Hawaiian Telcom Holdco, Inc. (NASDAQ: HCOM) reported financial results for its first quarter ending on 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. “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.
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.
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.
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.