4 th Quarter & Full Year 2015 Earnings Conference Call. March 8, 2016

Transcription

1 4 th Quarter & Full Year 2015 Earnings Conference Call March 8, 2016

2 Agenda Company Overview Operational & Financial Review Scott Barber President & CEO Dan Bessey SVP & CFO Q & A 2

3 Presented Information In addition to historical information, this presentation includes certain statements and predictions that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of In particular, any statement, projection or estimate that includes or references the words believes, anticipates, intends, expects, or any similar expression falls within the safe harbor of forward-looking statements contained in the Reform Act. Actual results or outcomes may differ materially from those indicated or suggested by any such forward-looking statement for a variety of reasons, including, but not limited to: failures in Hawaiian Telcom s critical back office systems and IT infrastructure; breach of the our data security systems; increases in the amount of capital expenditures required to execute our business plan; the loss of certain outsourcing agreements, or the failure of any third party to perform under these agreements; our ability to sell capacity on the new submarine fiber cable project; adverse changes to applicable laws and regulations; the failure to adequately adapt to technological changes in the telecommunications industry, including changes in consumer technology preferences; adverse economic conditions in Hawaii; the availability of lump sum distributions under our union pension plan; limitations on the ability to utilize net operating losses due to an ownership change under Internal Revenue Code Section 382; the inability to service our indebtedness; limitations imposed on our business from restrictive covenants in the credit agreements; and severe weather conditions and natural disasters. More information on potential risks and uncertainties is available in recent filings with the Securities and Exchange Commission, including Hawaiian Telcom s Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. The information contained in this presentation is as of March 8, It is possible that subsequent events and developments will cause estimates to change. 3

4 Company Overview Scott Barber, President & CEO

5 2015 Performance Highlights Achieved Full Year Total Revenue Growth Revenue totaled $99M for 4Q15 and $393M for 2015, up 0.7% Y/Y Adjusted EBITDA of $29M and $120M, up 1.5% Y/Y Net income of $1.1M for th consecutive year of profitability Consumer Revenue Growth for 4Q15 & 2015 Business Revenue Growth for 4Q15 & 2015 Other 2015 Notable Accomplishments Consumer revenue grew 0.6% & 2.5% Y/Y for 4Q15 & 2015 Consumer strategic revenues 1 grew 14.5% & 21% for 4Q15 & 2015 Expanded next-generation fiber footprint to 190K households on O ahu Business revenue grew 0.7% & 0.5% Y/Y for 4Q15 & 2015 Business strategic revenues 2 grew 8.7% in both 4Q15 & 2015 Data services grew 16.6% & 10% Y/Y for 4Q15 & 2015 Launched 1 Gbps fastest Internet service in the market, new unified communication services and cloud offerings Closed $30M in pre-sales of excess SEA-US capacity, already recouped initial investment & still have more to monetize 1. Include video services and consumer Internet services revenues 2. Includes data services and data center services revenues 5

6 Hawaii Economic Outlook Hawaii s Construction Industry Continued Solid Growth Unemployment Rate 7-Year Low & 5 th Lowest in Nation Overall Overall Steady Hawaii Economic Economy Growth Expected to Expected Continue to Improve Sources: Hawaii Department of Business, Economic Development & Tourism; U.S. Bureau of Labor Statistics. Data extracted on 2/25/16. 6

7 Grow the Business Consumer Market Hawaiian Telcom TV Delivering Strong Results Video Revenue & ARPU Consumer strategic revenue grew 14.5% Y/Y Representing ~50% of total consumer revenue, up from 33% two years ago Consumer Strategic Revenue Growth 4Q 15 video revenue grew 30.3% Y/Y 27.6% Y/Y increase in video subscribers ~18.9% penetration of households enabled Signed 3 bulk MDUs totaling 450 units, ending 2015 with 59 video bulk MDUs under contract Expanded enabled footprint to 190K 60% of households FTTP enabled 7

8 Grow the Business Business Market Bandwidth demand & next-gen services driving growth Expanding business fiber-enabled footprint Growing data center & cloud services Business strategic revenue grew 8.7% Y/Y Representing 36% of total business revenue, up from 29% two years ago Fiber-enabled ~2,900 targeted business addresses through 2015, allowing customers to cloud-enable business & increase productivity Launched Next-Generation Endpoint security solution rounding out Software-asa-Service suite of security products and services 8

9 Grow the Business Wholesale Market Number of Cell Sites Completed (at quarter end) 455 fiber cell sites completed at year-end % Cell Sites w/ Bandwidth 100+ Mbps $6.6 million annualized revenue 45 additional sites under contract to build 9

10 2016 Focus Invest in Network & Systems Grow the Business Deliver Superior Service Improve Financial Performance Continue fiber network expansion Grow video & Internet penetration Improve the customer experience Manage costs to support growth Upgrade copper network & systems Extend & enhance Internet service to unserved homes using CAF II Deliver new & enhanced IP products Grow data center & cloud services SEA-US opportunity Strengthen Hawaiian Telcom brand as Hawaii s Technology Leader Optimize capital spending Position for long-term sustainable cash flow generation Grow the Business Increase shareholder value 10

11 Operational & Financial Review Dan Bessey, SVP & CFO

12 Full Year Revenue & Adjusted EBITDA Total Revenue 0.7% 2015 revenue $393.4M $2.7M Y/Y increase Revenue increase from strategic services creating growth platform to generate stable & sustainable cash flow Adjusted EBITDA Adjusted EBITDA $119.5M 1.5% Y/Y increase from revenue growth 1.5% 12

