CLEC US Lec Corpa (MM)

Necessary Regulatory Approvals from FCC and Applicable State Regulatory Agencies Received CHARLOTTE, N.C., Feb. 21 /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 results for the fourth quarter and year ended December 31, 2006. Operational and financial highlights for these periods include: - Achieving fourth quarter Adjusted EBITDA of $18.4 million, compared to adjusted EBITDA of $14.3 million in the fourth quarter of 2005 - a 29% improvement (see definition and reconciliation of Adjusted EBITDA to net cash flow from operations as described in the attached) - Achieving net income before preferred dividends and merger related costs of $410,000 for the fourth quarter of 2006 - Achieving $109.4 million in total revenue for the quarter ended December 31, 2006 compared to $100.1 million in the same period last year - Achieving end-customer revenue of $98.8 million, an increase of over $12.6 million, or 15%, compared to the fourth quarter of 2005 - Increasing US LEC's active voice and data channels to over 1,100,000 channels, a 24% improvement over 2005 - Completing the Company's MPLS VPN data network with the addition of the service to New York City and the surrounding area, making US LEC's MPLS VPN service available throughout its footprint - Enhancing US LEC's network in 2006 by adding an additional 14 Tekelec T- 9000 digital switches, giving US LEC a uniquely flexible and cost- effective solution to transition its network to IP and meet virtually any deployment scenario for both traditional voice or VoIP services - Receiving all necessary regulatory approvals from the FCC and applicable state regulatory agencies to move ahead with the planned merger of US LEC Corp. and PAETEC Corp. Revenue for the fourth quarter ended December 31, 2006, totaled $109.4 million, compared with $100.1 million for the quarter ended December 31, 2005. Net loss attributable to common shareholders was $(6.5) million, or $(0.20) per share (basic and diluted), on 32.4 million average shares outstanding for the quarter ended December 31, 2006, compared with a net loss of $(30.3) million, or $(0.99) per share (basic and diluted), on 30.5 million average shares outstanding for the quarter ended December 31, 2005. Adjusted EBITDA for the quarter ended December 31, 2006 was $18.4 million compared with adjusted EBITDA of $14.3 million in the fourth quarter of 2005. Revenue for the year ended December 31, 2006 totaled $424.3 million compared with $387.7 million for the year ended December 31, 2005, a 9% year- over-year increase. Net loss attributable to common shareholders was $(34.3) million, or $(1.10) per share (basic and diluted), on 31.3 million average shares outstanding for the year ended December 31, 2006, compared with a net loss of $(55.5) million, or $(1.83) per share (basic and diluted), on 30.4 million average shares outstanding for the year ended December 31, 2005. Adjusted EBITDA for the year ended December 31, 2006, was $62.5 million, compared with 2005 Adjusted EBITDA of $52.1 million. Tansukh V. Ganatra, chief executive officer of US LEC, commented, "In the fourth quarter of 2006, we achieved $109.4 million in total revenue and $18.4 million in Adjusted EBITDA. We increased year-over-year top line revenue by 9% to $424.3 million and end customer revenue grew by 15% to $375.3 million for the year. During the year we had organic growth with the addition of over 212,000 active voice and data channels, which represents a 24% year-over-year growth rate. In addition, we continue to get excellent productivity gains from our team of 1,035 outstanding employees. Fourth quarter end customer revenue per employee increased to $95,500 in the fourth quarter of 2006 from $76,400 in the fourth quarter of 2005." Ganatra added, "2006 also marked a year of continued evolution for US LEC as we took great strides forward in transitioning the Company into a next- generation competitive carrier. We enhanced our network by bringing 14 additional Tekelec T-9000 digital switches online without adding to our projected capital expenditures during fiscal 2006. We also completed our MPLS VPN network which positions US LEC for future growth and enables the Company to offer a broader range of integrated services delivered over an IP-based data network throughout the US LEC footprint." J. Lyle Patrick, executive vice president and chief financial officer of