Otelco Reports Fourth Quarter and Year 2009 Results
ONEONTA, AL, Feb. 17 /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 fourth quarter and year ended December 31, 2009. Key highlights for Otelco include:
- Total revenues of $26.1 million for fourth quarter and $103.8 million
for 2009.
- Operating income of $5.5 million for fourth quarter and $21.9 million
for 2009.
- Adjusted EBITDA (as defined below) of $12.2 million for fourth quarter
and $48.8 million for 2009.
"The acquisition of Country Road in fourth quarter 2008 and the successful integration of its operations into the existing Otelco properties in 2009 provided the vehicle for our growth this year," said Mike Weaver, President and Chief Executive Officer of Otelco. "During 2009, Otelco grew revenue 34.6%, grew EBITDA 30.7%, lowered senior debt by $5.0 million, and grew cash by $4.2 million.
"Operationally, we were pleased with our customer retention efforts as the loss of RLEC access lines in fourth quarter slowed to 1.6% when compared to 2.2% in third quarter 2009. Annual cost study adjustments combined with an increase in our doubtful payments allowance caused fourth quarter 2009 revenue to decline slightly when compared to third quarter 2009. Adjusted EBITDA, at $12.2 million, increased 10.8% or $1.2 million over the same quarter last year but ran behind last quarter's record level, partially due to the impact of year-end adjustments affecting the fourth quarter.
"Our capital investments in our business for the quarter were $3.2 million, bringing the year to $9.6 million after a conservative start to 2009. Cash grew $1.0 million during the quarter and $4.2 million for the year after reflecting our voluntary prepayment of $5.0 million to reduce senior debt.
"Our plans for 2010 include the expansion of our New England CLEC offering into new market areas, the continued expansion of our IPTV services in Alabama, and the addition of new services and our entry into new markets outside of our RLEC territory in Missouri. At the same time, we are focused on retaining our RLEC customer base through adapting the value proposition and adding additional services," Weaver concluded. "As evidenced by our growth in cash and the twentieth 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 February 24, 2010. The scheduled interest and any dividend declared will be paid on March 30, 2010, to holders of record as of the close of business on March 15, 2010. The interest payment will cover the period from December 30, 2009, through March 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 successive quarterly distributions of dividends and interest since its IDS units were originally offered to the public in December 2004.
Fourth Quarter 2009 Financial Summary
(Dollars in thousands, except per share amounts)
Change
---------------------------
4Q 2008 4Q 2009 Amount Percent
-------------------------------------------------------------------------
Revenues $ 23,349 $ 26,055 $ 2,706 11.6%
Operating income $ 5,276 $ 5,537 $ 261 4.9%
Interest expense $ (7,578) $ (5,901) $ (1,677) (22.1)%
Net income (loss)
available to
stockholders $ (1,390) $ (200) $ 1,190 *
Basic net
income (loss)
per share $ (0.11) $ (0.02) $ 0.09 *
Diluted net
income (loss)
per share $ (0.13) $ (0.02) $ 0.11 *
Adjusted EBITDA(a) $ 11,020 $ 12,211 $ 1,191 10.8%
Capital
expenditures $ 2,395 $ 3,204 $ 809 33.8%
Change
---------------------------
2008 2009 Amount Percent
-------------------------------------------------------------------------
Revenues $ 77,115 $ 103,755 $ 26,640 34.6%
Operating income $ 21,087 $ 21,927 $ 840 4.0%
Interest expense $ (21,808) $ (25,416) $ 3,608 16.6%
Net income (loss)
available to
stockholders $ 214 $ (3,118) $ (3,332) *
Basic net
income (loss)
per share $ 0.02 $ (0.25) $ (0.27) *
Diluted net
income (loss)
per share $ (0.03) $ (0.25) $ (0.22) *
Adjusted EBITDA(a) $ 37,366 $ 48,848 $ 11,482 30.7%
Capital
expenditures $ 9,244 $ 9,596 $ 352 3.8%
* Not a meaningful calculation
