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

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
ALTV > SEC Filings for ALTV > Form 10-Q on 12-Nov-2013All Recent SEC Filings

Show all filings for ALTEVA, INC.

Form 10-Q for ALTEVA, INC.


12-Nov-2013

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Certain statements contained in this Quarterly Report on Form 10-Q, including, without limitation, statements containing the words "believes," "anticipates," "intends," "expects" and words of similar import, constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following: general economic and business conditions, both nationally and in the geographic regions in which we operate; industry capacity; goodwill and long-lived asset impairment; changes in the Orange County-Poughkeepsie Limited Partnership ("O-P") distributions; risks associated with the exercise of our option to sell our O-P interest back to Verizon; demographic changes; management turnover; technological changes and changes in consumer demand; existing governmental regulations and changes in or our failure to comply with, governmental regulations; legislative proposals relating to the businesses in which we operate; changes to the USF; risks associated with our unfunded pension liability; competition; the loss of any significant ability to attract and retain highly skilled personnel and any other factors that are described in "Risk Factors." Given these uncertainties, current and prospective investors should be cautioned regarding reliance on such forward-looking statements. Except as required by law, we disclaim any obligation to update any such factors or to publicly announce the results of any revision to any of the forward-looking statements contained herein to reflect future events or developments. For a discussion of the matters described above, see Item 1A, "Risk Factors" in our Annual Report on Form 10-K/A for the year ended December 31, 2012.

Overview

Alteva, Inc. (we, our or us), is a cloud-based communications company that provides Unified Communications ("UC") solutions that unify an organization's communications systems, including enterprise hosted Voice over Internet Protocol
("VoIP"). We also operate a regional Incumbent Local Exchange Carrier ("ILEC")
in southern Orange County, New York and northern New Jersey. We deliver cloud-based UC solutions including enterprise hosted VoIP, Hosted Microsoft Communication Services (OCS and Lync), fixed mobile convergence and advanced voice applications for the desktop. By combining voice service with Microsoft Communications Services products, our customers receive a voice-enabled UC solution that integrates with existing business applications. Our ILEC operations consist of providing local and toll telephone service to residential and business customers, Internet high speed broadband service, and DIRECTV.

In August 2013, we announced the discontinuation of dividends payable on our common stock to support future growth initiatives and strengthen our financial position. We expect that dividends payable on our preferred stock will continue.

As part of our efforts to improve performance of the UC segment, we initiated a restructuring of our business by disposing of our Syracuse, New York operations. Effective September 1, 2013, we sold certain assets of our wholly-owned subsidiary Alteva of Syracuse, Inc. to a third-party for approximately $0.6 million. We recorded a $0.4 million loss in the three months ended September 30, 2013 related to the exiting of the Syracuse facility. We expect to incur additional costs in the fourth quarter of 2013 of approximately $0.1 million. We believe this transaction will further strengthen our position in the UC industry by improving our profitability and focusing our attention on the latest platform technology.

The following discussion and analysis should be read in conjunction with the accompanying Condensed Consolidated Financial Statements and Notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q.

Executive Summary

Revenues increased $0.4 million or 7% to $7.5 million for the three months ended September 30, 2013, compared to $7.1 million for the three months ended September 30, 2012. The increase in revenues was attributable to a 12% increase in revenues from our UC segment resulting from the addition of new customers on our platform and were slightly offset by the decrease in revenue of $0.2 million from the discontinuation of our Syracuse, New York operations. Revenue from our Telephone segment increased 2% due to increases in Broadband and rate changes partially offset by the continued decline in access lines.

During the three months ended September 30, 2013, we had net income of $0.6 million, compared to a net loss of $0.9 million for the three months ended September 30, 2012. This increase was primarily attributable to the increase of $0.8 million, or 21%, in gross profit, calculated as net revenues less cost of services and products (exclusive of depreciation and amortization expense), driven by our increase in UC revenue and our ability to leverage our UC infrastructure.

