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Lumos Networks Corp. Reports Third Quarter 2012 Financial Results

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WAYNESBORO, Va.--(BUSINESS WIRE)--

Lumos Networks Corp. (“Lumos Networks” or “the Company”) (Nasdaq: LMOS), a fiber-based service provider of voice, data and IP-based telecommunication services in the Mid-Atlantic region, today announced financial results for its third quarter 2012.

Total revenue for third quarter 2012 was $52.0 million, compared to $51.6 million for third quarter 2011 and $50.8 million in second quarter 2012. Total adjusted EBITDA was $22.3 million for third quarter 2012, compared to $24.6 million in third quarter 2011 and to $21.1 million in second quarter 2012.

“For the first time in the Company's history strategic data revenue represented half of our total revenue for the quarter and it grew sequentially by five percent,” said Tim Biltz, CEO and President of Lumos Networks. “We believe that strategic data revenue will continue to grow as a percent of our total revenue and we are on track to achieve year-over-over strategic revenue growth in excess of 16% for 2012,” concluded Biltz.

Highlights

  • During third quarter 2012, the Company continued to achieve its targeted installation goals and is on track to more than double the number of FTTC installations from approximately 150 at the end of 2011 to approximately 300 at the end of 2012.
  • In third quarter 2012, the Company continued to achieve its goal of ensuring that 75% of total capital expenditures are for success-based strategic data projects in its Enterprise and Carrier Data customer segments as compared to less than 50% in 2011.
  • Revenue for all three categories of the Company's strategic data products grew sequentially during the third quarter 2012, with an overall aggregate growth rate of approximately 5%. These product lines include: Enterprise Data, Carrier Data and IP Services.
  • On November 1, 2012, the Board of Directors of Lumos Networks Corporation declared a dividend on its common stock in the amount of $0.14 per share to be paid on January 11, 2013 to stockholders of record on December 14, 2012.

Business Outlook

The Company updated its annual 2012 guidance for revenue and adjusted EBITDA, with total revenue expected to be approximately $206 million and adjusted EBITDA expected to be approximately $88 million. Capital expenditures for 2012 are currently expected to be at approximately $60 million.

For fourth quarter 2012, total revenue is expected to be approximately $52 million and adjusted EBITDA to be approximately $22 million.

Please see the schedule accompanying this release for additional financial guidance, including projected 2012 cash flows and non-GAAP reconciliations.

Statements made are based on management's current expectations. These statements are forward-looking and actual results may differ materially. Please see “Special Note from the Company Regarding Forward-Looking Statements.”

Conference Call

A conference call and simultaneous webcast, hosted by Timothy G. Biltz, CEO, Harold L. Covert, CFO, and Joseph E. McCourt, CRO, to review these financial and operational results and financial guidance will be held at 8:30 A.M. (ET) on November 2, 2012.

The webcast may be accessed via the Internet at http://ir.lumosnetworks.com/ and the live call (“Lumos Networks Third Quarter 2012 Earnings Conference Call”) may be accessed with the following numbers:

Domestic: 1-877-317-6789
International: 1-412-317-6789
Canada: 1-866-605-3852

The conference call will be archived and available for replay through November 15, 2012 before 9:00 A.M. (ET) and may be accessed with the following numbers:

Domestic: 1-877-344-7529
International: 1-412-317-0088
Replay pass codes: Conference ID: 10019877

The webcast will also be archived and the replay may be accessed at http://ir.lumosnetworks.com/.

About Lumos Networks

Lumos Networks is a fiber-based service provider in the Mid-Atlantic region serving carrier, business and residential customers over a dense fiber network offering data, voice and IP services. With headquarters in Waynesboro, VA, Lumos Networks serves Virginia, West Virginia and portions of Pennsylvania, Kentucky, Ohio, and Maryland over a fiber network of 5,800 long haul miles. Detailed information about Lumos Networks is available at www.lumosnetworks.com.

