PRESS RELEASE


 

Media Contact
Will Davis
Senior Vice President of Marketing and Investor Relations
Chief of Staff
(917) 519-6994
davisw@lumosnet.com

 

For immediate release

Tuesday, May 6, 2014
Lumos Networks Corp. Reports First Quarter 2014 Financial Results

Delivers 1Q14 Revenue of $50.1 Million and Adjusted EBITDA of $22.6 Million
Updates 2014 Revenue guidance to approximately $200 million
Adjusts 2014 Adjusted EBITDA guidance to approximately $90 million
Reiterates FTTC Installation Targets of 825 at YE14 and 1,500 Long Term
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 the first quarter of 2014.

Total revenue for the first quarter of 2014 was $50.1 million, compared to $52.5 million for the first quarter of 2013 and $51.0 million in the fourth quarter of 2013. Total Adjusted EBITDA in the first quarter of 2014 was $22.6 million, compared to $24.7 million in the first quarter of 2013 and $24.0 million in the fourth quarter of 2013.

In the first quarter of 2014, the Company initiated a new financial reporting segmentation aligning its reporting with its restructured operations. The Company’s three operating segments accounted for the following percentages of total revenue and Adjusted EBITDA, respectively, in the first quarter of 2014: Data: 52% and 56%; Residential and Small Business (“R&SB”): 37% and 25%; and RLEC Access: 11% and 19%. IP Services, which comprises about 8% of the Company’s total revenue and was formerly included in the Company’s Strategic Data segment, has been shifted to the R&SB segment as it more closely corresponds with the customer characteristics within that category.

Lumos Networks President and CEO Timothy G. Biltz said, “Our expectations for continued TDM carrier grooming, as evidenced by the 8.4% sequential decline in our Transport revenue, lead us to reduce our target for 2014 Data revenue growth from 6-8% to a range of 1-3%. We adjust our overall annual revenue target for 2014 to approximately $200 million from a range of $200 to $204 million.”

Mr. Biltz continued, “Our focus is to keep operating costs roughly flat in 2014 versus 2013. However, our overriding goal is to continue to invest in our fiber infrastructure in the form of Project Ark, with the booking of approximately 500-700 new FTTC circuits and an aggressive expansion of data center connectivity. We expect our FTTC revenue growth in 2014 to exceed 40%. Additionally, we are focused on achieving continued milestones for Project Accelerate, our company-wide upgrade to our Oracle back office systems. The goal of these fiber and systems investments is singularly focused on building our Ethernet backlog throughout 2014.”

“It is clear to us that new Ethernet revenue streams will be the key towards re-accelerating data growth and reaching industry leading fiber bandwidth growth rates,” Mr. Biltz finished. “These key Ethernet growth products and markets include: FTTC, data center connectivity, Carrier End User and our fiber Edge-Out Markets, Richmond, Virginia and Western Pennsylvania.”

Highlights

  • The Company ended the first quarter of 2014 with 633 FTTC sites connected, up 25 sequentially, which represents a year-over-year increase in total FTTC sites of 56%. Lumos Networks reiterates its guidance of reaching 825 FTTC sites by year-end and reiterates its target of selling 500 to 700 unique and second FTTC circuits during 2014. Lumos Networks also maintains its target for 1,500 FTTC sites within the next few years.
  • Lumos Networks raised its target for connected data centers from 20 by the middle of 2015 to 20 by the end of 2014. As Enterprise bandwidth traffic moves increasingly into the Cloud, the Company believes that this segment will constitute an increasingly large percentage of total Enterprise revenue.
  • In the first quarter of 2014, the Company added 53 fiber route miles and now has a fiber route mile network of 7,467. Additionally, the Company added 43 on-net buildings in the quarter to reach 1,387.
  • Project Accelerate, the Company’s multi-year project to upgrade its internal systems to Oracle successfully passed two important milestones in the quarter, with the successful migration of two key systems: Financial and MetaSolv. This project is expected to improve customer facing capabilities, streamline business processes and drive operating efficiencies throughout the second half of 2014 and into 2015.
  • Lumos Networks selected Cisco Systems to supply the core routing equipment for Project Ark, an 850-mile MEF certified Carrier Ethernet MPLS/IP network overlay designed primarily for FTTC traffic, which will allow up to 1 terabyte of total bandwidth traffic. Project Ark completion is expected in 3Q14 and the Company expects to begin migrating fiber bandwidth traffic onto the Ark in 4Q14.
  • As of the end of the first quarter of 2014, the Company’s 110-mile fiber market in Richmond, Virginia had annualized Enterprise and Transport sales bookings of approximately $4.0 million.
  • On May 6, 2014, 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 July 10, 2014 to stockholders of record on June 12, 2014.

