Teletouch Communications, Inc. TLLE, a leading U.S. wireless services, cellular, consumer electronics and public safety equipment provider, reported its consolidated results on Form 10-Q and announced financial results for its third fiscal quarter ended February 29, 2012.
3rd Quarter Results - Highlights
- Total operating revenues of $7.72 million
- Adjusted loss from operations of $0.31 million
- Adjusted negative EBITDA of $0.07 million
- Adjusted net loss of $0.77 million
Year-to-Date Financial Highlights (as reported)
- Total operating revenues of $26.12 million
- Income from operations of $5.67 million
- EBITDA of $6.57 million
- Net income of $4.01 million
- Earnings Per Share of $0.08
3rd Quarter Highlights - Business
- Signed Mutual Order of Dismissal in early December, marking official end to AT&T litigation;
- Company's senior lender, Thermo Credit, LLC (“Thermo”) advised Company that it must exit the $12 million revolving credit facility because of issues it has with its own lender;
- Amended Thermo senior debt agreement, effective February 29, 2012, to defer repayment of remaining note balance until May 2012, or August 2012, assuming certain criteria are met by Company, in exchange for a $2 million payment towards outstanding loan balance in March 2012; remaining Thermo debt obligation stands at approximately $8.3 million;
- Received the State of Texas' computations from its ongoing sales and use tax audit of Company's subsidiary, Progressive Concepts, Inc. (“PCI”) through October 2009, resulting in an accrual of a $1.85 million estimated sales tax liability. In addition, the Company recorded a sales tax liability of approximately $0.3 million related to similar tax issues that are believed to have continued beyond the current tax audit period, for a total accrual in the period of $2.15 million;
- Two-Way Radio/Public Safety Equipment segment revenues increased to just over $2.45 million in 3rd quarter, an approximately $1.48 million or 151% increase over the same period last year;
- Additional orders of approximately $1.0 million received for Public Safety Equipment division products through 3rd quarter, with expected shipment in 4th fiscal quarter;
“We began the fiscal third quarter with all of the excitement of having successfully settled our litigation against AT&T and a focus on growing our core cellular and other business units again. However, our primary attention quickly shifted to banking and liquidity issues, after learning that Thermo must exit our long-standing debt facility as a result of problems they were having with their own lender,” stated T. A. “Kip” Hyde, Jr., Director, President and Chief Operating Officer of Teletouch. “With our real estate loans also maturing in May, the Company is now tackling the job of refinancing all of its (formerly) long-term debt. At the end of the quarter, our total outstanding debt was approximately $13.1 million, with about $10.4 million outstanding on our facility with Thermo. But, following a negotiated $2.0 million principal payment to Thermo in mid-March, we are working to replace about $11 million of total current debt, with either new long-term debt or equity, or a combination of both.”
Hyde continued, “Additionally, we received the near-final calculations from the now nearly two-year long, ongoing sales-and-use tax audit of PCI by the State of Texas. With these calculations, we are able to more accurately estimate the accrual for the current tax audit period and subsequent periods with similar tax issues which resulted in an approximate $2.15 million expected tax liability, including estimated penalties and interest. We have the right and expect to recover up to fifty-percent or more of these taxes, interest and penalties from our customers owing them, but the efforts to do so will take time. Meanwhile, we have asked the State to waive penalties and interest and to allow us to pay this obligation over a maximum period of five years. Based on our unique set of circumstances, we are optimistic that the State will grant us some or all of this relief.”
