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 Talk America Reports Third Quarter Results
   Wednesday, November 08, 2006 6:49:25 PM ET

NEW HOPE, Pa., Nov 08, 2006 (BUSINESS WIRE) -- Talk America (TALK ), a leading provider of integrated voice and data communications services, today announced third quarter results for 2006. Talk America reported total revenue of $106.4 million and Adjusted EBITDA of $14.8 million. On-net revenue, off-net revenue and long distance and other revenue in the third quarter 2006 were $63.5 million, $30.8 million and $12.0 million, respectively.

Talk America ended the period with 614,000 local voice and data equivalent lines of which 476,000 were on-net, representing 78% of total lines. On-net lines were lower than expected due to higher churn in the third quarter. We expect churn to come down as network migrations have been completed and we roll out our bundled broadband service offering. Revenues for the third quarter reflected the benefit of customer price increases, as well as the implementation of increases to late fees. In the third quarter 2006, we recorded a reduction to network cost of $0.9 million related to the resolution of the Georgia rate case.

(Note: See the schedules accompanying this news release and www.talkamerica.com for reconciliation to generally accepted accounting principles (GAAP) for the non-GAAP financial measures mentioned in this announcement and to download a copy of the presentation to be reviewed on today’s conference call.)

As previously announced, on September 22, 2006, we entered into a merger agreement with Cavalier Telephone Corporation, under the terms of which Cavalier will acquire all of Talk America’s outstanding shares for $8.10 cash per share. Pending the approval of our stockholders and the satisfaction of the other terms and conditions of the merger agreement, we anticipate that the Cavalier merger will be completed by year end 2006. Our regulatory approval process is well underway and we have met the third quarter financial performance closing condition in the merger agreement.

In connection with the proposed Cavalier merger, we have filed a preliminary proxy statement, and will file a definitive proxy statement, with the U.S. Securities and Exchange Commission (the "SEC"). INVESTORS ARE ADVISED TO READ THE DEFINITIVE PROXY STATEMENT WHEN IT BECOMES AVAILABLE BECAUSE IT WILL CONTAIN IMPORTANT INFORMATION ABOUT THE CAVALIER MERGER AND THE COMPANY. Investors may obtain a free copy of the definitive proxy statement (when available) and other documents filed by the Company with the SEC at the SEC’s web site at http://www.sec.gov. Free copies of the definitive proxy statement, once available, and the Company’s other filings with the SEC may also be obtained from the Company. Free copies of the Company’s filings may be obtained by directing a request to Talk America Holdings, Inc, 6805 Route 202. New Hope, PA 18938.

The Company and our directors, executive officers and other members of our management and employees may be deemed to be soliciting proxies from our stockholders in favor of the Cavalier merger. Investors and stockholders may obtain more detailed information regarding the direct and indirect interests of our executive officers and directors in the Cavalier merger by reading the preliminary and definitive proxy statements regarding the Cavalier merger, which have been and will be filed with the SEC.

About Talk America

Talk America, is a leading competitive, integrated communications provider that offers phone services and high speed Internet access to both business and residential customers. Services include local and long distance phone service, and data services such as high-speed connectivity, security, web hosting, and network services. Talk America delivers value in the form of savings, simplicity and quality service to its customers through its leading edge network and award-winning back office.

Please Note:

The statements contained herein regarding the future results of operations of Talk America should be, and certain other of the statements contained herein may be, considered "forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such statements are identified by the use of forward-looking words or phrases, including, but not limited to, "estimates," "expects," "expected," "anticipates," "anticipated," "forecast," "guidance," and "targets". These forward-looking statements are based on our current expectations. Although we believe that the expectations reflected in such forward-looking statements are reasonable, there can be no assurance that such expectations will prove to have been correct. Forward-looking statements involve risks and uncertainties and our actual results could differ materially from our expectations. In addition to those factors discussed in the foregoing, important factors that could cause such actual results to differ materially include, among others, our inability to integrate effectively and as anticipated acquired businesses, dependence on the availability and functionality of local exchange carriers’ networks as they relate to the unbundled network element platform, failure to operate our own local network in a profitable manner, increased price competition for long distance, local and data services, failure of the marketing of the bundle of local and long distance services, long distance services and data services under our direct marketing channels to a smaller marketing footprint, attrition in the number of end users, failure to manage our collection management systems and credit controls for customers, interruption in our network and information systems, failure to provide adequate customer service, and changes in government policy, regulation and enforcement and/or adverse judicial or administrative interpretations and rulings relating to regulations and enforcement. Additional information concerning these and other important factors can be found within Talk America’s filings with the Securities and Exchange Commission. The forward-looking statements contained herein are made only as of the date of this release, and we undertake no obligation to update the forward-looking statements to reflect subsequent events or circumstances. For a more detailed discussion of these factors, see the Risk Factors discussions in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2005 filed March 16, 2006, as amended by our Form 10-K/A filed March 28, 2006, and of our subsequently filed Quarterly Reports on Form 10-Q. --Financial Tables to Follow--

