8-K

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): August 13, 2019

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 August 13, 2019, Otelco Inc. (the “Company”) announced its results of operations for its second quarter ended June 30, 2019. A copy of the press release is attached hereto as Exhibit 99.1 and is incorporated herein by reference.

Information contained herein, including Exhibit 99.1, shall not be deemed filed for the purposes of the Securities Exchange Act of 1934, nor shall such information and Exhibit be deemed incorporated by reference in any filing under the Securities Act of 1933, except as shall be expressly set forth by specific reference in such a filing.

Item 7.01 Regulation FD Disclosure.

Information is being furnished herein in Exhibit 99.2 with respect to an updated investor presentation that may be referenced in the Company’s quarterly investor call scheduled for August 14, 2019. These materials are dated as of June 30, 2019, and the Company does not undertake to update the materials after that date.

The presentation is also available on the Investors section of the Company’s website at www.otelco.com. The Company’s Annual Report to Shareholders and its reports on Forms 10-K, 10-Q and 8-K and other publicly available information should be consulted for other important information about the Company.

Information contained herein, including Exhibit 99.2, shall not be deemed filed for the purposes of the Securities Exchange Act of 1934, nor shall such information and Exhibit be deemed incorporated by reference in any filing under the Securities Act of 1933, except as shall be expressly set forth by specific reference in such a filing.

Item 9.01. Financial Statements and Exhibits.

(d) Exhibits.

99.1	Press Release Otelco Inc., dated as of August 13, 2019
99.2	Investor Presentation

2

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: August 13, 2019	By:	/s/ Curtis L. Garner, Jr.
		Curtis L. Garner, Jr.
		Chief Financial Officer

EX-99.1

Exhibit 99.1

News Release

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

Otelco Reports Second Quarter 2019 Operational and Financial Results

ONEONTA, Alabama (August 13, 2019) – 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 second quarter ended June 30, 2019. Key operational and financial highlights for Otelco include:

· Total revenues of $15.7 million.

· Operating income of $3.7 million.

· Net income of $1.7 million.

· Consolidated EBITDA (as defined below) of $5.7 million.

· Capital expenditures of $2.4 million.

· Scheduled principal payments of $1.1 million.

SECOND QUARTER RESULTS

The Company reported revenue of $15.7 million, a 7.3% decrease from the second quarter 2018. The continued loss of residential voice customers and competitive pricing pressures on internet services, combined with the FCC’s one-time A-CAM and CAF-BLS positive adjustments in second quarter 2018 results, were the primary drivers of the decline. These results were in line with revenue reported for first quarter 2019. Net income decreased 41.0% to $1.7 million in second quarter 2019, compared to $2.9 million in second quarter 2018. Cost of services was unchanged in 2019 from 2018, while selling, general and administrative expense increased 5.3% over 2018, including the expense associated with the development of the Company’s long-term network design plans.

Basic net income was $0.50 per share for second quarter 2019, compared to $0.86 per share in the same period of 2018. Consolidated EBITDA (as defined below) was $5.7 million for second quarter 2019, compared to $7.1 million for the same period in the previous year.

The Company made its scheduled $1.1 million principal payment on its credit agreement with CoBank in second quarter 2019, reducing the loan balance to $72.4 million. As of June 30, 2019, the ratio of debt, net of cash, to Consolidated EBITDA was 2.74, reflecting the mandatory payments and voluntary prepayments made on the debt since its inception in November 2017. During second quarter 2019, capital investment increased to $2.9 million, compared to $2.1 million in the same period of 2018. During 2019, the Company expects to invest a total of $11.5 million to upgrade and maintain its network. This investment level represents a 27.7% increase in investment in the business over 2018 and the second year of double digit increases in investment aimed at providing customers increased internet speeds to reduce customer churn. During second quarter, Otelco announced plans for the additional deployment of fiber to over 4,100 locations in Alabama, the deployment of VDSL throughout all of its service areas and the upgrade of its cable distribution network to DOCSIS 3.1 next year.

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Otelco Reports Second Quarter 2019 Results

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August 13, 2019

FCC AND REGULATORY UPDATES

Shoreham (VT), the one Otelco subsidiary not included in previous A-CAM support offers, received an offer of A-CAM support on May 2, 2019, and subsequently filed a letter with the FCC on June 17, 2019, accepting the offer, which will be effective back to January 1, 2019. The A-CAM support replaces the legacy rate-of-return support Shoreham currently receives. The shift to A-CAM funding will not have any impact on 2019 revenue but will provide revenue stability for the ten-year life of the program.

