ITC^DeltaCom Reports 2008 First Quarter Results

HUNTSVILLE, Ala., May 15 /PRNewswire-FirstCall/ -- ITC^DeltaCom, Inc. (OTC Bulletin Board: ITCD), a leading provider of integrated communications services to customers in the southeastern United States, today reported its operating and financial results for the quarter ended March 31, 2008.

For the quarter ended March 31, 2008, ITC^DeltaCom reported total operating revenues of $124.8 million, a net loss of $(5.9) million, and adjusted EBITDA* of $20.8 million.

"The first quarter of 2008 was a continuation of the solid results that we have reported over recent quarters," said Randall E. Curran, ITC^DeltaCom's Chief Executive Officer. He continued, "Our adjusted EBITDA increased significantly in the first quarter while we have continued to invest in products such as Simpli-Business and our new Simpli-Mobile offering to provide our customers with unparalleled office communications solutions."

Among its operating highlights for the first quarter, ITC^DeltaCom:
-- increased adjusted EBITDA by 19.2% over the first quarter of 2007 and
by 6.1 % over the fourth quarter of 2007;
-- increased business local, data and Internet revenues for the eighth
consecutive quarter, generating an increase of $6.5 million, or 8.3%,
over the first quarter of 2007 and an increase of $2.0 million, or
2.4%, over the fourth quarter of 2007;
-- increased total operating revenues 2.4% over the first quarter of 2007
and 2.3% over the fourth quarter of 2007;
-- ended the first quarter of 2008 with 423,899 retail local voice lines
in service, of which 82.5% were provided on its own network, up from
76.6% at the end of the first quarter of 2007;
-- increased its core, facilities-based business voice lines in service by
approximately 10,000 lines over the fourth quarter of 2007;
-- reduced its cost of services and equipment from 47.7% of revenues in
the first quarter of 2007 to 46.8% in the first quarter of 2008;
-- reduced its selling, operations and administrative expenses from 38.6%
in the first quarter of 2007 to 37.1% in the first quarter of 2008;
-- generated $16.8 million in net cash provided by operating activities,
which represented an increase of $10.4 million, or 163.4%, over the
first quarter of 2007, and an increase of $3.1 million, or 22.6%, over
the fourth quarter of 2007; and
-- increased adjusted unlevered free cash flow** 111.7% over the first
quarter of 2007 and 8.7% over the fourth quarter of 2007.

"Our significant increases in adjusted EBITDA and adjusted unlevered free cash flow during the first quarter reflect our continued focus on driving cost efficiencies in the business as well as our growth in our core local business customer segment," said Richard E. Fish, ITC^DeltaCom's Executive Vice President and Chief Financial Officer.

* 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 or the condensed consolidated statements of
operations and comprehensive loss. 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."

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 March 31,

2008 2007

OPERATING REVENUES:
Integrated communications services(1) $103,469 $97,359
Wholesale services 16,639 18,348
Equipment sales and related services(1) 4,675 6,127
TOTAL OPERATING REVENUES 124,783 121,834

COSTS AND EXPENSES:
Cost of services and equipment, excluding
depreciation and amortization 58,368 58,109
Selling, operations and administration 46,254 46,987
Depreciation and amortization 18,316 17,378
Total operating expenses 122,938 122,474
OPERATING INCOME (LOSS) 1,845 (640)

OTHER (EXPENSE) INCOME:
Interest expense (8,318) (15,309)
Interest income 577 611
Other income 31 12
Total other expense, net (7,710) (14,686)
LOSS BEFORE INCOME TAXES (5,865) (15,326)
INCOME TAX EXPENSE - - NET LOSS (5,865) (15,326)
PREFERRED STOCK DIVIDENDS AND ACCRETION (7,073) (1,942)
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS $(12,938) $(17,268)
BASIC AND DILUTED NET LOSS PER SHARE APPLICABLE
TO COMMON STOCKHOLDERS $(0.17) $(0.92)
BASIC AND DILUTED WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 76,387,873 18,766,942

(1) Certain amounts have been reclassified for presentation purposes.

