Cbeyond Reports 3Q 2008 Results

Cbeyond, a managed services provider that delivers integrated packages of voice, broadband, and mobile services to small businesses, announced its results for the third quarter ended September 30.

In a release, the company noted that recent financial and operating highlights include the following:

- Strong third quarter revenue growth with revenues of $90.2 million, up 24.6 percent over the third quarter of 2007; - Total adjusted EBITDA of $16.9 million during the third quarter of 2008, an increase of 25.5 percent from the third quarter of 2007 (see Schedule 1 for reconciliation to net income), which includes a positive revenue adjustment of $0.4 million and higher than typical expense credits to Cost of Service in the amount of $3.5 million (see discussion of Revenue and ARPU and Cost of Service and Gross Margin); - Net income of $1.7 million in the third quarter of 2008 compared with $3.4 million in the third quarter of 2007 (see Net Income discussion for factors affecting the comparability of income tax expense between the periods); - Total customers in Cbeyond's eleven operating markets of 40,569, reflecting net customer additions of 1,993 in the quarter; - Average monthly revenue per customer location (ARPU) of $760 during the third quarter of 2008, or $756 excluding the effect of a positive revenue adjustment (see Revenue and ARPU discussion), compared to $754 in the second quarter of 2008 and $749 in the third quarter of 2007; and - Monthly customer churn of 1.3 percent in the third quarter of 2008 as compared to 1.3 percent in the second quarter of 2008.

"I am pleased to report that Cbeyond recorded another quarter of significant growth and profitability, with approximately 25 percent year-over-year growth in revenue and 26 percent year-over-year growth in adjusted EBITDA," said Jim Geiger, chief executive officer of Cbeyond. "These strong financial results were supported by continued growth in ARPU, increased applications used per customer of 6.8 from 5.9 in the corresponding quarter of 2007, increased mobile penetration at 31 percent of our customer base, and reaching positive adjusted EBITDA in our San Diego market."

Geiger added, "Our monthly customer churn remained constant at 1.3 percent from the previous quarter, and we posted continued solid results in collections and receivables in the third quarter. Despite the declining economic picture and Hurricane Ike's effect on our Houston market, we had record gross customer additions of nearly 3,600 in the third quarter. Looking forward to the fourth quarter, we expect increased pressure on both churn and collections due to the carryover effect of Hurricane Ike on our Houston market, as well as the overall economic conditions across the country." Geiger concluded, "Our long-term view remains very positive as we believe customers are looking for service providers that not only offer a smart solution for their needs, but also have the staying power they require in good times and bad. Cbeyond's debt-free balance sheet, strong cash position, and market base of established, profitable cities provide assurance that we are well-situated to weather economic storms and credit crises from a position of strength - and still grow our business."

Business Outlook for 2008 and 2009

With respect to its annual guidance for 2008, Cbeyond noted, it is updating annual guidance as follows: 2008 Guidance 2009 Guidance

Revenues Approximately $350 million $420 million to $440 million Adjusted EBITDA $60 million to $61 million $62 million to $70 million Capital expenditures $69 million to $70 million $65 million to $70 million

Updated guidance for 2008 and 2009 assumes a continued challenging economy, which is expected to impact sales results and the customer churn rate. Despite the economic environment, sales volumes are expected to increase due to the increasing number of personnel selling as new markets are launched; however, higher levels of sales productivity are not assumed. The customer churn rate is assumed to remain at or above current levels. The guidance also assumes that the launch of the Greater Washington, D.C. Area market will occur in the first quarter of 2009, and the launch of the 13th market will occur later in 2009.

Cbeyond is an IP-based managed services provider that delivers integrated packages of communications and IT services to more than 40,000 small businesses throughout the United States.

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