MANKATO, Minn., Aug. 1 /PRNewswire-FirstCall/ -- HickoryTech Corporation today reported financial results for its 2006-second quarter ended June 30, 2006:
-- Total revenues were $36.6 million, a 45 percent increase compared to
the second quarter of 2005, reflecting excellent revenue contributions
from the recently acquired Enventis line of business for the second
consecutive quarter. Total company revenues were up slightly from the
first quarter of 2006.
-- Net income for the second quarter of 2006 was $1.4 million, also
similar to the first quarter of 2006. Second quarter net income from
continuing operations was down 40.5 percent compared with the same
period a year ago. The decline was consistent with company guidance
provided in its first quarter conference call, and is attributable to
the combination of declining Telecom Sector network access revenues
and Enventis acquisition integration costs.
-- Diluted earnings per share from continuing operations were 10 cents
per share for the most recent quarter, a decline of 44.4 percent from
the 18 cents per share reported for the same period a year ago.
-- Total costs and expenses for the second quarter of $32.5 million were
similar to the first quarter of 2006. Second quarter costs and
expenses, as compared to the second quarter of 2005, were higher, due
to the addition of the Enventis Sector operations and integration-
related expenses.
-- Debt, as of June 30, 2006, was $140.5 million, a decline from
$142.8 million as of Dec. 31, 2005, but up from the prior quarter's
balance of $136.9 million. The increase was due to planned capital
expenditures in the Telecom and Enventis Sectors.
-- Broadband services, consisting of DSL, data and Digital TV revenues,
grew to $1.8 million, versus $1.5 million in the second quarter of
last year, a 23.2 percent increase.
Consolidated Results for the Second Quarter 2006
HickoryTech's consolidated operating revenues for the quarter were $36.6 million, an increase of 45 percent compared to the three months ended June 30, 2005. This second consecutive quarter of increased revenue was due to the addition of Enventis Telecom and its new revenue streams, consisting of $11.2 million from enterprise network systems and services and $4.0 million from transport systems. Excluding revenue from the Enventis acquisition, revenues would have declined $3.8 million, or 15.1 percent, compared to the second quarter of 2005. This decline in non-Enventis revenue is primarily due to lower access revenue from interexchange carriers in the Telecom Sector and less installation revenue in the Enterprise Solutions Sector.
HickoryTech reported $1.4 million in income from continuing operations in the second quarter of 2006, a 40.5 percent decrease from the same period in 2005. Diluted earnings per share from continuing operations were 10 cents per share for the quarter, versus 18 cents per share in the prior year's second quarter. Net income and earnings per share were within management's expectations, and include acquisition integration costs that the company had planned for and will continue to incur throughout 2006. The second quarter of 2006 also had a non-recurring pre-tax charge to earnings of $254,000 for separation costs due to the departure of the company's chief executive officer.
"I am pleased with the progress and success of the first half of the year. The integration of Enventis is going very well and proving to complement our overall bundled service approach. We are already achieving higher than expected outcomes from the recent acquisition," said John Finke, HickoryTech's president and chief executive officer.
The decline in net profitability compared to the second quarter of 2005 is primarily the result of three factors: the ongoing decline in network access revenues of $1.5 million; higher interest expense associated with funding the Enventis acquisition of $0.8 million; and acquisition integration costs of $0.6 million, offset by $0.7 million of new operating income from Enventis. HickoryTech's debt as of June 30 was $140.5 million, a decline from $142.8 million at Dec. 31, 2005. The second quarter's debt level was higher than the $136.9 million at March 31, 2006 due to capital expenditures in the Telecom and Enventis Sectors. As called for in the company's 2006 capital allocation plan, HickoryTech has invested more of its capital in the first half of the fiscal year as compared with previous years.
The most recent quarter's profitability was down from the second quarter of 2005 when financial results were favorably impacted by a very significant installation of a state-of-the-art Internet Protocol voice communications system for Minnesota State University, Mankato. "Our results for this year reflect the steady, deliberate attention we are giving to integrating Enventis and building HickoryTech to be strong and well positioned for the future," Finke said.
Telecom Sector
In the second quarter of 2006, the Telecom Sector experienced many of the same trends as previous quarters, with increasing revenue from Broadband services and anticipated declining revenues of network access from interexchange carriers.
Key Telecom Sector metrics for the 2006-second quarter:
-- Revenues were $18.4 million, versus $19.3 million a year ago. With the
addition of the Enventis Sector, which is reported as a separate
operating sector, Telecom Sector revenues now represent approximately
half of HickoryTech's consolidated revenues. Comparatively, Telecom
Sector revenues represented 76% of total operating revenues of the
second quarter in 2005.