Non-GAAP Measures

Adjusted EBITDA is defined as net income attributable to Lumos Networks before interest, income taxes, depreciation and amortization, accretion of asset retirement obligations, net income attributable to noncontrolling interests, other expenses/income, equity based compensation charges, acquisition related charges, amortization of actuarial losses on retirement plans, employee separation charges, gain or loss on settlements and gain or loss on interest rate derivatives.

Adjusted EBITDA is a non-GAAP financial performance measure. It should not be considered in isolation or as an alternative to measures determined in accordance with GAAP. Please refer to the exhibits and materials posted on the Lumos Networks website for a reconciliation of these non-GAAP financial performance measures to the most comparable measures reported in accordance with GAAP and for a discussion of the presentation, comparability and use of such financial performance measures.

SPECIAL NOTE FROM THE COMPANY REGARDING FORWARD-LOOKING STATEMENTS

Any statements contained in this presentation that are not statements of historical fact, including statements about our beliefs and expectations, are forward-looking statements and should be evaluated as such. The words “anticipates,” “believes,” “expects,” “intends,” “plans,” “estimates,” “targets,” “projects,” “should,” “may,” “will” and similar words and expressions are intended to identify forward-looking statements. Such forward-looking statements reflect, among other things, our current expectations, plans and strategies, and anticipated financial results, all of which are subject to known and unknown risks, uncertainties and factors that may cause our actual results to differ materially from those expressed or implied by these forward-looking statements. Many of these risks are beyond our ability to control or predict. Because of these risks, uncertainties and assumptions, you should not place undue reliance on these forward-looking statements. Furthermore, forward-looking statements speak only as of the date they are made. We do not undertake any obligation to update or review any forward-looking information, whether as a result of new information, future events or otherwise. Important factors with respect to any such forward-looking statements, including certain risks and uncertainties that could cause actual results to differ from those contained in the forward-looking statements, include, but are not limited to: rapid development and intense competition in the telecommunications industry; our ability to achieve benefits from our separation from NTELOS Holdings Corp; our ability to offset expected revenue declines in our Competitive business from legacy voice products and in our RLEC business related to the recent regulatory developments and carriers grooming their networks; adverse economic conditions; operating and financial restrictions imposed by our senior credit facility; our cash and capital requirements; declining prices for our services; the potential to experience a high rate of customer turnover; federal and state regulatory fees, requirements and developments; our reliance on certain suppliers and vendors; and other unforeseen difficulties that may occur. These risks and uncertainties are not intended to represent a complete list of all risks and uncertainties inherent in our business, and should be read in conjunction with the more detailed cautionary statements and risk factors included in our SEC filings, including our Annual Reports filed on Forms 10-K.

Exhibits:

  • Condensed Consolidated Balance Sheets
  • Condensed Consolidated Statements of Operations
  • Condensed Consolidated Statements of Cash Flows
  • Summary of Operating Results, Customer and Network Statistics
  • Reconciliation of Net Income Attributable to Lumos Networks Corp. to Operating Income
  • Reconciliation of Operating Income to Adjusted EBITDA
  • Business Outlook
Lumos Networks Corp.        
Condensed Consolidated Balance Sheets    
        September 30, 2012   December 31, 2011
(In thousands)
   
ASSETS
Current Assets
Cash $ 2 $ 10,547
Restricted cash 1 6,750 7,554
Accounts receivable, net 22,609 23,555
Other receivables 3,357 2,390
  Prepaid expenses and other     3,095     2,278
  Total Current Assets     35,813     46,324
 
Securities and investments 382 128
 
Property, plant and equipment, net 325,098 299,958
 
Other Assets
Goodwill 100,297 100,297
Other intangibles, net 37,679 45,696
  Deferred charges and other assets     5,167     6,197
  Total Other Assets     143,143     152,190
 
