Lumos Networks Corp.

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Lumos Networks Corp. Reports Second Quarter 2013 Financial Results

Delivers In-Line Quarterly Operating Results

Cash Dividend of $0.14 per Share Declared

WAYNESBORO, Va.--(BUSINESS WIRE)-- Lumos Networks Corp. (“Lumos Networks” or “the Company”) (Nasdaq: LMOS), a fiber-based service provider of data, voice and IP-based telecommunication services in the Mid-Atlantic region, today announced financial results for its second quarter of 2013.

Total revenue for the second quarter of 2013 was $52.3 million, compared to $50.8 million for the second quarter of 2012 and $52.5 million in the first quarter of 2013. Total Adjusted EBITDA was $24.6 million for the second quarter of 2013, compared to $21.1 million in the second quarter of 2012 and to $24.7 million in the first quarter of 2013.

“In the second quarter of 2013, Lumos Networks delivered overall year-over-year revenue growth of 3% and adjusted EBITDA growth of 16%,” commented CEO Tim Biltz. “Our Strategic Data revenue grew 13% year-over-year to nearly $30 million and represented 57% of total revenue. EBITDA generated from Strategic Data revenue for the second quarter equated to 45% of revenue.”

“I continue to expect that Lumos Networks will deliver solid results in 2013 including year-over-year revenue growth and near double-digit EBITDA growth,” Mr. Biltz continued.

“We now expect that our Strategic Data revenue growth will be in the range of 12% in 2013 as opposed to our initial target of 15% due to the lumpy nature of our Carrier business and a slower than planned growth ramp in our edge-out markets,” said Mr. Biltz. “However, we expect to accelerate growth in our Strategic Data product segment as we continue to pursue edge-out marketplace opportunities for both Enterprise Data and Fiber to the Cell products,” concluded Biltz.

Highlights

  • The Company ended the quarter with 465 fiber to the cell (“FTTC”) installations, up 60 sequentially, which represents a year-over-year increase in total FTTC sites of over 160%. Additionally, the Company increased its FTTC installation target in 2013 from 550-600 to at least 600 and increased its long-term FTTC target from 1,000 to 1,500.
  • In the second quarter of 2013, the Company allocated 75% of its total capital expenditures for success-based strategic data revenue projects and maintains its target of 75% for 2013.
  • Lumos Networks continues to plan to “go live” with its Richmond, Virginia network in the third quarter of 2013 and has pre-sold approximately $1 million in annualized revenue in that market, mostly strategic data.
  • On July 31, 2013, the Board of Directors of Lumos Networks declared a dividend on its common stock in the amount of $0.14 per share to be paid on October 10, 2013 to stockholders of record on September 12, 2013.

Business Outlook

In the third quarter of 2013, the Company expects revenue to be approximately $52 million and adjusted EBITDA approximately $24 million. For the full year 2013, the Company now expects its revenue to be approximately $208 million versus its prior guidance of $208 to $212 million and adjusted EBITDA to be approximately $97 million versus prior guidance for a range of $94 to $97 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, Harold L. Covert, CFO, and Will Davis, Director of Investor Relations, to review these financial and operational results and financial guidance will be held at 8:30 A.M. (ET) on August 1, 2013.

The webcast may be accessed via the Internet at http://ir.lumosnetworks.com/ and the live call (“Lumos Networks Second Quarter 2013 Earnings Conference Call”) may be accessed with the following numbers:

Domestic: 1-888-317-6016
International: 1-412-317-6016
Canada: 1-855-669-9657

The conference call will be archived and available for replay through August 14, 2013 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: 10030620
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 approximately 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 or loss attributable to noncontrolling interests, other expenses/income, 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 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 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; 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 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    
    June 30, 2013 December 31, 2012
(In thousands)
 
ASSETS
Current Assets
Cash $ 62,834 $ 2
Restricted cash 1 4,324 5,303
Accounts receivable, net 25,565 22,676
Other receivables 1,207 2,400
Income tax receivable 1,164 954
Prepaid expenses and other 3,699 5,136
Deferred income taxes     3,807   3,357
Total Current Assets     102,600   39,828
 
Securities and investments 509 462
 
Property, plant and equipment, net 352,799 336,589
 
Other Assets
Goodwill 100,297 100,297
Other intangibles, net 29,983 34,895
Deferred charges and other assets     7,930   4,448
Total Other Assets     138,210   139,640
 
Total Assets   $ 594,118 $ 516,519
 
 
LIABILITIES AND EQUITY
Current Liabilities
Current portion of long-term debt $ 5,178 $ 7,900
Accounts payable 9,982 17,453
Dividends payable 3,062 3,013
Advance billings and customer deposits 13,591 13,527
Accrued compensation 2,461 1,742
Accrued operating taxes 4,912 3,838
Other accrued liabilities     5,938   6,284
Total Current Liabilities     45,124   53,757
 
Long-Term Liabilities
Long-term debt 377,216 304,325
Retirement benefits 29,586 30,413
Deferred income taxes 66,590 59,313
Other long-term liabilities 2,247 3,500
Income tax payable     709   609
Total Long-term Liabilities     476,348   398,160
 
