 Investor Presentation
November 2011
Exhibit 99.1 |
 1
Use of Non-GAAP Financial Measures
Included
in
this
presentation
are
certain
non-GAAP
financial
measures
that
are
not
determined
in
accordance
with
US
generally
accepted
accounting
principles.
These
financial
performance
measures
are
not
indicative
of
cash
provided
or
used
by
operating
activities
and
exclude
the
effects
of
certain
operating,
capital
and
financing
costs
and
may
differ
from
comparable
information
provided
by
other
companies,
and
they
should
not
be
considered
in
isolation,
as
an
alternative
to,
or
more
meaningful
than
measures
of
financial
performance
determined
in
accordance
with
US
generally
accepted
accounting
principles.
These
financial
performance
measures
are
commonly
used
in
the
industry
and
are
presented
because
Lumos
Networks
Corp.
believes
they
provide
relevant
and
useful
information
to
investors.
The
Company
utilizes
these
financial
performance
measures
to
assess
its
ability
to
meet
future
capital
expenditure
and
working
capital
requirements,
to
incur
indebtedness
if
necessary,
and
to
fund
continued
growth.
Lumos
Networks
Corp.
uses
these
financial
performance
measures
to
evaluate
the
performance
of
its
business,
for
budget
planning
purposes
and
as
factors
in
its
employee
compensation
programs.
Special Note Regarding Forward-Looking Statements
Any
statements
contained
in
this
presentation
that
are
not
statements
of
historical
fact,
including
statements
about
our
beliefs
and
expectations,
are
forward-looking
statements
and
should
be
evaluated
as
such.
The
words
“anticipates,”
“believes,”
“expects,”
“intends,”
“plans,”
“estimates,”
“targets,”
“projects,”
“should,”
“may,”
“will”
and
similar
words
and
expressions
are
intended
to
identify
forward-looking
statements.
Such
forward-looking
statements
reflect,
among
other
things,
our
current
expectations,
plans
and
strategies,
and
anticipated
financial
results,
all
of
which
are
subject
to
known
and
unknown
risks,
uncertainties
and
factors
that
may
cause
our
actual
results
to
differ
materially
from
those
expressed
or
implied
by
these
forward-looking
statements.
Many
of
these
risks
are
beyond
our
ability
to
control
or
predict.
Because
of
these
risks,
uncertainties
and
assumptions,
you
should
not
place
undue
reliance
on
these
forward-looking
statements.
Furthermore,
forward-looking
statements
speak
only
as
of
the
date
they
are
made.
We
do
not
undertake
any
obligation
to
update
or
review
any
forward-looking
information,
whether
as
a
result
of
new
information,
future
events
or
otherwise.
Important
factors
with
respect
to
any
such
forward-looking
statements,
including
certain
risks
and
uncertainties
that
could
cause
actual
results
to
differ
from
those
contained
in
the
forward-looking
statements,
include,
but
are
not
limited
to:
rapid
development
and
intense
competition
in
the
telecommunications
industry;
our
ability
to
achieve
benefits
from
our
separation
from
NTELOS
Holdings
Corp;
our
ability
to
successfully
integrate
the
operations
of
the
FiberNet
business
and
increase
revenues
and
manage
churn
in
this
business;
our
ability
to
offset
expected
revenue
declines
in
our
RLEC
business
related
to
the
recent
regulatory
developments
and
carriers
grooming
their
networks;
the
failure
to
realize
synergies
and
cost
savings
from
the
acquisition
of
the
FiberNet
business
or
delay
in
realization
thereof;
adverse
economic
conditions;
operating
and
financial
restrictions
imposed
by
our
senior
credit
facility;
our
cash
and
capital
requirements;
declining
prices
for
our
services;
the
potential
to
experience
a
high
rate
of
customer
turnover;
federal
and
state
regulatory
fees,
requirements
and
developments;
our
reliance
on
certain
supplier
s and
vendors;
Failure
to
complete
the
business
separation
of
the
wireless
and
wireline
operations
in
an
orderly
fashion
as
currently
structured
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. |
 2
Investment themes
Unique assets provide operating leverage and competitive advantage,
