Exhibit 99.1
Minneapolis, MN – July 26, 2004: Eschelon Telecom, Inc., a leading provider of integrated communications services to small and medium sized businesses in the western United States, today announced its results for the second quarter ended June 30, 2004. Highlights are as follows:
Eschelon Telecom, Inc.
Unaudited Consolidated Financial and Operating Data
(dollars in thousands, except per unit amounts)
|
| 2Q 2004 |
| 1Q 2004 |
| 2Q 2003 |
| |||
Total Revenue |
| $ | 39,151 |
| $ | 38,195 |
| $ | 35,405 |
|
Network Gross Margin (%) |
| 63 | % | 63 | % | 60 | % | |||
BTS Gross Margin (%) |
| 40 | % | 35 | % | 36 | % | |||
Total Gross Margin (%) |
| 61 | % | 60 | % | 57 | % | |||
EBITDA |
| $ | 6,657 |
| $ | 6,347 |
| $ | 3,884 |
|
Capital Expenditures |
| $ | 6,789 |
| $ | 7,041 |
| $ | 8,054 |
|
Cash |
| $ | 23,843 |
| $ | 23,596 |
| $ | 9,342 |
|
|
|
|
|
|
|
|
| |||
Voice ALEs In Service |
| 162,622 |
| 159,354 |
| 144,396 |
| |||
Data ALEs In Service |
| 63,327 |
| 56,180 |
| 36,825 |
| |||
Total ALEs In Service |
| 225,949 |
| 215,534 |
| 181,221 |
| |||
ALEs On Switch (%) |
| 77.4 | % | 75.6 | % | 69.6 | % | |||
ALEs Sold |
| 22,773 |
| 19,463 |
| 20,889 |
| |||
Gross ALE Additions |
| 20,340 |
| 21,430 |
| 20,299 |
| |||
Net ALE Additions |
| 9,113 |
| 13,037 |
| 11,437 |
| |||
Monthly Churn (%) |
| 1.52 | % | 1.55 | % | 1.71 | % | |||
Network Revenue per ALE |
| $ | 49.06 |
| $ | 50.42 |
| $ | 52.98 |
|
|
|
|
|
|
|
|
| |||
Total Associates (FTE) |
| 918 |
| 885 |
| 890 |
| |||
Total Sales Associates |
| 195 |
| 173 |
| 189 |
| |||
Network Sales Associates |
| 156 |
| 140 |
| 152 |
| |||
• Strong sequential and annual access line growth of 4.8% and 24.7%, respectively.
• Continued low customer line churn at 1.52% per month.
• Record revenue and EBITDA of $39.2 million and $6.7 million, respectively.
• Third sequential quarter of positive cash generated from operations.
• Cash position of $23.8 million at June 30, 2004.
“We are pleased to have continued 2004 by achieving solid second quarter results,” stated Richard A. Smith, Eschelon’s President and Chief Executive Officer. “From the second quarter of 2003, revenue is up 10.6%, access lines are up 24.7%, churn is down 10.9% and EBITDA is up 71.4%. All of our financial and operating metrics are within acceptable ranges – so we continue to perform as per our expectations. Our only disappointment during the quarter was the FCC’s and the Solicitor General’s decision not to appeal USTA II to the Supreme Court as we had hoped. While we do not believe this will have any impact on our 2004 results, we are concerned about the uncertainty it has created in our industry and about its potential impact on our results in 2005 and beyond. We plan to address this more on our upcoming conference call.”
Total revenues for the second quarter of 2004 were $39.2 million, an increase of $1.0 million from the first quarter of 2004 and an increase of $3.7 million from the second quarter of 2003.
Total revenues increased from the first quarter of 2004 and the second quarter of 2003 due to growth in access lines of 4.8% and 24.7% respectively, partially offset by declines in average revenue per line. Average revenue per line declined from $52.98 in the second quarter of 2003 to $50.42 per line in the first quarter of 2004 and $49.06 in the second quarter of 2004. Reductions in access rates and competitive pricing for data services were the major causes for the revenue per line decline.
Total gross margin improved to $23.7 million in the second quarter of 2004, an increase of $1.0 million from the first quarter of 2004 and an increase of $3.7 million from the second quarter of 2003.
These increases were largely a function of higher levels of revenue and an increased percentage of lines on switch.
Cash operating expenses for the second quarter of 2004 were $17.1 million, an increase of $0.7 million from the first quarter of 2004 and an increase of $0.9 million from the second quarter of 2003. The increase from the first quarter of 2004 was due to higher payroll, commission and fringe benefit expenses in the second quarter of 2004. The increase from the second quarter of 2003 was due to higher average payroll and fringe benefit expenses, and an increase in operating taxes.
EBITDA for the second quarter of 2004 was $6.7 million, an increase of $0.3 million from the first quarter of 2004 and an increase of $2.8 million from the second quarter of 2003. EBITDA is a non-GAAP measure. Below is a schedule reconciling EBITDA with reported GAAP net income.
Eschelon Telecom, Inc.
