Exhibit 99.1

 

 

Contact:	Curtis Garner
	Chief Financial Officer
	Otelco Inc.
	205-625-3580
	Curtis@otelcotel.com

 

Otelco Reports First Quarter 2014 Results

 

ONEONTA, Alabama (May 6, 2014) – 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 first quarter ended March 31, 2014. Key highlights for Otelco include:

 

·

Total revenues of $18.8 million for first quarter 2014.

·

Operating income of $4.0 million for first quarter 2014.

·

Adjusted EBITDA (as defined below) of $7.5 million for first quarter 2014.

 

“The first quarter of 2014 produced adjusted EBITDA of $7.5 million,” said Mike Weaver, Chief Executive Officer of Otelco. “This performance includes our annual CoBank dividend and the impact of the 2013 RLEC access revenue annual cost studies, both of which will not recur in the balance of 2014. The combined impact of these two items represents an increase of $0.7 million when compared with the same period in 2013. Access line equivalents remained essentially equal to our fourth quarter 2013 subscriber metrics, aided by the installation of transport fiber services to school systems in our Alabama markets. During first quarter, we reduced our senior debt by 4.2% or $5.4 million and our cash balance at March 31, 2014 was $6.9 million.

 

“As part of our ongoing efforts to control expenses and improve our efficiencies,” Weaver continued, “we have identified a number of areas where our operating costs can be reduced. As a result of these initiatives, which will be implemented in second quarter of this year, network, cable programming and labor cost reductions of approximately $1.2 million will be realized in 2014.

 

“Capital investment in our business was $1.4 million for first 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.”

 

 

Otelco Reports First Quarter 2014 Results

Page 2

May 6, 2014

 

First Quarter 2014 Financial Summary

(Dollars in thousands, except per share amounts)

(Unaudited)

 

		Three Months Ended March 31,								Change
		2013				2014				Amount				Percent
Revenues		$	20,988			$	18,782			$	(2,206	)			(10.5	)%
Operating income		$	4,889			$	3,973			$	(916	)			(18.7	)%
Interest expense		$	(5,554	)		$	(2,322	)		$	(3,232	)			(58.2	)%
Net income (loss)		$	(1,774	)		$	1,394			$	3,168				*
Net income (loss) per share		$	(0.67	)		$	0.45			$	1.12				*
Adjusted EBITDA(a)		$	8,786			$	7,530			$	(1,256	)			(14.3	)%
Capital expenditures		$	799			$	1,415			$	616				77.1	%

 

* Not a meaningful calculation

 

Reconciliation of Adjusted EBITDA to Net Income (Loss)

 

		Three Months ended March 31,
		2013				2014
Net income (loss)		$	(1,774	)		$	1,394
Add:  Depreciation			2,380				2,343
Interest expense - net of premium			5,212				2,082
Interest expense - amortized loan cost			342				239
Income tax expense (benefit)			(72	)			911
Stock-based compensation (earn out)			-				112
Loan fees			19				6
Reorganization items			1,493				-
Amortization - intangibles			1,186				443
Adjusted EBITDA		$	8,786			$	7,530

 

^(a) Adjusted EBITDA is defined as consolidated net income (loss) plus interest expense, depreciation and amortization, income taxes and certain fees, expenses or non-cash charges reducing consolidated net income. Adjusted EBITDA is not a measure calculated in accordance with generally accepted 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 Company’s 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 Reports First Quarter 2014 Results

Page 3

May 6, 2014

 

Otelco Inc. - Key Operating Statistics ⁽²⁾

(Unaudited)

 

