OTEL - Earnings call transcript Q3 2017

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Operator

Good day. And welcome to Otelco’s Third Quarter 2017 Earnings Call. Today’s conference is being recorded. And at this time, for opening remarks and introductions, I would like to turn the call over to Ms. Drew Anderson. ahead. go Please

Drew Anderson

Rob And review Kayla. ended the conference Chief will Otelco XX, Officer; Chief Thank Curtis and company’s welcome results to Garner, be today call the Conducting Officer. quarter President for call and XXXX. Executive you, Financial the to Souza, the September third

that on results statements factors future that unknown actual the strategic offer constitute actual of the to could statements historical the be uncertainties from statements. any current fact to or expressed let Before the note unknown cause or company’s historical statements have not an we results me different materially start, and made implied are that statements. impact results by involve Such results and company other forward-looking forward-looking forward-looking cautionary or risks, such the during known this call or

call which I uncertainties now or risks generally to believes, filings addition the describe herein and time stated, plans other anticipates, With risks consider in In to forward-looking forward-looking. statements labeled contained The uncertainties, urged belief, with statements explicitly statements the terms be uncertain described similar to over readers intends, are with and Please to such are terms Souza. go also subject expects, ahead, that time are the from the to company’s turn Rob that SEC. to will sir. and

Rob Souza

questions. our welcome and our the some Curtis quarter we’ll our third cover financial review to And for impacting investor begin morning. and good your our on then third highlights providing results and replacement today events results quarter. take I’ll Drew, by you, credit will Thank key the then call. facility

new plus ACB. on an A to of new over amounts of providing with open revolving subject by by the previous rate million of Otelco’s term continued a to no expand term refinanced principal in focus the from November CoBank, relative the -- loans, million used on February to previous currently with company’s key savings and We interest following, with led in to prepayment facility replacing credit a the and by proceeds XXXX, covenants, repayments previous penalties with points $XX facility, are current new approximately million were five of the the certain credit since reduces a facility Otelco basis five-year dividends the announce five-year senior fees reducing undrawn facilities and $XX million which include loan, new more applicable and the years declines, Otelco’s on on term The facility penalties, repay principles next quarterly shareholders payment XXXX, effective potential cash compliance XXXX, than additional the million, XXX pleased to ability our by Otelco’s the and associated to as their $XX banks The $X.X to $XX.X hand and leverage. LIBOR reduced existing of loans, beginning loan transaction. debt points term new a million consortium X.X% X, that pay from a had term $X loan debt leverage the significant supports prepayment subordinated an of margin been margin rate applicable Otelco’s reductions interest loan

former rural Connect networks XX CoBank the telecommunication the needs support and alternatives review to more strategic a and acquisition from things. to being its to been out of Alternative the by and stronger has serve included the strategic financial to company prospective The dividends investments and funding, the previously being debt Street for lender other Otelco involving needs build Bank merger range for Otelco transactions, payments cash the capacity its quarter support cash interest from among merger, transactions acquired to will to compared a and it company and the their These to facilities. of of Group allow than program over or with of by financial up concluded understand other $X.X sale, a be reduced a the wide provided business, years. free Our of and alternatives. FCC’s company. our expense level a our advisor, will designed for or of companies announced shareholders. sale LLC interest that’s contacted versatile broad key -- customers. events the has companies in pay other has the the partners provide They The CoBank range America determine And million more repay Partnering XXXX in with additional interest Model

the viable or in the by Directors Street company shareholders. the company However, Bank the transaction parties and none of of be or of presented contacted a Board that LLC Group our determined The Otelco’s interest to best

concluded market ago with was the similar results. comparable to years Our three approach

the rural industry wireline in to wireline particular believe We industry consolidation. the telecommunication further from benefit would continue and

the We investment that will the company maximizing focused shareholder pursue I receives will present company and of discussions meantime, alternatives to our in indications themselves. on Board continue in reasonable remains has possible In remains regarding that the committed strategic consolidation. and alternatives. value periodically interest network. reducing and The to to also want opportunities to that look our participate note Otelco for leverage and

