Otelco Reports First Quarter 2013 Results and Progress of Balance Sheet Restructuring

ONEONTA, AL, May 7, 2013 /CNW/ - Otelco Inc. (NASDAQ: OTT), a wireline telecommunications services provider in Alabama, Maine, Massachusetts, Missouri, New Hampshire, Vermont and West Virginia, today announced results for its first quarter ended March 31, 2013.  Key highlights for Otelco include:

• Total revenues of $21.0 million for first quarter 2013.
• Operating income of $4.9 million for first quarter 2013.
• Adjusted EBITDA (as defined below) of $8.8 million for first quarter 2013.

"First quarter produced financial results that met our expectations," said Mike Weaver, President and Chief Executive Officer of Otelco. "We generated Adjusted EBITDA of $8.8 million, incurred and paid $1.4 million in restructuring expenses related to the bankruptcy filing and still increased our cash balance by $1.8 million.  We invested $0.8 million in capital equipment in the first quarter and expect to increase our capital expenditures over the course of the year for a total investment of approximately $7.0 million for 2013. We ended the quarter with $34.3 million in cash on hand.

"The restructuring process continues to proceed as planned," added Weaver. "We were pleased with the voting results of the solicitation, having received overwhelming support for our plan from both our senior lenders and our subordinated note holders.   Yesterday, the Bankruptcy Court entered an order to confirm our plan. Consistent with the terms of our plan of reorganization and a Court order we obtained in March 2013, our vendors and suppliers have been paid in full for all undisputed invoices.  The next major steps in the process include completing the amendment and extension of our senior credit facility; obtaining FCC approval for licenses utilized by one of our subsidiaries; and the issuance of the new Class A common stock in exchange for the senior subordinated notes.  In accordance with the plan, the existing Class A common stock will be extinguished.

"Given the progress we have made on the balance sheet restructuring to date and the recent confirmation of our Plan, we expect to exit bankruptcy in the near future," Weaver concluded.

First Quarter 2013 Financial Summary
(Dollars in thousands, except per share amounts)
(Unaudited)
			Three Months Ended March 31,				Change
			2012		2013		Amount		Percent
Revenues		$	25,374	$	20,988	$	(4,386)		(17.3)	%
Operating income		$	6,617	$	4,889	$	(1,728)		(26.1)	%
Interest expense		$	(5,834)	$	(5,554)	$	(280)		(4.8)	%
Net income (loss)		$	818	$	(1,774)	$	(2,592)		*
Basic net income (loss) per share		$	0.06	$	(0.13)	$	(0.19)		*
Adjusted EBITDA^(a)		$	11,476	$	8,786	$	(2,690)		(23.4)	%
Capital expenditures		$	1,303	$	799	$	(504)		(38.7)	%
	* Not a meaningful calculation

Reconciliation of Adjusted EBITDA to Net Income (Loss)
			Three Months ended March 31,
			2012		2013
Net income (loss)		$	818	$	(1,774)
Add:  Depreciation			2,729		2,380
	Interest expense - net of premium		5,491		5,212
	Interest expense - amortize loan cost		342		342
	Income tax expense (benefit)		524		(72)
	Change in fair value of derivatives		(241)		-
	Loan fees		19		19
	IXC Tariff Dispute Settlement		-		69
	Reorganization items		-		1,424
	Amortization - intangibles		1,794		1,186
Adjusted EBITDA		$	11,476	$	8,786

 

