Otelco Reports Fourth Quarter and Year 2012 Results

ONEONTA, Ala.--(BUSINESS WIRE)-- Otelco Inc. (NAS: OTT) (TSX: OTT.un), a wireline telecommunications services provider in Alabama, Maine, Massachusetts, Missouri, New Hampshire, Vermont and West Virginia, today announced results for its fourth quarter and year ended December 31, 2012. Key highlights for Otelco include:

  • Total revenues of $23.9 million for fourth quarter 2012 and $98.4 million for 2012.
  • Operating income (loss) of $5.6 million for fourth quarter 2012 and ($129.4) million for 2012.
  • Adjusted EBITDA (as defined below) of $11.5 million for fourth quarter 2012 and $45.2 million for 2012.

"The fourth quarter of 2012 produced our best quarterly financial results for the year," said Mike Weaver, President and Chief Executive Officer of Otelco. "Adjusted EBITDA topped $11.5 million for the fourth quarter and was $45.2 million for the year ended December 31, 2012. The adjusted EBITDA margin for 2012 of 45.9% represents a 1.4 percentage point margin improvement over 2011 results. Our cash balance increased by $5.3 million from the third quarter, finishing the year at $32.5 million.


"During 2012, our access line equivalents declined by 2.4% due solely to a reduction in residential access lines - a decline which was partially offset by modest gains in business access lines and high-speed Internet customers," continued Weaver. "While we are never pleased with declining access lines, the good news is that we had positive growth in our business customers. Our fourth quarter results point out the fact that our operations remain strong and we continue to produce significant positive cash flow.

"The proposed restructuring plan we announced on February 1st, if approved as filed, accomplishes three important objectives," Weaver added. "The plan:

  • Reduces our total debt by 50%;
  • Amends and extends the senior credit facility through April 30, 2016 at competitive rates; and
  • Puts in place a simplified capital structure that will serve Otelco well going forward.

Our focus remains on continuing to provide the excellent service that our valuable and loyal customers have come to expect from Otelco.

"The solicitation documents describing the proposed plan were mailed on February 13th to our senior subordinated note holders (including those held through IDS units) to holders of record as of February 8th and the balloting process is now underway. The deadline for returning ballots is March 15th," noted Weaver. "I encourage our unit holders to carefully review the materials we have provided as they consider their options. I am confident the restructuring plan represents the best possible outcome for the Company, the holders of our IDS units, and our creditors."

 
 
 
 
Fourth Quarter 2012 Financial Summary
(Dollars in thousands, except per share amounts)
(Unaudited)
 
  Three Months Ended December 31,   Change
    2011   2012   Amount   Percent
Revenues $ 25,648   $ 23,888 $ (1,760 )   (6.9 )%
Operating income $ 5,859 $ 5,563 $ (296 ) (5.1 )%
Interest expense $ (6,184 ) $ (5,770 ) $ (414 ) (6.7 )%
Net income (loss) available to stockholders $ 24 $ (23 ) $ (47 ) (195.8 )%
Basic net income (loss) per share $ - $ - $ - - %
 
Adjusted EBITDA(a) $ 10,909 $ 11,521 $ 612 5.6 %
Capital expenditures $ 2,100 $ 2,961 $ 861 41.0 %
 
 
 
Year Ended December 31, Change
    2011   2012   Amount   Percent
Revenues $ 101,844 $ 98,404 $ (3,440 ) (3.4 )%
Operating income (loss) $ 24,630 $ (129,394 ) $ (154,024 ) *
Interest expense $ (24,776 ) $ (22,932 ) $ (1,844 ) (7.4 )%
Net income (loss) available to stockholders $ 2,197 $ (126,900 ) $ (129,097 ) *
Basic net income (loss) per share $ 0.17 $ (9.60 ) $ (9.77 ) *
 
Adjusted EBITDA(a) $ 45,302 $ 45,180 $ (122 ) (0.3 )%
Capital expenditures $ 10,548 $ 6,357 $ (4,191 ) (39.7 )%
 
* Not a meaningful calculation
 
 

Reconciliation of Adjusted EBITDA (a) to Net Income (Loss)

