HickoryTech Corporation (NASDAQ:HTCO), doing business as Enventis, today reported net income of $2.1 million for the first quarter ending March 31, 2014, an increase of 27 percent year over year. EBITDA totaled $12.1 million in the first quarter, an increase of 11 percent. Revenue totaled $44.2 million and was down 9 percent from first quarter 2013, primarily due to lower equipment sales, which were down 35 percent year over year. Services revenue, which accounts for 77 percent of the company’s revenue, increased 2 percent year over year.
“We continue to execute on our strategy and were able to grow fiber and data revenue 6 percent in first quarter as we expanded our fiber distribution networks and built fiber to additional business customers,” said John Finke, HickoryTech’s president and chief executive officer. “We delivered four consecutive quarters of consistent outcomes and growth in our fiber and data business. We’ve done a good job managing our costs in the quarter and will continue to work to align our operating costs with our pace of growth, ultimately focused on delivering additional value to our results.”
Fiber and Data Segment (before inter-segment eliminations)
- First quarter Fiber and Data revenue totaled $17.7 million, up 6 percent year over year. This growth is the result of increased, high-capacity fiber and data sales within retail and wholesale customer segments.
- Costs and expenses for this segment totaled $14.8 million, a 2 percent reduction from the prior year.
- Operating income totaled $2.9 million, up 80 percent year over year.
- Net income totaled $1.7 million, an increase of 81 percent year over year.
As a reminder, first quarter 2013 results included a pre-tax impairment charge of $633,000 related to a write-off of non-strategic wireless assets acquired with the Fargo-based acquisition. The charge, which totaled $380,000 after tax, negatively affected net income in 2013 by approximately $0.03 per share. This non-cash charge was recorded in the Fiber and Data Segment.
Equipment Segment (before inter-segment eliminations)
- First quarter Equipment Segment revenue totaled $12.2 million, a 29 percent decrease year over year.
- Equipment sales revenue was $10 million, down 35 percent compared to a year ago. Equipment revenue tends to fluctuate quarter to quarter based on timing of sales and installation periods.
- Support Services revenue was $2.2 million, a 19 percent increase from first quarter 2013.
- Operating income totaled $486,000, a 41 percent decrease year over year.
- Net income totaled $287,000, a 41 percent decrease compared to the first quarter 2013.
Telecom Segment (before inter-segment eliminations)
- First quarter Telecom Segment revenue totaled $14.4 million, down 2 percent from a year ago. Telecom results were affected by legacy service declines primarily in network access and local service revenue. Broadband service revenue grew 5 percent, offsetting part of the Telecom revenue decline. Competitive price compression is impacting the growth rates of broadband services.
- DSL subscribers increased 4 percent and Digital TV subscribers were up 8 percent.
- Costs and expenses totaled $12.5 million, down 3 percent year over year.
- Operating and Net income were both up 1 percent compared to the first quarter 2013.
Total Capex, Depreciation and Amortization
Total capital
expenditures in the first quarter were $4.9 million, compared with $5.8
million in the comparable quarter in 2013, down primarily due to timing
of projects year over year.
Depreciation and amortization expense increased $571,000, or 8 percent in the first quarter. The increase is primarily attributed to increased capital expenditures associated with fiber network expansion and success-based capital expenditures supporting Fiber and Data revenue growth.
Debt Position
Long-term debt and current maturities,
including capitalized leases, totaled $134.8 million as of March 31,
2014. The first quarter 2014 debt balance represents a year-over-year
decrease of $1.6 million and a reduction of $7.1 million since the
company’s acquisition of IdeaOne Telecom two years ago. Net debt is a
measure of financial balance sheet strength, which subtracts cash on
hand from the total debt balance. Net debt as of March 31, 2014 is
$122.6 million, the lowest level of net debt for the company since March
2012.
Fiscal Outlook for 2014
HickoryTech confirms its previous
fiscal 2014 outlook.