  Total Assets   $ 504,436   $ 498,600
 
 
LIABILITIES AND EQUITY
Current Liabilities
Current portion of long term debt $ 6,781 $ 2,679
Accounts payable 12,217 12,432
Dividends payable 3,006 2,980
Advance billings and customer deposits 13,210 12,623
Accrued compensation 1,958 2,832
Accrued operating taxes 4,384 2,624
  Other accrued liabilities     4,039     3,262
  Total Current Liabilities     45,595     39,432
 
Long-Term Liabilities
Long-term debt 307,597 323,897
Retirement benefits 35,066 35,728
Deferred Income taxes 50,685 41,204
Other long-term liabilities 2,574 5,028
  Income tax payable     645     484
  Total Long-term Liabilities     396,567     406,341
 
Stockholders' Equity     61,750     52,383
Noncontrolling Interests     524     444
Total Equity 62,274 52,827
 
  Total Liabilities and Equity   $ 504,436   $ 498,600
 
1   During 2010, the Company received a Federal stimulus award providing 50% funding to bring broadband services and infrastructure to Alleghany County, Virginia. The Company was required to deposit 100% of its grant ($8.1 million) into pledged accounts in advance of any reimbursements, to be drawn down ratably following reimbursement approvals.
 
Lumos Networks Corp.                
Condensed Consolidated Statements of Operations   Three months ended:   Nine months ended:
         
(In thousands, except per share amounts)   September 30, 2012   September 30, 2011   September 30, 2012   September 30, 2011
 
Operating Revenues $ 51,977 $ 51,601 $ 154,192 $ 156,307
 
Operating Expenses 1
Cost of sales and services (exclusive of items shown separately below) 20,180 19,479 59,919 58,901
Customer operations 5,885 4,661 16,446 14,778
Corporate operations 2,3 5,216 3,588 18,447 10,908
Depreciation and amortization 9,650 10,904 27,673 32,903
Accretion of asset retirement obligations 32 30 93 86
  Gain on settlements, net4     (2,335 )     -       (2,335 )     -  
  Total Operating Expenses, net     38,628       38,662       120,243       117,576  
Operating Income 13,349 12,939 33,949 38,731
 
Other Income (Expenses)
Interest expense (3,064 ) (2,559 ) (8,980 ) (8,840 )
Loss on interest rate derivatives (263 ) - (555 ) -
  Other income, net     24       66       55       73  
 
Income Before Income Tax Expense 10,046 10,446 24,469 29,964
 
Income Tax Expense     3,589       4,249       9,985       12,144  
Net Income 6,457 6,197 14,484 17,820
 
Net Income Attributable to Noncontrolling Interests (115 ) (2 ) (80 ) (87 )
                   
Net Income Attributable to Lumos Networks Corp.   $ 6,342     $ 6,195     $ 14,404     $ 17,733  
 
 
Basic and Diluted Earnings per Common Share Attributable to Lumos Networks Corp. Stockholders:
 
Income per share - basic $ 0.30 $ 0.69
Income per share - diluted $ 0.30 $ 0.67
 
Weighted average shares outstanding - basic 20,992 20,928
Weighted average shares outstanding - diluted 21,471 21,374
 
Cash Dividends Declared per Share - Common Stock $ 0.14 $ 0.42
 
1   Includes equity based compensation charges related to all of the Company's share-based awards and the Company's 401(k) matching contributions of $1.1 million and $0.8 million for the three months ended September 30, 2012 and 2011, respectively, and $2.9 million and $2.1 million for the nine months ended September 30, 2012 and 2011, respectively.
 
2 Includes retirement plan costs, including amortization of actuarial losses. During the three and nine months ended September 30, 2011, these costs were allocated to the former wireline companies (now Lumos Networks). The amount of that allocation representing amortization of actuarial losses was not material.
 
3 In the second quarter of 2012, the Company recorded charges of $2.0 million related to the recognition of employee separation benefits which were provided for in the separation agreement of an executive officer who left the Company in April 2012.
 
4 The Company recognized a net pre-tax gain of approximately $2.3 million in the third quarter of 2012 in connection with the settlement of outstanding matters related to a prior acquisition and the settlement of an outstanding lawsuit.
 
