Q1 2020 Earnings Call

Good day and welcome to the Telcos fourth quarter Twentytwenty earnings Conference call. Today's confidence is being recorded at this time for opening remarks, and introductions I would like to kind of called overcome these Joel Anderson.

Please go ahead.

Thank you I need a and welcome to the Telco conference call to review the company's results for the first quarter ended March 31st 2020.

Conducting the call today will be richer Clark, President and Chief Executive Officer, Curtis Garner Chief Financial Officer, Richard will provide strategic and operational updates from the first quarter as well as information on the company's adjustments during and performance under the changed environment caused by the kind of at night King pandemic.

This will highlight the financial results for the quarter and then we'll take questions from investors as reminder, earnings press release and the company's form 10-Q are available in the Investor section of the company's website, which is located at telco Dot com.

Before we start.

We offer the cautionary note that statements made during this call that are not statements of historical or current fact constitute forward looking statement.

Such forward looking statements involve known and unknown risks uncertainties and other known or unknown factors that could have caused the actual results other company to be materially different from the historical results or from any future results expressed or implied by such forward looking statement.

In addition to statements, which explicitly describe such risks and uncertainties readers are urged to consider statements labeled with the terms believes belief expect intense.

Dissipates plans or similar terms to be uncertain and forward looking.

Forward looking statements contained herein are also subject generally get other risks and uncertainties 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 ever to Richard.

Thank you drew good morning, it's good to host everyone on our first quarter 2020, Investor call I Hope that you and your extended families bought home and work listings safe in these difficult times.

I appreciate the opportunity to update you today on telcos results in activities.

Before I cover operational strategic results for the first quarter I would like to address tokens response, and recent actions related to the covert 19 pandemic.

Well, we did not begin to experience any disruptions to our business until mid March or late in the first quarter reporting period as everyone is acutely aware the world and our business environment have changed dramatically in the last two months.

Pro Telco, we're closely monitoring developments in each of our states and believe we're taking the necessary steps to mitigate the potential risks related to the covert 19 endemic to accompany our employees and our customers.

Oh telco provides a central voice and data services to our customers and we have continued to do so during this period in spite of the ongoing challenges.

Protect our employees, while continuing to provide the communication services needed as many of our customer shelter in place the company adapted installation and repair service processes to limit customer contact and minimize employee contact with other employees in our operational locations.

In addition, we changed.

Mission dispatch procedures to further limit contact and provided them with personal protective equipment, including mass gloves, and sanitizing products. Each technician has empowered to reschedule any in person installation on or repair if they determine the circumstances that the location.

Health risk.

During March technicians made 349 visits to connect new customers in New services. In addition to clearing storm damage in both Alabama in Maine their dedication and work ethic has allowed the company to continue providing critical services to our customers during these challenging times.

Oh Telcos office based employees have been working remotely since the middle of March.

Even in late season snow and early season tornadoes affected portions of the company's service areas and more than doubled customer service and repair calls we were able to address customer needs in a timely fashion.

Traveling means restricted to limit the rest of employees, who may potentially come in contact with the virus.

At home or to work with them.

To assist our customers. During this time, we're providing several payment options to allow customers to avoid contact and offices, while paying for their services.

In line with the telecommunications industry is response to the FCC and state public Utilities Commission guidance. The company is working with customers who have been affected by the Corona virus on payments strategies that avoid discontinuance of voice and data services since many customers are facing financial hardships.

Oh telcos provided 91, new data services within the territories served at no cost for the first two months of service to low income families with students and qualify for free lunch or lifeline to help facilitate remote learning.

We understand the challenges facing our customers we live in the communities, we serve and also affected by the same obstacles.

I have a college age kids that came home in March instead of late May and with a wife, who works in a hospital serving Corona virus patients life has changed dramatically for home.

Our employees have truly stepped up to the play both continue to serve our customers while protecting themselves and their families as the juggle work in home responsibilities as our communities begin the process of opening.

The local economies, we will continue to exercise care imbalance as we work to return to a normal whatever that may look like.

We are targeting the beginning of a return to work around the first of June.

Now looking at the first quarters operational results.

Revenues declined.

3 million or 2.1% from first quarter 2019, primarily from a reduction in customers were services in access fees, partially offset by increases in Internet transport services video in security and managed services as we've discussed on previous calls we're focused on making investments in our net.

Work infrastructure, and we are optimistic about the future benefits for a telco and our customers.

During the first quarter, we invested an additional 3.3 million.

Network infrastructure as we completed the 3.3 million dollar fiber investment in our a Rob Alabama territory.

Much of the investment in a wrap was part of the $12.4 million invested in 2019 that we discussed on our March call.

Fiber to the prime which will be the primary vehicle to increase data capacity for Alabama customers combined with the conversion of our cable plant in the blow.

One County, Alabama to DOCSIS 3.1 this year.

