ITC DELTA COM 
By HUNTSVILLE, Ala., Nov. 15, 2010 /PRNewswire-FirstCall/ -- ITC^DeltaCom, Inc. (OTC 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, 2010. These results are following the October 1, 2010 announcement of the definitive agreement for purchase of ITC^DeltaCom by EarthLink, Inc.
For the quarter ended September 30, 2010, ITC^DeltaCom reported total operating revenues of $110.9 million, net loss of $4.7 million, and adjusted EBITDA* of $21.8 million.
"Our third quarter results reflect the strengthening operational momentum we are seeing in the business in response to the investments we have been making to build a company with sustainable revenue growth," said Randall E. Curran, ITC^DeltaCom's Chief Executive Officer. "Our current operational trajectory backed by the scale and resources of EarthLink will drive increased value for all our stakeholders."
Among its operating highlights for the third quarter, ITC^DeltaCom:
-- recorded operating income of $7.0 million compared to $5.3 million for
the third quarter of 2009, and a net loss of $4.7 million compared to a
net loss of $2.1 million for the third quarter of 2009;
-- recorded adjusted EBITDA* of $21.8 million, a 5.6% decrease from $23.1
million for the third quarter of 2009;
-- recorded an increase of 0.02% in total operating revenues over the
second quarter of 2010, which was a decrease in total operating revenues
of $5.5 million, or 4.7%, compared to the third quarter of 2009;
-- continued to derive benefit from investments in process redesign and
other efficiency gains, resulting in selling, operations and
administration expense of $38.7 million compared to $41.4 million for
the third quarter of 2009;
-- generated $20.2 million in net cash provided by operating activities,
compared to $14.6 million generated for the third quarter of 2009; and
-- generated adjusted unlevered free cash flow** of $7.0 million, which
decreased from $12.8 million in the third quarter of 2009 as the result
of an increase in capital expenditures of $4.5 million and a decrease of
$1.3 million in adjusted EBITDA in third quarter 2010.
"Total revenue for the third quarter of $110.9 million represents the best sequential quarterly result since second quarter of 2008," said Richard E. Fish, ITC^DeltaCom's Chief Financial Officer. "The combination of Deltacom with EarthLink creates a company with the financial strength and national presence necessary to compete and win in today's marketplace."
A supplemental presentation of information complementary to the information presented in this release is available on our Investors page at www.deltacom.com.
*Adjusted EBITDA is defined by ITC^DeltaCom as net income (loss) before interest income and expense, net, provision for income taxes, depreciation and amortization, stock-based compensation, non-cash loss on extinguishment of debt, write-off of debt discount and issuance cost, prepayment penalties on debt, equity commitment fees, restructuring expenses, merger-related expenses, asset impairment loss and other income or loss, all as disclosed in the 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 income (loss), as net income (loss) is calculated in accordance with generally accepted accounting principles, see the accompanying tables 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 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 tables 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 other communications providers in the southeastern United States. ITC^DeltaCom has a fiber optic network spanning approximately 12,483 route miles, and offers a comprehensive suite of data and voice communications services, including high-speed or broadband data communications (which consist of Ethernet and Internet access connectivity), local exchange, long-distance and conference calling, and mobile data and voice services. 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, 2009, and in the Company's subsequent SEC filings, 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. The aforementioned risks also include those related to the pending acquisition of our company by EarthLink, Inc., including but not limited to our ability to obtain required regulatory approvals and to consummate the transaction. ITC^DeltaCom disclaims any responsibility to update these forward-looking statements.
ITC^DeltaCom, Inc.
