Otelco Reports First Quarter 2009 Results



    ONEONTA, AL, May 5 /CNW/ - Otelco Inc. (NASDAQ:   OTT; TSX: OTT.un), a
wireline telecommunications services provider in Alabama, Maine,
Massachusetts, Missouri and West Virginia, today announced results for its
first quarter ended March 31, 2009. Key quarterly highlights for Otelco
include:

    
    -   Total revenues of $25.5 million for first quarter 2009.
    -   Operating income of $4.5 million for first quarter 2009.
    -   Adjusted EBITDA (as defined below) of $11.5 million.
    

    "Otelco continues to deliver solid financial results despite the
challenging economic environment", said Mike Weaver, President and Chief
Executive Officer of Otelco. "We experienced growth in both our revenue and
Adjusted EBITDA, with revenue increases of $7.6 million and $2.2 million and
Adjusted EBITDA increases of $2.6 million and $0.5 million over the same
quarter last year and the last quarter of 2008, respectively. We continue to
see strong demand for our DSL products as evidenced by the 3% growth in the
first quarter.
    "Our capital expenditures for the quarter were $1.2 million as most of
our larger projects are scheduled for later in the year. As a result of the
EBITDA growth and lower than normal cap-ex, our cash grew by $2.9 million in
the quarter and our pay-out ratio was 82%.
    "We continue to implement our integration plan for the Country Road
entities, which we acquired at the end of October 2008, and expect to complete
the process in the third quarter of this year," Weaver concluded. "As we
complete the integration process and realize additional operational expense
reductions, we expect a corresponding increase in Adjusted EBITDA. As
evidenced by our seventeenth consecutive IDS dividend, we remain committed to
returning cash to our shareholders."

    
    Distribution to Income Deposit Security Holders
    -----------------------------------------------
    
    Each quarter, the Board will consider the declaration of dividends during
its normally scheduled meeting. For this quarter, the Board is meeting on May
12, 2009. The scheduled interest and any dividend declared will be paid on
June 30, 2009 to holders of record as of the close of business on June 15,
2009. The interest payment will cover the period from March 29, 2009 through
June 29, 2009. Currently, it is anticipated that the Company's dividends in
2009 will continue to be treated as a return of capital for tax purposes. The
Company has made seventeen successive quarterly distributions of dividends and
interest since its IDS units were originally offered to the public in December
2004.

    
                    First Quarter 2009 Financial Summary
              (Dollars in thousands, except per share amounts)

                                                             Change
                                                    -------------------------
                              1Q 2008      1Q 2009       Amount      Percent
    -------------------------------------------------------------------------

    Revenues              $    17,859  $    25,500  $     7,641        42.8%
    Operating income      $     5,140  $     4,465  $      (675)     (13.1)%
    Interest expense      $    (4,683) $    (6,599) $     1,916        40.9%
    Net income available
     to stockholders      $       408  $      (871) $    (1,279)        (*)%
    Basic net income
     (loss) per share     $      0.03  $     (0.07) $     (0.10)        (*)%
    Diluted net income
     (loss) per share     $      0.03  $     (0.07) $     (0.10)        (*)%

    Adjusted EBITDA(a)    $     8,854  $    11,502  $     2,648        29.9%
    Capital expenditures  $     2,413  $     1,229  $    (1,184)     (49.1)%

    (*) Not a meaningful calculation


    Reconciliation of Adjusted EBITDA to Net Income
    -----------------------------------------------

                             Three Months Ended
                                   March 31,
                              2008         2009
                          ------------ ------------
    Net Income            $       408  $      (871)
    Add: Depreciation           2,756        3,681
         Interest Expense,
          gross                 4,097        5,937
         Interest Expense
          - Caplet Cost           230          344
         Interest Expense
          - Amortize Loan
          Cost                    372          338
         Interest Expense
          - Premium               (17)         (20)
         Gain/Loss from
          Investments             (44)           0
         Income Tax Expense       175       (1,025)
         Change in Fair
          Value of
          Derivatives             241          (12)
         Loan Fees                 19           19
         Amortization
          - Intangibles           617        3,111
                          ------------ ------------
    Adjusted EBITDA       $     8,854  $    11,502
                          ------------ ------------
                          ------------ ------------

    (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.


