Profits surge at Hawaiian Telcom

Rising sales of high-speed Internet service helped Hawaiian Telcom earn a $6.7 million profit in the second quarter, building on the company’s financial strength since emerging from bankruptcy in October.

The earnings report released Monday marked Hawaiian Telcom’s second consecutive profitable quarter since the state’s largest telephone company went public in December.

Hawaiian Telcom’s first-quarter profit was $5.5 million. In the second quarter of 2010 during bankruptcy, the company lost $22.3 million.

Eric Yeaman, Hawaiian Telcom’s president and chief executive officer, said second-quarter profit represented a solid foundation upon which to build as the company executes an expansion plan that includes delivering TV service on Oahu.

“Overall, we continue to make good progress in the execution of our strategy to profitably grow our business, deliver superior service to our customers, and improve our financial performance with the goal of increasing value for our shareholders,” he said in a statement.

Shares of Hawaiian Telcom stock on the Nasdaq market closed 40 cents higher at $21.16 on Monday after the earnings report was released.

Revenue and operating expenses were about the same in the second quarter compared with the same quarter last year. Bankruptcy expenses largely contributed to the year-ago net loss.

In the recent second quarter, Hawaiian Telcom benefited from adding about 4,500 high-speed Internet subscribers, a 4.6 percent gain over a year earlier. The company also added 2,100 customers for bundled residential service.

On the downside, the number of land-line telephone customers fell 5.3 percent, though that rate of loss was down from 7.4 percent in the 2010 second quarter. Hawaiian Telcom also suffered a 5.4 percent decrease in long-distance phone customers.

Another hit to second-quarter earnings was a $2.2 million charge related to employee severance and lease termination costs associated with the closure of five remaining retail stores. The cutbacks are expected to result in annual savings of roughly $3 million that will begin to show up in the third quarter.

There was no significant financial impact in the quarter from Hawaiian Telcom’s launch of Internet-based TV service, which the company began rolling out slowly on July 1.

Yeaman said the company was able to convert more than 90 percent of about 250 customers testing the TV service into paid customers, and will soon start a door-to-door sales effort that includes demonstrations in a retrofitted service trailer.

For competitive reasons, Hawaiian Telcom is still guarding many details of the TV service as it seeks to achieve a goal of signing up 72,000 Oahu households, or about 24 percent of Oahu households, and cutting into the dominance of cable TV provider Oceanic Time Warner.

Yeaman said TV customers are being added slowly in select areas to ensure a good customer experience.

“We are still in the early stages in our roll-out,” he said in a conference call with stock analysts. “We are being patient. We’re off to a great start.”