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TMCNet:  Lumos Networks Corp. Reports Second Quarter 2014 Financial Results

[August 06, 2014]

Lumos Networks Corp. Reports Second Quarter 2014 Financial Results

WAYNESBORO, Va. --(Business Wire)--

Lumos Networks Corp. ("Lumos Networks" or the "Company") (Nasdaq: LMOS), a fiber-based service provider of data, voice and IP-based telecommunication services in the Mid-Atlantic region, today announced financial results for the second quarter of 2014.

Total revenue for the second quarter of 2014 was $50.2 million, compared to $52.3 million for the second quarter of 2013 and $50.1 million in the first quarter of 2014. Total Adjusted EBITDA in the second quarter of 2014 was $22.7 million, compared to $24.6 million in the second quarter of 2013 and $22.6 million in the first quarter of 2014.

Total Data segment revenue in the second quarter of 2014 was $26.7 million, up over 2% sequentially, and constituted over 53% of total revenue versus 49% in the prior year period. Total Adjusted EBITDA for the Data segment reached $13.4 million in the second quarter of 2014, and Adjusted EBITDA margin for the Data segment was 50.2% in the second quarter, up from 48.7% in the first quarter.

Lumos Networks President and CEO Timothy G. Biltz said, "I am satisfied that Lumos Networks delivered results in the second quarter that slightly exceeded our internal targets and maintained its annual 2014 guidance for revenue and Adjusted EBITDA of $200 million and $90 million, respectively. Our FTTC operations continued its strong performance, growing 8.5% sequentially and surpassing $5 million in quarterly revenues. We see a strong pipeline for both FTTC sales and installations for the rest of 2014."

Mr. Biltz continued, "While Transport revenue grew slightly quarter on quarter, we continue to believe Transport revenue will decline in the range of 8-10% in 2014 due to the churn of TDM circuits as carriers groom their networks. Our Enterprise revenue dipped slightly sequentially due to previously disclosed churn events, but our goal is for accelerated growth in 2015 due to the following initiatives: new customer renewal and retention programs, increased reach of our Carrier End User distribution channels, and the connection to more commercial data centers."

"My focus remains on continuing to aggressively invest in the fiber infrastructure and personnel necessary to support long-term fiber contracts in key growth areas like Fiber to the Cell, Data Center Connectivity, Carrier End User and Edge-Out markets like Richmond, Virginia," Mr. Biltz said. "Our primary mission is building our fiber revenue backlog through 2014 in order to accelerate our Data revenue growth in 2015."

"To that end," Mr. Biltz finished, "Lumos Networks made significant progress in expanding its fiber network in the second quarter, adding over 80 route miles, substantially completing the build of a critical long-haul route in Virginia between Richmond and Charlottesville, connecting a Peak 10 data center in Richmond, connecting 33 on-net buildings and connecting 40 additional FTTC sites."

Highlights

  • The Company ended the second quarter of 2014 with 673 Fiber to the Cell ("FTTC") sites connected, up 40 sequentially, which represents a year-over-year increase in total FTTC sites of approximately 45%. Lumos Networks reiterates its guidance of reaching 825 FTTC sites by year end 2014 and reiterates its target of selling 500 to 700 unique and second FTTC circuits during 2014. Lumos Networks maintains its target for 1,500 FTTC sites within the next few years.
  • Lumos Networks reiterates its target for connected commercial data centers of 20 by year end 2014. During the quarter, Lumos Networks connected to Peak 10 in Richmond, Virginia, its fourteenth connected commercial data center with several more in the short-term pipeline. As Enterprise bandwidth traffic moves increasingly into the Cloud, the Company believes that this segment will constitute an increasingly large percentage of total Enterprise revenue.
  • The Company added approximately 80 fiber route miles in the second quarter of 2014, all of which were constructed and owned by Lumos Networks, and had a fiber network totaling approximately 7,550 route miles at the end of the quarter. Additionally, the Company added 33 on-net buildings in the quarter to reach 1,420.
  • Project Ark, an 850-mile MEF certified Carrier Ethernet MPLS/IP network overlay designed primarily for FTTC traffic, which will allow up to 1 terabyte of total bandwidth traffic, is on track for completion in 3Q14. The Company continues to expect to begin migrating fiber bandwidth traffic onto the Ark in 4Q14.
  • As of the end of the second quarter of 2014, the Company's 110-mile fiber market in Richmond, Virginia had annualized Enterprise and Transport sales bookings of approximately $4.2 million.
  • On July 29, 2014, the Board of Directors of Lumos Networks declared a dividend on its common stock in the amount of $0.14 per share to be paid on October 9, 2014 to stockholders of record on September 11, 2014.