    Otelco Inc. (including Acquired Entities at date of acquisition)
    ----------------------------------------------------------------

                                                                     Quarter
    Key Operating                                      March 31,    % Change
     Statistics                  2007         2008         2009         2009
                          ------------ ------------ ------------ ------------
    RLEC access lines:
      Voice lines              36,687       51,530       50,807       (1.4)%
      Data lines               12,160       18,709       19,365         3.5%
                          ------------ ------------ ------------ ------------
      RLEC access line
       equivalents (1)         48,847       70,239       70,172       (0.1)%

    CLEC access lines:
      Voice lines              16,973       26,558       26,744         0.7%
      Data lines                2,571        3,246        3,228       (0.6)%
                          ------------ ------------ ------------ ------------
      CLEC access line
       equivalents (1)         19,544       29,804       29,972         0.6%

    Otelco access line
      equivalents (1)          68,391      100,043      100,144         0.1%
                          ------------ ------------ ------------ ------------
                          ------------ ------------ ------------ ------------
    Cable television
     customers                  4,169        4,082        4,132         1.2%
    Wholesale network
     connections                    -       98,187      113,855        16.0%
    Dial-up internet
     customers                 15,249       11,864       10,885       (8.3)%

    (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 FIRST QUARTER 2009:

    All financial information includes three entities acquired from Country
    -----------------------------------------------------------------------
    Road Communications LLC on and as of October 31, 2008.
    ------------------------------------------------------

    Revenue
    -------
    
    Total revenues grew 42.8% in the three months ended March 31, 2009 to
$25.5 million from $17.9 million in the three months ended March 31, 2008. The
growth in revenue was primarily associated with the acquisition. Local
services revenue grew 76.5% in the first quarter to $11.9 million from $6.7
million in the quarter ended March 31, 2008. The acquisition provided an
increase of $5.5 million for the quarter. Network access revenue increased
25.5% in the first quarter to $8.1 million from $6.4 million in the quarter
ended March 31, 2008. The acquisition provided an increase of $2.2 million for
the quarter. Cable television revenue for the existing subsidiaries in the
three months ended March 31, 2009 increased 11.1% to just over $0.6 million
from just over $0.5 million in the three months ended March 31, 2008. Internet
revenue for the first quarter 2009 increased 18.0% to $3.5 million from $3.0
million in the quarter ended March 31, 2008, primarily associated with the
acquisition. Transport services revenue for the existing subsidiaries grew
22.2% to over $1.4 million in the three months ended March 31, 2009 from $1.1
million in the same period in 2008.

    
    Operating Expenses
    ------------------
    
    Operating expenses in the three months ended March 31, 2009 increased
65.4% to $21.0 million from $12.7 million in the three months ended March 31,
2008. Cost of services increased 60.4% to $10.7 million in the quarter ending
March 31, 2009 from $6.7 million in the same period last year, including $4.1
million from the acquisition and a reduction of $0.1 million from the existing
units. Selling, general and administrative expenses increased 32.8% to $3.6
million in the quarter ended March 31, 2009 from $2.7 million in the quarter
ended March 31, 2008, reflecting the acquisition. Depreciation and
amortization for first quarter increased 101.3% to $6.8 million from $3.4
million. Depreciation and amortization included $3.6 million from the
acquisition including amortization of intangible assets acquired and a
reduction of $0.2 million from the existing units.

    
    Interest Expense
    ----------------
    
    Interest expense increased 40.9% to $6.6 million in the quarter ended
March 31, 2009 from $4.7 million a year ago. The results reflect $1.8 million
in interest on the increased senior debt associated with the acquisition and
$0.1 million in caplet cost amortization associated with the interest rate
cap. The Company has entered into two interest rate swaps to limit its
exposure to changes in interest rates through February 2012.

    
    Adjusted EBITDA
    ---------------
    
    Adjusted EBITDA for the three months ended March 31, 2009 was $11.5
million compared to $8.9 million for the same period in 2008 and $11.0 million
in the fourth quarter of 2008. Adjusted EBITDA included approximately $3.1
million from the acquisition. See financial tables for a reconciliation of
Adjusted EBITDA to net income.

