Cbeyond Reports First Quarter 2008 Results.

Revenues Grew by 27.7% and Adjusted EBITDA Increased 20.1% Over Prior Year

ATLANTA -- Cbeyond, Inc. (NASDAQ: CBEY), ("Cbeyond"), a managed services provider that delivers integrated packages of voice, broadband, and mobile services to small businesses, today announced its results for the first quarter ended March 31, 2008.

Recent financial and operating highlights include the following:

* Strong first quarter revenue growth with revenues of $80.5 million, up 27.7% over the first quarter of 2007;

* Net income of $1.0 million in the first quarter of 2008 compared with $2.7 million in the first quarter of 2007;

* Total adjusted EBITDA of $14.5 million during the first quarter of 2008, an increase of 20.1% from the first quarter of 2007 (see Schedule 1 for reconciliation to net income);

* Total customers in Cbeyond's ten operating markets of 36,674, reflecting net customer additions of 1,633 in the quarter;

* Average monthly revenue per customer location (ARPU) of $748 during the first quarter of 2008 compared to $750 in the fourth quarter of 2007 and $744 in the first quarter of 2007; and

* Monthly customer churn of 1.3% in the first quarter of 2008 as compared to 1.4% in the fourth quarter of 2007.

Financial Overview and Key Operating Metrics 

Financial and operating metrics, which include non-GAAP financial measures, for the three months ended March 31, 2007 and 2008, include the following:

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Management Comments

"As in previous quarters, our financial results in the first quarter of 2008 demonstrated the continued strength of our business model and success of our execution," said Jim Geiger, chief executive officer of Cbeyond. "We are pleased with the growth in our business and our financial performance in a tough economic environment, which was demonstrated by the continued high levels of profitability in our established markets."

Geiger added, "In the first quarter, we were able to lower our bad debt expense to less than 2% of revenues, while our monthly customer churn declined to 1.3%. In addition, applications used per customer increased to 6.4, mobile penetration of our customer base reached 26%, and ARPU was essentially stable. We continued to ramp our newly launched San Francisco Bay Area market and installed our first customer in our Miami market in the first quarter of 2008. All of this was achieved while also posting organic revenue growth of nearly 28% year-over-year."

Geiger continued, "I'm pleased to note that the steps we took in the first quarter to address challenges caused by the economy have been successful so far in improving the health of our receivables and customer base. Although we did see some impact from the economic environment on our sales in several of our markets during the first quarter, we believe that our competitive outlook remains positive and the size of our long term opportunities is undiminished."

First Quarter Financial and Business Summary

Revenues and ARPU

Cbeyond reported revenues of $80.5 million for the first quarter of 2008, an increase of 27.7% from the first quarter of 2007. ARPU, or average monthly revenue per customer location, was generally stable at $748 in the first quarter of 2008, as compared to $744 in the first quarter of 2007 and $750 in the fourth quarter of 2007.

Cost of Service and Gross Margin

Cbeyond's gross margin was 68.9% in the first quarter of 2008 as compared with 70.2% in the first quarter of 2007. The decrease in gross margin was anticipated and was due to a number of factors, including the growth in mobile services, increased losses from mobile handset subsidies, and increased cost pressure from additional early stage markets.

Operating Income and Total Adjusted EBITDA

Cbeyond reported operating income of $2.5 million in the first quarter of 2008 compared with operating income of $2.8 million in the first quarter of 2007. The operating income of $2.5 million in the first quarter of 2008 includes $3.0 million in non-cash share-based compensation expense while the operating income of $2.8 million in the first quarter of 2007 includes $2.1 million in non-cash share-based compensation.

For the first quarter of 2008, total adjusted EBITDA was $14.5 million, an improvement of 20.1% over total adjusted EBITDA of $12.1 million in the first quarter of 2007.

Net Income

Cbeyond reported net income of $1.0 million for the first quarter of 2008 as compared to net income of $2.7 million for the first quarter of 2007. Income tax expense increased as a percentage of income before taxes as a result of our having begun to accrue federal income taxes at the full corporate tax rate and due to an increase in the Texas state margin tax, both of which occurred in the first quarter of 2008. Also, the loss on disposal of property and equipment was $0.7 million for the first quarter of 2008 as compared to $0.3 million for the first quarter of 2007, with the increase in the first quarter of 2008 primarily due to the higher level of write-offs of certain software licenses in 2008.

Cash and Cash Equivalents

Cash, cash equivalents and marketable securities amounted to $46.0 million at the end of the first quarter of 2008, as compared to $56.2 million at the end of the fourth quarter of 2007. The decrease in cash was anticipated and related to a number of factors, including the payment for significant purchases of capital expenditures recorded in the fourth quarter but not paid until the first quarter, the payment of other significant payables in the first quarter, such as payments in connection with the favorable resolution of significant billing disputes with telecommunications suppliers, and payment of outstanding 2007 bonuses and commissions.

