US LEC Announces Second Quarter 2006 Results With $106.7 Million in Revenue and Adjusted EBITDA of Over $15.0 Million

Share Name	Share Symbol	Market	Type
US Lec Corpa (MM)	NASDAQ:CLEC	NASDAQ	Common Stock

US Lec (NASDAQ:CLEC)
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End Customer Revenue Up 14% Year Over Year CHARLOTTE, N.C., Aug. 14 /PRNewswire-FirstCall/ -- 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 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." 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. EDT. A live broadcast of the conference call and a slide presentation will be available online at http://www.uslec.com/ and http://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(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 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. Investor Contact: James Stawski, 704-319-1189, Media Contact: Brian Crenshaw, 704-319-1942, 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 Six months ended 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 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 Corp. and Subsidiaries Quarterly Statistical Highlights (Unaudited) December September June 30, March 31, 31, 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. DATASOURCE: US LEC Corp. CONTACT: Investors: James Stawski, +1-704-319-1189, , Media: Brian Crenshaw, +1-704-319-1942, , both of US LEC Corp. Web site: http://www.uslec.com/ http://www.mshow.com/

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CLEC US Lec Corpa (MM)