EX-99.1 2 v092383_ex99-1.htm
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 Contact:    Curtis Garner
    Chief Financial Officer
    Otelco Inc.
    205-625-3571
    Curtis@otelcotel.com
  
Otelco Reports Third Quarter 2007 Results

ONEONTA, Alabama (Nov. 6, 2007) - Otelco Inc. (AMEX: OTT; TSX: OTT.un), the sole wireline telephone services provider in several rural communities in Alabama, Maine and Missouri, today announced results for its third quarter ended September 30, 2007. Key quarterly highlights for Otelco include:

 
·
Total revenues of $17.6 million.
     
 
·
Operating income of $5.1 million.
     
 
·
Adjusted EBITDA (as defined below) of $8.9 million.

“We are pleased with our third quarter results as both our operating and financial performance experienced growth,” stated Mike Weaver, President and Chief Executive Officer of Otelco. “On the operating front, the quarter resulted in continued growth in our access lines, digital high-speed Internet and long distance customers. Our total access line equivalents increased 1.1% from the second quarter to 67,123 total access line equivalents, an increase of 750 lines for the quarter. Our digital high-speed Internet offering continues to be successful as we increased our subscribers by 3.7% over the second quarter of this year. Our Maine CLEC business produced a 4.7% increase in access lines in this quarter when compared to the second quarter.

“Adjusted EBITDA was $8.9 million for the quarter, a growth of 2.0% over third quarter 2006,” added Weaver. “Our balance sheet has been strengthened by the sale of an additional 3,000,000 Income Deposit Securities in July, further demonstrating our commitment to the total return for our shareholders.”

Distribution to IDS Holders
 
Each quarter, the Board will consider the declaration of dividends during its normally scheduled meeting. For the fourth quarter of 2007, the Board is meeting on November 15, 2007. The scheduled interest and any dividend declared will be paid on December 31, 2007 to holders of record as of the close of business on December 14, 2007. The interest payment will cover the period from September 30, 2007 through December 29, 2007.
 
- MORE -

Otelco Reports Third Quarter Results
Page 2
Nov. 6, 2007
 
Third Quarter 2007 Financial Summary
(Dollars in thousands, except per share amounts) 
 
                 
Change 
  
 
 
 
3Q 2006 
 
 
3Q 2007 
 
 
Amount 
 
 
Percent 
  
Revenues
  
$
17,137
  
$
17,594
  
$
457
    
2.7
%
Operating income
  
$
5,139
  
$
5,117
  
$
(22
)
  
(0.4
)%
Interest expense
  
$
(5,624
)
$
(5,845
)
$
221
    
3.9
%
Net income available to stockholders
  
$
(365
)
$
(668
)
$
(303
)
  
(83.0
)%
Basic net income per share
  
$
(0.04
)
$
(0.05
)
$
(0.01
)
  
(25.0
)%
Diluted net income per share
  
$
(0.04
)
$
(0.07
)
$
(0.03
)
  
(75.0
)%
                           
Adjusted EBITDA(a)
  
$
8,704
  
$
8,879
  
$
175
    
2.0
%
Capital expenditures
  
$
1,695
  
$
1,511
  
$
(187
)
  
(11.0
)%
 
                 
Change 
  
 
 
 
YTD 2006 
 
 
YTD 2007 
 
 
Amount 
 
 
Percent 
  
Revenues
  
$
40,208
  
$
51,885
  
$
11,677
    
29.0
%
Operating income
  
$
14,719
  
$
14,276
  
$
(443
)
  
(3.0
)%
Interest expense
  
$
(14,758
)
$
(16,634
)
$
1,876
    
12.7
%
Net income available to stockholders
  
$
1,933
  
$
(891
)
$
(2,824
)
  
(146.0
)%
Basic net income per share
  
$
0.20
  
$
(0.08
)
$
(0.28
)
  
(140.0
)%
Diluted net income per share
  
$
0.19
  
$
(0.14
)
$
(0.33
)
  
