12,931  
Selling, General and Administrative Expenses (excluding stock-based compensation expense shown below)
     37,802       35,868  
Stock-Based Compensation Expense
     717       —  
 
            
Income(Loss) from Operations
     1,834       (1,067 )
 
                
Net Interest Expense
     4,545       3,712  
 
            
 
                
Net Loss
     (2,711 )     (4,779 )
 
                
Preferred Stock Dividends
     (4,218 )     (3,974 )
Preferred Stock Accretion of Issuance Costs
     (162 )     (152 )
 
            
 
                
Net Loss Attributable to Common Stockholders
   $ (7,091 )   $ (8,905 )
 
            
 
                
Net Loss Attributable to Common Stockholders Per Common Share
                
Basic and Diluted
   $ (0.23 )   $ (0.29 )
 
            
 
                
Weighted Average Number of Shares Outstanding
                
Basic and Diluted
     30,751       30,255  
 
            
Adjusted EBITDA consists of earnings (loss) before interest income and expense, income taxes, depreciation and amortization, stock-based compensation expense and significant charges (and recoveries) 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  
    March 31,  
    2006     2005  
Income(Loss) from Operations
   $ 1,834     $ (1,067 )
Depreciation and Amortization
     12,194       12,931  
Stock-Based Compensation Expense
     717       —  
 
            
Adjusted EBITDA
     14,745       11,864  
 
                
Changes in Working Capital
     4,392       (2,070 )
Net Interest Expense
     (4,545 )     (3,712 )
Miscellaneous
     (620 )     (124 )
 
            
Net Cash Provided by Operating Activities
   $ 13,972     $ 5,958  
 
            

 

 

US LEC Announces First Quarter 2006 Results
Page 5 of 6
May 2, 2006
US LEC Corp. and Subsidiaries
Condensed Consolidated Balance Sheets
(In Thousands, Except Per Share Data)
(Unaudited)
                 
    March 31,     December 31,  
    2006     2005  
Assets
                
Cash and cash equivalents
   $ 36,681     $ 30,704  
Restricted cash
     67       67  
Accounts receivable, net
     41,873       49,841  
Property and equipment, net
     138,903       144,350  
Deferred income taxes
     2,811       2,792  
Other assets
     24,249       24,598  
 
            
 
                
Total Assets
   $ 244,584     $ 252,352  
 
            
 
                
Liabilities and Stockholders’ Deficiency
                
Accounts payable
   $ 7,803     $ 10,109  
Deferred revenue
     13,892       14,292  
Accrued network costs
     16,719       20,252  
Accrued expenses
     37,851       37,446  
Deferred income taxes
     2,811       2,792  
Long-term debt
     149,475       149,438  
 
            
 
                
Total Liabilities
     228,551       234,329  
 
            
 
                
Series A Redeemable Convertible Preferred Stock
     282,416       278,037  
 
                
STOCKHOLDERS’ DEFICIENCY Common Stock — Class A
     308       307  
Additional paid-in capital
     96,469       93,181  
Accumulated Deficit
     (363,160 )     (353,502 )
 
            
Total Stockholders’ Deficiency
     (266,383 )     (260,014 )
 
            
 
                
Total Liabilities, Convertible Preferred Stock and Stockholders’ Deficiency
   $ 244,584     $ 252,352  
 
            

 

 

US LEC Announces First Quarter 2006 Results
Page 6 of 6
May 2, 2006
US LEC Corp. and Subsidiaries
Quarterly Statistical Highlights
(Unaudited)
                                         
    March 31,     December 31,     September 30,     June 30,     March 31,  
    2006     2005     2005     2005     2005  
Revenue (in 000s):
                                        
End Customer Revenue
                                        
Voice Monthly Recurring Charges
   $ 42,769     $ 41,425     $ 40,418     $ 39,515     $ 37,836  
Data Monthly Recurring Charges
     33,186       32,137       30,820       29,476       28,391  
Long Distance
     13,770       12,615       12,851       12,421       12,892  
 
                              
 
     89,725       86,177       84,089       81,412       79,119  
Percent of Total Revenue
     87 %     86 %     85 %     85 %     85 %
 
                                        
Carrier Charges
                                        
Carrier Access
     7,377       8,107       9,022       8,826       8,994  
Reciprocal Compensation
     2,023       2,188       2,053       2,165       2,296  
 
                              
 
     9,400       10,295       11,075       10,991       11,290  
Percent of Total Revenue
     9 %     10 %     11 %     12 %     12 %
 
                                        
Other Revenue (1)
     3,672       3,583       3,660       2,940       3,107  
Percent of Total Revenue
     4 %     4 %     4 %     3 %     3 %
 
                              
Total Revenue
   $ 102,797     $ 100,055     $ 98,824     $ 95,343     $ 93,516  
 
                              
 
                                        
Customers:
                                        
Total Customers
     38,292       38,096       37,974       37,998       38,071  
Business Class Customers
     27,042       26,225       25,212       24,213       23,420  
Business Class Customers Purchasing Data Services
     20,933       20,219       18,735       17,582       14,007  
Shared Hosting/Dial Up Customers/Consumer VoIP
     11,250       11,871       12,762       13,785       14,651  
 
                                        
Active Channels (2):
                                        
Voice
     516,130       499,562       481,207       460,185       439,032  
Data
     427,505       397,714       371,900       348,357       327,153  
 
                              
Total active channels
     943,635       897,276       853,107       808,542       766,185  
 
                              
 
                                        
Statistical Data:
                                        
Central Offices
     27       27       27       27       27  
Number of employees
     1,127       1,128       1,099       1,092       1,078  
Number of sales and sales support employees
     489       482       482       476       471  
End Customer Revenue/Employee (in 000s)
   $ 79.6     $ 76.4     $ 76.5     $ 74.6     $ 73.4  
 
(1)   Other revenue is derived from wholesale customers, installation revenue and other miscellaneous sources.
 
(2)   Shared hosting, Dial-Up Internet Access and Consumer VoIP are not included in Active Channels.