EX-99.1 2 v036085_ex99-1.htm Unassociated Document
 
Contact:       Curtis Garner     
Chief Financial Officer
Otelco Inc.
205-625-3571
Curtis@otelcotel.com
 
Otelco Reports Fourth Quarter and Year 2005 Results

ONEONTA, Alabama (Feb. 16, 2006) - Otelco Inc. (AMEX: OTT; TSX: OTT.un), the sole wireline telephone services provider in several rural communities in Alabama and Missouri, today announced results for its fourth quarter and year ended December 31, 2005. The Company’s results reflect the first full year of operations under its new capital structure and its acquisition of Mid-Missouri Holding Corp. in December 2004. Key quarterly highlights for Otelco include:

·  
  Total revenues of $11.8 million.
·  
  Operating income of $4.3 million.
·  
  Net loss of $(0.1) million.
·  
  Net loss per basic and diluted share of $(0.02) and $(0.01).respectively.

“We are pleased with our fourth quarter and annual results,” said Mike Weaver, President and Chief Executive Officer of Otelco. “In the first year of our new capital structure, we delivered solid performance and shared the Company’s success with our shareowners.”

“Our growth in access line equivalents exceeded our expectations in the fourth quarter and for the year. For the quarter, we added 420 total access line equivalents and 1,400 for the year, which is a 3.8% growth rate. For the quarter our access line metrics showed improvement, as we experienced an annualized 2.4% decline as compared to an annual decline of 3.2%. We define access line equivalents as access lines, cable modems and digital subscriber lines. Our long distance and cable television subscribers increased in both the fourth quarter and for the year, up 5.8% and 6.6%, respectively for the year. Our digital high-speed Internet customers grew steadily throughout the year, adding 2,474 customers for an increase of 70.9% on an annual basis. At the end of the year, we had a penetration rate of 18.3% for our digital high-speed Internet service,” added Weaver.

“Our prospects for 2006 continue to be positive. Our marketing plans include the introduction of new bundled services for telephone, unlimited long distance services, cable television and digital high-speed Internet. Our operating plans include the consolidation of our Internet services, which will improve our customer service as well as reduce our costs. We will remain focused on executing our business plan and generating cash flows, allowing us to return cash back to our shareholders. For 2005, Otelco distributed over $16.2 million to its IDS holders, representing combined interest and dividends of $1.68 per Income Deposit Security (IDS).”

Distribution to IDS Holders
 
Each quarter, the Board will consider the declaration of dividends during its normally scheduled meeting. For the fourth quarter of 2005, the Board is meeting on February 23, 2006. The scheduled interest and any dividend declared will be paid on March 30, 2006 to holders of record as of the close of business on March 15, 2006. The interest payment will cover the period from December 30, 2005 through March 29, 2006.
 
- MORE -

Otelco Reports 2005 Results
Page 2
Feb. 16, 2006 
 
Fourth Quarter and Year 2005 Financial Summary
(dollars in thousands, except per share amounts)
 
               
Change
   
4Q 2004
 4Q 2005
  
 Amount
  
 Percent
  
Revenue
  
$
9,790
  
$
11,843
  
$
2,053
    
21.0
%
Operating income
  
$
1,515
  
$
4,316
  
$
2,801
    
184.9
%
Interest expense
  
$
(1,264
)
$
(4,188
)
$
2,924
    
231.3
%
Net loss available to stockholders
  
$
(133
)
$
(150
)
$
(17
)
  
(12.8
)%
Basic net loss per share
  
$
(0.02
)
$
(0.02
)
$
0.00
    
0.0
%
Diluted net loss per share
  
$
(0.02
)
$
(0.01
)
$
0.01
    
100.0
%
                           
Adjusted EBITDA(a)
  
