Eschelon Telecom (ESCH) 8-K Eschelon Telecom, Inc. Announces Second Quarter 2007 Operating Results

Exhibit 99.1

Investor Relations: Geoffrey M. Boyd Chief Financial Officer 612-436-6486
Media Inquiries: Jon Secrest Vice President, Marketing 612-436-6049

Eschelon Telecom, Inc. Announces Second Quarter 2007 Operating Results

Highlights for Q2 2007:

·Record number of lines sold

·Record line installations

·Record lines in service

·Solid customer line churn results

·27% year over year revenue growth

·46% year over year adjusted EBITDA growth

·Closed on the UNICOM acquisition on May 1, 2007

Minneapolis, MN – August 6, 2007 (NASDAQ: ESCH): Eschelon Telecom, Inc., a provider of integrated communications services to small and medium sized businesses in the western United States, today announced results for the quarter ended June 30, 2007.

Richard A. Smith, Eschelon’s President and Chief Executive Officer, said, “Once again we are reporting very strong revenue and EBITDA growth in addition to record line sales and installations.  Additionally, we completed the acquisition of Oregon-based UNICOM on May 1st and laid the ground work for future organic growth by opening two additional markets:  Fort Collins, Colorado and Tucson, Arizona.

“We committed that we would continue to execute our business plan despite the pending acquisition of Eschelon by Integra Telecom, Inc.  I am proud to say that we have done that well.”

The following table highlights financial and operating results (dollars in thousands, except per unit amounts):

										For the six months  ended June 30,
	2Q 2007			1Q 2007			2Q 2006			2007			2006
Total Revenue	$	86,356		$	80,307		$	68,250		$	166,663		$	127,976
Total Gross Profit *	$	49,932		$	47,142		$	39,056		$	97,074		$	73,466
Total Gross Margin (%) *	58		%	59		%	57		%	58		%	57		%
Adjusted EBITDA	$	19,502		$	17,793		$	13,376		$	37,295		$	25,433
Net Income (Loss)	$	1,131		$	22		$	(599	)	$	1,153		$	(2,182	)
Capital Expenditures	$	12,472		$	17,707		$	11,603		$	30,179		$	20,623
Cash and Investments (at end of period)	$	18,546		$	26,503		$	91,876		$	18,546		$	91,876
Voice Lines In Service (at end of period)	395,678			370,525			318,138			395,678			318,138
Data Lines In Service (at end of period)	283,132			256,972			177,913			283,132			177,913
Total Lines In Service (at end of period)	678,810			627,497			496,051			678,810			496,051
Lines On-Net (%) (at end of period)	85.3		%	86.0		%	82.2		%	85.3		%	82.2		%
Lines Sold	45,640			45,582			36,343			91,221			67,083
Average Monthly Line Churn (%)	1.32		%	1.27		%	1.43		%	1.29		%	1.49		%
Average Network Revenue per Line per Month	$	39.32		$	39.24		$	41.36		$	39.28		$	41.48
Total Employees (at end of period)	1,431			1,393			1,269			1,431			1,269
Quota-Carrying Network Service Salespeople (at end of period)	258			277			273			258			273

* Gross profit is defined as revenue less network services expense (excluding depreciation and amortization) and business telephone systems cost of revenue.

Total revenues for the second quarter of 2007 were $86.4 million, an increase of $6.0 million from the first quarter of 2007 and an increase of $18.1 million from the second quarter of 2006.  The increases were primarily due to the inclusion of the companies recently acquired and access line growth.

Gross profit for the second quarter of 2007 was $49.9 million, an increase of $2.8 million from the first quarter of 2007 and an increase of $10.9 million from the second quarter of 2006.  The increases were primarily due to the inclusion of the companies recently acquired and access line growth.

Gross profit as presented is defined as revenue less network services expense (excluding depreciation and amortization) and business telephone systems cost of revenue.  Gross profit is not intended to replace operating income (loss), net income (loss), cash flow and other measures of financial performance reported in accordance with generally accepted accounting principles (“GAAP”) in the United States.  Management uses this definition of gross profit as a measure of operating performance.  Below is a schedule reconciling reported GAAP operating income to gross profit as presented.

Eschelon Telecom, Inc.

