UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 8-K

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Date of report (Date of earliest event reported): March 9, 2020

 

Otelco Inc.

(Exact Name of Registrant as Specified in Charter)

 

Delaware   1-32362   52-2126395
(State or Other Jurisdiction of Incorporation)   (Commission File Number)  

(IRS Employer Identification No.)

 

  

505 Third Avenue East, Oneonta, AL 35121

(Address of Principal Executive Offices) (Zip Code)

 

Registrant’s telephone number, including area code: (205) 625-3574

 

Securities registered or to be registered pursuant to Section 12(b) of the Act.

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Class A Common Stock ($0.01 par value per share)   OTEL   The Nasdaq Stock Market LLC

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

  ¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
     
  ¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
     
  ¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
     
  ¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

Emerging growth company ¨

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

 

 

 

 

  

Item 2.02.Results of Operations and Financial Condition.

 

On March 9, 2020, Otelco Inc. (the “Company”) announced its results of operations for its fourth quarter and year ended December 31, 2019. A copy of the press release is attached hereto as Exhibit 99.1 and is incorporated herein by reference. In addition, the Company posted a fourth quarter and year ended December 31, 2019, investor presentation to the Investor Relations section of its website at www.Otelco.com. A copy of the presentation is attached hereto as Exhibit 99.2 and is incorporated herein by reference. Other information contained on the Company’s website does not constitute a part of this Current Report on Form 8-K (the “Report”).

 

Item 7.01.Regulation FD Disclosure.

 

The disclosure contained in Item 2.02 of this Report is incorporated herein by reference. As provided in General Instruction B.2 of Form 8-K, the information and exhibits contained in this Item 7.01 shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall they be deemed to be incorporated by reference in any filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such a filing.

 

Item 9.01.Financial Statements and Exhibits.

 

Exhibit No.   Description
99.1   Press Release Dated March 9, 2020
99.2   Earnings Presentation Dated March 9, 2020

 

 

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

  Otelco Inc.  
       
       
Date: March 9, 2020 By:  /s/ Curtis L. Garner, Jr.  
    Curtis L. Garner, Jr.  
    Chief Financial Officer  
       

 

 

 

Exhibit 99.1

 

 

 

News Release

 

Contact: Curtis Garner
  Chief Financial Officer
  Otelco Inc.
  205-625-3580
  Curtis.Garner@Otelco.com

 

Otelco Reports Fourth Quarter and 2019 Operational and Financial Results

 

ONEONTA, Alabama (March 9, 2020) Otelco Inc. (NASDAQ: OTEL), a wireline telecommunications services provider in Alabama, Maine, Massachusetts, Missouri, New Hampshire, Vermont and West Virginia, today announced operational and financial results for its fourth quarter and year ended December 31, 2019. Key operational and financial highlights for Otelco include:

 

·Total revenues of $15.6 million for fourth quarter 2019 and $62.8 million for 2019.
·Operating income of $3.5 million for fourth quarter 2019 and $14.8 million for 2019.
·Net income of $2.0 million for fourth quarter 2019 and $7.8 million for 2019.
·Consolidated EBITDA (as defined below) of $5.6 million for fourth quarter 2019 and $23.4 million for 2019.
·Scheduled principal payments of $1.1 million in fourth quarter 2019 and $4.4 million for 2019, reduced debt to $70.2 million at the end of 2019.
·Richard A. Clark appointed Chief Executive Officer

 

FOURTH QUARTER 2019 RESULTS

The Company continued to execute on its strategy of fiber deployment and data speed enhancement in fourth quarter 2019. Revenues declined $0.6 million, or 3.8%, primarily from a reduction in customers, voice services and access fees, while operating expenses declined $0.2 million, or 2.1%, compared with the fourth quarter 2018. Interest expense declined $0.2 million reflecting lower interest rates and the reduction in principal under the Company’s credit agreement. Net income was $2.0 million in fourth quarter 2019, compared to $2.2 million in fourth quarter 2018. The Company invested $4.8 million in its network and operations. Consolidated EBITDA was $5.6 million for fourth quarter 2019, compared to $6.0 million for the same period in the previous year. The ratio of debt, net of cash, to Consolidated EBITDA was 2.87, reflecting the scheduled payments made on the debt during the year. Basic net income per share was $0.58 per share for fourth quarter 2019, compared to $0.66 per share in the same period of 2018.

 

ALABAMA FIBER INSTALLATION NEARING COMPLETION; CABLE UPGRADE TO DOCSIS 3.1 STARTED

In July 2019, the Company announced plans to install 113 miles of additional fiber in Alabama by early 2020, focusing on the northern part of its territory in and around Arab, Alabama. All of the planned fiber has been engineered and marketing is underway to 3,589 Arab Lightwave locations, with 578 additional locations coming online in March 2020. Fiber-To-The-Premise (“FTTP”) provides up to gigabit speed internet capability. To date, 522 customers have upgraded their existing service or signed up for new service on the newly released fiber. In addition, equipment has been deployed to support higher speed VDSL service in all Alabama and Missouri locations, with work underway to upgrade New England sites.

