HickoryTech Reports Second Quarter 2013 Results

HickoryTech Corporation (NASDAQ: HTCO) today reported total revenue of $47.1 million for the second quarter ending June 30, 2013, an increase of 7 percent year over year. Adjusted EBITDA, as defined by our credit agreement, totaled $12.3 million in the second quarter, a 9 percent increase over last year. Net Income totaled $2.3 million, up 34 percent from a year ago.

“HickoryTech’s strong momentum continues as we have increased strategic fiber and data revenue 17 percent year to date,” said John Finke, HickoryTech’s president and chief executive officer. “Our disciplined approach to expanding our fiber access networks is well underway as we make targeted investments to drive future growth. Net income increased 34 percent in the second quarter and our EBITDA grew 9 percent, demonstrating the progress we are making growing our business services and positioning HickoryTech for the future as we offset declines in our legacy telecom service.”

Fiber and Data Segment (before inter-segment eliminations)Second quarter Fiber and Data revenue totaled $17 million, up 11 percent year over year. Revenue in this segment totaled $33.7 million for the six-month period at June 30, 2013, up 17 percent year over year. This growth is the result of increased sales within our retail and wholesale customer segments.
  • Costs and expenses for this segment totaled $14.7 million, up 13 percent.
  • Operating income totaled $2.2 million, down 2 percent year over year.
  • Net income totaled $1.3 million, down 1 percent year over year.

Equipment Segment (before inter-segment eliminations)Second quarter Equipment Segment revenue totaled $15.1 million, an 18 percent increase year over year.
  • Equipment revenue was $12.9 million, a 20 percent increase compared to a year ago, and Support Services revenue, which includes advisory, design, implementation and maintenance support services, was $2.2 million, a 4 percent increase over second quarter 2012.
  • Equipment Segment operating income totaled $934,000, a 134 percent increase over the prior year.
  • Net income totaled $555,000, a 132 percent increase over the second quarter 2012.

Telecom Segment (before inter-segment eliminations)Second quarter Telecom Segment revenue totaled $15.8 million, down 3 percent from a year ago. Telecom results were affected by network access and local service revenue declines.
  • Broadband revenue increased 5 percent in the second quarter. DSL subscribers increased 6 percent and Digital TV subscribers were up 9 percent, totaling 20,538 and 11,001 subscribers respectively.
  • Costs and expenses totaled $13.9 million, down 2 percent year over year.
  • Net income totaled $1.1 million, a 6 percent decrease compared to the second quarter 2012.

Total capital expenditures in the second quarter were $6.5 million, compared with $5.9 million in the comparable quarter in 2012.

During the second quarter, the company purchased and retired approximately 72,000 shares of HickoryTech stock, at a cost of $746,000, as part of a previously authorized stock repurchase plan.

Debt PositionLong-term debt and current maturities, including capitalized leases, totaled $136 million as of June 30, 2013. The second quarter 2013 debt balance represents a decrease of $5.5 million from one year ago, as a result of the debt repayments made in the past 12 months.

“As we approach the second half of the year, we are on track to achieve our key objectives and position Enventis, our growth brand, for the future,” added Finke.

Fiscal Outlook for 2013HickoryTech confirms its previous fiscal 2013 outlook. Revenue in 2013 is expected to be within a range of a 2 percent decline to a 3 percent increase as compared to 2012 revenue. The company expects growth in business revenue to offset the majority of the legacy Telecom services decline. Net income is expected to be in a range of a 7 percent decline to a 14 percent increase versus 2012 net income. Capital expenditures are expected to decline by 6 percent to 20 percent compared with 2012 spending, ranging from $24 million to $28.2 million. EBITDA is expected to be in a range of a 2 percent to 8 percent increase as compared to 2012 EBITDA. The company expects its year-end debt balance to be down 1 percent to 3 percent and be in a range of $133 million to $136 million.

Conference Call and WebcastHickoryTech will hold a conference call and webcast on Tuesday, August 6, at 9 a.m. CT to review the company’s second-quarter 2013 results. The conference call dial-in number is 877-774-2369 for U.S. and Canadian callers, conference ID 12634558 . A simultaneous webcast with audio and presentation will be available at http://investor.hickorytech.com.

