Otelco Reports Fourth Quarter and 2020 Financial and Operational Results

ONEONTA, Ala., March 16, 2021 (GLOBE NEWSWIRE) -- Otelco Inc. OTEL ("Otelco" or the "Company"), a wireline telecommunications services provider in Alabama, Maine, Massachusetts, Missouri, New Hampshire, Vermont and West Virginia, today announced operational and financial results for its fourth quarter and year ended December 31, 2020. Key operational and financial highlights for Otelco include:

  • Total revenues of $15.5 million for fourth quarter 2020 and $62.0 million for 2020.
  • Operating income of $2.8 million for fourth quarter 2020 and $11.5 million for 2020.
  • Net income of $1.4 million for fourth quarter 2020 and $6.3 million for 2020.
  • Consolidated EBITDA (as defined below) of $5.0 million for fourth quarter 2020 and $20.9 million for 2020.
  • Scheduled principal payments of $1.1 million in fourth quarter 2020 and $4.4 million overall in 2020 reduced debt to $65.9 million at the end of 2020.

The Company continued to execute on its strategy of data speed enhancements and fiber deployment in fourth quarter 2020. Revenues for fourth quarter 2020 declined $0.1 million, or 0.5%, from fourth quarter 2019, primarily from a reduction in voice services and access fees, partially offset by increases in internet, video and security, transport and managed services. Compared to third quarter 2020, revenues decreased $0.1 million. Cost of services increased by $0.6 million, or 7.7%, from fourth quarter 2019. After excluding $0.2 million and $0.1 million in Board project expense, including legal work associated with the Oak Hill transaction, for fourth quarter 2020 and 2019, respectively, selling, general and administrative expense decreased $0.2 million when compared to fourth quarter 2019. Interest expense declined $0.3 million reflecting lower interest rates and the reduction in principal outstanding under the Company's credit agreement. Net income was $1.4 million in fourth quarter 2020, compared to $2.0 million in fourth quarter 2019. Basic net income per share was $0.42 for fourth quarter 2020, compared to $0.58 per share in the same period of 2019. The Company invested $2.0 million in its network and operational capabilities during fourth quarter 2020. Consolidated EBITDA was $5.0 million for fourth quarter 2020, compared to $5.6 million for the same period in the previous year. Excluding the Board project expense, including legal work associated with the Oak Hill transaction, Consolidated EBITDA was $5.2 million for fourth quarter 2020, compared with $5.7 million in third quarter 2020. The ratio of debt, net of cash, to Consolidated EBITDA was 2.89, reflecting the scheduled payments made on the debt.

The novel strain of coronavirus (COVID-19) continues to have an impact on the world's economy and Otelco's operations. Otelco closely monitors developments in the states it serves and has adjusted its operations accordingly to mitigate the potential risks related to the COVID-19 pandemic to the Company, its employees, and its customers. Otelco has continuously provided essential voice and data services to its customers throughout the pandemic, while improving its ability to provide higher speed internet services through investment in its network. As a result of the measures implemented by the Company, no significant adverse impact on results of operations or its financial position at December 31, 2020, has occurred.

In the last two years, the Company has installed 278 miles of Fiber-To-The-Premise ("FTTP") in its service territories. Approximately 4,346 customers have upgraded their service or signed up for the new Lightwave fiber service in Alabama and in three towns in Maine. The Company also continues to increase the speed of its Lightwave FTTP service, now offering gigabit speeds throughout its entire FTTP service area. 

In the southern part of its Alabama territory in and around Oneonta, Alabama, where Otelco is also the cable provider, the Company completed upgrades to its hybrid fiber coax network to DOCSIS 3.1. As a result, all Otelco cable customers now have access to gigabit internet speeds, like the speeds available over its FTTP network.

Commenting on these developments, Richard Clark, President and Chief Executive Officer, pointed out that the Company has significantly increased available internet speeds in the last two years. Expected additional expansion of its fiber network in 2021 will support further improvement for existing customers and offer similar opportunities to new customers. Clark said, "The hard work of our team to increase the availability of gigabit speeds in the communities we serve has been well received by our customers. While gigabit service is probably not necessary for most customers today, the higher speeds now available through our network improvements allow customers to support multiple devices simultaneously as more work and study at home requirements are instituted. Importantly, our network is positioned to also provide for future increased customer requirements."

