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8-K - FORM 8-K - Lumos Networks Corp.d393886d8k.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 First Quarter 2017 Results

On a YoY Basis, Total Revenue up over 8%, Data Revenue up Nearly 17%

First Quarter 2017 Highlights:

 

    Year-over-year growth in consolidated revenues and Adjusted EBITDA

 

    $54.9 million total revenue, up more than 8%

 

    Operating loss of $1.6 million versus operating income of $3.1 million in the prior year period

 

    Net loss of $5.3 million or $0.24 per diluted share

 

    $23.9 million in Adjusted EBITDA, up over 3% from the prior year period

 

    Total 1Q17 Data revenue of nearly $34.6 million, up nearly 17% year-over-year

 

    Total combined FTTC and Enterprise revenue over $26.1 million, up over 27% year-over-year

 

    Combined FTTC/Enterprise constituted over 75% of total Data revenue versus 69% in the prior year period

 

    Fiber Infrastructure Growth

 

    Added North Carolina as the 26th Enterprise market following the close of the acquisitions of DC74 Data Centers and Clarity Communications in January 2017

 

    Reached 1,306 unique FTTC sites, up over 4% year-over-year; and 1,663 total FTTC connections, up over 4% year-over-year

 

    Added 94 enterprise lit buildings in the first quarter to reach 2,125 total lit buildings, up 17% year-over-year

WAYNESBORO, VA – May 8, 2017 – 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 first quarter of 2017.

Total revenue for the first quarter of 2017 was $54.9 million, up 8% from the prior year period. The Company generated an operating loss of $1.6 million for the three months ended March 31, 2017, down from operating income of $3.1 million in the prior year period. Net loss attributable to Lumos Networks Corp. was $5.3 million, or $0.24 per diluted share, for the first quarter of 2017, compared to a net loss of approximately $2.9 million in the prior year period. Total Adjusted EBITDA for the first quarter was $23.9 million, up over 3% from the prior year period.

On February 18, 2017, the Company announced that it had 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 agreement was approved by all members of the board of directors voting on the transaction. Completion of the transaction is subject to stockholder approval, regulatory approvals and other customary closing conditions. The acquisition is expected to be completed during the third quarter of 2017.

The Company will hold the 2017 Annual Meeting of Stockholders of Lumos Networks Corp on May 24, 2017 at the offices of Troutman Sanders LLP, 1001 Haxall Point, 15th Floor, Richmond, Virginia.

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 10,907 fiber route miles and 503,616 total fiber strand miles, Lumos Networks connects 1,306 unique Fiber to the Cell sites, 1,663 total FTTC connections, 2,125 on-net buildings and over 3,400 total on-net locations. The Company also connects 43 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.


Additional Information about the Proposed Transaction with EQT Infrastructure and Where to Find It

In connection with the proposed transaction, the Company has filed a definitive proxy statement with the SEC on April 21, 2017, which was mailed to stockholders on or about April 25, 2017, in connection with its annual meeting to be held on May 24, 2017 to obtain stockholder approval in connection with the proposed transaction. Additionally, the Company will file other relevant materials in connection with the proposed transaction with EQT Infrastructure. The definitive proxy statement contains important information about the proposed transaction and related matters. The materials filed by the Company with the SEC may be obtained free of charge at the SEC’s web site at www.sec.gov. In addition, investors and security holders may obtain free copies of the documents filed with the SEC by the Company on the Company’s website at www.lumosnetworks.com or by contacting investor relations at davisw@lumosnetworks.com. INVESTORS AND SECURITY HOLDERS OF THE COMPANY ARE URGED TO READ THE PROXY STATEMENT AND THE OTHER RELEVANT MATERIALS WHEN THEY BECOME AVAILABLE BEFORE MAKING ANY VOTING OR INVESTMENT DECISION WITH RESPECT TO THE PROPOSED TRANSACTION BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION.

Certain Information Regarding Participants

The Company and its directors, executive officers and other persons, may be deemed to be participants in the solicitation of proxies of the Company’s stockholders in connection with the proposed transaction with EQT Infrastructure. Information concerning the interests of the Company’s participants in the solicitation, which may, in some cases, be different than those of the Company’s stockholders generally, is set forth in the materials filed by the Company with the SEC, including in the Company’s definitive proxy statement filed with the SEC on April 21, 2017.