 

 

Otelco Reports Fourth Quarter and Year 2019 Results

Page 2 

March 9, 2020

 

 

In the southern part of its Alabama territory in and around Oneonta, Alabama, where Otelco is also the cable provider, the preliminary work is ongoing to upgrade its hybrid fiber coax network to DOCSIS 3.1. Otelco expects that, over the summer of 2020, all of its cable customers will also gain access to gigabit internet speeds, similar to those speeds available over a FTTP network.

 

Commenting on these developments, Richard Clark, President and Chief Executive Officer of Otelco, pointed out that the Company continues to increase the speed of its Lightwave FTTP service. Clark said, “We are now offering gigabit speeds in several of our FTTP communities in Maine, as well as the FTTP network in Oneonta, Alabama. While gigabit service is probably not necessary for most customers today, it is highly likely that speed requirements will continue to increase in coming years. We are redesigning our network to provide for these future requirements.” Clark indicated that Lightwave Gigabit would be expanded throughout the Company’s FTTP service areas later this year.

 

NETWORK INVESTMENT

Otelco invested $12.4 million in 2019 to grow its fiber distribution network and improve its broadband capabilities. FTTP will be the primary vehicle to increase data capacity for Otelco’s customers, with Fiber-To-The-Node and fixed wireless options being employed in more sparsely populated areas. During 2019 and in January 2020, Otelco added a total of 268 miles of fiber in its service territories, an increase of 50% over its fiber mileage built in 2018. Otelco’s Lightwave FTTP network now passes approximately 12,890 discrete locations. The Company has over 2,500 miles of distribution and transport fiber in its network. During 2020, the Company plans to continue to invest in VDSL technology to meet or exceed its revised federal Alternative Connect America Model requirements while also standardizing on a single company-wide broadband access platform.

 

CONNECT AMERICA FUND II AND RURAL MUNICIPALITIES

Otelco was awarded just over $0.9 million in federal Connect America Fund II (“CAF II”) funds to support the construction of a fixed wireless network to provide improved broadband services to four targeted communities in Western Massachusetts. The CAF II funds will be distributed over a ten-year period and support approximately 1,000 locations in Hawley, Monroe, Florida and Savoy (Massachusetts). The Company has partnered with another firm to build and operate the network. Construction of the network is underway, with completion targeted during 2020. Initial customers are being added as their respective construction phases are finished.

 

BALANCE SHEET

At the end of 2019, the Company reported cash of $3.1 million and a balance on its credit facility of $70.2 million. During 2019, the Company invested $12.4 million in improving its network and operational capabilities, while reducing its loan balance by $4.4 million. Total assets increased from $114.4 million at the end of 2018 to $120.7 million on December 31, 2019. The Company’s ratio of consolidated indebtedness to Consolidated EBITDA was 3.00 at the end of 2019, reflecting the use of additional cash generated from the business to improve its network rather than make additional prepayments on its indebtedness. The interest rate margin on the loan will increase from 4.25% to 4.50% for 2020. The Company and its lender amended the credit agreement on March 2, 2020, to reflect the plans to continue a higher than historical level of investment in the business.

 

RICHARD CLARK APPOINTED CHIEF EXECUTIVE OFFICER AND ELECTED TO BOARD OF DIRECTORS

Effective January 1, 2020, Richard A. Clark, President of Otelco, was also appointed to the additional title of Chief Executive Officer, replacing Robert J. Souza who retired at the end of 2019. Mr. Clark was also elected to the Board of Directors at that time. Clark, formerly Executive Vice President and Chief Financial Officer of TVC Albany, Inc., which does business as FirstLight Fiber, joined Otelco in October 2018 as Chief Operating Officer.

 

 

Otelco Reports Fourth Quarter and Year 2019 Results

Page 3 

March 9, 2020

 

  

SUMMARY

“Otelco targeted significant expansion of its fiber-based Lightwave services, as well as data speed improvements throughout its network in 2019,” noted Clark. “We invested over $12.4 million in our business, and our customers recognized the benefits of our improvements as reflected in a reduction in customer churn, which has declined to 0.5% in the fourth quarter 2019, down from 2.1% in the same period in 2018. This year, additional fiber will be available to our customers and the implementation of DOCSIS 3.1 will be completed – both investments bringing gigabit internet capability to more than 6,000 locations. With these improvements, we are well positioned to further enhance our customers’ experience, improve available data speeds and product offerings, and add new customers to the Otelco family of companies. Focusing on both cost management and our revenue trajectory should continue to serve our employees, customers and stockholders well as we move through 2020.”

 

FOURTH QUARTER AND YEAR 2019 EARNINGS CONFERENCE CALL

Otelco has scheduled a conference call, which will be broadcast live over the internet, on Tuesday, March 10, 2020, at 11:30 a.m. (Eastern Time). To participate in the call, participants should dial (856) 344-9299 and ask for the Otelco call 10 minutes prior to the start time. Investors, analysts and the general public will also have the opportunity to listen to the conference call free over the internet by visiting the Company’s website at www.Otelco.com. To listen to the live call online, please visit the website at least 15 minutes early to register, download and install any necessary audio software. For those who cannot listen to the live webcast, a replay of the webcast will be available on the Company's website at www.Otelco.com for 30 days. A two-week telephonic replay may also be accessed by calling (719) 457-0820 and entering the Confirmation Code 8318186.

