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SMALL BUSINESS
SureWest Reports Third Quarter 2009 Results
ROSEVILLE, Calif., Oct. 29 /PRNewswire-FirstCall/ -- SureWest Communications (Nasdaq: SURW) today announced operating results for the third quarter ended September 30, 2009.
(Logo: http://www.newscom.com/cgi-bin/prnh/20050908/SFSUREWESTLOGO)
Steve Oldham, SureWest's president and chief executive officer, said, "This was another solid quarter for SureWest, driven by Broadband growth and a second consecutive quarter of positive free cash flow. Consistent with our strategy to aggressively grow our Broadband segment, we are preparing to launch our highly-anticipated enhanced video product powered by Microsoft Mediaroom in our Sacramento market this December. With this game-changing launch, we are confident that we will generate additional revenue and EBITDA growth in 2010, as we will now offer what we believe is the best triple-play package of voice, video and data available on both our fiber and copper networks in the Sacramento market, with a goal of significantly increasing subscriber penetration.
"While the economy in Northern California has not yet seen much recovery, our results have been solid due to our product diversity, including a thriving business services offering, as well as flexible marketing strategies, the geographic diversity of Kansas City and cost-savings initiatives across the organization."
The following table highlights financial results for continuing operations on a consolidated basis (dollars are in thousands):
Y-O-Y Comparison Q-O-Q Comparison
Consolidated Q3'09 Q3'08 Change % Q2'09 Change %
------ ------ ------ --- ------ ------ ---
Broadband Revenue $40,175 $36,280 $3,895 11% $40,259 $(84) 0%
Telecom Revenue 19,354 23,990 (4,636) (19%) 20,671 (1,317) (6%)
Total Revenue 59,529 60,270 (741) (1%) 60,930 (1,401) (2%)
EBITDA (adjusted) 18,961 17,947 1,014 6% 19,859 (898) (5%)
Income from
Continuing
Operations (211) 622 (833)(134%) 899 (1,110) (123%)
Capital
Expenditure 13,841 20,932 (7,091) (34%) 11,170 2,671 24%
Free Cash Flow 1,208 (6,091) 7,299 (120%) 3,957 (2,749) (69%)
Net Debt 219,545 231,434 (11,889) (5%) 226,806 (7,261) (3%)
-------- ------- ------- ------- --- ------- ------ ---
See Non-GAAP measure notes near end of release, and EBITDA and Free
Cash Flow reconciliations for detailed adjustments.
Financial Results
Consolidated revenue decreased 1% year-over-year to $59.5 million resulting from 11% Broadband revenue growth offset by Telecom revenue declines of 19%. EBITDA, which is adjusted for non-cash pension ($642 thousand) and stock compensation ($443 thousand), increased 6% year-over-year to $19 million as the company continued to recognize cost savings from initiatives such as consolidation of office space and reduced employee counts, which decreased 4.5% from the prior year to 899 employees.
Operating expenses, exclusive of depreciation and amortization, decreased 1% year-over-year to $41.7 million due to reductions in labor expense offset by increases in video license fees, transport charges related to commercial business revenue growth, non-cash pension expense, and sales and advertising costs to promote subscriber growth and new product offerings.
Net loss increased to $211 thousand compared to a loss of $101 thousand in the third quarter of 2008 due primarily to an increase in depreciation costs related to broadband network build and success-based capital. Earnings per share from continuing operations was negative $.02 compared to positive $.04 in the third quarter of 2008 and positive $.06 in the second quarter of 2009.
Free cash flow, defined as income from continuing operations plus depreciation and amortization less capital expenditures, increased to positive $1.2 million - a $7.3 million increase year-over-year. The increase is due to lower capital expenditures related to the completion of SureWest's 2009 network expansion plan. The company continues to focus on increasing sales and free cash flow by growing penetration on its existing inventory of homes passed, increasing business services revenues and extending its video service to 25,000 new copper homes in Sacramento to market its triple-play products. SureWest expects that its capital expenditures and associated free cash flow results will vary quarter-to-quarter in order to take advantage of developing business sales opportunities such as additional data center space sales and additional wireless backhaul opportunities.
Cash and cash equivalents increased to $7.1 million from $2.8 million at December 31, 2008. During the quarter, SureWest paid down $10 million in debt resulting in $219.5 million in remaining total debt net of cash and cash equivalents (net debt), and a net debt to adjusted EBITDA ratio of 2.96.
Capital expenditures totaled $13.8 million for the third quarter and $43.4 million for the nine months ended September 30, 2009. For the nine months ended September 30, 2009, the company passed 8,300 additional advanced fiber homes, which completed the planned 2009 network build.
As previously announced, SureWest will extend its video service to 25,000 existing voice and data marketable ILEC homes on the Sacramento copper network, allowing for a superior new IP-based triple-play option to these potential customers. The first 15,000 homes receiving SureWest's extended video service will be available December 2009 and the second phase of 10,000 homes will become available by the second quarter of 2010. SureWest will reach these 25,000 homes with video for just over $3 million, or roughly 10% of the typical cost to pass a home with fiber. SureWest's projected 2009 capital expenditure remains $55-60 million and 2010 projected capital spend is expected to be near that level.
Broadband Segment Results
Broadband revenues increased 11% year-over-year and accounted for 68% of the company's total revenues compared to 60% in the third quarter of 2008 as the company succeeds with its long-term strategy of growing its Broadband operations to counteract declining Telecom segment revenues.
Broadband Residential:
Broadband Residential revenues increased 12% year-over-year to $29.4 million due to 10% growth in average revenue per user (ARPU) and a 6% increase in revenue generating units (RGUs). Data, video and voice RGUs all showed positive growth rates year-over-year and sequentially. To illustrate growth trends, Broadband RGUs, subscriber counts and ARPU are detailed both year-over-year and sequentially in the table and text below:
Q3 '09 vs. Q3 '09 vs.
