Allegiance Telecom Announces First Quarter Results - Company Financial Information

Cambridge Telcom Report, May 1, 2000

Allegiance Telecom, Inc. (Nasdaq: ALGX), a competitive local exchange carrier (CLEC), Tuesday announced results for its first quarter 2000. Allegiance reported first quarter revenues of $47.2 million, an increase of 20 percent compared with 4Q99 revenues of $39.3 million. Lines sold as well as lines installed continued to exceed plan, with new lines sold increasing from 75,400 in 4Q99 to 95,600 lines in 1Q00. Lines installed also showed significant growth, with net new lines installed increasing from 60,300 in 4Q99 to 72,600 in 1Q00. To date, Allegiance has installed 314,300 net new lines of which 88 percent are "on switch."

"This quarter marks the eighth consecutive time Allegiance Telecom has met or exceeded major operational and financial targets," said Royce J. Holland, chairman and chief executive officer of Allegiance Telecom. "Our rapid growth of new line installations is the result of the continued automation and scale-up of our back office systems. A significant achievement during the quarter was the introduction of the Allegiance Enterprise Portal, the first phase of our online business center providing our customers with the tools they need to mine the riches of the Internet," he said.

Network Rollout Network rollout proceeded on track, with 20 markets operational at the end of 1Q00 including Atlanta, Baltimore, Boston, Chicago, Dallas, Denver, Detroit, Fort Worth, Houston, Long Island, Los Angeles, New York, Northern New Jersey, Oakland, Orange County, Philadelphia, San Diego, San Francisco, San Jose and Washington, D.C. The Company also initiated service in its 21st market, St. Louis, during the first week of April 2000. Cleveland, Miami and Seattle are slated to begin service during the second quarter, completing Allegiance's initial 24-market plan on schedule.

In early January 2000, Allegiance announced the addition of 12 new markets to its original market plan and the expansion of a number of existing networks. The Company expects to be operational in 27 markets by the end of 2000 and in 36 markets by the end of 2001.

Strong gains in the addressable market continued for Allegiance during the first quarter. As of the end of March, the Company was collocated in 395 central offices for unbundled loops, representing an addressable "on-switch" market of approximately 11.8 million local business access lines, an increase of 16.8 percent from 4Q99.

The expanded business plan calls for total central office collocations of 990 by the end of 2001. This represents a 33 percent increase over the original plan in the number of nonresidential access lines that can be addressed "on-switch" with our collocation footprint.

At the end of 1Q00, Allegiance had 16 switches in operation, supporting the following markets: Atlanta, Baltimore, Boston, Chicago, Dallas/Fort Worth (2), Denver, Detroit, Houston, Los Angeles/Orange County, New York/Northern New Jersey/Long Island (2), Philadelphia, San Diego, San Francisco/Oakland/San Jose and Washington, D.C. A St. Louis switch came on-line in early April 2000, and switches in Cleveland, Miami, and Seattle and second switches for Northern New Jersey and Orange County are on schedule for completion in 2Q00.

Financial and Operational Highlights Allegiance again posted strong numbers for its sales efforts for the quarter, with lines sold increasing from 75,400 in 4Q99 to 95,600 lines in 1Q00, an increase of 26 percent compared with 4Q99. Lines installed also showed significant growth, with lines installed increasing from 60,300 in 4Q99 to 72,600 in 1Q00, a 20 percent increase in new installs compared to 4Q99.

Recruitment efforts continue to be successful, with the Company's sales force (including managers) growing to 905 people, out of a total Allegiance employee base of 2,038 as of March 31, 2000. A cornerstone of Allegiance's business plan is the continuing development of a strong and effective direct sales force in each of the Company's operational markets.

For the first quarter 2000, Allegiance Telecom had consolidated revenues of $47.2 million, an annual increase of 370 percent from 1Q99. Gross margin continued to improve to 42.5 percent. Allegiance continues to use its capital to support the development of new markets, resulting in a first quarter EBITDA (earnings before interest, taxes, depreciation and amortization, excluding management ownership allocation charge and non-cash deferred compensation expenses) loss of $28.0 million and capital expenditures of $102.5 million.

"During the first quarter, Allegiance Telecom used approximately $117.4 million of its cash and short-term investments to further fund its operations and capital expenditures related to switching platforms, collocations and its data network which support the Company's product suite of local, long distance, data and Internet services," said Thomas M. Lord, executive vice president of corporate development and chief financial officer. "At March 31, 2000, Allegiance had more than $1.1 billion of unrestricted cash and short-term investments."