Lumos Networks Corp. Reports Third Quarter 2011 Operating Results

Lumos Networks Corp. (“Lumos Networks,” Nasdaq: LMOS), a fiber-based service provider of voice, data and IP-based telecommunication services in the Mid-Atlantic region, today announced operating results for its third quarter of 2011. Lumos Networks was separated from NTELOS Holdings Corp. (“NTELOS”) through a spin-off effective after the close of business on October 31, 2011.

“We are delighted to become an independent publicly traded company,” said James A. Hyde, chief executive officer of Lumos Networks. “It is a truly exciting time for our business. Opportunities in newly acquired markets, the recent expansion of our fiber network and continued growth in demand for high-speed data services combine with the separation to position us well for the future.”

Highlights for third quarter 2011 include:
  • Metro E and IP-based services were expanded into six new market areas in third quarter 2011, facilitated by the systems integration of acquired markets. For the year, these services have been expanded into 29 new markets in West Virginia, Pennsylvania and Maryland.
  • Consolidated adjusted EBITDA (a non-GAAP measure) for third quarter 2011 was $24.6 million.
  • Enterprise data revenues were up 9% (pro forma for acquisition), over third quarter 2010; on-net buildings increased by 46 during the quarter, totaling 949 at September 30, 2011.
  • Wholesale data revenues were up 16% (pro forma for acquisition), over third quarter 2010, and up 5% over the previous quarter. Construction was completed to 23 new cell sites during the quarter bringing the total to 132, with an additional 82 sites ordered.

Recent Developments

Funding of Credit Facility: Concurrent with the separation, Lumos Networks received funding of $340 million under a new $370 million senior credit facility consisting of a $60 million senior secured five-year revolving credit facility (the “Revolver”), of which $30 million was drawn; a $110 million senior secured five-year amortizing Term Loan A and a $200 million senior secured six-year amortizing Term Loan B. The proceeds were used to fund a working capital cash reserve at Lumos Networks and approximately $315 million was distributed to NTELOS to pay off intercompany debt owed and to fund a mandatory repayment on NTELOS Inc.'s credit facility. Pricing of the Lumos Networks credit facility was LIBOR plus 3.25% for the Revolver and the Term Loan A and LIBOR plus 3.50% for the Term Loan B, with no LIBOR floor.

Declaration of Dividend: On November 4, 2011, the Board of Directors of Lumos Networks Corp. declared the company’s first quarterly cash dividend on its common stock in the amount of $0.14 per share to be paid on January 12, 2012 to stockholders of record on December 16, 2011.

Chief Financial Officer Appointed: Harold L. “Hal” Covert joined Lumos Networks in September as executive vice president and chief financial officer. Mr. Covert’s career includes over 27 years of experience serving as chief financial officer for public and private technology companies.

Operating Highlights

Total operating revenues for the third quarter 2011 were $51.6 million compared to $35.6 million for third quarter 2010 and total adjusted EBITDA was $24.6 million for the third quarter 2011, compared to $19.4 million in third quarter 2010, each reflecting the results of FiberNet, which was acquired December 1, 2010.

Competitive Segment : Representing 75% of total revenues, Competitive revenues for third quarter 2011 were $38.5 million, compared to $21.0 million in third quarter 2010 and to $39.1 million in third quarter 2010, pro forma for the FiberNet acquisition. For the first nine months of 2011, Competitive revenues were $115.4 million compared to $116.5 million for first nine months of 2010, pro forma. The following results are presented on a pro forma basis to reflect the acquisition of FiberNet on December 1, 2010:

  • Enterprise Data Services: Revenues from Enterprise Data Services were $8.6 million for third quarter 2011, compared to $7.9 million for third quarter 2010, an increase of 9%. This increase was primarily driven by sales to existing and new customers in acquired markets, recently integrated to offer Metro E and IP-based services. For the nine months ended September 30, 2011 and 2010, respectively, revenues from Enterprise Data Services were $25.0 million and $22.7 million, an increase of 11%.
  • Small-Medium Business (SMB)/Residential Data: For the third quarter of 2011, SMB/Residential revenues were $4.4 million compared to $4.2 million in third quarter 2010 an increase of 3%. For the first time, residential customers in the RLEC footprint with high-speed broadband over fiber connections exceeded customers with copper DSL connections for the quarter. SMB/Residential revenues for the first nine months of 2011 and 2010, respectively, were $12.9 million and $12.5 million, an increase of 3%.
  • Wholesale: Driven by the addition of fiber to 23 cell sites and related sales, wholesale revenues were $9.4 million for third quarter 2011, a 16% increase over pro forma $8.0 million in third quarter 2010. For the first nine months of 2011, wholesale revenues were $26.6 million, compared to $23.8 for the first nine months of 2010, an increase of 12%.
  • Voice and Long Distance: Growth from data products was mitigated by revenue decreases in competitive voice, long distance and other legacy products resulting primarily from anticipated off-network, voice customer churn in the acquired markets. On a pro forma basis, revenues from these products were down $2.2 million, or 14% and $5.4 million, or 12%, for the third quarter and the first nine months of 2011, respectively, compared to the same periods last year.

