Duane Albro - President and CEO
Warwick Valley Telephone Co. (WWVY) The Wall Street Analyst Forum November 28, 2007 11:10 AM ET
The next company we have presenting this morning is WVT Communications. Headquartered in Warwick, New York, WVT Communications is a leading edge voice, video, broadband and wireless provider serving consumers and businesses in the tri-state region with a track record of innovation and superior customer service.
Incorporated in 1902, Warwick Valley Telephone Company is listed on the NASDAQ and has been doing business as WVT Communications since 2001. As a regulated Incumbent Local Exchange Carrier, WVT provides telecommunication services to 13,137 residential and business access lines as of September 30, 2006 in the contiguous towns of Warwick, Florida, UpperGreenwood Lake and Pine Island, New York and the township of West Milford and Vernon, New Jersey.
WVT's current ILEC service area is primarily suburban/rural, and has an estimated population of 50,000. The company is also an approved Competitive Local Exchange Carrier, CLEC, and within the states of New York and New Jersey where it serves 2,529 business customers as well as residential multi-dwelling units as of September 30, 2006.
WVT is committed to exceeding its customer's, communications expectations by delivering world class quality communication services and products, as a provider of choice in the mid-Hudson market area and presenting this morning is the President and CEO, Duane Albro.
Good morning. Are all of you familiar with the telecom industry? So that if I use some telephone terms like ILEC and CLEC, they are familiar terms. Okay. What I would like to do this morning is, give you little background on WVT Communications. Give you a sense of our business plan and how we are executing on the plan. And feel free to ask me any questions as I go.
WVT is both an Incumbent Local Exchange Carrier, and a Competitive Local Exchange Carrier. If you look at the map, our regulated franchise area is in both New York and New Jersey and we're licensed to operate a CLEC in both New York and New Jersey. If you look closely at the map, you will see that our territory goes from Florida to New Jersey; that's Florida, New York to New Jersey. And you will see that we are preponderantly residential access lines in our regulated entity.
In our competitive areas, all this competitive operation is in Middletown. That’s entirely a business customer operation. We have recently opened in Newburgh and Poughkeepsie business operations. And in New Jersey, in our competitive areas, we have two forms, we have the resort communities, which are multi-dwelling units in Mountain Creek, formerly known as Spring Valley Ski Resort Area, and Crystal Springs, which is another multi-dwelling resort community, which are more residential operations. But we also have business operations. So, if you would look in this, these are the actual number of access lines, the others are the market size of the competitive areas that we are actually operating in.
As a company, we have 5 million shares outstanding. 30% are institutional. A good portion of those institutional holders are [head chunks]. You will see why, as I get into my presentation a little more, and 70% are individual, although the individual holders have significant size blocks, many of them, because they are long-time local families or residents of the area.
Interestingly, WVT is going back to, its days as Warwick Valley Telephone Company; has had a strong history of innovation. It was one of the first operating telephone companies to purchase a cellular interest of partnership at the time it was with NYNEX Mobile in 1987, and we are still a partner in that. It’s now a Verizon Wireless partnership, the Orange Poughkeepsie Wireless partnership, and we are one of only two partners. We have an 8.05% interest and Verizon Wireless has the rest.
In 1988, the Company converted to all digital switching, which was an early feat and a good indication of the technological innovation the Company has displayed. Many companies in 2002, when WVT was offering video, many telephone companies who are still finishing up their conversion to all digital switching as an example. So, WVT was quite ahead of the others.
Interestingly in 1995, WVT offered Internet access. You know 1995 was when Larry Page and Sergey Brin met at Stanford as computer science graduate students, by the way they went on to found Google.
1995 was when David Filo and Jerry Yang had Jerry & David's Guide to the World Wide Web. In 1995, they changed the name to Yet Another Hierarchical Officious Oracle, it was an acronym they called Yahoo.