Consolidated Operating Income to Gross Profit Reconciliation

(In Thousands)

							For the six months ended June 30,
	2Q 2007		1Q 2007		2Q 2006		2007		2006
Operating Income	$	6,685	$	5,407	$	3,288	$	12,092	$	4,823
Sales, general and administrative expense	30,854		29,899		25,973		60,753		48,672
Depreciation and amortization expense	12,393		11,836		9,795		24,229		19,971
Gross Profit	$	49,932	$	47,142	$	39,056	$	97,074	$	73,466

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Sales, general and administrative expenses for the second quarter of 2007 were $30.9 million, an increase of $1.0 million from the first quarter of 2007 and an increase of $4.9 million from the second quarter of 2006.  The increases were primarily due to the inclusion of companies recently acquired.

Adjusted EBITDA for the second quarter of 2007 was $19.5 million, an increase of $1.7 million from the first quarter of 2007 and an increase of $6.1 million from the second quarter of 2006.  Adjusted EBITDA is a non-GAAP measure.  Below is a schedule reconciling reported GAAP net income (loss) to EBITDA and Adjusted EBITDA.

Eschelon Telecom, Inc.

Consolidated Net Income (Loss) to EBITDA and Adjusted EBITDA Reconciliation

(In Thousands)

										For the six months ended June 30,
	2Q 2007			1Q 2007			2Q 2006			2007			2006
Net Income (Loss)	$	1,131		$	22		$	(599	)	$	1,153		$	(2,182	)
Interest expense, net	4,514			4,382			3,895			8,896			7,062
Income taxes	463			—			—			463			—
Depreciation and amortization	12,393			11,836			9,795			24,229			19,971
EBITDA	18,501			16,240			13,091			34,741			24,851
Share-based compensation expense	424			550			292			974			638
Loss (gain) on disposal of assets	(13		)	(5		)	19			(18		)	48
Gain on sale of available-for-sale securities	—			—			(18		)	—			(96		)
Other (income) expense, net	590			1,008			(8		)	1,598			(8		)
Adjusted EBITDA	$	19,502		$	17,793		$	13,376		$	37,295		$	25,433

Capital expenditures for the second quarter of 2007 were $12.5 million, a decrease of $5.2 million from the first quarter of 2007 and an increase of $0.9 million from the second quarter of 2006.  Capital expenditures typically fluctuate by quarter depending upon timing of major equipment purchases.

Net income for the second quarter of 2007 was $1.1 million, an increase of $1.1 million from the first quarter of 2007 and an increase of $1.7 million from the second quarter of 2006.  The increases were primarily due to the inclusion of the companies recently acquired and higher access lines in service.

Cash, restricted cash and available-for-sale securities at June 30, 2007 were $18.5 million, a decrease of $8.0 million from March 31, 2007.  The decrease is primarily due to funding the acquisition of UNICOM on May 1, 2007.

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Investor Call

As previously announced, the transaction between Integra Telecom and Eschelon is expected to close the evening of Friday, August 31, 2007.  Given the proximity to the closing, Eschelon does not plan to hold a conference call to review second quarter results.  Questions regarding the information in this release should be directed to Geoff Boyd, Eschelon’s Chief Financial Officer, at
612-436-6486.

About Eschelon Telecom, Inc.

Eschelon Telecom, Inc. is a facilities-based competitive communications services provider of voice and data services and business telephone systems in 53 markets in the western United States. Headquartered in Minneapolis, Minnesota, the company currently employs approximately 1,430 telecommunications/Internet professionals, serves over 65,000 business customers and has approximately 679,000 access lines in service throughout its markets in Arizona, California, Colorado, Minnesota, Montana, Nevada, Oregon, Utah and Washington.  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 RBOCs, 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.  In particular, statements regarding the consummation of the merger are subject to risks that the conditions to the transaction will not be satisfied. In addition, our results of operations, financial condition and cash flows also may be adversely impacted by the recent announcement of the proposed transaction, which may impact our ability to attract and retain customers, management and employees. We have incurred and will continue to incur significant advisory fees and other expenses relating to the transaction.  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.

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Eschelon Telecom, Inc.

Consolidated Statement of Operations

(Dollars In Thousands, Except per Share Amounts)

