UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

 

FORM 10-Q/A

Amendment No. 1

 

 

 

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2014

 

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 333-186684

 

 

 

Goodman Networks Incorporated

(Exact name of registrant as specified in its charter)

 

 

 

Texas		74-2949460
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
6400 International Parkway, Suite 1000
Plano, TX		75093
(Address of principal executive offices)		(Zip Code)

972-406-9692

(Registrant’s telephone number, including area code)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer		¨		Accelerated filer		¨
Non-accelerated filer		x  (Do not check if a smaller reporting company)		Smaller reporting company		¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ¨    No  x

The number of shares of the registrant’s common stock outstanding at November 14, 2014 was 912,754.

 

 

 

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EXPLANATORY NOTE

Goodman Networks Incorporated, or the Company, is filing this Amendment No. 1, or this Amendment, to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2014, or the Form 10-Q, solely for the purpose of amending (1) Exhibits 10.1 and 10.2 to the Form 10-Q, or the Exhibits, in response to comments received from the staff of the Securities and Exchange Commission concerning a previously filed application for confidential treatment with respect to certain portions of the Exhibits and (2) the discussion in the sections “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” to disclose an uncertainty regarding the amount of future work that the Company will generate from AT&T Mobility LLC and conforming changes related thereto. The Exhibits filed herewith supersede the Exhibits originally filed with the Form 10-Q in their entirety. Additionally, pursuant to Rule 12b-15 promulgated under the Securities Exchange Act of 1934, as amended, or the Exchange Act, the Company is filing the certifications required by Rule 15d-14(a) promulgated under the Exchange Act as Exhibits 31.1 and 31.2 to this Amendment. The Company is not filing the certifications required by Rule 15d-14(b) promulgated under the Exchange Act because no financial statements are being filed with this Amendment.

Except for the changes noted above, this Amendment does not modify any other information set forth in the Form 10-Q. Accordingly, all other information contained in the Form 10-Q has been omitted from this Amendment. This Amendment speaks as of the original filing date of the Form 10-Q and does not reflect events occurring after the original filing date or modify or update those disclosures in any way.

 

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PART I. FINANCIAL INFORMATION

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The terms “we,” “us” and “our” as used in this Quarterly Report on Form 10-Q (this “Report”) refer to Goodman Networks Incorporated and its directly and indirectly owned subsidiaries on a consolidated basis; references to “Goodman Networks” or our “Company” refer solely to Goodman Networks Incorporated and references to “Multiband” refer to our subsidiary, Multiband Corporation.

The following discussion and analysis summarizes the significant factors affecting our consolidated operating results, financial condition, liquidity and cash flows as of and for the periods presented below. The following discussion and analysis should be read in conjunction with (i) the accompanying unaudited consolidated financial statements and notes thereto for the three and nine months ended September 30, 2013 and 2014, and with our consolidated financial statements and notes thereto for the year ended December 31, 2013 included in the Company’s Annual Report on Form 10-K (the “2013 Annual Report”) and (ii) the discussion under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the 2013 Annual Report.

Forward-Looking Statements

Certain statements contained in this Report are not statements of historical fact and are forward-looking statements. These forward-looking statements are included throughout this Report, including the sections entitled “Risk Factors,” “Quantitative and Qualitative Disclosures About Market Risk,” and this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and relate to matters such as our industry, business strategy, goals and expectations concerning our market position, future operations, revenues, margins, profitability, capital expenditures, liquidity and capital resources and other financial and operating information. Words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “forecast,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “would,” and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. We have based these forward-looking statements on our current assumptions, expectations and projections about future events.

Forward-looking statements involve significant risks and uncertainties that could cause the actual results to differ materially from those anticipated in such statements. Most of these factors are outside our control and difficult to predict. Factors that may cause such differences include, but are not limited to:

 

•

our reliance on three customers (the two largest of which have announced a plan to merge) for substantially all of our revenues;

 

•

our reliance on contracts that do not obligate our customers to undertake work with us and that are cancellable on limited notice;

 

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our ability to refinance existing indebtedness;

 

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our ability to raise additional capital to fund our operations and meet our obligations;

 

•

our ability to achieve and maintain profitability on a consistent basis;

 

•

our ability to translate amounts included in our estimated backlog into revenue or profits;

 

•

our ability to maintain our certification as a minority business enterprise;

 

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•

our reliance on subcontractors to perform portions of our services;

 

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our ability to maintain proper and effective internal controls;

 

•

our reliance on a limited number of key personnel who would be difficult to replace;

 

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our ability to effectively integrate acquisitions;

 

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our ability to manage potential credit risk arising from unsecured credit extended to our customers;

 

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our ability to weather economic downturns and the cyclical nature of the telecommunications and subscription television service industries;

 

•

our ability to compete in our industries;

 

•

our ability to adapt to rapid regulatory and technological changes in the telecommunications and subscription television service industries; and

 

•

our ability to manage our substantial level of indebtedness and our ability to generate sufficient cash to service our indebtedness.

For a more detailed discussion of these and other factors that may affect our business and that could cause the actual results to differ materially from those anticipated in these forward-looking statements, see “Risk Factors” in this Report and the 2013 Annual Report. We caution that the foregoing list of factors is not exclusive, and new factors may emerge, or changes to the foregoing factors may occur, that could impact our business. All subsequent written and oral forward-looking statements concerning our business attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements above. We do not undertake any obligation to update any forward-looking statement, whether written or oral, relating to the matters discussed in this Report except to the extent required by applicable securities laws.

Overview

We are a leading national provider of end-to-end network infrastructure and professional services to the wireless telecommunications industry. Our wireless telecommunications services span the full network lifecycle, including the design, engineering, construction, deployment, integration, maintenance, and decommissioning of wireless networks. We perform these services across multiple network infrastructures, including traditional cell towers as well as next generation small cell and distributed antenna systems, or DAS. We also serve the satellite television industry by providing onsite installation, upgrading and maintenance of satellite television systems to both the residential and commercial markets customers. These highly specialized and technical services are critical to the capability of our customers to deliver voice, data and video services to their end users.

We operate from a broad footprint, having provided services during 2013 in all 50 states. As of September 30, 2014, we employed over 4,500 people and operated 63 regional offices and warehouses. During the year ended December 31, 2013, we completed over 65,000 telecommunications projects and fulfilled over 1.5 million satellite television installation, upgrade or maintenance work orders. We have established strong, long-standing relationships with Tier-1 wireless carriers and original telecommunications equipment manufacturers, or OEMs, including AT&T Mobility, LLC, or AT&T, Alcatel-Lucent USA Inc., or Alcatel-Lucent, Sprint/United Management Company, or Sprint, as well as DIRECTV. Over the last few years, we have diversified our customer base within the telecommunications industry by leveraging our long-term success and reputation for quality to win new customers such as Nokia Solutions and Networks B.V., or NSN, T-Mobile International AG, or T-Mobile, and Verizon Wireless Inc., or Verizon. We generated nearly all of our revenues over the past several years under master service agreements, or MSAs, that establish a framework, including pricing and other terms, for providing ongoing services. We believe our long-standing relationships with our largest customers, which are governed by MSAs that historically have been renewed or extended, provide us with high visibility to our future revenue. During 2013, we also provided small cell or DAS services to over 100 enterprises including higher education institutions, stadiums for professional and collegiate sports events, hotels and resorts, major retailers, hospitals and government agencies.

 

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Significant Transactions

Merger with Multiband Corporation

On August 30, 2013, we completed a merger with Multiband pursuant to which Multiband became a wholly owned subsidiary of Goodman Networks. The aggregate purchase price, excluding merger-related fees and expenses, was approximately $101.1 million. Upon the closing of the merger, Multiband and its subsidiaries became restricted subsidiaries and guarantors under the indenture, or the Indenture, governing the Company’s 12.125% senior secured notes due 2018, or the notes, and the Company’s amended and restated senior secured revolving credit facility, or the Credit Facility. To fund the merger with Multiband, the Company, through its wholly owned subsidiary, sold an additional $100 million of senior secured notes due 2018, or the tack-on notes, under terms substantially identical to those of the $225 million in aggregate principal amount of notes issued in June 2011, or the original notes. The Company paid the remainder of the merger consideration from cash on hand.

Disposition of the MDU Assets

On December 31, 2013, we sold certain assets to DIRECTV MDU, LLC, or DIRECTV MDU, and DIRECTV MDU assumed certain liabilities of the Company, related to the division of our business involved with the ownership and operation of subscription based video, high-speed internet and voice services and related call center functions to multiple dwelling unit customers, lodging and institution customers and commercial establishments, or, such assets, collectively, the MDU Assets. The operations of the MDU Assets were previously reported in our “Other Services” segment. In consideration for the MDU Assets, DIRECTV MDU paid us $12.5 million and additional non-cash consideration, assumed certain liabilities, and extended the existing Multiband/DIRECTV HSP Agreement, resulting in a four-year remaining term ending on December 31, 2017.

Acquisition of the Custom Solutions Group of Cellular Specialties, Inc.

On February 28, 2013, we completed the acquisition of the Custom Solutions Group of Cellular Specialties, Inc., or CSG, which provides indoor and outdoor wireless distributed antenna system, or DAS, and carrier Wi-Fi solutions, services, consultations and maintenance. The purchase price consisted of $18.0 million in cash, earn-out payments of up to an aggregate of $17.0 million through December 31, 2015 and the assumption of certain liabilities related to the acquired business. We believe the acquisition will help better serve our customers’ evolving needs by addressing the increasingly used small cell and DAS offload solutions.

