Otelco Inc. (NASDAQ:OTEL), a wireline telecommunications provider
in Alabama, Maine, Massachusetts, Missouri, New Hampshire, Vermont
and West Virginia, today announced the refinancing of its long-term
debt, the completion of its strategic alternatives review and
results for its third quarter ended September 30, 2017.
Highlights of Otelco’s new long-term debt
agreement led by CoBank, ACB include:
- Five-year term loan of $87.0 million that replaces Otelco’s
previous senior and subordinated term loans, the principal amounts
of which had been reduced by $13.3 million since February
2016.
- Current interest rate of LIBOR plus an applicable margin
(currently 4.50%), with reductions in the applicable margin as
leverage declines, providing significant savings relative to
Otelco’s previous debt facilities.
- $5.0 million undrawn revolving loan.
- Quarterly principal repayment of approximately $1.1
million.
- Ability to pay dividends to shareholders beginning in 2018,
subject to compliance with certain covenants.
- Potential to expand the term loan by an additional $20.0
million.
- No prepayment penalties.
Key third quarter 2017 financial highlights for
Otelco include:
- Total revenues of $16.9 million.
- Operating income of $4.9 million.
- Net income of $1.6 million.
- Consolidated EBITDA (as defined below) of $6.9 million.
New Long-Term Debt Facility
On November 2, 2017, Otelco refinanced its
credit facilities with a new $92 million, five-year credit facility
from a consortium of banks led by CoBank, ACB. The new facility
includes an $87.0 million term loan and a $5.0 million revolving
loan, which is undrawn. Proceeds from the new term loan and cash on
hand were used to repay Otelco’s previous term loans and fees
associated with the transaction. The new facility reduces the
effective interest rate on the Company’s debt by more than 400
basis points and supports Otelco’s continued focus on reducing
leverage. The lower interest rate is expected to reduce cash
interest expense in 2018 by more than $3.5 million compared with
the former facilities. The new credit facility allows the Company,
subject to being in compliance with certain covenants, to pay
dividends to its shareholders and redeem stock beginning in 2018.
The new facility also includes a $20.0 million accordion feature
available over the life of the facility.
“We’re pleased to have successfully closed this
refinancing with Otelco and look forward to a continuing strong
partnership with them as their primary lender and financial
services provider,” said Kevin Oliver, CoBank Lead Relationship
Manager and Managing Director of the bank’s Communications Banking
Division.
“Partnering with CoBank will allow Otelco to
free up cash from interest payments for investment in the business,
repay additional debt and provide the capacity to pay dividends to
our shareholders,” added Rob Souza, President and Chief Executive
Officer of Otelco. “CoBank understands the needs of rural
telecommunications companies and the support being provided by the
FCC’s Alternate Connect America Model (or “ACAM”) program to build
out stronger and more versatile networks to serve the needs of our
customers. Together, we form a strong partnership to support our
customers and our shareholders.”
Strategic Alternatives Review Completion
The Company has concluded its previously
announced review of strategic alternatives. These alternatives
included a broad range of merger, sale and acquisition
transactions, among other things. The Company and its financial
advisor, The Bank Street Group LLC, contacted a wide range of
prospective financial and strategic partners to determine their
levels of interest in a sale, merger or other transaction involving
the Company. However, none of the parties contacted by the Company
or The Bank Street Group LLC presented a transaction that Otelco’s
board of directors determined to be viable or in the best interests
of the Company and its shareholders.
Similarly, in 2014, the Company engaged a
nationally recognized investment banker to explore strategic
alternatives. Comparable to the recently concluded process, the
alternatives explored included a broad range of merger and sale
transactions with both potential financial and strategic partners.
Although that process was comprehensive, none of the parties
contacted during that process presented a transaction that Otelco’s
board of directors determined to be viable or in the best interests
of the Company and its shareholders.
The Company periodically receives indications of
interest and has discussions regarding possible strategic
alternatives. The Company intends to consider any proposals it
receives in the future that could result in the creation of
shareholder value.
“We believe the wireline telecommunications
industry, in particular the rural wireline industry, would benefit
from further consolidation. We will continue to look for
opportunities to participate in that consolidation. In the
meantime, Otelco remains focused on reducing our leverage. Our
strong cash flow generation has enabled the Company to refinance
our debt, significantly lower our cost of capital and provide the
ability to return capital to shareholders through dividends,”
commented Stephen McCall, Chairman of the Otelco Board of
Directors. “The Board remains committed to maximizing shareholder
value and will pursue any reasonable alternatives that present
themselves.”
