Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
HCOM > SEC Filings for HCOM > Form 10-Q on 5-Aug-2013All Recent SEC Filings

Show all filings for HAWAIIAN TELCOM HOLDCO, INC. | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for HAWAIIAN TELCOM HOLDCO, INC.


5-Aug-2013

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

This quarterly report contains forward-looking statements. These statements relate to future events or our future financial performance (including our anticipated cost structure) and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as "may," "should," "expects," "intends," "plans," "anticipates," "believes," "estimates," "predicts," "potential," "continues," "assumption" or the negative of these terms or other comparable terminology. These statements (including statements related to our anticipated cost structure) are only predictions. Actual events or results may differ materially from those anticipated or projected due to a number of factors. These factors include, but are not limited to:

          our ability to execute our strategic plan;

          failures in critical back-office systems and IT infrastructure;

          our ability to operate as a stand-alone telecommunications provider;

          our ability to maintain arrangements with third-party service
providers;

          changes in regulations and legislation applicable to providers of
telecommunications services;

          changes in demand for our products and services;

          technological changes affecting the telecommunications industry; and

          our indebtedness could adversely affect our financial condition.

These and other factors may cause our actual results to differ materially from any forward-looking statement. Refer to our Annual Report on Form 10-K for a detailed discussion of risks that could materially adversely affect our business, financial condition or results of operations. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially adversely affect our business operations.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. These forward-looking statements are made as of the date of issuance of these quarterly condensed consolidated financial statements, we assume no obligation to update or revise them or to provide reasons why actual results may differ.

We do not undertake any responsibility to release any revisions to these forward-looking statements to take into account events or circumstances that occur after the date of issuance of these quarterly condensed consolidated financial statements. Additionally, we do not undertake any responsibility to update you on the occurrence of any unanticipated events which may cause actual results to differ from those expressed or implied by the forward-looking statements contained in this quarterly report.

Background

In the following discussion and analysis of financial condition and results of operations, unless the context otherwise requires, "we," "us" or the "Company" refers, collectively, to Hawaiian Telcom Holdco, Inc. and its subsidiaries.


Table of Contents

Segments and Sources of Revenue

We operate in two reportable segments (Wireline Services and Wireless) based on how resources are allocated and performance is assessed by our chief operating decision maker. Our chief operating decision maker is our Chief Executive Officer.

Wireline Services

The Wireline Services segment derives revenue from the following sources:

Local Voice Services - We receive revenue from providing local exchange telephone services. These revenues include monthly charges for basic service, local private line services and enhanced calling features.

Network Access Services - We receive revenue for access to our network for wholesale carrier data, business customer data including Dedicated Internet Access, switched carrier access and subscriber line charges imposed on end users. Switched carrier access revenue compensates us for origination, transport and termination of calls for long distance and other interexchange carriers.

Long Distance Services - We receive revenue from providing long distance services to our customers.

High-Speed Internet ("HSI") Services - We provide HSI to our residential and business customers.

Video Services - Our video services marketed as Hawaiian Telcom TV is an advanced entertainment service offered to customers in select areas.

Equipment and managed services - We provide installation and maintenance of customer premise equipment as well as managed service for customer telephone and IT networks.

Wireless

We receive revenue from wireless services, including the sale of wireless handsets and other wireless accessories.


Table of Contents

Results of Operations for the Three and Six Months Ended June 30, 2013 and 2012

Operating Revenues

The following tables summarize our volume information as of June 30, 2013 and 2012, and our operating revenues for the three and six months ended June 30, 2013 and 2012. For comparability, we also present volume information as of June 30, 2013 compared to March 31, 2013. In the third quarter of 2012, certain reclassifications were made to the channel information for operating revenues to align to the way we manage our business. The information for the three and six months ended June 30, 2012, presented for comparative purposes, has been reclassified to conform to the new presentation.

