Lumos Networks Corp. Reports Third Quarter 2017 Results On a YoY Basis, Total Revenue up over 7%, Data Revenue up nearly 15% FCC Approval Received for EQT Transaction

Company Release - 11/8/2017 4:29 PM ET

Third Quarter 2017 Highlights:

  • Year-over-year growth in consolidated revenues and Adjusted EBITDA
    • $55.6 million in total revenue, up over 7% year-over-year
    • Operating income of over $7.6 million compared to $9.2 million in the prior year period
    • Net loss of nearly $0.5 million or $0.02 loss per diluted share
    • $24.4 million in Adjusted EBITDA, up slightly from the prior year period
  • Total 3Q17 Data revenue of nearly $36 million, up nearly 15% year-over-year
    • Total combined FTTC and Enterprise revenue of nearly $27.9 million, up nearly 22% year-over-year
    • Combined FTTC/Enterprise constituted approximately 77% of total Data revenue compared to 73% in the prior year period
    • Added 59 enterprise lit buildings in the third quarter to reach 2,230 total lit buildings, up over 12% year-over-year

WAYNESBORO, Va., Nov. 08, 2017 (GLOBE NEWSWIRE) -- Lumos Networks Corp. (“Lumos Networks”, “Lumos” or the “Company”) (Nasdaq:LMOS), a leading fiber-based service provider in the Mid-Atlantic region, today announced its results for the third quarter of 2017.

Total revenue for the third quarter of 2017 was $55.6 million, up over 7% from the prior year period. The Company generated operating income of $7.6 million for the three months ended September 30, 2017, down from $9.2 million in the prior year period.  

Net loss attributable to Lumos Networks Corp. was slightly less than $0.5 million, or $0.02 loss per diluted share, for the third quarter of 2017, compared to net income of approximately $1.0 million, or $0.04 earnings per diluted share, in the prior year period. Total Adjusted EBITDA for the third quarter was $24.4 million, up slightly from the prior year period.

On February 18, 2017, the Company entered into a definitive agreement to be acquired by EQT Infrastructure for $18.00 per share in an all-cash transaction, resulting in an enterprise value of approximately $950 million.   The Company today also announced that FCC approval has been received for the transaction and expects the transaction to close before the end of November 2017.

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 over 3,500 total on-net locations.  The Company also connects 44 total data centers, including five data centers acquired from DC74, 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.

Non-GAAP Measures
Contribution Margin is net income or loss attributable to Lumos Networks Corp. before interest, income taxes, depreciation and amortization, accretion of asset retirement obligations, net income or loss attributable to noncontrolling interests, other (income) expenses, net, restructuring charges, changes in the fair value of contingent consideration obligations, corporate general and administrative expenses, including equity-based compensation, transaction related charges,  and amortization of actuarial gains or losses, and indirect operating expenses. Contribution Margin ratio is calculated as the ratio of Contribution Margin, as defined, to operating revenues.

Adjusted EBITDA is net income or loss attributable to Lumos Networks Corp. before interest, income taxes, depreciation and amortization and accretion of asset retirement obligations, net income or loss attributable to noncontrolling interests, other (income) expenses, net, equity-based compensation, amortization of actuarial losses, restructuring charges, transaction related charges and changes in fair value of contingent consideration obligations. Adjusted EBITDA margin is calculated as the ratio of Adjusted EBITDA, as defined, to operating revenues.

Contribution Margin, Contribution Margin Ratio, Adjusted EBITDA and Adjusted EBITDA Margin are non-GAAP financial performance measures.  They 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: the successful closing of the announced EQT Merger, including satisfying closing conditions; the timing to consummate the proposed Merger; any disruption from the proposed Merger making it more difficult to maintain relationships with customers, employees or suppliers; the diversion of management time on Merger-related issues; the Merger may involve unexpected costs, liabilities or delays; the outcome of any legal proceedings related to the Merger, the failure by EQT Infrastructure to obtain the necessary financing arrangement set forth in commitment letters received in connection with the Merger; the impact of our previous acquisitions of Clarity and DC74 on our operations; rapid development and intense competition with resulting pricing pressure 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 obtain new carrier contracts or expand services under existing carrier contracts at competitive pricing levels to offset churn and achieve revenue growth from our carrier businesses; our ability to separate our legacy business on a timely basis; our ability to effectively allocate capital and timely implement network expansion plans necessary to accommodate organic growth initiatives; 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 the Quarterly Report on Form 10-Q for the quarter ended June 30, 2017 and our Annual Report filed on Form 10-K for the year ended December 31, 2016.

