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FiberNet Reports Third Quarter 2005 Results

FiberNet Telecom Group, Inc. (Nasdaq: FTGX), a leading provider of complex interconnection services, today announced its results for the third quarter ended September 30, 2005. Revenues for the third quarter of 2005 were $8.6 million, compared to revenues for the third quarter of 2004 of $8.1 million and revenues of $8.4 million for the second quarter of 2005. FiberNet continued to achieve consistent revenue growth in its core product offerings of transport and colocation services. For the third quarter of 2005, revenues from transport and colocation services (excluding revenues from access management services) grew by 12.0% over the third quarter of the prior year. Transport services remain the most significant component of FiberNet's revenues, accounting for 75.1% of the total revenues generated in the third quarter of 2005. On-net transport revenues were 59.9%, and off-net transport revenues were 15.1%. Off-net transport revenues continued to be the fastest growing area for the Company, increasing by 24.9% from the third quarter of 2004. Colocation services and access management services represented 22.6% and 2.4% of revenues, respectively. FiberNet's number of customers also increased to 225 as of September 30, 2005, up from 198 at the end of the third quarter of 2004. FiberNet has now increased its customer base for thirteen consecutive quarters. New customer wins in the third quarter include Cox Communications and leading international service providers, such as Japan Telecom and RosTelecom, one of Russia's leading telecommunications companies. "We have posted another solid quarter," said FiberNet's Jon A. DeLuca, President and Chief Executive Officer. "The consistent growth that our business has delivered is a testament to our unrelenting commitment to service and innovation. In particular we have demonstrated a track record of successfully launching major business initiatives, such as our Network Solutions services providing off-net connectivity, which are a significant growth driver for our Company. I am particularly excited about the introduction of our two latest initiatives: Availius, which focuses on delivering our expertise and intellectual capital to our customers and Phonomenum, a technology platform that will enable carriers, cable operators and Internet telephony service providers to establish peering connections for the exchange of Voice-over-IP traffic." Cost of services for the third quarter of 2005 was $4.3 million, compared to $3.7 million for the third quarter of 2004, and $4.1 million for the second quarter of 2005. The increase was due to increased off-net connectivity costs from the growth of the Company's Network Solutions initiative and increased occupancy expenses related to the Company's colocation facilities. Selling, general and administrative expenses for the third quarter of 2005 were $4.0 million, compared to $3.9 million in the third quarter of 2004 and $4.4 million for the second quarter of 2005. Included in selling, general and administrative expenses for the third quarter of 2005 are $0.2 million in costs associated with the amendment to the Company's credit facility on August 22, 2005. Included in the second quarter of 2005 are $0.5 million of transaction costs that were expensed primarily in connection with the termination of the Company's agreement to purchase Con Edison Communications. Excluding these charges, selling, general and administrative expenses were $3.8 million for the third quarter of 2005 and $3.9 million for the second quarter of 2005. The net loss for the third quarter of 2005 was $(2.5) million, or $(0.49) per share, compared to net loss of $(2.3) million or $(0.45) per share for the third quarter of 2004, and a net loss of $(5.9) million or $(1.14) per share for the second quarter of 2005. EBITDA (as defined), excluding the nonrecurring items in selling, general and administrative expenses, for the third quarter of 2005 was $0.6 million, compared to $0.6 million reported in the third quarter of 2004, and $0.4 million for the second quarter of 2005. The Company presents the financial metric EBITDA (as defined) because it is utilized in the determination of the majority of the financial covenants in its credit agreement, and the metric is calculated in accordance with its credit agreement. As of September 30, 2005, FiberNet was in full compliance with all of the financial covenants in its credit agreement. Capital expenditures for the third quarter of 2005 were $0.8 million, down from $1.0 million from the quarter ended September 30, 2004. Capital expenditures for the most recent quarter were once again primarily related to the implementation of customer specific orders, including the purchase of networking equipment to increase capacity and to interconnect with new customers. In 2005, FiberNet expects to invest $2.5 million