                               Volume Information



June 2013 compared to June 2012



                            June 30,   June 30,          Change
                              2013       2012     Number    Percentage

Voice access lines
Residential                  194,365    212,668   (18,303 )       -8.6 %
Business (1)                 195,756    185,574    10,182          5.5 %
Public                         4,291      4,493      (202 )       -4.5 %
                             394,412    402,735    (8,323 )       -2.1 %

High-Speed Internet lines
Residential                   89,737     86,021     3,716          4.3 %
Business                      18,986     17,990       996          5.5 %
Wholesale                        998      1,122      (124 )      -11.1 %
                             109,721    105,133     4,588          4.4 %

Long distance lines
Residential                  121,591    131,082    (9,491 )       -7.2 %
Business (1)                  79,956     75,763     4,193          5.5 %
                             201,547    206,845    (5,298 )       -2.6 %

Video
Subscribers                   13,618      6,354     7,264        114.3 %
Homes Enabled                100,000     50,149    49,851         99.4 %



(1) Business voice access lines and business long distance lines included approximately 11,400 and 6,200, respectively, as of June 30, 2013 related to the acquisition of Wavecom.


Table of Contents

June 2013 compared to March 2013

                            June 30,   March 31,         Change
                              2013       2013      Number   Percentage

Voice access lines
Residential                  194,365     199,044   (4,679 )       -2.4 %
Business                     195,756     196,970   (1,214 )       -0.6 %
Public                         4,291       4,350      (59 )       -1.4 %
                             394,412     400,364   (5,952 )       -1.5 %

High-Speed Internet lines
Residential                   89,737      89,464      273          0.3 %
Business                      18,986      18,810      176          0.9 %
Wholesale                        998       1,013      (15 )       -1.5 %
                             109,721     109,287      434          0.4 %

Long distance lines
Residential                  121,591     124,072   (2,481 )       -2.0 %
Business                      79,956      80,659     (703 )       -0.9 %
                             201,547     204,731   (3,184 )       -1.6 %

Video
Subscribers                   13,618      11,671    1,947         16.7 %
Homes Enabled                100,000      83,000   17,000         20.5 %

                   Operating Revenues (dollars in thousands)



For Three Months



                                   Three Months Ended
                                        June 30,                 Change
                                    2013         2012      Amount    Percentage

Wireline Services
Local voice services             $    34,637   $ 35,730   $ (1,093 )       -3.1 %
Network access services
Business data                          6,416      4,791      1,625         33.9 %
Wholesale carrier data                14,809     15,457       (648 )       -4.2 %
Subscriber line access charge          9,408      9,756       (348 )       -3.6 %
Switched carrier access                1,736      2,251       (515 )      -22.9 %
                                      32,369     32,255        114          0.4 %
Long distance services                 6,139      7,159     (1,020 )      -14.2 %
High-Speed Internet                    9,880      8,959        921         10.3 %
Video                                  2,864      1,035      1,829        176.7 %
Equipment and managed services         7,117      6,380        737         11.6 %
Other                                  3,296      2,316        980         42.3 %
                                      96,302     93,834      2,468          2.6 %
Wireless                                 695        855       (160 )      -18.7 %
                                 $    96,997   $ 94,689   $  2,308          2.4 %

Channel
Business                         $    42,565   $ 39,766   $  2,799          7.0 %
Consumer                              34,849     34,350        499          1.5 %
Wholesale                             16,545     17,708     (1,163 )       -6.6 %
Other                                  3,038      2,865        173          6.0 %
                                 $    96,997   $ 94,689   $  2,308          2.4 %


Table of Contents

For Six Months



                                   Six Months Ended
                                       June 30,                 Change
                                   2013        2012       Amount    Percentage

