Otelco Reports Second Quarter 2019 Operational and Financial Results

ONEONTA, Ala., Aug. 13, 2019 (GLOBE NEWSWIRE) — Otelco Inc. (NASDAQ: OTEL), a wireline telecommunications services provider in Alabama, Maine, Massachusetts, Missouri, New Hampshire, Vermont and West Virginia, today announced operational and financial results for its second quarter ended June 30, 2019. Key operational and financial highlights for Otelco include:
Total revenues of $15.7 million.Operating income of $3.7 million.Net income of $1.7 million.Consolidated EBITDA (as defined below) of $5.7 million.Capital expenditures of $2.4 million.Scheduled principal payments of $1.1 million.SECOND QUARTER RESULTS
The Company reported revenue of $15.7 million, a 7.3% decrease from the second quarter 2018. The continued loss of residential voice customers and competitive pricing pressures on internet services, combined with the FCC’s one-time A-CAM and CAF-BLS positive adjustments in second quarter 2018 results, were the primary drivers of the decline.  These results were in line with revenue reported for first quarter 2019. Net income decreased 41.0% to $1.7 million in second quarter 2019, compared to $2.9 million in second quarter 2018. Cost of services was unchanged in 2019 from 2018, while selling, general and administrative expense increased 5.3% over 2018, including the expense associated with the development of the Company’s long-term network design plans.
Basic net income was $0.50 per share for second quarter 2019, compared to $0.86 per share in the same period of 2018. Consolidated EBITDA (as defined below) was $5.7 million for second quarter 2019, compared to $7.1 million for the same period in the previous year.The Company made its scheduled $1.1 million principal payment on its credit agreement with CoBank in second quarter 2019, reducing the loan balance to $72.4 million. As of June 30, 2019, the ratio of debt, net of cash, to Consolidated EBITDA was 2.74, reflecting the mandatory payments and voluntary prepayments made on the debt since its inception in November 2017. During second quarter 2019, capital investment increased to $2.9 million, compared to $2.1 million in the same period of 2018. During 2019, the Company expects to invest a total of $11.5 million to upgrade and maintain its network. This investment level represents a 27.7% increase in investment in the business over 2018 and the second year of double digit increases in investment aimed at providing customers increased internet speeds to reduce customer churn. During second quarter, Otelco announced plans for the additional deployment of fiber to over 4,100 locations in Alabama, the deployment of VDSL throughout all of its service areas and the upgrade of its cable distribution network to DOCSIS 3.1 next year.FCC AND REGULATORY UPDATES
Shoreham (VT), the one Otelco subsidiary not included in previous A-CAM support offers, received an offer of A-CAM support on May 2, 2019, and subsequently filed a letter with the FCC on June 17, 2019, accepting the offer, which will be effective back to January 1, 2019.  The A-CAM support replaces the legacy rate-of-return support Shoreham currently receives.  The shift to A-CAM funding will not have any impact on 2019 revenue but will provide revenue stability for the ten-year life of the program.
The FCC’s Order of October 23, 2018, provides an option for ten of the Company’s RLECs to move Special Access services (also known as BDS) from a cost-based rate development (cost studies) to incentive regulation.  Otelco has exercised this option, which became effective July 1, 2019, and has avoided the annual requirement to provide cost studies for each participating subsidiary. In addition to reducing the $0.2 million expense associated with the cost studies, incentive regulation provides the Company rate flexibility to meet competitive market pressures. MUNICIPAL PARTNERSHIPS
In its ongoing involvement with municipalities, Otelco, in collaboration with the Town of Alton, Maine, and the State’s ConnectME Authority, will be constructing a fiber network capable of serving the approximately 260 residence and business locations within the town. Approximately 100 of these locations are covered under the A-CAM speed requirements. Grant funding received from Alton and ConnectME will support approximately 60% of the expected $0.7 million investment, allowing for the replacement of the existing copper infrastructure to serve all locations with fiber-to-the-premise service. The Company expects this project will be completed within six months of the receipt of funding.
Otelco has scheduled a conference call, which will be broadcast live over the internet, on Wednesday, August 14, 2019, at 11:30 a.m. (Eastern Time). To participate in the call, investors should dial (856) 344-9283 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.Otelco.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.Otelco.com for 30 days. A two-week telephonic replay may also be accessed by calling (719) 457-0820 and entering the Confirmation Code 7779890. 

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