Hickory Tech Corporation ( HTCO)

Q2 2011 Earnings Call

August 4, 2011, 10:00 am ET

Executives

Jennifer Spaude - Director, IR & Marketing

John Finke - President & CEO

David Christensen - SVP & CFO

Presentation

Operator

Good morning. My name is Lindsey and I will be your conference operator today. At this time, I’d like to welcome everyone to HickoryTech’s second quarter 2011 earnings conference call. (Operator Instructions). Thank you, Ms. Jennifer Spaude, Director of Investor Relations and Marketing, you may begin your conference.

Jennifer Spaude

Good morning and thank you for joining HickoryTech’s second quarter 2011 earnings conference call. I’m Jennifer Spaude and with me today are John Finke, HickoryTech’s President and Chief Executive Officer and David Christensen, Senior Vice President and Chief Financial Officer.

Before we get started, let me remind you that our earnings release was issued yesterday afternoon and is available on the investor relations section of our website at hickorytech.com. In addition, you’ll find a presentation for today’s call, which we hope you will find helpful in your analysis.

Now I will draw your attention to our Safe Harbor statement. Information in today’s presentation contains certain statements and predictions that are not historical facts, but are forward-looking in nature. These forward-looking statements are based on current expectations, estimates and projections about the industry, in which HickoryTech operates, and management’s beliefs and assumptions as of the time of this call.

Such forward-looking statements are subject to uncertainties. Actual results or outcomes may differ materially from those indicated or suggested by any forward-looking statements, whether as a result of new information, future events or otherwise. You’re cautioned not to place undue reliance on these forward-looking statements made during the call, which represent estimates as of today August 4, 2011.

These statements are not guarantees of future performance and involve certain risks, uncertainties and probabilities, which are difficult to predict. There are many such risks and uncertainties, which could affect the economy, our industry and our company in particular, some or all which affect future results. More information on potential risks and uncertainties is available in the company’s recent filings with the SEC including HickoryTech’s annual Form 10-K report, our quarterly Form 10-Q reports and Form 8-K reports.

This presentation also contains certain non-GAAP financial measures. Reconciliation of these non-GAAP financial measures to most directly comparable GAAP measures are available in our presentation. All participants are advised that the audio of this conference call is being broadcast live over the Internet and is also being available for playback purposes. The audio will be archived on HickoryTech’s Investor Relations website for the next 30 days. Following management’s discussion, we will open the call to a Q&A session.

At this time, I’d like to turn the call over to John Finke.

John Finke

Thank you, Jennifer. Good morning everyone. I’m pleased to share with you our second quarter 2011 results and highlight the progress we’ve made with our strategic initiatives. Today I will cover several key metrics from our second quarter results and update you on our strategic initiatives including our Greater Minnesota Broadband Collaborative project. Dave will take you through the financial details of our second quarter.

First off, I am very pleased with our second quarter results. Revenue totaled $40.1 million, up 5% from a year ago. We achieved strong growth in equipment and support services as well as double-digit broadband growth and solid growth in our fiber & data services. Net income totaled $2.7 million and operating income totaled $5 million.

Our plan and focus to grow our business and broadband services continues to provide growth opportunities and diversification for HickoryTech. Our business sector and broadband revenue streams accounted for 69% of our revenue in the second quarter and year-to-date. We believe our strategic shift in focusing on business and broadband services has positioned HickoryTech for sustained and reliable growth.

Our second quarter earnings were enhanced as a result of our continued efforts to manage our strong cash flows, our ability to lower our borrowing cost and manage our debt level and our investments in key strategic growth initiatives. Our strategic plan is focused on maintaining and leveraging our Telecom business units, growing our broadband and business services and pursuing new growth opportunities.

The fiber network expansion we completed last year added 350 route miles of fiber connecting our network to Sioux Falls, South Dakota and Fargo North Dakota. The new route have allowed us to target new wholesale customer sales and reduce our off-net costs associated with serving the existing customers in these markets.

Additionally, our enhanced fiber network in Des Moines, Iowa which was completed last year is allowing us to be more competitive in this market with an expanding sales force, strong product portfolio and new promotions all of which have been well received by customers and the agent sales channel.

Turning to our business sector results, which a year ago we referred to as the Enventis sector. Second quarter business sector revenues totaled $23 million, up 8% year-over-year, primarily driven by an increase in equipment and support services and supported by solid growth in fiber & data services.

Operating income and net income both increased 16% and all product lines were profitable. Fiber & data revenue increased 4% totaling $11.3 million in the second quarter. Excluding the unique construction project last year, second quarter our fiber & data revenue growth would have been 15%.

Dave will provide more details on the normalized comparison in his comments. Our fiber & data revenue growth is a result of strong Ethernet and wholesale carrier sales as well as our focus on growing our small medium business customer base. We believe our recent fiber network expansion and broadband stimulus project will enable future growth in this product line.

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