ITC^DeltaCom, Inc.
Quarterly Highlights
(Unaudited)
(In thousands)

Three Months Ended

March 31, Dec. 31, Sept. 30, June 30, March 31,
2008 2007 2007 2007 2007
Integrated communications
services revenues: (1)
Long distance and
access $19,195 $18,146 $19,476 $20,220 $19,568
Business local, data
and internet 84,274 82,303 81,749 79,881 77,791

Total integrated
communications
services revenues 103,469 100,449 101,225 100,101 97,359

Wholesale services
revenues:
Broadband transport 13,451 13,287 13,613 13,986 13,976
Local interconnection 1,235 1,279 1,434 1,644 1,900
Directory assistance and
operator services 1,140 1,344 1,402 1,387 1,429
Other 813 982 906 978 1,043

Total wholesale services
revenues 16,639 16,892 17,355 17,995 18,348

Equipment sales and
related services
revenues (1) 4,675 4,639 6,182 5,476 6,127

Total operating revenues 124,783 121,980 124,762 123,572 121,834

COSTS AND EXPENSES:
Cost of services and
equipment, excluding
depreciation and
amortization 58,368 56,577 58,838 58,668 58,109
Selling, operations and
administration expense 46,254 50,239 48,713 46,146 46,987
Depreciation and
amortization 18,316 19,079 19,449 18,260 17,378

Total operating expenses 122,938 125,895 127,000 123,074 122,474

OPERATING INCOME (LOSS) $1,845 $(3,915) $(2,238) $498 $(640)

(1) Certain amounts have been reclassified for presentation purposes.

ITC^DeltaCom, Inc.
Quarterly Highlights (continued)
(Unaudited)

Three Months Ended

March 31, Dec. 31, Sept. 30, June 30, March 31,
2008 2007 2007 2007 2007
Retail business voice lines
in service(1)
UNE-T and UNE lines(2) 349,537 339,534 327,915 316,267 309,178
Increase from previous
quarter 2.9 % 3.5 % 3.7 % 2.3 % 4.5 %

Resale and UNEP lines(3) 74,362 78,976 83,697 89,454 94,373
(Decrease) from previous
quarter (5.8%) (5.6%) (6.4%) (5.2)% (4.5)%

Total retail business
voice lines in service 423,899 418,510 411,612 405,721 403,551

Wholesale voice lines in
service(4) 40,825 40,319 42,596 46,345 49,427
Increase (decrease) from
previous quarter 1.3 % (5.3)% (8.1)% (6.2)% 3.6 %

Total business voice lines
in service (5) 464,724 458,829 454,208 452,066 452,978

Number of employees(6) 1,724 1,800 1,813 1,807 1,867

(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 offering in which ITC^DeltaCom provides local service
through a leased switch port and loop from the local operating
company.
(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)

March 31, December 31,
Balance Sheet Data (at period end): 2008 2007
(Unaudited)

Cash and cash equivalents (unrestricted) $60,400 $57,505

Working capital 41,597 42,179

Total assets 394,857 398,366

Long-term liabilities 309,806 306,535

Convertible redeemable preferred stock - 34,351

Stockholders' equity (deficit) 355 (23,924)

Total liabilities and stockholders' deficit 394,857 398,366

Three Months Ended

March 31, Dec. 31, Sept. 30, June 30, March 31,
Other Financial Data: 2008 2007 2007 2007 2007
(Unaudited)
Capital expenditures(1) $12,741 $12,215 $11,508 $13,105 $13,661
Cash flows (used in)
provided by:
Operating activities 16,844 13,740 (5,712) 8,739 6,396
Investing activities (13,232) (12,552) (11,767) (13,269) (13,157)
Financing activities (717) (2,111) 22,817 (3,079) (183)

