Exhibit 99.1
Iowa Telecom Reports Results for the
Quarter Ended September 30, 2005
NEWTON, Iowa--(BUSINESS WIRE)--Nov. 10, 2005--Iowa
Telecommunications Services, Inc. (NYSE:IWA) today announced operating
results for the quarter ended September 30, 2005. Quarterly highlights
for the Company include:
-- Operating revenue was $57.9 million.
-- Operating income was $17.8 million.
-- Net income was $9.6 million, or $0.31 per share.
-- Adjusted EBITDA (as defined herein) was $29.8 million.
"Our overall financial and operating results for the quarter were
once again strong, particularly in light of approximately $1.6 million
in non-recurring charges incurred this quarter," said Alan L. Wells,
Iowa Telecom president and chief executive officer. "We continue to be
very pleased with the success of our DSL High-Speed Internet service
offering, as we added a record 4,600 net DSL subscribers during the
third quarter. Our average monthly revenue per access line also
continues to remain strong at $73, a $4 increase from a year ago. In
addition, we took steps during the quarter to fix the interest rate on
most of our debt through 2011, which will provide even greater
certainty about our future cash expenditures.
"As we disclosed in the discussion of our second quarter results,
we incurred $1.0 million in costs this quarter relating to amendments
for our defined benefit pension plans," Wells added. "These amendments
resulted in reducing the number of employees who continue to further
accrue defined pension benefits to approximately 40. We expected these
changes to both increase our expense during the last half of this
year, as well as our expense and cash-funding requirement next year.
We continue to believe the related reduction in future pension
expense, and the elimination of the associated pension liability risk,
help to further enhance the predictability of our future cash flows.
Our pension modification, coupled with approximately $573,000 in other
one-time expenses incurred in the quarter to favorably amend our debt
agreement, reduced Adjusted EBITDA by $1.6 million and our earnings
per share by more than $0.05 this quarter.
"Our total access lines decreased by 4,700 lines during the
quarter. Of the access lines that were lost, 1,500 were the result of
a change in the contractual relationship with one wholesale customer
following an arbitration proceeding. However, even though our reported
lines serving this customer have declined, our expected total revenue
from this customer will be higher than prior to the contractual
change. An additional 600 of the lines lost during the quarter were
from a wholesale customer that overbuilt in two of our markets, and
thus disconnected wholesale loops that we previously provided," Wells
explained. "Excluding the 2,100 lines lost from these two customers,
we were still somewhat disappointed with our line loss during the
quarter. However, we now have the ability to be more responsive to
competitive offerings than we have been in the past. As a result of
the new Iowa deregulation legislation that took effect July 1, 2005,
we now have pricing flexibility for all retail products except single
line business and residential offerings. In addition, we have full
price deregulation in 14 of our competitive markets, and an additional
14 exchanges are being considered for deregulation that could be
approved by the end of this year. Near the end of the quarter we
launched targeted campaigns in some of our competitive markets and are
pleased with the initial results. We believe our pricing flexibility,
coupled with our new offerings, will allow us to more successfully
compete in markets where we face competition.
"In addition, on Tuesday, November 8, 2005 several communities
across Iowa took votes regarding the establishment of
municipally-owned telecommunications systems, including seven
communities in which we serve as the ILEC," Wells said. "We are
pleased that voters rejected the proposal in all seven of these
communities. We look forward to continuing our solid relationships
with community leaders throughout our service areas, as we work with
them to promote development and investment in Iowa.
"Capital expenditures of $9.9 million this quarter were higher
than the first two quarters, due primarily to seasonality, but
continue to be on track with our expectations," Wells added. "We
continue to expect that our 2005 capital expenditures will be
approximately $30.0 million in total, or approximately $6.3 million in
the fourth quarter.
