Otelco Reports Third Quarter 2007 Results



    ONEONTA, AL, Nov. 6 /CNW/ - Otelco Inc. (AMEX:   OTT; TSX: OTT.un), the
sole wireline telephone services provider in several rural communities in
Alabama, Maine and Missouri, today announced results for its third quarter
ended September 30, 2007. Key quarterly highlights for Otelco include:

    
      -  Total revenues of $17.6 million.
      -  Operating income of $5.1 million.
      -  Adjusted EBITDA (as defined below) of $8.9 million.
    

    "We are pleased with our third quarter results as both our operating and
financial performance experienced growth," stated Mike Weaver, President and
Chief Executive Officer of Otelco. "On the operating front, the quarter
resulted in continued growth in our access lines, digital high-speed Internet
and long distance customers. Our total access line equivalents increased 1.1%
from the second quarter to 67,123 total access line equivalents, an increase
of 750 lines for the quarter. Our digital high-speed Internet offering
continues to be successful as we increased our subscribers by 3.7% over the
second quarter of this year. Our Maine CLEC business produced a 4.7% increase
in access lines in this quarter when compared to second quarter.
    "Adjusted EBITDA was $8.9 million for the quarter, a growth of 2.0% over
third quarter 2006," added Weaver. "Our balance sheet has been strengthened by
the sale of an additional 3,000,000 Income Deposit Securities in July, further
demonstrating our commitment to the total return for our shareholders."

    Distribution to IDS Holders
    ---------------------------
    Each quarter, the Board will consider the declaration of dividends during
its normally scheduled meeting. For the fourth quarter of 2007, the Board is
meeting on November 15, 2007. The scheduled interest and any dividend declared
will be paid on December 31, 2007 to holders of record as of the close of
business on December 14, 2007. The interest payment will cover the period from
September 30, 2007 through December 29, 2007.

    
                     Third Quarter 2007 Financial Summary
               (Dollars in thousands, except per share amounts)

                                                               Change
                                                       ----------------------
                                3Q 2006     3Q 2007      Amount      Percent
    -------------------------------------------------------------------------

    Revenues                   $  17,137   $  17,594   $     457        2.7%
    Operating income           $   5,139   $   5,117   $     (22)     (0.4)%
    Interest expense           $  (5,624)  $  (5,845)  $     221        3.9%
    Net income available
     to stockholders           $    (365)  $    (668)  $    (303)    (83.0)%
    Basic net income per share $   (0.04)  $   (0.05)  $   (0.01)    (25.0)%
    Diluted net income
     per share                 $   (0.04)  $   (0.07)  $   (0.03)    (75.0)%

    Adjusted EBITDA(a)         $   8,704   $   8,879   $     175        2.0%
    Capital expenditures       $   1,695   $   1,511   $    (187)    (11.0)%


                                                               Change
                                                       ----------------------
                                YTD 2006    YTD 2007     Amount      Percent
    -------------------------------------------------------------------------

    Revenues                   $  40,208   $  51,885   $  11,677       29.0%
    Operating income           $  14,719   $  14,276   $    (443)     (3.0)%
    Interest expense           $ (14,758)  $ (16,634)  $   1,876       12.7%
    Net income available
     to stockholders           $   1,933   $    (891)  $  (2,824)   (146.0)%
    Basic net income per share $    0.20   $   (0.08)  $   (0.28)   (140.0)%
    Diluted net income
     per share                 $    0.19   $   (0.14)  $   (0.33)   (173.7)%

    Adjusted EBITDA(a)         $  22,627   $  25,928   $   3,301       14.6%
    Capital expenditures       $   3,663   $   4,387   $     724       19.8%


    Reconciliation of Adjusted EBITDA to Net Income
    -----------------------------------------------
                                 Three Months Ended      Nine Months Ended
                                    September 30,           September 30,
                                  2006        2007        2006        2007
                               ----------  ----------  ----------  ----------
    Adjusted EBITDA
    Net Income                 $    (365)  $    (668)  $   1,933   $    (891)
    Add:
      Depreciation                 2,817       2,826       6,692       8,934
      Interest Expense             4,800       4,219      12,902      13,743
      Interest Expense - Caplet
       Cost                          198         206         543         673
      Interest Expense - Bond
       Premium                         -         (16)          -         (16)
      Interest Expense
       - Amortize Loan Cost          625       1,437       1,312       2,233
      Gain/Loss from Investments       -           -      (2,686)          -
      Income Tax Expense              (1)        394       1,231         (97)
      Accretion Expense              111           -         332           -
      Other Non-Operating            (63)          -         (63)          -
      Change in Fair Value
       of Derivatives                (27)       (186)       (337)       (654)
      Loan Fees                       20          19          76          57
      Amortization
       - Intangibles                 589         648         692       1,946
                               ----------  ----------  ----------  ----------
    Adjusted EBITDA            $   8,704   $   8,879   $  22,627   $  25,928
                               ----------  ----------  ----------  ----------
                               ----------  ----------  ----------  ----------

    (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.