Business Outlook

For the full year 2014, the Company maintains its financial guidance for revenue of approximately $200 million and Adjusted EBITDA of approximately $90 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, CEO, Johan Broekhuysen, Interim CFO, and Will Davis, Vice President of Investor Relations and Chief of Staff, to review these financial and operational results and financial guidance will be held at 9:30 A.M. (ET) on August 7, 2014.

The webcast may be accessed via the Internet at http://ir.lumosnetworks.com/ and the live call ("Lumos Networks Second 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 August 28, 2014 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: 10050045

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 approximately 7,550 fiber route 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 or loss attributable to noncontrolling interests, other expenses/income, equity-based compensation charges, acquisition-related charges, amortization of actuarial losses on retirement plans, employee separation charges, restructuring-related charges, gain or loss on settlements and gain or loss on interest rate derivatives. Adjusted EBITDA margin is calculated as the ratio of Adjusted EBITDA, as defined, to operating revenues.

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 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: rapid development and intense competition in the telecommunications and high speed data transport industry; our ability to offset expected revenue declines in legacy voice and access products related to the recent regulatory actions, wireless substitution, technology changes and other factors; our ability to effectively allocate capital and implement our "edge-out" expansion plans in a timely manner; our ability to complete customer installations in a timely manner; adverse economic conditions; operating and financial restrictions imposed by our senior credit facility; our cash and capital requirements; declining prices for our services; 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 for the year ended December 31, 2013.

Exhibits:

