Otelco Inc. OTTOTT, 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, 2012. Key highlights for Otelco include:
- Total revenues of $25.4 million for first quarter 2012.
- Operating income of $6.6 million for first quarter 2012.
- Adjusted EBITDA (as defined below) of $11.5 million for first quarter 2012.
“First quarter results produced Adjusted EBITDA of $11.5 million, which represented a 6% increase over the fourth quarter of 2011 and a 0.6% increase over the same period last year,” said Mike Weaver, President and Chief Executive Officer of Otelco. “Some of the other positive aspects of the quarter were an increase of 1% in access line equivalents in the CLEC operations as well as a 1% growth in broadband subscribers. Our cash balance increased by $3.6 million to $16.0 million, primarily due to lower capital expenditures in the quarter. For the year, we expect the investment in our business to be in the $7.0 million range.
“On April 20, 2012, we announced that Time Warner Cable has indicated it will not renew its existing contract for wholesale network connections provided by Otelco. Revenue received directly from Time Warner represented approximately 11.7% of Otelco's consolidated revenue for 2011 and 11.8% in first quarter 2012. Additionally, the Company receives access revenue from long distance carriers for calls destined to Time Warner customers in Maine and New Hampshire. This access revenue represents approximately 3% to 4% of Otelco's consolidated revenue for both the year 2011 and first quarter 2012. The Time Warner contract expires on December 31, 2012 and includes a transition period into 2013. Under the terms of the contract, the revenue stream is unaffected though the end of this year. During the transition period in 2013, the revenue will decline as customers are moved from the Otelco service platform to Time Warner's systems. The length and specific terms of the transition agreement are currently being negotiated,” Weaver explained.
“Also on April 20, 2012, the Board of Directors decided to suspend the dividends on the common stock portion of the Income Deposit Securities,” noted Weaver. “Holders of the Income Deposit Securities continue to receive quarterly interest payments on the $7.50 subordinated note which amounts to $0.975 per unit per year or $0.24375 per unit per quarter. The interest for the second quarter will be paid on Monday, July 2, 2012, to holders of record at the close of business on June 15, 2012. The dividend amounted to $.705 per unit for 2011 which equates to approximately $9.3 million for a twelve month period. The immediate suspension of the dividends will conserve approximately $7.0 million cash in 2012.
“In addition to the dividend suspension, we are conducting a thorough review of our operations and cost structure and anticipate taking aggressive actions to lower costs over the coming months in anticipation of the changes in revenue expected next year. Over the last few months, we have undergone a number of changes including office consolidation in Alabama, staff reductions in New England and Missouri and the acquisition of Shoreham Telephone in Vermont that will help us address the loss of the Time Warner Cable contract. We will continue to make the capital investments necessary to serve our customers and support our growth projects. The existing $162.0 million senior debt has a maturity date of October 2013. We may explore the possibility of refinancing this debt before the end of this year. We are in compliance with all of the terms and covenants contained in the credit agreement and associated with the subordinated notes that are part of the IDSs,” Weaver concluded.
Distribution to Income Deposit Security Holders
Each quarter, the Board evaluates the Company's dividend policy and the declaration of dividends. The Board met on April 20, 2012 and announced the suspension of the dividend portion of the IDS distribution. The scheduled interest of $0.24375 per IDS will be paid on July 2, 2012, to holders of record as of the close of business on June 15, 2012. The normal distribution date would have been June 30, 2012 which is a Saturday. Normal distribution dates that fall on weekends and bank holidays are paid on the next business day. The interest payment covers the period from March 30, 2012 through June 29, 2012.