Capital Expenditures

Capital expenditures were $15.6 million during the first quarter of 2008, compared to $18.1 million in the fourth quarter of 2007 and $13.9 million in the first quarter of 2007. Capital expenditures in the first quarter of 2008 decreased from the fourth quarter of 2007 due to the greater number of network efficiency and back office projects that occurred in the fourth quarter.

Business Outlook for 2008

With respect to its annual guidance for 2008, Cbeyond anticipates completing the year within the previously announced ranges for adjusted EBITDA and capital expenditures, but at the lower end of the previously announced range for revenue.

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Cbeyond's guidance for 2008 assumes a continued challenging economy during 2008.

Conference Call

Cbeyond will hold a conference call to discuss this press release Thursday, May 1, 2008, at 5:00 p.m. EDT. A live broadcast of the conference call will be available on-line at www.cbeyond.net. To listen to the live call, please go to the Web site at least 10 minutes early to register, download, and install any necessary audio software. The conference call will also be available by dialing [phone] (for domestic U.S. callers) and [phone] (for international callers). For those who cannot listen to the live broadcast, an on-line replay will be available shortly after the call and continue to be available for one year.

About Cbeyond

Cbeyond, Inc. (NASDAQ: CBEY) is a leading IP-based managed services provider that delivers integrated packages of communications and IT services to more than 36,000 small businesses throughout the United States. Cbeyond offers more than 30 productivity-enhancing applications including local and long-distance voice, broadband Internet, mobile, BlackBerry[R], broadband laptop access, voicemail, email, web hosting, fax-to-email, data backup, file-sharing and virtual private networking. Cbeyond manages these services over a private, 100-percent Voice over Internet Protocol (VoIP) facilities-based network. For more information on Cbeyond, visit www.cbeyond.net.

Forward-Looking Statements 

This document contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include, but are not limited to statements identified by words such as "believes," "expects," "anticipates," "estimates," "intends," "plans," "targets," "projects" and similar expressions. Such statements are based upon the current beliefs and expectations of Cbeyond's management and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements. Factors that might cause future results to differ include, but are not limited to, the following: the risk that we may be unable to continue to experience revenue growth at historical levels; changes in federal or state regulation or decisions by regulatory bodies that affect the Company; periods of economic downturn and the resulting inability of certain of our customers to meet their payment obligations; the timing of the initiation, progress or cancellation of significant contracts or arrangements; the mix and timing of services sold in a particular period; our ability to recruit and maintain experienced management and personnel; rapid technological change and the timing and amount of start-up costs incurred in connection with the introduction of new services or the entrance into new markets; our ability to maintain or attract sufficient customers in existing or new markets; our ability to respond to increasing competition; our ability to manage the growth of our operations; changes in estimates of taxable income or utilization of deferred tax assets which could significantly affect the Company's effective tax rate; pending regulatory action relating to our compliance with customer proprietary network information; and general economic and business conditions. You are advised to consult any further disclosures we make on related subjects in the reports we file with the SEC, including the "Risk Factors" in our most recent annual report on Form 10-K, together with updates that may occur in our quarterly reports on Form 10-Q and Current Reports on Form 8-K. Such disclosure covers certain risks, uncertainties and possibly inaccurate assumptions that could cause our actual results to differ materially from expected and historical results. We undertake no obligation to correct or update any forward-looking statements, whether as a result of new information, future events or otherwise.

Key Operating Metrics and Non-GAAP Financial Measures

In this press release, the Company uses several key operating metrics and non-GAAP financial measures. In Schedule I, the Company defines each of these metrics and provides a reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measure. These financial measures and operating metrics are a supplement to GAAP financial information and should not be considered as an alternative to, or more meaningful than, net income, cash flow or operating income as determined in accordance with GAAP.

SCHEDULE I

Adjusted EBITDA is not a substitute for operating income, net income, or cash flow from operating activities as determined in accordance with accounting principles generally accepted in the United States, or GAAP, as a measure of performance or liquidity. The Company defines adjusted EBITDA as net income before interest, income taxes, depreciation and amortization expenses, excluding non-cash share-based compensation, public offering expenses, loss on disposal of property and equipment and other non-operating income or expense. Information relating to total adjusted EBITDA is provided so that investors have the same data that management employs in assessing the overall operation of the Company's business.

Total adjusted EBITDA allows the chief operating decision maker to assess the performance of the Company's business on a consolidated basis that corresponds to the measure used to assess the ability of its operating segments to produce operating cash flow to fund working capital needs, to service debt obligations and to fund capital expenditures. In particular, total adjusted EBITDA permits a comparative assessment of the Company's operating performance, relative to a performance based on GAAP results, while isolating the effects of depreciation and amortization, which may vary among segments without any correlation to their underlying operating performance, and of non-cash share-based compensation, which is a non-cash expense that varies widely among similar companies. The following information includes a reconciliation of total adjusted EBITDA to net income:

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