Exhibit 99.1
Contact: Curtis Garner
Chief Financial Officer
Otelco Inc.
205-625-3571
Curtis@otelcotel.com
Otelco Reports Second Quarter Results
ONEONTA, Alabama (Aug. 4, 2005) – Otelco Inc. (AMEX: OTT; TSE: OTT.un), the sole wireline telephone services provider in several rural communities in Alabama and Missouri, today announced results for its second quarter ended June 30, 2005. The Company’s quarterly results reflect the second full quarter of operations under its new capital structure and its acquisition of Mid-Missouri Holding Corp. in December 2004. Key quarterly highlights for Otelco include:
• Total revenues were $11.4 million.
• Operating income was $4.5 million.
• Net income was $0.6 million.
• Net income per basic and diluted share was $0.06 and $0.04 respectively.
“The Company remains on track with our business plan for the year,” said Mike Weaver, President and Chief Executive Officer of Otelco. “Despite the typical second quarter seasonal softness, we were pleased with our results.”
“On an annual basis, our access lines this year have declined at a 3.8% rate. Despite this decline, on a year-to-date basis we have grown access line equivalents, which we define as access lines, cable modems and digital subscriber lines, at an annual rate of 1.5%. Our long distance and cable television subscribers increased for both second quarter and year-to-date, growing at an annual rate of 6.2% and 10.4% respectively. Our high-speed Internet customers continued to grow steadily, adding 393 customers during second quarter. Approximately 13.3% of our access lines are high-speed, increasing from 11.9% at the end of first quarter. We have instituted additional marketing programs to sustain the growth in this area of our business,” added Weaver.
“We did an excellent job of controlling costs during the quarter. This focus helped us partially offset nonrecurring reductions in access revenue. We remain focused on executing our business plan and generating cash flows, allowing us to return cash back to our shareholders. On June 30, 2005, Otelco again paid over $4.0 million to its IDS holders, representing interest and dividends of approximately $0.420 per Income Deposit Security (IDS).”
Distribution to IDS Holders
Each quarter, the Board will consider the declaration of dividends during its normally scheduled meeting. For the third quarter of 2005, the Board is meeting on August 11, 2005. The scheduled interest and any dividend declared will be paid on September 30, 2005 to holders of record as of the close of business on September 15, 2005. The interest payment will cover the period from June 30, 2005 through September 29, 2005.
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Second Quarter 2005 Financial Summary
(dollars in thousands, except per share amounts)
| | | | | | Change | |
| | 2Q 2004 | | 2Q 2005 | | Amount | | Percent | |
| | | | | | | | | |
Revenue | | $ | 9,029 | | $ | 11,443 | | $ | 2,414 | | 26.7 | % |
Operating income | | $ | 3,955 | | $ | 4,539 | | $ | 584 | | 14.8 | % |
Interest expense | | $ | (792 | ) | $ | (4,058 | ) | $ | 3,266 | | 412.4 | % |
Net income available to stockholders | | $ | 2,047 | | $ | 616 | | $ | (1,431 | ) | (69.9 | )% |
Basic net income per share | | $ | 0.25 | | $ | 0.06 | | $ | (0.19 | ) | (76.0 | )% |
Diluted net income per share | | $ | 0.24 | | $ | 0.04 | | $ | (0.20 | ) | (83.8 | )% |
| | | | | | | | | |
Adjusted EBITDA(a) | | $ | 5,915 | | $ | 6,986 | | $ | 1,071 | | 18.1 | % |
Capital expenditures | | $ | 962 | | $ | 1,225 | | $ | 263 | | 27.3 | % |
| | | | | | | | | |
| | YTD 2004 | | YTD 2005 | | Amount | | Percent | |
| | | | | | | | | |
Revenue | | $ | 18,156 | | $ | 23,470 | | $ | 5,314 | | 29.3 | % |
Operating income | | $ | 7,929 | | $ | 9,333 | | $ | 1,404 | | 17.7 | % |
Interest expense | | $ | (1,630 | ) | $ | (8,036 | ) | $ | 6,406 | | 393.0 | % |
Net income available to stockholders | | $ | 4,104 | | $ | 1,446 | | $ | (2,658 | ) | (64.8 | )% |
Basic net income per share | | $ | 0.51 | | $ | 0.15 | | $ | (0.36 | ) | (70.6 | )% |