Lumos Networks Corp.        
Condensed Consolidated Statements of Cash Flows   Nine months ended:
   
(In thousands)   September 30, 2012   September 30, 2011
 
Cash flows from operating activities
Net income $ 14,484 $ 17,820
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 19,323 21,046
Amortization 8,350 11,857
Accretion of asset retirement obligations 93 86
Deferred income taxes 9,122 7,938
Loss on interest rate swap derivatives 555 -
Equity-based compensation expense 2,887 2,146
Amortization of loan origination costs 606 -
Gain on settlement (3,035 ) -
Retirement benefits and other 2,774 (2,593 )
Changes in assets and liabilities from operations:
Decrease in accounts receivable 897 403
Increase in other current assets (1,758 ) (187 )
Changes in income taxes 137 (31 )
Increase (decrease) in accounts payable 254 (1,453 )
Increase in other current liabilities 2,167 1,617
Retirement benefit contributions and distributions     (2,654 )     -  
Net cash provided by operating activities     54,202       58,649  
 
Cash flows from investing activities
Purchases of property, plant and equipment (43,925 ) (48,814 )
Return of investment in restricted cash 804 -
Cash reimbursement received from government grant 804 -
Purchase of tradename asset (333 ) -
Other     (868 )     (1,293 )
Net cash used in investing activities     (43,518 )     (50,107 )
 
Cash flows from financing activities
Borrowings from NTELOS Inc. net - 6,401
Repayments on senior secured term loans (1,500 ) -
Repayments on revolving credit facility, net (10,283 ) -
Cash dividends paid on common stock (8,945 ) -
Dividends paid to NTELOS Inc. - (14,145 )
Payments under capital lease obligations (604 ) (839 )
Other     103       -  
Net cash used in financing activities     (21,229 )     (8,583 )
Decrease in cash (10,545 ) (41 )
Cash:
Beginning of period     10,547       489  
 
End of period   $ 2     $ 448  
 
Lumos Networks Corp.                              
Operating Results, Customer and Network Statistics                            
(Dollars in thousands)   Three months ended:   Nine months ended:
          September 30, 2012   June 30, 2012   March 31, 2012   December 31, 2011   September 30, 2011   September 30, 2012   September 30, 2011
Competitive Revenue and Adjusted EBITDA            
  Revenue
  Enterprise Data 9,448 9,040 8,666 8,438 8,449 27,154 24,694
Carrier Data 11,955 11,196 10,937 10,506 9,573 34,088 27,143
IP Services 4,718   4,684   4,587   4,515   4,364   13,989   12,886  
Total Strategic Data 26,121 24,920 24,190 23,459 22,386 75,231 64,723
Legacy Voice 11,244 11,509 12,010 12,825 13,375 34,763 41,589
Network Access 2,413     2,540     2,715     2,758     2,733   7,668     9,044  
Total Revenue 39,778     38,969     38,915     39,042     38,494   117,662     115,356  
                       
Adjusted EBITDA1 14,440 14,078 14,548 15,034 15,730 43,066 45,678
Adjusted EBITDA % 36.3 %   36.1 %   37.4 %   38.5 %   40.9 % 36.6 %   39.6 %
       
RLEC Revenue and Adjusted EBITDA
Revenue
Legacy Voice 4,874 4,710 4,756 4,937 4,940 14,340 15,102
Network Access 7,325     7,125     7,740     7,129     8,167   22,190     25,849  
Total Revenue 12,199     11,835     12,496     12,066     13,107   36,530     40,951  
                       
Adjusted EBITDA1 7,841 7,028 7,743 7,970 8,917 22,612 28,258
Adjusted EBITDA % 64.3 %   59.4 %   62.0 %   66.1 %   68.0 % 61.9 %   69.0 %
       