Adjusted EBITDA(2) 20,833 19,634 20,479 19,468 17,483
Adjusted unlevered free
cash flow (3) 8,092 7,447 9,015 6,363 3,822

ITC^DeltaCom, Inc.
Balance Sheet and Other Financial Highlights (continued)
(In thousands)

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 or the condensed
consolidated statements of operations and comprehensive loss.
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:

Three Months Ended

March 31, Dec. 31, Sept. 30, June 30, March 31,
2008 2007 2007 2007 2007
(Unaudited)
Net loss $(5,865) $(11,643) $(135,523) $(14,534) $(15,326)
Add: non-EBITDA items
included in net loss:
Depreciation and
amortization 18,316 19,079 19,449 18,260 17,378
Interest expense, net
of interest income 7,741 7,715 10,849 15,043 14,698
Stock-based
compensation 672 4,470 3,268 710 721
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 - - Restructuring
expenses - - - - 24
Other (income) loss (31) 13 41 (11) (12)

Adjusted EBITDA $20,833 $19,634 $20,479 $19,468 $17,483

ITC^DeltaCom has included data with respect to adjusted EBITDA because its management evaluates and projects the performance of ITC^DeltaCom's business using several measures, including adjusted EBITDA. 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 ITC^DeltaCom's capital expenditures,
future requirements for capital expenditures or contractual commitments
to purchase capital equipment;
-- 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;
-- although depreciation and amortization are non-cash charges, the assets
being depreciated and amortized will likely have to be replaced in the
future, and adjusted EBITDA does not reflect any cash requirements for
such replacements;
-- 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 or the condensed consolidated statements of operations and comprehensive loss. Adjusted unlevered free cash flow is not a measurement of financial performance under generally accepted accounting principles ("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:

Three Months Ended

March 31, Dec. 31, Sept. 30, June 30, March 31,
2008 2007 2007 2007 2007
(Unaudited)
Net cash provided by
(used in) operating
activities $16,844 $13,740 $(5,712)(1) $8,739 $6,396

Adjustments to reconcile
net cash provided by
operating activities to
adjusted unlevered free
cash flow-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 (2,104) (218) 9,062(1) (151) 1,270
Provision for bad debts (1,005) (975) (1,865) (33) (850)
Interest expense
excluding interest
paid in kind and in
common stock, and
amortization of debt
issuance costs and
debt discount, net of
interest income 7,129 7,102 9,404 10,924 10,655
Other (income) loss (31) 13 41 (11) (12)
Restructuring expenses - - - - 24
Prepayment penalties
paid in cash on debt
extinguishment - - 7,973 - - Unused equity commitment
fees - - 1,620 - -
Adjusted EBITDA 20,833 19,662 20,523 19,468 17,483
Less:
Capital expenditures
(including equipment
purchased through
capital leases) (13,016) (14,053) (11,965) (12,826) (10,487)
Change in accounts
payable - construction 275 1,838 457 (279) (3,174)
Adjusted unlevered free
cash flow $8,092 $7,447 $9,015 $6,363 $3,822

See accompanying Notes to Adjusted Unlevered Free Cash Flow Reconciliation on the following page.

ITC^DeltaCom, Inc.
Adjusted Unlevered Free Cash Flow Reconciliation (continued)
(In thousands)
(Unaudited)

Notes:

(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 because, 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;
-- adjusted unlevered free cash flow is subject to variability on a
quarterly basis as a result of the timing of payments made or received
related to accounts receivable, accounts payable and other current
operating assets and liabilities; 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
richard.fish@deltacom.com

First Call Analyst:
FCMN Contact:

Source: ITC^DeltaCom, Inc.

CONTACT: Investors: Richard E. Fish, Chief Financial Officer,
ITC^DeltaCom, Inc., +1-256-382-3827, richard.fish@deltacom.com

Web site: http://www.itcdeltacom.com/

2008-05-15 19:34:34 0363573 PRNEWSWIRE