RE: MTS Allstream posts first-quarter profit, reve
MTS talks free cash flow, omits Q1 P&L from NR
2013-05-08 16:13 ET - News Release
Mr. Pierre Blouin reports
MTS ALLSTREAM REPORTS FIRST-QUARTER 2013 RESULTS
Manitoba Telecom Services Inc., including its two primary operating subsidiaries, MTS Inc. and Allstream Inc., has released results for the three months ended March 31, 2013.
First quarter 2013 highlights (first quarter 2013 highlights as compared with first quarter 2012)
MTS Allstream
Free cash flow increased 31.9 per cent, up $11.5-million, to $47.6-million;
Achieved annualized cost reductions of $17.0-million;
Consolidated EBITDA (earnings before interest, taxes, depreciation and amortization, and other income (expense)) up 0.5 per cent to $148.6-million;
Revenues down by 6.5 per cent to $406.7-million, mostly due to legacy declines, including planned reductions;
Earnings per share (EPS) of 46 cents, down eight cents, excluding a positive tax adjustment in first quarter 2012;
Board of directors declared 42.5-cent-per-share second quarter 2013 cash dividend.
MTS
Wireless revenues up 1.9 per cent, or 6.8 per cent excluding wireless wholesale;
Wireless subscriber data revenues up 26.5 per cent;
High-speed Internet revenues up 4.9 per cent;
IPTV (Internet protocol television) revenues up 2.6 per cent;
ARPU (average revenue per user) growth in wireless, IPTV and Internet.
Allstream
Achieved positive free cash flow of $2.0-million;
10th consecutive quarter of year-over-year EBITDA growth;
Increased EBITDA margin percentage to 16.5 per cent;
Converged IP revenues up 2.8 per cent, excluding impact of government of Ontario disconnects.
"MTS Allstream's first quarter results show that we continue to make progress on our strategy, with a 32-per-cent increase in free cash flow and annualized cost savings of $17.0-million," said Pierre Blouin, chief executive officer. "Our ability to move quickly to take costs out of the business in response to changing market conditions helped offset declines from our MTS wholesale wireless revenues and legacy revenues at Allstream. The first quarter marked Allstream's 10th consecutive quarter of year-over-year EBITDA growth and its return to generating positive free cash flow. Allstream continues to win major new contracts while reducing capital expenditures. MTS maintained its leading position in Manitoba, where our wireless business achieved growth at 6.8 per cent, excluding wholesale. The observation we would make is that, while we have had some headwinds in certain product lines, we are now starting to reap the free cash flow benefits of the recent large capital investments we have made. This positions us to sustainably grow cash flows, which bodes well for the future.
"On May 6, 2013, MTS celebrated 25 years as Manitoba's leading wireless provider. MTS launched cellular service on May 6, 1988, with a phone call between then mayor of Winnipeg, Bill Norrie, and local businessman, Don Reimer. From those very humble beginnings, MTS's wireless network has grown to become the largest in Manitoba and, with over 200 cell sites, the most extensive 4G LTE [fourth-generation, long-term evolution] wireless network in the province. We are proud of this legacy of innovation and service across Manitoba."
MTS Allstream
MTS Allstream's first quarter financial performance reflects the company's strategic focus on increasing cash flows by leveraging investments in MTS's wireless and broadband networks in Manitoba, and Allstream's Internet protocol fibre network nationally. The company remains on track to achieve its financial guidance for the full year.
CONSOLIDATED FINANCIAL RESULTS
($ in millions, except earnings per share) Q1 2013 Q4 2012 Q3 2012 Q2 2012 Q1 2012
Revenues $406.7 $413.1 $424.3 $431.6 $435.1
EBITDA 148.6 144.2 145.7 147.4 147.9
EPS 2 $0.46 $0.44 $0.50 $0.55 $0.69
Free cash flow 3 47.6 37.1 17.3 27.1 36.1
Capital expenditures 66.7 73.6 94.5 93.0 76.9
2 EPS is based on weighted average shares outstanding of 67.2 million for the
three months ended March 31, 2013; 67.0 million for the three months ended Dec.
