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Press Release -- March 7th, 2016
Source: Lumos Networks
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Lumos Networks Corp. Reports Fourth Quarter 2015 Results

Delivers 4Q15 Revenue of $51.9 million and Adjusted EBITDA of $24.6 million

Achieves 2015 Revenue and Adjusted EBITDA of $204.3 million and $92 million, respectively

Provides 2016 Revenue and Adjusted EBITDA guidance of $206 to $210 million and $93 to $96 million, respectively

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

Lumos Networks Corp. (“Lumos Networks”, “Lumos” or the “Company”) (NASDAQ:LMOS, news, filings), a leading fiber-based service provider in the Mid-Atlantic region, today announced its fourth quarter and full year 2015 financial results and provided 2016 financial guidance.

Total revenue in the fourth quarter of 2015 was $51.9 million, an increase of more than 2% from the prior year period. Total Adjusted EBITDA reached approximately $24.6 million, up more than 9% from the prior year period. Total Data revenue grew over 9% year-over-year to approximately $29.8 million and constituted nearly 58% of total revenue, up from 54% in the prior year period.

In the fourth quarter, total FTTC and Enterprise revenue reached over $19.8 million, up more than 21% year-over-year and constituted 66% of total Data revenue versus 60% in the prior year period. In the aggregate, Ethernet and other advanced fiber technologies accounted for 90-95% of revenue within these two product groups. The Company’s Enterprise revenue grew over 10% on a year-over-year basis for the second consecutive quarter.

“For the full year 2015, I am pleased to announce that Lumos Networks achieved $204.3 million in revenue, up more than 1% from 2014,” said Timothy G. Biltz, President and CEO of Lumos Networks. “Additionally, we reached Adjusted EBITDA of $92 million, up over 2% from 2014.”

Mr. Biltz continued, “We achieved more than $114 million in total Data revenue in 2015, up more than 7% year-over-year. This included FTTC revenue of more than $28 million, up nearly 43% year-over-year, and Enterprise revenue of nearly $46 million, up more than 8%. Collectively, our FTTC and Enterprise revenue surpassed $74 million, up more than 19% year-over-year, which places the Company amongst the leaders in the US fiber industry.”

“In 2016, we expect to further accelerate our transformation into a fiber bandwidth infrastructure provider,” said Mr. Biltz. “We expect to grow our overall revenue and Adjusted EBITDA for the second year in a row and introduce guidance for 2016 revenue of $206-$210 million and Adjusted EBITDA of $93-$96 million. This guidance assumes increased costs from several major projects, including our network expansion into the Richmond and Hampton Roads/Norfolk markets and business separation planning initiatives during the course of the year. The Company targets acceleration of our Data revenue growth rate from 7% in 2015 to 8-10% in 2016, as we continue to see strong bandwidth demand trends, solid sales productivity, robust Enterprise renewal activity and improving installation trends.”

The Company generated operating income of $10.1 million and $36.5 million for the three and twelve months ended December 31, 2015, respectively. Net income attributable to Lumos Networks Corp. was $2.7 million, or 12 cents per diluted share, for the fourth quarter of 2015 and $10.0 million, or 43 cents per diluted share, for the year ended December 31, 2015.

Fourth Quarter 2015 Highlights

  • The Company ended 4Q15 with 1,099 unique FTTC sites, up 69 sequentially and an increase of 28% from the prior year. Additionally, Lumos ended the quarter with 1,440 total FTTC connections up nearly 25% from the prior year period.
  • In 2015, Lumos renewed Enterprise accounts totaling $726,000 in monthly recurring charges (“MRC”), up over 17% from the prior year. The total contract value (“TCV”) of renewed Enterprise contracts in 2015 was nearly $32 million, up over 19% from 2014.
  • By the end of the first quarter, the Company expects to have completed the vast majority of its 822-mile network expansion into the Richmond and Hampton Roads/Norfolk metro markets. To date, the Company has already sold annualized Enterprise revenue of $500,000 in the Norfolk/Hampton Roads markets.
  • In 2015, Lumos Networks added 785 organic route miles of fiber, nearly double the 408 miles added in 2014. Additionally, the Company added 255 Enterprise lit buildings in 2015, up over 90% from the 133 buildings added to the Lumos fiber network in 2014.