The FCC’s Order of October 23, 2018, provides an option for ten of the Company’s RLECs to move Special Access services (also known as BDS) from a cost-based rate development (cost studies) to incentive regulation. Otelco has exercised this option, which became effective July 1, 2019, and has avoided the annual requirement to provide cost studies for each participating subsidiary. In addition to reducing the $0.2 million expense associated with the cost studies, incentive regulation provides the Company rate flexibility to meet competitive market pressures.

MUNICIPAL PARTNERSHIPS

In its ongoing involvement with municipalities, Otelco, in collaboration with the Town of Alton, Maine, and the State’s ConnectME Authority, will be constructing a fiber network capable of serving the approximately 260 residence and business locations within the town. Approximately 100 of these locations are covered under the A-CAM speed requirements. Grant funding received from Alton and ConnectME will support approximately 60% of the expected $0.7 million investment, allowing for the replacement of the existing copper infrastructure to serve all locations with fiber-to-the-premise service. The Company expects this project will be completed within six months of the receipt of funding.

SECOND QUARTER EARNINGS CONFERENCE CALL

Otelco has scheduled a conference call, which will be broadcast live over the internet, on Wednesday, August 14, 2019, at 11:30 a.m. (Eastern Time). To participate in the call, investors should dial (856) 344-9283 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 7779890.

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.

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Otelco Reports Second Quarter 2019 Results

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August 13, 2019

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.

Second Quarter 2019 Financial Summary

(Dollars in thousands, except per share amounts)

(Unaudited)

	Three Months Ended June 30,						Change
	2019			2018			Amount			Percent
Revenues	$	15,658		$	16,890		$	(1,232	)		(7.3	)%
Operating income	$	3,708		$	5,172		$	(1,464	)		(28.3	)%
Interest expense	$	(1,362	)	$	(1,467	)	$	(105	)		(7.2	)%
Net income available to stockholders	$	1,716		$	2,908		$	(1,192	)		(41.0	)%
Basic net income per share	$	0.50		$	0.86		$	(0.36	)		(41.9	)%
Diluted net income per share	$	0.50		$	0.85		$	(0.35	)		(41.2	)%
Consolidated EBITDA	$	5,676		$	7,078		$	(1,402	)		(19.8	)%
Capital expenditures	$	2,905		$	2,123		$	782			36.8	%

	Six Months Ended June 30,						Change
	2019			2018			Amount			Percent
Revenues	$	31,413		$	33,616		$	(2,203	)		(6.6	)%
Operating income	$	7,471		$	9,233		$	(1,762	)		(19.1	)%
Interest expense	$	(2,729	)	$	(2,925	)	$	(196	)		(6.7	)%
Net income	$	3,997		$	4,903		$	(906	)		(18.5	)%
Net income per share	$	1.17		$	1.45		$	(0.28	)		(19.3	)%
Diluted net income per share	$	1.16		$	1.43		$	(0.27	)		(18.9	)%
Consolidated EBITDA	$	12,038		$	13,216		$	(1,178	)		(8.9	)%
Capital expenditures	$	4,437		$	3,298		$	1,139			34.5	%

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Otelco Reports Second Quarter 2019 Results

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August 13, 2019

OTELCO INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

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

(unaudited with the exception of December 31, 2018 being audited)

	June 30,		December 31,
	2019		2018
Assets
Current assets
Cash and cash equivalents	$	5,354	$	4,657
Accounts receivable:
Due from subscribers, net of allowance for doubtful
accounts of $248 and $577, respectively		3,988		4,183
Other		1,844		1,899
Materials and supplies		3,493		2,802
Prepaid expenses		1,356		1,198
Other assets		256		-
Total current assets		16,291		14,739
Property and equipment, net		52,897		52,073
Goodwill		44,976		44,976
Intangible assets, net		721		919
Operating lease right-of-use asset		980		-
Investments		1,485		1,498
Interest rate cap		-		4
Other assets		382		143
Total assets	$	117,732	$	114,352
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable	$	1,855	$	1,331
Accrued expenses		5,150		5,054
Advance billings and payments		1,517		1,614
Customer deposits		50		48
Current operating lease liability		341		-
Current maturity of long-term notes payable, net of debt issuance cost		3,915		3,904
Total current liabilities		12,828		11,951
Deferred income taxes		20,145		20,145
Advance billings and payments		2,140		2,234
Other liabilities		9		13
Long-term operating lease liability		639		-
Long-term notes payable, less current maturities and debt issuance cost		67,141		69,107
Total liabilities		102,902		103,450
Stockholders' equity
Class A Common Stock, $.01 par value-authorized 10,000,000 shares;
issued and outstanding 3,410,936 and 3,388,624 shares, respectively		34		34
Additional paid in capital		4,144		4,213
Retained earnings		10,652		6,655
Total stockholders' equity		14,830		10,902
Total liabilities and stockholders' equity	$	117,732	$	114,352