About HickoryTech HickoryTech Corporation is a leading communications provider serving business and residential customers in the upper Midwest. With headquarters in Mankato, Minn., HickoryTech has 500 employees and a five-state fiber network spanning more than 4,100 route miles across Minnesota and into Iowa, North Dakota, South Dakota and Wisconsin. Enventis provides business IP voice, data and video solutions, MPLS networking, data center and managed hosted services and communication systems. HickoryTech delivers broadband Internet, Digital TV, voice and data services to businesses and consumers in southern Minnesota and northwest Iowa. The Company trades on the NASDAQ, symbol: HTCO. For more information, visit www.hickorytech.com.

Non-GAAP MeasuresTo supplement the Company’s financial statements presented in accordance with GAAP, the Company provides certain non-GAAP financial measures of financial performance and position. The Company’s reference to these non-GAAP measures should be considered in addition to results prepared under current accounting standards, but are not a substitute for, or superior to, GAAP results. These non-GAAP measures are provided to enhance investors’ overall understanding of the Company’s current financial performance, financial position and ability to generate cash flows. In many cases non-GAAP financial measures are used by analysts and investors to evaluate the Company’s performance and financial position. Reconciliation to the nearest GAAP measure included in this press release can be found in the financial table included below.

Forward-looking statementCertain statements included in this press release that are not historical facts are "forward-looking statements." Such forward-looking statements are based on current expectations, estimates and projections about the industry in which HickoryTech operates and management's beliefs and assumptions. The forward-looking statements are subject to uncertainties. These statements are not guarantees of future performance and involve certain risks, uncertainties and probabilities. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they were made. HickoryTech undertakes no obligation to update any of its forward-looking statements, except as required by law.
 
Consolidated Statements of Operations
(unaudited)
                       
Three Months Ended June 30 % Six Months Ended June 30 %
(Dollars in thousands, except share data) 2013 2012 Change 2013 2012 Change
Operating revenue:
Equipment $ 12,910 $ 10,740 20 % $ 28,274 $ 26,039 9 %
Services   34,231     33,117   3 %   67,636     64,762   4 %
Total operating revenue 47,141 43,857 7 % 95,910 90,801 6 %
 
Costs and expenses:
Cost of sales, excluding depreciation and amortization 10,860 9,292 17 % 24,082 22,758 6 %
Cost of services, excluding depreciation and amortization 16,971 15,905 7 % 33,570 31,231 7 %
Selling, general and administrative expenses 7,047 7,441 -5 % 14,496 14,147 2 %
Asset impairment 5 - 638 -
Depreciation and amortization   7,252     6,732   8 %   14,261     12,926   10 %
Total costs and expenses   42,135     39,370   7 %   87,047     81,062   7 %
 
Operating income 5,006 4,487 12 % 8,863 9,739 -9 %
 
Interest and other income 13 14 -7 % 15 34 -56 %
Interest expense   (1,131 )   (1,599 ) -29 %   (2,270 )   (3,010 ) -25 %
Income before income taxes 3,888 2,902 34 % 6,608 6,763 -2 %
Income tax provision   1,567     1,164   35 %   2,661     2,731   -3 %
 
Net income $ 2,321   $ 1,738   34 % $ 3,947   $ 4,032   -2 %
 
Basic earnings per share $ 0.17   $ 0.13   31 % $ 0.29   $ 0.30   -3 %

 

 

 

 
Basic weighted average common shares outstanding   13,531,007     13,404,628     13,543,690     13,377,209  
 
Diluted earnings per share $ 0.17   $ 0.13   31 % $ 0.29   $ 0.30   -3 %

 

 
Diluted weighted average common and equivalent shares outstanding   13,576,967     13,454,707     13,584,749     13,433,277  
 
Dividends per share $ 0.145   $ 0.14   4 % $ 0.29   $ 0.28   4 %
 
 
Consolidated Balance Sheets
(unaudited)
 
(Dollars and Share Data in Thousands)     June 30, 2013     December 31, 2012
Assets
Current assets:
Cash and cash equivalents $ 5,197 $ 8,305
Receivables, net of allowance for doubtful accounts of $264 and $278 27,346 22,530
Inventories 6,312 8,379
Income taxes receivable 1,025 596
Deferred income taxes, net 1,623 1,887
Prepaid expenses 2,599 2,092
Other   917     1,399  
Total current assets 45,019 45,188
 