Third Quarter 2017 Financial
Results
During third quarter 2017, Otelco’s net income
was $1.6 million, compared to $1.1 million in the same period of
2016. For the nine months ended September 30, 2017, the Company’s
net income was $4.7 million, compared to $4.2 million in the same
period of 2016. Stable access revenue associated with the
FCC’s-ACAM program in the five states where the program is
applicable and effective cost and expense management were the
primary factors driving the improvement. The ACAM program provides
a known level of support for ten years to enhance and build out the
Company’s broadband network to provide increased speed and
accessibility to customers. The increase in capital invested in its
network this quarter and year-to-date reflects the Company’s
commitment to the build-out required by the program.
Consolidated EBITDA of $6.9 million for third
quarter 2017 was $0.2 million higher than the same period in 2016.
Consolidated EBITDA was $21.1 million for the nine months ended
September 30, 2017, including the $0.2 million positive impact of
CoBank dividends in the first quarter of 2017. During third quarter
2017, the Company made a $3.0 million additional principal payment
to further reduce its senior debt as part of its plan to reduce
leverage toward current industry norms and to prepare for replacing
its credit facilities, as noted above. The improved terms of the
new facility reflect the lending institutions’ recognition of the
continuing strength of Otelco’s operations. The Company’s total
leverage ratio, net of cash, at September 30, 2017, as defined and
calculated below, was 2.87.
Consolidating and streamlining the business
operations remains a strategic focus of the business. The Company
is making significant progress in replacing its billing and
operations support systems with a common platform across its entire
operation. “Our current bill cycles were changed on October 1,
2017, to common dates in preparation for the system conversion in
2018,” noted Rob Souza, President and Chief Executive Officer of
Otelco. “Training on the new system begins in fourth quarter 2017.
Carrier billing conversion to the new system begins during first
quarter 2018 with end-user billing to follow in second quarter
2018. Over the past six months, we have converted our organization
from a geography-based design to a functional structure with sales,
customer service and technical operations teams functioning
together across our geographic footprint. The combination of a
functionally aligned organization with a single operations and
billing system will enhance customer service, improve operational
efficiency and have a positive impact on Otelco’s financial
performance.”
| |
| Third Quarter 2017 Financial
Summary |
| (Dollars in thousands, except per share amounts) |
| (Unaudited) |
| |
|
|
|
|
|
|
|
|
|
|
| |
|
Three Months Ended September 30, |
|
Change |
|
|
|
|
2017 |
|
2016 |
|
Amount |
|
Percent |
|
|
Revenues |
$ |
16,946 |
|
|
$ |
17,389 |
|
|
$ |
(443 |
) |
|
|
(2.5 |
) |
% |
|
|
| Operating
income |
$ |
4,914 |
|
|
$ |
4,561 |
|
|
$ |
353 |
|
|
|
7.7 |
|
% |
|
|
| Interest
expense |
$ |
(2,567 |
) |
|
$ |
(2,728 |
) |
|
$ |
(161 |
) |
|
|
(5.9 |
) |
% |
|
|
| Net income
available to stockholders |
$ |
1,589 |
|
|
$ |
1,125 |
|
|
$ |
464 |
|
|
|
41.2 |
|
% |
|
|
| Basic net
income per share |
$ |
0.47 |
|
|
$ |
0.34 |
|
|
$ |
0.13 |
|
|
|
38.2 |
|
% |
|
|
| Diluted net
income per share |
$ |
0.46 |
|
|
$ |
0.33 |
|
|
$ |
0.13 |
|
|
|
39.4 |
|
% |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated EBITDA(1) |
$ |
6,934 |
|
|
$ |
6,695 |
|
|
$ |
239 |
|
|
|
3.6 |
|
% |
|
|
