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Contact: | Curtis Garner |
Chief Financial Officer
Otelco Inc.
205-625-3571
Curtis@otelcotel.com
Otelco Reports Fourth Quarter and Year 2006 Results
ONEONTA, Alabama (Feb. 15, 2007) - Otelco Inc. (AMEX: OTT; TSX: OTT.un), the sole wireline telephone services provider in several rural communities in Alabama, Maine and Missouri, today announced results for its fourth quarter and year ended December 31, 2006. Key quarterly highlights for Otelco include:
· | Total revenues of $17.4 million. |
· | Operating income of 5.1 million. |
· | Adjusted EBITDA (as defined below) of $8.7 million. |
“The fourth quarter and the year reflected continued growth as we completed the integration of our Mid-Maine acquisition,” said Mike Weaver, President and Chief Executive Officer of Otelco. “Total revenue increased 46.8% in the fourth quarter and 22.6% for the year, reflecting the acquisition and our growth in bundled customers, long distance and digital high-speed access, as well as competitive subscribers in Maine. Adjusted EBITDA (as defined below) increased $1.6 million for the quarter and $2.9 million for the year.
“Our subscriber metrics showed continued growth in competitive customers, digital high-speed access and multi-service bundles,” added Weaver. “Our bundled service offerings have proven to be very attractive to our residential customers in Alabama with over 30% accepting one of our offers in the first year. Our access lines grew by 0.7% in the fourth quarter, reflecting a 4.0% increase in our CLEC lines and a 0.5% decrease in our traditional markets.
“Our prospects for 2007 are exciting as our marketing plans include the expansion of our bundled services for telephone, unlimited long distance services, cable television and digital high-speed Internet,” continued Weaver. “We introduced the bundled plans in our Missouri market in December with some 12% of our residential customers accepting a bundle of services. We plan to add this offering in our Maine ILEC market later this year. In our CLEC operations in Maine, we are concentrating our efforts on obtaining businesses with multiple locations in the areas we serve. Our operating plans include upgrading our cable systems in order to offer a high definition package, expanding the use of our new Alabama soft switch and continuing the expansion of our digital high-speed Internet services.
“We remain very focused on executing our business plan and generating cash flows, allowing us to return cash back to our shareholders. We will also continue to pursue accretive acquisition opportunities that allow us to profitably grow our business, like Mid-Maine,” Weaver concluded. “For 2006, Otelco approved the distribution of over $16.2 million to its Income Deposit Security (IDS) holders, representing combined interest and dividends of $1.68 per IDS.”
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Otelco Reports 2006 Results
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Feb. 15, 2007
Distribution to IDS Holders
Each quarter, the Board will consider the declaration of dividends during its normally scheduled meeting. For the first quarter of 2007, the Board is meeting on February 22, 2007. The scheduled interest and any dividend declared will be paid on April 2, 2007 to holders of record as of the close of business on March 15, 2007. The interest payment will cover the period from December 30, 2006 through March 29, 2007.
Fourth Quarter and Year 2006 Financial Summary
(dollars in thousands, except per share amounts)
Change | |||||||||||||
4Q 2005 | 4Q 2006 | Amount | Percent | ||||||||||
Revenue | $ | 11,843 | $ | 17,381 | $ | 5,538 | 46.8 | % | |||||
Operating income | $ | 4,698 | $ | 5,084 | $ | 386 | 8.2 | % | |||||
Interest expense | $ | (4,570 | ) | $ | (5,324 | ) | $ | 754 | 16.5 | % | |||
Net loss available to stockholders | $ | (150 | ) | $ | (772 | ) | $ | (622 | ) | (414.7 | )% | ||
Basic net loss per share | $ | (0.02 | ) | $ | (0.08 | ) | $ | (0.06 | ) | (300.0 | )% | ||
Diluted net loss per share | $ | (0.01 | ) | $ | (0.01 | ) | $ | 0.00 | 0 | % | |||
Adjusted EBITDA(a) | $ | 7,017 | $ | 8,661 | $ | 1,644 | 23.4 | % | |||||
Capital expenditures | $ | 744 | $ | 1,955 | $ | 1,211 | 162.8 | % |
Year 2005 | Year 2006 | Amount | Percent | ||||||||||