Looking affecting and at of the third the providers. operating XXXX, results all ongoing telecommunications conditions quarter industry financial reflects our

capable funding speeds a within in will broadband ACAM the Otelco where The first continue to quarter, the stable ACAM including ACAM and we to rural communities. the our expect includes be deployment in specific throughout continue to locations noted number census of network. broadband availability our obligations, eligible payments service invest to higher expand to program speeds previously the the of certain broadband As FCC’s election begin Under blocks of in XX-year specific areas. the expansion ACAM is applicable states five of the mechanism receiving during the company. provides

seen the mentioned return estimated new legacy I support decrease under model-based budget funding RLECs an our a increase Fund in XXXX, As would cost funding calls, have model-based to support under regulation. new high by loop expect support XXXX control to in million XXXX compared adopted in newly year-over-year ACAM previous $X.X Without mechanism. rate ACAM under we FCC’s Universal received Service normal the and of the

enhance With the increase coverage. the of introduction the be of speeds ACAM in several in capital to can XXXX, the years networks additional revenue above in funding and support the our levels used to broadband last investments

phase The underway with stable work primary cost ACAM net in applicable improvement in effective in driving expected and associated Otelco, Maine of Missouri, ACAM in $X.X and totaling fourth program fiber-to-the-home the factors five quarter revenue completion where the XXXX. the of expense income. management the were For with are this first the projects million states of and Alabama is the

program. not of one-time than XXXX XXXX, the did make $X.X quarter capital the third million the very XXXX. year-over-year in consistent. During XXXX, $X.X EBITDA quarter commitment net network period some Last and the The the third performance by that in to buildout compared company’s this in Otelco’s increase expenses required for in to same the million same recur was XXXX. the in Consolidated included year-to-date which was would period quarter year million $X.X higher of its income $X.X invested million, reflects

in of Excluding consolidated XXXX, first each approximately the of CoBank year. million this impact EBITDA $X.X dividends $X has quarter million positive in quarter been the

improved principal reduce continuing press an of The prepare a the million Consolidating debt our net the lending fact $X third streamlining facility. Otelco’s of senior of at and to replacing credit norms our was strength X.XX. XXXX, leverage focus institutions the defined facility company recognition the our During further in made as business to company’s XXXX, of as that calculated total operations towards current reduce operations. quarter and release remains new September additional business. of for The terms reflect and industry payment part the of to strategic plan leverage and XX, cash ratio of

have significant systems the common in across and We with support our platform operation. progress replacing entire a made billing operation

were current system October changed XXXX. cycles on in in the to dates X, Our XXXX, conversion preparation for billing common

first the on quarter. year. fourth in user platform of billing new conversion this new second end to the the billing in of with to We begin during quarter quarter follow will the system the begins training Carrier XXXX,

past footprint. entire sales, regional-based management and transformed to have with service months, across we from together a customer functional six structure our our functioning Over organization technical the operation teams

in trend whereas completion more will the of conversion number the general operation trends the voice the the access expect billing more provide enhanced savings systems, customer industry, Reflecting We access company. been the structure data, decreasing, coupled serve with deliver organization and we and stable. RLEC been the have has line efficiencies the lines of customer business functional throughout service and residential granular to

declined equivalents line XX, For quarter X.X% the residential to or access of compared XXXX. June our XXXX, XXX third by

or access business lines compared end the X.X% to quarter. XXX Our the enterprise of and by decrease second

XXXX, total XX,XXX As access we equivalents. of operated XX, line September

Our results. leveraging the selling ongoing company. operational broadband will Curtis now rural services and our of strategy consists incumbent throughout the market expanding summarize quarter of to availability service our the base customer additional fiber-based third position, financial

Curtis Garner

quarter. Rob. new contained provide generally quarter is the today, not facility. Unless noted everybody quarterly year, period against Thank every to appreciate as third release. CoBank only versus the results last We you, joining credit third celebrate hear quarter otherwise, us financial a to our overview I’ll of the brief also press but third in about our highlights comparison same

to down ago. PBX third X% were Total from As increase. quarter FCC’s Hosted long for service and a we annual from distance, able sales XXXX in the our decrease factors get year for primary Hosted in revenues note to were document. order file PBX reduction Please third $XX.X be actually residential $X.X quarter million expect subsidies the the information you’ll including decline. tomorrow, million $XX.X voice XX-Q in the industry-wide that lower certain The the additional million, lines equipment

access a is accounted million, revenue of million, such decrease Fund, service X% components recovered revenue, the year The lines at local decrease categorized prior $X.X which RLEC period. a in of Connect decline over the voice interstate portion distance a of revenue. as access related revenues Looking America decrease through as the $X.X for of is residential long and was the