(173.7
)%
                           
Adjusted EBITDA(a)
  
$
22,627
  
$
25,928
  
$
3,301
    
14.6
%
Capital expenditures
  
$
3,663
  
$
4,387
  
$
724
    
19.8
%

Reconciliation of Adjusted EBITDA to Net Income

 
 
Three Months Ended
 
Nine Months Ended
 
 
 
September 30,
 
September 30,
 
 
 
2006
 
2007
 
2006
 
2007
  
Adjusted EBITDA
                  
Net Income
  
$
(365
)
$
(668
)
$
1,933
   $
(891
)
Add:   Depreciation
    
2,817
    
2,826
    
6,692
    
8,934
  
Interest Expense
    
4,800
    
4,219
    
12,902
    
13,743
  
Interest Expense - Caplet Cost
    
198
    
206
    
543
    
673
  
Interest Expense - Bond Premium
    
-
    
(16
)
  
-
    
(16
)
Interest Expense - Amortize Loan Cost
    
625
    
1,437
    
1,312
    
2,233
  
Gain/Loss from Investments
    
-
    
-
    
(2,686
)
  
-
  
Income Tax Expense
    
(1
)
  
394
    
1,231
    
(97
)
Accretion Expense
    
111
    
-
    
332
    
-
  
Other Non-Operating
    
(63
)
  
-
    
(63
)
  
-
  
Change in Fair Value of Derivatives
    
(27
)
  
(186
)
  
(337
)
  
(654
)
Loan Fees
    
20
    
19
    
76
    
57
  
Amortization - Intangibles
    
589
    
648
    
692
    
1,946
  
Adjusted EBITDA
  
$
8,704
  
$
8,879
  
$
22,627
   $
25,928
  

(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.
 
- MORE -
 
Otelco Reports Third Quarter Results
Page 3
Nov. 6, 2007

   
First
  
Second
  
Third
      
   
Quarter
  
Quarter
  
Quarter
  
% Change
  
Key Operating Statistics
  
2007
  
2007
  
2007
  
Quarter
  
Access line equivalents (1)
                  
Residential access lines
    
29,789
    
29,483
    
29,156
    
(1.1
)%
Business access lines
    
22,577
    
23,537
    
24,122
    
2.5
%
Total access lines
    
52,366
    
53,020
    
53,278
    
0.5
%
High-speed lines
    
12,960
    
13,353
    
13,845
    
3.7
%
Total access line equivalents    
65,326
    
66,373
    
67,123
    
    1.1
 %
                           
Long distance customers
    
22,066
    
22,358
    
22,420
    
0.3
%
Cable television customers
    
4,211
    
4,187
    
4,170
    
(0.4
)%
Dial-up internet customers
    
18,313
    
17,220
    
16,263
    
(5.6
)%

(1) We define access line equivalents as access lines, cable modems, and digital subscriber lines, including wholesale digital subscriber lines.

FINANCIAL DISCUSSION FOR THIRD QUARTER 2007:

Revenue
 
Total revenues grew 2.7% in the three months ended September 30, 2007 to $17.6 million from $17.1 million in the three months ended September 30, 2006. The growth in revenue reflected growth in CLEC customers in Maine and increased digital high-speed Internet penetration. Local services revenue grew 2.2% in the third quarter to $6.5 million from $6.4 million in the quarter ended September 30, 2006. Network access revenue grew 1.2% to $6.6 million from $6.5 million in the quarter ended September 30, 2006. Cable television revenue in the three months ended September 30, 2007 was flat at $0.5 million when compared to the three months ended September 30, 2006. Internet revenue for the quarter increased 3.7% to $2.9 million from $2.8 million in the quarter ended September 30, 2006. Transport services revenue grew 15.5% to $1.1 million in the three months ended September 30, 2007 from $0.9 million in the same period in 2006.

