NTS's CEO Discusses Q1 2012 Results - Earnings Call Transcript

May.16.12 | About: NTS Inc (NTS)

NTS Inc. (NYSEMKT:NTS)

Q1 2012 Earnings Call

May 16, 2012 10:00 am ET

Executives

Guy Nissenson – President and Chief Executive Officer

Niv Krikov – Executive Vice President and Chief Financial Officer

Analysts

Mark Rogers – Gagnon Securities LLC

John Nesbett

Good morning and welcome to our conference call to discuss NTS’s financial results for the period ended March 31, 2012.

On the call today we have Guy Nissenson, NTS President and CEO, and Niv Krikov, Chief Financial Officer. Guy will review the Company’s business operations and Niv will review the financials. Immediately thereafter, we will take questions from our call participants.

During this conference call we may use forward-looking statements. The words or phrases "would be," "will allow," "intends to," "will likely result," "are expected to," "will continue," "is anticipated," "estimate," "project," or similar expressions are intended to identify "forward-looking statements."

NTS's financial and operational results should not be construed by any means as representative of the current or future value of its common stock or bonds. All information set forth on this conference call, except historical and factual information, represents forward-looking statements. This includes all statements about the Company's plans, beliefs, estimates and expectations.

These statements are based on current estimates and projections, which involve certain risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. These risks and uncertainties include issues related to: rapidly changing technology and evolving standards in the industries in which the Company and its subsidiaries operate; the ability to obtain sufficient funding for operations, maintain adequate cash flow, profitably exploit new business, license and sign new agreements; the unpredictable nature of consumer preferences; and other factors set forth in the Company's most recently filed annual report, quarterly reports and registration statement.

Call participants are cautioned not to place undue reliance on these forward-looking statements, which reflect management's analysis only as of the date hereof.

The Company undertakes no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date hereof. Call participants should carefully review the risks and uncertainties described in other documents that the Company files from time to time with the U.S. Securities and Exchange Commission.

With that, we will now turn the call over to Guy.

Guy Nissenson

Good morning, thank you for joining us today. This was another excellent quarter for us with continued fiber revenue growth, shifting revenue composition, higher margins and significant EBITDAS growth. While we are very encouraged by our consistent fiber growth, we are also very excited to report that we achieved overall revenue growth for the second quarter sequentially. NTS continues to execute well and we’re energized by our progress to date as well as by our future opportunities.

During and just after the close of the first quarter, we expanded our fiber network to 4 new markets and we now have a presence in twelve markets in Texas. As we’ve discussed, the construction of our fiber network is largely financed using federal stimulus funding. This type of low interest financing is an excellent way to fund our growth. In the first quarter we added our first fiber customers in Slaton, Texas and we continued to add subscribers in our existing FTTP markets. As mentioned on our fourth quarter call, with the start of the new year we accelerated our fiber rollout activities and began laying fiber in the communities of Tahoka, Lamesa, Plainview, Abernathy and Hale Center, Texas. Following the close of the first quarter we began signing customers in Wilson, Meadow, and most recently Lamesa, Texas. Our triple play offering is very appealing to customers in the new markets we are entering and we’ve seen very high take rates, which reflect not only on the quality of our services and the demand for high speed broadband in these communities, but also the efforts of our sales and marketing organization.

Our ability to quickly and efficiently build the network and market our services in new communities is driving the revenue contribution from our fiber business, which grew 38.3% from the first quarter of 2011 and now represents 27.3% of our business. Our strengthening fiber business also contributed to an approximately 34.5% increase in EBITDAS from the first quarter of 2011, bringing EBITDAS to $2.7 million and marking eight consecutive quarters of EBITDAS growth.

We are off to a very good start with our performance in the first quarter and we look forward to continuing the execution of our strategic fiber roll out throughout the balance of the year.

Now I’ll turn it over to Niv to review the financials.

Niv Krikov

Thank you, Guy.

