MIDCOM Communications Inc. reports record third quarter results.

SEATTLE--(BUSINESS WIRE)--Nov. 9, 1995--MIDCOM Communications Inc. (NASDAQ:MCCI) today reported record revenues for the third quarter of 1995.

Revenues grew to $51.5 million during the quarter, an increase of 89 percent over the same period in 1994. These increases resulted from acquisitions, sales by the Company's direct sales force and independent distributors as well as growth in wholesale channel revenues. EBITDA (operating income (loss) plus depreciation and amortization) was $3.6 million for the quarter ended Sept. 30, 1995, an increase of 136 percent over the corresponding period in 1994.

During the third quarter of 1995, the Company completed several acquisitions, including several long-distance customer bases; Cel-Tech International, a reseller of cellular services in the Seattle metropolitan area, and AdVal, Inc., an enhanced facsimile service provider. As a result of the AdVal pooling transaction, the Company's consolidated financial statements were restated for all periods prior to the merger.

Gross margins improved from 29.1 percent in the third quarter of 1994 to 33.5 percent in the third quarter of 1995 and telecom services gross margins showed even greater improvement from 25.3 percent to 33.0 percent during the same period. The improvement in telecom services gross margin resulted from the acquisition of higher margin customer bases and businesses during 1995, an increase in traffic over the Company's own switching facilities and lower pricing negotiated with some of the Company's interexchange suppliers enabled by increased traffic volumes.

The improvement in overall gross margin was offset in part by a decline in aggregation fee revenue (which has no cost of revenue) from five percent of total revenues in the third quarter of 1994 to less than one percent in the most recent quarter as a result of the Company's continued deemphasis on aggregation. Telecom services gross margins improved from 31 percent in the second quarter of 1995 due primarily to improved costs from underlying carriers, the acquisition of higher margin customer bases and businesses during the third quarter and the implementation of the Company's new Keystone billing system.

Selling, general and administrative expenses (SG&A) increased from 23.5 percent of revenues in the third quarter of 1994 to 26.5 percent in the same period in 1995, but declined from 27.7 percent in the second quarter of 1995. The year-over-year increase in SG&A is primarily attributable to increased expenses for operating duplicate management information systems, the increased overhead to install and operate switches and costs related to the expansion of the Company's direct sales force, and the higher operating costs of a public company.

MIDCOM reported a pre-tax loss of $3.7 million, or $0.27 per share, for the third quarter of 1995, compared to a loss of $0.6 million, or $0.06 per share, for the 1994 third quarter. The third quarter 1995 results include an extraordinary charge of $3.0 million related to the early payoff of subordinated notes.

For the first nine months of 1995, revenues were $144.3 million, up 95 percent over the same period a year ago. EBITDA was $8.0 million, an increase of 106 percent compared to $3.9 million in the same period in 1994. Higher interest expenses and the extraordinary charge resulted in a pre-tax loss of $8.0 million for the nine months ended Sept. 30, 1995, up from the $1.5 million loss recorded in the first nine months of 1994.

On Oct. 31, 1995, the Company announced that it has signed letters of intent to acquire the stock of privately-held Telco Communications Group, Inc. ("Telco"), and an affiliated company, Tel Labs, Inc. ("Tel Labs") in exchange for approximately 15.9 million shares of MIDCOM common stock. Headquartered in Virginia, Telco provides domestic and international long distance services to approximately 1.6 million residential customers throughout 15 states and the District of Columbia. Telco also operates a national network consisting of five digital switching centers with a sixth scheduled to be operational by year end. Tel Labs provides comprehensive billing services to both Telco and approximately 19 other telecommunications customers.

MIDCOM is a provider of voice and data telecommunications services to over 100,000 small-and medium-sized businesses nationwide. The Company's headquarters are in Seattle, with regional offices in 15 major metropolitan areas supplemented by a nationwide network of distributors. -0-

                     MIDCOM COMMUNICATIONS INC.
                CONSOLIDATED STATEMENTS OF OPERATIONS
               (In thousands, except per share amounts)
                           (Unaudited)

                         Three Months Ended       Nine Months Ended
                              Sept. 30,                Sept. 30,
                         1995          1994        1995        1994
                                   (Restated)  (Restated)  (Restated)

Revenues             $ 51,452      $ 27,191    $144,322    $ 73,918

Cost of revenues       34,204        19,276      96,299      51,986

Gross profit           17,248         7,915      48,023      21,932

Operating expenses:
 Selling, general
  and administrative   13,645         6,389      40,068      18,069
 Depreciation           1,221           363       3,126         994
 Amortization           2,244           750       5,204       1,802
Total operating
 expenses              17,110         7,502      48,398      20,865

Operating income
 (loss)                   138           413        (375)      1,067

Other income (expense):
 Equity in loss of
  joint venture          (113)          (92)       (279)       (335)
 Other income (expense)   (23)          (56)       (256)          1
 Interest expense        (753)         (865)     (4,094)     (1,764)
 Interest expense --
  shareholders             --             --         --        (434)
                         (889)       (1,013)     (4,629)     (2,532)

Loss before provision
 for income taxes and
  extraordinary item     (751)         (600)     (5,004)     (1,465)

Provision (benefit) for
income taxes                --          (22)           9        (13)

Loss before extra-
 ordinary item           (751)         (578)     (5,013)     (1,452)

Extraordinary item:
 loss on early
  extinguishment
   of debt             (2,992)            --     (2,992)          --

Net loss             $ (3,743)     $   (578)   $ (8,005)   $ (1,452)

Per share amounts:
  Loss before extra-
   ordinary item     $  (0.06)     $  (0.06)   $  (0.45)   $  (0.15)

  Extraordinary
   item                 (0.21)           --       (0.27)          --

  Net Loss          $   (0.27)     $  (0.06)   $  (0.72)   $  (0.15)

Shares used in
 computing per
 share data            14,072          9,517      11,126       9,517

Supplementary
 Information:

  EBITDA            $   3,603      $   1,526   $   7,955   $   3,863
  EBITDA % of
   revenues              7.0%           5.6%        5.5%        5.2%

CONTACT: MIDCOM Communications Inc., Seattle

Ashok Rao, 206/628-8000