Operating Expenses
 
Operating expenses in the three months ended September 30, 2007 increased 4.0% to $12.5 million from $12.0 million in the three months ended September 30, 2006. Cost of services increased 3.0% to $6.3 million from $6.1 million in the quarter ended September 30, 2006. The cost associated with increased CLEC revenue in Maine, increased Internet bandwidth in Alabama and increased long distance customers in Missouri was partially offset by network and Internet help desk efficiencies. Selling, general and administrative expenses increased 9.2% to $2.7 million in the quarter ended September 30, 2007 from $2.5 million in the quarter ended September 30, 2006. Increased operating taxes and diligence expenses were the cause of the increase. Depreciation and amortization for third quarter increased 2.0% to $3.5 million from $3.4 million.

Interest Expense
 
Interest expense increased 3.9% to $5.8 million in the quarter ended September 30, 2007 from $5.6 million a year ago, reflecting the recognition of the remaining $1.0 million in loan cost associated with the extinguished debt and the increased non-cash caplet cost associated with our interest rate cap, offset by lower total indebtedness of the Company and the reduction in margin cost from 3.25% to 1.75% on all of our senior debt.
 
- MORE -
 
Otelco Reports Third Quarter Results
Page 4
Nov. 6, 2007
 
Adjusted EBITDA
 
Adjusted EBITDA for the three months ended September 30, 2007 was $8.9 million, an increase of 2.0% from $8.7 million the three months ended September 30, 2006. For the nine months ended September 30, 2007, Adjusted EBITDA was $25.9 million, an increase of 14.6% from $22.6 million the nine months ended September 30, 2006. See financial tables for a reconciliation of Adjusted EBITDA to net income.

Balance Sheet
 
As of September 30, 2007, the Company had cash and cash equivalents of $17.6 million and total long-term debt of $170.0 million. The third quarter distribution of $5.3 million in interest and dividends to our share owners and $0.3 million to our bond holders occurred on October 1, 2007.

Capital Expenditures
 
Capital expenditures were $1.5 million for the quarter and $4.4 million year-to-date 2007. The Company added DSL capacity, competitive customer specific equipment, and other upgrades to its network and switching facilities.

Third Quarter Earnings Conference Call
 
Otelco has scheduled a conference call, which will be broadcast live over the Internet, on Wednesday, November 7, 2007, at 11:00 a.m. ET. To participate in the call, dial 913-312-0714 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 4282903.

ABOUT OTELCO
 
Otelco Inc., headquartered in Oneonta, Alabama, provides wireline telephone services in Alabama, Maine and Missouri. The Company’s services include local and long distance telephone, network access, transport, digital high-speed and dial-up Internet access, cable television and other telephone related services. With more than 67,000 access lines, cable modems and digital subscriber lines, which are collectively referred to as access line equivalents, Otelco is among the top 40 largest local exchange carriers in the United States based on number of access line. Otelco operates six incumbent 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. It also provides competitive telephone services through several subsidiaries. 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 Third Quarter Results
Page 5
Nov. 6, 2007
 
OTELCO INC.
Consolidated Balance Sheets 
 
 
 
As of
 
 As of
 
 
 
 December 31, 2006
 
 September 30, 2007
  
 
      
 (unaudited)
  
Assets
          
Current Assets
          
Cash and cash equivalents
  
$
14,401,849
  
$
17,565,053
  
Accounts receivable:
              