America customer partially reflecting higher partially PBX a X% pricing, just access increased revenue rental long-term by ACAM Fund payments. increased $X.X lower offset were were down Hosted based the and offset $X $X.X decline including and combined X% pay-per-view $X.X revenue, churn by Service increase pricing and million. services. were $X.X fees. remain and to special They market End-user from was partially the revenue an $X.X increase transport service switched in interstate the and agreements. in decrease initial access offset million sales revenue and million million, combined more by revenue security Connect revenues equipment a just $X decreased their just and Network to including X.X% by increased a fees addition, by in million, into $X.X in million as $X.X million, under security Fund. speeds under million, $X.X to decreased equipment reflecting revenue declined In -- X.X% million, access, Universal services offset at hardware Video decrease, IPTV, a in transition Internet data Transport wholesale over services. digital increases and customers

you by and million, -- was resources, new expense, on these third Depreciation in a of which the fees decline we increase toll marketing until case PBX $X.X -- services year. Cable wondered year the which offset to operating including all of $X.X for quarter, principal increase we $X.X million. the expenses reflects municipal transaction prior penalties reciprocal amortization legal, credit and amortization associated the additional we reflecting the close cost in reductions. reducing X.X% the depreciation $X.X X.X% Rob by penalty the and facility, and senior the with million and Cost each million, the Massachusetts the offset by million, mentioned of impact X.X% senior of by and decreased last facility, based third and loan percentage in hosting, was we’re are from in XXXX. driven slightly year-over-year and the substitution telephone to $X plant million related amortization million EBITDA a of the with up rate $X.X changes, million. noted, past quarter, expense categories. reduce was $X expenses for better third increased on quarter interest assets Moving The decreased providing higher expense. In February our as to in transaction. reflects an Operating compensation line late in billing cable to the $X.X human amortization property expense million, revenue cloud X.X% our earlier. decreased with the X%, million an increase new acquisitions. XX.X% of million platform the savings of see accounting, Hosted tax decreased paid Rob during begin reduction earlier to training expense to we costs quarter $X.X revenue of a million, expense $X.X for was million, last offset were $X.X impact as due ACAM quarter, adjustment February operating intangibles of plan third management will management, I $X.X over third new and closing plant effective for $X.X end by the and was market for equipment These get decreased XXXX points -- between expense million, for and $X.X we date fees, expense the access, decreases net with project associated partially the decreases from for primarily million three lower a year. other once year, $X.X to primarily partially last the ‘XX and lower which cost the primarily will to expense, million wait X% uncollectable mentioned credit and prepayment a intangible in to decrease to SG&A Factoring our balance decreased internet decrease for and in that decreased to management, these interest refinancing of incentive compensation cash outstanding than is services The operation down X.X% million, $X.X stock-based approximately expenses Consolidated was why more the $XX previous income X interest didn’t fourth plan total two quarter income which XX.X% used associated ago, of reduction. in with over

we cash at in third equivalents, of Looking million and $X.X quarter to the at sheet, balance end with cash compared XXXX. million the ended $XX.X

$X.X Excluding was just over $XX.X our the and million. payment the balance made on $X September credit we XX, XXXX, in grew $X the At senior million principal outstanding remains senior -- August million, cash revolver loan undrawn. was facility, by million $XX

with expenditures we have XXXX single for of noted, period billing the of the than same to in to platform, credit annual facility operation the anticipate refinanced our XXXX, and As million we be in convert will ACAM a the our XXXX and for to compared subsequent debt. third million $XX for end requirements the $X.X million investments quarter work Capital ongoing now systems and quarter outstanding to years. previous our buildout in higher were $X.X and

on highlights limitations on the you in upcoming allowing questions I Rob, shift for press can investing in think, this taking directions, the not and business. we in can release the more to that does specific us Our the details the Kayla, facility put XX-Q. covers if new CapEx, provide flexibility time. investor at quarter, credit more

Operator

Thank first & Company. you. Sochet, to go [Operator Instructions] Ira Sochet We’ll

Ira Sochet

morning Good and congratulations.