 

Fourth Quarter and Annual 2019 Financial Summary
(Dollars in thousands, except per share amounts)
(Unaudited)
   Three Months Ended December 31,   Change 
   2019   2018   Amount   Percent 
Revenues  $15,591   $16,200   $(609)   (3.8)%
Operating income  $3,531   $4,024   $(493)   (12.3)%
Interest expense  $(1,227)  $(1,460)  $(233)   (16.0)%
Net income available to stockholders  $1,979   $2,237   $(258)   (11.5)%
Basic net income per share  $0.58   $0.66   $(0.08)   (12.1)%
Diluted net income per share  $0.58   $0.65   $(0.07)   (10.8)%
                     
Consolidated EBITDA  $5,582   $6,004   $(422)   (7.0)%
Capital expenditures  $4,845   $2,311   $2,534    109.6%
                     

   Twelve Months Ended December 31,   Change 
   2019   2018   Amount   Percent 
Revenues  $62,766   $66,068   $(3,302)   (5.0)%
Operating income  $14,844   $17,793   $(2,949)   (16.6)%
Interest expense  $(5,271)  $(5,844)  $(573)   (9.8)%
Net income available to stockholders  $7,796   $9,467   $(1,671)   (17.7)%
Basic net income per share  $2.28   $2.79   $(0.51)   (18.3)%
Diluted net income per share  $2.27   $2.76   $(0.49)   (17.8)%
                     
Consolidated EBITDA  $23,410   $25,670   $(2,260)   (8.8)%
Capital expenditures  $12,440   $7,983   $4,457    55.8%
                     

 

 

Otelco Reports Fourth Quarter and Year 2019 Results

Page 4 

March 9, 2020

 

 

ABOUT OTELCO

Otelco Inc. provides wireline telecommunications services in Alabama, Maine, Massachusetts, Missouri, New Hampshire, Vermont and West Virginia. The Company’s services include local and long distance telephone, digital high-speed data lines, transport services, network access, cable television and other related services. Otelco is among the top 20 largest local exchange carriers in the United States. Otelco operates eleven incumbent telephone companies serving rural markets, or rural local exchange carriers. It also provides competitive retail and wholesale communications services and technology consulting, managed services and private/hybrid cloud hosting services through several subsidiaries. For more information, visit the Company’s website at www.Otelco.com.

 

FORWARD LOOKING STATEMENTS

Statements in this press release 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 the 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, readers are urged to consider statements labeled with the terms “believes,” “belief,” “expects,” “intends,” “anticipates,” “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 the Company’s filings with the Securities and Exchange Commission. The Company assumes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.

 

 

Otelco Reports Fourth Quarter and Year 2019 Results

Page 5 

March 9, 2020

 

 

OTELCO INC.

CONSOLIDATED BALANCE SHEETS

 

(in thousands, except share par value and share amounts)

 

   As of December 31, 
   2019   2018 
Assets        
Current assets        
Cash and cash equivalents  $3,113   $4,657 
Accounts receivable:          

    Due from subscribers, net of allowance for doubtful

accounts of $209 and $577, respectively

   3,908    4,183 
Other   1,905    1,899 
Materials and supplies   3,954    2,802 
Prepaid expenses   1,624    1,198 
Other assets   251    - 
Total current assets   14,755    14,739 
           
Property and equipment, net   57,284    52,073 
Goodwill   44,976    44,976 
Intangible assets, net   530    919 
Operating lease right-of-use asset   1,146    - 
Investments   1,477    1,498 
Interest rate cap   -    4 
Other assets   577    143 
Total assets  $120,745   $114,352 
           
                                             Liabilities and Stockholders' Equity          
Current liabilities          
Accounts payable  $1,525   $1,331 
 Accrued expenses   4,861    5,054 
Advance billings and payments   1,618    1,614 
Customer deposits   44    48 
Current operating lease liability   296    - 
Current maturity of long-term notes payable, net of debt issuance costs   3,929    3,904 
Total current liabilities   12,273    11,951 
           
Deferred income taxes   21,521    20,145 
Advance billings and payments   2,157    2,234 
Other liabilities   12    13 
Long-term operating lease liability   850    - 
Long-term notes payable, less current maturities and debt issuance costs   65,172    69,107 
Total liabilities   101,985    103,450 
           
Stockholders' equity          

Class A Common Stock, $.01 par value-authorized 10,000,000 shares;

 issued and outstanding 3,412,805 and 3,388,624 shares, respectively

   34    34 
Additional paid in capital   4,275    4,213 
Retained earnings   14,451    6,655 
Total stockholders' equity   18,760    10,902 
Total liabilities and stockholders' equity  $120,745   $114,352 
           

 

