Revenue Increased, Company adjusts 2008 Guidance
- Enventis business revenue increased 23 percent year over year
- Telecom sector broadband revenue grew 16 percent
- HickoryTech quarterly dividend increased to 13 cents
- Guidance for fiscal 2008 results updated
MANKATO, Minn.--Oct. 29, 2008--HickoryTech Corp. (Nasdaq: HTCO) today reported financial results for the third fiscal quarter ended Sept. 30, 2008. The Company reported third quarter revenue of $39.9 million, an 11 percent increase over the $35.9 million reported in the third quarter 2007. Net Income for the third quarter 2008 totaled $2.1 million or $0.16 per diluted share, equal to the same quarter one year ago.
"We continued to make good progress in the third quarter on our strategic initiatives delivering solid results during the on-going economic downturn and the subsequent credit market storm," said John Finke, HickoryTech's president and chief executive officer. "As we finish the year, our focus remains on delivering exceptional customer service with a differentiated offering, cost control and generating cash flows to support growth initiatives, which provide solid returns for our shareholders."
Consolidated Results for the third quarter 2008
HickoryTech's consolidated operating revenue for the third quarter totaled $39.9 million, an 11 percent increase over the same quarter a year ago.
Consolidated operating income for the third quarter totaled $5.4 million, a 3.8 percent decrease compared to the $5.6 million third quarter of 2007. Cost of services and depreciation expense increased in the third quarter of 2008 and for the year to date Sept. 30, 2008, reflecting the Company's growth in the managed services business of its Enventis segment, expectations of future growth, and for capital expenditures in both its Enventis transport services business and in the Telecom sector.
Interest expense improvement offset the decline in operating income during the quarter. For the nine-month period ending Sept. 30, 2008, net income totaled $6.4 million, or 48 cents per diluted share compared to $7.1 million, or $0.54 cents per share, in 2007. Excluding the large interexchange carrier settlement in the second quarter of 2007, the 2008 results represent a 6 percent increase in net income for the nine-month period.
Telecom Sector (before inter-segment eliminations), as compared to same period 2007 Third quarter Telecom Sector revenue increased to $18.9 million, versus $18.8 million. The Telecom Sector continues to incur increasing competition and network access declines, partly offset by continued broadband growth.
- Broadband revenue grew 16 percent to $2.7 million versus $2.4 million. This revenue, which includes DSL, Data and Digital TV services, again outpaced the decline in local service revenue. The upward growth trend in DSL subscribers continued, totaling 18,519, up 7 percent. Net Digital TV subscribers increased 38 percent to 7,882.
- Network access revenue was $6.8 million, a decline of $334,000. This is a slower pace of decline than incurred earlier this year.
- Local service revenue declined 4 percent primarily due to competition. Local voice lines declined 7 percent.
Enventis Sector (before inter-segment eliminations), as compared to same period 2007 Third quarter Enventis Sector revenue totaled $21.2 million, an increase of $3.9 million or 22 percent. Enventis operating income for the third quarter totaled $1.6 million, a decrease of 4 percent compared with the same quarter in 2007. Enventis net income declined 6.5 percent. Declines in Enventis operating and net income resulted from increased costs to support our growth in services revenue.
- Enterprise Network Services, ENS, equipment sales for the third quarter 2008 totaled $11.7 million, an increase of $1.6 million or 16 percent.
- ENS Services revenue, which includes managed services, increased $1.1 million or 57 percent.
- Enventis Transport Services, ETS, third quarter 2008 revenue increased 21 percent to $6.4 million, from $5.3 million a year ago, attributed to strong wholesale and retail transport growth as well as increased demand for Enventis' SingleLink(TM) Unified Communications solution.
- Enventis cost of services expense increased in the third quarter of 2008 and for the year to date Sept. 30, 2008 due to the growth in the managed services business and in preparations for future growth in Enventis recurring revenue service capabilities.
- Enventis continued to build momentum around its recently enhanced SingleLink(TM) Unified Communications solution, which provides a centrally managed and hosted VoIP-based communications system for users across multiple locations. The SingleLink(TM) product is reported in the ETS line of business.
Capital Expenditures and Debt
HickoryTech reported capital expenditures of $4.5 million for the third quarter of 2008 and $12.4 million year-to-date. Investments supported fiber and IP network upgrades, Digital TV expansion and the addition of network collocations in Minneapolis. The investment was $1 million greater than the third quarter 2007 and the total year-to-date capital spending is in line with reported 2007 levels. The debt balance (long-term and current portion) totaled $131.4 million as of Sept. 30, 2008, a $2.2 million increase from the beginning of the year and a $2.2 million decrease from the previous quarter.
