Hawaiian Telcom Holdco, Inc. (NASDAQ: HCOM) reported financial results for the fourth quarter and full year 2014. The highlights of 2014 and recent accomplishments in 2015 are as follows:
– Revenue was $99.6 million for the fourth quarter and $390.7 million for full year 2014:
– Consumer revenue increased 2.6 percent and 3.9 percent year-over-year for the fourth quarter and full year 2014, respectively, driven by growth in video revenue of $2.8 million and $10.8 million, respectively.
– Added over 2,300 Hawaiian Telcom TV subscribers during the fourth quarter, ending 2014 with approximately 28,100 subscribers resulting in penetration of 17.6 percent of households enabled.
– Enabled 8,000 households in the quarter, increasing enabled households on Oahu to 160,000, 57.5 percent of which are fiber-to-the-home.
– Revenue from SystemMetrics Corporation (SystemMetrics) increased over 60 percent year-over-year for the fourth quarter, driven by sales of security products and solutions.
– Fourth quarter 2014 Adjusted EBITDA(1) of $30.7 million was consistent with the same period a year ago and full year 2014 Adjusted EBITDA of $117.8 million declined $2.1 million year-over-year.
– Generated fourth quarter and full year 2014 net income of $2.0 million and $8.1 million, or $0.19 and $0.76 per diluted share, respectively.
“We delivered a successful 2014. With a focus on broadband, TV and data center and cloud services, Hawaiian Telcom’s investment in our next-generation fiber network and innovative new products continue to transform our company and Hawaii’s communities and businesses,” said Eric K. Yeaman, Hawaiian Telcom’s president and CEO. “We have invested and executed aggres sively, creating new growth channels and enabling our customers with next-generation technologies to strengthen their businesses and improve their quality of life.
“Our growing momentum in the consumer channel is powered by the continued strength of Hawaiian Telcom TV and growth in high-speed Internet (HSI), which drove an industry-leading 4 percent growth in consumer revenues in 2014. Hawaii’s superior entertainment experience can now reach 160,000 households on Oahu, 57.5 percent of which are fiber-to-the-home households.
“In the business channel, customers of all sizes—including 225 of Hawaii’s top 250 companies—turn to Hawaiian Telcom for a full array of communications services. Our ability to meet our customers’ need for integrated communications solutions is having a pull-through effect for SystemMetrics’ data center and cloud services, which drove a more than 60 percent year-over-year increase in fourth quarter revenue in that segment.
“In the wholesale channel, we now have 411 fiber-to-the-tower (FTTT) cell sites completed and another 73 sites under contract to build. Future-proofed with fiber, bandwidth to these cell sites are easily increased to provide wireless carriers more capacity, which can drive a meaningful increase in revenue over time.
“We begin 2015 with strong momentum. Demand for higher bandwidth services and integrated communications solutions are dynamic and growing, as consumers and businesses increasingly view them as tools to improve their quality of life and strategic enablers of growth. To address this demand, we will continue to leverage our next-generation fiber network and data center capabilities to launch new Unified Communications services and Software-as-a-Service cloud services. We look forward to expanding the availability of Hawaiian Telcom TV to more households on Oahu in 2015, driving deeper penetratio n and increasing our share of the consumer video and broadband market.
We are confident in our strategies and our platform for growth and are ready to lead Hawaii into the next generation of communications, technology and entertainment,” concluded Yeaman.
Fourth Quarter 2014 Results
Fourth quarter revenue was $99.6 million, compared to $100.5 million in the fourth quarter of 2013, which benefitted from $1 million in government subsidies from the Universal Service Connect America Fund program for the expansion of broadband. Revenue growth in the quarter, driven by video, HSI, and $1.3 million of data center colocation revenue from SystemMetrics, was offset by a $2.0 million decrease in equipment and managed services revenue, related to lower customer premise equipment sales, and a 5.7 percent decline in voice access lines. Adjusted EBITDA was $30.7 million, consistent with the same period a year ago.
