OTEL - Earnings call transcript Q2 2019

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Operator

Good day and welcome to the Otelco's 2Q 2019 earnings conference 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

welcome results Otelco ended for XXXX. and review call June Chloe company's the the you to conference the to XX, Thank second quarter the Curtis Garner, Chief Financial Officer. Rob President Conducting Chief Chief will Richard and and Officer, Clark, Souza, Officer Operating today call Executive be Otelco its these of slides posted today's call investor on section Investor Relations some has the may company's reference updated of website presentation the and management during

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

risks Securities to terms In expects, to describe statements readers or similar generally such explicitly be Exchange The the uncertain subject are company's the with also time-to-time uncertainties, labeled terms uncertainties other with described risks urged contained addition which believes, anticipates, and filings the statements herein forward-looking. plans forward-looking that in and are statements Commission. are intends, to belief, consider and to from and

the stated, over that go now to turn I ahead, call With will Rob sir. Souza. Please

Rob Souza

that, and take second will performance welcome financial and second Richard After we XXXX quarter updates will quarter's I key our and discuss our questions. good review to Curtis you morning the and will our operational Thank Drew investor call. issues results. provide will then business. other affecting

on we walked quarter, through Last presentation traditional investor this call. a

our fiber earnings second May used slide the is Form the the updated we posted website results. It some quarter's press of and As was on release. on and with X-K with plans filed Drew in along has buildout been financial noted, deck latest

it. reference deck included a We today's may but updated call, in few will not be pages in using the

bring While our customers results investment reflect access to for trends customers. in quarter our results $XX.X line residential million our continue from These our were it other decrease to was with fiber for in RELC broadband plan improvements higher increased XXXX. Total quarter network X.X% in a second decline, illustrates XXXX. traditional to as and our industry also million, the the in and the reported speed second revenue revenues first quarter service $XX.X for revenue

second for of from Second one quarter legacy increase XXXX short months results first and of months of six half XXXX revenue the and Missouri a reflected the A-CAM ago. support in Shoreham's six full XXXX of year revenue refund increased one-time haircut $XXX,XXX

quarter second second customer residential quarter of rate impacted saw the on customers previous when Internet XXXX the pressures services XXXX results. churn slower negatively quarter, and a loss pricing to competitive compared While

stock-based in senior down $X.X $X.X income quarter EBITDA Net the Consolidated $X.X XXXX, a quarter in in XXXX. from second cash-based incentive in quarter plan of million XXXX compared to once management million you XXXX XXXX XX% and expenses you to decreased to shifting exclude second a were XXXX. Cost decreased plan impact to when quarter XXXX from to second compare in XXXX. $X.X million second million in XX.X%

and alternative to influenced by to we buildout will our and telecommunication expect IP-based make be of network We these while and speeds continue our may properties such continue the services products, trends data further availability RLEC higher competition cellular available. in as

funding beginning Otelco XXXX. to in the five to to to since XXXX states The being A-CAM additional model-based support payments customers. accessibility Otelco increased FCC applicable commitment receive speeds. higher the where offer and increased network in is company made broadband an a provide began and coverage XXXX the used our for continue speeds to for the The increase As discussed, receiving to buildout A-CAM in enhance to through was program the FCC's will program and with XXXX, broadband receive funding

Mid-Missouri year of XX-year the is with extended XXXX. support for support which our filed return of support support $XXX,XXX the XXXX was June years not it and that received all is legacy replaces support to program offer, rate the receives. effective on was support XX, receive in X, XX previous XXXX on A-CAM X, support. retrospectively offer May A-CAM The letter receiving included a and our A-CAM two the accept in A-CAM to support back of companies additional A-CAM each offers, an that subsidiary A-CAM Shoreham, an currently FCC January

receive XXXX, For received to support essentially will but have mechanisms in identical payments under reach plant targeted additional support equipment we traditional A-CAM is locations. under Shoreham the require would the for broadband covered and support payments will investment speeds we and to the

we support regulation. A-CAM, accepting under in avoid the reductions current the legacy by However, potential of years future risk of funding

opportunity in pressures Otelco provided move our pricing eliminating by the expenses rate also flexibility the return operating study known rate and In retail BDS regulation. cap reduces additional meet program associated services change with return to A-CAM This data addition, to provides the Otelco price of as burdensome of participation regulation. from cost work broadband to competitive

Operating our the Chief will Richard, I point, over this turn President call Officer. and At to

