t65424_8k.htm

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

Otelco Reports First Quarter 2009 Results

ONEONTA, Alabama (May 5, 2009) – Otelco Inc. (NASDAQ: OTT; TSX: OTT.un), a wireline telecommunications services provider in Alabama, Maine, Massachusetts, Missouri and West Virginia, today announced results for its first quarter ended March 31, 2009. Key quarterly highlights for Otelco include:

·	Total revenues of $25.5 million for first quarter 2009.

·	Operating income of $4.5 million for first quarter 2009.

·	Adjusted EBITDA (as defined below) of $11.5 million.

“Otelco continues to deliver solid financial results despite the challenging economic environment,” said Mike Weaver, President and Chief Executive Officer of Otelco. “We experienced growth in both our revenue and Adjusted EBITDA, with revenue increases of $7.6 million and $2.2 million and Adjusted EBITDA increases of $2.6 million and $0.5 million over the same quarter last year and the last quarter of 2008, respectively. We continue to see strong demand for our DSL products as evidenced by the 3% growth in the first quarter.

“Our capital expenditures for the quarter were $1.2 million as most of our larger projects are scheduled for later in the year. As a result of the EBITDA growth and lower than normal cap-ex, our cash grew by $2.9 million in the quarter and our pay-out ratio was 82%.

“We continue to implement our integration plan for the Country Road entities, which we acquired at the end of October 2008, and expect to complete the process in the third quarter of this year,” Weaver concluded. “As we complete the integration process and realize additional operational expense reductions, we expect a corresponding increase in Adjusted EBITDA. As evidenced by our seventeenth consecutive IDS dividend, we remain committed to returning cash to our shareholders.”

Distribution to Income Deposit Security Holders

Each quarter, the Board will consider the declaration of dividends during its normally scheduled meeting. For this quarter, the Board is meeting on May 12, 2009. The scheduled interest and any dividend declared will be paid on June 30, 2009 to holders of record as of the close of business on June 15, 2009. The interest payment will cover the period from March 29, 2009 through June 29, 2009. Currently, it is anticipated that the Company’s dividends in 2009 will continue to be treated as a return of capital for tax purposes. The Company has made seventeen successive quarterly distributions of dividends and interest since its IDS units were originally offered to the public in December 2004.

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Otelco Reports First Quarter Results

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May 5, 2009

First Quarter 2009 Financial Summary
(Dollars in thousands, except per share amounts)

							Change
		1Q 2008			1Q 2009		Amount			Percent

Revenues	$	17,859		$	25,500		$	7,641			42.8	%
Operating income	$	5,140		$	4,465		$	(675	)		(13.1	)%
Interest expense	$	(4,683	)	$	(6,599	)	$	1,916			40.9	%
Net income available to stockholders	$	408		$	(871	)	$	(1,279	)		*	%
Basic net income (loss) per share	$	0.03		$	(0.07	)	$	(0.10	)		*	%
Diluted net income (loss) per share	$	0.03		$	(0.07	)	$	(0.10	)		*	%

Adjusted EBITDA(a)	$	8,854		$	11,502		$	2,648			29.9	%
Capital expenditures	$	2,413		$	1,229		$	(1,184	)		(49.1	)%

(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.

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Otelco Reports First Quarter Results

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May 5, 2009

Otelco Inc. (including Acquired Entities at date of acquisition)

							Quarter
					March 31,		% Change
Key Operating Statistics	2007		2008		2009		2009
RLEC access lines:
Voice lines		36,687		51,530		50,807		(1.4	)%
Data lines		12,160		18,709		19,365		3.5	%
RLEC access line
equivalents (1)		48,847		70,239		70,172		(0.1	)%

CLEC access lines:
Voice lines		16,973		26,558		26,744		0.7	%
Data lines		2,571		3,246		3,228		(0.6	)%
CLEC access line
equivalents (1)		19,544		29,804		29,972		0.6	%

Otelco access line
equivalents (1)		68,391		100,043		100,144		0.1	%

Cable television customers		4,169		4,082		4,132		1.2	%
Wholesale network connections		-		98,187		113,855		16.0	%
Dial-up internet customers		15,249		11,864		10,885		(8.3	)%

(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 FIRST QUARTER 2009:

All financial information includes three entities acquired from Country Road Communications LLC on and as of October 31, 2008.

Revenue

Total revenues grew 42.8% in the three months ended March 31, 2009 to $25.5 million from $17.9 million in the three months ended March 31, 2008. The growth in revenue was primarily associated with the acquisition. Local services revenue grew 76.5% in the first quarter to $11.9 million from $6.7 million in the quarter ended March 31, 2008. The acquisition provided an increase of $5.5 million for the quarter. Network access revenue increased 25.5% in the first quarter to $8.1 million from $6.4 million in the quarter ended March 31, 2008. The acquisition provided an increase of $2.2 million for the quarter. Cable television revenue for the existing subsidiaries in the three months ended March 31, 2009 increased 11.1% to just over $0.6 million from just over $0.5 million in the three months ended March 31, 2008. Internet revenue for the first quarter 2009 increased 18.0% to $3.5 million from $3.0 million in the quarter ended March 31, 2008, primarily associated with the acquisition. Transport services revenue for the existing subsidiaries grew 22.2% to over $1.4 million in the three months ended March 31, 2009 from $1.1 million in the same period in 2008.