Q3 '08 change Q2 '09 change
---------------- -----------------
Kansas Kansas
Sacramento City Sacramento City
Market Market Total Market Market Total
------ ------ ----- ------ ------ -----
Broadband
Residential RGUs 9% 3% 6% 2% 0% 1%
Data RGUs 1% 5% 2% 0% 0% 0%
Video RGUs - Fiber
& HFC 0% 3% 2% 1% 0% 0%
Voice RGUs 38% 1% 17% 7% 0% 3%
Total Residential
Subscribers 0% 5% 2% 0% 1% 1%
ARPU for triple-play marketable homes, consisting of the company's fiber-to-the-home (FTTH) and hybrid fiber coaxial (HFC) networks, increased 6% year-over-year to $112 from $106 as customer demand for higher data speeds, HDTV and DVR continued to increase. ARPU was also positively impacted by a first quarter 2009 video price increase.
Broadband Business:
Excluding non-recurring revenue of $540 thousand from equipment lease and Verizon Wireless transitional services in third quarter 2008, Broadband Business revenues increased by $1.3 million (15%) year-over-year. Customer counts increased 11% year-over-year to 7,000 and total Business ARPU, excluding the third quarter 2008 non-recurring items, grew 4% from the prior year to $483.
The commercial market in both Sacramento and Kansas City has begun to experience a positive turn and Broadband Business growth expectations continue to remain high due to aggressive sales and renewal tactics, superior business customer satisfaction levels, catered packages for businesses of all sizes, and a variety of product offerings and solutions.
Telecom Segment Results
Operating only in the Sacramento market, Telecom segment revenues declined 19% year-over-year to $19.4 million due to the industry-wide trend of declines in Telecom Residential access lines and associated access revenues.
Telecom Residential:
Telecom Residential revenues declined 25% year-over-year to $5.9 million resulting from losses in Telecom voice RGUs of 29% year-over-year. The company continues to mitigate Telecom voice line losses through its Broadband VoIP product. Of the 17,200 year-over-year Telecom Residential voice RGU losses, 7,800 (45%) migrated to the SureWest VoIP service.
Telecom Business:
Telecom Business revenues declined 14% year-over-year to $8.7 million due to a decline in small- and medium-sized business customers and some carrier consolidation. Growth opportunities are expected once the Sacramento office market recovers and businesses begin to return.
Telecom Access:
Telecom Access revenues decreased $1.3 million year-over-year to $4.6 million due to scheduled reductions in the California High Cost Fund (CHCF) subsidies and a decline in switched access revenues. The CHCF subsidies are scheduled to decline by $2 million per year through 2011.
Non-GAAP Measures
In addition to the results presented in accordance with Generally Accepted Accounting Principles (GAAP) throughout this press release; the company has presented non-GAAP financial measures such as EBITDA and free cash flow. EBITDA represents net income (loss) from continuing operations excluding amounts for income taxes, depreciation and amortization, non-cash pension and certain post-retirement benefits, non-cash stock compensation, and all other non-operating income/expenses. Free cash flow represents net income (loss) from continuing operations plus depreciation and amortization less capital expenditures. The company believes these non-GAAP measures, viewed in addition to but not in lieu of its reported GAAP results, provide useful information to investors because they are an integral part of its internal evaluation of operating performance. In addition, they are measures that the company uses to evaluate management's effectiveness. Reconciliation to the comparable GAAP measures is provided in the accompanying financial and operating summaries. SureWest's non-GAAP financial measures may not be comparable to similarly titled measures presented by other companies.
Conference Call and Webcast
SureWest will host a conference call providing details about its results and business strategy at 5 p.m. Eastern Time on Thursday, October 29, 2009. Open to the public, a simultaneous live webcast of the call will be available from the company's investor relations Web site at www.surw.com. A telephone replay of the call will be available shortly after completion through Thursday, November 5 by dialing 888.286.8010 and entering pass code 93314295. Visit www.surw.com for updates prior to the call.
About SureWest
SureWest Communications (www.surewest.com) is one of the nation's leading integrated communications providers and is the bandwidth leader in the markets it serves. Headquartered in Northern California for more than 95 years, the company expanded into the Kansas City region in February 2008 with the acquisition of Everest Broadband, Inc. and offers bundled residential and commercial services that include IP-based digital and high-definition television, high-speed Internet, Voice over IP, and local and long distance telephone. SureWest was the nation's first provider to launch residential HDTV over an IP network and offers one of the nation's fastest symmetrical Internet services with speeds of up to 50 Mbps in each direction on its fiber-to-the-home network.
Safe Harbor Statement
Statements made in this news release that are not historical facts are forward-looking statements and are made pursuant to the safe harbor provisions of the Securities Litigation Reform Act of 1995. In some cases, these forward-looking statements may be identified by the use of words such as may, will, should, expect, plan, anticipate, or project or the negative of those words or other comparable words. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Such forward-looking statements are subject to a number of risks, assumptions and uncertainties that could cause the company's actual results to differ from those projected in such forward-looking statements.
Important factors that could cause actual results to differ from those set forth in the forward-looking statements include, but are not limited to, advances in telecommunications technology, changes in the telecommunications regulatory environment, changes in the financial stability of other telecommunications providers who are customers of the company, changes in competition in markets in which the company operates, adverse circumstances affecting the economy in California, Kansas and Missouri in general, and in the greater Sacramento, California and greater Kansas City, Kansas and Missouri areas in particular, the availability of future financing, changes in the demand for services and products, new product and service development and introductions, and pending and future litigation.