- Revenue in 2014 is expected to be within a range of $189 million to $199 million. The company expects growth in business and broadband revenue to offset the majority of the declines in legacy Telecom services.
- Net income is expected to be in a range of $6.4 million to $8.4 million.
- EBITDA is expected to be in a range of $47.0 million to $49.5 million.
- Capital expenditures are expected to be between $24 million and $28 million, with approximately 60 percent of capex expected for success-based opportunities.
- The company expects its year-end 2014 debt balance to be in a range of $133 million to $135 million.
Conference Call and Webcast
HickoryTech will hold a
conference call and webcast on Friday, May 2, at 9 a.m. CT to review the
company’s first-quarter 2014 results. The conference call dial-in number
is 877-372-0867, conference ID 20839064. A webcast with audio and
presentation slides will be available at http://investor.hickorytech.com.
HickoryTech Shareholders Asked to Approve Corporate Name Change to
Enventis
The corporate name change is the final step in the
company’s move to a unified brand following its change to Enventis in
October 2013 when the company rebranded its telecom markets to align
under its Enventis brand. HickoryTech shareholders are asked to approve
a corporate name change to Enventis Corporation, with the vote being
solidified at the company’s annual shareholder meeting on May 6. Upon a
successful vote, the company’s stock would trade as Enventis on the
NASDAQ exchange under ticker symbol “ENVE.”
“Aligning our corporate name with Enventis, the brand we use to serve thousands of customers across the upper Midwest, allows us to gain full recognition as a public company and as a leading business and broadband service provider,” added Finke. “HickoryTech has transformed from a local telephone company into a leading, regional communications provider focused on growing and expanding business and broadband services.”
About HickoryTech Corporation
HickoryTech Corporation is a
leading communications provider serving business and residential
customers in the upper Midwest and is doing business as Enventis. With
headquarters in Mankato, Minn., the corporation has 520 employees and an
expanded, multi-state fiber network spanning more than 4,200 route miles
serving Minnesota, Iowa, North Dakota and South Dakota. The company
provides IP-based voice and data solutions, MPLS networking, data center
and managed hosted services and communication systems to businesses
across a five-state region. The company also offers 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,
and is a member of the Russell 2000 Index. For more information, visit www.enventis.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 Income | ||||||||||||||
| (unaudited) | ||||||||||||||
| Three Months Ended March 31 | % | |||||||||||||
| (Dollars in thousands, except share data) | 2014 | 2013 | Change | |||||||||||
| Operating revenue: | ||||||||||||||
| Services | $ | 34,213 | $ | 33,405 | 2 | % | ||||||||
| Equipment | 10,027 | 15,364 | -35 | % | ||||||||||
| Total operating revenue | 44,240 | 48,769 | -9 | % | ||||||||||
| Costs and expenses: | ||||||||||||||
| Cost of sales, excluding depreciation and amortization | 8,544 | 13,222 | -35 | % | ||||||||||
