Otelco Reports Second Quarter 2008 Results
ONEONTA, AL, Aug. 5 /CNW/ - Otelco Inc. (NASDAQ: OTT; TSX: OTT.un), the
sole wireline telephone services provider in several rural communities in
Alabama, Maine and Missouri, today announced results for its second quarter
ended June 30, 2008. Key quarterly highlights for Otelco include:
- Total revenues of $17.7 million.
- Operating income of $5.0 million.
- Adjusted EBITDA (as defined below) of $8.5 million.
"Our business provided solid revenue and subscriber growth which resulted
in a strong financial performance for second quarter," stated Mike Weaver,
President and Chief Executive Officer of Otelco. "Key operating highlights
include continued growth in access line equivalents when compared to last
quarter and last year, driven by increases in both RLEC data lines and CLEC
voice and data lines. Our bundled product offerings have increased to
approximately 40% of our eligible customers.
"We also delivered solid increases in revenue and operating income, which
increased 3.2% and 14.1%, respectively, from the year-ago period and 3.6% and
10.8% respectively for the first half of 2008 compared to the same period in
2007. Adjusted EBITDA was $8.5 million for the quarter and $17.3 million
year-to-date, a 1.6% and 1.7% increase from the comparable periods last year,"
added Weaver. "Bottom line performance also improved from the year-ago period
as we reported net income of $0.4 million for the quarter and $0.8 million
year-to-date compared to a net loss of $0.1 million for the second quarter
2007 and a net loss of $0.2 million for the first half of 2007. We invested
over $1.5 million in our infrastructure to serve both our current and future
customers and delivered our fourteenth consecutive IDS distribution. That
demonstrates our continued focus on generating solid operating and financial
performance while also exploring strategic expansion opportunities to further
grow our business."
Distribution to IDS Holders
---------------------------
Each quarter, the Board considers the declaration of dividends during its
normally scheduled meeting. For the second quarter of 2008, the Board is
meeting on August 14, 2008. Currently, it is anticipated that the Company's
dividends will continue to be treated as a return of capital for tax purposes.
The scheduled interest and any dividend declared will be paid on
September 30, 2008 to holders of record as of the close of business on
September 15, 2008. The interest payment will cover the period from
June 30, 2008 through September 29, 2008.
Second Quarter 2008 Financial Summary
(Dollars in thousands, except per share amounts)
Three Months Ended June 30, Change
---------------------
2007 2008 Amount Percent
-------------------------------------------------------------------------
Revenues $ 17,118 $ 17,669 $ 551 3.2%
Operating income $ 4,389 $ 5,006 $ 617 14.1%
Interest expense $ (5,412) $ (4,773) $ (639) (11.8)%
Net income (loss) available
to stockholders $ (105) $ 406 $ 511 (*)%
Basic net income (loss)
per share $ (0.01) $ 0.03 $ 0.4 (*)%
Diluted net income (loss)
per share $ (0.03) $ 0.02 $ 0.5 (*)%
Adjusted EBITDA(a) $ 8,349 $ 8,479 $ 130 1.6%
Capital expenditures $ 1,501 $ 1,534 $ 33 2.2%
Six Months Ended June 30, Change
---------------------
YTD 2007 YTD 2008 Amount Percent
-------------------------------------------------------------------------
Revenues $ 34,291 $ 35,528 $ 1,237 3.6%
Operating income $ 9,159 $ 10,146 $ 987 10.8%
Interest expense $ (10,789) $ (9,456) $ (1,333) (12.4)%
Net income (loss) available
to stockholders $ (223) $ 814 $ 1,037 (*)%
Basic net income (loss)
per share $ (0.02) $ 0.06 $ 0.8 (*)%
Diluted net income (loss)
per share $ (0.07) $ 0.05 $ 0.12 (*)%
Adjusted EBITDA(a) $ 17,049 $ 17,333 $ 284 1.7%
Capital expenditures $ 2,876 $ 3,947 $ 1,071 37.2%
(*) Not a meaningful calculation
Reconciliation of Adjusted EBITDA to Net Income (Loss)
------------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
2007 2008 2007 2008
----------- ----------- ----------- -----------
Adjusted EBITDA
Net Income (Loss) $ (105) $ 406 $ (223) $ 814
Add: Depreciation 3,127 2,772 6,107 5,528
Interest Expense - Net
of Premium 4,774 4,179 9,525 8,276
Interest Expense -
Caplet Cost 240 240 468 470
Interest Expense -
Amortize Loan Cost 398 373 796 746
Interest Expense -
Premium - (18) - (35)
Gain/Loss from
Investment - - - (45)
Income Tax Expense (503) 57 (491) 232
Change in Fair Value of
Derivative (250) (167) (468) 74
Loan Fees 19 19 38 38
Amortization -
Intangibles 649 618 1,297 1,235
----------- ----------- ----------- -----------
Adjusted EBITDA $ 8,349 $ 8,479 $ 17,049 $ 17,333
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
(a) Adjusted EBITDA is defined as consolidated net income (loss) plus
interest expense, depreciation and amortization, income taxes and certain
non-recurring fees, expenses or charges and other non-cash charges
reducing consolidated net income. Adjusted EBITDA is not a measure
calculated in accordance with generally acceptable accounting principles
(GAAP). While providing useful information, Adjusted EBITDA should not be
considered in isolation or as a substitute for consolidated statement of
operations data prepared in accordance with GAAP. The Company believes
Adjusted EBITDA is useful as a tool to analyze the Company on the basis
of operating performance and leverage. The definition of Adjusted EBITDA
corresponds to the definition of Adjusted EBITDA in the indenture
governing the Company's senior subordinated notes and its credit facility
and certain of the covenants contained therein. The Company's
presentation of Adjusted EBITDA may not be comparable to similarly titled
measures used by other companies.