to $3.5 million in capital expenditures, also primarily for customer order activity. As of September 30, 2005, FiberNet had total assets of $74.9 million and total stockholders' equity of $48.0 million. As of November 8, 2005, the Company had approximately 5.3 million shares of common stock outstanding or 6.1 million shares of common stock outstanding on a fully diluted basis, assuming the exercise of all outstanding options and warrants. Of the approximately 0.8 million outstanding options and warrants, 0.5 million are out-of-the-money as of November 8, 2005. FiberNet Teleconference: FiberNet will hold a teleconference today, Thursday, November 10, 2005, at 11:00 a.m. EST. To participate in the teleconference please call: 866-825-3308 and enter pass code 31825816, and from outside the U.S. call 617-213-8062 and enter the pass code. A replay of the teleconference will be available beginning November 10, 2005 at 1:00 p.m. EST through November 24, 2005. To listen to the replay by phone, call 888-286-8010 and enter pass code 40533804, and from outside the U.S. call 617-801-6888 and enter the pass code. About FiberNet: FiberNet Telecom Group, Inc. owns and operates integrated colocation facilities and diverse transport routes in the two gateway markets of New York/New Jersey and Los Angeles, designed to provide comprehensive broadband connectivity to other telecommunications service providers and enterprise customers for data, voice and video transmissions. FiberNet's customized connectivity infrastructure provides an advanced, high bandwidth, fiber-optic solution to support the demand for network capacity and to facilitate the interconnection of multiple carriers' and customers' networks. For additional information about FiberNet, visit the Company's website at http://www.ftgx.com. Financial Information and Forward Looking Statements: This partial discussion of the statements of financial condition and operations of the Company should be read in conjunction with the consolidated financial statements and related notes contained in the Company's annual report on Form 10-K for the year ended December 31, 2004 filed with the Securities and Exchange Commission on March 30, 2005 and quarterly report on Form 10-Q for the quarter ended September 30, 2005, to be filed with the Securities and Exchange Commission. Investors are cautioned that EBITDA (as defined) is not a financial measure under generally accepted accounting principles. EBITDA (as defined) is defined as net loss before income taxes, net interest expense, depreciation and amortization, stock related expense and other non-cash or non-recurring charges. The Company does not, nor does it suggest investors should, consider such a non-GAAP financial measure in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. EBITDA (as defined) should not be construed as an alternative to operating income or cash flows from operating activities, both of which are determined in accordance with GAAP, or as a measure of liquidity. Because it is not calculated under GAAP, FiberNet's EBITDA (as defined) may not be comparable to similarly titled measures used by other companies. EBITDA (as defined) is commonly used in the communications industry and by financial analysts, and others who follow the industry, as a measure of operating performance. The Company believes that it is appropriate to present this financial measure because certain of the financial covenants in the Company's credit agreement are based upon it. Various remarks about the Company's future expectations, plans and prospects constitute forward-looking statements for purposes of the safe harbor provisions under The Private Securities Litigation Reform Act of 1995. Such remarks are valid only as of today, and the Company disclaims any obligation to update this information. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the Company's most recent Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 30, 2005. Reconciliation of Non-GAAP Financial Metric: Consolidated Financial Data (in thousands) (unaudited) Three months ende eptember 30, September 30, June 30, 2005 20042005 Calculation of EBITDA (as defined): Net loss $(2,512) $(2,293) $(5,877) Plus: Operating expenses: Stock related expense for selling,general, and administrative matters 128 130 128 Impairment of property, plan nd equipment (a) -- 129 2,812 Depreciation and amortization 2,153 2,192 2,251 Transaction cost expenses(included in selling, general, and administrative expenses) 20 -- 535 Credit facility amendment expenses(included in selling, general, and administrative expenses) 162 -- -- Interest expense, net 629 444 526 EBITDA (as defined)$580 $602$375 (a) Excludes recoveries from previously impaired property, plant and equipment. FIBERNET TELECOM GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)(DOLLARS IN 000'S, EXCEPT PER SHARE AMOUNTS) Nine Months Ended September 30, 2005 2004 Revenues $24,951 $26,379 Operating