180 Connect Inc. reports third quarter 2006 revenue of $90.5 million representing growth of 21% over the prior year and significant earnings improveme
18 November 2006
180 Connect Inc. ("180 Connect" or the "Company"), North America's largest provider of installation, integration and fulfillment services to the home entertainment, communication, security and home integration service industries, today released its financial results for the third quarter ended September 30, 2006.
Certain information contained in this news release constitutes forward-
looking information, including anticipated growth and financial
performance. See "Forward-Looking Information". All amounts are in
U.S. dollars.
Selected Financial Highlights - Third Quarter Ended September 30, 2006
For the three months ended September 30, 2006 as compared to the three months ended September 24, 2005:
<<
Third Quarter Highlights
- Revenue increased to $90.5 million, an increase of $15.6 million or
20.8% over revenue of $74.9 million in the third quarter of 2005.
- Loss from continuing operations was $nil, an improvement of
$2.0 million compared to a loss from continuing operations of
$2.0 million in the third quarter of 2005.
- EBITDA from continuing operations(2) was $6.0 million, an increase of
$4.4 million or 280.4% compared to $1.6 million in the third quarter
of 2005.
- Total cash used by continuing operating activities was $5.8 million,
a change of approximately $12.4 million from cash provided by
continuing operating activities of $6.6 million in the third quarter
of 2005.
- Net loss was $nil, an improvement of $2.9 million compared to net
loss of $2.9 million in the third quarter of 2005.
- Loss per share is as follows:
- Loss from continuing operations, basic and diluted per share for
the third quarter of 2006 was $nil and for the third quarter of
2005 was $0.08.
- Net loss basic and diluted per share for the third quarter of
2006 was $nil and for the third quarter of 2005 was $0.12.
>>
Peter Giacalone, President and Chief Executive Officer of the Corporation stated:
"The fundamentals of our industry are very strong and we see the demand for our services continuing to grow at a record pace. We remain committed to delivering a "World Class" customer service experience to our customer base, and at the same time remain sharply focused on consistently improving the earnings performance of the Company.
During the third quarter, we successfully completed a transaction with Laurus Master Fund for the refinancing of the Company's debt, replacing the previous facility which was scheduled to mature on September 30, 2006. This new financial facility provides the Company with the necessary capital to execute our business plan, offers greater flexibility in operating the business as there are no financial covenants in the agreement and puts the Company on much stronger financial footing.
Third Quarter 2006 Review
Our third quarter results reflect significant improvement in our DIRECTV fulfillment operations as we responded to their seasonal volume demands and additional advanced product penetration, while at the same time exceeding their customer quality metric scores. In addition, our new field inventory control systems have proven effective, as we experienced significantly reduced shrinkage. Our cable fulfillment operations, specifically our Rogers Communications operation in Ontario, continued to provide solid returns for the quarter as we responded to volume demands.
Revenue growth continued to be strong and increased to $90.5 million from $74.9 million during the comparable period in 2005. This 21% increase reflects across-the-board volume increases in satellite and cable and also includes our 180 Network Services business, which we launched during the fourth quarter of 2005. DIRECTV volume increased 17.3% year over year, as they not only continue to channel more work through the Home Service Provider Network, but also continue to sell more advanced product. Cable revenues increased 44% year over year as we continue to benefit from our investments in our cable workforce.
EBITDA performance for the third quarter was the strongest in the history of the Company. These results were attributable to underlying operational improvements implemented in streamlining our management team, reduced recruiting costs as a result of our in-sourced initiative and negotiated cost reductions with our out-sourced call center vendor, coupled with volume increases in both our satellite and cable operations. In addition, early investments made in 180 Network Services bore fruit, contributing earnings for the first time under the recently announced fiber-to-the-premise contracts. These contracts represent the largest fiber deployment to residential communities in the Western US.
Looking Forward
For the balance of 2006, 180 Connect's guidance forecast remains unchanged. The Company expects full year revenue from continuing operations to be in the range of $310 million to $320 million, a double-digit growth rate. EBITDA from continuing operations for 2006 is expected to be approximately $14 million, prior to professional fees expected to be incurred in association with our US listing costs.
At this point in time, the Board of Directors has determined to cease our consideration and review of strategic alternatives and is dedicated to both the operational and financial execution of our business model. Our strategy is well defined and clear. First, continued improvement in our core business driving profitability and second, focus on leveraging the existing infrastructure into complementary business lines."
Summary Results
The following summary of selected consolidated financial and operating information of the Corporation as of and for the three and nine months ended September 30, 2006 and September 24, 2005 is derived from the Company's unaudited interim financial statements.
