Net Income increases 40 percent sequentially, Reaffirms 2008 Guidance
MANKATO, Minn.--July 28, 2008--HickoryTech Corp. (Nasdaq: HTCO) today reported financial results for the second fiscal quarter ended June 30, 2008. The company reported second quarter revenue of $39.7 million, a decline from the $45.6 million revenue of the second quarter 2007, which included a larger equipment order and one-time settlement revenue of $1.9 million from a large interexchange carrier. Sequentially, revenue increased 11 percent from the $35.9 million reported in the first quarter of fiscal 2008. For the six-month period, revenue totaled $75.6, an 8 percent decline from the $82.5 million reported one year ago due to higher equipment revenue and the one-time settlement reported in the second quarter of fiscal 2007.
"HickoryTech achieved another solid quarter with continued momentum in net income, operating growth and positive sequential revenue growth," said John Finke, HickoryTech's president and chief executive officer. "Contributing to the quarter's success is our strong focus on business-to-business solutions, specifically recurring services revenue within our Enventis Sector."
Net income for the second quarter 2008 totaled $2.5 million, or $0.19 per diluted share - a decline compared to the $3.2 million for the same period one year ago. Excluding the one-time settlement with a large interexchange carrier, net income for the second quarter increased 16 percent year over year. Sequentially, net income for the second quarter improved 40 percent from $1.8 million reported in the previous quarter. For the six-month period, net income totaled $4.3 million, or $0.32 per diluted share. Excluding the one-time interexchange settlement, net income rose 9 percent from the same period one year ago.
Enventis Sector net income totaled $1.7 million for the second quarter 2008, up 68 percent from the same quarter in 2007.
Consolidated operating income for the quarter totaled $5.9 million - a decrease compared to the $7.7 million second quarter of 2007, which included non-recurring settlement revenue of $1.9 million. Excluding this settlement in 2007, the year-over-year comparison demonstrates a 2 percent increase in second quarter operating income. Improvements in interest expense offset the decline in operating income.
Telecom Sector (before inter-segment eliminations), as compared to same period 2007
Pre-elimination Telecom Sector revenue was $18.2 million, a decline of $2.4 million or 12 percent. Second quarter 2007 revenue included a non-recurring $1.9 million interexchange carrier settlement, which was recorded in Network Access revenue. The Telecom Sector's second quarter 2008 results were impacted by network access declines and disputes, heightened competition within local service, double-digit broadband growth and bill processing increases.
- Network access revenue was $6.0 million, a decrease of $3.4 million. Excluding the $1.9 million non-recurring settlement of 2007, the year-over-year decline totaled $1.5 million, or 20.5 percent, for the second quarter. This decline was due to interstate rate changes, which went into effect July 1, 2007, lower minutes of use and line losses. The decline in revenue was elevated by disputes with carriers or settlement agencies of $646,000, with $475,000 of this being non-recurring in nature.
- Local service revenue declined 3.3 percent and local lines declined 6.2 percent, both the result of increased competition in our telecom markets.
- Broadband revenue grew 23 percent to $2.8 million versus $2.3 million. This revenue, which includes DSL, Data and Digital TV services, again outpaced the decline in local service revenue. DSL subscribers increased 9 percent, totaling 18,126, while Digital TV services grew 42 percent totaling 7,353 subscribers.
Enventis Sector (before inter-segment eliminations), as compared to same period 2007
Enventis Sector revenue before eliminations totaled $21.9 million, a decline of $3.4 million or 13 percent to the comparative quarter which included large equipment orders. Enventis operating income for the second quarter totaled $2.8 million, an increase of $1.2 million or 72 percent compared with the same quarter in 2007, with a similar increase in Enventis net income.
- Equipment sales within Enterprise Network Services (ENS) for the second quarter 2008 totaled $12.7 million, a decrease of $5.2 million or 29 percent from a year ago, which included a large equipment order.
- Service revenue within ENS, which includes professional services, increased $1 million or 46 percent.
- Enterprise Transport Services (ETS), network based services, revenue increased 15 percent to $6 million, attributed to strong transport growth and increased demand for our hosted unified communication solution.
- Both product lines of Enventis, ENS and ETS, demonstrated significant operating income growth in 2008 over the comparative quarter and first half of 2007.
