Stock:Hickory Tech (HTCO)/News/3596489/HickoryTech Reports Fourth Quarter and Full Year 2011 Results

HickoryTech Corporation (NASDAQ: HTCO) today reported earnings for the fourth quarter ended Dec. 31, 2011. Revenue totaled $39.6 million, a 5 percent decrease year over year. Fourth quarter net income of $1.4 million, or 11 cents per diluted share, was down year over year partially due to costs associated with the Company’s agreement to acquire IdeaOne, and due to higher interest costs associated with the Company’s third quarter 2011 refinancing. Fiscal 2011 revenue was up 1 percent and operating income was down 6 percent from fiscal 2010.

“We met and exceeded our objectives for fiscal 2011 and took additional steps to further expand our fiber network and to grow our company,” said John Finke, HickoryTech’s president and chief executive officer. “We signed an agreement to acquire IdeaOne in December and closed on this acquisition on March 1, 2012. While our fourth quarter results included expenses associated with this acquisition and normal sales fluctuation in our equipment segment, our fiber and data segment continued to grow while our telecom business remained stable. We remain committed to our strategic initiatives and will continue to manage the strong cash flows of our business to make investments which lay the foundation for future growth initiatives.”

Capital expenditures in the fourth quarter totaled $7.3 million, up $1.4 million compared with the same period in fiscal 2010. Business Sector capital investments totaled $4.5 million and supported local market expansion, capacity upgrades and success based initiatives. Telecom Sector investments of $2.8 million supported core network services and broadband growth and expansion.

“We made significant progress in 2011 with our Greater Minnesota Broadband Collaborative Project which further expands our fiber footprint from the Twin Cities to northern Minnesota,” said Finke. “The majority of this fiber route was completed in 2011 and we’ll begin the northwestern Minnesota route in 2012, which will add more diversity to our Fargo, North Dakota network. The Fargo metro network is expected to bring accelerated growth opportunities for our customers in this market.”

Business Sector (includes Fiber/Data and Equipment Segments, before inter-segment eliminations)

Fourth quarter Business Sector revenue totaled $22.4 million, a 9 percent decrease year over year, attributed to lower equipment sales. Costs and expenses totaled $20.1 million, down 9 percent year over year. Net income totaled $1.4 million, also down 1 percent from one year ago.

Fiber and data revenue totaled $12.1 million, an increase of 7 percent year over year and a $473,000 increase over the third quarter 2011.
Fiber and data operating income was $2.0 million for the fourth quarter of 2011, a 25 percent increase year over year. Cost and expenses in this growth segment of the Company have been held to only a 4 percent increase year over year.
Equipment segment revenue totaled $10.3 million, a decrease of 22 percent year over year. Hardware sales decreased 28 percent compared with the fourth quarter of 2010 while support services revenue grew 15 percent.
Equipment segment operating income was $292,000 in the fourth quarter of 2011, a $527,000 decrease year over year. Costs and expenses decreased 19 percent.

Telecom Sector (before inter-segment eliminations)

Fourth quarter Telecom Sector revenue totaled $17.8 million, down 1 percent year over year. Telecom Sector results were stable and reflect growth in broadband services offset by the impact of declines in legacy local service and ancillary service revenues. Costs and expenses totaled $15.1 million, a 1 percent decrease year over year. Telecom Sector net income totaled $1.7 million, a 1 percent increase over fourth quarter 2010.

Broadband revenue totaled $5.1 million, up 2 percent year over year. Broadband revenue includes DSL, Internet, Data and Digital TV services.
Network access revenue totaled $5.4 million, a 1 percent increase year over year.
Local service revenue totaled $3.5 million, down 6 percent from one year ago, and local access lines declined 7 percent.
Bill processing revenue totaled $1.4 million, up 29 percent year over year.

