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Contact: | Curtis Garner |
Chief Financial Officer
Otelco Inc.
205-625-3571
Curtis@otelcotel.com
Otelco Reports Third Quarter Results
ONEONTA, Alabama (Nov. 3, 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 third quarter ended September 30, 2005. The Company’s quarterly results reflect the third 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 of $11.7 million. |
· | Operating income of $4.4 million. |
· | Net income of $0.5 million. |
· | Net income per basic and diluted share of $0.05 and $0.03 respectively. |
“Our results for the quarter were solid, especially given the economic conditions and the impact on discretionary spending caused by the rapid rise in fuel prices,” said Mike Weaver, President and Chief Executive Officer of Otelco. “Our performance for the first nine months of this year has been very much in line with our expectations.”
“We are very pleased with the growth in our total access line equivalents this quarter as the additional marketing plans we implemented during the quarter were successful. In third quarter, we added 693 total access line equivalents. On an annualized basis, our access lines this year have declined at a 3.5% rate, down from 3.8% at the end of the second quarter. 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 annualized rate of 3.5%. Our long distance and cable television subscribers increased in both the third quarter and year-to-date, up 5.0% and 6.1%, respectively this year. Our digital high-speed Internet customers continued to grow steadily, adding 947 customers during third quarter which is an increase of 21.5% for the quarter and 53.5% for the year. At the end of the third quarter, we had a penetration rate of 16.3% for our digital high-speed Internet access,” added Weaver.
“Our focus on growing digital high-speed access, controlling costs and slowing access line losses positions us well for next quarter and to start next year. We remain focused on executing our business plan and generating cash flows, allowing us to return cash back to our shareholders. On September 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 November 10, 2005. The scheduled interest and any dividend declared will be paid on December 30, 2005 to holders of record as of the close of business on December 15, 2005. The interest payment will cover the period from September 30, 2005 through December 29, 2005.
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Otelco Reports Third Quarter Results
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Nov. 3, 2005
Third Quarter 2005 Financial Summary
(dollars in thousands, except per share amounts)
Change | |||||||||||||
3Q 2004 | 3Q 2005 | Amount | Percent | ||||||||||
Revenue | $ | 9,320 | $ | 11,659 | $ | 2,339 | 25.1 | % | |||||
Operating income | $ | 4,085 | $ | 4,416 | $ | 331 | 8.1 | % | |||||
Interest expense | $ | (784 | ) | $ | (4,131 | ) | $ | 3,347 | 426.9 | % | |||
Net income available to stockholders | $ | 2,142 | $ | 496 | $ | (1,646 | ) | (76.8 | )% | ||||
Basic net income per share | $ | 0.27 | $ | 0.05 | $ | (0.22 | ) | (81.5 | )% | ||||
Diluted net income per share | $ | 0.25 | $ | 0.03 | $ | (0.22 | ) | (88.0 | )% | ||||
Adjusted EBITDA(a) | $ | 6,108 | $ | 6,878 | $ | 770 | 12.6 | % | |||||
Capital expenditures | $ | 736 | $ | 980 | $ | 244 | 33.1 | % |
YTD 2004 | YTD 2005 | Amount | Percent | ||||||||||
Revenue | $ | 27,476 | $ | 35,129 | $ | 7,653 | 27.9 | % | |||||
Operating income | $ | 12,014 | $ | 13,749 | $ | 1,735 | 14.4 | % | |||||
Interest expense | $ | (2,415 | ) | $ | (12,167 | ) | $ | 9,752 | 403.8 | % | |||
Net income available to stockholders | $ | 6,247 | $ | 1,942 | $ | (4,305 | ) | (68.9 | )% | ||||
Basic net income per share | $ | 0.78 | $ | 0.20 | $ | (0.58 | ) | (74.4 | )% | ||||
Diluted net income per share | $ | 0.73 | $ | 0.13 | $ | (0.60 | ) | (82.2 | )% | ||||
Adjusted EBITDA(a) | $ | 18,058 | $ | 21,328 | $ | 3,270 | 18.1 | % | |||||
Capital expenditures | $ | 2,651 | $ | 3,340 | $ | 689 | 26.0 | % |
Reconciliation of Adjusted EBITDA to Net Income
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||
2004 | 2005 | 2004 | 2005 | ||||||||||
Adjusted EBITDA | |||||||||||||
Net Income | $ | 2,143 | $ | 496 | $ | 6,247 | $ | 1,942 | |||||
Add: Depreciation | 1,449 | 1,928 | 4,297 | 5,772 | |||||||||
Interest Expense | 784 | 4,131 | 2,415 | 12,167 | |||||||||
Income Tax Expense | 1,174 | 41 | 3,423 | 608 | |||||||||
Non Cash Compensation-Stock | |||||||||||||
Options | 459 | -- | 1,378 | -- | |||||||||
Accretion Expense | -- | 111 | -- | 332 | |||||||||
Change in Fair Value of Derivative | |||||||||||||
Liability | -- | (305 | ) | -- | (921 | ) | |||||||
Loan Fees | -- | 29 | -- | 89 | |||||||||
Amortization - Loan Cost | 35 | 331 | 105 | 992 | |||||||||
Amortization - Intangibles | 64 | 116 | 193 | 347 | |||||||||
Adjusted EBITDA | $ | 6,108 | $ | 6,878 | $ | 18,058 | $ | 21,328 |
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Otelco Reports Third Quarter Results
Page 3
Nov. 3, 2005
(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.
