GLENTEL Inc. reports 2013 third quarter results

BURNABY, BC, Nov. 14, 2013 /CNW/ - GLENTEL Inc. (TSX: GLN) today reported its results for the three and nine months ended September 30, 2013. Financial highlights (tabular amounts in thousands of Canadian dollars, except per share data) follow.

  Three months ended
September 30
Nine months ended
September 30
20132 20123 20132 20123
Sales $338,561 $174,834 $965,061 $467,890
Income before amortization, change in fair value of financial instruments, impairment of intangible assets and goodwill, (loss) gain on disposition of property and equipment, finance income and expense, and taxes ("EBITDA")1 $12,704 $14,699 $38,578 $32,714
EBITDA before one-time startup costs and transaction costs ("Adjusted EBITDA")1 $15,115 $15,500 $42,883 $35,148
Income before change in fair value of financial instruments, impairment of intangible assets and goodwill, (loss) gain on disposition of property and equipment, finance income and expense, and taxes ("EBIT")1 $6,298 $12,056 $19,757 $24,855
Impairment of intangible assets and goodwill $23,057 - $23,057 -
Net (loss) income ($12,280) $8,315 ($3,622) $16,695
Basic and diluted net (loss) income per common share ($0.55) $0.37 ($0.16) $0.75
Adjusted net income1 $7,499 $8,909 $14,589 $18,500
Adjusted basic net income per common share1 $0.34 $0.40 $0.66 $0.83
Adjusted diluted net income per common share1 $0.34 $0.40 $0.65 $0.83

1 EBITDA, Adjusted EBITDA, EBIT, Adjusted net income, and Adjusted basic and diluted net income per common share are not defined under IFRS and, as a result, may not be comparable to similarly titled measures presented by other publicly traded entities, nor should they be construed as an alternative to other earnings measures determined in accordance with IFRS. Adjusted net income, and Adjusted basic and diluted net income per common share normalize net (loss) income for one-time recoveries/(costs), gain/(loss) on disposal of property and equipment, and impairment of intangible assets and goodwill.
2 In the 4th quarter of 2012, the Company acquired AMT Group and Automotive Technologies Inc. dba Wireless Zone®.
3 The Company adopted amendments to IAS 19 effective January 1, 2013. On adoption of this standard, which has been applied retrospectively, the Company now recognizes changes in defined benefit obligations and plan assets when they occur rather than utilizing the corridor approach.

"We are pleased to announce that our Retail Divisions in both Canada and the United States, as well as our Business Division, delivered solid earnings in the 3rd quarter," stated Tom Skidmore, GLENTEL's President and Chief Executive Officer.

"In Canada, the Company continued its Target Mobile in-store rollout within new Target stores, having opened 82 stores as of September 30, 2013 and opening a total of 124 stores by year end. Our Retail Canada Division sustained its profitability, in spite of competitive and government regulatory pressures within the industry during the quarter. In the United States, we experienced a smooth transition and a good financial performance from the Company's newest acquisition, Wireless Zone. Verizon Wireless awarded Wireless Zone with the 2013 national Customer Loyalty agent award. Diamond Wireless, also a Verizon Wireless national premium retailer within the Retail U.S. Division, delivered solid earnings during the quarter while absorbing into its operations a 154 existing Verizon Wireless kiosk operation within BJ's Wholesale Clubs in 13 eastern U.S. states.

"Unfortunately, our recent acquisition of AMT, operating within the Retail Australia Division, realized the full negative impact to its earnings resulting from the national retail distribution exit by two of Australia's carrier brands marketed by our Allphones stores within Australia. As a result, Company management believes it is prudent to recognize a one-time intangible asset and goodwill impairment in the 3rd quarter of 2013. Initiatives have been implemented to reposition Allphones' carrier brand offerings in Australia with a continued strategic focus on the Allphones licensed store rollout in the Philippines. As the global supply of popular smartphones continues to increase to match consumer demand in the 4th quarter and throughout 2014, this should strengthen our well-positioned wireless retail distribution channels in the countries that we serve."

Consolidated highlights

3 months ended September 30, 2013 compared to respective period in 2012

  • Sales for the 3rd quarter ended September 30, 2013 increased 94% to $338.6 million compared to $174.8 million in 2012. Sales for the 3rd quarter of 2013 include sales from Wireless Zone and AMT/Allphones, both of which were acquired in the 4th quarter of 2012. EBITDA decreased 14% to $12.7 million for the 3rd quarter compared to $14.7 million in 2012. EBIT decreased 48% to $6.3 million for the 3rd quarter compared to $12.1 million in 2012.