Exhibits:

  • Condensed Consolidated Balance Sheets
  • Condensed Consolidated Statements of Operations
  • Condensed Consolidated Statements of Cash Flows
  • Summary of Operating Results, Customer and Network Statistics
  • Reconciliation of Non-GAAP Financial Measures to GAAP Results

 

 
Lumos Networks Corp.   
Condensed Consolidated Balance Sheets   
 September 30, 2017 December 31, 2016
(In thousands)   
    
ASSETS   
Current Assets   
Cash and cash equivalents$43,582 $33,575
Marketable securities -  38,081
Accounts receivable, net 22,424  22,609
Other receivables 559  753
Income tax receivable 30  459
Prepaid expenses and other 6,804  5,028
Total Current Assets 73,399  100,505
    
Securities and investments 1,643  1,479
    
Property, plant and equipment, net 534,940  536,288
    
Other Assets   
Goodwill 125,667  100,297
Other intangibles, net 18,092  8,503
Deferred charges and other assets 5,273  6,300
Total Other Assets 149,032  115,100
    
Total Assets$759,014 $753,372
    
    
LIABILITIES AND EQUITY    
Current Liabilities   
Current portion of long-term debt$73,825 $13,530
Accounts payable 7,076  8,607
Advance billings and customer deposits 14,275  14,140
Accrued compensation 1,665  1,491
Accrued operating taxes 5,999  4,518
Other accrued liabilities 10,034  5,000
Total Current Liabilities 112,874  47,286
    
Long-Term Liabilities   
Long-term debt, net of unamortized discount and debt issuance costs, excluding current portion 388,027  454,885
Retirement benefits 15,227  16,029
Deferred income taxes, net 93,624  96,988
Other long-term liabilities 8,468  2,124
Total Long-term Liabilities 505,346  570,026
    
Stockholders' Equity 139,869  135,174
Noncontrolling Interests 925  886
Total Equity 140,794  136,060
    
Total Liabilities and Equity$759,014 $753,372
    

 

 
Lumos Networks Corp.   
Condensed Consolidated Statements of OperationsThree months ended September 30, Nine months ended September 30,
        
(In thousands, except per share amounts)2017
 2016
 2017
 2016
        
Operating Revenues$55,610  $51,771  $166,892  $155,013 
        
Operating Expenses       
Cost of revenue, exclusive of depreciation and amortization 10,042   9,657   30,978   29,948 
Selling, general and administrative, exclusive of depreciation and amortization1 23,369   20,505   76,394   64,056 
Depreciation and amortization 14,456   12,739   43,640   37,028 
Accretion of asset retirement obligations 27   23   76   91 
Restructuring charges -   (384)  34   1,823 
Change in fair value of contingent consideration obligations 100   -   700   - 
Total Operating Expenses 47,994   42,540   151,822   132,946 
Operating Income 7,616   9,231   15,070   22,067 
        
Other Income (Expenses)       
Interest expense (7,771)  (7,164)  (22,756)  (21,165)
Other income, net 8   48   647   320 
        
(Loss) Income Before Income Taxes (147)  2,115   (7,039)  1,222 
        
Income Tax Expense (Benefit) 335   1,046   (1,838)  1,712 
Net (Loss) Income (482)  1,069   (5,201)  (490)
        
Net Loss (Income) Attributable to Noncontrolling Interests 29   (46)  (39)  (137)
        
Net (Loss) Income Attributable to Lumos Networks Corp.$(453) $1,023  $(5,240) $(627)
        
