EX-99.1 2 v130654_ex99-1.htm

Contact:
Curtis Garner
Chief Financial Officer
Otelco Inc.
205-625-3571
Curtis@otelcotel.com

Otelco Completes Acquisition of Country Road Properties
Reports Third Quarter 2008 Results

ONEONTA, Alabama (Nov. 4, 2008) - Otelco Inc. (NASDAQ: 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, 2008. Key quarterly highlights for Otelco include:

·  
Total revenues of $18.2 million.
·  
Operating income of $5.7 million.
·  
Adjusted EBITDA (as defined below) of $9.0 million.

“Our business continued to provide solid revenue growth in the third quarter, despite the tough economic environment,” stated Mike Weaver, President and Chief Executive Officer of Otelco. “Key operating highlights include growth in access line equivalents when compared to last quarter and last year, driven by increases in data lines and CLEC voice lines.

“Last Friday, we completed the acquisition of the Country Road properties, which was first announced in August. This will add over 24,000 retail access line equivalents to our current presence in Maine plus almost 5,000 access line equivalents in Massachusetts and West Virginia as well as a growing wholesale business in New England. The fact that we were able to gain all of the necessary regulatory approvals and complete the financing with our consortium of six banks in less than three months is a strong indication of the important strategic rationale of the transaction for the Company, our customers and our investors. Now we will expedite the transition work with the same enthusiasm,” added Weaver.

“For the third quarter, we again delivered solid increases in operating income and Adjusted EBITDA, which increased 10.7% and 1.5%, respectively, from the year-ago period and 10.8% and 1.6%, respectively, for year-to-date 2008 compared to the same period in 2007. Adjusted EBITDA was $9.0 million for the quarter and $26.3 million year-to-date, producing an increase of $0.4 million so far this year,” added Weaver. “Bottom line performance also improved from the year-ago period as we reported net income of $0.8 million for the quarter and $1.6 million year-to-date compared to a net loss of $0.7 million for the third quarter 2007 and a net loss of $0.9 million for year-to-date 2007. We invested over $3.0 million in our infrastructure to serve both our current and future customers. A significant part of our third quarter investment was for our planned expansion into IPTV services. For the quarter, our expenditures for this project were over $1.2 million which represented approximately 40% of the total capital expenditures for this quarter. We also delivered our fifteenth consecutive IDS distribution. That demonstrates our ability to both complete strategic expansions without losing focus on generating solid operating and financial results.”
 
- MORE -
Otelco Reports Third Quarter Results
Page 2
Nov. 4, 2008

Distribution to IDS Holders
 
Each quarter, the Board considers the declaration of dividends during its normally scheduled meeting. For the fourth quarter of 2008, the Board is meeting on November 10, 2008. Currently, it is anticipated that the Company’s dividends in 2008 will continue to be treated as a return of capital for tax purposes. The scheduled interest and any dividend declared will be paid on December 30, 2008 to holders of record as of the close of business on December 15, 2008. The interest payment will cover the period from September 30, 2008 through December 29, 2008.
 
 
- MORE -
Otelco Reports Third Quarter Results
Page 3
Nov. 4, 2008
 
Third Quarter 2008 Financial Summary
(Dollars in thousands, except per share amounts)
 
 
Three Months Ended Sept. 30,
 
Change
 
 
 
2007
 
2008
 
Amount
 
Percent
  
                   
Revenues
  
$
17,594
  
$
18,238
  
$
644
    
3.7
%
Operating income
  
$
5,117
  
$
5,665
  
$
548
    
10.7
%
Interest expense
  
$
(5,845
)
$
(4,774
)
$
(1,071
)
  
(18.3
)%
Net income (loss) available to stockholders
  
$
(668
)
$
789
  
$
1,457
    
*
%
Basic net income (loss) per share
  
$
(0.05
)
$
0.06
  
$
0.11
    
*
%
Diluted net income (loss) per share
  
$
(0.07
)
$
0.04
  
$
0.11
    
*
%
                           
Adjusted EBITDA(a)
  