| First Quarter 2012 Financial Summary | |||||||||||||||
| (Dollars in thousands, except per share amounts) | |||||||||||||||
| (Unaudited) | |||||||||||||||
| Three Months Ended March 31, | Change | ||||||||||||||
| 2011 | 2012 | Amount | Percent | ||||||||||||
| Revenues | $ | 25,392 | $ | 25,374 | $ | (18 | ) | (0.1 | )% | ||||||
| Operating income | $ | 5,321 | $ | 6,617 | $ | 1,296 | 24.4 | % | |||||||
| Interest expense | $ | (6,170 | ) | $ | (5,834 | ) | $ | (336 | ) | (5.4 | )% | ||||
| Net income available to stockholders | $ | 5 | $ | 818 | $ | 813 | * | ||||||||
| Basic net income per share | $ | - | $ | 0.06 | $ | 0.06 | * | ||||||||
| Adjusted EBITDA(a) | $ | 11,413 | $ | 11,476 | $ | 63 | 0.6 | % | |||||||
| Capital expenditures | $ | 2,843 | $ | 1,303 | $ | (1,540 | ) | (54.2 | )% | ||||||
| * Not a meaningful calculation | |||||||||||||||
| Reconciliation of Adjusted EBITDA to Net Income (Loss) | |||||||||||||||
| Three Months ended March 31, | |||||||||||||||
| 2011 | 2012 | ||||||||||||||
| Net income (loss) | $ | 5 | $ | 818 | |||||||||||
| Add: Depreciation | 3,523 | 2,729 | |||||||||||||
| Interest expense - net of premium | 5,828 | 5,491 | |||||||||||||
| Interest expense - amortize loan cost | 342 | 342 | |||||||||||||
| Income tax expense (benefit) | 1 | 524 | |||||||||||||
| Change in fair value of derivatives | (506 | ) | (241 | ) | |||||||||||
| Loan fees | 19 | 19 | |||||||||||||
| Amortization - intangibles | 2,201 | 1,794 | |||||||||||||
| Adjusted EBITDA | $ | 11,413 | $ | 11,476 | |||||||||||
|
(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. |
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|
Otelco Inc. - Key Operating Statistics(2) |
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| (Unaudited) | Quarterly | ||||||||||||||
| % Change | |||||||||||||||
| December 31, | Mar. 31, | from | |||||||||||||
| 2010 | 2011 | 2012 | Dec. 31, 2011 | ||||||||||||
| Otelco access line equivalents(1) | 99,639 | 102,378 | 101,885 | (0.5 | )% | ||||||||||
| RLEC and other services: | |||||||||||||||
| Voice access lines | 45,461 | 46,202 | 45,200 | (2.2 | )% | ||||||||||
| Data access lines | 20,852 | 22,904 | 23,105 | 0.9 | % | ||||||||||
| Access line equivalents(1) | 66,313 | 69,106 | 68,305 | (1.2 | )% | ||||||||||
| Cable television customers | 4,227 | 4,201 | 4,216 | 0.4 | % | ||||||||||
| Satellite television customers |
125 |
226 | 229 | 1.3 |
% |
||||||||||
| Additional internet customers | 6,975 | 5,414 | 5,159 | (4.7 | )% | ||||||||||
| RLEC dial-up | 393 | 301 | 273 | (9.3 | )% | ||||||||||
| Other dial-up | 4,300 | 2,797 | 2,501 | (10.6 | )% | ||||||||||
| Other data lines | 2,282 | 2,316 | 2,385 | 3.0 | % | ||||||||||
| CLEC: | |||||||||||||||
| Voice access lines | 29,944 | 30,189 | 30,476 | 1.0 | % | ||||||||||
| Data access lines | 3,382 | 3,082 | 3,104 | 0.7 | % | ||||||||||
| Access line equivalents(1) | 33,326 | 33,271 | 33,580 | 0.9 | % | ||||||||||
| Wholesale network connections | 149,043 | 157,144 | 159,560 | 1.5 | % | ||||||||||
| For the Three Months | |||||||||||||||
| Ended March 31, | |||||||||||||||
| 2011 | 2012 | ||||||||||||||
| Total Revenues (in millions): | $ | 25.4 | $ | 25.4 | |||||||||||
| RLEC | $ | 14.2 | $ | 14.2 | |||||||||||
| CLEC | $ | 11.2 | $ | 11.2 | |||||||||||
|
(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). |
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|
(2) We acquired Shoreham Telephone Company Inc. on October 14, 2011. At December 31, 2011, Shoreham had 3,309 voice access lines and 1,672 data access lines or 4,981 access line equivalents and 55 dial-up internet customers which are included in the Key Operating Statistics. |
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FINANCIAL DISCUSSION FOR FIRST QUARTER 2012 (unaudited):
All financial information includes the acquisition of Shoreham Telephone Company Inc. (“Shoreham”) on and as of October 14, 2011.
