HickoryTech Reports Fourth Quarter 2012 Results

Double-digit Increases in Revenue and Income

  • Total revenue was $46.6 million, up 18 percent year-over-year
  • Fiber and data revenue was $16.4 million, up 36 percent year-over-year
  • Equipment revenue was $14.8 million, a 44 percent increase year-over-year
  • Operating income up 40 percent and Net income increased 60 percent year-over-year
  • Business and broadband revenue now represents 76 percent of total revenue in 2012

MANKATO, Minn.--()--HickoryTech Corporation (NASDAQ: HTCO) today reported fourth quarter revenue of $46.6 million, an increase of 18 percent year over year. Net income for the fourth quarter totaled $2.5 million, up 60 percent year over year, and earnings per share totaled 19 cents per diluted share, a 55 percent increase from a year ago. Fourth quarter results include the company’s Fargo, North Dakota operations, which were acquired in March 2012.

“HickoryTech met or exceeded its 2012 objectives while we invested in future growth initiatives that will further strengthen our business,” said John Finke, HickoryTech’s president and chief executive officer. “We made significant progress growing our fiber and data revenue organically and with a strong, strategic acquisition in Fargo, North Dakota. With 76 percent of our revenue coming from business and broadband services, our increasingly diversified revenue sources have allowed us to manage the regulatory challenges and declines in our legacy telecom operations. Looking forward, we remain focused on growing our business services and completing our greater Minnesota broadband project, which further expands our fiber network and gives us access to additional markets.”

Fiber and Data Segment (before inter-segment eliminations)

  • Fourth quarter Fiber and Data revenue totaled $16.4 million, up 36 percent year over year. This improvement is the result of the success experienced in retail and wholesale transport and data services, and the addition of IdeaOne Telecom operations. Fiber and Data revenue, excluding IdeaOne operations increased 8 percent year over year.
  • Costs and expenses for the segment totaled $13.7 million, up 36 percent.
  • Fiber and Data Segment operating income totaled $2.7 million, a 35 percent increase year over year.
  • Net income totaled $1.7 million, up 38 percent from the fourth quarter 2011.

Equipment Segment (before inter-segment eliminations)

  • Fourth quarter Equipment Segment revenue totaled $14.8 million, a 44 percent increase year over year, driven by higher equipment hardware sales.
  • Equipment revenue was $13.3 million, up 59 percent from a year ago and Support Services revenue was $1.6 million, down 22 percent from fourth quarter 2011.
  • Equipment Segment operating income totaled $398,000, an increase of 36 percent year over year.
  • Net income totaled $269,000, up 39 percent from fourth quarter 2011.

Telecom Segment (before inter-segment eliminations)

  • Fourth quarter Telecom Segment revenue totaled $16 million, down 10 percent from a year ago. Telecom results were affected by declines in network access, local service and other legacy service revenue, due to access reform regulation, the expiration of interstate infrastructure support reimbursements, access line and minute-of-use erosion and increased competition.
  • DSL subscribers increased 2 percent and Digital TV subscribers were up 3 percent; however, competitive price compression is impacting broadband revenue which was down 4 percent year over year.
  • Costs and expenses totaled $14 million, down 7 percent year over year.
  • Net income totaled $1.3 million, a 21 percent decrease compared to the fourth quarter 2011.

Total capital expenditures in the fourth quarter totaled $11.5 million, net of grants from the Greater Minnesota Broadband Collaborative Project.

Depreciation and amortization expense increased $1 million or 18 percent in the fourth quarter. The IdeaOne acquisition added $880,000 of depreciation and amortization, and the remainder is primarily attributed to increased capital expenditure associated with fiber network expansion and success-based capital expenditures associated with Fiber and Data revenue growth.