$
8,879
  
$
9,012
  
$
133
    
1.5
%
Capital expenditures
  
$
1,511
  
$
3,023
  
$
1,512
    
100.7
%
                           
   
Nine Months Ended Sept. 30,
 
Change
 
 
 
 
YTD 2007
 
 
YTD 2008
 
 
Amount
 
 
Percent
  
                           
Revenues
  
$
51,885
  
$
53,766
  
$
1,881
    
3.6
%
Operating income
  
$
14,276
  
$
15,811
  
$
1,535
    
10.8
%
Interest expense
  
$
(16,634
)
$
(14,230
)
$
(2,404
)
  
(14.5
)%
Net income (loss) available to stockholders
  
$
(891
)
$
1,603
  
$
2,494
    
*
%
Basic net income (loss) per share
  
$
(0.08
)
$
0.13
  
$
0.21
    
*
%
Diluted net income (loss) per share
  
$
(0.14
)
$
0.10
  
$
0.24
    
*
%
                           
Adjusted EBITDA(a)
  
$
25,928
  
$
26,345
  
$
417
    
1.6
%
Capital expenditures
  
$
4,387
  
$
6,970
  
$
2,583
    
58.9
%
* Not a meaningful calculation
                          
 
Reconciliation of Adjusted EBITDA to Net Income (Loss)
   
Three Months Ended
 
Nine Months Ended
 
 
 
September 30,
 
September 30,
 
 
 
2007
 
2008
 
2007
 
2008
  
Adjusted EBITDA
                  
Net Income (Loss)
  
$
(668
)
$
789
  
$
(891
)
$
1,603
  
Add:   Depreciation
    
2,826
    
2,748
    
8,934
    
8,276
  
Interest Expense - Net of Premium
    
4,219
    
4,167
    
13,743
    
12,443
  
Interest Expense - Caplet Cost
    
206
    
253
    
673
    
723
  
Interest Expense - Bond Premium
    
(16
)
  
(19
)
  
(16
)
  
(54
)
Interest Expense - Amortize Loan Cost
    
1,437
    
373
    
2,233
    
1,118
  
Gain/Loss from Investment
    
-
    
-
    
-
    
(45
)
Income Tax Expense
    
394
    
464
    
(97
)
  
696
  
Change in Fair Value of Derivative
    
(186
)
  
(174
)
  
(654
)
  
(100
)
Loan Fees
    
19
    
19
    
57
    
57
  
Amortization - Intangibles
    
648
    
393
    
1,946
    
1,628
  
Adjusted EBITDA
  
$
8,879
  
$
9,013
  
$
25,928
  
$
26,345
  
 
(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 4
Nov. 4, 2008
 
   
Year Ended December 31,
 
March 31,
 
June 30,
 
Sept. 30
 
Key Operating Statistics
 
2006
 
2007
 
2008
 
2008
 
2008
  
RLEC access lines:
                      
Voice lines
    
37,736
    
36,687
    
36,239
    
35,989
    
35,600
  
Data lines
    
10,016
    
12,160
    
12,729
    
13,065
    
13,395
  
RLEC access line
                               
equivalents (1)
    
47,752
    
48,847
    
48,968
    
49,054
    
48,995
  
                                 
CLEC access lines:
                                
Voice lines
    
14,267
    
16,973
    
17,457
    
17,740
    
18,229
  
Data lines
    
2,016
    
2,571
    
2,602
    
2,735
    
2,864
  
CLEC access line
                               
equivalents (1)
    
16,283
    
19,544
    
20,059
    
20,475
    
21,093
  
                                 
Otelco access line
                               
equivalents (1)
    
64,035
    
68,391
    
69,027
    
69,529
    
70,088
  
                                 
Cable television customers
    
4,188
    
4,169
    
4,175
    
4,109
    
4,115
  
Dial-up internet customers
    
19,587
    
15,249
    
14,290
    
13,419
    
12,537
  
 
(1) We define access line equivalents as voice access lines and data access lines (including cable modems, digital subscriber lines, and dedicated data access trunks).

