Q4 2019 Earnings Call
Good day and welcome to feel Telcos fourth quarter 2019 earnings Conference call Today's conference is being recorded.
It's time for opening remarks instructions I would like to turn call over to Mr. Anderson. Please go ahead.
Thank you and welcome to the Otelco Conference call to review the company's results for the fourth quarter.
Her ended December 31st 2019.
Conducting the call today will be Richard Clark, Chief Executive Officer, and Curtis Garner Chief Financial Officer.
Before we start let me offer the cautionary note that statements made during this call that are not statements of historical or current fact constitute forward looking.
Such forward looking statements involve known and unknown risks uncertainties.
The other unknown factors that could cause the actual results of the company to be materially different from the historical results are from any future results expressed or implied by such forward looking statement.
In addition to statements which explicitly.
Just tried to such risks and uncertainties readers are urged to consider statements labeled with the terms the lead beliefs expects intends anticipates plans or similar terms to be uncertain and forward looking.
Forward looking statements contained herein are also subject generally to other.
It's not certainty that are described from time to time in the company's filings with the Securities and Exchange Commission.
With that stated I will now turn the call average richer Clark, who was appointed Chief Executive Officer of a telco on January 1st of this year. Please go ahead.
Thank you drew good morning is good the host.
Everyone on our fourth quarter 2019, Investor call I appreciate the opportunity to update you today I know telcos results and activities. After I review fourth quarter's performance and other key issues affecting our business Curtis will then review highlights of our financial results and after that we will take everyone's questions.
Our results for the fourth quarter continued to reflect the trends impacting our industry.
Access revenues declined to one with both residential and business voice customers, but there are some positive signs for the future in the fourth quarter. The company invested 4.8 million in our network infrastructure, the largest single quarters investment in the history of the.
Company, bringing the total for the year to 12.4 million, making it the largest annual investment in our history.
Approximately $3 million was spent on constructing fiber in our territories and 2.6 million meeting our ATM speed performance obligations.
Glanced at our 10.
Hey filed last night, the customer metrics information showed an improvement in the customer churn in the last half of 2019.
While churn still has all ways to go to be flat or to show growth customers are clearly responding to the increase speed, we have been able to provide through our additional lightweight fiber deployment and the.
Version of our data platform to Vdsl for approximately 27% of our entire network joined the coming year, we will complete the fiber builds we started last fall.
Our cable our free in Alabama to DOCSIS 3.1, and complete the media.
Oh rollout.
Certain parts of our main.
Massachusetts, Vermont in West Virginia.
Markets.
By the end of 2020, we expect to have improved speed data speeds with approximately 43%.
Of the premises passed having that.
Capability.
To get at least 25 m.
Yes, with 19%, having access to gigabyte gigabit speeds.
Total revenue was 15.6 million a 3.8% decrease from the fourth quarter of 2018, reflecting a reduction in customers voice services and access revenue.
These results are consistent with.
Revenue trends reported for the previous quarters of 2019 was 15.8 million for the third quarter 15.7 million for the second and 15.8.
Revenue for the first quarter 2019.
Operating income decreased 11.5% 2 million in the fourth quarter.
During 2019 compared to 2.2 million in the fourth quarter of 2018.
All day to EBITDA decreased 7% to 5.6 million in the fourth quarter 2019 from 6 million in the fourth quarter 2018.
Operating expenses were relatively flat compared with a.
Three year period, with 12.1 million for the current quarter compared to 12.2 million a year ago.
We expect that these trends will continue as we move forward through 2020.
During the fourth quarter, we continued to execute the strategy we have discussed in previous calls.
With a focus on.
We see an investment in our business, including significant expansion of fiber based Lightwave services and data speed enhancements throughout our network.
Fiber to the prime will be the primary vehicle to increase data capacity for Oh, telcos customers, where it makes economic sense.
Fiber to the node.
Rather GE being imported is more sparse in more sparsely populated areas in July 2019, we announced plans to install hundred 13 miles of additional fiber in Alabama by early 2020, focusing on the northern part of our territory in and around a rabbit, Alabama.
All of the plan fiber has been engineered and installed in marketing is underway to 3500 89, a wrap lightwave locations with 578 additional locations coming online in this month.
I read of the premise provides up to gigabit speed internet capability in 2000.
In 19 230 customers in the Rob fiber footprint and 542 total customers upgraded their existing service or signed up for new service on the newly released fiber.
