HickoryTech Reports Third Quarter 2011 Results

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• Revenue increased 4 percent year-over-year totaling $45.2 million in third quarter
• Equipment revenue increased 43 percent, Broadband revenue up 5 percent
• Company increased its fiscal outlook for 2011
• Favorable new financing agreement secured in third quarter offering low-cost capital growth

MANKATO, Minn.--(BUSINESS WIRE)-- HickoryTech Corporation (NASDAQ: HTCO) today reported earnings for the third quarter ended Sept. 30, 2011. Revenue totaled $45.2 million, a 4 percent increase year-over-year. Third quarter net income of $3.0 million, or 22 cents per diluted share, was down year over year partially due to a $1.9 million release of income tax reserves and a $1.1 million fiber construction project in third quarter 2010, both which increased net income. Third quarter net income is 10 percent higher on a sequential basis.

“Our third quarter results show continued positive progress with our growth strategy and key initiatives,” said John Finke, HickoryTech’s president and chief executive officer. “Managing our strong cash flows and leveraging investments in key strategic areas continues to be our focus. We see solid demand for our business services and our consumer business remains stable. Extending our fiber network allows us to pursue new growth opportunities across multiple customer segments in new and existing markets. We are on track to meet and exceed our objectives for fiscal 2011.”

Capital expenditures in the third quarter totaled $5.6 million, down $900,000 from the same period last year. Business Sector capital investments totaled $3.2 million and supported local market expansion, capacity upgrades and success based initiatives. Telecom Sector investments of $2.4 million supported core network services and broadband growth and expansion.

“We broke ground on our Greater Minnesota Broadband Collaborative Project in the third quarter which will further expand our fiber footprint from St. Paul and Minneapolis to Duluth, Minnesota,” said Finke. “The majority of this fiber route will be completed in 2011 and we’ll begin the northwestern Minnesota route in 2012. We continue to invest in long-term growth initiatives while maintaining strong cash flows and a solid balance sheet.”

Business Sector (before inter-segment eliminations)

Third quarter Business Sector revenue totaled $28 million, up 10 percent year-over-year, driven by steady growth in equipment sales. Costs and expenses totaled $24.8 million, an increase of 12 percent year over year, the result of increased equipment sales and sales and operations expense. Net income totaled $1.9 million, down 7 percent from one year ago.

• Fiber and data revenue totaled $11.6 million, down 14 percent year-over-year and relatively flat from the previous quarter. A unique fiber construction project in 2010 added $3.3 million of revenue and $1.9 million in pretax income to the fiber and data product line in the third quarter 2010. Excluding the 2010 fiber construction project, fiber and data organic revenue grew 14 percent.
• Equipment product revenue totaled $16.4 million, an increase of 35 percent year-over-year. Equipment sales increased 43 percent from the third quarter of 2010 and support services revenue was relatively flat year-over-year.
• Business Sector operating income was $3.2 million for the third quarter of 2011, a 7 percent decrease year over year. Excluding the fiber construction project in 2010, Business Sector operating income grew 107 percent in third quarter 2011.

Telecom Sector (before inter-segment eliminations)

Telecom Sector revenue totaled $17.9 million, down 4 percent year-over-year. Telecom Sector results were stable and reflect growth in broadband services offset by the impact of declines in legacy network access and local services. Costs and expenses totaled $14.9 million, a 5 percent decrease year-over-year. Telecom Sector net income totaled $1.8 million, down 2 percent from the comparable period in 2010.

• Broadband revenue totaled $5.1 million, up 5 percent year-over-year. Broadband revenue includes DSL, Internet, Data and Digital TV services.
• Network access revenue totaled $5.5 million, down 5 percent year-over-year.
• Local service revenue totaled $3.5 million, down 8 percent from one year ago, and local access lines declined 7 percent.

Debt Position

Long-term debt and total current maturities totaled $120.6 million as of Sept. 30, 2011, up slightly from the $119 million as of Dec. 31, 2010. Net debt, a measure of actual balance-sheet strength that subtracts the cash balance from total debt, totaled $109.3 million as of Sept. 30, 2011, a $9.6 million improvement from the $118.9 million net debt as of Dec. 31, 2010.

The company completed the refinance of its senior credit facility in August 2011 at very favorable terms and conditions. The new $150 million agreement includes $120 million in secured term loans and a $30 million revolving debt facility which is currently unutilized. The new agreement offers the company access to additional financing to deploy capital in pursuit of its strategic growth initiatives.

“We are very pleased with the terms and cost of this refinancing,” Finke said. “This refinancing demonstrates the confidence our lenders have in our business plan.” The term of the new facility runs through 2016. Borrowing under the new credit agreement bears interest at 3.0 percent plus LIBOR based on current leverage ratios of approximately 2.8 to one, with no LIBOR floor amount.

