CLEC US Lec Corpa (MM)

CHARLOTTE, N.C., Nov. 14 /PRNewswire-FirstCall/ -- US LEC Corp. (NASDAQ:CLEC), a telecommunications carrier serving businesses and enterprise organizations throughout the Eastern United States, announced today strong financial and operating results for the third quarter of 2006. Highlights of the quarter and other recent events include: - Achieving revenue of $105.4 million, a 7% increase over the third quarter of 2005 - Growing end-customer revenue by $10.1 million to $94.2 million, representing 89% of total revenue and a 12% increase over the third quarter of 2005 - Increasing quarterly data revenue to over $35.7 million, accounting for 34% of total revenue for the quarter - Reaching adjusted EBITDA of $14.2 million, or 13% of total revenue (see definition and reconciliation of adjusted EBITDA to net cash flow from operations below) - Growing its business customer base to 28,506 as of September 30, 2006 while continuing to keep its industry-leading retention rate above 99 percent - Announcing the settlement of its inter-exchange carrier access dispute with Qwest Communications Corporation, ending the litigation on the matter between the companies - Completing its planned MPLS VPN data network, with the addition of New York City and the surrounding area, making US LEC's MPLS VPN service available throughout its footprint - Several favorable developments concerning the Company's pending merger transaction as discussed below Revenue for the quarter ended September 30, 2006, totaled $105.4 million, a 7% increase, compared with $98.8 million for the quarter ended September 30, 2005. Adjusted EBITDA for the third quarter of 2006 was $14.2 million compared with $13.8 million in the third quarter of 2005, a 3% increase. The net loss applicable to common stockholders was ($13.2) million, or ($0.42) per share (diluted) on 31.3 million weighted average shares outstanding for the quarter ended September 30, 2006, compared with the net loss applicable to common stockholders of ($7.4) million, or ($0.24) per share (diluted), on 30.5 million weighted average shares outstanding for the third quarter of 2005. Increased SG&A expense of $5.1 million due to merger related costs contributed to the higher loss for the quarter. Without merger related costs, US LEC would have posted an ($8.1) million loss or ($0.26) per share. Revenue for the nine months ended September 30, 2006, was $314.9 million, a 9% increase, compared with $287.7 million for the nine months ended September 30, 2005. Adjusted EBITDA for the nine months ended September 30, 2006, was $44.0 million compared with $37.8 million during the same period last year, or an increase of 16%. The net loss applicable to common stockholders was ($27.8) million, or ($0.90) per share (diluted) on 31.0 million weighted average shares outstanding for the nine months ended September 30, 2006, compared with a net loss applicable to common stockholders of ($25.2) million, or ($0.83) per share (diluted), on 30.4 million weighted average shares outstanding for the nine months ended September 30, 2005. "Solid growth in customers and customer circuits contributed to increasing our revenue by over $6.0 million over the third quarter of 2005," said Aaron Cowell, president and chief executive officer of US LEC. "End-customer revenue for the quarter was $94.2 million compared with $84.1 million in the same quarter last year and represents a 12% increase over that time. End- customer revenue now accounts for 89% of US LEC's total revenue stream. Importantly, data revenue increased by $4.9 million year-over-year to reach $35.7 million. This strong growth is an indication that US LEC has developed a very strong data product set that has gained wide acceptance throughout our footprint and has become a major revenue source for the Company. Approximately 44% of our entire base of business class customers now uses 6 or more of our services." Cowell continued, "We increased US LEC's business class customer base by approximately 13% year-over-year and maintained an industry leading monthly retention rate of over 99%. This growth was primarily due to a combination of increased penetration in our established markets and the continued development and acceptance of new products, resulting in a 24% year-over-year increase in total active channels, including 39% growth in data channels compared to the same quarter last year. As a result of this growth, US LEC crossed the 1 million active channels milestone during the quarter." "We continued to execute our proven business model, and our numbers remained strong," added J. Lyle Patrick, executive vice president and CFO of US LEC. "End-customer revenue increased by $10.1 million or 12% over the third quarter of 2005. We did see a reduction in carrier and wholesale revenues