$
6,089
  
$
7,017
  
$
928
    
15.2
%
Capital expenditures
  
$
611
  
$
744
  
$
133
    
21.8
%
 
   
Year 2004
  
Year 2005
  
Amount
  
Percent
  
Revenue
  
$
37,266
  
$
46,972
  
$
9,706
    
26.0
%
Operating income
  
$
13,529
  
$
18,065
  
$
4,536
    
33.5
%
Interest expense
  
$
(3,679
)
$
(16,355
)
$
(12,676
)
  
344.6
%
Net income available to stockholders
  
$
6,114
  
$
1,792
  
$
(4,322
)
  
(70.7
)%
Basic net income per share
  
$
0.75
  
$
0.19
  
$
(0.56
)
  
(74.7
)%
Diluted net income per share
  
$
0.71
  
$
0.12
  
$
(0.59
)
  
(83.1
)%
                           
Adjusted EBITDA(a)
  
$
24,147
  
$
28,345
  
$
4,198
    
17.4
%
Capital expenditures
  
$
3,261
  
$
4,083
  
$
822
    
25.2
%
 
Reconciliation of Adjusted EBITDA to Net Income
   
Three Months Ended
December 31,
  
Year Ended
December 31, 
  
   
2004
  
2005
  
2004
  
2005
  
Adjusted EBITDA
                  
Net Income (Loss)
  
$
(133
)
$
(150
)
$
6,114
  
$
1,792
  
Add: Depreciation
    
1,540
    
1,976
    
5,837
    
7,749
  
Interest Expense
    
1,264
    
4,188
    
3,679
    
16,355
  
Income Tax Expense
    
524
    
404
    
3,947
    
1,011
  
Non Cash Compensation-Stock
Options
    
116
    
—
    
1,494
    
—
  
IPO Expense
    
1,671
    
—
    
1,671
    
—
  
Accretion Expense
    
13
    
111
    
13
    
443
  
Change in Fair Value of Derivative
Liability
    
—
    
(38
)
  
—
    
(959
)
Loan Fees
    
1
    
29
    
1
    
117
  
Amortization - Loan Cost
    
1,023
    
382
    
1,128
    
1,374
  
Amortization - Intangibles
    
70
    
115
    
263
    
463
  
Adjusted EBITDA
    
6,089
    
7,017
    
24,147
    
28,345
  
 
- MORE -
 
Otelco Reports 2005 Results
Page 3
Feb. 16, 2006 
 
(a) Adjusted EBITDA is defined as consolidated net income (loss) plus interest expense, depreciation and amortization, income taxes and certain non-recurring fees, expenses or charges and other non-cash charges reducing consolidated net income. Adjusted EBITDA is not a measure calculated in accordance with generally acceptable accounting principles (GAAP). While providing useful information, Adjusted EBITDA should not be considered in isolation or as a substitute for consolidated statement of operations data prepared in accordance with GAAP. The Company believes Adjusted EBITDA is useful as a tool to analyze the Company on the basis of operating performance and leverage. The definition of Adjusted EBITDA corresponds to the definition of Adjusted EBITDA in the indenture governing the Company’s senior subordinated notes and its credit facility and certain of the covenants contained therein. The Company’s presentation of Adjusted EBITDA may not be comparable to similarly titled measures used by other companies.
 
   
 
 
Third
Quarter
 
Year
End
  
% Change
  
Key Operating Statistics
  
2004
  
2005
  
2005
  
Quarter
  
Year
  
Access line equivalents (1)
                      
Residential access lines
    
25,237
    
24,705
    
24,541
    
(0.7
)%
  
(2.8
)%
Business access lines
    
8,414
    
8,060
    
8,036
    
(0.3
)%
  
(4.5
)%
Access lines
    
33,651
    
32,765
    
32,577
    
(0.6
)%
  
(3.2
)%
Digital high-speed lines
    
3,488
    
5,354
    
5,962
    
11.4
%
  
70.9
%
Total access line equivalents
    
37,139
    
38,119
    
38,539
    
1.1
%
  
3.8
%
                                 
Long distance customers
    
13,641
    
14,323
    
14,438
    
0.8
%
  
5.8
%
Cable television customers
    
3,959
    
4,201
    
4,220
    
0.5
%
  
6.6
%
Dial-up internet customers
    
15,348
    
12,989
    
12,149
    
(6.5
)%
  
(20.8
)%
 
(1) We define access line equivalents as access lines, cable modems, and digital subscriber lines.