-- Broadband initiatives, consisting of DSL, data and Digital TV
revenues, rose to $1.8 million, versus $1.5 million in the second
quarter of last year, a 23.2 percent increase.
-- Network access revenues were $7.4 million, compared to $8.9 million in
the same quarter last year. This $1.5 million decline is due to rate
changes; lower overall minutes of use, re-routed network traffic, and
lower demand for circuits provided under regulated tariffs. These
changes are expected to be lasting in nature.
-- Total DSL lines continued to grow, despite increasing bundled service
competition, totaling 14,282, versus 11,693 for the second quarter of
2005, an increase of 22.1 percent. Customers are also migrating from
lower speed DSL products to higher speed plans, which increases
overall revenue.
-- Total Digital TV customers rose to 3,389, up 58.3 percent over 2,141 a
year ago. Digital TV was introduced in two new communities: Eagle
Lake and Faribault, Minn.
Enventis Telecom Sector
The Enventis Sector repeated its performance as a meaningful contributor to consolidated operating income in the second quarter of 2006. Enventis revenue was $15.2 million, consisting of approximately $11.2 million from enterprise network systems and services and $4.0 million from transport services. Transport service revenues also include Encompass Unified Communications' hosted solutions, a fully integrated hosted communications service provided primarily to small and medium businesses.
Enterprise Solutions Sector
Enterprise Solutions second quarter revenue was $2.5 million, representing a 50 percent decline in installation and equipment revenues from the same period last year. The second quarter of 2005 was the strongest quarter in 2005 due to the installation of an IP Telephony System for Minnesota State University, Mankato.
Outlook
"HickoryTech is evolving in a very positive and exciting way," Finke said. "Not only do we have an immediate expanded fiber footprint to extend current services into new markets, but also a diversified revenue stream, which includes a strong balance of telecom and data services. We see many opportunities to grow our revenues, particularly with the business market and regional telephone carriers. In addition, the Enventis integration is progressing with a focus for the remainder of the year on connecting our networks to enhance our ability to sell all services as well as the alignment of our network operations and long-term planning efforts."
Further information on the second quarter results, as well as additional guidance regarding management's outlook, will be given during the company's quarterly conference call and Webcast with investors at 8 a.m. CDT on Aug. 2, 2006. Investors can access the Webcast through a link on HickoryTech's Investor Relations page at http://www.hickorytech.com/ .
About HickoryTech
HickoryTech Corporation is a diversified communications company headquartered in Mankato, Minn., with approximately 480 employees in Minnesota and Iowa. In its 109th year of operation, HickoryTech provides a full array of telecommunications products and services to business and residential customers. The Telecom Sector offers local voice, long distance, Internet, Broadband services, Digital TV, and IP networking. The Enterprise Solutions Sector provides IP Telephony, call center management, and data network solutions. Enventis Telecom provides IP-based voice and data services and network solutions on a statewide SONET-based network. The Information Solutions Sector develops telecom and carrier access billing solutions. To learn more about HickoryTech Corporation, visit the company's Web site at http://www.hickorytech.com/ .
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. Except as required by federal securities laws, HickoryTech undertakes no obligation to update any of its forward-looking statements for any reason.
Consolidated Statement of Operations
(unaudited)
(In Thousands Except Share Three Months Ended Six Months Ended
and Per Share Amounts) June 30, June 30,
2006 2005 2006 2005
Operating revenues:
Telecom Sector $18,378 $19,286 $36,346 $38,631
Information Solutions
Sector 534 914 1,222 1,402
Enterprise Solutions
Sector 2,545 5,068 5,282 8,343
Enventis Sector 15,178 - 29,262 -
Total operating revenues 36,635 25,268 72,112 48,376
Costs and expenses:
Cost of sales, Enterprise
