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8-K - 8-K - Goodman Networks Incd925971d8k.htm

Exhibit 99.1

 

LOGO

Goodman Networks Reports First Quarter Revenue

And Earnings

¡ Q1 Revenue of $213.4 million

¡ Q1 Adjusted EBITDA of $(4.8) million

PLANO, TX, May 13, 2015 – Goodman Networks Incorporated today announced financial results for the three months ended March 31, 2015.

Revenue was $213.4 million for the three months ended March 31, 2015, compared to $256.6 million for the three months ended March 31, 2014, a decrease of 16.8%. Infrastructure Services (IS) revenue declined 19.5% driven by the decrease in the volume of projects completed under our Mobility Turf Contract with AT&T Mobility, LLC. Professional Services (PS) revenue decreased 37.3% resulting from the decrease in the volume of services provided to Alcatel-Lucent and AT&T offset slightly by an increase in the volume of frequency, spectrum, engineering and optimization projects. Gross Profit declined $13.9 million for the three months ended March 31, 2015 to $19.5 million from $33.4 million for the three months ended March 31, 2014 due to the decline in revenue and increased overhead cost as a percentage of revenue and changes in product mix resulting in lower margins. Field Services (FS) revenue was $58.9 million for the three months ended March 31, 2015 compared to $59.8 million for the three months ended March 31, 2014, relatively flat year over year. Net loss was $28.5 million for the three months ended March 31, 2015, compared to a net loss from of $10.3 million for the three months ended March 31, 2014.

Adjusted EBITDA was ($4.8) million for the three months ended March 31, 2015, down from $4.4 million for the three months ended March 31, 2014, a decrease driven primarily by the decline of revenues and gross margins in our IS segment. Summary financial statements for the three months ended March 31, 2015 are included in Exhibit A to this earnings announcement.

“We have had a difficult start to 2015 due to a number of market challenges,” stated Ron Hill, Goodman Networks’ executive chairman and chief executive officer. “Despite these challenges, we remain optimistic about our growth prospects for 2016 and beyond. As carriers increase spectrum holdings and upgrade their network to keep pace with increasing consumer demand, Goodman is uniquely positioned to capitalize on this growth in the marketplace.”


Summary results are presented below.

Results for the three months ended March 31, 2015 and 2014 (dollars in thousands)

 

     Three Months Ended March 31        
     2014     2015        
     Amount     Amount     Change ($)  

Revenues:

      

Professional Services

   $ 22,197      $ 13,921      $ (8,276

Infrastructure Services

     174,626        140,591        (34,035

Field Services

     59,768        58,859        (909
  

 

 

   

 

 

   

 

 

 

Total revenues

  256,591      213,371      (43,220

Cost of revenues:

Professional Services

  21,242      14,163      (7,079

Infrastructure Services

  146,208      131,881      (14,327

Field Services

  55,754      47,796      (7,958
  

 

 

   

 

 

   

 

 

 

Total cost of revenues

  223,204      193,840      (29,364

Gross profit:

Professional Services

  955      (242   (1,197

Infrastructure Services

  28,418      8,710      (19,708

Field Services

  4,014      11,063      7,049   
  

 

 

   

 

 

   

 

 

 

Total gross profit

  33,387      19,531      (13,856

Gross margin as percent of segment revenues:

Professional Services

  4.3   (1.7 )% 

Infrastructure Services

  16.3   6.2

Field Services

  6.7   18.8
  

 

 

   

 

 

   

Total gross margin

  13.0   9.2

Selling, general and administrative expenses

  32,070      28,293      (3,777

Restructuring expense

  —        6,338      6,338   

Impairment expense

  —        2,275      2,275   
  

 

 

   

 

 

   

 

 

 

Operating income

  1,317      (17,375   (18,692

Other (income) loss

  (31   —        31   

Interest income

  (0   (36   (36

Interest expense

  11,687      10,855      (832
  

 

 

   

 

 

   

 

 

 

Loss before income taxes

  (10,339   (28,194   (17,855

Income tax expense

  (51   331      382   
  

 

 

   

 

 

   

 

 

 

Net loss

$ (10,288 $ (28,525 $ (18,237 )
  