														% Change
		December 31,								March 31,				from
		2012				2013				2014				Dec. 31, 2013
Business/Enterprise
CLEC
Voice lines			23,950				21,149				20,752				(1.9	)%
HPBX seats			6,172				8,453				8,698				2.9	%
Data lines			2,771				2,725				2,919				7.1	%
Wholesale network lines (2)			2,289				2,817				2,846				1.0	%
RLEC
Voice lines			11,542				12,349				12,879				4.3	%
Data lines			1,630				1,594				1,593				(0.1	)%
Access line equivalents (1)			48,354				49,087				49,687				1.2	%
Residential
CLEC
Voice lines			348				339				324				(4.4	)%
Data lines			391				416				407				(2.2	)%
RLEC
Voice lines			31,479				28,323				27,670				(2.3	)%
Data lines			21,112				20,566				20,620				0.3	%
Access line equivalents(1)			53,330				49,644				49,021				(1.3	)%
Otelco access line equivalents (1)			101,684				98,731				98,708				(0.0	)%
Cable, IPTV & satellite			4,388				4,164				4,128				(0.9	)%
Security systems			63				174				199				14.4	%
Other internet lines			4,506				3,750				3,585				(4.4	)%

⁽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⁾ Excludes Time Warner Cable which comprised 98% of the wholesale network connections on December 31, 2012 and none of the wholesale connections in 2013.

 

FINANCIAL DISCUSSION FOR FIRST QUARTER 2014:

 

Revenues

 

Total revenues decreased 10.5% in the three months ended March 31, 2014, to $18.8 million from $21.0 million in the three months ended March 31, 2013. The non-renewal of the Time Warner Cable (“TWC”) contract accounted for $1.3 million or approximately 61% of the decline. The decrease in residential RLEC access line equivalents and revenue decreases due to the FCC’s InterCarrier Compensation reform order account for the majority of the remaining decline. The table below provides the components of our revenues for the three months ended March 31, 2014 compared to the same period of 2013.

 

 

Otelco Reports First Quarter 2014 Results

Page 4

May 6, 2014

  

		Three Months Ended March 31,								Change
		2013				2014				Amount				Percent
		(dollars in thousands)
Local services		$	8,542			$	6,772			$	(1,770	)			(20.7	)%
Network access			6,497				6,195			$	(302	)			(4.6	)
Internet			3,676				3,561			$	(115	)			(3.1	)
Transport services			1,498				1,326			$	(172	)			(11.5	)
Cable television			775				731			$	(44	)			(5.7	)
Managed services			-				197			$	197				*
Total		$	20,988			$	18,782			$	(2,206	)			(10.5	)

 

* Not a meaningful calculation

 

Local services revenue decreased 20.7% in the quarter ended March 31, 2014 to $6.8 million from $8.5 million in the quarter ended March 31, 2013. TWC accounted for a decrease of $1.1 million. The decline in RLEC residential voice access lines and CLEC market pricing accounted for a decrease of $0.7 million. The FCC’s ICC order which reduces or eliminates intrastate and local cellular revenue accounted for a decrease of $0.3 million. A portion of the RLEC decrease is recovered through the Connect America Fund which is categorized as interstate access revenue. Network access revenue decreased 4.6% in the first quarter 2014 to $6.2 million from $6.5 million in the quarter ended December 31, 2013. TWC accounted for a decrease of $0.3 million. Internet revenue for the first quarter 2014 decreased 3.1% to $3.6 million from $3.7 million in the three months ended March 31, 2013. A decrease in residential data lines and dial-up internet was partially offset by an increase in fiber rental. Transport services revenue decreased 11.5% to $1.3 million from $1.5 million in the quarter ended March 31, 2013 from customer churn. Cable television revenue in the three months ended March 31, 2014, decreased 5.7% to just under $0.8 million from just over $0.7 million in the three months ended March 31, 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 first quarter 2014 with no comparable revenue for the year earlier period.