										For the six months ended June 30,
	2Q 2007			1Q 2007			2Q 2006			2007			2006
Revenue:
Network services	$	78,251		$	72,754		$	60,920		$	151,005		$	113,705
Business telephone systems	8,105			7,553			7,330			15,658			14,271
Total revenue	86,356			80,307			68,250			166,663			127,976
Costs and expenses:
Network services expense (excluding depreciation and amortization)	31,321			28,541			24,780			59,862			45,543
Business telephone systems cost of revenue	5,103			4,624			4,414			9,727			8,967
Sales, general and administrative	30,854			29,899			25,973			60,753			48,672
Depreciation and amortization	12,393			11,836			9,795			24,229			19,971
Operating income	6,685			5,407			3,288			12,092			4,823
Other income (expense):
Interest income	247			391			759			638			992
Interest expense	(4,761		)	(4,773		)	(4,654		)	(9,534		)	(8,054		)
Other income (expense), net	(577		)	(1,003		)	8			(1,580		)	57
Income (loss) before taxes	1,594			22			(599		)	1,616			(2,182		)
Income taxes	(463		)	—			—			(463		)	—
Net income (loss)	$	1,131		$	22		$	(599	)	$	1,153		$	(2,182	)
Net income (loss) per share:
Basic	$	0.06		$	0.00		$	(0.04	)	$	0.07		$	(0.14	)
Diluted	$	0.06		$	0.00		$	(0.04	)	$	0.06		$	(0.14	)
Weighted average shares outstanding:
Basic	17,706,348			17,648,167			16,065,330			17,677,418			15,376,909
Diluted	18,445,798			18,320,919			16,065,330			18,395,816			15,376,909

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Eschelon Telecom, Inc.

Consolidated Balance Sheets

(In Thousands)

	June 30, 2007			December 31, 2006
Assets
Current assets:
Cash and cash equivalents	$	17,986		$	21,146
Restricted cash	560			1,224
Available-for-sale securities	—			17,097
Accounts receivable, net	29,573			27,592
Other receivables	5,161			4,025
Inventories	3,689			3,552
Prepaid expenses	3,081			2,314
Total current assets	60,050			76,950
Property and equipment, net	151,752			145,785
Other assets	1,522			2,185
Goodwill	72,398			59,670
Intangible assets, net	47,483			45,931
Total assets	$	333,205		$	330,521
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	11,950		$	17,641
Accrued telecommunication costs	5,508			5,730
Accrued office rent	2,489			2,521
Accrued interest expense	3,851			3,829
Other accrued expenses	9,193			7,433
Deferred revenue	10,943			10,109
Accrued compensation expenses	6,649			4,174
Capital lease obligations, current maturities	1,572			3,131
Total current liabilities	52,155			54,568
Long-term liabilities:
Other long-term liabilities	1,713			1,262
Capital lease obligations, less current maturities	2,556			2,201
Notes payable	142,909			141,040
Total liabilities	199,333			199,071
Stockholders’ equity:
Common stock	177			176
Additional paid-in capital	290,369			289,101
Accumulated other comprehensive income	—			—
Accumulated deficit	(156,674		)	(157,827		)
Total stockholders’ equity	133,872			131,450
Total liabilities and stockholders’ equity	$	333,205		$	330,521

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Eschelon Telecom, Inc.

Consolidated Statements of Cash Flows

(In Thousands)

	Six months ended June 30,
	2007			2006
Operating activities
Net income (loss)	$	1,153		$	(2,182	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization expense	24,229			19,971
Provision for bad debt expense	836			814
Non-cash interest expense, net of non-cash interest income	2,508			2,043
Non-cash shared-based compensation expense	974			638
Other non-cash items	(18		)	(48		)
Changes in operating assets and liabilities:
Accounts receivable	(1,345		)	1,004
Inventories	20			(415		)
Prepaid expenses and other assets	(1,004		)	(893		)
Accounts payable and accrued expenses	(5,702		)	(5,024		)
Deferred revenue	280			215
Accrued compensation expense	2,469			181
Net cash provided by operating activities	24,400			16,304
Investing activities
Purchases of subsidiaries, net of cash acquired	(13,879		)	(19,956		)
Purchases of available-for-sale securities	(3,750		)	(68,268		)
Proceeds from sales of available-for-sale securities	20,850			8,800
Purchases of property and equipment	(19,167		)	(12,023		)
Cash paid for customer installation costs	(10,709		)	(7,579		)
Decrease in restricted cash	664			316
Proceeds from sales of assets	53			72
Net cash used in investing activities	(25,938		)	(98,638		)
Financing activities
Proceeds from issuance of notes payable	—			45,600
Payments made on notes and capital lease obligations	(1,673		)	(1,278		)
Proceeds from issuance of stock, net of fees	295			40,267
Increase in debt issuance costs	(244		)	(1,311		)
Net cash (used in) provided by financing activities	(1,622		)	83,278
Net increase (decrease) in cash and cash equivalents	(3,160		)	944
Cash and cash equivalents at beginning of period	21,146			26,062
Cash and cash equivalents at end of period	$	17,986		$	27,006
Supplemental cash flow information
Cash paid for interest	$	7,025		$	6,010
Supplemental non-cash activities
Equipment purchases under capital leases	$	303		$	1,021
Share-based compensation	$	—		$	6,045

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