BURNABY, BC, May 12, 2014 /CNW/ - GLENTEL Inc. (TSX: GLN) today reported its results for the three months ended March 31, 2014. Financial highlights (tabular amounts in thousands of Canadian dollars, except per share data) follow.
| Three months ended
| Income before amortization, change in fair value of
financial instruments, gain on disposition of property and
equipment and intangible assets, finance income and
expense, and taxes ("EBITDA")1
|Operating income ("EBIT") 1||$5,420||$7,606|
|Basic net income per common share||$0.16||$0.15|
|Diluted net income per common share||$0.16||$0.15|
|Adjusted net income1||$2,256||$3,267|
|Adjusted basic net income per common share1||$0.10||$0.15|
|Adjusted diluted net income per common share1||$0.10||$0.15|
|1 EBITDA, Adjusted EBITDA, EBIT, Adjusted net income, and Adjusted basic and diluted net income per common share are non-GAAP measures and 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 income/(loss) for startup costs, provisions for lawsuit, restructuring charges, transaction costs, gain on repurchase of non-controlling interests, gain on sale of tower site assets, non-core assets in Australia and MSAT assets. Adjusted EBITDA normalizes EBITDA for startup costs, provision for lawsuit, restructuring charges, and transaction costs. Refer to March 31, 2014 Management's Discussion and Analysis for reconciliation of non-GAAP measures.|
"We are pleased to report strong worldwide sales performance in the 1st quarter of 2014," stated Thomas Skidmore, GLENTEL's President and Chief Executive Officer. "The first quarter of 2014 saw Retail Canada Division sales increase by 14% and marked the first period where all 127 Target Mobile stores across Canada were operating. We are excited about the opportunity to grow the mobile phone category within Target Canada stores and expect a solid sales performance with profitability for 2014. Our U.S. businesses, Diamond Wireless and Wireless Zone, successfully rolled-out Verizon Wireless' new customer proposition in the first quarter of the year. Verizon's EDGE Program allows customers the opportunity to buy their wireless devices outright and then enter into a month-to-month agreement with the carrier. The benefit to the consumer is that once certain criteria are met, he or she can EDGE-UP to the newest and greatest wireless device without being required to wait for the standard 24-month hardware upgrade to arrive. This EDGE-UP opportunity provides both Diamond Wireless and Wireless Zone the prospect of selling additional accessories and services to customers more frequently than in the past.
"Vodafone continues to be the flagship carrier brand sold across Allphones Australia locations. Performance has remained solid as consumers continue to embrace Vodafone's 4G/LTE network, the fastest in Australia. AMT continues to develop its Allphones-exclusive MySaver MVNO.
"Retail Australia Division's Retail Managed Services business unit opened the 50th Allphones Philippines mall store in the Galleria Mall located in Manila, on behalf of its partners TAO Corporation and Globe Telecom (47% owned by SingTel) in the 1st quarter of 2014. On behalf of the partnership, the Division expects to have 100 stores open in the Philippines by December 2014 and an additional 75 Allphones stores opened in 2015, for a total of 175 stores. Currently over 650 people are employed by Allphones Philippines and over 250,000 people have visited the 52 Allphones mall stores in the past eight months.
"GLENTEL offers Retail Managed Services ("RMS") in the Philippines, Australia, Canada and the U.S., managing mobile phone stores for Samsung Australia and Canada, Target Canada, Costco Canada, and BJ's Warehouse Clubs.
"We are optimistic for 2014 and view this year as one of growth as we continue to reap the rewards of our 2013 global initiatives."
3 months ended March 31, 2014 compared to respective period in 2013
- Sales for the 1st quarter ended March 31, 2014 increased 12% to $341.7 million compared to $305.7 million in 2013. EBITDA decreased 21% to $11.1 million for the 1st quarter compared to $14.0 million in 2013. EBIT decreased 29% to $5.4 million for the 1st quarter compared to $7.6 million in 2013.
