OTEL - Earnings call transcript Q4 2017

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Operator

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

Drew Anderson

Tracy. you, Thank your results to December call review to XXXX. And the Otelco fourth Company’s for ended quarter the welcome conference and XX, year Conducting President Rob and will Garner, the Executive Curtis Officer. Chief Officer; Souza, Financial Chief call today and be

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

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

Robert Souza

Thanks call. our Drew. to Good investor morning fourth quarter and welcome

last some facility. your announcement both credit Otelco event provide touch we will me I'll and have these of most current review questions. year as on the new of on was Otelco. our our The significant and Curtis performance Then will Let two benefits results operational key discuss events fourth I take the for quarter’s financial long-term to quarter. before color

banks the previous existing with Otelco’s from supports Company’s which call, penalties by focus used with $X by on and on continued undrawn. million to As leverage. transaction. fees led term million hand associated new on term a interest the and we new repay November of the more basis revolver and CoBank, from facility reduces refinanced our prepayment the $XX we loans, cash a points Otelco’s The ACB. new includes were credit effective consortium loan facility rate disclosed their facility facility our five-year XXX credit new is a than on Proceeds reducing debt The

Our to CoBank interest cash for lender interest would networks for more reduced of under to capacity with by million terms support or a the we versatile Otelco the of the ongoing our payment compared the build expense and world the we former companies what flexible XXXX has been $X.X FCC’s been the facility stronger and The be have the being Alternative dividends will facilities. Connect America includes and companies additional the borrowing. when by more concerning Otelco for also understand Model have customers. They to program acquired provided serve more needs out than years. telecommunication XX and serve over

to affected a of as the our that tax experience, streamlining deferred future most the employees rates start XXX% week. quarter for bonus special the that and second Jobs income our It business. would The of strategic business with take with should tax everyone in liabilities Tax taxes most lower and an the fourth The more in should the from and recently was XXXX and receive tax year. employees benefit home remains which pay. companies. withholding was Act, positively Coupled reflected December Consolidating operations significantly tax focus impacted raising well our Bonus beginning events announced maximum quarter the everyone increased to key net XXXX. We paid lowered also income tax reduced for depreciation $XXX Tax has Company's rate last was a XX% Act public The is as years. in enacted XXXX. Cut

As operational on and of our a partner billing last consolidate all selected platform. year, one we systems to announced early

system quarter, making to disparate decisions all of team fourth new partner the has the into our we processes Training During developed every is all consolidate and the new needed involving for necessary employee. the to data continued system. on of the new build system operational our the the

first Our in of this end-user carrier going to are the quarter with billing follow new bills XXXX. second under out system the week, customer

as England, a The new operational Communications to otelco.com. updated system, will our Company-wide OTT become together of with Otelco. move has are services been logo a we New all we rebranding in technology, incorporated As website tradition our Otelco. In tagline

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

and new and deliver efficiencies and productive operation data, to Clearly a Otelco. XXXX company. me turn for coupled We the conversion systems, quarter that Revenue will billing busy flat and XXXX, expect good were customer the industry service, with the decline from organization and structure the in granular provide functional With the let to backdrop, a to continued the was year enhanced same can be considered residential as the of more throughout customer that our fourth given in compared period income basically operations results. news. when customers savings

investment to certain location. its In under eligible the the used provides company. of ACAM where to customers. expenditures when funding is new the to Otelco first the increase of number network. increase to in As increased the the FCC’s the blocks in company during expand invest locations of ACAM and quarter similar $X.X with throughout model-based XX census Otelco the reaching deployment continue broadband ACAM broadband funding program election in broadband our enhance placed $X.X capable approximately in began includes build of payments ACAM, to our ACAM speeds over specific eligible passing states broadband broadband receiving obligations, million of an invested program capital ACAM the within XXXX. including its to areas. program allows year our of of network miles be fixed million The year, being its The Under Support XXXX investment. fiber expansion out the to in new expect continue and over fourth in to speeds is funding, service provide communities. speeds plans fiber, X,XXX The and million to availability a Including to for specific the locations business and accessibility the XX-year will higher for discussed full-year of $X.X applicable the five mechanism compared XXXX and in its of ACAM rural X.X% XXXX approach Company the we last

on liabilities. XXXX, $X.X in million a compared Consolidated primarily was reflecting was During income year-ago. $X.X of net the fourth Tax to tax XXXX, period quarter for fourth of Otelco’s the impact with $XXX,XXX million the Act million EBITDA quarter same XXXX $X.X the compared