Consolidated Results for fiscal 2011

Revenue for fiscal 2011 totaled $163.5 million, a 1 percent increase over fiscal 2010. A unique fiber construction project in 2010 added $5 million of revenue. Excluding the 2010 fiber construction project, revenue for fiscal 2011 grew 4 percent.
Net income for fiscal 2011 totaled $9.2 million, a 24 percent decrease from fiscal 2010. The company had unique income tax reserve reversals of $406,000 in fiscal 2011 and $2.7 million in fiscal 2010, which added to net income in both years. Excluding the income tax reserve releases, net income in fiscal 2011 decreased 6 percent from fiscal 2010, largely due to SG&A and depreciation increases.
Operating income for fiscal 2011 totaled $19.7 million, a 6 percent decrease from the previous year. The 2010 fiber construction project added $2.3 million of operating income last year. Excluding this fiber construction project, operating income for fiscal 2011 grew 5 percent.
EBITDA (as defined by our credit agreement) was $43.3 million in 2011, similar to 2010 EBITDA of $43.1 million. Excluding the 2010 fiber construction project, EBITDA grew 6 percent in 2011.
Business sector revenue for fiscal 2011 totaled $94.9 million, up 2 percent from the previous year or up 8 percent when excluding the 2010 fiber construction project revenue. Fiber and data revenue grew 14 percent (excluding the 2010 fiber construction project revenue) in fiscal 2011, and Equipment revenue grew 3 percent.
Telecom Sector revenue for fiscal 2011 totaled $71.1 million, down 1 percent from the previous year. Telecom Broadband services grew 8 percent and Bill Processing revenue from external customers grew 13 percent, both helped offset the declines in legacy telecom service revenue.
Capital expenditures in 2011 totaled $21.4 million net of grants from the Greater Minnesota Broadband Collaborative Project.
The company completed the refinance of its senior credit facility in the third quarter of 2011. As of December 31, 2011, $119.7 million of term loan debt is outstanding from this new credit agreement. The $150 million credit agreement offers the company access to additional financing for growth initiatives, and was utilized in the acquisition of IdeaOne in the first quarter of 2012. The term of the credit agreement runs through fiscal 2016.

Debt Position

Long-term debt and current maturities of debt, including capitalized leases, totaled $120.2 million as of Dec. 31, 2011, down $370,000 from the end of third quarter 2011. The 2011 debt balance is up slightly from the $119 million as of Dec. 31, 2010. Net debt, a measure of actual balance-sheet strength that subtracts the cash balance from total debt, totaled $107.2 million as of Dec. 31, 2011, a $11.7 million improvement from the $118.9 million net debt as of Dec. 31, 2010.

Close of IdeaOne (Fargo, North Dakota) acquisition

Effective March 1, 2012, HickoryTech completed its acquisition of IdeaOne, a facilities-based fiber CLEC operating in the Fargo, North Dakota area. IdeaOne has a robust, metro fiber network and a strong business customer base. Effective in the first quarter 2012, the company will report IdeaOne results as part of its fiber and data segment operations, as part of its Business Sector. HickoryTech utilized a $22 million term loan debt under its existing credit facility, plus cash, to complete the acquisition.

Fiscal Outlook

HickoryTech provides the following guidance for its 2012 fiscal year. Guidance metrics reflect the IdeaOne acquisition as of March 1, 2012.

Revenue is expected to range from $177 million to $183 million
Net Income is expected to range from $7.6 million to $8.6 million (factors in high level of depreciation associated with network expansion)
Diluted Earnings Per Share is expected to range between $0.57 to $0.64 per share
CAPEX is expected to range from $25 million to $29 million (net of government grants for the Greater Minnesota Broadband Collaborative Project)
EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) is expected to range from $46 million to $48 million (factors in Telecom impact resulting from Access Reform Plan)
Debt balance at Dec. 31, 2012 is expected to range from $141 million to $144 million

Conference Call and Webcast

HickoryTech will host a conference call and webcast on Wednesday, March 7 at 9 a.m. CT. The dial-in number for the call is 877-774-2369 and the conference ID is 49271871. A simultaneous webcast of the call and downloadable presentation will be available through a link on the Investor Relations page at http://investor.hickorytech.com.

About HickoryTech

HickoryTech Corporation is a leading communications provider serving business and residential customers in the upper Midwest. With headquarters in Mankato, Minn., HickoryTech has 500 employees and a five-state fiber network spanning more than 3,250 route miles across Minnesota and into Iowa, North Dakota, South Dakota and Wisconsin. Enventis provides business IP voice, data and video solutions, MPLS networking, data center and managed hosted services and communication systems. HickoryTech delivers broadband Internet, Digital TV, voice and data services to businesses and consumers in southern Minnesota and northwest Iowa. The Company trades on the NASDAQ, symbol: HTCO. 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 and position. 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, financial position 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 and financial position. 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 law.