^(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 or increasing 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
		(Unaudited)										Quarterly
												% Change
					December 31,					March 31,		from
					2011		2012			2013		Dec. 31, 2012
Otelco access line equivalents^(1)					102,378		99,395			98,839		(0.6)	%
RLEC and other services:
	Voice access lines				46,202		43,021			42,274		(1.7)	%
	Data access lines				22,904		22,742			22,718		(0.1)	%
		Access line equivalents^(1)			69,106		65,763			64,992		(1.2)	%
	Cable television customers				4,201		4,155			4,102		(1.3)	%
	Satellite television customers				226		233			235		0.9	%
	Additional internet customers				5,414		4,506			4,312		(4.3)	%
		RLEC dial-up			301		198			169		(14.6)	%
		Other dial-up			2,797		1,895			1,726		(8.9)	%
		Other data lines			2,316		2,413			2,417		0.2	%
CLEC:
	Voice access lines				30,189		30,470			30,589		0.4	%
	Data access lines				3,083		3,162			3,258		3.0	%
		Access line equivalents^(1)			33,272		33,632			33,847		0.6	%
	Wholesale network connections				157,144		162,117			2,372		(98.5)	%
							For the Three Months
							Ended March 31,
							2012			2013
Total Revenues (in millions):						$	25.4		$	21.0
	RLEC					$	14.2		$	13.2
	CLEC					$	11.2		$	7.8

 

^(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 FIRST QUARTER 2013 (unaudited):

Revenue
Total revenues of $21.0 million decreased 17.3% in the three months ended March 31, 2013, when compared to the three months ended March 31, 2012. The expiration of the Time Warner Cable ("TWC") contract at the end of 2012 was the primary reason for the decrease in revenue in 2013.

			Three Months Ended March 31,							Change
					2012			2013			Amount			Percent
								(dollars in thousands)
Local services				$	11,653		$	8,542		$	(3,111)			(26.7)	%
Network access					7,814			6,497			(1,317)			(16.9)
Cable television					805			775			(30)			(3.7)
Internet					3,726			3,676			(50)			(1.3)
Transport services					1,376			1,498			122			8.9
		Total		$	25,374		$	$ 20,988		$	(4,386)			(17.3)

 

Local services revenue decreased 26.7% in the first quarter of 2013 to $8.5 million from $11.7 million in the first quarter ended March 31, 2012. TWC revenue decreased $2.0 million; reductions in intrastate calling revenue associated with the FCC's InterCarrier Compensation order decreased $0.3 million; and one-time fiber installation revenue decreased $0.1 million. The remaining decrease is primarily related to the decline in RLEC voice access lines. Network access revenue decreased 16.9% in the first quarter of 2013 to $6.5 million from $7.8 million in the quarter ended March 31, 2012. TWC related access revenue declined $0.7 million. End user related access revenue, net of payments from the new Connect America Fund, decreased $0.6 million, reflecting reduced subscriber usage and lower intrastate calling revenue associated with the FCC's InterCarrier Compensation order. Cable television revenue in the three months ended March 31, 2013 decreased 3.7% to just under $0.8 million compared to just over $0.8 million in the same period in 2012.  Loss of basic cable subscribers was only partially offset by increased IPTV and security services revenue in our Alabama territory.  Internet revenue for the first quarter 2013 decreased 1.3% to just under $3.7 million from just over $3.7 million in the quarter ended March 31, 201. The decline in dial-up internet services and pricing of Missouri fiber rental accounted for the decline.  Transport services revenue increased 8.9% to $1.5 million in the three months ended March 31, 2013 from $1.4 million for the three months ended March 31, 2012. The increase was associated with additional wide-area network transport services.

Operating Expenses
Operating expenses in the three months ended March 31, 2013, decreased 14.2% to $16.1 million from $18.8 million in the three months ended March 31, 2012.  Cost of services and products decreased 14.1% to $9.5 million from $11.0 million for the three months ended March 31, 2012. Costs associated with TWC decreased $0.4 million and network efficiencies reflecting lower toll and employee expenses contributed to an additional reduction of $1.3 million. These reductions were partially offset by an increase of $0.2 million in our hosted PBX expense reflecting our continued success with this product. Selling, general and administrative expenses decreased 4.7% to $3.1 million in the three months ended March 31, 2013, from $3.2 million in the three months ended March 31, 2012. The decrease reflected efficiencies in several areas for continued cost control.  Depreciation and amortization for first quarter 2013 decreased 21.2% to $3.6 million from $4.5 million in the first quarter 2012.  The amortization of intangible assets associated with the Country Road acquisition, including contract intangible assets and a telephone plant adjustment decreased $0.6 million; CLEC depreciation decreased $0.2 million; and RLEC depreciation decreased $0.1 million.