as a result of reduced traffic and a reduction in certain rates. This decrease contributed to a negative impact on gross margin due to the higher margin contribution of access revenue. On a productivity basis, US LEC's team continues to set a high standard as end customer revenue per employee increased during the quarter to $85,400 from $76,500 in the third quarter of 2005. SG&A, as a percent of revenue, decreased to 36% after deducting from SG&A the one-time costs associated with the planned merger with PAETEC. US LEC also achieved positive cash flow from operations of $10.4 million for the quarter and $28.7 million for the nine months ended September 30, 2006. Cash levels were at over $39.5 million at quarter end - up from $30.7 million as of December 31, 2005. To sum it up, we had a very solid quarter as we continued to establish US LEC as the premier competitive carrier in our markets." Patrick continued, "Finally, we expect to see a strong fourth quarter that should take us above $60 million in adjusted EBITDA for 2006." Pending Merger Update The following notable developments have occurred concerning the pending merger transaction with PAETEC Corp.: - The Federal Trade Commission granted early termination of the Hart- Scott-Rodino waiting period on September 29, 2006 - The transfers of the Federal Communications Commission authorizations held by US LEC were deemed granted in October 2006 and will become final on November 28, 2006 (for the international authorizations) and on December 5, 2006 (for the domestic authorizations) unless petitions for reconsideration are filed by third parties or the FCC acts to review its decision by those dates - Effective November 13, 2006, PAETEC Holding Corp filed a Form S-4 with the Securities and Exchange Commission that contains the preliminary proxy statement/prospectus for the proposed transaction and that remains subject to comment and clearance by the SEC before the proxy statement/prospectus can be mailed to US LEC and PAETEC Corp. stockholders Conference Call Information US LEC Corp. will hold a conference call to discuss this press release on November 14, 2006, at 10:00 a.m. EST. 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. 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 November 17, 2006 and a replay via web cast will be available through December 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(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 release 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, 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. Additional Information About this Transaction PAETEC Holding Corp. has filed with the Securities and Exchange Commission a registration statement (File No.: 333-138594) that contains a preliminary proxy statement of US LEC and PAETEC and a preliminary prospectus of PAETEC Holding Corp. regarding the proposed merger transaction between US LEC and PAETEC, as well as other relevant documents concerning the proposed transaction. The registration statement is filed under the name WC Acquisition Holdings Corp. Investors and security holders of US LEC are urged to read the proxy statement/prospectus for the transaction and the other relevant documents when they become available because they will contain important information about US LEC, PAETEC and PAETEC Holding Corp., and the proposed merger transaction. The proxy statement/prospectus will be mailed to stockholders of US LEC and PAETEC prior to their stockholder meeting. Investors and security holders of US LEC may obtain free copies of the proxy statement/prospectus and other documents filed by PAETEC Holding Corp. with the Securities and Exchange Commission at the Securities and Exchange Commission's web site at http://www.sec.gov/ and may also obtain free copies of the proxy statement (when it becomes available) by writing to US LEC Corp., Morrocroft III, 6801 Morrison Boulevard, Charlotte, North Carolina 28211, Attention: Investor Relations or by telephoning us at (704) 319-1189. Information regarding the identity of persons who may, under the Securities and Exchange Commission's rules, be deemed to be participants in the solicitation of stockholders of US LEC in connection with the proposed transaction, and their interests in the solicitation, are set forth in the preliminary proxy statement that has been filed by US LEC with the Securities and Exchange Commission and contained in the registration statement that has been filed by PAETEC Holding Corp. with the Securities and Exchange Commission. This communication shall not constitute an offer to sell or the solicitation of an offer to sell or the solicitation of an offer to buy any securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. No offer of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended. Investor