FINANCIAL DISCUSSION FOR THIRD QUARTER 2008:

Revenue
Total revenues grew 3.7% in the three months ended September 30, 2008, to $18.2 million from $17.6 million in the three months ended September 30, 2007. All categories of revenue grew during the quarter, led by the growth in CLEC customers in Maine and increased digital Internet lines throughout the areas we serve. Local services revenue grew 2.7% in the third quarter 2008 to $6.7 million from $6.5 million in the quarter ended September 30, 2007. Network access revenue grew 1.2% to $6.7 million in the third quarter 2008 from $6.6 million in the third quarter 2007. Cable television revenue in the three months ended September 30, 2008 increased 9.9% to $0.6 million from just over $0.5 million in the three months ended September 30, 2007. Internet revenue for the third quarter 2008 increased 5.7% to $3.0 million from $2.9 million in the quarter ended September 30, 2007. Transport services revenue grew 15.9% to $1.2 million in the three months ended September 30, 2008 from $1.1 million in the same period in 2007.

Operating Expenses
Operating expenses in the three months ended September 30, 2008 increased 0.8% to $12.6 million from $12.5 million in the three months ended September 30, 2007. Cost of services increased 5.2% to $6.7 million from $6.3 million in the quarter ended September 30, 2007. The cost associated with increased CLEC revenue in Maine, increased long distance and Internet bandwidth requirements to support additional market penetration, and higher employee and energy costs were partially offset by network and organizational efficiencies. Selling, general and administrative expenses increased 3.8% to $2.8 million in the quarter ended September 30, 2008, from $2.7 million in the quarter ended September 30, 2007. Increased employee cost was partially offset by lower insurance and legal costs. Depreciation and amortization for second quarter decreased 9.6% to $3.1 million from $3.5 million.

Interest Expense
Interest expense decreased 18.3% to $4.8 million in the quarter ended September 30, 2008 from $5.8 million in the same period a year ago, reflecting the reduction in senior and total debt after the sale of 3,000,000 Income Deposit Securities units in July 2007 and a lower margin on senior debt.
 
- MORE -
Otelco Reports Third Quarter Results
Page 5
Nov. 4, 2008
 
Adjusted EBITDA
Adjusted EBITDA for the three months ended September 30, 2008 was $9.0 million, up 1.5% over the same period in 2007. See financial tables for a reconciliation of Adjusted EBITDA to net income.

Balance Sheet
As of September 30, 2008, the Company had cash and cash equivalents of $13.2 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 September 30, 2008. This was the Company’s fifteenth consecutive distribution since going public in 2004.

Capital Expenditures
Capital expenditures were $3.0 million for the quarter. The Company added enhanced network capability to serve competitive customers in Maine; initiated the build out for offering IPTV in Alabama; expanded its wireless Internet footprint in Missouri; and continued to upgrade its rural facilities in all three states, including additional data line capacity.

Third Quarter Earnings Conference Call
 
Otelco has scheduled a conference call, which will be broadcast live over the Internet, on Wednesday, November 5, 2008, at 11:00 a.m. ET. To participate in the call, dial (913) 981-5580 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.OtelcoInc.com 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.OtelcoInc.com 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 4154593.
 
ABOUT OTELCO
Otelco Inc., headquartered in Oneonta, Alabama, provides wireline telephone services in Alabama, Maine, Massachusetts, Missouri and West Virginia. 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 99,000 voice and data access lines (including the three subsidiaries of Country Road Communication LLC acquired on October 31, 2008) which are collectively referred to as access line equivalents, Otelco is among the top 25 largest local exchange carriers in the United States based on number of access lines. Otelco operates ten 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 retail and wholesale telephone services through several subsidiaries. For more information, visit the Company’s web site at www.OtelcoInc.com.