Wireline Services
Local voice services             $  69,664   $  71,427   $ (1,763 )       -2.5 %
Network access services
Business data                       12,603       9,552      3,051         31.9 %
Wholesale carrier data              30,273      31,634     (1,361 )       -4.3 %
Subscriber line access charge       19,065      19,592       (527 )       -2.7 %
Switched carrier access              3,502       4,635     (1,133 )      -24.4 %
                                    65,443      65,413         30          0.0 %
Long distance services              12,713      14,607     (1,894 )      -13.0 %
High-Speed Internet                 19,496      17,935      1,561          8.7 %
Video                                5,067       1,532      3,535        230.7 %
Equipment and managed services      12,496      14,889     (2,393 )      -16.1 %
Other                                6,674       4,696      1,978         42.1 %
                                   191,553     190,499      1,054          0.6 %
Wireless                             1,408       1,764       (356 )      -20.2 %
                                 $ 192,961   $ 192,263   $    698          0.4 %

Channel
Business                         $  83,081   $  81,863   $  1,218          1.5 %
Consumer                            69,496      68,292      1,204          1.8 %
Wholesale                           33,774      36,269     (2,495 )       -6.9 %
Other                                6,610       5,839        771         13.2 %
                                 $ 192,961   $ 192,263   $    698          0.4 %

The decrease in local services revenues was caused primarily by the decline of $2.0 million and $3.8 million of voice access lines for the three and six month periods, respectively. This was offset by $0.9 million and $2.0 million of revenue for the three and six month periods, respectively, from Wavecom customers acquired in December 2012. Continued competition in the telecommunications industry has increasingly resulted in customers using technologies other than traditional phone lines for voice and data. Residential customers are increasingly using wireless services in place of traditional wireline phone services as well as moving local voice service to VoIP technology offered by competitors. Generally, VoIP technology offered by cable providers is less expensive than traditional wireline phone service, requiring us to respond with more competitive pricing. Additionally, Competitive Local Exchange Carriers (CLECs) and our cable competitor continue to focus on business customers and selling services to our customer base.

In an effort to slow the rate of line loss, we are continuing retention and acquisition programs, and are increasingly focusing efforts on bundling of services. We have instituted various "saves" campaigns designed to focus on specific circumstances where we believe customer churn is controllable. These campaigns include targeted offers to "at risk" customers as well as other promotional tools designed to enhance customer retention. We are also reemphasizing win-back and employee referral programs. Additionally, we are intensifying our efforts relative to developing tools and training to enhance our customer service capability to improve customer retention and growth.


Table of Contents

Business data revenue for the three and six months ended June 30, 2013 increased when compared to the prior year period because of $1.6 million and $3.3 million, respectively, of revenue from Wavecom customers acquired in December 2012. Wholesale carrier revenue decreased because of revenues received from Wavecom in 2012 which we no longer recognize as Wavecom is a wholly-owned subsidiary. In addition, the impact of the decline in voice access lines is reflected in subscriber line access charges and switched carrier access charges.

The decrease in long distance revenue was primarily because of the decline in long distance lines and customers moving to wireless and VoIP based technologies for long distance calling.

HSI revenues increased when compared to the prior year primarily because an approximate 4.4% growth in our HSI subscribers as well as improved revenue per subscriber with increased bandwidth offerings.

On July 1, 2011, we commercially launched our video service on the island of Oahu. We are rolling out Hawaiian Telcom TV gradually to selected areas to ensure delivery of superior service and an ongoing excellent customer experience. Our volume is ramping up as more homes become enabled for video service. We expect to expand both the availability and the capabilities of our Hawaiian Telcom TV service over the next several years through additional capital investment and innovation.

Equipment and managed services sales have increased for the quarterly period and decreased for six month period because of changes in the volume of sales and installations of customer premise equipment for certain large government customers during the three and six months ended June 30, 2013 compared to the same periods in the prior year. Revenue from equipment sales varies from period to period based on the volume of large installation projects. The volume of such projects in future periods is uncertain.

The increase in other wireline services revenue for the three and six months ended June 30, 2013 compared to the same periods in the prior year is because of revenue from Wavecom of $0.4 million and $0.8 million, respectively. In addition, business VoIP equipment usage fees amounted to $0.4 million and $0.8 million for the three and six months ended June 30, 2013 and were negligible in the prior year periods.