| Cost of services, excluding depreciation and amortization | 16,660 | 16,599 | 0 | % | ||||||||||
| Selling, general and administrative expenses | 6,963 | 7,449 | -7 | % | ||||||||||
| Asset impairment | - | 633 | ||||||||||||
| Depreciation and amortization | 7,580 | 7,009 | 8 | % | ||||||||||
| Total costs and expenses | 39,747 | 44,912 | -12 | % | ||||||||||
| Operating income | 4,493 | 3,857 | 16 | % | ||||||||||
| Interest and other income | - | 2 | -100 | % | ||||||||||
| Interest expense | (979 | ) | (1,139 | ) | -14 | % | ||||||||
| Income before income taxes | 3,514 | 2,720 | 29 | % | ||||||||||
| Income tax provision | 1,441 | 1,094 | 32 | % | ||||||||||
| Net income | $ | 2,073 | $ | 1,626 | 27 | % | ||||||||
| Basic earnings per share | $ | 0.15 | $ | 0.12 | 25 | % | ||||||||
| Basic weighted average common shares outstanding | 13,596,296 | 13,556,515 | ||||||||||||
| Diluted earnings per share | $ | 0.15 | $ | 0.12 | 25 | % | ||||||||
| Diluted weighted average common and equivalent shares outstanding | 13,659,827 | 13,578,429 | ||||||||||||
| Dividends per share | $ | 0.15 | $ | 0.145 | 3 | % | ||||||||
| Consolidated Balance Sheets | ||||||||||
| (unaudited) | ||||||||||
| (Dollars and Share Data in Thousands) | March 31, 2014 | December 31, 2013 | ||||||||
| Assets | ||||||||||
| Current assets: | ||||||||||
| Cash and cash equivalents | $ | 12,243 | $ | 7,960 | ||||||
| Receivables, net of allowance for doubtful accounts of $260 and $370 | 20,172 | 26,073 | ||||||||
| Inventories | 1,783 | 1,668 | ||||||||
| Income taxes receivable | 138 | 970 | ||||||||
| Deferred income taxes, net | 2,479 | 2,660 | ||||||||
| Prepaid expenses | 3,096 | 2,545 | ||||||||
| Other | 900 | 1,386 | ||||||||
| Total current assets | 40,811 | 43,262 | ||||||||
| Investments | 3,595 | 3,414 | ||||||||
| Property, plant and equipment | 465,728 | 461,712 | ||||||||
| Accumulated depreciation and amortization | (286,987 | ) | (280,386 | ) | ||||||
| Property, plant and equipment, net | 178,741 | 181,326 | ||||||||
| Other assets: | ||||||||||
| Goodwill | 29,028 | 29,028 | ||||||||
| Intangible assets, net | 3,865 | 4,088 | ||||||||
| Deferred costs and other | 6,077 | 5,762 | ||||||||
| Total other assets | 38,970 | 38,878 | ||||||||
| Total assets | $ | 262,117 | $ | 266,880 | ||||||
| Liabilities and Shareholders' Equity | ||||||||||
| Current liabilities: | ||||||||||
| Accounts payable | $ | 2,908 | $ | 3,163 | ||||||
| Extended term payable | 6,991 | 8,879 | ||||||||
| Deferred revenue | 5,681 | 6,056 | ||||||||
| Accrued expenses and other | 8,431 | 10,443 | ||||||||
| Financial derivative instruments | 551 | 242 | ||||||||
| Current maturities of long-term obligations | 1,551 | 1,586 | ||||||||
| Total current liabilities | 26,113 | 30,369 | ||||||||
| Long-term liabilities: | ||||||||||
| Debt obligations, net of current maturities | 133,289 | 133,621 | ||||||||
| Accrued income taxes | 245 | 244 | ||||||||
| Deferred revenue | 2,583 | 2,705 | ||||||||
| Financial derivative instruments | 631 | 1,184 | ||||||||
| Accrued employee benefits and deferred compensation | 12,175 | 12,344 | ||||||||
| Deferred income taxes | 37,145 | 37,103 | ||||||||
| Total long-term liabilities | 186,068 | 187,201 | ||||||||
| Total liabilities | 212,181 | 217,570 | ||||||||
| Commitments and contingencies | ||||||||||
