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)
------------ ------------
------------ ------------
For further information: Curtis Garner, Chief Financial Officer, Otelco Inc., 205-625-3571, [email protected]
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