Financial Highlights
(In thousands, except share and per share data)
Three Months Ended
September 30,
2010 2009
OPERATING REVENUES:
Integrated communications
services $90,118 $97,668
Wholesale services 16,330 14,564
Equipment sales and related
services 4,472 4,167
TOTAL OPERATING REVENUES 110,920 116,399
COSTS AND EXPENSES:
Cost of services and equipment,
excluding depreciation and
amortization 51,391 52,627
Selling, operations and
administration 38,670 41,378
Depreciation and amortization 13,810 17,110
Total operating expenses 103,871 111,115
OPERATING INCOME 7,049 5,284
OTHER (EXPENSE) INCOME:
Interest expense (9,644) (7,453)
Interest income 11 9
Write-off of debt discount and
issuance cost - -
Other income (expense) (50) 43
Merger cost (2,064) -
Total other expense, net (11,747) (7,401)
LOSS BEFORE INCOME TAXES (4,698) (2,117)
INCOME TAX EXPENSE - -
NET LOSS $(4,698) $(2,117)
BASIC AND DILUTED NET LOSS PER
COMMON SHARE $(0.06) $(0.03)
BASIC AND DILUTED WEIGHTED
AVERAGE COMMON SHARES
OUTSTANDING 83,660,985 81,136,456
COMPREHENSIVE INCOME (LOSS)
NET LOSS $(4,698) $(2,117)
OTHER COMPREHENSIVE INCOME
(LOSS)
Change in unrealized gains on
derivative instrument
designated as cash flow
hedging instrument, net of tax - 2,275
COMPREHENSIVE INCOME (LOSS) $(4,698) $158
Nine Months Ended
September 30,
2010 2009
OPERATING REVENUES:
Integrated communications
services $274,523 $299,797
Wholesale services 45,900 44,807
Equipment sales and related
services 12,537 12,373
TOTAL OPERATING REVENUES 332,960 356,977
COSTS AND EXPENSES:
Cost of services and equipment,
excluding depreciation and
amortization 148,170 163,731
Selling, operations and
administration 118,744 126,865
Depreciation and amortization 42,280 51,245
Total operating expenses 309,194 341,841
OPERATING INCOME 23,766 15,136
OTHER (EXPENSE) INCOME:
Interest expense (22,869) (22,544)
Interest income 22 38
Write-off of debt discount and
issuance cost (7,948) -
Other income (expense) 268 (89)
Merger cost (2,064) -
Total other expense, net (32,591) (22,595)
LOSS BEFORE INCOME TAXES (8,825) (7,459)
INCOME TAX EXPENSE - -
NET LOSS $(8,825) $(7,459)
BASIC AND DILUTED NET LOSS PER
COMMON SHARE $(0.11) $(0.09)
BASIC AND DILUTED WEIGHTED
AVERAGE COMMON SHARES
OUTSTANDING 83,031,819 80,987,101
COMPREHENSIVE INCOME (LOSS)
NET LOSS $(8,825) $(7,459)
OTHER COMPREHENSIVE INCOME
(LOSS)
Change in unrealized gains on
derivative instrument
designated as cash flow
hedging instrument, net of tax - 5,610
COMPREHENSIVE INCOME (LOSS) $(8,825) $(1,849)
ITC^DeltaCom, Inc.
Quarterly Highlights
(Unaudited)
(In thousands)
Three Months Ended
March
Sept 30, June 30, 31, Dec 31, Sept 30,
2010 2010 2010 2009 2009
Integrated
communications
services
revenues:
Long distance and
access $14,263 $14,015 $14,153 $14,007 $15,375
Business local,
data and internet 75,855 77,272 78,965 80,352 82,293
Total integrated
communications
services revenues 90,118 91,287 93,118 94,359 97,668
Wholesale services
revenues:
Broadband
transport 14,265 13,046 11,917 12,327 12,284
Local
interconnection 70 93 120 127 181
Directory
assistance and
operator services 1,000 964 919 925 986
Other 995 1,178 1,333 1,215 1,113
Total wholesale
services revenues 16,330 15,281 14,289 14,594 14,564
Equipment sales
and related
services revenues 4,472 4,332 3,733 3,394 4,167
Total operating
revenues 110,920 110,900 111,140 112,347 116,399
COSTS AND
EXPENSES:
Cost of services
and equipment,
excluding
depreciation and
amortization 51,391 47,634 49,144 48,899 52,627
Selling,
operations and
administration
expense 38,670 39,974 40,100 44,714 41,378
Depreciation and
amortization 13,810 13,648 14,822 17,819 17,110
Total operating
expenses 103,871 101,256 104,066 111,432 111,115
OPERATING INCOME $7,049 $9,644 $7,074 $915 $5,284
ITC^DeltaCom, Inc.