| Capital
expenditures |
$ |
2,193 |
|
|
$ |
1,896 |
|
|
$ |
297 |
|
|
|
15.7 |
|
% |
|
|
| |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
| |
|
Nine Months Ended September 30, |
|
Change |
|
|
|
|
2017 |
|
2016 |
|
Amount |
|
Percent |
|
|
Revenues |
$ |
51,732 |
|
|
$ |
52,111 |
|
|
$ |
(379 |
) |
|
|
(0.7 |
) |
% |
|
|
| Operating
income |
$ |
14,987 |
|
|
$ |
14,206 |
|
|
$ |
781 |
|
|
|
5.5 |
|
% |
|
|
| Interest
expense |
$ |
(7,749 |
) |
|
$ |
(7,931 |
) |
|
$ |
(182 |
) |
|
|
(2.3 |
) |
% |
|
|
| Net income
available to stockholders |
$ |
4,733 |
|
|
$ |
4,199 |
|
|
$ |
534 |
|
|
|
12.7 |
|
% |
|
|
| Basic net
income per share |
$ |
1.41 |
|
|
$ |
1.28 |
|
|
$ |
0.13 |
|
|
|
10.2 |
|
% |
|
|
| Diluted net
income per share |
$ |
1.37 |
|
|
$ |
1.24 |
|
|
$ |
0.13 |
|
|
|
10.5 |
|
% |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated EBITDA(1) |
$ |
21,137 |
|
|
$ |
21,376 |
|
|
$ |
(239 |
) |
|
|
(1.1 |
) |
% |
|
|
| Capital
expenditures |
$ |
5,951 |
|
|
$ |
4,111 |
|
|
$ |
1,840 |
|
|
|
44.8 |
|
% |
|
|
| |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
| Reconciliation of Consolidated EBITDA to Net
Income |
|
|
|
|
|
|
|
|
Twelve Months |
| |
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
Ended September 30, |
|
|
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
2017 |
| Net
income |
$ |
1,589 |
|
|
$ |
1,125 |
|
|
$ |
4,733 |
|
|
$ |
4,199 |
|
|
$ |
5,679 |
| Add: |
Depreciation |
|
1,746 |
|
|
|
1,757 |
|
|
|
5,225 |
|
|
|
5,328 |
|
|
|
7,034 |
| |
Interest expense less
interest income |
|
2,260 |
|
|
|
2,408 |
|
|
|
6,822 |
|
|
|
6,847 |
|
|
|
9,211 |
| |
Interest expense -
amortize loan cost |
|
307 |
|
|
|
320 |
|
|
|
927 |
|
|
|
1,083 |
|
|
|
1,241 |
| |
Income tax expense |
|
758 |
|
|
|
708 |
|
|
|
2,709 |
|
|
|
2,700 |
|
|
|
3,667 |
| |
Amortization -
intangibles |
|
88 |
|
|
|
225 |
|
|
|
290 |
|
|
|
743 |
|
|
|
433 |
| |
Stock-based
compensation (board & senior management) |
|
72 |
|
|
|
112 |
|
|
|
237 |
|
|
|
312 |
|
|
|
342 |
| |
Loan fees |
|
114 |
|
|
|
40 |
|
|
|
194 |
|
|
|
164 |
|
|
|
233 |
|
Consolidated EBITDA(1) |
$ |
6,934 |
|
|
$ |
6,695 |
|
|
$ |
21,137 |
|
|
$ |
21,376 |
|
|
$ |
27,840 |
| |
|
|
|
|
|
|
|
|
|
|
(1) Consolidated EBITDA is defined as
consolidated net income (loss) plus consolidated net interest
expense, depreciation and amortization, income taxes and certain
other fees, expenses and non-cash charges reducing consolidated net
income. Consolidated EBITDA is a supplemental measure of the
Company’s performance that is not required by, or presented in
accordance with, accounting principles generally accepted in the
United States (“GAAP”). Consolidated EBITDA corresponds to the
definition of Consolidated EBITDA in the Company’s credit
facilities. The lenders under the Company’s credit facilities
utilize this measure to determine compliance with credit facility
requirements. The Company uses Consolidated EBITDA as an
operational performance measurement to focus attention on the
operational generation of cash, which is used for reinvestment into
the business; to repay its debt and to pay interest on its debt; to
pay income taxes; and for other corporate requirements. The Company
reports Consolidated EBITDA to allow current and potential
investors to understand this performance metric and because the
Company believes that it provides current and potential investors
with helpful information with respect to the Company’s operating
performance, including the Company’s ability to generate earnings
sufficient to service its debt, and enhance understanding of the
Company’s financial performance and highlight operational trends.