Consolidated Fiscal 2012 Results

  • Revenue for 2012 totaled $183.2 million, a 12 percent increase from fiscal 2011. The increase was driven by higher revenue increases in Fiber and Data, partly due to the result of the IdeaOne acquisition, and higher equipment sales which helped offset Telecom declines.
  • Operating income in 2012 was $19.4 million and net income for 2012 was $8.3 million, both down 1 percent from 2011.
  • EBITDA totaled $46.2 million, an 8 percent increase compared to 2011.
  • Fiber and Data Segment revenue totaled $60.9 million, a 33 percent increase from 2011.
  • Equipment Segment revenue was $60.1 million, up 23 percent from 2011.
  • Telecom Segment revenue was $64.7 million, down 9 percent from 2011.
  • Capital expenditures were $30.3 million net of grants from the Greater Minnesota Broadband Collaborative Project.
  • The company completed the acquisition of IdeaOne, a Fargo, North Dakota-based fiber network provider, in March 2012 for a purchase price of $26.3 million plus $1.8 million assumed liabilities and was funded by cash and debt.

Debt Position

Long-term debt and current maturities, including capitalized leases, totaled $136.8 million at Dec. 31, 2012. The 2012 debt balance represents a year-over-year increase of $16.5, as a result of the debt deployed to acquire IdeaOne Telecom.

Dividend

HickoryTech increased its fourth quarter 2012 dividend 3.5 percent to $0.145 cents per share of HickoryTech common stock, representing the company’s fourth dividend increase in the past five years. The company declared the first quarter 2013 dividend of $0.145 payable March 5. HickoryTech has paid a cash dividend to shareholders for more than 65 years.

“The long-term sustainability of our plan allows us to continue to invest in growth initiatives across our business, pay down debt and pay a shareholder dividend and is attributed to the strong free cash flow generated across our operations,” said Finke.

Fiscal Outlook for 2013

HickoryTech expects revenue in 2013 to be within a range of a 2 percent decline to a 3 percent increase as compared to 2012 revenue. The company expects growth in business revenue to offset the majority of the declines in legacy Telecom services. Net income is expected to be in a range of a 7 percent decline to a 14 percent increase versus 2012 net income. Capital expenditures are expected to decline by 6 percent to 20 percent and be between $24 million and $28.2 million. EBITDA is expected to be in a range of a 2 percent to 8 percent increase as compared to 2012 EBITDA. The company expects its year-end debt balance to be down 1 percent to 3 percent and be in a range of $133 million to $136 million.

Conference Call and Webcast

HickoryTech will hold a conference call and webcast on Wednesday, March 6 at 9 a.m. CT to review the company’s fourth-quarter and full-year 2012 results. The conference call dial-in number is 877-774-2369, conference ID 93172156. A simultaneous webcast with audio and presentation will be available 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 4,100 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         Twelve Months Ended    
December 31 % December 31 %
(Dollars in thousands, except share data) 2012     2011 Change 2012     2011 Change
Operating revenue:
Equipment $ 13,265 $ 8,317 59 % $ 52,219 $ 39,816 31 %
Services   33,317     31,247   7 %   130,977     123,722   6 %
Total operating revenue 46,582 39,564 18 % 183,196 163,538 12 %
 
Costs and expenses:
Cost of sales, excluding depreciation and amortization 11,390 7,017 62 % 45,054 34,163 32 %
Cost of services, excluding depreciation and amortization 16,164 15,236 6 % 63,753 59,480 7 %
Selling, general and administrative expenses 6,987 7,765 -10 % 28,257 27,184 4 %
Depreciation and amortization   6,951     5,901   18 %   26,746     23,056   16 %
Total costs and expenses   41,492     35,919   16 %   163,810     143,883   14 %
 
Operating income 5,090 3,645 40 % 19,386 19,655 -1 %
 
Interest and other income 7 13 -46 % 44 63 -30 %
Interest expense   (1,114 )   (1,076 ) 4 %   (5,749 )   (6,275 ) -8 %
Income before income taxes 3,983 2,582 54 % 13,681 13,443 2 %
Income tax provision   1,458     1,008   45 %   5,383     5,042   7 %
 
