Otelco Reports Second Quarter 2010 Results

ONEONTA, AL, Aug. 3 /CNW/ - Otelco Inc. (NASDAQ: OTT) (TSX: OTT.un), a wireline telecommunications services provider in Alabama, Maine, Massachusetts, Missouri, New Hampshire and West Virginia, today announced results for its second quarter ended June 30, 2010. Key highlights for Otelco include:

    
    -   Total revenues of $26.5 million for second quarter 2010.
    -   Operating income of $7.0 million for second quarter 2010.
    -   Adjusted EBITDA (as defined below) of $12.9 million for second
        quarter 2010.
    

"The second quarter was productive as we completed several critical projects for future growth and experienced positive financial results," said Mike Weaver, President and Chief Executive Officer of Otelco. "Our financial results include an increase in revenue and Adjusted EBITDA for the quarter and year-to-date over the same periods in 2009. In addition, all categories of revenue increased for the quarter. The second quarter is typically when we experience a net decline in access line equivalents and as expected, access line equivalents declined by 0.4% for the enterprise. The increase in Adjusted EBITDA to its highest quarterly level reflects the implementation of additional operational synergies, settlement of certain issues associated with FairPoint Communications' bankruptcy proceedings, and continued growth in our CLEC operations. Clearly, while the delay in the economic recovery impacts our local markets, we continue pressing our growth plans in 2010," Weaver concluded.

"In this quarter, we completed our integration process as the New England operations began utilizing the brand name OTT Communications in June. We invested in sales resources and network facilities in New Hampshire as we continue to expand our service footprint," added Weaver. "We have also realigned our senior management team in New England to increase our focus on selling in all of our markets. In addition, we completed the exchange of all our Class B shares for IDSs in June, increasing the outstanding IDS units to 13.2 million.

"Our cash position has increased by $5.0 million so far this year, with capital investments in the business of $2.3 million for second quarter. These investments were concentrated in New England as we expand the technology infrastructure in Maine and New Hampshire to support additional customers and control costs," said Weaver. "As evidenced by our growth in cash and the twenty-second consecutive IDS dividend, we remain committed to building value for and 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 August 12, 2010. The scheduled interest and any dividend declared will be paid on September 30, 2010, to holders of record as of the close of business on September 15, 2010. The interest payment will cover the period from June 30, 2010 through September 29, 2010. Currently, it is anticipated that the Company's dividends in 2010 will continue to be treated as a return of capital for tax purposes. The Company has made twenty-two successive quarterly distributions of dividends and interest since its IDS units were originally offered to the public in December 2004.

    
                    Second Quarter 2010 Financial Summary
               (Dollars in thousands, except per share amounts)

                                                                Change
                                                         --------------------
                                    2Q 2009    2Q 2010     Amount    Percent
    -------------------------------------------------------------------------
    Revenues                      $  25,797  $  26,511  $     714       2.8%
    Operating income              $   5,716  $   7,011  $   1,295      22.7%
    Interest expense              $  (6,447) $  (6,179) $    (268)    (4.2)%
    Net income available to
     stockholders                 $     511  $     417  $     (94)        *
      Basic net income per share  $    0.04  $    0.03  $   (0.01)        *
      Diluted net income per
       share                      $    0.03  $    0.03  $    0.00         *

    Adjusted EBITDA(a)            $  12,352  $  12,890  $     538       4.4%
    Capital expenditures          $   2,349  $   2,333  $     (16)    (0.7)%

    * Not a meaningful calculation


                                                                Change
                               Six Months Ended June 30, --------------------
                                   YTD 2009   YTD 2010     Amount    Percent
    -------------------------------------------------------------------------
    Revenues                      $  51,297  $  52,305  $   1,008       2.0%
    Operating income              $  10,181  $  12,880  $   2,699      26.5%
    Interest expense              $ (13,046) $ (12,168) $    (878)    (6.7)%
    Net income (loss) available
     to stockholders              $  (1,323) $      32  $   1,355         *
    Basic net income (loss) per
     share                        $   (0.10) $    0.00  $    0.10         *
    Diluted net income (loss)
     per share                    $   (0.11) $    0.00  $    0.11         *

    Adjusted EBITDA(a)            $  23,854  $  25,220  $   1,366       5.7%
    Capital expenditures          $   3,578  $   4,087  $     509      14.2%