XXXX, debt our residential trends access of the and trend been have of trending total XXXX factor but in in access Company to The voice, X.XX. stable, fundamental the principal release payment of press voice decreasing, a of we lines net to consolidated million During was industry. general more the whereas $XX.X credit also the as made lines has EBITDA new ratio the a million. reducing facility fourth number The defined the serve calculated our $X.X in lower. the as quarter at XX, Reflecting Company's other cash access data, RLEC line of on outstanding balance been industry, served and number December business

declined addition compared For with by X.X% decline XXX April by the the customers X% the previous in quarter XXXX, our Massachusetts compared over with line of of residential and quarter of in end This lessened access municipality Western fourth of one XXXX. equivalents declined the in XXXX. was

end end the to compared by the year. third quarter and line enterprise customers. equivalents our Our XXXX of business access served of Approximately the line enterprise XX% business end of compared and to and at access equivalents of last decreased X.X% X% the

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

to and of rural Our customer broadband ongoing selling consists the strategy position, incumbent the expanding our leveraging services our throughout additional base service availability Company. fiber-based of market

sales history level service. service our which emphasizes believe helped by our and local competitors enhance RLEC marketing the has familiarity customer to differentiate our a among have Each long our products marketing that residents and of serves, from territory. We in we locally Our ourselves with by providing able are of superior level approach our oriented to of communities in fostering it managed reputation a service.

within direct now those improves All communities. a financial we of reputation will our often and results. employees are local connection residents and which Curtis with communities fourth our enhances customer quarter the summarize satisfaction have their believe

Curtis Garner

everybody now. We I Thank us some am appreciate at is joining noise. I you, background there if apologize today. an right airport Unfortunately, Rob.

noted as period generally comparison otherwise, versus our fourth the provide me fourth the overview Let against of press quarter Unless quarter contained last highlights in a release. is same financial fourth year, quarter. brief every

and annual will as decrease be programs. compensation ACAM order revenue million, Form affected XX-K RLEC quarter equivalents SEC Our contain access for $XX.X the down America on FCC’s residential comparisons FCC’s Connect which filed The and traditional with increases as reform next line should by the access quarter. last offset well Fund fourth X.X% additional years Total early inter-carrier fourth the revenues by Company. were in information from were week, associated the

distance Rob PBX interstate access The directory million. an FCC’s equipment the a components and the for access a as lines residential the intrastate through of of as decline is accounted the of order, which million. reduced decrease a eliminated the mentioned, RLEC $X.X X.X% in local categorized sales recovered at million, decrease services of period. of Massachusetts CAF, $X.X Hosted the was long of decrease $X.X year local decline RLEC portion provided revenue, decrease and revenue a service over of revenue. Looking million. increase for in voice revenue, municipality impact Wholesale revenue, The is and prior $X.X accounted in A revenue cellular in or which

reflecting decrease unchanged municipality over speed $X.X a an revenue partially Video network and ACAM million. in revenue residential in million XX.X%, Moving transport services user-based it million revenue, a partially CAF, revenue, fourth decrease on offset in Transport end and last Managed access X.X% increased in by $X and a by a area Massachusetts increase and RLEC pricing, reflecting decreased were year, wholesale reflecting X.X% transition in was offset Internet was by additional market services. unchanged in at wide the $X.X switched in special network services was a IPTV revenue. but at fees. services professional $X.X a payments security in access million offset customers in last related basic decreases increase data decreased and revenue Increased in to over million, decrease offset cable. security and increases year customers. reduction revenue quarter $X.X by

to access compared each Cost Moving for the to $X.X prior of total operating increased on quarter, year $X.X and operations internet, services fourth both were unchanged period. up million. to at and and increased X.X% network million, for pole Cable X.X%, while a remain combined million basically decrease the expenses expenses expense $X.X toll in expenses periods. so rental of

