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Otelco Reports Second Quarter 2014 ResultsONEONTA, Ala. --(Business Wire)-- Otelco Inc. (NASDAQ: OTEL), a wireline telecommunications services provider in Alabama, Maine, Massachusetts, Missouri, New Hampshire, Vermont and West Virginia and a provider of cloud hosting and managed services, today announced results for its second quarter ended June 30, 2014. Key highlights for Otelco include:
"The second quarter of 2014 produced adjusted EBITDA of $7.4 million," said Mike Weaver, Chief Executive Officer of Otelco. "Access line equivalent losses continued to improve as we experienced a loss of less than 1% for second quarter when compared to the first quarter of 2014. Business access line equivalents, driven by the growth of fiber transport and circuits, grew 0.3% over first quarter 2014 while residential access lines declined by 1.6% over first quarter. During second quarter, we reduced our senior debt by $6.1 million to $117.1 million, and our cash balance at June 30, 2014 was $4.8 million. "During second quarter, we implemented the network efficiencies in New England that we announced in May," Weaver continued. "We also reduced our cable programming costs and made additional operational reductions throughout the Company. These actions reduced costs by $0.3 million in this quarter, and we expect to see approximately $1.3 million in savings from these initiatives in 2014. "Capital investment in our business was $1.5 million for second quarter," noted Weaver. "These expenditures included enhancements to our New England network and switching facilities in anticipation of growth in Reliable Networks, the cloud hosting and managing services provider we acquired in January. We expect a similar rate of capital expenditures for the balance of the year."
FINANCIAL DISCUSSION FOR SECOND QUARTER 2014: Revenues Total revenues decreased 6.0% in the three months ended June 30, 2014 to $18.5 million from $19.7 million in the three months ended June 30, 2013. The non-renewal of the Time Warner Cable ("TWC") contract accounted for $0.4 million or approximately 32% of the decline. The decrease in residential RLEC access line equivalents and revenue decreases due to the FCC's InterCarrier Compensation reform order (the "FCC's order) account for the majority of the remaining decline which was partially offset by cloud hosting and managed services revenue of $0.2 million relating to Reliable Networks, which we acquired on January 2, 2014. The table below provides the components of our revenues for the three months ended June 30, 2014 compared to the same period of 2013.
Local services revenue decreased 16.9% in the quarter ended June 30, 2014 to $6.7 million from $8.0 million in the quarter ended June 30, 2013. TWC accounted for a decrease of $0.4 million. The decline in RLEC residential voice access lines, the impact of the FCC's ICC order which reduces or eliminates intrastate and local cellular revenue, and CLEC market pricing accounted for a decrease of $0.4 million. A portion of the RLEC decrease is recovered through the Connect America Fund which is categorized as interstate access revenue. Carrier settlement agreements in 2013 provided one-time revenue of $0.5 million with no comparable revenue in 2014. Hosted PBX revenue increased by $0.1 million. Network access revenue increased 3.2% in the second quarter 2014 to $6.0 million from $5.8 million in the quarter ended June 30, 2013. The Connect America Fund, user-based fees and cost study adjustments increased by $0.8 million. These increases were partially offset by lower state and special access charges of $0.6 million. Internet revenue for the second quarter 2014 decreased 1.7% to $3.6 million from $3.7 million in the three months ended June 30, 2013. A decrease in residential dial-up internet and data lines was partially offset by an increase in fiber rental. Transport services revenue decreased 9.1% in the quarter ended June 30, 2014 to $1.3 million from $1.4 million in the quarter ended June 30, 2013 from customer churn and pricing actions. Cable, IP and satellite television revenue in the three months ended June 30, 2014 decreased 4.0% to $0.7 million in the three months ended June 30, 2014 and 2013 due to subscriber attrition. Cloud hosting and managed services revenue, associated with the acquisition of Reliable Networks, increased revenue $0.2 million for second quarter 2014 with no comparable revenue for the year earlier period. Operating Expenses Operating expenses in the three months ended June 30, 2014 decreased 3.9% to $14.0 million from $14.5 million in the three months ended June 30, 2013. Cost of services decreased 5.4% to $8.6 million in the quarter ended June 30, 2014 from $9.1 million in the quarter ended June 30, 2013. Expenses related to professional services, cloud computing and Hosted PBX increased $0.1 million. Access and circuit costs decreased by $0.3 million, cable and toll costs decreased by $0.1 million, sales and customer services costs decreased by $0.1 million and operational costs decreased by $0.1 million. Selling, general