Consolidated Statement of Operations
(unaudited)

	Three Months Ended								Twelve Months Ended
	December 31						%		December 31						%
(Dollars in thousands, except share data)	2011			2010			Change		2011			2010			Change
Revenue:
Equipment	$	8,317		$	11,500		-28	%	$	39,816		$	39,406		1	%
Services		31,247			30,279		3	%		123,722			122,841		1	%
Total operating revenue		39,564			41,779		-5	%		163,538			162,247		1	%

Costs and expenses:
Cost of sales, excluding depreciation and amortization		7,017			9,332		-25	%		34,163			33,300		3	%
Cost of services, excluding depreciation and amortization		15,236			15,495		-2	%		59,480			60,897		-2	%
Selling, general and administrative expenses		7,765			6,635		17	%		27,184			25,060		8	%
Depreciation		5,812			5,765		1	%		22,702			21,665		5	%
Amortization of intangibles		89			89		0	%		354			357		-1	%
Total costs and expenses		35,919			37,316		-4	%		143,883			141,279		2	%

Operating income		3,645			4,463		-18	%		19,655			20,968		-6	%

Interest and other income		13			11		18	%		63			73		-14	%
Interest expense		(1,315	)		(1,094	)	20	%		(4,885	)		(4,914	)	-1	%
Income before income taxes		2,343			3,380		-31	%		14,833			16,127		-8	%
Income tax provision		913			1,266		-28	%		5,596			4,033		39	%

Net income	$	1,430		$	2,114		-32	%	$	9,237		$	12,094		-24	%


Basic earnings per share	$	0.11		$	0.16		-31	%	$	0.69		$	0.91		-24	%

Basic weighted average common shares outstanding		13,388,343			13,289,746					13,369,991			13,233,874

Diluted earnings per share	$	0.11		$	0.16		-31	%	$	0.69		$	0.91		-24	%

Diluted weighted average common and equivalent shares outstanding		13,403,215			13,296,059					13,382,522			13,237,195

Dividends per share	$	0.14		$	0.135		4	%	$	0.545		$	0.525		4	%


Consolidated Balance Sheets
(unaudited)

(Dollars and Share Data in Thousands)	December 31, 2011			December 31, 2010
Assets
Current assets:
Cash and cash equivalents	$	13,057		$	73
Receivables, net of allowance for doubtful accounts of $436 and $570		25,317			24,642
Inventories		9,297			5,205
Income taxes receivable		498			3,814
Deferred income taxes, net		1,559			2,008
Prepaid expenses		1,801			1,601
Other		964			1,030
Total current assets		52,493			38,373

Investments		4,277			4,512

Property, plant and equipment		396,816			379,433
Accumulated depreciation and amortization		(242,886	)		(224,356	)
Property, plant and equipment, net		153,930			155,077

Other assets:
Goodwill		27,303			27,303
Intangible assets, net		2,314			2,668
Deferred costs and other		3,669			2,255
Total other assets		33,286			32,226

Total assets	$	243,986		$	230,188

Liabilities and Shareholders' Equity
Current liabilities:
Extended term payable	$	6,920		$	8,254
Accounts payable		4,661			2,840
Accrued expenses and other		10,175			7,929
Deferred revenue		6,251			5,073
Financial derivative instruments		-			1,079
Current maturities of long-term obligations		1,407			4,892
Total current liabilities		29,414			30,067

Long-term liabilities:
Debt obligations, net of current maturities		118,828			114,067
Accrued income taxes		154			562
Deferred income taxes		30,627			26,868
Deferred revenue		1,131			1,397
Financial derivative instruments		2,469			-
Accrued employee benefits and deferred compensation		18,166			15,923
Total long-term liabilities		171,375			158,817