Net income $ 2,525   $ 1,574   60 % $ 8,298   $ 8,401   -1 %
 
Basic earnings per share $ 0.19   $ 0.12   56 % $ 0.62   $ 0.63   -2 %

 

 

 

 

Basic weighted average common shares outstanding   13,455,561     13,314,854     13,409,743     13,296,668  
 
Diluted earnings per share $ 0.19   $ 0.12   55 % $ 0.61   $ 0.63   -3 %

 

 

Diluted weighted average common and equivalent shares outstanding  

13,467,926

    13,403,215     13,528,039     13,419,647  
 
Dividends per share $ 0.145   $ 0.14   4 % $ 0.565   $ 0.545   4 %
 
 
Consolidated Balance Sheets
(unaudited)
 
(Dollars and Share Data in Thousands)     December 31, 2012     December 31, 2011
Assets
Current assets:
Cash and cash equivalents $ 8,305 $ 13,057
Receivables, net of allowance for doubtful accounts of $278 and $436 22,530 25,317
Inventories 8,379 9,297
Income taxes receivable 596 498
Deferred income taxes, net 1,887 1,559
Prepaid expenses 2,092 1,801
Other   1,399     964  
Total current assets 45,188 52,493
 
Investments 3,213 4,277
 
Property, plant and equipment 437,623 397,140
Accumulated depreciation and amortization   (254,664 )   (242,886 )
Property, plant and equipment, net 182,959 154,254
 
Other assets:
Goodwill 29,028 27,303
Intangible assets, net 4,811 2,314
Deferred costs and other   3,105     3,345  
Total other assets   36,944     32,962  
 
Total assets $ 268,304   $ 243,986  
 
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 5,818 $ 4,661
Extended term payable 8,115 6,920
Deferred revenue 7,362 6,251
Accrued expenses and other 10,881 10,175
Current maturities of long-term obligations   1,648     1,407  
Total current liabilities 33,824 29,414
 
Long-term liabilities:
Debt obligations, net of current maturities 135,133 118,828
Accrued income taxes 236 154
Deferred revenue 1,085 1,131
Financial derivative instruments 2,432 2,469
Accrued employee benefits and deferred compensation 12,481 18,166
Deferred income taxes   34,265     30,627  
Total long-term liabilities 185,632 171,375
 
Total liabilities 219,456 200,789
 
Commitments and contingencies
 
Shareholders' equity:
Common stock, no par value, $.10 stated value
Shares authorized: 100,000
Shares issued and outstanding: 13,519 in 2012 and 13,396 in 2011 1,352 1,340
Additional paid-in capital 15,950 15,683
Retained earnings 30,987 30,309
Accumulated other comprehensive (loss)   559     (4,135 )
Total shareholders' equity   48,848     43,197  
 
Total liabilities and shareholders' equity $ 268,304   $ 243,986  
 
 
Fiber and Data Segment
(unaudited)
 
   

Three Months Ended

   

Twelve Months Ended

December 31

December 31

(Dollars in thousands) 2012     2011     % Change 2012     2011     % Change
Revenue before intersegment eliminations:
Services $ 16,185 $ 11,853 37 % $ 60,109 $ 45,149 33 %
Intersegment   230   207 11 %   831   773 8 %
Total Fiber and Data revenue 16,415 12,060 36 % 60,940 45,922 33 %
 
Cost of services
(excluding depreciation and amortization) 8,008 6,085 32 % 29,827 23,420 27 %
Selling, general and administrative expenses 2,912 2,307 26 % 11,389 8,762 30 %
Depreciation and amortization   2,768   1,655 67 %   9,923   6,394 55 %
Total costs and expenses   13,688   10,047 36 %   51,139   38,576 33 %
 
Operating income $ 2,727 $ 2,013 35 % $ 9,801 $ 7,346 33 %
Net income $ 1,725 $ 1,250 38 % $ 5,933 $ 4,423 34 %
 