Balance Sheet and Other Financial Highlights
(In thousands)
Balance Sheet Data (at September 30, December
period end): 2010 31, 2009
----------------------
(Unaudited)
Cash and cash
equivalents
(unrestricted) $81,798 $67,786
Working capital 43,106 40,371
Total assets 385,932 368,494
Long-term liabilities 320,271 303,747
Stockholders' deficit (26,173) (16,724)
Total liabilities and
stockholders' deficit 385,932 368,494
Three Months Ended
Sept 30, June 30, March 31, Dec. 31, Sept 30,
2010 2010 2010 2009 2009
Other
Financial
Data:
----------
(Unaudited)
Capital
expenditures(1) $14,768 $18,589 $11,217 $24,570 $10,315
Cash flows
(used in)
provided
by:
Operating
activities 20,173 19,959 19,039 15,579 14,622
Investing
activities (14,605) (18,321) (10,266) (24,693) (10,385)
Financing
activities (315) 1,033 (2,685) (573) (576)
21,755 23,475 22,830 19,936 23,094
Adjusted
EBITDA(2)
Adjusted
unlevered
free cash
flow(3) 6,987 4,886 11,613 (4,634) 12,779
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 income and expense, net, provision for income taxes,
depreciation and amortization, stock-based compensation, non-cash
loss on extinguishment of debt, write-off of debt discount and
issuance cost, prepayment penalties on debt, equity commitment fees,
restructuring expenses, merger-related expenses, asset impairment
loss and other income or loss, all as disclosed in the 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 and a
quantitative reconciliation of adjusted EBITDA to net income (loss),
as net income (loss) is calculated in accordance with generally
accepted accounting principles, see the accompanying tables
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 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 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 tables 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 income and expense, net, provision for income taxes, depreciation and amortization, stock-based compensation, non-cash loss on extinguishment of debt, write-off of debt discount and issuance cost, prepayment penalties on debt, equity commitment fees, restructuring expenses, merger-related expenses, asset impairment loss and other income or loss, all as disclosed in the 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").See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Overview--Adjusted EBITDA" in our Annual Report on Form 10-K for our 2009 fiscal year for additional information regarding management's reasons for including adjusted EBITDA data and for material limitations with respect to the usefulness of this measure. The following tables present adjusted EBITDA amounts for the fiscal quarters indicated and also sets forth a quantitative reconciliation of adjusted EBITDA to net income (loss), as net income (loss) is calculated in accordance with GAAP (in thousands):
Three Months Ended
Sept June March Dec. Sept
30, 30, 31, 31, 30,
2010 2010 2010 2009 2009
(Unaudited)
Net income (loss) $(4,698) $(6,516) $2,389 $(3,516) $(2,117)
Add: non-EBITDA items
included in net income
(loss):
Interest (income) and
expense, net 9,633 8,379 4,837 4,889 7,444
Depreciation and
amortization 13,810 13,648 14,822 17,819 17,110
Stock-based
compensation 896 183 934 1,202 700
Write-off of debt
discount and issuance
cost - 7,948 - - -
Other (income) loss 50 (167) (152) (458) (43)
Merger cost 2,064 - - - -
Adjusted EBITDA $21,755 $23,475 $22,830 $19,936 $23,094
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 consolidated statements of cash flows. Adjusted unlevered free cash flow is not a measurement of financial performance under GAAP. 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 ITC^DeltaCom's 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. The following tables present adjusted unlevered free cash flow amounts for the fiscal quarters indicated and also set 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,
2010 2010 2010 2009 2009
(Unaudited)
Net cash
provided by
operating
activities $20,173 $19,959 $19,039 $15,579 $14,622
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 (8,508) (3,207) 459 1,369 2,858
Provision for
bad debts (795) (950) (925) (1,300) (1,225)
Interest
expense
excluding
interest paid
in kind and in
common stock,
and
amortization
of debt
issuance costs
and debt
discount, net
of interest
income 8,923 7,673 4,236 4,288 6,839
Other (income)
loss (102) - 21 - -
Merger cost 2,064 - - - -
Adjusted EBITDA 21,755 23,475 22,830 19,936 23,094
Less:
Capital
expenditures (15,472) (13,798) (15,381) (24,716) (10,437)
Change in
accounts
payable
-construction 704 (4,791) 4,164 146 122
Adjusted
unlevered free
cash flow $6,987 $4,886 $11,613 $(4,634) $12,779
Investor Contact:
Richard E. Fish
Chief Financial Officer
256-382-3827
Richard.fish@deltacom.com
SOURCE ITC^DeltaCom, Inc.
