Connect (LSE:CNCT)
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Revenue increases to $94 million, representing a 2.9% increase from the Prior Year
TORONTO and ENGLEWOOD, CO, May 15 /PRNewswire-FirstCall/ -- 180 Connect Inc. ("180 Connect" or the "Company") (OTCBB: CNCT.OB, CNCTU.OB, CNCTW.OB), one of North America's largest providers of installation, integration and fulfillment services to the home entertainment, communication, and home integration service industries, today released its financial results for the first quarter ended March 31, 2008.
Certain information contained in this news release constitutes forward-looking information, including anticipated growth and financial performance. See "Forward-Looking Information".
Selected Financial Highlights - First Quarter Ended March 31, 2008
For the three months ended March 31, 2008 as compared to the three months
ended March 31, 2007:
First Quarter 2008 Highlights
- Revenue grew to $94.2 million, an increase of $2.6 million, or 2.9%,
compared to revenue of $91.6 million in 2007.
- EBITDA from continuing operations(2) was $0.3 million, a decrease of
$3.0 million or 91.5% compared to $3.3 million in 2007.
- Total cash provided by operating activities was $2.5 million, an
increase of $3.7 million from the cash used by operating activities
of $1.2 million in 2007.
- Loss from continuing operations was $6.0 million, an improvement of
$0.2 million compared to a loss from continuing operations of
$6.2 million in 2007.
- Net loss was $6.0 million unchanged compared to 2007.
- Net loss per share for the three months ended March 31, 2008 and
March 31, 2007, respectively, is as follows:
- Loss from continuing operations was $0.23 per share basic and
diluted compared to a loss from continuing operations of $0.42 per
share basic and diluted in 2007.
- Net loss was $0.23 per share basic and diluted compared to net
loss of $0.41 per share basic and diluted in 2007.
Revenue in the first quarter increased to $94 million, from $92 million in 2007. This 2.9% increase reflects continued growth resulting from higher DIRECTV volume partially offset by modest declines in the Company's Cable, 180 Home and Network Services businesses. DIRECTV volume increased 2.8% from the three months ended March 31, 2007 due to the effect of the DIRECTV rate increase implemented during the second quarter of 2007, which was partially offset by a less favourable mix and increase in chargebacks. The net impact of the volume, rate, mix effect, and chargebacks was an increase in revenue of $3.6 million for the three months ended March 31, 2008.
Cable revenues in the first quarter decreased by 6% from the three months ended March 31, 2007. A revenue increase of 28% in Rogers Communications Inc. was offset by decreases at certain other cable operations. Revenue in 180 Connect's Network Services business declined by 17% from the same period in the previous year and 180 Home experienced a decline in revenue of approximately 8% off a relatively small base.
EBITDA from continuing operations(2) was $0.3 million for the first quarter of 2008, a decrease of 91.5% over results reported for the same period in 2007.
Looking Forward
In April 2008, 180 Connect signed a definitive merger agreement with a wholly-owned subsidiary of The DIRECTV Group, Inc. ("DIRECTV"), the nation's leading satellite television service. Under the terms of the merger agreement, a subsidiary of DIRECTV will be merged with and into the Company, with the Company continuing as the surviving corporation and an indirect wholly-owned subsidiary of DIRECTV. DIRECTV will acquire 100% of 180 Connect's outstanding common stock and exchangeable shares for $1.80 per share in cash. Including the assumption of the Company's debt outstanding the implied enterprise value of the transaction is approximately $105 million. The transaction is expected to close during the third quarter 2008.
In a separate transaction to which 180 Connect is not a party, UniTek USA, LLC ("UniTek") has agreed to acquire 100% of 180 Connect's cable services operating unit and certain DIRECTV installation services from DIRECTV, immediately following DIRECTV's acquisition of 180 Connect, in exchange for UniTek's satellite installation services in New York, Burbank, California and Bloomington, California and cash.
Under the terms of the merger agreement, the board of directors of 180 Connect, through its special committee and with the assistance of its independent advisors, intends to file all necessary documents related to the agreement in the month of May.