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 6
Nov. 4, 2008
 
OTELCO INC.
Consolidated Balance Sheets
 
   
As of 
 
As of 
 
 
December 31, 2007
 
Sept. 30, 2008
 
 
 
 
(unaudited)
  
Assets
  
 
  
 
  
Current Assets
  
 
  
 
  
Cash and cash equivalents
  
$
12,810,497
  
$
13,160,898
  
Accounts receivable:
    
   
 
Due from subscribers, net of allowance
    
   
 
for doubtful accounts of $257,862 and
    
   
 
$165,078, respectively
    
2,753,451
    
2,899,519
  
Unbilled receivables
    
2,616,867
    
2,649,755
  
Other 
    
1,760,207
    
1,934,355
  
Materials and supplies
    
1,991,724
    
2,259,937
  
Prepaid expenses
    
1,149,180
    
548,079
  
Income tax receivable
    
469,546
    
214,440
  
Deferred income taxes
    
1,486,439
    
1,486,439
  
Total current assets
    
25,037,911
    
25,153,442
  
 
    
   
 
Property and equipment, net
    
54,610,355
    
52,786,133
  
Goodwill
    
134,570,435
    
134,570,435
  
Intangible assets, net
    
9,514,772
    
8,462,790
  
Investments
    
1,207,183
    
1,188,051
  
Deferred financing costs
    
5,878,943
    
4,760,463
  
Interest rate cap
    
1,510,951
    
479,152
  
Deferred charges
    
155,573
    
650,228
  
Total assets
  
$
232,486,123
  
$
228,050,694
  
 
    
   
 
Liabilities and Stockholders’ Equity
    
   
 
Current liabilities
    
   
 
Accounts payable
  
$
2,058,989
  
$
1,867,564
  
Accrued expenses
    
3,716,880
    
5,210,931
  
Advanced billings and payments
    
2,077,713
    
1,944,115
  
Customer deposits
    
185,147
    
194,531
  
Total current liabilities
    
8,038,729
    
9,217,141
  
Deferred income taxes
    
25,223,656
    
25,223,656
  
Advance billings and payments
    
797,498
    
750,081
  
Other liabilities
    
183,756
    
179,911
  
Long-term notes payable
    
170,019,705
    
169,965,588
  
Total liabilities
    
204,263,344
    
205,336,377
  
 
    
   
 
Derivative liability
    
814,005
    
516,112
  
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
    
126,767
    
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
    
28,215,056
    
21,512,233
  
Retained deficit
    
(4,084,797
)
  
(2,481,378
)
Accumulated other comprehensive loss
    
(938,732
)
  
(1,049,897
)
 
    
   
 
Total stockholders’ equity
    
23,323,741
    
18,113,172
  
 
    
   
 
Total liabilities and stockholders’ equity
  
$
232,486,123
  
$
228,050,694
  
 
- MORE -
Otelco Reports Third Quarter Results
Page 7
Nov. 4, 2008
 
OTELCO INC.
Consolidated Statements of Operations
(unaudited)

   
Three Months Ended
 
Nine Months Ended
 
 
 
September 30,
 
September 30,
 
 
 
2007
 
2008
 
2007
 
2008
  
                   
Revenues
                  
Local services
  
$
6,502,105
  
$
6,678,826
  
$
19,381,216
  
$
20,116,902
  
Network access
    
6,612,250
    
6,694,486
    
19,190,669
    
19,237,269
  
Cable television
    
547,044
    
601,025
    
1,642,985
    
1,713,457
  
Internet
    
2,867,381
    
3,028,963
    
8,547,085
    
9,060,822
  
Transport services
    
1,065,521
    
1,234,274
    
3,122,940
    
3,637,276
  
Total revenues
    
17,594,301
    
18,237,574
    
51,884,895
    
53,765,726
  
                           
Operating expenses
                          
Cost of services and products
    
6,326,014
    
6,654,860
    
19,131,470
    
20,052,583
  
Selling, general and administrative
                         
expenses
    
2,676,515
    
2,777,411
    
7,597,843
    
7,998,818
  
Depreciation and amortization
    
3,474,799
    
3,140,688
    
10,879,513
    
9,903,702
  
Total operating expenses
    
12,477,328
    
12,572,959
    
37,608,826
    
37,955,103
  
                           
Income from operations
    
5,116,973
    
5,664,615
    
14,276,069
    
15,810,623
  
                           
Other income (expense)
                          
Interest expense
    
(5,844,898
)
  
(4,773,647
)
  
(16,633,507
)
  
(14,229,727
)
Change in fair value of derivative
    
186,055
    
173,842
    
654,472
    
99,787
  
Other income
    
268,356
    
188,160
    
715,389
    
618,785
  
Total other expense
    
(5,390,487
)
  