 

Otelco Reports Fourth Quarter and Year 2019 Results

Page 6 

March 9, 2020

 

 

OTELCO INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

 

(in thousands, except share and per share amounts)

 

                 
   Three Months Ended
December 31,
  

 Three Months Ended
December 31,

 
   2019   2018   2019   2018 
                 
Revenues  $15,591   $16,200   $62,766   $66,068 
                     
Operating expenses                    
Cost of services   7,445    7,567    30,075    30,592 
Selling, general and administrative expenses   2,669    2,759    10,204    10,451 
Depreciation and amortization   1,946    1,850    7,643    7,232 
Total operating expenses   12,060    12,176    47,922    48,275 
                     
Income from operations   3,531    4,024    14,844    17,793 
                     
Other income (expense)                    
Interest expense   (1,227)   (1,460)   (5,271)   (5,844)
Other income   11    11    616    263 
Total other expenses   (1,216)   (1,449)   (4,655)   (5,581)
                     
Income before income tax expense   2,315    2,575    10,189    12,212 
Income tax expense   (336)   (338)   (2,393)   (2,745)
                     
Net income  $1,979   $2,237   $7,796   $9,467 
                     
                     
Weighted average number of common shares outstanding:                    
Basic   3,412,805    3,388,624    3,412,805    3,388,624 
Diluted   3,430,453    3,443,119    3,430,453    3,434,862 
Basic net income per common share  $0.58   $0.66   $2.28   $2.79 
Diluted net income per common share  $0.58   $0.65   $2.27   $2.76 

 

The accompanying notes are an integral part of these consolidated financial statements.

                             

 

Otelco Reports Fourth Quarter and Year 2019 Results

Page 7 

March 9, 2020

 

 

OTELCO INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

(in thousands)

                       

   Years Ended December 31, 
   2019   2018 
Cash flows from operating activities:        
Net income  $7,796   $9,467 
Adjustments to reconcile net income to cash flows provided by operating activities:          
Depreciation   7,344    6,906 
Amortization   299    326 
Amortization of loan costs   452    476 
Non-cash lease amortization   265    - 
Provision for deferred income taxes   1,308    1,062 
Excess tax benefit from stock-based compensation   68    144 
Provision for uncollectible accounts receivable   214    553 
Stock-based compensation   254    308 
Changes in operating assets and liabilities          
Accounts receivable   (196)   (113)
Materials and supplies   (1,152)   (102)
Prepaid expenses and other assets   (860)   1,982 
Accounts payable and accrued expenses   1    (37)
Advance billings and payments   (73)   (203)
Other liabilities   (270)   (9)
Net cash from operating activities   15,450    20,760 
           
Cash flows used in investing activities:          
Acquisition and construction of property and equipment   (12,440)   (7,983)
Retirement of investment   (4)   (11)
Net cash used in investing activities   (12,444)   (7,994)
           
Cash flows used in financing activities:          
Loan origination costs   (12)   (64)
Principal repayment of long-term notes payable   (4,350)   (11,350)
Interest rate cap   4    (4)
CoBank equity account retirement   -    119 
Tax withholdings paid on behalf of employees for restricted stock units   (192)   (380)
Net cash used in financing activities   (4,550)   (11,679)
           
Net (decrease) increase in cash and cash equivalents   (1,544)   1,087 
Cash and cash equivalents, beginning of period   4,657    3,570 
           
Cash and cash equivalents, end of period  $3,113   $4,657 
           
Supplemental disclosures of cash flow information:          
Interest paid  $4,834   $5,383 
           
Income taxes paid (refunded)  $1,993   $(502)
           

 

The accompanying notes are an integral part of these consolidated financial statements.

                        

 

Otelco Reports Fourth Quarter and Year 2019 Results

Page 8 

March 9, 2020

 

 

CONSOLIDATED EBITDA – Consolidated EBITDA is defined as consolidated net income plus consolidated net interest expense, depreciation and amortization, income taxes and certain other fees, expenses and non-cash charges reducing consolidated net income. Consolidated EBITDA is a supplemental measure of the Company’s performance that is not required by, or presented in accordance with, accounting principles generally accepted in the United States (“GAAP”). Consolidated EBITDA corresponds to the definition of Consolidated EBITDA in the Company’s credit facility. The lenders under the Company’s credit facility utilize this measure to determine compliance with credit facility requirements. The Company uses Consolidated EBITDA as an operational performance measurement to focus attention on the operational generation of cash, which is used for reinvestment into the business; to repay its debt and to pay interest on its debt; to pay income taxes; and for other corporate requirements. The Company reports Consolidated EBITDA to allow current and potential investors to understand this performance metric and because the Company believes that it provides current and potential investors with helpful information with respect to the Company’s operating performance. However, Consolidated EBITDA should not be considered as an alternative to net income or any other performance measures derived in accordance with GAAP. The Company’s presentation of Consolidated EBITDA may not be comparable to similarly titled measures used by other companies.

