Saturday, May 26, 2012

"Audit: LUS making progress"

Here's a striking contrast.

Stories on LUS Fiber that start with "Audit:" the Advocate's new story "Audit: LUS making progress" and the Advertiser's "Audit: LUS Fiber lost $45,000 a day."

We're talking the same audit. I've already commented on the Advertiser story—and on an Advocate story that actually focused on the core of the audit and was published on the same day. I felt (and feel) that the story out of the Baton Rouge paper focused on the whole audit and accorded LUS Fiber its appropriate space while the Advertiser went for an inflammatory headline.

Now, several days later the Advocate does a follow-up story that highlights the LUS Fiber portion of the audit story. What's instructive is that Burgess, the reporter for the Advocate, goes back to the auditor for a followup story, the city's chief financial officer and Terry Huval, head of the new utility. A very different story emerges. From the story:

Kolder said in an interview Thursday that despite his note of caution, he did not intend to present a “doom-and-gloom” scenario. 
He said that based on his review of LUS Fiber’s finances, he agrees with City-Parish Chief Financial Officer Lorrie Toups that the service could break even by late 2014 or early 2015. 
“Normally, most start-up businesses lose money the first three to five years,” Kolder said. “... It would be expected.”
Toups noted that the $28.8 million deficit cited in the audit for LUS Fiber at year-end 2011 includes about $21 million in accumulated depreciation since 2009. 
Depreciation is not the loss of actual cash but rather writing off the value of equipment and infrastructure as it ages. 
Huval comments:
Huval said that when the depreciation expense is factored out, LUS Fiber, as of April, was making enough money to cover all operating expenses and to set money aside to help repay the more than $100 million borrowed to start the enterprise.
That's what's commonly known as "cash flow positive." And it is a big deal for any startup. It means that you no longer have to borrow new money—or dip into the money you've banked at startup—to pay for day-to-day expenses or debt service. With a debt as large as LUS Fiber's the latter concern is a large one. It's not the same as profitability, of course—to claim that you also have to be able to pay for expansion, replacement, and upgrades. In LUS' case there is no further expansion beyond the city in the works; there won't be much in the way of replacement beyond new trucks, tools and the like; and upgrades will be common enough—but since LUS Fiber is, by dint of being fiber, well oversupplied with capacity most upgrades in the future will be merely to replace older equipment with newer, more capable, and almost certainly cheaper equipment.

LUS Fiber is over the hump. Every additional subscription from here on out adds to the cushion that will  predictably allow the utility to say that it is profitable. Being cash flow positive means the business plan has proved out and the great mass of costs are being absorbed the current subscribers and the (notably low) prices that LUS Fiber is currently charging. There won't be a need for a radical restructuring of the business plan, merely the usual periodic adjustments to account for increased costs — issues that by and large the utility's competitors will also face.

Lagniappe: Interested readers may wish to travel over to the KPEL site where they can get many of the points made in this story directly from the horses' mouths. The radio station has posted an audio stream of an interview with Durel and Huval that the two gave in response to the initial Advertiser story.

1 comment:

Swift Code said...

Since last couple of days i've spend my time to get this kinds of information. Right now I'm quite pleased to find this info. Big thanks to you!