Diluted net income per share | | $ | 0.48 | | $ | 0.10 | | $ | (0.38 | ) | (79.2 | )% |
| | | | | | | | | |
Adjusted EBITDA(a) | | $ | 11,949 | | $ | 14,450 | | $ | 2,501 | | 20.9 | % |
Capital expenditures | | $ | 1,914 | | $ | 2,360 | | $ | 446 | | 23.3 | % |
Reconciliation of Adjusted EBITDA to Net Income
| | Three Months Ended
June 30, | | Six Months Ended
June 30, | |
| | 2004 | | 2005 | | 2004 | | 2005 | |
| | | | | | | | | |
Adjusted EBITDA | | | | | | | | | |
Net Income | | $ | 2,048 | | $ | 616 | | $ | 4,104 | | $ | 1,446 | |
Add: Depreciation | | 1,394 | | 1,923 | | 2,848 | | 3,844 | |
Interest Expense | | 792 | | 4,058 | | 1,630 | | 8,036 | |
Income Tax Expense | | 1,122 | | 139 | | 2,249 | | 566 | |
Non Cash Compensation-Stock Options | | 459 | | — | | 919 | | — | |
Accretion Expense | | — | | 111 | | — | | 221 | |
Change in Fair Value of Derivative Liability | | — | | (338 | ) | — | | (615 | ) |
Loan Fees | | — | | 28 | | — | | 60 | |
Amortization - Loan Cost | | 35 | | 332 | | 70 | | 661 | |
Amortization - Intangibles | | 64 | | 116 | | 129 | | 231 | |
Adjusted EBITDA | | $ | 5,915 | | $ | 6,986 | | $ | 11,949 | | $ | 14,450 | |
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(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.
Key Operating Statistics | | Fourth
Quarter
2004 | | First
Quarter
2005 | | Second
Quarter
2005 | | % Change
Quarter | | YTD | |
Access line equivalents (1) | | | | | | | | | | | |
Residential access lines | | 25,237 | | 25,314 | | 25,013 | | (1.2 | )% | (0.9 | )% |
Business access lines | | 8,414 | | 8,310 | | 8,006 | | (3.7 | )% | (4.8 | )% |
Total access lines | | 33,651 | | 33,624 | | 33,019 | | (1.8 | )% | (1.9 | )% |
High-speed lines | | 3,488 | | 4,014 | | 4,407 | | 9.8 | % | 26.3 | % |
Total access line equivalents | | 37,139 | | 37,638 | | 37,426 | | (0.6 | )% | 0.8 | % |
| | | | | | | | | | | |
Long distance customers | | 13,641 | | 14,039 | | 14,061 | | 0.2 | % | 3.1 | % |
Cable television customers | | 3,959 | | 4,023 | | 4,163 | | 3.5 | % | 5.2 | % |
Dial-up internet customers | | 15,348 | | 14,693 | | 13,831 | | (5.9 | )% | (9.9 | )% |
Average monthly revenue per access line (2) | | $105.88 | | $112.66 | | $108.52 | | (3.7 | )% | 4.9 | % |
(1) We define access line equivalents as access lines, cable modems, and digital subscriber lines.
(2) We calculate average monthly revenue per access line as equal to (A) our average revenues for the period within our telephone territory divided by (B) the average of the access lines on the first and the last day of the period. Year-to-date average revenue per access line is $111.08.
FINANCIAL DISCUSSION FOR SECOND QUARTER 2005
Revenue
Total revenues grew 26.7% in the three months ended June 30, 2005 to $11.4 million from $9.0 million in the three months ended June 30, 2004. The growth in revenue was primarily driven by the acquisition of Mid-Missouri. Local service revenue in the three months ended June 30, 2005 grew 1.4% to $3.6 million from $3.5 million in the three months ended June 30, 2004. Access lines increased 3,720 primarily from the acquisition of Mid-Missouri, partially offset by continued growth of the Company’s high-speed Internet service which resulted in the loss of some second access lines used by customers for dial-up Internet access and wireline customer attrition. Network access revenue in the three months ended June 30, 2005 grew 34.6% to $5.2 million from $3.9 million in the three months ended June 30, 2004. Long distance and other telephone services revenue in the three months ended June 30, 2005 increased 15.6% to $0.8 million from $0.7 million in the three months ended June 30, 2004. Cable television revenue in the three months ended June 30, 2005 increased 18.6% to $0.5 million from $0.4 million in the three months ended June 30, 2004. Internet revenue in the three months ended June 30, 2005 increased 160.1% to $1.4 million from $0.5 million in the three months ended June 30, 2004. This increase included the addition of over 1,300 new high-speed Internet customers in Alabama in addition to the acquisition of Mid-Missouri.
