Iowa Telecom Svcs : Iowa Telecom Reports Results for Second Quarter Ended June 30, 2007

August 08, 2007 at 11:00 am

MarketScreener.com By

Iowa Telecommunications Services, Inc. (NYSE: IWA) today announced operating results for the second quarter ended June 30, 2007. Quarterly highlights for the Company include:

Operating revenues were $62.7 million.
Operating income was $19.2 million.
Net income was $6.6 million or $0.20 per diluted share.
Adjusted EBITDA (as defined herein) was $32.2 million.

?We're very pleased with our second quarter performance, which was in line with our expectations,? said Alan L. Wells, Iowa Telecom chairman and chief executive officer. ?The continued success of our bundled product offerings, our DSL growth, and our expanded customer premise equipment (CPE) and data business resulted in a 9.7% increase in revenue from a year ago. While the second quarter has historically been our softest due to seasonal trends, sales of our DSL product remained solid as we added 2,700 new customers during the quarter. Our rate of access line loss for the quarter increased to 3,300 lines, but approximately 500 of the ILEC lines lost were related to internet service for a single wholesale customer that scaled back operations in our markets.

?Adjusted EBITDA for the quarter was consistent with the year ago quarter at $32.2 million,? added Wells. ?Income tax expense for the quarter was $4.8 million compared to $2.8 million a year ago, but our actual cash taxes paid during the quarter were only $439,000. For the first six months of this year, our actual cash taxes paid were $442,000. Our net operating loss carry forwards and our continued goodwill amortization for tax purposes serve to minimize our cash income tax obligations, and thus our recorded tax expense has little impact on our cash flow, or more importantly, on our ability to pay dividends to our shareholders.

?Our guidance for 2007 remains on track as we continue to expect capital expenditures for the year to be between $25.0 million and $27.0 million, and expect cash interest expense to be between $30.0 million and $32.0 million,? Wells continued. ?For the first six months of this year, capital expenditures were $13.2 million, and our cash interest expense was $15.8 million.

?We are very pleased with our results for the first half of 2007. As we move into the balance of the year, our focus will be on continuing to expand our data and CPE business, growing our DSL subscriber base, and retaining access lines through innovative bundled product offerings,? Wells concluded. ?We will also continue to identify and evaluate acquisition opportunities that are accretive and strategically beneficial to our rural telecommunications business.?

FINANCIAL DISCUSSION FOR SECOND QUARTER 2007:

Revenues and Sales were $62.7 million in the second quarter compared to $57.2 million in the second quarter of 2006. Network access services revenues increased $1.1 million, or 4.5%, for the second quarter. The increase is in part due to $980,000 of revenue from the resolution of certain non-recurring network access billing matters with a connecting carrier. Local services revenues decreased $692,000, or 3.6%, primarily due to access line erosion. Other services and sales revenues increased by $5.4 million, or 62.8%, primarily as a result of growth in our CPE and data business. Additionally, DSL Internet access service revenues increased $1.6 million, or 38.5%, due primarily to customer growth.

Operating Costs and Expenses increased $7.3 million, or 20.1%, in the second quarter of 2007 as compared to the second quarter of 2006. Cost of service and sales increased $4.4 million, or 27.5%, principally due to the growth of our CPE and data business. Selling, general and administrative costs increased $2.6 million compared to the year-ago period, as the 2006 period included the benefit of a $1.3 million gain on the sale of three exchanges. Depreciation and amortization increased $341,000, or 2.9%, during the second quarter compared to 2006.
Operating Income was $19.2 million in the second quarter of 2007 as compared to $20.9 million in the same period in 2006. The decrease is primarily related to the one-time $1.3 million gain on sale of exchanges that was included in the 2006 period.
Interest Expense for the second quarter increased $181,000, or 2.3%, to $8.0 million compared to $7.8 million in the same period in 2006. The increase was the result of higher interest rates on our variable rate debt and a higher average balance on our revolving credit facility.
Earnings Before Income Taxes for the second quarter of 2007 were $11.4 million compared to $13.3 million in the second quarter of 2006.
Income Tax Expense for the second quarter was $4.8 million compared to $2.8 million in the second quarter of 2006. The 2006 quarter was lower as a result of a $2.5 million valuation allowance reversal. The Company estimates that book income tax expense will be recorded at an effective tax rate of approximately 41% in future periods. The recorded book tax expense did not impact the actual cash taxes paid during the quarter as the Company paid actual cash income taxes during the quarter of only $439,000. Cash income taxes reflect the continued utilization of net operating loss carry forwards and continued goodwill amortization for tax purposes. At the end of the quarter, the Company had a net operating loss carry forward balance of approximately $164 million.
Net Income was $6.6 million for the quarter compared to net income of $10.5 million in the second quarter of 2006. The change is primarily due to the one-time benefits of the $1.3 million gain on exchange sales and the $2.5 million income tax valuation allowance reversal, both of which were recorded in the second quarter of 2006.
Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA as defined herein) was $32.2 million for the second quarter of 2007, as compared with $32.2 million in the same period in 2006.
Total Access Lines decreased by 3,300 during the second quarter of 2007 from the first quarter in 2007, as ILEC access lines declined by 4,000 lines and CLEC lines increased by 700 lines. During the quarter approximately 500 of the access lines lost related to internet service to a single wholesale customer that scaled back operations. The total access line decrease of 3,300, or 1.3%, for the second quarter of 2007 compared to 2,900, or 1.1%, for the second quarter of 2006.

