Lumos Networks Corp. Reports Fourth Quarter 2013 Financial Results


The following excerpt is from the company's SEC filing.

WAYNESBORO, VA – February 25, 2014 – 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 its fourth quarter of 2013 and the full year 2013.

Total revenue in 2013 was $207.5 million compared to $206.9 million in 2012.   Total Adjusted EBITDA in 2013 was $96.3 million versus $88.9 million in 2012.   Total revenue for the fourth quarter of 2013 was $51.0 million, compared to $52.7 million for the fourth quarter of 2012 and $51.6 million in the third quarter of 2013.  Total Adjusted EBITDA was $24.0 million for the fourth quarter of 2013, compared to $23.2 million in the fourth quarter of 2012 and $23.0 million in the third quarter of 2013.

“In 2013, Lumos Networks’ strategic data revenue grew by 11.3% year-over-year, which offset declines in our legacy voice revenue streams, and overall Adjusted EBITDA grew by 8.4% as a result of effective expense control. We had sequential strategic data revenue growth in each quarter of 2013 and for the total year strategic data revenue accounted for more than 50% of our total revenue,” said Mr. Biltz, President and CEO.

“For 2014, we have targeted year-over-year strategic data revenue growth in the 6% to 8% range and the same level of overall Adjusted EBITDA as generated in 2013. Total revenue in 2014 is likely to be marginally down when compared to 2013 as a result of our legacy voice revenue streams,” continued Mr. Biltz. “In 2014, we plan to continue to tightly control expenses while making major investments in our fiber optics network and expansion markets to enhance our capability to increase fiber bandwidth revenue from both carrier and enterprise customers. We believe that these investments will position the Company to increase total revenue and profitability on an annual run-rate basis as we exit 2014,” concluded Mr. Biltz.

    • The Company ended the year with 608 connected fiber to the cell (“FTTC”) sites, up 68 sequentially, which represents a year-over-year increase in total FTTC sites of 64%.   Lumos Networks reached its prior guidance to end 2013 with over 600 connected sites and maintains its target for 1,500 sites within the next few years. • The Company’s project to upgrade its internal systems continued to gain momentum and is expected to drive operating efficiencies, improve customer facing capabilities and streamline business processes as we progress through 2014. • Lumos Networks finalized plans to complete 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. • At the end of 2013, the Company’s 110-mile fiber “Edge-out” market in Richmond, Virginia had annualized sales bookings of $3.4 million.  • On February 20, 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 April 10, 2014 to stockholders of record on March 13, 2014.

For the first quarter of 2014, the Company expects revenue to be $50 to $51 million and Adjusted EBITDA $22.5 to $23 million.  For the full year 2014, the Company is introducing guidance of $200 to $204 million for revenue and $94 to $96 million for Adjusted EBITDA.

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.”

A conference call and simultaneous webcast, hosted by Timothy G. Biltz, CEO, Harold L. Covert, CFO, and Will Davis, Director of Investor Relations, to review these financial and operational results and financial guidance will be held at 8:00 A.M. (ET) on February 25, 2014.   

The webcast may be accessed via the Internet at http://ir.lumosnetworks.com/ and the live call (“Lumos Networks Fourth Quarter 2013 Earnings Conference Call”) may be accessed with the following numbers:

The conference call will be archived and available for replay through March 7, 2014 before 5:00 P.M. (ET) and may be accessed with the following numbers:

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 7,414 fiber route miles.  Detailed information about Lumos Networks is available at www.lumosnetworks.com.       

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. 

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 Reports filed on Forms 10-K and our Quarterly Reports filed on Forms 10-Q.