Consolidated EBITDA to Net Income Reconciliation
(in thousands)
|
| 2Q 2004 |
| 1Q 2004 |
| 2Q 2003 |
| |||
EBITDA |
| $ | 6,657 |
| $ | 6,346 |
| $ | 3,884 |
|
Depreciation and amortization |
| (7,277 | ) | (7,934 | ) | (8,056 | ) | |||
Interest expense |
| (2,760 | ) | (2,314 | ) | (448 | ) | |||
Deferred compensation |
| — |
| (20 | ) | — |
| |||
Loss on disposal of assets |
| (23 | ) | (1 | ) | (36 | ) | |||
Income taxes |
| — |
| — |
| — |
| |||
Interest income |
| 26 |
| 11 |
| 55 |
| |||
Gain on debt restructuring |
| — |
| 18,195 |
| — |
| |||
NET INCOME |
| $ | (3,377 | ) | $ | 14,283 |
| $ | (4,601 | ) |
Capital expenditures for the second quarter of 2004 were $6.8 million, a decrease of $0.3 million from the first quarter of 2004 and a decrease of $1.3 million from the second quarter of 2003. Capital expenditures typically fluctuate by quarter depending upon timing of major equipment purchases. These reported variances are within a normal range.
Cash on hand at June 30, 2004 was $23.8 million, an increase of $0.2 million from the first quarter of 2004 and an increase of $14.5 million from the second quarter of 2003. The increase in cash from the second quarter of 2003 was primarily due to the issuance of the company’s 8 3/8% senior second secured notes on March 17, 2004.
Management is holding an investor conference call on Monday, July 26, 2004 at 2:00 PM CST / 3:00 PM EST to discuss quarterly results. Investors are invited to participate by dialing (800) 366-7449. A replay will be available through August 4, 2004 by dialing (800) 405-2236 (passcode 11001710#).
About Eschelon Telecom, Inc.
Eschelon Telecom, Inc. was founded in 1996 and is a rapidly growing provider of integrated voice, data and Internet services. Headquartered in Minneapolis, Minnesota, the company offers small and medium sized businesses a comprehensive line of telecommunications and Internet products including local lines, long distance, business telephone systems, DSL, Dedicated T-1 access, network solutions and Web hosting. Eschelon employs approximately 900 telecommunications/Internet professionals and has more than 225,000 access lines in service throughout its markets in Minnesota, Arizona, Utah, Washington, Oregon, Colorado and Nevada. For more information, please visit our web site at www.eschelon.com
Forward Looking Statements
This announcement contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The forward-looking statements are based on Eschelon Telecom’s current intent, belief and expectations. These statements are not guarantees of future performance and are
subject to certain risks and uncertainties that are difficult to predict. Actual results may differ materially from these forward-looking statements because of the company’s history of losses, ability to maintain relationships with ILECs, substantial indebtedness, intense competition, dependence on key management, changes in government regulations, and other risks that may be described in the company’s filings with the Securities and Exchange Commission. Existing and prospective investors are cautioned not to place undue reliance on these forward-looking statements, which speak only as of today’s date. Eschelon Telecom undertakes no obligation to update or revise the information contained in this announcement, whether as a result of new information, future events or circumstances or otherwise.
Eschelon Telecom, Inc.
Unaudited Consolidated Statement of Operations
(in thousands)
|
| 2Q 2004 |
| 1Q 2004 |
| 2Q 2003 |
| |||
Revenue: |
|
|
|
|
|
|
| |||
Network services |
| $ | 32,745 |
| $ | 32,112 |
| $ | 28,188 |
|
BTS |
| 6,406 |
| 6,083 |
| 7,217 |
| |||
|
| 39,151 |
| 38,195 |
| 35,405 |
| |||
|
|
|
|
|
|
|
| |||
Cost of revenue: |
|
|
|
|
|
|
| |||
Network services |
| 11,592 |
| 11,765 |
| 11,184 |
| |||
BTS |
| 3,818 |
| 3,662 |
| 4,189 |
| |||
|
| 15,410 |
| 15,427 |
| 15,373 |
| |||
|
|
|
|
|
|
|
| |||
Gross profit: |
|
|
|
|
|
|
| |||
Network services |
| 21,153 |
| 20,347 |
| 17,004 |
| |||
BTS |
| 2,588 |
| 2,421 |
| 3,028 |
| |||
|
| 23,741 |
| 22,768 |
| 20,032 |
| |||
|
|
|
|
|
|
|
| |||
Operating expenses: |
|
|
|
|
|
|
| |||
Sales, general and administrative |
| 17,084 |
| 16,422 |
| 16,148 |
| |||
Depreciation and amortization |
| 7,277 |
| 7,934 |
| 8,056 |
| |||
Operating loss |
| (620 | ) | (1,588 | ) | (4,172 | ) | |||
|
|
|
|
|
|
|
| |||
Other income (expense): |
|
|
|
|
|
|
| |||
Interest income |
| 26 |
| 11 |
| 55 |
| |||
Interest expense |
| (2,760 | ) | (2,314 | ) | (448 | ) | |||
Gain on debt restructuring |
| — |
| 18,195 |
| — |
| |||
Other expense |
| (23 | ) | (21 | ) | (36 | ) | |||
Income (loss) before taxes |
| (3,377 | ) | 14,283 |
| (4,601 | ) | |||
Income taxes |
| — |
| — |
| — |
| |||
Net income (loss) |
| $ | (3,377 | ) | $ | 14,283 |
| $ | (4,601 | ) |
Eschelon Telecom, Inc.