Contacts:
Ron Rogers
Corporate Communications
916-746-3123
r.rogers@surewest.com
Misty Wells
Investor Relations
916-786-1799
m.wells@surewest.com
SUREWEST COMMUNICATIONS
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited; Amounts in thousands, except per share amounts)
Nine Months Nine Months
Ended Ended
September September $ %
30, 2009 30, 2008 Change Change
-------- -------- ------ ------
Operating revenues:
Broadband $119,656 $98,412 $21,244 22%
Telecom 61,745 73,023 (11,278) (15%)
------ ------ ------- ---
Total operating revenues 181,401 171,435 9,966 6%
Operating expenses:
Cost of services and products
(exclusive of depreciation
and amortization) 74,695 65,808 8,887 14%
Customer operations
and selling 25,597 23,674 1,923 8%
General and administrative 26,260 29,010 (2,750) (9%)
Depreciation and amortization 44,298 40,361 3,937 10%
------ ------ ----- ---
Total operating expenses 170,850 158,853 11,997 8%
------- ------- ------ ---
Income from operations 10,551 12,582 (2,031) (16%)
Other income (expense):
Interest income 99 593 (494) (83%)
Interest expense (8,402) (8,845) 443 5%
Other, net 33 13 20 154%
--- --- --- ---
Total other income
(expense), net (8,270) (8,239) (31) (0%)
------ ------ --- ---
Income from continuing operations
before income taxes 2,281 4,343 (2,062) (47%)
Income tax expense 1,514 1,970 (456) (23%)
----- ----- ---- ---
Income from continuing operations 767 2,373 (1,606) (68%)
Discontinued operations, net of tax:
Income (loss) from discontinued
operations (69) 332 (401) (121%)
Gain on sale of discontinued
operations 2,568 18,362 (15,794) (86%)
----- ------ ------- ---
Total discontinued operations 2,499 18,694 (16,195) (87%)
----- ------ ------- ---
Net income $3,266 $21,067 $(17,801) (84%)
====== ======= ======== ===
Basic and diluted earnings per
common share:
Income from continuing operations $0.05 $0.17 $(0.12)
Discontinued operations, net of
tax 0.18 1.32 (1.14)
---- ---- -----
Net income per basic and
diluted common share $0.23 $1.49 $(1.26)
===== ===== ======
Dividends per share $- $0.50 $(0.50)
Shares of common stock used to
calculate earnings per share:
Basic 13,973 14,138 (165)
====== ====== ====
Diluted 13,973 14,146 (173)
====== ====== ====
SUREWEST COMMUNICATIONS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited; Amounts in thousands, except per share amounts)
Quarter Quarter
Ended Ended
September September $ %
30, 2009 30, 2008 Change Change
-------- -------- ------ ------
Operating revenues:
Broadband $40,175 $36,280 $3,895 11%
Telecom 19,354 23,990 (4,636) (19%)
------ ------ ------ ---
Total operating revenues 59,529 60,270 (741) (1%)
Operating expenses:
Cost of services and products
(exclusive of depreciation and
amortization) 24,563 24,941 (378) (2%)
Customer operations and selling 9,017 7,655 1,362 18%
General and administrative 8,073 9,438 (1,365) (14%)
Depreciation and amortization 15,260 14,219 1,041 7%
------ ------ ----- ---
Total operating expenses 56,913 56,253 660 1%
------ ------ --- ---
Income from operations 2,616 4,017 (1,401) (35%)
Other income (expense):
Interest income 28 35 (7) (20%)
Interest expense (3,046) (2,904) (142) (5%)
Other, net 205 56 149 266%
--- -- --- ---
Total other income (expense), net (2,813) (2,813) - 0%
------ ------ --- ---
Income (loss) from continuing
operations before income taxes (197) 1,204 (1,401) (116%)
Income tax expense 14 582 (568) -98%
--- --- ---- ---
Income (loss) from continuing operations (211) 622 (833) (134%)
Discontinued operations, net of tax:
Loss from discontinued operations,
net of tax - (108) 108 100%
Loss on sale of discontinued
operations, net of tax - (615) 615 100%
--- ---- --- ---
Total discontinued operations - (723) 723 100%
--- ---- --- ---
Net loss $(211) $(101) $(110) (109%)
===== ===== ===== ====
Basic and diluted earnings per common
share:
Income (loss) from continuing
operations $(0.02) $0.04 $(0.06)
Discontinued operations, net of tax - (0.05) 0.05
- ----- ----
Net loss per basic and diluted
common share $(0.02) $(0.01) $(0.01)
====== ====== ======
Shares of common stock used to calculate
earnings per share:
Basic 13,936 13,970 (34)
====== ====== ===
Diluted 13,936 13,980 (44)
====== ====== ===
SUREWEST COMMUNICATIONS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited; Amounts in thousands, except per share amounts)
Quarter Quarter
Ended Ended
September June $ %
30, 2009 30, 2008 Change Change
-------- -------- ------ ------
Operating revenues:
Broadband $40,175 $40,259 $(84) (0%)
Telecom 19,354 20,671 (1,317) (6%)
------ ------ ------ ---
Total operating revenues 59,529 60,930 (1,401) (2%)
Operating expenses:
Cost of services and products
(exclusive of depreciation and
amortization) 24,563 25,118 (555) (2%)
Customer operations and selling 9,017 8,345 672 8%
General and administrative 8,073 8,624 (551) (6%)
Depreciation and amortization 15,260 14,228 1,032 7%
------ ------ ----- ---
Total operating expenses 56,913 56,315 598 1%
------ ------ --- ---
Income from operations 2,616 4,615 (1,999) (43%)
Other income (expense):
Interest income 28 34 (6) (18%)
Interest expense (3,046) (3,046) - 0%
Other, net 205 (88) 293 333%
--- --- --- ---
Total other income (expense), net (2,813) (3,100) 287 9%
------ ------ --- ---
Income (loss) from continuing
operations before income taxes (197) 1,515 (1,712) (113%)
Income tax expense 14 616 (602) (98%)
--- --- ---- ---
Income (loss) from continuing operations (211) 899 (1,110) (123%)
Discontinued operations, net of tax:
Gain on sale of discontinued
operations - 60 (60) (100%)
--- --- --- ----
Total discontinued operations - 60 (60) (100%)
--- --- --- ----
Net income (loss) $(211) $959 $(1,170) (122%)
===== ==== ======= ====
Basic and diluted earnings per common
share:
Income (loss) from continuing
operations $(0.02) $0.06 $(0.08)
Discontinued operations, net of tax - 0.01 (0.01)
--- ---- -----
Net income (loss) per basic and
diluted common share $(0.02) $0.07 $(0.09)
====== ===== ======