"As to our debt service, our interest expense for the third
quarter, excluding amortization of debt issuance cost, was $7.6
million. We continue to believe our 2005 cash interest expense will be
approximately $30.5 million," Wells said. "During the quarter, we used
our excess cash to reduce our net debt by over $3.8 million. Through
the third quarter we have reduced our net debt by $20.4 million for
the year. This reduction in debt, coupled with changes to our interest
rate swap agreement, which effectively locked the rate on most of our
term debt through 2011, positions us well for the future and mitigates
the potential risk associated with increasing interest rates.
"We are very pleased to have paid three quarterly cash dividends
to our shareholders of $0.405 per share on our common stock in 2005,"
Wells added. "We continue to generate strong, stable cash flows which
support our indicated annual dividend of $1.62 per share," Wells
concluded. "Overall, we are pleased with our operational and financial
results for the quarter."
FINANCIAL DISCUSSION FOR 3rd QUARTER 2005:
-- Operating Revenues increased $2.8 million, or 5.1%, to $57.9
million for the third quarter of 2005 as compared to the same
quarter in 2004. Revenues from switched access services
increased approximately $2.0 million, due primarily to an
increase in access minutes per line due in part to the
elimination of the expanded local calling plans during the
third quarter of 2004. Also, DSL Internet access service
revenues increased $1.5 million, or 107.4%, due primarily to
customer growth. The overall increase was partially offset by
decreases in dial-up Internet revenue of $359,000 and expanded
local area calling revenue of $619,000.
-- Operating Costs and Expenses increased $4.3 million, or 11.9%,
in the third quarter of 2005 as compared to the third quarter
of 2004. The increase in costs includes $1.0 million of
additional pension expense for distributions during the third
quarter of 2005 related to the amendments to the defined
benefit plan during the second quarter. Other significant
items that contributed to the higher expense included
additional costs to deliver long distance traffic, higher
costs related to serving a larger number of competitive local
exchange carrier access lines, additional non-cash
equity-based compensation expense of $540,000 and additional
costs related to being a publicly-traded company, of which
Sarbanes-Oxley related outside services costs were $481,000.
Depreciation and amortization decreased $170,000.
-- Operating Income was $17.8 million in the third quarter of
2005 as compared to $19.3 million in the same period in 2004.
The reduction was primarily due to higher operating costs and
expenses than the year ago quarter, including the $1.0 million
charge related to the pension amendment previously discussed.
-- Interest and Dividend Income decreased $1.7 million, or 92.2%,
to $140,000 in the third quarter of 2005 as compared to the
third quarter of 2004. The reduction was primarily due to the
decrease in the Company's investment in subordinated capital
certificates with the Rural Telephone Finance Cooperative
(RTFC) resulting from the Company's initial public offering
and debt refinancing in November 2004.
-- Interest Expense decreased $6.6 million, or 46.1%, to $7.7
million in the third quarter of 2005 as compared to the third
quarter of 2004. The decrease was a result of the reductions
in the amount of debt outstanding and in the average interest
rate as a result of the Company's initial public offering and
debt refinancing in November 2004.
-- Net Income increased $2.9 million, or 43.9%, to $9.6 million
in the third quarter of 2005 compared to the same period in
2004.
-- Adjusted Earnings Before Interest, Taxes, Depreciation and
Amortization (Adjusted EBITDA as defined herein) was $29.8
million for the third quarter of 2005, as compared with $32.6
million in the same period in 2004. The decrease in Adjusted
EBITDA was primarily due to the $1.6 million in nonrecurring
charges the Company recorded in the third quarter, coupled
with a $1.2 million non-operating reduction in the cash
portion of the interest and dividend income resulting from the
decrease in the investment in the RTFC subordinated capital
certificates.
-- Total Access Lines decreased by 4,800, or 1.8%, for the third
quarter of 2005 as compared to the third quarter in 2004.
Total access lines decreased by 4,700 during the third quarter
of 2005 from the second quarter in 2005. Incumbent local
exchange carrier access lines declined by 5,700 lines from the
second quarter of 2005, which includes the loss of 600
wholesale lines from one customer and 1,500 lines as the
result of contractual changes with another wholesale customer
following an arbitration proceeding.