<<
Selected Unaudited Consolidated Financial and Operating Data
Three Months Three Months
------------- -------------
Ended Ended
------------- -------------
Sept 30, Sept 24, %
2006 2005 Change
------------- ------------- -------------
Revenue $90,500,287 $74,922,233 20.8%
Direct expense 79,766,274 67,370,844 18.4%
------------- -------------
Direct contribution margin(1) 10,734,013 7,551,389 42.1%
General and administrative 4,712,862 4,414,259 6.8%
Foreign exchange loss (gain) (469) (30,419) -98.5%
Restructuring costs - 1,584,485 -100.0%
Depreciation 3,498,369 2,055,091 70.2%
Amortization of customer
contracts 930,381 1,043,590 -10.8%
Interest expense 2,794,303 934,629 199.0%
Gain on extinguishment of debt (1,233,001) - 100.0%
Loss (gain) on sale of assets 135,696 (344,475) -139.4%
Impairment of goodwill and
customer contracts - 184,987 -100.0%
------------- -------------
Income (loss) from continuing
operations before tax (104,128) (2,290,758) 95.5%
Income tax recovery (96,965) (325,000) -70.2%
------------- -------------
Net income (loss) from
continuing operations (7,163) (1,965,758) 99.6%
------------- -------------
Net loss from discontinued
operations - (884,425) 100.0%
Net income (loss) $(7,163) $(2,850,183) 99.7%
Nine Months Nine Months
------------- -------------
Ended Ended
------------- -------------
Sept 30, Sept 24, %
2006 2005 Change
------------- ------------- -------------
Revenue $241,449,443 $200,894,332 20.2%
Direct expense 219,729,830 180,920,346 21.5%
------------- -------------
Direct contribution margin(1) 21,719,613 19,973,986 8.7%
General and administrative 13,933,478 13,024,595 7.0%
Foreign exchange loss (gain) 3,033 13,862 -78.1%
Restructuring costs 392,879 1,584,485 -75.2%
Depreciation 10,251,313 3,061,904 234.8%
Amortization of customer
contracts 2,791,142 3,157,544 -11.6%
Interest expense 6,552,494 2,447,503 167.7%
Gain on extinguishment of debt (1,233,001) - 100.0%
Loss (gain) on sale of assets (1,114,467) (6,866,799) -83.8%
Impairment of goodwill and
customer contracts - 184,987 -100.0%
------------- -------------
Income (loss) from continuing
operations before tax (9,857,258) 3,365,905 -392.9%
Income tax recovery (58,165) (408,000) -85.7%
------------- -------------
Net income (loss) from
continuing operations (9,799,093) 3,773,905 -359.7%
------------- -------------
Net loss from discontinued
operations (158,033) (1,048,446) -84.9%
Net income (loss) $(9,957,126) $2,725,459 -465.3%
Per Share Data
Three Months Three Months Nine Months Nine Months
------------ ------------ ------------ ------------
Ended Ended Ended Ended
------------ ------------ ------------ ------------
Sept. 30, Sept. 24, Sept. 30, Sept. 24,
2006 2005 2006 2005
------------ ------------ ------------ ------------
Income (loss) from
continuing operations:
Basic $0.00 $(0.08) $(0.40) $0.16
Diluted $0.00 $(0.08) $(0.40) $0.15
Net income (loss) for
the period:
Basic $0.00 $0.12 $(0.41) $0.11
Diluted $0.00 $0.12 $(0.41) $0.11
Weighted average
number of shares:
Basic 24,476,626 23,973,810 24,376,427 23,874,876
Weighted average
number of shares:
Diluted 24,476,626 23,973,810 24,376,427 24,992,269
Selected Consolidated Balance Sheet Data
For the period ended:
Sept 30, December 31,
2006 2005
------------- -------------
Cash and cash equivalents $ 448,537 $ 3,353,452
Working capital deficit 7,630,189 38,731,623
Total assets 169,048,558 177,597,440
Total debt and capital lease obligations 77,219,644 74,892,372
Total shareholders' equity $ 21,063,171 $ 24,479,568
A copy of the interim unaudited financial statements of the Corporation as of and for the three and nine months ended Sept 30, 2006 and Sept 24, 2005 are attached to this news release. The Corporation will be releasing its third quarter report on November 14, 2006 which will be available on SEDAR and the Corporation's website. Additional information relating to the Corporation is available on SEDAR at www.sedar.com and on the Corporation's website at www.180connect.net.
Notes:
(1) Direct Contribution Margin ("DCM") consists of revenue less direct
expense and excludes general and administrative expense, foreign
exchange loss (gain), restructuring costs, interest expense, gain on
extinguishment of debt, depreciation, amortization of customer
contracts, loss (gain) on the sale of assets and income tax recovery
for the three and nine month periods ended Sept 30, 2006 and Sept 24,
2005. DCM is a non-Canadian GAAP measure which does not have any
standardized meaning prescribed by Canadian GAAP and is therefore
unlikely to be comparable to similar measures presented by other
issuers. Management believes that these terms provide a better
assessment of the contribution of the field operations dealing
directly with the Company's customers' subscribers by eliminating
items of expense and income which are not considered to be in the
normal course of operating activity. Investors should be cautioned,
however, that DCM should not be construed as an alternative to net
income (loss) from continuing operations determined in accordance
with Canadian GAAP as an indicator of the Company's performance. The
comparative Canadian GAAP measure is net income (loss) from
continuing operations. Loss from continuing operations for the three
months ended Sept 30, 2006 was $nil an improvement of $2.0 million
compared to net loss from continuing operations of $2.0 million in
the comparable period for 2005. Loss from continuing operations for
the nine months ended Sept 30, 2006 was $ 9.8 million, a decrease of
$13.6 million compared to income from continuing operations of
$3.8 million in the comparable period for 2005.
