ITC^DeltaCom Reports Fourth Quarter and Full-Year 2005 Results

HUNTSVILLE, Ala., March 24 /PRNewswire-FirstCall/ -- ITC^DeltaCom, Inc. , a leading provider of integrated communications services to customers in the southeastern United States, today reported its operating and financial results for the quarter and full year ended December 31, 2005.

For the quarter ended December 31, 2005, ITC^DeltaCom reported total operating revenues of $120.5 million, a net loss of $32.0 million, and a net loss before interest, taxes, depreciation and amortization (EBITDA)* of $5.5 million. For the full 2005 fiscal year, ITC^DeltaCom reported total operating revenues of $520.4 million, a net loss of $50.8 million, and EBITDA of $41.8 million.

"ITC^DeltaCom's 2005 financial results were negatively affected by a number of challenges," said Richard E. Fish, Executive Vice President and Chief Financial Officer. "They included churn and price deflation in our long-distance business, continuing price deflation in our wholesale business, and low sales productivity and high customer churn in our integrated communications services business in the beginning of 2005."

Mr. Fish added that, "During 2005, we devoted significant efforts to addressing the liquidity issues the Company faced at the end of 2004, as well as to intensifying our efforts to increase the revenues and operating profitability of our local integrated communications services."

As of December 31, 2005, ITC^DeltaCom's liquidity position was significantly improved from the beginning of 2005, reflecting the Company's successful refinancing and increased emphasis on improving its cash flows. As of December 31, 2005, the Company's unrestricted cash balances increased to $69.4 million from $16.6 million at December 31, 2004. Among the steps it took during 2005 to enhance its financial condition, ITC^DeltaCom:

- Completed the refinancing of its secured indebtedness on July 26, 2005, raising approximately $239 million from an investor group led by Tennenbaum Capital Partners, LLC., of which $30 million of new funding was made available for general corporate purposes, and obtaining a deferral of all principal payments on the Company's secured indebtedness until its maturity in 2009; - Refocused its business on services integral to its network operations through the sale of non-core assets, including its e^deltacom data center in Suwannee, Georgia for $25.8 million, and the discontinuance of some non-core lines of business, including its satellite capacity services and its GrapeVine offering of local services to residential customers; - Implemented procedures for a more disciplined approach to managing working capital and capital expenditures.

As part of its efforts during 2005 to increase local integrated communications services revenues and improve operating profitability, ITC^DeltaCom:

- Demonstrated strong quarter-over-quarter growth in its core, facilities-based voice lines for all quarters during the year, resulting in a 17% increase in those lines from December 31, 2004, to December 31, 2005, and increasing those lines as a percentage of total retail business lines from 56% to 68% in the same period; - Reduced monthly churn in its facilities-based voice lines to 1.2% per month as of December 31, 2005 through intensified customer care efforts; - Increased the percentage of total integrated communications services revenues it derives from monthly recurring service charges from 73% for the fourth quarter of 2004 to 77% for the fourth quarter of 2005; - Updated and broadened its service offerings to include Simpli-Business 1.0, combining the strength of NEC's customer premise equipment with the power of ITC^DeltaCom's integrated T-1 solution. Simpli-Business is supported by a unique service model and succession plan that creates value innovation for our target market today and delivers differentiation for the future; - Improved its level of total selling, general and administrative (SG&A) expenditures from $55.1 million for the fourth quarter of 2004 to $45.4 million for the fourth quarter of 2005, while also increasing its locally based commissioned retail sales force by approximately 100 personnel.

"In 2005, we put a number of financial and operational challenges behind us," said Randall E. Curran, ITC^DeltaCom's Chief Executive Officer. "We're excited about our new marketing initiatives and look forward to making solid progress in 2006."

Additional information about ITC^DeltaCom's business and operating results is contained in the Company's Annual Report on Form 10-K for fiscal year 2005 filed with the Securities and Exchange Commission.

