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MTS Allstream Reports Second Quarter 2011 Results

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Posted August 5, 2011

Q2 highlights include:

  •  2011 financial outlook ranges increased for revenues, EBITDA and EPS
  •  MTS Allstream's EBITDA increases by 8.6% to $150.8 million
  •  Allstream delivers strong IP growth with converged IP revenues up 10.6%
  •  Allstream achieves strong EBITDA growth of $4.6 million or 19.7%

  •  MTS wireless revenues climb by 9.3% in the first half of 2011, wireless data revenues up 45.5%
  •  Annualized cost savings for the first half of the year reach $20.6 million
  •  Board of Directors declares $0.425 per share Q3 cash dividend

WINNIPEG, MB, August 5, 2011 - Manitoba Telecom Services Inc. (the "Company" or "MTS Allstream"), including its two operating divisions MTS and Allstream, today reported strong second quarter 2011 financial results. MTS Allstream's Board of Directors also approved an update to the Company's 2011 financial outlook.

"Our past investments and strong focus on IP technology nationally and on unique bundles of home services in Manitoba contributed to another quarter of solid financial results for both MTS and Allstream," said Pierre Blouin, Chief Executive Officer. "Based on our strong results in the first half of the year, we are increasing our 2011 financial guidance ranges for revenues, EBITDA and EPS."

Quarterly Financial Highlights

 

All financial metrics in this table are presented on a consolidated basis and reported in accordance with International Financial Reporting Standards ("IFRS").

The second quarter reflected strong growth in wireless, broadband and converged IP, offset by lower revenues from legacy services, making the Company's revenues stable compared to the same period in the prior year. Solid EBITDA growth from both MTS and Allstream divisions contributed to MTS Allstream's overall EBITDA growth of 8.6 per cent in the second quarter year over year.

Earnings per share were $0.76 in the second quarter of 2011 - an increase of $0.22 or 40.7 per cent compared to the same period in the prior year. This increase was mainly due to the strong EBITDA growth and a $10.3 million decrease in depreciation and amortization expense. This depreciation expense decrease resulted from $20.7 million of additional scientific research and experimental development ("SR&ED") investment tax credits for the 2005 to 2008 taxation years recognized in the second quarter, and reflects management's increased focus on SR&ED investment over the past several years. The favourable SR&ED impact on earnings per share is $0.12.

Free cash flow reached $57.8 million in the second quarter, compared to $33.3 million a year ago, due primarily to higher EBITDA and the impact of the $20.7 million one-time SR&ED investment tax credit adjustment, partly offset by higher wireless costs of acquisition related to wireless data growth.

The Company achieved $20.6 million in annualized cost savings in the first six months of 2011. Management remains well on track to reach its full-year target of annualized cost savings of between $25 million and $35 million.

Updated 2011 Financial Outlook

MTS Allstream's updated financial outlook for 2011 is outlined in the table below. In the first and second quarters of 2011, MTS Allstream delivered strong growth in wireless, high-speed Internet, IP TV and converged IP revenues; lower than expected declines in enterprise legacy revenues; and lower non-cash pension expense than anticipated in management's original 2011 outlook provided on December 15, 2010.

Management expects these trends to continue into the second half of 2011, pushing revenue, EBITDA and EPS higher than original 2011 guidance ranges. Management's revised EPS range also reflects lower depreciation and amortization expense due to the favourable impact of the one-time SR&ED investment tax credit adjustment.

MTS

MTS's revenues and EBITDA were up by 2.9 per cent and 6.8 per cent, respectively, in the second quarter of 2011 when compared to the second quarter of 2010. These increases are driven by strong growth in wireless, high-speed Internet, and IP TV revenues which increased collectively by 9.6 per cent year over year. MTS's bundling strategy continues to deliver strong results, with bundled customers having higher than average revenue and lower churn. The number of customers using MTS's bundled services grew by 4.2 per cent when compared to the same period of 2010.

"We are pleased with the trends we saw in the second quarter. Overall, more customers are upgrading to higher value services, such as smartphones with larger data plans, higher-speed Internet plans and our premium Ultimate TV service," said Kelvin Shepherd, President of MTS. "This confirms that MTS's value proposition - product leadership and innovative bundles at a fair price - is competitive and attractive to customers."

Wireless revenues were up by 9.3 per cent in the first half of the year when compared to the same period last year, driven by a 45.5 per cent increase in wireless data revenue growth, higher average revenue per user and subscriber growth. Since the launch of its 4G wireless network on March 31, 2011, MTS has seen an increased demand for smartphones. In the second quarter, approximately two out of three gross additions signed up for a data plan which bodes well for continuing strong growth in wireless data revenues.

