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Otelco Reports First Quarter 2011 Results

“The recent outbreak of tornadoes in Alabama inflicted some damage to our outside plant facilities but we do not anticipate any significant long-term effects on our operations,” noted Weaver. “Restoration efforts were underway immediately after the storm subsided. We supplemented our Alabama work force with crews from our Missouri and Maine operations, as well as outside contractors, and were able to restore service to most of our customers within a week. The costs for the restoration should generally be covered by our insurance.

“The strength of our commitment to building value for and returning cash to our shareholders is unwavering, as evidenced by our twenty-fifth consecutive IDS dividend,” Weaver concluded.

Distribution to Income Deposit Security Holders

Each quarter, the Board will consider the declaration of dividends during its normally scheduled meeting. For this quarter, the Board is meeting on May 12, 2011. The scheduled interest and any dividend declared will be paid on June 30, 2011, to holders of record as of the close of business on June 15, 2011. The interest payment will cover the period from March 30, 2011 through June 29, 2011. Currently, it is anticipated that the Company’s dividends in 2011 will continue to be treated as a return of capital for tax purposes. The Company has made twenty-five successive quarterly distributions of dividends and interest since its IDS units were originally offered to the public in December 2004.

 
First Quarter 2011 Financial Summary
(Dollars in thousands, except per share amounts)
       
Three Months Ended March 31, Change
    2010   2011   Amount   Percent
Revenues $ 25,794 $ 25,392 $ (402 ) (1.6 ) %
Operating income $ 5,869 $ 5,321 $ (548 ) (9.3 ) %
Interest expense $ (5,989 ) $ (6,170 ) $ 181 3.0 %
Net income (loss) available to stockholders $ (386 ) $ 5 $ 391 *
Basic net income (loss) per share $ (0.03 ) $ - $ 0.03 *
Diluted net income (loss) per share $ (0.03 ) $ - $ 0.03 *
 
Adjusted EBITDA (a) $ 12,331 $ 11,413 $ (918 ) (7.4 ) %
Capital expenditures $ 1,753 $ 2,843 $ 1,090 62.2 %
 
* Not a meaningful calculation
 
 

Reconciliation of Adjusted EBITDA to Net Income (Loss)

Three Months ended March 31,
    2010   2011  
Net income (loss) $ (386 ) $ 5
Add: Depreciation 3,573 3,523
Interest expense - net of premium 5,651 5,828
Interest expense - amortize loan cost 338 342
Income tax expense (benefit) (262 ) 1
Change in fair value of derivatives 886 (506 )
Loan fees 19 19
Amortization - intangibles   2,512     2,201  
Adjusted EBITDA $ 12,331   $ 11,413  
 

(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
 
Quarterly
% Change
December 31, Mar. 31, from
2009 2010 2011 Dec. 31, 2010

Otelco access line equivalents (1)

100,356 99,639 99,271 (0.4 ) %
 
RLEC and other services:
Voice access lines 48,215 45,461 44,770 (1.5 ) %
Data access lines   20,066   20,852 21,158 1.5 %
Access line equivalents (1) 68,281 66,313 65,928 (0.6 ) %
Cable television customers 4,195 4,227 4,029 (4.7 ) %

Satellite television customers

100 125 217 73.6
Additional internet customers 9,116 6,975 6,435 (7.7 ) %
RLEC dial-up 786 393 341 (13.2 ) %
Other dial-up 6,439 4,300 3,786 (12.0 ) %
Other data lines 1,891 2,282 2,308 1.1 %
 
CLEC:
Voice access lines 28,647 29,944 30,084 0.5 %
Data access lines   3,428   3,382 3,259 (3.6 ) %
Access line equivalents (1) 32,075 33,326 33,343 0.1 %
Wholesale network connections 132,324 149,043 152,101 2.1 %
 
 
For the Three Months
Ended March 31,
2010 2011
Total Revenues (in millions): $ 25.8 $ 25.4
RLEC $ 14.7 $ 14.2
CLEC $ 11.1 $ 11.2
 

(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).

 

FINANCIAL DISCUSSION FOR FIRST QUARTER 2011:

Revenues

Total revenues decreased 1.6% in the three months ended March 31, 2011, to $25.4 million from $25.8 million in the three months ended March 31, 2010. Declines from the traditional loss of RLEC voice access line related revenues were not fully offset by continued growth in CLEC and cable television revenues.

       

 

Three Months Ended March 31,

Change

2010 2011 Amount Percent
(dollars in thousands)
Local services $ 12,239 $ 12,006 $ (233 ) (1.9 ) %
Network access 7,985 7,861 (124 ) (1.6 )
Cable television 666 753 87 13.1
Internet 3,511 3,455 (56 ) (1.6 )
Transport services   1,393   1,317   (76 ) (5.5 )
Total revenues $ 25,794 $ 25,392 $ (402 ) (1.6 )
 

Local services revenue decreased 1.9% in the first quarter to $12.0 from $12.2 million in the quarter ended March 31, 2010. A decrease of $0.3 million in basic services revenue and an increase of $0.1 million in hosted private branch exchange revenue comprised the change. Network access revenue decreased 1.6% in the first quarter to $7.9 million from $8.0 million in the quarter ended March 31, 2010. The decrease of $0.1 million relates to lower NECA settlements. Cable television revenue in the three months ended March 31, 2011, increased 13.1% to $0.8 million from $0.7 million in the same period in 2010. Growth in digital family packages of $0.1 million and revenue of $0.1 million associated with the conversion of our Missouri cable customers to satellite services was partially offset by a $0.1 million decrease in basic cable. Internet revenue for the first quarter 2011 decreased 1.6% to stay at $3.5 million in both quarters ended March 31, 2011 and 2010. Growth in broadband data lines offset the loss of dial-up subscribers. Transport services revenue decreased 5.5% to $1.3 million in the three months ended March 31, 2011 from $1.4 million for the same period in 2010. The decrease of $0.1 million is due to pricing changes in the WAN transport market.

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