ONEONTA, AL, May 5 /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 first quarter ended March 31, 2010. Key highlights for Otelco include:
- Total revenues of $25.8 million for first quarter 2010.
- Operating income of $5.9 million for first quarter 2010.
- Adjusted EBITDA (as defined below) of $12.3 million for first quarter
2010.
"Otelco started 2010 with an increase in revenue over the same period in 2009 plus quarter over quarter and sequential growth in EBITDA," said Mike Weaver, President and Chief Executive Officer of Otelco. "In first quarter 2010, revenue grew 1.2% and Adjusted EBITDA grew 7.2% compared to first quarter 2009. As a result of growth in data lines and CLEC operations, our access line equivalents grew 0.2% for the enterprise. In addition, our RLEC operations experienced an improvement in the trend of line loss as the rate of decline was 0.2% which compares favorably with a decline of 0.7% in the fourth quarter 2009.
"In the next few months, our New England operations will become known as OTT Communications, reflecting the complete and successful integration of our Company in this geographic area," continued Weaver. "The name reflects our goal of one team serving the diverse needs of our expanding customer base through innovative services.
"Our cash position increased by $3.5 million during the first quarter, with capital investments in the business of $1.8 million. These investments were concentrated in New England as we started the process of building out new collocation sites in Maine and New Hampshire," said Weaver. "These expansion sites position us well to both add customers and control costs.
"The increase in Adjusted EBITDA to $12.3 million reflects the implementation of operational synergies since first quarter of last year and continued growth in our CLEC operations. In spite of the stagnant economic conditions in our local rural markets, we are starting the year on target with our growth plans for 2010 in each territory," Weaver concluded. "As evidenced by our growth in cash and the twenty-first 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 May 13, 2010. The scheduled interest and any dividend declared will be paid on June 30, 2010, to holders of record as of the close of business on June 15, 2010. The interest payment will cover the period from March 30, 2009, through June 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-one successive quarterly distributions of dividends and interest since its IDS units were originally offered to the public in December 2004.
First Quarter 2010 Financial Summary
(Dollars in thousands, except per share amounts)
Change
-------------------
1Q 2009 1Q 2010 Amount Percent
-------------------------------------------------------------------------
Revenues $ 25,500 $ 25,794 $ 294 1.2%
Operating income $ 4,465 $ 5,869 $ 1,404 31.4%
Interest expense $ (6,599) $ (5,989) $ (610) (9.2)%
Net loss available to
stockholders $ (1,834) $ (386) $ 1,448 *
Basic net loss per share $ (0.14) $ (0.03) $ 0.11 *
Diluted net loss per share $ (0.14) $ (0.03) $ 0.11 *
Adjusted EBITDA(a) $ 11,502 $ 12,331 $ 829 7.2%
Capital expenditures $ 1,229 $ 1,753 $ 524 42.6%
* Not a meaningful calculation
Reconciliation of Adjusted EBITDA to Net Loss
---------------------------------------------
Three Months Ended
March 31,
2009 2010
------------- -------------
Net loss $ (1,834) $ (386)
Add:
Depreciation 3,681 3,573
Interest expense - net of premium 5,917 5,651
Interest expense - caplet cost 344 -
Interest expense - amortize loan cost 338 338
Income tax benefit (1,025) (262)
Change in fair value of derivatives 951 886
Loan fees 19 19
Amortization - intangibles 3,111 2,512
Adjusted EBITDA $ 11,502 $ 12,331
(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
December 31, March 31, % Change
Key Operating Statistics 2008 2009 2010 2010
--------- --------- --------- ---------
RLEC access lines:
Voice lines 51,530 48,215 47,552 (1.4)%
Data lines 18,709 20,066 20,614 2.7%
--------- --------- ---------
RLEC access line equivalents(1) 70,239 68,281 68,166 (0.2)%
CLEC access lines:
Voice lines 26,558 28,647 28,889 0.8%
Data lines 3,246 3,428 3,467 1.1%
--------- --------- ---------
CLEC access line
equivalents(1) 29,804 32,075 32,356 0.9%
Otelco access line equivalents(1) 100,043 100,356 100,522 0.2%
--------- --------- --------- ---------
--------- --------- --------- ---------
Cable television customers 4,082 4,195 4,239 1.0%
Wholesale network connections 98,187 132,324 137,318 3.8%
Other internet customers(2) 11,864 9,116 8,528 (6.5)%
(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, 6,439 and 5,765 and
digital high-speed data customers of 1,468, 1,891 and 2,107 for
December 31, 2008, December 31, 2009 and March 31, 2010,
respectively, that are outside of our traditional service territories
and dial-up Internet customers of 1,183, 786 and 656 for December 31,
2008, December 31, 2009 and March 31, 2010, respectively, that are in
our traditional service territories.
