WVT Communications Group Reports First Quarter 2012 Financial ...

(Marketwire Via Acquire Media NewsEdge) WARWICK, NY ? (Marketwire) ? 05/11/12 ?
Warwick Valley Telephone Company (NASDAQ: WWVY), referred to as WVT Communications Group or the Company, the parent company of leading cloud communications pioneers, today announced financial results for its first quarter ended March 31, 2012. Financial results and recent corporate development highlights include:

Cloud or unified communications ("UC") revenues net of eliminations were $3,274,000 in 1Q12, an increase of 129% from $1,430,000 in prior year period and 5.9% higher than $3,091,000 in 4Q11 Total first quarter revenues increased 14.6% over prior year Backlog of business customers for UC services continues at record level Gross profit of $3,533,000 in 1Q12 increased by 20.5% from $2,931,000 in 1Q11 and by over 34% from $2,632,000 in 4Q11 Gross profit as a percentage of revenues increased to 49.9% in 1Q12 from 47.4% in 1Q11 and 37.0% in 4Q11 Selling, general and administrative expenses to support ongoing Cloud Communications growth strategies increased by 55% in first quarter from prior year Net income in 1Q12 reduced by $383,000 in one-time professional services expenses Received $3,250,000 in cash distributions and $1,425,000 of income from Orange County-Poughkeepsie Limited Partnership ("O-P") investment for the quarter ended March 31, 2012* 1Q12 net loss of $(1,234,000) or $(0.22) per common share Declared 324th consecutive quarterly cash dividend ? $0.27 per common share for the first quarter of 2012 ? marking 104th consecutive years of cash dividends paid to shareholders

First Quarter 2012 Results

Revenues for the three-month period ended March 31, 2012 increased 14.6% to $7,081,000, as compared to $6,178,000 for the same period of 2011. The increase in revenues of $903,000 is primarily attributable to the consolidation of unified communications revenues resulting from the acquisition of Alteva, LLC in August 2011 and subsequent organic growth, partially offset by a decline in Telephone segment revenues.

In the first quarter of 2012, the Company realigned its segment reporting and management structure as a result of the Alteva acquisition. The acquisition is part of WVT Communication Group's strategy to expand as a Cloud Communications growth company rather than be dependent on its regulated independent local exchange carrier ("ILEC") business. The Company's segments are strategic business units that offer different products and services and are now managed as Telephone service and Unified Communications ("UC") services. Accordingly, Broadband Internet, Dial-up Internet access services and TV services, which previously were included in the Company's Online segment, became part of the Telephone segment. Concurrently, to align the segments with its revised management structure and operating model, Wholesale carrier services and Conference services have been moved out of the Telephone segment and are now being reported as part of the UC segment. Revenues discussed in this press release for periods prior to the first quarter of 2012 have been calculated on the basis of the new segment reporting.

UC services revenues net of eliminations were $3,274,000 in the first quarter of 2012, an increase of 129% from $1,430,000 in prior year period and 5.9% higher than the $3,091,000 recorded in 4Q11. Telephone services revenues net of eliminations were $3,807,000 in the first quarter of 2012, a decrease from $4,748,000 in prior year period and $4,027,000 in 4Q11. While the year-over-year growth in UC segment revenues largely reflect the Alteva acquisition, the sequential growth with each of the fourth quarter of 2011 and first quarter of 2012 containing a full three months of revenues derived from Alteva demonstrates the positive impact of the Company successfully executing its organic growth initiatives.

Gross profit increased by 20.5% to $3,533,000 in 1Q12 from $2,931,000 in 1Q11 and by over 34% from $2,632,000 in 4Q11. Gross profit as a percentage of revenues increased to 49.9% in 1Q12 from 47.4% in 2011 period and 37.0% in 4Q11. The improvement in gross profit in dollars as well as on a margin basis primarily reflects the substantial increase in consolidated revenues contributed from higher margin UC segment revenues as a percentage of total revenues in the first quarter as compared to earlier periods.

Selling, general and administrative ("SG&A") expenses in the first quarter of 2012 increased to $5,408,000 from $3,485,000 in the corresponding period of 2011. The 55% increase in SG&A expenses reflects the additional operating expenses for Alteva as well as the current and ongoing requirements to support the Company's Cloud Communications growth strategies. Also included in first quarter 2012 SG&A expenses is $383,000 in one-time professional services fees relating to accounting and legal work for the holding company reorganization pending in New York and New Jersey and other corporate matters.