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Operating Expenses
Operating expenses in the three months ended June 30, 2005 increased 36.0% to $6.9 million from $5.1 million in the three months ended June 30, 2004. The increase was primarily attributable to the purchase of Mid-Missouri and the on-going costs associated with being a public company. Cost of services increased 51.6% to $3.0 million in the three months ended June 30, 2005 from $2.0 million in the three months ended June 30, 2004. Selling, general and administrative expenses decreased (4.8)% to $1.5 million in the three months ended June 30, 2005 from $1.6 million in the three months ended June 30, 2004. Depreciation and amortization increased 58.8% to $2.4 million in the three months ended June 30, 2005 from $1.5 million in the three months ended June 30, 2004.
Interest Expense
Reflecting the new debt structure, interest expense increased 412.1% to $4.1 million in the three months ended June 30, 2005 from $0.8 million in the three months ended Jun 30, 2004. The new credit facility and the senior subordinated notes replaced existing variable rate term debt.
Adjusted EBITDA
Adjusted EBITDA for the three months ended June 30, 2005 was $7.0 million, an increase of 18.1% from $5.9 million the three months ended June 30, 2004. See financial tables for a reconciliation of Adjusted EBITDA to net income.
Second Quarter Earnings Conference Call
Otelco has scheduled a conference call, which will be broadcast live over the Internet, on Friday, August 5, 2005, at 11:00 a.m. ET. To participate in the call, dial 913-981-5532 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 Web site at http://www3.otelco.net/index.html or www.earnings.com. To listen to the live call online, please visit the Web site at least 15 minutes early to register, download and install any necessary audio software. For those who cannot listen to the live Web cast, a replay will be available for 30 days and may be accessed by calling 719-457-0820 and using the passcode 4007472. An audio archive will be available, shortly after the call, on the Company’s website at http://www3.otelco.net/index.html or www.earnings.com for approximately 30 days.
ABOUT OTELCO
Otelco Inc., headquartered in Oneonta, Alabama, is the sole wireline telephone services provider in several rural communities in Alabama and Missouri. The Company’s services include local telephone, network access, long distance, high-speed and dial-up Internet access, cable television and other telephone related services. With more than 36,000 access lines, cable modems and digital subscriber lines, which are collectively referred to as access line equivalents, Otelco is among the top 50 largest local exchange carriers in the United States based on number of access line equivalents. Otelco operates five incumbent telephone companies serving rural markets, or rural local exchange carriers, each of which can trace its history as a local telecommunications provider as far back as the early 1900s. For more information, visit the Company’s web site at www.otelco.net.
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.
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OTELCO, INC.
Consolidated Balance Sheets
| | As of
December 31, 2004 | | As of
June 30, 2005 | |
| | | | (unaudited) | |
Assets | | | | | |
Current Assets | | | | | |
Cash and cash equivalents | | $ | 5,406,075 | | $ | 5,234,715 | |
Accounts receivable: | | | | | |
Due from subscribers, net of allowance for doubtful accounts of $170,515 and $163,993 respectively | | 1,179,074 | | 1,185,584 | |
Unbilled revenue | | 1,884,405 | | 1,805,661 | |
Other | | 1,522,945 | | 1,410,512 | |
Materials and supplies | | 1,039,910 | | 1,006,614 | |
Prepaid expenses | | 537,784 | | 469,636 | |
Deferred income taxes | | 652,624 | | 652,625 | |
Total current assets | | 12,223,288 | | 11,762,347 | |
Property and equipment, net | | 48,195,568 | | 46,723,783 | |
Goodwill | | 119,714,094 | | 119,714,094 | |
Intangible assets, net | | 2,050,943 | | 1,819,511 | |
Investments | | 1,298,852 | | 1,205,251 | |
Deferred financing costs | | 8,020,743 | | 7,423,264 | |
Interest rate cap | | 4,723,135 | | 3,921,098 | |
Total assets | | $ | 196,226,623 | | $ | 192,569,348 | |
| | | | | |
Liabilities and stockholders’ equity | | | | | |
Current liabilities | | | | | |
Accounts payable | | $ | 2,690,351 | | $ | 1,433,021 | |
Accrued expenses | | 1,862,604 | | 2,553,098 | |
Advanced billings and payments | | 1,141,013 | | 1,159,093 | |
Customer deposits | | 220,209 | | 233,864 | |
Total current liabilities | | 5,914,177 | | 5,379,076 | |
| | | | | |
Deferred income taxes | | 13,053,226 | | 13,053,226 | |
Other liabilities | | 196,644 | | 185,284 | |
Total deferred tax and other liabilities | | 13,249,870 | | 13,238,510 | |
| | | | | |
Long-term notes payable | | 161,075,498 | | 161,075,498 | |
Derivative liability | | 2,788,716 | | 2,173,237 | |
Class B common convertible to senior subordinated notes | | 3,212,528 | | 3,433,991 | |
| | | | | |
Stockholders’ equity | | | | | |
Class A Common stock, $.01 par value-authorized 20,000,000 shares; issued and outstanding 9,676,733 shares | | 96,767 | | 96,767 | |
Class B Common stock, $.01 par value-authorized 800,000 shares; issued and outstanding 544,671 shares | | 5,447 | | 5,447 | |
Additional paid in capital | | 12,435,800 | | 9,024,752 | |
Retained deficit | | (2,597,315 | ) | (1,151,744 | ) |
Accumulated other comprehensive income (loss) | | 45,135 | | (706,186 | ) |
Total stockholders’ equity | | 9,985,834 | | 7,269,036 | |
| | | | | |
Total liabilities and stockholders’ equity | | $ | 196,226,623 | | $ | 192,569,348 | |
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OTELCO, INC.