end and Operating of benefit. costs producing deferred to of decreased the down had of in Company’s quarter. X.X% million versus The which service in $X.X in XXXX debt the at two million, facilities no associated credit X.X% last up the up from of at of associated million due last $X.X $X.X lower There expense of a facilities accounting accounted income increase customer Interest to book with credit the intangible $X.X CoBank $X.X was same on last partially Depreciation quarter amortization a loss CoBank plant fourth for change million addition, resulting XXXX tax SG&A requires net was Shoreham replacing the after for same with depreciation $X.X of a and federal quarter comparable tax income used future plan write-off the with taxes Vermont the and the GAAP compensation $X line The XXXX Company’s year, of expenses million fourth former law the million impact positively XXXX fourth acquisition the on the liabilities, with Rob cost $X.X Company loan year. tax of the tax and million fourth terminating from adjustment by compares quarter. term – was be which tax In combined XXX% XXXX. The the million benefit noted change $X.X interest associated material period in The bonus $X.X with loan $XX.X plan decreased increased a the in tax fees up $X.X change loan million these use penalty, bonus expense a of fourth was also. for were associated increase that executive Loss is period years year. $X.X in stock one-time a million period. up affected attributable in the credit was X.X%. for the million will expense from offset amortization facility XXXX tax on million. in from the the shown new previous The in quarter had million $X.X million benefit the increase new in the million for sales on cash expense in assets separate income year. expense or was compared experienced we and with remaining item. The $X.X loan expenses versus to to a by for year impact The ago. final increase last year's $X.X versus bonus amortization million decrease. in new the and was expenses term $X.X the with termination other XX% quarter. telephone prepayment under months fourth in of

rate In to XXXX XX% federal to reduction the tax addition in the begins which in XX%. from

$XXX,XXX. depreciation by in XXXX bonus over increase reduced taxes income federal For

tax bonus to the a million. taxes are XXXX rate below For Factoring by for approximately fourth depreciation income the implementation Consolidated $X.X lower increase credit these in of million compared net in million with tax million our all law was estimated income changes, $X.X cash and $X facility. $X.X the that fourth as change the Rob mentioned million of quarter $X.X to for CoBank year-ago primarily new due a EBITDA quarter earlier.

end of the to balance million million the December $X.X reduced to the December with million the $X.X in cash, XX.X%. $XX.X fourth at at the notes period XXXX expenditures XXXX. In the at in long-term XX end ended or XXXX, $XX.X quarter from $X.X sheet, XXXX, $XXX.X were million million of to Looking we fourth compared the in million Capital quarter February our ended same outstanding XX months for XXXX. in and we year compared

systems The million was We will increase build last a to year, the to an the ACAM single than compared for million our probably several $X.X years, in operations network For higher the $X.X reflects but and CapEx the and platform. annual out anticipate to line work be XXXX. in convert XXXX with requirements in expenditures. billing investment in in the XXXX

credit us flexible new facility the allowing put doesn't investment I a highlights our quarter. on Our Rob, limitation the more the covers that be for in CapEx, think to in specific business.

at XX-K. directions, provide were we release Additional shift upcoming and can this time. if details taking the press Tracy, in want to questions operator to you

Operator

And we [Wally to [Operator go Investor. Private Instructions] you. Thank will first Walker],

Unidentified Analyst

Good Hi, morning. Rob Curtis. and

Robert Souza

Good morning, Wally. How are you?

Curtis Garner

Hi, Wally.

Unidentified Analyst

above multiple a for for sold general fiber I thoughts that prices get that its and recently anything wireline another fiber. just the Curtis. at of fiber your fiber quite moment? I of bubble marketplace to and situation in the what far as the conference and current a call Also for before. About observed current through wireline small the EBITDA current was like companies just like described kind paid presence from wondering with paid ago, your being are month impressions it Otelco an are seen places Hey, would the I

Robert Souza

paid that We We watch to the are activity traditional reasonable see the where as the maybe market question. you certainly it's their or that individual fiber real that be whether happening. I'm not the prognosticator not reasonable. certainly for high or and happens being more of mentioned what's thanks and good pretty values less a Wally, I'm and activity focus companies, in primary a sure the one far fiber to see for mix some multiples services. suggest

we our of in I'm and difference also think industry watch our with answer fiber you who the certainly So to the lead result of and services seen We the what us following expectation and as like place the provide continuing to broadband it the thing do to a not for to that begin is? fiber we're investors closely. hopeful a right right increase is customers makes and to the with Company pretty ability sure, fiber multiples have those

Unidentified Analyst

environment Based would fiber XXX upon go lower just your this numbers favorable year. from and we in Otelco’s Otelco and reasonable fiber miles more route taxes lower was that be I to now for assume XXXX debt wondering if over XXXX, would