Revenue
Total revenues of $25.4 million were nominally down in the three months ended March 31, 2012, when compared to the three months ended March 31, 2011.
|
|
Three Months Ended March 31, | Change | |||||||||||
| 2011 | 2012 | Amount | Percent | ||||||||||
|
(dollars in thousands) |
|||||||||||||
| Local services | $ | 12,006 | $ | 11,653 | $ | (353 | ) | (2.9 | )% | ||||
| Network access | 7,861 | 7,814 | (47 | ) | (0.6 | ) | |||||||
| Cable television | 752 | 805 | 53 | 7.0 | |||||||||
| Internet | 3,456 | 3,726 | 270 | 7.8 | |||||||||
| Transport services | 1,317 | 1,376 | 59 | 4.5 | |||||||||
| Total | $ | 25,392 | $ | 25,374 | $ | (18 | ) | (0.1 | ) | ||||
Local services revenue decreased 2.9% in the first quarter of 2012 to $11.7 million from $12.0 million in the first quarter ended March 31, 2011. Shoreham added $0.2 million which was offset by lower RLEC basic services revenue of $0.3 million and lower long distance revenue of $0.3. Network access revenue decreased 0.6% in the first quarter of 2012 to $7.8 million from $7.9 million in the quarter ended March 31, 2011. Shoreham added $0.4 million which was offset by lower access revenue related to RLEC subscriber usage and lower NECA settlements of $0.5 million. Cable television revenue in the three months ended March 31, 2012 increased 7.0% to $0.8 million compared to just under $0.8 million in the same period in 2011. Growth in digital family packages and IPTV of $0.1 million was partially offset by a decrease in basic cable services and satellite television installation revenue of less than $0.1 million. Internet revenue for the first quarter 2012 increased 7.8% to $3.7 million from $3.5 million in the quarter ended March 31, 2011. Shoreham accounted for the growth while the loss of dial-up subscribers was offset by growth in fiber backhaul circuits and RLEC data lines. Transport services revenue increased 4.5% to $1.4 million in the three months ended March 31, 2012 from $1.3 million for the three months ended March 31, 2011. The increase was associated with additional wholesale transport services.
Operating Expenses
Operating expenses in the three months ended March 31, 2012, decreased 6.5% to $18.8 million from $20.1 million in the three months ended March 31, 2011. Cost of services and products was basically flat at $11.1 million for the three months ended March 31, 2012 and March 31, 2011. Shoreham costs added $0.4 million and our Hosted PBX product costs increased $0.2 million reflecting our success with that product in the last year. These increases were offset by lower toll costs of $0.4 million and a one-time NECA adjustment in 2011 of $0.2 million. Selling, general and administrative expenses decreased 3.6% to $3.2 million in the three months ended March 31, 2012, from $3.3 million in the three months ended March 31, 2011. An increase associated with the Shoreham acquisition of $0.1 million was more than offset by lower management expenses of $0.2 million. Depreciation and amortization for first quarter 2012 decreased 21.0% to $4.5 million from $5.7 million in the first quarter 2011. An increase associated with the acquisition of Shoreham of $0.2 million and for CLEC investment of $0.2 million was more than offset by a decrease of $0.3 million in the amortization of intangible assets associated with the Country Road acquisition, including a covenant not to compete and contract and customer base intangible assets and a decrease of $1.3 million reflecting lower depreciation expense of plant assets in our regulated properties.
Interest Expense
Interest expense decreased 5.4% to $5.8 million in the quarter ended March 31, 2012, from $6.2 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.
Change in Fair Value of Derivatives
As a requirement of the existing senior debt, the Company had two interest rate swap agreements intended to hedge changes in interest rates on its senior debt. The swap agreements did 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 was zero, with no cumulative impact on net income, Adjusted EBITDA or operations. The value of the swaps increased $0.2 million in first quarter 2012 compared to an increase of $0.5 million in the same period of 2011. The swaps expired on February 8, 2012, effectively lowering our interest rate beginning February 9, 2012 from approximately 2% to the current LIBOR rate.
Adjusted EBITDA
Adjusted EBITDA for the three months ended March 31, 2012, was $11.5 million compared to $11.4 million for the same period in 2011 and $10.9 million in the fourth quarter of 2011. See financial tables for a reconciliation of Adjusted EBITDA to net income.