- Net income and basic income per common share were $3.7 million and $0.16, respectively, compared to $3.3 million and $0.15, respectively.
- Consolidated adjusted net income and adjusted basic earnings per share for the 1st quarter ended March 31, 2014 were $2.3 million and $0.10, compared to $3.3 million and $0.15 in 2013.
Retail Canada Division
| Three months ended
- Sales in the 1st quarter of 2014 were 14% higher than the same period in 2013 due to the Division operating 127 Target Mobile locations across Canada in 2014. Extreme weather patterns throughout Canada during the early part of the 1st quarter of 2014 significantly reduced mall foot traffic, which negatively affected sales during the quarter. The 1st quarter of 2014 was the second complete quarter under the new Wireless Code of Conduct ("WCOC") that the Canadian government legislated in 2013. Our carrier partners began to reflect the change in wireless contract terms from three to two years in August 2013, and these changes are still reflected in softer same-store sales as consumers continue to be slow to embrace higher handset costs and higher monthly plan fees. We are optimistic that in the second half of 2014 consumers will start to adopt the newer pricing schemes that were brought on by the WCOC. Consumers have also focused on hardware upgrades whereby they can still obtain the newest mobile device and stay with their existing carrier.
- At March 31, 2014, the Retail Canada Division operated a total of 484 retail stores in major shopping malls and high-pedestrian-traffic locations, MacStation stores, Target Canada retail stores, and Costco Warehouses in Canada, compared to 361 stores in 2013.
Retail U.S. Division - Diamond Wireless
| Three months ended
- Sales increased in the 1st quarter of 2014 primarily as a result of Diamond Wireless operating 154 retail stores in BJ's locations across 13 U.S. states. Under an agreement with BJ's, Diamond Wireless began operating kiosks in BJ's locations on August 1, 2013.
- The increase in Diamond Wireless' profitability was a result of several factors that are expected to continue into the future. These factors include, but are not limited to, benefits associated with Diamond Wireless' inventory purchasing practices, a renewed focus on selling higher-margin smartphones and tablets, and a larger national U.S. footprint that now includes the 154 kiosks within BJ's.
- In the 1st quarter of 2014, Diamond Wireless launched Verizon Wireless' EDGE program across all of its U.S. locations. Under the EDGE program, customers can finance a wireless device at full retail price while still maintaining a month-to-month service agreement with Verizon. This is different from the traditional customer purchasing cycle, where phones are purchased at a subsidized price over a defined contract term. Once the customer has elected to EDGE-UP, and has fulfilled their financing agreement with Verizon, the customer must then return their current device in good working condition to Verizon. At this point, the customer has the option to either enter into another wireless device financing in the EDGE program, or select to purchase a subsidized phone and enter into a two-year contract. When a customer does elect to EDGE-UP, the Company is provided with an opportunity to earn an activation, and sell an accessory and warranty program for the new wireless device, all of which would not have occurred for at least 24 months under a traditional wireless agreement. Management is still determining the financial impact of this change in Verizon strategy on future financial results.
- In the 1st quarter of 2014, Diamond Wireless closed a net of three locations, bringing the total to 194 mall-based corporate stores and 154 BJ's wireless kiosk locations at March 31, 2014, compared to 204 mall-based corporate store locations at March 31, 2013. Diamond Wireless corporate stores operated in 19 U.S. states and Diamond Wireless BJ's kiosks operated in 13 U.S. states at March 31, 2014.
Retail U.S. Division - Wireless Zone®
| Three months ended
- Wireless Zone's revenues are derived from payments by Verizon for commissions for new activations, related services, and airtime residual payments; a wholesale business that sells phones, accessories, and general merchandise to its franchisees for resale; and franchisee fees. Wireless Zone's wholesale business had sales of $27.6 million for the 1st quarter ended March 31, 2014 compared to $29.8 million in 2013. Traditionally, the wholesale business operates on low margins, and this results in Wireless Zone having a lower operating income as a percentage of sales than Diamond Wireless.