Total liabilities		200,789			188,884

Commitments and contingencies

Shareholders' equity:
Common stock, no par value, $.10 stated value
Shares authorized: 100,000
Shares issued and outstanding: 13,396 in 2011 and 13,299 in 2010		1,340			1,330
Additional paid-in capital		15,683			14,328
Retained earnings		31,797			29,841
Accumulated other comprehensive (loss)		(5,623	)		(4,195	)
Total shareholders' equity		43,197			41,304

Total liabilities and shareholders' equity	$	243,986		$	230,188


Business Sector Recap
(unaudited)

	Three Months Ended						Twelve Months Ended
	December 31				%		December 31				%
(Dollars In thousands)	2011		2010		Change		2011		2010		Change
Revenue before intersegment eliminations
Equipment	$	8,317	$	11,500	-28	%	$	39,816	$	39,406	1	%
Support Services		2,029		1,765	15	%		9,116		8,138	12	%
Equipment		10,346		13,265	-22	%		48,932		47,544	3	%

Fiber and Data		11,853		11,107	7	%		45,149		44,685	1	%
Intersegment		207		155	34	%		773		542	43	%
Total Business Sector revenue	$	22,406	$	24,527	-9	%	$	94,854	$	92,771	2	%

Total revenue before intersegment eliminations
Unaffiliated customers	$	22,199	$	24,372			$	94,081	$	92,229
Intersegment		207		155				773		542
	$	22,406	$	24,527			$	94,854	$	92,771
Cost of sales
(excluding depreciation and amortization)		7,017		9,332	-25	%		34,163		33,300	3	%
Cost of services
(excluding depreciation and amortization)		7,836		7,802	0	%		30,179		30,683	-2	%
Selling, general and administrative expenses		3,504		3,102	13	%		13,724		12,612	9	%
Depreciation and amortization		1,744		1,865	-6	%		6,696		6,170	9	%
Total costs and expenses		20,101		22,101	-9	%		84,762		82,765	2	%

Operating income	$	2,305	$	2,426	-5	%	$	10,092	$	10,006	1	%
Net income	$	1,443	$	1,453	-1	%	$	6,074	$	5,951	2	%

Capital expenditures	$	4,464	$	3,663	22	%	$	11,981	$	14,464	-17	%


Fiber and Data Segment
(unaudited)

	Three Months Ended						Twelve Months Ended
	December 31						December 31
(Dollars in thousands)	2011		2010		% Change		2011		2010		% Change
Revenue before intersegment eliminations:
Services	$	11,853	$	11,107	7	%	$	45,149	$	44,685	1	%
Intersegment		207		155	34	%		773		542	43	%
		12,060		11,262	7	%		45,922		45,227	2	%

Cost of services
(excluding depreciation and amortization)		6,085		5,923	3	%		23,420		23,726	-1	%
Selling, general and administrative expenses		2,307		1,989	16	%		8,762		7,952	10	%
Depreciation and amortization		1,655		1,743	-5	%		6,394		5,778	11	%
Total costs and expenses		10,047		9,655	4	%		38,576		37,456	3	%

Operating income	$	2,013	$	1,607	25	%	$	7,346	$	7,771	-5	%
Net income	$	1,250	$	963	30	%	$	4,423	$	4,603	-4	%

Capital expenditures	$	4,342	$	3,658	19	%	$	11,553	$	14,247	-19	%


Equipment Segment
(unaudited)

	Three Months Ended						Twelve Months Ended
	December 31						December 31
(Dollars in thousands)	2011		2010		% Change		2011		2010		% Change
Revenue before intersegment eliminations
Equipment	$	8,317	$	11,500	-28	%	$	39,816	$	39,406	1	%
Support Services		2,029		1,765	15	%		9,116		8,138	12	%
		10,346		13,265	-22	%		48,932		47,544	3	%

Cost of sales
(excluding depreciation and amortization)		7,017		9,332	-25	%		34,163		33,300	3	%
Cost of services
(excluding depreciation and amortization)		1,751		1,879	-7	%		6,759		6,957	-3	%
Selling, general and administrative expenses		1,197		1,113	8	%		4,962		4,660	6	%
Depreciation and amortization		89		122	-27	%		302		392	-23	%
Total costs and expenses		10,054		12,446	-19	%		46,186		45,309	2	%