| Shareholders' equity: | ||||||||||
| Common stock, no par value, $0.10 stated value | ||||||||||
| Shares authorized: 100,000 | ||||||||||
| Shares issued and outstanding: 13,622 in 2014 and 13,569 in 2013 | 1,362 | 1,357 | ||||||||
| Additional paid-in capital | 17,148 | 16,462 | ||||||||
| Retained earnings | 30,813 | 30,782 | ||||||||
| Accumulated other comprehensive income | 613 | 709 | ||||||||
| Total shareholders' equity | 49,936 | 49,310 | ||||||||
| Total liabilities and shareholders' equity | $ | 262,117 | $ | 266,880 | ||||||
| Fiber and Data Segment | |||||||||
| (unaudited) | |||||||||
Three Months Ended | |||||||||
| (Dollars in thousands) | 2014 | 2013 | % Change | ||||||
| Revenue before intersegment eliminations: | |||||||||
| Business | $ | 9,663 | $ | 8,825 | 9 | % | |||
| Wholesale | 7,815 | 7,646 | 2 | % | |||||
| Intersegment | 221 | 213 | 4 | % | |||||
| Total Fiber and Data revenue | 17,699 | 16,684 | 6 | % | |||||
| Cost of services | |||||||||
| (excluding depreciation and amortization) | 8,206 | 8,257 | -1 | % | |||||
| Selling, general and administrative expenses | 3,356 | 3,360 | 0 | % | |||||
| Asset impairment | - | 633 | |||||||
| Depreciation and amortization | 3,190 | 2,796 | 14 | % | |||||
| Total costs and expenses | 14,752 | 15,046 | -2 | % | |||||
| Operating income | $ | 2,947 | $ | 1,638 | 80 | % | |||
| Net income | $ | 1,739 | $ | 961 | 81 | % | |||
| Capital expenditures (A) | $ | 2,588 | $ | 2,943 | -12 | % | |||
| (A) Does not include change in materials and supplies. | |||||||||
| Equipment Segment | ||||||||||||
| (unaudited) | ||||||||||||
Three Months Ended | ||||||||||||
| (Dollars in thousands) | 2014 | 2013 | % Change | |||||||||
| Revenue before intersegment eliminations: | ||||||||||||
| Equipment | $ | 10,027 | $ | 15,364 | -35 | % | ||||||
| Services | 2,221 | 1,873 | 19 | % | ||||||||
| Total operating revenue | 12,248 | 17,237 | -29 | % | ||||||||
| Cost of sales | ||||||||||||
| (excluding depreciation and amortization) | 8,544 | 13,222 | -35 | % | ||||||||
| Cost of services | ||||||||||||
| (excluding depreciation and amortization) | 1,777 | 1,695 | 5 | % | ||||||||
| Selling, general and administrative expenses | 1,303 | 1,414 | -8 | % | ||||||||
| Depreciation and amortization | 138 | 85 | 62 | % | ||||||||
| Total costs and expenses | 11,762 | 16,416 | -28 | % | ||||||||
| Operating income | $ | 486 | $ | 821 | -41 | % | ||||||
| Net income | $ | 287 | $ | 485 | -41 | % | ||||||
| Capital expenditures | $ | 109 | $ | 558 | -81 | % | ||||||
| Telecom Segment | ||||||||||||
| (unaudited) | ||||||||||||
Three Months Ended | % | |||||||||||
| (Dollars in thousands) | 2014 | 2013 | Change | |||||||||
| Revenue before intersegment eliminations: | ||||||||||||
| Local Service | $ | 2,730 | $ | 2,963 | -8 | % | ||||||
| Network Access | 4,415 | 4,701 | -6 | % | ||||||||
| Broadband | 5,276 | 5,005 | 5 | % | ||||||||
| Other | 1,513 | 1,579 | -4 | % | ||||||||
| Intersegment | 434 | 417 | 4 | % | ||||||||
| Total operating revenue | $ | 14,368 | $ | 14,665 | -2 | % | ||||||
| Total Telecom revenue before intersegment eliminations | ||||||||||||
| Unaffiliated Customers | $ | 13,934 | $ | 14,248 | ||||||||
| Intersegment | 434 | 417 | ||||||||||
| 14,368 | 14,665 | |||||||||||