A sizable majority of these customers were already customers wrote telco being serviced on our copper network.
In addition equipment has been deployed to support higher speed media self service and all.
Alabama in Missouri locations with work underway to upgrade new England sites.
In the southern part of our Alabama territory in and around Oneone, Alabama, well Telco is also the cable provider.
Luminary work is ongoing to upgrade the hybrid fiber co acts network to DOCSIS 3.1.
We expect it over the summer of 2020, all of our cable customers will also gain access to get break.
Net speeds similar to those speeds available over fiber to the prime.
We're.
During 2019 and in January 2020, Otelco added a total of 268 miles of fiber inside his service territories, an increase of 50% from 2018.
Telcos Lightwave fiber to the Prime network now passes over.
12890 discrete locations on 1003 miles of distribution fiber.
The company has over 2500 miles of distribution and transport fiber units network.
As a reminder, the majority of our fiber is used within our territory to serve our customers or in providing.
Nobody between portions of our territory, which are not contiguous.
We were now offering gigabit speeds in several of our fiber to the prime communities in Maine as well as the fiber to the Prime network in Arnie on it Alabama, while gigabit service and probably not necessary for most customers today.
It is highly likely the speed requirements will continue to increase in coming years, and we are redesigning our network to provide for these future requirements lightweight gigabit will be expanded throughout the companys fiber to the Prime services later this year.
During 2020, the company plans to continue to invest in.
Vdsl technology on a standard platform to meet or exceed its revise federal alternative connect American model requirements.
We have finished filing our 2009 hub reports, which would do the end of February we exceeded the requirements for the number of locations in eight can territories requiring inc.
Crease data speeds the requirement was to make available 25 three.
Bps for 40% of the locations in the ATM territory by the March 2023 reporting deadline, and we achieved that goal and main Alabama in Missouri by the end of 2019.
Fiber to the premise and the cable upgrade both create the capability to deliver gigabit broadband speeds.
Well Bts allows us to offer speeds of at least 25 megabits.
To 12% of the territory at the end of 2019 and projected to be 24%.
By the end of 2020.
Other territories, we serve.
And in some cases 50 megabits to many customers.
While we build out and make these enhancements to the network. We have worked to increase the speeds. We are providing a custom race to the maximum the current network can deliver to better meet.
Requirements and reduce trusted customer churn.
We're pleased with our progress throughout the last year as our employees have worked hard to execute on these and a number of other initiatives as we ramp up to get more broadband speed available to our customers. Looking ahead, we will continue our focus on enhancing the customer experience.
Improving data speeds and adding new customers.
Looking at some customer metrics for the fourth quarter of 2019 customer serve decreased 1.5% from the end of the third quarter.
This compares with a decrease of 0.6%, 1% and 1.6% in the third.
And first quarters of 2019, respectively for a total customer loss of 3.73% in 2019 services provided to these customers decreased 1.2% over the fourth quarter period and 4.9% in 2019.
Data.
Services were almost flat at 0.1% decline in the fourth quarter and decline of 1.2% for 2019.
We will continue to experience churn in voice services as customers cut the cord with traditional phones in favor of mobile phones are enhancements to data speed through our strategy of building fiber.
And increasing speeds with the deployment of Vdsl technology will improve the customer experience in the affected portions of our territories and these combined efforts is expected to have continued positive impact on churn for that subset of our customer base in the future.
Which combined represents approximately 51% of our.
In that market by the end of 2020.
We believe our concerted effort to enhance our customers experience and improve available data speeds and product offerings will bring new customers back into the otelco family of companies.
Curtis will now summarize the fourth quarter financial results.
Thank you Richard we appreciate everybody joining us today.
Richard already touched on several results areas in the press release includes a number of other fourth quarter metrics for your review I will highlight a few financial items for the fourth quarter and then we can take your questions.
Unless noted otherwise every comparison against.
This is against the same period in the previous here.
Total revenues for the fourth quarter were 15.6 million down three point Eightmillion from last year's fourth quarter local services revenue declined 8.2% network access revenue declined 1.5% Internet revenue decreased two point.
3% and transport services revenue decreased 5.9%, while video security was up 3.8% and managed services increased 6.1% for the fourth quarter last year.
Moving to operating expenses for the fourth quarter cost or services decreased 1.6%.
Yes.