However, Consolidated EBITDA should not be considered as an
alternative to net income or any other performance measures derived
in accordance with GAAP. The Company’s presentation of Consolidated
EBITDA may not be comparable to similarly titled measures used by
other companies.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Otelco Inc. - Key Operating
Statistics |
| (unaudited) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
As of |
|
|
December 31, |
|
March 31, |
|
June 30, |
|
September 30, |
|
% Change from |
| |
|
|
|
|
|
2015 |
|
2016 |
|
2017 |
|
2017 |
|
2017 |
|
June
30, 2017 |
|
Business/Enterprise |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
CLEC |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Voice
lines |
|
|
18,606 |
|
17,034 |
|
16,852 |
|
16,582 |
|
16,491 |
|
(0.5 |
) |
% |
| |
|
HPBX
seats |
|
|
10,880 |
|
11,487 |
|
11,532 |
|
11,322 |
|
11,410 |
|
0.8 |
|
% |
| |
|
Data lines |
|
|
|
3,629 |
|
3,655 |
|
3,315 |
|
3,435 |
|
3,342 |
|
(2.7 |
) |
% |
| |
|
Wholesale
network lines |
|
2,743 |
|
2,570 |
|
2,584 |
|
2,521 |
|
2,548 |
|
1.1 |
|
% |
| |
RLEC |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Voice
lines |
|
|
16,123 |
|
16,621 |
|
16,359 |
|
15,853 |
|
15,530 |
|
(2.0 |
) |
% |
| |
|
Data lines |
|
|
|
1,539 |
|
1,634 |
|
1,624 |
|
1,625 |
|
1,621 |
|
(0.2 |
) |
% |
| |
Access line
equivalents(1) |
|
53,520 |
|
53,001 |
|
52,266 |
|
51,338 |
|
50,942 |
|
(0.8 |
) |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
CLEC |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Voice
lines |
|
|
225 |
|
199 |
|
192 |
|
631 |
|
638 |
|
1.1 |
|
% |
| |
|
Data lines |
|
|
|
2,432 |
|
2,291 |
|
2,275 |
|
2,882 |
|
2,851 |
|
(1.1 |
) |
% |
| |
RLEC |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Voice
lines |
|
|
23,143 |
|
20,978 |
|
20,556 |
|
20,154 |
|
19,659 |
|
(2.5 |
) |
% |
| |
|
Data lines |
|
|
|
20,089 |
|
19,622 |
|
19,562 |
|
19,421 |
|
19,175 |
|
(1.3 |
) |
% |
| |
|
Other
services |
|
|
3,728 |
|
3,682 |
|
3,665 |
|
3,633 |
|
3,632 |
|
(0.0 |
) |
% |
| |
Access line
equivalents(1) |
|
49,617 |
|
46,772 |
|
46,250 |
|
46,721 |
|
45,955 |
|
(1.6 |
) |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Otelco
access line equivalents(1) |
|
103,137 |
|
99,773 |
|
98,516 |
|
98,059 |
|
96,897 |
|
(1.2 |
) |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) The Company defines access line equivalents
as retail and wholesale voice lines, data lines (including cable
modems, digital subscriber lines, other broadband connections and
dedicated data access trunks) and other services (including
entertainment and security services).
The Company uses the ratio of debt, net of cash,
to Consolidated EBITDA for the last twelve months as an operational
performance measurement. Such ratio is a supplemental measure of
the Company’s performance that is not required by, or presented in
accordance with, GAAP. The Company reports such ratio to allow
current and potential investors to understand this performance
metric. The Company also believes that it provides current and
potential investors with helpful information with respect to the
Company’s operating performance, including the Company’s ability to
generate earnings sufficient to service its debt, and enhances
understanding of the Company’s financial performance and highlight
operational trends. However, such ratio should not be considered as
an alternative to net income or any other performance measures
derived in accordance with GAAP. The Company’s presentation of such
ratio may not be comparable to similarly titled ratios used by
other companies. The table below provides the calculation of such
ratio as of September 30, 2017.
| |
|
|
| Total leverage ratio, net of cash |
| as of September 30, 2017 |
| ($000) |
| |
|
|
| Senior
notes payable |
|
$ |
69,717 |
|
| Debt
issuance costs |
|
|
3,158 |
|
| Senior notes outstanding |
|
$ |
72,875 |
|
| |
|
|
|
Subordinated notes payable |
|
$ |
15,176 |
|
| Debt
issuance costs |
|
|
634 |
|
| Subordinated notes outstanding |
$ |
15,810 |
|
| |
|
|
| Total notes
outstanding |
|
$ |
88,685 |
|
| Less
cash |
|
|
(8,855 |
) |
| Notes
outstanding, net of cash |
|
$ |
79,830 |
|
|
Consolidated EBITDA for the |
|
|
| last twelve months |
|
$ |
27,840 |
|
| |
|
|
| Total
leverage ratio, net of cash |
|
2.87 |
|
| |
|
|
FINANCIAL DISCUSSION FOR THIRD QUARTER
2017:
Revenues
Total revenues decreased 2.5% in the three
months ended September 30, 2017, to $16.9 million from $17.4
million in the three months ended September 30, 2016. The
industry-wide decrease in revenue associated with residential voice
service, including long distance, and lower Hosted PBX equipment
sales were the primary factors affecting revenue. The table below
provides the components of the Company’s revenues for the three
months ended September 30, 2017, compared to the same period of
2016.