Future Outlook
HickoryTech is updating guidance for its full-year 2008 results. Revenue, previously projected at $158 million to $164 million, is expected to range from $154 million to $157 million. Net Income, previously forecast between $7.6 million and $8.4 million, is expected to range from $7.9 million and $8.3 million. CAPEX, previously projected between $18 and $20 million, is expected to range from $18 million to $19 million for the year. The company's year-end debt estimate remains unchanged, ranging between $126 million to $129 million.
"HickoryTech's updated guidance reflects our confidence in our business plan as we continue to deliver strong results in 2008," Finke said. "We believe that our ability to maintain our 2007 revenue level while also maintaining profitability in this economy will prove to be a strong statement as we move forward."
During the recent events impacting the global credit markets, HickoryTech made careful assessments of its relationships and possible dependencies upon troubled financial institutions or credit sources. "We are pleased to say HickoryTech's financial condition is strong and we have no direct affiliation or known dependency upon institutions that have recently experienced bankruptcy or required government intervention," said David Christensen, chief financial officer and senior vice president. "And thanks to our interest rate protection practices and the design and term of our senior credit arrangements, we are comfortable with our liquidity and cash flows in the future."
HickoryTech reported, earlier today, an increase in its fourth quarter dividend, declaring a 13 cents per share dividend payable Dec. 5, 2008. HickoryTech has a long history of paying a cash dividend, which spans more than 50 years.
Conference Call
As previously announced, HickoryTech will host a conference call and webcast for investors Thursday, Oct. 30, 2008 at 8 a.m. CT. The dial-in number for the call is 866.314.9013 (U.S. and Canada) and the participant pass code is "HickoryTech". A simultaneous webcast of the call and downloadable presentation will be available through a link on the Investor Relations page at www.hickorytech.com.
About HickoryTech
HickoryTech Corporation (NASDAQ: HTCO), headquartered in Mankato, Minn., offers integrated communication products and services to business and residential customers over a regional fiber network. The company, founded in 1898, has approximately 430 employees. The Telecom Sector, with facilities-based operations in Minnesota and Iowa, offers local voice, long distance, high-speed Internet, Digital TV and IP networking services to residential and business customers. In addition, the Telecom Sector develops telecom and carrier access billing solutions and customer management systems. Enventis provides IP-based voice, data and network solutions to businesses across in a five-state region. For more information, visit www.hickorytech.com.
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)
(Dollars in Three Months Ended Nine Months Ended
thousands) September 30 September 30
------------------------- -------------------------
2008 2007 2008 2007
------------ ------------ ------------ ------------
Revenues:
Telecom Sector $ 18,758 $ 18,647 $ 55,051 $ 58,132
Enventis Sector
Equipment 11,725 10,092 34,602 39,395
Services 9,377 7,120 25,852 20,861
------------ ------------ ------------ ------------
Total Enventis
Sector 21,102 17,212 60,454 60,256
------------ ------------ ------------ ------------
Total revenues 39,860 35,859 115,505 118,388
Costs and
Expenses:
Cost of sales,
equipment,
excluding
depreciation
and
amortization 10,190 8,705 29,605 35,578
Cost of
services,
excluding
depreciation
and
amortization 13,443 11,137 37,760 32,832
Selling, general
and
administrative
expenses 5,637 5,900 16,786 17,627
Depreciation 4,945 4,254 14,371 13,190
Amortization of
intangibles 285 289 863 867
------------ ------------ ------------ ------------
Total costs and
expenses 34,500 30,285 99,385 100,094
------------ ------------ ------------ ------------
Operating income 5,360 5,574 16,120 18,294
Interest and other
income 39 68 81 199
