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Press Release -- August 2nd, 2012
Source: Lumos Networks
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Lumos Networks Corp. Reports Second Quarter 2012 Financial Results

Revenue and Adjusted EBITDA in Line with Guidance for the Quarter

Strategic Data Revenue Up 16% in the first half of 2012

Cash Dividend of $0.14 per Share Declared

WAYNESBORO, Va.–(BUSINESS WIRE)– Lumos Networks Corp. (“Lumos Networks” or “the Company”) (NASDAQ:LMOS, news, filings), a fiber-based service provider of voice, data and IP-based telecommunication services in the Mid-Atlantic region, today announced financial results for its second quarter 2012.

Total revenue for second quarter 2012 was $50.8 million, compared to $52.1 million for second quarter 2011 and to $51.4 million in first quarter 2012. Total adjusted EBITDA was $21.1 million for second quarter 2012, compared to $25.0 million in second quarter 2011 and to $22.3 million in first quarter 2012.

“Revenue from our strategic data products continued to grow sequentially during the second quarter of 2012 and is on track for annual year-over-year revenue growth in excess of 15%,” said Tim Biltz, CEO and President of Lumos Networks. “As we exit 2012, we believe that our strategic data revenue growth momentum will position the Company to achieve overall annual year-over-year revenue growth starting in 2013,” concluded Biltz.

Highlights

  • For the first half of 2012, revenues from the Company’s strategic data products grew 16% on a comparable basis with the first half of 2011.
  • Revenues from all four of the Company’s strategic data products grew sequentially during the second quarter, with an overall aggregate sequential growth rate of approximately 3%. These product lines include: enterprise data, carrier class data, fiber-to-the-cell-tower (“FTTC”) and residential and small business.
  • During the second quarter of 2012, the Company continued to achieve its targeted installation goals and is on track to double the number of FTTC installations from approximately 150 at the end of 2011 to approximately 300 at the end of 2012.
  • For 2012, approximately 75% of the Company’s total capital expenditures are planned for success-based strategic data projects as compared to less than 50% in 2011. Through the first half of 2012, the Company is on track to achieve this goal.
  • On August 2, 2012, the Board of Directors of Lumos Networks Corp. declared a quarterly cash dividend on its common stock in the amount of $0.14 per share to be paid on October 12, 2012 to stockholders of record on September 14, 2012.

Business Outlook

The Company reaffirms its annual 2012 guidance for revenue and adjusted EBITDA, with total revenue expected to be between $200 million and $205 million and adjusted EBITDA expected to be between $85 million and $90 million. Capital expenditures for 2012 are currently expected to be at approximately $60 million, the upper end of the previous guidance range.

For third quarter 2012, total revenue is expected to be between $50 million and $51 million and adjusted EBITDA to be between $21 million and $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 5:00 P.M. (ET) today, August 2, 2012.