ABOUT ITC^DELTACOM

ITC^DeltaCom, headquartered in Huntsville, Alabama, provides, through its operating subsidiaries, integrated telecommunications and technology services to businesses and consumers in the southeastern United States. ITC^DeltaCom has a fiber optic network spanning approximately 14,500 route miles, including more than 11,000 route miles of owned fiber, and offers a comprehensive suite of voice and data communications services, including local, long distance, broadband data communications, Internet connectivity, and customer premise equipment to end-user customers. ITC^DeltaCom is one of the largest competitive telecommunications providers in its primary eight-state region. ITC^DeltaCom has interconnection agreements with BellSouth, Verizon, SBC, CenturyTel and Sprint for resale and access to unbundled network elements and is a certified competitive local exchange carrier (CLEC) in Arkansas, Texas, Virginia and all nine BellSouth states. For more information about ITC^DeltaCom, visit ITC^DeltaCom's Web site at http://www.itcdeltacom.com/.

FORWARD-LOOKING STATEMENTS

Except for the historical and present factual information contained herein, this release contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. When used in this release, the words "anticipate," "believe," "estimate," "expect," "intend," "plan" and similar expressions as they relate to ITC^DeltaCom, Inc. or its management are intended to identify these forward-looking statements. All statements by the Company regarding its expected financial position, revenues, liquidity, cash flow and other operating results, balance sheet improvement, business strategy, financing plans, forecasted trends related to the markets in which it operates, legal proceedings and similar matters are forward-looking statements. The Company's actual results could be materially different from its expectations because of various risks. These risks, some of which are discussed under the caption "Risk Factors" in the Company's Annual Report on Form 10-K for the year ended December 31, 2005, and in the Company's subsequent SEC reports, include the Company's dependence on new product development, rapid technological and market change, the Company's dependence upon rights of way and other third- party agreements, debt service and other cash requirements, liquidity constraints and risks related to future growth and rapid expansion. Other important risk factors that could cause actual events or results to differ from those contained or implied in the forward-looking statements include, without limitation, customer attrition, delays or difficulties in deployment and implementation of colocation arrangements and facilities, appeals of or failures by third parties to comply with rulings of governmental entities, inability to meet installation schedules, general economic and business conditions, failure to maintain underlying service/vendor arrangements, competition, adverse changes in the regulatory or legislative environment, and various other factors beyond the Company's control. ITC^DeltaCom disclaims any responsibility to update these forward-looking statements.

* EBITDA is not a measurement of financial performance under accounting principles generally accepted in the United States. For a quantitative reconciliation of the differences between EBITDA and net loss, as net loss is calculated in accordance with generally accepted accounting principles, see the accompanying table captioned "EBITDA Reconciliation."

