HickoryTech Reports Third Quarter 2009 Results > HickoryTech

HickoryTech Reports Third Quarter 2009 Results

Consistent operating results, Completion of CP Telecom acquisition, Increased cash position, Release of income tax reserve

MANKATO, Minn., Oct. 28, 2009—HickoryTech Corp. (Nasdaq: HTCO) today reported third quarter revenue of $34.9 million, down 12 percent from the $39.9 million reported one year ago. Third quarter revenue is up $2.5 million sequentially from the $32.4 million revenue of the previous quarter. Net income totaled $6.1 million, or 47 cents per diluted share, up substantially from the $2.1 million reported in the comparable quarter in 2008 and from the $2.1 million of the previous quarter. A release of income tax reserves added $4.4 million to the third quarter net income in 2009. Without the benefit of the $4.4 million income tax release, net income in the third quarter 2009 would have been $1.7 million, down 20 percent from the same period in the prior year.

“In spite of a challenging business environment, we have continued to deliver solid operating results, strengthen our balance sheet and accumulate cash,” said John Finke, HickoryTech’s president and chief executive officer. “We have responded to these conditions by aggressively managing and reducing our operating costs while maintaining a stable Telecom business and growing our business transport services by 24 percent in 2009.”

The Company’s cash position as of Sept. 30, 2009 was $7.3 million, and this is after the CP Telecom acquisition, which was funded with cash on hand. This compares with $1.6 million cash on hand at the beginning of 2009.

Telecom Sector (before inter-segment eliminations)

Telecom Sector net income for the third quarter 2009 totaled $2.0 million, similar to the comparable quarter in 2008. Telecom Sector revenue totaled $17.8 million, a decrease of $1.1 million, or 6 percent. The Telecom Sector results continue to be impacted by heightened competition and local service declines, offset by broadband revenue growth. Costs and expenses in the Telecom Sector were $14.4 million for the third quarter, a reduction of 7 percent relative to the third quarter last year.

Broadband revenue increased to $3.1 million, up 12 percent compared to $2.7 million in the third quarter of 2008. Broadband revenue includes DSL, Data and Digital TV services. DSL subscribers increased 5 percent, totaling 19,511, while Digital TV subscribers grew 19 percent totaling 9,386 subscribers.
Network access revenue was $6.0 million, down 11 percent from the comparable period one year ago.
Local service revenue of $3.8 million declined 7 percent and local access lines declined 7 percent, both the result of competition in our telecom markets.

Enventis Sector (before inter-segment eliminations)

Enventis Sector net income totaled $0.9 million for the third quarter 2009, versus $1.0 million for the third quarter in 2008. Enventis Sector revenue before eliminations totaled $17.6 million, a decline of $3.7 million, or 17 percent, relative to the comparative quarter in 2008. Costs and expenses in the Enventis Sector totaled $16 million, a reduction of 18 percent from the comparable quarter in 2008.

Enterprise Transport Services (ETS), network-based services revenue totaled $8.7 million, an increase of 39 percent or $2.4 million from the comparable quarter last year, which is the result of strong sales of transport services and the addition of CP Telecom revenues.
Enterprise Network Services (ENS) equipment sales for the third quarter of 2009 totaled $6.6 million, a decrease of $5.1 million, or 44 percent from the comparable quarter last year, which included a number of large equipment orders.

Capital Expenditures, Debt and Cash Position

HickoryTech reported capital expenditures of $4.0 million for the third quarter of 2009 and $11.3 million year-to-date in fiscal 2009. Capital expenditures in the third quarter were $419,000 less than the third quarter 2008 and decreased $1.1 million in the first nine months of fiscal 2009, versus fiscal 2008. Long-term and current portion debt balance totaled $124.9 million as of Sept. 30, 2009, a $2.1 million decrease from the beginning of the year, and down $6.5 million from one year ago. The Company’s cash position, as of Sept. 30, 2009, totaled $7.3 million versus $1.6 million at the beginning of 2009.

CP Telecom Acquisition

HickoryTech closed on its previously announced agreement to acquire CP Telecom on Aug. 1, 2009. The adjusted CP Telecom purchase price was $6.6 million, which HickoryTech paid for with cash. CP Telecom results are included the Company’s Enventis sector. CP Telecom operating results for the inital quarter as a component of HickoryTech were accretive to operating income, net income and cash flow.