Solutions and Enventis 11,828 3,772 22,855 6,040
Cost of services, excluding
depreciation and
amortization 9,373 8,289 18,334 16,342
Selling, general and
administrative expenses,
excluding depreciation and
amortization 6,818 4,087 14,001 8,114
Depreciation 4,236 4,043 8,310 8,044
Amortization of intangibles 293 204 586 441
Total costs and expenses 32,548 20,395 64,086 38,981
Operating income 4,087 4,873 8,026 9,395
Interest and other income 37 32 67 40
Interest expense (1,830) (1,027) (3,479) (2,004)
Income before income taxes 2,294 3,878 4,614 7,431
Income tax provision 920 1,569 1,851 3,006
Income from continuing
operations 1,374 2,309 2,763 4,425
Discontinued operations
Income/(loss) from operations
of discontinued component - 170 - 170
Income tax provision/(benefit) - 69 - 69
Income/(loss) from discontinued
operations - 101 - 101
Net income $1,374 $2,410 $2,763 $4,526
(Not in thousands)
Basic earnings per share -
continuing operations: $0.10 $0.18 $0.21 $0.34
Basic earnings per share -
discontinued operations: - 0.01 - 0.01
$0.10 $0.19 $0.21 $0.35
Dividends per share $0.12 $0.12 $0.24 $0.24
Basic weighted average
common shares
outstanding 13,151,626 13,072,273 13,142,770 13,065,685
Diluted earnings per share
- continuing operations: $0.10 $0.18 $0.21 $0.34
Diluted earnings per share
- discontinued operations: - 0.01 - 0.01
$0.10 $0.19 $0.21 $0.35
Diluted weighted average
common and equivalent
shares outstanding 13,154,710 13,102,316 13,146,141 13,101,571
Consolidated Balance Sheets
(unaudited)
(In Thousands Except Share June 30, December 31,
and Per Share Amounts) 2006 2005
Assets
Current assets:
Cash and cash equivalents $140 $601
Receivables, net of allowance for
doubtful accounts of $356 and $334 21,620 19,867
Costs in excess of billings on contracts 239 462
Inventories 7,303 4,577
Deferred income taxes 300 300
Prepaid expenses 1,739 5,066
Other 1,289 1,155
Total current assets 32,630 32,028
Investments 3,554 3,407
Property, plant and equipment - -
Property, plant and equipment 300,953 290,499
Less accumulated depreciation 149,471 141,157
Property, plant and equipment, net 151,482 149,342
Other assets:
Goodwill 26,943 27,109
Intangible assets, net 3,726 4,312
Financial derivative instruments 3,777 3,429
Deferred costs and other 2,921 3,640
Total other assets 37,367 38,490
Total assets $225,033 $223,267
Liabilities and Shareholders' Equity
Current liabilities:
Cash overdraft $- $514
Short-term financing 4,546 -
Accounts payable 3,740 5,224
Accrued expenses 5,260 6,809
Accrued interest 388 -
Accrued income taxes 5,803 4,765
Billings in excess of costs on contracts 300 283
Advanced billings and deposits 3,814 4,577
Current maturities of long-term
obligations 1,693 1,778
Total current liabilities: 25,544 23,950
Long-term obligations, net of current
maturities 138,762 140,980
Deferred income taxes 15,592 15,346
Deferred revenue and employee benefits 9,850 7,982
Total liabilities 189,748 188,258
Shareholders' equity:
Common stock, no par value, $.10 stated
value shares authorized: 100,000,000
shares outstanding: 13,156,290 in 2006
and 13,124,928 in 2005 1,315 1,312
Additional paid-in capital 9,717 9,262
Retained earnings 21,980 22,371
Accumulated other comprehensive income 2,273 2,064
Total shareholders' equity 35,285 35,009
Total liabilities and shareholders' equity $225,033 $223,267
Telecom Sector Recap
(unaudited)
Three Months Ended For Six Months
(Dollars in Thousands) June 30, Ended June 30
2006 2005 2006 2005
ILEC
Revenues
Local service $3,692 $3,742 $7,400 $7,478
Network access 6,908 8,364 13,765 16,858
Data 699 590 1,344 1,160
Intersegment 51 52 102 103
Other 1,571 1,558 3,083 3,224
Total revenues $12,921 $14,306 $25,694 $28,823
Key Metrics
Access lines 54,854 57,995
DSL customers 9,814 8,091
CLEC
Revenues
Local service $884 $883 $1,771 $1,772
Network access 507 494 991 1,012
Long distance 1,254 1,219 2,402 2,361
Internet 1,131 1,100 2,284 2,171
Data 787 630 1,533 1,248
Digital TV 318 244 603 452
Other 627 462 1,170 895
Total revenues $5,508 $5,032 $10,754 $9,911
Key Metrics
Access lines
Overbuild 11,482 10,550
Unbundled network element (UNE) 1,564 1,746
Total service resale (TSR) 1,407 1,757
Total 14,453 14,053
Long distance customers 40,788 42,061
Internet customers 19,205 17,761
DSL customers 4,468 3,602
Digital TV customers 3,389 2,141
Telecom Sector - Continuing Operations
