Otelco Reports First Quarter 2018 Results

Otelco Inc (NASDAQ:OTEL), a wireline telecommunications services provider in Alabama, Maine and other cities in the United States announced results for its first quarter ended March 31, 2018.

The company had a total revenue of $16.7 million with an operating income of $4.1 million. The net income was of $2 million while their adjusted EBITDA was $6.1 million.

As quoted in the press release:

Revenue and operating income for the three months ended March 31, 2018, declined 3.8% and 19.1%, respectively, when compared to the three months ended March 31, 2017. It should be noted that nearly half of the operating income decline was related to one-time expenses, including the special bonus given to Otelco employees during first quarter, as the Company shared a portion of the benefit of the Tax Cut and Jobs Act.

“Holding our operating margins, in spite of continued declines in our residential subscriber base, remains our focus,” commented Rob Souza, President and CEO of Otelco. “And, we continue to work on minimizing the impact of service delivery cost increases during first quarter. In addition, we have made modest price-point adjustments and fee changes to help support operating margins. Our team continues to identify efficiencies in our customer service processes to meet customer expectations while improving the cost structure of our business. In addition, we are analyzing new revenue opportunities resulting from expanding the reach of our fiber network for both current and future customers.”

Net income increased to $2.0 million in first quarter 2018 from $1.6 million in the same quarter of 2017. Cash increased $2.7 million during first quarter 2018 to $6.3 million at March 31, 2018, compared to $3.6 million at the end of 2017. Both measures were positively affected by a reduction in cash interest expense of $1.0 million associated with the Company’s new credit agreement. The Tax Cuts and Jobs Act lowered the provision for taxes and created a tax refund of $1.0 million during first quarter 2018. In addition to its scheduled principal payment for second quarter 2018, the Company anticipates making a voluntary prepayment to CoBank to continue to reduce its long-term debt. The Company’s ratio of debt, net of cash, to Consolidated EBITDA (as defined below), was 2.95 at March 31, 2018.

The Company expects to make capital investments in its network and the new billing and operations support system  in 2018 at a level similar to the $8.5 million it invested in 2017. Going forward, the Company will continue to deploy new fiber to meet its ten-year ACAM commitment of providing high-speed Internet service options to its customers. In April 2018, the FCC announced that another $500 million would be included in the Connect America Fund. The additional funding is expected to be apportioned to companies already receiving ACAM and Legacy support. Once finalized by the FCC, the additional funding is expected to increase Otelco’s overall support with some of the funding being paid retroactively for 2017. Otelco would recognize this additional revenue as it is received and adjust its build-out program for the marginal increase in speed and location commitments.

“After nearly eighteen months of investigation, vendor selection, conversion planning, system’s development and employee training, we are preparing to convert all of our operational and billing systems onto a single platform during second quarter 2018,” noted Souza. “The process has been designed to have minimal impact on serving our customers. However, there are short planned periods where we will have to delay new customer orders while the databases of the old systems are rolled over to the new system. Our employees have worked hard throughout this conversion process. We are excited to be updating to the new technology and look forward to the operational benefits it will offer our customers and the financial benefits our stockholders will see in our financial results.”

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