At the end of fourth quarter 2020, the Company reported cash of $8.4 million compared to $3.1 million at the end of 2019. The Company has completed its application for forgiveness of the $3.0 million loan received in April 2020 under the Paycheck Protection Program ("PPP") and provided the Small Business Administration all supporting documentation. Total assets increased from $120.7 million at the end of 2019 to $127.4 million at the end of 2020. During 2020, the Company invested $10.0 million in improving its network and operational capabilities, compared to $12.4 million during 2019. The Company's leverage ratio (as defined in its credit agreement) of consolidated indebtedness to Consolidated EBITDA was 3.16 at the end of 2020, reflecting the use of additional cash generated from business operations to improve its network. The Company will make an Excess Cash Flow principal payment of $3.1 million at the end of first quarter 2021. Its ratio of debt, net of cash (excluding the PPP loan), to Consolidated EBITDA was 2.89. The interest rate margin on its loan is 4.50% and the current and projected one-month LIBOR rates are projected to remain below 1.0% during 2021.

"Otelco is committed to meeting our customers' need for increased internet speed in the face of the risks and uncertainties brought on by the COVID-19 pandemic and the corresponding changes in daily routines," noted Clark. "We expect further changes in customer requirements as vaccines are distributed, and our dedicated team will adjust to meet new needs as they arise. We saw our customer base increase by 1.1% in 2020 compared to a loss of 3.7% for the 2019 calendar year. At the end of 2020, our projects have brought gigabit internet capability to more than 27% of our market, while increasing available speeds to 50 and 75 mbps to another 9% of our market with VDSL. Approximately 21% of the Otelco market has access to speeds ranging from 25 mbps to 75 mbps. Our objective remains to improve service capabilities and add new customers to the Otelco family of companies through investment in our broadband networks and delivering faster internet service."

On July 27, 2020, Otelco announced that it had entered into a definitive agreement to be acquired by affiliates formed by Oak Hill Capital, a private equity firm, for $11.75 per share in cash, or a total equity purchase price of $40.6 million (the "Transaction"). On October 9, 2020, at a special meeting of Otelco's stockholders, the stockholders approved a proposal to adopt the definitive agreement. The Transaction is not subject to financing contingencies. The press release, proxy statement and related Securities and Exchange Commission (the "SEC") filing are available in the Investors section of the Company's website at www.Otelco.com. All state regulatory review and approval processes have been initiated. Once all regulatory approvals are received, the transaction will close. The transaction is now expected to close in the second quarter of 2021.

Otelco has scheduled a conference call, which will be broadcast live over the internet, on Wednesday, March 17, 2021, at 11:30 a.m. (Eastern Time). To participate in the call, participants should dial (856) 344-9206 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.Otelco.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.Otelco.com for 30 days. A two-week telephonic replay may also be accessed by calling (719) 457-0820 and entering the Confirmation Code update 2033224.

Fourth Quarter and Annual 2020 Financial Summary
(Dollars in thousands, except per share amounts)
 Three Months Ended December 31, Change
  2020   2019  Amount Percent 
Revenues$15,507  $15,591  $(84)  (0.5)%
Operating income$2,802  $3,531  $(729)  (20.6)%
Interest expense$(925) $(1,227) $(302)  (24.6)%
Net income available to stockholders$1,430  $1,979  $(549)  (27.7)%
Basic net income per share$0.42  $0.58  $(0.16)  (27.6)%
Diluted net income per share$0.42  $0.58  $(0.16)  (27.6)%
Consolidated EBITDA$5,021  $5,582  $(561)  (10.1)%
Capital expenditures$1,971  $4,845  $(2,874)  (59.3)%
 Twelve Months Ended December 31, Change
  2020   2019  Amount Percent 
Revenues$61,971  $62,766  $(795)  (1.3)%
Operating income$11,542  $14,844  $(3,302)  (22.2)%
Interest expense$(4,025) $(5,271) $(1,246)  (23.6)%
Net income available to stockholders$6,307  $7,796  $(1,489)  (19.1)%
Basic net income per share$1.84  $2.28  $(0.44)  (19.3)%
Diluted net income per share$1.83  $2.27  $(0.44)  (19.4)%
Consolidated EBITDA$20,932  $23,410  $(2,478)  (10.6)%
Capital expenditures$10,036  $12,440  $(2,404)  (19.3)%

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, digital high-speed data lines, transport services, network access, cable television and other related services. Otelco is among the top 20 largest local exchange carriers in the United States. Otelco operates eleven incumbent telephone companies serving rural markets, or rural local exchange carriers. It also provides competitive retail and wholesale communications services and technology consulting, managed services and private/hybrid cloud hosting services through several subsidiaries. For more information, visit the Company's website at www.Otelco.com.

