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Press Release -- November 2nd, 2015
Source: Lumos Networks
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Lumos Networks Corp. Reports Third Quarter 2015 Results

Delivers 3Q15 Revenue of $51 million and Adjusted EBITDA of $22.3 Million

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

3Q15 Fiber to the Cell (“FTTC”) Revenue exceeds $7.5 million, up 59% Year-over-Year

3Q15 Enterprise Revenue increases more than 10% Year-over-Year to $11.6 Million

WAYNESBORO, Va.--(BUSINESS WIRE)--Lumos Networks Corp. (“Lumos Networks”, “Lumos” or the “Company”) (NASDAQ:LMOS, news, filings), a leading fiber-based service provider of data, voice and IP-based telecommunication services in the Mid-Atlantic region, today announced its third quarter financial results. Total revenue in the third quarter of 2015 was $51 million, up nearly 1% from the prior year period. Total Data segment revenue grew over 8% year-over-year to approximately $28.6 million and constituted over 56% of total revenue, up from 52% in the prior year period.

In the aggregate, FTTC and Enterprise revenue grew nearly 6% sequentially and 26% year-over-year to over $19 million in the third quarter, and constituted 67% of total data revenue, up from 57% in the prior year period. In the aggregate, Ethernet and other advanced fiber technologies account for 90-95% of revenue within these two product groups.

The Company generated operating income of $8.6 million and $26.4 million for the three and nine months ended September 30, 2015, respectively. Net income attributable to Lumos Networks Corp. was $1.3 million, or 6 cents per diluted share, for the third quarter of 2015 and $7.4 million, or 32 cents per diluted share, for the nine months ended September 30, 2015.

“In the third quarter, we continued to make steady progress in our transformation into a fiber bandwidth infrastructure provider,” said Timothy G. Biltz, President and CEO of Lumos Networks. “In addition to reiterating our 2015 guidance for overall revenue and Adjusted EBITDA, we are maintaining our target for overall 2015 Data segment revenue of approximately $115 million, or 8% year-over-year organic revenue growth.”

“Our organic growth rate in our data business, which is amongst the higher in the fiber industry, is driven by continued strength in both our FTTC and Enterprise businesses,” Mr. Biltz continued. “For 2015, we maintain our target for $29 million in FTTC revenue, up approximately 45% year-over-year, and for $46 million in Enterprise revenue, up over 8% from 2014.”

“Our key focus remains the completion of the vast majority of our transformational network expansion project of approximately 665 miles into the Richmond and Norfolk markets by the end of 2015. This network, underpinned by a 257 FTTC site build with a major US wireless carrier, increases our Enterprise addressable market by approximately 60%, or $135 million, and significantly de-risks our business model in 2016.”

Third Quarter 2015 Highlights

  • The Company ended 3Q15 with 1,030 unique FTTC sites, up 54 sequentially and an increase of 45% from the prior year. Additionally, Lumos ended the quarter with 1,363 total FTTC connections up nearly 42% from the prior year period.
  • In the first nine months of 2015, Lumos renewed Enterprise accounts totaling $603,000 in monthly recurring charges (“MRC”), up over 17% from the prior year period. Year-to-date, Lumos has renewed Enterprise accounts worth over $26 million of total contract value, up approximately 20% from the prior year period.
  • Lumos Networks added 308 route miles of fiber in the quarter, the most added organically in the Company’s history, and ended the quarter with 8,408 total route miles. Additionally, Lumos added 68 Enterprise lit buildings in the quarter and 165 in the first nine months of 2015, up over 47% from the prior year period.

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 discuss today’s announcement and to review these financial and operational results and financial guidance will be held at 10:00 A.M. (ET) on November 3, 2015.