    
    Balance Sheet
    -------------
    
    As of March 31, 2009, the Company had cash and cash equivalents of $16.4
million compared to $13.5 million as the end of 2008. Total long-term debt
remained unchanged at $278.8 million. The first quarter distribution of $5.3
million in interest and dividends to our share owners and $0.3 million to our
bond holders occurred on March 30, 2009. This represents the seventeenth
consecutive quarterly distribution since going public in December 2004.

    
    Capital Expenditures
    --------------------
    
    Capital expenditures were $1.2 million for the quarter, a conservative
start to the year. The Company added DSL capacity; purchased competitive
customer specific equipment; and upgraded other network and switching
facilities.

    
    First Quarter Earnings Conference Call
    --------------------------------------
    
    Otelco has scheduled a conference call, which will be broadcast live over
the Internet, on Wednesday, May 6, 2009, at 11:00 a.m. ET. To participate in
the call, dial (913) 312-6698 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 3173415.

    ABOUT OTELCO

    Otelco Inc., headquartered in Oneonta, Alabama, provides wireline
telecommunications services in Alabama, Maine, Massachusetts, Missouri and
West Virginia. The Company's services include local and long distance
telephone, network access, transport, digital high-speed and dial-up Internet
access, cable television and other telephone related services. With more than
100,000 voice and data access lines which are collectively referred to as
access line equivalents, Otelco is among the top 25 largest local exchange
carriers in the United States based on number of access lines. Otelco operates
ten 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 retail and wholesale communications 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,      March 31,
                                                         2008           2009
                                                -------------- --------------
                                                                  (unaudited)
    Assets
      Current assets
        Cash and cash equivalents               $  13,542,255  $  16,424,881
        Accounts receivable:
          Due from subscribers, net of allowance
           for doubtful accounts of $318,446 and
           $361,348 respectively                    5,207,731      4,977,439
          Unbilled receivables                      2,567,730      2,487,246
          Other                                     4,348,044      4,470,202
        Materials and supplies                      2,305,755      2,313,220
        Prepaid expenses                            1,141,908        930,991
        Income tax receivable                         181,644        181,644
        Deferred income taxes                         827,686        827,686
                                                -------------- --------------
          Total current assets                     30,122,753     32,613,309
                                                -------------- --------------

        Property and equipment, net                75,407,062     72,572,584
        Goodwill                                  189,334,837    189,334,837
        Intangible assets, net                     44,390,644     41,681,083
        Investments                                 2,015,583      2,009,205
        Deferred financing costs                    8,315,921      7,977,944
        Deferred income taxes                       5,897,382      5,897,382
        Interest rate cap                               7,765          1,459
        Deferred charges                               49,540         36,868
                                                -------------- --------------
          Total assets                          $ 355,541,487  $ 352,124,671
                                                -------------- --------------
                                                -------------- --------------

    Liabilities and Stockholders' Equity
      Current liabilities
        Accounts payable                        $   2,312,920  $   2,357,206
        Accrued expenses                            6,632,287      5,998,802
        Advanced billings and payments              2,024,123      2,020,874
        Customer deposits                             180,582        196,883
                                                -------------- --------------
          Total current liabilities                11,149,912     10,573,765
                                                -------------- --------------
      Deferred income taxes                        45,962,402     45,962,402
      Interest rate swaps                                   -        962,683
      Advance billings and payments                   739,736        729,390
      Other liabilities                               188,346        157,124
      Long-term notes payable                     278,799,513    278,779,842
                                                -------------- --------------
          Total liabilities                       336,839,909    337,165,206
                                                -------------- --------------

      Derivative liability                            238,054        226,474
      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                  19,277,959     17,043,685
       Retained deficit                            (3,870,923)    (4,742,274)
       Accumulated other comprehensive loss        (1,160,759)    (1,785,667)
                                                -------------- --------------

         Total stockholders' equity                14,378,491     10,647,958
                                                -------------- --------------

         Total liabilities and stockholders'
          equity                                $ 355,541,487  $ 352,124,671
                                                -------------- --------------
                                                -------------- --------------



                                 OTELCO INC.
                    Consolidated Statements of Operations
                                 (unaudited)

                                                      Three Months Ended
                                                           March 31,
                                                -----------------------------
                                                     2008           2009
                                                -------------- --------------

