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HickoryTech Reports First Quarter 2012 Results

HickoryTech Corporation (NASDAQ: HTCO) today reported earnings for the first quarter ended March 31, 2012 of $2.3 million, up 8 percent over the comparable quarter last year and earnings per share totaled 17 cents per diluted share, a 6 percent increase from last year. Revenue totaled $46.9 million, up 22 percent year over year.

“Our business product lines continue to produce excellent results and drove the strong revenue increases in the first quarter, giving us a solid start to the year,” said John Finke, HickoryTech’s president and chief executive officer. “A significant backlog of customer orders for equipment flowed into fiscal 2012 and contributed to our Equipment Segment revenue of $17.4 million which increased 67 percent over the first quarter last year. Additionally, fiber and data revenue increased 22 percent, demonstrating our success in growing our business data services. Also contributing to our successful quarter was the addition of one month of IdeaOne results.”

Close of IdeaOne Acquisition

The company completed its IdeaOne acquisition on March 1, 2012, financed by a $22 million expansion of the company’s senior credit facility and approximately $6 million cash. Debt as of March 31, 2012, was $141.9 million, representing a debt-to-EBITDA leverage ratio of less than three-to-one using a full year of IdeaOne historical operations.

IdeaOne, a facilities-based fiber CLEC operating in the Fargo, North Dakota area, provides data networking, Internet, colocation, phone and hosting services to approximately 3,600 business and residential customers in the Fargo area. The acquisition added a robust metro fiber network to HickoryTech’s regional fiber network. The company reports IdeaOne results as part of its Fiber and Data Segment operations.

Fiber and Data Segment (before inter-segment eliminations)

First quarter fiber and data segment revenue totaled $13.4 million, up 22 percent year over year, and is attributed to success in commercial and wholesale transport and data services, and the one month addition of IdeaOne operations. Costs and expenses totaled $11.1 million, an increase of 16 percent year over year. Net income totaled $1.4 million, up 58 percent from one year ago.

  • Fiber and data segment revenue totaled $13.4 million, up $1.4 million or 11 percent increase sequentially over the fourth quarter of 2011.
  • Fiber and data segment operating income totaled $2.3 million for the first quarter of 2012, a 58 percent increase year over year. As a percent of revenue, the segment’s operating margin of 17.5 percent increased over last year due to the IdeaOne acquisition as well as efficiencies obtained with higher proportions of revenue from on-net applications.

Equipment Segment (before inter-segment eliminations)

First quarter Equipment Segment revenue totaled $17.4 million, up 67 percent year over year, primarily due to an active period of equipment installations.

  • Hardware sales increased 87 percent versus first quarter 2011 while support services revenue decreased 5 percent for the comparable period.
  • Equipment segment operating income totaled $820,000 in the first quarter of 2012, up $322,000 or 65 percent year-over-year. As a percent of revenue, the operating margin of 4.7 percent is consistent with the prior year.

Telecom Segment (before inter-segment eliminations)

First quarter Telecom Segment revenue totaled $16.7 million, a 6 percent decrease year over year. Telecom results reflect the impact of expected declines in legacy local service and network access service revenues, and were partially offset by increases in bill processing revenue from the company’s Information Solutions subsidiary. Costs and expenses totaled $14.5 million, a 2 percent decrease year over year. Telecom Segment net income totaled $1.3 million, a 24 percent decrease compared to the first quarter 2011.

  • Broadband revenue totaled $5.0 million, flat compared to 2011. Broadband revenue includes DSL, Internet, Data and Digital TV services.
  • Network access revenue totaled $4.9 million, a 16 percent decrease year over year, which reflects the anticipated declines due to access line and minute-of-use erosion, the expiration of interstate infrastructure support reimbursements, a one-time refund of interstate support fees, and the initial impacts of industry-wide access reform regulation.
  • Local service revenue totaled $3.4 million, down 7 percent from 2011.
  • Bill processing revenue totaled $1.2 million, up 64 percent year over year. The Information Solutions subsidiary provides data processing and billing services to external customers, and includes both recurring and non-recurring service revenue.

Capital Expenditures

Capital expenditures in the first quarter 2012 totaled $3.6 million net of grants from the Greater Minnesota Broadband Collaborative Project, compared with $3.7 million in first quarter 2011.

Debt Position

Long-term debt and current maturities of debt, including capitalized leases, totaled $141.9 million as of March 31, 2012. The 2012 debt balance represents an increase from $120.2 million as of Dec. 31, 2011, as a result of the $22 million deployed to acquire IdeaOne. Net debt, a measure of actual balance-sheet strength that subtracts the cash balance from total debt, totaled $121.2 million as of March 31, 2012, a $14 million increase from the $107.2 million net debt reported as of Dec. 31, 2011.

