Pages

Tuesday, September 19, 2017

Mi-Connection FY2017 numbers disappoint...subsidy needed until FY2024

Numbers were put out by the Town of Davidson in a press release last week on the municipally owned cable company's financial performance for FY2017.  That was followed up by a presentation from Town Manager Jamie Justice at the Tuesday Board meeting.

The long and the short of it boils down to these bullet points.

  • The company is still losing money and did not meet projected growth in FY2017.
  • Subsidies will still be needed for years to come with FY2024 as the new subsidy-free target date.
  • Competition is increasing with new players entering the municipally owned company's footprint making growth even more difficult.
  • Davidson has little to no leverage in determining the company's future under the current inter-local agreement with Mooresville which pegs Davidson's ownership at 30%.
  • All of the numbers are projections based on continued rapid growth in rooftops and businesses.
Here is the press release put out by the town.  Emphasis added in bold.

DAVIDSON, N.C. – On Thursday, August 23, the MI-Connection Board of Directors met to review financial results for FY 2017, which ended June 30, and compare last quarter to the same quarter a year ago. Data has been externally audited, but are preliminary and still subject to external audit.

Quarter Comparison
Revenue is even when comparing Q4 2017 to Q4 2016 and total expenses are up by 3.02% in Q4 2017 compared to Q4 2016. EBIDA (Earnings before interest, depreciation and amortization, a key metric used by cable operators to measure performance) decreased by 7.64% from Q4 FY 2016 to Q4 FY 2017. Average revenue per customer is even.

“We didn’t meet our growth projections for this year, and recognize that we have had some tough competition in the marketplace,” said MI-Connection CEO David Auger. “We are confident that the services we offer and our superior customer will make us more competitive in the future.”

FY 2017 vs. FY 2016
Financially, year-over-year, FY 2017 revenue exceeded FY 2016 by 1.79%.  EBIDA declined by 8.61% from FY 2016 to FY 2017. Average revenue per customer is up 1.88% from FY 2016 to FY 2017. The customer level stayed about the same year-over-year.

In the enterprise and small/medium business market in FY 2017, MI-Connection grew commercial customers by 10.9% and increased revenue by 10.2%.  Commercial revenue as a percentage of overall revenue increased from 12% in FY 2016 to 13.7% in FY 2017.

MI-Connection made a contribution of $2.919 million in debt payment to the Town of Mooresville for FY 2017, and projected a payment of $3.45 million in the FY 2018 budget. The amount the Towns of Mooresville and Davidson made to the debt payment for FY 2017 was $3.44 million and the projected payment for the towns in FY 2018 is $2.93 million. MI-Connection’s contribution toward the debt is projected to exceed the towns’ contributions in FY 2018.

During his comments at the meeting Tuesday night, Justice did address the stall in the drop of the annual subsidy required by the towns for 2017.  aShortChronicle pointed that out back in May.  The explanation given by Justice was that there were some new developments scheduled to come on line that were delayed.  That delayed the new revenue.  Those developments are now coming online so 2018 should see a bump.

What's left unsaid here is that Mi-Connection future growth is essentially now wholly dependent on significant growth in rooftops and or businesses within its footprint.  The operational and financial improvements over the past few years are now fully baked into the year over year performance expectations.  There are no more big chunks of cost savings that can be wrung out of the financials.

Justice mentioned that RGUs or Revenue Generating Units actually dropped very slightly year over year in 2017.  RGUs are individual services such as voice, data, and video.  A single "triple play" household would count as 3 RGUs.  If RGUs dropped and there certainly was some growth in rooftops/businesses in 2017, that logically means Mi-Connection lost some existing customers to other provider and got some new ones to nearly break-even, but the company didn't get the new ones it was expecting from the delayed developments Justice mentioned to show any growth.  As competition increases and other providers build out their networks this industry "churn" among competing providers will only increase as well.

The current predictions in Justice's presentation say subsidies are needed through FY2023 - another 5 years.  It also says, the company's debt to value trend likely makes the company saleable 2-4 years from now with another 5-6 years needed to get that ratio down to where the towns could recoup all the subsidies they had paid over the years. However, competition will only increase in coming years, and if the housing market or economy slows or stalls, then all these projections go out the window.  In a high-tech industry such as telecommunications, keeping Mi-Connection for another decade just to attempt getting towns' their money back would be a high risk maneuver.

While Justice tried valiantly to put as good a face as possible on this situation, it's still an ugly situation the towns have in front of them.

Read the whole presentation here.

No comments:

Post a Comment