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



The following table presents a summary of operating results for our Telephone
and UC operating segments for the periods indicated:



                    Three months ended September 30, 2013                    Three months ended September 30, 2012
                          % of Total        Segment       Segment                  % of Total        Segment       Segment
             Revenue       Revenue       Profit (loss)    Margin      Revenue       Revenue       Profit (loss)    Margin

UC          $   4,043              54 % $        (2,563 )     (63 )% $   3,621              51 % $        (3,252 )     (90 )%
Telephone       3,487              46 %             361        10 %      3,429              49 %            (767 )     (22 )%

Total       $   7,530             100 % $        (2,202 )     (29 )% $   7,050             100 % $        (4,019 )     (57 )%


Table of Contents

OPERATING REVENUES

Operating revenues for the three months ended September 30, 2013 increased $0.4 million, or 7%, to $7.5 million from $7.1 million compared to the corresponding period in 2012. This increase was primarily due to a 12% increase in revenues from the organic growth of our UC segment resulting from the addition of new customers on our platform.

Revenues for our UC segment increased 12% to $4.0 million for the three months ended September 30, 2013 from $3.6 million for the three months ended September 30, 2012. This increase was primarily due to an increase in recurring license and usage revenue of $0.7 million and equipment revenue of $0.1 million resulting primarily from new customers offset partially by $0.2 million from the discontinuation of our Syracuse, New York operations.

Revenues for our Telephone segment increased 2% to $3.5 million for the three months ended September 30, 2013 from $3.4 million for the three months ended September 30, 2012. The increase was primarily due to increases in Broadband and rate changes partially offset by the continued decline in access lines.

OPERATING EXPENSES

Cost of Services and Products

The cost of services and products for the three months ended September 30, 2013 decreased $0.3 million, or 8%, to $3.1 million from $3.4 million for the same period in 2012 primarily as a result of lower carrier circuits cost due to initiatives to reduce costs in 2012 and 2013.

Cost of services and products for our UC segment decreased $0.2 million, or 7%, to $2.0 million for the three months ended September 30, 2013 from $2.2 million for the three months ended September 30, 2012, and decreased as a percentage of revenue from 60% to 50%. The decrease as a percentage of revenue was due to leveraging the UC infrastructure over a larger revenue base. The dollar decrease was primarily due to lower third-party carrier costs as part of our cost reduction initiatives and cost savings from the discontinuation of the Syracuse operations.

Cost of services and products for our Telephone segment remained consistent at approximately $1.2 million for the three months ended September 30, 2013 and September 30, 2012.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the three months ended September 30, 2013 decreased $1.0 million, or 16%, to $5.2 million from $6.2 million for the same period in 2012. This decrease was primarily associated with a reduction in wages of $0.8 million due to the restructuring of our Telephone segment in the second quarter of 2013, adjustments to the annual incentive plan and higher severance charges in the third quarter of 2013.

Loss on Disposal and Restructuring Costs

We incurred a $0.4 million loss due to the disposal of our Syracuse, New York operations for the three months ended September 30, 2013. We believe this transaction will further strengthen our position in the UC industry by improving profitability and focusing our attention on the latest platform technology.

Depreciation and Amortization Expense

Depreciation and amortization expense for the three months ended September 30, 2013 decreased $0.4 million, or 32%, to $1.0 million from $1.4 million compared to the corresponding period in 2012. This decrease is primarily due to the lower depreciable basis on our Telephone segment assets as a result of the $8.9 million write-down of property, plant and equipment during the three months ended December 31, 2012.

TOTAL OTHER INCOME

Total other income for the three months ended September 30, 2013 increased $0.4 million, or 16% to $3.1 million from $2.7 million compared to the corresponding period in 2012. This is primarily due to a decrease in other expenses of $0.4 million.