2014 Restructuring Plan

During the second quarter of 2014, our management approved, committed to and initiated plans to restructure and further improve efficiencies in our operations (the “2014 Restructuring Plan”). As part of the 2014 Restructuring Plan, we have taken steps to (i) further integrate our Multiband and CSG operations, including elimination of redundant positions and information technology infrastructure to realize acquisition synergies, (ii) exit certain locations to bring our overhead costs in line with our revenue, and (iii) eliminate certain headcount to bring our costs in line with our forecasted demand. The restructuring costs associated with the 2014 Restructuring Plan are recorded in the restructuring expense line item within our consolidated statements of operations and comprehensive income. We expect to incur the majority of the estimated remaining restructuring expenses through the end of 2014. Any changes to the estimates of executing the 2014 Restructuring Plan will be reflected in our future results of operations.

Operating Segments

Prior to the merger with Multiband, we operated our business in two segments: Professional Services and Infrastructure Services.

Professional Services. Our Professional Services segment provides customers with highly technical services primarily related to designing, engineering, integration and performance optimization of transport, or

 

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“backhaul,” and core, or “central office,” equipment of enterprise and wireless carrier networks. When a network operator integrates a new element into its live network or performs a network-wide upgrade, a team of in-house engineers from our Professional Services segment can administer the complete network design, equipment compatibility assessments and configuration guidelines, the migration of data traffic onto the new or modified network and the network activation.

In addition, we provide services related to the design, engineering, installation, integration and maintenance of indoor small cell and DAS networks. Our acquisition of CSG was incorporated into our Professional Services segment, which has enhanced our ability to provide end-to-end in-building services from design and engineering to maintenance. Our enterprise small cell and DAS customers often require most or all of the services listed above and may also purchase consulting, post-deployment monitoring, performance optimization and maintenance services.

Infrastructure Services. Our Infrastructure Services segment provides program management services of field projects necessary to deploy, upgrade, maintain or decommission wireless outdoor networks. We support wireless carriers in their implementation of critical technologies such as long-term evolution, or 4G-LTE, the addition of new macro and outdoor small cell sites, increase of capacity at their existing cell sites through additional spectrum allocations, as well as other optimization and maintenance activities at cell sites. When a network provider requests our services to build or modify a cell site, our Infrastructure Services segment is able to: (i) handle the required pre-construction leasing, zoning, permitting and entitlement activities for the acquisition of the cell site, (ii) prepare site designs, structural analysis and certified drawings and (iii) manage the construction or modification of the site including tower-top and ground equipment installation. These services are managed by our wireless project and construction managers and are performed by a combination of scoping engineers, real estate specialists, ground crews, line and antenna crews and equipment technicians, either employed by us or retained by us as subcontractors.

Our Infrastructure Services segment also provides fiber and wireless backhaul services to carriers. Our fiber backhaul services, or Fiber to the Cell services, connect existing points in the fiber networks of wireline carriers to thousands of cell sites needing the bandwidth and ethernet capabilities for upgrading capacity. Our microwave backhaul services provide a turnkey solution offering site audit, site acquisition, microwave line of sight surveys, path design, installation, testing and activation services. This fiber and wireless backhaul work often involves planning, route engineering, right-of-way (for fiber work) and permitting, logistics, project management, construction inspection and optical fiber splicing services. Backhaul work is performed to extend an existing optical fiber network owned by a wireline carrier, typically between several hundred yards to a few miles, to the cell site.

We began operating the following additional segment and line of business in connection with the closing of the merger with Multiband:

Field Services. Our Field Services segment provides installation and maintenance services to DIRECTV, commercial customers and a provider of internet wireless service primarily to rural markets. Our wholly owned subsidiary Multiband, which we acquired in August 2013, fulfilled over 1.5 million satellite television installation, upgrade or maintenance work orders during 2013 for DIRECTV, which represented 27.6% of DIRECTV’s outsourced work orders for residents of single-family homes during 2013. We were the second largest DIRECTV in-home installation provider in the United States for the year ended December 31, 2013.

In the first quarter of 2014, we integrated our Engineering, Energy & Construction, or EE&C, line of business with our Infrastructure Services and Professional Services segments, and as a result no longer have an Other Services segment. We have not restated the corresponding items of segment information for the year ended December 31, 2013 because the employees that previously comprised the EE&C line of business are now serving customers within the Infrastructure Services segment and the remaining operations of the Other Services segment that were realigned to the Infrastructure Services, Professional Services or Field Services segments are not material to those segments individually.

Customers

For the year ended December 31, 2013, we provided services to customers across 47 states. Following our acquisition of Multiband, we began providing services to DIRECTV. The vast majority of our revenues relate to our

 

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MSAs with subsidiaries of AT&T Inc., DIRECTV and Alcatel-Lucent. For the years ended December 31, 2011, 2012 and 2013 and the nine months ended September 30, 2014, subsidiaries of AT&T Inc., DIRECTV and Alcatel-Lucent combined to provide 99.1%, 96.3%, 87.3% and 89.8% of our revenues, respectively. On May 18, 2014, AT&T Inc. and DIRECTV announced that they had entered into a merger agreement pursuant to which DIRECTV would merge with a subsidiary of AT&T Inc. The closing of the merger is subject to several conditions, including review and approval by the Federal Communications Commission, or the FCC, and the Department of Justice. If the merger occurs, our revenues would become more concentrated and dependent on our relationship with AT&T Inc.

AT&T

We provide site acquisition, construction, technology upgrades, Fiber to the Cell and maintenance services for AT&T Mobility, LLC, or AT&T, at cell sites in 9 of 31 distinct AT&T markets, or Turf Markets, as the sole, primary or secondary vendor, pursuant to a multi-year MSA that we entered into with AT&T and have amended and replaced from time to time. We refer to our MSAs with AT&T related to its turf program collectively as the “Mobility Turf Contract.” We have generated an aggregate of approximately $2.99 billion of revenue from subsidiaries of AT&T Inc. collectively for the period from January 1, 2009 through September 30, 2014.

We recently restructured our Mobility Turf Contract to consist of a general MSA with subordinate MSAs governing the services we provide thereunder. Effective January 14, 2014, we entered into the general MSA and a subordinate MSA governing site acquisition services, and on September 1, 2014, we entered into a subordinate MSA governing program management, project management, architecture and engineering, construction management and equipment installation services, or the Subordinate Construction MSA. The services governed by these subordinate MSAs were formerly provided pursuant to our previous Mobility Turf Contract MSA. The general MSA provides for a term expiring on August 31, 2016, and the Subordinate Construction MSA provides for a term expiring on August 31, 2017. AT&T has the option to renew both contracts on a yearly basis thereafter. Aside from extending the term of our Mobility Turf Contract, we do not anticipate that its restructuring will have a material effect on our results of operations.

We provide other services to AT&T in addition to those provided under the Mobility Turf Contract. Those services include the deployment of indoor small cell systems, DAS systems and microwave transmission facilities and central office services. We recently entered into a DAS Installation Services Agreement and Subordinate Material and Services Agreement with a subsidiary of AT&T Inc. to provide these services.

DIRECTV

With the acquisition of Multiband, DIRECTV became our second largest customer. The relationship between Multiband and DIRECTV has lasted for over 17 years and is essential to the success of our Field Services segment’s operations. We are one of three in-home installation providers that DIRECTV utilizes in the United States, and during the year ended December 31, 2013, Multiband performed 27.6% of all DIRECTV’s outsourced installation, upgrade and maintenance activities. Our contract with DIRECTV has a term expiring on December 31, 2017, and contains an automatic one-year renewal. The contract may also be terminated by 180 days’ notice by either party. Until December 31, 2013, we also provided customer support and billing services to certain of DIRECTV’s customers through our Other Services segment pursuant to a separate arrangement.

Alcatel-Lucent

On July 15, 2014, we entered into a three-year MSA with Alcatel-Lucent, effective as of June 30, 2014, or the 2014 Alcatel-Lucent Contract. The 2014 Alcatel-Lucent Contract will replace the five year MSA we entered into with Alcatel-Lucent in November 2009, or the Alcatel-Lucent Contract. Pursuant to the 2014 Alcatel-Lucent Contract, we will provide, upon request, certain services, including deployment engineering, integration engineering, radio frequency engineering and other support services to Alcatel-Lucent that were formerly provided under the Alcatel-Lucent Contract. Although we have experienced a decline in the amount of legacy work that we have performed for Alcatel-Lucent and we expect this decline to continue under the 2014 Alcatel-Lucent Contract, we are also seeking to obtain work from Alcatel-Lucent on newer technologies. The 2014 Alcatel-Lucent Contract has an initial term ending June 30, 2017, after which the parties may mutually agree to extend the term on a yearly basis.

 

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Sprint

In May 2012, we entered into an MSA with Sprint to provide decommissioning services for Sprint’s iDEN (push-to-talk) network. We are removing equipment from Sprint’s network that is no longer in use and restoring sites to their original condition. For the years ended December 31, 2012 and 2013 and for the nine months ended September 30, 2014, we recognized $11.9 million, $34.0 million and $43.4 million of revenue, respectively, related to the services we provide for Sprint.

Enterprise Customers

We provide services to enterprise customers through our Professional Services segment. These service offerings consist of the design, installation and maintenance of DAS systems to customers such as Fortune 500 companies, hotels, hospitals, college campuses, airports and sports stadiums.

Key Components of Operating Results

The following is a discussion of key line items included in our financial statements for the periods presented below under the heading “Results of Operations.” We utilize revenues, gross profit, net income and earnings before interest, income taxes, depreciation and amortization, or EBITDA, as significant performance indicators.

Revenues

Our revenues are generated primarily from projects performed under MSAs including the design, engineering, construction, deployment, integration, maintenance, and decommissioning of wireless networks. Our MSAs generally contain customer-specified service requirements, such as discrete pricing for individual tasks as well as various other terms depending on the nature of the services provided, and typically provide for termination upon short or no advance notice.

