28.02.2011 21:00:00

HickoryTech Reports Fourth Quarter and Full-Year 2010 Results

HickoryTech Corporation (Nasdaq: HTCO) today reported fourth quarter fiscal 2010 operating revenue of $41.8 million, an increase of 9 percent from the $38.3 million reported one year ago. Fourth quarter net income totaled $2.1 million, or 16 cents per diluted share, a 48 percent increase from the $1.4 million, or 11 cents per diluted share, reported in the comparable quarter in 2009.

"Our fourth quarter was as dynamic as the previous two quarters,” said John Finke, HickoryTech’s president and chief executive officer. "We are very pleased with the recent completion of our network expansion to the Dakotas and in Des Moines, Iowa. Additionally, we experienced three consecutive quarters of solid sales volume in fiber and data, equipment and broadband services supporting our growth strategy.”

HickoryTech’s fiber and data revenue increased 18 percent and totaled $11.1 million in the fourth quarter 2010. The company’s equipment product line reported $13.3 million of revenue, a 17 percent increase over the same quarter one year ago. Broadband services revenue increased 14 percent and totaled $5 million in the fourth quarter.

"While our traditional telephone business remains an important component in our strategy, we continue to transform HickoryTech into a company focused on delivering broadband and business services over our regional fiber optic network,” added Finke. "As we work toward our five-year goal to double the value of our company, we are executing a disciplined growth strategy, one that will increase shareholder value as we broaden our footprint, gain market share and strengthen our position as a leading communications provider.”

The company’s debt position as of Dec. 31, 2010 totaled $119 million, down $1.5 million from the beginning of fiscal 2010, and $3 million lower than the third quarter ended Sept. 30, 2010.

With continued investment in growth initiatives, HickoryTech reported $5.9 million of capital expenditures in the fourth quarter of 2010, and $22.9 million of capital expenditures during fiscal year 2010. This compares to $17.9 million of capital expenditures in fiscal 2009.

Business Sector (formerly Enventis Sector, before inter-segment eliminations)
Business Sector revenue before eliminations totaled $24.5 million in the fourth quarter 2010, an increase of $3.6 million, or 17 percent, relative to the comparative quarter in 2009. Costs and expenses including depreciation totaled $22.1 million, up 12 percent. Business Sector net income of $1.5 million was up 91 percent from the fourth quarter of 2009.

  • Fiber and data revenue totaled $11.1 million, an increase of 18 percent compared to the fourth quarter 2009, and is primarily the result of strong sales of wholesale transport services.
  • Equipment revenue for the fourth quarter 2010 totaled $13.3 million, a 17 percent increase year over year driven by equipment sales supporting the integration of collaboration and unified communications.
  • Both Business Sector product lines experienced excellent growth in fiscal 2010, with fiber and data revenue up 43 percent and equipment revenue up 27 percent, compared to fiscal 2009.

Telecom Sector (before inter-segment eliminations)
Telecom Sector revenue was flat year over year and totaled $17.9 million in the fourth quarter 2010. For fiscal 2010, Telecom revenue increased $358,000, or less than 1 percent, from fiscal 2009. Telecom results continue to be impacted by heightened competition causing local service and network access declines, offset by broadband revenue growth. Telecom costs and expenses including depreciation totaled $15.3 million in the fourth quarter, up 3 percent relative to the fourth quarter 2009. Annual costs and expenses were 4 percent higher in fiscal 2010 than fiscal 2009.

  • Broadband revenue increased to $5 million in fourth quarter 2010, up 14 percent compared to $4.4 million in the fourth quarter of 2009. Business Ethernet sales contributed to the broadband growth as well as residential DSL and Digital TV services, which support a long-time trend of broadband growth.
  • Network access revenue totaled $5.4 million, down 11 percent from the comparable fourth quarter one year ago. On an annual basis, network access revenue was down 4 percent during fiscal 2010 as compared to fiscal 2009, indicative of the trend in network access revenue over time.
  • Local service revenue of $3.8 million decreased 5 percent while local access lines declined 7 percent.
  • Telecom costs and expenses including depreciation increased in the fourth quarter and for fiscal 2010 due to costs associated with disputes with inter-exchange carriers over payment of network access fees, increased cost of employee health care, and content costs associated with digital TV services.