The webcast may be accessed via the Internet at http://ir.lumosnetworks.com/ and the live call (“Lumos Networks Third 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 November 17, 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: 10074914
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 24 markets in Virginia, Pennsylvania, West Virginia, Maryland, Ohio and Kentucky. With a fiber network of 8,408 fiber route miles and approximately 379,000 total fiber strand miles, Lumos Networks connects 1,030 unique Fiber to the Cell sites, 1,363 total FTTC connections, 33 data centers, including 7 company owned co-location facilities, 1,642 on-net buildings and approximately 2,700 total on-net locations. In 2014, Lumos Networks generated over $106 million in data revenue and nearly $52 million in Adjusted EBITDA over our fiber network. 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 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,” “scheduled” 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 network 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 and our unsecured debt obligations; 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 Adjusted EBITDA
  • Business Outlook
Lumos Networks Corp.
Condensed Consolidated Balance Sheets
September 30, 2015 December 31, 2014
(In thousands)
ASSETS
Current Assets
Cash and cash equivalents $ 63,791 $ 14,140
Marketable securities 60,875 16,870
Restricted cash 1 370 4,208
Accounts receivable, net 21,867 22,925
Other receivables 789 2,113
Income tax receivable 179 172
Prepaid expenses and other 5,822 4,321
Deferred income taxes 2,360 5,601
Total Current Assets 156,053 70,350
Securities and investments 1,119 914
Property, plant and equipment, net 479,177 429,451
Other Assets
Goodwill 100,297 100,297
Other intangibles, net 11,807 15,884
Deferred charges and other assets 1,639 512
Total Other Assets 113,743 116,693
Total Assets $ 750,092 $ 617,408
LIABILITIES AND EQUITY
Current Liabilities
Current portion of long-term debt $ 10,454 $ 10,227
Accounts payable 19,147 20,257
Dividends payable - 3,152
Advance billings and customer deposits 13,760 14,029
Accrued compensation 1,381 1,516
Accrued operating taxes 4,943 4,618
Other accrued liabilities 5,257 4,223
Total Current Liabilities 54,942 58,022
Long-Term Liabilities
Long-term debt, net of unamortized discount and debt issuance costs, excluding current portion 457,306 357,950
Retirement benefits 17,075 18,257
Deferred income taxes 90,833 87,864
Other long-term liabilities 1,888 1,746
Income tax payable 93 110
Total Long-term Liabilities 567,195 465,927
Stockholders' Equity 127,062 92,677
Noncontrolling Interests 893 782
Total Equity 127,955 93,459
Total Liabilities and Equity $ 750,092 $ 617,408

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. The project was completed and the grant has ended as of September 30, 2015.

Lumos Networks Corp.
Condensed Consolidated Statements of Income Three months ended September 30, Nine months ended September 30,
(In thousands, except per share amounts) 2015 2014 2015 2014
Operating Revenues $ 50,969 $ 50,516 $ 152,417 $ 150,771
Operating Expenses
Network access costs 9,932 10,250 29,556 31,154
Selling, general and administrative 1, 2 20,554 8,545 60,657 44,964
Depreciation and amortization 11,803 11,272 35,112 33,141
Accretion of asset retirement obligations 33 38 105 95
Restructuring charges - - 637 -
Total Operating Expenses 42,322 30,105 126,067 109,354
Operating Income 8,647 20,411 26,350 41,417
Other Income (Expenses)
Interest expense (5,817 ) (3,969 ) (13,022 ) (11,755 )
Gain on interest rate swap derivatives 198 302 445 395
Other income (expenses), net 58 179 (89 ) 529
Income Before Income Tax Expense 3,086 16,923 13,684 30,586
Income Tax Expense 1,774 6,713 6,221 12,402
Net Income 1,312 10,210 7,463 18,184
Net Income Attributable to Noncontrolling Interests (33 ) (3 ) (111 ) (69 )
Net Income Attributable to Lumos Networks Corp. $ 1,279 $ 10,207 $ 7,352 $ 18,115
Basic and Diluted Earnings per Common Share Attributable to Lumos Networks Corp. Stockholders:
Earnings per share - basic $ 0.06 $ 0.46 $ 0.32 $ 0.81
Earnings per share - diluted $ 0.06 $ 0.45 $ 0.32 $ 0.80
Cash Dividends Declared per Share - Common Stock $ - $ 0.14 $ - $ 0.42

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 $1.5 million and $1.1 million for the three months ended September 30, 2015 and 2014, respectively, and $4.2 million and $3.1 million for the nine months ended September 30, 2015 and 2014, respectively.

