 Company Presentation
March 2012
Exhibit 99.1 |
 1
Use of Non-GAAP Financial Measures
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 increase revenues and manage churn in the
recently acquired FiberNet business; our ability to offset expected revenue declines in our RLEC
business related to the recent regulatory developments and carriers grooming their networks;
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 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.
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. |
 2
Enhancing efficiencies for our customers…
Lumos Networks provides next-
generation communication solutions
and personalized service to customers
in the Mid-Atlantic region, over an
advanced fiber network. |
 3
Lumos Networks’
product strategy is to be first to offer next-generation products to
customers in our regional markets
Next-generation communication solutions
Metro Ethernet
•
Ethernet connectivity among multiple locations in the same city or region
•
Speeds ranging from 1.5 Mbps to 10 Gbps
IP Services
•
IP-enabled product offerings that combine voice and data services over a
dedicated broadband facility utilizing VoIP protocols
•
Enables advanced features and dynamic bandwidth allocation
Broadband
•
Dedicated
Internet
connections
–
up
to
10
Gbps
•
Broadband
XL
high
speed
Internet
over
fiber
–
10
to
20
Mbps
•
DSL over copper with speeds up to 6 Mbps
Wholesale Carrier Services
•
IP-based Ethernet transport over fiber
•
Fiber connectivity to cell sites for wireless carriers facilitates rapidly growing
demand for data, driven by 4G
•
High-bandwidth transport over copper
Flagship Products |
 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 IP network
RLEC with 98% 6MB+
broadband coverage
Video and fiber passes
approximately one-third of
the RLEC base
Advanced, dense regional fiber network serves attractive markets |
 5
Network positioned for the future
Significant network investments (~$300 million) in previous 24 months
Enhancement through capital expenditures; Expansion through acquisitions
Ongoing investments to support growth
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 allowing Lumos Networks
to offer next-generation communication products in regional markets
|
 6
Brand positioning highlights our innovative services and commitment to provide support from
well- trained, dedicated and accessible employees
“Our technology comes with people”
Experienced direct sales and sales engineering teams in-market
Exceptional customer service
94% of calls answered in less than one minute
88% 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
75% of monthly recurring revenues of $1,000 or greater in 2007 are still billing
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
|
 7
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 cloud computing 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
Opportunities offer attractive returns as revenue density enhances capital
efficiency and on-network sales drive margin growth
Strategies for growth
~23
~185
Businesses (000)
148
~2,000
Wireless Cell Sites
Lumos Networks
Market Opportunity |
 8
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
Yesterday
•
Data circuits
•
Monthly Recurring Revenue (MRR) = $11K
•
Data circuits, Internet bandwidth, IP voice
and connection to major data center
•
Increased MRR to $29K
•
Capital investment = $100K
•
Payback ~ 7 months
Enterprise Case Study A
Education
Customer
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
|
 Double-digit enterprise growth trends in key verticals
Up-sell existing enterprise customers
Monthly recurring revenue (MRR) in key verticals has grown 22% annually (CAGR) from 2007 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
9
Note:
Organic
growth,
excluding
acquisitions.
“Large
Customers”
are
defined
as
customers
with
$1,000
or
greater
MRR.