| |
|
|
|
|
|
|
|
|
|
| |
|
Three Months Ended |
|
|
|
|
|
| |
|
September
30, |
|
Change |
| |
|
2017 |
|
2016 |
|
Amount |
|
Percent |
| |
|
(dollars in thousands) |
| Local
services |
$ |
5,584 |
|
$ |
6,003 |
|
$ |
(419 |
) |
|
(7.0 |
) |
% |
| Network
access |
|
5,334 |
|
|
5,279 |
|
|
55 |
|
|
1.0 |
|
% |
| Internet |
|
|
3,954 |
|
|
3,981 |
|
|
(27 |
) |
|
(0.7 |
) |
% |
| Transport
services |
|
1,156 |
|
|
1,179 |
|
|
(23 |
) |
|
(2.0 |
) |
% |
| Video and
security |
|
747 |
|
|
719 |
|
|
28 |
|
|
3.9 |
|
% |
| Managed
services |
|
171 |
|
|
228 |
|
|
(57 |
) |
|
(25.0 |
) |
% |
|
Total |
|
$ |
16,946 |
|
$ |
17,389 |
|
$ |
(443 |
) |
|
(2.5 |
) |
% |
| |
|
|
|
|
|
|
|
|
|
Local services revenue
decreased 7.0% in the three months ended September 30, 2017, to
$5.6 million from $6.0 million in the three months ended September
30, 2016. The decline in RLEC residential voice access lines and
related revenue, such as long distance, accounted for a decrease of
$0.3 million. A portion of the RLEC decrease is recovered through
the CAF, which is categorized as interstate access revenue. Hosted
PBX equipment sales declined $0.2 million, as more new customers
combined hardware and service in their long-term agreements. These
declines were partially offset by an increase in municipal services
revenue. Network access revenue increased 1.0% in
the three months ended September 30, 2017, to slightly more than
$5.3 million from slightly less than $5.3 million in the three
months ended September 30, 2016. ACAM revenue and related
transition payments and CAF revenue increased $2.5 million. These
increases were partially offset by a $2.1 million decrease in
interstate switched access, including universal service funding.
End-user based fees decreased $0.2 million and special access
charges decreased by $0.1 million. Internet
revenue decreased 0.7% in the three months ended September 30,
2017, to just under $4.0 million, which was the same as in the
three months ended September 30, 2016. Increased revenue from
higher data speeds and pricing were offset by a small decrease in
internet subscribers. Transport services revenue
decreased 2.0% in the three months ended September 30, 2017, to
just under $1.2 million which was the same as in the three months
ended September 30, 2016. Wide Area Network services decreased $0.1
million, reflecting customer churn and market pricing which was
partially offset by an increase in $0.1 million in wholesale
transport services. Video and security revenue in
the three months ended September 30, 2017, increased 3.9% from the
three months ended September 30, 2016, to remain at slightly more
than $0.7 million in both periods reflecting increases in IPTV,
pay-per-view and security revenue, partially offset by decreases in
digital services. Managed services revenue
decreased 25.0% in the three months ended September 30, 2017, to
just under $0.2 million from just over $0.2 million in the three
months ended September 30, 2016, reflecting a decrease in
professional services and cloud hosting revenue.
Operating Expenses
Operating expenses in the three months ended
September 30, 2017, decreased 6.2% to $12.0 million from $12.8
million in the three months ended September 30, 2016. Cost
of services decreased 4.4% to $7.6 million in the three
months ended September 30, 2017, from slightly less than $8.0
million in the three months ended September 30, 2016. Access, toll
and reciprocal compensation expense decreased $0.3 million; loop
and circuit expense decreased $0.1 million; Hosted PBX equipment
expense decreased $0.2 million; and marketing and product
management expense decreased $0.2 million. These decreases were
partially offset by an increase of $0.3 million in plant operations
expense, including costs associated with new municipal services,
and $0.1 million in internet and cable expense. Selling,
general and administrative expenses decreased 10.4% to
$2.6 million in the three months ended September 30, 2017, from
$2.9 million in the three months ended September 30, 2016.
Decreases of $0.2 million in legal expense; $0.2 million in human
resources and accounting expense; $0.1 million in cloud hosting
expense; and $0.1 million in uncollectible and property tax expense
were partially offset by increases of $0.1 million each in loan
fees; training expense associated with the new billing and
operations support system; and the substitution of a cash-based
senior incentive compensation plan in 2017 for the stock-based plan
in place in 2016. Depreciation and amortization
decreased 7.5% in the three months ended September 30, 2017, to
$1.8 million from $2.0 million in three months ended September 30,
2016. The amortization of the telephone plant adjustment decreased
$0.1 million. Cable depreciation and amortization of other
intangible assets decreased $0.1 million, driven primarily by the
end of amortization of intangibles associated with
acquisitions.