Summary Results
The following is a summary of the Company's selected consolidated data and operating information for the three months ended March 31, 2008 and 2007 and should be read in conjunction with the accompanying unaudited consolidated financial statements for the three months ended March 31, 2008.
Selected Consolidated Financial and Operating Data:
For the Three For the Three
Months Ended Months Ended
March 31, March 31,
2008 2007 % Change
--------------------------------------------
Revenue..................... $ 94,208,200 $ 91,556,785 2.9%
Direct expenses............. 87,903,038 82,928,200 6.0%
--------------------------------------------
Direct contribution
margin(1).................. 6,305,162 8,628,585 (26.9)%
General and
administrative(a).......... 6,024,905 5,037,953 19.6%
Foreign exchange loss....... - 11,138 (100.0)%
Restructuring costs......... - 275,000 (100.0)%
--------------------------------------------
EBITDA(2)................... 280,257 3,304,494 (91.5)%
Depreciation................ 3,427,698 2,715,565 26.2%
Amortization of customer
contracts.................. 920,033 920,376 -
Other expense:
Interest and loan fees...... 1,582,132 2,976,134 (46.8)%
Loss on sale of assets...... 85,093 71,778 18.6%
Loss on change in fair value
of derivative liabilities.. 35,831 2,786,391 (98.7)%
--------------------------------------------
Loss from continuing
operations before income
tax expense................ (5,770,530) (6,165,750) (6.4)%
Income tax expense.......... 214,077 74,000 189.3%
--------------------------------------------
Loss from continuing
operations................. (5,984,607) (6,239,750) (4.1)%
Income (loss) from
discontinued operations.... (9,335) 250,683 (103.7)%
--------------------------------------------
Net loss for the period..... $ (5,993,942) $ (5,989,067) 0.1%
--------------------------------------------
--------------------------------------------
(a) General and administrative includes stock-based compensation of
$518,244 and $0, for the three months ended March 31, 2008 and
March 31, 2007, respectively.
Per Share Data
Three Three
Months Ended Months Ended
March 31, March 31,
2008 2007
------------------------------
Loss per share from continuing operations
Basic and diluted....................... $ (0.23) $ (0.42)
Net loss per share:
Basic and diluted....................... $ (0.23) $ (0.41)
Weighted average number of shares
outstanding:
Basic and diluted....................... 25,520,152 14,689,112
------------------------------
------------------------------
Selected Consolidated Balance Sheet Data
As of
March 31, December 31,
2008 2007
------------------------------
Cash and cash equivalents................. $ 1,697,153 $ 366,449
Working capital deficit................... 33,857,952 30,162,680
Total assets.............................. 133,011,918 158,284,151
Total debt and capital lease obligations.. 56,209,864 56,765,878
Total shareholders' equity................ $ 16,721,990 $ 22,211,042
A copy of the first quarter unaudited consolidated financial statements of the Company for the three months ended March 31, 2008 is attached to this news release. The Company will be releasing its first quarter report on May 15, 2008 which will be available on EDGAR and the Company's website. Additional information relating to the Company is available on EDGAR at http://www.sec.gov/edgar.shtml, on SEDAR at http://www.sedar.com/ and on the Company's website at http://www.180connect.net/.
Non-GAAP Measures:
(1) The term "Direct Contribution Margin" consists of revenue less direct
expenses and excludes general and administrative expense, foreign
exchange loss, loss on sale of assets, depreciation, amortization
of customer contracts, interest and loan costs, loss on change in
fair value of derivative liabilities, and income tax expense. DCM, as
referred to in this news release, is a non-U.S. GAAP measure which
does not have any standardized meaning prescribed by U.S. GAAP and is
therefore unlikely to be comparable to similar measures presented by
other issuers. We believe that this term provides a better assessment
of the contribution of the field operations dealing directly with our
customers' subscribers by eliminating: (1) the general and
administrative costs that are not part of the direct costs of
generating revenue; (2) the charge for customer contracts and
depreciation which are non-cash expense items; and (3) loss on sale
of assets, and loss on change in fair value of derivative
liabilities, 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 loss from continuing
operations determined in accordance with U.S. GAAP as an indicator of
our performance.