Business Outlook

For the full year 2016, the Company provides its financial guidance for revenue of $206 to $210 million, Adjusted EBITDA of $93 to $96 million and capital expenditures of $85 to $95 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, Chief of Staff and Vice President of Investor Relations 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 March 7, 2015.

The webcast may be accessed via the Internet at http://ir.lumosnetworks.com/ and the live call (“Lumos Networks Fourth 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 March 21, 2016 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: 10081372

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 8,607 fiber route miles and more than 384,000 total fiber strand miles, Lumos Networks connects 1,099 unique Fiber to the Cell sites, 1,440 total FTTC connections, 34 data centers, including 7 company owned co-location facilities, 1,732 on-net buildings and over 2,800 total on-net locations. In 2015, Lumos Networks generated over $114 million in Data revenue and over $51 million in Adjusted EBITDA over our fiber network. Detailed information about Lumos Networks is available atwww.lumosnetworks.com.

Non-GAAP Measures

Adjusted EBITDA is net income attributable to Lumos Networks Corp. before interest, income taxes, depreciation and amortization and accretion of asset retirement obligations, net income attributable to noncontrolling interests, other (income) expenses, net, equity-based compensation, amortization of actuarial losses, employee separation charges, restructuring charges and gain (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 grow our data business on an organic or inorganic basis in order to offset expected revenue declines in legacy voice and access products; our ability to divest our legacy business on a timely basis; 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; 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
December 31, 2015 December 31, 2014
(In thousands)
ASSETS
Current Assets
Cash and cash equivalents $ 13,267 $ 14,140
Marketable securities 88,811 16,870
Restricted cash 1 - 4,208
Accounts receivable, net 20,796 22,925
Other receivables 852 2,113
Income tax receivable 568 172
Prepaid expenses and other 7,215 4,321
Total Current Assets 131,509 64,749
Securities and investments 1,180 914
Property, plant and equipment, net 498,944 429,451
Other Assets
Goodwill 100,297 100,297
Other intangibles, net 11,078 15,884
Deferred charges and other assets 2,364 512
Total Other Assets 113,739 116,693
Total Assets $ 745,372 $ 611,807
LIABILITIES AND EQUITY
Current Liabilities
Current portion of long-term debt $ 10,400 $ 10,227
Accounts payable 14,182 20,257
Dividends payable - 3,152
Advance billings and customer deposits 13,849 14,029
Accrued compensation 1,191 1,516
Accrued operating taxes 3,907 4,618
Other accrued liabilities 4,974 4,223
Total Current Liabilities 48,503 58,022
Long-Term Liabilities
Long-term debt, net of unamortized discount and debt issuance costs, excluding current portion 456,300 357,950
Retirement benefits 17,029 18,257
Deferred income taxes, net 89,193 82,263
Other long-term liabilities 1,923 1,746
Income tax payable 93 110
Total Long-term Liabilities 564,538 460,326
Stockholders' Equity 131,392 92,677
Noncontrolling Interests 939 782
Total Equity 132,331 93,459
Total Liabilities and Equity $ 745,372 $ 611,807

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 December 31, 2015.

Lumos Networks Corp.
Condensed Consolidated Statements of Income Three months ended December 31, Twelve months ended December 31,
(In thousands, except per share amounts) 2015 2014 2015 2014
Operating Revenues $ 51,852 $ 50,685 $ 204,269 $ 201,456
Operating Expenses
Network access costs 9,754 9,714 39,310 40,868
Selling, general and administrative 1, 2 19,530 19,818 80,187 64,782
Depreciation and amortization 12,415 12,071 47,527 45,212
Accretion of asset retirement obligations 34 23 139 118
Restructuring charges 1 - 638 -
Total Operating Expenses 41,734 41,626 167,801 150,980
Operating Income 10,118 9,059 36,468 50,476
Other Income (Expenses)
Interest expense (6,896 ) (3,820 ) (19,918 ) (15,575 )
Gain on interest rate swap derivatives 220 97 665 492
Other income, net 203 135 114 664
Income Before Income Tax Expense 3,645 5,471 17,329 36,057
Income Tax Expense 925 2,007 7,146 14,409
Net Income 2,720 3,464 10,183 21,648
Net Income Attributable to Noncontrolling Interests (46 ) (51 ) (157 ) (120 )
Net Income Attributable to Lumos Networks Corp. $ 2,674 $ 3,413 $ 10,026 $ 21,528
Basic and Diluted Earnings per Common Share Attributable to Lumos Networks Corp. Stockholders:
Earnings per share - basic $ 0.12 $ 0.15 $ 0.44 $ 0.97
Earnings per share - diluted $ 0.12 $ 0.15 $ 0.43 $ 0.95
Cash Dividends Declared per Share - Common Stock $ - $ 0.14 $ - $ 0.56

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 $1.6 million and $1.2 million for the three months ended December 31, 2015 and 2014, respectively, and $5.9 million and $4.3 million for the twelve months ended December 31, 2015 and 2014, respectively.