Second | Third | |||||||||||||||
Quarter | Quarter | % Change | ||||||||||||||
Key Operating Statistics | 2004 | 2005 | 2005 | Quarter | YTD | |||||||||||
Access line equivalents (1) | ||||||||||||||||
Residential access lines | 25,237 | 25,013 | 24,705 | (1.2 | )% | (2.1 | )% | |||||||||
Business access lines | 8,414 | 8,006 | 8,060 | 0.7 | % | (4.2 | )% | |||||||||
Access lines | 33,651 | 33,019 | 32,765 | (0.8 | )% | (2.6 | )% | |||||||||
Digital high-speed lines | 3,488 | 4,407 | 5,354 | 21.5 | % | 53.5 | % | |||||||||
Total access line equivalents | 37,139 | 37,426 | 38,119 | 1.9 | % | 2.6 | % | |||||||||
Long distance customers | 13,641 | 14,061 | 14,323 | 1.9 | % | 5.0 | % | |||||||||
Cable television customers | 3,959 | 4,163 | 4,201 | 0.9 | % | 6.1 | % | |||||||||
Dial-up internet customers | 15,348 | 13,831 | 12,989 | (6.1 | )% | (15.4 | )% | |||||||||
Average monthly revenue | ||||||||||||||||
per access line (2) | $ | 105.88 | $ | 108.52 | $ | 111.64 | 2.9 | % | 5.4 | % |
(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 2005 average revenue per access line is $111.19.
FINANCIAL DISCUSSION FOR THIRD QUARTER 2005
Revenue
Total revenues grew 25.1% in the three months ended September 30, 2005 to $11.7 million from $9.3 million in the three months ended September 30, 2004. The growth in revenue was primarily driven by the acquisition of Mid-Missouri. Local service revenue in the three months ended September 30, 2005 was $3.6 million, the same as in the three months ended September 30, 2004. Total access line equivalents increased 693 from the second quarter, with growth partially offset by 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 September 30, 2005 grew 29.5% to $5.3 million from $4.1 million in the three months ended September 30, 2004. Long distance and other telephone services revenue in the three months ended September 30, 2005 increased 27.3% to $0.8 million from $0.6 million in the three months ended September 30, 2004. Cable television revenue in the three months ended September 30, 2005 increased 15.3% to $0.5 million from $0.4 million in the three months ended September 30, 2004. Internet revenue in the three months ended September 30, 2005 increased 161.0% to $1.4 million from $0.5 million in the three months ended September 30, 2004. This increase included the addition of over 1,900 new digital high-speed Internet customers in Alabama in addition to the acquisition of Mid-Missouri.
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Otelco Reports Third Quarter Results
Page 4
Nov. 3, 2005
Operating Expenses
Operating expenses in the three months ended September 30, 2005 increased 38.4% to $7.2 million from $5.2 million in the three months ended September 30, 2004. The increase was primarily attributable to the purchase of Mid-Missouri, amortization of loan costs associated with our initial public offering and public company costs. Cost of services increased 56.8% to $3.3 million in the three months ended September 30, 2005 from $2.1 million in the three months ended September 30, 2004. Selling, general and administrative expenses remained constant at $1.6 million in the three months ended September 30, 2005 and in the three months ended September 30, 2004. Depreciation and amortization increased 53.5% to $2.4 million in the three months ended September 30, 2005 from $1.5 million in the three months ended September 30, 2004.
Interest Expense
Reflecting the new debt structure, interest expense increased 426.9% to $4.1 million in the three months ended September 30, 2005 from $0.8 million in the three months ended September 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 September 30, 2005 was $6.9 million, an increase of 12.6% from $6.1 million the three months ended September 30, 2004. See financial tables for a reconciliation of Adjusted EBITDA to net income.
Third Quarter Earnings Conference Call
Otelco has scheduled a conference call, which will be broadcast live over the Internet, on Friday, November 4, 2005, at 11:00 a.m. ET. To participate in the call, dial 913-981-5558 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 of the Web cast will be available on the Company's website at http://www3.otelco.net/index.html 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 3711647.
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 38,000 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 Reports Third Quarter Results
Page 5
Nov. 3, 2005
OTELCO INC.