Reconciliation of Adjusted EBITDA to Net Income (Loss)
------------------------------------------------------
Three Months Ended Twelve Months Ended
December 31, December 31,
2008 2009 2008 2009
------------- ------------ ------------ ------------
Adjusted EBITDA
Net income (loss) $ (1,390) $ (200) $ 214 $ (3,118)
Add:
Depreciation 3,497 3,850 11,772 14,445
Interest expense
- net of
premium 5,516 5,564 17,905 22,896
Interest expense
- caplet cost 307 - 1,029 1,168
Interest expense
- amortize
loan cost 1,755 338 2,874 1,352
Gain/loss from
investment - - (45) -
Income tax
expense
(benefit) (667) (258) 29 (1,367)
Change in fair
value of B share
derivative (224) (89) (324) (238)
Change in fair
value of interest
rate swap
derivatives - 274 - 1,593
Loan fees 19 19 76 76
Amortization
- intangibles 2,207 2,713 3,836 12,041
------------- ------------ ------------ ------------
Adjusted EBITDA $ 11,020 $ 12,211 $ 37,366 $ 48,848
(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
--------------------------------------
Quarter
Sept. 30, Dec. 31, % Change
2008 2009 2009 2009
-------- -------- -------- --------
RLEC access lines:
Voice lines 51,530 48,998 48,215 (1.6)%
Data lines 18,709 19,784 20,066 1.4%
-------- -------- -------- --------
RLEC access line
equivalents(1) 70,239 68,782 68,281 (0.7)%
CLEC access lines:
Voice lines 26,558 28,153 28,647 1.8%
Data lines 3,246 3,297 3,428 4.0%
-------- -------- -------- --------
CLEC access line
equivalents(1) 29,804 31,450 32,075 2.0%
Otelco access line
equivalents(1) 100,043 100,232 100,356 0.1%
-------- -------- -------- --------
-------- -------- -------- --------
Cable television
customers 4,082 4,126 4,195 1.7%
Wholesale network
connections 98,187 127,317 132,324 3.9%
Other internet
customers(2) 11,864 9,648 9,116 (5.5)%
(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).
(2) Includes dial-up Internet customers of 9,213, 7,004 and 6,439 and
digital high-speed data customers of 1,468, 1,800 and 1,891 for 2008,
September 30, 2009 and December 31, 2009, respectively, that are outside
of our traditional service territories and dial-up Internet customers of
1,183,844 and 786 for 2008, September 30, 2009 and December 31, 2009,
respectively, that are in our traditional service territories.
FINANCIAL DISCUSSION FOR FOURTH QUARTER 2009:
Revenue
-------
Total revenues grew 11.6% in the three months ended December 31, 2009, to $26.1 million from $23.3 million in the three months ended December 31, 2008. The growth in revenue was primarily associated with growth in CLEC sales in Maine and New Hampshire and one additional month of the Country Road acquisition in fourth quarter 2009 compared to fourth quarter 2008. Local services revenue grew 22.1% in the fourth quarter to $12.1 million from $9.9 million in the quarter ended December 31, 2008. The acquisition provided an increase of $1.7 million for the quarter, with growth in CLEC revenue of $.07 million. These increases were partially offset by lower RLEC lines. Network access revenue increased 5.1% in the fourth quarter to $8.4 million from $8.0 million in the quarter ended December 31, 2008. The acquisition provided an increase of $0.7 million for the quarter, partially offset by a decrease of $0.3 million in switched and special access, including the estimated impact 2009 cost study adjustments and FairPoint bankruptcy accruals. Cable television revenue in the three months ended December 31, 2009, decreased 2.9% to just under $0.7 million in both periods. Growth in IPTV and high definition subscribers in Alabama was offset by attrition in basic customers as a result of the economy. Internet revenue for the fourth quarter 2009 increased 2.9% to $3.5 million from $3.4 million in the quarter ended December 31, 2008, primarily associated with the growth in data lines and the acquisition. Transport services revenue grew 1.8% to $1.4 million in the three months ended December 31, 2009 from $1.3 million in the same period in 2008.