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, restructuring charges, changes in the fair value of contingent consideration obligations, corporate general and administrative expenses, including equity-based compensation, acquisition and merger 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 attributable to noncontrolling interests, other (income) expenses, net, equity-based compensation, amortization of actuarial losses, restructuring charges, acquisition and merger 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 obtaining the requisite regulatory, governmental and stockholder approvals and satisfying other closing conditions; the risk that required governmental and regulatory approvals may delay the Merger or result in the imposition of conditions that could cause the parties to abandon the Merger or materially impact the financial benefits of the Merger; 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 our Quarterly Report on Form 10-Q for the quarter ended March 31, 2017 and our Annual Report 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

 

     March 31, 2017      December 31, 2016  
(In thousands)              

ASSETS

     

Current Assets

     

Cash and cash equivalents

   $ 19,947      $ 33,575  

Marketable securities

     14,859        38,081  

Accounts receivable, net

     22,262        22,609  

Other receivables

     184        753  

Income tax receivable

     313        459  

Prepaid expenses and other

     7,696        5,028  
  

 

 

    

 

 

 

Total Current Assets

     65,261        100,505  
  

 

 

    

 

 

 

Securities and investments

     1,521        1,479  

Property, plant and equipment, net

     537,645        536,288  

Other Assets

     

Goodwill

     125,636        100,297  

Other intangibles, net

     20,540        8,503  

Deferred charges and other assets

     6,545        6,300  
  

 

 

    

 

 

 

Total Other Assets

     152,721        115,100  
  

 

 

    

 

 

 

Total Assets

   $ 757,148      $ 753,372  
  

 

 

    

 

 

 

LIABILITIES AND EQUITY

     

Current Liabilities

     

Current portion of long-term debt

   $ 13,525      $ 13,530  

Accounts payable

     6,290        8,607  

Advance billings and customer deposits

     15,144        14,140  

Accrued compensation

     1,375        1,491  

Accrued operating taxes

     4,694        4,518  

Other accrued liabilities

     10,255        5,000  
  

 

 

    

 

 

 

Total Current Liabilities

     51,283        47,286  
  

 

 

    

 

 

 

Long-Term Liabilities

     

Long-term debt, net of unamortized discount and debt issuance costs, excluding current portion

     452,683        454,885  

Retirement benefits

     15,760        16,029  

Deferred income taxes, net

     92,134        96,988  

Other long-term liabilities

     7,317        2,124  
  

 

 

    

 

 

 

Total Long-term Liabilities

     567,894        570,026  
  

 

 

    

 

 

 

Stockholders’ Equity

     137,052        135,174  
  

 

 

    

 

 

 

Noncontrolling Interests

     919        886  
  

 

 

    

 

 

 

Total Equity

     137,971        136,060  
  

 

 

    

 

 

 

Total Liabilities and Equity

   $ 757,148      $ 753,372  
  

 

 

    

 

 

 


Lumos Networks Corp.

 

Condensed Consolidated Statements of Operations

 

     Three months ended March 31,  

(In thousands, except per share amounts)

   2017     2016  

Operating Revenues

   $ 54,916     $ 50,794  

Operating Expenses

    

Cost of revenue, exclusive of depreciation and amortization

     10,419       10,212  

Selling, general and administrative, exclusive of depreciation and amortization1

     30,668       23,335  

Depreciation and amortization

     14,992       11,891  

Accretion of asset retirement obligations

     25       34  

Restructuring charges

     —         2,207  

Change in fair value of contingent consideration obligations

     400       —    
  

 

 

   

 

 

 

Total Operating Expenses

     56,504       47,679  
  

 

 

   

 

 

 

Operating (Loss) Income

     (1,588     3,115  

Other Income (Expenses)

    

Interest expense

     (7,393     (6,989

Other income, net

     623       174  
  

 

 

   

 

 

 

Loss Before Income Tax Benefit

     (8,358     (3,700

Income Tax Benefit

     (3,074     (861
  

 

 

   

 

 

 

Net Loss

     (5,284     (2,839

Net Income Attributable to Noncontrolling Interests

     (33     (55
  

 

 

   

 

 

 

Net Loss Attributable to Lumos Networks Corp.

   $ (5,317   $ (2,894
  

 

 

   

 

 

 

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

    

Basic and diluted loss per share

   $ (0.24   $ (0.13

 

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 $6.8 million and $5.5 million for the three months ended March 31, 2017 and 2016, respectively. Also includes $2.9 million of acquisition and merger related costs for the three months ended March 31, 2017.


Lumos Networks Corp.