Following is a reconciliation of DCM to income (loss) from continuing operations:
Three Months Three Months Nine Months Nine Months
------------ ------------ ------------ ------------
Ended Ended Ended Ended
------------ ------------ ------------ ------------
Sept. 30, Sept. 24, Sept. 30, Sept. 24,
2006 2005 2006 2005
------------ ------------ ------------ ------------
Direct contribution
margin(1) $10,734,013 $7,551,389 $21,719,613 $19,973,986
General and
administrative 4,712,862 4,414,259 13,933,478 13,024,595
Foreign exchange
loss (gain) (469) (30,419) 3,033 13,862
Restructuring costs - 1,584,485 392,879 1,584,485
Depreciation 3,498,369 2,055,091 10,251,313 3,061,904
Amortization of
customer contracts 930,381 1,043,590 2,791,142 3,157,544
Interest expense 2,794,303 934,629 6,552,494 2,447,503
Gain on extinguishment
of debt (1,233,001) - (1,233,001) -
Loss (gain) on sale
of assets 135,696 (344,475) (1,114,467) (6,866,799)
Impairment of goodwill
and customer contracts - 184,987 - 184,987
Income tax recovery (96,965) (325,000) (58,165) (408,000)
------------ ------------ ------------ ------------
Net income (loss) from
continuing operations ($7,163) ($1,965,758) ($9,799,093) $3,773,905
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
(2) EBITDA from continuing operations excludes depreciation, amortization
of customer contracts, interest expense, gain on extinguishment of
debt, loss (gain) on sale of assets, and income tax recovery, for the
three and nine month periods ended Sept 30, 2006 and Sept 24, 2005.
EBITDA from continuing operations is a non-Canadian GAAP measure
which does not have any standardized meaning prescribed by Canadian
GAAP and is therefore unlikely to be comparable to similar measures
presented by other issuers. Management believes that these terms
provide a better assessment of cash flow from the Company's
operations by eliminating the charges for depreciation and
amortization which are non-cash expense items and loss (gain) on sale
of assets, gain on extinguishment of debt and restructuring costs
which are not considered to be in the normal course of operating
activity. In addition, financial analysts and investors use the
EBITDA multiple for valuing companies within the same sector, in
order to eliminate the differences in accounting treatment from one
company to the next. Given that the Company is in a growth stage, the
focus on EBITDA gives the investor or reader of the Company's
financial statements and MD&A more insight into the operating
capabilities of management and its utilization of the Company's
operating assets. Management further believes that EBITDA is also the
best metric for measuring the Company's valuation. Investors should
be cautioned, however, that EBITDA from continuing operations should
not be construed as an alternative to income (loss) from continuing
operations determined in accordance with Canadian GAAP as an
indicator of the Company's performance. The comparative Canadian GAAP
measure is net income (loss) from continuing operations. Net loss
from continuing operations for the three months ended Sept 30, 2006
was $nil an improvement of $2.0 million compared to net loss from
continuing operations of $2.0 million in the comparable period for
2005. Loss from continuing operations for the nine months ended
Sept 30, 2006 was $9.8 million a decrease of $13.6 million compared
to net income from continuing operations of $3.8 million in the
comparable period for 2005.
Following is a reconciliation of EBITDA from continuing operations to net income (loss) from continuing operations:
Three Months Three Months Nine Months Nine Months
------------ ------------ ------------ ------------
Ended Ended Ended Ended
------------ ------------ ------------ ------------
Sept. 30, Sept. 24, Sept. 30, Sept. 24,
2006 2005 2006 2005
------------ ------------ ------------ ------------
EBITDA from continuing
operations(2) $6,021,620 $1,583,064 $7,390,223 $5,351,044
Depreciation 3,498,369 2,055,091 10,251,313 3,061,904
Amortization of
customer contracts 930,381 1,043,590 2,791,142 3,157,544
Interest expense 2,794,303 934,629 6,552,494 2,447,503
Gain on extinguishment
of debt (1,233,001) - (1,233,001) -
Loss (gain) on sale
of assets 135,696 (344,475) (1,114,467) (6,866,799)
Impairment of goodwill
and customer contracts - 184,987 - 184,987
Income tax recovery (96,965) (325,000) (58,165) (408,000)
------------ ------------ ------------ ------------
Net income (loss) from
continuing operations ($7,163) ($1,965,758) ($9,799,093) $3,773,905
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
(3) EBITDA from continuing operations before restructuring costs
excludes, restructuring costs, depreciation, amortization of customer
contracts, interest expense, gain on extinguishment of debt, loss
(gain) on sale of assets, and income tax recovery for the three and
nine month periods ended Sept 30, 2006 and Sept 24, 2005. EBITDA from
continuing operations before restructuring costs is a non-Canadian
GAAP measure which does not have any standardized meaning prescribed
by Canadian GAAP and is therefore unlikely to be comparable to
similar measures presented by other issuers. Management believes that
these terms provide a better assessment of cash flow from the
Company's operations by eliminating the charges for depreciation and
amortization which are non-cash expense items and loss (gain) on sale
of assets, gain on extinguishment of debt and restructuring costs
which are not considered to be in the normal course of operating
activity. In addition, financial analysts and investors use the
EBITDA multiple for valuing companies within the same sector, in
order to eliminate the differences in accounting treatment from one
company to the next. Given that the Company is in a growth stage, the
focus on EBITDA gives the investor or reader of the Company's
financial statements and MD&A more insight into the operating
capabilities of management and its utilization of the Company's
operating assets. Management further believes that EBITDA is also the
best metric for measuring the Company's valuation. Investors should
be cautioned, however, that EBITDA from continuing operations before
restructuring costs and other charges should not be construed as an
alternative to net income (loss) from continuing operations
determined in accordance with Canadian GAAP as an indicator of the
Company's performance. The comparative Canadian GAAP measure is net
income (loss) from continuing operations. Loss from continuing
operations for the three months ended Sept 30, 2006 was $nil an
improvement of $2.0 million compared to net loss from continuing
operations of $2.0 million in the comparable period for 2005. Loss
from continuing operations for the nine months ended Sept 30, 2006
was $9.8 million a decrease of $13.6 million compared to net income
from continuing operations of $3.8 million in the comparable period
for 2005.
