Iowa Telecom Reports Results for Second Quarter

NEWTON, Iowa--(BUSINESS WIRE)--Iowa Telecommunications Services, Inc. (NYSE: IWA) today announced operating results for the second quarter ended June 30, 2008. Quarterly highlights for the Company include:

• Operating revenues were $58.2 million.
• Operating income was $16.6 million.
• Net income was $5.3 million or $0.16 per diluted share.
• Adjusted EBITDA (as defined herein) was $30.3 million.

“We are very pleased with our second quarter performance, which was solid despite the weather challenges that we faced in June,” said Alan L. Wells, Iowa Telecom chairman and chief executive officer. “Our operations were only minimally impacted by the historic flooding we experienced, largely because our employees went beyond the call of duty to avoid disruption to our customers’ communications services.

“Adjusted EBITDA for the quarter was $30.3 million, compared with $32.2 million a year ago,” added Wells. “Adjusted EBITDA for the quarter was negatively impacted by a $1.5 million revenue reduction related to a network access billing matter in the quarter, while comparatively, the 2007 quarter included a $980,000 favorable revenue impact from the settlement of a similar matter. Sales of our DSL product remained steady as we added 1,800 new customers during the quarter. Our rate of access line loss for the quarter was 3,700 lines, and was flat with the first quarter of the year.

“Subsequent to quarter end, we closed our acquisition of Bishop Communications Corporation, a local exchange carrier in Minnesota. We expect the Bishop transaction to be cash flow accretive on a per share basis, and are excited about the opportunity to grow our operation into a contiguous state.

As a result of the Bishop transaction, we are slightly modifying our previous guidance. We expect capital expenditures for the year to be similar to 2007 levels, and will be between $27.0 million and $29.0 million. This is a $1.0 million increase over our prior guidance, and is due to both capital expenditures at Bishop Communications, as well as to capital expenditures related to the historic flooding we experienced. We continue to expect cash interest expense to be between $29.0 million and $31.0 million, but expect our expense will be toward the higher end of our range as a result of the additional interest costs on debt related to the acquisition of Bishop,” Wells continued. “For the first six months of this year, capital expenditures were $13.0 million, and our cash interest expense was $14.9 million.

“We are pleased with our results for the first half of 2008. 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, like Bishop, that are accretive and that are strategically beneficial to our rural telecommunications business.”

FINANCIAL DISCUSSION FOR SECOND QUARTER 2008:

• Revenues and Sales were $58.2 million in the second quarter compared to $62.7 million in the second quarter of 2007. Network access services revenues decreased $4.4 million, or 17.8%, for the second quarter. The decrease is in part due to a $1.5 million revenue reduction related to a network access billing matter during 2008, while 2007 included a $980,000 favorable revenue impact from the settlement of a similar matter. The remainder of the decrease was primarily due to the decline of access lines. Local services revenues decreased $1.3 million, or 7.1%, primarily due to the decline of access lines. Data and internet services revenue increased $1.1 million, or 15.2%, primarily due to $1.3 million of growth in revenue from our DSL Internet access service, and $273,000 of growth in our data solutions products revenue. This increase was offset by a $426,000 decrease in dial-up Internet revenue. Other services and sales revenue decreased by $346,000, or 5.2%, for the second quarter primarily due to a decrease in rental income, partially offset by higher miscellaneous customer charges.
• Operating Costs and Expenses decreased $2.0 million, or 4.6%, in the second quarter of 2008 as compared to the second quarter of 2007. Cost of service and sales decreased $1.5 million, or 7.2%, principally due to a decline of $947,000 in access expense. Selling, general and administrative costs decreased $971,000 compared to the year-ago period, principally due to lower salary, wages, and benefit costs. Depreciation and amortization increased $435,000, or 3.6%, during the second quarter compared to 2007 primarily due to higher plant balances.
• Operating Income was $16.6 million in the second quarter of 2008 as compared to $19.2 million in the same period in 2007. The decrease was primarily the result of lower revenue associated with previously discussed network access matters.
• Interest Expense for the second quarter decreased $502,000, or 6.3%, to $7.5 million compared to $8.0 million in the same period in 2007. The decrease was the result of a lower average balance on our revolving credit facility and lower rates on our variable rate debt.
• Earnings Before Income Taxes for the second quarter of 2008 were $9.3 million compared to $11.4 million in the second quarter of 2007.
• Income Tax Expense for the second quarter was $4.0 million compared to $4.8 million in the second quarter of 2007. The recorded book tax expense did not impact the cash taxes paid during the quarter. Cash income taxes reflect the continued utilization of net operating loss carry forwards and continued goodwill amortization for tax purposes. The Company paid actual cash income taxes during the quarter of $143,000.
• Net Income was $5.3 million for the quarter compared to net income of $6.6 million in the second quarter of 2007.
• Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA as defined herein) was $30.3 million for the second quarter of 2008, as compared with $32.2 million in the same period in 2007.
• Total Access Lines decreased by 3,700 during the second quarter of 2008 from the first quarter in 2008, as ILEC access lines declined by 4,300 lines and CLEC lines increased by 600 lines. The total access line decrease of 3,700, or 1.6%, for the second quarter of 2008 compared to 3,300, or 1.3%, for the second quarter of 2007.

