HUNTSVILLE, Ala., Nov. 14 /PRNewswire-FirstCall/ -- ITC^DeltaCom, Inc. (BULLETIN BOARD: ITCD) , a leading provider of integrated communications services to customers in the southeastern United States, today announced its operating and financial results for the quarter ended September 30, 2008.
For the quarter ended September 30, 2008, ITC^DeltaCom reported total operating revenues of $124.7 million, a net loss of $(5.3) million, and adjusted EBITDA* of $22.1 million.
"We are pleased to report continued improvement in our key operating profitability measures," said Randall E. Curran, ITC^DeltaCom's Chief Executive Officer. "While we anticipate that the economic climate will continue to place some pressure on certain aspects of our business, our adjusted EBITDA and cash flows remain strong and have enabled us to undertake a significant investment in our network that allows the expansion of our on- net service portfolio, creating additional long-term value for our customers."
Among its operating highlights for the third quarter, ITC^DeltaCom:
-- began a $20 million network upgrade initiative it expects to complete in 2009 that will benefit its customers by enhancing service availability and that will enable it to reduce costs by expanding its on-net network capabilities;
-- continued the deployment of its IP-based network and features enabling it to deliver the full suite of traditional voice services to business customers on an IP-enabled network, which will help meet the on-going demand for IP-based products and services and create a more efficient and cost-effective use of existing transmission capacity;
-- recorded operating income of $2.4 million compared to an operating loss of $(2.2) million in the third quarter of 2007;
-- recorded a net loss of $(5.3) million compared to a net loss of $(135.5) million in the third quarter of 2007, which reflected charges recorded in connection with the refinancing and recapitalization transactions it completed on July 31, 2007;
-- increased adjusted EBITDA by 8.1% over the third quarter of 2007 to $22.1 million;
-- increased business local, data and Internet revenues $4.4 million, or 5.4%, over the third quarter of 2007;
-- ended the quarter with 435,024 voice lines in service, of which 85% were provided on its own network, which represented an increase from 80% provided on its own network at the end of the third quarter of 2007;
-- increased its core, facilities-based business voice lines in service by approximately 40,800 lines over the third quarter of 2007 and by approximately 6,600 lines over the second quarter of 2008;
-- generated $21.3 million in net cash provided by operating activities, which represented an increase of $27 million over the third quarter of 2007; and
-- increased adjusted unlevered free cash flow** by 57.5% over the third quarter of 2007 to $14.1 million.
"Our adjusted EBITDA continues to increase, and on a year-to-date basis we have generated $30 million in adjusted unlevered free cash flow," said Richard E. Fish, ITC^DeltaCom's Chief Financial Officer. "Our solid balance sheet and liquidity profile positions us well to be the service provider of choice in a market that demands efficient telecommunications solutions."
Additional information about ITC^DeltaCom's business and operating results is contained in the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2008 filed with the Securities and Exchange Commission.
* Adjusted EBITDA is defined by ITC^DeltaCom as net income (loss) before interest expense, provision for income taxes, depreciation and amortization, non-cash loss on extinguishment of debt, debt issue cost write-off, prepayment penalties on debt, equity commitment fees, stock-based compensation, restructuring expenses and other income or loss, all as disclosed in the condensed consolidated statements of operations and comprehensive loss. Adjusted EBITDA is not a measurement of financial performance under generally accepted accounting principles. For information about management's reasons for providing data with respect to adjusted EBITDA, the limitations associated with the use of adjusted EBITDA and a quantitative reconciliation of adjusted EBITDA to net loss, as net loss is calculated in accordance with generally accepted accounting principles, see the accompanying table captioned "Adjusted EBITDA Reconciliation."
** Adjusted unlevered free cash flow is defined by ITC^DeltaCom as adjusted EBITDA (as defined above) less capital expenditures (including equipment purchased through capital leases) and changes in accounts payable - construction, all as disclosed in the condensed consolidated statements of cash flows. Adjusted unlevered free cash flow is not a measurement of financial performance under generally accepted accounting principles. For information about management's reasons for providing data with respect to adjusted unlevered free cash flow, the limitations associated with the use of adjusted unlevered free cash flow, and a quantitative reconciliation of adjusted unlevered free cash flow to net cash provided by operating activities, as net cash provided by operating activities is calculated in accordance with generally accepted accounting principles, see the accompanying table captioned "Adjusted Unlevered Free Cash Flow Reconciliation."
ABOUT ITC^DELTACOM, INC.