positioning Lumos Networks as region’s provider of choice
Established platform for growth
Attractive combination of growth and income |
 Unique assets
provide operating leverage and competitive advantage, positioning Lumos
Networks as region’s provider of choice |
 4
Advanced, dense regional fiber network
Provides service to more
than 100 markets in Mid-
Atlantic region
Network footprint includes
approximately 185,000
businesses
Supports IP based and
Ethernet applications
Over 50,000 current
customer relationships
5,800 fiber route miles
State-of-the-art Cisco IP
network
RLEC with 98% 6MB+
broadband coverage
Video and fiber passes
approximately one-third of
the RLEC base
Provider of Choice |
 5
57
57
57
63
71
91
109
132
0
20
40
60
80
100
120
140
Q4-09
Q1-10
Q2-10
Q3-10
Q4-10
Q1-11
Q2-11
Q3-11
Fiber-Fed Cell Sites
633
647
687
705
752
830
903
949
500
600
700
800
900
1000
Q4-09
Q1-10
Q2-10
Q3-10
Q4-10
Q1-11
Q2-11
Q3-11
On-Net Buildings ¹
76
86
89
91
143
144
146
147
0
30
60
90
120
150
Q4-09
Q1-10
Q2-10
Q3-10
Q4-10
Q1-11
Q2-11
Q3-11
Co-locations
2,511
4,746
4,786
4,940
4,941
5,767
5,788
5,801
0
2,000
4,000
6,000
8,000
Q4-09
Q1-10
Q2-10
Q3-10
Q4-10
Q1-11
Q2-11
Q3-11
Fiber Route Miles
Network positioned for the future
$266 million invested into network in previous 18 months
$ 77 million in capital expenditures; $189 million in acquisitions (network expansion)
Connections to major data centers support exploding Cloud computing demand
Capacity to support significant market opportunity for on-net retail and wholesale
customer expansion
Extensive rural fiber network footprint creates competitive advantages in the market
1
On-Net Buildings excludes FiberNet.
Provider of Choice |
 6
Brand positioning highlights our innovative services and commitment to provide support from
well- trained, dedicated employees
Experienced direct sales and sales engineering teams in-market
Exceptional customer service
93% of calls answered within 10 seconds
91% first-call resolution
Net Promoter scores in top tier across all industries
Strong long-term customer relationships
90% of key vertical account revenues in 2007 are still billing in 2011
75% of revenues in all customer accounts with monthly recurring revenues of $1,000 or greater
in 2007 are still billing in 2011 –
0.6% monthly churn
Experienced management team
Each member of operating management has 10 or more years of experience with wireline
business Key contributors to development of Competitive segment and transition to data
strategy Led execution and integration of recent acquisitions
“Our technology comes with people”
Provider of Choice |
 Established
platform for growth ********************* |
 8
Leverage regional scale
Sell advanced data services to recently-entered Pennsylvania and West Virginia
markets Increase on-net buildings and expand reach in existing markets
Leverage sophisticated sales and sales engineering teams
Up-sell existing enterprise customers to capture growing data demand
Sell advanced services, including managed services and hosting
On-network profile facilitates growth of bandwidth and new applications with minimal
incremental investment
Aggressively pursue fiber-to-the-cell opportunities
Strong early-stage wireless carrier demand in footprint
Positioned for regional 4G deployment expected in 2012 and beyond
Expand footprint through organic edge-out and accretive acquisitions
Strategies for growth and revenue opportunities
Platform for Growth
Opportunities offer attractive returns as revenue density enhances capital
efficiency and on-network sales drive margin growth
~2000 |
 9
Up-sell existing enterprise customers
•
2 locations -
Leased facilities and fiber
•
Primarily Voice Service
•
Monthly Recurring Revenue (MRR) = $2K
•
37 locations -
Primarily On-net locations
•
Voice Service + Metro Ethernet Network
•
Increased MRR to $65K
•
Capital investment = $1.0M
•
Payback ~ 18 months
Enterprise Case Study B
Healthcare Customer
Yesterday
Today
Today
Enterprise Case Study A
Education Customer
