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businesswire

HickoryTech Reports Third Quarter 2009 Results

Consistent operating results, Completion of CP Telecom acquisition, Increased cash position, Release of income tax reserve


  • Press Release
  • Source: HickoryTech Corp.
  • On 4:00 pm EDT, Wednesday October 28, 2009

MANKATO, Minn.--(BUSINESS WIRE)--HickoryTech Corp. (Nasdaq: HTCO - News) today reported third quarter revenue of $34.9 million, down 12 percent from the $39.9 million reported one year ago. Third quarter revenue is up $2.5 million sequentially from the $32.4 million revenue of the previous quarter. Net income totaled $6.1 million, or 47 cents per diluted share, up substantially from the $2.1 million reported in the comparable quarter in 2008 and from the $2.1 million of the previous quarter. A release of income tax reserves added $4.4 million to the third quarter net income in 2009. Without the benefit of the $4.4 million income tax release, net income in the third quarter 2009 would have been $1.7 million, down 20 percent from the same period in the prior year.

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“In spite of a challenging business environment, we have continued to deliver solid operating results, strengthen our balance sheet and accumulate cash,” said John Finke, HickoryTech’s president and chief executive officer. “We have responded to these conditions by aggressively managing and reducing our operating costs while maintaining a stable Telecom business and growing our business transport services by 24 percent in 2009.”

The Company’s cash position as of Sept. 30, 2009 was $7.3 million, and this is after the CP Telecom acquisition, which was funded with cash on hand. This compares with $1.6 million cash on hand at the beginning of 2009.

Telecom Sector (before inter-segment eliminations)

Telecom Sector net income for the third quarter 2009 totaled $2.0 million, similar to the comparable quarter in 2008. Telecom Sector revenue totaled $17.8 million, a decrease of $1.1 million, or 6 percent. The Telecom Sector results continue to be impacted by heightened competition and local service declines, offset by broadband revenue growth. Costs and expenses in the Telecom Sector were $14.4 million for the third quarter, a reduction of 7 percent relative to the third quarter last year.

  • Broadband revenue increased to $3.1 million, up 12 percent compared to $2.7 million in the third quarter of 2008. Broadband revenue includes DSL, Data and Digital TV services. DSL subscribers increased 5 percent, totaling 19,511, while Digital TV subscribers grew 19 percent totaling 9,386 subscribers.
  • Network access revenue was $6.0 million, down 11 percent from the comparable period one year ago.
  • Local service revenue of $3.8 million declined 7 percent and local access lines declined 7 percent, both the result of competition in our telecom markets.

Enventis Sector (before inter-segment eliminations)

Enventis Sector net income totaled $0.9 million for the third quarter 2009, versus $1.0 million for the third quarter in 2008. Enventis Sector revenue before eliminations totaled $17.6 million, a decline of $3.7 million, or 17 percent, relative to the comparative quarter in 2008. Costs and expenses in the Enventis Sector totaled $16 million, a reduction of 18 percent from the comparable quarter in 2008.

  • Enterprise Transport Services (ETS), network-based services revenue totaled $8.7 million, an increase of 39 percent or $2.4 million from the comparable quarter last year, which is the result of strong sales of transport services and the addition of CP Telecom revenues.
  • Enterprise Network Services (ENS) equipment sales for the third quarter of 2009 totaled $6.6 million, a decrease of $5.1 million, or 44 percent from the comparable quarter last year, which included a number of large equipment orders.
  • Service revenue within ENS, which includes professional services, totaled $2.2 million, a decrease of $0.9 million, or 30 percent.
  • Both product lines of Enventis, ENS and ETS, operated at net operating profit levels for the nine-month periods ended Sept. 30 in 2009 and 2008. The ETS product line operating income increased 43 percent in the third quarter and 18 percent year-to-date. The ENS product line generated an operating profit for the nine months ended Sept. 30, 2009, although in the third quarter this portion of our business did experience a small operating loss due to the economic slowdown.

Capital Expenditures, Debt and Cash Position

HickoryTech reported capital expenditures of $4.0 million for the third quarter of 2009 and $11.3 million year-to-date in fiscal 2009. Capital expenditures in the third quarter were $419,000 less than the third quarter 2008 and decreased $1.1 million in the first nine months of fiscal 2009, versus fiscal 2008. Long-term and current portion debt balance totaled $124.9 million as of Sept. 30, 2009, a $2.1 million decrease from the beginning of the year, and down $6.5 million from one year ago. The Company’s cash position, as of Sept. 30, 2009, totaled $7.3 million versus $1.6 million at the beginning of 2009.