    Revenues
      Local services                            $   6,726,190  $  11,854,980
      Network access                                6,437,654      8,094,133
      Cable television                                546,162        606,687
      Internet                                      3,001,466      3,541,677
      Transport services                            1,147,948      1,402,699
                                                -------------- --------------
        Total revenues                             17,859,420     25,500,176
                                                -------------- --------------

    Operating expenses
      Cost of services and products                 6,652,111     10,666,456
      Selling, general and administrative
       expenses                                     2,693,983      3,576,674
    Depreciation and amortization                   3,373,248      6,791,839
                                                -------------- --------------
        Total operating expenses                   12,719,342     21,034,969
                                                -------------- --------------

    Income from operations                          5,140,078      4,465,207
                                                -------------- --------------

    Other income (expense)
      Interest expense                             (4,682,840)    (6,598,953)
      Change in fair value of derivative             (240,905)        11,580
      Other income                                    366,580        225,860
                                                -------------- --------------
        Total other expense                        (4,557,165)    (6,361,513)
                                                -------------- --------------

    Income (loss) before income taxes                 582,913     (1,896,306)

    Income tax expense                               (174,874)     1,024,953
                                                -------------- --------------

    Net income (loss) available to common
     stockholders                               $     408,039  $    (871,353)
                                                -------------- --------------
                                                -------------- --------------

    Weighted average shares outstanding:
      Basic                                        12,676,733     12,676,733
      Diluted                                      13,221,404     13,221,404

    Net income (loss) per share:
       Basic                                    $        0.03  $       (0.07)
       Diluted                                  $        0.03  $       (0.07)

       Dividends declared per share             $        0.18  $        0.18



                                 OTELCO INC.
                    Consolidated Statements of Cash Flows
                                 (unaudited)

                                                      Three Months Ended
                                                           March 31,
                                                     2008           2009
                                                -------------- --------------
    Cash flows from operating activities:
      Net income                                $     408,039  $    (871,353)
      Adjustments to reconcile net income to
       cash flows from operating activities:
        Depreciation                                2,756,265      3,680,873
        Amortization                                  616,983      3,110,966
        Interest rate caplet                          230,232        344,082
        Amortization of debt premium                  (17,520)       (19,671)
        Amortization of loan costs                    372,828        337,976
        Change in fair value of derivative            240,905        (11,580)
        Provision for uncollectible revenue            54,756         58,691
        Changes in assets and liabilities; net
         of assets and liabilities acquired:
          Accounts receivables                        (15,608)       129,927
          Material and supplies                      (228,321)        (7,465)
          Income tax receivable                       219,976              -
          Prepaid expenses and other assets           255,106        210,917
          Accounts payable and accrued
           liabilities                                 80,081       (589,196)
          Advance billings and payments               (13,224)       (13,595)
          Other liabilities                             2,310        (14,921)
                                                -------------- --------------
            Net cash from operating activities      4,962,808      6,345,651
                                                -------------- --------------
    Cash flows from investing activities:
      Acquisition and construction of property
       and equipment                               (2,413,008)    (1,228,751)
      Deferred charges/acquisition                    (65,674)             -
                                                -------------- --------------
            Net cash used in investing
             activities                            (2,478,682)    (1,228,751)
                                                -------------- --------------

    Cash flows from financing activities:
      Cash dividends paid                          (2,234,274)    (2,234,274)
                                                -------------- --------------
            Net cash used in financing
             activities                            (2,234,274)    (2,234,274)
                                                -------------- --------------

    Net increase in cash and cash equivalents         249,852      2,882,626
    Cash and cash equivalents, beginning of
     period                                        12,810,497     13,542,225
                                                -------------- --------------

    Cash and cash equivalents, end of period    $  13,060,349  $  16,424,881
                                                -------------- --------------
                                                -------------- --------------

    Supplemental disclosures of cash flow
     information:
      Interest paid                             $   4,222,443  $   6,215,276
                                                -------------- --------------
                                                -------------- --------------

      Income taxes received                     $   (229,106)  $     (61,342)
                                                -------------- --------------
                                                -------------- --------------
    





For further information:

For further information: Curtis Garner, Chief Financial Officer, Otelco
Inc., (205) 625-3571, Curtis@otelcotel.com

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