US LEC, added, "Our financial and operating results for 2006 demonstrate solid execution by US LEC. Total revenue increased by $36.6 million year-over-year and we are pleased with a 15% year-over-year growth in end customer revenue that accounted for 90% of total revenue for the fourth quarter. In addition, we are pleased with our ability to control network expenses, which contributed to gross margins of 50% for fourth quarter and the year. Adjusted EBITDA increased by 29% year over year to reach $18.4 million in the fourth quarter of 2006. I would also note that for the fourth quarter of 2006, the Company achieved net income before preferred dividends and one-time merger related costs of $410,000, demonstrating the continued move to profitability. The Company also achieved $36.1 million of cash flow from operations for the year. Cash capital expenditures were $7.5 million for the quarter and $29.6 million for the year. Finally, the Company ended the year with a strong cash position of $42.6 million." Richard T. Aab, Chairman of the Board of US LEC added, "Additionally, we are pleased to announce that all necessary regulatory approvals for the continued progress of our proposed merger have been received. On February 8, 2007, the Securities and Exchange Commission declared effective the Form S-4 registration statement containing the joint proxy statement and the prospectus concerning the proposed merger of the two companies. The companies have also received the necessary regulatory approvals from the Federal Communications Commission and applicable state regulatory agencies, and the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 has expired. Coupled with the excellent results discussed above, we look forward to our pending merger with PAETEC and continued success as a combined entity." Aab continued, "Our integration and operations planning teams have been preparing and we are well on our way as to having the plan developed to combine these two great companies under a single management team and after merger close complete the integration of our respective back office systems and networks." Conference Call Information US LEC will hold a conference call to discuss this press release today, February 21, 2007, at 11:00 a.m. Eastern Time. 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. A telephone replay and a replay via web cast will be available shortly after the call through February 28, 2007. 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 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) and MegaPOP(R) are service marks of US LEC Corp. Additional Information About This Transaction On February 8, 2007, the Securities and Exchange Commission declared effective a registration statement (File No.: 333-138594) filed with the Securities and Exchange Commission by PAETEC Holding Corp. that contains a proxy statement of US LEC and PAETEC and a 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 proxy statement and the prospectus were mailed to stockholders of record of US LEC on February 8, 2007. Investors and security holders of US LEC are urged to read the proxy statement and the prospectus for the transaction and the other relevant documents because they contain important information about US LEC, PAETEC and PAETEC Holding Corp., and the proposed merger transaction. Investors and security holders of US LEC may obtain free copies of the proxy statement and the 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 and the prospectus by writing to US LEC Corp., Morrocroft III, 6801 Morrison Boulevard, Charlotte, North Carolina 28211, Attention: Investor Relations or by telephoning (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 joint proxy statement/prospectus 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. US LEC Corp. and Subsidiaries Condensed Consolidated Balance Sheets (In Thousands, Except Per Share Data) (Unaudited) December 31, December 31, 2006 2005 Assets Cash and cash equivalents $42,560 $30,704 Restricted cash 64 67 Accounts receivable, net 44,557 49,841 Property and equipment, net 127,697 144,350 Deferred income taxes 1,644 2,792 Other assets 21,899 24,598 Total Assets $238,421 $252,352 Liabilities and Stockholders' Deficiency Accounts payable $11,097 $10,109 Deferred revenue 15,831 14,292 Accrued network costs 17,681 20,252 Accrued expenses 34,086 37,446 Deferred income taxes 1,644 2,792 Series A