Capital Expenditures and Debt
HickoryTech reported capital expenditures of $4.5 million for the second quarter of 2008 and $8 million year-to-date in 2008. Investments supported fiber and IP network upgrades, Digital TV expansion and success-based network sales. Investments increased $1.2 million as compared to the second quarter 2007 and $1.9 million more than the first half of fiscal 2008. Debt balance (long-term and current portion) totaled $133.7 million as of June 30, 2008, a $4.4 million increase from the beginning of the year.
2008 Guidance
HickoryTech reaffirmed its previously stated 2008 full-year guidance:
- Revenue is expected to range from $158 million to $164 million
- Net Income is expected to range from $7.6 million to $8.4 million
- CAPEX is expected to range from $18 million to $20 million for the year
- Year-end debt balance is expected to range from $126 million to $129 million
"While we are cautious about the economy, we are excited about the strong momentum and backlogs within our business services," said Finke. "Our focus on revenue diversification and growing our business and broadband services has strengthened our Company and offset anticipated declines in network access. We look to continue to leverage our position as a market leader by providing integrated, cost-effective communication solutions."
Webcast Details
Further information on the second quarter 2008 results will be discussed during the Company's quarterly conference call and webcast with investors on Tuesday, July 29, 2008 at 9 a.m. CT. The dial-in number for the call is (866) 356-4281 (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 420 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. The Enventis Sector provides IP-based voice, data and network solutions to businesses across 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. Except as required by federal securities laws, HickoryTech undertakes no obligation to update any of its forward-looking statements for any reason.
Consolidated Statement of Operations
(unaudited)
(Dollars in
thousands) Three Months Ended June 30 Six Months Ended June 30
-------------------------- -------------------------
2008 2007 2008 2007
------------- ------------ ------------ ------------
Revenues:
Telecom Sector $ 17,999 $ 20,448 $ 36,293 $ 39,485
Enventis Sector
Equipment
revenue 12,709 17,869 22,877 29,303
Services
revenue 9,037 7,285 16,475 13,741
------------- ------------ ------------ ------------
Total Enventis
Sector 21,746 25,154 39,352 43,044
------------- ------------ ------------ ------------
Total revenues 39,745 45,602 75,645 82,529
Costs and
Expenses:
Cost of sales,
equipment,
excluding
depreciation
and
amortization 10,718 16,559 19,415 26,873
Cost of
services,
excluding
depreciation
and
amortization 12,627 10,778 24,319 21,695
Selling, general
and
administrative
expenses 5,463 5,891 11,147 11,727
Depreciation 4,757 4,432 9,426 8,936
Amortization of
intangibles 289 289 578 578
------------- ------------ ------------ ------------
Total costs and
expenses 33,854 37,949 64,885 69,809
------------- ------------ ------------ ------------
Operating income 5,891 7,653 10,760 12,720
Interest and
other income 15 47 42 131
Interest expense (1,478) (2,031) (3,175) (4,213)
------------- ------------ ------------ ------------
Income before
income taxes 4,428 5,669 7,627 8,638
Income taxes 1,931 2,415 3,349 3,616
------------- ------------ ------------ ------------
Income from
continuing
operations 2,497 3,254 4,278 5,022
Discontinued
operations
Loss from
operations of
discontinued
component - (13) - (15)
Income tax
benefit - (5) - (6)
------------- ------------ ------------ ------------
Loss from
discontinued
operations - (8) - (9)
------------- ------------ ------------ ------------
Net income $ 2,497 $ 3,246 $ 4,278 $ 5,013
============= ============ ============ ============
Reconciliation of
operating income
to EBITDA:
Operating income $ 5,891 $ 7,653 $ 10,760 $ 12,720
Add:
Depreciation 4,757 4,432 9,426 8,936