Robert Souza

be that’s of Wally, proposed get whether a We program FCC the was all of We was he if unsure closely. the award fairly our the to afforded from or question follow Otelco really Yes, the comments, good ACAM award were of the going not working. variables, FCC, did really some and ACAM obviously something that news ACAM receiving was on the that companies to money. based receive the didn't

around XX XXXX. it think December of I or was XX until

So had XXXX was planning do be we A but planning to for lot time began in out a ramp same for implemented, that here. we place the additional the of those up really us to needed years. at

I fiber likely So years the of the we would would in amount anticipate increase. that out place

locations it locations. XX% and That those we imposed where with dollar eligible Now reach eligible looking having a meets need many pass of possible two on we that, locations we factors has your four as the spent. said for that in as ACAM can obligation by reasons. us One, the certainly are ACAM at FCC to

will thing be ultimately the be would our higher. on density return The higher where building investment, is locations much which we it second does those into

one decisions, would investment increase going years. of but that anticipate two mix to future a all be our in in it's those number miles Wally, likelihood, the So things would drive overall of

Unidentified Analyst

you. in got I've the Thanks a for lot. by there And more one way,

looking Connect March Otelco’s And of planning II for Phase FCC service decide blacks or participate areas in participant? guess whether at now. action received Many eligibility that that census and up you states and I to new they the As from are the in July just being not eligible the reverse as a on I are that here a XX FCC. to billion map carriers understand the the going I'm deadline $X.X wondering, are adjacent serves. various to begins it America I Otelco

Robert Souza

not eye we whether deadline a make are We have exploring that certainly filing as will we're and closely on not the our something opportunity, a will determination we keeping certainly Wally, but decision or will it's made approaches. for participate, that

Unidentified Analyst

guys. a Thanks a Have lot great day.

Robert Souza

you, Thank sir.

Operator

[Operator next Instructions] go Gunn], Investor. to And [Phil Private we a will

Unidentified Analyst

Hello.

Robert Souza

morning. Good

Unidentified Analyst

Yes.

With to the whom changes all in both to a of shareholders, this who the the they're if good still the tax would I time time institute would for after around it them? years these be been lower rates, a – dividend guess and interest most a reward nice common have be

Robert Souza

if question. as Company And to the the requirements. those in our met it its flexibility million Sure. earlier is and that. board subject mentioned the expect in up I that credit And and best and the pay determines dividends to It XXXX pay interest it's facility we but of XXXX, will appreciate certainly does requirements certain the of do that dividends, are shareholders provide $X.XX to new to

Unidentified Analyst

you. Thank

Robert Souza

Thank you.

Operator

[Gene to Investor. next go will we Riley], And Private

Unidentified Analyst

attrition just wire fiber, are rates between what were versus blocks by to Hi served serve in groups? stay would if that into curious you currently you two those census your that those look the the at company difference as by there. divided the I'm

Robert Souza

number, services top I we location every with of hard off factual we head that know with certainly once fiber a the the serves us the fiber, mile that place greater. lower. Well our that fiber customer we attaches anticipate the is with likelihood to my staying I could attrition answer don't that would that that and would on rate stand believe and be but them of customer of to much pass We

Unidentified Analyst

appreciate you little that could Okay. just it. a more on conference information Maybe call next bit and us give

Robert Souza

to something to census for the those blocks down the respond that's It's to in on is ACAM. have not that. necessarily that to so we tracked providers in difficult future. level difficult work census progress, to attrition, just That but is near to not details based for us probably It's us a block will be our Yes. respond available

Unidentified Analyst

you. Thank

Robert Souza

You're welcome. of Q&A End

Operator

Mr. at are questions turn There Instructions] the to no back this I'd [Operator other to conference like time.

Souza closing additional for any or remarks.

Robert Souza

appreciate focused we you Thank appreciate you, significant opportunity with managing joining the We in continue We changes our to Otelco remain and our that the to in industry. Tracy. always to calls. on occur talk tandem investors our

growth as additional for current greater opportunities look are delivering value we our to always, marketplace, to for continue dedicated shareholders. the in We and

to to you joining thanks we look so So much. us again. forward and talking for Thanks

Operator

conclude This participation. conference. does We today's your you thank for

You may now disconnect.

Otelco (OTEL) 6 Mar 182017 Q4 Earnings call transcript