31, 2012; 66.7 million for the three months ended Sept. 30, 2012; 66.4 million
for the three months ended June 30, 2012; and 66.2 million for the three months
ended March 31, 2012. The increase in the number of weighted shares outstanding
is mainly due to participation in the company's dividend reinvestment program.
3 MTS Allstream defines free cash flow as cash flows from operating activities,
less capital expenditures, and excluding changes in working capital and
prefinanced pension solvency payments.
Revenues: $406.7-million, down 6.5 per cent from first quarter 2012, mostly due to legacy revenue declines, including $14.1-million in planned reductions at Allstream, and a $4.8-million reduction in MTS wireless wholesale revenues as other carriers move their customers from the company's CDMA (code-division, multiple-access) network to their own HSPA (high-speed, packet-access) networks, partly offset by revenue growth from most strategic lines of business. Revenues from strategic lines of business increased by 1.2 per cent over first quarter 2012, on the strength of increased ARPU and subscriber growth across these lines of business;
EBITDA: $148.6-million, up 0.5 per cent over first quarter 2012, reflecting the positive impact of cost reductions and improving margins at Allstream, partly offset by legacy and wireless wholesale declines;
EPS: 46 cents, down 33.3 per cent from first quarter 2012, due to a positive 15-cent tax adjustment recorded in first quarter 2012 as a result of the change in expected tax rate applicable to deferred tax assets, and a greater depreciation and amortization expense resulting from an increase in depreciable assets from previous investments in MTS's wireless billing system, in Allstream's network upgrade and in MTS's 4G LTE network build, partially offset by EBITDA growth. Excluding the first quarter 2012 tax benefit, EPS decreased 15 per cent in first quarter 2013;
Free cash flow: $47.6-million, up 31.9 per cent over first quarter 2012, mainly due to lower capital expenditures, EBITDA growth and decreased wireless cost of acquisition;
Capital expenditures: $66.7-million, down 13.3 per cent from first quarter 2012, mostly due to decreased spend from previously completed projects such as investments in upgrades to the wireless billing system and LTE wireless technology in Winnipeg and Brandon, and the completion of the 100-gigabyte core network upgrade initiative at Allstream;
Annualized cost savings: $17.0-million in first quarter 2013, approximately half resulting from staff reductions at both MTS and Allstream. First quarter cost savings are in line with the company's 2013 target of $30-million to $40-million.
MTS
MTS delivered growth in revenues from strategic services, while maintaining an industry-leading EBITDA margin of 49.5 per cent in first quarter 2013. Wireless, high-speed Internet and IPTV services generated 2.6-per-cent revenue growth in first quarter 2013, which offset declines in wireless wholesale, local, long-distance and legacy data revenues. In first quarter 2013, MTS increased the number of customers with bundled services by 6.6 per cent, to 97,797, and had average-revenue-per-user growth in all strategic product lines (wireless, IPTV and Internet). Excluding declines in wireless wholesale revenues and the impact of one-time gains, first quarter 2013 MTS wireless statistics show that 58.9 per cent of postpaid subscribers now have data plans, postpaid subscribers increased 2.7 per cent, subscriber revenues grew 6.8 per cent, data subscriber revenues increased 26.5 per cent, and data ARPU was up 17.9 per cent over first quarter 2012.