Yes, SDMA was down 3.3%, reflecting fewer employees and more employee time associated with the increase that we had in our capital expenditures and enhancing our network depreciation on the other hand increased 5.2%, reflecting the increased assets from higher capital.
Sure.
Operating income for the fourth quarter was 3.5 million compared to 4 million for the prior year period, primarily driven by a change in revenue.
Interest expense decreased 16% as a result at both lower principal and lower interest rates.
Net income decreased 11.5.
To 2.0 billion in the fourth quarter 2019, compared to 2.2 million fourth quarter 2018, again, primarily driven by the change in revenue.
Cygnet income was 58 cents per share for fourth quarter 2019, compared to 66% 66 cents per share in the same period last year.
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EBITDA was 5.6 million for fourth quarter 2019, compared to 6 million in the same period in the previous year driven down to decrease.
Our balance sheet reflects cash or 3.1 billion at the end of 2019 compared to $4.7 million at the end of 2018.
As Richard.
During 2019, the company invested 12.4 million in roofing, its network and operational capabilities by reducing its loan balance about 4.4 million.
Total assets increased.
$114.4 million at the end of 2018 to 120.7 million at the end of 29.
Okay.
Our ratio of debt to consolidated EBITDA also known as leverage was 3.0 at the end of 2019, reflecting the use of additional cash generated from the business to improve our network rather than make additional prepayments on the company's indebtedness.
Interest rate margin or a long will increase from four point.
To 5% to 4.5% for 2020, although the current decline in law LIBOR or.
They more than offset the bank rate increase.
Well telco and our lender amended credit agreement on March the second 2020 to reflect that plans to continue a higher level at historical.
Investment in our business the amendments available on our website as it was filed on form 8-K.
I think that covers the highlights for the quarter, Kevin If you provide direction, we can shift to taking questions from investors at this time.
Thank you, ladies and gentlemen, if you wish to ask a question at this time keep taking my questions.
One on your telephone keypad piece and tried to mute function on your telephone the switch off to allow your signal to reach our equipment.
Again that if star wouldn't ask a question.
Take a brief pause while below all participants to opportunities for questions.
Again, ladies and gentlemen, it with star wouldn't ask the question.
There are no questions in the queue at this time.
We now have some questions in the queue. Our first question comes from Iris, Okay. Okay and company. Please go ahead.
From.
Hi, there.
Your off speaker somehow.
Hey, how are you there.
Hi.
I have no questions one of the say good job.
Thank you.
Okay. Thanks, IRA Richard mute.
I am I apologize.
Thank you are.
Okay.
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Our next question comes from David Bender of DPP capital. Please go ahead.
Hi, guys I just had a question have you guys considered exploring strategic alternatives at all.
Hi, there selling all parts of the company or the entirety of the company.
As you are aware I mean, as a public company we're always.
Trying to maximize shareholder value.
The company in the board and management the border always looking for ways to enhance it right now we view that is as a way as a continued investment in increasing our.
Broadband speeds for the customers stay with us.
We can win.
The customers we've lost over the years back.
Okay.
Our next question comes from Tinbergen. Please go ahead.
Hi, guys question on the Internet, we've invested 12 and a half million last year.
Revenues I think occur at the 500 grand adjustment or are roughly flat.
Given historical trends on you know the uptake on customers and I agree 3500 more kind of the.
At what point do you think.
That was positive.
It is not our practice to predict the future.
You have to you have to recognize that only by the end of next few months, we won't have 20% of our network, 19% of our network with fiber.
The rest of the network is still.
A copper network or copper derivative using vdsl to increase fees. So you always having to balance the.
The fiber against the non fiber part of our network.
Okay, and and how long have an investment do you think it would be before I call.
Network with fiber.
No it Rocco.
Well, we have a thousand miles of distribution five when we have 60 5600 miles of copper fiber and copper network I apologize.
It will take some time in.
And a significant capital investment.
Right and then I guess the follow the question to that is considering that the telephone revenues continued to decline.
It does have the putting capital to make such investment.
I think we have the capital is available from our.
Free cash flow, we've invested a great deal over the last two three years.
We'll continue to invest what's available.
Okay. Thank you.
As there are no further questions I would like to hand, the call back to your host for any additional for closing remarks.
We appreciate you joining us this.
Good morning, we always welcome your questions and we plan on keeping on formed regarding the developments of our business. Thank you.
Okay.
Ladies and gentlemen that concludes today's conference call. Thank you for your participation.
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