Third Quarter 2005 Financial Summary
(Unaudited)
(dollars in thousands, except per share amounts)
Change
-----------------
3Q 2005 3Q 2004 Amount Percent
- ---------------------------------------------- -----------------
Revenue $57,876 $55,042 $ 2,834 5.1%
Operating Income $17,832 $19,251 $(1,419) -7.4%
Interest Expense $ 7,743 $14,372 $(6,629) -46.1%
Net Income $ 9,617 $ 6,684 $ 2,933 43.9%
Income Available for Common $ 9,617 $ 6,684 $ 2,933 43.9%
Basic Earnings Per Share $ 0.31 $ 0.30 $ 0.01 3.3%
Diluted Earnings Per Share $ 0.30 $ 0.29 $ 0.01 3.4%
Adjusted EBITDA(1) $29,828 $32,623 $(2,795) -8.6%
Capital Expenditures and
Acquisitions $ 9,873 $ 9,058 $ 815 9.0%
(1) See the definition of Adjusted EBITDA under Explanation and
Reconciliation to Non-GAAP Concepts at the end of the financial
statements.
3rd Quarter 3rd Quarter
Key Operating Statistics 2005 2004 %Change
- ------------------------------------------------------------------
Telephone Access Lines
ILEC Lines(1) 240,500 253,000 -4.9%
CLEC Lines(2) 20,200 12,500 61.6%
--------- --------- ------
Total Telephone Access Lines 260,700 265,500 -1.8%
Long Distance Subscribers 141,800 132,800 6.8%
Dial-up Internet Subscribers 44,200 52,200 -15.3%
DSL Subscribers 27,200 11,600 134.5%
Average Monthly Revenue Per
Access Line(3) $ 73.34 $ 68.83 6.5%
3rd Quarter 2nd Quarter
2005 2005 %Change
--------------------------------
Telephone Access Lines
ILEC Lines(1) 240,500 246,200 -2.3%
CLEC Lines(2) 20,200 19,200 5.2%
--------- --------- -----
Total Telephone Access Lines 260,700 265,400 -1.8%
Long Distance Subscribers 141,800 141,200 0.4%
Dial-up Internet Subscribers 44,200 47,200 -6.4%
DSL Subscribers 27,200 22,600 20.4%
Average Monthly Revenue Per
Access Line(3) $ 73.34 $ 72.76 0.8%
(1) Includes lines subscribed by our incumbent local exchange
carrier customers and lines subscribed by our "wholesale" customers
who are competing local exchange carriers. Wholesale access lines
include: lines subscribed by our competitive local exchange carrier
competitors pursuant to interconnection agreements on an unbundled
network element basis, for which the competitive local exchange
carrier pays us a monthly fee; lines that we provide to competitive
local exchange carriers for resale to their subscribers, for which the
competitive local exchange carrier pays us a monthly fee equal to what
we would charge our customers for local service less an agreed
discount; and shared lines, for which a competitive local exchange
carrier pays us a monthly fee to provide DSL service to its customers.
We had 3,600 wholesale lines subscribed at September 30, 2005; 4,100
wholesale lines subscribed at June 30, 2005; and 4,800 wholesale lines
subscribed at September 30, 2004.
(2) Access lines subscribed by customers of our competitive local
exchange carrier subsidiary, Iowa Telecom Communications, Inc.
(3) Average monthly revenue per access line is computed by
dividing the total revenue for the period by the average of the access
lines at the beginning and at the end of the period.
Investor Call
As previously announced, Iowa Telecom's management will hold a
conference call to discuss the third quarter results on Thursday,
November 10, 2005 at 9:00 a.m. (Eastern Time). To listen to the call,
participants should dial (913) 981-5519 approximately 10 minutes prior
to the start of the call. A telephonic replay will become available
after 12:00 p.m. (Eastern Time) on November 10, 2005 and will continue
through November 17, 2005 by dialing (719) 457-0820 and entering
Confirmation Code 7436256.
