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

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8-K - FORM 8-K - Lumos Networks Corp.	d146152d8k.htm

Exhibit 99.1

Contact:

Will Davis

SVP of Marketing and Investor Relations

Chief of Staff

Phone: 917-519-6994

Email: davisw@lumosnet.com

Lumos Networks Corp. Reports Third Quarter 2016 Results

On a YoY Basis, Overall Revenue up Nearly 2%,

Data Revenue up Nearly 10%, FTTC up 23% and Enterprise up over 17%

Third Quarter 2016 Highlights:

•

Year-over-year growth in consolidated revenues, operating income and Adjusted EBITDA

•

$51.8 million total revenue, up nearly 2%

•

$9.2 million in operating income, up nearly 7%, and net income down to $1 million, or $0.04 per diluted share

•

$24.3 million Adjusted EBITDA, up nearly 9%

•

Total 3Q16 Data revenue of $31.4 million, up nearly 10% year-over-year

•

Continue to expect Data revenue growth of 8-10% in 2016

•

Total combined Fiber to the Cell (“FTTC”) and Enterprise revenue in 3Q16 of nearly $22.9 million, up nearly 20% year-over-year

•

Combined FTTC/Enterprise constituted nearly 73% of total Data revenue versus 67% in the prior year, of which 95% was tied to Ethernet and other advanced fiber technologies

•

Began Physical Separation of the Network; Hired UBS Investment Bank to seek Strategic Alternatives for the regulated assets

•

Network separation analysis completed; continue to expect creation of pure-play fiber entity during 2017

•

Physical Separation of the Network began in 3Q16

•

UBS Investment Bank hired to explore strategic alternatives for the Company’s regulated business

•

Announces Entry into Agreement to Acquire Clarity Communications Group

•

Disciplined M&A approach sourced first Lumos inorganic activity helpful to reaching sufficient data EBITDA to execute our pure-play strategy in 2017

•

Accretive day one on an Adjusted EBITDA basis

•

Provides immediate new sales channel into the government market, including military facilities and e-rate

•

730 mile fiber network gives Lumos foothold in the North Carolina government, Carrier and Enterprise market

•

Strong Fiber Metric Growth

•

Reached 1,297 unique FTTC sites, up 26% year-over-year; and 1,642 total FTTC connections, up 20% year-over-year

•

Added 62 lit Enterprise buildings in 3Q16 to reach 1,984, up 21% year-over-year

•

Enterprise revenue per lit building rose sequentially for the second straight quarter

•

Completed 219 fiber route miles in 3Q16 with an average strand count of 179

•

Average fiber strand count of 52 across Lumos footprint, up 15% year over year

•

Richmond and Norfolk Expansion Market Update

•

Continued to see strong Enterprise demand in the recently launched metro markets of Richmond and Norfolk

•

Network Underpinned by 257 unique FTTC site contract has average metro fiber density of 175 strands

•

Network expansion increases Total Enterprise Addressable Market by an estimated $221 million in annual revenue, or 67%

•

Annual financial guidance maintained at $206 to $210 million for revenue, $93 to $96 million for Adjusted EBITDA and $85 to $95 million for capital expenditures

WAYNESBORO, VA – November 9, 2016 – 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 third quarter of 2016 results. Total revenue in the third quarter of 2016 was $51.8 million, an increase of nearly 2% from the prior year period. The Company generated operating income of $9.2 million for the three months ended September 30, 2016, up nearly 7% year-over-year. Net Income attributable to Lumos Networks Corp. was $1.0 million, or $0.04 per diluted share, for the third quarter of 2016, down from $1.3 million in the prior year period. Total Adjusted EBITDA was nearly $24.3 million, up nearly 9% from the prior year period.

“Lumos Networks executed well in three focus areas in the third quarter,” said Timothy G. Biltz, President and CEO of Lumos Networks. “First, we demonstrated strong operational performance in the quarter with 10% data revenue growth and total Adjusted EBITDA growth of nearly 9%. Our Enterprise data revenue growth accelerated from over 14% in the second quarter to over 17% in the third quarter, which we view to be a clear industry leading result.”