            Lumos Networks Corp. Condensed Consolidated Balance Sheets   December 31, 2013   December 31, 2012 (In thousands)                       ASSETS           Current Assets             Cash and cash equivalents $ 14,114    $ 2  Marketable securities   38,480       - Restricted cash 1    4,324      5,303  Accounts receivable, net   22,917      22,676  Other receivables   1,588      2,400  Income tax receivable   1,116      954  Prepaid expenses and other   3,960      5,136  Deferred income taxes   7,289      3,357  Total Current Assets   93,788      39,828              Securities and investments   699      462              Property, plant and equipment, net   378,723      336,589              Other Assets           Goodwill   100,297      100,297  Other intangibles, net   25,071      34,895  Deferred charges and other assets   7,722      4,448  Total Other Assets   133,090      139,640              Total Assets $ 606,300    $ 516,519                          LIABILITIES AND EQUITY            Current Liabilities           Current portion of long-term debt $ 6,688    $ 7,900  Accounts payable   13,076      17,453  Dividends payable   3,091      3,013  Advance billings and customer deposits   13,502      13,527  Accrued compensation   2,185      1,742  Accrued operating taxes   4,375      3,838  Other accrued liabilities   3,992      6,284  Total Current Liabilities   46,909      53,757              Long-Term Liabilities           Long-term debt   373,290      304,325  Retirement benefits   16,848      30,413  Deferred income taxes   79,087      59,313  Other long-term liabilities   2,832      3,500  Income tax payable   328      609  Total Long-term Liabilities   472,385      398,160              Stockholders' Equity   86,333      64,050  Noncontrolling Interests   673      552  Total Equity   87,006      64,602              Total Liabilities and Equity $ 606,300    $ 516,519              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 Income   Three months ended December 31,   Year ended December 31, (In thousands, except per share amounts) 2013   2012   2013   2012                         Operating Revenues   $ 51,003    $ 52,679    $ 207,475    $ 206,871                          Operating Expenses                       Network access costs   10,420      11,374      42,417      46,845  Selling, general and administrative 1,2   18,102      19,835      76,749      79,176  Depreciation and amortization   10,792      11,211      42,320      38,884  Accretion of asset retirement obligations   9      31      104      124  Gain on settlements, net    -      -      -     (2,335) Restructuring charges    -     2,981      50      2,981  Total Operating Expenses   39,323      45,432      161,640      165,675  Operating Income   11,680      7,247      45,835      41,196                          Other Income (Expenses)                       Interest expense    (3,816)     (2,941)     (14,191)     (11,921) Loss on interest rate swap derivatives   (34)     (1,343)     (144)     (1,898) Other (expenses) income, net   (783)     26      (1,587)     81                          Income Before Income Tax Expense   7,047      2,989      29,913      27,458                          Income Tax Expense   2,982      1,025      12,019      11,010  Net Income   4,065      1,964      17,894      16,448                          Net Income Attributable to Noncontrolling Interests    -     (28)     (121)     (108) Net Income Attributable to Lumos Networks Corp. $ 4,065    $ 1,936    $ 17,773    $ 16,340                                                  Basic and Diluted Earnings per Common Share Attributable to Lumos Networks Corp. Stockholders:                                               Earnings per share - basic $ 0.18    $ 0.09    $ 0.81    $ 0.78  Earnings per share - diluted $ 0.18    $ 0.09    $ 0.80    $ 0.76                          Cash Dividends Declared per Share - Common Stock $ 0.14    $ 0.14    $ 0.56    $ 0.56                          1  Includes equity-based compensation charges related to all of the Company’s share-based awards and the Company’s 401(k) matching contributions of $1.2 million and $1.0 million for three months ended December 31, 2013 and 2012, respectively, and $6.8 million and $3.9 million for the years ended December 31, 2013 and 2012, respectively. 2 For the year ended December 31, 2012, selling, general and administrative expenses includes a $2.3 million charge 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.

            Lumos Networks Corp.           Condensed Consolidated Statements of Cash Flows               Year ended December 31, (In thousands) 2013   2012             Cash Flows from Operating Activities:           Net income $ 17,894    $ 16,448  Adjustments to reconcile net income to net cash provided by operating activities:           Depreciation   32,496      27,750  Amortization   9,824      11,134  Accretion of asset retirement obligations   104      124  Deferred income taxes   11,502      10,514  Loss on interest rate swap derivatives   144      1,898  Equity-based compensation expense   6,778      3,912  Amortization of debt issuance costs   1,280      812  Write off of unamortized debt issuance costs   890       - Gain on settlement    -     (3,035) Retirement benefits, net of cash contributions and distributions   (329)     665  Excess tax benefits from share-based compensation   (1,060)     (428) Other   (163)      - Changes in operating assets and liabilities, net   (5,106)     2,421  Net Cash Provided by Operating Activities   74,254      72,215              Cash Flows from Investing Activities:           Purchases of property, plant and equipment   (68,334)     (59,881) Broadband network expansion funded by stimulus grant   (29)     (1,351) Proceeds from disposal of managed services business    -     750  Purchases of marketable securities   (38,560)      - Change in restricted cash   979      2,251  Cash reimbursement received from broadband stimulus grant   979      2,251  Purchase of tradename asset    -     (333) Other   62      (26) Net Cash Used in Investing Activities   (104,903)     (56,339)             Cash Flows from Financing Activities:           Proceeds from issuance of long-term debt   375,000       - Payment of debt issuance costs   (4,872)      - Principal payments on senior secured term loans   (308,876)     (2,000) Borrowings from revolving credit facility   15,000      9,783  Principal payments on revolving credit facility   (18,521)     (21,261) Termination payments of interest rate swap derivatives   (858)      - Cash dividends paid on common stock   (12,213)     (11,951) Principal payments under capital lease obligations   (1,456)     (1,542) Proceeds from stock option exercises and employee stock purchase plan   1,222      122  Excess tax benefits from share-based compensation   1,060      428  Other   (725)      - Net Cash Provided by (Used in) Financing Activities   44,761      (26,421) Increase (decrease) in cash and cash equivalents   14,112      (10,545) Cash and cash equivalents:           Beginning of Year   2      10,547  End of Year $ 14,114    $ 2 