Operating Expenses
------------------
Operating expenses in the three months ended December 31, 2009, increased 13.5% to $20.5 million from $18.1 million in the three months ended December 31, 2008. Cost of services increased 8.7% to $9.9 million in the quarter ended December 31, 2009, from $9.1 million in the same period last year. The acquisition, higher loop and pole expense and increased long distance costs in Missouri added $1.5 million in expense. Implementation of organization synergies, including lower advertising and long distance costs in Maine, offset approximately $0.7 million of the increase. Selling, general and administrative expenses increased 24.5% to $4.0 million in the three months ended December 31, 2009, from $3.2 million in the three months ended December 31, 2008. The increase included the acquisition, higher bad debt expense accruals and higher employee costs partially offset by synergies associated with the acquisition. Depreciation and amortization for fourth quarter increased 15.1% to $6.6 million from $5.7 million in the fourth quarter 2008. Depreciation and amortization associated with the acquisition increased $0.7 million, including amortization of intangible assets acquired. The remaining $0.2 million of the increase reflected accelerated depreciation associated with a switch retirement.
Interest Expense
----------------
Interest expense decreased 22.1% to $5.9 million in the quarter ended December 31, 2009, from $7.6 million a year ago. The fourth quarter 2008 results reflect $1.5 million in loan costs associated with the extinguishment and replacement of our senior debt facility which is now due October 2013 and $0.3 million in interest rate caplet expense not present in fourth quarter 2009. The difference reflects $0.1 million in higher loan cost amortization related to financing the Country Road acquisition. The Company has two interest rate swaps to limit its exposure to changes in interest rates through February 2012.
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. As a result of non-compliance with the technical requirements of Accounting Standards Codification 815 concerning the determination of hedging effectiveness, for 2009 the Company will reflect changes in value for the two swaps as changes in the fair value of derivatives on the income statement instead of other comprehensive income in the equity section of the balance sheet. The impact lowered the change in fair value of derivatives by $0.3 million in fourth quarter 2009 and by $1.6 million for the year. There was no impact of this change in 2008. The change does not impact cash, adjusted EBITDA, equity or the operations of the Company.
Adjusted EBITDA
---------------
Adjusted EBITDA for the three months ended December 31, 2009, was $12.2 million compared to $11.0 million for the same period in 2008, and $12.8 million in the third quarter of 2009. See financial tables for a reconciliation of Adjusted EBITDA to net income.
Balance Sheet
-------------
As of December 31, 2009, the Company had cash and cash equivalents of $17.7 million compared to $13.5 million at the end of 2008. Total long-term notes payable was reduced to $273.7 million, reflecting a voluntary prepayment of $5.0 million made in August. The Company continues to meet all of its loan covenants. The fourth quarter distribution of $5.3 million in interest and dividends to our share owners and $0.3 million in interest to our bond holders occurred on December 31, 2009. This represents the twentieth consecutive quarterly distribution since going public in December 2004.
Capital Expenditures
--------------------
Capital expenditures were $3.2 million for the quarter, reflecting a return to a more normal level of investment in the business. The Company is upgrading and expanding its soft switching infrastructure in Maine and Missouri; enhancing DSL capacity; expanding IPTV capability in Alabama; and investing in competitive customer specific equipment to support the growth of our CLEC customers.
Fourth Quarter Earnings Conference Call and Institutional Investor
------------------------------------------------------------------
Conference Presentation
-----------------------
Otelco has scheduled a conference call, which will be broadcast live over the Internet, on Thursday, February 18, 2010, at 11:00 a.m. ET. To participate in the call, dial (913) 312-1462 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 confirmation code 1273477.