“Our combined FTTC and Enterprise businesses, which are approximately 95% tied to Ethernet and other advanced fiber products, grew nearly 20% year-over-year in the third quarter,” Mr. Biltz continued. “Adjusted EBITDA within our data business reached nearly $14.6 million in the quarter, up over 19% versus the year ago period.”

Mr. Biltz continued, “Given our continued solid execution year to date and the continued expected strong demand from our Carrier and Enterprise customers, we reiterate our 2016 annual guidance for revenue of $206 to $210 million and Adjusted EBITDA of $93 to $96 million.”

“Secondly, we completed our network separation analysis. Not only did we ascertain the feasibility of the separation of our regulated assets, we began physical separation of the network during the third quarter. We have hired UBS Investment Bank to pursue strategic alternatives for our regulated legacy assets and that process is well underway.”

“Lastly, we entered into an agreement to acquire Clarity Communications, a fiber bandwidth provider with a 730 fiber route mile network throughout the Southeast,” said Mr. Biltz. “We expect that all of the key sales personnel from Clarity will remain to form the core nucleus for our new North Carolina operations, which brings a significant level of expertise to our new government sales channel. We also expect to immediately begin cross-selling these new capabilities across our 9,200 Mid-Atlantic fiber route mile footprint.”

Business Outlook

For the full year 2016, the Company reiterates its financial guidance for revenue of $206 to $210 million, Adjusted EBITDA of $93 to $96 million and capital expenditures of $85 to $95 million.

Please see the schedules accompanying this release for additional financial guidance, including reconciliations of non-GAAP measures to GAAP results.

Statements made are based on management’s current expectations. These statements are forward-looking and actual results may differ materially. Please see “Special Note from the Company Regarding Forward-Looking Statements.”

Conference Call

A conference call and simultaneous webcast, hosted by Timothy G. Biltz, Chief Executive Officer, Johan Broekhuysen, Chief Financial Officer, and Will Davis, SVP of Marketing and Investor Relations, Chief of Staff to discuss today’s announcement and to review these financial and operational results and financial guidance will be held at 10:00 A.M. (ET) on November 9, 2016.

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

Domestic: 1-877-510-3772

International: 1-412-902-4135

Canada: 1-855-669-9657

The conference call will be archived and available for replay through November 24, 2016 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: 10095208

The webcast will also be archived and the replay may be accessed at http://ir.lumosnetworks.com/.

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 24 markets in Virginia, Pennsylvania, West Virginia, Maryland, Ohio and Kentucky. With a fiber network of 9,204 fiber route miles and 475,507 total fiber strand miles, Lumos Networks connects 1,297 unique Fiber to the Cell sites, 1,642 total FTTC connections, 36 data centers, including 7 company owned co-location facilities, 1,984 on-net buildings and approximately 3,300 total on-net locations. In 2015, Lumos Networks generated over $114 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 attributable to noncontrolling interests, other (income) expenses, net, employee separation charges, restructuring charges, gain or loss on interest rate swap derivatives, corporate general and administrative expenses, including equity-based compensation, acquisition and separation 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 attributable to Lumos Networks Corp. before interest, income taxes, depreciation and amortization and accretion of asset retirement obligations, net income attributable to noncontrolling interests, other (income) expenses, net, equity-based compensation, amortization of actuarial losses, employee separation charges, restructuring charges, acquisition and separation related charges and gain (loss) on interest rate swap derivatives. 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: our ability to complete the Clarity acquisition on a timely basis and the impact of the acquisition 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 our Annual Report filed on Form 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 Non-GAAP Financial Measures to GAAP Results

•

Business Outlook

Lumos Networks Corp.