($mm) |
 Fiber to the
cell site: High growth wholesale opportunity 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
10
Three to Five
Carriers
Annual EBITDA:
$45K to $90K
Payback:
1 to 2 years
Contracts of 5 to 10 years and multiple carriers per site drive
long-term profitable revenue streams
Approximately 2,000 sites within three miles of existing network First customer provides a five-year payback and funds the site Average of more than two carriers per site Second and successive customers drive cash flow and margin Long-term growth in bandwidth demand and additional carriers continue to enhance
returns |
 Wholesale
growth: Strong and accelerating with 4G Monthly
Recurring
Revenue
(MRR)
from
Top
6
wireless
carriers
has
grown
41%
annually
(CAGR)
from
2007 to 2011
Early-stage:
Significant
increases
in
demand
will
be
driven
by
future
4G
deployment
4G deployment in Lumos Networks region commenced in the second half of 2011 and is expected
through 2014
11
($mm)
Existing contracts to build fiber connections to 150 additional cell sites
|
 12
Key Success Factors
Leveraging Network
Infrastructure
•
5,800 route-mile state-of-the-art fiber optic network
•
Unique regional footprint with attractive enterprise and wholesale markets
•
Position in multiple key vertical markets
Focus on Revenue Growth:
Data Opportunity
•
Continue innovative leadership position
•
Expand product offerings
•
Leverage up-sell opportunity of existing accounts
Solid Execution
•
Sales force expansion and productivity
•
Installation streamlining and productivity
•
Automated customer interfaces
Financial Performance
•
Adjusted EBITDA generation
•
Capital expenditure efficiency
•
Cash flow from operations
•
Return to shareholders |
 13
Strong margins and recurring free cash flow
($ in millions)
(1)
Pro forma 2010 includes FiberNet results from January 1, 2010.
(2)
Throughout this presentation, Free Cash Flow is defined as consolidated adjusted EBITDA less
CAPEX. (3)
2011 includes one-time capital expenditures related to the integration of FiberNet.
Free
Cash
Flow
(2)(3)
Total Revenue
Adj. EBITDA/Margin %
Capital Expenditures
(3)
Historical/Actual
Pro forma for FiberNet
Pro
forma
(1)
Pro
forma
(1)
Pro
forma
(1)
Pro
forma
(1)
2011 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 ($0.56 per share)
|
 14
Adjusted EBITDA
(1)
Revenue
(1)
Operating strategy and acquisitions successfully shifting business mix
Competitive
RLEC
Data
focus
drives
growth
in
the
Competitive
segment:
17%
year
over
year
data
revenue
growth
2
RLEC access revenues impacted by Regulatory Reform and continued
network grooming by carriers
Competitive
Data
2
RLEC
($ mm)
($ mm)
Competitive Voice & Other
(1)
Reported results; not pro forma for acquisitions.
(2)
Includes
enterprise,
wholesale
and
SMB/residential
data;
4Q
2011
up
17%
over
4Q
2010,
pro
forma
for
FiberNet |
 15
Addressable market significantly increased
Recent network investments made to generate increasing returns in 2012 and beyond
Metro Ethernet or IP data products were launched into 30 new markets in 2011, an increase of
79% for the year
Metro fiber ring reach in 27 new markets; Two additional to be added in 2012
As markets mature, revenues grow with increased penetration and data demand
Early stages of revenue growth potential from acquisitions
7%
64%
54%
78%
($ mm)
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
2007
2011
Competitive Revenues
Virginia
Enterprise Data
SMB Data
Wholesale
Voice
- |
 Capitalization
16
As of
December 31, 2011
($mm)
Cash and cash equivalents
$10.5
Restricted cash
7.6
$18.1
Revolver ($60 million total)
$15.0
Term Loan A
110.0
Term Loan B
199.5
324.5
Capital leases
2.1
Total Debt
$326.6
Total Debt / LTM Adjusted EBITDA
3.4x
Net Debt / LTM Adjusted EBITDA
3.3x
