HickoryTech's CEO Discusses Q1 2012 Results - Earnings Call Transcript

HickoryTech Corporation (HTCO)

Q1 2012 Earnings Call

May 1, 2012 10:00 am ET

Executives

John Finke – President and Chief Executive Officer

David Christensen – Senior Vice President and Chief Financial Officer

Jennifer Spaude – Director, Investor Relations

Analysts

Justin Ruiss – Sidoti

Presentation

Operator

Good morning. My name is Lindsay and I will be your conference operator today. At this time, I would like to welcome everyone to the HickoryTech’s First Quarter 2012 Earnings Conference Call. After the speakers’ remarks, there will be a question-and-answer session. (Operator instructions)

Thank you. Jennifer Spaude, Director of Investor Relations and Marketing, please go ahead.

Jennifer Spaude

Good morning and thank you for joining HickoryTech’s first quarter 2012 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, I’ll refer you to the Investor Relations section of our Web site at hickorytech.com where you will find a presentation for today’s call.

Our Safe Harbor statement is shown on slide 2 of this presentation. As a reminder, 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 are cautioned not to place undue reliance on these forward-looking statements made during the conference call. 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 of which could affect future results.

More information on potential risks and uncertainties is available in the company’s recent filings with the Securities and Exchange Commission, including HickoryTech’s Annual Form 10-K report, our Quarterly Form 10-Q reports, and Form 8-K reports.

Our presentation contains certain non-GAAP financial measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are available in the presentation.

All participants are advised that the audio of this conference call is being broadcast and is also being recorded for playback purposes. The audio will be archived on HickoryTech’s Investor Relations Web site for the next 30 days. Following management’s discussion today, 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, and good morning, everyone. We appreciate you joining us today as we review our results for the first quarter. I’ll start with an overview of our results and then David will provide a detailed review of our financials.

The first quarter was a very strong quarter and a great start to 2012. Driven by strong equipment sales and continued growth in our fiber and data segment, HickoryTech generated $46.9 million in revenue, an increase of 22% over the comparable period last year.

EBITDA, as defined by our credit agreement, totaled $11.5 million, up 11% from a year ago. Consolidated operating income totaled $5.3 million, up 13%, and net income totaled $2.3 million, up 8%. Our business product lines continued to produce excellent results.

Fiber and data revenue increased 22% to $13.4 million, reflecting success we’ve experienced in commercial, enterprise, and wholesale data sales, and the addition of one month of results from IdeaOne, which will be reported within the fiber and data segment.

IdeaOne is a facilities-based CLEC serving the Fargo, North Dakota area. You’ll recall that we closed on this acquisition on March 1 st, 2012. This business has a robust metro fiber network which directly connects to our regional fiber network providing future opportunities for us to grow our business and broadband services.

In fact, the acquisition is already adding value. We have already secured new business based on our expanded footprint and anticipate further opportunities in this market. The early spring has allowed us to get a good start on our construction in the Fargo area and lit-building initiatives throughout our network.

The integration of IdeaOne is going well and is on schedule. The financial and building system conversions will be completed later this year. We are already seeing synergies and expect the acquisition to be accretive on a free cash flow basis.

IdeaOne provides data networking, Internet, colocation, phone and hosting services to approximately 3,600 business and residential customers in the Fargo area. The acquisition added 225 route miles of fiber to HickoryTech’s regional fiber network. The network facilities extend fiber to 650 lit buildings and include multiple 10 gigabit fiber rings, Ethernet capabilities, soft-switching infrastructure and colocation services.

We remain focused on growing our commercial and enterprise business services and leveraging our full suite of communication solutions. We feel confident we will be able to continue to grow our fiber and data line of business into the future.

Our equipment segment revenue totaled $17.4 million, an increase of 67% year over year. We had a strong backlog of equipment orders that carried into 2012, which helped drive an 87% increase in hardware sales. Support services revenue in this line of business was down 5%.

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