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Otelco Reports Third Quarter 2010 Results

^{Published on 2010-11-02 14:12:07 - Market Wire}
 

 - Total revenues of $26.1 million for third quarter 2010. - Operating income of $6.7 million for third quarter 2010. - Adjusted EBITDA (as defined below) of $12.7 million for third quarter 2010. 

 Distribution to Income Deposit Security Holders ----------------------------------------------- 

 Third Quarter 2010 Financial Summary (Dollars in thousands, except per share amounts) Three Months Ended Change September 30, -------------------- 2009 2010 Amount Percent ------------------------------------------------------------------------- Revenues $ 26,403 $ 26,145 $ (258) (1.0)% Operating income $ 6,209 $ 6,728 $ 519 8.4% Interest expense $ (6,469) $ (6,321) $ (148) (2.3)% Net income (loss) available to stockholders $ (1,595) $ 63 $ 1,658 * Basic net income (loss) per share $ (0.13) $ 0.00 $ 0.13 * Diluted net income (loss) per share $ (0.13) $ 0.00 $ 0.13 * Adjusted EBITDA(a) $ 12,784 $ 12,671 $ (113) (0.9)% Capital expenditures $ 2,815 $ 2,357 $ (458) (16.3)% * Not a meaningful calculation Nine Months Ended Change September 30, -------------------- 2009 2010 Amount Percent ------------------------------------------------------------------------- Revenues $ 77,700 $ 78,450 $ 750 1.0% Operating income $ 16,390 $ 19,608 $ 3,218 19.6% Interest expense $ (19,515) $ (18,489) $ (1,026) (5.3)% Net income (loss) available to stockholders $ (2,918) $ 95 $ 3,013 * Basic net income (loss) per share $ (0.23) $ 0.01 $ 0.24 * Diluted net income (loss) per share $ (0.23) $ 0.01 $ 0.24 * Adjusted EBITDA(a) $ 36,637 $ 37,891 $ 1,254 3.4% Capital expenditures $ 6,392 $ 6,444 $ 52 0.8% * Not a meaningful calculation Reconciliation of Adjusted EBITDA to Net Income (Loss) ------------------------------------------------------ Three Months Ended Nine Months Ended September 30, September 30, 2009 2010 2009 2010 ------------------------------------------------------------------------- Net income (loss) $ (1,595) $ 63 $ (2,918) $ 95 Add: Depreciation 3,417 3,264 10,594 10,164 Interest expense - net of premium 5,662 5,979 17,332 17,470 Interest expense - caplet cost 469 - 1,169 - Interest expense - amortize loan cost 338 342 1,014 1,019 Income tax expense (benefit) (144) 136 (1,109) 137 Change in fair value of derivatives 1,509 359 1,170 1,421 Loan fees 19 19 57 57 Amortization - intangibles 3,109 2,509 9,328 7,528 ------------ ------------ ------------ ------------ Adjusted EBITDA $ 12,784 $ 12,671 $ 36,637 $ 37,891 ------------ ------------ ------------ ------------ (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 -------------------------------------- At and for the At and for the Year Ended Three Months Ended % Change ----------------- -------------------------- --------- June 30- December 31, March June Sept. Sept. 30 2008 2009 31, 2010 30, 2010 30, 2010 2010 -------- -------- -------- -------- -------- -------- Otelco access line equivalents(1) 100,043 100,356 100,522 100,126 100,872 0.7% RLEC and other services: Voice access lines 51,530 48,215 47,552 46,788 46,359 (0.9)% Data access lines 18,709 20,066 20,614 20,703 20,890 0.9% -------- -------- -------- -------- -------- Access line equivalents(1) 70,239 68,281 68,166 67,491 67,249 (0.4)% Cable television customers 4,082 4,195 4,239 4,205 4,248 1.0% Additional internet customers 11,864 9,116 8,528 8,048 7,483 (7.0)% RLEC dial-up 1,183 786 656 551 447 (18.9)% Other dial-up 9,213 6,439 5,765 5,340 4,804 (10.0)% Other data lines 1,468 1,891 2,107 2,157 2,232 3.5% Revenues (dollars in millions) $ 54.4 $ 61.3 $ 14.7 $ 14.4 $ 14.5 0.7% CLEC: Voice access lines 26,558 28,647 28,889 29,070 30,118 3.6% Data access lines 3,246 3,428 3,467 3,565 3,505 (1.7)% -------- -------- -------- -------- -------- Access line equivalents(1) 29,804 32,075 32,356 32,635 33,623 3.0% Wholesale network connections 98,187 132,324 137,318 142,837 145,300 1.7% Revenues (dollars in millions) $ 22.7 $ 42.5 $ 11.1 $ 12.1 $ 11.6 (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). FINANCIAL DISCUSSION FOR THIRD QUARTER 2010: Revenue ------- 