The webcast may be accessed via the Internet at http://ir.lumosnetworks.com/ and the live call (“Lumos Networks Second 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 August 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: 10016981
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 route-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 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
June 30, 2012 December 31, 2011
(In thousands)
ASSETS
Current Assets
Cash $ 2,776 $ 10,547
Restricted cash 1 6,750 7,554
Accounts receivable, net 22,221 23,555
Other receivables 3,084 2,390
Prepaid expenses and other 3,149 2,278
37,980 46,324
Securities and investments 301 128
Property, plant and equipment, net 316,514 299,958
Other Assets
Goodwill 100,297 100,297
Other intangibles, net 40,463 45,696
Deferred charges and other assets 5,494 6,197
146,254 152,190
Total Assets $ 501,049 $ 498,600
LIABILITIES AND EQUITY
Current Liabilities
Current portion of long term debt $ 5,452 $ 2,679
Accounts payable 10,412 12,432
Dividends payable 3,000 2,980
Advance billings and customer deposits 12,846 12,623
Accrued compensation 1,972 2,832
Accrued operating taxes 3,775 2,624
Other accrued liabilities 4,762 3,262
42,219 39,432
Long-Term Liabilities
Long-term debt 313,380 323,897
Retirement benefits 34,714 35,728
Deferred Income taxes 47,589 41,204
Other long-term liabilities 5,524 5,028
Income tax payable 531 484
401,738 406,341
Stockholders’ Equity 56,683 52,383
Noncontrolling Interests 409 444
57,092 52,827
Total Liabilities and Equity $ 501,049 $ 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: Six months ended:
(In thousands, except per share amounts) June 30, 2012 June 30, 2011 June 30, 2012 June 30, 2011
Operating Revenues $ 50,803 $ 52,062 $ 102,215 $ 104,706
Operating Expenses 1
Cost of sales and services (exclusive of items shown separately below) 20,362 19,357 39,739 39,422
Customer operations 5,431 4,957 10,561 10,117
Corporate operations 2,3 7,161 3,436 13,231 7,320
Depreciation and amortization 8,803 10,997 18,023 21,999
Accretion of asset retirement obligations 31 28 61 56
41,788 38,775 81,615 78,914
Operating Income 9,015 13,287 20,600 25,792
Other Income (Expenses)
Interest expense (2,929 ) (2,563 ) (5,916 ) (6,281 )
Loss on interest rate derivatives (438 ) (292 )
Other income (expense), net 23 (7 ) 31 7
5,671 10,717 14,423 19,518
Income Tax Expense 2,953 4,157 6,396 7,895
Net Income 2,718 6,560 8,027 11,623
Net (Income) Loss Attributable to Noncontrolling Interests 57 (37 ) 35 (85 )
Net Income Attributable to Lumos Networks Corp. $ 2,775 $ 6,523 $ 8,062 $ 11,538
Basic and Diluted Earnings per Common Share Attributable to Lumos Networks Corp. Stockholders:
Income per share – basic $ 0.13 $ 0.39
Income per share – diluted $ 0.13 $ 0.38
Weighted average shares outstanding – basic 20,942 20,896
Weighted average shares outstanding – diluted 21,398 21,332
Cash Dividends Declared per Share – Common Stock $ 0.14 $ 0.28
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 $0.8 million and $0.7 million for the three months ended June 30, 2012 and 2011, respectively, and $1.8 million and $1.4 million for the six months ended June 30, 2012 and 2011, respectively.
2 Includes retirement plan costs, including amortization of actuarial losses. During the three and six months ended June 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.
Lumos Networks Corp.
Condensed Consolidated Statements of Cash Flows Six months ended:
(In thousands) June 30, 2012 June 30, 2011
Cash flows from operating activities
Net income $ 8,027 $ 11,623
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 12,457 13,900
Amortization 5,566 8,099
Accretion of asset retirement obligations 61 56
Deferred income taxes 6,086 7,420
Loss on interest rate swap derivatives 292
Equity-based compensation expense 1,788 1,362
Amortization of loan origination costs 403
Retirement benefits and other 1,903 (1,013 )
Changes in assets and liabilities from operations:
Decrease in accounts receivable 1,260 7
Increase in other current assets (1,557 ) (180 )
Changes in income taxes 28 (26 )
Decrease in accounts payable (1,301 ) (3,774 )
Increase in other current liabilities 1,982 1,012
Retirement benefit contributions and distributions (2,415 )
Net cash provided by operating activities 34,580 38,486
Cash flows from investing activities
Purchases of property, plant and equipment (28,988 ) (33,801 )
Return of investment in restricted cash 804
Cash reimbursement received from government grant 804
Purchase of tradename asset (333 )
Other (873 ) (768 )
Net cash used in investing activities (28,586 ) (34,569 )
Cash flows from financing activities
Borrowings from NTELOS Inc. net 4,318
Repayments on senior secured term loans (1,000 )
Repayments on revolving credit facility, net (6,500 )
Cash dividends paid on common stock (5,945 )
Dividends paid to NTELOS Inc. (7,585 )
Payments under capital lease obligations (404 ) (670 )
Other 84
Net cash used in financing activities (13,765 ) (3,937 )
Decrease in cash (7,771 ) (20 )
Cash:
Beginning of period 10,547 489
End of period $ 2,776 $ 469
Lumos Networks Corp.
Operating Results, Customer and Network Statistics
(Dollars in thousands) Three months ended: Six months ended:
