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Press Release -- May 5th, 2015
Source: Lumos Networks
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Lumos Networks Corp. Reports First Quarter 2015 Results

Delivers 1Q15 Revenue of $50.5 million and Adjusted EBITDA of $22.5 Million

Reiterates 2015 Revenue and Adjusted EBITDA Guidance of Approximately $202 Million and Approximately $92 Million, respectively

Maintains Target of 2015 Data Revenue of $116 Million, up 9% Year-over-Year

1Q15 Fiber to the Cell (“FTTC”) Revenue Reaches $6.3 million, up 14% sequentially

Delivers 4% Year-over-Year Enterprise Data Revenue growth

WAYNESBORO, Va.–(BUSINESS WIRE)–

Lumos Networks Corp. (“Lumos Networks”, “Lumos” or the “Company”) (NASDAQ:LMOS, news, filings), a fiber-based service provider of data, voice and IP-based telecommunication services in the Mid-Atlantic region, today announced financial results for the first quarter of 2015.

Total revenue in the first quarter of 2015 was $50.5 million, up nearly 1% from the prior year period while total Adjusted EBITDA was over $22.5 million, up slightly on a sequential basis and essentially flat from the prior year period. Total Data segment revenue in the first quarter of 2015 was $27.8 million, up over 6% from the prior year period and up approximately 2% sequentially. Data revenue constituted 55% of total revenue up from 52% in the prior year period.

“Our first quarter results demonstrate that our transformation into a fiber bandwidth infrastructure provider is taking shape,” said Timothy G. Biltz, President and CEO of Lumos Networks. “Our data revenue growth accelerated on a year-over-year basis to over 6%. We expect this momentum to continue through the rest of the year and we maintain our target for $116 million in total data revenue in 2015, up 9% from 2014. This strength, combined with better than expected trends within our R&SB segment, lead us to reiterate our 2015 revenue and Adjusted EBITDA guidance of approximately $202 million and approximately $92 million, respectively.”

Mr. Biltz continued, “Our FTTC segment surpassed $6 million in quarterly revenue for the first time and we are on track to achieve our target of $29 million in FTTC revenue in 2015, up 45% from 2014. Additionally, our Enterprise Data segment achieved over $11 million in quarterly revenue for the first time, growing over 4% from the prior year period. Better R&SB cash flow performance underscores our efforts to maximize cash flow from our legacy businesses to fund our fiber expansion.”

“We now expect to have the vast majority of our 665-mile network expansion in Richmond and into Hampton Roads, Petersburg and Norfolk completed by the end of 2015,” Mr. Biltz said. “This acceleration of our build completion gives us further confidence that we will be able to generate $4-5 million in FTTC revenue from this project in 2016 and will provide the opportunity to begin pursuing Enterprise and Carrier End User opportunities on a fully lit network one quarter sooner than expected. We believe that this network expansion will increase our Enterprise addressable market by $135 million, or approximately 60%, versus our current fiber footprint.”

Robert E. Guth, Chairman of the Board of Lumos Networks noted, “On behalf of the Board of Directors, I am pleased to announce the extension of Timothy Biltz’s CEO employment contract for an additional two years, through April of 2018. This extension is well-earned by Tim and will provide for great continuity as he and the entire Lumos team continue to grow and transform the business.”

First Quarter 2015 Highlights

  • The Company ended 1Q15 with 907 unique FTTC sites, up 49 sequentially and an increase of 274 from the prior year. Additionally, Lumos ended the first quarter with 1,236 total FTTC connections, up 50% from the prior year. The Company continues to target 1,300 FTTC connections by the end of 2Q15 and 1,700 by the end of 2015.
  • In the first quarter of 2015, the Company renewed Enterprise accounts worth $161,000 in monthly recurring charges (“MRC”) and the Company reiterates its target to renew $725,000 in MRC in 2015, up 17% from the $619,000 in 2014. In the first half of 2015, the Company is targeting to renew Enterprise accounts worth over $17 million in total contract value, up more than 50% from the first half of 2014.
  • Lumos Networks added 133 route miles of fiber, all of which are Company-owned, with an average strand count of over 68 strands. Additionally, Lumos added 53 Enterprise lit buildings in the quarter, a pace approximately 50% higher than the average over the previous three years and a factor in Lumos delivering accelerating revenue trends in its Enterprise segment.

Business Outlook

For the full year 2015, the Company reiterates its financial guidance for revenue of approximately $202 million, Adjusted EBITDA of approximately $92 million and capital expenditures of approximately $112 million.