  • In the 3rd quarter of 2013, GLENTEL recorded a $23.1 million ($17.6 million, net of tax) impairment charge on its investment in AMT as a result of the Optus and Virgin Mobile Australia brands exiting the Allphones retail channel in Australia. AMT is now marketing Vodafone, with Vodafone's new national 4G/LTE network, as the premier carrier brand offering of Allphones in Australia. During the 3rd quarter, Allphones operating as a MVNO (Virtual Network Operator) also introduced its own MySaver brand, which allows a consumer to activate their smartphone on the Telestra network. Additionally, AMT has partnered with two other national carriers to sell their respective MVNO offerings in Allphones locations across Australia. AMT has maintained its relationship with Virgin, and continues to operate 45 Virgin corporate retail stores through its Retail Management Services business.

  • In the 3rd quarter of 2013, including GLENTEL's impairment charge on its investment in AMT, the Company incurred one-time costs, net of tax, of $19.8 million ($0.89 per common share) compared to $0.6 million ($0.03 per common share) in 2012.

  • In the 3rd Quarter of 2013, net loss and basic loss per common share were $12.3 million and $0.55, respectively, compared to net income and basic earnings per common share of $8.3 million and $0.37 in 2012.

  • Consolidated Adjusted net income and Adjusted basic earnings per share for the 3rd quarter ended September 30, 2013 were $7.5 million and $0.34, compared to $8.9 million and $0.40 in 2012.

9 months ended September 30, 2013 compared to respective period in 2012

  • Sales for the nine months ended September 30, 2013 increased 106% to $965.1 million compared to $467.9 million in 2012. Sales for the nine months ended September 30, 2013 include sales from Wireless Zone and AMT/Allphones, both of which were acquired in the 4th quarter of 2012. EBITDA increased 18% to $38.6 million compared to $32.7 million in 2012, and EBIT decreased 21% to $19.8 million compared to $24.9 million in 2012.

  • In the nine months ended September 30, 2013, the Company incurred one-time costs of $24.2 million ($18.2 million, net of tax) compared to $2.4 million ($1.8 million, net of tax) in 2012. One-time costs incurred in 2013 relate primarily to the Company's $23.1 million ($17.6 million, net of tax) impairment of its investment in AMT offset by gains attributable to the sale of tower site assets in the Company's Business Division. One-time costs negatively impacted basic earnings per common share by $0.82 and $0.08, in the nine months ended September 30, 2013 and 2012, respectively.

  • For the nine months ended September 30, 2013, net loss and basic loss per common share were $3.6 million and $0.16 per common share, compared to net income and basic earnings per common share of $16.7 million and $0.75 in 2012.

  • Consolidated Adjusted net income and Adjusted basic earnings per share for the nine months ended September 30, 2013 were $14.6 million and $0.66 per share, compared to $18.5 million and $0.83 per share for the same period of the previous year.

Retail Canada Division

  Three months ended
September 30
Nine months ended
September 30
2013 2012 2013 2012
Sales $100,583 $106,862 $288,768 $283,973
EBITDA $11,075 $14,851 $29,207 $36,983
EBIT $9,657 $13,534 $25,003 $33,131
  • On June 3, 2013, the Canadian Radio-television Telecommunications Commission ("CRTC") released the Wireless Code, which is a mandatory code for all providers of retail mobile wireless voice and data services. As part of the code, the CRTC instituted new regulation that enables any wireless customer to cancel a wireless service contract after two years, at no cost to the customer, effectively requiring the industry to shift from three-year contracts to two-year contracts. The Wireless Code comes into effect December 2, 2013. In response to the new Wireless Code, our carrier partners proactively implemented a new two-year pricing mandate on August 9, 2013. As part of this shift from three-year term plans to two-year term plans, our carrier partners introduced higher-priced per month two-year contracts. Sales in the 3rd quarter of 2013 were lower than 2012 as consumers have been slow to embrace the change in term and pricing.

  • Customers' purchasing habits have continued to evolve in 2013, with the activation mix in this quarter seeing more upgrade activations than in the past. Our carrier partners continue to focus on building deeper relationships with their quality customers, and in an effort to manage churn have focused on upgrades versus new activations. We expect this trend to continue in the future as the Canadian wireless customer base approaches a steady-state penetration rate. The Retail Canada Division saw same-store activations decrease in the 3rd quarter of 2013 by 18% for stores that were open for both 2013 and 2012. The Retail Canada Division saw same-store activations decline by 7% for the nine months ended September 30, 2013 for stores that were open for both 2013 and 2012.