“We continue to be diligent in the use of our free cash flows to achieve our strategic objectives,” Finke said. “The reported $14 million increase in net debt during the first quarter is notable as we used $28 million of cash and debt in closing on the IdeaOne acquisition. The low increase in net debt can be attributed to the excellent free cash flow generated by Company operations.”

Fiscal Outlook

HickoryTech confirmed its previous fiscal 2012 outlook, as outlined below, without change. 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 Tuesday, May 1 at 9 a.m. CT. The dial-in number for the call is 877-774-2369 and the conference ID is 71846306. 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 Statements of Operations
(unaudited)
           
Three Months Ended March 31 %
(Dollars in thousands, except share data) 2012 2011 Change
Operating revenue:
Equipment $ 15,299 $ 8,195 87 %
Services   31,645     30,427   4 %
Total operating revenue 46,944 38,622 22 %
 
Costs and expenses:
Cost of sales, excluding depreciation and amortization 13,466 6,999 92 %
Cost of services, excluding depreciation and amortization 15,326 14,735 4 %
Selling, general and administrative expenses 6,706 6,543 2 %
Depreciation 6,056 5,591 8 %
Amortization of intangibles   138     88   57 %
Total costs and expenses   41,692     33,956   23 %
 
Operating income 5,252 4,666 13 %
 
Interest and other income 20 10 100 %
Interest expense   (1,364 )   (1,068 ) 28 %
Income before income taxes 3,908 3,608 8 %
Income tax provision   1,586     1,466   8 %
 
Net income $ 2,322   $ 2,142   8 %
 
Basic earnings per share $ 0.17   $ 0.16   6 %
 
Basic weighted average common shares outstanding   13,450,850     13,329,603  
 
Diluted earnings per share $ 0.17   $ 0.16   6 %
 
Diluted weighted average common and equivalent shares outstanding   13,468,749     13,341,871  
 
Dividends per share $ 0.14   $ 0.135   4 %
 
 
Consolidated Balance Sheets
(unaudited)
       
(Dollars and Share Data in Thousands) March 31, 2012 December 31, 2011
Assets
Current assets:
Cash and cash equivalents $ 20,724 $ 13,057
Receivables, net of allowance for doubtful accounts of $169 and $436 20,554 25,317
Inventories 5,460 9,297
Income taxes receivable - 498
Deferred income taxes, net 1,559 1,559
Prepaid expenses 2,382 1,801
Other   597     964  
Total current assets 51,276 52,493
 
Investments 3,199 4,277
 
Property, plant and equipment 409,879 396,816
Accumulated depreciation   (235,184 )   (242,886 )
Property, plant and equipment, net 174,695 153,930
 
Other assets:
Goodwill 29,034 27,303
Intangible assets, net 5,476 2,314
Deferred costs and other   3,784     3,669  
Total other assets   38,294     33,286  
 
Total assets $ 267,464   $ 243,986  
 
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 6,481 $ 4,661
Extended term payable 8,615 6,920
Accrued income taxes 1,072 -
Deferred revenue 5,778 6,251
Accrued expenses and other 6,868 10,175
Current maturities of long-term obligations   1,621     1,407  
Total current liabilities 30,435 29,414
 
Long-term liabilities:
Debt obligations, net of current maturities 140,272 118,828
Accrued income taxes 154 154
Deferred revenue 1,125 1,131
Financial derivative instruments 2,516 2,469
Accrued employee benefits and deferred compensation 18,409 18,166
Deferred income taxes   30,660     30,627  
Total long-term liabilities 193,136 171,375
 
Total liabilities 223,571 200,789
 
Commitments and contingencies
 
Shareholders' equity:
Common stock, no par value, $.10 stated value
Shares authorized: 100,000
Shares issued and outstanding: 13,488 in 2012 and 13,396 in 2011 1,349 1,340
Additional paid-in capital 15,875 15,683
Retained earnings 32,241 31,797
Accumulated other comprehensive (loss)   (5,572 )   (5,623 )
Total shareholders' equity   43,893     43,197  
 
Total liabilities and shareholders' equity $ 267,464   $ 243,986  
 
 
Fiber and Data Segment
(unaudited)
 
    Three Months Ended March 31
(Dollars in thousands) 2012     2011     % Change
Revenue before intersegment eliminations:
Services $ 13,219 $ 10,861 22 %
Intersegment   193   161 20 %
Total Fiber and Data revenue 13,412 11,022 22 %
 
