MANKATO, Minn. March 14, 2007--HickoryTech Corp. (Nasdaq:HTCO) today reported that it has revised its fourth quarter and year-end 2006 results, which were announced March 7, 2007 in the earnings release and discussed March 8, 2007 during the investor conference call. The income from continuing operations and net income (loss) were reduced by $369,000. Management indicates this revision does not reflect adversely on the integrity of the Company's financial and accounting systems. The Company expects to file its annual Form 10-K with the Securities and Exchange Commission with the associated report of its independent registered public accountants today.
A copy of the complete earnings release as revised is set forth below:
MANKATO, Minn., March 14, 2007--HickoryTech Corp. today reported revised financial results for the fourth quarter and full year of 2006. Several non-recurring events impacted the results while positioning the company for continued revenue growth and earnings improvement.
The fourth quarter results reflect the sale of the Enterprise Solutions Sector, which was announced Dec. 29, 2006, and the reporting of Enterprise Solutions operating results as discontinued operations for the fourth quarter, calendar year 2006, and all prior years. In addition, the operations of the Company's former Information Solutions Sector are now consolidated with the Telecom Sector. All comparative years have been changed to reflect this financial presentation. HickoryTech now reports in two business sectors, Telecom and Enventis. These two key sectors reflect the Company's strategic focus on Enventis business growth and its commitment to growing its broadband services within the Telecom Sector to ensure competitive services and customer retention.
"The fourth quarter and year end results for 2006 demonstrate our commitment to improving shareholder value by leveraging the acquisition of Enventis and eliminating non-strategic operations," commented John Finke, HickoryTech's president and chief executive officer. "The impact of these decisions will enhance our ability to deliver on long-term revenue growth and earnings performance."
Highlights for the Fourth Quarter:
- Total revenues from continuing operations were $33.4 million, a 75.9 percent increase compared to the fourth quarter of 2005, due to the strong revenue contributions from the Enventis Sector, acquired at the end of 2005. Enventis produced four consistently high quarters of operating revenues in 2006.
- Net income for the fourth quarter of 2006 from continuing operations was $486,000, compared to $1,967,000 in the same period a year ago. The decline is attributable to: higher than normal inventory and accounts receivable reserves, integration costs for Enventis, certain corporate costs associated with severance and implementing a new ERP system and compliance costs for Enventis first year Sarbanes Oxley and slightly higher income tax rates.
- Diluted earnings per share from continuing operations were 4 cents for the most recent quarter, a decline of 73 percent from 15 cents reported for the same period a year ago.
- Long-term debt remained level at approximately $143 million.
- Broadband revenues increased 24.6 percent to $2.0 million for the fourth quarter, versus $1.6 million in the fourth quarter of last year. Broadband revenues include DSL, Data and Digital TV services.
Consolidated results for the fourth quarter and full year 2006
HickoryTech's consolidated operating revenues for the quarter were $33.4 million, an increase of 75.9 percent compared to the fourth quarter of 2005. This fourth consecutive quarter of revenue growth was due to the addition of Enventis revenue contributions of $9.9 million from enterprise network systems and services and $4.9 million from transport systems. Excluding Enventis, revenues would have declined $0.4 million, or 1.9 percent, compared to the fourth quarter of 2005. The decline in revenue is primarily due to lower revenue from a distance-learning network customer in the Telecom Sector, SOCRATES, and slightly lower local service revenue due to the continuing impact of competition. Consolidated operating revenues for the full year 2006 were $132.9 million, an increase of 70.5 percent compared with 2005.
HickoryTech's consolidated operating income from continuing operations for the quarter was $3.0 million, a decrease of $1.3 million compared to the fourth quarter of 2005. The Enventis operating income contribution of $262,000 offset other consolidated operating income decreases for the quarter of $1.6 million, compared to the fourth quarter of 2005. The positive operating results of Enventis were negatively affected in the fourth quarter by higher than normal inventory and accounts receivable reserves and integration costs. There was $419,000 of increases in corporate costs due to severance costs and costs associated with implementing new financial systems and first year Sarbanes-Oxley compliance costs for the new Enventis Sector. Consolidated operating income from continuing operations for the full year 2006 was $15.8 million, compared to $18.5 million in 2005.