Amortization
of
intangibles 289 289 578 578
------------- ------------ ------------ ------------
EBITDA $ 10,937 $ 12,374 $ 20,764 $ 22,234
============= ============ ============ ============
(Not in
thousands)
Basic earnings
per share -
continuing
operations: $ 0.19 $ 0.25 $ 0.32 $ 0.38
Basic loss per
share -
discontinued
operations: - - - -
------------- ------------ ------------ ------------
$ 0.19 $ 0.25 $ 0.32 $ 0.38
============= ============ ============ ============
Basic weighted
average common
shares
outstanding 13,324,200 13,247,508 13,312,804 13,241,079
============= ============ ============ ============
Diluted earnings
per share -
continuing
operations: $ 0.19 $ 0.25 $ 0.32 $ 0.38
Diluted loss per
share -
discontinued
operations: - - - -
------------- ------------ ------------ ------------
$ 0.19 $ 0.25 $ 0.32 $ 0.38
============= ============ ============ ============
Diluted weighted
average common
and equivalent
shares
outstanding 13,326,719 13,247,508 13,317,145 13,241,079
============= ============ ============ ============
Dividends per
share $ 0.12 $ 0.12 $ 0.24 $ 0.24
============= ============ ============ ============
Consolidated Balance Sheet
(unaudited)
Dollars in Thousands June 30, 2008 December 31, 2007
------------- -----------------
ASSETS
Current assets:
Cash and cash equivalents $ 920 $ 171
Receivables, net of
allowance for doubtful
accounts of $958 and $1,184 32,187 28,357
Inventories 9,273 7,054
Income tax receivable - 1,013
Deferred income taxes 1,334 1,334
Prepaid expenses 1,640 1,713
Other 858 1,196
------------- -----------------
Total current assets 46,212 40,838
Investments 4,066 3,830
Property, plant and equipment 329,365 322,249
Less accumulated
depreciation 177,725 169,318
------------- -----------------
Property, plant and
equipment, net 151,640 152,931
Other assets:
Goodwill 25,239 25,239
Intangible assets, net 1,405 1,983
Deferred costs and other 2,452 2,674
------------- -----------------
Total other assets 29,096 29,896
------------- -----------------
Total assets $ 231,014 $ 227,495
============= =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Extended term payable $ 13,041 $ 14,443
Accounts payable 4,027 4,538
Accrued expenses 7,098 7,740
Accrued income taxes 364 -
Advanced billings and
deposits 5,226 5,158
Current maturities of long-
term obligations 1,341 731
------------- -----------------
Total current liabilities 31,097 32,610
Long-term liabilities:
Debt obligations, net of
current maturities 132,313 128,475
Financial derivative
instruments 1,053 1,451
Accrued income taxes 7,930 7,747
Deferred income taxes 15,072 14,901
Deferred revenue 1,506 1,527
Accrued employee benefits and
deferred compensation 8,925 8,852
------------- -----------------
Total long-term
liabilities 166,799 162,953
Total liabilities 197,896 195,563
Commitments and contingencies - -
Shareholders' equity:
Common stock, no par value,
$.10 stated value
shares authorized:
100,000
Shares issued and
outstanding: 13,330 in
2008 and 13,285 in 2007 1,333 1,329
Additional paid-in capital 11,527 11,031
Retained earnings 21,724 20,639
Accumulated other
comprehensive (loss) (1,466) (1,067)
------------- -----------------
Total shareholders'
equity 33,118 31,932
------------- -----------------
Total liabilities and shareholders'
equity $ 231,014 $ 227,495
============= =================
Telecom Sector Recap
(unaudited)
Three Months Ended June 30 Six Months Ended June 30
-------------------------- ------------------------
2008 2007 2008 2007
------------- ------------ ----------- ------------
(Dollars in
thousands)
Revenues:
Local Service $ 4,086 $ 4,227 $ 8,217 $ 8,675
Network Access 5,952 9,378 12,777 16,737
Long Distance 1,197 1,297 2,387 2,629
Data 1,903 1,715 3,751 3,391
Internet 1,189 1,130 2,267 2,256
Digital TV 858 536 1,602 1,025
Directory 1,004 899 2,004 1,784
Bill Processing 905 514 1,499 1,203
Intersegment 161 111 291 218
Other 905 752 1,789 1,785
------------- ------------ ----------- ------------
Total Telecom
