Exhibit 99.1

 

 

News Release

 

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

 

Otelco Reports Second Quarter 2019 Operational and Financial Results

 

ONEONTA, Alabama (August 13, 2019) Otelco Inc. (NASDAQ: OTEL), a wireline telecommunications services provider in Alabama, Maine, Massachusetts, Missouri, New Hampshire, Vermont and West Virginia, today announced operational and financial results for its second quarter ended June 30, 2019. Key operational and financial highlights for Otelco include:

 

·Total revenues of $15.7 million.
·Operating income of $3.7 million.
·Net income of $1.7 million.
·Consolidated EBITDA (as defined below) of $5.7 million.
·Capital expenditures of $2.4 million.
·Scheduled principal payments of $1.1 million.

 

SECOND QUARTER RESULTS

The Company reported revenue of $15.7 million, a 7.3% decrease from the second quarter 2018. The continued loss of residential voice customers and competitive pricing pressures on internet services, combined with the FCC’s one-time A-CAM and CAF-BLS positive adjustments in second quarter 2018 results, were the primary drivers of the decline. These results were in line with revenue reported for first quarter 2019. Net income decreased 41.0% to $1.7 million in second quarter 2019, compared to $2.9 million in second quarter 2018. Cost of services was unchanged in 2019 from 2018, while selling, general and administrative expense increased 5.3% over 2018, including the expense associated with the development of the Company’s long-term network design plans.

 

Basic net income was $0.50 per share for second quarter 2019, compared to $0.86 per share in the same period of 2018. Consolidated EBITDA (as defined below) was $5.7 million for second quarter 2019, compared to $7.1 million for the same period in the previous year.

 

The Company made its scheduled $1.1 million principal payment on its credit agreement with CoBank in second quarter 2019, reducing the loan balance to $72.4 million. As of June 30, 2019, the ratio of debt, net of cash, to Consolidated EBITDA was 2.74, reflecting the mandatory payments and voluntary prepayments made on the debt since its inception in November 2017. During second quarter 2019, capital investment increased to $2.9 million, compared to $2.1 million in the same period of 2018. During 2019, the Company expects to invest a total of $11.5 million to upgrade and maintain its network. This investment level represents a 27.7% increase in investment in the business over 2018 and the second year of double digit increases in investment aimed at providing customers increased internet speeds to reduce customer churn. During second quarter, Otelco announced plans for the additional deployment of fiber to over 4,100 locations in Alabama, the deployment of VDSL throughout all of its service areas and the upgrade of its cable distribution network to DOCSIS 3.1 next year.

 

 

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Otelco Reports Second Quarter 2019 Results

Page 2

August 13, 2019

 

FCC AND REGULATORY UPDATES

Shoreham (VT), the one Otelco subsidiary not included in previous A-CAM support offers, received an offer of A-CAM support on May 2, 2019, and subsequently filed a letter with the FCC on June 17, 2019, accepting the offer, which will be effective back to January 1, 2019. The A-CAM support replaces the legacy rate-of-return support Shoreham currently receives. The shift to A-CAM funding will not have any impact on 2019 revenue but will provide revenue stability for the ten-year life of the program.

 

The FCC’s Order of October 23, 2018, provides an option for ten of the Company’s RLECs to move Special Access services (also known as BDS) from a cost-based rate development (cost studies) to incentive regulation. Otelco has exercised this option, which became effective July 1, 2019, and has avoided the annual requirement to provide cost studies for each participating subsidiary. In addition to reducing the $0.2 million expense associated with the cost studies, incentive regulation provides the Company rate flexibility to meet competitive market pressures.

 

MUNICIPAL PARTNERSHIPS

In its ongoing involvement with municipalities, Otelco, in collaboration with the Town of Alton, Maine, and the State’s ConnectME Authority, will be constructing a fiber network capable of serving the approximately 260 residence and business locations within the town. Approximately 100 of these locations are covered under the A-CAM speed requirements. Grant funding received from Alton and ConnectME will support approximately 60% of the expected $0.7 million investment, allowing for the replacement of the existing copper infrastructure to serve all locations with fiber-to-the-premise service. The Company expects this project will be completed within six months of the receipt of funding.

 

SECOND QUARTER EARNINGS CONFERENCE CALL

Otelco has scheduled a conference call, which will be broadcast live over the internet, on Wednesday, August 14, 2019, at 11:30 a.m. (Eastern Time). To participate in the call, investors should dial (856) 344-9283 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.Otelco.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.Otelco.com for 30 days. A two-week telephonic replay may also be accessed by calling (719) 457-0820 and entering the Confirmation Code 7779890.