Investments 3,408 3,213
 
Property, plant and equipment 448,535 437,623
Accumulated depreciation and amortization   (267,930 )   (254,664 )
Property, plant and equipment, net 180,605 182,959
 
Other assets:
Goodwill 29,028 29,028
Intangible assets, net 4,328 4,811
Deferred costs and other   3,002     3,105  
Total other assets   36,358     36,944  
 
Total assets $ 265,390   $ 268,304  
 
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 3,332 $ 5,818
Extended term payable 10,867 8,115
Deferred revenue 5,598 7,362
Accrued expenses and other 9,326 10,881
Current maturities of long-term obligations   1,655     1,648  
Total current liabilities 30,778 33,824
 
Long-term liabilities:
Debt obligations, net of current maturities 134,324 135,133
Accrued income taxes 221 236
Deferred revenue 2,864 1,085
Financial derivative instruments 1,838 2,432
Accrued employee benefits and deferred compensation 12,634 12,481
Deferred income taxes   34,196     34,265  
Total long-term liabilities 186,077 185,632
 
Total liabilities 216,855 219,456
 
Commitments and contingencies
 
Shareholders' equity:
Common stock, no par value, $.10 stated value
Shares authorized: 100,000
Shares issued and outstanding: 13,516 in 2013 and 13,519 in 2012 1,352 1,352
Additional paid-in capital 15,730 15,950
Retained earnings 30,998 30,987
Accumulated other comprehensive income   455     559  
Total shareholders' equity   48,535     48,848  
 
Total liabilities and shareholders' equity $ 265,390   $ 268,304  
 
 
Fiber and Data Segment
(unaudited)
                       

Three Months Ended

Six Months Ended

June 30

June 30
(Dollars in thousands) 2013 2012 % Change 2013 2012 % Change
Revenue before intersegment eliminations:
Services $ 16,779 $ 15,177 11 % $ 33,250 $ 28,396 17 %
Intersegment   213   193 10 %   426   386 10 %
Total Fiber and Data revenue 16,992 15,370 11 % 33,676 28,782 17 %
 
Cost of services
(excluding depreciation and amortization) 8,583 7,489 15 % 16,840 14,084 20 %
Selling, general and administrative expenses 3,233 3,046 6 % 6,593 5,552 19 %
Asset impairment 5 - 638 -
Depreciation and amortization   2,922   2,551 15 %   5,718   4,517 27 %
Total costs and expenses   14,743   13,086 13 %   29,789   24,153 23 %
 
Operating income $ 2,249 $ 2,284 -2 % $ 3,887 $ 4,629 -16 %
Net income $ 1,340 $ 1,359 -1 % $ 2,301 $ 2,754 -16 %
 
Capital expenditures $ 2,970 $ 3,603 -18 % $ 5,913 $ 5,568 6 %
 
 
Equipment Segment
(unaudited)
                       
Three Months Ended

Six Months Ended
June 30

June 30
(Dollars in thousands) 2013 2012 % Change 2013 2012 % Change
Revenue before intersegment eliminations:
Equipment $ 12,910 $ 10,740 20 % $ 28,274 $ 26,039 9 %
Support Services   2,206   2,124 4 %   4,079   4,246 -4 %
Total Equipment revenue 15,116 12,864 18 % 32,353 30,285 7 %
 
Cost of sales
(excluding depreciation and amortization) 10,860 9,292 17 % 24,082 22,758 6 %
Cost of services
(excluding depreciation and amortization) 1,808 1,627 11 % 3,503 3,339 5 %
Selling, general and administrative expenses 1,390 1,475 -6 % 2,804 2,827 -1 %
Depreciation and amortization   124   71 75 %   209   142 47 %
Total costs and expenses   14,182   12,465 14 %   30,598   29,066 5 %
 
Operating income $ 934 $ 399 134 % $ 1,755 $ 1,219 44 %
Net income $ 555 $ 239 132 % $ 1,040 $ 725 43 %
 
Capital expenditures $ 403 $ 117 244 % $ 961 $ 190 406 %
 
 
Telecom Segment
(unaudited)
                       