Year Ended December 31, March 31, June 30,
-----------------------------------------------
Key Operating Statistics 2006 2007 2008 2008
----------- ----------- ----------- -----------
RLEC access lines:
Voice lines 37,736 36,687 36,239 35,989
Data lines 10,016 12,160 12,729 13,065
----------- ----------- ----------- -----------
RLEC access line
equivalents(1) 47,752 48,847 48,968 49,054
CLEC access lines:
Voice lines 14,267 16,973 17,457 17,740
Data lines 2,016 2,571 2,602 2,735
----------- ----------- ----------- -----------
CLEC access line
equivalents(1) 16,283 19,544 20,059 20,475
Otelco access line
equivalents(1) 64,035 68,391 69,027 69,529
----------- ----------- ----------- -----------
Cable television customers 4,188 4,169 4,175 4,109
Dial-up internet customers 19,587 15,249 14,290 13,419
(1) We define access line equivalents as voice access lines and data
access lines (including cable modems, digital subscriber lines, and
dedicated data access trunks).
FINANCIAL DISCUSSION FOR SECOND QUARTER 2008:
Revenue
-------
Total revenues grew 3.2% in the three months ended June 30, 2008 to
$17.7 million from $17.1 million in the three months ended June 30, 2007. The
growth in revenue reflected growth in CLEC customers in Maine and increased
digital Internet lines throughout the areas we serve. Local services revenue
grew 2.8% in the second quarter 2008 to $6.7 million from $6.5 million in the
quarter ended June 30, 2007. Network access revenue remained constant in the
second quarter at $6.1 million compared with the quarter ended June 30, 2007.
Cable television revenue in the three months ended June 30, 2008 remained
constant at just over $0.5 million when compared to the three months ended
June 30, 2007. Internet revenue for the second quarter 2008 increased 6.0% to
$3.0 million from $2.9 million in the quarter ended June 30, 2007. Transport
services revenue grew 20.8% to $1.3 million in the three months ended
June 30, 2008 from $1.0 million in the same period in 2007.
Operating Expenses
------------------
Operating expenses in the three months ended June 30, 2008 decreased 0.5%
to slightly less than $12.7 million from just over $12.7 million in the three
months ended June 30, 2007. Cost of services increased 3.2% to $6.7 million
from $6.5 million in the quarter ended June 30, 2007. The cost associated with
increased CLEC revenue in Maine, increased long distance and Internet
bandwidth requirements to support additional market penetration, and higher
cost of living expense for our employees and energy were partially offset by
network and organizational efficiencies. Selling, general and administrative
expenses increased 4.4% to $2.5 million in the quarter ended June 30, 2008
from $2.4 million in the quarter ended June 30, 2007. Increased property taxes
and employee cost of living expense were partially offset by organizational
efficiencies. Depreciation and amortization for second quarter decreased 10.2%
to $3.4 million from $3.8 million.
Interest Expense
----------------
Interest expense decreased 11.8% to $4.8 million in the quarter ended
June 30, 2008 from $5.4 million in the same period a year ago, reflecting the
reduction in senior and total debt after the sale of 3,000,000 Income Deposit
Securities units in July 2007 and a lower margin on senior debt.
Adjusted EBITDA
---------------
Adjusted EBITDA for the three months ended June 30, 2008 was
$8.5 million, up 1.6% over the same period in 2007. See financial tables for a
reconciliation of Adjusted EBITDA to net income.
Balance Sheet
-------------
As of June 30, 2008, the Company had cash and cash equivalents of
$12.8 million and total long-term debt of $170.0 million. The second quarter
distribution of $5.3 million in interest and dividends to our share owners and
$0.3 million to our bond holders occurred on June 30, 2008. This was the
Company's fourteenth consecutive distribution since going public in 2004.
