8-K

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): February 26, 2004

US LEC CORP.

(Exact Name of Registrant as Specified in Charter)

Delaware

(State or Other Jurisdiction of Incorporation)

0-24061	56-2065535
(Commission File Number)	(I.R.S. Employer Identification No.)

Morrocroft III, 6801 Morrison Boulevard Charlotte, North Carolina	28212
(Address of Principal Executive Offices)	(Zip Code)

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

Item 9. Regulation FD Disclosure and Item 12. Results of Operations and Financial Condition

On February 26, 2004, we issued a press release announcing results for our fiscal quarter and year ended December 31, 2003.

A copy of the press release is attached hereto as Exhibit 99.1.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this current report on Form 8-K to be signed on its behalf by the undersigned hereunto duly authorized.

US LEC CORP.
By:	/s/    Michael K. Robinson
	Michael K. Robinson
	Executive Vice President, Finance and Chief Financial Officer

Dated: February 26, 2004

2

EX-99.1

Exhibit 99.1

FOR IMMEDIATE RELEASE

Media Contact:	Investor Contact:
Jennifer Sharpe	James Stawski
704-319-1135	704-319-1189
jsharpe@uslec.com	jstawski@uslec.com

US LEC ANNOUNCES 24% REVENUE GROWTH TO REACH $310.8 MILLION AND $42.0 MILLION IN EBITDA FOR FULL YEAR 2003

COMPANY ACHIEVES $79.7 MILLION IN REVENUE AND $13.5 MILLION IN EBITDA FOR THE FOURTH QUARTER OF 2003

Charlotte, NC (February 26, 2004) - Continuing its trend of strong financial and operational growth, US LEC Corp. (Nasdaq: CLEC), a super-regional telecommunications carrier providing integrated voice, data and Internet services to businesses, today announced results for the quarter and year ended December 31, 2003. The year was highlighted by:

• Achieving annual revenues of $310.8 million, a $60.5 million, or 24% increase over 2002

• Reaching end-customer revenue totaling $211.3 million, a 42% increase over 2002

• Increasing US LEC’s customer base by 65% over the previous year to reach approximately 17,000

• Improving EBITDA to $42.0 million, a $35.1 million improvement over 2002 (see definition and reconciliation of EBITDA to net cash flow from operations below)

• Growing cash by $17.4 million to end 2003 at $43.1 million

• Raising $10 million in a private placement of two million shares of US LEC Class A common stock

• Acquiring substantially all of the assets of FASTNET^® Corporation in December, adding $24 million of annualized revenue

• Reducing the Company’s senior debt by $6 million, further reinforcing its already-strong balance sheet

Revenues for the year ended December 31, 2003 totaled $310.8 million compared with $250.4 million reported for the year ended December 31, 2002, a 24% year-over-year increase. Net loss attributable to common shareholders was $(29.5) million, or $(1.08) per share (basic and diluted) on 27.4 million average shares outstanding for the year ended December 31, 2003, compared with net loss of $(60.0) million, or $(2.26) per share (basic and diluted), on 26.5 million average shares outstanding for the year ended December 31, 2002. EBITDA for the year ended December 31, 2003, was $42.0 million, including a $5.8 million recovery related to the settlement of the MCI pre-petition receivables, compared with EBITDA of $6.9 million, including a $9.5 million allowance for doubtful accounts related to MCI, for the year ended December 31, 2002.

Revenues for the fourth quarter ended December 31, 2003 totaled $79.7 million, compared with $73.7 million for the quarter ended December 31, 2002, and $79.7 million for the quarter ended September 30, 2003. Net loss attributable to common shareholders was $(4.8) million, or $(0.17) per share (basic and diluted), on 28.5 million average shares outstanding for the quarter ended December 31, 2003, compared with a net loss of $(8.0) million, or $(0.30) per share (basic and diluted), on 26.7

US LEC – Fourth Quarter and Year-end 2003 Results

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February 26, 2004

million average shares outstanding for the quarter ended December 31, 2002. EBITDA increased to $13.5 million, including a $3.5 million recovery related to the settlement of the MCI pre-petition receivables, compared with EBITDA of $9.6 million in the quarter ended December 31, 2002 and EBITDA of $10.4 million, including a $2.3 million recovery related to the settlement of the MCI pre-petition receivables, in the quarter ended September 30, 2003.