Consolidated Statements of Income
(Unaudited)
| | Three Months Ended
June 30, | | Six Months Ended
June 30, | |
| | 2004 | | 2005 | | 2004 | | 2005 | |
| | | | | | | | | |
Revenues | | | | | | | | | |
Local service | | $ | 3,511,668 | | $ | 3,561,731 | | $ | 6,929,055 | | $ | 7,205,376 | |
Network access | | 3,888,914 | | 5,235,327 | | 8,001,836 | | 10,964,633 | |
Long distance and other telephone services | | 673,905 | | 779,294 | | 1,352,574 | | 1,564,274 | |
Cable television | | 435,483 | | 516,060 | | 873,413 | | 1,012,178 | |
Internet | | 519,033 | | 1,350,112 | | 999,364 | | 2,723,158 | |
Total revenues | | 9,029,003 | | 11,442,524 | | 18,156,242 | | 23,469,619 | |
| | | | | | | | | |
Operating expenses | | | | | | | | | |
Cost of services and products | | 1,992,032 | | 3,020,050 | | 3,961,424 | | 6,073,594 | |
Selling, general and administrative expenses | | 1,588,107 | | 1,512,050 | | 3,218,619 | | 3,326,999 | |
Depreciation and amortization | | 1,493,491 | | 2,370,986 | | 3,047,182 | | 4,736,193 | |
Total operating expenses | | 5,073,630 | | 6,903,086 | | 10,227,225 | | 14,136,786 | |
| | | | | | | | | |
Income from operations | | 3,955,373 | | 4,539,438 | | 7,929,017 | | 9,332,833 | |
| | | | | | | | | |
Other income (expense) | | | | | | | | | |
Interest expense | | (792,413 | ) | (4,057,957 | ) | (1,630,234 | ) | (8,035,748 | ) |
Change in fair value of derivative | | — | | 337,696 | | — | | 615,479 | |
Other income | | 6,637 | | 47,215 | | 54,276 | | 320,691 | |
Total other expense | | (785,776 | ) | (3,673,046 | ) | (1,575,958 | ) | (7,099,578 | ) |
| | | | | | | | | |
Income before income taxes and accretion expense | | 3,169,597 | | 866,392 | | 6,353,059 | | 2,233,255 | |
| | | | | | | | | |
Income tax expense | | (1,122,039 | ) | (139,301 | ) | (2,248,984 | ) | (566,221 | ) |
| | | | | | | | | |
Income before accretion expense | | 2,047,559 | | 727,091 | | 4,104,075 | | 1,667,034 | |
| | | | | | | | | |
Accretion of Class B common convertible to senior subordinated notes | | — | | (110,732 | ) | — | | (221,463 | ) |
Net income available to common stockholders | | 2,047,599 | | 616,359 | | 4,104,075 | | 1,445,571 | |
| | | | | | | | | |
Weighted average shares outstanding: | | | | | | | | | |
Basic | | 8,054,841 | | 9,676,733 | | 8,054,841 | | 9,676,733 | |
Diluted | | 8,557,304 | | 10,221,404 | | 8,557,304 | | 10,221,404 | |
| | | | | | | | | |
Net income per share: | | | | | | | | | |
Basic | | $ | 0.25 | | $ | 0.06 | | $ | 0.51 | | $ | 0.15 | |
Diluted | | $ | 0.24 | | $ | 0.04 | | $ | 0.48 | | $ | 0.10 | |
| | | | | | | | | |
Dividends declared per share | | $ | — | | $ | 0.18 | | $ | — | | $ | 0.35 | |
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