HickoryTech reported $486,000 in income from continuing operations in the fourth quarter of 2006 compared to $1,967,000 the same period in 2005. Diluted earnings per share from continuing operations were 4 cents for the quarter, versus 15 cents in the prior year's fourth quarter. Net income and earnings per share included planned acquisition integration costs that were incurred in the fourth quarter as well as throughout 2006. The fourth quarter of 2006 also included higher bad debt reserves associated with increased inventory and accounts receivable levels, certain corporate costs as detailed earlier and slightly higher income tax rates. Net income from continuing operations for the full year 2006 was $5.2 million, compared to $8.5 million in 2005.
HickoryTech invested in capital expenditures in the Telecom and Enventis Sectors for broadband network upgrades, fiber optic network expansion and success-based network improvements. In addition, higher accounts receivable and inventory for Enventis as of Dec. 31, 2006 contributed to maintaining the long-term debt level at approximately $143 million and provided an increase in short-term financing for Enventis working capital in the amount of $7,719,000 at Dec. 31, 2006.
Telecom Sector quarterly and full year performance
In the fourth quarter of 2006, the Telecom Sector experienced many of the same trends as previous quarters; with increasing revenue from broadband, DSL, Data and Digital TV services, and anticipated declining network access revenue from inter-exchange carriers. It can be noted that the Telecom Sector now includes the operations of Information Solutions, which had been reported as a separate sector in previous reports of the Company. All comparative numbers for prior periods have been restated to conform to this presentation.
Key Telecom Sector metrics for the fourth quarter and full year 2006:
- Revenues were $18.6 million, versus $19.0 million a year ago for the quarter and $74.9 million for the year versus $77.9 million in the prior year.
- Broadband revenues rose 24.6 percent to $2.0 million, versus $1.6 million in the fourth quarter of last year and increased 26.2 percent to $7.5 million for the full year 2006 compared to the prior year.
- The upward trend in DSL lines continued, totaling 15,724 at year end, versus 13,022 for the year-end of 2005, an increase of 20.7 percent.
- Total Digital TV customers grew to 4,632, up 67.5 percent from a year ago. This growth is a result of entering new communities, as well as increased penetration of existing markets.
- Network access revenues were $7.6 million, a $0.1 million or 1.3 percent decline from the same quarter last year. This is a more moderate decline than the $3.4 million or 10.3 percent decline for the full year. Network access revenue declines have moderated compared to the first half of 2006 because rate adjustments initiated in the third quarter of 2005 have been in place for a full year.
- Local service revenue declined 3.5 percent in the quarter and 1.6 percent for the year, due to competition. Our local lines declined 2.9 percent for the year, a decline that was less than industry peers.
Enventis Sector quarterly and full year performance
Enventis is a key element of the HickoryTech growth strategy. The Enventis Sector repeated its performance as a strong contributor to consolidated operating income in the fourth quarter of 2006 and for the full year. Enventis revenue in the fourth quarter was $14.8 million, consisting of approximately $9.9 million from enterprise network services and $4.9 million from enterprise transport services. Transport services represented 33 percent of Enventis revenues in the fourth quarter, a higher percentage than previous quarters, and a line of business that produces higher margins and recurring revenue streams. Enventis revenue for the full year 2006 was $58 million. Although this sector was not reported in HickoryTech's 2005 consolidated operations, the 2006 revenue for Enventis represented a 14.1 percent increase over Enventis unaudited revenues in 2005.
Going forward
"We are making solid progress in implementing the long-term growth plan we have mapped out for ourselves," said Finke. "With the Enventis acquisition we now have a diverse revenue stream which includes a balance of strong cash flows from our Telecom Sector and growth potential through our Enventis Sector. During 2007, we will expand our Digital TV services into three additional communities which will double our market opportunity for these services and we have recently begun expanding our fully integrated business solutions into new markets along our expanded fiber footprint."
Further information on the fourth quarter and year-end results, as well as additional guidance regarding management's outlook, will be given during the Company's quarterly conference call and Webcast with investors at 8 a.m. CST on March 8, 2007. Investors may access the Webcast through a link on HickoryTech's 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 is in its 110th year of operation and has approximately 400 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.
