US LEC Corp. Announces First Quarter 2000 Results; Strong Core Business Growth - Company Financial Information

Cambridge Telcom Report, May 15, 2000

US LEC Corp. (Nasdaq: CLEC), a leading provider of integrated telecommunications services, Tuesday announced financial and operating results for the quarter ended March 31, 2000.

Net revenues for the quarter ended March 31, 2000, totaled $25.4 million. EBITDA for the first quarter of 2000 was a negative $1.7 million, exclusive of the non-cash, non-recurring charges related to reciprocal compensation. The Company reported a net loss of $39.6 million, or $1.44 per share, on 27.5 million average shares outstanding for the first quarter ended March 31, 2000.

In commenting on first quarter results, Tansukh V. Ganatra, vice chairman and chief executive officer of US LEC said, "The net loss reflects the previously announced pre-tax, non-recurring, non-cash charge of $55 million relating to the North Carolina Utilities Commission ("NCUC") order on March 31, 2000. The remainder of the reduction of consolidated operating results was fully anticipated and is entirely due to a planned reduction in revenue related to reciprocal compensation due to the expiration of an interconnect agreement with a major ILEC." Commenting further, Mr. Ganatra said, "Our core business revenue, exclusive of reciprocal compensation and related revenue, continued to show strong growth, increasing over 20% compared with the fourth quarter of 1999. Reciprocal compensation represented only $3 million, or 12%, of our total first quarter revenue versus 65% for the entire fiscal year 1999. Additionally, voice lines and trunks grew by approximately 20%, and the total number of US LEC customers increased approximately 20% to more than 2,300. We also had a number of operating accomplishments that we believe will position US LEC for even greater success in calendar year 2000."

"Strong execution of our growth strategy was the impetus for the announced expansion into major new markets including New York City, Boston, Pittsburgh, Louisville, New Orleans, Charleston and West Palm Beach. Due to exceptional demand for US LEC services, we announced plans to install a second local switch in Atlanta. Additionally, we have focused on expanding our product portfolio in tandem with the growing demand for enhanced data services. The introduction of US LECnet, providing dedicated high-speed Internet access to customers, represents an important addition to our product line and provides another competitive advantage in winning new customers. Due to our anticipation of a positive market response to US LECnet we have decided to expand the service to our entire network of customers."

"The announcement in February 2000 of a strategic equity investment in US LEC of up to $300 million by Bain Capital and Thomas H. Lee Partners was an important milestone for the Company. The first tranche of this investment for $200 million was completed early in the second quarter of 2000. This investment, together with our $150 million bank facility, fully funds the Company for the foreseeable future, provides sufficient funds to continue the rapid expansion of our geographic footprint, and enhances our ability to add advanced services to our bundled product offering. Our goal is to maintain our position as a leading provider of fully integrated telecommunications services and we believe the accomplishments this quarter set the stage for continued successful execution of our strategy, " concluded Ganatra.

Recent and first quarter 2000 operating highlights include the following:

* (1) Orchestra: A Quality of Service platform at the network edge.

* (2) Soloist: A highly programmable intelligent agent at the customer premises that enforces usage policies, then manages and rates services from the customer back into the network.

* (3) Maestro: Software for service creation, customization and life cycle management from service definition through all OAMP functions.

"We are very pleased with our operational performance," added Mike Robinson, executive vice president and chief financial officer. "The 20% increase in revenue, exclusive of reciprocal compensation and related revenue, was driven primarily by an increase in voice trunks of approximately 20% over the fourth quarter of 1999."

Mr. Robinson continued, "The Company's interconnection agreements with BellSouth Telecommunications Inc. ("BellSouth") expired on December 31, 1999, and are in the process of being replaced with new agreements. Although there is no operational impact, the Company expects interconnection rates to decrease in the agreements ultimately executed with BellSouth and other ILECs. The Company has made a reasonable estimate for these rates based on existing agreements between BellSouth and other competitive providers and those estimates are a part of the first quarter revenues. In addition, as previously announced, on March 31, 2000, the NCUC issued an order that relieves BellSouth from paying reciprocal compensation to US LEC for any minutes of use attributable to the network operated by a customer of BellSouth and US LEC, Metacomm, or any similar network, and requires US LEC to cease billing BellSouth reciprocal compensation for minutes of use attributable to the Metacomm or any similar network (the "March 31 Order"). The Company is considering its options with respect to an appeal of the order, but plans to comply fully with the March 31 Order."