Following is a reconciliation of DCM to the comparable U.S. GAAP measure being net loss from continuing operations:
Three Months Three Months
Ended Ended
March 31, March 31,
2008 2007
------------------------------
Direct contribution margin(1)............. $ 6,305,162 $ 8,628,585
General and administrative................ 6,024,905 5,037,953
Foreign exchange loss..................... - 11,138
Restructuring costs....................... - 275,000
Depreciation.............................. 3,427,698 2,715,585
Amortization of customer contracts........ 920,033 920,376
Other expense:
Interest and loan fees.................... 1,582,132 2,976,134
Loss on sale of assets.................... 85,093 71,778
Loss on change in market value of
derivative liabilities................... 35,831 2,786,391
------------------------------
Loss from continuing operations
before income tax expense................ (5,770,530) (6,165,750)
Income tax expense 214,077 74,000
------------------------------
Loss from continuing operations........... $ (5,984,607) $ (6,239,750)
------------------------------
------------------------------
(2) The term "EBITDA from continuing operations" refers to loss from
continuing operations before deducting depreciation, amortization of
customer contracts, loss on sale of assets, interest and loan fees,
loss on change in fair value of derivative liabilities, and income
tax expense. EBITDA from continuing operations, as referred to in
this news release, is a non-U.S. GAAP measure which does not have any
standardized meaning prescribed by U.S. GAAP and is therefore
unlikely to be comparable to similar measures presented by other
issuers. Management believes that EBITDA from continuing operations
provides a better assessment of cash flow from our operations by
eliminating: (1) the charge for depreciation, and amortization of
customer contracts which are non-cash expense items and (2) loss on
sale of assets, and loss on change in fair market value of derivative
liabilities, which are not considered to be in the normal course of
operating activity. In addition, financial analysts and investors use
a multiple of EBITDA from continuing operations for valuing companies
within the same sector, in order to eliminate the differences in
accounting treatment from one company to the next. Given that we are
in a growth stage, we believe the focus on EBITDA from continuing
operations gives the investor or reader of our consolidated financial
statements and MD&A more insight into the operating capabilities of
management and its utilization of our operating assets. Management
further believes that EBITDA from continuing operations is also the
best metric for measuring our valuation. Investors should be
cautioned, however, that EBITDA from continuing operations should not
be construed as an alternative to loss from continuing operations
determined in accordance with U.S. GAAP as an indicator of our
performance.
Following is a reconciliation of EBITDA from continuing operations to the comparable U.S. GAAP measure being net loss from continuing operations:
Three Months Three Months
Ended Ended
March 31, March 31,
2008 2007
------------------------------
EBITDA from continuing operations(2)...... $ 280,257 $ 3,304,494
Depreciation.............................. 3,427,698 2,715,565
Amortization of customer contracts........ 920,033 920,376
Other expense:
Interest and loan fees.................... 1,582,132 2,976,134
Loss on sale of assets.................... 85,093 71,778
Loss on change in fair value of
derivative liabilities................... 35,831 2,786,391
------------------------------
Loss from continuing operations
before income tax expense ............... (5,770,530) (6,165,750)
Income tax expense........................ 214,077 74,000
------------------------------
Loss from continuing operations........... $ (5,984,607) $ (6,239,750)
------------------------------
------------------------------
180 Connect Inc.
180 Connect Inc. is one of North America's largest providers of installation, integration and fulfillment services to the home entertainment, communications and home integration service industries. With more than 4,000 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 shares are traded under the name of 180 Connect Inc. on the OTCBB under the symbols CNCT.OB, CNCTU.OB and CNCTW.OB.
