Otelco, Inc. : Otelco Reports Fourth Quarter and Year 2011 Results
02/21/2012| 05:10pm US/Eastern
Recommend:
0
Otelco Inc. (NASDAQ: OTT) (TSX: OTT.un), a wireline telecommunications
services provider in Alabama, Maine, Massachusetts, Missouri, New
Hampshire, Vermont and West Virginia, today announced results for its
fourth quarter and year ended December 31, 2011. Key highlights for
Otelco include:
Total revenues of $25.6 million for fourth quarter and $101.8 million
for 2011.
Operating income of $5.9 million for fourth quarter and $24.6 million
for 2011.
Adjusted EBITDA (as defined below) of $10.9 million for fourth quarter
and $45.3 million for 2011.
"We completed our acquisition of Shoreham Telephone Company during
fourth the quarter, expanding our RLEC and future CLEC presence in New
England," said Mike Weaver, President and Chief Executive Officer of
Otelco. "The integration process is underway and should be completed by
the end of the first quarter. We expect the Shoreham acquisition to be
accretive to adjusted EBITDA in 2012.
"Our fourth quarter performance was adversely affected by approximately
$0.4 million from non-operating items, including Shoreham deal expenses,
write-off of obsolete inventory and RLEC cost study adjustments. On an
annual basis, after a particularly strong performance in 2010, delays
experienced in adding eight new CLEC collocation sites in Maine and New
Hampshire dampened 2011 results. Our CLEC markets in New England have
become more competitive, including downward pressure on market pricing
trends," continued Weaver. "In response to this more difficult sales
climate, we have made changes in our sales organization and leadership
and adjusted our product offering to better position us for growth in
2012.
"The recent FCC access reform order became effective in 2012 and, while
the impact of the changes remain unclear, our mix of regulated and
non-regulated businesses means we may not have significant exposure to
the phase out of the Universal Service Fund," added Weaver. "Our
existing senior debt of $162.0 million has an October 2013 maturity
date. We may consider refinancing this debt prior to its maturity if
favorable market conditions allow us to do so. Based on the terms we see
in completed refinancing packages in our industry, we would anticipate
the terms of refinanced senior debt to include lower leverage and higher
amortization than our existing senior debt.
"We believe that our extensive broadband network is an important element
of the network fabric of the future. We are enhancing speeds and options
while remaining price competitive in our markets," Weaver concluded. "We
remain focused on delivering value for our customers and our
shareholders. The Board declared and we paid our twenty-eighth
consecutive IDS dividend last quarter."
Distribution to Income Deposit Security Holders
Each quarter, the Board evaluates the Company's dividend policy and the
declaration of dividends during its normally scheduled meeting. For this
quarter, the next scheduled Board meeting is on February 27, 2012. The
scheduled interest and any dividend declared will be paid on March 30,
2012, to holders of record as of the close of business on March 15,
2012. The interest payment will cover the period from December 30, 2011
through March 29, 2012. Given its recent acquisition of Shoreham
Telephone, the Company is currently performing an earnings and profits
study to determine how 2012 dividends should be classified for
shareowner tax purposes. It is anticipated that a portion of the
dividends will be considered qualified dividends and the balance will be
treated as a return of capital for tax purposes. The Company has made
twenty-eight successive quarterly distributions of dividends and
interest since its IDS units were originally offered to the public in
December 2004.
Fourth Quarter 2011 Financial Summary
(Dollars in thousands, except per share amounts)
(Unaudited)
Three Months Ended December 31,
Change
2010
2011
Amount
Percent
Revenues
$
25,950
$
25,648
$
(302
)
(1.2
)
%
Operating income
$
6,761
$
5,859
$
(902
)
(13.3
)
%
Interest expense
$
(6,258
)
$
(6,184
)
$
(74
)
(1.2
)
%
Net income available to stockholders
$
596
$
24
$
(572
)
*
%
Basic net income per share
$
0.04
$
0.00
$
(0.04
)
*
Diluted net income per share
$
0.04
$
0.00
$
(0.04
)
*
Adjusted EBITDA(a)
$
12,780
$
10,909
$
(1,871
)
(14.6
)
%
Capital expenditures
$
3,782
$
2,100
$
(1,682
)
(44.5
)
%
* Not a meaningful calculation
Year Ended December 31,
Change
2010
2011
Amount
Percent
Revenues
$
104,400
$
101,844
$
(2,556
)
(2.4
)
%
Operating income
$
26,369
$
24,630
$
(1,739
)
(6.6
)
%
Interest expense
$
(24,747
)
$
(24,776
)
$
29
0.1
%
Net income available to stockholders
$
691
$
2,197
$
1,506
*
%
Basic net income per share
$
0.05
$
0.17
$
0.12
*
Diluted net income per share
$
0.05
$
0.17
$
0.12
*
Adjusted EBITDA(a)
$
50,672
$
45,302
$
(5,370
)
(10.6
)
%
Capital expenditures
$
10,225
$
10,548
$
323
3.2
%
* Not a meaningful calculation
Reconciliation of Adjusted EBITDA to Net Income
Three Months Ended December 31,
Year Ended December 31,
2010
2011
2010
2011
Net income
$
596
$
24
$
691
$
2,197
Add: Depreciation
3,673
3,140
13,838
11,891
Interest expense - net of premium
5,916
5,842
23,385
23,408
Interest expense - amortize loan cost
342
342
1,361
1,368
Income tax expense
473
214
610
250
Change in fair value of derivatives
(543
)
(589
)
879
(2,230
)
Loan fees
19
19
76
76
Amortization - intangibles
2,304
1,917
9,832
8,342
Adjusted EBITDA
$
12,780
$
10,909
$
50,672
$
45,302
(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
Annual
As of
% Change
% Change
December 31,
September 30,
December 31,
from
2010
2011?²?