    * Not a meaningful calculation


    Reconciliation of Adjusted EBITDA to Net Income (Loss)
    ------------------------------------------------------

                                    Three Months Ended      Six Months Ended
                                           June 30,              June 30,
                                       2009       2010       2009       2010
                                  ---------- ---------- ---------- ----------
    Net income (loss)             $     511  $     417  $  (1,323) $      32
    Add: Depreciation                 3,496      3,327      7,177      6,900
         Interest expense - net
          of premium                  5,753      5,840     11,670     11,491
         Interest expense -
          caplet cost                   356          -        700          -
         Interest expense -
          amortize loan cost            338        339        676        677
         Income tax expense
          (benefit)                      61        262       (964)         1
         Change in fair value
          of derivatives             (1,290)       176       (339)     1,062
         Loan fees                       19         19         38         38
         Amortization -
          intangibles                 3,108      2,510      6,219      5,019
                                  ---------- ---------- ---------- ----------
    Adjusted EBITDA               $  12,352  $  12,890  $  23,854  $  25,220
                                  ---------- ---------- ---------- ----------
                                  ---------- ---------- ---------- ----------
    (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. - Key Operating Statistics
    --------------------------------------

                                At and for the    At and for the
                                  Year Ended    Three Months Ended
                                  December 31,  March 31,  June 30, % Change
                                2008      2009      2010      2010      2010
                            --------- --------- --------- --------- ---------
    Otelco access line
     equivalents(1)          100,043   100,356   100,522   100,126    (0.4)%

    RLEC and other services:
      Voice access lines      51,530    48,215    47,552    46,788    (1.6)%
      Data access lines       18,709    20,066    20,614    20,703     0.4 %
                            --------- --------- --------- --------- ---------
        Access line
         equivalents(1)       70,239    68,281    68,166    67,491    (1.0)%
      Cable television
       customers               4,082     4,195     4,239     4,205    (0.8)%
      Additional internet
       customers              11,864     9,116     8,528     8,048    (5.6)%
        RLEC dial-up           1,183       786       656       551   (16.0)%
        Other dial-up          9,213     6,439     5,765     5,340    (7.4)%
        Other data lines       1,468     1,891     2,107     2,157      2.4%
      Revenues (dollars
       in millions)            $54.4     $61.3     $14.7     $14.4    (2.0)%

    CLEC:
      Voice access lines      26,558    28,647    28,889    29,070      0.6%
      Data access lines        3,246     3,428     3,467     3,565      2.8%
                            --------- --------- --------- --------- ---------
        Access line
         equivalents(1)       29,804    32,075    32,356    32,635      0.9%
      Wholesale network
       connections            98,187   132,324   137,318   142,837      4.0%
      Revenues (dollars
       in millions)            $22.7     $42.5     $11.1     $12.1      9.0%

    (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 2010:

    Revenue
    -------
    

Total revenues grew 2.8% in the three months ended June 30, 2010, to $26.5 million from $25.8 million in the three months ended June 30, 2009. Targeted growth in New Hampshire and Maine CLEC areas, resolution of certain issues associated with FairPoint Communications' bankruptcy proceedings, and selective price increases, which were partially offset by declines in RLEC subscribers, generated positive gains across all revenue categories. Local services revenue grew 1.8% in the second quarter to $12.3 million from $12.1 million in the quarter ended June 30, 2009. Expansion of CLEC revenue produced a $0.4 million increase, offset by $0.2 million in lower RLEC voice revenue. Network access revenue increased 4.1% in the second quarter to $8.6 million from $8.3 million in the quarter ended June 30, 2009. Continued expansion into New Hampshire coupled with resolution of certain FairPoint Communications' bankruptcy issues generated an increase of $0.4 million. Wholesale CLEC access revenue increased $0.2 million from a combination of rate increases and higher activity. Access revenue related to lower NECA settlements and end user interstate revenue declined $0.3 million. Cable television revenue in the three months ended June 30, 2010, increased 14.1% to $0.7 million from $0.6 million in second quarter 2009. Growth in IPTV and digital family packages accounted for the $0.1 million increase. Internet revenue for the second quarter 2010 increased 0.8%, remaining at $3.5 million for both periods. Growth in broadband data lines was offset by the loss of dial-up subscribers. Transport services revenue increased 2.9%, holding at $1.4 million in both periods.

