MTS Allstream reports second-quarter 2012 results

Learn more about MTS Allstream's Q2 2012 results by visiting the "Investors" section on www.mtsallstream.com.

Stock Symbol: MBT

WINNIPEG, Aug. 2, 2012 /CNW/ - Manitoba Telecom Services Inc. ("the Company" or "MTS Allstream"), including its two operating divisions, MTS and Allstream, today reported net earnings of $44.5 million for the three months ended June 30, 2012, compared with $49.8 million for the three months ended June 30, 2011. Earnings per share ("EPS") was $0.67 in the second quarter of 2012, up 4.7% after adjusting for a one-time scientific research and experimental development ("SR&ED") tax credit recorded in the second quarter of 2011. Second-quarter results position us to meet our financial guidance ranges on all metrics.

Q2 2012 highlights:

• Consolidated EBITDA grew 1.8% to $153.5 million in Q2 2012
• Revenues from growth lines of business up 4.8%
• MTS wireless data revenues were up 24.8%, driving wireless revenues up 3.3% and year-to-date wireless ARPU up 3.9%
• MTS IPTV revenues were up 14.5% to $19.7 million; high-speed Internet revenues were up 10.2% to $28.0 million
• Allstream EBITDA grew 2.9% to $28.8 million in Q2 2012, marking the seventh straight quarter of EBITDA growth; revenue and cash flow are on plan for 2012
• Allstream added 67 buildings to its IP fibre network; fibre-fed buildings now total 2,554
• Board of Directors declares $0.425 per share Q3 2012 cash dividend

"We made excellent progress on our strategic objectives in the first half of the year, and are in line with our plans for 2012," said Pierre Blouin, MTS Allstream's Chief Executive Officer. "Our focus on profitability is generating solid results, with EBITDA growth for both divisions driven by strong performance in MTS's growth lines of business, Allstream's on-net IP sales focus and diligent cost management."

"We also welcome the federal government's legislative amendments, passed during the quarter, which will allow increased foreign investment into smaller Canadian telecommunications providers, including MTS Allstream. We have advocated for this change over the past few years, as we believe it will drive more investment and greater innovation in Canada's telecommunications sector. This change could help strengthen Allstream, as it broadens available opportunities, including new sources of capital and stronger partnerships."

"Now that we know exactly how the new rules apply, we are assessing how to capitalize on these changes in the best interests of the Company and its stakeholders. Currently, Allstream has a clear strategy and strong traction in the IP market, and is, in fact, the strongest it has been in years. We continue to focus on executing our strategy and to look for ways to improve performance and create value for our stakeholders," said Mr. Blouin.

MTS Allstream

MTS Allstream delivered solid financial performance in the second quarter, as management continues to focus on improving cash flows and profitability by growing wireless, IPTV and high-speed Internet in Manitoba, and converged Internet protocol ("IP") nationally.

Consolidated financial results

(in millions $, except EPS)	Q2 2012	Q1 2012	Q4 2011	Q3 2011	Q2 2011
Revenues	431.6	435.1	439.4	443.2	443.7
EBITDA^1	153.5	154.0	146.9	146.9	150.8
EPS^2	$0.67	$0.80	$0.56	$0.56	$0.76
Free cash flow^3	27.1	36.1	18.3	29.3	57.8
Capital expenditures	93.0	76.9	84.6	81.1	54.5

¹ MTS Allstream defines EBITDA as "earnings before interest, taxes, depreciation and amortization, and other income (expense)". See the "Notes" section of this news release for further information.
² EPS is based on weighted average shares outstanding of 66.4 million for the three months ended June 30, 2012; 66.2 million for the three months ended March 31, 2012; 65.9 million for the three months ended December 31, 2011; 65.7 million for the three months ended September 30, 2011; and 65.4 million for the three months ended June 30, 2011. 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". See the "Notes" section of this news release for further information.