Three Months Ended December 31, Year Ended December 31,
    2011   2012   2011   2012
Net income (loss) $ 24 $ (23 ) $ 2,197 $ (126,900 )
Add: Depreciation 3,140 2,553 11,891 10,496
Interest expense - net of premium 5,842 5,428 23,408 21,564
Interest expense - amortize loan cost 342 342 1,368 1,368
Income tax expense (benefit) 214 (178 ) 250 (24,868 )
Change in fair value of derivatives (589 ) - (2,230 ) (241 )
Loan fees 19 19 76 76
Amortization - intangibles 1,917 1,705 8,342 8,781
Goodwill impairment - - - 143,653
Impairment of long-lived assets - - - 8,622
Restructuring expense - 1,082 - 2,036
IXC Tariff Dispute Settlement   -     593     -     593  
Adjusted EBITDA $ 10,909   $ 11,521   $ 45,302   $ 45,180  
 

(a) Adjusted EBITDA is defined as consolidated net income (loss) plus interest expense, depreciation and amortization, income taxes and certain non-recurring fees, expenses or charges and other non-cash charges reducing consolidated net income. Adjusted EBITDA is not a measure calculated in accordance with generally acceptable accounting principles (GAAP). While providing useful information, Adjusted EBITDA should not be considered in isolation or as a substitute for consolidated statement of operations data prepared in accordance with GAAP. The Company believes Adjusted EBITDA is useful as a tool to analyze the Company on the basis of operating performance and leverage. The definition of Adjusted EBITDA corresponds to the definition of Adjusted EBITDA in the indenture governing the Company's senior subordinated notes and its credit facility and certain of the covenants contained therein. The Company's presentation of Adjusted EBITDA may not be comparable to similarly titled measures used by other companies.

 
 
 
 
 

Otelco Inc. - Key Operating Statistics (2)

  (Unaudited)           Quarterly   Annual
% Change % Change
December 31,

September 30,

December 31, from from
2011 (2) 2012 2012 2012

September 30, 2012

2011-2012
Otelco access line equivalents(1) 102,378 99,935 100,195 99,935 (0.3) % (2.4) %
 
RLEC and other services:
Voice access lines 46,202 43,021 43,816 43,021 (1.8) % (6.9) %
Data access lines   22,904   22,742 22,977 22,742 (1.0) % (0.7) %
Access line equivalents(1) 69,106 65,763 66,793 65,763 (1.5) % (4.8) %
Cable television customers 4,201 4,155 4,181 4,155 (0.6) % (1.1) %
Satellite television customers 226 233 232 233 0.4 % 3.1 %
Additional internet customers 5,414 4,506 4,690 4,506 (3.9) % (16.8) %
RLEC dial-up 301 198 211 198 (6.2) % (34.2) %
Other dial-up 2,797 1,895 2,083 1,895 (9.0) % (32.2) %
Other data lines 2,316 2,413 2,396 2,413 0.7 % 4.2 %
 
CLEC:
Voice access lines 30,189 30,470 30,341 30,470 0.4 % 0.9 %
Data access lines   3,082   3,162 3,061 3,162 3.3 % 2.6 %

Access line equivalents(1)

33,271 33,632 33,402 33,632 0.7 % 1.1 %
Wholesale network connections(3) 157,144 162,117 162,700 162,117 (0.4) % 3.2 %
 
 
For the Years Ended Annual Change
December 31, 2011-2012

2011 (2)

2012 Amount Percentage
Total Revenues (in millions): $ 101.8 $ 98.4 $ (3.40) (3.3) %
RLEC $ 57.4 $ 55.7 $ (1.70) (3.0) %
CLEC $ 44.4 $ 42.7 $ (1.70) (3.8) %
 

(1) We define access line equivalents as voice access lines and data access lines (including cable modems, digital subscriber lines, and dedicated data access trunks).

(2) We acquired Shoreham Telephone Company Inc. ("Shoreham") on October 14, 2011. At December 31, 2011, STC had 3,309 voice access lines and 1,672 data access lines, or 4,981 access line equivalents, and 55 dial-up internet customers which are included in the Key Operating Statistics.

(3) Time Warner Cable is the source for approximately 98% of wholesale network connections.

 
 

FINANCIAL DISCUSSION FOR FOURTH QUARTER 2012:

All financial information includes the acquisition of Shoreham on and as of October 14, 2011.

Revenues

Total revenues decreased 6.9% in the three months ended December 31, 2012, to $23.9 million from $25.6 million in the three months ended December 31, 2011. The decline is the result of the loss of traditional RLEC voice access line related revenues and revenue decreases due to the FCC's InterCarrier Compensation reform order. The table below provides the components of our revenues for the three months ended December 31, 2012 compared to the same period of 2011.

 
      Three Months Ended December 31,   Change
2011   2012 Amount   Percent
(dollars in thousands)
Local services $ 11,802 $ 10,806 $ (996 ) (8.4 )%
Network access 8,143 7,122 (1,021

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