Depreciation and amortization expense decreased by $118,000 (net) to $1,279,000 in the first quarter of 2012 from $1,397,000 in same period of 2011, primarily associated with the decrease of $415,000 due to the full depreciation of central office switches, computer equipment and leasehold improvements in the Telephone segment offset by the amortization of $297,000 for customer lists and trade name associated with Alteva in the UC segment.

Total other income for the three-month period ended March 31, 2012 decreased $1,918,000 or 58% to $1,363,000 from $3,281,000 for the same period in 2011. This decrease is due mainly to a decrease in equity method investments of $1,793,000 from lower earnings from the O-P as a result of the transition of the O-P from a wholesale business to a retail business pursuant to the 4G Agreement and corresponding accounting treatment that went into effect in May 2011.*

*Note regarding accounting treatment for the O-P: In May 2011, the Company entered into the 4G Agreement pertaining to the O-P limited partnership agreement which converted the wholesale partnership into a retail partnership. The conversion will increase the cellular service costs and operating expenses incurred by the O-P, which is expected to cause a subsequent reduction in the O-P's net income due primarily to the inclusion of sales and marketing expenses. Although the Company's share of the O-P net income recorded in the Company's income statement is expected to decrease, the annual cash distributions the Company receives from the O-P will remain unchanged pursuant to the terms of the 4G Agreement. As a result, the Company will report lower net income for several reporting periods as compared with trailing periods. Nevertheless, regardless of the O-P's reported net income, pursuant to the 4G Agreement, the Company has and/or will receive from the O-P annual cash distributions of $13,000,000 in 2012 and 2013.

On the balance sheet, the Company will record as Cash the amount of the guaranteed cash distribution. The difference between the guaranteed cash distribution and the amount recorded for Income from equity method investment on the income statement will be deducted from the balance sheet's Investments line item, which reflects the accumulated amount that has been invested by the Company to acquire its ownership stake in the partnership. As cash distributions are received, deductions will be made to Investments (presently $153,000, down from $1,979,000 at December 31, 2011) until the line item is written down to zero, which is expected to occur in mid-2012. At that time, all of the guaranteed cash distribution in each period will be recorded as Income from equity method investment, thus once again enabling the Company's net income to fully benefit from the partnership's contributions. Cash flow for the entire Company, including the full benefit from the partnership distribution, will affect the Cash balance while net income for the Company will directly impact Shareholders' Equity.

For the three-month period ended March 31, 2012, WVT Communications Group had a net loss of $(1,234,000) compared to net income of $872,000 for the three-month period ended March 31, 2011. This decrease was primarily attributable to the increase in operating expenses, lower earnings associated with the O-P due to the 4G amendment and corresponding accounting treatment, and one-time professional services fees.

Basic and diluted loss per share was $(0.22) for the first quarter of 2012, as compared with basic and diluted earnings per share of $0.16 in the same period of the prior fiscal year. There were basic and diluted shares outstanding of 5,716,020 for the three months ended March 31, 2012, and 5,389,842 and 5,416,020, respectively, for the first quarter of 2011. The increase in outstanding shares is primarily attributable to the issuance of a total of 272,479 shares of common stock with certain lock-up conditions to the members of Alteva in connection with the acquisition of that company. Basic and diluted weighted average shares were the same for the first quarter of 2012 because the effects of the potentially diluted securities being anti-dilutive.

Balance Sheet and Subsequent Events

WVT Communications Group had $2,534,000 of cash and cash equivalents, cash held in escrow and short-term investments available at March 31, 2012 as compared with $4,834,000 at December 31, 2011. This decrease was primarily related to the Alteva acquisition, increase in operating expenses, and the additional purchase of network equipment and seat licenses.

The Board of Directors of WVT Communications Group declared a regular quarterly dividend of $0.27 per share on the Company's Common Shares. The dividend was paid on March 30, 2012 to shareholders of record as of March 20, 2012. In addition, the Board of Directors declared the regular quarterly dividend of $1.25 per share on the outstanding 5,000 shares of the Company's 5% Preferred Shares that was paid on March 30, 2012 to shareholders of record as of March 20, 2012. Dividends distributed by the Company are paid using the cash distributions from the O-P.

Management Comments

"We are pleased to report continued momentum in the first quarter for the growth of our cloud communications services," said Duane W. Albro, the Company's President and Chief Executive Officer. "Our strategy for diversifying our business through the cloud is delivering its intended results. Cloud-based unified communications services increased by 129% in the quarter as compared to same period of the prior year, driven by the acquisition of Alteva in the third quarter of last year. Reflecting the implementation of organic growth initiatives and the synergies we anticipated with the Alteva acquisition, our UC revenues increased by 5.9% sequentially from the fourth quarter of 2011, and our consolidated gross margin as a percentage of sales improved from 37.0% in the fourth quarter to 49.9% in the first quarter of this year.