MTS operating revenues (in millions $) Q1 2013 Q1 2012
Wireless $91.5 $89.8
Broadband and converged IP 54.2 52.5
Unified communications, security and monitoring 8.1 8.6
Local access 64.0 66.9
Long-distance and legacy data 18.1 19.1
Other 7.6 6.8
Total MTS operating revenues 243.5 243.7
Wireless statistics (revenues in millions $) Q1 2013 Q1 2012
Wireless subscriber revenues $85.6 $79.1
Wireless wholesale revenues 5.9 10.7
Total wireless revenues 91.5 89.8
Total wireless subscribers 493,216 488,571
Postpaid subscribers 402,571 391,997
Postpaid subscribers with data plans 237,256 187,263
Wireless ARPU -- blended $60.25 $59.78
Wireless data ARPU $21.32 $18.09
Wireless churn -- postpaid 0.90% 0.91%
Wireless churn -- blended 1.74% 1.99%
Wireless
Subscriber revenues: $85.6-million, up 6.8 per cent over first quarter 2012, after adjusting for one-time equipment sales of $1.1-million in first quarter 2013, driven by a 26.5-per-cent increase in wireless subscriber data revenues;
Wholesale revenues: Down as other carriers move their customers from the company's CDMA network to their own HSPA networks. Based on the trend over the last few months, the migration of wholesale traffic from the company's CDMA network to competitors' HSPA networks continues; however, it is expected to be at a slower pace as compared with what the company saw in first quarter 2013. The company expects sequential quarterly declines of 3 per cent to 5 per cent, or around $200,000 per quarter in wholesale wireless revenues for the remainder of the year.
BROADBAND AND CONVERGED IP STATISTICS
Q1 2013 Q1 2012
High-speed Internet subscribers 196,643 190,247
High-speed residential ARPU $41.57 $40.01
Total television customers 102,568 100,087
Total IPTV subscribers 98,289 95,695
Ultimate IPTV subscribers 78,777 64,363
IPTV ARPU $66.63 $66.35
Broadband and converged IP
Broadband and converged IP revenues: $54.2-million, up 3.2 per cent over first quarter 2012:
Internet revenues: $27.8-million, up 4.9 per cent over first quarter 2012, resulting from a growing subscriber base and higher ARPU;
IPTV revenues: $19.9-million, up 2.6 per cent over first quarter 2012, driven by subscriber growth and increased ARPU;
Converged IP revenues: $6.5-million, in line with first quarter 2012.
Unified communications, security and monitoring
Unified communications, security and monitoring revenues: $8.1-million, down 5.8 per cent from first quarter 2012 due to fewer equipment sales.
Local access
Local access revenues: $64.0-million, down 4.3 per cent from first quarter 2012, mainly due to lower revenues from features, and line losses from wireless substitution and local competition.
Long-distance and legacy data
Long-distance and legacy data revenues: $18.1-million, down 5.2 per cent from first quarter 2012:
Long-distance revenues: $10.4-million, down 7.1 per cent from first quarter 2012, mainly due to decreased long-distance rates and customers replacing long-distance calling with e-mail, text messaging and social networking;
Legacy data revenues: $7.7-million, down 2.5 per cent from first quarter 2012, mainly due to a decrease in wholesale data services.
Allstream
Allstream's first quarter 2013 performance reflected the company's continued progress in driving growth in on-net IP-based services and improving profitability, as proven by the company's 10th consecutive quarter of year-over-year EBITDA growth. This strategic focus on on-net services improved the company's gross margin percentage, raising it to 62.8 per cent in first quarter 2013 from 56.7 per cent in first quarter 2012, and, along with diligent cost management, contributed to the company's overall EBITDA growth.
In April, 2013, Allstream incurred about $10-million in restructuring costs associated with organizational changes and further staff reductions as part of a continuing effort to structure Allstream for future growth and reflecting legacy decline impact. The resulting annualized cost savings are expected to be about $14-million with approximately $9-million in savings through the balance of 2013. As a result, while restructuring costs will reduce Allstream's EBITDA and free cash flow in second quarter 2013, the net impact will be almost neutral for the full year.