                                 First       Second      Third
                                Quarter     Quarter     Quarter     % Change
    Key Operating Statistics      2007        2007        2007       Quarter
    -------------------------------------------------------------------------
    Access line equivalents(1)
      Residential access lines    29,789      29,483      29,156      (1.1)%
      Business access lines       22,577      23,537      24,122        2.5%
                               ----------  ----------  ----------
    Total access lines            52,366      53,020      53,278        0.5%
      High-speed lines            12,960      13,353      13,845        3.7%
                               ----------  ----------  ----------
    Total access line
     equivalents                  65,326      66,373      67,123        1.1%

    Long distance customers       22,066      22,358      22,420        0.3%
    Cable television customers     4,211       4,187       4,170      (0.4)%
    Dial-up internet customers    18,313      17,220      16,263      (5.6)%

    (1) We define access line equivalents as access lines, cable modems, and
        digital subscriber lines, including wholesale digital subscriber
        lines.
    

    FINANCIAL DISCUSSION FOR THIRD QUARTER 2007:

    Revenue
    -------
    Total revenues grew 2.7% in the three months ended September 30, 2007 to
$17.6 million from $17.1 million in the three months ended September 30, 2006.
The growth in revenue reflected growth in CLEC customers in Maine and
increased digital high-speed Internet penetration. Local services revenue grew
2.2% in the third quarter to $6.5 million from $6.4 million in the quarter
ended September 30, 2006. Network access revenue grew 1.2% to $6.6 million
from $6.5 million in the quarter ended September 30, 2006. Cable television
revenue in the three months ended September 30, 2007 was flat at $0.5 million
when compared to the three months ended September 30, 2006. Internet revenue
for the quarter increased 3.7% to $2.9 million from $2.8 million in the
quarter ended September 30, 2006. Transport services revenue grew 15.5% to
$1.1 million in the three months ended September 30, 2007 from $0.9 million in
the same period in 2006.

    Operating Expenses
    ------------------
    Operating expenses in the three months ended September 30, 2007 increased
4.0% to $12.5 million from $12.0 million in the three months ended
September 30, 2006. Cost of services increased 3.0% to $6.3 million from $6.1
million in the quarter ended September 30, 2006. The cost associated with
increased CLEC revenue in Maine, increased Internet bandwidth in Alabama and
increased long distance customers in Missouri was partially offset by network
and Internet help desk efficiencies. Selling, general and administrative
expenses increased 9.2% to $2.7 million in the quarter ended September 30,
2007 from $2.5 million in the quarter ended September 30, 2006. Increased
operating taxes and diligence expenses were the cause of the increase.
Depreciation and amortization for third quarter increased 2.0% to $3.5 million
from $3.4 million.

    Interest Expense
    ----------------
    Interest expense increased 3.9% to $5.8 million in the quarter ended
September 30, 2007 from $5.6 million a year ago, reflecting the recognition of
the remaining $1.1 million in loan cost associated with the extinguished debt
and the increased non-cash caplet cost associated with our interest rate cap,
offset by lower total indebtedness of the Company and the reduction in margin
cost from 3.25% to 1.75% on all of our senior debt.

    Adjusted EBITDA
    ---------------
    Adjusted EBITDA for the three months ended September 30, 2007 was
$8.9 million, an increase of 2.0% from $8.7 million the three months ended
September 30, 2006. For the nine months ended September 30, 2007, Adjusted
EBITDA was $25.9 million, an increase of 14.6% from $22.6 million the nine
months ended September 30, 2006. See financial tables for a reconciliation of
Adjusted EBITDA to net income.

    Balance Sheet
    -------------
    As of September 30, 2007, the Company had cash and cash equivalents of
$17.6 million and total long-term debt of $170.0 million. The third quarter
distribution of $5.3 million in interest and dividends to our share owners and
$0.3 million to our bond holders occurred on October 1, 2007.

    Capital Expenditures
    --------------------
    Capital expenditures were $1.5 million for the quarter and $4.4 million
year-to-date 2007. The Company added DSL capacity, competitive customer
specific equipment, and other upgrades to its network and switching
facilities.