Unaudited Consolidated Statement of Operations
(in thousands)
|
| June YTD 2004 |
| June YTD 2003 |
| ||
Revenue: |
|
|
|
|
| ||
Network services |
| $ | 64,857 |
| $ | 54,842 |
|
BTS |
| 12,490 |
| 12,477 |
| ||
|
| 77,347 |
| 67,319 |
| ||
|
|
|
|
|
| ||
Cost of revenue: |
|
|
|
|
| ||
Network services |
| 23,357 |
| 21,849 |
| ||
BTS |
| 7,480 |
| 7,556 |
| ||
|
| 30,837 |
| 29,405 |
| ||
|
|
|
|
|
| ||
Gross profit: |
|
|
|
|
| ||
Network services |
| 41,500 |
| 32,993 |
| ||
BTS |
| 5,010 |
| 4,921 |
| ||
|
| 46,510 |
| 37,914 |
| ||
|
|
|
|
|
| ||
Operating expenses: |
|
|
|
|
| ||
Sales, general and administrative |
| 33,506 |
| 31,596 |
| ||
Depreciation and amortization |
| 15,212 |
| 15,705 |
| ||
Operating loss |
| (2,208 | ) | (9,387 | ) | ||
|
|
|
|
|
| ||
Other income (expense): |
|
|
|
|
| ||
Interest income |
| 38 |
| 147 |
| ||
Interest expense |
| (5,074 | ) | (879 | ) | ||
Gain on debt restructuring |
| 18,195 |
| — |
| ||
Other expense |
| (44 | ) | (106 | ) | ||
Income (loss) before taxes |
| 10,907 |
| (10,225 | ) | ||
Income taxes |
| — |
| — |
| ||
Net income (loss) |
| $ | 10,907 |
| $ | (10,225 | ) |
Eschelon Telecom, Inc.
Unaudited Consolidated Balance Sheets
(in thousands)
|
| June 30, |
| December 31, |
| ||
Assets |
|
|
|
|
| ||
Current assets: |
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 23,843 |
| $ | 8,606 |
|
Accounts receivable |
| 12,106 |
| 13,537 |
| ||
Other receivables |
| 3,177 |
| 2,097 |
| ||
Inventories |
| 3,141 |
| 3,169 |
| ||
Prepaid expenses |
| 2,155 |
| 2,046 |
| ||
Total current assets |
| 44,422 |
| 29,455 |
| ||
|
|
|
|
|
| ||
Property and equipment, net |
| 85,966 |
| 86,777 |
| ||
|
|
|
|
|
| ||
Other assets |
| 1,392 |
| 1,269 |
| ||
Goodwill |
| 7,168 |
| 7,168 |
| ||
Intangible assets, net |
| 29,678 |
| 29,052 |
| ||
Total assets |
| $ | 168,626 |
| $ | 153,721 |
|
|
|
|
|
|
| ||
Liabilities and stockholders’ equity (deficit) |
|
|
|
|
| ||
Current liabilities: |
|
|
|
|
| ||
Accounts payable |
| $ | 6,140 |
| $ | 4,582 |
|
Accrued telecommunications costs |
| 6,876 |
| 6,939 |
| ||
Accrued expenses |
| 6,264 |
| 3,240 |
| ||
Deferred revenue |
| 3,720 |
| 3,000 |
| ||
Accrued compensation expenses |
| 3,399 |
| 4,261 |
| ||
Capital lease obligations, current maturities |
| 521 |
| 1,020 |
| ||
Total current liabilities |
| 26,920 |
| 23,042 |
| ||
|
|
|
|
|
| ||
Long-term liabilities: |
|
|
|
|
| ||
Capital lease obligations |
| 1,552 |
| 576 |
| ||
Notes payable |
| 85,332 |
| 86,226 |
| ||
Total liabilities |
| 113,804 |
| 109,844 |
| ||
|
|
|
|
|
| ||
Series A convertible preferred stock |
| 50,656 |
| 48,948 |
| ||
|
|
|
|
|
| ||
Stockholders’ equity (deficit): |
|
|
|
|
| ||
Common stock |
| 47 |
| 45 |
| ||
Additional paid-in capital |
| 118,413 |
| 120,105 |
| ||
Accumulated deficit |
| (114,260 | ) | (125,167 | ) | ||
Deferred compensation |
| (34 | ) | (54 | ) | ||
Total stockholders’ equity (deficit) |
| 4,166 |
| (5,071 | ) | ||
Total liabilities and stockholders’ equity (deficit) |
| $ | 168,626 |
| $ | 153,721 |
|