2

Selling, general and administrative expenses for the three and nine months ended September 30, 2014 includes a $10.2 million curtailment gain related to the elimination of certain medical benefits under the Company's postretirement plan.
Lumos Networks Corp.
Condensed Consolidated Statements of Cash Flows Nine Months Ended September 30,
(In thousands) 2015 2014
Cash Flows from Operating Activities:
Net income $ 7,463 $ 18,184
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 31,035 26,251
Amortization 4,077 6,890
Accretion of asset retirement obligations 105 95
Deferred income taxes 5,802 12,045
Gain on interest rate swap derivatives (445 ) (395 )
Equity-based compensation expense 4,236 3,109
Amortization of debt issuance costs 1,648 1,102
Retirement benefits, net of cash contributions and distributions (171 ) (11,352 )
Excess tax benefits from share-based compensation - (201 )
Other 206 206
Changes in operating assets and liabilities, net (1,951 ) 4,619
Net Cash Provided by Operating Activities 52,005 60,553
Cash Flows from Investing Activities:
Purchases of property, plant and equipment (80,118 ) (64,151 )
Broadband network expansion funded by stimulus grant (2,578 ) (284 )
Purchases of available-for-sale marketable securities (74,088 ) (17,010 )
Proceeds from sale or maturity of available-for-sale marketable securities 29,903 36,856
Change in restricted cash 3,838 116
Cash reimbursement received from broadband stimulus grant 3,838 116
Other - 106
Net Cash Used in Investing Activities (119,205 ) (44,251 )
Cash Flows from Financing Activities:
Proceeds from issuance of senior secured term loan 28,000 -
Proceeds from issuance of unsecured notes, net of debt discount 148,500 -
Payment of financing costs (8,192 ) -
Principal payments on senior secured term loans (45,953 ) (3,313 )
Cash dividends paid on common stock (3,152 ) (9,323 )
Principal payments under capital lease obligations (2,378 ) (1,312 )
Proceeds from stock option exercises and employee stock purchase plan 293 1,668
Excess tax benefits from share-based compensation - 201
Other (267 ) (66 )
Net Cash Provided by (Used in) Financing Activities 116,851 (12,145 )
Increase in cash and cash equivalents 49,651 4,157
Cash and cash equivalents:
Beginning of Period 14,140 14,114
End of Period $ 63,791 $ 18,271
Lumos Networks Corp.
Operating Results, Customer and Network Statistics
(Dollars in thousands) Three months ended: Nine months ended:
September 30, 2015 June 30, 2015 March 31, 2015 December 31, 2014 September 30, 2014 September 30, 2015 September 30, 2014
Revenue, Gross Margin and Adjusted EBITDA
Revenue
Enterprise Data 11,560 11,298 11,027 10,833 10,470 33,885 31,501
Transport 9,507 10,036 10,473 10,962 11,279 30,016 33,411
FTTC 7,556 6,755 6,267 5,515 4,739 20,578 14,420
Total Data 28,623 28,089 27,767 27,310 26,488 84,479 79,332
Residential and Small Business 16,560 17,010 17,265 17,423 17,668 50,835 54,605
RLEC Access 5,786 5,854 5,463 5,952 6,360 17,103 16,834
Total Revenue 50,969 50,953 50,495 50,685 50,516 152,417 150,771
Gross Margin
Data 84.2 % 85.5 % 86.9 % 85.5 % 85.1 % 85.5 % 84.8 %
Residential and Small Business 67.4 % 65.6 % 64.9 % 67.0 % 64.3 % 65.9 % 65.0 %
Adjusted EBITDA1
Data 12,395 12,492 12,367 12,629 12,984 37,254 39,096
Residential and Small Business 5,045 5,327 5,627 4,623 4,503 15,999 15,277
RLEC Access 4,834 4,848 4,517 4,621 5,214 14,199 13,618
Adjusted EBITDA before Curtailment Gain 22,274 22,667 22,511 21,873 22,701 67,452 67,991
Curtailment Gain2 - - - 567 10,207 - 10,207
Total Adjusted EBITDA 22,274 22,667 22,511 22,440 32,908 67,452 78,198
Adjusted EBITDA Margin1