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, some of which are listed below, 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, including statements regarding the Company's response to the COVID-19 pandemic, network upgrade plans and customer growth. Important risk factors related to the Transaction that may cause such differences include: (1) the occurrence of any event, change or other circumstances that could give rise to the termination of the definitive agreement, including a termination under circumstances that could require the Company to pay a termination fee; (2) Oak Hill's failure to obtain the necessary equity and debt financing or the failure of that financing to be sufficient to complete the Transaction; (3) the inability to complete the Transaction due to the failure to satisfy certain conditions to completion of the Merger, including the receipt of required regulatory approvals, or for any other reason; (4) risks that the Transaction disrupts current plans and operations, including possible adverse effect on the Company's business relationships, diversion of management's attention, and the potential difficulties in employee retention as a result of the Transaction; (5) the outcome of any legal proceedings, regulatory proceedings or enforcement matters that have been or may be instituted against the Company or others relating to the Transaction; (6) the definitive agreement's contractual restrictions on the conduct of the Company's business prior to the completion of the Transaction; and (7) the possible adverse effect on the Company's business and the price of its common stock if the Transaction is not consummated in a timely manner or at all. 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 SEC. The Company assumes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.

(in thousands, except share par value and share amounts) 
   As of December 31,  
    2020  2019  
Current assets      
 Cash and cash equivalents $8,445 $3,113  
 Accounts receivable:      
    Due from subscribers, net of allowance for doubtful      
      accounts of $232 and $209, respectively  3,881  3,908  
    Other  2,373  1,905  
 Materials and supplies  3,615  3,954  
 Prepaid expenses  1,274  1,624  
 Other assets  187  251  
  Total current assets  19,775  14,755  
Property and equipment, net  59,386  57,284  
Goodwill  44,976  44,976  
Intangible assets, net  158  530  
Operating lease right-of-use asset  1,539  1,146  
Investments  1,454  1,477  
Other assets  116  577  
  Total assets $127,404 $120,745  
                                             Liabilities and Stockholders' Equity      
Current liabilities      
 Accounts payable $1,498 $1,525  
 Accrued expenses  5,643  4,861  
 Advance billings and payments  1,680  1,618  
 Customer deposits  26  44  
 Current operating lease liability  375  296  
 Current maturity of long-term notes payable, net of debt issuance costs  6,946  3,929  
  Total current liabilities  16,168  12,273  
Deferred income taxes  21,514  21,521  
Advance billings and payments  1,958  2,157  
Other liabilities  276  12  
Long-term operating lease liability  1,164  850  
Paycheck Protection Program notes payable  2,975  -  
Long-term notes payable, less current maturities and debt issuance costs 58,094  65,172  
  Total liabilities  102,149  101,985  
Stockholders' equity      
 Class A Common Stock, $.01 par value-authorized 10,000,000 shares;    
    issued and outstanding 3,421,794 and 3,412,805 shares, respectively  34  34  
 Additional paid in capital  4,463  4,275  
 Retained earnings  20,758  14,451  
  Total stockholders' equity  25,255  18,760  
  Total liabilities and stockholders' equity $127,404 $120,745  

(in thousands, except share and per share amounts)
   Three Months Ended December 31, Twelve Months Ended December 31, 
    2020   2019   2020   2019  
Revenues $15,507  $15,591  $61,971  $62,766  
Operating expenses         
 Cost of services  8,016   7,445   30,251   30,075  
 Selling, general and administrative expenses  2,543   2,669   11,869   10,204  
 Depreciation and amortization  2,146   1,946   8,309   7,643  
  Total operating expenses  12,705   12,060   50,429   47,922  
 Income from operations  2,802   3,531   11,542   14,844  
Other income (expense)         
 Interest expense  (925)  (1,227)  (4,025)  (5,271) 
 Other income  7   11   820   616  
  Total other expenses  (918)  (1,216)  (3,205)  (4,655) 
Income before income tax expense  1,884   2,315   8,337   10,189  
Income tax expense  (454)  (336)  (2,030)  (2,393) 
Net income $1,430  $1,979  $6,307  $7,796  
Weighted average number of common shares outstanding:       
 Basic  3,421,794   3,412,805   3,421,794   3,412,805  
 Diluted  3,440,772   3,430,453   3,440,772   3,430,453  
Basic net income per common share $0.42  $0.58  $1.84  $2.28  
Diluted net income per common share $0.42  $0.58  $1.83  $2.27  

