Winnipeg Free Press - PRINT EDITION

EIC's profit margins recovering after restructuring

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AT the company's annual meeting Thursday, held at Calm Air's newly constructed maintenance hangar, Mike Pyle, the CEO of Exchange Income Corp., mentioned the old adage about being careful what you wish for.

The company that owns Calm Air, Perimeter Aviation and two other regional airlines along with a large aviation parts business and a number of manufacturing businesses, also owns the largest wireless-communications-services firm in North America.

When EIC acquired that company, called WesTower Communications, in March 2011, it was generating around $200 million in revenue.

Shortly thereafter it landed a massive contract with AT&T and is now doing more than $500 million in annual sales. This year, in the first quarter alone, it booked $156 million in sales.

Among other things, WesTower is engaged in doing the hardware upgrades on cell towers covering about 40 per cent of the U.S. with hundreds of crews and more than 1,000 workers working on 20,000 different orders.

Not surprisingly, with all that new business, costs and profit margins went out the window.

"We had more work than we could handle," Pyle said. "We had to change how we physically did the work."

Last fall, a new Dallas-based management team for WesTower was hired. It has cut costs and is in the process of implementing all sorts of best practices and automated procedures.

"Margins are starting to creep back," Pyle said. "We are excited about the future."

In the meantime, the company just landed another $100-million contract with another major telco.

Steve Pickett, WesTower's CEO, pointed out despite its challenges in the recent past when it came to profit margins, it maintains good relationships with its customers. That is a very good thing, because AT&T has the largest capital-expense budget of any company in the world.

WesTower's current workload is all about doing the tower work required to upgrade wireless networks to the higher bandwidth and speeds of 4G LTE networks. Industry discussions are already underway about the next generation of wireless-network upgrade.

With its increasingly tighter relationship with the telcos, Pickett said there is now talk of WesTower taking on more responsibilities when it comes to managing the towers and the technology it is installing.

"We believe there is an opportunity for WesTower in some of those other areas of the technology life cycle," he said.

While WesTower helped EIC hit $1 billion in revenue in 2013, it also caused the company to produce a decline in annual operating profit or EBITDA (earnings before interest, taxes, depreciation and amortization).

It also was the culprit in the first decline in EIC's share price late in 2012 since it was formed 10 years ago.

Analysts were impressed WesTower produced a second quarter of sequential increases in profit margin during the first quarter in results released Thursday.

That was reflected immediately in EIC's stock price which was up $1.39 or 7.5 per cent to $19.90 in very active trading Thursday.

The first-quarter results showed consolidated revenue increased 17 per cent to $257.5 million compared with the first quarter of 2013, and EBITDA increased 11 per cent to $19.5 million.

That included a slight increase in its aviation business profits despite the severe winter that kept winter roads open two weeks longer, which cut into Perimeter, Calm Air and Keewatin Air's cargo business.

Pyle said there are discussions about increasing the company's $1.68-per share annual dividend.

Scott Rattee, an analyst with Edgecrest Capital of Toronto, said, "We anticipate an increase in EIC's monthly dividend this year."

martin.cash@freepress.mb.ca

Republished from the Winnipeg Free Press print edition May 16, 2014 B6

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