8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported):      August 14, 2006     

US LEC CORP.

(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of incorporation)

0-24061	56-2065535
(Commission File Number)	(IRS Employer Identification No.)
Morrocroft III, 6801 Morrison Boulevard,
Charlotte, North Carolina	28211
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (704) 319-1000

N/A
(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

     o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

     o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

     o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

     o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02. Results of Operations and Financial Condition.

     On August 14, 2006, US LEC Corp. issued a press release announcing results for its fiscal quarter ended June 30, 2006. A copy of the press release is attached hereto as Exhibit 99.1.

Item 9.01. Financial Statement and Exhibits.

     (c)     Exhibits

               99.1     Press Release of US LEC Corp. dated August 14, 2006

2

SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	US LEC CORP.
	By:	/s/ J. Lyle Patrick
		J. Lyle Patrick Executive Vice President, Finance and Chief Financial Officer
Dated:     August 14, 2006

3

EX-99.1

FOR IMMEDIATE RELEASE — DRAFT 11

Investor Contact:	Media Contact:
James Stawski	Brian Crenshaw
704-319-1189	704-319-1942
jstawski@uslec.com	bcrenshaw@uslec.com

US LEC ANNOUNCES SECOND QUARTER 2006 RESULTS WITH $106.7 MILLION IN REVENUE
AND ADJUSTED EBITDA OF OVER $15.0 MILLION

END CUSTOMER REVENUE UP 14% YEAR OVER YEAR

Charlotte, N.C. (August 14, 2006) —— 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, today announced strong results for the second quarter and six months ending June 30, 2006. The second quarter was highlighted by:

• Achieving total revenue of $106.7 million, an $11.4 million increase over the second quarter of 2005

• Reaching end customer revenue of $92.5 million, an increase of $11.1 million or 14%, compared with the same period last year

• Growing data revenue to $34.3 million, accounting for 32% of total revenue

• Achieving positive operating income of $1.7 million

• Achieving adjusted EBITDA of $15.0 million, a 14% EBITDA margin for the quarter (see definition and reconciliation of adjusted EBITDA to net cash flow from operations below)

• Expanding the Company’s business class customer base to approximately 27,800 and its data customer base to approximately 21,500

• Continuing the roll out of US LEC’s Ethernet Local Loop transport to 14 of 26 switching facilities in US LEC’s network and MPLS VPN to 25 switching centers

• Being chosen to be the communications partner of choice by the Florida Auto Dealers Group Buying LLC and its 550 member dealerships throughout Florida

• Providing MegaPOP^TM Internet access to the entire North American dial-up access customer base of Canadian-based IP Applications Corp. and MegaPOP^TM VoIP services to Vienna, Virginia-based SunRocket

     Revenues for the quarter ended June 30, 2006, were $106.7 million, compared with $95.3 million for the quarter ended June 30, 2005, and $102.8 million reported in the first quarter of 2006. For the three months ended June 30, 2006, end customer revenue increased 14% to $92.5 million from $81.4 million in the same period of 2005. The Company reported a net loss attributable to common stockholders of ($7.6) million, or ($0.25) per share, on 30.8 million weighted average shares outstanding for the quarter ended June 30, 2006, compared with net loss attributable to common stockholders of ($8.9) million, or ($0.30) per share, on 30.3 million weighted average shares outstanding for the quarter ended June 30, 2005. Adjusted EBITDA for the second quarter was $15.0 million, compared to adjusted EBITDA of $12.2 million in the second quarter of 2005

US LEC Announces Second Quarter 2006 Results
Page 2
August 14, 2006

and $14.7 million in the first quarter of 2006.

     Revenues for the six months ended June 30, 2006 were $209.5 million, compared with $188.9 million for the six months ended June 30, 2005. For the six months ended June 30, 2006, end customer revenue increased 14% to $182.2 million from $160.5 million in the same period of 2005. The net loss attributable to common stockholders was ($14.7) million, or ($0.48) per share on 30.8 million weighted average shares outstanding for the six months ended June 30, 2006, compared with net loss attributable to common stockholders of ($17.9) million, or ($0.59) per share on 30.3 million weighted average shares outstanding for the six months ended June 30, 2005. Adjusted EBITDA for the six months ended June 30, 2006, was $29.8 million compared with $24.0 million in the first six months of 2005.

     Commenting on the Company’s second quarter 2006 results, Aaron D. Cowell, president and chief executive officer of US LEC, said, “US LEC had another strong quarter and we are pleased with our continuing financial and operational successes. Total revenue increased sequentially by approximately $4.0 million over the first quarter of 2006 to $106.7 million. This trend reflects strong new customer growth, strong sales into our base of approximately 28,000 business class customers and continued customer loyalty, as evidenced by our 99 percent retention rate. Notably, we also achieved 33% and 16% growth in active data and voice channels, respectively, over the same period last year. In addition, our customers continue to have strong demand for our products and our average product take rate is now 5.1 compared to 4.8 in June of 2005.”

