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 12-Nov-2013All Recent SEC Filings

Show all filings for HAWAIIAN TELCOM HOLDCO, INC.

Form 10-Q for HAWAIIAN TELCOM HOLDCO, INC.


12-Nov-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 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;

    our ability to integrate recent business acquisitions;

          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 Other) 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.

Other

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 Nine Months Ended September 30, 2013 and 2012

Operating Revenues

The following tables summarize our volume information as of September 30, 2013 and 2012, and our operating revenues for the three and nine months ended September 30, 2013 and 2012. For comparability, we also present volume information as of September 30, 2013 compared to June 30, 2013.

                               Volume Information



September 2013 compared to September 2012



                            September 30,   September 30,          Change
                                2013            2012        Number    Percentage

Voice access lines
Residential                       190,013         207,732   (17,719 )       -8.5 %
Business (1)                      194,623         185,849     8,774          4.7 %
Public                              4,246           4,467      (221 )       -4.9 %
                                  388,882         398,048    (9,166 )       -2.3 %

High-Speed Internet lines
Residential                        90,253          86,570     3,683          4.3 %
Business                           19,163          18,260       903          4.9 %
Wholesale                             986           1,014       (28 )       -2.8 %
                                  110,402         105,844     4,558          4.3 %

Long distance lines
Residential                       119,096         128,760    (9,664 )       -7.5 %
Business (1)                       79,320          75,529     3,791          5.0 %
                                  198,416         204,289    (5,873 )       -2.9 %

Video
Subscribers                        15,796           8,444     7,352         87.1 %
Homes Enabled                     111,000          59,422    51,578         86.8 %



(1) Business voice access lines and business long distance lines included approximately 11,000 and 6,100, respectively, as of September 30, 2013 related to the acquisition of Wavecom.


Table of Contents

September 2013 compared to June 2013

                            September 30,   June 30,         Change
                                2013          2013     Number   Percentage

Voice access lines
Residential                       190,013    194,365   (4,352 )       -2.2 %
Business                          194,623    195,756   (1,133 )       -0.6 %
Public                              4,246      4,291      (45 )       -1.0 %
                                  388,882    394,412   (5,530 )       -1.4 %

High-Speed Internet lines
Residential                        90,253     89,737      516          0.6 %
Business                           19,163     18,986      177          0.9 %
Wholesale                             986        998      (12 )       -1.2 %
                                  110,402    109,721      681          0.6 %

Long distance lines
Residential                       119,096    121,591   (2,495 )       -2.1 %
Business                           79,320     79,956     (636 )       -0.8 %
                                  198,416    201,547   (3,131 )       -1.6 %

Video
Subscribers                        15,796     13,618    2,178         16.0 %
Homes Enabled                     111,000    100,000   11,000         11.0 %

                   Operating Revenues (dollars in thousands)



For Three Months



                                   Three Months Ended
                                     September 30,               Change
                                    2013         2012      Amount    Percentage

Wireline Services
Local voice services             $    34,195   $ 35,257   $ (1,062 )       -3.0 %
Network access services
Business data                          6,282      4,600      1,682         36.6 %
Wholesale carrier data                14,850     15,676       (826 )       -5.3 %
Subscriber line access charge          9,442      9,619       (177 )       -1.8 %
Switched carrier access                1,623      2,226       (603 )      -27.1 %
                                      32,197     32,121         76          0.2 %
Long distance services                 6,091      6,735       (644 )       -9.6 %
High-Speed Internet                    9,999      9,013        986         10.9 %
Video                                  3,717      1,528      2,189        143.3 %
Equipment and managed services         7,228      8,715     (1,487 )      -17.1 %
Other                                  3,579      2,472      1,107         44.8 %
                                      97,006     95,841      1,165          1.2 %
Wireless                                 676        806       (130 )      -16.1 %
                                 $    97,682   $ 96,647   $  1,035          1.1 %

Channel
Business                         $    42,739   $ 41,618   $  1,121          2.7 %
Consumer                              35,298     34,486        812          2.4 %
Wholesale                             16,473     17,634     (1,161 )       -6.6 %
Other                                  3,172      2,909        263          9.0 %
                                 $    97,682   $ 96,647   $  1,035          1.1 %


Table of Contents

For Nine Months



                                   Nine Months Ended
                                     September 30,              Change
                                   2013        2012       Amount    Percentage

Wireline Services
Local voice services             $ 103,859   $ 106,684   $ (2,825 )       -2.6 %
Network access services
Business data                       18,885      14,152      4,733         33.4 %
Wholesale carrier data              45,123      47,310     (2,187 )       -4.6 %
Subscriber line access charge       28,507      29,211       (704 )       -2.4 %
Switched carrier access              5,125       6,861     (1,736 )      -25.3 %
                                    97,640      97,534        106          0.1 %
Long distance services              18,804      21,342     (2,538 )      -11.9 %
High-Speed Internet                 29,495      26,948      2,547          9.5 %
Video                                8,784       3,060      5,724        187.1 %
Equipment and managed services      19,724      23,604     (3,880 )      -16.4 %
Other                               10,253       7,168      3,085         43.0 %
                                   288,559     286,340      2,219          0.8 %
Wireless                             2,084       2,570       (486 )      -18.9 %
                                 $ 290,643   $ 288,910   $  1,733          0.6 %