Cost of services
(excluding depreciation and amortization) 6,595 5,821 13 %
Selling, general and administrative expenses 2,506 2,130 18 %
Depreciation and amortization   1,966   1,586 24 %
Total costs and expenses   11,067   9,537 16 %
 
Operating income $ 2,345 $ 1,485 58 %
Net income $ 1,395 $ 883 58 %
 
Capital expenditures $ 1,965 $ 1,806 9 %
 
Equipment Segment
(unaudited)
 
    Three Months Ended March 31
(Dollars in thousands) 2012     2011     % Change
Revenue before intersegment eliminations:
Equipment $ 15,299 $ 8,195 87 %
Support Services   2,122   2,229 -5 %
Total Equipment revenue 17,421 10,424 67 %
 
Cost of sales
(excluding depreciation and amortization) 13,466 6,999 92 %
Cost of services
(excluding depreciation and amortization) 1,712 1,678 2 %
Selling, general and administrative expenses 1,352 1,181 14 %
Depreciation and amortization   71   68 4 %
Total costs and expenses   16,601   9,926 67 %
 
Operating income $ 820 $ 498 65 %
Net income $ 486 $ 295 65 %
 
Capital expenditures $ 73 $ 6 1117 %
 
 
Telecom Segment
(unaudited)
 
    Three Months Ended March 31     %
(Dollars in thousands) 2012     2011 Change
Revenue before intersegment eliminations:
Local Service $ 3,429 $ 3,693 -7 %
Network Access 4,903 5,812 -16 %
Broadband 5,002 5,054 -1 %
Directory 782 872 -10 %
Long Distance 648 729 -11 %
Bill Processing 1,205 737 64 %
Intersegment 410 412 0 %
Other   335   440 -24 %
Total Telecom revenue $ 16,714 $ 17,749 -6 %
 
Total Telecom revenue before intersegment eliminations
Unaffiliated Customers $ 16,304 $ 17,337
Intersegment   410   412
16,714 17,749
 
Cost of services (excluding depreciation and amortization) 7,561 7,761 -3 %
Selling, general and administrative expenses 2,833 3,084 -8 %
Depreciation and amortization   4,133   4,003 3 %
Total costs and expenses   14,527   14,848 -2 %
 
Operating income $ 2,187 $ 2,901 -25 %
 
Net income $ 1,299 $ 1,716 -24 %
 
Capital expenditures $ 1,596 $ 1,930 -17 %
 

Key Metrics

Business access lines 21,954 23,932 -8 %
Residential access lines   23,679   26,678 -11 %
Total access lines 45,633 50,610 -10 %
Long distance customers 31,498 33,513 -6 %
Digital Subscriber Line customers 19,451 20,032 -3 %
Digital TV customers 10,247 10,591 -3 %
 
 
Reconciliation of Non-GAAP Measures
 
(Dollars in thousands)     Three months ended
Reconciliation of net debt: Mar-12     Dec-11     Sep-11     Jun-11
Debt obligations, net of current maturities $ 140,272 $ 118,828 $ 119,169 $ 110,230
Current maturities of long-term obligations   1,621   1,407   1,436   8,462
Total Debt $ 141,893 $ 120,235 $ 120,605 $ 118,692
Less:
Cash and cash equivalents   20,724   13,057   11,316   14,930
Net Debt $ 121,169 $ 107,178 $ 109,289 $ 103,762
 
 
Year Ending
December 31, 2012
(Dollars in thousands) Guidance Range
Reconciliation of net income to 2012 EBITDA 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 1 $ 46,000 $ 48,000
 
1 EBITDA, a non-GAAP financial measure, is as defined in our credit agreement
 
 
Three months ended
Mar-12 Dec-11 Sep-11 Jun-11
(Dollars in thousands)
Reconciliation of net income to EBITDA:
Net income $ 2,322 $ 1,430 $ 2,971 $ 2,694
Add:
Depreciation 6,056 5,812 5,706 5,593
Amortization 138 89 88 89
Interest expense 1,364 1,315 1,487 1,015
Income taxes 1,586 913 1,910 1,307
Acquisition related expenses   -   510   -   -
EBITDA $ 11,466 $ 10,069 $ 12,162 $ 10,698
 
Debt to EBITDA ratio
Total outstanding debt as of March 31, 2012 $ 141,893
EBITDA for the last (4) consecutive fiscal quarters as presented above 44,395
IdeaOne Telecom historical EBITDA (reflects 11 months)   4,135
Debt to EBITDA ratio as of March 31, 2012   2.9
 

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