- In the 1st quarter of 2014, Wireless Zone launched Verizon Wireless' EDGE program across all of its U.S. locations. Under the EDGE program, customers can finance a wireless device at full retail price while still maintaining a month-to-month service agreement with Verizon. This is different from the traditional customer purchasing cycle, where phones are purchased at a subsidized price over a defined contract term. Once the customer has elected to EDGE-UP, and has fulfilled their financing agreement with Verizon, the customer must then return their current device to Verizon, with the phone in good working condition. At this point, the customer has the option to either enter into another wireless device financing in the EDGE program, or select to purchase a subsidized phone and enter into a two-year contract. When a customer does elect to EDGE-UP, the Company is provided with an opportunity to earn an activation, and sell an accessory and warranty program for the new wireless device, all of which would not have occurred for at least 24 months under a traditional wireless agreement. Management is still determining the financial impact of this change in Verizon strategy on future financial results.
- Wireless Zone reduced its store count by a net of 11 locations in the 1st quarter of 2014, operating 370 franchise and 23 corporate stores in Washington D.C. and across 28 states in the U.S. for a total of 393 stores at March 31, 2014.
- In order to promote increased store sales, Wireless Zone has continued its numerous operational efforts in 2014, the top three of which were for exceeding carrier transactional minimums and Key Performance Indicators ("KPI"), remodeling stores to enhance customer experience, and increasing training directed towards franchisees and sales representatives. Additionally, new revenue streams for stores are being developed that include, but are not limited to, the nationwide launch of a customer device trade-in and repair program in all Wireless Zone stores by the end 2014.
Retail Australia Division - AMT (Allphones)
| Three months ended
- The Australian retail environment continues to remain very competitive, driven particularly by the largest national wireless carrier. Allphones has remained competitive in both the postpaid and outright handset market; however, same-store sales declined as a result of the Virgin Mobile Australia brand and the Optus brand exiting Allphones retail stores in 2013.
- Management has been actively pursuing additional cash flows to supplement the exit of the Optus and Virgin Mobile Australia brands in Allphones locations. AMT is now marketing Vodafone, with its new national 4G/LTE network as the premier carrier brand offering of Allphones in Australia. The Vodafone brand has proven to be resilient and has increased its market share in Allphones, acquiring a major portion of the activations lost by the 2013 exit of the Optus and Virgin Mobile Australia brands in the second half of 2013 and the 1st quarter of 2014. AMT expects that its relationship with Vodafone is primed for growth, as the carrier reduced its independent dealer footprint in 2013 but continued its offerings through Allphones. With its 4G/LTE network now fully operational, AMT believes Vodafone sales will increase as customers continue to be educated about the Vodafone network and product story, while benefitting from Allphones-exclusive Vodafone wireless plans.
- Allphones has continued to attract customers to its retail stores by leveraging its national presence in Australia consisting of 89 Allphones locations. AMT continues to operate 45 Virgin Mobile branded corporate retail stores through its Australian RMS business until the 4th quarter of 2014. Also, AMT has partnered with two national carriers to sell their respective Mobile Virtual Network Operator ("MVNO") offerings in Allphones locations across Australia. These MVNO offerings allow customers to participate at a lower price point than that currently available from the larger national carriers, however still providing the dependable network backbone that customers demand.
- In the 1st quarter of 2014, AMT, in partnership with Tao Corporation (http://www.taocommunity.com) of the Philippines, opened an additional 12 Allphones locations in Manila, Philippines, thereby operating 52 locations in the Philippines at March 31, 2014. AMT is forecasting to operate a total of 100 Allphones locations in the Philippines by the end of 2014, and 175 locations by the end of 2015. In 2012, GLENTEL acquired AMT with the intent to utilize its experienced management team, established carrier relationships, market-leading point-of-sale system, and well-recognized brand as a beachhead to develop its presence in the Asia Pacific marketplace. GLENTEL views the Asia Pacific market as a significant area for growth, and believes the assets at AMT are well-suited to be deployed though a similar Philippines program in that region.
