Otelco, Inc. (OTT)
Q1 2012 Earnings Call
May 04, 2012 10:00 AM ET
Kevin Enda – IR
Mike Weaver – President and CEO
Curtis Garner – CFO
Dave Coleman – RBC Capital Markets
Frank Louthan – Raymond James
Austin Hopper – AWH Capital
Eric Will – Fertile Mind Capital
Robert Davis – Round Table Services
Chip Saye – AWH Capital
Patrick Wilson – Private Investor
Neil George – Private Investor
Walt Parnell – Private Investor
Previous Statements by OTT
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» Otelco's CEO Discusses Q1 2011 Results - Earnings Call Transcript
Good day everyone and welcome to the Otelco First Quarter 2012 conference call. Today’s conference is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to Mr. Kevin Enda.
Please go ahead.
Thank you Kim, and welcome to this Otelco conference call to review the company's results for the first quarter ended March 31, 2012, which we released yesterday afternoon. Conducting the call today will be Michael Weaver, President and Chief Executive Officer; and Curtis Garner, Chief Financial Officer.
Before we start, let me offer the cautionary note that statements made on this conference call 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 describes such risks and uncertainties, listeners 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 SEC.
With that stated, I'll now turn the call over to Mike Weaver.
Thanks Kevin. Good morning and welcome to our call. I want to cover a few highlights for the quarter as well as comment on our April 20th announcement concerning Time Warner Cable. The first quarter produced adjusted EBITDA of $11.5 million which represents an increase of $567,000 over the fourth quarter of 2011 and an increase of $64,000 of the same quarter of last year. Highlighting some of the positive developments of the quarter, we experienced a 1% increase in our CLEC operations for excess line equivalent and total high speed internet subscribers. In addition the rate of decline of total excess line equivalents slowed to 1% for the quarter which we see as an improvement over previous quarters.
Our cash position remains strong as we increase cash by $3.6 million to $16 million at March 31st. CapEx for the quarter was $1.3 million and that's the primary reason our payout ratio was lowered to 80% of EBITDA. For the year we expect CapEx to be in the $7 million to $7.5 million range. On April 20th we announced the expected expiration of the Time Warner contract. After extended negotiations Time Warner elected to follow the path of bringing the network services we provide them in high offs which is consistent with their approach in other parts of the country. The Time Warner contract represented 11.7% of Otelco's consolidated revenue for 2011 and 11.8% of the consolidated revenue in the first quarter.
Additionally the company receives excess revenue from long-distance carriers for calls destined to Time Warner customers in Maine in New Hampshire. This excess revenue represents approximately 3% to 4% Otelco's consolidated revenue for both the year 2011 and the first quarter of 2012. The contract remains in effect through the end of this year with no change in pricing so our revenue stream from this contract is unaffected through the end of this year. The contract also includes a transition period where the services will be moved from our platform to Time Warner's platform. This transition will last at least through the end of the first order of 2013. In anticipation of the reduction of the revenue and income associated with the expiration of the Time Warner contract and with the recent FCC decisions that will lower access rights to all CLEC operators beginning in July of this year management and the board felt the prudent business decision was to take all necessary steps to improve our already positive cash flow. These actions included the suspension of the dividends on the common stock portion of Otelco's RDS units.
Holders of the RDS securities will continue to receive quarterly interest payments on the $7.50 subordinated notes which amounts to $0.975 (ph) per unit per year or approximately $0.24 per quarter. The interest for the second quarter will be paid on Monday July 2nd to holders of record at the close business on June 15th. In an effort to improve our efficiencies we've undergone a number of changes in the last few months including office consolidations in Alabama, staff reductions in New England and Missouri and the acquisition of Shoreham Telephone in Vermont just to name a few.
All of these changes have positioned us to deal with the ending of the Time Warner contract. We are currently reviewing our staffing levels and anticipate taking aggressive action to lower our cost in the months ahead. The existing $162 million in senior debt has a maturity date of October 2013. Now that the Time Warner top or contract issue is resolved we can focus on extending the current agreement or re-financing the debt. We are in compliance with all debt terms and covenants and expect to continue to service our debt in accordance with the terms.