Interest expense (1,874) (2,028) (5,049) (6,241)
------------ ------------ ------------ ------------
Income before
income taxes 3,525 3,614 11,152 12,252
Income taxes 1,453 1,532 4,802 5,148
------------ ------------ ------------ ------------
Income from
continuing
operations 2,072 2,082 6,350 7,104
Discontinued
operations
Loss from
operations of
discontinued
component - (12) - (27)
Income tax
benefit - (4) - (10)
------------ ------------ ------------ ------------
Loss from
discontinued
operations - (8) - (17)
------------ ------------ ------------ ------------
Net income $ 2,072 $ 2,074 $ 6,350 $ 7,087
============ ============ ============ ============
Reconciliation of
operating income
to EBITDA:
Operating income $ 5,360 $ 5,574 $ 16,120 $ 18,294
Add:
Depreciation 4,945 4,254 14,371 13,190
Amortization
of
intangibles 285 289 863 867
------------ ------------ ------------ ------------
EBITDA $ 10,590 $ 10,117 $ 31,354 $ 32,351
============ ============ ============ ============
(Not in thousands)
Basic earnings per
share -
continuing
operations: $ 0.16 $ 0.16 $ 0.48 $ 0.54
Basic loss per
share -
discontinued
operations: - - - -
------------ ------------ ------------ ------------
$ 0.16 $ 0.16 $ 0.48 $ 0.54
============ ============ ============ ============
Basic weighted
average common
shares
outstanding 13,352,005 13,267,649 13,325,967 13,250,033
============ ============ ============ ============
Diluted earnings
per share -
continuing
operations: $ 0.16 $ 0.16 $ 0.48 $ 0.54
Diluted loss per
share -
discontinued
operations: - - - -
------------ ------------ ------------ ------------
$ 0.16 $ 0.16 $ 0.48 $ 0.54
============ ============ ============ ============
Diluted weighted
average common
and equivalent
shares
outstanding 13,358,390 13,273,304 13,336,424 13,250,745
============ ============ ============ ============
Dividends per
share $ 0.12 $ 0.12 $ 0.36 $ 0.36
============ ============ ============ ============
Consolidated Balance Sheet
(unaudited)
September 30, December 31,
(Dollars in thousands) 2008 2007
------------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 1,499 $ 171
Receivables, net of allowance for
doubtful accounts of $911 and $1,184 33,538 28,357
Inventories 8,788 7,054
Income tax receivable - 1,013
Deferred income taxes 1,334 1,334
Prepaid expenses 1,507 1,713
Other 990 1,196
------------- ------------
Total current assets 47,656 40,838
Investments 4,066 3,830
Property, plant and equipment 333,401 322,249
Less accumulated depreciation (182,358) 169,318
------------- ------------
Property, plant and equipment, net 151,043 152,931
Other assets:
Goodwill 25,239 25,239
Intangible assets, net 1,120 1,983
Deferred costs and other 2,345 2,674
------------- ------------
Total other assets 28,704 29,896
------------- ------------
Total assets $ 231,469 $227,495
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Extended term payable $ 10,527 $ 14,443
Accounts payable 4,339 4,538
Accrued expenses 7,733 7,740
Accrued income taxes 1,224 -
Advanced billings and deposits 7,157 5,158
Current maturities of long-term
obligations 1,599 731
------------- ------------
Total current liabilities 32,579 32,610
Long-term liabilities:
Debt obligations, net of current
maturities 129,822 128,475
Financial derivative instruments 1,138 1,451
Accrued income taxes 8,024 7,747
Deferred income taxes 15,045 14,901
Deferred revenue 2,051 1,527
Accrued employee benefits and deferred
compensation 9,060 8,852
------------- ------------
Total long-term liabilities 165,140 162,953
Total liabilities 197,719 195,563
Commitments and contingencies - -
Shareholders' equity:
Common stock, no par value, $.10 stated
value shares authorized: 100,000
Shares issued and outstanding: 13,367
in 2008 and 13,285 in 2007 1,337 1,329
Additional paid-in capital 11,722 11,031
Retained earnings 22,195 20,639
Accumulated other comprehensive (loss) (1,504) (1,067)
------------- ------------
Total shareholders' equity 33,750 31,932
------------- ------------
Total liabilities and shareholders' equity $ 231,469 $227,495
============= ============
The accompanying notes are an integral part of the consolidated financial statements.
