EX-99.1 2 g02997exv99w1.htm EX-99.1 EX-99.1
 

(US LEC LOGO)
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 MegaPOPTM Internet access to the entire North American dial-up access customer base of Canadian-based IP Applications Corp. and MegaPOPTM 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 BIGVoiceSM, Dynamic T SIP, BIGDataSM 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 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, 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.