Stockholders' Equity     71,989   64,050
Noncontrolling Interests     657   552
Total Equity     72,646   64,602
 
Total Liabilities and Equity   $ 594,118 $ 516,519
 

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 June 30,   Six months ended June 30,
     
(In thousands, except per share amounts)   2013 2012 2013 2012
 
Operating Revenues $ 52,311 $ 50,803 $ 104,845 $ 102,215
 
Operating Expenses
Network access costs 10,501 12,177 21,655 23,941
Selling, general and administrative 1,2 18,896 20,777 36,916 39,590
Depreciation and amortization 10,796 8,803 20,359 18,023
Accretion of asset retirement obligations 33 31 64 61
Restructuring charges     -     -     40     -  
Total Operating Expenses     40,226     41,788     79,034     81,615  
Operating Income 12,085 9,015 25,811 20,600
 
Other Income (Expenses)
Interest expense (3,406 ) (2,929 ) (6,534 ) (5,916 )
Gain (loss) on interest rate derivatives 267 (438 ) 454 (292 )
Other (expense) income, net     (907 )   23     (882 )   31  
 
Income Before Income Tax Expense 8,039 5,671 18,849 14,423
 
Income Tax Expense     3,241     2,953     7,573     6,396  
Net Income 4,798 2,718 11,276 8,027
 
Net (Income) Loss Attributable to Noncontrolling Interests (36 ) 57 (105 ) 35
           
Net Income Attributable to Lumos Networks Corp.   $ 4,762   $ 2,775   $ 11,171   $ 8,062  
 
 
Basic and Diluted Earnings per Common Share Attributable to Lumos Networks Corp. Stockholders:
 
Earnings per share - basic $ 0.22 $ 0.13 $ 0.51 $ 0.39
Earnings per share - diluted $ 0.22 $ 0.13 $ 0.51 $ 0.38
 
Cash Dividends Declared per Share - Common Stock $ 0.14 $ 0.14 $ 0.28 $ 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 $1.3 million and $0.8 million for three months ended June 30, 2013 and 2012, respectively, and $2.4 million and $1.8 million for the six months ended June 30, 2013 and 2012, respectively.
2 For the three and six months ended June 30, 2012, selling, general and administrative expenses includes a $2.0 million charge 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 June 30,
   
(In thousands)   2013   2012
 
Cash Flows from Operating Activities:
Net income $ 11,276 $ 8,027
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 15,447 12,457
Amortization 4,912 5,566
Accretion of asset retirement obligations 64 61
Deferred income taxes 6,765 6,086
(Gain) loss on interest rate derivatives (454 ) 292
Equity-based compensation expense 2,353 1,788
Amortization of debt issuance costs 472 403
Write off of unamortized debt issuance costs 890 -
Retirement benefits, net of contributions and distributions (208 ) (470 )
Excess tax benefits from share-based compensation (179 ) -
Other (84 ) (42 )
Changes in operating assets and liabilities, net     (5,822 )     412  
Net Cash Provided by Operating Activities     35,432       34,580  
 
Cash Flows from Investing Activities:
Purchases of property, plant and equipment (26,724 ) (28,988 )
Broadband network expansion funded by stimulus grant (30 ) (847 )
Change in restricted cash 979 804
Cash reimbursement received from broadband stimulus grant 979 804
Purchase of tradename asset - (333 )
Other     -       (26 )
Net Cash Used in Investing Activities     (24,796 )     (28,586 )
 
Cash Flows from Financing Activities:
Proceeds from issuance of long-term debt 375,000 -
Payment of debt issuance costs (4,849 ) -
Principal payments on senior secured term loans (307,500 ) (1,000 )
Borrowings from revolving credit facility 15,000 6,566
Principal payments on revolving credit facility (18,521 ) (13,066 )
Termination payments of interest rate swaps (858 ) -
Cash dividends paid on common stock (6,071 ) (5,945 )
Principal payments under capital lease obligations (194 ) (404 )
Proceeds from stock option exercises and employee stock purchase plan 101 74
Excess tax benefits from share-based compensation 179 -
Other     (91 )     10  
Net Cash Provided by (Used in) Financing Activities     52,196       (13,765 )
Increase (decrease) in cash 62,832 (7,771 )
Cash:
Beginning of Period     2       10,547  
 