In the third quarter, HickoryTech announced a stock repurchase program in which the company intends to repurchase up to $3 million of HickoryTech’s common stock. Additionally during the same quarter, the company declared an increased quarterly dividend of $0.14 per share of HickoryTech common stock to be paid in the fourth quarter, representing a 4 percent increase from the previous dividend of $0.135. The company has declared shareholder dividends for more than 60 years and has increased its dividend twice in the past five quarters.

HickoryTech increased its fiscal 2011 outlook, as outlined below:

• Revenue is expected to range from $162 million to $166 million (previously $158 million to $164 million)
• Net Income is expected to range from $9.3 million to $10.2 million (previously $7.4 million to $8.7 million)
• Diluted Earnings Per Share is expected to range between $0.69 to $0.77 per share (previously $0.55 and $0.65 per share)
• CAPEX is expected to range from $20.5 million to $24 million net of government grants for Broadband Collaborative Project (no change)
• EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) is expected to range from $42.3 million to $44 million (previously $41 million to $43.2 million)
• Debt balance at Dec. 31, 2011 is expected to range from $118 million to $123 million (no change)

Conference Call and Webcast

HickoryTech will host a conference call and webcast on Wednesday, Nov. 2 at 9 a.m. CT. The dial-in number for the call is 877-774-2369 and the conference ID is 17033253. A simultaneous webcast of the call and downloadable presentation will be available through a link on the Investor Relations page 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., the corporation has 460 employees and an expanded, multi-state fiber network spanning more than 2,750 route miles serving Minnesota, Iowa, North Dakota and South Dakota. Enventis provides IP-based voice and data solutions, MPLS networking, data center and managed hosted services and communication systems to businesses across a five-state region. HickoryTech delivers broadband Internet, Digital TV, voice and data services to businesses and consumers in southern Minnesota and northwest Iowa. NASDAQ: 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 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. 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 Statement of Operations
(unaudited)
			Three Months Ended September 30										%				Nine Months Ended September 30										%
(Dollars in thousands, except share data)			2011					2010					Change				2011					2010					Change
Revenue:
Equipment			$	14,269				$	9,954				43	%			$	31,499				$	27,906				13	%
Services				30,975					33,526				-8	%				92,475					92,562				0	%
Total revenue				45,244					43,480				4	%				123,974					120,468				3	%
Costs and Expenses:
Cost of sales, excluding depreciation and amortization				12,223					8,519				43	%				27,146					23,968				13	%
Cost of services, excluding depreciation and amortization				14,738					16,458				-10	%				44,244					45,402				-3	%
Selling, general and administrative expenses				6,147					6,669				-8	%				19,419					18,425				5	%
Depreciation				5,706					5,356				7	%				16,890					15,900				6	%
Amortization of intangibles				88					90				-2	%				265					268				-1	%
Total costs and expenses				38,902					37,092				5	%				107,964					103,963				4	%
Operating income				6,342					6,388				-1	%				16,010					16,505				-3	%
Interest and other income				26					11				136	%				50					62				-19	%
Interest expense				(1,487	)				(1,128	)			32	%				(3,570	)				(3,820	)			-7	%
Income before income taxes				4,881					5,271				-7	%				12,490					12,747				-2	%
Income taxes				1,910					228				738	%				4,683					2,767				69	%
Net income			$	2,971				$	5,043				-41	%			$	7,807				$	9,980				-22	%
Basic earnings per share			$	0.22				$	0.38				-42	%			$	0.58				$	0.76				-24	%
Basic weighted average common shares outstanding				13,394,225					13,263,600									13,363,874					13,215,046
Diluted earnings per share			$	0.22				$	0.38				-42	%			$	0.58				$	0.76				-24	%
Diluted weighted average common and equivalent shares outstanding				13,409,414					13,264,996									13,376,261					13,217,325
Dividends per share			$	0.135				$	0.13				4	%			$	0.405				$	0.39				4	%

