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8-K - FORM 8-K - Goodman Networks Incd242300d8k.htm

Exhibit 99.1

 

LOGO

Goodman Networks Reports Second Quarter 2016

Revenue and Earnings

FRISCO, TX, August 15, 2016 – Goodman Networks Incorporated today announced financial results for the three and six months ended June 30, 2016.

Revenue from continuing operations was $90.9 million and $177.9 million for the three and six months ended June 30, 2016, respectively, an increase of $9.7 million and $16.9 million from the same periods in 2015. These revenue amounts, exclude revenue from discontinued operations, which for the three and six months ended June 30, 2016 was $42.5 million and $85.4 million, respectively. The revenue growth from continuing operations was driven by increased demand in our Field Services segment partially offset by decreased revenues in our Professional Services.

During the second quarter of 2016, we entered into an Asset Purchase Agreement with Dycom Industries, Inc.(“Dycom”), pursuant to which on July 6, 2016, we sold certain assets to Dycom, and Dycom assumed certain liabilities of the Company, related to the Company’s former wireless network deployment and wireline businesses within the Infrastructure Services segment. As a result, the Company has classified the results of the wireless network deployment and the wireline businesses as discontinued operations in the consolidated statements of operations and comprehensive loss for all periods presented. Additionally, the related assets and liabilities associated with the discontinued operations are classified as held for sale in the consolidated balance sheets.

Field Services revenue increased 30.3% and 26.8% for the three and six months ended June 30, 2016, as compared to the same periods in 2015, respectively, driven primarily by an increased volume in work orders related to satellite installation and repair services. Professional Services revenue decreased 39.1% and 19.7% for the three and six months ended June 30, 2016 as compared to the same periods in 2015, respectively, resulting from a decrease in engineering services provided to Alcatel-Lucent and a reduction of in the amount of Distributed Antenna Systems (“DAS”) services we provided as we completed certain long-term contracts. Infrastructure Services revenue, now consisting primarily of decommissioning and maintenance services for carriers, decreased 49.5% and 80.3% for the three and six months ended June 30, 2016, respectively, compared to the same periods in 2015 due to the decline in services provided under a decommissioning program for a major carrier. We expect revenue for our Infrastructure Services segment to decline further through the third quarter of 2016 and begin to recover in the fourth quarter of 2016 as we begin to receive work orders under a new program with a major carrier in the fourth quarter of 2016.

“We see the Dycom sale as an important step in Goodman’s strategic plan to refocus the business and de-lever our financial position,” stated Ron Hill, Goodman Networks’ executive chairman and chief executive officer. “The sale will allow us to be more laser-like in our execution and growth of our Field Services and Professional Services business. We plan to capitalize on the growth opportunities in the marketplace and re-build Goodman’s top line in each of these segments.”


Overall gross profit of $12.1 million was relatively flat for the three months ended June 30, 2016 when compared to the same period in the prior year. Gross margin for the three months ended June 30, 2016 of 13.3% decreased from 15.3% from the same period in 2015, primarily due to increased costs within our Field Services segment due to costs incurred to increase our technician workforce to support increased demand. Gross profits for the six months ended June 30, 2016 increased by $4.4 million to $28.0 million from $23.6 million for the same period in the prior year. The increase was due primarily to increased volume in the Field Services segment and the increase in gross margin in the Professional Services segment.

Gross profit for our Field Services segment of $10.4 million for the three months ended June 30, 2016, was relatively flat compared to gross profit of $10.7 million for the same period in 2015. Gross margin for the three months ended June 30, 2016 of 13.2% declined from 17.7% from the same period in 2015. Gross profit of $24.4 million for the six months ended June 30, 2016 increased $2.7 million from $21.7 million for the same period in the prior year while our Field Services margins declined from 18.2% to 16.1%. The decline in gross margin was primarily attributable to training and traveling costs for our newly hired technicians.

Gross profit for the Professional Services segment of $1.2 million for the three months ended June 30, 2016 was relatively flat compared to $1.3 million for the same period in 2015. Gross margin for the three months ended June 30, 2016 increased to 12.2%, from 7.9% during the same period in 2015. Gross profit for the Professional Services segment of $3.3 million for the six months ended June 30, 2016 increased by $2.3 million from $1.0 million for the same period in the prior year. Gross margins for the six months ended June 30, 2016 increased from 3.5% to 13.6% primarily due to a shift in our project mix to those with higher margins and cost cutting initiatives implemented through the 2014 Restructuring Plan.