     Cowell continued, “We also have continued to make remarkable progress in our IP evolution as we expanded our IP product suite into several new markets. Dynamic T, which includes our BIGVoice^SM, Dynamic T SIP, BIGData^SM and Voice Messaging and Mobility Pak features is now available in 10 switching centers and our Ethernet Local Loop transport service is now available in more than half of our 26 switching centers with network wide availability by year-end. Our customers have been very receptive to our IP product suite as they provide the ability to manage all of their telecom needs efficiently, reliably and with the opportunity for significant cost savings. Finally, we have completed the conversion of our network to IP and, with the upcoming rollout of New York City, our MPLS VPN product will be available throughout our network.”

     J. Lyle Patrick, executive vice president and chief financial officer of US LEC, added, “US LEC continued to gain momentum in the second quarter as our financial and operating results showed continued improvement. Our recurring revenue business model continues to leverage our strong customer growth and very favorable retention rate. Total revenue increased by 12% over the second quarter of 2005 to reach $106.7 million. End customer revenue increased by 14% and accounted for 87% of total revenue in the second quarter. At a productivity level, the US LEC team has continued to improve its performance by increasing end customer revenue to $80,900 per employee from $74,600 per employee one year earlier. Gross margins continued to be in the 50% range for the quarter ended June 30, 2006 and SG&A as a percentage of revenue decreased from 38% to 37% year over year. As a result, adjusted EBITDA increased by 24% year-over-year to reach $15.0 million in the second quarter of 2006. Notably, we achieved positive operating income of $1.7 million in the second quarter of 2006. The Company also achieved $4.3 million of cash flow from operations during the second quarter and cash capital expenditures were $6.9 million for the quarter. Finally, the Company ended the quarter with a strong cash position of $35.4 million. Our continued focus on the execution of our business plan has placed US LEC in a very strong competitive position. We believe that US LEC is the number one competitive carrier in each of our markets and through our unremitting efforts, we will continue to leverage our strengths for further success in 2006.”

     “Finally, US LEC settled its inter-exchange carrier access revenue dispute with Qwest Communications Corporation. This settlement ends the litigation on the matter between the companies and, as a result of the settlement, US LEC anticipates no additional charges above those previously disclosed in our Form 10K for the period ended December 31, 2005. We are very pleased to have this issue resolved and to be able to move on with the business at hand.”

US LEC Announces Second Quarter 2006 Results
Page 3
August 14, 2006

Conference Call Information

US LEC Corp. will hold a conference call to discuss this press release on August 14, 2006, at 10:00 a.m. EST. A live broadcast of the conference call and a slide presentation will be available online at www.uslec.com and www.mshow.com. The show number for the web cast is 306459. To listen to the live call, visit either web site at least fifteen minutes early to register, download, and install any necessary 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 August 17, 2006, and replay via webcast will be available through September 14, 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^® (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), Fastnet (SM) and MegaPOP(R) are service marks of US LEC Corp.

-END-

US LEC Announces Second Quarter 2006 Results
Page 4
August 14, 2006

US LEC Corp. and Subsidiaries
Condensed Consolidated Statements of Operations
(In Thousands, Except Per Share Data)
(Unaudited)

	Three months ended						Six months ended
	June 30,						June 30,
	2006			2005			2006			2005
Revenue	$	106,683		$	95,343		$	209,480		$	188,858
Network Expenses (excluding depreciation and amortization shown below)		53,149			46,597			103,399			92,381
Depreciation and Amortization		12,172			12,638			24,365			25,569
Selling, General and Administrative Expenses		39,618			36,590			78,138			72,457
Income (Loss) from Operations		1,744			(482	)		3,578			(1,549	)
Net Interest Expense		4,867			4,279			9,412			7,991
Net Loss		(3,123	)		(4,761	)		(5,834	)		(9,540	)
Preferred Stock Dividends		(4,281	)		(4,033	)		(8,498	)		(8,007	)
Preferred Stock Accretion of Issuance Costs		(164	)		(155	)		(326	)		(307	)
Net Loss Attributable to Common Stockholders	$	(7,568	)	$	(8,949	)	$	(14,658	)	$	(17,854	)
Net Loss Attributable to Common Stockholders Per Common Share
Basic and Diluted	$	(0.25	)	$	(0.30	)	$	(0.48	)	$	(0.59	)
Weighted Average Number of Shares Outstanding
Basic and Diluted		30,792			30,295			30,772			30,291