Consolidated  
Revenue
Strategic Data 26,121 24,920 24,190 23,459 22,386 75,231 64,723
Legacy Voice 16,118 16,219 16,766 17,762 18,315 49,103 56,691
Network Access 9,738   9,665   10,455   9,887   10,900   29,858   34,893  
Total Revenue 51,977 50,804 51,411 51,108 51,601 154,192 156,307
Adjusted EBITDA1 22,281 21,106 22,291 23,004 24,647 65,678 73,936
Adjusted EBITDA % 42.9 % 41.5 % 43.4 % 45.0 % 47.8 % 42.6 % 47.3 %
Capital Expenditures 14,937 11,619 17,369 12,722 15,013 43,925 48,814
Adjusted EBITDA less Capital Expenditures 7,344 9,487 4,922 10,282 9,634 21,753 25,122
       
Customer and Network Statistics  
Customer Statistics
Competitive voice connections 2 112,709 114,930 117,965 122,046 125,500 112,709 125,500
RLEC Broadband Customers 3 15,199 15,258 15,100 14,916 14,947 15,199 14,947
Total Broadband Connections 3 40,401 37,361 35,974 35,707 34,747 40,401 34,747
Video Subscribers 4,390 4,192 4,019 3,734 3,439 4,390 3,439
 
Network Statistics
On-Network Buildings 4 1,150 1,091 1,066 1,051 949 1,150 949
Fiber-Fed Cell Sites 4 261 178 155 148 132 261 132
 
RLEC Total Access Lines 31,708 32,272 32,676 33,193 33,840 31,708 33,840
 
1   Adjusted EBITDA is a non-GAAP measure. See definition on page 2 of this earnings release.
 
2 Includes customer Primary Rate Interface (PRI) line equivalents at 23 lines per PRI. Excludes intercompany PRI lines.
 
3 Includes customers or customer equivalents for DSL, dedicated Internet access, wireless portable broadband, broadband over fiber and metro Ethernet. All revenues from broadband products, including RLEC broadband, are recorded in the operating revenues of the Competitive segment.
 
4 Includes statistics for legacy markets only, excluding FiberNet, through September 30, 2011.
 
Note: Certain amounts have been reclassified to agree with current year presentation.
 
Lumos Networks Corp.                
Reconciliation of Net Income Attributable to Lumos Networks Corp. to Operating Income    
(In thousands)                
    Three months ended:   Nine months ended:
      September 30, 2012   September 30, 2011   September 30, 2012   September 30, 2011
Net income attributable to Lumos Networks Corp. $ 6,342   $ 6,195 $ 14,404 $ 17,733
Net income attributable to noncontrolling interests     115       2       80       87  
Net income 6,457 6,197 14,484 17,820
 
Interest expense 3,064 2,559 8,980 8,840
Loss on interest rate derivatives 263 - 555 -
Income tax expense 3,589 4,249 9,985 12,144
Other income, net     (24 )     (66 )     (55 )     (73 )
Operating income   $ 13,349     $ 12,939     $ 33,949     $ 38,731  
 
Competitive 8,183 7,870 20,829 21,937
RLEC     5,166       5,069       13,120       16,794  
Operating income   $ 13,349     $ 12,939     $ 33,949     $ 38,731  
 
Lumos Networks Corp.                        
Reconciliation of Operating Income to Adjusted EBITDA            
(Dollars in thousands) 2012 2011
    Competitive   RLEC   Total Competitive   RLEC   Total
 
For The Three Months Ended September 30
Operating Income $ 8,183 $ 5,166 $ 13,349 $ 7,870 $ 5,069 $ 12,939
Depreciation and amortization and accretion of asset retirement obligations   6,828       2,854       9,682     7,398       3,536       10,934  
Sub-total:   15,011       8,020       23,031     15,268       8,605       23,873  
Amortization of actuarial losses 335 111 446 - - -
Equity based compensation 814 285 1,099 472 312 784
Acquisition related charges 1 - - - (10 ) - (10 )
Employee separation charges2 30 10 40 - - -
Gain on settlements, net3   (1,750 )     (585 )     (2,335 )   -       -       -  
Adjusted EBITDA $ 14,440     $ 7,841     $ 22,281   $ 15,730     $ 8,917     $ 24,647  
Adjusted EBITDA Margin 36.3 % 64.3 % 42.9 % 40.9 % 68.0 % 47.8 %
 