Consolidated Balance Sheets
(unaudited)
(Dollars and Share Data in Thousands)			September 30, 2011					December 31, 2010
Assets
Current assets:
Cash and cash equivalents			$	11,316				$	73
Receivables, net of allowance for doubtful accounts of $405 and $570				34,664					24,642
Inventories				5,924					5,205
Income taxes receivable				-					3,814
Deferred income taxes				2,008					2,008
Prepaid expenses				2,506					2,026
Other				829					1,030
Total current assets				57,247					38,798
Investments				4,224					4,512
Property, plant and equipment				390,508					379,433
Accumulated depreciation				(238,070	)				(224,356	)
Property, plant and equipment, net				152,438					155,077
Other assets:
Goodwill				27,303					27,303
Intangible assets, net				2,403					2,668
Deferred costs and other				3,311					1,830
Total other assets				33,017					31,801
Total assets			$	246,926				$	230,188
Liabilities and Shareholders' Equity
Current liabilities:
Extended term payable			$	12,631				$	8,254
Accounts payable				3,718					2,840
Accrued expenses and other				9,461					7,929
Accrued income taxes				3,739					-
Deferred revenue				6,049					5,073
Financial derivative instruments				-					1,079
Current maturities of long-term obligations				1,436					4,892
Total current liabilities				37,034					30,067
Long-term liabilities:
Debt obligations, net of current maturities				119,169					114,067
Accrued income taxes				157					562
Deferred income taxes				26,349					26,868
Deferred revenue				1,195					1,397
Financial derivative instruments				2,708					-
Accrued employee benefits and deferred compensation				16,527					15,923
Total long-term liabilities				166,105					158,817
Total liabilities				203,139					188,884
Commitments and contingencies
Shareholders' equity:
Common stock, no par value, $.10 stated value
shares authorized: 100,000
Shares issued and outstanding: 13,380 in 2011 and 13,299 in 2010				1,338					1,330
Additional paid-in capital				15,187					14,328
Retained earnings				32,242					29,841
Accumulated other comprehensive (loss)				(4,980	)				(4,195	)
Total shareholders' equity				43,787					41,304
Total liabilities and shareholders' equity			$	246,926				$	230,188

Business Sector Recap
(unaudited)
			Three Months Ended												Nine Months Ended
			September 30								%				September 30								%
(Dollars In thousands)			2011				2010				Change				2011				2010				Change
Revenue before intersegment eliminations
Equipment			$	14,269			$	9,954			43	%			$	31,499			$	27,906			13	%
Support Services				2,147				2,164			-1	%				7,087				6,373			11	%
Equipment				16,416				12,118			35	%				38,586				34,279			13	%
Fiber and Data				11,368				13,257			-14	%				33,296				33,578			-1	%
Intersegment				219				157			39	%				566				387			46	%
Total Business Sector revenue			$	28,003			$	25,532			10	%			$	72,448			$	68,244			6	%
Total revenue before intersegment eliminations
Unaffiliated customers			$	27,784			$	25,375							$	71,882			$	67,857
Intersegment				219				157								566				387
			$	28,003			$	25,532							$	72,448			$	68,244
Cost of sales
(excluding depreciation and amortization)				12,223				8,519			43	%				27,146				23,968			13	%
Cost of services
(excluding depreciation and amortization)				7,468				8,600			-13	%				22,343				22,881			-2	%
Selling, general and administrative expenses				3,465				3,476			0	%				10,220				9,510			7	%
Depreciation and amortization				1,671				1,535			9	%				4,952				4,305			15	%
Total costs and expenses				24,827				22,130			12	%				64,661				60,664			7	%
Operating income			$	3,176			$	3,402			-7	%			$	7,787			$	7,580			3	%
Net income			$	1,890			$	2,023			-7	%			$	4,631			$	4,498			3	%
Capital expenditures			$	3,201			$	4,830			-34	%			$	7,517			$	10,801			-30	%

Business Equipment Product Line
			Three Months Ended												Nine Months Ended
			September 30												September 30
(Dollars in thousands)			2011				2010				% Change				2011				2010				% Change
Revenue before intersegment eliminations
Equipment			$	14,269			$	9,954			43	%			$	31,499			$	27,906			13	%
Support Services				2,147				2,164			-1	%				7,087				6,373			11	%
				16,416				12,118			35	%				38,586				34,279			13	%
Cost of sales
(excluding depreciation and amortization)				12,223				8,519			43	%				27,146				23,968			13	%
Cost of services
(excluding depreciation and amortization)				1,634				1,666			-2	%				5,008				5,078			-1	%
Selling, general and administrative expenses				1,235				1,319			-6	%				3,765				3,547			6	%
Depreciation and amortization				74				120			-38	%				213				270			-21	%
Total costs and expenses				15,166				11,624			30	%				36,132				32,863			10	%
Operating income			$	1,250			$	494			153	%			$	2,454			$	1,416			73	%
Net income			$	744			$	293			154	%			$	1,458			$	858			70	%
Capital expenditures			$	213			$	78			173	%			$	306			$	212			44	%