Our revenues fluctuate as a result of the timing of the completion of our projects and changes in the capital expenditure and maintenance budgets of our customers, which may be affected by overall economic conditions, consumer demands on telecommunications and satellite television providers, the introduction of new technologies, the physical maintenance needs of our customers’ infrastructure and the actions of the government, including the FCC and state agencies.

Our Professional Services segment revenues are derived from wireless and wireline services through engineers who specialize in network architecture, transformation, reliability and performance. Until our acquisition of CSG in February 2013, the vast majority of our revenues for the Professional Services segment were attributable to work performed pursuant to the Alcatel-Lucent Contract. The acquisition of the assets of CSG expanded our revenues from enterprise, small cell and DAS customers.

Our Infrastructure Services segment revenues are derived from project management, site acquisition, architecture and engineering, construction management, equipment installation and drive-testing verification services. The vast majority of the revenues we earn in our Infrastructure Services segment are from subsidiaries of AT&T Inc. and are primarily comprised of work performed under the Mobility Turf Contract. Substantially all of our revenues are earned under fixed-unit price contracts. We have historically had success in certain circumstances seeking price adjustments from customers to avoid losses on projects undertaken pursuant to these contracts.

Our Field Services segment revenues are derived from the installation and service of DIRECTV video programming systems for residents of single family homes through work order fulfillment under a contract with DIRECTV.

 

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The following table presents our gross deferred project revenue and deferred project cost balances as of December 31, 2013 and September 30, 2014, which have been presented net on a project basis in the accompanying financial statements (in thousands):

 

		December 31, 2013				September 30, 2014
Deferred project revenue (gross)		$	(197,854	)		$	(194,168	)
Deferred project cost (gross)			251,421				248,988
Net deferred project cost		$	53,567			$	54,820
Costs in excess of billings on uncompleted projects		$	100,258			$	104,346
Billings in excess of costs on uncompleted projects			(46,691	)			(49,526	)
Net deferred project cost		$	53,567			$	54,820

Cost of Revenues

Our costs of revenues include the costs of providing services or completing the projects under our MSAs, including operations payroll and benefits, subcontractor costs, equipment rental, fuel, materials not provided by our customers and insurance. Profitability will be reduced or eliminated if actual costs to complete a project exceed original estimates on fixed-unit price projects under our MSAs. Estimated losses on projects under our MSAs are recognized immediately when estimated costs to complete a project exceed the expected revenue to be received for a project.

For our Professional Services segment, cost of revenues consists primarily of salaries and benefits paid to our employees. In addition to salaried employees, we hire a relatively small amount of temporary subcontractors to perform work within our Professional Services segment. An additional small percentage of cost of revenues includes materials and supplies.

For our Infrastructure Services segment, cost of revenues consists primarily of operating expenses such as salaries and related headcount expenses, subcontractor expenses and cost of materials used in the projects. The majority of these costs have historically consisted of payments made to subcontractors hired to perform work for us, typically on a fixed-unit price basis tied to completion of the given project. During periods of increased demand, subcontractors may charge more for their services. In addition, we typically bill our customers for raw materials used in the performance of services plus a certain percentage of our costs. Additional costs to us that are not included in this billing primarily include storage and shipping of materials.

For our Field Services segment, cost of revenues consists primarily of salaries for technicians, fleet expenses, costs of installation materials used in the field projects and subcontractor expenses.

Selling, General and Administrative Expenses

Selling, general and administrative expenses consist of salaries and related headcount expenses, sales commissions and bonuses, professional fees, travel, facilities, communication expenses, depreciation and amortization and other corporate overhead. Corporate overhead costs include costs associated with corporate staff, corporate management, human resources, information technology, finance and other corporate support services.

Our selling, general and administrative expenses are not allocated to a reporting segment. We expect our selling, general and administrative expenses to increase as a result of additional expenses associated with being a public company, including increased personnel costs, legal costs, accounting costs, board compensation expense, investor relations costs, director and officer insurance premiums, share-based compensation and costs associated with our compliance with Section 404 of the Sarbanes-Oxley Act of 2002, and other applicable regulations of the Securities and Exchange Commission, or the SEC.

 

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Results of Operations

Three Months Ended September 30, 2013 Compared to Three Months Ended September 30, 2014

The following table sets forth information concerning our operating results by segment for the three months ended September 30, 2013 and 2014 (in thousands).

 

		Three Months Ended September 30,
		2013								2014
		Amount				Percentage of Total Revenue				Amount				Percentage of Total Revenue				Change ($)				Change (%)
Revenues:
Professional Services		$	28,729				12.2	%		$	24,801				6.8	%		$	(3,928	)			(13.7	)%
Infrastructure Services			179,095				76.0	%			267,192				73.4	%			88,097				49.2	%
Field Services			23,581				10.0	%			71,797				19.7	%			48,216				204.5	%
Other Services			4,233				1.8	%			—				—				(4,233	)			n/a
Total revenues			235,638				100.0	%			363,790				100.0	%			128,152				54.4	%
Cost of revenues:
Professional Services			22,889				9.7	%			22,717				6.2	%			(172	)			(0.8	)%
Infrastructure Services			155,603				66.0	%			220,769				60.7	%			65,166				41.9	%
Field Services			19,875				8.4	%			57,281				15.7	%			37,406				188.2	%
Other Services			2,982				1.3	%			—				—				(2,982	)			n/a
Total cost of revenues			201,349				85.4	%			300,767				82.7	%			99,418				49.4	%
Gross profit:
Professional Services			5,840								2,084								(3,756	)			(64.3	)%
Infrastructure Services			23,492								46,423								22,931				97.6	%
Field Services			3,706								14,516								10,810				291.7	%
Other Services			1,251								—								(1,251	)			n/a
Total gross profit			34,289								63,023								28,734				83.8	%
Gross margin as percent of segment revenues:
Professional Services			20.3	%							8.4	%
Infrastructure Services			13.1	%							17.4	%
Field Services			15.7	%							20.2	%
Other Services			29.6	%							—
Total gross margin			14.6	%							17.3	%
Selling, general and administrative expenses			32,669				13.9	%			27,924				7.7	%			(4,745	)			(14.5	)%
Restructuring expense			—				—				4,653				1.3	%			4,653				n/a
Impairment expense			—				—				1,754				0.5	%			1,754				n/a
Other operating income			—				—				(1,666	)			(0.5	)%			(1,666	)			n/a
Operating income			1,620				0.7	%			30,358				8.3	%			28,738				1774.0	%
Other income			(8	)			(0.0	)%			(25	)			(0.0	)%			(17	)			(212.5	)%
Interest expense			11,646				4.9	%			11,188				3.1	%			(458	)			(3.9	)%
Income (loss) before income taxes			(10,018	)			(4.3	)%			19,195				5.3	%			29,213				291.6	%
Income tax expense (benefit)			(701	)			(0.3	)%			2,092				0.6	%			2,793				398.4	%
Net income (loss)		$	(9,317	)			(4.0	)%		$	17,103				4.7	%		$	26,420				283.6	%

Revenues

We recognized total revenues of $363.8 million for the three months ended September 30, 2014, compared to $235.6 million for the three months ended September 30, 2013, representing an increase of $128.2 million, or 54.4%. Our aggregate revenue from subsidiaries of AT&T Inc., a majority of which was earned through our Infrastructure Services segment, was $257.2 million for the three months ended September 30, 2014, compared to $158.3 million in the same period of 2013. A significant amount of our revenue increase was due to increased volume of services provided to subsidiaries of AT&T Inc. and the inclusion of Multiband revenues for the full three months ended September 30, 2014. For the three months ended September 30, 2014, Multiband revenues were $72.2 million, compared to $27.8 million of revenues from Multiband during the three months ended September 30, 2013, as Multiband’s revenues were only included in our results beginning August 31, 2013. These increases were partially offset by a decline in revenues from the Professional Services segment.

 

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Revenues for the Professional Services segment decreased $3.9 million, or 13.7%, to $24.8 million in the three months ended September 30, 2014 from $28.7 million in the same period of 2013. This decrease was primarily due to an anticipated decline of 40% on the volume of CDMA services provided to Alcatel-Lucent, which was partially offset by an increase in the number of DAS projects. Our aggregate revenue from Alcatel-Lucent for the three months ended September 30, 2014 was $10.2 million compared to $16.9 million in the same period of 2013.

Revenues for the Infrastructure Services segment increased by $88.1 million, or 49.2%, to $267.2 million for the three months ended September 30, 2014 from $179.1 million in the same period of 2013. The increase was primarily due to an increase in the volume of site acquisition contract completions as well as the accelerated deployment of 4G-LTE networks by our largest customers. During the second quarter of 2014, AT&T deferred certain capital expenditures with us. We began to see an impact to the volume of services provided to subsidiaries of AT&T Inc. in the second quarter of 2014 due to the deferral of these AT&T capital expenditures and we expect this impact to continue through the remainder of the year. On November 7, 2014, AT&T announced that as a result of the substantial completion of the expansion of its 4G-LTE network, its capital expenditures will decrease in 2015. In addition, although AT&T’s 2015 wireless capital expenditure plan is not final, through recent communications and discussions with AT&T, we understand that it may include reassignments of certain of our Turf Markets to other vendors. The deferrals, the announced reduction in AT&T’s 2015 capital expenditures and the potential Turf Market reassignments may have a material adverse impact to our business, financial condition or results of operations. We are therefore uncertain of the amount of our estimated backlog as of September 30, 2014.