    
    Operating Expenses
    ------------------
    

Operating expenses in the three months ended June 30, 2010, decreased 2.9% to $19.5 million from $20.1 million in the three months ended June 30, 2009. Cost of services and products increased 2.9% to $10.4 million in the quarter ended June 30, 2010, from $10.1 million in the same period last year. Increases consisted of a $0.3 million increase in access, digital, and circuit expenses related to growth from network connections and 2009 FairPoint Communications credits and a $0.1 million increase for rebranding costs as our New England operations implemented the OTT Communications brand name. These increases were partially offset by $0.1 million in pole attachment audit expense true-ups in 2009 that were not required in 2010. Selling, general and administrative expenses decreased 3.2% to $3.2 million in the three months ended June 30, 2010, from $3.3 million in the three months ended June 30, 2009. The decrease reflects cost savings of $0.2 million as the Company continues to benefit from integrated systems and process improvements offset by an increase of $0.1 million for accrued salary expense. Depreciation and amortization for second quarter 2010 decreased 11.7% to $5.8 million from $6.6 million in the second quarter 2009. Amortization of intangible assets associated with the Country Road acquisition decreased $0.6 million, including a covenant not to compete and contract customer base assets. The remaining decrease of $0.2 million reflected lower depreciation of plant assets in Alabama.

    
    Interest Expense
    ----------------
    

Interest expense decreased 4.2% to $6.2 million in the quarter ended June 30, 2010, from $6.4 million a year ago. A decrease of $0.4 million reflects the interest rate caplet expense present in second quarter 2009 that was fully expensed in 2009. The balance reflects increased interest rates.

    
    Change in Fair Value of Derivatives
    -----------------------------------
    

As a requirement of the existing senior debt, the Company has two interest rate swap agreements intended to hedge changes in interest rates on its senior debt. The swap agreements do not qualify for hedge accounting under the technical requirements of Accounting Standards Codification 815. Changes in value for the two swaps are reflected in change in the fair value of derivatives on the income statement and have no impact on cash. Over the life of the swaps, the change in value will be zero, with no impact on Adjusted EBITDA or operations. The value of the swaps declined $0.2 million in second quarter 2010 compared to an increase of $1.3 million in the same period of 2009.

    
    Adjusted EBITDA
    ---------------
    

Adjusted EBITDA for the three months ended June 30, 2010, was $12.9 million compared to $12.4 million for the same period in 2009, and $12.3 million in the first quarter of 2010. See financial tables for a reconciliation of Adjusted EBITDA to net income (loss).

    
    Balance Sheet
    -------------
    

As of June 30, 2010, the Company had cash and cash equivalents of $22.7 million compared to $17.7 million at the end of 2009. All of the Company's Class B shares were exchanged for IDS units during second quarter 2010. Total long-term notes payable increased $4.1 million from $273.7 million to $277.8 million due to the exchange of the Class B common stock. The related Class B exchange liability recorded in the mezzanine section of the balance sheet decreased by the same $4.1 million to $0 at June 30, 2010. The Company continues to meet all of its loan covenants. The second quarter distribution of $5.4 million in interest and dividends to our shareowners and $0.3 million in interest to our bond holders occurred on June 30, 2010 and also reflects the new IDSs issued in exchange for the Class B common stock. This represents the twenty-second consecutive quarterly distribution since going public in December 2004.

    
    Capital Expenditures
    --------------------
    

Capital expenditures remained constant at $2.3 million for both the second quarter 2010 and 2009, and up $0.5 million from first quarter 2010. The Company is expanding its CLEC capabilities in Maine and New Hampshire; enhancing DSL capacity; and expanding IPTV capability in Alabama.

    
    Second Quarter Earnings Conference Call
    ---------------------------------------
    

Otelco has scheduled a conference call, which will be broadcast live over the internet, on Wednesday, August 4, 2010, at 11:00 a.m. ET. To participate in the call, participants should dial (913) 312-9313 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 website at www.OtelcoInc.com or www.earnings.com. To listen to the live call online, please visit the website at least 15 minutes early to register, download and install any necessary audio software. For those whocannot listen to the live webcast, a replay of the webcast 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 7492247.