Otelco is scheduled to speak at the Raymond James 31st Annual Institutional Investors Conference on March 10, 2010, at 1:40 p.m. ET in Orlando, FL. The presentation will be Webcast. Investors may listen to the web cast and view the presented material by visiting the Company's Web site at www.OtelcoInc.com or www.wsw.com/webcast/rj54/ott/ .
ABOUT OTELCO
Otelco Inc., headquartered in Oneonta, Alabama, 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 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 December
31, 2008 31, 2009
------------- -------------
Assets
Current assets
Cash and cash equivalents $ 13,542,255 $ 17,731,044
Accounts receivable:
Due from subscribers, net of
allowance for doubtful accounts of
$318,446 and $473,572 respectively 5,207,731 4,650,909
Unbilled receivables 2,567,730 2,444,979
Other 4,348,044 3,200,945
Materials and supplies 2,305,755 1,969,966
Prepaid expenses 1,141,908 1,342,249
Income tax receivable 181,644 389,486
Deferred income taxes 827,686 744,531
------------- -------------
Total current assets 30,122,753 32,474,109
------------- -------------
Property and equipment, net 75,407,062 69,028,973
Goodwill 189,334,837 188,190,078
Intangible assets, net 44,390,644 34,218,115
Investments 2,015,583 1,991,158
Deferred financing costs 8,315,921 6,964,015
Deferred income taxes 5,897,382 4,482,430
Interest rate cap 7,765 -
Other assets 49,540 179,325
------------- -------------
Total assets $355,541,487 $337,528,203
------------- -------------
------------- -------------
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $ 2,312,920 $ 3,145,728
Accrued expenses 6,632,287 6,167,023
Advance billings and payments 2,024,123 1,665,422
Deferred income taxes 213,679 394,850
Customer deposits 180,582 172,109
------------- -------------
Total current liabilities 11,363,591 11,545,132
------------- -------------
Deferred income taxes 45,748,723 42,239,262
Interest rate swaps - 1,592,813
Advance billings and payments 739,736 698,352
Other liabilities 188,346 165,968
Long-term notes payable 278,799,513 273,717,301
------------- -------------
Total liabilities 336,839,909 329,958,828
------------- -------------
Derivative liability 238,054 -
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 10,340,862
Retained deficit (3,870,923) (6,988,734)
Accumulated other comprehensive loss (1,160,759) -
------------- -------------
Total stockholders' equity 14,378,491 3,484,342
------------- -------------
Total liabilities and stockholders'
equity $355,541,487 $337,528,203
------------- -------------
------------- -------------
OTELCO INC.
Consolidated Statements of Operations
Three Months Ended Twelve Months Ended
December 31, December 31,
-------------------------- --------------------------
2008 2009 2008 2009
------------ ------------ ------------ ------------
Revenues
Local services $ 9,929,632 $12,126,018 $30,013,901 $48,441,222
Network access 8,011,824 8,420,532 27,281,727 33,297,241
Cable television 675,428 655,848 2,388,885 2,489,011
Internet 3,387,954 3,484,669 12,448,776 14,027,365
Transport
services 1,344,376 1,368,407 4,981,651 5,500,615
------------ ------------ ------------ ------------
Total revenues 23,349,214 26,055,474 77,114,940 103,755,454
------------ ------------ ------------ ------------
Operating expenses
Cost of services
and products 9,139,404 9,933,348 29,191,987 41,178,502
Selling, general
and
administrative
expenses 3,229,767 4,022,110 11,228,585 14,164,465
Depreciation and
amortization 5,704,024 6,563,245 15,607,726 26,485,628
------------ ------------ ------------ ------------
Total
operating
expenses 18,073,195 20,518,703 56,028,298 81,828,595
------------ ------------ ------------ ------------
Income from
operations 5,276,019 5,536,771 21,086,642 21,926,859