1995 was the year the Jeff Bezos forms an online sales operation. He went on to call it “Amazing” but somebody already had that, so he called Amazon. 1995 was a year when a lot was happening, but there were only 16 million Internet users in the entire world and WVT was offering Internet access. So it was really in tune with what was happening, so it’s a bit of an acronynism because you see that it was a more of a rural incumbent local telephone company, but it was very innovative with the technology. We went on to in 1998 deployed broadband DSL, one of the first Telephone Company in the United States, so its got a long history of being innovative and offering the kind of technology that is in step with consumer ramp.
It's also a company that has excellent relationship with its customers. If you were to look at this chart you will see that in terms of overall satisfaction, WVT has customer satisfaction results that are world class, having worked to myself at one of the major telephone company Verizon and one of the major cable company, Cablevision I can tell you neither of them have attained those kinds of customer satisfaction rates.
Even more interestingly perhaps is the likely to keep, our customers are very loyal. So the probability of them leaving us is fairly low, all things being equal. And likewise the service problems you can see that the number of customer with service problems is less than 10%. And that's a tribute to the kind of infrastructure that the company has. So it's a company with a long history, company with history of innovation and a company with history of customer service and customer satisfaction.
The company had some difficulties, however. In the 2002-2003 timeframe, just as it introduced video, Cablevision made an all-out play as a test to see how they could compete against a telephone company offering video and they put a lot of feet on the street, they put a lot of marketing money and so at the same time that WVT was offering video, Cablevision was putting all of its resources to see if they could beat them in the marketplace. At the same time, with Sarbanes-Oxley and 404 compliance and the need for remediation, we undertook a massive remediation of all of their weaknesses, including putting in a brand new enterprise resource platform. And so, the company fell into some difficult times. It incurred a lot of cost and the loss of customers to Cablevision was totally unsettling to them.
The company attempted to, we brought on an Investment Advisor, and attempted to market themselves unsuccessfully. And in May of this year, I was hired to take the company and implement a plan that would take it to profitability and on a growth curve.
And so, our plan is quite simple. It's to manage our core business, compete where we have to compete in our marketplace and to grow outside our regulated footprint, grow in competitive areas. And so, that’s our strategy and I am taking through some of the tactics. Any questions so far, on anything else sir.
On the managed side, one of the things, have any of you seen any of our 10-Q's or 10-K's. If you did, what you would see is that's a lot of our -- we have positive net income on a consolidated basis, but its because of a wireless partnership that I mentioned earlier and that wireless partnership you will see later, the net income that drops down to the bottom line, is what is giving us the profitability. The core ILEC is not profitable right now. But if you were to look at the trends over the last four to five years you would see that even the wireless partnership net income was dropping. Well, what was happening in the last four to five years in wireless companies? They were feeling price competition, and prices were dropping, and so that was what was happening with the Orange-Poughkeepsie wireless partnership and so, you saw the net income dropping over the last few years. That is now bottomed out and stabilized, and that was a key step for us to get some solidity to the revenue of the net income that we get from the wireless partnership.
We have also done some significant re-pricing. Our video product had not been re-priced in probably five years. And we found that our competitors were priced significantly higher than us. And so we took a page from our competitor’s book, realigned our video tiers and increased the price and still remained below all of our competitors.
Essentially, we have two competitors for video, if you were to look back at the map I showed, we have Cablevision in New York and Service Electric in New Jersey. And we are priced below them, yet, we were able to significantly increase our rates.
We raised our rates, we sent up the notification, September 15, and today, as of today, we have not had one customer leave us because of the rate increase. And so, you can see that customer loyalty and also remaining price below our competition has worked well. We have also reduced significantly our international long distance rates, our domestic long distance rates. We have offered now we got unlimited calling bundles, which are working well for us, because the actual usage is coming in less than the price of the bundle. And so that's working well for us.