Aaron D. Cowell, president and chief executive officer of US LEC commented, “Our strong fourth quarter performance solidified our position as the premier competitive carrier in our markets. Annual revenue of $310.8 million and EBITDA of $42.0 million highlight our strong financial results. Our customer base increased by almost 50% over the fourth quarter of 2002, and by 65% over the same period including the customers acquired through the Fastnet acquisition. With this growth and our continued strong customer retention, US LEC now commands meaningful market share in the markets we serve in the Eastern United States. Our success reflects our ability to provide superior products backed by unmatched customer care. In addition, our focus on growing our data business has resulted in an almost 70% data take rate with new customers and greater than 50% data take rate across US LEC’s entire customer base. This translated to $14.4 million in data revenue for the quarter ended December 31, 2003, which now accounts for over 18% of the Company’s total revenue. With the integration of Fastnet on track, we anticipate that we will add their data products to our already strong portfolio of services in 2004. In sum, 2003 was an exceptional year for US LEC and we are committed to building on this momentum in 2004.”

Michael K. Robinson, executive vice president and chief financial officer of US LEC, added, “The Company achieved over $79.7 million in revenue, up 8% over the fourth quarter of 2002, and EBITDA increased to $13.5 million compared with $9.6 million last year. US LEC now has 22 out of 27 offices that are EBITDA positive including corporate allocations, compared to 18 in the third quarter of 2003 – solid evidence that our business model works. In addition, end-customer revenue, which for the quarter ended December 31, 2003, accounts for 73% of total revenue, reached $58.1 million, a 33% increase over the fourth quarter of 2002 and up 7% over the third quarter of 2003. We are pleased that our end-customer revenue base continues to grow as inter-carrier compensation continues to decline in both amount and as a percentage of revenue. US LEC also achieved its fourth consecutive quarter of positive cash growth to reach $43.1 at December 31, 2003. In addition to improved operational and financial metrics, we also took action to improve the long-term financial strength of the Company. Our efforts included raising $10 million in equity capital and reducing the Company’s senior debt by $6 million. US LEC is focused on executing its business plan and, as we enter 2004, we believe we are well positioned to take advantage of the significant opportunities our markets provide.”

Conference Call Information

US LEC will hold a conference call to discuss this press release today, February 26, 2004, at 2:00 p.m. Eastern Time. A live broadcast of the conference call will be available online at www.uslec.com, and www.fulldisclosure.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 March 2, 2004 and replay via webcast will be available through March 26, 2004.

About US LEC

Based in Charlotte, NC, US LEC (Nasdaq: CLEC) is a leading telecommunications carrier providing integrated voice, data and Internet services to medium and large businesses and enterprise organizations. Throughout 15 eastern states and the District of Columbia, US LEC services include local and long distance calling services, advanced data services such as Frame Relay, Multi-Link Frame Relay and Asynchronous Transfer Mode, dedicated and dial-up Internet

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February 26, 2004

services, managed data solutions, data center services and Web hosting. US LEC also provides selected voice services in 25 additional states and selected data services 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 “Forward-Looking Statements and Risk Factors” section and elsewhere in the Company’s Annual Report on Form 10-K for the period ended December 31, 2002, and in subsequent reports, which are on file with the Securities and Exchange Commission.

US LEC^® and FASTNET^™ are registered service marks of US LEC Corp. US LEC and Design (R) is a registered service mark and trademark of US LEC Corp.

US LEC – Fourth Quarter and Year-end 2003 Results

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February 26, 2004

US LEC Corp. and Subsidiaries

Condensed Consolidated Statements of Operations

(In Thousands, Except Per Share Data)

(Unaudited)

	Three months ended December 31,						Twelve months ended December 31,
	2003			2002			2003			2002
Revenue	$	79,695		$	73,732		$	310,825		$	250,363
Network Expenses (excluding depreciation and amortization shown below)		38,753			34,589			148,699			121,127
Depreciation and Amortization		12,400			12,150			48,374			45,062
Selling, General and Administrative Expenses		27,591			29,516			119,519			122,378
Operating Income (Loss) from Operations		951			(2,523	)		(5,767	)		(38,204	)
Other (Income) Expense		(176	)		—			614			—
Net Interest Expense		2,108			1,898			8,159			7,688
Net Loss		(981	)		(4,421	)		(14,540	)		(45,892	)
Preferred Stock Dividends		(3,689	)		(3,475	)		(14,431	)		(13,596	)
Preferred Stock Accretion of Issuance Costs		(141	)		(134	)		(553	)		(521	)
Net Loss Attributable to Common Stockholders	$	(4,811	)	$	(8,030	)	$	(29,524	)	$	(60,009	)
Net Loss Attributable to Common Stockholders Per Common Share
Basic and Diluted	$	(0.17	)	$	(0.30	)	$	(1.08	)	$	(2.26	)
Weighted Average Number of Shares Outstanding
Basic and Diluted		28,490			26,700			27,392			26,546

