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Otelco Inc. (OTT)

Q1 2010 Earnings Conference Call

May 5, 2010 11:00 AM ET

Executives

Kevin Enda – IR

Michael Weaver – Chairman, President & CEO

Curtis Garner – CFO

Analysts

Jason Fraser – Raymond James

Tim Horan – Oppenheimer

Presentation

Operator

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

Kevin Enda

Thank you Jessica and welcome to this Otelco Conference Call to review the Company’s results for the first quarter ended March 31, 2010 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 that are not statements of historical or current fact constitute forward-looking statements. Such forward-looking statements involve known and unknown risks and uncertainties and other unknown factors that could cause the actual results of the Company to be materially different from 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 now turn the call over to Mike Weaver.

Michael Weaver

Thanks Kevin and good morning everyone. I’m following our usual format, I’ll provide a few just a brief overview of our first quarter results and key accomplishments and then ask Curtis to provide the financial overview and at the end of Curtis’s remarks we’ll take any questions you might have.

With our positive first quarter results, we continued the growth trend that started last year with successful integration of our New England properties. Some of the highlights from this quarter are an EBITDA increase of $120,000 over the fourth quarter results. The really good news in this item is the improvement in the early cooperation and the corresponding increase in the EBITDA margin about approximately 1% to 48% from 47% in the fourth quarter.

This quarter we increased cash by $3.5 million over the fourth quarter. The improvement in the EBITDA margin coupled with the receipt of our annual cash dividend from combined and an income tax relief fund allowed us to increase cash by 20% over the year in balance. Our CapEx of $1.8 for the quarter is under our expected run rate of $2.7 million per quarter, but as we continued to add new (inaudible) sites in New England, expand our IPTV operations in Alabama, and add additional wireless internet sites in Missouri, the quarterly capital expenditures will increase.

Just as a reminder for the year, we expect total CapEx to be between $10 million and $11 million. Another bright spot for the first quarter was the slight growth in access line equivalents for the enterprise primarily as a result of growth in our data lines and CLEC operations.

For the second quarter in a row, RLEC access line metric actually improved. It declined only 0.2% compared to RLEC decline of 0.7% in the fourth quarter of 2009. With the completion of the integration process of the New England properties in the fourth quarter, we’re now focusing on expanding our service area, products and customer base throughout the area.

As part of this process, our New England operations will become known as OTT Communications. The name reflects our goal of one team serving the diverse needs of our expanding customer base through innovative services and quality customer care. On the regulatory front, we’re following the proposed national broadband plan with a great deal of interest. While it’s too early to reach any conclusions on the potential effect the plan may have on us, there are several points that are particular interest to us.

The plan mentions the lowering of state access rights to be equal to Federal rights. If this would become a part of the final plan, we believe this would have a minimal effect on us. Missouri is the only state where we currently have operations where there is an imbalance between state and Federal rates.

Of more concern to us is the mechanism for establish the Connect America Fund and the Mobility Fund. These are potentially more problematic for us and we will continue to follow discussions closely and seek to have our views expressed through visits with our Congressmen and through existing Telephone Associations. Our 2010 plan include the continued expansion of our IPTV service in Alabama.

Currently we passed 2500 homes and expect to add another 5000 homes pass this year. If our marketing plans proves successful, we expect to add another 500 IPTV customers in 2010. It’s evidenced by the recent announcement of acquisitions; it appears consolidation within our industry will continue to occur. We remain diligent in our efforts to find and identify accretive acquisition targets and we’re encouraged by the increase in the number of smaller RLECs exploring their alternatives.

Finally, we paid our 21st consecutive IDS distribution in March and remain committed to continuing our policy of returning cash to our shareholders. Curtis, I’ll now ask you to speak to the financial results.

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