Investor Contact: Media Contact: Richard E. Fish Lee A. Kimball Chief Financial Officer Vice President, Marketing 256-382-3827 [e-mail]ITC^DeltaCom, Inc. Financial Highlights Year Ended December 31, 2005 2004 OPERATING REVENUES: Integrated communications services $414,969 $467,629 Wholesale services 85,232 96,449 Equipment sales and related services 20,200 19,549 TOTAL OPERATING REVENUES 520,401 583,627 COSTS AND EXPENSES: Cost of services and equipment, excluding depreciation and amortization 268,123 290,923 Selling, operations and administration 195,496 221,922 Depreciation and amortization 53,187 87,108 Merger-related expenses 135 4,828 Asset impairment loss 13,373 203,971 Total operating expenses 530,314 808,752 OPERATING LOSS (9,913) (225,125) OTHER (EXPENSE) INCOME: Interest expense, net of amounts capitalized (40,508) (21,309) Interest income 1,057 430 Debt issuance cost write-off (3,948) - Other income (expense) 2,463 (1,224) Total other expense, net (40,936) (22,103) LOSS BEFORE INCOME TAXES (50,849) (247,228) INCOME TAXES - - NET LOSS (50,849) (247,228) PREFERRED STOCK DIVIDENDS AND ACCRETION (6,957) (9,345) NET LOSS APPLICABLE TO COMMON STOCKHOLDERS $(57,806) $(256,573) BASIC AND DILUTED NET LOSS PER SHARE APPLICABLE TO COMMON STOCKHOLDERS $(3.11) $(14.72) BASIC AND DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 18,598,549 17,426,546 ITC^DeltaCom, Inc. Quarterly Highlights (Unaudited) December September December 31, 30, June 30, March 31, 31, 2005 2005 2005 2005 2004 Integrated communications services revenues: Long distance $18,028 $20,274 $20,915 $22,270 $22,469 Business local, data and internet 76,734 78,183 81,347 82,000 81,675 Residential local 575 1,763 2,109 2,266 3,477 Colocation and managed services -- 2,318 3,192 2,995 2,781 Satellite capacity -- -- -- -- 1,307 Total integrated communications services revenues 95,337 102,538 107,563 109,531 111,709 Equipment sales and related services revenues 4,403 4,942 5,240 5,615 5,340 Wholesale services revenues: Broadband transport 15,094 14,934 14,622 15,345 15,319 Local interconnection 2,099 2,311 2,718 2,592 3,327 Directory assistance and operator services 2,512 2,422 2,388 2,329 2,378 Other 1,052 1,342 1,587 1,885 1,773 Total wholesale services revenues 20,757 21,009 21,315 22,151 22,797 Total operating revenues 120,497 128,489 134,118 137,297 139,846 COSTS AND EXPENSES: Cost of services 67,846 63,432 66,003 70,842 72,218 Selling, operations and administration 45,408 50,132 48,247 51,710 55,068 Depreciation and amortization 13,707 13,329 13,198 12,952 23,238 Merger-related expenses -- -- -- 135 3,939 Asset impairment loss 12,773 600 -- -- 203,971 Total operating expenses 139,734 127,493 127,448 135,639 358,434 OPERATING INCOME (LOSS) $(19,237) $996 $6,670 $1,658 $(218,588) Retail business lines in service: UNE-T and UNE lines(1) 250,242 241,120 226,747 215,536 213,123 Increase from previous quarter 3.8% 6.3% 5.2% 1.1% 1.6% Resale and UNEP lines(2) 116,978 125,229 141,720 159,580 169,595 (Decrease) from previous quarter (6.6)% (11.6)% (11.2)% (5.9)% (1.0)% Total 367,220 366,349 368,467 375,116 382,718 Wholesale lines in service(3) 62,606 61,272 65,067 72,220 61,801 Increase (decrease) from previous quarter 2.2% (5.8)% (9.9)% 16.9% (8.7)% Total business lines in service (4) 429,826 427,621 433,534 447,336 444,519 Lines in service/sold percentage Integrated communications services 97% 98% 98% 96% 96% Wholesale services(3) 98% 99% 99% 94% 83% Number of employees 1,912 2,005 1,963 1,908 2,037 (1) Facilities-based service offering in which ITC^DeltaCom provides local transport through its owned and operated switching facilities. (2) Resale service offering in which ITC^DeltaCom provides local service through a leased switch port and loop from the local operating company. (3) Represents primary rate interface circuits provided as part of ITC^DeltaCom's local interconnection services for Internet service providers. (4) Reported net of lines disconnected or canceled. Excludes lines in connection with ITC^DeltaCom's residential Unbundled Network Element- Platform, or UNE-P, offering. ITC^DeltaCom, Inc. Balance Sheet and Other Financial Highlights (In thousands) December 31, Balance Sheet Data (at period end): 2005 2004 Cash and cash equivalents (unrestricted) $69,360 $16,599 Working capital (deficit) 44,806 (5,155) Total assets 456,758 463,973 Long-term liabilities 322,272 292,445 Convertible redeemable preferred stock 68,473 61,633 Stockholders' equity (deficit) (31,654) 3,643 Total liabilities and stockholders' equity 456,758 463,973 Year Ended December 31, Other Financial Data: 2005 2004 Capital expenditures $28,325 $49,509 Cash flows provided by operating activities 28,449 28,816 Cash flows used in investing activities 6,423 60,856 Cash flows (used in) provided by financing activities 30,735 (1,460) EBITDA(1)(2) 41,789 (139,241) (1) EBITDA represents net income (loss) before interest, taxes, depreciation and amortization. EBITDA is not a measurement of financial performance under accounting principles generally accepted in the United States. For information about management's reasons for providing data with respect to EBITDA and the limitations associated with the use of EBITDA, and for a quantitative reconciliation of the differences between EBITDA and net loss, as net loss is calculated in accordance with generally accepted accounting principles, see the accompanying table captioned "EBITDA Reconciliation." Year Ended December 31, 2005 2004 (2) For 2005 and 2004, EBITDA included the following: Asset impairment loss $13,373 $203,971 Executive severance 4,100 -- Special consulting fees for restructuring operations 3,124 -- Restructuring charges 209 1,514 Merger related expenses 135 4,828 Debt issuance cost write-off 3,948 -- Debt offering expense -- 1,500 Loss on fixed asset disposals 1,460 -- Stock based compensation 2,168 1,771 Hurricane Katrina impact 1,594 -- $30,111 $213,584 ITC^DELTACOM, INC. EBITDA RECONCILIATION (In thousands)

