MPE Bank of America Corp. Market Index Target Term Securities (Mitts) Linked TO The S&P 500 Index

ROCHESTER, N.Y., May 9 /PRNewswire-FirstCall/ -- Mpower Holding Corporation (AMEX:MPE), the parent company of Mpower Communications Corp., a leading provider of data and voice services to retail and wholesale business customers, today announced results of its operations for the first quarter ended March 31, 2006. For the first quarter of 2006, Mpower's total operating revenue was $50.0 million, increasing 2% over the fourth quarter 2005 and a 5% increase over the first quarter of 2005. Core customer revenue, which represents revenue from the sale of data and voice services, grew to $47.0 million in the first quarter of 2006, up 2% from the $45.9 million reported in the fourth quarter of 2005 and 7% over the first quarter of 2005. Adjusted Gross Margin from continuing operations in the first quarter of 2006 was $28.3 million or 56.6% of revenue, continuing in a positive direction from $27.6 million or 56.5% of revenue in the fourth quarter of 2005 and $25.9 million or 54.2% of revenue in the first quarter of 2005. Adjusted Gross Margin is calculated as gross margin excluding depreciation and amortization related to the cost of operating revenues. Gross margin, which includes depreciation and amortization, was $24.4 million in the first quarter of 2006, $23.5 million in the fourth quarter of 2005 and $22.4 million in the first quarter of 2005. Selling, general and administrative (SG&A) expenses from continuing operations, excluding depreciation and amortization expense, were $22.9 million for the first quarter of 2006, up slightly from the prior quarter's SG&A expenses of $21.0 million and year-ago SG&A of $22.7 million. Mpower's reported SG&A expenses include incremental transition expenses related to the acquisition of ICG California's assets, network facility relocation expense, agent selling expense-warrants and stock-based compensation, all of which are excluded from Adjusted EBITDA. These items totaled $0.5 million in the first quarter of 2006, $0.4 million in the fourth quarter of 2005 and $1.0 million in the first quarter of 2005. Adjusted EBITDA was $5.8 million in the first quarter of 2006 compared to $7.0 million in the fourth quarter of 2005 and $4.2 million of Adjusted EBITDA in the first quarter of 2005. Mpower reported income from continuing operations in the first quarter of 2006 of $0.1 million, as compared to $1.4 million in the fourth quarter of 2005 and $3.9 million in the first quarter of 2005. First quarter 2006 net income was $0.2 million versus $1.4 million in the fourth quarter of 2005 and $3.8 million in the first quarter of 2005. First quarter 2005 income from continuing operations and net income were positively impacted by a non- recurring $7.7 million lease termination payment. Mpower's basic and diluted income per common share from continuing operations were $0.00 in the first quarter of 2006 as compared to the fourth quarter of 2005 in which basic income per common share was $0.02 and diluted income per common share was $0.01. For the first quarter of 2005 both basic and diluted income per common share were $0.04. Capital expenditures in the first quarter of 2006 were $6.1 million. Mpower ended the first quarter of 2006 with approximately $25.5 million in unrestricted cash, cash equivalents and investments available-for-sale, as compared to $28.4 million at the end of the fourth quarter of 2005. Acquisition Agreement Signed On May 5, 2006, Mpower announced that it had signed a definitive agreement to be acquired by TelePacific Communications. Under the terms of the agreement, TelePacific will pay $1.92 in cash per Mpower share. The transaction is subject to the approval of Mpower's shareholders and other customary conditions including applicable state and regulatory approvals, with closing expected to be completed in the third quarter of 2006. As a result of this announcement, Mpower is withdrawing its 2006 financial guidance. Financial Statements and Reconciliation to GAAP Included with the financial statements are reconciliations of the most directly comparable GAAP measures, Gross Margin and Net Income, to the non-GAAP financial measures used by Mpower, Adjusted Gross Margin and Adjusted EBITDA. Company Presentation A PowerPoint presentation detailing Mpower's quarterly results can be found on the company's Web site at http://www.mpowercom.com/. Webcast/Audio Stream & Conference Call to Discuss First Quarter Results Mpower will host a Webcast and conference call to discuss the details of its first quarter 2006 financial and operating results. Date: Tuesday, May 9, 2006 Time: 10:00 a.m. (Eastern time) Audio Live Number: 1-888-332-7254, PIN #7326607 Web Cast & Audio Streaming Link/Instructions: http://showvisuals.mshow.com/findshow.aspx?usertype=0&cobrand=128&shownumber=2 97550 This link will access both the audio and PowerPoint presentation for the call. Advanced registration on the site is recommended. Click on the link above to register in advance and/or join the conference call at the designated time. Web Cast Replay: Available for 30 days after the call at above link Audio Replay: 1-877-519-4471, PIN #7326607 From Tuesday, May 9, 2006 at 1:00 p.m. Eastern through Tuesday, May 16, 2006 at 5:00 p.m. Eastern