Lumos Networks Corp. - FORM 8-K - EX-99.1 - EXHIBIT 99.1

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8-K - FORM 8-K - Lumos Networks Corp.	d431651d8k.htm
EX-99.2 - EXHIBIT 99.2 - Lumos Networks Corp.	d431651dex992.htm

Exhibit 99.1


Contact:		Hal Covert
		Chief Financial Officer
		Phone: 540-946-8174
		Email: coverth@lumosnet.com

Lumos Networks Corp. Reports Third Quarter 2012 Financial Results

Revenue and Adjusted EBITDA in Line with Guidance for the Quarter

Strategic Data Revenue 50% of total revenue for the Quarter and grew 5% sequentially

Cash Dividend of $0.14 per Share Declared

WAYNESBORO, VA – November 1, 2012 – Lumos Networks Corp. (“Lumos Networks” or “the Company”) (Nasdaq: LMOS), a fiber-based service provider of voice, data and IP-based telecommunication services in the Mid-Atlantic region, today announced financial results for its third quarter 2012.

Total revenue for third quarter 2012 was $52.0 million, compared to $51.6 million for third quarter 2011 and $50.8 million in second quarter 2012. Total adjusted EBITDA was $22.3 million for third quarter 2012, compared to $24.6 million in third quarter 2011 and to $21.1 million in second quarter 2012.

“For the first time in the Company’s history strategic data revenue represented half of our total revenue for the quarter and it grew sequentially by five percent,” said Tim Biltz, CEO and President of Lumos Networks. “We believe that strategic data revenue will continue to grow as a percent of our total revenue and we are on track to achieve year-over-over strategic revenue growth in excess of 16% for 2012,” concluded Biltz.

Highlights

•

During third quarter 2012, the Company continued to achieve its targeted installation goals and is on track to more than double the number of FTTC installations from approximately 150 at the end of 2011 to approximately 300 at the end of 2012.

•

In third quarter 2012, the Company continued to achieve its goal of ensuring that 75% of total capital expenditures are for success-based strategic data projects in its Enterprise and Carrier Data customer segments as compared to less than 50% in 2011.

•

Revenue for all three categories of the Company’s strategic data products grew sequentially during the third quarter 2012, with an overall aggregate growth rate of approximately 5%. These product lines include: Enterprise Data, Carrier Data and IP Services.

•

On November 1, 2012, the Board of Directors of Lumos Networks Corporation declared a dividend on its common stock in the amount of $0.14 per share to be paid on January 11, 2013 to stockholders of record on December 14, 2012.

Business Outlook

The Company updated its annual 2012 guidance for revenue and adjusted EBITDA, with total revenue expected to be approximately $206 million and adjusted EBITDA expected to be approximately $88 million. Capital expenditures for 2012 are currently expected to be at approximately $60 million.

For fourth quarter 2012, total revenue is expected to be approximately $52 million and adjusted EBITDA to be approximately $22 million.

Please see the schedules accompanying this release for additional financial guidance, including projected 2012 cash flows and non-GAAP reconciliations.

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 Joseph E. McCourt, CRO, to review these financial and operational results and financial guidance will be held at 8:30 A.M. (ET) on November 2, 2012.

The webcast may be accessed via the Internet at http://ir.lumosnetworks.com/ and the live call (“Lumos Networks Third Quarter 2012 Earnings Conference Call”) may be accessed with the following numbers:

Domestic: 1-877-317-6789

International: 1-412-317-6789

Canada: 1-866-605-3852

The conference call will be archived and available for replay through November 15, 2012 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: 10019877

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 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 attributable to noncontrolling interests, other expenses/income, equity based compensation charges, acquisition related charges, amortization of actuarial losses on retirement plans, employee separation charges, gain or loss on settlements and gain or loss on interest rate derivatives.

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.

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 offset expected revenue declines in our Competitive business from

legacy voice products and in our RLEC business related to the recent regulatory developments and carriers grooming their networks; 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 Operations

•

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


(In thousands)	September 30, 2012		December 31, 2011
ASSETS
Current Assets
Cash	$	2	$	10,547
Restricted cash ¹		6,750		7,554
Accounts receivable, net		22,609		23,555
Other receivables		3,357		2,390
Prepaid expenses and other		3,095		2,278

Total Current Assets		35,813		46,324

Securities and investments		382		128
Property, plant and equipment, net		325,098		299,958
Other Assets
Goodwill		100,297		100,297
Other intangibles, net		37,679		45,696
Deferred charges and other assets		5,167		6,197