Consolidated results for fiscal 2010

  • Revenue for fiscal 2010 totaled $162.2 million, up 17 percent from the previous year.
  • Net Income for fiscal 2010 totaled $12.1 million, up 7 percent. Excluding the income tax reserve releases, which added $2.7 million in fiscal 2010 and $4.4 million of net income in fiscal 2009, net income increased 37 percent over fiscal 2009.
  • Interest expense was $4.9 million, down 29 percent year over year.
  • Operating income for fiscal 2010 totaled $21 million, up 13 percent from the previous year.
  • Business Sector revenue totaled $92.2 million in fiscal 2010, up 34 percent. Fiber and data revenue grew 43 percent in fiscal 2010, and equipment and support services was up 27 percent.
  • Telecom Sector revenue totaled $70 million in fiscal 2010, down 1 percent from the previous year. Telecom Broadband services grew 11 percent year over year.

Capital Expenditures and Debt
HickoryTech reported capital expenditures of $5.9 million for the fourth quarter of 2010 and $22.9 million for the fiscal year 2010. Fourth quarter capital expenditures in the Business Sector totaled $3.7 million and were $2.2 million in the Telecom sector. In spite of growth initiatives requiring capital investments, the $119 million debt balance is $3 million lower as of Dec. 31, 2010 than the previous quarter, and down $1.5 million from year-end 2009, due to positive cash inflows from operations.

Future Outlook
The company provided the following metrics related to its 2011 full-year outlook:

  • Revenue is expected to range from $158 million to $164 million.
  • Net Income is expected to range from $7.4 million to $8.7 million.
  • CAPEX is expected to range from $20.5 million to $24 million (net of government grants for Broadband Stimulus Project).
  • EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) is expected to range from $41 million to $43.2 million.
  • Debt balance at Dec. 31, 2011 is expected to range from $118 million to $123 million.

"We’re very pleased with our fiscal 2010 results, our strong balance sheet and our progress with our strategic initiatives,” concluded Finke. "We continue to grow our fiber, data and broadband services, and are investing in growth opportunities. We remain very confident in our business plan and will continue to execute on our strategic growth plans.”

Conference Call and Webcast
HickoryTech will host a conference call and webcast on Tuesday, March 1, 2011 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 41593243. A simultaneous webcast of the call and presentation will be available via our website at 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., the corporation has 460 employees and an expanded, regional fiber network spanning more than 2,750 route miles serving Minnesota, Iowa, North Dakota and South Dakota. Enventis 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. HickoryTech delivers broadband Internet, Digital TV, voice and data services to businesses and consumers in southern Minnesota and northwest Iowa. Nasdaq: 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. These non-GAAP measures include earnings before income taxes, interest, 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.

             
 
Consolidated Statement of Operations

(unaudited)

 
Three Months Ended Twelve Months Ended
December 31 % December 31 %
(Dollars in thousands, except share data) 2010   2009 Change 2010   2009 Change
Revenue:
Business Sector
Equipment $ 11,500 $ 9,069 27 % $ 39,406 $ 27,857 41 %
Support Services   1,765     2,306   -23 %   8,138     9,579   -15 %
Equipment 13,265 11,375 17 % 47,544 37,436 27 %
Fiber and Data   11,107     9,435   18 %   44,685     31,247   43 %
Total Business Sector 24,372 20,810 17 % 92,229 68,683 34 %
Telecom Sector   17,407     17,520   -1 %   70,018     70,419   -1 %
Total revenue 41,779 38,330 9 % 162,247 139,102 17 %
 