2 Selling, general and administrative expenses for the three and twelve months ended December 31, 2014 includes $0.6 million and $10.8 million, respectively, of curtailment gains related to the elimination of certain medical benefits under the Company's postretirement plan.

Lumos Networks Corp.
Condensed Consolidated Statements of Cash Flows Twelve Months Ended December 31,
(In thousands) 2015 2014
Cash Flows from Operating Activities:
Net income $ 10,183 $ 21,648
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 42,721 36,025
Amortization 4,806 9,187
Accretion of asset retirement obligations 139 118
Deferred income taxes 6,767 14,477
Gain on interest rate swap derivatives (665 ) (492 )
Equity-based compensation expense 5,881 4,340
Amortization of debt issuance costs 2,688 1,461
Retirement benefits, net of cash contributions and distributions (314 ) (12,402 )
Excess tax benefits from share-based compensation (165 ) -
Other 789 221
Changes in operating assets and liabilities, net (6,085 ) 5,226
Net Cash Provided by Operating Activities 66,745 79,809
Cash Flows from Investing Activities:
Purchases of property, plant and equipment (115,675 ) (84,100 )
Broadband network expansion funded by stimulus grant (2,578 ) (878 )
Purchases of available-for-sale marketable securities (114,478 ) (19,516 )
Proceeds from sale or maturity of available-for-sale marketable securities 42,200 40,679
Change in restricted cash 4,208 116
Cash reimbursement received from broadband stimulus grant 3,838 116
Other - 150
Net Cash Used in Investing Activities (182,485 ) (63,433 )
Cash Flows from Financing Activities:
Proceeds from issuance of long-term debt 28,000 -
Proceeds from issuance of unsecured notes 148,500 -
Payment of financing costs (8,192 ) -
Principal payments on senior secured term loans (47,960 ) (5,250 )
Cash dividends paid on common stock (3,152 ) (12,456 )
Principal payments under capital lease obligations (2,471 ) (1,468 )
Proceeds from stock option exercises and employee stock purchase plan 356 2,892
Excess tax benefits from share-based compensation 165 -
Other (379 ) (68 )
Net Cash Provided by (Used in) Financing Activities 114,867 (16,350 )
(Decrease) increase in cash and cash equivalents (873 ) 26
Cash and cash equivalents:
Beginning of Year 14,140 14,114
End of Year $ 13,267 $ 14,140
Lumos Networks Corp.
Operating Results, Customer and Network Statistics
(Dollars in thousands) Three months ended: Twelve months ended:
December 31, 2015 September 30, 2015 June 30, 2015 March 31, 2015 December 31, 2014 December 31, 2015 December 31, 2014
Revenue, Gross Margin and Adjusted EBITDA
Revenue
Enterprise Data 11,935 11,560 11,298 11,027 10,833 45,820 42,334
Transport 10,005 9,507 10,036 10,473 10,962 40,021 44,373
FTTC 7,892 7,556 6,755 6,267 5,515 28,470 19,935
Total Data 29,832 28,623 28,089 27,767 27,310 114,311 106,642
Residential and Small Business 16,379 16,560 17,010 17,265 17,423 67,214 72,028
RLEC Access 5,641 5,786 5,854 5,463 5,952 22,744 22,786
Total Revenue 51,852 50,969 50,953 50,495 50,685 204,269 201,456
Gross Margin
Data 85.0% 84.2% 85.5% 86.9% 85.5% 85.4% 85.0%
Residential and Small Business 67.8% 67.4% 65.6% 64.9% 67.0% 66.4% 65.5%
Adjusted EBITDA1
Data 14,221 12,395 12,492 12,367 12,629 51,475 51,725
Residential and Small Business 5,556 5,045 5,327 5,627 4,623 21,555 19,900
RLEC Access 4,774 4,834 4,848 4,517 4,621 18,973 18,239
Adjusted EBITDA before Curtailment Gain 24,551 22,274 22,667 22,511 21,873 92,003 89,864
Curtailment Gain2 - - - - 567 - 10,774
Total Adjusted EBITDA 24,551 22,274 22,667 22,511 22,440 92,003 100,638
Adjusted EBITDA Margin1
Data 47.7% 43.3% 44.5% 44.5% 46.2% 45.0% 48.5%
Residential and Small Business 33.9% 30.5% 31.3% 32.6% 26.5% 32.1% 27.6%
RLEC Access 84.6% 83.5% 82.8% 82.7% 77.6% 83.4% 80.0%
Total Adjusted EBITDA Margin 47.3% 43.7% 44.5% 44.6% 44.3% 45.0% 50.0%
Capital Expenditures 35,557 24,769 26,125 29,224 19,949 115,675 84,100
Adjusted EBITDA less Capital Expenditures (11,006) (2,495) (3,458) (6,713) 2,491 (23,672) 16,538
Fiber Network Statistics
Fiber Route-Miles 8,607 8,408 8,100 7,955 7,822 8,607 7,822
Fiber Miles3 384,094 378,581 369,238 363,189 354,118 384,094 354,118
Fiber Markets 24 24 24 23 23 24 23
FTTC Unique Towers 1,099 1,030 976 907 858 1,099 858
FTTC Total Connections 1,440 1,363 1,307 1,236 1,153 1,440 1,153
On-Network Buildings 1,732 1,642 1,574 1,530 1,477 1,732 1,477
Data Centers4 34 33 32 31 31 34 31
Mobile Switching Centers 14 14 14 14 14 14 14
R&SB Statistics
Competitive Voice Connections 73,705 76,380 79,022 81,456 83,406 73,705 83,406
Video Subscribers 5,904 5,760 5,516 5,472 5,352 5,904 5,352
Fiber-to-the-Premise Broadband Connections 8,815 8,007 6,807 6,602 6,358 8,815 6,358
Premises Passed by Fiber5 19,400 19,170 18,983 18,142 17,461 19,400 17,461
RLEC Access Lines 25,516 25,902 26,276 26,746 27,257 25,516 27,257

