KMC Reports Sequential Revenue Growth of 57 Percent For Third Quarter 2000

Business Wire, Nov 9, 2000

Business Editors/Hi-Tech Writers

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

KMC Telecom Holdings, Inc.

-- Over 1 million DS-0 equivalents added; Over 1.8 million DS-0 equivalents now
in service

-- Over 95% of traffic is on-network

-- Gross margins increased 17 percentage points to 23 percent

-- EBITDA deficit narrowed by 27 percent

-- Nationwide data services strategy contributes to results

-- $182.5 million in new equity funding completed

KMC Telecom Holdings, Inc. (KMC), a fiber-based integrated communications provider, today reported financial and operational results for the three months ended September 30, 2000.

Total revenue increased 57 percent to $60.9 million compared to second quarter 2000 revenue of $38.9 million, and rose over 250 percent compared to third quarter 1999 revenue of $15.6 million. Gross margins showed significant improvement over the second quarter, reaching 23 percent in the third quarter compared to 6 percent in the second quarter.

In addition, three more Tier III cities turned EBITDA positive for a total of eight cities as of September 30, 2000.

KMC's third quarter results were primarily driven by solid performance in the Tier III business and the initial contribution of KMC's data services business, as KMC began to see the results of our guaranteed revenue contracts.

The quality of KMC's revenue mix drove gross margins further into positive territory and prudent cost control allowed KMC to increase the number of cities that are EBITDA positive and also significantly reduce consolidated EBITDA loss.

CEO William F. Lenahan said, "Our performance continues to demonstrate that our vision to deliver next generation fiber-based communications services in Tier III markets has proven successful. KMC enjoyed another quarter of strong operational and financial performance. The quarter was highlighted by the implementation of a large scale data services contract. KMC has now established and is continuing to develop a footprint to provide data services nationwide. This was KMC's largest installation to date and I am proud to report that it was completed ahead of schedule. This is the first step for KMC in developing its nationwide data services strategy which will serve approximately 140 cities."

DS-0 equivalents (the combination of access lines and dedicated circuits) totaled over 1.8 million, a 143 percent increase over KMC's second quarter 2000 total, and over 500 percent higher than the Company reported at the end of the third quarter of 1999.

Total DS-0 equivalents served on our network either by direct connection or unbundled network element (UNE) have now reached over 95% of total DS-0 equivalents.

Dedicated circuits grew 186 percent to 1.6 million lines at the end of the third quarter from 570,271 lines at the end of the second quarter 2000. This noteworthy increase was fueled by the completed installation of several hundred thousand ports related to KMC's data services contracts.

Access lines increased by 37,151 to a total of 234,872, an increase of 19 percent over the prior quarter, and a 139 percent increase over the September 30, 1999 total.

Roscoe C. Young II, President and COO, said, "KMC's operations team again demonstrated their execution abilities with more than one million DS-0 equivalents installed and billed and over 1,400 new commercial end-user customers added during the third quarter. In early October, we passed the milestone of adding our 10,000th customer. In addition, our OSS and electronic bonding implementations are proceeding on schedule, and are on target for completion by year end. We are currently electronically bonded with four telephone companies including BellSouth. This covers over 70% of our Tier III operational markets. We anticipate that we will be electronically bonded with five additional telephone companies in our Tier III territory by the end of the year."

Other Operating Metrics:

-- Expanding Customer Base: The number of customers increased 17

percent to 9,990 customers at the end of the third quarter as

compared to 8,513 at the end of the second quarter of 2000.

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

miles increased 10 percent to 2,178 route miles as of

September 30, 2000, compared to 1,989 miles at June 30, 2000.

These route miles equate to 134,952 fiber miles at the end of

the third quarter compared to 122,376 at the end of the second

quarter.

-- Buildings Served: The number of buildings served on KMC's

networks (either by direct connection or UNE) increased 28

percent to 9,085 buildings at the end of the third quarter,

compared to 7,088 buildings served at the end of the second

quarter.

William H. Stewart, Chief Financial Officer, said, "With a 57 percent increase in revenue during the quarter, improvements in revenue mix and the leveraging of costs across our networks, we made considerable progress in gross margin growing from 6 percent as of the second quarter to 23 percent as of the third quarter. The quality of our revenue mix continues to improve with resale revenues and reciprocal compensation representing only 4 percent and 7 percent of total revenues, respectively, in the third quarter compared to 7 percent and 10 percent, respectively, of second quarter revenues. The combination of higher revenue and margins along with prudent cost controls led to a considerable reduction in EBITDA loss quarter over quarter."