Adjusted EBITDA for Competitive was $15.7 million for the third quarter 2011, compared to $9.0 million in third quarter 2010 and $14.2 million pro forma third quarter 2010. For the first nine months of 2011, pro forma adjusted EBITDA was $45.7 million, a 9% increase over $42.0 million pro forma for the first nine months of 2010.

RLEC : RLEC revenues for the third quarter of 2011 were $13.1 million and were down 10% from third quarter 2010 and down $0.5 million, or 4% from second quarter 2011, reflecting access revenue losses. The biennial regulatory access rate reset effective July 1, 2011 negatively impacted RLEC revenues by approximately $0.6 million in the third quarter of 2011, compared to the previous quarter. RLEC adjusted EBITDA, with a margin of 68%, was $8.9 million for third quarter 2011, compared to $10.4 million in third quarter 2010.

Michael B. Moneymaker, president of Lumos Networks said, “We continue to see strong growth in revenues from enterprise data products, particularly in the newly integrated markets, and wireless carrier backhaul is driving significant wholesale revenue increases across the footprint.” He continued, “With market data demand only in early stages, we are well positioned for continued sales successes in these key segments.”

Business Outlook

The Company will provide financial guidance on the Third Quarter 2011 Earnings Conference Call scheduled for tomorrow, November 8, 2011 at 10:00 A.M. ET.

Statements made will be 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.”

Presentation of Third Quarter 2011 Lumos Networks Corp. Results

The separation of Lumos Networks from NTELOS became effective after the close of business on October 31, 2011. A reverse split of one share for every two shares of NTELOS common stock was completed on this date and stockholders of record on October 24, 2011 received one share of Lumos Networks common stock for every share of the NTELOS common stock held, after giving effect to the reverse split, resulting in the distribution of approximately 21 million shares of Lumos Networks common stock. Since the separation occurred after the close of third quarter 2011, results for Lumos Networks were reported within the consolidated results of NTELOS.

The financial results in this presentation have been adjusted to reflect certain corporate expenses which were not previously allocated to the NTELOS segments. These allocations primarily represent corporate support functions, including but not limited to accounting, human resources, information technology and executive management, as well as corporate legal and professional fees, including audit fees, and equity-based compensation expense related to equity-based awards granted to employees in corporate support functions. These additional expenses for the nine months ended September 30, 2011 and 2010 totaled $2.3 million and $1.8 million, respectively.

This presentation does not reflect the funding of the Lumos Networks credit facility, the distribution of Lumos Networks common stock and certain additional costs of being a stand-alone public company.

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 attributable to noncontrolling interests, other expenses/income, equity based compensation charges, acquisition related charges, and costs related to the separation of the company from NTELOS.

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 exhibits and materials posted on the Lumos Networks website 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.

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 5,800 route-mile fiber network. Detailed information about Lumos Networks is available at www.lumosnetworks.com.

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 industry; our ability to achieve benefits from our separation from NTELOS Holdings Corp; our ability to successfully integrate the operations of the FiberNet business and increase revenues and manage churn in this business; our ability to offset expected revenue declines in our RLEC business related to the recent regulatory developments and carriers grooming their networks; the failure to realize synergies and cost savings from the acquisition of the FiberNet business or delay in realization thereof; 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; Failure to complete the business separation of the wireless and wireline operations in an orderly fashion as currently structured 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 Operations
  • Summary of Operating Results
  • Reconciliation of Net Income Attributable to Lumos Networks Corp. to Operating Income
  • Reconciliation of Operating Income to Adjusted EBITDA
  • Customers and Network Statistics
   
Lumos Networks Corp.        
Condensed Consolidated Balance Sheets
        September 30, 2011   December 31, 2010
(in thousands)
   
ASSETS
Current Assets
Cash $ 448 $ 489
Restricted cash 1 8,062 8,062
Accounts receivable, net 20,984 20,785
Other receivables 2,387 1,238
  Prepaid expenses and other     2,351     2,020
        34,232     32,594
 
Securities and investments 71 71
 
Property, plant and equipment, net 308,188 273,856
 
Other Assets
Goodwill 134,579 134,579
Franchise rights 32,000 32,000
Customer relationship intangible assets 51,884 62,623
Trademark and other intangible assets 2,168 3,281
  Deferred charges and other assets     6,324     2,196
        226,955     234,679
 