Shares of common stock used to calculate
earnings per share:
Basic 13,936 14,020 (84)
====== ====== ===
Diluted 13,936 14,020 (84)
====== ====== ===
SureWest Communications
Unaudited Pro Forma Selected Financial Results (3)
(on a pro forma consolidated and a pro forma segment basis)
(Amounts in thousands)
For 2008 Quarters Ended:
------------------------
March June September December
Consolidated 31 30 30 31
------ ----- ---------- ---------
Operating revenues (1)
Residential $34,647 $34,621 $33,959 $34,180
Business 16,946 18,188 19,342 18,218
Access 6,647 6,393 6,308 5,922
Other 630 650 661 618
--- --- --- ---
Total operating revenues
from external customers 58,870 59,852 60,270 58,938
------ ------ ------ ------
Operating expenses (1) 41,274 39,903 42,034 41,713
Depreciation and amortization 13,259 14,075 14,219 14,666
------ ------ ------ ------
Income from operations $4,337 $5,874 $4,017 $2,559
====== ====== ====== ======
Twelve
Months For 2009 Quarters Ended:
Ended ------------------------
December 31, March June September
Consolidated 2008 31 30 30
------------ ------ ----- ----------
Operating revenues (1)
Residential $137,407 $35,713 $36,180 $35,246
Business 72,694 18,633 18,704 18,705
Access 25,270 6,031 5,351 5,031
Other 2,559 565 695 547
----- --- --- ---
Total operating revenues
from external customers 237,930 60,942 60,930 59,529
------- ------ ------ ------
Operating expenses (1) 164,924 42,812 42,087 41,653
Depreciation and amortization 56,219 14,810 14,228 15,260
------ ------ ------ ------
Income from operations $16,787 $3,320 $4,615 $2,616
======= ====== ====== ======
Year-over-Year Qtr-over-Qtr
-------------- ------------
Consolidated $ chg % $ chg %
----- --- ----- ---
Operating revenues (1)
Residential $1,287 4% $(934) (3%)
Business (637) (3%) 1 0%
Access (1,277) (20%) (320) (6%)
Other (114) (17%) (148) (21%)
---- --- ---- ---
Total operating revenues
from external customers (741) (1%) (1,401) (2%)
---- --- ------ ---
Operating expenses (1) (381) (1%) (434) (1%)
Depreciation and
amortization 1,041 7% 1,032 7%
----- --- ----- ---
Income from operations $(1,401) (35%) $(1,999) (43%)
======= === ======= ===
Consolidated Reconciliation of Adjusted EBITDA to Net Income (Loss) from
Continuing Operations
For 2008 Quarters Ended:
------------------------
March June September December
31 30 30 31
-------- ----- ---------- ---------
Net income (loss) from
continuing operations $376 $1,729 $622 $(1,547)
Add back: income tax
expense 489 1,139 582 1,169
Less: other (income)/
expense 3,472 3,006 2,813 2,937
----- ----- ----- -----
Income from operations 4,337 5,874 4,017 2,559
Add (subtract):
Depreciation and
amortization 13,259 14,075 14,219 14,666
Non-cash pension
(income)/expense (393) (524) (458) (433)
Non-cash stock
compensation expense 141 345 169 223
--- --- --- ---
Adjusted EBITDA (2) $17,344 $19,770 $17,947 $17,015
======= ======= ======= =======
Other data:
Total debt $277,830 $231,828 $233,827 $241,688
Twelve
Months For 2009 Quarters Ended:
Ended ------------------------
December 31, March June September
2008 31 30 30
------------ ------ ----- ----------
Net income (loss) from
continuing operations $1,180 $79 $899 $(211)
Add back: income tax
expense 3,379 884 616 14
Less: other (income)/
expense 12,228 2,357 3,100 2,813
------ ----- ----- -----
Income from operations 16,787 3,320 4,615 2,616
Add (subtract):
Depreciation and
amortization 56,219 14,810 14,228 15,260
Non-cash pension
(income)/expense (1,808) 755 552 642
Non-cash stock
compensation expense 878 608 464 443
--- --- --- ---
Adjusted EBITDA (2) $72,076 $19,493 $19,859 $18,961
======= ======= ======= =======
Other data:
Total debt n/a $240,187 $236,685 $226,683
Year-over-Year Qtr-over-Qtr
-------------- ------------
$ chg % $ chg %
----- --- ----- ---
Net income (loss) from
continuing operations $(833) (134%) $(1,110) (123%)
Add back: income tax
expense (568) (98%) (602) (98%)
Less: other (income)/
expense - 0% (287) (9%)
--- --- ---- ---
Income from operations (1,401) (35%) (1,999) (43%)
Add (subtract):
Depreciation and
amortization 1,041 7% 1,032 7%
Non-cash pension
(income)/expense 1,100 240% 90 16%
Non-cash stock
compensation expense 274 162% (21) (5%)
--- --- --- ---
Adjusted EBITDA (2) $1,014 6% $(898) (5%)
====== === ===== ===
Other data:
Total debt $(7,144) (3%) $(10,002) (4%)
For 2008 Quarters Ended:
------------------------
March June September December
Broadband 31 30 30 31
------ ----- ---------- ---------
Data $10,128 $10,338 $10,348 10,491
Video 10,359 10,365 10,264 10,522
Voice 5,258 5,395 5,542 5,933
----- ----- ----- -----
Total residential revenues 25,745 26,098 26,154 26,946
Business 7,899 8,374 9,271 9,084
Access 305 370 414 449
Other 439 459 441 450
--- --- --- ---
Total operating revenues from
external customers 34,388 35,301 36,280 36,929
Intersegment revenues 140 141 138 120
--- --- --- ---
Total operating revenues 34,528 35,442 36,418 37,049
------ ------ ------ ------
Operating expenses
without depreciation 30,742 31,085 32,844 32,698
Depreciation and amortization 9,597 10,335 10,700 11,051
----- ------ ------ ------
Loss from operations $(5,811) $(5,978) $(7,126) $(6,700)
======= ======= ======= =======
Twelve
Months For 2009 Quarters Ended:
Ended ------------------------
December 31, March June September
Broadband 2008 31 30 30
------------ ------ ----- ----------
Data $41,305 $10,763 $11,184 $11,236
Video 41,510 11,689 11,995 11,711
Voice 22,128 6,399 6,594 6,442
------ ----- ----- -----
Total residential revenues 104,943 28,851 29,773 29,389
Business 34,628 9,585 9,615 10,018
Access 1,538 384 398 427
Other 1,789 402 473 341
----- --- --- ---
Total operating revenues
from external customers 142,898 39,222 40,259 40,175
Intersegment revenues 539 91 94 93
--- --- --- ---
Total operating revenues 143,437 39,313 40,353 40,268
------- ------ ------ ------
Operating expenses
without depreciation 127,369 34,695 34,294 34,615
Depreciation and amortization 41,683 11,620 11,283 12,199
------ ------ ------ ------
