Otelco Reports Second Quarter 2012 Results

Otelco Inc. (NASDAQ: 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 second quarter ended June 30, 2012. Key highlights for Otelco include:

• Total revenues of $24.7 million for second quarter 2012.
• Operating loss of $148.1 million, reflecting the impact of $144.0 million in goodwill impairment and $8.6 million in physical and intangible asset impairment (as explained below).
• Adjusted EBITDA (as defined below) of $10.8 million for second quarter 2012.

“Second quarter results produced Adjusted EBITDA of $10.8 million, which represented a 6% decrease over the first quarter of 2012,” said Mike Weaver, President and Chief Executive Officer of Otelco. “Our results were negatively impacted by approximately $0.5 million of non-recurring expenses, including termination pay associated with organization re-engineering implemented in June. The Adjusted EBITDA results represent a small operational improvement for the quarter, given that first quarter includes the annual CoBank dividend of $0.3 million. Our cash balance, adjusted to reflect the payment of second quarter interest on our IDS debt on July 2, 2012, increased by $3.5 million to $19.5 million. We continued a moderate pace of $1.2 million of capital improvements in the business.

“As we look forward to the remainder of this year and beyond, our results will be negatively impacted by the FCC’s Inter-Carrier reforms and the previously announced expiration of the Time Warner Cable contract,” Weaver continued. “The FCC reforms, which affect both our RLEC and CLEC operations, have various implementation dates and there remains a great deal of uncertainty and confusion surrounding some aspects of the order. In addition, numerous groups have challenged the FCC order and the appeals process could result in additional changes and modifications to the existing order. One aspect of the FCC’s order that materially impacts our operations took effect on July 1, 2012. The order requires that intrastate access rates be lowered to the applicable federal access rates over the next three years and then move rapidly to a ‘bill and keep’ – no inter-carrier payment – basis.

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