The live broadcast of Iowa Telecom's quarterly conference call
will be available online at www.iowatelecom.com or www.earnings.com on
November 10, 2005, beginning at 9:00 a.m. (Eastern Time). The online
replay will become available after 12:00 p.m. (Eastern Time) and will
continue to be available for 30 days.
Forward-Looking Statements
The press release may contain forward-looking statements that are
not based on historical fact, including without limitation statements
containing the words "believes," "may," "plans," "will," "estimate,"
"continue," "anticipates," "intends," "expects," and similar
expressions. Such forward-looking statements involve known and unknown
risks, uncertainties and other factors that may cause actual results,
events or developments to be materially different from future results,
events or developments described in the forward-looking statements.
Such factors include those risks described in Iowa Telecom's Annual
Report on Form 10-K on file with the SEC. These factors should be
considered carefully and readers are cautioned not to place undue
reliance on such forward-looking statements. All information is
current as of the date this press release is issued, and Iowa Telecom
undertakes no duty to update this information.
About Iowa Telecom
Iowa Telecommunications Services, Inc. (d/b/a Iowa Telecom) is a
telecommunications service provider that offers local telephone, long
distance, Internet, broadband and network access services to business
and residential customers. Today, the Company serves over 440
communities and employs over 600 people throughout the State of Iowa.
The Company's headquarters are in Newton, Iowa. The Company trades on
the New York Stock Exchange under the symbol IWA. For further
information regarding Iowa Telecom, this press release or the
conference call, please go to Iowa Telecom's website at
www.iowatelecom.com and select "Investor Relations." The Iowa Telecom
logo is a registered trademark of Iowa Telecommunications Services,
Inc. in the United States.
IOWA TELECOMMUNICATIONS SERVICES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
(Dollars in thousands, except per share amounts)
As of As of
Sept. 30, Dec. 31,
ASSETS 2005 2004
--------- ---------
CURRENT ASSETS
Cash and cash equivalents $ 5,281 $ 2,874
Accounts receivable, net 18,619 19,416
Inventories 2,894 2,979
Prepayments and other current assets 1,597 3,224
--------- ---------
Total Current Assets 28,391 28,493
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment 501,604 496,145
Accumulated depreciation (181,254) (164,409)
--------- ---------
Net Property Plant and Equipment 320,350 331,736
GOODWILL 460,113 460,113
INTANGIBLE ASSETS AND OTHER, net 21,452 15,800
INVESTMENT IN AND RECEIVABLE FROM
THE RURAL TELEPHONE FINANCE
COOPERATIVE 14,298 16,642
--------- ---------
Total Assets $ 844,604 $ 852,784
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Revolving credit facility $ 25,500 $ 41,507
Accounts payable 11,165 15,889
Advanced billings and customer deposits 6,260 6,525
Accrued and other current liabilities 27,235 23,123
--------- ---------
Total Current Liabilities 70,160 87,044
LONG-TERM DEBT 477,778 477,778
OTHER LONG-TERM LIABILITIES 13,271 12,000
--------- ---------
Total Liabilities 561,209 576,822
STOCKHOLDERS' EQUITY
Common stock, $.01 par value,
100,000,000 shares authorized,
31,032,420 and 30,864,195 issued and
outstanding, respectively 310 309
Additional paid-in-capital 317,084 314,634
Retained deficit (41,789) (38,897)
Accumulated other comprehensive
income (loss) 7,790 (84)
--------- ---------
Total Stockholders' Equity 283,395 275,962
--------- ---------
Total Liabilities and
Stockholders' Equity $ 844,604 $ 852,784
========= =========
IOWA TELECOMMUNICATIONS SERVICES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
(in thousands, except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
----------------- ------------------
2005 2004 2005 2004
------- -------- -------- --------
REVENUE AND SALES
Local services $19,016 $ 19,142 $ 56,844 $ 64,412
Network access services 24,844 22,957 75,711 69,666
Toll services 6,025 6,055 18,000 17,127
Other services and sales 7,991 6,888 22,859 20,180
------- -------- -------- --------
