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

MANKATO, Minn.--(BUSINESS WIRE)--HickoryTech Corporation (NASDAQ: HTCO) today reported fourth quarter revenue of $46.6 million, an increase of 18 percent year over year. Net income for the fourth quarter totaled $2.5 million, up 60 percent year over year, and earnings per share totaled 19 cents per diluted share, a 55 percent increase from a year ago. Fourth quarter results include the company’s Fargo, North Dakota operations, which were acquired in March 2012.

“HickoryTech met or exceeded its 2012 objectives while we invested in future growth initiatives that will further strengthen our business”

“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.
• 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.

About HickoryTech

HickoryTech Corporation is a leading communications provider serving business and residential customers in the upper Midwest. With headquarters in Mankato, Minn., HickoryTech has 500 employees and a five-state fiber network spanning more than 4,100 route miles across Minnesota and into Iowa, North Dakota, South Dakota and Wisconsin. Enventis provides business IP voice, data and video solutions, MPLS networking, data center and managed hosted services and communication systems. HickoryTech delivers broadband Internet, Digital TV, voice and data services to businesses and consumers in southern Minnesota and northwest Iowa. The Company trades on the NASDAQ, symbol: HTCO. For more information, visit www.hickorytech.com.

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.

Consolidated Statements of Operations
(unaudited)
	Three Months Ended								Twelve Months Ended
	December 31						%		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	%
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	%
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	%

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

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

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

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

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

(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

	Twelve Months Ended
(Dollars in thousands)	December 31, 2012
Reconciliation of Free Cash Flow:
Net income	$	8,298
Add:
Depreciation and amortization		26,746
Interest expense		5,749
Income taxes		5,383
EBITDA	$	46,176
Adjustments:
Capital expenditures	$	30,253
Cash paid for interest		5,965
Cash paid for taxes		5,180
	$	41,398
Free cash flow	$	4,778
Dividends paid	$	7,620
	Year Ending
	December 31, 2013
(Dollars in thousands)	Guidance Range
Reconciliation of net income to 2013 EBITDA guidance:	Low			High
Projected net income	$	7,700		$	9,500
Add back:
Depreciation and amortization		28,500			28,000
Interest expense		5,500			6,000
Taxes		5,300			6,500
Projected EBITDA guidance	$	47,000		$	50,000
Prior Year EBITDA	$	46,176		$	46,176
% Change		+2	%		+8	%