The Field Services segment is comprised of operations acquired in the merger with Multiband and was therefore only included in our results beginning August 31, 2013. The Field Services segment contributed revenues of $71.8 million for the three months ended September 30, 2014.

Cost of Revenues

Our cost of revenues for the three months ended September 30, 2014, of $300.8 million increased $99.4 million, or 49.4%, as compared to $201.3 million for the three months ended September 30, 2013, and occurred during a period when revenues increased 54.4% from the comparative period. Cost of revenues represented 82.7% and 85.4% of total revenues for the three months ended September 30, 2014 and 2013, respectively, due to the increase in site acquisition contract completions in the three months ended September 30, 2014.

Cost of revenues for the Professional Services segment decreased $0.2 million to $22.7 million for the three months ended September 30, 2014 from $22.9 million for the same period of 2013. Cost of revenues for the Professional Services segment decreased 0.8% while revenues for the Professional Services segment decreased by 13.7% from the comparative period primarily related to a reduction of project workload under the Alcatel-Lucent Contract, which consists primarily of engineering services, and an increase in the volume of DAS projects which include both installation and materials. As part of the 2014 Restructuring Plan we have taken steps to reduce our Professional Services headcount to better align it with projected demand.

Cost of revenues for the Infrastructure Services segment increased $65.2 million to $220.8 million for the three months ended September 30, 2014 from $155.6 million for the same period of 2013 or 41.9%. This increase is primarily related to the 49.2% increase in revenue for the Infrastructure Services segment compared to same quarter of the prior year. Infrastructure Services cost of revenues as a percentage of Infrastructure Services revenues decreased to 82.6% in the three months ended September 30, 2014 from 86.9% in the comparable period in 2013 primarily due to arrangements we entered into with subcontractors in 2013 due to the high demand for tower crews which did not recur in 2014.

The Field Services segment is comprised of operations acquired in the merger with Multiband and was therefore only included in our results beginning August 31, 2013. Cost of revenues for the Field Services segment was of $57.3 million for the three months ended September 30, 2014, which included a $3.8 million gain realized upon return of leased vehicles.

 

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Selling, General and Administrative Expenses

Selling, general and administrative expenses for the three months ended September 30, 2014 were $27.9 million as compared to $32.7 million for the same period of 2013, representing an overall decrease of $4.7 million, or 14.5%. The decrease during the period is primarily attributable to (i) a $9.0 million reduction of the fair value of the earn-out obligation related to the acquisition of CSG and (ii) a $3.4 million reduction in professional services primarily related to restatement related charges incurred in the second quarter of 2013 that did not recur in 2014, both of which were partially offset by (i) an increase of $7.1 million in employee related costs and the inclusion of Multiband for the full three months, and (ii) an increase in compensation expense recognized for outstanding share-based awards of $1.1 million. Selling, general and administrative expense as a percentage of revenue for the three months ended September 30, 2014 was 7.7% compared to 13.9% for the three months ended September 30, 2013. The change in the fair value of the CSG earn-out decreased selling, general and administrative expenses as a percentage of revenues by 3.5% for the three months ended September 30, 2014.

Other Operating Income

Other operating income for the three months ended September 30, 2014 and 2013 was $1.7 million and $0, respectively. The other operating income earned during the three months ended September 30, 2014 was primarily due to a $1.5 million reduction in our estimate of the fair value of our guarantee of indebtedness of a related party as a result of the pledge of certain assets to secure the related party’s reimbursement to us. See “Off-Balance Sheet Arrangements—Guarantee.”

Interest Expense

Interest expense for the three months ended September 30, 2014 and 2013, was $11.2 million and $11.6 million, respectively.

Income Tax Expense (Benefit)

As a result of income before taxes, we recorded income tax expense of $2.1 million for the three months ended September 30, 2014, compared to a benefit of $0.7 million for the same period of 2013. Our effective income tax rate was 10.9% and (7.0)% for the three months ended September 30, 2014 and 2013, respectively.

Nine Months Ended September 30, 2013 Compared to Nine Months Ended September 30, 2014

The following table sets forth information concerning our operating results by segment for the nine months ended September 30, 2013 and 2014 (in thousands).

 

		Nine Months Ended September 30,
		2013								2014
		Amount				Percentage of Total Revenue				Amount				Percentage of Total Revenue				Change ($)				Change (%)
Revenues:
Professional Services		$	78,029				13.6	%		$	71,412				8.0	%		$	(6,617	)			(8.5	)%
Infrastructure Services			467,827				81.5	%			624,228				70.1	%			156,401				33.4	%
Field Services			23,581				4.1	%			195,305				21.9	%			171,724				728.2	%
Other Services			4,233				0.7	%			—				—				(4,233	)			n/a
Total revenues			573,670				100.0	%			890,945				100.0	%			317,275				55.3	%
Cost of revenues:
Professional Services			62,619				10.9	%			67,690				7.6	%			5,071				8.1	%
Infrastructure Services			403,785				70.4	%			520,116				58.4	%			116,331				28.8	%
Field Services			19,875				3.5	%			170,495				19.1	%			150,620				757.8	%
Other Services			2,982				0.5	%			—				—				(2,982	)			n/a
Total cost of revenues			489,261				85.3	%			758,301				85.1	%			269,040				55.0	%
Gross profit:
Professional Services			15,410								3,722								(11,688	)			(75.8	)%
Infrastructure Services			64,042								104,112								40,070				62.6	%
Field Services			3,706								24,810								21,104				569.5	%
Other Services			1,251								—								(1,251	)			n/a
Total gross profit			84,409								132,644								48,235				57.1	%

 

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Gross margin as percent of segment revenues:
Professional Services			19.7	%							5.2	%
Infrastructure Services			13.7	%							16.7	%
Field Services			15.7	%							12.7	%
Other Services			29.6	%							—
Total gross margin			14.7	%							14.9	%
Selling, general and administrative expenses			83,073				14.5	%			88,386				9.9	%			5,313				6.4	%
Restructuring expense			—				—				7,379				0.8	%			7,379				n/a
Impairment expense			—				—				1,754				0.2	%			1,754				n/a
Other operating income			—				—				(3,235	)			(0.4	)%			(3,235	)			n/a
Operating income (loss)			1,336				0.2	%			38,360				4.3	%			37,024				2771.3	%
Other income			(8	)			(0.0	)%			(71	)			(0.0	)%			(63	)			(787.5	)%
Interest expense			28,790				5.0	%			34,342				3.9	%			5,552				19.3	%
Income (loss) before income taxes			(27,446	)			(4.8	)%			4,089				0.5	%			31,535				114.9	%
Income tax expense (benefit)			(7,090	)			(1.2	)%			2,157				0.2	%			9,247				130.4	%
Net income (loss)		$	(20,356	)			(3.5	)%		$	1,932				0.2	%		$	22,288				109.5	%

Revenues

We recognized total revenues of $890.9 million for the nine months ended September 30, 2014, compared to $573.7 million for the nine months ended September 30, 2013, representing an increase of $317.3 million, or 55.3%. Our aggregate revenue from subsidiaries of AT&T Inc., a majority of which was earned through our Infrastructure Services segment, was $585.8 million for the nine months ended September 30, 2014, compared to $433.2 million in the same period of 2013. A significant amount of our revenue increase was due to increased volume of services provided to subsidiaries of AT&T Inc. and the inclusion of Multiband revenues for the full first nine months of the year. For the first nine months of 2014, Multiband revenues were $197.9 million, compared to $27.8 million of revenues from Multiband during the nine months ended September 30, 2013, as Multiband’s revenues were only included in our results beginning August 31, 2013. These increases in revenue were partially offset by a decline in revenues from the Professional Services segment.

Revenues for the Professional Services segment decreased $6.6 million, or 8.5%, to $71.4 million in the nine months ended September 30, 2014 from $78.0 million in the same period of 2013. The acquisition of CSG contributed revenues of $30.6 million in the nine months ended September 30, 2014 as compared to $26.0 million for the comparable period in 2013. Excluding the CSG revenues, our Professional Services revenues declined $11.2 million, or 21.5%. This decrease was primarily due to an anticipated decline in the volume of CDMA services provided to Alcatel-Lucent. Our aggregate revenue from Alcatel-Lucent for the nine months ended September 30, 2014 was $31.7 million compared to $42.4 million in the same period of 2013.

Revenues for the Infrastructure Services segment increased by $156.4 million, or 33.4%, to $624.2 million for the nine months ended September 30, 2014 from $467.8 million in the same period of 2013. The increase was primarily due to an increase in the volume of site acquisition contract completions as well as the accelerated deployment of 4G-LTE networks by our largest customers. During the second quarter of 2014, AT&T deferred certain capital expenditures with us. We began to see an impact to the volume of services provided to subsidiaries of AT&T Inc. in the second quarter of 2014 due to a deferral of these capital expenditures and we expect this impact to continue through the remainder of the year. On November 7, 2014, AT&T announced that as a result of the substantial completion of the expansion of its 4G-LTE network, its capital expenditures will decrease in 2015. In addition, although AT&T’s 2015 wireless capital expenditure plan is not final, through recent communications and discussions with AT&T, we understand that it may include reassignments of certain of our Turf Markets to other vendors. The deferrals, the announced reduction in AT&T’s 2015 capital expenditures and the potential Turf Market reassignments may have a material adverse impact to our business, financial condition or results of operations. We are therefore uncertain of the amount of our estimated backlog as of September 30, 2014.

 

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The Field Services segment is comprised of operations acquired in the merger with Multiband and was therefore only included in our results beginning August 31, 2013. The Field Services segment contributed revenues of $195.3 million for the nine months ended September 30, 2014.