ITC^DeltaCom, Inc., 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 15,800 route miles, including more than 11,800 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. For more information about ITC^DeltaCom, visit ITC^DeltaCom's web site at http://www.deltacom.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, 2007, and in the Company's subsequent SEC reports, include the Company's dependence on new product development, rapid technological and market changes, 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.
ITC^DeltaCom, Inc. Financial Highlights (Unaudited) (In thousands, except share and per share data) Three Months Ended Nine Months Ended September 30, September 30, 2008 2007 2008 2007 OPERATING REVENUES: Integrated communications services(1) $103,398 $101,225 $311,224 $298,685 Wholesale services 16,502 17,355 49,566 53,697 Equipment sales and related services(1) 4,817 6,182 14,258 17,785 TOTAL OPERATING REVENUES 124,717 124,762 375,048 370,167 COSTS AND EXPENSES: Cost of services and equipment, excluding depreciation and amortization 58,246 58,838 174,075 175,615 Selling, operations and administration expense 44,893 48,713 137,965 141,847 Depreciation and amortization 19,218 19,449 56,479 55,087 Total operating expenses 122,357 127,000 368,519 372,549 OPERATING INCOME (LOSS) 2,360 (2,238) 6,529 (2,382) OTHER (EXPENSE) INCOME: Interest expense (7,901) (11,395) (24,087) (42,279) Interest income 273 546 1,149 1,690 Prepayment penalties on debt extinguished - (8,208) - (8,208) Debt issuance cost write-off - (7,298) - (7,298) Loss on extinguishment of debt - (105,269) - (105,269) Cost of unused equity commitment - (1,620) - (1,620) Other income (loss) (68) (41) 360 (18) Total other expense, net (7,696) (133,285) (22,578) (163,002) LOSS BEFORE INCOME TAXES (5,336) (135,523) (16,049) (165,384) INCOME TAX EXPENSE - - - - NET LOSS (5,336) (135,523) (16,049) (165,384) PREFERRED STOCK DIVIDENDS AND ACCRETION - (14,154) (7,073) (18,072) CHARGE DUE TO PREFERRED STOCK REDEMPTION AND CONVERSION - (44,250) - (44,250) NET LOSS APPLICABLE TO COMMON STOCKHOLDERS $(5,336) $(193,927) $(23,122) $(227,706) BASIC AND DILUTED NET LOSS PER COMMON SHARE $(0.07) $(3.82) $(0.29) $(7.71) BASIC AND DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 80,748,659 50,758,877 79,300,183 29,548,810 COMPREHENSIVE INCOME (LOSS) NET LOSS $(5,336) $(135,523) $(16,049) $(165,384) OTHER COMPREHENSIVE INCOME (LOSS): Change in unrealized gains (losses) on derivative instrument designated as cash flow hedging instrument, net of tax 1,187 (1,649) 774 (1,649) COMPREHENSIVE (LOSS) $(4,149) $(137,172) $(15,275) $(167,033) (1) Certain amounts have been reclassified for presentation purposes. ITC^DeltaCom, Inc. Quarterly Highlights (Unaudited) (In thousands) Three Months Ended Sept. 30, June 30, March 31, Dec. 31, Sept. 30, 2008 2008 2008 2007 2007 Integrated communications services revenues:(1) Long distance and access $17,229 $17,996 $19,195 $18,146 $19,476 Business local, data and internet 86,169 86,361 84,274 82,303 81,749 Total integrated communications services revenues 103,398 104,357 103,469 100,449 101,225 Wholesale services revenues: Broadband transport 13,046 13,186 13,451 13,287 13,613 Local interconnection 1,193 1,210 1,235 1,279 1,434 Directory assistance and operator services 1,146 1,141 1,140 1,344 1,402 Other 1,117 888 813 982 906 Total wholesale services revenues 16,502 16,425 16,639 16,892 17,355 Equipment sales and related services revenues(1) 4,817 4,766 4,675 4,639 6,182 Total operating revenues 124,717 125,548 124,783 121,980 124,762 COSTS AND EXPENSES: Cost of services and equipment, excluding depreciation and amortization 58,246 57,461 58,368 56,577 58,838 Selling, operations and administration expense 44,893 46,818 46,254 50,239 48,713 Depreciation and amortization 19,218 18,945 18,316 19,079 19,449 Total operating expenses 122,357 123,224 122,938 125,895 127,000 OPERATING INCOME (LOSS) $2,360 $2,324 $1,845 $(3,915) $(2,238) (1) Certain amounts have been reclassified for presentation purposes. ITC^DeltaCom, Inc. Quarterly Highlights (continued) (Unaudited) Sept. 30, June 30, March 31, Dec. 31, Sept. 30, 2008 2008 2008 2007 2007 Retail business voice lines in service(1) UNE-T and UNE lines(2) 368,724 362,174 349,537 339,534 327,915 Increase from previous quarter 1.8% 3.6% 2.9% 3.5% 3.7% Resale and UNEP lines(3) 66,300 70,167 74,362 78,976 83,697 (Decrease) from previous quarter (5.5)% (5.6)% (5.8)% (5.6)% (6.4)% Total retail business voice lines in service 435,024 432,341 423,899 418,510 411,612 Wholesale voice lines in service(4) 38,203 40,595 40,825 40,319 42,596 Increase (decrease) from previous quarter (5.9)% (0.6)% 1.3% (5.3)% (8.1)% Total business