Following is a reconciliation of EBITDA from continuing operations before restructuring costs to net income (loss) from continuing operations:
Three Months Three Months Nine Months Nine Months
------------ ------------ ------------ ------------
Ended Ended Ended Ended
------------ ------------ ------------ ------------
Sept. 30, Sept. 24, Sept. 30, Sept. 24,
2006 2005 2006 2005
------------ ------------ ------------ ------------
EBITDA from continuing
operations before
restructuring costs
and other charges(3) $6,021,620 $3,167,549 $7,783,102 $6,935,529
Other charges - - - -
Restructuring Costs - $1,584,485 $392,879 $1,584,485
Depreciation 3,498,369 2,055,091 10,251,313 3,061,904
Amortization of
customer contracts 930,381 1,043,590 2,791,142 3,157,544
Interest expense 2,794,303 934,629 6,552,494 2,447,503
Gain on extinguishment
of debt (1,233,001) - (1,233,001) -
Loss (gain) on sale
of assets 135,696 (344,475) (1,114,467) (6,866,799)
Impairment of goodwill
and customer contracts - 184,987 - 184,987
Income tax recovery (96,965) (325,000) (58,165) (408,000)
------------ ------------ ------------ ------------
Net income (loss) from
continuing operations ($7,163) ($1,965,758) ($9,799,093) $3,773,905
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
>>
Conference Call Information
A live webcast of 180 Connect Inc.'s third quarter 2006 earnings call will be available at www.180connect.net. The call will begin at 8:00 a.m. EST, November 14, 2006. The dial-in numbers for the call are international dial 617.213.8066 and toll free at 866.770.7125, participant pass code is 76667827. The webcast will be archived on our website and a replay of the call will be available beginning at 10:00 a.m. EST on Tuesday, November 14, 2006 through to 11:59 p.m. EST Tuesday, November 21, 2006. The dial-in numbers for the replay are 617.801.6888 International Dial and toll free at 888.286.8010 pass code 42736198.
180 Connect Inc.
180 Connect Inc. is North America's largest provider of installation, integration and fulfillment services to the home entertainment, communications, security and home integration service industries. With more than 3,300 skilled technicians and 750 support personnel based in over 85 operating locations, 180 Connect is well positioned as the only pure play national residential service provider in the market. 180 Connect Inc. shares are traded under the name of 180 Connect Inc. on the TSX under the symbol NCT.U.
Forward-Looking Information
This news release contains forward-looking statements which reflect management's expectations regarding the Company's future growth, results of operations, performance and business prospects and opportunities. Statements about the Company's future plans and intentions, results, levels of activity, performance, goals or achievements or other future events constitute forward-looking statements. Wherever possible, words such as "may", "will", "should", "could", "expect", "plan", "intend", "anticipate", "believe", "estimate", "predict" or "potential" or the negative or other variations of these words, or other similar words or phrases, have been used to identify these forward-looking statements. These statements reflect management's current beliefs and are based on information currently available to management. Forward-looking statements involve significant risk, uncertainties and assumptions. See "Risk Factors" contained in the Company's Annual Information Form. Many factors, including those discussed under "Risk Factors" in the Annual Information Form, could cause actual results, performance or achievements to differ materially from the results discussed or implied in the forward-looking statements. These factors should be considered carefully and prospective investors should not place undue reliance on the forward-looking statements. Although the forward-looking statements contained in this news release are based upon what management believes to be reasonable assumptions, the Company cannot assure investors that actual results will be consistent with these forward-looking statements. These forward-looking statements are made as of the date of this news release and the Company assumes no obligation to update or revise them to reflect new events or circumstances, except as required by law.