------------ ------------ ------------ ------------
Other income
(expense)
Interest expense (7,578,074) (5,901,295) (21,807,800) (25,416,024)
Change in fair
value of
derivatives 224,271 (184,887) 324,058 (1,354,759)
Other income 20,999 91,574 639,784 359,484
------------ ------------ ------------ ------------
Total other
expenses (7,332,804) (5,994,608) (20,843,958) (26,411,299)
------------ ------------ ------------ ------------
Income (loss)
before income tax (2,056,785) (457,837) 242,684 (4,484,440)
Income tax
(expense) benefit 667,239 257,977 (28,810) 1,366,629
------------ ------------ ------------ ------------
Net income (loss)
available to
common
stockholders $(1,389,546) $ (199,860) $ 213,874 $(3,117,811)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Weighted average
shares
outstanding:
Basic 12,676,733 12,676,733 12,676,733 12,676,733
Diluted 13,221,404 13,221,404 13,221,404 13,221,404
Net income (loss)
per share:
Basic $ (0.11) $ (0.02) $ 0.02 $ (0.25)
Diluted $ (0.13) $ (0.02) $ (0.03) $ (0.25)
Dividends declared
per share $ 0.18 $ 0.18 $ 0.71 $ 0.71
OTELCO INC.
Consolidated Statements of Cash Flows
Twelve Months Ended
December 31,
2008 2009
------------- -------------
Cash flows from operating activities:
Net income (loss) $ 213,874 $ (3,117,811)
Adjustments to reconcile net income to
cash flows from operating activities:
Depreciation 11,772,191 14,444,714
Amortization 3,835,535 12,040,914
Interest rate caplet 1,029,264 1,168,522
Amortization of debt premium (73,224) (82,212)
Amortization of loan costs 2,874,164 1,351,906
Change in fair value of derivatives (324,058) 1,354,759
Provision for deferred income taxes (114,845) (855,599)
Provision for uncollectible revenue 416,892 920,945
Gain on early lease termination (121,124) -
Changes in assets and liabilities;
net of assets and liabilities acquired:
Accounts receivables (1,394,629) 739,921
Material and supplies (124,010) 339,909
Prepaid expenses and other assets 404,306 (200,341)
Income tax receivable 287,902 (207,842)
Accounts payable and accrued liabilities 143,552 442,275
Advance billings and payments (111,352) (400,085)
Other liabilities (25,909) (30,850)
------------- -------------
Net cash from operating activities 18,688,529 27,909,125
------------- -------------
Cash flows from investing activities:
Acquisition and construction of property
and equipment (9,244,137) (9,596,049)
Proceeds from retirement of investment (2,453) (1,085)
Payment for the purchase CR Companies,
net of cash acquired (108,677,338) -
Wholesale customer acquisition - (179,554)
Deferred charges/acquisition 51,222 (6,551)
------------- -------------
Net cash used in investing activities (117,872,706) (9,783,239)
------------- -------------
Cash flows from financing activities:
Cash dividends paid (8,937,097) (8,937,097)
Repayment of long-term notes payable - (5,000,000)
Proceeds from long-term notes payable 108,853,032 -
------------- -------------
Net cash from (used in) financing
activities 99,915,935 (13,937,097)
------------- -------------
Net increase in cash and cash equivalents 731,758 4,188,789
Cash and cash equivalents, beginning of
period 12,810,497 13,542,255
------------- -------------
Cash and cash equivalents, end of period $13,542,255 $17,731,044
------------- -------------
------------- -------------
Supplemental disclosures of cash flow
information:
Interest paid $17,267,118 $23,378,798
------------- -------------
------------- -------------
Income taxes paid (received) $ (220,221) $ 67,658
------------- -------------
------------- -------------
For further information: Curtis Garner, Chief Financial Officer, Otelco Inc., (205) 625-3571, [email protected]
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