 Operating Expenses ------------------ 

 Interest Expense ---------------- 

 Change in Fair Value of Derivatives ----------------------------------- 

 Adjusted EBITDA --------------- 

 Balance Sheet ------------- 

 Capital Expenditures -------------------- 

 Third Quarter Earnings Conference Call -------------------------------------- 

 OTELCO INC. CONSOLIDATED BALANCE SHEETS ------------------------------------------------------------------------- December 31, September 30, 2009 2010 -------------- ------------- Assets (unaudited) Current assets Cash and cash equivalents $ 17,731,044 $ 23,476,300 Accounts receivable: Due from subscribers, net of allowance for doubtful accounts of $473,572 and $285,687, respectively 4,650,909 4,850,888 Unbilled receivables 2,444,979 2,450,710 Other 3,200,945 4,299,743 Materials and supplies 1,969,966 1,764,132 Prepaid expenses 1,342,249 1,085,660 Income tax receivable 389,486 - Deferred income taxes 744,531 744,531 -------------- ------------- Total current assets 32,474,109 38,671,964 -------------- ------------- Property and equipment, net 69,028,973 64,161,637 Goodwill 188,190,078 188,190,078 Intangible assets, net 34,218,115 27,847,650 Investments 1,991,158 1,972,026 Deferred financing costs 6,964,015 6,099,849 Deferred income taxes 4,482,430 4,482,430 Prepaid expenses - 49,671 Other assets 179,325 102,844 -------------- ------------- Total assets $337,528,203 $331,578,149 -------------- ------------- -------------- ------------- Liabilities and Stockholders' Equity (Deficit) Current liabilities Accounts payable $ 3,145,728 $ 2,177,787 Accrued expenses 6,167,023 6,816,482 Advance billings and payments 1,665,422 1,636,601 Deferred income taxes 394,850 394,850 Customer deposits 172,109 182,359 -------------- ------------- Total current liabilities 11,545,132 11,208,079 -------------- ------------- Deferred income taxes 42,239,262 42,239,262 Interest rate swaps 1,592,813 3,014,095 Advance billings and payments 698,352 667,314 Other liabilities 165,968 225,115 Long-term notes payable 273,717,301 277,734,114 -------------- ------------- Total liabilities 329,958,828 335,087,979 Class B common convertible to senior subordinated notes 4,085,033 - Stockholders' Equity (Deficit) Class A Common Stock, $.01 par value-authorized 20,000,000 shares; issued and outstanding 12,676,733 and 13,221,404 shares, respectively 126,767 132,214 Class B Common Stock, $.01 par value-authorized 800,000 shares; issued and outstanding 544,671 and 0 shares, respectively 5,447 - Additional paid in capital 10,340,862 3,251,990 Retained deficit (6,988,734) (6,894,034) -------------- ------------- Total stockholders' equity (deficit) 3,484,342 (3,509,830) -------------- ------------- Total liabilities and stockholders' equity (deficit) $337,528,203 $331,578,149 -------------- ------------- -------------- ------------- OTELCO INC. CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) Three months ended Nine months ended September 30, September 30, --------------------------- --------------------------- 2009 2010 2009 2010 ------------- ------------- ------------- ------------- Revenues Local services $ 12,396,806 $ 12,423,429 $ 36,315,205 $ 36,948,418 Network access 8,517,512 8,077,256 24,876,708 24,665,860 Cable television 614,114 717,344 1,833,164 2,081,918 Internet 3,500,870 3,520,835 10,542,696 10,559,067 Transport services 1,373,832 1,406,363 4,132,208 4,195,118 ------------- ------------- ------------- ------------- Total revenues 26,403,134 26,145,227 77,699,981 78,450,381 ------------- ------------- ------------- ------------- Operating expenses Cost of services and products 10,445,442 10,336,220 31,245,153 31,374,193 Selling, general and administrative expenses 3,222,825 3,307,743 10,142,354 9,775,255 Depreciation and