Cost of Revenues

Our cost of revenues for the nine months ended September 30, 2014, of $758.3 million increased $269.0 million, or 55.0%, as compared to $489.3 million for the nine months ended September 30, 2013, and occurred during a period when revenues increased 55.3% from the comparative period. Cost of revenues represented 85.1% and 85.3% of total revenues for the nine months ended September 30, 2014 and 2013, respectively.

Cost of revenues for the Professional Services segment increased $5.1 million to $67.7 million for the nine months ended September 30, 2014 from $62.6 million for the same period of 2013. The operation of the assets acquired in the acquisition of CSG contributed cost of revenues of $29.3 million during the nine months ended September 30, 2014 as compared to $18.9 million for the comparable period in 2013. Excluding CSG cost of revenues, our Professional Services cost of revenues declined $5.3 million, or 12.1%. This decrease was primarily related to a reduction of project workload under the Alcatel-Lucent Contract. Cost of revenues for the Professional Services segment increased 8.1% while revenues for the Professional Services segment decreased by 8.5% from the comparative period primarily related to a reduction of project workload under the Alcatel-Lucent Contract. As part of the 2014 Restructuring Plan we have taken steps to reduce our Professional Services headcount to better align it with projected demand.

Cost of revenues for the Infrastructure Services segment increased $116.3 million to $520.1 million for the nine months ended September 30, 2014 from $403.8 million for the same period of 2013 or 28.8%. This is primarily related to the 33.4% increase in revenue for the Infrastructure Services segment compared to same quarter of the prior year. Infrastructure Services cost of revenues as a percentage of Infrastructure Services revenues decreased to 83.3% in the nine months ended September 30, 2014 from 86.3% in the comparable period in 2013 primarily due to arrangements we entered into with subcontractors in 2013 due to the high demand for tower crews which did not recur in 2014.

The Field Services segment is comprised of operations acquired in the merger with Multiband and was therefore only included in our results beginning August 31, 2013. Cost of revenues for the Field Services segment was of $170.5 million for the nine months ended September 30, 2014, which included a $6.3 million gain realized upon return of leased vehicles.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the nine months ended September 30, 2014 were $88.4 million as compared to $83.1 million for the same period of 2013, representing an overall increase of $5.3 million, or 6.4%. The increase during the period is primarily attributable to (i) an increase of $23.4 million related to employee related costs and the inclusion of Multiband for the full nine months and (ii) an increase in compensation expense recognized for outstanding share-based awards of $0.8 million. These increases were partially offset by a (i) a $9.5 million reduction in the fair value of the earn-out obligation related to the acquisition of CSG and (ii) a $11.1 million reduction in professional services primarily related to restatement related charges incurred during the nine months ended September 30, 2013 that did not recur in 2014. Selling, general and administrative expense as a percentage of revenue for the nine months ended September 30, 2014 were 9.9% compared to 14.5% for the nine months ended September 20, 2013. The change in the fair value of the CSG earn-out decreased selling, general and administrative expenses as a percentage of revenues by 1.0% for the nine months ended September 30, 2014.

Other Operating Income

Other operating income for the nine months ended September 30, 2014 and 2013 was $3.2 million and $0, respectively. The other operating income earned during the nine months ended September 30, 2014 was primarily related (i) to successful negotiations with DIRECTV that enabled us to bill DIRECTV $1.2 million for services performed prior to the acquisition of Multiband, (ii) favorable settlement of $0.4 million related to litigation with a former executive of the Company, and (iii) a $1.5 million reduction in our estimate of the fair value of our guarantee of indebtedness with a related party. See “Off-Balance Sheet Arrangements—Guarantee.”

 

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Interest Expense

Interest expense for the nine months ended September 30, 2014 and 2013, was $34.3 million and $28.8 million, respectively. This increase is primarily attributable to the issuance of the tack-on notes on June 13, 2013, with respect to which interest expense was only included in our nine months ended September 30, 2013 results beginning on such date.

Income Tax Expense (Benefit)

As a result of income before taxes, we recorded income tax expense of $2.2 million for the nine months ended September 30, 2014, compared to a benefit of $7.1 million for the same period of 2013. Our effective income tax rate was 52.8% and (25.8)% for the nine months ended September 30, 2014 and 2013, respectively. The increase in the effective tax rate is due to the effect of state taxes and permanent items applied to our relatively low income before taxes for the nine months ended September 30, 2014.

Liquidity and Capital Resources

Historically, our primary sources of liquidity have been borrowings under credit facilities and the proceeds of bond offerings. In 2011, we completed a $225 million private offering of the original notes. We used the proceeds of this debt offering to pay the balances remaining on notes payable to stockholders, to purchase a portion of our outstanding warrants and common stock, including all outstanding Series C Redeemable Preferred Stock, and to pay off our prior credit facility. In 2013, to fund the merger with Multiband, we issued $100 million aggregate principal amount of the tack-on notes, and collectively with the original notes, the notes, in exchange for an equal aggregate principal amount of notes issued by our wholly owned subsidiary, GNET Escrow Corp. On July 7, 2014, to fulfill our obligations under a registration rights agreement entered in connection with the funding of the Multiband acquisition, we closed the exchange offer for the tack-on notes, pursuant to which we exchanged all of the tack-on notes for an equal principal amount of notes in a transaction registered with the SEC.

Our primary sources of liquidity are currently cash flows from continuing operations, funds available under our Credit Facility with PNC Bank, National Association, or PNC Bank, and our cash balances. We had $59.4 million and $82.2 million of cash on hand at December 31, 2013 and September 30, 2014, respectively. The Credit Facility permits us to borrow up to $50.0 million, subject to a borrowing base calculation and the compliance with certain covenants described below. As of September 30, 2014, our borrowing base under the Credit Facility was $27.4 million. We had $45.5 million and $22.9 million of availability for additional borrowings under our Credit Facility as of December 31, 2013 and September 30, 2014, respectively, subject to compliance with certain covenants described below.

We anticipate that our future primary liquidity needs will be for working capital, capital expenditures, debt service and any strategic acquisitions or investments that we make. We evaluate opportunities for strategic acquisitions and investments from time to time that may require cash and may consider opportunities to either repurchase outstanding debt or repurchase outstanding shares of our common stock in the future. We may also fund strategic acquisitions or investments with the proceeds from equity or debt issuances. In addition, during 2013 and the nine months ended September 30, 2014 we spent approximately $1.1 million and
$1.9 million, respectively, in contributions to charitable and religious organizations. We intend to make similar contributions in the future as we believe such contributions reflect our core values. We believe that, based on our cash balance, the availability we expect under the Credit Facility and our expected cash flow from operations, we will be able to meet all of our financial obligations for the next twelve months.

Should we be unable to comply with the terms and conditions of the Credit Facility, we would be required to obtain modifications to the Credit Facility or another source of financing to continue to operate as we anticipate, and we may not be able to obtain any such modifications or find another source of financing on acceptable terms or at all.

 

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Working Capital

We bill our Professional Services customers for a portion of our services in advance, and the remainder as the work is performed in accordance with the billing milestones contained in the contract. Revenues from the Professional Services segment are recognized on a completed performance method for our non-construction activities and on the completed contract method of accounting for construction projects.

Our Infrastructure Services revenues are primarily from fixed-unit price projects and are recognized under the completed contract method of accounting, and we bill for our services as we complete certain billing milestones contained in the contract. Our collection terms are generally one percent if paid in twenty days, net sixty days for AT&T. Our Mobility Turf Contract allows AT&T to retain 10% of the amount due, on a per site basis, until the job is completed. For certain customers, including AT&T, we maintain inventory to meet the requirements for materials under the contracts. Occasionally, certain customers pay us in advance for a portion of the materials we purchase for their projects, or allow us to pre-bill them for materials purchases up to specified amounts. Our agreements with material providers usually allow us to pay them within 45 days of delivery. Our agreements with subcontractors usually have terms of 60 days. As of September 30, 2014, we had $57.0 million in working capital, defined as current assets less current liabilities, as compared to $46.4 million in working capital at December 31, 2013.

Our Field Services segment earns revenue through installations and maintenance services provided to DIRECTV. A large portion of the inventory for Field Services segment is purchased from DIRECTV under 30-day payment terms. The Field Services segment is paid by DIRECTV for its services on a weekly basis approximately two weeks after the work is completed. The weekly payment received includes a reimbursement for certain inventory used during the installation process.

We have taken deliberate steps since March 31, 2014 to enhance our working capital position. During the second quarter of 2014, we began participating in an AT&T sponsored vendor finance program with Citibank, N.A., or Citibank, that is discussed under “Supplier Finance Program” below. This program has reduced our collection time on AT&T invoices and has significantly reduced the AT&T invoices subject to a one percent discount on invoices for early payment. In addition, we have reengineered our processes to improve our efforts to more timely invoice our clients for services provided. We have also begun to implement corporate restructuring and integration activities as a result of our 2014 Restructuring Plan that we expect will improve efficiencies in our operations and reduce our costs and expenses. These efforts have begun to, and we anticipate that they will continue to, increase our cash on hand and reduce the difference between billings in excess of costs on uncompleted projects and costs in excess of billings on uncompleted projects.