 

 

   

 

 

   

 

 

 

Total revenue decreased $43.2 million, as expected, driven primarily by the decreased volume of services provided to subsidiaries of AT&T Inc. and a $9.3 million decline in services provided to Sprint, Inc. due to the completion of certain programs. Cost of revenue as a percentage of revenue increased to 90.8% for the three months ended March 31, 2015 from 87.0% for the three months ended March 31, 2014. Overall, cost of revenues declined slower than revenue as a result of the deferral in our cost cutting initiatives, while waiting for further validation of our customer build plans, and the change in product mix during the three months ended March 31, 2015.

Selling, general and administrative expense of $28.3 million for the three months ended March 31, 2015 decreased $3.8 million from $32.1 million for the three months ended March 31, 2014 due to a reduction in professional fees, cost savings from the 2014 restructuring plan, a


reduction in travel and entertainment expenses and the elimination of the earn-out obligation in connection with our acquisition of the Custom Solutions Group (“CSG”) of Cellular Specialties, Inc. The selling, general and administrative expense as a percentage of revenue increased to 13.3% for the three months ended March 31, 2015 from 12.5% for the three months ended March 31, 2014 due primarily to the decline in revenue.

Interest expense of $10.9 million for the three months ended March 31, 2015 decreased $0.8 million from $11.7 million for the three months ended March 31, 2014 as a result of the penalty for the delayed registration of the exchange offer for the tack-on notes incurred during the three months ended March 31, 2014. Income tax expense was $0.3 million for the three months ended March 31, 2015 compared to an income tax benefit of $50,000 for the three months ended March 31, 2014. The decrease was driven primarily by the change in deferred tax liabilities and state income taxes.

Goodman Networks Conference Call Information

Goodman Networks will host a conference call to discuss its financial and operational results at 7:30 AM Central Time (CT) on Thursday, May 14, 2015. Dial-in information for the conference call is as follows:

 

Date: Thursday, May 14, 2015
Time: 7:30 AM CT
Call-in number: (866) 515-2910 or (617) 399-5124
Participant Passcode: 58202749

Please plan on accessing the conference call 5 minutes prior to the scheduled start time.

A replay of the call will be available for 7 days. To listen to a replay of the call, please dial (888) 286-8010 or (617) 801-6888 and use passcode 59413634 prior to 11:59 PM CT on Thursday May 21, 2015.

About Goodman Networks Incorporated

Goodman Networks is a leading national provider of end-to-end network infrastructure and professional services to the wireless telecommunications industry. Our core services span the full network lifecycle, including the design, engineering, construction, deployment, integration, maintenance and decommissioning of wireless networks.


Forward-Looking Statements

This earnings release and the conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management’s current expectations, estimates and projections. Forward-looking statements are subject to risks and uncertainties that may cause actual results in the future to differ materially from the results projected or implied in any forward-looking statements contained in this earnings release. Such risks and uncertainties include our reliance on two customers, which have announced a plan to merge, for the vast majority of our revenues, our ability to maintain a level of service quality satisfactory to those two customers across a broad geographic area, our ability to manage or refinance our substantial level of indebtedness and our ability to generate sufficient cash to service our indebtedness, our ability to raise additional capital to fund our operations and meet our obligations, our ability to translate amounts included in our estimated backlog into revenue or profits, business and economic conditions and trends in the telecommunications industry affecting our customers, the adequacy of our insurance and other reserves and allowances for doubtful accounts, whether the carrying value of our assets may be impaired, the future impact of any acquisitions or dispositions, the anticipated outcome of other contingent events, including litigation, liquidity and other financial needs and the availability of financing, and the other risks detailed in our filings with the Securities and Exchange Commission. We do not undertake to update forward-looking statements.


Non-GAAP Financial Measures

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 our results. We present Adjusted EBITDA, which adjusts EBITDA for items that management does not consider to be reflective of our core operating performance, because it may be used by certain investors as a measure of operating performance. Management considers core operating performance to be that which can be affected by managers in any particular period through their management of the resources that affect our underlying revenue and profit generating operations during that period. Adjusted EBITDA adjusts EBITDA to eliminate the impact of certain items, including: (i) share-based compensation (non-cash portion); (ii) certain restructuring fees and expenses; (iii) amortization of debt issuance costs; and (iv) impairment charges recognized on our long-lived assets.

