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Otelco Reports Second Quarter ResultsOtelco 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 second quarter ended June 30, 2015. Key highlights for Otelco include:
"Otelco's second quarter 2015 results produced Adjusted EBITDA of $7.1 million," said Rob Souza, President and Chief Executive Officer of Otelco. "The Company was able to offset more than half of the year-over-year decrease in revenue with cost and expense savings. When you compare second quarter 2015 Adjusted EBITDA with first quarter 2015 Adjusted EBITDA, excluding the benefit of our annual CoBank dividend, Adjusted EBITDA showed a sequential increase of $0.2 million as a result of our continued focus on cost containment and elimination. "Our business access line equivalents grew just under 1% during second quarter and now represent more than 54% of our total access line equivalents," continued Souza. "Our Hosted PBX and Classifax product offerings grew this quarter, as did our wholesale network product. Hosted PBX now accounts for nearly 35% of our CLEC retail voice lines. "Reliable Networks continues to expand its service platform, adding capabilities now located in our Portland data center," Souza noted. "During second quarter, we expanded and adjusted the operational structure of the team to allow its senior leaders to focus more time on sales opportunities. In addition, we are moving our corporate email operations onto their platform and will utilize their cloud-based shared Sequel server platform to host our financial system by the end of third quarter, further improving internal efficiencies. "Otelco has continued to reduce its long-term debt each quarter, which also has reduced our interest expense," added Souza. "During second quarter, our debt was reduced 4.0% to $105.1 million. During 2015, the debt has been reduced by $7.0 million or 6.3% and our cash balance at June 30, 2015, was $6.9 million."
FINANCIAL DISCUSSION FOR SECOND QUARTER 2015: Revenues Total revenues decreased 3.2% in the three months ended June 30, 2015, to $17.9 million from $18.5 million in the three months ended June 30, 2014. 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. The table below provides the components of our revenues for the three months ended June 30, 2015, compared to the same period of 2014.
Local services revenue decreased 5.5% in the quarter ended June 30, 2015, to $6.3 million from $6.7 million in the quarter ended June 30, 2014. Growth in Hosted PBX revenue of $0.1 million was more than offset by the decline in RLEC residential voice access lines and the impact of the FCC's order which reduces or eliminates intrastate and local cellular revenue which 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 network access revenue. The decline in long distance, directory and special revenue accounted for a decrease of $0.2 million. Network access revenue decreased 5.6% in the second quarter 2015 to $5.6 million from $5.9 million in the quarter ended June 30, 2014. The Connect America Fund, access recovery fees and annual cost study adjustments increased by $0.2 million. This increase was more than offset by lower state and special access charges of $0.4 million and lower user-based fees and switched access of $0.1 million. Internet revenue increased 3.4% to $3.7 million in the three months ended June 30, 2015, from $3.6 million in the three months ended June 30, 2014. Transport services revenue was $1.3 million in both the quarters ended June 30, 2015 and 2014, but reflected a 1.0% increase in revenue. Cable, IP and satellite television revenue decreased 3.9% in the second quarter 2015 to just under $0.7 million from just over $0.7 million in the quarter ended June 30, 2014. Increases in pay-per-view revenue were more than offset by cable subscriber attrition. Cloud hosting and managed services revenue was unchanged at $0.2 million in the three months ended June 30, 2014 and June 30, 2015. Operating Expenses Operating expenses in the three months ended June 30, 2015, decreased 6.6% to $13.1 million from $14.0 million in the three months ended June 30, 2014. Cost of services decreased 2.2% to $8.4 million in the quarter ended June 30, 2015, from $8.6 million in the quarter ended June 30, 2014. Network circuit, toll and internet costs decreased $0.1 million and customer service, sales and plant operations expense decreased $0.1 million as a result of operational reductions implemented over the past year. Selling, general and administrative expenses decreased 7.1% to $2.5 million in the quarter ended June 30, 2015, from $2.6 million in the quarter ended June 30, 2014. Legal and other general and administrative expenses decreased by $0.1 million and earn-out stock compensation decreased by $0.1 million. Depreciation and amortization for second quarter 2015 decreased 19.3% to $2.3 million from $2.8 million in second quarter 2014. Depreciation decreased by $0.1 million in Missouri and by $0.4 million in the CLEC. Depreciation increased by $0.1 million in the Alabama and New England RLECs and Reliable Networks. The amortization of other intangible assets decreased $0.1 million. Interest Expense Interest expense in the three months ended June 30, 2015, decreased 11.3% to $2.0 million from $2.2 million in the three months ended June 30, 2014. While the interest rate remained constant, the lower outstanding loan principal accounted for the decrease. Adjusted EBITDA Based on the changes noted above, Adjusted EBITDA decreased $0.3 million to $7.1 million for the three months ended June 30, 2015, when compared to $7.4 million in the same period in 2014. Adjusted EBITDA excluding the annual CoBank dividend was $6.9 million in the first quarter of 2015. Stock-based compensation and other excluded expenses are added back in the calculation of Adjusted EBITDA. See financial tables for a reconciliation of second quarter 2014 and 2015 Adjusted EBITDA to net income. Balance Sheet As of June 30, 2015, the Company had cash and cash equivalents of $6.9 million compared to $5.1 million at the end of 2014. During second quarter 2015, the Company reduced its credit facility balance by $4.4 million to $105.1 million. The Company's senior credit facility extends through April 2016 and includes a $5.0 million undrawn revolver. Capital Expenditures Capital expenditures were $1.5 million in both the second quarter 2015 and the same period in 2014. First Quarter Earnings Conference Call Otelco has scheduled a conference call, which will be broadcast live over the internet, on Wednesday, August 5, 2015, at 11:30 a.m. (Eastern Time). To participate in the call, participants should dial (785) 830-7991 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 3933192. 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 98,000 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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