Please see the schedules accompanying this release for additional financial guidance, including reconciliations of non-GAAP measures to GAAP results.

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, Johan Broekhuysen, CFO, and Will Davis, Vice President of Investor Relations and Chief of Staff, to review these financial and operational results and financial guidance will be held at 8:30 A.M. (ET) on May 6, 2015.

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

Domestic: 1-877-510-3772
International: 1-412-902-4135
Canada: 1-855-669-9657

The conference call will be archived and available for replay through May 20, 2015 and may be accessed with the following numbers:

Domestic: 1-877-344-7529
International: 1-412-317-0088
Canada: 1-855-669-9658
Replay pass codes: Conference ID: 10063676
The webcast will also be archived and the replay may be accessed at http://ir.lumosnetworks.com/.

About Lumos Networks

Lumos Networks is a leading fiber-based service provider in the Mid-Atlantic region serving Carrier, Enterprise and Data Center customers, offering end to end connectivity in 23 markets in Virginia, Pennsylvania, West Virginia, Maryland, Ohio and Kentucky. With a fiber network of 7,955 fiber route miles and over 363,000 total fiber strand miles, Lumos Networks connects 907 unique Fiber to the Cell sites, 1,236 total FTTC connections, 31 data centers, 1,530 on-net buildings and over 2,460 total on-net locations. In 2014, Lumos Networks generated over $106 million in data revenue over our fiber network. Detailed information about Lumos Networks is available atwww.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 or loss attributable to non-controlling interests, other income or expenses, equity-based compensation charges, acquisition-related charges, amortization of actuarial losses on retirement plans, employee separation charges, restructuring-related charges, gain or loss on settlements and gain or loss on interest rate swap derivatives. Adjusted EBITDA margin is calculated as the ratio of Adjusted EBITDA, as defined, to operating revenues.

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 schedules herein and our SEC filings 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 and high speed data transport industry; our ability to offset expected revenue declines in legacy voice and access products related to the recent regulatory actions, wireless substitution, technology changes and other factors; our ability to effectively allocate capital and implement our “edge-out” expansion plans in a timely manner; our ability to complete customer installations in a timely manner; adverse economic conditions; operating and financial restrictions imposed by our senior credit facility; our cash and capital requirements; declining prices for our services; our ability to maintain and enhance our network; 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 Report filed on Form 10-K.

Exhibits:

