KMC Reports Sequential Revenue Growth of 33.5 Percent For Second Quarter 2000

Business Wire, August 9, 2000

Business Editors/Hi-Tech Writers

BEDMINSTER, N.J.--(BUSINESS WIRE)--Aug. 9, 2000

KMC Telecom Holdings, Inc.

-- Quarterly record of 49,282 lines added; 197,721 lines now in

service

-- Gross margins continue to improve

-- 5 cities EBITDA positive

-- OSS rollout proceeding on schedule

-- Outsourced data services strategy accelerates

-- Company secures $182 million in new equity

KMC Telecom Holdings, Inc. (KMC), a facilities-based competitive local exchange carrier, today reported financial and operational results for the three months ended June 30, 2000.

Total revenue increased 33.5 percent to $38.9 million compared to first quarter 2000 revenue of $29.2 million, and rose 149.0 percent over second quarter 1999 revenue of $15.6 million. Gross margins continued to improve, reaching 6.3 percent in the second quarter compared to 1.2 percent in the first quarter. In addition, two more cities reached EBITDA positive for a total of five cities at June 30, 2000.

These results were driven by continued growth in both switched access lines and dedicated services. Revenue producing access lines increased by a record 49,282 to a total of 197,721, an increase of 33.2 percent over the prior quarter, and a 155.2 percent increase over the June 30, 1999 total. Those lines served on-switch, either by means of direct connections to the Company's network or via unbundled network elements (UNEs), continued to show rapid growth, increasing to 180,058 at the end of the second quarter 2000 from 130,114 at the end of the first quarter.

Dedicated lines showed exceptional 72.0 percent growth to 570,271 revenue producing lines at the end of the second quarter from 331,640 lines at the end of the first quarter 2000. DS-0 equivalents, the combination of access lines and dedicated circuits, totaled 767,992, a 60.0 percent increase over KMC's first quarter total, and over 300 percent higher than the Company reported during the comparable quarter in 1999.

CEO William F. Lenahan said, "KMC reported excellent performance in the second quarter, largely driven by internet and data revenues, which now represent over 50 percent of our total quarterly revenues.

"Two recent achievements are worth highlighting: the first is an acceleration of our outsourced data services strategy. We've completed two new contracts, one with Qwest and another with Broadwing. These contracts provide us a nationwide data platform and make us a leading CLEC in providing Internet infrastructure. With the contracts we have closed to date, we are well on our way to meeting our strategic objective to be the preferred provider of outsourced data services.

"The second is KMC's success in securing $182 million in new equity. The closing of our equity offering last month demonstrates the commitment of investors to KMC's business strategy, and, together with our demonstrated operating performance, sets the stage to raise additional equity through the balance of the year."

Roscoe C. Young II, President and COO, said, "KMC continues to have strong operating momentum. KMC's access line growth of over 49,000 lines set another quarterly record, and our direct sales team added over 1,200 new commercial end-user customers in the second quarter. Additionally, KMC made significant progress in strengthening our back office by adding key OSS functionality. We have completed beta testing and have begun implementing our OSS across all KMC markets. We are now electronically bonded with multiple carriers, and expect to complete both OSS implementation and electronic bonding by year end."

Other Operating Metrics:

-- Fiber Route Mile Expansion. The number of operational route

miles increased 15.4 percent to 1,989 route miles as of June

30, 2000, compared to 1,724 miles at March 31, 2000. These

route miles equate to 122,376 fiber miles at the end of the

second quarter, and 110,335 fiber miles at the end of the

first quarter.

-- Buildings Served. The number of buildings served by KMC's

switches increased 26.2 percent to 7,088 buildings at the end

of the second quarter, compared to 5,615 buildings served at

the end of the first quarter.

-- Collocation Increase. The number of collocations increased

11.7 percent to 124 at the end of the second quarter as

compared to 111 at the end of the first quarter of 2000.

-- Expanding Customer Base. The number of customers increased

16.5 percent to 8,513 customers at the end of the second

quarter as compared to 7,305 at the end of the first quarter

of 2000.

William H. Stewart, Chief Financial Officer, said, "Double-digit sequential revenue growth in the second quarter reflects the continued expansion of our commercial end-user business and the increasing effects of large-scale data services contracts. Even though we recognized reciprocal compensation at about half the rate we had previously, our revenue still increased from $29.2 million to $38.9 million, resulting in a dramatic improvement in KMC's revenue mix. Reciprocal compensation and resale revenues, which accounted for 22 percent and 12 percent respectively of our first quarter revenue, represents only 10 percent and 7 percent of second quarter revenue. By reducing our exposure to resale revenues and reciprocal compensation, and replacing them with on-switch revenues, we've increased the quality of our revenue mix, and improved our gross margins."