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Otelco Reports Second Quarter 2019 Results

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August 13, 2019

OTELCO INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share amounts)

(unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Revenues	$	15,658		$	16,890		$	31,413		$	33,616
Operating expenses
Cost of services		7,486			7,483			15,088			15,447
Selling, general and administrative expenses		2,556			2,428			5,029			5,310
Depreciation and amortization		1,908			1,807			3,825			3,626
Total operating expenses		11,950			11,718			23,942			24,383
Income from operations		3,708			5,172			7,471			9,233
Other income (expense)
Interest expense		(1,362	)		(1,467	)		(2,729	)		(2,925	)
Other income		4			1			599			168
Total other expense		(1,358	)		(1,466	)		(2,130	)		(2,757	)
Income before income tax expense		2,350			3,706			5,341			6,476
Income tax expense		(634	)		(798	)		(1,344	)		(1,573	)
Net income	$	1,716		$	2,908		$	3,997		$	4,903
Weighted average number of common shares outstanding:
Basic		3,410,936			3,388,624			3,410,936			3,388,624
Diluted		3,431,229			3,439,659			3,431,229			3,429,974
Basic net income per common share	$	0.50		$	0.86		$	1.17		$	1.45
Diluted net income per common share	$	0.50		$	0.85		$	1.16		$	1.43

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Otelco Reports Second Quarter 2019 Results

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August 13, 2019

OTELCO INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Six Months Ended June 30,
	2019			2018
Cash flows from operating activities:
Net income	$	3,997		$	4,903
Adjustments to reconcile net income to cash flows provided by operating activities:
Depreciation		3,667			3,458
Amortization		158			168
Amortization of loan costs		230			239
Non-cash lease amortization		93			-
Provision for uncollectible accounts receivable		80			163
Stock-based compensation		114			151
Changes in operating assets and liabilities
Accounts receivable		(86	)		(370	)
Materials and supplies		(691	)		(126	)
Prepaid expenses and other assets		(397	)		1,888
Accounts payable and accrued expenses		620			(790	)
Advance billings and payments		(191	)		(199	)
Other liabilities		(96	)		-
Net cash from operating activities		7,498			9,485
Cash flows used in investing activities:
Acquisition and construction of property and equipment		(4,437	)		(3,298	)
Net cash used in investing activities		(4,437	)		(3,298	)
Cash flows used in financing activities:
Loan origination costs		(10	)		(37	)
Principal repayment of long-term notes payable		(2,175	)		(5,175	)
Interest rate cap		4			(46	)
Retirement of CoBank equity		-			119
Tax withholdings paid on behalf of employees for restricted stock units		(183	)		(380	)
Net cash used in financing activities		(2,364	)		(5,519	)
Net increase in cash and cash equivalents		697			668
Cash and cash equivalents, beginning of period		4,657			3,570
Cash and cash equivalents, end of period	$	5,354		$	4,238
Supplemental disclosures of cash flow information:
Interest paid	$	2,487		$	2,701
Income taxes paid	$	1,189		$	435

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Otelco Reports Second Quarter 2019 Results

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August 13, 2019

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										Twelve Months
		Three Months Ended June 30,				Six Months Ended June 30,				Ended June 30,
		2019		2018		2019		2018		2019
Net income		$	1,716	$	2,908	$	3,997	$	4,903	$	8,561
Add:	Depreciation		1,829		1,723		3,667		3,458		7,115
	Interest expense less interest income		1,245		1,348		2,493		2,687		5,175
	Interest expense - amortized loan cost		113		118		230		238		467
	Income tax expense		634		798		1,344		1,573		2,516
	Amortization - intangibles		79		84		158		168		316
	Loan fees		17		19		35		38		71
	Stock-based compensation (senior management)		43		80		114		151		271
Consolidated EBITDA		$	5,676	$	7,078	$	12,038	$	13,216	$	24,492

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 the Leverage ratio as of June 30, 2019.