 

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. Otelco is among the top 20 largest local exchange carriers in the United States. 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.Otelco.com.

 

 

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Otelco Reports Second Quarter 2019 Results

Page 3

August 13, 2019

 

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. The Company assumes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.

 

Second Quarter 2019 Financial Summary

(Dollars in thousands, except per share amounts)

(Unaudited)

 

   Three Months Ended June 30,   Change 
   2019   2018   Amount   Percent 
Revenues  $15,658   $16,890   $(1,232)   (7.3)%
Operating income  $3,708   $5,172   $(1,464)   (28.3)%
Interest expense  $(1,362)  $(1,467)  $(105)   (7.2)%
Net income available to stockholders  $1,716   $2,908   $(1,192)   (41.0)%
Basic net income per share  $0.50   $0.86   $(0.36)   (41.9)%
Diluted net income per share  $0.50   $0.85   $(0.35)   (41.2)%
                     
Consolidated EBITDA  $5,676   $7,078   $(1,402)   (19.8)%
Capital expenditures  $2,905   $2,123   $782    36.8%

  

   Six Months Ended June 30,   Change 
   2019   2018   Amount   Percent 
Revenues  $31,413   $33,616   $(2,203)   (6.6)%
Operating income  $7,471   $9,233   $(1,762)   (19.1)%
Interest expense  $(2,729)  $(2,925)  $(196)   (6.7)%
Net income  $3,997   $4,903   $(906)   (18.5)%
Net income per share  $1.17   $1.45   $(0.28)   (19.3)%
Diluted net income per share  $1.16   $1.43   $(0.27)   (18.9)%
                     
Consolidated EBITDA  $12,038   $13,216   $(1,178)   (8.9)%
Capital expenditures  $4,437   $3,298   $1,139    34.5%

  

 

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Otelco Reports Second Quarter 2019 Results

Page 4

August 13, 2019

 

OTELCO INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

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

(unaudited with the exception of December 31, 2018 being audited)

 

   June 30,   December 31, 
   2019   2018 
Assets        
Current assets          
Cash and cash equivalents  $5,354   $4,657 
Accounts receivable:          
Due from subscribers, net of allowance for doubtful          
accounts of $248 and $577, respectively   3,988    4,183 
Other   1,844    1,899 
Materials and supplies   3,493    2,802 
Prepaid expenses   1,356    1,198 
Other assets   256    - 
Total current assets   16,291    14,739 
           
Property and equipment, net   52,897    52,073 
Goodwill   44,976    44,976 
Intangible assets, net   721    919 
Operating lease right-of-use asset   980    - 
Investments   1,485    1,498 
Interest rate cap   -    4 
Other assets   382    143 
Total assets  $117,732   $114,352 
           
Liabilities and Stockholders' Equity          
Current liabilities          
Accounts payable  $1,855   $1,331 
Accrued expenses   5,150    5,054 
Advance billings and payments   1,517    1,614 
Customer deposits   50    48 
Current operating lease liability   341    - 
Current maturity of long-term notes payable, net of debt issuance cost   3,915    3,904 
Total current liabilities   12,828    11,951 
           
Deferred income taxes   20,145    20,145 
Advance billings and payments   2,140    2,234 
Other liabilities   9    13 
Long-term operating lease liability   639    - 
Long-term notes payable, less current maturities and debt issuance cost   67,141    69,107 
Total liabilities   102,902    103,450 
           
Stockholders' equity          
Class A Common Stock, $.01 par value-authorized 10,000,000 shares;          
issued and outstanding 3,410,936 and 3,388,624 shares, respectively   34    34 
Additional paid in capital   4,144    4,213 
Retained earnings   10,652    6,655 
Total stockholders' equity   14,830    10,902 
Total liabilities and stockholders' equity  $117,732   $114,352 

 

 

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Otelco Reports Second Quarter 2019 Results

Page 5

August 13, 2019

 

OTELCO INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share amounts)

(unaudited)

 

   Three Months Ended June 30,   Six Months Ended June 30, 
   2019   2018   2019   2018 
                 
Revenues  $15,658   $16,890   $31,413   $33,616 
                     
Operating expenses                    
Cost of services   7,486    7,483    15,088    15,447 
Selling, general and administrative expenses   2,556    2,428    5,029    5,310 
Depreciation and amortization   1,908    1,807    3,825    3,626 
Total operating expenses   11,950    11,718    23,942    24,383 
                     