    Third Quarter Earnings Conference Call
    --------------------------------------
    Otelco has scheduled a conference call, which will be broadcast live over
the Internet, on Wednesday, November 7, 2007, at 11:00 a.m. ET. To participate
in the call, dial 913-312-0714 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.otelco.net 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.otelco.net 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 4282903.

    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 and dial-up Internet access, cable television and other telephone
related services. With more than 67,000 access lines, cable modems and digital
subscriber 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 line. 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 telephone services
through several subsidiaries. For more information, visit the Company's web
site at www.otelco.net.

    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,   September 30,
                                                     2006           2007
                                                -------------- --------------
                                                                (unaudited)
    Assets
      Current Assets
        Cash and cash equivalents               $  14,401,849  $  17,565,053
        Accounts receivable:
          Due from subscribers, net of
           allowance for doubtful accounts of
           $221,762 and $207,359 respectively       3,105,636      2,870,450
          Unbilled receivables                      2,324,213      2,521,484
          Other                                     1,680,144      2,068,639
        Materials and supplies                      1,962,938      1,926,254
        Prepaid expenses                            1,062,947        566,420
        Deferred income taxes                         766,225        832,946
                                                -------------- --------------
          Total current assets                     25,303,952     28,351,246
                                                -------------- --------------

        Property and equipment, net                60,493,789     55,415,315
        Goodwill                                  134,182,309    134,570,435
        Intangible assets, net                     11,340,806      9,971,280
        Investments                                 1,240,250      1,213,246
        Deferred financing costs                    6,652,393      6,246,801
        Interest rate cap                           4,542,160      2,833,166
        Deferred charges                               96,628         60,186
                                                -------------- --------------
          Total assets                          $ 243,852,287  $ 238,661,675
                                                -------------- --------------
                                                -------------- --------------

    Liabilities and Stockholders' Equity
      Current liabilities
        Accounts payable                        $   1,658,911  $   1,253,551
        Dividends payable                           1,705,524      2,234,274
        Accrued expenses                            5,875,863      7,068,675
        Advanced billings and payments              2,119,701      2,085,730
        Customer deposits                             197,496        200,840
                                                -------------- --------------
          Total current liabilities                11,557,495     12,843,070
                                                -------------- --------------

        Deferred income taxes                      24,712,213     24,778,934
        Other liabilities                             187,037        187,867
                                                -------------- --------------
          Total deferred tax and other
           liabilities                             24,899,250     24,966,801
                                                -------------- --------------

        Long-term notes payable                   201,075,498    170,036,724
        Derivative liability                        2,107,877      1,383,679
        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                                      96,767        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                  284,041     30,456,624
          Retained deficit                         (1,137,166)    (5,154,673)
          Accumulated other comprehensive income      878,045        (87,797)
                                                -------------- --------------

            Total stockholders' equity                127,134     25,346,368
                                                -------------- --------------

            Total liabilities and stockholders'
             equity                             $ 243,852,287  $ 238,661,675
                                                -------------- --------------
                                                -------------- --------------



                                 OTELCO INC.
                    Consolidated Statements of Operations
                                 (unaudited)

                             Three Months Ended         Nine Months Ended
                                 September 30,             September 30,
                          ------------------------- -------------------------
                              2006         2007         2006         2007
                          ------------ ------------ ------------ ------------
    Revenues
      Local services      $ 6,363,046  $ 6,502,105  $14,956,503  $19,381,216
      Network access        6,533,743    6,612,250   16,849,379   19,190,669
      Cable television        550,914      547,044    1,631,985    1,642,985
      Internet              2,765,643    2,867,381    5,846,691    8,547,085
      Transport services      923,625    1,065,521      923,625    3,122,940
                          ------------ ------------ ------------ ------------
        Total revenues     17,136,971   17,594,301   40,208,183   51,884,895
                          ------------ ------------ ------------ ------------

    Operating expenses
      Cost of services
       and products         6,139,234    6,326,014   12,501,035   19,131,470
      Selling, general
       and administrative
       expenses             2,451,477    2,676,515    5,604,141    7,597,843
      Depreciation and
       amortization         3,406,789    3,474,799    7,384,289   10,879,513
                          ------------ ------------ ------------ ------------
        Total operating
         expenses          11,997,500   12,477,328   25,489,465   37,608,826
                          ------------ ------------ ------------ ------------

    Income from operations  5,139,471    5,116,973   14,718,718   14,276,069
                          ------------ ------------ ------------ ------------