        
Basic and Diluted (Loss) Earnings per Common Share Attributable to Lumos Networks Corp. Stockholders:       
        
Basic and diluted (loss) earnings per share$(0.02) $0.04  $(0.23) $(0.03)
        
1 Includes equity-based compensation expense related to all of the Company’s share-based awards, annual employee bonuses paid in the form of immediately vested shares and the Company’s 401(k) matching contributions. Equity-based compensation totaled $1.2 million and $1.7 million for the three months ended September 30, 2017 and 2016, respectively, and $9.2 million and $8.5 million for the nine months ended September 30, 2017 and 2016, respectively. Also includes $0.7 million and $4.1 million of transaction related charges for the three and nine months ended September 30, 2017, respectively.
 

 

 
Lumos Networks Corp.  
Condensed Consolidated Statements of Cash FlowsNine Months Ended September 30,
   
(In thousands)2017
2016
   
Cash Flows from Operating Activities:  
Net Loss$(5,201)$(490)
Adjustments to reconcile net loss to net cash provided by operating activities:  
Depreciation 40,099  35,097 
Amortization 3,541  1,931 
Accretion of asset retirement obligations 76  91 
Change in fair value of contingent consideration obligations 700  - 
Deferred income taxes (1,838) 1,374 
Equity-based compensation expense 9,152  8,477 
Amortization of debt issuance costs 3,586  3,345 
Retirement benefits, net of cash contributions and distributions 175  340 
Other 347  649 
Changes in operating assets and liabilities, net 3,696  (5,027)
Net Cash Provided by Operating Activities 54,333  45,787 
   
Cash Flows from Investing Activities:  
Purchases of property, plant and equipment (36,947) (65,280)
Acquisition of Clarity Communications, LLC, net of cash acquired (9,961) - 
Acquisition of DC74, LLC, net of cash acquired (23,528) - 
Purchases of available-for-sale marketable securities (4,000) (57,142)
Proceeds from sale or maturity of available-for-sale marketable securities 42,096  107,075 
Net Cash Used in Investing Activities (32,340) (15,347)
   
Cash Flows from Financing Activities:  
Principal payments on senior secured term loans (9,774) (6,024)
Principal payments under capital lease obligations (377) (2,551)
Capital distribution to noncontrolling interests -  (232)
Proceeds from stock option exercises and employee stock purchase plan 1,057  630 
Repurchases of common stock to settle tax withholding obligations on employee stock awards (2,892) (2,354)
Net Cash Used in Financing Activities (11,986) (10,531)
Increase in cash and cash equivalents 10,007  19,909 
Cash and cash equivalents:  
Beginning of Period 33,575  13,267 
   
End of Period$43,582 $33,176 
   

 