EBITDA represents net income (loss) before interest, taxes, depreciation and amortization. EBITDA is not a measurement of financial performance under accounting principles generally accepted in the United States.

The following table presents EBITDA amounts for the years ended December 31, 2004 and 2005. The table also sets forth for these periods a quantitative reconciliation of the differences between EBITDA and net loss, as net loss is calculated in accordance with generally accepted accounting principles:

Year Ended December 31, 2005 2004 (in thousands) Net loss $(50,849) $(247,228) Add back non-EBITDA items included in net loss: Depreciation and amortization 53,187 87,108 Interest expense, net of interest income 39,451 20,879 EBITDA $41,789 $(139,241)

ITC^DeltaCom has included data with respect to EBITDA because its management evaluates and projects the performance of ITC^DeltaCom's business using several measures, including EBITDA. Management considers EBITDA to be an important supplemental indicator of its operating performance, particularly as compared to the operating performance of its competitors, because this measure eliminates many differences among companies in financial, capitalization and tax structures, capital investment cycles and ages of related assets, as well as some recurring non-cash and non-operating supplemental information to investors regarding its operating performance and facilitates comparisons by investors between the operating performance of ITC^DeltaCom and the operating performance of ITC^DeltaCom's competitors. ITC^DeltaCom's management believes that consideration of EBITDA should be supplemental, because EBITDA has limitations as an analytical financial measure. These limitations include the following:

- EBITDA does not reflect ITC^DeltaCom's cash expenditures, or future requirements for capital expenditures, or contractual commitments; - EBITDA does not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on ITC^DeltaCom's indebtedness; - although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA does not reflect any cash requirements for such replacements; - EBITDA does not reflect the effect of earnings or charges resulting from matters ITC^DeltaCom's management considers not to be indicative of its ongoing operations; and - not all of the companies in ITC^DeltaCom's industry may calculate EBITDA in the same manner in which it calculates EBITDA, which limits its usefulness as a comparative measure.

ITC^DeltaCom's management compensates for these limitations by relying primarily on its results under generally accepted accounting principles to evaluate its operating performance and by considering independently the economic effects of the foregoing items that are not reflected in EBITDA. As a result of these limitations, EBITDA should not be considered as an alternative to net income (loss), as calculated in accordance with generally accepted accounting principles, as a measure of operating performance, nor should it be considered as an alternative to cash flows, as calculated in accordance with generally accepted accounting principles, as a measure of liquidity.