DSL and fiber to the nobody were also part of our plan and other areas of the company.

During 2019 in the first quarter of 2020.

Oh telco added a total of 268 miles of fiber in service territories, an increase of 50%.

Overall fiber mileage built in 2018.

Oh, telcos and Lightwave fiber to the Prem network now passes approximately.

12890 discrete locations. The company has over 2500 miles of distribution in transport fiber in its network.

In 2020, we plan to continue to invest in standardized vdsl technology to meet or exceed our revised federal Aiken requirements.

Since the beginning of 2019, approximately 6.4 million was spent on constructing fiber in our territories.

An additional half a million was spent me a it came speed performance obligations.

In 2020, we expect our projects to bring gigabit internet capability to more than 20%, 27% of our market, while increasing available speeds to 50 in 775 Megabits per second to another 9% of our market with Vdsl.

Another 13% of our market will have access to 25 Megabits per second service. We believe our customers are responding favorably to the increase speed, we are being able to provide.

During this time of distance learning in entertainment at home.

The higher speeds are critical for our customers needs.

We're pleased with our progress as our employees have worked hard during difficult times to execute on these initiatives as we ramp up to get more broadband speed to our customers.

Looking at some of the customer me metrics for first quarter 2020, we're pleased that customers served increased 1.1% or 350 customers, reflecting an increase in residential customers, partially offset by decrease in business customers the increase in customers.

Present, an improvement in churn when compared to a decrease of both business and residential customers in 2019.

Services provided to these customers decreased 0.9% or 607 services, reflecting an increase in data services more than offset by decrease in voice and video services.

The increase in data services reflects the company's focus on increasing data speeds available throughout our network.

The continued deployment of fiber based services the transition to Vdsl and a larger portion of our networks and the deployment of DOCSIS 3.1, and our cable network are expected to improve the speed of our service offerings in 2020 and positively affect the level of customer and service churn.

Our capital plans for 2020 are focused on completing these network upgrade projects with the goal of having nearly 50% of our market being able to be served by at least 25 megabits per second speeds for internet by the end of the year.

Other than the fiber constructed in the first quarter of 2020 route we do not have any other large construction fiber construction plans in 2020.

Curtis will now summarized the first quarter financial results.

Thank you Richard we appreciate everyone joining us today.

I was in a few financial highlights for first quarter and then we can take questions unless noted otherwise every comparisons against the same period in the previous year.

Press release, we issued yesterday and our 10-Q filing include additional details for our first quarter results as Richard noted total revenues for the first quarter 2020 were 15.4 million down 2.1% from last year's first quarter.

Local services revenues declined 7% primarily from the decline in residential voice surfaces network access revenue declined 4.8% primarily for will decline in transition services funding in access and end user.

Partially offset by the conversion of our Vermont territory to 18 in the middle of 2019.

Internet revenue increased 2.2% from new customers and customers require higher speeds transport services increased 10.4%, reflecting new wholesale customers video security were up 10.6%.

Due to the increased pricing to recover higher content costs, and finally management Cert managed services increased 9% modestly higher professional services revenue.

Moving on to operating expenses for the first quarter operating expenses increased 1% to 12.1 billion in 2020 from 12 million in first quarter of 29 team.

When comparing cost of services and selling general administrative expenses the cost and expenses were basically flat when compared to the same period last year. The elimination of the chief operating officer offerings are position for 2020.

Partially offset the annual payroll increases provided to our employees last September.

Additional details on cost and expense are covered in the 10-Q that was filed last night.

Depreciation and amortization increased 5.5% to 2 million, reflecting the new fiber investment placed in service in our like territories operating income for the first quarter was 3.3 million compared to 3.8 million for the prior year period, primarily driven by changing rapidly.

Interest expense decreased 13.5% to 1.2 major million lower outstanding principal balance and lower LIBOR interest rates accounted for the decrease for the first part of second quarter, Our bank margin will increase 4.5% before returning to 4.2, 0.25% in the middle of Matt.

This increase should be offset by even lower LIBOR rates during second quarter.

Other income increased 19% 2.7 million, reflecting our annual cobank dividend and a onetime gain on the sale of surplus vacant building.

But first quarter 2020, net income was 2.2 million compared to 2.3 million for the same period in 2019.

Basic net income was 65 cents per share for first quarter 2020, compared to 67 cents per share in the same period of 29.

Consolidated EBITDA with 6.1 million for first quarter 2020, compared to 6.4 million in the same period last year driven by the increase decrease in revenue.

Our balance sheet reflected cash or 4.1 million units.

At the end of first quarter compared to 3.1 being at the end of 2000 2019, primarily from the annual Cobank dividend on the sale of what they can build them I just.

As Richard noted during first quarter the company invested 3.3 million in our network in operational capabilities total assets increased from $120.7 million 2019 to 121.8, making on March 31, 2020, reflecting the increase investments in our business.

Our ratio of debt net of cash to consolidated EBITDA. Our net leverage was 2.81 at the end to first quarter, reflecting the use of additional cash generated from the business improve our network rather than make additional prepayments on the companys indebtedness the improving in the company's leverage over the last five years puts us in a very positive position.

During the economy's reaction to the cobot 19 crisis.

In April we have ceased to 3 million dollar loan under the Paycheck protection program. This loan has allowed us to retain all employees and continuing providing increased services our customers need during these try economic times when our customer base is responding to both the virus and the impact economic impacts it is causing additional.

Details on cares Act in the Paycheck Protection program included our form 10-Q.

I think that covers the highlights Richard if you have anything else before we go questions.

Thanks Curtis.

I wanted I want to commend the dedicated work <unk> Otelco employees. During this unprecedented times. Despite the challenges we face our employees are continuing to provide an essential service to our customers at a time when they need at the most.

Well, we still face a lot of uncertainty as to when we will return to more normal business business conditions, we remain focused on our efforts to enhance our customers experience and improve available data speeds and product offerings. We are confident the execution of this strategy will bring new customers back into it into the telco family of companies.

Operator, if you will provide directions, we can shift to taking questions from our investors at this time.

Thank you Sir.

I would like to ask a question. Please signal by pressing star wondering your telephone keypad. If you think speakerphone. Please make sure. Your mute function is standoff doing that you're thinking that that each of equipment again. This problem to ask a question, we'll pause for just a moment to a lot of incremental opportunities to signal for questions.

We have a question from gene Reilly some stockholder.

Your line is open. Please go ahead.

Thank you very much.

Just curious.

Talking about 27% to the market.

After gigabit speeds, 9% 50 to 75 and another 12% 25 50, I'm just wondering how many homes past do you consider to be your total market.

Approximately 67.4 thousand <unk>. Thank you very much that's my only question.

Thank you once again, if he would like to ask a question. Please press star one we take what next question from Michael <unk> private Investor Your.

Your line is open. Please go ahead.

Hello, Hi, ER I, just want to come from about that.

Interest saving so because that Libra you guys aren't in a radical rate. So are you going forward if interest rates.

Hey, guys around like 1%.

So my estimated to be around close to 802 when meeting interest saving calling program is that can cause concern.

Compared to historical numbers no it would be a little on 1% changing interest.

<unk> expense is will be less than.

$700000 I think it's what we put this in Q.

Oh, Okay I feel welcome.

And so.

Looking to go.

Okay. So I'm not sure going to questions about going forward. So what do you guys have any like long term plan for the I mean.

D.

Thanks, and like I mean that repay so that no speeds not a right click on capex basically so I know it this year you could it be like around 12, meaning so how about going forward next year are going forward right. When you, saying like to long term plan, what do you cannot putting the money into.

The capex.

But in 2020, our Capex expenditures are focus was focused on finishing the aircraft fiber build.

And in terms of network enhancements this focus on Vdsl deployment and the cable upgrade to DOCSIS 3.1 is we look forward. We we have an ongoing commitment to upgrade our eight cam territories over the next several years to meet those minimum requirements.

On that we will look at opportunities within our footprint, where there are other cost effective ways of increasing the speeds deliverable to the customer base.

As you can imagine.

We have a lot of potential target customers with a very large network. So we have to be selective to.

Deliver the types of return on invested capital that we believe our shareholders were born in every incremental dollar investment.

Yes.

I mean, just fundamental question about the company I mean, I never like it's kind of a long history about.

Hi that in that began and it's actually nowadays I, we feel like the.

It definitely is actually much much more manageable.

Hi.

And so I like the question now remains more.

Hello.

When a nice to have the rest man I mean compared to previous years, there bear fruit.

So again you know.

Revenue are the EBITDA number as is and you went in Chile, where coal car.

That's what are we hope grain. So I was just wondering how how are you guys looking about the future like.

What's was light how's it turned on like when.

We might see how to kind of like 10 pardon.

We have a practice if not providing forward looking forecasts.

But what we believe the future.

Lives what the future lies we are going to continue to invest in our network trying to upgrade the available service to the customer base that we serve.

Okay. Okay. That's great. So let me ask as it different question there so I.

So some it's up on using our light I didnt check more carefully like so basically I notice that the residential customer numbers actually going onto this quarter is a crack like I mean, it's iden, you've seen or as has been why or what do you click <unk> collect in March.

No.

It is the first quarter and.

Number of quarters from our customer accounts to go up.

So it's kind of red good sign right.

I think I, let Alan everywhere reach your own conclusions.

Oh, okay.

Going up is better than going down.

Okay, and they are there others, who are leading to ask questions.

We have no further questions at this time.

Well. Thank you. Thank you everyone for joining us this morning.

We always welcome your questions and we plan on keep you informed regarding developments in our business. Thank you.

This concludes today's call. Thank you for your participation you may now disconnect.