Yesterday
•
Data circuits
•
Monthly Recurring Revenue (MRR) = $11K
Platform for Growth
Advanced
Ethernet
products
meet
key
vertical
customers’
growing
broadband
needs
Dense fiber network in under-served markets differentiates Lumos Networks as the provider
of choice On-network existing customer up-sell drives incrementally higher
margins •
Data
circuits,
Internet
bandwidth,
IP
voice
and connection to major data center
•
Increased
MRR
to
$29K
•
Capital
investment
=
$100K
•
Payback
~
7
months |
 Early-Stage
Enterprise Ready Market Colo
Colo
A
A
Colo
Colo
B
B
Long haul
Fiber
Haul
Fiber
Mid-Stage
Enterprise Ready Market
Colo
Colo
A
A
Colo
Colo
B
B
Additional customer
Additional customer
sites + New
sites + New
customers
customers
Natural market evolution provides opportunity
Early-stage markets generate sufficient revenues to meet initial capital ROI requirements
As markets mature, incremental customers, remote locations and additional rings are
added Approximately 75% of addressable in-market businesses are
early-stage Drives free cash flow growth from operating leverage and capital
efficiency
10
Platform for Growth |
 Impressive
enterprise growth trends in key verticals Up-sell existing enterprise
customers Monthly recurring revenue (MRR) in key verticals has grown 20% annually
(CAGR) from 2007 to 2011 and is 45% of large account revenue
Average MRR per customer is growing
Market evolution provides opportunity for new enterprise customers
Number of “Large Customer”
accounts in key verticals has grown 12% annually (CAGR) from 2007 to 2011
11
Platform for Growth
0.0
0.5
1.0
1.5
2.0
2007
2011
Monthly Recurring
Revenue
Regional Banking
Local/Regional
Government
Education
Healthcare
0
50
100
150
200
250
300
350
2007
2011
Large Customer Accounts
Regional Banking
Local/Regional
Government
Education
Healthcare
($mm)
Note: Organic growth, excluding recent acquisitions. “Large Customers”
are defined as customers with $1,000 or greater MRR. |
 Fiber to the
cell site: A high growth wholesale opportunity Approximately 2,000 sites within three
miles of existing network First customer provides a five-year payback and funds the
site Average of more than two carriers per site
Second and successive customers drive cash flow and margin
Long-term
growth
in
bandwidth
demand
and
additional
carriers
continue
to
enhance
returns
Illustrative Wireless Cell Site Economics
Average
Capital
Investment
$80K/site
One Carrier
Annual EBITDA:
$15K to $18K
Payback:
5 years
Two Carriers
Annual EBITDA:
$30K to $36K
Payback:
2 to 3 years
12
Three to Five
Carriers
Annual EBITDA:
$45K to $90K
Payback:
1 to 2 years
Platform for Growth
Contracts of 5 to 10 years and multiple carriers per site drive
long-term profitable revenue streams |
 Wholesale
growth: Strong and accelerating with 4G Monthly
Recurring
Revenue
(MRR)
from
Top
6
wireless
carriers
has
grown
33%
annually
(CAGR)
from 2007 to 2011
Early-stage:
Significant
increases
in
demand
will
be
driven
by
future
4G
deployment
4G deployment in Lumos Networks region commenced in the second half of 2011 and is expected
through 2014
13
Platform for Growth |
 Attractive
combination of growth and income |
 Pro forma
capitalization: Strong balance sheet 15
Pro forma as of
September 30, 2011
($mm)
Cash and cash equivalents
$20.5
Restricted cash
8.1
$28.5
Revolver ($60mm total)
$30.0
Term Loan A
110.0
Term Loan B
200.0
340.0
Capital leases
2.3
Total Debt
$342.3
PF Total Debt / LTM Adjusted EBITDA
3.5x
PF Net Debt / LTM Adjusted EBITDA
3.2x
Available capital to support growth initiatives
Growth and Income |
 Competitive
segment revenue composition: Transition to data Competitive
segment now accounts for 75% of company revenues Strong data growth offsetting voice
declines Wholesale, enterprise data and SMB/Residential revenues are up 11% year over
year; now nearly 60% of segment revenues
Significance of voice revenues declining; now only about one-third of segment
revenues 16
Note: 2010 revenue is Pro Forma for FiberNet.