ABOUT OTELCO

Otelco Inc. provides wireline telecommunications services in Alabama, Maine, Massachusetts, Missouri, New Hampshire and West Virginia. The Company's services include local and long distance telephone, network access, transport, digital high-speed data lines 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. It also provides competitive retail and wholesale communications services through several subsidiaries. For more information, visit the Company's website 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,
                                                       2009         2010
                                                   ------------ ------------
                                                                 (unaudited)

    Assets
      Current assets
        Cash and cash equivalents                  $ 17,731,044 $ 22,743,256
        Accounts receivable:
          Due from subscribers, net of allowance
           for doubtful accounts of $473,572 and
           $254,645 respectively                      4,650,909    4,584,262
          Unbilled receivables                        2,444,979    2,425,742
          Other                                       3,200,945    3,218,327
        Materials and supplies                        1,969,966    1,994,968
        Prepaid expenses                              1,342,249      968,598
        Income tax receivable                           389,486            -
        Deferred income taxes                           744,531      744,531
                                                   ------------ ------------
          Total current assets                       32,474,109   36,679,684
                                                   ------------ ------------

        Property and equipment, net                  69,028,973   65,451,303
        Goodwill                                    188,190,078  188,190,078
        Intangible assets, net                       34,218,115   29,966,542
        Investments                                   1,991,158    1,978,404
        Deferred financing costs                      6,964,015    6,441,873
        Deferred income taxes                         4,482,430    4,482,430
        Other assets                                    179,325      127,553
                                                   ------------ ------------
          Total assets                             $337,528,203 $333,317,867
                                                   ------------ ------------
                                                   ------------ ------------

    Liabilities and Stockholders' Equity
      Current liabilities
        Accounts payable                           $  3,145,728 $  2,191,810
        Accrued expenses                              6,167,023    6,680,436
        Advance billings and payments                 1,665,422    1,627,670
        Deferred income taxes                           394,850      394,850
        Customer deposits                               172,109      179,229
                                                   ------------ ------------
          Total current liabilities                  11,545,132   11,073,995
                                                   ------------ ------------
      Deferred income taxes                          42,239,262   42,239,262
      Interest rate swaps                             1,592,813    2,655,262
      Advance billings and payments                     698,352      677,660
      Other liabilities                                 165,968      156,807
      Long-term notes payable                       273,717,301  277,757,514
                                                   ------------ ------------
        Total liabilities                           329,958,828  334,560,500
                                                   ------------ ------------
      Class B common convertible to senior
       subordinated notes                             4,085,033            -
      Stockholders' equity
        Class A Common stock, $.01 par value-
         authorized 20,000,000 shares; issued and
         outstanding 12,676,733 and 13,221,404
         shares, respectively                           126,767      132,214
        Class B Common stock, $.01 par value-
         authorized 800,000 shares; issued and
         outstanding 544,671 and 0 shares,
         respectively                                     5,447            -
        Additional paid in capital                   10,340,862    5,582,263
        Retained deficit                             (6,988,734)  (6,957,110)
                                                   ------------ ------------
          Total stockholders' equity                  3,484,342   (1,242,633)
                                                   ------------ ------------
          Total liabilities and stockholders'
           equity                                  $337,528,203 $333,317,867
                                                   ------------ ------------
                                                   ------------ ------------


                                 OTELCO INC.
                    Consolidated Statements of Operations
                                 (unaudited)

                            Three Months Ended          Six Months Ended
                                 June 30,                  June 30,
                         ------------------------- -------------------------
                             2009         2010         2009         2010
                         ------------ ------------ ------------ ------------
    Revenues
      Local services     $ 12,063,419 $ 12,286,314 $ 23,918,400 $ 24,524,988
      Network access        8,265,063    8,603,635   16,359,196   16,588,604
      Cable television        612,363      698,739    1,219,050    1,364,574
      Internet              3,500,149    3,527,126    7,041,826    7,038,232
      Transport services    1,355,677    1,395,130    2,758,376    2,788,755
                         ------------ ------------ ------------ ------------
        Total revenues     25,796,671   26,510,944   51,296,848   52,305,153
                         ------------ ------------ ------------ ------------

    Operating expenses
      Cost of services
       and products        10,133,256   10,427,781   20,799,712   21,037,973
      Selling, general
       and administrative
       expenses             3,342,855    3,236,515    6,919,529    6,467,512
      Depreciation and
       amortization         6,604,748    5,835,311   13,396,586   11,919,602
                         ------------ ------------ ------------ ------------
        Total operating
         expenses          20,080,859   19,499,607   41,115,827   39,425,087
                         ------------ ------------ ------------ ------------