Data 43.3 % 44.5 % 44.5 % 46.2 % 49.0 % 44.1 % 49.3 %
Residential and Small Business 30.5 % 31.3 % 32.6 % 26.5 % 25.5 % 31.5 % 28.0 %
RLEC Access 83.5 % 82.8 % 82.7 % 77.6 % 82.0 % 83.0 % 80.9 %
Total Adjusted EBITDA Margin 43.7 % 44.5 % 44.6 % 44.3 % 65.1 % 44.3 % 51.9 %
Capital Expenditures 24,769 26,125 29,224 19,949 26,863 80,118 64,151
Adjusted EBITDA less Capital Expenditures (2,495 ) (3,458 ) (6,713 ) 2,491 6,045 (12,666 ) 14,047
Fiber Network Statistics
Fiber Route-Miles 8,408 8,100 7,955 7,822 7,645 8,408 7,645
Fiber Miles3 378,581 369,238 363,189 354,118 352,347 378,581 352,347
Fiber Markets 24 24 23 23 23 24 23
FTTC Unique Towers 1,030 976 907 858 708 1,030 708
FTTC Total Connections 1,363 1,307 1,236 1,153 961 1,363 961
On-Network Buildings 1,642 1,574 1,530 1,477 1,456 1,642 1,456
Data Centers4 33 32 31 31 28 33 28
R&SB Statistics
Competitive Voice Connections 76,380 79,022 81,456 83,406 85,683 76,380 85,683
Video Subscribers 5,760 5,516 5,472 5,352 5,309 5,760 5,309
Fiber-to-the-Premise Broadband Connections 8,007 6,807 6,602 6,358 6,119 8,007 6,119
Premises Passed by Fiber5 19,170 18,983 18,142 17,461 17,102 19,170 17,102
RLEC Access Lines 25,902 26,276 26,746 27,257 27,716 25,902 27,716
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 $10.2 million in the third quarter of 2014 related to the curtailment of medical benefits under the Company's postretirement plan, which gain 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 45 fibers per route as of September 30, 2015).
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 September 30, 2015 were residential.
Lumos Networks Corp.
Reconciliation of Net Income Attributable to Lumos Networks Corp. to Adjusted EBITDA
(Dollars in thousands) 2015 2014
For The Three Months Ended September 30,
Net Income Attributable to Lumos Networks Corp. $ 1,279 $ 10,207
Net Income Attributable to Noncontrolling Interests 33 3
Net Income 1,312 10,210
Income tax expense 1,774 6,713
Interest expense 5,817 3,969
Gain on interest rate swap derivatives (198 ) (302 )
Other income, net (58 ) (179 )
Operating Income 8,647 20,411
Depreciation and amortization and accretion of asset retirement obligations 11,836 11,310
Amortization of actuarial losses 337 64
Equity-based compensation 1,454 1,123
Adjusted EBITDA $ 22,274 $ 32,908
Adjusted EBITDA Margin 43.7 % 65.1 %
For The Nine Months Ended September 30,
Net Income Attributable to Lumos Networks Corp. $ 7,352 $ 18,115
Net Income Attributable to Noncontrolling Interests 111 69
Net Income 7,463 18,184
Income tax expense 6,221 12,402
Interest expense 13,022 11,755
Gain on interest rate swap derivatives (445 ) (395 )
Other expense (income), net 89 (529 )
Operating Income 26,350 41,417
Depreciation and amortization and accretion of asset retirement obligations 35,217 33,236
Amortization of actuarial losses 1,012 192
Equity-based compensation 4,236 3,109
Restructuring charges 637 -
Employee separation charges - 244
Adjusted EBITDA $ 67,452 $ 78,198
Adjusted EBITDA Margin 44.3 % 51.9 %
Lumos Networks Corp.
Business Outlook 1 (as of November 2, 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 $100
Reconciliation of Net Income to Adjusted EBITDA:
Net Income approximately $12
Income tax expense approximately $8
Interest expense approximately $15
Operating Income approximately $35
Depreciation and amortization approximately $50
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. third quarter 2015 earnings release dated November 2, 2015.

Contacts

Lumos Networks Corp.
Will Davis
Chief of Staff and Vice President of Investor Relations
917-519-6994
davisw@lumosnet.com

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