Otelco (OTEL) 10 Nov 192019 Q3 Earnings call transcript

Good day and welcome to the Otelco's Third Quarter 2019 Earnings Conference Call. Today's conference is being recorded.

At this time for opening remarks and introductions, I would like to turn the call over to Ms. Drew Anderson. Please go ahead, ma'am.

welcome results Otelco ended for XXXX. and review call September Cordi, company's the the you to conference the to XX, Thank third quarter the Curtis Garner, Chief Financial Officer. Rob President Conducting Chief Chief will Richard and and Officer, Clark, Souza, Officer Operating today call Executive be

have Before let Such and current or facts the forward-looking statements. me cautionary made known that or could statements. company or that the statements historical future factors actual we different this the unknown other such statements call and expressed risks, of statements of start, caused forward-looking unknown involve to from during that offer results note uncertainties forward-looking are results by implied not constitute the from materially be historical results any

contained describe other urged in readers that explicitly also The the and forward-looking. are In subject plans herein and filings labeled company's the described to intends, with be generally statements such and to believes, statements similar are the addition with are forward-looking belief, expects, or Exchange uncertain terms anticipates, Securities which Commission. uncertainties, consider uncertainties to risks terms and from statements risks time-to-time to

Please I With to Souza. the now go ahead. call will Rob over turn that stated,

we welcome to Curtis will call. review Thank you and the take our And then third and questions. affecting will business. that, good everyone’s morning and other quarter our XXXX performance Drew results. investor I quarter's our and Richard third discuss will key After issues financial

increased Richard and a improvements reflect higher our few broadband just as our to declined, also RLEC access focus service residential the in an which bring While will on revenues customers on for our trends impacting quarter results update traditional to investment our other industry, third customers, minutes. reflect speed the fiber provide continue they to network in strategic and

first were quarter reported These and Total revenue and quarter the for in $XX.X XXXX. million revenue a with results $XX.X X% million million from line second in XXXX. decrease third was $XX.X

Third A-CAM dating of positive our Vermont rate compared little impact year, quarter to saw true third conversion up to to a included encouraged two customer back of quarters. onetime property X.X were a this included churn slower of XXXX revenue a when quarter than a more which January the million. the We previous FCC’s that retroactive providing

Excluding traditional impact quarter the and third XXXX increases A-CAM of the FCC’s in residential the to in switched the carrier revenue due order. affected revenue the revenue primarily Missouri, access by compensation to services XXXX in and decrease was local decrease compared Vermont inter

in from XX.X% to third income quarter plan and impact in in to XXXX, $X.X exclude shifting XXXX. to million quarter and in to compared incentive expenses onetime $X.X the XXXX, were $X.X legal Net you XXXX compare quarter once XXXX. decreased Consolidated XXXX you in of million Cost decreased stock-based XXXX third management cash third the a quarter in $X.X senior XXXX, million million down to when the EBITDA from a plan expenses. third XX.X% based

and the IP that cellular may continue telecommunication of our by as properties availability influenced in and expect further We and competition will RLEC alternative services. trends such products be these based

give turn and continue Chief our Richard network in on we of this Officer progress customer all everyone enhancements. base. our network build available speeds to update to I to point, our President While make announced Clark, an higher out data to will At call our Operating the to over

Thanks, Rob.

our our customer increasing investment churn execute continue a in focus discussed quarter, business During calls, provide the previous our change the third in ability we to business. and enhance to broadband the on strategy in speeds customers’ we've with higher to

investment requirements more supported the million speeds the expenditures million. to for in increase in customers, overtime providing investment capital at meet the of increases XXXX customers the aimed to third level year the our $X May, better As increased board represents customer investment, in business internet churn. reminder XXXX over of of invested This and double-digit plans $XX.X and reduce a increase in our directors a to XX% than

During increased for to period $X.X quarter, $X.X investment year. million third capital million the with our last same compared the

our to In DOCSIS addition continue network service the work we and deployment, to fiber VDSL the to the of areas, year. next throughout X.X necessary deployment of prepare all distribution upgrading cable

gigabit large XX the VDSL of at Fiber majority us while cable to many the allows premise and offer XX capability we and upgrade territory the deliver and least to of megabits second both megabits serve to the to create a broadband capacity to speeds speeds, per customers.