Richard Clark

to our supported to double in broadband providing at Increasing of business noticed investor investment investment churn expenditures information. Thanks Board am to XXXX year our and the in customer the reduce XXXX represents capital the provide for Directors of everyone and to them plans our speeds churn. million. second the increases speeds XX% Rob. increase business. In to new investment increased business Internet increased has the aimed digit This change $XX.X a May, customers investment over level customers in ability increase our more I our in sure higher in than

and and our Fiber of megabits in XX throughout the to premise we both next megabits locally In to fiber upgrade creates to on VDSL network our company majority beginning and to DOCSIS in to $X gigabit a to infrastructure announced deliver many for the X.X. invest large broadband the least territory the while additional cable upgrade speeds at serve Alabama capability buildout to June, plans of offer our to Alabama million XX the we Alabama, allows year in us standardize to VDSL cable customers. speeds

the or industry gigabit While Internet, service. our pay the buzzword has for needs to willingness required gigabit meet reality majority customers' to priced it isn't been in of their

have and to buildout worked help the enhancements network, we we increase customer churn. While providing to base these our we are speeds the make to reduce

Plymouth Alabama. shown The and areas Valley XX to XX. and investor in Jones presentation Arab, routes fiber last we XXX on for buildout for the near the location mapping are another Just finished week, in the the premise pages and

territories. fiber In XXXX, network nearly will X,XXX locations in pass expansion our

we this and network completed for both Massachusetts in communities, including CAF will earlier XXX post to our announced The filing residents options $XXX,XXXover for in broadband wireless voice a we greatly II with network February locations post-auction data requirements receive delivering just approximately and As enhance XX-year period voice year, these fixed a new over services. communities.

now our The in first are customers with wireless service. receiving partnership WiValley

constructing in demonstrates serving ConnectME state's residence for the premise Otelco support of received town investment, and authority, fiber with ConnectME of premise. the the will the improve on allowing municipal from Grant solutions locations can A-CAM Leverett, a the Based ongoing business and of part existing the Leverett Alton replacement with be XXX to XXX municipalities, in fiber Our infrastructure capable one we the and approximately $XXX,XXX the digital with in work will other serve the our and community's Massachusetts fiber of locations within partnerships Alton with network of town successful copper our involvement all to to service. access. collaboration funding previous locations town the Approximately required the to like work approximately Alton, also the obligation. are of expected XX% with buildout how of Maine

the We project of XXXX. completed expect to this before be end

network network nearly we FTTP will miles pass XXXX, over add approximately route fiber This miles will fiber locations. network network. network there passing within of locations the we where service expansion In and previously Alabama X,XXX passing to will our locations. transport X,XXX fiber of market territory. to XX,XXX This serve our customers. our believe within total We over deployed grow fiber currently bring Arab, is locations. largest fiber share room to The XXX passed have outlined only X,XXX the potential of market is our We in passing XX%

as We we get these progress ramp employees to execute are initiatives our to our XXXX number our for pleased with the half as first up to have speed hard other customer. of a available broadband more and of worked on

both benefit shareholders. we focus deliver employees and continue customer new Looking on our additional improvement on improving in customers. experience, We an to performance believe the speeds our adding continued enhancing customers and a data management value will cost focus will revenue ahead, and and our our

at quarter, quarter. XXX to the customers, of customer when services customers X.X% decreased or services XXX second X.X% the XXX improvement compared the XXXX, an quarter served of XXX metrics to X% first or an of a improvement in some XXXX. or compared decrease Looking for the provided Services in these to X.X% customers, quarter first decreased customers when in second or

can hints While in of of increased we the investments homes, reduction on the vacation represents impact customers the attributed a churn the of service believe first be for a change to portion portion our activating

be stabilizing and to customers Retaining end-user revenues focus. continues our

services to available are teams approach well-positioned family experience, every their of enhance and we of each pass targeted customers' service our Lightwave customer customers mile new bring the and to sales location plan offerings data back marketing, speeds fiber. Otelco companies. product offering in and into new to Our to be We with improve

the Curtis summarize results. will financial now second quarter

Curtis Garner

joining Thank We everyone today. you us Richard. appreciate

on yesterday release versus the our provide new deck a brief provides might is future quarter used updates the XXXX against the our It for XXXX. mentioned, story. as will Rob we those the summary the quarter otherwise every our year, were noted, few in is of overview press for second available the we of who a comparison good company's quarter the Unless be to focus contained last history presentation highlights and quarter Otelco and and filed released financial investor second second website. same a made generally whole Form the and XX-Q last to which afternoon. period I As

mentioned explanation. quarter revenues as revenue the of to customers, impact A-CAM down the as quarter only million, from XXXX detailed was second Rob well also loss $XX.X revenue $XXX,XXX. counts the XXXX quarter and second quarter of of components additional of for sequential comparisons Each one-time majority The six had the quarter. in of for of additional provides which none any of XX-Q of noted Rob decrease comparison first a residential category, the require which difference. on the shows XXXX that traditional declined. year's the the XXXX second second our X.X% Total revenue last by

to CLEC operating Cost $XX.X Moving X% force all second new increased expenses and to and Overall were generating costs $X.X sales million. at unchanged as its unchanged effectiveness operations our increased million. service for in continued our to million access the our operating increase was $XX.X expenses from million quarter. Customer $X.X while services million. of $X.X revenue. costs decreased sales Toll of

administrative to million general X.X% Selling, million. expenses $X.X $X.X and increased from