Total Other Assets		143,143		152,190

Total Assets	$	504,436	$	498,600

LIABILITIES AND EQUITY
Current Liabilities
Current portion of long term debt	$	6,781	$	2,679
Accounts payable		12,217		12,432
Dividends payable		3,006		2,980
Advance billings and customer deposits		13,210		12,623
Accrued compensation		1,958		2,832
Accrued operating taxes		4,384		2,624
Other accrued liabilities		4,039		3,262

Total Current Liabilities		45,595		39,432

Long-Term Liabilities
Long-term debt		307,597		323,897
Retirement benefits		35,066		35,728
Deferred Income taxes		50,685		41,204
Other long-term liabilities		2,574		5,028
Income tax payable		645		484

Total Long-term Liabilities		396,567		406,341

Stockholders’ Equity		61,750		52,383

Noncontrolling Interests		524		444

Total Equity		62,274		52,827
Total Liabilities and Equity	$	504,436	$	498,600

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 Operations


	Three months ended:						Nine months ended:
(In thousands, except per share amounts)	September 30, 2012			September 30, 2011			September 30, 2012			September 30, 2011
Operating Revenues	$	51,977		$	51,601		$	154,192		$	156,307
Operating Expenses ¹
Cost of sales and services (exclusive of items shown separately below)		20,180			19,479			59,919			58,901
Customer operations		5,885			4,661			16,446			14,778
Corporate operations ^2,3		5,216			3,588			18,447			10,908
Depreciation and amortization		9,650			10,904			27,673			32,903
Accretion of asset retirement obligations		32			30			93			86
Gain on settlements, net⁴		(2,335	)		—			(2,335	)		—

Total Operating Expenses, net		38,628			38,662			120,243			117,576

Operating Income		13,349			12,939			33,949			38,731
Other Income (Expenses)
Interest expense		(3,064	)		(2,559	)		(8,980	)		(8,840	)
Loss on interest rate derivatives		(263	)		—			(555	)		—
Other income, net		24			66			55			73

Income Before Income Tax Expense		10,046			10,446			24,469			29,964
Income Tax Expense		3,589			4,249			9,985			12,144

Net Income		6,457			6,197			14,484			17,820
Net Income Attributable to Noncontrolling Interests		(115	)		(2	)		(80	)		(87	)

Net Income Attributable to Lumos Networks Corp.	$	6,342		$	6,195		$	14,404		$	17,733

Basic and Diluted Earnings per Common Share Attributable to Lumos Networks Corp. Stockholders:
Income per share - basic	$	0.30					$	0.69
Income per share - diluted	$	0.30					$	0.67
Weighted average shares outstanding - basic		20,992						20,928
Weighted average shares outstanding - diluted		21,471						21,374
Cash Dividends Declared per Share - Common Stock	$	0.14					$	0.42

Includes equity based compensation charges related to all of the Company’s share-based awards and the Company’s 401(k) matching contributions of $1.1 million and $0.8 million for the three months ended September 30, 2012 and 2011, respectively, and $2.9 million and $2.1 million for the nine months ended September 30, 2012 and 2011, respectively.

Includes retirement plan costs, including amortization of actuarial losses. During the three and nine months ended September 30, 2011, these costs were allocated to the former wireline companies (now Lumos Networks). The amount of that allocation representing amortization of actuarial losses was not material.

³	In the second quarter of 2012, the Company recorded charges of $2.0 million 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.

⁴	The Company recognized a net pre-tax gain of approximately $2.3 million in the third quarter of 2012 in connection with the settlement of outstanding matters related to a prior acquisition and the settlement of an outstanding lawsuit.

Lumos Networks Corp.

Condensed Consolidated Statements of Cash Flows


	Nine months ended:
(In thousands)	September 30, 2012			September 30, 2011
Cash flows from operating activities
Net income	$	14,484		$	17,820
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		19,323			21,046
Amortization		8,350			11,857
Accretion of asset retirement obligations		93			86
Deferred income taxes		9,122			7,938
Loss on interest rate swap derivatives		555			—
Equity-based compensation expense		2,887			2,146
Amortization of loan origination costs		606			—
Gain on settlement		(3,035	)		—
Retirement benefits and other		2,774			(2,593	)
Changes in assets and liabilities from operations:
Decrease in accounts receivable		897			403
Increase in other current assets		(1,758	)		(187	)
Changes in income taxes		137			(31	)
Increase (decrease) in accounts payable		254			(1,453	)
Increase in other current liabilities		2,167			1,617
Retirement benefit contributions and distributions		(2,654	)		—

Net cash provided by operating activities		54,202			58,649

Cash flows from investing activities
Purchases of property, plant and equipment		(43,925	)		(48,814	)
Return of investment in restricted cash		804			—
Cash reimbursement received from government grant		804			—
Purchase of tradename asset		(333	)		—
Other		(868	)		(1,293	)

Net cash used in investing activities		(43,518	)		(50,107	)

Cash flows from financing activities
Borrowings from NTELOS Inc. net		—			6,401
Repayments on senior secured term loans		(1,500	)		—
Repayments on revolving credit facility, net		(10,283	)		—
Cash dividends paid on common stock		(8,945	)		—
Dividends paid to NTELOS Inc.		—			(14,145	)
Payments under capital lease obligations		(604	)		(839	)
Other		103			—

Net cash used in financing activities		(21,229	)		(8,583	)

Decrease in cash		(10,545	)		(41	)
Cash:
Beginning of period		10,547			489

End of period	$	2		$	448

Lumos Networks Corp.