• Strong revenue growth generated by the Company's wireless, high-speed Internet and IPTV services was offset by planned legacy revenue declines, resulting in a 2.7% year-over-year consolidated revenue decrease.
• Consolidated EBITDA grew 1.8% when compared to the prior year, due to growth in MTS revenues, Allstream's continued focus on converged IP revenues and improving margins, and strong cost management, partly offset by declining revenues from legacy lines of business.
• As expected, free cash flow was $27.1 million, down $30.7 million in the second quarter of 2012 when compared to the same period of 2011, mainly due to the favourable one-time $20.7-million impact of the scientific research and experimental development ("SR&ED") tax credit recorded in Q2 last year and an increase in capital expenditures, partly offset by lower wireless costs of acquisition and higher EBITDA.
• The decrease in EPS over the prior year is mostly attributable to a higher depreciation and amortization expense, partly offset by higher EBITDA and lower income tax expense. The increase in depreciation and amortization expense was due to the SR&ED tax credit recorded in 2011. Normalizing for the $0.12 impact of the SR&ED recovery in Q2 2011, in-quarter EPS in Q2 2012 would have been up by 4.7%.
• Capital expenditures were higher compared to the same period last year, mainly due to the SR&ED tax credit recorded in 2011 and the timing of various capital projects, like the roll-out of our Long Term Evolution ("LTE") wireless network, in the first half of 2012. As outlined in our 2012 financial guidance, MTS Allstream expects capital spending for the full year, net of SR&ED tax credits, to increase as planned for each division when compared to the prior year, due to management's decision to reinvest the majority of EBITDA growth in our growth lines of business.
• The Company is well on track to attain its annual cost savings target in 2012, having achieved $20.0 million in annualized cost savings in the first half of this year. Management expects to achieve the guidance range of $25 million to $35 million of annualized cost savings in 2012.

MTS

MTS delivered revenue growth of 1.6% and EBITDA growth of 1.5%, while maintaining a strong EBITDA margin of 50.8% in the second quarter of 2012. Wireless, high-speed Internet and IPTV services generated strong revenue growth, which offset declines in local, long distance and legacy data services. MTS increased the number of customers with bundled services by 9.7%, to almost 95,000, in the second quarter of 2012.

MTS operating revenues

(in millions $)	Q2 2012	Q2 2011	% change	YTD 2012	YTD 2011	% change
Wireless	90.9	88.0	3.3	180.7	172.0	5.1
Broadband and converged IP	53.6	48.3	11.0	106.1	94.5	12.3
Unified communications, security and monitoring	9.5	8.9	6.7	18.1	17.2	5.2
Local access	67.3	70.0	(3.9)	134.2	139.6	(3.9)
Long distance and legacy data	19.2	20.9	(8.1)	38.3	42.8	(10.5)
Other	6.3	6.9	(8.7)	13.1	14.2	(7.7)
Total MTS operating revenues	246.8	243.0	1.6	490.5	480.3	2.1

Wireless services continued to generate strong revenue growth in the second quarter of 2012.

• Wireless data revenues grew 24.8% in the second quarter of 2012, driving a 3.9% increase in year-to-date wireless average revenue per user ("ARPU"), to $60.34. Year-to-date wireless data ARPU was $18.47, an increase of 32.6% over the prior year. At June 30, 2012, 50.5% of all postpaid wireless subscribers had data plans, up from 36.2% as of June 30, 2011.
• MTS's extensive 4G wireless network, together with the planned deployment of LTE technology in Winnipeg and Brandon later in 2012, is expected to drive continued strong demand for wireless data services.
• Postpaid subscribers totaled 396,918 in the second quarter of 2012, up 3.8% over the prior year. The postpaid wireless subscriber growth was partly offset by a decrease in lower-ARPU prepaid and wholesale customers. As a result, wireless subscribers were stable over the prior year and totaled 490,498 as of June 30, 2012.
• Postpaid wireless churn was a leading 0.80% in the second quarter of 2012, down from 0.92% in the same period of the prior year. Blended wireless churn was 1.63% in the second quarter of 2012, up from 1.50% in the second quarter of 2011.

Broadband and converged IP lines of business delivered strong performance in the second quarter of 2012, driven by demand for high-speed Internet and premium IPTV services.

• Internet revenues grew 10.2% to $28.0 million in the second quarter, due to fewer subscribers on promotional plans, price increases and subscriber growth.
• Year-to-date high-speed residential ARPU was up 9.4%, to $41.27, due to fewer customers on promotional plans and price increases.
• High-speed Internet subscribers increased 1.8%, to 189,708, as at June 30, 2012. 
• IPTV revenues grew 14.5% to $19.7 million in the second quarter, driven by fewer customers on promotional plans, subscriber growth and price increases.
• At June 30, 2012, MTS had a total of 100,626 television customers, of whom 94,743 are higher-ARPU IPTV subscribers, representing a year-over-year increase of 3.4% in IPTV customers.

MTS maintained its market leadership position in local access, legacy data and long distance services, while facing aggressive promotional pricing from its main cable competitor, which is having an impact on some of its subscriber numbers. MTS remains disciplined in finding the right balance between financial performance and maintaining its market share.

