Intermedia Communications 2Q Results; Increased Growth Pushes Quarterly Revenue to $218 Million - 2nd qtr 1999 - Company Financial Information

Cambridge Telcom Report, August 16, 1999

Intermedia Communications Inc. (NASDAQ:ICIX) has announced record revenue of $217.9 million for the quarter ended June 30, 1999.

Last July, Intermedia's majority-owned Digex (NASDAQ:DIGX) subsidiary completed an initial public offering (IPO) of its common stock. Gross proceeds of $195.5 million were raised by issuing 18.7 percent of Digex to the public, with Intermedia retaining 81.3 percent ownership.

Earlier this week, the company also announced an agreement to provide data services to Bell Atlantic's out-of-region customers on a pre-271 basis. Intermedia has the 4th largest nationwide frame relay and IP network and an industry leading 793 network to network data interconnections (NNIs) which makes Intermedia's data and IP network the densest and most flexible in the United States. Intermedia also announced its plan to expand its IP backbone to OC48 capacity.

"As usual, it has been a busy quarter at Intermedia," said David Ruberg, Intermedia's president, chairman, and chief executive officer. "We have put ourselves in an ideal position to continue to improve operating results in the near term and also to capitalize on sustainable growth opportunities in Internet, data, and managed services and applications. Our strategy is Internet centric, and the value proposition to our customers is in integrated services and managed applications."

SUMMARY OF SECOND QUARTER 1999 RESULTS Revenue for the second quarter of $217.9 million was up 6 percent sequentially over first quarter 1999 revenue of $204.7 million.

Consolidated EBITDA (as defined below) for the second quarter was positive $10.1 million, inclusive of negative EBITDA of $12.2 million at Digex.

"In the second quarter, we saw revenue growth accelerate to over 28 percent on an annualized basis versus 25 percent in the first quarter," said Robert M. Manning, Intermedia's chief financial officer. "The combination of accelerating revenue growth and increasing efficiency are driving expanding EBITDA margins in our core business. We expect accelerating financial improvements in the second half of 1999."

REVENUE ANALYSIS Enhanced Data and Internet Services Enhanced Data and Internet services continued its growth. Revenue for the second quarter was $66.7 million, an increase of 56 percent over second quarter 1998 and an increase of 11 percent sequentially.

Revenue grew sequentially in all categories, and was led by revenue growth at Digex, which grew 34 percent sequentially to $12.6 million in the second quarter versus $9.4 million in the first quarter of 1999, and was up 166 percent over the second quarter of 1998. Frame relay and ATM revenue also grew at double digit rates sequentially, as a function of increases in managed services as well as nodes in service. Frame relay nodes in service increased by 3,570 in the second quarter to 42,741. Frame relay nodes in service also increased 58 percent over the second quarter of 1998.

Competitive Local Services Competitive Local services continued its growth. Revenue for the quarter was $55.5 million, an increase of 45 percent over second quarter 1998 and an increase of 5 percent sequentially.

Intermedia installed 37,692 access lines in the quarter. 6,759 resale lines were either converted on-switch or pruned, bringing the total access lines in service at the end of the period to 407,675, a 46 percent increase versus second quarter 1998. At the end of the second quarter, 77 percent of the lines in service were on-switch.

"Our on-switch percentage, gross margins, and revenue per access line continue to be the benchmarks in our industry," said Manning. "In the second quarter, we expanded our UV.net service, which provides integrated local, long distance and high-speed Internet access to small and medium-sized businesses, to 20 additional cities, bringing our total market coverage to 23 major metropolitan cities.

Interexchange Services Interexchange revenue was $64.3 million in the second quarter, a 22 percent decrease versus second quarter 1998, and down 5 percent sequentially.

"While the reduction in long distance revenue that has resulted from our intentional exit of certain lines of business, such as wholesale and low end stand-alone long distance, has helped to improve margins, we are nevertheless dissatisfied with the overall performance of this category," said Manning. "We have focussed on selling integrated services, and 100 percent of our UV.net sales are for multiple services. As UV.net sales and install activity ramps up in the second half of 1999, we expect improving results in this category."

Integration Services Integration Services revenue for the quarter was $31.4 million, an increase of 18 percent versus second quarter of 1998 and an increase of 31 percent sequentially.

OUTLOOK "Overall, the second quarter results were consistent with our expectations," said Manning. "Our growth rate has increased, and we believe we will be able to further accelerate revenue growth in the second half of the year."