 

     Three months ended March 31,  
     2014      2015  

EBITDA and Adjusted EBITDA:

     

Net income (loss) from continuing operations

   $ (10,288    $ (28,525

Income tax expense (benefit)

     (51      331   

Interest income

     —           (36

Interest expense

     11,687         10,855   

Depreciation and amortization

     2,868         2,877   
  

 

 

    

 

 

 

Total EBITDA

  4,216      (14,498

Share-based compensation

  1,035      1,963   

Restructuring expense

  —        6,338   

Impairment expense

  —        2,275   

Amortization of debt issuance costs

  (870   (873
  

 

 

    

 

 

 

Adjusted EBITDA

$ 4,381    $ (4,795 )
  

 

 

    

 

 

 

Estimated Backlog

The Company refers to the amount of revenue it expects to recognize over the next 18 months from future work on uncompleted contracts, including master service agreements and new contractual agreements on which work has not begun, as its “estimated backlog.” The Company determines the amount of estimated backlog for work under master service agreements based on historical trends, anticipated seasonal impacts and estimates of customer demand based upon communications with customers. The Company’s estimated 18-month backlog as of March 31, 2015 was $1.4 billion.


Goodman Networks Contact:

 

Investor Relations: Geoffrey W. Miller

Interim Chief Financial Officer

gemiller@goodmannetworks.com

(972) 421-5197


Exhibit A

Goodman Networks Incorporated

Consolidated Balance Sheets

(In Thousands, Except Share Amounts and Par Value)

 

     December 31, 2014     March 31, 2015  
           (Unaudited)  

Assets

    

Current Assets

    

Cash

   $ 76,703      $ 35,183   

Accounts receivable, net of allowances for doubtful accounts of $877 at December 31, 2014 and $460 at March 31, 2015, respectively

     66,354        44,834   

Unbilled revenue on completed projects

     16,780        19,452   

Costs in excess of billings on uncompleted projects

     81,410        69,559   

Inventories

     18,638        16,811   

Prepaid expenses and other current assets

     6,727        6,317   

Assets held for sale

     4,000        4,000   

Income tax receivable

     513        91   
  

 

 

   

 

 

 

Total current assets

  271,125      196,247   

Property and equipment, net of accumulated depreciation of $29,776 at December 31, 2014 and $31,022 at March 31, 2015, respectively

  24,638      22,462   

Deferred financing costs, net

  14,491      13,508   

Deposits and other assets

  2,821      2,789   

Insurance collateral

  12,249      14,076   

Intangible assets, net of accumulated amortization of $9,361 at December 31, 2014 and $10,816 at March 31, 2015, respectively

  19,558      18,104   

Goodwill

  69,178      69,178   
  

 

 

   

 

 

 

Total assets

$ 414,060    $ 336,364   
  

 

 

   

 

 

 

Liabilities and Shareholders’ Deficit

Current Liabilities

Accounts payable

$ 94,851    $ 75,043   

Accrued expenses

  73,574      58,401   

Income taxes payable

  1,783      706   

Billings in excess of costs on uncompleted projects

  36,316      18,202   

Deferred revenue

  426      681   

Liabilities related to assets held for sale

  3,646      3,605   

Deferred rent - short term

  188      136   

Current portion of capital lease and notes payable obligations

  1,366      1,728   
  

 

 

   

 

 

 

Total current liabilities

  212,150      158,502   

Notes payable

  326,648      326,524   

Capital lease obligations

  1,045      952   

Accrued expenses, non-current

  8,484      9,560   

Deferred revenue, non-current

  8,874      10,217   

Deferred tax liability, non-current

  1,428      1,707   

Deferred rent

  454      487   
  

 

 

   

 

 

 

Total liabilities

  559,083      507,949   

Shareholders’ Deficit

Common stock, $0.01 par value, 10,000,000 shares authorized;