Business Outlook

For the full year 2014, the Company is revising both its revenue guidance from $200 to $204 million to approximately $200 million and its Adjusted EBITDA guidance from $94 to $96 million to approximately $90 million. We are temporarily suspending providing long-term goals for annual data growth.

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, Interim 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 8:00 A.M. (ET) on May 7, 2014.

The webcast may be accessed via the Internet at http://ir.lumosnetworks.com/ and the live call (“Lumos Networks First Quarter 2014 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 May 22, 2014 before 9:00 A.M. (ET) 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: 10044627
The webcast will also be archived and the replay may be accessed at http://ir.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 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 for the year ended December 31, 2013.

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, 2014     December 31, 2013
(In thousands)              
               
ASSETS              
Current Assets              
Cash and cash equivalents       $ 13,017     $ 14,114
Marketable securities         37,543       38,480
Restricted cash 1         4,324       4,324
Accounts receivable, net         22,015       22,917
Other receivables         629       1,588
Income tax receivable         979       1,116
Prepaid expenses and other         4,110       3,960
Deferred income taxes         6,520       7,289
Total Current Assets         89,137       93,788
               
Securities and investments         713       699
               
Property, plant and equipment, net         385,361       378,723
               
Other Assets              
Goodwill         100,297       100,297
Other intangibles, net         22,777       25,071
Deferred charges and other assets         7,821       7,722
Total Other Assets         130,895       133,090
               
Total Assets       $ 606,106     $ 606,300
               
               
LIABILITIES AND EQUITY              
Current Liabilities              
Current portion of long-term debt       $ 8,014     $ 6,688
Accounts payable         9,716       13,076
Dividends payable         3,104       3,091
Advance billings and customer deposits         13,542       13,502
Accrued compensation         1,004       2,185
Accrued operating taxes         4,844       4,375
Other accrued liabilities         4,736       3,992
Total Current Liabilities         44,960       46,909
               
Long-Term Liabilities              
Long-term debt, excluding current portion         371,237       373,290
Retirement benefits         16,747       16,848
Deferred income taxes         81,008       79,087
Other long-term liabilities         2,751       2,832
Income tax payable         357       328
Total Long-term Liabilities         472,100       472,385
               
Stockholders' Equity         88,351       86,333
Noncontrolling Interests         695       673
Total Equity         89,046       87,006
               
Total Liabilities and Equity       $ 606,106     $ 606,300
               
    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)       2014   2013
             
Operating Revenues       $ 50,090     $ 52,534  
             
Operating Expenses            
Network access costs         10,714       11,154  
Selling, general and administrative 1         17,932       18,020  
Depreciation and amortization         10,659       9,563  
Accretion of asset retirement obligations         27       31  
Restructuring charges         -       40  
Total Operating Expenses         39,332       38,808  
Operating Income         10,758       13,726  
             
Other Income (Expenses)            
Interest expense         (3,974 )     (3,128 )
Gain on interest rate swap derivatives         109       187  
Other income, net         180       25  
             