Condensed Consolidated Balance Sheets


	September 30, 2016		December 31, 2015
(In thousands)

ASSETS
Current Assets
Cash and cash equivalents	$	33,176	$	13,267
Marketable securities		38,790		88,811
Accounts receivable, net		24,306		20,796
Other receivables		1,606		852
Income tax receivable		447		568
Prepaid expenses and other		5,614		7,215

Total Current Assets		103,939		131,509


Securities and investments		1,501		1,180

Property, plant and equipment, net		532,055		498,944

Other Assets
Goodwill		100,297		100,297
Other intangibles, net		9,147		11,078
Deferred charges and other assets		6,765		2,364

Total Other Assets		116,209		113,739

Total Assets	$	753,704	$	745,372


LIABILITIES AND EQUITY
Current Liabilities
Current portion of long-term debt	$	12,303	$	10,400
Accounts payable		9,292		14,182
Advance billings and customer deposits		14,231		13,849
Accrued compensation		1,602		1,191
Accrued operating taxes		5,143		3,907
Other accrued liabilities		4,642		4,974

Total Current Liabilities		47,213		48,503


Long-Term Liabilities
Long-term debt, net of unamortized discount and debt issuance costs, excluding current portion		457,095		456,300
Retirement benefits		16,357		17,029
Deferred income taxes, net		91,129		89,193
Other long-term liabilities		2,104		2,016

Total Long-term Liabilities		566,685		564,538


Stockholders’ Equity		138,962		131,392

Noncontrolling Interests		844		939

Total Equity		139,806		132,331

Total Liabilities and Equity	$	753,704	$	745,372

Lumos Networks Corp.

Condensed Consolidated Statements of Operations


	Three months ended September 30,						Nine months ended September 30,
(In thousands, except per share amounts)	2016			2015			2016			2015

Operating Revenues	$	51,771		$	50,969		$	155,013		$	152,417

Operating Expenses
Cost of revenue, exclusive of depreciation and amortization		9,657			10,546			29,948			31,682
Selling, general and administrative, exclusive of depreciation and amortization¹		20,505			19,940			64,056			58,531
Depreciation and amortization		12,739			11,803			37,028			35,112
Accretion of asset retirement obligations		23			33			91			105
Restructuring charges²		(384	)		—			1,823			637

Total Operating Expenses		42,540			42,322			132,946			126,067

Operating Income		9,231			8,647			22,067			26,350

Other Income (Expenses)
Interest expense		(7,164	)		(5,817	)		(21,165	)		(13,022	)
Gain on interest rate swap derivatives		—			198			—			445
Other income (expenses), net		48			58			320			(89	)


Income Before Income Tax Expense		2,115			3,086			1,222			13,684

Income Tax Expense		1,046			1,774			1,712			6,221

Net Income (Loss)		1,069			1,312			(490	)		7,463

Net Income Attributable to Noncontrolling Interests		(46	)		(33	)		(137	)		(111	)

Net Income (Loss) Attributable to Lumos Networks Corp.	$	1,023		$	1,279		$	(627	)	$	7,352


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

Basic and diluted earnings (loss) per share	$	0.04		$	0.06		$	(0.03	)	$	0.32

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 of $1.7 million and $1.5 million for the three months ended September 30, 2016 and 2015, respectively, and $8.5 million and $4.2 million for the nine months ended September 30, 2016 and 2015, respectively. Also includes $0.7 million of acquisition and separation related costs for the three and nine months ended September 30, 2016.

In January 2016, the Company commenced an employee reduction-in-force. Restructuring costs, consisting of employee severance and termination benefits, of $1.8 million were recognized during the nine months ended September 30, 2016. This amount is net of an adjustment of $0.4 million recorded in the three months ended September 30, 2016 to reduce previously accrued amounts for changes in estimated severance obligations.

Lumos Networks Corp.