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) For Three Months Ended For Year Ended
December 31 December 31
----------------------- -----------------------
2006 2005 2006 2005
----------- ----------- ----------- -----------
Revenues:
Telecom Sector $18,630 $18,987 $74,896 $77,922
Enventis 14,771 - 58,005 -
----------- ----------- ----------- -----------
Total Revenues 33,401 18,987 132,901 77,922
Costs and Expenses:
Cost of Sales,
Enventis 7,830 - 31,152 -
Cost of Services,
excluding
Depreciation and
Amortization 12,057 8,114 44,506 31,408
Selling, General and
Administrative
Expenses, excluding
Depreciation and
Amortization 5,782 3,060 23,291 12,600
Depreciation 4,461 3,446 16,949 14,943
Amortization of
Intangibles 293 26 1,172 493
----------- ----------- ----------- -----------
Total Costs and
Expenses 30,423 14,646 117,070 59,444
----------- ----------- ----------- -----------
Operating Income 2,978 4,341 15,831 18,478
Interest and Other
Income 30 22 138 97
Interest Expense (1,970) (1,234) (7,362) (4,363)
----------- ----------- ----------- -----------
Income from Continuing
Operations Before
Income Taxes 1,038 3,129 8,607 14,212
Income Tax Provision 552 1,162 3,372 5,646
----------- ----------- ----------- -----------
Income from Continuing
Operations 486 1,967 5,235 8,566
Discontinued Operations
Income/(Loss) From
Operations of
Discontinued
Component (3,652) (193) (4,556) (62)
Income Tax
Provision/(Benefit) (1,226) (77) (1,589) (25)
----------- ----------- ----------- -----------
Income/(Loss) from
Discontinued
Operations (2,426) (116) (2,967) (37)
----------- ----------- ----------- -----------
Net Income $(1,940) $1,851 $2,268 $8,529
=========== =========== =========== ===========
(Not in thousands)
Basic Earnings Per
Share - Continuing
Operations: $0.04 $0.15 $0.40 $0.65
Basic Earnings/(Loss)
Per Share -
Discontinued
Operations: $(0.18) (0.01) (0.23) -
----------- ----------- ----------- -----------
$(0.14) $0.14 $0.17 $0.65
=========== =========== =========== ===========
Dividends Per Share $0.12 $0.12 $0.48 $0.48
=========== =========== =========== ===========
Basic Weighted Average
Common Shares
Outstanding 13,196,494 13,114,692 13,163,480 13,083,252
=========== =========== =========== ===========
Diluted Earnings Per
Share - Continuing
Operations: $0.04 $0.15 $0.40 $0.65
Diluted Earnings/(Loss)
Per Share -
Discontinued
Operations: (0.18) (0.01) (0.23) -
----------- ----------- ----------- -----------
$(0.14) $0.14 $0.17 $0.65
=========== =========== =========== ===========
Diluted Weighted
Average Common and
Equivalent Shares
Outstanding 13,196,577 13,123,685 13,163,480 13,097,417
=========== =========== =========== ===========
Consolidated Balance Sheets
----------------------------------------------------------------------
(unaudited)
(In Thousands Except Share and Per Share Amounts) 2006 2005
--------- ---------
ASSETS
Current Assets:
Cash and cash equivalents $84 $601
Receivables, net of allowance for doubtful
accounts of $851 and $334 20,780 19,867
Costs in excess of billings on contracts - 462
Inventories 11,294 4,577
Deferred income taxes 815 300
Prepaid expenses 1,903 5,066
Other 1,662 1,155
--------- ---------
Total current assets 36,538 32,028
Investments 3,554 3,407
Property, plant and equipment 309,264 290,499
Less accumulated depreciation 156,429 141,157
--------- ---------
Property, plant and equipment, net 152,835 149,342
Other assets:
Goodwill 25,239 27,109
Intangible assets, net 3,140 4,312
Financial derivative instruments 2,489 3,429
Deferred costs and other 3,105 3,640
--------- ---------
Total other assets 33,973 38,490
--------- ---------
Total assets $226,900 $223,267
========= =========
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Cash Overdraft $1,475 $514
Short-term financing 7,719 -
Accounts payable 4,211 5,224
Accrued expenses 5,167 6,809
Accrued interest 447 -