Interest Expense
Interest expense decreased 4.8% to $5.6 million in the quarter ended March 31, 2013, from $5.8 million a year ago. The decrease in interest expense was primarily driven by the lower effective interest rate on the outstanding balance on our senior long-term notes payable upon expiration of our interest rate swaps on February 8, 2012.

Reorganization Items

The Company spent approximately $1.4 million during the first quarter of 2013 associated with its balance sheet restructuring process with no comparable expenses in the same period of 2012.

Adjusted EBITDA
Adjusted EBITDA for the three months ended March 31, 2013, was $8.8 million compared to $11.5 million for the same period in 2012 and in the fourth quarter of 2012. See financial tables for a reconciliation of Adjusted EBITDA to net income.

Balance Sheet
As of March 31, 2013, the Company had cash and cash equivalents of $34.3 million compared to $32.5 million at the end of 2012. The Company's long-term notes payable of $271.1 million and the accumulated interest on those notes are shown as liabilities subject to compromise due to the March 24, 2013 bankruptcy filing. Dividends on our Class A stock were paid in first quarter 2012. No dividends were paid in 2013.

Capital Expenditures
Capital expenditures were $0.8 million for the quarter as the Company continues to invest in its infrastructure.  The level of capital expenditure reflects a planned slower start than in previous years but is expected to lead to a similar level of investment in infrastructure for 2013 as was experienced in 2012.

First Quarter Investors Conference Call
Otelco has scheduled a conference call, which will be broadcast live over the internet, on Thursday, May 9, 2013, at 11:00 a.m. ET.  To participate in the call, participants should dial [phone] and ask for the Otelco call 10 minutes prior to the start time.  Investors 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 who cannot 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 [phone] and using the passcode 9096051.

ABOUT OTELCO
TOtelco Inc. provides wireline telecommunications services in Alabama, Maine, Massachusetts, Missouri, New Hampshire, Vermont 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 98,000 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 eleven 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 impact the Company's restructuring plans or 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. There can be no assurance that the restructuring transaction will be consummated. 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. AND SUBSIDIARIES
(Debtor-in-Possession)
CONSOLIDATED BALANCE SHEETS
(unaudited)
										December 31,		March 31,
										2012		2013
Assets
Current assets
		Cash and cash equivalents								$ 32,516,283		$ 34,293,319
		Accounts receivable:
		Due from subscribers, net of allowance for doubtful
			accounts of $239,274 and $457,068, respectively							4,205,944		4,083,418
		Unbilled receivables								2,003,634		2,008,675
		Other								5,336,162		3,520,880
		Materials and supplies								1,845,246		1,924,191
		Prepaid expenses								1,981,631		2,827,045
		Deferred income taxes								1,843,160		1,843,160
			Total current assets							49,732,060		50,500,688
Property and equipment, net										58,242,903		56,571,853
Goodwill										44,956,840		44,956,840
Intangible assets, net										6,670,392		5,580,929
Investments										1,919,327		1,912,950
Deferred financing costs, net										4,037,311		2,130,553
Deferred income taxes										6,275,997		6,275,997
Other assets										490,131		529,965
			Total assets							$ 172,324,961		$ 168,459,775
Liabilities and Stockholders' Deficit
Liabilities not subject to compromise
Current liabilities
		Accounts payable								$ 2,007,405		$ 1,075,570
		Accrued expenses								14,900,378		6,291,205
		Advance billings and payments								1,560,190		1,507,137
		Deferred income taxes								430,896		430,896
		Customer deposits								90,837		93,492
		Current maturity of long-term debt								270,990,023		-
			Total current liabilities							289,979,729		9,398,300
Liabilities subject to compromise										-		278,827,862
	Deferred income taxes									22,670,168		22,670,168
	Advance billings and payments									788,638		775,354
	Other liabilities									484,019		159,704
	Long-term notes payable, less current maturities									-		-
			Total liabilities							313,922,554		311,831,388
		Stockholders' deficit
		Class A  Common Stock, $.01 par value-authorized 20,000,000 shares;
		issued and outstanding 13,221,404 shares								132,214		132,214
		Retained deficit								(141,729,807)		(143,503,827)
			Total stockholders' deficit							(141,597,593)		(143,371,613)
			Total liabilities and stockholders' deficit							$ 172,324,961		$ 168,459,775