Revenue | $ | 46,972 | $ | 57,589 | $ | 10,617 | 22.6 | % | |||||
Operating income | $ | 19,439 | $ | 19,802 | $ | 363 | 1.9 | % | |||||
Interest expense | $ | (17,729 | ) | $ | (20,082 | ) | $ | 2,353 | 13.3 | % | |||
Net income available to stockholders | $ | 1,792 | $ | 1,161 | $ | (631 | ) | (35.2 | )% | ||||
Basic net income per share | $ | 0.19 | $ | 0.12 | $ | (0.07 | ) | (36.8 | )% | ||||
Diluted net income per share | $ | 0.12 | $ | 0.18 | $ | 0.06 | 50.0 | % | |||||
Adjusted EBITDA(a) | $ | 28,345 | $ | 31,288 | $ | 2,943 | 10.4 | % | |||||
Capital expenditures | $ | 4,083 | $ | 5,618 | $ | 1,535 | 37.6 | % |
Reconciliation of Adjusted EBITDA to Net Income
Three months ended | Year ended | ||||||||||||
December 31, | December 31, | ||||||||||||
2005 | 2006 | 2005 | 2006 | ||||||||||
Adjusted EBITDA | |||||||||||||
Net income (Loss) | $ | (150 | ) | $ | (772 | ) | $ | 1,792 | $ | 1,161 | |||
Add: Depreciation | 1,976 | 2,836 | 7,749 | 9,527 | |||||||||
Interest expense | 4,061 | 4,796 | 16,097 | 17,698 | |||||||||
Interest - caplet cost | 127 | 212 | 258 | 756 | |||||||||
Interest - loan cost amortization | 382 | 316 | 1,374 | 1,628 | |||||||||
Other non-operating income | -- | -- | -- | (63 | ) | ||||||||
Gain/Loss from investments | -- | -- | -- | (2,687 | ) | ||||||||
Income tax expense | 404 | (20 | ) | 1,011 | 1,211 | ||||||||
Accretion expense | 111 | 97 | 443 | 430 | |||||||||
Change in fair value of derivative liability | (38 | ) | 616 | (959 | ) | 278 | |||||||
Loan fees | 29 | 19 | 117 | 95 | |||||||||
Amortization | 115 | 561 | 463 | 1,254 | |||||||||
Adjusted EBITDA | $ | 7,017 | $ | 8,661 | $ | 28,345 | $ | 31,288 |
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Otelco Reports 2006 Results
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Feb. 15, 2007
(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. It reflects actual results with no pro forma adjustments. 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.
Third | Year | |||||||||||||||
Quarter | End | % Change | ||||||||||||||
Key Operating Statistics | 2005 | 2006 | 2006 | Quarter | Year | |||||||||||
Access line equivalents (1) | ||||||||||||||||
Residential access lines | 24,541 | 29,963 | 29,832 | (0.4 | )% | 21.6 | % | |||||||||
Business access lines | 8,036 | 21,682 | 22,171 | 2.3 | % | 175.9 | % | |||||||||
Access lines | 32,577 | 51,645 | 52,003 | 0.7 | % | 59.6 | % | |||||||||
Digital high-speed lines | 6,314 | 11,298 | 11,951 | 5.8 | % | 89.3 | % | |||||||||
Total access line equivalents | 38,891 | 62,943 | 63,954 | 1.6 | % | 64.4 | % | |||||||||
Long distance customers | 14,438 | 21,088 | 21,370 | 1.3 | % | 48.0 | % | |||||||||
Cable television customers | 4,220 | 4,187 | 4,188 | 0.0 | % | (0.8 | )% | |||||||||
Dial-up internet customers | 12,149 | 20,999 | 19,587 | (6.7 | )% | 61.2 | % |
(1) We define access line equivalents as access lines, cable modems, and digital subscriber lines, including wholesale digital subscriber lines.
FINANCIAL DISCUSSION FOR FOURTH QUARTER AND YEAR 2006 (including the acquisition of Mid-Maine at July 3, 2006)
Revenue
Total revenues grew 46.8% in the three months ended December 31, 2006 to $17.4 million from $11.8 million in the three months ended December 31, 2005. Total revenues grew 22.6% in the year ended December 31, 2006 to $57.6 million from $47.0 million in the year ended December 31, 2005. The growth in revenue was primarily driven by the acquisition of Mid-Maine. Local services revenue grew 23.4% in the year ended December 31, 2006 to $21.5 million from $17.4 million in the year ended December 31, 2005. Total access line equivalents increased more than 25,000 during 2006, primarily from the acquisition of Mid-Maine and the growth in digital high-speed lines, 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 year ended December 31, 2006 grew 7.4% to $23.5 million from $21.9 million in the year ended December 31, 2005. Cable television revenue in the year ended December 31, 2006 increased 5.0% to $2.2 million from $2.1 million in the year ended December 31, 2005. Internet revenue in the year ended December 31, 2006 increased 53.0% to $8.5 million from $5.6 million in the year ended December 31, 2005. This increase included the acquisition of Mid-Maine and the addition of over 2,400 new digital high-speed Internet customers in Alabama and Missouri.