Total revenues and sales 57,876 55,042 173,414 171,385
OPERATING EXPENSES
Cost of services and sales
(exclusive of items shown
separately below) 16,414 14,436 47,856 40,359
Selling, general and
administrative 11,710 9,265 30,636 27,250
Depreciation and amortization 11,920 12,090 36,609 35,864
------- -------- -------- --------
Total operating costs
and expenses 40,044 35,791 115,101 103,473
OPERATING INCOME 17,832 19,251 58,313 67,912
OTHER INCOME (EXPENSE)
Interest and dividend income 140 1,805 432 3,505
Interest expense (7,743) (14,372) (23,192) (40,560)
Other, net (612) -- (758) --
------- -------- -------- --------
Total other expense, net (8,215) (12,567) (23,518) (37,055)
NET INCOME 9,617 6,684 34,795 30,857
GAIN ON REDEMPTION OF REDEEMABLE
CONVERTIBLE PREFERRED STOCK -- -- -- 57,681
PREFERRED DIVIDEND -- -- -- (2,056)
------- -------- -------- --------
INCOME AVAILABLE FOR
COMMON STOCKHOLDERS $ 9,617 $ 6,684 $ 34,795 $ 86,482
======= ======== ======== ========
COMPUTATION OF EARNINGS
PER SHARE
Basic - Earnings Per Share $ 0.31 $ 0.30 $ 1.13 $ 3.83
Basic - Weighted average
number of shares
outstanding 30,939 22,601 30,894 22,601
Diluted - Earnings Per
Share $ 0.30 $ 0.29 $ 1.10 $ 3.27
Diluted - Weighted average
number of shares
outstanding 31,790 23,249 31,661 27,047
IOWA TELECOMMUNICATIONS SERVICES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -------------------
2005 2004 2005 2004
-------- -------- -------- ---------
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income $ 9,617 $ 6,684 $ 34,795 $ 30,857
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation 11,323 11,498 34,824 34,092
Amortization of
intangible assets 597 592 1,785 1,772
Non-cash stock-based
compensation 541 1 1,256 2
Changes in operating
assets and
liabilities:
Receivables 1,916 (1,101) 797 (1,729)
Inventory 1,229 (18) 85 (285)
Accounts payable 491 537 (4,724) 3,715
Other assets and
liabilities (361) (6,304) 2,449 (15,448)
-------- -------- --------- ---------
Net cash provided by
operating activities 25,353 11,889 71,267 52,976
CASH FLOWS FROM INVESTING
ACTIVITIES
Capital expenditures (9,864) (9,058) (23,532) (23,694)
Business acquisitions (9) -- (94) (1,697)
-------- -------- -------- ---------
Net cash used in investing
activities (9,873) (9,058) (23,626) (25,391)
CASH FLOWS FROM FINANCING
ACTIVITIES
Net change in revolving
credit facility (2,000) 3,000 (16,007) 3,000
Redemption of redeemable
preferred stock -- -- -- (100,000)
Issuance of long-term
debt -- -- -- 66,000
Payment of debt issuance
costs -- -- -- (1,974)
Proceeds from exercise of
employee stock options 811 -- 1,195 --
Dividends paid (12,521) -- (30,422) --
Payment on long-term debt -- (11,000) -- (30,250)
-------- -------- -------- ---------
Net cash used in financing
activities (13,710) (8,000) (45,234) (63,224)
Net Change in Cash and
Cash Equivalents 1,770 (5,169) 2,407 (35,639)
-------- -------- -------- ---------
Cash and Cash Equivalents
at Beginning of Period 3,511 6,379 2,874 36,849
-------- -------- -------- ---------
Cash and Cash Equivalents
at End of Period $ 5,281 $ 1,210 $ 5,281 $ 1,210
======== ======== ======== =========
IOWA TELECOMMUNICATIONS SERVICES, INC. AND SUBSIDIARIES
EXPLANATIONS AND RECONCILIATIONS TO NON-GAAP CONCEPTS
(Unaudited)
(in thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
---------------- -----------------
2005 2004 2005 2004
------- ------- ------- --------
ADJUSTED EBITDA:
Net Income $ 9,617 $ 6,684 $34,795 $ 30,857
Income Taxes -- -- -- --
Interest Expense 7,743 14,372 23,192 40,560
Depreciation and Amortization 11,920 12,090 36,609 35,864
Unrealized losses on financial
derivatives 39 -- 185 --
Non-cash stock-based compensation
expense(1) 541 1 1,256 2
Extraordinary or unusual (gains)
losses -- -- -- --
Non-cash portion of RTFC Capital
Allocation(2) (32) (524) (99) (980)
Other non-cash losses (gains) -- -- -- --
Loss (gain) on disposal of assets
not in ordinary course -- -- -- --
Transaction costs -- -- -- --
------- ------- ------- --------
ADJUSTED EBITDA $29,828 $32,623 $95,938 $106,303
======= ======= ======= ========
(1) Included in Selling, General and Administrative Expense on the
Consolidated Statements of Operations.