Capital Expenditures
--------------------
Capital expenditures were $1.5 million for the quarter. The Company added
enhanced network capability to serve competitive customers in Maine; continued
to upgrade its rural facilities in all three states, including additional data
line capacity; and other upgrades to its network and switching facilities.
Second Quarter Earnings Conference Call
---------------------------------------
Otelco has scheduled a conference call, which will be broadcast live over
the Internet, on Wednesday, August 6, 2008, at 11:00 a.m. ET. To participate
in the call, dial (913) 981-5573 and ask for the Otelco call 10 minutes prior
to the start time. Investors, analysts and the general public will also have
the opportunity to listen to the conference call free over the Internet by
visiting the Company's Web site at www.OtelcoInc.com or www.earnings.com. To
listen to the live call online, please visit the Web site at least 15 minutes
early to register, download and install any necessary audio software. For
those who cannot listen to the live Web cast, a replay of the Web cast will be
available on the Company's website at www.OtelcoInc.com or www.earnings.com
for 30 days. A one-week telephonic replay may also be accessed by calling
719-457-0820 and using the passcode 5357214.
ABOUT OTELCO
Otelco Inc., headquartered in Oneonta, Alabama, provides wireline
telephone services in Alabama, Maine and Missouri. The Company's services
include local and long distance telephone, network access, transport, digital
high-speed data and dial-up Internet access, cable television and other
telephone related services. With more than 69,000 voice and data access lines,
which are collectively referred to as access line equivalents, Otelco is among
the top 40 largest local exchange carriers in the United States based on
number of access lines. Otelco operates six incumbent telephone companies
serving rural markets, or rural local exchange carriers, each of which can
trace its history as a local telecommunications provider as far back as the
early 1900s. It also provides competitive telecommunications services through
several subsidiaries. For more information, visit the Company's web site at
www.OtelcoInc.com.
FORWARD LOOKING STATEMENTS
Statements in this press release that are not statements of historical or
current fact constitute forward-looking statements. Such forward-looking
statements involve known and unknown risks, uncertainties, and other unknown
factors that could cause the actual results of the Company to be materially
different from the historical results or from any future results expressed or
implied by such forward-looking statements. In addition to statements which
explicitly describe such risks and uncertainties, readers are urged to
consider statements labeled with the terms "believes", "belief," "expects,"
'intends," "anticipates," "plans," or similar terms to be uncertain and
forward-looking. The forward-looking statements contained herein are also
subject generally to other risks and uncertainties that are described from
time to time in the Company's filings with the Securities and Exchange
Commission.
OTELCO INC.
Consolidated Balance Sheets
As of As of
December 31, June 30,
2007 2008
------------- -------------
(unaudited)
Assets
Current Assets
Cash and cash equivalents $ 12,810,497 $ 12,849,128
Accounts receivable:
Due from subscribers, net of allowance
for doubtful accounts of $257,862 and
$160,136, respectively 2,753,451 2,709,891
Unbilled receivables 2,616,867 2,617,230
Other 1,760,207 1,839,017
Materials and supplies 1,991,724 2,275,760
Prepaid expenses 1,149,180 722,378
Income tax receivable 469,546 214,440
Deferred income taxes 1,486,439 1,486,439
------------- -------------
Total current assets 25,037,911 24,714,283
------------- -------------
Property and equipment, net 54,610,355 52,684,279
Goodwill 134,570,435 134,570,435
Intangible assets, net 9,514,772 8,660,111
Investments 1,207,183 1,194,428
Deferred financing costs 5,878,943 5,133,288
Interest rate cap 1,510,951 624,008
Deferred charges 155,573 365,598
------------- -------------
Total assets $232,486,123 $227,946,430
------------- -------------
------------- -------------
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $ 2,058,989 $ 1,602,585
Accrued expenses 3,716,880 3,780,820
Advanced billings and payments 2,077,713 2,009,690
Customer deposits 185,147 193,163
------------- -------------
Total current liabilities 8,038,729 7,586,258
------------- -------------
Deferred income taxes 25,223,656 25,223,656
Advance billings and payments 797,498 756,979
Other liabilities 183,756 169,846
Long-term notes payable 170,019,705 169,984,152
------------- -------------
Total liabilities 204,263,344 203,720,891
------------- -------------
Derivative liability 814,005 717,767
Class B common convertible to senior
subordinated notes 4,085,033 4,085,033
Stockholders' equity
Class A Common stock, $.01 par value-
authorized 20,000,000 shares; issued
and outstanding 12,676,733 shares 126,767 126,767
Class B Common stock, $.01 par value-
authorized 800,000 shares; issued and
outstanding 544,671 shares 5,447 5,447
Additional paid in capital 28,215,056 23,746,507
Retained deficit (4,084,797) (3,270,622)
Accumulated other comprehensive loss (938,732) (1,185,360)
------------- -------------
Total stockholders' equity 23,323,741 19,422,739
------------- -------------
Total liabilities and stockholders'
equity $232,486,123 $227,946,430
------------- -------------
------------- -------------
OTELCO INC.