CP Telecom Acquisition

HickoryTech closed on its previously announced agreement to acquire CP Telecom on Aug. 1, 2009. The adjusted CP Telecom purchase price was $6.6 million, which HickoryTech paid for with cash. CP Telecom results are included the Company’s Enventis sector. CP Telecom operating results for the initial quarter as a component of HickoryTech were accretive to operating income, net income and cash flow.

Future Outlook

HickoryTech is updating guidance for its fiscal 2009 results. Revenue, previously projected at $153 million to $159 million, is expected to range from $138 million to $141 million. Net income, previously forecast between $7 million to $7.8 million, now will include the $4.4 million income tax release and is expected to range between $11.5 million to $11.9 million. Capex, previously projected between $17 million and $19 million, remains in this range and the company’s year-end debt estimate remains unchanged at $124 million to $127 million.

“The business climate continues to challenge us in 2009,” Finke said. “Despite the pressure on overall revenue, we have been able to continue to grow our broadband and transport services. We are encouraged by our growth opportunities and remain confident in our business plan and future success.”

Conference Call and Webcast

HickoryTech will host a conference call and webcast on Thursday, Oct. 29 at 9 a.m. CT. The dial-in number for the call is 877-774-2369 (U.S. and Canada) and the participant pass code is 33942343. A simultaneous Webcast of the call and downloadable presentation will be available through a link on the Investor Relations page at investor.hickorytech.com.

About HickoryTech

HickoryTech Corporation (dba HickoryTech and Enventis) is a leading integrated communications provider in the markets it serves. With headquarters in Mankato, Minn., the corporation has approximately 450 employees and a regional fiber network with facilities-based operations in Minnesota and Iowa. Enventis serves businesses of all sizes across a five-state region with IP-based voice, data and network solutions. HickoryTech provides bundled residential and business services including high-speed Internet, Digital TV and voice services in its legacy telecom markets. The Company trades on the Nasdaq Stock Exchange, symbol: HTCO, and is a member of the Russell 2000 index. 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. These non-GAAP measures include earnings before income taxes, depreciation and amortization, and net income without release of income tax reserve. 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 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. 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 federal securities laws.

Consolidated Statement of Operations

(unaudited)

       

Three Months Ended
September 30

%

Nine Months Ended
September 30

%
(Dollars in thousands, except share data) 2009   2008 Change 2009   2008 Change
Revenue:
Telecom Sector $ 17,446 $ 18,758 -7 % $ 52,899 $ 55,051 -4 %
Enventis Sector
Equipment 6,604 11,725 -44 % 18,788 34,602 -46 %
Services   10,858     9,377   16 %   29,085     25,852   13 %
Total Enventis Sector   17,462     21,102   -17 %   47,873     60,454   -21 %
Total revenue 34,908 39,860 -12 % 100,772 115,505 -13 %
 
Costs and Expenses:
Cost of sales, equipment, excluding depreciation and amortization 5,653 10,190 -45 % 16,369 29,605 -45 %
Cost of services, excluding depreciation and amortization 13,404 13,443 0 % 37,817 37,760 0 %
Selling, general and administrative expenses 5,817 5,637 3 % 16,379 16,786 -2 %
Depreciation 5,068 4,945 2 % 14,967 14,371 4 %
Amortization of intangibles   272     285   -5 %   699     863   -19 %
Total costs and expenses   30,214     34,500   -12 %   86,231     99,385   -13 %
 
Operating income 4,694 5,360 -12 % 14,541 16,120 -10 %
 
Interest and other income 14 39 -64 % 55 81 -32 %
Interest expense   (1,728 )   (1,874 ) -8 %   (5,155 )   (5,049 ) 2 %
 
Income before income taxes 2,980 3,525 -15 % 9,441 11,152 -15 %
Income taxes   (3,126 )   1,453   -315 %   (408 )   4,802   -108 %
 
Net income $ 6,106   $ 2,072   195 % $ 9,849   $ 6,350   55 %
 

Reconciliation of operating income to EBITDA:

Operating income $ 4,694 $ 5,360 -12 % $ 14,541 $ 16,120 -10 %
Add:
Depreciation 5,068 4,945 2 % 14,967 14,371 4 %
Amortization of intangibles   272     285   -5 %   699     863   -19 %
EBITDA $ 10,034   $ 10,590   -5 % $ 30,207   $ 31,354   -4 %
 

Reconciliation of net income to net income without release of income tax reserve:

Net income $ 6,106 $ 2,072 195 % $ 9,849 $ 6,350 55 %
Deduct: Income tax reserve release   4,454     -   0 %   4,454     -   0 %
Net income excluding income tax reserve release $ 1,652   $ 2,072   -20 % $ 5,395   $ 6,350   -15 %
 
Basic earnings per share $ 0.47   $ 0.16   194 % $ 0.75   $ 0.48   56 %
Basic weighted average common shares outstanding   13,080,538     13,352,005     13,049,686     13,325,967  
 
Diluted earnings per share $ 0.47   $ 0.16   194 % $ 0.75   $ 0.48   56 %
Diluted weighted average common and equivalent shares outstanding   13,083,843     13,358,390     13,049,686     13,336,424  
 
Dividends per share $ 0.13   $ 0.12   8 % $ 0.39   $ 0.36   8 %
 

Consolidated Balance Sheet

(unaudited)

   
(Dollars and Share Data in Thousands) September 30, 2009 December 31, 2008
ASSETS
Current assets:
Cash and cash equivalents $ 7,309 $ 1,626
Receivables, net of allowance for doubtful accounts of $654 and $905 16,136 26,292
Inventories 6,519 8,674
Income tax receivable - 566
Deferred income taxes 2,064 2,064
Prepaid expenses 1,885 1,409
Other   931     1,114  
Total current assets 34,844 41,745
 
Investments 4,306 4,066
 
Property, plant and equipment 351,774 338,510
Accumulated depreciation   (199,543 )   (187,157 )
Property, plant and equipment, net 152,231 151,353
 
Other assets:
Goodwill 27,308 25,239
Intangible assets, net 3,327 856
Deferred costs and other   1,920     2,249  
Total other assets   32,555     28,344  
 
Total assets $ 223,936   $ 225,508  
 
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Extended term payable $ 6,991 $ 10,474
Accounts payable 2,240 3,133
Accrued expenses and other 7,463 8,001
Accrued income taxes 2,179 -
Deferred revenue 5,390 6,205
Current maturities of long-term obligations   1,533     1,621  
Total current liabilities 25,796 29,434
 
Long-term liabilities:
Debt obligations, net of current maturities 123,394 125,384
Financial derivative instruments 2,541 3,286
Accrued income taxes 3,173 7,517
Deferred income taxes 20,682 18,282
Deferred revenue 1,493 1,646
Accrued employee benefits and deferred compensation   10,653     10,210  
Total long-term liabilities 161,936 166,325
 
Total liabilities 187,732 195,759
 
Commitments and contingencies - -
 
Shareholders' equity:
Common stock, no par value, $.10 stated value
shares authorized: 100,000
Shares issued and outstanding: 13,089 in 2009 and 12,992 in 2008 1,309 1,299
Additional paid-in capital 12,673 11,504
Retained earnings 24,964 20,199
Accumulated other comprehensive (loss)   (2,742 )   (3,253 )
Total shareholders' equity   36,204     29,749  
 
Total liabilities and shareholders' equity $ 223,936   $ 225,508  
 

Telecom Sector Recap

(unaudited)

           

Three Months Ended
September 30

%

Nine Months Ended
September 30

%
(Dollars in thousands) 2009   2008 Change 2009   2008 Change
Revenue:
Local Service $ 3,802 $ 4,079 -7 % $ 11,559 $ 12,296 -6 %
Network Access 5,993 6,752 -11 % 18,158 19,529 -7 %
Long Distance 872 1,097 -21 % 2,930 3,484 -16 %
Data 1,949 1,877 4 % 5,724 5,628 2 %
Internet 1,233 1,211 2 % 3,739 3,478 8 %
Digital TV 1,128 871 30 % 3,216 2,473 30 %
Directory 971 1,081 -10 % 3,071 3,085 0 %
Bill Processing 849 1,058 -20 % 2,479 2,557 -3 %
Intersegment 367 174 111 % 844 465 82 %
Other   649   732 -11 %   2,023   2,521 -20 %
Total Telecom Revenue $ 17,813 $ 18,932 -6 % $ 53,743 $ 55,516 -3 %
 
Total Telecom revenue before intersegment eliminations
Unaffiliated Customers $ 17,446 $ 18,758 $ 52,899 $ 55,051
Intersegment   367   174   844   465
17,813 18,932 53,743 55,516
Costs and expenses:
Cost of services, excluding depreciation and amortization 7,668 7,958 -4 % 22,684 23,450 -3 %
Selling, general and administrative expenses 2,882 3,470 -17 % 8,756 10,075 -13 %
Depreciation and amortization   3,856   4,059 -5 %   11,803   11,993 -2 %
Total costs and expenses   14,406   15,487 -7 %   43,243   45,518 -5 %
 