Operating income	$	292	$	819	-64	%	$	2,746	$	2,235	23	%
Net income	$	193	$	490	-61	%	$	1,651	$	1,348	22	%

Capital expenditures	$	122	$	5	2340	%	$	428	$	217	97	%


Telecom Recap
(unaudited)

	Three Months Ended						Twelve Months Ended
	December 31				%		December 31				%
(Dollars in thousands)	2011		2010		Change		2011		2010		Change
Revenue
Local Service	$	3,541	$	3,760	-6	%	$	14,363	$	15,288	-6	%
Network Access		5,401		5,359	1	%		22,489		23,150	-3	%
Long Distance		719		765	-6	%		2,892		3,185	-9	%
Broadband		5,126		5,007	2	%		20,371		18,832	8	%
Directory		783		910	-14	%		3,346		3,627	-8	%
Bill Processing		1,397		1,083	29	%		4,314		3,808	13	%
Intersegment		412		517	-20	%		1,632		1,976	-17	%
Other		398		523	-24	%		1,682		2,128	-21	%
Total Telecom Revenue	$	17,777	$	17,924	-1	%	$	71,089	$	71,994	-1	%

Total Telecom revenue before intersegment eliminations
Unaffiliated Customers	$	17,365	$	17,407			$	69,457	$	70,018
Intersegment		412		517				1,632		1,976
		17,777		17,924				71,089		71,994

Cost of services, excluding depreciation and amortization		7,969		8,326	-4	%		31,509		32,578	-3	%
Selling, general and administrative expenses		2,992		2,986	0	%		12,027		12,154	-1	%
Depreciation and amortization		4,133		3,965	4	%		16,270		15,737	3	%
Total costs and expenses		15,094		15,277	-1	%		59,806		60,469	-1	%

Operating income	$	2,683	$	2,647	1	%	$	11,283	$	11,525	-2	%

Net income	$	1,674	$	1,654	1	%	$	6,776	$	6,652	2	%

Capital expenditures	$	2,777	$	2,215	25	%	$	9,392	$	8,424	11	%

Key Metrics
Business access lines		23,316		24,043	-3	%
Residential access lines		24,386		27,199	-10	%
Total access lines		47,702		51,242	-7	%
Long distance customers		32,280		33,854	-5	%
DSL customers		19,531		19,667	-1	%
Digital TV customers		10,374		10,562	-2	%


Reconciliation of Non-GAAP Measures

(Dollars in thousands)
Reconciliation of net debt:	Dec. 31, 2011		Sept 30, 2011		Dec. 31, 2010
Debt obligations, net of current maturities	$	118,828	$	119,169	$	114,067
Current maturities of long-term obligations		1,407		1,436		4,892
Total Debt	$	120,235	$	120,605	$	118,959
Less:
Cash and cash equivalents		13,057		11,316		73
Net Debt	$	107,178	$	109,289	$	118,886


(Dollars in thousands)	Three Months Ended December 31				Twelve Months Ended December 31
Reconciliation of net income to net income without release of income tax reserve:	2011		2010		2011		2010
Net income	$	1,430	$	2,114	$	9,237	$	12,094
Deduct: Income tax reserve release		-		-		406		2,726
Net income excluding income tax reserve release	$	1,430	$	2,114	$	8,831	$	9,368


	Twelve Months Ended December 31
(Dollars in thousands)	2011		2010
Reconciliation of net income to EBITDA¹:
Net income	$	9,237	$	12,094
Add:
Depreciation		22,702		21,665
Amortization of intangibles		354		357
Interest expense		4,885		4,914
Taxes		5,596		4,033
Acquisition related expenses		510		-
EBITDA		43,284		43,063


	Year Ending
	December 31, 2012
(Dollars in thousands)	Guidance Range
Reconciliation of net income to 2012 EBITDA¹ guidance:	Low		High
Projected net income	$	7,600	$	8,600
Add back:
Depreciation and amortization		27,400		27,200
Interest expense		5,800		6,200
Taxes		5,200		6,000
Projected EBITDA guidance	$	46,000	$	48,000

¹EBITDA, a non-GAAP financial measure, is as defined in our credit agreement