News Column

Hawaiian Telcom Reports First Quarter 2014 Results

May 7, 2014

Hawaiian Telcom TV subscriber growth of nearly 1,900

Expanded reach of Hawaiian Telcom TV to 130,000 households on O?ahu

Delivered business revenue growth of 4.9 percent

Launched Hawai?i's fastest Internet service

HONOLULU, May 7, 2014 (GLOBE NEWSWIRE) -- Hawaiian Telcom Holdco, Inc. (Nasdaq:HCOM) reported financial results for its first quarter ended March 31. The highlights are as follows:

• Revenue of $97.1 million grew by $1.1 million, or 1.2 percent, from $96.0 million in the same period in the prior year, resulting in Adjusted EBITDA(1) of $29.1 million, consistent with the same period a year ago.• Generated net income of $2.4 million, or $0.21 per diluted share for the quarter, up from $1.8 million or $0.17 per diluted share in the first quarter of 2013.• Consumer revenue increased 3.4 percent year-over-year to $35.8 million, driven by growth in video and high-speed Internet (HSI) revenue of $2.6 million and $0.9 million, respectively.• Added nearly 1,900 Hawaiian Telcom TV subscribers during the first quarter, ending the quarter with approximately 20,300 subscribers.• Enabled 10,000 households in the quarter, increasing its total to 130,000 households enabled.• Business revenue increased 4.9 percent year-over-year to $42.5 million, driven by growth in business data revenue and revenue from its SystemMetrics Corporation subsidiary (SystemMetrics).

"Our first quarter performance demonstrates a solid start to the year, highlighted by continued expansion of our next-generation fiber network and growth in Hawaiian Telcom TV subscribers," said Eric K. Yeaman, Hawaiian Telcom's president and CEO. "The reach of our video footprint expanded to 130,000 households on O?ahu in the first quarter with 48% of those households capable of connecting their homes directly to our ultra-fast fiber-optic technology. This allows these households to take advantage of Hawai?i's fastest Internet service featuring download speeds of 100Mbps, 300Mbps and 500Mbps, which we launched in the quarter."

"In the business channel, we believe our network and data center services capabilities align well with the business community's growing demand for secure communications and computing solutions. During the quarter, we featured SystemMetrics at our premier annual business customer event, Hawaiian Telcom University, to further raise awareness and drive increased market momentum for data center services in Hawai?i.

"Our strategy to grow the business and improve financial performance and customer service, through prudent investments in our network and systems, is delivering on our commitment to drive long-term value for our shareholders," concluded Yeaman.

First Quarter 2014 Results

First quarter revenue was $97.1 million, a 1.2 percent increase compared with $96.0 million in the first quarter of 2013. Revenue growth in the quarter, driven by video, HSI, and $2.2 million of incremental net revenue related to the SystemMetrics acquisition, more than offset the impact from a $0.9 million decrease in equipment and managed services revenue, solely related to lower customer premise equipment sales, and a 5.4 percent decline in access lines. Adjusted EBITDA was $29.1 million, consistent with the same period a year ago.

The Company generated net income of $2.4 million, or $0.21 per diluted share for the quarter, up from $1.8 million or $0.17 per diluted share in the first quarter of 2013. The increase was primarily due to a decrease in interest expense driven by the refinancing of its $300 million term loan in the second quarter of 2013.

Consumer Revenue

First quarter consumer revenue totaled $35.8 million, up 3.4 percent year-over-year primarily driven by revenue growth from the Company's Hawaiian Telcom TV and HSI services. Revenue growth in video and HSI services continues to more than offset lower revenue from legacy services, and combined video and HSI services now represent 34 percent of consumer revenue, up from 25 percent in the same period a year ago, and 19 percent in the same period two years ago.

Video service revenue grew to $4.8 million for the quarter, up from $2.2 million in the same period a year ago, driven by the addition of approximately 8,600 subscribers for a total of approximately 20,300 subscribers at the end of the first quarter. During the quarter, 10,000 additional households were enabled, increasing the total number of households enabled to 130,000 with 48% of those households capable of connecting directly to the Company's ultra-fast fiber-optic technology. Hawaiian Telcom TV penetration of households enabled was approximately 16 percent at the end of the first quarter. 