Ratio of Debt, Net of Cash, to Consolidated EBITDA

as of June 30, 2019

($000)

Notes payable	$	71,056
Debt issuance costs		1,331
Notes outstanding		72,387
Less cash		(5,354	)
Notes outstanding, net of cash	$	67,033
Consolidated EBITDA for the
last twelve months	$	24,492
Leverage ratio		2.74

- END -

EX-99.2

Exhibit 99.2

OTELCO INC. OTEL (Nasdaq) www.otelco.com June 2019 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 1998 - 2003 Company Established Acquired 4 Alabama RLECs 2004 - 2006 Initial Public Offering of IDS units (OTT:AMEX) Acquired Mid - Missouri RLEC & ISP Acquired Mid - Maine RLEC and CLEC 2007 - 2010 Issued 3 Million IDS units Acquired 4 RLECs, 2 CLEC properties in MA, ME, NH and WV Class B conversion to IDS units 2011 - 2014 Acquired Shoreham, VT RLEC IDS units extinguished; new Class A shares issued ( OTEL:Nasdaq ) Initiated Cloud Hosting and Managed Services 2015 - Present 10 RLEC companies accept A - CAM funding in 5 states Conversion to consolidated billing and operations systems Refinanced debt with 5 year CoBank loan 2019 onward Continued debt reduction Expand construction of Fiber to the Premise/Node (FTTP/N) Local Service Long Distance Network Access High - speed Internet OFFERING: Carrier Ethernet Cable Television Home Security Cloud Hosting and Managed Services Company Timeline

5 Management Team Experience Summary Highlights Rob Souza Chief Executive O fficer 40+ Years Appointed CEO of Otelco in December of 2014 Previously served as SVP and General Manager for Otelco’s New England Division President of Country Road Communications (CRC) from 2001 to 2008 Richard Clark President and Chief Operating Officer 7 + Years Appointed President in May 2019 Joined Otelco in October 2018 as COO Previously served as Executive VP and CFO at FirstLight Fiber Held various financial and operating roles during career Curtis Garner Chief Financial Officer 40+ Years Served as Chief Financial Officer since February 2004 Chief Administrative Officer of the Voice - Com division at Ptek Holdings (Premiere Global) CFO of the Southern and Southwestern Regions of AT&T Consumer Long Distance business Trevor Jones Vice President Sales, Marketing and Customer Service 20+ Years Previously served as Vice President of Business Development and Director of Sales and Marketing at Great Works Internet Previously served as Director of Sales and Marketing at Country Road Communications Trina Bragdon General Councel 25+ Years Served as General Councel since 2013 Served as Director of Legal and Regulatory Affairs 2009 - 2013 Previously served as Hearing Examiner for the Maine PUC and Litigation Associate at Saul, Ewing. Management Team

6 28,000+ ILEC Customers Both Business and Residential MILLION 2018 revenue $51 million in RLEC $15 million in CLEC $66+ SERVICE FOOTPRINT 11 RLECS across 6 states and CLEC serving 3 states MILLION 2018 EBITDA $25+ EMPLOYEES With 18 office facilities across 6 states 197 CLEC BUSINESS CUSTOMERS Across critical industries 2,000+ Otelco At - a - Glance

7 2,324 Mile Fiber Network 1,564 Transport, 760 Distribution 56 Cell Towers Served 5,600 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 1,259 473 454 1,154 Owned Fiber Route Miles 243 473 454 1,154 Transport Fiber Route Miles 243 457 365 499 Distribution Fiber Route Miles - 16 89 655 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 YTD 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 offers voluntary, 10 - year fixed support effective January 1, 2017, extended to 2028 on January 1, 2019 • 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 19% of targeted market – A - CAM census blocks represent approximately 34% 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* $8,110 STATE UNIVERSAL FUNDS** $1,185 OTHER FEDERAL USF*** $6,506 Total $15,802 2018 Funding (000)

13 $6.35 $13.35 $16.15 $16.08 $4.00 $6.00 $8.00 $10.00 $12.00 $14.00 $16.00 $18.00 12/31/2016 12/31/2017 12/31/2018 6/30/2019 Stock Price CoBank Debt Agreement Nov 17 153% increase 2016 to Q2 2019 Stock Performance