Balance Sheet
As of March 31, 2012, the Company had cash and cash equivalents of $16.0 million compared to $12.4 million at the end of 2011. Total long-term notes payable remained constant at $271.1 million when compared with the end of 2011, reflecting the non-amortizing nature of our debt. The first quarter distribution of $5.6 million in interest and dividends to our stockholders and $0.3 million in interest to our bond holders occurred on March 30, 2012.
Capital Expenditures
Capital expenditures were $1.3 million for the quarter as the Company continues to invest in its infrastructure. The level of capital expenditure is lower than in previous years, reflecting the significant expansion in the last three years of our network, broadband and switching infrastructure.
Fourth Quarter Earnings Conference Call
Otelco has scheduled a conference call, which will be broadcast live over the internet, on Friday, May 4, 2012, at 10:00 a.m. ET. To participate in the call, participants should dial (719) 325-4767 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 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 (719) 457-0820 and using the passcode 5368741.
ABOUT OTELCO
Otelco 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 101,000 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 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 |
|||||||||||||||
| (unaudited) | |||||||||||||||
| December 31, | March 31, | ||||||||||||||
| 2011 | 2012 | ||||||||||||||
| Assets | |||||||||||||||
| Current assets | |||||||||||||||
| Cash and cash equivalents | $ | 12,393,792 | $ | 16,041,879 | |||||||||||
| Accounts receivable: | |||||||||||||||
|
Due from subscribers, net of allowance for doubtful accounts of $260,568 and $237,182, respectively |
4,355,632 | 4,150,049 | |||||||||||||
| Unbilled receivables | 2,183,465 | 2,181,672 | |||||||||||||
| Other | 5,449,074 | 4,669,856 | |||||||||||||
| Materials and supplies | 1,780,820 | 2,026,496 | |||||||||||||
| Prepaid expenses | 1,328,475 | 1,380,895 | |||||||||||||
| Deferred income taxes | 726,310 | 726,310 | |||||||||||||
| Total current assets | 28,217,568 | 31,177,157 | |||||||||||||
| Property and equipment, net | 65,881,975 | 64,233,220 | |||||||||||||
| Goodwill | 188,954,840 | 188,954,840 | |||||||||||||
| Intangible assets, net | 20,545,691 | 18,982,111 | |||||||||||||
| Investments | 1,943,805 | 1,937,427 | |||||||||||||
| Deferred financing costs | 4,485,324 | 4,152,799 | |||||||||||||
| Deferred income taxes | 7,454,443 | 7,454,443 | |||||||||||||
| Other assets | 240,667 | 387,695 | |||||||||||||
| Total assets | $ | 317,724,313 | $ | 317,279,692 | |||||||||||
| Liabilities and Stockholders' Deficit | |||||||||||||||
| Current liabilities | |||||||||||||||
| Accounts payable | $ | 1,490,717 | $ | 1,422,149 | |||||||||||
| Accrued expenses | 6,034,104 | 7,344,306 | |||||||||||||
| Advance billings and payments | 1,590,689 | 1,600,064 | |||||||||||||
| Deferred income taxes | 353,285 | 353,285 | |||||||||||||
| Customer deposits | 143,657 | 146,032 | |||||||||||||
| Total current liabilities | 9,612,452 | 10,865,836 | |||||||||||||
| Deferred income taxes | 48,112,384 | 48,112,384 | |||||||||||||
| Interest rate swaps | 241,438 | - | |||||||||||||
| Advance billings and payments | 615,584 | 828,488 | |||||||||||||
| Other liabilities | 403,823 | 274,228 | |||||||||||||
| Long-term notes payable | 271,106,387 | 271,078,547 | |||||||||||||
| Total liabilities | 330,092,068 | 331,159,483 | |||||||||||||
| 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 | (12,499,969 | ) | (14,012,005 | ) | |||||||||||
| Total stockholders' deficit | (12,367,755 | ) | (13,879,791 | ) | |||||||||||
| Total liabilities and stockholders' deficit | $ | 317,724,313 | $ | 317,279,692 | |||||||||||
| OTELCO INC. | |||||||||||||
| CONSOLIDATED STATEMENTS OF OPERATIONS | |||||||||||||