(2) Included in Interest and Dividend Income on the Consolidated
Statements of Operations.
We present Adjusted EBITDA because we believe it is a useful
indicator of our historical debt capacity and our ability to service
debt and pay dividends. We also present Adjusted EBITDA because
covenants in our credit facilities contain ratios based on Adjusted
EBITDA.
Adjusted EBITDA is defined in our credit facilities as: (1)
consolidated net income, as defined therein; plus (2) the following
items, to the extent deducted from consolidated net income: (a)
interest expense; (b) provision for income taxes; (c) depreciation and
amortization; (d) transaction expenses related to the IPO and the
related debt refinancing and other limited expenses related to
permitted securities offerings, investments and acquisitions incurred
after the closing date of the IPO, to the extent not exceeding $5.0
million; (e) unrealized losses on financial derivatives recognized in
accordance with SFAS No. 133; (f) non-cash stock-based compensation
expense; (g) extraordinary or unusual losses (including extraordinary
or unusual losses on permitted sales of assets and casualty events);
(h) losses on sales of assets other than in the ordinary course of
business; and (i) all other non-cash charges that represent an accrual
for which no cash is expected to be paid in the next twelve months;
minus (3) the following items, to the extent any of them increases
consolidated net income: (w) extraordinary or unusual gains (including
extraordinary or unusual gains on permitted sales of assets and
casualty events); (x) gains on asset disposals not in the ordinary
course; (y) unrealized gains on financial derivatives recognized in
accordance with SFAS No. 133; and (z) all other non-cash income
(including the non-cash portion of any RTFC patronage capital
allocation). If our Adjusted EBITDA were to decline below certain
levels, covenants in our credit facilities that are based on Adjusted
EBITDA, including our fixed charge coverage and total leverage ratio
covenants, may be violated and could cause, among other things, a
default or mandatory prepayment under our credit facilities, or result
in our inability to pay dividends.
We believe that net income is the most directly comparable
financial measure to Adjusted EBITDA under GAAP. Adjusted EBITDA
should not be considered in isolation or as a substitute for
consolidated statement of operations and cash flows data prepared in
accordance with GAAP. Adjusted EBITDA is not a complete measure of an
entity's profitability because it does not include costs and expenses
identified above; nor is Adjusted EBITDA a complete net cash flow
measure because it does not include reductions for cash payments for
an entity's obligation to service its debt, fund its working capital,
capital expenditures and acquisitions and pay its income taxes and
dividends.
CONTACT: Investor Relations Contacts:
Corporate Communications, Inc.
Kevin Inda, 407-566-1180
Kevin.Inda@cci-ir.com
or
Iowa Telecommunications Services, Inc.
Craig Knock, 641-787-2089
or
Media Contact:
Iowa Telecommunications Services, Inc.
Julie White, 641-787-2040
Julie.White@iowatelecom.com