Operating Income
Operating income in the three months ended
September 30, 2017, increased 7.7% to $4.9 million from $4.6
million in the three months ended September 30, 2016, primarily
related to cost and expense management.
Interest Expense
Interest expense in the three months ended
September 30, 2017, decreased 5.9% to $2.6 million from $2.7
million in the three months ended September 30, 2016. The lower
outstanding balance on the senior credit facility accounted for the
decrease. The Company prepaid an additional $3.0 million of
principal on the senior credit facility during third quarter 2017.
As noted earlier, the Company has refinanced its credit facility on
November 2, 2017, which will reduce its effective interest rate
approximately four percentage points. The new facility matures in
November 2022.
Net Income
Reflecting the changes noted above, net income
increased 41.2% to $1.6 million for the three months ended
September 30, 2017, when compared to $1.1 million for the three
months ended September 30, 2016, primarily driven by cost and
expense reductions and network access revenue stability associated
with the FCC’s ACAM program.
Consolidated EBITDA
Based on the changes noted above, Consolidated
EBITDA increased by $0.2 million to $6.9 million for the three
months ended September 30, 2017, when compared to $6.7 million for
the three months ended September 30, 2016. Consolidated EBITDA was
$21.1 million for the nine months ended September 30, 2017,
compared to $21.4 million for the nine months ended September 30,
2016. The annual CoBank dividend was $0.4 million lower in 2017
compared to 2016. Stock-based compensation and other excluded
expenses are added back in the calculation of Consolidated EBITDA.
See financial tables for a reconciliation of Consolidated EBITDA to
net income.
Balance Sheet
As of September 30, 2017, the Company had cash
and cash equivalents of $8.9 million compared to $10.5 million
at the end of 2016. Excluding the additional prepayment of $3.0
million made during the third quarter on its senior credit facility
as part of its strategy to reduce its leverage, cash grew $1.4
million, reflecting the continuing strength of the Company’s
operations. Total notes payable as of September 30, 2017, was $88.7
million. The $5.0 million revolver remains undrawn.
Capital Expenditures
Capital expenditures were $2.2 million for the
three months ended September 30, 2017, compared to $1.9 million in
the same period in 2016. The buildout requirements of the ACAM
program and the Company’s plans to convert its billing and
operations support systems to a single platform are primarily
responsible for this increase. The Company’s new credit facility
does not place specific limitations on capital expenditures,
allowing the Company more flexibility on investing in its
business.
Third Quarter Earnings Conference
Call
Otelco has scheduled a conference call, which
will be broadcast live over the internet, on Tuesday, November 7,
2017, at 11:30 a.m. (Eastern Time). To participate in the call,
participants should dial (719) 457-1035 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 entering the Confirmation Code 2890133.
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 97,000 voice and data access lines and
other related services, 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 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.
|
|
|
|
|
|
| OTELCO
INC. |
| CONDENSED CONSOLIDATED BALANCE
SHEETS |
| (in thousands, except share par value and share
amounts) |
| (unaudited) |
|
|
|
|
|
|
|
|
|
September 30, |
|
December 31, |
| |
|
2017 |
|
2016 |
|
Assets |