"In light of the progress we have been making and the outlook for continued market share gains, we have been making significant investments in our Cloud Communications platform. We are expanding in Philadelphia, where Alteva is based, with the addition of new offices. The expansion includes the hiring of sales and marketing personnel to accommodate our current and anticipated growth. We ended the year with 24,190 business customers, an increase of 5.5% from year-end 2011, and continue to maintain a significant backlog of implementations.

"As we previously announced, WVT Communications Group's quarterly dividend has been increased to $0.27 per common share per quarter, up from $0.26 in the same period of last year. Therefore, along with our improving top line performance of higher margin services and investments in our platform for future growth, the increase in dividend payouts further enhances the value proposition for shareholders as we are the first and only cloud communications company that pays a dividend."

Conference Call

The Company will conduct a conference call to discuss first quarter results today at 10:00 a.m. eastern. The conference call will be hosted by WVT Communications Group's President and CEO Duane W. Albro and Chief Operating Officer David Cuthbert. Investors and other interested parties can listen to the call by dialing the participant numbers of 877-317-6789 (toll free) or 412-317-6789, no access code required, approximately 10 minutes prior to the start of the conference call. The conference call will also be webcast live on the WVT Communications Group website at www.wvtcg.com.

A replay of this conference call will also be available by dialing 877-344-7529 (toll free) or 412-317-0088, access code: 10013984, beginning 1:00 p.m. eastern on May 11 through May 28, and via the investor relations section of the Company's website.

WVT Communications Group is a world technology leader in providing cloud-based Unified Communications (UC) solutions for small, medium and enterprise businesses. The Company has maintained a tradition of paying dividends to shareholders for 105 consecutive years. Founded in 1902, the Company has continued to adapt and remain on the forefront of technology, chiseling its position among the most stable and respected communications vendors on the globe. Moving forward, it is forging the new model that communications providers, large and small, are striving to emulate. WVT Communications Group is merging new innovations, such as those from Alteva and USA Datanet, with proven technology from industry leaders like Microsoft, Cisco, BroadSoft, Panasonic, and Polycom to build the ideal hosting architecture for communications.

Through its USA Datanet (targeting businesses under 35 employees), Alteva (targeting businesses over 35 employees and those with branch offices), and Warwick Valley Telephone (a highly respected traditional telecom provider turned premier regional broadband company) businesses, WVT Communications Group is enabling businesses of any size to communicate more efficiently with hassle-free communications tools. By overlaying a UC division on its stabile, regional broadband company, WVT Communications Group has positioned itself in front of its peer legacy telecom companies and created an evolutionary change in its strategy. With this, the company may offer its residential customers a similar suite of UC applications and services for use in a home environment that its business customers can enjoy. Visit www.wvtcg.com or call 855-U-GO-CLOUD.

All trademarks are the properties of their respective owners.

Safe Harbor Statement

This press release contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements, without limitation, regarding expectations, beliefs, intentions or strategies regarding the future. WVT Communications Group intends that such forward-looking statements be subject to the safe-harbor provided by the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause WVT Communications Group's actual results, performance or achievements or industry results to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following: WVT Communications Group's history of operating losses; access line declines; general economic and business conditions, both nationally and in the geographic regions in which WVT Communications Group operates; industry capacity; demographic changes; technological changes and changes in consumer demand; the successful integration of WVT Communications Group's acquired businesses; goodwill impairment; resolution of a billing dispute with a long-distance carrier; existing governmental regulations and changes in, or the failure to comply with, governmental regulations; legislative proposals relating to the businesses in which WVT Communications Group operates; WVT Communications Group's ability to protect its intellectual property rights; changes to the USF; reduction in cash distributions from the Orange County-Poughkeepsie Limited Partnership; risks associated with our unfunded pension liability; competition; or the loss of any significant ability to attract and retain qualified personnel. Given these uncertainties, current and prospective investors should be cautioned in their reliance on such forward-looking statements. Except as required by law, WVT Communications Group disclaims any obligation to update any such factors or to publicly announce the results of any revision to any of the forward-looking statements contained herein to reflect future events or developments. A more comprehensive discussion of risks, uncertainties and forward-looking statements may be seen in WVT Communications Group's Annual Report on Form 10-K and other periodic filings with the U.S. Securities and Exchange Commission.