Contact: James Stawski, 704-319-1189, Media Contact: Paul Wilson, 704-319-6875, US LEC Corp. and Subsidiaries Condensed Consolidated Statements of Operations (In Thousands, Except Per Share Data) (Unaudited) Three months ended Nine months ended September 30, September 30, 2006 2005 2006 2005 Revenue $105,420 $98,824 $314,901 $287,682 Network Expenses (excluding depreciation and amortization shown below) 53,818 47,680 157,217 140,061 Depreciation and Amortization 12,303 12,684 36,668 38,253 Selling, General and Administrative Expenses 43,177 37,560 121,315 110,017 Income (Loss) from Operations (3,878) 900 (300) (649) Net Interest Expense 4,799 4,228 14,185 12,219 Other Income - (202) - (202) Net Loss (8,678) (3,126) (14,485) (12,666) Preferred Stock Dividends (4,345) (4,094) (12,843) (12,101) Preferred Stock Accretion of Issuance Costs (167) (157) (493) (464) Net Loss Attributable to Common Stockholders $(13,190) $(7,377) $(27,821) $(25,231) Net Loss Attributable to Common Stockholders Per Common Share Basic and Diluted $(0.42) $(0.24) $(0.90) $(0.83) Weighted Average Number of Shares Outstanding Basic and Diluted 31,343 30,504 30,964 30,363 Adjusted EBITDA consists of earnings (loss) before interest income and expense, income taxes, depreciation and amortization, stock based compensation expense, merger costs related to the proposed PAETEC/US LEC merger 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 Nine months ended September 30, September 30, 2006 2005 2006 2005 Income (Loss) from Operations $(3,878) $900 $(300) $(649) Other Income - 202 - 202 Loss from Operations Related to Investment in ETV 429 - 1,093 - Depreciation and Amortization 12,303 12,684 36,668 38,253 Stock-based Compensation Expense 285 - 1,453 - Integration Costs 5,070 - 5,070 - Adjusted EBITDA 14,209 13,786 43,984 37,806 Changes in Working Capital 234 1,619 (1,324) (9,921) Net Interest Expense (4,773) (4,228) (14,185) (12,219) Miscellaneous Other 786 (92) 261 (311) Net Cash Provided by Operating Activities $10,456 $11,085 $28,736 $15,355 US LEC Corp. and Subsidiaries Condensed Consolidated Balance Sheets (In Thousands, Except Per Share Data) (Unaudited) September 30, December 31, 2006 2005 Assets Cash and cash equivalents $39,515 $30,704 Restricted cash 64 67 Accounts receivable, net 44,414 49,841 Property and equipment, net 129,451 144,350 Deferred income taxes 1,630 2,792 Other assets 23,578 24,598 Total Assets $238,652 $252,352 Liabilities and Stockholders' Deficiency Accounts payable $9,361 $10,109 Deferred revenue 15,434 14,292 Accrued network costs 17,122 20,252 Accrued expenses 38,728 37,446 Deferred income taxes 1,630 2,792 Long-term debt 149,550 149,438 Total Liabilities 231,825 234,329 Series A Redeemable Convertible Preferred Stock 291,373 278,037 STOCKHOLDERS' DEFICIENCY Common Stock - Class A 319 307 Additional paid-in capital 96,458 93,181 Accumulated Deficit (381,323) (353,502) Total Stockholders' Deficiency (284,546) (260,014) Total Liabilities, Convertible Preferred Stock and Stockholders' Deficiency $238,652 $252,352 US LEC Corp. and Subsidiaries Quarterly Statistical Highlights (Unaudited) Sept. 30, June 30, March 31, Dec. 31, Sept. 30, 2006 2006 2006 2005 2005 Revenue (in 000s): End-Customer Revenue Voice Monthly Recurring Charges $44,776 $43,961 $42,769 $41,425 $40,418 Data Monthly Recurring Charges 35,682 34,301 33,186 32,137 30,820 Long Distance 13,711 14,351 13,770 12,615 12,851 94,169 92,613 89,725 86,177 84,089 Percent of Total Revenue 89% 87% 87% 86% 85% Carrier Charges Carrier Access 5,588 7,429 7,377 8,107 9,022 Reciprocal Compensation 2,090 2,050 2,023 2,188 2,053 7,678 9,479 9,400 10,295 11,075 Percent of Total Revenue 7% 9% 9% 10% 11% Other Revenue (1) 3,573 4,591 3,672 3,583 3,660 Percent of Total Revenue 3% 4% 4% 4% 4% Total Revenue $105,420 $106,683 $102,797 $100,055 $98,824 Customers: Total Customers 39,218 38,842 38,292 38,096 37,974 Business Class Customers 28,506 27,792 27,042 26,225 25,212 Business Class Customers Purchasing Data Services 22,229 21,527 20,925 20,219 19,176 Shared Hosting/Dial Up Customers 10,712 11,050 11,250 11,871 12,762 Active Channels (2): Voice 543,005 533,644 516,130 499,562 481,207 Data 515,876 462,111 427,505 397,714 371,900 Total active channels 1,058,881 995,755 943,635 897,276 853,107 Statistical Data: Central Offices 27 27 27 27 27 Number of employees 1,103 1,143 1,127 1,128 1,099 Number of sales and sales support employees 471 493 489 482 482 End Customer Revenue/Employee (in 000s) $85.4 $81.0 $79.6 $76.4 $76.5 (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. DATASOURCE: US LEC Corp. CONTACT: Investors, James Stawski, +1-704-319-1189, or , or Media, Paul Wilson, +1-704-319-6875, or , both of US LEC Corp. Web site: http://www.uslec.com/

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