Costs and Expenses:
Cost of sales, excluding depreciation and amortization 9,332 8,500 10 % 33,300 24,869 34 %
Cost of services, excluding depreciation and amortization 15,495 14,394 8 % 60,897 52,211 17 %
Selling, general and administrative expenses 6,635 5,881 13 % 25,060 22,260 13 %
Depreciation 5,765 5,209 11 % 21,665 20,176 7 %
Amortization of intangibles   89     302   -71 %   357     1,001   -64 %
Total costs and expenses   37,316     34,286   9 %   141,279     120,517   17 %
 
Operating income 4,463 4,044 10 % 20,968 18,585 13 %
 
Interest and other income 11 50 -78 % 73 105 -30 %
Interest expense   (1,094 )   (1,763 ) -38 %   (4,914 )   (6,918 ) -29 %
Income before income taxes 3,380 2,331 45 % 16,127 11,772 37 %
Income taxes   1,266     907   40 %   4,033     499   708 %
 
Net income $ 2,114   $ 1,424   48 % $ 12,094   $ 11,273   7 %
 
 
Basic earnings per share $ 0.16   $ 0.11   45 % $ 0.91   $ 0.86   6 %
Basic weighted average common shares outstanding   13,289,746     13,095,628     13,233,874     13,061,266  
 
Diluted earnings per share $ 0.16   $ 0.11   45 % $ 0.91   $ 0.86   6 %
Diluted weighted average common and equivalent shares outstanding   13,296,059     13,100,015     13,237,195     13,061,861  
 
Dividends per share $ 0.135   $ 0.13   4 % $ 0.525   $ 0.52   1 %
 

 

     
Consolidated Balance Sheet

(unaudited)

 
(Dollars and Share Data in Thousands) December 31, 2010 December 31, 2009
ASSETS
Current assets:
Cash and cash equivalents $ 73 $ 2,420
Receivables, net of allowance for doubtful accounts of $570 and $643 24,642 19,729
Inventories 5,205 4,752
Income taxes receivable 3,814 -
Deferred income taxes 2,008 2,423
Prepaid expenses 2,026 1,751
Other   1,030     1,039  
Total current assets 38,798 32,114
 
Investments 4,512 4,306
 
Property, plant and equipment 379,433 357,607
Accumulated depreciation   (224,356 )   (204,129 )
Property, plant and equipment, net 155,077 153,478
 
Other assets:
Goodwill 27,303 27,423
Intangible assets, net 2,668 3,025
Deferred costs and other   1,830     2,137  
Total other assets   31,801     32,585  
 
Total assets $ 230,188   $ 222,483  
 
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Extended term payable $ 8,254 $ 6,788
Accounts payable 2,840 2,883
Accrued expenses and other 7,929 7,792
Accrued income taxes - 642
Deferred revenue 5,073 6,016
Financial derivative instruments 1,079 -
Current maturities of long-term obligations   4,892     620  
Total current liabilities 30,067 24,741
 
Long-term liabilities:
Debt obligations, net of current maturities 114,067 119,871
Financial derivative instruments - 1,908
Accrued income taxes 562 3,218
Deferred income taxes 26,868 21,895
Deferred revenue 1,397 2,095
Accrued employee benefits and deferred compensation   15,923     14,209  
Total long-term liabilities 158,817 163,196
 
Total liabilities 188,884 187,937
 
Commitments and contingencies
 
Shareholders' equity:
Common stock, no par value, $.10 stated value
shares authorized: 100,000
Shares issued and outstanding: 13,299 in 2010 and 13,101 in 2009 1,330 1,310
Additional paid-in capital 14,328 12,975
Retained earnings 29,841 24,687
Accumulated other comprehensive (loss)   (4,195 )   (4,426 )
Total shareholders' equity   41,304     34,546  
 
Total liabilities and shareholders' equity $ 230,188   $ 222,483  
 
                 
Business Sector Recap

(unaudited)