Future Outlook

HickoryTech is updating guidance for its fiscal 2009 results. Revenue, previously projected at $153 million to $159 million, is expected to range from $138 million to $141 million. Net income, previously forecast between $7 million to $7.8 million, now will include the $4.4 million income tax release and is expected to range between $11.5 million to $11.9 million. Capex, previously projected between $17 million and $19 million, remains in this range and the company’s year-end debt estimate remains unchanged at $124 million to $127 million.

“The business climate continues to challenge us in 2009,” Finke said. “Despite the pressure on overall revenue, we have been able to continue to grow our broadband and transport services. We are encouraged by our growth opportunities and remain confident in our business plan and future success.”

Conference Call and Webcast

HickoryTech will host a conference call and webcast on Thursday, Oct. 29 at 9 a.m. CT. The dial-in number for the call is 877-774-2369 (U.S. and Canada) and the participant pass code is 33942343. A simultaneous Webcast of the call and downloadable presentation will be available through a link on the Investor Relations page at investor.hickorytech.com.

About HickoryTech
HickoryTech Corporation (dba HickoryTech and Enventis) is a leading integrated communications provider in the markets it serves. With headquarters in Mankato, Minn., the corporation has approximately 450 employees and a regional fiber network with facilities-based operations in Minnesota and Iowa. Enventis serves businesses of all sizes across a five-state region with IP-based voice, data and network solutions. HickoryTech provides bundled residential and business services including high-speed Internet, Digital TV and voice services in its legacy telecom markets. The Company trades on the Nasdaq Stock Exchange, symbol: HTCO, and is a member of the Russell 2000 index. For more information, visit www.hickorytech.com.

Non-GAAP Measures

To supplement the Company’s financial statements presented in accordance with GAAP, the Company provides certain non-GAAP financial measures of financial performance. These non-GAAP measures include earnings before income taxes, depreciation and amortization, and net income without release of income tax reserve. The Company’s reference to these non-GAAP measures should be considered in addition to results prepared under current accounting standards, but are not a substitute for, or superior to, GAAP results. These non-GAAP measures are provided to enhance investors’ overall understanding of the Company’s current financial performance and ability to generate cash flows. In many cases non-GAAP financial measures are used by analysts and investors to evaluate the Company’s performance. Reconciliation to the nearest GAAP measure included in this press release can be found in the financial table included below.

Forward looking statement
Certain statements included in this press release that are not historical facts are "forward-looking statements." Such forward-looking statements are based on current expectations, estimates and projections about the industry in which HickoryTech operates and management's beliefs and assumptions. The forward-looking statements are subject to uncertainties. These statements are not guarantees of future performance and involve certain risks, uncertainties and probabilities. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they were made. HickoryTech undertakes no obligation to update any of its forward-looking statements, except as required by federal securities laws.

Consolidated Statement of Operations
(unaudited)

	Three Months Ended September 30						%		Nine Months Ended September 30						%
(Dollars in thousands, except share data)	2009			2008			Change		2009			2008			Change
Revenue:
Telecom Sector	$	17,446		$	18,758		-7	%	$	52,899		$	55,051		-4	%
Enventis Sector
Equipment		6,604			11,725		-44	%		18,788			34,602		-46	%
Services		10,858			9,377		16	%		29,085			25,852		13	%
Total Enventis Sector		17,462			21,102		-17	%		47,873			60,454		-21	%
Total revenue		34,908			39,860		-12	%		100,772			115,505		-13	%

Costs and Expenses:
Cost of sales, equipment, excluding depreciation and amortization		5,653			10,190		-45	%		16,369			29,605		-45	%
Cost of services, excluding depreciation and amortization		13,404			13,443		0	%		37,817			37,760		0	%
Selling, general and administrative expenses		5,817			5,637		3	%		16,379			16,786		-2	%
Depreciation		5,068			4,945		2	%		14,967			14,371		4	%
Amortization of intangibles		272			285		-5	%		699			863		-19	%
Total costs and expenses		30,214			34,500		-12	%		86,231			99,385		-13	%

Operating income		4,694			5,360		-12	%		14,541			16,120		-10	%

Interest and other income		14			39		-64	%		55			81		-32	%
Interest expense		(1,728	)		(1,874	)	-8	%		(5,155	)		(5,049	)	2	%

Income before income taxes		2,980			3,525		-15	%		9,441			11,152		-15	%
Income taxes		(3,126	)		1,453		-315	%		(408	)		4,802		-108	%