|
|
|
|
| Current assets |
|
|
|
|
| Cash and
cash equivalents |
|
$ |
8,855 |
|
|
$ |
10,538 |
|
| Accounts
receivable: |
|
|
|
|
| Due from
subscribers, net of allowance for doubtful |
|
|
|
|
| accounts
of $206 and $187, respectively |
|
|
4,637 |
|
|
|
5,035 |
|
|
Other |
|
|
1,709 |
|
|
|
1,528 |
|
| Materials
and supplies |
|
|
2,847 |
|
|
|
2,184 |
|
| Prepaid
expenses |
|
|
1,606 |
|
|
|
2,912 |
|
| Total
current assets |
|
|
19,654 |
|
|
|
22,197 |
|
| |
|
|
|
|
| Property and equipment,
net |
|
|
50,078 |
|
|
|
49,271 |
|
| Goodwill |
|
|
44,976 |
|
|
|
44,976 |
|
| Intangible assets,
net |
|
|
1,433 |
|
|
|
1,785 |
|
| Investments |
|
|
1,637 |
|
|
|
1,821 |
|
| Other assets |
|
|
248 |
|
|
|
222 |
|
| Total
assets |
|
$ |
118,026 |
|
|
$ |
120,272 |
|
| |
|
|
|
|
|
Liabilities and Stockholders'
Deficit |
|
|
|
|
| Current
liabilities |
|
|
|
|
| Accounts
payable |
|
$ |
1,344 |
|
|
$ |
1,477 |
|
| Accrued
expenses |
|
|
5,316 |
|
|
|
4,730 |
|
| Advance
billings and payments |
|
|
1,655 |
|
|
|
1,487 |
|
| Customer
deposits |
|
|
62 |
|
|
|
62 |
|
| Current
maturity of long-term notes payable, net of debt issuance cost |
|
|
2,976 |
|
|
|
6,071 |
|
| Total
current liabilities |
|
|
11,353 |
|
|
|
13,827 |
|
| |
|
|
|
|
| Deferred income
taxes |
|
|
28,280 |
|
|
|
28,280 |
|
| Retirement of CoBank
equity |
|
|
2,401 |
|
|
|
1,987 |
|
| Other liabilities |
|
|
21 |
|
|
|
26 |
|
| Long-term notes
payable, less current maturities and debt issuance cost |
|
|
81,917 |
|
|
|
86,860 |
|
| Total
liabilities |
|
|
123,972 |
|
|
|
130,980 |
|
|
|
|
|
|
|
| Stockholders'
deficit |
|
|
|
|
| Class A
Common Stock, $.01 par value-authorized 10,000,000 shares; |
|
|
|
|
| issued
and outstanding 3,346,689 and 3,291,750 shares, respectively |
|
|
34 |
|
|
|
33 |
|
|
Additional paid in capital |
|
|
4,214 |
|
|
|
4,186 |
|
|
Accumulated deficit |
|
|
(10,194 |
) |
|
|
(14,927 |
) |
| Total
stockholders' deficit |
|
|
(5,946 |
) |
|
|
(10,708 |
) |
| Total
liabilities and stockholders' deficit |
|
$ |
118,026 |
|
|
$ |
120,272 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| OTELCO INC. AND SUBSIDIARIES |
| CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS |
| (in thousands, except share and per share
amounts) |
| (unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September
30, |
|
Nine Months Ended September
30, |
|
|
|
2017 |
|
2016 |
|
2017 |
|
2016 |
| |
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
16,946 |
|
|
$ |
17,389 |
|
|
$ |
51,732 |
|
|
$ |
52,111 |
|
| |
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
| Cost of
services |
|
|
7,610 |
|
|
|
7,958 |
|
|
|
23,468 |
|
|
|
23,963 |
|
| Selling,
general and administrative expenses |
|
|
2,588 |
|
|
|
2,888 |
|
|
|
7,762 |
|
|
|
7,871 |
|
|
Depreciation and amortization |
|
|
1,834 |
|
|
|
1,982 |
|
|
|
5,515 |
|
|
|
6,071 |
|
| Total
operating expenses |
|
|
12,032 |
|
|
|
12,828 |
|
|
|
36,745 |
|
|
|
37,905 |
|
| |
|
|
|
|
|
|
|
|
| Income from
operations |
|
|
4,914 |
|
|
|
4,561 |
|
|
|
14,987 |
|
|
|
14,206 |
|
| |
|
|
|
|
|
|
|
|
| Other
income (expense) |
|
|
|
|
|
|
|
|
| Interest
expense |
|
|
(2,567 |
) |
|
|
(2,728 |
) |
|
|
(7,749 |
) |
|
|
(7,931 |
) |
| Other
income |
|
|
- |
|
|
|
- |
|
|
|
204 |
|
|
|
624 |
|
| Total
other expense |
|
|
(2,567 |
) |
|
|
(2,728 |
) |
|
|
(7,545 |
) |
|
|
(7,307 |
) |
|
|
|
|
|
|
|
|
|
|
| Income before income
tax expense |
|
|
2,347 |
|
|
|
1,833 |
|
|
|
7,442 |
|
|
|
6,899 |
|
| Income tax expense |
|
|
(758 |
) |
|
|
(708 |
) |
|
|
(2,709 |
) |
|
|
(2,700 |
) |
| |
|
|
|
|
|
|
|
|
| Net
income |
|
$ |
1,589 |
|
|
$ |
1,125 |
|
|
$ |
4,733 |