  • Condensed Consolidated Balance Sheets
  • Condensed Consolidated Statements of Income
  • 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
June 30, 2014 December 31, 2013
(In thousands)
ASSETS
Current Assets
Cash and cash equivalents $ 9,804 $ 14,114
Marketable securities 36,596 38,480
Restricted cash 1 4,324 4,324
Accounts receivable, net 22,687 22,917
Other receivables 820 1,588
Income tax receivable 795 1,116
Prepaid expenses and other 4,301 3,960
Deferred income taxes 7,189 7,289
Total Current Assets 86,516 93,788
Securities and investments 767 699
Property, plant and equipment, net 396,946 378,723
Other Assets
Goodwill 100,297 100,297
Other intangibles, net 20,477 25,071
Deferred charges and other assets 7,965 7,722
Total Other Assets 128,739 133,090
Total Assets $ 612,968 $ 606,300
LIABILITIES AND EQUITY
Current Liabilities
Current portion of long-term debt $ 10,250 $ 6,688
Accounts payable 12,090 13,076
Dividends payable 3,131 3,091
Advance billings and customer deposits 13,771 13,502
Accrued compensation 1,295 2,185
Accrued operating taxes 4,394 4,375
Other accrued liabilities 3,981 3,992
Total Current Liabilities 48,912 46,909
Long-Term Liabilities
Long-term debt, excluding current portion 367,194 373,290
Retirement benefits 16,782 16,848
Deferred income taxes 84,273 79,087
Other long-term liabilities 2,775 2,832
Income tax payable 419 328
Total Long-term Liabilities 471,443 472,385
Stockholders' Equity 91,885 86,333
Noncontrolling Interests 728 673
Total Equity 92,613 87,006
Total Liabilities and Equity $ 612,968 $ 606,300
� � 1 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 IncomeThree months ended June 30,Six months ended June 30, � � (In thousands, except per share amounts)2014 2013 2014 2013 � Operating Revenues $ 50,165 $ 52,311 $ 100,255 $ 104,845 � Operating Expenses Network access costs 10,190 10,501 20,904 21,655 Selling, general and administrative 1 18,487 18,896 36,419 36,916 Depreciation and amortization 11,210 10,796 21,869 20,359 Accretion of asset retirement obligations 30 33 57 64 Restructuring charges � � - � � - � � - � � 40 � Total Operating Expenses � � 39,917 � � 40,226 � � 79,249 � � 79,034 � Operating Income 10,248 12,085 21,006 25,811 � Other Income (Expenses) Interest expense (3,812 ) (3,406 ) (7,786 ) (6,534 ) (Loss) gain on interest rate swap derivatives (16 ) 267 93 454 Other income (expense), net � � 170 � � (907 ) � 350 � � (882 ) � Income Before Income Tax Expense 6,590 8,039 13,663 18,849 � Income Tax Expense � � 2,711 � � 3,241 � � 5,689 � � 7,573 � Net Income 3,879 4,798 7,974 11,276 � Net Income Attributable to Noncontrolling Interests (33 ) (36 ) (66 ) (105 ) � � � � � � Net Income Attributable to Lumos Networks Corp. � $ 3,846 � $ 4,762 � $ 7,908 � $ 11,171 � � � Basic and Diluted Earnings per Common Share Attributable to Lumos Networks Corp. Stockholders: � Earnings per share - basic $ 0.17 $ 0.22 $ 0.36 $ 0.51 Earnings per share - diluted $ 0.17 $ 0.22 $ 0.35 $ 0.51 � Cash Dividends Declared per Share - Common Stock $ 0.14 $ 0.14 $ 0.28 $ 0.28 �
� � 1 Includes equity-based compensation expense related to all of the Company's share-based awards and the Company's 401(k) matching contributions of $1.2 million and $1.3 million for the three months ended June 30, 2014 and 2013, respectively, and $2.0 million and $2.4 million for the six months ended June 30, 2014 and 2013, respectively. �
� � Lumos Networks Corp. Condensed Consolidated Statements of Cash FlowsSix Months Ended June 30,(In thousands)20142013Cash Flows from Operating Activities: Net income $ 7,974 $ 11,276 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 17,275 15,447 Amortization 4,594 4,912 Accretion of asset retirement obligations 57 64 Deferred income taxes 5,383 6,765 Gain on interest rate swap derivatives (93 ) (454 ) Equity-based compensation expense 1,986 2,353 Amortization of debt issuance costs 738 472 Write off of unamortized debt issuance costs - 890 Retirement benefits, net of cash contributions and distributions (813 ) (208 ) Excess tax benefits from share-based compensation (149 ) (179 ) Other 128 (84 ) Changes in operating assets and liabilities, net � � 938 � � � (5,822 ) Net Cash Provided by Operating Activities � � 38,018 � � � 35,432 � � Cash Flows from Investing Activities: Purchases of property, plant and equipment (37,288 ) (26,724 ) Broadband network expansion funded by stimulus grant 196 (30 ) Purchases of available-for-sale marketable securities (12,461 ) - Proceeds from sale or maturity of available-for-sale marketable securities 14,174 - Change in restricted cash - 979 Cash reimbursement received from broadband stimulus grant � � - � � � 979 � Net Cash Used in Investing Activities � � (35,379 ) � � (24,796 ) � Cash Flows from Financing Activities: Proceeds from issuance of long-term debt - 375,000 Payment of debt issuance costs - (4,849 ) Principal payments on senior secured term loans (1,375 ) (307,500 ) Borrowings from revolving credit facility - 15,000 Principal payments on revolving credit facility - (18,521 ) Termination payments of interest rate swap derivatives - (858 ) Cash dividends paid on common stock (6,195 ) (6,071 ) Principal payments under capital lease obligations (1,145 ) (194 ) Proceeds from stock option exercises and employee stock purchase plan 1,630 101 Excess tax benefits from share-based compensation 149 179 Other � � (13 ) � � (91 ) Net Cash (Used in) Provided by Financing Activities � � (6,949 ) � � 52,196 � (Decrease) increase in cash and cash equivalents (4,310 ) 62,832 Cash and cash equivalents: Beginning of Period � � 14,114 � � � 2 � � End of Period � $ 9,804 � � $ 62,834 � �
� � � � � � � Lumos Networks Corp. � � � � � � � � � � � � � � Operating Results, Customer and Network Statistics � � � � � � � � � � � � (Dollars in thousands) Three months ended: Six months ended:June 30, 2014 March 31, 2014 December 31, 2013 September 30, 2013 June 30, 2013 June 30, 2014 June 30, 2013 Revenue and Adjusted EBITDA Revenue Enterprise Data 10,445 10,586 10,617 10,600 10,511 21,031 21,011 Transport 11,225 10,907 11,927 11,644 12,028 22,132 24,039 FTTC 5,037 4,644 4,399 3,850 3,167 9,681 6,025 Total Data 26,707 26,137 26,943 26,094 25,706 52,844 51,075 Residential and Small Business 18,290 18,647 19,094 20,055 20,453 36,937 41,510 RLEC Access 5,168 5,306 4,966 5,478 6,152 10,474 12,260 Total Revenue 50,165 50,090 51,003 51,627 52,311 100,255 104,845