and While we our the enhancements network the maximum providing deliver the to meet speeds we better customer and to base we worked these make increase are requirements reduce tunnel to speed have network, out churn. the build to can

in In locations X,XXX XXXX, expansion our fiber territories. pass network our nearly will

receive period and As XX-year a including we delivering $X.X post in Massachusetts a just services. announced network to earlier CAF over voice this completed year, for locations requirements million II February we post-auction broadband approximately both communities, XXX over filing wireless with our fixed four

will residents and these new enhance in voice network communities. The greatly data for options

in with WiValley are completed our relationship now being sites customers receiving the quarter. during with fourth additional first wireless The service

are Based locations A-CAM the of other XXX receiving fiber involvement with town solutions obligation. of capable began state's Leverett the approximately in and Approximately of collaboration is approved of with out completion XXX premise. part telco a nearing fiber-to-the in And ConnectME with or and network now the Maine build business town municipal FCC residence authority the municipalities October within our the serving Alton our also locations CAF in successful like funding. the of and in on October, beginning one Alton, ongoing our Otelco II

in before of from sales XX% November, and project premise funding XXXX. network will of this all to portion end investment, replacement locations infrastructure received required with copper and the completed to will approximately for and existing A Alton fiber-to-the support $X.X of open the the of ConnectME million expected of Grant service. the expect we be allowing be serve will marketing the

quarter, the completed builds third its expansion locations XXX fiber as passing of approximately part telco plans. announced fiber During

October month release and with of Another efforts. in XXX marketing locations and will pass the for fiber sales

the XXX share we expansion We have fiber with In is our XXXX, largest network locations. Arab, there network to previously network of passing network. passed fiber XX% fiber bring approximately outlined fiber prem pass market total to locations. our And within miles passing route our potential will we XXXX locations transport over to and passing is network deployed X,XXX fiber of territory. we nearly The fiber the miles where our to XXXX This locations. in will XX,XXX serve Alabama market the This service will currently of grow only believe over room customers.

these, pleased our customer. XXXX initiatives and ramp We progress with to to our up a get more to as hard number our as have worked broadband other available of are we execute in speed on employees

experience, our Looking focus customers. the customer improving enhancing on data we adding will and ahead, continue new speeds

at respectively. for decrease in decreased Looking the quarter. of X.X% customers served X.X% the This XXXX, XXX the quarters of customer some the and of compared is metrics end second of X% an or year third from to the quarter the first and second trend customers improved

network. percentage the third have to reflecting focus decreased services these increasing lower decreases our data services quarter period. than XXX customers, provided and on Data throughout voice or Services over X.X% our video speeds

in two of The years. a cable of over the and transition of services cell our next fiber the X.X in network. We continued deployment all media our expect DOCSIS to based networks deployment

product to concerted speed We’ll continue effort will family the churn. offerings and customer improve and believe available offerings our customers and the telco the to We service new reduce experience further improve customer's back of of enhance companies. service our and of speeds bring level data into our

summarize Curtis third now the financial will results. quarter

appreciate you, today. everybody Thank us We Richard. joining

of already the provide overview a on quarter third highlights release I'll areas. several and You press results XX-Q brief contained of Form as which were in touched yesterday. and other released in the financial both Rob

otherwise a third the year standpoint $XX.X quarter were from XXXX. third revenues comparison for year's quarter million generally same third down Unless third last everything Total XXXX quarter. versus from period quarter last is X% XXXX noted, against

Vermont video, was and unchanged the declined Local services X.X% Services last up and revenue X.X% Transport reflecting A-CAM third security X.X%. were services funding basically year. Network revenue decreased from revenue decreased Missouri. of in quarter while revenue X.X%. Internet managed access

additional category provides revenue. detail XX-Q of The explanatory by

expenses our for quarter, to to expenses operating million. third operating X.X% $XX.X increased million overall Moving from $XX.X

service offset $X.X and total Cost to customer $X.X and of $X.X costs increased and million, increase decreased network million. which decrease sales operating were in services million, $X.X by $X.X of a decreased access by an expenses network million slightly by million partially

in Selling, general and million our no expenses comparable third during with to in quarter conversion the $X.X associated XXXX. from period million $X.X expenses had new expense increased system $X.X X.X% same XXXX. The billing of million administrative

accrual management for to increase of an million offset This from legal a reflecting XXXX and stock change senior XXXX. million decrease by compensation $X.X compensation incentive in expense was in $X.X in incentive cash