<<
180 Connect Inc.
Consolidated Balance Sheets
(Unaudited)
As at
---------------------------
September 30, December 31,
2006 2005
------------- -------------
(in United States Dollars)
ASSETS
Current
Cash and cash equivalents.................... $ 448,537 $ 3,353,452
Accounts receivable (less allowance for
doubtful accounts of ($1,525,655;
December 31, 2005 - $1,167,310) (Note 11)... 45,533,594 50,048,816
Inventory.................................... 17,780,492 20,302,667
Restricted cash (Note 2)..................... 14,503,000 14,750,366
Prepaid expenses and other assets............ 1,697,013 1,393,077
------------- -------------
TOTAL CURRENT ASSETS....................... 79,962,636 89,848,378
Property, plant and equipment................ 39,447,563 41,658,071
Goodwill (Note 4)............................ 15,474,466 15,474,466
Customer contracts, net (Note 4)............. 26,173,666 28,964,807
Other assets................................. 7,990,227 1,651,718
------------- -------------
TOTAL ASSETS............................... $169,048,558 $177,597,440
------------- -------------
------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities..... $ 69,294,712 $ 76,664,469
Current portion of long-term debt (Note 5)... 6,920,716 40,034,506
Current portion of capital lease
obligations (Note 13b)...................... 11,377,397 11,881,026
------------- -------------
TOTAL CURRENT LIABILITIES.................. 87,592,825 128,580,001
Future tax liability......................... 1,471,031 1,561,031
Long-term debt (Note 5)...................... 32,965,771 -
Convertible debt (Note 6).................... 7,729,575 -
Long-term portion of capital lease
obligations (Note 13b)...................... 18,226,185 22,976,840
------------- -------------
TOTAL LIABILITIES.......................... 147,985,387 153,117,872
------------- -------------
Commitments and contingencies
(Notes 5, 6 and 13)
Shareholders' Equity
Share capital (Note 7b)...................... 66,397,608 64,809,968
Contributed surplus (Note 7d)................ 22,188,707 23,516,635
Equity component of convertible debentures
(Note 6).................................... 2,062,425 -
Warrants (Notes 5 and 6)..................... 4,218,592 -
Deficit...................................... (74,289,191) (64,332,065)
Cumulative translation adjustment account.... 485,030 485,030
------------- -------------
TOTAL SHAREHOLDERS' EQUITY................. 21,063,171 24,479,568
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY.................................... $169,048,558 $177,597,440
------------- -------------
------------- -------------
See accompanying notes
180 Connect Inc.
Consolidated Statements of Operations and Deficit
(Unaudited)
Three Months Ended Nine Months Ended
--------------------------- ---------------------------
September 30, September 24, September 30, September 24,
2006 2005 2006 2005
------------- ------------- ------------- -------------
(In United States Dollars)
Revenue.......... $ 90,500,287 $ 74,922,233 $241,449,443 $200,894,332
Expenses
Direct........... 79,766,274 67,370,844 219,729,830 180,920,346
General and
administrative.. 4,712,862 4,414,259 13,933,478 13,024,595
Foreign exchange
loss (gain)..... (469) (30,419) 3,033 13,862
Restructuring
costs (Note 8).. - 1,584,485 392,879 1,584,485
------------- ------------- ------------- -------------
84,478,667 73,339,169 234,059,220 195,543,288
------------- ------------- ------------- -------------
Income from
continuing
operations
before the
following:...... 6,021,620 1,583,064 7,390,223 5,351,044
------------- ------------- ------------- -------------
Depreciation..... 3,498,369 2,055,091 10,251,313 3,061,904
Amortization of
customer
contracts....... 930,381 1,043,590 2,791,142 3,157,544
Interest
expense......... 2,794,303 934,629 6,552,494 2,447,503
Gain on
extinguishment
of debt
(Note 5)........ (1,233,001) - (1,233,001) -
Loss (gain) on
sale of assets
(Note 3)........ 135,696 (344,475) (1,114,467) (6,866,799)
Impairment of
goodwill and
customer
contracts....... - 184,987 - 184,987
------------- ------------- ------------- -------------
6,125,748 3,873,822 17,247,481 1,985,139
------------- ------------- ------------- -------------
Income (loss)
from continuing
operations
before income
taxes........... (104,128) (2,290,758) (9,857,258) 3,365,905
Income tax
recovery
(Note 9)........ (96,965) (325,000) (58,165) (408,000)
------------- ------------- ------------- -------------
Income (loss)
from continuing
operations...... (7,163) (1,965,758) (9,799,093) 3,773,905
Loss from
discontinued
operations, net
of income taxes
of nil
(Note 11)....... - (884,425) (158,033) (1,048,446)
------------- ------------- ------------- -------------
Net income (loss)
for the period.. (7,163) (2,850,183) (9,957,126) 2,725,459
Deficit,
beginning of
period.......... (74,282,028) (51,306,757) (64,332,065) (56,738,872)
Normal course
issuer bid...... - (247,395) - (390,922)
------------- ------------- ------------- -------------
Deficit, end of
period.......... $(74,289,191) $(54,404,335) $(74,289,191) $(54,404,335)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Income (loss)
per share from
continuing
operations
(Note 10):
Basic.......... $ 0.00 $ (0.08) $ (0.40) $ 0.16
Diluted........ $ 0.00 $ (0.08) $ (0.40) $ 0.15
Net income (loss)
per share:
Basic.......... $ 0.00 $ (0.12) $ (0.41) $ 0.11
Diluted........ $ 0.00 $ (0.12) $ (0.41) $ 0.11
Weighted average
number of shares
outstanding -
basic........... 24,476,626 23,973,810 24,376,427 23,874,876
------------- ------------- ------------- -------------
Weighted average
number of shares
outstanding -
diluted......... 24,476,626 23,973,810 24,376,427 24,992,269
------------- ------------- ------------- -------------
See accompanying notes
180 Connect Inc.
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended Nine Months Ended
--------------------------- ---------------------------
September 30, September 24, September 30, September 24,
2006 2005 2006 2005
------------- ------------- ------------- -------------
(In United States Dollars)
Cash provided by
(used in) the
following
activities:
Operating
Net income (loss)
from continuing
operations...... $ (7,163) $ (1,965,758) $ (9,799,093) $ 3,773,905
Add (deduct)
items not
affecting cash:
Depreciation,
amortization
and
impairment.... 4,428,750 3,589,243 13,042,455 6,710,010
Amortization,
deferred
financing and
accretion..... 894,150 31,272 1,709,468 434,924
Stock-based
compensation.. - 16,363 - 49,089
Future income
taxes
(Note 9)...... (90,000) (930,000) (90,000) (740,000)
Gain on
extinguishment
of debt
(Note 5)...... (1,233,001) - (1,233,001) -
Loss (gain) on
sale of assets
(Note 3)........ 135,696 (344,475) (1,114,467) (6,866,799)
Other.......... (9,865) (54,472) 38,251 (24,051)
------------- ------------- ------------- -------------
Total of
items not
affecting
cash........ 4,125,730 2,307,931 12,352,706 (436,827)
Changes in non-
cash working
capital balances
related to
operations, net
of business
acquisition:
Accounts
receivable.... (13,934,547) (11,727,177) 4,339,502 (9,759,169)
Inventory...... (5,004,743) (540,199) 2,522,490 5,562,071
Other current
assets........ (419,655) 5,782 (305,961) (532,341)
Insurance
premium
deposits...... (25,317) 1,505,649 (347,125) 1,521,879
Restricted
cash.......... - (36,639) 247,366 (4,321,868)
Accounts
payable and
accrued
liabilities... 9,488,774 17,031,687 (6,248,355) 10,212,791
------------- ------------- ------------- -------------
Total of
changes in
non-cash
working
capital
balances.... (9,895,488) 6,239,103 207,917 2,683,363
------------- ------------- ------------- -------------
Total cash
provided by
(used in)
operating
activities...... (5,776,921) 6,581,276 2,761,530 6,020,441
------------- ------------- ------------- -------------
Investing
Purchase of
property,
plant and
equipment....... (630,210) (1,878,027) (2,091,671) (3,249,469)
Proceeds from
sale of
property plant
and equipment... - 665,000 - 665,000
Short-term
investments - - - 18,179,372
Net proceeds
from disposition
of investments
(Note 3)........ - - 1,327,693 8,967,864
Other assets..... (58,765) (210,857) (38,063) (117,288)
Business
acquisition..... - - - (501,521)
------------- ------------- ------------- -------------
Total cash
provided by
(used in)
investing
activities...... (688,975) (1,423,884) (802,041) 23,943,958
------------- ------------- ------------- -------------
Financing
Repayment of
capital lease
obligations..... (3,533,928) (1,950,291) (11,378,009) (2,074,013)
Repayment of
long-term debt.. - (1,638,003) (7,350,000) (6,158,003)
Proceeds from
share issuance,
net of issuance
costs
(Note 7c)....... - 388,134 259,712 615,421
Repurchase of
shares through
normal course
issuer bid...... - (675,730) - (1,097,547)
Proceeds from
refinancing of
long term debt.. 42,140,497 - 42,140,497 -
Extinguishment
of long term
debt............ (32,863,525) - (32,863,525) -
Increase in bank
indebtedness.... 1,098,488 - 1,098,488 -
Issuance costs
on long-term
debt............ (3,414,390) - (3,515,471) -
Insurance
deposits........ (500,000) - (2,480,000) -
Proceeds from
issuance of
convertible
debt (Note 6)... - - 10,686,101 -
Issuance costs
on convertible
debt (Note 6)... - - (1,388,985) -
------------- ------------- ------------- -------------
Total cash
provided by
(used in)
financing
activities...... 2,927,142 (3,875,890) (4,791,192) (8,714,142)
------------- ------------- ------------- -------------
Effect of
exchange rates
on cash and cash
equivalents..... 21,277 109,732 (22,037) 79,311
------------- ------------- ------------- -------------
Net cash provided
by (used in)
continuing
operations...... (3,517,477) 1,391,234 (2,853,740) 21,329,568
Net cash used in
discontinued
operations...... - (996,732) (51,175) (1,160,753)
------------- ------------- ------------- -------------
Net increase
(decrease) in
cash and cash
equivalents
during the
period.......... (3,517,477) 394,502 (2,904,915) 20,168,815
Cash and cash
equivalents,
beginning of
period.......... 3,966,014 32,154,445 3,353,452 12,380,132
------------- ------------- ------------- -------------
Cash and cash
equivalents,
end of period... $ 448,537 $ 32,548,947 $ 448,537 $ 32,548,947
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Supplemental
cash flow
information:
Interest paid.... $ 1,425,122 $ 969,226 $ 4,504,060 $ 1,652,147
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Income taxes
paid............ $ 228,935 - $ 323,292 $ 277,830
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Supplemental
disclosure of
non-cash
investing and
financing
transactions:
During the nine months ended September 30, 2006, the Company leased
an additional 326 vehicles, for $6,172,987, through a capital lease
obligation.
See accompanying notes
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in United States Dollars)
(Unaudited)
1. BASIS OF PRESENTATION
The interim consolidated financial statements are prepared in accordance
with Canadian generally accepted accounting principles applicable to
interim consolidated financial statements and include 180 Connect Inc.
and its subsidiaries (the "Company"). The notes presented in these
interim consolidated financial statements include only significant events
and transactions occurring since the Company's last fiscal year and are
not fully inclusive of all matters normally disclosed in the Company's
annual audited consolidated financial statements. As a result, these
interim consolidated financial statements should be read in conjunction
with the Company's audited consolidated financial statements for the year
ended December 31, 2005.