Operating Expenses

Operating expenses in the three months ended March 31, 2009 increased 65.4% to $21.0 million from $12.7 million in the three months ended March 31, 2008. Cost of services increased 60.4% to $10.7 million in the quarter ending March 31, 2009 from $6.7 million in the same period last year, including $4.1 million from the acquisition and a reduction of $0.1 million from the existing units. Selling, general and administrative expenses increased 32.8% to $3.6 million in the quarter ended March 31, 2009 from $2.7 million in the quarter ended March 31, 2008, reflecting the acquisition. Depreciation and amortization for first quarter increased 101.3% to $6.8 million from $3.4 million. Depreciation and amortization included $3.6 million from the acquisition including amortization of intangible assets acquired and a reduction of $0.2 million from the existing units.

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Otelco Reports First Quarter Results

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May 5, 2009

Interest Expense

Interest expense increased 40.9% to $6.6 million in the quarter ended March 31, 2009 from $4.7 million a year ago. The results reflect $1.8 million in interest on the increased senior debt associated with the acquisition and $0.1 million in caplet cost amortization associated with the interest rate cap. The Company has entered into two interest rate swaps to limit its exposure to changes in interest rates through February 2012.

Adjusted EBITDA

Adjusted EBITDA for the three months ended March 31, 2009 was $11.5 million compared to $8.9 million for the same period in 2008 and $11.0 million in the fourth quarter of 2008. Adjusted EBITDA included approximately $3.1 million from the acquisition. See financial tables for a reconciliation of Adjusted EBITDA to net income.

Balance Sheet

As of March 31, 2009, the Company had cash and cash equivalents of $16.4 million compared to $13.5 million as the end of 2008. Total long-term debt remained unchanged at $278.8 million. The first quarter distribution of $5.3 million in interest and dividends to our share owners and $0.3 million to our bond holders occurred on March 30, 2009. This represents the seventeenth consecutive quarterly distribution since going public in December 2004.

Capital Expenditures

Capital expenditures were $1.2 million for the quarter, a conservative start to the year. The Company added DSL capacity; purchased competitive customer specific equipment; and upgraded other network and switching facilities.

First Quarter Earnings Conference Call

Otelco has scheduled a conference call, which will be broadcast live over the Internet, on Wednesday, May 6, 2009, at 11:00 a.m. ET. To participate in the call, dial (913) 312-6698 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 3173415.

ABOUT OTELCO

Otelco Inc., headquartered in Oneonta, Alabama, provides wireline telecommunications 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 100,000 voice and data access lines 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 communications services through several subsidiaries. For more information, visit the Company’s web site at www.OtelcoInc.com.

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Otelco Reports First Quarter Results

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May 5, 2009

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.

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Otelco Reports First Quarter Results

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May 5, 2009

OTELCO INC.

Consolidated Balance Sheets


	As of			As of
	December 31, 2008			March 31, 2009
				(unaudited)
Assets
Current assets
Cash and cash equivalents	$	13,542,255		$	16,424,881
Accounts receivable:
Due from subscribers, net of allowance
for doubtful accounts of $318,446 and
$361,348 respectively		5,207,731			4,977,439
Unbilled receivables		2,567,730			2,487,246
Other		4,348,044			4,470,202
Materials and supplies		2,305,755			2,313,220
Prepaid expenses		1,141,908			930,991
Income tax receivable		181,644			181,644
Deferred income taxes		827,686			827,686
Total current assets		30,122,753			32,613,309

Property and equipment, net		75,407,062			72,572,584
Goodwill		189,334,837			189,334,837
Intangible assets, net		44,390,644			41,681,083
Investments		2,015,583			2,009,205
Deferred financing costs		8,315,921			7,977,944
Deferred income taxes		5,897,382			5,897,382
Interest rate cap		7,765			1,459
Deferred charges		49,540			36,868
Total assets	$	355,541,487		$	352,124,671

Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	2,312,920		$	2,357,206
Accrued expenses		6,632,287			5,998,802
Advanced billings and payments		2,024,123			2,020,874
Customer deposits		180,582			196,883
Total current liabilities		11,149,912			10,573,765
Deferred income taxes		45,962,402			45,962,402
Interest rate swaps		-			962,683
Advance billings and payments		739,736			729,390
Other liabilities		188,346			157,124
Long-term notes payable		278,799,513			278,779,842
Total liabilities		336,839,909			337,165,206

Derivative liability		238,054			226,474
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		19,277,959			17,043,685
Retained deficit		(3,870,923	)		(4,742,274	)
Accumulated other comprehensive loss		(1,160,759	)		(1,785,667	)

Total stockholders’ equity		14,378,491			10,647,958

Total liabilities and stockholders’ equity	$	355,541,487		$	352,124,671

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Otelco Reports First Quarter Results

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May 5, 2009

OTELCO INC.