 

Operating Expenses

 

Operating expenses in the three months ended March 31, 2014, decreased 8.0% to $14.8 million from $16.1 million in the three months ended March 31, 2013. Cost of services decreased 2.7% to $9.4 million in the quarter ended March 31, 2014, from $9.7 million in the quarter ended March 31, 2013. TWC accounted for a decrease of $0.2 million. Selling, general and administrative expenses decreased 8.8% to $2.6 million in the three months ended March 31, 2014, from $2.9 million in the three months ended March 31, 2013. Cloud hosting expense associated with our acquisition of Reliable Networks, including an accrual for non-cash stock compensation, increased costs $0.2 million which were more than offset by lower uncollectible and settlement expenses; lower property taxes and reduced insurance, legal and operational expenses. Depreciation and amortization for first quarter 2014 decreased 21.9% to $2.8 million from $3.6 million in first quarter 2013. Amortization associated with the TWC contract intangible asset decreased by just under $0.7 million as the contract value was fully amortized in June 2013. The amortization of other intangible assets associated with the Country Road acquisition in October 2008 decreased $0.1 million.

 

Interest Expense

 

Interest expense decreased 58.2% to $2.3 million in the three months ended March 31, 2014, from $5.6 million in the quarter ended March 31, 2013. The conversion in May 2013 of the senior subordinated notes payable due 2019 to Class A common shares reduced interest $3.4 million. Amortization of loan

 

 

Otelco Reports First Quarter 2014 Results

Page 5

May 6, 2014

 

costs decreased $0.1 million. The higher interest rate on our long-term notes payable increased interest expense by $0.3 million.

 

Other Income

 

The Company receives an annual dividend from CoBank, one of its lenders, during first quarter. For 2014, the dividend of $0.6 million, including patronage capital extinguishment, was $0.4 million higher than for 2013.

 

Reorganization Items

 

Separate classification of reorganization items began in first quarter 2013 when we filed the Reorganization Cases. There were no reorganization expenses during the first quarter of 2014.

 

Adjusted EBITDA

 

Adjusted EBITDA for the three months ended March 31, 2014, was $7.5 million compared to $8.8 million for the same period in 2013 and $7.3 million in the fourth quarter of 2013. 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 (loss).

 

Balance Sheet

 

As of March 31, 2014, the Company had cash and cash equivalents of $6.9 million compared to $9.9 million at the end of 2013. During first quarter 2014, the Company reduced its credit facility by $5.4 million through scheduled, Excess Cash and voluntary payments. The Company’s senior credit facility extends through April 2016 and includes a $5.0 million undrawn revolver.

 

Capital Expenditures

 

Capital expenditures were $1.4 million for the first quarter 2014 compared to $0.8 million in the same period in 2013. In addition, we acquired Reliable Networks for $0.5 million in cash and future stock payments tied to the growth of that business over the next three years.

 

Fourth Quarter Earnings Conference Call

 

Otelco has scheduled a conference call, which will be broadcast live over the internet, on Wednesday, May 7, 2014, at 11:30 a.m. ET. To participate in the call, participants should dial (719) 325-2432 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 8816125.

 

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

 

 

Otelco Reports First Quarter 2014 Results

Page 6

May 6, 2014

 

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.

 

 

Otelco Reports First Quarter 2014 Results

Page 7

May 6, 2014

 

OTELCO INC.

CONSOLIDATED BALANCE SHEETS

(unaudited)

(in thousands, except share par value and share amounts)

 