    Other income (expense)
      Interest expense     (5,623,615)  (5,844,898) (14,757,595) (16,633,507)
      Change in fair value
       of derivative           27,234      186,055      337,696      654,472
      Other income            201,506      268,356    3,198,013      715,389
                          ------------ ------------ ------------ ------------
        Total other
         expense           (5,394,875)  (5,390,487) (11,221,886) (15,263,646)
                          ------------ ------------ ------------ ------------

    Income (loss) before
     income taxes and
     accretion expense       (255,404)    (273,514)   3,496,832     (987,577)

    Income tax (expense)
     benefit                    1,375     (394,197)  (1,231,235)      97,079
                          ------------ ------------ ------------ ------------

    Income (loss) before
     accretion expense       (254,039)    (667,711)   2,265,597     (890,498)

    Accretion of Class B
     common convertible to
     senior subordinated
     notes                   (110,732)           -     (332,195)           -
                          ------------ ------------ ------------ ------------
    Net income (loss)
     available to common
     stockholders         $  (364,761) $  (667,711) $ 1,933,402  $  (890,498)
                          ------------ ------------ ------------ ------------
                          ------------ ------------ ------------ ------------

    Weighted average
     shares outstanding:
      Basic                 9,676,733   12,546,298    9,676,733   10,643,766
      Diluted              10,221,404   13,090,969   10,221,404   11,188,437

    Net income (loss)
     per share:
      Basic               $     (0.04) $     (0.05) $      0.20  $     (0.08)
      Diluted             $     (0.04) $     (0.07) $      0.19  $     (0.14)

      Dividends declared
       per share          $      0.18  $      0.18  $      0.53  $      0.53



                                 OTELCO INC.
                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (unaudited)

                                                       Nine months ended
                                                         September 30,
                                                      2006           2007
                                                -------------- --------------
    Cash flows from operating activities:
      Net income (loss)                         $   1,933,402  $    (890,498)
      Adjustments to reconcile net income to
       cash flows from operating activities:
        Depreciation                                6,390,925      8,933,812
        Amortization                                  578,904      1,945,696
        Interest rate caplet                          543,321        673,425
        Amortization of debt premium                        -        (16,533)
        Amortization of loan costs                  1,311,927      2,233,495
        Accretion expense                             332,195              -
        Change in fair value of derivative           (337,695)      (654,472)
        Provision for uncollectible revenue           123,979        114,979
        Gain on disposition of other assets        (2,686,745)             -
        Changes in assets and liabilities;
         net of assets and liabilities acquired:
          Accounts receivables                       (155,522)      (642,120)
          Material and supplies                       (20,652)      (117,903)
          Income tax receivable                       287,804              -
          Prepaid expenses and other assets           101,675        496,527
          Accounts payable and accrued
           liabilities                              4,888,886     (1,002,997)
          Advance billings and payments                 1,888        (33,971)
          Other liabilities                            (3,860)         4,174
                                                -------------- --------------
            Net cash from operating activities     13,290,432     11,043,614
                                                -------------- --------------

    Cash flows from investing activities:
      Acquisition and construction of property
       and equipment                               (3,662,910)    (4,386,579)
      Proceeds from retirement of investment        3,226,651          7,871
      Payment for the purchase Mid-Maine
       Communications, Inc., net of acquired      (15,905,248)             -
      Deferred charges                                (67,921)        (2,033)
                                                -------------- --------------
            Net cash from investing activities    (16,409,428)    (4,380,741)
                                                -------------- --------------

    Cash flows from financing activities:
      Cash dividends paid                          (3,411,048)    (3,411,048)
      Direct cost of Subsequent Public Offering             -     (2,307,686)
      Repayment of long-term debt                 (24,347,299)   (55,353,032)
      Loan origination costs                                -     (1,827,903)
      Proceeds from long-term debt                 40,000,000              -
      Proceeds from issuance of IDS                         -     59,400,000
                                                -------------- --------------

            Net cash from financing activities     12,241,653     (3,499,669)
                                                -------------- --------------

    Net increase in cash and cash equivalents       9,122,657      3,163,204
    Cash and cash equivalents, beginning
     of period                                      5,569,233     14,401,849
                                                -------------- --------------

    Cash and cash equivalents, end of period    $  14,691,890  $  17,565,053
                                                -------------- --------------
                                                -------------- --------------

    Supplemental disclosures of cash flow
     information:
      Interest paid                             $  12,130,902  $  13,878,086
                                                -------------- --------------
                                                -------------- --------------

      Income taxes (received)                   $    (262,632) $    (153,468)
                                                -------------- --------------
                                                -------------- --------------

      Dividends declared but not paid           $   1,705,524  $   2,234,274
                                                -------------- --------------
                                                -------------- --------------
    




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