Operating Expenses
Operating expenses in the three months ended December 31, 2006 increased 72.1% to $12.3 million from $7.1 million in the three months ended December 31, 2005. Operating expenses in the year ended December 31, 2006 increased 37.2% to $37.8 million from $27.5 million in the year ended December 31, 2005. The increase was primarily attributable to the purchase of Mid-Maine, including amortization of intangible assets for its customer bases and a non-compete agreement. Cost of services increased 48.5% to $18.7 million in the year ended December 31, 2006 from $12.6 million in the year ended December 31, 2005. Selling, general and administrative expenses increased 23.3% to $8.3 million in the year ended
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Otelco Reports 2006 Results
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Feb. 15, 2007
December 31, 2006 from $6.7 million in the year ended December 31, 2005. Depreciation and amortization increased 31.3% to $10.8 million in the year ended December 31, 2006 from $8.2 million in the year ended December 31, 2005.
Interest Expense
Interest expense increased 13.3% to $20.1 million in the year ended December 31, 2006 from $17.7 million in the year ended December 31, 2005, reflecting the additional senior debt associated with the acquisition of Mid-Maine, the increased non-cash caplet cost associated with our interest rate cap and amortization of loan costs, partially offset by the reduction in margin cost from 4.0% to 3.25% on all of our senior debt.
Adjusted EBITDA
Adjusted EBITDA for the three months ended December 31, 2006 was $8.7 million, an increase of 23.4% from $7.0 million the three months ended December 31, 2005. For the year ended December 31, 2006, EBITDA was $31.3 million, an increase of 10.4% from $28.3 million for the year ended December 31, 2005. See financial tables for a reconciliation of Adjusted EBITDA to net income.
Balance Sheet
As of December 31, 2006, the Company had cash and equivalents of $14.4 million and total long-term debt of $201.1 million. The fourth quarter distribution of $4.1 million in interest and dividends to our share owners occurred on January 2, 2007.
Capital Expenditures
Capital expenditures were $5.6 million for the year. The Company added DSL capacity, competitive customer specific equipment, a soft switch in Alabama and other upgrades to its network and switching facilities.
Fourth Quarter Earnings Conference Call
Otelco has scheduled a conference call, which will be broadcast live over the Internet, on Friday, February 16, 2007, at 11:00 a.m. ET. To participate in the call, dial 913-981-5533 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 www.otelco.net 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 www.otelco.net 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 6124763.
ABOUT OTELCO
Otelco Inc., headquartered in Oneonta, Alabama, provides wireline telephone services in portions of Alabama, Maine and Missouri. The Company’s services include local and long distance telephone, network access, transport, digital high-speed and dial-up Internet access, cable television and other telephone related services. With more than 63,900 access lines, cable modems and digital subscriber lines, which are collectively referred to as access line equivalents, Otelco is among the top 40 largest local exchange carriers in the United States based on number of access line. Otelco operates six 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. It also provides competitive telephone services through several subsidiaries. For more information, visit the Company’s web site at www.otelco.net.