Loss from operations $(25,615) $(7,002) $(5,224) $(6,546)
======== ======= ======= =======
Year-over-Year Qtr-over-Qtr
-------------- ------------
Broadband $ chg % $ chg %
----- --- ----- ---
Data $888 9% $52 0%
Video 1,447 14% (284) (2%)
Voice 900 16% (152) (2%)
--- --- ---- ---
Total residential revenues 3,235 12% (384) (1%)
Business 747 8% 403 4%
Access 13 3% 29 7%
Other (100) (23%) (132) (28%)
---- --- ---- ---
Total operating revenues from
external customers 3,895 11% (84) 0%
Intersegment revenues (45) (33%) (1) (1%)
--- --- --- ---
Total operating revenues 3,850 11% (85) 0%
----- --- --- ---
Operating expenses
without depreciation 1,771 5% 321 1%
Depreciation and amortization 1,499 14% 916 8%
----- --- --- ---
Loss from operations $580 8% $(1,322) (25%)
==== = ======= ===
Broadband Reconciliation of Adjusted EBITDA to Net Loss from Continuing
Operations
For 2008 Quarters Ended:
------------------------
March June September December
31 30 30 31
------ ----- ---------- ---------
Loss from continuing
operations $(5,416) $(5,391) $(5,856) $(6,667)
Add back: income tax
benefits (4,054) (3,690) (3,994) (3,179)
Less: other (income)/
expense 3,659 3,103 2,724 3,146
----- ----- ----- -----
Loss from operations (5,811) (5,978) (7,126) (6,700)
Add (subtract):
Depreciation and
amortization 9,597 10,335 10,700 11,051
Non-cash pension
(income)/expense (162) (212) (187) (178)
Non-cash stock
compensation expense 54 173 77 103
--- --- --- ---
Adjusted EBITDA (2) $3,678 $4,318 $3,464 $4,276
====== ====== ====== ======
Twelve
Months For 2009 Quarters Ended:
Ended ------------------------
December 31, March June September
2008 31 30 30
------------ ------ ----- ----------
Loss from continuing
operations $(23,330) $(5,398) $(4,884) $(5,619)
Add back: income tax
benefits (14,917) (3,656) (3,312) (3,810)
Less: other (income)/
expense 12,632 2,052 2,972 2,883
------ ----- ----- -----
Loss from operations (25,615) (7,002) (5,224) (6,546)
Add (subtract):
Depreciation and
amortization 41,683 11,620 11,283 12,199
Non-cash pension
(income)/expense (739) 327 56 197
Non-cash stock
compensation expense 407 304 231 221
--- --- --- ---
Adjusted EBITDA (2) $15,736 $5,249 $6,346 $6,071
======= ====== ====== ======
Year-over-Year Qtr-over-Qtr
-------------- ------------
$ chg % $ chg %
----- --- ----- ---
Loss from continuing
operations $237 4% $(735) (15%)
Add back: income tax
benefits 184 5% (498) (15%)
Less: other (income)/
expense 159 6% (89) (3%)
--- --- --- ---
Loss from operations 580 8% (1,322) (25%)
Add (subtract):
Depreciation and
amortization 1,499 14% 916 8%
Non-cash pension
(income)/expense 384 205% 141 252%
Non-cash stock
compensation expense 144 187% (10) (4%)
--- --- --- ---
Adjusted EBITDA (2) $2,607 75% $(275) (4%)
====== === ===== ===
For 2008 Quarters Ended:
------------------------
March June September December
Telecom 31 30 30 31
------ ----- ---------- ---------
Residential $8,902 $8,523 $7,805 $7,234
Business 9,047 9,814 10,071 9,134
Access 6,342 6,023 5,894 5,473
Other 191 191 220 168
--- --- --- ---
Total operating revenues from
external customers 24,482 24,551 23,990 22,009
Intersegment revenues 4,343 4,560 4,706 4,846
----- ----- ----- -----
Total operating revenues 28,825 29,111 28,696 26,855
------ ------ ------ ------
Operating expenses
without depreciation 15,015 13,519 14,034 13,981
Depreciation and amortization 3,662 3,740 3,519 3,615
----- ----- ----- -----
Income from operations $10,148 $11,852 $11,143 $9,259
======= ======= ======= ======
Twelve
Months For 2009 Quarters Ended:
Ended ------------------------
December 31, March June September
Telecom 2008 31 30 30
------------ ------ ----- ----------
Residential $32,464 $6,862 $6,407 $5,857
Business 38,066 9,048 9,089 8,687
Access 23,732 5,647 4,953 4,604
Other 770 163 222 206
--- --- --- ---
Total operating revenues from
external customers 95,032 21,720 20,671 19,354
Intersegment revenues 18,455 4,874 4,981 5,043
------ ----- ----- -----
Total operating revenues 113,487 26,594 25,652 24,397
------- ------ ------ ------
Operating expenses
without depreciation 56,549 13,082 12,868 12,174
Depreciation and amortization 14,536 3,190 2,945 3,061
------ ----- ----- -----
Income from operations $42,402 $10,322 $9,839 $9,162
======= ======= ====== ======
Year-over-Year Qtr-over-Qtr
-------------- ------------
Telecom $ chg % $ chg %
----- --- ----- ---
Residential $(1,948) (25%) $(550) (9%)
Business (1,384) (14%) (402) (4%)
Access (1,290) (22%) (349) (7%)
Other (14) (6%) (16) (7%)
--- --- --- ---
Total operating revenues from
external customers (4,636) (19%) (1,317) (6%)
Intersegment revenues 337 7% 62 1%
--- --- --- ---
Total operating revenues (4,299) (15%) (1,255) (5%)
------ --- ------ ---
Operating expenses
without depreciation (1,860) (13%) (694) (5%)
Depreciation and amortization (458) (13%) 116 4%
---- --- --- ---
Income from operations $(1,981) (18%) $(677) (7%)
======= === ===== ==
Telecom Reconciliation of Adjusted EBITDA to Net Income from Continuing
Operations
For 2008 Quarters Ended:
------------------------
March June September December
31 30 30 31
------ ----- ---------- ---------
Net income from
continuing operations $5,792 $7,120 $6,478 $5,120
Add back: income tax
expense 4,543 4,829 4,576 4,348
Less: other (income)/
expense (187) (97) 89 (209)
---- --- --- ----
Income from operations 10,148 11,852 11,143 9,259
Add (subtract):
Depreciation and
amortization 3,662 3,740 3,519 3,615
Non-cash pension
(income) / expense (231) (312) (271) (255)
Non-cash stock
compensation expense 87 172 92 120
--- --- --- ---
Adjusted EBITDA (2) $13,666 $15,452 $14,483 $12,739
======= ======= ======= =======
Twelve
Months For 2009 Quarters Ended:
Ended -------------------------
December 31, March June September
2008 31 30 30
------------ ------ ----- ----------
Net income from
continuing operations $24,510 $5,477 $5,783 $5,408
Add back: income tax
expense 18,296 4,540 3,928 3,824
Less: other (income)/
expense (404) 305 128 (70)