 
Lumos Networks Corp.                         
Operating Results, Customer and Network Statistics                         
(Dollars in thousands)  Three months ended:  Nine Months Ended:
   September 30, 2017  June 30, 2017   March 31, 2017   December 31, 2016   September 30, 2016   September 30, 2017  September 30, 2016
Revenue, Gross Margin, Contribution Margin and Adjusted EBITDA                         
Revenue                         
Enterprise Data $18,111 $17,604 $ 16,473 $ 13,911 $ 13,549  $52,188 $38,428
Transport  8,135  8,221   8,454   8,106   8,499   24,810  26,500
FTTC  9,752  9,709   9,660   9,629   9,325   29,121  27,030
Total Data  35,998  35,534   34,587   31,646   31,373   106,119  91,958
Residential and Small Business  14,632  15,490   15,205   15,488   15,863   45,327  47,840
RLEC Access  4,980  5,342   5,124   4,752   4,535   15,446  15,215
Total Revenue $55,610 $56,366 $ 54,916 $ 51,886 $ 51,771  $166,892 $155,013
Gross Margin                         
Data  84.5%  84.2%   84.2%   86.6%   85.5%   84.3%  85.1%
Residential and Small Business  69.4%  68.5%   67.3%   69.1%   67.7%   68.4%  66.0%
Contribution Margin1                         
Data $27,982 $27,586 $ 26,968 $ 25,517 $ 24,822  $82,536 $72,689
Residential and Small Business  9,061  9,466   9,128   9,554   9,516   27,655  28,052
RLEC Access  4,825  5,179   4,970   4,591   4,360   14,974  14,723
Total Contribution Margin $41,868 $42,231 $ 41,066 $ 39,662 $ 38,698  $125,165 $115,464
Contribution Margin Ratio1                         
Data  77.7%  77.6%   78.0%   80.6%   79.1%   77.8%  79.0%
Residential and Small Business  61.9%  61.1%   60.0%   61.7%   60.0%   61.0%  58.6%
RLEC Access  96.9%  96.9%   97.0%   96.6%   96.1%   96.9%  96.8%
Total Contribution Margin Ratio  75.3%  74.9%   74.8%   76.4%   74.7%   75.0%  74.5%
Adjusted EBITDA1                         
Data $14,913 $15,105 $ 14,307 $ 14,311 $ 14,567  $44,325 $41,707
Residential and Small Business  5,150  5,660   5,121   5,506   5,723   15,931  16,211
RLEC Access  4,309  4,707   4,463   4,122   3,970   13,479  13,233
Total Adjusted EBITDA $24,372 $25,472 $ 23,891 $ 23,939 $ 24,260  $73,735 $71,151
Adjusted EBITDA Margin1                         
Data  41.4%  42.5%   41.4%   45.2%   46.4%   41.8%  45.4%
Residential and Small Business  35.2%  36.5%   33.7%   35.6%   36.1%   35.1%  33.9%
RLEC Access  86.5%  88.1%   87.1%   86.7%   87.5%   87.3%  87.0%
Total Adjusted EBITDA Margin  43.8%  45.2%   43.5%   46.1%   46.9%   44.2%  45.9%
                          
Capital Expenditures $12,750 $11,100 $ 13,097 $ 18,747 $ 20,089  $36,947 $65,280
Adjusted EBITDA less Capital Expenditures $11,622 $14,372 $ 10,794 $ 5,192 $ 4,171  $36,788 $5,871
                          

 

           
Lumos Networks Corp.          
Operating Results, Customer and Network Statistics (continued)          
  Three months ended:
  September 30, 2017 June 30, 2017 March 31, 2017 December 31, 2016 September 30, 2016
Fiber Network Statistics          
Fiber Route-Miles 11,028 10,983 10,907 10,112 9,204
Fiber Miles2 517,244 515,362 503,616 491,276 475,507
Fiber Markets 26 26 26 25 24
FTTC Unique Towers 1,310 1,307 1,306 1,304 1,297
FTTC Total Connections 1,684 1,672 1,663 1,659 1,642
On-Network Buildings 2,230 2,171 2,125 2,031 1,984
Data Centers3 44 43 43 36 36
Mobile Switching Centers 16 16 15 15 14
           
R&SB Statistics          
Competitive Voice Connections5 58,089 61,186 62,972 65,285 68,084
Video Subscribers 5,454 5,601 5,723 5,851 5,841
Fiber-to-the-Premise Broadband Connections 9,485 9,415 9,330 8,972 8,307
Premises Passed by Fiber4 20,171 20,119 19,983 19,783 19,591
           
RLEC Access Lines5 21,501 22,071 22,483 22,991 23,381
           
Contribution Margin, Contribution Margin Ratio, Adjusted EBITDA and Adjusted EBITDA Margin are non-GAAP measures.  See definitions on page 2 of this earnings release.
Fiber miles are calculated as the fiber route miles multiplied by the number of fiber strands within each cable (represents an average of 47 fibers per route as of September 30, 2017).
Data centers reported include both commercial and private data centers and Company-owned facilities offering commercial data center services.
Includes residential and small business locations passed by fiber and available for service. Approximately 92% of the premises passed by fiber and available for service as of September 30, 2017 were residential.
During the fourth quarter of 2016, the Company revised its competitive and RLEC voice connections as a result of enhanced system reporting capabilities. Historical voice connections for prior quarters have been revised to reflect the updated information.
 