Infrastructure Services gross margin for the three months ended June 30, 2016 of 18.7% increased from 10.5% during the same period in 2015. Gross Margins for the six months ended June 30, 2016 increased from 7.4% to 14.7%. Infrastructure Services margins increased for the three and six months ended June 30, 2016 despite our closure of the Sprint decommissioning iDEN program and incurrence of costs in preparation for the start of a Sprint WIMAX decommissioning program in the second quarter of 2016.

Loss from continuing operations was $21.5 million and $31.7 million for the three and six months ended June 30, 2016, respectively, compared to a loss from continuing operations of $19.2 million and $49.4 million for the three and six months ended June 30, 2015, respectively.

Adjusted EBITDA from continuing operations was $1.5 million for the three months ended June 30, 2016, compared to ($1.7) million from the same period in 2015. Adjusted EBITDA from continuing operations for the six months ended June 30, 2016 was $4.9 million compared to ($9.3) million for the same period in 2015.

Summary financial statements for the three and six months ended June 30, 2016 are included in Exhibit A to this earnings announcement.


Results for the three and six months ended June 30, 2015 and 2016 (dollars in thousands)

 

     Three Months Ended June 30,           Six Months Ended June 30,        
     2015        2016          2015        2016     
            
     Amount        Amount        Change  ($)      Amount        Amount        Change  ($) 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Revenues:

            
            

Field Services

   $ 60,356      $ 78,664      $ 18,308      $ 119,215      $ 151,200      $ 31,985   

Professional Services

     16,483        10,030        (6,453     30,404        24,417        (5,987

Infrastructure Services

     4,328        2,187        (2,141     11,378        2,240        (9,138
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     81,167        90,881        9,714        160,997        177,857        16,860   

Cost of revenues:

            
            

Field Services

     49,689        68,245        18,556        97,483        126,810        29,327   

Professional Services

     15,189        8,804        (6,385     29,352        21,104        (8,248

Infrastructure Services

     3,872        1,780        (2,092     10,540        1,911        (8,629
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of revenues

     68,750        78,829        10,079        137,375        149,825        12,450   

Gross profit:

            

Field Services

     10,667        10,419        (248     21,732        24,390        2,658   

Professional Services

     1,294        1,226        (68     1,052        3,313        2,261   

Infrastructure Services

     456        407        (49     838        329        (509
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total gross profit

     12,417        12,052        (365     23,622        28,032        4,410   
            
            

Gross margin as percent of segment revenues:

            

Field Services

     17.7     13.2       18.2     16.1  

Professional Services

     7.9     12.2       3.5     13.6  

Infrastructure Services

     10.5     18.6       7.4     14.7  
  

 

 

   

 

 

     

 

 

   

 

 

   

Total gross margin

     15.3     13.3       14.7     15.8  

Other Services

     —          0.0        

Selling, general and administrative expenses

     17,755        12,943        (4,812     41,074        27,490        (13,584

Restructuring expense

     2,262        906        (1,356     7,643        1,400        (6,243

Impairment expense

     500        8,687        8,187        2,142        8,767        6,625   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (8,100     (10,484     (2,384     (27,237     (9,625     17,612   

Other (income) loss

     —          —          —            —          —     

Interest income

     (37     (41     (4     (73     (80     (7

Interest expense

     11,090        11,051        (39     21,945        22,068        123   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income taxes

     (19,153     (21,494     (2,341     (49,109     (31,613     17,496   

Income tax expense

     30        27        (3     340        66        (274
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss from continuing operations

     (19,183     (21,520     (2,337     (49,449     (31,679     17,770   

Discontinued operations, net of income taxes

     9,435        (723     (10,158     11,176        (1,551     (12,727
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (9,748   $ (22,243   $ (12,495   $ (38,273   $ (33,230   $ 5,043   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

SG&A expense of $12.9 million for the three months ended June 30, 2016 decreased by $4.8 million from $17.8 million for the same period in the prior year. SG&A expense of $27.5 million for the six months ended June 30, 2016 decreased $13.6 million from $41.1 million for the same period in the prior year. The SG&A expense reduction was primarily related to the execution of our 2014 restructuring plan including the full integration of the support functions of our acquired entities. Following the closure of our sale of certain assets to Dycom, management is assessing current SG&A expense to ensure it aligns with the ongoing business.