Consolidated Balance Sheets
As of | As of | ||||||
December 31, 2004 | September 30, 2005 | ||||||
Assets | (unaudited) | ||||||
Current Assets | |||||||
Cash and cash equivalents | $ | 5,406,545 | $ | 5,376,690 | |||
Accounts receivable: | |||||||
Due from subscribers, net of allowance | |||||||
for doubtful accounts of $170,515 and | |||||||
$161,887 respectively | 1,179,074 | 1,216,816 | |||||
Unbilled revenue | 1,884,405 | 1,847,399 | |||||
Other | 1,522,945 | 1,419,619 | |||||
Materials and supplies | 1,039,910 | 968,628 | |||||
Prepaid expenses | 537,784 | 477,420 | |||||
Deferred income taxes | 652,625 | 652,625 | |||||
Total current assets | 12,223,288 | 11,959,197 | |||||
Property and equipment, net | 48,195,568 | 45,781,964 | |||||
Goodwill | 119,714,094 | 119,684,411 | |||||
Intangible assets, net | 2,050,943 | 1,703,795 | |||||
Investments | 1,298,852 | 1,156,806 | |||||
Deferred financing costs | 8,020,743 | 7,097,270 | |||||
Interest rate cap | 4,723,135 | 5,048,443 | |||||
Total assets | $ | 196,226,623 | $ | 192,431,886 | |||
Liabilities and stockholders’ equity | |||||||
Current liabilities | |||||||
Accounts payable | $ | 2,690,351 | $ | 1,313,447 | |||
Accrued expenses | 1,862,604 | 2,812,494 | |||||
Advanced billings and payments | 1,141,013 | 1,069,182 | |||||
Customer deposits | 220,209 | 233,884 | |||||
Total current liabilities | 5,914,177 | 5,429,007 | |||||
Deferred income taxes | 13,053,226 | 13,053,226 | |||||
Other liabilities | 196,644 | 194,074 | |||||
Total deferred tax and other liabilities | 13,249,870 | 13,247,300 | |||||
Long-term notes payable | 161,075,498 | 161,075,498 | |||||
Derivative liability | 2,788,716 | 1,868,222 | |||||
Class B common convertible to senior subordinated notes | 3,212,528 | 3,544,722 | |||||
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 | 7,319,227 | |||||
Retained deficit | (2,597,315 | ) | (655,487 | ) | |||
Accumulated other comprehensive income | 45,135 | 501,183 | |||||
Total stockholders’ equity | 9,985,834 | 7,267,137 | |||||
Total liabilities and stockholders’ equity | $ | 196,226,623 | $ | 192,431,886 |
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Otelco Reports Third Quarter Results
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Nov. 3, 2005
OTELCO INC.
Consolidated Statements of Income
(Unaudited)
Three Months Ended | Nine Months Ended | ||||||||||||
September 30, | September 30, | ||||||||||||
2004 | 2005 | 2004 | 2005 | ||||||||||
Revenues | |||||||||||||
Local services | $ | 3,562,745 | $ | 3,567,959 | $ | 10,491,800 | $ | 10,773,335 | |||||
Network access | 4,110,843 | 5,324,589 | 12,112,679 | 16,289,223 | |||||||||
Long distance and other telephone | |||||||||||||
services | 639,823 | 815,472 | 1,992,397 | 2,379,746 | |||||||||
Cable television | 463,570 | 533,812 | 1,336,982 | 1,545,990 | |||||||||
Internet | 542,826 | 1,417,485 | 1,542,191 | 4,140,643 | |||||||||
Total revenues | 9,319,807 | 11,659,317 | 27,476,049 | 35,128,937 | |||||||||
Operating expenses | |||||||||||||
Cost of services and products | 2,093,681 | 3,282,787 | 6,056,543 | 9,356,381 | |||||||||
Selling, general and administrative | |||||||||||||
expenses | 1,592,986 | 1,585,280 | 4,810,167 | 4,912,279 | |||||||||
Depreciation and amortization | 1,547,966 | 2,375,266 | 4,595,148 | 7,111,459 | |||||||||
Total operating expenses | 5,234,633 | 7,243,333 | 15,461,858 | 21,380,119 | |||||||||
Income from operations | 4,085,174 | 4,415,984 | 12,014,191 | 13,748,818 | |||||||||
Other income (expense) | |||||||||||||
Interest expense | (784,390 | ) | (4,131,073 | ) | (2,414,624 | ) | (12,166,821 | ) | |||||
Change in fair value of derivative | - | 305,016 | - | 920,494 | |||||||||
Other income | 15,781 | 58,662 | 70,057 | 379,353 | |||||||||
Total other expense | (768,609 | ) | (3,767,395 | ) | (2,344,567 | ) | (10,866,974 | ) | |||||
Income before income tax and | |||||||||||||
accretion expense | 3,316,565 | 648,589 | 9,669,624 | 2,881,844 | |||||||||
Income tax expense | (1,174,062 | ) | (41,601 | ) | (3,423,046 | ) | (607,822 | ) | |||||
Income before accretion expense | 2,142,503 | 606,988 | 6,246,578 | 2,274,022 | |||||||||
Accretion of Class B common | |||||||||||||
convertible to senior subordinated notes | - | (110,732 | ) | - | (332,194 | ) | |||||||
Net income available to common | |||||||||||||
stockholders | 2,142,503 | 496,256 | 6,246,578 | 1,941,828 | |||||||||
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 | $ | 0.27 | $ | 0.05 | $ | 0.78 | $ | 0.20 | |||||
Diluted | $ | 0.25 | $ | 0.03 | $ | 0.73 | $ | 0.13 | |||||
Dividends declared per share | $ | - | $ | 0.18 | $ | - | $ | 0.53 |