 

Reconciliation of Consolidated EBITDA to Net Income              
      Three Months Ended December 31,   Twelve Months Ended December 31, 
      2019   2018   2019   2018 
Net income  $1,979   $2,237   $7,796   $9,467 
Add:  Depreciation   1,879    1,771    7,344    6,906 
   Interest expense less interest income   1,112    1,339    4,803    5,368 
   Interest expense - amortize loan cost   110    122    452    476 
   Income tax expense   336    338    2,393    2,745 
   Amortization - intangibles   67    79    299    326 
   Stock-based compensation   82    101    254    308 
   Loan fees   17    17    69    74 
Consolidated EBITDA  $5,582   $6,004   $23,410   $25,670 

 

LEVERAGE RATIO – The Company uses the ratio of debt, net of cash, to Consolidated EBITDA for the last twelve months as an operational performance measurement of Otelco’s leverage. Such ratio is a supplemental measure of the Company’s performance that is not required by, or presented in accordance with, GAAP. The Company reports such ratio to allow current and potential investors to understand this performance metric. The Company also believes that it provides current and potential investors with helpful information with respect to the Company’s operating performance, including the Company’s ability to generate earnings sufficient to service its debt, and enhances understanding of the Company’s financial performance and highlights operational trends. However, such ratio should not be considered as an alternative to net income or any other performance measures derived in accordance with GAAP. The Company’s presentation of such ratio may not be comparable to similarly titled ratios used by other companies. The table below provides the calculation of such ratio as of December 31, 2019.

 

Ratio of Debt, Net of Cash, to Consolidated EBITDA    
as of December 31, 2019    
($000)    
     
Notes payable  $69,101 
Debt issuance costs   1,111 
Notes outstanding  $70,212 
      
Less cash   (3,113)
Notes outstanding, net of cash  $67,099 
Consolidated EBITDA for the     
last twelve months  $23,410 
      
Total leverage ratio, net of cash   2.87 

 

 

 

 

Exhibit 99.2

 

 

OTELCO INC. OTEL (Nasdaq) www.otelco.com March 2020 1

 

 

2 This presentation contains forward - looking statements that are subject to risks and uncertainties . Forward - looking statements give our current expectations relating to our financial condition, results of operations, plans, objectives, future performance and business . These statements may include words such as “anticipate,” “estimate,” “expect,” “project,” “plan,” “intend,” “believe” and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events . These forward - looking statements are based on assumptions that we have made in light of our experience in the industry in which we operate, as well as our perceptions of historical trends, current conditions, expected future developments and other factors we believe are appropriate under the circumstances . Although we believe that these forward - looking statements are based on reasonable assumptions, you should be aware that many factors could affect our actual financial condition or results of operations, or cause our actual results to differ materially from those in the forward - looking statements .

 

 

3 Diverse Customer Base Residential Enterprise Carrier Institutional/Higher Ed Municipal Government Eleven RLECs in 6 states CLEC in ME, MA, NH & VT Service Footprint

 

 

4 2007 - 2010 • Issued 3 Million IDS units • Acquired 4 ILECs, 2 CLEC properties in MA, ME, NH and WV • Class B conversion to IDS units 2015 - Present • 11 ILEC companies accept A - CAM funding in 6 states • Conversion to consolidated billing and operations systems • Refinanced debt with 5 year CoBank loan 2004 - 2006 • Initial Public Offering of IDS units (OTT:AMEX) • Acquired Mid - Missouri ILEC & ISP • Acquired Mid - Maine ILEC and CLEC 2011 - 2014 • Acquired Shoreham, VT ILEC • IDS units extinguished in conjunction with 2013 Ch. 11 bankruptcy filing: new Class A shares issued ( OTEL:Nasdaq ) • Initiated Cloud Hosting and Managed Services 2019 onward • Expand construction of Fiber to the Premise/Node (FTTP/N) • Continue debt reduction Future Growth Plan… • Future driven by new FTTP/N builds and upgrades to existing infrastructure 2007 - 2010 • Issued 3 Million IDS units • Acquired 4 ILECs, 2 CLEC properties in MA, ME, NH and WV • Class B conversion to IDS units Timeline

 

 

5 5 30+ years of experience Appointed President in May 2019 and CEO in January 2020 Joined Otelco in October 2018 as COO Previously Executive Vice President and CFO at Oxford Networks then FirstLight Fiber 40+ years of experience Served as Chief Financial Officer since February 2004 20+ years of experience Joined Otelco in 2017 Previously Vice President of Technology at Great Works Internet 20+ years of experience Previously served as Vice President of Business Development and Director of Sales and Marketing at Great Works Internet 25+ years of experience Served as General Counsel since 2013 Served as Director of Legal and Regulatory Affairs 2009 - 2013 Exceptional management team with deep expertise leading companies in the telecommunications industry and a demonstrated track record of managing growth platforms Richard Clark President and CEO Curtis Garner CFO David Allen VP of Network Operations Trevor Jones VP of Sales, Marketing and Customer Service Trina Bragdon General Counsel, VP of Human Resources and Regulatory Affairs Prior Experience Prior Experience Prior Experience Prior Experience Prior Experience Management Team

