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Multiband Corporation (NASDAQ:MBND)

Q1 2013 Earnings Call

May 15, 2013 4:30 PM ET


Cameron Donahue - IR, Hayden

Jim Mandel - CEO

Steve Bell - CFO


Jason Kreyer - Craig-Hallum

Bill Sutherland - Northland Capital Markets


Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Multiband Corporation 2013 First Quarter Earnings Conference Call. During today’s presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions. (Operator Instructions) This conference is also being recorded today, May 15, 2013.

I would now like to turn the conference over to our host Cameron Donahue of Hayden IR. Please go ahead, sir.

Cameron Donahue

Thank you, and good afternoon. We’d like to thank everyone for joining us today for Multiband’s first quarter 2013 earnings conference call. Our call today is hosted by Jim Mandel, Chief Executive Officer; and Steve Bell, Chief Financial Officer.

Following this discussion, there will be a formal Q&A session for those in the call. Before we get started today, I’m going to review the Safe Harbor statement. This conference call contains forward-looking statements that are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

Such statements involve a number of risks and uncertainties, competitive factors, technological development, market demand and our ability to consummate acquisitions, and Multiband’s ability to obtain new contracts and accurately estimate net revenues due to variabilities in size, scope and duration of projects and internal issues in sponsoring clients.

Further information with regard to potential factors that affect Multiband’s financial results can be found in Multiband’s registration statement and its reports on Forms 10-K and 10-Q, and others as filed with the Securities and Exchange Commission. The company is under no obligation to update these areas discussed today to reflect subsequent events.

With that out of the way let’s turn the call over to Steve Bell, CFO for opening comments. Steve, floor is yours.

Steve Bell

Thank you very much Cameron. I would like to briefly go through the financial highlights for the quarter before turning the call over to Jim to discuss our operations in greater detail.

Before I begin, let me say that the results that I’m about to review are discussed on generally accepted accounting principles or on a GAAP basis. However, as is customary in our industry sector, the company uses adjusted EBITDA, earnings before interest, taxes, depreciation and amortization as a measurement of our ability to generate operating profitability and efficiency. We believe non-GAAP measures will aid investors overall understanding of our results by providing better transparency for certain expenses and by providing a level of disclosure that will help investors understand how we plan and measure our business.

Management uses and investors should use non-GAAP measures in conjunction with our reported GAAP results. In our press release issued earlier today, we reconciled the GAAP to non-GAAP results. With that cautionary statement completed, I will discuss the financial results for our first quarter ended March 31, 2013.

Revenues for the current quarter were $73.1 million a slight increase over the revenues of $72.2 million in the first quarter of 2012. For the first quarter of 2013, Field Services segment revenue of $62.8 million decreased 1.5% from $63.8 million in the year-ago period. HSP revenues from DIRECTV declined by 3.6 million or 6.2% due to 2.8% decline in closed work orders and a 35.5% decline in incentive income. This decline was mostly offset by increased revenues from satellite internet fulfillment work which improved from 906,000 in quarter one of 2012 to 3.4 million in the current quarter, an increase of over 273%.

Multiple Dwelling Units or MDU segment revenue increased in the current quarter by 21.8% to 7.2 million from 5.9 million in the year ago period as a result of an increase in subscribers under our master system operator on (umbrella) due to ongoing consolidation in that market.

Energy, Engineering & Construction segment revenues increased in the current quarter to 3.1 million from 2.6 million during a comparable period in 2012, an increase of 19.9%.

For the quarter ended March 31, 2013 Multiband generated operating income of $812,000 compared to an operating loss of $737,000 during the same period last year, an improvement of 1.5 million.

Adjusted EBITDA, a non-GAAP measure was $3.1 million for the first quarter of 2013, compared to $1.9 million in the year ago period. This improvement was driven by a 6.5% decrease in SG&A expenses due to a reduction in wages, benefits and other employee related expenses.

As we have discussed on previous calls Multiband maintains a revolving lease facility for the vehicles used in its daily operations, which are required to be recorded as an operating expense for purposes under GAAP.

