“On April 20, 2012, we announced the anticipated expiration of the Time Warner Cable contract for wholesale network connections provided by Otelco. Official notice of non-renewal by Time Warner Cable was received in June and a transition agreement to provide services through June 2013 is being negotiated. Under the terms of the agreement, the revenue stream from the contract is unaffected through the end of this year. During the transition period in 2013, the revenue will decline as customers are moved from the Otelco service platform to Time Warner Cable,” Weaver explained.
“Based on our financial results through the second quarter and estimating the impact of the FCC reforms on our operations for the second half of the year, our Adjusted EBITDA outlook for this year is in the range of $41 to $43 million,” noted Weaver. “Reflecting the impact of the FCC’s order and the Time Warner Cable transition, our outlook for 2013 Adjusted EBITDA is in the $34 to $35 million range. For 2014, we would anticipate Adjusted EBITDA in the range of $29 - $33 million.
“Because of the negative impact of the FCC order and the expiration of the Time Warner Cable agreements, we are exploring our strategic alternatives to address the existing levels of debt and strengthen our balance sheet,” added Weaver. “We have engaged Evercore Partners, an investment banking firm, to assist us in the process. Evercore’s areas of expertise include debt and capital market transactions, restructuring of balance sheet obligations and mergers and acquisitions advice.”
“Our immediate response to the anticipated decline in revenue and cash flow has been to reduce operating costs and carefully control capital expenditures. In the second quarter, we reduced our work force by 13%, reduced the total targeted compensation for senior management by 33% and reduced board of directors’ fees by 20%,” Weaver noted. “When the Time Warner Cable contract transition is completed in 2013, we anticipate another reduction in our staff. When fully implemented, these cost reductions will generate a savings of approximately $4 million annually, including overhead and benefits.