Adjusted EBITDA1

Data 13,395 12,717 14,012 13,013 13,355 26,112 26,479 Residential and Small Business 5,230 5,544 5,916 5,690 6,356 10,774 13,053 RLEC Access 4,098 4,306 4,104 4,343 4,840 8,404 9,714 Total Adjusted EBITDA 22,723 22,567 24,032 23,046 24,551 45,290 49,246 Adjusted EBITDA Margin1 45.3% 45.1% 47.1% 44.6% 46.9% 45.2% 47.0% Capital Expenditures 19,171 18,117 22,613 18,997 11,692 37,288 26,724 Adjusted EBITDA less Capital Expenditures 3,552 4,450 1,419 4,049 12,859 8,002 22,522 � Fiber Network Statistics Fiber Route-Miles2 7,548 7,467 7,414 ---- ---- 7,548 ---- Fiber Markets 23 23 23 23 23 23 23 Fiber to the Cell Sites 673 633 608 540 465 673 465 On-Network Buildings 1,420 1,387 1,344 1,303 1,273 1,420 1,273 Data Centers 14 13 12 12 12 14 12 � R&SB Statistics Competitive Voice Connections 88,941 92,440 95,730 98,296 102,189 88,941 102,189 Video Subscribers 5,155 5,073 5,034 4,975 4,767 5,155 4,767 � RLEC Access Lines 28,081 28,381 28,886 29,518 30,129 28,081 30,129
1 Adjusted EBITDA is a non-GAAP measure. See definition on page 2 of this earnings release. Adjusted EBITDA margin is calculated as the ratio of Adjusted EBITDA, as defined, to Total Revenue. 2 The Company updated its total fiber route miles as of December 31, 2013 to include both long-haul and metro route miles. Previously, the Company had only disclosed long-haul miles. Quarterly trend information prior to December 31, 2013 is not comparable and is therefore not being presented herein. � Note: Certain prior period revenue and Adjusted EBITDA amounts have been reclassified to conform with the current year presentation. �
� � � � Lumos Networks Corp. Reconciliation of Net Income Attributable to Lumos Networks Corp. to Operating Income (In thousands) Three months ended June 30, Six months ended June 30, � � 2014 2013 2014 2013 Net Income Attributable to Lumos Networks Corp. $ 3,846 $ 4,762 $ 7,908 $ 11,171 Net Income Attributable to Noncontrolling Interests � � 33 � � 36 � � 66 � � 105 � Net Income 3,879 4,798 7,974 11,276 � Interest expense 3,812 3,406 7,786 6,534 Loss (gain) on interest rate swap derivatives 16 (267 ) (93 ) (454 ) Income tax expense 2,711 3,241 5,689 7,573 Other (income) expense, net � � (170 ) � 907 � � (350 ) � 882 � Operating Income$ 10,248$ 12,085$ 21,006$ 25,811 � �
� � � � � � Lumos Networks Corp. � � � � Reconciliation of Operating Income to Adjusted EBITDA (Dollars in thousands)2014 2013For The Three Months Ended June 30, Operating Income $ 10,248 $ 12,085 Depreciation and amortization and accretion of asset retirement obligations � � 11,240 � 10,829 Sub-total: � � 21,488 � 22,914 Amortization of actuarial losses 64 309 Equity-based compensation 1,152 1,328 Restructuring charges - - Employee separation charges � � 19 � - Adjusted EBITDA � $ 22,723 $ 24,551 Adjusted EBITDA Margin 45.3% 46.9%For The Six Months Ended June 30, Operating Income $ 21,006 $ 25,811 Depreciation and amortization and accretion of asset retirement obligations � � 21,926 � 20,423 Sub-total: � � 42,932 � 46,234 Amortization of actuarial losses 128 619 Equity based compensation 1,986 2,353 Restructuring charges - 40 Employee separation charges 244 - Gain on settlements, net � � - � - Adjusted EBITDA � $ 45,290 $ 49,246 Adjusted EBITDA Margin 45.2% 47.0%
� � � � � � � Lumos Networks Corp. � � � � � � Business Outlook 1 (as of August 6, 2014) � � � � � �

(In millions)

2014 Annual

Guidance (1)

Operating Revenues approximately $200 � Adjusted EBITDA approximately $90 � Capital Expenditures approximately $75 � Cash, Cash Equivalents and Marketable Securities (at end of period) $ 27 to $ 32 � Reconciliation of Operating Income to Adjusted EBITDA: Operating Income approximately $38 Depreciation and amortization approximately $47 Equity based compensation charges approximately $4 Amortization of actuarial losses approximately $1 Adjusted EBITDA approximately $90

1

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. second quarter 2014 earnings release dated August 6, 2014. �


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