We recorded a non-cash impairment charge of $8.7 million in the three months ended June 30, 2016 due to the impairment of goodwill related to our Core Network Deployment (“CND”) reporting unit within our Professional Services segment. The determination to test for goodwill impairment prior to our October 1st impairment dates was based on certain indicators of impairment, including the reduction in backlog for enterprise customers as a result of current market conditions.


The goodwill associated with the CND reporting unit was recorded as part of purchase accounting in connection with the 2013 acquisition of Custom Solutions Group of Cellular Specialties, Inc. which a contingent liability was initially established that expired unpaid in March 2016.

Net interest expense of $11.0 million and $21.9 million for the three and six months ended June 30, 2016, respectively, remained flat with a decrease of $0.04 million and $0.1 million compared to the three and six months ended June 30, 2015, respectively.

Net cash used in continuing operating activities was $30.4 million for six months ended June 30, 2016 compared to $33.5 million for the same period in the prior year. The decrease in the use of cash was primarily due to a decrease in our loss from continuing operations after adjustments for non-cash items offset by the increase in accounts receivable. Capital spending was $1.2 million for the six months ended June 30, 2016 compared to $1.5 million for the same period in the prior year. Cash provided by financing activities for the six months ended June 30, 2016 of $12.5 million increased from cash used in financing activities of $4.5 million in the six months ended June 30, 2015. The change was primarily related to a $4.0 million payment on a guarantee in the six months ended June 30, 2015 and borrowings on our line of credit in June 2016. As of June 30, 2016, cash on hand was $25.0 million and we ended the quarter with additional borrowing capacity on our credit facility of $14.3 million, representing total net liquidity of $29.3 million.

Goodman Networks Conference Call Information

Goodman Networks will host a conference call to discuss its financial and operational results at 1:30 PM Central Time (CT) on Monday, August 15, 2016. Dial-in information for the conference call is as follows:

 

Date:    Monday, August 15, 2016
Time:    1:30 PM CT
Call-in number:    (844) 308-5977 or (408) 427-3705
Participant Passcode:    63638959

Please plan on accessing the conference call 5 minutes prior to the scheduled start time. A replay of the call will be available within two hours of completion of the call and accessible for seven days. To listen to a replay of the call, please dial (855) 859-2056 or (404) 537-3406 and use passcode 63638959 prior to 10:59 PM CT on Monday, August 22, 2016.

About Goodman Networks Incorporated

Goodman Networks is a leading provider of field services to the satellite television industry and network infrastructure and professional services to the wireless telecommunications industry. Additional information can be found at www.goodmannetworks.com.

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 ability to manage or refinance our substantial level of indebtedness and our ability to generate sufficient cash to service our indebtedness, our reliance on one customer for the vast majority of our revenues, our ability to maintain a level of service quality satisfactory to this customer across a broad geographic area, 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, our ability to weather business and economic conditions and trends affecting our customers and the cyclical nature of the telecommunications and subscription television service industries, 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

EBITDA represents net income from continuing operations before income tax expense, interest income and expense, 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 also present Adjusted EBITDA, which is defined by the Company, as EBITDA plus (i) share-based compensation; (ii) certain restructuring fees and expenses; (iii) impairment charges recognized on our long-lived assets; (iv) fees and expense related to the issuance of equity of equity and debt and (v) transaction fees and expenses related to acquisitions and dispositions.

In previous presentations of Adjusted EBITDA, we adjusted for amortization of debt issuance costs. We have determined to stop making such adjustment to Adjusted EBITDA as we do not believe this gives an accurate reflection of the business. Adjusted EBITDA is not a measurement under GAAP and may not be used in the same way by other companies. Management believes that Adjusted EBITDA is an important part of our Company’s internal reporting and is a key measure used by management to evaluate profitability and operating performance of the Company. Management also uses Adjusted EBITDA to compare the Company’s performance to that of its competitors and to eliminate certain non-cash and non-operating items in order to consistently measure from period to period its ability to fund capital expenditures, fund growth, service debt and determine bonuses.

Adjusted EBITDA excludes non-cash impairment charges and non-cash stock compensation expense because of the non-cash nature of these items. Adjusted EBITDA excludes net other expense because these items are not related to the primary operations of the Company.