2011
2011?²?
September 30, 2011
2010-2011
Otelco access line equivalents(1)
99,639
102,378
97,958
102,378
4.5
%
2.7
%
RLEC and other services:
Voice access lines
45,461
46,202
43,444
46,202
6.3
%
1.6
%
Data access lines
20,852
22,904
21,162
22,904
8.2
%
9.8
%
Access line equivalents(1)
66,313
69,106
64,606
69,106
7.0
%
4.2
%
Cable television customers
4,227
4,201
4,156
4,201
1.1
%
(0.6
)
%
Satellite television customers
125
226
224
226
0.9
%
80.8
%
Additional internet customers
6,975
5,414
5,654
5,414
(4.2
)
%
(22.4
)
%
RLEC dial-up
393
301
274
301
9.9
%
(23.4
)
%
Other dial-up
4,300
2,797
3,085
2,797
(9.3
)
%
(35.0
)
%
Other data lines
2,282
2,316
2,295
2,316
0.9
%
1.5
%
CLEC:
Voice access lines
29,944
30,189
30,145
30,189
0.1
%
0.8
%
Data access lines
3,382
3,083
3,207
3,083
(3.9
)
%
(8.8
)
%
Access line equivalents(1)
33,326
33,272
33,352
33,272
(0.2
)
%
(0.2
)
%
Wholesale network connections
149,043
157,144
155,691
157,144
0.9
%
5.4
%
For the Years Ended
Annual Change
December 31,
2010-2011
2010
2011?²?
Amount
Percentage
Total Revenues (in millions):
$
104.4
$
101.8
$
(2.6
)
(2.5
)
%
RLEC
$
58.1
$
57.4
$
(0.7
)
(1.2
)
%
CLEC
$
46.3
$
44.4
$
(1.9
)
(4.1
)
%
(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) 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.
FINANCIAL DISCUSSION FOR FOURTH QUARTER 2011 (unaudited):
All financial information includes the acquisition
of Shoreham Telephone Company Inc. ("Shoreham") on and as of October 14,
2011 and for the period from October 14, 2011 through December 31, 2011.
Revenue
Total revenues decreased 1.2% in the three months ended December 31,
2011, to $25.6 million from $25.9 million in the three months ended
December 31, 2010. CLEC revenue gains for local services and network
access were offset by lower RLEC revenues.
`
Three Months Ended December 31,
Change
2010
2011
Amount
Percent
(Dollars in Thousands)
Local services
$
12,066
$
11,802
$
(264
)
(2.2
)
%
Network access
8,316
8,143
(173
)
(2.1
)
Cable television
717
751
34
4.7
Internet
3,456
3,591
135
3.9
Transport services
1,395
1,361
(34
)
(2.4
)
Total
$
25,950
$
25,648
$
(302
)
(1.2
)
Local services revenue decreased 2.2% in the fourth quarter of 2011 to
$11.8 million from $12.1 million in the quarter ended December 31, 2010.
Shoreham added just under $0.2 million which was offset by lower RLEC
basic services revenue of $0.3 million and lower CLEC revenue of $0.1.
Network access revenue decreased 2.1% in the fourth quarter of 2011 to
$8.1 million from $8.3 million in the quarter ended December 31, 2010.