  • Condensed Consolidated Balance Sheets
  • Condensed Consolidated Statements of Income
  • 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
March 31, 2015 December 31, 2014
(In thousands)
ASSETS
Current Assets
Cash and cash equivalents $ 12,654 $ 14,140
Marketable securities 29,433 16,870
Restricted cash 1 3,154 4,208
Accounts receivable, net 22,409 22,925
Other receivables 1,289 2,113
Income tax receivable 221 172
Prepaid expenses and other 4,719 4,321
Deferred income taxes 8,350 5,601
Total Current Assets 82,229 70,350
Securities and investments 1,021 914
Property, plant and equipment, net 444,660 429,451
Other Assets
Goodwill 100,297 100,297
Other intangibles, net 13,738 15,884
Deferred charges and other assets 6,107 5,718
Total Other Assets 120,142 121,899
Total Assets $ 648,052 $ 622,614
LIABILITIES AND EQUITY
Current Liabilities
Current portion of long-term debt $ 10,506 $ 10,227
Accounts payable 14,520 20,257
Dividends payable – 3,152
Advance billings and customer deposits 13,733 14,029
Accrued compensation 1,197 1,516
Accrued operating taxes 5,257 4,618
Other accrued liabilities 4,162 4,223
Total Current Liabilities 49,375 58,022
Long-Term Liabilities
Long-term debt, excluding current portion 388,872 363,156
Retirement benefits 17,812 18,257
Deferred income taxes 92,663 87,864
Other long-term liabilities 1,728 1,746
Income tax payable 93 110
Total Long-term Liabilities 501,168 471,133
Stockholders’ Equity 96,693 92,677
Noncontrolling Interests 816 782
Total Equity 97,509 93,459
Total Liabilities and Equity $ 648,052 $ 622,614
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 Income Three months ended March 31,
(In thousands, except per share amounts) 2015 2014
Operating Revenues $ 50,495 $ 50,090
Operating Expenses
Network access costs 9,712 10,714
Selling, general and administrative 1 19,834 17,932
Depreciation and amortization 11,868 10,659
Accretion of asset retirement obligations 34 27
Restructuring charges 633 –
Total Operating Expenses 42,081 39,332
Operating Income 8,414 10,758
Other Income (Expenses)
Interest expense (3,486 ) (3,974 )
Gain on interest rate swap derivatives 82 109
Other (expenses) income, net (243 ) 180
Income Before Income Tax Expense 4,767 7,073
Income Tax Expense 2,009 2,978
Net Income 2,758 4,095
Net Income Attributable to Noncontrolling Interests (34 ) (33 )
Net Income Attributable to Lumos Networks Corp. $ 2,724 $ 4,062
Basic and Diluted Earnings per Common Share Attributable to Lumos Networks Corp. Stockholders:
Earnings per share – basic and diluted $ 0.12 $ 0.18
Cash Dividends Declared per Share – Common Stock $ – $ 0.14
1 Includes equity-based compensation expense related to all of the Company’s share-based awards and the Company’s 401(k) matching contributions of $1.2 million and $0.8 million for the three months ended March 31, 2015 and 2014, respectively.
Lumos Networks Corp.
Condensed Consolidated Statements of Cash Flows Three Months Ended March 31,
(In thousands) 2015 2014
Cash Flows from Operating Activities:
Net income $ 2,758 $ 4,095
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 9,722 8,364
Amortization 2,146 2,295
Accretion of asset retirement obligations 34 27
Deferred income taxes 1,916 2,803
Gain on interest rate swap derivatives (82 ) (109 )
Equity-based compensation expense 1,225 834
Amortization of debt issuance costs 413 371
Retirement benefits, net of cash contributions and distributions (108 ) (475 )
Excess tax benefits from share-based compensation – (148 )
Other 158 135
Changes in operating assets and liabilities, net (1,082 ) 1,575
Net Cash Provided by Operating Activities 17,100 19,767
Cash Flows from Investing Activities:
Purchases of property, plant and equipment (29,224 ) (18,117 )
Broadband network expansion funded by stimulus grant (649 ) 196
Purchases of available-for-sale marketable securities (22,853 ) (7,003 )
Proceeds from sale or maturity of available-for-sale marketable securities 10,220 7,804
Change in restricted cash 1,054 –
Cash reimbursement received from broadband stimulus grant 1,054 –
Net Cash Used in Investing Activities (40,398 ) (17,120 )
Cash Flows from Financing Activities:
Proceeds from issuance of long-term debt 28,000 –
Payment of debt issuance costs (861 ) –
Principal payments on senior secured term loans (1,938 ) (688 )
Cash dividends paid on common stock (3,152 ) (3,091 )
Principal payments under capital lease obligations (98 ) (112 )
Proceeds from stock option exercises and employee stock purchase plan 17 20
Excess tax benefits from share-based compensation – 148
Other (156 ) (21 )
Net Cash Provided by (Used in) Financing Activities 21,812 (3,744 )
Decrease in cash and cash equivalents (1,486 ) (1,097 )
Cash and cash equivalents:
Beginning of Period 14,140 14,114
End of Period $ 12,654 $ 13,017
Lumos Networks Corp.
Operating Results, Customer and Network Statistics