  Results of Operations for the Nine Months Ended September 30, 2013 and 2012



The following table presents a summary of operating results for our Telephone
and UC operating segments for the periods indicated:



                                 Nine months ended Semptember 30, 2013                     Nine months ended September 30, 2012
                                       % of Total        Segment       Segment                  % of Total        Segment       Segment
                          Revenue       Revenue       Profit (loss)     Margin      Revenue      Revenue       Profit (loss)     Margin

Unified Communications   $   11,919            52 %  $        (9,058 )      (76 )% $   10,147           48 %  $        (9,160 )      (90 )%
Telephone                    10,798            48 %             (605 )       (6 )%     10,870           52 %           (1,460 )      (13 )%

Total                    $   22,717           100 %  $        (9,663 )      (43 )% $   21,017          100 %  $       (10,620 )      (51 )%


Table of Contents

OPERATING REVENUES

Operating revenues for the nine months ended September 30, 2013 increased $1.7 million, or 8%, to $22.7 million from $21.0 million during the same period in 2012. This increase was due primarily to a 18% increase in revenues from the organic growth of our UC segment resulting from the addition of new customers on our platform.

Revenues for our UC segment increased $1.8 million, or 18%, to $11.9 million for the nine months ended September 30, 2013 from $10.1 million for the nine months ended September 30, 2012. This increase was primarily due to an increase in recurring license and usage revenue of $1.6 million and equipment revenue of $0.6 million resulting primarily from the addition of new customers.

Revenues for our Telephone segment decreased $0.1 million, or 1%, to $10.8 million for the nine months ended September 30, 2013 from $10.9 million for the nine months ended September 30, 2012. The decrease was primarily due to the continued decline in access lines, partially offset by increases in Broadband and rate increases.

OPERATING EXPENSES

Cost of Services and Products

The cost of services and products decreased $0.2 million or 2%, to $10.2 million for the nine months ended September 30, 2013 from $10.4 million for the same period in 2012 primarily as a result of lower carrier circuits cost due to initiatives to reduce costs in 2012 and 2013.

Cost of services and products for our UC segment decreased $0.1 million, or 1%, from $6.7 million for the nine months ended September 30, 2012 to $6.6 million for the nine months ended September 30, 2013 and decreased as a percentage of revenue from 66% to 55%. The dollar value decrease is due to cost savings realized from the discontinuation of our Syracuse, New York operation. As a percentage of revenue, the decrease was due to leveraging the UC infrastructure over a larger revenue base.

Cost of services and products for our Telephone segment decreased $0.1 million, or 5%, from $3.7 million for the nine months ended September 30, 2012 to $3.6 million for the nine months ended September 30, 2013. This is primarily attributed to lower costs due to declining access lines.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the nine months ended September 30, 2013 increased $1.7 million, or 10%, to $18.9 million from $17.2 million for the same period in 2012. This increase was primarily associated with severance costs related to management changes and staff rationalization of $1.6 million, as well as a $0.3 million increase in non-cash stock expense related to 2013 restricted stock and option grants. Further increases were also due to the ramp-up of infrastructure in the second half of 2012 to support the growth of our UC segment, which were offset by lower compensation costs in the third quarter of 2013 as a result of our Telephone restructuring in the second quarter of 2013 and adjustments to the annual incentive plan for 2013.

Loss on Disposal and Restructuring Costs

We incurred a $0.4 million loss due to the disposal of our Syracuse, New York operations for the nine months ended September 30, 2013. We believe this transaction will further strengthen our position in the UC industry by improving profitability and focusing our attention on the latest platform technology.

Depreciation and Amortization Expense

Depreciation and amortization expense for the nine months ended September 30, 2013 decreased $1.1 million, or 27%, to $2.9 million from $4.0 million for the same period in 2012. This is primarily due to the lower depreciable basis on our Telephone segment assets as a result of the $8.9 million write-down of property, plant and equipment during the three months ended December 31, 2012.

TOTAL OTHER INCOME (EXPENSE)

Total other income for the nine months ended September 30, 2013 increased $2.2 million, or 30%, to $9.3 million from $7.1 million in the same period of 2012. This increase is due primarily to the increase in our income from the equity method investment, which was $9.8 million for the nine months ended September 30, 2013, an increase of 26%, or $2.0 million from the prior year period. During the second quarter of 2012, our remaining investment in the O-P was reduced to zero. As a result, all subsequent disbursements received from the O-P are recorded as other income. The annual cash distributions of $13.0 million we will receive in 2013 from the O-P remains unchanged pursuant to the terms of the 4G Agreement. For more information on the 4G Agreement and the accounting treatment of the distributions we receive from the O-P, see Note 9 to our Condensed Consolidated Financial Statements.

