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#189341

Otelco Inc. (OTT)

Q4 2009 Earnings Call

February 18, 2010 12:00 am ET

Executives

Kevin Enda - IR

Michael Weaver - Chairman, President & CEO

Curtis Garner - CFO

Analysts

Tim Horan - Oppenheimer

Frank Louthan - Raymond James

Dave Coleman - RBC Capital Markets

Presentation

Operator

Good day and welcome to the Otelco Inc. Conference Call. Today's conference is being recorded. At this time for opening remarks and introductions, I'd like turn the call over to Mr. Kevin Enda. Please go ahead, sir.

Kevin Enda

Thank you Robbie, and welcome to this Otelco Conference Call, to review the company's results for the fourth quarter and year ended December 31, 2009, which we released yesterday afternoon. Conducting the call today will be Michael Weaver, President and Chief Executive Officer, and Curtis Garner, Chief Financial Officer.

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

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

With that stated, I'll turn the call over to Mike Weaver.

Michael Weaver

Good morning and thanks for joining us on the call. 2009 was a very good year for us as we experienced over 34% growth in revenue and 31% growth in EBITDA. This growth in revenue and EBITDA coupled with our [promise] to shareholders of $1.68 per share for interest in dividends resulted in a 99% increase in our stock price to 1506 at 12/31/09 versus $7.57 to 12/31/08. On a longer term view, $100 invested in Otelco on December 31, 2004 at a cumulative return of $155.78 at 12/31/09 including the impact of dividends in interest.

The catalyst for our progress in 2009 was the successful integration of the Country Road entities that we acquired in the fourth quarter of 2008. Our results for the Country Road operations exceeded our estimates at the time we closed the acquisitions primarily due to realization of more synergies than expected and our expansion into New Hampshire.

For the fourth quarter, we generated EBITDA of $12.2 million, which was approximately 600,000 behind last quarter's record level. This decline is explained by a combination of some softness in our markets due to the general economic conditions, a reduction in excess revenue due to an adjustment related to our annual cost study filings and increase in the reserve for bad debts and year-end bonus accruals.

These expenses were somewhat offset by a decline in the cost of services and products resulting from the annual true-up of network cost. The net affect of these adjustments was to reduce fourth quarter EBITDA by approximately $400,000.

Now shifting our focus to annual results revealed some noteworthy accomplishments. Thanks to the 7.6% growth in our CLEC metrics, our access line equivalents increased slightly for the year.

Wholesale network connections aided by our expansion into the New Hampshire market increased about 35%. One of our focuses this year has been the IPTV and introduction of those services in our Alabama markets allowed us to have a modest increase in our cable customers. As of the year end, we had approximately 340 IPTV customers.

Cash grew by $9.2 million for the year from which we made a voluntary prepayment of $5 million to reduce senior debt. At year-end, our cash balance was $17.7 million. Our plans for 2010 include the continued expansion of IPTV in Alabama, expansion of our wireless internet services and the introduction of Telephony outside of our regulated territory in Missouri and the addition of five to six new co-location sites in New England.

On the IPTV front, we currently pass approximately 2500 homes and expect to add another 5000 homes past in 2010. If our marketing plans prove successful, we expect to add another 500 to 700 IPTV customers in 2010.

In Missouri, we continue to add more wireless internet customers that are located primarily outside our regulated telephone territory. The acquisition of Softswitch in 2009 will allow us to add Telephony as a new service offering to these customers in the coming year.

In New England, we plan to expand our customer base by adding five to six new co-location sites. These sites represent a combination of growth opportunities and cost reductions. Three of the new sites are in Greenfield opportunities as they are in areas we don't currently offer service. While there would be some one-time cost associated with these new opportunities, we expect these areas to be cash flow positive by the end of the year.

The remaining two to three sites will result in cost savings as the new co-location sites give us the ability to move more of the traffic on to our network and away from third-party providers. Finally, we paid our 20th consecutive audience distribution in December and we've remain committed to continuing our policy of returning cash to our shareholders.

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