(4,411,645
)
  
(15,263,646
)
  
(13,511,155
)
                           
Income (loss) before income tax expense
    
(273,514
)
  
1,252,970
)
  
(987,577
)
  
2,299,468
  
Income tax (expense) benefit
    
(394,197
)
  
(463,727
)
  
97,079
    
(696,049
)
                           
Net income (loss) available to common
                         
stockholders
  
$
(667,711
)
$
789,243
  
$
(890,498
)
$
1,603,419
  
                           
Weighted average shares outstanding:
                          
Basic
    
12,546,298
    
12,676,733
    
10,643,766
    
12,676,733
  
Diluted
    
13,090,969
    
13,221,404
    
11,188,437
    
13,221,404
  
                           
Net income (loss) per share:
                          
Basic
  
$
(0.05
)
$
0.06
  
$
(0.08
)
$
0.13
  
Diluted
  
$
(0.07
)
$
0.04
  
$
(0.14
)
$
0.10
  
                           
Dividends declared per share
  
$
0.18
  
$
0.18
  
$
0.53
  
$
0.53
  
 
 
- MORE -
Otelco Reports Third Quarter Results
Page 8
Nov. 4, 2008
 
OTELCO INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
 

   
Nine Months Ended
 
 
 
September 30,
 
 
 
2007
 
2008
  
Cash flows from operating activities:
          
Net income (loss)
  
$
(890,498
)
$
1,603,419
  
Adjustments to reconcile net income to cash
             
flows from operating activities:
              
Depreciation
    
8,933,812
    
8,275,580
  
Amortization
    
1,945,696
    
1,628,122
  
Interest rate caplet
    
673,425
    
722,527
  
Amortization of debt premium
    
(16,533
)
  
(54,117
)
Amortization of loan costs
    
2,233,495
    
1,118,481
  
Change in fair value of derivative
    
(654,472
)
  
(99,787
)
Provision for uncollectible revenue
    
114,979
    
229,404
  
Gain on early lease termination
    
-
    
(121,124
)
Changes in assets and liabilities; net of assets and
             
liabilities acquired:
              
Accounts receivables
    
(642,120
)
  
(582,528
)
Material and supplies
    
(117,903
)
  
(268,213
)
Prepaid expenses and other assets
    
496,527
    
601,101
  
Income tax receivable
    
-
    
255,106
  
Accounts payable and accrued liabilities
    
1,231,277
    
1,302,625
  
Advance billings and payments
    
(33,971
)
  
(181,015
)
Other liabilities
     4,174    
5,539
  
Net cash from operating activities
    
13,277,888
    
14,435,120
  
               
Cash flows from investing activities:
              
Acquisition and construction of property and equipment
    
(4,386,579
)
  
(6,848,799
)
Proceeds from retirement of investment
    
7,871
    
-
  
Deferred charges
    
(2,033
)
  
(533,098
)
Net cash from investing activities
    
(4,380,741
)
  
(7,381,897
)
               
               
Cash flows from financing activities:
              
Cash dividends paid
    
(5,645,322
)
  
(6,702,822
)
Direct cost of subsequent public offering
    
(2,307,686
)
  
-
  
Repayment of long-term debt
    
(55,353,032
)
  
-
  
Loan origination costs
    
(1,827,903
)
  
-
  
Proceeds from issuance of IDS
    
59,400,000
    
-
  
Net cash from financing activities
    
(5,733,943
)
  
(6,702,822
)
               
Net increase in cash and cash equivalents
    
3,163,204
    
350,401
  
Cash and cash equivalents, beginning of period
    
14,401,849
    
12,810,497
  
               
Cash and cash equivalents, end of period
  
$
17,565,053
  
$
13,160,898
  
               
Supplemental disclosures of cash flow information:
              
Interest paid
  
$
13,878,086
  
$
12,705,214
  
               
Income taxes received
  
$
(133,218
)
$
(122,606
)
               
Non-cash gain on early lease termination
  
$
-
  
$
(121,124
)
 

- END -