Growth and Income
$15.8
$15.7
$15.6
$15.1
$14.4
$13.8
$13.4
$19.2
$19.6
$20.2
$20.6
$20.8
$21.6
$22.4
3.8
3.2
3.4
3.4
3.2
3.1
2.8
2
7
12
17
22
Q1-10
Q2-10
Q3-10
Q4-10
Q1-11
Q2-11
Q3-11
Voice & LD
Wholesale / Enterprise Data/SMB-Residential Data
Other
($mm) |
 17
Addressable market significantly increased
Recent network investments made to generate increasing returns in 2012 and beyond
Metro Ethernet products have been launched into 24 new markets in 2011; 7 more planned
by year-end, totaling an increase of 79% for the year
Metro fiber ring reach in 18 markets; planned to be 29 by year-end
As markets mature, revenues grow with increased penetration and data demand
Early stages of revenue growth potential from recent acquisitions
Growth and Income |
 18
Adjusted EBITDA
(1)
Revenue
(1)
Operating strategy and acquisitions successfully shifting business mix
Competitive
RLEC
Competitive Data
RLEC
($ mm)
($ mm)
Growth and Income
Competitive Voice & Other
(1) Reported results; not pro forma for acquisitions
Data focus drives growth in the Competitive segment
Access revenues will be impacted by Regulatory Reform and continued network grooming by
carriers |
 19
Strong margins and recurring free cash flow
($ in millions)
(1)
Pro forma 2010 includes FiberNet results from January 1, 2010. LTM pro forma for the
twelve months ended September 30, 2011, reflects results of FiberNet from July 1,
2010. (2)
Throughout
this
presentation,
Free
Cash
Flow
is
defined
as
consolidated
adjusted
EBITDA
less
CAPEX,
exclusive
of
assets
acquired
from
Allegheny
Energy,
Inc.
on
December
31,
2009
and FiberNet on December 1, 2010.
(3)
LTM
includes
approximately
$6
million
of
one-time
capital
expenditures
related
to
the
integration
of
FiberNet.
Free Cash Flow
(2)
Total Revenue
Adj. EBITDA/Margin %
Capital Expenditures
Historical
Pro forma for FiberNet
Pro forma
(1)
Pro forma
(1)
Pro forma
(1)(3)
Pro forma
(1)(3)
Growth and Income
LTM reflects post acquisition network capital investments to support
market expansion and service offerings
Recurring cash flow stream to support dividend:
Unique among Competitive providers
Current annualized dividend of $12 million ($0.56 per share)
|
 20
Investment themes
Unique assets provide operating leverage and competitive advantage,
positioning Lumos Networks as region’s provider of choice
Established platform for growth
Attractive combination of growth and income |
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Appendix |
 22
Adjusted EBITDA Reconciliation
($ in millions)
2006
2007
2008
2009
2010
Operating Income
$36
$36
$39
$41
$41
Depreciation and Amortization
26
27
27
29
31
Equity Based Compensation
2
1
1
-
2
Voluntary Early Retirement and Workforce Reduction Plans
-
-
1
-
3
Adjusted EBITDA
$64
$64
$68
$70
$77
Year Ended
-
3/31/10
6/30/10
9/30/10
12/31/10
3/31/11
6/30/11
9/30/11
Operating Income
$10
$10
$11
$10
$12
$13
$13
Depreciation and Amortization
7
8
7
9
11
11
11
Equity Based Compensation
1
-
1
-
1
1
Voluntary Early Retirement and Workforce Reduction Plans
-
-
-
2
-
-
-
Adjusted EBITDA
$18
$18
$19
$21
$24
$24
$25
Three Months Ended |