Added Hyde, “Frankly, we did not expect the abrupt actions taken by Thermo this quarter, as our loan was originally contracted to mature in January, 2013. Given the timing of our bank's issues and their acceleration of our debt, i.e., coming just after our protracted litigation with AT&T finally ending, along with the upcoming expected resolution of the State tax matters, we are facing significant challenges to securing new financing for the Company in the accelerated timeframe required. While our year-to-date financial statements continue to reflect the very positive impact of the AT&T settlement, our ongoing operations have not fully recovered at this point, as we rebuild our recurring billing services revenue subscriber base. We had only just begun to get the Company's engines firing on all cylinders, with iPhone subscriber activations growing monthly, and new wholesale distribution relationships just starting and/or finishing negotiations post the AT&T settlement. But the negative financial impact of activating iPhones is immediate, with our iPhone handset subsidy expenses coming in at over $200,000 for the quarter. With the cash constraints placed on us by Thermo, our goal is to conserve cash, while we develop new sources of revenue and more direct profits for the Company. By improving our financial condition through operations in the near term, we expect that our ability to replace our debt will be more easily accomplished. Again, proving out results will take some time, but by taking quick and certain action now, we should show improved bottom-line results by the first quarter of fiscal 2013.”
“For example, due to the direct cash costs involved, we have ceased most of our cellular business marketing efforts, curtailed iPhone activations to only the highest credit customers, and have put on hold our planned retail store expansion and direct sales force additions, at least for now. However, products sold at margin generate profits, and we are having success in generating new distribution relationships for our wholesale business, and will continue to focus in this area. In addition to the three year extension of our Trident Case distribution agreement in the 3rd quarter, we have also recently announced three new distribution agreements with Monster Digital®, Cadence® Acoustics and Cerwin-Vega®, and hope to enter into a high volume distribution agreement shortly, with a major handset manufacturer that we have been negotiating with for some time now.”
Hyde concluded, “We have several initiatives underway to improve the operating results of the Company and have amply demonstrated our capability to do so previously. But our ability to successfully accomplish these goals will heavily depend on our banks allowing us enough time to execute on these items, which will in turn, allow us to attract new lenders and investors to refinance and/or extinguish our current debt. Cooperation from our banks over the next several months is critical to our ability to continue our operations and position the Company for a strong fiscal 2013.”
EARNINGS CONFERENCE CALL:
The Company's fiscal third quarter 2012 earnings conference call is scheduled for Wednesday, April 25, 2012, at 4:15 p.m. Eastern (3:15 p.m. Central). To join, participants call 866-901-2585 or 404-835-7099. Callers will be asked to provide their first and last names, email address and company and/or financial institution name, as applicable. Participants are advised to dial in approximately 10-15 minutes before the conference call is scheduled to begin. After information is given to the operator, participants will be placed on music-hold prior to the start of the call, then all added to the call at start. After the speakers conclude their prepared remarks, the moderator will provide instructions to all calling participants on how to queue up their questions.
For the quarter ended February 29, 2012, the Company announced the following results [the Tables below present selected financial data, including certain non-GAAP measures; see Teletouch's Form 10-Q for its quarter ended February 29, 2012 filed on April 16, 2012 for complete financials and additional information]:
