The Tribune

TONIGHT, Cable Bahamas holds its first annual general meeting (AGM) in 16 months. Shareholders should come prepared to ask the tough questions that management is doing its best to avoid.

Cable Bahamas' management says it has a good story to tell. While that may be true, the 55 per cent stock price collapse since September 2015 shows that the story management wants to tell is not the one shareholders want to hear. In previous meetings, and in the recent annual report, management has waxed poetic on business models, opportunities and sales growth. After four straight quarters of losses, however, shareholders just want to hear about the bottom line. They want concrete answers to three pressing concerns: 1) How will Cable repay its soaring debt? 2) When will the Florida and ALIV operations become profitable? and 3) When will dividend payments resume? Management has an opportunity now to reassure shareholders on these three key points. If they cannot, or will not, shareholders will "vote with their feet" and the stock price will continue to fall.

The first and most important question is about the debt. Even if we take management at its word that Florida and ALIV will be fantastically profitable in the future, it will mean nothing if the company goes bankrupt before that glorious future arrives. It would not be the first time an exciting growth company has grown faster than their balance sheet allowed. Adding together all of its forms of debt, Cable Bahamas has $436 million in debt versus just $20 million in trailing 12-month EBITDA. Generally, bankers prefer to see a ratio of debt to EBITDA of four times' or lower - the current 22 times' is astounding. Fancy models aren't needed when the numbers are this clear: Cable Bahamas has $97 million in bank debt all due in one lump sum payment in 2019. Currently, they have $56 million in cash. In the last quarter, however, they burned through $26 million in cash. If Cable Bahamas loses cash every quarter, how will they ever repay the bank? Yes, management has proven adept at refinancing their debt in the past. But with such a weak cash position, they may now be dependent on the good graces of the bankers.

The second question shareholders should ask concerns detailed timetables for when the Florida and Aliv operations will become profitable. We have been told several times about the fantastic internal rate of returns (IRRs) the Florida investments generate. But an IRR calculation includes projected returns over the entire life of an investment. If those returns are being generated in years three, four or five, they may come too late to help the parent company which, frankly, needs cash right now. If that is indeed the case, shareholders should put pressure on management to stop putting new money into Florida and to conserve cash before it is too late.

Aliv's early performance is also concerning. Despite the chairman's declaration that Cable Bahamas has "met all of our financial guidance targets", Aliv has clearly missed its mark. In March, management projected $23.5 million in Aliv revenues for the year ending June 30, 2017. Instead, they had $12.9 million. By September 30, 2017, they expected to have 88,000 subscribers; instead, they had 85,000. The problem appears to be unexpectedly tough competition from BTC, which has aggressively lowered prices and deftly copied Aliv's marketing strategies. Given Aliv's big miss on revenues but small miss on subscribers, we can assume that average revenue per user (ARPU) is much lower than expected. In keeping with Cable Bahamas' code of secrecy, of course, the annual report says nothing about ARPU.

With frank answers to the first two questions, shareholders will be better able to answer the third question themselves: When will Cable Bahamas will be able to reinstate a meaningful amount of dividends? While Bahamian investors are often derided for being overly fond of dividends, the fact is market studies show that dividends comprise a significant portion of an investor's total return. In the end, shareholders cannot "cash-in" business models, or revenue or even EBITDA. Shareholders cash-in dividend cheques.

Bahamian investors like Cable's management team. They are smart, personable and aggressive. We are proud of them for building a world-class telecommunications network in the Bahamas, and for seeking to do the same in Florida. Perhaps because of this admiration we have given management the benefit of the doubt for the last two years. When management split the stock, we bought more, driving up the share price. When management held a rights offering, diluting the interest of existing shareholders, we subscribed.

When management launched preference share after preference share, increasing debt levels and reducing net income left over for ordinary shareholders, we signed up, again and again.

The time for leniency is now over. Ordinary shareholders have waited 16 months to have their say. This Thursday, management will not be able to duck the tough questions any longer.

Signed,

A concerned investor