Condensed Consolidated Statements of Cash Flows


	Nine Months Ended September 30,
(In thousands)	2016			2015
Cash Flows from Operating Activities:
Net (Loss) Income	$	(490	)	$	7,463
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation		35,097			31,035
Amortization		1,931			4,077
Accretion of asset retirement obligations		91			105
Deferred income taxes		1,374			5,802
Gain on interest rate swap derivatives		—			(445	)
Equity-based compensation expense		8,477			4,236
Amortization of debt issuance costs		3,345			1,648
Retirement benefits, net of cash contributions and distributions		340			(171	)
Other		649			206
Changes in operating assets and liabilities, net		(5,027	)		(1,951	)

Net Cash Provided by Operating Activities		45,787			52,005


Cash Flows from Investing Activities:
Purchases of property, plant and equipment		(65,280	)		(80,118	)
Broadband network expansion funded by stimulus grant		—			(2,578	)
Purchases of available-for-sale marketable securities		(57,142	)		(74,088	)
Proceeds from sale or maturity of available-for-sale marketable securities		107,075			29,903
Change in restricted cash		—			3,838
Cash reimbursement received from broadband stimulus grant		—			3,838

Net Cash Used in Investing Activities		(15,347	)		(119,205	)


Cash Flows from Financing Activities:
Proceeds from issuance of senior secured term loan		—			28,000
Proceeds from issuance of unsecured notes, net of debt discount		—			148,500
Payment of financing costs		—			(8,192	)
Principal payments on senior secured term loans		(6,024	)		(45,953	)
Cash dividends paid on common stock		—			(3,152	)
Principal payments under capital lease obligations		(2,551	)		(2,378	)
Capital distribution to noncontrolling interests		(232	)		—
Proceeds from stock option exercises and employee stock purchase plan		630			293
Repurchases of common stock to settle tax withholding obligations on employee stock awards		(2,354	)		(295	)
Other		—			28

Net Cash (Used in) Provided by Financing Activities		(10,531	)		116,851

Increase in cash and cash equivalents		19,909			49,651
Cash and cash equivalents:
Beginning of Period		13,267			14,140

End of Period	$	33,176		$	63,791

Lumos Networks Corp.

Operating Results, Customer and Network Statistics


(Dollars in thousands)	Three months ended:															Nine months ended:
	September 30, 2016			June 30, 2016			March 31, 2016			December 31, 2015			September 30, 2015			September 30, 2016			September 30, 2015
Revenue, Gross Margin, Contribution Margin and Adjusted EBITDA
Revenue
Enterprise Data	$	13,549		$	12,878		$	12,001		$	11,935		$	11,560		$	38,428		$	33,885
Transport		8,499			8,902			9,099			10,005			9,507			26,500			30,016
FTTC		9,325			9,176			8,529			7,892			7,556			27,030			20,578

Total Data		31,373			30,956			29,629			29,832			28,623			91,958			84,479
Residential and Small Business		15,863			16,149			15,828			16,379			16,560			47,840			50,835
RLEC Access		4,535			5,343			5,337			5,641			5,786			15,215			17,103

Total Revenue	$	51,771		$	52,448		$	50,794		$	51,852		$	50,969		$	155,013		$	152,417

Gross Margin¹
Data		85.5	%		85.3	%		84.6	%		84.2	%		83.7	%		85.1	%		84.7	%
Residential and Small Business		67.7	%		65.8	%		64.3	%		64.5	%		64.4	%		66.0	%		63.2	%

Contribution Margin²
Data	$	24,822		$	24,477		$	23,390		$	24,164		$	22,500		$	72,689		$	67,073
Residential and Small Business		9,516			9,394			9,142			9,584			9,343			28,052			28,575
RLEC Access		4,360			5,171			5,192			5,486			5,609			14,723			16,592

Total Contribution Margin	$	38,698		$	39,042		$	37,724		$	39,234		$	37,452		$	115,464		$	112,240

Contribution Margin Ratio²
Data		79.1	%		79.1	%		78.9	%		81.0	%		78.6	%		79.0	%		79.4	%
Residential and Small Business		60.0	%		58.2	%		57.8	%		58.5	%		56.4	%		58.6	%		56.2	%
RLEC Access		96.1	%		96.8	%		97.3	%		97.3	%		96.9	%		96.8	%		97.0	%
Total Contribution Margin Ratio		74.7	%		74.4	%		74.3	%		75.7	%		73.5	%		74.5	%		73.6	%