voice lines in service(5) 473,227 472,936 464,724 458,829 454,208 Number of employees(6) 1,615 1,700 1,724 1,800 1,813 (1) Lines in service include only voice lines in service. Conversion of data services provided to customers to a voice line equivalent is not included. (2) Facilities-based service offering in which ITC^DeltaCom provides local transport through its owned and operated switching facilities. (3) Resale service offerings in which ITC^Deltacom provides local and mobile services. (4) Represents primary rate interface circuits provided as part of ITC^DeltaCom's local interconnection services for Internet service providers. (5) Reported net of lines disconnected or canceled. (6) Includes full-time and part-time employees. ITC^DeltaCom, Inc. Balance Sheet and Other Financial Highlights (In thousands) Sept. 30, December 31, Balance Sheet Data (at period end): 2008 2007 (Unaudited) Cash and cash equivalents (unrestricted) $52,673 $57,505 Working capital 48,617 42,179 Total assets 396,242 398,366 Long-term liabilities 308,378 306,535 Convertible redeemable preferred stock - 34,351 Stockholders' equity (deficit) (3,845) (23,924) Total liabilities and stockholders' deficit 396,242 398,366 Three Months Ended Sept. 30, June 30, March 31, Dec. 31, Sept. 30, Other Financial Data: 2008 2008 2008 2007 2007 (Unaudited) Capital expenditures(1) $8,005 $14,187 $12,741 $12,215 $11,508 Cash flows (used in) provided by: Operating activities 21,267 13,864 16,844 13,740 (5,712) Investing activities (33,257) (13,435) (13,232) (12,552) (11,767) Financing activities 4,417 (583) (717) (2,111) 22,817 Adjusted EBITDA(2) 22,131 21,835 20,833 19,634 20,479 Adjusted unlevered free cash flow(3) 14,126 7,648 8,092 7,419 8,971 Notes: (1) Includes equipment purchased through capital leases and changes in accrued capital related costs. (2) Adjusted EBITDA is defined by ITC^DeltaCom as net income (loss) before interest expense, provision for income taxes, depreciation and amortization, non-cash loss on extinguishment of debt, debt issue cost write-off, prepayment penalties on debt, equity commitment fees, stock-based compensation, restructuring expenses and other income or loss, all as disclosed in the condensed consolidated statements of operations and comprehensive loss. Adjusted EBITDA is not a measurement of financial performance under generally accepted accounting principles. For information about management's reasons for providing data with respect to adjusted EBITDA, the limitations associated with the use of adjusted EBITDA and a quantitative reconciliation of adjusted EBITDA to net loss, as net loss is calculated in accordance with generally accepted accounting principles, see the accompanying table captioned "Adjusted EBITDA Reconciliation." (3) Adjusted unlevered free cash flow is defined by ITC^DeltaCom as adjusted EBITDA, as defined above in Note (2), less capital expenditures (including equipment purchased through capital leases) and changes in accounts payable-construction, all as disclosed in the condensed consolidated statements of cash flows. Adjusted unlevered free cash flow is not a measurement of financial performance under generally accepted accounting principles. For information about management's reasons for providing data with respect to adjusted unlevered free cash flow and the limitations associated with the use of adjusted unlevered free cash flow, and for a quantitative reconciliation of adjusted unlevered free cash flow to net cash provided by operating activities, as net cash provided by operating activities is calculated in accordance with generally accepted accounting principles, see the accompanying table captioned "Adjusted Unlevered Free Cash Flow Reconciliation." ITC^DeltaCom, Inc. Adjusted EBITDA Reconciliation (In thousands) (Unaudited)
Adjusted EBITDA is defined by ITC^DeltaCom as net income (loss) before interest expense, provision for income taxes, depreciation and amortization, non-cash loss on extinguishment of debt, debt issue cost write-off, prepayment penalties on debt, equity commitment fees, stock-based compensation, restructuring expenses and other income or loss, all as disclosed in the condensed consolidated statements of operations and comprehensive loss. Not all of these adjustments are applicable in every period. Adjusted EBITDA is not a financial measurement under generally accepted accounting principles ("GAAP"). The following table presents adjusted EBITDA amounts for the fiscal quarters indicated and also sets forth a quantitative reconciliation of adjusted EBITDA to net loss, as net loss is calculated in accordance with GAAP (in thousands):