 
Three Months Ended Twelve Months Ended
December 31 % December 31 %
(Dollars In thousands) 2010 2009 Change 2010 2009 Change
Revenue before intersegment eliminations
Equipment $ 11,500 $ 9,069 27 % $ 39,406 $ 27,857 41 %
Support Services   1,765   2,306 -23 %   8,138   9,579 -15 %
Equipment 13,265 11,375 17 % 47,544 37,436 27 %
Fiber and Data 11,107 9,435 18 % 44,685 31,247 43 %
Intersegment   155   111 40 %   542   500 8 %
$ 24,527 $ 20,921 17 % $ 92,771 $ 69,183 34 %
 
Total revenue before intersegment eliminations
Unaffiliated customers $ 24,372 $ 20,810 $ 92,229 $ 68,683
Intersegment   155   111   542   500
$ 24,527 $ 20,921 $ 92,771 $ 69,183
Cost of sales
(excluding depreciation and amortization) 9,332 8,500 10 % 33,300 24,869 34 %
Cost of services
(excluding depreciation and amortization) 7,802 6,786 15 % 30,683 23,050 33 %
Selling, general and administrative expenses 3,102 2,785 11 % 12,612 10,224 23 %
Depreciation and amortization   1,865   1,604 16 %   6,170   5,413 14 %
Total costs and expenses   22,101   19,675 12 %   82,765   63,556 30 %
 
Operating income $ 2,426 $ 1,246 95 % $ 10,006 $ 5,627 78 %
Net income $ 1,453 $ 762 91 % $ 5,951 $ 3,362 77 %
 
Capital expenditures $ 3,663 $ 3,847 -5 % $ 14,464 $ 8,738 66 %
 
                   
Business Equipment Product Line
(unaudited)
 
Three Months Ended December 31 Twelve Months Ended December 31
(Dollars in thousands) 2010 2009 % Change 2010 2009 % Change
Revenue before intersegment eliminations
Equipment $ 11,500 $ 9,069 27 % $ 39,406 $ 27,857 41 %
Support Services   1,765   2,306   -23 %   8,138   9,579 -15 %
$ 13,265 $ 11,375 17 % $ 47,544 $ 37,436 27 %
 
Cost of sales
(excluding depreciation and amortization) 9,332 8,496 10 % 33,300 24,923 34 %
Cost of services
(excluding depreciation and amortization) 1,879 1,817 3 % 6,957 7,082 -2 %
Selling, general and administrative expenses 1,113 1,046 6 % 4,660 4,848 -4 %
Depreciation and amortization   122   107   14 %   392   414 -5 %
Total costs and expenses   12,446   11,466   9 %   45,309   37,267 22 %
 
Operating income (loss) $ 819 $ (91 )

N/A

$ 2,235 $ 169 1222 %
Net income (loss) $ 490 $ (34 )

N/A

$ 1,348 $ 122 1005 %
 
Capital expenditures $ 5 $ 204   -98 % $ 217 $ 528 -59 %
 
 
Business Fiber and Data Product Line

(unaudited)

                   
Three Months Ended December 31 Twelve Months Ended December 31
(Dollars in thousands) 2010 2009 % Change 2010 2009 % Change
Revenue before intersegment eliminations:
Services $ 11,107 $ 9,435 18 % $ 44,685 $ 31,247 43 %
Intersegment   155   111 40 %   542   500   8 %
$ 11,262 $ 9,546 18 % $ 45,227 $ 31,747 42 %
 
Cost of sales
(excluding depreciation and amortization) - 4

N/A

- (54 )

N/A

Cost of services
(excluding depreciation and amortization) 5,923 4,969 19 % 23,726 15,968 49 %
Selling, general and administrative expenses 1,989 1,739 14 % 7,952 5,376 48 %
Depreciation and amortization   1,743   1,497 16 %   5,778   4,999   16 %
Total costs and expenses   9,655   8,209 18 %   37,456   26,289   42 %
 