Rob Souza

We you, that. appreciate Ira. Thank

Ira Sochet

Difficulty] [Technical $X all you the correct? forward, and that so Based equal, press release remaining on it now quarter going (XX:XX) reduced that with can per million of EBITDA is on appears the sustainable things

Rob Souza

projection. you, that It an were difficult were if you was providing But I hear to Ira. asking we think EBITDA

very what think per has XX that around our $X consistent past we running in million trailing did indicated very, and months. this we performance quarter I is been

Curtis Garner

or and been in This our is been don’t We has has of past of our, Curtis. game think, this -- projections I And our income our the -- revenue. EBITDA, terms past. plan it generally provide even net

Ira Sochet

you. Thanks Okay.

Rob Souza

Thank Ira. you,

Operator

We’ll Caldwell go Capital. next Joe Helmer Sutter with to

Joe Helmer

guys. Hi,

about would increases? calculating to I per what a to after-tax So, with question, we we tax that guess, share Ira’s savings is guess, I rate go should this savings. is How interest earnings the to component of arrive interest continuation the -- apply after-tax which

Rob Souza

one, to am let Curtis, handle you you going please. would, I that if

Curtis Garner

say, us it And I will am to decides, we to and off whatever on the impact Congress based -- toss same way. that Congress going will

Just NOLs. any have to be we clear, don’t

the pay we’re whatever of so So, size, taxes our rate we the a is at therefore, level just earnings of taxpayer. -- for full

think I XX% be to in the on So you XXXX, to what do then of taxes nothing, would if range do impact the can -- depends lot they somewhere Congress depend interest decides rates. XX% on for

Joe Helmer

Okay. Thanks.

Rob Souza

you. Thank

Operator

Edward [Operator We’ll Painter, to next SHomer Capital. Instructions] go

Edward Painter

going on work Great refinancing company and strong. keeping the Congratulations. guys. Hi, the

from sense, just get think I in of versus spread and a very call, as is wanted just interest you liquidity a little sort and of little are wide you relatively if substantially a prices about What more as a could know on mentioned $X possibly ratio see to long shares, bit came then, the little stock stock bit about don’t the late. and can that above could I get Let’s liquidity? split earnings shares talk the if a with get liquid interest better a of but bit that payout

Rob Souza

question. that sat we payout as around, this and I And either really that discuss don’t really I things this calculated and not will for that in question. thanks as consider a Edward, and Board or had stock any for am have far anything haven’t down at kind Curtis and be split have the but don’t an a idea certain so point, believe and to time. time bounce forward to idea those of of I the that prepared that at ideas looking Yeah. even entertain discuss answer or basis. point types I I on ratio, the of

Edward Painter

That’s fine. Thanks. Okay.

Rob Souza

Thank you.

Operator

Sochet. Ira follow-up And we have a from

Ira Sochet

Good again. Yeah. morning,

Rob Souza

Ira. again, morning, Good

Ira Sochet

Nice.

don’t split on last believe I rebuilding and and shareholder certainly point. company coming and a proven see to Just I as that it has of not (XX:XX) larger this Thanks. caller, a [Technical any in out management company, Difficulty] the of growth I am in setting stock bank follow-up sort point a see beyond at do the since itself path? the

Rob Souza

Ira. you, Thank

Your point is noted. Thank you.

Operator

And further Mr. it turn I’d questions we to to in no queue. back like have

closing Souza for remarks.

Rob Souza

you We morning. joining Kayla. all of appreciate this you, Thank us

with can managing are changes in see, that telecommunications tandem remain industry. the occurring the of Otelco on you we As focused all in

current we your the and welcome certainly always, again, this look opportunities We plan developments to as thank value you dedicated and on will shareholders. our we questions for for greater to informed and continue our We business, keeping in growth additional the marketplace, we regarding our morning. delivering you call joining Thanks. are for in

Operator

We today’s your thank conference. you concludes That participation. for

disconnect. may You now

Otelco (OTEL) 10 Nov 172017 Q3 Earnings call transcript