Allstream operating revenues (in millions $) Q1 2013 Q1 2012
Converged IP $60.1 $61.1
Unified communications, hosting and security 17.7 21.8
Local access 40.6 47.6
Long-distance and legacy data 41.8 49.6
Other 11.5 20.1
Total Allstream operating revenues 171.7 200.2
Allstream converged IP statistics (revenues in millions $) Q1 2013 Q1 2012
Converged IP revenues $60.1 $61.1
Converged IP gross margin 75.0% 72.5%
Fibre-fed buildings 2,811 2,487
Converged IP
Converged IP revenues: $60.1-million, down 1.6 per cent from first quarter 2012. IP revenues now account for 35 per cent of Allstream's total operating revenues. Allstream's converged IP revenues continue to be impacted by disconnects related to the government of Ontario's decision to change its telecommunications procurement policy. The majority of this contract reduction will flow through second quarter 2013, with the last half of 2013 marking the return to stronger IP revenue growth. Excluding the impact of this contract, converged IP revenues would have grown 2.8 per cent in first quarter 2013. Allstream also became the government of Canada's largest telecommunications data provider with the signing of a three-year, $55-million contract late in the fourth quarter of 2012. Due to Allstream's record sales in fourth quarter 2012, the company expects converged IP revenues will return to solid growth in the second half of 2013, as Shared Services Canada circuit installation progresses, and first bills are issued;
Government of Ontario department's decision impact on converged IP revenues: IP revenues from this contract are expected to be down about $11.7-million in 2013, representing approximately 75 per cent of the revenues reported for this customer in 2012. IP revenues throughout the first half of 2013 will reflect the majority of this contract reduction;
National IP network expansion: Added 88 buildings to the company's national IP fibre network in first quarter 2013, which totalled 2,811 fibre-fed buildings at March 31, 2013, for increases of 13.0 per cent over first quarter 2012 and 3.2 per cent over the previous quarter;
IP sales wins increase: IP sales for first quarter 2013 were up 1.3 per cent over first quarter 2012, including significant contract wins with Hewlett-Packard (Canada) Co., SunGard Availability Services, Bank of Nova Scotia, Thomson Reuters and BDI Canada Inc.
Unified communications, hosting and security
Unified communications, hosting and security revenues: $17.7-million, down 18.8 per cent from first quarter 2012, mainly due to decreases in one-time enterprise product sales and repricing of services.
Legacy services
Local access revenues: $40.6-million, down 14.7 per cent from first quarter 2012, mainly due to Allstream's decision to accelerate its exit from low-margin wholesale resold business lines. Excluding deliberate exits, local access revenues were down 5.6 per cent;
Long-distance and legacy data revenues: $41.8-million, down 15.7 per cent from first quarter 2012:
Long-distance revenues: $20.8-million, down 16.8 per cent from first quarter 2012, mainly due to decreased volumes and lower rates;
Legacy data revenues: $21.0-million, down 14.6 per cent from first quarter 2012, due largely to a combination of the exiting of low-margin off-net business as well as additional churn due to aggressive pricing from the industry leader that the company did not match.
Corporate update
The strategic review process announced on Sept. 13, 2012, remains active and in progress. As previously stated, the company does not intend to disclose any developments with respect to this process until such time as the board of directors approves a particular course of action or otherwise determines that further disclosure is appropriate or required. There is no assurance or expectation that any changes will be made as a result of this process.
Dividend
The company's board of directors declared a quarterly cash dividend of 42.5 cents per share for the second quarter of 2013, payable on July 15, 2013, to shareholders of record at the close of business on June 14, 2013.
The second quarter dividend is designated an eligible dividend under the Income Tax Act (Canada) and any corresponding provincial legislation. Under this legislation, individuals resident in Canada may be entitled to enhanced dividend tax credits that reduce income tax otherwise payable.
Investment community conference call
MTS Allstream will hold its first quarter 2013 results conference call with the investment community on May 8, 2013, at 5:30 p.m. (Eastern Time). Participants include Pierre Blouin, chief executive officer; and Wayne Demkey, chief financial officer.
To participate, please dial toll-free 1-888-231-8191 or 647-427-7450. A replay will be available until May 22, 2013, by dialling 1-855-859-2056 and entering passcode 32860477.
Investors, media and the public are invited to participate on a listen-only basis by logging into the live audio webcast of the conference call on the company's website. A replay of the conference call will be available on the company's website for one year.
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