(Dollars in thousands) Three months ended:
March 31, 2015 December 31, 2014 September 30, 2014 June 30, 2014 March 31, 2014
Revenue, Gross Margin and Adjusted EBITDA
Revenue
Enterprise Data 11,027 10,833 10,470 10,445 10,586
Transport 10,473 10,962 11,279 11,225 10,907
FTTC 6,267 5,515 4,739 5,037 4,644
Total Data 27,767 27,310 26,488 26,707 26,137
Residential and Small Business 17,265 17,423 17,668 18,290 18,647
RLEC Access 5,463 5,952 6,360 5,168 5,306
Total Revenue 50,495 50,685 50,516 50,165 50,090
Gross Margin
Data 86.9 % 85.5 % 85.1 % 85.3 % 84.0 %
Residential and Small Business 64.9 % 67.0 % 64.3 % 65.7 % 64.9 %
Adjusted EBITDA1
Data 12,367 12,629 12,984 13,395 12,717
Residential and Small Business 5,627 4,623 4,503 5,230 5,544
RLEC Access 4,517 4,621 5,214 4,098 4,306
Adjusted EBITDA before Curtailment Gain 22,511 21,873 22,701 22,723 22,567
Curtailment Gain2 – 567 10,207 – –
Total Adjusted EBITDA 22,511 22,440 32,908 22,723 22,567
Adjusted EBITDA Margin1
Data 44.5 % 46.2 % 49.0 % 50.2 % 48.7 %
Residential and Small Business 32.6 % 26.5 % 25.5 % 28.6 % 29.7 %
RLEC Access 82.7 % 77.6 % 82.0 % 79.3 % 81.2 %
Total Adjusted EBITDA Margin 44.6 % 44.3 % 65.1 % 45.3 % 45.1 %
Capital Expenditures 29,224 19,949 26,863 19,171 18,117
Adjusted EBITDA less Capital Expenditures (6,713 ) 2,491 6,045 3,552 4,450
Fiber Network Statistics
Fiber Route-Miles 7,955 7,822 7,645 7,548 7,467
Fiber Miles3 363,189 354,118 352,347 —- —-
Fiber Markets 23 23 23 23 23
FTTC Unique Towers 907 858 708 673 633
FTTC Total Connections 1,236 1,153 961 876 824
On-Network Buildings 1,530 1,477 1,456 1,420 1,387
Data Centers4 31 31 28 26 25
R&SB Statistics
Competitive Voice Connections 81,456 83,406 85,683 88,941 92,440
Video Subscribers 5,472 5,352 5,309 5,155 5,073
Fiber-to-the-Premise Broadband Connections 6,602 6,358 6,119 5,906 5,846
Premises Passed by Fiber5 18,142 17,461 17,102 16,631 —-
RLEC Access Lines 26,746 27,257 27,716 28,081 28,381
1 Adjusted EBITDA is a non-GAAP measure. See definition on page 2 of this earnings release. Adjusted EBITDA margin is calculated as the ratio of Adjusted EBITDA, as defined, to Total Revenue.
2 The Company recorded a gain totaling $10.8 million in the second half of 2014 related to the curtailment of medical benefits under the Company’s postretirement plan, which was not allocated to the operating segments.
3 Fiber miles are calculated as the fiber route miles multiplied by the number of fiber strands within each cable (represents an average of 46 fibers per route as of March 31, 2015) and are based on the results of the Company’s conversion of its fiber records to a centralized fiber management system in the third quarter of 2014.
4 Data centers reported include both commercial and private data centers and Company-owned facilities offering commercial data center services.
5 Includes residential and small business locations passed by fiber and available for service. Approximately 93% of the premises passed by fiber and available for service as of March 31, 2015 were residential.
Lumos Networks Corp.
Reconciliation of Net Income Attributable to Lumos Networks Corp. to Operating Income
(In thousands)
Three months ended March 31,
2015 2014
Net Income Attributable to Lumos Networks Corp. $ 2,724 $ 4,062
Net Income Attributable to Noncontrolling Interests 34 33
Net Income 2,758 4,095
Interest expense 3,486 3,974
Gain on interest rate swap derivatives (82 ) (109 )
Income tax expense 2,009 2,978
Other expenses (income), net 243 (180 )
Operating Income $ 8,414 $ 10,758
Lumos Networks Corp.
Reconciliation of Operating Income to Adjusted EBITDA
(Dollars in thousands) 2015 2014
For The Three Months Ended March 31,
Operating Income $ 8,414 $ 10,758
Depreciation and amortization and accretion of asset retirement obligations 11,902 10,686
Sub-total: 20,316 21,444
Amortization of actuarial losses 337 64
Equity-based compensation 1,225 834
Restructuring charges 633 –
Employee separation charges – 225
Adjusted EBITDA $ 22,511 $ 22,567
Adjusted EBITDA Margin 44.6 % 45.1 %
Lumos Networks Corp.
Business Outlook 1 (as of May 5, 2015)
(In millions)

2015 Annual

Guidance 1
Operating Revenues approximately $202
Adjusted EBITDA approximately $92
Capital Expenditures approximately $112
Cash, Cash Equivalents and Marketable Securities (at end of period) approximately $5
Reconciliation of Operating Income to Adjusted EBITDA:
Operating Income approximately $32
Depreciation and amortization approximately $53
Equity based compensation charges approximately $6
Amortization of actuarial losses approximately $1
Adjusted EBITDA approximately $92
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. first quarter 2015 earnings release dated May 5, 2015.
Contact:
Lumos Networks Corp.
Will Davis, 917-519-6994
Vice President of Investor Relations and Chief of Staff
davisw@lumosnet.com

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