(in thousands)
    Years Ended December 31, 
     2020   2019  
Cash flows from operating activities:    
 Net income$6,307  $7,796  
 Adjustments to reconcile net income to cash flows provided by operating activities:   
  Depreciation 7,994   7,344  
  Amortization 315   299  
  Amortization of loan costs 502   452  
  Non-cash lease amortization 409   265  
  (Benefit )provision for deferred income taxes (23)  1,308  
  Excess tax benefit from stock-based compensation 16   68  
  Provision for uncollectible accounts receivable 371   214  
  Stock-based compensation 208   254  
  Gain on the sale of property (211)  -  
  Changes in operating assets and liabilities    
   Accounts receivable (748)  (196) 
   Materials and supplies 339   (1,152) 
   Prepaid expenses and other assets 811   (860) 
   Accounts payable and accrued expenses 755   1  
   Advance billings and payments (137)  (73) 
   Other liabilities (163)  (270) 
   Net cash from operating activities  16,745   15,450  
Cash flows used in investing activities:    
 Acquisition and construction of property and equipment (10,036)  (12,440) 
 Proceeds from the sale of property 234   -  
 Retirement of investment (3)  (4) 
   Net cash from investing activities  (9,805)  (12,444) 
Cash flows used in financing activities:    
 Loan origination costs (213)  (12) 
 Principal repayment of long-term notes payable (4,350)  (4,350) 
 Interest rate cap -   4  
 Tax withholdings paid on behalf of employees for restricted stock units (20)  (192) 
 Proceeds from Paycheck Protection Program loan 2,975   -  
   Net cash used in investing activities  (1,608)  (4,550) 
Net increase (decrease) in cash and cash equivalents 5,332   (1,544) 
Cash and cash equivalents, beginning of period 3,113   4,657  
Cash and cash equivalents, end of period$8,445  $3,113  
Supplemental disclosures of cash flow information:    
 Interest paid$3,502  $4,834  
 Income taxes paid$884  $1,993  
 Issuance of Class A common stock$-  $-  

CONSOLIDATED EBITDA – Consolidated EBITDA is defined as consolidated net income plus consolidated net interest expense, depreciation and amortization, income taxes and certain other fees, expenses and non-cash charges reducing consolidated net income. Consolidated EBITDA is a supplemental measure of the Company's performance that is not required by, or presented in accordance with, accounting principles generally accepted in the United States ("GAAP"). Consolidated EBITDA corresponds to the definition of Consolidated EBITDA in the Company's credit facility. The lenders under the Company's credit facility utilize this measure to determine compliance with credit facility requirements. The Company uses Consolidated EBITDA as an operational performance measurement to focus attention on the operational generation of cash, which is used for reinvestment into the business; to repay its debt and to pay interest on its debt; to pay income taxes; and for other corporate requirements. The Company reports Consolidated EBITDA to allow current and potential investors to understand this performance metric and because the Company believes that it provides current and potential investors with helpful information with respect to the Company's operating performance. However, Consolidated EBITDA should not be considered as an alternative to net income or any other performance measures derived in accordance with GAAP. The Company's presentation of Consolidated EBITDA may not be comparable to similarly titled measures used by other companies.

Reconciliation of Consolidated EBITDA to Net Income     
  Three Months Ended December 31, Twelve Months Ended December 31, 
   2020   2019   2020   2019  
Net income$1,430  $1,979  $6,307  $7,796  
Add:Depreciation 2,055   1,879   7,994   7,344  
 Interest expense less interest income 799   1,112   3,504   4,803  
 Interest expense - amortize loan cost 122   110   502   452  
 Income tax expense 454   336   2,030   2,393  
 Amortization - intangibles 91   67   315   299  
 Stock-based compensation 52   82   208   254  
 Loan fees 18   17   72   69  
Consolidated EBITDA$5,021  $5,582  $20,932  $23,410  

LEVERAGE RATIO – The Company uses the ratio of debt, net of cash, to Consolidated EBITDA for the last twelve months as an operational performance measurement of Otelco's leverage. Such ratio is a supplemental measure of the Company's performance that is not required by, or presented in accordance with, GAAP. The Company reports such ratio to allow current and potential investors to understand this performance metric. The Company also believes that it provides current and potential investors with helpful information with respect to the Company's operating performance, including the Company's ability to generate earnings sufficient to service its debt, and enhances understanding of the Company's financial performance and highlights operational trends. However, such ratio should not be considered as an alternative to net income or any other performance measures derived in accordance with GAAP. The Company's presentation of such ratio may not be comparable to similarly titled ratios used by other companies. The table below provides the calculation of such ratio as of December 31, 2020. In addition, its credit agreement measures the ratio of debt to Consolidated EBITDA for the last twelve months as a covenant under the agreement.

 Ratio of Debt, Net of Cash, to Consolidated EBITDA
 as of December 31, 2020
 Notes payable (excluding PPP loan) $65,040 
 Debt issuance costs  822 
  Notes outstanding $65,862 
 Less cash (excluding PPP loan)  (5,470)
 Notes outstanding, net of cash $60,392 
 Consolidated EBITDA for the  
  last twelve months $20,932 
 Total leverage ratio, net of cash  2.89 

Contact: Curtis Garner  
  Chief Financial Officer
  Otelco Inc.

Posted In: EarningsPress Releases

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