Revenue from the Company’s FTTP triple play business grew 38.3% to $4.1 million in the first quarter of 2012 as compared to $2.9 million in the first quarter of 2011. Sequentially, fiber revenues grew by 12.5% from $3.6 million in the fourth quarter of 2011. FTTP revenues represented 27.3% of total revenues for the quarter as compared to 24.6% of total revenues for the fourth quarter of 2011.

Consolidated revenues for the first quarter were $14.9 million, an increase of 4.7% compared to $14.3 million in the same prior year period. The increase in the consolidated revenues is related to the increasing contribution of revenues from the FTTP business which compensated for the decrease of 2.1% in revenues from residential non-FTTP customers.

EBTIDAS for the first quarter of 2012 was $2.7 million, an increase of 34.5% over the same quarter last year and a 7.2% increase sequentially when compared to the fourth quarter of 2011.

The Company recorded a net financing expense of $1.4 million fin the first quarter of 2012 compared to net financing expense of $1.5 million in the same period of the prior year. Net financing expense includes interest expense, amortization of warrants as well as fluctuations in the value of the U.S. dollar to the New Israeli Shekel.

In the first quarter of 2012 NTS reported a net loss from continued operations of $339 thousand or $0.01 per basic and diluted share, assuming 41.2 million shares outstanding compared to a net loss of $634 thousand or $0.03 per basic and diluted share, assuming 21.1 million fully diluted shares outstanding in the first quarter of 2011.

Average revenue per user at March 31, 2012 for residential FTTP customers was approximately $100 per month with business FTTP customers at approximately $410 per month.

That concludes my review of the results; however, should anyone have any specific questions related to the Company’s financial performance, I’d be happy to address them during the question and answer stage. Guy….

Guy Nissenson

Thank you Niv.

Our first quarter results demonstrate the success of our systematic roll out of our fiber network. Consolidated overall revenues are now increasing for the first time since focusing our business on fiber, and our margins are improving quarter to quarter. This is all about execution at this juncture. We have a lot of growth ahead of us if we continue to execute.

With that, I will now turn the call over to questions.

Question-and-Answer Session

Operator

Thank you. We will now be conducting a question-and-answer session. (Operator Instructions) Thank you. Our first question is from Mark Rogers with Gagnon Securities. Please proceed with your question.

Mark Rogers – Gagnon Securities LLC

Hi, gentlemen it’s a whole bunch in this year. A couple of questions, on the legacy business, it looks like the rate of decline is slowing. Can you tell us what’s happening to that business, and what do you think might happen in the future?

Guy Nissenson

Yes, what we are seeing with the legacy business is that, we are currently having less and less residential non-fiber users, and we’re at a point where the amount of residential non-fiber users is minimum. So the majority of that business actually comes from operations and businesses, and that has been always fairly stable.

So we are seeing a trend that we really like. As we continue to sell into the union or what we call copper market and the residential customers has kind of already went down for about I think, 6% to 7%. The decline on that side, we continue to slow down because we believe, as we continue with deal.

Mark Rogers – Gagnon Securities LLC

And, Guy, are these business users doing somewhat better with the economy being somewhat better, is that what’s happened?

Guy Nissenson

I don’t know, and we’ve been selling into that market for many years now, and with this ups and downs. And what we are hoping to do is that – to continue to fiber build out and maybe in the future also build into some of those areas to achieve additional margin growth. And at the moment we are seeing an improved selling into those markets. And I don’t know if it’s really the economy or not.

Mark Rogers – Gagnon Securities LLC

Okay, but you want to switch one of those folks into fiber off cover?

Guy Nissenson

Yes, yes. That’s a good answer.

Mark Rogers – Gagnon Securities LLC

Your G&A, it looks like you’re getting control of your expenses there, and it’s truncating, the revenues are rising. What’s the business plan there?

Guy Nissenson

On the G&A, as we grow as fiber, and now fiber is almost 30% of our business. We hope to be able to consolidate some of the expenses, which relates to copper and the legacy business into the fiber and try to save additional SG&A over there.