             TALK AMERICA HOLDINGS, INC. AND SUBSIDIARIES
           CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
              (In thousands, except for per share data)
                             (Unaudited)

                               Three Months Ended  Nine Months Ended
                                  September 30,       September 30,
                               ------------------- -------------------
                                 2006      2005      2006      2005
                               --------- --------- --------- ---------

Revenue                        $106,353  $120,645  $340,921  $348,149

Costs and expenses:
 Network and line costs,
  excluding depreciation and
  amortization                   54,542    64,413   178,629   181,090
 General and administrative
  expenses                       21,684    23,496    74,160    59,946
 Provision for doubtful
  accounts                        4,359     4,515    12,610    14,909
 Sales and marketing expenses    11,958     7,294    35,900    21,335
 Depreciation and amortization   11,084    11,618    34,235    30,734
                               --------- --------- --------- ---------
      Total costs and expenses  103,627   111,336   335,534   308,014
                               --------- --------- --------- ---------

Operating income                  2,726     9,309     5,387    40,135
Other income (expense):
 Interest income                    254       199       768       873
 Interest expense                  (185)     (114)     (616)     (164)
 Other income (expense), net        (11)       (5)       42      (361)
                               --------- --------- --------- ---------
Income before provision for
 income taxes                     2,784     9,389     5,581    40,483
Provision for income taxes        1,613     4,172     3,296    16,428
                               --------- --------- --------- ---------

Net income                       $1,171    $5,217    $2,285   $24,055
                               ========= ========= ========= =========

Income per share - Basic:
                               --------- --------- --------- ---------
 Net income per share             $0.04     $0.18     $0.08     $0.86
                               ========= ========= ========= =========

Weighted average common shares
 outstanding                     30,494    29,808    30,444    28,122
                               ========= ========= ========= =========

Income per share - Diluted:
                               --------- --------- --------- ---------
 Net income per share             $0.04     $0.17     $0.07     $0.84
                               ========= ========= ========= =========

Weighted average common and
 common equivalent shares
 outstanding                     30,673    30,357    30,624    28,796
                               ========= ========= ========= =========

             TALK AMERICA HOLDINGS, INC. AND SUBSIDIARIES
                CONDENSED CONSOLIDATED BALANCE SHEETS
         (In thousands, except for share and per share data)
                             (Unaudited)

                                            September 30, December 31,
                                                2006          2005
                                            ------------- ------------
Assets
Current assets:
 Cash and cash equivalents                       $35,594      $46,288
 Restricted cash                                   1,920           --
 Accounts receivable, trade (net of
  allowance for uncollectible accounts of
  $14,740 and $13,838 at September 30, 2006
  and December 31, 2005, respectively)            36,602       43,600
 Deferred income taxes                            11,158       18,096
 Prepaid expenses and other current assets        12,091       10,297
                                            ------------- ------------
     Total current assets                         97,365      118,281

Property and equipment, net                       92,160       98,492
Goodwill                                          36,479       36,479
Intangibles, net                                   3,160        4,934
Deferred income taxes                             36,606       21,033
Capitalized software and other assets             11,448        9,470
                                            ------------- ------------
             Total assets                       $277,218     $288,689
                                            ============= ============

Liabilities and Stockholders’ Equity
Current liabilities:
 Accounts payable and accrued expenses           $32,823      $40,025
 Sales, use and excise taxes                       8,298        7,316
 Deferred revenue                                 13,440       13,824
 Current portion of long-term debt                 2,554        3,988
 Accrued compensation                              5,057        9,405
 Other current liabilities                         8,482       12,933
                                            ------------- ------------
     Total current liabilities                    70,654       87,491
                                            ------------- ------------