 

Condensed Consolidated Statements of Cash Flows

 

     Three Months Ended March 31,  

(In thousands)

   2017     2016  

Cash Flows from Operating Activities:

    

Net Loss

   $ (5,284   $ (2,839

Adjustments to reconcile net loss to net cash provided by operating activities:

    

Depreciation

     13,899       11,247  

Amortization

     1,093       644  

Accretion of asset retirement obligations

     25       34  

Change in fair value of contingent consideration obligations

     400       —    

Deferred income taxes

     (3,075     (982

Equity-based compensation expense

     6,794       5,813  

Amortization of debt discounts and issuance costs

     1,175       1,099  

Retirement benefits, net of cash contributions and distributions

     57       94  

Other

     (333     509  

Changes in operating assets and liabilities, net

     183       (3,241
  

 

 

   

 

 

 

Net Cash Provided by Operating Activities

     14,934       12,378  
  

 

 

   

 

 

 

Cash Flows from Investing Activities:

    

Purchases of property, plant and equipment

     (13,097     (22,006

Acquisition of Clarity Communications, LLC, net of cash acquired

     (9,961     —    

Acquisition of DC74, LLC, net of cash acquired

     (23,538     —    

Purchases of available-for-sale marketable securities

     (4,000     (6,732

Proceeds from sale or maturity of available-for-sale marketable securities

     27,233       43,125  
  

 

 

   

 

 

 

Net Cash (Used in) Provided by Investing Activities

     (23,363     14,387  
  

 

 

   

 

 

 

Cash Flows from Financing Activities:

    

Principal payments on senior secured term loans

     (3,258     —    

Principal payments under capital lease obligations

     (124     (107

Proceeds from stock option exercises and employee stock purchase plan

     609       28  

Repurchases of common stock to settle tax withholding obligations on employee stock awards

     (2,426     (2,308
  

 

 

   

 

 

 

Net Cash Used in Financing Activities

     (5,199     (2,387
  

 

 

   

 

 

 

(Decrease) increase in cash and cash equivalents

     (13,628     24,378  

Cash and cash equivalents:

    

Beginning of Period

     33,575       13,267  
  

 

 

   

 

 

 

End of Period

   $ 19,947     $ 37,645  
  

 

 

   

 

 

 


Lumos Networks Corp.

 

Operating Results, Customer and Network Statistics

 

 

(Dollars in thousands)    Three months ended:  
     March 31, 2017     December 31, 2016     September 30, 2016     June 30, 2016     March 31, 2016  

Revenue, Gross Margin, Contribution Margin and Adjusted EBITDA

          

Revenue

          

Enterprise Data

   $ 16,473     $ 13,911     $ 13,549     $ 12,878     $ 12,001  

Transport

     8,454       8,106       8,499       8,902       9,099  

FTTC

     9,660       9,629       9,325       9,176       8,529  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Data

     34,587       31,646       31,373       30,956       29,629  

Residential and Small Business

     15,205       15,488       15,863       16,149       15,828  

RLEC Access

     5,124       4,752       4,535       5,343       5,337  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Revenue

   $ 54,916     $ 51,886     $ 51,771     $ 52,448     $ 50,794  

Gross Margin

          

Data

     84.2     86.6     85.5     85.3     84.6

Residential and Small Business

     67.3     69.1     67.7     65.8     64.3

Contribution Margin1

          

Data

   $ 26,968     $ 25,517     $ 24,822     $ 24,477     $ 23,390  

Residential and Small Business

     9,128       9,554       9,516       9,394       9,142  

RLEC Access

     4,970       4,591       4,360       5,171       5,192  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Contribution Margin

   $ 41,066     $ 39,662     $ 38,698     $ 39,042     $ 37,724  

Contribution Margin Ratio1

          

Data

     78.0     80.6     79.1     79.1     78.9

Residential and Small Business

     60.0     61.7     60.0     58.2     57.8

RLEC Access

     97.0     96.6     96.1     96.8     97.3

Total Contribution Margin Ratio

     74.8     76.4     74.7     74.4     74.3

Adjusted EBITDA1

          

Data

   $ 14,307     $ 14,311     $ 14,567     $ 13,826     $ 13,314  

Residential and Small Business

     5,121       5,506       5,723       5,339       5,149  

RLEC Access

     4,463       4,122       3,970       4,611       4,652  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Adjusted EBITDA

   $ 23,891     $ 23,939     $ 24,260     $ 23,776     $ 23,115  

Adjusted EBITDA Margin1

          

Data

     41.4     45.2     46.4     44.7     44.9

Residential and Small Business

     33.7     35.6     36.1     33.1     32.5

RLEC Access

     87.1     86.7     87.5     86.3     87.2

Total Adjusted EBITDA Margin

     43.5     46.1     46.9     45.3     45.5

Capital Expenditures

   $ 13,097     $ 18,747     $ 20,089     $ 23,185     $ 22,006  

Adjusted EBITDA less Capital Expenditures

   $ 10,794     $ 5,192     $ 4,171     $ 591     $ 1,109  


Lumos Networks Corp.