  • The impact from the introduction of the new iPhone 5S and 5C was not felt in full in the 3rd quarter of 2013 as the products were launched on September 20, 2013. The Retail Canada Division quickly sold through its allocation of iPhone 5S with product supply unable to meet demand.

  • The Division successfully completed the third and fourth phases of the Target Mobile rollout in the 3rd quarter of 2013, opening a total of 34 new stores. The Division now operates 82 Target Mobile locations across Canada, with the intention to operate a total of 124 stores by December 31, 2013. As the Target Mobile business is directly tied to foot traffic generated by Target Canada, this initiative has experienced slow sales as Target Canada continues to build its reputation and brand in Canada. Target Canada expects to recover from an initial slow start in its ambitious push into Canada and still hit long-term growth targets. Target Mobile startup costs continued in the 3rd quarter of 2013, and are expected to be $0.5 million in the 4th quarter of 2013, as all 124 Target Canada stores and Target Mobile kiosks are launched in phases. Target Mobile incurred one-time startup costs of $0.5 million in the 3rd quarter of 2013 and $1.5 million for the nine months ended September 30, 2013.

  • At September 30, 2013, the Retail Canada Division operated a total of 426 retail stores in major shopping malls and high-pedestrian-traffic locations, Mac Station stores, Target retail stores, and Costco Warehouses in Canada, compared to 326 stores in 2012.

Retail U.S. Division - Diamond Wireless

  Three months ended
September 30
Nine months ended
September 30
2013 2012 2013 2012
Sales $81,548 $59,930 $203,020 $160,945
EBITDA $4,376 $4,650 $12,772 $9,483
EBIT $3,510 $4,004 $10,785 $7,557
  • Sales increased in the 3rd quarter and for the nine months ended September 30, 2013 as a result of the August 2013 opening of 154 retail stores in BJ's along the eastern seaboard of the U.S. Diamond incurred one-time startup costs of $1.2 million associated with the BJ's launch in the 3rd quarter of 2013.

  • The iPhone 5S and 5C launch in the 3rd quarter of 2013 resulted in a slight increase in sales; however, supply limitations resulted in lower sales than anticipated. Management expects that iPhone 5S and 5C sales will migrate into the 4th quarter of 2013, as product allocation increases.

  • Verizon's eligibility shift for its customers, from upgrading every 20 months to upgrading every 24 months, coupled with the lack of availability of new iPhone models during the September launch, negatively impacted sales in September 2013. The eligibility change is expected to continue to depress sales through the last quarter of 2013, slightly offset by new-product launches leading up to the holiday season.

  • Diamond closed a net of two underperforming stores in the 3rd quarter of 2013, bringing the total to 198 mall-based corporate stores at September 30, 2013, compared to 212 stores at September 30, 2012.

Retail U.S. Division - Wireless Zone®

  Three months ended
September 30
Nine months ended
September 30
2013 2012 2013 2012
Sales $115,301 - $332,115 -
EBITDA $6,041 - $17,838 -
EBIT $4,956 - $14,889 -
  • Verizon's change to Simplified Compensation Plan and the launch of data share in 2012 had a positive impact through 3rd quarter of 2013. Sales of higher-priced smartphones contributed greatly to wholesale sales. The aforementioned trend to smartphones also contributed to higher carrier compensation per transaction.

  • The launch of the new iPhone 5S and 5C drew customers to Wireless Zone stores; however, product supply constraints resulted in lower than anticipated sales. Management expects that iPhone 5S and 5C sales will migrate into the 4th quarter of 2013, as product allocation increases.

  • Verizon's eligibility shift for its customers from upgrading every 20 months to upgrading every 24 months, coupled with the lack of availability of new iPhone models during the September launch, negatively impacted sales in September 2013. The eligibility change is expected to continue to depress sales through the last quarter of 2013, slightly offset by new product launches leading up to the holiday season.

  • In October 2013, for the third consecutive year, Verizon Wireless awarded Wireless Zone® with the top agent award for customer loyalty across all Verizon Wireless retailers in the United States. Wireless Zone® was recognized as the best agent in the nation for customer service and customer loyalty, based on low churn, great Net Performance Scores, and low after-purchase customer service calls to Verizon Wireless.

  • Wireless Zone reduced its store count by a net of four locations in the 3rd quarter of 2013, operating 377 franchise and 31 corporate stores across 28 states in the U.S. for a total of 408 stores at September 30, 2013.