XX as reflected and…. in must an while management be expensed the compensation compensation’s of compensation XX There total in no is Stock amount change months. over expense cash senior months

of service mentioned placed the $X.X that is increase from Richard an our increase billing was to system year. fiber $X.X service our increased million our balance related Depreciation amortization assets X.X% RLEC depreciation, new million, depreciation to the from and in in in and RLEC last generated expansion the of increase that

the the the XXXX quarter for revenue Again the third being single the third quarter quarter driven with in for compared of revenue. factor compared XXXX. million prior impacting primarily $X.X decreased the was the in by $X.X decline. to to Net income XX.X% million $X.X million income largest million $X.X in Operating to change period, in change third

compared $X.XX XXXX. period compared million XX% the by year compare income per quarter per in -- $X.X EBITDA was Consolidated revenue. XXXX decrease share third $X.XX same for the for $X.X third year share same driven quarter of million net was a Basic last for in this to in to period

made with quarter, quarter credit million Our compared third $XX.X of $X.X our position at balance principal We cash XXXX co-bank with third to million our $X.X million in of of $X.X reducing XXXX in payment the million. year-end reflects our cash scheduled agreement loan on million. increase sheet $X.X an balance

ratio X.XX, of this September the reflecting EBITDA debt mandatory prepayments the month. debt inception net years ago two was of on of As cash consolidated since payments to voluntary XX, and XXXX its

Richard and year-to-date XXXX as million for XXXX. million were third $X.X quarter noted expenditures $X.X Capital for

year. the the of we'll With continue the expectation investment to with our increase to balance that

additional I the with the think quarter press XX-Q. covers in highlights release in the the that detail for

if provide investors shift Cordi, we questions time. at taking this directions, can from you to

Walker. hear from Instructions]. [Operator Please from Absolutely. [ph] go We'll Wally ahead. first

Hey, gentlemen. good morning

Good Wally. morning

morning. Good

that I'm of been reluctant to stable. this has clear in revenue first year Well, forward-looking guidance. Okay. the It's quite aware give Otelco three is quarters

loss continued third little-to-no fiber the way illogical and voice it Now next and network immediate we these expect wireless will positive Massachusetts that the the even year? from quarter assume with be revenue projects Alton, upgrade, swing effect and wouldn't a Alabama trajectory of revenue if Maine the build, customers pressures, pricing to in

expectations sure the all point point for we data We Wally, concur Otelco at your make do this that steps in maybe we're will to with difference your premise not or taking that enough think you're we're making. a have the future.

are to have to also we that You and reductions including even rate reductions there other face continue headwinds A-CAM. are access associated that remember with

have step companies somewhere a A-CAM the per year. year-over-year, to amount our some in of $XXX,XXX I approximately think neighborhood saw XXX,XXX down of Some

make the at So, predict long-term think when we appropriate turn we're to next of you difference that company. this the to of sure doing all going I'm those together, But of to we're willing future things certainly point all in corner. the we're the year a net things

at math your here. looking just I've Right.

the Just fiber. added you said XXX with as of you month October alone in locations

about like Now, that rates that's And a would rate take rate, take than assume new Massachusetts if alone. Maine, in places XXX like just be and you we XX%? agree month Alton, higher take last like customers wouldn't Western the XX%

we we when copper. customers when have Wally, locations, XXX new on we've passed XX% say thing may is note of those we one that already add –

fairly customer So getting. we're they're that not They're conversion.

new you Do locations pass any many you'll in November? how estimate Okay. of

another in that believe of but Richard, think year the we will for pass think although about or XXXX. month yet, I so I XXX I don't think I pass we'll November. we the And

existing So locations saying, we're cases almost when location, copper. passing most passing they're all already today new – with existing they're all cases we're we're –

Okay. And that…

of base A portion already. that customer

Okay. one though. in right? Obviously, Massachusetts brand-new, not the That's wireless

correct. That's That's now.

in other SEC One fund world reverse recently a format Otelco billion opportunity digital question, participated II a to action with proposed $XX.X similar the CAF year. final that last

on the yet, hasn't this? while Do looks has SEC it release Now, you any on the initial sometime -- immediate been order next been like. press have early thoughts arrived SEC year

standard the practice if is if refocus thought they little to in Our territory on be qualifies. or our they served there'll that that un-served take under very

is wouldn't at? mean something about Okay. do could you you -- that I that And out-of-territory what or look

at cost-to-build have in than look cases, significantly advantage will every significant most will incumbent in We'll a be lower environment, opportunity, out-of-territory but the ours. because their

you. Thank Okay.