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

 

     Three Months Ended
June 30,
     Six Months Ended
June 30,
 
     2015      2016      2015      2016  

EBITDA and Adjusted EBITDA:

           

Loss from continuing operations

     (19,183      (21,520    $ (49,449    $ (31,679

Income tax expense

     30         27         340         66   

Interest expense, net

     11,053         11,010         21,872         21,988   

Depreciation and amortization

     2,644         1,754         5,268         3,137   
  

 

 

    

 

 

    

 

 

    

 

 

 

EBITDA from continuing operations

     (5,456      (8,729      (21,969      (6,488

Share-based compensation

     968         191         2,930         735   

Restructuring expense

     2,262         906         7,643         1,400   

Asset impairments

     500         8,687         2,142         8,767   

Debt restructuring fees

     —           457         —           457   
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted EBITDA from continuing operations

   $ (1,726    $ 1,512       $ (9,254    $ 4,871   
  

 

 

    

 

 

    

 

 

    

 

 

 


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 June 30, 2016 was $639.7 million.

Goodman Networks Contact:

 

Investor Relations:   Joy L. Brawner
  Chief Financial Officer
  jbrawner@goodmannetworks.com
  (972) 421-5739


Exhibit A

Goodman Networks Incorporated

Consolidated Balance Sheets

(In Thousands, Except Share Amounts and Par Value)

(Unaudited)

 

     December 31, 2015     June 30, 2016  

Assets

    

Current Assets

    

Cash

   $ 39,832      $ 25,003   

Accounts receivable, net of allowances for doubtful accounts of $107 at December 31, 2015 and $110 at June 30, 2016

     21,179        30,246   

Unbilled revenue on completed projects

     695        596   

Costs in excess of billings on uncompleted projects

     3,428        5,020   

Inventories

     10,175        9,428   

Prepaid expenses and other current assets

     3,147        3,284   

Assets held for sale

     41,749        34,970   

Income tax receivable

     204        204   
  

 

 

   

 

 

 

Total current assets

     120,409        108,751   

Property and equipment, net of accumulated depreciation of $30,140 at December 31, 2015 and $20,941 at June 30, 2016

     19,036        18,140   

Deposits and other assets

     2,357        2,901   

Insurance collateral

     15,035        14,741   

Intangible assets, net of accumulated amortization of $14,508 at December 31, 2015 and $15,767 at June 30, 2016

     14,412        13,153   

Long-term assets held for sale

     4,131        —     

Goodwill

     67,296        58,648   
  

 

 

   

 

 

 

Total assets

   $ 242,676      $ 216,334   
  

 

 

   

 

 

 

Liabilities and Shareholders’ Deficit

    

Current Liabilities

    

Line of credit

   $ —        $ 12,825   

Accounts payable

     23,748        24,487   

Accrued expenses

     54,190        50,608   

Income taxes payable

     311        114   

Billings in excess of costs on uncompleted projects

     2,930        2,028   

Deferred revenue

     2,295        1,541   

Liabilities related to assets held for sale

     28,337        23,480   

Deferred rent

     51        19   

Current portion of capital leases

     775        728   
  

 

 

   

 

 

 

Total current liabilities

     112,637        115,830   

Notes payable, net of deferred financing cost

     315,748        317,551   

Capital lease obligations

     400        158   

Long-term liabilities held for sale

     325        —     

Accrued expenses, non-current

     6,842        7,473   

Deferred revenue, non-current

     8,973        10,061   

Deferred tax liability

     1,714        1,714   

Deferred rent, non-current

     168        167   
  

 

 

   

 

 

 

Total liabilities

     446,807        452,954   

Shareholders’ Deficit

    

Common stock, $0.01 par value, 10,000,000 shares authorized; 1,029,072 issued and 912,754 outstanding at December 31, 2015 and June 30, 2016

     10        10   

Treasury stock, at cost, 116,318 shares at December 31, 2015 and June 30, 2016

     (11,756     (11,756

Additional paid-in capital

     25,914        26,649   

Accumulated other comprehensive income

     18        24   

Accumulated deficit

     (218,317     (251,547
  

 

 

   

 

 

 

Total shareholders’ deficit

     (204,131     (236,620
  

 

 

   

 

 

 

Total liabilities and shareholders’ deficit

   $ 242,676      $ 216,334   
  

 

 

   

