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Otelco, Inc. (OTT)

Q4 2010 Earnings Call

February 17, 2010 11:00 am ET

Executives

Kevin Enda – Investor Relations

Michael D. Weaver – Chairman, President and Chief Executive Officer

Curtis L. Garner, Jr. – Chief Financial Officer

Analysts

Timothy Horan – Oppenheimer & Co

David Coleman – RBC Capital Markets

Operator

Good day everyone. Welcome to the Otelco Incorporated conference call. Today’s conference is being recorded. At this time for opening remarks and introductions, I’d like to turn the call over to Mr. Kevin Enda. Please go ahead sir.

Kevin Enda

Thank you Felicia and welcome to this Otelco conference call to review the company’s results for the fourth quarter and year ended December 31, 2010, which were 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 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, 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 describe such risks and uncertainties, listeners are urged to consider statements labeled with the terms believes, beliefs, expects, intends, anticipate, 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 company’s filings with the SEC.

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

Michael D. Weaver

Thanks Kevin. Good morning everyone. Thanks for joining our call. We were pleased with our financial results for the fourth quarter and the year as we experienced an increase in EBITDA for both periods. Increases in total annual revenue and improving EBITDA margins resulted in annual adjusted EBITDA in excess of $50 million for the first time in our corporate history.

For the year, our CLEC operations increased revenue by $3 million, which offset the decline of our RLEC revenue of $2.4 million, which yielded a net increase in revenue of $600,000. The revenue increase in our CLEC markets was due to our expansion into new markets in Northern Maine and New Hampshire as well as the increase in network connections from our relationship with Time Warner.

As a reminder in 2010, we opened new co-location sites in five new areas of Maine and New Hampshire, which expanded our existing market capabilities. We also completed the integration process within our CLEC operations. That coupled with the renewed corporate focus on controlling operating cost were the primary factors in increasing our EBITDA margin by approximately 1.5%.

The RLEC revenue decline is directly related to the decline in subscribers as we experienced a 2.9% decline in our RLEC excess line equivalents for the year. We continue to work to try to find ways to slow this decline including the establishment of customer win back program.

We’ve expanded our network to enable us to offer faster broadband speeds and we’d renewed our marketing efforts in this sector. In our RLEC markets in Alabama and Missouri, we still have a little competition, but then New England RLEC markets are in a big competitive state.

Our plans for 2011 include the continued expansion of our CLEC operations in New Hampshire and more collocation sites in Maine. In addition, we will enter the CLEC market in Western Massachusetts as we are currently in the process of establishing our first collocation sites in the state. As you may recall we've already have an RLEC doing business in adjacent area of Massachusetts and this is the logical expansion of our footprint.

In addition to the expansion of our network capabilities, the reorganization of our sales and marketing departments is now complete. As part of this process, we've more than doubled our inside sales staff as well as provided in-depth training for all of our sales professionals. This investment in resources dedicated to our sales efforts is indicative of our commitment to provide our customers with quality products and services.

With continue expansion of our cable products in Alabama and our plans for 2011 including building fiber-to-the-home in some of our more fluent communities. This project is being driven by our belief that customers will continue to demand higher broadband space and recognition of the changing economics of plant construction and expansion.

In Missouri, we will continue to increase our market coverage for broadband utilizing unlicensed spectrum to bring higher broadband speeds to our markets. In addition, our plans include a VoIP offering that we hope to have in place by the second half of the year. We continue to search for accretive acquisitions that will expand our existing markets and revenue base.

The idea of target risk would have a mix of regulated and non regulated services be in a market that is capable of growth over the next few years. We believe the manage services data storage in the CLEC business models would be a great fit for us and would offer us some additional revenue diversification.

Our cash position remains strong as we finished the year with $18 million on our balance sheet. This represents an increase of 500,000 over the previous year and included a voluntary payment on our senior debt of $6.1 million and an increase in CapEx of $600,000.

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