Our general and administrative cost, we had in place, a rigorous look at every aspect of the business, although, we were spending money on whether it be legal fees, auditing fees, accounting fees, vendor costs and also you are going to see in a minute how that's been going.
We have been upgrading our network. The network had literally not been upgraded. In some cases our DNS servers were almost 10 years old. Many of our routers were as old as five years and we know the technology change is occurring, it used to be every 18 months, now it’s every 12 months, and so we had to upgrade all of our network.
What happens then is, in upgrading the network, you improve things like throughput, page replenishment for people who are online, the speed that they get in their access and the quality of the service. You don't get any of the hits that we used to get. We are adding features. We've added 5 HD channels already. We have another 6 to 7 coming on before the end of the year, and we are not charging for HD. HD is a feature that we know is just the [dense card] to get into the dense of consumer video and so we are not charging for HD as our competitors are not. And so what that is there was a strategy for us to retain customers and to retain revenue.
So, first and foremost we had to get our hands around our core business and manage it. Secondly, we knew we had to compete. The company had a triple-play, voice, Internet access and video. We introduced the quad-play and actually variations on the quad-play, we have introduced a competitively priced wireless product that now a customer can get voice, internet access, video and wireless and they can pick any two and get it for the 29.95 competitive price and so it's actually what I say it's a quad-play is two of a kind, pick any two of those products.
We have expanded and continue to expand our DSL and video deployment. We are upgrading our DSL network to the 15 megabit range, the slowest speed that a customer calling in and negotiating asking for DSL service right now is 5 megabit. All of our new areas are 15 megabit and the video deployment is going with that.
We have introduced new products, Voice-over-IP for the business customer. We don't offer Voice-over-IP to the residence customer because we've got a wireline product that is of high quality, but for the business customer especially in the competitive areas that I mentioned earlier the Middle Town, Newburgh, Poughkeepsie, New Jersey, we are offering Voice-over-IP because it’s a very competitive product and offers a lot of feature functionality that's very attractive to our target business market.
We offer web hosting. We’ve already got 250 customers using our web hosting product. We are averaging about an additional 20 a month and so our web hosting product is pretty sound. We've just introduced a data backup and recovery product where a customer can do their data backup and recovery using our service and not have to buy the equipment and do that themselves.
I mentioned 3-HD and winback's. We are offering a competitive package to customers that left us to go to a competitor and we are winning back customers with competitive pricing and features. And so, we're particularly pleased with the fact that, we're able to bring customers back to us that have previously left.
On the growth side, I mentioned that we are building CLEC operations. We've had a CLEC operation in Middletown for about a year and a half to two years. Newburg and Poughkeepsie are recent. We've had the CLEC operation in New Jersey for a couple of years. We intend to continue to either build or buy CLEC operations because if you're an ILEC in a confined territory that is not a high growth territory, you can't have a lot of growth in your operation. And so, we know that to grow the business we've got to grow outside of our regulated footprint.
Likewise on the wholesale side, we actually have a dual ring fiber build that we own, that's within 70 miles of 60, Hudson Street, Manhattan, the largest carrier path in the world. We are aggressive in looking for wholesale customers and with the right wholesale customer, we'll finish to build, we will have, we are within the recommended distance for emergency backup data centers for Wall Street. And so, we're ideally situated to offer a lot of high cap data services to our wholesale customer.
And so, what does that relate in revenue, the data that you see here was recently announced in 10-K for the third quarter, and then 8-K. And so what you see, our nine months of actual for 2007 compared to nine months of 2006, the variance and the target that we have for our end of year, and so, what you see is that we are slightly off target on revenue, but we are significantly better than target on cost. And why is that? Because the revenue programs take a little longer to gain traction, whereas cost programs, you can have some immediate impact.
And so, it has been a conscious effort on our part to get our business skinny down to greater efficiency, while also expanding the marketing and sales programs. And so, it's no different than you would see in any other turnaround, grab the low hanging through quick, build your marketing programs, and aggressively pursue the customer growth.