14 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 $11.4 million in 2018 • Current loan balance $72.4 million at June 30, 2019 • Scheduled principal amortization of $1.1 million per quarter • Current interest rate of 4.25% plus Libor • Covenant targets that allow for further decrease in interest rate

15 HISTORY • 2015 effective rate of 39.8% • 2016 effective rate of 41.5% • 2017 effective rate of 34.88%* TAX ACT • Lowered corporate tax rate to 21% • Extension of bonus depreciation • Expensing of capex to 2023 IMPACT • Effective rate of 23.9% in 2018 • Estimated cash tax savings of $2.1 million for 2018 Tax Cuts and Jobs Act Impact *Tax Act reduced tax liability, resulting in tax benefit of $7.9m

16 3.90 3.38 3.48 3.11 2.90 70,000 75,000 80,000 85,000 90,000 95,000 100,000 105,000 110,000 2014 2015 2016 2017 2018 Notes Outstanding (000) Leverage Ratio See appendix for reconciliation to GAAP measures

17 Execute on A - CAM FTTP/N Projects Realize Efficiencies of Consolidated Billing and Operations Optimize Key Strategies Deploy Capital Effectively Operational Objectives

18 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; will build to additional locations in Massachusetts Expected Impact • Increase revenue per customer • 12 years of predictable cash flows • Meet 25/3mbps speed obligations at approximately 6,000 locations by end of 2020, deploying FTTP/N and VDSL • Ultimately pass 12,500 locations in A - CAM census blocks Execute on A - CAM Obligations Operational Objectives

19 • NISC (National Information Systems Cooperative) software package • Consolidates Otelco billing across all regions and companies Billing Conversion • Carrier billing completed • End - user billing completed • Completion of digitized mapping integration in 2019 • Over $750k in cost avoidance and operational efficiencies have been realized OTELCO: Current Status • Improved reporting and controls • Access to improved marketing and sales tools • Foundation to absorb growth efficiently Expected Impact Operational Objectives Realize Efficiencies of Consolidated Billing and Operations

20 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 with the goal of stabilizing revenues over a multi - year period • Strategically utilize capital to expand fiber network • Capital expenditures increasing from $6.0 million (2014) to over $11.0 million (2019) Operational Objectives

21 Capture New Revenue with Fiber Offerings Market aggressively in new fiber footprints Evolve product lines Price competitively Upsell fiber to existing customers Collaborate on Municipal Broadband Projects Identify municipalities that are overlooked and underserved Develop customized solution to solve problem Execute and deliver cost effectively Effectively Manage Expenses Operating expenses reduced 11.6% from 2014 to 2018 Continue to manage operational efficiency Network optimization Optimize Key Strategies • Stabilize revenue • Manage expenses • Optimize use of A - CAM funding • Expand FTTP/N Operational Objectives

22 • Entire network being mapped with locations geocoded to gain information – Market size – Current customer penetration rates – Estimated costs to build fiber in entire market – Competition assessment by region – Identify areas with highest ROI potential • Expected completion will allow Company to develop fiber deployment plan and estimate capital costs – Estimated costs to build fiber on existing copper network ranges from $15,000 to $18,000 per mile – Estimated costs to build fiber where existing copper network is not available ranges from $25,000 to $35,000 per mile assuming aerial fiber deployment • Next phase of B/OSS system enhancements includes obtaining and utilizing the system for mapping integration 2019 Operational Initiatives

23 APPENDIX

24 Appendix: FTTP /FTTN Projects in 2019

25 Total Locations Passed with Fiber Locations Passed = Ready for service installation via drop fiber.  State Pre – 2017 2017 2018 TOTAL Fiber Customers Take Rate ME 187 221 373 781 231 30% AL 3,329 1,230 1,351 5,910 1,610 27% MO 51 221 92 364 189 52% VT - 188 - 188 56 30% TOTAL 3,567 1,860 1,816 7,243 2,086 29%

26 Otelco Fiber 06/30/2019 Locations Passed = Ready for service installation via drop fiber. 1,904 192 272 60 2,428 Lightwave Customers AL MO ME VT

27 2019 Fiber Projects * Burlington FTTP build was replaced with Alton FTTP Connect ME project ** Singing Cedar Fiber build is to provide optical support to the remote. State Project Mileage Locations Passed Alabama Jones Valley 61 540 Alabama Ryan 16 94 Alabama Strawberry 19 99 Alabama Arab 113 4,062 Maine Plymouth 29 421 Maine Alton* 24 260 Vermont Singing Cedar** 4 0 Vermont Foote Farms 3 23 Vermont West Cornwall 6 109 TOTAL 275 5,608