---- --- --- ---
Income from operations 42,402 10,322 9,839 9,162
Add (subtract):
Depreciation and
amortization 14,536 3,190 2,945 3,061
Non-cash pension
(income) / expense (1,069) 428 496 445
Non-cash stock
compensation expense 471 304 233 222
--- --- --- ---
Adjusted EBITDA (2) $56,340 $14,244 $13,513 $12,890
======= ======= ======= =======
Year-over-Year Qtr-over-Qtr
-------------- ------------
$ chg % $ chg %
----- --- ----- ---
Net income from
continuing operations $(1,070) (17%) $(375) (6%)
Add back: income tax
expense (752) (16%) (104) (3%)
Less: other (income)/
expense (159) (179%) (198) (155%)
---- ---- ---- ----
Income from operations (1,981) (18%) (677) (7%)
Add (subtract):
Depreciation and
amortization (458) (13%) 116 4%
Non-cash pension
(income) / expense 716 264% (51) (10%)
Non-cash stock
compensation expense 130 141% (11) (5%)
--- --- --- ---
Adjusted EBITDA (2) $(1,593) (11%) $(623) (5%)
======= === ===== ===
(1) External customers only.
(2) Adjusted EBITDA represents net income (loss) from continuing
operations excluding amounts for income taxes; depreciation and
amortization; non-cash pension and certain post-retirement benefits;
non-cash stock compensation; and all other non-operating income/expenses.
Adjusted EBITDA is a common measure of operating performance in the
telecommunications industry. Adjusted EBITDA is not a measure of financial
performance under United States generally accepted accounting principles
and should not be considered in isolation or as a substitute for
consolidated net income (loss) as a measure of performance.
(3) The pro forma selected financial results are based on the historical
consolidated financial statements of SureWest Communications and Everest
Broadband, Inc. ("Everest") and have been adjusted to reflect the Everest
acquisition, which was consummated on February 13, 2008. The unaudited
condensed combined pro forma financial statements give the effect as if
the acquisition had occurred on January 1, 2008. On May 9, 2008, the sale
of the Wireless assets was completed and the pro forma financial results
reflect for all periods presented the classification of the sold Wireless
operations as discontinued operations. Also, on February 27, 2009,
SureWest Communications completed the sale of its Tower Assets and the pro
forma financial results reflect the classification of the operations for
the Tower Assets sold as discontinued operations for all periods
presented.
SUREWEST COMMUNICATIONS
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited; Amounts in thousands)
September 30, December 31, $ %
2009 2008 Change Change
---- ---- ------ ------
ASSETS
Current assets:
Cash and cash equivalents $7,138 $2,840 $4,298 151%
Short-term investments 4,243 610 3,633 596%
Accounts receivable, net 20,878 21,415 (537) (3%)
Income tax receivable 3,656 6,391 (2,735) (43%)
Inventories 5,188 6,527 (1,339) (21%)
Prepaid expenses 3,922 4,539 (617) (14%)
Deferred income taxes 3,785 2,989 796 27%
Other current assets 1,777 1,752 25 1%
Assets of discontinued
operations - 5,002 (5,002) (100%)
--- ----- ------ ----
Total current assets 50,587 52,065 (1,478) (3%)
Property, plant and
equipment, net 523,873 523,231 642 0%
Intangible and other assets:
Long-term investments - 3,508 (3,508) (100%)
Customer relationships, net 4,151 5,062 (911) (18%)
Goodwill 45,814 45,814 - 0%
Deferred charges and
other assets 2,338 4,129 (1,791) (43%)
----- ----- ------ ---
52,303 58,513 (6,210) (11%)
------ ------ ------ ---
$626,763 $633,809 $(7,046) (1%)
======== ======== ======= ===
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term
debt and capital lease
obligations $15,638 $15,643 $(5) (0%)
Accounts payable 3,191 2,798 393 14%
Other accrued liabilities 20,517 19,050 1,467 8%
Advance billings and
deferred revenues 8,535 8,960 (425) (5%)
Accrued compensation 8,708 11,292 (2,584) (23%)
Liabilities of discontinued
operations - 453 (453) (100%)
--- --- ---- ----
Total current liabilities 56,589 58,196 (1,607) (3%)
Long-term debt 211,045 226,045 (15,000) (7%)
Deferred income taxes 50,836 46,358 4,478 10%
Accrued pension and other
post-retirement benefits 38,338 36,046 2,292 6%
Other liabilities and
deferred revenues 4,979 5,819 (840) (14%)
Commitments and contingencies
Shareholders' equity:
Common stock, without
par value; 100,000
authorized, 14,169 and
14,082 shares issued
and outstanding at
September 30, 2009 and
December 31, 2008,
respectively 146,587 146,558 29 0%
Accumulated other
comprehensive loss (19,272) (19,248) (24) (0%)
Retained earnings 137,661 134,035 3,626 3%
------- ------- ----- ---
Total shareholders' equity 264,976 261,345 3,631 1%
------- ------- ----- ---
$626,763 $633,809 $(7,046) (1%)
======== ======== ======= ===
SUREWEST COMMUNICATIONS
ADJUSTED EBITDA RECONCILIATION TO NET INCOME (LOSS) FROM CONTINUING
OPERATIONS
(Unaudited; Amounts in thousands)
Nine Months ended Nine Months ended
September 30, 2009 September 30, 2008
------------------- -------------------
Broad- Consoli- Broad- Consoli-
band Telecom dated band Telecom dated
------ ------- -------- ------ ------- --------
Income (loss)
from continuing
operations $(15,901) $16,668 $767 $(17,017) $19,390 $2,373
Add (subtract):
Income taxes
(benefit)/
expense (10,778) 12,292 1,514 (11,978) 13,948 1,970
Other
(income)/
expense 7,907 363 8,270 8,434 (195) 8,239
Depreciation
and
amortization 35,102 9,196 44,298 29,440 10,921 40,361
Non-cash
pension
(income)/
expense 580 1,369 1,949 (561) (814) (1,375)
Non-cash
stock
compensation
expense 756 759 1,515 304 351 655
------- ------- ------- ------ ------- -------
Adjusted
EBITDA (1) $17,666 $40,647 $58,313 $8,622 $43,601 $52,223
======= ======= ======= ====== ======= =======
(1) Adjusted EBITDA represents net income (loss) from continuing
operations excluding amounts for income taxes; depreciation and
amortization; non-cash pension and certain post-retirement benefits;
non-cash stock compensation; and all other non-operating income/expenses.