Three Months Ended Sept. 30, June 30, March 31, Dec. 31, Sept. 30, 2008 2008 2008 2007 2007 (Unaudited) Net loss $(5,336) $(4,848) $(5,865) $(11,643) $(135,523) Add: non-EBITDA items included in net loss: Depreciation and amortization 19,218 18,945 18,316 19,079 19,449 Interest expense, net of interest income 7,628 7,569 7,741 7,715 10,849 Stock-based compensation 553 566 672 4,470 3,268 Non-cash loss on extinguishment of debt - - - - 105,269 Debt issue cost write-off - - - - 7,298 Prepayment penalties on debt - - - - 8,208 Equity commitment fees - - - - 1,620 Other (income) loss 68 (397) (31) 13 41 Adjusted EBITDA $22,131 $21,835 $20,833 $19,634 $20,479
ITC^DeltaCom's management uses adjusted EBITDA, together with financial measures prepared in accordance with GAAP, such as revenue and cash flows from operations, to assess ITC^DeltaCom's historical and prospective operating performance. Management uses adjusted EBITDA to enhance its understanding of ITC^DeltaCom's core operating performance, which represents management's views concerning ITC^DeltaCom's performance in the ordinary, ongoing and customary course of its operations.
ITC^DeltaCom's management also uses adjusted EBITDA to evaluate ITC^DeltaCom's core operating performance relative to that of its competitors. This financial measure permits a comparative assessment of ITC^DeltaCom's operating performance relative to the company's performance based on its GAAP results, while isolating the effects of some items that vary from period to period without any correlation to core operating performance or that vary widely among similar companies. Companies within the communications industry exhibit significant variations with respect to capital structures and cost of capital (which affect interest expense) and differences in taxation and book depreciation of facilities and equipment (which affect relative depreciation expense), including significant differences in the depreciable lives of similar assets among various companies. In addition, increased merger and acquisition activity and financial restructurings have resulted in significant non-operating changes to earnings of communications companies that may not be reflective of their core operating performance. Management believes that adjusted EBITDA facilitates company-to-company comparisons within ITC^DeltaCom's industry by eliminating some of the foregoing variations. Adjusted EBITDA, however, may not be directly comparable to similarly titled measures reported by other companies due to differences in accounting policies and items excluded or included in the adjustments, which limits its usefulness as a comparative measure.
ITC^DeltaCom provides information relating to its adjusted EBITDA so that analysts, investors and other interested persons have the same data that management uses to assess ITC^DeltaCom's core operating performance. Management believes that providing this information permits the foregoing persons to obtain a better understanding of ITC^DeltaCom's core operating performance and to evaluate the efficacy of the methodology and information used by management to evaluate and measure that performance on a standalone and a comparative basis.
ITC^DeltaCom's management believes that consideration of adjusted EBITDA should be supplemental, however, because adjusted EBITDA has limitations as an analytical financial measure, including the following:
-- adjusted EBITDA does not reflect depreciation and amortization, which are non-cash charges, although the assets being depreciated and amortized will likely have to be replaced in the future, nor does adjusted EBITDA reflect any cash requirements for such replacements;
-- adjusted EBITDA does not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, associated with ITC^DeltaCom's indebtedness;
-- adjusted EBITDA does not reflect the effect of earnings or charges resulting from matters that ITC^DeltaCom's management considers as not indicative of ITC^DeltaCom's ongoing operations; and
-- to the extent that ITC^DeltaCom changes its accounting of certain transactions or other items from period to period, ITC^DeltaCom's adjusted EBITDA may not be directly comparable from period to period.
Management compensates for these limitations by using adjusted EBITDA only as a supplemental measure of ITC^DeltaCom's operating performance and by considering independently the economic effects of the foregoing items that are or are not reflected in adjusted EBITDA. As a result of the foregoing limitations, adjusted EBITDA should not be considered as an alternative to net income (loss), as calculated in accordance with GAAP, as a measure of operating performance, nor should it be considered as an alternative to cash flows, as calculated in accordance with GAAP, as a measure of liquidity.