- AMT is the leading independent multicarrier mobile phone and telecommunications retailer in Australia. At March 31, 2014, AMT, in Australia, operated a total of 136 locations, consisting of 36 Allphones corporate, 24 Allphones franchised, and 29 Allphones licensed stores, 45 Virgin Mobile corporate retail stores, and 2 Samsung locations managed through AMT's Australian RMS business. Since the exit of Optus and Virgin Mobile Australia brands from Australia-based Allphones locations in 2013, AMT has managed its store count to ensure that underperforming stores either execute on their turn-around plan or close. The Division closed one underperforming Allphones location in the 1st quarter of 2014. 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, and their respective cost structures, in 2014 as the Australian mobile phone retail market stabilizes, and will look for strategic growth opportunities based on carrier offerings. At March 31, 2014, AMT operated 52 mall-based Allphones locations in the Philippines, opening 12 locations during the 1st quarter of 2014. At March 31, 2014, AMT operated and managed a total of 188 locations in Australia and the Philippines.
- In the 1st quarter of 2014, the Retail Australia Division disposed of certain intangible assets related to the sale and distribution of accessories that were ancillary to the Allphones retail business. The sale was for proceeds of AUD$2.5 million ($2.6 million) with AUD$0.5 million ($0.5 million) paid in March 2014 and the remainder to be received over the next two years. A gain of AUD$0.9 million ($0.9 million) was recorded.
- On April 7, 2014, AMT received 180-day notice from Optus of its intent to assume the management of its Virgin Mobile branded corporate stores, which are currently managed by AMT through its Australian Retail Management Services business. In Australia, Optus owns the Virgin Mobile brand rights and, as such, our understanding is that based on its corporate strategy, Optus decided to bring management of all Virgin Mobile corporate stores in-house. AMT will end its relationship managing 45 of Optus' Virgin Mobile corporate stores in the 4th quarter of 2014. Management is currently in the process of assessing the financial impact of the termination of its contract with Optus. At this time, management has not concluded its analysis, including completing its evaluation of various strategic alternatives it is contemplating for its business in Australia. Accordingly, while indicators of impairment exist for certain intangible assets and goodwill relating to AMT, given the termination of its contract with Optus, an estimate of any impairment cannot be made at this time.
| Three months ended
- Sales increased in the 1st quarter of 2014 compared to the same period in 2013. The Division had a steady stream of revenues from small- to medium-sized projects as well as a few large projects, maintaining recurring revenues for airtime and maintenance agreements while continuing to see significant growth in recurring rental revenue. Recurring revenue from tower sites continues to decline as the Business Division continues to sell tower site assets. Gross margins decreased by 4% in the 1st quarter of 2014 compared to the same period in 2013.
- In the 1st quarter of 2014, the Company, through its Business Division, closed two tranches of its tower site sale, resulting in net proceeds of $0.5 million for the sale of 22 tower site assets and related customer agreements. These asset sales were pursuant to the August 2012 agreement with the purchaser for the sale of GLENTEL's non-core tower site assets. At March 31, 2014 all of the Company's remaining tower site assets were classified as assets held for sale in its quarterly consolidated financial statements.
- On January 9, 2014, the Business Division completed the sale of its non-core MSAT satellite assets for nominal cash consideration and future cash payments based on performance over the next seven years. A gain on sale of $2.2 million was recorded.
| Three months ended
|Corporate operating and administrative expenses||$11,128||$8,938|
|Corporate operating and administrative expenses as a % of sales||3%|| 3%
- Corporate costs include administrative, finance, information technology, and marketing services that are managed in Canada, the U.S. and Australia and are not allocated directly to the operating divisions. Management strives to leverage the divisional cost structure to maximize productivity and value from its resources.