Channel
Business                         $ 125,820   $ 123,481   $  2,339          1.9 %
Consumer                           104,794     102,778      2,016          2.0 %
Wholesale                           50,248      53,903     (3,655 )       -6.8 %
Other                                9,781       8,748      1,033         11.8 %
                                 $ 290,643   $ 288,910   $  1,733          0.6 %

The decrease in local services revenues was caused primarily by the decline of $2.0 million and $5.7 million of voice access lines for the three and nine month periods, respectively. This was offset by $0.9 million and $2.9 million of revenue for the three and nine 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 also emphasize 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 nine months ended September 30, 2013 increased when compared to the prior year period because of $1.2 million and $3.8 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 of an approximate 4.3% 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 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 decreased for the three and nine month periods because of changes in the volume of sales and installations of customer premise equipment for certain large government customers during the three and nine months ended September 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 nine months ended September 30, 2013 compared to the same periods in the prior year is because of revenue from Wavecom of $0.4 million and $1.2 million, respectively. In addition, business VoIP equipment usage fees amounted to $0.6 million and $1.4 million for the three and nine months ended September 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.

SystemMetrics

The acquisition of SystemMetrics increases the scale and scope of our data center operations by adding a state-of-the-art facility in Honolulu with up to 6,500 square feet of data center capacity and room for expansion. SystemMetrics currently generates annual revenues of approximately $8.0 million. With the acquisition, we anticipate marketing an expanded bundle of communication and data products to our business customers that includes enhanced physical and virtual colocation services.


Table of Contents

Operating Costs and Expenses

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

For Three Months



                                   Three Months Ended
                                      September 30,                    Change
                                   2013           2012          Amount       Percentage

Cost of revenues
(exclusive of depreciation
and amortization)              $     41,829    $    41,176    $       653           1.6 %
Selling, general and
administrative expenses              27,965         26,547          1,418           5.3 %
Depreciation and
amortization                         19,974         18,023          1,951          10.8 %

                               $     89,768    $    85,746    $     4,022           4.7 %

For Nine Months



                                   Nine Months Ended
                                     September 30,                    Change
                                  2013           2012          Amount       Percentage

Cost of revenues
(exclusive of depreciation
and amortization)              $   122,073    $   121,407    $       666           0.5 %
Selling, general and
administrative expenses             84,860         82,567          2,293           2.8 %
Gain on sale of property            (6,546 )            -         (6,546 )          NA
Depreciation and
amortization                        58,532         51,965          6,567          12.6 %

                               $   258,919    $   255,939    $     2,980           1.2 %

The Company's total headcount as of September 30, 2013 was 1,382 compared to 1,343 as of September 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 nine months ended September 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 September 30, 2013 compared to the same period in the prior year was because of an increase in contracted services of $1.1 million for expenses related to the operation of Wavecom and the acquisition of SystemMetrics. The increase for the nine months ended September 30, 2013 compared to the same period in the prior year was because of increased gross receipts taxes of $1.2 million as there were beneficial settlements related to such taxes in the prior year. In addition, rent expense increased $0.7 million related to Wavecom operations.


Table of Contents

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 requires 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.

Other Income and (Expense)

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

For Three Months



                              Three Months Ended
                                September 30,               Change
                               2013         2012     Amount    Percentage

Interest expense            $    (4,089 ) $ (5,490 ) $ 1,401        -25.5 %
Interest income and other             7         10        (3 )      -30.0 %

                            $    (4,082 ) $ (5,480 ) $ 1,398        -25.5 %

For Nine Months



                                         Nine Months Ended
                                           September 30,              Change
                                         2013        2012      Amount    Percentage

Interest expense                       $ (14,712 ) $ (16,890 ) $ 2,178        -12.9 %
Loss on early extinguishment of debt      (3,660 )    (5,112 )   1,452        -28.4 %
Interest income and other                     28          28         -          0.0 %

                                       $ (18,344 ) $ (21,974 ) $ 3,630        -16.5 %

Interest expense decreased for the three and nine months ended September 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

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 September 30, 2013, we had cash of $45.1 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 Nine Months Ended September 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 $54.8 million for the nine months ended September 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 $59.0 million for the nine months ended September 30, 2012. The decrease in cash provided by operations was primarily because of working capital needs during the nine month period ended September 30, 2013.

Cash used in investing activities included capital expenditures of $69.8 million and $61.0 million for the nine months ended September 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.

. . .

  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
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.