Revenues from unaffiliated
customers $18,378 $19,286 $36,346 $38,631
Intersegment revenues 51 52 102 103
Cost of services, excluding
depreciation and amortization 7,977 7,546 15,436 14,958
Selling, general and administrative
expenses, excluding depreciation
and amortization 2,739 2,764 5,429 5,448
Depreciation and amortization 3,293 3,564 6,499 7,100
Operating income $4,420 $5,464 $9,084 $11,228
Income from continuing operations,
net of tax $2,652 $3,252 $5,530 $6,684
Other
Capital expenditures $3,609 $2,678 $6,571 $4,050
Customers 129,300 131,870
DSL customers 14,282 11,693
Digital TV customers 3,389 2,141
Consolidated Statement of Operations - Trailing Four Quarters
(unaudited)
For Three Months Ended
(In Thousands Except Share
and Per Share Amounts) 6/30/2006 3/31/2006 12/31/2005 9/30/2005
Operating revenues:
Telecom Sector $18,378 $17,968 $18,386 $18,383
Information Solutions
Sector 534 688 601 519
Enterprise Solutions
Sector 2,545 2,737 2,845 3,402
Enventis Sector 15,178 14,084 - -
Total operating revenues 36,635 35,477 21,832 22,304
Costs and expenses:
Cost of sales, Enterprise
Solutions and Enventis 11,828 11,027 2,070 2,219
Cost of services,
excluding depreciation
and amortization 9,373 8,960 8,559 8,354
Selling, general and
administrative expenses,
excluding depreciation
and amortization 6,818 7,185 3,657 3,495
Depreciation 4,236 4,074 3,473 3,544
Amortization of intangibles 293 293 26 26
Total costs and expenses 32,548 31,539 17,785 17,638
Operating income 4,087 3,938 4,047 4,666
Interest and other income 37 31 22 35
Interest expense (1,830) (1,649) (1,235) (1,124)
Income before income taxes 2,294 2,320 2,834 3,577
Income tax provision 920 931 1,046 1,447
Income from continuing
operations 1,374 1,389 1,788 2,130
Discontinued operations
Income/(loss) from
operations of
discontinued component - - 101 37
Income tax provision/(benefit) - - 38 15
Income/(loss) from discontinued
operations - - 63 22
Net income $1,374 $1,389 $1,851 $2,152
(Not in thousands)
Basic earnings per share
- continuing operations: $0.10 $0.11 $0.14 $0.16
Basic earnings per share
- discontinued operations: - - - -
$0.10 $0.11 $0.14 $0.16
Dividends per share $0.12 $0.12 $0.12 $0.12
Basic weighted average
common shares
outstanding 13,151,626 13,133,817 13,114,692 13,086,371
Diluted earnings per
share - continuing
operations: $0.10 $0.11 $0.14 $0.16
Diluted earnings per
share - discontinued
operations: - - - -
$0.10 $0.11 $0.14 $0.16
Diluted weighted average
common and equivalent
shares outstanding 13,154,710 13,147,586 13,123,685 13,091,519
Telecom Sector - Continuing Operations - Trailing Four Quarters
(unaudited)
For Three Months Ended
6/30/ 3/31/ 12/31/ 9/30/
(Dollars in Thousands) 2006 2006 2005 2005
ILEC
Revenues
Local service $3,692 $3,708 $3,764 $3,720
Network access 6,908 6,857 7,224 7,317
Data 699 645 618 606
Intersegment 51 51 51 51
Other 1,571 1,512 1,618 1,738
Total revenues $12,921 $12,773 $13,275 $13,432
Key Metrics
Access lines 54,854 55,100 55,625 57,080
DSL customers 9,814 9,558 8,964 8,533
CLEC
Revenues
Local service $884 $887 $900 $886
Network access 507 484 499 474
Long distance 1,254 1,148 1,216 1,244
Internet 1,131 1,153 1,114 1,076
Data 787 746 689 647
Digital TV 318 285 293 234
Other 627 543 451 441
Total revenues $5,508 $5,246 $5,162 $5,002
Access lines
Overbuild 11,482 11,414 11,325 11,094
Unbundled network
element (UNE) 1,564 1,577 1,595 1,656
Total service resale (TSR) 1,407 1,465 1,545 1,592
Total 14,453 14,456 14,465 14,342
Long distance customers 40,788 40,372 40,321 40,936
Internet customers 19,205 18,959 18,396 18,028
DSL customers 4,468 4,262 4,058 3,839
Digital TV customers 3,389 2,967 2,766 2,573
Telecom Sector - Continuing Operations
Revenues from unaffiliated
customers $18,378 $17,968 $18,386 $18,383
Intersegment revenues 51 51 51 51
Cost of services, excluding
depreciation and amortization 7,977 7,461 7,673 7,431
Selling, general and
administrative expenses,
excluding depreciation and
amortization 2,739 2,690 2,712 2,892
Depreciation and amortization 3,293 3,204 3,132 3,123
Operating income $4,420 $4,664 $4,920 $4,988
Income from continuing
operations, net of tax $2,652 $2,880 $3,092 $2,970
Other
Capital expenditures $3,609 $2,962 $8,248 $4,603
Customers 129,300 128,887 128,807 130,386
DSL customers 14,282 13,820 13,022 12,372
Digital TV customers 3,389 2,967 2,766 2,573