Due from subscribers, net of allowance
              
for doubtful accounts of $221,762 and
              
$207,359 respectively
    
3,105,636
    
2,870,450
  
Unbilled receivables
    
2,324,213
    
2,521,484
  
Other
    
1,680,144
    
2,068,639
  
Materials and supplies
    
1,962,938
    
1,926,254
  
Prepaid expenses
    
1,062,947
    
566,420
  
Deferred income taxes
    
766,225
    
832,946
  
Total current assets
    
25,303,952
    
28,351,246
  
               
Property and equipment, net
    
60,493,789
    
55,415,315
  
Goodwill
    
134,182,309
    
134,570,435
  
Intangible assets, net
    
11,340,806
    
9,971,280
  
Investments
    
1,240,250
    
1,213,246
  
Deferred financing costs
    
6,652,393
    
6,246,801
  
Interest rate cap
    
4,542,160
    
2,833,166
  
Deferred charges
    
96,628
    
60,186
  
Total assets
  
$
243,852,287
  
$
238,661,675
  
               
Liabilities and Stockholders’ Equity
              
Current liabilities
              
Accounts payable
  
$
1,658,911
  
$
1,253,551
  
Dividends payable
    
1,705,524
    
2,234,274
  
Accrued expenses
    
5,875,863
    
7,068,675
  
Advanced billings and payments
    
2,119,701
    
2,085,730
  
Customer deposits
    
197,496
    
200,840
  
Total current liabilities
    
11,557,495
    
12,843,070
  
               
Deferred income taxes
    
24,712,213
    
24,778,934
  
Other liabilities
    
187,037
    
187,867
  
Total deferred tax and other liabilities
    
24,899,250
    
24,966,801
  
               
Long-term notes payable
    
201,075,498
    
170,036,724
  
Derivative liability
    
2,107,877
    
1,383,679
  
Class B common convertible to senior
              
subordinated notes
    
4,085,033
    
4,085,033
  
               
Stockholders’ equity
              
Class A Common stock, $.01 par value-authorized
              
20,000,000 shares; issued and outstanding
              
12,676,733 shares
    
96,767
    
126,767
  
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
    
284,041
    
30,456,624
  
Retained deficit
    
(1,137,166
)
  
(5,154,673
)
Accumulated other comprehensive income
    
878,045
    
(87,797
)
Total stockholders’ equity
    
127,134
    
25,346,368
  
Total liabilities and stockholders’ equity
  
$
243,852,287
  
$
238,661,675
  
 
- MORE -
 
Otelco Reports Third Quarter Results
Page 6
Nov. 6, 2007
 
OTELCO INC.
Consolidated Statements of Operations
(unaudited)

   
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
2006
 
2007
 
2006
 
2007
  
Revenues
                          
Local services
  
$
6,363,046
  
$
6,502,105
  
$
14,956,503
  
$
19,381,216
  
Network access
    
6,533,743
    
6,612,250
    
16,849,379
   
19,190,669
  
Cable television
    
550,914
    
547,044
    
1,631,985
    
1,642,985
  
Internet
    
2,765,643
    
2,867,381
    
5,846,691
    
8,547,085
  
Transport services
    
923,625
    
1,065,521
    
923,625
    
3,122,940
  
Total revenues
    
17,136,971
   
17,594,301
    
40,208,183
   
51,884,895
  
                           
Operating expenses
                          
Cost of services and products
    
6,139,234
    
6,326,014
    
12,501,035
   
19,131,470
  
Selling, general and administrative expenses
    
2,451,477
    
2,676,515
    
5,604,141
    
7,597,843
  
Depreciation and amortization
    
3,406,789
    
3,474,799
    
7,384,289
   
10,879,513
  
Total operating expenses
    
11,997,500
   
12,477,328
    
25,489,465
   
37,608,826
  
Income from operations
    
5,139,471
    
5,116,973
    
14,718,718
   
14,276,069
  
Other income (expense)
                          
Interest expense
    
(5,623,615
)
  
(5,844,898
)
  
(14,757,595
)
  
(16,633,507
)
Change in fair value of derivative
    
27,234
    
186,055
    
337,696
    
654,472
  
Other income
    
201,506
    
268,356
    
3,198,013
    
715,389
  
Total other expense
    
(5,394,875
)
  
(5,390,487
)
  
(11,221,886
)
  
(15,263,646
)
Income (loss) before income taxes and accretion expense
    
(255,404
)
  
(273,514
)
  
3,496,832
    
(987,577
)
                           
Income tax (expense) benefit
    
1,375
    
(394,197
)
  
(1,231,235
)
  
97,079
  
                           
Income (loss) before accretion expense
    
(254,039
)
  
(667,711
)
  
2,265,597
    
(890,498
)
                           