FINANCIAL DISCUSSION FOR FOURTH QUARTER AND YEAR 2005

Revenue
Total revenues grew 21.0% in the three months ended December 31, 2005 to $11.8 million from $9.8 million in the three months ended December 31, 2004. Total revenues grew 26.0% in the year ended December 31, 2005 to $47.0 million from $37.3 million in the year ended December 31, 2004. The growth in revenue was primarily driven by the acquisition of Mid-Missouri. Local service revenue grew 1.3% in the year ended December 31, 2005 to $14.2 million from $14.0 million in the year ended December 31, 2004. Total access line equivalents increased 1,400 during 2005, with growth partially offset by the loss of some second access lines used by customers for dial-up Internet access and wireline customer attrition. Network access revenue in the year ended December 31, 2005 grew 31.7% to $21.9 million from $16.6 million in the year ended December 31, 2004. Long distance and other telephone services revenue in the year ended December 31, 2005 increased 22.9% to $3.3 million from $2.7 million in the year ended December 31, 2004. Cable television revenue in the year ended December 31, 2005 increased 14.8% to $2.1 million from $1.8 million in the year ended December 31, 2004. Internet revenue in the year ended December 31, 2005 increased 154.3% to $5.6 million from $2.2 million in the year ended December 31, 2004. This increase included the addition of over 2,200 new digital high-speed Internet customers in Alabama in addition to the acquisition of and growth at Mid-Missouri.

Operating Expenses
Operating expenses in the three months ended December 31, 2005 decreased 9.0% to $7.5 million from $8.3 million in the three months ended December 31, 2004 which included one time charges associated with the initial public offering. Operating expenses in the year ended December 31, 2005 increased 21.8% to $28.9 million from $23.7 million in the year ended December 31, 2004. The increase was primarily attributable to the purchase of Mid-Missouri, amortization of loan costs associated with our initial public offering and public company costs. Cost of services increased 42.8% to $12.6 million in the year ended December 31, 2005 from $8.8 million in the year ended December 31, 2004. Selling, general and administrative expenses declined 12.6% to $6.7 million in the year ended December 31, 2005 from $7.7 million in the year ended December 31, 2005. Depreciation and amortization increased 32.6% to $9.6 million in the year ended December 31, 2005 from $7.2 million in the year ended December 31, 2004.
 
- MORE -
 
Otelco Reports 2005 Results
Page 4
Feb. 16, 2006 
 
Interest Expense
Reflecting the first full year of the new debt structure, interest expense increased 344.6% to $16.4 million in the year ended December 31, 2005 from $3.7 million in the year ended December 31, 2004. The new credit facility and the senior subordinated notes replaced existing variable rate term debt.

Adjusted EBITDA
Adjusted EBITDA for the three months ended December 31, 2005 was $7.0 million, an increase of 15.2% from $6.1 million the three months ended December 31, 2004. For the year ended December 31, 2005, EBITDA was $28.3 million, an increase of 17.4% from $24.1 million for the year ended December 31, 2004. See financial tables for a reconciliation of Adjusted EBITDA to net income.

Balance Sheet
As of December 31, 2005, the Company had cash and equivalents of $5.6 million and total long-term debt of $161.1 million.

Capital Expenditures
Capital expenditures were $0.7 million for the quarter and $4.1 million for the year. The Company added DSL capacity and upgraded its network and switching facilities.