 

 

6 28,000+ ILEC Customers Both Business and Residential MILLION 2019 revenue $47 million in RLEC $15 million in CLEC $62+ SERVICE FOOTPRINT 11 RLECS across 6 states and CLEC serving 3 states MILLION 2019 EBITDA $23+ EMPLOYEES With 18 office facilities across 6 states 200+ CLEC BUSINESS CUSTOMERS Across critical industries 2,000+ Otelco At - a - Glance

 

 

7 2,551 Mile Fiber Network 1,588 Transport, 963 Distribution 56 Cell Towers Served 5,630 Mile Copper Network Network Footprint RLEC (BLUE) CLEC (YELLOW) Missouri New England Alabama West Virginia

 

 

8 Summary Core Products RLEC CLEC Otelco offers its SMB and Enterprise customer base a comprehensive portfolio of advanced Voice and Data telecommunications services, as well as a suite of Cloud Hosted and Managed Services . Hosted PBX x x Business Telephony x x High - Speed Data & Internet x x Wide Area Networking (WAN) x x Colocation x Cloud Computing x x Otelco’s Residential segment provides profitable Voice, Internet, Security and video services ¹ to communities in Alabama, Maine, Massachusetts, Missouri , Vermont and West Virginia . High - Speed Internet x x Telephony Services x x Home Automation and Security x Cable and IP TV ¹ x Otelco delivers a full suite of carrier - grade connectivity and colocation products to its Carrier and Wholesale customers, including Internet Service Providers (ISP), Wireless ISP and Managed Services Providers . Access x x Cell Tower Backhaul x x Carrier Internet x Colocation x LAN/WAN x SIP Trunking x TDM Services x x Business Residential Carrier/ Wholesale (1) Video services currently available in Alabama and Vermont Full Product Suite Otelco offers a full suite of advanced telecommunication services to meet the voice, data and connectivity needs of its custo mer s. The Company’s product suite provides comprehensive solutions for the entirety of its business, residential and carrier/wholes ale customers’ communications needs including hosted voice, high - bandwidth connectivity and access services.

 

 

9 Otelco Network Summary New England CLEC Missouri RLEC New England RLEC Alabama RLEC Switching Facilities Remote Switches 31 Colos 89 107 75 Video Nodes - - - 46 Wireless Internet Access Points - 156 - - Total Fiber Route Miles 1,259 473 513 1,322 Owned Fiber Route Miles 243 473 513 1,322 Transport Fiber Route Miles 243 457 370 518 Distribution Fiber Route Miles - 16 143 804 IRU Fiber Route Miles 235 - - - Leased Fiber Route Miles 781 - - - Copper Route Miles - 1,010 1,501 3,119 1) Figures as of January 2019 Network Summary

 

 

10 0% 5% 10% 15% 20% 25% 30% 35% 40% Local Services Network Access Internet Transport Services Cable Television Managed Services 2019 2015 Diverse and Stable Revenue Mix

 

 

11 Competitive Landscape Incumbents Cable MSOs • Otelco’s competition within its markets ranges from multiple incumbent carriers to Cable MSOs with in - region franchises to competitive communications providers . • Consolidation in the telecom sector over the past few years has significantly shrunk the universe of Otelco’s competitors, especially in the Northeast, with the completed acquisitions of FirstLight , Oxford Networks and Sovernet by Oak Hill Capital . • Competition from cable, electric utilities and wireless substitution continues to impact the residential wireline voice market . While Otelco is not immune to these trends, the Company had added additional services such as security and home automation along with Over - The - Top programming to provide robust offerings for its residential market . In addition, Otelco’s new and expanding fiber network gives Otelco a speed and reliability advantage within the Company’s footprint . • Otelco experiences limited competitive threats in the rural areas it operates in from new entrants . The demographic characteristics of rural telecommunications markets generally require significant capital investment to offer competitive wireline telephone services with low potential revenues . Meanwhile, participation in A - CAM has resulted in Otelco’s ability to improve and expand the Company’s wireline network with miles of new fiber optics ; both in A - CAM eligible regions, and areas passed in order to reach A - CAM regions . As a result, Otelco faces a lesser threat of new significant wireline and wireless competition in rural markets . Wireless

 

 

12 Alternative Connect America Model (A - CAM) Election • In March 2016 FCC adopted A - CAM USF plan for Rate - of - Return carriers • A - CAM provides fixed support through 2028 • Promotes broadband build - out in rural America • Replaces legacy High - Cost Loop Support (HCLS) & Interstate Common Line Support (ICLS) mechanisms • Carriers must deliver 25/3 Mbps service to locations in non - competitive, eligible census blocks – A - CAM census blocks represent approximately 23.5% of targeted market – A - CAM census blocks represent approximately 43.6% of copper route miles *Includes Transitional Support Payments **USF in Maine and Vermont, Transitional Support in Alabama ***Connect America Funds and CAF BLS A-CAM FUNDING* $8,971 STATE UNIVERSAL FUNDS** $882 OTHER FEDERAL USF*** $5,878 Total $15,731 2019 Funding (000)

