Otelco's CEO Discusses Q1 2011 Results - Earnings Call Transcript

Otelco, Inc. ( OTT)

Q1 2011 Earnings Call

May 5, 2011 11:00 AM ET

Executives

Kevin Enda – IR

Michael Weaver – Chairman, President and CEO

Curtis Garner – CFO

Analysts

David Coleman – RBC Capital Markets

Presentation

Operator

Good day everyone and welcome to the Otelco Incorporated 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, sir.

Kevin Enda

Thank you Paula and welcome to this Otelco conference call to review the company’s results for the first quarter and year ended March 31, 2011, which were 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, the 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 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, beliefs, expects, intends, anticipate, 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 company’s filings with the SEC.

With that stated, I’ll turn the call over to Mike Weaver.

Michael Weaver

Thanks Kevin. Good morning everyone and welcome to our call. After record revenue and EBITDA in 2010, our first quarter results are somewhat disappointing. Our plans for this year calls for the continued expansion of our CLEC operations in New England. And we set an aggressive schedule providing new sales staff as well as expanding our service area to include five new sites in New Hampshire, two new sites in Northern Maine and our first CLEC venture into Massachusetts. Due to a variety of factors, we experienced unexpected delays in both expansion of our sales staff and the implementation of the proposed new CLEC market areas. While these processes are now complete, the delays negatively affected our first quarter results. However, we remain committed to continuing the expansion of our CLEC services in New England.

As you may have seen our recently announced plans to acquire Shoreham Telephone Company in Vermont will actually this expansion. Shoreham has approximately 5,000 access line equivalents and we plan to use their existing switching and transport network to form the back bone for our entry into the CLEC market in this state. At the present time, we’re currently working through the regulatory process and we remain hopeful this transaction will close in either the late third quarter or early fourth quarter of this year.

In keeping with our expansion plans, capital expenditures for the first quarter were $2.8 million, these included approximately $1.1 million for our softswitch for Alabama and the initial CapEx expenditures for our new CLEC site in Massachusetts. This first quarter CapEx was a bit higher than we normally have in the first quarter but even with these increased capital expenditures, our cash balance still increased by $200,000 in the first quarter.

I wanted to just to give you an update on the recent tornadic activity in Alabama, as you may have seen on the news, we certainly experienced some damage through our outside plant facilities and we’re continuing to work to restore our plant. It’s certainly an advantage to us to have operations in multiple states and in order to have the restoration efforts in Alabama, we’re able to bring construction and repairs cruise from our Missouri and New England locations to speed this restoration.

This concentrated workforce supplemented by contractors, we are again to help us, get the repairs done as quickly as possible allowed us to restore service to the majority of our customers within a couple of days.

As of the end of the day yesterday, we had service restored to Albert 600 customers representing approximately 2.5% of our Alabama customer base. The cost for these restorations generally be reimbursed by our existing insurance policies.

Finally, we paid our 23 of consecutive IDS distribution in March and we remain committed to continuing our policy of returning cash to our shareholders. I’ll now ask Curtis to discuss financial results.

Curtis Garner

Thank you, Mike. And thanks to everyone on the call for joining us today, I know it’s a busy day for many of you. I’ll provide a brief overview of our financial performance for the quarter and then we can take questions.

Total revenues decreased 1.6% in the first quarter to $25.4 million from $25.8 million a year ago. Mike mentioned the slower growth in CLEC revenue which was not enough to offset the declines from the traditional loss of RLEC voice access line related revenues.

Breaking down the revenue a bit local services revenue decreased 1.9% in the first quarter to $12 million from $12.2 million a decrease of $0.3 million in RLEC basis Services revenue including long distance was partially offset by an increase of $0.1 million in CLEC revenue, mostly from one of our newer product hosted private branch exchange and services.

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