Long-term debt                                     1,837        1,289

Deferred income taxes                                 83        4,853

Other liabilities                                  5,515        3,269
Commitments and contingencies

Stockholders’ equity:
 Preferred stock - $.01 par value, 5,000,000
  shares authorized; no shares outstanding            --           --
 Common stock - $.01 par value, 100,000,000
  shares authorized; 31,842,321 and
  31,684,056 shares issued and 30,508,638
  and 30,368,267 shares outstanding at
  September 30, 2006 and December 31, 2005,
  respectively                                       318          317
 Additional paid-in capital                      385,639      380,481
 Accumulated deficit                            (181,726)    (184,011)
 Treasury stock - at cost, 1,333,683 and
  1,315,789 shares at September 30, 2006 and
  December 31, 2005, respectively                 (5,102)      (5,000)
                                            ------------- ------------
     Total stockholders’ equity                  199,129      191,787
                                            ------------- ------------
     Total liabilities and stockholders’
      equity                                    $277,218     $288,689
                                            ============= ============

             TALK AMERICA HOLDINGS, INC. AND SUBSIDIARIES
           CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (In thousands)
                             (Unaudited)

                                                     Nine Months Ended
                                                       September 30,
                                                     -----------------
                                                      2006     2005
                                                     -------- --------
Cash flows from operating activities:
  Net income                                          $2,285  $24,055
  Adjustments to reconcile net income to net cash
   provided by operating activities:
    Provision for doubtful accounts                   12,610   14,909
    Depreciation and amortization                     34,235   30,734
    Deferred income taxes                              1,047   13,341
    Stock-based compensation                           4,172       --
    Other non-cash charges                               456      359
    Changes in assets and liabilities, net of effect
     of acquisition:
     Accounts receivable, trade                       (1,169)     726
     Prepaid expenses and other current assets         1,340    1,745
     Other assets                                         49       80
     Accounts payable and accrued expenses           (11,278) (19,835)
     Sales, use and excise taxes                          22   (4,553)
     Deferred revenue                                 (2,405)  (3,156)
     Accrued compensation                             (9,008)  (1,563)
     Other liabilities                                (6,194)    (162)
                                                     -------- --------
       Net cash provided by operating activities      26,162   56,680
                                                     -------- --------

Cash flows from investing activities:
 Proceeds from sale of fixed assets                      675       63
 Acquisitions, net of cash acquired                  (16,485) (26,850)
 Capital expenditures                                (15,377) (35,220)
 Capitalized software development costs               (4,172)  (2,946)
 Decreases in restricted cash                          1,375       --
                                                     -------- --------
       Net cash used in investing activities         (33,984) (64,953)
                                                     -------- --------

Cash flows from financing activities:
 Tax benefit of stock based compensation                 430       --
 Payments of capital lease obligations                (3,667)  (1,586)
 Proceeds from exercise of options and warrants          365    4,685
                                                     -------- --------
       Net cash provided by (used in) financing
        activities                                    (2,872)   3,099
                                                     -------- --------

Net change in cash and cash equivalents              (10,694)  (5,174)
Cash and cash equivalents, beginning of period        46,288   47,492
                                                     -------- --------
Cash and cash equivalents, end of period             $35,594  $42,318
                                                     ======== ========


            TALK AMERICA HOLDINGS, INC. AND SUBSIDIARIES
                    NON-GAAP RECONCILIATION

Non-GAAP Financial Measure:

The non-GAAP financial measure that we use in this news release is listed below. We have included reconciliation of this non-GAAP financial measure to the most directly comparable GAAP measures in our financial statements.

Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA) is defined as operating income plus depreciation and amortization, stock-based compensation expense and gains/losses on the sale of property and equipment.

Adjusted EBITDA ($ in thousands) Third Quarter September Year to Date ------------------------- ---------------------- 2006 2005 2006 2005 ------------------------- ---------------------- Operating Income $2,726 $9,309 $5,387 $40,135 Depreciation and Amortization 11,084 11,618 34,235 30,734 Stock-based Compensation 955 -- 4,172 -- Loss on Sale of Property and Equipment 3 -- 413 -- ------------ ------------ ----------- ---------- Adjusted EBITDA $14,768 $20,927 $44,207 $70,869 ============ ============ =========== ==========

SOURCE: Talk America Holdings, Inc.

CONTACT: Talk America David Zahka, 215-862-6849 dzahka@talk.com

Copyright Business Wire 2006



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