Income Before Income Tax Expense         7,073       10,810  
             
Income Tax Expense         2,978       4,332  
Net Income         4,095       6,478  
             
Net Income Attributable to Noncontrolling Interests         (33 )     (69 )
             
Net Income Attributable to Lumos Networks Corp.       $ 4,062     $ 6,409  
             

Basic and Diluted Earnings per Common Share Attributable to
Lumos Networks Corp. Stockholders:

 
             
Earnings per share - basic and diluted       $ 0.18     $ 0.30  
             
Cash Dividends Declared per Share - Common Stock       $ 0.14     $ 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 $0.8 million and $1.0 million for the three months ended March 31, 2014 and 2013, respectively.
         
               
Lumos Networks Corp.              
Condensed Consolidated Statements of Cash Flows       Three Months Ended March 31,
               
(In thousands)       2014     2013
               
Cash Flows from Operating Activities:              
Net income       $ 4,095       $ 6,478  
Adjustments to reconcile net income to net cash provided by operating activities:              
Depreciation         8,364         7,107  
Amortization         2,295         2,456  
Accretion of asset retirement obligations         27         31  
Deferred income taxes         2,803         3,768  
Gain on interest rate swap derivatives         (109 )       (187 )
Equity-based compensation expense         834         1,025  
Amortization of debt issuance costs         371         208  
Retirement benefits, net of cash contributions and distributions         (475 )       (80 )
Excess tax benefits from share-based compensation         (148 )       (78 )
Other         135         (20 )
Changes in operating assets and liabilities, net         1,575         (2,131 )
Net Cash Provided by Operating Activities         19,767         18,577  
               
Cash Flows from Investing Activities:              
Purchases of property, plant and equipment         (18,117 )       (15,032 )
Broadband network expansion funded by stimulus grant         196         (31 )
Purchases of available-for-sale marketable securities         (7,003 )       -  
Proceeds from sale or maturity of available-for-sale marketable securities         7,804         -  
Net Cash Used in Investing Activities         (17,120 )       (15,063 )
               
Cash Flows from Financing Activities:              
Principal payments on senior secured term loans         (688 )       (1,875 )
Borrowings from revolving credit facility         -         3,000  
Principal payments on revolving credit facility         -         (1,523 )
Cash dividends paid on common stock         (3,091 )       (3,013 )
Principal payments under capital lease obligations         (112 )       (113 )
Proceeds from stock option exercises and employee stock purchase plan         20         20  
Excess tax benefits from share-based compensation         148         78  
Other         (21 )       (88 )
Net Cash Used in Financing Activities         (3,744 )       (3,514 )
Decrease in cash and cash equivalents         (1,097 )       -  
Cash and cash equivalents:              
Beginning of Period         14,114         2  
               
End of Period       $ 13,017       $ 2  
               
                                   
Lumos Networks Corp.
Operating Results, Customer and Network Statistics
(Dollars in thousands)         Three months ended:
          March 31, 2014     December 31, 2013     September 30, 2013     June 30, 2013     March 31, 2013
Revenue and Adjusted EBITDA                                  
Revenue                                  
Enterprise Data         10,586       10,617       10,600       10,511       10,500  
Transport         11,129       12,145       11,861       12,236       12,210  
FTTC         4,422       4,181       3,633       2,959       2,659  
Total Data         26,137       26,943       26,094       25,706       25,369  
Residential and Small Business         18,647       19,094       20,055       20,453       21,057  
RLEC Access         5,306       4,966       5,478       6,152       6,108  
Total Revenue         50,090       51,003       51,627       52,311       52,534  
Adjusted EBITDA1                                  
Data         12,717       14,012       13,013       13,355       13,124  
Residential and Small Business         5,544       5,916       5,690       6,356       6,697  
RLEC Access         4,306       4,104       4,343       4,840       4,874  
Total Adjusted EBITDA         22,567       24,032       23,046       24,551       24,695  
Adjusted EBITDA Margin1         45.1 %     47.1 %     44.6 %     46.9 %     47.0 %
Capital Expenditures         18,117       22,613       18,997       11,692       15,032  
Adjusted EBITDA less Capital Expenditures         4,450       1,419       4,049       12,859       9,663  
                                   