June 30, 2012 March 31, 2012 December 31, 2011 September 30, 2011 June 30, 2011 June 30, 2012 June 30, 2011
Competitive Revenue and Adjusted EBITDA
Revenue
Enterprise Data 9,131 8,667 8,687 8,367 8,060 17,798 16,245
Wholesale Data 11,105 10,937 10,506 9,574 9,221 22,042 17,570
RSMB Data 4,683 4,587 4,515 4,364 4,271 9,270 8,522
Total Data and Wholesale 24,919 24,191 23,708 22,305 21,552 49,110 42,337
Competitive Voice 11,509 12,010 12,989 13,318 13,811 23,519 28,213
Other 2,540 2,715 2,704 2,871 3,110 5,255 6,312
Total Revenue 38,968 38,916 39,401 38,494 38,473 77,884 76,862
Adjusted EBITDA1 14,078 14,548 15,034 15,730 15,471 28,626 29,948
Adjusted EBITDA % 36.1 % 37.4 % 38.2 % 40.9 % 40.2 % 36.8 % 39.0 %
RLEC Revenue and Adjusted EBITDA
Revenue
Local 3,112 3,131 3,056 2,890 2,876 6,243 5,762
Access 7,126 7,740 6,846 7,880 8,587 14,866 17,683
Other 1,597 1,625 1,804 2,337 2,126 3,222 4,399
Total Revenue 11,835 12,496 11,706 13,107 13,589 24,331 27,844
Adjusted EBITDA1 7,028 7,743 7,970 8,917 9,554 14,771 19,341
Adjusted EBITDA % 59.4 % 62.0 % 68.1 % 68.0 % 70.3 % 60.7 % 69.5 %
Consolidated
Revenue
Strategic Data 24,919 24,191 23,708 22,305 21,552 49,110 42,337
Legacy Voice 16,218 16,766 17,849 18,545 18,813 32,984 38,374
Access 9,666 10,455 9,550 10,751 11,697 20,121 23,995
Total Revenue 50,803 51,412 51,107 51,601 52,062 102,215 104,706
Adjusted EBITDA1 21,106 22,291 23,004 24,647 25,025 43,397 49,289
Adjusted EBITDA % 41.5 % 43.4 % 45.0 % 47.8 % 48.1 % 42.5 % 47.1 %
Capital Expenditures 11,619 17,369 12,722 15,013 17,552 28,988 33,801
Adjusted EBITDA less Capital Expenditures 9,487 4,922 10,282 9,634 7,473 14,409 15,488
Customer and Network Statistics
Customer Statistics
Competitive voice connections 2 114,930 117,965 122,046 125,500 127,561 114,930 127,561
RLEC Broadband Customers 3 15,258 15,100 14,916 14,947 14,542 15,258 14,542
Total Broadband Connections 3 37,361 35,974 35,707 34,747 33,774 37,361 33,774
Video Subscribers 4,192 4,019 3,734 3,439 3,152 4,192 3,152
Network Statistics
On-Network Buildings 4 1,091 1,066 1,051 949 903 1,091 903
Fiber-Fed Cell Sites 4 178 155 148 132 109 178 109
RLEC Total Access Lines 32,272 32,676 33,193 33,840 34,489 32,272 34,489
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: Six months ended:
June 30, 2012 June 30, 2011 June 30, 2012 June 30, 2011
Net income attributable to Lumos Networks Corp. $ 2,775 $ 6,523 $ 8,062 $ 11,538
Net (loss) income attributable to noncontrolling interests (57 ) 37 (35 ) 85
Net income 2,718 6,560 8,027 11,623
Interest expense 2,929 2,563 5,916 6,281
Loss on interest rate derivatives 438 292
Income tax expense 2,953 4,157 6,396 7,895
Other (income) expense, net (23 ) 7 (31 ) (7 )
Operating income $ 9,015 $ 13,287 $ 20,600 $ 25,792
Competitive 5,455 7,502 12,646 14,067
RLEC 3,560 5,785 7,954 11,725
Operating income $ 9,015 $ 13,287 $ 20,600 $ 25,792
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 June 30
Operating Income $ 5,455 $ 3,560 $ 9,015 $ 7,502 $ 5,785 $ 13,287
Depreciation and amortization and accretion of asset retirement obligations 6,190 2,644 8,834 7,519 3,506 11,025
Sub-total: 11,645 6,204 17,849 15,021 9,291 24,312
Amortization of actuarial losses 333 112 445
Equity based compensation 574 203 777 411 263 674
Acquisition related charges 1 39 39
Employee separation charges2 1,526 509 2,035
Adjusted EBITDA $ 14,078 $ 7,028 $ 21,106 $ 15,471 $ 9,554 $ 25,025
Adjusted EBITDA Margin 36.1 % 59.4 % 41.5 % 40.2 % 70.3 % 48.1 %
For The Six Months Ended June 30
Operating Income $ 12,646 $ 7,954 $ 20,600 $ 14,067 $ 11,725 $ 25,792
Depreciation and amortization and accretion of asset retirement obligations 12,465 5,619 18,084 14,985 7,070 22,055
Sub-total: 25,111 13,573 38,684 29,052 18,795 47,847
Amortization of actuarial losses 667 223 890
Equity based compensation 1,322 466 1,788 816 546 1,362
Acquisition related charges 1 80 80
Employee separation charges2 1,526 509 2,035
Adjusted EBITDA $ 28,626 $ 14,771 $ 43,397 $ 29,948 $ 19,341 $ 49,289
Adjusted EBITDA Margin 36.8 % 60.7 % 42.5 % 39.0 % 69.5 % 47.1 %
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.
Lumos Networks Corp.
Business Outlook 1 (as of August 2, 2012)
(Dollars in millions) 2012 Guidance 1
Third Quarter 2012 2012 Annual
Operating Revenues $ 50 to $ 51 $ 200 to $ 205
Adjusted EBITDA $ 21 to $ 22 $ 85 to $ 90
Capital Expenditures $ 60
Reconciliation of Operating Income to Adjusted EBITDA
Operating Income $ 9 to $ 10 $ 42 to $ 44
Depreciation and amortization 9 38 to 40
Equity based compensation charges 3 5 to 6
Adjusted EBITDA $ 21 to $ 22 $ 85 to $ 90
Lumos Networks Corp.
Projected Cash Flows for the Year 2012 1
(Dollars in millions)
Adjusted EBITDA 2 $ 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 3 (12 )
Scheduled 2012 debt payments (2 )
Plus:
Other, net 4 3
Projected Cash Flows, net 5 $ 3
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. second quarter 2012 earnings release dated August 2, 2012.
2 Based on the mid-point of the above guidance range.
3 Represents the most recent cash dividend paid, annualized. Dividend payments are reviewed quarterly by the board of directors and are subject to change.
4 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.
5 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

Source: Lumos Networks Corp.

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