 

 

13 Debt Agreement • Debt facility with CoBank through November 2022 • $87.0 million term loan • $20.0 million accordion feature and $5.0 million revolver • Loan balance reduced over $4.4 million in 2019 • Current loan balance $70.2 million at December 31, 2019 • Scheduled principal amortization of $1.1 million per quarter • 2019 interest rate of 4.25% plus Libor • Current interest rate of 4.50% plus Libor • Covenants amended effective December 31, 2019 to allow for increased business investment to expand fiber network

 

 

14 3.48 3.11 2.90 3.00 65,000 70,000 75,000 80,000 85,000 90,000 95,000 100,000 2016 2017 2018 2019 Debt Level and Year End Leverage Notes Outstanding (000) Leverage Ratio See appendix for reconciliation to GAAP measures

 

 

15 Cable and VDSL Upgrade Fiber Builds Execution on A - CAM Obligations Deploy Capital Effectively Operational Objectives

 

 

16 • 38% increase in ILEC customers receiving over 10Mpbs internet via copper and cable network in 2019 • 83% increase in customers receiving over 25Mpbs. Improve Internet Speeds • Customer churn slows through 2019 • Internet product churn has slowed or reversed where fiber construction has begun or been announced • Phone line churn has continued Reduce Churn • Business customers continue to drop phone lines due to competition • Residential customers continue to drop landlines in favor cell phones • Customers are dropping fewer internet connections due to increased speeds. Stabilize Revenue Operational Objectives Cable and VDSL Upgrades • Increase available speed in cable network to 1Gig in 2020 • Implementing VDSL to increase speeds to 50 Mbps for some customers

 

 

17 Current Status • 11 eligible RLECs opted for A - CAM funding • Will continue to receive funding through 2028 • Building to current and new customers in all regions • Able to meet some obligations with current DSL network • Secured additional funding through CAF II auction; building to additional locations in Massachusetts Expected Impact • Increase revenue per customer • 12 years of predictable cash flows • Meet 25/3Mbps speed obligations at approximately 5,000 - 6,000 locations by end of 2020, deploying FTTP/N and VDSL • Ultimately pass 13,800 locations in A - CAM census blocks Execute on A - CAM Obligations Operational Objectives

 

 

18 Capture New Revenue with Fiber Offerings Market aggressively in new fiber footprints Evolve product lines Price competitively: pricing realignments in 2019 to compete with cable providers Upsell fiber to existing customers Impacts of Fiber Builds 71% increase in fiber internet customers in 2019 57% increase in annualized revenue from fiber customers 1,320 net new fiber customers in 2019 Effectively Manage Expenses Continue to manage operational efficiency New fiber plant requires less maintenance Network optimization Fiber Builds • Over 2,200 new locations passed in 2019 • 2,237 locations scheduled for 2020 • Total of 12,699 locations by end of 2020 • 18.8 % of market Operational Objectives

 

 

19 Strategic capex • Investigate and implement lower cost methods to meet A - CAM obligations • Build fiber outside of A - CAM territories to expand fiber network Manage debt • Closely maintain leverage and debt covenants Invest in strategic M&A • Opportunities for partnerships and growth Deploy Capital Effectively • Expand service areas served by fiber to increase service levels and reduce churn • Goal of stabilizing revenues over a multi - year period • Capital expenditures increased from $6.9M (2016) to over $12.4M (2019) Operational Objectives

 

 

20 • Mapping Integration Project – Determine market size of Otelco’s network – Establish current customer penetration rates – Estimate costs to build fiber in entire market – Ability to determine competitive landscape by region – Identify areas with highest ROI potential – Expected completion date of July 2020 • VDSL Deployment – Enable VDSL service in all Central Office and Remote locations – Meet 40% A - CAM coverage in 2020 – Provide up to 75 Mbps service to qualifying locations – Expected completion date of July 2020 • Cable Deployment – Free up spectrum currently used by analog channels to enhance speeds for Cable internet customers – Potentially offer up to 1 Gbps service – Allow for deployment of additional HD channels – Expected completion in 2021 2020 Operational Initiatives

 

 

21 APPENDIX

 

 

22 Appendix: Select Financial Information Year End Results 2019 2018 2017 2016 Operating Revenues 62,766,100$ 66,067,725$ 68,525,759$ 68,944,452$ Operating Expenses (COGS and SG&A) (40,278,826) (41,042,221) (41,542,212) (42,108,830) Depreciation and Amortization (7,643,394) (7,232,339) (7,376,828) (8,022,627) Operating Income 14,843,880$ 17,793,165$ 19,606,719$ 18,812,995$ Interest Expense (5,270,820) (5,844,132) (13,249,547) (10,633,956) Other Income 615,343 262,886 204,461 624,355 Loss on Debt Prepayment Penalty - - (2,302,875) - Income Before Taxes 10,188,403$ 12,211,919$ 4,258,758$ 8,803,394$ Provision For income taxes (2,392,777) (2,744,598) 7,856,380 (3,657,617) Net Income 7,795,626$ 9,467,321$ 12,115,138$ 5,145,777$ Adjustments to EBITDA Amortization 299,439 326,269 375,876 885,175 Depreciation 7,343,954 6,906,070 7,000,952 7,137,453 Income Tax Expense 2,392,777 2,744,598 (7,856,380) 3,657,617 Interest Expense 5,254,862 5,843,383 13,249,487 10,633,235 Loan Fees 69,011 74,132 2,447,076 203,545 Stock Compensation 254,094 307,935 308,238 415,645 EBITDA 23,409,763$ 25,669,708$ 27,640,387$ 28,078,448$

