Baker bumps Iowa Telecom earnings

Iowa Telecom was a model of consistency this week as it reported third-quarter results that included a 3% bump in revenue thanks in part to the company’s acquisition of Baker Communications in August.

Despite the slight rise in revenue to $59.6 million and beating expectations by approximately $.02 per share, the company’s net income of $8 million was down 16.5% because of requirements to record non-cash tax expenses primarily.

The quarter was highlighted by success at the FCC’s Advanced Wireless
Spectrum (AWS) auction, gains in DLS lines and a slowing of access line loss.

Alan Wells, president and CEO of Iowa Telecom, said he was pleased with the company’s performance, saying it was consistent with expectations and reflects the stable nature of the rural telecom business.

Sticking to a policy of acquiring only companies that will be accretive to earnings, Iowa Telecom acquired Des Moines-based Baker Communications for $8.25 million in cash. Baker provides data networking and storage solutions to companies across Iowa and Nebraska. Craig Knock, vice president, CFO and Treasurer at Iowa Telecom said growth in revenue was due to growth in CPE and data business principally from the Baker acquisition.

However, Wells said while Baker does have some revenue, it is not what the company views as a significant subsidiary. The overall adjusted EBITDA from Baker is not material to the overall operation and won’t be broken out in future reports.

The company lost 2200 ILEC access lines, but picked up 1000 from its CLEC business, cutting its losses to 1200 compared to 2900 in the second quarter.

Iowa Telecom made a strategic investment in its future by successfully bidding on 15 20Mhz licenses costing $11.5 million across Iowa, which Wells said gives the company future flexibility. “It give us the opportunity to offer customers more advanced data services in the future,” Wells said. “They cover approximately 1.9 million pops and we estimate that 75 % of our ILEC customers and 55 % of existing CLEC customers are in locations covered by the spectrum we acquired.”

The company has no immediate plans to build out using the licenses.

Wells also was please with the company’s progress in DSL. The Internet access service revenues increased $1.4 million, or 46.2%, due primarily to customer growth. It added 6400 DSL customers, double that from the second quarter. The company also added 2100 access lines, 1,350 cable television subscribers, and approximately 500 high-speed
Internet subscribers through the acquisition of Montezuma Mutual Telephone Company, while selling 2000 access lines and 300 DSL subscribers in four other exchanges.

“Looking forward we intend to continue to focus on free cash flow through increased sales of enhanced services such as DSL and our bundled offerings,” Wells said. “We also intend to selectively pursue customers in markets adjacent to our existing markets through our CLEC subsidiaries.”

He added that Iowa telecom also will pursue acquisitions in line with its cash-flow focus that meets its criteria that acquisitions be accretive to cash flow on a per share basis.