Otelco Inc. - Key Operating Statistics ?�?
(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).
(2) We acquired STC on October 14, 2011. At December 31, 2011, STC had 3,309 voice access lines and 1,672 data access lines, or 4,981 access line equivalents, and 55 dial-up internet customers which are included in the Key Operating Statistics.
(3) Time Warner Cable is the source for approximately 98% of wholesale network connections.
FINANCIAL DISCUSSION FOR THIRD QUARTER 2012:
All financial information includes the acquisition of Shoreham Telephone Company Inc. ("Shoreham") on and as of October 14, 2011.
Total revenues decreased 3.5% in the three months ended September 30, 2012, to $24.4 million from $25.3 million in the three months ended September 30, 2011. The addition of Shoreham was more than offset by declines from the traditional loss of RLEC voice access line related revenues and the impact of the FCC's ICC order. The table below provides the components of our revenues for the three months ended September 30, 2012 compared to the same period of 2011.
Local services revenue decreased 6.1% in the quarter ended September 30, 2012 to $11.0 million from $11.7 million in the quarter ended September 30, 2011. Shoreham added $0.2 million and Hosted PBX and wholesale network connection revenue in our CLEC increased $0.2 million. The FCC's ICC order reduced or eliminated intrastate and local cellular revenue, with a portion of the RLEC decrease recovered through the Connect America Fund which is categorized as interstate access revenue. The impact on local service revenue in third quarter was a decrease of $0.9 million. The decline in RLEC voice access lines accounted for a decrease $0.2 million. Network access revenue decreased 6.8% in the third quarter 2012 to $7.5 million from $8.0 million in the quarter ended September 30, 2011. Shoreham added $0.3 million and special access added $0.2 million. Interstate and Intrastate toll decreases primarily associated with the FCC's ICC order were partially offset by the new Connect America Fund revenue but still represented a decline of $1.0 million. Cable television revenue in the three months ended September 30, 2012, increased 2.3% to remain at $0.8 million in the three months ended September 30, 2012 and 2011. Growth in IPTV subscribers, video on demand and the shift to high-definition packages in Alabama was offset by the decline in basic cable subscribers. Internet revenue for the third quarter 2012 increased 7.0% to $3.7 million from $3.4 million in the three months ended September 30, 2011. The growth was attributable to the Shoreham acquisition. Growth in other RLEC data lines was offset by the loss of dial-up subscribers outside of our service territory. Transport services revenue increased 9.6% to $1.5 million from $1.3 million in the quarter ended September 30, 2011 from growth in both wide area network and wholesale transport services.
Operating expenses in the three months ended September 30, 2012, decreased 6.5% to $17.9 million from $19.2 million in the three months ended September 30, 2011. Cost of services and products decreased 5.7% to $10.4 million in the quarter ended September 30, 2012, from $11.0 million in the quarter ended September 30, 2011. Shoreham added $0.3 million which was more than offset by reduced RLEC expenses, long distance costs and overhead expenses, including the reduction in employees implemented at the end of second quarter 2012. Selling, general and administrative expenses increased 1.9% to $3.3 million in the three months ended September 30, 2012, from $3.2 million in the three months ended September 30, 2011. Shoreham accounted for the additional $0.1 million and restructuring expenses accounted for an additional $0.6 million. These increases were mostly offset by lower operating costs, including the reduction in employees implemented at the end of second quarter 2012. Depreciation and amortization for third quarter 2012 decreased 6.7% to $4.6 million from $4.9 million in third quarter 2011. Shoreham accounted for an increase of $0.2 million. Amortization of intangible assets associated with the Country Road acquisition increased $0.2 million, reflecting the shorter remaining life of the Time Warner Cable contract. The depreciation of RLEC assets decreased by $0.7 million. There was a goodwill impairment decrease of $0.3 million in the three months ended September 30, 2012 compared to no impairment in the same period in 2011. With the completion of the 2011 income tax work, the deferred tax associated with the Shoreham acquisition was updated, reducing the amount of goodwill associated with the acquisition. In second quarter 2012, the review of goodwill and long-lived assets had already shown all of the New England reporting units' goodwill to be impaired resulting in the decrease in goodwill impairment.
Interest expense decreased 8.8% to 5.7 million in the three months ended September 30, 2012, from $6.2 million in the quarter ended September 30, 2011. The decrease in interest expense was primarily driven by the lower effective interest rate on the outstanding balance on our long-term notes payable upon the expiration of our interest rate swaps in first quarter 2012.
Change in Fair Value of Derivatives
The Company had two interest rate swap agreements intended to hedge changes in interest rates on its senior debt that expired during first quarter 2012. The liability for the swap decreased $0.7 million in third quarter 2011, accounting for the difference.
Adjusted EBITDA for the three months ended September 30, 2012, was $11.4 million compared to $11.1�million for the same period in 2011 and $10.8 million in the second quarter of 2012. See financial tables for a reconciliation of Adjusted EBITDA to net income (loss).
As of September 30, 2012, the Company had cash and cash equivalents of $27.2 million compared to $12.4�million at the end of 2011. The second quarter distribution of $3.2 million in interest to our IDS shareowners, and $0.3 million in interest to our bond holders, occurred on July 2, 2012 as June 30, 2012 was a non-banking day. The third and fourth quarter interest to our IDS shareowners and bond holders has been deferred by the Board of Directors.
Capital expenditures were $0.9 million for the quarter, reflecting continued investment in infrastructure and cost saving projects.
Third Quarter Earnings Conference Call
Otelco has scheduled a conference call, which will be broadcast live over the internet, on Wednesday, November�7, 2012, at 10:30 a.m. ET. To participate in the call, participants should dial (719)�325-2495 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 website at www.OtelcoInc.com or www.earnings.com. To listen to the live call online, please visit the website at least 15 minutes early to register, download and install any necessary audio software. For those who cannot listen to the live webcast, a replay of the webcast 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 Confirmation Code 8646648.
Otelco Inc. provides wireline telecommunications services in Alabama, Maine, Massachusetts, Missouri, New Hampshire, Vermont and West Virginia. The Company's services include local and long distance telephone, network access, transport, digital high-speed data lines and dial-up internet access, cable television and other telephone related services. With approximately 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 eleven incumbent telephone companies serving rural markets, or rural local exchange carriers. It also provides competitive retail and wholesale communications services through several subsidiaries. For more information, visit the Company's website 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, including as a result of the inherent unreliability of guidance. In addition to statements which explicitly describe such risks and uncertainties, such as guidance related to Adjusted EBITDA, 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.
Due from subscribers, net of allowance for doubtful accounts of $260,568 and $246,683, respectively
Class A Common Stock, $.01 par value-authorized 20,000,000 shares; issued and outstanding 13,221,404 shares