During comparable the our performance no cash in management accrual stock expense had associated the for of the the XXXX expenses in increase system of and months our XXXX, one-time conversion compensation $XXX,XXX year. network in $XXX,XXX XXXX quarter $XXX,XXX with offset long-term million a from incentive This by with same expense the incentive decrease plans second to in was compensation design change development in reflecting senior XXXX. the new billing associated

the $X.X reflected as Depreciation compensation $X.X months. XX is from service million. over an as assets our expansion An fiber million and in must amortization cash months increase an XX was expensed be in balance billing Stock depreciation. RLEC from new of The increased reflected compensation generated to the system. an expense X.X% in RLEC and from increase increase while increase

in $X.X second Net period second Basic of the Operating second by to EBITDA net in same share income one-time Consolidated second driven decreased revenue. $X.X income million year in quarter million of the in compared quarter to year, XXXX. revenue. quarter change was primarily XXXX, in in per second driven for $X.X to period the million the again change for quarter for was XX% million impacts was $X.X income the XXXX, revenue. in XXXX, quarter million primarily compared to $X.X per and million prior $X.XX share quarter XXXX, $X.XX to decrease for in previous driven XXXX $X.X compared compared the by in same by of

year-end $X.X XXXX, second our increase our of We XXXX compared million $XX.X balance the with reducing the position of As scheduled loan credit balance of in Rob sheet CoBank mentioned, million our million agreement cash cash second reflects $X.X $X.X quarter to $X.X at payment end at quarter, an of million. on principal million.

ratio mandatory the As of the consolidated on EBITDA history of debt on of the made net XX, payments since be improvement The years X.XX, XX investor to the debt, our over in voluntary June inception and of its was cash, presentation. page of several prepayments November can last reflecting the seen in leverage XXXX.

second year. were and million for expenditures the an the will quarter to expectation investment the year-to-date $X.X million balance that XXXX Capital for XXXX, increase our $X.X the of with continue for

covers the with and XX-Q. quarter in additional that highlights the for think press I the details release

shift time. provide to at we directions, you questions this if can Chloe, investors taking our from

Operator

Instructions]. [Operator

question a a Our and comes investor. is from Walker Wally first he private

Wally Walker

gentlemen. Good Hi. morning

Rob Souza

Wally. morning Good

Wally Walker

the up. from payment. to CapEx quarter many the hardly debt leverage the to And the attack in you the quarter million benefit soon question year basically start easier, to what in appears of $XX.X be am the leverage that XXXX, is off? catching now. aggressively changed CapEx, Otelco if guys municipal million My years to benefits? the expense $X.X second drop ratio this anticipate with expected getting lower asking when the speeds is, for so, to continue ratio you does Otelco due finally the pay net CapEx the higher to that buildout second of of committed following I been year, to you due how have online coming a have its is And it half I in comparisons Despite EBITDA with projects fiber decline? new the And do expect future faster at do this going debt and the second quarter XXXX

Rob Souza

fiber been but will begins Great over has believe to placed. more question take and time fiber buildout certainly to effect Wally. accelerate as We the more continue slowly

we note around of most is the think of fiber I our have current that Richard fact XX%. made that the in rate penetration built

We adding expect would X,XXX will hopeful fiber this the of certainly Arab, in to are an customers year see with serve locations over facility that we Alabama that we and be will Arab an rate It will we the in and increase number immediate the stabilized be up. not with to in we and we but penetration additional can revenue drive over that change topline be believe eventually grow. overall begin is time going to the trajectory, investment, territory,

Wally Walker

II question for Did the All we receive for second right. real payment Thanks. CAF XXXX quarter? and A quick. our Curtis

Curtis Garner

not No. II payments CAF or There were of received no Massachusetts special payments any unusual WiValley, yet. yet and we payments have the

Wally Walker

final you like Okay. to may, in me, blocks obtain sounds do small a customer? that And Maine noticed X,XXX I to four from the requested expansion. the waiver phone from them Otelco impact I to MPUC any customer a meaningful for city. it number if one question. numbers, adding was XXXX a Do an granted who expect

Rob Souza

transporting block. existing One is just of when some impact, type to that numbers are it things, of requesting the of they the

short will of not Over they large repositioning. just that But expand increase lines. add that as do a the time, we demand in a in they was run. lot expect phone So

Wally Walker

All right. Thanks.