• Local access revenues declined by 3.9% in the second quarter, mainly due to a 6.5% drop in residential local access lines resulting from wireless substitution and local competition, and a 3.0% decrease in business local access lines.
• Long distance revenues declined by 10.4% to $11.2 million in the second quarter, mainly due to customer migration to lower-priced long distance plans and reduced volumes, as customers continue to replace long distance calling with alternative methods of communication, such as email, text messaging and social networking.
• Legacy data revenues declined 4.8% to $8.0 million in the second quarter of 2012, mainly due to a decrease in wholesale data services and the decommissioning of legacy products.

Allstream

Allstream's performance in the second quarter of 2012 demonstrated continued progress on its strategic objective: to drive growth in on-net IP-based services and improve profitability. EBITDA increased by $0.8 million in the second quarter of 2012 compared to the same period of 2011, marking the seventh straight quarter of year-over-year EBITDA growth for Allstream. Allstream revenue for the period reflected a year-over-year increase in high-margin on-net IP revenues, which were offset by legacy revenue declines. The continuing focus on on-net services improved gross margins to 58.0% in Q2 2012 and, along with diligent cost management, contributed to overall growth in EBITDA.

Allstream operating revenues

(in millions $)	Q2 2012	Q2 2011	% change	YTD 2012	YTD 2011	% change
Converged IP	60.8	59.6	2.0	121.9	118.3	3.0
Unified communications and security	19.2	21.8	(11.9)	41.0	43.8	(6.4)
Local access	46.9	49.5	(5.3)	94.5	99.3	(4.8)
Long distance and legacy data	47.0	54.0	(13.0)	96.6	110.6	(12.7)
Other	19.6	25.4	(22.8)	39.7	49.1	(19.1)
Total Allstream operating revenues	193.5	210.3	(8.0)	393.7	421.1	(6.5)

Converged IP revenues were up $1.2 million in the second quarter of 2012, when compared to the same period of 2011.

• The revenue increase generated by IP sales wins was partly offset by an increase in disconnects related to a decision by a Government of Ontario department to change its policy on the procurement of telecommunications services for individual doctors' offices and clinics. Adjusting for the impact of this contract, converged IP revenues would have grown 7.2% in the second quarter of 2012, when compared to the same period of the prior year.
• Converged IP gross margins also continued to grow, reaching 72.5%, from 71.0% for the same period last year.
• Allstream added a total of 67 buildings to its national IP fibre network in the second quarter of 2012, raising its total number of fibre-fed buildings to 2,554 at June 30, 2012, for an increase of 15.5% when compared to June 30, 2011.
• Allstream cash flow is on track with our plan to reinvest the majority of Allstream EBITDA growth in IP and growth initiatives.

Allstream continues to implement its strategy to improve profitability by also exiting low-margin legacy services, reducing operating costs and transitioning legacy customers to IP-based services.

• Allstream's decline in local access revenues was primarily due to decreases in resold voice lines, as per Allstream's strategy of focusing on services delivered on its network and exiting low-margin lines of business.
• Long distance revenues declined by 15.0% to $23.2 million in the second quarter, mainly due to decreased volumes and lower domestic and cross-border rates.
• Legacy data revenues declined by 10.9% to $23.8 million in the second quarter, as expected, reflecting Allstream's customers' continued transition to broadband and other IP-based services.
• Other services revenues decreased $5.8 million in the second quarter of 2012, mainly due to lower international and cross-border volumes for global hubbing, a low-margin wholesale voice service. Continued decreases are expected as part of the Company's decision to reduce sales in global hubbing.

Dividend

The Company's Board of Directors declared a quarterly cash dividend of $0.425 per share for the third quarter of 2012, payable on October 15, 2012 to shareholders of record at the close of business on September 14, 2012.

The third-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 second-quarter 2012 results conference call with the investment community on August 2, 2012 at 5:00 pm (Eastern time). Participants will 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 August 17, 2012, by dialing 1-855-859-2056 and entering passcode 89748429.

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 at the "Investors" page of the Company's website (www.mtsallstream.com) or by entering http://event.on24.com/r.htm?e=481237&s=1&k=DC3B32DA5B294516FE345905F576B7D6. A replay of the conference call will be available on MTS Allstream's website for one year.

Notes

(1)

MTS Allstream defines EBITDA as "earnings before interest, taxes, depreciation and amortization and other income (expense)". The term "EBITDA", as it relates to 2012 and 2011 results prepared using International Financial Reporting Standards ("IFRS"), does not have any standardized meaning according to IFRS. It is therefore unlikely to be comparable to similar measures presented by other companies.