ITC^DeltaCom, Inc. Adjusted Unlevered Free Cash Flow Reconciliation (In thousands) (Unaudited)
Adjusted unlevered free cash flow is defined by ITC^DeltaCom as adjusted EBITDA (as defined above) less capital expenditures (including equipment purchased through capital leases) and changes in accounts payable- construction, all as disclosed in the condensed consolidated statements of cash flows. Adjusted unlevered free cash flow is not a measurement of financial performance under GAAP. The following table presents adjusted unlevered free cash flow amounts for the fiscal quarters indicated and also sets forth a quantitative reconciliation of adjusted unlevered free cash flow to net cash provided by operating activities, as net cash provided by operating activities is calculated in accordance with GAAP (in thousands):
Three Months Ended Sept. 30, June 30, March 31, Dec. 31, Sept. 30, 2008 2008 2008 2007 2007 (Unaudited) Net cash provided by (used in) operating activities $21,267 $13,864 $16,844 $13,740 $(5,712)(1) Adjustments to reconcile adjusted unlevered free cash flow to net cash provided by operating activities Elements included in net cash provided by (used in) operating activities not included in adjusted unlevered free cash flow: Total changes in current operating assets and liabilities (5,204) 1,882 (2,104) (218) 8,212(1) Provision for bad debts (950) (900) (1,005) (975) (1,015) Interest expense excluding interest paid in kind and in common stock, and amortization of debt issuance costs and debt discount, net of interest income 7,018 6,958 7,129 7,102 9,401 Other (income) loss - 31 (31) (15) - Prepayment penalties paid in cash on debt extinguishment - - - - 7,973 Unused equity commitment fees - - - - 1,620 Adjusted EBITDA 22,131 21,835 20,833 19,634 20,479 Less: Capital expenditures (including equipment purchased through capital leases) (15,486) (11,387) (13,016) (14,053) (11,965) Change in accounts payable - construction 7,481 (2,800) 275 1,838 457 Adjusted unlevered free cash flow $14,126 $7,648 $8,092 $7,419 $8,971 (1) Cash payments of interest during the three months ended September 30, 2007 included two quarterly interest payments totaling $19.5 million compared to interest expense of $11.4 million recorded for this period. Before the refinancing transactions completed on July 31, 2007, interest payments were due and made on the first day of each quarter. After the refinancing transactions, interest payments were due and made on the last day of the quarter. The additional quarterly interest paid during the foregoing period as a result of the refinancing transactions totaled $9.9 million.
ITC^DeltaCom has included data with respect to adjusted unlevered free cash flow because its management considers adjusted unlevered free cash flow to be a useful, supplemental indicator of its operating performance. When measured over time, adjusted unlevered free cash flow provides supplemental information to investors concerning the growth rate in ITC^DeltaCom's operating results and its ability to generate cash flows to satisfy mandatory debt service requirements and make other mandatory, non-discretionary expenditures.
ITC^DeltaCom's management believes that consideration of adjusted unlevered free cash flow should be supplemental, however, because adjusted unlevered free cash flow has limitations as an analytical financial measure, including the following:
-- adjusted unlevered free cash flow does not reflect ITC^DeltaCom's cash expenditures for changes in current operating assets and liabilities;
-- adjusted unlevered free cash flow does not reflect ITC^DeltaCom's cash expenditures for interest expense or accrued restructuring and merger costs, prepayment penalties on debt paid in cash, equity commitment fees, changes in restricted cash balances, or proceeds from sales of fixed assets;
-- ITC^DeltaCom does not pay income taxes due to net operating losses, and therefore, generates greater adjusted unlevered free cash flow than a comparable business that does pay income taxes; and
-- adjusted unlevered free cash flow may be calculated in a different manner by other companies in ITC^DeltaCom's industry, which limits its usefulness as a comparative measure.
ITC^DeltaCom's management compensates for these limitations by relying primarily on its results under GAAP to evaluate its operating performance and by considering independently the economic effects of the foregoing items that are not reflected in adjusted unlevered free cash flow. As a result of these limitations, adjusted unlevered free cash flow should not be considered as a measure of liquidity nor as an alternative to net cash provided by operating activities, cash used in investing activities, cash provided by (used in) financing activities or change in cash and cash equivalents, as calculated in accordance with GAAP.
Investor Contact:
Richard E. Fish
Chief Financial Officer
256-382-3827