Capital expenditures $ 7,854 $ 4,342 81 % $ 19,812 $ 11,553 71 %
 
 
Equipment Segment
(unaudited)
 
   

Three Months Ended

   

Twelve Months Ended

December 31

December 31

(Dollars in thousands) 2012     2011     % Change 2012     2011     % Change
Revenue before intersegment eliminations:
Equipment $ 13,265 $ 8,317 59 % $ 52,219 $ 39,816 31 %
Support Services   1,582   2,029 -22 %   7,914   9,116 -13 %
Total Equipment revenue 14,847 10,346 44 % 60,133 48,932 23 %
 
Cost of sales
(excluding depreciation and amortization) 11,390 7,017 62 % 45,054 34,163 32 %
Cost of services
(excluding depreciation and amortization) 1,563 1,751 -11 % 6,704 6,759 -1 %
Selling, general and administrative expenses 1,409 1,197 18 % 5,568 4,962 12 %
Depreciation and amortization   87   89 -2 %   300   302 -1 %
Total costs and expenses   14,449   10,054 44 %   57,626   46,186 25 %
 
Operating income $ 398 $ 292 36 % $ 2,507 $ 2,746 -9 %
Net income $ 269 $ 193 39 % $ 1,523 $ 1,651 -8 %
 
Capital expenditures $ 189 $ 122 55 % $ 364 $ 428 -15 %
 
 
Telecom Segment
(unaudited)
 
    Three Months Ended        

Twelve Months Ended

   
December 31 %

December 31

%
(Dollars in thousands) 2012     2011 Change 2012     2011 Change
Revenue before intersegment eliminations:
Local Service $ 3,054 $ 3,541 -14 % $ 12,955 $ 14,363 -10 %
Network Access 4,831 5,401 -11 % 19,160 22,489 -15 %
Broadband 4,909 5,126 -4 % 19,748 20,371 -3 %
Directory 753 783 -4 % 3,069 3,346 -8 %
Long Distance 578 719 -20 % 2,473 2,892 -14 %
Bill Processing 1,132 1,397 -19 % 4,322 4,314 0 %
Intersegment 473 412 15 % 1,792 1,632 10 %
Other   293   398 -26 %   1,227   1,682 -27 %
Total Telecom revenue $ 16,023 $ 17,777 -10 % $ 64,746 $ 71,089 -9 %
 
Total Telecom revenue before intersegment eliminations
Unaffiliated Customers $ 15,550 $ 17,365 $ 62,954 $ 69,457
Intersegment   473   412   1,792   1,632
16,023 17,777 64,746 71,089
 
Cost of services (excluding depreciation and amortization) 7,233 7,969 -9 % 29,606 31,509 -6 %
Selling, general and administrative expenses 2,647 2,992 -12 % 11,076 12,027 -8 %
Depreciation and amortization   4,088   4,133 -1 %   16,452   16,270 1 %
Total costs and expenses   13,968   15,094 -7 %   57,134   59,806 -4 %
 
Operating income $ 2,055 $ 2,683 -23 % $ 7,612 $ 11,283 -33 %
 
Net income $ 1,317 $ 1,674 -21 % $ 4,618 $ 6,776 -32 %
 
Capital expenditures $ 3,426 $ 2,777 23 % $ 10,203 $ 9,392 9 %
 

Key Metrics

Business access lines 20,251 23,316 -13 %
Residential access lines   22,145   24,386 -9 %
Total access lines 42,396 47,702 -11 %
Long distance customers 30,048 32,280 -7 %
Digital Subscriber Line customers 19,985 19,531 2 %
Digital TV customers 10,640 10,374 3 %
 