Net income	$	6,106		$	2,072		195	%	$	9,849		$	6,350		55	%

Reconciliation of operating income to EBITDA:
Operating income	$	4,694		$	5,360		-12	%	$	14,541		$	16,120		-10	%
Add:
Depreciation		5,068			4,945		2	%		14,967			14,371		4	%
Amortization of intangibles		272			285		-5	%		699			863		-19	%
EBITDA	$	10,034		$	10,590		-5	%	$	30,207		$	31,354		-4	%

Reconciliation of net income to net income without release of income tax reserve:
Net income	$	6,106		$	2,072		195	%	$	9,849		$	6,350		55	%
Deduct: Income tax reserve release		4,454			-		0	%		4,454			-		0	%
Net income excluding income tax reserve release	$	1,652		$	2,072		-20	%	$	5,395		$	6,350		-15	%

Basic earnings per share	$	0.47		$	0.16		194	%	$	0.75		$	0.48		56	%
Basic weighted average common shares outstanding		13,080,538			13,352,005					13,049,686			13,325,967

Diluted earnings per share	$	0.47		$	0.16		194	%	$	0.75		$	0.48		56	%
Diluted weighted average common and equivalent shares outstanding		13,083,843			13,358,390					13,049,686			13,336,424

Dividends per share	$	0.13		$	0.12		8	%	$	0.39		$	0.36		8	%

Consolidated Balance Sheet
(unaudited)

(Dollars and Share Data in Thousands)	September 30, 2009			December 31, 2008
ASSETS
Current assets:
Cash and cash equivalents	$	7,309		$	1,626
Receivables, net of allowance for doubtful accounts of $654 and $905		16,136			26,292
Inventories		6,519			8,674
Income tax receivable		-			566
Deferred income taxes		2,064			2,064
Prepaid expenses		1,885			1,409
Other		931			1,114
Total current assets		34,844			41,745

Investments		4,306			4,066

Property, plant and equipment		351,774			338,510
Accumulated depreciation		(199,543	)		(187,157	)
Property, plant and equipment, net		152,231			151,353

Other assets:
Goodwill		27,308			25,239
Intangible assets, net		3,327			856
Deferred costs and other		1,920			2,249
Total other assets		32,555			28,344

Total assets	$	223,936		$	225,508

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Extended term payable	$	6,991		$	10,474
Accounts payable		2,240			3,133
Accrued expenses and other		7,463			8,001
Accrued income taxes		2,179			-
Deferred revenue		5,390			6,205
Current maturities of long-term obligations		1,533			1,621
Total current liabilities		25,796			29,434

Long-term liabilities:
Debt obligations, net of current maturities		123,394			125,384
Financial derivative instruments		2,541			3,286
Accrued income taxes		3,173			7,517
Deferred income taxes		20,682			18,282
Deferred revenue		1,493			1,646
Accrued employee benefits and deferred compensation		10,653			10,210
Total long-term liabilities		161,936			166,325

Total liabilities		187,732			195,759

Commitments and contingencies		-			-

Shareholders' equity:
Common stock, no par value, $.10 stated value
shares authorized: 100,000
Shares issued and outstanding: 13,089 in 2009 and 12,992 in 2008		1,309			1,299
Additional paid-in capital		12,673			11,504
Retained earnings		24,964			20,199
Accumulated other comprehensive (loss)		(2,742	)		(3,253	)
Total shareholders' equity		36,204			29,749

Total liabilities and shareholders' equity	$	223,936		$	225,508

Telecom Sector Recap
(unaudited)

			Three Months Ended September 30				%		Nine Months Ended September 30				%
(Dollars in thousands)			2009		2008		Change		2009		2008		Change
	Revenue:
		Local Service	$	3,802	$	4,079	-7	%	$	11,559	$	12,296	-6	%
		Network Access		5,993		6,752	-11	%		18,158		19,529	-7	%
		Long Distance		872		1,097	-21	%		2,930		3,484	-16	%
		Data		1,949		1,877	4	%		5,724		5,628	2	%
		Internet		1,233		1,211	2	%		3,739		3,478	8	%
		Digital TV		1,128		871	30	%		3,216		2,473	30	%
		Directory		971		1,081	-10	%		3,071		3,085	0	%
		Bill Processing		849		1,058	-20	%		2,479		2,557	-3	%
		Intersegment		367		174	111	%		844		465	82	%
		Other		649		732	-11	%		2,023		2,521	-20	%
		Total Telecom Revenue	$	17,813	$	18,932	-6	%	$	53,743	$	55,516	-3	%