Operating income $ 1,607 $ 1,337 20 % $ 7,771 $ 5,458   42 %
Net income $ 963 $ 796 21 % $ 4,603 $ 3,240   42 %
 
Capital expenditures $ 3,658 $ 3,643 0 % $ 14,247 $ 8,210   74 %
 
                 
Telecom Sector Recap
(unaudited)
 
Three Months Ended Twelve Months Ended
December 31 % December 31 %
(Dollars in thousands) 2010 2009 Change 2010 2009 Change
Revenue
Local Service $ 3,760 $ 3,967 -5 % $ 15,288 $ 16,163 -5 %
Network Access 5,359 5,999 -11 % 23,150 24,157 -4 %
Long Distance 765 861 -11 % 3,185 3,791 -16 %
Broadband 5,007 4,397 14 % 18,832 17,028 11 %
Directory 910 929 -2 % 3,627 4,000 -9 %
Bill Processing 1,083 872 24 % 3,808 3,351 14 %
Intersegment 517 373 39 % 1,976 1,217 62 %
Other   523   495 6 %   2,128   1,929 10 %
Total Telecom Revenue $ 17,924 $ 17,893 0 % $ 71,994 $ 71,636 0 %
 
Total Telecom revenue before intersegment eliminations
Unaffiliated Customers $ 17,407 $ 17,520 $ 70,018 $ 70,419
Intersegment   517   373   1,976   1,217
17,924 17,893 71,994 71,636
Costs and expenses
Cost of services, excluding depreciation and amortization 8,326 8,046 3 % 32,578 30,730 6 %
Selling, general and administrative expenses 2,986 2,883 4 % 12,154 11,639 4 %
Depreciation and amortization   3,965   3,877 2 %   15,737   15,680 0 %
Total costs and expenses   15,277   14,806 3 %   60,469   58,049 4 %
 
Operating income $ 2,647 $ 3,087 -14 % $ 11,525 $ 13,587 -15 %
 
Net income $ 1,654 $ 1,869 -12 % $ 6,652 $ 8,068 -18 %
 
Capital expenditures $ 2,215 $ 2,693 -18 % $ 8,424 $ 9,068 -7 %
 

Key Metrics

Business access lines 24,043 25,133 -4 %
Residential access lines   27,199   30,197 -10 %
Total access lines 51,242 55,330 -7 %
Long distance customers 33,854 36,107 -6 %
DSL customers 19,667 19,346 2 %
Digital TV customers 10,562 9,663 9 %
 

 

         

Reconciliation of Non-GAAP Measures

 
Three Months Ended Twelve Months Ended
December 31 December 31
2010 2009 2010 2009
(Dollars in thousands)
Reconciliation of net income to EBITDA:
Net income $ 2,114 $ 1,424 $ 12,094 $ 11,273
Add:
Depreciation 5,765 5,209 21,665 20,176
Amortization of intangibles 89 302 357 1,001
Interest expense 1,094 1,763 4,914 6,918
Taxes   1,266   907   4,033   499
EBITDA $ 10,328 $ 9,605 $ 43,063 $ 39,867
 
Reconciliation of net income to net income without
release of income tax reserve:
Net income $ 2,114 $ 1,424 $ 12,094 $ 11,273
Deduct: Income tax reserve release   -   -   2,726   4,454
Net income excluding income tax reserve release $ 2,114 $ 1,424 $ 9,368 $ 6,819
 
Year Ending
December 31, 2011
(Dollars in thousands) Guidance Range
Reconciliation of net income to 2011 EBITDA guidance: Low   High
Projected net income $ 7,400 $ 8,700
Add back:
Depreciation and amortization 23,700 23,000
Interest expense 5,900 5,400
Taxes   4,000     6,100
Projected EBITDA Guidance 1 $ 41,000   $ 43,200
 

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

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