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

"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.

 

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·	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.

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About HickoryTech

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.

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HickoryTech Corporation
Consolidated Statements of Operations
(unaudited)
		Three Months Ended December 31								%				Twelve Months Ended 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	%
																		$	0.91				-24	%
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	%
																							-24	%
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	%

HickoryTech Corporation
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

HickoryTech Corporation
Fiber and Data Segment
(unaudited)
		Three Months Ended December 31												Twelve Months Ended 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	%

HickoryTech Corporation
Equipment Segment
(unaudited)
		Three Months Ended December 31												Twelve Months Ended 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	%

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HickoryTech Corporation
Telecom Segment
(unaudited)
		Three Months Ended December 31								%				Twelve Months Ended 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	%

HickoryTech Corporation
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

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HickoryTech Corporation
Reconciliation of Non-GAAP Measures
(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