    Income from
     operations             5,715,812    7,011,337   10,181,021   12,880,066
                         ------------ ------------ ------------ ------------
    Other income (expense)
      Interest expense     (6,446,902)  (6,179,470) (13,045,855) (12,168,112)
      Change in fair
       value of
       derivatives          1,289,832     (176,279)     338,729   (1,062,449)
      Other income             12,510       24,027      238,371      382,859
                         ------------ ------------ ------------ ------------
        Total other
         expense           (5,144,560)  (6,331,722) (12,468,755) (12,847,702)
                         ------------ ------------ ------------ ------------

    Income (loss) before
     income tax               571,252      679,615   (2,287,734)      32,364

    Income tax (expense)
     benefit                  (60,552)    (262,339)     964,401         (744)
                         ------------ ------------ ------------ ------------

    Net income (loss)
     available to common
     stockholders        $    510,700 $    417,276 $ (1,323,333)$     31,620
                         ------------ ------------ ------------ ------------
                         ------------ ------------ ------------ ------------

    Weighted average
     shares outstanding:
      Basic                12,676,733   12,812,901   12,676,733   12,747,540
      Diluted              13,221,404   13,221,404   13,221,404   13,221,404

    Net income (loss)
     per share:
      Basic              $       0.04 $       0.03 $      (0.10) $      0.00
      Diluted            $       0.03 $       0.03 $      (0.11) $      0.00

      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,
                                                       2009         2010
                                                   ------------ ------------
    Cash flows from operating activities:
      Net income (loss)                            $ (1,323,333)$     31,620
      Adjustments to reconcile net income to cash
       flows from operating activities:
        Depreciation                                  7,176,803    6,900,218
        Amortization                                  6,219,783    5,019,383
        Interest rate caplet                            699,783            -
        Amortization of debt premium                    (39,918)     (44,820)
        Amortization of loan costs                      675,953      677,302
        Change in fair value of derivatives            (338,729)   1,062,449
        Provision for uncollectible revenue             149,765       65,581
        Changes in assets and liabilities; net of
         assets and liabilities acquired:
          Accounts receivables                           86,941       53,458
          Material and supplies                         239,576      (25,002)
          Income tax receivable                               -      389,486
          Prepaid expenses and other assets             234,189      373,651
          Accounts payable and accrued liabilities     (518,565)    (428,566)
          Advance billings and payments                 (46,205)     (58,444)
          Other liabilities                             (30,003)      (2,041)
                                                   ------------ ------------
            Net cash from operating activities       13,186,040   14,014,275
                                                   ------------ ------------
    Cash flows from investing activities:
      Acquisition and construction of property
       and equipment                                 (3,577,514)  (4,087,263)
      Adjustment to the purchase of the CR
       Companies                                        170,175            -
      Deferred charges                                        -       (1,041)
                                                   ------------ ------------
            Net cash used in investing activities    (3,407,339)  (4,088,304)
                                                   ------------ ------------
    Cash flows from financing activities:
      Cash dividends paid                            (4,468,548)  (4,564,546)
      Direct cost of exchange of Class B shares
       for Class A shares                                     -     (194,053)
      Loan origination costs                                  -     (155,160)
                                                   ------------ ------------
            Net cash used in financing activities    (4,468,548)  (4,913,759)
                                                   ------------ ------------
    Net increase in cash and cash equivalents         5,310,153    5,012,212
    Cash and cash equivalents, beginning of period   13,542,255   17,731,044
                                                   ------------ ------------
    Cash and cash equivalents, end of period       $ 18,852,408 $ 22,743,256
                                                   ------------ ------------
                                                   ------------ ------------
    Supplemental disclosures of cash flow
     information:
      Interest paid                                $ 12,018,858 $ 11,535,629
                                                   ------------ ------------
                                                   ------------ ------------
      Income taxes received                        $   (15,342) $   (289,163)
                                                   ------------ ------------
                                                   ------------ ------------
    

SOURCE Otelco Inc.

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

Organization Profile

Otelco Inc.

More on this organization


Custom Packages

Browse our custom packages or build your own to meet your unique communications needs.

Start today.

CNW Membership

Fill out a CNW membership form or contact us at 1 (877) 269-7890

Learn about CNW services

Request more information about CNW products and services or call us at 1 (877) 269-7890