Revenues $ 18,160 $ 20,559 $ 36,584 $ 39,703
Costs and
expenses:
Cost of
services,
excluding
depreciation
and
amortization 7,845 7,158 15,492 15,013
Selling, general
and
administrative
expenses 3,301 3,373 6,605 6,646
Depreciation and
amortization 4,008 3,789 7,934 7,702
------------- ------------ ----------- ------------
Operating income $ 3,006 $ 6,239 $ 6,553 $ 10,342
============= ============ =========== ============
Net income $ 1,747 $ 3,736 $ 3,815 $ 6,175
============= ============ =========== ============
Capital
expenditures $ 2,545 $ 2,288 $ 4,965 $ 3,934
============= ============ =========== ============
Key Metrics
-----------------
Business access
lines 27,023 27,306
Residential
access lines 35,872 39,716
------------- ------------
Total access
lines 62,895 67,022
Long distance
customers 40,565 41,287
DSL customers 18,126 16,677
Digital TV
customers 7,353 5,194
Enventis Sector Recap
(unaudited)
Three Months Ended June 30 Six Months Ended June 30
-------------------------- ------------------------
(Dollars In
thousands) 2008 2007 2008 2007
------------- ------------ ----------- ------------
Revenue before
eliminations:
ENS equipment
revenue $ 12,709 $ 17,869 $ 22,877 $ 29,303
ENS services
revenue 3,056 2,099 5,121 3,842
ETS services
revenue 5,981 5,186 11,354 9,899
Intersegment 128 85 266 147
------------- ------------ ----------- ------------
$ 21,874 $ 25,239 $ 39,618 $ 43,191
Cost of sales,
equipment
(excluding
depreciation
and
amortization) 10,718 16,559 19,415 26,873
Cost of services
(excluding
depreciation
and
amortization) 4,880 3,786 9,159 6,984
Selling, general
and
administrative
expenses 2,413 2,318 4,740 4,503
Depreciation and
amortization 1,025 927 2,045 1,802
------------- ------------ ----------- ------------
Operating income $ 2,838 $ 1,649 $ 4,259 $ 3,029
============= ============ =========== ============
Net income $ 1,660 $ 990 $ 2,494 $ 1,812
============= ============ =========== ============
Capital
expenditures $ 1,984 $ 1,017 $ 2,977 $ 2,101
============= ============ =========== ============
Enventis Product Line
Three Months Ended June 30
------------------------------------
Network Services Transport Services
(Dollars in thousands) 2008 2007 2008 2007
------------------------------------
Revenue before intersegment
eliminations:
Equipment revenue $ 12,709 $ 17,869 $ - $ -
Services revenue 3,056 2,099 5,981 5,186
Intersegment - - 128 85
-------- -------- --------- --------
$ 15,765 $ 19,968 $ 6,109 $ 5,271
Cost of sales, equipment
(excluding depreciation and
amortization) 10,714 16,554 4 5
Cost of services
(excluding depreciation and
amortization) 2,143 1,253 2,737 2,533
Selling, general and
administrative expenses 1,273 1,171 1,140 1,147
Depreciation and amortization 123 153 902 774
-------- -------- --------- --------
Operating income $ 1,512 $ 837 $ 1,326 $ 812
======== ======== ========= ========
Net income $ 885 $ 502 $ 775 $ 488
======== ======== ========= ========
Capital expenditures $ 156 $ 112 $ 1,828 $ 905
======== ======== ========= ========
Six Months Ended June 30
------------------------------------
Network Services Transport Services
(Dollars in thousands) 2008 2007 2008 2007
------------------------------------
Revenue before intersegment
eliminations:
Equipment revenue $ 22,877 $ 29,303 $ - $ -
Services revenue 5,121 3,842 11,354 9,899
Intersegment - - 266 147
-------- -------- --------- --------
$ 27,998 $ 33,145 $ 11,620 $ 10,046
Cost of sales, equipment
(excluding depreciation and
amortization) 19,406 26,864 9 9
Cost of services
(excluding depreciation and
amortization) 3,975 2,180 5,184 4,804
Selling, general and
administrative expenses 2,532 2,269 2,208 2,234
Depreciation and amortization 244 248 1,801 1,554
-------- -------- --------- --------
Operating income $ 1,841 $ 1,584 $ 2,418 $ 1,445
======== ======== ========= ========
Net income $ 1,078 $ 947 $ 1,416 $ 865
======== ======== ========= ========
Capital expenditures $ 289 $ 80 $ 2,688 $ 2,021
======== ======== ========= ========