                            Lumos Networks Corp. Operating Results, Customer and Network Statistics (Dollars in thousands) Three months ended:   Year ended:   December 31, 2013   September 30, 2013   June 30, 2013   March 31, 2013   December 31, 2012   December 31, 2013   December 31, 2012 Revenue and Adjusted EBITDA                           Revenue                           Enterprise Data 10,126    10,133    10,043    10,075    9,877    40,377    37,416  Carrier Data 16,327    15,494    15,195    14,868    14,457    61,884    52,978  IP Services 4,753    4,758    4,780    4,781    4,730    19,072    18,616  Total Strategic Data 31,206    30,385    30,018    29,724    29,064    121,333    109,010  Legacy Voice 13,318    14,063    14,264    14,821    15,334    56,466    64,146  Access 6,479    7,179    8,029    7,989    8,281    29,676    33,715  Total Revenue 51,003    51,627    52,311    52,534    52,679    207,475    206,871                              Adjusted EBITDA1                           Strategic Data 13,983    12,563    13,395    13,788    13,693    53,729    50,892  Legacy Voice 5,053    5,162    5,114    4,923    3,771    20,252    14,850  Access 4,996    5,321    6,042    5,984    5,747    22,343    23,147  Total Adjusted EBITDA 24,032    23,046    24,551    24,695    23,211    96,324    88,889  Adjusted EBITDA Margin1 47.1%    44.6%    46.9%    47.0%    44.1%    46.4%    43.0%  Capital Expenditures 22,613    18,997    11,692    15,032    15,956    68,334    59,881  Adjusted EBITDA less Capital Expenditures 1,419    4,049    12,859    9,663    7,255    27,990    29,008                              Customer and Network Statistics                           Customer Statistics                           Competitive voice connections 2     95,730    98,296    102,189    105,695    110,261    95,730    110,261  Total Broadband Connections 3  46,857    47,190    42,607    42,110    39,950    46,857    39,950  Video Subscribers 5,034    4,975    4,767    4,666    4,549    5,034    4,549                              Network Statistics                           On-Network Buildings 4   1,344    1,303    1,273    1,235    1,196    1,344    1,196  Fiber to the Cell Sites 4  608    540    465    405    370    608    370                              RLEC Total Access Lines 28,886    29,518    30,129    30,643    31,203    28,886    31,203                              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 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 are recorded in the operating revenues of our strategic data segment. 4 Includes statistics for legacy markets only, excluding FiberNet, through December 31, 2013                             Note:  Certain prior period revenue amounts have been reclassified to conform with the current year presentation.

            Lumos Networks Corp. Reconciliation of Operating Income to Adjusted EBITDA              (Dollars in thousands) 2013   2012             For The Three Months Ended December 31           Operating Income $ 11,680    $ 7,247  Depreciation and amortization and accretion of asset retirement obligations   10,801      11,242  Sub-total:   22,481      18,489  Amortization of actuarial losses   309      445  Equity based compensation   1,242      1,025  Restructuring charges    -     2,981  Employee separation charges    -     271  Gain on settlements, net    -      - Adjusted EBITDA $ 24,032    $ 23,211  Adjusted EBITDA Margin   47.1%      44.1%              For The Year Ended December 31           Operating Income $ 45,835    $ 41,196  Depreciation and amortization and accretion of asset retirement obligations   42,424      39,008  Sub-total:   88,259      80,204  Amortization of actuarial losses   1,237      1,781  Equity based compensation   6,778      3,912  Restructuring charges   50      2,981  Employee separation charges 1    -     2,346  Gain on settlements, net2    -     (2,335) Adjusted EBITDA $ 96,324    $ 88,889  Adjusted EBITDA Margin   46.4%      43.0%              1 For the year ended December 31, 2012, selling, general and administrative expenses include a $2.3 million charge 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. 2 The Company recognized a net pre-tax gain of approximately $2.3 million in  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 February 25, 2014)       (In millions) 2014 Guidance 1    First Quarter 2014   2014 Annual Operating Revenues $      50 to $     51   $   200 to $   204                 Adjusted EBITDA $   22.5 to $     23   $     94 to $     96                 Capital Expenditures $      18 to $     20   $     70 to $     75                 Cash, Cash Equivalents and Marketable Securities (at end of period) $      47 to $     49   $     28 to $     33                 Reconciliation of Operating Income to Adjusted EBITDA               Operating Income approximately $10   $     41 to $     43 Depreciation and amortization approximately $12   approximately $48 Equity based compensation charges approximately $1   approximately $4 Amortization of actuarial losses < $1   approximately $1 Adjusted EBITDA $   22.5 to $     23   $     94 to $     96                                 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. fourth quarter 2013 earnings release dated February 25, 2014.

The above information was disclosed in a filing to the SEC. To see this filing in its entirety, click here. Lumos Networks Corp. next reports earnings on February 25, 2014.

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Other recent filings from the company include the following:

Lumos Networks: Departure Of Directors Or Principal Officers; Election Of Directors; Appointment Of Principal Officers - Oct. 10, 2014
Lumos Networks Corp.'s EVP Chief Financial Officer just picked up 40,000 shares - Oct. 7, 2014
Lumos Networks Names Johan Broekhuysen As Permanent Cfo - Oct. 6, 2014

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