Adjusted EBITDA consists of earnings (loss) before interest income and expense, income taxes, depreciation and amortization, stock based compensation expense and loss from operations related to investment in ETV. 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						Six months ended
	June 30,						June 30,
	2006			2005			2006			2005
Income (Loss) from Operations	$	1,744		$	(482	)	$	3,578		$	(1,549	)
Loss from Operations Related to Investment in ETV		674			—			674			—
Depreciation and Amortization		12,172			12,638			24,365			25,569
Stock-based Compensation Expense		452			—			1,168			—
Adjusted EBITDA		15,042			12,156			29,785			24,020
Changes in Working Capital		(5,951	)		(9,471	)		(1,557	)		(11,541	)
Net Interest Expense		(4,867	)		(4,279	)		(9,412	)		(7,991	)
Miscellaneous Other		95			(95	)		(525	)		(219	)
Net Cash Provided by Operating Activities	$	4,319		$	(1,689	)	$	18,291		$	4,269

US LEC Announces Second Quarter 2006 Results
Page 5
August 14, 2006

US LEC Corp. and Subsidiaries
Condensed Consolidated Balance Sheets
(In Thousands, Except Per Share Data)

	(Unaudited)
	June 30,			December 31,
	2006			2005
Assets
Cash and cash equivalents	$	35,392		$	30,703
Restricted cash		67			67
Accounts receivable, net		42,136			49,841
Property and equipment, net		135,560			144,350
Deferred income taxes		3,218			2,792
Other assets		24,263			24,599
Total Assets	$	240,636		$	252,352
Liabilities and Stockholders’ Deficiency
Accounts payable	$	11,315		$	10,109
Deferred revenue		13,421			14,292
Accrued network costs		15,416			20,252
Accrued expenses		33,817			37,446
Deferred income taxes		3,218			2,792
Long-term debt		149,513			149,438
Total Liabilities		226,700			234,329
Series A Redeemable Convertible Preferred Stock		286,861			278,037
STOCKHOLDERS’ DEFICIENCY
Common Stock — Class A		311			307
Additional paid-in capital		97,041			93,181
Unearned stock-based compensation		(2,116	)		—
Accumulated Deficit		(368,161	)		(353,502	)
Total Stockholders’ Deficiency		(272,925	)		(260,014	)
Total Liabilities, Convertible Preferred Stock and Stockholders’ Deficiency	$	240,636		$	252,352

US LEC Announces Second Quarter 2006 Results
Page 6
August 14, 2006

US LEC Corp. and Subsidiaries
Quarterly Statistical Highlights
(Unaudited)

	June 30,			March 31,			December 31,			September 30,			June 30,
	2006			2006			2005			2005			2005
Revenue (in 000s):
End Customer Revenue
Voice Monthly Recurring Charges	$	43,854		$	42,769		$	41,425		$	40,418		$	39,515
Data Monthly Recurring Charges		34,301			33,186			32,137			30,820			29,476
Long Distance		14,351			13,770			12,615			12,851			12,421
		92,506			89,725			86,177			84,089			81,412
Percent of Total Revenue		87	%		87	%		86	%		85	%		85	%
Carrier Charges
Carrier Access		7,429			7,377			8,107			9,022			8,826
Reciprocal Compensation		2,050			2,023			2,188			2,053			2,165
		9,479			9,400			10,295			11,075			10,991
Percent of Total Revenue		9	%		9	%		10	%		11	%		12	%
Other Revenue (1)		4,698			3,672			3,583			3,660			2,940
Percent of Total Revenue		4	%		4	%		4	%		4	%		3	%
Total Revenue	$	106,683		$	102,797		$	100,055		$	98,824		$	95,343
Customers:
Total Customers		38,842			38,292			38,096			37,974			37,998
Business Class Customers		27,792			27,042			26,225			25,212			24,213
Business Class Customers Purchasing Data Services		21,527			20,925			20,219			18,735			17,582
Shared Hosting/Dial Up Customers		11,050			11,250			11,871			12,762			13,785
Active Channels (2):
Voice		533,644			516,130			499,562			481,207			460,185
Data		462,111			427,505			397,714			371,900			348,357
Total active channels		995,755			943,635			897,276			853,107			808,542
Statistical Data:
Central Offices		27			27			27			27			27
Number of employees		1,143			1,127			1,128			1,099			1,092
Number of sales and sales support employees		493			489			482			482			476
End Customer Revenue/Employee (in 000s)	$	80.9		$	79.6		$	76.4		$	76.5		$	74.6

(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.