  Total Assets   $ 569,446   $ 541,200
 
 
LIABILITIES AND EQUITY
Current Liabilities
Current portion of capital lease obligations $ 783 $ 688
Accounts payable 15,888 12,599
Advance billings and customer deposits 12,242 11,653
Accrued compensation 674 930
Accrued interest 80 -
Accrued operating taxes 2,773 844
  Other accrued liabilities     1,027     1,428
        33,467     28,142
 
Long-Term Liabilities
Obligation to NTELOS Inc. 187,866 178,616
Capital lease obligations 1,418 1,417
Deferred Income taxes 69,155 61,217
Other long-term liabilities 5,064 5,122
  Income tax payable     469     500
        263,972     246,872
 
Lumos Networks Equity     272,007     266,186
 
  Total Liabilities and Equity   $ 569,446   $ 541,200
1   During 2010, the Company received Federal stimulus awards, providing 50% funding, to bring broadband services and infrastructure to Alleghany County, Virginia and to provide wireless broadband service and infrastructure to Hagerstown, Maryland. The Company was required to deposit 100% of its portion for both grants ($9.2 million) into pledged accounts in advance of any reimbursements, to be drawn down ratably following reimbursement approvals.
       

Lumos Networks Corp.
               
Condensed Consolidated Statements of Operations   Three months ended:   Nine-months ended:
 
(in thousands, except per share amounts)   September 30, 2011   September 30, 2010   September 30, 2011   September 30, 2010
 
Operating Revenues $ 51,601 $ 35,553 $ 156,307 $ 104,951
 
Operating Expenses 1
Cost of sales and services (exclusive of items shown separately below) 19,479 10,903 58,901 32,440
Customer operations 4,661 3,154 14,778 9,591

Corporate operations
3,588 3,318 10,908 8,900
  Depreciation and amortization and accretion of asset retirement obligations     10,934       7,403       32,989       22,303  
        38,662       24,778       117,576       73,234  
Operating Income 12,939 10,775 38,731 31,717
 
Other Income (Expenses)
Interest expense (2,559 ) (1,065 ) (8,840 ) (3,821 )
  Other (expense) income, net     66       9       73       25  
 
10,446 9,719 29,964 27,921
 
Income Tax Expense     4,249       3,973       12,144       11,302  
Net Income 6,197 5,746 17,820 16,619
 
Net Income Attributable to Noncontrolling Interests (2 ) (13 ) (87 ) (91 )
                   
Net Income Attributable to Lumos Networks Corp.   $ 6,195     $ 5,733     $ 17,733     $ 16,528  
  Note: First nine months of 2011 includes the operating results of FiberNet, acquired on December 1, 2010.
 
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 $0.8 million and $0.4 million for the third quarters of 2011 and 2010, respectively; and $2.1 million and $1.1 million for the nine months ended September 30, 2011 and 2010, respectively.
       
Lumos Networks Corp.                
Summary of Operating Results              
(in thousands) Three months ended: Nine months ended:
      September 30, 2010   September 30, 2011 September 30, 2010   September 30, 2011
Operating Revenues
  Competitive Wireline $ 20,957 $ 38,494 $ 61,400 $ 115,356
Enterprise Data 4,702 8,583 13,211 24,952
SMB/Residential Data 3,682 4,364 10,868 12,886
Wholesale 6,203 9,358 18,336 26,635
Voice and Long Distance 4,704 13,318 14,144 41,425
Other 1,666 2,871 4,841 9,458
 
RLEC $ 14,596 $ 13,107 $ 43,551 $ 40,951
Local 2,921 2,890 8,936 8,569
Access 9,128 7,880 26,975 24,981
  Other     2,547     2,337   7,640     7,401
      $ 35,553   $ 51,601 $ 104,951   $ 156,307
Operating Expenses
(before depreciation & amortization, asset impairment charges, accretion of asset retirement obligations, equity based compensation and acquisition related charges, a non-GAAP Measure of operating expenses)
 
Competitive Wireline $ 11,931 $ 22,764 $ 35,477 $ 69,678
  RLEC     4,208     4,190   13,498     12,693
      $ 16,139   $ 26,954 $ 48,975   $ 82,371
Adjusted EBITDA (a non-GAAP Measure)
Competitive Wireline $ 9,026

 
$ 15,730

 
$ 25,923

 
$ 45,678
  RLEC     10,388

 
  8,917

 
  30,053

 
  28,258
      $ 19,414

 
$ 24,647

 
$ 55,976

 
$ 73,936
Capital Expenditures
Competitive Wireline $ 5,259 $ 10,764 $ 22,148 $ 38,388
  RLEC     2,411     4,249   7,682     10,426
      $ 7,670   $ 15,013 $ 29,830   $ 48,814
Adjusted EBITDA less Capital Expenditures (a non-GAAP measure)
Competitive Wireline $ 3,767 $ 4,966 $ 3,775 $ 7,290
  RLEC     7,977     4,668   22,371     17,832
      $ 11,744   $ 9,634 $ 26,146   $ 25,122
       