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Otelco Reports 2006 Results
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Feb. 15, 2007
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
As of | As of | ||||||
December 31, 2005 | December 31, 2006 | ||||||
Assets | |||||||
Current Assets | |||||||
Cash and cash equivalents | $ | 5,569,233 | $ | 14,401,849 | |||
Accounts receivable: | |||||||
Due from subscribers, net of allowance | |||||||
for doubtful accounts of $160,270 and | |||||||
$207,359 respectively | 1,212,909 | 3,105,636 | |||||
Unbilled revenue | 1,828,104 | 2,324,213 | |||||
Other | 1,482,171 | 1,685,144 | |||||
Materials and supplies | 932,861 | 1,962,938 | |||||
Prepaid expenses | 504,256 | 1,057,947 | |||||
Income tax receivables | 749,591 | -- | |||||
Deferred income taxes | 872,675 | 766,225 | |||||
Total current assets | 13,151,800 | 25,303,952 | |||||
Property and equipment, net | 44,555,611 | 60,493,789 | |||||
Goodwill | 119,431,993 | 134,182,309 | |||||
Intangible assets, net | 1,588,079 | 11,340,806 | |||||
Investments | 1,108,249 | 1,240,250 | |||||
Deferred financing costs | 6,971,610 | 6,652,393 | |||||
Interest rate cap | 5,318,728 | 4,542,160 | |||||
Deferred charges | -- | 96,628 | |||||
Total assets | $ | 192,126,070 | $ | 243,852,287 | |||
Liabilities and Stockholders’ Equity | |||||||
Current liabilities | |||||||
Accounts payable | $ | 1,106,114 | $ | 1,658,911 | |||
Dividends payable | -- | 1,705,524 | |||||
Accrued expenses | 1,692,841 | 5,875,863 | |||||
Advanced billings and payments | 1,204,680 | 2,119,701 | |||||
Customer deposits | 213,524 | 197,496 | |||||
Total current liabilities | 4,217,159 | 11,557,495 | |||||
Deferred income taxes | 15,345,890 | 24,712,213 | |||||
Other liabilities | 192,769 | 187,037 | |||||
Total deferred tax and other liabilities | 15,538,659 | 24,899,250 | |||||
Long-term notes payable | 161,075,498 | 201,075,498 | |||||
Derivative liability | 1,830,095 | 2,107,877 | |||||
Class B common convertible to senior | |||||||
subordinated notes | 3,655,454 | 4,085,033 | |||||
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 | 5,613,703 | 284,041 | |||||
Retained deficit | (805,731 | ) | (1,137,166 | ) | |||
Accumulated other comprehensive income | 899,019 | 878,045 | |||||
Total stockholders’ equity | 5,809,205 | 127,134 | |||||
Total liabilities and stockholders’ equity | $ | 192,126,070 | $ | 243,852,287 |
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Otelco Reports 2006 Results
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Feb. 15, 2007
OTELCO INC.
Consolidated Statements of Income
Three Months Ended | Year-Ended | ||||||||||||
December 31, | December 31, | ||||||||||||
2005 | 2006 | 2005 | 2006 | ||||||||||
Revenues | |||||||||||||
Local services | $ | 4,292,153 | $ | 6,464,074 | $ | 17,445,233 | $ | 21,523,406 | |||||
Network access | 5,584,262 | 6,632,111 | 21,873,485 | 23,481,490 | |||||||||
Cable television | 540,865 | 559,225 | 2,086,854 | 2,191,210 | |||||||||
Internet | 1,426,007 | 2,772,040 | 5,566,650 | 8,515,899 | |||||||||
Transport | -- | 953,762 | -- | 1,877,387 | |||||||||
Total revenues | 11,843,287 | 17,381,212 | 46,972,222 | 57,589,392 | |||||||||
Operating expenses | |||||||||||||
Cost of services and products | 3,255,118 | 6,226,772 | 12,611,499 | 18,727,806 | |||||||||
Selling, general and administrative | |||||||||||||
expenses | 1,798,263 | 2,673,308 | 6,710,542 | 8,277,449 | |||||||||
Depreciation and amortization | 2,091,972 | 3,397,044 | 8,211,552 | 10,781,333 | |||||||||
Total operating expenses | 7,145,353 | 12,297,124 | 27,533,593 | 37,786,588 | |||||||||
Income from operations | 4,697,934 | 5,084,088 | 19,438,629 | 19,802,804 | |||||||||
Other income (expense) | |||||||||||||
Interest expense | (4,570,135 | ) | (5,324,442 | ) | (17,728,834 | ) | (20,082,037 | ) | |||||
Change in fair value of derivative | 38,127 | (615,478 | ) | 958,621 | (277,782 | ) | |||||||
Other income | 198,416 | 160,846 | 577,769 | 3,358,860 | |||||||||
Total other expense | (4,333,592 | ) | (5,779,074 | ) | (16,192,444 | ) | (17,000,959 | ) | |||||
Income before income tax and | |||||||||||||
accretion expense | 364,342 | (694,986 | ) | 3,246,185 | 2,801,845 | ||||||||