Wireless revenues declined when compared to the same periods in the prior year as there has been a reduction in marketing effort as we focus on other products.

Operating Costs and Expenses

The following tables summarize our costs and expenses for the three and six months ended June 30, 2013 compared to the costs and expenses for the three and six months ended June 30, 2012 (dollars in thousands):

For Three Months



                                  Three Months Ended
                                       June 30,                       Change
                                  2013           2012          Amount       Percentage

Cost of revenues
(exclusive of depreciation
and amortization)             $     39,960    $    39,432    $       528           1.3 %
Selling, general and
administrative expenses             28,516         26,994          1,522           5.6 %
Gain on sale of property            (6,546 )            -         (6,546 )          NA
Depreciation and
amortization                        19,841         17,354          2,487          14.3 %

                              $     81,771    $    83,780    $    (2,009 )        -2.4 %


Table of Contents

For Six Months



                                     Six Months Ended
                                         June 30,                      Change
                                   2013           2012          Amount       Percentage

Cost of revenues (exclusive
of depreciation and
amortization)                   $    80,244    $    80,231    $        13           0.0 %
Selling, general and
administrative expenses              56,895         56,020            875           1.6 %
Gain on sale of property             (6,546 )            -         (6,546 )          NA
Depreciation and
amortization                         38,558         33,942          4,616          13.6 %

                                $   169,151    $   170,193    $    (1,042 )        -0.6 %

The Company's total headcount as of June 30, 2013 was 1,377 compared to 1,345 as of June 30, 2012. Employee related costs are included in both cost of revenues and selling, general and administrative expenses.

Cost of revenues consists of costs we incur to provide our products and services including those for operating and maintaining our networks, installing and maintaining customer premise equipment, and cost of goods sold directly associated with various products. Costs of revenues were comparable for the three and six months ended June 30, 2013 relative to the same periods in the prior year.

Selling, general and administrative expenses include costs related to sales and marketing, information systems and other administrative functions. The increase for the three months ended June 30, 2013 compared to the same period in the prior year was because of increased wage costs of $0.8 million on higher average headcount. The increase for the six months ended June 30, 2013 compared to the same period in the prior year was because of increased gross receipts taxes of $0.9 million as there were beneficial settlements related to such taxes in the prior year.

We sold a parcel of land and warehouse not actively used in the Company's operations for a purchase price, as amended, of $13.9 million. A gain on the sale of $6.5 million was recognized in the second quarter of 2013. The HPUC approval of the sale provides we spend $0.3 million on training employees on broadband telecommunication deployment and operation. In addition, the HPUC approval requires the remaining proceeds be used for improvement to our broadband network.

Depreciation and amortization increased because of new property additions placed into service.


Table of Contents

Other Income and (Expense)

The following tables summarize other income (expense) for the three and six months ended June 30, 2013 and 2012 (dollars in thousands):

For Three Months



                                         Three Months Ended
                                              June 30,                 Change
                                          2013         2012      Amount    Percentage

Interest expense                       $    (5,083 ) $ (5,414 ) $    331         -6.1 %
Loss on early extinguishment of debt        (3,660 )        -     (3,660 )         NA
Interest income and other                        6          6          -          0.0 %

                                       $    (8,737 ) $ (5,408 ) $ (3,329 )       61.6 %

For Six Months



                                         Six Months Ended
                                             June 30,                 Change
                                         2013        2012      Amount    Percentage

Interest expense                       $ (10,623 ) $ (11,400 ) $   777         -6.8 %
Loss on early extinguishment of debt      (3,660 )    (5,112 )   1,452        -28.4 %
Interest income and other                     21          18         3         16.7 %

                                       $ (14,262 ) $ (16,494 ) $ 2,232        -13.5 %

Interest expense decreased for the three and six months ended June 30, 2013 compared to the same periods in the prior year primarily because of the lower interest rates on the refinanced debt.