| Teletouch Communications, Inc. | |||||||||||||||
| (in thousands, except shares and per share amounts) | |||||||||||||||
| Three Months Ended | |||||||||||||||
| February 29, | February 28, | ||||||||||||||
| 2012 | 2011 |
$ Change |
% Change |
||||||||||||
| Summary Operating Results: | |||||||||||||||
| Service and installation revenue | $ | 3,929 | $ | 4,950 | $ | (1,021 | ) | -20.6 | % | ||||||
| Product sales revenue | 3,791 | 4,407 | (616 | ) | -14.0 | % | |||||||||
| Total operating revenues | 7,720 | 9,357 | (1,637 | ) | -17.5 | % | |||||||||
| Cost of service and installation | (1,394 | ) | (1,528 | ) | 134 | -8.8 | % | ||||||||
| Cost of products sold | (3,753 | ) | (4,125 | ) | 372 | -9.0 | % | ||||||||
| Margin on service and installation revenue | 2,535 | 3,422 | (887 | ) | -25.9 | % | |||||||||
| Margin on product sales revenue | 38 | 282 | (244 | ) | -86.5 | % | |||||||||
| Margin on total revenue | 2,573 | 3,704 | (1,131 | ) | -30.5 | % | |||||||||
| Loss from operations | (2,541 | ) | (344 | ) | (2,197 | ) | 638.7 | % | |||||||
| Net loss | $ | (3,007 | ) | $ | (942 | ) | $ | (2,065 | ) | 219.2 | % | ||||
| Basic and diluted loss per share of common stock | $ | (0.06 | ) | $ | (0.02 | ) | $ | (0.04 | ) | 200.0 | % | ||||
| Basic and diluted weighted average shares outstanding | 48,742,335 | 48,739,002 | 3,333 | 0.0 | % | ||||||||||
| EBITDA and Adjusted EBITDA, Operating income (loss) and Net loss Reconciliation: | |||||||||||||||
| Net loss | $ | (3,007 | ) | $ | (942 | ) | $ | (2,065 | ) | 219.2 | % | ||||
| Add back: | |||||||||||||||
| Depreciation and amortization | 238 | 281 | (43 | ) | -15.3 | % | |||||||||
| Interest expense | 417 | 553 | (136 | ) | -24.6 | % | |||||||||
| Income tax expense | 49 | 45 | 4 | 8.9 | % | ||||||||||
| EBITDA (A) | (2,303 | ) | (63 | ) | (2,240 | ) | 3555.6 | % | |||||||
| Adjustments: | |||||||||||||||
| Non-cash stock compensation expense | 6 | 40 | (34 | ) | -85.0 | % | |||||||||
| Severance costs | 73 | 282 | (209 | ) | -74.1 | % | |||||||||
| Litigation costs (AT&T arbitration) (C) | 9 | 445 | (436 | ) | -98.0 | % | |||||||||
| Texas sales and use tax audit accruals (D) | 2,147 | - | 2,147 | 100.0 | % | ||||||||||
| Total adjustments | 2,235 | 767 | 1,468 | 191.4 | % | ||||||||||
| Adjusted EBITDA (B) | (68 | ) | 704 | (772 | ) | (E) | |||||||||
|
Adjusted Income (Loss) from Operations Reconciliation: |
|||||||||||||||
| Loss from operations | (2,541 | ) | (344 | ) | (2,197 | ) | 638.7 | % | |||||||
| Total adjustments | 2,235 | 767 | 1,468 | 191.4 | % | ||||||||||
| Adjusted income (loss) from operations (B) | (306 | ) | 423 | (729 | ) | (E) | |||||||||
| Adjusted Net Loss Reconciliation: | |||||||||||||||
| Net loss | $ | (3,007 | ) | $ | (942 | ) | $ | (2,065 | ) | 219.2 | % | ||||
| Total adjustments | 2,235 | 767 | 1,468 | 191.4 | % | ||||||||||
| Adjusted net loss (B) | (772 | ) | (175 | ) | (597 | ) | 341.1 | % | |||||||
|
Notes: |
|||||||||||||||
| (A) Teletouch's EBITDA means Net income (loss) before depreciation and amortization, interest expense and income tax expense. EBITDA is non-GAAP measure that the Company believes allows for a more complete analysis of our results. | |||||||||||||||
| (B) Teletouch's Adjusted EBITDA, Adjusted operating income (loss) and Adjusted net income (loss) means EBITDA, Operating income (loss) and Net income (loss) before non-cash stock compensation expense and significant items that do not occur on a routine basis. These adjusted measurements are non-GAAP measure that the Company believes allows for a more comparative analysis of our results to other periods. | |||||||||||||||
| (C) The Company's subsidiary, PCI, commenced binding arbitration against AT&T on 9/30/09. PCI commenced the binding arbitration to seek relief for damages PCI has incurred as AT&T has prevented PCI from selling the iPhone and other AT&T exclusive products and services that PCI has been contractually entitled to provide to its customers under its distribution agreements with AT&T. The litigation against AT&T was settled on November 23, 2011. | |||||||||||||||
|
