HickoryTech's CEO Discusses Q2 2012 Results - Earnings Call Transcript

HickoryTech Corporation (HTCO)

Q2 2012 Earnings Call

August 2, 2012 10:00 a.m. ET

Executives

John Finke – President and CEO

David Christensen – SVP and CFO

Jennifer Spaude – Director, IR

Analysts

[No Q&A session]

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 Second Quarter 2012 Earnings Conference Call. (Operator Instructions)

Thank you. Jennifer Spaude, Director of Investor Relations and Marketing, you may begin.

Jennifer Spaude

Good morning and thank you for joining HickoryTech’s second quarter 2012 earnings 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 website 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 our Form 8-K reports.

Our presentation also contains certain non-GAAP financial measures. Reconciliations of these non-GAAP financial 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 our Investor Relations website 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 discuss HickoryTech’s results for the second quarter 2012. I’ll start with an overview of our results and then David will provide a detailed review of our financials.

Year to date we are on plan and on track to achieve our 2012 objectives. Our business fiber and data services continues to deliver solid growth, offsetting revenue declines in our legacy telecom services. On a consolidated basis, overall revenue grew 9% as we reported $43.9 million of revenue in the second quarter.

Fiber and data service revenue grew 37% from one year ago, although the declines in our telecom segment were steeper than we anticipated in the second quarter. Our business segments delivered solid growth and this is the driving force to define our diversification strategy and our continued emphasis on growing business services.

Consolidated operating income totaled $4.5 million, down 10% year over year and net income totaled $1.8 million, down 33% for the same period. Second quarter lower earnings are attributed primarily to a large decline in the telecom segment, specifically in network access and local service revenue, and an increase in depreciation and interest expense associated with the acquisition of IdeaOne.

EBITDA was $11.2 million, an increase of 5% from one year ago. Overall growth in the fiber and data segment contributed to that increase in EBITDA and despite a decline in telecom profitability, telecom segment still produces solid free cash flow.

Now turning to the fiber and data segment, fiber and data revenue increased 37% to $15.4 million in the second quarter, reflecting a full quarter of IdeaOne operations. Excluding IdeaOne operations, we delivered organic growth of 9% in the fiber and data segment, attributed (ph) to the success we continue to experience in the commercial enterprise and wholesale customer segment. Specifically we are gaining market share in our commercial customer segment within our core Minnesota market as well as West Des Moines, Iowa.

Demand for bigger bandwidth and high capacity data network connections is driving revenue in Ethernet, dedicated internet and transport services. We are on track to complete the integration of IdeaOne by year end. As a reminder, we closed on the IdeaOne acquisition on March 1 of this year. The financial systems were converted in July and the billing system conversions will be complete later this year.

We continue to see synergies and expect the acquisition to be accretive on a free cash flow basis. We are leveraging the Fargo metro fiber network which directly connects our regional fiber network. The Fargo market is already delivering value as we secure new business based on our expanded footprint. We recently secured a long term contract to provide fiber connections to 33 towers in Northwest Minnesota and in the Fargo area.

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