Note:  Certain prior period Adjusted EBITDA amounts have been reclassified to conform with the current year presentation.
 

 

     
Lumos Networks Corp.    
Reconciliation of Net (Loss) Income Attributable to Lumos Networks Corp. to Contribution Margin    
(Dollars in thousands) 2017
 2016
     
For The Three Months Ended September 30,     
Net (Loss) Income Attributable to Lumos Networks Corp. $(453) $1,023 
Net (Loss) Income Attributable to Noncontrolling Interests  (29)  46 
Net (Loss) Income  (482)  1,069 
Income tax expense  335   1,046 
Interest expense  7,771   7,164 
Other income, net  (8)  (48)
Operating income  7,616   9,231 
Depreciation and amortization and accretion of asset retirement obligations  14,483   12,762 
Restructuring charges  -   (384)
Change in fair value of contingent consideration obligations  100   - 
Indirect operating costs  10,239   9,121 
Corporate general and administrative costs, including equity-based compensation and transaction related charges  9,430   7,968 
Contribution Margin $41,868  $38,698 
Contribution Margin Ratio  75.3%   74.7% 
     
For The Nine Months Ended September 30,    
Net Loss Attributable to Lumos Networks Corp. $(5,240) $(627)
Net Income Attributable to Noncontrolling Interests  39   137 
Net Loss  (5,201)  (490)
Income tax (benefit) expense  (1,838)  1,712 
Interest expense  22,756   21,165 
Other income, net  (647)  (320)
Operating Income  15,070   22,067 
Depreciation and amortization and accretion of asset retirement obligations  43,716   37,119 
Restructuring charges  34   1,823 
Change in fair value of contingent consideration obligations  700   - 
Indirect operating costs  31,184   26,657 
Corporate general and administrative costs, including equity-based compensation and transaction related charges  34,461   27,798 
Contribution Margin $125,165  $115,464 
Contribution Margin Ratio  75.0%   74.5% 
     
Lumos Networks Corp.    
Reconciliation of Net (Loss) Income Attributable to Lumos Networks Corp. to Adjusted EBITDA     
(Dollars in thousands)  2017   2016 
     
For The Three Months Ended September 30,     
Net (Loss) Income Attributable to Lumos Networks Corp. $(453) $1,023 
Net (Loss) Income Attributable to Noncontrolling Interests  (29)  46 
Net (Loss) Income  (482)  1,069 
Income tax expense  335   1,046 
Interest expense  7,771   7,164 
Other income, net  (8)  (48)
Operating income  7,616   9,231 
Depreciation and amortization and accretion of asset retirement obligations  14,483   12,762 
Amortization of actuarial losses  326   338 
Equity-based compensation  1,156   1,661 
Restructuring charges  -   (384)
Transaction related charges  691   652 
Change in fair value of contingent consideration obligations  100   - 
Adjusted EBITDA $24,372  $24,260 
Adjusted EBITDA Margin  43.8%   46.9% 
     
For The Nine Months Ended September 30,    
Net Loss Attributable to Lumos Networks Corp. $(5,240) $(627)
Net Income Attributable to Noncontrolling Interests  39   137 
Net Loss  (5,201)  (490)
Income tax (benefit) expense  (1,838)  1,712 
Interest expense  22,756   21,165 
Other income, net  (647)  (320)
Operating Income  15,070   22,067 
Depreciation and amortization and accretion of asset retirement obligations  43,716   37,119 
Amortization of actuarial losses  977   1,013 
Equity-based compensation  9,152   8,477 
Restructuring charges  34   1,823 
Transaction related charges  4,086   652 
Change in fair value of contingent consideration obligations  700   - 
Adjusted EBITDA $73,735  $71,151 
Adjusted EBITDA Margin  44.2%   45.9% 
    

 

Contact: Will Davis
SVP of Marketing and Investor Relations
Chief of Staff
Phone: 917-519-6994
Email: davisw@lumosnet.com

Source: Lumos Networks Corp.