MTS's broadband and converged IP revenues were up by 10.0 per cent in the second quarter of 2011 when compared to the same period of 2010, reflecting increases in IP TV, high-speed Internet and converged IP revenues. IP TV revenues increased by 17.8 per cent in the quarter, based on 2.3 per cent subscriber growth and a 16.4 per cent increase in average revenue per user, year over year. In Selkirk, Manitoba, the first community where MTS deployed fibre-to-the-home technology starting in 2010, MTS is making excellent progress. Eighty per cent of Selkirk households are now eligible for fibre-to-the-home services, and MTS is experiencing a strong take-up of its premium Ultimate TV services in this community in connection with this deployment. MTS is also on track to launch its fibre-to-the-home technology in four new communities in rural Manitoba in the second half of the year - Steinbach, Dauphin, Thompson and The Pas.

"We are already seeing the benefits of our investment in our 4G wireless network in our financial results, and we are gearing up for the deployment of fibre-to-the-home technology in four new communities this fall," added Mr. Shepherd. "Our fibre-to-the-home plans are the most cost-effective way to improve our broadband capabilities in locations where we do not currently have existing VDSL broadband service and provides MTS with new growth and bundling opportunities."

Allstream

Allstream continues to make strong progress executing its IP strategy and again delivered strong improvements in its operating results, profitability and cash flows. The strategy includes focusing on winning high-margin on-net IP revenues, discontinuing sales or exiting various legacy services, reinvesting cash flows from legacy services into IP platforms, and reducing its operating costs.

In the second quarter of 2011, Allstream's EBITDA improved by $4.6 million or 19.7 per cent when compared to the same period in the prior year, which marks Allstream's third consecutive quarter of yearover-year EBITDA growth. The increase is mainly attributable to improved margins, lower operating costs, and lower restructuring expenses in the second quarter of 2011 compared to the same period in 2010.

"We are a much stronger company today than we were even a year ago. We still have a lot of work to do, but the evidence the business is improving is growing," said Dean Prevost, President of Allstream. "We had two of our best months of IP sales this quarter, which creates an important funnel of pre-sold wins that will support IP revenue growth in quarters to come."

Converged IP revenues were up by 10.6 per cent in the second quarter when compared to the same period last year. Allstream is supporting this IP growth with continued success-based investments that are adding new fibre-fed buildings to its network. In the second quarter of 2011, Allstream added a total of 47 buildings to the network. This increased Allstream's total number of fibre-fed buildings to 2,211 at June 30, 2011.

A significant part of Allstream's investment plan began in 2010, when the Company announced a multi-year program to expand Allstream's IP fibre network and increase profitability. This program specifically targets select multi-tenant buildings that are very close to existing fibre assets and can be connected at a very low cost. These investments extend Allstream's on-net reach and provide incremental, high-margin revenue opportunities.

Dividend

The Company's Board of Directors declared a cash dividend of $0.425 per share for the third quarter of 2011, which is payable on October 14, 2011 to shareholders of record on September 15, 2011.

Quarterly Conference Call

MTS Allstream's second quarter 2011 conference call with the investment community is scheduled for 8:30 a.m. (Eastern Time) on Friday, August 5, 2011. Investors, media and the public are invited to listen to the conference call. The dial-in number is 1-888-231-8191. A live audio Webcast of the conference call can be accessed by visiting the Investors section of the MTS Allstream website (www.mtsallstream.com). A replay of the conference call will be available until midnight (Eastern Time) on August 19, 2011, and can be accessed by dialing 1-800-642-1687 or 1-416-849-0833 (access code 80945084).

Note

MTS Allstream's interim Management's Discussion and Analysis ("MD&A") for the three and six months ended June 30, 2011 and supplementary financial information are available in the Investors section of the MTS Allstream website at www.mtsallstream.com.

About Manitoba Telecom Services Inc.

Manitoba Telecom Services Inc., through its wholly-owned subsidiary MTS Allstream Inc., 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 dedicated to a mission of delivering true value as seen through the eyes of our customers.

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 broadband and fibre optic network spans almost 30,000 kilometres. Manitoba Telecom Services Inc.'s common shares are listed on the Toronto Stock Exchange (trading symbol: MBT). Customers, stakeholders and investors who want to learn more about MTS Allstream are encouraged to visit: www.mtsallstream.com.

Forward-looking Statements Disclaimer

This news release includes forward-looking statements and information (collectively, the "statements") about our 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 our interim MD&As for the first and second quarters of 2011, as well as our 2010 annual MD&A, and our Annual Information Form, all of which are available on SEDAR at www.sedar.com.

Please note that forward-looking statements reflect our expectations as at the date hereof. We disclaim 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 our Audit Committee and approved by our Board of Directors.

Footnotes:

1. EPS is earnings per share.

2. EBITDA is earnings before interest, taxes, depreciation and amortization and other income (expense). Refer to the "Non-IFRS measures of performance" section of MTS Allstream's second quarter 2011 interim MD&A for more information.

3. MTS Allstream defines free cash flow as cash flows from operating activities, less capital expenditures, and excluding changes in working capital. Refer to the "Non-IFRS measures of performance" section of MTS Allstream's second quarter 2011 interim MD&A for more information.


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