Adjusted EBITDA is a common measure of operating performance in the
telecommunications industry. Adjusted EBITDA is not a measure of financial
performance under United States generally accepted accounting principles
and should not be considered in isolation or as a substitute for
consolidated net income (loss) as a measure of performance.
SUREWEST COMMUNICATIONS
CONSOLIDATED FREE CASH FLOW FROM CONTINUING OPERATIONS
(Unaudited; Amounts in thousands)
Nine Months Ended
September 30,
----------------
2009 2008
---- ----
Income from continuing operations $767 $2,373
Add: Depreciation and amortization 44,298 40,361
Less: Capital expenditures (43,363) (64,567)
------ -------
Free cash flow (2) $1,702 $(21,833)
====== ========
(2) Free cash flow is a measure of operating cash flows available for
corporate purposes after providing sufficient fixed asset additions to
maintain current productive capacity.
SUREWEST COMMUNICATIONS
ADJUSTED EBITDA RECONCILIATION TO NET INCOME (LOSS) FROM CONTINUING
OPERATIONS
(Unaudited; Amounts in thousands)
Quarter Ended Quarter Ended
September 30, 2009 June 30, 2009
------------------ --------------
Broad- Consoli- Broad- Consoli-
band Telecom dated band Telecom dated
------ ------- -------- ------ ------- --------
Income (loss)
from continuing
operations $(5,619) $5,408 $(211) $(4,884) $5,783 $899
Add (subtract):
Income taxes
(benefit)/
expense (3,810) 3,824 14 (3,312) 3,928 616
Other
(income)/
expense 2,883 (70) 2,813 2,972 128 3,100
Depreciation
and
amortization 12,199 3,061 15,260 11,283 2,945 14,228
Non-cash
pension
(income)/
expense 197 445 642 56 496 552
Non-cash
stock
compensation
expense 221 222 443 231 233 464
------ ------- ------- ------ ------- -------
Adjusted
EBITDA (1) $6,071 $12,890 $18,961 $6,346 $13,513 $19,859
====== ======= ======= ====== ======= =======
Quarter Ended September 30, 2008
--------------------------------
Broadband Telecom Consolidated
--------- ------- ------------
Income (loss)
from continuing
operations $(5,856) $6,478 $622
Add (subtract):
Income taxes
(benefit)/
expense (3,994) 4,576 582
Other
(income)/
expense 2,724 89 2,813
Depreciation
and
amortization
10,700 3,519 14,219
Non-cash
pension
(income)/
expense (187) (271) (458)
Non-cash
stock
compensation
expense 77 92 169
------ ------- -------
Adjusted
EBITDA (1) $3,464 $14,483 $17,947
====== ======= =======
(1) Adjusted EBITDA represents net income (loss) from continuing
operations excluding amounts for income taxes; depreciation and
amortization; non-cash pension and certain post-retirement benefits;
non-cash stock compensation; and all other non-operating income/expenses.
Adjusted EBITDA is a common measure of operating performance in the
telecommunications industry. Adjusted EBITDA is not a measure of financial
performance under United States generally accepted accounting principles
and should not be considered in isolation or as a substitute for
consolidated net income (loss) as a measure of performance.
SUREWEST COMMUNICATIONS
CONSOLIDATED FREE CASH FLOW FROM CONTINUING OPERATIONS
(Unaudited; Amounts in thousands)
Quarter Ended
-------------
September June September
30, 2009 30, 2009 30, 2008
---------- -------- ----------
Income from continuing
operations $(211) $899 $622
Add: Depreciation
and amortization 15,260 14,228 14,219
Less: Capital
expenditures
(13,841) (11,170) (20,932)
------ ------ -------
Free cash flow (2) $1,208 $3,957 $(6,091)
====== ====== =======
(2) Free cash flow is a measure of operating cash flows available for
corporate purposes after providing sufficient fixed asset additions to
maintain current productive capacity.