Retail Australia Division - AMT (Allphones)

  Three months ended
September 30
Nine months ended
September 30
2013 2012 2013 2012
Sales $30,683 - $117,169 -
EBITDA $583 - $6,021 -
EBIT ($1,781) - ($1,713) -
  • The Australian retail environment continues to remain competitive. AMT results have been impacted by the exit of the Virgin Mobile Australia brand and the Optus brand from its Allphones retail stores in June 2013 and September 2013, respectively. The exit of the Optus and Virgin Mobile Australia brands led GLENTEL to assess the carrying value of AMT's intangible assets and goodwill for impairment at September 30, 2013. Prior to exiting Allphones retail locations, the Optus and Virgin Mobile Australia brands had represented a significant portion of AMT's revenues through ongoing airtime residuals. The loss of these airtime residuals has resulted in AMT assessing its cost structure and viability of certain Allphones locations in particular geographies that are only supported by the Optus and Virgin Mobile Australia networks. In 2013, AMT closed a total of 57 Allphones locations in Australia.

    Management has been actively pursuing additional cash flows to supplement the exit of the Optus and Virgin Mobile Australia brands in Allphones locations. The Vodafone brand has proven to be resilient and has acquired a major portion of the activations in the 3rd quarter of 2013. AMT is now marketing Vodafone, with Vodafone's new national 4G/LTE network, as the premier carrier brand offering of Allphones in Australia. Allphones has continued to attract customers to its retail stores by leveraging its national presence in Australia consisting of 102 Allphones locations. AMT has maintained its relationship with Virgin, and continues to operate 45 Virgin corporate retail stores through its Retail Management Services business. Also, the Allphones-only MySaver brand contributed to 3rd quarter sales and allowed AMT to access untapped customers. The MySaver brand allows customers to participate at a lower price point than that currently available from the larger national carriers; however, given its early stage, the initiative will take some time to mature. AMT has also partnered with two other national carriers to sell their respective MVNO offerings in Allphones locations across Australia. Further, in the 3rd quarter of 2013, AMT, in partnership with Tao Corporation (http://www.taocommunity.com) of the Philippines, opened an additional 14 Allphones mobile phone stores in Manila, Philippines, bringing the total to 23 locations as at September 30, 2013. AMT and Tao Corporation are targeting to have 40 mobile phone stores operating by year-end, 100 operating by the end of 2014, and 175 locations by the end of 2015.

  • In the 3rd quarter of 2013, the Retail Australia Division - AMT (Allphones) experienced one-time costs of $1.8 million associated with retail location restructuring. For the nine months ended September 30, 2013, the Retail Australia Division - AMT (Allphones) experienced one-time costs of $2.6 million, consisting of $0.3 million in one-time startup costs for the launch of Allphones locations in the Philippines, $0.2 million of startup costs for the MySaver MVNO brand, and $2.1 million of costs related to retail location restructuring.

  • At September 30, 2013, AMT, in Australia, operated a total of 149 locations, consisting of 32 Allphones corporate, 43 Allphones franchised, and 27 Allphones licensed stores, 45 Virgin corporate retail stores and 2 smartphone manufacturer locations managed through AMT's Retail Management Services business. The Division closed 37 underperforming Allphones locations in the 3rd quarter of 2013. AMT has actively managed its store count since the exit of its Optus and Virgin Mobile Australia in 2013. Management has reduced its retail store exposure by eliminating underperforming stores, while ensuring that customers' product demands are still met. Management will continue to assess underperforming stores in the near future as the Australian mobile phone retail market stabilizes, and will look for strategic growth opportunities based on carrier offerings. At September 30, 2013, AMT operated and managed a total of 172 locations in Australia and the Philippines.

Business Division

  Three months ended
September 30
Nine months ended
September 30
2013 20122 2013 20122
Sales $10,446 $8,042 $23,989 $22,972
EBITDA $1,415 $833 $2,061 $1,960
EBIT $948 $356 $737 $485
  • Business Division revenues increased in the 3rd quarter and in the nine months ended September 30, 2013 compared to the same periods in 2012. The Division had a steady stream of revenues from small- to medium-sized projects and maintained recurring revenues for airtime and maintenance agreements, while seeing significant growth in recurring rental revenue. Recurring revenue from tower sites continues to decline as tower assets are sold. Certain large-sized projects are expected to recognize revenue of $4.7 million in the 4th quarter of 2013. Gross margins decreased by 1.1% in the 3rd quarter of 2013 and increased by 1.7% in the nine months ended September 30, 2013 compared to their respective periods in 2012.