Investor Call

As previously announced, Iowa Telecom’s management will hold a conference call to discuss the second quarter 2008 results on Friday, August 1, 2008, at 9:00 a.m. (Eastern Time). To listen to the call, participants should dial (719) 325-4771 approximately 10 minutes prior to the start of the call. A telephonic replay will become available after 12:00 p.m. (Eastern Time) on August 1, 2008 and will remain available through August 8, 2008 by dialing (719) 457-0820 and entering Confirmation Code 7838864.

The live broadcast of Iowa Telecom’s quarterly conference call will be available online at www.iowatelecom.com or www.earnings.com on August 1, 2008, 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 and its subsidiaries serve over 450 Iowa communities and 6 Minnesota communities and employ nearly 800 people. 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.

We present Adjusted EBITDA because we believe it is a useful indicator of our historical debt capacity and our ability to service debt and pay dividends. We also present Adjusted EBITDA because covenants in our credit facilities contain ratios based on Adjusted EBITDA.

Adjusted EBITDA is defined in our credit facilities as: (1) consolidated net income, as defined therein; plus (2) the following items, to the extent deducted from consolidated net income: (a) interest expense; (b) provision for income taxes; (c) depreciation and amortization; (d) transaction expenses related to the IPO and the related debt refinancing and other limited expenses related to permitted securities offerings, investments and acquisitions incurred after the closing date of the IPO, to the extent not exceeding $5.0 million; (e) unrealized losses on financial derivatives recognized in accordance with SFAS No. 133; (f) non-cash stock-based compensation expense; (g) extraordinary or unusual losses (including extraordinary or unusual losses on permitted sales of assets and casualty events); (h) losses on sales of assets other than in the ordinary course of business; and (i) all other non-cash charges that represent an accrual for which no cash is expected to be paid in the next twelve months; minus (3) the following items, to the extent any of them increases consolidated net income: (w) extraordinary or unusual gains (including extraordinary or unusual gains on permitted sales of assets and casualty events); (x) gains on asset disposals not in the ordinary course; (y) unrealized gains on financial derivatives recognized in accordance with SFAS No. 133; and (z) all other non-cash income (including the non-cash portion of any RTFC patronage capital allocation). If our Adjusted EBITDA were to decline below certain levels, covenants in our credit facilities that are based on Adjusted EBITDA, including our fixed charge coverage and total leverage ratio covenants, may be violated and could cause, among other things, a default or mandatory prepayment under our credit facilities, or result in our inability to pay dividends.

We believe that net income is the most directly comparable financial measure to Adjusted EBITDA under GAAP. Adjusted EBITDA should not be considered in isolation or as a substitute for consolidated statement of operations and cash flows data prepared in accordance with GAAP. Adjusted EBITDA is not a complete measure of an entity’s profitability because it does not include costs and expenses identified above; nor is Adjusted EBITDA a complete net cash flow measure because it does not include reductions for cash payments for an entity’s obligation to service its debt, fund its working capital, capital expenditures and acquisitions and pay its income taxes and dividends.