Rob Souza

Thank you.

Operator

[Operator Instructions].

Bergin comes Beyond from Our Investing. next On Tim question from

Tim Bergin

Hello Yes. How are guys. you?

Rob Souza

Good morning.

Tim Bergin

while give Good may the additional agree do these some can how I used that bit give your down that. what debt? change to to My of like more for buffer. to a be question philosophy to am capital, morning. you investments more with on payoff Something thoughts from curious or and debt pay in time company to feel CapEx, is, I for primarily I the benefit repayment wonder the

Rob Souza

the appreciate question. I Tim,

best of we company in Otelco is leverage and certainly at our and fairly ratio the take. we into down that point position the we instrument. pay aggressive at it to trying position debt for continue I time, to to And infrastructure past this reduce down that years, believe comfortable debt a rate year invest the overall We for paying at will been in required least felt get our current with. believe debt next, think, had more the over few in to this continuing

believe pay down is we this we So continue debt, at in to investing the the time. interest what's infrastructure in while company of best will

Tim Bergin

But help accelerate I the agree. yes, and Well, help a improvements balance Right. certainly injection infrastructure could sheet. capital

my So more I was that question. guess

Rob Souza

anything, but making It it not against and investment, right, in to return our just existing if decide could of Building fiber terms the impact of on tomorrow. talk have shareholders there starts ability investments, sometimes of the having is do injection we when a and its positive for So amount we you takes timeline is about balance increase company on impact Obviously churn. the capital a that manage today something a to overall to also significant planning. it. new

minute thousand cost build quarter for goes one-time to spent As long fiber Curtis dollars the term of hundred couple planning referred That ago, develop a our to this we a our plan. future. into

Tim Bergin

Okay. you. Thank

Rob Souza

Thank you sir.

Operator

[Operator Instructions].

from comes question from Joe Capital. Caldwell next Our Sutter Helmer

Joe Helmer

guys. morning. Hi Good

consider Going be management, will look of I make over anyways. like substantial point going declining are you the the at a increased you strategy pursue it the answer in hard churn, this I topic to revenue, investments up on what does to bring would that might the one SG&A scale versus And to for with relation revisiting at us? thoughts revenue cost the the here, back to make to sense strategic would time, topic but it you some When alternatives? guys your guys

Rob Souza

the at sure question am that answer to or we not am look strategic on if alternatives. prepared I I when point, this to continue At would

pretty our think clear. history is I

invest done this point look with We continue I work that job expenses and in at we forward the investors time have to expenses time, the continue past. rather really the and good now is at been line around. our plan company, happened believe especially going as stabilize the overall. to that our We have every we turn suggesting revenue infrastructure. a at controlling opportunity to to topline think believe that's revenue to in its in believe forthright We best in cut

Joe Helmer

plan thousand achieve couple to you me a more same shareholders money previous you better could know, think amount situation? I you you the going Can Okay. and you a that plan build scale? they for question, would be in same provider, hundred bucks But tell to the spent like, the fiber. with the of back a mentioned off out couldn't larger the on

Richard Clark

that most at of you helps. and leverage is, and ours have level. reduce others providers, to them always well them look to the a mean of try But scale of our in couple announced plans larger one if find down to leverage to I bankruptcy that exceeds is ways have

think, So you investment, the the I Relative it's the provider and are, to home about. country have other I with as talked doing. in just think prem, are has fiber started what our we marketplace, to Rob and factor and to that be this capital fiber well-positioned players investment to the territories in to in getting infrastructure

Joe Helmer

Okay. the but you believe I it said investment slowly. are takes, getting on necessarily on we you an going destination. rate going time guys to It over investment, happen know it not of with and return perspective, is you But mean an that. is concerned to Yes, I a internal slowly from to happen

is that brought view own the my should back alternatives to strategic So be table.

Rob Souza

Richard alternatives And to willing ideas we those with is and the and certainly Curtis your myself. listen always willing the to Board know think appreciate to comments. I discuss I and is always and company ideas

Joe Helmer

lot Okay. a guys. Thanks

Rob Souza

Thank you sir.

Operator

the questions back to I are conference It and for Mr. session question-and-answer appears no ends to that our over turn would today. like further there

remarks. for closing any Souza

Rob Souza

you appreciate you Thank We Chloe. of this morning. all joining

changing the customers for we the need we Take our with remain our plan regarding continue while heard, always call. capability the your we have services on shareholders. to certainly informed to Thank world being value business. focused growing in you on digital keeping on serve welcome for our you and increased again the deliver they We As to care. developments questions you

Otelco (OTEL) 14 Aug 192019 Q2 Earnings call transcript