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 "will be", "may", "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. Many factors, including those discussed under section 1A "Risk Factors" on the Company's current Report on Form 10-K filed with the Securities and Exchange Commission on March 31, 2008 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
March 31, December 31,
2008 2007
------------------------------
(unaudited)
Assets
Current Assets
Cash and cash equivalents $ 1,697,153 $ 366,449
Accounts receivable (less allowance for
doubtful accounts of $4,723,724 and
$3,750,200, respectively) 36,614,481 48,378,339
Inventory 14,632,276 20,180,167
Restricted cash 8,494,616 10,169,108
Prepaid expenses and other assets 5,973,681 9,378,519
------------------------------
TOTAL CURRENT ASSETS 67,412,207 88,472,582
Property, plant and equipment 31,588,576 34,906,750
Goodwill 11,034,723 11,034,723
Customer contracts, net 20,465,338 21,391,257
Other assets 2,511,074 2,478,839
------------------------------
TOTAL ASSETS $ 133,011,918 $ 158,284,151
------------------------------
------------------------------
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable and accrued liabilities $ 59,856,001 $ 79,115,651
Current portion of long-term debt 30,162,746 27,769,301
Fair value of derivative financial
instruments 157,999 122,168
Current portion of capital lease
obligations 11,093,413 11,628,142
------------------------------
TOTAL CURRENT LIABILITIES 101,270,159 118,635,262
Income tax liability 224,063 191,580
Capital lease obligations 14,795,706 17,246,267
------------------------------
TOTAL LIABILITIES 116,289,928 136,073,109
Commitments and contingencies
(Notes 5 and 12)
Shareholders' Equity
Common stock $.0001 par value;
authorized 100,000,000, Issued and
outstanding shares 25,520,152 at March 31,
2008 and December 31, 2007 2,552 2,552
Paid-in capital 130,525,123 130,096,083
Treasury stock, 500,000 shares at
March 31, 2008 and December 31, 2007
respectively (224,019) (224,019)
Accumulated deficit (113,892,539) (107,898,597)
Accumulated other comprehensive income 310,873 235,023
------------------------------
TOTAL SHAREHOLDERS' EQUITY 16,721,990 22,211,042
------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $ 133,011,918 $ 158,284,151
------------------------------
------------------------------
180 Connect Inc.
Consolidated Statements of Operations
(Unaudited)
Three Months Three Months
Ended Ended
March 31, March 31,
2008 2007
------------------------------
Revenue $ 94,208,200 $ 91,556,785
Expenses
Direct expenses 87,903,038 82,928,200
General and administrative(1) 6,024,905 5,037,953
Foreign exchange loss - 11,138
Restructuring costs - 275,000
Depreciation 3,427,698 2,715,565
Amortization of customer contracts 920,033 920,376
Other expense:
Interest and loan fees 1,582,132 2,976,134
Loss on sale of assets 85,093 71,778
Loss on change in fair value of
derivative liabilities 35,831 2,786,391
------------------------------
Loss from continuing operations before
income tax expense (5,770,530) (6,165,750)
Income tax expense 214,077 74,000
------------------------------
Loss from continuing operations (5,984,607) (6,239,750)
Income (loss) from discontinued operations,
net of income taxes of $0 for March 31,
2008 and March 31, 2007 (9,335) 250,683
------------------------------
Net loss for the period $ (5,993,942) $ (5,989,067)
------------------------------
------------------------------
Net loss per share from continuing
operations:
Basic and diluted $ (0.23) $ (0.42)
Net loss per share:
Basic and diluted $ (0.23) $ (0.41)
Weighted average number of shares
outstanding - basic and diluted 25,520,152 14,689,112
(1) General and administrative includes stock-based compensation of
$518,244, and $0 for the three months ended March 31, 2008, and
March 31, 2007, respectively.
180 Connect Inc.
Consolidated Statements of Shareholders' Equity
(Unaudited)
Common Stock
Outstanding Common Paid Treasury
Shares Stock in Capital Stock
-------------------------------------------------------------------------
Balances at
December 31,
2007 25,520,152 $ 2,552 $ 130,096,083 $ (224,019)
Issuance costs
attributed
to reverse
merger - - (89,204) -
Stock-based
compensation - - 518,244 -
Foreign
currency
translation
adjustment - - - -
Net loss - - - -
-------------------------------------------------------------------------
Balances at
March 31,
2008 25,520,152 $ 2,552 $ 130,525,123 $ (224,019)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Accumulated
Other
Accumulated Comprehensive
Deficit Income (loss) Total
----------------------------------------------------------
Balances at
December 31,
2007 $(107,898,597) $ 235,023 $ 22,211,042
Issuance costs
attributed
to reverse
merger - - (89,204)
Stock-based
compensation - - 518,244
Foreign
currency
translation
adjustment - 75,850 75,850
Net loss (5,993,942) - (5,993,942)