Available capital to support growth initiatives |
 Business
Outlook 17
Cash needs funded from operations
(Dollars in millions)
2011
Three to Five Year
Actual
Low
High
Expectations
Revenue
Competitive
$155
$159
$164
5% Annual Growth
% of total revenue
75%
80%
80%
90%
RLEC
$52
$41
$41
10% Annual Decline
% of total revenue
25%
21%
20%
10%
Total Revenue
$207
$200
$205
Adjusted EBITDA
$97
$85
$90
% of total revenue
47%
43%
44%
45%
Capital Expenditures
$62
$52
$60
% of total revenue
30%
26%
29%
25%
Free Cash Flow
(adjusted EBITDA less Capex)
$35
$33
$30
% of total revenue
17%
17%
15%
20%
Cash Interest
$3
$14
$14
% of total revenue
1%
7%
7%
5%
Cash Taxes
$1
$1
$1
% of total revenue
-
1%
-
5%
Dividends
$3
$12
$12
% of total revenue
1%
6%
6%
5%
Debt Repayment
$1
$2
$2
% of total revenue
-
1%
1%
5%
2012 Guidance Range |
 18
Key Success Factors
Leveraging Network
Infrastructure
•
5,800 route-mile state-of-the-art fiber optic network
•
Unique regional footprint with attractive enterprise and wholesale markets
•
Position in multiple key vertical markets
Focus on Revenue Growth:
Data Opportunity
•
Continue innovative leadership position
•
Expand product offerings
•
Leverage up-sell opportunity of existing accounts
Solid Execution
•
Sales force expansion and productivity
•
Installation streamlining and productivity
•
Automated customer interfaces
Financial Performance
•
Adjusted EBITDA generation
•
Capital expenditure efficiency
•
Cash flow from operations
•
Return to shareholders
Q
&
A
(live
presentation
only) |
 Appendix |
 20
Adjusted EBITDA Reconciliation
($ in millions)
2007
2008
2009
2010
2011
Operating Income (Loss)
$36
$39
$41
$41
($36)
Depreciation and Amortization
27
27
29
31
43
Equity Based Compensation
1
1
-
2
2
Asset Impairment Charge
-
-
-
-
86
Business Separation Charges
-
-
-
-
2
Acquisition Related Charges
-
-
-
3
-
Voluntary Retirement and Workforce Reduction Plans
-
1
-
-
-
Adjusted EBITDA
$64
$68
$70
$77
$97
Year Ended
3/31/10
6/30/10
9/30/10
12/31/10
3/31/11
6/30/11
9/30/11
12/31/11
Operating Income (Loss)
$11
$10
$11
$9
$12
$13
$13
($75)
Depreciation and Amortization
7
8
7
9
11
11
11
10
Equity Based Compensation
1
-
1
1
1
1
1
-
Asset Impairment Charge
-
-
-
-
-
-
-
86
Business Separation Charges
-
-
-
-
-
-
-
2
Acquisition Related Charges
-
-
-
2
-
-
-
-
Adjusted EBITDA
$19
$18
$19
$21
$24
$25
$25
$23
Three Months Ended |
 21
2012 Financial Guidance
1
(as of February 27, 2012)
($ in millions)
(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 2011 earnings release dated February 27, 2012.
(2)
Based on the mid-points of the above guidance ranges.
(3)
Represents the most recent cash dividend paid, annualized. Dividend payments
are reviewed quarterly by the board of directors and are subject to change.
(4)
Primarily cash reimbursements received from Federal stimulus awards, which provide
50% funding to bring broadband services and infrastructure to Alleghany County,
Virginia.
(5)
Before discretionary payments to the credit facility Revolver loan and changes to
working capital. Business Outlook
1
Operating Revenues
50
$
to
51
$
200
$
to
205
$
Adjusted EBITDA
21
$
to
22
$
85
$
to
90
$
Capital Expenditures
52
$
to
60
$
Reconciliation of Operating Income to Adjusted EBITDA
Operating Income
11
$
to
12
$
44
$
to
46
$
Depreciation and amortization
9
38
to
40
Equity based compensation charges
1
3
to
4
Adjusted EBITDA
21
$
to
22
$
85
$
to
90
$
Projected Cash Flows for the Year 2012
1
Adjusted EBITDA
2
88
$
Less: Capital expenditures
2
(56)
32
Less:
Cash interest, net of interest income
(14)
Cash taxes
(1)
Cash flows, net, before dividends and debt payments
17
Less:
Cash
dividends:
$0.14
per
share
per
quarter
3
(12)
Scheduled 2012 debt payments
(2)
Plus:
Other, net
4
7
Projected Cash Flows, net
5
10
$
First Quarter 2012
2012 Annual |