Adjusted EBITDA²
Data	$	14,567		$	13,826		$	13,314		$	14,303		$	12,215		$	41,707		$	36,679
Residential and Small Business		5,723			5,339			5,149			5,341			5,020			16,211			15,822
RLEC Access		3,970			4,611			4,652			4,907			5,039			13,233			14,951

Total Adjusted EBITDA	$	24,260		$	23,776		$	23,115		$	24,551		$	22,274		$	71,151		$	67,452

Adjusted EBITDA Margin²
Data		46.4	%		44.7	%		44.9	%		47.9	%		42.7	%		45.4	%		43.4	%
Residential and Small Business		36.1	%		33.1	%		32.5	%		32.6	%		30.3	%		33.9	%		31.1	%
RLEC Access		87.5	%		86.3	%		87.2	%		87.0	%		87.1	%		87.0	%		87.4	%
Total Adjusted EBITDA Margin		46.9	%		45.3	%		45.5	%		47.3	%		43.7	%		45.9	%		44.3	%

Capital Expenditures	$	20,089		$	23,185		$	22,006		$	35,557		$	24,769		$	65,280		$	80,118
Adjusted EBITDA less Capital Expenditures	$	4,171		$	591		$	1,109		$	(11,006	)	$	(2,495	)	$	5,871		$	(12,666	)

Lumos Networks Corp.

Operating Results, Customer and Network Statistics (continued)


	Three months ended:
	September 30, 2016		June 30, 2016		March 31, 2016		December 31, 2015		September 30, 2015
Fiber Network Statistics
Fiber Route-Miles		9,204		8,985		8,734		8,607		8,408
Fiber Miles³		475,507		436,451		401,109		384,094		378,581
Fiber Markets		24		24		24		24		24
FTTC Unique Towers		1,297		1,295		1,252		1,099		1,030
FTTC Total Connections		1,642		1,636		1,592		1,440		1,363
On-Network Buildings		1,984		1,922		1,812		1,732		1,642
Data Centers⁴		36		36		36		34		33
Mobile Switching Centers		14		14		14		14		14

R&SB Statistics
Competitive Voice Connections		67,569		69,728		71,547		73,705		76,380
Video Subscribers		5,841		5,817		5,840		5,904		5,760
Fiber-to-the-Premise Broadband Connections⁵		8,307		7,982		7,849		7,649		7,300
Premises Passed by Fiber⁶		19,591		19,453		19,495		19,421		19,186

RLEC Access Lines		24,299		24,814		25,079		25,516		25,902

The Company had previously reported gross margin percentages that were calculated as the ratio of gross profit (total revenue less network access charges) to total revenue. Beginning in Q1 2016, the Company began reporting cost of revenue, which includes network access charges and certain other facilities rental costs and adjusted its measurement of gross margin to include these costs. Historical periods have been revised to be consistent with the current period presentation.

²	Contribution Margin, Contribution Margin Ratio, Adjusted EBITDA and Adjusted EBITDA Margin are non-GAAP measures. See definitions on page 3 of this earnings release.

³	Fiber miles are calculated as the fiber route miles multiplied by the number of fiber strands within each cable (represents an average of 52 fibers per route as of September 30, 2016).

⁴	Data centers reported include both commercial and private data centers and Company-owned facilities offering commercial data center services.

⁵	During the first quarter of 2016, the Company revised its fiber-to-the-premise broadband connections as a result of enhanced system reporting capabilities. Historical fiber-to-the-premise broadband connections for prior quarters have been revised to reflect the updated information.

⁶	Includes residential and small business locations passed by fiber and available for service. Approximately 93% of the premises passed by fiber and available for service as of September 30, 2016 were residential.

Note: Certain prior period Adjusted EBITDA amounts have been reclassified to conform with the current year presentation.

Lumos Networks Corp.