FINANCIAL DISCUSSION FOR FIRST QUARTER 2010:
Revenue
-------
Total revenues grew 1.2% in the three months ended March 31, 2010, to $25.8 million from $25.5 million in the three months ended March 31, 2009. The growth in revenue was primarily associated with growth in CLEC sales in Maine and New Hampshire, as well as selective price increases, partially offset by declines in RLEC subscribers. Local services revenue grew 3.2% in the first quarter to $12.2 million from $11.9 million in the quarter ended March 31, 2009. Growth in CLEC revenue of $0.8 million was partially offset by lower RLEC voice access lines. Network access revenue decreased 1.4% in the first quarter to $8.0 million from $8.1 million in the quarter ended March 31, 2009. Special circuits access decreased $0.4 million, partially offset by an increase of $0.3 million in switched interstate and intrastate access. Cable television revenue in the three months ended March 31, 2010, increased 9.8% to $0.7 million from $0.6 million in first quarter 2009. Growth in IPTV subscribers and the shift to high definition services in Alabama exceeded attrition in basic customers as a result of the sluggish economy. Internet revenue for the first quarter 2010 decreased 0.8%, remaining at $3.5 million for both periods. Growth in broadband data lines was offset be the loss of dial-up subscribers. Transport services revenue declined slightly by 0.7%, holding at $1.4 million in both periods.
Operating Expenses
------------------
Operating expenses in the three months ended March 31, 2010, decreased 5.3% to $19.9 million from $21.0 million in the three months ended March 31, 2009. Cost of services decreased 0.5% to $10.6 million in the quarter ended March 31, 2010, from $10.7 million in the same period last year. Synergies from the Country Road acquisition, including network consolidation were partially offset by higher cable programming costs, sales commissions and long distance costs in Missouri. 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 decreased 9.7% to $3.2 million in the three months ended March 31, 2010, from $3.6 million in the three months ended March 31, 2009. The decrease reflects synergies from completion of integrating the Country Road acquisition and lower additions to the uncollectible reserve. These savings were partially offset by higher salaries and human resources, regulatory and IT increases. Depreciation and amortization for first quarter 2010 decreased 10.4% to $6.1 million from $6.8 million in the first 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 $0.1 million reflected lower depreciation of plant assets in Alabama.
Interest Expense
----------------
Interest expense decreased 9.2% to $6.0 million in the quarter ended March 31, 2010, from $6.6 million a year ago. Half of the decline reflects the interest rate caplet expense present in first quarter 2009 that was fully expensed in 2009. The difference reflects a reduction of $5.0 million in principal from 2009 to 2010 and lower LIBOR rates, partially offset by fixed rate swap impact of our second swap which became effective in February 2010. The interest rate swaps limit the Company's 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. 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 $0.9 million in first quarter 2010 compared to a decline of $1.0 million in the same period of 2009.
Adjusted EBITDA
---------------
Adjusted EBITDA for the three months ended March 31, 2010, was $12.3 million compared to $11.5 million for the same period in 2009, and $12.2 million in the fourth quarter of 2009. See financial tables for a reconciliation of Adjusted EBITDA to net loss.
Balance Sheet
-------------
As of March 31, 2010, the Company had cash and cash equivalents of $21.2 million compared to $17.7 million at the end of 2009. Total long-term notes payable was unchanged at $273.7 million. The Company continues to meet all of its loan covenants. The Company expects to convert the Class B shares into IDS units during second quarter 2010, as requested by the Class B shareowners. The first quarter distribution of $5.3 million in interest and dividends to our shareowners and $0.3 million in interest to our bond holders occurred on March 31, 2010. This represents the twenty-first consecutive quarterly distribution since going public in December 2004.
Capital Expenditures
--------------------
Capital expenditures were $1.8 million for the quarter, up $0.5 million from first quarter 2009 and down from $3.2 million in fourth quarter 2009. The Company is expanding its CLEC capabilities in Maine and New Hampshire; enhancing DSL capacity; and expanding IPTV capability in Alabama.
First Quarter Earnings Conference Call
--------------------------------------
Otelco has scheduled a conference call, which will be broadcast live over the Internet, on Thursday, May 6, 2010, at 11:00 a.m. ET. To participate in the call, dial (913) 312-0391 and ask for the Otelco call 10 minutes prior to the start time. Investors, analysts and the general public will also have the opportunity to listen to the conference call free over the Internet by visiting the Company's Web site at www.OtelcoInc.com or www.earnings.com. To listen to the live call online, please visit the Web site at least 15 minutes early to register, download and install any necessary audio software. For those who cannot listen to the live Web cast, a replay of the Web cast will be available on the Company's website at www.OtelcoInc.com or www.earnings.com for 30 days. A one-week telephonic replay may also be accessed by calling 719-457-0820 and using the passcode 4567897.