Use of Non-GAAP Financial Information The SEC has adopted rules (Regulation G) regulating the use of non-GAAP financial measures. Because of Mpower's use of non-GAAP financial measures, Adjusted Gross Margin and Adjusted EBITDA, to supplement Mpower's consolidated financial statements presented on a GAAP basis, as well as the use of Adjusted EBITDA in financial guidance, Regulation G requires Mpower to include in this press release a presentation of the most directly comparable GAAP measures, which are Gross Margin, which includes depreciation and amortization related to cost of operating revenues, and Net Income, and a reconciliation of the measures to GAAP. Mpower has presented a reconciliation of these measures for each of the periods presented. The non-GAAP measure Adjusted EBITDA provides an enhancement to an overall understanding of Mpower's past financial performance and prospects for the future as well as useful information to investors because of (i) the historical use by Mpower of Adjusted EBITDA as a performance measurement; (ii) the value of Adjusted EBITDA as a measure of performance before gains, losses or other charges considered to be outside the company's core business operating results; and (iii) the use of Adjusted EBITDA, or a similar term, by almost all companies in the CLEC sector as a measurement of performance. Mpower has excluded from its presentation of Adjusted EBITDA, incremental transition expense, stock-based compensation, agent selling expense - warrants, network facility relocation expense, network optimization costs, depreciation and amortization, interest income, interest expense, other income, and income (loss) from discontinued operations because Mpower does not believe that including such items in Adjusted EBITDA provides investors with an appropriate measure of determining Mpower's performance in its core business. The non-GAAP measure Adjusted Gross Margin provides an enhancement to an overall understanding of Mpower's past financial performance and prospects for the future as well as useful information to investors because of (i) the historical use by Mpower of this measure as a performance measurement and (ii) the use of a similar calculation by almost all companies in the CLEC sector as a measurement of performance. Adjusted Gross Margin is calculated as gross margin excluding depreciation and amortization because Mpower does not believe that including such items in the calculation of Adjusted Gross Margin provides investors with an appropriate measure of analyzing Mpower's historical financial performance or for comparing other similar companies in the CLEC sector. Mpower's utilization of non-GAAP measurements is not meant to be considered in isolation or as a substitute for net income, income from continuing operations, cash flow, gross margin and other measures of financial performance prepared in accordance with GAAP. Adjusted Gross Margin and Adjusted EBITDA are not GAAP measurements and Mpower's use of them may not be comparable to similarly titled measures employed by other companies in the telecommunications industry. About Mpower Holding Corporation Founded in 1996, Mpower Holding Corporation (AMEX:MPE) is the parent company of Mpower Communications, a leading facilities-based broadband communications provider offering a full range of data, telephony, Internet access and network services for retail business and wholesale customers in California, Nevada and Illinois. Further information about the company can be found at http://www.mpowercom.com/. Forward-Looking Statements Under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, Mpower cautions investors that certain statements contained in this press release that state our and/or management's intentions, hopes, beliefs, expectations or predictions of the future are forward-looking statements. Management wishes to caution the reader that these forward-looking statements are not historical facts and are only estimates or predictions. Actual results may differ materially from those projected as a result of risks and uncertainties including, but not limited to, future sales growth, changes in federal or state telecommunications regulations, market acceptance of our product and service offerings, the liquidity of our common stock, our ability to secure adequate financing or equity capital to fund our operations and network expansion, our ability to manage growth and maintain a high level of customer service, the performance of our network and equipment, our ability to close the recently announced merger with U.S. TelePacific Holdings Corp., the effect the announced merger may have on our customers, prospective customers, employees and sales agents, the cooperation of incumbent local exchange carriers in provisioning lines and interconnecting our equipment, regulatory approval processes, the effect of regulatory decisions on our access charges and operating costs, changes in technology, price competition, and other market conditions and risks detailed from time to time in our filings with the Securities and Exchange Commission. We undertake no obligation to update publicly any forward-looking statements, whether as a result of future events, new information, or otherwise. FINANCIAL STATEMENTS BALANCE SHEET (amounts in $thousands) March 