	Total Telecom revenue before intersegment eliminations
	Unaffiliated Customers		$	17,446	$	18,758			$	52,899	$	55,051
	Intersegment			367		174				844		465
				17,813		18,932				53,743		55,516
	Costs and expenses:
		Cost of services, excluding depreciation and amortization		7,668		7,958	-4	%		22,684		23,450	-3	%
		Selling, general and administrative expenses		2,882		3,470	-17	%		8,756		10,075	-13	%
		Depreciation and amortization		3,856		4,059	-5	%		11,803		11,993	-2	%
		Total costs and expenses		14,406		15,487	-7	%		43,243		45,518	-5	%

	Operating income		$	3,407	$	3,445	-1	%	$	10,500	$	9,998	5	%

	Net income		$	2,016	$	2,033	-1	%	$	6,199	$	5,848	6	%

	Capital expenditures		$	2,589	$	3,117	-17	%	$	6,375	$	8,082	-21	%

	Key Metrics
	Business access lines			25,542		26,350	-3	%
	Residential access lines			31,385		35,115	-11	%
	Total access lines			56,927		61,465	-7	%
	Long distance customers			36,761		39,533	-7	%
	DSL customers			19,511		18,519	5	%
	Digital TV customers			9,386		7,882	19	%

Enventis Sector Recap
(unaudited)

	Three Months Ended September 30				%		Nine Months Ended September 30				%
(Dollars In thousands)	2009		2008		Change		2009		2008		Change
Revenue before eliminations:
ENS equipment	$	6,604	$	11,725	-44	%	$	18,788	$	34,602	-46	%
ENS services		2,183		3,114	-30	%		7,273		8,235	-12	%
ETS services		8,675		6,263	39	%		21,812		17,617	24	%
Intersegment		106		138	-23	%		389		404	-4	%
	$	17,568	$	21,240	-17	%	$	48,262	$	60,858	-21	%

Total Enventis revenue before intersegment eliminations
Unaffiliated customers	$	17,462	$	21,102			$	47,873	$	60,454
Intersegment		106		138				389		404
	$	17,568	$	21,240			$	48,262	$	60,858
Cost of sales, equipment
(excluding depreciation and amortization)		5,653		10,190	-45	%		16,369		29,605	-45	%
Cost of services
(excluding depreciation and amortization)		6,177		5,858	5	%		16,264		15,017	8	%
Selling, general and administrative expenses		2,756		2,411	14	%		7,439		7,151	4	%
Depreciation and amortization		1,459		1,158	26	%		3,809		3,203	19	%
Total costs and expenses		16,045		19,617	-18	%		43,881		54,976	-20	%

Operating income	$	1,523	$	1,623	-6	%	$	4,381	$	5,882	-26	%
Net income	$	901	$	959	-6	%	$	2,600	$	3,453	-25	%

Capital expenditures	$	1,438	$	1,338	7	%	$	4,891	$	4,315	13	%

Enventis Product Line

	Three Months Ended September 30										Nine Months Ended September 30
	Enterprise Network Services (ENS)					Enventis Transport Services (ETS)					Enterprise Network Services (ENS)				Enventis Transport Services (ETS)
(Dollars in thousands)	2009			2008		2009			2008		2009		2008		2009			2008
Revenue before intersegment eliminations:
Equipment	$	6,604		$	11,725	$	-		$	-	$	18,788	$	34,602	$	-		$	-
Services		2,183			3,114		8,675			6,263		7,273		8,235		21,812			17,617
Intersegment		-			-		106			138		-		-		389			404
	$	8,787		$	14,839	$	8,781		$	6,401	$	26,061	$	42,837	$	22,201		$	18,021

Cost of sales, equipment
(excluding depreciation and amortization)		5,728			10,187		(75	)		3		16,427		29,593		(58	)		12
Cost of services
(excluding depreciation and amortization)		1,664			2,698		4,513			3,160		5,265		6,673		10,999			8,344
Selling, general and administrative expenses		1,303			1,295		1,453			1,116		3,802		3,827		3,637			3,324
Depreciation and amortization		121			122		1,338			1,036		307		366		3,502			2,837
Total costs and expenses		8,816			14,302		7,229			5,315		25,801		40,459		18,080			14,517

Operating income	$	(29	)	$	537	$	1,552		$	1,086	$	260	$	2,378	$	4,121		$	3,504
Net income	$	(17	)	$	316	$	918		$	643	$	156	$	1,394	$	2,444		$	2,059

Capital expenditures	$	62		$	163	$	1,376		$	1,175	$	324	$	452	$	4,567		$	3,863

Posted in: 2009

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