 

 

23 Appendix: Leverage Ratio Year End Results 2019 2018 2017 2016 Net Income 7,795,626$ 9,467,321$ 12,115,138$ 5,145,777$ Adjustments to EBITDA Amortization 299,439 326,269 375,876 885,175 Depreciation 7,343,954 6,906,070 7,000,952 7,137,453 Income Tax Expense 2,392,777 2,744,598 (7,856,380) 3,657,617 Interest Expense 5,254,862 5,843,383 13,249,487 10,633,235 Loan Fees 69,011 74,132 2,447,076 203,545 Stock Compensation 254,094 307,935 308,238 415,645 EBITDA 23,409,763$ 25,669,708$ 27,640,387$ 28,078,448$ Senior Notes Payable 65,862,500$ 70,212,500$ 81,562,500$ 74,875,000$ Current Portion LT Debt 4,350,000 4,350,000 4,350,000 7,125,000 Sub Notes Payable - - - 15,572,726 Sub Notes Outstanding - - - Notes Outstanding 70,212,500$ 74,562,500$ 85,912,500$ 97,572,726$ Leverage 3.00 2.90 3.11 3.48

 

 

24 Appendix: Select Financial Information Year End Results 2019 2018 2017 2016 Operating Revenues 62,766,100$ 66,067,725$ 68,525,759$ 68,944,452$ Operating COGS and SG&A (40,278,826)$ (41,042,221)$ (41,542,212)$ (42,108,830)$ % Revenue 64% 62% 61% 61% Consolidated EBITDA 23,409,763$ 25,669,708$ 27,640,387$ 28,078,448$ % Revenue 37% 39% 40% 41%

 

 

25 Appendix: Select Financial Information Year End Results 2019 2018 2017 2016 EBITDA 23,409,763$ 25,669,708$ 27,640,387$ 28,078,448$ Capital Expenditures 12,439,624 7,983,158 8,510,625 6,879,677 Free Cash Flow 10,970,139 17,686,550 19,129,762 21,198,771 Debt 70,212,500$ 74,562,500$ 85,912,500$ 97,572,726$ Cash 3,113,092 4,656,624 3,570,367 10,537,577 Net Debt 67,099,408 69,905,876 82,342,133 87,035,149 Debt/EBITDA 3.00 2.90 3.11 3.48 Net Debt/EBITDA 2.87 2.72 2.98 3.10

 

 

26 FTTP/FTTN Projects in 2019

 

 

27 Total Locations Passed with Fiber Locations Passed = Ready for service installation via drop fiber. State Pre 2017 2017 2018 2019 Total Fiber CustomersPenetration Alabama 3,159 1,230 1,364 2,786 8,539 2,343 27% New England 236 360 330 629 1,555 647 42% Missouri 51 225 92 - 368 198 54% Total 3,446 1,815 1,786 3,415 10,462 3,188 30%

 

 

28 Otelco Fiber 12/31/2019 Locations Passed = Ready for service installation via drop fiber.

 

 

29 2019 Fiber Projects * Total locations estimated at 5,652. Completion expected in Q1 2020. State Project Mileage Locations Passed Alabama Jones Valley 49 431 Alabama Ryan 16 94 Alabama Strawberry 13 99 Alabama Arab Expansion* 71 2,162 Maine Plymouth 29 400 Maine Alton 18 205 Vermont Foote Farms 3 24 Vermont Swinging Cedar* 4 - Vermont West FTTP* 6 - Total 209 3,415

 

 

30 2019 Fiber Projects Jones Valley & Ryan Alabama Strawberry

 

 

31 2019 Fiber Projects Plymouth Maine Burlington

 

 

32 2019 Fiber Projects Singing Cedar Vermont West FTTP/N

 

 

Glossary of Terms A - CAM Alternative Connect America Model CAF II Connect America Fund II CAF BLS Connect America Fund Broadband Loop Support CLEC Competitive Local Exchange Carrier FTTN Fiber to the Node (fiber to a remote office, allows for increased speed over existing copper network) FTTP Fiber to the Premise HCLS High Cost Loop Support ICLS Interstate Common Line Support ISP Internet Service Provider MSO Multiple System Operators RLEC Rural Local Exchange Carrier TSF Transitional Support Fund USF Universal Service Fund VDSL Very - high - bit - rate Digital Subscriber Line 33

 

 

OTELCO Inc. OTEL (Nasdaq) www.otelco.com 34