		December 31,				March 31,
		2013				2014
Assets
Current assets
Cash and cash equivalents		$	9,916			$	6,859
Accounts receivable:
Due from subscribers, net of allowance for doubtful accounts of $274 and $238, respectively			3,730				3,610
Unbilled receivables			1,906				1,859
Other			2,050				2,534
Materials and supplies			1,654				1,643
Prepaid expenses			1,863				1,637
Deferred income taxes			905				905
Total current assets			22,024				19,047
Property and equipment, net			54,462				53,562
Goodwill			44,957				45,103
Intangible assets, net			4,074				3,963
Investments			1,895				1,888
Deferred financing costs, net			2,097				1,858
Deferred income taxes			1,606				1,606
Other assets			563				578
Total assets		$	131,678			$	127,605
Liabilities and Stockholders' Deficit
Current liabilities
Accounts payable		$	1,552			$	1,188
Accrued expenses			5,141				5,522
Advance billings and payments			1,422				1,407
Deferred income taxes			469				469
Customer deposits			84				79
Current maturity of long-term notes payable			7,441				8,130
Total current liabilities			16,109				16,795
Deferred income taxes			23,181				23,181
Advance billings and payments			736				721
Other liabilities			139				132
Long-term notes payable, less current maturities			121,192				115,061
Total liabilities			161,357				155,890
Stockholders' deficit
Class A Common Stock, $.01 par value-authorized 10,000,000 shares; issued and outstanding 2,870,948 shares			29				29
Class B Common Stock, $.01 par value-authorized 250,000 shares; issued and outstanding 232,780 shares			2				2
Additional paid in capital			2,876				2,876
Retained deficit			(32,586	)			(31,192	)
Total stockholders' deficit			(29,679	)			(28,285	)
Total liabilities and stockholders' deficit		$	131,678			$	127,605

  

  

Otelco Reports First Quarter 2014 Results

Page 8

May 6, 2014

 

OTELCO INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(in thousands, except share and per share amounts)

  

		Three Months Ended
		March 31,
		2013				2014
Revenues		$	20,988			$	18,782
Operating expenses
Cost of services			9,653				9,397
Selling, general and administrative expenses			2,880				2,627
Depreciation and amortization			3,566				2,785
Total operating expenses			16,099				14,809
Income from operations			4,889				3,973
Other income (expense)
Interest expense			(5,554	)			(2,322	)
Other income			243				654
Total other expenses			(5,311	)			(1,668	)
Income (loss) before reorganization items and income tax			(422	)			2,305
Reorganization items			(1,424	)			-
Income (loss) before income tax			(1,846	)			2,305
Income tax benefit (expense)			72				(911	)
Net income (loss)		$	(1,774	)		$	1,394
Weighted average number of common shares outstanding (recalculated for 2013)			2,644,281				3,103,728
Net income (loss) per common share		$	(0.67	)		$	0.45

  

 

Otelco Reports First Quarter 2014 Results

Page 9

May 6, 2014

 

OTELCO INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)

 

		Three Months Ended
		March 31,
		2013				2014
Cash flows from operating activities:
Net income (loss)		$	(1,774	)		$	1,394
Adjustments to reconcile net income (loss) to cash flows provided by operating activities:
Depreciation			2,380				2,343
Amortization			1,186				442
Amortization of loan costs			342				239
Amortization of notes payable premium			(31	)			-
Provision for uncollectible accounts receivable			37				103
Changes in operating assets and liabilities
Accounts receivable			1,895				(418	)
Material and supplies			(79	)			11
Prepaid expenses and other assets			(885	)			211
Accounts payable and accrued expenses			1,008				17
Advance billings and payments			(66	)			(30	)
Other liabilities			(322	)			(12	)
Net cash provided by operating activities			3,691				4,300
Cash flows used in investing activities:
Acquisition and construction of property and equipment			(799	)			(1,415	)
Cash paid for the purchase of Reliable Networks net of cash acquired			-				(500	)
Net cash used in investing activities			(799	)			(1,915	)
Cash flows used in financing activities:
Principal repayment of long-term notes payable			-				(5,442	)
Loan origination costs			(1,115	)			-
Net cash used in financing activities			(1,115	)			(5,442	)
Net increase (decrease) in cash and cash equivalents			1,777				(3,057	)
Cash and cash equivalents, beginning of period			32,516				9,916
Cash and cash equivalents, end of period		$	34,293			$	6,859
Supplemental disclosures of cash flow information:
Interest paid		$	1,825			$	2,085
Income taxes paid		$	36			$	333