28 2019 Fiber Projects Jones Valley & Ryan Alabama Strawberry Arab

29 2019 Fiber Projects Plymouth Maine Alton

30 2019 Fiber Projects Singing Cedar Vermont West Cornwall Foote Farms

31 Appendix: Select Financial Information

32 Appendix: Select Financial Information ($000) 2018 revenue includes A - CAM support revision, FCC revision of CAF - BLS funding Year End Results 2018 2017 2016 2015 2014 Operating Revenues 66,068$ 68,526$ 68,944$ 71,102$ 73,870$ Operating Expenses (COGS and SG&A) (41,042) (41,542) (42,109) (42,969) (46,429) Depreciation and Amortization (7,232) (7,377) (8,023) (8,878) (10,583) Operating Income 17,793 19,607 18,813 19,255 16,858 Interest Expense (5,844) (13,250) (10,634) (7,894) (8,854) Other Income 263 204 624 1,067 210 Loss on Debt Prepayment Penalty - (2,303) 0 0 0 Income Before Taxes 12,212 4,259 8,803 12,428 8,214 Provision For income taxes (2,745) 7,856 (3,658) (4,944) (3,185) Net Income 9,467 12,115 5,146 7,484 5,029 Add Amortization 326 376 885 1,200 1,643 Depreciation 6,906 7,001 7,137 7,678 8,941 Income Tax Expense 2,745 (7,856) 3,658 4,944 3,185 Interest Expense 5,843 13,249 10,633 7,894 8,854 Loan Fees 74 2,447 204 25 25 Stock Compensation 308 308 416 370 1,067 Consolidated EBITDA 25,670$ 27,640$ 28,078$ 29,596$ 28,744$

33 Appendix: Leverage Ratio ($000) 2018 2017 2016 2015 2014 Net income 9,467$ 12,115$ 5,146$ 7,484$ 5,029$ Amortization 326 376 885 1,200 1,643 Depreciation 6,906 7,001 7,137 7,678 8,941 Income tax expense 2,745 (7,856) 3,658 4,944 3,185 Interest expense 5,843 13,249 10,633 7,894 8,854 Loan fees 74 2,447 204 25 25 Stock compensation 308 308 416 370 1,067 Consolidated EBITDA 25,670$ 27,640$ 28,078$ 29,596$ 28,744$ Senior notes payable 70,213$ 74,563$ 74,875$ 97,052$ 105,470$ Current portion LT debt 4,350 11,350 7,125 3,000 6,665 Senior notes outstanding 74,563 85,913 82,000 100,052 112,135 Subordinated notes payable - - 15,573 - - Subordinated notes outstanding - - 15,573 - - Notes outstanding 74,563$ 85,913$ 97,573$ 100,052$ 112,135$ Leverage 2.90 3.11 3.48 3.38 3.90

34 Appendix: Select Financial Information ($000) Year End Results 2018 2017 2016 2015 2014 Operating Revenues 66,068$ 68,526$ 68,944$ 71,102$ 73,870$ Operating Expenses (COGS and SG&A) (41,042) (41,542) (42,109) (42,969) (46,429) % Revenue 62% 61% 61% 60% 63% Consolidated EBITDA 25,670$ 27,640$ 28,078$ 29,596$ 28,744$ % Revenue 39% 40% 41% 42% 39%

35 Appendix: Select Financial Information (000) Year End Results 2018 2017 2016 2015 2014 EBITDA 25,670$ 27,640$ 28,078$ 29,596$ 28,744$ Capital Expenditures 7,983 8,511 6,890 6,612 6,015 Free Cash Flow 17,687$ 19,129$ 21,188$ 22,984$ 22,729$ Debt 74,563$ 85,913$ 97,573$ 100,052$ 112,135$ Cash 4,657 3,570 10,538 6,884 5,082 Net Debt 69,906$ 82,343$ 87,035$ 93,168$ 107,053$ Leverage Ratio (Debt/EBITDA) 2.90 3.11 3.48 3.38 3.90 Net Leverage Ratio (Net Debt/EBITDA) 2.72 2.98 3.10 3.15 3.72

Glossary of Terms A - CAM Alternative Connect America Model B/OSS Business/Operations Support System 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 36

OTELCO Inc. OTEL (Nasdaq) www.otelco.com 37