LIQUIDITY AND CAPITAL RESOURCES

We had $0.7 million of cash and cash equivalents at September 30, 2013, as compared with $1.8 million at December 31, 2012. Our primary source of liquidity continues to be our guaranteed payments from the O-P pursuant to the 4G Agreement and borrowings under our credit facility. Pursuant to the terms of the 4G Agreement, we are guaranteed annual cash distributions from the O-P of $13.0 million for 2013. The O-P's cash distributions are made to us on a quarterly basis. The distributions in excess of our proportionate share of O-P income are considered a return of our investment.

The 4G Agreement also gives us the right (the "Put") to require one of the O-P's limited partners to purchase all our ownership interest in the O-P during April 2014 for an amount equal to the greater of (a) $50 million or (b) the product of five (5) times 0.081081 times the O-P's 2013 EBITDA, as defined in the 4G Agreement.


Table of Contents

As of September 30, 2013, we had a working capital deficit of $12.8 million, which was primarily due to borrowings of $12.3 million under the TriState credit facility that matures on June 30, 2014. This debt was primarily incurred to fund the purchase of Alteva, LLC in 2011. We believe this working capital deficiency is short-term in nature and we expect to satisfy these short-term borrowings by extending or refinancing our debt before its maturity or utilizing cash distributions received from the O-P.

In August 2013, we announced the discontinuation of dividends on our common stock to support future growth initiatives and strengthen our financial position.

CASH FROM OPERATING ACTIVITIES

Net cash provided by operating activities for the nine months ended September 30, 2013 was $0.7 million, as compared to net cash used in operating activities of $1.2 million for the nine months ended September 30, 2012. Operating cash flows for the nine months ended September 30, 2013 included $5.5 million of distributions from the O-P that represented our share of the O-P's income, as compared $4.8 million for the nine months ended September 30, 2012. The improvement in operating cash flows was primarily attributable to the increase in gross profit driven by our increase in UC revenue and our ability to leverage our UC infrastructure. The additional operating cash flows were also driven by improvements in working capital, including trade accounts receivable.

CASH FROM INVESTING ACTIVITIES

Cash flow from investing activities provided $3.3 million for the nine months ended September 30, 2013, as compared to $1.2 million for the nine months ended September 30, 2012. Net cash provided by investing activities for the nine months ended September 30, 2013 included distributions we received from the O-P in excess of our share of the O-P's income of $4.2 million, as compared to $5.0 million for the nine months ended September 30, 2012. Capital expenditures, excluding seat licenses, decreased to $0.5 million during the nine months ended September 30, 2013, as compared to $3.5 million for the corresponding period in 2012. Our planned capital expenditures for 2013 are down compared to 2012, as we made significant additions to our infrastructure in 2012 to support future revenue growth. Generally, planned capital expenditures for 2013 are to support our planned product releases as we seek to enhance our solutions and provide increased value to our customers.

CASH FROM FINANCING ACTIVITIES

We used $5.1 million in financing activities during the nine months ended September 30, 2013, as compared to $2.0 million for the nine months ended September 30, 2012. Dividends declared on our common shares by the Board of Directors were $0.54 per share for the nine months ended September 30, 2013 and $0.81 per share for the nine months ended September 30, 2012. In August 2013, we announced that dividend distributions on common shares would be discontinued. The total amount of dividends paid on our common and preferred shares for the nine months ended September 30, 2013 and 2012 was $3.3 million and $4.7 million, respectively. The additional financing activities for the nine months ended September 30, 2013 was attributed to the refinancing of $15.1 million of debt during the first quarter of 2013. The remaining net borrowings relate to our working capital financing activities under our TriState facility and capital leases.

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

On November 6, 2013, we entered into an agreement with our union employees that is in effect through October, 2016. Changes to the contract are not expected to have a material impact on our financial position or results of operations.

  Add ALTV to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for ALTV - All Recent SEC Filings
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.