In connection with the refinancing of debt in the second quarter of 2013 and the first quarter of 2012, we incurred charges of $3.7 million and $5.1 million, respectively, which consisted of the loss on the repayment of the old debt and certain refinancing costs.

Income Tax Benefit

As of December 31, 2011, we had maintained a full valuation allowance over our net deferred income tax assets. This situation resulted from our having a short history as a new entity (post Chapter 11). From emergence in 2010 through 2012, we have generated earnings in all periods. As a result of our continued positive annual earnings, as well as positive forecasted earnings in the future, management concluded that it was more than likely than not that we will realize our deferred income tax assets, and therefore, we released our valuation allowance as of December 31, 2012. If there is a decline in the level of actual future or forecasted earnings, the conclusion regarding the need for a valuation allowance may change in future periods resulting in the establishment of a valuation allowance for some or all of our deferred income tax assets.


Table of Contents

Liquidity and Capital Resources

As of June 30, 2013, we had cash of $58.4 million. From an ongoing operating perspective, our cash requirements in 2013 consist of supporting the development and introduction of new products, capital expenditure projects, pension funding obligations and other changes in working capital. A combination of cash-on-hand and cash generated from operating activities will be used to fund our cash requirements.

We have continued to take actions to conserve cash and improve liquidity. Efforts have also been taken to generate further operating efficiencies and focus on expense management. We have focused on improving operating results, including efforts to simplify product offerings, improve our customer service experience and increase our revenue enhancement activities. There can be no assurance that these additional actions will result in improved overall cash flow. We continue to have sizable retirement obligations for our existing employee base. Any sustained declines in the value of pension trust assets or relatively high levels of pension lump sum benefit payments will increase the magnitude of future plan contributions.

Agreements with the Hawaii Public Utilities Commission and the debt agreements of Hawaiian Telcom Communications, Inc. limit the ability of our subsidiaries to pay dividends to the parent company and restrict the net assets of all of our subsidiaries. This can limit our ability to pay dividends to our shareholders. As the parent company has no operations, debt or other obligations, this restriction has no other immediate impact on our operations.


Table of Contents

Cash Flows for Six Months Ended June 30, 2013 and 2012

Our primary source of funds continues to be cash generated from operations. We use the net cash generated from operations to fund network expansion and modernization. We expect that our capital spending requirements will continue to be financed through internally generated funds. We also expect to use cash generated in future periods for debt service. Additional debt or equity financing may be needed to fund additional development activities or to maintain our capital structure to ensure financial flexibility.

Net cash provided by operations amounted to $31.1 million for the six months ended June 30, 2013. Our cash flows from operations are impacted by our results of operations, changes in working capital and payments on certain long-term liabilities. Net cash provided by operations amounted to $39.6 million for the six months ended June 30, 2012. The decrease in cash provided by operations was primarily because of working capital needs during the six month ended June 30, 2013.

Cash used in investing activities included capital expenditures of $45.0 million and $41.2 million for the six months ended June 30, 2013 and 2012, respectively. The level of capital expenditures for 2013 is expected to be slightly higher than 2012 as we invest in systems to support new product introductions and transform our network to enable next-generation technologies.

Cash used in financing activities for the six months ended June 30, 2013 and 2012 includes the impact of the 2013 and 2012 refinancing of our debt.

Outstanding Debt and Financing Arrangements

As of June 30, 2013, we had outstanding $300.0 million in aggregate long-term debt. The term loan has a maturity date of June 2019. We do not expect to generate the necessary cash flow from operations to repay the facility in its . . .

  Add HCOM to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for HCOM - All Recent SEC Filings
Sign Up for a Free Trial to the NEW EDGAR Online Pro
Detailed SEC, Financial, Ownership and Offering Data on over 12,000 U.S. Public Companies.
Actionable and easy-to-use with searching, alerting, downloading and more.
Request a Trial Sign Up Now


Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.