Net income for the fourth quarter of 2014 was $2.0 million, or $0.19 per diluted share, compared with the prior year net income for the fourth quarter of 2013 of $2.6 million, or $0.23 per diluted share. The decrease was primarily due to a $2.0 million increase in depreciation and amortization as a result of significant investments made to the Company’s broadband network.
Consumer Revenue
Fourth quarter consumer revenue totaled $37.4 million, up 2.6 percent year-over-year primarily driven by revenue growth from the Company’s Hawaiian Telcom TV and HSI services. The increased reach of the Company’s next-generation fiber network is the catalyst that is driving revenue growth in video and HSI services, which is more than offsetting declines from legacy services.
Video service revenue grew to $7.1 million for the quarter, up from $4.2 million in the same period a year ago, driven by the a ddition of approximately 9,700 subscribers in 2014, ending the year with approximately 28,100 subscribers in service. Hawaiian Telcom TV average revenue per user (ARPU) was up approximately 5.8 percent year-over-year. During the quarter, 8,000 additional households were enabled, increasing the total number of households enabled to 160,000 with over 57.5 percent of those households capable of connecting directly to the Company’s next-generation fiber network. Hawaiian Telcom TV penetration of households enabled was approximately 17.6 percent at the end of 2014.
Consumer HSI revenue also was up from the same period a year ago led by a 1.6 percent year-over-year increase in consumer HSI subscribers to approximately 92,900 and a 9.3 percent increase in consumer HSI ARPU due to increased adoption of higher speed offerings. As of December 31, 2014, approximately 53 percent of all video subscribers had triple-play bundles and approximately 92 percent had double- or triple-play bundles. Revenue increases from video and HSI were partially offset by legacy revenue declines related to consumer voice access and long distance line losses of 9.1 percent and 8.5 percent, respectively.
Business Revenue
Fourth quarter business revenue was $42.7 million, compared to $44.7 million in the fourth quarter of 2013. Revenue from SystemMetrics increased over 60 percent year-over-year for the fourth quarter, driven by sales of security products and solutions, was more than offset by a $2.0 million decrease in equipment and managed services revenue. Additionally, the year-over-year decline in legacy business access and long distance revenues contributed to the decline in business revenue.
Wholesale Revenue
Fourth quarter wholesale revenue totaled $16.0 million, consistent with the same period a year ago. Wholesale carrier data revenue increased $0.3 million year-ov er-year to $14.7 million, mainly due to special construction related to the Company’s FTTT projects. Switched carrier access revenue declined year-over-year to $1.4 million, equally attributable to the overall decline in voice 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, decreased 1.2 percent to $68.9 million, primarily due to decreased cost of goods related to lower levels of equipment sales, as well as a decline in costs related to employee benefits, partially offset by increased direct cost of services related to video and higher advertising expense.
Full Year 2014 Results
Revenue was $390.7 million, compared to $391.2 million for the prior year. After adjusting for $1 million in government subsidies in the fourth quarter 2013, revenue for 2014 was consistent with the same period a year ago. Adjusted EBITDA was $117.8 million, compared to $119.9 million in 2013.
Net income for the full year 2014 was $8.1 million, or $0.76 per diluted share, compared with the prior year net income for the full year 2013 of $10.5 million, or $0.95 per diluted share. The decrease was primarily due to one-time costs relating to Tropical Storm Iselle of $1.1 million recorded in the third quarter 2014, as well as a $6.5 million gain from the sale of property recorded in the second quarter of 2013, partially offset by a $3.7 million loss on early extinguishment of debt in the second quarter of 2013.
Capital expenditures totaled $96.7 million for the full year 2014, up from $86.3 million in 2013 primarily due to the success-based spending to support the growth of Hawaiian Telcom TV fiber-to-the-premise subsc ribers, success-based spending related to the fiber-to-the-tower initiative and costs associated with consolidating and virtualizing internal data centers.
At the end of 2014, the Company had $39.9 million in cash and cash equivalents compared to $49.6 million at the end of 2013. The use of cash is primarily related to higher levels of next-generation fiber network and success-based capital expenditures. Net Debt(2) was $252.5 million, resulting in a Net Debt to Adjusted EBITDA ratio as of December 31, 2014 of 2.14x.