Shoreham added $0.3 million which was offset by lower access revenue
related to RLEC subscriber usage and lower NECA settlements accounted of
$0.5 million, including 2011 cost study estimates. Cable television
revenue in the three months ended December 31, 2011, increased 4.7% to
$0.8 million in fourth quarter 2011 compared to just over $0.7 million
in the same period in 2010. Growth in digital family packages and IPTV
of $0.1 million was partially offset by less than a $0.1 million
decrease in basic cable services. Internet revenue for the fourth
quarter 2011 increased 3.9% to $3.6 million from $3.5 million in the
quarter ended December 31, 2010. Shoreham accounted for $0.2 million
which was partially offset by the loss of dial-up subscribers. Transport
services revenue decreased 2.4% to remain at $1.4 million in the three
months ended December 31, 2011 and 2010. The reduction reflects small
pricing changes for contract renewals.
Operating Expenses
Operating expenses in the three months ended December 31, 2011,
increased 3.1% to $19.8 million from $19.2 million in the three months
ended December 31, 2010. Cost of services and products increased 13.3%
to $11.2 million in the three months ended December 31, 2011, from $9.9
million in the three months ended December 31, 2010. The one-time
benefits of the settlement of the FairPoint bankruptcy and carrier
claims in 2010; Shoreham costs of service of $0.3 million; increases in
cable programming and internet capacity of $0.2 million; and other
operational costs of $0.2 million were partially offset by lower toll
costs on $0.3 million. Selling, general and administrative expenses
increased 6.0% to $3.5 million in the three months ended December 31,
2011, from $3.3 million in the three months ended December 31, 2010. The
increase reflects the Shoreham expense (including acquisition expenses)
of $0.3 million and benefits from carrier settlements in 2010 of $0.4
million more than offset by lower management expenses of $0.5 million.
Depreciation and amortization for fourth quarter 2011 decreased 15.4% to
$5.1 million from $6.0 million in the fourth quarter 2010. An increase
for the acquisition of Shoreham of $0.2 million was 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. The remaining decrease of
$0.8 million reflected lower depreciation of plant assets in our
regulated properties.
Interest Expense
Interest expense decreased 1.2% to $6.2 million in the quarter ended
December 31, 2011, from $6.3 million a year ago. The decrease in
interest expense was driven by a lower outstanding balance on our senior
long-term notes payable.
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 cumulative impact on net income, Adjusted EBITDA or
operations. The value of the swaps increased $0.6 million in fourth
quarter 2011 compared to an increase of $0.5 million in the same period
of 2010.
Adjusted EBITDA
Adjusted EBITDA for the three months ended December 31, 2011, was $10.9
million compared to $12.8 million for the same period in 2010 and $11.1
million in the third quarter of 2011. See financial tables for a
reconciliation of Adjusted EBITDA to net income.
Balance Sheet
As of December 31, 2011, the Company had cash and cash equivalents of
$12.4 million compared to $18.2 million at the end of 2010. The Company
used $5.0 million in cash to acquire Shoreham Telephone Company Inc.
during fourth quarter. Total long-term notes payable was reduced to
$271.1 million, reflecting a voluntary prepayment of $0.4 million made
in May 2011. The fourth 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 December 30, 2011. This represents the
twenty-eighth consecutive quarterly distribution since going public in
December 2004.
Capital Expenditures
Capital expenditures were $2.1 million for the quarter as the Company
continues to grow and invest in its infrastructure. The Company is
expanding its CLEC capabilities in Maine and New Hampshire; enhancing
DSL and wireless broadband capacity; and expanding IPTV capability in
Alabama.
Fourth Quarter Earnings Conference Call
Otelco has scheduled a conference call, which will be broadcast live
over the internet, on Wednesday, February 22, 2012, at 11:30 a.m. ET. To
participate in the call, participants should dial (719) 325-2453 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 3616440.