Lumos Networks Corp.                
Reconciliation of Net Income Attributable to Lumos Networks Corp. to Operating Income
(in thousands)              
 

Three months ended:

Nine months ended:
      September 30, 2010   September 30, 2011 September 30, 2010   September 30, 2011
Net income attributable to Lumos Networks Corp. $ 5,733 $ 6,195 $ 16,528 $ 17,733
Net income attributable to noncontrolling interests     13       2     91       87  
Net Income 5,746 6,197 16,619 17,820
 
Interest expense 1,065 2,559 3,821 8,840
Income taxes 3,973 4,249 11,302 12,144
Other income     (9 )     (66 )   (25 )     (73 )
Operating income   $ 10,775     $ 12,939   $ 31,717     $ 38,731  
 
Competitive Wireline 4,049 7,870 12,736 21,937
RLEC     6,726       5,069     18,981       16,794  
Operating income   $ 10,775     $ 12,939   $ 31,717     $ 38,731  
             
Lumos Networks Corp.                          
Reconciliation of Operating Income to Adjusted EBITDA
(dollars in thousands)   2010 2011
    Competitive Competitive
        Wireline   RLEC   Total Wireline   RLEC   Total
 
For The Three Months Ended September 30
Operating Income $ 4,049 $ 6,726 $ 10,775 $ 7,870 $ 5,069 $ 12,939
Depreciation and amortization and accretion of asset retirement obligations     3,924       3,479       7,403     7,398       3,536       10,934  
Sub-total:     7,973       10,205       18,178     15,268       8,605       23,873  
Equity based compensation 204 183 387 472 312 784
Acquisition related charges 1     849       -       849     (10 )     -       (10 )
Adjusted EBITDA   $ 9,026     $ 10,388     $ 19,414   $ 15,730     $ 8,917     $ 24,647  
Adjusted EBITDA Margin 43.1 % 71.2 % 54.6 % 40.9 % 68.0 % 47.8 %
 
For The Nine Months Ended September 30
Operating Income $ 12,736 $ 18,981 $ 31,717 $ 21,937 $ 16,794 $ 38,731
Depreciation and amortization and accretion of asset retirement obligations     11,752       10,551       22,303     22,383       10,606       32,989  
Sub-total:     24,488       29,532       54,020     44,320       27,400       71,720  
Equity based compensation 586 521 1,107 1,288 858 2,146
Acquisition related charges 1     849       -       849     70       -       70  
Adjusted EBITDA   $ 25,923     $ 30,053     $ 55,976   $ 45,678     $ 28,258     $ 73,936  
Adjusted EBITDA Margin 42.2 % 69.0 % 53.3 % 39.6 % 69.0 % 47.3 %
 
1 Acquisition related charges represent legal and professional fees related to the acquisition of FiberNet that closed on December 1, 2010.
         
Lumos Networks Corp.                    
Customers and Network Statistics                
  Three months ended:
      September 30, 2010   December 31, 2010   March 31, 2011   June 30, 2011   September 30, 2011
Competitive voice connections 1 49,474 134,071 129,734 127,561 125,500
RLEC Broadband Customers 2 14,728 14,706 14,643 14,542 14,947
Total Broadband Connections 2 25,302 32,994 33,453 33,774 34,747
Video Subscribers 2,669 2,849 2,997 3,152 3,439
RLEC Total Access Lines 36,233 35,422 34,920 34,489 33,840
 
On-Network Buildings 3 705 752 830 903 949
Fiber-Fed Cell Sites 3 63 71 91 109 132
Co-Locations 142 143 144 146 147
Long-Haul Fiber Miles 4,940 4,941 5,767 5,788 5,801
 
1 Includes customer Primary Rate Interface (PRI) line equivalents at 23 lines per PRI. Excludes intercompany PRI lines.
 
2 Includes customers or customer equivalents for DSL, dedicated Internet access, wireless portable broadband, broadband over fiber and metro Ethernet. All revenues from broadband products, including RLEC broadband, are recorded in the operating revenues of the Competitive Wireline segment.
 
3 Includes statistics for legacy markets only, excluding FiberNet.

Copyright Business Wire 2010

More from Press Releases

NFL Pushes for Regulation Following Supreme Court's Sports Gambling Ruling

NFL Pushes for Regulation Following Supreme Court's Sports Gambling Ruling

21st Century Fox Scoops Up Local News Stations

21st Century Fox Scoops Up Local News Stations

Walmart CEO: 'We Are Transforming Globally' With Flipkart

Walmart CEO: 'We Are Transforming Globally' With Flipkart

Three-Part FREE Webinar Series

Three-Part FREE Webinar Series

March 24 Full-Day Course Offering: Professional Approach to Trading SPX

March 24 Full-Day Course Offering: Professional Approach to Trading SPX