Redeemable Convertible Preferred Stock 295,952 - Notes Payable 149,587 149,438 Total Liabilities 525,878 234,329 Series A Redeemable Convertible Preferred Stock - 278,037 STOCKHOLDERS' DEFICIENCY Common Stock - Class A 333 307 Additional paid-in capital 100,051 93,181 Accumulated Deficit (387,841) (353,502) Total Stockholders' Deficiency (287,457) (260,014) Total Liabilities, Convertible Preferred Stock and Stockholders' Deficiency $238,421 $252,352 US LEC Corp. and Subsidiaries Condensed Consolidated Statements of Operations (In Thousands, Except Per Share Data) (Unaudited) Three months ended Twelve months ended December 31, December 31, 2006 2005 2006 2005 Revenue $109,367 $100,055 $424,267 $387,738 Network Expenses (excluding depreciation and amortization shown below) 54,882 46,863 212,099 186,924 Depreciation and Amortization 12,011 12,415 48,680 50,668 Selling, General and Administrative Expenses 39,388 38,884 160,702 148,902 Charge Related to Carrier Access Disputes - 23,292 - 23,292 Income (Loss) from Operations 3,086 (21,399) 2,786 (22,048) Net Interest Expense 4,786 4,583 18,998 16,802 Other Expense (Income) - - - (202) Net Loss (1,700) (25,982) (16,212) (38,648) Preferred Stock Dividends (4,409) (4,155) (17,253) (16,256) Preferred Stock Accretion of Issuance Costs (169) (159) (662) (623) Net Loss Attributable to Common Stockholders $(6,490) $(30,296) $(34,339) $(55,527) Net Loss Attributable to Common Stockholders Per Common Share Basic and Diluted $(0.20) $(0.99) $(1.10) $(1.83) Weighted Average Number of Shares Outstanding Basic and Diluted 32,442 30,507 31,337 30,399 Adjusted EBITDA consists of earnings (loss) before interest income and expense, income taxes, depreciation and amortization, stock based compensation expense, integration costs related to the 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 Twelve months ended December 31, December 31, 2006 2005 2006 2005 Income (Loss) from Operations $3,086 $(21,399) $2,786 $(22,048) Other Income (Expense) - - - 202 Loss from Operations Related to Investment in ExtreamTV 405 - 1,560 - Depreciation and Amortization 12,011 12,415 48,680 50,668 Charge Related to Carrier Access Disputes - 23,292 - 23,292 Stock-based Compensation Expense 825 - 2,278 - Merger Related Costs 2,106 - 7,176 - Adjusted EBITDA 18,434 14,308 62,481 52,114 Changes in Working Capital (5,746) (7,414) (7,070) (17,336) Net Interest Expense (4,786) (4,583) (18,998) (16,802) Miscellaneous Other (589) 116 (363) (195) Net Cash Provided by Operating Activities $7,313 $2,427 $36,050 $17,781 US LEC Corp. and Subsidiaries Quarterly Statistical Highlights (Unaudited) December September June March December 31, 30, 30, 31, 31, 2006 2006 2006 2006 2005 Revenue (in 000s): End Customer Revenue Voice Monthly Recurring Charges $49,044 $44,776 $43,961 $42,769 $41,425 Data Monthly Recurring Charges 37,078 35,682 34,301 33,186 32,137 Long Distance 12,681 13,711 14,351 13,770 12,615 98,803 94,169 92,613 89,725 86,177 Percent of Total Revenue 90% 89% 87% 87% 86% Carrier Charges Carrier Access 5,668 5,588 7,429 7,377 8,107 Reciprocal Compensation 1,543 2,090 2,050 2,023 2,188 7,211 7,678 9,479 9,400 10,295 Percent of Total Revenue 7% 7% 9% 9% 10% Other Revenue (1) 3,353 3,573 4,591 3,672 3,583 Percent of Total Revenue 3% 3% 4% 4% 4% Total Revenue $109,367 $105,420 $106,683 $102,797 $100,055 Customers: Total Customers 38,956 39,218 38,842 38,292 38,096 Business Class Customers 28,843 28,506 27,792 27,042 26,225 Business Class Customers Purchasing Data Services 22,662 22,229 21,527 20,925 20,219 Shared Hosting/Dial Up Customers 10,113 10,712 11,050 11,250 11,871 Active Channels (2): Voice 564,588 543,005 533,644 516,130 499,562 Data 544,713 515,876 462,111 427,505 397,714 Total active channels 1,109,301 1,058,881 995,755 943,635 897,276 Statistical Data: Central Offices 27 27 27 27 27 Number of employees 1,035 1,103 1,143 1,127 1,128 Number of sales and sales support employees 435 471 493 489 482 End Customer Revenue/Employee (in 000s) $95.5 $85.4 $81.0 $79.6 $76.4 (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. Investor Contact: Media Contact: James Stawski Paul Wilson 704-319-1189 704-319-6875 DATASOURCE: US LEC Corp. CONTACT: Media: Paul Wilson, +1-704-319-6875, or , or Investors: James Stawski, +1-704-319-1189, or , both of US LEC Corp. Web site: http://www.uslec.com/

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