2015 SHAREHOLDER UPDATE

Transcription

1 2015 SHAREHOLDER UPDATE Q4

2 To Our Shareholders: North State is always working hard to deliver value across our contingent of stakeholders including our shareholders, the communities we are a part of and our employee team. The North State team delivered a strong quarter of results for the fourth quarter of Thank you for your continued support and interest in this unique company. Focus on Business and Information Technology We look at 2015 as a pivotal year for North State in that we are coming off a period which included the lingering effects of the sale of our wireless assets, which quickly resized the organization and established a starting point for new growth and a new period of evolution. We are in the stages of re-scoping and rescaling the organization, with fresh revenue streams coming from the IT services, cybersecurity, cloud and managed services business segments. We see long term opportunity and value-generating growth in these emerging segments. IT and security services blend well with our data center and cloud strategy, creating a strong set of offerings that deliver value to customers simply by making businesses better in today s Internet driven world. Continued Consumer Internet and Entertainment Focus We continue to focus on delivering Internet and entertainment services to consumers in various markets via our fiber-to-the-home offerings. We see the Internet as the medium that will drive people s lives into the future, therefore we continue our focus on aligning with the consumer through memorable experiences with our brand, and a remarkable Internet product. The Internet driven population is growing. There is now an inherent linkage between home and work digital experience, as new generations of workers are always on as they blend their Internet driven social and work lives into one. This line of business continues to add value to North State, but most importantly, we are impacting people in very positive ways. Long Term Value Through Transformation We are transforming North State into a business technology company with a strong, fiber-focused consumer product line. Today, nearly 70% of our revenues come from business and wholesale customers. As we build on market opportunities coming from the Internet and cloud driven world, we will continue to invest in capital and people, with the ultimate goal to accelerate revenue and return to solid earnings growth. We have a strong team that is proud to be associated with North State and poised to execute on our strategies. J. Patrick Harman Chairman Royster Tucker III President & CEO Jonathan M. Cage Vice President & CFO

3 Q Shareholder Update Highlights and Consolidated Results Highlights: 15.5% consolidated revenue growth $27.9 million in total cash generation Fourth quarter consolidated revenues of $30.3 million, up 7.8% compared to the year-earlier period, a portion of growth due to Stalwart acquisition $74 million in revenues from strategic business and consumer products, up 22.6% from the previous year $35.4 million in EBITDA, down 1.7% from previous year. Strong effort offsetting acquisition costs, increased content costs and lingering overhead expense carried over from discontinued wireless operations Revenues from emerging colocation, cloud, managed services, cybersecurity and IT professional services were $16 million for the year Hardware and maintenance revenues were $8.9 million for the year Combined business and wholesale revenues, were $63.7 million, up 24% from the previous year Full year capital investment of $22.2 million $12 million in cash dividends distributed during the year Consolidated Quarterly Financial Results North State s consolidated net operating revenues for the fourth quarter of 2015 totaled $30.3 million, up 7.8% compared to the prior year period. Excluding revenues attributable to Stalwart, net operating revenues were $24.1 million, up from $22.5 million. Operating expenses were $27.9 million compared $21.0 million reflecting $5.9 million in expenses related to Stalwart, increased content costs, increased expenses related to growth initiatives, offset by a $960K credit to expenses related to a change in benefit accruals. Operating income was $2.4 million compared to $1.5 million. Non-operating income was $2.0 million compared to $1.2 million. EBITDA for the quarter was $10 million, up from $8 million. Net income was $3.4 million compared to $2.0 million. Earnings per share were $1.46 compared to $0.85. Total cash flow for the fourth quarter of 2015 was $8.5 million, comprised of $6.1 million in cash flow from operating activities and $2.4 million in distributions from unconsolidated entities. Capital expenditures for the quarter were $4.9 million. Free cash flow (total cash flow minus capital expenditures), was $3.6 million. Consolidated Full-year Results For the full year 2015 compared with 2014, North State s consolidated net operating revenues were $103.5 million, up 15.5% for the year. Total operating expenses were $96.2 million compared to $81.0 million. Operating income was $7.3 million compared to $8.6 million. Non-operating income was $7.4 million, up from $6.4 million. EBITDA was $35.4 million, down slightly from $36 million. Net income was $9.8 million compared to $10.0 million. Earnings per share were $4.27 compared to $4.34. Total

4 cash flow for the year was $27.9 million. Capital expenditures were $22.2 million. Free cash flow was $5.7 million. Debt on the 2015 consolidated, year ending balance sheet has been reclassified as short term and will be reclassified as long term upon refinancing in Products and Services Business and Wholesale Services Fourth quarter 2015 revenues from business and wholesale customers were $20.9 million, up 56% compared to prior year quarter, making up 69% of revenues for the quarter. Business wireline revenues were $6.3 million, down slightly for the quarter reflecting declines in legacy services and the cyclical purchasing patterns of business sales. Revenues from combined data center and IT services were $9.9 million, with gains in colocation, dedicated cloud and managed services offerings along with added cybersecurity, equipment and IT professional services. Revenues from wholesale services were $4.0 million for the quarter, up from $3.0 million compared to the year-earlier quarter, the result of favorable settlement formulas and a $0.4 million settlement distribution related to previous uncollected revenues. Consumer Services Fourth quarter revenues from consumer, residential customers were $9.5 million, up 4.4% compared to the year-earlier quarter. Revenues from consumer, residential broadband, comprised of Internet and entertainment products for the home and home office, were $6.3 million, up 12.5%, which more than offset lower revenues from legacy services. At year end, 57% of the homes within North State marketable, residential neighborhoods were passed with fiber. Total gigabit Internet subscribers increased 245% compared to the year-earlier quarter. Strategic Revenues Fourth quarter revenues from strategic products and services, comprised of business wireline services, data center, IT services and consumer Internet and entertainment broadband services, were $22.5 million, up 7.2% from the year-earlier period. Strategic revenues accounted for 74% of net operating revenues for the quarter. 67% of strategic revenues were generated by business customers.

5 Summary of Statements of Net Income Unaudited Amounts in millions except per share amounts 4

6 Consolidated Balance Sheets Unaudited 5

7 Consolidated Statements of Net Income Unaudited 6

8 Consolidated Statements of Comprehensive Income Unaudited 7

9 Consolidated Statements of Stockholders Equity Unaudited 8

10 Consolidated Statements of Cash Flows Unaudited I, Jonathan M. Cage, hereby certify that the accompanying unaudited consolidated balance sheets of North State Telecommunications Corporation and Subsidiaries as of December 31, 2015 and 2014 and the related unaudited consolidated statements of net income, comprehensive income, stockholders equity and cash flows for the years then ended have been prepared from the Corporation s and Subsidiaries accounting records. Internal accounting controls and review procedures provide assurance that these statements are materially accurate. This is the 4th day of February Jonathan M. Cage VP-Chief Financial Officer 9

11 BOARD OF DIRECTORS J. Patrick Harman Chairman Royster M. Tucker III Vice Chairman C. Hayden McKenzie Jonathan M. Cage William H. Dula Jesse H. Jarrell Coulson S. Mucher Sarah M. Olson Lizbeth W. Privette OFFICERS J. Patrick Harman Chairman Royster M. Tucker III President Chief Executive Officer Jonathan M. Cage Vice President Chief Financial Officer Mark Dula Vice President Chief Operating Officer Scott Watts Vice President Chief Marketing Officer Lynn B. Welborn Vice President Chief Administrative Officer Richard P. Worden Vice President Chief Business Officer CORPORATE OFFICES 111 North Main Street, High Point, North Carolina Telephone: (336) /16 NS572/19095