 
Reconciliation of Non-GAAP Measures
               
Three Months Ended December 31   Twelve Months Ended December 31
(Dollars in thousands) 2012 2011 2012 2011
Reconciliation of Consolidated net income to EBITDA:
Net income $ 2,525 $ 1,574 $ 8,298 $ 8,401
Add:
Depreciation and amortization 6,951 5,901 26,746 23,056
Interest expense 1,114 1,076 5,749 6,275
Income taxes   1,458   1,008   5,383     5,042
EBITDA $ 12,048 $ 9,559 $ 46,176   $ 42,774
 
Twelve Months Ended
(Dollars in thousands) December 31, 2012
Reconciliation of Consolidated net income to EBITDA:
Net income $ 8,298
Add:
Depreciation and amortization 26,746
Interest expense 5,749
Income taxes   5,383  
EBITDA $ 46,176  
 
EBITDA $ 46,176
Revenue $ 183,196
EBITDA Margin 25.2 %
 
Twelve Months Ended December 31
(Dollars in thousands) 2012 2011 2010
Reconciliation of Consolidated net income to EBITDA:
Net income $ 8,298 $ 8,401 $ 12,592
Add:
Depreciation and amortization 26,746 23,056

22,022

 

Interest expense 5,749 6,275 4,084
Income taxes   5,383   5,042  

4,365

 
EBITDA $ 46,176 $ 42,774 $ 43,063  
 
 
(Dollars in thousands)                        
Reconciliation of net debt: December 31, 2012 September 30, 2012 June 30, 2012 March 31, 2012 December 31, 2011 December 31, 2010
Debt obligations, net of current maturities $ 135,133 $ 135,519 $ 139,874 $ 140,272 $ 118,828 $ 114,067
Current maturities of long-term obligations   1,648   1,636   1,614   1,621   1,407   4,892
Total Debt $ 136,781 $ 137,155 $ 141,488 $ 141,893 $ 120,235 $ 118,959
Less:
Cash and cash equivalents   8,305   10,051   14,431   20,724   13,057   73
Net Debt $ 128,476 $ 127,104 $ 127,057 $ 121,169 $ 107,178 $ 118,886
 
 
Three months ended
(Dollars in thousands) Dec-12 Sep-12 Jun-12 Mar-12
Reconciliation of net income to EBITDA:
Net income $ 2,525 $ 1,741 $ 1,738 $ 2,294
Add:
Depreciation and amortization 6,951 6,869 6,732 6,194
Interest expense 1,114 1,625 1,599 1,411
Income taxes   1,458   1,194   1,164   1,567
EBITDA $ 12,048 $ 11,429 $ 11,233 $ 11,466
 
Debt to EBITDA ratio

Total outstanding debt as of December 31, 2012

 

$

136,801

EBITDA for the last (4) consecutive fiscal quarters as presented above

 

46,176

IdeaOne Telecom historical EBITDA (reflects 2 months)

 

833

Debt to EBITDA ratio as of December 31, 2012

 

 

2.91

 

 

   
   
Twelve Months Ended
(Dollars in thousands) December 31, 2012
Reconciliation of Free Cash Flow:
Net income $ 8,298
Add:
Depreciation and amortization 26,746
Interest expense 5,749
Income taxes   5,383  
EBITDA $ 46,176  
 
Adjustments:
Capital expenditures $ 30,253
Cash paid for interest 5,965
Cash paid for taxes   5,180  
$ 41,398  
 
Free cash flow $ 4,778  
 
Dividends paid $ 7,620
 
 
Year Ending
December 31, 2013
(Dollars in thousands) Guidance Range
Reconciliation of net income to 2013 EBITDA guidance: Low High
Projected net income $ 7,700 $ 9,500
Add back:
Depreciation and amortization 28,500 28,000
Interest expense 5,500 6,000
Taxes   5,300     6,500  
Projected EBITDA guidance $ 47,000   $ 50,000  
 
Prior Year EBITDA $ 46,176 $ 46,176
% Change +2 % +8 %
 

Contacts

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

Release Summary

Year over year: Total revenue up 18%, Fiber and Data revenue up 36%, Equipment revenue up 44%, Operating income up 40%, Net income up 60%

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Contacts

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