Operating Results, Customer and Network Statistics


	Three months ended:															Nine months ended:
(Dollars in thousands)	September 30, 2012			June 30, 2012			March 31, 2012			December 31, 2011			September 30, 2011			September 30, 2012			September 30, 2011
Competitive Revenue and Adjusted EBITDA
Revenue
Enterprise Data		9,448			9,040			8,666			8,438			8,449			27,154			24,694
Carrier Data		11,955			11,196			10,937			10,506			9,573			34,088			27,143
IP Services		4,718			4,684			4,587			4,515			4,364			13,989			12,886

Total Strategic Data		26,121			24,920			24,190			23,459			22,386			75,231			64,723
Legacy Voice		11,244			11,509			12,010			12,825			13,375			34,763			41,589
Network Access		2,413			2,540			2,715			2,758			2,733			7,668			9,044

Total Revenue		39,778			38,969			38,915			39,042			38,494			117,662			115,356
Adjusted EBITDA¹		14,440			14,078			14,548			15,034			15,730			43,066			45,678
Adjusted EBITDA %		36.3	%		36.1	%		37.4	%		38.5	%		40.9	%		36.6	%		39.6	%
RLEC Revenue and Adjusted EBITDA
Revenue
Legacy Voice		4,874			4,710			4,756			4,937			4,940			14,340			15,102
Network Access		7,325			7,125			7,740			7,129			8,167			22,190			25,849
Total Revenue		12,199			11,835			12,496			12,066			13,107			36,530			40,951
Adjusted EBITDA¹		7,841			7,028			7,743			7,970			8,917			22,612			28,258
Adjusted EBITDA %		64.3	%		59.4	%		62.0	%		66.1	%		68.0	%		61.9	%		69.0	%
Consolidated
Revenue
Strategic Data		26,121			24,920			24,190			23,459			22,386			75,231			64,723
Legacy Voice		16,118			16,219			16,766			17,762			18,315			49,103			56,691
Network Access		9,738			9,665			10,455			9,887			10,900			29,858			34,893

Total Revenue		51,977			50,804			51,411			51,108			51,601			154,192			156,307
Adjusted EBITDA¹		22,281			21,106			22,291			23,004			24,647			65,678			73,936
Adjusted EBITDA %		42.9	%		41.5	%		43.4	%		45.0	%		47.8	%		42.6	%		47.3	%
Capital Expenditures		14,937			11,619			17,369			12,722			15,013			43,925			48,814
Adjusted EBITDA less Capital Expenditures		7,344			9,487			4,922			10,282			9,634			21,753			25,122
Customer and Network Statistics
Customer Statistics
Competitive voice connections ²		112,709			114,930			117,965			122,046			125,500			112,709			125,500
RLEC Broadband Customers ³		15,199			15,258			15,100			14,916			14,947			15,199			14,947
Total Broadband Connections ³		40,401			37,361			35,974			35,707			34,747			40,401			34,747
Video Subscribers		4,390			4,192			4,019			3,734			3,439			4,390			3,439
Network Statistics
On-Network Buildings ⁴		1,150			1,091			1,066			1,051			949			1,150			949
Fiber-Fed Cell Sites ⁴		261			178			155			148			132			261			132
RLEC Total Access Lines		31,708			32,272			32,676			33,193			33,840			31,708			33,840

¹	Adjusted EBITDA is a non-GAAP measure. See definition on page 2 of this earnings release.

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, including RLEC broadband, are recorded in the operating revenues of the Competitive segment.

⁴	Includes statistics for legacy markets only, excluding FiberNet, through September 30, 2011.

Note: Certain amounts have been reclassified to agree with current year presentation.

Lumos Networks Corp.