(D) In the third quarter of fiscal year 2012, the Company recorded a Texas sales and use tax liability of approximately $1,850,000 based on preliminary assessments related to PCI's sales and use tax audit which covers the period January 1, 2006 through October 31, 2009. In addition, the Company recorded an additional Texas sales and use tax liability of approximately $297,000 for sales and use tax issues identified in the period subsequent to the current sales and use tax audit period. The subsequent period covers November 1, 2009 through February 29, 2012. |
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| (E) Percent change is not provided if either the latest period or the year-ago period contains a loss or negative amount. | |||||||||||||||
| Teletouch Communications, Inc. | |||||||||||||||
| (in thousands, except shares and per share amounts) | |||||||||||||||
| Nine Months Ended (YTD) | |||||||||||||||
| February 29, | February 28, | ||||||||||||||
| 2012 | 2011 |
$ Change |
% Change | ||||||||||||
| Summary Operating Results: | |||||||||||||||
| Service and installation revenue | $ | 12,708 | $ | 15,814 | $ | (3,106 | ) | -19.6 | % | ||||||
| Product sales revenue | 13,411 | 11,465 | 1,946 | 17.0 | % | ||||||||||
| Total operating revenues | 26,119 | 27,279 | (1,160 | ) | -4.3 | % | |||||||||
| Cost of service and installation | (4,271 | ) | (4,575 | ) | 304 | -6.6 | % | ||||||||
| Cost of products sold | (12,885 | ) | (10,480 | ) | (2,405 | ) | 22.9 | % | |||||||
| Margin on service and installation revenue | 8,437 | 11,239 | (2,802 | ) | -24.9 | % | |||||||||
| Margin on product sales revenue | 526 | 985 | (459 | ) | -46.6 | % | |||||||||
| Margin on total revenue | 8,963 | 12,224 | (3,261 | ) | -26.7 | % | |||||||||
| Income (loss) from operations | 5,672 | (48 | ) | 5,720 | (G) | ||||||||||
| Net income (loss) | $ | 4,009 | $ | (1,877 | ) | $ | 5,886 | (G) | |||||||
| Basic income (loss) per share of common stock | $ | 0.08 | $ | (0.04 | ) | $ | 0.12 | (G) | |||||||
| Diluted income (loss) per share of common stock | $ | 0.08 | $ | (0.04 | ) | $ | 0.12 | (G) | |||||||
| Weighted average shares outstanding: | |||||||||||||||
| Basic | 48,740,231 | 48,739,002 | 1,229 | 0.0 | % | ||||||||||
| Diluted | 52,006,438 | 48,739,002 | 3,267,436 | 6.7 | % | ||||||||||
| EBITDA and Adjusted EBITDA, Operating income (loss) and Net income (loss) Reconciliation: | |||||||||||||||
| Net income (loss) | $ | 4,009 | $ | (1,877 | ) | $ | 5,886 | (G) | |||||||
| Add back: | |||||||||||||||
| Depreciation and amortization | 899 | 844 | 55 | 6.5 | % | ||||||||||
| Interest expense | 1,467 | 1,672 | (205 | ) | -12.3 | % | |||||||||
| Income tax expense | 196 | 157 | 39 | 24.8 | % | ||||||||||
| EBITDA (A) | 6,571 | 796 | 5,775 | 725.5 | % | ||||||||||
| Adjustments: | |||||||||||||||
| Non-cash stock compensation expense | 297 | 345 | (48 | ) | -13.9 | % | |||||||||
| Severance costs | 73 | 293 | (220 | ) | -75.1 | % | |||||||||
| Litigation costs (AT&T arbitration) (C) | 324 | 785 | (461 | ) | -58.7 | % | |||||||||
| Texas sales and use tax audit accruals (D) | 2,147 | - | 2,147 | 100.0 | % | ||||||||||
| Gain on settlement with AT&T (E) | (10,000 | ) | - | (10,000 | ) | (G) | |||||||||
| Management bonuses related to settlement with AT&T (F) | 1,400 | - | 1,400 | 100.0 | % | ||||||||||
| Total adjustments | (5,759 | ) | 1,423 | (7,182 | ) | (G) | |||||||||
| Adjusted EBITDA (B) | 812 | 2,219 | (1,407 | ) | -63.4 | % | |||||||||
|
Adjusted Income (Loss) from Operations Reconciliation: |
|||||||||||||||
| Income (loss) from operations | 5,672 | (48 | ) | 5,720 | (G) | ||||||||||
| Total adjustments | (5,759 | ) | 1,423 | (7,182 | ) | (G) | |||||||||
| Adjusted income (loss) from operations (B) | (87 | ) | 1,375 | (1,462 | ) | (G) | |||||||||
| Adjusted Net Income (Loss) Reconciliation: | |||||||||||||||
| Net income (loss) | $ | 4,009 | $ | (1,877 | ) | $ | 5,886 | (G) | |||||||
| Total adjustments | (5,759 | ) | 1,423 | (7,182 | ) | (G) | |||||||||
| Adjusted net loss (B) | (1,750 | ) | (454 | ) | (1,296 | ) | 285.5 | % | |||||||
| Notes: | |||||||||||||||
|
(A) Teletouch's EBITDA means Net income (loss) before depreciation and amortization, interest expense and income tax expense. EBITDA is non-GAAP measure that the Company believes allows for a more complete analysis of our results. |