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 31, March 31,
2009 2010
------------- -------------
(unaudited)
Assets
Current assets
Cash and cash equivalents $ 17,731,044 $ 21,204,781
Accounts receivable:
Due from subscribers, net of allowance
for doubtful accounts of $473,572 and
$411,964 respectively 4,650,909 4,307,278
Unbilled receivables 2,444,979 2,438,340
Other 3,200,945 3,137,048
Materials and supplies 1,969,966 2,056,125
Prepaid expenses 1,342,249 1,368,752
Income tax receivable 389,486 -
Deferred income taxes 744,531 744,531
------------- -------------
Total current assets 32,474,109 35,256,855
------------- -------------
Property and equipment, net 69,028,973 66,826,868
Goodwill 188,190,078 188,190,078
Intangible assets, net 34,218,115 32,096,989
Investments 1,991,158 1,984,781
Deferred financing costs 6,964,015 6,626,038
Deferred income taxes 4,482,430 4,482,430
Other assets 179,325 149,472
------------- -------------
Total assets $337,528,203 $335,613,511
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Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $ 3,145,728 $ 3,205,704
Accrued expenses 6,167,023 5,919,142
Advanced billings and payments 1,665,422 1,694,474
Deferred income taxes 394,850 394,850
Customer deposits 172,109 182,719
------------- -------------
Total current liabilities 11,545,132 11,396,889
------------- -------------
Deferred income taxes 42,239,262 42,239,262
Interest rate swaps 1,592,813 2,478,983
Advance billings and payments 698,352 688,006
Other liabilities 165,968 165,709
Long-term notes payable 273,717,301 273,695,215
------------- -------------
Total liabilities 329,958,828 330,664,064
------------- -------------
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 10,340,862 8,106,588
Retained deficit (6,988,734) (7,374,388)
------------- -------------
Total stockholders' equity 3,484,342 864,414
------------- -------------
Total liabilities and stockholders'
equity $337,528,203 $335,613,511
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OTELCO INC.
Consolidated Statements of Operations
(unaudited)
Three Months Ended
March 31,
---------------------------
2009 2010
------------- -------------
Revenues
Local services $ 11,854,980 $ 12,238,674
Network access 8,094,133 7,984,968
Cable television 606,687 665,835
Internet 3,541,677 3,511,106
Transport services 1,402,699 1,393,626
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Total revenues 25,500,176 25,794,209
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Operating expenses
Cost of services and products 10,666,456 10,610,193
Selling, general and administrative expenses 3,576,674 3,230,996
Depreciation and amortization 6,791,839 6,084,291
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Total operating expenses 21,034,969 19,925,480
------------- -------------
Income from operations 4,465,207 5,868,729
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Other income (expense)
Interest expense (6,598,953) (5,988,642)
Change in fair value of derivative (951,103) (886,170)
Other income 225,860 358,832
------------- -------------
Total other expense (7,324,196) (6,515,980)
------------- -------------
Loss before income taxes (2,858,989) (647,251)
Income tax benefit 1,024,953 261,595
------------- -------------
Net loss available to common stockholders $ (1,834,036) $ (385,656)
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Weighted average shares outstanding:
Basic 12,676,733 12,676,733
Diluted 13,221,404 13,221,404
Net loss per share:
Basic $ (0.14) $ (0.03)
Diluted $ (0.14) $ (0.03)
Dividends declared per share $ 0.18 $ 0.18
OTELCO INC.
Consolidated Statements of Cash Flows
(unaudited)
Three Months Ended
March 31,
2009 2010
------------- -------------
Cash flows from operating activities:
Net loss $ (1,834,036) $ (385,656)
Adjustments to reconcile net income to cash
flows from operating activities:
Depreciation 3,680,873 3,572,918
Amortization 3,110,966 2,511,373
Interest rate caplet 344,082 -
Amortization of debt premium (19,671) (22,086)
Amortization of loan costs 337,976 337,976
Change in fair value of derivatives 951,103 886,170
Provision for uncollectible revenue 58,691 77,045
Changes in assets and liabilities; net
of assets and liabilities acquired:
Accounts receivables 129,927 365,460
Material and supplies (7,465) (86,159)
Income tax receivable - 389,486
Prepaid expenses and other assets 210,917 (26,503)
Accounts payable and accrued liabilities (589,196) (187,900)
Advance billings and payments (13,595) 18,706
Other liabilities (14,921) 10,351
------------- -------------
Net cash from operating activities 6,345,651 7,461,181
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Cash flows from investing activities:
Acquisition and construction of property
and equipment (1,228,751) (1,753,170)
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Net cash used in investing activities (1,228,751) (1,753,170)
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Cash flows from financing activities:
Cash dividends paid (2,234,274) (2,234,274)
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Net cash used in financing activities (2,234,274) (2,234,274)
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Net increase in cash and cash equivalents 2,882,626 3,473,737
Cash and cash equivalents, beginning of period 13,542,255 17,731,044
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Cash and cash equivalents, end of period $ 16,424,881 $ 21,204,781
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Supplemental disclosures of cash flow
information:
Interest paid $ 6,215,276 $ 5,569,134
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Income taxes received $ (61,342) $ (326,486)
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For further information: Curtis Garner, Chief Financial Officer, Otelco Inc., (205) 625-3571, [email protected]
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