|
|
$ |
4,199 |
|
| |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| Weighted
average number of common shares outstanding: |
|
|
|
|
|
|
|
|
|
Basic |
|
|
3,346,689 |
|
|
|
3,283,177 |
|
|
|
3,346,689 |
|
|
|
3,283,177 |
|
|
Diluted |
|
|
3,445,632 |
|
|
|
3,384,308 |
|
|
|
3,445,632 |
|
|
|
3,380,178 |
|
| |
|
|
|
|
|
|
|
|
| Basic net income per
common share |
|
$ |
0.47 |
|
|
$ |
0.34 |
|
|
$ |
1.41 |
|
|
$ |
1.28 |
|
| |
|
|
|
|
|
|
|
|
| Diluted net income per
common share |
|
$ |
0.46 |
|
|
$ |
0.33 |
|
|
$ |
1.37 |
|
|
$ |
1.24 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| OTELCO INC. AND SUBSIDIARIES |
| CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS |
| (in thousands) |
| (unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September
30, |
|
|
|
|
|
|
|
|
|
2017 |
|
2016 |
| Cash flows
from operating activities: |
|
|
|
|
| |
Net
income |
|
$ |
4,733 |
|
|
$ |
4,199 |
|
| |
Adjustments
to reconcile net income to cash flows provided by operating
activities: |
|
|
|
|
| |
|
Depreciation |
|
|
5,225 |
|
|
|
5,328 |
|
| |
|
Amortization |
|
|
290 |
|
|
|
743 |
|
| |
|
Amortization of loan costs |
|
|
927 |
|
|
|
929 |
|
| |
|
Loss on
extinguishment of debt |
|
|
- |
|
|
|
155 |
|
| |
|
Provision
for uncollectible accounts receivable |
|
|
290 |
|
|
|
271 |
|
| |
|
Stock-based
compensation |
|
|
237 |
|
|
|
311 |
|
| |
|
Payment in
kind interest - subordinated debt |
|
|
237 |
|
|
|
194 |
|
| |
|
Changes in
operating assets and liabilities |
|
|
|
|
| |
|
|
Accounts
receivable |
|
|
(73 |
) |
|
|
(194 |
) |
| |
|
|
Materials
and supplies |
|
|
(663 |
) |
|
|
(326 |
) |
| |
|
|
Prepaid
expenses and other assets |
|
|
1,280 |
|
|
|
1,481 |
|
| |
|
|
Accounts
payable and accrued expenses |
|
|
453 |
|
|
|
654 |
|
| |
|
|
Advance
billings and payments |
|
|
582 |
|
|
|
(77 |
) |
| |
|
|
Other
liabilities |
|
|
(3 |
) |
|
|
(5 |
) |
| |
|
|
|
|
|
Net cash from operating
activities |
|
|
13,515 |
|
|
|
13,663 |
|
| |
|
|
|
|
|
|
|
|
|
|
| Cash flows
used in investing activities: |
|
|
|
|
| |
Acquisition
and construction of property and equipment |
|
|
(5,951 |
) |
|
|
(4,111 |
) |
| |
|
|
|
|
|
Net cash used in
investing activities |
|
|
(5,951 |
) |
|
|
(4,111 |
) |
| |
|
|
|
|
|
|
|
|
|
|
| Cash flows
used in financing activities: |
|
|
|
|
| |
Loan
origination costs |
|
|
(77 |
) |
|
|
(5,242 |
) |
| |
Principal
repayment of long-term notes payable |
|
|
(9,125 |
) |
|
|
(102,052 |
) |
| |
Proceeds
from loan refinancing |
|
|
- |
|
|
|
100,300 |
|
| |
Retirement
of CoBank equity |
|
|
164 |
|
|
|
- |
|
| |
Tax
withholdings paid on behalf of employees for restricted stock
units |
|
|
(209 |
) |
|
|
(109 |
) |
| |
|
|
|
|
|
Net cash used in
financing activities |
|
|
(9,247 |
) |
|
|
(7,103 |
) |
| |
|
|
|
|
|
|
|
|
|
|
| Net
(decrease) increase in cash and cash equivalents |
|
|
(1,683 |
) |
|
|
2,449 |
|
| Cash and
cash equivalents, beginning of period |
|
|
10,538 |
|
|
|
6,884 |
|
| |
|
|
|
|
|
|
|
|
|
|
| Cash and
cash equivalents, end of period |
|
$ |
8,855 |
|
|
$ |
9,333 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information: |
|
|
|
|
| |
Interest
paid |
|
$ |
6,654 |
|
|
$ |
6,065 |
|
| |
|
|
|
|
|
|
|
|
|
|
| |
Income
taxes paid |
|
$ |
1,802 |
|
|
$ |
1,197 |
|
| |
|
|
|
|
|
|
|
|
|
|
| |
Conversion
of Class B common stock to Class A common stock |
|
$ |
- |
|
|
$ |
2 |
|
| |
|
|
|
|
|
|
|
|
|
|
| |
Issuance of
Class A common stock |
|
$ |
1 |
|
|
$ |
1 |
|
| |
|
|
|
|
|
|
|
|
|
|
Contact:
Curtis GarnerChief Financial
OfficerOtelco
Inc.205-625-3580Curtis@otelcotel.com
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