|||||||||||||||
| (B) Teletouch's Adjusted EBITDA, Adjusted operating income (loss) and Adjusted net income (loss) means EBITDA, Operating income (loss) and Net income (loss) before non-cash stock compensation expense and significant items that do not occur on a routine basis. These adjusted measurements are non-GAAP measure that the Company believes allows for a more comparative analysis of our results to other periods. | |||||||||||||||
| (C) The Company's subsidiary, PCI, commenced binding arbitration against AT&T on 9/30/09. PCI commenced the binding arbitration to seek relief for damages PCI has incurred as AT&T has prevented PCI from selling the iPhone and other AT&T exclusive products and services that PCI has been contractually entitled to provide to its customers under its distribution agreements with AT&T. The litigation against AT&T was settled on November 23, 2011. | |||||||||||||||
|
(D) In the third quarter of fiscal year 2012, the Company recorded a Texas sales and use tax liability of approximately $1,850,000 based on preliminary assessments related to PCI's sales and use tax audit which covers the period January 1, 2006 through October 31, 2009. In addition, the Company recorded an additional Texas sales and use tax liability of approximately $297,000 for sales and use tax issues identified in the period subsequent to the current sales and use tax audit period. The subsequent period covers November 1, 2009 through February 29, 2012. |
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|
(E) As a result of the settlement and release agreement that was executed with AT&T on November 23, 2011, the Company recorded the initial consideration of $10,000,000 as a gain which was included in the operating income on the Company's consolidated statement of operations for the three and six months ended November 30, 2011. The initial consideration is comprised of a $5,000,000 cash payment and $5,000,000 credit against PCI's outstanding accounts payable to AT&T. |
|||||||||||||||
| (F) The Compensation Committee of the Company's Board of Directors approved a bonus for executive and management personnel due to the successful settlement of the litigation against AT&T in November 2011 and in light of the fact that no bonuses were awarded during fiscal year 2011 due primarily to earnings impairment caused by delays in this litigation outside of the Company's control. | |||||||||||||||
| (G) Percent change is not provided if either the latest period or the year-ago period contains a loss or negative amount. | |||||||||||||||
| Selected Balance Sheet Highlights | |||||||||||||||
| (in thousands) | |||||||||||||||
| February 29, | May 31, | ||||||||||||||
| 2012 | 2011 | Change | % Change | ||||||||||||
| Cash | $ | 4,872 | $ | 2,239 | $ | 2,633 | 117.6 | % | |||||||
| Current portion of long-term debt | 13,123 | 4,439 | 8,684 | 195.6 | % | ||||||||||
| Long-term debt, net of current portion | - | 10,181 | (10,181 | ) | -100.0 | % | |||||||||
| Current Assets | 12,664 | 9,787 | 2,877 | 29.4 | % | ||||||||||
| Current Liabilities | 24,708 | 16,789 | 7,919 | 47.2 | % | ||||||||||
| Working Capital | (12,044 | ) | (7,002 | ) | (5,042 | ) | 72.0 | % | |||||||
Disclosure of Non-GAAP Financial Measures
We report our financial results in accordance with generally accepted accounting principles (“GAAP”). However, management believes the presentation of certain non-GAAP financial measures provides useful information to management and investors regarding financial and business trends relating to the Company's financial condition and results of operations, and that when GAAP financial measures are viewed in conjunction with the non-GAAP financial measures, investors are provided with a more meaningful understanding of the Company's ongoing operating performance. In addition, these non-GAAP financial measures are among the primary indicators management uses as a basis for evaluating performance. For all non-GAAP financial measures in this release, we have provided corresponding GAAP financial measures for comparative purposes.