Fourth Quarter Earnings Conference Call
 
Otelco has scheduled a conference call, which will be broadcast live over the Internet, on Friday, February 17, 2005, at 11:00 a.m. ET. To participate in the call, dial 913-981-5509 and ask for the Otelco call 10 minutes prior to the start time. Investors, analysts and the general public will also have the opportunity to listen to the conference call free over the Internet by visiting the Company's Web site at www.otelco.net or www.earnings.com. To listen to the live call online, please visit the Web site at least 15 minutes early to register, download and install any necessary audio software. For those who cannot listen to the live Web cast, a replay of the Web cast will be available on the Company's website at www.otelco.net or www.earnings.com for 30 days. A one-week telephonic replay may also be accessed by calling 719-457-0820 and using the passcode 7818347.
 
ABOUT OTELCO
Otelco Inc., headquartered in Oneonta, Alabama, is the sole wireline telephone services provider in several rural communities in Alabama and Missouri. The Company’s services include local telephone, network access, long distance, high-speed and dial-up Internet access, cable television and other telephone related services. With more than 38,500 access lines, cable modems and digital subscriber lines, which are collectively referred to as access line equivalents, Otelco is among the top 50 largest local exchange carriers in the United States based on number of access line equivalents. Otelco operates fiveincumbent telephone companies serving rural markets, or rural local exchange carriers, each of which can trace its history as a local telecommunications provider as far back as the early 1900s. For more information, visit the Company’s web site at www.otelco.net.
 
FORWARD LOOKING STATEMENTS
Statements in this press release 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 the historical results or from any future results expressed or implied by such forward-looking statements. In addition to statements which explicitly describe such risks and uncertainties, readers are urged to consider statements labeled with the terms “believes”, “belief,” “expects,” ‘intends,” “anticipates,” “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 the Company’s filings with the Securities and Exchange Commission.
 
- MORE -
 
Otelco Reports 2005 Results
Page 5
Feb. 16, 2006 
 
OTELCO INC.
Consolidated Balance Sheets
 
 
As of
December 31, 2004
  
As of
December 31, 2005
  
Assets
              
Current Assets
              
Cash and cash equivalents
  
$
5,406,545
  
$
5,569,233
  
Accounts receivable:
              
Due from subscribers, net of allowance
for doubtful accounts of $160,270 and
$163,028 respectively
    
1,179,074
    
1,212,909
  
Unbilled revenue
    
1,884,405
    
1,828,104
  
Other
    
1,522,945
    
1,482,171
  
Materials and supplies
   
1,039,910
    
932,861
  
Prepaid expenses
    
537,784
    
504,256
  
Income tax receivables
    
—
    
749,591
  
Deferred income taxes
    
652,625
    
872,675
  
Total current assets
   
12,223,288
    
13,151,800
  
               
Property and equipment, net
    
48,195,568
    
44,555,611
  
Goodwill
    
119,714,094
    
119,431,993
  
Intangible assets, net
   
2,050,943
    
1,588,079
  
Investments
    
1,298,852
    
1,108,249
  
Deferred financing costs
    
8,020,743
    
6,971,610
  
Interest rate cap
    
4,723,135
    
5,318,728
  
Total assets
  
$
196,226,623
  
$
192,126,070
  
               
Liabilities and stockholders’ equity
             
Current liabilities
             
Accounts payable
  
$
2,690,351
  
$
1,106,114
  
Accrued expenses
   
1,862,604
    
1,692,841
  
Advanced billings and payments
   
1,141,013
    
1,204,680
  
Customer deposits
   
220,209
    
213,524
  
Total current liabilities
   
5,914,177
    
4,217,159
  
               
Deferred income taxes
   
13,053,226
    
15,345,890
  
Other liabilities
   
196,644
    
192,769
  
Total deferred tax and other liabilities
   
13,249,870
    
15,538,659
  
               
Long-term notes payable
    
161,075,498
    
161,075,498
  
Derivative liability
   
2,788,716
    
1,830,095
  
Class B common convertible to senior
subordinated notes
    
3,212,528
    
3,655,454
  
Stockholders’ equity
   
 
    