Supplier Finance Program

On May 8, 2014, we entered into an AT&T-sponsored vendor finance program with Citibank that has the effect of reducing the collection cycle time on AT&T invoices. This program eliminates the one percent discount on each invoice offered to AT&T for payment within twenty days. We do, however, pay Citibank a discount fee of LIBOR (as defined) plus one percent per annum on the dollar amount of AT&T receivables sold to Citibank from the date of sale until the scheduled payment date of 60 days from acceptance of the invoice. We expect this change to have a positive effect on working capital as well as a favorable change to gross profit for the Infrastructure Services segment. Our election to move to this program does, however, cause AT&T receivables to be removed from the borrowing base calculation under the Credit Facility. While the maximum commitment under the Credit Facility remains at $50.0 million, we expect the net availability under the Credit Facility to decline compared to historical levels as a result of the elimination of the AT&T receivables from the borrowing base calculation. Assuming the program was in place as of December 31, 2013, the elimination of AT&T receivables from our borrowing base calculation would have caused our borrowing base to reduce from $50.0 million to $35.9 million, and our availability for additional borrowings under the Credit Facility after giving effect to outstanding borrowings and letters of credit to reduce from $45.5 million to $31.4 million. Our borrowing base and availability for additional borrowings under the Credit Facility were $27.4 million and $22.9 million at September 30, 2014.

 

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Cash Flow Analysis

The following table presents selected cash flow data for the nine months ended September 30, 2013 and 2014 (in thousands).

 

		Nine Months Ended September 30,
		2013				2014
Net cash provided by (used in) operating activities		$	(78,398	)		$	44,994
Net cash used in investing activities			(122,825	)			(14,363	)
Net cash provided by (used in) financing activities			101,937				(7,849	)
Effect of exchange rate changes on cash			—				(4	)
Increase (decrease) in cash		$	(99,286	)		$	22,778

Operating Activities

Cash flow provided by or used in operations is primarily influenced by demand for our services, operating income and the type of services we provide, but can also be influenced by working capital needs such as the timing of customer billing, collection of receivables and the settlement of payables and other obligations. Working capital needs historically have been higher from April through October due to the seasonality of our business. Conversely, a portion of working capital assets has historically been converted to cash in the first quarter.

Net cash provided by (used in) operating activities increased by $123.4 million to $45.0 million for the nine months ended September 30, 2014, as compared to the same period in 2013. This change is primarily attributable to invoicing related to amounts included in our costs in excess of billings, collections on accounts receivables and the receipt of an income tax receivable of $13.0 million, partially offset by an increase in interest paid of $6.8 million. The decrease in our accounts receivable is partially due to reduced payment terms per the vendor finance program with Citibank.

Investing Activities

Net cash used in investing activities decreased by $108.4 million to $14.4 million for the nine months ended September 30, 2014 as compared to the same period in 2013 primarily related to our acquisitions of CSG and Multiband in 2013. Net cash used in investing activities primarily consists of DAS-related construction that we intend to lease the right to use to major carriers.

Financing Activities

Net cash used in financing activities decreased by $109.7 million to $7.8 million for the nine months ended September 30, 2014 as compared to the same period in 2013. The change was driven primarily by the issuance of the tack-on notes in connection with the acquisition of Multiband in 2013.

Material Covenants under our Indenture and Credit Facility

We are subject to certain incurrence and maintenance covenants under the Indenture and the Credit Facility, as described below.

 

		Applicable Test
Applicable Ratio		Indenture		Credit Facility
Fixed Charge Coverage Ratio		At least 2.00 to 1.00		At least 1.25 to 1.00
Leverage Ratio		No more than 2.50 to 1.00		No more than: 5.50 to 1.00 on and after 7/1/14 5.00 to 1.00 on and after 1/1/15

 

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Definitions

Under the Indenture, “Consolidated EBITDA”, “Fixed Charge Coverage Ratio” and “Total Leverage Ratio” are defined as follows:

“Consolidated EBITDA” means EBITDA, as adjusted to eliminate the impact of certain items, including: (i) share-based compensation (non-cash portion), (ii) certain professional and consulting fees identified in the Indenture, (iii) severance expense (paid to certain senior level employees), (iv) amortization of debt issuance costs, (v) expenses related to the 2014 Restructuring Plan and (vi) impairment of long-lived assets.

“Fixed Charge Coverage Ratio” means the ratio of (a) Consolidated EBITDA to (b) the Fixed Charges (as defined in the Indenture) for the applicable period.

“Total Leverage Ratio” means the ratio of (a) total indebtedness of the Company to (b) the Company’s Consolidated EBITDA for the most recently ended four fiscal quarters.

Under the Credit Facility, “Fixed Charge Coverage Ratio” and “Leverage Ratio” are defined as follows:

“Fixed Charge Coverage Ratio” means the ratio of (a) EBITDA plus fees, costs and expenses incurred in connection with the Recapitalization minus unfinanced capital expenditures made during such period but only to the extent made after the occurrence of the most recent Triggering Event; to (b) all senior debt payments made during such period plus cash taxes paid during such period plus all cash dividends paid during such period, but only to the extent paid after the occurrence of the most recent Triggering Event. We are not required to comply with the Fixed Charge Coverage Ratio until the occurrence of a Triggering Event that is continuing.

“Leverage Ratio” means the ratio of (a) funded debt of the Company to (b) EBITDA for the trailing twelve months ending as of the last day of such fiscal period. We are not required to comply with the Leverage Ratio until the occurrence of a Triggering Event that is continuing.

We previously referred to Consolidated EBITDA as “Adjusted EBITDA” throughout our external communications, however in this Quarterly Report and our external communications we now refer to Consolidated EBITDA as “Consolidated EBITDA.” References to Adjusted EBITDA are to a different measure. These financial measures and the related ratios described above are not calculated in accordance with generally accepted accounting principles, or GAAP, and are presented below for the purpose of demonstrating compliance with our debt covenants.

Applicability of Covenants

As described in more detail below, compliance with such ratios is only required upon the incurrence of debt or the making of a restricted payment, as applicable. If we are permitted to incur any debt or make any restricted payment under the Indenture, we will be permitted to incur such debt or make such restricted payment under the Credit Facility.

Under the Indenture, if we do not meet a Fixed Charge Coverage Ratio of at least 2.00 to 1.00, we may not consummate any of the following transactions:

 

•

Restricted payments, including the payment of dividends (other than the enumerated permitted payment categories);

 

•

Mergers, acquisitions, consolidations, or sale of all assets, consolidations (other than sales, assignments, transfers, conveyances, leases, or other dispositions of assets between or among the Company and the guarantors);

 

•

Incurrence of additional indebtedness (other than the enumerated permitted debt categories); or

 

•

Issuance of preferred stock (other than pay-in-kind preferred stock);

Under the terms of the Credit Facility, we must maintain a Fixed Charge Coverage Ratio equal to at least 1.25 to 1.00 (which ratio was 1.78 to 1.00 at September 30, 2014) and a Leverage Ratio no greater than as described

 

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in the table above (which ratio was 4.20 to 1.00 at September 30, 2014) during such time as a Triggering Event is continuing. A “Triggering Event” occurs when our undrawn availability (measured as of the last date of each month) on the Credit Facility has failed to equal at least $10 million for two consecutive months and continues until our undrawn availability equals $20 million for at least three consecutive months. We are only required to maintain such ratios at such time that a Triggering Event is in existence. Failure to comply with such ratios during the existence of a Triggering Event constitutes an Event of Default (as defined therein) under the Credit Facility. Had we been required to meet these ratio tests as of September 30, 2014, we would have met the Fixed Charge Coverage Ratio and the Leverage Ratio.

Under the terms of the Indenture, we are required to meet certain ratio tests giving effect to anticipated transactions, including borrowing debt and making restricted payments prior to entering these transactions. Under the Indenture, these ratio tests include a Fixed Charge Coverage Ratio of at least 2.00 to 1.00 (which ratio was 1.48 to 1.00 at September 30, 2014) and a Total Leverage Ratio not greater than 2.50 to 1.00 (which ratio was 5.31 to 1.00 at September 30, 2014). Excluding the merger with Multiband, with respect to which holders of the notes waived compliance with both ratios pursuant to the Consent Letter, we have not entered into any transaction that requires us to meet these tests as of September 30, 2014. Had we been required to meet these ratio tests as of September 30, 2014, we would not have met the Fixed Charge Coverage Ratio or the Total Leverage Ratio.

Reconciliation of Non-GAAP Financial Measures

EBITDA represents net income before income tax expense, interest, depreciation and amortization. We present EBITDA because we consider it to be an important supplemental measure of our operating performance and we believe that such information will be used by securities analysts, investors and other interested parties in the evaluation of high yield issuers, many of which present EBITDA when reporting their results. We consider EBITDA to be an operating performance measure, and not a liquidity measure, that provides a measure of operating results unaffected by differences in capital structures, capital investment cycles and ages of related assets among otherwise comparable companies.

We present Consolidated EBITDA, which is referred to as Consolidated EBITDA in the Indenture, because certain covenants in the Indenture that affect our ability to incur additional indebtedness as well as to enter into certain other transactions are calculated based on Consolidated EBITDA. Consolidated EBITDA adjusts EBITDA to eliminate the impact of certain items, including: (i) share-based compensation (non-cash portion); (ii) certain professional and consultant fees identified in the Indenture; (iii) severance expense (paid to certain senior level employees); (iv) amortization of debt issuance costs; (v) restatement fees and expenses; (vi) a tax gross-up payment made to the Company’s Chief Executive Officer to cover his tax obligation for an award of common stock; (vii) transaction fees and expenses related to acquisitions, the making of certain permitted investments, the issuance of equity or the incurrence of permitted debt; (viii) expenses related to the 2014 Restructuring Plan; and (ix) impairment of long-lived assets.

Because EBITDA and Consolidated EBITDA are not recognized measurements under U.S. GAAP, they have limitations as analytical tools. Because of these limitations, when analyzing our operating performance, investors should use EBITDA and Consolidated EBITDA in addition to, and not as an alternative for, net income, operating income or any other performance measure presented in accordance with GAAP. Similarly, investors should not use EBITDA or Consolidated EBITDA as an alternative to cash flow from operating activities or as a measure of our liquidity.