Income tax expense | (403,853 | ) | 19,966 | (1,011,675 | ) | (1,211,269 | ) | ||||||
Income (loss) before accretion expense | (39,511 | ) | (675,020 | ) | 2,234,510 | 1,590,576 | |||||||
Accretion of Class B common | |||||||||||||
convertible to senior subordinated notes | (110,732 | ) | (97,385 | ) | (442,926 | ) | (429,579 | ) | |||||
Net income (loss) available to common | |||||||||||||
stockholders | (150,243 | ) | (772,405 | ) | 1,791,584 | 1,160,997 | |||||||
Weighted average shares outstanding: | |||||||||||||
Basic | 9,676,733 | 9,676,733 | 9,676,733 | 9,676,733 | |||||||||
Diluted | 10,221,404 | 10,221,404 | 10,221,404 | 10,221,404 | |||||||||
Net income per share: | |||||||||||||
Basic | $ | (0.02 | ) | $ | (0.08 | ) | $ | 0.19 | $ | 0.12 | |||
Diluted | $ | (0.01 | ) | $ | (0.01 | ) | $ | 0.12 | $ | 0.18 | |||
Dividends declared per share | $ | 0.18 | $ | 0.18 | $ | 0.71 | $ | 0.71 |
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Otelco Reports 2006 Results
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Feb. 15, 2007
OTELCO INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
2005 | 2006 | ||||||
Cash flows from operating activities: | |||||||
Net income | $ | 1,791,584 | $ | 1,160,997 | |||
Adjustments to reconcile net income to cash | |||||||
flows from operating activities: | |||||||
Depreciation | 7,748,687 | 9,527,319 | |||||
Amortization | 462,865 | 1,254,014 | |||||
Interest rate caplet | 258,291 | 755,594 | |||||
Amortization of loan costs | 1,373,747 | 1,627,960 | |||||
Accretion expense | 442,924 | 429,579 | |||||
Change in fair value of derivative liability | (958,621 | ) | 277,782 | ||||
Gain on disposition of other assets | -- | (2,686,745 | ) | ||||
Provision for deferred income taxes | 2,072,614 | 983,786 | |||||
Provision for uncollectible revenue | 124,367 | 193,561 | |||||
Changes in assets and liabilities; net of assets and | |||||||
liabilities acquired: | |||||||
Accounts receivables | (61,126 | ) | (327,129 | ) | |||
Material and supplies | 107,049 | 3,385 | |||||
Prepaid expenses and other assets | 33,531 | (365,795 | ) | ||||
Income tax receivables | (749,591 | ) | 1,037,395 | ||||
Accounts payable and accrued liabilities | (1,754,002 | ) | 2,757,784 | ||||
Advance billings and payments | 63,667 | (110,253 | ) | ||||
Other liabilities | (10,561 | ) | (22,029 | ) | |||
Net cash from operating a activities | 10,945,425 | 16,497,205 | |||||
Cash flows from investing activities: | |||||||
Proceeds from retirement of investment | 165,094 | 3,224,913 | |||||
Deferred charges /acquisition | -- | (44,296 | ) | ||||
Purchase interest rate cap | -- | -- | |||||
Acquisition and construction of property and equipment | (4,083,222 | ) | (5,618,295 | ) | |||
Cash paid for the purchase of Mid-Maine, net of cash acquired | -- | (16,000,040 | ) | ||||
Payments for the purchase of Mid-Missouri | |||||||
Holding Corp, net of cash acquired | 29,683 | -- | |||||
Payment for the purchase of Page & Kiser | |||||||
Communications, Inc., net of cash acquired | 252,418 | -- | |||||
Net cash from investing activities | (3,636,027 | ) | (18,437,718 | ) | |||
Cash flows from financing activities: | |||||||
Cash dividends paid | (6,822,097 | ) | (5,116,572 | ) | |||
Proceeds from long-term notes payable | -- | 40,000,000 | |||||
Loan origination costs and transaction cost | (324,613 | ) | 237,000 | ||||
Repayment of long-term notes payable | -- | (24,347,299 | ) | ||||
Net cash from financing activities | (7,146,710 | ) | 10,773,129 |
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Feb. 15, 2007
OTELCO INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
2005 | 2006 | ||||||
Net increase (decrease) in cash and cash equivalents | 162,688 | 8,832,616 | |||||
Cash and cash equivalents, beginning of period | 5,406,545 | 5,569,233 | |||||
Cash and cash equivalents, end of period | $ | 5,569,233 | $ | 14,401,849 | |||
Supplemental disclosures of cash flow information: | |||||||
Interest paid | $ | 16,343,237 | $ | 14,284,165 | |||
Income taxes paid (received) | $ | (651,536 | ) | $ | (698,336 | ) | |
Dividends declared but not paid | $ | -- | $ | 1,705,524 |
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