We are going to increase the sales cost as we go into the additional markets in the Lubbock area, in the Wichita Falls area and also in Louisiana. And we will try to maintain in SG&A, where it is now or is it lower as we grow the business.

Mark Rogers – Gagnon Securities LLC

Okay, good. Thank you. That’s a good explanation. I have another question, balance sheet. Maybe both Guy and Niv, where are you now so far as having enough balance sheet to press your business going forward?

Guy Nissenson

I think what we’ve seen in the balance sheet is, there is some additional debt that became a co-liability, and note that we also want to follow shareholders, that is doing much, debt came into working capital, deficit grew by debt amount. We are going to either refinance it or pay it with our own cash flow.

As we grow to an EBITDA level that is higher than what we’ve seen before, we will be able to remove more of the principle debt of the company as we did in the past, but hopefully in a much (inaudible).

Mark Rogers – Gagnon Securities LLC

Thank you.

Guy Nissenson

You’re welcome.

Operator

(Operator Instructions) Our next question comes from the line of [Bill Reilly] with Comstock Partners. Please proceed with your question.

Unidentified Analyst

Hi, Guy. Now that you guys have started to move into the Louisiana with the fiber build out, can you provide us some color as to where the PRIDE 1 hardware currently stands in Texas?

Guy Nissenson

Yes, we are not done with Texas. We will quite a lot of communities in the Lubbock area build out or what we called PRIDE 1. But the largest two communities in this build out is Lamesa, which we just – it is opening now and Plainview, which we will open soon.

So, all of that growth that we’ve been seeing lately as they came from the smaller communities in that area, and we’re very excited to have both Lamesa and Plainview become the markets. Together with them, we will also open in Hale Center, Abernathy and New Deal. So the majority of them sort of PRIDE 1 or the Lubbock area build out has not even been listed, and we are excited to be able to start working on that side soon.

With regard to the Wichita Falls area, what we call PRIDE 2; we have completed Burkburnett, which is the largest of the two towns that we’re building. And we have not finished Iowa Park, and we’re working on that.

So we have currently about two-thirds of the castings over there. So there is a lot of additional market to be left in the Texas area, in conjunction with building the Louisiana in the [subsequent].

Unidentified Analyst

Great, thanks.

Guy Nissenson

Welcome.

Operator

(Operator Instructions) Our next question comes from the line of James Stallard with [Wincorp]. Please proceed with your question.

Unidentified Analyst

Hi Guy, it’s James Stallard talking. You mentioned in your press release that you were bringing in the current construction below budget. I was wondering if you could maybe give a little more specificity around that, and to the extent that you do come in under budget, what can you do if anything – with the excess available capital?

Guy Nissenson

Yeah, what’s happened is, if we get to build a certain area below budget, it allows us for some more room to expand in other areas. For the most part, what we will try to do and obviously we will need the consent of others including valuers, is to build additional passing, so we can cover more areas and cover more people that are currently underserved, and that actually have already happened in different communities that we have built, and we were able to increase the number of passings and by that increase also the number of marketable customers.

So that’s what we’re planning to do. But again, it really depends on how the whole build out turns up.

Unidentified Analyst

Okay, great. And do you have any sense for how far below your original budget you could be or is it just too early to determine that?

Guy Nissenson

For the full project, it’s too early. As I said, even in slide one, which is a laboratorial build out, we are just now finishing the two biggest towns and we’re doing a distribution and completing the natural process, but it’s too early to say exactly how below we are, but we’ve been managing to the below budget on the smaller communities that we’ve built so far for Levelland, Littlefield, Brownfield and Slaton et cetera.

Unidentified Analyst

Okay, great. Thank you.

Guy Nissenson

Welcome.

Operator

It appears we have no further questions at this time. I’d now like to turn the floor back over to management for further comments.

Guy Nissenson

I’d like to thank you all for joining us today, and I hope that you can come back and hear us again on the second quarter, and thank you very much.

Operator

Ladies and gentlemen, this does conclude today’s teleconference. You may disconnect your lines at this time, thank you for your participation.

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