expenses: Cost of services (exclusive of items shown separately below) 12,2029,999 Selling, general and administrative expense excluding stock related expense 12,982 11,732 Stock related expense for selling, general, and administrative matters386 389 Impairment of property, plant and equipment 2,8129,603 Impairment of goodwill --2,309 Depreciation and amortization 6,6446,800 Total operating expenses 35,026 40,832 Loss from operations (10,075) (14,453) Interest income 62 37 Interest expense (1,717) (1,486) Net loss$(11,730) $(15,902) Net loss per share -- basic and diluted $(2.28) $(3.19) Weighted average common shares outstanding-- basic and diluted 5,1394,990 FIBERNET TELECOM GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)(DOLLARS IN 000'S, EXCEPT PER SHARE AMOUNTS) Three Months Ended September 30, 2005 2004 Revenues $8,634 $8,149 Operating expenses: Cost of services (exclusive of items shown separately below) 4,2603,675 Selling, general and administrative expense excluding stock related expense 3,9763,872 Stock related expense for selling, general, and administrative matters 128 130 Impairment of property, plant and equipment -- 129 Depreciation and amortization 2,1532,192 Total operating expenses 10,5179,998 Loss from operations(1,883) (1,849) Interest income 21 18 Interest expense (650)(462) Net loss $(2,512) $(2,293) Net loss per share -- basic and diluted $(0.49) $(0.45) Weighted average common shares outstanding-- basic and diluted 5,1795,102 FIBERNET TELECOM GROUP, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) (DOLLARS IN 000'S) September 30, 2005 December 31, 2004ASSETS Current Assets: Cash and cash equivalents $2,349$2,909 Restricted cash-- 1,881 Accounts receivable, net of allowance of $508 and $749 at September 30, 2005 and December 31, 2004, respectively1,989 4,275 Prepaid expenses 685 676 Total current assets 5,023 9,741 Property, plant and equipment, net 67,41274,123 Other Assets: Deferred charges, net of accumulated amortization of $1,889 and $1,860 at September 30, 2005 and December 31, 2004, respectively 1,011 2,292 Other assets1,488 1,569 Total other assets 2,499 3,861 TOTAL ASSETS $74,934 $87,725 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable$4,013$4,409 Accrued expenses 4,565 3,805 Deferred revenues--current portion 1,510 3,427 Notes payable--current portion 3,000 6,182 Total current liabilities 13,08817,823 Long-Term Liabilities: Notes payable, less original issue discount of $1,065 and $1,598 at September 30, 2005 and December 31, 2004, respectively10,126 7,405 Deferred revenues3,687 3,261 Total Long Term Liabilities 13,81310,666 Total Liabilities 26,90128,489 Stockholders' Equity: Common stock, $0.001 par value, 2,000,000,000 shares authorized and 5,280,850 and 5,098,957 shares issued and outstanding at September 30, 2005 and December 31, 2004, respectively 55 Additional paid-in-capital 444,463 444,475 Deferred compensation(4,034) (4,443) Deferred rent (warrants) (1,776) (1,906) Accumulated deficit(390,625) (378,895) Total stockholders' equity48,03359,236 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $74,934 $87,725 FIBERNET TELECOM GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (DOLLARS IN 000'S) Nine Months Ended September 30, 2005 2004 Cash flows from operating activities: Net loss $(11,730) $(15,902) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 6,644 6,800 Stock related expense 386389 Deferred rent expense 130 -- Impairment of property, plant and equipment 2,812 9,603 Impairment of goodwill -- 2,309 Other non-cash items 930802 Change in assets and liabilities: Decrease (increase) in accounts receivable2,286 (246) (Increase) decrease in prepaid expenses(9) 103 Decrease in deferred charges525 -- Increase in other assets-- (1,003) (Decrease) increase in accounts payable (348) 1,201 Increase (decrease) in accrued expenses 760 (1,124) (Decrease) increase in deferred revenues (1,491) 942 Cash provided by operating activities895 3,874 Cash flows from investing activities: Decrease in restricted cash 1,881463 Acquisition of Gateway Colocation-- (382) Capital expenditures (1,934) (2,250) Cash used in investing activities (53) (2,169) Cash flows from financing activities: Proceeds from debt financings 1,000 -- Payment of financing costs of debt financings(427) (297) Payment of financing costs of equity financings -- (520) Repayment of notes payable (1,975) (7,225) Proceeds from issuance of equity securities-- 8,000 Cash used in financing activities (1,402) (42) Net (decrease) increase in cash and cash equivalents (560) 1,663 Cash and cash equivalents at beginning of period2,909 3,488 Cash and cash equivalents at end of period $2,349 $5,151 Supplemental disclosures of cash flow information: Interest paid $871 $580 Non-cash financing activities: Common stock issued for acquisition of Gateway Colocation$-- $4,565 Warrants issued for lease amendments -- 1,963

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