 

 

 


Goodman Networks Incorporated

Consolidated Statements of Operations

(In Thousands)

(Unaudited)

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2015     2016     2015     2016  

Revenues

   $ 81,167      $ 90,881      $ 160,997      $ 177,857   

Cost of revenues

     68,750        78,829        137,375        149,825   
  

 

 

   

 

 

   

 

 

   

 

 

 

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

     12,417        12,052        23,622        28,032   

Selling, general and administrative expenses

     17,755        12,942        41,074        27,490   

Restructuring expense

     2,262        906        7,643        1,400   

Impairment expense

     500        8,687        2,142        8,767   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating loss

     (8,100     (10,483     (27,237     (9,625

Interest expense, net

     11,053        11,010        21,872        21,988   
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income taxes and discontinued operations

     (19,153     (21,493     (49,109     (31,613

Income tax expense

     30        27        340        66   
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from continuing operations before discontinued operations

     (19,183     (21,520     (49,449     (31,679
  

 

 

   

 

 

   

 

 

   

 

 

 

Discontinued operations, net of income taxes

     9,435        (723     11,176        (1,551
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (9,748   $ (22,243   $ (38,273   $ (33,230
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income:

     26        5        26        9   
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive loss

   $ (9,722   $ (22,238   $ (38,247   $ (33,221
  

 

 

   

 

 

   

 

 

   

 

 

 


Goodman Networks Incorporated

Consolidated Statements of Cash Flows

(In Thousands)

 

     Six Months Ended June 30,   
     2015     2016  

Operating Activities

    

Net loss

   $ (38,273   $ (33,230

Net income (loss) from discontinued operations

     (11,176     1,551   

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

    

Depreciation and amortization of property and equipment

     2,360        1,878   

Amortization of intangible assets

     2,908        1,259   

Amortization of debt discounts and deferred financing costs

     1,797        1,803   

Impairment charges

     2,142        8,767   

Change in estimate of doubtful accounts

     (176     573   

Deferred tax expense

     279        —     

Share-based compensation expense

     3,361        735   

Change in fair value of contingent consideration

     (726     —     

Disposal on property and equipment

     —          61   

Changes in:

    

Accounts receivable

     (219     (9,640

Unbilled revenue

     959        99   

Costs in excess of billings on uncompleted projects

     62        (1,592

Inventories

     1,098        747   

Prepaid expenses and other assets

     (4,424     (387

Accounts payable and other liabilities

     4,844        (2,213

Income taxes payable / receivable

     (1,590     (197

Billings in excess of costs on uncompleted projects

     (208     (902

Deferred revenue

     3,566        334   

Deferred rent

     (38     (33
  

 

 

   

 

 

 

Net cash used in continuing operating activities

     (33,454     (30,387
  

 

 

   

 

 

 

Net cash provided by discontinued operating activities

     17,094        4,733   
  

 

 

   

 

 

 

Net cash used in operating activities

     (16,360     (25,654
  

 

 

   

 

 

 

Investing Activities

    

Purchases of property and equipment

     (1,535     (1,162

Proceeds from the sale of property and equipment

     11        —     

Change in due from shareholders

     2        —     
  

 

 

   

 

 

 

Net cash used in continuing investing activities

     (1,522     (1,162
  

 

 

   

 

 

 

Net cash used in discontinued investing activities

     (488     (556
  

 

 

   

 

 

 

Net cash used in investing activities

     (2,010     (1,718
  

 

 

   

 

 

 

Financing Activities

    

Proceeds from lines of credit

     380,948        320,172   

Payments on lines of credit

     (380,948     (307,346

Payments on capital leases, notes payable

     (512     (289

Payments on guarantee arrangements

     (4,000     —     
  

 

 

   

 

 

 

Net cash (used in) provided by continuing financing activities

     (4,512     12,537   
  

 

 

   

 

 

 

Net cash (used in) provided by discontinued financing activities

     —          —     
  

 

 

   

 

 

 

Net cash (used in) provided by financing activities

     (4,512     12,537   
  

 

 

   

 

 

 

Effect of exchange rate changes on cash

     28        6   
  

 

 

   

 

 

 

Decrease in cash

     (22,854     (14,829

Cash, Beginning of Period

     76,703        39,832   
  

 

 

   

 

 

 

Cash, End of Period

   $ 53,849      $ 25,003