  • In the 3rd quarter of 2013, the Company, through its Business Division, closed one tranche of its tower site sale and received net proceeds of $0.3 million. The sale of two tower site assets and related customer agreements was pursuant to the August 2012 tower site sale agreement with the purchaser. At September 30, 2013 all of the Company's remaining tower site assets were classified as assets held for sale in its condensed interim consolidated financial statements.

Corporate

  Three months ended
September 30
Nine months ended
September 30
2013 2012 2013 2012
Corporate operating and administrative expenses $10,786 $5,635 $29,321 $15,712
Corporate operating and administrative expenses as a % of sales 3% 3% 3% 3%
  • Corporate operating costs include Retail U.S. Division - Diamond Wireless corporate costs of $2.9 million (2012 - $1.3 million), Retail U.S. Division - Wireless Zone corporate costs of $2.5 million, and Retail Australia Division corporate costs of $1.2 million for the 3rd quarter ended September 30, 2013.

  • Corporate operating costs include Retail U.S. Division - Diamond Wireless corporate costs of $5.5 million (2012 - $3.6 million), Retail U.S. Division - Wireless Zone corporate costs of $6.7 million, and Retail Australia Division corporate costs of $3.8 million for the nine months ended September 30, 2013.

  • Income tax recoveries for the three months and nine months ended September 30, 2013 were $5.2 million and $2.3 million, respectively, compared to the income tax expenses of $3.2 million and $6.4 million for comparable periods in 2012. The reduction of income tax expenses in the current year is predominately attributable to a reduction to deferred tax liabilities in Australia as a result of the impairment of certain AMT intangible assets, the recognition of certain non-capital losses, and only 50% of the gain on sale of the tower site assets in the Business Division being taxable.

About GLENTEL

Based in Burnaby, BC, Canada, GLENTEL (TSX: GLN) celebrated its 50th anniversary in 2013. GLENTEL is the largest independent multi-carrier mobile phone retailer in Canada and Australia. In the United States, GLENTEL operates two of the six National Premium Retailers for Verizon Wireless. GLENTEL is a leading provider of innovative and reliable wireless communications services and solutions, offering a choice of network carrier and wireless or mobile products to consumers and commercial customers.

GLENTEL's brands - GLENTEL Wireless Solutions, WIRELESSWAVE, WAVE SANS FIL, Tbooth wireless, la cabine T sans fil, WIRELESS etc…, SANS FIL etc…, Mac Station, iStation, Diamond Wireless, Wireless Zone, and Allphones - span four countries and three continents. At September 30, 2013, the Company employed over 4,300 employees and operated more than 1,350 locations, including more than 430 locations in Canada - located in retail malls, Costco Wholesale stores, Target retail stores, and business centres; more than 760 corporate, franchise, and BJ's Wholesale Inc. kiosk retail locations in the United States; and more than 170 retail locations in Australia and the Philippines.

Forward-Looking Statements

This news release contains statements about financial and operating performance of GLENTEL and future events that are forward looking. By their nature, forward looking statements require GLENTEL to make assumptions and predictions and are subject to inherent risks and uncertainties. There is significant risk that the forward-looking statements will not prove to be accurate. Readers are cautioned not to place undue reliance on forward-looking statements as a number of factors could cause actual future performance and events to differ materially from that expressed in the forward looking statements. Accordingly, this news release is subject to the disclaimer and qualified by the qualifications and risk factors referred to in GLENTEL's 2012 Annual Information Form, in the 2012 annual report, and any assumptions, qualifications and risk factors contained in other GLENTEL public disclosure documents and filings with securities commissions in Canada (on SEDAR at sedar.com). Except as required by law, GLENTEL disclaims any intention or obligation to update or revise forward looking statements, and reserves the right to change, at any time at its sole discretion, its current practice of updating annual targets and guidance.

NO STOCK EXCHANGE, SECURITIES COMMISSION, OR OTHER REGULATORY AUTHORITY HAS APPROVED OR DISAPPROVED THE INFORMATION CONTAINED HEREIN. 

 

SOURCE: Glentel Inc.

For further information:

Investor Relations Contact
Jas Boparai, Chief Financial Officer
GLENTEL Inc.
604.415.6500
investors@glentel.com

Media Contact
Lois Grierson
GLENTEL Inc.
604.415.6534
lgrierson@glentel.com

For a copy of GLENTEL's annual report or for additional information visit www.glentel.com or www.sedar.com.

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Glentel Inc.

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