Operating income $ 3,407 $ 3,445 -1 % $ 10,500 $ 9,998 5 %
 
Net income $ 2,016 $ 2,033 -1 % $ 6,199 $ 5,848 6 %
 
Capital expenditures $ 2,589 $ 3,117 -17 % $ 6,375 $ 8,082 -21 %
 

Key Metrics

Business access lines 25,542 26,350 -3 %
Residential access lines   31,385   35,115 -11 %
Total access lines 56,927 61,465 -7 %
Long distance customers 36,761 39,533 -7 %
DSL customers 19,511 18,519 5 %
Digital TV customers 9,386 7,882 19 %
 

Enventis Sector Recap

(unaudited)

       

Three Months Ended
September 30

%

Nine Months Ended
September 30

%
(Dollars In thousands) 2009   2008 Change 2009   2008 Change
Revenue before eliminations:
ENS equipment $ 6,604 $ 11,725 -44 % $ 18,788 $ 34,602 -46 %
ENS services 2,183 3,114 -30 % 7,273 8,235 -12 %
ETS services 8,675 6,263 39 % 21,812 17,617 24 %
Intersegment   106   138 -23 %   389   404 -4 %
$ 17,568 $ 21,240 -17 % $ 48,262 $ 60,858 -21 %
 
Total Enventis revenue before intersegment eliminations
Unaffiliated customers $ 17,462 $ 21,102 $ 47,873 $ 60,454
Intersegment   106   138   389   404
$ 17,568 $ 21,240 $ 48,262 $ 60,858
Cost of sales, equipment
(excluding depreciation and amortization) 5,653 10,190 -45 % 16,369 29,605 -45 %
Cost of services
(excluding depreciation and amortization) 6,177 5,858 5 % 16,264 15,017 8 %
Selling, general and administrative expenses 2,756 2,411 14 % 7,439 7,151 4 %
Depreciation and amortization   1,459   1,158 26 %   3,809   3,203 19 %
Total costs and expenses   16,045   19,617 -18 %   43,881   54,976 -20 %
 
Operating income $ 1,523 $ 1,623 -6 % $ 4,381 $ 5,882 -26 %
Net income $ 901 $ 959 -6 % $ 2,600 $ 3,453 -25 %
 
Capital expenditures $ 1,438 $ 1,338 7 % $ 4,891 $ 4,315 13 %
 

Enventis Product Line

         
Three Months Ended September 30 Nine Months Ended September 30

Enterprise Network
Services (ENS)

 

Enventis Transport
Services (ETS)

Enterprise Network
Services (ENS)

 

Enventis Transport
Services (ETS)

(Dollars in thousands) 2009   2008   2009   2008 2009   2008   2009   2008
Revenue before intersegment eliminations:    
Equipment $ 6,604 $ 11,725 $ - $ - $ 18,788 $ 34,602 $ - $ -
Services 2,183 3,114 8,675 6,263 7,273 8,235 21,812 17,617
Intersegment   -     -   106     138   -   -   389     404
$ 8,787 $ 14,839 $ 8,781 $ 6,401 $ 26,061 $ 42,837 $ 22,201 $ 18,021
 
Cost of sales, equipment
(excluding depreciation and amortization) 5,728 10,187 (75 ) 3 16,427 29,593 (58 ) 12
Cost of services
(excluding depreciation and amortization) 1,664 2,698 4,513 3,160 5,265 6,673 10,999 8,344
Selling, general and administrative expenses 1,303 1,295 1,453 1,116 3,802 3,827 3,637 3,324
Depreciation and amortization   121     122   1,338     1,036   307   366   3,502     2,837
Total costs and expenses   8,816     14,302   7,229     5,315   25,801   40,459   18,080     14,517
 
Operating income $ (29 ) $ 537 $ 1,552   $ 1,086 $ 260 $ 2,378 $ 4,121   $ 3,504
Net income $ (17 ) $ 316 $ 918   $ 643 $ 156 $ 1,394 $ 2,444   $ 2,059
 
Capital expenditures $ 62   $ 163 $ 1,376   $ 1,175 $ 324 $ 452 $ 4,567   $ 3,863

Contact:

HickoryTech Corp.
David Christensen, CFO, 507-387-3355
or
Jennifer Spaude, Investor Relations, 507-386-3765

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