Thank you, Wally.

you. next question Michael Thank [ph]. We'll our from take Wu

a Hi. Thank I question. you question for about the have ratio. taking my leverage

X.XX, So Yes. is candidly quarter me? right? hear Did this you

So I see three, like wondering two? you do what you to like is level with? what are was guys comparable like comfortable or, guys guys forward going What like you or

why don't question, you respond please. Curtis, this

The of RLECs industry future to as just has the place X content increase Mr. down or where speaking fiber somewhat in down put to been which our a more we network in in in think revenue more expand therefore slow that revenue. viability get network, X.X right the fiber likely stop decline and the would I as to of we'll driving location. have was of traditional numbers the to earlier to the to Walker range the be we But our leverage it's that

we've So last projections, we the slowdown don't you've ratio. year look decline year but and our I CapEx increase seen that -- had leverage in if in you at a you can think the in this make

needs X is that. a So, X.X increasing is that's fiber world significantly I company, to to one telephone logical probably think probably than content higher be for but

Okay. you. Thank

what next plan – like past So, my is pretty year? two years. the is second It's about these question capital heavily like for

bit continue be or a of you would will So reduced that have idea? rough little you or kind reinvested expect to

available think because you to to – the think expect expenditures that's sense point our I years, fiber speeds think I of makes base. customer and maximize network capital to to increase our on similar levels in data to of our be I we that enhancing try you a will try our last what not can you'll a to to expansion couple continue as

Okay.

the it right? like So three, So I the debt by be It I of think I XXXX. have to – supposed covenant like under by about a question – to if supposed January correctly… remember be

it guidance risk direction past the have our we done then as would year X.XX – to think following time in any change as prior that lenders capital this with be covenant the on to the – normally covenant we But any the from believe I renegotiations X.X next might we've our at covenants and investment. be X.X year be and declines year. would I

Okay.

kind So guys the you with level, pretty assume million like, $X.X like of current debt million basically because or comfortable paydown. right, annual except this kind of $X

to So any you little a range? bit have that don't plan pay more than

level pretty to shareholders that our it's well level valuable as customers opposed more subscribers increase our as of our to investment to think demonstrated our I we've to paydown. as -- our of much increase

That's you. you. all questions. Thank Okay. my Thank

[Operator you. Thank now We'll [Indiscernible]. Instructions] from hear

company just is would wanted open interested convertible the be over selling be for shares there bond preferred you of that in would call expenditures? can for so on low delay. I ratio since the spend more capital you debt I'm X.XX Hello. or the internet, selling, some expenditures capital instance, to additional so is so ask, to

them we of as in of and on we are examine has whatever number the our available it last think I developing company a move great terms for institution. will rollout. about year talked explore capital reality much us is we existing We've how its pretty its options network our that, fiber we upgrading use to are develops all network company forward. spent plan. with options The plans we The will continued partner and evolution these have in the calls judicious lending as

of And questions. the just some

still spend. players the Are with you of space I think merger other the this makes at potential some a lot in in of space? looking consolidation

we acquisitions that there always I this we've or From stating options don't really of see are time. the mergers. acquisition has and discussing our be or were in with ever space of the in think have not time to acquired, they in parties an looking all out are certainly I'm announced change whether we sure point to specifically for been for over but we're in certainly consolidation mergers looking never at or any that slowed interested consolidation we going standpoint amount

have further much. you Thank I very questions. no

you. conference would session. to that Thank answer and does question I like that And back Mr. today's turn concludes to

remarks. for additional closing or Souza any

I on of value We strategic to our provide team increased you, appreciate call you questions is will continued of you Thank guidance for want always our and and Richard you. personally all investors evolution regarding Clark business conference as of and you customer well on meet Otelco's the shareholders. last of we Cordi. the to confident business. and our of this thank delivering aspect this that insight before your every while the direction at We joining welcome I end technology year. prepared the us best requirements, the morning be to support. apply to I'm my your keeping valuable plan with with retire how for Thank market informed development to

that And all you participation. you. conference. today's Thank for Thank does your conclude

disconnect. You now may