Three Months Ended

Six Months Ended
June 30 %

June 30
%
(Dollars in thousands) 2013 2012 Change 2013 2012 Change
Revenue before intersegment eliminations:
Local Service $ 2,885 $ 3,348 -14 % $ 5,848 $ 6,777 -14 %
Network Access 4,482 4,749 -6 % 9,183 9,652 -5 %
Broadband 5,241 4,977 5 % 10,246 9,979 3 %
Directory 730 770 -5 % 1,460 1,552 -6 %
Long Distance 584 636 -8 % 1,156 1,284 -10 %
Bill Processing 1,040 1,035 0 % 1,853 2,240 -17 %
Intersegment 571 444 29 % 1,144 854 34 %
Other   284   301 -6 %   561   636 -12 %
Total Telecom revenue $ 15,817 $ 16,260 -3 % $ 31,451 $ 32,974 -5 %
 
Total Telecom revenue before intersegment eliminations
Unaffiliated Customers $ 15,246 $ 15,816 $ 30,307 $ 32,120
Intersegment   571   444   1,144   854
15,817 16,260 31,451 32,974
 
Cost of services (excluding depreciation and amortization) 7,305 7,365 -1 % 14,680 14,926 -2 %
Selling, general and administrative expenses 2,438 2,817 -13 % 4,971 5,650 -12 %
Depreciation and amortization   4,198   4,085 3 %   8,319   8,218 1 %
Total costs and expenses   13,941   14,267 -2 %   27,970   28,794 -3 %
 
Operating income $ 1,876 $ 1,993 -6 % $ 3,481 $ 4,180 -17 %
 
Net income $ 1,118 $ 1,186 -6 % $ 2,061 $ 2,485 -17 %
 
Capital expenditures $ 3,131 $ 2,203 42 % $ 5,379 $ 3,799 42 %
 

Key Metrics
Business access lines 19,628 20,764 -5 %
Residential access lines   21,496   23,209 -7 %
Total access lines 41,124 43,973 -6 %
Long distance customers 29,535 30,872 -4 %
Digital Subscriber Line customers 20,538 19,364 6 %
Digital TV customers 11,001 10,110 9 %
 
 
Reconciliation of Non-GAAP Measures
               
Three Months Ended June 30 Six Months Ended June 30
(Dollars in thousands) 2013 2012 2013 2012
Reconciliation of consolidated net income to EBITDA:
Net income $ 2,321 $ 1,738 $ 3,947 $ 4,032
Add:
Depreciation and amortization 7,252 6,732 14,261 12,926
Interest expense 1,131 1,599 2,270 3,010
Income taxes   1,567     1,164     2,661   2,731
EBITDA   12,271     11,233     23,139   22,699
Adjustments allowed under our credit agreement:
Asset impairment   5     -     638   -
Adjusted EBITDA as defined in our credit agreement $ 12,276   $ 11,233   $ 23,777 $ 22,699
 
Year Ending
December 31, 2013
(Dollars in thousands) Guidance Range
Reconciliation of net income to 2013 EBITDA guidance: Low High
Projected net income $ 7,700 $ 9,500
Add back:
Depreciation and amortization 29,000 28,500
Interest expense 5,000 5,500
Taxes   5,300     6,500  
Projected EBITDA guidance $ 47,000   $ 50,000  
 
Prior Year EBITDA $ 46,176 $ 46,176
% Change +2 % +8 %
 

 

Three Months Ended
(Dollars in thousands) Jun-13 Mar-13 Dec-12 Sep-12
Reconciliation of net income to EBITDA:
Net income $ 2,321 $ 1,626 $ 2,525 $ 1,741
Add:
Depreciation and amortization 7,252 7,009 6,951 6,869
Interest expense 1,131 1,139 1,114 1,625
Income taxes   1,567     1,094     1,458   1,194
EBITDA $ 12,271   $ 10,868   $ 12,048 $ 11,429
Adjustments allowed under our credit agreement:
Asset impairment   5     633     -   -
Adjusted EBITDA as defined in our credit agreement $ 12,276   $ 11,501   $ 12,048 $ 11,429
 
Debt to EBITDA ratio
Total outstanding debt (including outstanding letters of credit) as of June 30, 2013 $ 135,999
Adjusted EBITDA for the last (4) consecutive fiscal quarters as presented above   47,254  
Debt to EBITDA ratio as of June 30, 2013   2.88  
 

Copyright Business Wire 2010

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