The preparation of financial statements in conformity with Canadian
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the consolidated financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results could
differ from those estimates.
In the opinion of management, the accompanying unaudited interim
consolidated financial statements contain all adjustments necessary to
fairly present the Company's results for the interim periods presented.
These unaudited interim consolidated financial statements have been
prepared by management using the same accounting policies and methods of
application as the most recent annual consolidated financial statements
of the Company.
The results of operations for the three and nine months ended
September 30, 2006 are not necessarily indicative of the results to be
expected for the full year.
Seasonality
The Company's revenue is subject to seasonal fluctuations. Our
customers' subscriber growth, and thus the revenue earned by the Company,
trends higher in the third and fourth quarters of the year. While
subscriber activity is subject to seasonal fluctuations, it may also be
affected by competition and varying amounts of promotional activity
undertaken by the Company's customers.
2. RESTRICTED CASH
As of September 30, 2006 and December 31, 2005, the Company had
restricted cash of approximately $14.5 million and $14.8 million,
respectively. The restricted cash is used to collateralize obligations
associated with the Company's insurance program and for contractor
licensing surety bonds in several states. The funds are not available for
use by the Company and accordingly, are included in restricted cash.
Interest earned from 2.4% to 5.0% on these funds is received monthly and
is not subject to restriction.
3. INVESTMENTS AND GAIN OR LOSS ON SALE OF ASSETS
During the first quarter of 2006, the Company sold its remaining interest
in Control F-1 Corporation. This resulted in net proceeds of $1,327,693.
The investment had been previously written down to nil in 2004 due to
prevailing market conditions. However, during the first quarter of 2006,
an agreement was reached between the Company and Computer Associates
International, Inc. and Computer Associates Canada Company for the
Company's holding in Control F-1 Corporation. The Company recognized a
pre-tax gain of $1,320,193 on the sale of the investment in the first
quarter of 2006.
For the three and nine months ended September 30, 2006 the Company had a
loss of $135,696, and $205,726, respectively on the write-down of leased
vehicles.
In 2005, the Company sold its remaining interest in Guest-Tek for net
cash proceeds of $9.0 million, of which the Company recognized a pre-tax
gain on the sale of approximately $6.5 million. During the third quarter
of 2005, the Company sold a building in California. In connection with
the sale, the Company recognized a gain of $0.3 million.
4. GOODWILL AND CUSTOMER CONTRACTS
Goodwill and customer contracts, related to continuing operations,
consist of the following:
Net Book Value Net Book Value
December 31, September 30,
2005 Amortization 2006
-------------- -------------- --------------
Goodwill.................... $ 15,474,466 $ - $ 15,474,466
-------------- -------------- --------------
-------------- -------------- --------------
Customer contracts ......... $ 28,964,807 $ (2,791,141) $ 26,173,666
-------------- -------------- --------------
-------------- -------------- --------------
Amortization expense charged to operations for the three and nine months
ended September 30, 2006 was $930,381 and $2,791,141, respectively (three
and nine months ended September 24, 2005 - $1,043,590 and $3,157,544,
respectively).
5. LONG-TERM DEBT AND COMMON STOCK PURCHASE WARRANTS
Long-term debt consists of the following:
September 30, December 31,
2006 2005
------------- -------------
Revolving credit facility and over advance
facility of up to $37,000,000 bearing
interest at prime plus 3% to 5%, subject
to a minimum interest rate of 10% to 11%
with interest payable monthly. The
revolving credit facility is subject to
the Company's eligible trade receivables
and inventory as per the debt agreement
and collateralized by the Company's real
and personal property. For the period of
August 1, 2006 to July 31, 2007 the
Company can draw in excess of the eligible
trade receivables and inventory an over
advance of up to $9,000,000 but not to
exceed a cumulative amount of $37,000,000.
At September 30, 2006 the interest rate
for the revolving credit facility was
11.25% and the interest for the over
advance facility was 13.25%. Repayment
is due on or before July 31, 2009. The
credit facility may be borrowed, repaid,
and reborrowed in accordance with the
terms of the Security Agreement. The net
discount of share purchase warrants at
September 30, 2006 was $2,198,516.......... $ 21,040,469 $ -
Term note, bearing interest at prime plus
5%, subject to a minimum interest rate
of 12% and interest is payable monthly.
At September 30, 2006 the interest rate
was 13.25% with an effective interest rate
of 17.5%. Repayments of the term note
commence on February 1, 2007 for $666,667
per month, with the final payment due on
July 31, 2009. The net discount of share
purchase warrants at September 30, 2006
was $1,153,982............................. 18,846,018 -
Revolving credit facility of up to
$15,750,000, bearing interest at prime
plus 3.00% or LIBOR plus 4.50%, at the
option of the Company and is payable
quarterly. The revolving credit facility
is secured by all of the Company's
existing and after-acquired real and
personal property. At December 31, 2005,
the interest rate was 8.2431% and
repayment on the revolving credit
facility commenced March 31, 2004 at
specified reduction rates running through
September 30, 2006. This revolving credit
facility was paid in full to the lender
during the third quarter of 2006........... - 16,500,000
Term Note A bearing interest at prime plus
3.50% or LIBOR plus 5.00% at the option of
the Company, accrues monthly interest
commencing in April 2002 and is payable
quarterly commencing in April 2003. The
note is secured by all of the Company's
existing and after-acquired real and
personal property. At December 31, 2005,
the interest rate was 8.7431%. Repayable
in one final payment of $12,459,721 on
September 30, 2006. This Term Note A was
paid in full to the lender during the
third quarter of 2006...................... - 12,459,721
Term Note B, bearing interest at prime
plus 4.50% or LIBOR plus 6.00% at the
option of the Company, accrues monthly
interest commencing in April 2002 and is
payable quarterly commencing in May 2005.