For The Nine Months Ended September 30
Operating Income $ 20,829 $ 13,120 $ 33,949 $ 21,937 $ 16,794 $ 38,731
Depreciation and amortization and accretion of asset retirement obligations   19,293       8,473       27,766     22,383       10,606       32,989  
Sub-total:   40,122       21,593       61,715     44,320       27,400       71,720  
Amortization of actuarial losses 1,002 334 1,336 - - -
Equity based compensation 2,136 751 2,887 1,288 858 2,146
Acquisition related charges 1 - - - 70 - 70
Employee separation charges2 1,556 519 2,075 - - -
Gain on settlements, net3   (1,750 )     (585 )     (2,335 )   -       -       -  
Adjusted EBITDA $ 43,066     $ 22,612     $ 65,678   $ 45,678     $ 28,258     $ 73,936  
Adjusted EBITDA Margin 36.6 % 61.9 % 42.6 % 39.6 % 69.0 % 47.3 %
 
1   Acquisition related charges related to the acquisition of FiberNet that closed on December 1, 2010.
 
2 In the second quarter of 2012, the Company recorded charges of $2.0 million related to the recognition of employee separation benefits which were provided for in the separation agreement of an executive officer who left the Company in April 2012.
 
3 The Company recognized a net pre-tax gain of approximately $2.3 million in the third quarter of 2012 in connection with the settlement of outstanding matters related to a prior acquisition and the settlement of an outstanding lawsuit.
 
Lumos Networks Corp.                              
Business Outlook 1 (as of November 1, 2012)                              
(In millions)     2012 Guidance 1
    Fourth Quarter 2012         2012 Annual
Operating Revenues Approximately   $ 52 Approximately   $ 206
   
Adjusted EBITDA Approximately $ 22 Approximately $ 88
 
Capital Expenditures Approximately $ 60
 
 
Reconciliation of Operating Income to Adjusted EBITDA
Operating Income Approximately $ 10 Approximately $ 44
Depreciation and amortization 9 38
Equity based compensation charges 3 4
Amortization of actuarial losses         -         2
Adjusted EBITDA Approximately   $ 22 Approximately   $ 88
 
 
Lumos Networks Corp.                              
Projected Cash Flows for the Year 2012 1                              
(Dollars in millions)
 
Adjusted EBITDA $ 88
Less: Capital expenditures   (60 )
28
Less:
Cash interest, net of interest income (12 )
Cash taxes   (2 )
Cash flows, net, before dividends and debt payments 14
Less:
Cash dividends: $0.14 per share per quarter 2 (12 )
Scheduled 2012 debt payments (3 )
Plus:
Other, net 3   1  
Projected Cash Flows, net 4 $ -
 
1   These estimates are based on management's current expectations. These estimates are forward-looking and actual results may differ materially. Please see “Special Note from the Company Regarding Forward-Looking Statements" in the Lumos Networks Corp. third quarter 2012 earnings release dated November 1, 2012.
 
2 Represents the most recent cash dividend paid, annualized. Dividend payments are reviewed quarterly by the board of directors and are subject to change.
 
3 Includes cash reimbursements received from Federal stimulus awards, which provide 50% funding to bring broadband services and infrastructure to Alleghany County, Virginia partially offset by one-time severance benefits, which were provided for in the employment agreement of an executive officer, and a one-time net cash outflow related to the settlement of an outstanding lawsuit and the settlement of all outstanding matters related to a prior acquisition.
 
4 Before discretionary payments to the credit facility Revolver loan and changes to working capital.

Lumos Networks Corp.
Hal Covert
Chief Financial Officer
540-946-8174
coverth@lumosnet.com

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