Consumer HSI revenue also was up from the same period a year ago, led by a 2.2 percent year-over-year increase in consumer HSI subscribers to approximately 91,400, which was primarily driven by HSI pull-through rates from new video subscribers, and standalone HSI subscriber additions. As of March 31, 2014, approximately 55 percent of all video subscribers had triple-play bundles and approximately 91 percent had double-, or triple-play bundles. Increases driven by next-generation consumer video and HSI services more than offset legacy revenue declines related to consumer access and long distance line losses of 8.4 percent and 7.3 percent, respectively.

Business Revenue

First quarter business revenue totaled $42.5 million, up 4.9 percent from the same period a year ago, primarily due to $2.2 million of incremental net revenue added as a result of the SystemMetrics acquisition. Business data revenue increased 7.1 percent year-over-year driven by higher demand for IP-based data services. These increases were partially offset by a $0.9 million year-over-year decrease in equipment and managed services revenue, described above, and the year-over-year decline in legacy business access and long distance revenues. 

Wholesale Revenue

First quarter wholesale revenue totaled $15.9 million, down $1.3 million from the same period a year ago. Wholesale carrier data revenue declined $1.1 million year-over-year to $14.4 million, mainly due to approximately $0.8 million of one-time backbilling and circuit termination charges realized in the year-ago period. 

Switched carrier access revenue declined $0.2 million year-over-year to $1.6 million, equally attributable to the overall decline in access lines and minutes of use and the impact of intercarrier compensation reform.

Operating Expenses, Capital Expenditures and Liquidity

Operating expenses, exclusive of depreciation and amortization, non-cash stock compensation, SystemMetrics earn-out and other one-time charges, increased 1.8 percent to $68.0 million, primarily due to increased direct cost of services related to video and incremental costs related to the SystemMetrics operations, partially offset by decreased cost of goods related to lower levels of equipment sales.

Capital expenditures totaled $23.9 million in the first quarter 2014 compared to $23.3 million in the first quarter 2013, as the Company continues both the expansion of its next-generation fiber network and the success-based spending to support the growth of Hawaiian Telcom TV fiber-to-the-premise (FTTP) subscribers during the quarter.  Overall, total capital expenditures for 2014 are expected to be approximately $90.0 million.

At the end of first quarter 2014, the Company had $36.7 million in cash and cash equivalents compared to $49.6 million at the end of 2013. The reduction is primarily related to temporary seasonal uses of working capital, which are expected to substantially reverse in the second half of 2014. Net Debt(2) was $257.4 million, resulting in a Net Debt to Adjusted EBITDA ratio as of March 31, 2014 of 2.15x.

Conference Call

The Company will host a conference call to discuss its first quarter 2014 results at 8:00 a.m. (Hawai?i Time), or 2:00 p.m. (Eastern Time) on Wednesday, May 7, 2014.

To access the call, participants should dial (800) 706-7749 (US/Canada), or (617) 614-3474 (International) ten minutes prior to the start of the call and enter passcode 58052648.

A live webcast of the conference call, including a slide presentation, will be available from the Investor Relations section of the Company's website at www.hawaiiantel.com. The webcast will be archived at the same location. 

A telephonic replay of the conference call will be available one hour after the conclusion of the call until 11:59 p.m. (Eastern Time)May 14, 2014. Access the replay by dialing (888) 286-8010 and entering passcode 18080072. Alternatively, the replay can be accessed by dialing (617) 801-6888 and entering passcode 18080072. 

Use of Non-GAAP Financial Measures 

This press release contains information about adjusted earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA) and Net Debt. These are non-GAAP financial measures used by Hawaiian Telcom management when evaluating results of operations. Management believes these measures also provide users of the financial statements with additional and useful comparisons of current results of operations with past and future periods. Non-GAAP financial measures should not be construed as being more important than comparable GAAP measures. Detailed reconciliations of Adjusted EBITDA and Net Debt to comparable GAAP financial measures have been included in the tables distributed with this release and are available in the Investor Relations section of the Company's website at www.hawaiiantel.com.