31, 2006 December 31, 2005 Current Assets Cash and Cash Equivalents $15,239 $18,278 Investments Available-for-Sale 8,621 8,845 Accounts Receivable, net 13,080 13,828 Other Receivables 931 890 Prepaid Expenses and Other Current Assets 3,220 3,075 Total Current Assets 41,091 44,916 Property and Equipment, net 67,133 65,492 Long-Term Restricted Cash and Cash Equivalents 9,320 9,237 Long-Term Investments Available-for-Sale 1,683 1,317 Goodwill 8,861 8,861 Intangibles, net 3,534 3,785 Other Long-Term Assets 3,004 4,396 Total Assets $134,626 $138,004 Current Liabilities Current Maturities of Capital Lease Obligations $554 $540 Accounts Payable 10,295 12,545 Accrued Sales Tax Payable 1,822 1,841 Accrued Bonus 1,004 904 Deferred Revenue 5,234 5,141 Accrued Other Expenses 11,986 13,741 Total Current Liabilities 30,895 34,712 Long-Term Capital Lease Obligations 22,921 23,120 Other Long-Term Liabilities 2,403 2,415 Total Liabilities 56,219 60,247 Common Stock 92 92 Additional Paid-in Capital 122,532 121,991 Accumulated Deficit (44,174) (44,326) Treasury Stock (43) - Total Stockholders' Equity 78,407 77,757 Total Liabilities and Stockholders' Equity $134,626 $138,004 STATEMENT OF OPERATIONS Three Months Three Months Three Months (amounts in $ thousands, Ended Ended Ended except common share and per March 31, December 31, March 31, common share amounts) 2006 2005 2005 Operating Revenues: Core Customer $46,979 $45,883 $44,056 Switched Access 2,979 2,997 3,670 Total Operating Revenues 49,958 48,880 47,726 Costs, Expenses and Other: Cost of Operating Revenues (exclusive of depreciation and amortization shown separately below. See Note 1.) 21,677 21,269 21,835 Selling, General and Administrative (exclusive of depreciation and amortization shown separately below. See Note 2.) 22,915 21,025 22,730 Network Optimization Costs - (122) - Depreciation and Amortization 4,669 4,897 5,601 Interest Income (263) (234) (183) Interest Expense 937 945 1,167 Other Income, net (49) (297) (7,301) Income from Continuing Operations 72 1,397 3,877 Income (Loss) from Discontinued Operations 80 19 (32) Net Income $152 $1,416 $3,845 Basic Income (Loss) per Common Share: Income from Continuing Operations $0.00 $0.02 $0.04 Income (Loss) from Discontinued Operations $0.00 $0.00 ($0.00) Net Income $0.00 $0.02 $0.04 Basic Weighted Average Common Shares Outstanding 91,671,787 91,500,160 91,331,930 Diluted Income (Loss) per Common Share: Income from Continuing Operations $0.00 $0.01 $0.04 Income (Loss) from Discontinued Operations $0.00 $0.00 ($0.00) Net Income $0.00 $0.01 $0.04 Diluted Weighted Average Common Shares Outstanding 100,939,506 100,733,029 102,111,366 Adjusted Gross Margin $28,281 $27,611 $25,891 (% of Revenue) 56.6% 56.5% 54.2% Adjusted EBITDA $5,838 $6,975 $4,172 Adjusted EBITDA (% of Revenue) 11.7% 14.3% 8.7% Three Three Three Months Months Months Ended Ended Ended RECONCILIATION TO GAAP March 31, December 31, March 31, (amounts in $thousands) 2006 2005 2005 Adjusted Gross Margin $28,281 $27,611 $25,891 Depreciation and Amortization (allocated to Cost of Operating Revenues. See Note 1.) (3,885) (4,076) (3,512) Gross Margin (GAAP) $24,396 $23,535 $22,379 Three Three Three Months Months Months Ended Ended Ended RECONCILIATION TO GAAP March 31, December 31, March 31, (amounts in $thousands) 2006 2005 2005 Adjusted EBITDA $5,838 $6,975 $4,172 Agent Selling Expense - Warrants (See Note 4) - (95) (122) Stock-Based Compensation (See Note 4) (408) - - Incremental Transition Expense (See Note 3) - (270) (889) Network Facility Relocation Expense (See Note 4) (64) (24) - Network Optimization Costs - 122 - Depreciation and Amortization (4,669) (4,897) (5,601) Interest Income 263 234 183 Interest Expense (937) (945) (1,167) Other Income, net 49 297 7,301 Income from Continuing Operations 72 1,397 3,877 Income (Loss) from Discontinued Operations 80 19 (32) Net Income (GAAP) $152 $1,416 $3,845 Note 1: Cost of operating revenues is exclusive of depreciation and amortization of $3,885, $4,076 and $3,512 for the three months ended March 31, 2006, December 31, 2005 and March 31, 2005, respectively. Note 2: Selling, general and administrative expense is exclusive of depreciation and amortization of $784, $821 and $2,089 for the three months ended March 31, 2006, December 31, 2005 and March 31, 2005, respectively. Note 3: Selling, general and administrative expense includes Incremental Transition Expenses related to the ICG California acquisition, however these amounts are excluded from our Adjusted EBITDA calculations. These amounts total $0, $270 and $889 for the three months ended March 31, 2006, December 31, 2005 and March 31, 2005, respectively. Note 4: Selling, general and administrative expense includes costs for Agent Selling Expense - Warrants, Stock-Based Compensation and Network Facility Relocation Expenses, however these amounts are excluded from our Adjusted EBITDA calculation. These amounts total $472, $119 and $122 for the three months ended March 31, 2006, December 31, 2005 and March 31, 2005, respectively. DATASOURCE: Mpower Holding Corporation CONTACT: Investors: Gregg Clevenger, Chief Financial Officer, +1-585-218-6547, , or Media: Michele Sadwick, Vice President, +1-585-218-6542, , both of Mpower Communications Web site: http://www.mpowercom.com/

Copyright