We refer to the term “EBITDA,” Adjusted EBITDA, Adjusted income (loss) from operations and “Adjusted net income (loss)” in various places of our financial discussion. EBITDA is defined by us as net income (loss) before interest expense, income tax expense, and depreciation and amortization expense. The Company identifies its non-cash, significant and one-time charges each period, including non-cash stock compensation expense and significant litigation or restructuring costs and excludes these charges to compute certain non-GAAP adjusted operating measurements. EBITDA, Income (loss) from operations, and Net income(loss) are each adjusted by excluding the total non-cash, significant and one-time charges identified by the Company to compute Adjusted EBITDA, Adjusted income (loss) from operations and Adjusted net income (loss), respectively (the “Non-GAAP Financial Measures”). The Non-GAAP Financial Measures are not measures of operating performance under GAAP and therefore should not be considered in isolation nor construed as an alternative to operating profit, net income (loss) or cash flows from operating, investing or financing activities, each as determined in accordance with GAAP nor should they be considered as a measure of liquidity. Moreover, since the Non-GAAP Financial Measures are not measurements determined in accordance with GAAP, and thus are susceptible to varying interpretations and calculations, the Non-GAAP Financial Measures, as presented, may not be comparable to similarly titled measures presented by other companies.
About Teletouch Communications
For over 47 years, Teletouch has offered a comprehensive suite of wireless telecommunications solutions, including cellular, two-way radio, GPS-telemetry and wireless messaging. Teletouch is a leading Authorized Services Provider and billing agent of AT&T T products and services to consumers, businesses and government agencies, as well as an operator of its own two-way radio network and LTR systems in Texas. Teletouch operates a chain of 20 retail and authorized agent stores under the “Teletouch” and “Hawk Electronics” brands, in conjunction with its direct sales force, call center operations and various retail eCommerce websites including: www.hawkelectronics.com, www.hawkwireless.com, www.hawkexpress.com and www.shop.teletouch.com. Through its wholly owned subsidiary, Progressive Concepts, Inc., Teletouch operates a national distribution business, PCI Wholesale, primarily serving large cellular carrier agents and rural carriers, as well as auto dealers and smaller consumer electronics retailers, with product sales and support available through www.pciwholesale.com and www.pcidropship.com, among other B2B oriented websites.
Teletouch's common stock is traded Over-The-Counter under stock symbol: TLLE. Additional information about the Teletouch family of companies can be found at www.teletouch.com.
All statements from Teletouch Communications, Inc. in this news release that are not based on historical fact are “forward-looking statements” within the meaning of the PSLRA of 1995 and the provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. While the Company's management has based any forward-looking statements contained herein on its current expectations, the information on which such expectations were based may change. These forward-looking statements rely on a number of assumptions concerning future events and are subject to a number of risks, uncertainties, and other factors, many of which are outside of our control, that could cause actual results to materially differ from such statements. Such risks, uncertainties, and other factors include, but are not necessarily limited to, those set forth under the caption “Risk Factors” in the Company's most recent Form 10-K and 10-Q filings, and amendments thereto, as well as other public filings with the SEC since such date. The Company operates in a rapidly changing and competitive environment, and new risks may arise. Accordingly, investors should not place any reliance on forward-looking statements as a prediction of actual results. The Company disclaims any intention to, and undertakes no obligation to, update or revise any forward-looking statement.
Teletouch Communications, Inc.
Investor Relations:
Amy
Gossett, 800-232-3888
investors@teletouch.com
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