13 Quarterly Revenue & Adjusted EBITDA Total Revenue Fourth quarter revenue $99.2M Growth from consumer video & business data services Impact from legacy voice declines and lower levels of equipment sales from SystemMetrics Adjusted EBITDA Adjusted EBITDA $29.3M Impact from ~$1.4M increase in overtime & contractor costs related to rain repairs Excluding these costs, Adjusted EBITDA consistent Y/Y 13

14 Consumer Channel Consumer Revenue 0.6% Consumer revenue $36.3M 0.6% Y/Y increase driven by $2.1M increase in video revenue from increased reach & deeper penetration into fiber footprint HTTV sub growth of 1,900 ~35,900 total subscribers, 78% nonbulk/sfh 2,358 Video Subscriber Adds 2,200 2,088 1,597 1,867 ~80% of gross video additions are brand new or winback customers 94% of existing video subscribers have bundles with Internet Y/Y Internet net adds of 127 subs 53% Internet subs on Oahu on 21 Mbps to 1 Gbps speeds vs. 43% in 4Q 14 14

15 Business Channel Business Revenue 0.7% Business revenue $44.4M 0.7% Y/Y increase 16.6% Y/Y increase in data services revenue 4.1% Y/Y increase in CPE & managed services revenue 29.9% Y/Y increase in VoIP lines 2.5% Y/Y increase in data lines Business Data Services Revenue Business VoIP Lines 16.6% 29.9% 15

16 Wholesale Channel Wholesale Revenue Wholesale revenue $14.1M Y/Y decline due to one-time charges in 4Q 14 & legacy TDM circuits moving to fiber Ethernet circuits on multi-year contracts Switched carrier access and subsidies revenue are now included in Other Revenue 16

17 Operating Expenses Quarterly Operating Expenses $71 Overall operating expense increased $1M primarily due to increased direct cost of services related to video, higher overtime labor & contractor costs related to rain repairs, partially offset by lower energy costs. 17

18 Capital Expenditures Full Year CapEx $96.7 $99.0 Overall $2.3M increase in capital expenditures Higher level growth capex from success-based spending for sales contracts $29.3M capex spent in 2015 on NGN network build, Trans-Pac payments & cell site FTTT Total 2016 expected to be consistent with 2015 levels 18

19 Cash Flow Levered Free Cash Flow 2015 levered free cash flow of $4.3M 2015 net cash flow of -$10M, consistent with Cash flow unfavorability from higher capex and working capital. 19

20 Q&A

21 Appendix

22 New Revenue & Volume Presentation In the fourth quarter 2015, we revised the presentation of volume information and operating revenue to provide more meaningful information. Prior period information has been revised to reflect the current presentation. Total revenue has not changed from that previously reported but the classification by channel has been modified and we now also present product information by channel. HISTORICAL QUARTERLY REVENUE INFORMATION (UNAUDITED) (Dollars in thousands) For the Three Months Ended Operating revenues: Business 3/31/13 6/30/13 9/30/13 12/31/13 3/31/14 6/30/14 9/30/14 12/31/14 3/31/15 6/30/15 9/30/15 12/31/15 Data services... $ 10,061 $ 10,432 $ 10,441 $ 10,899 $ 11,215 $ 11,268 $ 11,162 $ 11,187 $ 12,059 $ 11,838 $ 12,387 $ 13,043 Voice services... 26,585 26,115 26,195 25,395 25,414 24,843 24,627 24,051 24,021 23,161 23,657 22,882 Data center services... 2,188 2,405 2,323 2,485 3,524 2,597 2,784 2,762 2,951 Equipment and managed services... 5,379 7,117 7,228 7,270 4,489 4,723 4,818 5,294 4,265 4,779 5,993 5,510 42,025 43,664 43,864 45,752 43,523 43,157 43,092 44,056 42,942 42,562 44,799 44,386 Consumer Video services... 2,204 2,864 3,717 4,228 4,754 5,474 6,531 7,051 7,522 8,280 8,677 9,187 Internet services... 6,669 6,950 7,039 7,230 7,483 7,687 7,815 8,039 8,128 8,187 8,283 8,088 Voice services... 24,719 24,050 23,525 23,020 22,642 22,134 21,463 21,024 20,516 20,033 19,683 19,042 33,592 33,864 34,281 34,478 34,879 35,295 35,809 36,114 36,166 36,500 36,643 36,317 Wholesale carrier data... 15,464 14,809 14,850 14,406 14,386 14,280 14,416 14,689 14,333 13,789 14,245 14,063 Other... 4,883 4,660 4,687 5,871 4,284 4,052 3,935 4,771 3,673 3,336 5,218 4,439 Total operating revenues... $ 95,964 $ 96,997 $ 97,682 $ 100,507 $ 97,072 $ 96,784 $ 97,252 $ 99,630 $ 97,114 $ 96,187 $ 100,905 $ 99,205 VOLUME INFORMATION 3/31/13 6/30/13 9/30/13 12/31/13 3/31/14 6/30/14 9/30/14 12/31/14 3/31/15 6/30/15 9/30/15 12/31/15 Business Data lines... 18,810 18,986 19,163 19,320 19,404 19,465 19,552 19,589 19,624 19,759 19,835 20,081 BVoIP lines... 6,874 7,628 8,442 9,517 11,008 11,600 12,143 12,898 13,875 15,469 16,273 16,749 Voice access lines , , , , , , , , , , , ,058 Consumer Video subscribers... 11,671 13,618 15,796 18,393 20,279 23,101 25,766 28,124 29,721 31,921 34,009 35,876 Internet lines... 89,464 89,737 90,253 91,437 91,429 91,405 92,265 92,875 93,090 93,338 93,202 93,002 Voice access lines , , , , , , , , , , , ,996 Homes enabled for video... 83, , , , , , , , , , , ,000 22