 

OTELCO INC. AND SUBSIDIARIES
(Debtor-in-Possession)
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
								Three Months Ended March 31,
								2012			2013
Revenues							$	25,374,241		$	20,987,909
Operating expenses
	Cost of services							11,028,833			9,477,567
	Selling, general and administrative expenses							3,206,077			3,055,790
	Depreciation and amortization							4,522,593			3,565,896
		Total operating expenses						18,757,503			16,099,253
	Income from operations							6,616,738			4,888,656
Other income (expense)
	Interest expense							(5,833,650)			(5,554,169)
	Reorganization items							-			(1,423,607)
	Change in fair value of derivatives							241,438			-
	Other income							318,169			243,488
		Total other expenses						(5,274,043)			(6,734,288)
Income (loss) before income tax								1,342,695			(1,845,632)
Income tax (expense) benefit								(524,457)			71,611
Net income (loss)							$	818,238		$	(1,774,021)
Common shares outstanding:								13,221,404			13,221,404
Net income (loss) per common share							$	0.06		$	(0.13)
Dividends declared per common share							$	0.18		$	-

OTELCO INC. AND SUBSIDIARIES
(Debtor-in-Possession)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
								Three Months Ended
								March 31,
								2012			2013
Cash flows from operating activities:
	Net income (loss)							$	818,238		$	(1,774,021)
	Adjustments to reconcile net income (loss) to cash flows from operating activities:
			Depreciation						2,728,557			2,379,971
			Amortization						1,794,036			1,185,925
			Amortization of debt premium						(27,840)			(31,260)
			Amortization of loan costs						342,024			342,024
			Change in fair value of derivatives						(241,438)			-
			Provision for uncollectible revenue						122,402			37,253
			Changes in operating assets and liabilities
				Accounts receivable					864,192			1,895,515
				Material and supplies					(245,676)			(78,945)
				Prepaid expenses and other assets					(200,130)			(885,402)
				Accounts payable and accrued liabilities					1,046,924			1,007,701
				Advance billings and payments					222,279			(66,337)
				Other liabilities					67,487			(321,660)
				Net cash from operating activities					7,291,055			3,690,764
Cash used in investing activities:
	Acquisition and construction of property and equipment								(1,303,197)			(798,853)
				Net cash used in investing activities					(1,303,197)			(798,853)
Cash flows used in financing activities:
	Cash dividends paid								(2,330,272)			-
	Loan origination costs								(9,499)			(1,114,875)
				Net cash used in financing activities					(2,339,771)			(1,114,875)
Net increase in cash and cash equivalents									3,648,087			1,777,036
Cash and cash equivalents, beginning of period									12,393,792			32,516,283
Cash and cash equivalents, end of period								$	16,041,879		$	34,293,319
Supplemental disclosures of cash flow information:
	Interest paid							$	5,820,846		$	1,825,337
	Income taxes paid							$	25,250		$	35,500

 

 

 

SOURCE: Otelco Inc.

Contact: 
Curtis Garner     
Chief Financial Officer   
Otelco Inc.
205-625-3580
[email protected]