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 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 December 31, 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 95% of the premises passed by fiber and available for service as of December 31, 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 December 31,
Net Income Attributable to Lumos Networks Corp. $ 2,674 $ 3,413
Net Income Attributable to Noncontrolling Interests 46 51
Net Income 2,720 3,464
Income tax expense 925 2,007
Interest expense 6,896 3,820
Gain on interest rate swap derivatives (220 ) (97 )
Other income, net (203 ) (135 )
Operating Income 10,118 9,059
Depreciation and amortization and accretion of asset retirement obligations 12,449 12,094
Amortization of actuarial losses 338 56
Equity-based compensation 1,645 1,231
Restructuring charges 1 -
Adjusted EBITDA $ 24,551 $ 22,440
Adjusted EBITDA Margin 47.3 % 44.3 %
For The Twelve Months Ended December 31,
Net Income Attributable to Lumos Networks Corp. $ 10,026 $ 21,528
Net Income Attributable to Noncontrolling Interests 157 120
Net Income 10,183 21,648
Income tax expense 7,146 14,409
Interest expense 19,918 15,575
Gain on interest rate swap derivatives (665 ) (492 )
Other income, net (114 ) (664 )
Operating Income 36,468 50,476
Depreciation and amortization and accretion of asset retirement obligations 47,666 45,330
Amortization of actuarial losses 1,350 248
Equity-based compensation 5,881 4,340
Restructuring charges 638 -
Employee separation charges - 244
Adjusted EBITDA $ 92,003 $ 100,638
Adjusted EBITDA Margin 45.0 % 50.0 %
Lumos Networks Corp.
Business Outlook 1 (as of March 7, 2016)
(In millions) 2016 Annual Guidance 1
Operating Revenues $206 to $210
Adjusted EBITDA $93 to $96
Capital Expenditures $85 to $95
Reconciliation of Net Income (Loss) to Adjusted EBITDA:
Net (Loss) Income $(2) to $1
Income tax expense approximately $2
Interest expense approximately $30
Operating Income $30 to $33
Depreciation and amortization approximately $50
Equity-based compensation charges approximately $12
Amortization of actuarial losses approximately $1
Adjusted EBITDA $93 to $96

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. year end 2015 earnings

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