| Cost of services (excluding depreciation and amortization) | 6,809 | 6,847 | -1 | % | ||||||||
| Selling, general and administrative expenses | 1,986 | 2,245 | -12 | % | ||||||||
| Depreciation and amortization | 3,678 | 3,703 | -1 | % | ||||||||
| Total costs and expenses | 12,473 | 12,795 | -3 | % | ||||||||
| Operating income | $ | 1,895 | $ | 1,870 | 1 | % | ||||||
| Net income | $ | 1,118 | $ | 1,104 | 1 | % | ||||||
| Capital expenditures (A) | $ | 1,804 | $ | 1,760 | 3 | % | ||||||
Key Metrics | ||||||||||||
| Business access lines | 18,788 | 20,016 | -6 | % | ||||||||
| Residential access lines | 20,267 | 21,744 | -7 | % | ||||||||
| Total access lines | 39,055 | 41,760 | -6 | % | ||||||||
| High-speed Internet ("DSL") customers | 21,178 | 20,327 | 4 | % | ||||||||
| Digital TV customers | 11,788 | 10,910 | 8 | % | ||||||||
| (A) Does not include change in materials and supplies. | ||||||||||||
| Reconciliation of Non-GAAP Measures | |||||||||||||||||||||||||||||
| Three Months Ended | |||||||||||||||||||||||||||||
| March 31 | |||||||||||||||||||||||||||||
| (Dollars in thousands) | 2014 | 2013 | |||||||||||||||||||||||||||
| Reconciliation of consolidated net income to EBITDA: | |||||||||||||||||||||||||||||
| Net income | $ | 2,073 | $ | 1,626 | |||||||||||||||||||||||||
| Add: | |||||||||||||||||||||||||||||
| Depreciation and amortization | 7,580 | 7,009 | |||||||||||||||||||||||||||
| Interest expense | 979 | 1,139 | |||||||||||||||||||||||||||
| Income taxes | 1,441 | 1,094 | |||||||||||||||||||||||||||
| EBITDA | 12,073 | 10,868 | |||||||||||||||||||||||||||
| Adjustments allowed under our credit agreement: | |||||||||||||||||||||||||||||
| Asset impairment | - | 633 | |||||||||||||||||||||||||||
| EBITDA per our credit agreement | $ | 12,073 | $ | 11,501 | |||||||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||||||||
| Reconciliation of net debt: | Mar-14 | Dec-13 | Sep-13 | Jun-13 | Mar-13 | Dec-12 | Sep-12 | Jun-12 | Mar-12 | ||||||||||||||||||||
| Debt obligations, net of current maturities | $ | 133,289 | $ | 133,621 | 134,018 | 134,324 | 134,723 | 135,133 | 135,519 | 139,874 | 140,272 | ||||||||||||||||||
| Current maturities of long-term obligations | 1,551 | 1,586 | 1,584 | 1,655 | 1,648 | 1,648 | 1,636 | 1,614 | 1,621 | ||||||||||||||||||||
| Total Debt | $ | 134,840 | $ | 135,207 | 135,602 | 135,979 | 136,371 | 136,781 | 137,155 | 141,488 | 141,893 | ||||||||||||||||||
| Less: | |||||||||||||||||||||||||||||
| Cash and cash equivalents | 12,243 | 7,960 | 6,516 | 5,197 | 4,306 | 8,305 | 10,051 | 14,431 | 20,724 | ||||||||||||||||||||
| Net Debt | $ | 122,597 | $ | 127,247 | 129,086 | 130,782 | 132,065 | 128,476 | 127,104 | 127,057 | 121,169 | ||||||||||||||||||
| Reconciliation of Non-GAAP Measures | ||||||||
| Year Ending | ||||||||
| December 31, 2014 | ||||||||
| (Dollars in thousands) | Guidance Range | |||||||
| Reconciliation of net income to 2014 EBITDA guidance: | Low | High | ||||||
| Projected net income | $ | 6,400 | $ | 8,400 | ||||
| Add back: | ||||||||
| Depreciation and amortization | 31,800 | 31,400 | ||||||
| Interest expense | 4,500 | 4,100 | ||||||
| Taxes | 4,300 | 5,600 | ||||||
| Projected EBITDA guidance | $ | 47,000 | $ | 49,500 | ||||
Contacts:
David Christensen, 507-387-3355
CFO
or
Jennifer
Spaude, 507-386-3765
Investor Relations