Fiber Network Statistics                                  
Fiber Route-Miles2         7,467       7,414       ----       ----       ----  
Fiber Markets         23       23       23       23       22  
Fiber to the Cell Sites         633       608       540       465       405  
On-Network Buildings         1,387       1,344       1,303       1,273       1,235  
Data Centers         13       12       12       12       12  
                                   
R&SB Statistics                                  
Competitive Voice Connections         92,440       95,730       98,296       102,189       105,695  
Video Subscribers         5,073       5,034       4,975       4,767       4,666  
                                   
RLEC Access Lines         28,381       28,886       29,518       30,129       30,643  
                                   
    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 updated its total fiber route miles as of December 31, 2013 to include both long-haul and metro route miles. Previously, the Company had only disclosed long-haul miles. Quarterly trend information prior to December 31, 2013 is not comparable and is therefore not being presented herein.
         
Note: Certain prior period revenue and Adjusted EBITDA 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 March 31,
              2014   2013
      Net Income Attributable to Lumos Networks Corp.       $ 4,062     $ 6,409  
      Net Income Attributable to Noncontrolling Interests         33       69  
      Net Income         4,095       6,478  
                   
      Interest expense         3,974       3,128  
      Gain on interest rate swap derivatives         (109 )     (187 )
      Income tax expense         2,978       4,332  
      Other income, net         (180 )     (25 )
      Operating Income       $ 10,758     $ 13,726  
                           
               
Lumos Networks Corp.              
Reconciliation of Operating Income to Adjusted EBITDA              
(Dollars in thousands)      

     2014     

   

     2013     

                       
For The Three Months Ended March 31,              
        Operating Income       $ 10,758       $ 13,726  
        Depreciation and amortization and accretion of asset retirement obligations         10,686         9,594  
        Sub-total:         21,444         23,320  
        Amortization of actuarial losses         64         310  
        Equity-based compensation         834         1,025  
        Restructuring charges         -         40  
        Employee separation charges         225         -  
        Adjusted EBITDA       $ 22,567       $ 24,695  
        Adjusted EBITDA Margin         45.1 %       47.0 %
                       
                     
Lumos Networks Corp.
Business Outlook 1 (as of May 6, 2014)                    
(In millions)              

2014 Annual
Guidance 1

                             
        Operating Revenues               approximately $200
                             
        Adjusted EBITDA               approximately $90
                             
        Capital Expenditures               approximately $75
                             
        Cash, Cash Equivalents and Marketable Securities (at end of period)               $ 27 to $ 32
                             
        Reconciliation of Operating Income to Adjusted EBITDA:                    
        Operating Income               approximately $38
        Depreciation and amortization               approximately $47
        Equity based compensation charges               approximately $4
        Amortization of actuarial losses               approximately $1
        Adjusted EBITDA               approximately $90
           
    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 2014 earnings release dated May 6, 2014.

 

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

Source: Lumos Networks Corp.

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 26 markets in Virginia, West Virginia, North Carolina, Pennsylvania, Maryland, Ohio and Kentucky. With a fiber network of 11,028 fiber route miles and 517,244 total fiber strand miles, Lumos Networks connects 1,310 unique Fiber to the Cell sites, 1,684 total FTTC connections, 2,230 on-net buildings and approximately 3,500 total on-net locations. The Company also connects 44 total data centers, including three data centers acquired from DC74 (now named Lumos Data Centers), two acquired from Clarity Communications and seven company owned co-location facilities. In 2016, Lumos Networks generated over $123 million in Data revenue over our fiber network. Detailed information about Lumos Networks is available at www.lumosnetworks.com.

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