amortization 6,525,796 5,773,298 19,922,383 17,692,899 ------------- ------------- ------------- ------------- Total operating expenses 20,194,063 19,417,261 61,309,890 58,842,347 ------------- ------------- ------------- ------------- Income from operations 6,209,071 6,727,966 16,390,091 19,608,034 ------------- ------------- ------------- ------------- Other income (expense) Interest expense (6,468,875) (6,320,757) (19,514,730) (18,488,869) Change in fair value of derivatives (1,508,601) (358,833) (1,169,872) (1,421,282) Other income 29,540 150,790 267,911 533,649 ------------- ------------- ------------- ------------- Total other expenses (7,947,936) (6,528,800) (20,416,691) (19,376,502) ------------- ------------- ------------- ------------- Income (loss) before income tax (1,738,865) 199,166 (4,026,600) 231,532 Income tax (expense) benefit 144,251 (136,091) 1,108,652 (136,835) ------------- ------------- ------------- ------------- Net income (loss) available to common stockholders $ (1,594,614) $ 63,075 $ (2,917,948) $ 94,697 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- Weighted average shares outstanding: Basic 12,676,733 13,221,404 12,676,733 12,906,173 Diluted 13,221,404 13,221,404 13,221,404 13,221,404 Basic net income (loss) per share $ (0.13) $ 0.00 $ (0.23) $ 0.01 Diluted net income (loss) per share $ (0.13) $ 0.00 $ (0.23) $ 0.01 Dividends declared per share $ 0.18 $ 0.18 $ 0.53 $ 0.53 OTELCO INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) ------------------------------------------------------------------------- Nine months ended September 30, 2009 2010 -------------- ------------- Cash flows from operating activities: Net income (loss) $ (2,917,948) $ 94,697 Adjustments to reconcile net income to cash flows from operating activities: Depreciation 10,594,257 10,164,224 Amortization 9,328,126 7,528,676 Interest rate caplet 1,168,521 - Amortization of debt premium (60,759) (68,220) Amortization of loan costs 1,013,930 1,019,326 Change in fair value of derivatives 1,169,872 1,421,282 Provision for deferred income taxes 114,171 - Provision for uncollectible revenue 271,536 179,634 Changes in assets and liabilities; net of assets and liabilities acquired: Accounts receivables 1,147,822 (1,410,565) Material and supplies 212,913 205,834 Prepaid expenses and other assets 89,204 206,918 Income tax receivable 175,644 389,486 Accounts payable and accrued liabilities (616,048) (306,542) Advance billings and payments (395,019) (59,859) Other liabilities (19,216) 69,397 -------------- ------------- Net cash from operating activities 21,277,006 19,434,288 -------------- ------------- Cash flows from investing activities: Acquisition and construction of property and equipment (6,392,058) (6,443,959) Deferred charges (6,551) (1,041) -------------- ------------- Net cash used in investing activities (6,398,609) (6,445,000) -------------- ------------- Cash flows from financing activities: Cash dividends paid (6,702,823) (6,894,819) Direct cost of exchange of Class B shares for Class A shares - (194,053) Loan origination costs - (155,160) Repayment of long-term notes payable (5,000,000) - -------------- ------------- Net cash used in financing activities (11,702,823) (7,244,032) -------------- ------------- Net increase in cash and cash equivalents 3,175,574 5,745,256 Cash and cash equivalents, beginning of period 13,542,255 17,731,044 -------------- ------------- Cash and cash equivalents, end of period $ 16,717,829 $23,476,300 -------------- ------------- -------------- ------------- Supplemental disclosures of cash flow information: Interest paid $ 17,767,703 $ 17,345,346 -------------- ------------- -------------- ------------- Income taxes paid (received) $ 53,658 $ (197,534) -------------- ------------- -------------- -------------