Business Fiber and Data Product Line
			Three Months Ended												Nine Months Ended
			September 30												September 30
(Dollars in thousands)			2011				2010				% Change				2011				2010				% Change
Revenue before intersegment eliminations:
Services			$	11,368			$	13,257			-14	%			$	33,296			$	33,578			-1	%
Intersegment				219				157			39	%				566				387			46	%
				11,587				13,414			-14	%				33,862				33,965			0	%
Cost of services
(excluding depreciation and amortization)				5,834				6,934			-16	%				17,335				17,803			-3	%
Selling, general and administrative expenses				2,230				2,157			3	%				6,455				5,963			8	%
Depreciation and amortization				1,597				1,415			13	%				4,739				4,035			17	%
Total costs and expenses				9,661				10,506			-8	%				28,529				27,801			3	%
Operating income			$	1,926			$	2,908			-34	%			$	5,333			$	6,164			-13	%
Net income			$	1,146			$	1,730			-34	%			$	3,173			$	3,640			-13	%
Capital expenditures			$	2,988			$	4,752			-37	%			$	7,211			$	10,589			-32	%

Telecom Sector Recap
			Three Months Ended												Nine Months Ended
			September 30								%				September 30								%
(Dollars in thousands)			2011				2010				Change				2011				2010				Change
Revenue
Local Service			$	3,534			$	3,832			-8	%			$	10,822			$	11,528			-6	%
Network Access				5,512				5,812			-5	%				17,088				17,791			-4	%
Long Distance				717				800			-10	%				2,173				2,420			-10	%
Broadband				5,101				4,857			5	%				15,245				13,825			10	%
Directory				845				912			-7	%				2,563				2,717			-6	%
Bill Processing				1,330				1,148			16	%				2,917				2,725			7	%
Intersegment				404				562			-28	%				1,220				1,459			-16	%
Other				421				744			-43	%				1,284			1,605				-20	%
Total Telecom Revenue			$	17,864			$	18,667			-4	%			$	53,312			$	54,070			-1	%
Total Telecom revenue before intersegment eliminations
Unaffiliated Customers			$	17,460			$	18,105							$	52,092			$	52,611
Intersegment				404				562								1,220				1,459
				17,864				18,667								53,312				54,070
Cost of services, excluding depreciation and amortization				7,844				8,539			-8	%				23,540				24,252			-3	%
Selling, general and administrative expenses				2,919				3,185			-8	%				9,035				9,168			-1	%
Depreciation and amortization				4,101				3,881			6	%				12,137				11,772			3	%
Total costs and expenses				14,864				15,605			-5	%				44,712				45,192			-1	%
Operating income			$	3,000			$	3,062			-2	%			$	8,600			$	8,878			-3	%
Net income			$	1,787			$	1,818			-2	%			$	5,102			$	4,998			2	%
Capital expenditures			$	2,440			$	1,688			45	%			$	6,615			$	6,209			7	%
Key Metrics
Business access lines				23,378				24,468			-4	%
Residential access lines				25,329				28,028			-10	%
Total access lines				48,707				52,496			-7	%
Long distance customers				32,730				34,459			-5	%
DSL customers				19,749				19,642			1	%
Digital TV customers				10,503				10,301			2	%

Reconciliation of Non-GAAP Measures
(Dollars in thousands)
Reconciliation of net debt:			Sept. 30, 2011				June 30, 2011				Dec. 31, 2010
Debt obligations, net of current maturities			$	119,169			$	8,462			$	114,067
Current maturities of long-term obligations				1,436				110,230				4,892
Total Debt			$	120,605			$	118,692			$	118,959
Less:
Cash and cash equivalents				11,316				14,930				73
Net Debt			$	109,289			$	103,762			$	118,886
			Year Ending
			December 31, 2011
(Dollars in thousands)			Guidance Range
Reconciliation of net income to 2011 EBITDA guidance:			Low				High
Projected net income			$	9,300			$	10,200
Add back:
Depreciation and amortization				22,700				23,000
Interest expense				4,700				4,800
Taxes				5,600				6,000
Projected EBITDA guidance 1			$	42,300			$	44,000
1 EBITDA, a non-GAAP financial measure, is as defined in our debt agreement
			Three months ended
			Sep-11				Jun-11				Mar-11				Dec-10
(Dollars in thousands)
Reconciliation of net income to EBITDA:
Net income			$	2,971			$	2,694			$	2,142			$	2,114
Add:
Depreciation				5,706				5,593				5,591				5,765
Amortization of intangibles				88				89				88				89
Interest expense				1,487				1,015				1,068				1,094
Taxes				1,910				1,307				1,466				1,266
EBITDA			$	12,162			$	10,698			$	10,355			$	10,328
Debt to EBITDA ratio
Total outstanding debt as of September 30, 2011							$	120,605
EBITDA for the last (4) consecutive fiscal quarters as presented above								43,543
Debt to EBITDA ratio as of September 30, 2011								2.8

HickoryTech CorporationDavid Christensen, 507-387-3355CFOorJennifer Spaude, 507-386-3765Investor Relations

Source: HickoryTech Corporation

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