Consolidated Statements of Operations

(unaudited)


	Three Months Ended
	March 31,
	2008			2009

Revenues
Local services	$	6,726,190		$	11,854,980
Network access		6,437,654			8,094,133
Cable television		546,162			606,687
Internet		3,001,466			3,541,677
Transport services		1,147,948			1,402,699
Total revenues		17,859,420			25,500,176

Operating expenses
Cost of services and products		6,652,111			10,666,456
Selling, general and administrative
expenses		2,693,983			3,576,674
Depreciation and amortization		3,373,248			6,791,839
Total operating expenses		12,719,342			21,034,969

Income from operations		5,140,078			4,465,207

Other income (expense)
Interest expense		(4,682,840	)		(6,598,953	)
Change in fair value of derivative		(240,905	)		11,580
Other income		366,580			225,860
Total other expense		(4,557,165	)		(6,361,513	)

Income (loss) before income taxes		582,913			(1,896,306	)

Income tax expense		(174,874	)		1,024,953

Net income (loss) available to common
stockholders	$	408,039		$	(871,353	)

Weighted average shares outstanding:
Basic		12,676,733			12,676,733
Diluted		13,221,404			13,221,404

Net income (loss) per share:
Basic	$	0.03		$	(0.07	)
Diluted	$	0.03		$	(0.07	)

Dividends declared per share	$	0.18		$	0.18

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Otelco Reports First Quarter Results

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May 5, 2009

OTELCO INC.

Consolidated Statements of Cash Flows

(unaudited)


	Three Months Ended
	March 31,
	2008			2009
Cash flows from operating activities:
Net income	$	408,039		$	(871,353	)
Adjustments to reconcile net income to cash
flows from operating activities:
Depreciation		2,756,265			3,680,873
Amortization		616,983			3,110,966
Interest rate caplet		230,232			344,082
Amortization of debt premium		(17,520	)		(19,671	)
Amortization of loan costs		372,828			337,976
Change in fair value of derivative		240,905			(11,580	)
Provision for uncollectible revenue		54,756			58,691
Changes in assets and liabilities; net of assets and
liabilities acquired:
Accounts receivables		(15,608	)		129,927
Material and supplies		(228,321	)		(7,465	)
Income tax receivable		219,976			-
Prepaid expenses and other assets		255,106			210,917
Accounts payable and accrued liabilities		80,081			(589,196	)
Advance billings and payments		(13,224	)		(13,595	)
Other liabilities		2,310			(14,921	)
Net cash from operating activities		4,962,808			6,345,651

Cash flows from investing activities:
Acquisition and construction of property and equipment		(2,413,008	)		(1,228,751	)
Deferred charges/acquisition		(65,674	)		-
Net cash used in investing activities		(2,478,682	)		(1,228,751	)

Cash flows from financing activities:
Cash dividends paid		(2,234,274	)		(2,234,274	)
Net cash used in financing activities		(2,234,274	)		(2,234,274	)

Net increase in cash and cash equivalents		249,852			2,882,626
Cash and cash equivalents, beginning of period		12,810,497			13,542,225

Cash and cash equivalents, end of period	$	13,060,349		$	16,424,881

Supplemental disclosures of cash flow information:
Interest paid	$	4,222,443		$	6,215,276

Income taxes received	$	(229,106	)	$	(61,342	)

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Delaware		1-32362		52-2126395
(State of Incorporation)		(Commission File Number)		(I.R.S. Employer Identification No.)

	OTELCO INC.
	(Registrant)
Date: May 5, 2009
	By:	/s/ Curtis L. Garner, Jr.
		Name: Curtis L. Garner, Jr.
		Title: Chief Financial Officer

Reconciliation of Adjusted EBITDA to Net Income

		Three Months Ended
		March 31,
		2008			2009
Net Income		$	408		$	(871	)
Add:	Depreciation		2,756			3,681
	Interest Expense, gross		4,097			5,937
	Interest Expense – Caplet Cost		230			344
	Interest Expense – Amortize Loan Cost		372			338
	Interest Expense – Premium		(17	)		(20	)
	Gain/Loss from Investments		(44	)		0
	Income Tax Expense		175			(1,025	)
	Change in Fair Value of Derivatives		241			(12	)
	Loan Fees		19			19
	Amortization - Intangibles		617			3,111
Adjusted EBITDA		$	8,854		$	11,502