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 102,000 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)
As of
As of
December 31,
December 31,
2010
2011
Assets
Current assets
Cash and cash equivalents
$
18,226,374
$
12,393,792
Accounts receivable:
Due from subscribers, net of allowance for doubtful accounts of
$230,752 and $260,568, respectively
4,406,257
4,355,632
Unbilled receivables
2,161,277
2,183,465
Other
4,299,088
5,449,074
Materials and supplies
1,817,311
1,780,820
Prepaid expenses
1,305,028
1,328,475
Deferred income taxes
626,267
726,310
Total current assets
32,841,602
28,217,568
Property and equipment, net
63,887,213
65,881,975
Goodwill
188,190,078
188,954,840
Intangible assets, net
25,934,042
20,545,691
Investments
1,967,095
1,943,805
Deferred financing costs
5,757,825
4,485,324
Deferred income taxes
4,415,097
7,454,443
Prepaid expenses
106,685
238,386
Other assets
77,261
2,281
Total assets
$
323,176,898
$
317,724,313
Liabilities and Stockholders' Deficit
Current liabilities
Accounts payable
$
768,055
$
1,490,717
Accrued expenses
7,926,954
6,034,104
Advance billings and payments
1,595,133
1,590,689
Deferred income taxes
353,285
353,285
Customer deposits
172,479
143,657
Total current liabilities
10,815,906
9,612,452
Deferred income taxes
42,512,576
48,112,384
Interest rate swaps
2,471,331
241,438
Advance billings and payments
656,968
615,584
Other liabilities
368,349
403,823
Long-term notes payable
271,595,855
271,106,387
Total liabilities
328,420,985
330,092,068
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
Additional paid in capital
921,718
-
Retained deficit
(6,298,019
)
(12,499,969
)
Total stockholders' deficit
(5,244,087
)
(12,367,755
)
Total liabilities and stockholders' deficit
$
323,176,898
$
317,724,313
OTELCO INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
Twelve Months Ended
December 31,
December 31,
2010
2011
2010
2011
Revenues
$
25,949,837
$
25,647,760
$
104,400,219
$
101,843,567
Operating expenses
Cost of services and products
9,912,225
11,233,414
41,286,418
43,995,953
Selling, general and administrative expenses
3,299,539
3,498,924
13,074,794
12,984,686
Depreciation and amortization
5,977,344
5,056,804
23,670,243
20,232,833
Total operating expenses
19,189,108
19,789,142
78,031,455
77,213,472
Income from operations
6,760,729
5,858,618
26,368,764
24,630,095
Other income (expense)
Interest expense
(6,257,673
)
(6,184,333
)
(24,746,542
)
(24,776,123
)
Change in fair value of derivatives
542,764
588,861
(878,518
)
2,229,893
Other income
23,171
(25,204
)
556,820
363,482
Total other expenses
(5,691,738
)
(5,620,676
)
(25,068,240
)
(22,182,748
)
Income before income tax
1,068,991
237,942
1,300,524
2,447,347
Income tax expense
(472,974
)
(213,916
)
(609,809
)
(249,929
)
Net income available to common stockholders
$
596,017
$
24,026
$
690,715
$
2,197,418
Weighted average shares outstanding:
Basic
13,221,404
13,221,404
12,985,629
13,221,404
Diluted
13,221,404
13,221,404
13,221,404
13,221,404
Basic net income (loss) per share
$
0.04
$
-
$
0.05
$
0.17
Diluted net income (loss) per share
$
0.04
$
-
$
0.05
$
0.17
Dividends declared per share
$
0.18
$
0.18
$
0.71
$
0.71
OTELCO INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
2010
2011
Cash flows from operating activities:
Net income
$
690,715
$
2,197,418
Adjustments to reconcile net income to cash flows from operating
activities:
Depreciation
13,837,560
11,891,474
Amortization
9,832,683
8,341,359
Amortization of debt premium
(92,307
)
(103,640
)
Amortization of loan costs
1,361,351
1,368,095
Change in fair value of derivatives
878,518
(2,229,893
)
Provision for deferred income taxes
428,098
226,962
Provision for uncollectible revenue
141,474
914,555
Changes in assets and liabilities; net of assets and liabilities
acquired:
Accounts receivables
427,432
(1,590,110
)
Material and supplies
152,655
173,350
Prepaid expenses and other assets
(69,464
)
(117,356
)
Income tax receivable
389,486
-
Accounts payable and accrued liabilities
(1,657,758
)
(1,423,589
)
Advance billings and payments
(111,673
)
(116,732
)
Other liabilities
202,751
(1,756
)
Net cash from operating activities
26,411,521
19,530,137
Cash flows from investing activities:
Acquisition and construction of property and equipment
(10,225,229
)
(10,547,705
)
Purchase of investment
(1,708
)
(2,220
)
Proceeds from retirement of investment
1,067
-
Wholesale customer acquisition
-
-
Payments for the purchase of Shoreham Telephone, net of cash acquired
-
(5,010,284
)
Deferred charges/acquisition
(1,845
)
-
Net cash used in investing activities
(10,227,715
)
(15,560,209
)
Cash flows used in financing activities:
Cash dividends paid
(9,225,091
)
(9,321,086
)
Direct cost of exchange of Class B shares for Class A shares
(194,053
)
-
Loan origination costs
(155,160
)
(95,596
)
Repayment of long-term notes payable
(6,114,172
)
(385,828
)
Net cash used in financing activities
(15,688,476
)
(9,802,510
)
Net increase (decrease) in cash and cash equivalents
495,330
(5,832,582
)
Cash and cash equivalents, beginning of period
17,731,044
18,226,374
Cash and cash equivalents, end of period
$
18,226,374
$
12,393,792
Supplemental disclosures of cash flow information:
Interest paid
$
23,484,474
$
24,130,675
Income taxes paid (received)
$
(265,275
)
$
90,517
Otelco Inc. Curtis Garner, 205-625-3571 Chief Financial Officer Curtis@otelcotel.com
Recommend:
