Q3 2020 Otelco Inc Earnings Call
Good day welcome to the welcome to Telcos Threeq Twentytwenty earnings Conference call Today's conference is being recorded.
Hi for opening remarks introductions I'd like to turn call over to true Anderson. Please go ahead.
Thank you and welcome to the Otelco Conference call to review the company's results for the third quarter ended September Thirtyth 2020.
Conducting the call today, well be richer Clark, President and Chief Executive Officer, and Curtis Garner Chief Financial Officer.
Richard will provide an update on Oak Hill capital strategic and operational highlights from the third quarter results as well as information on the company's adjustments during and their performance under the changed environment caused by the COVID-19 pandemic.
Curtis will highlight the financial results for the quarter and then we will take questions on quarterly results from investors.
As a reminder, the 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 Otelco Dot com.
Before we start let me offer the cautionary note that statements made during this call.
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 have caused 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. In addition to statements, which explicitly describe such risks and uncertainties.
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.
Forward looking statements contained herein are also subject generally to other risks and uncertainties that are described from time to time in the Companys filings with the Securities and Exchange Commission.
With that stated I will now turn the call over to Richard.
Thank you drew good morning.
It was good to host everyone on our third quarter 2020 industrial.
You and your extended families both.
Man workers staying safe in these difficult times I appreciate the opportunity to update you today on the telcos results and activities.
Let me start with an update on our pending acquisition by Oak Hill capital as announced on July 27th.
Also entered into a definitive agreement to be acquired by affiliates form by Oak Hill capital a private equity firm for $11.75 per share in cash, which represents an equity purchase price of 40 point Sixmillion and an enterprise value of 105.6 million as part of the definitive agreement Oak Hill will show more refi.
Finance or telcos outstanding debt.
<unk> directors approved the merger agreement and recommended the approval in the adoption of the merger agreement by the Otelco shareholders.
A special meeting of the Otelco shareholders was held on October 19, 2020, and our shareholders approved a proposal to adopt the agreement. The company is in the process of notifying state public utilities commissions and gaining approval were required at the federal level documents have been provided to team telecom for their review we enter.
Recipe closing during the first quarter of 2021 once the regulatory review process is completed.
We believe this transaction is a good outcome for a telco shareholders, our customers and our employees Oh kills commitment to facilitate the telcos growth will allow the company to accelerate fiber growth plans that would not have been possible with our existing capital structure.
Before I cover the operational strategic results for the third quarter I.
I would like to provide an update on the telcos actions related to the COVID-19 pandemic.
We have been and <unk> main mindful of our central role in providing the critical data and voice services, our customers needs, especially during this crisis.
Since the outbreak Otelco has continued to monitor developments in the states, we serve and adjust our operations as needed to mitigate the potential risks related to the COVID-19 pandemic to the company our employees and our customers to protect our employees, while continuing to provide the communication services needed by our customers.
Company continues to adapt customer installation and repair service processes to limit customer contact and to minimize employee contact with other employees.
COVID-19 restrictions have been used in some states otelco employees are returning to their normal work locations with extra safety measures and protocols in place.
At the same time, we continue to empower the company's technicians to reschedule any in person installation or repair after they determine the circumstances at the location present, a health risk.
During the third quarter 2020 customer calls for new and change service payment arrangements in for service troubles began to trend downward toward free pandemic levels.
The result of the measures implemented by the company.
No significant adverse impact on results of operations through September Thirtyth 2020 has occurred as.
As the crisis continues to affect our March markets to varying degrees. The full extent of the future impact of COVID-19 on our operations is uncertain.
An increase of COVID-19 cases in our service areas could have a negative impact on financial results and business operations of the company, including the timing and ability of the company to collect accounts receivable and procure materials and services from suppliers.
As there is a return to more normal operations will continue to work with customers, who are who have been affected by the Corona is virus on payment strategies that avoid discontinuance of voice and data services, while allowing for the company to receive payment for the services provided.
Yes.
Now looking at third quarters operational results.
Revenues for the third quarter, 2020 declined 2.2 million or 1.2% from the third quarter 2019, primarily from a reduction in voice services and access fees, partially offset by increases in Internet video and security and managed services.
Revenues were up 8.1 million subsequently from the second quarter, primarily from new Internet customers and higher data speeds required by existing internet customers.
We have continued to execute our strategy to many make network improvements to provide enhanced data speeds to our customers. During the third quarter. We invested two point Sixmillion auto telcos network as we continue to increase the speed of our like wood Lightwave fiber to the Prem service, which provides up to one gigabit speed.
Internet capability.
All the planned fiber for 2020 is in service and marketing is underway to all locations through.
Through September Thirtyth, 2020, 926 customers have upgraded their existing service or signed up for the new lightweight fiber service in Alabama Andy.
And in two towns in Maine dips.
Deployment of equipment in New England service territories to support higher speed Vdsl service and standardize on the same platform that provide service in Alabama, and Missouri has been completed.
In the southern part of our Alabama territory in and around Omni on Alabama, well Telco was also the cable provider work to upgrade the hybrid fiber co Ax network to DOCSIS 3.1 has been completed this week.
This will allow all of our cable customers to gain access to get big gigabit Internet speeds like speeds available over a fiber to the prime network.
Oh, I forgot speeds and all of our.
Fiber to the Prem communities has been well received by our customers well gigabit service is probably not necessary for most customers today the higher speeds.
I'm not available through <unk> standard DSL, but now available through our network improvements allows customers to support multiple devices simultaneously as more work in study at home requirements are instituted our network is well positioned to also provide for future increased requirements.
We're pleased with our progress as our employees and vendors have worked hard doing extremely difficult times to execute on these initiatives as we ramp up to get more broadband speed available to our customers.
New work routines and locations have presented challenges for making and keeping commitments. However by the end of 2020, we expect our projects to bring gigabit internet capability to more than 27% of our market, while increasing the available speeds to 50 and 75 Megabits per second.
To another 9% of our market with Vdsl.
Approximately 21% of the Otelco market has access to speeds ranging from 25 to 75 Megabits per second and 27% has the availability of gigabit speeds.
Our primary objective is simple has not changed.
Improve service capabilities and add new customers to the Otelco family of companies looking ahead with the support of Oak Hill partners, we have greatly enhanced our ability to meet this objective.
Curtis will now summarize the third quarter financial results.
Thank you Richard we appreciate everyone joining us today.
Our press release, we issued yesterday and our 10-Q filing from last night.
The details of our third quarter results I'll provide a few financial highlights for third quarter and then we can take questions unless noted otherwise every comparison is against the same period in the previous year as Richard mentioned total revenues decreased 1.2% to 15.6 million from 15.8.
The decrease was primarily due to a decrease in residential local services and traditional access revenue impact.
Impacted by the Fccs Intercarrier compensation order, partially offset by an increase in internet services, when compared to second quarter 2020 revenues actually increased <unk>.
Here is a breakdown of third quarter 2020 revenue compared to third quarter 2019.
Local services revenue decreased 2.6% to 4.6 million from 4.7.
Our lack residential voice line revenue, including long distance and other related services accounted for the decrease.
Network access revenue decreased 8.7% to 5 million from 5.4 million in user at access recovery fees declined 2.2 million switched and special access decreased.
One day and ATM revenue decreased <unk>.
Internet revenue increased 9.8% to 4 million from 3.7 million.
The increase in customers and data speeds accounted for the increase.
Transport services revenue was unchanged at 1.1 million, reflecting a stable market presence video and security revenue increased 4.5% to just over <unk> point Sevenmillion from just under 0.7 <unk>.
An increase in IP, TV customers and pricing changes to recover increases in content cost offset a decline in traditional cable customers.
Managed services increased 14.3% to just under point 2 million from just over <unk>, reflecting modestly higher cloud hosting revenue moving.
Moving on to our operating expenses for third quarter operating expenses increased 8.8% to 13 million from 11.9.
Cost of services decreased 1.6% to 7.4 million from 7.5 million lower network access toll in circuit expenses accounted for a decrease of 4.1 million lower sales and product management expenses accounted for a decrease of <unk>. These decreases were partially offset by an increase in cable.
<unk>.
Selling general and administrative expenses increased 38% to 3.5 million from 2.5 million legal.
Legal and other costs associated with the announced acquisition of Otelco by Oak Hill capital accounted for an increase of 2.8 million uncollectible revenue property tax and other administrative expenses accounted for <unk> increased 1.3 million. These increases were partially offset by a decrease in executive in planning expenses <unk>.
<unk>.
Depreciation and amortization increased 11.5% to 2.1 million an increase in our like depreciation, reflecting new fiber and B D S of that investment.
Investment placed in service accounted for the increase.
Operating income for third quarter, 2020 was 2.6 million compared to 3.8 million in the third quarter of 20 Nike.
Interest expense declined 29.2% or point 4 million, reflecting lower interest rates and the reduction in principal outstanding under the Companys credit degree.
Net income was 1.2 million for third quarter 2020, compared to 1.8 million in third quarter 2019, reflecting the impact of slightly lower revenue and the point $9 billion of expenses related to Oak Hill its plan to acquire a telco base.
Basic net income per share was 36 cents for third quarter 2020, compared to 53 cents per share for the same period of 29 <unk>.
Consolidated EBITDA was 4.8 million for third quarter 2020, compared to 5.8 million for the same period in the previous year, excluding the transaction related costs consolidated EBITDA was 5.7.
Our balance sheet reflects cash of 8.1 million at the end of third quarter, including 3 million and Paycheck protection program loan proceeds that we received in April of 2020, that's compared to 3.1 billion at the end of cash at the end of 29.
The company has filed for a loan forgiveness through our lending bank for the P.P. loan.
That's the bankruptcy was complete the U.S.B.A. must approve loan forgiveness.
During the first nine months of 2020, the company invested 8.1 million and improving its network and operational capabilities compared to 7.6 million during the same period of 20 Nike.
Companies leverage ratio of consolidated indebtedness indebtedness to consolidated EBITDA was 3.12 at the end of third quarter 2020, reflecting the use of additional cash generated for business operations to improve our network.
Our ratio of debt net of cash to consolidated EBITDA was 2.88, reflecting the scheduled payments made all the debt, but excluding the PPP loan proceeds I think that covers a primary highlights Eduardo if you will provide directions, we can shift taking questions from investors at this time.
Thank you I would like to ask a question. Please signal that pressing star one on your telephone keypad, if you're using a speaker phone. Please make sure. Your mute function is turned off delays did not reach our equipment. Once again that is star one to ask a question, we'll pause for just a moment.
Once again that is star one it's like to ask a question.
[noise]. It appears we have no questions as it is right now I'll turn it back to you.
This is Richard Clarke, we appreciate you joining us this morning, we always welcome your questions and we plan on keeping informed devote telcos activities in the future.
Thank you.
This concludes today's call. Thank you for your participation you may now disconnect.
[music].