Forward-Looking Statements

In addition to historical information, this release includes certain statements and predictions that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In particular, any statement, projection or estimate that includes or references the words "believes", "anticipates", "intends", "expected", or any similar expression falls within the safe harbor of forward-looking statements contained in the Reform Act. Actual results or outcomes may differ materially from those indicated or suggested by any such forward-looking statement for a variety of reasons, including, but not limited to, Hawaiian Telcom's ability to maintain, or expand its market position in communications services, including voice, video, Internet, data, wireless, and advanced communication and network services; general economic trends affecting the purchase or supply of communication services; world and national events that may affect the ability to provide services; changes in the regulatory environment; any rulings, orders or decrees that may be issued by any court or arbitrator; restrictions imposed under various credit facilities and debt instruments; work stoppages caused by labor disputes; adjustments resulting from year-end audit procedures; and Hawaiian Telcom's ability to develop and launch new products and services. More information on potential risks and uncertainties is available in recent filings with the Securities and Exchange Commission, including Hawaiian Telcom's 2013 Annual Report on Form 10-K. The information contained in this release is as of May 7, 2014. It is anticipated that subsequent events and developments may cause estimates to change, and the Company undertakes no duty to update forward-looking statements.

About Hawaiian Telcom

Hawaiian Telcom Holdco, Inc., headquartered in Honolulu, is Hawai?i's leading provider of integrated communications, data center and entertainment solutions for business and residential customers. With roots in Hawai?i beginning in 1883, the Company offers a full range of services including voice, video, Internet, data solutions, managed services, data center services including colocation and virtual private cloud, and other cloud-based services, and wireless supported by the reach and reliability of its network and Hawai?i's only 24/7 state-of-the-art network operations center. With employees statewide sharing a commitment to innovation and a passion for delivering superior service, Hawaiian Telcom provides an Always OnSM customer experience. For more information, visit www.hawaiiantel.com.

The Hawaiian Telcom Holdco, Inc. logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=10087

(1) Adjusted EBITDA is EBITDA plus non-cash stock compensation, SystemMetrics earn-out and other non-recurring costs not expected to occur regularly in the ordinary course of business. EBITDA is defined as net income plus interest expense (net of interest income and other), income taxes, depreciation and amortization and gain on sale of property. The Company believes both of these non-GAAP measures, Adjusted EBITDA and EBITDA, are meaningful performance measures for investors because they are used by our Board and management to evaluate performance, enhance comparability between periods and make operating decisions. Our use of Adjusted EBITDA and EBITDA may not be comparable to similarly titled measures used by other companies in the telecommunications industry. A detailed reconciliation of Adjusted EBITDA and EBITDA to comparable GAAP financial measures has been included in the tables distributed with this release.

(2) Net Debt provides a useful measure of liquidity and financial health. The Company defines Net Debt as the sum of the face amount of short-term and long-term debt and unamortized premium and/or discount, offset by cash and cash equivalents. A detailed reconciliation of Net Debt has been included in the tables distributed with this release.

 
 Hawaiian Telcom Holdco, Inc. 
 Consolidated Statements of Income 
 (Unaudited, dollars in thousands, except per share amounts) 
     
     
   Three Months Ended 
   March 31, 
   2014   2013 
     
 Operating revenues   $ 97,072  $ 95,965
 Operating expenses:     
 Cost of revenues (exclusive of depreciation and amortization)   40,948  40,284
 Selling, general and administrative   29,266  28,379
 Depreciation and amortization   18,720  18,717
 Total operating expenses   88,934  87,380
 Operating income   8,138  8,585
 Other income (expense):     
 Interest expense   (4,188)  (5,540)
 Interest income and other   10  15
 Total other expense   (4,178)  (5,525)
 Income before income tax provision   3,960  3,060
 Income tax provision   1,592  1,212
 Net income   $ 2,368  $ 1,848
 Net income per common share --     
 Basic   $ 0.22  $ 0.18
 Diluted   $ 0.21  $ 0.17
 Weighted average shares used to compute net income per common share --     
 Basic   10,528,039  10,291,897
 Diluted   11,271,827  10,890,917
 
 
 Hawaiian Telcom Holdco, Inc. 
 Consolidated Balance Sheets 
 (Unaudited, dollars in thousands, except per share amounts) 
     