Reconciliation of Net Income (Loss) Attributable to Lumos Networks Corp. to Contribution Margin


(Dollars in thousands)	2016			2015

For The Three Months Ended September 30,
Net Income Attributable to Lumos Networks Corp.	$	1,023		$	1,279
Net Income Attributable to Noncontrolling Interests		46			33

Net Income		1,069			1,312
Income tax expense		1,046			1,774
Interest expense		7,164			5,817
Gain on interest rate swap derivatives		—			(198	)
Other income, net		(48	)		(58	)

Operating Income		9,231			8,647
Depreciation and amortization and accretion of asset retirement obligations		12,762			11,836
Restructuring charges		(384	)		—
Indirect operating costs		9,121			9,250
Corporate general and administrative costs, including equity-based compensation and acquisition and separation related charges		7,968			7,719

Contribution Margin	$	38,698		$	37,452

Contribution Margin Ratio		74.7	%		73.5	%

For The Nine Months Ended September 30,
Net (Loss) Income Attributable to Lumos Networks Corp.	$	(627	)	$	7,352
Net Income Attributable to Noncontrolling Interests		137			111

Net (Loss) Income		(490	)		7,463
Income tax expense		1,712			6,221
Interest expense		21,165			13,022
Gain on interest rate swap derivatives		—			(445	)
Other (income) expenses, net		(320	)		89

Operating Income		22,067			26,350
Depreciation and amortization and accretion of asset retirement obligations		37,119			35,217
Restructuring charges		1,823			637
Indirect operating costs		26,657			27,109
Corporate general and administrative costs, including equity-based compensation and acquisition and separation related charges		27,798			22,927

Contribution Margin	$	115,464		$	112,240

Contribution Margin Ratio		74.5	%		73.6	%

Reconciliation of Net Income (Loss) Attributable to Lumos Networks Corp. to Adjusted EBITDA


(Dollars in thousands)	2016			2015

For The Three Months Ended September 30,
Net Income Attributable to Lumos Networks Corp.	$	1,023		$	1,279
Net Income Attributable to Noncontrolling Interests		46			33

Net Income		1,069			1,312
Income tax expense		1,046			1,774
Interest expense		7,164			5,817
Gain on interest rate swap derivatives		—			(198	)
Other income, net		(48	)		(58	)

Operating Income		9,231			8,647
Depreciation and amortization and accretion of asset retirement obligations		12,762			11,836
Amortization of actuarial losses		338			337
Equity-based compensation		1,661			1,454
Restructuring charges		(384	)		—
Acquisition and separation related charges		652			—

Adjusted EBITDA	$	24,260		$	22,274

Adjusted EBITDA Margin		46.9	%		43.7	%

Lumos Networks Corp.

Reconciliation of Net Income (Loss) Attributable to Lumos Networks Corp. to Adjusted EBITDA


(Dollars in thousands)	2016			2015

For The Nine Months Ended September 30,
Net (Loss) Income Attributable to Lumos Networks Corp.	$	(627	)	$	7,352
Net Income Attributable to Noncontrolling Interests		137			111

Net (Loss) Income		(490	)		7,463
Income tax expense		1,712			6,221
Interest expense		21,165			13,022
Gain on interest rate swap derivatives		—			(445	)
Other (income) expenses, net		(320	)		89

Operating Income		22,067			26,350
Depreciation and amortization and accretion of asset retirement obligations		37,119			35,217
Amortization of actuarial losses		1,013			1,012
Equity-based compensation		8,477			4,236
Restructuring charges		1,823			637
Acquisition and separation related charges		652			—

Adjusted EBITDA	$	71,151		$	67,452

Adjusted EBITDA Margin		45.9	%		44.3	%

Lumos Networks Corp.

Business Outlook ¹ (as of November 9, 2016)


(In millions)		2016 Annual Guidance ¹

Operating Revenues		$206 to $210

Adjusted EBITDA		$93 to $96

Capital Expenditures		$85 to $95

Reconciliation of Net Income (Loss) to Adjusted EBITDA:
Net (Loss) Income		$(2) to $1
Income tax expense		approximately $2
Interest expense		approximately $28

Operating Income		$28 to $31
Depreciation and amortization		approximately $50
Equity-based compensation		approximately $11
Amortization of actuarial losses		approximately $1
Restructuring charges		approximately $2
Acquisition and separation related charges		approximately $1

Adjusted EBITDA		$93 to $96

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 earnings release dated November 9, 2016.

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