Certain peers at our business sector may have vehicle leases that qualify for capital lease treatment under GAAP. To make our numbers comparable to those that it helped with our vehicle leases as capital leases. Vehicle lease payments totaling $3.8 million and $2.9 million during the three months ended March 31, 2013 and 2012 respectively would need to be added back to the EBITDA figures discussed earlier, which would result on adjusted EBITDA of $6.9 million and $4.8 million for the three months ended March 31, 2013 and 2012 respectively.

For the quarter ended March 31, 2013 Multiband reported a net loss attributable to common stockholders of $681,000 or $0.03 loss per share versus $1.5 million loss or $0.07 loss per share in the year ago period.

It’s important to note that the net loss incurred in the first quarter of 2013 includes the write-off of deferred financing fees associated with the refinancing of our debt in January and those fees totaled approximately $1 million.

These are some of the financial highlights for our first quarter. I would now like to turn the call over to Multiband’s CEO, Jim Mandel.

Jim Mandel

Thank you, Steve. We are obviously very pleased with these results as the issues we identified during last year have been addressed and focused on. We continue to diversify our product platform in the first quarter of 2013. Revenue decreases in our core DIRECTV HSP business were entirely offset by increasing revenue in our satellite broadband (fulfillment), MDU and Energy, Engineering & Construction division.

Field Services segment, revenues finished the quarter at $62.8 million down about 1.5% from the $63.8 million number a year ago. And even though HSP work order flow was 3% lower than last year, we are confident that levels would increase throughout the remainder of the year and 2013 volume will be consistent with what we saw last year.

Offsetting the trend in HSP, our diversification continued to deliver robust results. Revenue from ViaSat, our partner in the WildBlue and Exede satellite internet products grew by over 273% or $3.4 million in the first quarter. The cable fulfillment division contributed $2.7 million of revenue. The MDU segment revenue grew by 21.8% in the quarter to $7.2 million from $5.9 million a year ago; the improved results were driven by both organic growth and market consolidation system operator.

Energy, Engineering & Construction revenues for the first quarter increased to $3.1 million from $2.6 million for the same period last year, an increase of almost 20%. We expect revenues in the segment to continue to increase throughout the remainder of the year. As demand for these products and services increase and as we increase our sales activity and expand our geographic footprint.

Due to the ongoing advancements in wireless technology, we expect activity in our Distributed Antenna Systems product to be very active. Our overall (bidding) is up substantially on a sequential basis and we've increased our presence in the area with the opening of our Manhattan (sales office).

We anticipate seeing results of this effort beginning this quarter. Our ongoing work at World Trade Center provides visibility into the skill set of our world-class engineering team. And we are very enthusiastic of other opportunities at this area.

Diversification continues to be a primary focus for our team. So we can leverage our personnel, geographic positioning and expertise and ultimately reduce dependent on our HSP contracts with our primary partner DIRECTV.

We continue to make adjustments for our cost structure to respond to the static amount of HSP revenue. And we are constantly analyzing this activity for additional efficiencies. The engineering and wireless division although not yet comparable for the first quarter, has shown significant improvement over the last year narrowing its operating loss which is $83,000 from $436,000 in the first quarter last year. And we expect to achieve profitability at this quarter of 2013 as we focus on increasing sales activities and expanding the geographic footprint of this group.

It’s very encouraging that backlog in this segment increased to $2 million as of March 31, 2013 from the $1.7 million level as of the end of last year. These backlog amounts are based on contract values and purchase orders and may or may not materialize on future quarter.

A major accomplishment for the first quarter was the completion of our financing arrangement with Fifth Third Bank. This $30 million senior credit facility which consisted of $20 million term loan and a $10 million revolved. Proceeds from this facility were used to refinance essentially all of our pre-existing debt at a significantly more favorable interest rate.

The financing, however, did not come without a cost. As we incurred significant financing costs because the transaction completed. And we had spent approximately $1 million of those in the first quarter.

Additionally, in early April, Fifth Third Bank issued another commitment letter subject to certain contingencies contained therein for its portion of amended $55 million facility to be syndicated. This proposed facility would consist of a $40 million (term loan), an additional revolver of $15 million, if utilized.

Multiband continues to work on completing a transaction whereby MDU Communications would merge with and into a wholly owned subsidiary of Multiband. Subject to the satisfaction of certain previously disclosed conditions (proceedings), including the approval of MDUC shareholders and lenders. The parties remain committed to this transaction and we continue to discuss terms and timing of the completion.