Second Quarter 2007 Financial Summary
(Unaudited)
(dollars in thousands, except per share amounts)

	2nd Quarter		2nd Quarter		Change
	2007		2006		Amount			Percent

Revenue	$	62,735	$	57,172	$	5,563		9.7	%
Operating Income	$	19,184	$	20,922	$	(1,738	)	-8.3	%
Interest Expense	$	7,965	$	7,784	$	181		2.3	%
Earnings Before Income Taxes	$	11,352	$	13,253	$	(1,901	)	-14.3	%
Income Tax Expense	$	4,778	$	2,757	$	2,021		73.3	%
Net Income	$	6,574	$	10,496	$	(3,922	)	-37.4	%

Basic Earnings Per Share	$	0.21	$	0.34	$	(0.13	)	-38.2	%
Diluted Earnings Per Share	$	0.20	$	0.33	$	(0.13	)	-39.4	%

Adjusted EBITDA (1)	$	32,235	$	32,224	$	11		-
Capital Expenditures and
Acquisitions	$	6,675	$	8,261	$	(1,586	)	-19.2	%
Dividends Paid	$	12,846	$	12,704	$	142		1.1	%

(1) See the definition of Adjusted EBITDA under Explanation and Reconciliation to Non-GAAP Concepts at the end of the financial statements.

Key Operating Statistics	2nd Quarter		2nd Quarter
	2007		2006			% Change
Telephone Access Lines
ILEC Lines (1)		222,800		232,800		-4.3	%
CLEC Lines (2)		25,300		22,000		15.0	%
Total Telephone Access Lines		248,100		254,800		-2.6	%

Long Distance Subscribers		147,000		145,000		1.4	%
Dial-up Internet Subscribers		26,700		37,400		-28.6	%
DSL Subscribers		57,900		38,600		50.0	%

	2nd Quarter		1st Quarter
	2007		2007			% Change
Telephone Access Lines
ILEC Lines (1)		222,800		226,800		-1.8	%
CLEC Lines (2)		25,300		24,600		2.8	%
Total Telephone Access Lines		248,100		251,400		-1.3	%

Long Distance Subscribers		147,000		147,700		-0.5	%
Dial-up Internet Subscribers		26,700		29,200		-8.6	%
DSL Subscribers		57,900		55,200		4.9	%

⁽¹⁾Includes lines subscribed by our incumbent local exchange carrier retail customers and lines subscribed by our ?wholesale? customers who are competing local exchange carriers. Wholesale access lines include: lines subscribed by our local exchange carrier competitors pursuant to interconnection agreements on an unbundled network element basis, for which the competitive local exchange carrier pays us a monthly fee; lines that we provide to competitive local exchange carriers for resale to their subscribers, for which the competitive local exchange carrier pays us a monthly fee equal to what we would charge our customers for local service less an agreed discount; and shared lines, for which a competitive local exchange carrier pays us a monthly fee to provide DSL service to its customers. We had 3,200 wholesale lines subscribed at June 30, 2006; 3,100 at December 31, 2006; and 3,000 at June 30, 2007.
⁽²⁾Access lines subscribed by customers of our competitive local exchange carrier subsidiaries, Iowa Telecom Communications, Inc. and IT Communications, LLC.

Investor Call

As previously announced, Iowa Telecom's management will hold a conference call to discuss the second quarter 2007 results on Wednesday, August 8, 2007, at 10:00 a.m. (Eastern Time). To listen to the call, participants should dial (719) 457-2697 approximately 10 minutes prior to the start of the call. A telephonic replay will become available after 1:00 p.m. (Eastern Time) on August 8, 2007 and will remain available through August 15, 2007 by dialing (719) 457-0820 and entering Confirmation Code 4435783.

The live broadcast of Iowa Telecom's quarterly conference call will be available online at www.iowatelecom.com or www.earnings.com on August 8, 2007, beginning at 9:00 a.m. (Eastern Time). The online replay will become available after 12:00 p.m. (Eastern Time) and will continue to be available for 30 days.

Forward-Looking Statements

The press release may contain forward-looking statements that are not based on historical fact, including without limitation statements containing the words ?believes,? ?may,? ?plans,? ?will,? ?estimate,? ?continue,? ?anticipates,? ?intends,? ?expects,? and similar expressions. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, events or developments to be materially different from future results, events or developments described in the forward-looking statements. Such factors include those risks described in Iowa Telecom's Form 10-K on file with the SEC. These factors should be considered carefully and readers are cautioned not to place undue reliance on such forward-looking statements. All information is current as of the date this press release is issued, and Iowa Telecom undertakes no duty to update this information.

About Iowa Telecom

Iowa Telecommunications Services, Inc. (d/b/a Iowa Telecom) is a telecommunications service provider that offers local telephone, long distance, Internet, broadband and network access services to business and residential customers. Today, the Company serves over 440 communities and employs over 600 people throughout the State of Iowa. The company's headquarters are in Newton, Iowa. The Company trades on the New York Stock Exchange under the symbol IWA. For further information regarding Iowa Telecom, please go to www.iowatelecom.com and select ?Investor Relations.? The Iowa Telecom logo is a registered trademark of Iowa Telecommunications Services, Inc. in the United States.

IOWA TELECOMMUNICATIONS SERVICES, INC. AND SUBSIDIARIES

Balance Sheets

(Unaudited)

(dollars in thousands, except per share amounts)

As of

June 30, 2007

December 31, 2006

ASSETS

CURRENT ASSETS

Cash and cash equivalents

5,585

13,613