(in millions $)	Q2 2012	Q2 2011	% change	YTD 2012	YTD 2011	% change
Operating revenues	431.6	443.7	(2.7)	866.7	883.0	(1.8)
Deduct: Operating expenses	357.4	357.2	0.1	717.0	721.5	(0.6)
Add: Depreciation and amortization	79.3	64.3	23.3	157.8	139.1	13.4
EBITDA	153.5	150.8	1.8	307.5	300.6	2.3

(2)

MTS Allstream defines free cash flow as "cash flows from operating activities, less capital expenditures, and excluding changes in working capital". Free cash flow is the amount of discretionary cash flow that the Company has for purchasing additional assets beyond its annual capital expenditure program, paying dividends, buying back shares and/or retiring debt. The term "free cash flow", as it relates to 2012 and 2011 results prepared using IFRS, does not have any standardized meaning according to IFRS. It is therefore unlikely to be comparable to similar measures presented by other companies.

(in millions $)	Q2 2012	Q2 2011	$ change	YTD 2012	YTD 2011	$ change
Cash flows from operating activities	114.0	74.8	39.2	191.3	102.2	89.1
Add: Changes in non-cash working capital	6.1	37.5	(31.4)	41.8	102.3	(60.5)
Deduct: Capital expenditures	(93.0)	(54.5)	(38.5)	(169.9)	(122.3)	(47.6)
Free cash flow for the period	27.1	57.8	(30.7)	63.2	82.2	(19.0)

(3)	More information can be found in MTS Allstream's Second-Quarter 2012 interim MD&A, Second-Quarter 2012 Financial Statements, 2011 Annual MD&A and 2011 Annual Information Form, which are available in the "Investors" section of the MTS Allstream website at www.mtsallstream.com and will be available on SEDAR at www.sedar.com.

Supplementary information for the three and six months ended June 30, 2012 is also available in the "Investors" section of the MTS Allstream website at www.mtsallstream.com.

Forward-looking statements disclaimer

This news release includes forward-looking statements and information (collectively, "the statements") about the Company's corporate direction, business opportunities, operations, financial objectives and future financial results and performance that are subject to risks, uncertainties and assumptions. As a consequence, actual results in the future may differ materially from any conclusion, forecast or projection in such forward-looking statements. Therefore, forward-looking statements should be considered carefully and undue reliance should not be placed on them. Examples of statements that constitute forward-looking information may be identified by words such as "believe", "expect", "project", "should", "anticipate", "could", "target", "forecast", "intend", "plan", "outlook", "see", "set", "pending" and other similar terms.

Factors that could cause anticipated opportunities and actual results to differ materially include, but are not limited to, matters identified in the "Risks and uncertainties" section and elsewhere in the Company's 2011 Annual MD&A, which is available in the "Investors" section of the MTS Allstream website at www.mtsallstream.com and on SEDAR at www.sedar.com.

Please note that forward-looking statements reflect Management's expectations as at August 2, 2012. The Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. This news release and the financial information contained herein have been reviewed by the Company's Audit Committee and approved by the Company's Board of Directors.

Manitoba Telecom Services Inc. (MTS Allstream)

MTS Allstream is one of Canada's leading national communication solutions companies, providing innovative communications for the way Canadians live and work today. The Company has more than 100 years of experience, with 5,500 employees across Canada. MTS Allstream's business is dynamic and consists of two operating divisions. In Manitoba, MTS is the leading full-service telecommunications provider for residential and business customers. MTS's suite of services includes the latest in wireless technology, broadband services, IPTV, voice services, home security and an extensive range of business solutions. Across Canada, Allstream is a leader in IP communications and the only national provider that focuses exclusively on the business telecommunications market. MTS Allstream has nearly two million customer connections, spanning business customers across Canada and residential consumers throughout the province of Manitoba. The Company's extensive national fibre optic network spans more than 30,000 kilometres. MTS Allstream has spent 11 consecutive years on the Jantzi Social Index for leadership in social responsibility, and is the recipient of the 2011 Governance Gavel Award from the Canadian Coalition of Good Governance, recognizing clear and effective public disclosure and leading governance practices. MTS Allstream's common shares are listed on the TSX (trading symbol: MBT). Customers, stakeholders and investors who want to learn more about MTS Allstream are encouraged to visit www.mtsallstream.com. For more information about MTS's products and services, please visit www.mts.ca. For more information about Allstream's products and services, please visit www.allstream.com.

 

 

 

SOURCE: MTS Allstream

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