| (unaudited) | |||||||||||||
|
Three Months Ended
March 31, |
|||||||||||||
| 2011 | 2012 | ||||||||||||
| Revenues | $ | 25,392,000 | $ | 25,374,241 | |||||||||
| Operating expenses | |||||||||||||
| Cost of services and products | 11,020,212 | 11,028,833 | |||||||||||
| Selling, general and administrative expenses | 3,327,057 | 3,206,077 | |||||||||||
| Depreciation and amortization | 5,724,018 | 4,522,593 | |||||||||||
| Total operating expenses | 20,071,287 | 18,757,503 | |||||||||||
| Income from operations | 5,320,713 | 6,616,738 | |||||||||||
| Other income (expense) | |||||||||||||
| Interest expense | (6,170,131 | ) | (5,833,650 | ) | |||||||||
| Change in fair value of derivatives | 506,155 | 241,438 | |||||||||||
| Other income | 349,349 | 318,169 | |||||||||||
| Total other expenses | (5,314,627 | ) | (5,274,043 | ) | |||||||||
| Income before income tax | 6,086 | 1,342,695 | |||||||||||
| Income tax expense | (1,432 | ) | (524,457 | ) | |||||||||
| Net income available to common stockholders | $ | 4,654 | $ | 818,238 | |||||||||
| Common shares outstanding | 13,221,404 | 13,221,404 | |||||||||||
| Net income per common share | $ | - | $ | 0.06 | |||||||||
| Dividends declared per common share | $ | 0.18 | $ | 0.18 | |||||||||
| OTELCO INC. | ||||||||||||||
| CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||||||||
| (unaudited) | ||||||||||||||
| Three Months Ended | ||||||||||||||
| March 31, | ||||||||||||||
| 2011 | 2012 | |||||||||||||
| Cash flows from operating activities: | ||||||||||||||
| Net income | $ | 4,654 | $ | 818,238 | ||||||||||
| Adjustments to reconcile net income to cash flows from operating activities: | ||||||||||||||
| Depreciation | 3,522,652 | 2,728,557 | ||||||||||||
| Amortization | 2,201,365 | 1,794,036 | ||||||||||||
| Amortization of debt premium | (24,795 | ) | (27,840 | ) | ||||||||||
| Amortization of loan costs | 342,024 | 342,024 | ||||||||||||
| Change in fair value of derivatives | (506,155 | ) | (241,438 | ) | ||||||||||
| Provision for uncollectible revenue | 62,747 | 122,402 | ||||||||||||
| Changes in operating assets and liabilities; net of operating assets and liabilities acquired: | ||||||||||||||
| Accounts receivable | (215,112 | ) | 864,192 | |||||||||||
| Material and supplies | (62,586 | ) | (245,676 | ) | ||||||||||
| Prepaid expenses and other assets | 220,510 | (200,130 | ) | |||||||||||
| Accounts payable and accrued liabilities | (102,141 | ) | 1,046,924 | |||||||||||
| Advance billings and payments | (25,786 | ) | 222,279 | |||||||||||
| Other liabilities | 2,788 | 67,487 | ||||||||||||
| Net cash from operating activities | 5,420,165 | 7,291,055 | ||||||||||||
| Cash flows used in investing activities: | ||||||||||||||
| Acquisition and construction of property and equipment | (2,842,757 | ) | (1,303,197 | ) | ||||||||||
| Net cash used in investing activities | (2,842,757 | ) | (1,303,197 | ) | ||||||||||
| Cash flows used in financing activities: | ||||||||||||||
| Cash dividends paid | (2,330,273 | ) | (2,330,272 | ) | ||||||||||
| Loan origination costs | - | (9,499 | ) | |||||||||||
| Net cash used in financing activities | (2,330,273 | ) | (2,339,771 | ) | ||||||||||
| Net increase in cash and cash equivalents | 247,135 | 3,648,087 | ||||||||||||
| Cash and cash equivalents, beginning of period | 18,226,374 | 12,393,792 | ||||||||||||
| Cash and cash equivalents, end of period | $ | 18,473,509 | $ | 16,041,879 | ||||||||||
| Supplemental disclosures of cash flow information: | ||||||||||||||
| Interest paid | $ | 5,908,353 | $ | 5,820,846 | ||||||||||
| Income taxes paid | $ | 122,895 | $ | 25,250 | ||||||||||
|
|
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Otelco Inc.
Curtis Garner, Chief Financial Officer,
205-625-3580
Curtis@otelcotel.com
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