Reconciliation of Net Income Attributable to Lumos Networks Corp. to Operating Income


	Three months ended:						Nine months ended:
(In thousands)	September 30, 2012			September 30, 2011			September 30, 2012			September 30, 2011
Net income attributable to Lumos Networks Corp.	$	6,342		$	6,195		$	14,404		$	17,733
Net income attributable to noncontrolling interests		115			2			80			87
Net income		6,457			6,197			14,484			17,820
Interest expense		3,064			2,559			8,980			8,840
Loss on interest rate derivatives		263			—			555			—
Income tax expense		3,589			4,249			9,985			12,144
Other income, net		(24	)		(66	)		(55	)		(73	)

Operating income	$	13,349		$	12,939		$	33,949		$	38,731

Competitive		8,183			7,870			20,829			21,937
RLEC		5,166			5,069			13,120			16,794

Operating income	$	13,349		$	12,939		$	33,949		$	38,731

Lumos Networks Corp.

Reconciliation of Operating Income to Adjusted EBITDA


	2012									2011
(Dollars in thousands)	Competitive			RLEC			Total			Competitive			RLEC			Total
For The Three Months Ended September 30
Operating Income	$	8,183		$	5,166		$	13,349		$	7,870		$	5,069		$	12,939
Depreciation and amortization and accretion of asset retirement obligations		6,828			2,854			9,682			7,398			3,536			10,934

Sub-total:		15,011			8,020			23,031			15,268			8,605			23,873

Amortization of actuarial losses		335			111			446			—			—			—
Equity based compensation		814			285			1,099			472			312			784
Acquisition related charges ¹		—			—			—			(10	)		—			(10	)
Employee separation charges²		30			10			40			—			—			—
Gain on settlements, net³		(1,750	)		(585	)		(2,335	)		—			—			—

Adjusted EBITDA	$	14,440		$	7,841		$	22,281		$	15,730		$	8,917		$	24,647

Adjusted EBITDA Margin		36.3	%		64.3	%		42.9	%		40.9	%		68.0	%		47.8	%
For The Nine Months Ended September 30
Operating Income	$	20,829		$	13,120		$	33,949		$	21,937		$	16,794		$	38,731
Depreciation and amortization and accretion of asset retirement obligations		19,293			8,473			27,766			22,383			10,606			32,989

Sub-total:		40,122			21,593			61,715			44,320			27,400			71,720

Amortization of actuarial losses		1,002			334			1,336			—			—			—
Equity based compensation		2,136			751			2,887			1,288			858			2,146
Acquisition related charges ¹		—			—			—			70			—			70
Employee separation charges²		1,556			519			2,075			—			—			—
Gain on settlements, net³		(1,750	)		(585	)		(2,335	)		—			—			—

Adjusted EBITDA	$	43,066		$	22,612		$	65,678		$	45,678		$	28,258		$	73,936

Adjusted EBITDA Margin		36.6	%		61.9	%		42.6	%		39.6	%		69.0	%		47.3	%

¹	Acquisition related charges related to the acquisition of FiberNet that closed on December 1, 2010.

²	In the second quarter of 2012, the Company recorded charges of $2.0 million 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.

³	The Company recognized a net pre-tax gain of approximately $2.3 million in the third quarter of 2012 in connection with the settlement of outstanding matters related to a prior acquisition and the settlement of an outstanding lawsuit.

Lumos Networks Corp.

Business Outlook ¹ (as of November 1, 2012)


	2012 Guidance ¹
(In millions)	Fourth Quarter 2012				2012 Annual
Operating Revenues		Approximately	$	52		Approximately	$	206
Adjusted EBITDA		Approximately	$	22		Approximately	$	88
Capital Expenditures						Approximately	$	60
Reconciliation of Operating Income to Adjusted EBITDA
Operating Income		Approximately	$	10		Approximately	$	44
Depreciation and amortization				9				38
Equity based compensation charges				3				4
Amortization of actuarial losses				—				2

Adjusted EBITDA		Approximately	$	22		Approximately	$	88

Lumos Networks Corp.

Projected Cash Flows for the Year 2012 ¹

(Dollars in millions)


Adjusted EBITDA ²	$	88
Less: Capital expenditures		(60	)

		28
Less:
Cash interest, net of interest income		(12	)
Cash taxes		(2	)

Cash flows, net, before dividends and debt payments		14
Less:
Cash dividends: $0.14 per share per quarter ²		(12	)
Scheduled 2012 debt payments		(3	)
Plus:
Other, net ³		1

Projected Cash Flows, net ⁴	$	—

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. third quarter 2012 earnings release dated November 1, 2012.

²	Represents the most recent cash dividend paid, annualized. Dividend payments are reviewed quarterly by the board of directors and are subject to change.

Includes cash reimbursements received from Federal stimulus awards, which provide 50% funding to bring broadband services and infrastructure to Alleghany County, Virginia partially offset by one-time severance benefits, which were provided for in the employment agreement of an executive officer, and a one-time net cash outflow related to the settlement of an outstanding lawsuit and the settlement of all outstanding matters related to a prior acquisition.

⁴	Before discretionary payments to the credit facility Revolver loan and changes to working capital.

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