Accretion of Class B common convertible to senior subordinated notes
    
(110,732
)
  
-
    
(332,195
)
  
-
  
Net income (loss) available to common stockholders
  
$
(364,761
)
$
(667,711
)
$
1,933,402
  
$
(890,498
)
                           
Weighted average shares outstanding:
                          
Basic
    
9,676,733
   
12,546,298
    
9,676,733
    
10,643,766
  
Diluted
    
10,221,404
   
13,090,969
    
10,221,404
   
11,188,437
  
                           
                           
Net income (loss) per share:
                          
Basic
  
$
(0.04
)
$
(0.05
)
$
0.20
  
$
(0.08
)
Diluted
  
$
(0.04
)
$
(0.07
)
$
0.19
  
$
(0.14
)
                           
Dividends declared per share
  
$
0.18
  
$
0.18
  
$
0.53
  
$
0.53
  
 
- MORE -
 
Otelco Reports Third Quarter Results
Page 7
Nov. 6, 2007

OTELCO INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
 
   
 Nine months ended
  
 
 
September 30,
  
 
  
 2006
  
 2007
  
Cash flows from operating activities:
              
Net income (loss)
  
$
1,933,402
  
$
(890,498
)
Adjustments to reconcile net income to cash
              
flows from operating activities:
              
Depreciation
    
6,390,925
    
8,933,812
  
Amortization
    
578,904
    
1,945,696
  
Interest rate caplet
    
543,321
    
673,425
  
Amortization of debt premium
    
-
    
(16,533
)
Amortization of loan costs
    
1,311,927
    
2,233,495
  
Accretion expense
    
332,195
    
-
  
Change in fair value of derivative
    
(337,695
)
  
(654,472
)
Provision for uncollectible revenue
    
123,979
    
114,979
  
Gain on disposition of other assets
    
(2,686,745
)
  
-
  
Changes in assets and liabilities; net of assets and
              
liabilities acquired:
              
Accounts receivables
    
(155,522
)
  
(642,120
)
Material and supplies
    
(20,652
)
  
(117,903
)
Income tax receivable
    
287,804
    
-
  
Prepaid expenses and other assets
    
101,675
    
496,527
  
Accounts payable and accrued liabilities
    
4,888,886
    
(1,002,997
)
Advance billings and payments
    
1,888
    
(33,971
)
Other liabilities
    
(3,860
)
  
4,174
  
Net cash from operating activities
    
13,290,432
    
11,043,614
  
               
Cash flows from investing activities:
              
Acquisition and construction of property and equipment
    
(3,662,910
)
  
(4,386,579
)
Proceeds from retirement of investment
    
3,226,651
    
7,871
  
Purchase Mid-Maine
    
(15,905,248
)
  
-
  
Deferred charges
    
(67,921
)
  
(2,033
)
Net cash from investing activities
    
(16,409,428
)
  
(4,380,741
)
               
Cash flows from financing activities:
              
Cash dividends paid
    
(3,411,048
)
  
(3,411,048
)
Direct cost of Subsequent Public Offering
    
-
    
(2,307,686
)
Repayment of long-term debt
    
(24,347,299
)
  
(55,353,032
)
Loan origination costs
    
-
    
(1,827,903
)
Proceeds from long-term debt
    
40,000,000
    
-
  
Proceeds from issuance of IDS
    
-
    
59,400,000
  
               
Net cash from financing activities
    
12,241,653
    
(3,499,669
)
               
Net increase (decrease) in cash and cash equivalents
    
9,122,657
    
3,163,204
  
Cash and cash equivalents, beginning of period
    
5,569,233
    
14,401,849
  
               
Cash and cash equivalents, end of period
  
$
14,691,890
  
$
17,565,053
  
               
Supplemental disclosures of cash flow information:
              
Interest paid
  
$
12,130,902
  
$
13,878,086
  
Income taxes (received)
  
$
(262,632
)
$
(153,468
)
Dividends declared but not paid
  
$
1,705,524
  
$
2,234,274
  
 
- END -