EBITDA consists of earnings (loss) before interest income and expense, income taxes, depreciation and amortization. EBITDA as used by the Company may be different than similarly used measures by other companies and is not a measure of financial performan

	Three months ended December 31,						Twelve months ended December 31,
	2003			2002			2003			2002
Operating Income (Loss) from Operations	$	951		$	(2,523	)	$	(5,767	)	$	(38,204	)
Other Income (Expense)		176			—			(614	)		—
Depreciation and Amortization		12,400			12,150			48,374			45,062
EBITDA		13,527			9,627			41,993			6,858
Changes in Working Capital		3,784			488			21,377			(4,632	)
Net Interest Expense		(2,108	)		(1,898	)		(8,159	)		(7,688	)
Misc Other		404			(1,039	)		747			(183	)
Net Cash Provided by (used in) Operating Activities	$	15,607		$	7,178		$	55,958		$	(5,645	)

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February 26, 2004

US LEC Corp. and Subsidiaries

Condensed Consolidated Balance Sheets

(In Thousands, Except Per Share Data)

(Unaudited)

	December 31, 2003			December 31, 2002
Assets
Cash and cash equivalents	$	43,126		$	25,715
Restricted cash		61			1,080
Accounts receivable, net		48,294			57,989
Property and equipment, net		165,793			178,810
Deferred income taxes		346			2,805
Other assets		27,679			18,915
Total Assets	$	285,299		$	285,314
Liabilities and Stockholders’ Deficiency
Accounts payable	$	20,343		$	18,089
Notes Payable		1,300
Deferred revenue		14,046			8,048
Accrued network costs		25,088			26,952
Accrued expenses		24,263			22,522
Deferred income taxes		346			2,805
Long-term debt		125,818			130,617
Total Liabilities		211,204			209,033
Series A Redeemable Convertible Preferred Stock		245,255			230,272
STOCKHOLDERS’ DEFICIENCY
Common Stock - Class A		297			269
Additional paid-in capital		90,852			78,526
Accumulated Deficit		(262,309	)		(232,786	)
Total Stockholders’ Deficiency		(171,160	)		(153,991	)
Total Liabilities, Convertible Preferred Stock and Stockholders’ Deficiency	$	285,299		$	285,314

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February 26, 2004

US LEC Corp. and Subsidiaries

Quarterly Statistical Highlights

(Unaudited)

Statistical Data:	Dec. 31, 2003			Sept. 30, 2003		June 30, 2003		March 31, 2003		Dec. 31, 2002
Switching centers in service		27			26		26		26		26
Number of customers		16,983	1		13,970		12,345		10,988		10,290
Number of data customers		9,416	1		5,934		5,490		4,810		4,139
Number of employees		1,016			934		941		913		911
Number of sales and sales support employees		412			397		386		371		367
Revenue (in 000s)3
Total Net Revenue	$	79,695		$	79,723	$	78,298	$	73,108	$	73,733	2
End-customer Revenue 4	$	58,078		$	54,433	$	51,190	$	47,552	$	43,520
Data Revenue	$	14,417		$	11,821	$	10,820	$	9,858	$	8,213
Active Channels5:	Dec. 31, 2003			Sept. 30, 2003		June 30, 2003		March 31, 2003		Dec. 31, 2002
Voice		350,073			336,035		314,194		292,902		278,986
Data		142,534			124,275		107,704		95,338		82,559
ISP		17,753			18,675		19,342		20,826		22,516
Totals:		510,360			478,985		441,240		409,066		384,061

¹ Includes 1,688 business class customers acquired in the asset acquisition of Fastnet Corporation

² Includes the subsequent event of $3.6 million additional carrier revenue recorded for the quarter

³ December 31, 2003 revenues include approximately $1.1 million of revenue from Fastnet.

⁴ Includes local, long distance and data revenue from end-customers

⁵ For a detailed explanation of these terms, please visit the network description section of the Company’s web site at www.uslec.com. These statistics do not include Fastnet data.