By DAVID BORAKS
Officials at MI-Connection Communications System sounded an upbeat note Thursday as they reported the company’s best annual financial results since its 2007 founding. In an interview after a board meeting at Davidson Town Hall, the system’s CEO also reported another milestone: At year’s end, the network owned by Mooresville and Davidson made its first-ever payment back to the towns.
That payment was small – only $277,000 – but it was symbolic, according to chief executive David Auger.
“We made our first payment in June to the towns, for debt,” Mr. Auger told DavidsonNews.net. “It’s the first time the company’s ever contributed from revenues … to pay down debt. So that’s great news, and we’ll do substantially more than that in 2013.”
Board OKs switch to quarterly meetings
The MI-Connection Board voted unanimously Thursday to begin meeting quarterly, instead of monthly. Board Chair John Venzon of Davidson has said the move would reduce the frequency of public information disclosures that could tip off competitors about financial performance or strategy.
MI-Connection can’t avoid the public eye entirely. As a public agency owned by the towns of Davidson and Mooresville, it operates under public information and public meetings laws. Any business that requires a full board vote would still have to come at a public board meeting. Those board meetings would come less often, though special meetings could be called to vote on pressing matters.
Under a draft meeting schedule Mr. Venzon shared Thursday, MI-Connection’s board would meet four times a year, instead of 12. Those meetings would come on the fourth Thursdays of January, April, July and October, shortly after the company closes the books on each quarter.
Shifting to a quarterly schedule would still be in compliance with public meeting laws, and would still be in keeping with the contract between the two towns that governs MI-Connection. Officials say the towns’ “interlocal agreement” requires only quarterly meetings.
Other board activities, such as budget planning, advising on marketing, and developing strategic plans, would happen in subcommittees of staff and less than a quorum of board members that would not trigger open-meeting or disclosure requirements, Mr. Venzon said.
Mr. Venzon and company officials have at times expressed concern that the company is at a disadvantage, because competitors have access to operating information that MI-Connection can’t get about its private-sector competitors.
SIGNS OF GROWTH
The towns need the system to throw off a lot more than $277,000 a year to begin generating annual profits on their nearly $100 million investment. Mr. Auger acknowledges that the system must continue to expand its customer base and grow revenues to get there.
By those measures, the preliminary, unaudited results for 2012 show the numbers are heading in the right direction, Mr. Auger told the board.
Revenues for the year ending June 30 totaled just over $16 million, up about 4 percent from $15.4 million in 2011. That was the highest revenue increase since the towns took over the system in 2007. The boost came from modest growth in subscribers and from an April price increase that helped push up average revenue per customer.
Meanwhile, expenses fell about 14 percent, to $13.5 million, in part because of savings since the town’s takeover of the system’s day-to-day operations last December. Since 2007, the towns had contracted with Bristol Virginia Utilities (BVU) to run the system, but they renegotiated the deal last year to gain local control over marketing and finances.
The towns also saved money by renegotiating deals with some television programmers, Mr. Auger said, though that savings is unlikely to be repeated in future years. [That trend shows up as "cost of goods sold" on the company's report.]
With revenues up and expenses down, the system posted its best-ever operating profit, or EBIDA – earnings before interest, depreciation and amortization. That’s a measure of how the system is doing at covering its day-to-day expenses. EBIDA totaled $2,516,696, up from $2,388,191 in 2010-11.
That result in part helped the system return $277,000 to the towns in June, Mr. Auger said.
That’s still just a drop in the bucket compared with the $7.3 million in debt payments for 2012. Because of the debt, the system still lost $5.7 million overall in Fiscal 2012. That was more than 2011, but lower than the previous two years, 2009 and 2010.
Officials said Thursday MI-Connection is on course. “These are very strong results,” board member and treasurer Brett Ellis said. “We always say we want to see the trend going in the right direction, to see it consistently growing. And we have seen that.”
MI-Connection did report some customer growth. A net 495 new customers signed up for one or more services over the past year, leaving it with 14,818 customers.
That’s up from 14,323 one year ago, but below the 15,181 reported on June 30, 2010. The company lost multi-customer contracts at several apartment and condo complexes in 2010, though it appears to be growing again.
The 495 new customers was a smaller number than what Mr. Auger projected to the board in March. He said the original projection was “aggressive” and a larger number of customers left during the fourth quarter than previously calculated.
Meanwhile, the system gained 1,671 new individual lines of service – cable TV lines, phone lines or internet connections. These so-called “revenue generating units,” or RGUs, rose to 25,917 during the year. That’s up from 24,467 two years ago, and 24,246 at the same time last year. (MI-Connection did not provide separate numbers for the three services, citing “competitive reasons.”)
“Can you repeat it?” Davidson Town Manager Leamon Brice asked Mr. Auger after hearing Thursday’s financial report. The CEO gave a qualified yes.
“We picked a lot of low-hanging fruit this year. There was quite a bit of low-hanging fruit. There’s still a couple left, but it will not be as significant as this,” Mr. Auger said.
He also noted that the company probably will never see its programming costs go down again – rising costs for programs are a fact of life for cable companies. “We can’t control it, Comcast can’t control it, DirecTV can’t control it,” he said.
“But I think what we’ll see is a run rate going into next year that is very very healthy,” Mr. Auger said. He was referring to growth in EBIDA, or operating profit, the money left over after paying daily bills such as payroll and programming costs.
If the fourth-quarter trend (nearly $950,000 in operating profit) continues, MI-Connection would have $3.5 million to $4 million a year in extra cash, up from $2.5 million this year. That could enable it to make more significant payments toward its debt, while still making capital investments to allow new growth.
Board chair John Venzon said the company is starting to reap the benefits of last year’s takeover of most day-to-day operations from BVU. Service appears to be improving, product offerings have expanded, revenue is up, expenses are down, and EBIDA is up.
“That’s more than a triple play, that’s a home run,” he said. He also said employee morale is higher than ever since the transition.
MORE WORK AHEAD
Still, MI-Connection’s troubles, and that of its debt-laden owners, are hardly over. In 2007, the towns of Davidson and Mooresville bought the system that once was owned by Adelphia Communications, which went bankrupt. The network still is growing more slowly than the towns once envisioned, in part because of competition from larger telephone and cable companies as well as satellite TV. So it will continue to need subsidies for the foreseeable future, as excess cash falls short of covering debt payments that total about $7.3 million annually.
Since buying the former Adelphia Communications system in 2007, the towns have continued to pour millions of dollars into it. Debt totaled about $81 million as of June 30, according to financial documents. To reduce subsidies, the system needs to add more customers and generate more operating profits – a surplus above its day-to-day expenses.
In March, MI-Connection restated its 2012 budget and revenues lower, and asked the towns for an extra $1.1 million by June 30 to meet a shortfall.
The two towns also recently restructured their ownership agreement, to help smaller Davidson cope with the burden of annual subsidies to MI-Connection.
July 26, 2012, MI-Connection 2012 year-end report to the board, presented by CEO David Auger.
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