The following table reconciles our net income to EBITDA and EBITDA to Consolidated EBITDA (in thousands):

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2013				2014				2013				2014
EBITDA and Consolidated EBITDA:
Net income (loss)		$	(9,317	)		$	17,103			$	(20,356	)		$	1,932
Income tax expense (benefit)			(701	)			2,092				(7,090	)			2,157
Interest expense			11,646				11,188				28,790				34,342
Depreciation and amortization			2,666				2,790				6,133				8,514
EBITDA			4,294				33,173				7,477				46,945

 

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Share-based compensation (a)			1,073				2,148				3,416				4,193
Amortization of debt issuance costs (b)			(523	)			(871	)			(1,117	)			(2,606	)
Restructuring expense (c)			—				4,653				—				7,379
Restatement fees and expenses (d)			—				—				3,380				—
Acquisition-related transaction expenses (e)			3,768				—				5,546				—
Asset impairments (f)			—				1,754				—				1,754
Consolidated EBITDA		$	8,612			$	40,857			$	18,702			$	57,665

 

(a)	Represents non-cash expense related to equity-based compensation.

(b)	Amortization of debt issuance costs is included in interest expense but excluded in the calculation of Consolidated EBITDA per the Indenture.

(c)	Represents expenses incurred in connection with the 2014 Restructuring Plan.

(d)

Represents accounting advisory and audit fees incurred in connection with completing restatement of our financial statements for the years ended December 31, 2009, 2010 and 2011, and preparing our financial statements for the year ended December 31, 2012, on the completed contract method and modifying our business processes to account for construction projects under the completed contract method going forward.

(e)	Represents fees and expenses incurred relating to our business acquisitions.

(f)	Represents impairment charges recognized on our long-lived assets.

Mortgage

In March 2014, our wholly owned subsidiary, Multiband Special Purpose, LLC (“MBSP”), refinanced the mortgage payable related to the Multiband headquarters in Minnetonka, Minnesota with Commerce Bank, for the amount of $3.8 million with an interest rate of 5.75% per annum. The loan is payable in monthly installments, with the final payment due in March 2019, and is secured by a lien on Multiband’s headquarters. As additional collateral for the mortgage, MBSP deposited $1.0 million in the lender’s favor. During the third quarter of 2014, we listed for sale the Multiband headquarters building in Minnetonka, Minnesota. The building and associated mortgage have been recorded as assets and liabilities held for sale, respectively in the accompanying consolidated balance sheet.

Capital Expenditures

We estimate that we will spend approximately $20 million in 2014 on capital expenditures. The increase over previous years is primarily related to network construction costs. We expect to recover a portion of these costs through arrangements with wireless carriers. We also expect an increase in capital expenditures as a result of certain business process automation initiatives that we have implemented in order to further streamline systems and reporting.

Acquisition-Related Contingent Consideration

In our acquisitions of CSG and DBT, we have agreed to make future cash earn-out payments to the sellers, which are contingent upon the future performance of the acquired businesses. The estimated fair value, which is the estimated payout discounted for the time value of money, of the earn-out obligations recorded as of September 30, 2014 was $1.2 million, $0.5 million of which was recorded as a current liability in our consolidated balance sheet. During the third quarter of 2014, we recorded a $9.0 million reduction to the fair value of the CSG contingent consideration liability based upon changes in management’s forecast for the CSG operations during the remainder of the earn-out period partially as a result of the deferral of certain projects by AT&T.

Off-Balance Sheet Arrangements

We have entered into certain off-balance sheet arrangements in the ordinary course of business that result in risks not directly reflected in our balance sheets. Our significant off-balance sheet transactions include liabilities associated with non-cancellable operating leases, letter of credit obligations, and performance and payment bonds entered into in the normal course of business. We have not engaged in any off-balance sheet financing arrangements through special purpose entities.

 

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Leases

We enter into non-cancellable operating leases for certain of our facility, vehicle and equipment needs. These leases allow us to conserve cash by paying a monthly lease rental fee for use of facilities, vehicles and equipment rather than purchasing them. We may decide to cancel or terminate a lease before the end of its term, in which case we are typically liable to the lessor for the remaining lease payments under the term of the lease.

Guarantee

In October 2011, we issued a letter of credit as a guarantee of a related party’s line of credit. The maximum available to be drawn on the line of credit is $4.0 million. In the event of default on the line of credit by the related party, the letter of credit provides that we will have the option to enter into a note purchase agreement with the lender or to permit a drawing on the letter of credit in an amount not to exceed the amount by which the outstanding obligation exceeds the value of the related party’s collateral securing the line of credit, but in no event more than $4.0 million. Our letter of credit was originally due to expire in July 2012 and prior to expiration has been amended each year thereafter to extend the expiration date by one year. The letter of credit was most recently amended to extend the guarantee of the related party’s line of credit until July 2015.

Our exposure with respect to the letter of credit is supported by a reimbursement agreement from the related party, secured by a pledge of assets and stock of the related party. As of December 31, 2011, we concluded that we will likely be required to perform for the full exposure under the guarantee and therefore recorded a liability in the amount of $4.0 million included in accrued liabilities in our consolidated financial statements in the fourth quarter of 2011. This guarantee liability for the full amount of $4.0 million remains in accrued liabilities as of September 30, 2014.

In the third quarter of 2014, we and the related party negotiated an arrangement whereby we agreed not to pursue the pledged collateral for a period of time not extending beyond May 5, 2016 (the “Forbearance Period”) in the event the line of credit is drawn upon in exchange for the related party’s pledge to us of 15,625 shares of Goodman Networks common stock. In addition, we agreed to discharge and deem paid-in-full all obligations of the related party to us if on or prior to the end of the Forbearance Period, the related party makes a cash payment to us in the amount of $1.5 million plus interest at a rate of 2.0% per annum from September 25, 2014. Pursuant to the agreement we agreed to instruct the lender to draw on the letter of credit. As a result of the agreement reached in the third quarter of 2014, we recorded other income of $1.5 million in the consolidated income statement and recorded the pledged stock as additional paid-in capital on the consolidated balance sheet. The guarantee liability for the full amount of $4.0 million remains in accrued liabilities as of September 30, 2014.

Indemnification Obligations

We generally indemnify our customers for the services we provide under our contracts, as well as other specified liabilities, which may subject us to indemnity claims, liabilities and related litigation. As of September 30, 2014, we are not aware of any asserted claims for material amounts in connection with these indemnity obligations.

Seasonality

Historically we have experienced seasonal variations in our business primarily due to the capital planning cycles of certain of our customers. Generally, AT&T’s annual capital plans are not finalized to the project level until sometime during the first three months of the year, resulting in reduced capital spending in the first quarter relative to the rest of the year. This results in a significant portion of contracts related to our Infrastructure Services segment being completed during the fourth quarter of each year. Because we have adopted the completed contract method, we do not recognize revenue or expenses on contracts until we have substantially completed the contract. Accordingly, the recognition of revenue and expenses on contracts that span quarters may also cause our reported results of operations to experience significant fluctuations.

 

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Our Field Services segment’s results of operations may also fluctuate significantly from quarter to quarter. We typically generate more revenues in our Field Services segment during the third quarter of each year due to favorable weather conditions and DIRECTV’s sports promotional efforts. Because a significant portion of the Field Services segment’s expenses are relatively fixed, a variation in the number of customer engagements or the timing of the initiation or completion of those engagements can cause significant fluctuations in operating results from quarter to quarter.

As a result, we have historically experienced, and may continue to experience significant differences in operations results from quarter to quarter. As a result of these seasonal variations and our methodology for the recognition of revenue and expenses on projects, comparisons of operating measures between quarters may not be as meaningful as comparisons between longer reporting periods.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with U.S. GAAP requires our management to use judgment in the application of accounting policies, including making estimates and assumptions. We base estimates on our experience and on various other assumptions believed to be reasonable under the circumstances. These estimates affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. If our judgment or interpretation of the facts and circumstances relating to various transactions or other matters had been different, it is possible that different accounting would have been applied, resulting in a different presentation of our consolidated financial statements. From time to time, we re-evaluate our estimates and assumptions. In the event estimates or assumptions prove to be different from actual results, adjustments are made in subsequent periods to reflect more current estimates and assumptions about matters that are inherently uncertain. We have reviewed and approved these significant accounting policies, which are further described under “Critical Accounting Policies and Estimates” and Note 2 to the Consolidated Financial Statements in the 2013 Annual Report.

 

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PART II. OTHER INFORMATION

Item 1A. Risk Factors

Except as set forth below, there have been no material changes to the risk factors disclosed under “Item 1A. Risk Factors” of the 2013 Annual Report. For additional information concerning our risk factors, please refer to “Item 1A. Risk Factors” of the 2013 Annual Report.

We derive the vast majority of our revenues from subsidiaries of AT&T Inc. and DIRECTV. The loss of any of these customers or a reduction in their demand for our services would impair our business, financial condition and results of operations.

We derive the vast majority of our revenues from subsidiaries of AT&T Inc. and DIRECTV. We derived our revenue from the following sources over the past two fiscal years and the nine months ended September 30, 2014 (dollars in thousands):

 

		Years Ended December 31,																								Nine Months Ended September 30,
		2012								2013								2013, on a pro forma basis for the merger with Multiband (1)								2013								2013, on a pro forma basis for the merger with Multiband (1)								2014
Revenue From:		Revenue				Percent of Total				Revenue				Percent of Total				Revenue				Percent of Total				Revenue				Percent of Total				Revenue				Percent of Total				Revenue				Percent of Total
Subsidiaries of AT&T Inc.		$	532,082				87.3	%		$	662,758				71.1	%		$	662,758				58.4	%		$	433,193				75.5	%		$	433,193				55.7	%		$	585,755				65.7	%
DIRECTV			—				—				92,425				9.9	%			270,329				23.8	%			24,791				4.3	%			202,986				26.1	%			182,801				20.5	%
		$	532,082				87.3	%		$	755,183				81.0	%		$	933,087				82.2	%		$	457,984				79.8	%		$	636,179				81.8	%		$	768,556				86.2	%
(1)    Giving effect to the merger with Multiband as if it occurred on January 1, 2013.