Telecom Sector Recap
(unaudited)
Three Months Ended Nine Months Ended
September 30 September 30
------------------ -----------------
2008 2007 2008 2007
-------- --------- -------- --------
(Dollars in thousands)
Revenues:
Local Service $ 4,079 $ 4,247 $12,296 $12,922
Network Access 6,752 7,086 19,529 23,823
Long Distance 1,097 1,248 3,484 3,877
Data 1,877 1,781 5,628 5,172
Internet 1,211 1,164 3,478 3,420
Digital TV 871 581 2,473 1,606
Directory 1,081 1,037 3,085 2,821
Bill Processing 1,058 661 2,557 1,864
Intersegment 174 116 465 334
Other 732 842 2,521 2,627
-------- --------- -------- --------
Total Telecom Revenues $18,932 $18,763 $55,516 $58,466
Costs and expenses:
Cost of services, excluding
depreciation and
amortization 7,958 7,794 23,450 22,807
Selling, general and
administrative expenses 3,470 3,381 10,075 10,027
Depreciation and
amortization 4,059 3,616 11,993 11,318
-------- --------- -------- --------
Operating income $ 3,445 $ 3,972 $ 9,998 $14,314
======== ========= ======== ========
Net income $ 2,033 $ 2,376 $ 5,848 $ 8,551
======== ========= ======== ========
Capital expenditures $ 3,117 $ 3,345 $ 8,082 $ 7,279
======== ========= ======== ========
Key Metrics
-------------------------------
Business access lines 26,350 27,616
Residential access lines 35,115 38,674
-------- ---------
Total access lines 61,465 66,290
Long distance customers 39,533 41,259
DSL customers 18,519 17,250
Digital TV customers 7,882 5,706
Enventis Sector Recap
(unaudited)
Three Months Ended Nine Months Ended
September 30 September 30
------------------ -----------------
(Dollars In thousands) 2008 2007 2008 2007
--------- -------- -------- --------
Revenue before eliminations:
ENS equipment $11,725 $10,092 $34,602 $39,395
ENS services 3,114 1,984 8,235 5,826
ETS services 6,263 5,136 17,617 15,035
Intersegment 138 152 404 299
--------- -------- -------- --------
$21,240 $17,364 $60,858 $60,555
Cost of sales, equipment
(excluding depreciation and
amortization) 10,190 8,705 29,605 35,578
Cost of services
(excluding depreciation and
amortization) 5,858 3,578 15,017 10,562
Selling, general and
administrative expenses 2,411 2,476 7,151 6,979
Depreciation and amortization 1,158 916 3,203 2,718
--------- -------- -------- --------
Operating income $ 1,623 $ 1,689 $ 5,882 $ 4,718
========= ======== ======== ========
Net income $ 959 $ 1,026 $ 3,453 $ 2,838
========= ======== ======== ========
Capital expenditures $ 1,338 $ 1,928 $ 4,315 $ 4,029
========= ======== ======== ========
Enventis Product Line
Three Months Ended September 30
-------------------------------------
Enterprise Network Enventis Transport
Services (ENS) Services (ETS)
(Dollars in thousands) 2008 2007 2008 2007
-------------------------------------
Revenue before intersegment
eliminations:
Equipment $11,725 $10,092 $ - $ -
Services 3,114 1,984 6,263 5,136
Intersegment - - 138 152
--------- -------- --------- --------
$14,839 $12,076 $6,401 $5,288
Cost of sales, equipment
(excluding depreciation and
amortization) 10,187 8,481 3 224
Cost of services
(excluding depreciation and
amortization) 2,698 1,074 3,160 2,504
Selling, general and
administrative expenses 1,295 1,374 1,116 1,102
Depreciation and amortization 122 128 1,036 788
--------- -------- --------- --------
Operating income $ 537 $ 1,019 $1,086 $ 670
========= ======== ========= ========
Net income $ 316 $ 614 $ 643 $ 412
========= ======== ========= ========
Capital expenditures $ 163 $ 438 $1,175 $1,490
========= ======== ========= ========
Nine Months Ended September 30
-------------------------------------
Enterprise Network Enventis Transport
Services (ENS) Services (ETS)
(Dollars in thousands) 2008 2007 2008 2007
-------------------------------------
Revenue before intersegment
eliminations:
Equipment $34,602 $39,395 $ - $ -
Services 8,235 5,826 17,617 15,035
Intersegment - - 404 299
--------- -------- -------- ---------
$42,837 $45,221 $18,021 $15,334
Cost of sales, equipment
(excluding depreciation and
amortization) 29,593 35,345 12 233
Cost of services
(excluding depreciation and
amortization) 6,673 3,254 8,344 7,308
Selling, general and
administrative expenses 3,827 3,643 3,324 3,336
Depreciation and amortization 366 376 2,837 2,342
--------- -------- -------- ---------
Operating income $ 2,378 $ 2,603 $ 3,504 $ 2,115
========= ======== ======== =========
Net income $ 1,394 $ 1,561 $ 2,059 $ 1,277
========= ======== ======== =========
Capital expenditures $ 452 $ 518 $ 3,863 $ 3,511
========= ======== ======== =========