And so, if you looked at the operating income, you would see that we are significantly better than the operating income a year ago, and we are very much on plan for the operating loss, $1.788 million was our estimate of where we would bring in the ILEC and CLEC in their combined operating income. And I would note that this is really EBIT, because it does include depreciation. The OP Wireless partnership is, what I mentioned earlier, you can see, it's the operating income from the wireless partnership is slightly less than 2006, but it is very much on track for a solid end of year $8 million to the bottom line, which brings our company to projected $4.2 million in total net income.
I would note that even with the $1.788 operating income loss on an EBITDA basis were our positive EBITDA, and so if we're going to look back for five years, the second quarter and third quarter earnings that we delivered are literary the two best quarters in terms of earnings growth the company has had in five years, and very much on the track to profitability. And so we intend to stay with our strategy of managing our core business bringing the ILEC to profitability, expanding the CELEC and expanding our wholesale operation.
Any questions? I guess that was a good presentation here. Are you tired of seeing presentations?
Unidentified Audience Member
We are probably going to grow to somewhere around 13 to 14 channels of HD, but we're currently negotiating with a direct broadcast satellite provider to give us coverage in the broader HD channels.
Our strategy is to offer video via our DSL product, our Video-over-DSL, but to offer a DBS option for a customer who wants a broader range of sports packages in HD. And so we can offer very low cost video products as part of our DSL package. For a little more we can offer a very robust video package and so it will be a dual strategy. However, by the way, we are one of the few telephone companies that has our own head-end and so we have our own antennas, head-ends, control, distribution and have our own separate contents agreements.
We are looking forward to some positive movement in the SEC and opening up some of the content agreements because to the extent that you can eliminate some of the bundling, you can offer a pretty good cost proposition on content.
There is no questions? This is probably going to be one of the shortest sessions you've sat through. Well thanks go ahead.
Unidentified Audience Member
In the CLEC territories, no, it's not just voice. We have two key products, one is Voice-over-IP and we are using the natural convergence platform. If you are familiar with it, it's the intelligent phone, but the feature functionality is resident in a central office-based software. And so literally you take the phones into the customer, you unplug the computer, the CAT5 from the computer, you plug it into the phone and you plug a jumper from the phone into the computer and you are in business. You can take that Voice-over-IP phone unplug it from the CAT5 take it home and plug into your, either cable modem or DSO at home and its got the same a feature functionality because the IP address in the phone is read by our host software in RCO. You can take that phone to the Cayman Islands, which I hear most analyst prefer to do. But you can take it to the Cayman Islands, you can plug that into high speed data CAT5 in the Cayman Islands and you can make calls from that phone and that gives the caller ID, it's all the feature functionality you can do call pickup and transfer as though you are in your office.
It's a very powerful phone. It is Voice-over-IP and probably fourth generation. So, that's our core product and why? Because you can walk into a customer with a phone, say, can I borrow your CAT5 and you can demonstrate the feature functionality. And it's a very powerful sales tool. However, unlike, I am sure you know, most Voice-over-IP is offered on the public internet. And so, companies like [Varnish] and others are using the public internet bandwidth for the voice transfer to Voice-over-IP.
We offer Voice-over-IP on a dedicated facility, so we are not competing for bandwidth on the public internet and because we work on a dedicated facility and because our preference is to be fiber-based we have bandwidths spare capacity that we can sell. And so, we have what we call a smart-like product, which gives a wide range of speed up to Ethernet speed on either point-to-point or virtual basis. Our data products to go with the Voice-over-IP are very robust because of being a facilities-based provider of Voice-over-IP. That's probably more than you wanted to know. But our two product lines basically are Voice-over-IP and high speed data.
No other questions? Thanks for your time.
Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.
THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.
If you have any additional questions about our online transcripts, please contact us at: firstname.lastname@example.org. Thank you!