----------------------------------------------------------
Balances at
March 31,
2008 $(113,892,539) $ 310,873 $ 16,721,990
----------------------------------------------------------
----------------------------------------------------------
180 Connect Inc.
Consolidated Statements of Comprehensive Loss
(Unaudited)
Three Three
Months Ended Months Ended
March 31, March 31,
2008 2007
------------------------------
Net loss $ (5,993,942) $ (5,989,067)
Other comprehensive income:
Foreign currency translation 75,850 -
------------------------------
Comprehensive loss $ (5,918,092) $ (5,989,067)
------------------------------
------------------------------
180 Connect Inc.
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Three Months
Ended Ended
March 31, March 31,
2008 2007
--------------- --------------
Cash provided by (used in) the following
activities:
Operating
Loss from continuing operations........... $ (5,984,607) $ (6,239,750)
Add (deduct) items not affecting cash:
Depreciation, amortization and
impairment............................. 4,347,731 3,635,941
Non-cash interest expense............... 576,810 1,088,373
Stock-based compensation................ 518,244 -
Loss on change in fair value of
derivative liabilities................. 35,831 2,786,391
Loss on sale of assets................ 85,093 71,778
Other................................. 75,130 4,171
Changes in non-cash working capital
balances related to operations:
Accounts receivable..................... 11,763,858 13,732,512
Inventory............................... 5,547,891 (600,343)
Other current assets.................... 660,389 (878,414)
Insurance premium deposits.............. 2,744,449 2,197,137
Other assets............................ (304,799) (1,102,064)
Restricted cash......................... 1,674,492 1,481,437
Accounts payable and accrued
liabilities............................ (19,227,168) (17,678,958)
Operating cash flows from
discontinued operations................ (2,827) 291,115
--------------- --------------
Total cash provided by (used in)
operating activities................... 2,510,517 (1,210,674)
--------------- --------------
Investing
Purchase of property, plant and equipment. (264,172) (699,342)
--------------- --------------
Total cash used in investing activities... (264,172) (699,342)
--------------- --------------
Financing
Repayment of capital lease obligations.... (2,916,356) (3,491,760)
Repayment of debt......................... (2,000,001) (1,333,334)
Proceeds from share issuance.............. - 29,408
--------------- --------------
Issuance costs on reverse merger......... (89,204) -
Borrowings under the Revolving credit
facility................................. 4,089,201 5,098,563
--------------- --------------
Total cash provided by (used in)
financing activities..................... (916,360) 302,877
--------------- --------------
Effect of exchange rates on cash and
cash equivalents......................... 719 (4,171)
--------------- --------------
Net increase (decrease) in cash and
cash equivalents during the period....... 1,330,704 (1,611,310)
Cash and cash equivalents,
beginning of period...................... 366,449 2,904,098
--------------- --------------
Cash and cash equivalents, end of
period................................... $ 1,697,153 $ 1,292,788
--------------- --------------
--------------- --------------
Supplemental cash flow information:
Interest paid $ 803,752 $ 2,105,346
--------------- --------------
--------------- --------------
Income taxes paid $ 124,405 $ 12,595
--------------- --------------
--------------- --------------
Supplemental disclosure of non-cash investing and financing transactions:
For the three months ended March 31, 2008 and March 31, 2007, the Company entered into additional vehicle capital lease obligations of $277,094 and $689,382, respectively.
DATASOURCE: 180 Connect Inc.
CONTACT: please contact the following or visit our website at
http://www.180connect.net/; Claudia A. Di Maio, Director, Investor Relations, TEL:
(866) 995-8888, DIRECT LINE: (416) 930-7710, EMAIL: ;
Devlin Lander, Integrated Corporate Relations, TEL.: (415) 292-6855