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Otelco Reports Third 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 third quarter ended September 30, 2014. Key highlights for Otelco include:
"The consistency of our financial results this year is a tribute to the continued focus on controlling costs and pricing," said Mike Weaver, Chief Executive Officer of Otelco. "The third quarter of 2014 produced Adjusted EBITDA of $7.2 million, consistent with the same quarter last year. In addition, our Adjusted EBITDA has varied by no more than three percent per quarter in 2014. "The network efficiencies in New England and cable programming cost reductions in Alabama that were implemented earlier this year continued to positively impact our third quarter Adjusted EBITDA," continued Weaver. "Driven by the continuing growth in our Hosted PBX product and demand for fiber transport, access line equivalents increased 1.2% from second quarter 2014. Business access line equivalents increased by 3.8%, representing the fifth consecutive quarter of growth in this segment of our business. During third quarter 2014, we reduced our senior debt by $2.7 million to $114.4 million, and for the nine months ended September 30, 2014, senior debt has been reduced by $14.2 million. Our cash balance at September 30, 2014, was $5.8 million. "In January of this year, we completed the acquisition of Reliable Networks, which provides cloud hosting and managed services for our customers," Weaver continued. "The integration of the two companies was completed earlier this year, and we are pleased with their performance through the third quarter. We anticipate growth in these services for the balance of this year and throughout 2015."
FINANCIAL DISCUSSION FOR THIRD QUARTER 2014: Revenues Total revenues decreased 2.9% in the three months ended September 30, 2014, to $18.4 million from $19.0 million in the three months ended September 30, 2013. 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 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 September 30, 2014, compared to the same period of 2013.
Local services revenue decreased 5.5% in the quarter ended September 30, 2014 to $6.7 million from $7.1 million in the quarter ended September 30, 2013. The decline in RLEC residential voice access lines, the impact of the FCC's 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. The decline in long distance revenue accounted for a decrease of $0.1 million. Hosted PBX revenue increased by $0.1 million. Network access revenue decreased 4.8% in the third quarter 2014 to $5.8 million from $6.1 million in the quarter ended September 30, 2013. The Connect America Fund increased by $0.4 million. This increase was more than offset by lower state and special access charges of $0.5 million and lower user based fees and switched access of $0.2 million. Internet revenue for the third quarter 2014 increased 1.5% to $3.7 million from $3.6 million in the three months ended September 30, 2013 from an increase in fiber rental revenue. Transport services revenue decreased 6.5% in the quarter ended September 30, 2014 to $1.3 million from $1.4 million in the quarter ended September 30, 2013 from customer churn and pricing actions. Cable, IP and satellite television revenue in the three months ended September 30, 2014 decreased 7.0% to slightly under $0.7 million from just over $0.7 million in the three months ended September 30, 2013. Growth in security and satellite revenue was more than offset by cable subscriber attrition. Cloud hosting and managed services revenue, associated with the acquisition of Reliable Networks, increased revenue $0.2 million for third quarter 2014 with no comparable revenue for the year earlier period. Operating Expenses Operating expenses in the three months ended September 30, 2014 decreased 6.0% to $13.8 million from $14.7 million in the three months ended September 30, 2013. Cost of services decreased 3.3% to $8.8 million in the quarter ended September 30, 2014 from $9.1 million in the quarter ended September 30, 2013. Expenses related to professional services and cloud computing increased $0.1 million. One-time network expense credits received in 2013 of $0.4 million had no comparable credits in 2014. Network circuit costs, customer service expense and sales expense reductions implemented earlier in 2014 decreased third quarter 2014 expense by $0.7 million when compared to the same period in 2013. In addition, toll, cable and internet expense decreased by $0.1 million. Selling, general and administrative expenses decreased 7.9% to $2.6 million in the three months ended September 30, 2014, from $2.8 million in the three months ended September 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. This increase was more than offset by lower uncollectible and operating taxes of $0.2 million and lower executive expenses of $0.2 million. Executive expenses include $0.2 million as non-cash stock incentive compensation expense. Depreciation and amortization for third quarter 2014 decreased 12.7% to $2.5 million from $2.8 million in third quarter 2013. The amortization of other intangible assets in New England and CLEC depreciation decreased $0.3 million from third quarter 2013. Interest Expense Interest expense in the three months ended September 30, 2014 decreased 12.3% to $2.2 million from $2.5 million in the three months ended September 30, 2013. The higher interest rate on the senior notes payable in the amended and restated 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 third quarter of 2014 compared to $0.9 million during the third quarter of 2013. Adjusted EBITDA Adjusted EBITDA decreased $7,000 to $7.2 million for the three months ended September 30, 2014 when compared to the same period in 2013 and to $7.4 million in the second 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 September 30, 2014, the Company had cash and cash equivalents of $5.8 million compared to $9.9 million at the end of 2013. During third quarter 2014, the Company reduced its credit facility balance by $2.7 million through voluntary and required quarterly payments to $114.4 million. The Company's senior credit facility extends through April 2016 and includes a $5.0 million undrawn revolver. Capital Expenditures Capital expenditures were $1.6 million for both third quarter 2014 and 2013. Third Quarter Earnings Conference Call Otelco has scheduled a conference call, which will be broadcast live over the internet, on Thursday, November 13, 2014, at 11:30 a.m. ET. To participate in the call, participants should dial (719) 325-2177 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 2069969. 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 99,000 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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