Our diversification strategy is on track and we made significant stride in integrating our acquisitions and narrowing the losses from a year ago period. Our position in the industry has never been stronger and we continue to capture share in the MDU market that has been consolidating rapidly.

In 2013, we are focused on maintaining operating profits in the Field Services segment as well as improving results in the MDU segment by reshaping the subscriber footprint to gain efficiencies and by expanding the managed subscriber base by adding new system operators.

We will also continue to focus in expanding our call center support with sales of call center services to both existing and future system operators. And as I mentioned previously, we will focus on improving results both top and bottom line for products and services in the EE&C segment.

As for forward guidance, we will only reiterate comments we made in our fourth quarter and full year call in March. That we expect record revenues in 2013 and improved EBITDA over last year.

The significantly improved first quarter results certainly support this guidance. Accordingly we are anticipating second quarter revenue to be in the range from $77 million to $80 million versus $69.8 million in 2012 and EBITDA to be in the range of $4 million to $5 million versus $3.5 million in 2012.

With this portion of our discussion concluded, I will now entertain any questions that you may have. Thank you for your time. Operator?

Question-and-Answer Session


Ladies and gentlemen, we will now begin the question-and-answer Session. (Operator Instructions) Our first question comes from George Sutton with Craig-Hallum. Please go ahead.

Jason Kreyer - Craig-Hallum

Hey guys, Jason on the call for George. Jim, you’ve talked about the cable opportunities and that being a big growth area going forward. I'm just wondering if you can touch on the strides you have made over the past year and what you’ve seen as far as the expansion of that business?

Jim Mandel

Well, the cable program has been slower than we anticipated. It continues to improve. We still see a tremendous opportunity there. But out of all the different things that we accomplished over the last year, and over the first quarter in particular, that's probably the one lagging (indicator). It has not proceeded as quickly as we would hope, although it has, again significantly improved, its trending well. And we still think that there is plenty of opportunity in that segment. And could be even more opportunity as Comcast and other large (NFOs) start to reduce the number of contractors that they (use). So, we are still bullish on it. We still think that's it's a good business for us at the end. It's a good fit. Yet the operating results are not where we want them. And we are going to continue to work hard to get that improved.

Jason Kreyer - Craig-Hallum

Okay, thank you for the color. And then, regarding the MDU Comm. Acquisition. So we've had a lot of time to evaluate that acquisition, since it was first announced. And just wondering if you can provide any commentary on, are you more excited about that opportunity as we have moved along? Do you think it's a better fit? Or how do you view that acquisition now versus when we announced it last summer?

Jim Mandel

Well, we still like the transaction. But there is just no benefit from our perspective to race to the end of it. This is a complicated deal. Everybody is cognizant of the fact that it's an expensive transaction for the company. And we want to be very, very careful. Unlike, other aspects of our business, the MDU revenues are very stable. They are recurring in nature. The margins are high. And we want to make sure that we fully understand all aspects and we have the most fluent transition possible. So, (inaudible), measure twice and cut one. That's exactly what we are doing. And it should not be misconstrued for any lack of ambition or excitement about the transaction. But we've made a lot of improvements in our operating (stance) this year. We have cleaned up our balance sheet, cleaned up the facilities. We have got a lot of great things going here. And I think, everybody just wants to make sure we do this correctly.

Jason Kreyer - Craig-Hallum

The MDU revenue came down a little bit sequentially from last quarter. And I’m just wondering if you could provide a bit of color on that. I would have expected that to be flat or up a little bit. But maybe there is some seasonality that I didn’t factor in.

Jim Mandel

Well it's certainly a seasonality on new subscriber growth and of course there is always customer (churn) in the first quarter. But I think more importantly, there were some changes in the DIRECTV credit facilities. In other words, what it takes to become a DIRECTV subscriber. Those were changed which will make it easier to add subscribers moving forward in the year. But they were still very, very tight in the first quarter. So, we started with a little bit of fluctuation, but we do expect that to continue to improve at the balance of the year.


(Operator Instructions) And our next question comes from the line of Bill Sutherland with Northland Capital Markets. Please go ahead.

Bill Sutherland - Northland Capital Markets

I was looking at the balance sheet real quickly and noticing certain amount of cash used in receivables. Any color there?