Consolidated Statements of Operations
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- -------------------------
2007 2008 2007 2008
------------ ------------ ------------ ------------
Revenues
Local services $ 6,530,615 $ 6,711,884 $12,879,111 $13,438,075
Network access 6,140,830 6,105,129 12,578,418 12,542,783
Cable television 548,414 566,270 1,095,941 1,112,432
Internet 2,859,407 3,030,393 5,679,704 6,031,859
Transport services 1,038,936 1,255,054 2,057,419 2,403,002
------------ ------------ ------------ ------------
Total revenues 17,118,202 17,668,730 34,290,593 35,528,151
------------ ------------ ------------ ------------
Operating expenses
Cost of services
and products 6,534,399 6,745,612 12,805,456 13,397,723
Selling, general and
administrative
expenses 2,419,527 2,527,425 4,921,328 5,221,408
Depreciation and
amortization 3,775,623 3,389,765 7,404,714 6,763,013
------------ ------------ ------------ ------------
Total operating
expenses 12,729,549 12,662,802 25,131,498 25,382,144
------------ ------------ ------------ ------------
Income from operations 4,388,653 5,005,928 9,159,095 10,146,007
------------ ------------ ------------ ------------
Other income (expense)
Interest expense (5,412,345) (4,773,240) (10,788,609) (9,456,080)
Change in fair value
of derivative 250,549 166,850 468,417 (74,055)
Other income 165,581 64,045 447,033 430,625
------------ ------------ ------------ ------------
Total other
expense (4,996,215) (4,542,345) (9,873,159) (9,099,510)
------------ ------------ ------------ ------------
Income (loss) before
income tax expense (607,562) 463,583 (714,064) 1,046,497
Income tax (expense)
benefit 502,981 (57,448) 491,276 (232,322)
------------ ------------ ------------ ------------
Net income (loss)
available to common
stockholders $ (104,581) $ 406,135 $ (222,788) $ 814,175
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Weighted average
shares outstanding:
Basic 9,676,733 12,676,733 9,676,733 12,676,733
Diluted 10,221,404 13,221,404 10,221,404 13,221,404
Net income (loss) per
share:
Basic $ (0.01) $ 0.03 $ (0.02) $ 0.06
Diluted $ (0.03) $ 0.02 $ (0.07) $ 0.05
Dividends declared
per share $ 0.18 $ 0.18 $ 0.35 $ 0.35
OTELCO INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Six Months Ended
June 30,
2007 2008
------------- -------------
Cash flows from operating activities:
Net income (loss) $ (222,788) $ 814,175
Adjustments to reconcile net income to cash
flows from operating activities:
Depreciation 6,107,336 5,527,814
Amortization 1,297,378 1,235,199
Interest rate caplet 467,793 470,022
Amortization of debt premium - (35,553)
Amortization of loan costs 796,245 745,655
Change in fair value of derivative liability (468,417) 74,055
Provision for uncollectible revenue 78,231 129,453
Changes in assets and liabilities; net of
assets and liabilities acquired:
Accounts receivables (224,145) (165,066)
Material and supplies 59,352 (284,036)
Prepaid expenses and other assets 288,417 426,802
Income tax receivable - 255,106
Accounts payable and accrued liabilities (10,888) (392,464)
Advance billings and payments (836) (108,542)
Other liabilities (6,816) (5,894)
------------- -------------
Net cash from operating activities 8,160,862 8,686,726
------------- -------------
Cash flows from investing activities:
Acquisition and construction of property and
equipment (2,875,642) (3,947,447)
Proceeds from retirement of investment 7,871 -
Deferred charges (166,921) (232,100)
------------- -------------
Net cash used in investing activities (3,034,692) (4,179,547)
------------- -------------
Cash flows from financing activities:
Cash dividends paid (3,411,048) (4,468,548)
------------- -------------
Net cash used in financing activities (3,411,048) (4,468,548)
------------- -------------
Net increase in cash and cash equivalents 1,715,122 38,631
Cash and cash equivalents, beginning of period 14,401,849 12,810,497
------------- -------------
Cash and cash equivalents, end of period $ 16,116,971 $ 12,849,128
------------- -------------
------------- -------------
Supplemental disclosures of cash flow
information:
Interest paid $ 9,547,279 $ 8,569,514
------------- -------------
------------- -------------
Income taxes received $ (173,718) $ (146,606)
------------- -------------
------------- -------------
Dividends declared but not paid $ 1,705,524 -
For further information: Curtis Garner, Chief Financial Officer, Otelco
Inc., (205) 625-3571, Curtis@otelcotel.com
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