- Corporate operating costs include Retail U.S. Division - Diamond Wireless corporate costs of $2.3 million (2013 - $1.4 million), Retail U.S. Division - Wireless Zone corporate costs of $2.8 million (2013 - $2.1 million), and Retail Australia Division - AMT (Allphones) corporate costs of $1.1 million (2013 - $1.4 million) for the 1st quarter of 2014. Corporate costs increased as a result of additional staffing to support new global initiatives, an improved benefits package for staff in Canada and the U.S., and a legal provision at Diamond Wireless.
- Income tax expense for the three months ended March 31, 2014 was $0.9 million compared to $1.2 million for the comparable period in 2013. The reduction of income tax expenses in the current year is predominately attributable to a decrease in operating income, a reduction to deferred tax liabilities in Australia as a result of the impairment of certain AMT intangible assets and goodwill in the prior year, and the Company utilizing non-capital loss carry forwards.
- On April 1, 2014, GLENTEL declared a quarterly dividend of $0.13 per share, for shareholders of record on April 10, 2014, paid on April 24, 2014.
- As reported above, on April 7, 2014, AMT received a 180-day notice from Optus that Optus was terminating its Australian RMS agreement with AMT for the management of 45 Virgin mobile branded corporate stores. Management is currently in the process of assessing the financial impact of the termination of its contract with Optus. At this time, management has not concluded its analysis, including completing its evaluation of various strategic alternatives it is contemplating for its business in Australia. Accordingly, while an indicator of potential impairment exists subsequent to March 31, 2014 for certain intangible assets and goodwill relating to AMT given the termination of its contract with Optus, an estimate of any impairment cannot be made at this time. Management will complete its analysis in the second quarter of 2014 and to the extent that the carrying amounts of certain intangible assets and goodwill relating to AMT are not recoverable, an impairment charge will be recorded by the Company in the 2nd quarter of 2014.
- AMT's revolving line of credit is secured by a general lien on all of its assets. The revolving line of credit is subject to AMT generating certain minimum cash flows. At March 31, 2014, AMT was offside on certain financial covenants related to its revolving line of credit. AMT is currently working with its financial institution to remediate the financial covenant breach. Subsequent to being advised of AMT's financial covenant breach, effective April 22, 2014, AMT's revolving line of credit has been reduced from AUD$10.5 million to AUD$8.9 million. The line of credit bears interest of 3.25% plus bill rate of 2.68% adjusted daily.
Based in Burnaby, BC, Canada, GLENTEL (TSX: GLN) is a leading provider of innovative and reliable wireless communications services and solutions, offering a choice of network carrier and wireless or mobile products and services to consumers and commercial customers. GLENTEL is the largest independent multicarrier mobile phone retailer in Canada and Australia. In the United States, GLENTEL operates two of the six National Premium Retailers for Verizon Wireless. To its business and government customers, GLENTEL offers wireless systems and hardware, rental equipment, and system implementation services. GLENTEL celebrated its 50th anniversary in 2013.
GLENTEL's own brands, including GLENTEL Wireless Solutions, WIRELESSWAVE, WAVE SANS FIL, Tbooth wireless, la cabine T sans fil, WIRELESS etc…, SANS FIL etc…, MacStation, iStation, Diamond Wireless, Wireless Zone®, and Allphones span four countries and three continents. At March 31, 2014, the Company employed over 4,600 employees and operated more than 1,400 locations, including more than 480 locations in Canada, located in retail malls, Costco Wholesale stores, Target retail stores, and business centres; more than 740 corporate, franchise, and BJ's Wholesale Inc. kiosk retail locations in the United States; and more than 180 retail locations in Australia and the Philippines.
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 2013 Annual Information Form, in the 2013 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.
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