SUREWEST COMMUNICATIONS - Consolidated Operations
SELECTED OPERATING METRICS
As of and for the quarter ended
9/30/ 9/30/
BROADBAND 2009 (1) 2008 (1) Chg Chg %
--------- -------- -------- --- -----
Residential
Video
Marketable Homes - Fiber &
HFC (2) 240,000 221,700 18,300 8%
RGUs - Fiber & HFC 57,000 55,900 1,100 2%
RGUs - Copper 2,200 2,600 (400) -15%
Penetration - Fiber & HFC 23.8% 25.2% -1.5% -6%
ARPU $66 $59 $7 11%
Voice
Marketable Homes 309,400 296,600 12,800 4%
RGUs 70,300 60,000 10,300 17%
Penetration 22.7% 20.2% 2.5% 12%
ARPU $31 $32 ($1) -2%
Data
Marketable Homes 309,400 296,600 12,800 4%
RGUs 97,700 95,700 2,000 2%
Penetration 31.6% 32.3% -0.7% -2%
ARPU $38 $36 $2 5%
Total
Marketable Homes - Fiber,
HFC, Copper 309,400 296,600 12,800 4%
RGUs 227,200 214,200 13,000 6%
Subscriber totals
Subscribers (3) 102,500 100,600 1,900 2%
Penetration 33.1% 33.9% -0.8% -2%
ARPU (4) $96 $88 $8 10%
Triple Play ARPU (5) $112 $106 $6 6%
Triple Play RGUs per
Subscriber (5) 2.57 2.60 (0.03) -1%
Churn 1.8% 1.7% 0.2% 10%
Business (6)
Customers 7,000 6,300 700 11%
ARPU $483 $494 ($11) -2%
9/30/ 9/30/
TELECOM 2009 (1) 2008 (1) Chg Chg %
------- -------- -------- --- -----
Residential
Voice
Marketable Homes 90,900 90,500 400 0%
RGUs (7) 41,300 58,500 (17,200) -29%
Cumulative Migration to
Broadband Voice (8) 10,700 2,900 7,800 269%
Penetration 45.4% 64.6% -19.2% -30%
ARPU $45 $43 $2 4%
Churn (9) 2.3% 2.4% -0.1% -2%
Business (6)
Customers 8,700 9,400 (700) -7%
ARPU $329 $354 ($25) -7%
CONSOLIDATED RESIDENTIAL VOICE RGUs
-----------------------------------
ILEC Voice RGUs
Broadband 14,700 4,400 10,300 234%
Telecom 41,300 58,500 (17,200) -29%
------ ------ -------
Total ILEC Voice RGUs (10) 56,000 62,900 (6,900) -11%
CLEC Residential Voice
RGUs (11) 55,600 55,600 0 0%
------ ------ -
TOTAL Residential Voice
RGUs (12) 111,600 118,500 (6,900) -6%
9/30/ 9/30/
NETWORK METRICS 2009 (1) 2008 (1) Chg Chg %
--------------- -------- -------- --- -----
Marketable Homes - Fiber 147,100 129,000 18,100 14%
Marketable Homes - HFC 92,900 92,700 200 0%
Marketable Homes - Copper 69,400 74,900 (5,500) -7%
------ ------ ------
Total 309,400 296,600 12,800 4%
6/30/
BROADBAND 2009 (1) Chg Chg %
--------- -------- --- -----
Residential
Video
Marketable Homes - Fiber &
HFC (2) 239,800 200 0%
RGUs - Fiber & HFC 56,900 100 0%
RGUs - Copper 2,200 0 0%
Penetration - Fiber & HFC 23.7% 0.0% 0%
ARPU $67 ($1) -2%
Voice
Marketable Homes 309,300 100 0%
RGUs 68,000 2,300 3%
Penetration 22.0% 0.7% 3%
ARPU $33 ($2) -5%
Data
Marketable Homes 309,300 100 0%
RGUs 97,700 0 0%
Penetration 31.6% 0.0% 0%
ARPU $38 $0 1%
Total
Marketable Homes - Fiber,
HFC, Copper 309,300 100 0%
RGUs 224,800 2,400 1%
Subscriber totals
Subscribers (3) 101,800 700 1%
Penetration 32.9% 0.2% 1%
ARPU (4) $97 ($1) -1%
Triple Play ARPU (5) $115 ($3) -2%
Triple Play RGUs per
Subscriber (5) 2.58 (0.01) -1%
Churn 1.7% 0.1% 6%
Business (6)
Customers 6,800 200 3%
ARPU $475 $8 2%
6/30/
TELECOM 2009 (1) Chg Chg %
------- -------- --- -----
Residential
Voice
Marketable Homes 90,900 0 0%
RGUs (7) 45,100 (3,800) -8%
Cumulative Migration to
Broadband Voice (8) 9,000 1,700 19%
Penetration 49.6% -4.2% -8%
ARPU $45 $0 -1%
Churn (9) 2.3% 0.1% 2%
Business (6)
Customers 8,900 (200) -2%
ARPU $339 ($10) -3%
CONSOLIDATED RESIDENTIAL VOICE RGUs
-----------------------------------
ILEC Voice RGUs
Broadband 12,400 2,300 19%
Telecom 45,100 (3,800) -8%
------ ------
Total ILEC Voice RGUs (10) 57,500 (1,500) -3%
CLEC Residential Voice
RGUs (11) 55,600 0 0%
------ -
TOTAL Residential Voice
RGUs (12) 113,100 (1,500) -1%
6/30/
NETWORK METRICS 2009 (1) Chg Chg %
--------------- -------- --- -----
Marketable Homes - Fiber 146,900 200 0%
Marketable Homes - HFC 92,900 0 0%
Marketable Homes - Copper 69,500 (100) 0%
------ ----
Total 309,300 100 0%
(1) The calculation of certain metrics have been revised over time to
reflect the current view of our business. Where necessary prior period
metric calculations have been revised to conform with current practice.
All amounts rounded to the nearest 100s, except percents and dollars.
(2) Marketable Homes - Fiber & HFC consists of Sacramento fiber homes and
Kansas City hybrid fiber coax (HFC) homes.
(3) A residential subscriber is a customer who subscribers to one or more
residential RGUs.
(4) ARPU is the total residential revenue per average subscriber.
(5) Triple play ARPU includes the total residential revenue per average
subscriber and Triple play RGUs per Subscriber includes ending RGUs per
ending subscriber, for the triple play markets, excluding the ILEC market.
(6) A business customer is a customer who subscribes to business data,
voice or video and represents a unique customer account. ARPU is the
total business revenue per average customer.
(7) A voice RGU is a residential customer who subscribers to one or more
voice access line.
(8) Telecom Voice RGU Migration to Broadband Voice are residential Telecom
voice RGUs in Line (7) that have ported their Telecom primary access line
service to Broadband VoIP.
(9) Telecom Churn excludes disconnects in Line (8) that have ported their
Telecom primary access line service to Broadband VoIP.
(10) ILEC Voice RGUs are the total residential voice RGUs in the ILEC
franchise market area that are either a Telecom primary access line or
Broadband VoIP subscriber.
(11) CLEC Voice RGUs are the total residential voice RGUs in the Kansas
City and Sacramento markets, excluding the ILEC market.
(12) Total Voice RGUs are the total of ILEC and CLEC residential voice
RGUs, and represent the total company residential voice RGUs of both the
Broadband and Telecom Segments.
(13) Telecom access lines include residential and business access lines.
For information purposes, access line counts were 100,200 at 9/30/08,
82,600 at 6/30/09, and 77,600 at 9/30/09.
SOURCE SureWest Communications