 

Operating Results, Customer and Network Statistics (continued)

 

 

     Three months ended:  
     March 31, 2017      December 31, 2016      September 30, 2016      June 30, 2016      March 31, 2016  

Fiber Network Statistics

              

Fiber Route-Miles

     10,907        10,112        9,204        8,985        8,734  

Fiber Miles2

     503,616        491,276        475,507        436,451        401,109  

Fiber Markets

     26        25        24        24        24  

FTTC Unique Towers

     1,306        1,304        1,297        1,295        1,252  

FTTC Total Connections

     1,663        1,659        1,642        1,636        1,592  

On-Network Buildings

     2,125        2,031        1,984        1,922        1,812  

Data Centers3

     43        36        36        36        36  

Mobile Switching Centers

     15        15        14        14        14  

R&SB Statistics

              

Competitive Voice Connections5

     62,972        65,285        68,084        69,903        71,675  

Video Subscribers

     5,723        5,851        5,841        5,817        5,840  

Fiber-to-the-Premise Broadband Connections

     9,330        8,972        8,307        7,982        7,849  

Premises Passed by Fiber4

     19,983        19,783        19,591        19,453        19,495  

RLEC Access Lines5

     22,483        22,991        23,381        23,695        24,094  

 

1 Contribution Margin, Contribution Margin Ratio, Adjusted EBITDA and Adjusted EBITDA Margin are non-GAAP measures. See definitions on page 3 of this earnings release.
2 Fiber miles are calculated as the fiber route miles multiplied by the number of fiber strands within each cable (represents an average of 46 fibers per route as of March 31, 2017).
3 Data centers reported include both commercial and private data centers and Company-owned facilities offering commercial data center services.
4 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 March 31, 2017 were residential.
5 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 Attributable to Lumos Networks Corp. to Contribution Margin

 

(Dollars in thousands)

   2017     2016  

For The Three Months Ended March 31,

    

Net Loss Attributable to Lumos Networks Corp.

   $ (5,317   $ (2,894

Net Income Attributable to Noncontrolling Interests

     33       55  
  

 

 

   

 

 

 

Net Loss

     (5,284     (2,839

Income tax benefit

     (3,074     (861

Interest expense

     7,393       6,989  

Other income, net

     (623     (174
  

 

 

   

 

 

 

Operating (loss) income

     (1,588     3,115  

Depreciation and amortization and accretion of asset retirement obligations

     15,017       11,925  

Restructuring charges

     —         2,207  

Change in fair value of contingent consideration obligations

     400       —    

Indirect operating costs

     10,470       8,597  

Corporate general and administrative costs, including equity-based compensation and acquisition and merger related charges

     16,767       11,880  
  

 

 

   

 

 

 

Contribution Margin

   $ 41,066     $ 37,724  
  

 

 

   

 

 

 

Contribution Margin Ratio

     74.8     74.3

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

 

(Dollars in thousands)

   2017     2016  

For The Three Months Ended March 31,

    

Net Loss Attributable to Lumos Networks Corp.

   $ (5,317   $ (2,894

Net Income Attributable to Noncontrolling Interests

     33       55  
  

 

 

   

 

 

 

Net Loss

     (5,284     (2,839

Income tax benefit

     (3,074     (861

Interest expense

     7,393       6,989  

Other income, net

     (623     (174
  

 

 

   

 

 

 

Operating (loss) income

     (1,588     3,115  

Depreciation and amortization and accretion of asset retirement obligations

     15,017       11,925  

Amortization of actuarial losses

     326       338  

Equity-based compensation

     6,794       5,530  

Restructuring charges

     —         2,207  

Acquisition and merger related charges

     2,942       —    

Change in fair value of contingent consideration obligations

     400       —    
  

 

 

   

 

 

 

Adjusted EBITDA

   $ 23,891     $ 23,115  
  

 

 

   

 

 

 

Adjusted EBITDA Margin

     43.5     45.5