   March 31,   December 31, 
   2014   2013 
     
 Assets     
     
 Current assets     
 Cash and cash equivalents   $ 36,738  $ 49,551
 Receivables, net   33,050  34,521
 Material and supplies   11,737  15,939
 Prepaid expenses   3,445  3,724
 Deferred income taxes   8,146  8,146
 Other current assets   2,321  2,851
 Total current assets   95,437  114,732
 Property, plant and equipment, net   533,528  524,375
 Intangible assets, net   39,500  40,225
 Goodwill   12,104  12,104
 Deferred income taxes   73,705  75,274
 Other assets   10,841  11,305
 Total assets   $ 765,115  $ 778,015
 Liabilities and Stockholders' Equity     
 Current liabilities     
 Current portion of long-term debt   $ 3,000  $ 3,000
 Accounts payable   34,533  40,228
 Accrued expenses   13,594  18,787
 Advance billings and customer deposits   15,912  16,122
 Other current liabilities   6,500  6,412
 Total current liabilities   73,539  84,549
 Long-term debt   291,111  291,679
 Employee benefit obligations   77,136  80,321
 Other liabilities   8,055  8,454
 Total liabilities   449,841  465,003
 Commitments and contingencies (Note 12)     
 Stockholders' equity     
 Common stock, par value of $0.01 per share, 245,000,000 shares authorized and 10,584,191 and 10,495,856 shares issued and outstanding at March 31, 2014 and December 31, 2013, respectively   106  105
 Additional paid-in capital   167,937  167,869
 Accumulated other comprehensive loss   (4,891)  (4,716)
 Retained earnings   152,122  149,754
 Total stockholders' equity   315,274  313,012
 Total liabilities and stockholders' equity   $ 765,115  $ 778,015
 
 Hawaiian Telcom Holdco, Inc. 
 Consolidated Statements of Cash Flows 
 (Unaudited, dollars in thousands) 
     
     
   Three Months Ended 
   March 31, 
   2014   2013 
     
 Cash flows from operating activities:     
 Net income   $ 2,368  $ 1,848
 Adjustments to reconcile net income to net cash provided by operating activities   
 Depreciation and amortization   18,720  18,717
 Employee retirement benefits   (3,475)  (2,722)
 Provision for uncollectibles   513  553
 Stock based compensation   1,074  423
 Deferred income taxes   1,685  1,297
 Changes in operating assets and liabilities:     
 Receivables   957  (825)
 Material and supplies   459  (796)
 Prepaid expenses and other current assets   810  605
 Accounts payable and accrued expenses   (10,010)  (4,987)
 Advance billings and customer deposits   (210)  448
 Other current liabilities   89  2
 Other   390  303
 Net cash provided by operating activities   13,370  14,866
 Cash flows from investing activities:     
 Capital expenditures   (23,939)  (23,254)
 Net cash used in investing activities   (23,939)  (23,254)
 Cash flows from financing activities:     
 Repayment of capital lease and installment liability   (489)  (163)
 Repayment of debt including premium   (750)  (2,138)
 Taxes paid related to net share settlement of equity awards   (1,005)  (362)
 Net cash used in financing activities   (2,244)  (2,663)
 Net change in cash and cash equivalents   (12,813)  (11,051)
 Cash and cash equivalents, beginning of period   49,551  66,993
 Cash and cash equivalents, end of period   $ 36,738  $ 55,942
 Supplemental disclosure of cash flow information:     
 Interest paid, net of amounts capitalized   $ 3,824  $ 5,236
 
 Hawaiian Telcom Holdco, Inc. 
 Revenue by Category and Channel 
 (Unaudited, dollars in thousands) 
         
         
   Three Months Ended     
   March 31,   Change 
   2014   2013   Amount   Percentage 
         
 Wireline Services         
 Local voice services   $ 33,059  $ 35,028  $ (1,969) -5.6%
 Network access services         
 Business data   6,624  6,186  438 7.1%
 Wholesale carrier data   14,386  15,464  (1,078) -7.0%
 Subscriber line access charge   9,169  9,657  (488) -5.1%
 Switched carrier access   1,552  1,768  (216) -12.2%
   31,731  33,075  (1,344) -4.1%
 Long distance services   5,906  6,574  (668) -10.2%
 High-Speed Internet   10,544  9,616  928 9.7%
 Video   4,754  2,204  2,550 115.7%
 Equipment and managed services   4,489  5,379  (890) -16.5%
 Wireless   593  712  (119) -16.7%
 Other   3,591  3,377  214 6.3%
   94,667  95,965  (1,298) -1.4%
 Data center colocation   2,405  --   2,405 NA
   $ 97,072  $ 95,965  $ 1,107 1.2%
         