WARWICK VALLEY TELEPHONE COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
($ in thousands, except share and per share amounts)

Three Months Ended
March 31,
?????????-
2012 2011
????- ????-

Operating revenues
Telephone $ 3,807 $ 4,748
Unified Communications 3,274 1,430
????- ????-

Total operating revenues 7,081 6,178

Operating expenses
Cost of services and products (exclusive of
depreciation and amortization expense) 3,548 3,247
Selling, general and administration expenses 5,408 3,485
Depreciation and amortization 1,279 1,397
????- ????-

Total operating expenses 10,235 8,129
????- ????-

Operating loss (3,154) (1,951)

Other income (expense)
Interest income (expense), net of
capitalized interest (57) 57
Income from equity method investment 1,425 3,218
Other income (expense), net (5) 6
????- ????-

Total other income (expense) 1,363 3,281
????- ????-

Income (loss) before income taxes (1,791) 1,330

Income taxes (benefit) (557) 458
????- ????-

Net income (loss) (1,234) 872

Preferred dividends 6 6
????- ????-

Income (loss) applicable to common stock $ (1,240) $ 866
============= =============

Basic earnings (loss) per common share $ (0.22) $ 0.16
============= =============
Basic earnings (loss) per puttable common
share $ (0.22) $ 0.00
============= =============
Diluted earnings (loss) per common share $ (0.22) $ 0.16
============= =============
Diluted earnings (loss) per puttable common
share $ (0.22) $ 0.00
============= =============
Weighted average shares of common stock used
to calculate earnings (loss) per share
Basic (common) 5,716,020 5,389,842
============= =============
Basic (puttable common) 272,479 -
============= =============
Diluted (common) 5,716,020 5,416,020
============= =============
Diluted (puttable common) 272,479 -
============= =============

Dividends declared per common share $ 0.27 $ 0.26
============= =============

WARWICK VALLEY TELEPHONE COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
($ in thousands, except share and per share amounts)

March 31, December 31,
2012 2011
????- ????-
(Unaudited)
Assets

Current assets
Cash and cash equivalents $ 2,275 $ 4,575
Short term investments 259 259
Accounts receivable ? net of allowance for
uncollectibles ? $582 and $759 in 2012 and
2011, respectively 3,245 2,717
Other accounts receivable 93 174
Materials and supplies 855 832
Prepaid expenses 884 731
Prepaid income taxes 3,272 2,715
Deferred income taxes 405 405
????- ????-
Total current assets 11,288 12,408
????- ????-

Property, plant and equipment, net 24,773 25,425
Unamortized debt issuance costs 25 45
Intangibles, net 8,473 8,605
Investments 153 1,979
Goodwill 9,121 9,121
Other assets 336 333
????- ????-

Total assets $ 54,169 $ 57,916
============= =============

Liabilities and Shareholders' Equity

Current liabilities
Short term borrowings $ 5,600 $ 5,600
Current maturities of long-term debt 759 1,139
Accounts payable 1,311 1,715
Amounts due in connection with business
acquisition 2,207 2,377
Derivative liability in connection with
business acquisition 145 131
Advance billing and payments 358 390
Customer deposits 51 51
Accrued taxes 521 521
Pension and post retirement benefit
obligations 622 622
Other accrued expenses 3,186 3,347
????- ????-
Total current liabilities 14,760 15,893
????- ????-

Amounts due in connection with business
acquisition 472 472
Deferred income taxes 1,431 1,358
Pension and post retirement benefit
obligations 9,764 9,915
????- ????-

Total liabilities 26,427 27,638
????- ????-

Commitments and contingencies

Puttable common stock, $.01 par value, 272,479
shares issued and outstanding 4,125 4,125

Shareholders' equity
Preferred shares ? $100 par value,
authorized and issued shares of 5,000;
$0.01 par value authorized and unissued
shares of 10,000,000; 500 500
Common stock ? $0.01 par value, authorized
shares of 10,000,000 issued 6,582,209 and
6,490,318 shares at March 31, 2012 and
December 31, 2012, respectively 62 62
Treasury stock ? at cost, 784,581 and
735,391 common shares at March 31, 2012 and
December 31, 2011, respectively (6,987) (6,262)
Additional paid in capital 7,059 6,191
Accumulated other comprehensive loss (4,850) (4,979)
Retained earnings 27,833 30,641
????- ????-

Total shareholders' equity 23,617 26,153
????- ????-

Total liabilities and shareholders' equity $ 54,169 $ 57,916
============= =============

Company contact:
Duane W. Albro
WVT Communications Group
President & CEO
(845) 986-2100

Investor contact:
Jordan Darrow
Darrow Associates, Inc.

(631) 367-1866
jdarrow@darrowir.com

Source: Warwick Valley Telephone Company

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