Because we derive the vast majority of our revenues from these customers, and certain of our services for AT&T are provided on a territory basis, with no required commitment for AT&T to spend a specified amount in such territory with us, we could experience a material adverse effect to our business, financial condition or results of operations if the amount of business we obtain from these customers is reduced. On May 18, 2014, AT&T Inc. and DIRECTV announced that they had entered into a merger agreement pursuant to which DIRECTV would merge with a subsidiary of AT&T Inc. The closing of the merger is subject to several conditions, including review and approval by the FCC and the Department of Justice. If the merger occurs, our revenues could become more concentrated and dependent on our relationship with AT&T Inc. To the extent that our performance does not meet customer expectations, or our reputation or relationships with our key customers are impaired, we may lose future business with such customers, which would materially adversely affect our ability to generate revenue. During the second quarter of 2014, AT&T deferred certain capital expenditures with us and we expect this impact to continue through the remainder of the year. On November 7, 2014, AT&T announced that as a result of the substantial completion of the expansion of its 4G-LTE network, its capital expenditures will decrease in 2015. In addition, although AT&T’s 2015 wireless capital expenditure plan is not final, through recent communications and discussions with AT&T, we understand that it may include reassignments of certain of our Turf Markets to other vendors. In addition to the impact of the deferrals in AT&T’s capital expenditures, any of these factors could negatively impact our business, financial condition or results of operations.

We depend on a limited number of key personnel who would be difficult to replace.

We depend, in part, on the performance of Ron Hill, our Chief Executive Officer and President, John Goodman, our Executive Chairman, and Cari Shyiak, our Chief Operating Officer, to operate and grow our business. We previously depended, in part, on Randal S. Dumas, our former Chief Financial Officer, Scott E. Pickett, our former Chief Marketing Officer and Executive Vice President of Strategic Planning and Mergers and Acquisitions, and James L. Mandel, who served as Multiband’s Chief Executive Officer. The loss of any of Messrs. Hill,

 

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Goodman or Shyiak could negatively impact our ability to execute our business strategies. Although we have entered into employment agreements with Messrs. Hill, Goodman and Shyiak, we may be unable to retain them or replace any of them if we lose their services for any reason. We recently amended our bylaws to provide that our Chief Executive Officer will be responsible for the general supervision and management of the Company and our Executive Chairman will be responsible for, among other things, providing advice and counsel to our Chief Executive Officer in areas such as corporate and strategic planning and policy, mergers and acquisitions, corporate objectives, annual financial budgets, capital expenditures, evaluating and hiring employees, and communicating with investment bankers, lenders or other financial sponsors. Mr. Goodman remains a critical and integral part of our day-to-day business. While his duties have changed, Mr. Goodman has simply redeployed his executive experience gained through continuous service to our business as our co-founder to manage both short- and long-term future business strategy. In connection with the amendment to our bylaws, we and Mr. Goodman amended and restated Mr. Goodman’s employment agreement to, among other things, extend the term of his employment to a period of three years. Mr. Goodman has advised us that he has no plans to leave the Company. We cannot assure you, despite Mr. Goodman’s expressed interest in continuing in his position with the Company, that we will not suffer adverse impacts to the Company as a result of this transition, nor can we assure you that we will not suffer adverse impacts as a result of the losses of Messrs. Dumas, Mandel or Pickett.

The Field Services segment is highly dependent on our strategic alliance with DIRECTV and a major alteration or termination of that alliance could adversely affect our business.

The Field Services segment is highly dependent on our relationship with DIRECTV. Our current MSA with DIRECTV was extended in December 2013 and expires on December 31, 2017. The term of this agreement automatically renews for additional one-year periods unless either DIRECTV or we give written notice of termination at least 90 days in advance of expiration of the then current term.

The agreement can be terminated on 180 days’ notice by either party. Although DIRECTV may not terminate the agreement if it were to complete its proposed merger with AT&T Inc., the agreement does not require DIRECTV to undertake any work with us. DIRECTV may also change the terms of its agreement with us, and has done so to Multiband in the past, to terms that are more favorable to DIRECTV. Any adverse alteration or termination of our agreement with DIRECTV would have a material adverse effect on our business. In addition, a significant decrease in the number of jobs we complete for DIRECTV could have a material adverse effect on our business, financial condition and results of operations.

Our ability to borrow under the Credit Facility is subject to fluctuations of our borrowing base calculation due to the amount of our receivables with customers other than AT&T.

The borrowings available under the Credit Facility are subject to fluctuations in the calculation of a borrowing base, which is based on the value of our eligible accounts receivable and up to $10.0 million of eligible inventory. On May 8, 2014, we entered into an AT&T-sponsored vendor finance program to reduce our effective collection cycle time on AT&T invoices, but to facilitate the program, we amended the Credit Facility to remove the AT&T receivables as collateral thereunder. Our receivables with AT&T therefore no longer contribute to our borrowing base under the Credit Facility. While the maximum commitment on the Credit Facility remains at $50.0 million, we expect the net availability thereunder to decline compared to historical levels as a result of the elimination of the AT&T receivables from the borrowing base calculation. Assuming this program was in place as of December 31, 2013, the elimination of AT&T receivables from our borrowing base calculation would have caused our borrowing base under the Credit Facility to reduce from $50.0 million to $35.9 million and our availability for additional borrowings under the Credit Facility after giving effect to outstanding borrowings and letters of credit to reduce from $45.5 million to $31.4 million. At September 30, 2014, our borrowing base under the Credit Facility was $27.4 million and our availability for additional borrowings after giving effect to outstanding borrowings and letters of credit was $22.9 million. As a result, the availability under the Credit Facility fluctuates with the level of receivables with customers other than AT&T and reduces as we collect receivables or if they are not paid within a certain period of time. If the value of our eligible inventory were to significantly decrease, it could also reduce our borrowing capacity. If our borrowing base is reduced below the level of outstanding borrowings on the Credit Facility, then a portion of the outstanding indebtedness under the Credit Facility could become due and payable. If that should occur, we may be forced to use the proceeds from the collection of receivables to repay the facility or we may be unable to repay all of our obligations under the Credit Facility, which could force us to sell significant assets or allow our assets to be foreclosed upon. Should our liquidity needs exceed our cash on hand and borrowings available under the Credit Facility, we would be required to obtain modifications of the Credit Facility or secure another source of financing to continue to operate our business, which may not be available at a favorable price, or at all.

Item 6. Exhibits

A list of exhibits filed herewith is contained in the Exhibit Index that immediately precedes such exhibits and is incorporated by reference herein.

 

 

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Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

				GOODMAN NETWORKS INCORPORATED
Date: February 2, 2015				By:		/s/ RON B. HILL
						Name: Ron B. Hill
						Title: Chief Executive Officer and President (Duly authorized officer)
Date: February 2, 2015				By:		/s/ CRAIG E. HOLMES
						Name: Craig E. Holmes
						Title: Chief Financial Officer (Principal financial officer)

 

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EXHIBIT INDEX

 

Incorporated by Reference

Exhibit Number

Exhibit Description

Form

File No.

Exhibit No.

Filing Date

Filed Herewith

2.1#

Asset Purchase Agreement, dated February 28, 2013, by and among Goodman Networks Incorporated, Cellular Specialties, Inc., and certain voting trustees and voting shareholders party thereto.

S-4

333-186684

2.1

April 26, 2013

2.2#

Agreement and Plan of Merger, dated as of May 21, 2013, by and among Goodman Networks Incorporated, Manatee Merger Sub Corporation and Multiband Corporation.

S-4

333-186684

2.2

June 11, 2013

2.3#

Asset Purchase Agreement, dated as of December 31, 2013, by and among Goodman Networks Incorporated, Multiband Corporation, Minnesota Digital Universe, Inc., Multiband Subscriber Services, Inc. and Multiband MDU Incorporated.

8-K

333-186684

2.1

January 7, 2014

10.1†

Construction Subordinate Agreement, dated September 1, 2014, by and between Goodman Networks Incorporated and AT&T Mobility LLC.

X

10.2†

Mobility Network General Agreement, dated January 14, 2014, by and between Goodman Networks Incorporated and AT&T Mobility LLC.

X

31.1

Certification, dated February 2, 2015, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Principal Executive Officer of Goodman Networks Incorporated.

X

31.2

Certification, dated February 2, 2015, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Principal Financial Officer of Goodman Networks Incorporated.

X

32.1*

Certification, dated November 13, 2014, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of Principal Executive Officer and Principal Financial Officer of Goodman Networks Incorporated.

101.CAL*

XBRL Taxonomy Extension Calculation Linkbase.

101.DEF*

XBRL Taxonomy Extension Definition Linkbase.

101.INS*

XBRL Instance Document.

101.LAB*

XBRL Taxonomy Extension Label Linkbase.

101.PRE*

XBRL Taxonomy Extension Presentation Linkbase.

101.SCH*

XBRL Taxonomy Extension Schema.

 

*	Previously filed.

†	Confidential treatment has been requested with respect to certain portions of this Exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission.

#	Schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. Goodman Networks Incorporated hereby undertakes to furnish supplementally copies of any of the omitted schedules upon request by the Securities and Exchange Commission.

 

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