Accrued income taxes 4,528 4,765
Billings in excess of costs on contracts - 283
Advanced billings and deposits 3,488 4,577
Current Portion - Post Retirement Benefits 212 -
Current maturities of long-term obligations 1,560 1,778
--------- ---------
Total current liabilities 28,807 23,950
Long-term obligations, net of current maturities 141,529 140,980
Deferred income taxes 15,332 15,346
Deferred revenue 2,596 1,948
Accrued employee benefits and deferred
compensation 8,550 6,034
--------- ---------
Total liabilities 196,814 188,258
Commitments and contingencies - -
Shareholders' equity:
Common Stock, no par value, $.10 stated value
Shares authorized: 100,000,000
Shares issued and outstanding: 13,207,970 in
2006 and 13,124,928 in 2005 1,321 1,312
Additional paid-in capital 9,992 9,262
Retained earnings 18,323 22,371
Accumulated other comprehensive income 450 2,064
--------- ---------
Total shareholders' equity 30,086 35,009
--------- ---------
Total liabilities and shareholders' equity $226,900 $223,267
========= =========
Telecom Sector Recap
----------------------------------------------------------------------
(unaudited)
(Dollars in Thousands) For Three Months Ended For Twelve Months Ended
December 31 December 31
---------------------- -----------------------
2006 2005 2006 2005
----------- ---------- ----------- -----------
Revenues:
Local Service $4,502 $4,664 $18,224 $18,520
Network Access 7,619 7,723 29,936 33,384
Long Distance 1,223 1,216 4,877 4,821
Data 1,527 1,307 6,048 4,968
Internet 1,112 1,114 4,467 4,361
Digital TV 467 293 1,457 979
Directory 917 905 3,624 3,509
Message Processing &
Billing 421 601 2,127 2,522
Intersegment 138 32 260 128
Other 842 1,164 4,136 4,858
----------- ---------- ----------- -----------
Total Telecom Revenues $18,768 $19,019 $75,156 $78,050
Costs and Expenses:
Cost of services,
excluding
depreciation and
amortization 8,491 8,114 32,046 31,408
Selling, general and
administrative
expenses,
excluding depreciation
and amortization 3,134 3,042 13,001 12,438
Depreciation and
amortization 3,939 3,453 15,009 15,375
----------- ---------- ----------- -----------
Operating income $3,204 $4,410 $15,100 $18,829
=========== ========== =========== ===========
----------- ---------- ----------- -----------
Income from Continuing
Operations, net of tax $2,039 $2,761 $9,237 $11,324
=========== ========== =========== ===========
Key Metrics
-----------------------
Capital Expenditures $3,257 $9,235 $15,631 $19,312
Access Lines 68,043 70,090
Long Distance Customers 41,196 40,321
Internet Customers 20,052 18,396
DSL Customers 15,724 13,022
Digital TV Customers 4,632 2,766
Enventis Sector Recap
----------------------------------------------------------------------
(unaudited)
Three Months Ended YTD
(Dollars in December 31, September 30, June 30, March 31,
Thousands) 2006 2006 2006 2006 2006
------------ ------------- -------- --------- --------
Revenues before
eliminations:
Enterprise
Network
Services $9,857 $9,741 $11,144 $10,031 $40,773
Enterprise
Transport
Services 4,914 4,231 4,034 4,053 17,232
Intersegment 50 - - - 50
------------ ------------- -------- --------- --------
$14,821 $13,972 $15,178 $14,084 $58,055
============ ============= ======== ========= ========
Cost of sales 7,830 7,183 8,456 7,683 31,152
Cost of services
(excluding
depreciation
and
amortization) 3,702 3,320 2,932 2,687 12,641
Selling, general
and
administrative
expenses,
(excluding
depreciation
and
amortization) 2,216 2,057 2,291 2,410 8,974
Depreciation and
amortization 811 732 768 737 3,048
------------ ------------- -------- --------- --------
Operating income $262 $680 $731 $567 $2,240
============ ============= ======== ========= ========
Net income $185 $403 $437 $338 $1,363
============ ============= ======== ========= ========
Capital
expenditures $984 $1,240 $2,593 $507 $5,324
============ ============= ======== ========= ========