End of Period   $ 62,834     $ 2,776  
 
 
Lumos Networks Corp.
Operating Results, Customer and Network Statistics
(Dollars in thousands)     Three months ended:   Six months ended:
  June 30, 2013   March 31, 2013   December 31, 2012   September 30, 2012   June 30, 2012 June 30, 2013   June 30, 2012
Revenue and Adjusted EBITDA
Revenue
Enterprise Data 10,119 9,935 9,906 9,662 9,214 20,054 18,062
Carrier Data 15,055 14,945 14,363 13,001 12,669 30,000 25,143
IP Services 4,780 4,781 4,730 4,689 4,648 9,561 9,197
Total Strategic Data 29,954 29,661 28,999 27,352 26,531 59,615 52,402
Legacy Voice 14,329 14,884 15,399 16,074 16,186 29,213 32,930
Access 8,028 7,989 8,281 8,551 8,086 16,017 16,883
Total Revenue 52,311 52,534 52,679 51,977 50,803 104,845 102,215
Adjusted EBITDA1
Strategic Data 13,331 13,723 13,629 12,581 12,330 27,054 24,427
Legacy Voice 5,178 4,988 3,835 3,808 3,401 10,166 7,464
Access 6,042 5,984 5,747 5,892 5,375 12,026 11,506
Total Adjusted EBITDA 24,551 24,695 23,211 22,281 21,106 49,246 43,397
Adjusted EBITDA Margin1 46.9% 47.0% 44.1% 42.9% 41.5% 47.0% 42.5%
Capital Expenditures 11,692 15,032 15,956 14,937 11,619 26,724 28,988
Adjusted EBITDA less Capital Expenditures 12,859 9,663 7,255 7,344 9,487 22,522 14,409
 
Customer and Network Statistics
Customer Statistics
Competitive voice connections 2 102,189 105,695 110,261 112,709 114,930 102,189 114,930
Total Broadband Connections 3 42,607 42,110 39,950 40,401 37,361 42,607 37,361
Video Subscribers 4,767 4,666 4,549 4,390 4,192 4,767 4,192
 
Network Statistics
On-Network Buildings 4 1,273 1,235 1,196 1,150 1,091 1,273 1,091
Fiber to the Cell Sites 4 465 405 370 261 178 465 178
 
RLEC Total Access Lines 30,129 30,643 31,203 31,708 32,272 30,129 32,272
 
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 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 are recorded in the operating revenues of our strategic data segment.
 
4 Includes statistics for legacy markets only, excluding FiberNet, through June 30, 2013.
 
Note: Certain prior period revenue amounts have been reclassified to conform with the current year presentation.
 
 
Lumos Networks Corp.
Reconciliation of Net Income Attributable to Lumos Networks Corp. to Operating Income    
(In thousands)                
  Three months ended June 30, Six months ended June 30,
    2013   2012 2013 2012
Net Income Attributable to Lumos Networks Corp. $ 4,762 $ 2,775 $ 11,171 $ 8,062
Net Income (Loss) Attributable to Noncontrolling Interests     36     (57 )   105     (35 )
Net Income 4,798 2,718 11,276 8,027
 
Interest expense 3,406 2,929 6,534 5,916
(Gain) loss on interest rate derivatives (267 ) 438 (454 ) 292
Income tax expense 3,241 2,953 7,573 6,396
Other expense (income), net     907     (23 )   882     (31 )
Operating Income   $ 12,085   $ 9,015   $ 25,811   $ 20,600  
 
 
Lumos Networks Corp.
Reconciliation of Operating Income to Adjusted EBITDA    
(Dollars in thousands)   2013 2012
 
For The Three Months Ended June 30
Operating Income $ 12,085 $ 9,015
Depreciation and amortization and accretion of asset retirement obligations     10,829   8,834
Sub-total:     22,914   17,849
Amortization of actuarial losses 309 445
Equity based compensation 1,328 777
Restructuring charges - -
Employee separation charges1     -   2,035

Adjusted EBITDA

  $ 24,551 $ 21,106
Adjusted EBITDA Margin 46.9% 41.5%
 
For The Six Months Ended June 30
Operating Income $ 25,811 $ 20,600
Depreciation and amortization and accretion of asset retirement obligations     20,423   18,084
Sub-total:     46,234   38,684
Amortization of actuarial losses 619 890
Equity based compensation 2,353 1,788
Restructuring charges 40 -
Employee separation charges1     -   2,035

Adjusted EBITDA

  $ 49,246 $ 43,397
Adjusted EBITDA Margin 47.0% 42.5%
 
1 For the three and six months ended June 30, 2012, selling, general and administrative expenses include a $2.0 million charge 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 1, 2013)
(In millions)   2013 Guidance 1
Third Quarter 2013   2013 Annual
Operating Revenues approximately $52 approximately $208
 
Adjusted EBITDA approximately $24 approximately $97
 
Capital Expenditures approximately $20

$ 65 to $ 70

 
Cash and Cash Equivalents (at end of period) approximately $56

$ 48 to $ 50

 
Reconciliation of Operating Income to Adjusted EBITDA
Operating Income approximately $12 approximately $46
Depreciation and amortization approximately $10 approximately $41
Equity based compensation charges approximately $2 approximately $8
Amortization of actuarial losses < $1 approximately $2
Adjusted EBITDA approximately $24 approximately $97

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 2013 earnings release dated August 1, 2013.

Lumos Networks Corp.
Will Davis
Director of Investor Relations
(o) 540-946-6930
(c) 917-519-6994
davisw@lumosnet.com

Source: Lumos Networks Corp.

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