Income from operations   3,708    5,172    7,471    9,233 
                     
Other income (expense)                    
Interest expense   (1,362)   (1,467)   (2,729)   (2,925)
Other income    4    1    599    168 
Total other expense   (1,358)   (1,466)   (2,130)   (2,757)
                     
Income before income tax expense   2,350    3,706    5,341    6,476 
Income tax expense   (634)   (798)   (1,344)   (1,573)
                     
Net income  $1,716   $2,908   $3,997   $4,903 
                     
Weighted average number of common shares outstanding:                    
Basic   3,410,936    3,388,624    3,410,936    3,388,624 
Diluted   3,431,229    3,439,659    3,431,229    3,429,974 
                     
Basic net income per common share  $0.50   $0.86   $1.17   $1.45 
                     
Diluted net income per common share  $0.50   $0.85   $1.16   $1.43 

 

 

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Otelco Reports Second Quarter 2019 Results

Page 6

August 13, 2019

 

OTELCO INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

   Six Months Ended June 30, 
   2019   2018 
Cash flows from operating activities:          
Net income  $3,997   $4,903 
Adjustments to reconcile net income to cash flows provided by operating activities:          
Depreciation   3,667    3,458 
Amortization   158    168 
Amortization of loan costs   230    239 
Non-cash lease amortization   93    - 
Provision for uncollectible accounts receivable   80    163 
Stock-based compensation   114    151 
Changes in operating assets and liabilities          
Accounts receivable   (86)   (370)
Materials and supplies   (691)   (126)
Prepaid expenses and other assets   (397)   1,888 
Accounts payable and accrued expenses   620    (790)
Advance billings and payments   (191)   (199)
Other liabilities   (96)   - 
Net cash from operating activities   7,498    9,485 
           
Cash flows used in investing activities:          
Acquisition and construction of property and equipment   (4,437)   (3,298)
Net cash used in investing activities   (4,437)   (3,298)
           
Cash flows used in financing activities:          
Loan origination costs   (10)   (37)
Principal repayment of long-term notes payable   (2,175)   (5,175)
Interest rate cap   4    (46)
Retirement of CoBank equity   -    119 
Tax withholdings paid on behalf of employees for restricted stock units   (183)   (380)
Net cash used in financing activities   (2,364)   (5,519)
           
Net increase in cash and cash equivalents   697    668 
Cash and cash equivalents, beginning of period   4,657    3,570 
           
Cash and cash equivalents, end of period  $5,354   $4,238 
Supplemental disclosures of cash flow information:          
Interest paid  $2,487   $2,701 
           
Income taxes paid  $1,189   $435 

  

 

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Otelco Reports Second Quarter 2019 Results

Page 7

August 13, 2019

 

CONSOLIDATED EBITDA – Consolidated EBITDA is defined as consolidated net income 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 facility. The lenders under the Company’s credit facility 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. 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.

 

Reconciliation of Consolidated EBITDA to Net Income                  Twelve Months 
      Three Months Ended June 30,   Six Months Ended June 30,   Ended June 30, 
      2019   2018   2019   2018   2019 
Net income     $1,716   $2,908   $3,997   $4,903   $8,561 
Add:  Depreciation   1,829    1,723    3,667    3,458    7,115 
   Interest expense less interest income   1,245    1,348    2,493    2,687    5,175 
   Interest expense - amortized loan cost   113    118    230    238    467 
   Income tax expense   634    798    1,344    1,573    2,516 
   Amortization - intangibles   79    84    158    168    316 
   Loan fees   17    19    35    38    71 
   Stock-based compensation (senior management)   43    80    114    151    271 
Consolidated EBITDA  $5,676   $7,078   $12,038   $13,216   $24,492 

 

LEVERAGE RATIO – The Company uses the ratio of debt, net of cash, to Consolidated EBITDA for the last twelve months as an operational performance measurement of Otelco’s leverage. 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 highlights 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 the Leverage ratio as of June 30, 2019.

 

Ratio of Debt, Net of Cash, to Consolidated EBITDA  
as of June 30, 2019  
($000)  

    

Notes payable  $71,056 
Debt issuance costs   1,331 
Notes outstanding   72,387 
      
Less cash   (5,354)
Notes outstanding, net of cash  $67,033 
Consolidated EBITDA for the     
last twelve months  $24,492 
      
Leverage ratio   2.74 

 

 

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