 Channel         
 Business   $ 42,512  $ 40,516  $ 1,996 4.9%
 Consumer   35,823  34,647  1,176 3.4%
 Wholesale   15,937  17,232  (1,295) -7.5%
 Other   2,800  3,570  (770) -21.6%
   $ 97,072  $ 95,965  $ 1,107 1.2%
 
 
 Hawaiian Telcom Holdco, Inc. 
 Schedule of Adjusted EBITDA Calculation 
 (Unaudited, dollars in thousands) 
       
       
   Three Months Ended  LTM Ended
   March 31, March 31,
   2014   2013   2014 
       
 Net income   $ 2,368  $ 1,848  $ 11,008
 Income tax provision   1,592  1,212  9,162
 Interest expense and other income and expense, net   4,178  5,525  21,154
 Depreciation and amortization   18,720  18,717  77,304
 Gain on sale of property   --   --   (6,546)
 EBITDA   26,858  27,302  112,082
 Non-cash stock compensation   1,074  423  3,387
 SystemMetrics earn-out   272  --   272
 Non-recurring costs   675  651  2,577
 Severance costs   --   408  304
 Wavecom integration costs   178  386  1,135
 Adjusted EBITDA   $ 29,057  $ 29,170  $ 119,757
 
Hawaiian Telcom Holdco, Inc.
Net Debt to LTM Adjusted EBITDA Ratio
(Unaudited, dollars in thousands)
   
   
 Long-term debt as of March 31, 2014   $ 294,111
 Less cash on hand   (36,738)
 Total Net Debt as of March 31, 2014   $ 257,373
 LTM Adjusted EBITDA as of March 31, 2014   $ 119,757
 Total Net Debt to Adjusted EBITDA  2.15x
 
 Hawaiian Telcom Holdco, Inc. 
 Volume Information 
 (Unaudited) 
         
   March 31,   March 31,   Change 
   2014   2013   Number   Percentage 
         
 Voice access lines         
 Residential   182,375  199,044  (16,669) -8.4%
 Business   192,202  196,970  (4,768) -2.4%
 Public   4,073  4,350  (277) -6.4%
   378,650  400,364  (21,714) -5.4%
         
 High-Speed Internet lines         
 Residential   91,429  89,464  1,965 2.2%
 Business   19,404  18,810  594 3.2%
 Wholesale   936  1,013  (77) -7.6%
   111,769  109,287  2,482 2.3%
         
 Long distance lines         
 Residential   115,019  124,072  (9,053) -7.3%
 Business   79,108  80,659  (1,551) -1.9%
   194,127  204,731  (10,604) -5.2%
         
 Video services         
 Subscribers   20,279  11,671  8,608 73.8%
 Homes Enabled   130,000  83,000  47,000 56.6%
         
         
         
   March 31,   December 31,   Change 
   2014   2013   Number   Percentage 
         
 Voice access lines         
 Residential   182,375  186,415  (4,040) -2.2%
 Business   192,202  193,027  (825) -0.4%
 Public   4,073  4,155  (82) -2.0%
   378,650  383,597  (4,947) -1.3%
         
 High-Speed Internet lines         
 Residential   91,429  91,437  (8) 0.0%
 Business   19,404  19,320  84 0.4%
 Wholesale   936  963  (27) -2.8%
   111,769  111,720  49 0.0%
         
 Long distance lines         
 Residential   115,019  117,282  (2,263) -1.9%
 Business   79,108  79,496  (388) -0.5%
   194,127  196,778  (2,651) -1.3%
         
 Video services         
 Subscribers   20,279  18,393  1,886 10.3%
 Homes Enabled   130,000  120,000  10,000 8.3%

CONTACT: Investor Relations Contact: Brian Tanner, Hawaiian Telcom (201) 706-8965 brian.tanner@hawaiiantel.com Media Contact: Su Shin, Hawaiian Telcom (808) 546-2344 su.shin@hawaiiantel.com



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Source: Hawaiian Telcom Holdco, Inc.


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