The note is secured by all of the
Company's existing and after-acquired real
and personal property. At December 31,
2005, the interest rate was 9.7431%.
Repayable in one final payment of
$3,835,788 due on September 30, 2006.
This Note B was paid in full to the lender
during the third quarter of 2006........... - 10,435,788
Debt issuance cost, unsecured and
non-interest bearing, discounted at
10.9%, due on September 30, 2006........... - 638,997
------------- -------------
Total long-term debt........................ 39,886,487 40,034,506
Less: current portion....................... (6,920,716) (40,034,506)
------------- -------------
$ 32,965,771 -
------------- -------------
------------- -------------
During the third quarter of 2006, the Company refinanced its current
long-term debt with Laurus Master Fund (the "Investor"), an arm's-length
third party.
Pursuant to the terms of the agreement, the Company will have available a
maximum amount of $57 million of debt comprising a term facility of
$20 million and a combined revolving credit facility and over-advance
facility of up to $37 million. The revolving credit facility is subject
to the Company's eligible trade receivables and inventory as per the debt
agreement. For the period of August 1, 2006 to July 31, 2007, the Company
can draw in excess of the eligible trade receivables and inventory an
over advance amount up to $9 million but not to exceed a cumulative
amount of $37 million. The interest rates on the new debt range from
prime plus 3% to prime plus 5%, subject to a minimum interest rate of 10%
to 12% and are therefore subject to risk relating to interest rate
fluctuations. Monthly term loan repayments commence February 1, 2007 for
$666,667.
The agreement states that there are no financial covenants of the Company
with respect to such facilities but includes other covenants and events
of default typical for credit facilities of this nature.
The replacement credit facilities resulted in the extinguishment of
approximately $33 million of short-term debt maturing September 30, 2006.
The facilities are collateralized by a security interest in and lien upon
all of the Company's real and personal property.
During the third quarter of 2006, the Company recognized a gain of
$1,233,001 on the extinguishment of debt that it had with its previous
lender. The gain was a result of the Company's negotiations with its
prior lender, reducing the amount of its final payment including any
accrued interest to an agreed upon amount below what had previously been
recorded by the Company.
The agreement provides for the Company to issue warrants to purchase up
to 2 million common shares for nominal consideration of Canadian $0.01
per share, having a term of seven years. The issuance of the warrants to
the Investor was approved by the shareholders of the Company at the
Company's annual and special meeting held June 30, 2006. The Investor has
agreed not to sell any common shares of the Company issuable upon
exercise of the warrants for a period of twelve months following the date
of issuance of the warrants. Thereafter, the Investor may, at its option
and assuming exercise of the warrants, sell up to 250,000 common shares
of the Company per calendar quarter (on a cumulative basis) over each of
the following eight quarters.
The common stock purchase warrants were valued using the Black-Scholes
option pricing model using the following variables: volatility 76.64%,
expected life of seven years, a risk free rate of 4.5% and a dividend of
nil. The fair value of the warrants has been recorded as a credit to
warrants of $3,586,132 and a reduction to long term debt for $3,586,132.
At September 30, 2006, the Company has recorded $233,634 of interest
expense for the accretion of the loan discount which has been measured
using a three-year maturity and the present value of the cash payments of
interest and principal due under the terms of the debt agreement
discounted at a rate of 17.5% which approximates a similar non-
convertible financial instrument with comparable terms and risk.
The Company paid $3,515,471 of issuance costs to complete the long term
debt financing. The issuance costs have been recorded in other assets and
equity based on a pro rata calculation of the fair value of the
components of the debt and warrants. The issuance costs in other assets
are being amortized over the deemed life of three years.
As of September 30, 2006, the conversion of the warrants would be anti-
dilutive. The potential dilution of these warrants could result in an
additional 2 million common shares of the Company outstanding.
6. CONVERTIBLE DEBENTURES AND WARRANTS
On March 22, 2006 the Company completed a private placement with a group
of qualified, accredited institutional investors of $10,686,101 of
convertible debentures and warrants. The convertible debentures bear
interest at 9.33% per annum, have a term of five years and are due
March 22, 2011, and are convertible into 4,486,000 common shares at an
initial conversion price of $2.3821 per share. The warrants, which have a
four-year term, are exercisable into 1,570,100 common shares of the
Company at an exercise price of $2.5986 per share.
Subsequent to September 30, 2006, the Company received written approval
from the institutional investors of the holders of the Company's
convertible debentures and warrants for an extension of the original
requirement to be listed or quoted solely on a US trading market from
December 31, 2006 until March 31, 2007. If the Company's common stock is
not listed on a US trading market on or before March 31, 2007, on
April 1, 2007 the Company shall be required to make retroactive monthly
principal payments of $1.0 million for January 1, 2007 through March 1,
2007, and an April 1, 2007 monthly principal payment of $1.0 million. The
Compa
Source: newswire
All trademarks and copyrighted information contained herein are the property of their respective owners.
Related Articles
|