 
  
Class A Common stock, $.01 par value-authorized
20,000,000 shares; issued and outstanding
9,676,733 shares
    
96,767
    
96,767
  
Class B Common stock, $.01 par value-authorized
800,000 shares; issued and outstanding
544,671 shares
    
5,447
    
5,447
  
Additional paid in capital
   
12,435,800
    
5,613,703
  
Retained deficit
    
(2,597,315
)
  
(805,731
)
Accumulated other comprehensive income
   
45,135
    
899,019
  
Total stockholders’ equity
   
9,985,834
    
5,809,205
  
               
Total liabilities and stockholders’ equity
 
$
196,226,623
  
$
192,126,070
  
 
- MORE -
 
Otelco Reports 2005 Results
Page 6
Feb. 16, 2006 
 
OTELCO INC.
Consolidated Statements of Income
 
   
 Three Months Ended
December 31,
  
Year-Ended
December 31, 
  
   
2004
  
2005
  
2004
  
2005
  
Revenues
                  
Local services
  
$
3,506,139
  
$
3,402,409
  
$
13,997,938
  
$
14,175,743
  
Network access
    
4,489,893
    
5,584,262
    
16,602,572
    
21,873,485
  
Long distance and other telephone
services
    
667,022
    
889,744
    
2,659,418
    
3,269,490
  
Cable television
    
480,728
    
540,865
    
1,817,711
    
2,086,854
  
Internet
    
646,512
    
1,426,007
    
2,188,703
    
5,566,650
  
Total revenues
    
9,790,294
    
11,843,287
    
37,266,342
    
46,972,222
  
                           
Operating expenses
                          
Cost of services and products
    
2,773,665
    
3,255,118
    
8,831,951
    
12,611,499
  
Selling, general and administrative
expenses
    
2,868,072
    
1,798,263
    
7,676,496
    
6,710,542
  
Depreciation and amortization
    
2,633,324
    
2,473,841
    
7,228,472
    
9,585,299
  
Total operating expenses
    
8,275,061
    
7,527,222
    
23,736,919
    
28,907,340
  
                           
Income from operations
    
1,515,233
    
4,316,065
    
13,529,423
    
18,064,882
  
                           
Other income (expense)
                          
Interest expense
    
(1,264,067
)
  
(4,188,266
)
  
(3,678,691
)
  
(16,355,087
)
Change in fair value of derivative
    
—
    
38,127
    
—
    
958,621
  
Other income
    
153,047
    
198,416
    
223,104
    
577,769
  
Total other expense
    
(1,111,020
)
  
(3,951,723
)
  
(3,455,587
)
  
(14,818,697
)
                           
Income before income tax and
accretion expense
    
404,213
    
364,342
    
10,073,836
    
3,246,185
  
                           
Income tax expense
    
(523,579
)
  
(403,853
)
  
(3,946,625
)
  
(1,011,675
)
                           
Income (loss) before accretion expense
    
(119,366
)
  
(39,511
)
  
6,127,211
    
2,234,510
  
                           
Accretion of Class B common
convertible to senior subordinated notes
    
(13,348
)
  
(110,732
)
  
(13,348
)
  
(442,926
)
Net income (loss) available to common
stoockholders
    
(132,714
)
  
(150,243
)
  
6,113,863
    
1,791,584
  
                           
Weighted average shares outstanding:
                          
Basic
    
8,250,464
    
9,676,733
    
8,103,720
    
9,676,733
  
Diluted
    
8,562,395
    
10,221,404
    
8,607,455
    
10,221,404
  
                           
Net income per share:
                          
Basic
 
$
(0.02
)
$
(0.02
)
$
0.75
  
$
0.19
  
Diluted
 
$
(0.02
)
$
(0.01
)
$
0.71
  
$
0.12
  
                           
Dividends declared per share
  
$
—
  
$
—
  
$
—
  
$
0.71
  
 
- END -