Jim Mandel

Yeah that was really just a timing issue. We've received a large payment from DIRECTV which obviously makes up the bulk of our AR, on the last day 2012. And so it just happened to do with where the holidays fell. And as a consequence, our AR came down and cash went up, and then those two issues reversed themselves during the first quarter. That's all there (inaudible).

Bill Sutherland - Northland Capital Markets

What's your visibility like, I know it's a hard call on the DIRECTV support business. You are saying that it will be I guess a pretty flat for the year?

Jim Mandel

Yeah our numbers, in our projections for the year is flat. That's no surprise I think to anybody who has followed us. We projected it to be flat now for some time. We had an anomaly in 2011 where it jumped higher than we anticipated. We had a correction of that activity in 2012 where it just basically corrected itself down to our original projections from a couple of years ago. And in this year, we expected it to be very, very consistent. DIRECTV is not going to shrink. We are going to continue to grow at a very balanced rate. And as a consequence of that, our activity with our existing sites will be very, very consistent. And I think what happened last year, was the extraordinary health claims and Workman's comp claims that were higher than normal based on higher W2 (comp) versus 1099 et cetera have all been dealt with. We have worked on all those things and that’s how we brought, basically very flat volume, we dramatically improved the operating profits. And again that's just predicated on good planning and execution. We could see nothing in the horizon, we get pretty good visibility going out. 120 days at a time. And we think our plan is very solid. We think that business is solid and it will be solidly profitable.

Bill Sutherland - Northland Capital Markets

I know one of the parts of your strategy last year to improve the business was to reduce attrition. How does that look now?

Jim Mandel

Well we did reduce attrition, reduced it about 50% from the year before. It's still higher than we’d like to see it. Turning towards 50% down from about 77%. It's a very difficult process to get under control caused by a myriad of issues. But it is improving, we continue to watch it. And slowly but surely, I think it's improving on a quarter-by-quarter basis.

What we get tripped off on is regionality. Certain areas of the country experience different events that drive activity, oil prices believe it or not in our Louisiana market places have a tendency to drive turnover based on the fact that as the oil prices fluctuate, drilling activity increases and then the call for labor goes up. And we certainly feel that type of process. Labor accounts in North Dakota are very hard to maintain in our support centers et cetera simply because there is almost no unemployment in North Dakota. So there are things like that, that impact us on a regional basis. But when we look at this on a national basis and overall, it continues to improve and it continues to trend towards where we want it. Although, I’ll be the first to admit it never get there as fast as I’d like to see it.

Bill Sutherland - Northland Capital Markets

And then finally, relative to revenue guidance for Q2, would the components kind of be trending in the same way as we saw in Q1?

Jim Mandel

Yeah I think that the increases would be pretty equally distributed across the board. And we are not seeing, at least at this point, any big spike in any one area other than just normal seasonality. And just improved operations on those non-core businesses probably have a disproportionate contribution obviously because of the lower volume numbers. But I don’t think we are going to see any wide discrepancies. I think it’s going to be pretty evenly distributed.

Bill Sutherland - Northland Capital Markets

So, at least as I was trying to jerk on the numbers that would be a little different than Q1 right, when WildBlue and the other light offering took off. That's what I was getting and whether they are going to (inaudible) proportion again?

Jim Mandel

I think the same trend line will follow throughout the year. I think that the HSP revenue stream will be flat, probably will pick up second and third quarter, the seasonality will do that, and can't we expect that to be robust as it always is. The segments reporting as we go through, can we just have three segments, those segments will be in proportion to Q1 as we go. The makeup within those segments will be pretty similar. There will be some moving around of those numbers but the segment reporting by and large would be very consistent.


(Operator Instructions) And we're showing no further questions at this time. I’d now like to turn it back over to Jim.

Jim Mandel

Alright, thank you. Thank you ladies and gentlemen for you time and attention. And we look forward to our next call with you when we discuss the second quarter 2013 operating and financial results. Until then, thank you and have a good day.


Ladies and gentlemen, this concludes the Multiband Corporation’s 2013 First Quarter Earnings Conference call. This conference will be available for replay. (Operator Instructions) Thank you for your participation, you may now disconnect.

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