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Integra Telecom Becomes Free Cash Flow Positive, Achieves New Industry Standard in Financial Strength

Major financial milestone is key indicator of financial health and represents progress toward a true competitive marketplace for the telecom industry

PORTLAND, OR - June 5, 2003 - Integra Telecom, a leading provider of all-in-one communications services for small and mid-sized businesses in the West, announces that as of April 30, the company has delivered on four consecutive months of free cash flow positive results. Based on this trending, the company is announcing it has advanced to a new level and is now solidly free cash flow positive.

Integra is among the first in its industry, and the first facilities-based Competitive Local Exchange Carrier (CLEC) in the Qwest service territory, to achieve this important level of financial strength. This achievement is significant because it marks a graduation to the next phase of development for both the company and its industry as a whole.

Integra's revenue for the first four months of 2003 was $38.8 million with $8.3 million in EBITDA and capital expenditures of $3.4 million. Integra's annualized April revenues of $122 million yielded annualized EBITDA of $26.5 million, which comfortably exceeds its 2003 capital spending and debt service obligations.

Importance of free cash flow positive as a financial indicator

Free cash flow positive, or free cash flow breakeven, is a financial benchmark indicating that a company generates more cash from operations than it requires to fund its operating costs, capital spending, working capital and debt obligations. It is a key marker of a business' health. Because the telecom industry is capital intensive, financial indicators such as free cash flow positive and EBITDA positive are very closely watched. "Up to now, our company, like the rest of our industry, was venture capital backed, making our survival dependent on raising outside venture capital," stated Dudley Slater, Integra's chief executive officer. "Achieving free cash flow positive results, in other words, measuring financial strength by one's ability to be self funded, is the new paradigm."

Meeting commitments

Significantly, when many other CLECs and telecom companies have restructured debt and debt obligations and sought bankruptcy protection from creditors, Integra has achieved free cash flow status without major layoffs or financial restructuring. The company is on track to meet its original $150 million in senior debt commitments.

"We are very proud of our record of responsibility. We have lived up to our commitments and have never forced our lenders to accept a loss of capital," said Slater. "Going forward we expect to and have always planned to pay back our banks and generate attractive returns to our shareholders."

Industry graduates to next level

According to New Paradigm Research Group (NPRG), a leading research firm for the telecommunications industry, the CLEC industry encompasses 144 CLECs in the U.S. with total combined annual revenues of $52 billion. In 2002, total industry revenues grew 8% over 2001, access line equivalents grew 16% over 2001 and operational voice switches grew 2% during the same period. NPRG reports that it expects many CLECs are close to achieving cash flow positive status this year. This will lead to stabilization for the emerging and highly capital-intensive CLEC industry.

"Historically, CLECs have measured their financial strength based upon how much third-party debt or equity they could attract," said Slater. "By turning the corner to become free cash flow positive, Integra proves that it is a viable long term competitor. It is now able to stand on its own, offering a stable, long-term competitive alternative."

Business model delivers on choice

Going forward, NPRG expects facilities-based providers like Integra, which have created a business model based on building and owning their own networks rather than reselling a third party product, to be the most viable and successful competitors.

"As we celebrate this major milestone," continued Slater, "we want to thank our financial partners for their ongoing confidence in our business model, congratulate our employees for their diligence and signal to our customers that we are a fit competitor with the resources to continue to meet their evolving needs. Integra's quality, local service alternative has attracted as much as 10% market share of small and mid-sized businesses in the markets in which we serve. We look forward to serving the remaining 90%."

A national model

Integra Telecom is one of a handful of CLECs in the country that has built its own network upon which it serves customers. As such, it is an early model telecommunications competitor as envisioned by the seminal Telecommunications Act of 1996 which effectively opened monopoly telecommunications networks to competitors.

"While this represents an important milestone we are confident it is only the beginning of good things for Integra," said John Hunt, a general partner at Boston Ventures Management, one of Integra's institutional investors. "Continuing strong customer demand for the quality service alternative Integra offers fueled its growth in revenues by over 50% last year. Integra's newly realized internal ability to fund this growth together with strong market demand for their products make us excited about the company's future prospects."

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