and administrative expenses increased 19.0% to $2.6 million in the three months ended June 30, 2014, from $2.2 million in the three months ended June 30, 2013. Cloud hosting expense associated with our acquisition of Reliable Networks, including an accrual for non-cash stock compensation, increased costs $0.2 million. One-time carrier settlements and property tax reductions of $0.4 million were reflected in 2013 costs with no comparable reductions in 2014. These increases were partially offset by lower insurance and legal expenses of $0.2 million. Depreciation and amortization for second quarter 2014 decreased 14.8% to $2.8 million from $3.3 million in second quarter 2013. Amortization associated with the TWC contract intangible asset decreased by just under $0.4 million as the contract value was fully amortized in June 2013. The amortization of other intangible assets in New England and CLEC depreciation decreased $0.1 million. Interest Expense Interest expense was unchanged at $2.2 million in the three months ended June 30, 2014 and June 30, 2013. The higher interest rate on the debt in the revised credit agreement beginning May 24, 2013 was offset by lower outstanding loan principal. Reorganization Items Separate classification of reorganization items began in first quarter 2013 when we filed for Chapter 11 bankruptcy. There were no reorganization expenses during the second quarter of 2014. Adjusted EBITDA Adjusted EBITDA for the three months ended June 30, 2014 was $7.4 million compared to $8.5 million for the same period in 2013 and $7.5 million in the first quarter of 2014. Restructuring, non-cash and certain one-time expenses are added back in the calculation of Adjusted EBITDA. See financial tables for a reconciliation of Adjusted EBITDA to net income. Balance Sheet As of June 30, 2014, the Company had cash and cash equivalents of $4.8 million compared to $9.9 million at the end of 2013. During second quarter 2014, the Company reduced its credit facility balance by $6.1 million through voluntary, Excess Cash and required quarterly payments. The Company's senior credit facility extends through April 2016 and includes a $5.0 million undrawn revolver. Capital Expenditures Capital expenditures were $1.5 million for the second quarter 2014 compared to $0.8 million in the same period in 2013. Second Quarter Earnings Conference Call Otelco has scheduled a conference call, which will be broadcast live over the internet, on Thursday, August 7, 2014, at 11:30 a.m. ET. To participate in the call, participants should dial (719) 325-2361 and ask for the Otelco call 10 minutes prior to the start time. Investors, analysts and the general public will also have the opportunity to listen to the conference call free over the internet by visiting the Company's website at www.OtelcoInc.com. To listen to the live call online, please visit the website at least 15 minutes early to register, download and install any necessary audio software. For those who cannot listen to the live webcast, a replay of the webcast will be available on the Company's website at www.OtelcoInc.com for 30 days. A two-week telephonic replay may also be accessed by calling (719) 457-0820 and using the Confirmation Code 6782085. ABOUT OTELCO Otelco Inc. provides wireline telecommunications services in Alabama, Maine, Massachusetts, Missouri, New Hampshire, Vermont and West Virginia. The Company's services include local and long distance telephone, digital high-speed data lines, transport services, network access, cable television and other related services. With approximately 98,000 voice and data access lines, which are collectively referred to as access line equivalents, Otelco is among the top 25 largest local exchange carriers in the United States based on number of access lines. Otelco operates eleven incumbent telephone companies serving rural markets, or rural local exchange carriers. It also provides competitive retail and wholesale communications services and technology consulting, managed services and private/hybrid cloud hosting services through several subsidiaries. For more information, visit the Company's website at www.OtelcoInc.com. FORWARD LOOKING STATEMENTS Statements in this press release that are not statements of historical or current fact constitute forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties, and other unknown factors that could cause the actual results of the Company to be materially different from the historical results or from any future results expressed or implied by such forward-looking statements. In addition to statements which explicitly describe such risks and uncertainties, readers are urged to consider statements labeled with the terms "believes," "belief," "expects," 'intends," "anticipates," "plans," or similar terms to be uncertain and forward-looking. The forward-looking statements contained herein are also subject generally to other risks and uncertainties that are described from time to time in the Company's filings with the Securities and Exchange Commission.
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