1,029,072 issued and 912,754 outstanding at December 31, 2014 and March 31, 2015

  10      10   

Treasury stock, at cost, 116,318 shares at December 31, 2014 and March 31, 2015

  (11,756   (11,756

Additional paid-in capital

  18,525      20,488   

Accumulated other comprehensive income

  14      14   

Accumulated deficit

  (151,816   (180,341
  

 

 

   

 

 

 

Total shareholders’ deficit

  (145,023   (171,585
  

 

 

   

 

 

 

Total liabilities and shareholders’ deficit

$ 414,060    $ 336,364   
  

 

 

   

 

 

 


Goodman Networks Incorporated

Consolidated Statements of Operations

(In Thousands)

 

     Three Months Ended  
     March 31,  
     2014     2015  

Revenues

   $ 256,591      $ 213,371   

Cost of revenues

     223,204        193,840   
  

 

 

   

 

 

 

Gross profit (exclusive of depreciation and amortization included in selling, general and administrative expense shown below)

  33,387      19,531   

Selling, general and administrative expenses

  32,070      28,293   

Restructuring expense

  —        6,338   

Impairment expense

  —        2,275   
  

 

 

   

 

 

 

Operating income (loss)

  1,317      (17,375

Other income

  (31   —     

Interest expense, net

  11,687      10,819   
  

 

 

   

 

 

 

Loss before income taxes

  (10,339   (28,194

Income tax expense (benefit)

  (51   331   
  

 

 

   

 

 

 

Net loss

$ (10,288 $ (28,525
  

 

 

   

 

 

 

Other comprehensive income:

  

 

 

   

 

 

 

Comprehensive loss

$ (10,288 $ (28,525
  

 

 

   

 

 

 


Goodman Networks Incorporated

Consolidated Statements of Cash Flows

(In Thousands)

 

     Three Months Ended March 31,  
     2014     2015  

Operating Activities

    

Net loss

   $ (10,288   $ (28,525

Adjustments to reconcile net loss to net cash used in operating activities:

    

Depreciation and amortization of property and equipment

     1,492        1,423   

Amortization of intangible assets

     1,376        1,454   

Amortization of debt discounts and deferred financing costs

     840        859   

Impairment charges

     —          2,275   

Provision of doubtful accounts

     187        575   

Deferred tax expense

     (146     278   

Share-based compensation expense

     1,035        1,963   

Accretion of contingent consideration

     250        —     

Change in fair value of contingent consideration

     (294     (726

Loss on sale of property and equipment

     14        —     

Changes in:

    

Accounts receivable

     42,082        21,409   

Unbilled revenue

     8,279        (3,138

Costs in excess of billings on uncompleted projects

     (28,726     11,850   

Inventories

     (6,095     1,827   

Prepaid expenses and other assets

     147        (1,422

Accounts payable and other liabilities

     (35,753     (28,848

Income taxes payable / receivable

     13,146        (701

Billings in excess of costs on uncompleted projects

     (18,179     (18,123

Deferred revenue

     —          1,598   

Deferred rent

     —          (18
  

 

 

   

 

 

 

Net cash used in operating activities

  (30,633   (35,990
  

 

 

   

 

 

 

Investing Activities

Purchases of property and equipment

  (2,024   (1,324

Proceeds from the sale of property and equipment

  21      —     

Change in due from shareholders

  1      1   
  

 

 

   

 

 

 

Net cash used in investing activities

  (2,002   (1,323
  

 

 

   

 

 

 

Financing Activities

Bank overdrafts

  5,977      —     

Proceeds from lines of credit

  225,225      199,157   

Payments on lines of credit

  (221,807   (199,157

Payments on capital lease and notes payable obligations

  (1,911   (206

Payments on contingent arrangements

  (141   —     

Payments on guarantee arrangements

  —        (4,000

Payments for deferred financing costs

  (374   —     
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

  6,969      (4,206
  

 

 

   

 

 

 

Effect of exchange rate changes on cash

  —        (1
  

 

 

   

 

 

 

Decrease in cash

  (25,666   (41,520

Cash, Beginning of Period

  59,439      76,703   
  

 

 

   

 

 

 

Cash, End of Period

$ 33,773    $ 35,183