MI-Connection asks towns for $1.1 million
by Staff Writer
DAVIDSON – MI-Connection needs more money to get through the fiscal year ending June 30, 2012.
The company is asking for $1.1 million from Davidson and Mooresville, bringing the towns’ total contributions to the company to nearly $7 million for the year.
MI-Connection has seen unprecedented growth since July 2011, which is partly to blame for the shortfall, CEO David Auger said. The company converted 5 percent of the nearly 24,000 non-customers in its coverage area to subscribers and saw gains in video, data and voice categories.
“There is an expense involved with growing the business, and we don’t see a payoff of those customers coming on,” Auger said. “Many are coming on at promotional discounts. We don’t see an immediate payoff.”
An agreement with Virginia-based Bristol Virginia Utilities to shift from operator to vendor happened five months later than planned, keeping costs higher and revenues lower than budgeted.
The transition didn’t begin until Dec. 1. MI-Connection didn’t realize savings from the transition until Feb. 1. Local operations will reduce expenses by $789,000 in the second half of the year.
“Basically, we were paying retail. Now we’re going to the manufacturer,” Mooresville Commissioner Rhett Dusenbury said of MI-Connection’s transition to local control. “Not only are we not paying the mechanic’s fee, but we’re also not paying for the markup on the parts.”
Savings should be more visible moving forward, but MI-Connection needs that extra $1.1 million soon. Mooresville covered MI-Connection’s debt service due March 1, and the company must compensate the town before books close for the fiscal year June 30.
Billing errors from early 2011 also threw off the system’s original budget for this fiscal year, Auger said.
Davidson Mayor John Woods sees the company moving past those errors.
“We’re now totally in control of these numbers and are totally confident in the board and staff’s ability,” Woods said.
Davidson and Mooresville will vote on the $1.1 million request next month, but the interlocal agreement prevents the towns from denying the request. They must cover operating expenses and debt payment if the company falls short.
John Venzon, chairman of the MI-Connection Board of Directors, said he knew the company was asking a lot.
“This is a painful ask,” Venzon said. “But we’re in the best position we’ve been at.”
Venzon and other board members are planning a trip to Raleigh to discuss with legislators the possibility of expanding MI-Connection’s footprint and opportunities for growth.
Last year, MI-Connection publicized in a community campaign that if 5,000 residents bought a triple play package – the equivalent of 15,000 services – the company would be profitable at the beginning of this fiscal year.
“We tried to come up with a way to simplify what it would take to get the company to a place where it would not need to take any more money from the towns,” Venzon said.
But it became obvious halfway through the year that goal was unattainable. Venzon says the 15,000-product goal was a valid number, but the company is no longer using it as a metric.
Venzon declined to project when MI-Connection might be able to support itself and turn a profit when one of the two residents at the public hearing asked March 15 meeting.
“We’ve missed our numbers a lot, and we went through tremendous changes this year,” Venzon said, wanting to get 12 consistent months under the company’s belt before making promises.
During the meeting, the board of directors approved MI-Connection’s 2013 budget, which towns will consider in June and July budget proceedings. MI-Connection will ask Davidson and Mooresville to contribute $6.32 million for 2013. Davidson contributes around 35 percent of the towns’ portion of the budget for 2012, and Mooresville contributes 65. Those percentages will be recalculated with subscriber counts as of the end of June 2012.
Auger projects a 7.5 percent increase in revenue for a total of more than $17 million coming into the company in fiscal 2013. Earnings before interest, depreciation and amortization – a good measure of company profit – is projected to be around $3.6 million, 21 percent above this year’s $2.5 million.
If MI-Connection keeps up the same conversion rate, the company should gain 1,235 customers next year, bringing the company’s total customers to 16,819.
MI-Connection would contribute $7.3 million to next year’s debt service. Auger also said the total expenses in fiscal 2013 should be lower than in 2012.
The company debt will be $81.18 million as of June 30, 2012.
– Justin Vick contributed to the reporting of this story.